| Item 5.02 | Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. |
2020 Senior Level Performance Bonus Plans
In February 2020, the Compensation Committee (the “Compensation Committee”) of the Board of Directors (the “Board”) of Gentherm Incorporated (the “Company”) approved the Company’s 2020 Senior Level Performance Bonus Plan (the “2020 Bonus Plan”) applicable to all named executive officers and certain other key employees. On September 30, 2020, in view of the events and circumstances created by the COVID-19 pandemic, the Compensation Committee amended the 2020 Bonus Plan (the “2020 Bonus Plan Amendment”) and approved a Second Half 2020 Senior Level Performance Bonus Plan (the “Second Half 2020 Bonus Plan”). The Company also amended a performance-based bonus plan for the second half of 2020 applicable to other salaried employees consistent with the features of the Second Half 2020 Bonus Plan.
The 2020 Bonus Plan Amendment ends the applicable performance period as of June 30, 2020, which resulted in no bonuses earned or paid under such plan. The Second Half 2020 Bonus Plan provides for bonuses based on the Company’s revenue and Adjusted EBITDA performance for the second half of 2020, both equally weighted (collectively, the “Performance Metrics”). The Second Half 2020 Bonus Plan eliminates individual performance modifiers for the named executive officers and certain other key employees.
The Compensation Committee approved performance goals for each of the Performance Metrics relating to threshold, target and maximum earned bonuses that correspond to the budget for the second half of 2020 originally set in February 2020. The Second Half 2020 Bonus Plan performance goals were not modified or reduced for the impact of the COVID-19 pandemic. The Compensation Committee also reduced the threshold, target and maximum payouts under the Second Half 2020 Bonus Plan for named executive officers from 50% to 150% of their target bonuses under the 2020 Bonus Plan (30% to 200%, including individual performance modifiers) to 25% to 75% of their target bonuses under the Second Half 2020 Bonus Plan.
The Compensation Committee recognized that the performance goals under the 2020 Bonus Plan were established at a time when the specific adverse impact of the COVID-19 pandemic on the Company’s business and financial performance was unforeseeable and that such impact was largely out of management’s control. The Compensation Committee also considered management’s leadership during, and response to, the pandemic and business recovery efforts, including: (i) swiftly implementing additional health and safety measures to comply with global regulations and protect its employees; (ii) preserving liquidity and reducing capital and operating expenses; (iii) minimizing salaried employee furloughs and layoffs; (iv) implementing a salary deferral program; and (v) providing compensation to hourly employees during layoffs to improve retention and ensure manufacturing readiness.
The Compensation Committee believes that the Second Half 2020 Bonus Plan: (i) recognizes the hard work, commitment and achievements of the participants during a very challenging time for the Company; (ii) motivates the Company’s employees to continue to work to achieve important 2020 financial objectives that drive long-term shareholder value; (iii) maintains a formulaic approach to determining bonus payments for the named executive officers based on the Company performance and holds management accountable to its original budget for the second half of 2020; and (iv) balances shareholder interests by reducing payouts commensurate with a half year plan.
Salary Deferral
The Company previously disclosed the implementation of a salary deferral program effective May 1, 2020, including 40% of the base salary of the Company’s Chief Executive Officer, 30% of the base salaries of the Company’s other executive officers and 20% of the base salaries of other salaried employees (subject to certain exceptions). The salary deferral program was intended to be effective until December 31, 2020; however, the Company has determined to terminate the salary deferral program as of September 30, 2020. The accumulated deferred base salary will be paid on or before March 15, 2021.
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