SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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EnPro Industries, Inc.
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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EnPro Industries, Inc.
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Engineered forPerformance
Proxy Statement and
Notice of 2017 Annual Meeting
of Shareholders
Annual Meeting of Shareholders
The 2017 Annual Meeting of Shareholders of
EnPro Industries, Inc. will be held at:
5605 Carnegie Boulevard, Suite 500The Sanctuary at Kiawah Island
Charlotte, NorthOne Sanctuary Beach Drive
Kiawah Island, South Carolina 28209
on29455
Wednesday, April 30, 201426, 2017 at 11:30 a.m.
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Annual Meeting of Shareholders
The Annual Meeting of Shareholders of
EnPro Industries, Inc. will be held at:
5605 Carnegie Boulevard, Suite 500
Charlotte, North Carolina 28209
on
Wednesday, April 30, 2014 at 11:30 a.m.
Proxy voting options
Your vote is important!
Whether or not you expect to attend in person,our shareholder’s meeting, we urge you to vote your sharesshares. You may vote by phone, via the Internet, or by signing, dating, and returning the enclosed proxy card or voting instruction form at your earliest convenience. ThisYour prompt vote will ensure the presence of a quorum at the meeting. Promptly voting your sharesmeeting and will save us the expense and extra work of additional solicitation. SubmittingIf you vote now and later decide to change your proxy now will not prevent you from votingvote or to vote your stockshares at the meeting, if you desire tomay do so as yourby following instructions found elsewhere in this proxy statement. Your vote by proxy is revocable at your option.option any time prior to the meeting.
VotingThe fastest and most convenient way to vote your shares is by the Internet or telephone, is fastusing the instructions on this page. Internet and convenient, your vote istelephone votes are immediately confirmed and tabulated, and ourreduce postage and proxy tabulation costs are reduced.costs.
If you prefer you canto vote by mail, by returningplease return the enclosed proxy card or voting instruction form in the addressed, prepaid envelope we have provided.
Please do Do not return the enclosed paper ballot if you are votingvote via the Internet or by telephone.
Vote by Internet
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Instructions:
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3. | Have your proxy card or voting instruction form in hand and follow the instructions. You can also register to receive all future shareholder communications electronically, instead of in print. |
Vote by telephone
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Telephonic voting is available toll-free 24 hours a day, / 7 days a weekweek.
Instructions:
1. | Read |
2. | Call toll-free |
3. | Have your proxy card or voting instruction form in hand and follow the instructions. |
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5605 Carnegie Boulevard, Suite 500
Charlotte, North Carolina 28209
Letter from our President and Chief Executive Officer
Dear Shareholder:
On behalf of the board of directors and management of EnPro Industries, Inc., I invite you to our annual meeting of shareholders. The meetingIt will be held at the company’s headquarters locatedThe Sanctuary at 5605 Carnegie Boulevard, Suite 500, Charlotte, NorthKiawah Island, One Sanctuary Beach Drive, Kiawah Island, South Carolina 29455, on Wednesday, April 30, 201426, 2017 at 11:30 a.m.
This year, our shareholders will be asked to:
The business of the meeting, including each of the six proposals you are being asked to vote on, is described in detail in the attached Notice of Annual Meeting of Shareholders and Proxy Statement contain details of the business to be conducted at the annual meeting.which follows.
Whether or not you attend the annual meeting, it is important that your shares be represented and voted at the meeting. Therefore, I urge you to promptlyPlease vote andpromptly. You may submit your proxy via the Internet, by phone, or by signing, dating, and returning the enclosed proxy card in the enclosed envelope. If you attend the Annual Meeting, you will be able to vote in person, even if you have previously submitted your proxy.
Sincerely,
Stephen E. Macadam
President and Chief Executive Officer
March 20, 201423, 2017
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5605 Carnegie Boulevard, Suite 500
Charlotte, North Carolina 28209
Notice of 20142017 Annual Meeting of Shareholders
Date: | April |
Time: | 11:30 a.m. Eastern Time |
Place: |
Charlotte, NorthOne Sanctuary Beach Drive
Kiawah Island, South Carolina 2820929455
Record date: | March |
Proxy voting: | Important. Please vote your shares at your earliest convenience. This will ensure the presence of a quorum at the meeting. Promptly voting your shares via the Internet, by telephone, or by signing, dating, and returning the enclosed proxy card or voting instruction form will save the expenses and extra work of additional proxy solicitation. If you wish to vote by mail, we have enclosed an addressed envelope, postage prepaid if mailed in the United States. Submitting your proxy now will not prevent you from voting your shares at the |
Items of business: | • | To elect |
To adopt a resolution approving, on an advisory basis, the compensation paid to our named executive officers as disclosed in the accompanying proxy statement
To select, on an advisory basis, the frequency of future shareholder advisory votes to approve an amendment and restatementthe compensation of our Amended and Restated 2002 Equity Compensation Plan
To transact other business that may properly come before the annual meeting or any adjournment of the meeting
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD ON APRIL 30, 2014:26, 2017:The proxy statement and 20132016 annual report to shareholders are available at:http://2014annualmeeting.enproindustries.comwww.enproindustries.com/shareholder-meeting.
By Order of the Board of Directors,
Robert S. McLean
Secretary
March 20, 201423, 2017
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EnPro Industries, Inc.
2014 Proxy Statement
2017 Proxy Statement |
This summary highlights information contained elsewhere in thisour proxy statement. ThisBecause the summary does not contain all of the information you should consider, and you should read the entire proxy statement carefully before voting.
Annual meeting of shareholders
Time, Place and Voting Matters
Date: | April | |
Time: | 11:30 a.m. Eastern Time | |
Place: | The Sanctuary at Kiawah Island One Sanctuary Beach Drive Kiawah Island, South Carolina | |
Record date: | March | |
Voting: | Shareholders as of the record date are entitled to vote. Each share of common stock is entitled to one vote for each director nominee and one vote for each of the proposals to be voted on. |
Meeting agenda
Voting recommendations
| Board vote recommendation | |
Election of directors (see page 13) | ||
Advisory vote to approve executive compensation (see page 54) | “For” | |
Advisory vote to select the frequency of future shareholder advisory votes to approve executive (see page 56) | For every “1 Year” | |
Approval our amended and restated Senior Executive Annual Performance Plan as described in this proxy statement (see page 57) | “For” | |
Approval of | ||
Ratification of PricewaterhouseCoopers LLP as our independent registered public accounting firm for |
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Our director nominees
See “Proposal 1 — Election of directors” (page 13) and “Corporate governance policies and practices” (page 19) for more information.
The followingboard of directors recommends that you vote “For” each nominee listed in the table below, which provides summary information about each director nominee. A full description of each nominee’s skills and qualifications begins on page 14. Each director is elected annually.
Current director, Gordon D. Harnett, who serves as Chairman of the Board of Directors and chairs the Nominating Committee, will be retiring from the board of directors at the annual meeting, at which time the size of the board of directors will be reduced from nine to eight.
Name | Age | Director since | Occupation | Inde- pendent | Other public | Committee memberships | Age | Director | Occupation | Inde- | Other public boards | Committee memberships | ||||||||||||||||||||||||||||||||
AC | CC | NC | EC | AC | CC | NC | EC | |||||||||||||||||||||||||||||||||||||
Stephen E. Macadam | 53 | 2008 | President and CEO, EnPro | 1 | C | 56 | 2008 | President and CEO, EnPro | No | 1 | C | |||||||||||||||||||||||||||||||||
Thomas M. Botts | 59 | 2012 | Retired Executive VP, Global Manufacturing, Shell Downstream Inc. | — | 1 | M | M | M | 62 | 2012 | Retired Executive VP, Global Manufacturing, Shell Downstream Inc. | Yes | 1 | M | C | M | M | |||||||||||||||||||||||||||
Peter C. Browning | 72 | 2002 | Managing Director, Peter C. Browning & Assocs.; Former Dean, McColl School of Business, Queens University | — | 3 | M | C | M | M | |||||||||||||||||||||||||||||||||||
Felix M. Brueck | 58 | 2014 | Director Emeritus, McKinsey & Company, Inc. | — | — | M | M | M | 61 | 2014 | Director Emeritus, McKinsey & Company, Inc. | Yes | — | M | M | M | ||||||||||||||||||||||||||||
B. Bernard Burns, Jr. | 65 | 2011 | Managing Director, McGuire Woods Capital Group | — | — | M | M | M | 68 | 2011 | Managing Director, McGuire Woods Capital Group | Yes | — | M | M | M | ||||||||||||||||||||||||||||
Diane C. Creel | 65 | 2009 | Retired Chairman, CEO and President, Ecovation, Inc. | — | 2 | M | M | M | 68 | 2009 | Retired Chairman, CEO and President, Ecovation, Inc. | Yes | 2 | M | M | M | ||||||||||||||||||||||||||||
Gordon D. Harnett* | 71 | 2002 | Former Chairman and CEO, Materion Corporation | — | 2 | M | M | C | M | |||||||||||||||||||||||||||||||||||
David L. Hauser | 62 | 2007 | Former Chairman and CEO, FairPoint Communications | — | — | C,F | M | M | 65 | 2007 | Former Chairman and CEO, FairPoint Communications | Yes | 1 | C | M | M | M | |||||||||||||||||||||||||||
John Humphrey | 51 | 2015 | Executive Vice President and Chief Financial Officer of Roper Technologies, Inc. | Yes | — | M,F | M | M | ||||||||||||||||||||||||||||||||||||
Kees van der Graaf | 64 | 2012 | Former member of the board and executive committee, Unilever NV and Unilever PLC | — | 2 | M | M | M | 66 | 2012 | Former member of the board and executive committee, Unilever NV and Unilever PLC | Yes | 2 | M | M | M |
AC — Audit and Risk Management Committee
CC — Compensation and Human Resources Committee
NC — Nominating and Corporate Governance Committee
EC — Executive Committee
C — Chair
M — Member
F — Financial expert
Our nominees’ experience and qualifications
Our board of directors and its Nominating and Corporate Governance Committee believe broad and diverse experience and varying lengths of tenure are critical elements of a highly functioning board. The board’s experience enables it to make sound decisions that
support shareholder value, while the varying tenures of its members provide a balance of institutional knowledge and fresh perspectives. The following charts reflect the tenure, experience and qualifications of the nominees for election as directors.
Tenure of Director Nominees
Director Nominee Experience and Qualifications
Experience/Qualifications | Botts | Brueck | Burns | Creel | Hauser | Humphrey | Macadam | van der Graaf | ||||||||
Finance/Accounting | ✓ | ✓ | ✓ | ✓ | ✓ | |||||||||||
Government/Regulatory | ✓ | ✓ | ✓ | |||||||||||||
Legal/Corporate Governance | ✓ | ✓ | ✓ | ✓ | ||||||||||||
Human | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ||||||||||
International Experience | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ||||||||
M&A/Business Development | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | |||||||||
Manufacturing/Operations | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ||||||||||
Sales/Marketing | ✓ | ✓ | ✓ | |||||||||||||
Strategic Planning | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ||||||||
Technical Innovation/Product Development | ✓ | ✓ | ✓ |
Corporate governance matters
Our board of directors and management firmly embrace good and accountable corporate governance andgovernance. We believe that an attentive performing board, is a tangible competitive advantage. To that end, the board has undertaken substantial effortsheld to ensure the highest standards of corporate governance.governance, is a tangible advantage for our shareholders and for our businesses. Our board makes substantial efforts to meet such standards.
We elect all directors annually toone-year terms.Annual elections allow shareholders to review each director’s skills and experience and approve his or her nomination at each annual meeting.
Our directors must be elected by majority vote. Any nominee in an uncontested election who receives more “withhold” votes than votes “for” must promptly offer his or her resignation. The Nominating and Corporate Governance Committee will consider the resignation and recommend either accepting it or rejecting it to the board, which will act within 90 days after the shareholders’ meeting. The resigning director will not participate in these discussions.
The chairman of our board of directors is independent. The position of Chairman of the Board of Directors at EnPro Industries is anon-executive position. An independent director has held this position since the inception of our company in 2002.
Our CEO is the only EnPro employee on our board. Our Chief Executive Officer is normally the only employee
who serves as a director. No employee except the Chief Executive Officer has ever been a member of our board.
Our independent directors meet regularly in executive session.Ournon-management directors meet regularly without members of management present. These sessions are presided over by the Chairman of the Board of Directors.
Our directors are required to own our company’s stock.Our directors are required to own shares in our company equal in value to five times the annual cash retainer they receive. New directors have five years from the time they join the board to accumulate these shares. All current directors who have served on the board for at least five years meet this requirement.
Board refreshment balances experience with fresh insights. We seek to balance directors who know and understand our company with those who bring fresh perspectives to governance and management. The average tenure of our independent directors is 4.6 years.
The board and each committee perform comprehensive annual evaluations. Evaluations allow our directors to assess their effectiveness at both the committee and the board level and include an individual director assessment component to permit each director to evaluate the contributions of each of the other directors.
Executive compensation matters
SeeFor more information, see “Compensation discussion and analysis,” (page 26) “Executive compensation” (page 41) and “Proposal 2 — Advisory vote approving executive compensation” for more information.(page 54).
Our board of directors recommends that you vote “For” our advisory proposal on executive compensation. Thenon-binding, advisory vote gives our shareholders votethe opportunity to approve on a non-binding basis, the compensation paid to our company’sindividuals identified as named executive officers as reported in this proxy statement.
We provide the following summary of our executive compensation practices and our 2013 business accomplishments in support of the board’s recommendation.
Our compensation practices
Our programs are designed to reward success
We designOur compensation programs enable us to align the interests of our executive officer compensation programsofficers with the interests of our shareholders and to reward our executives for superior performance. This practice allows us to attract motivate, and retain talented and highly motivated executive officers who are capable of driving our success and building value for our shareholders.
Our executive officers’ compensation:
• | Is tied to business performance. As an executive officer’s level of responsibility increases, a higher percentage of the officer’s total compensation opportunity is based on our financial performance; |
• | Is significantly stock-based. Stock-based compensation ensures our executives and our shareholders have common interests; |
• | Vests over several years.Vesting a meaningful portion of our executives’ total compensation over a period of years aligns their interests with the long-term interests of our shareholders and is a useful tool in retaining talented employees; |
• | Is linked to execution of our corporate strategies. Linking a significant portion of our executives’ total pay to the successful execution of our strategies provides an incentive to achieve our objectives for increasing shareholder value; |
• | Allows our executives the opportunity to earn competitive total pay; and |
• | Encourages sound decisions that lead to long-term success and avoid unnecessary or excessive risk. |
In structuring annual and long-term incentive compensation opportunities, we select performance measures that we believe significantly drive the keyvalue of our company. For awards made in 2016, we selected a combination of incentive performance measures that focus on driving operating earnings and rewarding the appropriate use of capital, and include a relative shareholder return measure to evaluate our performance relative to a peer group. We set goals against these measures and make little or no payment for poor performance against our goals, though our executives who drive our success. Our objective iscan earn significant payment relative to establish pay practices that reward themtheir salary levels for superior performance against them. We make annual awards of restricted stock units which vest after three
years, both to encourage retention and align their interests as managersto provide an incentive for performance to increase the value of our companyshares.
While we generally set measures based on company-wide performance (and for this purpose we include ourde-consolidated Garlock Sealing Technologies LLC (“GST”) subsidiary in our results as if it were reconsolidated), for annual incentive awards to divisional personnel, 75% of the award is based on the respective division’s performance with the long-termremaining 25% is based on company-wide performance. We believe that this weighting toward divisional performance not only improves theline-of-sight for the incentives to employees in our divisions, but appropriately recognizes and rewards collaboration of divisional personnel across the company.
We believe our compensation structure aligns with the interests of our shareholders.
We achieve our objectives through compensation that:
is primarily performance based, with the percentage of an executive officer’s total compensation opportunity that isshareholders and results in payment based on our financial performance increasing with the officer’s level of responsibility;performance.
is significantly stock-based in order to ensure our executives have common interests with our shareholders;
enhances retention of our executives by subjecting much of their total compensation to multi-year vesting;
links a significant portion of total pay to the execution of strategies intended to create long-term shareholder value;
provides our executives with an opportunity for competitive total pay; and
does not encourage our executives to take unnecessary or excessive risks.
We have engagedroutinely engage with our shareholders and made changes in 2013 to addresshave addressed their concerns about our compensation programs
Prior to making executive compensation decisions for 2013,Through the course of each year, we engaged in a wide-ranging dialoguehave dialogues with numerous shareholders, which includedincluding regular conversations with many of our largest shareholders. Although from this dialogue we concluded that there was no consensus amongWe cover a wide range of topics in these discussions, including executive compensation. In these conversations, our shareholders for any specific changegenerally support our pay practices and strategic direction. We take their views into account as we seek to the design ofalign our compensation program, we carefully considered the diverse views expressed by shareholders who provided uspolicies and practices with feedback. We made several changes to our 2013 compensation program, including the following:their interests.
we fundamentally changed the design of our long-term incentive compensation plan to set an enduring
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we raised stock ownership and retention requirements not only for our executive officers, but for all senior leaders;
we adjusted our long-term compensation program to make a greater proportion payable in our stock rather than in cash; and
we modified the composition of the peer group used for compensation benchmarking purposes to include companies whose sizes and products are more comparable to those of EnPro.
At our 2013 annual meeting, shareholders approved (by a vote of 96.8% of shares voted for or against) the resolution approving, on an advisory basis, the compensation paid to our company’s named executive officers.
We employ best practices in executive compensation
a policy requiring executivesconsultant to own stock inevaluate our company, with ownership requirements increasing with levels of responsibility;
a policy prohibiting
no separate retirement plans for our CEO;
the use by our Compensation and Human Resources Committee of an independent executive compensation consultant which reports directly to that committee and does not provide any services to our company other than the assistance that it provides to that committee;
no special perquisites for any employee; and
aOur clawback policy for the recovery ofentitles us to recover performance-based compensation in the event anfrom any executive officer engages inwhose fraud or willful misconduct that caused, directly or indirectly, the need forrequires a material restatement of our financial results.
Our 2013 accomplishments
We were challenged to maintain our objectives for growth in 2013 as activity in many of our markets slowed compared to activity in 2012. In this environment, we sought to maintain a stable operating base that will enable us to take advantage of improving conditions as they arise in the future. Several accomplishments helped us achieve our goal.
We built on the advantages brought to us by businesses we acquired in previous years. Acquisitions enable us to grow in the semiconductor, aerospace, water and waste water, upstream oil and gas, and heavy-duty trucking markets and expand our
Changes in 2016
We made the following changes to our compensation program in 2016:
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Our accomplishments in 2013 were reflected in our share price, which improved 41% during the course of the year compared to a 29.6% improvement in the Standard & Poor’s 500 Index and a 37% improvement in the Russell 2000 Index. In 2014, our share price has increased even more, following the announcement of the judge’s opinion in GST LLC’s asbestos claims resolution process. Our $71.63 closing share price as of February 28, 2014 represents a 24.2% increase from its closing price on December 31, 2013, compared to an average decline of 1.1% among the peer group of companies listed on page 32 of this proxy statement.
We pay for performance
• | Reduced the portion of long-term compensation awarded as restricted stock units from 40% to 33 1/3%; |
• | Provided for “double triggers” forchange-in-control vesting for new long-term incentive and equity awards; and |
• | Increased the weighting of divisional performance for annual incentive awards to divisional personnel. |
Compensation analysis
Our compensation program allowsties incentive compensation pay to the achievement of both annual and long-term goals for the performance of our Compensationcompany. We set these goals each year and Human Resourcestie both annual and three-year incentive awards to achieving them. We make little or no incentive compensation payment for poor performance against our goals, but our executives can earn significant
payment relative to their salary levels for superior performance against them.
When 2016 annual operating performance goals were set, we anticipated a continuation of economic trends that had adversely affected a number of the markets we serve, particularly oil and gas, trucking and metals and mining. The Committee established target corporate performance levels for 2016 that it considered aggressive in light of the circumstances. The extent of the adverse trends during 2016 was greater than we had expected. Nearly all of the markets that we serve saw negative year-over-year trends, and our sales have closely tracked those trends. As a result, the boardyear did not progress as we had expected and payouts for corporate-level annual performance awards were only 80.8% of directors to determine paythe target amount.
For the long-term incentive compensation awards for the 2014-2016 performance cycle, we established absolute goals for growth of equity value above targeted returns and calculated equity value based on a comprehensive viewmultiple of factors designedadjusted EBITDA. Our ability to produce long-term business success. The correlation betweengrow adjusted EBITDA is dependent in part on economic conditions in the markets we serve, which, with limited exceptions, have been sluggish during the three-year measurement period for these awards. Principally as a result of these economic conditions, we were unable to achieve growth in adjusted EBITDA at a rate sufficient to trigger any payout for these awards.
As a result, the incentive award payouts to our financial resultsCEO were 74% lower for 2016 than for 2015, and the compensation awarded to executive officers demonstrates the success of this approach.
The following chart sets forth thehis total compensation, as reported in the summary compensation table in our annual proxy statements, paidSummary Compensation Table included on page 41, was 21% lower for 2016 compared to our Chief Executive Officer for each of the full years he has served as our CEO in comparison to the improvement in our earnings before interest, taxes, depreciation, amortization
expense, asbestos expense and other selected items (or, adjusted EBITDA-A). Adjusted EBITDA-A is a primary metric we use to evaluate our performance and one used in determining annual and long-term incentive compensation during this period.
Because a significant component of the CEO’s total compensation opportunity is long-term cash incentive compensation based on performance over a three-year cycle, the correlation for any single year may be skewed. For 2013, approximately 33% of the CEO’s reported total compensation was long-term cash incentive performance compensation for the three-year cycle ending with 2013.2015.
(Annex AFrequency of shareholder votes to this proxy statement sets forth the calculation of adjusted EBITDA-A, which is not a measure under U.S. generally accepted accounting principles. The financial results of Garlock Sealing Technologies LLC have not been included in our consolidated financial results since June 5, 2010, when GST LLC and certain affiliated companies (which, together with GST LLC, we collectively refer to as “GST”) filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code as the initial step in a process to resolve all current and future asbestos claims. However, because GST LLC continues to be our subsidiary, oversight of this business and its financial results continues to be a responsibility of ourapprove executive officers and the financial measures used under our incentive compensation plans include GST LLC’s results, the performance of this business since June 5, 2010 has been separately included in this chart.)
Amendment and restatement of our equity compensation plan
See “Proposal 3 — ApprovalAdvisory vote on the frequency of an amendment and restatementfuture shareholder advisory votes to approve the compensation of our Amended and Restated 2002 Equity Compensation Plan”named executive officers” (page 56) for more information.
We askUnder the Dodd-Frank Act, we are required to provide shareholders with the opportunity, at least every six years, to cast anon-binding, advisory vote on whether future advisory votes on executive compensation should be held every one year, every two years or every three years. Shareholders last voted on such a proposal at the 2011 annual meeting, and more votes were cast at that meeting in favor of having advisory shareholder votes to approve executive compensation every one year than were cast in favor of any of the other alternatives. Since 2011, we have provided our shareholders an opportunity
at each annual meeting to cast votes on an advisory resolution to approve the amendmentcompensation paid to our named executive officers as disclosed in our proxy statement for that meeting. Our board of directors continues to believe that the frequency of every “1 Year” for the advisory vote on executive compensation is the optimal interval for conducting and restatementresponding to such advisory votes and recommends that you vote for the option of every “1 Year” for the frequency of future advisory votes on executive compensation.
Approval of annual and long-term incentive compensation plans
See “Proposal 4 — Approval of our Amendedamended and Restated 2002 Equity Compensationrestated Senior Executive Annual Performance Plan” (page 57) and Proposal 5 — Approval of our amended and restated Long-Term Incentive Plan” (page 61) for more information.
At the annual meeting, shareholders will be asked to consider and approve in separate votes our amended and restated Senior Executive Annual Performance Plan (the “Equity“Annual Plan”). Awards and our amended and restated Long-Term Incentive Plan (the “LTIP”) which have been established by the Board of Directors for certain executive officers. Under Section 162(m) of the Internal
Revenue Code, as amended (the “Code”), periodic shareholder approval of the Annual Plan and of the LTIP is required to enable us to obtain a tax deduction for awards paid under the Equity Plan may be maderespective plan to any salaried, full-time employee of EnPro or anycertain of our majority-owned subsidiaries or,executive officers whose compensation for the taxable year is in certain circumstances, to our outside directors. The amendment and restatementexcess of $1 million. Our shareholders last approved a version of the EquityAnnual Plan would increaseand the numberLTIP in
2012. The provisions of sharesSection 162(m) of ourthe Code require that the Annual Plan and the LTIP be reapproved by shareholders at least every five years in order for us to continue excluding the amounts paid under the Annual
common stock issuable in connection with awards underPlan and the EquityLTIP from the $1 million deductibility limit. Therefore, shareholders are being requested to again approve the Annual Plan by 900,000 shares. By increasingand the number of shares authorized to be available for delivery under the Equity Plan by 900,000 shares, we would have an aggregate of 1,019,321 shares available for future awards, which would represent approximately 4.3 percent of our fully diluted shares.LTIP.
Auditors
See “Proposal 46 — Ratification of PricewaterhouseCoopers LLP as our company’s independent registered public accounting firm for 2014”2017” and “Independent registered public accounting firm” (page 66) for more information.
We ask that our shareholders to ratify the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2014. Below is summary2017. The information aboutbelow summarizes PricewaterhouseCoopers’ fees for services provided infor calendar years 20132016 and 2012.2015.
Year ended December 31 | 2013 | 2012 | ||||||
Audit fees | $ | 1,875,300 | $ | 1,531,800 | ||||
Audit-related fees | 12,800 | 23,200 | ||||||
Tax fees | — | 1,600 | ||||||
All other fees | 2,000 | 28,700 | ||||||
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Total | $ | 1,890,100 | $ | 1,585,300 | ||||
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2015 annual meeting
Shareholder proposals submitted for inclusion in our 2015 proxy statement pursuant to SEC Rule 14a-8 must be received by us by November 20, 2014. Notice of shareholder proposals, including nominations for election of directors, to be raised from the floor of the
2015 annual meeting of shareholders outside of SEC Rule 14a-8 must be delivered to us no earlier than December 31, 2014 and no later than January 30, 2015.
Year ended December 31 | 2016 | 2015 | ||||||
Audit fees | $ | 2,204,500 | $ | 1,901,600 | ||||
Audit-related fees | 10,600 | 10,600 | ||||||
Tax fees | — | 18,375 | ||||||
All other fees | 2,000 | 2,000 | ||||||
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Total | $ | 2,217,100 | $ | 1,932,575 | ||||
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The enclosed proxy is solicited on behalf of the board of directors of EnPro Industries, Inc., in connection with our 2017 annual meeting of shareholders toshareholders. The meeting will be held on Wednesday, April 30, 2014,26, 2017, at 11:30 a.m. at the company’s headquarters locatedThe Sanctuary at 5605 Carnegie Boulevard, Suite 500, Charlotte, NorthKiawah Island, One Sanctuary Beach Drive, Kiawah Island, South Carolina and at any adjournment or postponement of the meeting.29455. You may use the enclosed proxy card to vote your shares whether or not you attend the meeting. IfPlease vote by following the instructions on the card.
Because your vote is very important, we encourage you are a registered shareholder (that is, you hold shares directly registered in your own name), you may also voteto cast it promptly by telephone or over the Internet, or by following the instructions on your proxy card. If your shares are held through an account maintained by a bank, securities broker or other nominee, which is referred to as holding in “street name,” you will receive separate voting instructions with your proxy materials. Although most brokersdating, signing and nominees offer telephone and Internet voting, availability and specific procedures depend on their voting arrangements.
Your vote is very important. For this reason, we encourage you to date, sign, and returnreturning your proxy card in the enclosed envelope or to castenvelope. Submitting your votes by telephone or over the Internet. Doing so will permitproxy in any of these manners means your shares of our common stock towill be represented at the meetingvoted as you specify by the individuals named on the enclosed proxy card.
This proxy statement contains important information for you to consider when deciding how to vote on the matters brought before the meeting. Please read it carefully.
We are mailing our 20132016 annual report, including financial statements, with this proxy statement to each registered shareholder.all shareholders who hold shares directly in their own names. We will begin mailing materials to these materialsregistered shareholders on or around March 20, 2014. 23, 2017. If you are a beneficial owner whose shares are held in street name in an account at a bank, securities broker or other nominee, you should receive the annual report, proxy statement and a proxy card directly from the nominee.
Any shareholder may receive anrequest additional copycopies of these materials by request tofrom our shareholder relations department. You may reach the shareholder relations department, which can be reached via email toatinvestor@enproindustries.comor by calling704-731-1522.
What is the purpose of the annual meeting?
At our annual meeting, shareholders will act on proposals for the following matters:proposals:
Our board of directors has submitted these proposals. OtherWe are not aware of any other business to be addressed
at the meeting; however, other business may be addressed at the meeting if it properly comes before the meeting. We are not aware of any other business.
Who is entitled to vote at the meeting?
You may vote if you owned EnPro common stock as of the close of business on the record date, March 7, 2014.9, 2017. Each share of common stock is entitled to one vote on each matter considered at the meeting. At the close of business on the record date, 21,901,51521,414,881 shares of EnPro common stock were outstanding and eligible to vote, whichvote. The amount does not include 201,750193,699 shares held by aan EnPro subsidiary. The enclosed proxy card shows the number of shares that you are entitled to vote.
Who can attend the meeting?
All registered shareholdersAnyone who owns shares as of the record date may attend. This includes all registered shareholders (or their duly appointed proxies),representatives) and beneficial owners presenting satisfactory evidence of ownership as of the record date, and ourdate. Our invited guests may also attend the meeting.
Are there any special instructions for attending the meeting?
At the security gate at the entrance of the Kiawah Island property you will be required to inform the security personnel that you plan to attend the EnPro Industries annual meeting of shareholders to be held at The Sanctuary. You will be given a vehicle pass to gain access to the Kiawah Island property that will permit you to park in the parking lots located adjacent to The Sanctuary facility. Signage at The Sanctuary will direct you to the room in which the meeting will be held.
How do I vote?
If you are a registered shareholder, youRegistered shares:Registered shareholders have four voting options:
Even if you plan to attend the meeting, we encourage you to vote your shares by submitting your proxy. If you choose to attendvote your shares at the meeting, please bring proof of stock ownership and proof of identificationyour identity for entrance to the meeting.
Beneficial shares:If you hold your EnPro shares in street name, your ability to vote by Internet or telephone depends on the voting process of the bank, broker or other nominee through which you hold the shares. Please follow their directions carefully. If you want to vote EnPro shares that you hold in street name at the meeting, you must request a legal proxy from your bank, broker or other nominee and present that proxy, together with proof of identification,your identity, for entrance to the meeting.
Every vote is important! Please vote your shares promptly.
How do I vote my 401(k) shares?
ProxiesIf you hold EnPro shares in the company’s 401(k) plan, the plan’s trustee will also serve as voting instructionsvote your shares according to the instructions you provide when you complete and submit the proxy instructions you receive from the plan trustee with respect to shares held in accounts under the EnPro Industries, Inc. Retirement Savings Plan for Salaried Employees and the EnPro Industries, Inc. Retirement Savings Plan for Hourly Employees. manager.
If you participatehold EnPro shares in either of these plans, areboth an EnPro 401(k) plan and in a registered shareholder of record, andaccount outside the plan, accountand if your plan information is the same asmatches the information we have on record with our transfer agent, the enclosedyour registered account, you will receive one proxy card representsrepresenting all of the shares you hold, both within the plan and outside it. own.
If you hold yourEnPro shares outside the plan in street name, or if your planregistered account information is different from theyour plan account information, on record with the transfer agent, then you will receive separate proxies, one for the shares heldyou hold in the plan and one for shares heldyou hold outside the plan.
What can I do if I change my mind after I vote my shares?
Even afterif you have submitted your vote, you may revoke your proxy and change your vote at any time before voting begins at the annual meeting. If you are a registered shareholder, you
Registered shareholders:Registered holders may do thischange their votes in threeone of two ways:
Your attendanceperson at the meeting will not automatically revokemeeting. In order to vote your proxy;shares at the meeting, you must specifically revoke it.
Beneficial shareholders:If you hold your shares in street name, you should contact your bank, broker or other nominee to find out how to revoke your proxy. If you have obtained a legal proxy from your nominee giving you the right to vote your shares, you may vote by attending the meeting and voting in person or by sending in an executed proxy with your legal proxy form.
Is there a minimum quorum necessary to hold the meeting?
In order to conductA quorum is established when the meeting, a majority of EnPro shares entitled to vote must beare present at the meeting in person or by proxy. This is calledAbstentions and broker“non-votes” are counted as present and entitled to vote for purposes of establishing a quorum. If you return valid proxy instructions or vote in person at the meeting, you will be considered part of the quorum. For purposes of determining whether a quorum is present, abstentions and broker “non-votes” will be counted as shares that are present and entitled to vote.
How will my vote be counted?
If you providereturn your proxy card with specific voting instructions or submit your proxy by telephone or the Internet, your EnPro shares will be voted as you have instructed.
If you hold shares in your nameare a registered shareholder and sign and returnsubmit a proxy card or vote by mail, telephone or the Internet without giving specific voting instructions, your shares will be voted asaccording to our board of directors has recommended.directors’ recommendations. If you hold your shares in your name (you are the record holder) and do not givesubmit valid proxy instructions or vote in person at the meeting, your shares will not be voted.
If you hold your shares in street nameare a beneficial shareholder and do not give your bank, broker or other nominee instructions on how you wantfor voting your
shares, your shares will be considered to be voted, those shares are considered “uninstructed” and a bank, broker or other“uninstructed.” Your nominee generally has the authority to vote those“uninstructed” shares at its discretion only on matters that are determined to be “routine” under the rules of the New York Stock Exchange rules. Under(NYSE). For our 2017 meeting, only the New York Stock Exchange’s rules,ratification of our independent accounting firm (Proposal 6) is considered routine by the NYSE. The election of directors and matters related to executive compensation are not considered toroutine. Without your instruction, your shares will not be “routine” for this purpose, which means that a broker or broker nominee may not provide a proxy with voting instructions onvoted in these matters unless it receives voting instructions from the beneficial owner of the shares. Accordingly, unless instructed by the beneficial owner, a broker or broker nominee may not provide voting instructions with respect to the vote on Proposals(Proposals 1 2 and 3 described in this proxy statement.
The vote to ratify the appointment of our independent accounting firm and any other business that may properly come before the meeting are considered routine under the New York Stock Exchange rules, which means that a bank, broker or other nominee has voting discretion as to any uninstructed shares on those matters.through 5).
What vote is required to approve each item?
Proposal 1: Election of directors.Directors are elected by a plurality of the votes cast in person or by proxy at the meeting. “Plurality” means that the director nominees who receive the largest number of votes cast are elected, up to the maximum number ofeight directors to be elected at the meeting. The maximum number to be elected is nine. Shares not votedUn-voted shares will have no impact on the election of directors. Unless a proxy includes proper voting instructions are to “Withhold” authoritya vote for any or all nominees, the proxy given will be voted “For” each of the nominees for director.nominees.
Under our Corporate Governance Guidelines, any nominee for director inIn an uncontested election, any nominee who receives a greater number ofmore “Withhold” votes “withheld” from his or her election than votes “for” his or her election“For” must promptly offer his or her resignation. The board’s Nominating and Corporate Governance Committee will then considerreview the resignation and recommend a course of action to the board. The full board, whether to accept or reject it. The boardexcluding the resigning director, will act on the Nominating Committee’s recommendation within 90 days after the shareholders’shareholders meeting andto accept or reject the resignation. The board’s decision (includingand an explanation of the process by which the decision was reached)used to reach it will be disclosed publicly disclosed on Form8-K. Any director who offers his or her resignation may not participate in the board’s discussion or vote.
Proposal 2: Advisory vote to approve executive compensation.The advisory resolution to approve on an advisory basis, the compensation paid to our named executive officers will be approved if more votes are cast “For” the resolution than are cast “Against” the resolution.it. Although this advisory vote is not binding under applicable law, our board will review the results and take them, and the views expressed by our shareholders, into account in determining our executive compensation practices.
Proposal 3. Selection of frequency of future shareholder advisory votes to approve executive compensation. The frequency of the advisory vote on executive compensation receiving the greatest number of votes (every one year, every two years or every three years) will be considered the preference selected by the shareholders. Although this advisory vote isnon-binding, as provided by law, our board will review the results of the votesvote and, consistent with our record of shareholder engagement, will take themit into account in making determinations concerning the frequency of future advisory votes on executive compensation.
Proposal 4: Approval of the Annual Plan. The amendment and restatement of our Amended and Restated 2002 Equity CompensationAnnual Plan will be approved if a majority of themore votes cast on the proposal are cast “For” approval.the proposal than are cast “Against” it.
Proposal 5: Approval of the LTIP.The LTIP will be approved if more votes are cast “For” the proposal than are cast “Against” it.
Proposal 6: Ratification of PricewaterhouseCoopers LLP as our independent registered public accounting firm for2017.The ratification of the appointment of our independent accounting firm and anywill be approved if more votes are cast “For” the proposal than are cast “Against” it.
Other business. Any other business as maythat properly comecomes before the meeting, or any adjournment of the meeting, will be approved if more votes are cast “For” suchthe proposal than are cast “Against” it.the proposal.
How do abstentionsbrokernon-votes and broker non-votesabstentions count for voting purposes?
“Brokernon-votes” arise when beneficial shareholders do not give their banks, brokers or other nominees instructions for voting their shares and the banks, brokers or other nominees do not have authority to vote the shares on a matter because the matter is not routine. Abstentions and brokernon-votes will count for determining whether a quorum is present for the meeting. Because directors are elected by a plurality of the votes cast, brokernon-votes and abstentions will not count in determining the outcome of the election of directors. Because the applicable rules of the New York Stock Exchange require approval of the proposed amendment and restatement of our Amended and Restated 2002 Equity Compensation Plan by a majority of the votes castFor all other proposals on the proposal, abstentions, which will be considered to be votes “cast,” will haveagenda for the effect of a vote “Against” approval, and broker non-votes, which are not
considered to be votes “cast,” will not count in determining the outcome. For the advisory vote on executive compensation, the ratification of the appointment of our independent accounting firmannual meeting and with respect to any other business as may properly come before the meeting or any adjournment of the meeting, only votes “For” or “Against” the proposal count — count—accordingly, brokernon-votes, if any, and abstentions will not be counted in determining the outcome of the votes on those proposals. Abstentions and broker non-votes will count for determining whether a quorum is present.
Is there a list of shareholders entitled to vote at the annual meeting?
You may examine a list of the shareholders entitled to vote at the meeting. WeThe list will make that listbe available at our main executive offices at 5605 Carnegie Boulevard, Suite 500, Charlotte, North Carolina, from March 20, 201423, 2017 through the end of the meeting. The list will also be available for inspection at the meeting.
What are the board’s recommendations?
Your board of directors recommends that you vote:
Proxy cardsIf you return a valid proxy card or respond to our proxy by telephone andor Internet instructions to vote the proxy that are validly submitted and timely received, but that do not containinclude instructions on how you want to vote, your shares will be voted in accordance with the board’s recommendations.
With respect to any other matter that properly comes before the meeting, the proxy holders will vote as recommended by the board of directors or, if no recommendation is given, in their own discretion.
How can I find out the results of the vote?
We will publish final voting results in a report onForm 8-K to be filed with the Securities and Exchange Commission (SEC) within four business days after the meeting. In addition, we intend toWe will also post the voting results from the meeting on our website,www.enproindustries.com.
What is “householding” and how does it affect me?
To reduceWhen two or more shareholders are in the expenses of delivering duplicate proxy materials to our shareholders, we are relying onsame household and receive mail at the same address, SEC rules that allow us to deliver only one proxy statement and annual report to multiple shareholders who share anthat address, unless we have received contrary instructions from any shareholder at that address.reducing our cost for preparing and delivering proxy materials. If you share an address with another shareholderfall into this category and have received only onewould like separate mailings of our proxy statement and annual report, you may write or call us to request a separate copy of these materials and we will promptly send them to you at no cost to you.
For future meetings, if you hold shares directly registered in your own name, you may request separate copies of our proxy statement and annual report. Alternatively, you may request that we send only one set of materials if you are receiving multiple copies. You may make any of these requests by contacting us atinvestor@enproindustries.comor by calling704-731-1522.
If your Registered shareholders who would like separate mailings in the future (or who would like to consolidate future mailings) may request them using the contact information above. Investors whose shares are held in thestreet name ofby a bank, broker or other nominee and you wish to receiveshould request separate copiesmailings (or consolidation of our proxy statement and annual report, or request that we send only one set of these materials to you if you are receiving multiple copies, please contact yourmailings) from the nominee.
Can I access these proxy materials on the Internet?
You can access thisThis proxy statement and our 20132016 annual report to shareholders, which includes our 20132016 annual report onForm 10-K, on the Internet site are available athttp://2014annualmeeting.enproindustries.comwww.enproindustries.com/shareholder-meeting. If you are a registered shareholder, you
Registered shareholders can choose to receive these documents over the Internet in the future by accessingwww.proxyvote.comand following the instructions provided on that website. This could helpChoosing to receive your materials over the Internet gives you full access to all materials and saves us save significant printing and mailing expenses. If you choose tomake this choice, you will receive your proxy materials and annual report electronically, thenane-mail prior to next year’s shareholder meeting notifying you will receive an e-mail notification when thethat our proxy materials and annual report are available for on-line review, as well as theonline review. Thee-mail will also include instructions for voting electronically overelectronic voting. Should you desire to end electronic delivery and again receive paper copies of the Internet. Your choice for electronic distribution will remain in effect until you revoke itmaterials, please notify us by sending a written requestletter to our offices at 5605 Carnegie Boulevard, Suite 500, Charlotte, North Carolina 28209, Attention: Shareholder Relations.
If your shares are held through a bank, broker or other nominee, check the information provided by that entityBeneficial owners should request instructions for instructions on how to elect to viewreceiving future proxy statements and annual reports over the Internet.Internet from their bank, broker or other nominee.
Who will solicit votes and pay for the costs of this proxy solicitation?
We will pay the costs of the solicitation. OurAlthough our officers, directors and employees may personally solicit proxies, personally, by telephone, mail or facsimile, or via the Internet. These individualsthey will not receive any additional compensation for their solicitation efforts. Youdoing so. We may also be solicitedsolicit proxies by means ofissuing press releases, issued by EnPro, postingsposting information on our website,www.enproindustries.com, and placing advertisements in periodicals. We have engaged AST Phoenix Advisors to assistperiodicals or on websites. D.F. King & Co. is assisting us in the solicitation of proxies and provide relatedprovides us with advice and informational support related to solicitation. We do not expect the total costs to us for aD.F. King’s services fee and the reimbursement of customary disbursements that together are not expected to exceed $20,000 in the aggregate. $20,000.
In addition, upon request we will reimburseif banks, brokers and other nominees representing beneficial owners of shares make the request, we will reimburse them for their expenses in forwarding voting materials to their customers who areand obtaining voting instructions from beneficial owners and in obtaining voting instructions.of our shares.
Who will count the votes?
Broadridge Financial Solutions will act as the master tabulator and count the votes.
Beneficial ownership of our common stockstock; transactions
Beneficial owners of 5% or more of our common stock
The following table sets forth information about the individuals and entities who held more than five percent of our common stock as of February 28, 2014.March 1, 2017. This information is based solely on SEC filings made by the individuals and entities by that date.
Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percent of Class(1) | ||||||
T. Rowe Price Associates, Inc.et al.(2) | 3,239,758 | 15.4 | % | |||||
100 E. Pratt Street | ||||||||
Baltimore, Maryland 21202 | ||||||||
BlackRock, Inc.et al.(3) | 2,148,990 | 10.2 | % | |||||
40 East 52nd Street | ||||||||
New York, New York 10022 | ||||||||
Franklin Resources, Inc.et al.(4) | 1,365,114 | 6.5 | % | |||||
One Franklin Parkway | ||||||||
San Mateo, California 94403 - 1906 | ||||||||
The Vanguard Group, Inc.(5) | 1,246,537 | 5.9 | % | |||||
100 Vanguard Blvd. | ||||||||
Malvern, Pennsylvania 19355 | ||||||||
Greywolf Capital Management LPet al.(6) | 1,169,260 | 5.6 | % | |||||
4 Manhattanville Road, Suite 201 | ||||||||
Purchase, New York 10577 | ||||||||
Keeley Asset Management Corp.et al.(7) | 1,109,117 | 5.3 | % | |||||
401 South LaSalle Street | ||||||||
Chicago, Illinois 60605 |
Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percent of Class(1) | ||||||
BlackRock, Inc.et al.(2) | 2,414,831 | 11.3 | % | |||||
55 East 52nd Street | ||||||||
New York, New York 10055 | ||||||||
The Vanguard Group, Inc.(3) | 1,817,255 | 8.5 | % | |||||
100 Vanguard Blvd. | ||||||||
Malvern, Pennsylvania 19355 | ||||||||
Silver Point Capital, L.P. et al.(4) | 1,750,000 | 8.2 | % | |||||
Two Greenwich Plaza | ||||||||
Greenwich, Connecticut 06830 | ||||||||
Hotchkis and Wiley Capital Management, LLC(5) | 1,433,740 | 6.7 | % | |||||
725 S. Figueroa Street, 39th Floor | ||||||||
Los Angeles, California 90017 |
(1) | Applicable percentage ownership is based on |
(2) | This information is based on a Schedule 13G amendment dated |
(3) | This information is based on a Schedule 13G amendment dated February |
This information is based on a Schedule 13G |
This information is based on a Schedule 13G amendment dated February |
Director and executive officer ownership of our common stock
The following table sets forth information as of February 28, 2014March 1, 2017 about the shares of our common stock beneficially owned by our directors and the executive officers listed in the summary compensation table included in this proxy statement. It also includes information aboutstatement, as well as the shares of our common stock that our current directors and executive officers own as a group. It also includes information regarding the number of phantom shares payable in cash and deferred stock units held by our directors payable in shares. These phantom shares and deferred stock units are not included in the number of shares beneficially owned, but reflect the economic interests of our directors in our common stock.
Name of Beneficial Owner | Amount and Nature of Beneficial Ownership(1) | Directors’ Phantom Shares(2) | Directors’ Stock Units(3) | Percent of Class(4) | Amount and Nature of Beneficial Ownership of Shares(1) | Directors’ Phantom Shares(2) | Directors’ Stock Units(3) | Percent of Class(4) | ||||||||||||||||||||||||
Stephen E. Macadam | 272,888 | — | — | 1.3 | % | 278,952 | — | — | 1.3 | % | ||||||||||||||||||||||
Thomas M. Botts | — | 3,841 | 1,093 | * | 10,958 | — | 2,666 | * | ||||||||||||||||||||||||
Peter C. Browning | 4,340 | 29,784 | 7,599 | * | ||||||||||||||||||||||||||||
Felix Brueck | — | 1,251 | — | * | 7,187 | — | 3,960 | * | ||||||||||||||||||||||||
B. Bernard Burns, Jr. | 4,625 | 4,927 | — | * | 16,004 | — | — | * | ||||||||||||||||||||||||
Diane C. Creel | 1,000 | 9,812 | — | * | 16,015 | — | — | * | ||||||||||||||||||||||||
Gordon D. Harnett | 2,060 | 29,784 | 6,483 | * | 21,787 | 15,925 | 6,683 | * | ||||||||||||||||||||||||
David L. Hauser | 800 | 16,777 | 5,902 | * | 18,844 | 4,172 | 7,707 | * | ||||||||||||||||||||||||
Wilbur J. Prezzano, Jr. | — | 16,914 | 14,955 | * | ||||||||||||||||||||||||||||
John Humphrey | 5,461 | — | — | * | ||||||||||||||||||||||||||||
Kees van der Graaf | — | 4,204 | — | * | 10,432 | — | — | * | ||||||||||||||||||||||||
Alexander W. Pease | 7,156 | — | — | * | ||||||||||||||||||||||||||||
Richard L. Magee | 73,291 | — | — | * | ||||||||||||||||||||||||||||
Dale A. Herold | 35,259 | — | — | * | ||||||||||||||||||||||||||||
J. Milton Childress II | 28,499 | — | — | * | ||||||||||||||||||||||||||||
Marvin A. Riley | 8,742 | — | — | * | ||||||||||||||||||||||||||||
Robert S. McLean | 19,182 | — | — | * | ||||||||||||||||||||||||||||
Former Executive Officers | ||||||||||||||||||||||||||||||||
Kenneth D. Walker | 21,250 | — | — | * | 24,408 | — | — | * | ||||||||||||||||||||||||
Anthony R. Gioffredi | 42,445 | — | — | * | ||||||||||||||||||||||||||||
25 directors and executive officers as a group | 584,622 | 117,294 | 36,032 | 2.8 | % | |||||||||||||||||||||||||||
Jon A. Cox(6) | 38,239 | — | — | * | ||||||||||||||||||||||||||||
20 directors and executive officers as a group | 552,905 | 20,097 | 21,016 | 2.6 | % |
* | Less than 1% |
(1) | These numbers include the following shares that the individuals may acquire within 60 days after |
(2) | These numbers reflect the phantom shares awarded under our Outside Directors’ Phantom Share |
are |
(3) | These numbers reflect the number of stock units credited to thosenon-employee directors who have elected to defer all or a part of the cash portion of their annual retainer and meeting fees pursuant to our Deferred Compensation Plan forNon-Employee Directors. See “Corporate Governance Policies and |
(4) | These percentages do not include the directors’ phantom shares or stock units described in Notes |
(5) | Information with respect to Mr. Walker is as of December 31, 2016, the date he ceased to be an employee. |
(6) | Information with respect to Mr. Cox is as of October 4, 2016, the date he ceased to be an employee. |
Section 16(a) beneficial ownership reporting compliance
Section 16(a) of the Exchange Act requires our directors and officers and people who own more than 10% of our common stock to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of our common stock. The SEC requires these people to give us copies of all Section 16(a) reports they file.
We have reviewed the copies of all reports furnished to us. Based solely on this review, we believe that no director, officer, or 10% shareholder failed to timely file in 20132016 any report required by Section 16(a)., other than one Form 5 to report three small acquisitions (each of less than four shares pursuant to there-investment of dividends) was filed late by David L. Hauser.
Proposal 1 — Election of directors(Item 1 on the proxy card)
One of the purposes of theAt our annual meeting, is the election of nineshareholders are asked to elect eight directors towho will hold office until theour 2017 annual shareholders’ meeting in 2015 or until their respective successors are elected and qualified. Our board of directors presently consists of tennine directors, all of whom were elected at the 20132016 annual meeting of shareholders other than Felix M. Brueck who was elected by the board of directors in February 2014 to fill a vacancy created by the expansion of the size of the board.shareholders. All of the nominees are incumbent directors whose terms would otherwise expire upon the election of directors at the meeting. Consistent with the maximum age provisions of our Corporate Governance Guidelines, Wilbur J. Prezzano, Jr.,Gordon D. Harnett, a current director, has not been nominated forre-election at the 20142017 annual meeting and will retire from the board of directors at that time.time pursuant to the age provisions of our Corporate Governance Guidelines. The board of directors has adopted a resolution to reduce the size of the board to
nine eight directors effective upon the commencement of the annual meeting.
Since December 2011 and upon Mr. Harnett’s retirement from the board of directors at the annual meeting, five directors will have retired from service and five new directors have joined the board. This has been due in
part to the retirement and replacement of directors who had joined our board in 2002 in connection with our spinout from Goodrich Corporation. As a result, the average tenure of the independent directors nominated for election at the annual meeting is 4.6 years.
All nominees have indicated that they are willing to serve as directors if elected. Properly executed proxies that do not contain voting instructions will be voted for the election of each of these nominees. If any nominee should become unable or unwilling to serve, the proxies will be voted for the election of sucha person asdesignated by the board of directors may designate to replace suchthe nominee. Under our bylaws no person less than 18 years of age is eligible to be elected as a director if he or she is less than 18 years of age.director.
The board of directors unanimously recommends that you vote “FOR” the election of each of the nominees for director named below.on the following pages.
Stephen E. Macadam
Chief Executive Officer and President
Age 5356
Director since 2008
Experience:
Mr. Macadam has served as our Chief Executive Officer and President since April 2008. Prior to accepting these positions with EnPro, Mr. Macadam served asPreviously, he was Chief Executive Officer of BlueLinx Holdings Inc. since October 2005. Before joining BlueLinx Holdings Inc.,in October 2005, Mr. Macadam washad been the President and Chief Executive Officer of Consolidated Container Company LLC since August 2001.
He served previously with Georgia-Pacific Corp. where he held the position ofwas Executive Vice President, Pulp & Paperboard from July 2000 until August 2001, and the position of Senior Vice President, Containerboard & Packaging from March 1998 until July 2000. Mr. Macadam held positions of increasing responsibility with McKinsey and Company, Inc. from 1988 until 1998, culminating in the role of principal in charge of McKinsey’s Charlotte, North Carolina operation. Mr. Macadam
He received a B.S. in mechanical engineering from the University of Kentucky, an M.S. in finance from Boston College and an M.B.A. from Harvard University, where he was a Baker Scholar.
Mr. Macadam’s employment agreement provides that during the term of his employment with EnPro he will be included in the slate of nominees nominated by the board of directors for election as a member of the board.
Current public company directorships:
Public company directorships in the last five years:
Qualifications:
As the company’s Chief Executive Officer
Thomas M. Botts
Age 5962
Director since 2012
Mr. Botts joined the board of directors in July 2012. Experience:
Mr. Botts retired from Royal Dutch Shell on December 31, 2012. In his last role at Shell, Mr. Botts was2012 as executive vice president, global manufacturing, Shell Downstream Inc., He was responsible for Shell’s global manufacturing business, which includedincluding all of Shell’s refineries and chemical complexes around the world. Mr. Bottscomplexes.
He joined Shell in 1977 as a production engineer and served in a number of corporate and operating roles in his career including executive vice president for exploration and production (E&P) in Europe, leading Shell’s largest E&P unit. He held those responsibilities from 2003 to 2009.
He has been a member of the board of directors of the National Association of Manufacturers, and a member of the American Petroleum Institute Downstream Committee, and a member of the council of overseers for the Jones Graduate School of Business at Rice University.
He currently is anon-Executive Director for John Wood Group PLC, an international energy services company based in the United Kingdom, a member of the board of directors of the University of Wyoming Foundation, Chairman of the Governor’s Tier 1 Task Force at the University of Wyoming, a member of the Energy Resources Council, University of Wyoming, and a member of the Society of Petroleum Engineers.
Mr. Botts received a B.S. in Civil Engineering from the University of Wyoming.
PublicCurrent public company directorships in the last five years:directorships:
Qualifications:
Mr. Botts brings to our board thirty-five
Peter C. Browning
Age 72
Director since 2002
Since 2009, Mr. Browning has served as Managing Director of Peter C. Browning Partners, a board governance advisory firm. He was the Dean of the McColl School of Business at Queens University from March 2002 through May 2005. He served as Non-Executive Chairman of Nucor Corporation, a steel manufacturer, from September 2000 to May 2006. From 1998 to 2000, Mr. Browning was President and Chief Executive Officer, and from 1995 to 1998, President and Chief Operating Officer, of Sonoco Products Company, a manufacturer of industrial and consumer packaging. Prior to joining Sonoco Products Company, Mr. Browning served from 1990 to 1993 as Chairman, President and Chief Executive Officer of National Gypsum Company, guiding that company through its emergence from Chapter 11 bankruptcy proceedings in 1993. Prior to joining National Gypsum Company, Mr. Browning spent 24 years with Continental Can Company, rising to Executive Vice President — Operating Officer from an initial position as a sales trainee. Mr. Browning is a founding member of the Lead Director Network and a member of the faculty for The Conference Board’s Directors’ Institute. He was named as an Outstanding Director in 2004 by the Outstanding Directors Institute and was selected by the National Association of Corporate Directors for its 2010 and 2011 Directorship 100, its list of the most influential people in the corporate boardroom community. He is a lifetime member of the Council on the Chicago Booth School of Business. Mr. Browning received a B.A. from Colgate University and an M.B.A. from the University of Chicago.
Public company directorships in the last five years:
Qualifications:
Mr. Browning’s unique breadth and depth of experience and expertise, including more than 35 years of domestic and international manufacturing experience, provides him with valuable insight into the governance and management issues facing public manufacturing companies, including corporate governance, board performance and dynamics, executive leadership transition and succession planning.
Felix M. Brueck
Age 5861
Director since 2014
Experience:
Mr. Brueck serves asis a Director Emeritus of McKinsey & Company, Inc., a global consulting firm, followingfirm. He was a Director at McKinsey prior to his retirement in 2012 as a Director of McKinsey.2012. During his almost30-year career with McKinsey, Mr. Brueck specialized in counseling clients in operational and organizational transformations of entire companies, major functions or business units in technologically complex industries. He was based in offices in Munich, Tokyo and Cleveland.
While at McKinsey, Mr. Brueck led the Firm’s Manufacturing Practice in the Americas and its Organizational Effectiveness Practice in the Americas. He was a founder of McKinsey’s Performance Transformation Practice.
Prior to joining McKinsey, Mr. Brueck worked as an engineer for Robert Bosch GmbH.
Mr. Brueck received a Dipl. Ing. (the equivalent of a Master’s Degree in Mechanical Engineering) from RWTH Aachen University in Germany and a Master’s Degree in International Management from Thunderbird School of Global Management.
Qualifications:
Mr. Brueck’s experience as a consultant with McKinsey for almost
B. Bernard Burns, Jr.
Age 6568
Director since 2011
Since 2001, Experience:
Mr. Burns’ career has focused on corporate law, industrial manufacturing, mergers and acquisitions, and service on the boards of companies engaged in a variety of businesses.
Mr. Burns has served as a managing director of the McGuireWoods Capital Group, a merger and acquisition advisory group. He also is ofcurrently counsel to the law firm of McGuireWoods LLP, and was a partner of that firm from 2001 to 2011.2011, and of a predecessor firm from 1979 to 1989. He also serves as the Managing Director of McGuireWoods Capital Group, amerger-and-acquisition advisory business, which heco-founded in 2001. Prior to 2001, Mr. Burns served in various executive capacities with United Dominion Industries Limited, a diversified industrial manufacturer, from 1989 until that firmmanufacturer. At United Dominion, he was acquired in 2001, including as Senior Vice President and General Counsel from 1993 to 1996, Executive Vice President and Chief Administrative Officer in 2000 and as president of variousseveral of its operating segments and divisions from 1996 to 1999 and from 2000 to 2001. He is a director of several privately held companies.
Mr. Burns earned a B.A. from Furman University and a J.D. from the Duke University School of Law and completed the Advanced Management Program at Duke University’s Fuqua School of Business.
Qualifications:
Mr. Burns’
Diane C. Creel
Age 6568
Director since 2009
Prior to her retirement in September 2008, Experience:
Ms. Creel served from May 2003 as Chairman, Chief Executive Officer and President of Ecovation, Inc., awaste-to-energy systems company. Prior tocompany, from May 2003 until her retirement in September 2008. Before joining Ecovation, Ms. Creel served aswas Chief Executive Officer and President of Earth Tech, Inc., an international consulting engineering firm, a position she held from January 1991 to May 2003. She previouslyjoined Earth Tech as Vice President in 1984 and served there as Chief Operating Officer of Earth Tech from 1987 to 1993 and Vice President from 1984 to 1987. 1991.
Ms. Creel was director of business development and communications for CH2M Hill from 1978 to 1984, manager of communications for Caudill Rowlett Scott from 1976 to 1978, and director of public relations for LBC&W, Architects-Engineers-Planners from 1971 to 1976.
Ms. Creel has a B.A. and M.A. from the University of South Carolina.
Current public company directorships:
Public company directorships in the last five years:
Qualifications:
Ms. Creel’s extensive
Gordon D. Harnett
Age 71
Director since 2002
Mr. Harnett has served as the Non-executive Chairman of the Board of EnPro since 2010. He retired as Chairman and Chief Executive Officer of Materion Corporation (formerly known as Brush Engineered Materials Inc.), a provider of metal-related products and engineered material systems, in May 2006. Prior to joining Materion Corporation in 1991, Mr. Harnett served from 1988 to 1991 as a Senior Vice President of B.F. Goodrich Company, and from 1977 to 1988, he held a series of senior executive positions with Tremco Inc., a wholly owned subsidiary of Goodrich, including President and Chief Executive Officer from 1982 to 1988. Mr. Harnett received a B.S. from Miami University and an M.B.A. from Harvard University.
Public company directorships in the last five years:
Qualifications:
Mr. Harnett brings to our board of directors a deep knowledge of the manufacturing industry, leadership experience from serving as Chairman and Chief Executive Officer of a multinational corporation, a broad understanding of international operations gained through a variety of senior leadership positions and corporate governance expertise from his service, including as lead director, on other companies’ boards of directors.
David L. Hauser
Age 6265
Director since 2007
From August 2010 until March 2011, Experience:
Mr. Hauser served as a consultant towas affiliated with FairPoint Communications, Inc., a communications services company. Fromcompany, from July 2009 to August 2010, Mr. Hauser serveduntil March 2011. He joined FairPoint as Chairman of the Board and Chief Executive Officer of FairPoint Communications, Inc.and served as a consultant to the company from August 2010 until March 2011. In October 2009, FairPoint Communications and all of its direct and indirect subsidiaries filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code in the United States Bankruptcy Court for the Southern District of New York. In evaluatingThe Nominating and Corporate Governance Committee has evaluated this event with respect to theMr. Hauser’s nomination of Mr. Hauser for reelection to the board of directors, the Nominating and Corporate Governance Committee considereddirectors. Considering the well-publicized challenges facing FairPoint Communications at the time Mr. Hauser accepted his position as Chairman ofjoined the Board and Chief Executive Officer,company, his awareness of those challenges and his commitment to FairPoint Communications in the face of those challenges. The Nominating and Corporate Governance Committeechallenges, the committee and the full board support thehis nomination of Mr. Hauser forre-election to the board in 2013.2017.
Prior to joining FairPoint, Communications, Mr. Hauser had a35-year career with Duke Energy Corporation, one of the largest electric power companies in the United States. Mr. Hauser served asHe was Group Executive and Chief Financial Officer of Duke Energy Corporation from April 2006 until June 30, 2009, and aswas Chief Financial Officer and Group Vice President from February 2004 to April 2006. He was named acting Chief Financial Officer fromin November 2003 to February 2004 and2003. He was Senior Vice President and Treasurer from June 1998 to November 2003. During his first 20 years with Duke Energy, Corporation, Mr. Hauser served in various accounting positions, including controller.
Mr. Hauser is a member of the board of trustees of Furman University and a member of the board of trustees of the University of North Carolina at Charlotte. Mr. HauserCharlotte and a past member of the board of trustees of Furman University. He has retired as a member of the North Carolina Association of Certified Public Accountants.
Mr. Hauser received a B.A. from Furman University and an M.B.A. from the University of North Carolina at Charlotte.
PublicCurrent public company directorships in the last five years:directorships:
Qualifications:
Along with his
John Humphrey
Age 51
Director since 2015
Experience
Mr. Humphrey has served, since 2011, as Executive Vice President and Chief Financial Officer of Roper Technologies, Inc., a Fortune 1000 company that designs and develops software and engineered products and solutions for healthcare, transportation, food, energy, water, education and other niche markets worldwide. Mr. Humphrey has announced his intention to retire from Roper, transitioning from his role as Chief Financial Officer on May 15, 2017 and assisting with the transition of his other responsibilities during the remainder of the year. From 2006 to 2011, he served as Vice President and Chief Financial Officer of Roper. Prior to joining Roper, Mr. Humphrey served as Vice President and Chief Financial Officer of Honeywell Aerospace, the aviation segment of Honeywell International Inc., after serving in several financial positions with Honeywell International and its predecessor AlliedSignal. Mr. Humphrey’s earlier career included 6 years with Detroit Diesel Corporation, a manufacturer of heavy-duty engines, in a variety of engineering and manufacturing management positions.
Mr. Humphrey is a member of the Board of Advisors of the Elon University Love School of Business.
Mr. Humphrey received a B.S. in Industrial Engineering from Purdue University and an M.B.A. in Finance from the University of Michigan.
Qualifications:
Kees van der Graaf
Age 6466
Director since 2012
Between 2008 and 2011, Experience
Mr. van der Graaf served asis owner and chairman of FSHD Unlimited, a biotechnology company he founded in October 2014. Mr. van der Graaf was anExecutive-in-Residence with at IMD International, an international business school based in Lausanne, Switzerland. InSwitzerland between 2008 and 2011 he also served as and wasCo-director of the IMD Global Center. Center in 2011.
Prior to joining IMD, Mr. van der Graaf enjoyed a32-year career with Unilever NV and Unilever PLC, which operate the Unilever Group, a multinational supplier of fast-moving consumer goods. At Unilever, Mr. van der Graaf served as President of Ice Cream and Frozen Foods — Europe from 2001 to 2004 and as a member of the Board and Executive Committee of Unilever NV and Unilever PLC from 2004 to 2008 with responsibilities during2008. During that period, he had responsibilities for the Global Foods division and later for the European Business group.
Until February 2015, Mr. van der Graaf isserved as a member of the board of directors of Ben & Jerry’s, a wholly owned subsidiary of Unilever, which is charged with preserving and expanding Ben & Jerry’s social mission, brand integrity and product quality.
He ishas also served as a member of the supervisory boards of several privately held European-based companies and servesserved as chairman of the supervisory board of the University of Twente in The Netherlands.
Mr. van der Graaf received a degree in mechanical engineering and an M.B.A. from the University of Twente.
Current public company directorships:
Public company directorships in the last five years:
Qualifications:
Qualifications:
Mr. van der Graaf brings to our board of directors extensiveExtensive experience inas an executive management positionsmanager in global public corporations and a geographic backgroundcorporations.
The primary responsibility of our board of directors is to oversee and direct management in its conduct of our business. Members of the board are kept informed ofabout our business through discussions with the Chairman and theour officers, by reviewing materials provided to them, and by participating in meetings of the board and its committees.committee meetings. In addition, the non-management directors meet periodically in executive session without members of management present. These sessions are presided over by the Chairman of the Board of Directors, presently Mr. Harnett.
Since the inception of our company, we have maintained separateWe believe that the positions of Chairman of the Board of Directors which is a non-executive position filled by an
independent director, and Chief Executive Officer whoshould be held by separate individuals, and they have been since the
inception of our company. The role of Chairman is anon-executive position currently filled by Mr. Harnett, an independent director. Mr. Macadam, our Chief Executive Officer and the principal executive officer of our company, is the only member of our board who is employed by the company. We believe that thisThis structure continues to be appropriate for our company given the individuals serving in those positions, particularly the experience of our current Chairman aspositions. Mr. Harnett is a former chief executive officer of a publicly held diversified industrial manufacturer supplying a wide variety of industriescompany and as the leadan independent director of anotherother public company,companies. This experience, coupled with his knowledge of and familiarity with our company and its businesses through his service on our board of directors, from our inception as a public company in 2002, and hisgives him the ability to serve as a valued sounding board for our Chief Executive Officer.
Our board of directors has four committees:
To maximize the efficiency of our board, efficiency, all of our independent directors serve on each committee other than the Executive Committee. For a list of our independent directors, see “Corporate Governance Policies and Practices — Director Independence.”
Each board committee operates in accordance withunder a written charter thatapproved by the board has approved. You may obtain copiesboard. Copies of these charters are available on our website atwww.enproindustries.comwww.enproindustries.com.by clickingClick on “Investor”“For Investors” and then “Corporate Governance” and lookingthen “Committees” and look under “Committee Charters.” Copies of the charters are also available in print to any shareholder who requests them.
Executive Committee. The current members of the Executive Committee arecommittee is chaired by Mr. Macadam (Chairman), Mr. Browning and includes Mr. Harnett. The Executive Committee did not meet in 2013. TheIts primary function of this committee is to exercise the powers of the board as and when directed by the board or when the board is not in session, except thoseexcluding powers which under North Carolina corporate law, may not be delegated to a committee of directors.directors under North Carolina law. The committee did not meet in 2016.
Audit and Risk Management Committee. The Audit and Risk Management Committee or Audit Committee, met four times in 2013. It assists the board in monitoring the integrity of our financial statements, our compliance with legal and regulatory requirements, our management of areas of significant risk areas (including insurance, pension, asbestos, cybersecurity, environmental and litigation) and the qualifications, independence and performance of our internal auditors and independent registered public accounting firm. This
committee has the sole authority to appoint or replace our independent registered public accounting firm and to approve all related fees. It met four times in 2016. Mr. Hauser is the current committee chairman.
Compensation and Human Resources Committee. The Compensation and Human Resources Committee or Compensation Committee, met four times in 2013. Mr. Browning is the current committee chairman. The primary function of the Compensation Committee is to assistassists the board and management in exercising oversight concerningoverseeing the appropriateness and cost of our compensation and benefit programs, particularly for executives. The Compensation Committeecommittee sets the salaries and annual bonus and long-term award opportunities for our senior executives, assesses the performance of our CEO,Chief Executive Officer, and oversees succession planning programs. The committee has delegated responsibilityplanning. Responsibility for the design, administration, asset management and funding policies of our qualified andnon-qualified benefit plans is delegated to a benefits committee consisting of members of management. However, the Compensation Committee has expressly retained the authority to approve amendments to benefit plan amendments (other than amendmentsplans (except those resulting from collective bargaining agreements) that would materially affect the cost, basic nature or financing of these plans. In addition, the Compensation Committeecommittee approves all formal policies established by the benefits committee and reviews the benefits committee’s activities at least once pera year. The committee met four times in 2016. Mr. Botts is the chairman.
Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee met five times in 2013. The primary function of this committee is to assistassists the board and management in exercising sound corporate governance. This committee identifies and nominates individuals who are qualified to become members of the board, assesses the effectiveness of the board and its committees, and recommends board committee assignments. It also reviews various corporate governance issues, including those items discussed below under “Corporate Governance Policies and Practices.” The committee met four times in 2016. Mr. Harnett currently chairs this committee.is the chairman.
As discusseddescribed above, the Audit and Risk Management Committee assists the board in monitoring our compliance with legal and regulatory requirements and the managementway we manage areas of significant risk areas (including insurance, pension, asbestos, environmental, litigation and all incentive compensation plans, including for non-executive personnel).risk. The company’s internal audit group periodically performs an enterprise risk analysis of theanalyzes risks to our company and reports the results of its
analysis to the
Audit and Risk Management Committee. The head of the internal audit group reports directly to the Audit and Risk Management Committee and customarily attends meetings of that committee. In addition, the company’sOur General Counsel also customarily attends meetings of the Audit and Risk Management Committee. All of our independent directors currently serve on the Audit and Risk Management Committee.committee’s meetings.
The board met fiveseven times in 2013.2016. Board and committee meetings are typically held on successive days, with meetings typically covering two days. The board conducts periodic visits to our facilities as part of its regularly scheduled meetings. All directors attended at
least 75% of the total number of meetings of the full board and of the board committees on which they serve.
It is ourAll directors are encouraged by policy to encourage all directors to attend theour annual meeting of shareholders. Allshareholders and all of our current directors then in office attended our 20132016 annual meeting.
Corporate governance policies and practices
Our board of directors and management firmly embrace good and accountable corporate governance andgovernance. We believe that an attentive performing board operating under the highest standards of corporate governance is a tangible competitive advantage. To that end, theOur board has undertaken substantial efforts to ensure the highest standards of corporate governance.meet those standards.
Corporate Governance Guidelines and Code of Business Conduct
The board regularly reviews our Corporate Governance Guidelines, taking into account recent trends in corporate governance and any new rules adopted by the New York Stock Exchange (NYSE)NYSE and the SEC. Among other things, these guidelines specify that:
Our Corporate Governance Guidelines also:
Our Corporate Governance Guidelines also include a provision that prohibits
We also have aOur Code of Business Conduct.Conduct (the “Code”) applies to our directors and all EnPro employees, including our
principal executive, financial and accounting officers. The Code covers among other things, conflicts of interest,
corporate opportunities, confidentiality, protection and proper use of company assets, fair dealing, compliance with laws (including insider trading laws), the accuracy and reliability of our books and records, and the reporting of illegal or unethical behavior. It applies to our
The Code requires all transactions by directors and all of ouror employees including our principal executive, financial and accounting officers. Pursuant to the Code, allthat would create a conflict of interest, transactions, including related party transactions we would be required to disclosethat require disclosure in our proxy statement, mustto be presented toreviewed by a member of our internal Corporate Compliance Committee or an attorney in our legal department, who are authorized bydepartment. The Code also requires the Codetransaction to present such transactionsbe presented to our Chief Executive Officer and the Audit and Risk Management Committee. The Code does not otherwise establishinclude specific procedures and policies for the approval or ratification of conflict of interestdealing with these transactions, and we would develop such procedures on a but allows them to be dealt withcase-by-case basis as the need arises. Each year, we ask allthey arise. All members of the board and all officers tomust annually certify their compliance with the Code. Each member of the board and each officer certified compliance without exception in the first quarter of 2014.2017.
Copies of the Code and our Corporate Governance Guidelines and Code of Business Conduct are available on our website atwww.enproindustries.com. From our home page, click on the “Investor”“For Investors” tab, and then on “Corporate Governance.Governance�� and then, for the Code, click “Code of Conduct” and, for the Corporate Governance Guidelines, click on “Board of Directors” and then “Corporate Governance Guidelines.”
As described in our Corporate Governance Guidelines, theThe EnPro board believes that a substantial majority of the boarddirectors should consist of independent directors.be independent. At its February 20142017 meeting, the board of directors made a determination as toconsidered the independence of each nomineeperson nominated for election as a director at the 2017 annual meeting. In making these determinations,meeting and determined that Mr. Botts, Mr. Brueck, Mr. Burns, Ms. Creel, Mr. Hauser, Mr. Humphrey and Mr. van der Graaf are independent. Mr. Macadam, the remaining member of our board, is an employee and is not considered independent.
To determine independence, the board used the definition of an “independent director” in the NYSE listing standards and the categorical standards set forth in our Corporate Governance Guidelines. Under these guidelines,Guidelines, which categorize a director will beas independent only if the board affirmatively determines thataffirms the director has no outside material relationship with our company (either directly or as a director, partner, shareholder or officer of an organization that has a relationship with us).
Under our Corporate Governance Guidelines, a director will not fail tomay be deemed independent solely aseven though we have a result of a relationship we have with an organization with which the director is affiliated as a director, partner, shareholder or officer,officer. In such situations, the director is deemed independent so long as:
In addition, underUnder the guidelines, the board cannot conclude that a director iscannot be independent if he or she falls into one of the following categories:
from us during any12-month period within the past three years; director and committee fees and pension or other forms of deferred compensation for prior service |
To assist in the board’s independence determinations, eachEach director nominated for election at the 20142017 annual meeting completed a questionnaire that included questions to identify any relationships the director may have with us or with any of our executive officers or other directors. After discussing all relationships disclosed in the responses to these questionnaires, the board determined that no director except Mr. Botts, Mr. Browning, Mr. Brueck, Mr. Burns, Ms. Creel, Mr. Harnett, Mr. Hauser and Mr. van der Graaf are independent because noneMacadam has a material relationship with the company other than as a director. As our Chief Executive Officerdirector and President, Mr. Macadam is automatically disqualified from being an independent director.all except him are independent.
“Board, committee and director evaluations
The board of directors and the Audit and Risk Management, Compensation and Human Resources, and Nominating and Corporate Governance committees each assess their performances with yearly self-evaluations. The evaluations are completed by means of a questionnaire submitted to the directors inviting written comments on all aspects of the board’s and each committee’s process. In addition, the evaluations include
an individual director assessment component to permit each director to evaluate the contributions of each of the other directors. The evaluations are summarized, reviewed by the Chairman of the Board and become the basis for discussions of board, committee and director performances and recommendations for improvements in the ways the board and committees function and directors perform their duties.
Audit committee financial expert”expert
The board of directors has determined that Mr. Hauser, the chairmanHumphrey, a member of the Audit and Risk Management Committee, is an “audit committee financial expert” as that term is defined in Item 401(h) of the SEC’sRegulation S-K. At its February 20142017 meeting, the board determined that Mr. Hauser,Humphrey, through his education and experience, as a certified public accountant andincluding his prior experience as the Chief Financial Officer of Duke Energy Corporation,Roper Technologies, Inc., has all of the following attributes:
Director candidate qualifications
When considering candidates for director, the Nominating and Corporate Governance Committee takes into account a number of factors, including whether the candidate is independent from management and the company, whether the candidate has relevant business experience, the composition of the existing board, matters of diversity (including diversity in professional experience and industry background), and the candidate’s existing commitments to other businesses. In addition, all candidates must meet the requirements set forth inof our Corporate Governance Guidelines. Those requirements include the following:include:
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The Nominating and Corporate Governance Committee will consider recommendingcandidates for nomination director candidateswho are recommended by shareholders. Shareholders who wish to suggest that the board nominate a particular candidate for nomination should send a written statement addressed to our Secretary at 5605 Carnegie Boulevard, Suite 500, Charlotte, North Carolina 28209 in accordance with the timeline and procedures set forth in our bylaws for shareholders to nominate directors themselves.28209. See “Shareholder Proposals” on page 67 for a description of the requirements to be followed under our bylaws in submitting a candidate and the content of the required statements.
When seeking candidates for director, theThe Nominating and Corporate Governance Committee may solicitannually reviews a matrix, similar to the matrix appearing on page 3, which compares the skills of our current directors with all of the skills we have identified as necessary to maintain an attentive, high-functioning board. When the Nominating and Governance Committee identifies desirable skills that are lacking among incumbent directors, the Committee searches to identify candidates who would add the missing skills. The search includes soliciting suggestions from incumbent directors, management or others.others and evaluating suggestions submitted by shareholders. The Nominating and Corporate Governance Committee may also engage the services of a third party to identify and evaluate candidates. After conducting an initial evaluation
The Committee evaluates the candidates and if it agrees on the suitability of a candidate, the Nominating and Corporate Governance Committee (orcandidate is interviewed by each member of the committee Chairman) interviews that candidate if the committee believes the candidate might be a suitable director.board of directors, generally in separate meetings. The Nominating and Corporate Governance Committee may also ask the candidate to meet with management.
If the Nominating and Corporate Governance Committee concludes that a candidate has skills which would be a valuable additionadd value to the board and thatif the candidate meets all of the requirements for board membership, itthe Committee will recommend the candidate to the full board that the candidate be nominatedfor nomination for election (or appointed, ifor appointment (if the purpose of the committee’s search was to fill a vacancy).
Mr. Brueck was first elected as a director in February 2014 by the board of directors to fill a vacancy created by the board’s decision to increase the size of the board. Mr. Brueck had initially been recommended to the Nominating and Corporate Governance Committee by our Chief Executive Officer. The Nominating and Corporate Governance Committee evaluated Mr. Brueck
and recommended that the board of directors expand the size of the board and elect Mr. Brueck to fill that vacancy.
Before recommending a sitting director forre-election, the Nominating and Corporate Governance Committee considers whether the director’sre-election would be consistent with the criteria for board membership in our Corporate Governance Guidelines (as described above), the skills identified in the matrix used by the Committee (as described above) and applicable rules and requirements of the SEC and NYSE. This process includes a review on behalf ofby the Nominating and Corporate Governance Committee of the responses to the annual director questionnaires.
Mr. Browning is age 72. The determination to nominate him for re-election as a director was made by a unanimous vote of the Nominating and Corporate Governance Committee and our board of directors, other than Mr. Browning who recused himself from the vote in each instance. In making this determination, the Nominating and Corporate Governance Committee and board of directors evaluated Mr. Browning’s performance as a director and corporate governance expertise, as well as changes in the composition of the board of directors as other directors have retired from service, and the desirability of maintaining a level of continuity on the board of directors during the pendency of GST’s asbestos claims resolution process.
Our directors share certain characteristics and attributes that we believe are critical to effective board membership, includingmembership. They include sound and mature business judgment essential to intelligent decision-making, experience at thein policy-making, level at a business, integrity and honesty, and the ability to collaborate in an effective manner at a board level.effectively. These characteristics,
and attributes and the specific employment and leadership experiences and other qualifications listed for each of our directorsnoted in his or her biographythe biographies found above underin the captionsection headed “Nominees for Election” led tosupport the conclusion thatboard’s nomination for election of each of these individuals should be nominated for election.individuals.
Shareholders and other interested parties can send communications tocommunicate with our board in various ways. They may write the board at 5605 Carnegie Boulevard, Suite 500, Charlotte, NC 28209; they may contact the board anonymously and confidentially through our EnTegrity Assistance Line; and they may attend our annual shareholders meeting, where they will have the opportunity to talk directly to members of our board.
Letters to the board should be addressed in care of our Secretary, who the board has authorized to receive and process written correspondence. He will direct correspondence about issues within the board’s scope of responsibility directly to the Chairman and to the chairman of any committee to which the correspondence relates. Customer complaints and other correspondence about ordinary business matters are sent directly to the applicable business. Correspondence of other types is not forwarded to the board but held by means of the Secretary and made available to any director who wishes to see it.
Shareholders and other interested parties who wish to send anonymous and confidential correspondence to the board may do so through our EnTegrity Assistance Line. You can find instructionsThe line is staffed by an independent third party who is responsible for receiving and forwarding messages on the line. Instructions for using the EnTegrity Assistance Lineline are available under the “Corporate Governance” link accessed from the “For Investors” link on our website atwww.enproindustries.com.An independent third party staffs the line. We have instructed this third party that any reportItems addressed to the board of directors beare forwarded to the Chairman of the Audit and Risk Management Committee, anon-management director. ReportsItems not addressed specifically to the board of directors are forwarded to our Director of Internal Audit, who reports directly to the Audit and Risk Management Committee and is a member of our internal Corporate Compliance Committee. The Director of Internal Audit periodically updates the Audit and Risk Management Committee regardingabout the investigation and resolution of all reports of alleged misconduct (financial or otherwise).
Shareholdersalleging financial and other interested parties also may send written correspondence to the board caretypes of our Secretary, addressed to 5605 Carnegie Boulevard,
Suite 500, Charlotte, North Carolina 28209. The board has established procedures for the handling of communications from shareholders and other interested parties and directed our Secretary to act as the board’s agent in processing these communications. All communications regarding matters that are within the scope of the board’s responsibilities are forwarded to the board Chairman, a non-management director. Communications regarding matters that are the responsibility of one of the board’s committees are also forwarded to the chairman of that committee. Communications that relate to ordinary business matters, such as customer complaints, are sent to the appropriate business. Solicitations, junk mail and obviously frivolous or inappropriate communications are not forwarded, but the Secretary will make them available to any director who wishes to review them.
In addition, security holders and other interested parties who attend our annual shareholders’ meeting will have an opportunity to communicate directly with the board.misconduct.
Directors who are also employees receive no compensation for serving onIn 2016, our board. Our non-employee directors receivereceived the following compensation:
PhantomAdditional cash compensation is paid to:
In addition, each director may be granted phantom shares upon his or her initial election to the board. The amount of such an award is determined by the Nominating and Corporate Governance Committee and has generally been based on the number of days remaining in the year that the director is elected.
Employee directors receive no compensation for serving on our board.
Non-employee directors are generally granted to non-employee directorsphantom shares at the first board meeting of the Compensation Committee each year. Phantom shares are fully vested when awarded and are paid in shares of common stock when a director ceases his or her service on the board.
The board has adopted stock ownership requirements pursuantBoard members are required to which aown the company’s stock. Each director has until five years afterfrom the date he or she joins the individual becomes a directorboard to accumulate ownership ofEnPro shares having aequal in value equal to at least five times the annual cash retainer paid to directors. Phantom shares count toward the threshold established under our stock ownership requirements. If a director fails to maintain the required level of ownership, the director is required to retain 50% of any shares received under any company equity award plan until he or she satisfies the requirements.this requirement. We examine compliance with this policy at our board of directors meeting held in February of each year.February. As of February 5, 2014, the date of our February 2014 Compensation and Human Resources Committee meeting,13, 2017, all directors who have served on the board for at least five years complied with the requirements.
Non-employee directors may participate in ourA Deferred Compensation Plan for Non-Employee Directors. Under this plan, allowsnon-employee directors mayto defer receipt of all
or part of the cash portion of their annual retainer fee. Participants choose between two investment alternatives,fees. The deferred portions of the fees can be directed to a cash account andor a stock account. Deferred fees inFees deferred into a director’s cash account are credited with an investmenta return based on an investment option chosen by the director’s selectiondirector from the same menu of investment optionsthose available under our Retirement Savings Plan for Salaried Employees (excluding our
common stock). Deferred fees inFees deferred into a director’s stock account are credited with stock units, that each have aequal in value on a given date equal to the fair market value of one share of our common stock on thata given date. All amounts deferred are payable when a director
ceases his or her service on the board. TheAs of December 31, 2016, the following non-employee directors have the followinghad deferred compensation balances under the plan as of December 31, 2013:plan: Mr. Botts, 1,093 2,666
stock units; Mr. Browning, 7,599Brueck, 3,960 stock units; Mr. Harnett, $206,479.17$223,266 and 6,483 stock units; Mr. Hauser, $338,528.16 and 5,9026,683 stock units; and Mr. Prezzano, 14,955Hauser, $605,938 and 7,707 stock units.
The following table presents the compensation we paid to allnon-employee directors for their service in 2013.2016.
2013 2016Non-Employee Director Compensation
Name (a) | Fees Earned or Paid in Cash ($)(1) (b) | Stock Awards ($)(2) (c) | Total ($) (h) | Fees Earned or Paid in Cash ($) (1) (b) | Stock Awards ($) (2) (c) | All Other Compensation ($) (3) (g) | Total ($) (h) | |||||||||||||||||||||
Thomas M. Botts | 75,000 | 75,000 | 150,000 | 87,000 | 90,010 | 6,223 | 183,233 | |||||||||||||||||||||
Peter C. Browning | 81,000 | 75,000 | 156,000 | |||||||||||||||||||||||||
Felix M. Brueck | 75,000 | 90,010 | 3,942 | 168,952 | ||||||||||||||||||||||||
B. Bernard Burns, Jr. | 75,000 | 75,000 | 150,000 | 75,000 | 90,010 | 7,160 | 172,170 | |||||||||||||||||||||
Diane C. Creel | 75,000 | 75,000 | 150,000 | 75,000 | 90,010 | 11,384 | 176,394 | |||||||||||||||||||||
Gordon D. Harnett | 115,000 | 75,000 | 190,000 | 122,500 | 90,010 | 28,559 | 241,069 | |||||||||||||||||||||
David L. Hauser | 83,000 | 75,000 | 158,000 | 90,000 | 90,010 | 17,334 | 197,344 | |||||||||||||||||||||
Wilbur J. Prezzano, Jr. | 75,000 | 75,000 | 150,000 | |||||||||||||||||||||||||
John Humphrey | 75,000 | 90,010 | 1,783 | 166,793 | ||||||||||||||||||||||||
Kees van der Graaf | 75,000 | 75,000 | 150,000 | 75,000 | 90,010 | 6,560 | 171,570 |
(1) | Messrs. Brueck and Hauser deferred $75,000 and |
(2) | On February |
Director | Number of Phantom Shares | |||
Thomas M. Botts | ||||
| ||||
B. Bernard Burns, Jr. | ||||
Diane C. Creel | ||||
Gordon D. Harnett | ||||
David L. Hauser | ||||
| ||||
Kees van der Graaf |
(3) | Such amounts equal the aggregate grant date fair value of phantom shares to be settled in shares of common stock issued pursuant to the dividend equivalent rights provisions of previously granted awards of phantom shares to be settled in shares of common stock with respect to dividends paid on our common stock in 2016. The grant date fair value of each such dividend equivalent issuance is equal (subject to rounding of the number of phantom shares issued) to the cash dividend payable on the number of shares of our common stock equal to such director’s aggregate number of phantom shares to be settled in shares of common stock held as of the record date for the payment of such dividend. |
At its February 2017 meeting, the board of directors approved increasing each of the annual cash retainer and annual grant of phantom shares paid to all directors by $5,000, the cash retainer paid to the Chairman of the Board by $10,000, and the annual cash retainers paid to
the chairs of the Compensation and Human Resources Committee, Audit and Risk Management Committee and Nominating and Corporate Governance Committee by $3,000, $5,000 and $2,500, respectively.
The Audit Committee oversees the quality and integrity of our financial reporting processes and our systems of internal accounting controls. Management is responsible for preparingprepares our financial statements and for establishingestablishes and maintainingmaintains adequate internal control over financial reporting. The independent registered public accounting firm is responsible for performingperforms an independent integrated audit of those financial statements and the effectiveness of our internal control over financial reporting.
The Audit Committee has met and held discussionsdiscussed with management and PricewaterhouseCoopers LLP, (PricewaterhouseCoopers), our independent registered public accounting firm, for 2013, regarding our audited 20132016 consolidated financial statements and our internal control over financial reporting. Management represented toIn meeting with the Audit Committee, management informed the committee that our consolidated financial statements were prepared in accordance with generally accepted accounting principles and that our internal control over financial reporting was effective as of December 31, 2013.2016. The Audit Committee has reviewed and discussed the consolidated financial statements and our system of internal control over financial reporting with management and PricewaterhouseCoopers.
The Audit Committee also has discussed with PricewaterhouseCoopers the matters required to be discussed by Auditing Standard No.16,Communications
with Audit Committees, as adopted by the Public Company Accounting Oversight Board. In addition, the Audit Committee has Committee:
• | discussed with PricewaterhouseCoopers Auditing Standard No.1301,Communications with AuditCommittees, as adopted by the Public Company Accounting Oversight Board, |
The Audit Committee has furtheralso discussed with our internal auditors and PricewaterhouseCoopers the overall scope and plans for their respective 20132016 audits. TheWith and without the presence of management, the Audit Committee met with the internal auditors and PricewaterhouseCoopers with and without management present, to discuss the results of their examinations, the evaluations of our internal control over financial reporting, and the overall quality of our financial reporting.
In reliance upon the Audit Committee’sRelying on its discussions with management and PricewaterhouseCoopers and the Audit Committee’sits review of themanagement’s representation of management and the report of PricewaterhouseCoopers to the Audit Committee,it, the Audit Committee recommended that the board of directors include our audited consolidated financial statements in our Annual Report onForm 10-K for the year ended December 31, 20132016 to be filed with the SEC.
Audit and Risk Management Committee
Thomas M. Botts
Peter C. BrowningFelix M. Brueck
B. Bernard Burns, Jr.
Diane C. Creel
Gordon D. Harnett
David L. Hauser
Wilbur J. Prezzano, Jr.John Humphrey
Kees van der Graaf
February 5, 201413, 2017
Compensation and Human Resources Committee report on executive compensation
The Compensation and Human Resources Committee is responsible for developingdevelops and overseeingoversees the implementation of our compensation philosophy and strategy. The committee assists the board of directors by exercising oversight concerningmonitoring the appropriateness and cost of our compensation and benefit programs, particularly for the CEO and the other senior executives.
The section entitled “Compensation Discussion and Analysis” explains the material elements of our
compensation program and provides an analysis of the material factors underlying the committee’s compensation policies and decisions. The committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based on its review and discussionsection with management, the committee hasand recommended to our board of directors that the Compensation Discussion and Analysisit be included in this proxy statement and in our annual report onForm 10-K for the year ended December 31, 2013.2016.
Compensation and Human Resources Committee
Thomas M. Botts
Peter C. BrowningFelix M. Brueck
B. Bernard Burns, Jr.
Diane C. Creel
Gordon D. Harnett
David L. Hauser
Wilbur J. Prezzano, Jr.John Humphrey
Kees van der Graaf
February 5, 201413, 2017
Compensation discussion and analysis
This compensation discussion and analysis provides information about our 20132016 compensation program for the followingour named executive officers (collectively, “named executive officers” or “NEOs”) listed in the summary compensation table appearing in this proxy statement:NEOs. For 2016, those officers are:
We designThe objectives of our executive officer compensation programs are to attract, motivate and retain the key executives who will drive our success. Our objective is to establish pay practices that reward themthese executives for superior performance and align their interests as managers of our company with the long-term interests of our shareholders.
We achieve our objectives through compensation that:
Our executive compensation program is designed to tie pay to bothIn structuring annual and long-term incentive compensation opportunities, we select performance measures that we believe significantly drive the value of our company. For 2016, we selected a combination of incentive performance measures that focus on driving operating earnings and rewarding the appropriate use of capital, and include a relative shareholder return measure to evaluate our performance relative to a peer
group. We set goals against these measures and make little or no payment for poor performance against our goals, though our executives can earn significant payment relative to their salary levels for superior performance against them. We make annual awards of restricted stock units which vest after three years, both to encourage retention and to provide an incentive for performance to increase the value of our shares.
While we generally set measures based on company-wide performance (and for this purpose we include GST in our results as if it were reconsolidated), for annual incentive awards to divisional personnel, 75% of the award is based on the respective division’s performance with the remaining 25% based on company-wide performance. We have generally accomplishedbelieve that this by making annualweighting toward divisional performance not only improves theline-of-sight for the incentives for employees in our divisions, but appropriately recognizes and three-year incentive awards,rewards collaboration of divisional personnel across the company.
We believe our compensation structure aligns with the amount to be paid under these awardsinterests of our shareholders and results in payment based on our achievement of absolute performance goals established at the time these awards are made. Under these awards, poor performance leads to little or no actual payment while superior performance leads to significant payments relative to salary levels.performance.
The following charts set forthshow the relative portion of theour CEO’s total 2013 2016 targetin-service compensation of our CEO and the average targetin-service compensation of the four other NEOs employed at year end
attributable toserving as executive officers as of the date of this proxy statement. Targetin-service compensation consists of base salary paid in 2016, target annual performance basedperformance-based cash compensation awards made in 2016, target long-term incentive performance-based cash compensation, long-term incentive performance-basedand equity compensation awarded in 2016, other long-term equity compensation in the form of restricted stock units awarded in 2016 and other in-service (i.e., non-retirement) compensation.compensation not related to retirement benefits.
CEO TargetIn-service Compensation
Other NEOs Average Target
In-service Compensation
In addition to incentivizingestablishing incentives for superior performance, another primary objective of our executive compensation program isenables us to retain ourtalented and motivated executive officers. We also desire to be in a positionofficers and to replace them with other high-caliber individuals should thatthe need arise. A competitive pay package is vitally important to meetretaining and attracting these objectives. Accordingly, it has been our practice toindividuals, and we establish salaries and benefits, including post-employment benefits, at competitive levels.
From the date he was hired in 2008 through 2013, our CEO’s annual salary has not changed. In order to attract our CEO to EnPro in 2008, we provided a salary that was well above the median of our peer group. Each year since the CEO’s hire, ourOur Compensation and Human Resources Committee (which we refer to in this “Compensation Discussion and Analysis” section of the proxy statement as the “committee”“Committee”) has taken into consideration the fact the CEO’s salary is above the median and decided not to increase the CEO’s salary.
Our compensation program allows the committee and theour board of directors to determine payexecutive compensation based on a comprehensive view of factors designed to produce long-
termlong-term business success. The long-term correlation between our financial results and the compensation awarded to executive officers demonstrates the success of this approach.
The following chart sets forth the total compensation, as reported in the summary compensation table in our annual proxy statements, paid to our CEO for each of the full years he has served as our CEO, as well as our earnings before interest, taxes, depreciation, amortization expense, asbestos expense and other selected items (or, adjusted EBITDA-A), a primary metric
we use to evaluate our performance and one used in determining annual and long-term incentive compensation during this period.
Because a significant component of the CEO’s total compensation opportunity is long-term cash incentive compensation based on performance over a three-year cycle, the correlation for any single year may be skewed. For 2013, approximately 33% of the CEO’s reported total compensation was long-term cash incentive performance compensation for the three-year cycle ending with 2013.
(Annex A to this proxy statement sets forth the calculation of adjusted EBITDA-A, which is not a measure under U.S. generally accepted accounting principles. The financial results of GST LLC have not been included in our consolidated financial results since June 5, 2010, when GST filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code as the initial step in a process to resolve all current and future asbestos claims. However, because GST LLC continues to be our subsidiary, oversight of this business and its financial results continues to be a responsibility of our executive officers and the financial measures used under our incentive compensation plans include GST LLC’s results, the performance of this business since June 5, 2010 has been separately included in this chart.)
We were challenged to maintain our objectives for growthIn 2016, we achieved significant milestones in 2013 as activity in manythe asbestos claims resolution process (the “ACRP”) of our markets slowed compared to activity in 2012. In this environment, we sought to maintain a stable operating base that will enable us to take advantage of improving conditions as they arise in the future. Several accomplishments helped us achieve our goal.
Asbestos claims at $125 million. Atresolution process. In March 2016, we reached a trial in Julycomprehensive settlement to resolve current and August, 2014, GST LLC offered compelling evidence that the liability was no more than this amount compared to the nearly $1.3 billion sought by representativesfuture asbestos claims. The settlement contemplates a joint plan of the asbestos claimants. While there is much work left to be done before reaching a final resolution ofreorganization which would permanently resolve all current and future asbestos claims against GST LLC, we hope the judge’s estimate will lead to an expeditious conclusion to the case, the reconsolidation of GST LLC into EnPro and a finality that will allowour subsidiary then known as Coltec Industries Inc (“Coltec”) and would protect all of EnPro from those claims. This was a major milestone in our efforts to move forwardcleanse our company and achieve its full potential.subsidiaries of the legacy asbestos claims that have plagued us since our spinoff from Goodrich Corporation in 2002. In November 2016, we announced that we entered into a definitive settlement agreement with the workers’ compensation boards for each of the ten Canadian Provinces (the “Provincial Boards”) to resolve current and future claims against us and certain subsidiaries for recovery of a portion of amounts the Provincial Boards have paid and will pay in the future under asbestos-injury recovery statutes in Canada for claims relating to asbestos-containing products. An agreement for the resolution of these Canadian claims was a condition to our obligations to proceed with the March 2016 comprehensive settlement. In December 2016, we reported that our subsidiaries, GST and Coltec, obtained the asbestos claimant votes necessary for approval of the joint plan of reorganization, which remains subject to approval by the Bankruptcy Court and the U.S. District Court for the Western District of North Carolina. Finally,
Ouras contemplated by the joint plan, in December 2016 we completed the corporate restructuring of Coltec to permit its corporate successor to commence proceedings with the Bankruptcy Court, which it did in January 2017. These significant accomplishments in 20132016 have placed us on track to resolve these matters, and formally reconsolidate GST’s financial results with ours, in the third quarter of 2017.
Performance in continued challenging economic conditions. Similar to 2015, activity levels in most of our markets remained depressed in 2016, as we faced economic headwinds and muted demand levels. We also continued to experience the adverse impact of the further strengthening U.S. dollar. While we took a variety of actions to mitigate the negative market trends, including exiting eight facilities, consolidating two facilities into existing sites, moving two facilities from leased to owned locations, and undertaking a company-wide effort to reduce costs by $18 million annually, we were reflectednot able to fully offset the pressure on earnings.
The segment profit margin of our Sealing Products segment was 11.6%, a decline of 30 basis points compared to 2015 largely driven by headwinds across nearly all markets. In our Power Systems segment, segment profit margin was 8.2% in 2016, a decline of 500 basis points compared to 2015 driven by lower aftermarket parts and services revenue, losses related to the EDF contract that were primarily related to foreign exchange, and the payment of a legal settlement, partially offset by price increases.
At the GGB division of our share price,Engineered Products segment, we completed the move of our Chicago operations into other existing GGB facilities, moved into and began production in a new, owned facility in China, and moved from a leased facility into a new, owned facility in Thorofare, New Jersey. At our CPI division of the segment, we completed our comprehensive restructuring plan that we initiated in 2015, which included the exit from eight service centers and light manufacturing facilities plus the consolidation of one facility into an existing site that in total resulted in a reduction of about 15% of CPI’s workforce. These restructuring activities, along with the company-wide cost
reduction plan initiated in the second quarter of 2016, resulted in segment profit margins of 4.5% in 2016, which represented an increase of 240 basis points compared to 2015. We believe that these efforts position our Engineered Products segment for further improved 41% duringperformance in the future, especially as the industrial markets begin to recover.
Acquisitions. In April 2016, we acquired Rubber Fab Gasket & Molding (“Rubber Fab”), a company that designs, markets and manufactures a full range of high performance sanitary gaskets, hoses and fittings for the hygienic process industries. Rubber Fab supplies critical process consumables for the pharmaceutical,bio-processing and food and beverage sectors. The majority of Rubber Fab’s sales are consumable products that require regular replacement due to scheduled maintenance and cleaning cycles. The acquisition of Rubber Fab expands our presence and scale in the hygienic market space and complements our existing sealing solutions to provide a comprehensive product portfolio. Over the course of 2016, we completed
integration activities related to the year comparedRubber Fab acquisition. We continue to pursue acquisition opportunities in a 29.6% improvementnumber of markets like the hygienic market space that we have identified as being strategically important.
Dividends and share repurchases. In the first quarter of 2016, we increased our quarterly dividend by 5% to $0.21 per share. Additionally, throughout the course of 2016, we continued our efforts to return capital to our shareholders by repurchasing shares under our $50 million share repurchase program that was authorized by our board of directors in the Standard & Poor’s 500 Indexfourth quarter of 2015. In 2016, we repurchased approximately 600,000 shares for $29.7 million. As we start 2017, we have approximately $14 million remaining of our previously authorized $50 million share repurchase program. We regularly evaluate our capital allocation strategy based on company performance and a 37% improvementanticipated capital requirements for growth, and we will continue this practice in the Russell 2000 Index. In 2014, our share price has increased even more, following the announcement of the judge’s opinion in GST LLC’s asbestos claims resolution process. Our $71.63 closing share price as of February 28, 2014 represents a 24% increase from its closing price on December 31, 2013, compared to an average decline of 1.1% among the peer group of companies listed on page 32 of this proxy statement.2017.
FollowingThroughout the 2012 shareholder advisory vote on executive compensation and prior to making executive compensation decisions for 2013,course of each year, we engaged in a wide-ranging dialoguehave dialogues with numerous shareholders, which includedincluding frequent conversations with many of our largest shareholders. Although from this dialogue we concluded
that there wasThese conversations cover a wide range of topics, including our strategic direction, financial performance, future growth opportunities, capital allocation strategy, and management practices. During these conversations in 2016, no consensus amongshareholder or group of shareholders raised significant concerns about our shareholders for any specific changepractices or policies.
As part of our continuing efforts to consider and adopt best compensation governance practices as they evolve, the design ofCommittee made several minor adjustments to our compensation program we carefully considered the diverse views expressed by shareholders who provided us with feedback and made severalfor 2017. These changes to our 2013 compensation programs, which are described below. The
committee is committed to continued engagement with all shareholders to fully understand diverse viewpoints, while discussing and demonstrating the link between our executive compensation program and the long-term performance of our businesses.
At our 2013 annual meeting, shareholders approved (by a vote of 96.8% of shares voted for or against) the resolution approving, on an advisory basis, the compensation paid to our named executive officers. The committee typically establishes incentive compensation opportunities in February of each year. Accordingly, the compensation program and incentive compensation
awards for 2013 were set in February 2013, before the shareholder vote at the 2013 annual meeting. The committee did not consider the favorable shareholder advisory vote in 2013 in structuring compensation awards for 2013 because the shareholder advisory vote on executive compensation was held in May 2013, after the 2013 compensation program had been designed and salary decisions and performance awards had been made. However, the committee considered the outcome of this vote in deciding not to materially alter our compensation policies and programs with respect to awards made in 2014, except as discussed below in “— Changes to compensation program in 2014.2017.”
At our 2016 annual meeting, we asked our shareholders to support anon-binding resolution to approve the compensation paid to our named executive officers as reported in our proxy statement for that meeting. Of the shares voted “for” or “against” that proposal, 90% of the shares were voted “for” approval of that resolution. The Committee typically establishes incentive compensation opportunities each February. Accordingly, the 2016 compensation program and incentive compensation awards were set in February 2016, before the shareholder advisory vote on compensation at the 2016 annual meeting in May 2016. While the May 2016 shareholder vote occurred after the structure for the 2016 compensation awards had been set by the Committee, the 2016 shareholder vote was considered by the Committee in determining the compensation program for 2017.
Changes to compensation program in 20132016
The committee has madeCommittee changed the following changes to our compensation program for 2016, as follows:
Redesigned our long-term incentive compensation awards made in 2013:
The number of the target compensation opportunityshares to be issued under the awards payable in our stock rather than in cash, with the value at target level of our long-term compensation awards being split equally among performance shares, long-term incentive cash compensation awards and restricted stock units;
For awards under our long-term incentive compensation plan we have historically used metrics such as cumulative earnings per share and cumulativerequire recipients to hold the netEBITDA-Aafter-tax measured over ashares issued at the end of the three-year performance cycle. Rapidly changing business conditions in recent years have made setting appropriate three-year performance targets particularly difficult.period for an additional year.
For ourPayments on the long-term incentive compensation awards made in 2013, committee adopted a new plan design using an “enduring standard” by which to measure and reward performance. This standard comparesthe prior three years are based on the company’s calculated growth in equity value per share
over the three-year performance period (2013 – 2015)of the plan to a defined costtarget return. The Committee concluded that the absolute measure used for those awards was significantly affected by general economic conditions, which are difficult to predict at the beginning of equity.the three-year measurement cycle. The committeeCommittee selected separate measures for the 2016 long-term incentive awards payable in cash and in stock to include one metric (TSR) based on our performance relative to others during the three-year measurement period. The Committee, upon the recommendation of its independent advisor, selected the S&P SmallCap 600 Capital Goods (Industry Group) Index for this comparison after considering several alternative indices and groups because of its belief that the companies included in this index (a total of 57 companies, including EnPro) are of similar size and scope and would likely experience the same overall effects as EnPro from changes in general economic conditions.
The Committee selected adjusted return on invested capital for LTIP awards payable in cash to hold management to an absolute yardstick in measuring return on investment capital. Given the company’s acquisition activity, the Committee believed this measure should reflect as invested capital assets (intangible assets and goodwill) which arise from acquisition activity to hold management accountable for the long-term impact of acquisition decisions (the Committee does not include these assets in measuring the return on invested capital under annual incentive plans, because inclusion of these assets, and the short measurement period to reflect the contributions from the acquisitions giving rise to the assets, could skew incentives for management away from completing otherwise attractive acquisition opportunities).
Reduced the maximum payout on long-term incentive compensation awards. The Committee set the maximum payout for long-term incentive compensation awards made in 2016 at 200% of the target level. The maximum payout for long-term incentive compensation awards granted in the prior three years was 300% of the target level. The Committee believed that, with the change in the measures used to evaluate performance of the awards from the calculated growth in equity value per share used in the past three years, it was more appropriate to set the maximum payout at 200%, which level is consistent with its practice prior to 2013.
Reduced the portion of long-term compensation awarded as restricted stock units from 40% to33 1/3%. For 2016, the Committee returned to its practice prior to 2015 and split target long-term compensation grants equally among awards of restricted stock units, incentive cash awards and incentive share awards. For long-term compensation awards made in 2015, the Committee’s grants were weighted more heavily toward restricted stock units: 40% of the 2015 grant was payable in restricted stock units, 30% in incentive awards payable in cash and 30% in incentive awards payable in shares.
Provided for “double triggers” forchange-in-control vesting for new long-term incentive and equity awards. Our equity and long-term incentive compensation plans had required vesting of certain equity and long-term incentive awards upon a change in control of our company. In contemplation of awards to be made in 2016, and at the recommendation of the Committee, the board of directors amended these plans to permit the Committee the flexibility to require additional events following a change in control to trigger the vesting of new equity and long-term incentive awards. The long-term incentive compensation awards and restricted stock units awards granted to employees in February 2016 provide that, if the resulting entity in the change in control assumes the awards, the awards will vest early in connection with a change in control only if within two years after the change in control the employee is terminated without “cause” or the employee resigns for “good reason,” as such terms are defined in the awards.
Increased the weighting of divisional performance for annual incentive awards to divisional personnel. For 2016, the Committee increased divisional performance measures to 75% of the weighting for annual incentive awards to divisional personnel. The remaining 25% is based on company-wide performance measures. In recent years, awards made to divisional personnel were equally weighted between measures applicable to divisional performance and corporate-wide performance measures. The Committee believes that the new plan design holds management accountableincreased weighting toward divisional performance will improve theline-of-sight for not only earnings growth,the incentives for employees in those divisions, as they can most significantly affect the performance of their respective division, but alsoappropriately recognizes and rewards collaboration of divisional personnel across the quality of any investments. It aligns management’s interests with those of shareholders by rewarding the creation of equity value in excess of the company’s defined cost of equity. Unlike a formula based solely on total shareholder return, payouts under the equity value plan are not subject to broader movements in the stock market, which are largely outside of management’s control.company.
All of ournon-management directors sit on our Compensation and Human Resources Committee. The committee’s primary function as delegated to itthe Committee by our board involves oversight concerningis overseeing the appropriateness and cost of our compensation programs, particularly the program for executive officers. The committee also approves all change in control agreements, the officers’ participation in all benefit and retirement plans and all material changes to these plans. The following discusses our general practices with respect to evaluating and awarding executive compensation.
The role of the executive officers
In reviewing theThe compensation of theour CEO and the other executive officers is set by the committee is advised byCommittee based on the advice of its independent executive compensation consultant and
our human resources staff. It isHowever, our CEO and other executive officers are involved in certain aspects of our compensation practices. At the committee’s practice to request and consider proposals byof the Committee, our CEO as to the appropriateproposes salary levels of salary and incentive award opportunities for all executive officers other than himself, and the CEO.Committee considers his proposals in setting compensation for those officers. The committee establishes theCommittee itself sets our CEO’s compensation independently of that of the other
executive officers, so that an increase inwithout regard to the compensation of other executive officers. In this way, any increase in compensation that our CEO proposes for those officers as proposed by the CEO, does not form the basis for a corresponding increase in the CEO’shis compensation.
To set
The performance measures and levels for our annual and long-term incentive plans are set by the Committee based on proposals made by our executive officers reviewofficers. The executives’ proposals are based on the forecasts for the performance of each of our operating units,divisions, key economic indicators affecting our businesses, historical performance of our businesses, recent trends in our industries, and our strategic plans. OurThe executive team proposespresents the Committee with the performance measures that it believes to be most important and meaningful to the achievement ofachieving our strategic goals. The executive team also proposes whatthe weighting it believes to be the appropriate weighting to give tofor each factor in the calculation of the overall incentive awards, and the threshold, target and maximum payout levels appropriate for each of the performance measures we choose.measures.
The committee, withEach December, the advice ofCommittee reviews the executive team’s proposals and seeks its independent executive compensation consultant, reviews the proposed performance measures and weightings each December.consultant’s advice on those proposals. At a subsequent meeting induring the following February, the committeeCommittee reviews and approves threshold, target and maximum payout levels and makes the final determination of what performance measures, weightings and payout levels willto be used for each incentive award. The committeeCommittee often directs members of management to work with its independent executive compensation consultant to provide information and otherwise help with the consultant’s analyses. However, the committeeconsultant complete his analyses, but does not delegate any of its decision makingdecision-making authority to executive officers or other members of management.
The role of the executive compensation consultant
The committeeCommittee has engaged Pearl Meyer & Partners (Pearl Meyer) to serve as its independent executive compensation consultant. At the committee’sCommittee’s request, Pearl Meyer & Partners does not provide anyprovides no services to our company other than theits assistance it provides to the committee.Committee.
The executive compensation consultantPearl Meyer reports directly to the committeeCommittee on all work assigned by the Committee. Pearl Meyer also interacts with management when necessary and appropriate to carry out its assignments, frombut only with the committee.Committee’s approval. Specifically, our General Counsel, who is
responsible for the human resources function of our company, provided compensation and performance data to Pearl Meyer. In addition, Pearl Meyer, & Partners confers with managementin its discretion, from time to time at the requestseeks confirmation from our CEO and our Chief Financial Officer of the committee chairman.accuracy of its presentation of our strategy that it includes in materials presented to the Committee.
Pearl Meyer & Partners’Meyer’s work for the committeeCommittee with respect to 20132016 compensation decisions included:
The independence of the executive compensation consultant
The committeeCommittee has concluded that its compensation consultant, Pearl Meyer & Partners, is independent and does not have ahas no conflict of interest in its engagement by the committee.Committee. In makingreaching this conclusion, the committeeCommittee considered the followinga number of factors, confirmedincluding that Pearl Meyer provides no services to EnPro other than advice to the committee by the compensation consultant:
officers.
OurTo design an executive compensation program reflects our corporatethat is in line with the policies fordescribed below, the Committee considered:
compensation and market competitiveness studies described below, below;
equity grants, retirement benefits, and possible severance or change in control payments). In addition, the committee considered ;
The following table highlights key features of our executive compensation program. We also identify certain compensation practices that the Committee has not implemented because it does not believe they would incentivize excessive risk taking and the continued uncertainty regarding the pace of an economic recovery in markets relevant to the company.serve our shareholders’ long-term interests.
What we do |
✓ | We make variable, performance-based compensation a significant componentof each executive officer’s total compensation and increase the proportion of variable compensation to total compensation as levels of responsibility increase. |
✓ | We balance short-term and long-term compensation to discourage short-term risk-taking at the expense of improvement in long-term results. |
✓ | We require meaningful stock ownership and retention at levels that increase with responsibility. |
✓ | We have implemented aone-year holding requirementfor netafter-tax shares earned under performance share awards beginning with awards made in 2016. |
✓ | We use a performance measure relative to the performance for comparable companies for long-term incentive awards payable in stock beginning with awards made in 2016. |
✓ | The Committee uses an independent executive compensation consultant which reports directly to the Committee and does not provide any other services to our company. |
✓ | We have a clawback policy for the recovery of performance-based compensation in the event of executive officer misconduct related to our financial results. |
What we don’t do |
X | We do not permit hedging transactions on our stock. |
X | We do not provide special perquisites to any employee. |
X | We do not vest time-based equity awards in less than three years. |
X | We do notre-price stock options without shareholder approval or permit discounted stock options. |
Policies regarding executive compensation
The committee has aUnder the Committee’s policy, of making variable compensation a significant component of each executive officer’s total compensation. In addition, the more responsibility an executive has, the highercompensation is his or her variable, compensationand that component increases as a percentage of his total compensation. The term “variable compensation” refers to amounts that vary in amount dependingcompensation as an executive’s responsibilities increase. This variable compensation depends on performance — poor—disappointing performance leads toresults in little or no awardsvariable compensation while superior performance leads to superior payouts. In designing ourThe Committee seeks to design variable compensation programs and in establishingestablish performance targets, the committee seeks tocriteria that incentivize continuous improvement in measures important to both our annual and long-term business plans.
Linking a significant portion of our key executives’ total pay to the successful execution of our strategies provides an incentive to achieve our objectives for increasing shareholder value. In addition to achieving operating improvements throughout our businesses, our variable compensation programs are also designed to incentivize achievement of other corporate objectives to increase shareholder value. Over the past several years, the successful resolution of the ACRP has been a key objective for increasing shareholder value.
The committee has policies aimed at more closely aligningCommittee believes management’s interests must be aligned with those of our shareholders. The committee systematically includes some formshareholders’ interests, and it sets policies accordingly. These policies include the systematic grant of equity grant, or potential equity grant, as partto our executives and a requirement for their personal ownership of our executive compensation program. If our officers ownshares. When the shares of our common stock with values that our executives are required to own and have the potential to own create significant topersonal value for them, we believe they will beare more likely to act to maximize longer-termlong-term shareholder value instead ofover short-term gain.
When setting targetedin-service compensation for each of our executive officers, the committeeCommittee considers individual performance, experience and tenure. In
evaluating the reasonableness and competitiveness of targetedin-service compensation, the committeeCommittee reviews compensation data for a broad survey group and for a peer group prepared by its independent executive compensation consultant, whichconsultant. These groups are discussed below.
Stock ownership and retention requirements
Our stock ownership requirements mandate that eachEach executive officer is required by policy to hold shares of our common stock with a market value at least equal to a specifiedspecific multiple of the officer’s base salary. The applicable multiple risesincreases with the officer’s level of responsibility, and the multiples were increased in 2012.responsibility. The minimum ownership levels arerequired for our CEO is 5.0 times base salarysalary; for our CEO andall other NEOs, the minimum is 2.5 times base salary for all NEOs other than the CEO, and the minimumsalary. Minimum levels for the other executive officers range from 0.75 times to 1.5 times base salary. Consistent withIn light of this policy, the committee has believedCommittee believes it is appropriate to provide officers with an opportunity to earn shares as part of thetheir long-term incentive award.awards.
Once named an executive officer, an individual has five years to reach the minimum stock ownership requirement for his or her position. Individuals who were officers in 2012, when we increased the multiples, have five years from the increase to reach the new level. An executive officer has five years after becoming an executive officer to achieve the minimum required stock ownership level, and, for then-current officers, five years after the 2012 increase in the minimum required stock ownership level to achieve the increased level. If the executive officerwho fails to maintain the required level of ownership the executive officer is required tomust retain 50%
of any shares received under any company equity award plan until he or she satisfies the requirement. Restricted shares of our common stock and restricted stock units are countedcount toward the minimum ownership level only after the restrictions lapse.
We examinecheck for compliance with this policy in connection with our board of directors meeting held in February of each year.February. As of February 5, 2014,13, 2017, the date of ourthe Committee’s February 2014 committee2017 meeting, all of our current named executive officers who have been executive officers for at least five years held at least the minimum number of shares.
Anti-hedging policy
We have adopted a policy included in our corporate governance guidelines prohibitingOur policies prohibit employees, officers and directors from engagingusing the company’s securities in any hedging or monetization transactions with respect to the company’s securities, including,transactions. The prohibition includes but is not limited to, through the use of financial instruments such as exchange funds, prepaid variable forwards, equity swaps, puts, calls, collars, forwards and other derivative instruments, or through the establishment of a short position in the company’s securities.
Pledging policy
Our policies prohibit executive officers from pledging EnPro shares that they own as collateral, including holding EnPro shares in a margin account, unless the officer holds unpledged shares at least equal to the amount required under our stock ownership and retention policy and receivespre-approval of the pledge from our General Counsel. Under our policies, a pledge may not be approved unless the officer clearly demonstrates the financial capacity to repay the loan or obligation secured by the pledge without resorting to the pledged shares. Mr. Macadam has pledged 100,000 shares to secure a managed trading program with respect to a broad securities index that does not include any EnPro securities. This pledge transaction was approved in advance in accordance with our policy.
Clawback policy
The committee has adopted aOur clawback policy that allows for the recovery ofcompany to recover performance-based compensation in the event anfrom any executive officer who engages in fraud or willful misconduct that caused, directly or indirectly, the need for a material restatement ofrequires us to restate our financial results. This would include annualUnder the policy, we are entitled to recover cash incentive awards made under our annual incentive performance plan and cash or equity-based incentive awards made under our long-term incentive performance plan. If in the committee’s view,Committee determines the performance-based compensation would have been lower if it had been based on the restated results, the committeeit will, to the extent permitted by law, seek recoveryto recover from thatthe executive officer ofall performance-based compensation as it deems appropriate after a review of all relevant facts and circumstances.
Market competitiveness analyses
In 2012, in connection with evaluating target compensation levels, set for 2013, the committee askedCommittee has requested its independent executive compensation consultant, Pearl Meyer, to update itsprepare benchmarking studies. These studies have been prepared and presented to the Committee every two years. The most recent study comparingpresented to the Committee prior to the compensation decisions it made in February 2016 was prepared in October 2014. The study compared our executive officers’ salaries, target annual incentive plan awards and target long-term incentive awards to those granted to officers in the same positions at other similarly sized diversified manufacturing companies. The study prepared by Pearl Meyer & Partners used compensation data for 2011 from a nationally recognized published survey for a broad survey group of companies and for a peer group consisting of 1614 manufacturing companies within the industrials sector, with annualsector. Annual revenues of the peer companies rangingranged from $471$850 million to $2.6$4.4 billion, with median revenues of $1.24$1.5 billion. The market value forcapitalization of the peer companies at the time of the
study ranged from $536 million$1.2 billion to $3.3$6.0 billion, with median market valuecapitalization of $2.0$3.2 billion. This peer group is the same as the group used for the previous benchmarking study prepared by Pearl Meyer for the Committee, other than the elimination of two companies that were acquired after the date of the earlier study.
Because oversight of GST LLC, our subsidiary which has not been included in our consolidated results since it
commenced the ACRP proceedings in 2010, continues to be a responsibility of our executive officers, for purposes of determiningTo determine our size relative to peers,the compensation peer group, we include GST LLC’s netthe third-party sales (whichof our deconsolidated subsidiary, GST. Those sales were approximately $244.8$195.7 million for the year ended December 31, 2013) with2016. GST has been excluded from our consolidated revenues. (As noted above, the financial results of GST LLC have not been included in our consolidated financial results since June 5, 2010, when GSTit filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code as the initial step in a process to resolve all current and future asbestos claims.) However, its oversight has remained and will continue to be a responsibility of our executive officers. For this reason, for relative compensation comparisons we include GST’s net sales to third parties in the calculation of the revenues we use to compare ourselves to the peer group.
The peer group of companies for the 2014 study was as follows:
• Actuant Corporation | • Barnes Group, Inc. | |
• Circor International, Inc. | • Clarcor, Inc. | |
• Colfax Corporation | • Crane Co. | |
• Curtiss Wright Corp. | • Graco Inc. | |
• IDEX Corporation | • | |
• |
| |
| • Woodward, Inc. | |
• Mueller Water | • Watts Water Technologies, Inc. |
We believe that forFor executive compensation purposes, we believe a comparison of the relative size and complexity of a company not the specific category of products manufactured, is more important for compensation comparisons. We believe this peer group andthan a comparison of specific products manufactured. These are the broader survey group are relevant for this purpose since we believe these types of companies are pertinent competitorswith whom we compete for management personnel.personnel and therefore we believe it is appropriate for us to compare our compensation practices with theirs.
Pearl Meyer prepared a new benchmarking study in October 2016. At the direction of the Committee, Pearl Meyer screened and reviewed companies included in Standard & Poor’s Global Industry Classification Standard Capital Goods industry classification, reviewed the peer groups included in the 2016 reports of certain principal proxy advisory firms, and conducted an analysis to identify potential peer companies, evaluating comparability in terms of sales, business mix alignment, and market value. The peer group of companies usedselected by the Committee for the 20122016 study, differed slightly fromconsistent with Pearl Meyer’s recommendation following its analysis, was the most recent study conducted in 2009. The peersame group for the 2012 study did not include two companies, Gardner Denver, Inc. and Regal Beloit Corporation, that are now significantly larger than the company, and added Curtiss Wright Corp., Mueller Water Products, Inc. and Watts Water Technologies, Inc., whose size and products are
comparable to those of the company. These changes more closely aligned the composition of this group to that of the peer group most recently used by independent proxy advisory firms. Since the 2012 study was performed, two of the companies included in the 2014 study, other than Colfax Corporation. Based on the recommendation of Pearl Meyer, the Committee approved the exclusion of Colfax Corporation from the peer group Kaydonbased on its significantly larger size compared to EnPro and Robbins & Myers, have been acquired.
The committee’s executive compensation consultant advisedother members of the peer group. This 2016 study was used by the committee regardingin connection with evaluating target compensation levels set for 2017.
In its benchmarking studies, Pearl Meyer compared the specific compensation elements we awarded to each of our executive officers as compared to those awarded to executive officers with similar responsibilities of each member of the peer group and the broader survey group. Based on that analysisgroup and the comparisons to the relevant medians of the peer group and survey group,group. Based on its analysis, Pearl Meyer & Partners advised the committee with respect to the named executive officers regardingCommittee on adjustments to base salary, annual incentive award and long-term incentive award. The committee uses peerawards for each named executive officer. Peer and survey compensation data allow the Committee to evaluate the reasonableness and competitiveness of thedetermine whether our compensation programs and target compensation levels for executive officers.officers are reasonable and competitive.
Evaluation of incentives for excessive risk
In establishingTo discourage excessive risk, the structure and levels of executive compensation, the committee has been mindful of the potential incentives for risk taking by managementCommittee seeks to achieve incentives. The committee has sought to balance balance:
The committeeCommittee has specifically evaluated whether the company’s compensation structure and practices establish incentives for unnecessary or excessive risk taking by management. The committeeand concluded that the company’s compensation structure and practicesthey do not establish incentives for unnecessary or excessive risk taking by management.risk.
The following section discusses and analyzes each element of our executive compensation program, including long-term incentive plan, or LTIP, awards made in 2011 and paid out2014 for the 2011-20132014-2016 performance cycle, and LTIP awards made in 20132016 for which scheduled payouts would not occur until 2016.2019.
Base salary
Base salaries give our officers a relatively secure level of compensation. Adjustments to base salary rates typically are made in February of each year and are effective on April 1, thoughmid-year adjustments may be made in the event of promotion or other special circumstance. In 2016, the Committee did not adjust Mr. Macadam’s base salary rate. Mr. Macadam’s base salary rate has been increased only once (by 3% in 2014) since he was hired in March 2008. The Committee adjusted the base salary rates of the other named executive officers in 2016 from the levels paid in 2015. For 2016, base salary rates of all NEOs increased by an average of 2.5% over the prior year, with individual increases ranging from 0% to 4%.
Annual performance incentive plan awards
The committee providesplans used by the Committee to make annual incentive compensation awards are designed to give executive officers with an incentive opportunity each year so that they will have a personal financial incentive to help us reach annual business goals. Annual performance incentive plan awards for Mr. Macadam were made under our senior executive annual performance plan, which our shareholders approved in 2012. Annual performance incentive awards for Mr. Pease and Mr. Magee were made under a similar plan for other corporate officers that permits adjustments for unusual items, which adjustments are not permitted under our senior executive annual performance plan. Annual performance incentive
plan awards for Mr. Herold, Mr. Walker and Mr. Gioffredi were made under a similar plan for division personnel, in which one-half of their award is based on the same corporate-wide performance measures and weightings applicable to the other NEOs under the senior executive annual performance plan and the remaining one-half is based on performance measures applicable to their respective divisions. We refer to these plans as the annual performance plans or annual plans.
ForMr. Macadam’s annual performance incentive awards were made under our senior executive annual performance plan, most recently approved by our shareholders in 2012. Mr. Childress, Mr. Walker, Mr. McLean and Mr. Cox received annual performance incentive awards under a plan in which other corporate officers participate. It uses identical measures and target levels but permits adjustments for unusual items which are not permitted under our senior executive annual performance plan.
Mr. Riley received an annual performance incentive award under a similar plan for division personnel. One quarter of his award was based on the same corporate-
wide performance measures and weightings applied to the other NEOs. The remaining three quarters of the award was based on performance measures applicable to the Fairbanks Morse division.
The amount of awards paid under our annual plan award opportunities, we setplans is based on performance. We establish threshold, target and maximum levels. Performanceperformance levels for our company and each of our businesses. When performance falls below the threshold, level results inexecutives receive no payout,payout. The Committee administers the annual performance plans to provide for payouts at or above the threshold level results in a payout at 200% of the amount at the target payout level. However, achievement of the threshold level of performance does not assure that an executive officer will receive the maximum incentive award, because the committee has retained “negative discretion” to reduce the award based upon the assessmentat 50% of the company’s performance (and, for Messrs. Herold, Walker and
Gioffredi, also the performance of the relevant division) in light of the goals set at the target and maximum levels. In setting these levels, the committee anticipated exercising its negative discretion, if performance levels were not at the maximum level, to reduce annual incentive payments to executive officers to levels consistent with past practice — that is, that absent unusual circumstancespayout, payouts at a target level of performance would likely be in the range ofat 100% of the target payout, and that payouts at a thresholdmaximum level of performance would likely be in the range of 50%at 200% of the target payout. Performance between any of the established levels yields a proportional payout. Because Mr. Cox ceased to be an employee before December 31, 2016, he was not entitled to a payout with respect to his 2016 annual incentive plan award.
For 2013,2016, the performance measures and weightings for the senior executive annual performance plan were as follows:were:
Adjusted operating income | 50 | % | ||
Adjusted return on invested capital | 50 | % |
For 2013,2016, the performance measures and weighting for the divisional component of the annual performance plan in which Messrs. Herold, Walker and GioffrediMr. Riley participated were as follows, in each case with respect to the performance of the relevant division:were:
Adjusted operating income (division) | 50 | % | ||
Adjusted return on invested capital (division) | 50 | % |
For 2013, the committeeWhy we use adjusted operating income and adjusted return on invested capital to measure performance
The Committee selected these performance measures which differed from the measures that the committee had used for the annual performance plans in the past, because thesethey are the critical measures that we use internally in managing our businesses and are measures of our profitability and the performance of our assets relative to our investment. The committee selectedCommittee believes that performance against these measures significantly drive the value of our company. The Committee believes that the adjustments to operating income and return on
invested capital permit a more accurate measure of the operating performance of our businesses. In selecting these performance measures, setsetting the performance goals and awardedawarding the corresponding incentive opportunities, after takingthe Committee took into account management’s recommendation.recommendations.
These company-wide and divisional performance measures are discussed in greater detail in the following paragraphs. Because oversight of our GST LLC
subsidiary and its financial results continues to be a responsibility of our executive officers, in establishingwe include its results with ours when we establish and measuringmeasure our financial metricsperformance under the annual plans (and all other incentive compensation plans) we include GST LLC’s results with our results as though it were consolidated.
Adjusted operating incomeplans.
Adjusted operating income is an important measure of our profitability. The committee includes adjustments in this measure to eliminateeliminates the impacteffect of asbestos expense, LIFO adjustments and certain selected expenseexpenses and income items that do not reflect normal operating conditions because it believes that those adjustments resultconditions. Adjustments to operating income in 2016 included the exclusion of restructuring expense, acquisition-related costs and certain litigation costs and reserves, as well as the impact of foreign currency translation. An adjustment was also made with respect to the loss incurred on a more accurate measuremulti-year, Euro-denominated contract in our Power Systems segment to reflect only the portion of the operating performanceloss related to the percentage of our businesses.project completion.
Adjusted return on invested capital
The committee selectedCommittee believes adjusted return on invested capital as a performance measure because we believe it is a comprehensive measure ofcomprehensively measures the performance of our assets relative to our investment and fairly measures our ability to generate earnings in relation to the investment required to generate those earnings.
Financial goals for 2016
The 2013following table presents the financial goals that corresponded toset for the 2016 senior executive annual performance plan. The table shows goals for threshold, target and maximum performance levels, and our actual 20132016 performance and weighted payout percentages with respect tofor each goal.
We do not include the specific division financial goal after the committee exercised its negative discretion, under the senior executive annual performance plan are set forth in the following table. With respect to the divisional componentgoals of the annual plan in which eachMr. Riley participated or the specific performance of Messrs. Herold, Walker and Gioffredi participated, we have not includedthe Fairbanks Morse division in this proxy statement the specific division financial goals and performance results because we believe thatthis information is confidential information and public disclosure of this confidential information would cause competitive harm to these businesses.that business. At the time these specificthe division goals were set, the committeeCommittee deemed the target performance levels set for each of the division metrics to be reasonable “stretch” goals, with a maximum payout possible only in the event of superior performance.
Performance Levels | Actual Performance | Performance Levels | Actual Performance | |||||||||||||||||||||||||||||||||||||
Threshold | Target | Maximum | Amount | Payout %(2) | ||||||||||||||||||||||||||||||||||||
(dollars in millions) | ||||||||||||||||||||||||||||||||||||||||
(dollars in millions) | Threshold | Target | Maximum | Amount | Weighted Payout % | |||||||||||||||||||||||||||||||||||
Adjusted operating income(1) | $ | 153.6 | $ | 174.1 | $ | 202.9 | $ | 159.7 | 64.8 | % | $ | 113.0 | $ | 136.8 | $ | 166.0 | $ | 129.9 | 42.7 | % | ||||||||||||||||||||
Adjusted return on invested capital(1) | 17.3 | % | 19.2 | % | 21.8 | % | 18.6 | % | 84.5 | % | 14.0 | % | 15.6 | % | 17.4 | % | 14.8 | % | 38.1 | % |
(1) | Adjusted operating income and adjusted return on invested capital are not financial measures under GAAP. Adjusted operating income is calculated by taking each operating division’s operating income and adding back asbestos expense, LIFO adjustments and certain selected expenses that do not reflect normal operating conditions and subtracting certain selected income items that do not reflect normal operating conditions. In addition, adjusted operating income reflects an adjustment for the translation impact of foreign currency exchange, as described above. Adjusted return on invested capital is calculated by taking adjusted operating income multiplied by the difference between 1 minus the tax rate (expressed as a fraction) then adding depreciation and amortization and asbestos expense, with such amount then divided by the sum of average working capital, average gross property, plant and equipment and average gross software investment. For the corporate calculations, corporate administrative expenses are subtracted from the sum of the operating segments’ adjusted operating income. |
The plan payouts at the target performance level, as a percentage of base salary, and the actual payout as a percentage of salary for the named executive officers were as follows:
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Target Payout, as Percentage of Salary | Actual Payout, as Percentage of Salary | |||||||
Macadam | 105 | % | 84.5 | % | ||||
Childress | 70 | % | 56.6 | % | ||||
Walker | 70 | % | 56.6 | % | ||||
Riley | 55 | % | 52.6 | % | ||||
McLean | 55 | % | 44.4 | % |
Mr. Macadam’s employment agreement provides thatsets the target level for his annual incentive award at 100% of his salary. Beginning in 2013, the Committee increased the target award level for his annual incentive awards be set at 100% of his salary. In 2013, in recognition of Mr. Macadam’s efforts during 2012, the company’s overall financial performance in 2012 and the significant progress on a number of key initiatives during 2012, the committee approved an increase in the target award level for his 2013 annual incentive award to 105% of his salary. The committeeTarget award levels set by the target award levelsCommittee for the other named executive officers were based on its historical award levels, of such awards, itsa review of the Pearl Meyer & Partners market studies and management recommendations.
To set 2016 performance levels, the Committee reviewed atop-down estimate of our performance for the year based on management’s expectations for each of our markets and abottom-up review of each division’s
strategy and forecast for its performance. The Committee evaluated these internal estimates against external expectations for the performance of our markets and then set our goals for the year. For the past several years, actual corporate performance has been below target-level goals.
When 2016 operating performance goals were set, we anticipated a continuation of economic trends that had adversely affected a number of the markets we serve, particularly oil and gas, trucking and metals and mining. In settingaddition, the goals reflected an anticipatedzero-profit impact from the multi-year contractual arrangement with Electricite de France, greater research and development spending and lower after-market sales due to maintenance cycles in the Power Systems segment, and that corporate expenses in 2016 would be greater than 2015 due principally to thenon-recurrence of the reversal in 2015 for accruals of long-term incentive compensation, principally for the 2014-2016 performance cycle. The Committee established target corporate performance levels for 2016, which, though slightly below the levels achieved in 2015, it considered aggressive in light of these circumstances. The 2016 target corporate performance levels, after excluding the Power Systems segment and corporate expenses, reflected growth in
segment earnings of approximately 5% over 2015.
The extent of the performance goals,adverse trends during 2016 was greater than we had expected. Nearly all of the committee combinedmarkets that we serve saw negative year-over-year trends, and our sales have closely tracked those trends. Commodity prices in general remained depressed, which had a top-down, market expectations approach for estimating expected performancegreater than anticipated ripple effect through the oil and gas, metals and mining, and refining markets. In addition to those markets, sales remained depressed in gas turbine equipment and general industrial markets, with a bottom-up, strategic reviewheavy duty trucking also showing weakness. Improvements in other markets, principally in the semiconductor and forecastfood and pharmaceutical sectors, and significant cost savings arising from restructuring efforts that commenced in 2015 and cost-saving initiatives implemented in 2016 were not sufficient to offset the impact of each division. For operating performance, the performance levels set for 2013 reflected the Company’s expectations that it would record a slight increase in sales but a more substantial increase in profitability during the year. However, overall operating performance in 2013 was restricted by weak rates of growth in certain markets and declines in demand in others. these negative economic trends.
As a result, the year did not progress as we had expected. Our overall adjusted operating income was only 64.8% of$129.9 million (between the threshold and target levellevels) and our overall adjusted return on invested capital was only 84.5%14.8% (between the threshold and target levels). The adjusted operating income and adjusted return on invested capital of the target level. Performance of our divisions in 2013 varied, withdivision for which Mr. Riley is responsible performed between, respectively, the respective divisions for Mr. Herold achieving performance between target and maximum levels the respective division for Mr. Walker achieving performance betweenand the threshold and target levels.
Accordingly, based on the payout levels andestablished by the respective divisionCommittee for Mr. Gioffredi achieving performance below the threshold level. Even though overall performance levels (and divisional performance levels for Messrs. Herold and Walker) exceeded the threshold performance levels which under the annual performance plans, would provide forMessrs. Macadam, Childress, Walker and McLean received payouts at 200%of 80.8% of the amounttarget level, and Mr. Riley received a payout of 95.7% of target level. As noted above, because Mr. Cox was not an employee at the target payout level, the committee exercised its negative discretion to reduce payouts under the plan to reflect that performance was less than the maximum level of performance. Accordingly, the committee reduced theDecember 31, 2016, he did not receive a payout with respect to eachhis 2016 annual performance measure consistent with actual performance, resulting in a payout at 74.6% of the target payout levels for Messrs. Macadam, Pease and Magee, and payouts ranging from 37.3% to 126.6% of target levels for Messrs. Gioffredi, Walker and Herold.plan award.
The dollar amount of these payouts under the annual performance plans to each of the named executive officers is included in column (g) (see footnote 3)2) of the summary compensation table.
Long-term compensation
Awards made for 2011-20132014-2016 cycle
Each year the committee has granted long-termLong-term compensation grants to our executive officers to provide them with personal financial motivation to help us reach our longer-term goals. In addition to providing the officers withand a long-term stake in our success, we believelong-term success. The Committee believes these awards serve as a significant retention tool.also help us retain executives who are committed to achieving our corporate goals.
In 2011,2014, the committee determined that halftarget level of our long-term compensation awards was split equally among long-term incentive compensation awards payable in shares (or, “performance shares”), long-term incentive cash compensation awards and restricted stock units with time-based vesting. The performance shares and long-term incentive cash compensation awards were granted under our long-term incentive plan (or LTIP) most recently approved by our shareholders in 2012. In addition, in 2014, the Committee authorized special grants of restricted stock units awarded to executive officers and other key personnel in recognition of their efforts related to the strategy, planning and management of the targetACRP which resulted in the favorable estimation order issued by the bankruptcy court in January 2014. In addition, restricted stock unit awards were made to
executive officers who elected to participate in our management stock purchase deferral plan described below (see “— Retirement and other post-termination compensation — Deferred compensation and management stock plans”).
The Committee believes that both LTIP awards payable in cash and performance shares serve to align our officers’ long-term interests with those of our shareholders. The award of a substantial portion of long-term compensation granted to each NEO then employed by us would be in the form of time-vested restricted stock units helps to ensure retention of these executives.
The LTIP awards made by the Committee in 2014 were based on a long-term incentive performance measure that the Committee first used in 2013 and which we refer to as the Equity Value Plan. That plan compares the company’s calculated growth in equity value per share over the three-year performance period to a defined target return. It was designed to align management’s interests with those of shareholders by rewarding performance that correlates over time with factors that should affect share price appreciation. The Equity Value Plan was designed to hold management accountable not only for earnings growth, but also for the quality of investments.
The Equity Value Plan focused on calculated growth in equity value (based on a multiple of adjusted EBITDA) per fully diluted share and is in some ways similar to a total shareholder return measure. Unlike a formula based solely on total shareholder return, payouts under the Equity Value Plan are not subject to broader movements in the stock market, which are outside of management’s control.
The calculated equity value is based in part on a multiple (8x for awards made in 2014) of the company’s adjusted earnings before interest, depreciation, amortization and asbestos-related expenses less adjusted net debt. The calculation includes GST on a pro forma basis for all relevant periods as if that subsidiary were included in our consolidated financial results, but such pro forma calculation does not include effects arising from a resolution of the ACRP. The target return for these awards is determined by adding a 5.5% risk premium to the average10-year Treasury bond yield for the three-year period. The Committee set the premium for the target return at the same rate used for awards made in 2013.
Adjustments to earnings before interest, depreciation, amortization and asbestos-related expenses include restructuring charges; asset impairments; all expenses and charges related to discontinued operations, including environmental reserve adjustments; fair value adjustments to inventory related to acquisitions and othernon-recurring items in connection with acquisitions and dispositions; extraordinary items; and pension expense.
The calculated equity value is subject to adjustments for acquisitions and dispositions that occur during the performance period based on when the acquisition or disposition is completed. It is also based on equitable adjustments where necessary (i) in response to changes in applicable laws or regulations, (ii) to account for changes in accounting principles that were not anticipated at the time the awards were made, (iii) to account for adjustments in expense due to
re-measurement of pension benefits, (iv) to account for restructurings, discontinued operations, and any other items deemed by the Committee to benon-recurring in nature or otherwise not reflective of operating performance that were not anticipated at the time the awards were made, and (v) to reflect other unusual,non-recurring, or unexpected items similar in nature to the foregoing, in each case as determined in good faith by the Committee consistent with the principles set forth in section 162(m) of the Internal Revenue Code and the regulations thereunder.
Adjusted net debt subtracts cash and marketable securities and the amount of any cash dividends paid during the three-year period from the sum of third-party debt and pension liabilities. Because the calculations for the LTIP awards made in 2014 include GST on a pro forma basis for all relevant periods as if GST’s plan of reorganization had been consummated, adjusted net debt excludes any asbestos-related assets and liabilities.
The growth in equity value per share is measured over the period by comparing (a) the quotient of (i) the difference between the multiple of the company’s adjusted earnings before interest, depreciation, amortization and asbestos-related expenses for the year ended December 31, 2013 minus adjusted net debt as of December 31, 2013 (ii) divided by the fully diluted
common shares at December 31, 2013 (b) to the quotient determined for those same items for the year ending December 31, 2016.
The target return is determined by adding a risk premium (5.5%) to the average10-year Treasury bond yield for the three-year period.
The compound annual growth rate (or LTIP)“CAGR”) of the growth in the calculated equity value over the three-year period divided by the target return determines the amount of the LTIP payout, as shown in the following chart:
Calculated equity value CAGR / target return | LTIP payout (% of target award) | |
0.50 | 50% | |
1.00 | 100% | |
1.70 | 300% |
Actual performance that falls between the established levels yields a proportional payout. No payment is made if the ratio of the CAGR of the calculated equity value to the target return is less than 0.50.
The following graphical presentation illustrates the calculation under the Equity Value Plan for the 2014 LTIP awards:
Target return of 5.5% + average 10-year treasury yield
The following table sets forth for each named executive officer (except Mr. Cox who, because of his departure, was not entitled to receive a payout of the LTIP awards granted in 2014), the payout amount at target performance level for the LTIP award payable in cash and the LTIP award made in the form of performance shares:
Target Payout | ||||||||
Cash LTIP | Performance Shares | |||||||
Macadam | $ | 566,667 | 7,874 | |||||
Childress | $ | 59,410 | 825 | |||||
Walker | $ | 95,200 | 1,323 | |||||
Riley | $ | 68,533 | 952 | |||||
McLean | $ | 90,383 | 1,256 |
The ratio of the CAGR of the calculated equity value to the target return for the 2014 LTIP awards was (0.4)%, resulting in no payout with respect to these awards. Under the Equity Value Plan, growth in adjusted EBITDA over the three-year plan period is a primary determinant of calculated equity value. Our ability to grow EBITDA
over the three-year period ended December 31, 2016 was affected by the economic conditions in the markets we serve, which, with limited exceptions, were sluggish over this period. Principally as a result of these economic conditions, we were unable to achieve earnings growth sufficient to trigger any payout for the 2014 LTIP awards.
The dollar amount of the cash LTIP payout to each of the named executive officers is included in column (g) (see footnote 2) of the summary compensation table for the respective year. As noted above, the amount of the cash LTIP payout for 2016 was $0. The value at
December 31, 2016 of the restricted stock units that were awarded in 2014 and vested in 2016 is included in the remaining halftable in “Executive compensation — Outstanding equity awards at fiscal year end.”
Awards granted in 2016
The target level of targetour long-term compensation would be an equity award that included both anawards made in 2016 was split equally among LTIP awardawards payable in shares, LTIP awards payable in cash and an award of restricted stock units as follows:
The amount of cash for a cash LTIP award payable, and the number of shares for an LTIP award of performance shares deliverable, are based on our performance against selected financial goals over a three-year period. For our LTIP award opportunities, wethe Committee set threshold, target and maximum levels. Performance below the threshold level results in no payout, performance at the threshold level results in a payout at one halfone-half of the amount at the target level, and performance at the maximum level or above results in a payout of twice the amount set for the target level. We extrapolate to determine the payout for performance between these levels. Pursuant to our long-term incentive compensation plan, performance levels are adjusted to account for dispositions, acquisitions and other corporate restructuring transactions.
In 2016, the Committee decided to use different performance measures for LTIP awards that are payable in cash and awards payable in stock. Payments under 2016 awards payable in cash are based on our adjusted return on invested capital over the three-year (2016-2018) performance period against threshold, target and maximum levels established when the awards were granted. In contrast to our use of adjusted return on invested capital under our annual plans, for these awards this return on invested capital measure includes goodwill and other intangible assets to hold management accountable for the quality of acquisitions made.
The committee makesnumber of shares to be issued under the LTIP awards underpayable in stock is based on our long-term incentive plan whichtotal shareholder return (or TSR) over the same three-year
period relative to TSR of the S&P SmallCap 600 Capital Goods (Industry Group) Index over that period. EnPro is one of the companies included in this index. Payment at the threshold level of these awards will occur if our shareholders most recently approved in 2012.
In 2011,TSR relative to the committee establishedTSR of the following performance measuresindex is at the 35th percentile, with target payments at the 50th percentile and weightings for bothmaximum payments at the cash75th percentile. The LTIP awards andlimit the LTIP awardspayout to the target level in the form of performance shares:
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In prior years,event that absolute TSR is negative and require recipients to hold the committee had also applied net cash outflow for asbestos as a third performance measure in LTIP awards. The committee did not include net cash flow for asbestos as a performance measure in 2011 in the light of the impact of the ACRP on cash outflow for asbestos.
Mr. Pease, who joined our company on February 28, 2011, was not eligible to receive an award under our LTIP for the 2011-2013 LTIP cycle. However, Mr. Pease received an award, outside the LTIP and payable in cash, based on the established performance targets for the 2011-2013 performance cycle, to be calculated, administered and paid pursuant to the LTIP. Mr. Pease was awarded performanceafter-tax shares pursuant to our equity
compensation plan, but outside the LTIP, as indicated above for the 2011-2013 performance cycle, to be calculated, administered and paid pursuant to the LTIP.
Once the company’s performance results are determinedissued at the end of the award cycle, the committee cannot use discretion to increase the size of any LTIP award. However, it may use negative discretion to reduce the award that would otherwise be payable to any of the executive officers.three-year performance period for an additional year.
The 2011-2013 cycle performance goals that corresponded to the threshold, target and maximum payout levels were set assuming continuous improvement from prior levels and are set out in the following table, along with our actual cumulative performance during the 2011-2013 cycle and the resulting plan payout level as a percentage of target with respect to each performance goal:
Performance Levels | Actual Performance | |||||||||||||||||||
Threshold | Target | Maximum | Amount | Payout %(2) | ||||||||||||||||
(dollars in millions, except per share amounts) | ||||||||||||||||||||
EBITDA before asbestos(1) | $ | 487.0 | $ | 573.0 | $ | 659.0 | $ | 646.9 | 185.9 | % | ||||||||||
Adjusted earnings per share(1) | $ | 9.88 | $ | 11.62 | $ | 13.36 | $ | 13.05 | 182.2 | % |
Despite a softer-than-expected 2013 performance, we significantly exceeded the target levels for both performance measures for the 2011-2013 cycle due to strong performance in the first two years of the performance cycle when we benefitted from the global economic recovery and from our efforts to reduce costs and improve our margins. As a result, our EBITDA before asbestos and adjusted earnings per share each approached the maximum performance level, which resulted in a payout for the 2011-2013 cycle of 184.1% of the target level.
The dollar amount of the cash LTIP payouts to each of the named executive officers is included in column (g) (see footnote 3) of the summary compensation table. The portion of the restrictedRestricted stock units awarded in 2011 that vested in 2013 is included in the table in “Executive compensation — Option exercises and stock vested.”
Awards granted in 2013
At its February 2013 meeting, the committee authorized the grantfurther our goals of long-term compensation awards to executive officers for the 2013-2015 performance cycle. At this meeting, the committee determined that one-third of the target long-term compensation to each executive would be in the form of an LTIP award payable in cash, one-third would be an LTIP award in the form of performance shares and payable in shares and the remaining one-third would be an award of time-vested restricted stock units.
In recognition that the payout of annual performance plan compensation to Mr. Macadam for 2012 was lower than the payout level of other corporate executive officers because the senior executive annual performance plan in which he participates did not permit adjustment for unforeseen, unusual items and to provide additional incentive for retention, the committee authorized the grant of an additional 2,650 restricted stock units to Mr. Macadam in February 2013. In recognition that, because of his hire date, Mr. Pease was not eligible to receive the same payout percentage as other corporate executive officers with respect to LTIP awards for the 2010 – 2012 performance cycle and in recognition of his superior performance during that period, and to provide
additional incentive for retention, the committee authorized the grant of an additional 5,000 restricted stock units to Mr. Pease in February 2013.
The committee believes that both types of long-term incentive compensation — an LTIP award payable in cash and an LTIP award in the form of performance shares — alignaligning officers’ long-term interests with those of our shareholders and that the specific target mix between the type of the awards is appropriate to increaseincreasing management’s ownership stake in our company. The committee electedThey vest three years after the date of grant subject to providethe executive’s continued employment during that period. In the event of death, disability or a portionchange in control of long-term compensation award in time-vestedthe company, they vest earlier. In the event of an executive’s retirement, the restricted stock units vest pro rata based on the number of months he or she was employed after the grant date through the retirement date compared to encourage retention.the scheduled36-month period.
For ourIn contemplation of awards to be made in 2016, and at the recommendation of the Committee, the board of directors amended the plans governing equity and LTIP awards to permit the Committee the flexibility to require additional events following a change in control to trigger the vesting of new equity and long-term incentive compensationawards. The LTIP awards madeand restricted stock units awards granted to employees in 2013,February 2016 provide that, if the committee adopted an “enduring standard” by which to measure and reward performance. In prior years,resulting entity in the change in control assumes the awards, under our long-term incentive compensation plan used metrics such as cumulative earnings per share and cumulative EBITDA before asbestos measured over a three-year performance cycle, with threshold, target and maximum performance levels for these metrics set by the committee at the beginning of each three-year performance cycle. Rapidly changing business conditions in recent years have made setting appropriate three-year performance targets particularly difficult.
The standard used by the committee in 2013 compares the company’s growth in calculated equity value over the three-year performance period (2013 – 2015) to a target return. The calculated equity value is determined as a multiple of the company’s consolidated adjusted earnings before interest, depreciation, amortization and asbestos-related expenses less adjusted net debt. The adjustments to earnings before interest, depreciation, amortization and asbestos-related expenses include management fees and royalties payable to or from GST, inter-company interest, restructuring charges, asset impairments, all expenses and charges related to discontinued operations, including environmental reserve adjustments for discontinued operations, fair value adjustments to inventory related to acquisitions and other non-recurring itemsawards will vest early in connection with acquisitions and dispositions, extraordinary items and pension expense.
Net debta change in control only if within two years after the change in control the employee is determined by subtracting cash and marketable securities fromterminated without “cause” or the sum of interest-bearing debt, consolidated asbestos liability, if any, and pension liabilities. The target return is determined by adding a risk premium to the average 10-year Treasury bond yieldemployee resigns for the three-year period.
The calculated equity value is subject to adjustments for acquisitions and dispositions that occur during the performance period based on timing of the completion of the acquisition or disposition,“good reason,” as well as equitable adjustments where necessary (i) in response to changes in applicable laws or regulations, (ii) to account for changes in accounting principles that were not anticipated at the time the awards were made, (iii) to account for adjustments in expense due to re-measurement of pension benefits, (iv) to account for restructurings, discontinued operations, and any other items deemed by the committee to be non-recurring in nature or otherwise not reflective of operating performance that were not anticipated at the time the awards were made, and (v) to reflect other unusual, non-recurring, or unexpected items similar in nature to the foregoing, in each case as determined in good faith by the committee consistent with the principles set forth in section 162(m) of the Internal Revenue Code and the regulations thereunder.
As shownsuch terms are defined in the chart below, the compound annual growth rate (or, “CAGR”) of the calculated equity value divided by the target return determines the amount of the LTIP payout.
Calculated equity value CAGR / target return | LTIP payout (% of target award) | |
0.5 | 50% | |
1.0 | 100% | |
1.7 | 300% |
Actual performance that falls between the established levels will yield a proportional payout. No payment is made if the ratio of the CAGR of the calculated equity value to the target return is less than 0.5.
The committee believes that the new plan design holds management accountable for not only earnings growth, but also the quality of any investments. It aligns management’s interests with those of shareholders by rewarding the creation of equity value in excess of the company’s defined target return. Unlike a formula based solely on total shareholder return, payouts under the equity value plan are not subject to broader movements in the stock market, which are largely outside of management’s control.awards.
The following table sets forth for each of the named executive officersofficer, the payout amount at target level of performance for the LTIP award payable in cash and the LTIP award made in the form of performance shares, along with the number of restricted stock units awarded in 2013:2016. The restricted stock units listed in the table below include awards made in connection with our management stock purchase deferral plan described below (see “— Retirement and other post-termination compensation — Deferred compensation and management stock plans”):
Target Payout | Restricted Stock Units | |||||||||||
Cash LTIP | Performance Shares | |||||||||||
Macadam | $ | 550,000 | 12,348 | 14,998 | ||||||||
Pease | $ | 169,000 | 3,794 | 8,794 | ||||||||
Magee | $ | 151,667 | 3,405 | 3,405 | ||||||||
Herold | $ | 96,333 | 2,163 | 2,163 | ||||||||
Walker | $ | 80,750 | 1,813 | 1,813 | ||||||||
Gioffredi | $ | 87,833 | 1,972 | 1,972 |
Target Payout | Restricted Stock Units* | |||||||||||
Cash LTIP | Performance Shares | |||||||||||
Macadam | $ | 700,000 | 15,787 | 17,479 | ||||||||
Childress | $ | 156,024 | 3,518 | 3,706 | ||||||||
Walker | $ | 211,155 | 4,761 | 4,761 | ||||||||
Riley | $ | 87,825 | 1,981 | 1,981 | ||||||||
McLean | $ | 101,637 | 2,293 | 2,610 | ||||||||
Cox | $ | 100,698 | 2,271 | 2,271 |
* | Includes restricted stock unit awards made in connection with our management stock purchase deferral plan described in “— Retirement and other post-termination compensation — Deferred compensation and management stock plans” as follows: Mr. Macadam, 1,692 restricted stock units; Mr. Childress, 188 restricted stock units; and Mr. McLean, 317 restricted stock units. |
The committee elected to provide one-third of the long-term compensation award in time-vested restricted stock units, and made additional discretionary awards of restricted stock units to Mr. Macadam and Mr. Pease as described above. The committee believes that such awards further the goals of aligning officers’ long-term interests with those of our shareholders and increasing management’s ownership stake in our company. The restricted stock units vest three years after the date of grant subject to the executive’s continued employment during that period. The restricted stock units vest earlier in the event of death, disability or a change in control of the company. In the event of retirement, generally one-third of the restricted stock units vest if retirement occurs on or after the first anniversary of the grant date but before the second anniversary of the grant date and two-thirds vest if retirement occurs on or after the second anniversary of the grant date but before the third anniversary of the grant date. In addition to annual awards made in February, in October 2013 the committee authorized an award to Mr. Walker, in connection with the assignment to him of expanded responsibilities, of 5,000 restricted shares that vest, subject to his continued employment, on the third anniversary of the date of the award.
The grant date fair value of the target level payout of performance shares for LTIP share opportunities awarded in 20132016 and the grant date fair value of the restricted stock units awarded in 2013,2016, in each case as determined under FASB ASC Topic 718, are included in column (e) (see footnote 1) of the summary compensation table and in column (l) of the table in “Executive compensation — Grants of plan-based awards.”
Base salary
We pay each of our executive officers a base salary to give them a relatively secure baseline level of compensation. Mr. Macadam’s employment agreement provides for a minimum base annual salary of $825,000. From the date he was hired in 2008 through 2013, the committee did not adjust his base salary from this minimum level. With respect to the other named executive officers, the committee made adjustments to base salaries in 2013 from the levels set in 2012, with base salary increases for these named executive officers averaging 3.0% and ranging from 0% to 9.6%.
Perquisites
Since February 2006, we have provided only minimal perks, which include an umbrella liability policy, to our executive officers.
Otherin-service benefits
Our executive officers also receive the following benefits, which we provide to all salaried employees as compensation for their services to us:
We provide these insurance benefits because we believe at a company of our size they are a standard partparts of the compensation package available to salaried employees.employees at companies of our size.
Retirement and other post-termination compensation
401(k) Plan
We sponsor a 401(k) plan in which ourOur executive officers participate in our 401(k) plan on the same basis as other salaried employees. Under this plan, each participant can defer into his 401(k) plan account a portion of his plan-eligibleeach participant’s compensation eligible for the plan (generally base salarybase-salary and annual incentive compensation), can be deferred into a 401(k) account, up to the annual limit set by the IRS. Each plan participant directs how his account will be invested.investments in the account. We match each participant’s100% of deferrals under this plan other(other thancatch-up contributions, on a monthly basis at a rate of 100% contributions) up to the first 6% of the aggregate of annual salary and annual incentive compensation contributed by the participant. Our matching contributions are fully vested.
Deferred compensation and management stock plans
We provide a Ournon-qualified, deferred compensation plan forpermits our executive officers to permit them to save for retirement on atax-deferred basis beyond what is permitted under the 401(k) plan permits, because of either federal tax code limits or the design of the 401(k) plan. In addition, the deferred compensation plan allows for matching contributions at the same rate and subject to the same aggregate limit under the 401(k) plan that cannot be made in the 401(k) plan because of federal tax code limits. These contributions are made at the same rate and are subject to the same aggregate limit as the 401(k) plan. The committeeCommittee believes this type of additional deferral and matching opportunity is partan appropriate and customary component of a competitive compensation package for public company executive officers.
In 2012, we adopted a management stock purchase deferral plan to permitwhich permits officers and other senior personnel to defer, for five years or more, up to 50% of annual incentive compensation, with deferredcompensation. Deferred amounts are credited to these individual’s accounts based on the value of our common stock. Participants in that plan are eligible to receive awards of restricted stock unit awardsunits equal to 25% of the amount deferred, withof compensation deferred. The units have a three-year vesting period and are payable in shares of common stock at the same time the related annual incentive deferrals are payable. This plan began with respect toFor deferrals of annual incentive compensation earned for performance in 2013.2015, restricted stock unit awards were granted in 2016. The amount of annual incentive
compensation deferred pursuant tounder this plan is included in the amount of Non-Equity Incentive Plan Compensation reflected in column (g) (see footnote 3)2) of the summary compensation table. The grant date fair value of the restricted stock units awarded for incentive compensation deferrals, as determined under FASB ASC Topic 718, is included in column (e) (see footnote 1) of the summary compensation table and in column (l) of the table in “Executive compensation — Grants of plan-based awards.”
TheseThe officers who participate in these plans have voluntarily placed their deferred compensation at risk because the plans are unsecured and the participants’ plan accountsamounts in them would be available to satisfy our creditors in the event of our insolvency. This means thatIn addition, amounts deferred into the officers have voluntarily placed at risk all funds they have deferred under these plans, and with respectstock purchase plan are subject to the management stock purchase deferral plan such risk includesposed by changes in the value of our common stock.
Pension and defined benefit restoration plans
Our named executive officers who were hired and were aged 40 prior toIn 2006, like many ofwe closed our salaried employees, continue to participate in a defined benefit pension plan that will giveto new participants and froze the benefits of employees who had not reached 40 years of age. Employees who were age 40 or older were eligible to continue to accrue benefits under the defined benefit plan, which provides them a retirement benefit based on their years of service with the company and their final average compensation (base salary plus annual incentive compensation). ThisOf the named executive officers, only Mr. Childress continues to accrue benefits under the defined benefit pension plan. Mr. Walker’s benefits under this plan were frozen in 2006 since he was closednot age 40 at that time, and accordingly after that date he ceased to new participants, and participation was frozen for participants whoaccrue further benefits under the defined benefit pension plan. The other NEOs were not 40 years of age, inhired after 2006. For salaried employees, including Messrs. Macadam, PeaseWalker, Riley and Herold,McLean, who are not eligible to accrue benefits under the defined benefit plan either because they were hired after 2006 or they were too young when the pension plan was closed to new participants, and Mr. Walker, who was younger than 40 in 2006,frozen, we instead make a contribution equal to 2% of salary and annual incentive compensation to the employee’s account in our 401(k) plan, with anyplan. Any amount in excess ofexceeding permitted 401(k) contributions beingis made to the deferred compensation plan.
In addition, weWe also provide certain of our named executive officers and others who participate in the defined benefit pension plan with a defined benefit restoration plan. The restoration plan to givegives them the benefits they would have received under our pension plan were it not for limitations under the pension plan. The federal tax code places caps onboth the amount of annual compensation that the pension plan can take into account and on the amount of annual benefits that the
pension plan can provide. We were required to include these caps in our pension plan in order to maintain itstax-qualified status. In addition, the pension plan does not take into account amounts that an individual defersdeferred under ournon-qualified deferred compensation plan. The defined benefit restoration plan permits participants to receive retirement pension benefits that take into account their full salaries and annual incentive compensation. Of the named executive officers, only Mr. Childress participates in the defined benefit restoration plan.
SERP
Mr. Magee participated in a supplemental executive retirement plan (or SERP) established in connection with our spin-off from Goodrich Corporation in 2002. The SERP pays an additional retirement benefit equal to the combined benefit under our pension plan and restoration plan for the participant’s first 15 years of service. This benefit is based on Mr. Magee’s base salary and annual incentive compensation. LTIP payments and gains from equity grants do not factor into the benefit formula. In connection with Mr. Magee’s retirement on January 6, 2014, we entered into an agreement with Mr. Magee which provides that in full satisfaction of the our obligations under the SERP, we would pay Mr. Magee a final lump sum payment, determined as of his retirement date, based on actuarial assumptions that would apply
under our tax-qualified pension plan had it continued in effect through the retirement date, as such amount is determined by our actuary.
Double-trigger change-in-controlManagement continuity agreements
In a situation involving a change in control of our company, our executive officers would face a far greater risk of termination than the averageother salaried employee.employees. To attract qualified executives that could havewho might find other job alternatives that may appearopportunities with less risk to them to be less risky absent these arrangements, and to provide themcontinued employment, we have entered into a management continuity agreement with an incentiveeach of our executive officers. These agreements incentivize our executives to stay with us in the event of an actual or potential change in control, we have entered into a management continuity agreement with each of them. In addition, we view management continuity agreements for our executive officers asand are an important part of a competitive executive compensation package.
In establishing the terms of these agreements, we looked at similar arrangements established by peer companies with whom we believe we compete for talent and by our former corporate parent. Our inclusion of particularParticular terms in these agreements, including the applicable continuation period and provisions increasing the amount payable to account for excise taxes for agreements entered into prior to 2009, reflectedreflect our subjective judgment regarding the terms offered in comparable agreements by peer companies and theour desire to offer competitive arrangements.arrangements for executive employment.
Each of these continuity agreementsagreement provides for continued employment of the individual to continue employment for a specified period after a change in control, with the same responsibilities and authorities and generally the same benefits and compensation as hethe individual had immediately prior to the change in control (including average annual increases). The length ofperiod covered by the period was setagreement is based on the relative responsibilities of the executive officers. Theofficer. For Mr. Macadam, the period is three yearsyears; for Mr. Macadam and two years for the other executive officers. Ifofficers, the period is two years. Under the agreements, the employee would be entitled to certain payments and other benefits if, during thisthe continued employment period, we or our successor were to terminate the individual’s employment for reasons other than “cause”,“cause,” or the individual voluntarily terminated his employment for a “good reason” (in each case asreason.” These terms are defined in the agreements.
agreements), he would be entitledFor an executive to certain payments and other benefits.
Because the executive must leave the company before becoming entitled to thesereceive payments and benefits the agreement hasunder these agreements, two events, or triggers, must occur. First, there must be a “double trigger”— the first trigger is the change in control of the company, and second, the second trigger is the termination,executive’s employment must be terminated, either by the company, other than for “cause”, or by the executive for “good reason.” The requirement of the second trigger provides the incentive forincentivizes the executive to stay with usthe company and perform at a high level in the event of a change in control.
For more information about these payments and other benefits, see “Executive compensation — Potential
payments upon termination or change in control.” The committeeCommittee has reviewed the amounts that are potentially payable under these agreements and believes that they are reasonable.
Severance policy
We have writtenOur severance policies under which we provide severance benefits to all full-time employees at our corporate office, including our executive officers. Under these policies, an executive officer whom we terminate without cause is entitled to continue receiving his or her base salary for a specifiedspecific period. The terminated officer is also entitled to receive a pro rata portion of the annual incentive compensation payable for the year in which the officer is terminated, along with a pro rata payout of all LTIP awards based on the number of completed months the officer was employed in each performance cycle.
The period was set basedfor which an executive officer is entitled to continue receiving his or her base salary depends on the relative responsibilitiesofficer’s level of theresponsibility. The CEO is entitled to a period of 24 months. Other executive officers. The period is 24 months for our CEO andofficers are entitled to 12 months for our other executive officers.months. An executive officer may not receive any payments under the severance policy if the executive officerwho is entitled to receive payments under thechange-in-control continuity agreements described above.above is not entitled to severance benefits.
We maintain this severance policy because we believe that such aour severance policy is consistent with market compensation packages for executive officers at other companies similar to ours and therefore is an important component of a competitive compensation package.
Section 162(m) considerations
Under Section 162(m) of the Internal Revenue Code, a public company is limited to a $1 million deduction for compensation paid to its chief executive officer or any of its three other most highly compensated executive officers (other than the chief financial officer) who are employed atyear-end. This limitation does not apply to compensation that qualifies under Section 162(m) as “performance-based compensation.” Some compensation received by our named executive officers may exceed the applicable Section 162(m) deduction limit and not otherwise qualify as “performance-based compensation.” While the Committee retains discretion to make compensation decisions in light of a variety of considerations, compensation decisions for our named executive officers are made after consideration of Section 162(m) implications. The Committee administers the senior executive annual performance plan in a manner designed to permit compensation paid under that plan to qualify as performance-based compensation under Section 162(m), by establishing a formulaic maximum award equal to 200% of the target award if the threshold level of performance is achieved. The actual award payout, however, is determined based on the threshold, target and maximum performance goals, and the degree of actual achievement relative to those goals, as described under “Annual performance incentive plan awards” above, which in no event may exceed the formulaic maximum award. The Committee believes that this approach to addressing Section 162(m) serves our shareholders by preserving the tax deductibility of annual incentive awards that might otherwise be limited by Section 162(m).
Changes to compensation program in 20142017
The Committee granted awards under our annual plan for 2017 with performance measures and weightings similar to awards granted in 2016, except that it replaced the relevant adjusted operating income performance measure with a performance measure based on adjusted EBITDA. The difference between these two performance measures is the exclusion of the impact of depreciation and amortization expense from adjusted EBITDA. For the compensation program for 2014,2017 annual plan awards, the committee employedCommittee selected adjusted EBITDA as a performance measure instead of adjusted operating income because it felt that adjusted EBITDA was an earnings metric of primary interest to our investors and that the same general compensation design used in 2013, with one significant addition. In recognitionexclusion of depreciation and amortization expense from the measure eliminated variability due to these expenses, which are not as reflective of the order issued in January 2014 by the bankruptcy court estimating the liability for presentannual operating performance of our businesses, and future mesothelioma claims against GST at $125 million,was consistent with the positions GST put forth at trial,methodology used in the adjusted return on invested capital performance measures for 2016 and the efforts related to that outcome, the committee issued2017 annual plan awards and 2016 and 2017 LTIP awards payable in cash.
additionalIn addition, the Committee amended the management stock purchase deferral plan to terminate any further participation in that plan. This plan permitted officers and other senior personnel to defer up to 50% of annual incentive compensation, with deferred amounts credited to these individual’s accounts based on the value of our common stock and participants being eligible to receive awards of restricted stock units equal to executive officers and other key personnel. The additional restricted stock unit awards were twice the amounts25% of the amount of compensation deferred. The Committee decided to terminate this plan going forward based on the cost and complexity of administering this plan, coupled with lower than anticipated participation rates. Although further participation in the plan has been terminated, participants who elected in 2015 to defer a portion of their payouts under 2016 annual plan awards continued to participate in the plan with respect to such deferrals and in February 2017 received awards of restricted stock units awarded as part ofcontemplated by the committee’s practice of granting one-third of target long-term compensation in the form restricted stock units. The additional restricted stock units vest three years from the date of grant.plan.
The following information relates to compensation paid or payable for 20132016 to:
We have also included information relating to compensation for 20122015 and 20112014 for the named executive officers who were also named executive officers in those years.
The following table sets forth for the named executive officers:
Name and Principal Position (a) | Year (b) | Salary($) (c) | Bonus($) (d) | Stock Awards ($)(1) (e) | Stock Options ($)(2) (f) | Non-Equity Incentive Plan Comp.($)(3) (g) | Change in Pension Value and Nonqualified Deferred Comp. Earnings($)(4) (h) | All Other Comp.($) (5) (i) | Total($) (j) | |||||||||||||||||||||||||||
Stephen E. Macadam | 2013 | 825,000 | — | 1,220,452 | — | 2,026,973 | — | 92,233 | 4,164,658 | |||||||||||||||||||||||||||
President and Chief Executive Officer | 2012 | 825,000 | — | 824,987 | — | 2,116,275 | — | 184,813 | 3,951,075 | |||||||||||||||||||||||||||
2011 | 825,000 | — | 1,274,964 | 499,944 | 2,728,700 | — | 197,749 | 5,526,357 | ||||||||||||||||||||||||||||
Alexander W. Pease(6) | 2013 | 390,000 | — | 561,802 | — | 637,855 | — | 42,302 | 1,631,959 | |||||||||||||||||||||||||||
Senior Vice President | 2012 | 386,538 | — | 356,696 | — | 819,446 | — | 60,721 | 1,623,401 | |||||||||||||||||||||||||||
and Chief Financial Officer | 2011 | 320,192 | — | 414,329 | — | 620,791 | — | 24,559 | 1,379,871 | |||||||||||||||||||||||||||
Richard L. Magee(7) | 2013 | 347,923 | — | 303,930 | — | 555,226 | 292,749 | 32,569 | 1,532,487 | |||||||||||||||||||||||||||
Former Senior Vice President | 2012 | 338,461 | — | 214,492 | — | 602,700 | 341,746 | 26,013 | 1,523,412 | |||||||||||||||||||||||||||
2011 | 328,385 | — | 356,885 | — | 745,577 | 425,538 | 45,342 | 1,901,727 | ||||||||||||||||||||||||||||
Dale A. Herold | 2013 | 333,077 | — | 193,069 | — | 454,896 | — | 31,170 | 1,012,213 | |||||||||||||||||||||||||||
Chief Customer Officer and Division President, Garlock | 2012 | 317,731 | — | 749,533 | — | 359,167 | — | 55,229 | 1,481,660 | |||||||||||||||||||||||||||
Kenneth D. Walker | 2013 | 294,038 | — | 461,178 | — | 287,957 | — | 63,491 | 1,106,664 | |||||||||||||||||||||||||||
Segment President, Engineered Products and Division President, Compressor Products International | ||||||||||||||||||||||||||||||||||||
Anthony R. Gioffredi(8) | 2013 | 231,307 | — | 175,666 | — | 255,448 | — | 330,172 | 992,948 | |||||||||||||||||||||||||||
Former Division President, Compressor Products International | 2012 | 307,692 | — | 127,483 | — | 324,231 | 201,787 | 32,802 | 993,995 |
Name and Principal Position (a) | Year (b) | Salary($) (c) | Bonus($) (d) | Stock Awards ($)(1) (e) | Stock Options ($) (f) | Non-Equity Incentive Plan Comp.($)(2) (g) | Change in Pension Value and Nonqualified Deferred Comp. Earnings($)(3) (h) | All Other Comp.($) (4) (i) | Total($) (j) | |||||||||||||||||||||||||||
Stephen E. Macadam | 2016 | 850,000 | — | 1,568,114 | — | 721,140 | — | 150,692 | 3,289,946 | |||||||||||||||||||||||||||
President and Chief Executive Officer | 2015 | 850,000 | — | 1,559,899 | — | 1,689,206 | — | 94,095 | 4,193,200 | |||||||||||||||||||||||||||
2014 | 843,269 | — | 2,342,951 | — | 1,202,039 | — | 173,281 | 4,561,540 | ||||||||||||||||||||||||||||
J. Milton Childress II | 2016 | 385,962 | — | 341,059 | — | 218,300 | 166,890 | 40,587 | 1,152,798 | |||||||||||||||||||||||||||
Senior Vice President and Chief Financial Officer | 2015 | 354,014 | — | 322,496 | — | 280,858 | 68,840 | 24,527 | 1,050,735 | |||||||||||||||||||||||||||
Kenneth D. Walker(5) | 2016 | 432,276 | — | 450,282 | — | 244,495 | 11,598 | 1,145,445 | 2,284,096 | |||||||||||||||||||||||||||
Former Senior Vice President and Chief Operating Officer | 2015 | 420,000 | — | 426,315 | — | 357,600 | — | 48,182 | 1,252,097 | |||||||||||||||||||||||||||
2014 | 341,384 | — | 380,124 | — | 197,348 | 28,696 | 41,777 | 989,329 | ||||||||||||||||||||||||||||
Marvin A. Riley | 2016 | 310,000 | — | 187,357 | — | 163,169 | — | 33,130 | 693,656 | |||||||||||||||||||||||||||
Division President, Fairbanks Morse | 2015 | 278,199 | — | 498,986 | — | 317,854 | — | 33,877 | 1,128,916 | |||||||||||||||||||||||||||
Robert S. McLean | 2016 | 355,085 | — | 230,921 | — | 157,800 | — | 37,238 | 781,044 | |||||||||||||||||||||||||||
Chief Administrative Officer, General Counsel and Secretary | 2015 | 338,000 | — | 266,087 | — | 286,083 | — | 49,933 | 940,103 | |||||||||||||||||||||||||||
2014 | 311,192 | — | 369,709 | — | 173,725 | — | 31,705 | 886,331 | ||||||||||||||||||||||||||||
Jon A. Cox(6) | 2016 | 293,822 | — | 214,785 | — | — | 56,979 | 503,371 | 1,068,957 | |||||||||||||||||||||||||||
Former Chief Innovation and | 2015 | 340,369 | — | 205,277 | — | 325,766 | — | 31,995 | 903,407 | |||||||||||||||||||||||||||
Information Officer | 2014 | 334,646 | — | 376,605 | — | 246,821 | 324,990 | 37,195 | 1,320,256 |
(1) | The |
stock units |
(2) |
For |
Annual Plan | Cash LTIP Award | Total | ||||||||||
Macadam | $ | 646,223 | $ | 1,380,750 | $ | 2,026,973 | ||||||
Pease | 189,111 | 448,744 | 637,855 | |||||||||
Magee | 168,708 | 386,518 | 555,226 | |||||||||
Herold | 231,905 | 222,991 | 454,896 | |||||||||
Walker | 111,911 | 176,046 | 287,957 | |||||||||
Gioffredi | 47,453 | 207,995 | 255,448 |
Pursuant to our management stock purchase deferral plan, the following named executive officers deferred receipt of the following amounts payable to them under our annual performance incentive plans: Mr. Macadam, $323,544; and Mr. Herold, $34,211.
Annual Plan | Cash LTIP Award | Total | ||||||||||
Macadam | $ | 721,140 | — | $ | 721,140 | |||||||
Childress | 218,300 | — | 218,300 | |||||||||
Walker | 244,495 | — | 244,495 | |||||||||
Riley | 163,169 | — | 163,169 | |||||||||
McLean | 157,800 | — | 157,800 | |||||||||
Cox | — | — | — |
Pursuant to our management stock purchase deferral plan, the following named executive officers deferred receipt of the following amounts payable to them under our annual performance incentive plans: Mr. Macadam, $300,137; Mr. Childress, $33,299; and Mr. McLean, $56,223. |
(3) | For |
Increase in Actuarial Present Value Under | ||||||||||||||||
Pension Plan | Restoration Plan | SERP | Total | |||||||||||||
Macadam | — | — | — | — | ||||||||||||
Pease | — | — | — | — | ||||||||||||
Magee | $ | (4,948 | ) | $ | 113,171 | $ | 184,526 | $ | 292,749 | |||||||
Herold | — | — | — | — | ||||||||||||
Walker | (17,083 | ) | — | — | (17,083 | ) | ||||||||||
Gioffredi | (18,640 | ) | (17,899 | ) | — | (36,539 | ) |
Increase (Decrease) in Actuarial Present Value Under | ||||||||||||
Pension Plan | Restoration Plan | Total | ||||||||||
Macadam | — | — | — | |||||||||
Childress | $79,863 | $87,027 | $166,890 | |||||||||
Walker | 11,598 | — | 11,598 | |||||||||
Riley | — | — | — | |||||||||
McLean | — | — | — | |||||||||
Cox | 82,207 | (25,228 | ) | 56,979 |
For |
401(k) plan* | Amounts paid for umbrella liability insurance | Non-qualified deferred compensation plan match | Other** | Total | ||||||||||||||||
Macadam | $ | 19,800 | $ | 657 | $ | 71,776 | — | $ | 92,233 | |||||||||||
Pease | 19,800 | 386 | 22,116 | — | 42,302 | |||||||||||||||
Magee | 14,700 | 657 | 17,302 | — | 32,569 | |||||||||||||||
Herold | 19,800 | 386 | 10,984 | — | 31,170 | |||||||||||||||
Walker | 20,100 | 386 | — | $ | 43,005 | 63,491 | ||||||||||||||
Gioffredi | 8,340 | 386 | 11,446 | 310,000 | 330,172 |
401(k) plan* | Amounts paid for umbrella liability insurance | Non-qualified deferred compensation plan match | Other** | Total | ||||||||||||||||
Macadam | $21,200 | $763 | $128,729 | — | $150,692 | |||||||||||||||
Childress | 15,900 | 431 | 24,256 | — | 40,587 | |||||||||||||||
Walker | 21,200 | 431 | 7,300 | $1,116,514 | 1,145,445 | |||||||||||||||
Riley | 21,200 | 431 | 11,499 | — | 33,130 | |||||||||||||||
McLean | 21,200 | 431 | 15,607 | — | 37,238 | |||||||||||||||
Cox | 15,900 | 431 | 27,840 | 459,200 | 503,371 |
* | For Mr. Macadam, includes a matching 401(k) contribution of |
** |
(5) | Mr. Walker service as an officer and employee continued through the end of December 31, 2016. He entered into a consulting agreement effective as of January 1, 2017 to assist with the transition of his |
(6) | Mr. |
The “Stock Awards” values shown in column (e) of this table include grants of performance shares for three-year long-term incentive cycles. The officers do not actually earn any performanceThese shares unlessare earned only if we achieve performance at a specified threshold level and theof performance. The number of shares theythe officers actually earn will be based on the level of performance. The value for these awards included inFor the purposes of
this table, assumes thatthe values shown assume our performance will be
achieved atreach the target level. For more information about our long-term incentive plan, or LTIP, under which we granted these performance share awards, see below under “— Grants of plan-based awards — LTIP awards.”
In February 2014, we paid out awards under our LTIP for our long-term performance cycles ending in 2013. For awards made to our executive officers, other than Mr. Pease, these LTIP awards were granted in February
2011In February 2017, the Compensation Committee certified performance levels achieved under long-term incentive plan awards (comprised of LTIP awards payable in cash and performance shares) for cycles ending in 2016. These awards were based on grants made in February 2014 for the 2011-20132014-2016 performance cycle. We paidPayment for each award in cash based onwas conditioned upon achievement of threshold performance goals the Compensation Committee set in early 2011.2014. Participants in this LTIP cycle, including the named executive officers, earned the right to any payment under the awards as of December 31, 2013. Mr. Pease, who joined our company on February 28, 2011,2016. No payment of these LTIP awards was not eligible to receive anmade as the performance achieved for 2014-2016 performance cycle was below the threshold level. For LTIP award under our plan for the 2011-2013 LTIP cycle. In connection with the commencement of his employment, however, Mr. Pease received an award, outside the LTIP andawards that were payable in cash, based on the established performance targets for the 2011-2013 performance cycle, to be calculated, administered and paid pursuantthis $0 payout is
reflected in footnote 2 to the LTIP. The cash payment for 2013 associated with these awards to the named executive officers appears in column (g) of the summary compensation table (see footnote 3table. For such performance shares, the amounts for the exact amounts). As described above, for 20132014 in column (e) reflectsreflect the grantfair value on the date these awards were granted, along with the fair value of awards of restricted stock units on the date such awards were granted. The fair value was determined in accordance with the rules and regulations of the SEC, with respect to restricted stock units andSEC. The summary compensation table does not reflect the actual payout of such performance share opportunities awarded in 2013.shares.
For more information about payouts under our annual performance plan, which are included in the amounts shown in column (g) above (see footnote 3)2), see the section below entitled “ —“— Grants of Plan-Based Awards — Annual Performance Plan Awards.”
In connection with ourOur recruitment of Mr. Macadam as our President and Chief Executive Officer on March 10, 2008 we entered intoincluded an employment agreement with Mr. Macadam to establishestablishing the terms of his employment. The employmentWe entered into this agreement on March 10, 2008. It provides for a minimum annual salary of $825,000. The employment agreementIt also provided for initial awards upon commencement of employment, of stock options and restricted stock butupon commencement of his employment. It does not provide for any subsequent equity awards.
The employment agreement provides thatmakes Mr. Macadam will be eligible to participate in our annual incentive plan with aand in our LTIP. His target opportunity in our annual incentive plan is equal to 100% of his annual base salary andwith a maximum opportunity of 200% of annual base salary, and insalary. His compensation under our LTIP inis set at the discretion of our board of directors at levels that:
compensation consultant, and
The period of employment under the employment agreement will terminateend upon Mr. Macadam’s death, resignation or termination of employment by EnPro. We may terminate Mr. Macadam’s employment for any reason, and Mr. Macadam may resign his employment for any reason. The employment agreement also provides for the maintenance ofrequires Mr. Macadam to maintain confidential information by Mr. Macadam and includes a covenant against certain activities in competition against EnPro for two-yearstwo years following termination of employment.
Pursuant to the employment agreement, we entered into a management continuity agreement with Mr. Macadam. The management continuity agreement and the provisions for severance in the event of the termination of Mr. Macadam’s employment are described below in “— Potential payments upon termination or change in control.”
The following table provides additional information about awards we granted in 20132016 to the named executive officers under our 2013 annual performance plans, awards payable in cash and awards of performance
shares made under our LTIP in 2013, and awards in 2013of
performance shares and awards of restricted stock units and restricted share awards under our Amended and Restated 2002 Equity Compensation Plan.
All Other Stock Awards: Number of Shares or Units (#) (i) | All Other Option Awards: Number of Securities Underlying Options (#) (j) | Exercise or Base Price of Option Awards ($/Sh) (k) | Grant Date Fair Value of Stock and Option Awards(2) (l) | |||||||||||||||||||||||||||||||||||||||||
Estimated Future Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards | |||||||||||||||||||||||||||||||||||||||||||
Name (a) | Plan | Grant (b) | Threshold ($) (c) | Target ($) (d) | Maximum ($) (e) | Threshold (#) (f) | Target (#) (g) | Maximum (#) (h) | ||||||||||||||||||||||||||||||||||||
Stephen E. Macadam | Annual Plan(1) | 2/5/2013 | 1,732,500 | 1,732,500 | 1,732,500 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
LTIP | 2/5/2013 | 275,000 | 550,000 | 1,650,000 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Equity Plan | 2/5/2013 | — | — | — | 6,174 | 12,348 | 37,044 | — | — | — | 551,091 | |||||||||||||||||||||||||||||||||
Equity Plan | 2/5/2013 | — | — | — | — | — | — | 14,998 | — | — | 669,361 | |||||||||||||||||||||||||||||||||
Alexander W. Pease | Annual Plan(1) | 2/5/2013 | 507,000 | 507,000 | 507,000 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
LTIP | 2/5/2013 | 84,500 | 169,000 | 507,000 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Equity Plan | 2/5/2013 | — | — | — | 1,897 | 3,794 | 7,588 | — | — | — | 169,326 | |||||||||||||||||||||||||||||||||
Equity Plan | 2/5/2013 | — | — | — | — | — | — | 8,794 | — | — | 392,476 | |||||||||||||||||||||||||||||||||
Richard L. Magee | Annual Plan(1) | 2/5/2013 | 325,000 | 325,000 | 325,000 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
LTIP | 2/5/2013 | 75,834 | 151,667 | 455,001 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Equity Plan | 2/5/2013 | — | — | — | 1,703 | 3,405 | 10,215 | — | — | — | 151,965 | |||||||||||||||||||||||||||||||||
Equity Plan | 2/5/2013 | — | — | — | — | — | — | 3,405 | — | — | 151,965 | |||||||||||||||||||||||||||||||||
Dale A. Herold | Annual Plan(1) | 2/5/2013 | 374,000 | 374,000 | 374,000 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
LTIP | 2/5/2013 | 48,167 | 96,333 | 288,999 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Equity Plan | 2/5/2013 | — | — | — | 1,082 | 2,163 | 6,489 | — | — | — | 96,535 | |||||||||||||||||||||||||||||||||
Equity Plan | 2/5/2013 | — | — | — | — | — | — | 2,163 | — | — | 96,535 | |||||||||||||||||||||||||||||||||
Kenneth D. Walker | Annual Plan(1) | 2/5/2013 | 352,000 | 352,000 | 352,000 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
LTIP | 2/5/2013 | 40,375 | 80,750 | 242,250 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Equity Plan | 2/5/2013 | — | — | — | 907 | 1,813 | 5,439 | — | — | — | 80,914 | |||||||||||||||||||||||||||||||||
Equity Plan | 2/5/2013 | — | — | — | — | — | — | 1,813 | — | — | 80,914 | |||||||||||||||||||||||||||||||||
Equity Plan | 10/2/2013 | — | — | — | — | — | — | 5,000 | — | — | 299,350 | |||||||||||||||||||||||||||||||||
Anthony R. Gioffredi | Annual Plan(1) | 2/5/2013 | 313,500 | 313,500 | 313,500 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
LTIP(3) | 2/5/2013 | 43,917 | 87,833 | 263,499 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Equity Plan(3) | 2/5/2013 | — | — | — | 986 | 1,972 | 5,916 | — | — | — | 87,833 | |||||||||||||||||||||||||||||||||
Equity Plan(3) | 2/5/2013 | — | — | — | — | — | — | 1,972 | — | — | 87,833 |
All Other Stock Awards: Number of Shares or Units (#) (i) | All Other Option Awards: Number of Securities Underlying Options (#) (j) | Exercise or Base Price of Option Awards ($/Sh) (k) | Grant Date Fair Value of Stock and Option Awards(2) (l) | |||||||||||||||||||||||||||||||||||||||||||
Estimated Future Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards | |||||||||||||||||||||||||||||||||||||||||||||
Name (a) | Plan | Grant Date (b) | Threshold ($) (c) | Target ($) (d) | Maximum ($) (e) | Threshold (#) (f) | Target (#) (g) | Maximum (#) (h) | ||||||||||||||||||||||||||||||||||||||
Stephen E. Macadam | Annual Plan(1) | 2/23/2016 | 446,250 | 892,500 | 1,785,000 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
LTIP | 2/23/2016 | 350,000 | 700,000 | 1,400,000 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Equity Plan | 2/23/2016 | — | — | — | 7,894 | 15,787 | 31,574 | — | — | — | 793,095 | |||||||||||||||||||||||||||||||||||
Equity Plan | 2/23/2016 | — | — | — | — | — | — | 17,479 | — | — | 775,019 | |||||||||||||||||||||||||||||||||||
J. Milton Childress II | Annual Plan(1) | 2/23/2016 | 136,500 | 273,000 | 546,000 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
LTIP | 2/23/2016 | 78,000 | 156,000 | 312,000 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Equity Plan | 2/23/2016 | — | — | — | 1,759 | 3,518 | 7,036 | — | — | — | 176,735 | |||||||||||||||||||||||||||||||||||
Equity Plan | 2/23/2016 | — | — | — | — | — | — | 3,706 | — | — | 164,324 | |||||||||||||||||||||||||||||||||||
Kenneth D. Walker | Annual Plan(1) | 2/23/2016 | 152,880 | 305,760 | 611,520 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
LTIP | 2/23/2016 | 105,560 | 211,120 | 422,240 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Equity Plan | 2/23/2016 | — | — | — | 2,381 | 4,761 | 9,522 | — | — | — | 239,179 | |||||||||||||||||||||||||||||||||||
Equity Plan | 2/23/2016 | — | — | — | — | — | — | 4,761 | — | — | 211,103 | |||||||||||||||||||||||||||||||||||
Marvin A. Riley | Annual Plan(1) | 2/23/2016 | 85,250 | 170,500 | 341,000 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
LTIP | 2/23/2016 | 43,917 | 87,833 | 175,666 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Equity Plan | 2/23/2016 | — | — | — | 991 | 1,981 | 3,962 | — | — | — | 99,520 | |||||||||||||||||||||||||||||||||||
Equity Plan | 2/23/2016 | — | — | — | — | — | — | 1,981 | — | — | 87,838 | |||||||||||||||||||||||||||||||||||
Robert S. McLean | Annual Plan(1) | 2/23/2016 | 98,760 | 197,340 | 394,680 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
LTIP | 2/23/2016 | 50,830 | 101,660 | 203,320 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Equity Plan | 2/23/2016 | — | — | — | 1,147 | 2,293 | 4,586 | — | — | — | 115,194 | |||||||||||||||||||||||||||||||||||
Equity Plan | 2/23/2016 | — | — | — | — | — | — | 2,610 | — | — | 115,727 | |||||||||||||||||||||||||||||||||||
Jon A. Cox | Annual Plan(1) | 2/23/2016 | 93,602 | 187,203 | 374,406 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
LTIP | 2/23/2016 | 50,349 | 100,697 | 201,394 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Equity Plan | 2/23/2016 | — | — | — | 1,136 | 2,271 | 4,542 | — | — | — | 114,089 | |||||||||||||||||||||||||||||||||||
Equity Plan | 2/23/2016 | — | — | — | — | — | — | 2,271 | — | — | 100,696 |
(1) | For |
(2) | The amounts in this column reflect the grant date fair value under FASB ASC Topic 718 of respective awards in 2016 of performance share opportunities at target payout and restricted stock |
Annual performance plan awards
TheIn February 2016, the Compensation Committee granted each named executive officer an award opportunity for 2013an award in 2016 under our annual performance plans. Information about these award opportunities is reported in the Annual Plan line beside each officer’s name in the table above.above under the section,Grants of plan-based awards. The 20132016 payout amounts are included in column (g) of the summary compensation table and broken out in footnote 32 to the summary compensation table.
Mr. Macadam participates in our senior executive annual performance plan. Annual performance incentive awards
for Mr. PeaseChildress, Mr. Walker, Mr. McLean and Mr. MageeCox were made under a similar plan for other corporate officers that permits adjustments for unusual items, whichitems. Such adjustments are not permitted under our senior executive annual performance plan. AnnualThe annual performance incentive awards foraward to Mr. Herold, Mr. Walker and Mr. Gioffredi wereRiley was made under our
management annual performance plan. This plan operates identically in all material respects with the plan inunder which Mr. PeaseChildress, Mr. Walker, Mr. McLean and Mr. Magee participate,Cox received awards, except that one-halfone-quarter of the awards under the management annual performance plan is based on the same corporate-wide performance measures and weightings applicable
to the other NEOs, and the remaining one-halfthree-quarters is based on performance measures applicable to the respectiveFairbanks Morse division of the plan participant. The committee established the performance goals under thefor which Mr. Riley has responsibility.
These plans and communicated themthe awards made under these plans to the NEOs in 2016 are described in “Compensation discussion and analysis — Compensation analysis — Annual performance incentive plan participants in February 2013. For each goal, the committee also assigned a specific weight, i.e., the percentage of the participants’ total annual incentive compensation that the goal would contribute. Under the three plans, the 2013 corporate performance goals and weightings were:
| ||||
|
For 2013, the performance measures and weighting for the divisional component of the annual performance plan in which Messrs. Herold, Walker and Gioffredi participated were as follows:
| ||||
|
The committee set performance levels for each of these goals, with a threshold level below which participants would not receive any payout related to that goal, a target level and a maximum level. At the same time, the committee communicated to each participant a total award opportunity, expressed as a percentage of the participant’s base salary. The salary percentages of the award opportunities increased with the level of job responsibility.
Performance below the threshold level results in no payout, performance at or above the threshold level results in a payout at 200% of the amount at the target payout level. However, achievement of the threshold level of performance does not assure that an executive officer will receive the maximum incentive award, because the committee has retained “negative discretion” to reduce the award based upon the assessment of the company’s performance (and for Messrs. Herold, Walker and Gioffredi the performance of the relevant division) in light of the goals set at the target and maximum levels. In setting these levels, the committee anticipated exercising its negative discretion, if performance levels were not at the maximum level, to reduce annual incentive payments to executive officers to levels consistent with past practice — that is, that, absent unusual circumstances, payouts at a target level of performance would likely be in the range of 100% of the target payout and that payouts at a threshold level of performance would likely be in the range of 50% of the target payout.awards.”
LTIP awards
For 2013, ourOur long-term compensation awards were a combination ofmade in 2016 combined restricted stock units and LTIP awards payable in cash and in performance shares, with one-third of the target long-term compensation to each executive in the form of an LTIP award payable in cash, one-third as an LTIP award in the form of performance shares and the remaining one-third in the form of restricted stock units. In determining the number of performance shares that make up our target awards, the committee begins with target dollar values and divides those values by the fair market value of our common stock.
shares. Under our LTIP, the committee
Committee may provide aan opportunity for long-term incentive opportunity forcompensation to plan participants in any year. Each opportunity is in the form ofsets a target award based on corporate performance over a three-year cycle. The committeeCommittee establishes the relevant performance metricsrequired for payouts at the time it grants the awards, which is generally in the first part of the first year in the cycle. For each award, there is also a threshold performance level of performance below which the participants will earn no award and a maximum performance level that corresponds toat which the participants will earn the maximum awardaward. If performance shares are earned, they can earn. Each performance share, if earned, will be paid in the forman equal number of a shareshares of our common stock. The awardHowever, the recipients will not actually own any of these shares however, unless our corporate performance through the end of the three-year performance cycle reaches at least meets the threshold level.
For ourThe LTIP and the awards made in 2013,under the committee adopted an “enduring standard” by which to measure and reward performance. In prior years, awards under our long-term incentive compensation plan used metrics such as cumulative earnings per share and cumulative EBITDA before asbestos measured over a three-year performance cycle, with threshold, target and maximum performance levels for these metrics set by the committee at the beginning of each three-year performance cycle. Rapidly changing business conditions in recent years have made setting appropriate three-year performance targets particularly difficult.
The standard used by the committee in 2013 compares the company’s growth in calculated equity value over the three-year performance period (2013 – 2015) to a target return. The calculated equity value is determined as a multiple of the company’s consolidated adjusted earnings before interest, depreciation, amortization and asbestos-related expenses less adjusted net debt. The adjustments to earnings before interest, depreciation, amortization and asbestos-related expenses include management fees and royalties payable to or from GST, inter-company interest, restructuring charges, asset impairments, all expenses and charges related to discontinued operations, including environmental reserve adjustments for discontinued operations, fair value adjustments to inventory related to acquisitions and other non-recurring items in connection with acquisitions and dispositions, extraordinary items and pension expense. Net debt is determined by subtracting cash and marketable securities from the sum of interest-bearing debt, consolidated asbestos liability, if any, and pension liabilities. The target return is determined by adding a risk premiumLTIP to the average 10-year Treasury bond yield for the three-year period.
The calculated equity value is subject to adjustments for acquisitionsNEOs in 2016 are described in “Compensation discussion and dispositions that occur during the performance period based on timing of the completion of the acquisition or disposition, as well as equitable adjustments where necessary (i)analysis — Compensation analysis — Long-term compensation — Awards granted in response to changes in applicable laws or regulations, (ii) to account for changes in accounting principles that were not anticipated at the time the awards were made, (iii) to account for adjustments in expense due to re-measurement of pension benefits, (iv) to account for restructurings, discontinued operations, and any other items deemed by the committee to be non-recurring in nature or otherwise not reflective of operating performance that were not anticipated at the time the
awards were made, and (v) to reflect other unusual, non-recurring, or unexpected items similar in nature to the foregoing, in each case as determined in good faith by the committee consistent with the principles set forth in section 162(m) of the Internal Revenue Code and the regulations thereunder.
As shown in the chart below, the compound annual growth rate of the calculated equity value divided by the target return determines the amount of the LTIP payout.
Calculated equity value CAGR / target return | LTIP payout (% of target award) | |
0.5 | 50% | |
1.0 | 100% | |
1.7 | 300% |
Actual performance that falls between the established levels will yield a proportional payout. No payment is made if the ratio of the CAGR of the calculated equity value to the target return is less than 0.5.
An award recipient generally must be employed with us on December 31, 2015 to earn any payout for the 2013-2015 cycle for the 2013 LTIP awards. Exceptions under the plan include for termination of employment due to death, disability or retirement during the cycle. In any of those events, a recipient will receive a pro rata portion of the award he would have received had he remained employed through the end of 2015.
If we pay any common stock dividends during the 2013-2015 performance cycle, recipients will not receive any dividends on their performance share awards for this cycle unless and until they earn the shares. At that time, they will receive the value of any dividends we have paid during that period in the form of additional shares of our common stock (with cash in lieu of fractional shares).
Our Amended and Restated 2002 Equity Compensation Plan governs the performance share awards. All shares of our common stock that we pay out for this cycle will reduce the number of shares available to be issued under our Amended and Restated 2002 Equity Compensation Plan.2016.”
Restricted stock unit awards
For 2013,2016, the committeeCommittee determined that, in general,one-third of the target long-term compensation would be payable in the form of restricted stock units. In recognition that the payout of annual performance plan compensation to Mr. Macadam for 2012 was lower than the payout level of other corporate executive officers because the senior executive annual performance plan in which he participates did not permit adjustment for unforeseen, unusual items and to provide2016, we granted additional incentive for retention, the committee authorized the grant of an additional 2,650 restricted stock units to Mr. Macadam. In recognitionnamed executive officers who elected to participate in our management stock purchase deferral plan. This plan
permitted officers and other senior personnel to defer, for five years or more, up to 50% of annual incentive compensation. The deferred amounts credited to their accounts are based on the value of our common stock. Participants in that because of his hire date, Mr. Pease was notplan are eligible to receive restricted stock unit awards equal to 25% of the sameamount deferred.
payout percentage as other corporate executive officers with respect to LTIPAll 2016 awards for the 2010-2012 performance cycle and in recognition of his superior performance during that period, and to provide additional incentive for retention, the committee authorized the grant of an additional 5,000 restricted stock units to Mr. Pease.
Awards of restricted stock unitsthe named executive officers were made under our Amended and Restated 2002 Equity Compensation Plan andPlan. The units vest three years after the date of grant subject to the executive’s continued employment during that period. The restricted stock units would vest earlier in the event of death, disability or a change in control of the company. In the event of an executive’s retirement, one-third of the restricted stock units vest if retirement occurspro rata based on the number of months he or she was employed after the first anniversary of the grant date but beforethrough the second anniversary of the grantretirement date and two-thirds vest if retirement occurs on or after the second anniversary of the grant date but before the third anniversary of the grant date.
If we pay any common stock dividends priorcompared to the vestingscheduled36-month period.
Recipients of the restricted stock units recipients of the restricted stock units willare not be entitled to receive any such dividends when such(if dividends are paid.paid) before the units vest. However, when the units vest, the recipient is entitled to receive one share of common stock for each restricted stock unit vesting plus a cash payment equal to the aggregate amount of any cash dividends paid on the shares from the date of the award through the date the units vest. Recipients have no right to vote any restricted stock units on any matter presented to a vote of the company’s shareholders. Upon vesting, the recipient would be entitled to receive, for each restricted stock unit vesting, one share of common stock plus a cash payment equal to the aggregate amount of cash dividends paid with respect to one share of common stock from the date the award was made through the date of vesting.
Restricted share awards
In addition to awards made on an annual cycle, the committee has from time to time made awards of restricted shares of common stock to executive officers. The committee authorized an award to Mr. Walker in October 2013, in connection with the assignment to him of expanded responsibilities, of 5,000 restricted shares that vest, subject to his continued employment, on the third anniversary of the date of the award. The committee authorized an award to Mr. Herold in May 2012, in connection with the assignment to him of enhanced responsibilities, of 15,000 restricted shares that vest, subject to his continued employment, as follows: 50% of the award to vest on the third anniversary of the date of the award and the remaining 50% to vest on the fourth anniversary of the date of the award. The committee authorized an award to Mr. Pease in February 2011, in connection with his initial employment, of 2,500 restricted shares that vest, subject to his continued employment, on the third anniversary of the date of the award. Recipients of these awards are entitled to receive any dividends paid on shares of common stock and to vote these restricted shares of common stock at meetings of shareholders.
Outstanding equity awards at fiscalyear-end
The nextfollowing table givesis a snapshot as of the end of 20132016 of equity awards to our named executive officers the ultimate outcomes of which thewho were employed at December 31, 2016. These officers have not yet realized. In fact, otherrealized the benefits of these rewards. Other than the option awards in column (b), thesethe awards either have not vested or the officers have not yet earned them.
Option Awards | Stock Awards | |||||||||||||||||||||||||||||||
Name (a) | Number of Securities Underlying Unexercised Options (#) Exercisable (b) | Number of Securities Underlying Unexercised Options (#) Unexercisable (c) | Option Exercise Price ($) (e) | Option Expiration Date (f) | Number of Shares or Units of Stock That Have Not Vested (#) (g) | Market Value of Shares or Units of Stock That Have Not Vested ($)(1) (h) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) (i) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(1) (j) | ||||||||||||||||||||||||
Stephen E. Macadam | 100,000 | — | 34.55 | 4/13/2018 | — | — | — | — | ||||||||||||||||||||||||
— | 25,288 | (2) | 42.24 | 2/10/2021 | — | — | — | — | ||||||||||||||||||||||||
— | — | — | — | 5,319 | (3) | 306,640 | — | — | ||||||||||||||||||||||||
— | — | — | — | 6,574 | (4) | 378,991 | — | — | ||||||||||||||||||||||||
— | — | — | — | 14,998 | (5) | 864,635 | — | — | ||||||||||||||||||||||||
— | — | — | — | — | — | 15,338 | (6) | 884,236 | ||||||||||||||||||||||||
— | — | — | — | — | — | 37,044 | (7) | 2,135,587 | ||||||||||||||||||||||||
Alexander W. Pease | — | — | — | — | 1,729 | (3) | 99,677 | — | — | |||||||||||||||||||||||
— | — | — | — | 4,942 | (4) | 284,906 | — | — | ||||||||||||||||||||||||
— | — | — | — | 8,794 | (5) | 506,974 | — | — | ||||||||||||||||||||||||
— | — | — | — | 2,500 | (8) | 144,125 | — | — | ||||||||||||||||||||||||
— | — | — | — | — | — | 4,532 | (6) | 261,270 | ||||||||||||||||||||||||
— | — | — | — | — | — | 11,382 | (7) | 656,172 | ||||||||||||||||||||||||
Richard L. Magee | — | — | — | — | 1,489 | (3) | 85,841 | — | — | |||||||||||||||||||||||
— | — | — | — | 1,709 | (4) | 98,524 | — | — | ||||||||||||||||||||||||
— | — | — | — | 3,405 | (5) | 196,298 | — | — | ||||||||||||||||||||||||
— | — | — | — | — | — | 3,988 | (6) | 229,908 | ||||||||||||||||||||||||
— | — | — | — | — | — | 10,215 | (7) | 588,895 | ||||||||||||||||||||||||
Dale A. Herold | — | — | — | — | 859 | (3) | 49,521 | — | — | |||||||||||||||||||||||
— | — | — | — | 1,016 | (4) | 58,572 | — | — | ||||||||||||||||||||||||
— | — | — | — | 2,163 | (5) | 124,697 | — | — | ||||||||||||||||||||||||
— | — | — | — | 15,000 | (9) | 864,750 | — | — | ||||||||||||||||||||||||
— | — | — | — | — | — | 2,370 | (6) | 136,631 | ||||||||||||||||||||||||
— | — | — | — | — | — | 6,489 | (7) | 374,091 | ||||||||||||||||||||||||
Kenneth D. Walker | — | — | — | — | 678 | (3) | 39,087 | — | — | |||||||||||||||||||||||
— | — | — | — | 813 | (4) | 46,869 | — | — | ||||||||||||||||||||||||
— | — | — | — | 1,813 | (5) | 104,519 | — | — | ||||||||||||||||||||||||
— | — | — | — | 5,000 | (10) | 288,250 | — | — | ||||||||||||||||||||||||
— | — | — | — | — | — | 1,896 | (6) | 109,304 | ||||||||||||||||||||||||
— | — | — | — | — | — | 5,439 | (7) | 313,558 | ||||||||||||||||||||||||
Anthony R. Gioffredi | — | — | — | — | 802 | (3) | 46,235 | — | — | |||||||||||||||||||||||
— | — | — | — | 593 | (4) | 34,186 | — | — | ||||||||||||||||||||||||
— | — | — | — | 493 | (5) | 28,421 | — | — | ||||||||||||||||||||||||
— | — | — | — | — | — | 1,383 | (6) | 79,729 | ||||||||||||||||||||||||
— | — | — | — | — | — | 1,479 | (7) | 85,264 |
Option Awards | Stock Awards | |||||||||||||||||||||||||||||||
Name (a) | Number of Securities Underlying Unexercised Options (#) Exercisable (b) | Number of Securities Underlying Unexercised Options (#) Unexercisable (c) | Option Exercise Price ($) (e) | Option Expiration Date (f) | Number of Shares or Units of Stock That Have Not Vested (#) (g) | Market Value of Shares or Units of Stock That Have Not Vested ($)(1) (h) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) (i) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(1) (j) | ||||||||||||||||||||||||
Stephen E. Macadam | 61,318 | — | 34.55 | 4/13/2018 | — | — | — | — | ||||||||||||||||||||||||
18,187 | — | 42.24 | 2/10/2021 | — | — | — | — | |||||||||||||||||||||||||
— | — | — | — | 24,744 | (2) | 1,666,756 | — | — | ||||||||||||||||||||||||
— | — | — | — | 14,573 | (3) | 981,637 | — | — | ||||||||||||||||||||||||
— | — | — | — | 17,479 | (4) | 1,177,385 | — | — | ||||||||||||||||||||||||
— | — | — | — | — | — | 9,873 | (5) | 665,045 | ||||||||||||||||||||||||
— | — | — | — | — | — | 31,574 | (6) | 2,126,825 | ||||||||||||||||||||||||
J. Milton Childress II | — | — | — | — | 2,568 | (2) | 172,980 | — | — | |||||||||||||||||||||||
— | — | — | — | 2,938 | (3) | 197,904 | — | — | ||||||||||||||||||||||||
— | — | — | — | 3,706 | (4) | 249,636 | — | — | ||||||||||||||||||||||||
— | — | — | — | — | — | 2,116 | (5) | 142,534 | ||||||||||||||||||||||||
— | — | — | — | — | — | 7,036 | (6) | 473,945 | ||||||||||||||||||||||||
Kenneth D. Walker(7) | — | — | — | — | 3,969 | (2) | 267,352 | — | — | |||||||||||||||||||||||
— | — | — | — | 3,818 | (3) | 257,180 | — | — | ||||||||||||||||||||||||
— | — | — | — | 4,761 | (4) | 320,701 | — | — | ||||||||||||||||||||||||
— | — | — | — | — | — | 2,863 | (5) | 192,852 | ||||||||||||||||||||||||
— | — | — | — | — | — | 9,522 | (6) | 641,402 | ||||||||||||||||||||||||
Marvin A. Riley | — | — | — | — | 2,856 | (2) | 192,380 | — | — | |||||||||||||||||||||||
— | — | — | — | 4,385 | (3) | 295,374 | — | — | ||||||||||||||||||||||||
— | — | — | — | 3,000 | (8) | 202,080 | — | — | ||||||||||||||||||||||||
— | — | — | — | 1,981 | (4) | 133,440 | — | — | ||||||||||||||||||||||||
— | — | — | — | — | — | 1,039 | (5) | 69,987 | ||||||||||||||||||||||||
— | — | — | — | — | — | 3,962 | (6) | 266,880 | ||||||||||||||||||||||||
Robert S. McLean | — | — | — | — | 3,891 | (2) | 262,098 | — | — | |||||||||||||||||||||||
— | — | — | — | 2,029 | (3) | 136,673 | — | — | ||||||||||||||||||||||||
— | — | — | — | 2,610 | (4) | 175,810 | — | — | ||||||||||||||||||||||||
— | — | — | — | — | — | 1,379 | (5) | 92,889 | ||||||||||||||||||||||||
— | — | — | — | — | �� | — | 4,586 | (6) | 308,913 |
(1) | We calculated these values using a price of |
(2) | These |
(3) | These restricted stock units, which each represent a contingent right to receive one share of common stock and cash payment equal to dividends paid on a share of common stock since the date of grant, vest on February |
(4) | These restricted stock units, which each represent a contingent right to receive one share of common stock and cash payment equal to dividends paid on a share of common stock since the date of grant, vest on February |
(5) |
(6) | The amounts for these outstanding performance share awards for the |
(7) | In connection with the termination of Mr. Walker’s employment prior to the vesting of the restricted stock units and performance share awards reflected in the table, such restricted stock units and performance share awards have been cancelled. |
(8) |
Option exercises and stock vested
This table provides information about amounts the named executive officers realized in 20132016 from equity awards.
Option Awards | Stock Awards | |||||||||||||||
Name (a) | Number of Shares Acquired on Exercise (#) (b) | Value Realized on Exercise ($) (c) | Number of Shares Acquired on Vesting (#) (d) | Value Realized on Vesting ($) (e) | ||||||||||||
Stephen E. Macadam | — | — | 9,336 | 417,039 | (1) | |||||||||||
— | — | 17,834 | 872,083 | (2) | ||||||||||||
— | — | 18,717 | 916,197 | (3) | ||||||||||||
Alexander W. Pease | — | — | — | — | ||||||||||||
Richard L. Magee | — | — | 2,533 | 113,149 | (1) | |||||||||||
— | — | 5,440 | 266,288 | (3) | ||||||||||||
Dale A. Herold | — | — | 1,428 | 63,789 | (1) | |||||||||||
— | — | 2,086 | 102,110 | (3) | ||||||||||||
Kenneth D. Walker | — | — | 691 | 30,867 | (1) | |||||||||||
— | — | 1,343 | 65,740 | (3) | ||||||||||||
Anthony R. Gioffredi | — | — | 1,376 | 61,466 | (1) | |||||||||||
— | — | 2,955 | 144,647 | (3) |
Option Awards | Stock Awards | |||||||||||||||
Name (a) | Number of Shares Acquired on Exercise (#) (b) | Value Realized on Exercise ($) (c) | Number of Shares Acquired on Vesting (#) (d) | Value Realized on Vesting ($) (e) | ||||||||||||
Stephen E. Macadam | 2,367 | 28,144 | (1) | — | — | |||||||||||
30,000 | 745,200 | (2) | — | — | ||||||||||||
— | — | 14,998 | 634,865 | (3) | ||||||||||||
— | — | 24,202 | 1,061,258 | (4) | ||||||||||||
J. Milton Childress II | — | — | 1,295 | 54,817 | (3) | |||||||||||
— | — | 2,538 | 111,291 | (4) | ||||||||||||
Kenneth D. Walker | — | — | 1,813 | 76,744 | (3) | |||||||||||
— | — | 3,553 | 155,799 | (4) | ||||||||||||
— | — | 5,000 | 284,100 | (5) | ||||||||||||
Marvin A. Riley | — | — | 1,431 | 60,574 | (3) | |||||||||||
— | — | 2,805 | 122,999 | (4) | ||||||||||||
Robert S. McLean | — | — | 1,845 | 78,099 | (3) | |||||||||||
— | — | 3,616 | 158,562 | (4) | ||||||||||||
Jon A. Cox | — | — | 1,813 | 76,744 | (3) | |||||||||||
— | — | 3,553 | 155,799 | (4) |
(1) | Value realized based on |
(2) | Value realized based on $59.39 per share, the closing price of our common stock on November 10, 2016, the day the options were exercised. |
(3) | Value realized based on $42.33 per share, the closing price of our common stock on February |
Value realized based on |
Value realized based on |
The nextfollowing table shows information about the named executive officers’ accumulated benefits under our defined benefit pension plans. The information includes the present value of each officer’s accumulated benefit for each officer under each plan. This is theThe values are lump sum value, as of December 31, 2013,sums of the annual benefit earned as of that date thatDecember 31, 2016. The sums would be payable under each plan at the officer’s retirement, assuming he retired at the earliest age at which his benefits would not be reduced. The present
present value of accumulated benefit is an estimate only. Each officer’s actual benefit under these plans will depend on his compensation and years of service at retirement or termination, and on other data used in the benefit calculations. The assumptions used to estimate these benefits are the same as those assumptions used in Note 14 to our Consolidated Financial Statements in our 20132016 annual report.
Name (a) | Plan Name (b) | Number of Years Credited Service (#) (c) | Present Value of Accumulated Benefit ($) (d) | |||||||
Stephen E. Macadam(1) | Pension | — | — | |||||||
Restoration | — | — | ||||||||
SERP | — | — | ||||||||
Alexander W. Pease(1) | Pension | — | — | |||||||
Restoration | — | — | ||||||||
SERP | — | — | ||||||||
Richard L. Magee(2) | Pension | 12.00 | 366,594 | |||||||
Restoration | 12.00 | 396,150 | ||||||||
SERP | 11.58 | 594,526 | ||||||||
Dale A. Herold(1) | Pension | — | — | |||||||
Restoration | — | — | ||||||||
SERP | — | — | ||||||||
Kenneth D. Walker(1) | Pension | 5.50 | 67,250 | |||||||
Restoration | — | — | ||||||||
SERP | — | — | ||||||||
Anthony R. Gioffredi(3) | Pension | 12.25 | 345,430 | |||||||
Restoration | 12.25 | 420,517 | ||||||||
SERP | — | — |
Name (a) | Plan Name (b) | Number of Years Credited Service (#) (c) | Present Value of Accumulated Benefit ($) (d) | |||||||
Stephen E. Macadam(1) | Pension | — | — | |||||||
Restoration | — | — | ||||||||
J. Milton Childress II | Pension | 11.1 | 428,949 | |||||||
Restoration | 11.1 | 435,845 | ||||||||
Kenneth D. Walker(1) | Pension | 5.5 | 99,191 | |||||||
Restoration | — | — | ||||||||
Marvin A. Riley(1) | Pension | — | — | |||||||
Restoration | — | — | ||||||||
Robert S. McLean(1) | Pension | — | — | |||||||
Restoration | — | — | ||||||||
Jon A. Cox | Pension | 20.8 | 565,854 | |||||||
Restoration | 20.8 | 537,536 |
(1) | Mr. Macadam, Mr. |
We currently maintain threetwo defined benefit plans. One, which we refer to as our pension plan, is a broad-based plan that provides funded,tax-qualified benefits up to the limits on compensation and benefits under the Internal Revenue Code. The secondother provides unfunded,non-qualified benefits in excess of the limits that apply to the pension plan. We call this one the restoration plan. The third is a supplemental executive retirement plan, or SERP, that provides additional unfunded, non-qualified benefits to one of our named executive officers.
Pension plan
Benefits under our pension plan are paid monthly as a life annuity, with monthly payments.annuity. Benefit amounts for salaried employees depend on a participant’s pay and credited service with our company. ForIf a participant chooses to receive payments before age 62, benefits accrued due to service with the company through December 31, 2006 the monthly payments will be reduced by 4% per year of age below age 62. Payments of these benefits will not be reduced if the participant waits until after age 62. If a participant chooses to receive payments before age 62. There will be no reduction in the amount of the payments if the participant waits until after age 62. For65, benefits accrued due to service after December 31, 2006 the monthly payments will be reduced by 5% per year if the participant chooses to begin receiving payments beforeof age below age 65.
Pay used to determine aA salaried participant’s benefit amount is determined by the greater of the participant’s average compensation over the final 60 months of employment or the highest consecutive 60 months of the participant’s compensation during the lastfinal 120 months of employment, whichever is greater.the participant’s employment. For purposes of the plan, “compensation” means base pay plus annual incentive plan awards. However, compensation for the pension plan is limited under the federal tax code. The limit was $255,000$265,000 in 2013.2016. In addition, benefits provided under the pension plan may not exceed a benefit limit under the federal tax code. In 2013,2016, this limit was $205,000,$210,000, payable as a single life annuity beginning at normal retirement age.
We established the pension plan to providetax-qualified retirement benefits for most of our full-time employees of the company.employees. In 2006, we began to phase out participation in this plan for salaried employees, replacing it with an additional benefit
under our 401(k) plan, and at that time theplan. The pension plan was closed to new participants. However, salariedparticipants at that time. Salaried employees who were hired prior to January 1, 2006 and who were at least age 40 on December 31, 2006 were offered a choicecould choose either to accept the additional benefit under our 401(k) plan or continue to accrue benefits under the pension plan. Each of the named executive officers then employed by us and aged 40 or older chose to continue to accrue future benefits under the pension plan rather than to receive the additional benefit under our 401(k) plan. Of the named executive officers, only Mr. Childress continues to accrue benefits under the pension plan. Mr. Walker’s benefits under the pension plan were frozen in 2006.
As required by federal pension laws, benefits under the pension plan are funded by assets held in atax-exempt trust.
Restoration plan
The restoration plan providesis designed to create a benefit that is equal to the benefit thatwhat a participant would be providedreceive under the pension plan if the federal tax code compensation and benefit limits did not exist, minusexist. To achieve this total, the benefit actuallyrestoration plan pays an amount additional to the amount provided under the pension plan. In addition, theThe restoration plan also provides benefits on compensation that is deferred and not taken into account under the pension plan.
The definition of compensationCompensation is defined the same way as the definition used forin the pension plan, except that it includes compensation includes amounts deferred pursuant tounder ournon-qualified deferred compensation plan.
Vested benefits are generally payable in an actuarially equivalent single cash payment following termination of employment. Special payment rules apply to Mr. Magee as discussed below under “— SERP.”
Employees participate in the restoration plan only with board approval. Of the named executive officers, only Mr. MageeChildress and Mr. GioffrediCox have participated in this plan.
Because this is anon-qualified plan, benefits are unsecured, and a participant’s claim for benefits under the plan is no greater than the claim of a general creditor.
SERP
At January 1, 2013, Mr. Magee was the sole remaining participant in the SERP continuing to earn an additional benefit under the SERP equal to the combined benefit under our pension plan and restoration plan for his first 15 years of service. The SERP takes into account service only for periods beginning on or after June 1, 2002.
Under the supplemental retirement and death benefit agreements we have entered into with Mr. Magee, we agreed to pay SERP and restoration plan benefits annually as they accrue, up to retirement. We made these annual lump-sum payments by transferring to Mr. Magee ownership of a portion of the life insurance policy we own on his life, with the portion transferred having a cash value equal to the lump sum value of SERP and restoration plan benefits being paid. The death benefit of the transferred policy reduced the amount that might otherwise become payable under his death benefits agreement. However, under the agreement, we could have delayed the annual pre-retirement payments to the extent that Section 162(m) of the federal tax code would limit our tax deduction for them. This supplemental agreement also required us to make a tax gross-up payment each year to cover Mr. Magee’s income taxes resulting from the policy transfer.
On December 11, 2009, Mr. Magee entered into an agreement providing that after January 1, 2010, his vested benefits accrued under the SERP and the restoration plan ceased to be paid in annual lump sum
payments and are payable upon his termination of employment. In connection with Mr. Magee’s retirement on January 6, 2014, we entered into an agreement with Mr. Magee which provides that in full satisfaction of the our obligations under the SERP and the restoration plan, we would pay Mr. Magee a final lump sum payment,
determined as of his retirement date, based on actuarial assumptions that would apply under our tax-qualified pension plan had it continued in effect through the retirement date, as such amount is determined by our actuary.
Non-qualified deferred compensation
We provide aOur deferred compensation plan that allows our executive officers to defer compensation each year beyond the limits that apply to deferrals under ourtax-qualified 401(k) plan for salaried employees. We also make contributions to the officers’ plan accounts to match some of their contributions.
In 2012, we adopted a management stock purchase deferral plan to permit officers and other senior personnel to defer up to 50% of annual incentive compensation for five years or more, withmore. The deferred amounts are credited to accounts based on the value of our
our common stock. Participants in thatthe stock purchase deferral plan are eligible to receive restricted stock unit awardsunits equal to 25% of the amount deferred, withdeferred. The units have a three-year vesting period and are payable in shares of common stock at the same time the related annual incentive deferrals are payable.
The following tables provide information about amounts we and the executives contributed to these plans in 2013,2016 and about earnings and withdrawals under these plans. The last column shows each officer’s total account balance as of the end of the year for these plans.
Deferred compensation plan
Name (a) | Executive Contributions in Last FY ($)(1) (b) | Registrant Contributions in Last FY ($)(2) (c) | Aggregate Earnings in Last FY ($) (d) | Aggregate Withdrawals/ Distributions ($) (e) | Aggregate Balance at Last FYE ($) (f) | |||||||||||||||
Stephen E. Macadam | 68,976 | 93,538 | 433,922 | — | 1,882,599 | |||||||||||||||
Alexander W. Pease | 19,316 | 28,818 | 25,975 | — | 159,334 | |||||||||||||||
Richard L. Magee | 15,123 | 17,302 | 42,373 | — | 265,589 | |||||||||||||||
Dale A. Herold | 11,192 | 15,571 | 36,302 | — | 219,459 | |||||||||||||||
Kenneth D. Walker | — | — | 2,101 | — | 9,574 | |||||||||||||||
Anthony R. Gioffredi | 54,823 | 11,446 | 39,425 | — | 511,273 |
Name (a) | Executive Contributions in Last FY ($) (1) (b) | Registrant Contributions in Last FY ($) (2) (c) | Aggregate Earnings in Last FY ($) (d) | Aggregate Withdrawals/ Distributions ($) (e) | Aggregate Balance at Last FYE ($) (f) | |||||||||||||||
Stephen E. Macadam | 105,025 | 128,729 | 312,815 | — | 3,096,383 | |||||||||||||||
J. Milton Childress II | 31,039 | 24,256 | 12,598 | — | 214,440 | |||||||||||||||
Kenneth D. Walker | — | 7,300 | 7,146 | — | 118,436 | |||||||||||||||
Marvin A. Riley | 81,639 | 11,499 | 6,989 | — | 118,197 | |||||||||||||||
Robert S. McLean | 23,997 | 15,607 | 35,545 | — | 282,266 | |||||||||||||||
Jon A. Cox | 53,384 | 27,840 | 58,896 | — | 615,510 |
(1) | Each officer’s contributions during |
(2) | These amounts appear in the “All Other Compensation” column, column (i), of the summary compensation table (see footnote |
Management stock purchase deferral plan
Name (a) | Executive Contributions in Last FY ($)(1) (b) | Registrant Contributions in Last FY ($) (c) | Aggregate Earnings in Last FY ($) (d) | Aggregate Withdrawals/ Distributions ($) (e) | Aggregate Balance at Last FYE ($) (f) | |||||||||||||||
Stephen E. Macadam | 323,111 | — | — | — | 323,111 | |||||||||||||||
Alexander W. Pease | — | — | — | — | — | |||||||||||||||
Richard L. Magee | — | — | — | — | — | |||||||||||||||
Dale A. Herold | 57,976 | — | — | — | 57,976 | |||||||||||||||
Kenneth D. Walker | — | — | — | — | — | |||||||||||||||
Anthony R. Gioffredi | — | — | — | — | — |
Name (a) | Executive Contributions in Last FY ($) (1) (b) | Registrant Contributions in Last FY ($) (c) | Aggregate Earnings in Last FY ($) (d) | Aggregate Withdrawals/ Distributions ($) (e) | Aggregate Balance at Last FYE ($) (f) | |||||||||||||||
Stephen E. Macadam | 300,137 | — | 155,196 | — | 1,138,047 | |||||||||||||||
J. Milton Childress II | 33,299 | — | 17,243 | — | 107,170 | |||||||||||||||
Kenneth D. Walker | — | — | — | — | — | |||||||||||||||
Marvin A. Riley | — | — | — | — | — | |||||||||||||||
Robert S. McLean | 56,223 | — | 29,636 | — | 169,747 | |||||||||||||||
Jon A. Cox | — | — | (1,531 | ) | — | 22,364 |
(1) | Each officer’s contributions during |
Under the deferred compensation plan, each officer can defer up to 25% of his salary each year and up to 50% of his annual incentive plan compensation and any cash LTIP payout. We match contributions each year in an amount equal to 100% ofdollar for dollar the first 6% of salary and annual incentive plan compensation deferredan officer defers under the plan, provided that the officer is receivingreceives the maximum match permitted under our 401(k) plan. This is theThe same matching contribution rate that applies under our 401(k)
plan. Also, anyAny officer hired after our pension plan was closed to new participants in 2006 receives an additional employer contribution from the company equal to 2% of the amount of the officer’s salary and annual incentive compensation that is in excess ofexceeds the IRS compensation limit for the year ($255,000265,000 for 2013)2016).
EachThe executive officerofficers who participatesparticipate in the plan also directs how the money in his plan account will be invested. The investmentdirect their investments. Investment options available under the plan are the same as those available under the 401(k)
plan (excluding our common stock). All participants’ accounts are credited with their actual investment earnings or losses. We do not guarantee any investment return on the accounts. The following table shows the investment options currently available under the plan as well asand the 2013 return (loss)2016 gain or loss for each option.option are listed in the following table.
Investment Option | Return (%) | |||
| ||||
| ||||
| ||||
| ||||
Dodge & Cox Stock | ||||
| ||||
| ||||
| ||||
T. Rowe PriceMid-Cap Growth | ||||
BlackRock Global Allocation Instl | 4.08 | |||
Columbia Small Cap Value Fund II Z | ||||
| ||||
Invesco Equity and Income Y | 15.13 | |||
American Funds | ||||
Nuveen WinslowLarge-Cap Growth I | (2.07 | ) | ||
Virtus Emerging Markets | ||||
American Beacon Stephens Sm Cp Gr Instl | 10.05 | |||
Vanguard Selected Value Inv | 16.34 | |||
Vanguard Total Bond Market Index Adm | 2.60 | |||
Vanguard Extended Market Idx Adm | 16.13 | |||
Vanguard Total Intl Stock Index Admiral | 4.67 | |||
Vanguard Institutional Index I | 11.93 | |||
Vanguard Federal Money Market Investor | 0.30 |
When a participant is first eligible to participate infor the deferred compensation plan, participantshe or she may elect to receive payment of their account balances under this planupon leaving the company in one of the following ways:
AccountsA participant who does not elect a method of participants in the deferred compensation plan who do not make a payment election will be paid in a single lump sum in cash payment as soon as practicable after termination (generally within 75 days but subject to a potential six-month payment delay of up to six months if required by certain federal tax rules). Once a participant makes aA payment election he or she can change itbe changed only in accordance with federal tax laws that apply tonon-qualified plans. In limited circumstances, withdrawals due to an unforeseeable emergency are permitted.
Amounts deferred under the management stock purchase deferral plan are credited to an account denominated in stock units. The number of units in an amountis based on the fair market value of our common stock on the date of deferral. The deferral accountsAdditional stock units will be credited with additional whole or fractional stock unitsto deferral accounts for any cash dividends paid during the deferral period on our common stock during the deferral period. The additional units will be based on the number of stock units in the participating employee’s account.account and will be paid in whole and fractional units. Payments of amounts
under the management stock purchase deferral plan are to be made in cash, based on the then fair market value of our common stock either, at the time of payment. At the election of the participating employee, payments can be made either:
The management stock purchase deferral plan permits subsequent adjustments by participating employeesparticipants to adjust the elected deferral periodperiods they elect, subject to specified restrictions, and to receive early paymentpayments of deferred amounts in the event of an unforeseen emergency, to the extent andemergencies. Early payments are subject to the conditions specified in the management stock purchase deferral plan. Asix-month payment delay applies to payments to certain participants for payments upon termination of service.
In connection with the deferral of annual incentive compensation under the management stock purchase deferral plan, participants are eligible to receive at the time of the deferral, subject to the determination of the committee, awards of restricted share units under our Amended and Restated 2002 Equity Compensation Plan. The amountThese units are awarded at the time of the deferral and subject to the determination of the Committee. To determine the number of restricted share units a participant is eligible to receive, is equal to the whole number of stock units then being credited to the participant’s account under the management stock purchase deferral plan is divided by four and rounded up to the next whole share.
The committeeCommittee may determine either to proportionately reduce the number of restricted share units being awarded to all participants receiving such awards as of a given grant date or to make no such awards at all.
The restricted share units would vest three years after the grant date, with earlier vesting upon death, disability or retirement after the first anniversary of the date of grant (ingrant. In the case of retirement, proportionate incremental amounts of the restricted share units vest based on the date of retirement).retirement. Unvested restricted share units are to be forfeited upon the participant’s termination of service. Vested restricted share units are payable to the recipient of the award upon payment of the associated deferral amount deferred under the management stock purchase deferral plan. A vested restricted share unit is payable in one share of our common stock plus cash equal to the aggregate amount of cash dividends paid with respect toon one share of our common stock afterfrom the grant date up to and including the applicable payment date. Such awards of restricted share units are to be made in accordance with the terms of the Equity Plan and are to be evidenced by separate award agreements under the Equity Plan.
Because the deferred compensation plan and the management stock purchase deferral plan arenon-qualified plans, benefits are unsecured. This means that a participant’s claim for benefits is no greater than the claim of a general creditor.
Potential payments upon termination or change in control
Double-trigger management continuity agreements
We are party to management continuityhave agreements with each of our current executive officers. The purpose of these continuity agreements isofficers designed to encourage the individualsthem to carry out their duties in the event of the possibility of a change in control of our company. The management continuity agreements are not ordinary employment agreements. Unless there is a change in control, theyThey do not provide any assurance of continued employment, or any severance beyond the severance thatwhat we provide under the terms of our severance policy.policy, unless there is a change in control of our company.
Under these agreements, any of the following events would be a “change in control”:
Each continuity agreement generally provides for the officer’s employment to continue, in the same position
and with the same responsibilities and authority, for a period of time following the change in control. It also provides for the officer to maintain the same benefits and level of compensation, including average annual increases. The continuation periods for our named executive officers who are currentlywere employees as of December 31, 2016 are as follows:
Macadam | 3 years | |
| ||
| 2 years | |
Walker | 2 years | |
Riley | 2 years | |
McLean | 2 years |
If we or our successor terminatedterminate an executive officer’s employment during his continuation period, other than for “cause,” or he voluntarily terminatedterminates his employment for a “good reason” (in each case as defined in the
agreement), he would be entitled to the following payments and benefits:
Macadam | 3 years | |||
| 2 years | |||
| ||||
Walker | 2 years | |||
Riley | 2 years | |||
McLean | 2 years |
before the change in control. The specified numbers for the named executive officers are: |
Macadam | 24 | |||
| ||||
| 16 | |||
Walker | 16 | |||
Riley | 16 | |||
McLean | 16 |
due under the federal tax code as a result of these payments and benefits. We have not included a provision for such a payment in any continuity agreement that we have entered into since 2008. Instead, the |
In addition, each officer is entitled to reimbursement of attorneys’ fees and expenses incurred to successfully, in whole or in part, enforce the terms of his agreement with us.
Because the executive must leave the company before becoming entitled to these payments and benefits, the agreement has a “double trigger”—the first trigger is the change in control, and the second trigger is the termination, either by the company other than for “cause” or by the executive for “good reason.”
The following table estimates the total amounts we would owe the named executive officers under these agreements if there had been a change in control, and they had been terminated, on December 31, 2013.2016. The
table also includes the value at that date of restricted stock awards and restricted stock units that would vest under those circumstances. See, “—Options, restricted share and restricted stock unit awards.” The table does not include a pro rata annual incentive plan
compensation for the year of termination because even without these agreements, the officers would be entitled to their full 20132016 annual incentive plan compensation if they had been terminated without cause on December 31.
Name | Salary and Annual Incentive Plan Compensation Continuation ($) | Foregone LTIP Awards ($) | Pro Rata LTIP Awards ($) | Options, Restricted Shares and Restricted Stock Units ($) | Continuation of Benefits ($) | Estimated Tax Gross-up ($) | Scale-back Adjustment ($) | Total ($) | Salary and Annual Incentive Plan Compensation Continuation ($) | Foregone LTIP Awards ($) | Pro Rata LTIP Awards ($) | Restricted Shares and Restricted Stock Units ($) | Continuation of Benefits ($) | Additional Pension Payment ($) | Estimated Tax Gross-up ($) | Scale-back Adjustment ($) | Total ($) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Macadam | 4,950,000 | 5,193,836 | 1,706,813 | 1,939,954 | 59,046 | 5,762,636 | N/A | 19,612,286 | 5,227,500 | 3,544,190 | 1,457,682 | 3,825,778 | 59,936 | — | — | N/A | 14,115,087 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Pease | 1,287,000 | 1,125,389 | 588,528 | 1,035,682 | 26,200 | — | — | 4,062,800 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Herold | 1,114,038 | 559,152 | 260,774 | 1,097,541 | 36,745 | 1,031,450 | N/A | 4,099,699 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Childress | 1,326,000 | 526,543 | 317,434 | 620,520 | 34,847 | 248,866 | 1,114,317 | N/A | 4,188,528 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Walker | 992,000 | 441,421 | 210,214 | 478,726 | 39,561 | — | — | 2,161,922 | 1,485,120 | 712,586 | 429,554 | 845,233 | 41,854 | — | N/A | (354,300 | ) | 3,160,047 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Riley | 961,000 | 296,484 | 165,360 | 823,274 | 13,838 | — | N/A | (424,222 | ) | 1,853,733 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
McLean | 1,112,280 | 343,170 | 206,874 | 574,581 | 30,344 | — | N/A | (169,689 | ) | 2,097,560 |
Options, restricted share and restricted stock unit awards
TheUpon a change in control, restrictions under the restricted share awards made to our executive officers lapse, and unvested stock options and restricted stock unit awards vest, except for awards made to our executive officersin 2016 which provide that if the resulting entity in the change in control assumes the awards, the awards will vest uponearly in connection with a change in control.control only if within two years after the change in control the employee is terminated without “cause” or the employee resigns for “good reason,” as such terms are defined in the awards. The following table sets forth the value at December 31, 2016 of outstanding options, restricted share awards and restricted stock unit awards at December 31, 2013 asgranted to whichthe named executive officers that either would have vested or restrictions would have lapsed or would become vested, as the case may be, as a result ofif a change in control had such an event occurred on December 31, 2013.2016 and the resulting entity did not assume outstanding these awards. At December 31, 2016, none of the named executive officers held any options that had not yet vested. The value is based on the $57.65$67.36 per share closing price of our common stock on the New York Stock ExchangeNYSE on December 31, 2013.30, 2016, the last trading day in 2016.
Name | Value of Shares and Restricted ($) | |||
Macadam | ||||
| ||||
| ||||
| ||||
Walker | ||||
Riley | 823,274 | |||
McLean | 574,581 |
Severance benefits
We haveOur written severance policies under which we provide severance benefits to all of the full-time employees at our corporate office, including the named executive officers. Under these policies, each covered employee whom we terminate without cause is entitled to continue receivingreceive his or her base salary for a specified period of time, which we refer to as the “severance period”; provided, however,. However, if thean officer’s total severance pay exceeds two times the maximum amount that may be taken into account undereligible for a qualified retirement plan under Section 401(a)(17) of the federal tax code $255,000($265,000 in 2013)2016), the severance payit will be paid to the officer in a lump sum no later than March 15 of the year following termination of the officer’s employment. Each employee is also entitled to continue receiving certain benefits during his or her severance period, including a pro rata payment of any annual incentive plan compensation and outstanding LTIP awards through the date of termination. The length of the severance period increases with the employee’s level of responsibility. Our executive officers generally receive the same severance benefits as all of our other full-time corporate office
employees, except that our executive officers’ severance periods are longer.
The severance periods for our named executive officers are:
Macadam | 24 months | |||
| ||||
| ||||
| 12 months | |||
Walker | 12 months | |||
| 12 months | |||
McLean | 12 months |
However,Our severance policies are superseded by the management continuity agreements described above in the event of any termination following a change in control, the management continuitycontrol.
agreements described above would supersede our severance policies.
The following table estimates the severance benefits we would owe the named executive officers under these policies, or for Mr. Cox under the terms of the agreement we entered into with him in connection with his departure, if they had been terminated on December 31, 20132016 (assuming no prior change in control). A footnote to the table also presents the payments to Mr. Walker under the terms of the transition agreement and
consulting agreement entered into in connection with his departure. The table does not include a pro rata annual performance plan compensation for the year of termination for officers because even without this severance policy, thosethe officers employed on December 31, 2016 would be entitled to their full 20132016 annual performance plan compensation if they had beenwere terminated without cause on December 31.
Name | Salary | Continuation | Pro Rata | Outplacement | Total | |||||
Macadam | 1,650,000 | 19,682 | 1,706,812 | 82,500 | 3,458,994 | |||||
Pease | 390,000 | 13,100 | 588,528 | 39,000 | 1,030,628 | |||||
Magee(2) | 350,000 | 18,399 | 436,411 | 35,000 | 839,810 | |||||
Herold | 340,000 | 18,373 | 260,773 | 34,000 | 653,146 | |||||
Walker | 320,000 | 19,780 | 210,213 | 32,000 | 581,993 | |||||
Gioffredi(3) | 325,000 | 18,018 | 239,167 | 32,500 | 614,685 |
Name | Salary Continuation ($) | Continuation of | Pro Rata LTIP Awards ($)(1) | Outplacement ($) | Other ($) | Total ($) | ||||||
Macadam | 1,700,000 | 39,957 | 1,457,682 | 85,000 | — | 3,282,639 | ||||||
Childress | 390,000 | 17,423 | 317,434 | 39,000 | — | 763,857 | ||||||
Walker(2) | 436,800 | 20,926 | 429,554 | 43,680 | — | 930,960 | ||||||
Riley | 310,000 | 6,919 | 165,359 | 31,000 | — | 513,278 | ||||||
McLean | 358,800 | 15,171 | 206,874 | 35,880 | — | 616,725 | ||||||
Cox(3) | 355,400 | — | (3) | — | 459,200 | 814,600 |
(1) | Pro rata LTIP award calculations reflect an assumed value of |
(2) | On December 12, 2016, we entered into a Transition Agreement and Release (the “Transition Agreement”) with Kenneth D. Walker, our former Senior Vice President and Chief Operating Officer, to set forth the terms relating to the transition of his employment. Pursuant to the Transition Agreement, Mr. Walker resigned from all positions with us and our subsidiaries effective as of the end of December 31, 2016. The Transition Agreement provides for the following transition benefits to Mr. Walker: (i) payment, starting July 1, 2017, of transition benefits equal to 52 weeks of Mr. Walker’s current base salary payable ratably over 52 weeks on our normal payroll schedule; (ii) because his employment continued through the end of December 31, 2016 and such awards then vested, payment with respect to Mr. Walker’s 2016 annual performance plan award and long-term incentive plan awards for the 2014-2016 performance cycle as soon as practicable following certification of performance attained for the relevant performance periods; (iii) payment in cash with respect to long-term incentive plan awards for the 2015-2017 and 2016-2018 performance cycles, prorated by factors of 24/36 and 12/36, respectively, up to the amount payable upon achievement of the target level of performance, in each case as soon as practicable following certification of performance attained for the relevant performance periods; (iv) payment of a $109,200 transition benefit; (v) payment of $898,814 in lieu of a pro rata amount Mr. Walker would otherwise have been entitled to receive, as if his employment had been involuntarily terminated without cause as of June 30, 2017, with respect to his restricted stock unit awards and long-term incentive plan awards not otherwise addressed above and including long-term incentive awards that he would have otherwise received in 2017 and with respect to an annual performance plan award he would have otherwise received for 2017; (vi) payment of $106,000 in lieu of reimbursement of COBRA premiums, 401(k) matching benefits and outplacement benefits and $2,500 for legal expenses associated with the review of the Transition Agreement; (vi) payment of tax costs associated with certain overseas residency in accordance with our company policy, including payment of related accounting services expenses; and (vii) transfer to Mr. Walker of the laptop computer which had been used by him to conduct company business, which we estimate to be of de minimus value). The Transition Agreement includes provisions with respect to confidentiality,non-disparagement and noncompetition obligations of Mr. Walker and conditions his right to receive payment under the Transition Agreement to his compliance with these obligations. In addition, on December 12, 2016, we entered into a consulting agreement with Mr. Walker dated as of January 1, 2017, pursuant to which we agreed to pay Mr. Walker a $18,200 monthly retainer for six months. |
(3) | On October 4, 2016, Mr. Cox, former Chief Innovation and Information Officer, retired early. In connection with Mr. Cox’s early retirement, we entered into an agreement with him pursuant to which we agreed to the continuation of his base salary for a52-week period, to make pro rata cash payments with respect to all outstanding LTIP awards to be made when performance and amounts are determined for other recipients of similar awards for those performance cycles up to the target level of performance. We also agreed to make a pro rata cash payment with respect his outstanding annual incentive plan award for 2016 when performance and amounts were determined for other recipients of similar awards ($130,574), to pay an amount based on the closing price per share of our common stock on the New York Stock Exchange on |
Proposal 2 — Advisory vote approving executive compensation
(Item 2 on the proxy card)
The EnPro board of directors has determined to provideprovides our shareholders with the opportunity annually to cast an annual advisory vote on the compensation paid to our named executive officers asofficers. Their compensation is reported in our proxy statement for the annual meeting of shareholders. Accordingly,To provide this opportunity to our shareholders, we will present the following resolution will be presented to the shareholders at the annual meeting:
“Resolved, that the shareholders hereby approve, on an advisory basis, the compensation paid to the Company’s named executive officers as disclosed, pursuant to Item 402 of RegulationS-K of the Securities and Exchange Commission, in the Company’s proxy statement for the 20142017 annual meeting of shareholders.”
This vote is nonbinding ondoes not bind the company. TheHowever, the board of directors and the Compensation and Human Resources Committee, which is comprisedcomposed only of independent directors, expect to take into account the outcome of the vote when considering future executive compensation decisions.
As describedwe describe in detail under “Compensation discussion and analysis,” we design our executive officer compensation programs to attract, motivate, and retain the key executives who drive our success. Our objective is to establish pay practices that reward them for superior performance and align their interests as managers of our company with the long-term interests of our shareholders.
We achieve our objectives through compensation that:
We were challenged to maintain our objectives for growth in 2013 as activity in manyIn structuring annual and long-term incentive compensation opportunities, we select performance measures that we believe significantly drive the value of our markets slowed comparedcompany. For 2016, we selected a combination of incentive performance measures that focus on driving operating earnings and rewarding the appropriate use of capital, and include a relative shareholder return measure to activityevaluate our performance relative to a peer group. We set goals against these measures and make little or no payment for poor performance against our
goals, though our executives can earn significant payment relative to their salary levels for superior performance against them. We make annual awards of restricted stock units which vest after three years, both to encourage retention and to provide an incentive for performance to increase the value of our shares.
While we generally set measures based on company-wide performance (and for this purpose we include GST in 2012. In this environment, we soughtour results as if it were reconsolidated), for annual incentive awards to maintain a stable operating base that will enable us to take advantagedivisional personnel, 75% of improving conditions as they arise in the future. Several accomplishments helped us achieve our goal.
We believe our compensation structure aligns with the interests of our shareholders and results in payment based on our performance.
Compensation analysis
Our compensation program ties pay to us by businessesthe achievement of both annual and long-term goals for the performance of our company. We set these goals each year and tie both annual and three-year incentive awards to achieving them. We make little or no payment for poor performance against our goals, but our executives can earn significant payment relative to their salary levels for superior performance against them.
When 2016 annual operating performance goals were set, we acquired in previous years. Acquisitions enable us to grow inanticipated a continuation of economic trends that had adversely affected a number of the semiconductor, aerospace, water and waste water, upstreammarkets we serve, particularly oil and gas, trucking and heavy-duty truckingmetals and mining. The Committee established target corporate performance levels for 2016 that it considered aggressive in light of the circumstances. The extent of the adverse trends during 2016 was greater than we had expected. Nearly all of the markets that we serve saw negative year-over-year trends, and expand our
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For the primary sourcelong-term incentive compensation awards for the 2014-2016 performance cycle, we established absolute goals for growth of new engine demand at FME, by capturing key orders in commercial marketsequity value above targeted returns and exploring improvements in a proprietary design that may open up even more opportunities for new engine sales. The commercial awards included contracts to supply multiple engines and auxiliary equipment for pumping applications on an oil pipeline in South America and to supply a combined heat-and-power systemcalculated equity value based on a dual-fuel (natural gas or biodiesel) enginemultiple of adjusted EBITDA. Our ability to grow adjusted EBITDA is dependent in part on economic conditions in the markets we serve, which, with limited exceptions, have been sluggish during the three-year measurement period for these awards. Principally as a Veterans Administration hospitalresult of these economic conditions, we were unable to achieve growth in Houston. To improveadjusted EBITDA at a rate sufficient to trigger any payout for these awards.
As a result, the commercial viability of its proprietary opposed-piston engine design, FME has teamed with Achates Power, Inc., a company dedicatedincentive award payouts to developing technologyour CEO were 74% lower for 2016 than for 2015, and his total compensation, as reported in the Summary Compensation Table included on page 41, was 21% lower for 2016 compared to improve the performance of opposed-piston diesel engines. With Achates, FME is exploring ways to reduce emissions and fuel consumption in opposed-piston engines, a design that has proven reliable over many decades in critical standby and emergency power applications. Advancing this technology could open a significant market for FME.
2015.
We continued to support our subsidiary, Garlock Sealing Technologies LLC, in its efforts to reach a permanent resolution of all current and future asbestos claims against it. We were very gratified when, on January 10, 2014, Judge George Hodges of the U.S. Bankruptcy Court for the Western District of North Carolina issued an opinion estimating GST LLC’s liability for mesothelioma claims at $125 million. At a
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OurFor a more complete discussion of our accomplishments in 2013 were reflected in our share price, which improved 41% during the course of the year compared to a 29.6% improvement in the Standard & Poor’s 500 Index2016, please see “Compensation discussion and a 37% improvement in the Russell 2000 Index. In 2014, our share price has increased even more, following the announcement of the judge’s opinion in GST LLC’s asbestos claims resolution process. Our $71.63 closing share price as of February 28, 2014 represents a 24.2% increase from its closing price on December 31, 2013, compared to an average decline of 1.1% among the peer group of companies listedanalysis—Business Highlights” on page 32 of this proxy statement.27.
We have engagedroutinely engage with our shareholders and madehave adopted changes in 2013 to address their concerns
Prior to making executive compensation decisions for 2013,Through the course of each year, we engaged in a wide-ranging dialoguehave dialogues with numerous shareholders, which includedincluding regular conversations with many of our largest shareholders. Although from this dialogue, we concluded that there was no consensus amongWe cover a wide-range of topics in these discussions, including executive compensation. In our conversations with them, our shareholders for any specific changegenerally support our pay practices and strategic direction. We take their views into account as we seek to the design ofalign our compensation program, we carefully considered the diverse views expressed by shareholders who provided uspolicies and practices with feedback on their votes. We made several changes to our 2013 compensation program, including the following:interests.
We employ best practices in executive compensation
Shareholders are encouragedWe encourage our shareholders to read the Compensation Discussion and Analysis, the accompanying compensation tables, and the related narrative disclosure included in this proxy statement.
The board of directors unanimously recommends that you vote FOR the adoption of the resolution approving, on an advisory basis, the compensation paid to our named executive officers as disclosed in this proxy statement.
Proposal 3 — ApprovalAdvisory vote on the frequency of an amendment and restatementfuture shareholder advisory votes to approve the compensation of our Amended and Restated 2002 Equity Compensation Plannamed executive officers
(Item 3 on the proxy card)
Under the Dodd-Frank Act, we are required to provide shareholders with the opportunity at least once every six years to cast an advisory vote on whether future advisory votes on executive compensation should be held every one year, every two years or every three years. We last held such an advisory vote at our annual meeting held in 2011. At that meeting, more votes were cast favoring every “1 Year” as the frequency for holding shareholder advisory votes on executive compensation (or“say-on-pay votes”) than were cast in favor of any of the other alternatives. Following the 2011 annual meeting, our board of directors adopted a policy to hold shareholder“say-on-pay” votes at each annual meeting (every one year) until the next required advisory vote of the shareholders to select the frequency of future advisory votes on executive compensation.
The board of directors continues to believe that a frequency of every one year for the advisory vote on executive compensation is submittingthe optimal interval for
conducting and responding to a proposal for approval by“say on pay” vote to permit the shareholders to express their view on this matter at each annual meeting.
The proxy card provides shareholders with the opportunity to choose among four options (holding the vote every “1 Year,” “2 Years” or “3 Years,” or abstaining) and, therefore, shareholders will not be voting to approve or disapprove the board’s recommendation.
This advisory vote on the frequency of an amendmentthe “say on pay” vote is nonbinding. However, the board of directors and restatementthe Compensation Committee plan to take into account the outcome of the advisory vote when considering the frequency of future advisory votes on executive compensation.
The board of directors unanimously recommends that you vote for the option of every “1 Year” for the frequency of future advisory votes on executive compensation.
Proposal 4 — Approval of our Amended and Restated 2002 Equity Compensation Plan (as so amended, the “Equity Plan”), which was last amended and restated in 2012,Senior Executive Annual Performance Plan
(Item 4 on the proxy card)
At the annual meeting, shareholders will be asked to increaseconsider and approve our amended and restated Senior Executive Annual Performance Plan (in this section of the number of shares of common stock authorizedproxy statement, such plan is referred to be issued underas the Equity“Annual Plan”). The Annual Plan has been established by 900,000 shares. Ourthe board of directors believes the Equity Plan is an important factor in attracting, keeping and motivating key employees, and further believes that
the type of incentive compensation offered under the Equity Plan should continue to be offered in the future.
The following general discussion of the Equity Plan, including the increase in the number of shares reflected in the proposed amendment and restatement, is qualified by reference to the copy of the Equity Plan that is attached to this proxy statement as Annex B. The board approved the Equity Plan, subject to shareholder approval, at its February 6, 2014 meeting.
Effect of the proposed amendment and restatement
The Equity Plan currently limits the aggregate number of shares of common stock available for delivery pursuant to the Equity Plan since its inception in 2002 to 4,325,000 shares. The proposed amendment and restatement would increase the number of shares that may be delivered by 900,000 shares. Since the adoption of the Equity Plan in May 2002 through February 28, 2014, an aggregate of 3,268,957 shares of our common stock have been issued pursuant to the Equity Plan. At February 28, 2014, there were:
By increasing the number of shares authorized to be available for delivery under the Equity Plan by 900,000 shares, we would have an aggregate of 1,019,321 shares available for future awards, which would represent approximately 4.3 percent of our fully diluted shares. Our board of directors believes that this 900,000 share increase is required to permit us to continue to offer the type and amount of incentive compensation needed to attract, keep and motivate key employees.
Because the proposed amendment and restatement of the Equity Plan would increase the number of shares that may be issued under the Equity Plan, shareholder approval of the amendment and restatement of the Equity Plan is required under the rules of the New York Stock Exchange applicable to companies whose shares are listed on the exchange.
In addition, we are seeking shareholder approval of the amendment and restatement of the Equity Plan undercertain executive officers. Under Section 162(m) of the Internal Revenue Code. Section 162(m) generally limits the deduction for
compensation paid by a public company to each of its chief executive officer and three additional most highly compensated officers (other than the chief financial officer) to $1.0 million per year, unless the compensation is excludable from the deduction limit as qualified “performance-based compensation.” In addition to other requirements, for awards of shares to qualify as performance-based compensation under Section 162(m), the shares must be issued pursuant to a plan approved by the shareholders. Although we are seeking the shareholders’Code, shareholder approval of the amendment and restatementAnnual Plan is required to enable us to obtain a deduction for awards paid under the Annual Plan to certain of our executive officers whose compensation for the taxable year is in excess of $1 million. Our shareholders last approved a version of the EquityAnnual Plan under Section 162(m), we may issue any or all of the shares authorized under the Equity Plan pursuant to awards, such as restricted share awards or restricted stock unit awards, that are not intended to qualify as performance-based compensation under Section 162(m).
In addition, as described below (see “Generalin 2012. The provisions of Section 162(m) require that the EquityAnnual Plan — Performance share awards”), the Equity Plan permits awards of performance shares based on performance measures selected, at the time of the award, from a specified list. Under Treasury regulations, because the Equity Plan permits this discretion in selecting the performance measures used in performance share awards, thebe reapproved by shareholders must re-approve the Equity Plan at least every five years in order for performance share awardsus to
continue excluding the amounts paid under the EquityAnnual Plan to continue to be eligible to qualify as performance-based compensation excluded from the non-deductibility limitations$1 million deductibility limit. Therefore, shareholders are being requested to again approve the Annual Plan.
The board of Section 162(m). The shareholders’ approvaldirectors believes that the Annual Plan is an important factor in rewarding senior executives for their contributions and for strong company performance. See “Compensation discussion and analysis — Compensation analysis — Annual performance incentive plan awards.”
A summary of the proposed amendment and restatementAnnual Plan appears below. This summary is qualified in its entirety by reference to the text of the Equity Plan at the 2014 annual meeting will be deemed to constitute a re-approval of the Equity Plan for this purpose.
In the event that the shareholders do not approve the proposed amendment and restatement of the Equity Plan, the Equity Plan will not be amended and restated Annual Plan, which is included as described herein. In such event, we will continueAnnex A to be able to make awards under the Equity Plan up to the amount previously approved by the shareholders. The shareholders last approved the Equity Plan at the 2012 annual meeting.
The following table sets forth for each of 2013, 2012 and 2011, the number of options, restricted stock units and shares of restricted stock granted in the year, the number
of performance shares vested and issued in the year, the total of these amounts and our weighted average shares outstanding (basic) for the year.this proxy statement.
Year | Options Granted | Performance Shares Issued / Vested | Time-vested Restricted Shares and Restricted Stock Units Granted | Restricted Stock Granted | Total | Weighted Average Shares Outstanding (Basic) | ||||||||||||||||||
2013 | — | 273,379 | 99,174 | 11,330 | 383,883 | 20,900,000 | ||||||||||||||||||
2012 | — | — | 83,841 | 15,000 | 98,841 | 20,700,000 | ||||||||||||||||||
2011 | 25,288 | 52,920 | 67,454 | 3,750 | 149,412 | 20,504,000 |
General provisions of the EquityAnnual Plan
Participants
Awards under the Equity Plan may be made to any salaried, full-time employee of EnPro or any of our majority-owned subsidiaries or, in certain circumstances, to our outside directors. A total of 170 full-time employees, including all of our executive officers, received awards under the Equity Plan in 2013, and eight outside directors received awards of phantom shares under the Equity Plan in 2013.
Plan administration
The Equity Planannual plan is administered by the Compensation and Human Resources Committee which weor, if at any time that committee includes members who are not “outside directors” within the meaning of Section 162(m) of the Internal Revenue Code, a subcommittee of only “outside directors.” Currently, eight independent directors serve on the Compensation Committee, all of whom are “outside directors.” For the purposes of the following discussion of the Annual Plan, references to the Compensation Committee are intended to refer to in this section ofany subcommittee as appropriate.
The Compensation Committee may adopt rules and regulations for administering the proxy statement asAnnual Plan. The Compensation Committee also has the “committee.” The committee is comprised entirely of “independent directors,” as that term is defined by the listing standards of the New York Stock Exchange. The committee has full power and authority to interpret and administer the EquityAnnual Plan and itsto decide factual issues that arise under it. All interpretations, decisions and interpretationsother action by the Compensation Committee under the Annual Plan are conclusive and binding.
Participants
Only senior executives whose compensation may become subject to thenon-deductibility provisions of Section 162(m) are eligible to participate in the annual plan. The committeeCompensation Committee selects the participants for each fiscal year within 90 days after the beginning of the year. For 2017, only Mr. Macadam will participate in the Annual Plan. As noted above in “Compensation discussion and analysis — Compensation analysis — Annual performance incentive plan awards,” other officers participate in annual incentive plans similar to the Annual Plan, but which permit adjustments that would not be not permitted under Section 162(m).
Incentive categories; maximum and threshold awards
When the Compensation Committee selects a participant for participation in the Annual Plan for a fiscal year, the
Compensation Committee assigns that participant to an incentive category based on his or her organizational level and potential impact on important company or division results. The incentive category into which a participant is placed determines the target award, expressed as a percentage of his or her base salary, that the participant will receive if we meet the target performance levels set by the Compensation Committee for that year.
At the same time as it designates the participant’s target award for the year, the Compensation Committee assigns maximum and threshold award levels for each performance measure. The threshold award level represents the minimum award that the participant may delegatereceive based on performance that, while below target performance levels, still meets a threshold performance level that the Compensation Committee also sets. If our performance falls below the threshold performance level for a particular performance measure, the participant will earn no payment under the annual plan for that measure. Each participant’s threshold award level is 50% of his or her total target award. The maximum award level represents the maximum award that may be paid to senior officersthe participant under the Annual Plan for a particular performance measure for that year. Each participant’s maximum award level is 200% of his or her total target award. In addition, the Annual Plan sets a $2,500,000 ceiling on the total award that any participant can receive in a single year.
Performance goals
Within 90 days after the beginning of each fiscal year, the Compensation Committee designates the following:
To the degree consistent with Section 162(m) of the Internal Revenue Code, or any successor section thereto, the Compensation Committee may adjust, modify or amend the performance measure criteria, either in establishing any performance measure or in determining the extent to which any performance measure has been achieved. The Compensation Committee has the authority to make awards with respectequitable adjustments in the criteria where necessary (i) in response to not more than 10%changes in applicable laws or regulations, (ii) to account for items of gain, loss, or expense that are related to the shares authorized under the Equity Plan, except that only the committee or a subcommittee may make awards to participants who are subject to Section 16 of the Exchange Act.
Shares subject to plan
For purposes of calculating the number of shares of common stock available for delivery, the following rules apply:
No individual may receive awards for more than 500,000 shares in any calendar year.
Stock options
Under the Equity Plan, the committee may grant options to purchase common stock at not less than fair market value on the date of grant. For purposes of the Equity Plan, the “fair market value” is the closing selling price of a share of our common stock as of 4:00 p.m. (New York, New York Time), as reported on the New York Stock Exchange. These options may or may not qualify as incentive stock options under the Internal Revenue Code. The federal income tax treatment of incentive stock options is generally more favorable to optionees thanCode and the treatment accorded other options. At the same time, it is less favorable to EnPro because we generally will not receive a tax deduction with respect to these options. (See “— Federal income tax treatment” below.) Under current law, the maximum amount of incentive stock options thatregulations thereunder. Such adjustments may be granted to an individual that are exercisable for the first time during any calendar year may not exceed $100,000 in aggregate fair market value.
The Equity Plan provides that, subject to certain limitationsmade with respect to the price and termperformance of stock options and rights upon termination of employment, discussed below, the committee will have the authority in its discretion to specify all other terms and conditions relating to options granted under the Equity Plan. The committee may, in its discretion, grant options to the officers and other salaried, full-time employees of EnProany subsidiary, division, or our majority-owned subsidiaries (including directors who are also officers or employees, but not non-employee directors). The committee may also determine at the time of the grant the term of each option, which may not exceed ten years from the date of grant, and may permit payment upon exercise tooperating unit, as applicable, shall be made in common stock owned bya consistent manner from year to year, and shall be made in accordance with the optionee, valued atobjectives of the fair market value onAnnual Plan and the daterequirements of exercise, or other acceptable formSection 162(m) of consideration equal in value to the option price.Internal Revenue Code.
The Equity Plan provides that no more than 1,000,000 shares of common stock may be issued pursuant to options awarded under the Equity Plan intended to qualify as incentive stock options.
Performance share awardsmeasures
The committeeperformance measures that the Compensation Committee may award performance sharesuse under the EquityAnnual Plan thatinclude but are contingent uponnot limited to those listed below. These metrics may be used individually, alternatively or in any combination, and are measured and applied as specified by the attainment ofcommittee. In addition, each performance objectives. The permitted performance objectives listed inmeasure may be considered on apre-tax or after tax basis, as specified by the Equity Plan are totalCompensation Committee.
Revenue-related measures:
Income-based measures:
Cash flow-based measures:
Return-based measures:
Other measures:
Award calculation and payment
Soon after the end of each year, the Compensation Committee certifies our performance with respect to each performance measure used for that year. Following certification, we calculate and pay individual awards under the Annual Plan to each participant who is still employed with us on the last day of the year (subject to the special provisions below for employees who terminate employment due to death, disability or organization restructuring.retirement). The amount of each participant’s award for each individual performance measure is calculated according to the following formula:
participant’s total gross base salary | × | participant’s incentive base salary percentage | × | percentage of target award to be paid based on performance results | × | relative of performance measure | = | amount of award based on performance results |
The amounts to be paid to the participant based on each performance measure are added together to arrive at the participant’s total award payment under the Annual Plan for the year. The Compensation Committee has the authority to reduce the amount payable to a participant under this formula, but not to increase it.
Performance share awards can bePayments under the Annual Plan are made in cash, minus any amount necessary to satisfy applicable withholding taxes.
For information about awards under the form of phantom shares or common stock, as the committee determines.Annual Plan for 2016, see “New plan benefits.”
Restricted share awardsTermination of employment
The committee mayIf a participant dies or becomes totally disabled under our long-term disability plan or retires (or is deemed to retire) under our pension plan during a fiscal year, he or she will receive a pro rata award restricted shares underafter the Equity Plan, subjectend of the year, based upon the time portion of the year during which he or she was employed. Our financial performance for the entire year will be used to conditions, ifdetermine the amount of the award.
If a participant’s employment terminates prior to the end of the year for any established by the committee. These conditions may include continued service with EnProreason (whether voluntary or its subsidiaries. The Equity Plan provides that restricted share awards that are conditioned upon continued employment shall be conditioned upon continued employment for a minimum period of three years following the award, except in the case ofinvoluntary) other than death, disability or retirement, or upon athe Annual Plan provides that the participant will not receive any payment for the award for that year unless the Compensation Committee determines otherwise.
Change in control
Within five days after any change in control.
SARs
The committee maycontrol that occurs prior to the end of a fiscal year, each participant will receive a pro rata cash payout of his or her award SARs under the Equity Plan. SARs confer onAnnual Plan for that year based upon the participant the right to receive, upon
exercise, the excesstime portion of the fair market value of one share of common stock on the date of exercise over the grant price of the SAR as determined by the committee. The terms and conditions of the SAR are as determined by the committee at the time the award is granted, however, each SAR may be settled only in shares of common stock, the grant price may be no less than the fair market value of a share of common stock on the date of grant, and the date on which an SAR expires, if not exercised, may not be later than ten years afteryear completed through the date of the grant.
Other awards to employees
change in control. The Equity Plan permits the committee to make other typesamount of awards to employees, the value of which are based in whole or in part on the value of common stock, in lieu of making such awards in common stock. These potential awards include stock units and phantom shares. The committee may provide for these awards tothis interim payment will be paid in cash, in common stock, or in a combination of both cash and common stock, and may establish the other terms and conditions of these awards.
Phantom share awards to directors
The Equity Plan authorizes the committee to make grants of phantom shares to outside directors in its discretion. The Equity Plan defines an “outside director” as any director who is not and has not been within the previous five years an employee of EnPro or any of our subsidiaries. The members of the committee, which administers the Equity Plan and which has authority to determine the amounts of awards of phantom shares, are all outside directors and will all be eligible to receive awards of phantom shares under the Equity Plan.
Phantom shares granted to outside directors are fully vested upon grant. In the event a dividend is declared and paid on our common stock, each outside director receives a number of additional phantom shares equal to the aggregate amountproduct of dividends(1) the director would receive ifnumber of months (including fractional months) in the director’s phantom shares were actual shares of common stock, divided by the then current fair market value of our common stock. These dividend equivalent phantom shares are also vested upon grant. When an outside director leaves the board, we issueyear that elapsed prior to the director one share of our common stock for each whole phantom share awarded to the director under the Equity Plan, plus cash for any fractional phantom share, based on the then current fair market value of our common stock.
Miscellaneous
The committee has discretion to make any provisions it deems appropriate regarding the effect a participant’s termination of employment will have on the participant’s outstanding awards under the Equity Plan, and to make such rules and determinations as it deems appropriate in connection with a participant’s leave of absence or other change in employment status. In addition, the committee has discretionary authority under the Equity Plan to permit a participant to receive or accrue dividends and other distributions made with respect to awards under the Equity Plan, other than awards of performance shares, on terms and conditions that it deems appropriate.
The committee may require that any federal, state or local withholding tax requirements be satisfied by withholding shares of common stock.
Options and other awards granted under the Equity Plan will not be transferable other than by will or the laws of descent and distribution, or as the committee approves.
The Equity Plan permits us to offer to exchange or buy out any previously granted award for a payment in cash, shares of common stock, other awards or property based on such terms and conditions as the committee may determine, except that, without the approval of the shareholders, we may not amend or replace previously granted stock options or SARs in a transaction that constitutes a repricing. The Equity Plan defines repricing to be buying-out, for cash or shares, an outstanding option or SAR at a time when its exercise price exceeds the fair market value of the underlying stock, or (consistent with the meaning of repricing under Section 303A.08 of the Listed Company Manual of the New York Stock Exchange) lowering the exercise price of an option or SAR after it is granted, taking any other action that is treated as a repricing under generally accepted accounting principles, or canceling an option or SAR at a time when its exercise price exceeds the fair market value of the underlying common stock in exchange for another option, SAR, restricted stock award or other equity of EnPro, unless the cancellation and exchange occurs in connection with a merger, acquisition, spin-off, or similar corporate transaction.
In the event of a change in control, multiplied by (2) 1/12 of EnPro, all stock optionsthe participant’s target award for that year or, if greater, 1/12 of the amount most recently paid to the participant under the plan for a completed year.
A participant will become immediately exercisable, andalso remain entitled to a final payout upon completion of the year based on our (or any successor’s) performance results for the entire year, but that payout will remain exercisable for two years (or,be offset by the amount of the interim payment (if any). However, if sooner, until such time as the options expire by their terms). In addition,amount of the committee may make suchinterim payout exceeds the amount of the payout upon completion of the year, no participant will be required to refund the excess to us, or to have it offset against any other provisions with respectpayment due to other outstanding awards as it deems appropriate. the participant from or on behalf of us.
A “changechange in control”control generally is deemed to have occurred if:
Modification and termination of the Annual Plan
The board of directors may amendmodify or terminate the EquityAnnual Plan in its discretion,at any time, except that no amendment that increasesor termination can reduce the numberamount otherwise payable to a participant under the Annual Plan as of sharesthe date of stockthe amendment or termination. Moreover, effectiveness of the Annual Plan after any material amendment will be subject to the Equity Plan may be made without theshareholder approval of our shareholders. In addition, no amendment may adversely affect any rights or obligations with respectthe Annual Plan as amended.
Deductibility of awards under the Plan
As described above, shareholders must approve the Annual Plan in order for plan awards that we pay in the future to awards previously made unlessqualify as performance-based compensation under Section 162(m) of the action is taken in orderInternal Revenue Code. We intend to comply with applicable law, stock exchange rules or accounting rules.
Termthe other requirements of the Equity Planperformance-based compensation exclusion under
No awardSection 162(m) of the Internal Revenue Code, including requirements governing plan administration and shareholder approval of material amendments. We expect that compensation paid to executives under the Equity Plan may be made after February 10, 2019.
New plan benefits under the Equity Plan
It is not presently possible to determine the dollar value of award payments that may be made, or the individuals that may be selected for such awards, in the future under the Equity Plan with respect to the additional 900,000 shares. For information about awards of performance shares made in 2013 under the Equity Plan, see “Executive Compensation — Grants of plan-based awards.” The table below sets forth certain information as of December 31, 2013, with respect to the Equity Plan, which is the only compensation plan or arrangement (other than our tax-qualified plans) under which we have options, warrants or rights to receive equity securities authorized for issuance.
Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights(a) | Weighted- Average Exercise Price of Outstanding Options, Warrants and Rights(b) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column(a))(c) | |||||||||
Equity compensation plans approved by security holders | 739,472 | (1) | $ | 36.10 | (2) | 414,005 | ||||||
Equity compensation plans not approved by security holders | — | — | — | |||||||||
Total | 739,472 | (1) | $ | 36.10 | (2) | 414,005 |
Federal income tax treatment
The following is a general summary of the current federal income tax consequences of the granting and exercise of stock options and of awards of common stock (including both performance shares and restricted stock), phantom stock, stock units and SARs under the Equity Plan. It does not attempt to describe all possible federal or other tax consequences of participation in the Equity Plan. Furthermore, the tax consequences of awards made under the Equity Plan are complex and subject to change, and some variation of the described rules may be applicable to any particular participant’s tax situation. The summary assumes in each case that there will no violation of the new deferred compensation rules mentioned above, which would subject the affected participants to immediate taxation and penalties on unvested awards.
Incentive stock options
An employee who is granted an incentive stock option under the EquityAnnual Plan will not be subject to federal income tax upondeductible if our shareholders approve the grant or exercise of the option. However, upon the exercise of an incentive stock option, the difference between the exercise price for the option and its fair market value on the date of exercise, which is commonly referred to as the spread, is a tax preference item that must be taken into account in determining the employee’s alternative minimum tax. If the employee disposes of the shares in the same year the option was exercised, there are no alternative minimum tax implications. Generally, the employee can recover any alternative minimum tax liability paid as a credit against ordinary income taxes owed in future years.
In the event of a sale of the shares received upon exercise of an incentive stock option after two years from the date of grant and one year after the date of exercise (which we refer to as the “Holding Period”), any appreciation of the shares received above the exercise price should be a capital gain. The current federal tax rate applicable to long-term capital gains is 15 percent.
We will not be entitled to a tax deduction with respect to the grant or exercise of an incentive stock option, or with respect to any disposition of such shares after the Holding Period. However, if shares acquired pursuant to the exercise of an incentive stock option are sold by the employee before the end of the Holding Period, the lesser of the difference between the fair market value of the acquired shares and the aggregate exercise price
and any gain on the sale will be ordinary income for the taxable year in which the sale occurs. Income will be realized only to the extent the amount received upon sale exceeds the employee’s adjusted basis for the stock. We will be entitled to a tax deduction in the amount of the ordinary income realized by the employee.
Non-incentive stock options
An employee who is granted a stock option under the Equity Plan that is not an incentive stock option will not be subject to federal income tax upon the grant of the option and we will not be entitled to a tax deduction by reason of such grant. Upon exercise of a non-incentive stock option, the spread or excess of the fair market value of the shares on the exercise date over the option price, will be considered compensation taxable as ordinary income to the employee. Because it is treated as compensation, the spread is subject to withholding of applicable payroll taxes. We may claim a tax deduction in the amount of the taxable compensation realized by the employee.
Common stock awards
Common stock awards made without restrictions are subject to federal tax to the recipient and are deductible to EnPro. Stock awards with restrictions (including both performance shares and restricted stock) will not be subject to federal tax upon grant and we will not be entitled to a tax deduction upon grant. When the restrictions lapse, the fair market value of shares free of restrictions will be considered compensation taxable as ordinary income to the employee and we generally may claim a tax deduction at the same time in the same amount.
Phantom stock, stock unit awards and SARs
A director or employee who is granted a phantom share, stock unit or SAR award under the Equity Plan will not be subject to federal tax upon the grant of the award and we will not be entitled to a tax deduction by reason of such grant. However, when common stock or cash is delivered to the participant pursuant to such an award, the participant will recognize ordinary income equal to the fair market value of the shares or cash delivered under the award, and we generally may claim a tax deduction at the same time in the same amount.Annual Plan.
Applicable rulesThe Annual Plan will be approved if more votes are cast “For” approval than are cast “Against” it at the annual meeting. Abstentions and brokernon-votes will not be cast “For” or “Against” approval of the New York Stock Exchange require that the proposed amendment and restatement of our Amended and Restated 2002 Equity Compensation Plan be approved by a majority of the votes cast on the proposal. Abstentions, which will be considered to be votes “cast,” will have the effect of a vote “Against” approval, and broker non-votes, which are notAnnual Plan.
considered to be votes “cast,” will not count in determining the outcome.
The board of directors unanimously recommends that you vote “FOR” approval of the proposed amendmentAnnual Plan.
Proposal 5 — Approval of our amended and restatementrestated Long-Term Incentive Plan
(Item 5 on the proxy card)
At the annual meeting, shareholders will be asked to consider and approve our amended and restated Long-Term Incentive Plan (or, the “LTIP”) established by the board of directors for certain executive officers. Under Section 162(m) of the Internal Revenue Code, shareholder approval of the LTIP is required to enable us to obtain a deduction for awards paid under the LTIP to certain of our executive officers whose compensation for the taxable year is in excess of $1 million. Our shareholders last approved a version of the LTIP in 2012. The provisions of Section 162(m) of the Internal Revenue Code require that the LTIP be reapproved by shareholders at least every five years in order for us to continue excluding the amounts paid under the LTIP from the $1 million deductibility limit. Therefore, shareholders are being requested to again approve the LTIP.
The LTIP has been amended and restated (i) to permit the Compensation Committee the flexibility to require additional events following a change in control to trigger the vesting of awards and (ii) to more precisely define the term “retirement.”
The board of directors believes that the LTIP is an important factor in rewarding senior executives for their contributions and for strong company performance. These awards provide key employees with a long-term stake in our success and a financial motivation to help us reach our longer term goals. See “Compensation discussion and analysis — Compensation analysis — Long-term compensation.”
A summary of the LTIP appears below. This summary is qualified in its entirety by reference to the text of the LTIP, which is included as Annex B to this proxy statement.
General provisions of the LTIP
Plan administration
The LTIP is administered by the Compensation Committee or, if at any time that committee includes members who are not “outside directors” within the meaning of Section 162(m) of the Internal Revenue Code, a subcommittee of only “outside directors.” Currently, eight independent directors serve on the Compensation Committee, all of whom are “outside directors.” For the purposes of the following discussion of the LTIP, references to the Compensation Committee are intended to refer to any subcommittee as appropriate.
The Compensation Committee may adopt rules and regulations for administering the LTIP. The Compensation Committee also has the authority to interpret the LTIP and to decide factual issues that arise under it. All interpretations, decisions and other action by the Compensation Committee under the LTIP are conclusive and binding.
Participants and performance periods
Key employees of the company who are in a position to influence our performance, and thereby enhance shareholder value over time, are eligible to participate in the LTIP. The Compensation Committee selects the participants for each performance period within 90 days after the period begins. Selection as a participant for one performance period does not guarantee selection in any other performance period.
Unless the Compensation Committee determines otherwise, a new performance period will begin on January 1 of each year. The Compensation Committee sets the length of each performance period, which will be
at least two years. Generally, performance cycles have been for three year periods, and the board of directors expects future performance periods to generally be three years.
An employee who first becomes eligible for participation (as a new hire, or by reason of a promotion) may not become a participant at his or her new position level until the performance period that begins on January 1 immediately following the hire or promotion date. There will be no new performance awards or adjustments to awards for performance periods that began prior to a participant’s hire or promotion date. For the 2017-2019 performance cycle, 85 key employees were selected to participate in the LTIP.
Awards
When a participant is selected for participation in the LTIP for a performance period, the Compensation Committee assigns him or her a target award for each performance measure. The participant will earn this award if we meet the target performance level set by the Compensation Committee for that performance measure in that performance period. The target award may be expressed as a dollar amount, a number of shares of common stock to be issued as performance shares under our current equity compensation plan, or a combination of a dollar amount and a number of performance shares.
Any portion of the target award made in the form of performance shares is to be made under our Amended and Restated 2002 Equity Compensation Plan and evidenced by a performance shares award agreement consistent with the provisions of our Amended and Restated 2002 Equity Compensation Plan.
At the same time as it designates the participant’s target awards for the performance period, the Compensation Committee assigns maximum and threshold award levels that are expressed as a percentage of the target award. The maximum award level represents the maximum percentage of the target award that the participant may receive for a performance period based on performance at or above the highest or maximum performance level that the Compensation Committee set. The threshold award level represents the minimum percentage of the target award that the participant may receive for a performance period based on performance below target performance levels. If our performance falls below a threshold performance award level (which the Compensation Committee also sets) for a particular performance measure, the participant will earn no payment under the LTIP for that measure.
The LTIP sets a $2,500,000 ceiling on the total award expressed in dollars that any participant can receive in a single year. Our Amended and Restated 2002 Equity Compensation Plan includes a separate share-based individual award limit of 500,000 shares for any performance shares included in an LTIP target award.
Awards under the LTIP are not considered eligible earnings for pension plans, savings plans, profit sharing plans or any other benefit plans that we sponsor.
Performance goals
Within 90 days after the beginning of each performance period, the Compensation Committee designates the following:
The performance goals established by the Compensation Committee for a Performance Period are intended to satisfy the “objective compensation formula” requirements of Treasury Regulations Section1.162-27(e)(2). To the degree consistent with Section 162(m) of the Internal Revenue Code, or any successor section thereto, the Compensation Committee may adjust, modify or amend the performance measure criteria, either in establishing any performance measure or in determining the extent to which any performance measure has been achieved. The Compensation Committee has the authority to make equitable adjustments in the criteria where necessary (i) in response to changes in applicable laws or regulations, (ii) to account for items of gain, loss, or expense that are related to the disposal (or acquisition) of a business or change in accounting principles that was not anticipated at the time an award was made, (iii) to account for adjustments in expense due tore-measurement of pension benefits, (iv) to remove the effect of charges for asbestos, (v) to account for restructurings, discontinued operations, and any other items deemed by the
Compensation Committee to benon-recurring in nature or otherwise not reflective of operating performance that were not anticipated at the time an award was made, and (vi) to reflect other unusual,non-recurring, or unexpected items similar in nature to the foregoing as determined in good faith by the Compensation Committee consistent with the principles set forth in section 162(m) of the Internal Revenue Code and the regulations thereunder. Such adjustments may be made with respect to the performance of any subsidiary, division, or operating unit, as applicable, shall be made in a consistent manner from year to year, and shall be made in accordance with the objectives of the LTIP and the requirements of Section 162(m) of the Internal Revenue Code.
Performance measures
The performance measures that the Compensation Committee may use under the LTIP, as amended, include but are not limited to those listed below. These metrics are considered “qualifying performance measures” for purposes of Section 162(m) and may be used individually, alternatively or in any combination, and are measured and applied as specified by the Compensation Committee. In addition, each performance measure may be considered on apre-tax orafter-tax basis, as specified by the Compensation Committee.
Revenue-related measures:
Income-based measures:
Cash flow-based measures:
Return-based measures:
Other measures:
Award calculation and payment
Soon after the end of each performance period, the Compensation Committee certifies our performance with respect to each performance measure used for that performance period. Following certification, we calculate and pay individual awards under the LTIP to each participant who is still employed with us on the last day of the performance period (subject to the special provisions below for employees who terminate employment due to death, disability or retirement). The amount of each participant’s award for each individual performance measure is calculated according to the following formula:
participant’s target award | × | percentage of target award to be paid based on performance results | × | relative weighting of performance measure | = | amount of award based on performance results |
The incentive amounts to be paid to the participant based on each performance measure are added together to arrive at the participant’s total award payment under the LTIP for the performance period. The Compensation Committee has the authority to reduce the amount payable to a participant under this formula, but not to increase it.
Any payments to a participant under the LTIP will be made in cash (less any amount necessary to satisfy applicable withholding taxes), except that if any portion of the award is in the form of performance shares awarded under the Equity Plan, the applicable award agreement will specify whether that portion will be settled in cash, shares of our common stock or a combination of cash and stock. In addition, each participant may elect to defer all or part of any award under the terms of any applicable deferred compensation plan.
For information about awards under the LTIP for the performance period that began January 1, 2017, see “New plan benefits.”
Termination of employment
If a participant dies or becomes totally disabled under our long-term disability plan, or retires (or is deemed to
retire) under our pension plan during a performance period, he or she will receive a pro rata award after the end of the performance period, based upon the time portion of the performance period during which he or she was employed. If the participant has become disabled or has retired, our financial performance for the entire performance period will be used to determine the amount of the award. If the participant has died, the award will be calculated using our financial performance for the portion of the performance period through the end of the fiscal quarter following his or her death.
The actual award payout for an employee who has died, retired or become disabled will not occur until after the end of the performance period.
If a participant’s employment terminates prior to the end of a performance period for any reason (whether voluntary or involuntary) other than death, disability or retirement, the participant will forfeit all rights to compensation under the LTIP unless the Compensation Committee determines otherwise.
Change in control
Unless the Compensation Committee requires additional events following a change in control to trigger the vesting
of LTIP awards, within five days after any change in control that occurs prior to the end of a performance period, each participant will receive a pro rata payout of his or her award under the LTIP for that performance period based upon the time portion of the performance period completed through the date of the change in control and our financial performance calculated for that period. The participant will also remain entitled to a final payout upon completion of the performance period based on our (or any successor’s) performance results for the entire performance period, but that payout will be offset by the amount of the interim payment (if any). However, if the amount of the interim payout exceeds the amount of the payout upon completion of the performance period, no participant will be required to refund the excess to us, or to have it offset against any other payment due to the participant from or on behalf of us. The LTIP awards granted to employees in February 2016 provide that, if the resulting entity in the change in control assumes the awards, the awards will vest early in connection with a change in control only if within two years after the change in control the employee is terminated without “cause” or the employee resigns for “good reason,” as such terms are defined in the awards.
A change in control generally is deemed to have occurred if:
combined voting power of our outstanding securities (subject to certain exceptions), |
Modification and termination of the plan
The board of directors may modify or terminate the LTIP at any time, except that no amendment or termination can reduce the amount otherwise payable to a participant under the LTIP as of the date of the amendment or termination. Moreover, effectiveness of the LTIP after any material amendment is subject to shareholder approval of the LTIP as amended.
Deductibility of awards under the plan
As described above, our shareholders must approve the LTIP in order for plan awards that we pay in the future using the new performance measures to qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code. We intend to comply with the other requirements of the performance-based
compensation exclusion under Section 162(m) of the Internal Revenue Code, including requirements governing plan administration and shareholder approval of material amendments. We expect that compensation paid to executives under the LTIP will be deductible if our shareholders approve the LTIP.
The LTIP will be approved if more votes are cast “For” approval than are cast “Against” it at the annual meeting. Abstentions and brokernon-votes will not be cast “For” or “Against” approval of the LTIP.
The board of directors unanimously recommends that you vote “FOR” approval of our amended and restated Long-Term Incentive Plan.
This table provides information about awards made in 2017 under the Annual Plan and the LTIP (including performance shares awarded under both the LTIP and our Amended and Restated 2002 Equity Compensation
Plan). For more information about these plans, see “Proposal 4 — Approval of amended and restated Senior Executive Annual Performance Plan” and “Proposal 5 — Approval of amended and restated Long-Term Incentive Plan.”
Senior Executive Annual Performance Plan(1) | Long- Term Incentive Plan | |||||||||||||||
Name and Principal Position | Dollar Value ($) | Number of Units | Dollar Value ($)(2) | Number of Units(3) | ||||||||||||
Stephen E. Macadam | ||||||||||||||||
President and Chief Executive Officer | 918,750 | — | 900,000 | 13,253 | ||||||||||||
J. Milton Childress II | ||||||||||||||||
Senior Vice President and Chief Financial Officer | — | — | 162,400 | 2,391 | ||||||||||||
Kenneth D. Walker | ||||||||||||||||
Former Senior Vice President and Chief Operating Officer | — | — | — | — | ||||||||||||
Marvin A. Riley | ||||||||||||||||
Division President, Fairbanks Morse | — | — | 89,958 | 1,325 | ||||||||||||
Robert S. McLean | ||||||||||||||||
Chief Administrative Officer, General Counsel and Secretary | — | — | 105,683 | 1,556 | ||||||||||||
Jon A. Cox | ||||||||||||||||
Former Chief Innovation and Information Officer | — | — | — | — | ||||||||||||
All current executive officers as a group | 918,750 | — | 1,751,962 | 25,798 | ||||||||||||
All current directors who are not executive officers, as a group | — | — | — | — | ||||||||||||
All employees, including current officers who are not executive officers, as a group | — | — | 1,108,472 | 16,384 |
(1) | Amounts shown are target awards for meeting 100% ofpre-established performance goals for the performance period of January 1, 2017 to December 31, 2017, and will be adjusted up or down based on our actual performance. See “Proposal 4 — Approval of amended and restated Senior Executive Annual Performance Plan” for more information regarding the annual performance period and award adjustment. Other executive officers participate in similar annual incentive plans. For a description of these plans, see “Compensation discussion and analysis — Compensation analysis — Annual performance incentive plan awards.” |
(2) | Amounts shown are cash target awards under the LTIP for meeting 100% ofpre-established performance goals over the performance period of January 1, 2017 to December 31, 2019, and will be adjusted up or down based on our actual performance. The amounts do not include any awards made as performance shares under the Equity Plan, which are shown in separate columns of this table. See “Proposal 5 — Approval of amended and restated Long-Term Incentive Plan” for more information regarding the long-term performance period and award adjustment. |
(3) | Amounts shown are with respect the target number of shares of our common stock payable under performance shares awarded under the LTIP and our Amended and Restated 2002 Equity Compensation Plan for meeting 100% ofpre-established performance goals over the performance period of January 1, 2017 to December 31, 2019. If earned, the performance shares vest on December 31, 2019. See “Proposal 5 — Approval of amended and restated Long-Term Incentive Plan” for more information regarding the LTIP and performance shares. |
Proposal 46 — Ratification of PricewaterhouseCoopers LLP as our company’s independentcompany’sindependent registered public accounting firm for 20142017
(Item 46 on the proxy card)
On February 5, 2014,13, 2017, the Audit Committee reappointed PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2014.2017. The board of directors agrees with this decision. If the shareholders do not ratify this appointment, the Audit Committee will consider other independent registered public accounting firms.
The board of directors unanimously recommends that you vote FOR ratification of PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2014.2017.
Independent registered public accounting firm
The Audit Committee has appointed PricewaterhouseCoopers LLP to serve as our independent registered public accounting firm for 2014.2017. We refer herein to PricewaterhouseCoopers as our “external auditors.” We understand that representatives of PricewaterhouseCoopers will be present at the annual meeting on April 30, 2014.26, 2017. They will have the opportunity to make a statement if they so desire, to do so, and will be available to respond to appropriate questions from shareholders.
TheAn Audit Committee has a policy that outlines procedures intended to ensure that it pre-approvesapproves all audit andnon-audit services thatprior to those services being provided to us by our external auditors provide to us.auditors. The policy provides for pre-approvalrequires the Audit Committee’s prior approval of a budget that sets thesetting fees for all audit services to be performed during the upcoming fiscal year. It also mandates pre-approvalthe committee’s prior approval of amounts for separatenon-audit and tax compliance, planning and advisory services for the year, as well as proposed services exceeding pre-approvedapproved cost levels. The policy allows the Audit Committee to delegate pre-approvalapproval authority to one or more of its members (except pre-approval authority for certain internal control-related services). A copy of the
pre-approval approval policy is available on our website at
www.enproindustries.com; click on “Investor,“For Investors,” then “Corporate Governance,” then “Committee Composition,”“Committees” and then “Audit and Risk Management Committee.CommitteePre-Approval Policy.”
Before approving services proposed to be performed by the external auditors, the Audit Committee considers whether the proposed services are consistent with the SEC’s rules on auditor independence. The Audit Committee also considers whether the external auditors may be best positioned to provide the most effective and efficient service, for reasons such as itsservice. Factors considered include familiarity with our business, people, culture, accounting systems, risk profile and other factors, and whether the service might enhance our ability to manage or control risk or improve audit quality. The committeeAudit Committee considers all of these factors as a whole. No onesingle factor is necessarily determinative. The Audit Committee approved all audit, audit-related andnon-audit services that PricewaterhouseCoopers performed in 2016 and 2015 in accordance with our policy.
Fees paid to external auditors
The following table sets forth the total fees and expenses from PricewaterhouseCoopers for each of the past two years:
2013 | 2012 | 2016 | 2015 | |||||||||||||
Audit Fees | $ | 1,875,300 | $ | 1,531,800 | $ | 2,204,500 | $ | 1,901,600 | ||||||||
Audit-Related Fees(1) | 12,800 | 23,200 | 10,600 | 10,600 | ||||||||||||
Tax Fees | — | 1,600 | — | 18,375 | ||||||||||||
All Other Fees | 2,000 | 28,700 | 2,000 | 2,000 | ||||||||||||
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Total Fees | $ | 1,890,100 | $ | 1,585,300 | $ | 2,217,100 | $ | 1,932,575 | ||||||||
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(2) | Tax fees in 2015 were incurred in connection with research of applicable tax regulation in foreign jurisdictions. |
(3) | All Other Fees in |
The Audit Committee pre-approved all audit, audit-related and non-audit services that
PricewaterhouseCoopers performed in 2012 and 2013 in accordance with our pre-approval policy.
The board knows of no other matters that may properly be presented at the annual shareholders’ meeting. If other matters do properly come before the meeting, we
will ask the persons named in the proxy to vote according to their best judgment.
Under our bylaws, any shareholder entitled to vote at our annual shareholders’ meeting may nominate a person for election to our board of directors or bring other business before the meeting if the shareholder provides written notice to, and such notice is received by, our corporate Secretary generally not less than 90 nor more than 120 days prior to the first anniversary of the preceding year’s annual meeting. If the date of the meeting is moved up by more than 30 days or delayed by more than 60 days from the anniversary date, however, notice is timely provided if it is delivered not earlier than the 120th day prior to the date of the
meeting and not later than the close of business on the 90th day prior to the meeting, or the tenth day after the day on which the meeting is first publicly announced, whichever is later.
We have not been timely notified of any additional business to be presented at this meeting. This notice requirement applies to matters being brought before the meeting for a vote. Shareholders may ask appropriate questions at the meeting without having to comply with the notice provisions.
Any shareholder who intends to present a proposal for consideration at our 20152018 annual shareholders’ meeting must ensure that our Secretary receives the proposal between December 31, 201427, 2017 and January 30, 201526, 2018 (unless we move the meeting up by more than 30 days or delay it by more than 60 days from April 30, 2015)26, 2018). Each notice must include:
If the notice contains a nomination to the board of directors, it must also contain the following information:
In addition, we must receive any shareholder proposal intended to be included in our proxy statement for the 20152018 annual shareholders’ meeting at our offices at 5605 Carnegie Boulevard, Suite 500, Charlotte, North Carolina 28209, Attention: Secretary, on or before November 20, 2014.23, 2017. Applicable rules of the SEC govern the submission of shareholder proposals and our consideration of them for inclusion in the proxy statement and form of proxy for the 20152018 annual shareholders’ meeting.
We suggest that notice of all shareholder proposals be sent by certified mail, return receipt requested.
By Order of the Board of Directors
Robert S. McLean
Secretary
March 20, 201423, 2017
PLEASE VOTE YOUR SHARES BY TELEPHONE, INTERNET OR USING THE ENCLOSED PROXY CARD
CALCULATION OF ADJUSTED EBITDA-A
The following table sets forth a reconciliation of our consolidated earnings before interest, taxes, depreciation, amortization expense, asbestos expense and other selected items (or, adjusted EBITDA-A) to our consolidated net income from continuing operations for 2013, 2012, 2011, 2010 and 2009. Adjusted EBITDA-A is a primary metric we use to evaluate our performance and one used in determining annual and long-term incentive compensation, during these periods. Adjusted EBITDA-A is not a measure under U.S. generally accepted accounting principles.
EnPro Industries, Inc.
Reconciliation of Adjusted EBITDA-A to Net Income (Loss) From Continuing Operations (Unaudited)
(Stated in Millions of Dollars)
Years Ended December 31, | ||||||||||||||||||||
2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||
Earnings before interest, income taxes, depreciation, amortization, asbestos and other selected items (adjusted EBITDA-A) | $ | 154.8 | $ | 172.2 | $ | 155.2 | $ | 121.8 | $ | 97.1 | ||||||||||
Adjustments: | ||||||||||||||||||||
Interest expense, net | (44.3 | ) | (42.8 | ) | (39.6 | ) | (25.9 | ) | (11.4 | ) | ||||||||||
Income tax benefit (expense) | (8.4 | ) | (22.5 | ) | (20.8 | ) | (21.3 | ) | 54.6 | |||||||||||
Depreciation and amortization expense | (56.6 | ) | (55.5 | ) | (48.4 | ) | (39.6 | ) | (40.3 | ) | ||||||||||
Restructuring costs | (6.7 | ) | (5.0 | ) | (1.4 | ) | (0.9 | ) | (10.2 | ) | ||||||||||
Asbestos-related expenses | — | — | — | (23.3 | ) | (135.5 | ) | |||||||||||||
Gain on deconsolidation of GST | — | — | — | 54.1 | — | |||||||||||||||
Goodwill impairment charge | — | — | — | — | (113.1 | ) | ||||||||||||||
Adjustment of liability for retiree medical benefits | — | — | — | — | 19.2 | |||||||||||||||
Environmental reserve adjustment | (6.3 | ) | (1.2 | ) | — | — | (2.0 | ) | ||||||||||||
Other | (5.1 | ) | (4.2 | ) | (0.8 | ) | (3.6 | ) | (2.0 | ) | ||||||||||
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Impact | (127.4 | ) | (131.2 | ) | (111.0 | ) | (60.5 | ) | (240.7 | ) | ||||||||||
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Net income (loss) from continuing operations | $ | 27.4 | $ | 41.0 | $ | 44.2 | $ | 61.3 | $ | (143.6 | ) | |||||||||
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The following table sets forth a reconciliation of the consolidated adjusted EBITDA-A of GST LLC to its consolidated net income for 2013, 2012, 2011 and the period from June 5, 2010 (the date on which GST LLC and certain affiliated companies filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code as the initial step in a process to resolve all current and future asbestos claims and its financial results ceased to be consolidated with those of EnPro) to December 31, 2010.
GST LLC
Reconciliation of Adjusted EBITDA-A to Net Income (Loss) (Unaudited)
(Stated in Millions of Dollars)
Years Ended December 31, | ||||||||||||||||
2013 | 2012 | 2011 | 2010(1) | |||||||||||||
Earnings before interest, income taxes, depreciation, amortization, asbestos-related expenses and other selected items (adjusted EBITDA-A) | $ | 61.4 | $ | 53.1 | $ | 50.1 | $ | 19.4 | ||||||||
Adjustments: | ||||||||||||||||
Interest income, net | 29.7 | 27.9 | 26.8 | 14.6 | ||||||||||||
Income tax benefit (expense) | (18.7 | ) | (16.3 | ) | (19.6 | ) | (10.1 | ) | ||||||||
Depreciation and amortization expense | (6.0 | ) | (5.6 | ) | (5.3 | ) | (2.9 | ) | ||||||||
Asbestos-related expenses | (46.9 | ) | (29.8 | ) | (19.7 | ) | (10.1 | ) | ||||||||
Restructuring costs | (0.4 | ) | (1.1 | ) | (1.0 | ) | — | |||||||||
Other | 2.3 | 1.6 | 1.4 | (0.5 | ) | |||||||||||
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Impact | (40.0 | ) | (23.3 | ) | (17.4 | ) | (9.0 | ) | ||||||||
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Net income | $ | 21.4 | $ | 29.8 | $ | 32.7 | $ | 10.4 | ||||||||
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ENPRO INDUSTRIES, INC.
AMENDED AND RESTATED 2002 EQUITY COMPENSATIONSENIOR EXECUTIVE ANNUAL PERFORMANCE PLAN
(20142012 AMENDMENT AND RESTATEMENT)
1. Purpose.PURPOSE
The purpose of this Plan is to promote the interests of the shareholders by providing stock-based incentives to selected employees and members of the Board of Directors (the “Board”) of EnPro Industries, Inc. Senior Executive Annual Performance Plan (the “Company”“Plan”) and of any subsidiary corporation of which more than 50% of the voting stock is owned, directly or indirectly, by the Company (“Company Subsidiary”was established effective May 31, 2002 (the “Effective Date”) to alignprovide opportunities to certain senior executives to receive incentive compensation as a reward for high levels of personal performance above the ordinary performance standards compensated by base salary, and for their interests with shareholders andcontributions to motivate them to put forth maximum efforts toward the continued growth, profitability and successstrong performance of the Company. In furtherance of this objective, stock options,The Plan, together with base compensation, is designed to provide above average total cash compensation when all relevant performance shares, restricted shares, phantom shares, stock appreciation rights, common stock ofobjectives are achieved and below average total cash compensation when such objectives are not achieved.
ELIGIBILITY
Participation in the Company (“Common Stock”), and/or other incentive awardsPlan will be limited to those senior executives whose compensation may be grantedbecome subject to selected employees (including members of the Board who are employees and/or officers) in accordance with thenon-deductibility provisions of this Plan.
This Plan, as amended and restated in 2005, also provides for certain awards to members of the Board who are not employees or former employees of the Company or its subsidiaries within five years after their termination of employment (“Outside Directors”). The awards to Outside Directors are only in the form of phantom shares to be settled in shares of Common Stock. The awards of phantom shares to Outside Directors under this Plan replace awards that would have otherwise been granted under the EnPro Industries, Inc. Outside Directors’ Phantom Shares Plan (the “Phantom Shares Plan”). After the effective date of the 2005 amendment and restatement of this Plan, no further awards were made under the Phantom Shares Plan (although any outstanding awards under the Phantom Shares Plan continue to be administered and paid in accordance with, and subject to, the terms and conditions of the Phantom Shares Plan).
This amendment and restatement of the Plan is subject to the approval of the shareholders of the Company, and shall be effective as of the date on which it is approved by the shareholders of the Company.
2. Administration. This Plan is to be administered by the Compensation and Human Resources Committee or any successor committee (the “Committee”) of the Board. The Committee shall consist of at least three members who shall qualify as “independent directors,” as that term is defined under the listing standards of any national securities exchange or securities market on which the Common Stock is then listed or traded.
3. Authority of the Committee. The Committee shall have full power and authority, subject to and consistent with the provisions of this Plan, to construe, interpret and administer this Plan. All decisions, actions or interpretations of the Committee shall be final, conclusive and binding on all parties. The Committee shall have full and final authority, in each case subject to and consistent with the provisions of the Plan, to select eligible persons to participate in this Plan; to grant awards; to determine the type and number of awards, the dates on which awards may be exercised and on which the risk of
forfeiture or deferral period relating to awards shall lapse or terminate, the acceleration of any such dates, the expiration date of any award, whether, to what extent, and under what circumstances an award may be settled, or the exercise price of an award may be paid, in cash, Common Stock, other awards, or other property, and other terms and conditions of, and all other matters relating to, awards; to prescribe documents evidencing or setting terms of awards (such award documents need not be identical for each participant), amendments thereto, and rules and regulations for the administration of this Plan and amendments thereto (including outstanding awards); to construe and interpret the Plan and award documents and correct defects, supply omissions or reconcile inconsistencies therein; and to make all other decisions and determinations as the Committee may deem necessary or advisable for the administration of the Plan.
4. Delegation. The express grant of any specific power to the Committee, and the taking of any action by the Committee, shall not be construed as limiting any power or authority of the Committee. The Committee may act through subcommittees, including for purposes of perfecting exemptions under Rule 16b-3 or qualifying Awards under Code Section 162(m) as performance-based compensation, in which case the subcommittee shall be subject to and have authority under the charter applicable to the Committee, and the acts of the subcommittee shall be deemed to be acts of the Committee hereunder. The Committee may delegate to the Chief Executive Officer and to other senior officers of the Company the authority to make awards under this Plan with respect to not more than ten percent of the shares authorized under this Plan, pursuant to such conditions and limitations as the Committee may establish, except that only the Committee or a subcommittee comprised solely of two or more “Non-Employee Directors” in accordance with Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) may make awards to participants who are subject to Section 16 of the Exchange Act.
5. Shares Available For This Plan. Subject to adjustments made pursuant to Section 21 hereof, the maximum number of shares of Common Stock that shall be available for delivery pursuant to the provisions of this Plan shall be equal to 5,225,000 shares of Common Stock. For purposes of calculating the number of shares of Common Stock available for delivery under this Plan, (i) the grant of a Performance Share Award (as defined in Section 10) or other unit or phantom share award shall be deemed to be equal to the maximum number of shares of Common Stock that may be issued under the award and (ii) where the value of an award is variable on the date it is granted, the value shall be deemed to be the maximum limitation of the award. Awards payable solely in cash will not reduce the number of shares of Common Stock available for awards granted under this Plan. Shares that are potentially deliverable under an award under the Plan that are canceled, expired,
forfeited, settled in cash or otherwise terminated without a delivery of such shares to the participant will not be counted as delivered under the Plan and shall be available for awards under this Plan. Shares that have been issued in connection with an award under this Plan that is canceled, forfeited, or settled in cash such that those shares are returned to the Company shall be available for awards under this Plan. Shares that are issued or issuable under this Plan that are withheld from an award or separately surrendered by the participant in payment of any exercise price or taxes relating to such an Award shall be deemed to constitute shares delivered to the Participant and will not be available for future awards under this Plan. With respect to SARs (as defined in Section 13), all of the shares of Common Stock for which the SAR is exercised (that is, shares actually issued pursuant to a SAR, as well as shares that represent payment of the exercise price) will cease to be available for future awards under this Plan.
6. Limitation On Awards. Subject to adjustments made pursuant to Section 21 hereof, (a) no individual employee may receive awards under this Plan with respect to more than 500,000 shares in any calendar year, and (b) the maximum number of shares of Common Stock that may be issued pursuant to options designated as Incentive Stock Options (as defined in Section 9) shall be 1,000,000 shares.
7. Term. No awards may be granted under this Plan after February 10, 2019.
8. Eligibility. Awards under this Plan may be made to any salaried, full-time employee of the Company or any Company Subsidiary, and to Outside Directors, as provided in Section 15. Except as provided in Section 15, directors who are not full-time employees are not eligible to participate in this Plan.
9. Stock Options. The Committee may, in its discretion, from time to time grant to eligible employees options to purchase Common Stock, at a price not less than 100% of the fair market value of the Common Stock on the date of grant (the “option price”), subject to the conditions set forth in this Plan. The Committee, at the time of granting to any employee an option to purchase shares under this Plan, shall fix the terms and conditions upon which such option may be exercised, and may designate options as incentive stock options (“Incentive Stock Options”) pursuant to Section 422 of the Internal Revenue Code of 1986, as amended, (the “Internal Revenue Code”) or any other statutory stock optionsimilar successor provision (the “Code”). Participants will be selected prior to or within 90 days of the beginning of each Plan Year by the Compensation and Human Resources Committee of the Company’s Board of Directors or a subcommittee of the committee consisting only of those members of that may be permittedcommittee who are “outside” Directors as defined in regulations under the Internal Revenue Code from time to time, provided, however that (i) the date on which such options shall expire, if not exercised, may not be later than ten years after the date of grantany members of the option, (ii) the terms and conditions of Incentive Stock Options must be in accordance with the qualification requirements of the Internal Revenue Code and (iii) the provisions of any other statutory stock option permitted under the Internal Revenue Code must be consistent with applicable Internal Revenue Code requirements.committee are not “outside” Directors as so defined (the “Committee”).
Within the foregoing limitations,INCENTIVE CATEGORIES
Each year the Committee shall havewill assign each Participant to an incentive category based on organizational level and potential impact on important Company or division results. The incentive categories define the authority in its discretion to specify all other terms and conditions relating to stock options, including but not limited to provisions for the exercisetarget level of options in installments, the time limits during which options may be
exercised, and in lieuincentive opportunity, stated as a percentage of payment in cash, the exercise in whole or in part of options by tendering Common Stock owned by the employee, valued at the fair market value on the date of exercise or other acceptable forms of consideration equal in value to the option price. The Committee may, in its discretion, issue rules or conditions with respect to utilization of Common Stock for all or part of the option price, including limitations on the pyramiding of shares.
10. Performance Share Awards. The Committee may make awards (“Performance Share Awards”) in Common Stock or phantom shares subject to conditions establishedbase salary as determined by the Committee, that will be available to the Participant if the Company’s target performance levels are met for the Plan Year (the “Target Incentive Amount”).
MAXIMUM AND THRESHOLD AWARDS
Each Participant will be assigned maximum and threshold award levels. Maximum award level represents the maximum amount of incentive award that may include attainmentbe paid to a Participant for a Plan Year. Threshold award level represents the level above which an incentive award will be paid to a Participant. Performance below the threshold level will earn no incentive payments. Each Participant’s maximum award level will be 200% of specific Performance Objectives (as defined below). Performance Share Awardshis or her Target Incentive Amount. Under no circumstances will any Participant be paid an award exceeding $2,500,000.
PERFORMANCE MEASURES
The Committee may includeuse any quantitative or qualitative performance measure or measures that it
determines to use to measure the awardinglevel of additional shares upon attainmentperformance of the specified Company or any individual participant during a Plan Year.
Performance Objectives. Any Performance Share Award which is conditioned upon attainment of specific Performance Objectives shall have a minimum performance period of one year, except in the case of death or disability and except as otherwise provided pursuant to Section 29.
11. Performance Objectives. Performance objectivesmeasures that may be used under thisthe Plan include, totalbut are not limited to, the following, which shall be considered “qualifying performance measures” under Section 162(m) of the Code and which may be used individually, alternatively, or in any combination, applied to the Company as a whole or to a division or business unit or related company, and measured either annually or cumulatively over a period of years, on an absolute basis or relative to apre-established target, to a previous year’s results or to a designated comparison group, in each case as specified by the Committee in the award. Each performance measure may be determined on apre-tax or after tax basis, as specified by the Committee at the time of the award:
Revenue-related measures:
Income-based measures:
Cash flow-based measures:
Return-based measures:
Other measures:
PARTIAL PLAN YEAR PARTICIPATION
Subject to the Change in Control provisions described below, incentive awards to Participants who terminate during the Plan Year for reasons of death, disability (under the Company’s Long-Term Disability Plan), or organization restructuring.retirement (under the Company’s Salaried Retirement Plan) will be calculated as specified above
and will be paid pro rata based on a fraction, the numerator of which is the number of full and partial months of the Plan Year during which the Participant was employed by the Company, and the denominator of which is the total number of months in the Plan Year. Subject to the Change in Control provisions described below, Participants who terminate during a Plan Year for reasons other than death, disability, or retirement will receive no incentive award payments for such Plan Year, unless the Committee determines otherwise.
PERFORMANCE GOALS
�� | A schedule for each performance measure relating achievement levels for the performance measure to incentive award levels as a percentage of Participants’ Target Incentive Amounts; and |
To the degree consistent with Section 162(m) of the Internal Revenue Code, or any successor section thereto (the “Code”), the Committee may adjust, modify or amend the above criteria, either in establishing any performance objectivemeasure or in determining the extent to which any performance objectivemeasure has been achieved. In particular, the Committee shall have the authority to make equitable adjustments in the criteria where necessary (i) in response to changes in applicable laws or regulations, (ii) to account for items of gain, loss, or expense that are related to the disposal (or acquisition) of a business or change in accounting principles that was not anticipated at the time an award was made, (iii) to account for adjustments in expense due tore-measurement of pension benefits, (iv) to remove the effect of charges for asbestos, (v) to account for restructurings, discontinued operations, and any other items deemed by the Committee to benon-recurring in nature or otherwise not reflective of operating performance that were not anticipated at the time an award was made, and (vi) to reflect other unusual,non-recurring, or unexpected items similar in nature to the foregoing as determined in good faith by the Committee consistent with the principles set forth in section 162(m) of the Code and the regulations thereunder. Such adjustments may be made with respect to the performance of any subsidiary, division, or operating unit, as applicable, shall be made in a consistent manner from year to year, and shall be made in accordance with the objectives of the Plan and the requirements of Section 162(m) of the Code.
12. Restricted Shares. The Committee may make awards in Common Stock subject to conditions, if any, established byPERFORMANCE CERTIFICATION
As soon as practicable following the end of each Plan Year, the Committee which may include continued servicewill certify the Company’s performance with the Company or its subsidiaries (“Restricted Share Awards”). Any Restricted Share Award which is conditioned upon continued employment shallrespect to each performance measure used for that Plan Year.
AWARD CALCULATION AND PAYMENT
Individual incentive awards will be conditioned upon continued employment for a minimum period of three yearscalculated and paid as soon as practicable following the award, except in the caseCommittee’s certification of death, disability or retirement and except as otherwise provided pursuant to Section 29.performance for each Plan Year. The
13. Stock Appreciation Rights. The Committee may, in its discretion, from time to time grant to eligible employees stock appreciation rights (“SARs”). A SAR shall confer on the participant to whom it is granted the right to receive, upon exercise thereof, the excess of (i) the fair market value of one share of Common Stock on the date of exercise over (ii) the grant price of the SAR as determined by the Committee. In no event shall the grant price be less than the fair market valueamount of a share of Common Stock on the date of grant. The Committee, at the time of granting to any employee a SAR, shall fix the terms and conditions upon which such SAR may be exercised, provided, however that (i) the date on which such SAR shall expire, if not exercised, may not be later than ten years after the date of the grant of the SAR, (ii) each SAR may be settled only in Common Stock, and (iii) no such terms and conditions may cause this Plan or the SAR to fail to meet the requirements of Internal Revenue Code § 409A(a)(2), (3) or (4) or to violate § 409A(b).
14. Other Awards. The Committee may make awards to employees authorized under this Plan in units or phantom shares, the value of which is based, in whole or in part, on the value of Common Stock, in lieu of making such awards in Common Stock (“Other Awards”). The Committee may provide for Other AwardsParticipant’s incentive award to be paid in cash, in Common Stock, or in a combination of both cash and Common Stock, and may establish such other terms and conditions as in its discretion it deems appropriate, provided that no such terms and conditions may cause this Plan or any Other Awardbased on each individual performance measure will be calculated based on the following formula (the “Formula”).
Participant’s total gross base salary | × | Participant’s incentive category percentage for achievement against performance measure | × | Percentage of target award to be paid | × | Relative weighting of performance measure | = | Amount of incentive award based on performance measure |
The incentive amounts to fail to meet the requirements of Internal Revenue Code § 409A(a)(2), (3) or (4) or to violate § 409A(b).
15. Awards of Phantom Shares to Outside Directors.
(a) Awards. The Committee shall make a one-time grant of phantom shares, in an amount determined by the Committee, to each Outside Director upon his or her initial electionbe paid to the Board. Thereafter, the Committee will make an annual grant of phantom shares toParticipant based on each Outside Director, in an amount and on terms determined by the Committee. In addition, from time to time, the Committee may, in its discretion, make grants of phantom shares to Outside Directors.
(b) Dividend Equivalents on Awards. Dividend equivalentsperformance measure will be accrued on all phantom shares granted under this Section 15. Uponsummed to arrive at the Participant’s total incentive award payment date of each dividend declared onfor the Company’s Common Stock, that number of additional phantom shares will be credited to each Outside Director’s award which has an equivalent fair market valuePlan Year.
PAYMENT UPON CHANGE IN CONTROL
Anything to the aggregate amountcontrary notwithstanding, within five days following the occurrence of dividends which would be paid if the number of the Outside Director’s phantom shares were actual shares of the Common Stock. Dividend equivalents shall be vested at the time the dividend is paid.
(c) Vesting. Phantom shares granted under this Section 15 shall be fully vested upon granting.
(d) Payment. Upon termination of service of an Outside Director as a member of the Board (the “termination date”),Change in Control, the Company shall pay to each Participant an interimlump-sum cash payment (the “Interim Payment”) with respect to his or her participation in the Outside Director all Phantom Shares creditedPlan. The amount of the Interim Payment shall equal the product of (x) the number of months in the Plan Year in which the Change in Control occurs, including fractional months, that elapsed before the occurrence of the Change in Control and(y) one-twelfth of the greater of (i) the amount most recently paid to each Participant for a full Plan Year under the Plan or (ii) the Target Incentive Amount for each Participant in effect prior to the Outside DirectorChange in Control for the Plan Year in which the Change in Control occurs. The Interim Payment shall not reduce the obligation of the Company to make a final payment under the terms of the Plan, but any Interim Payment made shall be offset against any later payment required under the terms of the Plan for the Plan Year in which a Change in Control occurs. Notwithstanding the foregoing, in no event shall any Participant be required to refund to the Company, or have offset against any other payment due any Participant from or on behalf of the termination dateCompany, all or any portion of the Interim Payment.
For purposes of the Plan, a Change in Control shall mean:
(i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), of beneficial ownership (within the meaning of Rule13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the formelection of one share of Common Stock for each whole phantom share, with cash for any fractional phantom share based on the fair market value of the Common Stock on the applicable date. The shares of Common Stock shall be paid and delivered as soon as administratively practicable after the termination date.
16. Deferred Awards. The Committee may permit recipients of awards to elect to defer receipt of such awards, either in cash or in Common Stock, under such terms and conditions that the Committee may prescribe;directors (the “Outstanding Company Voting Securities”); provided, however, that the Committee may permit recipients to elect to defer receipt of awards hereunder only to the extent that such deferral wouldfollowing acquisitions shall not cause this Plan or such awards to fail to meet the requirements of Code Section 409A(a)(2), (3) or (4), to the extent applicable. The Committee may authorizeconstitute a Change in Control: (A) any acquisition directly from the Company to establish various trusts or make other arrangements, in each case located in the United States, with respect to(other than by exercise of a conversion privilege), (B) any deferred awards, provided that no such trust or arrangement may provide for assets to become restricted to the provision of deferred awards in connection with a change in the financial health ofacquisition by the Company or any of its subsidiaries.subsidiaries, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its subsidiaries or (D) any acquisition by any company
with respect to which, following such acquisition, more than 70% of, respectively, the then outstanding shares of common stock of such company and the combined voting power of the then outstanding voting securities of such company entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such acquisition in substantially the same proportions as their ownership, solely in their capacity as shareholders of the Company, immediately prior to such acquisition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be; or
(ii) individuals who, as of the Effective Date, constitute the Board of Directors (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest; or
(iii) consummation of a reorganization, merger or consolidation, in each case, with respect to which all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation, do not, following such reorganization, merger or consolidation, beneficially own, directly or indirectly, solely in their capacity as shareholders of the Company, more than 70% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the company resulting from such reorganization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be; or
(iv) consummation of (A) a complete liquidation or dissolution of the Company or (B) a sale or other disposition of all or substantially all of the assets of the
17. Fair Market Value. ForCompany, other than to a company, with respect to which following such sale or other disposition, more than 70% of, respectively, the then outstanding shares of common stock of such company and the combined voting power of the then outstanding voting securities of such company entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all purposesor substantially all of thisthe individuals and entities, solely in their capacity as shareholders of the Company, who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be.
PLAN YEAR
The Plan the fair market value of a share of Common StockYear shall be the closing selling pricefiscal year of Common Stock on the relevant date (asCompany.
PLAN ADMINISTRATION
The Plan will be administered by the Committee. In administering the Plan, the Committee shall be empowered to interpret the provisions of 4:00 P.M. New York, New York Time) as reported on the New York Stock Exchange — Composite Transactions listing (or similar report), or, if no sale was made on such date, then onPlan and to perform and exercise all of the next preceding day on which suchduties and powers granted to it under the terms of the Plan by action of a sale was made. Fair market value relatingmajority of its members in office from time to time. The Committee is empowered to set preestablished performance targets, measure the results and determine the amounts payable according to the Formula. While the Committee may not increase the amounts payable under the Formula, it retains discretionary authority to reduce the amount of compensation that would otherwise be payable to the Participants if the goals are attained. The Committee may also adopt such rules and regulations for the administration of the Plan as are consistent with the terms hereof and shall keep adequate records of its
proceedings and acts. All interpretations and decisions made (both as to law and fact) and other action taken by the Committee with respect to the Plan shall be conclusive and binding upon all parties having or claiming to have an interest under the Plan. Not in limitation of the foregoing, the Committee shall have the discretion to decide any factual or interpretative issues that may arise in connection with its administration of the Plan (including without limitation any determination as to claims for benefits hereunder), and the Committee’s exercise priceof such discretion shall be conclusive and binding on all affected parties as long as it is not arbitrary or base pricecapricious.
MISCELLANEOUS
(i) Amendment and Termination. The Board of any Non-409A Award (as hereinafter defined) shall conform to requirements under Code § 409A.
18. Exchange and Buy Out; Repricing. TheDirectors of the Company may amend, modify, or terminate the Plan at any time, offerprovided that no amendment, modification or termination of the Plan shall reduce the amount payable to exchangea Participant under the Plan as of the date of such amendment, modification or buy outtermination.
(ii)Shareholder Approval. No amounts shall be payable hereunder on or after the first annual shareholders meeting that occurs after the Effective Date unless the terms of the Plan are approved by the shareholders of the Company on or before such annual shareholders meeting consistent with the requirements of Section 162(m) of the Code. In accordance with Section 162(m)(4)(C)(ii) of the Code, the continued effectiveness of the Plan is subject to its approval by the shareholders of the Company at such other times as required by Section 162(m)(4)(C)(ii) of the Code.
(iii)Applicable Law. The Plan shall be governed and construed in accordance with the laws of the State of North Carolina, except to the extent such laws are preempted by the laws of the United States of America.
ENPRO INDUSTRIES, INC.
LONG-TERM INCENTIVE PLAN
(2016 AMENDMENT AND RESTATEMENT)
PURPOSE
The EnPro Industries, Inc. Long-Term Incentive Plan (the “Plan”) was established effective as of January 1, 2003 (the “Effective Date”) to provide long-term incentive compensation to key employees who are in a position to influence the performance of EnPro Industries, Inc. (the “Company”), and thereby enhance shareholder value over time. The Plan provides a significant additional financial opportunity and complements other parts of the Company’s total compensation program for key employees.
ELIGIBILITY AND PERFORMANCE PERIODS
The Committee (as defined in the “Plan Administration” section of the Plan) will determine which employees of the Company are eligible to participate in the Plan from time to time. Participants will be selected within 90 days after the beginning of each multi-year performance cycle (“Performance Period”). Each Performance Period will be of two or more years duration as determined by the Committee and will commence on January 1 of the first year of the Performance Period. A new Performance Period will commence each year unless the Committee determines otherwise.
TARGET AWARDS
At the time a Participant is selected for participation in the Plan for a Performance Period, the Committee will assign the Participant a Target LTIP Award to be earned if the Company’s target performance levels are met for the Performance Period (the “Target LTIP Award”). The Target LTIP Award may be expressed as a dollar amount, a number of Performance Shares under the Company’s Equity Compensation Plan, or a combination of a dollar amount and a number of Performance Shares. Any portion of the Target LTIP Award made in the form of Performance Shares will be evidenced by a Performance Shares award agreement consistent with the provisions of the Equity Compensation Plan.
MAXIMUM AND THRESHOLD AWARDS
At the time a Participant is selected for participation in the Plan for a Performance Period, the Participant will be assigned maximum and threshold award levels, expressed as a percentage of the Target LTIP Award. Maximum award level represents the maximum percentage of the Target LTIP Award that may be paid to a Participant for a Performance Period based on performance above target performance levels. Threshold award level represents the minimum percentage of the Target LTIP Award that may be paid to a Participant for a Performance Period based on performance below target performance levels. Performance below the threshold performance award level will earn no incentive payments.
Under no circumstances will any previously grantedParticipant earn an award for a Performance Period expressed in dollars
exceeding $2,500,000. In addition, any award of Performance Shares hereunder shall be subject to the individual award limit applicable under the Equity Compensation Plan.
PERFORMANCE MEASURES
The Committee may use any quantitative or qualitative performance measure or measures that it determines to use to measure the level of performance of the Company or any individual participant during a Performance Period.
Performance measures that may be used under the Plan include, but are not limited to, the following, which shall be considered “qualifying performance measures” and which may be used individually, alternatively, or in any combination, applied to the Company as a whole or to a division or business unit or related company, and measured either annually or cumulatively over a period of years, on an absolute basis or relative to apre-established target, to a previous year’s results or to a designated comparison group, in each case as specified by the Committee in the award. Each performance measure may be determined on apre-tax or after tax basis, as specified by the Committee at the time of the award:
Revenue-related measures:
Income-based measures:
Cash flow-based measures:
Return-based measures:
Other measures:
PERFORMANCE GOALS
The Committee will designate, within 90 days of the beginning of each Performance Period:
The performance goals established by the Committee for a Performance Period are intended to satisfy the “objective compensation formula” requirements of Treasury RegulationsSection 1.162-27(e)(2). To the degree consistent with Section 162(m) of the Internal Revenue Code, or any successor section thereto (the “Code”), the Committee may adjust, modify or amend the above criteria, either in establishing any performance measure or in determining the extent to which any performance measure has been achieved. In particular, the Committee shall have the authority to make equitable adjustments in the criteria where necessary (i) in response to changes in applicable laws or regulations, (ii) to account for items of gain, loss, or expense that are related to the disposal (or acquisition) of a business or change in accounting principles that was not anticipated at the time an award was made, (iii) to account for adjustments in expense due tore-measurement of pension benefits, (iv) to remove the effect of charges for asbestos, (v) to account for restructurings, discontinued operations, and any other items deemed by the Committee to benon-recurring in nature or otherwise not reflective of operating performance that were not anticipated at the time an award was made, and (vi) to reflect other unusual,non-recurring, or unexpected items similar in nature to the foregoing as determined in good faith by the Committee consistent with the principles set forth in section 162(m) of the Code and the regulations thereunder. Such adjustments may be made with respect to the performance of any subsidiary, division, or operating unit, as applicable, shall be made in a consistent manner from year to year, and shall be made in accordance with the objectives of the Plan and the requirements of Section 162(m) of the Code.
PERFORMANCE CERTIFICATION
As soon as practicable following the end of each Performance Period and prior to any award payments for the Performance Period, the Committee will certify the Company’s performance with respect to each performance measure used for that Performance Period.
AWARD CALCULATION AND PAYMENT
For each Performance Period, individual incentive awards will be calculated and paid to each Participant who is still employed with the Company (subject to the special provisions below for employees who terminate
employment due to death, disability or retirement) as soon as practicable following the Committee’s certification of performance for the Performance Period. The amount of a Participant’s incentive award to be paid based on each individual performance measure will be calculated based on the following formula:
Participant’s Target LTIP Award | × | Percentage of target award to be paid based on performance measure results | × | Relative weighting of performance measure | = | Amount of incentive award based on performance measure results |
The incentive amounts to be paid to the Participant based on each performance measure will be summed to arrive at the Participant’s total incentive award payment for the Performance Period.
Payments from the Plan to a Participant, if any, will be made in cash (less any amount necessary to satisfy applicable withholding taxes); provided, however, that (i) if any portion of the award is in the form of Performance Shares, the applicable Performance Shares award agreement will specify whether the award will be settled in cash, shares of Common Stock,the Company’s common stock or a combination of cash and stock; and (ii) at the Participant’s election, receipt of all or part of an award may be deferred under the terms of the EnPro Industries, Inc. Deferred Compensation Plan (or other deferred compensation plan of the Company).
TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, RETIREMENT
If a Participant becomes totally disabled under the Company’s Long-Term Disability Plan, or retires (or is deemed to retire) during a Performance Period defined as either (i) attainment of age 65, or (ii) attainment of age 55 with at least five years of service with the Company and its subsidiaries (based on years of service determined under any applicable benefit plan of the Company in which the participant participates or such other means as determined by the Company), other than a termination due to the participant’s death, total disability under the Company’s Long-Term Disability Plan, or Cause (“Retirement”), the Participant will receive a pro rata payout at the end of the Performance Period, based upon the time portion of the Performance Period during which he or she was employed. The actual payout will not occur until after the end of the Performance Period, at which time the financial performance for the entire Performance Period will be used to determine the amount of the award prior to proration.
If a Participant dies during a Performance Period, the Participant will receive a pro rata payout based upon financial results calculated for the portion of the Performance Period through the end of the fiscal quarter following the Participant’s death.
OTHER TERMINATION OF EMPLOYMENT
If a Participant’s employment terminates prior to the end of a Performance Period for any reason (whether voluntary or involuntary) other than death, disability or retirement, the Participant will forfeit all rights to compensation under the Plan, unless the Committee determines otherwise.
NEW HIRES OR PROMOTIONS INTO ELIGIBLE POSITIONS
Participants will become eligible for participation in the Plan at their new position level beginning with the Performance Period which begins on the January 1 immediately following their hire or promotion date. No new performance awards or property based on such terms and conditions as the Company shall determine and communicate at the timeadjustments to awards for Performance Periods that such offer iscommenced prior to a Participant’s hire or promotion date will be made. Notwithstanding anything in this Plan
PAYMENT UPON CHANGE IN CONTROL
Anything to the contrary withoutnotwithstanding,
(a) with respect to a Target LTIP Award awarded prior to December 2, 2015, if a Change in Control occurs prior to the approvalend of a Performance Period, within five days following the occurrence of the shareholders, the Committee shall not amend or replace previously granted stock options or SARsChange in Control each Participant will receive a transaction that constitutes a repricing. For this purpose, the term “repricing” shall mean anypro rata payout of the followingParticipant’s award for that Performance Period based upon the portion of the Performance Period completed through the date of the Change in Control and the performance results calculated for that period (the “Interim LTIP Payment”). The Participant shall also remain entitled to a payout upon completion of the Performance Period based on performance results for the entire Performance Period, such payout to be offset by the amount of the Interim LTIP Payment (if any); provided, however, that the Participant will not be required to refund to the Company, or have offset against any other action that haspayment due to the same effect: (i) lowering the exercise price of an optionParticipant from or SAR after it is granted, (ii) buying-out an outstanding option or SAR at a time when its exercise price exceeds the fair market value of the underlying stock for cash or shares, or (iii) any other action that is treated as a repricing under generally accepted accounting principles, or (iv) canceling an option or SAR at a time when its exercise price exceeds the fair market value of the underlying Common Stock in exchange for another option, SAR, Restricted Stock Award or other equityon behalf of the Company, unlessin the cancellationevent the amount of the Interim LTIP Payment exceeds the amount of the payout upon completion of the Performance Period; and exchange occurs
(b) with respect to any other Target LTIP Award under this Plan, in connection withthe event of a merger, acquisition, spin-off, or similar corporate transaction.
19. Termination Of Employment. TheChange in Control, the Committee may make such provisions as it, in its sole discretion, may deem appropriateprovision with respect to the effect, if any, the termination of employment will have on any grants or awards under this Plan;Plan as it deems appropriate in its discretion, provided however, that no such provisionsprovision may cause this Plan or any grants or awards hereunder to fail to meet the requirements of Internal Revenue Code § 409A(a)(2), (3) or (4) or to violate § 409A(b), to the extent applicable.
20. Assignability. Options and other awards granted under this Plan shall not be transferable by the grantee other than by will or the laws of descent and distribution or by such other means as the Committee may approve from time to time.
21. Adjustments to Reflect Capital Changes.
(a) In the event of any corporate event or transaction (including, but not limited to, a change in the Common Stock or the capitalization of the Company), such as any merger, consolidation, reorganization, recapitalization, separation, partial or complete liquidation, stock dividend, stock split, reverse stock split, split up, spin off, or other distribution of stock or property of the Company, a combination or exchange of Common Stock, dividend in kind, or other like change in capital structure, number of outstanding shares of Common Stock, distribution (other than normal cash dividends) to shareholders of the Company, or any similar corporate event or transaction, the Committee or the Board, in order to prevent dilution
or enlargement of participants’ rights under the Plan, shall make equitable and appropriate adjustments and substitutions, as applicable, to or of the number and kind of shares subject to outstanding awards, the purchase price for such shares, the number and kind of shares available for future issuance under the Plan, and other determinations applicable to outstanding awards. The Committee shall have the power and sole discretion to determine the amount of the adjustment to be made in each case.
(b) In addition, in the event that the Company is a party to a merger, reorganization, consolidation, share exchange, transfer of assets or other transaction having similar effect involving the Company, outstanding awards shall be subject to the agreement governing the transaction. Such agreement may provide, without limitation, for the continuation of outstanding awards by the Company (if the Company is a surviving corporation), for their assumption by the surviving corporation or its parent or subsidiary, for the substitution by the surviving corporation or its parent or subsidiary of its own awards for such outstanding awards, for accelerated vesting and accelerated expiration, or for settlement in cash or cash equivalents.
22. Committee’s Determination. The Committee’s determinations under this Plan including without limitation, determinations of the employees to receive awards or grants, the form, amount and timing of such awards or grants, the terms and provisions of such awards or grants and the agreements evidencing same, and the establishment of Performance Objectives need not be uniform and may be made by the Committee selectively among employees who receive, or are eligible to receive awards or grants under this Plan whether or not such employees are similarly situated. The Committee may, with the consent of the participant, modify any determination it previously made.
23. Leave Of Absence Or Other Change In Employment Status. The Committee shall be entitled to determine whether any leave of absence taken by an employee or other change in employment status, such as a change from full time employment to a consulting relationship, shall constitute a termination of employment within the meaning of this Plan and shall further be entitled to make such rules, regulations and determinations as it deems appropriate under this Plan in respect of any such leave of absence or other change in employment status relative to any grant or award. Notwithstanding the foregoing, no such determination, rule or regulation by the Committee may cause this Plan or any grant or award hereunder to fail to meet the requirements of Internal Revenue Code § 409A(a)(2), (3) or (4) or to violate § 409A(b), to the extent applicable.
24. Withholding Taxes. The Committee or its designee shall have the right to determine the amount of any Federal, state or local required withholding tax, and may require that any such required withholding tax be satisfied by withholding shares of Common Stock or other amounts which would otherwise be payable under this Plan.
25. Retention of Shares. If shares of Common Stock are awarded subject to attainment of Performance Objectives, continued service with the Company or other conditions, the shares may be registered in the
employees’ names when initially awarded, but possession of certificates for the shares shall be retained by the Secretary of the Company for the benefit of the employees, or shares may be registered in book entry form only, in both cases subject to the terms of this Plan and the conditions of the particular awards.
26. Dividends and Voting. Subject to Section 15(b), the Committee may permit each participant to receive or accrue dividends and other distributions made with respect to awards (other than Performance Share Awards) under this Plan under such terms and conditions as in its discretion it deems appropriate, provided that such receipt or accrual does not cause this Plan or any award hereunder to fail to meet the requirements of Internal Revenue Code § 409A(a)(2), (3) or (4), to the extent applicable. With respect to shares actually issued, the Committee under such terms and conditions as in its discretion it deems appropriate, may permit the participant to vote or execute proxies with respect to such registered shares.
27. Forfeiture of Awards. Any awards or parts thereof made under this Plan which are subject to Performance Objectives or other conditions which are not satisfied, shall be forfeited.
28. Continued Employment. Nothing in this Plan or in any agreement entered into pursuant to this Plan shall confer upon any employee the right to continue in the employment of the Company or affect any right which the Company may have to terminate the employment of such employee.
29. Change In Control.For purposes of thisthe Plan, a “Change in Control” shall mean:
(i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act)Act of 1934, as amended (the “Exchange Act”)), of beneficial ownership (within the meaning of Rule13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then outstanding shares of Common Stockcommon stock of the Company (the “Outstanding Company Common Stock”) or (B) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that the following acquisitions shall not constitute a Change in Control: (A) any acquisition directly from the Company (other than by exercise of a conversion privilege), (B) any acquisition by the Company or any of its subsidiaries, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its subsidiaries or (D) any acquisition by any company with respect to which, following such acquisition, more than 70% of, respectively, the then outstanding shares of common stock of such company and the combined voting power of the then outstanding voting securities of such company entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such acquisition in substantially the same
proportions as their ownership, solely in their capacity as shareholders of the Company, immediately prior to such acquisition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be; or
(ii) individuals who, as of the Effective Date, constitute the Board of Directors (the “Incumbent Board”), cease for any reason to constitute at least a majority of the Board;Board of Directors; provided, however, that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest; or
(iii) consummation of a reorganization, merger or consolidation, in each case, with respect to which all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation, do not, following such reorganization, merger or consolidation, beneficially own, directly or indirectly, solely in their capacity as shareholders of the Company, more than 70% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the company resulting from such reorganization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be; or
(iv) consummation of (A) a complete liquidation or dissolution of the Company or (B) a sale or other disposition of all or substantially all of the assets of the Company, other than to a company, with respect to which following such sale or other disposition, more than 70% of, respectively, the then outstanding shares of common stock of such company and the combined
voting power of the then outstanding voting securities of such company entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities, solely in their capacity as shareholders of the Company, who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be.
PLAN ADMINISTRATION
30. Effect Of ChangeThe Plan will be administered by the Compensation and Human Resources Committee of the Company’s Board of Directors (or a subcommittee of that committee consisting only of those members of that committee who are “outside directors” within the meaning of Section 162(m) of the Internal revenue Code if any members of the committee are not “outside directors”) (the “Committee”). In Control. Inadministering the eventPlan, the Committee shall be empowered to interpret the provisions of the Plan and to perform and exercise all of the duties and powers granted to it under the terms of the Plan by action of a Changemajority of its members in Control, optionsoffice from time to time. The Committee is empowered to set preestablished performance targets, measure the results and determine the amounts payable according to the Formula. While the Committee may not increase the amounts payable under the Plan formula for a Performance Period, it retains discretionary authority to reduce the amount of compensation that would otherwise be payable to the Participants if the goals are not then exercisable shall become immediately exercisable, and, notwithstanding any other provisions of this Plan or any award agreement, shall remain exercisable for no less than the shorter of (i) two years or (ii) the remainder of the full term of the option.attained. The Committee may makealso adopt such provision with respect to other awards under thisrules and regulations for the administration of the Plan as it deems appropriate in its discretion, provided that no such provision may cause this Plan or any award hereunder to fail to meet the requirements of Internal Revenue Code § 409A(a)(2), (3) or (4) or to violate § 409A(b), to the extent applicable.
31. Compliance With Laws And Regulations. Notwithstanding any other provisions of this Plan, the issuance or delivery of any shares may be postponed for such period as may be required to complyare consistent with any applicable requirements of any national securities exchange or any requirements under any other law or regulation applicable to the issuance or delivery of such shares, and the Company shall not be obligated to issue or deliver any such shares if the issuance or delivery thereof shall constitute a violation of any provision of any law or any regulation of any governmental authority, whether foreign or domestic, or any national securities exchange.
32. Certain Limitation on Awards to Ensure Compliance with Internal Revenue Code § 409A. Notwithstanding any other Plan provision, the terms hereof and shall keep adequate records of any 409A Awardits proceedings and any Non-409A Award, including any authority ofacts. All interpretations and decisions made (both as to law and fact) and other action taken by the Committee and rights of the participant with respect to the award,Plan shall be limitedconclusive and binding upon all parties having or claiming to those terms permittedhave an interest under Code § 409A, and any terms not permitted under Code § 409A shall be automatically modified and limited to the extent necessary to conform with Code § 409A. For this purpose, other provisionsPlan. Not in limitation of the Plan notwithstanding,foregoing, the Committee shall have no authoritythe discretion to accelerate distributions relating to 409A Awardsdecide any factual or interpretative issues that may arise in excessconnection with its administration of the authority permitted under Code § 409A,
Plan (including without limitation any determination as to claims for benefits hereunder), and any distribution subject to Code § 409A(a)(2)(A)(i) (separation from service) to a “key employee”the Committee’s exercise of such discretion shall be conclusive and binding on all affected parties as defined under Code § 409A(a)(2)(B)(i), shalllong as it is not occur earlier than the earliest time permitted under Code Section § 409A(a)(2)(B)(i). In the case of a 409A Award, a transaction shall constitute a “Change in Control” as defined in Section 29 only if such transaction would also constitute a “change of control” under Code § 409A.arbitrary or capricious.
For purposes of this Plan, “409A Awards” means awards that constitute a deferral of compensation under Code § 409AMISCELLANEOUS
(i) Amendment and regulations thereunder. “Non-409A Awards” means awards other than 409A awards. For purposes of this Plan, options, SARs and Restricted Share Awards are intended to be Non-409A Awards.
33. Amendment.Termination. The Board of Directors of the Company may alter or amend, this Plan, in whole or in part, from time to time,modify, or terminate thisthe Plan at any time;time, provided however, that no such action shall adversely affect any rights or obligations with respect to awards previously made under this Plan unless the action is taken in order to comply with applicable law, stock exchange rules or accounting rules; and, provided, further, that no amendment, which has the effect of increasing the number of shares subject to this Plan (other than as permitted in Section 21) shall be made without the approval of the Company’s shareholders.
34. Governing Law. The validity, construction and effectmodification or termination of the Plan any rules and regulations relatingshall reduce the amount payable to a Participant under the Plan and any award documentas of the date of such amendment, modification or termination.
(ii) Shareholder Approval. No amounts shall be determinedpayable hereunder unless the material terms of the Plan are first approved by the shareholders of the Company consistent with the requirements of Section 162(m) of the Internal Revenue Code. In accordance with
Section 162(m)(4)(C)(ii) of the Internal Revenue Code, the continued effectiveness of the Plan is subject to its approval by the shareholders of the Company at such other times as required by Section 162(m)(4)(C)(ii).
(iii) Coordination With Other Company Benefit Plans. Any income participants derive from Plan payouts will not be considered eligible earnings for Company or subsidiary pension plans, savings plans, profit sharing plans or any other benefit plans.
(iv) Participant’s Rights. A Participant’s rights and interests under the Plan may not be assigned or transferred by the Participant. To the extent the Participant acquires a right to receive payments from the
Company under the Plan, such right shall be no greater than the right of any unsecured general creditor of the Company. Nothing contained herein shall be deemed to create a trust of any kind or any fiduciary relationship between the Company and the Participant. Designation as a Participant in the Plan for a Performance Period shall not entitle or be deemed to entitle the Participant to be designated as a Participant for any subsequent Performance Periods or to continued employment with the Company.
(v) Applicable Law. The Plan shall be governed and construed in accordance with the laws of the State of North Carolina, without giving effect to principles of conflicts of laws, and applicable provisions of federal law.
35. Severability. If any provision of this Plan or the application thereof to any person or circumstance shall be invalid or unenforceable to any extent, the remainder of this Plan and the application of such provision to other persons or circumstances shall not be affected thereby and shall be enforcedexcept to the greatest extent permittedsuch laws are preempted by law.the laws of the United States of America.
2014
2017 Annual Meeting Notice
and Proxy Statement
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VOTE BY INTERNET - www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before thecut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically viae-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
VOTE BY PHONE -1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before thecut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: |
KEEP THIS PORTION FOR YOUR RECORDS |
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
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The Board of Directors recommends you vote FOR the following: | For All | Withhold All | For All Except | To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below. | ||||||||||||||||||||||
1. | Election of Directors |
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Nominees | |||||||||||||||||||||||||||
01 Stephen E. Macadam 02 Thomas M. Botts 03 | |||||||||||||||||||||||||||
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The Board of Directors recommends you vote FOR | For | Against | Abstain | ||||||||||||||||||||||||
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On an advisory basis, to approve the compensation to our named executive officers as disclosed in the proxy | ☐ |
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| 1 year | 2 years | 3 years | Abstain | |||||||||||||||||||||||
3 |
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The Board of Directors recommends you vote FOR proposals 4, 5 and 6. | For | Against | Abstain | ||||||||||||||||||||||||
4 | To approve our amended and restated Senior Executive Annual Performance Plan. | ☐ | ☐ | ☐ | |||||||||||||||||||||||
5 | To approve our amended and restated Long-Term Incentive Plan. | ☐ | ☐ | ☐ | |||||||||||||||||||||||
6 |
To ratify the selection of PricewaterhouseCoopers LLP as our independent registered public accounting | ☐ |
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NOTE:Such other business as may properly come before the meeting or any adjournment thereof. | |||||||||||||||||||||||||||
For address change/comments, mark here. (see reverse for instructions) |
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Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer. |
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Signature [PLEASE SIGN WITHIN BOX] | Date | JOB # | Signature (Joint Owners) | Date |
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:The10-K Wrap, Notice & Proxy Statement is/are available atwww.proxyvote.com
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ENPRO INDUSTRIES, INC. Annual Meeting of Shareholders April This proxy is solicited by the Board of Directors
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The undersigned hereby appoints Stephen E. Macadam,
This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in accordance with the Board of Directors’ recommendations.
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(If you noted any Address Changes and/or Comments above, please mark corresponding box on the reverse side.) | ||||||||||||||||
Continued and to be signed on reverse side | ||||||||||||||||