UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant ☒
Filed by a party other than the Registrant ☐
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☐ | Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | ||
☒ | Definitive Proxy Statement | |
☐ | Definitive Additional Materials | |
☐ | Soliciting Material Pursuant to Rule 14a-12 |
TRANSDIGM GROUP INCORPORATED
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box)all boxes that apply):
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Notice is hereby given that the annual meeting of stockholders of TransDigm Group Incorporated, a Delaware corporation, (the “Company”), will be held at 1301 East Ninth Street, Suite 3000, Cleveland, Ohio 44114, on Monday, June 29, 2020,Tuesday, July 12, 2022, at 9:00 a.m., Eastern time, for the following purposes:
1. | To elect |
2. | To ratify the selection of Ernst & Young LLP as TransDigm’s independent registered public accounting firm for TransDigm’s fiscal year ending September 30, 2022; |
3. | To conduct an advisory vote (“say on pay”) on compensation paid to |
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To transact such other business as may properly come before the meeting. |
Only stockholders of record at the close of business on May 4, 202018, 2022 will be entitled to notice of and to vote at the meeting or any adjournment of the meeting. Depending on concerns relating to COVID-19, we might hold a Virtual Annual Meeting instead of holding the meeting in person in Cleveland. The Company would publicly announce a determination to hold a Virtual Annual Meeting in a press release available at www.transdigm.com as soon as practicable before the meeting. In that event, the 2020 Annual Meeting of Stockholders would be conducted solely virtually, on the above date and time, via live audio webcast. You or your proxyholder could participate and vote using your 16-digit Control number by visiting www.virtualshareholdermeeting.com/TDG2020, but only if the meeting is not held in person in Cleveland.
Your vote is important. Whether or not you plan to attend the annual meeting, please vote on the Internet, by phone or by completing and returning the enclosed proxy card.
By order of the Board of Directors,
Halle Fine TerrionMartin
SSecretaryecretary
May 18, 2020June 1, 2022
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDERS MEETING TO BE HELD ON JUNE 29, 2020.JULY 12, 2022.
The Proxy Statement and Proxy Card are available at
http://www.transdigm.com/investor-relations/annual-proxy/annual-proxy
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
To Be Held July 12, 2022
ANNUAL MEETING OF STOCKHOLDERS
To Be Held June 29, 2020
The Company’s Board of Directors is sending you this proxy statement to ask for your vote as a stockholder of TransDigm Group Incorporated (the “Company”) on mattersThis summary highlights the proposals to be voted on at the upcoming annual meetingacted upon, as well as selected executive compensation and corporate governance information described in more detail in this Proxy Statement.
2022 Annual Meeting of stockholders. The meeting will be held at 1301 East Ninth Street, Suite 3000, Cleveland, Ohio 44114, on Monday, June 29, 2020, at 9:00 a.m., Eastern time. The Company is mailing this proxy statement and the accompanying notice of meeting and proxy form, along with the Company’s Annual Report to Stockholders on or about May 18, 2020.
What is the purpose of
Meeting site: 1301 East Ninth Street, Suite 3000 Cleveland, Ohio 44114 | Date and time: Tuesday, July 12, 2022 9:00 a.m., Eastern time |
The record date for the annual meeting of stockholders?
The purpose of the annual meeting of stockholders is to vote on matters outlined in the accompanying notice of meeting, including the election of 12 directors, an advisory vote on executive compensation, the ratification of the Audit Committee’s selection of the Company’s independent accountants, and a stockholder proposal regarding greenhouse gas emissions. We are not aware of any other matter that will be presented for your vote at the meeting.
When and where is the meeting?
The meeting will be held at 1301 East Ninth Street, Suite 3000, Cleveland, Ohio 44114, on Monday, June 29, 2020, at 9:00 a.m., Eastern time. For directions to the meeting, call Investor Relationsat (216) 706-2945.
Could emerging developments regarding coronavirus affect the Company’s ability to hold an in-person meeting?
We are monitoring the coronavirus situation. If we determine that holding an in-person meeting is inadvisable or in conflict with Ohio executive orders, the Company may decide to instead hold a Virtual Annual Meeting. If we decide to use this format, we will make a public announcement as soon as practicable prior to the meeting. In such event, to attend and participate in the Virtual Annual Meeting, stockholders will need to access the live audio webcast of the meeting. To do so, stockholders of record will need to visit www.virtualshareholdermeeting.com/TDG2020 and use their 16-digit control number provided with this proxy statement to login and beneficial owners will need to follow the instructions provided by the broker, bank or other nominee that holds their shares. Further instructions on how to attend, participate in and vote at the Virtual Annual Meeting will be available at www.virtualshareholdermeeting.com/TDG2020.Please note you will only be able to participate in the meeting using this website if the Company decides to use a virtual annual meeting instead of holding an in-person meeting in Cleveland, Ohio.
Who can attend the meeting?
Only stockholders as of the record date, or their duly appointed proxies, may attend the meeting. If you hold your shares in “street name” (that is, through a broker or other nominee), your name does not appear in the Company’s records, so you will need to bring a copy of your brokerage statement reflecting your ownership of shares of common stock as of the record date.
Who is entitled to vote?
May 18, 2022. Only stockholders of record atas of the close of business on the recordthis date May 4, 2020, are entitled to receive notice of the meeting and to vote the shares of common stock that they held on the record
date at the meeting, or any postponement or adjournment of the meeting. Each outstanding share of common stock entitles its holder to cast one vote on each matter to be voted on. As of the record date, the Company had outstanding 54,072,319 shares of common stock.
How do I vote by proxy?
Whether or not you plan to attend the annual meeting, please vote on the Internet, by phone or by completing and returning the enclosed proxy card.
Voting by Mail. If you are a stockholder of record, you may vote by signing, dating and returning your proxy card in the enclosed prepaid envelope. If you hold shares in street name, you should complete, sign and date the voting instruction card provided to you by your broker or nominee. The proxy holders will vote your shares in accordance with your directions. If you sign the proxy form but do not make specific choices, your proxy will vote your shares as recommended by the Board of Directors to elect the director nominees listed in “Election of Directors,” in favor of the proposal to approve the compensation paid to the Company’s named executive officers, in favor of ratification of the selection of Ernst & Young as the Company’s independent accountants and against the stockholder proposal. If any other matter is presented, your proxy will vote in accordance with his best judgment. As of the date of this proxy statement, we are not aware of other matters to be acted on at the annual meeting other than those matters described in this proxy statement.
Voting on the Internet or by Telephone. If you are a stockholder of record, detailed instructions for Internet and telephone voting are attached to your proxy card. Your Internet or telephone vote authorizes the proxy holders to vote your shares in the same manner as if you signed and returned your proxy card by mail. If you are a stockholder of record and you vote on the Internet or by telephone, your vote must be received by 11:59 p.m. Eastern Time on June 28, 2020; you should not return your proxy card.
May I revoke my proxy?
If you give a proxy, you may revoke it at any time before it is exercised by giving written notice to the Company at its principal executive offices located at 1301 East Ninth Street, Suite 3000, Cleveland, Ohio 44114, or by giving notice to the Company in open meeting. Your presence at the annual meeting, without any further action on your part, will not revoke your previously granted proxy.
What constitutes a quorum?
The presence at the annual meeting, either in person or by proxy, of the holders of a majority of the shares of common stock outstanding on the record date and entitled to vote will represent a quorum permitting the conduct of business at the meeting. Proxies received by the Company marked as abstentions orbroker non-votes will be included in the calculation of the number of shares considered to be present at the meeting.
What is a“broker non-vote”?
Under NYSE rules, banks, brokerage firms and other nominees may use their discretion to vote “uninstructed” shares (i.e., shares held of record by banks, brokerage firms or other nominees but with respect to which the beneficial owner of such shares has not provided instructions on how to vote on a particular proposal) with respect to matters that are considered to be “routine,” but not withrespect to “non-routine” matters. “Non-routine” matters are matters that may substantially affect the rights or privileges of stockholders, including matters related to executive compensation, elections of directors or authorizing the implementation of any equity compensation plan. A“broker non-vote” occurs on an item when (i) a broker, nominee or intermediary has discretionary authority to vote on one or more proposals to be voted on at a meeting of stockholders, but is not permitted to vote on other proposals without instructions from the beneficial owner of the shares and (ii) the beneficial owner fails to provide the broker, nominee or intermediary with such instructions.
What vote is required to approve each proposal assuming that a quorum is present at the Annual Meeting?
The 12 nominees receiving the greatest number of votes ‘FOR’ election will be elected as directors. If you do not vote for a particular director nominee, or if you indicate ‘WITHHOLD AUTHORITY’ for a particular nominee on your proxy form, your vote will not count either for or against the nominee. If your shares are held in “street name” by a broker or nominee indicating on a proxy that it does not have authority to vote on this or any other proposal, this will result in a“broker non-vote,” which will not count as a vote for or a vote against any of the nominees.
The approval of executive compensation is an advisory vote; however, the Board of Directors and the Compensation Committee will consider the affirmative vote of a majority of the shares present in person or by proxy and entitled to vote on the proposal as approval of the compensation paid to the Company’s named executive officers.Broker non-votes will not have a positive or negative effect on the outcome of this proposal. Abstentions will have the same effect as a vote against the proposal.
Although the Audit Committee may select the Company’s independent accountants without stockholder approval, the Audit Committee will consider the affirmative vote of a majority of the shares present in person or by proxy and entitled to vote on the proposal to be a ratification by the stockholders of the selection of Ernst & Young LLP as the Company’s independent accountants. Abstentions will have the same effect as a vote against the proposal. Ratification of the Audit Committee’s selection of the Company’s independent accountants is a “routine” matter so there should be no broker non-votes.
The approval of the stockholder proposal requires the affirmative vote of the majority of the shares present in person or by proxy and entitled to vote on the proposal. Brokernon-votes will not have a positive or negative effect on the outcome of this proposal. Abstentions will have the same effect as a vote against the proposal.
Who is soliciting my proxy?
This solicitation of proxies is made by and on behalf of the Company’s Board of Directors. The Company will bear the cost of the solicitation of proxies. In addition to the solicitation of proxies by mail, regular employees of the Company and its subsidiaries may solicit proxies by telephone, facsimile or email. In addition, we have retained Alliance Advisors, LLC, 200 Broadacres Drive, 3rd Floor, Bloomfield, NJ 07003, at an estimated cost of $21,000, plus customary costs and expenses, to aid in the solicitation of proxies from brokers, institutional holders and individuals who own a large number of shares of common stock. The Company’s employees will not receive any additional compensation for their participation in the solicitation.
PROPOSAL ONE: ELECTION OF DIRECTORS
The Company’s amended and restated certificate of incorporation and bylaws provide that the number of directors shall be fixed from time to time by a resolution of the majority of its Board of Directors. The number of directors is currently fixed at 12. The directors are electedfor one-year terms.
Accordingly, at this annual meeting, the terms of all of the directors are expiring. Unless you specify otherwise, the shares of common stock represented by your proxy will be votedto re-elect all of the director nominees. The 12 nominees receiving the most votes will be elected as directors. If elected, each nominee will serve as a director fora one-year term and until his or her successor is duly elected and qualified.
The Board of Directors recommends a vote for the director nominees named below.
The following information is furnished with respect to each director nominee. Unless otherwise instructed, it is the intention of the persons named in the accompanying proxy to vote shares represented by properly executed proxies for the election of the nominees named below. If for any reason any of the nominees is not a candidate when the election occurs (which is not expected), the Board intends that proxies will be voted for the election of a substitute nominee designated by the Board as recommended by the Nominating and Corporate Governance Committee.
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1. Election of directors | FOR each of the nominees | |||
2. Ratification of appointment of independent registered public accounting firm | FOR | |||
3. Advisory vote to approve executive compensation
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You may vote online prior to the meeting by visiting www.proxyvote.com or calling 1-800-690-6903 and, in each case, entering the control number found in your notice of internet availability of proxy materials or, if you requested printed copies of the proxy materials, by phone or by mail. You may also vote in person at the annual meeting. For more detailed information, see the section entitled “Voting Procedures” on page 57.
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FY 2021 (1) | FY 2020 | |||||||||
Revenue | $4.8 billion |
- 6% | $5.1 billion | |||||||
Net Income from Continuing Operations | $681 million | +4% | $653 million | |||||||
GAAP Earnings Per Share | $10.41 per share | $8.14 per share | ||||||||
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$2.2 billion |
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-4% |
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$2.3 billion | ||||
Adjusted Net Income (2) | $708 million | -15% | $829 million | |||||||
Adjusted Earnings Per Share (3) | $12.13 per share |
| $14.47 per share |
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2021 Revenue compound annual growth rate (CAGR) 18% |
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The Nominating and Corporate Governance Committee recommends potential director candidates to the Board. In making its recommendations, consistent with the Committee’s charter, the Committee considers independence, as well as diversity, age, strategic and financial skills and experience, in the context of the needs of the Board as a whole. The Committee’s charter requires the selection of prospective Board members with personal and professional integrity who have demonstrated appropriate ability and judgment and whom the Committee believes will be effective, in conjunction with the other Board members, in collectively serving the long-term interests of the Company and its stockholders. There are no other stated criteria for director nominees, and the Committee considers other factors as it deems appropriate in the best interests of the Company and its stockholders. However, the Committee’s charter and the Company’s Corporate Governance Guidelines set forth the Board’s commitment to seek out qualified women and minorities to include in the pool from which Board nominees are chosen.
The Committee identifies nominees by first determining whether current Board members are willing to continue in service. If any Board member does not wish to continue to serve or if the Committee or Board decides not to nominate a memberfor re-election, then the Committee identifies the desired skills and experience in light of the criteria outlined above. The Committee then establishes potential director candidates from recommendations from the Board, senior management, stockholders and third parties. The Committee may retain a search consultant to supplement potential Board candidates if it deems it advisable.
As reflected on the previous pages, each Board member was chosen to be a director nominee because the Board and Committee believe that he or she demonstrated leadership experience, specific industry or manufacturing experience and experience with capital market transactions. Every director holds or has held executive positions in organizations that have provided him or her with experience in management and leadership development. The Board and the Committee believe that these skills and qualifications, combined with each director’s diverse background and ability to work in a positive and collegial fashion, benefit the Company and its stockholders by creating a strong and effective Board.
The Committee will consider stockholder suggestions concerning qualified candidates for election as directors. To recommend a prospective nominee for the Committee’s consideration, a stockholder must submit the candidate’s name and qualifications to the Company’s Secretary, Halle Fine Terrion, at the following address: TransDigm Group Incorporated, 1301 East Ninth Street, Suite 3000, Cleveland, Ohio 44114. The Committee has not established specific minimum qualifications a candidate must have in order to be recommended to the Board. However, in determining qualifications for new directors, the Committee will consider potential members’ independence, as well as diversity, age, skill and experience in the context of the Board’s needs.
Stockholders who wish to nominate directors directly for election at an annual meeting should do so in accordance with the procedures in our bylaws. In addition, the bylaws provide proxy access to eligible stockholders. The proxy access bylaw provides that a stockholder, or group of up to 20 stockholders, that owns 3% or more of the Company’s outstanding common stock continuously for at least three years may submit director nominees for the greater of two directors or 20% of the Board seats provided that the stockholder and nominees satisfy the requirements specified in our bylaws. See “STOCKHOLDER PROPOSALS FOR 2021 MEETING” for more information about the procedures for direct nominations and proxy access.
OTHER INFORMATION REGARDING THE BOARD OF DIRECTORS
Messrs. Howley and Stein, the only directors who are also employees of the Company, do not receive any director fees.
Compensationfor non-employee directors for 2019 was as follows:
An annual retainer fee of $60,000, with such fee being paid, at the option of each director, either in cash or shares of the Company’s common stock, paid semi-annually in arrears. No additional Board or committee meeting fees were paid.
An additional retainer of $15,000 to the chairman of the Audit Committee, paid semi-annually in arrears.
An additional retainer of $5,000 to the chairmen of the Compensation and Nominating and Governance Committees, paid semi-annually in arrears.
In addition, every two years, the Company makes a grant of stock options to each outside director. The grant has been valued at $300,000 on a Black Scholes basis and covered compensation for two fiscal years, granted on the same terms and conditions as those granted to Company employees, including vesting over five years. In fiscal 2018, all the outside directors (other than Ms. Santana, who received a grant at the beginning of fiscal 2019, which vests over four years) received such a grant for compensation in fiscal 2018 and 2019. The terms of the options are discussed in greater detail under “Executive Compensation – Equity Based Incentives–Options.” Non-employee directors must maintain
equity in the Company (i.e., stock orvested in-the-money options) equal to at least $250,000 (with a grace period to reach such limit). The following table sets forth the compensation paid to theCompany’s non-employee directors during fiscal 2019.
Name
| Fees Earned or Paid in Cash ($) (1)
| Stock Awards ($)(1)
| Option Awards ($)
| All Other Compensation ($) (2)
| Total ($)
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David Barr | 459 | 59,541 | — | 56,400 | 116,400 | |||||
William Dries | 30,370 | 29,630 | — | 401,920 | 461,920 | |||||
Mervin Dunn | 5,459 | 59,541 | — | 311,920 | 376,920 | |||||
Michael S. Graff | 5,459 | 59,541 | — | 83,680 | 148,680 | |||||
Sean P. Hennessy | 45,089 | 29,911 | — | 311,920 | 386,920 | |||||
Raymond Laubenthal | 459 | 59,541 | — | 56,400 | 116,400 | |||||
Gary McCullough | 459 | 59,541 | — | 56,400 | 116,400 | |||||
Michele Santana | 459 | 59,541 | 237,889 | 17,250 | 315,139 | |||||
Robert J. Small | 60,000 | — | — | 476,920 | 536,920 | |||||
John Staer | 60,000 | — | — | 284,920 | 344,920 | |||||
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(1) | Results in FY 2021 continued to be negatively impacted by the |
(2) | EBITDA As Defined, Adjusted Net Income and Adjusted Earnings Per Share are all non-GAAP financial measures. See the appendix to the 2021 10-K accompanying this proxy statement for a historical reconciliation of EBITDA As Defined to Net Income and Adjusted Net Income. |
(3) | Adjusted Earnings Per Share is calculated by taking TransDigm’s Adjusted Net Income and dividing it by the Total Shares for Basic and Diluted Earnings Per Share. Total Shares for Basic and Diluted Earnings Per Share are disclosed in the 2021 10-K accompanying this Proxy Statement. |
Amidst another year of challenging commercial aerospace market conditions given the ongoing pandemic during fiscal 2021, TransDigm’s management team remained committed to our operating strategy and focused on those things that were under our control including careful management of our cost structure. This disciplined focus, allowed us to continue building value for TransDigm’s investors and all other stakeholders. We were able to achieve an EBITDA As Defined margin of 45.6% for the full year fiscal 2021. The fourth quarter of fiscal 2021 achieved an EBITDA As Defined margin of 49.7%, which is nearing pre-pandemic EBITDA As Defined margin highs. Throughout fiscal 2021, we had strong operating cash flow generation. We closed fiscal 2021 with over $4.7 billion of cash.
Management’s expert execution allowed us to have the financial flexibility to focus on effective capital allocation through the purchase of Cobham Aero Connectivity (“CAC”) for $965 million in January 2021. CAC expands the Company’s platform of unique proprietary content with significant aftermarket exposure for the aerospace and defense industry. Since its acquisition, the CAC integration has progressed well. The Company also had strategic divestitures in fiscal 2021 to continue optimizing our portfolio. The businesses divested did not fit well with the Company’s long-term strategy and included Avista Inc., Racal Acoustics, Technical Airborne Components, ScioTeq and TREALITY Simulation Visual Systems. The acquisition of CAC and the strategic divestures in fiscal 2021 will help us to continue delivering the private equity-like returns our investors have come to expect from investment in our stock.
Executive Compensation Program
Our executive compensation program is designed with policies and practices and clear guiding principles that align the compensation of our named executive officers with our stockholders’ interests. While the overall design of the program has been fairly consistent, we have made a number of changes (highlighted below) in the last year aimed to respond to investor feedback.
Annual Base Salary | Fixed element of annual compensation • Modest increases to annual base salary in 2021 • In 2021, our Executive Chairman and Vice Chairman (both of whom have since retired) were paid their annual salary in stock options instead of cash | |
Annual Cash Incentive | Short-term cash incentive with variable payout opportunities. • Payout criteria for 2021 was based on EBITDA and EBITDA margin ✓ As promised, for 2022 and beyond, we have eliminated overlapping performance metrics between the annual cash incentive and long-term equity incentive | |
Long-Term Equity Awards | Long-term equity incentives in the form of performance-based stock options with multi-year vesting schedules • No change in payout criteria for options granted in fiscal 2017-2019. • Payout criteria for options granted in 2020-21 and vesting in 2021 was based on EBITDA and EBITDA margin, in light of the impact of the COVID-19 pandemic. • No discretionary vesting in 2021. ✓The Compensation Committee has adopted a policy that it will not use discretion in vesting performance-based options in the future. ✓The Compensation Committee has adopted a policy that it will not make discretionary amendments to any then current-year performance targets in the future. ✓For 2022 and beyond, all performance vesting has returned to the original annual operating performance (AOP criteria) (including for options granted in 2020-21) ✓For options granted in 2020-22, a cap on carryforward and carrybacks implemented ✓Starting in fiscal 2021, alternative market vesting eliminated |
Dividend Equivalents | Dividend equivalents paid on vested options ✓For future dividends, directors (including the Chief Executive Officer) will receive dividends only by means of adjustment of exercise price of options • Dividend equivalents, in cash for non-directors and as reduction in exercise price for directors, is permitted by stockholder-approved option plans. | |
Chairman Transition | In 2021 our Executive Chairman transitioned to non-executive Chair. • In connection therewith, we terminated his employment agreement and issued a one-time grant of options in lieu thereof in exchange for his service as Chair through 2024. |
For a detailed discussion of our executive compensation program, see the section entitled “Executive Compensation” beginning on page 23.
Corporate Governance
Responsible Stewardship
TransDigm’s Board and governance structure is designed to foster principled actions, informed and effective decision-making, and appropriate monitoring of compliance and performance, assuring that the long-term interests of stockholders are being served. Directors are expected to take a proactive approach to their positions to ensure that TransDigm is committed to business success through the maintenance of high standards of responsibility and ethics.
Please see our 2021 Stakeholder Report located at www.transdigm.com/investor-relations/corporate-governance/ for more information about our environmental, social and governance practices.
Selected Areas of Board and Committee Oversight in 2021
Audit Committee | Compensation Committee | Nominating & Corporate Governance Committee | Full Board of Directors | |||||
Corporate Strategy | ● | |||||||
Enterprise Risk Management | ● | ● | ||||||
Cybersecurity | ● | ● | ||||||
Legal and Regulatory Compliance | ● | ● | ||||||
Environment | ● | ● | ||||||
Diversity | ● | ● | ||||||
Succession Planning | ● | ● | ● | |||||
COVID Impact | ● | ● | ● | |||||
Governance Issues | ● | ● |
Board Committees and MeetingsCORPORATE GOVERNANCE
This section describes the role and structure of TransDigm’s Board of Directors and our corporate governance framework.
Role of the Board Meetingsof Directors
TransDigm’s Board oversees the Chief Executive Officer and other senior management in the competent and ethical operation of TransDigm and ensures that the long-term interests of stockholders are being served. To satisfy the Board’s duties, directors are expected to take a proactive approach to their positions to ensure that TransDigm is committed to business success and high standards of responsibility and ethics.
TransDigm’s key governance documents, including our Corporate Governance Guidelines, are available at www.transdigm.com/investor-relations/corporate-governance. The Board held six meetingsmet seven times during 2021. In fiscal 2021, independent directors met in fiscal 2019.executive session after each regularly scheduled Board meeting. Each directormember of the Board who served during 2021 attended or participated in 75% or more than 75% of the aggregate of the total number of meetings of the Board and committeeseach committee of the Board on which such member served during 2021, except that Mr. Dunn attended less than 75% of the meetings. Mr. Dunn missed one Board meeting and two committee meetings as a result of a medical emergency that occurred on the date of the committee meetings and after he or she servedhad already traveled to Cleveland for the meetings; he was still in fiscal 2019. the hospital for the Board meeting the following day. In addition, Mr. Dunn missed two telephonic meetings relating to TransDigm’s potential acquisition of Meggitt plc that were called on short notice.
The Board does not hold a meeting on the date of the Company’sour annual stockholder meeting and the Company haswe have not established a policy regarding director attendance at the stockholder meeting. Two directors attended the 20192021 annual stockholder meeting. After each meeting of the
Board, non-management and independent directors meet independentlyComposition of the CEOBoard and its Committees
The Board believes that its current leadership structure, in which the roles of Chairman and CEO are separated, best serves the Board’s ability to carry out its roles and responsibilities on behalf of TransDigm’s stockholders, including its oversight of management. The Board also believes that the current structure allows our CEO to focus on managing TransDigm, while leveraging our Chairman’s experience with respect to capital allocation, acquisitions and the strategic vision and culture of TransDigm and to drive accountability at the Board level. The Board has determined that all Board members, other than Messrs. Stein and Howley, are independent directors meet independently. In fiscalunder applicable rules of the New York Stock Exchange (“NYSE”).
TransDigm’s Board has a standing Audit Committee, Compensation Committee, Nominating & Corporate Governance Committee and Executive Committee. The Board has determined that all members of the Audit Committee, Compensation Committee and Nominating & Corporate Governance Committee are independent under applicable NYSE and Securities and Exchange Commission (“SEC”) rules for committee memberships, and that each member of the Audit Committee also meets the additional independence criteria set forth in Rule 2019, non-management10A-3(b)(1) directors and independent directors met in executive session after each regularly scheduled Board meeting.under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Each committee operates under a written charter adopted by the Board, Committees
which is available at www.transdigm.com/investor-relations/corporate-governance/. The Board of Directors has an Executive Committee, a Nominating and Corporate Governance Committee, an Audit Committee and a Compensation Committee. The memberscurrent composition of the Board and its committees areis as follows:
Audit Committee | Compensation Committee | ||||||
Nominating & Corporate Governance Committee | Executive Committee | Independent | # of Other Public Company Boards | ||||
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Details regarding the responsibilities and meetings of the Nominating & Corporate Governance, Audit and Compensation Committees are set forth below.
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Gary E. McCullough | ● | ● | 1 | |||||||||
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Robert Small | ● | ● | ● | 0 | ||||||||
John Staer | ● | ● | ● | 0 | ||||||||
Kevin Stein, President and CEO | 0 |
Chair
The Audit Committee oversees issues regarding accounting and financial reporting processes and audits of TransDigm’s financial statements; assists the Board in monitoring the integrity of TransDigm’s financial statements, compliance with legal and regulatory requirements, independent auditor’s qualifications and independence and the performance of TransDigm’s internal audit function and independent auditors; is responsible for the appointment, compensation, retention and oversight of the work of TransDigm’s independent auditors; and provides a forum for consideration of matters relating to audit issues, enterprise risk management and cybersecurity. Each Audit Committee member is independent under NYSE listing standards and as such term is defined in Rule 10A-3(b)(1). The Board has also determined that Mr. Hennessy, Ms. Santana and Ms. Cronin each qualify as an “audit committee financial expert”. The Audit Committee met eight times during 2021.
The Compensation Committee discharges the Board’s responsibilities relating to compensation of TransDigm executives; oversees TransDigm’s compensation and employee benefit plans and practices; and has sole discretion concerning administration of TransDigm’s stock option plans, including selection of individuals to receive awards, types of awards, the terms and conditions of the awards and the time at which awards will be granted, other than awards to directors, which are approved by the full Board. For a description of the Compensation Committee’s processes and procedures, including the roles of its independent compensation consultant and the CEO in support of the Compensation Committee’s decision-making process, see the section entitled “Compensation Discussion and Analysis” beginning on page 23. Each Committee member is independent under NYSE listing standards, and a “non-employee director” as defined in Section 16(b) of the Securities Exchange Act of 1934. In determining independence, the Board affirmatively determined that none of the Compensation Committee members has a relationship with TransDigm that is material to his ability to be independent from management in connection with his duties on the Committee. The Compensation Committee met six times during 2021.
Nominating & Corporate Governance Committee
The Nominating & Corporate Governance Committee’s duties and responsibilities include overseeing and assisting the Board in identifying and recommending nominees for election as directors; recommending to the Board qualifications for committee membership, structure and operation; recommending to the Board directors to serve on each committee; developing and recommending to the Board corporate governance policies and procedures; providing oversight with respect to corporate governance; leading the Board in its annual performance review; overseeing TransDigm’s succession planning; and overseeing TransDigm’s environmental, social and governance initiatives. Each Nominating & Corporate Governance Committee member is independent under NYSE listing standards. The Nominating & Corporate Governance Committee met four times during 2021.
In accordance with its charter and TransDigm’s Corporate Governance Guidelines, the Nominating & Corporate Governance Committee has evaluated and recommended to the full Board each of the nominees named in this Proxy Statement for election to the Board.
The Executive Committee possesses the power of the Board of Directors during intervals between Board meetings. The Executive Committee held no formal meetings during fiscal 2019, although it did act by unanimous written consent.2021.
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Corporate Governance Policies and Practices
TransDigm’s governance framework is designed to foster principled actions, informed and effective decision-making, and appropriate monitoring of compliance and performance.
Annual director elections | All directors are elected annually for a one-year term | |
Retirement policy | Directors are required to retire from the Board when they reach age 75 subject to waiver by the Board upon the recommendation of the Nominating & Corporate Governance Committee | |
Proxy access | Up to 20 stockholders owning at least 3% of shares continuously for three years may nominate up to two directors | |
Separation of Chair and CEO roles | We have a separate Chairman and CEO | |
Prohibitions on hedging, pledging and short | We prohibit short sales, transactions in derivatives, hedging and pledging of TransDigm securities by all directors and employees | |
Stock ownership guidelines | We have robust equity ownership guidelines for our directors, officers and management employees | |
Succession planning | Our Board regularly reviews executive succession planning | |
Annual board and committee self-evaluations | Our Board and committees conduct annual performance evaluations |
Board Oversight of Risk Management
The Board believes that evaluating the executive team’s management of the chartersrisks confronting TransDigm is one of its most important areas of oversight. In carrying out this responsibility, the Board is assisted by each of its committees that considers risks within its areas of responsibility and apprises the full Board of any significant risks and management’s response to those risks. The Board has retained primary oversight of certain areas of risk and management’s response, including corporate strategy. While the Board and its committees exercise oversight of risk management, management is responsible for implementing and supervising day-to-day risk management processes and reporting to the Board and its committees.
Audit Committee’s Role in Oversight of Risk Management
The Audit Committee is charged with the primary responsibility for overseeing enterprise risk management. In accordance with this responsibility, the Audit Committee reviews and discusses with management its program to identify, assess, monitor, manage, and mitigate TransDigm’s significant business risks, including financial, operational, data security, business continuity, tax, legal and regulatory compliance, and reputational risks.
Compensation Committee’s Role in Oversight of Risk Management
The Compensation Committee has primary responsibility to oversee risks related to our compensation programs. In establishing and reviewing our compensation programs, the Compensation Committee evaluated whether the design and operation of our compensation programs or policies encourage our executive officers or our employees to take unnecessary or excessive risks. The Compensation Committee concluded that TransDigm’s compensation programs and policies provide an effective and appropriate mix of incentives to help ensure performance is focused on long-term stockholder value creation, and do not encourage short-term risk taking at the expense of long-term results or create risks that are reasonably likely to have a material adverse effect on TransDigm.
Annual Board and Committee Self-Evaluations
The Board conducts an annual self-evaluation that is intended to determine whether the Board and its committees are functioning effectively. In addition, each of the Audit, Compensation and Nominating & Corporate Governance Committee, Audit CommitteeCommittees conducts its own annual self-evaluation and Compensation Committee are posted onreports the Company’s website, www.transdigm.com, under “Investor Relations—Corporate Governance” and are available to any stockholder in writing upon requestresults to the Company.
Communication withBoard. Discussion topics include, among others, Board and committee composition and leadership, meeting effectiveness, appropriateness of Directors
Any stockholder or other interested party who desiresagenda topics and information, access to communicate with any of the members of the Board of Directors may do so electronically by sending an email to ir@transdigm.com. Alternatively, an individual may communicate with the members of the Board by writing to the Company, c/o Investor Relations, TransDigm Group Incorporated, 1301 East Ninth Street, Suite 3000, Cleveland, Ohio 44114. Communications may be addressed to an individual director, a Board committee, the independent directors or the full Board of Directors. Communications received by Investor Relations will be distributed to the appropriate directors. Solicitations for the sale of merchandise, publications or services of any kind will not be forwarded to the directors.
2019 CORPORATE RESPONSIBILITY REPORT
Please reference the Corporate Responsibility section of our website for additional details at www.transdigm.com/about-us/corporate-responsibility/.management and outside auditors, and succession planning.
CodesCode of Ethics & Whistleblower Policy
We are committed to integrity and ethical behavior and have adopted a Code of Ethics for Senior Financial Officers, a Code of Business Conduct and Ethics and a Whistleblower Policy. Each of these documents is posted on the Company’sTransDigm’s website, www.transdigm.com, under “Investor Relations—Corporate Governance” and is available to any stockholder in writing upon request to the Company.TransDigm.
Code of Business Conduct and Ethics.We have a Code of Business Conduct and Ethics which was amended in 2019, that reflects the Company’sTransDigm’s commitment to honesty, integrity and the ethical behavior of Companyour employees, officers and directors. The Code of Business Conduct and Ethics governs the actions, interactions and working relationships of Companyour employees, officers and directors with customers, fellow employees, competitors, government and self-regulatory agencies, investors, the public, the media, and anyone else with whom the Company haswe have contact. The Code of Business Conduct and Ethics sets forth the expectation that employees, officers and directors will conduct business legally and addresses conflict of interest situations, international trade compliance, protection and use of CompanyTransDigm assets, corporate opportunities, fair dealing, confidentiality, human rights and reporting of illegal or unethical behavior. The Code of Business Conduct and Ethics expressly prohibits paying, offering, accepting or soliciting bribes in any form, directly or indirectly. Only the Board or the Nominating and& Corporate Governance Committee may waive a provision of the Code of Business Conduct and Ethics with respect to an executive officer or director. Any such waiver will be promptly disclosed on the Company’sour website and as otherwise required by rule or regulation. There were no such waivers in 2019.2021.
Code of Ethics for Senior Financial Officers.We also have a Code of Ethics for Senior Financial Officers that applies to theincludes additional obligations for our senior financial officers (which includes our president and chief executive officer, chief operating officer, chief financial officer, chief accounting officer, division presidents, controllers,vice president of finance, treasurer, and director of internal audit, (collectively, “Senior Financial Officers”). This code requires Senior Financial Officers to: act with honestygeneral counsel, operating unit presidents and integrity; endeavor to provide information that is full, fair, accurate, timely and understandable in all reports and documents that the Company files with, or submits to, the SEC and other public filings or communications made by the Company; endeavor to comply with all laws, rules and regulationsoperating unit vice presidents of federal, state and local governments and all applicable private or public regulatory agencies; not knowingly or recklessly misrepresent material facts or allow their independent judgment to be compromised; not use for personal advantage confidential information acquired in the course of their employment; proactively promote ethical behavior among peers and subordinates in the workplace; and promptly report any violation or suspected violation of the code to the Audit Committee. finance).
Only the Audit Committee or the Board may waive a provision of the code with respect to a Senior Financial Officer. Any such waiver, or any amendment to the code, will be promptly disclosed on the Company’sour website and as otherwise required by rule or regulation. There were no such waivers or amendments in 2019.2021.
Human Rights.We are committed to supporting fundamental human rights and believe in the dignity and worth of all individuals. As such, we treat all people around the world with fairness and respect. We do not allow the use of child, slave or forced labor or human trafficking in our business activities. We condemn any degrading treatment of individuals and are committed to providing safe working conditions.
Whistleblower Policy.We encourage employees to disclose alleged wrongdoing that may adversely impact the Company,TransDigm, its customers or stockholders, fellow employees or the public, without fear of retaliation. Our Code of Ethics and Whistleblower Policy set forth procedures for reporting alleged financialand non-financial wrongdoing on a confidential and anonymous basis, a process for investigating reported acts of alleged wrongdoing and a policyof non-retaliation. Reports may be made directly to a supervisor, human resources, operating unit management, executive management, the Chief Financial Officer or Chief Compliance Officer, Audit Committee or Convercent, a third-party service retained on behalf of the Audit Committee. The Audit Committee chair receives notices of complaints and oversees investigation of complaints of financial wrongdoing.
We continually assess our ethics program, including training opportunities, and modify as appropriate.
Our managers and supervisors play an important role in reinforcing our policies and commitment to ethics by setting the example of ethical conduct and providing employees with continuous training, education and resources that support the policies. Employees are encouraged to speak up if they havecommunicate concerns and contact the identified ethics resource contacts.
Corporate Governance Guidelines
The Board of Directors has adopted Corporate Governance Guidelines, which guide it in the performance of its responsibilities to serve the best interests of the Company and its stockholders. A copy of the Corporate Governance Guidelines is posted on the Company’s website, www.transdigm.com, under “Investor Relations—Corporate Governance” and is available to any stockholder in writing upon request to the Company. The Board reviews the Corporate Governance Guidelines periodically.
Board Composition
Set forth below is further information about our Board of Directors.
The Board recently adopted a change to its Corporate Governance Guidelines. In connection therewith, a director is generally required to retire when he or she reaches age 75 or at the annual meeting following his or her 75th birthday. On the recommendation of the Nominating and Corporate Governance Committee, the Board may waive this requirement as to any director if it deems a waiver to be in the best interest of the Company.
Independence of Directors
Currently, all of the directors, other than Messrs. Howley and Stein, are “independent directors” within the meaning of the NYSE’s listing standards. In determining Mr. Laubenthal’s independence, the Board considered his former employmentTransactions with the Company. We do not have separate criteria for determining independence, different from the NYSE listing standards. The Board of Directors reviews periodically
the relationships that each director or nominee has with the Company (either directly or as a partner, stockholder or officer of an organization that has a relationship with the Company). Those directors or nominees whom the Board affirmatively determines have no material relationship with the Company (either directly or as a partner, stockholder or officer of an organization that has a relationship with the Company) that would preclude independence as specified in the listing standards of the NYSE will be considered independent.
Board Leadership Structure
The Board leadership structure is comprised of an Executive Chair who was formerly Chief Executive Officer. The Board believes that having an Executive Chairman who is a longstanding employee and leader of the Company is appropriate for the Company because it ensures that the Board focuses on important strategic objectives and understands challenges facing the Company inits day-to-day operations. This is part of the Company’s Chief Executive Officer transition and is balanced by the independence of the other directors and the role of the presiding director described below.
The Board uses a presiding director, who is an independent director that leads regularly scheduled executive sessions of thenon-management and independent directors. The Board designates the presiding director at each meeting on a rotating basis. The Board has discussed other structures but believes that given the quality of communication between the Executive Chair and the Board, the Board’s opportunity to interact directly with management, and the quality of robust discussion at the Board level, the current structure is appropriate for the Company.
Board Self-Evaluation
The Board and each of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee conduct a self-evaluation annually.
Board’s Role in Risk Management Oversight
The Board oversees the process of risk management. Management regularly communicates with the Board regarding the Company’s risk exposure and its efforts to monitor and mitigate such risks. Specifically, in addition to regular reporting to the Board regarding the Company’s litigation, compliance, acquisitions and known risks, the Company’s executive officers meet annually to discuss the material risks facing the Company and ways to mitigate those risks and then provides a summary of its findings to the Board and the Board reviews and discusses such risks at a regularly scheduled Board meeting.
Environmental Risks and Sustainability
Overview
The Company operates in a decentralized manner through 50 operating units with over 100 sites around the world. These operating units design and make components and small systems predominantly for aerospace and defense applications. The manufacturing process of these parts undertaken at our facilities involves typical manufacturing and assembly; we engage in little heavy manufacturing. We sell products primarily to original equipment manufacturers, sub-tier suppliers, distributors and end-users of aerospace and defense products. We typically rely on commercial shipping options, as opposed to company-owned vehicles, to ship our products because our customers are distributed around the world and shipping volumes tend to be small. Our Scope 1 emissions are believed to be low for these reasons.
We recognize, however, that pollution, natural resource scarcity and climate change are serious issues facing our industry. These issues require credible actions and global solutions. Therefore, the Company is adopting a more proactive approach to environmental matters. While the Company has historically embarked on activities to expand on its conservation efforts, additional actions and goals must be pursued. Our approach will continue to evolve as we look for opportunities to expand and obtain more visibility into the operating units’ sustainability efforts. Specifically, we have chosen to measure and report on our energy consumption as a baseline for 2020 in our 2021 proxy statement and will consider goals in relation thereto. We will also report on our water usage and will consider whether goals related thereto are appropriate. We have adopted other goals with respect to specific sustainability practices as well, as further described below.
Governance related to sustainability issues
In the ordinary course of the Company’s business, productivity decisions by the various operating units incorporate sustainability initiatives. Capital expenditure budgets are approved by the Board of Directors and productivity initiatives and capital expenditures are reported to the Board of Directors regularly. Beyond that, we are considering whether sustainability and climate issues are likely to present any material risk and/or opportunity for the Company and, in conjunction therewith, the Board of Directors will consider the role of the Board in overseeing climate-related issues and the scope of that oversight.
Our assessment of sustainability risks
At present, it is not clear how the climate will change in the future or what the response from regulatory agencies or customers will be. We are beginning the process of evaluating short-, medium- andlong-term risks related to climate change.
To date, we have identified “flight shaming” – by business jet or even commercial transport – as a potential risk. While it is a smaller part of our business, a decrease in business jet travel could have an impact on our business. Air passenger miles have decreased in some European countries in the last year. While there is no evidence that this is attributable to environmental activism, there is a sentiment among some analysts that this is the case. To the extent possible with our components, we work with commercial aircraft manufacturers as they work to mitigate this risk by developing more fuel efficient airplanes and planes that use alternative fuel sources.
As a whole, because our manufacturing facilities primarily engage in assembly and light manufacturing and because we do not maintain any transportation infrastructure, our emissions primarily fall into Scope 2 and Scope 3 emissions. Accordingly, we do not anticipate any material adverse impact from increased carbon regulation. Further, because of our wide portfolio of hundreds of thousands of products, we do not anticipate any material adverse impact from the reliance on a supplier or group of suppliers that may be subject to sustainability or climate risks.
Some of our manufacturing facilities are located in regions that may be impacted by severe weather events, such as increased storm frequency or severity in the Atlantic and fires in hotter drier climates. These could result in potential damage to our physical assets as well as disruptions in manufacturing activities. Some of our manufacturing facilities are located in areas that may be at risk due to rising sea levels. Moreover, some of our manufacturing facilities are located in areas that could experience decreased access to water due to climate issues.
Our corporate-driven sustainability initiatives in 2019 and projected 2020 measurements
The Company has conducted a high level survey of our manufacturing locations practices with regard to sustainability, climate issues and environmental, health and safety issues. While we believe we are taking several good measures for the environment, as detailed below, we
believe some increased direction or corporate oversight, along with the adoption of impact goals, would be prudent. Improvements in these areas are good business and reflect our strong environmental commitment.
We have goals to increase use of energy reduction infrastructure enhancements and to increase recycling. In addition, we have adopted a corporate-wide environmental policy. The policy specifically provides, among other things, that as a company we seek to manage energy consumption, conserve water, increase energy efficiencies, and manage waste and hazardous materials.
As stated above, we recognize that pollution, natural resource scarcity and climate change are serious issues that require credible actions and global solutions. However, our greenhouse gas emissions, while believed to be low, are not consistently measured by all manufacturing facilities in the ordinary course of their businesses. Therefore, we have chosen to measure and report on our energy consumption as a baseline for 2020 in our 2021 proxy statement and will consider goals in relation thereto. The Company will also report on its water usage and will consider whether goals related thereto are appropriate.
Our stewardship
We believe we are good stewards of the environment and contribute to our communities and sustainability and climate issues in several ways. Our operating units employ a variety of productivity measures that have positive sustainability impacts. These activities vary depending on several factors, including location and products manufactured. For instance, Nordisk Aviation Products obtains almost 100% of its power needs from hydropower because of its location in Norway. Some of our sites in warm climates with low humidity use evaporative cooling to cool their buildings, which emits less CO2and uses less power than air conditioners. Our decentralized structure enables our operating units to identify productivity measures that are tailored to their operations and have a positive impact on the environment. Other examples of our environmental contributions include:
Infrastructure improvements to reduce energy usage
Many of our facilities have replaced heating and/or air conditioning units with higher efficiency units and installed air compressor systems, as well as energy efficient manufacturing equipment.
Several of our facilities have also recently installed energy efficient windows, stucco coatings, improved insulation and/or programmable thermostats to reduce heating/cooling costs.
More than 80% of our operating units use LED lights in their facilities.
The majority of our business utilize motion-sensing lights to reduce energy usage.
Our businesses, directly or through their electricity providers, use a variety of renewable energy sources including hydropower, solar, nuclear, and wind power.
Other efforts to reduce energy usage include:
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We continuously look for opportunities to expand sustainable capacity by increasing energy efficiency and enhancing energy conservation through the incorporation of LED lighting, motion sensors, higher
efficiency air conditioning units, air compressor systems, energy efficient manufacturing equipment, energy storage, and other energy reduction efforts and we intend to monitor these improvements more closely and increase our conservation efforts.
Waste and water reduction efforts
Our businesses reduce waste through recycling. Nearly all of our operating units recycle metal. Over 80% recycle paper and cardboard. The majority of our businesses recycle plastic, used batteries, and used oil.
Our businesses use a variety of methods for managing and reducing waste streams including waste reduction programs and using more environmentally-friendly compounds in their manufacturing processes.
We are committed to minimizing our waste, with recent improvements including separating oil and water to eliminate oil waste, usinglow-phosphorus detergent to wash hardware, deploying activated carbon filtration in ventilation systems to reduce poisonous liquid and gas emission, and implementing a dust filtration system.
Some of our facilities have water reduction programs to aid in water conservation efforts.
Again, we intend to monitor these improvements more closely and increase our waste reduction efforts.
Our products in action
A number of our business units are engaged in efforts to reduce the weight of their products in order to enhance aircraft fuel efficiency.
We are committed to ensure the health and safety of our employees, customers and users of our products. We are committed to building, designing, maintaining, and operating our facilities to effectively manage process safety and other hazards, and to minimize process and product risks. We expect our business units to operate in a diligent and responsible manner. We also seek to empower and support our employees to make health and safety a priority and to prevent accidents and promote a safe environment. We expect personnel to report and communicate risks, potential hazards, incidents and near hits so that they can be investigated and appropriate action can be taken.
Quality Assurance and Innovation
As a supplier to the aerospace industry, quality, safety, and reliability are of utmost importance. We strive to provide products and services that meet or exceed our customers’ requirements for quality and reliability. All of our operating units are expected to comply with all applicable laws, regulations, and quality control standards.
We maintain a consistent focus on quality and innovation to benefit our customers. We invest in our business and the businesses that we acquire with clear objectives in mind to create significant stakeholder value: improving product quality and ensuringon-time delivery. Our operating units deliver on those objectives by innovating not just across their product lines, but in all aspects of the business – from manufacturing equipment and processes to supply chain infrastructure to operations. As we have grown and evolved over the past 26 years, that commitment to innovation and service to our customers has remained unwavering. Our businesses seek to deliver reliable,best-in-class products on time to our customers. Our company-wide culture of innovation makes it happen and drives our customers to continue to select us when new business opportunities arise.
Many of our operating units have obtained certifications, such as ISO 9001 and AS 9100, in furtherance of this objective. Our businesses strive to ensure the safety of their products through employee training and high inspection rates and monitoring and analysis of any quality concerns from their customers.
For more information surrounding our commitment to ensuring the quality of our products and services, please visit our business units’ webpages.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial ownership of Company common stock as of May 4, 2020 with respect to each person known to be a beneficial owner of more than five percent of the outstanding common stock.
Name and Address of Beneficial Holder
| Amount and Nature of Beneficial Ownership
| Percentage of Class(4)
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Capital International Investors(1) 11100 Santa Monica Boulevard, 16th Floor Los Angeles, CA 90071
| 5,593,511 | 10.34 | % | |||||
The Vanguard Group, Inc.(2) 100 Vanguard Blvd. Malvern, PA 19355 | 5,493,202 | 10.16 | % | |||||
BlackRock Inc.(3) 55 East 52nd Street New York, NY 10055
| 3,770,439 | 6.97 | % | |||||
Capital World Investors(4) 333 South Hope Street Los Angeles, CA 90071
| 2,834,900 | 5.24 | % |
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The following table sets forth information regarding the beneficial ownership of Company common stock as of May 4, 2020 with respect to each director and named executive officer of the Company and all directors and executive officers as a group. Except as indicated in the footnotes to this table and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock listed as beneficially owned by them. None of the shares held by directors or executive officers are pledged. The address for each individual listed below is c/o TransDigm Group Incorporated, 1301 East Ninth Street, Suite 3000, Cleveland, Ohio 44114.
Amount and Nature of Beneficially Ownership(1) | ||||||||||||||||
Beneficial Owner | Shares | Shares Subject to Options Currently Exercisable or Exercisable within 60 Days | Total Number of Shares | Percentage of Class | ||||||||||||
David Barr | 31,558 | 1,880 | 33,438 | * | ||||||||||||
William Dries | 2,316 | 12,278 | 14,594 | * | ||||||||||||
Mervin Dunn | 1,507 | 9,278 | 10,785 | * | ||||||||||||
Michael Graff(2) | 22,143 | 1,670 | 23,813 | * | ||||||||||||
Sean P. Hennessy | 31,814 | 9,278 | 41,092 | * | ||||||||||||
W. Nicholas Howley(3) | 26,735 | 988,066 | 1,014,801 | 1.84% | ||||||||||||
Raymond F. Laubenthal(4) | 276,132 | 21,880 | 278,012 | * | ||||||||||||
Gary E. McCullough | 597 | 1,880 | 2,477 | * | ||||||||||||
Michele Santana | 206 | 575 | 781 | * | ||||||||||||
Robert J. Small(5) | 2,171,975 | 9,278 | 2,181,253 | 4.03% | ||||||||||||
John Staer | 91 | 8,378 | 8,469 | * | ||||||||||||
Kevin Stein | 8,158 | 273,500 | 281,658 | * | ||||||||||||
Michael Lisman | 1,459 | 29,800 | 31,259 | * | ||||||||||||
Robert Henderson | 25,000 | 239,494 | 264,494 | * | ||||||||||||
Bernt Iversen | 5,010 | 229,934 | 234,944 | * | ||||||||||||
All directors and executive officers as a group (18 persons) (6)
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| 2,617,197
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| 1,963,039
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| 4,580,236
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSRelated Persons
The Board of Directors reviews and must approve all related party transactions. Proposed transactions between the CompanyTransDigm and related persons (as defined inRegulation S-K Item 404 under the Securities Act of 1933) are submitted to the full Board for consideration. The relationship of the parties and the terms of the proposed transaction are reviewed and discussed by the Board and the Board may approve or disapprove the CompanyTransDigm entering into the transaction. All non-de-minimis related party transactions, whether or not those transactions must be disclosed underRegulation S-K Item 404, applicable regulations, are approved by the Board pursuant to the policy.
Several of TransDigm’s Board members and executive officers serve as directors or executive officers of other organizations, including organizations with which TransDigm has commercial and charitable relationships. We do not believe that any director had a direct or indirect material interest in any such relationships during 2021 and through the date of this Proxy Statement.
TransDigm publicly discloses substantial information about our business across a number of important topics, including in our Stakeholder Report which details our commitments, programs, and progress on the environment, diversity, labor and human rights, and ethics. Our Stakeholder Report can be found at www.transdigm.com/investor-relations/corporate-governance.
We proactively engage with stockholders and other stakeholders throughout the year to learn their perspectives on significant issues, including company performance and strategy, corporate governance, executive compensation, and environmental, social, and governance topics. This engagement helps us better understand stockholder priorities and perspectives, gives us an opportunity to elaborate upon our initiatives and practices, and fosters constructive dialogue. We take feedback and insights from our engagement with stockholders and other stakeholders into consideration as we review and evolve our practices and disclosures, and further share them with our Board as appropriate.
Any matter intended for the Board, or for any individual member of the Board, should be directed to Investor Relations, TransDigm Group Incorporated, 1301 East Ninth Street, Suite 3000, Cleveland, Ohio 44114 or at ir@transdigm.com, with a request to forward the communication to the intended recipient. In general, any stockholder communication delivered to TransDigm for forwarding to Board members will be forwarded in accordance with the stockholder’s instructions. However, TransDigm reserves the right not to forward to Board members any abusive, threatening, or otherwise inappropriate materials or any solicitations of merchandise, publications or services of any kind. Information regarding the submission of complaints relating to our accounting, internal accounting controls, or auditing matters is available under our Whistleblower Policy at www.transdigm.com/investor-relations/corporate-governance.
This section describes the experience and qualifications of our Board members and how they are compensated.
TransDigm’s Board consists of a diverse group of highly qualified leaders in their respective fields. Most of our directors have senior leadership experience at major domestic and multinational companies. In these positions, they have gained significant and diverse management experience, including strategic and financial planning, mergers and acquisitions, capital allocation, public company financial reporting, compliance, risk management, and leadership development. They also have experience serving as executive officers, or on boards of directors and board committees, and have an understanding of corporate governance practices and trends. In addition, many of our directors have experience serving nonprofit and philanthropic institutions, and bring unique perspectives to the Board.
Each Board member was chosen to be a director nominee because the Nominating & Corporate Governance Committee and Board believe that he or she demonstrated leadership experience, specific industry or manufacturing experience and experience with capital market transactions. Every director holds or has held executive positions in organizations that have provided him or her with experience in management and leadership development. The Nominating & Corporate Governance Committee and the Board believe that these skills and qualifications, combined with each director’s diverse background and ability to work in a positive and collegial fashion, benefit TransDigm and its stockholders by creating a strong and effective Board.
The Nominating & Corporate Governance Committee recommends potential director candidates to the Board. The Nominating & Corporate Governance Committee identifies nominees by first determining whether current Board members are willing to continue in service. If any Board member does not wish to continue to serve or if the Nominating & Corporate Governance Committee or Board decides not to nominate a member for re-election, then the Nominating & Corporate Governance Committee initially identifies the desired skills and experience in light of the criteria outlined above. The Nominating & Corporate Governance Committee then establishes potential director candidates from recommendations from the Board, senior management, stockholders and third parties. The Nominating & Corporate Governance Committee may retain a search consultant to supplement potential Board candidates if it deems it advisable. In making its recommendations, consistent with the Nominating & Corporate Governance Committee’s charter, the Committee considers independence, character, ability to exercise sound judgment and demonstrated leadership, as well as diversity, age,
strategic and financial skills and experience, in the context of the needs of the Board as a whole. The Nominating & Corporate Governance Committee’s charter requires the selection of prospective Board members with personal and professional integrity who have demonstrated appropriate ability and judgment and whom the Committee believes will be effective, in conjunction with the other Board members, in collectively serving the long-term interests of TransDigm and its stockholders. There are no other stated criteria for director nominees. However, the Nominating & Corporate Governance Committee’s charter and our Corporate Governance Guidelines set forth the Board’s commitment to seek out qualified women and minorities to include in the pool from which Board nominees are chosen. In 2021, the Nominating & Corporate Governance Committee, with input from our independent directors, Chairman of the Board and CEO, identified Jane Cronin as a potential candidate and recommended her to the Board. Ms. Cronin was appointed to the Board in June 2021.
The Nominating & Corporate Governance Committee will consider stockholder suggestions concerning qualified candidates for election as directors. To recommend a prospective nominee for the Nominating & Corporate Governance Committee’s consideration, a stockholder must submit the candidate’s name and qualifications to TransDigm’s Secretary, Halle Martin, at the following address: TransDigm Group Incorporated, 1301 East Ninth Street, Suite 3000, Cleveland, Ohio 44114. The Nominating & Corporate Governance Committee has not established specific minimum qualifications a candidate must have in order to be recommended to the Board. However, in determining qualifications for new directors, the Nominating & Corporate Governance Committee will consider potential members’ independence, as well as diversity, age, skill and experience in the context of the Board’s needs as described above. Stockholders who wish to nominate directors directly for election at an annual meeting should do so in accordance with the procedures in our bylaws. In addition, the bylaws provide proxy access to eligible stockholders. The proxy access bylaw provides that a stockholder, or group of up to 20 stockholders, owning at least 3% of our outstanding common stock continuously for at least three years may submit director nominees for the greater of two directors or 20% of the Board seats provided that the stockholder and nominees satisfy the requirements specified in our bylaws. See “STOCKHOLDER PROPOSALS FOR 2023 MEETING” for more information about the procedures for direct nominations and proxy access.
Among our 11 nominees for election to the Board, two self-identify as women and one self-identifies as an individual from an underrepresented community.
The following biographies describe the skills, qualities, attributes, and experience of the nominees that led the Nominating & Corporate Governance Committee and the Board to determine that it is appropriate to nominate these directors for election to the Board. Mr. Laubenthal is not standing for re-election.
DAVID BARR NOMINATING & CORPORATE GOVERNANCE COMMITTEE David Barr, 58, has been a director since 2017. He also served as a director from 2003 – 2011. Mr. Barr is managing director of Bessemer Investors, a family owned private capital fund. Formerly Mr. Barr served as Managing Director of Warburg Pincus LLC, a private equity fund from 2001 – 2017. Through his private equity leadership experience, including as former Managing Director of Warburg Pincus LLC, as well as Co-Head of its Industrial and Business Services Team and member of its Executive Management Group, Mr. Barr brings a private equity philosophy to the Board consistent with TransDigm’s management approach. Mr. Barr also has extensive public company experience. OTHER CURRENT PUBLIC COMPANY DIRECTORSHIPS None SELECTED DIRECTORSHIPS AND MEMBERSHIPS Good Shepard Services President’s Council – Wesleyan University FORMER PUBLIC COMPANY DIRECTORSHIPS IN THE LAST FIVE YEARS Builders FirstSource, Inc., a Nasdaq listed supplier of building products and services, through December 31, 2020 ARAMARK Holdings Corp., an NYSE listed provider of food, facilities and uniform services, through February 2016. | JANE CRONIN AUDIT COMMITTEE* Jane Cronin, 54, has been a director since June 30, 2021. Ms. Cronin is Senior Vice President and Corporate Controller of Sherwin Williams Company, a manufacturer, developer, distributor and seller of paint, coatings and related products. Ms. Cronin has served in her current role since 2016. Prior to that, Ms. Cronin held roles of increasing responsibility at Sherwin Williams, including Vice President Internal Audit and Loss Prevention and Vice President – Controller, Diversified Brands division. Ms. Cronin was deemed to be valuable to the Board because of her status and experience as a current accounting officer of a large public company in the manufacturing industry and her experience with acquisition integration. Her service on the Board also provides increased diversity that the Board deems important. * Ms. Cronin joined the Audit Committee in October 2021 OTHER CURRENT PUBLIC COMPANY DIRECTORSHIPS None SELECTED DIRECTORSHIPS AND MEMBERSHIPS Providence House |
MERVIN DUNN COMPENSATION COMMITTEE NOMINATING & CORPORATE GOVERNANCE COMMITTEE* Mr. Dunn, 68, has been a director since 2009. Mr. Dunn has been an Operating Advisor of Clearlake Capital Group, a private investment firm, since 2013 and President and Chief Executive Officer of Merv Dunn Management & Consulting, LLC, a private management consulting company, since 2013. Formerly Mr. Dunn was Chief Executive Officer (2016 – 2017) and Co-Chairman of the Board (2013 – 2016) of Futuris Group of Companies Ltd, a privately held automotive supplier. Mr. Dunn is the retired Chief Executive Officer of Commercial Vehicle Group, Inc., a Nasdaq-listed supplier of systems for the commercial vehicle market, a role he held from 1999 – 2013. Mr. Dunn brings to the Board his extensive acquisition experience and experience with domestic and international management of an engineered product business, as well as his experience being the chief executive officer of a public company, all of which are useful to the Board. * Mr. Dunn served as Chair of the Nominating & Corporate Governance Committee until October 2021 OTHER CURRENT PUBLIC COMPANY DIRECTORSHIPS None | MICHAEL GRAFF COMPENSATION COMMITTEE, CHAIR Mr. Graff, 70, has been a director since 2003. Mr. Graff is a Senior Advisor at Warburg Pincus LLC, a private equity firm. Prior to 2020, he was a Managing Director of Warburg Pincus since 2003. Formerly he was President and Chief Operating Officer of Bombardier Aerospace, an aerospace manufacturer. Mr. Graff brings to the Board a knowledge of acquisitions and capital market transactions and significant prior public company board experience, both acquired through his positions with Warburg Pincus. Additionally, with his aerospace industry experience, and his previous management consulting background at McKinsey, Mr. Graff’s industry and management perspective is valuable to the Board. OTHER CURRENT PUBLIC COMPANY DIRECTORSHPIS None FORMER PUBLIC COMPANY DIRECTORSHIPS IN THE LAST FIVE YEARS Builders FirstSource, Inc., a Nasdaq-listed manufacturer and distributor, through July 2016 |
SEAN HENNESSY AUDIT COMMITTEE, CHAIR COMPENSATION COMMITTEE EXECUTIVE COMMITTEE Mr. Hennessy, 64, has served as a director since 2006. He is the retired Senior Vice President, Corporate Planning, Development & Administration of The Sherwin Williams Company, a manufacturer and distributor of coatings and related products, serving in that role from January 2017 – March 2018 in connection with the company’s integration of its Valspar acquisition. Prior to that Mr. Hennessy served as Chief Financial Officer of The Sherwin Williams Company from 2001 – 2016. He is a certified public accountant. As a certified public accountant and former chief financial officer of a public company engaged in manufacturing, Mr. Hennessy’s finance background and public company experience is valuable and critical for his service on the Board and as Chair of the Audit Committee. OTHER CURRENT PUBLIC COMPANY DIRECTORSHIPS Perimeter Solutions, SA, an NYSE-listed manufacturer of highly engineered forest fire retardant and suppressant chemicals and equipment and oil additives, from November 2021 SELECTED DIRECTORSHIPS AND MEMBERSHIPS St. Edward High School Sisters of Charity Foundation of Cleveland University Hospitals Miracle Fund | W. NICHOLAS HOWLEY BOARD CHAIR EXECUTIVE COMMITTEE, CHAIR Mr. Howley, 70, was a co-founder of TransDigm in 1993 and has been Chairman of the Board since 2003. He was employed as Executive Chairman from 2018 – August 2021 and served as President and/or Chief Executive Officer of TransDigm from 2003 – 2018 and of TransDigm Inc. from 1998 – 2018. As a TransDigm co-founder, Mr. Howley brings to the Board an extensive understanding of TransDigm’s business. Mr. Howley has played an integral role in TransDigm’s establishment and implementation of its core strategy on an ongoing basis and in its rapid and strategic growth. OTHER CURRENT PUBLIC COMPANY DIRECTORHIPS Perimeter Solutions, SA, an NYSE-listed manufacturer of highly engineered forest fire retardant and suppressant chemicals and equipment and oil additives, from November 2021 SELECTED DIRECTORSHIPS AND MEMBERSHIPS Cleveland Clinic Cristo Rey Network Drexel Fund Howley Foundation, Chair Rock and Roll Hall of Fame St. Martin dePorres High School FORMER PUBLIC COMPANY DIRECTORSHIPS IN THE LAST FIVE YEARS EverArc Holdings Limited, a cash shell company listed on the London Stock Exchange, through November 2021 when it merged with Perimeter Solutions |
GARY E. MCCULLOUGH AUDIT COMMITTEE NOMINATING & CORPORATE GOVERNANCE COMMITTEE, CHAIR* Mr. McCullough, 63, has served on the Board since 2017. Mr. McCullough has been an advisor to Abundant Venture Partners, a venture capital company, and to various other early stage companies, since 2012. Formerly Mr. McCullough served as Chief Executive Officer of Advertising Resources, Inc., a private company that provided design and packaging co-manufacturing and logistics for consumer package goods companies from 2014 – 2017. Prior to that Mr. McCullough served as President & Chief Executive Officer of Career Education Corporation, a publicly traded education services company, as well as serving in management positions with increasing responsibility at Ross Products, Abbott Laboratories, Wm. Wrigley Jr. Company and The Procter & Gamble Company. Mr. McCullough brings to the Board public company leadership and public board experience. Mr. McCullough was previously President and Chief Executive Officer and served on the board of directors of Career Education Corporation, a publicly traded education services company, served on the board of directors of The Sherwin Williams Company from 2002—2011, where he served on the audit committee during his entire tenure and served as the audit committee chair during 2011, and served as a co-chair of the Advisory Council for Legacy Acquisition Corporation, a special purpose acquisition company (SPAC) traded on the New York Stock Exchange, until it consummated a business combination in November 2020. His service on the Board also provides increased diversity that the Board deems important. * Mr. McCullough became Chair of the Nominating and Corporate Governance Committee in October 2021 OTHER CURRENT PUBLIC COMPANY DIRECTORSHIPS Commercial Metals Company, an NYSE-listed manufacturer, recycler, fabricator and provider of steel and metal products and related materials and services, since October 2021 SELECTED DIRECTORSHIPS AND MEMBERSHIPS Rush Oak Park Hospital, Chair Rush University Medical Center Wright State University Foundation | MICHELE SANTANA AUDIT COMMITTEE NOMINATING & CORPORATE GOVERNANCE COMMITTEE Ms. Santana, 51, has served on the Board since 2018. Ms. Santana has been Chief Financial Officer of Bedrock Manufacturing Company, an investment firm that focuses on retail brands including Shinola (a manufacturer of watches and lifestyle goods) and Filson (a manufacturer of high-end outdoor clothing and accessories), since November 2021. Prior to that, Ms. Santana was Chief Financial Officer of Majestic Steel, a privately held steel company (November 2019 – October 2021) and Chief Financial Officer of Signet Jewelers, an NYSE-listed retail jeweler (2014 – 2019). Prior to that Ms. Santana was Senior Vice President and Controller of Signet and previously had 14 years of public accounting experience. Ms. Santana is a certified public accountant. Ms. Santana brings to the Board financial and business expertise with her prior experience as a chief financial officer of a large public company combined with her significant prior experience as a public accountant at KPMG. Her service on the Board also provides increased diversity that the Board deems important. OTHER CURRENT PUBLIC COMPANY DIRECTORSHIPS None SELECTED DIRECTORSHIPS AND MEMBERSHIPS Akron Zoo Chair |
ROBERT SMALL COMPENSATION COMMITTEE* EXECUTIVE COMMITTEE Mr. Small, 56, has served on the Board since 2010. Mr. Small has been a Managing Director of Berkshire Partners LLC, a private equity investment firm, since 2000 and initially joined the firm in 1992. Since its inception in 2007, Mr. Small has been a Managing Director of Stockbridge Partners LLC, a specialized investment group affiliated with Berkshire focused on marketable securities. Mr. Small brings to the Board a knowledge of acquisitions and capital market transactions, based on 30 years of experience in the private equity industry, as well as a breadth of board experience. Mr. Small is or has been a director of several of Berkshire’s portfolio companies, including having previously served as director of Hexcel Corporation, a composite materials producer primarily for aerospace applications, which is publicly traded on the NYSE. * Mr. Small also served on the Audit Committee through October 2021 OTHER CURRENT PUBLIC COMPANY DIRECTORSHIPS None SELECTED DIRECTORSHIPS AND MEMBERSHIPS Boston Children’s Hospital Trust Boys and Girls Clubs of Boston Kingsley Montessori School | JOHN STAER AUDIT COMMITTEE NOMINATING & CORPORATE GOVERNANCE COMMITTEE Mr. Staer, 70, has served on the Board since 2012. Mr. Staer retired as Chief Executive Officer of Satair A/S, a subsidiary of Airbus, and a distributor of aerospace products, including parts manufactured by TransDigm subsidiaries, a role he held from 1993 – 2013. Mr. Staer is valuable to the Board because of his industry experience, international experience (including extensively in Europe and the Pacific Rim), mergers and acquisitions experience, experience as a chief executive officer and chief financial officer, his finance background, and his experience as a public company board member. OTHER CURRENT PUBLIC COMPANY DIRECTORSHIPS None FORMER PUBLIC COMPANY DIRECTORSHIPS IN THE LAST FIVE YEARS EverArc Holdings Limited, a cash shell company listed on the London Stock Exchange, through November 2021 Dalhoff Larsen & Horneman A/S, a Danish public company that is supplier of timberand wood products, through April 2017. |
KEVIN STEIN Mr. Stein, 56, has been on the Board since 2018. Mr. Stein has been Chief Executive Officer of TransDigm since April 2018 and President since January 2017. He also served as Chief Operating Officer from January 2017 – March 2018. Prior to that he was Chief Operating Officer of TransDigm’s Power and Controls Segment from October 2014 – December 2016. Prior to that Mr. Stein was President of the Structurals Division and Executive Vice President of Precision Cast Parts from 2009 – 2014. Mr. Stein was appointed to the Board in connection with his promotion to Chief Executive Officer. Mr. Stein has extensive manufacturing and aerospace experience. OTHER CURRENT PUBLIC COMPANY DIRECTORSHIPS None SELECTED DIRECTORSHIPS AND MEMBERSHIPS Cleveland Institute of Music Gilmour Academy Greater Cleveland Sports Commission Playhouse Square Foundation FORMER PUBLIC COMPANY DIRECTORSHIPS IN THE LAST FIVE YEARS Perimeter Solutions, SA, an NYSE-listed manufacturer of highly engineered forest fire retardant and suppressant chemicals and equipment and oil additives, from November 2021 – April 2022 |
Mr. Stein, the only director who is also a TransDigm employee, does not receive any director fees. Mr. Howley also does not receive any director fees, as he received an option grant in connection with the early termination of his employment agreement and transition to non-executive Chairman.
Compensation for non-employee directors for 2021 was as follows:
An annual retainer fee of $75,000, with such fee being paid, at the option of each director, either in cash or shares of TransDigm’s common stock, paid semi-annually in arrears (typically in March and September). No additional Board or committee meeting fees were paid.
An additional retainer of $15,000 to the chairman of the Audit Committee, paid semi-annually in arrears.
An additional retainer of $5,000 to the chairmen of the Compensation and Nominating & Governance Committees, paid semi-annually in arrears.
Historically, every two years, TransDigm made a grant of stock options to each outside director to cover equity compensation for a two-year period. No option grants were made in fiscal 2021. In 2020, the grant was valued at $400,000 on a Black Scholes basis and covered compensation for fiscal 2020 and 2021, granted on the same terms and conditions as those granted to TransDigm employees, including vesting over five years. The terms of the options are discussed in greater detail beginning on page 30. Commencing in fiscal 2022, outside directors other than Mr. Howley will instead receive a grant of stock options annually valued at $200,000 on a Black Scholes basis. This will help avoid investor confusion over the perceived magnitude of director compensation in certain years.
Dividend equivalents are paid on vested options due to the Company’s unique capital allocation strategy of paying infrequent and large extraordinary dividends. Dividend equivalents are discussed in greater detail on page 35. The Board has recently determined that for any future dividends, the Board (including Messrs. Stein and Howley) will receive the dividend equivalent by means of a reduction in the exercise price of the option, rather than in cash. This is contemplated by our existing stockholder-approved equity plans.
Non-employee directors must maintain equity in TransDigm (i.e., stock or vested in-the-money options) equal to at least $250,000 (with a grace period to reach such limit). All of the non-employee directors (other than Ms. Cronin, who is within her grace period) are in compliance with the ownership requirements.
The following table sets forth (in dollars) the compensation paid to TransDigm’s non-employee directors during fiscal 2021.
Name | Fees Earned or Paid In Cash (1) | Stock Awards(1) | Option Awards | All Other Compensation(2) | Total | |||||||||||||
David Barr | $562 | $74,438 | - | $78,250 | $153,250 | |||||||||||||
Jane Cronin(3) | 361 | 18,389 | - | - | 18,750 | |||||||||||||
Merv Dunn | 5,562 | 74,438 | - | 78,250 | 158,250 | |||||||||||||
Michael Graff | 5,562 | 74,438 | - | 78,250 | 158,250 | |||||||||||||
Sean Hennessy | 15,562 | 74,438 | - | 78,250 | 168,250 | |||||||||||||
Raymond Laubenthal | 562 | 74,438 | - | 78,250 | 153,250 | |||||||||||||
Gary E. McCullough | 562 | 74,438 | - | 78,250 | 153,250 | |||||||||||||
Michele Santana | 562 | 74,438 | - | 55,438 | 130,438 | |||||||||||||
Robert Small | 562 | 74,438 | - | 78,250 | 153,250 | |||||||||||||
John Staer | 75,000 | - | - | 78,250 | 153,250 |
(1) | Messrs. Barr, Dunn, Graff, Laubenthal, McCullough and Small and Ms. Santana and Ms. Cronin elected to receive all of their semi-annual board retainer fees as stock. Ms. Cronin was appointed to the Board on June 30, 2021 and received one-quarter of the annual retainer. The shares were issued based on a value established on March 15, 2021 and September 15, 2021, on which dates the last closing price of the common stock on the New York Stock Exchange were $617.46 and $612.96, respectively. |
(2) | Represents amounts paid under TransDigm’s dividend equivalent plans. |
(3) | Ms. Cronin joined the Board on June 30, 2021. |
LOOKING FORWARD… the Board will receive dividend equivalents for dividends declared in the future by means of a reduction in the exercise price of the option, rather than in cash, as contemplated by our stockholder-approved equity plans. This will significantly reduce or eliminate the amounts reported as “All Other Compensation.”
This section describes the experience and qualifications of named executive officers, other than Mr. Howley and Mr. Stein.
Michael Lisman, 39, was appointed Chief Financial Officer in July 2018. Prior to that, Mr. Lisman served as Vice President – Mergers and Acquisitions from January 2018 to June 2018, Business Unit Manager for the Air & Fuel Valves business unit at Aero Fluid Products, a wholly-owned subsidiary of TransDigm Inc., from January 2017 to January 2018 and Director of Mergers and Acquisitions of TransDigm from November 2015 to January 2017. Prior to that, Mr. Lisman worked for Warburg Pincus. |
Jorge L. Valladares III, 48, was appointed Chief Operating Officer in April 2019. Prior to that, Mr. Valladares served as Chief Operating Officer — Power & Control from June 2018 to March 2019, Executive Vice President from October 2013 to May 2018, as President of AvtechTyee, Inc. (formerly Avtech Corporation), a wholly-owned subsidiary of TransDigm Inc., from 2009 to 2013, and as President of AdelWiggins Group, a division of TransDigm Inc., from 2008 to 2009. |
Sarah Wynne, 48, was appointed Chief Accounting Officer in November 2018. Prior to that, Ms. Wynne served as Group Controller from April 2015 to October 2018, as Controller of the Aero Fluid Products division of AeroControlex Group, Inc., a wholly-owned subsidiary of TransDigm Inc., from 2009 to 2015, and previously in other accounting roles with TransDigm. |
Robert Henderson, 66, was appointed Vice Chairman in 2017. Prior to that Mr. Henderson served as Chief Operating Officer—Airframe from October 2014 to December 2016. Mr. Henderson also previously served as Executive Vice President from December 2005 to October 2014, and as President of the AdelWiggins Group, a division of TransDigm Inc., from August 1999 to April 2008. Mr. Henderson retired on December 31, 2021. |
This section describes the executive compensation of our named executive officers and includes the required compensation tables.
The Compensation Committee has reviewed and discussed with TransDigm management the Compensation Discussion and Analysis set forth below. Based on the review and discussions, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement for filing with the Securities and Exchange Commission. Michael Graff, Chairman Mervin Dunn Sean Hennessy Robert Small |
Executive Compensation Discussion and Analysis
Introduction
The following discussion describes and analyzes TransDigm’s2021 compensation program for its executive officers. For fiscal 2019,of our named executive officers are:appropriately reflects and rewards their significant contributions to TransDigm’s strong performance in another year that presented unique and unprecedented challenges for our executive team to manage. This Compensation Discussion and Analysis explains the guiding principles and practices upon which our executive compensation program is based and the compensation paid to our named executive officers:
Kevin Stein, President and Chief Executive Officer
W. Nicholas Howley, Executive Chairman
Michael Lisman, Chief Financial Officer
Jorge L. Valladares III, Chief Operating Officer
Sarah Wynne, Chief Accounting Officer
Robert Henderson, former Vice Chairman
Bernt Iversen,W. Nicholas Howley, former Executive Vice President – Mergers & Acquisitions and Business DevelopmentChair
Mr. Howley transitioned from Executive Chair to non-executive Chair in August 2021 as described elsewhere in this Compensation Philosophy — OverviewDiscussion and Key Take-AwaysAnalysis; Mr. Howley was no longer an employee after such date. Mr. Henderson retired as Vice Chairman in December 2021.
As2021 Business Highlights
Throughout fiscal 2021, TransDigm continued to see a rebound in our investors are well aware, TransDigm’s guiding missioncommercial aerospace end markets. While there is unique amongst public companies instill a considerable amount of progress that our company goal isneeds to providetake place before the liquidity of a public company with private equity like returns. By extension, our executive compensation program is designed with this private equity philosophy in mindcommercial aerospace industry returns to normalcy and thus hasstability, we were encouraged by the primary goal of closely aligning the interests of executives and other key employees with those of stockholders.
The Compensation Committee applies this philosophy with a focus on designing a competitive total compensation package that enables the Company to attract and retain qualified executives and senior management based on their responsibilities and the Company’s performance. The Committee is mindful that muchprogression of the competitive talent pool iscommercial aerospace market recovery in the private markets where ownership principles are heavily ingrained in the leadership team and reflected in compensation programs. As a result, management’s salaries are well below peer medians, but there is considerable upside potential if the Company delivers superior or private equity-like performance.
To ensure that management interests are completely aligned with those of stockholders, the key tenetsfiscal year. The widespread roll-out of the Company’s executive compensation program are:
✓COVID-19 Incentives that are 100% performance-based
✓ Robust performance conditions that ensure no vesting unless targets are met
✓ Ownership policies that encourage long-term stock retention
✓ Dividend Equivalent Rights vaccine, the loosening of travel restrictions and reopening of international borders increased demand for commercial travel across the globe. In fiscal 2021, our commercial end markets recovered from pandemic lows and continued to “make-whole” executives who hold vested performance options
✓ Limited fixed cash compensation (i.e., salary and annual incentive)trend upward as the year progressed.
Incentives are 100% Performance-based
Both annual and long-term incentives are tied to Company performance against Annual Operating Performance (“AOP”) growth each year, with minimum vesting at 10% growth and maximum vesting at 17.5% growth. Short-term incentives incorporate both AOP and EBITDA (as defined in the Company’sCredit Agreement), weighting each factor 50%. Long-term incentives are subject to achievement of cumulative growth targets over the applicable multi-year period. The Committee believes that the additional metric underpinning short-term incentives and the use of cumulative growth rates for long-term incentives mitigate any risk potentially associatedEven with the useencouraging signs of the same metric of both annual and long-term incentives.
Robust Performance Conditions for Options
Performance incentives are subjectcommercial aerospace recovery, fiscal 2021 was a challenging year due to rigorous vesting hurdles: the minimum threshold for any option vesting requires a 10% cumulative growth in AOP. For maximum vesting, the cumulative growth rate required is 17.5% for each performance period. The Committee chose the AOP metric to focus management on EBITDA growth, management of capital structure, cash generation, and acquisition performance.
Future capital structure changes are accounted for by adjustments made at the time such events occur. For instance, targets are adjusted for dividends paid to stockholders and share repurchases. The Committee believes the adjustments are appropriate and necessary to account for the early return to stockholders because if a portionongoing impacts of the investment is returned early via special dividend or other formpandemic. Air travel remained depressed compared to pre-COVID levels of return of capital,activity and continued to have an adverse impact on our financial results. However, the subsequent years’ targets must be adjusted to reflect the revised capital structure and maintain the sameIRR-based performance requirements. Adjustmentrecovery of the targets does not makecommercial aerospace industry and our commercial aerospace end markets is expected to continue progressing during 2022 barring any significant disruption to the targets any easier to achieve but rather simply ensures that the IRR targets identified by the Committee are maintained.
How do we achieve our target growth? As described above, our long-term objective is to give stockholders well performing, private equity-like returns. We believe use of AOP as a metric best aligns management with that goal. In order to get to 17.5% growth, we must focus on underlying business operations, capital structure and utilization and growth through acquisitions. Generally, and on average, we plan to achieve our growth target as follows:commercial aerospace industry.
We believe use of this AOP option target maximally incents our leadership team to drive sustainable long-term value for all stockholders. As defined, AOP growth effectively assesses value creation by taking into account many aspects of the Company’s performance without focusing on a single measure. As such, it is unique — eliminating the need for several different metrics—and achieves an unusually high levelof pay-for-performance alignment by emphasizing long-term stockholder value.
Incentivize Long-Term Executive Stock Ownership
To ensure continued alignment of management interests with those of stockholders, the Committee has adopted rigorous stock ownership guidelines that require the Executive Chairman to own at least $10 million in Company equity and the Chief Executive Officer to own at least $6 million in Company equity, including in each case at least half in actual common stock. Other named executive officers are subject to lower, though similarly robust, guidelines. These robust guidelines, coupled with a strict prohibition on pledging, hedging and derivative trading for all employees have ensured that all executives have and will continue to have a significant amount of value held in Company stock, thereby solidifying ongoing direct alignment with stockholders. All named executive officers have exceeded their respective guidelines.
To ensure that optionholders are incentivized to retain (as opposed to exercise and sell) fully vested performance options, the Committee believes it critical to equate employees to stockholders, ensuring they are not deprived of the benefits of being a stockholder. To that end, the Committee determined that optionholders be entitled to dividend equivalents.
Dividend Equivalents Explained
Dividend decisions, like at other companies, are a capital structure decision made by the Board based on the Company’s operations, cash flows, credit structure, availability of cash or borrowing capacity, outlook for acquisitions, favorable capital market conditions, the availability of surplus under applicable law as well as certain operating performance covenants under the Company’s credit facilities. However, unlike other companies, because of the Company’s consistent high cash flow and strategic view of leverage, the Company has historically paid special dividends that are unusually large and hard to predict.
It is important to note that dividend decisions are made exclusive of the compensatory impact. And vice versa—compensation decisions are made without regard to the possibility of future dividend equivalent payments (DEPs).
To align management and stockholders, the Company’s dividend equivalent plans provide optionholders with the right to receive DEPs if the Board declares a dividend on the Company’s common stock. The Committee strongly believes that absent the DEPs, the optionholders are at a clear disadvantage to stockholders, which would incentivize the exercise and sale of the vested option and could undermine the alignment of their interests with those of stockholders.
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Stock Price Before Dividend | $ | 100 | $ | 100 | ||||||||||||||
Option Strike Price | (25 | ) | (25 | ) | ||||||||||||||
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Option Value to Holder | 75 | 75 | ||||||||||||||||
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Stock Price After Dividend | $ | 50 | $ | 50 | ||||||||||||||
Option Strike Price | (25 | ) | (25 | ) | ||||||||||||||
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Option Value to Holder | 25 | 25 | ||||||||||||||||
Dividend Equivalent Right | 50 | — | ||||||||||||||||
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Value to Option Holder | $ | 75 | $ | 25 | ||||||||||||||
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Importantly, pursuant to the DEPs, employees receive dividend equivalent payments on options (i) that have vested based on rigorous performance criteria, and (ii) that the optionholder has chosen not to exercise even though vested.
As illustrated above, the Committee believes that excluding employees from sharing in the capital return to all stockholders would be contrary to incentivizing them to maintain alignment with stockholder interests.
Limited Cash Compensation
Given the emphasis on performance-conditioned incentives, fixed cash executive compensation represents a reduced percentage of total compensation. In the case of Executive Chairman Mr. Howley and Vice Chairman Mr. Henderson, following amendments to their employment agreements in 2015 and 2016, respectively, they receive no base salary or annual incentive in cash except for nominal amounts to coverparticipation co-premiums for health insurance and related taxes. Moreover, for other executives that receive cash compensation, the Company benchmarks between the third quartile of the Company’s peers.
Compensation Philosophy is Working
That the Committee philosophy is creating value for stockholders is evidenced by:
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Conclusion
During fiscal 2019, the Company continued to excel in its operations and the stock price reachedits all-time high, creating significant value for stockholders. The Company’s ongoing progress in executing its strategy for building and sustaining stockholder value, coupled with a compensation program heavily leaning toward performance-based criteria, form an appropriate framework within which executive compensation decisions are made by the Committee.
Excellence in Performance
Operationally, the Company had yet another good year in fiscal 2019 with both strong organic and acquisition growth.
FY | ||||||||||
Revenue | $ | |||||||||
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Net Income from Continuing Operations | $681 million | +4% | $653 million | |||||||
GAAP Earnings Per Share | $10.41 per share | |||||||||
$8.14 per share | ||||||||||
EBITDA As Defined(2) | $ |
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Adjusted Net Income | $ | -15% | $ | |||||||
Adjusted Earnings Per Share | $ | $ | ||||||||
(1) | Results in FY 2021 continued to be negatively impacted by the COVID-19 pandemic. The commercial aerospace industry became significantly disrupted in 2020 due to the steep decline in worldwide air travel demand resulting from the pandemic. Air travel remained depressed in 2021 compared to pre-pandemic levels of activity. The COVID-19 pandemic first began to cause a significant adverse impact on our financial results in the second half of FY 2020 and continued to adversely affect our full fiscal year 2021 financial results. |
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(3) | Adjusted Earnings Per Share is calculated by taking TransDigm’s Adjusted Net Income and dividing it by the |
Amidst another year of challenging commercial aerospace market conditions given the ongoing pandemic during fiscal 2021, TransDigm’s management team remained committed to our operating strategy and focused on those things that were under our control including careful management of our cost structure. This disciplined focus, allowed us to continue building value for TransDigm’s investors and all other stakeholders. We were able to achieve an EBITDA As Defined Adjusted Net Income and Adjusted Earnings Per Share are allnon-GAAP Measures. See Annex A tomargin of 45.6% for the 2019 annual report accompanying this proxy statement for a historical reconciliationfull year fiscal 2021. The fourth quarter of fiscal 2021 achieved an EBITDA As Defined margin of 49.7%, which is nearing pre-pandemic EBITDA As Defined margin highs. Throughout fiscal 2021, we had strong operating cash flow generation. We closed fiscal 2021 with over $4.7 billion of cash.
Management’s expert execution allowed us to Net Income and Adjusted Net Income.
The Company continued itshave the financial flexibility to focus on effective capital allocation in fiscal 2019 through itsthe purchase of all the outstanding shares of Esterline Technologies Corporation (NYSE: ESL)Cobham Aero Connectivity (“CAC”) for $122.50 per share$965 million in cash, or approximately $4 billion in March 2019. It was the largest acquisition in the Company’s history. Esterline originally included a collection of over 20 operating units that primarily develop, produce and market products for the aerospace and defense industry. This acquisitionJanuary 2021. CAC expands the Company’s platform of unique proprietary sole source content with significant aftermarket exposure for the aerospace and defense industry. Esterline is hence highly complementarySince its acquisition, the CAC integration has progressed well. The Company also had strategic divestitures in fiscal 2021 to continue optimizing our legacy business,portfolio. The businesses divested did not fit well with the Company’s long-term strategy and included Avista Inc., Racal Acoustics, Technical Airborne Components, ScioTeq and TREALITY Simulation Visual Systems. The acquisition of CAC and the strategic divestures in fiscal 2021 will help us to continue to deliverdelivering the private equity-like returns our investors have come to expect from investment in our stock.
FY 1993 – 2021 Revenue compound annual growth rate (CAGR) 18%
FY 1993 – 2021 EBITDA As Defined CAGR 21%
EBITDA as Defined Margin expansion from 20% to almost 50% Alignmentpre-pandemic
To date, the pandemic has caused the worst disruption ever experienced in the commercial aerospace industry. At the trough in April 2020, revenue passenger kilometers (“RPKs”), a metric used to measure air traffic demand, were down 94% from pre-pandemic numbers as world-wide traffic halted. For comparison, previous disruptions driven by the Gulf War, 9/11 and Great Recession only produced RPK declines of Executive Interestsless than 5%. Air traffic has greatly improved from pandemic lows with worldwide RPKs steadily recovering – though traffic is still far lower than pre-pandemic levels. RPKs were down 58% for calendar year 2021 versus pre-pandemic and most recently down 41% in March 2022 (the last reported data point as of the print date of this proxy). Commercial OEM delivery rates from Boeing and Airbus were also significantly impacted by the pandemic and continued to be lower in 2021 than pre-pandemic but are expected to increase over the next several years.
The Committee believesGuiding Principles
Performance Expectations.We establish clear, quantitative, robust financial goals focused on TransDigm’s overall success and impact.
Stockholder Alignment. We establish ownership policies that the superior operationalencourage long-term equity retention and, due to our unique capital allocation philosophy, have dividend equivalent rights to “make whole” employees who hold vested performance options.
Focus on Long-Term Equity Incentives. We have limited fixed cash compensation (i.e., salary and annual incentive) and emphasize long-term performance and consistent stock price outperformance is a direct consequence of the continued alignment of the interests of management with those of stockholders. We believe that the confluence of these interests incentivizes management to execute on initiatives that drive theretention by significantly weighting our named executive officers toward long-term success of the Company and continue to drive sustainable value creation for all its stakeholders.
Performance-driven Compensation
Critical to maintaining the link between management and stockholders is our executive compensation program. The performance-based incentives underscore the link between executive pay and Company performance. Pursuant to the amendments to their employment agreements, our Executive Chairman and Vice Chairman receive all but $7,000 and $10,000, respectively, (for healthcare and related taxes) in performance options – effectively 100% of their compensation is performance-based. Multi-year performance periods with robust performance hurdles ensure execution of initiatives that create long-term value. Once the performance options vest, stringent stock ownership guidelines coupled with the strict prohibition on hedging and pledging of Company shares ensure the prevalence of an ownership culture amongst executives that underpins the convergence of the interests of management and stockholders, ultimately responsible for the tremendous stockholder value evidenced over the history of the Company.
Hence, the Committee and Board are recommending that stockholders approve the advisory vote on executive compensation.
Executive Compensation Program
The Committee has overall responsibility for establishing, implementing, and monitoring the executive compensation program for executive officers. Mr. Howley recommends to the Committee, for its approval, option awards and salary and bonus awards for Mr. Stein and, in conjunction with Chief Executive Officer Mr. Stein, recommends to the Committee, for its approval, option awards and compensation arrangements for Mr. Henderson and Mr. Iversen. Mr. Stein recommends to the Committee, for its approval, option awards and salary and bonus amounts for all other officers (other than Mr. Howley). The Committee reviews Mr. Howley’s and Mr. Stein’s recommendations and ultimately determines the salary, bonus and option award, if applicable. The Committee determines Mr. Howley’s salary and bonus amounts (from which his option award is determined) without input. Generally, individual performance, company performance, market conditions and other factors are considered in determining compensation. The Committee generally does not consider the tax or accounting treatment of items of compensation in structuring its compensation packages, except that it makes an effort to ensure that any deferred compensation is compliant with Section 409A of the Internal Revenue Code.equity awards.
2019Executive Compensation Committee ActionsPolicies and Practices
The Committee took routine actions during 2019, including granting stock optionsWe are committed to sound executive compensation policies and approving annual salaries and bonuses.
As disclosed in last year’s proxy statement relating to the Company’s 2019 annual meeting, the Committee approved a Third Amended and Restated Employment Agreement with Robert Henderson whereby Mr. Henderson servespractices, as Vice Chairman of the Company. Mr. Henderson’s prior employment agreement was scheduled to terminate on December 31, 2018. Mr. Henderson is responsible for the integration of the Esterline business. Mr. Henderson’s Employment Agreement replaced his prior Second Amended and Restated Employment Agreement dated January 25, 2018. The term of the Employment Agreement will expire on December 31, 2021, unless earlier terminated by the Company or Mr. Henderson. Mr. Henderson’s Employment Agreement contemplates that he will spend full time working for the Company. This is a change from the prior agreement, which contemplated that Mr. Henderson would work approximately three-quarters time. Under the terms of Mr. Henderson’s Employment Agreement, Mr. Henderson will receive equity compensation in lieu of cash compensation for salary and bonus on similar terms to those containedhighlighted in the employment agreement of Mr. Howley, the Company’s Executive Chairman. Under the terms of his Employment Agreement, Mr. Henderson will receive $10,000 in cash to cover his employeeco-premiums for health benefits and related taxes and, for 2019 salary, a grant of options calculated on a Black Scholes basis with a 37.5% risk premium equal to $750,000. In addition, Mr. Henderson is entitled to participate in the Company’s annual cash incentive plan with a target bonus of 80%, which will be paid in options calculated in the same manner as his salary. Mr. Henderson may give notice one time during the term of the Employment Agreement if he wishes to discontinue his receipt of equity compensation effective with his bonus or as of the following year. Other than the manner in calculating the option grant, which was a fixed number in Mr. Henderson’s prior employment agreement, these provisions did not change materially from the prior employment agreement. See “Employment Agreements – Employment Agreements with Other Named Officers” on pages53-54 for further information and a more complete description of the agreement.
In addition, in August 2019, the Board of Directors, at the recommendation of the Committee, adopted the 2019 Stock Option Plan, which was approved by stockholders on October 3, 2019. In recognition of emerging best practices, the Board of Directors incorporated into the 2019 Stock Option Plan (and made corresponding changes to the existing 2014 Stock Option Plan) the following provisions:table.
Elimination of liberal share recycling – the 2019 Stock Option Plan (as well as the amended 2014 Stock Option Plan) do not permit the recycling of shares (i.e., shares surrendered to pay the exercise price or taxes related to an exercise of a participant’s
Equity compensation limited to | Our stock
| |
Prohibition on hedging, pledging and short | We prohibit hedging, pledging, transactions in derivatives and short sales in TransDigm securities by all employees and directors, including our named executive officers. | |
Equity ownership guidelines | We have robust equity ownership guidelines for all of our option holders, including our named executive officers. | |
No repricing | We do not allow repricing of stock options without stockholder approval. | |
No tax gross-ups | We do not provide for gross-ups of taxes, including in the event of a change in control or under Section 409A. | |
No evergreen employment contracts | Executive employment agreements do not contain automatic renewal provisions. | |
No perquisites | We do not provide perquisites. | |
Annual compensation risk assessment | The Compensation Committee conducts an annual risk assessment of our compensation program. | |
Independent compensation consultant | The Compensation Committee directly retains an independent compensation consultant. |
Compensation Committee Judgment and Discretion
The Compensation Committee, consisting entirely of independent directors, reviews and approves the compensation of TransDigm’s named executive officers and acts as the administrator for TransDigm’s equity compensation plans.
The Compensation Committee’s executive compensation determinations are subjective and the result of the Compensation Committee’s business judgment, which is informed by the experience of its members and input provided by its independent compensation consultant, other directors, our Chief Executive Officer (other than with respect to his own compensation), other members of management, and investors.
The Compensation Committee regularly evaluates TransDigm’s executive compensation program to determine if changes are appropriate. In so doing, the Compensation Committee may consult with its
independent compensation consultant and management; however, the Compensation Committee makes final decisions regarding the compensation paid to our named executive officers based on its own judgment. The Compensation Committee may consider factors such as individual performance, company performance, market conditions, financial goals, retention and stockholder interests in determining compensation.
The Role of the Compensation Consultant. The Compensation Committee selects and retains the services of an independent compensation consultant. The independent compensation consultant is independent in accordance with SEC and NYSE rules. During 2021, the Compensation Committee’s independent compensation consultant, Veritas Executive Compensation Consultants, provided no services to TransDigm other than services for the Compensation Committee and worked with TransDigm’s management only on matters for which the Compensation Committee is responsible.
The Role of the Chief Executive Officer. At the Compensation Committee’s request, for 2021, Mr. Howley provided input regarding the performance and compensation of Mr. Stein and Mr. Stein provided input regarding the performance and compensation of the other named executive officers. The Compensation Committee considered Mr. Howley’s and Mr. Stein’s evaluation and direct knowledge of each named executive officer’s performance and contributions when making compensation decisions. Mr. Stein is not present during Compensation Committee voting and deliberations regarding his own compensation and, when he was formerly an employee, Mr. Howley was not present during Compensation Committee voting and deliberations regarding his own compensation.
The Role of Investors. Stockholders are provided the opportunity to cast an annual advisory vote on the compensation of our named executive officers. Last year investors did not support the compensation of our named executive officers, with only 43% of votes cast on the say-on-pay proposal at the 2021 annual meeting voted in favor of our executive compensation program. Accordingly, in response to input from our investors, we have made a number of changes to our executive compensation program. We have ongoing discussions with many of our investors regarding various corporate governance topics, including environment, social and governance topics and executive compensation. The Compensation Committee considers these discussions while reviewing our executive compensation program.
The Role of Peer Companies. With the assistance of Veritas Executive Compensation Consultants, the Compensation Committee identifies companies to serve as market reference points for compensation comparison purposes at least every other year. In May 2021, the Compensation Committee engaged Veritas Executive Compensation Consultants to do a survey of total standard compensation components for the certain executives, including the named executive officers, other than the chief accounting officer. In doing so we specifically asked that they exclude dividend equivalent payments (“DEPs”) for two reasons—first, because DEPs are merely a mechanism for maintaining value already given and second, because including episodic DEPs in a compensation exercise is not going to be as insightful as the anomalies of DEPs will distort any peer analysis.
Veritas used a peer group based on revenue, market capitalization and enterprise value. We use a size based peer group because we manage our business based on EBITDA growth and enterprise value. The Compensation Committee previously rejected a peer group based solely on revenue as being not comparable with TransDigm because TransDigm’s market capitalization and enterprise value far exceeded those of the potential revenue-based peers. TransDigm used as its peer group the following companies:
Allison Transmission Holdings, Inc. Ametek, Inc. Amphenol Corporation AO Smith Corp. Ball Corporation BorgWarner Inc. Colfax Corporation Cummins Inc. Dover Corporation | Emerson Electric Fastenal Company Flowserve Corporation Fortive Corp. General Dynamics Corporation HEICO Corporation Illinois Tool Works L3Harris Technologies, Inc. Masco Corporation | Northrup Grumman Corporation PACCAR Inc. Parker-Hannifin Corporation Raytheon Technologies Corp. Rockwell Automation, Inc. Roper Technologies, Inc. Stanley Black & Decker, Inc. Textron Inc. The Boeing Company |
The survey determined that the named executive officers as a whole were positioned at the low end of the peer group in terms of cash compensation, but in the high end of the peer group in terms of total standard compensation and opportunities, but that the chief operating officer received cash compensation above the median compared to peers.
The Compensation Committee considers peer group data provided by its independent compensation consultant to inform its decision-making process so it can set total compensation levels that it believes are commensurate with the relative size, scope, and success of TransDigm. The Compensation Committee generally targets to pay salary and annual incentive to most executives below the median of our peers.
2021 Named Executive Officer Compensation
Our executive compensation program is designed to motivate and reward performance in a straightforward and effective way, while recognizing TransDigm’s private equity philosophy, management style and targeted returns. The compensation of our named executive officers has three primary components: annual base salary, annual cash incentive and long-term equity awards in the form of performance-based options. In addition, our options have attendant to them dividend equivalent rights.
2021 Annual Base Salary. Base salary is a customary, fixed element of cash compensation intended to attract and retain executives. When setting the annual base salaries of our named executive officers, the Compensation Committee considers market data provided by its independent compensation consultant, internal pay equity, and TransDigm’s financial results. The Compensation Committee determined that, effective January 1, 2021, the base salaries of Messrs. Stein, Lisman and Valladares and Ms. Wynne should be $1,225,000, $600,000, $680,000 and $450,000 per year, respectively. As discussed elsewhere in this proxy statement, pursuant to the terms of their respective employment agreements, Mr. Howley and Mr. Henderson did not receive a cash salary for 2021. The only cash compensation each was entitled to was in the amount of $7,000 and $10,000, respectively, and was for health insurance and related taxes. The remaining compensation of each was paid in performance-based stock options. More specifically, in accordance with his employment agreement, the Compensation Committee granted Mr. Henderson options to purchase 4,013 shares in lieu of 2021 salary (482 of which were forfeited upon his retirement in December 2021). Mr. Howley received options to purchase 11,484 shares in lieu of 2021 salary, calculated in accordance with his employment agreement.
2021 Annual Incentives. Our annual cash incentive program is a variable, at-risk component of our named executive officers’ compensation that is aligned with TransDigm’s annual financial results. For 2021, our annual incentives were based on EBITDA and EBITDA margin(1). This was a change from prior years that was originally in response to investor concern over overlapping metrics in TransDigm’s annual incentive and stock option plans, although the inability to establish annual operating performance targets for stock options in 2021 did result in overlap of metrics under the two plans for 2021. That will not be the case in 2022 and beyond. The Compensation Committee has eliminated the overlapping metrics in the long-term incentive plan and commits that it will not use overlapping metrics going forward. The Compensation Committee retains the authority to increase or decrease the award by up to 20%, based on assessment of individual performance, including without limitation, degree of difficulty of the achievement of metrics and the individual’s job effectiveness; the effectiveness of TransDigm’s value drivers; a pattern of clear, open, honest and regular communication with the Board and investors, as applicable; effective succession planning and organizational development; support, maintenance and regular evaluation of the effectiveness of TransDigm’s long term value focused strategy; or other factors.
Annual cash incentive payouts are determined based on an equal weighting for the EBITDA and EBITDA margin performance measures, as approved by the Compensation Committee, and are linearly interpolated for achievement between threshold, target, and maximum goals. If the threshold performance level is reached, the total payout opportunity is 70% of the target payout, and if the maximum performance level is reached, the payout opportunity is 130% of the target payout. Unless the threshold goal is achieved for a performance measure, there is no payout for that performance measure.
When setting the goals focused on EBITDA and EBITDA margin for 2021, the Compensation Committee considered many factors, including the uncertainty caused by the COVID-19 pandemic and its impact on worldwide travel and the aerospace industry and the extent of management’s ability to predict and influence performance. The Compensation Committee considered the likelihood of a range of scenarios for EBITDA and EBITDA margin and factors that were projected to have an impact on 2021 EBITDA and EBITDA margin. Based on these considerations, in the first quarter of 2021 the Compensation Committee set annual threshold, target and maximum cash incentive plan goals at
(1) | References in this proxy Statement to “EBITDA” means EBITDA plus, as applicable for each relevant period, certain adjustments on a pro forma basis, which is defined in the same manner as the Consolidated EBITDA to measure the ratio of our secured indebtedness required under a financial covenant of our senior secured credit facility (or, as used in our financial statements, “EBITDA As Defined”). “EBITDA margin” refers to the percentage calculated by dividing EBITDA by net sales, on a pro forma basis, for the applicable period. Reference reconciliation to pro forma EBITDA and pro forma margin included below and in “Non-GAAP Financial Measures” under Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2021 on 10-K, filed on November 16, 2021, for reconciliation to the relevant US GAAP measures, including the usefulness and inherent limitations over non-GAAP financial measures. |
Fiscal year ended September 30, 2021 | ||||||||||||
Net sales – GAAP basis | $ 4,798 | |||||||||||
Pro forma adjustments (a) | (67) | |||||||||||
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Pro forma net sales | $ 4,731 | |||||||||||
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EBITDA and margin | $ 2,189 | 45.6% | ||||||||||
Pro forma adjustments (b) | (6) | |||||||||||
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Pro forma EBITDA and margin | $ 2,183 | 46.1% | ||||||||||
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(a) | Represents management’s estimates of the impact of the acquisition of Cobham Aero Connectivity and divestitures of AVISTA, Racal Acoustics, Technical Airborne Components, ScioTeq and TREALITY, had such transactions occurred at the beginning of the fiscal year ended September 30, 2021. |
(b) | Reference “Non-GAAP Financial Measures” under Item 2- Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2021 Form 10-K, filed on November 16, 2021, for the reconciliation to the relevant US GAAP measures. |
levels they considered appropriately rigorous for the year, and that represented strong financial performance under challenging business conditions. If the threshold goal was met, management would receive 70% of the target incentive; if the target goal was met, management would receive 100% of the target incentive; and if the maximum goal was met, management would receive 130% of the target incentive. Amounts in between the threshold and target or target and maximum goals would be determined by linear interpolation.
For 2021, our EBITDA was $2.183 billion and our EBITDA margin was 46.1%. These results exceeded our targets and resulted in a payout of 106.2%.
For fiscal 2021, Messrs. Stein, Lisman, Valladares and Henderson’s and Ms. Wynne’s target incentives were set at 125%, 80%, 80%, 80% and 65%, respectively, of their base salaries. The target incentives, the calculated incentives based on the plan as described above, and the actual amounts awarded are set forth in the table below (in dollars).
Name | Target Annual Incentive | Calculated Annual Incentive | Actual Annual Incentive Awarded | |||||||||
Kevin Stein | $ | 1,531,250 |
| $ | 1,626,188 |
| $ | 1,800,000 |
| |||
Michael Lisman |
| 480,000 |
|
| 509,760 |
|
| 611,712 |
| |||
Jorge L. Valladares III |
| 544,000 |
|
| 577,728 |
|
| 664,387 |
| |||
Sarah Wynne |
| 292,500 |
|
| 310,635 |
|
| 325,000 |
| |||
Robert Henderson |
| 340,000 |
|
| 361,080 |
|
| 365,000 |
|
Mr. Howley did not receive an annual incentive, as the remainder of any compensation owed to him under his employment agreement was forfeited in connection with the grant he received in connection with his transition to non-executive Chairman.
LOOKING FORWARD… We will continue to use EBITDA and EBITDA margin, with threshold, target and maximum goals, for 2022. We have eliminated the overlapping metrics in our annual incentive program and our long-term equity incentive program.
In 2021, Mr. Stein received a grant of 68,000 options that vest based on performance conditions in fiscal 2025. Mr. Lisman and Ms. Wynne received grants of 57,700 and 18,000 options, respectively, that vest based on performance conditions equally over five years. Mr. Valladares and Mr. Henderson received grants of 58,300 and 22,125 options, respectively, that vest based on performance conditions equally in fiscal 2024 and fiscal 2025. 80% of Mr. Henderson’s options were forfeited upon his retirement in December 2021.
Mr. Howley received a grant of 71,039 options that vest based on performance conditions in 2022 - 2024, a 2021 salary grant of 21,891 options that vest based on performance conditions in 2022 and
2023 and, in August 2021, a grant of 105,000 options in exchange for termination of his employment agreement and transition to non-executive Chairman that vest based on performance conditions in 2022 – 2024. In his role as Chairman of the Board, Mr. Howley will continue to primarily focus his efforts on matters relating to significant mergers and acquisitions, capital allocation and deployment, major strategic initiatives and issues, and leadership of the Board of Directors. The option grant will be the sole compensation for Mr. Howley’s service on the Board through 2024.
LOOKING FORWARD… Although the one-time transition option award to Mr. Howley results in an up-tick in option compensation for 2021, it has the benefit operationally of streamlining our organizational structure and letting our Chief Executive Officer take on further responsibilities and also has the benefit of eliminating on-going “dual CEO” compensation.
Performance-Based Stock Option Program
Overview
The equity component of our management’s compensation emphasizes long-term stockholder value creation through performance-based options. This is a substantial, at-risk component of our management’s compensation that is tied to performance. We believe that performance-based stock option grants motivate and incentivize management to focus on long-term performance. Our stock option program coversperformance and align the interests of our management atwith the corporate level and our 50 operating units, for a totalinterests of approximately 260 people. Performance-based stock options reinforcestockholders by reinforcing the long-term goal of increasing stockholder value and yielding returns comparable to or higher than well-performing private equity funds by holdingand promoting the stability and retention of our high-performing executive team over the long-term. Our stock option program covers management toat the corporate level and our operating units, for a minimum 10% AOP growth trajectory before any options can vest. Such structure effectively alignstotal of approximately 270 people.
Generally, executives other than the interests of stockholders and management. We only grant options that vest upon performance targets. WeCEO do not grant options that merely vest based on the passage of time.
Generally, the Committee does not make regularreceive annual grants of options to its employees (other than to the Executive Chairmanoptions. Rather, executives and starting in fiscal 2020, the CEO). Rather, it grantsother plan participants receive options that vest over five years in connection with hirings, promotions and the assumption of increased responsibilities. Thereafter, unless there has been an intervening five yearfive-year award because of a promotion, the Company grantsexecutives and other plan participants receive biennial extension awards that vest in the fourth and fifth year following the award. These grants are generally made in the third year of vesting under the initial award so that the employee has four or five years of future option vesting in order to promote maximizing long-term value.value and retention.
Stock options vest based on the achievement of specific performance-based targets. Generally, initial options vest up to 20% annually based on the achievement of annual targetsand two-year extension options vest up to 50% in the fourth fiscal year after the grant and up to 50% in the fifth year after the grant based on the achievement of performance targets. Options awarded to Mr. Howley have different vesting provisions and options awarded to Mr. Howley and Mr. Henderson in lieu of salary and incentive compensation also have different vesting provisions. See “Employment Agreements – Employment Agreement with Mr. Howley, Executive Chairman” and “Employment Agreements – Employment Agreements with Other Named Executive Officers” on pages51-53 and53-54, respectively, for further information.
Performance-based Option Vesting at Rigorous Targets
Option vesting is subject to rigorous performance hurdles: thehurdles. After a hiatus from using our historical performance metric, annual operating performance (“AOP”) due to COVID, we have returned to that metric for all options granted in 2020 – 2022 and intend to continue to use it going forward. The minimum threshold for any option vesting requires a 10% cumulative growth in annual operating performance (AOP).AOP. For maximum vesting, the growth rate required is 17.5% for each performance period. The Committee identifiedTransDigm uses this CAGRcompound annual growth rate range as an appropriate driver of our management team at the base and maximum payout thresholds because it will incent themmanagement to create value for stockholders at a rate that outperforms the typical private equity model. The AOP metric focuses management on EBITDA growth, management of capital structure, cash generation, and acquisition performance, as appropriate to the different performance periods.performance. Through these performance-based options with five yearfive-year performance periods, we believe we have optimized management incentive to drive stockholder value creation over the long term and appropriately linked compensation with Companyfinancial performance.
Specifically, AOP targets are set at the time of grant and represent an intrinsic share price. As described below, theyThey are set by taking the prior year’s AOP and increasing such amount by 10% and
17.5%, respectively, to establish the minimum and maximum targets. In other words, as demonstrated in the chart below,the intrinsic share price must grow at a compound annual growth rate of 10% for anyvesting to even occur at all; for 100% vesting, the intrinsic share price must grow at a compound annual
growth rate of 17.5%.Targets are thus robust, requiring 17.5% compound annual growth from the most recently completed year for maximum vesting. Targets were set with a 17.5% compound annual growth ratevesting in an effort to achieve growth at or above the long-term returns of top performing private equity funds, with the hope that market growth will reflect the Company’s intrinsic growth.funds. This is consistent with our objective of providing stockholders with returns at or above those of well-performing private equity funds. If these returns are achieved, both investors and management benefit significantly.
Targets are calculated based on a ratio of (a) the excess of (i) the product of EBITDA (as defined in the Company’s credit agreement) andmultiplied by an acquisition-weighted market multiple over (ii) net debt to (b) the Company’s number of diluted shares as of such date based on the treasury stock method of accounting (the “operational performance per diluted share”).accounting. The targets are adjusted for dividends and share repurchases.To simplify, option targets and vesting are basically calculated as follows:
AOP, as reflected above, takes into consideration the following:
growth in EBITDA;
management of capital structure;
cash generation;
acquisition performance, including the acquisition price paid; and
the impact of option dilution on common shares outstanding.
We use AOP growth (i.e., growth in intrinsic equity value) as the performance-based metric for a number ofmany reasons:
It focuses management on the fundamentals of stockholder value creation— i.e., EBITDA, cash generation, capital structure management and return of capital, as appropriate.
This is the basic private equity formula for value that management has focused on achieving since its inception in 1993.
Over the long term, we believe that market value of our stock will generally follow intrinsic value.
Specifically, historical and future targets under the option plan, and actual performance through fiscal 2019, are set forth in the table below. Targets are set, and options vest, over five year periods. The few years in which our actual performance has far exceeded our option targets followed significant well-performing acquisitions, such as our acquisitions of McKechnie for $1.3 billion in the beginning of fiscal 2011 and of AmSafe for $750 million in the middle of fiscal 2012, our four acquisitions totaling $1.6 billion in 2015 and our acquisition of Esterline totaling $4.0 billion in 2019.
Targets are adjusted for dividends paid to stockholders and share repurchases. The Committee believesWe believe the adjustments are appropriate and necessary to account for the early return of value to stockholders because if a portion of the investment is returned early via special dividend or return of capital, the subsequent years’ targets must be adjusted to reflect the revised capital structure and maintain the sameIRR-based performance requirements. Adjustment of the targets does not make the targets any easier to achieve but rather maintains the IRR targets.
As previously disclosed, for 2021 (limited solely to options granted in 2020 and 2021 with vesting in 2021), we determined we were unable to establish AOP targets due to the ongoing impact of the COVID-19 pandemic on the aviation industry. 10-17.5% AOP growth from 2020 was unattainable for 2021 because of the record performance in the first half of fiscal 2020 and the pandemic’s continuing impact. The Compensation Committee considered using the latter half of the year as a baseline but ultimately concluded that it had no visibility into whether those targets would be too easy or unreasonably unattainable. The Compensation Committee strongly believed that in order to provide appropriate incentive the performance goals needed to be based on matters within management’s control. Therefore, the Compensation Committee determined to measure 2021 performance against the primary metric to which management had been managing – EBITDA margin percentage – and also, as incentive to maintain earnings, and EBITDA. These metrics were temporarily used for certain grants under the Company’s option program – those being options granted in 2020 with vesting in 2021 (predominantly those are for promotion and new hire grants) and options granted in 2021 with vesting in 2021 (again, predominantly those are for promotion and new hire grants).
LOOKING FORWARD… The performance criteria for vesting in 2022 and beyond (including in previously granted options) has reverted back to the AOP metric and requires cumulative growth of 10-17.5%.
LOOKING FORWARD…The Compensation Committee has adopted a policy that it will not use discretion in vesting performance-based options in the future. Further, the Compensation Committee has adopted a policy that it will not make discretionary amendments to any then current-year performance targets in the future, except as contemplated for capital events pursuant to the Company’s stock option plans.
Other Option Terms
Because we view our performance on a long-term basis and the targets are set to achieve long-term compound annual and cumulative growth, if the annual performance per share exceeds the maximum target in an applicable year, such excess may be treated as having been achieved in the following two fiscal years and/or the prior two fiscal years (without duplication) if less than the full amount of options would otherwise have vested for such years. This allows management to focus on long-term value without having to make short-term decisions to maximize vesting in a particular year. We believe this feature acts similarly to long-term incentive plans that take into account performance over a multi-year period. We also believe this plan feature mitigates compensation risk, because if performance were measured inonly one-year “snap-shot” increments, management could be incentivized to sacrifice longer term goals to achieve vesting in the short term.
LOOKING FORWARD… for options granted in 2020, 2021, and 2022, AOP carryforwards and carrybacks are limited to a cap of $100 because the Compensation Committee did not want a potential pandemic market recovery to result in growth targets that were too easy to achieve.
In addition to vesting based on operational targets, in the event of a change in control, options become fully vested. The Company doesWe do not provide for any gross up to any payments that would be deemed to be “excess parachute payments” under Section 280G of the Internal Revenue Code.
The options also have an alternate market-based performance measurement, such that if, beginning in the second fiscal year following the date of grant, the price of the Company’s common stock on the NYSE exceeds two times the exercise price of the options less dividends paid since the date of grant, then, to the extent that the options did not otherwise vest in accordance with their terms, the options may vest 50% in the fourth fiscal year from the date of grant and 50% in the fifth fiscal year from the date of grant (or if such market price is achieved in the fifth year, 100% may vest in the fifth fiscal year); but vesting of the options will not accelerate as compared to their original vesting schedule.
Treatment of Options for Executives Upon Termination
Option agreements for certain officers, including all of the named executive officers, provide that if the officer’s employment terminates by reason of death, disability, without cause, for good reason or retirement (after age 65 with 10 years of service or after age 60 and 15 years of service), vesting of the options will continue after termination generally as follows:
Termination Date
| Percent of Remaining Options Vesting(1) | |||
During the first fiscal year after date of grant | 0% |
| ||
During the second fiscal year after date of grant | 20% | |||
During the third fiscal year after date of grant | 40% | |||
During the fourth fiscal year after date of grant | 60% | |||
During the fifth fiscal year after date of grant | 80% | |||
After the fifth fiscal year end after date of grant | 100% |
(1) | Options will continue to vest in accordance with their terms if, and only if, the performance criteria are met. Remaining unvested options would vest ratably over the remaining performance vesting schedule. |
The option agreements for options awarded to Mr. Howley provide for continued vesting following a termination of Mr. Howley by reason of death, disability, without cause, for good reason or retirement as described in detail under “Potential Payments Upon Termination or a Change in Control – Termination Payments for W. Nicholas Howley, Executive Chairman” on pages46-47.
20192021 Grants
Options are granted generally at regularly scheduled board meetings during November through April. Because all options vest based on performance criteria and vesting occurs at the end of each fiscal year, grants for any new hire or promoted employee who would otherwise receive a grant after April in any year are deferred until November. Mr. Howley’s grant in connection with the termination of his employment agreement and transition to chairman was made in August 2021, but no vesting will occur thereunder until the end of fiscal 2022 and performance targets were set using fiscal 2022 criteria.
Options to purchase 1,184,680811,308 shares of common stock were granted under the program in fiscal 2019.2021. The number of shares subject to the 2014 Stock Option Plan is 5,000,000, of which 1,797,892626,294 shares remained available for granting under the plan as of September 30, 2019.2021. The number of shares subject to the 2019 Stock Option Plan is 4,000,000, of which all shares remain available for granting under the plan as of September 30, 2019.2021.
Dividends and Dividend Equivalents
Dividends
Dividend decisions, like at other companies, are a capital structure decision made by the Board. We do not have a policy of paying regular dividends. Instead, the Board regularly evaluates our capital
allocation optionality and will declare a special dividend based on an assessment of availability of cash or borrowing capacity, outlook for acquisitions and other operating needs, favorable capital market conditions, and the availability of surplus under applicable law as well as certain operating performance covenants under the Company’sour credit facilities.
Our preference for capital allocation is to make accretive acquisitions or invest in existing businesses.businesses or make accretive acquisitions. But, when internal business needs are met and acquisitions are not available, we elect to allocate capital to return to stockholders.stockholders through dividends or stock repurchases. Because of the constantly dynamic state of acquisition opportunities, as well as other external forces such as the health of creditmarkets, geo-political activity, competitive industry opportunities and pressures, these special dividends are unpredictable, episodic, and, unlike other companies, have historically been very large. Most recently, the Companywe paid a dividend of $30.00 per share in fiscal 2019 and a $32.50 dividend in fiscal 2020. The CompanyWe also paid two dividends, totaling $46.00 per share, in fiscal 2017. However, the Companywe paid no dividends in fiscal 2015, 2016, 2018 or 2018.2021.
Dividend decisions are made exclusive of compensatory impact. And compensation decisions are made without regard to the possibility of dividend equivalent payments. However, due to the unique structure of our executive compensation program, which targets significantly underpaysless cash compensation relative to peers in the short term but provides extraordinary upside in the long term, the Compensation Committee believes our use of DEPs are critical to the understanding of what motivates our executive team.team and assures alignment between management and investors on capital allocation decisions.
Dividend Equivalent Payments (DEPs)
In orderOur stockholder approved stock option plans allow for payments to closely align management and stockholder interestsoption holders or adjustments to the options in all aspectsthe event of the Company’s operations anda capital structure,event such as an extraordinary dividend. More explicitly, we have dividend equivalent plans that provide optionholdersoption holders the right to receive dividend equivalent payments (DEPs) if the Board declares a dividend on the Company’sour common stock. We pay these dividend equivalents in order to closely align management and stockholder interests in all aspects of our operations and capital structure. Maintaining an even playing field between constituencies is important to and consistent with the Company’sour private equity compensation philosophy. As such, the Compensation Committee strongly believes that absent the DEPs, the optionholders areoption holders would be at a clear disadvantage to stockholders, which would incentivize the exercise and sale (e.g., to satisfy tax obligations) of vested options and could undermine the alignment of their interests with those of stockholders.
It is important to note that because our executives We believe that our options are a good long-term investment, many of them hold options for a long period of time, maintaining alignment with stockholders. For example, almost half of the DEPs paid to Mr. Howley in 2019 were paid on vested options that been held for over five years.
Failurefailure to align management and stockholders could create incentives for management to deploy cash flow and utilize borrowing capacity in a manner other than the return of capital in the form of extraordinary dividends, which might not be in the best interests of stockholders. Further, management may be incentivized to seek short-term market gains rather than focusing on long-term equity value and stockholder returns. Dividend equivalents align management with the stockholders to permit the best allocation of capital resources and incentivize long-term share value growth without a hyper focus on short term stock price fluctuations.
Importantly, pursuant to the dividend equivalent plans, employeesEmployees receive DEPs on options (i) that have vested based on rigorous performance criteria, and (ii) that the optionholderoption holder has chosen not to exercise even though vested. OptionholdersOption holders who hold vested stock options at the time a dividend is paid will receive a cash DEP equal to the amount that he or she would otherwise have been entitled to receive had his or her vested stock option been exercised immediately prior to payment of the dividend. OptionholdersOption holders who hold unvested stock options will receive a cash DEP equal to the amount he or she would otherwise have been entitled to receive had his or her unvested stock option been vested and exercised immediately prior to payment of the dividend, but only if and when such stock option vests pursuant to its terms. We believe that we have structured DEPs under the Company’s
dividend equivalent plans such that they are not subject to any excise tax under Section 409A of the Internal Revenue Code. Certain investors and proxy advisory firms have raised the issue as to whether the Company should pay dividend equivalents only upon an exercise of the options; however, we believe that tying payment of the dividend equivalents to the exercise of an option would result in excise taxes under Section 409A.
Restricted StockLOOKING FORWARD… the Board, including Messrs. Stein and Howley, will receive dividend equivalents for dividends declared in the future by means of a reduction in the exercise price of the option, rather than in cash, as is common for companies that declare an extraordinary dividend.
Other Equity AwardsCompensation Policies and Considerations
NeitherTax Deductibility of Compensation Expense. Section 162(m) of the 2014Internal Revenue Code generally places a $1 million limit on the amount of compensation a publicly held company can deduct in any tax year on compensation paid to “covered employees.” Prior to the passage of the 2017 Tax Cuts and Jobs Act, performance-based compensation paid to our “covered employees,” such as annual cash
incentives and performance-based stock option plan noroptions, was generally excluded from this $1 million deduction limit. As a result of changes in the 2019 stock option plan includetax law, this previously-available exclusion for performance-based compensation is generally no longer available. The Compensation Committee does not consider tax deductibility in determining executive compensation and will award compensation that it determines to be consistent with the abilitygoals of our executive compensation program even if such compensation is not tax deductible by TransDigm.
Prohibition on Hedging, Pledging and Short Sales. No director, officer or employee is permitted to issue restrictedpledge TransDigm stock or engage in short sales or other transactions that hedge or offset, or are designed to hedge or offset, any equity awards other than options.decrease in the market value of the TransDigm’s stock. We allow for certain portfolio diversification transactions, such as investments in exchange funds. All of the directors and executive officers are in compliance with this policy.
StockEquity Ownership GuidelinesGuidelines.
We require management to maintain a significant personal investment in the Company. Therefore, during their employment, allAll of the Company’s existing optionholdersoption holders are required to maintain ownership of a minimum value of stock or vested options. In general, the holding requirements, which are specific for each individual, require optionholders to retain sharesor in-the-money vested options with significant value. Elected officers must retain half of their retention limit in stock. Mr. Howley is required to hold $10 million in aggregate value,and Mr. Stein isare each required to retain $6 million in aggregate value and the other named executive officers are required to hold $1.5 - $2.5 million in aggregate value of stock or vested options.
New optionholders have five years to meet their holding requirements. If a holding requirement has been met but is no longer met because Each executive officer currently holds shares in excess of a declinethese guidelines. Shares may be owned directly by the individual, owned jointly with or separately by the individual’s spouse, or held in valuetrust for the benefit of the Company’s common stock, the optionholder will have three years to achieve compliance with the holding requirement.
No director, officer or employee is permitted to pledge Company stock or engage in short sales or other transactions that hedge or offset, or are designed to hedge or offset, any decrease in the market value of the Company’s stock. All of the directors and executive officers are in compliance with this policy.
Base Salary
Executive Officers
Our philosophy is to pay base salaries at a level pegged at the lower end of similarly situated companies, preferring instead to weight the compensation of officers through performance-based equity. Specifically, we aim to pay fixed cash compensation to most executives in the third quartile of the Company’s peers. Cash compensation for executive officers in fiscal 2019 was determined with reference to the executives’ experience, the Company’s past practice, individual, performance and the prior year’s survey described below.
Consistent with the factors annually considered by the Committee, the Committee determined that, effective January 1, 2019, the base salaries of Messrs. Stein, Lisman and Iversen should be $1,060,000, $470,000 and $450,000 per year, respectively. Mr. Iversen’s salary decreased from the previous year because he reduced his work commitment to the Company in contemplation of retirement following his completion of activities relating to the Esterline integration. As discussed elsewhere in this proxy statement, Mr. Howley and Mr. Henderson do not receive a salary pursuant to the terms of their respective employment agreements. The only cash compensation each is entitled to is in the amount of $7,000 and $10,000, respectively, and is for health insurance and related taxes. The remaining compensation of each is paid in performance-based stock options. To put this in context, 100% of compensation of two of the top executives with the ability to influence the achievement of targets, have been incentivized purely through rigorous incentives that will drive value for stockholders. The Committee is confident this structure will promote the best alignment possible with our stockholders by holding them to rigorous operational achievements to vest.
More specifically, and again in accordance with his employment agreement, the Committee granted Mr. Henderson options to purchase 9,743 shares in lieu of 2019 salary. Mr. Howley received options to purchase 14,459 shares in lieu of 2019 salary, calculated in accordance with his employment agreement. See “Employment Agreements – Employment Agreements with Other Named Executive Officers” and “– Employment Agreement with Mr. Howley, Executive Chairman” on pages 51-54 for more details.
Use of Independent Compensation Consultant; Peer Considerations
The Compensation Committee typically engages a compensation consultant to review aspects of compensation every two years. In October 2017 the Committee engaged Veritas Executive Compensation Consultants to do a survey of total standard compensation components for the Company’s chief executive officer, chief operating officer, chief financial officer and an executive vice president. In doing so we specifically asked that they exclude DEPs for two reasons—first, because we think of DEPs more as putting the executive in the place of the stockholder without requiring an exercise (and typically accompanying sale to, for example, offset taxes) and second, because including episodic DEPs in a compensation exercise is not going to be as insightful as the anomalies of DEPs will distort any peer analysis.
Veritas used a peer group based on enterprise value at the Committee’s prior direction because we manage our business based on the enterprise value and EBITDA growth. The Committee previously rejected a revenue peer group as being not comparable with the Company because the Company’s market capitalization and enterprise value far exceeded those of the potential revenue-based peers. Companies were evaluated for inclusion in the peer group based on satisfying several of the following criteria: having an enterprise value within 1/3x—3x of the Company’s enterprise value, strong financial health, listing the Company as a peer, being a prevalent industry peer, having a positive standing among shareholders and being in the same Global Industry Classification Standard (GICS) industry group andsub-industry group as the Company. The Company used as its peer group the following companies:
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Executive officers participate in an annual incentive program. The annual incentives are paid in cash to the executive officers other than Messrs. Howley and Henderson (who receive their annual incentives in performance-based options). Target incentive amounts are based on a percentage of the officer’s salary pursuant to their respective employment agreements. The award structure, pay out contingencies and mechanics are fully transparent and can be easily ascertained by a third party following the calculations set forth below. Importantly, this processis non-discretionary and based on an objective assessment of the Company’s financial performance as follows:
(a) Company’s annual EBITDA As Defined (as defined in the Company’s Credit Agreement), divided by (b) the midpoint of the range of EBITDA As Defined guidance
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Committee Discretion
The Committee retains the authority to increase or decrease the award by up to 20%, based on assessment of individual performance, including without limitation, (1) degree of difficulty of the job and the achievement of metrics and the individual’s job effectiveness givenspouse, or the aerospace and capital market environment, operating conditions and the levelindividual’s children.
Results of flexibility/responsiveness required; (2) the effectivenessSay-On-Pay (“SOP”) Vote
Overview of the Company’s three value drives of price, productivity and new business; (3) a pattern of clear, open, honest and regular communication with the Board and investors, as applicable; (4) effective succession planning and organizational development; (5) support, maintenance and regular evaluation of the effectiveness of the Company’s long term value focused strategy; or (6) other factors. Final assessment of results will be determined following completion of the fiscal year and will be based on audited financial results.
2019 Targets and Actual Awards
In fiscal 2019,the non-discretionary incentiveSay-On-Pay calculation of EBITDA As Defined and AOP, with each component weighted equally, yielded 127.1% of the target. The Company’s EBITDA As Defined was $2,466.6 million and the midpoint of the Company’s initial guidance, as adjusted by the incremental EBITDA As Defined guidance attributable to the Company’s acquisitions and divestiture of EIT was $2,254.6 million. The Company’s actual AOP was $252.39 as compared to the AOP target of $174.40. The $174.40 target represented growth of 17.5% from the fiscal 2018 Annual Operational Performance per Diluted Share. The increase in the actual Annual Operational Performance per Diluted Share over the target was primarily attributable to acquisitions during the year.
For fiscal 2019, Messrs. Stein, Lisman and Iversen’s target incentive were set at 125%, 80% and 80%, respectively of their respective base salaries. The target incentives (in dollars), the calculated incentives based on the plan as described above, and the actual amounts awarded are set forth in the table below.
Name | Target Annual Incentive ($) | Calculated Annual Incentive ($) | Actual Annual Incentive Awarded ($) | |||||||||
Kevin Stein
|
| 1,325,000
|
|
| 1,684,075
|
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| 1,750,000
|
| |||
Michael Lisman
|
| 376,000
|
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| 477,896
|
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| 500,000
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| |||
Bernt Iversen
|
| 360,000
|
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| 457,560
|
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| 460,000
|
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Mr. Henderson’s target incentive value was set at 80% of his annual salary, or, in dollars $600,000 and his calculated incentive value was $762,600. The Committee determined that Mr. Henderson should be awarded a bonus reflecting a value of $800,000 for fiscal 2019. Mr. Henderson receives his annual incentive by means of a grant of options in lieu of cash. See “Employment Agreements – Employment Agreement with Other Named Executive Officers on pages 53-54 for more details.
Mr. Howley’s target incentive value was set at 125% of his annual salary or, in dollars $1,712,085 and his calculated incentive value was $2,176,060. The Committee determined that Mr. Howley should be
awarded a bonus reflecting a value of $2,250,000 for fiscal 2019. Mr. Howley receives his annual incentive by means of a grant of options in lieu of cash. See “Employment Agreements – Employment Agreement with Mr. Howley, Executive Chairman” on pages51-53 for more details.
Perquisites
The Company provided no perquisites in 2019.
Employment Agreements
For a description of existing employment agreements, see “Employment Agreements” below.
Severance
All of the Company’s executive officers have severance provisions in their employment agreements, as described below.
Talent Retention and Development
We value our employees as they are the talent that helps ensure our future success. As we grow and complete large acquisitions, like the Esterline acquisition this past year, our reliance on our employees and management and our succession planning become more critical. To support the advancement of our employees, we offer training and development programs encouraging advancement from within and continue to fill our team with strong and experienced management talent. We leverage both formal and informal programs to identify, foster, and retain top talent.
As a fast-growing company, we have a continuing need for strong leaders, and with a large workforce, we look internally for emerging leaders. We have established TransDigm University to satisfy this need. TransDigm University is a formal mentoring and education program with a formal curriculum and with established leadership serving as mentors. Program participants learn and develop more advanced skills leading to higher contribution and satisfaction within their roles, while mentors enhance their leadership capabilities by helping others progress. This program helps in identifying top performers, improving employee performance and retention, increasing our organizational learning, and supporting the promotion of our current employees.
TransDigm’s Management Development Program (MDP) identifies new talent and prepares them for success within our organization. The program hires recent MBA graduates who will work for three eight- month stints at a selection of operating units. Program participants gain experience in developing, manufacturing, and selling aerospace components with the intent of becoming fully immersed in the operations of our business. Once the program is complete, MDP participants will be better equipped with the knowledge and experience needed to excel as a manager at TransDigm. Our goal for successful MDP participants is to hire them on a full-time basis at an operating unit.
TransDigm’s executive team also mentors rising talent on a more informal basis. This informal mentorship achieves a number of goals including accelerating the development of top performers, increasing organizational learning, and improving employee performance and retention. The executive team also commits substantial time to evaluating the bench strength of our leadership and working with our leadership to improve their performance.
TransDigm University, MDP, and informal mentoring demonstrate our ongoing commitment and initiatives towards accelerating our future leaders.
Overviewof Say-On-Pay Vote History & Advisory Firm Recommendation Effect
Our compensation philosophyBoard and means of compensation has been very consistent since 2008.management recognize that solicitation and stockholder feedback is important to creating stockholder value. As more fully reflecteda result, we regularly engage with our stockholders.
Preceding our annual meetings in this Compensation Discussion2018 and Analysis,2019, we believe in paying below our
peers in salary and bonus compensation and above our peers in equity compensation – in the form of options that vest on performance criteria. We pay dividend equivalent payments on options becauseengaged with stockholders representing approximately 75% of our unusual capital allocation strategy and we do not want dividend decisions to negatively impact our management. The Committee considers the ability of optionholders to share in the benefits of value creation right alongside our stockholders, as essentially making them whole for keeping fully vested options. The Committee does not consider the amount of DEPs when considering compensation. None of these features or philosophies have changed in over a decade.
In the initial yearsof Say-On-Pay (SOP), between 2011 and 2014, the Company maintained its existing historical practice of biennial option grants for our named executive officers. This grant pattern resulted in large reported compensation in alternating years, which in turn drove huge peaks and valleys in our SOP voting record with approximately 98%, 56%, 97% and 65%, respectively,shares. Most of the votes cast were voted in support of the Say on Pay proposal. These gyrations occurred despite the Company’s consistent performance and the nearly identical nature of the compensation program.
During engagement with holders representing a majority of our shares, we learned that portfolio managers and analysts who make the investment decisions were nearly unanimously in favor of the Company’s compensation practices. Investor stewardship representatives were also generally in favor of theCompany’s compensation practices, although representatives at a few stockholders found fault with a 280G clause, which was eliminated after the 2012 vote, and suggested enhanced disclosure to help shareholders get comfortable with our incentive compensation program. As we moved through ensuing years, the same pattern of grants, adverse recommendations, and communications continued and we eventually concluded a change was needed to break this pattern.
Following subsequent stockholder outreach efforts in 2014, the Company bolstered the alignment of the interests of management and stockholders by:
Increasing officers’ equity retention requirements and requiring half to be held in common stock;
Determining to issue the chief executive officer annual option grants, rather than biennial grants;
Adopting anew non-discretionary short-term incentive program, in lieu of the former discretionary bonus program;
Amending the insider trading policy to prohibit pledges, hedges and holding Company stock in margin accounts; and
Eliminating restricted stock and other broad equity awards from the 2014 Stock Option Plan.
The Company has continued to engage with stockholders regarding the Company’s compensation and other issues of importance to stockholders. For fiscal 2017, the Company reported a large magnitude of pay for the Company’s then-Chief Executive Officer, Mr. Howley, resulting from dividend equivalent payments related to two dividends totaling $46.00 per share paid during the year. For fiscal 2018, compensation for Mr. Howley was significantly less but Mr. Stein was promoted to Chief Executive Officer and received a large grant of options upon his promotion. On a combined basis, our CEO compensation again appeared to be high, but our compensation program features and philosophy remained steadfast.
The Company proactively engaged with investors in 2017-2019 with the following results:
In total, the Company engaged with 22 of the top 25 stockholders, representing 74% of the shares outstanding as of the record date for the 2018 annual meeting and engaged with 21 of the top 25 stockholders, representing 75% of the shares outstanding as of the record date for the 2019 annual meeting.
18 of the 22 stockholders engaged voted “FOR”Say-On-Pay and 17 of the 21 stockholders engaged voted “FOR”Say-On-Pay in 2019 and, in each case, were satisfied with the overall design of the executive compensation plan and its alignment with shareholders.
our program. Of the stockholders engaged that voted “Against”against Say-On-Pay,Say-on-Pay, there was no consistent reason cited.
Even though no changesOutreach prior to the compensation program had occurred, one proxy advisory firm recommended againstSay-on-Pay at the 2018our 2020 annual meeting had the following results:
We reached out to our top 31 stockholders representing 73% of our shares outstanding to discuss compensation matters. Eight of those stockholders elected to have a discussion while the others declined because they were satisfied with the design of our plan and/or we have had prior discussions and they had no questions.
We continued to find that most actively managed funds generally liked the design of our compensation plan. The few who had objections continued to not cite a consistent reason. However, we heard several issues from more than one firm. The following is a summary of those issues and our response:
Issues Raised | Response | |
Overlapping metric—AOP used in both the Company’s stock option plan and used, in part, in the Company’s short-term incentive plan. | ✓ The Committee has eliminated the overlapping metric commencing in fiscal 2022. | |
Alternate vesting—referring to the following market vesting provision: The closing price of the Company’s common stock on the New York Stock Exchange exceeds two times the Exercise Price of the Options less the amount of any dividends per share paid after the date hereof on any 60 trading days during any consecutive 12-month period. | ✓ This feature was eliminated for all options commencing in fiscal 2021. |
Issues Raised | Response | |
Carryforward / carryback—if the annual performance per share exceeds the maximum target in an applicable year, such excess may be treated as having been achieved in the following two fiscal years and/or the prior two fiscal years (without duplication) if less than the full amount of options would otherwise have vested for such years. | ✓ The Committee evaluates performance on a long-term basis and the targets are set to achieve long-term compound annual growth. The Committee does not want to entirely remove this feature because it believes it is important to allow management to focus on long-term value without being incentivized to make short-term decisions to maximize vesting in a particular year. This feature acts similarly to long- term incentive plans that take into account performance over a multi-year period. This feature mitigates compensation risk, because if performance were measured in only one-year “snap-shot” increments, management could be incentivized to sacrifice longer term goals to achieve vesting in the short term. | |
Despite that view, in order to ensure rigorous targets, performance for options granted in fiscal 2022, the carryforward and carryback was limited to $100 in the aggregate over the life of the option. | ||
Board discretion in bonus. | The Committee reviewed but chose to maintain this feature at this time. The Committee felt it was important to have the flexibility to reward exemplary individual performance or to decrement substandard individual performance and believes that the 20% limitation on discretion is a sufficient limit on its authority. | |
Lack of response to previous low SOP votes. | ✓The Committee listened to this concern and considered the various issues raised and determined to make changes to the overlapping metric and alternate vesting. |
Outreach for the 2021 annual meeting had the following results:
We reached out to 47 of our top 50 stockholders representing 77% of our shares outstanding to discuss compensation matters for our 2021 annual meeting. Twelve of those stockholders elected to have a discussion while many of the others declined because they were satisfied with the design of our plan and/or we have had prior discussions and they had no questions.
While stockholders were encouraged by the responsive compensation plan changes that were implemented since the 2020 annual meeting, two additional concerns, which arose primarily due the COVID-19 pandemic, were mentioned several times:
Issues Raised | Response | |
Vesting of 2020 Options and Change in Approach to PerformanceCriteria—Due to the unprecedented disruption to the aviation industry by the COVID-19 pandemic, the Committee decided to vest options that were granted in 2020 and scheduled to vest in 2020 notwithstanding that the AOP targets were not met. In addition, the Committee modified the performance criteria for options granted in 2020 and in 2021 for vesting in 2021; while they were still based on performance, they were based on EBITDA margin and EBITDA. | ✓ The Committee listened to stockholder concerns and reverted to using traditional AOP performance targets for stock options vesting in fiscal 2022 and beyond. For options granted in 2022, the carryforward and carryback was limited to $100 to ensure rigorous performance targets. Short-term incentive plan metrics will also be performance based going forward. Overlapping metrics will not be used. The Committee further has adopted a policy prohibiting its use of discretion in vesting performance based options and a policy prohibiting it from making discretionary changes (i.e., not related to a capital adjustment event) in performance-based targets for in a then current fiscal year. | |
Magnitude of Executive Compensation Despite Performance. | ✓ Our Board, including Messrs. Howley and Mr. Stein, has agreed that with respect to any dividends paid after the date of this Proxy Statement they will not receive any cash dividend equivalent payments. Rather, the strike price of outstanding options will be reduced. This will reduce any future perception of outsized compensation. |
Vote Results
The Say-On-Pay vote of 64.64% in favor reflected that adverse recommendation. The vote atresult for the 20192021 annual meeting was slightly higher at 67.48%42.98%, also with one proxy advisory firm recommending against.
in favor of SOP. The Compensation Committee has reviewed and discussed with Company management the Compensation Discussion and Analysis set forth above. Based on the review and discussions noted above, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement for filingvote reflected stockholder dissent with the Securitiesvesting of 2020 options and Exchange Commission.change in approach to performance criteria. The Committee addressed both of these concerns by adopting the changes to our compensation program described herein.
Compensation Committee
Michael Graff, Chairman
Mervin Dunn
Sean Hennessy
Robert Small
Compensation Committee Interlocks and Insider Participation
Messrs. Graff, Dunn, Hennessy and Small comprise the Compensation Committee. There are no Compensation Committee interlocks.
The Compensation Committee has reviewed and evaluated the incentive compensation policies and practices that cover all employees. On the basis of that review, the Company does not believe that its compensation policies and practices pose risks that are reasonably likely to have a material adverse effect on the Company.
The following information is set forth with respect to the Company’sour Chief Executive Officer, Chief Financial Officer and three of the Company’sTransDigm’s other most highly compensated executive officers serving as an executive officer at September 30, 20192021, as well as Mr. Howley who was not serving as an executive officer at September 30, 2021 (the “named executive officers”)., in dollars.
Name and Principal Position | Fiscal Year | Salary ($)(1) | Bonus ($)(2) | Option Awards ($)(3) | Nonequity Incentive Compensation ($)(2) | All Other Compensation ($)(4) | Total ($) | |||||||||||||||||||||
Kevin Stein, President and Chief Executive Officer (5) |
| 2019
|
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| 1,045,000
|
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| 65,925
|
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| --
|
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| 1,684,075
|
|
| 10,340,200
|
|
| 13,135,200
|
| |||||||
| 2018
|
|
| 838,333
|
|
| 17,440
|
|
| 19,695,375
|
|
| 1,082,560
|
|
| 1,837,900
|
|
| 23,471,608
|
| ||||||||
| 2017
|
|
| 680,000
|
|
| 3,000
|
|
| 4,808,830
|
|
| 742,000
|
|
| 5,496,800
|
|
| 11,730,630
|
| ||||||||
Michael Lisman, Chief Financial Officer
|
|
2019
|
|
|
467,500
|
|
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22,104
|
|
|
12,411,600
|
|
|
477,896
|
|
|
937,673
|
|
|
14,316,773
|
| |||||||
| 2018
|
|
| 250,365
|
|
| 12,512
|
|
| 761,541
|
|
| 157,488
|
|
| 33,197
|
|
| 1,215,103
|
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W. Nicholas Howley, Executive Chairman |
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2019
|
|
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7,000
|
|
|
--
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|
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13,577,620
|
|
|
--
|
|
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47,058,288
|
|
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60,642,908
|
| |||||||
| 2018
|
|
| 7,000
|
|
| --
|
|
| 12,330,335
|
|
| --
|
|
| 791,262
|
|
| 13,128,597
|
| ||||||||
| 2017
|
|
| 7,000
|
|
| --
|
|
| 9,772,881
|
|
| --
|
|
| 51,243,221
|
|
| 61,023,102
|
| ||||||||
Robert Henderson, Vice Chairman |
|
2019
|
|
|
10,000
|
|
|
--
|
|
|
15,229,768
|
|
|
--
|
|
|
9,187,020
|
|
|
24,426,788
|
| |||||||
| 2018
|
|
| 10,000
|
|
| --
|
|
| 2,964,717
|
|
| --
|
|
| 1,289,600
|
|
| 4,264,317
|
| ||||||||
| 2017
|
|
| 162,500
|
|
| --
|
|
| 4,147,189
|
|
| --
|
|
| 13,409,850
|
|
| 17,719,539
|
| ||||||||
Bernt Iversen, Executive Vice President – Mergers & Acquisitions and Business Development
|
|
2019
|
|
|
475,000
|
|
|
2,440
|
|
|
8,572,000
|
|
|
457,560
|
|
|
8,794,600
|
|
| 18,301,600
|
| |||||||
| 2018
|
|
| 537,500
|
|
| 21,280
|
|
| 1,214,400
|
|
| 478,720
|
|
| 1,396,300
|
|
| 3,648,200
|
| ||||||||
| 2017
|
|
| 492,500
|
|
| 1,000
|
|
| 3,318,770
|
|
| 424,000
|
|
| 9,823,500
|
|
| 14,059,770
|
|
Name and Principal Position | Fiscal Year | Salary(1) | Bonus(2) | Option Awards(3) | Non-equity Incentive Compensation(2) | All Other Compensation(4) | Total | |||||||||||||||||||||
Kevin Stein, President and Chief Executive Officer | 2021 | $ | 1,200,000 | $ | 173,812 | $ | 12,798,804 | $ | 1,626,188 | $5,685,700 | $ | 21,484,504 | ||||||||||||||||
2020 | 991,563 | -- | 7,460,000 | -- | 13,608,900 | 22,060,463 | ||||||||||||||||||||||
2019 | 1,045,000 | 65,925 | -- | 1,684,075 | 10,340,200 | 13,135,200 | ||||||||||||||||||||||
Michael Lisman, Chief Financial Officer | 2021 | 583,750 | 101,952 | 10,860,161 | 509,760 | 1,650,775 | 13,706,398 | |||||||||||||||||||||
2020 | 496,458 | 2,580 | -- | 327,420 | 2,653,957 | 3,480,415 | ||||||||||||||||||||||
2019 | 467,500 | 22,104 | 12,411,600 | 477,896 | 937,673 | 14,316,773 | ||||||||||||||||||||||
Jorge L. Valladares III, Chief Operating Officer | 2021 | 672,500 | 86,659 | 10,973,092 | 577,728 | 3,147,950 | 15,457,929 | |||||||||||||||||||||
2020 | 614,917 | 2,200 | 5,296,498 | 397,800 | 7,430,025 | 13,741,440 | ||||||||||||||||||||||
2019 | 613,500 | 11,618 | 7,451,630 | 628,382 | 4,626,100 | 13,331,230 | ||||||||||||||||||||||
Sarah Wynne, Chief Accounting Officer | 2021 | 437,500 | 14,365 | 3,387,919 | 310,635 | 269,400 | 4,419,819 | |||||||||||||||||||||
2020 | 365,000 | 1,700 | 1,491,971 | 168,300 | 265,683 | 2,292,654 | ||||||||||||||||||||||
2019 | 260,000 | 54,167 | 605,066 | 95,833 | 133,640 | 1,148,706 | ||||||||||||||||||||||
Robert Henderson, Vice Chairman | 2021 | 10,000 | 3,920 | 4,919,634 | 361,080 | 3,747,933 | 9,042,567 | |||||||||||||||||||||
2020 | 10,000 | -- | 1,695,486 | -- | 11,916,135 | 13,621,621 | ||||||||||||||||||||||
2019 | 10,000 | -- | 15,229,768 | -- | 9,187,020 | 24,426,788 | ||||||||||||||||||||||
W. Nicholas Howley, Former Executive Chairman | 2021 | 6,306 | -- | 38,084,417 | -- | 2,168,388 | 40,259,111 | |||||||||||||||||||||
2020 | 7,000 | -- | 11,880,431 | -- | 56,235,370 | 68,122,801 | ||||||||||||||||||||||
2019 | 7,000 | -- | 13,577,620 | -- | 47,058,288 | 60,642,908 |
(1) | Mr. Howley received all but |
(2) |
|
|
(3) | The amount reported represents the grant date fair value of stock options awarded during the applicable fiscal year under |
(4) | Represents amounts paid pursuant to |
LOOKING FORWARD… the Board (including Messrs. Howley and Stein) will receive dividend equivalents for dividends declared in the future by means of a reduction in the exercise price of the option, rather than in cash, as contemplated by our stockholder-approved equity plans. This will significantly reduce or eliminate the amounts reported as “All Other Compensation.”
LOOKING FORWARD… “Dual CEO” compensation has been eliminated through the early termination of Mr. Howley’s employment contract and one-time option grant. Mr. Howley will receive no compensation for his service on the Board through 2024.
Grants of Plan Based Awards in Last Fiscal Year
The following table sets forth information concerning options granted and short term cash incentive award targets set in fiscal 20192021 to the named executive officers.officers (in dollars, except for estimated future payouts under equity plans).
Name
| Grant
| Estimated
| Estimated Future Payouts Under Equity Incentive Plan Awards | Exercise
| Grant Date
| Award Type
| Grant
| Estimated Under Non- Equity
| Estimated Future Payouts Under Equity Incentive Plan Awards
| Exercise Price
| Grant Date
| |||||||||||||||||||||||||||||||||||||||||||||||||||
Threshold
| Target
| Maximum
| Threshold(2)
| Target(3)
| Maximum
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Kevin Stein
|
| 11/05/18
|
|
| 1,325,000
|
|
| --
|
|
| --
|
|
| --
|
|
| --
|
|
| --
|
| Annual Incentive | 11/11/20 | $ | 1,531,250 | |||||||||||||||||||||||||||||||||||||
Kevin Stein |
Performance-based |
|
11/11/20 |
|
|
|
17,000 |
|
|
68,000 |
|
|
68,000 |
|
|
$560.81 |
|
$ |
12,798,804 |
| ||||||||||||||||||||||||||||||||||||||||||
| 11/05/18
|
|
| 376,000
|
|
| 30,000
|
|
| 120,000
|
|
| 120,000
|
|
| (4
| )
|
| 347.17
|
|
| 12,411,600
|
| Annual Incentive | 11/11/20 | 480,000 | ||||||||||||||||||||||||||||||||||||
Michael Lisman |
Performance-based |
|
11/11/20 |
|
|
|
14,425 |
|
|
57,700 |
|
|
57,700 |
|
|
560.81 |
|
|
10,860,161 |
| ||||||||||||||||||||||||||||||||||||||||||
Annual Incentive | 11/11/20 | 544,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Jorge L. Valladares III |
Performance-based |
|
11/11/20 |
|
|
|
14,575 |
|
|
58,300 |
|
|
58,300 |
|
|
560.81 |
|
|
10,973,092 |
| ||||||||||||||||||||||||||||||||||||||||||
Annual Incentive | 11/11/20 | 292,500 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sarah Wynne |
Performance-based |
|
11/11/20 |
|
|
|
4,500 |
|
|
18,000 |
|
|
18,000 |
|
|
560.81 |
|
|
3,387,919 |
| ||||||||||||||||||||||||||||||||||||||||||
Annual Incentive | 11/11/20 | 340,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Robert Henderson |
Performance-based |
|
11/11/20 |
|
|
5,531 |
|
|
22,125 |
|
|
22,125 |
|
|
560.81 |
|
|
4,164,317 |
| |||||||||||||||||||||||||||||||||||||||||||
Performance-based |
|
11/11/20 |
|
|
|
3,794 |
|
|
8,718 |
|
|
8,718 |
|
|
560.81 |
|
|
1,640,862 |
| |||||||||||||||||||||||||||||||||||||||||||
|
11/05/18 |
|
|
1,712,085 |
|
|
23,466 |
|
|
93,864 |
|
|
93,864 |
|
|
(5 |
) |
|
347.17 |
|
|
9,708,354 |
| Annual Incentive | 11/11/20 | 1,923,699 | ||||||||||||||||||||||||||||||||||||
| 11/05/18
|
|
| 8,371
|
|
| 33,484
|
|
| 33,484
|
|
| (6
| )
|
| 347.17
|
|
| 3,463,250
|
| ||||||||||||||||||||||||||||||||||||||||||
Robert Henderson | 11/05/18 | 600,000 | 15,000 | 60,000 | 60,000 | (7 | ) | 347.17 | 6,205,800 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
11/05/18 | 11,639 | 21,162 | 21,162 | (8 | ) | 347.17 | 2,188,785 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4/25/19
|
|
| 12,500
|
|
| 50,000
|
|
| 50,000
|
|
| (9
| )
|
| 476.81
|
|
| 6,720,000
|
| ||||||||||||||||||||||||||||||||||||||||||
Bernt Iversen |
|
11/05/18 |
|
|
360,000 |
|
|
10,000 |
|
|
40,000 |
|
|
40,000 |
|
|
(7 |
) |
|
347.17 |
|
|
4,137,200 |
| ||||||||||||||||||||||||||||||||||||||
4/25/19 | 8,250 | 33,000 | 33,000 | (9 | ) | 476.81 | 4,435,200 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
W. Nicholas Howley |
Performance-based |
|
11/11/20 |
|
|
17,760 |
|
|
71,039 |
|
|
71,039 |
|
|
560.81 |
|
|
13,370,797 |
| |||||||||||||||||||||||||||||||||||||||||||
Performance-based |
|
11/11/20 |
|
|
5,473 |
|
|
21,891 |
|
|
21,891 |
|
|
560.81 |
|
|
4,120,274 |
| ||||||||||||||||||||||||||||||||||||||||||||
Performance-based |
|
08/06/21 |
|
|
26,250 |
|
|
105,000 |
|
|
105,000 |
|
|
629.11 |
|
|
19,762,859 |
|
(1) | Represents target amount of annual cash incentive. |
(2) | Calculated to represent the amount that would vest if the minimum |
(3) | Target amounts are not established under the grant but are disclosed at the maximum amount. Actual amounts could be lower if annual or cumulative performance requirements are not met. |
(4) |
|
(5) | Options vest equally in 2021-2025 as follows: 2.5% if EBITDA margin is at least |
|
(7) | Upon his retirement on December 31, 2021, Mr. Henderson forfeited 80% of these options. |
(8) | Options vest in 2021-2022 as follows: 40% vested on the date of grant, 5% if EBITDA margin is at least 40.5% and 20% if EBITDA margin is at least 44.5%, plus 5% if EBITDA is at least $1,873 million and 20% if EBITDA is at least $2,177 million in 2021 (in 2021, EBITDA margin was |
(9) | Options vest in 2021-2023 as follows: 5% if EBITDA margin is at least 40.5% and 20% if EBITDA margin is at least 44.5%, plus 5% if EBITDA is at least $1,873 million and 20% if EBITDA is at least $2,177 million in 2021 (in 2021, EBITDA margin was 46.1% and EBITDA was $2,183 million so 40% of the options vested), 10% if the AOP is at least |
|
(11) | Options vest equally in 2022-2024 as follows: 10% if the AOP is at least |
|
|
|
Outstanding Equity Awards at Fiscal Year End
The following table sets forth information concerning unexercised options and restricted stock subject to forfeiture as of September 30, 20192021 with respect to the named executive officers.
Name | Number of Securities Underlying Unexercised Options that are Exercisable (#) | Number of Securities Underlying Unexercised Unearned Options (#) | (1) | Option Exercise Price ($) | Option Expiration Date | Number of Securities Underlying Unexercised Options that are Exercisable | Number of Securities Underlying Unexercised Unearned Options | Option Exercise Price (per share) | Option Expiration Date | |||||||||||||||||||||||||||||
Kevin Stein | 188,100 | -- | 191.79 | 11/13/2024 | 78,800 | -- | $ | 191.79 | 11/13/2024 | |||||||||||||||||||||||||||||
-- | 71,000 | (2) | 269.42 | 11/10/2026 | ||||||||||||||||||||||||||||||||||
85,400 | 128,100 | (3) | 324.38 | 04/25/2028 | ||||||||||||||||||||||||||||||||||
Kevin Stein | 71,000 | -- | 269.42 | 11/10/2026 | ||||||||||||||||||||||||||||||||||
170,800 | 42,700 | (1) | 324.38 | 04/25/2028 | ||||||||||||||||||||||||||||||||||
-- | 50,000 | (2) | 559.78 | 11/15/2029 | ||||||||||||||||||||||||||||||||||
-- | 68,000 | (3) | 560.81 | 11/11/2030 | ||||||||||||||||||||||||||||||||||
2,560 | 640 | (4) | 217.70 | 01/20/2026 | 3,200 | -- | 217.70 | 01/20/2026 | ||||||||||||||||||||||||||||||
-- | 1,100 | (5) | 284.97 | 11/08/2027 | ||||||||||||||||||||||||||||||||||
3,240 | 4,860 | (3) | 303.90 | 01/24/2028 | ||||||||||||||||||||||||||||||||||
24,000 | 96,000 | (6) | 347.17 | 11/05/2028 | ||||||||||||||||||||||||||||||||||
W. Nicholas Howley (7) | 273,336 | -- | 82.67 | 03/04/2021 | ||||||||||||||||||||||||||||||||||
350,000 | -- | 130.09 | 11/19/2022 | |||||||||||||||||||||||||||||||||||
156,190 | -- | 191.79 | 11/13/2024 | |||||||||||||||||||||||||||||||||||
133,517 | -- | 226.34 | 11/06/2025 | |||||||||||||||||||||||||||||||||||
45,912 | -- | 230.72 | 12/10/2025 | |||||||||||||||||||||||||||||||||||
41,888 | -- | 269.42 | 11/10/2026 | |||||||||||||||||||||||||||||||||||
-- | 116,786 | (8) | 269.42 | 11/10/2026 | ||||||||||||||||||||||||||||||||||
-- | 119,884 | (9) | 284.97 | 11/08/2027 | ||||||||||||||||||||||||||||||||||
34,056 | 8,515 | (10) | 284.97 | 11/08/2027 | ||||||||||||||||||||||||||||||||||
37,546 | 56,318 | (11) | 347.17 | 11/05/2028 | ||||||||||||||||||||||||||||||||||
26,787 | 6,697 | (12) | 347.17 | 11/05/2028 | ||||||||||||||||||||||||||||||||||
Robert Henderson | 67,500 | -- | 130.09 | 11/19/2022 | ||||||||||||||||||||||||||||||||||
132,000 | -- | 191.79 | 11/13/2024 | |||||||||||||||||||||||||||||||||||
-- | 44,000 | (2) | 269.42 | 11/10/2026 | ||||||||||||||||||||||||||||||||||
8,500 | -- | 250.79 | 12/14/2026 | |||||||||||||||||||||||||||||||||||
-- | 17,000 | (5) | 284.97 | 11/08/2027 | ||||||||||||||||||||||||||||||||||
13,854 | -- | 284.97 | 11/08/2027 | |||||||||||||||||||||||||||||||||||
710 | -- | 273.81 | 12/27/2017 | |||||||||||||||||||||||||||||||||||
-- | 60,000 | (13) | 347.17 | 11/05/2028 | ||||||||||||||||||||||||||||||||||
16,930 | 4,232 | (14) | 347.17 | 11/05/2028 | ||||||||||||||||||||||||||||||||||
10,000 | 40,000 | (15) | 476.81 | 04/25/2029 | ||||||||||||||||||||||||||||||||||
Bernt Iversen | 33,334 | -- | 70.45 | 12/10/2020 | ||||||||||||||||||||||||||||||||||
65,000 | -- | 82.67 | 03/04/2021 | |||||||||||||||||||||||||||||||||||
65,000 | -- | 130.09 | 11/19/2022 | |||||||||||||||||||||||||||||||||||
60,000 | -- | 191.79 | 11/13/2024 | |||||||||||||||||||||||||||||||||||
-- | 49,000 | (2) | 269.42 | 11/10/2026 | ||||||||||||||||||||||||||||||||||
-- | 16,000 | (5) | 284.97 | 11/08/2027 | ||||||||||||||||||||||||||||||||||
-- | 40,000 | (13) | 347.17 | 11/05/2029 | ||||||||||||||||||||||||||||||||||
| 6,600
|
|
| 26,400
|
|
| (15)
|
|
| 476.81
|
|
| 04/25/2029
|
| ||||||||||||||||||||||||
Michael Lisman | 550 | 550 | (4) | 284.97 | 11/08/2027 | |||||||||||||||||||||||||||||||||
6,480 | 1,620 | (1) | 303.90 | 01/24/2028 | ||||||||||||||||||||||||||||||||||
72,000 | 48,000 | (5) | 347.17 | 11/05/2028 | ||||||||||||||||||||||||||||||||||
11,540 | 46,160 | (6) | 560.81 | 11/11/2030 | ||||||||||||||||||||||||||||||||||
52,000 | -- | 148.45 | 11/15/2023 | |||||||||||||||||||||||||||||||||||
Jorge L. Valladares III | 45,000 | -- | (7) | 226.34 | 11/06/2025 | |||||||||||||||||||||||||||||||||
32,500 | 32,500 | (8) | 284.97 | 11/08/2027 | ||||||||||||||||||||||||||||||||||
36,600 | 24,400 | (5) | 347.17 | 11/05/2028 | ||||||||||||||||||||||||||||||||||
5,100 | 3,400 | (5) | 476.81 | 04/25/2029 | ||||||||||||||||||||||||||||||||||
14,200 | 21,300 | (9) | 559.78 | 11/15/2029 | ||||||||||||||||||||||||||||||||||
-- | 58,300 | (10) | 560.81 | 11/11/2030 | ||||||||||||||||||||||||||||||||||
| 2,250 5,700 2,700 3,510 |
| | -- -- -- 2,340 |
| (5) | | 148.45 221.81 269.42 347.14 |
| | 11/15/2023 04/22/2025 11/10/2026 11/05/2028 |
| ||||||||||||||||||||||||||
Sarah Wynne | 4,000 | 6,000 | (9) | 559.78 | 11/15/2029 | |||||||||||||||||||||||||||||||||
3,600 | 14,400 | (6) | 560.81 | 11/11/2030 | ||||||||||||||||||||||||||||||||||
92,000 | -- | 191.79 | 11/13/2024 | |||||||||||||||||||||||||||||||||||
Robert Henderson(11) | 44,000 | -- | 269.42 | 11/10/2026 | ||||||||||||||||||||||||||||||||||
8,500 | -- | 250.79 | 12/14/2026 | |||||||||||||||||||||||||||||||||||
8,500 | 8,500 | (8) | 284.97 | 11/08/2027 | ||||||||||||||||||||||||||||||||||
13,854 | -- | 284.97 | 11/08/2027 | |||||||||||||||||||||||||||||||||||
710 | -- | 273.81 | 12/27/2027 | |||||||||||||||||||||||||||||||||||
-- | 60,000 | (12) | 347.17 | 11/05/2028 | ||||||||||||||||||||||||||||||||||
21,162 | -- | 347.17 | 11/05/2028 | |||||||||||||||||||||||||||||||||||
50,000 | -- | 476.81 | 04/25/2029 | |||||||||||||||||||||||||||||||||||
16,787 | -- | 559.78 | 11/15/2029 | |||||||||||||||||||||||||||||||||||
-- | 22,125 | (10) | 560.81 | 11/11/2030 | ||||||||||||||||||||||||||||||||||
5,092 | 1,274 | (13) | 560.81 | 11/11/2030 | ||||||||||||||||||||||||||||||||||
149,500 | -- | 130.09 | 11/19/2022 | |||||||||||||||||||||||||||||||||||
W. Nicholas Howley(14) | 156,190 | -- | 191.79 | 11/13/2024 | ||||||||||||||||||||||||||||||||||
133,517 | -- | 226.34 | 11/06/2025 | |||||||||||||||||||||||||||||||||||
45,912 | -- | 230.72 | 12/10/2025 | |||||||||||||||||||||||||||||||||||
41,888 | -- | 269.42 | 11/10/2026 | |||||||||||||||||||||||||||||||||||
116,786 | -- | 269.42 | 11/10/2026 | |||||||||||||||||||||||||||||||||||
119,884 | -- | 284.97 | 11/08/2027 | |||||||||||||||||||||||||||||||||||
42,571 | -- | 284.97 | 11/08/2027 | |||||||||||||||||||||||||||||||||||
93,864 | -- | 347.17 | 11/05/2028 | |||||||||||||||||||||||||||||||||||
33,484 | -- | 347.17 | 11/05/2028 | |||||||||||||||||||||||||||||||||||
51,794 | 12,949 | (13) | 559.78 | 11/15/2029 | ||||||||||||||||||||||||||||||||||
23,573 | -- | 559.78 | 11/15/2029 | |||||||||||||||||||||||||||||||||||
28,416 | 42,623 | (15) | 560.81 | 11/11/2030 | ||||||||||||||||||||||||||||||||||
16,489 | -- | 560.81 | 11/11/2030 | |||||||||||||||||||||||||||||||||||
-- | 105,000 | (16) | 629.11 | 08/06/2031 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
Remaining unvested options vest as follows: 5% of the total award if the AOP is at least |
Options vest as follows: 25% if AOP is at least $236.40 in 2024 and 100% if AOP is at least $288.12 in 2024. |
(3) | Options vest as follows 25% if AOP is at least $260.04 in 2025 and 100% if AOP is at least $338.55 in 2025. |
(4) | Remaining unvested options vest as follows: 12.5% of the total award if the AOP is at least |
Remaining unvested options vest as follows: 5% of the total award if the AOP is at least |
(6) | Remaining unvested options vest as follows: 5% of the total award if the AOP is at least $195.37 and 20% of the total award if the AOP is at least $208.69 per diluted share in 2022, 5% of the total award if the AOP is at least $214.91 and 20% of the total award if the AOP is at least $245.21 per diluted share in 2023, 5% of the total award if the AOP is at least $236.40 and 20% of the total award if the AOP is at least $288.12 per diluted share in 2024 and 5% of the total award if the AOP is at least $260.04 and 20% of the total award if the AOP is at least $338.55 per diluted share in 2025. |
(7) | 12,600 options are held in trust for the benefit of Mr. Valladares’ children. |
(8) | Remaining unvested options vest as follows: 12.5% of the total award if the AOP is at least $195.37 and 50% of the total award if the AOP is at least $208.69 in 2022. Upon Mr. Henderson’s retirement on |
(9) | Remaining unvested options vest as follows: 5% of the total award if the AOP is at least $195.37 and 20% of the total award if the AOP is at least $208.69 in 2022, 5% of the total award if the AOP is at least $214.91 and 20% of the total award if the AOP is at least $245.21 in 2023 and 5% of the total award if the AOP is at least $236.40 and 20% of the total award if the AOP is at least $288.12 in 2024. |
(10) | Options vest as follows: 12.5% if the AOP is at least $236.40 and 50% if the AOP is at least $288.12 per diluted share in 2024 and 12.5% if the AOP is at least $260.04 and 50% if the AOP is at least $338.55 per diluted share in 2025. Upon Mr. Henderson’s retirement on December 31, 2021, he forfeited 17,700 of the 22,125 options reported as unvested. |
(11) | All options held in trust for the benefit of Mr. Henderson’s family. |
(12) | Options vest as follows: 12.5% if the AOP is at least $195.37 and 50% if the AOP is at least $208.69 per diluted share in 2022 and 12.5% if the AOP is at least $214.91 and 50% if the AOP is at least $245.21 per diluted share in 2023. Upon Mr. Henderson’s retirement on December 31, 2021, he forfeited 12,000 of the 60,000 unvested options. |
(13) | Remaining unvested options vest as follows: 5% of the total award if the AOP is at least $195.37 and 20% of the total award if the AOP is at least $208.69 per diluted share in 2022. Upon Mr. Henderson’s retirement on December 31, 2021, he forfeited 764 of the 1,274 options reported as unvested. |
(14) | Held in trust for the benefit of Mr. Howley’s family. |
(15) |
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(16) | Options vest as follows: 10% if the AOP is at least $195.37 and 40% if the AOP is at least $208.69 per diluted share in 2022, 10% if the AOP is at least $214.91 and 40% if the AOP is at least $245.21 per diluted share in 2023, and 5% if the AOP is at least $236.40 and 20% if the AOP is at least $288.12 per diluted share in 2024. |
Option Exercises in Last Fiscal Year
The following table sets forth information with respect to the number of shares acquired by the named executive officers upon exercise of options and the value realized through such exercise during fiscal 2019.2021.
Option Awards | ||||||||||||||||
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Option Awards | |||||||||||||
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | ||||||||||||||
9,900 | 3,240,141 |
| 79,600 |
|
| 33,663,764 |
| |||||||||
W. Nicholas Howley | 136,664 | 53,560,755 | ||||||||||||||
Michael Lisman | -- | -- |
| -- |
|
| -- |
| ||||||||
Bernt Iversen | 16,666 | 7,688,425 | ||||||||||||||
Robert Henderson | 45,000 | 17,581,755 | ||||||||||||||
Jorge L. Valladares III |
| 10,000 |
|
| 4,665,506 |
| ||||||||||
Sarah Wynne |
| -- |
|
| -- |
| ||||||||||
Robert Henderson(1) |
| 57,500 |
|
| 26,356,725 |
| ||||||||||
W. Nicholas Howley(2) |
| 209,694 |
|
| 100,745,391 |
|
(1) | All options exercised were held by a trust for the benefit of Mr. Henderson’s family. |
(2) | All options exercised were held by a trust for the benefit of Mr. Howley’s family. |
Potential Payments Upon Termination or Change in Control
All of the named executive officers have severance benefits governed by their employment agreements.
Termination Payments for Kevin Stein, President and Chief Executive Officer
Pursuant to the terms of his employment agreement, if Mr. Stein is terminated for cause (as defined in his agreement and described under “Employment Agreements” below)employment agreement), he will receive only any unpaid but accrued base salary and benefits. As of September 30, 2019,2021, Mr. Stein had no unpaid but accrued salary and benefits. If Mr. Stein is
terminated for death or disability (as defined in his agreement and described under “Employment Agreements” below) or without cause by the CompanyTransDigm or voluntarily resigns for good reason (as(each as defined in the agreement and described under “Employment Agreements” below), he will receive (a) two times his annual salary, (b) two times the greater of (i) all bonuses paid or payable to Mr. Stein for the fiscal year immediately prior to the date of termination or (ii) bonuses for the fiscal year in which the date of termination occurs, determined in accordance with TransDigm’s annual incentive program, if any, and (C) 18 times the monthly cost of the difference between his employee co-premiums for health insurance at the time of termination and the COBRA cost for such coverage, and in each case the payments will be payable in equal monthly installments over the two-year period following his termination.
Pursuant to the terms of their respective employment agreements, if Mr. Lisman, Mr. Valladares or Ms. Wynne is terminated for cause (as defined in the applicable employment agreement), he or she will receive only any unpaid but accrued base salary and benefits. As of September 30, 2021, none of Mr. Lisman, Mr. Valladares or Ms. Wynne had unpaid but accrued base salary or benefits. If Mr. Lisman, Mr. Valladares or Ms. Wynne is terminated by reason of death or disability or without cause by the Company or voluntarily resigns for good reason (each as defined in his or her agreement and described under “Employment Agreements” below), he or she will receive (a) 1.25 times his or her annual salary, (b) 1.25 times the greater of (i) all bonuses paid or payable to him or her for the fiscal year immediately prior to the date of termination or (ii) the target bonus for the fiscal year in which the date of termination occurs, determined in accordance with the Company’s bonus program, if any, and (c) 18 times the monthly cost of the difference between his or her employee co-premiums for health insurance at the time of termination and the COBRA cost for such coverage, and in each case the payments will be payable in equal monthly installments overthe two-year period following his termination.
Thus, if Mr. Stein had died, had been terminated because he had become disabled, had been terminated by the Company without cause or had resigned from his employment for good reason on September 30, 2019, he would have received approximately $4,345,746 in base salary, bonus and benefits.
In addition, Mr. Stein’s stock option grants of November 2016 and April 2018 have provisions with regard to post-employment vesting. If Mr. Stein’s employment terminates by reason of death, disability, termination without cause or termination for good reason or by reason of retirement after at least 15 years of service after age 60 or after at least ten years of service after age 65, vesting of the options will continue after termination of employment as follows:
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Thus, if Mr. Stein had died, become disabled, been terminated by the Company without cause, or had resigned from his employment for good reason on September 30, 2019, 40% of his November 2016 grant and 20% of his April 2018 grant would have been permitted to vest in accordance with their terms.
The Company’s equity plans have provisions for accelerated vesting in certain circumstances on a change in control. If a change in control had occurred on September 30, 2019, Mr. Stein would have had 199,100 options vest, with a realized value of $42,983,499 (assuming the change in control price was $520.67 the closing price of the Company’s stock on the NYSE on September 30, 2019).
Termination Payments for W. Nicholas Howley, Executive Chairman
Pursuant to the terms of his employment agreement, if Mr. Howley is terminated for cause (as defined in his agreement and described under “Employment Agreements” below), he will receive only any unpaid but accrued base salary and benefits. As of September 30, 2019, Mr. Howley had no unpaid but accrued salary and benefits. If Mr. Howley is terminated for death or disability (as defined in his agreement and described under “Employment Agreements” below) or without cause by the Company or voluntarily resigns for good reason (as defined in the agreement and described under “Employment Agreements” below), he will receive (a) two times his annual salary, but if Mr. Howley resigns for good reason because he is notre-elected to the Board, Mr. Howley will receive only one times his salary, (b) two times the greater of (i) all bonuses paid or payable to Mr. Howley for the fiscal year immediately prior to the date of termination or (ii) bonuses for the fiscal year in which the date of termination occurs, determined in accordance with the Company’s bonus program, if any, but if Mr. Howley resigns for good reason because he is notre-elected to the Board, Mr. Howley will receive only one times his bonus amount, and (c) 18 times the monthly cost of the difference between his employeeco-premiums for health insurance at the time of termination and the COBRA cost for such coverage, and in each case the payments will be payable in equal monthly installments overthe two-year period following his or her termination. After Mr. Howley retires,As of September 30, 2021, the Company has agreed to pay for a Medicare supplement policy and supplemental medical reimbursement coverageseverance provisions for Mr. HowleyLisman and his wifeMs. Wynne were slightly different and to pay forthey would have received 15 times the servicesamount described in clause (c) of a consultant in assisting with coverage issues.
Thus, if Mr. Howley had died, had been terminated because he had become disabled, had been terminated by the Company without cause or had resigned from his employment for good reason onprevious sentence, rather than 18 times. As of September 30, 2019,2021, the severance provisions for Mr. Valladares were different and were the same as those described in the following paragraph with respect to Mr. Henderson.
Mr. Henderson retired on December 31, 2021. However, his prior employment agreement provided that if he were terminated for cause, he would have received approximately $6,685,820 in base salary, bonus and benefits, except that if Mr. Howley’s resignation for good reason was because he was notre-elected to the Board, he would have received approximately $3,687,361 in base salary, bonus and benefits.
Mr. Howley’s stock option agreement of November 2016 granting him 116,786 options vesting in 2020 has provisions with regard to post-employment vesting. If Mr. Howley’s employment terminates by reason of death, disability, termination without cause or termination for good reason or by reason of retirement, vesting of the options will continue after termination of employment as follows:
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Thus, if Mr. Howley had died, had been terminated because he had become disabled, had been terminated by the Company without cause or had resigned from his employment for good reason on September 30, 2019, 60% of his November 2016 options would have been eligible to continue to vest in accordance with their terms.
Mr. Howley’s stock option agreement of November 2017 granting him 119,884 options vesting in 2020 has provisions with regard to post-employment vesting. If Mr. Howley’s employment terminates by reason of death, disability, termination without cause or termination for good reason or by reason of retirement, vesting of the options will continue after termination of employment as follows:
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Mr. Howley’s stock option agreement of November 2017 granting him 25,543 options vesting in 2018-2020 and Mr. Howley’s stock option agreement of November 2018 granting him 93,864 options vesting in 2019 - 2020 have provisions with regard to post-employment vesting. If Mr. Howley’s employment terminates by reason of death, disability, termination without cause or termination for good reason or by reason of retirement, vesting of the options will continue after termination of employment as follows:
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Mr. Howley’s stock option agreement of November 2018 granting him 33,484 options vesting in 2019-2020 have provisions with regard to post-employment vesting. If Mr. Howley’s employment terminates by reason of death, disability, termination without cause or termination for good reason or by reason of retirement, vesting of the options will continue after termination of employment as follows:
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Thus, if Mr. Howley had died, had been terminated because he had become disabled, had been terminated by the Company without cause or had resigned from his employment for good reason or retired on September 30, 2019, 33% of his 119,884 options and 40% of his 25,543 November 2017 options, none of his November 2018 options would have been eligible to continue to vest in accordance with their terms.
The Company’s equity plans have provisions for accelerated vesting in certain circumstances on a change in control. If a change in control had occurred on September 30, 2019, Mr. Howley would have had 308,200 options vest, with a realized value of $70,539,229 (assuming the change in control price was $520.67 the closing price of the Company’s stock on the NYSE on September 30, 2019).
Termination Payments for Other Named Executive Officers
Pursuant to the terms of their respective employment agreements, if Mr. Lisman, Mr. Henderson or Mr. Iversen is terminated for cause (as defined in the applicable agreement and described under
“Employment Agreements” below), he will receive only any unpaid but accrued base salary and benefits. As of September 30, 2019, none of Mr. Lisman,2021, Mr. Henderson or Mr. Iversen had no unpaid but accrued base salary or benefits. If Mr. Lisman isHenderson had been terminated by reason of death or disability (as defined in his agreement and described under “Employment Agreements” below) or without cause by the Company or voluntarily resignsresigned for good reason, (as defined in his agreement and described under “Employment Agreements” below), he will receive (a) 1.25 times his annual salary, (b) 1.25 times the greater of (i) all bonuses paid or payable to him for the fiscal year immediately prior to the date of termination or (ii) bonuses for the fiscal year in which the date of termination occurs, determined in accordance with the Company’s bonus program, if any, and (c) 15 times the monthly cost of the difference between hisemployee co-premiums for health insurance at the time of termination and the COBRA cost for such coverage, and in each case the payments will be payable in equal monthly installments overthe two-year period following his termination. If Mr. Henderson or Mr. Iversen is terminated by reason of death or disability (as defined in each agreement and described under “Employment Agreements” below) or without cause by the Company or voluntarily resigns for good reason (as defined in each agreement and described under “Employment Agreements” below), he will receive,would have received, after 90 days’ notice in the case of termination without cause, (a) one times his annual salary, (b) one times the greater of (i) all bonuses paid or payable to the executive for the fiscal year immediately prior to the date of termination or (ii) bonuses for the fiscal year in which the date of termination occurs, determined in accordance with the Company’s bonus program, if any, and (c) 18 times the monthly cost of the difference between hisemployee co-premiums for health insurance at the time of termination and the COBRA cost for such coverage, and in each case the payments will be payable in equal monthly installments overthe two-year period following his termination.
Mr. Howley was not an employee on September 30, 2021.
In addition, certain option grants for Mr. Stein, Mr. Lisman, Mr. Valladares, Ms. Wynne and Mr. Henderson have post-employment vesting provisions. If any of the aforementioned named executive officersthem had died, had been terminated because he had become disabled, had been terminated by the CompanyTransDigm without cause or had resigned his or her employment for good reason on September 30, 2019, they2021, he or she would have received the following amounts in base salary, bonus and benefits:
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In addition, the option grant in November 2018 for Mr. Lisman, the option grants in November 2014, November 2016, December 2016, November 2017, December 2017, November 2018 and April 2019 for Mr. Henderson and the option grants in November 2016, November 2017, November 2018 and April 2019 for Mr. Iversen have post-employment vesting provisions similar to those described above for Mr. Stein’s grants. If Mr. Lisman had died, become disabled, been terminated by the Company without cause or resigned his employment for good reason, none of his options would have been eligible to continue to vest in accordance with their terms. If Mr. Henderson had died, become disabled, been terminated by the Company without cause, had resigned from his employment for good reason or retired on September 30, 2019, 40% of his November and December 2016 grants, 20% of his November and December 2017 grants and none of his November 2018 or April 2019 grants would have beenbe permitted to vest in accordance with their terms; andterms as set forth in the table below. Mr. Howley has similar provisions in his option agreement that would apply if Mr. Iversen had died, become disabled, been terminated byhe were no longer on the Company without causeBoard or had resigned from his employment for good reason on September 30, 2019, 40% of his November 2016 grant, 20% his November 2017 grant and none of his November 2018 and April 2019 grants would have been permitted to vest in accordance with their terms.serving as Chairman.
The Company’s
Name | Number of Unvested Options | Option Expiration Date | Number of Options Permitted to Continue to Vest upon | |||||||||
Kevin Stein | 42,700 | 04/25/2028 | 25,620 | |||||||||
50,000 | 11/15/2029 | 10,000 | ||||||||||
68,000 | 11/11/2030 | -- | ||||||||||
Michael Lisman | 550 | 11/08/2027 | -- | |||||||||
1,620 | 01/24/2028 | -- | ||||||||||
48,000 | 11/05/2028 | 19,200 | ||||||||||
46,160 | 11/11/2030 | -- | ||||||||||
Jorge L. Valladares III | 32,500 | 11/08/2027 | 19,500 | |||||||||
24,400 | 11/05/2028 | 9,760 | ||||||||||
3,400 | 04/25/2029 | 1,360 | ||||||||||
21,300 | 11/15/2029 | 4,260 | ||||||||||
58,300 | 11/11/2030 | -- | ||||||||||
Sarah Wynne | 2,340 | 11/05/2028 | 936 | |||||||||
6,000 | 11/15/2029 | 1,200 | ||||||||||
14,400 | 11/11/2030 | -- | ||||||||||
Robert Henderson | 8,500 | 11/08/2027 | 5,100 | |||||||||
60,000 | 11/05/2028 | 24,000 | ||||||||||
22,125 | 11/11/2030 | -- | ||||||||||
1,274 | 11/11/2030 | -- | ||||||||||
W. Nicholas Howley | 12,949 | 11/15/2029 | 10,359 | |||||||||
42,623 | 11/11/2030 | -- | ||||||||||
105,000 | 08/06/2031 | -- |
TransDigm’s equity plans have provisions for accelerated vesting in certain circumstances on a change in control. If a change in control had occurred on September 30, 2019, Messrs.2021, Mr. Stein, Mr. Lisman, Mr. Valladares, Ms. Wynne, Mr. Henderson and IversenMr. Howley would have had 102,600, 165,232,160,700, 96,330, 139,900, 22,700, 91,899 and 131,400160,572 options, respectively, vest, with a realized value of $18,162,673, $27,960,552,$20,383,293, $16,964,627, $23,405,179, $1,956,000, $21,022,520 and $24,180,354,$3,556,608, respectively (assuming the change in control price was $520.67,$624.57, the closing price of the Company’sour stock on the NYSE on September 30, 2019)2021).
In sum, had a change in control or termination for the various reasons set forth below occurred on September 30, 2019,2021, the named executive officers would have been entitled to receive the following aggregate amounts:
Change in Control ($) (1) | Termination for Cause ($) | Termination Without Cause ($) (2) | Termination for Death/ Disability ($) | Voluntary Termination for Good Reason ($) | Voluntary Termination without Good Reason ($) (2) | |||||||||||||||||||||||||||||||||||||||||||
Name | Change in Control ($)(1) | Termination for Cause ($) | Termination without Cause ($) | Termination for Disability ($) | Voluntary Termination for Good Reason ($) | Voluntary Termination Without Good Reason ($) | ||||||||||||||||||||||||||||||||||||||||||
Kevin Stein | 42,983,499 | -- | 4,345,746 | 4,345,746 | 4,345,746 | -- |
| 20,383,923 |
|
| -- |
|
| 6,083,501 |
|
| 6,083,501 |
|
| 6,083,501 |
|
| -- |
| ||||||||||||||||||||||||
Michael Lisman |
| 16,964,627 |
|
| -- |
|
| 1,521,775 |
|
| 1,521,775 |
|
| 1,521,775 |
|
| -- |
| ||||||||||||||||||||||||||||||
Jorge L. Valladares III |
| 23,405,179 |
|
| -- |
|
| 1,384,168 |
|
| 1,384,168 |
|
| 1,384,168 |
|
| -- |
| ||||||||||||||||||||||||||||||
Sarah Wynne |
| 1,956,000 |
|
| -- |
|
| 984,987 |
|
| 984,987 |
|
| 984,987 |
|
| -- |
| ||||||||||||||||||||||||||||||
Robert Henderson |
| 21,022,520 |
|
| -- |
|
| 873,384 |
|
| 873,384 |
|
| 873,384 |
|
| -- |
| ||||||||||||||||||||||||||||||
W. Nicholas Howley | 70,539,229 | -- | 6,685,820 | 6,685,820 | 6,685,820 | (3) | 573,684 |
| 3,556,608 |
|
| -- |
|
| -- |
|
| -- |
|
| -- |
|
| -- |
| |||||||||||||||||||||||
Michael Lisman | 18,162,673 | -- | 1,063,577 | 1,063,577 | 1,063,577 | -- | ||||||||||||||||||||||||||||||||||||||||||
Bernt Iversen | 24,180,354 | -- | 971,459 | 971,459 | 971,459 | -- | ||||||||||||||||||||||||||||||||||||||||||
Robert Henderson | 27,960,552 | -- | 1,367,927 | 1,367,927 | 1,367,927 | -- |
(1) | Amounts assume that the named executive officer was not terminated in connection with the change in control. If the named executive was terminated without Cause in connection with a change in control, his compensation would also include amounts listed in the column for Termination Without Cause. |
On commencement of his employment in October 2014, Mr. Stein entered into an employment agreement with TransDigm to serve as Chief Operating Officer. The agreement, pursuant to which Mr. Stein currently serves as Chief Executive Officer, was most recently amended in April 2018. Unless earlier terminated by TransDigm or Mr. Stein, the current term of Mr. Stein’s employment expires October 1, 2024. The agreement does not have a provision for automatic renewal.
Mr. Lisman entered into an employment agreement with TransDigm in July 2018 in connection with his promotion to Chief Financial Officer. The agreement was amended in November 2021 to modify the severance provisions to include 18 times the monthly cost of the difference between his employee co-premiums for health insurance at the time of termination and the COBRA cost for such coverage, instead of 15 times such amount. Unless earlier terminated by TransDigm or Mr. Lisman the term of his agreement extends until December 31, 2023, with no automatic right of renewal.
Mr. Valladares entered into an employment agreement with TransDigm in October 2013, which has been amended most recently in November 2021. The most recent amendment: (1) removed the requirement for 90-day notice of termination, (2) modified the severance provisions from one times severance and bonus to 1.25 severance and bonus, (3) eliminated Mr. Valladares’ opportunity to cure a default in the event of a termination for cause, and (4) added a requirement for Mr. Valladares to sign a release in order to receive severance. Mr. Valladares currently serves as Chief Operating Officer. Unless earlier terminated by TransDigm or Mr. Valladares the term of his agreement extends until October 1, 2023, with no automatic right of renewal.
Ms. Wynne entered into an employment agreement with TransDigm in November 2018. The agreement was amended in November 2021 to modify the severance provisions to include 18 times the month cost of the difference between her employee co-premiums for health insurance at the time of termination and the COBRA cost for such coverage, instead of 15 times such amount. Unless earlier terminated by TransDigm or Ms. Wynne, the term of her agreement extends until October 1, 2023 with no automatic right of renewal.
Mr. Henderson and Mr. Howley are no longer employees. Mr. Henderson retired on December 31, 2021. Mr. Howley transitioned from an employee to a non-employee Chairman in August 2021. Mr. Howley’s employment agreement was terminated, other than the non-competition and non-solicitation covenants that were contained therein which will continue until September 20, 2023 and the non-disclosure obligations which will continue indefinitely.
The employment agreements provide that if a named executive officer is terminated for any reason, he or she will be entitled to payment of any accrued but unpaid base salary through the termination date, any unreimbursed expenses, an amount for accrued but unused sick and vacation days, and benefits owing to him under the benefit plans and programs sponsored by TransDigm. In addition, if his or her employment is terminated:
without cause (as defined in his or her employment agreement)
by the named executive officer for certain enumerated good reasons, which include: a material diminution in his or her title, duties or responsibilities, without his or her prior written consent; a reduction of his or her aggregate cash compensation (including bonus opportunities), benefits or perquisites, without his or her prior written consent; TransDigm requires him or her, without his or her prior written consent, to be based at any location that requires a relocation greater than 30 miles from his or her current office; or any material breach of this Agreement by TransDigm; or, solely in the case of Mr. Stein, TransDigm’s refusal to amend the agreement to extend the term or any renewal thereof at
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due to his or her death or disability (as defined in his or her employment agreement), then TransDigm will pay the severance described elsewhere in this proxy statement. During the term of each executive officer’s employment and following any termination of his employment, for a period of (a) 24 months in the case of Mr. Stein and (b) 12 months in the case of a termination without cause or for enumerated good reasons or 24 months in the event of voluntary termination without enumerated good reasons or termination for cause in the case of the other named executive officers, the executive officer will be prohibited from engaging in any business that competes with any business of TransDigm or its subsidiaries. In addition, during the term of employment and for the two-year period following the termination of each executive officer’s employment for any reason, he or she will be prohibited from soliciting or inducing any person who is or was employed by, or providing consulting services to, TransDigm during the 12-month period prior to the date of the termination of his or her employment, to terminate their employment or consulting relationship with TransDigm. Under the terms of his or her employment agreement, each executive officer is also subject to certain confidentiality and non-disclosure obligations, and TransDigm has agreed, so long as the executive officer is not in breach of certain of his or her obligations under his or her employment agreement, to, among other things, indemnify him to the fullest extent permitted by Delaware law against all costs, charges and expenses incurred or sustained by him or her in connection with any action, suit or proceeding to which he may be made a party by reason of being or having been a director, officer or employee of TransDigm or serving or having served any other enterprise as a director, officer or employee at TransDigm’s request. |
The SEC requires us to disclose the annual total compensation of each of Mr. Stein (our Chief Executive Officer) and our median employee, as well as the ratio of their respective annual total compensation to each other (in each case, with annual total compensation calculated in accordance with SEC rules applicable to the Summary Compensation Table). The values are as follows for 2019, our last completedIn fiscal year:
2021, Mr. Stein’s annual total compensation — $13,135,200
was $21,484,504. Our median employee’s annual total compensation — $44,072
Ratiowas $58,837. The ratio of Mr. Stein’s annual total compensation to our median employee’s annual total compensation — 298:1was 365:1.
In determining ourAs permitted by SEC rules, we used the same median employee that we chose September 30, 2019, the date ofhad identified in 2020, since there had been no change in our last completed fiscal year. As of this date, we employed 18,354 persons in 22 countries. Consistent with SEC requirements, we reviewed our global employee population as of September 30, 2019or employee compensation arrangements that we reasonably believed would result in a significant change to prepare the pay ratio analysis. Ourdisclosure. Last year, we identified the median employee was selected usingby calculating total cash compensation (base salary, including overtime, and cash incentive compensation, where applicable), which was consistently applied across of all persons employed by us as of our entire global employee population for the fiscal year (excluding our CEO). In determining our median employee, we did not use any of the exemptions permitted under SEC rules, and we included employees who joined TransDigm in connection with the acquisition of Esterline. Similarly, we did not rely on any material assumptions, adjustments (e.g.,cost-of-livingyear-end adjustments) or estimates (e.g., statistical sampling) to identify our median employee or determine annual total compensation or any elements of annual total compensation for our median employee or Mr. Stein.2020. Once we identified our median employee, we calculatedre-calculated such employee’s annual total compensation as described aboveconsistent with the summary compensation table for purposespurpose of determining the ratio of Mr. Stein’s annual total compensation to such employee’s total compensation.
Employment AgreementsPROPOSALS
Employment Agreement withProposal No. 1 – Election of Directors
The Board has nominated Mr. Barr, Ms. Cronin, Mr. Dunn, Mr. Graff, Mr. Hennessy, Mr. Howley, Mr. McCullough, Ms. Santana, Mr. Small, Mr. Staer, and Mr. Stein President and Chief Executive Officer
On commencement of his employment in October 2014, Mr. Stein entered into an employment agreement with the Companyto be elected to serve on our Board until the next annual meeting of stockholders and until their successors are duly elected and qualified.
At the annual meeting, proxies cannot be voted for a greater number of individuals than the 11 nominees named in this Proxy Statement. Holders of proxies solicited by this proxy statement will vote the proxies received by them as Chief Operating Officerdirected on the proxy card or, if no direction is made, for the election of the Company. The agreement, pursuant to which Mr. Stein currently serves as Chief Executive Officer, was most recently amended in April 2018. Unless earlier terminatedBoard’s 11 nominees.
Each of the directors nominated by the Company or Mr. Stein,Board has consented to serving as a nominee, being named in this proxy statement, and serving on the current term of Mr. Stein’s employment agreement expires on October 1, 2024. The agreement does not have a provision for renewal.
UnderBoard if elected. Each director elected at the terms of the agreement, Mr. Stein’s annual base salary is $1,060,000 per annum for calendar year 2019 and may be increased but not decreased. In addition, Mr. Stein is entitled to participate in the Company’s annual cash incentive plan with a target bonus of 125% of his base salary.
Mr. Stein’s employment agreement provides that if he is terminated for any reason, hemeeting will be entitledelected to payment ofserve a one-year term. If any accrued but unpaid base salary through the termination date and any unreimbursed expenses. If Mr. Stein’s employmentnominee is terminated:
without cause (as defined in the employment agreement),
dueunable to his deathserve or disability (as defined in the employment agreement), or
by Mr. Stein for certain enumerated good reasons, which include: (i)otherwise will not serve as a material diminution in Mr. Stein’s title, duties or responsibilities (including reporting responsibilities), without his prior written consent; (ii) a reduction of Mr. Stein’s aggregate cash compensation (including bonus opportunities), benefits or perquisites, without his prior written consent; (iii) the Company requires Mr. Stein, without his prior written consent, to be based at any office or location that requires a relocation greater than 30 miles from Cleveland, Ohio; (iv) the Company’s refusal to amend the agreement to extend the term or any renewal thereof at least one year or enter into a new agreement with Mr. Stein on substantially similar terms without providing Mr. Stein with severance benefits comparable to those in the agreement; or (v) any material breach of the agreement by the Company,
then the Company will pay Mr. Stein (a) two times his annual salary, (b) two times the greater of (i) all bonuses paid or payable to Mr. Stein for the fiscal year immediately prior to the date of termination or (ii) target bonuses for the fiscal year in which the date of termination occurs, determined in accordance with the Company’s bonus program, if any, and (c) 18 times the monthly cost of the difference between hisemployee co-premiums for health insurancedirector at the time of terminationthe annual meeting, the proxy holders may vote for any nominee designated by the present Board to fill the vacancy.
For more information on the director nominees, please see the biographies of the director nominees beginning on page 13.
The 11 nominees receiving the greatest number of votes ‘FOR’ election will be elected as directors. If you do not vote for a particular director nominee, or if you indicate ‘WITHHOLD AUTHORITY’ for a particular nominee on your proxy form, your vote will not count either for or against the nominee. If your shares are held in “street name” by a broker or nominee indicating on a proxy that it does not have authority to vote on this or any other proposal, this will result in a “broker non-vote,” which will not count as a vote for or a vote against any of the nominees.
The Board of Directors recommends that the stockholders vote FOR the nominees for election set forth above.
Proposal No. 2 – Ratification of Appointment of Independent Registered Public Accounting Firm
The Audit Committee has re-appointed Ernst & Young LLP as TransDigm’s independent registered public accounting firm and as auditors of TransDigm’s consolidated financial statements for 2022. The Audit Committee reviews the performance of the independent registered public accounting firm annually. In making the determination to re-appoint Ernst & Young for 2022, the Audit Committee considered, among other factors, the independence and performance of Ernst & Young, and the COBRA costquality and candor of Ernst & Young’s communications with the Audit Committee and management. Ernst & Young has served as TransDigm’s independent registered public accounting firm since 2004.
At the Annual Meeting, our stockholders are being asked to ratify the appointment of Ernst & Young as TransDigm’s independent registered public accounting firm for 2022. Although ratification of the Audit Committee’s appointment of Ernst & Young is not required, we believe that stockholder ratification of the appointment is a good corporate governance practice. In the event of a negative vote on this proposal, the Audit Committee will reconsider its selection. In such coverage, and in each caseevent, the payments will be payable in equal monthly installments overAudit Committee may retain Ernst & Young notwithstanding thetwo-year period following his termination.
During the term of Mr. Stein’s employment and following any termination of his employment, for a period of 24 months, Mr. Stein will be prohibited from engaging in any business that competes with any business of TransDigm Inc. or any entity owned by TransDigm Inc. and from rendering services to any person or entity designed to assist such person or entity to acquire a business fact that the Company has pursuedstockholders did not ratify the selection, or had demonstrable plans to pursue as an acquisition target within 24 months prior to Mr. Stein’s termination. In addition, duringselect another nationally recognized accounting firm without re-submitting the term of his employment and forthe two-year period following the termination of Mr. Stein’s employment for any reason, he will be prohibited from soliciting or inducing any person who is or was employed by, or providing consulting servicesmatter to the Company duringthe 12-month period prior to the date of the termination of his employment, to terminate theirstockholders.
employmentEven if this appointment is ratified, the Audit Committee may, in its discretion, appoint a different independent registered public accounting firm at any time during the year if the Audit Committee determines that such a change would be in the best interests of TransDigm and its stockholders. A representative of Ernst & Young is expected to be present at the Annual Meeting, will have an opportunity to make a statement if desired, and will be available to respond to questions.
Fees Paid to Auditors
The following table shows the fees billed by TransDigm’s independent registered public accounting firm for the years ended September 30, 2021 and September 30, 2020 (in dollars).
FY 2021 | FY 2020 | |||||||
Audit Fees(1) | 7,519,000 | 7,013,000 | ||||||
Audit-Related Fees(2) | 238,000 | 65,000 | ||||||
Tax Fees(3) | 1,218,000 | 1,000,000 | ||||||
All Other Fees(4) | 8,000 | 15,000 |
(1) | Audit fees are fees for professional services rendered in connection with the audit of our annual consolidated financial statements and internal control over financial reporting, certain statutory audits required for our international subsidiaries and reviews of our quarterly consolidated financial statements. |
(2) | Audit related fees include M&A due diligence, employee benefit plans and other agreed-upon procedures and attestation engagements. |
(3) | Tax fees include professional services rendered for tax compliance and tax advisory services. These services include the review of certain tax returns, tax audit assistance and advising on legal entity restructuring. |
(4) | All other fees include publications and online subscriptions/content. |
Audit Committee Pre-Approval Policy
The Audit Committee must pre-approve any audit or consulting relationship withpermissible non-audit services. The Audit Committee pre-approves all audit and permissible non-audit services provided by the Company. Underindependent auditors. These services may include audit services, audit-related services, tax services and other services. Pre-approval is detailed as to the termsparticular service or category of his employment agreement, Mr. Steinservices and is alsogenerally subject to certain confidentialitya specific budget. The independent auditors and non-disclosure obligations, and the Company has agreed, so long as Mr. Stein is not in breach of certain of his obligations under his employment agreement,management are required to among other things, indemnify himperiodically report to the fullestAudit Committee regarding the extent permitted by Delaware law against all costs, charges and expenses incurred or sustained by him in connection with any action, suit or proceeding to which he may be made a party by reason of his being or having been a director, officer or employee of the Company or his serving or having served any other enterprise as a director, officer or employee at the Company’s request.
Employment Agreement with Mr. Howley, Executive Chairman
Mr. Howley has been a party to an employment agreement with TransDigm Inc. or TransDigm Group Incorporated since 2003. The agreement, pursuant to which Mr. Howley serves as Executive Chairman of the Company, was most recently amended and restated in April 2018. Unless earlier terminatedservices provided by the Company or Mr. Howley, the current term of Mr. Howley’s employment agreement expires on September 30, 2024. The agreement does not have a provision for renewal.
Under the terms of the agreement, Mr. Howley’s annual base salary is $1,369,668 per annum for calendar year 2019, $1,451,848 for calendar year 2020, $1,538,959 for calendar year 2021, $1,631,297 for calendar year 2022, $864,587 for calendar year 2023 and $916,463 for calendar year 2024. Mr. Howley will receive $7,000 of that amount in cash to cover hisemployee co-premiums for health benefits and related taxes. The remainder of the base salary will be paid by the issuance of performance-vesting options in lieu of cash as determinedindependent auditors in accordance with this pre-approval, and the following sentence. The numberfees for the services performed to date. All non-audit services were preapproved by the Audit Committee.
Although the Audit Committee may select our independent accountants without stockholder approval, the Audit Committee will consider the affirmative vote of options will be determined by taking the applicable salary minus $7,000 times 1.375 and then using the amount derived from that calculation as the valuea majority of the option award. The number of options willshares present in person or by proxy and entitled to vote on the proposal to be determined on a Black Scholes basis (using consistent applicationratification by the stockholders of the assumptions used byselection of Ernst & Young LLP as TransDigm’s independent accountants. Abstentions will have the Company in calendar 2014 whensame effect as a vote against the prior employment agreement was executed, other than the priceproposal. Ratification of the stock), and valued using the average closing prices for the 45 trading days immediately prior to the grant date. In addition, Mr. Howley is entitled to participate inAudit Committee’s selection of the Company’s annual cashindependent accountants is a “routine” matter so there should be no broker non-votes.
The Board of Directors unanimously recommends that stockholders vote FOR Proposal 2 |
Proposal No. 3 – Advisory Vote on Executive Compensation
Our executive compensation program is designed to motivate and reward exceptional performance. We believe that the compensation of our named executive officers appropriately reflects and rewards their significant contributions to TransDigm’s strong performance over the long- and short-term. In the past year or so, we have made several changes to our compensation in response to stockholder feedback, including:
Eliminating overlapping metrics in our long-term and short-term incentive plan withplans
Adopting a target bonus of 125% of his base salary but the annual incentivepolicy that we will be paid by the issuance ofnot use discretion in vesting performance-based options in lieu of cash as determinedthe future
Adopting a policy that we will not make discretionary amendments to any then current-year performance targets in an identical manner as the manner in which the number of options in lieu of salary is determined.future
For options granted in lieu of cash salary and bonus, theRe-implementing annual operating performance vesting criteria for the options will be no less favorable than the performanceoption vesting criteria used by the Companyfor fiscal year 2022 and beyond (including for options granted in fiscal 2016 and 2017. The2020-21)
Eliminating alternate market vesting in options grantedstarting last year, in fiscal 2019 and fiscal 20202021
Eliminating cash dividend equivalents for directors (including our CEO) for future dividends, such that directors will vest, to the extent the performance criteria is met, 80% at completiononly receive adjustment of the first fiscal year after the grant and 20% after the second fiscal year after the dateexercise price of grant; and the options grantedas contemplated by our stock option plan
Terminating the executive chair employment agreement early to eliminate dual CEO compensation starting in fiscal 2021, 2022 and 2023 will vest, to the extent the performance criteria is met, 100% at completion of the first fiscal year after the grant. These options will include provisions with regard to post-employment vesting upon termination of employment by reason of death, disability, good reason, without cause or retirement (each as defined in the employment agreement). For more detail see “Potential Payments Upon Termination or Change in Control—Termination Payments for W. Nicholas Howley, Executive Chairman” on pages46-47. Mr. Howley may elect one time during the term of the employment agreement not to continue to receive equity in lieu of his cash compensation and to receive his salary and annual incentive in cash for the remainder of the term of the agreement.
Mr. Howley’s employment agreement provides that if he is terminated for any reason, he will be entitled to payment of any accrued but unpaid base salary through the termination date and any unreimbursed expenses. If Mr. Howley’s employment is terminated:
without cause (as defined in the employment agreement),
due to his death or disability (as defined in the employment agreement), or
by Mr. Howley for certain enumerated good reasons, which include: (i) a material diminution in Mr. Howley’s title, duties or responsibilities (including reporting responsibilities), without his prior written consent; (ii) Mr. Howley isnot re-elected to the Board; (iii) the Company requires Mr. Howley, without his prior written consent, to be based at any specific office or location; (v) any material breach of the agreement by the Company; or (v) there is a reduction in Mr. Howley’s aggregate cash compensation (including bonus opportunities), or a change in Mr. Howley’s benefits such that following such change, Mr. Howley’s benefits are not substantially comparable to those to which he was entitled prior to such change,
then the Company will pay Mr. Howley (a) two times his annual salary minus an amount equal to the portion of annual base salary for the remainder of the calendar year in which the termination occurs that has already been included in the grant of options, but if Mr. Howley resigns for good reason because he was notre-elected to the Board, the Company will pay only one times his salary, (b) two times the greater of (i) all bonuses paid or payable to Mr. Howley for the fiscal year immediately prior to the date of termination or (ii) target bonuses for the fiscal year in which the date of termination occurs, determined in accordance with the Company’s bonus program, if any, but if Mr. Howley resigns for good reason because he was notre-elected to the Board, the Company will pay only one times his bonus amount, and (c) 18 times the monthly cost of the difference between hisemployee co-premiums for health insurance at the time of termination and the COBRA cost for such coverage, and in each case the payments will be payable in equal monthly installments over thetwo-year period following his termination. After Mr. Howley retires, the Company has agreed to pay for a Medicare supplemental policy and supplemental medical reimbursement coverage for Mr. Howley to the extent necessary to conform to the Company’s coverage amounts, less the amount of any Company employee portion of the premium under the Company’s self-insurance program as if Mr. Howley were covered under those benefit plans. The Company also agreed to retain a health insurance consultant to assist Mr. Howley in evaluating coverage and handling the administrative burden of the Medicare and insurance enrollment process and managing claims issues.
The agreement also provides that Mr. Howley will receive annual grants of a number of options valued at $12,163,744 in fiscal 2019, $12,589,475 in fiscal 2020, $13,030,107 in fiscal 2021, $13,486,160 in fiscal 2022, $6,979,088 in fiscal 2023 and $7,223,356 in fiscal 2024 on a Black Scholes basis (using consistent application of assumptions used by the Company in calendar 2014, other than stock price), increasing annually by 3.5%. The performance vesting criteria for the options shall be no less favorable than the performance vesting criteria used by the Company for options granted in fiscal 2016 and 2017. The options granted in 2019, 2020 and 2021 vest 40% at completion of the first fiscal year following grant, 40% at completion of the second year following grant and 20% at completion of the third year following grant. The options granted in 2022, 2023 and 2024 vest 50% at completion of the first fiscal year following grant and 50% at completion of the second year following grant. These options will include provisions with regard to post-employment vesting upon termination of employment by reason of death, disability, good reason, without cause or retirement (each as defined in the agreement). For more detail see “Potential Payments Upon Termination or Change in Control—Termination Payments for W. Nicholas Howley, Executive Chairman” on pages46-47.
During the term of Mr. Howley’s employment and following any termination of his employment, for a period of 24 months, Mr. Howley will be prohibited from engaging in any business that competes with any business of TransDigm Inc. or any entity owned by TransDigm Inc. and from rendering services to any person or entity designed to assist such person or entity to acquire a business that the Company has pursued or had demonstrable plans to pursue as an acquisition target within 24 months prior to Mr. Howley’s termination. In addition, during the term of his employment and forthe two-year period following the termination of Mr. Howley’s employment for any reason, he will be prohibited from soliciting or inducing any person who is or was employed by, or providing consulting services to, the
Company duringthe 12-month period prior to the date of the termination of his employment, to terminate their employment or consulting relationship with the Company. Under the terms of his employment agreement, Mr. Howley is also subject to certain confidentialityand non-disclosure obligations, and the Company has agreed, so long as Mr. Howley is not in breach of certain of his obligations under his employment agreement, to, among other things, indemnify him to the fullest extent permitted by Delaware law against all costs, charges and expenses incurred or sustained by him in connection with any action, suit or proceeding to which he may be made a party by reason of his being or having been a director, officer or employee of the Company or his serving or having served any other enterprise as a director, officer or employee at the Company’s request.
Employment Agreements with Other Named Executive Officers
Mr. Lisman entered into an employment agreement with the Company on July 27, 2018 on his promotion to Chief Financial Officer. Unless earlier terminated by the Company or Mr. Lisman the term of his agreement extends until December 31, 2023, with no automatic right of renewal.
Mr. Henderson entered into an employment agreement with the Company on February 24, 2011. The agreement was amended several times, most recently in November 2018. Mr. Henderson currently serves as Vice Chairman of the Company. Unless earlier terminated by the Company or Mr. Henderson the term of his agreement extends until December 31, 2021. The agreement has no automatic right of renewal.
Mr. Iversen entered into an employment agreement with the Company on February 24, 2011. The agreement was amended several times, most recently in November 2016. Mr. Iversen currently serves as Executive Vice President – Mergers & Acquisitions and Business Development of the Company. Unless earlier terminated by the Company or Mr. Iversen the term of his agreement extends until October 1, 2020. The agreement automatically renews for atwo-year period on expiration.
As of September 30, 2019, Mr. Lisman’s, Mr. Henderson’s and Mr. Iversen’s respective annual base salaries were $470,000, $795,000 (paid in options) and $450,000 and their annual incentive was targeted at 80% of their respective salaries. Under the terms of the employment agreements the annual base salary is subject to annual review but may be increased and not decreased subject to such review. Mr. Henderson receives his base salary and annual incentive primarily in equity.
The employment agreements provide that if Mr. Lisman, Mr. Henderson or Mr. Iversen is terminated for any reason, he will be entitled to payment of any accrued but unpaid base salary through the termination date, any unreimbursed expenses, an amount for accrued but unused sick and vacation days, and benefits owing to him under the benefit plans and programs sponsored by the Company. In addition, if his employment is terminated:
without cause (as defined in his employment agreement)
by the executive officer for certain enumerated good reasons, which include: a material diminution in the his title, duties or responsibilities, without his prior written consent; a reduction of his aggregate cash compensation (including bonus opportunities), benefits or perquisites, without his prior written consent; the Company requires him, without his prior written consent, to be based at any office or location that requires a relocation greater than 30 miles from his current office; or any material breach of this Agreement by the Company; or
due to his death or disability (as defined in his employment agreement),
then the Company will pay (a) Mr. Henderson and Mr. Iversen (after 90 days’ notice) one times his annual salary and Mr. Lisman 1.25 times his annual salary, (b) Mr. Henderson and Mr. Iversen one times and Mr. Lisman 1.25 times the greater of (i) all bonuses paid or payable to the executive for the fiscal year immediately prior to the date of termination or (ii) target bonuses for the fiscal year in which the date of termination occurs, determined in accordance with the Company’s bonus program, if any, and (c) 18 times the monthly cost of the difference between the executive’semployee co-premiums for health insurance at the time of termination and the COBRA cost for such coverage, and in each case the payments will be payable in equal monthly installments overthe two-year period following his termination.
During the term of each executive officer’s employment and following any termination of his employment, for a period of 12 months in the case of a termination without cause or for enumerated good reasons, or 24 months in the event of his voluntary termination without enumerated good reasons or termination for cause, the executive officer will be prohibited from engaging in any business that competes with any business of the Company or any entity owned by TransDigm Inc. In addition, during the term of his employment and for thetwo-year period following the termination of each executive officer’s employment for any reason, he will be prohibited from soliciting or inducing any person who is or was employed by, or providing consulting services to, the Company duringthe 12-month period prior to the date of the termination of his employment, to terminate their employment or consulting relationship with the Company. Under the terms of his employment agreement, each executive officer is also subject to certain confidentialityand non-disclosure obligations, and the Company has agreed, so long as the executive officer is not in breach of certain of his obligations under his employment agreement, to, among other things, indemnify him to the fullest extent permitted by Delaware law against all costs, charges and expenses incurred or sustained by him in connection with any action, suit or proceeding to which he may be made a party by reason of his being or having been a director, officer or employee of the Company or his serving or having served any other enterprise as a director, officer or employee at the Company’s request.
PROPOSAL TWO: ADVISORY VOTE ON EXECUTIVE COMPENSATION
The following proposal provides stockholders the opportunity to cast an advisory vote on the Company’sour compensation for named executive officers (a “say-on-pay vote”) by voting for or against the following resolution. As an advisory vote, this proposalis non-binding. Although the vote is non-binding, the voteis non-binding, the Board of Directors and the Compensation Committee will consider the results of the vote when making future compensation decisions for the Company’sTransDigm’s named executive officers.
“RESOLVED, that the stockholders approve the compensation of the Company’sTransDigm’s named executive officers, as disclosed in the Compensation Discussion and Analysis, the compensation tables, and the related disclosure contained in the proxy statement set forth under the caption “EXECUTIVE COMPENSATION” in this proxy statement.”
The approval of executive compensation is an advisory vote; however, the Board of Directors and the Compensation Committee will consider the affirmative vote of a majority of shares present in person or by proxy and entitled to vote on the proposal as approval of the compensation paid to the Company’s named executive officers. Broker non-votes will not have a positive or negative effect on the outcome of the proposal. Abstentions will have the same effect as a vote against the proposal.
The Board of Directors unanimously recommends that you vote FOR
|
TransDigm knows of no other matters to be submitted to stockholders at the Annual Meeting, other than the proposals identified in this Proxy Statement. If any other matters properly come before stockholders at the Annual Meeting, it is the intention of the persons named on the proxy to vote the shares represented thereby on such matters in accordance with their best judgment.
AUDIT COMMITTEE REPORTOTHER INFORMATION
This section includes the Audit Committee Report, information about stock ownership and other general information.
In accordance with its written charter adopted by the Board of Directors, the Audit Committee assists the Board of Directors in fulfilling its responsibility for oversight of the quality and integrity of theTransDigm’s accounting, auditing and financial reporting practices of the Company.practices. The Audit Committee meets at least quarterly to review quarterly or annual financial information prior to its release and inclusion in SEC filings. As part of each meeting, the Audit Committee has the opportunity to meet independently with management and the Company’sTransDigm’s independent registered public accounting firm.
In discharging its oversight responsibility as to the audit process, the Audit Committee obtained a formal written statement from the independent registered public accounting firm describing all relationships between the independent registered public accounting firm and the CompanyTransDigm that might bear on the independent registered public accounting firm’s independence consistent with Independence Standards Board Standard No. 1, “Independence Discussions with Audit Committees,” discussed with the independent registered public accounting firm any relationships that may impact its objectivity and independence, and satisfied itself as to the independent registered public accounting firm’s independence.
The Audit Committee reviewed and discussed with the independent registered accounting firm all matters required to be discussed pursuant to auditing standards adopted by the Public Company Accounting Oversight Board.
The Audit Committee reviewed and discussed theTransDigm’s audited financial statements of the Company for the year ended September 30, 20192021 with management and the independent registered public accounting firm. Management has the responsibility for the preparation of the Company’sTransDigm’s financial statements, and the independent registered public accounting firm has the responsibility for the examination of those statements.
Based on the above-described review and discussions with management and the independent registered public accounting firm, the Audit Committee recommended to the Board of Directors that the Company’sTransDigm’s audited financial statements be included in its Annual Reporton Form 10-K for the year ended September 30, 20192021 for filing with the Securities and Exchange Commission.
Audit Committee
Sean P. Hennessy, Chairman
William DriesJane Cronin
Gary E. McCullough
Michele Santana
Robert Small
John Staer
PROPOSAL THREE: RATIFICATION OF THE SELECTION OF ERNST & YOUNG LLP AS THE COMPANY’S INDEPENDENT ACCOUNTANTS
Ernst & Young LLP has served as independent registered public accounting firm to the Company since 2004 and is expected to do so for the fiscal year ending September 30, 2020. A representative of Ernst & Young LLP is expected to be present, and available to respond to appropriate questions, at the Annual Meeting and will have an opportunity to make a statement, if desired.
Stockholder ratification of the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm is not required by the Company’s bylaws or otherwise. However, the Company is submitting the selection of Ernst & Young LLP to the stockholders for ratification as a
matterSecurity Ownership of good corporate practice. If the stockholders do not ratify the selection, the Audit Committee will reconsider whether to retain the firm. In such event, the Audit Committee may retain Ernst & Young LLP, notwithstanding the fact that the stockholders did not ratify the selection, or select another nationally recognized accounting firmwithout re-submitting the matter to the stockholders. Even if the selection is ratified, the Audit Committee reserves the right in its discretion to select a different nationally recognized accounting firm at any time during the year if it determines that such a change would be in the best interests of the CompanyCertain Beneficial Holders and its stockholders. Below are the fees billed to the Company for the 2018 and 2019 fiscal years:
Audit Fees
Ernst & Young billed the Company an aggregate of approximately $5,347,000 in fees for professional services rendered in connection with the audit of the Company’s annual consolidated financial statements and reviews of the consolidated financial statements of the Company included in its quarterly reports during fiscal year ended September 30, 2018 and approximately $9,734,000 during fiscal year ended September 30, 2019.
Audit-Related Fees
The Company did not use Ernst & Young for audit related fees during the fiscal year ended September 30, 2018. Ernst & Young billed the Company an aggregate of approximately $504,000 in fees for audits of pension plans andcarve-out financial statements for the fiscal year ended September 30, 2019.
Tax Fees
Ernst & Young billed the Company an aggregate of approximately $566,000 in fees for professional services rendered for the fiscal year ended September 30, 2018 and approximately $1,000,000 for the fiscal year ended September 30, 2019. Such services principally included assistance and consultation provided to the Company in connection with tax compliance.
All Other Fees
Ernst & Young billed the Company $3,000 in feesfor non-audit services related to an agreed-upon procedures report during the fiscal year ended September 30, 2018 and $28,000 during fiscal year ended September 30, 2019.
AuditCommittee Pre-Approval PolicyManagement
The Audit Committeemust pre-approve any audit orpermissible non-audit services. The AuditCommittee pre-approves all audit andpermissible non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services and otherservices. Pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent auditors and management are required to periodically report to the Audit Committeefollowing table sets forth information regarding the extentbeneficial ownership of services provided byTransDigm common stock as of May 18, 2022 with respect to each person known to be a beneficial owner of more than five percent of the independent auditors in accordance withthis pre-approval, and the fees for the services performed to date.All non-audit services were preapproved by the Audit Committee.outstanding common stock.
Name and Address of Beneficial Holder | Amount and Nature of Beneficial Ownership | Percentage of Class (4) | ||||||
Capital International Investors(1) |
| 6,557,837 |
|
| 12.01% |
| ||
333 South Hope Street, 55th Floor | ||||||||
Los Angeles, CA 90071 | ||||||||
The Vanguard Group, Inc.(2) |
| 5,602,332 |
|
| 10.26 |
| ||
100 Vanguard Blvd. | ||||||||
Malvern, PA 19355 | ||||||||
Principal Global Investors, LLC (3) |
| 3,084,248 |
|
| 5.65 |
| ||
801 Grand Avenue | ||||||||
Des Moines, IA 50392 |
(1) | Information obtained from a Schedule 13G/A filed by Capital International Investors on February 11, 2022 and a Form 13F-HR filed May 19, 2022 reporting holdings as of March 31, 2022. Capital International Investors has sole voting power over 6,555,428 shares. |
(2) | Information obtained from a Schedule 13G/A filed by The |
(3) | Information obtained from a Schedule 13G filed by Principal Global Investors on February 15, 2022 and Form 13F-HR filed May 9, 2022 by Principal Financial Group Inc. reporting holdings as of |
(4) | Percentage of May 18, 2022. |
PROPOSAL FOUR: STOCKHOLDER PROPOSAL
The Company has been advisedfollowing table sets forth information regarding the beneficial ownership of TransDigm common stock as of May 18, 2022 with respect to each director and named executive officer and all directors and executive officers as a group. Except as indicated in the footnotes to this table and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock listed as beneficially owned by a representativethem. None of the Comptroller of the City of New York, the custodian and/shares held by directors or a trustee of the New York City Employees’ Retirement Systems, the New York City Fire Pension Fund, the New York City Teachers’ Retirement System, the New York City Police Pension Fund and the New York City Board of Education Retirement System (collectively, the “Proponents”), that the Proponents intend to submit the following proposal at the annual meeting.executive officers are pledged. The Company will promptly provide the addresses of the Proponents and the number of shares owned by them upon request directed to the Company’s Secretary.
In accordance with federal securities regulations, the proposal and supporting statement are set forthaddress for each individual listed below exactly as submitted by the Proponent. The Company is not responsible for the contents of the proposal or the supporting statement. If the proposal is properly presented at the annual meeting,the Board of Directors unanimously recommends that stockholders voteAGAINSTthis proposal.
* * * *
Proposal and Supporting Statement
Greenhouse gas emissions reduction targets
Resolved: Shareholders request thatc/o TransDigm Group Inc. adopt a policy with time-bound, quantitative, company-wide goals for managing greenhouse gas (GHG) emissions, taking into account the objectives of the Paris Climate Agreement, and report, at reasonable cost and omitting proprietary information on its plans to achieve these targets.Incorporated, 1301 East Ninth Street, Suite 3000, Cleveland, Ohio 44114.
Supporting Statement:It is appropriate for shareholder to request that TransDigm set goals for managing GHG emissions because such goals help to mitigate a critically important issue for civil society and businesses – climate change.
Scientists expect that failure to mitigate climate change will lead to additional sea level rise, more extreme weather, mass migration, and public health impacts from heat waves, fires, and changing disease vectors. In one shocking worst case scenario – a 4 degree centigrade increase in global temperatures – the World Bank has stated it may not be possible for humanity to adapt.
To manage the risks posed by climate change, representatives from approximately 195 countries adopted the Paris Climate Agreement, which aims to limit the increase in global average temperature – and the most devastating social impacts of climate change – by reducing GHG emissions. Transitioning to thelow-carbon future envisioned in the Accord is likely to fundamentally transform the global economy and the competitive environment in which all corporations operate.
This proposal requests adoption of a high level policy with goals, but leaves the nature, timing and level of the goals entirely up to Transdigm’s (sic) discretion. The proposal is not an attempt to micromanage but to set a guiding direction that can be assessed by shareholders.
The GHG management goals requested are intended to be integrated with other the (sic) goals the company has adopted. Well over 60% of Fortune 100 companies have already set GHG emissions targets, presumably while taking into consideration other corporate goals and policies.[1] Operating a company by striving to meet a variety of specific goals is a standard business practice.
Examples of companies with GHG reduction goals include: Walmart, Apple, Johnson & Johnson, GM, AT&T, Procter & Gamble, JP Morgan Chase, McDonald’s and Microsoft.[2]
Transdigm’s (sic) peers in the aerospace and defense industry that have set GHG management goals include United Technologies, Boeing, Lockheed Martin and Northrup Grumman.
Large institutional investors such as BlackRock and State Street Global Advisors have publicly and privately called on companies to address climate change. A State Street white paper states: “We view establishing company-specific GHG emissions targets as one of the most important steps in managing climate risk.”[3] Investors are concerned about climate impacts on individual companies as well as portfolio-wide risks related to changing regulations and costs associated with extreme weather events.
There are numerous cost-effective ways for companies to reduce GHG emissions and help protect society from the worst impacts of climate change while reaping financial benefits.
* * * *
Statement of the Board of Directors in Opposition to the Stockholder Proposal
The Board of Directors believes the proposal is not in the best interests of the Company or its stockholders and unanimously recommends a voteAGAINST the proposal for the following reasons.
The Company and the Board of Directors recognize the significance of climate change and the importance of managing the environmental impact of the operations of the Company’s businesses, and they understand that these issues are increasingly a focus of stockholders, customers and employees. However, after careful consideration, the Board does not believe that the prescriptive approach outlined in the proposal is in the best interests of the Company or its stockholders at this time. The proponent submitted a nearly identical proposal last year and the Company had the opportunity to engage with investors and understand the increasing importance of disclosure by the Company of how it is managing the environmental impact of its operations. During that engagement the Company committed informally to a number of investors to disclose more information about its practices.
Beneficial Owner David Barr 31,843 4,960 36,803 * Jane Cronin 388 0 388 * Mervin Dunn 1,762 13,088 14,850 * Michael Graff(2) 23,016 5,480 28,496 * Sean Hennessy 33,935 11,888 45,823 * W. Nicholas Howley(3) 29,809.513 961,868 991,677.513 1.82 Raymond Laubenthal(4) 205,492 4,960 210,452 * Gary E. McCullough 852 4,960 5,812 * Michele Santana 461 2,925 3,386 * Robert Small(5) 2,677,471 13,088 2,690,559 4.93 John Staer(6) 117 8,610 8,727 * Kevin Stein(7) 8,158 280,600 288,758 * Michael Lisman 2,309 93,770 96,079 * Jorge L. Valladares III(8) 11,000 185,400 196,400 * Sarah Wynne(9) 610 24,760 25,370 * Robert Henderson(10) 10,000 208,605 218,605 * All directors and officers as a group (16 persons)(11) 3,028,116.513 1,854,192 4,892,298.513 8.96In response to our engagement with investors, this proxy includes further information about the ways in which the Company is cognizant of environmental issues. This disclosure is a first step and the Company intends to continue its commitment to report more environment-related information in a way that makes sense for the Company and its operating units. As investors know, calendar 2019 was a busy year for the Company. Last year during proxy season, the Company had only 46 employees. Currently, the Company’s corporate office still only includes 60 employees. In 2019 the Company signed the purchase agreement for and completed its largest acquisition to date – the $4 billion acquisition of Esterline. The acquisition was completed significantly ahead of schedule – in six months. The acquisition took the number of employees from 10,100 to around 21,000, the number of reporting Amount and Nature of Beneficial Ownership(1) Shares Shares Subject to
Options Currently
Exercisable or
Exercisable within 60
Days Total Number of Shares Percentage of Class
* | Less than 1% |
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(4) | Includes 48,897 shares held in trust for the benefit of Mr. Laubenthal’s children. Mr. Laubenthal does not have any direct voting or dispositive power over the trust or economic interest therein and therefore, disclaims beneficial ownership. |
(5) | Includes 2,575,967 shares held by entities related to Berkshire Partners LLC. Mr. Small disclaims beneficial ownership of all shares owned or controlled by the Berkshire entities except to the extent of any pecuniary interest therein. Also includes 60,044 shares held by Mr. Small as trustee over which he has voting power but does not have any economic interest. |
(6) | Includes 26 shares held by Mr. Staer’s wife. |
(7) | Includes 1,347 shares held in trust for the benefit of Mr. Stein’s family. |
(8) | Includes options to purchase 12,600 shares that are held in trust for the benefit of Mr. Valladares’ children. |
(9) | Includes 10 shares held by Ms. Wynne’s husband. |
(10) | Mr. Henderson retired on December 31, 2021. Stock ownership based on last known information as of January 10, 2022. |
(11) | Includes shares subject to options exercisable within 60 days of May 18, 2022. Includes (i) 4,000 shares held by Mr. Graff as trustee, 13,096 held by a trustee of a trust created by Mr. Graff’s wife and 1,200 shares held by Mr. Graff’s wife (see footnote (2)), (ii) 8,262 shares held by Mr. Howley as trustee |
operating units from 34 to 54 and the number of manufacturing locations from approximately 69 to 123 in March 2019. Since March, those 60 corporate employees have worked to sell four acquired businesses in two separate transactions, close the Esterline Bellevue office, integrate the Esterline business units into the Company’s financial and operational reporting system, teach and assist in the implementation of the Company’s value drivers to the Esterline businesses, combine corporate retirement and welfare benefits, transition Esterline corporate-wide IT systems to the various operating units and create new policies and procedures for the combined entities. Because of the strain on the corporate organization, the manner in which the Company is so intensely decentralized and the strain on the decentralized Esterline operating units in connection with the integration, gathering and reporting more quantitative environment-related information for 2019 was not feasible, however the Company will endeavor to report more information deemed to be important to investors.
Nonetheless, the Board does not believe that implementation of a policy with “time-bound, quantitative, company-wide goals” for managing greenhouse gas (“GHG”) emissions would be appropriate for the Company. The proposal represents aone-size-fits-all approach to a complicated issue that does not sufficiently account for the Company’s distinct businesses and operating structure.
The Company’s core organizational philosophy revolves around an enterprise-wide value generation strategy largely developed at the corporate level, with a significant degree of autonomy retained by the management of approximately 50 separate operating units to determine how to best execute that strategy. By keeping these operating units small and focused with limited corporate interference inday-to-day operations, this highly decentralized approach is fundamental to achieving value for the Company’s stockholders. The Board of Directors believes the degree of decentralization of its operations is unique among its peers, and is a key to the Company’s success, resulting in average total returns to TransDigm shareholders of 28% over the last five fiscal years and 38% over the last 10 fiscal years, well in excess of returns from the S&P 500.
Atop-down approach to establishing company-wide quantitative and time-bound goals related to GHG emissions that was driven at the corporate level would not be practical for the Company. Our business model uses an entrepreneurial and decentralized approach, and environment and health and safety issues are handled on a local basis.The Company’s 50 operating units, with over 100 manufacturing locations in North America, Europe and Asia, produce numerous products, have different energy needs, face varied regulatory requirements and otherwise have different strategies and characteristics. More importantly, subjugating the judgment of operating unit management to rigid corporate goals of this nature would represent interference in theday-to-day functioning of its operating units that is fundamentally inconsistent with the Company’s longstanding and successful decentralized operating structure.
Rather, in order to establish company-wide goals, the Company would need to direct its 50 operating units to establish, and then endeavor to achieve, their own quantitative and time-bound goals that could then be rolled into company-wide goals. This would be an exhaustive process, diverting the limited time, attention and resources of operating unit and local management without regard to whether or not quantitative, time-bound goals were appropriate for the various businesses and circumstances of these operating units. It would also be an ongoing process, as the Company’s acquisition activities would require continuous reassessment of the company-wide goals. A report on plans to achieve these goals as requested by the proposal would be excessively complex, necessarily detailing the plans of the numerous and various operating units.
The Board of Directors does not believe that the policy requested by the proposal is in the best interests of stockholders because the substantial burdens imposed on the Company’s operating units would not be justified by the potential benefits. The Company’s businesses are generally engaged in light manufacturing and assembly of aerospace components ordered in small quantities, and as such they produce very limited direct emissions of greenhouse gases, are not heavy consumers of energy or
other utilities and do not utilize Company-owned fleets for product distribution. Because many of the products sold by the Company’s businesses are relatively small mechanical or electrical components, transportation requirements and related emissions and energy consumption are limited. As a supplier in the large and complex aerospace supply chain, most of the products sold by the Company’s businesses must meet specific requirements of commercial and militaryend-users and particular aircraft, as well as regulatory requirements, and the Company has minimal impact on the emissions profile of the broader aerospace industry in which it operates.
Although the prescriptive approach of the proposal is not appropriate for the Company for the foregoing reasons, we have endeavored to provide information to investors in this proxy statement about our commitments to the health and safety of our employees, customers and users of our product and our efforts to protect the environment. We are committed to improve the quality of this disclosure over time and look forward to further engagement with investors on these issues.
Therefore, although the Company and its Board of Directors recognize the significance of climate change and are committed to both supporting the operating units as they manage the environmental impact of their operations and continuing to further enhance our disclosure regarding these issues, the Board does not believe that the approach set forth in the proposal is in the best interests of the Company or its stockholders.
For these reasons, the Board of Directors UNANIMOUSLY recommends that you vote AGAINST this stockholder proposal.
benefit of Mr. Laubenthal’s children (see footnote (4)), (iv) 2,575,967 shares held by entities related to Berkshire Partners LLC and 60,044 shares held by Mr. Small as trustee (see footnote (5)), (v) 26 shares held by Mr. Staer’s wife (see footnote (6)), (v) 1,347 shares held in trust for the benefit of Mr. Stein’s family (see footnote (7)), (vi) options to purchase 12,600 shares held in trust for the benefit of Mr. Valladares’ children (see footnote (8)), (vii) 10 shares held by Ms.Wynne’s husband (see footnote (9), and (viii) 4 shares held by Halle Martin as custodian for her children and one share held by her husband. |
DELINQUENT SECTIONDelinquent Section 16(a) REPORTSReports
Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors and executive officers, and owners of more than 10% of a registered class of the Company’s equity securities, to file with the SEC and the New York Stock Exchange initial reports of ownership and reports of changes in ownership of common shares and other equity securities of the Company. Executive officers, directors and owners of more than 10% of the common shares are required by SEC regulations to furnish the Company with copies of all forms they file pursuant to Section 16(a). To the Company’s knowledge, based solely on review of the copies of such reports furnished to the Company and representations from executive officers and directors that no other reports were required, in addition to late filings previously disclosed, during the fiscal year ended September 30, 2019, all Section 16(a) filing requirements applicable to its executive officers, directors and greater than 10% beneficial owners were complied with, except for2021, the following: W. Nicholas Howley, the Company’s Executive Chair,Company is aware that (i) Mr. Henderson exercised 10,000 options and sold the shares received on such exercise on February 24, 2021; because of inadvertence on the part of a Company employee, the exercise and sale was not reported until December 9, 2021 when the transactions were uncovered during year-end reviews and (ii) Mr. Laubenthal made gifts between March 2020 and March 2021 and sold 10,000 in three transactions during May and June 2021, all of which were not reported until January 12, 2022; the transactions were not reported to the Company for filing by Mr. Laubenthal’s financial advisors as Mr. Laubenthal and the Company had reason to expect and were discovered by the Company in preparation of the beneficial ownership table.
General Information Regarding the 2022 Annual Meeting of Stockholders
Location, Date and Time and Record Date
Location: | 1301 E. Ninth St., Suite 3000, Cleveland, Ohio 44114 | |
Date: | Tuesday, July 12 | |
Time: | 9:00 am Eastern Time |
The record date for the annual meeting is May 18, 2022. Only stockholders of record as of the close of business on this date are entitled to vote at the annual meeting.
You are invited to vote on the proposals described in this proxy statement because you were a TransDigm stockholder on the record date.
TransDigm is soliciting proxies for use at the annual meeting, including any postponements or adjournments. In the interest of saving time and money, TransDigm has opted to provide the Annual Report on Form 10-K for the year ended September 9, 2019 but30, 2021 in lieu of producing a glossy annual report.
Attending the Form 4 was inadvertently filed one day lateAnnual Meeting
The meeting will be held at 1301 E Ninth Street, Suite 3000, Cleveland, Ohio 44114 on SeptemberTuesday, July 12, 2019 and Halle Terrion,2022, at 9:00 a.m. Eastern time. For directions to the meeting, call Investor Relations at 216-706-2945.
Only stockholders as of the record date, or their duly appointed proxies, may attend the meeting. If you hold your shares in “street name” (that is, through a broker or other nominee), your name does not
appear in the Company’s General Counselrecords, so you will need to bring a copy of your brokerage statement reflecting your ownership of shares of common stock as of the record date.
Even if you plan on attending the annual meeting, please vote in advance on the internet, by phone or by completing and Chief Compliance Officer, purchased shares on November 27, 2019,returning your proxy card to ensure that your vote will be represented at the day before Thanksgiving, but, dueannual meeting.
In the unlikely event that we determine that holding an in-person meeting is inadvisable or in conflict with federal, state or local executive orders, the Company may decide to instead hold a virtual annual meeting. If we decide to use this format, we will make a public announcement as soon as practicable prior to the holiday,meeting. In such event, to attend and participate in the virtual annual meeting, stockholders will need to access the live audio webcast of the meeting. To do so, stockholders of record will need to visit www.virtualshareholdermeeting.com/TDG2022 and use their 16-digit control number provided with this proxy statement to login and beneficial owners will need to follow the instructions provided by the broker, bank or oter nominee that holds their shares. Further instructions on how to attend, participate in and vote at the virtual annua meeting will be available at www.virtualshareholdermeeting.com/TDG2022. Please note you will only be able to participate in the meeting using this website if we decide to use a virtual annual meeting instead of holding an in-person meeting in Cleveland, Ohio.
Proxy Materials
These materials were first sent or made available to stockholders on June 1, 2022, and include:
The Notice of 2022 Annual Meeting of Stockholders
This Proxy Statement for the Annual Meeting
TransDigm’s Annual Report on Form 4 was inadvertently missed10-K for the year ended September 30, 2021
If you received printed versions by mail, these printed proxy materials also include the proxy card or voting instruction form for the annual meeting.
TransDigm uses the internet as the primary means of furnishing proxy materials to stockholders. We are sending a Notice of Internet Availability of Proxy Materials to our stockholders with instructions on how to access the proxy materials online or request a printed copy of the materials.
Stockholders may follow the instructions in the Notice of Internet Availability to elect to receive future proxy materials in print by mail or electronically by email. We encourage stockholders to take advantage of the availability of the proxy materials online to help reduce the environmental impact of our annual meetings and was filedreduce our printing and mailing costs.
Our proxy materials are also available at www.transdigm.com/investor-relations.
Eliminating Duplicate Mailings
We have adopted a procedure called “householding” whereby we may deliver a single copy of the notice of internet availability and, if you requested printed versions by mail, this proxy statement and the annual report to multiple stockholders who share the same address, unless we have received contrary instructions from one or more of the stockholders. This procedure reduces the environmental impact of our meetings, reduces the volume of duplicate information stockholders receive and reduces printing and mailing costs. Stockholders who participate in householding will continue to receive
separate proxy cards. Upon request, TransDigm will deliver promptly a separate copy of the notice of internet availability and, if you requested printed versions by mail, this proxy statement and the annual report to any stockholder that elects not to participate in householding. To receive, free of charge, a separate copy of the notice of internet availability and, if you requested printed versions by mail, this proxy statement or the annual report, or separate copies of any future notice, proxy statement, or annual report, you may write or call:
TransDigm Investor Relations
1301 E. Ninth Street, Suite 3000
Cleveland, OH 44114
Phone: (216) 706-2945
Email: ir@transdigm.com
If you are receiving more than one copy of the proxy materials at a single address and would like to participate in householding, please contact the bank, broker, or other organization that holds your shares to request information about eliminating duplicate mailings.
Quorum for the Annual Meeting
Holders of a majority of the shares entitled to vote at the annual meeting must be present at the annual meeting or represented by proxy for the transaction of business. This is called a quorum. Your shares will be counted for purposes of determining if there is a quorum if you have properly voted by proxy prior to the meeting or you are entitled to vote and present at the annual meeting. Broker non-votes and abstentions are counted for purposes of determining whether a quorum is present. If a quorum is not present, we may propose to adjourn the annual meeting and reconvene at a later date.
Proxy Solicitation Costs
TransDigm is paying the costs of the solicitation of proxies. We have retained Alliance Advisors LLC to assist in the distribution of proxy materials and the solicitation of proxies from brokerage firms, fiduciaries, custodians, and other similar organizations representing beneficial owners of shares for the annual meeting. We have agreed to pay Alliance Advisors a fee of approximately $22,000 plus out-of-pocket expenses. In addition to solicitations by mail, the proxy solicitor and directors, officers, and employees of TransDigm and its subsidiaries, without additional compensation, may solicit proxies on December 12, 2019.TransDigm’s behalf in person, by phone, or by electronic communication.
Voting
Each share of TransDigm common stock has one vote on each matter. Only “stockholders of record” as of the close of business on the record date are entitled to vote at the annual meeting. As of the record date, there were 54,605,594 shares of TransDigm common stock issued and outstanding. In addition to stockholders of record of TransDigm common stock, “beneficial owners of shares held in street name” as of the record date can vote using the methods described below.
Stockholders of Record. If your shares are registered directly in your name with TransDigm’s transfer agent, Computershare Trust Company, N.A., you are the stockholder of record with respect to those shares.
Beneficial Owners of Shares Held in Street Name. If your shares are held in an account at a bank, broker, or other organization, then you are the “beneficial owner of shares held in street name.” As a beneficial owner, you have the right to instruct the person or organization holding your shares how to vote your shares. Most individual stockholders are beneficial owners of shares held in street name.
There are three ways to vote:
• | Online Prior to the Annual Meeting. If you are a stockholder of record, you may vote by proxy by visiting www.proxyvote.com and entering the control number found in your notice of internet availability or proxy card. If you are a beneficial owner of shares held in street name, the availability of online voting may depend on the voting procedures of the organization that holds your shares. Your internet vote must be received by 11:59 p.m. Eastern time on Monday, July 11, 2022. |
Phone. If you are a stockholder of record, you may vote by proxy by calling 1-800-690-6903. You will need the control number found in your notice of internet availability or proxy card. If you are a beneficial owner of shares held in street name, the availability of telephone voting may depend on the voting procedures of the organization that holds your shares. Your telephone vote must be received by 11:59 p.m. Eastern time on Monday, July 11, 2022.
Mail. If you request printed copies of the proxy materials by mail, you will receive a proxy card or voting instruction form and you may vote by proxy by filling out the card or form and returning it in the envelope provided. If you are a beneficial owner of shares held in street name, you should complete the voting instruction card provided to you by your broker or nominee.
All shares represented by valid proxies received prior to the taking of the vote at the annual meeting will be voted and, where a stockholder specifies by means of the proxy a choice with respect to any matter to be acted upon, the shares will be voted in accordance with the stockholder’s instructions. Even if you plan on attending the annual meeting, we encourage you to vote your shares in advance online, by phone, or by mail to ensure that your vote will be represented at the meeting.
Revoking of Proxy
If you give a proxy, you may revoke it at any time by giving written notice to TransDigm at its principal address, by submitting a later dated proxy or by giving notice at the annual meeting. Your presence at the annual meeting, without any further action, will not revoke your previously granted proxy.
Uninstructed Shares
Stockholders of Record. If you are a stockholder of record and you indicate when voting online or by phone that you wish to vote as recommended by the Board or you sign and return a proxy statement without giving specific voting instructions then the persons named as proxy holders, Michael Lisman and Kevin Stein, will vote your shares in the manner recommended by the Board on all matters presented in this proxy statement and as they may determine in their best judgment with respect to any other matters properly presented for a vote at the annual meeting.
Beneficial Owners of Shares Held in Street Name. If you are a beneficial owner of shares held in street name and do not provide the broker that holds your shares with specific voting instructions, then such broker may generally vote your shares in their discretion on “routine” matters, but cannot vote on “non-routine” matters. Proposal No. 2 (the ratification of the appointment of Ernst & Young LLP as TransDigm’s independent registered public accounting firm for 2022) is a routine matter. A broker or other nominee may generally vote in their discretion on routine matters and therefore no broker
non-votes are expected in connection with Proposal No. 2. Proposal No. 1 (the election of directors) and Proposal No. 3 (advisory vote to approve executive compensation) are non-routine matters. If the organization that holds your shares does not receive instructions from you on how to vote your shares on a non-routine matter, that organization will inform the inspector of election that it does not have the authority to vote on the matter with respect to your shares. This is generally referred to as a “broker non-vote.” Therefore, broker non-votes may exist in connection with Proposals No. 1 and No. 3.
STOCKHOLDER PROPOSALS FOR 20212023 ANNUAL MEETING
Stockholder Proposal for Inclusion in Proxy Statement.If a stockholder wants to submit, in accordance with SEC Rule14a-8, a proposal for inclusion in our Proxy Statement and form of proxy for presentation at the Company’s 20212023 Annual Meeting of Stockholders, the proposal must be provided in the manner set forth in SEC Rule14a-8 and received by the Company at our principal executive offices at the address below by October 6, 2020.8, 2022. If a stockholder wants to propose any matter for consideration of the stockholders at the 20212023 Annual Meeting of Stockholders other than a matter brought pursuant to SEC Rule14a-8, our Bylaws require the stockholder to notify our Secretary in writing at the Company’s principal executive offices (address listed below) on or after December 25, 2020within a prescribed time period; that period is currently calculated to be April 13, 2023 to May 13, 2023, however the Company intends to hold its annual meeting earlier in 2023 and on or before January 24, 2021.intends to announce revised dates for submission once the meeting date and mailing date have been set.
Stockholder Proposal Not Included in Proxy Statement. If a shareholderstockholder submits a proposal after January 24, 2021,the specified period set forth above, the proxies designated by the Board may exercise their discretionary voting authority with respect to any such proposal, without our discussing the proposal in our proxy materials.
The Company’s bylaws provide certain procedures that a stockholder must follow to nominate personsDirector Nomination for election as directors. These procedures provide that nominations for director must be submittedInclusion in writing to the Secretary of the Company at its principal executive offices.Proxy Statement. The Company must receive the notice of a stockholder’s intention to introduce a nomination at the Company’s 2021 Annual Meeting of Stockholders between November 25, 2020 and December 25, 2020.
In addition, the Company’s bylaws provide proxy access to eligible stockholders. The proxy access bylaw provides that a stockholder, or group of up to 20 stockholders, that owns 3% or more of the Company’s outstanding common stock continuously for at least three years may submit director nominees for up to the greater of two directors or 20% of the Board seats provided that the stockholder and nominees satisfy the requirements specified in Article III, Section 4 of our bylaws (a “proxy access director nomination”). A stockholder’s notice of a proxy access director nomination must be delivered to the Company at its principal executive offices nowithin a prescribed time period; that period is currently calculated to be January 2, 2023 to February 1, 2023, however the Company intends to hold its annual meeting earlier than September 6, 2020in 2023 and no later than October 6, 2020.intends to announce revised dates for submission once the meeting date and mailing date have been set.
Director Nominations Not Included in Proxy Statement. If a stockholder does not meet the requirements for a proxy access director nomination, the stockholder may still nominate a director if the stockholder complies with certain procedures set forth in the Company’s Bylaws. These procedures provide that nominations for director must be submitted in writing to the Secretary of the Company at its principal executive offices. The Company must receive the notice of a stockholder’s intention to introduce a nomination at the Company’s 2023 Annual Meeting of Stockholders within a prescribed timed period; that period is currently calculated to be March 14, 2023 to April 13, 2023, however the Company intends to hold its annual meeting earlier in 2023 and intends to announce revised dates for submission once the meeting date and mailing date have been set. If a stockholder makes a director nomination that meets the requirements of the Bylaws but is not a proxy access director nomination, that nomination will not be discussed in our proxy materials.
The specific requirements and procedures for shareowner proposals, director nominations and proxy access director nominations are set forth in our bylaws. The Company reserves the right to reject, rule out of order, or to take other appropriate action with respect to any proposal or nomination that does not comply with these and other applicable requirements.
Notices of intention to present proposals or nominate directors at the 20212023 Annual Meeting, and all supporting materials required by our bylaws, must be submitted to: TransDigm Group Incorporated, c/o Secretary, 1301 East 9th St., Suite 3000, Cleveland, OH 44114.
The SEC permits a single set of annual report and proxy statement to be sent to any household at which two or more stockholders reside if they appear to be members of the same family. Each stockholder continues to receive a separate proxy form. This procedure, referred to as householding, reduces the volume of duplicate information stockholders receive and reduces mailing and printing costs. A number of brokerage firms have instituted householding. Only one copy of this proxy statement and the attached annual report will be sent to certain beneficial stockholders who share a single address, unless any stockholder residing at that address gave contrary instructions. If any beneficial stockholder residing at such an address desires at this time to receive a separate copy of this proxy statement and the attached annual report or if any such stockholder wishes to receive a separate proxy statement and annual report in the future, the stockholder should provide such instructions to the Company by calling Investor Relationsat (216) 706-2945, or by writing to Investor Relations, TransDigm Group Incorporated, 1301 East Ninth Street, Suite 3000, Cleveland, Ohio 44114.
If the enclosed proxy is properly executed and returned to the Company, the persons named in it will vote the shares represented by such proxy at the meeting. If you properly complete your proxy form and send it to the Company in time to vote, your proxy (one of the individuals named in the proxy form) will vote your shares as you have directed. If you sign the proxy form but do not make specific choices, your proxy will vote your shares as recommended by the Board of Directors to elect the director nominees listed in “Election of Directors,” in favor of the proposal to approve the compensation paid to the Company’s named executive officers and in favor of ratification of the selection of Ernst & Young as the Company’s independent accountants and against the stockholder proposal. If any other matters shall properly come before the meeting, the persons named in the proxy will vote thereon in accordance with their judgment. Management does not know of any other matters which will be presented for action at the meeting.
By order of the Board of
Directors,
HALLE FINE TERRION
Secretary
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| VOTE BY INTERNET - www.proxyvote.com or scan the QR Barcode above Use the Internet to transmit your voting instructions and for electronic delivery of information. Vote by 11:59 P.M.
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 via e-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. Vote by 11:59 P.M.
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. |
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: | KEEP THIS PORTION FOR YOUR RECORDS | |
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THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
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| For All | 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. | ||||||||||||||||||||||
The Board of Directors recommends you vote FOR the following: | ☐ | ☐ | ☐ | |||||||||||||||||||||||
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1. | Election of Directors |
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01) | David Barr | 02) | Jane M. Cronin | 03) | Mervin Dunn | 04) | Michael Graff | 05) | Sean Hennessy | |||||||||||||
06) | W. Nicholas Howley | 07) | Gary E. McCullough | 08) | Michele Santana | 09) | Robert Small | 10) | John Staer | |||||||||||||
11) | Kevin Stein |
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The Board of Directors recommends you vote FOR proposals 2 and 3. | For | Against | Abstain | |||||||||||||||||||||||||
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To ratify the selection of Ernst & Young LLP as the Company’s independent accountants for the fiscal year ending September 30, |
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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. |
Signature [PLEASE SIGN WITHIN BOX] | Date | Signature (Joint Owners) | Date |
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice, and Proxy Statement, and Annual Report are available atwww.proxyvote.com
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TRANSDIGM GROUP INCORPORATED Annual Meeting of Stockholders
This proxy is solicited by the Board of Directors
The undersigned hereby appoints Kevin Stein and Michael Lisman, and each of them, the attorneys and proxies of the undersigned with full power of substitution to vote, as indicated herein, all shares of common stock of TransDigm Group Incorporated held of record by the undersigned on May
If no instructions are given, the proxies will vote to elect the director nominees listed in “Election of Directors”, will vote “FOR” Proposal 2
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Continued and to be signed on reverse side
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How to Access the Proxy Materials
Your Vote Counts! | ||||||||||
TRANSDIGM GROUP INCORPORATED 2022 Annual Meeting Vote by July 11, 2022 11 :59 PM ET | ||||||||||
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TRANSDIGM GROUP INCORPORATED THE TOWER AT ERIEVIEW 1301 EAST 9TH STREET, STE 3000 CLEVELAND, OH 44114 | ||||||||||
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Please Choose One You invested in TRANSDIGM GROUP INCORPORATED and it’s time to vote!
You have the right to vote on proposals being presented at the Annual Meeting. This is an important notice regarding the availability of proxy material for the stockholder meeting to be held on July 12, 2022.
Get informed before you vote
View the Notice, Proxy Statement, and Annual Report online OR you can receive a free paper or email copy of the Following Voting Methodsmaterial(s) by requesting prior to June 28, 2022. If you would like to request a copy of the material(s) for this and/or future stockholder meetings, you may (1) visit www.ProxyVote.com, (2) call 1-800-579-1639 or (3) send an email to sendmaterial@proxyvote.com. If sending an email, please include your control number (indicated below) in the subject line. Unless requested, you will not otherwise receive a paper or email copy.
* Please check the meeting materials for any special requirements for meeting attendance. At the meeting, you will need to request a ballot to vote these shares.
Vote at www.ProxyVote.com
THIS IS NOT A VOTABLE BALLOT
This is an overview of the proposals being presented at the
upcoming stockholder meeting. Please follow the instructions on
the reverse side to vote these important matters.
| Voting Items | Board Recommends | ||||||||||||||
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1. |
Election of Directors | |||||||||||||||||||||||
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01) David Barr |
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03) Mervin Dunn |
04) Michael Graff |
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| 06) W. Nicholas Howley 07) Gary E. McCullough 08) Michele Santana |
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| 10) John Staer |
11) Kevin Stein | For | |||||||||||||||||||||
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2. |
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| To ratify the selection of Ernst & Young LLP as the | For | ||||||||||||||||||||||
3. |
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NOTE:In their discretion, to vote upon such other business as may properly come before the meeting, or any adjournment thereof. | ||||||||||||||||||||||||
Prefer to receive an email instead? While voting on www.ProxyVote.com, be sure to click “Sign up for E-delivery”. |