UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.DC 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section
PROXY STATEMENT PURSUANT TO SECTION 14(a) of the
OF THE SECURITIES EXCHANGE ACT OF 1934
Securities Exchange Act of 1934
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Filed by the Registrant | Filed by a Party other than the Registrant |
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Preliminary Proxy Statement | ||
Confidential, for Use of the Commission Only (as permitted by Rule 14A-6(E)(2)) | ||
Definitive Proxy Statement | ||
Definitive Additional Materials | ||
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FLOWSERVE CORPORATION
Flowserve Corporation
(Name of Registrant as Specified Inin Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Dear Fellow Shareholder: I am pleased to invite you to join me, our Board of Directors, executive officers, associates and other shareholders at Flowserve’s 2022 Annual Meeting of Shareholders. The attached Notice of 2022 Annual Meeting of Shareholders and Proxy Statement, which we are providing to shareholders beginning on March 31, 2022, contain details of the business to be conducted at the meeting. Our Performance in 2021 Flowserve made progress on several fronts in 2021 despite being a year of continued challenges, not just for Flowserve but for the global economy as a whole. Notwithstanding headwinds caused by the ongoing COVID-19 pandemic, supply chain disruption, and labor shortages in various markets around the world, we were able to deliver strong bookings, capitalize on the ongoing recovery in our aftermarket business, and support a growing range of customers on their energy transition journey. During 2021, we saw a significant increase in bookings year over year, with our aftermarket business leading the recovery with bookings of $2.0B in 2021. Additionally, our free cash flow conversion to adjusted earnings was greater than 100 percent for the second consecutive year, enhancing our returns through the cycle. In addition, we were encouraged throughout the year to see increasing project awards in energy transition. I believe Flowserve is uniquely positioned to capitalize on the flow control aspect of decarbonization, where today our products and services can be utilized in many aspects of our customers’ carbon reduction efforts. We are excited about our ability to support our customers through their energy transition journey and have confidence in our broad product offering to deliver increased energy efficiency, cost savings and carbon reduction for our customers while being an important long-term growth driver for our business. 2021 Highlights include:
Our Business Strategy While 2021 presented several headwinds for Flowserve and for our customers, we believe that through the commitment and dedication of our associates, our strong backlog and our growth strategy, we are well positioned to capitalize on the continued recovery in our end markets during 2022 and beyond. During 2022, we will focus on our 3D growth strategy of Diversify, Decarbonize, and Digitize as we drive our technology and product development efforts to target new and attractive market growth opportunities, while supporting our existing customers’ efficiency and decarbonization efforts. We believe Flowserve is well positioned to capitalize on what we see as an improving growth environment and create long-term value for our shareholders and other stakeholders. Shareholder Feedback Flowserve’s Board and senior leadership continue to be encouraged by the positive feedback we have received about the clarity of information we provide through our proxy statement. We are continually reviewing ways to enhance the information in our public disclosures and will continue to do so based on your feedback. Your vote is very important to us and to our business. Prior to the meeting, I encourage you to sign and return your proxy card, or use telephone or Internet voting, so that your shares will be represented and voted at the meeting. You can find instructions on how to vote beginning on page 77. Thank you in advance for voting and for your continued support of Flowserve.
R. Scott Rowe, President and CEO Notice of |
When: Thursday, May at 11:30 a.m. CDT | Where: Online at |
We are pleased to invite you to join our Board of Directors and senior leadership at Flowserve’s 20212022 Annual Meeting of Shareholders. The Governor of2022 Annual Meeting will be held online only and will begin at 11:30 AM CDT on May 12, 2022. We will hold the State of New York has issued several temporary executive orders permitting New York corporations to hold virtual only shareholder meetings in light of the COVID-19 pandemic. In addition, on March 17, 2021, the New York State Legislature approved amendments to New York law that, if signed by the Governor, would permit New York corporations to hold virtual-only shareholder meetings this year.
As such, we intend to hold the2022 Annual Meeting solely by means of remote communications with no in-person location if permitted by New York law or executive order as of the date oflocation. You can attend the Annual Meeting. In the event a solely virtual meeting is not permitted as of such date, we may provide a venue for an in-person annual meeting, in addition to virtual participation. In that case, we will notify our shareholders in advance on our website (ir.flowserve.com)Meeting and by issuing a press release and filing it as additional proxy materials with the Securities and Exchange Commission and on www.proxyvote.com.vote online at www.virtualshareholdermeeting.com/FLS2022.
| Board Vote Recommendation | Page Reference (for more detail) | ||
1 | Elect the | For | ✔ | Page |
2 | Approve, on an advisory basis, the Company’s executive compensation | For | ✔ | Page |
3 | Ratify the appointment of PricewaterhouseCoopers as our independent auditor for | For | ✔ | Page |
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Shareholders will also transact any other business that is properly brought before the Annual Meeting.
RecordDate: Shareholders of record of the Company’s common stock, par value $1.25 per share, at the close of business on March 26, 202116, 2022 are entitled to notice of and to vote at the Annual Meeting.
AttendingtheMeetingVirtually: To participate in the meeting, including to vote or to ask questions during the meeting, you must access the meeting website at www.virtualshareholdermeeting.com/FLS2021,FLS2022, and log in using the 16-digit control number provided on your proxy card, voting instruction form, or Notice of Internet Availability of Proxy Materials. If you do not receive a 16-digit control number, consultyour shares are held in street name and your voting instruction form or Notice of Internet Availability indicates that you may vote those shares through the http://www.proxyvote.com website, then you may access, participate in, and vote at the annual meeting with the 16-digit access code indicated on that voting instruction form or Notice of Internet Availability. You may need to requestOtherwise, shareholders who hold their shares in street name should contact their bank, broker or other nominee (preferably at least 5 days before the annual meeting) and obtain a “legal proxy” from your broker in advance of the meeting in order to be able to attend, participate online. in or vote at the annual meeting.
For additional related information, please refer to the disclosure beginning on Page 7677 in the enclosed proxy statement. The proxy statement and 20202021 annual report to shareholders and any other proxy materials are available at www.proxyvote.comwww.proxyvote.com.
Yourvoteisveryimportant. Whether or not you plan to attend the Annual Meeting online, we urge you to vote and submit your proxy in advance of the meeting by one of the methods described to the right on this page. Returning a proxy card or otherwise submitting your proxy does not deprive you of your right to attend the Annual Meeting and vote online at www.virtualshareholdermeeting.com/FLS2021.FLS2022.
By order of the Board of Directors,
Lanesha T. Minnix
SeniorVicePresident,ChiefLegalOfficerandCorporateSecretary
This summary highlights information contained elsewhere in the proxy statement. This summary does not contain all the information that you should consider, and you should read the entire proxy statement carefully before voting. Page references are supplied to help you find additional information in the proxy statement.
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DAVID E. ROBERTS Age: Director since Committees: * Other Public Company Boards: | R. SCOTT ROWE Age: Director since 2017 Committees: None Other Public Company Boards: None | SUJEET CHAND Age: Director since 2019 Committees: | ||||
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RUBY R. CHANDY |
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Other Public Company Boards: 2 | GAYLA J. DELLY Age: 62 Director since 2008 Committees: ● ● Other Public Company Boards: 2 | JOHN R. FRIEDERY Age: 65 Director since 2007 Committees: ★● Other Public Company Boards: None | ||||
JOHN L. GARRISON |
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Other Public Company Boards: 1 | MICHAEL C. MCMURRAY Age: 57 Director since 2018 Committees: ★● Other Public Company Boards: None | CARLYN R. TAYLOR Age: 53 Director since 2020 Committees: ●● Other Public Company Boards: None | ||||
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● Finance and Risk Committee ● Organization and Compensation Committee * As Chairman of the Board, Mr. |
20212022 PROXY STATEMENT 2
Executive Officers (Page 26)29)
| Name and Position | Age | Since | Previous Position |
R.ScottRowe President, CEO and Director |
| April 2017 | President — Cameron Group, Schlumberger Ltd. | |
ElizabethL.Burger Senior VP and Chief Human Resources Officer |
| April 2018 | SVP and Chief Human Resources Officer, Hanesbrands, Inc. | |
President, Aftermarket Services & Solutions |
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KeithE.Gillespie Senior VP and Chief Sales Officer |
| May 2015 | Managing Director, AlixPartners LLC | |
LaneshaT.Minnix Senior VP, Chief Legal Officer and Corporate Secretary |
| June 2018 | SVP and General Counsel, BMC Stock Holdings, Inc. | |
TamaraM.Morytko President, Flowserve Pumps Division |
| September 2020 | Chief Operating Officer, Norsk Titanium | |
AmyB.Schwetz Senior VP and Chief Financial Officer |
| February 2020 | EVP and Chief Financial Officer, Peabody | |
ScottK.Vopni Vice President, Chief Accounting Officer |
| June 2020 | SVP — Finance, Chief Accounting Officer, Dean Foods Co. | |
KirkR.Wilson President, President, Flow Control Division |
| July 2019 | Flowserve President, Aftermarket Services & Solutions |
20212022 PROXY STATEMENT 3
Executive Compensation Highlights (Page 29)32)
Compensation Philosophy and Principles
ATTRACT & RETAIN | Attract and retain high-quality well as our purpose, values, behaviors | |
REINFORCE OUR STRATEGY | Align our incentive programs with our vision and | |
COMPETITIVE AND MARKET-BASED | Maintain a market-based | |
ALIGN PAY PERFORMANCE | Provide incentive programs that reward | |
ALIGN PAY WITH SHAREHOLDERS | Provide that a majority of total compensation is |
Our annual incentive program paid out at 74.8% of target opportunity on the corporate metrics, as follows:
20212022 PROXY STATEMENT 4
2019 Performance Stock Units (PSUs) tied to 2019-2021 performance paid out at 33.3% of target.
20202021 Executive Total Compensation Mix
The majority of the total target compensation provided to our Named Executive Officers is ‘at risk’ and aligned with our compensation philosophy and principals to drive shareholder value creation.
This chart reflects total annual target compensation and therefore excludes any one-time special awards discussed below under the heading “Executive Compensation—Compensation Discussion and Analysis—Special Awards.” This chart does not include Mr. Roueche given his limited role as interim CFO, which ended on February 23, 2020.Including stock price performance for RSUs.
20212022 PROXY STATEMENT 5
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20212022 PROXY STATEMENT 6
InAround the second quarterworld, Flowserve is striving to fulfill our purpose – to create extraordinary flow control solutions to make the world better for everyone. To help solve the biggest flow-control challenges, customers worldwide rely on the product lines, engineering, project management, and service expertise of 2018, we launched and committed resources to our Flowserve 2.0 Transformation,that dates back more than 200 years. We have developed a program designed to transform our business model to drive operational excellence, reduce complexity, accelerate growth, improve organizational health and better leverage our existing global platform. A significant launching point for our Flowserve 2.0 Transformation was to putstrategy on a foundation in place for our organization by establishing our purpose andof six core values. In 2019, we expanded this foundation to include our seven behaviors. Our purpose, values and seven key behaviors were all created by a cross-functional, global groupthat are at the root of employees.everything we do as an organization in pursuit of this purpose.
20212022 PROXY STATEMENT 7
THIS IS FLOWSERVE 2.0TRANSFORMATION —
We have approached the Flowserve 2.0 TransformationOur strategy of supporting energy transition through our efforts to Diversify, Decarbonize, and Digitize – our 3D Growth Strategy – supports and aligns directly with a focus on four key areas that are integral to our success — People, Process & Technology, Customer, and Finance.purpose.
While we remain fully committed to supporting our oil and gas customers today and into the As an example of our | |
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We recognize that governments and corporations around the globe are Our new Energy Advantage program provides offerings to help customers’ energy transition efforts in three key areas – energy efficiency, carbon reduction, and operational cost mitigation. As an example of our decarbonization strategy, Flowserve was recently selected as the sole supplier of flare gas recovery systems for five U.S. Gulf coast petrochemical facilities. These systems will reduce toxic volatile organic compounds in the air by an estimated 5,600 tons annually. | |
Digitize Digitize represents our focus on digital growth driven by our RedRaven internet-of-things, or IoT, platform. While still in its infancy after launching a year ago, we have been encouraged by the demonstrated capabilities of this offering and acceptance among our customers. We Feedback from early adopting customers is already validating the value to | |
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20212022 PROXY STATEMENT 8
CORPORATE SOCIAL RESPONSIBILITYTHIS IS FLOWSERVE
Our Sustainability ProgramESG Programs & Initiatives
Guided by our values, we aim to create extraordinary flow control solutions to make the world better for everyone. One of the ways we strive to make the world a better place is through our commitment to environmental, social and governance (ESG) issues, both in our own operations as well asand in the operations of our suppliers and our customers who rely on our products to improve the world around us.
We operate throughOur governance practices that are consistent with our high standards of ethics, integrity and transparency in all our stakeholder relationships, including attracting and retaining world-class leadership talent by investing in their professional development and providing them with challenging and rewarding opportunities for personal growth, obtainingpromoting high standards of corporate citizenship by protecting the health and safety of our employees, and safeguardingworking to safeguard the environment and communities where we do business. With executive-level participation and Board oversight of the program, sustainability hasour programs and initiatives, ESG issues have top-down support and isare a company-wide priority.
During 2020,2021, in an effort to increase transparency for our stakeholders regarding our sustainability program, we published our 2019 Sustainability2020 ESG Report with the SASB Industrial Machinery and Goods Reporting Standard, and the TCFD Reporting Format.Format, and the GRI Reporting Index.
Flowserve is committed to reducing We
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20212022 PROXY STATEMENT 9
Our
TargetZero focuses on increasing awareness and operational improvements in the areas of accidents, defects, delays, emissions and waste. It offers a comprehensive approach to enhance the impact of our safety, quality, supply chain and environmental efforts to deliver unmatched value to our customers and supplier partners. In 2021, our TargetZero safety program continued to be an industry leader in total recordable incident rates. | |
Integrity & Compliance Flowserve’s compliance program focuses on five pillars: Culture, Speaking Up, Strategy, Accountability and Risk Management. These pillars guide us in enhancing our compliance program, so we continue our commitment to uphold the highest ethical standards. We promote a culture of integrity with our associates through a variety of means, such as our Integrity Champions (associates selected from local sites who are empowered and responsible for raising integrity awareness and delivering training), Integrity Insiders (monthly communications that provide all associates with practical guidance on navigating ethical issues), and our annual global Integrity & Compliance Week (when we celebrate our culture of integrity and build associate engagement by featuring programming designed to highlight resources, raise awareness, and provide guidance on navigating ethical dilemmas). |
2022 PROXY STATEMENT 10
Diversity, Equity & Inclusion Embracing differences is a core aspect of our People value at Flowserve. We seek to build a diverse and inclusive culture through our Diversity, Equity and Inclusion program. Each year, we celebrate the diversity of our associate population by recognizing Pride Month, Black History Month, Asian Pacific Islander American Heritage Month, International Women’s Day, Veterans’ Day and more. During these months, associates participate in events both locally with team members where they work and live, as well as globally with feature speakers broadcast to our locations around the world. In addition, in 2021 management received education and training on unconscious bias and leading with inclusivity. With these programs and educational opportunities, we hope to foster an employee culture that drives inclusion, combats bias and positively impacts our communities in and outside Flowserve. Additionally, we have improved diversity across Flowserve from the board of directors and the executive leadership team to the general associate population. Through our efforts we were named among the top companies in Forbes’ “World’s Top Female Friendly Companies” rankings. |
2022 PROXY STATEMENT 11
Our Global Community Impact Program
SupportingourCommunity Throughout our history and across the organization, our associates have donated their time, skills and efforts to charitable causes within their communities. Long before the creation of Flowserve’s purpose, values and behaviors, our people have demonstrated a natural desire to help those who are at-risk, less fortunate and victims of situations beyond their control. Flowserve In 2019, we formally launched our global community impact program,
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20212022 PROXY STATEMENT 10 12
Flowserve routinely engages with our shareholders to better understand their views, carefully considering the feedback we receive and taking action when appropriate. We review the results of the annual advisory vote on executive compensation in making determinations about the structure of Flowserve’s pay program, orand whether any changes to the program should be considered.
In 2019, as a resultthe fall of the majority shareholder vote in favor of adopting written consent,2021, we proactively reached out to shareholders representing approximately 80% of our outstanding shares to offer them the opportunity to discuss the voteour ESG program with our Chairman and receivedmembers of management and to solicit feedback from our shareholders on the implementationour ESG and compensation practices. Three of written consent. Thethose shareholders, representing approximately 22% of our outstanding shares, engaged with us and the feedback we received from those shareholders was positive and has been and continues to be carefully considered by management and incorporated into the changes proposed inBoard as we further develop our 2020 proxy to implement the right of shareholders to act by less than unanimous written consent. Promptly following the approval of this proposal by almost 90% of the outstanding shares at our 2020 Annual Meeting, we amended our Certificate of IncorporationESG strategy and By-Laws to implement this right for our shareholders.compensation practices.
As in other areas of our business during 2020, theThe COVID-19 pandemic hadcontinued to have a significant impact on our shareholder outreach efforts. On the one hand, the principal negative impact was that we engaged in less in-person interaction with shareholders as work-from-home policies were implemented around the globe. On the other hand, the COVID-19 pandemic had a positive impact on our ability to reach more of ourmeet with shareholders in person, as a result of the widespread adoption of virtual meetings. During 2020,many industry conferences and other engagement opportunities during 2021 continued to be conducted virtually. However, this allowed members of management, were ableincluding our CEO and CFO, to participate and present in more electronic investor conferences and meetings in 2021 than in pastthe several years prior to the onset of the COVID-19 pandemic due to the absence of travel. Fortunately, in February 2020 before the pandemic limited our ability to travel, our Chief Executive Officer was able to meet with five of our top shareholders in person. Thereafter, once the financial community adopted virtual conferences and meetings, we were able to provide our shareholders with even more access to our chief executive officer and chief financial officer.
As a result, members of our executive management team were able to interact with more of our shareholders than in previous years. Additionally,In total, our CEO or CFO participated in fiveeight investor conferences during the year. We value the views and perspectives that our shareholders and the financial community provide us during these interactions, and we formally communicate the information and feedback that we obtain to the Board and its Committees on a regular basis.
20212022 PROXY STATEMENT 11 13
The Company’s Board of Directors (the “Board”) currently consists of ten directors. Roger L. Fix is approaching the Board’s retirement age and is therefore not nominated for reelection at the Annual Meeting. The Board thanks Mr. Fix for his dedicated service to the Company, including his previous leadership as Independent Chairman.
All the director nominees listed below were previously elected by shareholders at the 20202021 Annual Meeting. Upon Mr. Fix’s retirement at the Annual Meeting, other than Carlyn R. Taylor, who was appointed to the Board in August 2020. Thewill reduce the number of directors to nine. Accordingly, the Board has nominated all ten existingnine directors to serve a one-year term until the 2022 Annual Meeting2023 annual meeting of shareholders or until their successors have been elected and qualified. Biographical information for each nominee is provided below under the heading “Board of Directors—Biographical Information—Nominees to Serve an Annual Term Expiring at the 20222023 Annual Meeting of Shareholders.” In addition to the ten director nominees listed below, during 2020, two board members, Joe E. Harlan and Rick J. Mills, served on our Board until our 2020 Annual Meeting, when Mr. Mills retired from the Board and Mr. Harlan decided not to stand for re-election to the Board.
Our By-Laws mandate that each director be elected under a majority voting standard in uncontested elections. A majority voting standard requires that each director receive more votes “for” his or her election than votes “against” to be elected.
In an uncontested election, any incumbent nominee for director who does not receive an affirmative vote of a majority of the votes cast in favor of or against such nominee must promptly offer to resign. The resignation is reviewed by the Corporate Governance and Nominating (“CG&N”) Committee, who determines whether to accept or reject such resignation, giving due consideration to the best interests of the Company and its shareholders. Plurality voting will apply to contested elections.
The table below summarizes the key qualifications and areas of expertise that led our Board to nominate these individuals.
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Manufacturing / Operations | ● | ● | ● | ● | ● | ● | ● |
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Corporate Strategy / Governance | ● | ● | ● | ● | ● | ● | ● | ● | ● |
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20212022 PROXY STATEMENT 12 14
Nominees to Serve an Annual Term Expiring at the 20222023 Annual Meeting of Shareholders
David E. Roberts | |||||
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Independent Chair
Director since: Nov. 2011
Age:
Board Committees: • N/A
Current Public Company Directorships: •
Past Public Company Directorships: •
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• Gavilan Resources, LLC, a private company formed in partnership with Blackstone focused on oil and natural gas development and production opportunities in South Texas | Chief Executive Officer (2017 – retirement in 2020). Gavilan filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in May 2020. •
• Marathon Oil Corporation, an independent upstream company with international operations in exploration and production, oil sands mining and integrated gas | Executive
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Specific Experience, Qualifications, Attributes and Skills Relevant to Flowserve
We believe that Mr.
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R. Scott Rowe | |||||
Director since: Apr. 2017
Age:
Board Committees: • N/A
Current Public Company Directorships: • None
Past Public Company Directorships: • None | Employment History
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Specific Experience, Qualifications, Attributes and Skills Relevant to Flowserve
We believe that Mr. Rowe is well qualified to serve as a director due to his position as the Company’s President and Chief Executive Officer, which enables him to provide the Board with intimate knowledge of the Company’s
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Manufacturing/ | Industry/Product Knowledge | Multinational | Financial/Accounting | Product | |||||
Energy/Alternative Energy Markets | Supply Chain | HR/Talent | Mergers & Acquisitions | Corporate Strategy/ Governance |
20212022 PROXY STATEMENT 13 15
Sujeet Chand | ||||
Director since: Dec. 2019
Age:
Board Committees: • Audit • Finance & Risk
Current Public Company Directorships: • Proto Labs, Inc. • Veeco Instruments Inc.
Past Public Company Directorships: • None | Employment History
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• Veeco Instruments Inc.,manufacturer of semiconductor process equipment | Director (2021 – Present)
Specific Experience, Qualifications, Attributes and Skills Relevant to Flowserve
We believe that Mr. Chand is well qualified to serve as a director due to his technology and innovation experience as well as his electrical engineering background. Additionally, Mr. Chand has valuable multinational executive leadership and manufacturing experience from Rockwell Automation and XAP Corporation.
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Ruby R. Chandy | |||||
Director since: May 2017
Age:
Board Committees: • Finance & Risk — Chair •
Current Public Company Directorships: • DuPont de Nemours, Inc. • Thermo Fisher Scientific Inc.
Past Public Company Directorships: • IDEX Corporation • AMETEK, Inc. | Employment History
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• Thermo Fisher Scientific Inc.,a multinational science and technology corporation | Director (2022 – Present) • DuPont de Nemours, Inc., a multinational chemical corporation | Director (2019 – Present)
Specific Experience, Qualifications, Attributes and Skills Relevant to Flowserve
We believe that Ms. Chandy is well qualified to serve as a director due to her executive management experience, marketing and strategy skills, relevant experience in industrial companies, extensive engineering and management education, broad international business and financial experience and enterprise risk oversight experience.
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20212022 PROXY STATEMENT 14 16
Gayla J. Delly | ||||
Director since: Jan. 2008
Age:
Board Committees: • Organization & Compensation • Corporate Governance & Nominating
Current Public Company Directorships: • National Instruments, Inc. • Broadcom Inc.
Past Public Company Directorships: • Power One, Inc. | Employment History
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Specific Experience, Qualifications, Attributes and Skills Relevant to Flowserve
We believe that Ms. Delly is well qualified to serve as a director due to her international manufacturing experience, with a specific focus on engineering and technology in emerging markets, including Asia and Latin America, which provides valuable insight into the Company’s operations and assists in identifying product portfolio opportunities. In addition to her board experience, Ms. Delly has valuable executive leadership experience and financial expertise gained from her time with Benchmark Electronics Inc.
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John R. Friedery | |||||
Director since: Aug. 2007
Age:
Board Committees: • Corporate Governance & Nominating — Chair •
Current Public Company Directorships: • None
Past Public Company Directorships: • None | Employment History
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Specific Experience, Qualifications, Attributes and Skills Relevant to Flowserve
We believe that Mr. Friedery is well qualified to serve as a director due to his extensive operational experience with an international industrial manufacturing focus, which provides a global business perspective and a deep understanding of the Company’s industry, end-markets and strategic focus. Mr. Friedery also has experience with renewables and sustainability expertise gained from his service with Ball Corporation.
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20212022 PROXY STATEMENT 15 17
John L. Garrison | ||||
Director since: Oct. 2018
Age:
Board Committees: • Organization & • Corporate Governance & Nominating
Current Public Company Directorships: • Terex Corporation
Past Public Company Directorships: • Azurix Corporation
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Specific Experience, Qualifications, Attributes and Skills Relevant to Flowserve
We believe that Mr. Garrison is well qualified to serve as a director due to his strong manufacturing, international operations and leadership experience gained through his various executive and board leadership
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Michael C. McMurray | |||||
Director since: Oct. 2018
Age:
Board Committees: • Audit—Chair •
Current Public Company Directorships: • None
Past Public Company Directorships: • None | Employment History
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Specific Experience, Qualifications, Attributes and Skills Relevant to Flowserve
We believe that Mr. McMurray is well qualified to serve as a director due to his extensive knowledge of global industrial manufacturing, the Company’s end markets and the financial markets, which provides valuable insight into the strategic decisions to capitalize on the Company’s growth opportunities. Additionally, Mr. McMurray has valuable multinational executive leadership and financial expertise at LyondellBasell, Owens Corning, and Royal Dutch Shell.
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20212022 PROXY STATEMENT 16 18
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Carlyn R. Taylor | ||||
Director since: Aug. 2020
Age:
Board Committees: • Audit •
Current Public Company Directorships: • None
Past Public Company Directorships: • None | Employment History
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�� Specific Experience, Qualifications, Attributes and Skills Relevant to Flowserve
We believe that Ms. Taylor is well qualified to serve as a director due to her extensive background in corporate strategy, finance and accounting, most notably leveraging her expertise in capital allocation strategies and capital markets to help businesses spearhead transformative initiatives, as well as her experience serving on the board of directors of various privately-owned startups.
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Manufacturing/ | Industry/Product Knowledge | Multinational | Financial/Accounting | Product | |||||
Energy/Alternative Energy Markets | Supply Chain | HR/Talent | Mergers & Acquisitions | Corporate Strategy/ Governance |
20212022 PROXY STATEMENT 17 19
The Board oversees the CEO and other senior management in the competent and ethical operation of the Company on a day-to-day basis and to help confirm that our shareholders’ best interests are served. In its efforts to satisfy this duty, our Board has adopted Corporate Governance Guidelines (“Guidelines”). Our Guidelines, as well as other corporate governance documents, such as the Company’s Code of Conduct for employees and directors and an additional Code of Ethics for directors, are available on the Company’s website at www.flowserve.comir.flowserve.com under the “Investors—Corporate Governance”“Corporate Governance—Documents & Charters” caption. The table below highlights some of the Company’s investor friendly governance practices.
Director Elections | Board Operations | Shareholder Rights |
✓ Annual elections for full Board by majority vote (in uncontested elections) ✓ Resignation policy if a majority vote is not received (in uncontested elections) ✓ Director retirement age policy of 72 | ✓ Stock ownership requirements for directors (5x annual cash retainer) ✓ Independent board chair ✓ Annual Board and Committee evaluations ✓ Board committees composed of | ✓ Right to call a special meeting ✓ Right to act by written consent ✓ Proxy access right ✓ No poison pill ✓ Annual “Say on Pay” vote ✓ No supermajority voting requirements |
The Board, through the CG&N Committee, regularly reviews developments in corporate governance and best practices and modifies the Guidelines, committee charters and key practices as necessary. For example, given the increasing importance of ESG matters to our long-term strategy and to our shareholders, we recently amended the charter of the CG&N Committee to specifically provide for oversight over our ESG programs and initiatives.
The Board also works with management to develop the Company’s long-term strategy. The Board dedicates one full meeting per year solely to our long-term strategy, in which the Board receives updates from management and discusses the progress made, challenges encountered and future plans to continue implementing our strategic priorities. At each quarterly meeting of the Board, management also provides additional updates on our strategic priorities based on particular focus areas, including our business platforms, culture and organizational health, regulatory and legal risk, operations, and climate change and sustainability.
Our approximately 16,000 associates around the globalglobe are a critical component of our ability to execute on our strategy. Accordingly, the Board continually monitors and assesses our human capital management, principally in the areas of workplace health and safety, employee engagement, compensation and benefits and training, development and ethics. Each year, our associates complete an annual ethics training on our Code of Conduct and participate in “Integrity & Compliance Week” and “Safety Week” to help further emphasize the ongoing training that our associates receive. We also conduct annual employee engagement surveys to solicit feedback and input directly from our associates and, based on the results of our surveys, management and the Board work together to create additional action plans as appropriate.
Board Leadership Structure and Risk Oversight
We have separated the positions of Chairman of the Board and CEO since 2005. David E. Roberts, who succeeded Roger L. Fix as the Company’s current Non-Executive Chairman of the Board in May 2021, presides over the meetings of the Board, including executive sessions of the Board where only non-employee directors are present. HeAmong the wide range of other duties as Chairman of the Board, he reviews and approves the agendas for Board meetings, among his other duties as Chairmanpresides over meetings and executive sessions of the Board.Board of Directors, briefs the CEO on issues and concerns arising in the executive sessions of the Board, facilitates communication between the independent directors and management, coordinates periodic Board input and review of management’s strategic plan for the Community, and leads the Board’s review of the succession plan for the CEO and other key executives. He also serves as an alternate member for all Board committees. Mr. Fixcommittees, and strives to attend as many committee meetings as possible. More information on what is expected of our Non-Executive Chairman can be found on the investor relations portion of our website at
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ir.flowserve.com under the heading “Investors—Corporate Governance—Documents & Charters—Role and Responsibilities of Non-Executive Chairman of the Board.”
We believe that separating the positions of Chairman of the Board and CEO is appropriate for the Company at this time because it places an independent director in a position of leadership on the Board.Board and allows the Chairman to focus on oversight of corporate governance matters, while enabling our CEO to focus on leading the Company and managing the business on a day-to-day basis. We believe this independent leadership and the Non-Executive Chairman’s authority to call meetings of the non-employee directors adds value to our shareholders by facilitating a more efficient exercise of the Board’s fiduciary duties and best enables the Board to effectively manage our businesses, risks, opportunities and affairs in the best interests of our shareholders.
We also believe the Non-Executive Chairman further enhances independent oversight by being responsible for establishing the Board’s annual schedule and collaborating with the CEO on the agendas for all Board meetings. The separation of Chairman and CEO also allows the Non-Executive Chairman to provide support and advice to the CEO, reinforcing the reporting relationship and accountability of the CEO to the Board. In addition, each of the members of the Board actively participate in overseeing management including by actively participating in each Board and Committee meeting held throughout the year.
2021 PROXY STATEMENT 18
Back to ContentsRisk Oversight
The Board and its Committees exercise their risk oversight function by carefully evaluating the reports they receive from management and by making inquiries of management with respect to areas of particular interest to the Board. The Board and its Committees oversee senior management’s policies and procedures in assessing and addressing risk areas that fall within the scope of the Board’s and the Committees’ respective areas of oversight responsibility, as further detailed in the Board Committees section below. The Board and management frequently discuss the long-term strategy of the Company. The Board is regularly informed through Committee reports of each Committee’s activities in overseeing risk management.
Boardmeetings. meetings
There were 13nine meetings of the Board during the year ended December 31, 2020.2021. Executive sessions of non-employee directors are normally held at each regular Board meeting and are presided over by our independent Chairman of the Board, or, in the Chairman’s absence, by the Chairman of the CG&N Committee. During the year ended December 31, 2020,2021, each Director nominee attended at least 92%100% of the total number of meetings of the Board and at least 86% of eachthe total number of meetings of the Board committees on which he or she served while he or she has been a director or committee member.
Shareholdermeetings. meetings
Board members are expected to attend the Company’s Annual Meetings of shareholders. All ten directors then-serving were in attendance at the 2020 Annual Meeting other than Joe E. Harlan, who did not stand for re-election at the 2020Company’s 2021 Annual Meeting.
Shareholders and other interested parties may communicate with the Board directly by writing to: Non-Executive Chairman of the Board, c/o Flowserve’s Corporate Secretary, Flowserve Corporation, 5215 N. O’Connor Blvd., Suite 2300,700, Irving, Texas 75039. All such communications will be delivered to our chairman. These communications are reviewed by the Corporate Secretary to determine whether it is appropriate for presentation to the Board or such director. The purpose of this screening is to avoid having the Board consider irrelevant or inappropriate communications (such as advertisements, solicitations, and product inquiries). All relevant communications are then delivered to our Chairman.
The identification and evaluation of director candidates begins with the Guidelines, which establish the criteria for Board membership. As a starting point under the Guidelines, all prospective Board members must, for example, adhere to the
2022 PROXY STATEMENT 21
highest standards of integrity and ethics, exercise diligent and constructive oversight of the Company’s business, risk profile and strategy, demonstrate relevant and successful career experience, display a global business perspective, and possess the time to responsibly perform all director duties and effectively represent the interests of the shareholders. In addition, we believe that Board members should have varied professional expertise in areas relevant to the Company. In this regard, our director nominees bring a wide array of qualifications, skills and attributes to our Board of Directors that support its oversight role on behalf of the shareholders. The table on page 1214 summarizes the key qualifications and areas of experience that led our Board to nominate these individuals.
The Guidelines further articulate the Board’s firm belief that the Board’s members should also have a diversity of backgrounds, which we view holistically. In evaluating diversity of backgrounds, the Board considers individual qualities and attributes, such as educational background, professional skills, business experience and cultural viewpoint, as well as more categorical diversity metrics, such as race, age, gender and nationality. This consideration is implemented through the selection process for director nominees, and the Board assesses its effectiveness in promoting diversity through an annual self-assessment process that solicits feedback concerning the appropriateness of the Board’s diversity, among other critical performance factors.
The Board also perodically reviews the tenure of each Board member, at least on an annual basis. We strive to maintain an appropriate balance of age and tenure on the Board with a mix of directors who have a long and deep understanding of our business and directors who bring new and fresh skills, perspectives and experience to the Board. In line with this philosophy, since 2017 we have added five new directors to our Board.
The CG&N Committee considers various potential director candidates who may come to the attention of the CG&N Committee through current Board members, professional search firms, shareholders or other persons. The CG&N Committee generally retains a national executive-recruiting firm to research, screen and contact potential candidates regarding their interest in serving on the Board, although the CG&N Committee may also use less formal recruiting methods. Carlyn R. Taylor was recommended to the Board by a third-party search firm. All identified candidates, including shareholder-recommended candidates, are evaluated by the CG&N Committee using generally the same
2021 PROXY STATEMENT 19
methods and criteria, although those methods and criteria may vary from time to time depending on the CG&N Committee’s assessment of the Company’s needs and current situation.
We believe that a robust Board evaluation and feedback process helps to promote the effectiveness of our Board and Committees and encourages our Board members, individually and collectively, to continually improve in their roles and responsibilities. Our Board evaluation process is led by an independent member of the Board, the Chair of the CG&N Committee, who engages independent external advisors each year to assist in compiling the results of the evaluations submitted by the members of the Board and to provide additional perspective on effectively responding to the evaluations and feedback received.
Our annual evaluation process typically begins with a self-assessment in which each independent member of the Board provides a performance rating for a series of questions in several key categories, including the structure, process and resources of the Board, effectiveness of the Committees of the Board, and management of the Company. The self-evaluation concludes with several open-ended questions in order to encourage members of the Board to freely discuss their own performance, priorities for the upcoming year, and any other comments that the applicable member of the Board deems important.
Each independent member of the Board is also required to complete a peer evaluation of each other independent member of the Board (other than the Chairman, who is evaluated separately), which solicits feedback on how.
Alternatively, for 2021, the applicable director adds valueChair of the CG&N Committee engaged a third-party consulting service to provide training to the Board on board best practices as well as to conduct the Board’s self-evaluation and its Committees, whatpeer evaluation process for 2021. With facilitation from the applicable director could do to increase effectiveness,third-party consultant, the Board engaged in a robust process consisting of self- and any other commentary that the evaluating memberpeer evaluations, interviews on strengths and weaknesses of the Board, deems pertinent. In 2020, due to the unique challenges presented by the COVID-19 pandemicits committees, and the necessity to hold meetings by video conference instead of in person, the peer evaluation process was temporarily changed to take into account the impact of the pandemic.its and their members, and workshops and training on board development, best practices, and behaviors.
Each member of the Board is also required to complete a Chairman evaluation to provide feedback on the performance and contributions of the Chairman of the Board. The Chairman evaluation requires each member of the Board to rate the Chairman’s performance in a dozen key areas and also provides an opportunity to provide open feedback on the performance of the Chairman of the Board.
2022 PROXY STATEMENT 22
Each member of the Board is also required to complete an evaluation of our Chief Executive Officer’s performance. While our Chief Executive Officer is a member of the Board, his evaluation is focused on his performance as a member of management and not as a member of the Board.
Once the Chairman and Chief Executive Officer evaluations arewere complete for 2021, the results arewere compiled by an independent external advisor, anonymized, (other than for the self-evaluation), and provided to the CG&N Chair, who then conducts individual interviews with members ofdiscussed the Board in advance of the Board’s February meetings. The results of the process are discussed bywith the CG&N Committee, and the full Board, at their February meeting and were considered by the CG&N Committee and the Board when setting CEO compensation and engaging in director recruitment, director development, strategy, and governance.
We believeThe Guidelines make clear that all members of the Board (other than our CEO) should be independent under the New York Stock Exchange (“NYSE”) listing standards. Under these standards, only those directors whoas well as under the independence standards further established by the Board within the Guidelines. To be “independent” a director must have no material relationship (whether commercial, industrial, banking, consulting, accounting, legal, charitable or familial, excluding their present directorship) with the Company (except in his or her roleany of its consolidated subsidiaries, either director, or as a director) are deemed independent. Thepartner, shareholder or officer of an organization that has a relationship with the Company.
Under these standards, the Board has determined that each of Roger L. Fix,David E. Roberts, Sujeet Chand, Ruby R. Chandy, Gayla J. Delly, John R. Friedery, John L. Garrison, Michael C. McMurray, David E. Roberts, and Carlyn R. Taylor (all of our current directors other than R. Scott Rowe, the Company’s President and Chief Executive Officer) meet the independence standards set forth in the NYSE corporate governance listing standards. In addition, Joe E. Harlan and Rick J. Mills, each of whom served as a director until our 2020 Annual Meeting, were independentthe Board determined that Roger L. Fix, who was not nominated for reelection due to the proximity to his retirement, met the independence standards set forth in the NYSE corporate governance listing standards during the period they servedhis service on the Board.Board since the Company’s last Annual Meeting.
How Shareholders Can Recommend a Candidate
A shareholder desiring to recommend a candidate for election to the Board should submit a written notice, as required by the Company’s By-Laws, including the candidate’s name and qualifications, to our Corporate Secretary, who will refer the recommendation to the CG&N Committee. The CG&N Committee may require any shareholder-recommended candidate to furnish such other information as may reasonably be required to determine the eligibility of such
2021 PROXY STATEMENT 20
recommended candidate or to assist in evaluating the recommended candidate, including a Director and Officer Questionnaire.
Under the proxy access provisions of our By-Laws, eligible shareholders and/or shareholder groups also are permitted to include shareholder-nominated director candidates in our proxy materials. Additional details about the requirements for including shareholder-nominated director candidates in our proxy materials are set forth under “General Voting and Meeting Information—Shareholder Proposals and Nominations” below.
2022 PROXY STATEMENT 23
The Board maintains an Audit Committee, a Finance and Risk Committee (“F&R Committee”), a Corporate Governance and Nominating Committee, and an Organization and Compensation Committee (“O&C Committee”). Only independent directors are eligible to serve on Board committees. Each committee has authority to engage legal counsel or other experts or consultants as it deems appropriate to carry out its responsibilities and is governed by a written charter, which is available on the investor relations portion of the Company’s website at www.flowserve.comir.flowserve.com under the “Investors—Corporate“Corporate Governance—Documents & Charters” caption.
Audit Committee | Primary Oversight Responsibilities |
CommitteeChair: Michael C. McMurray(1)
Sujeet Chand
Carlyn R. Taylor
| • Oversee financial reporting process, including the integrity of Company financial statements and compliance with legal and regulatory requirements • Oversee financial performance and reporting, the Company’s independent auditor and internal audit function, and regulatory activities • Oversee the Company’s integrity and compliance program • Review and discuss the process of Board and Board committees oversight of senior management’s risk management responsibilities • Appoint independent auditor • Prepares Audit Committee report for this proxy statement |
The Board has determined that all members of the Audit Committee meet the applicable independence standards under the SEC rules and NYSE listing standards, and that all members are financially literate within the meaning of the NYSE listing standards. (1) The Board has determined that Mr. McMurray qualifies as an audit committee financial expert under the SEC rules. (2) John R. Friedery served on the Audit Committee until August 9, 2021. (3) The Board has determined that Mr. Chand qualifies as an audit committee financial expert under the SEC rules.
(5) The Board has determined that Ms. Taylor qualifies as an audit committee financial expert under the SEC rules. |
Finance & Risk Committee | Primary Oversight Responsibilities |
CommitteeChair: Ruby R. Chandy
Sujeet Chand
| • Oversee corporate capital structure and budgets and recommend approval of major capital projects, corporate development, and large sales orders • Review effectiveness of the Company’s IT infrastructure and cybersecurity programs and its practices for identifying and mitigating technology risks with Chief Information Officer at least twice per year • Review the Company’s enterprise risk management, including emerging risks • Review financial plans, liquidity, credit, key financial risks, treasury risk, and related matters
|
The Board has determined that all members of the F&R Committee meet the independence standards under the NYSE listing standards. (1) Michael C. McMurray and David E. Roberts served on the Finance & Risk Committee until May 20, 2021. (2) Mr. Friedery joined the Finance & Risk Committee effective as of May 20, 2021. (3) Ms. Taylor joined the Finance & Risk Committee effective as of May 20, 2021. |
20212022 PROXY STATEMENT 21 24
Corporate Governance & Nominating Committee | Primary Oversight Responsibilities |
CommitteeChair: John R. Friedery
Ruby R. Chandy(2) Gayla J. Delly John L. Garrison
4 Meetings in | • Recommend to the Board nominees for Chairman of the Board, President and Chief Executive Officer • Determine Board organization •
• Review and recommend director nominees • Manage risks associated with Board independence and potential conflicts of interest • Establish corporate governance principles and procedures, including overseeing the Company’s Code of Conduct • Prepare effective CEO and Board succession planning • Evaluate CEO performance • Oversee Board and committee • Oversight of |
The Board has determined that all members of the CG&N Committee meet the independence standards under the NYSE listing standards. (1) Carlyn R. Taylor served on the CG&N Committee until May 20, 2021. (2) Ms. |
Organization & Compensation Committee | Primary Oversight Responsibilities |
Committee
Members(3):
Gayla J. Delly
Michael C. McMurray(5)
| • Set compensation philosophy • Oversee risk management related to executive compensation plans and succession planning • Prepare the Compensation Committee Report included in this proxy statement • Approve executive officer compensation including incentives and other benefits • Retain and evaluate the advice of the independent compensation consultant, F.W. Cook, in adherence to the philosophies and principles stated under “Executive Compensation—Compensation Discussion and Analysis” |
The Board has determined that all members of the O&C Committee meet the applicable independence standards under the SEC rules and NYSE listing standards. (1) David E. Roberts served as chair of the O&C Committee until May 20, 2021. (2) Mr. Garrison served on the O&C Committee for all of 2021 but was appointed as chair of the O&C Committee effective as of May 20, 2021, when Mr. Roberts left the O&C Committee. (3) Ruby R. Chandy served on the O&C Committee until May 20, 2021. (4) Mr. Fix joined the O&C Committee effective as of May 20, 2021, and will serve on the O&C Committee until his retirement at the Annual Meeting. (5) Mr. McMurray joined the O&C Committee effective as of May 20, 2021. |
2022 PROXY STATEMENT 25
Our executive compensation program is administered by the O&C Committee. Consistent with the NYSE corporate governance listing standards, the O&C Committee is composed entirely of independent, non-employee members of the Board. In addition, the Non-Executive Chairman of the Board generally attends the meetings of the O&C Committee.
As reflected in its charter, the O&C Committee has overall responsibility for setting the compensation for our CEO, which is approved by the full Board, and for approving the compensation of our other executive officers, including the other Named Executive Officers. The O&C Committee is also charged with overseeing the organizational design of the Company, including the development and retention of management.
The O&C Committee is also responsible for reviewing the management succession plan and for recommending changes in director compensation to the CG&N Committee and to the Board. On matters pertaining to director compensation, the O&C Committee also receives data and advice from F.W. Cook. The O&C Committee periodically reviews the organizational design, management development plans and managerial capabilities of the Company. The O&C Committee also prepares and issues the Organization and Compensation Committee Report included in this proxy statement.
2021 PROXY STATEMENT 22
The O&C Committee’s process of reviewing the executive compensation program and setting compensation levels for our Named Executive Officers involves several components. During the first quarter of each year, the O&C Committee reviews each Named Executive Officer’s total compensation. The O&C Committee members also meet regularly with the Named Executive Officers at various times during the year, both formally within Board meetings and informally outside of Board meetings, which allows the O&C Committee to assess directly each Named Executive Officer’s performance. The O&C Committee also solicits input from all non-employee members of the Board as to the CEO’s performance during the year.
The O&C Committee generally considers the results of the CG&N Committee’s process for reviewing the CEO’s performance with all independent Board members. The CG&N Committee’s process includes the independent Board members individually and collectively presenting their assessment of the CEO’s performance, as well as the CEO presenting his self-assessment of his performance. The O&C Committee uses these results when determining the CEO’s recommended compensation, which is subject to the independent Board members’ approval.
In addition, the CEO annually presents an evaluation of each other Named Executive Officer’s performance to the O&C Committee, which includes a review of each officer’s contributions over the past year, and his or her strengths, weaknesses, development plans and succession potential. The CEO also presents compensation recommendations for each Named Executive Officer for the O&C Committee’s consideration. Following this presentation and a benchmarking review for pay, the O&C Committee makes its own assessments and formulates compensation amounts for each Named Executive Officer with respect to each of the elements in the Company’s executive compensation program as described below.
Independent Compensation Consultant
The O&C Committee has the authority to retain outside advisors as it deems appropriate. The O&C Committee has engaged F.W. Cook as its compensation consultant to provide advice and information. F.W. Cook has assisted and advised the O&C Committee on all aspects of our executive compensation program, and they provide no other services to the Company. The services they provide include:
providing and analyzing competitive market compensation data;
analyzing the effectiveness of executive compensation programs and making recommendations, as appropriate;
analyzing the appropriateness of the performance peer group (PPG) and compensation peer group (CPG); and
evaluating how well our compensation programs adhere to the philosophies and principles stated below under “Compensation Discussion & Analysis—Compensation Program Philosophy and Principles.”
2022 PROXY STATEMENT 26
20202021 Director Compensation Program
ProgramOverview. Overview
Our director compensation program is established by the Board after review of data prepared by the O&C Committee’s independent consultant regarding competitive director compensation levels for peer companies and the Company’s compensation peer group, which is discussed under “Executive Compensation.” In 2020,2021, our non-employee director compensation program consisted of the following:
2021 PROXY STATEMENT 23
Component | Annual Amounts ($) | Form of Payment | |
Retainer | $85,000 | Cash | |
Non-Executive | $125,000 | Cash | |
Committee service fee (per committee) | $7,500 | Cash | |
Committee |
|
| |
Audit Committee | $20,000 | Cash | |
O&C Committee | $15,000 | Cash | |
F&R Committee | $10,000 | Cash | |
CG&N Committee | $10,000 | Cash | |
Equity grant target value | $ |
| Restricted Shares |
|
Additionally, non-employee directors are also eligible to receive special additional compensation when performing certain special services. The Board has set a compensatory rate of $3,500 per day for such services, though no compensation was paid for this purpose in 2020.2021.
CompensationDeferral. Deferral
Directors may elect to defer all or a portion of their annual cash and equity compensation. The annual cash compensation may be deferred in the form of cash or in phantom shares, which reflect an equivalent value of Company common stock. Compensation deferred in the form of cash accrues interest at rates that do not exceed market rates or constitute preferential earnings. If a director elects to defer cash compensation in the form of phantom shares, the director receives a 15% premium on the amount deferred.
EquityCompensation. Compensation
The equity portion of non-employee director compensation is granted on the date of the Annual Meeting of shareholders in the form of restricted stock. The restricted shares have voting rights and fully vest after the earlierearliest of one year from the date of grant, the termination of the director’s service due to death or disability or a change in control.
In May 2020,2021, after several years of no increases in recognition of the unfolding COVID-19 pandemic,compensation, the Board approved a change to their equity compensation for 20202021 by reducingincreasing the size of the annual equity grant to a number of shares that the Board would have received had the grant been made at the same time that equity grants were made to members of management on February 20, 2020, prior to the date on which the COVID-19 pandemic began to have a material impact on the U.S. economy and the trading price of companies listed on the NYSE. On February 20, 2020, the date on which the Company made its annual equity grant to members of management, the price per share of the Company’s common stock was $47.56, and on May 22, 2020, the date on which the Company made its annual equity grant to the Board, the price per share of the Company’s common stock was $25.20. By approving the annual equity grant to members of the Board in an amount equal to the number of shares that would have been granted at the stock price on February 20, 2020, the dollar value of the annual equity grant to Board members was reduced from the target of $125,000 to $66,225.60.
2021 PROXY STATEMENT 24
Back$150,000 in order to Contents
StockOwnershipGuidelines. Under our stock ownership guidelines, all non-employee directors must own shares of Company common stockbring total director compensation more in line with a value of at least five times his or her annual cash retainer (currently $425,000) by his or her fifth anniversary of Board service. If the stock ownership requirement is not met, the director will receive all future Board compensation in the form of Company common stock until the requirement is satisfied. For 2020,market median.
Under our stock ownership guidelines, all non-employee directors must own shares of Company common stock with a value of at least five times his or her annual cash retainer (currently $425,000) by his or her fifth anniversary of Board service. If the stock ownership requirement is not met, the director will receive all future Board compensation in the form of Company common stock until the requirement is satisfied. For 2021, all non-employee directors met their stock ownership requirements. |
2022 PROXY STATEMENT 27
The following table sets forth our non-employee director compensation for 2020.2021. Mr. Rowe did not receive any compensation for his service as a director. His compensation is set forth below under “Executive Compensation—Summary Compensation Table.”
Name | Fees Earned or Paid in Cash ($) | Stock Awards ($)(1)(2) | Total ($) | |
Sujeet Chand | 115,000 | (7) | 66,226 | 181,226 |
Ruby R. Chandy | 113,300 | (7) | 66,226 | 179,526 |
Gayla J. Delly | 100,000 |
| 66,226 | 166,226 |
Roger L. Fix | 225,000 | (6) | 66,226 | 291,226 |
John R. Friedery | 110,000 |
| 66,226 | 176,226 |
John L. Garrison | 115,000 | (7) | 66,226 | 181,226 |
Joe E. Harlan(3) | 39,286 |
| — | 39,286 |
Michael C. McMurray | 120,000 |
| 66,226 | 186,226 |
Rick J. Mills(4) | 39,286 |
| — | 39,286 |
David E. Roberts | 115,000 |
| 66,226 | 181,226 |
Carlyn R. Taylor(5) | 37,772 |
| — | 37,772 |
|
Name | Fees Earned or Paid in Cash ($) | Stock Awards ($)(1)(2) | Total ($) | |
Sujeet Chand | 100,000 |
| 149,972 | 249,972 |
Ruby R. Chandy | 113,300 | (3) | 149,972 | 263,272 |
Gayla J. Delly | 100,000 |
| 149,972 | 249,972 |
Roger L. Fix | 148,420 | (4) | 149,972 | 298,392 |
John R. Friedery | 110,000 |
| 149,972 | 259,972 |
John L. Garrison | 123,625 | (3)(5) | 149,972 | 273,597 |
Michael C. McMurray | 120,000 |
| 149,972 | 269,972 |
David E. Roberts | 184,079 | (6) | 149,972 | 334,051 |
Carlyn R. Taylor | 115,000 | (3) | 149,972 | 274,972 |
(1) Eligible directors received an annual equity grant of 3,587 shares of restricted common stock on May 20, 2021, the date of the Company’s 2021 Annual Meeting of Shareholders. The amounts shown in this column reflect the grant date fair value of the awards computed in accordance with Financial Accounting Standards Board Accounting Standards Codification 718, “Compensation—Stock Compensation”, and are calculated using a price per share of $41.81, the closing market price of the Company’s common stock as reported by the NYSE on the date of grant. Assumptions used in the valuations are discussed in Note 8 to the Company’s audited consolidated financial statements for the year ended December 31, 2021, in the Annual Report on Form 10-K filed on February 23, 2022. (2) The non-employee directors elected at the 2021 Annual Meeting of shareholders each had 3,587 shares of restricted common stock outstanding at December 31, 2021; all other shares held are vested. (3) Amount reported includes a 15% premium to actual fees due to the director’s election to defer all or a portion of cash retainer payments in the form of phantom shares under the Company’s director stock deferral plan. (4) Mr. Fix served as Non-Executive Chairman of the Board through our 2021 Annual Meeting on May 20, 2021, and was paid a pro-rated portion of the $125,000 cash retainer for services as Non-Executive Chairman of the Board. (5) Mr. Garrison was appointed as chair of the O&C Committee effective at our 2021 Annual Meeting on May 20, 2021, and was, therefore, paid the committee chair fee for the third and fourth quarters of 2021. (6) Mr. Roberts was appointed as Independent Chairman of the Board effective at our 2021 Annual Meeting on May 20, 2021, and was paid a pro-rated portion of the Chairman cash retainer from that date through end of the 2021. |
20212022 PROXY STATEMENT 25 28
R. Scott Rowe | |
President, CEO and Age: | • FlowserveCorporation | President, Chief Executive Officer, Director (2017 – Present) • CameronGroupofSchlumbergerLtd, anoilfieldservicescompany | President (2016 – 2017) • CameronInternationalCorporation, anoilfieldservicescompany | President, Chief Executive Officer (2015 – 2016) • CameronInternationalCorporation | President, Chief Operating Officer (2014 – 2015) • OneSubsea, ajointventureestablishedbyCameronandSchlumberger | Chief Executive Officer (2014 – 2014) • SubseaSystems, adivisionofCameron | President (2012 – 2014) • CameronInternationalCorporation | President of the Engineered and Process Valves division (2010 – 2012) |
Elizabeth L. Burger | |
SVP, CHRO Age: | • FlowserveCorporation | Senior Vice President and Chief Human Resources Officer (2018 – Present) • HanesBrands,Inc., aglobalmanufacturerandmarketerofeverydaybasicapparel | Chief Human Resources Officer • MonsantoCompany, aglobalprovideroftechnologysolutionsandagriculturalproducts | Senior Vice President, Global Business Operations (2007 – 2013) • MonsantoCompany | Vice President, Corporate HR (2006 – 2007) • MonsantoCompany | Vice President, Compensation (2005 – 2006) • MonsantoCompany | Various leadership roles (1995 – 2005) |
| |
President,AMSS Age: | • FlowserveCorporation | President, Aftermarket Services & Solutions •
•
•
•
•
•
• United States Marine Corps | Sergeant (E-5) (1988 – 1994) |
20212022 PROXY STATEMENT 26 29
Keith E. Gillespie | |
SVP,CSO Age: | • FlowserveCorporation | Senior Vice President and Chief Sales Officer (2016 – Present) • FlowserveCorporation | Chief Strategy Officer (2015 – 2016) • AlixPartners,LLP, aconsultingcompanyfocusedonoperationalturnarounds | Managing Director (2002 – 2015) • i2Technologies, ahigh-techconsultingpractice | Vice President (1999 – 2001) • TenFoldCorporation, asoftwareandservicescompany | Senior Vice President (1999 – 2001) • McKinsey &Company, aglobalconsultingcompanyfocusedonchangemanagement | Senior Engagement Manager (1992 – 1997) |
Lanesha T. Minnix | |
SVP,CLO Age: | • FlowserveCorporation | Senior Vice President and Chief Legal Officer (2018 – Present) • BMCStockHoldings,Inc., aleadingproviderofdiversifiedbuildingproductsandservices | Senior Vice President and General Counsel (2017 – 2018) • ABMIndustriesIncorporated, aFortune500facilitysolutionscompany | Vice President, Deputy General Counsel and Chief Compliance Officer (2012 – 2017) • ShellOilCompany, amultinationaloil &gascompany | Senior Legal Counsel (2007 – 2012) • SprintNextel, aglobaltelecommunicationscompany | Corporate Counsel (2004 – 2007) • K&LGatesLLP, agloballawfirm | Corporate Associate (2000 – 2004) |
Tamara M. Morytko | |
President,FPD Age: | • FlowserveCorporation | President, Flowserve Pumps Division (2020 – Present) • NorskTitanium, amanufacturerofadvancedtitaniumcomponents | Chief Operating Officer (2018 – 2020) • OperationsandSupplyChainConsultant | (2017 – 2018) • BakerHughes, amultinationaloilfieldservicescompany | President, Asia Pacific Region (2016 – 2017) • BakerHughes | Vice President, North America Region (2013 – 2016) • BakerHughes | Vice President, Global Supply Chain (2010 – 2013) • Pratt&Whitney, aglobalaircraftenginemanufacturer | various roles of increasing responsibility • ArthurAndersenLLP, aglobalaccountingfirm | Senior Auditor (1992 – 1996) |
2022 PROXY STATEMENT 30
Amy Schwetz | |
SVP,CFO Age: | • FlowserveCorporation | Senior Vice President and Chief Financial Officer (2020 – Present) • PeabodyEnergy, aglobalpure-playcoalcompanyservingpowerandsteelcustomers | Executive Vice President and Chief Financial Officer (2015 – 2020). Peabody filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in April 2016. • PeabodyEnergy,Inc. | Senior Vice President, Finance & Administration – Australia (2013 – 2015) • PeabodyEnergy,Inc. | Senior Vice President, Finance & Administration – Americas (2012 – 2013) • PeabodyEnergy,Inc. | Vice President, Investor Relations (2011 – 2012) • PeabodyEnergy,Inc. | Vice President, Capital and Financial Planning (2009 – 2011) • PeabodyEnergy,Inc. | Various senior leadership roles (2005 – 2009) • Ernst &YoungLLP, aglobalaccountingfirm | Audit Manager (1997 – 2005) |
2021 PROXY STATEMENT 27
Scott K. Vopni | |
VP,CAO Age: | • FlowserveCorporation | Vice President, Chief Accounting Officer (2020 – Present) • DeanFoodsCo., afoodandbeveragecompany | Senior Vice President – Finance, Chief Accounting Officer (2010 – 2019). Dean Foods filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in November 2019. • DeanFoodsCo. | Interim Chief Financial Officer (2017 – 2018) • DeanFoodsCo. | Senior Vice President – Finance (2016 – 2017) • DeanFoodsCo. | Senior Vice President – Investor Relations (2015) • DeanFoodsCo. | Vice President – Controller (2008 – 2010) |
Kirk Wilson | |
President,FCD Age: | • FlowserveCorporation | President, Flow Control Division (2019 – Present) • FlowserveCorporation | President, Aftermarket Services & Solutions (2015 – 2019) • FlowserveCorporation | President, Services & Solutions Operations (2012 – 2015) • FlowserveCorporation | Vice President and General Manager, Integrated Solutions Group (2008 – 2011) • FlowserveCorporation | Vice President, Marketing for Pump Division (2004 – 2008) |
20212022 PROXY STATEMENT 28 31
This Compensation Discussion and AnalysisCD&A describes the decisions made concerning the compensation of the Company’s Named Executive Officers (“CD&A”NEOs”), as shown below. It also describes our executive compensation guiding principles, and the pay program we provided2021 executive compensation outcomes as well as other attributes related to our Named Executive Officers (“NEOs”) for 2020.executive compensation governance policies.
During 2020,2021, our NEOs were:
R. Scott Rowe President and Chief Executive Officer (“CEO”)
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| AmyB.Schwetz Senior Vice President, Chief Financial Officer
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| ElizabethL.Burger Senior Vice President, Chief Human Resources Officer | Keith E. Gillespie Senior Vice President, Chief Sales Officer | Tamara M. Morytko President, Flowserve Pumps Division |
For more information on the Named Executive Officers currently serving as executive officers, see “Executive Officers” on page 26.29.
Company Overview, Strategy and Performance2021 Pay-for-Performance At a Glance
Flowserve is one of the world’s leading providers of fluid motion and control products and services withThe ongoing COVID-19 pandemic continued to have a significant global presence in the manufacturing of pumps, valves and seals. We have approximately 16,000 employees in more than 50 countries who are focusedimpact on our purposebusiness in 2021. In 2020, our customers significantly reduced their capital spending and strong company values.
Impact of COVID-19deferred maintenance and Market Disruption on Executive Pay
While Flowserve continuedrepair costs due to make substantial progress on our transformation initiatives, 2020 was a challenging year for Flowserve and its customers given the COVID-19 pandemic, which meaningfully reduced our year-over-year bookings and general economic challenges around the globe. In the first quarterbacklog levels. As manufacturers of 2020 the onset of the pandemic coupled with extreme volatility in global markets and commodity prices led to unexpectedlyprecision-engineered flow control equipment, this reduced capital budgetsspending by our customers impacted our income statement in 2021 due to a 14% reduction in year-over-year beginning backlog.
Our executive compensation program is based on pay for performance including rigorous targets and resulting declines in demand for our products and new bookings. In addition, these impacts also caused our customers to defer spending in their repair and maintenance budgets, which led to reduced levels of activityalignment with shareholders. Knowing that 2021 would be a recovery year in our aftermarket business.
path to growth, we set our incentive plan targets accordingly. While we experienced higher bookings than anticipated in 2021, the continuation of COVID-19, including the rapidly-spreading new variants, further impacted Flowserve – along with labor availability challenges, supply chain outages, and global logistic disruption and inflation. Due to these issues, certain operational performance metrics (namely, Primary Working Capital (PWC) as a % of Sales and On-time Delivery) were not achieved. However, with the acceleration of our Flowserve 2.0 transformation program, we were successful in managing our cost structure and delivering an Adjusted Operating Income level near our target expectation.
20212022 PROXY STATEMENT 29 32
Our annual incentive program paid out at 74.8% of target opportunity on the corporate metrics, as follows:
2019 Performance Stock Units (PSUs) tied to 2019-2021 performance paid out at 33.3% of target. The 50% of PSUs tied to our Return on Invested Capital (“ROIC”) paid below target as the COVID-19 pandemic and market conditions disrupted progress toward our ROIC goals. The 50% of PSUs tied to our relative Total Shareholder Return (“rTSR”) paid at zero as we underperformed our peers over the three-year period, which was influenced by our more significant exposure to the oil & gas markets relative to peers. The below chart displays how our PSU payouts are directionally aligned with our performance.
2022 PROXY STATEMENT 33
Pay-for-Performance Alignment for 3-Year PSU Performance Cycles Ending With Years Shown
Our CEO’s realizable pay for 2019-2021 was 28% less than target while our total shareholder return was down approximately 14%. Lower realizable compensation is attributable to the impact of the decline in stock price on outstanding equity grants as well as below target payouts under the annual and long-term incentive plans.
Data from Industrial Info Research (IIR) for $2.3 trillion projects/opportunities data for Flowserve end markets“Target Pay” includes base salary, target annual incentive opportunity and grant date fair value of equity awards.
Water data sourced from Global Water Intelligence“Realizable Pay” includes actual base salary paid, actual bonuses paid, and the value of outstanding RSUs and PSUs based on our December 31, 2021, share price, with 2019 PSUs shown at actual payout and 2020 and 2021 PSUs shown at target.
Power data sourced from IEA
These global challenges disrupted
Despite the meaningful progress our management teamstock performance, we delivered strong results on two strategic growth metrics, Bookings and the Company made through our significant efforts in the Flowserve 2.0 Transformation and resulted in declining revenue, profitability, and share price performance. Despite these unprecedented challenges, the process improvements made as partFree Cash Flow (“FCF”) Conversion, setting a solid foundation to support post-pandemic recovery. Both metrics are key components of our Flowserve 2.0 Transformation allowed management and the O&C Committee to swiftly respond to the market disruption by:incentive compensation program.
Shifting our strategic priorities to strengthenBookings in fiscal 2021 were up 10.6% year-over year. Bookings growth, and the Company duringassociated increases in backlog levels, fuels operating income in current and future years and is a key growth metric that we use in the pandemic and position us for success post-pandemic;annual incentive plan.
ProtectingFCF Conversion came in at 108% of Adjusted Net Income, marking the second consecutive year above 100%. Strong FCF is critical for Flowserve to fund our employeesanticipated growth investments in our 3D strategy, including potential mergers and contractors by imposing global restrictionsacquisitions and ongoing research and development programs. FCF, FCF conversion and adjusted earnings are non-GAAP measures. Please see Annex I for a detailed reconciliation of FCF, FCF conversion and adjusted earnings to reported results.
In early 2021, the Organization and Compensation Committee (the “O&C Committee”) approved a one-time enhanced long-term incentive (“LTI”) opportunity for the Executive Officers on non-essential travelthe executive leadership team. As previously disclosed and discussed herein, this restricted stock unit (“RSU”) grant with a back-loaded vesting schedule was designed to ensure continuity of the executive team through the challenging industry environment and labor market, and to reinforce alignment of the executives’ interests with those of our shareholders.
2022 PROXY STATEMENT 34
Impact of Strategic Repositioning and Market Disruption on Our Business
Under the leadership of our CEO, Scott Rowe, who was appointed in March 2020early-2017, and a work-from-home policy for all non-essential employees who are ablelargely refreshed management team, we successfully completed our ambitious multi-year transformation effort in 2021 called Flowserve 2.0. This strategic initiative was designed to do so,improve our business model with a focus on driving operational excellence, reducing complexity, accelerating growth, expanding margins, increasing capital efficiency and providing face coveringsimproving organizational health. This business transformation better positioned us to respond swiftly to the COVID-related headwinds, including supply chain and logistics disruptions and labor availability. These issues were global in nature and due to the confluence of events had an impact on us and other personal protective equipmentglobal industrials in 2021.
Despite these headwinds, which we continue to navigate in 2022, we remain encouraged by the healthy underlying demand that we see across many of our end markets, as evidenced by our 2021 bookings growth. We are also optimistic about the opportunities available to Flowserve and enhanced cleaningare taking steps to best position the company for the energy transition that is already underway. We believe our strategic investments into decarbonization, digitization and diversification (“3Ds”) present significant long-term opportunities for Flowserve, our shareholders and stakeholders around the world.
The following chart is a visual representation of sitesour strategic repositioning and implementing social distancing protocols for employees who are goingthe environment our CEO and senior leadership team has navigated over the past 5 years, including the ongoing COVID-19 pandemic that continued to work inhave a significant impact on our facilities;
Assistingbusiness and our customers by continuing safe operations that allowed our employees to deliver our products and services to other essential businesses;
Reprioritizing certain of our Flowserve 2.0 Transformation initiatives to accelerate cost actions enabling the Company to help mitigate the impact to operating margins during the second half of the year;
Canceling annual merit increases in base salary levels across the organization, including for certain of our executive officers;2021.
Aligning our incentive plan with the Company’s urgent priorities by adopting a first half and second half measurement approach for the Annual Incentive Plan (“AIP”); and
Mainiting in-flight performance share units with no changes.
20212022 PROXY STATEMENT 30 35
The O&C CommitteeBoard of Directors, CEO, and the executive leadership team took additional compensation actions in the first quarter of 2021 revising our incentive programs to address the continued uncertainty facing the Company, and to strengthen the retentive value of our compensation system, as well as motivate our key employees to continue to execute on our strategic transformation during this critical juncture for the Company. These additional actions include:
Reverting to an annual measurement approach under the AIP;
Adopting changes to the 2021 Performance Share Unit (PSU) program that align the metrics with the Company’s key financial priorities of Return on Invested Capital (ROIC) and Free Cash Flow as a % of Net Income, including maintaining a focus on total shareholder return; and
Providing for a one-time enhanced 2021 LTI opportunity, ranging in value from 29% to 73% of annual long-term incentive target, delivered in Restricted Stock Units with back-loaded vesting 1/3 on the second anniversary of the grant date and 2/3 on the third anniversary of the grant date.
Company Strategy and Continued Organizational Transformation
In addition to executing on the short-term imperativesdecisive action in 2020 our associates continuedand 2021 in response to drive significant transformationmarket conditions. These actions have positioned us for Flowserve. We accelerated certain of our Flowserve 2.0 initiatives, improved upon our previous progress, and drove solid results given the disruption caused in the market. Refer to the “Flowserve 2.0 Transformation” beginning on page 7 for additional information about the transformation and accomplishments during 2020.
FLOWSERVE2.0—ImplementingourTransformativeBusinessStrategy
Alignment Of Our Compensation Programs With Our Strategy
Our compensation programs are aligned with our company strategy and the goal to create long-term shareholder value. Quantitative measurements for our key strategies are established and embedded in our annual and long-term incentive plan designs as shown in the table below. The measurement of the improvement of organizational health is included in the yearly performance assessment of our NEO’s.future growth.
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• Realigned 2021 incentive plan metrics with new priorities to position the Company for post-pandemic success • Consistent with the second half of 2020, we continued to use Bookings rather than Revenue under the annual incentive plan to prioritize new sales • We introduced FCF Conversion as a performance metric, along with the continued use of ROIC, in our 2021 PSUs to focus the management team on generating cash needed for investment and growth • We converted our use of rTSR from a PSU performance metric to a PSU payout modifier to maintain pay alignment with our long-term shareholder returns • Designed 2021 compensation programs to address continued market uncertainty • We set goals in line with our internal business plans and external market guidance reflective of the anticipated market uncertainty due to the continued pandemic • We established wider goal ranges for our annual incentive plan metrics to address the difficulty in setting appropriate performance goals • We continued using one-year ROIC performance periods for PSUs • The O&C Committee chose to provide a one-time enhancement to the value of 2021 equity grants for all Executive Officers in the executive leadership team to encourage continuity among the executive team and reinforce alignment with long-term value creation • Further aligned 2022 incentive plan metrics with new priorities to grow the business • In our annual incentive plan: • The weighting for Bookings was substantially increased since it is the funnel for revenue • We introduced 3D performance metrics to fuel growth in these strategic areas (diversification Bookings, decarbonization Bookings, and digitization Asset Monitoring) • We also introduced a strategic payout modifier in our annual incentive plan to drive progress against our ESG and other strategic priorities • For our 2022 PSUs, we changed our performance peer group (“PPG”) to the group of companies that comprise the S&P 500 Industrials Index, given we compete for investor dollars in this broader market space |
20212022 PROXY STATEMENT 31 36
PaySay-on-Pay and Shareholder Outreach
Shareholders have provided high levels of support for Performance Alignmentsay-on-pay
We received over 96% shareholder support for our say-on-pay proposal at our 2021 annual shareholder meeting and have averaged over 90% shareholder support over the past five years. The alignmentO&C Committee strongly values the opinions of payour shareholders as expressed in the Say-on-Pay vote and performance is one ofbelieves that our strong support levels in 2021 and over the key componentspast five years demonstrate a strong alignment of our compensation philosophy as shown on the following page. The Company is committed to a rigorous target setting process, the careful selection of key performance measures alignedprogram with our strategy and the creationshareholders’ interests. Although we did not make any changes to our 2021 compensation program as a direct result of our say-on-pay vote results, we consider shareholder value.
The following charts illustrate the performance payouts under our various incentive plan components: The Company’s annual incentive plan (“AIP”) and contingent performance share units (“PSUs”).
Compensation Program Philosophy and Principles
The O&C Committee maintains a thoughtful approach to corporate governance practices for executive compensation. Below is a summary of those practices.
Our Compensation Philosophy is aligned with building long-term shareholder value and to achieve the following objectives:
2021 PROXY STATEMENT 32
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Our core executive compensation elements are aligned withperspectives, among other things, when evaluating our executive compensation philosophy. These elements provide competitive market-basedprogram.
Outcomes of Shareholder Outreach
In the fall of 2021, we proactively reached out to shareholders representing approximately 80% of our outstanding shares to offer them the opportunity to discuss our ESG program with our Chairman and members of management and to solicit feedback from our shareholders on our ESG and compensation that emphasize pay for performancepractices. We conducted engagement meetings with three shareholders who responded to this outreach representing approximately 22% of outstanding shares. Our dialogue covered a wide range of topics including the transformation strategy, our ESG priorities, corporate governance, and alignmentfinancial performance. We also discussed our executive compensation program and related 2021 awards, and no concerns were expressed by shareholders.
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Compensation MixShareholder Interests
Our executive compensation program emphasizes performance-based compensation that is determined each year by the O&C Committee. As shown below, for 2020, the significant majoritygovernance supports our pay-for-performance philosophy, aligns our executives’ interests with those of our 2020 target total executive compensation (i.e., base salary, target annual incentive,shareholders, and grant date value of RSUs and PSUs at target) was at-risk (86.3% for our President and CEO and an average of 68.9% for other Named Executive Officers other than Mr. Roueche, as noted below). See “Elements of the Executive Compensation Program” for additional details.reflects best practices without encouraging unnecessary risk taking.
2021 PROXY STATEMENT 33
This chart reflects total annual target compensation and therefore excludes any one-time special awards discussed below under the heading “Special Awards.” This chart does not include Mr. Roueche given his limited role as interim CFO, which ended on February 23, 2020.
CompensationGovernancePractices
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What We Do | What We Don’t Do | |||||||||||||
Target the market median for overall compensation
Balance compensation programs
Cap incentive program payments
Maintain a clawback policy that covers cash and equity incentive compensation
Maintain stock ownership requirements | Provide a meaningful percentage of long-term incentives in the form of performance-based compensation
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Fully disclose incentive plan targets and results
Utilize an independent compensation consultant | No hedging or pledging stock
No excise or income tax gross-ups for executives
No employment agreements with Named Executive Officers
No option repricing without shareholder approval
No dividend payments on unvested awards No excessive perquisites |
Results of 2020 Say-On-Pay Vote
At our 2020 Annual Meeting of Shareholders, over 95% of our shareholders voted to approve our Named Executive Officer compensation. Although our O&C Committee believes this affirms our shareholders’ overall support of our executive compensation program, we are constantly seeking to improve our program.
Compensation Alignment with Strategic Objectives
To achieve our program objectives and support the implementation of our strategy, we assess our compensation programs on an annual basis. The following compensation program design features were adopted in recent years:
20212022 PROXY STATEMENT 34 37
Executive Compensation Philosophy
Our Compensation Philosophy is aligned with building long-term shareholder value and to achieve the following objectives:
| Attract and retain high-quality leaders with a passion for driving high performance, as well as our purpose, values, behaviors | ||
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In light of the unprecedented challenges of the world-wide COVID-19 pandemic and the volatility of commodity prices as a result of the pandemic and disputes between the members of the Organization of Petroleum Exporting Companies, the O&C Committee approved certain changes to AIP in July 2020, including bifurcating the 2020 program for the first and second halves of the year, in order to provide focus on and reward the achievement of the Company’s evolving strategic priorities during an unprecedented period of global economic uncertainty and to help drive operational improvement. Additional discussion of the changes approved by the O&C Committee and the rationale for such changes is included below in “Elements of the Executive Compensation Program—Annual Incentive Opportunity.”
Elements of the Executive Compensation Program
Consistent with our philosophy, the primary elements of the Company’s executive compensation program in 2020 are discussed below:
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20212022 PROXY STATEMENT 35 38
Components of Executive Compensation
Our executive compensation program is structured to incorporate the following components:
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Short-Term Incentive (AIP) | Motivates executives to achieve/exceed annual Company goals that ultimately drive long-term shareholder value | • Paid in cash • Target award determined as a % of base salary • Payout range is 0% to 200% of target award | • Payout is fully at risk • Financial and operational performance metrics • Any earned payout is subject to review and approval by the O&C Committee | |||
Long-Term | Encourages executives to increase shareholder value over a long-term time horizon | • Target value of awards determined as a % of base salary | • Value of all LTI awards varies in relationship to changes in share price | |||
Restricted Stock Units (RSUs) | 3 year vesting period | • Settled in stock • Vests ratably | • Focus on stock price and shareholder returns | |||
Performance Stock Units (PSUs) | 3 year performance period | • Settled in stock • Payout range is 0% to 200% of units granted • Payout modifier applies, which may increase or decrease the payout of units by +/- 15% | • Payout is fully at risk • Underlying payout driven by financial performance with the final payout adjusted based on rTSR • Focus on stock price and shareholder returns • Any earned payout is subject to review and approval by the O&C Committee | |||
ATTRACT & RETAIN | REINFORCE OUR STRATEGY | COMPETITIVE AND MARKET-BASED | ALIGN PAY AND PERFORMANCE | ALIGN WITH SHAREHOLDERS |
2022 PROXY STATEMENT 39
Competitive Market-Based Compensation ApproachBack to Contents
Aligned with our competitive and market-basedCompensation Mix
Our executive compensation philosophy,program emphasizes performance-based compensation that is determined each year by the O&C Committee. As shown below, most of our 2021 total target executive compensation, which excludes the one-time equity enhancement, was delivered in the form of short- and long-term incentives for which payout is at risk.
Including stock price performance for RSUs.
The O&C Committee oversees our executive compensation program working closely with its independent consultant to ensure the effectiveness of our program. The O&C Committee’s charter, which documents its authority and responsibilities, is available on the investor relations portion of the Company’s website at ir.flowserve.com under the “Corporate Governance—Documents & Charters” caption.
The Role of the O&C Committee establishes a benchmark “compensation peer group”
The O&C Committee is responsible for determining the compensation of our Executive Officers and designing our executive compensation program. Determining compensation for our Executive Officers includes, among other things, determining each component of executive compensation and any related performance metrics, goals, attainment and payouts as described above in “Components of Executive Compensation.”
Each year, Mr. Rowe presents compensation recommendations to the O&C Committee regarding the compensation for each Executive Officer, other than himself. Mr. Rowe makes his recommendations based upon an assessment of each executive’s performance, as well as the performance of the executive’s business unit or function. His recommendations consider the median market data for each role as well as his assessment of the retention risk for each executive. The O&C Committee annually reviews Mr. Rowe’s performance, including feedback directly from the Board, and holds executive session discussions without our CEO and other Executive Officers present to establish Mr. Rowe’s compensation.
2022 PROXY STATEMENT 40
The Role of the Independent Compensation Consultant
The O&C Committee has retained FW Cook as its independent compensation consultant to provide advice regarding executive compensation matters. The services provided by FW Cook generally include providing:
Input on the design of our executive compensation program, evolving market practices and the competitiveness of our program,
Market data, and
Input on proposed compensation decisions.
FW Cook attends all regularly scheduled O&C Committee meetings and calls. The O&C Committee assessed FW Cook under the factors set forth in the SEC’s rules and concluded that FW Cook was independent and that the consultant’s work in 2021 did not raise any conflicts of interest.
Competitive Positioning and Our Compensation Peer Group (“CPG”) on an annual basis. In addition, AON
Annually, the O&C Committee reviews the base salaries, target bonuses, and the grant date value of long-term incentive awards for each of our Executive Officers as compared to the compensation levels for similar positions at our CPG companies, while considering other factors described below. The O&C Committee reviews publicly available financial and compensation information reported by our CPG companies and general survey data. The 2020 general survey data used to inform the O&C Committee’s 2021 compensation decisions was collected from Willis Towers Watson (“WTW”) Executive Compensation Survey Data is utilized to set compensation elements for positions that are not adequately covered by(WTW) and AON.
The O&C Committee reviews the CPG data.and survey data to determine the median compensation for each executive’s position and then considers this as one factor when setting each executive’s target compensation for the current year. Median compensation is used as a reference point for pay recommendations. Target pay varies from the median based on the executive’s industry experience; experience and performance in his or her role and at the Company; value of the role to the Company; internal pay parity among our executives; and any other factors the O&C Committee deems relevant. The CPG AON Surveyis also used more generally when the O&C Committee reviews our compensation program design, including the types of compensation awarded and WTW Surveythe terms and conditions of compensation components.
The O&C Committee conducts an annual review of the CPG to determine if any changes are each considerednecessary. In choosing our peers, the O&C Committee involves management and uses research and advice from its independent compensation consultant. The O&C Committee generally seeks to include companies in setting targetsimilar industries, with applicable revenue and market cap scope, with similar business characteristics (such as margins and asset intensity) and adequate disclosure of executive compensation levels.
For 2020, our CPG consisted ofpractices to ensure no pay anomalies exist which are inconsistent with Flowserve’s pay practices. The O&C Committee determined the compensation peer group for 2021 to be the following 18 companies which includes one addition over 2019:making no changes from 2020:
COMPENSATION PEER GROUP (CPG) |
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Ametek, Inc. |
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Lincoln Electric Holdings, Inc. Nordson Corporation | Pentair PLC Regal Beloit Corporation Rockwell Automation, Inc. Snap-on Incorporated Terex Corporation Trinity Industries Wabtec Corporation Woodward, Inc. | |
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2022 PROXY STATEMENT 41
The O&C Committee reviews and approves base salaries annually during the first quarter with a general goal to approximate the market median of companies within the CPG and the broader market as reflected in the AON Survey and WTW Survey.each year. The base salaries paid to the Named Executive OfficersNEOs during 2020 are shown below. In response2021 were as follows:
Name/Title | Annual Salary Effective January 1, 2021 |
| Adjusted Annual Salary Effective April 5, 2021 |
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| Rationale for Increase | ||
R. Scott Rowe | $ | 1,133,000 |
| No change |
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Amy B. Schwetz | $ | 650,000 |
| $ | 669,500 |
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| 3% increase for performance and proximity to market |
Elizabeth L. Burger | $ | 478,950 |
| $ | 493,319 |
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| 3% increase for performance and proximity to market |
Keith E. Gillespie | $ | 485,000 |
| $ | 494,700 |
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| 2% increase for performance and proximity to market |
Tamara M. Morytko | $ | 500,000 |
| $ | 535,000 |
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| 7% increase for performance and proximity to market |
Annual Incentive Plan Payments
The Company’s AIP rewards participants to the onsetextent they achieve the Company’s annual objectives. Under this short-term incentive program, the O&C Committee establishes performance metrics and target performance levels. It also establishes a target incentive award for each executive as a percentage of the COVID-19 pandemic and the downturn in markets generally, including the oil and gas markets, the Board elected not to implement any increases to base salary during 2020 other than a performance increase in base salary of 15% for Ms. Minnix in recognition of her high performance and the peer benchmark data for her position.salary.
Working with its consultant and Management, the O&C Committee selects performance metrics that support key strategies to drive sustainable and profitable growth.
2021 Metrics, Relevance and Weightings
Design Feature | Relevance | Weightings | ||
Adjusted Operating Income | Key financial measure that incentivizes margin expansion | Determined based on the specific role of the executive to align with areas of responsibility | ||
Primary Working Capital (PWC) as a % of Sales | Key financial measure that promotes focus on efficient use of capital | |||
Customer Bookings | Leading financial indicator of growth | |||
On-time Delivery | Key customer satisfaction metric that supports growth |
20212022 PROXY STATEMENT 36 42
Each NEO’s target bonus percentage for 2021 remained unchanged from 2020, as follows:
Named Executive Officer |
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Annual Incentive OpportunityMetrics and Weightings
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Adjusted Operating Income | Primary Working Capital as a % of Sales | Customer Bookings | On-Time Delivery | Adjusted Operating Income | Primary Working Capital as a % of Sales | Customer Bookings | On-Time Delivery | ||
R. Scott Rowe | 45% | 25% | 15% | 15% | — |
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Elizabeth L. Burger |
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Keith E. Gillespie | 30% | 20% | 50% | — | — | — | — | — | |
Tamara M. Morytko | 20% | — | — | — | 25% | 25% | 15% | 15% |
DuringAll 2021 performance goals were set in line with our internal business plans and external market guidance and required the first quartersame or greater level of each year,effort as in prior years to achieve the O&C Committeetargets in the uncertain market environment created by the COVID-19 pandemic. We established a target range so that incremental performance above or below the performance target would not have an outsized impact on incentive plan payouts. We also establishes each Named Executive Officers’ annual cash incentive opportunityestablished wider goal ranges to address the difficulty in setting fixed performance targets.
The 2021 performance target for consolidated Adjusted Operating Income was set below our 2020 actual attainment to reflect the lag between our customers’ return to capital spending in 2021 toward purchasing and maintenance of the precision-engineered components that we supply and the conversion of such bookings into revenue. Targets for other metrics represented an expansion over 2020 actuals.
Payout Level | Consolidated Flowserve Performance Goals (in $M) |
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Adjusted Operating Income | Adjusted Primary Working Capital as a % of Sales | Customer Bookings | On-time Delivery | Payout Percentage | |
Maximum | $344.2 | 26.8% | $3,644.5 | Not disclosed | 200% |
Stretch | $299.3 | 27.8% | $3,555.6 | 120% | |
Target | $284.3 | 28.5% | $3,377.8 | 100% | |
Threshold | $254.4 | 29.5% | $3,200.1 | 50% | |
Note: Interpolation is used to calculate the payout percentage for attainment that falls between the payout levels shown. |
2022 PROXY STATEMENT 43
Payout Level | FPD Performance Goals (in $M) |
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Adjusted Operating Income | Adjusted Primary Working Capital as a % of Sales | Customer Bookings | On-time Delivery | Payout Percentage | |
Maximum | $61.5 | 26.3% | $1,366.5 | Not disclosed | 200% |
Stretch | $53.5 | 27.3% | $1,333.2 | 120% | |
Target | $50.8 | 28.0% | $1,266.5 | 100% | |
Threshold | $42.8 | 29.0% | $1,199.9 | 50% | |
Note: Interpolation is used to calculate the payout percentage for attainment that falls between the payout levels shown. |
Calculation of Performance Attainment and Award Payout
Our alignment of pay and performance is one of the key components of our compensation philosophy. Adjusted Operating Income came in just under our Annual Incentive Plan (the “AIP”). When setting annual incentive opportunities,target because, despite constrained revenues due to the O&C Committee approves: (i) the Company performance measures under the AIP; and (ii) an AIP target opportunity for each Named Executive Officer. Each NEO’s overall annual AIP target opportunity for 2020 remained unchanged from 2019 levelspandemic, we were able to control costs as a percentageresult of base salaries.
In responseacceleration of the Flowserve 2.0 transformation. Bookings were strong due to the unfolding COVID-19 pandemic, the O&C Committee re-convened in July 2020 to review the 2020 AIP program and determined that it would be appropriate to measure the 2020 AIP as two separate performance periods: H1 (measured from January 1 through June 30, 2020) and H2 (measured from July 1 through December 31, 2020), which we refer to in this proxy statement as the H1 Plan and the H2 Plan respectively. The H1 Plan was determined based on the performance measures established in February 2020, and the H2 Plan was determined based on new performance measures established in July 2020 that aligned more closely to the Company’s evolving priorities and objectives. The final payout was determined by adding the overall attainment for each performance period, weighted 50% each.
In doing so, the O&C Committee considered the economic environment, the unanticipated impact that the reduction inreturn of our customers’ capital budgets had onspending. Adjusted PWC as a % of Sales and On-time Delivery goals did not meet threshold performance levels because of supply chain and logistics disruptions and labor availability issues caused by the pandemic.
The following sets forth the 2021 AIP payout for each of our business, and the motivational aspect of the original 2020 AIP program. Using a set of guiding principles, the O&C Committee balanced our internal needs with external shareholder expectations. The O&C Committee considered a design for the H2 plan that:NEOs other than Ms. Morytko:
| Consolidated Flowserve | Total 2021 Payout % (Sum of Weighted Payout % for Each Metric) | ||||
Adjusted Operating Income | Adjusted Primary Working Capital as a % of Sales | Customer Bookings | On-time Delivery | |||
Performance Goal (in $M) | $284.3 | 28.5% | $3,377.8 | * |
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Actual Performance (in $M) | $284.1 | 29.7% | $3,774.4 | |||
% of Goal Achieved | 99.9% | 96.0% | 112.0% | |||
Payout % Earned (A) | 99.5% | 0.0% | 200.0% | 0.0% | ||
Weighting of | R. Scott Rowe | 45.0% | 25.0% | 15.0% | 15.0% | |
Amy B. Schwetz | ||||||
Elizabeth L. Burger | ||||||
Keith E. Gillespie | 30.0% | 20.0% | 50.0% | N/A | ||
Weighted % | R. Scott Rowe | 44.8% | 0.0% | 30.0% | 0.0% | 74.8% |
Amy B. Schwetz | ||||||
Elizabeth L. Burger | ||||||
Keith E. Gillespie | 29.9% | 0.0% | 100.0% | N/A | 129.9% | |
* The Company has chosen not to disclose this information as these metrics correspond to data that is not otherwise publicly disclosed and is used primarily to assess compensation for the NEOs. The Company believes that the disclosure of such proprietary information may cause competitive harm. |
Motivated associates during an extremely challenged time;
Set realistic goals in light of the rapidly evolving business environment;
Provided line of sight to metrics that aligned with the Company’s focus on successfully navigating the downturn;
Provided opportunity for reasonable AIP payouts; and
Utilized metrics that could be focused on by all levels within the Company.
In establishing this bifurcated approach, the O&C Committee sought to balance pay for performance considerations with retention and motivation factors, in an effort to maintain an AIP program that provided focus on and rewarded the achievement of the Company’s evolving strategic priorities during an unprecedented period of global economic uncertainty and to continue to drive operational improvement.
20212022 PROXY STATEMENT 37 44
The following table illustratessets forth the 20202021 AIP target opportunities and payoutspayout for each NEO:Ms. Morytko:
Named Executive Officer | 2020 Salary | Target AIP (% of Salary) | Target AIP ($ Amount) | H1 Plan Payout Percentage (weighted 50%) | H2 Plan Payout Percentage (weighted 50%) | Overall Payout Percentage | 2020 AIP Payout | |
R. Scott Rowe | $1,133,000 | 120% | $1,359,601 | 7.8% |
| 123.7% | 65.8% | $ 894,260 |
Amy Schwetz(1) | $566,530 | 75% | $ 424,898 | 7.8% |
| 123.7% | 65.8% | $ 279,471 |
John E. (Jay) Roueche, III | $343,757 | 50% | $ 171,879 | 7.8% |
| 123.7% | 65.8% | $ 113,051 |
Lanesha T. Minnix | $525,000(2) | 65% | $ 341,250 | 7.8% |
| 123.7% | 65.8% | $ 224,453 |
Keith E. Gillespie | $485,000 | 65% | $ 315,250 | 0.0% |
| 105.7% | 52.9% | $ 166,625 |
Elizabeth L. Burger | $478,950 | 65% | $ 311,318 | 7.8% |
| 123.7% | 65.8% | $ 204,765 |
(1) This reflects Ms. Schwetz’s annual bonus opportunity based on the period from February 17, 2020, the first date of her employment, through December 31, 2020. Ms. Schwetz assumed the role of Senior Vice President and Chief Financial Officer on February 24, 2020. | ||||||||
(2) This reflects Ms. Minnix’s 2020 base salary in effect as of December 31, 2020, which is used for determining her 2020 AIP payout. |
| Consolidated Flowserve | Flowserve Pumps Division | Total 2021 Payout % (Sum of Weighted Payout % for Each Metric) | |||
Adjusted Operating Income | Adjusted Operating Income | Adjusted Primary Working Capital as a % of Sales | Customer Bookings | On-time Delivery | ||
Performance Goal (in $M) | $284.3 | $50.8 | 28.0% | $1,266.5 | * |
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Actual Performance (in $M) | $284.1 | $63.6 | 32.0% | $1,433.1 | ||
% of Goal Achieved | 99.9% | 125.0% | 87.5% | 113.0% | ||
Payout % Earned (A) | 99.5% | 200.0% | 0.0% | 200.0% | 0.0% | |
Weighting of Metric (B) | 20.0% | 25.0% | 25.0% | 15.0% | 15.0% | |
Weighted % Payout (A) x (B) | 19.9% | 50.0% | 0.0% | 30.0% | 0.0% | 99.9% |
* The Company has chosen not to disclose this information as these metrics correspond to data that is not otherwise publicly disclosed and is used primarily to assess compensation for the NEOs. The Company believes that the disclosure of such proprietary information may cause competitive harm. |
RigorousAdjustments Made When Determining Performance MeasuresAttainment
The O&C Committee working with its compensation consultant and members of management, evaluates and approves the Company’s AIPdetermined performance measures. The O&C Committee also sets the weighting of each executive’s individual performance measures to be consistent with our business strategy and to tie to the achievement of important strategic objectives within each executive’s area of control.
The O&C Committee selects performance measures, with input from management, that support key strategies that we believe drive sustainable and profitable Company growth. The performance metrics were reviewedfor Adjusted Operating Income by adjusting Operating Income for the H1 Planfollowing items:
Settlement gain on 2018 sale of business in Pumps,
Expenses related to realignment, and the H2 Plan to ensure their importance in remaining successful during the downturn, our current strategic operational focus and alignment across the organization at all levels.
The H1 performance metrics were aligned with the Company’s historical focus on margin expansion through operating income, growth through revenue and bookings, capital efficiency through a focus on primary working capital as a percentage of sales and customer satisfaction through on-time delivery. We believe these metrics align our associate’s actions with outcomes that drive the success of the Company and align with shareholders’ interests.
Because our business outlook was impacted by the unanticipated reduction in our customers’ capital spending during 2020, we narrowed the focus of the H2 plan to metrics that were critical to managing the Company through the downturn. The O&C Committee approved performance measures that focused associates on maintaining the Company’s margin through the downturn with an increased focus on operating income, preserving liquidity and generating cash flow through primary working capital reduction and focusing on delivering on our past-due backlog to our customers in the back half of the year, except for Keith Gillespie, our Chief Sales Officer, who continued to focus on bookings instead of delivery of past-due backlog under the H2 plan.
The Company’s 2020 AIP performance measures for the H1 Plan as weighted for each executive were as follows:
2021 PROXY STATEMENT 38
H1 2020 Performance Measures & Weighting | Consolidated Adjusted Operating Income | Consolidated Revenue or Bookings | Adjusted PWC as % of Sales | Customer On-time Delivery | Total |
R. Scott Rowe | 50% | 15% | 20% | 15% | 100% |
Amy Schwetz | 50% | 15% | 20% | 15% | 100% |
John E. (Jay) Roueche, III | 50% | 15% | 20% | 15% | 100% |
Lanesha T. Minnix | 50% | 15% | 20% | 15% | 100% |
Keith E. Gillespie (1) | 30% | 50% | 20% | — | 100% |
Elizabeth L. Burger | 50% | 15% | 20% | 15% | 100% |
(1) Only Mr. Gillespie had a Consolidated Bookings target. The other Named Executive Officers had a Consolidated Revenue target. |
The Company’s 2020difference between actual and target AIP performance measures for the H2 Plan as weighted for each executive were as follows:
H2 2020 Performance Measures & Weighting | Consolidated Adjusted Operating Income | Consolidated Bookings | PWC Reduction | Past Due Backlog | Total |
R. Scott Rowe | 55% | — | 25% | 20% | 100% |
Amy Schwetz | 55% | — | 25% | 20% | 100% |
John E. (Jay) Roueche, III | 55% | — | 25% | 20% | 100% |
Lanesha T. Minnix | 55% | — | 25% | 20% | 100% |
Keith E. Gillespie | 30% | 50% | 20% | — | 100% |
Elizabeth L. Burger | 55% | — | 25% | 20% | 100% |
Achievement of the metrics was evaluated using pre-defined internal criteria, as adjusted by the O&C Committee within parameters it established at the beginning of each performance period, to exclude the effect of certain specified developments that occurred during the year and described further below.
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2021 PROXY STATEMENT 39
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Measuring Performance and Establishing Payouts
In Q1 2020, the O&C Committee had set performance targets for financial metrics used in our AIP at definitive, challenging and objective levels that required significant effort and achievement by our Named Executive Officers for any payout to occur. The 2020 payout range under the AIP was 0% to 200% of each executive’s respective target award opportunity for both the H1 Plan and the H2 Plan for the respective time periods.
For fiscal 2020, the O&C Committee established an additional “stretch” opportunity for consolidated adjusted operating income, consolidated bookings, consolidated adjusted primary working capital as % of sales (H1 Plan only), primary working capital reduction (H2 Plan only), and past due backlog (H2 Plan only), which would result in a 115% payout. This provided the opportunity to achieve challenging goals and reward attainment accordingly.
For consolidated revenue and consolidated customer on-time delivery for the H1 Plan, no stretch goal was established for the 115% payout level.
The actual payout percentage was determined using a matrix that compares the Company’s actual performance against the established performance targets for the year (referred to as “plan”). The following tables show the percentage of target award that is paid at different levels of Company performance against plan, as well as actual performance and payout percentages for 2020.
The following sets forth the H1 Plan and H2 Plan performance metrics applicable to Mr. Rowe, Ms. Schwetz, Mr. Roueche, Ms. Minnix and Ms. Burger:
2021 PROXY STATEMENT 40
2020 H1 Plan Performance Measures & Weighting | Threshold (50% Payout) | Target (100% Payout) | Stretch (115% Payout) | Maximum (200% Payout) | Measured Performance | Weighted Payout Percentage |
Consolidated Adjusted Operating Income (50%) | $ 180.9 | $202.2 | $212.8 | $234.1 | $180.6 | 0.0% |
Consolidated Revenue (15%) | $1,910.1 | $2,010.6 | — | $2,060.9 | $1,819.4 | 0.0% |
Consolidated Adjusted PWC as % of Sales (20%) | 29.1% | 28.1% | 27.6% | 26.5% | 29.5% | 0.0% |
Consolidated Customer On-Time Delivery (15%) | * | * | — | * | * (97.8% of Target) | 7.8% |
Total Payout | 7.8% | |||||
* Not disclosed for competitive reasons as discussed below. |
2020 H2 Plan Performance Measures & Weighting | Threshold (50% Payout) | Target (100% Payout) | Stretch (115% Payout) | Maximum (200% Payout) | Measured Performance | Weighted Payout Percentage |
Consolidated Adjusted Operating Income (55%) | $140.2 | $157.7 | $175.2 | $192.7 | $186.1 | 92.2% |
Consolidated PWC Reduction (25%) | $1,094.8 | $1,086.3 | $1,082.0 | $1,073.5 | $1,113.6 | 0.0% |
Consolidated Past Due Backlog (20%) | * | * | * | * | * (107.5% of Target) | 31.5% |
Total Payout | 123.7% | |||||
* Not disclosed for competitive reasons as discussed below. |
The following sets forth the H1 Plan and H2 Plan performance metrics applicable to Mr. Gillespie:
2020 H1 Plan Performance Measures & Weighting | Threshold (50% Payout) | Target (100% Payout) | Stretch (115% Payout) | Maximum (200% Payout) | Measured Performance | Weighted Payout Percentage |
Consolidated Adjusted Operating Income (30%) | $180.9 | $202.2 | $212.8 | $234.1 | $180.6 | 0.0% |
Consolidated Bookings (50%) | $2,024.8 | $2,134.3 | $2.189.0 | $2,243.7 | $1,783.5 | 0.0% |
Consolidated Adjusted PWC as % of Sales (20%) | 29.1% | 28.1% | 27.6% | 26.5% | 29.5% | 0.0% |
Total Payout | 0.0% | |||||
* Not disclosed for competitive reasons as discussed below. |
2020 H2 Plan Performance Measures & Weighting | Threshold (50% Payout) | Target (100% Payout) | Stretch (115% Payout) | Maximum (200% Payout) | Measured Performance | Weighted Payout Percentage |
Consolidated Adjusted Operating Income (30%) | $140.2 | $157.7 | $175.2 | $192.7 | $186.1 | 50.3% |
Consolidated Bookings (50%) | $1,426.9 | $1,510.8 | $1,678.7 | $1,762.6 | $1,631.5 | 55.4% |
Consolidated PWC Reduction (20%) | $1,094.8 | $1,086.3 | $1,082.0 | $1,073.5 | $1,113.6 | 0.0% |
Total Payout | 105.7% | |||||
* Not disclosed for competitive reasons as discussed below. |
2021 PROXY STATEMENT 41
The Company has chosen not to disclose the Threshold, Target, Stretch, Maximum and Measured Performance data for the consolidated customer on-time delivery and the consolidated past due backlog metrics for all Named Executive Officers, as these metrics correspond to financial data that is not otherwise publicly disclosed and is used primarily to assess compensation for these Named Executive Officers. As such, the Company believes that the disclosure of such information would cause competitive harm to the Company without adding meaningfully to the understanding of its business.
Individual Personal Performance AdjustmentAdjustments
The O&C Committee may exercise judgment in assessing theeach NEO’s personal performance factor for ourwhen determining the final annual incentive awards to determine annual cash incentive compensation payments.award amounts. The O&C Committee considered individual performance of our executive officersNEOs in 2021 and determined not to make any adjustments to their final annualthe formulaic payout based on our quantitative performance metrics.
The Company’s LTI program is structured to:
Reward participants to the extent they achieve the Company’s long-term objectives, and
Retain participants to provide continuity of leadership for the benefit of our shareholders.
Under the long-term incentive plan payouts for 2020.
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Setting the Target Opportunity
Each year,program, the O&C Committee establishes a target dollar value of the long-term incentive packageaward for each Named Executive Officer. In doing so, the committee considers individual performance, as well as data from the Company’s CPG and, for positions that are not adequately covered by the CPG data, the AON Survey and WTW Survey. For 2020,2021, these target values were set at levels that approximate the market median of both the CPG and the broader market taken from theWTW and AON Survey and WTW Survey.survey data.
2022 PROXY STATEMENT 45
Named Executive Officer | 2021 LTI Target | |
R. Scott Rowe | $ | 5,500,000 |
Amy Schwetz | $ | 1,550,000 |
Elizabeth L. Burger | $ | 700,000 |
Keith E. Gillespie | $ | 600,000 |
Tamara M. Morytko | $ | 700,000 |
In addition,order to align managements’ focus with those of shareholders, 100% of the O&C Committee considers the package’s potential dilutive effect on the Company’s outstanding shares in determining aggregate award values.
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is equity-based. The share amount isnumber of units granted was determined by dividing each executive’s total long-term incentivethe LTI grant value by the average closing price of the Company’s common stock reported on the NYSE during the last twenty trading days of prior to the grant date of February 20, 2020. Until16, 2021, which was $37.67. The stock units are awarded as follows:
50% of the stock units are granted in the form of PSUs
50% of the stock units are granted in the form of RSUs
The company’s long-term incentive program allows RSUs and PSUs to continue to vest over the original vesting holdersperiod for employees who retire at a minimum age of RSU and PSU awards do not have voting rights55 years with 10 years of continuous service with the Company. The O&C Committee believes that this encourages the participants to continue to focus on the units, but the units are entitled to receive dividend equivalent accruals, if any, that payout only if and to the extent the underlying units vest.
2021 PROXY STATEMENT 42
Back to Contentscompany’s performance as they approach retirement.
Contingent2021 Performance Share Units (PSUs)Stock Unit (PSU) Grant
Aligned with our compensation objectives, these performance-based awards provide a strong incentive for our executives to achieve specific performance goals over the relevantassociated performance periods thatperiod to advance our business strategies,strategy, build long-term shareholder value and encourage executive retention. Contingent performance share units, or PSUs, are RSUs that vest, if at all, based on the Company’s achievement of pre-determined financial metrics, measured over a three-year performance period.
Rigorous Performance MeasuresMetrics and TargetsTheir Relevance
During the first quarter of each year,Working with its independent consultant and management, the O&C Committee working with its compensation consultant and members of management, evaluates and approves the Company’s LTIselects performance measures consistent withthat support our business strategy. The O&C determines performance goals at definitive, challenging and objective levels that require significant effort and achievement by our Named Executive Officers for payout to occur.
The O&C Committee believes that ROIC and TSR measures reward the progress towards Flowserve’s strategic focus on Growth, Margin Expansiongrowth, margin expansion, and Capital Efficiency. ROIC and TSR are further directly correlated to Flowserve’scapital efficiency as well as shareholder value creation.
The following table shows the performance measures for the 2018, 20192022 PROXY STATEMENT 46
Metrics, Weightings and 2020 PSU grants:Measurement
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| Measurement |
| Return on Invested | Absolute ROIC attainment for each single year 2021, 2022, and 2023 during the 2021 to 2023 performance period with goals established at the beginning of each year. This approach helps address difficulty in goal setting in an industry with volatile end markets. Earned payout percentages for each year are averaged to determine the payout percentage at the end of the 3-year performance cycle, if any, for the 2021 PSUs tied to this performance metric. |
50%
| Free Cash Flow as a percentage of Net Income | Attainment of a 3-year goal approved by the O&C Committee at the beginning of 2021 for the 2021 - 2023 performance period. |
Applies to all PSUs | rTSR Payout Modifier +/- 15% Potential | Relative 3-year TSR compared to • Falls below the 25th percentile of the PPG, •
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The payout ranges for PSUs shown above are 0% below threshold performance, 50% at threshold, 100% at target and 200% at maximum, in each case ofcompanies that represent the NEO’s respective target award opportunity.
PerformancePeerGroup(PPG): The O&C Committee believes that the use of absolute performance measures alone yields an incomplete picture of Company performance and has determined to assess attainment of our PSU TSR metric against a performance peer group. During 2020, the performance peer group was reviewedPPG were chosen to ensure continued alignment with Flowserve’s aspirationgoal to become the leading company within the Flow Control Industry.flow control industry. The performance peer group was identifiedcompanies were chosen based, generally, on publicly traded companies that are: (1)1) industrial equipment manufacturers; (2)manufacturers, 2) direct business peers of the Company;Company, and (3)3) financially comparativecomparable to the Company. No changes were madeOne company in the 2020 PPG, The Weir Group, was eliminated in forming the 2021 PPG:
PERFORMANCE PEER GROUP (PPG) | |
2021 - 2023 PERFORMANCE PEER GROUP (15 Companies) | |
CIRCOR International, Inc. Colfax Corporation Crane Co. Dover Corporation Ebara Corporation IDEX Corporation Ingersoll Rand IMI PLC | ITT Corporation KSB Aktiengesellschaft Neles Rotork PLC SPX FLOW, Inc. Sulzer AG Xylem Inc. |
Performance Targets – ROIC and FCF as a % of Net Income
Due to the proprietary and competitive nature of the Company’s business strategy and internal budgets that inform the 3-year performance peer group for 2020.
program targets, the Company has chosen not to disclose this information. The ROIC and FCF as a % of Net Income performance targets were set at a level intended to be challenging but attainable.
20212022 PROXY STATEMENT 43 47
The O&C Committee sets the ROIC goals for each fiscal year at the beginning of the applicable fiscal year. Following the conclusion of the third year, the payout attributable to the ROIC metric for the PSUs then-vesting is then determined by averaging the earned payout for each of the three single fiscal years in the applicable performance period. In February 2021, the O&C Committee approved the 2021 ROIC goal and payout levels to cover one-third of the 2020 and 2021 PSUs.
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The 2021 ROIC payout table is structured as follows:
Payout Level | Threshold | Target | Maximum |
Percent Attainment | 90% | 100% | 113% |
Payout Percentage | 50% | 100% | 200% |
Note: Interpolation is used to calculate the payout % for attainment that falls between payout levels shown above. |
Payout Structure – 3-Year FCF as a % of Net Income
The O&C Committee determined a 3-year performance goal at the beginning of the 2021-2023 performance period, as follows:
Payout Level | Threshold | Target | Stretch | Maximum |
Percent Attainment | 89% | 100% | 106% | 117% |
Payout Percentage | 50% | 100% | 120% | 200% |
Note: Interpolation is used to calculate the payout % for attainment that falls between payout levels shown above. |
Payout Structure – rTSR Payout Modifier
The O&C Committee determined to structure the rTSR payout modifier as shown in the above “Metrics, Weightings and Measurement” chart.
The 2021 RSUs are structured to vest ratably over three years on the first, second and third anniversaries of the grant. RSUs not only provide a retention incentive, but they align the interests of grant recipients with those of stockholders (a focus on stock price and TSR).
In early 2021, the O&C Committee and Board of Directors provided executive officers in the executive leadership team with a one-time enhanced LTI award in the amounts listed below to retain and motivate these executives in the current challenging industry environment and labor market. These non-recurring awards were made by the O&C Committee because it believed the retention of these executives, which it had recently recruited to join the organization, would be critical to support business stability, focus on the long-term shareholder value growth built on the achieved success of our transformation strategy, and reinforce alignment of the executives’ interests with those of our shareholders.
Named Executive Officer | Grant Value of One-Time Enhanced 2021 RSU Grant | Grant Value as a % of 2021 LTI Grant Value |
R. Scott Rowe | $ 4,000,000 | 73% |
Amy Schwetz | $ 750,000 | 48% |
Elizabeth L. Burger | $ 500,000 | 71% |
Keith E. Gillespie | $ 300,000 | 50% |
Tamara M. Morytko | $ 250,000 | 36% |
2022 PROXY STATEMENT 48
The form and value of awards was determined after considering a variety of factors and using input from the O&C Committee’s independent compensation consultant. The O&C Committee first evaluated the value of the unvested LTI held by the executive team prior to and after the 2021 LTI awards. Prior to the 2021 LTI awards, several of the executives held less than 1x their annual LTI grant in unvested LTI, which O&C Committee determined was not sufficiently retentive. After the 2021 LTI grants and one-time, enhanced LTI awards, the majority of the executives held between 2x and 2.5x their annual LTI grant, which the O&C Committee believed would support retention.
Due to continued uncertainty in the market, the O&C Committee granted the enhanced LTI award in the form of restricted stock units. To aid in retention, the awards were structured to vest one-third after 2 years and two-thirds after 3 years rather than the ratable, annual vesting that applies to RSU grants made under the annual LTI program. In the event of a voluntary termination of employment, any unvested RSUs are forfeited.
As RSU awards, the ultimate value Mr. Rowe and others receive under this grant is tied directly to our stock price performance. Absent the special RSU grant, Mr. Rowe’s total compensation for 2021 reported in the Summary Compensation Table, with a significant portion delivered via at-risk performance-based equity awards, would be on par with 2020 reported compensation.
Settlement of 2019 Performance Stock Units
The PSUs granted in 2019 for the 2019 to 2021 performance period were structured and paid out as follows:
| Performance Metric | Measurement |
50.0% | Return on Invested | Year-over-Year (YoY) ROIC improvement. Threshold, target and maximum payout levels for each year 2019, 2020, and 2021 were established at the beginning of 2019. Earned payout percentages for each year are averaged to determine the overall payout percentage for this metric. |
50.0% | rTSR | Attainment of 3-year TSR relative to a PPG the O&C Committee established at the beginning of 2019 (“2019 PPG”). |
2019-2021 ROIC Attainment and Payout %
Year | Performance Goal | Performance Achieved | Payout % in Accordance with Pre-established Payout Table | |
Absolute Attainment | % Attainment of Goal | |||
2019 | 12.2% | 12.9% | 106.0% | 200% |
2020 | 14.2% | 11.4% | 80.0% | 0% |
2021 | 12.4% | 9.7% | 78.2% | 0% |
3-Year Average ROIC Payout % | 66.7% |
As a result, the O&C Committee approved a payout of 66.7% of the 2019 PSUs granted tied to the ROIC performance metric.
Adjustments Made When Determining Performance Attainment
In determining ROIC performance achievement, the O&C Committee determined Net Operating Profit After Taxes by adjusting the following financial statement items consistent with the methodology for determining all adjusted financials, so that ROIC attainment reflects 2021 business results excluding the following one-time events:
Settlement gain on 2018 sale of business in FPD
2022 PROXY STATEMENT 49
Expenses related to realignment
Certain financing interest expense
Certain one-time tax expense
Relative 3-Year (2019-2021) TSR Attainment and Payout %
Flowserve’s 3-Year TSR Relative to 2019 PPG | Pre-established Payout Table for Flowserve Percentile Attainment | Payout % in Accordance with Pre-established Payout Table | ||
Lowest TSR | Maximum | 75th Percentile | 200.0% | 0% |
Target | 50th Percentile | 100.0% | ||
Threshold | 25th Percentile | 50.0% | ||
Interpolation is used to calculate the payout percentage for attainment that falls between payout levels shown above. | ||||
The calculation of TSR assumes the reinvestment of dividends over the 3-year performance period. |
As a result, the O&C Committee approved a distribution of 0% of the 2019 PSUs granted tied to the relative 3-year TSR performance metric.
U.S PEER COMPANIES | INTERNATIONAL PEER COMPANIES | |
CIRCOR International Colfax Corporation Crane Co. Dover Corporation
Ingersoll Rand
| ITT
SPX FLOW, Inc. Xylem Inc. | Ebara Corporation IMI PLC KSB Aktiengesellschaft Neles Rotork PLC Sulzer The Weir Group PLC
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Pay-for-Performance Alignment:
TSRPerformanceShareScore: For the 2018-2020Our alignment of pay and performance period, the Company’s TSR was (6.3)% representing the 26.9th percentileis one of the key components of our compensation philosophy. We are committed to a rigorous goal setting process, the careful selection of key performance peer group resulting inmetrics aligned with our strategy and the creation of shareholder value. As a 53.8% payout for this componentresult of the award.
ROICPerformanceScore: For the 2018-2020 performance period, ROIC targets were set as year-over-year (YoY) incremental ROIC improvement targets over the prior year’s actual ROIC as shown in the chart below. Actual ROIC in 2017 was 7.6%, thus setting the 2018 ROIC Target as 8.6% (+1.0% improvement).
Theour strong pay-for-performance culture, our final 2019 PSU payout was determined by calculatingas follows:
Aggregate Payout % for 2019 PSUs
Metric | Weighting | Payout Percentage | Weighted Payout |
Return on Invested Capital | 50.0% | 66.7% | 33.3% |
Relative 3-Year Total Shareholder Return | 50.0% | 0.0% | 0.0% |
Total Payout Percentage (Sum of Weighted Payouts for Each Metric) | 33.3% |
No discretionary adjustment was considered or made to the average of the payout over the three-year performance period, which resulted in a three-year average ROIC payout of 133.3% for this component of the award.
| Threshold 50% Payout | Target 100% Payout | Maximum 200% Payout | Result | Payout |
2018 YoY Improvement | 8.4% +0.8% | 8.6% +1.0% | 8.8% +1.2% | 10.7% | 200.0% |
2019 YoY Improvement | 11.5% +0.8% | 11.7% +1.0% | 11.9% +1.2% | 12.9% | 200.0% |
2020 YoY Improvement | 13.7% +0.8% | 13.9% +1.0% | 14.1% +1.2% | 11.4% | 0.0% |
| 3-Year average ROIC Payout | 133.3% |
formulaic payouts shown above.
20212022 PROXY STATEMENT 44 50
The following table illustrates the 2020 PSU Payout for each NEO(1):
NEO | Target PSUs |
| Payout Percentage |
| 2020 LTIP Payout(2) |
R. Scott Rowe | 65,990 | × | 93.6% | = | 61,767 |
John E. (Jay) Roueche, III | 3,910 | × | 93.6% | = | 3,660 |
Keith E. Gillespie | 11,640 | × | 93.6% | = | 10,895 |
Elizabeth L. Burger | 8,400 | × | 93.6% | = | 7,862 |
(1) Given their start dates with the Company, Ms. Minnix and Ms. Schwetz did not receive any PSUs that vested in 2020. (2) The number of shares reported in this column does not include dividend equivalent units that accrued during the performance period. |
In 2020, we provided special compensation awardsAdditional Attributes Related to certain executives in the following amounts:
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Other benefits provided to the Named Executive Officers are generally consistent with those provided to other employees of the Company, including health and retirement benefits. These elements of our compensation program are outlined in the chart below and discussed in more detail below:
2021 PROXY STATEMENT 45
Back to Contentsin the narrative following the chart.
Plan | Description | Eligible Employee | |
Retirement | Qualified Pension Plan | Tax-qualified pension plan | All salaried U.S. employees |
Senior Management
| Non-qualified, defined benefit | Executive Officers and | |
Supplemental Executive
| Non-qualified supplemental defined benefit plan | U.S. Executives | |
401(k) Plan | Tax-qualified | All U.S. Employees | |
Other | Executive Officer Severance Plan |
| Executive Officers |
Change in Control Severance Plan |
| Senior Executives including Executive Officers | |
Limited |
| Executive Officers |
We provide pension benefits to all U.S. salaried employees, including the NEOs, under the Flowserve Corporation Pension Plan (the “Qualified Plan”), which is a tax-qualified defined benefit pension plan. Because the IRC limits the pension benefits that can be accrued under a tax-qualified pension plan (based on an annual compensation limit), we also maintain a separate non-qualified defined benefit restoration pension plan, the Senior Management Retirement Plan (the “SMRP”). The SMRP compensates participants, including the Named Executive Officers, for the reduction in their pension benefit resulting from this IRC limitation.
The SMRP is designed to provide a comparable level of retirement benefits to those provided to other U.S. employees under the Qualified Plan based on a comparable benefit formula. In addition, we also maintain a second non-qualified supplemental defined benefit pension plan, the Supplemental Executive Retirement Plan (the “SERP”), for our eligible U.S. executives, including the Named Executive Officers, in order to remain competitive with general industry companies similar in size. These three programs are designed to provide eligible U.S. executives with income following retirement and to help ensure that we can attract and retain executive talent by providing comprehensive retirement benefits.
Participants in the Qualified Plan and the SMRP accrue contribution credits based on age and years of service at the rate of 3% to 7% for eligible earnings up to the Social Security wage base, and at the rate of 6% to 12% for eligible earnings in excess of the Social Security wage base. Participants in the SERP accrue contribution credits at the rate of 5% of all eligible earnings. Eligible earnings generally include base salary and annual incentive awards. SERP participants also earn interest on the accrued contributions based on the rate of return on 10-year Treasury bills.
2022 PROXY STATEMENT 51
We also maintain a savings plan that is tax-qualified under IRC 401(k) to enable all U.S. salaried employees, including the NEOs, to contribute a portion of their eligible compensation for wealth accumulation. The Company provides a 75% match on the first 6% of eligible compensation that an employee contributes to the plan.
Executive Officer Severance Plan
Each of the Named Executive Officers participates in the Company’s Amended and Restated Executive Officer Severance Plan (the “Officer Severance Plan”). Under this plan, the Company’s officers are provided benefits upon a termination as a result ofdue to a reduction in force or by the Company without cause. No benefits are payable under the Officer Severance Plan to any officer who receives benefits under the Company’s Change in Control Severance Plan (the “CIC Plan”). The Officer Severance Plan does not provide for any additional payments or benefits upon a termination of employment by the Company for cause, upon the executive’s resignation for any reason (including “good reason” or “constructive termination”) or upon the executive’s death or disability.
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Cash Payment | • 24 months’ base salary continuation • Payment equivalent to target AIP bonus, provided Company actually achieves threshold performance under the AIP for the year |
PSUs | • A pro-rated payout of the PSUs, if any, that have a performance cycle that would otherwise end in the year that contains the termination date based on the number of months the executive was employed during the performance period |
RSUs | • A cash payment in lieu of any RSUs that would otherwise vest within 90 calendar days following the termination date based on the Company’s average closing price over the twenty trading days in the month preceding the officer’s termination |
For purposes of the Officer Severance Plan and CIC Plan, the term “cause” generally means the covered executive’s:
willful and continued failure to perform basic job duties after written demand for substantial performance is delivered to the executive by the Board; or
willful engagement in conduct materially and demonstrably injurious to the Company, monetarily or otherwise.
Flowserve Corporation Executive Change in Control Severance Plan
Each of the Named Executive Officers participates in the Company’s Change in Control Plan (“CIC Plan”). Benefits under the CIC Plan are triggered if, within two years following a change in control the Named Executive Officer is terminated without cause (and not on account of death or disability), or resigns for reasons constituting a “constructive
2021 PROXY STATEMENT 46
termination.” Benefits are also triggered if a Named Executive Officer is terminated within the 90-day period immediately prior to a change in control if such termination (i) occurs after the initiation of discussions leading to such change in control and (ii) can be demonstrated to have occurred at the request or initiation of parties to such change in control. The severance benefits provided upon a termination of employment covered under the CIC Plan include:
2022 PROXY STATEMENT 52
| CEO | Other Participants |
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Cash Payment(1) | A lump sum payment equal to 3x the sum of the executive’s annual base salary and target annual incentive | A lump sum payment equal to a multiple of the executive’s annual base salary and target annual incentive as follows: • 2.5x for executive vice presidents(2); • 2.0x for senior vice presidents and presidents; and • 1.5x for vice presidents | ||
Long-Term Incentive Awards | Full vesting at target of each cash or stock-based long-term incentive award. Named Executive Officers have 90 days following the date of employment termination to exercise any vested stock options |
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Life, Medical, Health and Accident Benefits | Company provided coverage for the executive and his or her dependents for a number of months following termination equal to annual severance multiplier used to calculate the cash payment, multiplied by 12 months |
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Supplemental Pension Benefits | Supplemental retirement benefits equal to the difference between the amounts the executive would have been entitled to had he or she remained employed through the end of the benefits continuation period and the amounts actually received |
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(1) For purposes of this calculation, the base salary is the highest of: (i) the highest-annualized monthly base salary during the twelve months preceding the termination; (ii) the base salary in effect on the date of termination; and (iii) the base salary in effect on the date of the change in control. (2) The Company does not currently have any Executive Vice Presidents. |
For purposes of the CIC Plan, the term “constructive termination” generally means the occurrence of any one of the following events within two years after the effective date of a change in control without the express written consent of the covered executive:
a material reduction in the authority, duties or responsibilities held by the covered executive immediately prior to the change in control;
a material reduction of the covered executive’s base salary;
the relocation (without the covered executive’s consent) of the covered executive’s principal place of employment by more than 35 miles from its location immediately prior to a change in control; or
any other material failure of the Company to honor all the terms and provisions of the CIC Plan or any agreement with the covered executive.
Participation in the CIC Plan is contingent upon the covered executive executing a confidentiality and non-competition agreement at the time the executive is notified that he or she has been chosen to participate in the CIC Plan and a release in favor of the Company at the time of separation from service. The CIC Plan also includes a “best-after-tax” 280G provision, which provides that each executive will receive either (1) all payments and benefits otherwise due in
2021 PROXY STATEMENT 47
connection with the change in control or (2) $1.00 less than the amount that would trigger the excise tax under Section 4999 of the Internal Revenue Code, whichever results in the largest after tax amount to the executive.
The Company’s supplemental pension and incentive plans for senior management contain provisions that serve to implement the provisions of the CIC Plan. Our Qualified Plan (as defined below) also confers competitive post-employment benefits to all participating employees, including to executives, upon a change in control.
Consistent with its philosophy, the Company generally does not enter into employment agreements with its Named Executive Officers, who are considered to serve at the will of the Company. No current Named Executive Officer has an employment agreement.
Restrictive Covenant Agreements
To protect the Company’s competitive position, each executive is required to sign an agreement with the Company that requires the executive to forfeit the proceeds from a portion of the executive’s long-term incentive awards if the executive engages in conduct that is detrimental to the Company. Detrimental conduct includes working for certain competitors, soliciting customers or employees after employment ends and disclosing confidential information in a manner that may result in competitive harm to the Company.
RetirementLimited Personal Benefits (Pension, 401k, SERP and SMRP and End of Service)
We provide pension benefits to all U.S. salaried employees, including the Named Executive Officers, under the Flowserve Corporation Pension Plan (the “Qualified Plan”), which is a tax-qualified defined benefit pension plan. Because the Internal Revenue Code (the “Code”) limits the pension benefits that can be accrued under a tax-qualified pension plan (based on an annual compensation limit), we also maintain a separate non-qualified defined benefit restoration pension plan, the Senior Management Retirement Plan (the “SMRP”). The SMRP compensates participants, including the Named Executive Officers, for the reduction in their pension benefit resulting from this Code limitation. The SMRP is designed to provide a comparable level of retirement benefits to those provided to other U.S. employees under the Qualified Plan based on a comparable benefit formula. In addition, we also maintain a second non-qualified supplemental defined benefit pension plan, the Supplemental Executive Retirement Plan (the “SERP”), for our eligible U.S. executives, including the Named Executive Officers, in order to remain competitive with general industry companies similar in size. These three programs are designed to provide eligible U.S. executives with income following retirement and to help ensure that we are able to attract and retain executive talent by providing comprehensive retirement benefits.
Participants in the Qualified Plan and the SMRP accrue contribution credits based on age and years of service at the rate of 3% to 7% for eligible earnings up to the Social Security wage base, and at the rate of 6% to 12% for eligible earnings in excess of the Social Security wage base. Participants in the SERP accrue contribution credits at the rate of 5% of all eligible earnings. Eligible earnings generally include base salary and annual incentive awards. SERP participants also earn interest on the accrued contributions based on the rate of return on 10-year Treasury bills.
The Company’s long-term incentive program allows RSUs and PSUs to continue to vest over the original vesting period for employees who retire at a minimum age of 55 years with 10 years of continuous service with the Company. The O&C Committee believes that this encourages the participants to continue to focus on the Company’s performance as they approach and through retirement.
The O&C Committee strives to make our executive compensation program primarily performance-based and, as such, doesonly provides limited benefits to Executive Officers that are not provide perquisites for our executive officers,provided to other thanemployees. These benefits are prevalent in the following:marketplace and increase the overall effectiveness of the Executive Officers in the performance of their roles:
ExecutivePhysicals. All Named Executive Officers were eligible toPhysical – other employees receive an annuala standard physical examination. The O&C Committee believes this is a competitive benefit within the market and contributes to executive effectiveness.
2021 PROXY STATEMENT 48
EnhancedVacation. All Named Executive Officers are eligible to receive an enhanced vacation benefit. Each officer is eligible for a minimum of four weeks’ vacation and may receive additional vacation, if the officer’s years of service so qualify under the Company’s regular employee vacation award schedule.
RelocationBenefits. All Named Executive Officers are eligibleEnhanced Vacation – a minimum of 4 weeks
Financial Counseling – a dedicated financial counselor compared to receive standard, market competitive relocation benefits pursuant to the Company’s executive relocation policy. These benefits include travel costs, home finding trip, broker assistance, home sale and buyout assistance, new residence assistance, reimbursementa financial wellness benefit for transportation, moving expenses and other relocation expenses.employees (same service provider for both employee populations)
The aggregate incremental cost of these benefits to the Named Executive Officers is included in the “Summary Compensation Table” under the “All Other Compensation” column and related footnotes.
To further align executive and shareholder interests, each of our Named Executive Officers are required to own a minimum amount of Company common stock equal in value to a specified multiple of their annual base salary.
| Ownership Requirement |
ChiefExecutiveOfficer | 5 x Annual Base Salary |
PresidentsandSeniorVicePresidents | 3 x Annual Base Salary |
VicePresidents | 1 x Annual Base Salary |
Our guidelines are administered as follows:
2022 PROXY STATEMENT 53
Shares held directly by an executive or shares held in the Flowserve Corporation Non-Qualified Deferred Compensation Plan and unvested RSUs count toward satisfying the stock ownership requirements. Unvested PSUs do not count toward satisfying the stock ownership requirements.
The required stock ownership levels are expected to be achieved within five years from the date the guidelines were first applicable or within five years of the executive joining the Company.
Executives who do not meet the ownership requirement must show that they have retained at least 60% of the net shares received from vested RSUs and PSUs from the time the ownership guidelines became applicable.
As of December 31, 2020,2021, all Named Executive Officers met their stock ownership requirements under these tests.
Anti-Hedging and Pledging Policies
Under the Company’s Insider Trading Policy all directors and employees (including the Named Executive Officers) are prohibited from pledging stock and engaging in any transactions (such as trading in options) that hedge or offset, or are designed to hedge or offset, any decrease in the market value of the Company’s common stock.
Our Clawback and Forfeiture Policy (the “Clawback Policy”) reinforces our commitment to integrity and the highest standards of ethical conduct through our compensation program. Under the Clawback Policy, the O&C Committee has the ability to recoup previously paid and/or cancel outstanding incentive compensation from any current or former executive officer,Executive Officer, or any other designated officer of the Company, if:
(1) the committeeO&C Committee determines that a financial metric used to determine the amount, vesting or payment of the incentive compensation was calculated incorrectly, regardless of whether due to fraud or intentional misconduct or whether such error requires a financial restatement; or
(2) the covered officer engages in egregious conduct, which generally includes among other things conduct that constitutes “cause” for termination under applicable Company plans or agreements or a material breach of a written Company policy (including our Code of Conduct) and certain other egregious misconduct..
With respect to incorrect calculations, the Company may cancel any outstanding incentive compensation and recoup incentive compensation received by the executive during the three-year period preceding the date the Company discovers the error or is required to prepare an accounting restatement. With respect to egregious conduct, the
2021 PROXY STATEMENT 49
Company may cancel any outstanding incentive compensation and recoup incentive compensation received by the executive during the one-year period preceding the date the Company discovers the conduct.
The Company may cancel any outstanding incentive compensation and recoup incentive compensation received by the executive during the one-year period preceding the date the Company discovers the conduct.
Section 162(m) of the Code limits to $1.0 million per year the U.S. federal income tax deduction available to public corporations for compensation paid for any fiscal year to certain covered employees, including to the Company’s CEO, CFO, and the three other most highly-compensated executive officersExecutive Officers as of the end of the fiscal year.
The O&C Committee retains discretion to establish executive compensation arrangements that it believes are consistent with its principles described earlier and in the best interests of the Company and our shareholders, even if those arrangements are not fully deductible under Section 162(m).
The Company recognizes compensation expense in our financial statements for all equity-based awards pursuant to the principles set forth in FASB ASC 718, “Compensation—Stock Compensation”. The O&C Committee considered the GAAP accounting implications of the awards in setting the long-term incentive mix and further determined that the mix of RSUs and PSUs was appropriate for 2020.2021.
2022 PROXY STATEMENT 54
The O&C Committee regularly monitors and annually reviews our executive compensation program to determine, in consultation with its compensation consultant, whether the elements of the program are consistent with our executive compensation objectives and principles. As part of this, the O&C Committee evaluates whether the Company’s risk management objectives are being met with respect to the executive compensation program and our compensation programs as a whole. If the elements of the program are determined to be inconsistent with our objectives and principles, or if any incentives are determined to encourage risks that are reasonably likely to have a material adverse effect on us, the elements are adjusted as necessary.
Following theThe O&C Committee’s annual review in 2020, the O&C Committee has concluded that no risks arising from our compensation policies and practices are reasonably likely to have a material adverse effect on the Company. In reaching this conclusion, the O&C Committee considered the following:
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Emphasis on long-term, equity-based compensation subject to our rigorous |
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Long vesting requirements: •
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Robust stock ownership guidelines |
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Independent compensation consultant used by O&C Committee |
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2021 PROXY STATEMENT 50
Organization and Compensation Committee Report
The Organization and Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis set forth above in this proxy statement with management. Based on this review and discussion, the Organization and Compensation Committee recommended to the Board of Directors that this Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended December 31, 2020.2021.
David E. Roberts,John L. Garrison, ChairmanRuby R. ChandyRoger L. Fix
Gayla J. DellyJohn L. Garrison
Michael C. McMurray
20212022 PROXY STATEMENT 51 55
The following table sets forth compensation information for 2021, 2020 2019 and 20182019 for our Named Executive Officers. Ms. Schwetz was first a Named Executive Officer for 2020 and Ms. Morytko was first a Named Executive Officer for 2021.
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($)(3) | Option Awards ($) | Non-Equity Incentive Plan Compen- sation ($)(4) | Change in Pension Value and Non-Qualified Deferred Compensation Earnings ($)(5) | All Other Compen- sation ($)(6) | Total ($) | ||
R. Scott Rowe President and Chief Executive Officer | 2020 | 1,133,000 | — |
| 5,981,225 | (10) | — | 894,260 | 305,060 | 18,909 | 8,332,454 |
2019 | 1,133,000 | — |
| 6,188,041 |
| — | 1,018,340 | 323,757 | 18,728 | 8,681,868 | |
2018 | 1,126,654 | — |
| 5,944,049 |
| — | 1,250,832 | 227,180 | 153,754 | 8,702,469 | |
Amy B. Schwetz(1) VP and Chief | 2020 | 562,500 | 750,000 | (7) | 2,342,754 | (11) | — | 279,471 | 68,663 | 100,042 | 4,103,430 |
John E. (Jay) Roueche, III(2) Vice President, Treasurer | 2020 | 343,757 | 50,000 | (8) | 416,743 | (12) | — | 113,051 | 80,798 | 13,319 | 1,017,668 |
2019 | 341,898 | — |
| 386,825 |
| — | 128,737 | 81,572 | 14,861 | 953,892 | |
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Lanesha T. Minnix Senior Vice President, | 2020 | 463,785 | 350,000 | (9) | 675,794 | (13) | — | 224,453 | 91,531 | 12,872 | 1,818,434 |
Keith E. Gillespie Senior VP and | 2020 | 485,000 | — |
| 624,343 | (14) | — | 166,625 | 122,721 | 18,803 | 1,417,492 |
2019 | 485,000 | — |
| 691,654 |
| — | 265,125 | 139,255 | 14,250 | 1,595,285 | |
2018 | 485,000 | — |
| 1,077,752 |
| — | 406,042 | 84,258 | 44,976 | 2,098,028 | |
Elizabeth L. Burger Senior VP and Chief Human Resources Officer | 2020 | 478,950 | — |
| 779,687 | (15) | — | 204,765 | 93,540 | 14,517 | 1,571,459 |
2019 | 475,731 | — |
| 806,447 |
| — | 233,177 | 85,352 | 85,065 | 1,685,772 | |
2018 | 330,865 | 100,000 |
| 935,972 |
| — | 198,077 | 38,347 | 65,371 | 1,668,632 | |
(1) Ms. Schwetz commenced employment with Flowserve on February 17, 2020 and assumed the position of Chief Financial Officer effective February 24, 2020. (2) Mr. Roueche was appointed as Interim Chief Financial Officer from December 3, 2019 through February 23, 2020, following which he returned to his former position as Vice President, Treasurer and Investor Relations. (3) Represents the grant date fair value of long-term equity incentive awards under the Company’s long-term incentive program computed in accordance with FASB ASC 718 “Compensation—Stock Compensation”, excluding the impact of forfeitures. The incentive awards are granted in the form of restricted stock units, which generally vest ratably over a three-year period, and contingent performance share units. The performance criteria for these awards are described in further detail under “—Elements of the Executive Compensation Program—Long-Term Incentives—Contingent Performance Share Units” above. The reported value of the contingent performance awards is computed based on the grant date estimate of compensation cost to be recognized over the three-year period, which was 100%, or “target”. Payout for the contingent performance awards can range from 0 shares to a maximum of 200% of target. Assumptions used in the valuations are discussed in Note 8 to the Company’s audited consolidated financial statements for the year ended December 31, 2020 in the Annual Report. (4) The amounts in this column represent an annual cash incentive bonus under the Company’s Annual Incentive Plan for the applicable year. (5) There were no above-market or preferential earnings with respect to any deferred compensation balances. |
2021 PROXY STATEMENT 52
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Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($)(1) | Option Awards ($) | Non-Equity Incentive Plan Compen- sation ($)(2) | Change in Pension Value and Non-Qualified Deferred Compensation Earnings ($)(3) | All Other Compen- sation ($)(4) | Total ($) | ||
R. Scott Rowe President and Chief Executive Officer | 2021 | 1,133,000 | — |
| 10,007,824 | (5) | — | 1,016,981 | 300,060 | 20,240 | 12,478,105 |
2020 | 1,133,000 | — |
| 5,981,225 |
| — | 894,260 | 305,060 | 18,909 | 8,332,454 | |
2019 | 1,133,000 | — |
| 6,188,041 |
| — | 1,018,340 | 323,757 | 18,728 | 8,681,868 | |
Amy B. Schwetz VP and Chief | 2021 | 664,250 |
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| 2,427,731 | (6) | — | 375,590 | 121,896 | 26,524 | 3,615,991 |
2020 | 562,500 | 750,000 |
| 2,342,754 |
| — | 279,471 | 68,663 | 100,042 | 4,103,430 | |
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Elizabeth L. Burger Senior VP and Chief Human Resources Officer | 2021 | 489,450 | — |
| 1,264,048 | (7) | — | 239,852 | 94,529 | 14,680 | 2,102,559 |
2020 | 478,950 | — |
| 779,687 |
| — | 204,765 | 93,540 | 14,517 | 1,571,459 | |
2019 | 475,731 | — |
| 806,447 |
| — | 233,177 | 85,352 | 85,065 | 1,685,772 | |
Keith E. Gillespie Senior VP and | 2021 | 492,088 | — |
| 949,469 | (8) | — | 417,700 | 113,128 | 16,219 | 1,988,604 |
2020 | 485,000 | — |
| 624,343 |
| — | 166,625 | 122,721 | 18,803 | 1,417,492 | |
2019 | 485,000 | — |
| 691,654 |
| — | 265,125 | 139,255 | 14,250 | 1,595,284 | |
Tamara M. Morytko President, | 2021 | 525,577 | — |
| 1,004,284 | (9) | — | 347,402 | 72,551 | 26,279 | 1,976,093 |
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(1) Represents the grant date fair value of long-term equity incentive awards under the Company’s long-term incentive program computed in accordance with FASB ASC 718 “Compensation—Stock Compensation”, excluding the impact of forfeitures. Stock awards include the annual incentive awards granted in the form of restricted stock units that generally vest ratably over a three-year period and contingent performance share units. Stock awards also include the 2021 enhanced LTI awards discussed above under the caption “2021 Executive Compensation Oucomes—Long Term Incentives—One-Time, Enhanced LTI Awards”, which vest one-third after 2 years and two-thirds after 3 years. The performance criteria for the performance share units are described in further detail under the caption “2021 Executive Compensation Outcomes—Long-Term Incentives” above. The reported value of the performance share units is computed based on the grant date estimate of compensation cost to be recognized over the three-year period, which was 100%, or “target”. Payout for the contingent performance awards can range from 0 shares to a maximum of 230% of target. Assumptions used in the valuations are discussed in Note 8 to the Company’s audited consolidated financial statements for the year ended December 31, 2021 in the Annual Report. (2) The amounts in this column represent an annual cash incentive bonus under the Company’s Annual Incentive Plan for the applicable year. (3) There were no above-market or preferential earnings with respect to any deferred compensation balances. (4) This column excludes the employer-paid portion of certain health and welfare benefits received by Named Executive Officers that are available generally to all salaried U.S. employees, which includes medical, dental, vision and prescription insurance, and short-term and long-term disability insurance. The following table shows the components of this column for the Named Executive Officers for 2021, calculated at the aggregate incremental cost to the Company: |
Name | Defined Contribution Retirement Plan Contributions | Insurance Premiums(A) | Other | Total | Defined Retirement Plan Contributions ($) | Insurance Premiums(A) ($) | Other ($) |
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R. Scott Rowe | $12,825 | $2,355 | $ 3,729 | (B) | $ 18,909 |
| 13,050 |
| $ 3,402 |
| $ 3,788 | (B) |
| $ 20,240 |
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Amy B. Schwetz | 12,375 | 1,361 | 86,306 | (C) | 100,042 |
| 13,050 |
| 1,474 |
| 12,000 | (C) |
| 26,524 |
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John E. (Jay) Roueche, III | 12,104 | 1,215 | — | 13,319 | |||||||||||
Lanesha T. Minnix | 11,798 | 1,074 | — | 12,872 | |||||||||||
Elizabeth L. Burger |
| 13,050 |
| 1,630 |
| — |
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| 14,680 |
| |||||
Keith E. Gillespie | 12,825 | 3,291 | 2,687 | (D) | 18,803 |
| 13,050 |
| 3,169 |
| — |
|
| 16,219 |
|
Elizabeth L. Burger | 12,825 | 1,692 |
|
| 14,517 | ||||||||||
Tamara M. Morytko |
| 13,050 |
| 1,701 |
| 11,528 | (C) |
| 26,279 |
|
(A)
(B) Reflects amounts attributable to an annual physical exam. (C)
Reflects amounts attributable to |
2022 PROXY STATEMENT 56
Calculated using a price per share of Calculated using a price per share of Calculated using a price per share of |
Calculated using a price per share of |
Calculated using a price per share of
|
20212022 PROXY STATEMENT 53 57
The following table sets forth certain information with respect to 20202021 plan-based awards granted to the Named Executive Officers for the year ended December 31, 2020.2021.
Name | Grant Date | Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) | Estimated Future Payouts Under Equity Incentive Plan Awards(2) | All Other Stock Awards: Number of Shares of Stock or Units (#) | Grant Date Fair Value of Stock and Option Awards ($)(3) | ||||||
Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) |
Maximum (#) | ||||||
R. Scott Rowe |
| 679,800 | 1,359,600 | 2,719,200 | — | — | — | — |
| — |
|
2/20/2020 | — | — | — | 15,113 | 30,225 | 60,450 | — |
| 1,400,929 | (5) | |
2/20/2020 | — | — | — | 15,113 | 30,225 | 60,450 |
|
| 1,778,439 | (5) | |
2/20/2020 | — | — | — | — | — | — | 60,450 | (4) | 2,801,858 |
| |
Amy B. Schwetz |
| 212,449 | 424,898 | 849,796 | — | — | — | — |
| — |
|
2/20/2020 | — | — | — | 4,073 | 8,145 | 16,290 | — |
| 377,521 | (5) | |
2/20/2020 | — | — | — | 4,073 | 8,145 | 16,290 | — |
| 479,252 | (5) | |
2/20/2020 | — | — | — | — | — | — | 32,060 | (4) | 1,485,981 |
| |
John E. (Jay) Roueche |
| 85,940 | 171,879 | 343,758 | — | — | — | — |
| — |
|
2/20/2020 |
|
|
| 930 | 1,860 | 3,720 |
|
| 86,211 | (5) | |
2/20/2020 |
|
|
| 930 | 1,860 | 3,720 |
|
| 109,442 | (5) | |
2/20/2020 |
|
|
|
|
|
| 4,770 | (4) | 221,090 |
| |
Lanesha T. Minnix |
| 170,625 | 341,250 | 682,500 | — | — | — | — |
| — |
|
2/20/2020 | — | — | — | 1,708 | 3,415 | 6,830 | — |
| 158,285 | (5) | |
2/20/2020 | — | — | — | 1,708 | 3,415 | 6,830 | — |
| 200,939 | (5) | |
2/20/2020 | — | — | — | — | — | — | 6,830 | (4) | 316,571 |
| |
Keith E. Gillespie |
| 157,625 | 315,250 | 630,500 | — | — | — | — |
| — |
|
2/20/2020 | — | — | — | 1,578 | 3,155 | 6,310 | — |
| 146,234 | (5) | |
2/20/2020 | — | — | — | 1,578 | 3,155 | 6,310 | — |
| 185,640 | (5) | |
2/20/2020 | — | — | — | — | — | — | 6,310 | (4) | 292,469 |
| |
Elizabeth L. Burger |
| 155,659 | 311,318 | 622,635 | — | — | — | — |
|
|
|
2/20/2020 | — | — | — | 1,970 | 3,940 | 7,880 | — |
| 182,619 | (5) | |
2/20/2020 | — | — | — | 1,970 | 3,940 | 7,880 | — |
| 231,830 | (5) | |
2/20/2020 | — | — | — | — | — | — | 7,880 | (4) | 365,238 |
|
Name | Grant Date | Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) | Estimated Future Payouts Under Equity Incentive Plan Awards(2) | All Other Stock Awards: Number of Shares of Stock or Units (#) | Grant Date Fair Value of Stock and Option Awards ($)(3) | ||||||
Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | ||||||
R. Scott Rowe |
| 679,800 | 1,359,600 | 2,719,200 | — | — | — | — |
| — |
|
2/16/2021 | — | — | — | 36,500 | 73,000 | 167,900 | — |
| 2,987,160 | (4) | |
2/16/2021 | — | — | — | — | — | — | 106,190 | (5) | 4,160,524 |
| |
| 2/16/2021 | — | — | — | — | — | — | 73,000 | (6) | 2,860,140 |
|
Amy B. Schwetz |
| 251,063 | 502,125 | 1,004,250 | — | — | — | — |
| — |
|
2/16/2021 | — | — | — | 10,285 | 20,570 | 47,311 |
|
| 841,724 | (4) | |
2/16/2021 | — | — | — | — | — | — | 19,910 | (5) | 780,074 |
| |
| 2/16/2021 | — | — | — | — | — | — | 20,570 | (6) | 805,932 |
|
Elizabeth L. Burger |
| 160,329 | 320,657 | 641,315 | — | — | — | — |
| — |
|
2/16/2021 | — | — | — | 4,645 | 9,290 | 21,367 | — |
| 380,147 | (4) | |
2/16/2021 | — | — | — | — | — | — | 13,270 | (5) | 519,919 |
| |
| 2/16/2021 | — | — | — | — | — | — | 9,290 | (6) | 363,982 |
|
Keith E. Gillespie |
| 160,778 | 321,555 | 643,110 | — | — | — | — |
| — |
|
2/16/2021 | — | — | — | 3,980 | 7,960 | 18,308 | — |
| 325,723 | (4) | |
2/16/2021 | — | — | — | — | — | — | 7,960 | (5) | 311,873 |
| |
| 2/16/2021 | — | — | — | — | — | — | 7,960 | (6) | 311,873 |
|
Tamara M. Morytko |
| 173,875 | 347,750 | 695,500 | — | — | — | — |
| — |
|
2/16/2021 | — | — | — | 4,645 | 9,290 | 21,367 | — |
| 380,147 | (4) | |
2/16/2021 | — | — | — | — | — | — | 6,640 | (5) | 260,155 |
| |
| 2/16/2021 | — | — | — | — | — | — | 9,290 | (6) | 363,982 |
|
2021 PROXY STATEMENT 54
(1) Under the Annual Incentive Plan, the primary performance measures are internally defined metrics set by the O&C Committee. In February (2) The number of shares listed represents long-term equity incentive awards in the form of PSUs under the Company’s long-term incentive program. The performance criteria for these awards are discussed in “Elements of the Executive Compensation (3) These amounts represent the fair value, as determined under FASB ASC Topic 718, of the stock awards based on the grant date fair value estimated by the Company for financial reporting purposes. (4)
Represents the fair value on the date of grant, as described in footnote (2), of the “target” award for the contingent performance share units. During the performance period, as described in footnote (1), earned and unearned compensation expense is adjusted based on changes in the expected achievement of the performance targets. As of December 31, (5) The amounts shown reflect the number of RSUs granted to each Named Executive Officer as a special, one-time, enhanced grant as discussed above under the heading “Compensation Discussion & Analysis—2021 Executive Compensation Outcomes—Long Term Incentives—Special, One-Time, Enhanced LTI Awards”. (6) The amounts shown reflect the number of annual RSUs granted to each Named Executive Officer under the Company’s long-term incentive plan. |
20212022 PROXY STATEMENT 55 58
The following table sets forth certain information with respect to outstanding equity awards held as of December 31, 2020 with respect to2021, by the Named Executive Officers.
Name | Option Awards | Stock Awards | Option Awards | Stock Awards | ||||||||||||||||
Number of Securities Underlying Unexercised Options (#) Exercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock that Have Not Vested (#) | Market Value of Shares or Units of Stock that Have Not Vested(1) ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights that Have Not Vested(1) ($) | Number of Securities Underlying Unexercised Options (#) Exercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock that Have Not Vested (#) | Market Value of Shares or Units of Stock that Have Not Vested(1) ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights that Have Not Vested(1) ($) | |||||||
R. Scott Rowe | 114,943 | (2) | 48.63 | 5/4/2027 | 131,395 | (3) | 4,841,903 | — |
| — | 114,943 | (2) | 48.63 | 5/4/2027 | 247,368 | (3) | 7,569,464 | — |
| — |
— |
| — | — | — |
| — | 70,190 | (4) | 5,172,997 | — |
| — | — | — |
| — | 69,748 | (4) | 2,134,290 | |
— |
| — | — | — |
| — | 68,674 | (5) | 5,061,259 | — |
| — | — | — |
| — | 63,190 | (5) | 1,933,600 | |
— |
| — | — | — |
| — | 62,216 | (6) | 4,585,343 | — |
| — | — | — |
| — | 170,526 | (6) | 5,218,107 | |
Amy B. Schwetz | — |
| — | — | 32,997 | (7) | 1,215,931 | — |
| — | — |
| — | — | 63,455 | (7) | 1,941,726 | — |
| — |
— |
| — | — | — |
| — | 16,766 | (6) | 1,235,653 | — |
| — | — | — |
| — | 17,028 | (5) | 521,064 | |
John E. (Jay) Roueche | — |
| — | — | 9,091 | (8) | 334,987 | — |
| — | ||||||||||
— |
| — | — | — |
| — | 4,159 | (4) | 306,507 | |||||||||||
— |
| — | — | — |
| — | 4,193 | (5) | 309,008 | |||||||||||
— |
| — | — | — |
| — | 3,829 | (6) | 282,174 | |||||||||||
Lanesha T. Minnix | — |
| — | — | 14,852 | (9) | 547,291 | — |
| — | ||||||||||
— |
| — | — | — |
| — | 7,497 | (5) | 552,517 | |||||||||||
— |
| — | — | — |
| — | 7,030 | (6) | 518,080 | |||||||||||
Amy B. Schwetz | — |
| — | — | — |
| — | 48,051 | (6) | 1,470,362 | ||||||||||
— |
| — | — | 31,363 | (8) | 959,697 | — |
| — | |||||||||||
|
|
|
|
|
| 8,878 | (4) | 271,660 | ||||||||||||
Elizabeth L. Burger | — |
| — | — | — |
| — | 8,237 | (5) | 252,056 | ||||||||||
— |
| — | �� — | — |
| — | 21,700 | (6) | 664,058 | |||||||||||
— |
| — | — | 15,619 | (10) | 575,560 | — |
| — | — |
| — | — | 23,104 | (9) | 706,985 | — |
| — | |
— |
| — | — | — |
| — | 12,381 | (4) | 912,466 | — |
| — | — | — |
| — | 7,614 | (4) | 232,991 | |
Keith E. Gillespie | — |
| — | — | — |
| — | 7,497 | (5) | 552,517 | — |
| — | — | — |
| — | 6,596 | (5) | 201,836 |
— |
| — | — | — |
| — | 6,494 | (6) | 478,634 | — |
| — | — | — |
| — | 18,595 | (6) | 568,989 | |
— |
| — | — | 17,609 | (11) | 648,895 | — |
| — | |||||||||||
— |
| — | — | — |
| — | 8,896 | (4) | 655,607 | |||||||||||
Elizabeth L. Burger | — |
| — | — | — |
| — | 8,741 | (5) | 644,216 | ||||||||||
— |
| — | — | — |
| — | 8,110 | (6) | 597,726 | |||||||||||
(1) Calculated using a price per share of $36.85 the closing market price of the Company’s common stock as reported by the NYSE on December 31, 2020, the end of the Company’s last completed fiscal year. The restricted share unit and contingent performance share unit amounts include regularly declared dividends accrued on the “target” award, which will vest only to the same extent as the underlying award, if at all. Concerning all contingent performance awards, the amounts of units used in calculating the payout values assumes the maximum level of performance target achievement, which would result in the target unit amounts presented in the table vesting at 200%. (2) All stock options vest on April 1, 2020. (3) 20,739 RSUs vested on February 20, 2021, 22,891 RSUs vested on February 28, 2021; and 23,397 RSUs vested on March 1, 2021, in each case including accrued dividend equivalents. Mr. Rowe’s remaining RSUs vest as follows: 20,739 shares of RSUs on February 20, 2022; 22,891 RSUs on February 28, 2022; and 20,738 RSUs on February 20, 2023. (4) These shares represent long-term equity incentive awards in the form of contingent performance share units under the Company’s long-term incentive program, plus accrued dividend equivalents. The targets set for the 2018 plan are based on: 1) ROIC improvement goals which closely correlate to the compounded annual share price growth rate of the S&P Industrial Machinery Index over a 10-year period and 2) relative TSR compared to that of the PPG for the same period. Payouts can range from 0 shares to a maximum of 200% of the target. As of December 31, 2020, the Company estimated vesting of 133% and 54%, respectively, and therefore expensed the awards at the same percentage of the target shares presented for the ROIC award and 100% for TSR award, respectively, based on achievement of performance target and US GAAP. (5) These shares represent long-term equity incentive awards in the form of contingent performance share units under the Company’s long-term incentive program, plus accrued dividend equivalents. The targets set for the 2019 plan are based on: 1) ROIC improvement goals compared to the Company’s long-term ROIC targets and 2) relative TSR compared to that of the PPG for the same period. Payouts can range from 0 shares to a maximum of 200% of the target. As of December 31, 2020, the Company estimated vesting of 100% and therefore expensed, these awards at 100% of the target shares presented based on expected achievement of performance target. | ||||||||||||||||||||
— |
| — | — | 16,179 | (10) | 495,083 | — |
| — | |||||||||||
Tamara M. Morytko | — |
| — | — | — |
| — | 21,700 | (6) | 664,058 |
2021 PROXY STATEMENT 56
Calculated using a price per share of $30.60 the closing market price of the Company’s common stock as reported by the NYSE on December 31, 2021, the end of the Company’s last completed fiscal year. The RSU and contingent performance share unit amounts include regularly declared dividends accrued on the “target” award, which will vest only to the same extent as the underlying award, if at all. Concerning all contingent performance awards, the amounts of units used in calculating the payout values assumes the maximum level of performance target achievement, which would result in the target unit amounts presented in the table vesting at 230%. (2) All stock options vested on April 1, 2020. (3) 24,714 RSUs vested on February 16, 2022, 21,063 RSUs vested on February 20, 2022; and 23,249 RSUs vested on February 28, 2022, in each case including accrued dividend equivalents. Mr. Rowe’s remaining RSUs vest as follows: 60,664 shares of RSUs on February 16, 2023; 21,063 RSUs on February 20, 2023; and 96,615 RSUs on February 16, 2024. (4) These represent contingent performance share units under the Company’s long-term incentive program, plus accrued dividend equivalents. The targets set for the 2019 plan are based on: 1) ROIC improvement goals compared to the Company’s long-term ROIC targets and 2) TSR compared to that of the PPG for the same period. Payouts can range from 0 shares (5) These represent contingent performance share units under the Company’s long-term incentive program, plus accrued dividend equivalents. The targets set for the 2020 plan are based on: 1) ROIC improvement goals compared to the Company’s long-term ROIC targets and 2) |
2022 PROXY STATEMENT 59
(6) These represent contingent performance share units under the Company’s long-term incentive program, plus accrued dividend equivalents. The targets set for the 2021 plan are based on: 1) ROIC improvement goals compared to the Company’s long-term ROIC targets and 2) Free Cash Flow as a percent of net income, including a secondary measure of relative TSR which can increase or decrease the award 15% compared to that of the PPG for the same period. Payouts can range from 0 shares to a maximum of 230% of the target. As of December 31, 2021, the Company estimated vesting of 121.5% for this award including a negative 15% relative TSR award and therefore expensed these awards at the percentage presented based on expected achievement of performance targets. In accordance with SEC requirements, these contingent performance share units are shown at maximum in this table. (7)
(8)
(9) 2,695 RSUs vested on February
|
The following table sets forth certain information with respect to restricted stock unit vesting during the fiscal year ended December 31, 20202021, with respect to the Named Executive Officers. No Named Executive Officers exercised any stock options during 2020.2021.
Name | Stock Awards | Stock Awards | ||
Number of Shares Acquired on Vesting (#)(1) | Value Realized on Vesting ($) | Number of Shares Acquired on Vesting (#)(1) | Value Realized on Vesting ($) | |
R. Scott Rowe | 79,995 | 2,615,757 | 132,691 | 5,125,608 |
Amy B. Schwetz | — | — | 10,999 | 431,601 |
John E. (Jay) Roueche, III | 8,532 | 296,357 | ||
Lanesha T. Minnix | 5,197 | 172,878 | ||
Elizabeth L. Burger | 17,616 | 678,135 | ||
Keith E. Gillespie | 12,544 | 481,151 | 20,374 | 783,939 |
Elizabeth L. Burger | 6,404 | 246,173 | ||
(1) The number of shares reported includes shares that were surrendered during the fiscal year ended December 31, 2020 to pay for taxes upon the vesting of restricted stock units and performance share units. | ||||
Tamara M. Morytko | — | |||
(1) The number of shares reported includes shares that were surrendered during the fiscal year ended December 31, 2021, to pay for taxes upon the vesting of restricted stock units and performance share units. | (1) The number of shares reported includes shares that were surrendered during the fiscal year ended December 31, 2021, to pay for taxes upon the vesting of restricted stock units and performance share units. |
20212022 PROXY STATEMENT 57 60
The following table sets forth certain information as of December 31, 20202021, with respect to potential payments under our pension plans for each Named Executive Officer. Please refer to “—Elements of the Executive Compensation Program—Additional Attributes Related to Executive Compensation—Retirement Benefits (Pension, 401k, SERP and SMRP and End of Service)”Benefits” above for a narrative description of the material factors necessary to an understanding of our pension plans.
Name | Plan Name | Number of Years Credited Service (#) | Present Value of Accumulated Benefit ($) | Payments During Last Fiscal Year ($) | Plan Name | Number of Years Credited Service (#) | Present Value of Accumulated Benefit ($) | Payments During Last Fiscal Year ($) |
R. Scott Rowe | Qualified—Cash Balance(1) | 3.8 | 73,903 | — | Qualified—Cash Balance(1) | 4.8 | 94,797 | — |
Non-Qualified—SMRP | 3.8 | 507,737 | — | Non-Qualified—SMRP | 4.8 | 668,886 | — | |
Non-Qualified—SERP | 3.8 | 377,873 | — | Non-Qualified—SERP | 4.8 | 495,891 | — | |
Amy B. Schwetz | Qualified—Cash Balance(1) | 0.8 | 17,692 | — | Qualified—Cash Balance(1) | 1.8 | 36,339 | — |
Non-Qualified—SMRP | 0.8 | 22,383 | — | Non-Qualified—SMRP | 1.8 | 76,395 | — | |
Non-Qualified—SERP | 0.8 | 28,587 | — | Non-Qualified—SERP | 1.8 | 77,824 | — | |
John E. (Jay) Roueche, III | Qualified—Cash Balance(1) | 8.2 | 171,953 | — | ||||
Non-Qualified—SMRP | 8.2 | 117,795 | — | |||||
Non-Qualified—SERP | 8.2 | 196,456 | — | |||||
Lanesha T. Minnix | Qualified—Cash Balance(1) | 2.5 | 42,861 | — | ||||
Non-Qualified—SMRP | 2.5 | 54,154 | — | |||||
Non-Qualified—SERP | 2.5 | 80,614 | — | |||||
Elizabeth L. Burger | Qualified—Cash Balance(1) | 3.7 | 74,423 | — | ||||
Non-Qualified—SMRP | 3.7 | 108,364 | — | |||||
Non-Qualified—SERP | 3.7 | 128,980 | — | |||||
Keith E. Gillespie | Qualified—Cash Balance(1) | 5.7 | 122,467 | — | Qualified—Cash Balance(1) | 6.7 | 149,611 | — |
Non-Qualified—SMRP | 5.7 | 191,853 | — | Non-Qualified—SMRP | 6.7 | 236,615 | — | |
Non-Qualified—SERP | 5.7 | 198,426 | — | Non-Qualified—SERP | 6.7 | 239,648 | — | |
Elizabeth L. Burger | Qualified—Cash Balance(1) | 2.7 | 54,384 | — | ||||
Non-Qualified—SMRP | 2.7 | 72,749 | — | |||||
Non-Qualified—SERP | 2.7 | 90,105 | — | |||||
(1) The Company sponsors cash balance designed pension plans for eligible employees. Each executive accumulates a notional amount derived from the plan provisions; each Named Executive Officer’s account balances as of December 31, 2020 are presented above. We believe that this is the best estimate of the present value of accumulated benefits. | ||||||||
Tamara M. Morytko | Qualified—Cash Balance(1) | 1.3 | 24,246 | — | ||||
Non-Qualified—SMRP | 1.3 | 24,115 | — | |||||
Non-Qualified—SERP | 1.3 | 37,503 | — | |||||
(1) The Company sponsors cash balance designed pension plans for eligible employees. Each executive accumulates a notional amount derived from the plan provisions; each Named Executive Officer’s account balances as of December 31, 2021, are presented above. We believe that this is the best estimate of the present value of accumulated benefits. | (1) The Company sponsors cash balance designed pension plans for eligible employees. Each executive accumulates a notional amount derived from the plan provisions; each Named Executive Officer’s account balances as of December 31, 2021, are presented above. We believe that this is the best estimate of the present value of accumulated benefits. |
20212022 PROXY STATEMENT 58 61
The following table sets forth the estimated value of the potential payments to each of the Named Executive Officers, who were employed as of December 31, 2020, assuming the executive’s employment had terminated on December 31, 20202021, under the scenarios outlined below.
For the events of termination involving a change in control, we assumed that the change in control also occurred on December 31, 2020.2021. In addition to the payments set forth in the following tables, the Named Executive Officers may receive certain payments upon their termination or a change in control pursuant to our Flowserve Corporation Deferred Compensation Plan, Qualified Plan, SERP and SMRP. Previously vested amounts and contributions made to such plans by each Named Executive Officer are disclosed in the “2020“2021 Pension Benefits” table.
Triggering Event | Compensation Component | Payout($) | Compensation Component | Payout ($) | |||||||||||
R. Scott Rowe |
| Amy B. Schwetz | John E. (Jay) Roueche | Lanesha T. Minnix | Keith E. Gillespie | Elizabeth Burger | R. Scott Rowe |
| Amy B. Schwetz | Elizabeth L. Burger | Keith E. Gillespie | Tamara M. Morytko | |||
Death | Life Insurance (1.5x base salary; third party payment, max td.5) | 1,500,000 |
| 975,000 | 515,636 | 787,500 | 727,500 | 718,425 | Life Insurance (1.5x base salary; third party payment, max td.5) | 1,500,000 |
| 1,004,250 | 739,979 | 742,050 | 802,500 |
Immediate vesting of outstanding equity awards | 9,665,204 |
| 1,833,758 | 737,309 | 1,082,590 | 1,091,136 | 1,396,758 | Immediate vesting of outstanding equity awards(2) | 11,799,199 |
| 3,108,387 | 1,503,976 | 1,158,358 | 782,605 | |
Total | 11,165,204 |
| 2,808,758 | 1,252,945 | 1,870,090 | 1,818,636 | 2,114,183 | Total | 13,299,199 |
| 4,112,637 | 2,243,955 | 1,900,408 | 1,585,105 | |
Disability | Short-term and long-term disability benefit to age 65 | 4,087,697 |
| 4,719,795 | 2,901,363 | 4,830,780 | 2,580,037 | 3,746,570 | Short-term and long-term disability benefit to age 65 | 3,727,697 |
| 4,367,595 | 3,392,317 | 2,223,917 | 3,454,000 |
Immediate vesting of outstanding equity awards(1) | 9,665,204 |
| 1,833,758 | 737,309 | 1,082,590 | 1,091,136 | 1,395,758 | Immediate vesting of outstanding equity awards(2) | 11,799,199 |
| 3,108,387 | 1,503,976 | 1,158,358 | 782,605 | |
Total | 13,752,901 |
| 6,553,552 | 3,638,672 | 5,913,370 | 3,671,172 | 5,142,327 | Total | 15,526,896 |
| 7,475,982 | 4,896,293 | 3,382,275 | 4,236,605 | |
Retirement | Vesting of outstanding equity awards | — |
| — | — | Vesting of outstanding equity awards | — |
| — | — | |||||
Total | — |
| — | — | Total | — |
| — | — | ||||||
Termination Without Cause by the Company Not in Connection with Change in Control | Termination payment (2x base salary) | 2,266,000 |
| 1,300,000 | 687,514 | 1,050,000 | 970,000 | 957,900 | Termination payment (2x base salary) | 2,266,000 |
| 1,339,000 | 986,638 | 989,400 | 1,070,000 |
Target annual incentive award | 1,359,601 |
| 487,500 | 171,879 | 341,250 | 315,250 | 311,318 | Target annual incentive award | 1,359,600 |
| 502,125 | 320,657 | 321,555 | 347,750 | |
Vesting of outstanding equity | — |
| — | — | — | Vesting of outstanding equity | — |
| — | — | |||||
Cash payment in lieu of vesting of RSU | 2,469,924 |
| 1,215,931 | 162,880 | 178,432 | 323,929 | 140,361 | Cash payment in lieu of vesting of RSU | 2,109,443 |
| 723,138 | 270,455 | 227,080 | 94,758 | |
Total | 6,095,524 |
| 2,940,829 | 1,022,273 | 1,569,682 | 1,609,179 | 1,409,579 | Total | 5,735,043 |
| 2,564,263 | 1,577,750 | 1,538,035 | 1,512,508 | |
Change in Control—Termination Without Cause by the Company or Constructive Termination | Termination payment (base salary times applicable multiplier) | 3,399,000 |
| 1,300,000 | 515,636 | 1,050,000 | 970,000 | 957,900 | Termination payment (base salary times applicable multiplier) | 3,399,000 |
| 1,339,000 | 986,638 | 989,400 | 1,070,000 |
Termination payment (target annual incentive award times applicable multiplier) | 4,078,800 |
| 975,000 | 257,818 | 682,500 | 630,500 | 622,635 | Termination payment (target annual incentive award times applicable multiplier) | 4,078,800 |
| 1,004,250 | 641,315 | 643,110 | 695,500 | |
Immediate vesting of outstanding equity awards | 9,665,204 |
| 1,833,758 | 737,309 | 1,082,590 | 1,091,136 | 1,395,758 | Immediate vesting of outstanding equity awards | 11,799,199 |
| 3,108,387 | 1,503,976 | 1,158,358 | 782,605 | |
Supplemental pension benefit | 1,143,155 |
| 468,408 | 285,215 | 240,260 | 426,381 | 340,002 | Supplemental pension benefit | 1,177,922 |
| 324,795 | 235,815 | 292,212 | 237,278 | |
Health & welfare benefit | 92,352 |
| 48,955 | 34,430 | 47,420 | 52,603 | 49,425 | Health & welfare benefit | 95,754 |
| 73,432 | 74,137 | 64,374 | 74,875 | |
Total | 18,378,511 |
| 4,626,120 | 1,830,408 | 3,102,770 | 3,170,620 | 3,365,720 | Total | 20,550,675 |
| 5,849,864 | 3,441,881 | 3,147,454 | 2,860,258 | |
(1) For restricted stock units, these amounts are calculated assuming that the market price per share of the Company’s common stock on the date of event was equal to the closing price of the Company’s common stock on December 31, 2020 ($36.85).
| |||||||||||||||
(1) None of the Named Executive Officers were eligible to retire on December 31, 2021. (2) For restricted stock units, these amounts are calculated assuming that the market price per share of the Company’s common stock on the date of event was equal to the closing price of the Company’s common stock on December 31, 2021 ($30.60).
| (1) None of the Named Executive Officers were eligible to retire on December 31, 2021. (2) For restricted stock units, these amounts are calculated assuming that the market price per share of the Company’s common stock on the date of event was equal to the closing price of the Company’s common stock on December 31, 2021 ($30.60).
|
20212022 PROXY STATEMENT 59 62
Our CEO to median-compensated employee pay ratio has been calculated in accordance with the applicable rules under the Dodd-Frank Wall Street Reform and Consumer Protection Act and is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K. Mr. Rowe had 20202021 total compensation of $8,362,067,$12,506,622, which reflects the total compensation reported in the “Summary Compensation Table” in this proxy statement, plus the employer-paid portion of health, vision and dental benefits and disability insurance premiums available to U.S. full-time employees. Our median employee’s annual total compensation for 20202021 was $85,523,$84,837, calculated using the same methodology as used in the calculation of theour CEO’s compensation of the Named Executive Officers under the “Summary Compensation Table,” except that such calculation also includes the employer-paid portion of disability insurance premiums, and health, vision and dental benefits, as applicable.discussed above. As a result, the annual total compensation for our CEO in 20202021 was approximately 98147 times that of our median employee’s annual total compensation.
Identification of Median Employee
For purposes of calculatingWe identified the 2020 pay ratio, the Company examinedmedian employee by examining the 2020 total target cash compensation for all employees who were employed by the Company or its consolidated subsidiaries on October 1, 2020, excluding our CEO, and selected a newCEO. For purposes of calculating the 2021 pay ratio, the Company determined that there had been no change in its workforce composition or compensation arrangements that would significantly impact the pay ratio disclosure since the Company determined its median employee in 2020. Accordingly, the Company utilized the same median employee for purposes of calculating its 20202021 pay ratio.
Total target cash compensation was calculated by totaling an employee’s annual base salary and target incentive compensation. We did not make any assumptions, adjustments, or estimates with respect to total target cash compensation. We used total target cash compensation and excluded annual equity awards for our calculations because we do not widely distribute annual equity awards to employees.
After identifying the median employee based on total target cash compensation, we calculated annual total compensation for such employee using the same methodology we use for our named executive officersNamed Executive Officers as set forth in the “Summary Compensation Table” in this proxy statement, except that for purposes of determining our CEO to median compensation employee pay ratio, we included the employer-paid portion of health, vision and dental benefits and disability insurance premiums.
The SEC’s rules for identifying the median compensated employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their employee populations and compensation practices. As a result, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies have different employee populations and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios.
20212022 PROXY STATEMENT 60 63
At each Annual Meeting, the Board provides shareholders the opportunity to cast an advisory vote on the compensation of our Named Executive Officers, pursuant to Schedule 14A of the Securities Exchange Act. This proposal, commonly known as a “Say on Pay” proposal, gives our shareholders the opportunity to endorse or not endorse our executive compensation programs and policies and the compensation paid to our Named Executive Officers. Our next Say on Pay vote following the 20212022 Annual Meeting will be held at our 20222023 Annual Meeting of Shareholders provided our Board does not change our annual say on pay voting frequency.
The Board values the opinions of the Company’s shareholders as expressed through their votes and other communications. This Say on Pay vote is advisory, meaning that it is not binding on the O&C Committee or Board. This vote will not affect any compensation already paid or awarded to any Named Executive Officer, nor will it overrule any decisions the Board has made. Nonetheless, the O&C Committee and the Board will review and carefully consider the outcome of the advisory vote on executive compensation when making future decisions regarding our executive compensation programs and policies.
We generally design our executive compensation programs to implement our core objectives of attracting and retaining key leaders, rewarding current performance, driving future performance and aligning the long-term interests of our executives with those of our shareholders. In light of the unique challenges presented by the COVID-19 pandemic and the volatility in commodity prices during 2020, we also implemented certain changes to our compensation program in an effort to balance pay for performance considerations with retention and motivation factors, in an effort to maintain a compensation program that provided focus on and rewarded the achievement of the Company’s evolving strategic priorities during an unprecedented period of global economic uncertainty and to help drive operational improvement.
Shareholders are encouraged to read the Compensation Discussion and Analysis (“CD&A”) section of this proxy statement. In the CD&A, we have provided shareholders with a description of our compensation programs, including the philosophy and strategy underpinning the programs, the individual elements of the compensation programs and how our compensation plans are administered.
The Board believes that the Company’s executive compensation programs use appropriate structures and sound pay practices that are effective in achieving our core objectives. Accordingly, the Board recommends that you vote in favor of the following resolution:
“RESOLVED,thattheFlowserveCorporationshareholdersapprove,onanadvisorybasis,thecompensationoftheCompany’snamedexecutiveofficersasdescribedinthesectionofthisProxyStatemententitled‘Executive ‘Executive Compensation’.”
20212022 PROXY STATEMENT 61 64
RelatedPartyTransactionPolicy. The Company has adopted a written policy for approval of transactions between the Company and its directors, director nominees, executive officers, greater-than-5% beneficial owners and their respective immediate family members, where the amount involved in the transaction exceeds or is expected to exceed $120,000 in a single calendar year.
The policy provides that the CG&N Committee reviews transactions subject to the policy and determines whether or not to approve or ratify (in certain limited circumstances where pre-approval was not feasible) those transactions. In doing so, the CG&N Committee takes into account, among other factors it deems appropriate, whether the transaction is on terms that are no less favorable to the Company than terms generally available to an unaffiliated third-party under the same or similar circumstances and the extent of the related person’s interest in the transaction. In addition, the Board has delegated authority to the Chairman of the CG&N Committee to pre-approve or ratify transactions (in certain limited circumstances where pre-approval was not feasible) where the aggregate amount involved is expected to be less than $1 million. A summary of any new transactions pre-approved by the Chairman is provided to the full CG&N Committee for its review in connection with each regularly scheduled CG&N Committee meeting.
The CG&N Committee has considered and adopted standing pre-approvals under the policy for limited transactions with related persons. Pre-approved transactions include:
business transactions with other companies in which a related person’s only relationship is as an employee, director or less-than-10% beneficial owner if the amount of business falls below the thresholds in the NYSE’s listing standards and the Company’s director independence standards; and
charitable contributions, grants or endowments to a charitable organization where a related person is an employee if the aggregate amount involved does not exceed the greater of $1 million or 2% of the organization’s total annual receipts.
Since January 1, 2021, there were no reportable related person transactions, and there are currently no proposed transactions in excess of $120,000 in which the Company was or is to be a participant and in which any related person had or will have a direct or indirect material interest.
20212022 PROXY STATEMENT 62 65
The following table sets forth as of March 16, 20212022, ownership of Company common stock by director nominees, members of the Board, each executive officer individually and all members of the Board and all executive officers as a group. Except pursuant to applicable community property laws and except as otherwise indicated, each shareholder identified possesses sole voting and investment power with respect to his or her shares.
Name of Beneficial Owner | Amount and nature of beneficial ownership(1) | Total | Percent of class | Amount and Nature of Beneficial Ownership(1) | Total | Percent of Class | ||||
Directors |
|
|
|
|
|
|
|
|
|
|
Sujeet Chand | 1,000 |
| 7,353 | (2) | * | 1,000 |
| 10,940 | (2) | * |
Ruby R. Chandy | 2,574 |
| 14,125 | (3) | * | 2,574 |
| 18,209 | (3) | * |
Gayla J. Delly | 5,196 |
| 51,177 | (4) | * | 8,783 |
| 58,351 | (4) | * |
Roger L. Fix | 17,308 |
| 60,764 | (5) | * | 20,895 |
| 67,938 | (5) |
|
John R. Friedery | 10,664 |
| 53,789 | (6) | * | 14,251 |
| 60,963 | (6) | * |
John L. Garrison | — |
| 12,174 | (7) | * | — |
| 18,251 | (7) | * |
Michael C. McMurray | — |
| 5,196 | (7) | * | — |
| 8,783 | (7) | * |
David E. Roberts | — |
| 34,882 | (7) | * | — |
| 38,469 | (7) | * |
R. Scott Rowe | 311,030 | (8) | 311,030 |
| * | 367,421 | (8) | 367,421 |
| * |
Carlyn R. Taylor(9) | — |
| 760 | (7) | * | |||||
Carlyn R. Taylor | — |
| 7,518 | (7) | * | |||||
Named Executive Officers |
|
|
|
|
|
|
|
|
|
|
Elizabeth L. Burger | 18,441 | (10) | 18,441 |
| * | 25,518 |
| 25,518 |
| * |
Keith E. Gillespie | 63,974 |
| 63,974 |
| * | 71,464 |
| 71,464 |
| * |
Lanesha T. Minnix | 8,018 |
| 8,018 |
| * | |||||
John E. (Jay) Roueche III(11) | 21,719 |
| 21,719 |
|
| |||||
Amy B. Schwetz(12) | 6,753 |
| 6,753 |
| * | |||||
All members of the Board and executive officers as a group (19 individuals) | 509,248 | (13) | 712,726 | (14) | * | |||||
* Less than 1%. (1) Beneficial ownership has been determined in accordance with Rule 13d-3 under the Exchange Act and, unless otherwise indicated, represents securities for which the beneficial owner has sole voting and investment power. For each person or group, also includes any securities that person or group has the right to acquire within 60 days pursuant to stock options under certain Company stock option and incentive plans. (2) Includes 6,353 shares that have been deferred under the director stock deferral plan and/or a Company stock plan. Mr. Chand does not possess any voting or investment power over these deferred shares. (3) Includes 11,551 shares that have been deferred under the director stock deferral plan and/or a Company stock plan. Ms. Chandy does not possess any voting or investment power over these deferred shares. (4) Includes 45,981 shares that have been deferred under the director stock deferral plan and/or a Company stock plan. Ms. Delly does not possess any voting or investment power over these deferred shares. (5) Includes 43,456 shares that have been deferred under the director stock deferral plan and/or a Company stock plan. Mr. Fix does not possess any voting or investment power over these deferred shares. (6) Includes 43,125 shares that have been deferred under the director stock deferral plan and/or a Company stock plan. Mr. Friedery does not possess any voting or investment power over these deferred shares. | ||||||||||
Tamara M. Morytko | 1,912 |
| 1,912 |
| * | |||||
Amy B. Schwetz | 17,927 |
| 17,927 |
| * | |||||
All members of the Board and executive officers as a group (18 individuals) | 597,335 | (9) | 839,254 | (10) | * |
2021 PROXY STATEMENT 63
* Less than 1%. (1) Beneficial ownership has been determined in accordance with Rule 13d-3 under the Exchange Act and, unless otherwise indicated, represents securities for which the beneficial owner has sole voting and investment power. For each person or group, also includes any securities that person or group has the right to acquire within 60 days pursuant to stock options under certain Company stock option and incentive plans. (2) Includes 9,940 shares that have been deferred under the director stock deferral plan and/or a Company stock plan. Mr. Chand does not possess any voting or investment power over these deferred shares. (3) Includes 15,635 shares that have been deferred under the director stock deferral plan and/or a Company stock plan. Ms. Chandy does not possess any voting or investment power over these deferred shares. (4) Includes 49,568 shares that have been deferred under the director stock deferral plan and/or a Company stock plan. Ms. Delly does not possess any voting or investment power over these deferred shares. (5) Includes 47,043 shares that have been deferred under the director stock deferral plan and/or a Company stock plan. Mr. Fix does not possess any voting or investment power over these deferred shares. (6) Includes 46,712 shares that have been deferred under the director stock deferral plan and/or a Company stock plan. Mr. Friedery does not possess any voting or investment power over these deferred shares. (7) Represents shares that have been deferred under the director stock deferral plan and/or a Company stock plan. The holder does not possess any voting or investment power over these deferred shares. (8) Includes 114,943 shares of common stock that Mr. Rowe has the right to acquire within 60 days pursuant to the exercise of stock options. (9)
Includes
Includes |
20212022 PROXY STATEMENT 64 66
The following shareholders reported to the SEC that they beneficially own more than 5% of the Company’s outstanding common stock. The information is presented as of December 31, 2020,2021, except as noted, and is based on stock ownership reports on Schedule 13G filed with the SEC and subsequently provided to us. We know of no other shareholder holding more than 5% of the Company’s common stock.
Name and Address of Beneficial Owner | Amount and nature of beneficial ownership(1) | Percent of class(2) | |
EdgePoint Investment Group Inc. 150 Bloor Street West, Suite 500 | 19,717,032 | (3) | 15.1% |
Invesco Ltd. 1555 Peachtree Street NE, Suite 1800 | 14,068,661 | (4) | 10.8% |
The Vanguard Group, Inc. 100 Vanguard Blvd. | 13,834,683 | (5) | 10.6% |
First Eagle Investment Management, LLC 1345 Avenue of the Americas | 11,140,003 | (6) | 8.5% |
BlackRock, Inc. 55 East 52nd Street | 7,203,452 | (7) | 5.5% |
Caisse de dépôt et placement du Québec 1000 Place Jean-Paul-Riopelle | 7,019,180 | (8) | 5.4% |
|
Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership(1) | Percent of Class(2) | |
The Vanguard Group, Inc. 100 Vanguard Blvd. | 12,353,613 | (3) | 9.5% |
EdgePoint Investment Group Inc. 150 Bloor Street West, Suite 500 | 10,972,988 | (4) | 8.4% |
First Eagle Investment Management, LLC 1345 Avenue of the Americas New York, NY 10105 | 10,788,753 | (5) | 8.3% |
BlackRock, Inc. 55 East 52nd Street | 10,704,548 | (6) | 8.2% |
(1) Beneficial ownership has been determined in accordance with Rule 13d-3 under the Exchange Act and, unless otherwise indicated, represents securities for which the beneficial owner has sole voting and investment power. (2) Based on shares outstanding on March 16, 2022. (3) Based on a Schedule 13G/A filed with the SEC on February 9, 2022. The filing indicates sole voting power for 0 shares, shared voting power for 76,880 shares, sole dispositive power for 12,186,228 shares and shared dispositive power for 167,385 shares. (4) Based on a Schedule 13G/A filed with the SEC on February 11, 2022. The filing indicates sole voting power for 8,621,283 shares, shared voting power for 2,351,705 shares, sole dispositive power for 8,621,283 shares and shared dispositive power for 2,351,705 shares. (5) Based on a Schedule 13G/A filed with the SEC on February 10, 2022. The filing indicates sole voting power for 10,107,626 shares, shared voting power for 0 shares, sole dispositive power for 10,788,753 shares and shared dispositive power for 0 shares. First Eagle Investment Management, LLC is deemed to be the beneficial owner of these shares as a result of acting as investment adviser to various clients. The First Eagle Global Fund, a registered investment company for which First Eagle Investment Management, LLC acts as investment adviser, may be deemed to beneficially own 7,892,216 of the reported shares. (6) Based on a Schedule 13G/A filed with the SEC on January 31, 2022. The filing indicates sole voting power for 10,203,779 shares, shared voting power for 0 shares, sole dispositive power for 10,704,548 shares and shared dispositive power for 0 shares. |
20212022 PROXY STATEMENT 65 67
The following table provides certain information about our common stock that may be issued upon the exercise of options or vesting of restricted stock units and performance share units granted under the Flowserve Corporation 2010 Equity and Incentive Compensation Plan (the “2010 Plan”) and the Flowserve Corporation 2020 Long-Term Incentive Plan (the “2020 Plan”) as of December 31, 2020.2021.
Plan Category | Number of Securities to Be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted-Average Exercise Price of Outstanding Option, Warrants and Rights(1) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in the First Column)(2) | Number of Securities to Be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted-Average Exercise Price of Outstanding Option, Warrants and Rights(1) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in the First Column)(2) |
Equity compensation plans approved by securities holders | 114,943 | 48.63 | 13,606,725 | 2,408,381 | 48.63 | 11,349,702 |
Equity compensation plans not approved by securities holders | — | — | — | — | — | — |
TOTAL | 114,943 | 48.63 | 13,606,725 | 2,408,381 | 48.63 | 11,349,702 |
(1) These amounts represent the weighted average exercise price for the total number of outstanding options. No such value is included for RSUs. (2) The shares of common stock reflected in this column include shares available for issuance under the 2020 Plan, including 1,611,332 shares that remained available for issuance under the Flowserve Corporation 2010 Equity and Incentive Compensation Plan as of December 31, 2019, and which remain available for issuance under the terms of our 2020 Plan. | ||||||
(1) These amounts represent the weighted average exercise price for the total number of outstanding options. No such value is included for RSUs or PSUs. (2) The shares of common stock reflected in this column include shares available for issuance under the 2020 Plan, including 1,611,332 shares that remained available for issuance under the Flowserve Corporation 2010 Equity and Incentive Compensation Plan as of December 31, 2019, and which remain available for issuance under the terms of our 2020 Plan. | (1) These amounts represent the weighted average exercise price for the total number of outstanding options. No such value is included for RSUs or PSUs. (2) The shares of common stock reflected in this column include shares available for issuance under the 2020 Plan, including 1,611,332 shares that remained available for issuance under the Flowserve Corporation 2010 Equity and Incentive Compensation Plan as of December 31, 2019, and which remain available for issuance under the terms of our 2020 Plan. |
20212022 PROXY STATEMENT 66 68
DELINQUENT SECTION 16(a) REPORTS
Section 16(a) of the Exchange Act requires the Company’s directors, executive officers and any person beneficially owning more than 10% of the Company’s common stock to file reports of ownership and any changes in ownership with the SEC. Based solely on the Company’s review of such reports filed with the SEC and representations provided to the Company by persons required to file reports under Section 16 of the Exchange Act, the Company’s directors, executive officers and greater than 10% beneficial owners timely complied with their Section 16(a) filing requirements during 2020, except that due to an administrative error one Form 4 reporting an equity grant related to their compensation as members of our Board was inadvertently filed one day late for Sujeet Chand, Ruby R. Chandy and John L. Garrison.
2021 PROXY STATEMENT 67
The Audit Committee has approved PricewaterhouseCoopers LLP (“PwC”) to serve as our independent registered public accounting firm for 2021.2022.
We are asking our shareholders to ratify the appointment of PwC as our independent registered public accounting firm. Although shareholder ratification is not required by our By-Laws or otherwise, the Board is submitting this proposal for ratification because we value our shareholders’ views on the Company’s independent registered public accounting firm and as a matter of good corporate practice. In the event that our shareholders fail to ratify the selection, it will be considered as a direction to the Audit Committee to consider the selection of a different firm, though the Company may nonetheless determine to retain PwC. Even if the selection is ratified, the Audit Committee in its discretion may select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and its shareholders.
20212022 PROXY STATEMENT 68 69
PwC has served as the Company’s independent registered public accounting firm since 2000. In this role, PwC audits the financial statements of the Company. Representatives from PwC are expected to be present at the Annual Meeting and available to respond to appropriate questions from shareholders. They will have the opportunity to make a statement if they desire to do so.
The following table summarizes the aggregate fees (excluding value added taxes) for professional services incurred by the Company for the audits of its 20202021 and 20192020 financial statements and other fees billed to the Company by PwC in 20202021 and 2019.2020. In general, the Company retains PwC for services that are logically related to or natural extensions of services performed by independent auditors.
| 2020 | 2019 | 2021 | 2020 | ||
Audit Fees(1) | $8,190,000 | $7,622,000 | $ 7,557,000 |
| $ 8,190,000 |
|
Audit-Related Fees(2) | 108,000 | 59,000 | 244,000 |
| 108,000 |
|
Total Audit Related Fees | 8,298,000 | 7,681,000 | 7,801,000 |
| 8,298,000 |
|
Tax Compliance | 93,000 | 295,000 | 255,000 |
| 93,000 |
|
Tax Consulting/Advisory | 39,000 | 250,000 | 164,000 |
| 39,000 |
|
Total Tax Fees(3) | 132,000 | 545,000 | 419,000 |
| 132,000 |
|
All Other Fees(4) | 3,000 | 61,000 | 69,000 |
| 3,000 |
|
TOTAL FEES(5) | $8,433,000 | $8,287,000 | $ 8,289,000 |
| $ 8,433,000 |
|
(1) Fees for the years ended December 31, 2020 and 2019 consist of the audit of the Company’s consolidated financial statements, including effectiveness of internal controls over financial reporting, reviews of the Company’s quarterly financial statements, and subsidiary statutory audits. (2) Audit-related fees consist of other attestation services and review of supplementary filings. (3) Tax fees consist of compliance, consulting and transfer pricing services. (4) All other fees consist of accounting research and disclosure software licenses, and agreed upon procedures related to a pension audit (5) 2020 Total Fees includes $168,000 of fees related to the 2019 audit that were billed, approved and paid in 2020. | ||||||
(1) Fees for the years ended December 31, 2021 and 2020 consist of the audit of the Company’s consolidated financial statements, including effectiveness of internal controls over financial reporting, reviews of the Company’s quarterly financial statements, and subsidiary statutory audits. (2) Audit-related fees consist of other attestation services and review of supplementary filings. (3) Tax fees consist of compliance, consulting and transfer pricing services. (4) All other fees consist of accounting research and disclosure software licenses, pension plan audit procedures and compilation services. (5) 2020 Total Fees includes $168,000 of fees related to the 2019 audit that were billed, approved and paid in 2020. | (1) Fees for the years ended December 31, 2021 and 2020 consist of the audit of the Company’s consolidated financial statements, including effectiveness of internal controls over financial reporting, reviews of the Company’s quarterly financial statements, and subsidiary statutory audits. (2) Audit-related fees consist of other attestation services and review of supplementary filings. (3) Tax fees consist of compliance, consulting and transfer pricing services. (4) All other fees consist of accounting research and disclosure software licenses, pension plan audit procedures and compilation services. (5) 2020 Total Fees includes $168,000 of fees related to the 2019 audit that were billed, approved and paid in 2020. |
The Audit Committee pre-approved all of the audit and non-audit fees described above for the years ended December 31, 2020 and December 31, 2019 in accordance with its approval policy discussed below.
The Audit Committee approves all proposed services and related fees to be rendered by the Company’s independent registered public accounting firm prior to their engagement. Services to be provided by the Company’s independent registered public accounting firm generally include audit services, audit-related services and certain tax services. All fees forEach year, the annualAudit Committee discusses the scope of the audit or audit-related services to be performed by the Company’splan with its independent registered public accounting firm are itemizedand all audit and audit-related services, tax services, and other services for the purposesupcoming fiscal year are provided to the Audit Committee for pre-approval. The services, which may be provided in the upcoming twelve-month period, are grouped into significant categories substantially in the format shown above. The Audit Committee is updated on the status of approval. all services and related fees on a periodic basis or more frequently as matters warrant.
2022 PROXY STATEMENT 70
The Audit Committee approves the scope and timing of the external audit plan for the Company and focuses on any matters that may affect the scope of the audit or the independence of the Company’s independent registered public accounting firm. In that regard, the Audit Committee receives certain representations from the Company’s independent registered public accounting firm regarding their independence and permissibility under the applicable laws and regulations of any services provided to the Company outside the scope of those otherwise allowed. The Audit Committee also approves the internal audit plan for the Company.
The Audit Committee may delegate its approval authority to the Chairman of the Audit Committee to the extent allowed by law. In the case of any delegation, the Chairman must disclose all approval determinations to the full Audit Committee as soon as possible after such determinations have been made.
20212022 PROXY STATEMENT 69 71
The Audit Committee of the Board of Directors of the Company is composed of four independent directors: Michael C. McMurray (Chairman), Sujeet Chand, John R. FriederyRoger L. Fix and Carlyn R. Taylor. Rick J. MillsJohn R. Friedery served on the Audit Committee until his retirement from the Board athe was replaced by Mr. Fix in May 2020 at our 2020 Annual Meeting. Joe E. Harlan also served on the Audit Committee until May 2020 when he elected not to stand for re-election at our 2020 Annual Meeting.August 2021. The Audit Committee operates under a written charter adopted by the Board. The Audit Committee met 127 times in 20202021 and discussed matters, explained in more detail below, with the independent auditors, internal auditors and members of management.
RolesandResponsibilities. Management has primary responsibility for the Company’s internal controls and the financial reporting process. The independent auditors are responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (“PCAOB”) and issuing a report on this audit. In addition, the independent auditors are responsible for auditing the Company’s internal control over financial reporting and issuing a report on the effectiveness of internal control over financial reporting. The Audit Committee’s responsibility is to proactively monitor and oversee this process, including the engagement of the independent auditors, the pre-approval of their annual audit plan and the review of their annual audit report. In addition, the Audit Committee reviews, monitors and evaluates how the Company and management implement new accounting principalsprinciples generally accepted in the United States (“GAAP”) and use non-GAAP measures.
CommitteeOversightofFinancialStatements. In this context, the Audit Committee has met and held detailed discussions with management on the Company’s consolidated financial statements. Management represented to the Audit Committee that the Company’s consolidated financial statements were prepared in accordance with GAAP and that these statements fairly present the financial condition and results of operations of the Company for the period described. The Audit Committee has relied upon this representation without any independent verification, except for the work of PwC, the Company’s independent registered public accounting firm. The Audit Committee also discussed these statements with PwC, both with and without management present, and has relied upon their reported opinion on these financial statements.
RequiredCommunicationswithPwC. The Audit Committee further discussed with PwC matters required to be discussed by standards, including applicable PCAOB standards, and critical audit matters. In addition, the Audit Committee received from PwC the written disclosures and letter required by applicable requirements of the PCAOB regarding PwC’s communications with the Audit Committee concerning its independence and has discussed with PwC its independence from the Company and its management.
Recommendation. Based on these reviews and discussions, including the Audit Committee’s specific review with management of the Company’s Annual Report and based upon the representations of management and the report of the independent auditors to the Audit Committee, the Audit Committee recommended to the Board that the audited consolidated financial statements be included in the Company’s Annual Report filed with the SEC.
Michael C. McMurray, Chairman
Sujeet ChandJohn R. FriederyRoger L. Fix
Carlyn R. Taylor
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A shareholder has stated that its representative intends to present the following proposal at the Annual Meeting. The Company will promptly provide the name and address of the shareholder and the number of shares owned upon request directed to the Corporate Secretary. The Company is not responsible for the content of the proposal. If properly presented at the Annual Meeting, the Board unanimously recommends a vote “AGAINST” the following proposal.
Proposal 4 – Special Shareholder Meeting Improvement
Shareholders ask our board to take the steps necessary to amend the appropriate company governing documents to give the owners of a combined 10% of our outstanding common stock the power to call a special shareholder meeting.
Currently it takes a theoretical 25% of all shares outstanding to call for a special shareholder meeting.
It goes downhill form here. Shares that are not held for one continuous year are excluded from formal participation in asking for a special shareholder meeting. Thus the shares share that own 25% of the shares that vote at our annual meeting could determine that they own 35% of our shares when length of stock ownership is factored out. Then they could determine that when their shares, not held net long, are included that they own 40% of the shares that vote at our annual meeting.
Thus a theoretical 25% right for 25% of shares to call for a special meeting can in practice easily tum into a 40% right to call a special meeting - nothing for Flowserve management to brag about.
And it keeps going downhill. Flowserve shareholders do not have a practical right to act by written consent. We gave 43% support to a shareholder proposal for a practical right to act by written consent. Instead management in bad faith gave us a precarious “right” to act by written consent.
Management made a rule that in order to act by written consent 25% of shares must petition management for the baby step of obtaining a record date. Once a record date is obtained then shareholders are on a tight schedule to obtaining the consent of 51 % of shares outstanding.
This turns into a classic Catch-22 situation. In order to get a record date, 25% of shares must give their contact information to management. Thus it is easier than shooting fish in a barrel for management to pester the 25% of shares to change their mind and revoke their support for their written consent topic.
Thus while the base of 25% of shares are easily venerable to management attack by deep pockets company money, shareholders must double their number to 51 % of shares in a limited time period.
We need an improved right to call for a special shareholder meeting to make up for its current severe limitation and to make up for the fact that we have a precarious right to act by written consent.
Please vote yes:
Special Shareholder Meeting Improvement – Proposal 4
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The Board is submitting for shareholder approval ahas considered this proposal to amend our Restated Certificate of Incorporation (the “Certificate”) to delete Article Tenth, which requires a supermajorityand recommends that shareholders vote to approve certain business combination transactions with certain interested shareholders.
The Company received a shareholderAGAINST the advisory proposal askingrequesting that among other things, the Board acttake steps to eliminate “each voting requirement inmodify our charter and bylaws” that contains a supermajority voting requirement. The Board consideredshareholders’ existing ability to call special meetings because the shareholder proposal and the fact that Article Tenth (which is described below) is the only provisionnot in the Company’s Certificate or By-Laws applicable to the Company’s shareholders that requires a supermajority vote. The Board also considered both the existing provisions in the New York Business Corporation Law (“NYBCL”) (which apply to the Company as a resultbest interest of its incorporation in the State of York) and that deleting Article Tenth would simplify the voting standards currently applicable to certain business combinations with certain interested shareholders, as discussed below. As a result, the Board is proposing an amendment to our Certificate (attached as Appendix A) to delete Article Tenth and make certain conforming changes to our Certificate (the “Amendment”).
Article Tenth of our Certificate requires a vote of at least two-thirds of the Company’s outstanding shares to approve the following transactions with any Related Corporation or affiliate of a Related Corporation (a “Related Corporation” being generally defined as any corporation which, together with its affiliates and associated persons owns, of record or beneficially, directly or indirectly, 10% or more of the shares of capital stock of the Company entitled to vote on such transaction):
any plan of merger or consolidation;
any sale, lease, exchange or other disposition of all or substantially all the assets of the Company; and
any issuance or delivery of capital stock or other securities of the Company in exchange or payment for all or substantially all the assets of a Related Corporation.
Article Tenth also requires a vote of at least two-thirds of the Company’s outstanding shares to approve any amendment or deletion of Article Tenth.
Article Tenth was intended to protect minority shareholders where a Related Corporation or its affiliates seek to acquire the Company or its assets (together, “Related M&A Transactions”), or whereshareholders. The Board believes that shareholders’ existing special meeting rights, together with the Company’s strong corporate governance policies and practices, already provide shareholders with a meaningful ability to call a special meeting, as well as meaningful opportunities to interact with the Board and senior management. Moreover, the lowered threshold would not be in accordance with predominant best practice, would not appropriately balance competing shareholder interests, and could result in unnecessary expenditure of Company time and resources. The Board also believes that this proposal is unnecessary in light of our robust corporate governance practices and record of Board accountability. Accordingly, the Board recommends that you vote “AGAINST” Proposal 4 for the following reasons:
Our governing documents currently provide our shareholders with a meaningful and balanced right to call special meetings and the proposed decrease in percentage of shares required to call a special meeting is neither necessary nor in the best interest of the Company seeks to issue securities to acquire a Related Corporation orand its affiliates (“Related Stock Issuances”). Article Tenth was last amendedshareholders. Currently, shareholders holding in 2011, when the Board proposed and shareholders approved loweringaggregate at least 25% of the supermajority voting threshold from 80% to two-thirdsoutstanding shares of the Company’s common stock on a “net long” basis may request a special meeting. The Board continues to believe that this threshold, which is the most common threshold among S&P 500 companies, strikes an appropriate balance between providing shareholders holding a meaningful minority of our outstanding shares.shares a mechanism to call a special meeting when particularly urgent or strategic matters of importance arise, while also protecting shareholders against the imprudent use of Company resources to address special interests.
ApprovalSpecial Meetings Require a Substantial Investment of Time and implementationResources.
Convening a special meeting of shareholders requires a significant commitment of Company time and resources and would divert Board and management time away from overseeing the day-to-day operations of the Amendment would deleteCompany. Accordingly, given the entire Article Tenth fromsubstantial burdens and costs, special meetings should be limited to extraordinary events and circumstances. By reducing the ownership threshold as requested, a small minority of shareholders, including in some cases a single shareholder, could use the special meeting mechanism to advance their own narrower agenda, without regard to the broader interests of the Company and its other shareholders. The Board continues to believe that our Certificate, thereby eliminating fromexisting special meeting threshold, which affords shareholders a full and meaningful opportunity to call a special meeting, effectively balances these concerns.
The Board believes that shareholders should evaluate this proposal in the context of the Company’s robust shareholder engagement efforts, along with our strong corporate governance policies that reflect the Company’s ongoing commitment to effective governance practices and accountability to our shareholders. We encourage and facilitate regular communication with large and small shareholders about important issues relating to our business and governance and regularly incorporate feedback from those engagements into our governing documents, the only remaining supermajority voting requirement applicable topolicies, and practices. For example, in fiscal year 2021, we solicited feedback from shareholders representing approximately 80% of our outstanding shares, seeking input on compensation and governance matters. Notably, during our recent engagement, no other shareholders identified the Company’s shareholders. Note, however, that even if Article Tenth is deleted, the default approval standards in the NYBCL would continue to apply to certain transactions withexisting special meeting threshold as a Related Corporation.
concern.
20212022 PROXY STATEMENT 71 74
Further, we have implemented numerous corporate governance measures, including through Board-adopted By-law amendments, that provide shareholders with the opportunity to have a meaningful voice in the Company’s governance. For example, the Company will continue to be subject to Section 912 of the NYBCL, which generally provides that a New York corporation may not engage in a business combination with an “interested shareholder” (generally defined as persons that directly or indirectly beneficially own 20% or more of our outstanding shares, instead of the 10% threshold in Article Tenth) for a period of five years following the interested shareholder’s becoming such. Such a business combination would be permitted where it is approvedexample:
All directors are elected annually by the board of directors before the interested shareholder’s becoming such. Covered business combinations include certain mergers and consolidations, dispositions of assets or stock, plans for liquidation or dissolution, reclassifications of securities, recapitalizations and similar transactions. Furthermore, New York corporations may not engage at any time with any interested shareholder in a business combination other than: (i) a business combination approved by the board of directors before the stock acquisition, or where the acquisition of the stock had been approved by the board of directors before the stock acquisition; (ii) a business combination approved by the affirmative vote of the holders of a majority of the outstanding voting stock not beneficially ownedvotes cast in uncontested elections, and our director resignation policy requires directors to offer to resign if they fail to receive a majority of the votes cast in an uncontested election;
8 of our 9 directors standing for election at the 2022 Annual meeting are independent, and our Board is led by an independent Chairman with clearly defined, robust responsibilities;
Shareholders have a meaningful, market-standard proxy access right that permits them to include their director nominees in the interested shareholder at a meeting called for that purpose no earlier than five years after the stock acquisition; or (iii) a business combination in which the interested shareholder pays a formula price designed to ensure that all other shareholders receive at least the highest price per share that is paid by the interested shareholder and that meets certain other requirements. The Company also will continue to beCompany’s proxy statement, subject to compliance with the NYBCL provision that generally requires that Related M&A Transactions with an interested shareholder be approved by a vote of at least two-thirds of the Company’s outstanding shares.applicable By-law requirements;
As a result of the foregoing, we believe the main impact of deleting Article Tenth is to remove the restrictions (including the supermajority voting requirement) imposed by the Certificate on Related Stock Issuances with a shareholder that owns between 10% and 19.9% of the Company’s outstanding shares.
Required Vote and Recommendation
Pursuant to Article Tenth of the Certificate, approval of this proposal requires the affirmative vote of two-thirds of all outstanding shares of common stock entitled to vote on this proposal. Abstentions will not count as votes cast on this proposal. Therefore, abstentions willShareholders have the same effect asright to recommend a vote “against”candidate for election to the proposal. Additionally, broker non-votes will not be considered to have voted on this proposalBoard, and will therefore havethe Corporate Governance and Nominating Committee evaluates such recommendations using generally the same effectmethods and criteria as recommendations received from other sources; and
Shareholders have a vote “against”meaningful right to act by written consent, subject to compliance with the proposal. The individuals named as proxiesapplicable Restated Certificate of Incorporation and By-law requirements.
For these reasons, the Board continues to believe that it is not necessary or in our shareholders’ best interest to modify our existing special meeting threshold, which provides appropriate and reasonable limitations on the enclosed proxy card will vote your proxy “FOR” this proposal unless you instruct otherwise on the proxy.
If this proposal is approved by the Company’s shareholders, we will restate the Certificateright to incorporate the approved Amendment as set forth in Appendix A following the annual meeting, which amendment will become effective upon acceptance of the filing by the Secretary of State of the State of New York. If the proposal does not receive the requisite vote, the Amendment will not be implemented and Article Tenth will continue to apply.call a special meeting.
20212022 PROXY STATEMENT 72 75
The Company knows of no other matters to be submitted to the shareholders at the Annual Meeting. If any other matters are properly brought before the shareholders at the Annual Meeting, it is the intention of the persons named on the enclosed proxy card to vote the shares represented thereby on such matters in accordance with their best judgment.
20212022 PROXY STATEMENT 73 76
Why am I receiving this proxy statement?
We are providing these proxy materials to shareholders beginning on April 9, 2021March 31, 2022, in connection with the solicitation by the Board of proxies to be voted at the Annual Meeting, which will be held on May 20, 2021,12, 2022, and at any adjournments or postponements of this scheduled meeting.
How can I access the proxy materials electronically or sign up for electronic delivery?
We may furnish proxy materials, including this proxy statement and the Company’s annual report for the year ending December 31, 2020,2021, to our shareholders by providing access to such documents on the Internet instead of mailing printed copies. Most shareholders will not receive printed copies of the proxy materials unless they request them. Instead, a Notice of Internet Availability of Proxy Materials (“Notice of Internet Availability”), which was mailed to most of our shareholders, will explain how you may access and review the proxy materials and how you may submit your proxy on the Internet. If you would like to receive a paper or electronic copy of our proxy materials, please follow the instructions included in the Notice of Internet Availability. Shareholders who requested paper copies of proxy materials or previously elected to receive proxy materials electronically did not receive the Notice of Internet Availability and are receiving the proxy materials in the format requested.
This proxy statement and the Company’s annual report for the year ending December 31, 20202021, are available electronically on our hosted website at www.proxyvote.com.www.proxyvote.com.
To access and review the materials made available electronically:
Go towww.proxyvote.com and input the 16-digit control number from the Notice of Internet Availability or proxy card.
Click the “2021“2022 Proxy Statement” in the right column.
Have your proxy card or voting instructions available.
We encourage you to review all of the important information contained in the proxy materials before voting.
Who will bear the cost of this solicitation, and how will proxies be solicited?
The Company bears the full cost of soliciting proxies, which will be conducted primarily by mail. The Company has also retained Alliance Advisors to aid in the solicitation of proxies by mail, telephone, facsimile, e-mail and personal solicitation and will request brokerage houses and other nominees, fiduciaries and custodians to forward soliciting materials to beneficial owners of the Company’s common stock. For these services, the Company will pay Alliance Advisors a fee of $9,500 plus reimbursement for reasonable out-of-pocket expenses. Brokerage firms and other custodians, nominees and fiduciaries are reimbursed by the Company for reasonable out-of-pocket expenses that they incur to send proxy materials to shareholders and solicit their votes. In addition to this mailing, proxies may be solicited, without extra compensation, by our officers and employees, by mail, telephone, facsimile, electronic mail and other methods of communication.
Why did my household only receive one set of proxy materials?
To reduce the expenses of delivering duplicate proxy materials, we deliver one Notice of Internet Availability and, if applicable, annual report and proxy statement, to multiple shareholders sharing the same mailing address unless otherwise requested. We will promptly send a separate annual report and proxy statement to a shareholder at a shared address upon request at no cost. Shareholders with a shared address may also request that we send a single copy in the future if we are currently sending multiple copies to the same address.
20212022 PROXY STATEMENT 74 77
Requests related to delivery of proxy materials may be made by calling Investor Relations at (972) 443-6500 or writing to our principal executive offices at Flowserve Corporation, Attention: Investor Relations, 5215 N. O’Connor Blvd., Suite 2300,700, Irving, Texas 75039. Shareholders who hold shares in “street name” (as described below) may contact their brokerage firm, bank, broker-dealer or similar organization to request information about this “householding” procedure.
Shareholders of record at the close of business on March 26, 202116, 2022 (the “Record Date”) are entitled to vote at the Annual Meeting. As of the Record Date, 130,640,880 shares of common stock were issued and outstanding (excluding treasury shares). Each shareholder is entitled to one vote for each share owned.
What are the voting requirements and the Board’s recommendations on each proposal?
The following table sets forth the voting standards for each proposal being voted on at the Annual Meeting and the Board’s recommendations.
Proposal | Board
| Required | Effect of... | |||
Abstentions | Broker
| |||||
1. Election of directors | For each nominee | Majority of the votes cast | No effect | No effect | ||
2. Advisory vote to approve executive compensation | For | Majority of the votes cast | No effect | No effect | ||
3. Ratification of auditors | For | Majority of the votes cast | No effect | Not applicable | ||
4.
|
|
| Against |
| No effect | No effect |
Shares that are properly voted via the Internet or by telephone or for which proxy cards are properly executed and returned will be voted at the Annual Meeting in accordance with the directions given or, in the absence of directions, will be voted in accordance with the Board’s recommendations above. Although the Board expects that the nominees will be available to serve as directors, if any of them should be unable or for good cause unwilling to serve, the Board may decrease the size of the Board or may designate substitute nominees, and the proxies will be voted in favor of any such substitute nominees.
The Company knows of no other matters to be submitted to the shareholders at the Annual Meeting. If any other matters properly come before the shareholders at the Annual Meeting, it is the intention of the persons named on the enclosed proxy card to vote the shares represented thereby on such matters in accordance with their best judgment.
If your shares are held through a broker, your vote instructs the broker how you want your shares to be voted. If you vote on each proposal, your shares will be voted in accordance with your instructions. Under the rules of the NYSE, brokers may vote shares they hold in “street name” on behalf of beneficial owners who have not voted with respect to certain discretionary matters. The proposal to ratify the appointment of PricewaterhouseCoopers LLP (Proposal Three) is considered a discretionary matter, so brokers may vote shares on this matter in their discretion if no voting instructions are received. However, the other proposals areNOT considered discretionary matters, so brokers have no discretion to vote shares for which no voting instructions are received, and no vote will be cast if you do not vote on those items (this is commonly referred to as a “broker non-vote”).WethereforeurgeyoutovoteonALLvotingitems.
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A quorum is necessary to conduct business at the Annual Meeting. The presence, in person or by proxy, of at least a majority of the total number of outstanding shares of common stock constitutes a quorum. Abstentions, withheld votes, and broker non-votes are counted as present at the meeting for purposes of determining a quorum.
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If your shares are held by a broker, bank or other nominee (i.e., in “street name”), you will receive instructions from your nominee, which you must follow in order to have your shares voted. “Street name” shareholders who wish to vote online during the Annual Meeting and whose voting instruction form or Notice of Internet Availability indicates that they may vote those shares through www.proxyvote.com may attend and vote at the Annual Meeting at www.virtualshareholdermeeting.com/FLS2021 FLS2022by entering the 16-digit control number indicated on that voting instruction form or Notice of Internet Availability and other information requested on the log-in page. “Street name” shareholders who did not receive a 16-digit control number should contact their bank, broker or other nominee at least five days before the Annual Meeting and obtain a “legal proxy” to be able to participate in or vote online at the meeting.
Ifyouholdyoursharesinyourownnameasaholderofrecord, you may vote your shares using one of the methods described below:
Vote by InternetinAdvanceoftheAnnualMeeting. You can vote via the Internet by going towww.proxyvote.com and following the on-screen instructions. Internet voting is available 24 hours a day, 7 days a week, until 11:59 p.m., Eastern Time, on May 19, 2021.11, 2022. Have your proxy card available when you access the Internet website.
Vote by TelephoneinAdvanceoftheAnnualMeeting. If you received paper copies of the proxy materials, you can vote by telephone by calling toll-free to 1-800-690-6903 from the United States and Canada and following the voice instructions. Have your proxy card available when you place your telephone call. Telephone voting is available 24 hours a day, 7 days a week, until 11:59 p.m., Eastern Time, on May 19, 2021.11, 2022.
Vote by MailinAdvanceoftheAnnualMeeting. If you received paper copies of the proxy materials, you may mark the enclosed proxy card, sign and date it and return it to Broadridge in the enclosed envelope as soon as possible before the Annual Meeting. Your signed proxy card must be received by Broadridge prior to May 12, 2022, the date of the Annual Meeting for your vote to be counted at the Annual Meeting. Please note that if you vote by Internet or telephone, you do not need to return a proxy card.
VoteOnlineDuringtheAnnualMeeting. You may attend the Annual Meeting virtually and vote online at www.virtualshareholdermeeting.com/FLS2021FLS2022 by entering the 16-digit control number provided on your proxy card, voting instruction form or Notice of Internet Availability and other information requested on the log-in page.
The Governor of the State of New York has issued several temporary executive orders permitting New York corporations to hold virtual only shareholder meetings in light of the COVID-19 pandemic. In addition, on March 17, 2021, the New York State Legislature approved amendments to New York law that, if signed by the Governor, would permit New York corporations to hold virtual-only shareholder meetings this year. As such, we intend to hold the Annual Meeting solely by means of remote communications with no in-person location if permitted by New York law or executive order as of the date of the Annual Meeting. In the event a solely virtual meeting is not permitted as of such date, we may provide a venue for an in-person annual meeting, in addition to virtual participation. In that case, we will notify our shareholders in advance on our website (ir.flowserve.com) and by issuing a press release and filing it as additional proxy materials with the Securities and Exchange Commission and on www.proxyvote.com. Such additional materials will also note any additional safety precautions implemented for attendance at an in-person meeting in light of the COVID-19 pandemic.
How do I vote if I participate in the Flowserve Corporation Retirement Savings Plan?
If you are a participant in the Flowserve Corporation Retirement Savings Plan, your vote serves as a voting instruction to the trustee for this plan.
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To be timely, your vote by telephone or Internet must be received by 11:59 p.m., Eastern Time, on May 19, 2021.9, 2022. If you do not vote by telephone or Internet, please return your proxy card as soon as possible.
If you vote in a timely manner, the trustee will vote the shares as you have directed.
If you do not vote in a timely manner, the trustee will vote your shares in the same proportion as the shares voted by participants who timely return their cards to the trustee.
You may revoke your proxy at any time before it has been exercised at the Annual Meeting by:
timely mailing in a revised proxy dated later than the prior submitted proxy;
timely notifying the Corporate Secretary in writing that you are revoking your proxy;
timely casting a new vote by telephone or the Internet; or
attending the Annual Meeting virtually and voting online (and by following the instructions under “How do I vote?”), including by entering your 16-digit control number).
Broadridge, our independent inspector of elections for the Annual Meeting, will tabulate voted proxies.
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How can I attend the Annual Meeting online?
Shareholders as of the record date will be able to participate in the Annual Meeting virtually. Shareholders attending the Annual Meeting will have the opportunity to cast their votes online during the meeting, by following the instructions provided under “How do I vote?”, and ask questions of management and our directors during the question and answer portion of the Annual Meeting, as described under “May I ask questions prior to or during the Annual Meeting?”. Online check-in will be available approximately 15 minutes before the meeting starts. We encourage you to allow ample time for check-in procedures.
A guest log-in option will be available in listen-only mode. Anyone wishing to do so may go to www.virtualshareholdermeeting.com/FLS2021FLS2022 and enter as a guest. Shareholders who attend the Annual Meeting online as a guest will not be able to participate in, vote or ask questions during the Annual Meeting.
We will also broadcast the Annual Meeting as a live audio webcast at www.flowserve.com under the “Investors—Events & Presentations” section.
May I ask questions prior to or during the Annual Meeting?
Shareholders as of the record date that receive a 16-digit code on their proxy card, voting instruction form or Notice of Internet Availability (including “street name” shareholders who subsequently obtain a legal proxy and 16-digit control number) may submit questions in advance of the meeting, beginning on May 6, 2021,April 28, 2022, by following the instructions at www.proxyvote.com.
Shareholders as of the record date who attend and participate in the virtual Annual Meeting at www.virtualshareholdermeeting.com/FLS2021FLS2022 using their 16-digit control number (as described above) will have an opportunity to submit questions online during the meeting. Shareholders attending the meeting online who do not log-in to the virtual meeting portal with their 16-digit control number and other information requested on the log-in page may not ask questions or vote their shares during the meeting.
Beginning on April 28, 2022, we will post meeting rules of conduct at www.proxyvote.com, which will set out the rules that will govern shareholders’ participation in the Annual Meeting. The rules of conduct will provide that each shareholder will be limited to a total of three questions of no more than one minute each in order to allow sufficient time to address as many relevant questions that are submitted as possible. We will answer questions relevant to meeting matters that comply with the meeting rules of conduct during the Annual Meeting, subject to time constraints.
Questions related to personal matters, that are not pertinent to Annual Meeting matters, or that contain derogatory references to individuals, use offensive language, or are otherwise out of order or not suitable for the conduct of the Annual Meeting will not be addressed during the meeting. If we receive substantially
2021 PROXY STATEMENT 77
similar questions, we will group such questions together and provide a single response to avoid repetition. If there are questions pertinent to Annual Meeting matters that cannot be answered during the Annual Meeting due to time constraints, management will post answers to such questions at ir.flowserve.com following the meeting.
What if I have technical difficulties or trouble accessing the virtual Annual MetingMeeting website?
If you encounter any technical difficulties with the virtual meeting website on the meeting day, please call the technical support number that will be posted on the virtual meeting log-in page. Technical support will be available starting at 11:00 a.m. central daylight time and until the meeting has finished.
What if I was not able to attend the Annual Meeting?
A replay of the meeting will be made available on our website at www.flowserve.com under the “Investors—Events & Presentations” section after the meeting.
Where can I find the voting results after the Annual Meeting?
We intend to announce the preliminary voting results of the proposals at the Annual Meeting and to disclose final voting results in a Form 8-K to be filed with the SEC no later than four business days following the Annual Meeting (or, if final results are not available at the time, within four business days of the date on which final results become available).
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You may order a copy of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020,2021, free of charge, or request other information by mail addressed to:
Flowserve Corporation
5215 N. O’Connor Blvd.,
Suite 2300700
Irving, Texas 75039
Attention: Investor Relations
This information is also available free of charge on the SEC’s website, www.sec.gov, and our website, www.flowserve.com.
Shareholder Proposals and Nominations
Shareholder Proposals for Inclusion in the 20222023 Proxy Statement (Rule 14a-8 Proposals)
Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934 (the “Exchange Act”), certain shareholder proposals may be eligible for inclusion in our 2022 proxy statement. These shareholder proposals must comply with the requirements of Rule 14a-8, including a requirement that shareholder proposals be received no later than 6:00 p.m. CDT on December 10, 2021.1, 2022. All proposals should be addressed to the Corporate Secretary at the address below. We strongly encourage any shareholder interested in submitting a proposal to contact the Corporate Secretary in advance of this deadline to discuss the proposal. Submitting a shareholder proposal does not guarantee that we will include it in our proxy statement.
Director Nominees for Inclusion in the 20222023 Proxy Statement (Proxy Access)
In order for an eligible shareholder or group of shareholders to nominate a director nominee for election at our 20222023 Annual Meeting of shareholders pursuant to the proxy access provision of our By-Laws, the shareholder must submit notice of such nomination and other required information in writing between November 10, 20211, 2022 and December 10, 2021.1, 2022. If, however, the 20222023 Annual Meeting is held more than 30 days before or more than 60 days after the anniversary of the 20212022 Annual Meeting, the shareholder must submit any such notice and other required information between (i) 150 calendar days prior to the 20222023 Annual Meeting and (ii) the later of 120 calendar days prior to the 20222023 Annual Meeting or 10 days following the date on which the date of the 20222023 Annual Meeting is first publicly announced. The nomination and supporting materials must also comply with the requirements set forth in our By-Laws for inclusion of director nominees in the proxy statement.
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Other Shareholder Proposals/Nominees to be Presented at the 20222023 Annual Meeting
Alternatively, under the Company’s By-Laws, if a shareholder does not want to submit a proposal for inclusion in our proxy statement but wants to introduce it at our 20222023 Annual Meeting, or intends to nominate a person for election to the Board directly (rather than by inclusion in our proxy statement or by recommending such person as a candidate to our CG&N Committee) the shareholder’s notice must be delivered to the Corporate Secretary at the address below no earlier than January 20, 202212, 2023 and no later than February 19, 2022.11, 2023. If, however, the 20222023 Annual Meeting is held more than 30 days before or more than 60 days after the anniversary of the 20212022 Annual Meeting, the shareholder must submit any such notice between (i) 120 calendar days prior to the 20222023 Annual Meeting and (ii) the later of 90 calendar days prior to the 2022 Annual Meeting or 10 days following the date on which the date of the 20222023 Annual Meeting is publicly announced.
The shareholder’s submission must be made by a registered shareholder on his or her behalf or on behalf of a beneficial owner of the shares and must include detailed information specified in our By-Laws concerning the proposal or nominee, as the case may be, and detailed information as to the shareholder’s interests in Company securities. In addition, the deadline for providing notice to the Company under Rule 14a-9, the SEC’s universal proxy rule, of a shareholder’s intent to solicit proxies in support of nominees submitted under the Company’s advance notice bylaws is March 13, 2023.
At the 20222023 Annual Meeting, we will not entertain any proposals or nominations that do not meet these requirements other than shareholder nominations eligible to be included in our 20222023 proxy statement as described above.
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If the shareholder does not comply with the requirements of Rule 14a-4(c)(1) under the Exchange Act, we may exercise discretionary voting authority under proxies that we solicit to vote in accordance with our best judgment on any such shareholder proposal or nomination. The Company’s By-Laws are posted on the investor relations portion of our website at www.flowserve.comir.flowserve.com under the “Investors—Corporate Governance”“Corporate Governance—Documents & Charters” caption. To make a submission or to request a copy of the Company’s By-Laws, shareholders should contact our Corporate Secretary at our principal executive offices at the following address:
Flowserve Corporation
5215 N. O’Connor Blvd.,
Suite 2300700
Irving, Texas 75039
Attention: Corporate Secretary
We strongly encourage shareholders to seek advice from knowledgeable legal counsel and contact the Corporate Secretary before submitting a proposal or a nomination.
This Proxy Statement contains forward-looking statements about future events and circumstances. Generally speaking, any statement not based upon historical fact is a forward-looking statement. Forward-looking statements can also be identified by the use of forward-looking or conditional words such as “could,” “should,” “can,” “continue,” “estimate,” “intent,” “forecast,” “intend,” “look,” “may,” “will,” “expect,” “believe,” “anticipate,” “plan,” “remain,” “project,” “predict,” “seek,” “confident” and “commit” or similar expressions. In particular, statements regarding our financial position, plans, strategies, objectives, prospects and expectations regarding our business, future operations, industry and market conditions are forward-looking statements. They reflect our current expectations, are subject to materials risks, uncertainties and other factors, many of which are outside of our control, and are not guarantees of performance and speak only as of the date of this Proxy Statement. You should not rely unduly on forward-looking statements. Our business results are subject to a variety of risks and uncertainties, including those that are described in our 2021 Annual Report on Form 10-K and elsewhere in our filings with the Securities and Exchange Commission, any of which could cause actual plans or results to differ materially from those included in any forward-looking statements. If any of these considerations or risks materialize or intensify, our expectations (or underlying assumptions) may change and our performance may be adversely affected. Except as required by law, we undertake no obligation, and disclaim any duty, to publicly update or revise any forward-looking statement or disclose any facts, events or circumstances that O&C Committeeur after the date hereof that may affect the accuracy of any forward-looking statement, whether as a result of new information, future events, changes in our expectations or otherwise.
Additionally, website links included in this Proxy Statement are for convenience only. Information contained on or accessible through such website links is not incorporated herein and does not constitute a part of this Proxy Statement.
20212022 PROXY STATEMENT 79 82
RECONCILIATION OF NON-GAAP MEASURES (Unaudited)
(Amounts in thousands, except per share data) | Year Ended December 31, 2021 | ||||||||||
As Reported | Realignment(1) | Other Items | As Adjusted |
| |||||||
Sales | $ | 3,541,060 | $ | — |
| $ | — |
| $ | 3,541,060 |
|
Gross profit |
| 1,049,725 |
| (16,844) |
|
| — |
|
| 1,066,568 |
|
Gross margin |
| 29.6% |
| — |
|
| — |
|
| 30.1% |
|
Selling, general and administrative expense |
| (797,076) |
| (5,646) |
|
| — |
|
| (791,431) |
|
Gain on sale of business |
| 1,806 |
| — |
|
| 1,806 | (3) |
| — |
|
Net earnings from affiliates |
| 16,304 |
| — |
|
| — |
|
| 16,304 |
|
Operating income |
| 270,759 |
| (22,490) |
|
| 1,806 |
|
| 291,441 |
|
Operating income as a percentage of sales |
| 7.6% |
| — |
|
| — |
|
| 8.2% |
|
Interest and other expense, net |
| (137,171) |
| — |
|
| (75,188) | (4) |
| (61,982) |
|
Earnings before income taxes |
| 133,588 |
| (22,490) |
|
| (73,382) |
|
| 229,459 |
|
(Provision for) benefit from income taxes |
| 2,594 |
| 7,070 | (2) |
| 33,522 | (5) |
| (37,997) |
|
Tax Rate |
| -1.9% |
| 31.4% |
|
| 45.7% |
|
| 16.6% |
|
Net earnings attributable to Flowserve Corporation | $ | 125,949 | $ | (15,420) |
| $ | (39,860) |
| $ | 181,229 | (a) |
Operating cash flow |
|
|
|
|
|
|
|
| $ | 250,119 |
|
Less: Capital expenditures |
|
|
|
|
|
|
|
|
| (54,936) |
|
Free cash flow |
|
|
|
|
|
|
|
| $ | 195,183 | (b) |
As adjusted free cash flow conversion rate (b)/(a) |
|
|
|
|
|
|
|
|
| 108% |
|
Notes: (1) Represents realignment expense incurred as a result of realignment programs. (2) Includes tax impact of items above and realignment related tax release. (3) Represents final settlement gain on sale of business in 2018. (4) Represents below-the-line foreign exchange impacts and $47.7 million of expense as a result of early extinguishment of debt and duplicate interest expense. (5) Includes tax impact of items above and $17.9 million benefit related to legal entity restructuring of foreign holding companies. |
2022 PROXY STATEMENT 83
Under Section 807 of the Business Corporation Law
Pursuant to the provisions of Section 807 of the Business Corporation Law, I, the undersigned officer of FLOWSERVE CORPORATION, a New York corporation (the “Corporation”), do hereby certify:
(Amounts in thousands, except per share data) | Year Ended December 31, 2020 | ||||||||||
As Reported | Realignment(1) | Other Items | As Adjusted | ||||||||
Sales | $ | 3,728,134 | $ | — |
| $ | — |
| $ | 3,728,134 |
|
Gross profit |
| 1,116,769 |
| (47,297) |
|
| — |
|
| 1,164,066 |
|
Gross margin |
| 30.0% |
| — |
|
| — |
|
| 31.2% |
|
Selling, general and administrative expense |
| (878,245) |
| (34,773) |
|
| (34,269) | (3) |
| (809,203) |
|
Operating income |
| 250,277 |
| (82,070) |
|
| (34,269) |
|
| 366,616 |
|
Operating income as a percentage of sales |
| 6.7% |
| — |
|
| — |
|
| 9.8% |
|
Interest and other expense, net |
| (47,985) |
| — |
|
| 9,626 | (4) |
| (57,611) |
|
Earnings before income taxes |
| 202,292 |
| (82,070) |
|
| (24,643) |
|
| 309,005 |
|
Provision for income taxes |
| (61,417) |
| 12,560 | (2) |
| (2,814) | (5) |
| (71,163) |
|
Tax Rate |
| 30.4% |
| 15.3% |
|
| -11.4% |
|
| 23.0% |
|
Net earnings attributable to Flowserve Corporation | $ | 130,420 | $ | (69,510) |
| $ | (27,457) |
| $ | 227,387 | (a) |
Operating cash flow |
|
|
|
|
|
|
|
| $ | 310,537 |
|
Less: Capital expenditures |
|
|
|
|
|
|
|
|
| (57,405) |
|
Free cash flow |
|
|
|
|
|
|
|
| $ | 253,132 | (b) |
As adjusted free cash flow conversion rate (b)/(a) |
|
|
|
|
|
|
|
|
| 111% |
|
Notes: (1) Represents realignment expense incurred as a result of realignment programs. (2) Includes tax impact of items above. (3) Includes $22.7 million related to Flowserve 2.0 transformation efforts and $11.5 million related to discrete asset write-downs. (4) Represents below-the-line foreign exchange impacts. (5) Includes tax impact of items above, $25.4 million related to Italian tax valuation allowance and $15.6 million benefit related to legal entity simplification and restructuring. |
The name of the Corporation is Flowserve Corporation. The name under which the Corporation was formed is Duriron Castings Company.
The Certificate of Incorporation of the Corporation was filed by the Department of State on May 1, 1912.
The amendments to the Certificate of Incorporation effected by this Certificate are as follows:
Article TENTH is hereby deleted from the Certificate of Incorporation, which removes the requirement for an affirmative vote of the holders of at least two thirds of all outstanding shares of capital stock entitled to vote thereon to authorize, adopt or approve certain actions.
Prior Articles ELEVENTH, TWELFTH, THIRTEENTH, and FOURTEENTH of the Certificate of Incorporation are hereby renumbered as TENTH, ELEVENTH, TWELFTH, and THIRTEENTH, respectively, as a result of the amendments noted above and corresponding renumbering and clarifying changes in the Certificate of Incorporation are also hereby made.
To accomplish the foregoing amendments, the text of the Certificate of Incorporation is hereby restated as amended in its entirety to read as set forth in the Certificate of Incorporation of the Corporation as hereinafter restated.
In accordance with Section 803(a) of the Business Corporation Law, this amendment to the Certificate of Incorporation was duly authorized by the board of directors and by a vote of a two thirds of all outstanding shares entitled to vote thereon at a meeting of shareholders held on May 20, 2021.
The restatement of the Certificate of Incorporation herein provided for was authorized by the vote of holders of outstanding shares of the Corporation entitled to vote on the said restatement of the Certificate of Incorporation, having not less than the minimum requisite proportion of votes.
The text of the Certificate of Incorporation is hereby restated in its entirety to read as follows:
FIRST: The name of the corporation is Flowserve Corporation.
SECOND: The purposes for which the corporation is formed are as follows:
To manufacture, fabricate, cast, machine, mold, develop, process, assemble, purchase or otherwise acquire, sell, lease or otherwise dispose of, and in all ways handle and deal in any or all of the following, and to carry on any trade or business incident thereto, connected therewith or in furtherance thereof:
Pumps, valves, pipe and fittings, filters, anodes, fans, heat exchangers, castings, motors and chemical and other process equipment of all kinds;
All kinds of equipment, castings, molded products, articles and supplies used or useful in the manufacturing, transferring, handling or disposal of corrosive or erosive compounds, liquids, or gases or in controlling corrosive or erosive environments of any kind;
All kinds of equipment, components, parts, articles and supplies used or useful in controlling friction or any other mechanical property, function, action or performance or to seal, lubricate or otherwise control or promote movement or flow of solids, liquids and gases of every kind or nature;
Metals, metallurgical alloys and any article in the manufacture or composition of which any alloy or metallurgical compound is a factor;
20212022 PROXY STATEMENT A-1
Non-metallic molded and machined products of all compositions and types and chemicals, chemical compounds and related products of all kinds, including any article in the manufacture or composition of which chemicals, chemical compounds or related products are a factor.
To purchase or otherwise acquire, hold, own, sell or otherwise dispose of real property, improved or unimproved, and personal property, tangible or intangible, including, without limitation, goods, wares and merchandise of every description and the securities and obligations of any issuer.
In addition to the foregoing, the purpose for which the corporation is formed is to engage in any lawful act or activity; provided, however, the corporation is not formed to engage in any act or activity requiring the consent or approval of any state official, department, board, agency or other body without such consent or approval first being obtained.
THIRD: The aggregate number of shares which the corporation shall have authority to issue is 306,000,000 of which 1,000,000 shares, of the par value of $1.00 each, shall be Preferred Stock and 305,000,000 shares, of the par value of $1.25 each, shall be Common Stock. The Preferred Stock may be issued from time to time in one or more series with such distinctive designations as shall distinguish the shares thereof from the shares of all other series and (i) may have such number of shares to constitute each series, which number may be from time to time increased or decreased, but not below the number of shares thereof then outstanding; (ii) may have such voting powers, full or limited, or may be without voting powers; (iii) may be subject to redemption at such time or times and at such prices and on such terms; (iv) may have the benefit of a sinking fund to be applied to the purchase or redemption of such shares, in such amount and applied in such manner; (v) may be entitled to receive dividends (which may be cumulative or noncumulative) at such rate or rates, on such conditions, and at such times, and payable in preference to, or in such relation to, the dividends on any other class or classes or series of stock of the corporation; (vi) may have such rights upon the dissolution of, or upon any distribution of assets of, the corporation; (vii) may be made convertible into, or exchangeable for, shares of any other class or classes or of any other series of the same or any other class or classes of stock of the corporation at such price or prices or at such rates of exchange, and with such adjustments; and (viii) shall have such other relative rights, preferences and limitations, all as shall hereafter be fixed by the resolution or resolutions providing for the issue of such shares of Preferred Stock from time to time adopted by the Board of Directors of the corporation pursuant to authority so to do which is hereby expressly vested in said Board of Directors.
FOURTH: No holder of shares of any class of the corporation shall have any preemptive rights with respect to, or any preemptive rights to purchase or subscribe for, any shares of any class or other securities of any kind of the corporation.
FIFTH: The office of the corporation is to be located in New York County, State of New York.
SIXTH: The corporation hereby designates the Secretary of State of New York as its agent upon whom process in any action or proceeding against it may be served within the State of New York and the address to which the Secretary of State shall mail a copy of any process against the corporation which may be served upon him pursuant to law is:
c/o CT Corporation System28 Liberty StreetNew York, New York 10005
SEVENTH: Its duration is to be perpetual.
EIGHTH: The number of Directors of the corporation shall be such as from time to time shall be fixed by the By-Laws of the corporation, but shall not be less than three. Any of the following actions may be taken by the shareholders of the corporation only by vote of the holders of a majority of all outstanding shares entitled to vote thereon: (a) adoption, amendment or repeal of any by-law, or any provision of this Certificate of Incorporation, relating to (i) the number, classification and terms of office of Directors, (ii) the filling of newly created directorships and vacancies occurring in the Board of Directors, (iii) the removal of Directors, (iv) the power of the Board of Directors to adopt amend or repeal by-laws of the corporation or the vote of the Board of Directors required for any such adoption, amendment or repeal; or (b) any amendment or repeal of this Article EIGHTH. Nothing contained in this Article EIGHTH shall in any way limit the power of the Board of Directors to adopt, amend or repeal by-laws of the corporation.
2021 PROXY STATEMENT A-2 84
NINTH: Beginning at the 2013 annual meeting of shareholders, the directors elected to succeed those directors whose terms expire at that meeting shall be elected to a term of office to expire at the 2014 annual meeting of shareholders. At the 2014 annual meeting of shareholders, the directors elected to succeed those directors whose terms expire at that meeting shall be elected to a term of office to expire at the 2015 annual meeting of shareholders. At the 2015 annual meeting of shareholders, and at each annual meeting of shareholders thereafter, each director shall be elected for a term expiring at the next annual meeting of shareholders and until such director’s successor shall have been elected and qualified, except in the case of the director’s prior death, resignation, retirement, disqualification or removal from office.
TENTH: Subject to the rights of the holders of any series of preferred stock, special meetings of the shareholders of the corporation, for any purpose or purposes, unless otherwise prescribed by statute, may be called only by (i) the Board of Directors, (ii) the Corporate Governance & Nominating Committee of the Board of Directors, (iii) the Chairman of the Board of Directors, the President or the
Chief Executive Officer, or (iv) the Secretary at the written request in proper form of one or more record holders having an aggregate “net long position” (defined below for purposes of this Article TENTH) of at least twenty-five percent (25%) of the outstanding Common Stock of the corporation, and having held such net long position continuously for at least one year prior to the date such request is delivered to the corporation (the “Requisite Special Meeting Percent”).
For purposes of this Article TENTH and determining the Requisite Special Meeting Percent, “net long position” shall be determined with respect to each requesting holder in accordance with the definition thereof set forth in Rule 14e-4 under the Securities Exchange Act of 1934 (the “Exchange Act”) as in effect on June 4, 2012, provided that:
for purposes of such definition, in determining such holder’s “short position,” the reference in such Rule to (A) “the date that a tender offer is first publicly announced or otherwise made known by the bidder to the holders of the security to be acquired” shall be the date of the relevant special meeting request and all dates in the one year period prior thereto, and (B) the “highest tender offer price or stated amount of the consideration offered for the subject security” shall refer to the closing sales price of the Common Stock of the corporation on the New York Stock Exchange on such corresponding date (or, if such date is not a trading day, the next succeeding trading day), (C) the “person whose securities are the subject of the offer” shall refer to the corporation, and (D) a “subject security” shall refer to the issued and outstanding Common Stock of the corporation; and
the net long position of such holder shall be reduced by the number of shares as to which such holder does not, or will not, have the right to vote or direct the vote at such special meeting or as to which such holder has entered into any derivative or other agreement, arrangement or understanding that hedges or transfers, in whole or in part, directly or indirectly, any of the economic consequences of ownership of such shares.
Whether the requesting holders have complied with the requirements of this Article TENTH shall be determined in good faith by the Board of Directors, which determination shall be conclusive and binding on the corporation and the shareholders. The procedures for calling a special meeting of the shareholders of the corporation shall be established by the Board of Directors in the By-Laws of the corporation.
ELEVENTH: Subject to the rights of the holders of any series of preferred stock, all actions required or permitted to be taken by the shareholders of the corporation at an annual or special meeting of the shareholders may be effected without a meeting by the written consent of the holders of Common Stock of the corporation entitled to vote thereon pursuant to Section 615 of the New York Business Corporation Law (a “Consent”); provided that no such action may be taken except in accordance with the provisions of this Article ELEVENTH, the By-Laws of the corporation and applicable law.
RecordDate. The record date for determining such shareholders entitled to consent to corporate action in writing without a meeting shall be as fixed by the Board of Directors or as otherwise established under this Article ELEVENTH. Any holder of Common Stock of the corporation seeking to have the shareholders authorize or take corporate action by Consent shall, by written request addressed to the Secretary and delivered to the corporation’s principal executive offices and signed by holders of record at the time such request is delivered representing an aggregate “net long position” (defined below for purposes of this Article ELEVENTH) of at least twenty-five percent (25%) of the outstanding Common Stock of the corporation, provided that such “net long position” has been held
2021 PROXY STATEMENT A-3
continuously for at least one year prior to the date such request is delivered to the corporation (the “Requisite Consent Percent”), request that a record date be fixed for such purpose. The written request must contain the information set forth in paragraph (b) of this Article ELEVENTH. Following delivery of the request, the Board of Directors shall, by the later of (i) 20 days after delivery of a valid request to set a record date and (ii) 5 days after delivery of all information required by the corporation to determine the validity of the request for a record date or to determine whether the action to which the request relates may be taken by Consent under paragraph (c) of this Article ELEVENTH, determine the validity of the request and whether the request relates to an action that may be taken by Consent and, if appropriate, adopt a resolution fixing the record date for such purpose. The record date for such purpose shall be no more than 10 days after the date upon which the resolution fixing the record date is adopted by the Board of Directors and shall not precede the date such resolution is adopted. If a request complying with the second and third sentences of this paragraph (a) has been delivered to the Secretary but no record date has been fixed by the Board of Directors by the date required by the preceding sentence, the record date shall be the first date on which a signed Consent relating to the action taken or proposed to be taken by Consent is delivered to the corporation in the manner described in paragraph (f) of this Article ELEVENTH; provided that, if prior action by the Board of Directors is required under the provisions of New York law, the record date shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action.
For purposes of this Article ELEVENTH and determining the Requisite Consent Percent, “net long position” shall be determined with respect to each requesting holder in accordance with the definition thereof set forth in Rule 14e-4 under the Exchange Act as in effect on June 4, 2012, provided that:
for purposes of such definition, in determining such holder’s “short position,” the reference in such Rule to (A) “the date that a tender offer is first publicly announced or otherwise made known by the bidder to the holders of the security to be acquired” shall be the date of the written request for a record date described in this paragraph (a) of Article ELEVENTH and all dates in the one year period prior thereto, and (B) the “highest tender offer price or stated amount of the consideration offered for the subject security” shall refer to the closing sales price of the Common Stock of the corporation on the New York Stock Exchange on such corresponding date (or, if such date is not a trading day, the next succeeding trading day), (C) the “person whose securities are the subject of the offer” shall refer to the corporation, and (D) a “subject security” shall refer to the issued and outstanding Common Stock of the corporation; and
the net long position of such holder shall be reduced by the number of shares as to which such holder does not, or will not, have the right to consent or direct the granting of a Consent on the effective date, if any, of the relevant Consent as determined in accordance with this Article ELEVENTH or as to which such holder has entered into any derivative or other agreement, arrangement or understanding that hedges or transfers, in whole or in part, directly or indirectly, any of the economic consequences of ownership of such shares.
RequestRequirements. Any request required by paragraph (a) of this Article ELEVENTH (i) must be delivered by the holders of record of at least the Requisite Consent Percent, who shall not revoke such request and who shall continue to own not less than the Requisite Consent Percent through the date of delivery of Consents signed by a sufficient number of shareholders to authorize or take such action; (ii) must contain an agreement to solicit Consents in accordance with paragraph (d) of this Article ELEVENTH; (iii) must describe the action proposed to be taken by Consent of shareholders; and (iv) must contain (1) such information and representations, to the extent applicable, then required by the By-Laws of the corporation as though each such shareholder was intending to make a nomination of persons for election to the Board of Directors or to bring any other matter before a meeting of shareholders and (2) the text of the proposed action to be taken (including the text of any resolutions to be adopted by Consent); and (v) must include documentary evidence that the requesting shareholders own in the aggregate not less than the Requisite Consent Percent as of the date of such written request to the Secretary, and have held the Requisite Consent Percent continuously for one year prior to the date of such request; provided, however, that if the shareholder(s) making the request are not the beneficial owners of the shares representing at least the Requisite Consent Percent, then to be valid, the request must also include documentary evidence (or, if not simultaneously provided with the request, such documentary evidence must be delivered to the Secretary within 10 business days after the date on which the request is delivered to the Secretary) that the beneficial owners on whose behalf the request is made beneficially own at least the Requisite Consent Percent as of the date on which such request is delivered to the Secretary and have held the Requisite Consent Percent continuously for one year prior to the date
2021 PROXY STATEMENT A-4
of such request. The corporation may require the shareholder(s) submitting such request to furnish such other information as may be reasonably requested by the corporation. Any requesting shareholder may revoke its request at any time by written revocation delivered to the Secretary at the principal executive offices of the corporation. Any disposition by a requesting shareholder of any shares of Common Stock of the corporation (or of beneficial ownership of such shares by the beneficial owner on whose behalf the request was made) after the date of the request, shall be deemed a revocation of the request with respect to such shares, and each requesting shareholder and the applicable beneficial owner shall certify to the Secretary on the day prior to the record date set for the action by written consent as to whether any such disposition has occurred. If the unrevoked requests represent in the aggregate less than the Requisite Consent Percent, the Board of Directors, in its discretion, may cancel the action by written consent.
ActionsWhichMayNotBeTakenbyWrittenConsent. Shareholders are not entitled to act by Consent if (i) the record date request does not comply with this Article ELEVENTH and the By-Laws of the corporation; (ii) the action relates to an item of business that is not a proper subject for shareholder action under applicable law; (iii) the request for a record date for such action is received by the Secretary during the period commencing 90 days prior to the first anniversary of the date of the immediately preceding annual meeting and ending on the date of the next annual meeting; (iv) an identical or substantially similar item (a “Similar Item”), other than the election or removal of directors, was presented at a meeting of shareholders held not more than 12 months before the request for a record date is received by the Secretary; (v) a Similar Item consisting of the election or removal of directors was presented at a meeting of shareholders held not more than 90 days before the request is received by the Secretary (and, for purposes of this clause, the election or removal of directors shall be deemed a “Similar Item” with respect to all items of business involving the election or removal of directors); (vi) a Similar Item is included in the corporation’s notice of meeting as an item of business to be brought before an annual or special shareholders meeting that has been called but not yet held or that is called to be held within 60 days after the request is received by the Secretary; or (vii) such record date request was made in a manner that involved a violation of Regulation 14A under the Exchange Act or other applicable law.
MannerofConsentSolicitation. Holders of Common Stock of the corporation may take action by written consent only if Consents are solicited from all holders of Common Stock of the corporation entitled to vote on the matter and in accordance with applicable law.
DateofConsent. Every Consent purporting to take or authorize the taking of corporate action must bear the date of signature of each shareholder who manually signs the Consent, and no Consent shall be effective to take the corporate action referred to therein unless, within 60 days of the earliest dated Consent delivered in the manner required by paragraph (f) of this Article ELEVENTH and not later than 120 days after the record date for determining the shareholders entitled to consent to such action, Consents signed by a sufficient number of shareholders to take such action are so delivered to the Secretary.
DeliveryofConsent. No Consents may be dated or delivered to the corporation or its registered office in the State of New York until 60 days after the delivery of a valid request to set a record date. Consents must be delivered to the corporation by delivery to its registered office in the State of New York or its principal place of business. Delivery must be made by hand or by certified or registered mail, return receipt requested. The Secretary shall provide for the safe-keeping of such Consents and any related revocations and shall promptly designate one or more persons, who shall not be members of the Board of Directors, to serve as inspector(s) (“Inspector(s)”) with respect to such Consents. The Inspector(s) shall promptly conduct a ministerial review of the sufficiency of all Consents and any related revocations and of the validity of the action to be taken by written consent as the Secretary deems necessary or appropriate, including, without limitation, whether the shareholders of a number of shares having the requisite voting power to authorize or take the action specified in Consents have given consent. If after such investigation the Inspector(s) shall determine that the action purported to have been taken is duly authorized by the Consents, that fact shall be certified on the records of the corporation kept for the purpose of recording the proceedings of meetings of shareholders and the Consents shall be filed in such records. In conducting the investigation required by this paragraph (f), the Inspector(s) may, at the expense of the corporation, retain special legal counsel and any other necessary or appropriate professional advisors as such person or persons may deem necessary or appropriate and, to the fullest extent permitted by law, shall be fully protected in relying in good faith upon the opinion of such counsel or advisors.
2021 PROXY STATEMENT A-5
EffectivenessofConsent. Notwithstanding anything in this Certificate of Incorporation to the contrary, no action may be taken by Consent except in accordance with this Article ELEVENTH. If the Board of Directors shall determine that any request to fix a record date was not properly made in accordance with, or relates to an action that may not be effected by Consent pursuant to, this Article ELEVENTH, or the shareholder or shareholders seeking to take such action do not otherwise comply with this Article ELEVENTH, then the Board of Directors shall not be required to fix a record date and any such purported action by Consent shall be null and void to the fullest extent permitted by applicable law. No Consent shall be effective until such date as the Inspector(s) certify to the corporation that the Consents delivered to the corporation in accordance with paragraph (f) of this Article ELEVENTH, represent at least the minimum number of votes that would be necessary to take the corporate action at a meeting at which all shares entitled to vote thereon were present and voted, in accordance with New York law and this Certificate of Incorporation.
ChallengetoValidityofConsent. Nothing contained in this Article ELEVENTH shall in any way be construed to suggest or imply that the Board of Directors of the corporation or any shareholder shall not be entitled to contest the validity of any Consent or related revocations, whether before or after such certification by the Inspector(s), as the case may be, or to prosecute or defend any litigation with respect thereto.
Board-SolicitedShareholderActionbyWrittenConsent. Notwithstanding anything to the contrary set forth above, (i) none of the foregoing provisions of this Article ELEVENTH shall apply to any solicitation of shareholder action by written consent by or at the direction of the Board of Directors and (ii) the Board of Directors shall be entitled to solicit shareholder action by written consent in accordance with applicable law.
TWELFTH: The corporation hereby designates CT Corporation System, having an office at 28 Liberty Street, New York, New York 10005, as its registered agent upon whom process against it may be served.
THIRTEENTH: No director of this corporation shall be personally liable to this corporation or its shareholders for damages for any breach of duty as a director; provided, however, that, to the extent required by applicable law, the foregoing clause shall not apply to any liability of a director if a judgment or other final adjudication adverse to him establishes (i) that his acts or omissions were in bad faith or involved intentional misconduct or a knowing violation of law, (ii) that he personally gained in fact a financial profit or other advantage to which he was not legally entitled, or (iii) that his acts violated Section 719 of the New York Business Corporation Law. Any repeal or modification of this Article THIRTEENTH shall not adversely affect any right or protection of a director of the corporation existing hereunder with respect to any act or omission occurring prior to or at the time of such repeal or modification.
IN WITNESS WHEREOF, I hereunto sign my name and affirm that the statements made herein are true under penalties of perjury, this [__]th day of May, 2021.
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2021 PROXY STATEMENT A-6