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Fortune Brands | ||||
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PRELIMINARY PROXY STATEMENT-SUBJECT TO COMPLETION
520 Lake Cook Road, Deerfield, Illinois 60015
NOTICE OF ANNUAL MEETING
AND PROXY STATEMENT
March 22, 2021[●], 2023
Dear Fellow Stockholders:
We are pleased to invite you to the 20212023 Annual Meeting of Stockholders (“Annual Meeting”) of Fortune Brands Home & Security,Innovations, Inc. (“Fortune Brands” or “the Company”) on Tuesday, May 4, 202116, 2023 at 8:00 a.m. (CDT). Due to at the public health impact of the coronavirus (COVID-19) pandemic, the Annual Meeting will be conducted exclusively online by virtual webcast at www.virtualshareholdermeeting.com/FBHS2021.520 Lake Cook Road, Deerfield, Illinois. The following matters will be considered at the Annual Meeting:
Proposal 1: | Election of the | |
Proposal 2: | Ratification of the appointment by the Company’s Audit Committee of PricewaterhouseCoopers LLP as our independent registered public accounting firm for | |
Proposal 3: | Advisory vote to approve the compensation paid to the Company’s named executive officers (see page | |
Proposal 4: | Approval of an amendment to the Restated Certificate of Incorporation to provide exculpation of officers (see page 55); and |
such other business as may properly come before the Annual Meeting.
Stockholders of record at the close of business on March 5, 2021,17, 2023, the record date for the Annual Meeting, are entitled to vote. For information about attending our Annual Meeting online and for voting instructions, please see pages 52-56.59-63.
YOUR VOTE IS VERY IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE SUBMIT YOUR PROXY OR VOTING INSTRUCTIONS AS SOON AS POSSIBLE.
This Notice of Annual Meeting and Proxy Statement and accompanying proxy are first being distributed on or about March 22, 2021.[●], 2023.
Important Notice Regarding the Availability of Proxy Materials
for the 20212023 Annual Meeting of Stockholders to be Held on Tuesday, May 4, 2021.16, 2023.
This Notice of Annual Meeting and Proxy Statement and the Annual Report on Form 10-K for the fiscal year ended December 31, 20202022 (“Form 10-K”) are available at www.proxyvote.com.
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PROPOSAL 2 – RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | ||||
PROPOSAL 3 – ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION | ||||
PROPOSAL 4 – APPROVAL OF AN AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION | 55 | |||
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Annual Meeting Information
Time and Date |
| Record Date | ||||||||||
Tuesday, May at 8:00 a.m. (CDT) | 500 Corporate Center Starlight Cafe entrance 520 Lake Cook Road, Deerfield, Illinois | | March 17, 2023 | |
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Agenda and Voting Recommendations
This Proxy Summary highlights selected information in this Proxy Statement and does not contain all of the information that you should consider in deciding how to vote. Please read the complete Proxy Statement carefully before voting. The following table summarizes the items that will be voted on at our 2023 Annual Meeting of Stockholders (the “Annual Meeting”), along with the Board’s voting recommendations.
Proposal
| Description of Proposal | Board Recommendation
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| Description of Proposal | Board Recommendation | Page Number | ||||||
1 | Election of four Class I Directors Ann F. Hackett, John G. Morikis, Jeffery S. Perry and Ronald V. Waters, III
| FOR each Nominee | 6-11 | Election of three Class III Directors Nicholas I. Fink, A.D. David Mackay and Stephanie Pugliese
| FOR each Nominee | 6-11 | ||||||
2 | Ratify the appointment of the independent auditor Pricewaterhouse Coopers
| FOR | 48 | Ratify the appointment of the independent auditor Pricewaterhouse Coopers for 2023
| FOR | 53 | ||||||
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| Advisory vote to approve named executive officer compensation
| FOR
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| Advisory vote to approve named executive officer compensation
| FOR | 54 | ||||||
4 | Approval of an amendment to the Restated Certificate of Incorporation to provide for exculpation of officers
| FOR | 55 |
See pages 52-5659-63 for instructions on how to vote your shares.
2020 BUSINESS HIGHLIGHTS
Our 2022 Transformation
2022 was a transformative year for our Company. It was also a challenging year for our Company and the market for our products. In the second half of 2022, the market experienced a sudden slow down, driven by higher interest rates and affordability concerns, which impacted Company results. In addition, the Company was also impacted by continued inflation and inventory pressures as we saw typical seasonality return to the business. Notwithstanding this challenging environment, our teams delivered a significant transformation of our businesses. We also took decisive actions to reduce our fixed cost base and to preserve our margin while maintaining investments in our key strategic initiatives, including our digital transformation, brand-building, and incremental capacity critical to our long-term growth. Our team executed the following transformational initiatives during 2022:
Impact of COVID-19 on our 2020 Business
In March 2020, the World Health Organization declared a global pandemic related to the novel coronavirus (“COVID-19” or the “pandemic”). Fortune Brands, like many other companies, faced unprecedented operational, financial and safety challenges.1
PROXY SUMMARY (CONTINUED)
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In the first half of the year, we saw some reductionsWe rebranded our Company with a new identity to reflect our evolution as a business focused on driving accelerated growth in demand, short-term closures of some of our facilitiescategories through brand and increased inefficiencies at some of our plants and within parts of our supply chain dueinnovation. Our name was changed to the pandemic. Due to the proactive measures taken by our management teams throughout our organization, Fortune Brands was able to:
prioritizeInnovations, Inc. and ensure the safety of our employees;NYSE ticker symbol is now FBIN.
keepWe reorganized the Company from a decentralized structure to a more aligned operating model to prioritize activities that are core to brand, innovation, and channel. This change also placed our facilities operating so that we could meet accelerating demand;global supply chain resources under one leadership team to fully leverage the scale and execution of our total business.
• | We acquired Solar Innovations, a leading producer of wide-opening exterior door systems and outdoor enclosures, further expanding our outdoor living product portfolio; Aqualisa, a UK leading manufacturer of smart digital shower products, strengthening our connected product offerings; and we finalized the Flo Technologies acquisition after our multi-year phase-in. |
take market share from our competitors and deliver exceptional financial results.We preserved margins in the face of a challenging macroeconomic environment.
WeAmidst a challenging external macro environment that negatively impacted our results, we believe that our teams’ strong performance executing our transformative initiatives, while reducing cost and increasing efficiency, has positioned the pandemic put renewedCompany for long-term growth. Our 2022 results were:
* | Attributable to Fortune Brands (inclusive of Cabinets). Please refer to Appendix A for a reconciliation of earnings per share on a before charges/gains basis to GAAP earnings per share. |
The New Fortune Brands: Fortune Brands Innovations, Inc.
Fortune Brands Innovations is powered by our brands, innovation, and service that provides a unique value to our customers. Following the Separation, our product portfolio is focused on Water, Outdoors and Security, and is now more heavily weighted toward smaller ticket repair and remodel items and less exposed to market cyclicality. Our focus on the home, creating an increased consumer interest in investing in their homes and accelerated trends that we were experiencing prior to the pandemic, such as the shift towards value-priced cabinetryinnovative products and a focus on outdoor living. We saw increased volume, improved efficienciesoperations are drivers of our growth, productivity enhancement, and sales during the second halfof the year.
Due to our safety practices, a stronger than expected home products marketmargin expansion. Our category management expertise and the actions taken by our executive team to permanently reduce expenses and improve productivity across our businesses, we saw a material year-over-year improvement in sales and profits during 2020. We continue to believe that an improved market and actions taken by the Company to reduce costs and drive efficiencies, will enablestrong customer relationships enables us to compete effectively throughout the durationprovide greater consistency and after the COVID-19 pandemic.pricing discipline.
BOARD OF DIRECTORS
Board Refreshment
In anticipation of Mr. Klein’s retirement from the Board, Amit Banati and Jeffery Perry were added to our Board in 2020.
Mr. Banati joined as a Class II member of the Board in September 2020. Mr. Banati brings strong financial expertise, along with executive and international leadership experience at Kellogg Company where he currently serves as Chief Financial Officer. Mr. Banati serves on our Audit and Compensation Committees.
Mr. Perry joined as a Class I member of the Board in December 2020. Mr. Perry brings experience as a mergers and acquisitions (M&A), integrations, business transformations and strategic business advisor at Ernst & Young. Mr. Perry serves on our Audit and Nominating, Environmental, Social and Governance Committees.
Water Innovations is an industry leader with a powerful collection of water brands and focused on developing the future of water for today’s consumers. Water Innovations designs, manufactures, markets and distributes a growing portfolio of connected products, water management offerings, as well as consumer plumbing products, including faucets, showers, sinks and tubs. | The Outdoors & Security segment is focused on driving growth in the attractive outdoor living space with products engineered for performance, providing homeowners protection and security. The segment’s products include a collection of digitally connected security products, as well as exterior entryway, storm, security and screen doors; eco-friendly synthetic decking, cladding and railing; retractable screens and porch windows; safety and security devices. | |
Successful Leadership TransitionWe believe the Fortune Brands Advantage, a set of unifying capabilities leveraged across the Company, enables us to drive category management performance, simplify workstreams to better enable efficiencies, reduce costs by leveraging our global supply chain and enable the advancement of our digital strategy and capabilities.
In January 2020, Nicholas Fink became our new Chief Executive Officer (“CEO”) following Christopher Klein’s decision to retire after 8 years as the Company’s CEO. To ensure a smooth and successful transition, Mr. Klein served as Executive Chairman of the Board of Directors through the end of 2020. On December 31, 2020, Mr. Klein resigned as Executive Chairman and as a member of the Board and the Board appointed Susan S. Kilsby as the non-executive Chairman of the Board.
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PROXY SUMMARY (CONTINUED)
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We continue to be driven by our culture of doing the right thing, as evidenced by our safety records, Environmental, Social and Governance (“ESG”) programs and our focus on innovating products that help address some of the world’s most pressing sustainability and safety issues.
BOARD OF DIRECTORS
2023 Director Nominees – Class III – Term Expiring 2026 | ||||||||||
Name and Principal Occupation | Age | Director Since | Independent | Board Committees | Other Public Company Boards | |||||
Nicholas I. Fink Chief Executive Officer of Fortune Brands | 48 | 2020 | Executive | Constellation Brands, Inc. | ||||||
Stephanie Pugliese Former President, Americas, Under Armour, Inc. | 52 | 2023 | ✓ | Audit Nominating, Environmental, Social & Governance | None | |||||
A. D. David Mackay Former Chairman and Chief Executive Officer, Kellogg Company | 67 | 2011 | ✓ | Audit Compensation (Chair) | The Clorox Company |
SUCCESSION AND REFRESHMENT In accordance with the Board’s retirement age policy, the Board did not nominate Mr. Fink’s appointment wasThomas to stand for re-election at the resultAnnual Meeting. In anticipation of Mr. Thomas’ retirement from the Board, our Board’s active engagementBoard welcomed Stephanie Pugliese as a Class III director in March 2023, following a thoughtful and comprehensive multi-yearboard succession planning process led by our Nominating, Environmental, Social & Governance Committee (the “NESG Committee”). Ms. Pugliese’s experience as a commercial and strategic business leader with oversight of digital and e-commerce businesses at Under Armour, Inc. and Duluth Holdings, Inc. brings valuable perspective to identifyour Board. Ms. Pugliese is serving on our Audit Committee and develop talented internal candidates. OurNESG Committee.
The addition of Ms. Pugliese to our Board determined thatincreases the Board’s diversity. Following Mr. Fink’s leadership with industry-leading consumer brands and his proven track record of driving continued growth and efficiencyThomas’ retirement from our Board in May 2023, our businesses, as well as his deep understanding of our markets, uniquely positioned him to lead our Company’s next phase of growth.Board composition will be:
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PROXY SUMMARY (CONTINUED) |
CORPORATE GOVERNANCE HIGHLIGHTS
Our Board is committed to maintaining a strong corporate governance program designed to promote the long-term interests of our shareholdersstockholders and strengthen Board and management accountability. As a company, we’rewe are committed to core values that includereflect a strong culture of integrity and accountability. These practices are reflected in our corporate governance policies, which are described in more detail on pages 12-1912-20 of the Proxy Statement and highlighted below:
Independent Board (90%), except our CEO | Independent Chair of the Board
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Three women and two ethnically/racially diverse directors (50% of the Board members are diverse following Mr. Thomas’ retirement) | Regular executive sessions of non-management directors | |
Majority vote in uncontested director elections, with a resignation policy |
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Active engagement and oversight by Board of Company strategies and risks | Board oversight of ESG programs and
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Robust stock ownership guidelines for |
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In early 2021,ENVIRONMENTAL, SOCIAL AND GOVERNANCE HIGHLIGHTS
Our Board of Directors is committed to overseeing our ESG initiatives throughout Fortune Brands. We dedicate significant resources toward developing innovative products that positively impact the Board adopted a by-law amendment providing stockholders with proxy access. This amendment allows stockholders who own 3%lives of our sharesconsumers, and to produce these products using increasingly sustainable methods. We are committed to being a good corporate citizen by ensuring high safety standards for 3 yearsour associates, fostering an inclusive culture and giving back to nominateour larger communities. We believe that the greaterhigh standards by which we conduct our business will help us to build on our strengths and continually improve how we measure and monitor our progress on ESG-related initiatives.
Our philosophy is to have a holistic ESG program, integrated throughout our businesses, that focuses on what matters to our Company and its stakeholders, with the goal of continual improvement. |
Safety Safety is integral to Company culture and is a top priority, as reflected in our goal of 2 directors or 20% of board after meeting certain requirements. This action demonstrateszero safety incidents and through our efforts to create an injury-free workplace.
Diversity, Equity& Inclusion (“DEI”)We continued to advance our DEI strategy and initiatives during 2022. Recent additions to the Company’s leadership team shows the Board’s and management’s commitment to maintaining a strong corporate governance program.increasing representation of professionals of color and women. In addition, we expanded our employee resource groups and continued to offer unconscious bias learning programs throughout the organization during 2022. We are committed to making employment data publicly available to our stakeholders and will make our EE0-1 report available on our website later this year and following our next filing with the U.S. Equal Employment Opportunity Commission.
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PROXY SUMMARY (CONTINUED)
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ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) HIGHLIGHTS
During a challenging year, we continued to focusPlease see the resources available on elevating our website at https://www.fbin.com/corporate-responsibility/esg-reporting. Our 2022 ESG programs and initiatives with oversight by the Board’s Nominating, Environmental, Social and Governance Committee (the “NESG” or “NESG Committee”):
Social and environmental issues are important toReport will be available on our stockholders and the success of our business. Below are some examples of how we prioritize these issues:
We produce environmentally friendly faucets, showerheads and whole home water solutions that help conserve water, fiberglass doors that save energy and decking products that are made from nearly all recycled materials.
Employee safety is a critical element to our growth strategy and integral to Company culture. This has been demonstrated in total recordable incident rates over the last five years, as shown below:
We enhanced our already-strong safety protocols to provide safer workplaces for our employees and continued to operate our businesses so we could meet consumer demand during the pandemic, by taking the following actions:
Established physical distancing procedures for our production employees by adding extra shifts, staggering start and finish times, increasing space or adding barriers between stations;
Implemented temperature screening and health checks and mandated face coverings at our manufacturing facilities; and
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Adjusted attendance policies to encourage those who are sick to stay home and required associates to work remotely when possible.
In 2020, we took multiple actions to support a culture where diversity, equity and inclusion (“DEI”) continues to be a priority for the Company:
Headlined the importance of DEI efforts at our annual leadership meeting in early 2020;
Nicholas Fink joined the CEO Action for Diversity & Inclusion, a business leader pledge aimed at advancing diversity and inclusionwebsite in the workplace;
Implemented an unconscious bias learning program for our most senior leaders to help break bias insecond quarter of 2023. Information provided on the decision making process;
Built an internal DEI team and initiated employee resource groups; and
Increased the diversity of the experience of the Board, adding two new Directors who are persons of color and appointing a woman as the Chair of the Board.
For more information about our ESG efforts, please view our latest ESG Report available at www.fbhs.com/global-citizenship/esg.Company’s website is not incorporated by reference into this Proxy Statement.
COMPENSATION HIGHLIGHTS
PAYFOR PERFORMANCEOur executive compensation program is designed to reward NEOsnamed executive officers (“NEOs”) for the achievement of both strategic and operational goals that lead tosupport the creation of long-term stockholder value. The vast majority of each NEO’s annual target compensation is at-risk because most compensation paid to our NEOs is dependent upon Company performance and/or stock price. In 2020:2022:
86.3% the CEO’s total target compensation was pay-at-risk;
• | 88% of the CEO’s total target compensation was pay-at-risk; |
76.4% of the other NEOs (on average and excluding Mr. Klein) total target compensation was pay-at-risk; and
• | 75% of the other NEOs’ (on average) total target compensation was pay-at-risk; and |
50% of the annual equity awards granted to NEOs in 20202022 were granted in the form of performance share awards (“PSAs”) with vesting based on three-year performance targets.
COMPENSATION PRACTICESThe Compensation Discussion & Analysis | ||
Long-term focus and stockholder alignment through equity compensation | No problematic pay practices and historically strong stockholder support for say on pay (93% average over the last five years)
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Robust stock ownership guidelines | Prohibition on hedging and pledging of Company stock
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Executive compensation subject to a clawback policy | No single trigger change in control severance arrangements
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Limited perquisites | No excise tax gross ups
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PROPOSAL 1 – ELECTIONOF DIRECTORS
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Summary of Qualification of Directors
The Board believeshas identified certain qualifications that are required of all directors must possessdirectors. Additionally, the Board seeks to maintain a considerable amountdiverse set of educationskills, knowledge, experiences, backgrounds and business management experience. The Board also believes that it is necessary for each of the Company’s directors to possess certain general qualities, while there are other skills and experiences that should beviewpoints represented on theour Board as a whole, but not necessarily by each individual director. General qualities we look for in all directors:
Qualifications Required of All Directors
Extensive executive leadership experience
Excellent business judgment
Experience | Personal Attributes | |||||||||
• Considerable amount of education | • Excellent business judgment | |||||||||
• Extensive executive leadership experience or business management experience | • Strong commitment to the Company’s goal of maximizing stockholder value | |||||||||
• Knowledge about issues affecting, or that may in the future affect, the Company | • High level of integrity and ethics |
Specific Qualifications, Expertise and ethics
Original thinking
Strong commitment toKey Skills Represented on the Company’s goal of maximizing stockholder value
Specific qualifications, experience, skills and expertise to be represented by members of the Board:Board
Qualifications, Expertise and Key Skills |
• Consumer products expertise • Financial and/or accounting expertise • Public company experience as a chief executive, chief operating or chief financial officer • Public company board experience • Diversity of skill, background, race, gender and viewpoint |
Consumer products expertise
Financial and/or accounting expertise
Public company experience as a chief executive, chief operating or chief financial officer
Public company board experience
Diversity of skill, background and viewpoint
Election of Directors
The Board currently consists of ten11 members and is divided into three classes, each having three yearthree-year terms that expire in successive years. Mr. BanatiMs. Stephanie Pugliese was appointed by the Board to serve as a Class IIIII Director effective in September 2020 and Mr. Perry was elected by the Board to serve as a Class I Director effective in December 2020.March 2023. The term of each director currently serving in Class I,III (Messrs. Nicholas I. Fink, A.D. David Mackay, David M. Thomas and Ms. Ann Fritz Hackett and Messrs. John G. Morikis, Jeffery S. Perry and Ronald V. Waters, III,Pugliese) expires at the 2021 Annual Meeting of Stockholders.Meeting. The Board has nominated Messrs. Fink and Mackay and Ms. Hackett and Messrs. Morikis, Perry and WatersPugliese for a new term of three years expiring at the 20242026 Annual Meeting of Stockholders and until their successors are duly elected and qualified. Mr. Thomas will not stand for re-election and will retire immediately following the Annual Meeting. Mr. Thomas has served as a valuable member of our Board since 2011, serving in positions as non-executive chairman, lead independent director and chair of the NESG Committee over the course of his tenure. We thank him for his dedicated service to the Company and the Board. Following Mr. Thomas’ retirement, the number of directors will be reduced from 11 to 10 members.
Each of the nominees has consented to be named as a nominee and to serve as a director, if elected. If any of them should become unavailable to serve as a director (which is not now expected), the Board may designate a substitute nominee. In that case, the persons named in the enclosed proxy card will vote for the substitute nominee designated by the Board. Shares cannot be voted for more than the number of nominees proposed for re-election.
The names of the nominees (Class III) and the current Class III and Class IIIII directors, along with their present positions, their principal occupations and employment during the last five years, any directorships held with other public companies or registered investment firms during the past five years, their ages and the year first elected as a director of the Company, are set forth below. Each director’s individual qualifications and experiences that contribute to the Board’s effectiveness as a whole are also described in the following paragraphs.
PROPOSAL 1 – ELECTIONOF DIRECTORS (CONTINUED)
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Nicholas I. Fink |
| Director since:2020 Age: Committees:Executive
Biography: Chief Executive Officer of Fortune Brands
Current Public Company Boards:
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Skills & Mr. Fink’s leadership as Chief Executive Officer of the Company and his significant international and consumer brand and business operating experience, as well as his mergers and acquisitions and strategy expertise provide him with intimate knowledge of our operations, the opportunities for growth and the challenges faced by the Company. He joined the Company as Senior Vice President, Global Growth & Corporate Development in June 2015 and held several leadership positions within the Company’s operations prior to being named Chief Executive Officer in 2020. Mr. Fink has successfully navigated the Company and its leaders through the COVID-19 pandemic and continues to transform our Company for future growth. Prior to joining |
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A.D. David Mackay |
| Director since: 2011 Independent Age: Committees:
Biography: Retired since January 2011; President and Chief Executive Officer of Kellogg Company, a packaged foods manufacturer, prior thereto.
Current Public Company Boards:
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Skills & Mr. Mackay held various key executive positions with Kellogg Company including Chief Executive Officer and Chief Operating Officer, bringing to our Board the perspective of a leader who faced a similar set of external economic, social and governance issues to those that face our Company. Mr. Mackay also has significant international business experience, as well as extensive board experience. His prior Board experience serving as both an executive Chairman (Kelllogg Co.) and non-executive Chairman (Beam, Inc.) on public company boards and his previous leadership roles provide him with expertise in executive compensation and succession planning matters. Mr. Mackay also serves on the boards of several non-profit organizations. |
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PROPOSAL 1 – ELECTIONOF DIRECTORS (CONTINUED) |
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| Director since: Independent Age: Committees: Audit; NESG
Biography:
Former Public Company Boards: Duluth Holdings, Inc. | |
Skills & Qualifications Ms. Pugliese held various key executive positions with Under Armour, Inc. and Duluth Holdings, Inc., bringing to our Board the perspective of a leader who has had international commercial, operational, and strategic responsibilities including oversight for digital and e-commerce businesses and marketing. She has served as a public company chief executive officer and board member of Duluth Holdings, Inc. |
The Board of Directors recommends that you vote FOR the election of each nominee named above.
CLASS I DIRECTORS – TERM EXPIRING 2024 |
Ann Fritz Hackett |
Director since: 2011 Independent Age: 69 Committees: Compensation; NESG Biography: Retired since January 2020. Strategy Consulting Partner and Co-founder of Personal Pathways, LLC, a company providing web-based enterprise collaboration platforms, from 2015 through January 2020. Prior to her role at Personal Pathways, she was President of Horizon Consulting Group, LLC, a strategic and human resource consulting firm founded by Ms. Hackett in 1996. Current Public Company Boards: Capital One Financial Corporation and MasterBrand, Inc. | ||
Skills & Qualifications:
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John G. Morikis |
Director since: 2011 Independent Age: 59 Committees: Audit; Compensation Biography: Chairman since January 2017 and Chief Executive Officer since January 2016 of The Sherwin-Williams Company, a manufacturer of paint and coatings products. President and Chief Operating Officer of The Sherwin-Williams Company prior thereto. Current Public Company Boards: The Sherwin-Williams Company | ||
Skills & Qualifications: Mr. Morikis’ experience as a Chief Executive Officer and a Chief Operating Officer of The Sherwin-Williams Company, and his more than 30 years of experience with a consumer home products company, brings to our Board the perspective of a leader who faces similar external economic issues that face our Company. His experience actively serving as Chairman and Chief Executive Officer of The Sherwin-Williams Company also provides him with valuable insight into board operations and provides him with expertise into accounting, executive compensation and succession planning and ESG matters. Mr. Morikis also serves on the board of the Joint Center for Housing Studies of Harvard University and other non-profit organizations. |
Jeffery S. Perry |
Director since: 2020 Independent Age: 57 Committees: Audit; NESG Biography: Founder and CEO of Lead Mandates LLC, a business and leadership advisory firm; Retired since October 2020 from Ernst & Young LLP, a leading global professional services firm, where he served as EY Global Client Service Partner for major consumer product accounts from April 2014 to October 2020 and as Americas Operational Transaction Services Practice Leader prior thereto. Current Public Company and Registered Investment Company Boards: MasterBrand, Inc. and Equitable Funds | ||
Skills & Qualifications: Mr. Perry has extensive experience as a strategic, operational and financial advisor helping boards of directors and management teams. He held several senior positions with Ernst & Young and A.T. Kearney Inc. and is the founder and Chief Executive Officer of Lead Mandates LLC. Mr. Perry brings to our Board relevant experience and perspectives in mergers, acquisitions, integrations, divestitures, business transformations and consumer products. He serves as chair of the NESG Committee of MasterBrand, Inc. and as a Board member of the Chicago Chapter of the National Association of Corporate Directors and other non-profit organizations. |
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PROPOSAL 1 – ELECTIONOF DIRECTORS (CONTINUED) |
Ronald V. Waters, III |
Director since: 2011 Independent Age: 70 Committees: Audit (Chair); NESG; Executive Biography: Retired since May 2010; President and Chief Executive Officer of LoJack Corporation, a provider of tracking and recovery systems, prior thereto. Current Public Company Boards: Paylocity Holding Corporation Former Public Company Boards: HNI Corporation | ||
Skills & Qualifications: Mr. Waters has considerable executive leadership and financial management experience and brings significant financial and accounting expertise to our Board. He served as Chief Executive Officer and Chief Operating Officer at LoJack Corporation, a premier technology company, and as Chief Operating Officer and Chief Financial Officer at Wm. Wrigley Jr. Company, a leading confectionary manufacturing company. Mr. Waters also has extensive board experience, including by serving on the compensation committee of Paylocity Holding Corporation and the audit committee of HNI Corporation and Paylocity Holding Corporation. |
CLASS II DIRECTORS – TERM EXPIRING 2025 |
Susan S. Kilsby |
Director since: 2015 Independent, Non-Executive Chair Age: 64 Committees: Compensation; NESG; Executive (Chair) Biography: Retired since May 2014; Senior Advisor at Credit Suisse AG, an investment banking firm, prior thereto. Current Public Company Boards: Diageo plc and Unilever plc Former Public Company Boards: Shire plc, Goldman Sachs International, BBA Aviation plc, BHP Group plc and BHP Limited | ||
Skills & Qualifications Ms. Kilsby has a distinguished global career in investment banking and brings extensive mergers and acquisitions, finance and international business experience to the Board. In addition to serving as a Senior Advisor, Ms. Kilsby also served as Managing Director of European Mergers and Acquisitions at Credit Suisse. She also held a variety of senior positions with The First Boston Corporation, Bankers Trust and Barclays de Zoete Wedd. Ms. Kilsby also has extensive board experience, including serving as Chair of Shire plc for five years. She also serves on multiple non-profit boards and as a member of the Takeover Panel, a UK independent body that regulates takeovers in the United Kingdom for the purpose of ensuring fair treatment for shareholders and an orderly framework for takeover bids. Her extensive history of board and committee service provides her with expertise in board oversight and function of its committees. |
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PROPOSAL 1 – ELECTIONOF DIRECTORS (CONTINUED) |
Amit Banati |
Director since: 2020 Independent Age: 54 Committees: Audit; Compensation Biography: Vice Chair and Chief Financial Officer of Kellogg Company, a packaged foods manufacturer, from January 2023 to Present; Senior Vice President and Chief Financial Officer of Kellogg Company from July 2019 to January 2023; President - Asia Pacific, Middle East, Africa of Kellogg Company from March 2012 to July 2019. | ||
Skills & Qualifications Mr. Banati has extensive executive leadership, operations and financial management experience in leading consumer products companies, both domestically and internationally, working extensively across the Asia Pacific region, particularly in Australia, India, China, Japan, Korea, Southeast Asia and Singapore. He brings to our Board the perspective of a leader with extensive international experience in the consumer products industry. As the Chief Financial Officer of Kellogg Company, he also brings significant financial and accounting expertise to our Board. |
Irial Finan |
Director since: 2019 Independent Age: 65 Committees: Compensation; NESG Biography: Retired since April 2018; Consultant to the CEO of The Coca-Cola Company, a beverage company, from January 2018 to March 2018; Executive Vice President of The Coca-Cola Company and President of Coca-Cola Bottling Investments Group, a bottling operations company, from August 2004 to December 2017. Current Public Company Boards: Smurfit Kappa Group plc Former Public Company Boards: Coca-Cola Bottlers Japan Holdings, Inc. and Coca-Cola European Partners plc | ||
Skills & Qualifications Mr. Finan’s experience as an Executive Vice President of The Coca-Cola Company and President of its worldwide bottling operations, as well of his years of international consumer products experience, brings to our Board the perspective of a leader with extensive international operational leadership experience in the consumer products industry. Mr. Finan has extensive board experience, including serving as Chair of Smurfit Kappa Group plc. He also serves on multiple non-profit boards. |
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CORPORATE GOVERNANCE
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Fortune Brands is committed to maintaining strong corporate governance practices that are good for our stockholders and our business.Company. We are dedicated to maintaining these practices and upholding high standards of conduct.
Corporate Governance Principles
The Board adoptedmaintains a set of Corporate Governance Principles which describe our corporate governance practices and address corporate governance issues such as Board composition and responsibilities, Board meeting procedures, the establishment of Board committees, management succession planning process and review of risks. The Corporate Governance Principles, which were enhanced in December 2022, most notably to include a Director Code of Conduct, are available at https://ir.fbhs.com/ir.fbin.com/governing-high-standards.
The Company’s Corporate Governance Principles provide that a majority of the members of the Board shall be independent directors. New York Stock Exchange requirements, as well as the Company’s committee charters, require that each member of the Audit, Compensation and NESG Committees be independent. The Board applies | ||
the definition of independence found in the New York Stock Exchange Listed Company Manual in determining which directors are independent. When determining each director’s independence, the Board also considered charitable contributions made by the Company to organizations with which each director is affiliated. The Company’s Corporate Governance Principles were enhanced in 2022 to ensure that each independent director promptly discloses to the Board any existing or proposed relationships or transactions that could impact his or her independence. |
Applying that definition, Messrs. Banati, Finan, Mackay, Morikis, Perry, Thomas, Waters and Mses. Hackett, Kilsby and KilsbyPugliese were affirmatively determined by the Board to be independent. Due to Mr. Fink’s employment with the Company, he is not considered independent. In addition, Christopher Klein, who served as Executive Chairman of the Board during 2020, was not considered independent due to his employment with the Company.
None of the non-employee directors has any material relationship with the Company other than being a director and stockholder. Also, none of the non-employee directors have participated in any transaction or arrangement that interferes with such director’s independence.
Policies with Respect to Transactions with Related Persons
The Board adopted a Code of Business Conduct and Ethics which sets forth various policies and procedures intended to promote the ethical behavior of all of the Company’s employees, officers and directors (the “Code of Conduct”). The Board has established a Compliance Committee (comprised of management) which is responsible for administering and monitoring compliance with the Code of Conduct.Conduct (other than monitoring director compliance which is the responsibility of the NESG Committee). The Compliance Committee periodically reports on the Company’s compliance efforts to the Audit Committee and the Board.
The Board has also established a Conflicts of Interest Committee (comprised of management) which is responsible for administering, interpreting and applying the Company’s Conflicts of Interest Policy, which describes the types of relationships that may constitute a conflict of interest with the Company. Under the Conflicts of Interest Policy, directors and executive officers are responsible for reporting any potential related person transaction (as defined in Item 404 of Regulation S-K) to the Conflicts of Interest Committee in advance of commencing a potential transaction. The Conflicts of Interest Committee will present to the Audit Committee any potential related party transaction. The Audit Committee will evaluate the transaction, determine whether the interest of the related person is material and approve or ratify, as the case may be, the transaction. In addition, the Company’s executive officers and directors annually complete a questionnaire on which they are required to disclose any related person transactions and potential conflicts of interest. The General Counsel reviews the responses to the questionnaires, and, if a related person transaction is reported by a director or executive officer, submits the transaction for review by the Audit Committee. The Conflicts of Interest Committee also reviews potential conflicts of interest and reports findings involving any director of the Company to the NESG Committee.
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The NESG Committee will review any potential conflict of interest involving a member of the Board to determine whether such potential conflict would affect that director’s independence.
Certain Relationships and Related Transactions
Since January 1, 2020,2022, the Company did not participate in any transactions in which any of its directors or executive officers, any immediate family member of a directorany of its directors or executive officerofficers, or any beneficial owner of more than 5% of the Company’s common stock, had a direct or indirect material interest.
Anti-Hedging and Anti-Pledging Policy
The Company has a policy prohibiting directors and executives from hedging or pledging Company stock, including Company stock held indirectly, and from engaging in any derivative transactions designed to offset the decrease or increase in the market value of the Company’s stock.
Board Refreshment and Succession
The Board believes that Board refreshment and director succession are important to ensuring that Board composition is aligned with the needs of the Company and the Board. The Board also believes that continuity is critical to the effectiveness of the Board as a group over time and allows directors to develop a deeper understanding of the Company. The NESG Committee assesses the composition of the Board and aims to strike a balance between Board members with longer term service and newer members who bring a fresh perspective.
As part of the Board’s succession planning process and in anticipation of Mr. Thomas’ retirement from the Board following the Annual Meeting, the Board appointed Stephanie Pugliese as a Class III director. The Board’s strong commitment to succession and refreshment have been demonstrated over the last four years by adding five new directors. The majority of the director appointments over this period of time also demonstrates the Board’s commitment to increasing racial and gender diversity.
Director Nomination Process
The NESG Committee is responsible for, among other things, screening potential director candidates, recommending qualified candidates to the Board for nomination, and assessing director independence.independence and evaluating whether the Board and its committees are functioning effectively.
When identifying director candidates, the NESG Committee determines whether there are any evolving needs that require an expert in a particular field or other specific skills or experiences. When evaluating director candidates, the NESG Committee first considers a candidate’s management experience and then considers issues of judgment, background, stature, leadership, conflicts of interest, integrity, ethics, original thinking and commitment to the goal of maximizing stockholder value.value, as well as diversity of background and experiences of the Board as a whole. The NESG Committee also focuses on issues of diversity, such as diversity of gender, race and national origin, education, professional experience and differences in viewpoints and skills. To align with the Company’s DEI initiatives and investor priorities, the NESG Committee instructed its search firm to include a diverse slate of candidates by including individuals that are diverse in gender and race when searching for new director candidates during 2022. Ms. Pugliese was identified as a potential director candidate through a third-party search firm. As a result of the Board’s succession planning process, the Board appointed an additional female director, increasing the Board’s gender diversity to 30% when taking into account Mr. Thomas’s planned retirement at the Annual Meeting.
With respect to the nomination of continuing directors for re-election, the individual’s contributions to the Board are considered. The Board generally will not re-nominate a director at the annual meeting of stockholders following his or her 72nd birthday; however, the Board has the discretion to re-nominate a director after reaching age 72 if it believes that nomination is in the best interest of the Company’s stockholders.
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In connection with future director elections, or any time there is a vacancy on the Board, the NESG Committee may retain a third-party search firm to assist in identifying qualified candidates who meet the needs of the Board at that time.The Board is committed to the inclusion of diverse candidats when conducting a director candidate search; however, in considering candidates for the Board, the NESG Committee considers the entirety of each candidate’s credentials in the context of these standards.
Following a multi-year comprehensive succession planning process, Mr. Fink was appointed as the Chief Executive Officer, as well as a Class III member of the Board of Directors effective in January 2020. During 2020, the NESG Committee retained a search firm to assist the Board in finding qualified candidates for new members of the Board. Mr. Banati was a candidate identified through this search and the Board appointed him as a Class II member of the Board of Directors effective September 2020. Mr. Perry was recommended as a potential candidate to join the Board by Mr. Fink. Mr. Perry was appointed as a Class I member of the Board of Directors in December 2020.
With respect to the nomination of continuing directors for re-election, the individual’s contributions to the Board are considered. For the purpose of this Annual Meeting, the NESG Committee recommended the nomination of Ms. Hackett and Messrs. Morikis, Perry and Waters as Class I directors.
In connection with future director elections, or at any time there is a vacancy on the Board, the NESG Committee may retain a third-party search firm to assist in locating qualified candidates that meet the needs of the Board at that time.
It is the NESG Committee’s policy to consider director candidates recommended by stockholders, if such recommendations are properly submitted to the Company. Stockholders that wish to recommend an individual as a director candidate for consideration by the NESG Committee can do so by writing to the Secretary of Fortune Brands at 520 Lake Cook Road, Deerfield, Illinois 60015. Recommendations must include the proposed nominee’srecommended candidate’s name, biographical data and qualifications, as well as other information that would be required if the stockholder were actually nominating the recommended candidate pursuant to the procedures for such nominations provided in our Bylaws. The NESG Committee will consider the candidate and the candidate’s qualifications in the same manner in which it evaluates nominees identified by the NESG Committee. The NESG Committee may contact the
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stockholder making the nominationrecommendation to discuss the qualifications of the candidate and the stockholder’s reasons for making the nomination.recommendation. Members of the NESG Committee may then interview the candidate if the committee deems the candidate to be appropriate. The NESG Committee may use the services of a third-party search firm to provide additional information about the candidate prior to making a recommendation to the Board. For a stockholder to directly nominate a candidate for director, such stockholder must follow the procedures set forth in the Company’s Bylaws.
The nomination process is designed to ensure that the NESG Committee fulfills its responsibility to recommend candidates that are properly qualified to serve the Company for the benefit of all of its stockholders, consistent with the standards established under the Company’s Corporate Governance Principles.
Board and Committee Evaluation Process
To increase the effectiveness and provide an opportunity to improve processes and effectiveness, the NESG and the Chair of the Board facilitate an annual evaluation of the Board and its committees. The evaluation typically includes both an interview of each director relating to topics including the function and culture of the Board and its committee’s and performance, the Board’s oversight, responsibilities and resources. In 2022, the Chair of the Board led this process, the results of which were discussed with the Board.
Director Orientation and Continuing Education
The Board is briefed regularly on a variety of topics such as industry updates, corporate governance developments, the Company’s regulatory environment, applicable federal securities and state corporate laws, financial principles and standard accounting procedures. In addition, the Corporate Governance Principles provide for the Company to make external continuing education opportunities available to directors and reimburse costs incurred while furthering their education. New directors participate in comprehensive orientation sessions that are designed to familiarize them with the Company’s strategic plans, operations, financial information and governance, among other relevant topics. This orientation program is considered an essential part of the director onboarding process. New director orientation is tailored to complement the background of the new director. These activities are designed to ensure that the Board remains knowledgeable about the most important issues affecting our Company and its businesses.
In 2022, several directors participated in external continuing education focused on a variety of topics, including corporate governance, ESG developments, leadership succession planning, the lead director function, audit committee functions, and enterprise risk management and innovation.
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Communication with the Board
The Board and management encourage communication from the Company’s stockholders. Stockholders who wish to communicate with the Company’s management should direct their communication to the Chief Executive Officer or the Secretary of Fortune Brands at 520 Lake Cook Road, Deerfield, Illinois 60015. Stockholders, or other interested parties, who wish to communicate with the non-management directors or any individual director should direct their communication c/o the Secretary at the address above. The Secretary will forward communications intended for the Board to the Chairman of the Board, or, if intended for an individual director, to that director. If multiple communications are received on a similar topic, the Secretary may, in his or her discretion, forward only representative correspondence. Any communications that are abusive, in bad taste or present safety or security concerns may be handled differently.
To support an effective succession and transitionThe Board of the Chief Executive Officer role to Mr. Fink during 2020, the BoardDirectors has determined that the appropriate Board leadership structure was for Mr. Klein, former Chief Executive Officer, to serve as Executive Chairman. We believe that this structure was appropriate for the Company to provide interim support to Mr. Fink during this time of transition.
Beginning in 2021, the Board determined that having an independent director serve as Chairman of the Board is in the best interests of our stockholders at this time. Following Mr. Klein’s retirement as Executive Chairman and as a member of the Board, Susan Kilsby was appointed to have an independent, non-executive chair serve as the Company’s independent, non-executive Chair.Board Chair at this time. This leadership structure aids the Board’s oversight of management and allows our Chief Executive Officer to focus primarily on his management responsibilities. The non-executive Chair has the responsibility of presiding atover all meetings of the Board, consulting with the Chief Executive Officer on Board meeting agendas, acting as a liaison between management and the non-management directors, including maintaining frequent contact with the Chief Executive Officer and advising him or her on the efficiency of the Board meetings, facilitating teamwork and communication between the non-management directors and management, as well as additional responsibilities that are more fully described in the Company’s Corporate Governance Principles. In addition, the Company’s non-executive Chair facilitates the Board’s annual performance assessment of the Chief Executive Officer.
The Board does not believe that a single leadership structure is right at all times, so the Board periodically reviews its leadership structure to determine, based on the circumstances at the time, whether other leadership structures might be appropriate for the Company. The Board has been and remains committed to maintaining strong corporate governance practices and appropriate independent oversight of management. If, in the future, the Board appoints an executive chair or any other non-independent director as chair, the Board will elect an independent director to serve as the Lead Director. The duties of the Chair of the Board and Lead Director are further described in our Corporate Governance Principles.
Pursuant to the Company’s Corporate Governance Principles, non-management directors of the Board are required to meet on a regularly scheduled basis without the presence of management and are led by the Non-Executive Chairman or Lead Independent Director. Chair. During 2020, the Lead Director2022, Ms. Kilsby led these sessions. In addition, Board Committeescommittees also meet regularly in executive session without the presence of management.
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The responsibility for the day-to-day management of risks lies with the Company’s management team; however, the Board has an active role, as a whole and also at the committee level, in overseeing the strategy and process for managing the Company’s risks. The BoardManagement regularly reviews information regarding the Company’s business strategy, leadership development, resource allocation, succession planning, credit, liquidity and operations, talent development, succession and DEI, as well as the risks associated with each.each, with the full Board. The Company’s overall risk management program consists of periodic management discussions analyzing and mitigating risks, an annual review of risks associated with each of the Company’s operating businesses and an annual review of risks related to the Company’s compensation programs and practices.
Annually,The Audit Committee oversees management of the Company’s financial and operational risks. In addition, the Audit Committee oversees the enterprise risk management program, which identifies both external risks (i.e., economic) and internal risks (i.e., strategic, operational, financial and compliance)compliance, including climate-related),
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assesses and ranks these risks according to the likelihood of occurrence and the potential monetary impact. It also assesses the impact of these risks and determines howCompany’s plans to mitigate such risks. The Audit Committee managesAnnually, management identifies and assesses the Company’senterprise risk management program, which the Audit Committee reviews. Cybersecurity-related risks and reviewscertain climate-related risks, such as physical risk to our operations and supply chains and commodity price volatility resulting from severe weather events caused climate change and new regulations designed to protect the resultsenvironment, are some of the annual assessment.external risks assessed in the enterprise risk management program. Management also provides the Audit Committee with quarterly updates on the Company’s risks, which includes an update on cybersecurity related risks. In addition, the Audit Committee oversees management of the Company’s financial risks. In particular, theThe Company has a comprehensive enterprise-wide cybersecurity program aligned to NISTthe U.S. Department of Commerce National Institute of Standards and Technology Cybersecurity Framework (CSF) industry standardstandards and maintains security risk insurance coverage to defray the costs of potential information security breaches. The Company conducts automated online training twice a year for its employees and mock phishing campaigns on a regular basis throughout the year. The Company’s cybersecurity team provides regular updates to our senior executives and at leasttypically reports twice a year to the Audit Committee on the status of the Company’s security posture and our efforts to identify and mitigate cybersecurity risks. In 2022, the Company’s chief information officer also reported to the full Board on the Company’s cybersecurity programs and risk mitigation efforts.
The Compensation Committee is responsible for overseeing the management of risks relating to the compensation paid to the Company’s executives and the Company’s compensation plans. Annually, the Compensation Committee’s independent compensation consultant conducts an assessment of the risks associated with the Company’s executive compensation policies and practices. The compensation consultant conducts a more extensive review of all of the Company’s broad-based compensation incentive arrangements every few years. In 2020,2022, the compensation consultant conducted the broadera review of allthe Company’s executive compensation arrangements. For more information about that assessment see “Compensation Risks” below.
The NESG Committee manages risks associated with the independence of the Board, potential conflicts of interest of Board members and the Company’s corporate governance structure. In addition, the NESG Committee oversees the Company’s ESG programs, initiatives and initiatives,related risks, which include the Company’s environmental, health and safety, diversity and inclusion,DEI, philanthropy, global citizenship and other social and governance programs and policies. Management reports to the NESG Committee on the Company’s safety programs and statistics as well as the Company’s DEI strategy and goals.
While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire Board is regularly informed through committee reports about all of the risks described above. The Board’s assignment of responsibility for the oversight of specific risks to its committees enables the entire Board, under the leadership of the Chair and the Chief Executive Officer, to better monitor the risks of the Company and more effectively develop strategic direction, taking into account the magnitude of the various risks facing the Company.
The Compensation Committee’s compensation consultant, Willis Towers Watson (“WTW”) conducts an annual assessment of the risks associated with the compensation policies and practices used to compensate the Company’s executives and reports on the assessment to the Compensation Committee. In 2020,2022, the Company’s compensation consultant analyzed the elements of executive compensation to determine whether any portion of executive compensation encouraged excessive risk taking and whether incentive designs include appropriate risk-mitigation provisions. After reviewing the compensation consultant’s analysis, the Compensation Committee concluded that none of the Company’s executive compensation arrangements encourage excessive risk taking and are consistent with the structure and
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design of other companies of similar size and industry sector. The Company utilizes the following risk-mitigating design features:
The Company uses multiple and diverse performance metrics in incentive plans;
The upside on payout potential is capped for both short-term and long-term incentives;
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The Company utilizes multiple long-term incentive vehicles, with performance share awards (“PSAs”) that havePSAs historically having overlapping three-year performance cycles;
The majority of an individual’s total compensation mix is not derived from a single component of compensation; and
The Company maintains stock ownership guidelines, a policy prohibiting hedging and pledging of Company stock and a formal clawback policy.
As described in our Compensation Discussion and Analysis,CD&A, compensation decisions are made using a combination of objective and subjective considerations designed to mitigate excessive risk taking by executives.
Each director attended more than 75%90% of the total meetings of the Board and committees of the Board of which the director was a member during 2020.2022. The Board and its committees held the following number of meetings during 2020:2022:
Pursuant to the Company’s Corporate Governance Principles, all directors are encouraged to attend the Annual Meeting of Shareholders. Due to local restrictions imposed due to the spread of COVID-19, our 2020 Annual Shareholder Meeting was held virtually, which allStockholders. All of the Company’s then-serving directors attended.attended our 2022 Annual Stockholder Meeting.
The Board has established an Audit Committee, a Compensation Committee, an Executive Committee and aan NESG Committee. A list of current Committee memberships may be found on the Company’s website at https://ir.fbhs.com/ir.fbin.com/committees-and-charters. The Committee memberships as of the date of this Proxy Statement are set forth below:
Name | ||||||||||||||||||||
| Audit
| Compensation | Executive | NESG | ||||||||||||||||
Amit Banati | X | X | ||||||||||||||||||
Irial Finan | X
| X | ||||||||||||||||||
Nicholas I. Fink | X | |||||||||||||||||||
Ann F. Hackett | X
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| X
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Susan S. Kilsby | X | C | X | |||||||||||||||||
A. D. David Mackay | X
| C
| X | |||||||||||||||||
John G. Morikis | X | X | ||||||||||||||||||
Jeffery S. Perry
| X
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| X
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Stephanie Pugliese
| X
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| X
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David M. Thomas
| X
| X
| C
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Ronald V. Waters, III | C | X | X |
An “X” indicates membership on the committee.
A “C” indicates that the director serves as the chair of the committee.
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The Audit Committee’s primary function is to assist the Board in overseeing the (i) integrity of the Company’s financial statements, the financial reporting process and the Company’s system of internal controls; (ii) the Company’s compliance with legal and regulatory requirements; (iii) independence and qualifications of the Company’s external auditors; (iv) performance of the Company’s external and internal auditors; and (v) the Company’s enterprise risk management program, which includes oversight of cybersecurity related risks.
Each member of the Audit Committee (Messrs. Banati, Mackay, Morikis, Perry, Thomas and Waters),Waters and Ms. Pugliese) is financially literate. In addition, Messrs. Banati, Mackay, Perry, Thomas and Waters each have accounting or financial management expertise and is an audit committee financial expert as defined in Item 407(d)(5)(ii) and (iii) of Regulation S-K under the Securities Exchange Act.Act of 1934, as amended (the “Exchange Act”). As required by its charter, each Audit Committee member has also been determined by our Board to be independent as such term is defined in the Exchange Act and the New York Stock Exchange Listed Company Manual.
The Compensation Committee’s primary function is to assist the Board in attracting and retaining high quality leadership by (i) developing and critically reviewing the Company’s executive compensation program design and pay philosophy; and (ii) setting the compensation of the Company’s executive officers which includes the presidents of the Company’s principal business segments, in a manner that is consistent with competitive practices and Company, business segment and individual performance.
As required by its charter, each member of the Compensation Committee (Messrs. Banati, Finan, Mackay and Morikis and Mses. Hackett and Kilsby) has been determined by our Board to be independent as such term is defined in the Exchange Act and the New York Stock Exchange Listed Company Manual.
Compensation Committee Interlocks and Insider Participation
None of the members of the Compensation Committee has (i) served as one of the Company’s officers or employees, or (ii) had a relationship requiring disclosure under Item 404 of Regulation S-K.
Compensation Committee Procedures
The Compensation Committee directs management to prepare financial data to be used by the Compensation Committee in determining executive compensation. In addition, members of the Company’s human resources department assist in the preparation of executive compensation tally sheets and historical information describing compensation paid to executives, program design and plan provisions, and the Compensation Committee’s independent consultant provides market data for use in determining executive compensation. The Compensation Committee is presented with recommendations from management and from the Committee’s independent compensation consultant as to the level and type of compensation and related program designs provided to the Company’s executive officers. Members of the Company’s legal department provide the Compensation Committee with general advice on laws applicable to executive compensation.
The Chief Executive Officer attends meetings of the Compensation Committee, except for portions of meetings where his performance or compensation is being discussed. The Chief Executive Officer’s feedback on each officer’s performance is essential in the Compensation Committee’s determination of the officer’s salary, target annual incentive and long-term equity compensation determinations. See pages 22-3523-35 of this Proxy Statement for more information about how the Compensation Committee determined the executive officers’ compensation in 2022.
Compensation Committee Consultant
WTW has served as the Compensation Committee’s outside compensation consultant since 2020. In 2022, WTW received fees of approximately $586,000 for executive compensation-related services provided to the
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Compensation Committee Consultant
The Compensation Committee engages an outside compensation consultant. Meridian Compensation Partners (“Meridian”) and Willis Towers Watson (“WTW”) each served as the Compensation Committee consultant for a portion of 2020. Meridian served as the Compensation Committee’s consultant since the Company was formed in 2011 through February 2020. After thoughtful consideration and interviews with Meridian and other compensation consulting firms, the Compensation Committee decided to change its consultant. In March 2020 the Compensation Committee engaged WTW as its compensation consultant. At the time that the Committee engaged WTW, it determined that other services provided to the Company did not create a conflict of interest and that WTW is independent. In 2020, WTW received fees of approximately $336,027for executive compensation related services provided to the Compensation Committee. WTW also provided certain human capital, benefits and corporate risk and brokering services to the Company for which WTW received approximately $705,030.$1.28 million. The Compensation Committee did not review or approve these additional services provided by WTW to the Company because they are of the type directly secured by management in the ordinary course of business.
Both Meridian and In their capacity as outside compensation consultant, WTW reported directly to the Compensation Committee and provided the following services and information to the Compensation Committee:
Made recommendations as to best practices for structuring executive pay arrangements and executive compensation (including the amount and form of compensation) consistent with the Company’s business needs, pay philosophy, market trends and latest legal, regulatory and governance considerations;
Performed an assessment of the Company’s compensation peers;
• | Made recommendations as to non-employee director and executive compensation best practices, pay arrangements, short and long term incentive program design, equity compensation and conversion and compensation peer group decisions relating to the Separation and the Company’s reorganization; |
Provided market data (including compiling compensation data and related performance data) as background for decisions regarding the compensation of the Chief Executive Officer and other executive officers;
Performed an assessment of risks associated with the Company’s compensation structure and design; and
Attended Compensation Committee meetings (including executive sessions without the presence of management) and summarized alternatives for compensation arrangements that may have been considered in formulating final recommendations, as well as the consultant’s rationale for supporting or opposing management’s proposals.
The Executive Committee has all the authority of the full Board, except for specific powers that are required by law to be exercised by the full Board. The Executive Committee may not amend the Company’s charter, adopt an agreement of merger, recommend actions for stockholder approval, amend or repeal the Bylaws, elect or appoint any director or remove an officer or director, amend or repeal any resolutions of the Board, fix the Board’s compensation, and unless expressly authorized by the Board, declare a dividend, authorize the issuance of stock or adopt a certificate of merger.
Nominating, Environmental, Social and Governance Committee
In February 2020 the Nominating & Corporate Governance Committee refreshed its charter to clarify the committee’s oversight role in the Company’s ESG initiatives and changed its name to the Nominating, Environmental, Social and Governance Committee (the “NESG Committee”). The NESG Committee’s primary functions are to (i) provide recommendations to the Board with respect to the organization and function of the Board and its committees; (ii) recruit, identify and recommend qualified potential director candidates and nominees; (iii) review the qualifications and independence of directors and provide recommendations to the Board regarding composition of the committees; (iv) develop and recommend changes to the Company’s corporate governance
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framework including the Company’sBoard a set of corporate governance principles; (v) oversee the process of the evaluation of the Board and management; and (vi) oversee the Company’s environmental, social and governance programs, policies and related risks. The NESG Committee also makes recommendations to the Board regarding the level and composition of compensation for non-employee directors and grants annual equity awards to non-employee directors.
As required by its charter, each member of the NESG Committee (Messrs. Finan, Perry, Thomas and Waters and Mses. Hackett, Kilsby and Kilsby)Pugliese) has been determined by our Board to be independent as such term is defined in the Exchange Act and the New York Stock Exchange Listed Company Manual.
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Fortune Brands is committed to attracting and retaining qualified and experienced directors to contribute to the Board’s effectiveness and the Company’s goal of maximizing stockholder value. To accomplish this, the Company maintains a non-employee director compensation program that consists of cash retainers and Company stock. Below is a description of the 2020 2022 non-employee director compensation program.
Compensation Element* | Compensation Amount | |||
Cash Retainer | $100,000 | |||
Equity Retainer** | $145,000 in Company Common stock | |||
Committee Chair Fee | $15,000 for service as Chair of the Audit Committee, Compensation Committee or the NESG Committee | |||
Committee Membership Fee | $7,500 for service on the Audit Committee, Compensation Committee or the NESG Committee | |||
Board Chair Fee | $200,000 | |||
Stock Ownership Guidelines*** | Ownership of common stock equivalent to five times the annual cash retainer within five years of joining the Board |
During 2020,
* | Cash compensation elements are pro-rated to reflect the portion of the year the director served on the Board or committee, or as Chair of a committee. |
** | Directors may elect to defer receipt of their annual stock awards until the January following the year in which the individual ceases serving as a director of the Company. |
*** | All of our directors currently meet the multiple or fall within the five-year time period allowed to meet the multiple under the Stock Ownership Guidelines. |
No changes were made to the annual cash retainer for services as a non-employee director of the Company was $90,000. The members of the Audit Committee (Messrs. Banati, Mackay, Morikis, Thomas and Waters) and the Compensation Committee (Mses. Hackett and Kilsby and Messrs. Banati, Finan, Mackay and Morikis) received an additional annual cash fee of $7,500 for their service on each of these committees. In addition, the chairperson of each of the Audit, Compensation and NESG Committees received an additional annual cash fee of $15,000 for such service (Mr. Waters, Ms. Hackett and Mr. Thomas, respectively). Mr. Thomas received an additional annual cash retainer of $50,000 for his service as Lead Independent Director of the Board during 2020. Directors may elect to receive payment of their cash retainers in Company stock rather than cash.
Beginning in 2021 and after analyzing director compensation and receiving input from WTW, the Board approved an annual retainer for the non-executive Chair of $200,000, the addition of an annual cash fee of $7,500 for members of the Board serving on the NESG Committee and an increase in the annual cash retainer to $100,000.
program during 2022. In April 2020,May 2022, each non-employee director received an annual stock grant that was based on a set dollar value of $135,000. The number of shares granted was determined by dividing the dollar value of the annual stock grant ($135,000)145,000) by the closing price of the Company’s stock on the grant date ($46.82)73.94), rounded to the nearest share. Accordingly, 2,8831,961 shares of Company stock were granted to each of the then serving non-employee directors. The
Due to the Separation and the establishment of a new compensation peer group, the NESG Committee, with the assistance of WTW, assessed the Board’s compensation program, its elements and amounts paid. Based on this assessment, effective beginning in January 2023, the Board approved an increase ineliminated committee membership fees, increased the dollarannual cash retainer to $120,000 per year and increased the value of the 2021 annual equity retainer to $160,000.
In connection with the Separation, Ms. Hackett was credited with one notional share of MasterBrand stock grantunder the MasterBrand non-employee director compensation plan for every notional share held in Ms. Hackett’s deferral account under the Company’s Non-Employee Director Deferred Compensation Plan, to $145,000. Directors may elect to defer receipt of their annual stock awards until the January following the year in which the individual ceases servingreflect her continuing role as a director of the Company.Company and as a director of MasterBrand.
Director Stock Ownership Guidelines
To further align the Board’s interests with those of our stockholders, the Board maintains Stock Ownership Guidelines for non-employee directors. The guidelines encourage non-employee directors to own Company stock with a fair market value equal to five times the annual cash fee ($500,000 based on the 2021 annual fee of $100,000). The guidelinesretainer (for 2022, $500,000) and allow directors five years from the date of the director’s election to the Board to meet the guidelines. All of our directors currently meetShares owned directly by a director, the multiple director’s spouse,
21
DIRECTOR COMPENSATION (CONTINUED) |
minor children sharing the same home and any trust in which the director is a trustee with voting and/or fall withininvestment power, as well as any shares that have been granted to a director, but receipt has been deferred pursuant to the five year time period allowed to meet the multiple under the Stock Ownership Guidelines.Company’s Deferred Compensation Plans, are counted towards ownership. For information about the beneficial ownership of the Company’s securities held by directors and executive officers, see “Certain Information Regarding Security Holdings” on pages 50-51.57-58.
|
* Although Messrs.Mr. Fink and Klein servedserves as membersmember of the Board, during 2020, they didhe does not receive any additional compensation for such service. Mr. Banati joinedMs. Pugliese is not included in this chart as she did not serve as a director of the Board in September 2020 and Mr. Perry joined the Board in December 2020. Mr. Klein retired from the Board effective December 31, 2020.Company for any portion of 2022.
(1) |
|
The amounts in this column represent the aggregate grant date fair value of the stock awards granted in 2022, computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation — Stock Compensation (“FASB ASC Topic 718”). The grant date fair value on May 3, 2022 (the grant date) was |
Included in this column are premiums paid for group life insurance coverage and the Company’s match on gifts paid by the director to charitable organizations, both of which are generally available to Company employees, and costs associated with the Company’s |
COMPENSATION DISCUSSIONAND ANALYSIS
|
This Compensation Discussion and Analysis (“CD&A”)&A describes the Fortune Brands’ executive compensation program and explains how the Compensation Committee made compensation decisions for the following Named Executive Officers (the “NEOs”)NEOs in 2020:2022*:
Nicholas I. Fink | Cheri M. Phyfer | Hiranda S. Donoghue | ||||||||||
Chief Executive Officer | Executive | Executive Vice President,
| Executive Vice President,
| Executive Vice President, Chief Legal Officer & Secretary |
* | Pursuant to SEC disclosure rules, we are required to include Mr. R. David Banyard, former President, Cabinets, and Mr. Brett E. Finley, former President, Outdoors & Security, as additional NEOs although they were no longer serving as executive officers of the Company as of December 31, 2022. In connection with the Separation, Mr. Banyard resigned from the Company on December 14, 2022 in order to assume the position of President and Chief Executive Officer of MasterBrand. As a result of the Company’s restructuring, Mr. Finley’s position was eliminated and he ceased serving as an executive officer on September 6, 2022 and continued in an advisory capacity until December 31, 2022. |
** | Mr. |
This CD&A is divided into the following sections:
Section | Page | |
25 | ||
Leadership Succession PlanningBusiness Highlights
Every year the Board reviews executive succession, including the succession of the CEO. The Compensation Committee and the Board have spent a significant amount of time working on a CEO succession plan over the past several years. With Mr. Klein’s decision to retire as Chief Executive Officer in January 2020, the Board chose Mr. Fink to succeed him. At the same time, the Board evaluated the Company’s leadership structure and decided that Mr. Klein would be appointed Executive Chairman ofDuring 2022, the Company and Mr. Thomas would transition from non-executive Chairmanits management team executed on key transformative initiatives in the face of a challenging economic environment. Despite a slowing market due to Lead Director. On December 31, 2020, Mr. Klein retired as Executive Chairmaninterest rate increases and asinflation, we successfully completed the Separation of our Cabinets business, rebranded our Company and reorganized our business model under a member of the Boardcentralized leadership team. While executing on our transformative initiatives, we also reduced our fixed cost base and the Board appointed Susan S. Kilsby as the new non-executive Chair of the Board.
Business and Financial Highlights
As the new CEO at the beginning of 2020, Mr. Fink introduced severalmaintained investments in our key strategic initiatives, including our digital transformation, brand-building, and incremental capacity, which are viewed as critical to continue driving growthour long-term growth. Our 2022 results were:
* | Attributable to Fortune Brands (inclusive of Cabinets). Please refer to Appendix A for a reconciliation of EPS on a before charges/gains basis to GAAP EPS. |
We believe our compensation program is designed to and profitability for the Company. Despite the pandemic, the Company was ablelinks compensation to execute on key strategies, while at the same time managingperformance as reflected by the impact of COVID-19the economic environment on our 2022 financial results and keeping our employees safe. The agility demonstratedcompensation earned by the management teamNEOs in light of the pandemic allowed the Company to deliver above market performance for shareholders while funding incremental investments to set the Company up for future success.2022. We believe that the actions taken by the leadership team in 20202022 have positioned the Company to continue to grow and create long-term value for our stockholders. SeeWe also believe that our Proxy Summary on page 1compensation program and the goals used within our COVID-19 Safety disclosures in our Annual Report on Form 10-K for more information about those actions. The Company continuedprogram continue to successfully operate its businesses during the pandemic, took significant actions to keep our employees safe,incentivize and reward performance.
23 |
COMPENSATION DISCUSSIONAND ANALYSIS (CONTINUED)
|
permanently reduced expenses, improved efficiency and grew sales and profits in 2020. The following graphics highlight our 2020 growth and performance on key Company metrics used in our incentive program over the last five (5) years:
|
20202022 Compensation Highlights
The Company’s compensation programs and practices are designed to pay for performance and to align management’s interests with those of the Company’s stockholders while attracting, motivating and retaining superior talent to lead our Company. The Compensation Committee believes that our compensation program incentivizes high performance by providing a significant amount of compensation as equity, utilizing both short-term and long-term incentives tied to Company performance and balancing fixed (base salary) and variable (annual cash incentive and equity) compensation. Our incentive compensation programs are designed to align the payThe material components of our executives2022 executive compensation program are summarized in the following chart:
In connection with the Separation, equity awards were adjusted to preserve the intrinsic value of the executives deliverawards held by the NEOs, with unvested PSAs being converted into time-based RSUs based on projected performance results calculated based on actual performance from the beginning of the applicable performance period through the end of the fiscal quarter immediately preceding the Separation (or September 30, 2022) and expected performance through the remainder of the applicable performance period. Each outstanding equity award remains subject to our shareholders. Although COVID-19 presented a significant challenge to our business,continued employment through the vesting date of the original awards. Mr. Banyard’s outstanding equity awards were converted into equity awards of MasterBrand, with his unvested Fortune Brands PSAs converting into MasterBrand RSUs based on the same methodology described above.
The Compensation Committee did not make any adjustmentsapproved a change to the performance metrics associated withused in our executiveannual incentive plans (annual cash incentive or performance share awards) to account for the impact of COVID, relying solely on the metrics established priorplan program by aligning to the Pandemic.
2020 was an extraordinary year for the Company given the CEO transition, acceleration of strategic priorities and COVID-19 pandemic. As shown in the charts above, our financial performance was excellent with Net Sales increasing 6% and Operating Income (before charges/gains) increasing 12%. These financial results were reflected in a significant increase in our stock price compared to our peers and the S&P 500. The Company’s one-year total shareholder return (including dividend reinvestment) was 33% as compared to the S&P 500 at 18% and our Peer Group at 21%. To reward our NEOs for this success in lightuse of the challengessame consolidated corporate wide metrics for all executive officers in order to support the Company faced as a result of COVID-19, the Compensation Committee granted 2020 outperformance equity awards, 50% of the award valueCompany’s restructured organization beginning in the form of restricted stock units and 50% of the award value in the form of stock options, to our NEOs (excluding Mr. Klein). For further details about these 2020 outperformance awards see pages 31-33.2023.
(1) | All references to metrics used to determine incentive compensation are shown in this CD&A on an unaudited and before charges/gains basis. See Appendix A for definitions and a description of the methodology of these non-GAAP measures used to determine incentive compensation. |
24
COMPENSATION DISCUSSIONAND ANALYSIS (CONTINUED)
|
20202022 NEO Annual Total Target Compensation
The following chart summarizes annual total target compensation awarded to each NEO in 2020:2022:
Summary of 2020 NEO Annual Total Target Compensation | ||||||||||||||||||||||||||||||||||||
Summary of 2022 NEO Annual Total Target Compensation | Summary of 2022 NEO Annual Total Target Compensation | |||||||||||||||||||||||||||||||||||
Named Executive Officer | 2020 Annual Base Salary(2) | 2020 Annual Incentive Target Value | 2020 Long- Term Incentive Award Target Value(3) | 2020 Total Target Compensation | 2022 Annual Base Salary(1) | 2022 Annual Incentive Target Value | 2022 Long- Award Target Value(2) | 2022 Total Target Compensation | ||||||||||||||||||||||||||||
Nicholas I. Fink |
| $1,100,000 |
| $1,375,000 |
| $5,525,000 |
| $8,000,000 |
| $1,200,000 |
|
| $1,560,000 |
|
| $7,150,000 |
|
| $9,910,000 |
| ||||||||||||||||
Christopher J. Klein |
| $1,000,000 |
| $1,000,000 |
| $1,500,000 |
| $3,500,000 | ||||||||||||||||||||||||||||
Patrick D. Hallinan |
| $635,000 |
| $508,000 |
| $1,700,000 |
| $2,843,000 |
| $700,000 |
|
| $630,000 |
|
| $2,000,000 |
|
| $3,330,000 |
| ||||||||||||||||
Cheri M. Phyfer |
| $725,000 |
|
| $582,978 |
|
| $1,700,000 |
|
| $3,007,978 |
| ||||||||||||||||||||||||
Sheri R. Grissom |
| $505,000 |
|
| $353,500 |
|
| $900,000 |
|
| $1,758,500 |
| ||||||||||||||||||||||||
Hiranda S. Donoghue |
| $500,000 |
|
| $350,000 |
|
| $900,000 |
|
| $1,750,000 |
| ||||||||||||||||||||||||
R. David Banyard, Jr. |
| $720,000 |
| $576,000 |
| $2,000,000 |
| $3,296,000 |
| $755,000 |
|
| $641,750 |
|
| $2,225,000 |
|
| $3,621,750 |
| ||||||||||||||||
Cheri M. Phyfer |
| $590,000 |
| $442,500 |
| $1,350,000 |
| $2,382,500 | ||||||||||||||||||||||||||||
Brett E. Finley |
| $587,000 |
| $440,250 |
| $1,300,000 |
| $2,327,250 |
| $620,000 |
|
| $496,000 |
|
| $1,475,000 |
|
| $2,591,000 |
|
(1) |
|
The amounts listed in this column reflect annual base salary in effect as of December 31, |
Includes the value of the annual target incentive equity awards, expressed as the aggregate grant date fair value of PSAs (at target), stock options and RSUs, as determined using the assumptions found in note |
RESULTS OF THE 20202022 SAY ON PAY VOTE
The Compensation Committee and Board value the input of our stockholders. Over the past five years, our stockholders have overwhelmingly supported our executive compensation program, with an average approval of approximately 93% of the votes cast for |
the Company’s annual say on pay vote. The Compensation Committee interpreted the high level of stockholder support as endorsement of the Company’s executive compensation program and did not make any changes to the Company’s executive compensation program in response to the |
|
PHILOSOPHY AND PROCESS FOR AWARDING NEO COMPENSATION
Philosophy of the Executive Compensation Program
Our executive compensation program is designed to reward NEOs for the achievement of both short-term and long-term financial, strategic and operational goals that lead to the creation of long-term stockholder value. The 2022 executive compensation program iswas designed to:
25
COMPENSATION DISCUSSIONAND ANALYSIS (CONTINUED) |
2022 Compensation Peer Group and Market Data
The Compensation Committee uses compensation data from a group of similarly sized peer companies to evaluate our compensation arrangements (the “Peer Group”). With the help of the Compensation Committee’s consultant, each year the Committee reviews the Peer Group and decides whether any changes should be made. As recommended by Meridian (the Committee’s compensation consultant at the time),WTW, the Compensation Committee decideddid not make any changes to change the Peer Group for 2020.used to evaluate 2022 compensation decisions. The 2020 Peer Group consisted of the following companies:
• Allegion plc | ||||
| ||||
| • Lennox International Inc. | • RPM International Inc. | ||
• | • Masco Corporation | • The Sherwin-Williams Company | ||
• | • Mohawk Industries, Inc. | • Snap-On Inc. | ||
• | • Newell Brands Inc. | • Stanley Black & Decker, Inc. | ||
• Dover Corp. | • Owens Corning | • Trane Technologies plc | ||
• JELD-WEN Holding, Inc. | • Parker-Hannifin Corp. | • Whirlpool Corporation | ||
• Leggett & Platt, Incorporated | • Pentair plc | |||
FORTUNE BRANDS vs. PEER GROUP (1) | ||||
(1) Reflects 2021 fiscal year-end results, which were used at the |
MeridianWTW provided the Compensation Committee with market data to useconsider in setting each element of compensation of the NEOs for 2020.2022. This market data primarily consisted of peer grouprevenue-size-adjusted general industry data received from Aon,WTW, supplemented with revenue size adjusted general industry data andpeer group proxy data.
The Compensation Committee believes that compensation decisions are complex and require a deliberate review of Company performance, peer compensation levels, experience and impact of individual executives, and individual performance. In determining executive compensation, the Compensation Committee considers all forms of compensation and uses tools – such as tally sheets and market data – to review the value delivered by each component of compensation. When evaluating total target compensation, the Compensation Committee generally strives to set NEO compensation around the 50th percentile of the market data. The Compensation Committee may, however, determine that it is appropriate for total target compensation or any particular element of compensation to exceed or fall below the 50th percentile of the market data for an NEO. The factors that might influence the amount of compensation awarded include market competition for a particular position, the strategic importance of the position, retention considerations, an individual’s performance, possession of a unique skill or knowledge set, proven leadership capabilities and internal pay equity.
COMPENSATION DISCUSSIONAND ANALYSIS (CONTINUED)
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Evaluating NEO Performance2023 Compensation Peer Group and Market Data
At the end of 2020,In 2022, the Compensation Committee in conjunctiondetermined that the Peer Group would need to be adjusted to align with the Lead DirectorCompany’s refined market and other non-management memberspeers following the completion of the Separation. The criteria used to evaluate and select the 2023 Peer Group included comparable sized companies (based on revenue) that were more aligned with our business strategies, such as companies that manufacture household products and provide specialized consumer services, including security and alarm services, and companies with strong brand recognition and technology enabled products. The criteria used to evaluate and select the 2023 Peer Group also eliminated businesses with less relevance to our Company’s business strategies, such as those in the auto parts and equipment and specialty chemical industries. With the assistance of WTW, the Compensation Committee approved the following Peer Group for use in connection with 2023 compensation decisions:
2023 Peer Group | ||||
• Allegion plc | • Mohawk Industries, Inc. | • Tempur Sealy International Inc. | ||
• A.O. Smith Corporation | • Newell Brands Inc. | • The Clorox Company | ||
• ADT Inc. | • Owens Corning | • Trane Technologies plc | ||
• Church & Dwight Co., Inc. | • Resideo Technologies, Inc. | • Whirlpool Corporation | ||
• Leggett & Platt, Incorporated | • Roper Technologies, Inc. | • Xylem Inc. | ||
• Lennox International Inc. | • Snap-On, Inc. | • Zurn Elkay Water Solutions Corporation | ||
• Masco Corporation | • Stanley Black & Decker, Inc. | |||
Evaluating NEO Performance
All NEOs undergo an annual performance appraisal. For the evaluation of our CEO, the Board conducted a formal evaluation of the Company’s CEO to analyze hisCEO’s performance against strategic,certain financial, operational, business strategy (including advancing the Company’s ESG and operational goalsDEI strategies) and personal development objectives established at the beginning of the year. Progress on such objectives is regularly reviewed throughout the year with the Board. At the end of the year, the Board discusses the CEO’s accomplishments and achievement of the goals with the CEO and in executive session without the presence of the CEO. Following the annual performance review, the Compensation Committee setsutilizes market data provided by the compensation consultant to set the CEO’s annual total target compensation after reviewing recommendations and market data frombased on the compensation consultant. Theresults of the performance assessment. For the other NEOs, the CEO reviews and evaluates each of the other NEOstheir performance against strategic, financial and operational goals established at the beginning of the year and then presents his evaluations to the Compensation Committee. The Compensation Committee reviews the CEO’s recommendations and market data from the compensation consultant and then independently sets each of the other NEO’s annual total target compensation.
Maintaining Best Practices
The Compensation Committee maintains policies to protect the interests of our stockholders and followfollows commonly viewed best practices in corporate governance. The chart below summarizes these policies.
What We Do
| ||||
✓Pay for PerformanceA vast majority of NEO annual total target compensation is tied to Company performance. In
|
✓Independent Compensation Consultantadvises the Compensation Committee on executive compensation matters. | |||
✓Maximum Payouts on IncentivesAnnual cash incentive awards and PSA payouts are capped at 200% of target.
|
✓Tally SheetsTally sheets and wealth accumulation analyses are reviewed annually before making compensation decisions.
| |||
✓Double-Trigger in Change in ControlSeverance benefits are payable upon a change in control only if there is also a qualifying termination of employment. Our equity award agreements also include double-trigger provisions.
|
✓Robust Stock Ownership GuidelinesWe maintain rigorous stock ownership guidelines for NEOs. Executives are required to hold 50% of net shares from the vesting of PSAs and RSUs until the ownership requirement is met.
| |||
✓Clawback PolicyThe Company may recover all or part of annual cash incentives and equity incentive compensation under certain circumstances. | ✓ Executive Sessions The Compensation Committee periodically meets in executive session without the presence of management. |
27
COMPENSATION DISCUSSIONAND ANALYSIS (CONTINUED) |
What We Don’t Do
| ||||
✘ No Employment Contracts NEOs and other executive officers are employees “at will”. The Company does not have employment contracts with any of its NEOs or other executive officers.
|
✘No Hedging or Pledging Directors, NEOs and other executives are prohibited from hedging, pledging or otherwise engaging in derivative transactions designed to offset a decrease or increase in the market value of the Company’s stock.
| |||
✘ No Tax Gross Ups NEOs and other executive officers are not entitled to tax gross ups in the event of a change in control
|
✘No Backdating or Repricing of Stock Options Stock options are never backdated or issued with below-market prices. Repricing of underwater stock options without stockholder approval is prohibited (except in the event of certain extraordinary corporate events).
| |||
✘ No Excessive Perquisites Perquisites are limited to the executive health program, cybersecurity privacy protection and other benefits generally available to employees, such as company product purchase programs. Certain executives have limited personal use of Company aircraft, subject to reimbursement obligations. |
|
TYPES AND AMOUNTS OF NEO COMPENSATION AWARDED IN 20202022
Pay-at-Risk Compensation2
As part of 20202022 annual target compensation, the Company provided both fixed (base salary) and variable (annual bonus, PSAs, RSUs and stock options) compensation to the NEOs. The vast majority of annual target compensation is at risk because the compensation that is actually paid is dependent upon the Company’s performance or stock price. As a result, the amount of compensation actually paid to an NEO may significantly vary from the NEO’s target compensation.
The following charts show each element of 20202022 annual target compensation, including the mix of short-term and long-term incentives, as well as the amount of pay-at-risk for the CEO and the average for the other NEOs. These charts illustrate annual target compensation and do not include any retention or 2020 outperformance awards granted to the NEOs during 2020.compensation.
As shown in the charts above, a significant portion of the compensation granted to our NEOSNEOs was equity and pay-at-risk. Equity grants represented 69.2%72% of Mr. Fink’s annual total target compensation and 58.4% (on average) of the other NEOs’ annual total target compensation. 86.3% of Mr. Fink’s annual total target compensation was pay-at-risk and 76.4%56% (on average) of the other NEOs’ annual total target compensation for 2022. 88% of Mr. Fink’s annual total target compensation for 2022 was pay-at-risk and 75% (on average) of the other NEOs’ annual total target compensation for 2022 was pay-at-risk.
2020
28
COMPENSATION DISCUSSIONAND ANALYSIS (CONTINUED) |
2022 Compensation
Base Salary
Base salaries provide a fixed level of cash compensation and are paid in order to attract and retain our NEOs. The Compensation Committee sets each NEO’s base salary to be appropriate and commensurate with the NEO’s position, experience and performance.
|
|
For 2020,2022, the Compensation Committee increased the annual base salaries for each NEO, (otherother than Messrs. Klein and Banyard)Ms. Donoghue, to better align with competitive market data and in recognition of each individual’s prior year performance, orperformance. Ms. Donoghue’s initial base salary was determined at the time she joined the Company in December 2021 based on the competitive market data, the compensation received from Ms. Donoghue’s prior employer and to reflectbe comensurate with her experience. As a change in position. When Mr. Finkresult of the Company’s transformation and reorganization, Ms. Phyfer was promoted from Chief Operating Officer to Chiefa newly created position, Executive OfficerVice President and Group President, where she is responsible for the commercial businesses, brands, innovation and product development across our organization. In connection with her promotion to this position in January 2020, heSeptember 2022, she received an increase to hisher base salary of 12% to bring his base salary in line with his new position as CEO. In addition, Ms. Phyfer’s base salary was increased to reflect her performance as President of the Global Plumbing Group in 2019. Since Mr. Banyard joined the Company in November 2019 his base salary was not increased in 2020. Mr. Klein’s base salary decreased in January 2020 to bring his base salarycompensation in line with market data for his new role as Executive Chair.a position of similar scope. Below are the 20202022 and 20192021 annual base salaries for each NEO:NEO, effective as of December 31st of the applicable year (or, in the case of Mr. Banyard, his last day of employment with the Company):
Named Executive Officer | 2020 | 2019 | December 31, 2021 | December 31, 2022 | ||||||||||||
Nicholas I. Fink |
| $1,100,000 |
|
| $850,000 |
|
| $1,160,000 |
|
| $1,200,000 |
| ||||
Christopher J. Klein |
| $1,000,000 |
|
| $1,225,000 |
| ||||||||||
Patrick D. Hallinan |
| $635,000 |
|
| $610,000 |
|
| $680,000 |
|
| $700,000 |
| ||||
Cheri M. Phyfer |
| $630,000 |
|
| $725,000 |
| ||||||||||
Sheri R. Grissom |
| $490,000 |
|
| $505,000 |
| ||||||||||
Hiranda S. Donoghue |
| $500,000 |
|
| $500,000 |
| ||||||||||
R. David Banyard, Jr. |
| $720,000 |
|
| $720,000 |
|
| $740,000 |
|
| $755,000 |
| ||||
Cheri M. Phyfer |
| $590,000 |
|
| $500,000 |
| ||||||||||
Brett E. Finley |
| $587,000 |
|
| $570,000 |
|
| $600,000 |
|
| $620,000 |
|
Annual Cash Incentive
The Compensation Committee believes that annual cash incentive awards (“bonus”) reinforce a pay for performance culture because the payment is based on the Company’s financial and operational results. Each year, the Compensation Committee sets a percentage of base salary to determine each NEO’s bonus payout at 100% of target.
The Compensation Committee adjustedincreased the percentage of base salary used to determine the 2022 bonus awards for Messrs. Fink, Klein, Hallinan and Ms.Banyard and Mses. Phyfer and Grissom from the percentage of base salary used to determine their 20202021 bonus awards at 100% of target.awards. The amountsincreases were adjusted for changes in positions,made to better align with market data orand for internal pay equity purposes. The percentagesCommittee did not make any adjustment to the target bonus opportunities for any of the other NEOs. Ms. Donoghue’s annual incentive target was established at the time she joined the Company in 2019December 2021 based on the competitive market data and 2020the Company’s internal pay practices. In connection with Ms. Phyfer’s promotion in September 2022, her target percentage was increased from 85% to 90% to bring her compensation in line with market data for a position of similar scope. As a result, Ms. Phyfer’s 2022 annual cash incentive award was pro-rated to reflect the portion of the year in which her target was set at 85% and 90%,
29
COMPENSATION DISCUSSIONAND ANALYSIS (CONTINUED) |
respectively. The target annual bonus opportunities for each NEOof the NEOs in 2022, reflected as a percentage of base salary, were:
Named Executive Officer | Percentage of Base Salary 2020 | Percentage of Base Salary 2019 | ||
Nicholas I. Fink | 125% | 95% | ||
Christopher J. Klein | 100% | 130% | ||
Patrick D. Hallinan | 80% | 75% | ||
R. David Banyard, Jr. | 80% | n/a(1) | ||
Cheri M. Phyfer | 75% | 70% | ||
Brett E. Finley | 75% | 75% | ||
(1) Mr. Banyard joined the Company in November 2019 and as a result was not eligible to participate in the Company’s annual cash incentive program during 2019. |
Named Executive Officer | Target Bonus Opportunity | |
Nicholas I. Fink | 130% | |
Patrick D. Hallinan | 90% | |
Cheri M. Phyfer | 90% | |
Sheri R. Grissom | 70% | |
Hiranda S. Donoghue | 70% | |
R. David Banyard, Jr. | 85% | |
Brett E. Finley | 80% |
The bonusBonus payouts areunder the annual cash incentive awards were based on the achievement of theapplicable performance goals and can rangecould have ranged from 0% to 200% of target. To establish challenging performance goals under the annual cash incentive program, the Compensation Committee reviewed the target performance goals and actual results for awards paid in 2019, and2021, as well as the 20202022 expected growth rate in the home products market, the Company’s three yearthree-year operating plan and key assumptions relating to share gains, pricing, material inflation and productivity. For 2020,2022, the Compensation Committee approved the following performance metrics and weighting for bonus awards: