DEF 14A 1 d41869ddef14a.htm DEF 14A DEF 14A
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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES

EXCHANGE ACT OF 1934

Filed by Registrant ☑

Filed by a Party other than the Registrant ☐

Check the appropriate box:

 

  Preliminary Proxy Statement     Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)).
  Definitive Proxy Statement    
  Definitive Additional Materials    
  Soliciting Materials Pursuant to Section 240.14a-11(c) or Section 240.14a-12

CMC MATERIALS, INC.

(Exact name of Registrant as Specified in Its Charter)

 

Payment of Filing Fee (Check the appropriate box):
    No fee required.
    Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
    (1)  

Title of each class of securities to which transaction applies:

 

    (2)  

Aggregate number of securities to which transaction applies:

 

    (3)  

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

    (4)  

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  (5)   Total fee paid:
            


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LOGO

CMC MATERIALS, INC.

870 NORTH COMMONS DRIVE

AURORA, ILLINOIS 60504

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To be held March 3, 2021

To our Stockholders:

We are notifying you that the 2021 annual meeting of stockholders of CMC Materials, Inc. (formerly known as Cabot Microelectronics Corporation) will be held on Wednesday, March 3, 2021 at 8:00 a.m., Central Standard Time, via the internet through a virtual web conference at www.virtualshareholdermeeting.com/CCMP2021 for the following purposes:

 

  1.

To elect three directors, each for a term of three years;

 

  2.

To hold a non-binding stockholder advisory vote to approve our named executive officer compensation;

 

  3.

To ratify the selection of PricewaterhouseCoopers LLP, an independent registered public accounting firm, as our independent auditors for fiscal year 2021;

 

  4.

To approve the CMC Materials, Inc. 2021 Omnibus Incentive Plan; and

 

  5.

To transact other business properly coming before the meeting.

Each of these matters is described in further detail in the accompanying proxy statement. We also have included a copy of our 2020 Annual Report. Only stockholders of record at the close of business on January 7, 2021 are entitled to vote at the meeting or any postponements or adjournments of the meeting. A complete list of these stockholders will be available at our principal executive offices prior to the meeting.

We are delivering our proxy statement and 2020 Annual Report under the United States Securities and Exchange Commission (the “SEC”) rules that allow companies to furnish proxy materials to their stockholders over the internet. Accordingly, we are sending a Notice of Internet Availability of Proxy Materials to our stockholders, which is designed to reduce our printing and mailing costs and the environmental impact of the proxy materials and our 2020 Annual Report (collectively, the “Proxy Materials”). A paper copy of our Proxy Materials may be requested through one of the methods described in the Notice of Internet Availability of Proxy Materials.

Please use this opportunity to take part in our affairs by voting your shares. You will be able to attend the 2021 annual meeting of stockholders online, vote your shares electronically and submit questions during the meeting by logging in to the website listed above using the 16-digit control number included in your Notice of Internet Availability of Proxy Materials, on your proxy card or on any additional voting instructions accompanying these proxy materials. We recommend that you log in a few minutes before the meeting to ensure you are logged in when the meeting starts. We have adopted this technology as part of our effort to maintain a safe and healthy environment for our directors, employees, and stockholders who wish to attend the annual meeting. In light of the COVID-19 pandemic (“Pandemic”), we believe that hosting a virtual meeting is in your and our company’s best interests.

Whether or not you plan to participate in the meeting, your vote is important. Please promptly submit your proxy by telephone, internet or mail by following the instructions found on your Notice of Internet Availability of Proxy Materials or proxy card. Your proxy can be withdrawn by you at any time before it is voted.

By order of the Board of Directors,

 

 

LOGO

William P. Noglows

Chairman of the Board

Aurora, Illinois

This proxy statement is dated January 19, 2021, and is first being made available to stockholders electronically via the internet on or about January 19, 2021.


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Table Of Contents

 

     Page  

ABOUT THE MEETING

     1  

What is the purpose of the annual meeting?

     1  

What is the Notice of Internet Availability of Proxy Materials?

     1  

How does the board recommend I vote?

     2  

Who is entitled to vote?

     2  

What is the difference between holding shares as a record holder and as a beneficial owner?

     2  

What constitutes a quorum?

     2  

How do I participate in the meeting?

     2  

How do I vote, and can I vote by telephone or through the internet?

     3  

What if I do not specify how my shares are to be voted?

     3  

Can I revoke my proxy or change my vote after I return my proxy card or after I vote electronically via the internet or by telephone?

     4  

What vote is required to approve each matter that comes before the meeting?

     4  

What happens if additional proposals are presented at the meeting?

     4  

Who will bear the costs of soliciting votes for the meeting?

     4  

2021 PROXY STATEMENT – SUMMARY

     5  

STOCK OWNERSHIP

     8  

Security Ownership of Certain Beneficial Owners and Management

     8  

ELECTION OF DIRECTORS

     11  

BOARD STRUCTURE AND COMPENSATION

     14  

Board of Directors and Board Committees

     14  

Criteria for Nominating Directors

     19  

Compensation of Directors

     20  

Compensation Committee Interlocks and Insider Participation

     23  

SUSTAINABILITY AND RESPONSIBLE CARE—ENVIRONMENTAL, HEALTH AND SAFETY

     23  

FEES OF INDEPENDENT AUDITORS AND AUDIT COMMITTEE REPORT

     25  

Report of the Audit Committee

     25  

COMPENSATION DISCUSSION AND ANALYSIS

     27  

Fiscal Year 2020 Executive Compensation Summary

     27  

Overview

     30  

Elements of Compensation

     33  

CEO Compensation

     44  

Regulatory and Other Factors

     46  

COMPENSATION AND RISK

     46  

COMPENSATION COMMITTEE REPORT

     47  

EXECUTIVE COMPENSATION

     48  

SUMMARY COMPENSATION TABLE

     48  

Employment Letter with Mr. Li

     50  

Standard Employee Benefits

     51  

2020 GRANTS OF PLAN-BASED AWARDS

     52  

OUTSTANDING EQUITY AWARDS AT 2020 FISCAL YEAR-END

     55  

2020 OPTION EXERCISES AND STOCK VESTED

     57  

PENSION BENEFITS

     58  

2020 NONQUALIFIED DEFERRED COMPENSATION

     58  

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

     59  

Employment Letter with Mr. Li

     61  

Change in Control Severance Protection Agreements

     62  

Treatment of Equity Awards

     64  

 

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     Page  

CEO PAY RATIO

     66  

DIRECTOR, EXECUTIVE OFFICER, AND KEY EMPLOYEE HEDGING PROHIBITION

     67  

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     67  

Certain Relationships

     67  

Related Party Transactions

     67  

Indemnification

     67  

NON-BINDING ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION

     68  

RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS

     68  

APPROVAL OF THE 2021 OMNIBUS INCENTIVE PLAN

     69  

2022 ANNUAL MEETING OF STOCKHOLDERS

     77  

“HOUSEHOLDING” OF PROXY MATERIALS

     78  

VOTING THROUGH THE INTERNET OR BY TELEPHONE

     78  

APPENDIX A USE OF CERTAIN NON-GAAP FINANCIAL INFORMATION

     A-1  

APPENDIX B CMC MATERIALS, INC. 2021 OMNIBUS INCENTIVE PLAN

     B-1  

 

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CMC MATERIALS, INC.

870 North Commons Drive

Aurora, Illinois 60504

 

 

 

 

 

PROXY STATEMENT

 

 

The Board of Directors of CMC Materials, Inc. is asking for your proxy for use at the annual meeting of our stockholders to be held on Wednesday, March 3, 2021 at 8:00 a.m., Central Standard Time, via the internet through a virtual web conference at www.virtualshareholdermeeting.com/CCMP2021, and at any postponements or adjournments of the meeting. Online check-in will be available beginning at 7:30 a.m., Central Standard Time. Please allow ample time for the online check-in process. To participate in the annual meeting, you will need your 16-digit control number included in your Notice of Internet Availability of Proxy Materials, on your proxy card or on any additional voting instructions accompanying these proxy materials.

In accordance with and pursuant to the rules and regulations adopted by the United States Securities and Exchange Commission (“SEC”), we are providing our stockholders with access to our Proxy Materials over the internet rather than in paper form. Accordingly, we are sending a Notice of Internet Availability of Proxy Materials, rather than a printed copy of the Proxy Materials, to our stockholders of record as of January 7, 2021. We expect to mail the Notice of Internet Availability of Proxy Materials to stockholders entitled to vote at our annual meeting on or about January 19, 2021.

ABOUT THE MEETING

What is the purpose of the annual meeting?

At our annual meeting, stockholders will act upon the matters outlined in the accompanying notice of meeting, including:

 

  1.

the election of three directors;

 

  2.

the non-binding stockholder advisory vote to approve our named executive officer compensation;

 

  3.

the ratification of the selection of our independent auditors;

 

  4.

the approval of the CMC Materials, Inc. 2021 Omnibus Incentive Plan (the “2021 OIP”); and

 

  5.

any other business properly coming before the meeting.

In addition, our management will report generally on the fiscal year ended September 30, 2020 and respond to questions from stockholders.

What is the Notice of Internet Availability of Proxy Materials?

The Notice of Internet Availability of Proxy Materials will instruct you as to how you may access and review the Proxy Materials and submit your proxy via the internet or phone. If you would like to receive a printed copy of the Proxy Materials, please follow the instructions included in the Notice of Internet Availability of Proxy Materials for requesting printed materials.

Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to Be Held on March 3, 2021:

 

   

The proxy statement and our 2020 Annual Report are available at www.cmcmaterials.com and www.proxyvote.com.

 

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How does the board recommend I vote?

Our board of directors unanimously recommends that you vote your shares:

 

  1.

FOR” the election of the nominees named below under “ELECTION OF DIRECTORS”;

 

  2.

FORnon-binding advisory approval of our named executive officer compensation;

 

  3.

FOR” the ratification of the selection of our independent auditors; and

 

  4.

FOR” the approval of the 2021 OIP.

Who is entitled to vote?

Only stockholders of record at the close of business on the record date, January 7, 2021, are entitled to receive notice and vote at the annual meeting. Each outstanding share of common stock entitles its holder to cast one vote, without cumulation, on each matter to be voted on. As of the record date, we had approximately 29,155,744 shares of common stock outstanding and entitled to vote.

During the annual meeting, a list of stockholders entitled to vote will be available for examination at www.virtualshareholdermeeting.com/CCMP2021. The list will also be available for ten days prior to the annual meeting at our principal executive offices at the address listed above.

What is the difference between holding shares as a record holder and as a beneficial owner?

Record Holder.    You are a record holder of our common stock if at the close of business on the record date your shares were registered directly in your name with Computershare Trust Company, N.A., P.O. Box 43078, Providence, Rhode Island 02940-3078, our stock transfer agent.

Beneficial Owner.    You are a beneficial owner if at the close of business on the record date your shares were held by a broker, bank, custodian, nominee or other record holder of our common stock and not in your name. Being a beneficial owner means that, like most of our stockholders, your shares are held in “street name.” As the beneficial owner, you have the right to direct your broker or nominee how to vote your shares by following the voting instructions your broker or other nominee provides. If you do not provide your broker or nominee with instructions on how to vote your shares, your broker or nominee will be able to vote your shares with respect to some of the proposals, but not all. Please see “What if I did not specify how my shares are to be voted?” for additional information.

What constitutes a quorum?

If a majority of the shares outstanding on the record date are present at the annual meeting, either in person or by proxy, we will have a quorum at the meeting permitting the conduct of business at the meeting. As of the record date, we had approximately 29,155,744 shares of common stock outstanding and entitled to vote. Any shares represented by proxies that are marked to abstain from voting on a proposal will be counted as present for purposes of determining whether we have a quorum. If a broker, bank, custodian, nominee or other record holder of our common stock indicates on a proxy that it does not have discretionary authority to vote certain shares on a particular matter, the shares held by that record holder (referred to as “broker non-votes”) will also be counted as present in determining whether we have a quorum.

How do I participate in the meeting?

We are hosting the annual meeting via the internet through a virtual web conference. You will not be able to attend the meeting in person. You will be able to attend the virtual annual meeting, vote your shares electronically and submit your questions during the live webcast of the meeting by visiting www.virtualshareholdermeeting.com/CCMP2021 and entering your 16-digit control number included in your Notice of Internet Availability of Proxy Materials, on your proxy card or on any additional voting instructions accompanying these proxy materials. The annual meeting will begin promptly at 8:00 a.m., Central Standard Time. Online check-in will be available beginning at 7:30 a.m., Central Standard Time. Please allow ample time for the online check-in process. Please be assured that you will be afforded the same rights and opportunities to participate in the virtual meeting as you would at an in-person meeting.

 

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If you are a beneficial owner, who owns shares through a broker, bank, custodian, nominee or other record holder, you may not vote your shares electronically at the virtual annual meeting unless you obtain a “legal proxy” from your broker, bank, custodian, nominee or other record holder who is the stockholder of record with respect to your shares. You may still attend annual meeting even if you do not have a legal proxy. For admission to the annual meeting, visit www.virtualshareholdermeeting.com/CCMP2021 and enter your 16-digit control number included in your Notice of Internet Availability of Proxy Materials, on your proxy card or on any additional voting instructions accompanying these proxy materials.

As part of the annual meeting, we will hold a question and answer session, during which we intend to answer questions submitted during the meeting in accordance with the annual meeting procedures which are pertinent to the company and the meeting matters, as time permits. Questions may be submitted during the annual meeting through www.virtualshareholdermeeting.com/CCMP2021. Questions and answers will be grouped by topic and substantially similar questions will be grouped and answered once.

We will have technical support to assist you with technical difficulties you may have accessing the virtual meeting website. If you encounter difficulties accessing the virtual meeting website during the check-in or meeting time, please call the technical support number that will be posted on the annual meeting login page.

How do I vote, and can I vote by telephone or through the internet?

You may vote online during the annual meeting or you may vote by proxy. If your stock is registered in your own name, you may vote online during the annual meeting at www.virtualshareholdermeeting.com/CCMP2021 using the 16-digit control number included in your Notice of Internet Availability of Proxy Materials, on your proxy card or on any additional voting instructions accompanying these proxy materials. If your stock is not registered in your own name and you plan to vote online during the annual meeting, you should contact your broker or agent in whose name your stock is registered to obtain a legal proxy. You may vote by proxy by signing, dating and mailing a proxy card. If you vote by proxy, the individuals named on the proxy card as proxy holders will vote your shares in the manner you indicate.

In addition, you may vote by telephone or through the internet by following the instructions below or those included in the Notice of Internet Availability of Proxy Materials. To vote by telephone, if you are a record holder of our common stock, call toll free 1-800-690-6903 and follow the instructions provided by the recorded message. To vote by telephone if you are a beneficial owner of our common stock, call the toll free number listed in the proxy card or follow the instructions provided by your broker. Before the annual meeting, for all holders of our common stock (whether record or beneficial), to vote through the internet, go to www.proxyvote.com and follow the steps on the secure website. You also may access the proxy vote website (www.proxyvote.com) or view our Proxy Materials by going to our website, www.cmcmaterials.com, selecting “Investor Relations” on our Homepage, and then selecting “Annual Meeting/Proxy” from the drop down menu. Where used in this proxy statement, our website address is included for reference only. The information contained on our website is not incorporated by reference into this proxy statement. Telephone and internet voting facilities for stockholders of record will be available 24 hours a day. Before the annual meeting, you may vote over the telephone or via the internet until 11:59 p.m. ET on March 2, 2021 for shares held directly or 11:59 p.m. ET on February 28, 2021 for shares held in a plan.

What if I do not specify how my shares are to be voted?

Record Holder.    If you are a record holder of our common stock and you sign and return the proxy card without indicating your instructions, your shares will be voted “FOR”:

 

  1.

the election of the nominees for director named below under “ELECTION OF DIRECTORS”;

 

  2.

the non-binding advisory approval of our named executive officer compensation;

 

  3.

the ratification of the selection of our independent auditors; and

 

  4.

the approval of the 2021 OIP.

 

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Beneficial Owners.    If you are a beneficial owner and you do not provide the broker, bank, custodian, nominee or other record holder that holds your shares with voting instructions, such person will determine if it has the discretionary authority to vote on the particular matter. Under applicable rules, such person has the discretion to vote on routine matters such as the ratification of our independent auditors, but does not have discretion to vote on non-routine matters such as the election of a director, the non-binding stockholder advisory vote to approve our named executive officer compensation, and the approval of the 2021 OIP.

Can I revoke my proxy or change my vote after I return my proxy card or after I vote electronically via the internet or by telephone?

Yes. Even after you have submitted your proxy, you may revoke your proxy or change your vote at any time before the proxy is voted at the annual meeting by delivering to our Secretary a written notice of revocation or a properly signed proxy bearing a later date, or by participating the annual meeting and voting via the internet during the meeting. (Participation in the meeting will not cause your previously granted proxy to be revoked unless you specifically so request.) To revoke a proxy previously submitted electronically through the internet or by telephone, you may simply vote again at a later date, using the same procedures, in which case the later submitted vote will be recorded and the earlier vote revoked.

What vote is required to approve each matter that comes before the meeting?

The number of votes required to approve each of the proposals scheduled to be presented at the annual meeting are as follows. Abstentions and broker non-votes will not be counted for purposes of determining whether an item has received the requisite number of votes for approval.

 

Proposal

 

      

Required Vote

 

  1.    Election of Directors

     For each nominee, a plurality of the votes cast are “FOR” such nominee (i.e., the nominees for director with the most votes will be elected).*
   

   2.   Advisory vote to approve named executive officer compensation

     A majority of the votes cast are “FOR” the proposal.
   

  3.    Ratification of the selection of our independent auditors

     A majority of the votes cast are “FOR” the ratification.

  4.    Approval of the 2021 OIP

 

     A majority of the votes cast are “FOR” the proposal.

 

* 

Our Corporate Governance Guidelines provide that in an uncontested election, any director nominee who receives a greater number of votes “withheld” from his or her election than votes “for” such election shall promptly tender his or her resignation to be considered by our nominating and corporate governance committee and our board of directors as outlined in the Corporate Governance Guidelines.

What happens if additional proposals are presented at the meeting?

Other than the matters described in this proxy statement, we do not expect any additional matters to be presented for a vote at the annual meeting. If you vote by proxy, your proxy grants the persons named as proxy holders the discretion to vote your shares on any additional matters properly presented for a vote at the meeting.

Who will bear the costs of soliciting votes for the meeting?

We will bear all costs of solicitation. Certain directors, officers and employees, who will not receive any additional compensation for such activities, may solicit proxies by personal interview, mail, telephone or electronic communication. We will also reimburse brokerage houses and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for forwarding proxy and solicitation materials to our stockholders. In addition to the mailing of these Proxy Materials, we have hired the firm of D.F. King & Co., Inc. to assist in the solicitation of proxies at an estimated cost of approximately $10,000.

 

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2021 PROXY STATEMENT – SUMMARY

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 before voting.

 

 

 

ANNUAL MEETING OF STOCKHOLDERS

 

 

 

 

Date: March 3, 2021

Time: 8:00 a.m., Eastern Standard Time

Location: Via the internet through a virtual web conference at www.virtualshareholdermeeting.com/CCMP2021

Record Date: January 7, 2021

 

 

GENERAL INFORMATION

 

 

Stock Symbol: CCMP

Exchange: NASDAQ

Registrar and Transfer Agent: Computershare

Principal Executive Offices: 870 North Commons Drive, Aurora, Illinois 60504

Corporate Website: www.cmcmaterials.com

Investor Relations Website:

www.cmcmaterials.com/investors/overview

 

 

FISCAL YEAR 2020 FINANCIAL HIGHLIGHTS

 

   
     In Millions             

 

Fiscal

Year

 

 

Revenue

 

 

Net Income

 

 

Adjusted
EBITDA*

 

 

Adjusted
EBITDA
Margin*

 

   

2019

  $1,037.7   $39.2   $333.4   32.1%
   

2020

  $1,116.3   $142.8   $357.8   32.1%

 

*   Adjusted EBITDA and adjusted EBITDA margin are considered non-GAAP financial measures by the SEC. See Appendix A below for more information about these non-GAAP financial measure and for reconcilliations from the most comparable GAAP financial measures.

 

In 2020, we changed our name to CMC Materials, Inc. and updated our visual identity in a comprehensive rebrand.

 

 

STOCKHOLDER VOTING MATTERS

 

 

Our board of directors unanimously recommends that you vote your shares:

 

FOR” the election of each of the nominees named below under “ELECTION OF DIRECTORS” on p. 11;

 

FORnon-binding advisory approval of our named executive officer compensation on p. 68;

 

FOR” the ratification of the selection of our independent auditors on p. 68; and,

 

FOR” the approval of the 2021 OIP on p. 69.

 

 

CORPORATE GOVERNANCE

 

 

Board of Director Composition: 7 Directors

Director Term: 3 Classes with Staggered 3-Year Terms

 

 

Board Diversity: 43%

 

Gender (female): 29%

Race/Ethnicity: 14%

 

Director Nominees: Class III (3 Directors)

Barbara A. Klein

David H. Li

William P. Noglows

 

Board Meetings in Fiscal Year 2020: 13 (5 since) Executive Sessions: 12 (4 since)

 

Board Committee Meetings in Fiscal Year 2020:

Audit: 8 (2 since)

Compensation: 6 (3 since)

Nominating and Corporate Governance: 3 (1 since)

 

 

 

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SUSTAINABILITY AND RESPONSIBLE CARE —
ENVIRONMENTAL, HEALTH AND SAFETY

 

 

It is our policy to operate worldwide in a safe, responsible manner that respects the environment and protects the health and safety of our employees, our customers and the communities where we operate. We are committed to conducting our business operations in a manner that preserves the environment, which includes minimizing waste, conserving energy and preventing pollution. Our commitment goes beyond regulatory compliance and ISO certifications. Some of our key environmental, health and safety (EHS) initiatives include:

 

•   Our Environmental, Health & Safety Management Systems meet International Organization of Standardization (ISO) 14001 and Responsible Care 14001 for Environmental Management and Occupational Health & Safety Assessment Series 18001 and ISO 45001 for Health and Safety Management.

•   We adhere to the principles of responsible manufacturing as contained in the Responsible Business Alliance Code of Conduct and the Restriction of Hazardous Substances Directive 2002/95/EC.

•   We have adopted updated Environmental, Health and Safety and Human Rights Policies reviewed, endorsed and signed by management.

•   We have committed to reporting our EHS and Sustainability accomplishments according to frameworks established by the Sustainability Accounting Standards Board and the Task Force on Climate-related Financial Disclosures, as well as in our inaugural Corporate Sustainability Report.

•   We participate broadly in trade organizations, advocacy groups and local community organizations around the globe.

•   We provide transparency through the publication of our Corporate Sustainability Report, and EHS Performance Report, which are available on our website, www.cmcmaterials.com.

 

 

SUSTAINABILITY AND RESPONSIBLE CARE —
ENVIRONMENTAL, HEALTH AND SAFETY

 

 

•   We strive to reduce electricity and water consumption and solid waste by establishing

goals and reporting our progress on our website.

•   We work to identify, evaluate, control and mitigate hazards in support of our global health and safety program.

•   We have created a ‘Caring Culture’ for employee health & safety and stewardship of the environment.

 

See “Sustainability and Responsible Care—Environmental, Health and Safety” for additional information.

 

For fiscal year 2020, we achieved:

 

•   Proactive implementation of enhanced health and safety protocols, including a focus on mental health assistance, at our global locations to protect and maintain employee health and well-being, and to prevent the spread of COVID-19 within our facilities and in our communities.

•   A global recordable injury rate of 0.56, which is less than half the Semiconductor industry average of 1.20 and more than 70 percent lower than the Chemical industry average of 1.90.

•   More than 30% of our solid waste generated either was re-used or recycled rather than going to a landfill.

•   Drove sustainability through global reduction in electricity use (7.3% reduction) and solid waste generation (6.4% reduction) compared to fiscal year 2019.

•   More than 52% of the hazardous waste that we generated globally was recycled.

•   Completion of 80 ergonomic improvement projects to improve employee safety.

•   Multiple site locations have been recognized for excellence in EHS performance from government bodies and customers.

 

For additional information on our EHS initiatives, including our Corporate Sustainability Report, please visit our website at www.cmcmaterials.com and navigate to the “EHS” and “Sustainability” tabs. The information contained on our website is not incorporated by reference into this proxy statement.

 
 

 

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EXECUTIVE COMPENSATION

 

Named Executive Officers:

•   David H. Li, President and Chief Executive Officer

•   Scott D. Beamer, Vice President and Chief Financial Officer

•   Daniel D. Woodland, Vice President and President, Electronic Materials

•   H. Carol Bernstein, Vice President, Secretary and General Counsel

•   Jeffrey M. Dysard, Vice President and President, Performance Materials

 

 

 

EXECUTIVE COMPENSATION

 

 

Pay Program Aligned with Performance (p. 31)

Clawback Policy (p. 43)

No Hedging/No Pledging (p. 43)

No Repricing or Backdating of Options (p. 40)

 

 

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STOCK OWNERSHIP

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth certain information regarding the beneficial ownership of our common stock as of January 7, 2021 (except as indicated below) by:

 

   

all persons known by us to own beneficially 5% or more of our outstanding common stock;

 

   

each of our directors;

 

   

each of the named executive officers in the Compensation Discussion and Analysis Section and the Summary Compensation Table included in this proxy statement; and

 

   

all our directors and executive officers as a group.

Unless otherwise indicated, each stockholder listed below has sole voting and investment power with respect to the shares of common stock beneficially owned by such stockholder.

Stock Ownership Table

 

 Name and Address   

Number of Shares

Beneficially

          Owned1          

    

Approximate

Percent of Class1

 
   

 

 Certain beneficial owners:

  

 

 

 

  

 

 

 

 

   

 

 1. BlackRock, Inc.

     55 East 52nd Street

     New York, New York 10055

  

 

 

 

3,300,7562  

 

 

  

 

 

 

11.3%

 

 

   

 

 2. The Vanguard Group, Inc.

     P.O. Box 2600

     Valley Forge, Pennsylvania 19482

  

 

 

 

2,717,4463  

 

 

  

 

 

 

9.3%

 

 

   

 

 3. EARNEST Partners, LLC

     1180 Peachtree Street NE, Suite 2300

     Atlanta, Georgia 30309

  

 

 

 

1,511,5734  

 

 

  

 

 

 

5.2%

 

 

   

 

 4. Neuberger Berman Group LLC

     1290 Avenue of the Americas

     New York, NY 10104

  

 

 

 

1,461,6555  

 

 

  

 

 

 

5.0%

 

 

   

 

 Directors and executive officers:

  

 

 

 

  

 

 

 

 

   

 

 David H. Li

  

 

 

 

187,5906  

 

 

  

 

 

 

*

 

 

   

 

 William P. Noglows

     154,8026 7   

 

 

 

*

 

 

   

 

 Richard S. Hill

  

 

 

 

11,6936  

 

 

  

 

 

 

*

 

 

   

 

 Barbara A. Klein

  

 

 

 

64,2186  

 

 

  

 

 

 

*

 

 

   

 

 Paul J. Reilly

  

 

 

 

18,2396  

 

 

  

 

 

 

*

 

 

   

 

 Susan M. Whitney

  

 

 

 

46,7776  

 

 

  

 

 

 

*

 

 

   

 

 Geoffrey Wild

  

 

 

 

46,7776  

 

 

  

 

 

 

*

 

 

   

 

 Scott D. Beamer

  

 

 

 

33,2416  

 

 

  

 

 

 

*

 

 

   

 

 Daniel D. Woodland

  

 

 

 

55,2826  

 

 

  

 

 

 

*

 

 

   

 

 H. Carol Bernstein

  

 

 

 

58,5946  

 

 

  

 

 

 

*

 

 

   

 

 Jeffrey M. Dysard

  

 

 

 

13,9146  

 

 

  

 

 

 

*

 

 

   

 

 All directors and executive officers as a group (14 persons)

  

 

 

 

707,8036 8

 

 

  

 

 

 

2.4%

 

 

 

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*

= less than 1%

1 

“Beneficial ownership” generally means any person who, directly or indirectly, has or shares voting or investment power with respect to a security or has the right to acquire such power within 60 days. Shares of common stock subject to options, warrants or rights that are currently exercisable or exercisable within 60 days of January 7, 2021 are deemed outstanding for computing the ownership percentage of the person holding such options, warrants or rights, but are not deemed outstanding for computing the ownership percentage of any other person. The amounts and percentages are based upon 29,155,744 shares of our common stock outstanding as of January 7, 2021, unless otherwise indicated.

2

Of the shares reported as beneficially owned, BlackRock, Inc. exercises (a) sole power to vote 3,254,531 shares, (b) no power to vote 46,225 shares, and (c) sole investment power over 3,300,756 shares. The total number of shares reported as beneficially owned is 3,300,756, as of September 30, 2020. The number of shares indicated is based on information reported in Form 13F Holdings Report filed by BlackRock, Inc. on November 6, 2020.

3 

Of the shares reported as beneficially owned, The Vanguard Group, Inc. exercises (a) shared power to vote 66,829 shares, (b) no power to vote 2,650,617 shares, (c) sole investment power over 2,628,785 shares, and (d) shared investment power over 88,661 shares. The total number of shares reported as beneficially owned is 2,717,446, as of September 30, 2020. The number of shares indicated is based on information reported in the Form 13F Holdings Report filed by The Vanguard Group, Inc. on November 16, 2020.

4

Of the shares reported as beneficially owned, EARNEST Partners, LLC exercises (a) sole power to vote 988,751 shares, (b) shared power to vote 1,929 shares, (c) no power to vote 520,893 shares, and (d) sole investment power over 1,511,573 shares. The total number of shares reported as beneficially owned is 1,511,573 shares, as of September 30, 2020. The number of shares indicated is based on the information reported in the Form 13F Holdings Report filed by EARNEST Partners, LLC on November 16, 2020.

5

Of the shares reported as beneficially owned, Neuberger Berman Group LLC exercises (a) sole power to vote 1,448,480 shares, (b) no power to vote 13,175 shares, (c) sole investment power over 3,913 shares, and (d) shared investment power over 1,457,742 shares. The total number of shares reported as beneficially owned is 1,461,655 shares, as of September 30, 2020. The number of shares indicated is based on the information reported in the Form 13F Holdings Report filed by Neuberger Berman LLC on November 12, 2020.

6

Includes shares of our common stock that such person has the right to acquire pursuant to stock options granted pursuant to the CMC Materials, Inc. 2012 Omnibus Incentive Plan, as amended March 7, 2017 (“2012 Omnibus Incentive Plan”), exercisable within 60 days of January 7, 2021, as follows:

 

 Name

 

  

 

Upon Exercise

Shares Issuable

 

 
   

 

 Mr. Li

  

 

 

 

104,255    

 

 

   

 

 Mr. Noglows

  

 

 

 

90,264    

 

 

   

 

 Mr. Hill

  

 

 

 

4,930    

 

 

   

 

 Ms. Klein

  

 

 

 

40,764    

 

 

   

 Mr. Reilly

 

  

 

 

 

13,126    

 

 

   

 

 Ms. Whitney

  

 

 

 

36,264    

 

 

   

 

 Mr. Wild

  

 

 

 

36,264    

 

 

   

 

 Mr. Beamer

  

 

 

 

12,063    

 

 

   

 

 Dr. Woodland

  

 

 

 

38,497    

 

 

   

 

 Ms. Bernstein

  

 

 

 

15,240    

 

 

   

 

 Dr. Dysard

  

 

 

 

5,437    

 

 

 

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Also includes restricted stock units awarded to such executive officer pursuant to the 2012 Omnibus Incentive Plan on December 5, 2017, January 16, 2018, December 6, 2018, December 5, 2019, and December 3, 2020, respectively, that are still subject to restrictions as of January 7, 2021, as set forth in the table below. On December 5, 2017, December 6, 2018, December 5, 2019, and December 3, 2020, as part of our annual equity incentive award program, we awarded restricted stock units to our executive officers with restrictions that lapse in equal increments upon each anniversary over four years. On January 16, 2018, as part of Mr. Beamer’s appointment as our Vice President and Chief Financial Officer, we awarded Mr. Beamer a sign-on award consisting of 13,128 restricted stock units and an annual equity incentive award consisting of 2,104 restricted stock units, in each case, with restrictions that lapse in equal increments upon each anniversary of the award over four years. The outstanding restricted stock unit awards have the same economic value as shares of common stock, are eligible to receive dividend equivalents, and may not be voted, sold or transferred, other than to immediate family members as provided in the 2012 Omnibus Incentive Plan.

 

     

 

Equity Incentive Program Restricted Stock Units

 

 
   

Name

 

  

12/05/17

 

    

1/16/18

 

    

1/16/18

 

    

12/6/18

 

    

12/5/19 

 

    

12/3/20

 

 
   

Mr. Li

     1,654                      3,432      4,659        6,680   
   

Mr. Beamer

            6,564        1,052        1,236      1,290        1,903   
   

Dr. Woodland

     725                      1,312      1,374        2,004   
   

Ms. Bernstein

     575                      1,086      1,140        1,603   
   

Dr. Dysard

     469                      750        939        1,703   

Also includes restricted stock units awarded to such non-employee director pursuant to the 2012 Omnibus Incentive Plan that are still subject to restrictions as of January 7, 2021, as set forth in the table below. For annual equity awards to non-employee directors, restricted stock units are currently awarded with restrictions that lapse in full upon the first anniversary of the award. Initial equity awards of restricted stock units to non-employee directors are currently made with restrictions that lapse in equal annual increments over four years beginning on the first anniversary of the award. Outstanding restricted stock unit awards have the same economic value as shares of common stock, are eligible to receive dividend equivalents, and may not be voted, sold or transferred, other than to immediate family members as provided in the plan.

 

Name

 

  

Non-Employee Director

Restricted Stock Units

 

 
   

Mr. Noglows

     593        
   

Mr. Hill

     593        
   

Ms. Klein

     593        
   

Mr. Reilly

     931        
   

Ms. Whitney

     593        
   

Mr. Wild

     593        
7

Includes 41,125 shares of our common stock held in trust for the benefit of Mr. Noglows’ spouse, over which Mr. Noglows has no voting or investment power or ownership control.

8

Includes all individuals who were directors and executive officers as of January 7, 2021, and does not include individuals who ceased to be executive officers prior to such date, except for Mr. Noglows, who since January 1, 2016 has been a non-employee director. Includes 406,372 shares of our common stock that our directors and executive officers have the right to acquire pursuant to stock options exercisable within 60 days of January 7, 2021, and 56,873 restricted shares of our common stock or restricted stock units held by our executive officers still subject to restrictions as of January 7, 2021 (which include shares subject to restrictions or conditions pursuant to our Deposit Share Program).

 

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ELECTION OF DIRECTORS

Our board of directors is currently comprised of seven directors. The board of directors is divided into three classes: Class I, whose terms will expire at the annual meeting of stockholders to be held in 2022; Class II, whose terms will expire at the annual meeting of stockholders to be held in 2023; and Class III, who are nominees for election at this Annual Meeting and whose terms will expire at the annual meeting of stockholders to be held in 2024. Mr. Hill and Ms. Whitney are currently in Class I, Messrs. Reilly and Wild are currently in Class II, and Ms. Klein, and Messrs. Li and Noglows are currently in Class III.

At each annual meeting of stockholders, directors for the class of which term expires at the annual meeting will be elected to serve from the time of election and qualification until the third annual meeting following election. Our certificate of incorporation provides that the authorized number of directors may be changed only by resolution of the board of directors, and that the board of directors may increase or decrease the authorized number of directors. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third the total number of directors. Our certificate of incorporation also provides that our board of directors may fill any vacancy created by the resignation of a director or the increase in the size of our board of directors.

Our board of directors unanimously recommends that you vote “FOR” the election to the board of the nominees named below.

Nominees for Director for a term that expires in 2024:

 

   

 

Barbara A. Klein, 66

   

Committee

Membership:

•   Audit (Chair)

•   Nominating and
Corporate
Governance

 

Ms. Klein was elected a director of our company in April 2008. Ms. Klein also is a director of Ingredion, Inc. She retired in May 2008 as the Senior Vice President and Chief Financial Officer of CDW Corporation. Prior to that, Ms. Klein held a variety of senior finance positions including Vice President and Chief Financial Officer of Dean Foods Company, Vice President and Corporate Controller of Ameritech Corporation, and Vice President and Corporate Controller of Pillsbury Co. Ms. Klein received a B.S. in accounting and finance from Marquette University, and an M.B.A. from Loyola University. Based upon Ms. Klein’s management and director experience and her accounting and finance background discussed above, the board has concluded Ms. Klein should serve as a director of our company.

 

   

 

David H. Li, 48

   

Committee

Membership:

•   None

 

Mr. Li was elected a director of our company in January 2015, and has served as our President and Chief Executive Officer since then. From June 2008 through December 2014, Mr. Li served as our Vice President of the Asia Pacific Region. Prior to that role, Mr. Li served in various leadership roles throughout our business since joining us in 1998. Mr. Li received a B.S. in chemical engineering from Purdue University and an M.B.A. from Northwestern University. Based upon Mr. Li’s management experience, his knowledge of our company, its operations and customers, his knowledge of the chemical and semiconductor industries, and his Asia-focused, cross-border business experience, the board has concluded Mr. Li should serve as a director of our company.

 

 

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William P. Noglows, 62

   

Committee

Membership:

•   None

 

Mr. Noglows has served as our Chairman since 2003, and was our President and Chief Executive Officer from November 2003 through December 2014. Mr. Noglows also is a director of Aspen Aerogels, Inc. and Littelfuse, Inc. From 1984 through 2003, he served in various leadership positions at Cabot Corporation, culminating in serving as an executive vice president and general manager. Mr. Noglows had previously served as a director of our company from December 1999 until April 2002. Mr. Noglows received his B.S. in chemical engineering from the Georgia Institute of Technology. Based upon Mr. Noglows’ management experience, his knowledge of our company and its operations, and his knowledge of the chemical and semiconductor industries, the board has concluded Mr. Noglows should serve as a director of our company.

 

Directors whose terms continue until 2022:

 

   

 

Richard S. Hill, 69

   

Committee

Membership:

•   Audit

•   Nominating and
Corporate
Governance (Chair)

 

Mr. Hill was elected a director of our company in June 2012. Mr. Hill retired as the Chairman and Chief Executive Officer of Novellus Systems, Inc. in June 2012 after serving in these positions since 1996, and since 1993 as CEO upon his joining Novellus. Prior to leading Novellus, Mr. Hill held various senior leadership and management positions with Tektronix, Inc., General Electric, Inc., Motorola, Inc., and Hughes Aircraft, Inc. Mr. Hill also serves as a director of Arrow Electronics, Inc. and Marvell Technology Group Ltd. He also previously served as a director of Xperi, Inc. until June 2020, and of Symantec, Inc. from January until December 2019, also having served as Interim Chief Executive Officer there from May to November 2019. He received a B.S. in bioengineering from the University of Illinois and a M.B.A. from Syracuse University. Based upon Mr. Hill’s management and director experience and his technical background discussed above, the board has concluded Mr. Hill should serve as a director of our company.

 

    Susan M. Whitney, 70
   

Committee

Membership:

•   Audit

•   Compensation
(Chair)

 

Ms. Whitney was elected a director of our company in April 2015. Ms. Whitney retired from the IBM Corporation in 2007, following a 35-year career in which she held various operational leadership roles throughout the company. Ms. Whitney also serves as a trustee of the College of Mt. St. Vincent, and served as a director of LSI Logic Corporation prior to its acquisition by Avago Technologies, Ltd. in 2014. She received her B.A. in mathematics and economics from the College of Mt. St. Vincent. Based upon Ms. Whitney’s management and director experience and her background in technology companies discussed above, the board has concluded Ms. Whitney should serve as a director of our company.

 

 

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Directors whose terms continue until 2023:

 

   

 

Paul J. Reilly, 64

   

Committee Membership:

•   Audit

•   Compensation

 

Mr. Reilly was elected a director of our company in March 2017. Mr. Reilly served as an executive vice president of Arrow Electronics, Inc. through his retirement in January 2017, and had held various leadership roles there, including serving as the executive vice president, finance and operations, and chief financial officer from 2001 through May 2016, and head of global operations from 2009 through May 2016. Prior to joining Arrow in 1991, Mr. Reilly was a certified public accountant at KPMG Peat Marwick. Mr. Reilly also serves as a director of Assurant, Inc., and previously served as a director of comScore, Inc. from September 2017 until August 2019. He has a B.S. in accounting from St. John’s University. Based upon Mr. Reilly’s management and director experience and his accounting and finance background discussed above, the board has concluded Mr. Reilly should serve as a director of our company.

 

   

 

Geoffrey Wild, 64

   

Committee

Membership:

•   Compensation

•   Nominating and
Corporate Governance

 

Mr. Wild was elected a director of our company in September 2015. Mr. Wild is the Chief Executive Officer of Atotech since March 2017. He previously had served successively as the Chief Executive Officer of AZ Electronic Materials, Cascade Microtech, Inc. and Nikon Precision, Inc. Mr. Wild previously served as a director of Materion Corporation until December 2019, and Axcelis Technologies, Inc. He received his B.S. in chemistry from the University of Bath, UK. Based upon Mr. Wild’s management and director experience and his technical background discussed above, the board has concluded Mr. Wild should serve as a director of our company.

 

 

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BOARD STRUCTURE AND COMPENSATION

Board of Directors and Board Committees

Board Leadership

Our independent directors hold regularly scheduled meetings in executive session, at which only independent directors are present. As provided in our Corporate Governance Guidelines, the Chair of the nominating and governance committee, Mr. Hill, serves as Chair of the meetings of the independent directors in executive session and performs other responsibilities of a lead director such as working with the Chairman of the board of directors to plan and set the agenda for meetings of the board of directors. Mr. Noglows is the independent, non-executive Chairman of the board of directors and prior to January 1, 2015, also was the President and Chief Executive Officer of our company. Effective January 1, 2015, Mr. Li became our President and Chief Executive Officer, and Mr. Noglows continued as Chairman of the board of directors in an Executive capacity through December 2015. Thus, since January 1, 2015 our company has had a separate Chairman of the board of directors (Mr. Noglows) and a separate President and Chief Executive Officer (Mr. Li), an approach that our board believes has worked well for our company.

Board’s Role in Risk Oversight

The board of directors has an oversight role, as a whole and at the committee level, in overseeing management of our risks. Our board focuses on our general risk management strategy, the most significant risks facing us, and oversees the implementation of risk mitigation strategies by management. The board regularly reviews information regarding our credit, liquidity, and operations, including the environmental, health and safety aspects of such, and risks associated with each, and along with the audit committee, compliance matters related to our business. The board’s oversight of risk management matters related to environmental, health and safety and other environmental, social and governance (“ESG”) matters includes consideration of sustainability and climate-related risks, and of diversity and inclusion and other ‘human capital” matters. The compensation committee of the board is responsible for overseeing the management of risks relating to human capital matters, including our diversity and inclusion program, and our employee compensation plans, policies, and programs, as well as our annual report on executive compensation for inclusion in each proxy statement. The audit committee of the board oversees the management of financial risks. The nominating and corporate governance committee of the board is responsible for overseeing the management of risks related to corporate governance matters. While each committee is responsible for evaluating certain risks and overseeing management of such risks, the entire board is regularly informed through the committees about such risks, and reviews and discusses them in the context of our overall risk posture and risk management and mitigation strategies.

Corporate Governance

Our board of directors has adopted the CMC Materials, Inc. Corporate Governance Guidelines, which are available on our website, www.cmcmaterials.com, along with other corporate governance materials, such as board of directors’ committee charters and our Code of Business Conduct. Pursuant to the Corporate Governance Guidelines, committee charters and other corporate governance materials and practices, our board of directors and committees, particularly the audit committee, periodically review and provide oversight of the management of various risk factors that are relevant to our company. Our board of directors also reviews annually the functioning of the board.

 

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Shareholder Engagement and Communications with Directors

Our company values the perspectives of our stockholders, and has a variety of means by which we engage with them. Also, stockholders and third parties may communicate with our board of directors, the non-employee directors or any individual director (including any committee Chair) through the Chairman of the Board, c/o the Secretary of our company, at our offices at 870 North Commons Drive, Aurora, Illinois 60504. Depending on the nature of the communication and to whom it is directed, the Secretary of our company will: (a) forward any communication to the appropriate director or directors; (b) forward the communication to the relevant department within the company; or (c) attempt to handle the matter directly (for example, a communication dealing with a share ownership matter).

Independent Directors

The board of directors has determined that six of our seven current directors, including Messrs. Hill, Noglows, Reilly and Wild, and Ms. Klein and Ms. Whitney, are “independent” directors as defined in the National Association of Securities Dealers Automated Quotation (“NASDAQ”) Marketplace Rules and as defined in applicable rules by the SEC. In making its determinations of independence, in addition to consideration of the relevant SEC and NASDAQ rules (according to which the definition of “independent director” is set forth in our Corporate Governance Guidelines, a current copy of which is available on our website, www.cmcmaterials.com), the board of directors considered factors for each director such as any other directorships, any employment or consulting arrangements, and any relationship with our company’s customers, suppliers or advisors. In particular, the board of directors determined that, effective January 1, 2019, Mr. Noglows qualified as an independent director under applicable rules considering, among other things, that as of such time it had been more than three years since he was an employee of our company.

Board Composition: Diversity

The below matrix provides information regarding the members of our board of directors, including certain types of knowledge, skills, experiences and attributes possessed by one or more of our directors that our board of directors believes are relevant to our business and the industries in which we participate. The matrix does not encompass all the knowledge, skills, experiences or attributes of our directors, and the fact that a particular knowledge, skill, experience or attribute is not listed does not mean that a director does not possess it. In addition, the absence of a particular type of knowledge, skill, experience, or attribute with respect to any of our directors does not mean the director in question is unable to contribute to the decision-making process in that area. The type and degree of knowledge, skill and experience listed in the table below may vary among members of the board of directors.

Our board of directors comprises diversity in various forms, including with respect to gender and race/ethnicity, and has committed itself to considering diversity when evaluating director candidates, giving strong consideration to candidates who would contribute to the board’s gender and other diversity, along with their skills and experience. At present, our board of directors is approximately 43% diverse, with approximately 29% gender (female) diversity and approximately 14% racial/ethnic diversity.

Our board of directors has been gender-diverse for more than a decade, and since 2015, two directors who are women (Ms. Klein and Ms. Whitney), have served and continue to serve as directors, as well as committee chairs (audit, since 2014, and compensation, since 2016, respectively); thus, women constitute approximately 29% of the board of directors. With respect to race and ethnicity, for approximately 15 years (75% of our history as a public company), the board of directors has included at least one director of Asian background, and at certain times there have been two directors; Mr. Li, who is a director as well as our Chief Executive Officer, is Asian American. In addition, we have and for many years have had the majority of directors (e.g., currently Mr. Hill, Mr. Li, Mr. Noglows, Mr. Wild, Ms. Whitney) who live or have lived and worked in Asia, and/or with Asia-based customers and suppliers, which provides important context and experience given the Asia base and focus of the semiconductor industry, the primary industry in which we participate, as well as a significant amount of our customer, employee and asset base.

 

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Skills, Qualifications and Experience

  

David H. Li

  

William P. Noglows

    

Richard S. Hill

    

Barbara A. Klein

   Paul J. Reilly      Susan M. Whitney    Geoffrey Wild  

Industry Experience

   X
    
X
 
    
X
 
         X      X  

Technology Experience

   X
    
X
 
    
X
 
   X      X      X      X  

General Business (e.g., Manufacturing, Marketing and

Sales) Experience

   X
    
X
 
    
X
 
   X      X      X      X  

Finance Experience

   X
    
X
 
    
X
 
   X      X      X      X  

International Business Experience

   X      X        X      X      X      X      X  

Public Company Experience

   X      X        X      X      X      X      X  

Diverse Attributes

   X r/e                      Xg             Xg         

r/e denotes Racial/Ethnicity Diversity (Asian-American)

g denotes Gender Diversity (Female)

Board Refreshment and Succession Planning

Our board of directors regularly reviews its own composition, and considers and plans for an orderly transition of the board, including with respect to planning for potential retirements and with respect to identifying potential candidates for service as new directors. As part of this process, the board of directors routinely evaluates the need for board refreshment and focuses on identifying individuals whose background, skills and experiences will enable them to make meaningful contributions to the shaping of the future of the company. The board of directors believes it has a meaningful record in this regard. Underscoring more recent refreshment efforts, the board of directors has refreshed approximately 73% of its directors since 2015. Mr. Li joined the board of directors in January 2015 in connection with his appointment as the company’s president and chief executive officer. The company also added three new independent directors, Ms. Whitney in April 2015, Mr. Wild in September 2015, and Mr. Reilly in March 2017. The board of directors believes the relevant background, experience and expertise of these individuals have complemented that of our other directors, and vice-versa, further contributing to the board of director’s ongoing guidance of our company. Along with this, since 2015, the board of directors has smoothly transitioned through the retirement of six long-serving directors. Over time, our board of directors expects to continue to focus on board refreshment and this transition process to inject relevant expertise, new skill sets, and diverse backgrounds and perspectives.

Board and Committee Meeting Attendance

During fiscal year 2020, our board of directors held thirteen meetings and took action by written consent five times. Each director attended at least 75% of all the meetings of the board and those committees on which he or she served during fiscal year 2020. We encourage directors to attend our stockholder annual meetings, and all directors except Mr. Hill, who was absent due to illness, attended our 2020 annual meeting of stockholders. Since the end of fiscal year 2020, the board of directors has met five times and has taken action by written consent once. During fiscal year 2020, our independent directors met in executive session twelve times. Since fiscal year end, our independent directors have met in executive session four times. We are especially appreciative of our board of directors’ continued high levels of attendance at meetings during fiscal year 2020 and since its close, despite the challenges presented by the Pandemic since approximately mid-March of 2020.

 

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Committees of the Board

The board has three standing committees: the audit committee, the compensation committee and the nominating and corporate governance committee. The following chart sets forth the directors who currently serve as members of each of the board committees.

 

 

Directors

 

 

 

Audit Committee

 

 

 

Compensation Committee

 

 

 

Nominating and Corporate

Governance Committee

 

 

 Richard S. Hill

 

 

X     

 

 

 

 

C     

 

 Barbara A. Klein

 

 

C, F     

 

 

  X     

 

 

 Paul J. Reilly

 

 

X, F     

 

 

X     

   

 

 

 Susan M. Whitney

 

 

X     

 

 

C     

   

 

 

 Geoffrey Wild

   

 

 

 

X     

 

 

X     

 

“C” denotes member and Chair of committee

“X” denotes member of committee

“F” denotes designated “Audit Committee Financial Expert”

Audit Committee.    The members of the audit committee are currently Messrs. Hill and Reilly, Ms. Klein (Chair) and Ms. Whitney. The board has determined that each of these audit committee members during fiscal year 2020 and currently are independent as defined by NASDAQ Marketplace Rules and under the applicable rules adopted by the SEC and that all such members are financially literate.

The functions of the audit committee include:

 

   

selecting, appointing, retaining, compensating and overseeing our independent auditors;

 

   

deciding upon and approving in advance the scope of audit and non-audit assignments and related fees;

 

   

reviewing accounting principles we use in financial reporting;

 

   

reviewing our system of disclosure controls and procedures;

 

   

reviewing the adequacy of our internal control procedures, including the internal audit function;

 

   

reviewing general information technology and cybersecurity matters related to our business; and,

 

   

reviewing general compliance matters and processes related to our operations, including those related to environmental, health and safety matters.

Our board of directors has determined that the audit committee has at least one member who qualifies as an Audit Committee Financial Expert, as defined by relevant SEC rules, and has designated Ms. Klein, the Chair of the audit committee, and Mr. Reilly, a member of the audit committee, as an Audit Committee Financial Expert.

The audit committee operates under a written charter, a current copy of which is available on our website, www.cmcmaterials.com. The audit committee reviews and reassesses the adequacy of the audit committee charter on an annual basis. The audit committee has established procedures for the receipt, retention, and treatment of complaints received regarding accounting, internal accounting controls or auditing matters, as well as for the pre-approval of services provided by our independent auditors, both of which are also available on our website, www.cmcmaterials.com. As set forth in the audit committee charter, the audit committee is also responsible for the review and approval of any related party transaction in advance of the company entering into any such transaction; since April 2002, we have not been engaged in any related party transactions and none have been proposed to the audit committee for consideration.

The audit committee met eight times during fiscal year 2020 and did not take action by written consent, and has met twice since fiscal year end with respect to the audit of our fiscal year 2020 financial statements and

 

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related and other matters, and has not taken action by written consent. In fulfillment of the audit committee’s responsibilities for fiscal year 2020, Ms. Klein, the audit committee Chair, reviewed our Annual Report on Form 10-K for the fiscal year ended September 30, 2020 (as did the other members of the committee and board of directors), and our Quarterly Reports on Form 10-Q before we filed them, and Ms. Klein and other members of the audit committee (and board of directors) also reviewed quarterly earnings announcements and related matters before we released them.

Compensation Committee.    The members of the compensation committee are currently Messrs. Reilly and Wild, and Ms. Whitney (Chair), each of whom the board determined was during fiscal year 2020 and is now an “independent” director as defined by NASDAQ Marketplace Rules and as defined in applicable rules adopted by the SEC. Further, the members of the compensation committee each satisfy the eligibility requirements applicable to compensation committee members of listed companies set forth in NASDAQ listing standards.

The functions of the compensation committee include:

 

   

reviewing and approving the compensation and benefits for our employees;

 

   

evaluating and deciding upon the compensation of our chief executive officer;

 

   

evaluating and deciding upon the compensation of our other executive officers, which is done following consultation with our chief executive officer;

 

   

monitoring the administration of our employee benefit plans;

 

   

authorizing and ratifying stock option grants, restricted stock and restricted stock unit awards, other equity awards (such as performance share unit awards), and other incentive arrangements;

 

   

authorizing employment and related agreements;

 

   

in concert with the nominating and corporate governance committee, reviewing and making recommendations to the board of directors regarding succession planning for our chief executive officer and other executive officers; and

 

   

periodically reviewing human capital matters affecting the company (for example, demographics, diversity and inclusion, talent development and employee retention initiatives).

Our chief executive officer is neither present for voting or deliberation on, nor votes upon decisions relating to, his compensation. In addition, our chief executive officer does not vote upon decisions related to the compensation of our other executive officers. Also, our vice president of human resources and her staff support the compensation committee in its work by providing input and recommendations on the overall mix and forms of executive compensation as directed by the compensation committee. Our vice president of human resources and human resources staff do not make decisions regarding the amount of compensation for our named executive officers or other executive officers.

The compensation committee has engaged the services of an independent compensation consultant, which reports directly to the committee. Since April 2017, the committee has engaged Meridian Compensation Partners, LLC (“Meridian”) as its independent compensation consultant. The consultant has been engaged to advise the compensation committee on executive officer compensation and equity incentive matters and trends, and to perform benchmark comparison analysis of compensation practices of peer companies. As part of the compensation committee’s ongoing and annual reviews of executive officer compensation matters, the consultant recommends specific ranges of compensation for our executive officers, including our named executive officers, based on information provided by the committee regarding different performance scenarios and desired positioning with respect to market compensation ranges. The consultant also advises the nominating and corporate governance committee on non-employee director compensation matters. The consultant does not provide other services to our company. The compensation committee also has reviewed the independence of the consultant in light of SEC rules and NASDAQ listing standards regarding compensation consultants and has concluded that the consultant’s work for the committee and for the nominating and corporate governance committee is independent and does not raise any conflict of interest.

 

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The compensation committee operates under a written charter that addresses compensation matters, a current copy of which is available on our website, www.cmcmaterials.com. The compensation committee reviews and reassesses the adequacy of the compensation committee charter (including under NASDAQ listing standards) on an annual basis. The compensation committee met six times during fiscal year 2020 and took action by written consent twice, and has met three times since the fiscal year end with respect to 2020 annual cash incentive payouts, salary increases, equity awards (including stock option grants, and restricted stock unit and performance share unit awards), and other matters, and has not taken action by written consent.

Nominating and Corporate Governance Committee.    The members of the nominating and corporate governance committee are currently Messrs. Hill (Chair) and Wild, and Ms. Klein, each of whom was during fiscal year 2020 and is now an “independent” director as defined by NASDAQ Marketplace Rules and as defined in applicable rules adopted by the SEC.

The functions of the nominating and corporate governance committee include:

 

   

reviewing and recommending a slate of nominees for the election of directors;

 

   

recommending changes in the number, classification and term of directors;

 

   

reviewing nominations by stockholders with regard to the nomination process;

 

   

reviewing and recommending compensation and other matters for our non-employee directors;

 

   

reviewing and recommending succession planning for the chief executive officer, and other executive officers, which may be done in concert with the compensation committee; and,

 

   

attending to general corporate governance matters, including Environmental, Social and Governance (ESG), such as sustainability and climate-related, matters and their impact on our stakeholders.

The nominating and corporate governance committee operates under a written charter that addresses the nominations process and such related matters as may be required under the federal securities laws and NASDAQ listing requirements, a current copy of which is available on our website, www.cmcmaterials.com. The nominating and corporate governance committee reviews and reassesses the adequacy of the nominating and corporate governance charter on an annual basis. The nominating and corporate governance committee met three times during fiscal year 2020, did not take action by written consent, and has met once since fiscal year end and has not taken action by written consent. The nominating and corporate governance committee acted unanimously to recommend the nomination of the Class III director nominees to the board of directors, subject to stockholder approval, as discussed in “ELECTION OF DIRECTORS,” above.

Criteria for Nominating Directors

The nominating and corporate governance committee considers candidates to fill new directorships created by expansion and vacancies that may occur and makes recommendations to the board of directors with respect to such candidates. The nominating and corporate governance committee considers suggestions from many sources regarding possible candidates for director and will consider nominees recommended by stockholders. Any such stockholder nominations, together with appropriate biographical information, should be submitted to the Chair of the nominating and corporate governance committee, c/o the Secretary of our company at our offices at 870 North Commons Drive, Aurora, Illinois 60504. To be included in the proxy statement, such nomination must be received by the Secretary of our company not later than the 120th day prior to the first anniversary of the date of the preceding year’s proxy statement.

In fiscal year 2020, we did not pay a fee to any third party to identify or evaluate potential director nominees; however, in the future we may pay a fee to a third party to identify or evaluate potential director nominees if the need arises, given the important role our directors play in guiding our strategic direction and overseeing the management of our company.

Board candidates are selected based upon various criteria including, but not limited to, their:

 

   

character and reputation;

 

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relevant business experience and acumen;

 

   

relevant educational background;

 

   

experience in areas such as technology, manufacturing, marketing, finance, strategy, international business, and academia; and

 

   

geographic, cultural, experiential and other forms of diversity, such as gender and race and ethnicity.

The nominating and corporate governance committee and board of directors review these factors in considering candidates for board membership. Board members are expected to prepare for, attend and participate in all board of directors and applicable committee meetings, and our annual meetings of stockholders. The nominating and corporate governance committee considers a director’s past attendance record, participation and contribution to the board of directors in considering whether to recommend the reelection of such director.

Compensation of Directors

The following table shows information concerning the compensation that the company’s non-employee directors earned during the last completed fiscal year ended September 30, 2020. A director who is also our employee receives no additional compensation for his or her services as a director.

Fiscal Year 2020 Director Compensation

 

Name

 

  

Fees Earned

or Paid

in Cash ($)1

 

    

Stock

Awards

($)2

 

    

Option

Awards

($)2

 

    

All Other

Compensation

($)

 

    

Total

($)

 

 

 

William P. Noglows

  

 

 

 

140,000

 

 

  

 

 

 

 

87,634

 

 

 

 

  

 

 

 

 

89,938

 

 

 

 

  

 

 

 

—        

 

 

  

 

 

 

 

317,572

 

 

 

 

 

Richard S. Hill

  

 

 

 

115,000

 

 

    

 

87,634

 

 

 

    

 

89,938

 

 

 

  

 

 

 

—        

 

 

    

 

292,572

 

 

 

 

Barbara A. Klein

  

 

 

 

115,000

 

 

    

 

87,634

 

 

 

    

 

89,938

 

 

 

  

 

 

 

—        

 

 

    

 

292,572

 

 

 

 

Paul J. Reilly

  

 

 

 

 

90,000

 

 

 

 

    

 

87,634

 

 

 

    

 

89,938

 

 

 

  

 

 

 

—        

 

 

    

 

267,572

 

 

 

 

Susan M. Whitney

     115,000       

 

87,634

 

 

 

    

 

89,938

 

 

 

  

 

 

 

—        

 

 

    

 

292,572

 

 

 

 

Geoffrey Wild

 

  

 

 

 

 

90,000

 

 

 

 

    

 

87,634

 

 

 

    

 

89,938

 

 

 

  

 

 

 

 

—        

 

 

 

 

    

 

267,572

 

 

 

 

1     Includes an annual retainer fee, and, as applicable, a board of directors Chair or committee Chair annual retainer fee, both earned quarterly, each as discussed in more detail below. Dollar amounts are comprised as follows:

 

Name

 

 

Annual

Retainer Fee
($)

 

   

Committee

  Chair Fee  

($)

 

   

Non-

Executive

Board

 Chair Fee ($)

 

 

 

Mr. Noglows

 

 

 

 

 

 

90,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

50,000

 

 

 

 

 

Mr. Hill*

 

 

 

 

 

 

90,000

 

 

 

 

 

 

 

 

 

25,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ms. Klein**

 

 

 

 

 

 

90,000

 

 

 

 

 

 

 

 

 

25,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mr. Reilly

 

 

 

 

 

 

90,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ms. Whitney***

 

 

 

 

 

 

90,000

 

 

 

 

 

 

 

 

 

25,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mr. Wild

 

 

 

 

 

 

90,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  *

Nominating and corporate governance committee Chair

 

  **

Audit committee Chair

 

  ***

Compensation committee Chair

2     The amounts in the column headed “Stock Awards” represent the aggregate award date fair value of awards made in fiscal year 2020 computed in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718, Stock Compensation (“ASC 718”). For these restricted

 

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stock unit awards, the fair value is equal to the underlying value of the stock and is calculated using the closing price of our common stock on the award date. The actual value realized by a non-employee director related to restricted stock unit awards will depend on the market value of our common stock on the date the underlying stock is sold following vesting of the awards.

The amounts in the column headed “Option Awards” represent the aggregate grant date fair value of grants in fiscal year 2020 computed in accordance with ASC 718 (see Note 17 of Notes to Consolidated Financial Statements included in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended September 30, 2020 for a description of the assumptions used in that computation). The actual value realized by a non-employee director related to option awards will depend on the difference between the market value of our common stock on the date the option is exercised and the exercise price of the option.

The award date fair market value of each “Stock Award” and the grant date fair market value of each “Option Award” awarded or granted to our non-employee directors during fiscal year 2020, computed in accordance with ASC 718 (excluding the impact of estimated forfeitures for service-based vesting conditions), is as follows:

 

 Name

 

 

Award or

  Grant Date  

 

   

Number of

  Restricted Stock  

            Units             

 

   

  Award Date Fair  

        Value ($)        

 

   

  Number of  

    Options    

 

   

Grant Date

  Fair Value ($)  

 

 

 

 Mr. Noglows

 

 

 

 

 

 

3/4/20     

 

 

 

 

 

 

 

 

 

593         

 

 

 

 

 

 

 

 

 

87,634      

 

 

 

 

 

 

 

 

 

1,958    

 

 

 

 

 

 

 

 

 

89,938    

 

 

 

 

 

 Mr. Hill

 

 

 

 

 

 

3/4/20     

 

 

 

 

 

 

 

 

 

593         

 

 

 

 

 

 

 

 

 

87,634      

 

 

 

 

 

 

 

 

 

1,958    

 

 

 

 

 

 

 

 

 

89,938    

 

 

 

 

 

 Ms. Klein

 

 

 

 

 

 

3/4/20     

 

 

 

 

 

 

 

 

 

593         

 

 

 

 

 

 

 

 

 

87,634      

 

 

 

 

 

 

 

 

 

1,958    

 

 

 

 

 

 

 

 

 

89,938    

 

 

 

 

 

 Mr. Reilly

 

 

 

 

 

 

3/4/20     

 

 

 

 

 

 

 

 

 

593         

 

 

 

 

 

 

 

 

 

87,643      

 

 

 

 

 

 

 

 

 

1,958    

 

 

 

 

 

 

 

 

 

89,938    

 

 

 

 

 

 Ms. Whitney

 

 

 

 

 

 

3/4/20     

 

 

 

 

 

 

 

 

 

593         

 

 

 

 

 

 

 

 

 

87,634      

 

 

 

 

 

 

 

 

 

1,958    

 

 

 

 

 

 

 

 

 

89,938    

 

 

 

 

 

 Mr. Wild

 

 

 

 

 

 

3/4/20     

 

 

 

 

 

 

 

 

 

593         

 

 

 

 

 

 

 

 

 

87,634      

 

 

 

 

 

 

 

 

 

1,958    

 

 

 

 

 

 

 

 

 

89,938    

 

 

 

 

During fiscal year 2020, no stock awards held by any of our non-employee or other directors were modified or cancelled (forfeited).

The aggregate number of stock awards and the aggregate number of stock option awards held by each non-employee director that were outstanding as of the end of fiscal year 2020 are as follows:

 

    

Aggregate Number of Awards

  Outstanding as of September 30,  

                             2020                            

 

 

 Name

 

 

  Stock Awards*  

 

   

  Option Awards  

 

 

 

 Mr. Noglows

 

 

 

 

 

 

593      

 

 

 

 

 

 

 

 

 

90,264      

 

 

 

 

 

 Mr. Hill

 

 

 

 

 

 

593      

 

 

 

 

 

 

 

 

 

4,930      

 

 

 

 

   

 

 Ms. Klein

 

 

 

 

 

 

593      

 

 

 

 

 

 

 

 

 

46,764      

 

 

 

 

 

 Mr. Reilly

 

 

 

 

 

 

931      

 

 

 

 

 

 

 

 

 

13,126      

 

 

 

 

 

 Ms. Whitney

 

 

 

 

 

 

593      

 

 

 

 

 

 

 

 

 

36,264      

 

 

 

 

 

 Mr. Wild

 

 

 

 

 

 

593      

 

 

 

 

 

 

 

 

 

36,264      

 

 

 

 

 

  *

Restricted Stock Units.

Our non-employee directors received an aggregate of 11,748 stock options and 3,558 restricted stock units in fiscal year 2020.

As provided in our Corporate Governance Guidelines and the nominating and corporate governance committee charter, the nominating and corporate governance committee is responsible for reviewing and recommending to the board of directors compensation (cash and equity) for non-employee directors. The committee does this through review of director compensation benchmark information and analysis and

 

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recommendation provided by the independent non-employee director compensation consultant to the committee, which since April 2017 is Meridian.

As previously disclosed, the board of directors approved our current non-employee director compensation program effective at the time of our annual meeting in March 2016, with the objective of continuing our company’s ability to attract high caliber and experienced individuals to serve as directors. Our non-employee director compensation program consists of the following elements:

 

Description of Director Compensation, Effective March 2016

 

 

  Amount/Value ($)  

 

 

 

Annual Retainer Fee1

 

 

 

 

 

 

90,000    

 

 

 

 

 

Committee Chair Annual Retainer Fees1:

 

   

 

Audit committee Chair

 

 

 

 

 

 

25,000    

 

 

 

 

 

Compensation committee Chair

 

 

 

 

 

 

25,000    

 

 

 

 

 

Nominating and corporate governance committee Chair

 

 

 

 

 

 

25,000    

 

 

 

 

 

No Standing Committee or Board Meeting Fees2

 

 

 

 

 

 

—    

 

 

 

 

 

Non-Executive Board Chair Fee3

 

 

 

 

 

 

50,000    

 

 

 

 

 

Annual Non-qualified Stock Option Grant4

 

 

 

 

 

 

90,000    

 

 

 

 

 

Annual Restricted Stock Unit Award4

 

 

 

 

 

 

90,000    

 

 

 

 

 

Initial Restricted Stock Unit Award5

 

 

 

 

 

 

90,000    

 

 

 

 

 

1 

Paid quarterly beginning with the quarter end following the effective date of appointment, and subsequently, beginning with the quarter end following our annual meeting. Directors do not receive additional compensation for serving as committee members.

 

2 

To the extent a special committee is established by board of directors to address a unique matter, a committee meeting fee of $1,500 will be provided.

 

3 

If a non-executive serves as Chair of the board of directors, he or she will receive a retainer amount in addition to the annual retainer fee.

 

4 

Made at the time of our annual meeting (or initial appointment to the board of directors, on a pro-rata basis according to the number of days left until the subsequent annual meeting from the initial date of election) based on a fixed dollar value, with 100% vesting occurring on the first anniversary of the grant/award date. Number of units are calculated consistent with methodology used to calculate employee awards, using multiple-day average stock price in advance of award date (annual meeting), and Black-Scholes value of option grants, as applicable.

 

5 

New directors receive initial restricted stock unit awards, based on a fixed dollar value. Each award vests 25% per year on the first four anniversaries of the award date.

Upon a non-employee director’s termination of service as a director of the company for reason of Death, Disability or a Change in Control, as defined in the 2012 Omnibus Incentive Plan and/or an award agreement, each grant or award of non-qualified stock options and restricted stock units held by the director will vest in full. In addition, if at the time of termination of service for any reason other than by reason of Cause, Death, Disability or a Change in Control, as defined in the 2012 Omnibus Incentive Plan and/or an award agreement, the non-employee director has completed at least two full terms as a director, as defined in our bylaws, each grant or award of non-qualified stock options and restricted stock units held by the director will vest in full.

Under our Directors’ Cash Compensation Umbrella Program, which only applies to non-employee directors and was first filed as an exhibit to our Annual Report on Form 10-K filed with the SEC on December 10, 2003, each non-employee director may choose to receive his or her cash compensation either in cash, in fully vested restricted stock under our 2012 Omnibus Incentive Plan (as of the date the fees are earned, the fees would be converted into the equivalent number of fully vested restricted shares, which would be beneficially owned and

 

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reported on Form 4 filings), or as deferred compensation under our Directors’ Deferred Compensation Plan, as amended September 23, 2008, which first became effective in March 2001, and was first filed as an exhibit to our Annual Report on Form 10-K filed with the SEC on November 25, 2008. Under the Directors’ Deferred Compensation Plan, deferred amounts are payable only in the form of our common shares. A participating director is required to elect a date on which deferred compensation will begin to be distributed, which date generally must be at least two years after the end of the year deferrals are made and no later than the date of termination. As of the date the compensation is earned, the fees are converted into the right to acquire the equivalent number of shares of common stock at the end of the deferral period. These rights to acquire shares under the Directors’ Deferred Compensation Plan are reported as beneficially owned on Form 4 filings for each participating director; however, no non-employee directors currently participate in, and no amounts are deferred under, the Directors’ Deferred Compensation Plan. At present, non-employee directors receive their annual retainer and committee Chair fees on a quarterly basis. Non-employee directors also are eligible for reimbursement of travel and other out-of-pocket costs incurred in attending meetings. Non-employee directors are not eligible for any other compensation arrangement.

Compensation Committee Interlocks and Insider Participation

None of the current or former members of the compensation committee are or have been our employees.

SUSTAINABILITY AND RESPONSIBLE CARE—ENVIRONMENTAL, HEALTH AND  SAFETY

It is our policy to operate worldwide in a safe, responsible manner that respects the environment and protects the health and safety of our employees, our customers and the communities where we operate. We are committed to conducting our business operations in a manner that preserves the environment, which includes minimizing waste, conserving energy and preventing pollution. Our commitment goes beyond regulatory compliance and ISO certifications. Some of our key environmental, health and safety (EHS) initiatives include:

 

   

Our Environmental, Health & Safety Management Systems meet International Organization of Standardization (ISO) 14001 and Responsible Care 14001 for Environmental Management and Occupational Health & Safety Assessment Series 18001 and ISO 45001 for Health and Safety Management.

 

   

We adhere to the principles of responsible manufacturing as contained in the Responsible Business Alliance Code of Conduct and the Restriction of Hazardous Substances Directive 2002/95/EC.

 

   

We have adopted updated Environmental, Health and Safety and Human Rights Policies reviewed, endorsed and signed by management.

 

   

We have committed to reporting our EHS and Sustainability accomplishments according to frameworks established by the Sustainability Accounting Standards Board and the Task Force on Climate-related Financial Disclosures, as well as in our inaugural Corporate Sustainability Report.

 

   

We participate broadly in trade organizations, advocacy groups and local community organizations around the globe.

 

   

We provide transparency through the publication of our Corporate Sustainability Report, and EHS Performance Report, which are available on our website, www.cmcmaterials.com.

 

   

We strive to reduce electricity and water consumption and solid waste by establishing goals and reporting our progress on our website.

 

   

We work to identify, evaluate, control and mitigate hazards in support of our global health and safety program

 

   

We focus on a ‘Caring Culture’ for employee health & safety, and stewardship of the environment.

 

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For fiscal year 2020, we achieved:

 

   

Proactive implementation of enhanced health and safety protocols, including a focus on mental health assistance, at our global locations to protect and maintain employee health and well-being, and to prevent the spread of COVID-19 within our facilities and in our communities.

 

   

A global recordable injury rate of 0.56, which is less than half the Semiconductor industry average of 1.20 and more than 70 percent lower than the Chemical industry average of 1.90.

 

   

More than 30% of our solid waste generated either was re-used or recycled rather than going to a landfill.

 

   

Drove sustainability through global reduction in electricity use (7.3% reduction annually) and solid waste generation (6.4% reduction annually) compared to fiscal year 2019.

 

   

More than 52% of the hazardous waste that we generated globally was recycled.

 

   

Completion of 80 ergonomic improvement projects to improve employee safety.

 

   

Multiple site locations have been recognized for excellence in EHS performance by government bodies and customers.

We are focused on employee health and safety and a shared culture of results, caring, candor, and learning, which are foundations of our Company’s values and are expressed in our Code of Business Conduct, to which all employees certify, and related policies and procedures in the countries in which we do business. With respect to employee health and safety measures, we focus on ongoing education with respect to EHS matters, and injury prevention and reduction across all our operations. We track injury rates on an ongoing basis and compare them to the average injury rates for chemical manufacturers as well as to semiconductor industry manufacturers; we believe we have been significantly below each of these industry averages for the past five years. In fiscal 2020, we urgently focused our EHS efforts around the world, including education and enhanced health and safety protocols, on employee well-being and prevention of the spread of COVID-19 at our facilities and in our communities.

For additional information on our EHS initiatives, including our Corporate Sustainability Report, please visit our website at www.cmcmaterials.com and navigate to the “EHS” and “Sustainability” tabs. The information contained on our website is not incorporated by reference into this proxy statement.

 

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FEES OF INDEPENDENT AUDITORS AND AUDIT COMMITTEE REPORT

Fees Billed by Independent Auditors

During fiscal years 2020 and 2019, the audit committee pre-approved 100% of all audit and non-audit services provided by our independent auditors, PricewaterhouseCoopers LLP (“PWC”), an independent registered public accounting firm. For such pre-approval of services, the audit committee follows its policy for the pre-approval of services provided by our independent auditors, a current copy of which is available on our website, www.cmcmaterials.com. The policy requires advance approval of all audit, audit-related, tax and other services performed by the independent auditor. This policy provides for pre-approval by the audit committee of permitted services before the independent auditor is engaged to perform them. The audit committee has delegated to the Chair of the audit committee authority to approve permitted services. The following table presents fees for audit services rendered by PWC for the audit of our annual financial statements for the fiscal year ended September 30, 2020, and September 30, 2019, and fees billed for other services rendered by PWC during those periods.

 

 Fees

 

 

Fiscal Year Ended
September 30, 2020 ($)  

 

   

Fiscal Year Ended
September 30, 2019 ($)  

 

 

 

 Audit Fees1

 

 

 

 

 

 

3,622,542

 

 

 

 

 

 

 

 

 

5,112,583

 

 

 

 

 

 Audit-Related Fees2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

207,000

 

 

 

 

 

 Tax Fees3

 

 

 

 

 

 

825,206

 

 

 

 

 

 

 

 

 

343,209

 

 

 

 

 

 All Other Fees4

 

 

 

 

4,500

 

 

 

 

 

 

4,500

 

 

   

 

 

   

 

 

 

 

Total

 

 

 

 

 

 

    4,452,248

 

 

 

 

 

 

 

 

 

    5,667,292

 

 

 

 

 

1 

Audit Fees include fees for professional services rendered by PWC for the audit of our annual financial statements and internal control over financial reporting and review of financial statements included in our Form 10-Q and for services that normally would be provided by PWC in connection with statutory and regulatory filings or engagements. In addition to including fees for services necessary to perform an audit or review in accordance with generally accepted auditing standards, this category also may include services that generally only PWC reasonably can provide, such as comfort letters, statutory audits, attest services, consents and assistance with and review of documents filed with the SEC.

 

2 

Audit-Related Fees include assurance and related services traditionally performed by PWC that are reasonably related to the performance of the audit or review of our financial statements and not reported under the “Audit Fee” heading. For fiscal year 2019, PWC provided certain accounting consultation services and services in connection with our acquisition of KMG Chemicals, Inc. (the “Acquisition”), which occurred in fiscal year 2019.

 

3 

Tax Fees include fees billed for professional services related to tax compliance and other tax services. For fiscal years 2020 and 2019, $169,707 and $146,375, respectively, of total Tax Fees was for tax compliance services.

 

4 

All Other Fees for fiscal years 2020 and 2019 primarily related to access to on-line software tools.

Report of the Audit Committee

The following report of the audit committee does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other of our filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent we specifically incorporate this report by reference therein.

The audit committee of the board of directors is responsible for providing independent, objective oversight of our accounting and system of internal controls, the quality and integrity of our financial reports, and the independence and the selection, appointment, retention, compensation and oversight of the performance of our independent auditors. The audit committee is composed of independent directors and operates under a written charter, a current copy of which is available on our website, www.cmcmaterials.com. The audit committee reviews

 

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and reassesses the adequacy of the audit committee charter on an annual basis. Our board of directors has determined that the audit committee has at least one member who qualifies as an Audit Committee Financial Expert, as defined by relevant SEC rules, and has designated Ms. Klein, the Chair of the committee, and Mr. Reilly, a member of the committee, as Audit Committee Financial Experts.

Management is responsible for our internal controls and the financial reporting process. The independent auditors are responsible for performing an independent audit of our financial statements in accordance with generally accepted auditing standards and issuing a report on those financial statements. The audit committee monitors and oversees these processes.

In this context, the audit committee reviewed and discussed the audited financial statements for fiscal year 2020 with management and with the independent auditors. Specifically, the audit committee has discussed with the independent auditors the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board and the SEC, and which include, among other things: methods used to account for any significant and unusual transactions; the effect of any significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus; the process used by management in formulating any particularly sensitive accounting estimates and the basis for the independent auditors’ conclusions regarding the reasonableness of those estimates; and, any disagreements with management over the application of accounting principles, the basis for management’s accounting estimates, and the disclosures in the financial statements.

The audit committee believes strongly in the principles underlying the requirement that independent auditors maintain their independence in strict compliance with applicable independence rules. The audit committee has received the written disclosures and the letter from the independent auditors required by the Public Company Accounting Oversight Board regarding the independent auditors’ communications with the audit committee concerning independence, and has discussed with the independent auditors the issue of the independent auditors’ independence from the company and management. In addition, in accordance with the SEC’s auditor independence requirements, the audit committee has considered whether the independent auditors’ provision of non-audit services to the company is compatible with maintaining the independence of the independent auditors and has concluded that it is.

Based on its review of the audited financial statements and the various discussions noted above, the audit committee recommended to the board of directors that the audited financial statements be included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020.

Respectfully submitted by the audit committee,

Richard S. Hill

Barbara A. Klein, Chair

Paul J. Reilly

Susan M. Whitney

 

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COMPENSATION DISCUSSION AND ANALYSIS

In this section, we discuss and analyze our executive officer compensation program and how we compensated each of our named executive officers identified in the following table in fiscal year 2020. The individuals listed below include our chief executive officer, chief financial officer, and our three other most highly compensated executive officers based on total compensation.

 

  Name   Title
   

 David H. Li

  President and Chief Executive Officer
   

 Scott D. Beamer

  Vice President and Chief Financial Officer
   

 Daniel D. Woodland

  Vice President and President, Electronic Materials
   

 H. Carol Bernstein

  Vice President, Secretary and General Counsel
   

 Jeffrey M. Dysard

  Vice President and President, Performance Materials

Fiscal Year 2020 Executive Compensation Summary

Our executive compensation program is structured to align our named executive officers’ interests with those of our stockholders, by linking compensation to business objectives and performance, and to attract and retain talented executives. In general, our executive officers, including David H. Li, our President and Chief Executive Officer, and our other named executive officers, are eligible for, and participate in, our compensation and benefits programs according to the same terms as those available to all our employees. Our executive compensation program is administered by the compensation committee of our board of directors, which is composed solely of independent directors. The key elements of our executive compensation program are base salary, annual cash incentives pursuant to our Short-Term Incentive Program (“STIP”), and long-term equity incentives. The compensation committee is responsible for determining the level of compensation awarded to our named executive officers and our other executive officers. The compensation committee targets compensation levels that take into account current market practices and believes that offering market-comparable pay opportunities allows our company to maintain a successful and stable executive team.

Fiscal year 2020 was notable in that our company achieved another year of record financial results, driven by the remarkable efforts of our worldwide team of employees who tirelessly and safely delivered on commitments to our customers, with a paramount focus on employee health and workplace safety occasioned by the relentless challenges of the Pandemic. All our businesses, whether serving the semiconductor industry and other technology sectors, or the energy industry, are deemed essential under various government requirements, and we have continued in full operation around the world since the onset of the Pandemic. Throughout, we have reviewed and refined our global business continuity plans to help mitigate any potential impact on our operations and supply chain, and our teams have worked continuously to provide an uninterrupted supply of critical materials to our customers, such that through the Pandemic we have not missed a customer obligation to date. We took proactive steps to develop and implement health and safety protocols early in the Pandemic in all our locations, even in advance of government guidelines and regulations, to prevent and contain the spread of COVID-19. As part of this, we have operated under work-from-home and split shift schedules, with enhanced social distancing and hygiene practices at all our facilities, such as contact tracing and self-isolation requirements, temperature screenings, and use of additional personal protective equipment. We continue our operations with vigilance as the Pandemic has continued through the end of fiscal year 2020 and through our first quarter of fiscal year 2021. During these challenging times, we have also made efforts to give back and help the communities in which we operate. As one example, our sites have donated personal protective equipment, including N95 respirators and surgical masks, to local hospitals and first responders.

For fiscal year 2020, our leadership team, composed of our executive officers, including our named executive officers, achieved record revenue for the fifth consecutive year, driven primarily by our continued integration of the KMG businesses for the first full fiscal year since the Acquisition. Our electronic materials business, which is the majority of our business and serves the semiconductor industry, contributed to this growth

 

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and maintained stability throughout the year as the industry showed resilience and some strengthening as the Pandemic drove technology demand through work from home, e-learning, and healthcare-related needs. Despite the Pandemic’s significant adverse impact on the pipeline industry, on which our performance materials business is primarily based, we also reached a record revenue milestone in this area of our business. Along with this, due to our leadership’s and employees’ efforts to manage our operations efficiently, we also delivered record earnings for the fiscal year.

We also are proud that in honor of our 20th year as a publicly traded company, we began fiscal year 2021 with a comprehensive rebranding of our company into CMC Materials, Inc.

Our fiscal year 2020 results reflect the efforts of our global workforce, led by Mr. Li and our other executive officers, including our named executive officers. The key aspects and highlights of fiscal year 2020 include:*

 

   

Record Revenue of $1,116.3 million (increase of $78.6 million, or 8%, over fiscal year 2019);

 

   

Record Net Income of $142.8 million ($103.6 million, or 264.2%, higher than fiscal year 2019);

 

   

Record Adjusted EBITDA1 of $357.8 million ($24.4 million, or 7%, higher than fiscal year 2019);

 

   

Adjusted EBITDA Margin1 of 32.1% (essentially flat to 32.1% for fiscal year 2019);

 

   

Record Diluted Earnings Per Share of $4.83 per share (increase from $1.35 per share, or 257.8% higher than fiscal year 2019);

 

   

Operating Cash Flow of $287 million ($112 million, or 64%, higher than fiscal year 2019);

 

   

Cash Dividends distributed to our stockholders of $50.4 million ($4.1 million, or 8.8% higher than fiscal year 2019);

 

   

Accelerated Deleveraging of our balance sheet by achieving net debt equal to less than two times Adjusted EBITDA1 as of the end of the fiscal year;

 

   

Responsible Stewardship of our company through the ongoing Pandemic, including protecting the health of our employees and maintaining the continuity of our global operations;

 

   

Comprehensive Global Rebrand to CMC Materials, Inc., reflecting the high-quality, critical materials that enable superior performance for our customers; and,

 

   

Diversity Within Our Executive Officer Team, with women comprising 50% of our executive officers as of fiscal year 2020, and approximately 13% of our executive officers being racially and/or ethnically diverse.

*Data represent rounded values.

The highlights of our fiscal year 2020 executive compensation program resulting from our fiscal year 2020 company financial performance were:

 

   

Prior to the onset of the Pandemic, the compensation committee of our board of directors had established challenging performance goals for our company and for our STIP for fiscal year 2020 to help drive our efforts to achieve our strategic initiatives both for the year and as part of the achievement of our long-range strategy, which included enhanced performance from that of the prior year, and continued successful integration following the Acquisition. Although these goals were difficult, especially in light of the Pandemic, which was unprecedented in terms of adverse worldwide economic impact and operational challenges for our business and that of our customers in the semiconductor and pipeline industries, the company’s fiscal year 2020 performance for revenue exceeded the “threshold” level, and for adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) (adjusted EBITDA, expressed as a percentage of revenue) exceeded the “target” level.

 

   

As described in greater detail below, based on the methodology for determining awards under our STIP, our executive officers, including Mr. Li and our other named executive officers, earned annual

 

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cash incentive payouts under the STIP that exceeded the “target” level overall, at an achievement level of 112.2%.

 

   

Long-term incentive awards for fiscal year 2020 (granted in December 2019) to our named executive officers and other executive officers under our 2012 Omnibus Incentive Plan were solely in the form of equity—performance share units (spanning a three-year performance period), non-qualified stock options and restricted stock units—to further link the interests of our executive officers with those of our stockholders. Fiscal year 2020 award values were again aligned with the target range for comparable benchmark positions. The performance share units, non-qualified stock options and restricted stock unit awards reflected a methodology and terms and conditions generally consistent with annual award cycles of the past few years, as described more fully below. For these fiscal year 2020 awards granted in December 2019, to reflect market practices, executive officers (other than Mr. Li), received 40% of the value of their long-term equity incentive awards as performance share units, 30% as time-based restricted stock units, and 30% as non-qualified stock options; the value received by Mr. Li was comprised of 50% performance share units, 25% time-based restricted stock units and 25% non-qualified stock options.

 

   

As described in greater detail below, the performance share units granted to our named executive officers with respect to the performance period beginning on October 1, 2017 and ending on September 30, 2020, were earned, based on performance, at 134.4% of target, with performance goals based on revenue growth (expressed as a percentage) and cumulative earnings per share (EPS) growth, with a total shareholder return (TSR) multiplier applied based on the S&P Small Cap 600 Index.

 

   

Despite the unprecedented and unanticipated nature of the Pandemic and its macroeconomic impact, as well as its related effect on certain aspects of our business, such as our Performance Materials segment, the compensation committee did not adjust performance-based goals, measures or results thereunder to reflect the Pandemic’s impact on our business (i.e., revenue, adjusted diluted EPS) in the compensation elements described above (i.e., STIP, fiscal year 2018 through fiscal year 2020 performance share unit award, or subsequent fiscal year performance share unit awards).

 

1 

Adjusted EBITDA and Adjusted EBITDA margin are considered non-GAAP financial measures. Adjusted EBITDA margin is defined as adjusted EBITDA as a percentage of revenue. Adjusted EBITDA is defined as earnings before interest, income taxes, depreciation and amortization, adjusted for certain items that affect comparability from period to period. These adjustments include items related to the Acquisition, such as expenses incurred to complete the Acquisition and integration related expenses, costs of restructuring and asset impairment related to the wood treatment business and related adjustments, costs related to the KMG-Bernuth warehouse fire net of insurance recovery, costs related to the Pandemic net of grants received, and impact of fair value adjustments to inventory acquired from KMG. See Appendix A below for more information about this non-GAAP financial measure and for a reconciliation from the most comparable GAAP financial measure.

 

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We maintain several compensation program features and corporate governance practices to provide both a strong link between executive pay, company performance and stockholder interests, and a competitive executive compensation program:

 

 

WHAT WE DO

 

 

 Independent Compensation Committee Makes All Decisions Related to Executive Compensation (see pages 18, 30 and 31)

 

 Pay Program Aligned with Performance and with Business Strategy (see page 31)

 

 Link of Substantial Portion of Total Compensation to Company Performance

 

 Performance-Based Equity Awards (see pages 33, 40)

 

 Balanced Mix of Performance Measures in Short-Term and Long-Term Incentive Programs (see pages 36 through 40)

 

 Caps on Short-Term Incentive Payouts as a Percentage of Target (see pages 38 and 39)

 

 Annual Caps on Long-Term Incentive Awards (see page 40)

 

 Market-Based Compensation (see pages 32 and 33)

 

 Annual Compensation Risk Review (see page 46)

 

 Cash and Equity Clawback Policy for Executive Officers (see pages 34, 39, 43)

 

 Limited Perquisites and Personal Benefits

 

 Annual Say on Pay Vote (see page 31)

 

 Independent Compensation Consultant for Compensation Committee (see pages 18 and 32)

 

 

 

WHAT WE DON’T DO

 

 

X  No Hedging or Pledging of Company Stock (see page 43)

 

X  No Repricing or Backdating of Stock Options (see page 40)

 

X  No Loans to Executive Officers

 

X  No Individual Benefit Plans for Executive Officers, Including Supplemental Executive Retirement Plans (see page 44)

 

X  No Payout of Dividend Equivalents on Unvested Equity Awards

 

X  No Defined Benefit Pension Plan (see page 58)

 

X  No Single-Trigger Change in Control Severance Benefits (see pages 59 through 61)

 

X  No Gross-Ups for 280G Excise Taxes Pursuant to Post-2008 Change in Control Severance Protection Agreements (see pages 62 and 63)

 

 

Overview

General.    Our executive compensation program is administered by the compensation committee of our board of directors, which is composed solely of independent directors. The compensation committee is responsible for determining the level of compensation paid to our named executive officers and our other executive officers, including determining awards under and administering the 2012 Omnibus Incentive Plan. The compensation committee is also responsible for reviewing and establishing all other executive officer compensation programs and plans that we may adopt from time to time. During, and for, fiscal year 2020, the

 

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compensation committee made all decisions pertaining to the compensation of our named executive officers and our other executive officers. The compensation committee also reviewed and approved the methodology used for compensation of our general employee population. Our chief executive officer is neither present for voting or deliberation on, nor votes upon decisions relating to, his compensation. In addition, our chief executive officer does not vote upon decisions related to the compensation of our other executive officers. Our chief executive officer evaluates the performance of our other executive officers, including the named executive officers, discusses the compensation and mix and forms of compensation of the other executive officers with the compensation committee’s independent compensation consultant and with the committee, and makes recommendations to the committee with respect to the compensation of the other executive officers. However, the committee makes all final decisions regarding the executive officers’ compensation. Also, our vice president of human resources and her human resources staff support the compensation committee in its work by providing input and recommendations on the overall mix and forms of executive officer compensation, and discuss such matters with the committee’s independent compensation consultant, as directed by the compensation committee. Our vice president of human resources and her human resources staff do not make decisions regarding the amount of compensation for our named executive officers or other executive officers, and are not present for voting on any such matters.

As part of its responsibilities pursuant to its charter, the compensation committee also authorizes and reviews the non-binding stockholder advisory vote to approve our named executive officer compensation, as described in our proxy statement. At our 2020 annual meeting of stockholders, our stockholders approved the company’s named executive officer compensation, as described in our 2020 proxy statement, with approximately 94% of the votes cast in favor of the matter. Our compensation committee and our board of directors met following the 2020 annual meeting to consider the results of such non-binding stockholder advisory vote and made no changes to the company’s executive compensation program as a result of such vote. The compensation committee has determined that the non-binding stockholder advisory vote to approve our named executive officer compensation should be submitted to our stockholders for approval annually, which our stockholders support, and has authorized and reviewed the 2020 non-binding stockholder advisory vote on such frequency.

Compensation Policy and Overall Objectives.

In determining the amount and composition of executive officer compensation, the committee’s goal is to provide compensation that will enable us to:

 

   

link the interests of our executive officers to the interests of our stockholders,

 

   

align compensation with business objectives and performance, and

 

   

attract and retain talented executives.

In general, executive officers, including our President and Chief Executive Officer and our other named executive officers, are eligible for, and participate in, our compensation and benefits programs according to the same terms as those available to all our employees. For example, the terms and conditions of our annual non-qualified stock option and restricted stock unit awards under the 2012 Omnibus Incentive Plan are the same for our executive officers as they are for our other employees. Similarly, the health and welfare benefit programs in the countries in which we operate are generally the same for all our employees, including our named executive officers and other executive officers; our executive officers participate in the same Employee Stock Purchase Plan, tax-qualified savings plan (the “401(k) Plan”) and non-qualified supplemental savings plan (the “Supplemental Plan”), according to the same terms, as our other employees. Aside from the change-in-control severance protection agreements with our named executive officers and other executive officers, and an employment agreement with Mr. Li, all of which are described in greater detail in the “Executive Compensation” section below, we do not have general post-termination of service agreements with our executive officers. Our executive officers are eligible to participate in our Executive Officer Deposit Share Program, as described in greater detail below in the section entitled “Executive Compensation.” Since December 2017, the mix of annual equity awards granted to Mr. Li and our other named executive officers has been weighted in favor of performance-based awards, which helps to more closely link long term incentives with company performance and the interests of our stockholders. Such awards are more fully described below.

 

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Competitive Compensation and Benchmarking.

The compensation committee believes that each element of the compensation program should target compensation levels that take into account current market practices. Offering market-comparable pay opportunities allows us to maintain a successful and stable management team. Historically our direct competitors in our core business of developing, manufacturing, and selling CMP slurries and pads, and semiconductor consumables overall, are generally not stand-alone publicly-traded entities; therefore, our market for compensation comparison purposes is comprised of a group of companies that develop, manufacture, supply or use a variety of semiconductor products, equipment and processes, including companies that have similar levels of revenue, market capitalization, and employment, as well as comparable geographic presence. As a result of the Acquisition in fiscal year 2019, we broadened our portfolio of specialty materials and strengthened our position as a premier materials supplier to the semiconductor industry by adding KMG’s electronic chemicals business to our portfolio, and also adding the performance materials businesses of KMG, which serve customers in several industries and generally relate to the broader specialty chemicals sector. The compensation committee considers changes to the composition of our peer group from time to time based on changes in our or others’ business, and last reviewed the group during fiscal year 2020 with analysis from the independent compensation consultant to the compensation committee, who as of April 2017 is Meridian. The compensation committee first used the current group for comparison purposes at the end of fiscal year 2019, and confirmed the use of such group (but for any changes due to prior peers no longer being independent entities due to acquisitions in the prior year) in fiscal year 2020 to consider benchmarks for fiscal year 2020 annual cash incentives under our STIP, and to assist in its review and consideration of fiscal year 2021 base salaries, annual cash incentive targets, and long-term equity incentive awards. The peer group is comprised of the following companies:

 

Advanced Energy Industries    II-VI, Inc.
Brooks Automation, Inc.    Ingevity Corp.
Cognex Corporation    Innospec Inc.
Coherent, Inc.    Macom Technology Solutions
Element Solutions, Inc.    Rogers Corporation
Entegris, Inc.    Semtech Corporation
FormFactor, Inc.    W.R. Grace & Co.

In evaluating the comparison group for compensation purposes, the compensation committee, in consultation with Meridian, the independent compensation consultant hired by the committee, exercises its discretion and makes its judgment regarding executive officer compensation matters after considering all relevant factors. In general, the compensation committee targets total compensation for our named executive officers and our other executive officers at approximately the 50th percentile for comparable positions within the comparison group, with performance-based elements such as annual cash incentives under our STIP and long-term equity incentives affording a higher-level opportunity depending on the company’s and individual’s performance. A direct correlation may not always exist between the roles, responsibilities, experience and performance of each of our executive officers and those of the position that appears to best correspond to such individual at companies within the comparison group, and in these situations, the compensation committee also may use a comparison to another index, such as those for similarly-sized technology companies (collectively, “comparison group”). In addition, a direct correlation may not always exist between the relevant time period of evaluation given that the fiscal year end of companies within the comparison group is in most cases different from the company’s fiscal year end of September 30, thereby making direct or any comparison difficult, especially when significant macro-economic (i.e., the Pandemic) or other changes occur that materially affect business performance and therefore, compensation differently and in different reporting periods, for each the company and the companies within the comparison group.

 

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Elements of Compensation

The key elements of our compensation program for our named executive officers and other executive officers, and the reasons we provide them, are set forth in the following table:

 

Element    Description    Reason Provided

 

Base Salary

  

 

Fixed amount paid in cash biweekly, as for all our employees.

  

 

As for all our employees, provides named executive officers with a steady, predictable amount of fixed income with merit increases from time-to-time based on performance and market comparisons (if provided, usually effective on January 1 of the calendar year following such evaluation).

 

 

Annual Cash Incentives (Short-Term Incentive Program, pursuant to 2012 Omnibus Incentive Plan)

  

 

Cash payment made within 75 days following completion of fiscal year depending on company and individual performance, as for all our employees.

  

 

As for all our employees, aligns compensation with business objectives and performance by communicating goals and motivating individuals to achieve these goals, and rewarding performance actually achieved.

 

 

Long-Term Equity Incentives (currently, pursuant to 2012 Omnibus Incentive Plan)

  

 

Performance Share Units (Annual), Restricted Stock/Restricted Stock Unit Awards (Initial, Annual and Deposit Share Program) and Stock Option Grants (Initial, Annual).

  

 

As for all our employees who receive awards pursuant to our equity incentive plan, “at risk” and long-term performance goal-based nature of equity awards links interests with those of our stockholders; provides ongoing retention mechanism over vesting periods.

 

 

Change in Control Severance Protection Benefits for Executive Officers and other Key Employees (and Post-Termination Agreement for Chief Executive Officer)

  

 

Salary and other benefits paid if terminated within a certain period of time pursuant to a Change in Control of our company (three years’ salary and other benefits for Chief Executive Officer; two years’ for other Executive Officers other than Principal Accounting Officer; one year’s for Key Employees and Principal Accounting Officer).

 

  

 

Assures company of dedicated executive and key employee team, notwithstanding the possibility, threat or occurrence of a change in control; provides for continuity of executive management and key employees in the event of an actual or threatened change in control.

 

Retirement and Other Benefits

  

 

401(k) defined contribution savings plan, Supplemental Plan, statutory benefits, basic life and disability insurance and limited perquisites, as for all our employees.

  

 

Represents market practice and competitive factors; the Supplemental Plan is a broad-based program for all U.S. employees who exceed the federal 401(k) compensation limit.

 

 

Each of these elements is also addressed separately below. In determining compensation for executive officers, the compensation committee considers all elements of an executive officer’s total compensation package in comparison to current market practices, and ability to participate in savings plans and other benefits. On at least an annual basis, the compensation committee considers the base salary, annual cash incentive opportunity under our STIP, and long-term equity incentive elements, and balance among these elements, of each executive officer’s overall compensation.

 

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The receipt and retention by executive officers of certain elements of compensation, such as annual cash incentive and equity-based compensation, are subject to our company’s Code of Business Conduct, and the terms and conditions of relevant program, plan, and grant and award agreements, all of which include provisions that provide that the company may rescind or recover (“clawback”) from an executive officer, including post-separation of service, annual cash incentives and/or equity-based incentives paid or awarded to such executive officer immediately under certain circumstances, including, but not limited to, actions by the individual constituting Cause, as determined by the company in its discretion and as otherwise enforceable under local law and violation of our Code of Business Conduct, including those provisions related to financial reporting (e.g., in the event of a restatement caused by certain factors) and as may be required by law. In the event of any such rescission or right of recovery, the individual must repay the amount in question to the company, and the company shall be entitled to set-off against such amount any amount owed to the individual by the company, including unvested equity awards.

Base Salaries.

The compensation committee regularly reviews each executive officer’s base salary. Base salaries for executive officers are initially determined by evaluating each executive officer’s level of responsibility, prior experience, breadth of knowledge, internal equity issues and external compensation practices, with particular reference to the comparison peer group of companies. Increases to base salaries are driven primarily by performance and current market practices and are evaluated by the compensation committee based on sustained levels of contribution to the company in the context of our performance-based management process. In the past several years, this generally has meant base salaries around the 50th percentile of the salary ranges of similarly positioned executive officers in the comparison group. The factors the compensation committee considers in determining base salary levels are not assigned specific weights. Rather, the compensation committee reviews all factors and makes base pay determinations that reflect the compensation committee’s analysis of the aggregate impact of these factors.

Current market practices, as represented by a comparison to executive officer base salaries in the comparison peer group of companies continued to serve as the primary reference for the compensation committee with respect to deciding upon any changes to base salary for both fiscal year 2020 (effective as of January 1, 2020) and fiscal year 2021 (effective as of the January 1, 2021 pay period), similar to fiscal year 2019 (effective as of January 1, 2019). Over this period, the comparative data reflect the effects of macroeconomic and industry factors, set in the context of individual company performance.

 

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According to methodology consistent with the above, the resulting base salaries for 2020 and 2021 for each of the named executive officers are:

 

Name  

2020 Base Salary ($)

(Effective

January 1, 2020)

 

Percentage Increase Over FY
2019

and Reasoning

 

2021 Base Salary ($)

(Effective

January 1, 2021 Pay Period)

 

Percentage Increase Over FY
2020

and Reasoning

   
David H. Li   700,000   No increase; as described in more detail below, Mr. Li instead received a greater portion of the increase in his FY 2020 compensation, which reflects market comparables as well as individual and company performance, in the form of equity (i.e., at-risk compensation), as well as an enhanced short-term cash incentive target of 105% of base salary (from 100%), in order to more closely align Mr. Li’s interests with those of our stockholders   735,000   5%, in consideration of market comparables and individual and company performance
   
Scott D. Beamer   420,000   2%, in consideration of market comparables, and individual and company performance   432,600   3%, in consideration of market comparables and individual and company performance
   
Daniel D. Woodland   475,000   11.6%, in consideration of market comparables, and individual and company performance   500,000   5.3%, in consideration of market comparables and individual and company performance
H. Carol Bernstein   405,000   5.2%, in consideration of market comparables, and individual and company performance   425,300   5%, in consideration of market comparables and individual and company performance

 

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Name  

2020 Base Salary ($)

(Effective

January 1, 2020)

 

Perecentage Increase Over
FY 2019

and Reasoning

 

2021 Base Salary ($)

(Effectice

January 1, 2021 Pay Period)

 

Percentage Increase Over FY
2020

and Reasoning

   
Jeffrey M. Dysard   405,000  

15.7%, in consideration of market comparables, his promotion to his current position in January 2019, and individual and company performance

 

  445,500  

10%, in consideration of market comparables, his relatively recent promotion to his current position and individual and company performance

 

Annual Cash Incentives Under Our Short-Term Incentive Program (STIP).

All the company’s employees are eligible to participate in the company’s annual cash incentive program, the STIP. This program is administered pursuant to our 2012 Omnibus Incentive Plan, with executive officer, including named executive officer, payouts, if any, determined by the compensation committee. As with all employees, executive officers’ opportunities to earn annual cash incentives correspond to the degree to which our company achieves the annually-established goals under the STIP. The compensation committee believes that an annual cash incentive program allows us to communicate specific goals that are of primary importance during such year and motivates executive officers to achieve these goals.

Performance-Based Management Program and Company Performance Objectives: At the beginning of each fiscal year, the compensation committee and board of directors establish specific performance goals for the company in accordance with our performance-based management process. These objectives are set to reflect the key elements of our annual plan and budget, and provide a common platform for our initiatives for the year, which are set within the context of our focus on achievement of our longer-term strategic initiatives. Throughout the year, our senior management periodically reviews the company’s progress in achieving these goals with our board of directors and compensation committee. In November 2019, the board of directors and compensation committee approved our Fiscal Year 2020 Company Performance Objectives, which also served as our Performance Goals for the purposes of our STIP. The fiscal year 2020 STIP Performance Goals were chosen to encourage a particular and enhanced focus on certain aspects of our company’s performance, business strategy and objectives for our named executive officers and other executive officers, and for which all our executive officers collectively have responsibility for influencing and driving.

 

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The board of directors and compensation committee selected as our Fiscal Year 2020 Company Performance Objectives and STIP Performance Goals financial measures that are consistent with those used by the investment community to evaluate the performance of our company, and which would be appropriate goals by which to incent the ongoing balanced performance of the company and its executive officers, across all its operational units, within the industry environment anticipated in early fiscal year 2020. At the time the board of directors and compensation committee set our Fiscal Year 2020 Company Performance Objectives and STIP Performance Goals, the Pandemic had not yet begun; despite the significant worldwide economic and operational challenges for our business occasioned by the Pandemic, the board and compensation committee did not adjust the Objectives and Performance Goals. The Fiscal Year 2020 Company Performance Objectives and STIP Performance Goals with corresponding Weighting, Measures for evaluating attainment of such, and corresponding Performance Targets were as follows:

FY20 Achievement Against

Performance Goals (Target)

 

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Performance Goals, Cash Incentive Pool and Cash Incentive Calculation: As in prior years, in fiscal year 2020, the level of achievement of the noted three Fiscal Year 2020 STIP Performance Goals served as the mechanism by which the company determined the amount of funding for our STIP Pool, which is approved by the compensation committee for our named executive officers and other executive officers.

To determine the funding of the STIP Pool, the performance goals generally are weighted, based on their relative importance to achieving the company’s overall goals. Then, for each performance goal, “threshold”, “target” and “stretch” metrics, or levels, of performance are established. Because each year our performance goals are set to reflect the key objectives of our annual plan and budget, the “threshold”, “target” and “stretch” metrics for each goal are designed to reflect increasing levels of difficulty and motivation in achieving each level; even the “threshold” level requires demonstrated significant achievement against objectives. For fiscal year 2020, the company set challenging Performance Targets for the STIP Performance Goals to encourage focus on continuing to achieve our strategic initiatives, regardless of any difficult industry or macroeconomic conditions (i.e., the Pandemic). As part of our senior management’s periodic review throughout the year of our progress in meeting our Company Performance Objectives and STIP Performance Goals with the compensation committee and board of directors, performance is discussed against a particular goal’s “threshold”, “target” and “stretch” levels. In fiscal year 2020, due to the unprecedented adverse nature of the Pandemic and its impact on the global economy, our senior management discussed the Pandemic and its impact on our business and on our progress in meeting the fiscal year 2020 Performance Objectives and STIP Performance Goals with our board of directors on an ongoing basis.

 

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The “threshold” level of performance for a particular performance goal represents the lowest level of performance for which any cash incentive would be earned on that goal. The “stretch” level of performance represents the level for which the maximum cash incentive would be earned for that particular goal, and the “target” represents the target level of performance. The actual cash incentive earned, if any, attributable to each performance goal is calculated based on the actual performance compared to these “threshold”, “target” and “stretch” performance levels, and these are added together for all the performance goals to determine the funding of the STIP Pool. In turn, the STIP Pool is allocated for payment of annual cash incentives to executive officers, including our named executive officers. For fiscal year 2020, the cash incentive for a particular executive officer was calculated as follows:

 

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In addition, in certain years, in assessing the company’s overall performance and calculating the funding of the STIP Pool for our named executive officers and other executive officers, the compensation committee also may consider certain additional factors, such as, for example, acquisition activity or the impact of global or other events beyond the company’s control (i.e., the Pandemic), that may have affected our company’s achievement of certain of the Performance Goals that the committee considered important in evaluating the company’s performance for the particular fiscal year, but that were not able to be known to the company at the time the year’s STIP Performance Goals and related metrics were established. Examples of additional factors that the compensation committee considered in fiscal year 2020 were acquisition-related and integration related costs, acquisition-related amortization costs, the costs of a fire-related incident at a KMG-Bernuth facility, restructuring and impairment charges related to the company’s wood treatment business, certain operational costs (net of grants) related to the Pandemic, and certain impacts related to the implementation of the Tax Cuts and Jobs Act in the United States. As stated above, the compensation committee did not adjust the fiscal year 2020 STIP performance goal for revenue or achievement against it to account for any impact of the Pandemic (i.e., in our Performance Materials business segment, which was significantly impacted by the severe dislocation caused in the oil industry by the Pandemic, or on our overall business).

For employees other than our named executive officers and other executive officers, the fiscal year 2020 STIP performance goals and measures were tied to a combination of the performance of the overall company and business segments to which such employees provided services in fiscal year 2020, and also included consideration of employees’ performance against their individual performance goals.

Individual Executive Officer STIP Target Levels and Cash Incentives Earned Under Our STIP: The compensation committee, in consultation with Meridian, its independent compensation consultant, has established an STIP award target for each executive officer, including each named executive officer, by evaluating factors such as external pay practices, with particular reference to the comparison group of companies (as described above, STIP award targets are established for each of our executive officers based on an individual’s role). In this regard, for fiscal year 2020, the compensation committee increased the STIP award target for Mr. Li to 105% and retained the STIP award target for Mr. Beamer, Dr. Woodland, Ms. Bernstein and Dr. Dysard at 65%. As described above, actual payouts for cash incentive awards to executive officers are determined by the level of

 

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performance of our company, which was solid overall, with performance for fiscal year 2020 exceeding the target level for adjusted EBITDA and exceeding the threshold level for revenue. The compensation committee determined that overall performance against the fiscal year 2020 STIP Performance Goals was achieved at 112.2% of target. Thus, for fiscal year 2020, the actual payouts for cash incentive awards for all executive officers, including the named executive officers, as well as for the corporate component of performance for all employees, were greater than the established STIP target level payouts for each individual, given the performance relative to the pre-established goals. The STIP award targets and actual amounts earned for our named executive officers for fiscal year 2020 were as follows:

 

Name  

Fiscal Year 2020
STIP Target (as %

of Base Salary)

   

Fiscal Year
2020

STIP Target* ($)

    Fiscal Year 2020
Actual Cash
Incentive Earned** ($)
 
   

David H. Li

    105       735,000       825,000  
   

Scott D. Beamer

    65       271,700       304,800  
   

Daniel D. Woodland

    65       300,723       337,400  
   
H. Carol Bernstein     65       260,000       291,700  
   
Jeffrey M. Dysard     65       254,313       285,300  

 

*

In prior years, the STIP award target for each named executive officer, expressed as a dollar amount, was based on his or her annualized base salary rate in effect as of January 1 of the applicable fiscal year. Beginning with our fiscal year 2020 STIP, the STIP award target is now calculated instead by reference to the actual base salary earned with respect to the fiscal year.

 

**

In assessing our company’s and executive officers’ achievement of the noted Performance Goals for purposes of the multiplier described above, the compensation committee concluded that a performance factor of 112.2% had been achieved and the STIP pool was funded accordingly, with allocation to the executive officers according to this percentage achievement. In assessing each named executive officer’s individual performance for fiscal year 2019, and for purposes of the multiplier described above, the compensation committee pursuant to its ability to exercise negative discretion, ultimately decided upon a factor of 1.0 for each named executive officer that recognized the collective contributions of the executive officers to the company’s success for the year.

As discussed above, cash incentives awarded to our executive officers are subject to rescission and recovery (“clawback”) by the company in certain circumstances.

Fiscal Year 2021 STIP, Performance Goals and STIP Targets: In November 2020, the compensation committee set our fiscal year 2021 STIP Performance Goals, generally using the process described above. The Performance Goals approved for fiscal year 2021 for all executive officers and certain other senior management of the company are financial goals that include revenue and adjusted EBITDA. In addition, the compensation committee approved and set the individual performance factor multiplier for each participant at the maximum level of 200%, and the compensation committee retained discretion to reduce this amount. The fiscal year 2021 STIP targets for all the named executive officers, including Mr. Li, remained unchanged from the fiscal year 2020 STIP targets. All of our named executive officers and other executive officers are eligible to participate in the STIP based on the achievement of these overall company objectives. All our employees, other than our named executive officers and other executive officers, are eligible to participate in the 2021 STIP subject to achievement of a combination of overall company and specific business segment goals, as well as achievement of certain individual performance objectives.

Long-Term Equity Incentives.

Long-term equity incentives are provided to our named executive officers and other executive officers pursuant to the 2012 Omnibus Incentive Plan. All the company’s employees are eligible to participate in the 2012 Omnibus Incentive Plan, with the compensation committee determining all awards to executive officers, including

 

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named executive officers. The compensation committee believes that equity-based compensation is essential to our overall compensation program because it involves at-risk components of compensation that directly link our executive officers’ interests with those of our stockholders. The compensation committee, in consultation with its independent compensation consultant, evaluates the balance of equity-based compensation with cash compensation by considering factors such as the desired balance between the two elements, external compensation practices (particularly those practices of the comparison group of companies), and the financial impact of providing various kinds and amounts of equity-based compensation to our employees, including our executive officers.

Timing of Grants: Initial or “new-hire” equity grants may be awarded when employees, including our executive officers, join the company. Thereafter, equity grants may be awarded to employees, including each executive officer, annually or from time to time based on performance or certain other factors, such as promotion or retention awards. To enhance retention, equity grants awarded to all employees, including our executive officers, are subject to vesting restrictions that generally lapse over a four-year period, and performance-based awards are generally subject to three-year performance requirements. Our practice consistently has been to grant stock options with an exercise price that is the fair market value, as represented by the closing price on NASDAQ, of our stock on the applicable grant date, as approved by the compensation committee. It is not our practice to set a stock option’s grant date as a date prior to the date of approval by the compensation committee (i.e., “backdating”), and we have never done so. In addition, we do not make stock option grants while we are in possession, or in coordination with the release, of material non-public information regarding our company.

Allocation Among Award Types: As permitted by the 2012 Omnibus Incentive Plan, our compensation committee awards non-qualified stock options, restricted stock units and performance share units to certain employees selected to receive awards, including the named executive officers and other executive officers. The performance share units vest based on the company’s achievement of certain performance metrics (average annual revenue growth and cumulative earnings per share), with potential adjustment based on the total shareholder return (“TSR”) achieved by our company relative to the TSR of the S&P MidCap 400 Index over the respective three-year performance period (e.g., ending September 30, 2023, 2022, and 2021, respectively, for each of the fiscal year 2021, fiscal year 2020, and fiscal year 2019 awards), generally subject to continued employment through the end of the performance period. For the fiscal year 2018 performance share unit awards, which covered the performance period that ended September 30, 2020, the TSR multiplier was based on the S&P SmallCap 600 Index (see “Vesting of Fiscal Year 2018 through Fiscal Year 2020 Performance Share Unit Awards” below). We believe that these performance share unit awards help us to even more directly align our executive officers’ interests with those of our stockholders and further enhance the link between pay and performance. In fiscal year 2020, the compensation committee also approved non-qualified stock option and time-based restricted stock unit awards to the company’s named executive officers and other executive officers with terms and conditions that are generally consistent with the awards granted in prior years. All equity awards granted in fiscal year 2020 provide for accelerated vesting, either in full or on a prorated basis, upon the recipient’s “retirement,” defined as the termination of the recipient’s employment following the attainment of a combination of age and years of service of at least 70, with a minimum of 55 years of age, or upon an involuntary termination of employment due to a position elimination or reorganization of the company. For additional information regarding the fiscal year 2020 performance share unit awards, please see footnote 5 to the Grants of Plan-Based Awards table in the “Executive Compensation” section below.

In determining the allocation among award types for a particular fiscal year, our compensation committee considers a number of factors, including the overall number of units to be awarded pursuant to our annual equity incentive award program to all employees. The allocation of value for the fiscal year 2020 long-term equity incentive awards made to our named executive officers (other than Mr. Li) was 40% in the form of performance share units, 30% in the form of non-qualified stock options and 30% in the form of time-based restricted stock units, to reflect current market practices. As previously disclosed, upon the advice of the independent compensation consultant to the compensation committee, the compensation committee decided to award Mr. Li (as chief executive officer of our company) fiscal year 2020 long-term equity incentive awards with a value of 50% in the form of performance share units, 25% in the form of non-qualified stock options and 25% in the form of

 

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time-based restricted stock units. The breakdown of the allocation of long-term equity incentive awards, by award type, made to our named executive officers with respect to fiscal year 2020 is set forth in the charts below:

 

FY20 CEO EQUITY AWARD

 

 

FY20 OTHER NEO EQUITY AWARD

 

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Our compensation committee believes that this mix of awards competitively balances the types of equity incentives being awarded to our employees, and also appropriately addresses the financial impact of the expensing of equity-based compensation required pursuant to an accounting standard issued by the Financial Accounting Standards Board (ASC 718).

The breakdown of the allocation of value for the fiscal year 2021 long-term equity incentive awards is the same as set forth above for fiscal year 2020 for Mr. Li and for our other named executive officers.

Size of Awards: When determining awards for individual executive officers under the 2012 Omnibus Incentive Plan, the compensation committee primarily considers compensation practices and equity values awarded by the comparison group of companies, as well as the executive officer’s level of current and potential future responsibility, and also considers performance in the prior year and the underlying economic value associated with equity incentive awards. In determining award sizes, the compensation committee does not assign specific weights to these factors. Rather, the factors are evaluated on an aggregate basis. On December 5, 2019, the compensation committee, upon the advice of its independent compensation consultant, considered all these factors in deciding our fiscal year 2020 annual equity incentive awards, which for our named executive officers are shown in the following table:

 

Name

 

 

Fiscal Year 2020

Non-Qualified Stock
Option Grant (#)

 

   

Fiscal Year 2020
Restricted Stock Unit Award (#)

 

    

Target Performance Share Unit
Award (#) for the Fiscal Year
2020 through Fiscal Year 2022
Performance Period

 

 

 

David H. Li

 

 

 

 

 

 

23,612

 

 

 

 

 

 

 

 

 

6,212

 

 

 

 

  

 

 

 

 

12,420

 

 

 

 

 

Scott D. Beamer

 

 

 

 

 

 

6,560

 

 

 

 

 

 

 

 

 

1,720

 

 

 

 

  

 

 

 

 

2,300

 

 

 

 

 

Daniel D. Woodland

 

 

 

 

 

 

6,952

 

 

 

 

 

 

 

 

 

1,832

 

 

 

 

  

 

 

 

 

2,440

 

 

 

 

 

H. Carol Bernstein

 

 

 

 

 

 

5,672

 

 

 

 

 

 

 

 

 

1,520

 

 

 

 

  

 

 

 

 

2,020

 

 

 

 

 

Jeffrey M. Dysard

 

 

 

 

 

 

4,772

 

 

 

 

 

 

 

 

 

1,252

 

 

 

 

  

 

 

 

 

1,672

 

 

 

 

 

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The compensation committee considered the same factors described above in deciding our fiscal year 2021 annual equity incentive awards on December 3, 2020, which for our named executive officers are shown in the following table:

 

Name

 

 

Fiscal Year 2021

Non-Qualified Stock
Option Grant (#)

 

   

Fiscal Year 2021
Restricted Stock Unit Award (#)

 

    

Target Performance Share Unit
Award (#) for the Fiscal Year
2021 through Fiscal Year 2023
Performance Period

 

 

 

David H. Li

 

 

 

 

 

 

23,196

 

 

 

 

 

 

 

 

 

6,680

 

 

 

 

  

 

 

 

 

13,360

 

 

 

 

 

Scott D. Beamer

 

 

 

 

 

 

6,610

 

 

 

 

 

 

 

 

 

1,903

 

 

 

 

  

 

 

 

 

2,538

 

 

 

 

 

Daniel D. Woodland

 

 

 

 

 

 

6,958

 

 

 

 

 

 

 

 

 

2,004

 

 

 

 

  

 

 

 

 

2,672

 

 

 

 

 

H. Carol Bernstein

 

 

 

 

 

 

5,362

 

 

 

 

 

 

 

 

 

1,603

 

 

 

 

  

 

 

 

 

2,137

 

 

 

 

 

Jeffrey M. Dysard

 

 

 

 

 

 

5,915

 

 

 

 

 

 

 

 

 

1,703

 

 

 

 

  

 

 

 

 

2,271

 

 

 

 

In general, the compensation committee has not considered any actual amounts that may have been realized from prior equity-based compensation awards in awarding subsequent equity-based compensation, or other elements of compensation. However, in considering awards under the 2012 Omnibus Incentive Plan to our employees, including executive officers, the compensation committee does consider whether equity-based awards that previously may have been made to them continue to fulfill the purposes of motivation and retention.

All our executive officers have meaningful equity ownership in our company through participation in various equity-based programs such as the Employee Stock Purchase Plan, Executive Officer Deposit Share Program, and our annual equity incentive award program, but we do not currently have equity-ownership requirements or guidelines for our executive officers.

Vesting of Fiscal Year 2018 through Fiscal Year 2020 Performance Share Unit Awards: In December 2017 (January 2018 for Mr. Beamer, in connection with the commencement of his employment with the company), each of our named executive officers received grants of performance share units for the performance period beginning on October 1, 2017 and ending on September 30, 2020. The performance share units were subject to vesting conditions based on the company’s achievement of average annual revenue growth and cumulative earnings per share metrics during the performance period. If threshold, target or maximum were attained for these measures during the performance period, 50%, 100% or 200% of the target performance share units for each named executive officer, respectively, would be earned, subject to potential upward (+20%) or downward (-20%) adjustment based on the TSR achieved by our company relative to the TSR of the S&P SmallCap 600 Index over the three-year performance period. In September 2018, in contemplation of the closing of the Acquisition (which was ultimately completed in November 2018, after the end of fiscal year 2018), the compensation committee, on the advice of Meridian, its independent compensation consultant, determined to divide the performance share units for the fiscal year 2018 through fiscal year 2020 performance period into two components, a portion based on pre-Acquisition results for fiscal year 2018 (weighted 1/3) and a portion based on post-Acquisition results for fiscal years 2019 and 2020 (weighted 2/3). Following the closing of the Acquisition, in January 2019, the compensation committee set goals for annual revenue growth and cumulative earnings per share with respect to the post-Acquisition period that reflected the forecast for the combined company for those two years. The relative TSR multiplier remained as originally established by the compensation committee: a multiplier of 0.8x applied to the performance share units earned if our relative TSR was below the 25th percentile; 1.0x if our relative TSR was in the 25th through 75th percentile; or 1.2x if our relative TSR was above the 75th percentile.

 

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The Company Performance Objectives applicable to the performance share units and Performance Goals with corresponding Weighting, Measures for evaluating attainment of such, and corresponding Performance Targets were as follows:

 

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Our relative TSR ranking within the S&P SmallCap 600 Index over the three-year performance period was in the 93rd percentile.

The target number of performance share units granted to each named executive officer for the fiscal year 2018 through fiscal year 2020 performance share unit award, our overall actual performance, and the resulting share amounts earned, are set forth in the table below:

 

Name

 

 

Target Performance

Share Unit Award (#)
for the Fiscal Year
2018 through Fiscal
Year 2020
Performance Period

 

   

Revenue Growth
and

Cumulative EPS
Actual Performance

 

   

Relative TSR Multiplier

 

   

Overall Actual
Performance

 

   

Actual Shares
Earned (#)

 

 

 

David H. Li

 

 

 

 

 

 

13,232

 

 

 

 

 

 

 

 

 

112

 

 

 

 

 

 

 

 

1.2x

 

 

 

 

 

 

 

 

 

134.4

 

 

 

 

 

 

 

 

17,784

 

 

 

 

 

Scott D. Beamer

 

 

 

 

 

 

2,104

 

 

 

 

 

 

 

 

 

112

 

 

 

 

 

 

 

 

1.2x

 

 

 

 

 

 

 

 

 

134.4

 

 

 

 

 

 

 

 

2,828

 

 

 

 

 

Daniel D. Woodland

 

 

 

 

 

 

3,800

 

 

 

 

 

 

 

 

 

112

 

 

 

 

 

 

 

 

1.2x

 

 

 

 

 

 

 

 

 

134.4

 

 

 

 

 

 

 

 

5,107

 

 

 

 

 

H. Carol Bernstein

 

 

 

 

 

 

3,100

 

 

 

 

 

 

 

 

 

112

 

 

 

 

 

 

 

 

1.2x

 

 

 

 

 

 

 

 

 

134.4

 

 

 

 

 

 

 

 

4,166

 

 

 

 

 

Jeffrey M. Dysard

 

 

 

 

 

 

2,504

 

 

 

 

 

 

 

 

 

112

 

 

 

 

 

 

 

 

1.2x

 

 

 

 

 

 

 

 

 

134.4

 

 

 

 

 

 

 

 

3,365

 

 

 

 

Clawback Policy; Anti-Hedging or Anti-Pledging Policy: As discussed above, equity-based compensation awarded to our executive officers is subject to rescission and recovery (“clawback”) by the company in certain circumstances. In addition, all equity-based compensation is subject to all the terms of our 2012 Omnibus Incentive Plan, the respective grant and award agreements for particular grants and awards, our Code of Business Conduct, our Insider Trading and Non-Disclosure Policy, including Trading Guidelines for Directors, Executive Officers and Other Key Employees, and our Reporting Requirements and Trading Guidelines for Directors and Executive Officers Under Section 16 of the Securities and Exchange Act and Rule 144 Under the

 

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Securities Act of 1933; as applicable, noted policies and procedures apply to any and all equity in our company held by our executive officers. For example, our executive officers, as well as our directors and designated other key employees, observe various requirements, such as those related to quarterly trading and other “blackout” periods, and affirmative pre-clearance of any transactions in our company’s securities. Our executive officers and directors are prohibited from and do not hedge or pledge equity in our company.

Change in Control Severance Protection Benefits.

The terms and conditions of the change in control severance protection agreements with our named executive officers and the employment letter with Mr. Li are described in more detail in the section entitled “Executive Compensation,” below. The board of directors and compensation committee originally determined the terms and conditions of the change in control severance protection agreements, including the severance benefit payable, and the triggering events for the payment of such severance benefit, pursuant to such agreement, in consultation with their independent compensation consultant and our financial and other advisors, and considered external practices at similarly situated companies regarding change in control arrangements. The board of directors and compensation committee also review the costs and benefits of the change in control severance protection agreements periodically. As a result of the most recent review, the board of directors and compensation committee, with advice from an independent outside compensation consultant regarding market practices, determined that the design of such agreements remains competitive and reasonable. The agreements are described in more detail in the section entitled “Executive Compensation,” below.

Retirement and Other Benefits.

We have adopted various employee benefit plans and arrangements for the purpose of providing employee benefits to our employees, including our executive officers. In general, the same terms apply to all our employees, including our executive officers. These plans and arrangements include our Employee Stock Purchase Plan, the 401(k) Plan, the Supplemental Plan, and the CMC Materials Health and Welfare Benefit Plan.

CEO Compensation

When Mr. Li became our President and Chief Executive Officer effective January 1, 2015, the compensation committee, in consultation with the committee’s independent compensation consultant at the time, considered the executive compensation practices described above to determine the terms of Mr. Li’s initial compensation, comprised of base salary, annual cash incentive under our STIP, and equity-based compensation elements, along with other terms, which are part of Mr. Li’s employment letter agreement with our company.

Upon completion of fiscal year 2020, the compensation committee, in consultation with the compensation committee’s independent compensation consultant, Meridian, considered the executive compensation practices described above, including the performance goals established by the committee, to determine Mr. Li’s total compensation, composed of an annual base salary, an annual cash incentive payment under our STIP for fiscal year 2020, and for fiscal year 2021 according to the annual equity incentive award cycle for which all employees were eligible, a non-qualified stock option grant, performance-share unit award, and restricted stock unit award. In addition, in setting both the cash-based and equity-based elements of Mr. Li’s compensation, the compensation committee made an overall assessment of Mr. Li’s leadership in achieving the company’s long-term and short-term strategic, operational and business goals. The compensation committee noted Mr. Li’s strong leadership throughout fiscal year 2020, which was especially challenging due to the Pandemic. The compensation committee placed particular emphasis on Mr. Li’s and the senior management team’s consistent and successful efforts throughout the Pandemic in focusing first on the health and safety of the company’s employees, and in proactively developing Pandemic-specific business continuity plans, including revised work arrangements and operations to accommodate Pandemic-appropriate health and safety protocols, such as social distancing, split shifts, enhanced hygiene procedures, temperature checks, contact tracing, paid quarantine practices, and a focus on mental health assistance, among other actions. Further, the compensation committee observed that throughout the ongoing Pandemic, the company had continued to operate safely all manufacturing facilities, and also had secured its

 

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supply chain and had continued to supply customers on an ongoing basis despite Pandemic-related operational and logistics constraints. In addition, during the fiscal year and ongoing Pandemic, Mr. Li had maintained and emphasized a focus on promotion of the Company’s culture and values. Further, he led the company to achieve another year of record revenue, driven primarily by the addition of a full year of the KMG businesses to the company’s portfolio, despite the significant adverse effect of the Pandemic on the company’s performance materials business segment, given its concentration in the oil and gas industry. Fiscal year 2020, in which the company recorded record revenue and other strong financial results, especially with respect to the company’s electronic materials business segment, followed consecutive successful years in fiscal years 2019 and 2018. Related to the company’s long-term strategic initiatives, the compensation committee noted Mr. Li’s leadership with respect to ongoing plans to continue to grow the company profitably and faster than the industries that it serves, while being appropriately measured as may be necessary to address macroeconomic factors such as the Pandemic, both from the perspective of challenges and opportunities that may be presented. The compensation committee, using its discretion, also considered Mr. Li’s compensation with respect to chief executive officers among the comparison group of companies, as well as equitable and consistent treatment compared to our other executive officers. In addition to these factors, as described in greater detail above, Mr. Li’s cash incentive award for fiscal year 2020, which was paid under our STIP, reflected the company’s overall positive performance against the pre-established goals for fiscal year 2020.

Based upon all this, the compensation committee awarded Mr. Li $825,000 as a cash incentive for fiscal year 2020. Mr. Li’s fiscal year 2020 cash incentive under our STIP of $825,000, together with his $700,000 base salary paid during fiscal year 2020, resulted in total cash compensation to Mr. Li for fiscal year 2020 of $1,525,000, which was an increase of $95,500 from Mr. Li’s total cash compensation for fiscal year 2019 of $1,429,500, comprised of base salary paid in fiscal year 2019 of $687,500 and cash incentive under our STIP for fiscal year 2019 of $742,000. Mr. Li’s cash and equity compensation breakdown for fiscal year 2020, as reported in the Summary Compensation Table, and his target compensation allocation for fiscal year 2021 are set forth in the charts below:

 

FY20 CEO Total Compensation

 

 

FY21 CEO Total Target Compensation

 

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In addition, as noted above and as reported in footnotes 2 and 3 to the 2020 Grants of Plan-Based Awards table that follows, on December 3, 2020, the compensation committee awarded Mr. Li equity-based compensation in the form of 23,196 non-qualified stock options, 6,680 restricted stock units, and 13,360 performance share units (at target). Aside from the number of non-qualified stock options, restricted stock units and performance share units awarded, the terms and conditions of these grants and awards are the same as those for grants and awards made to our other employees and executive officers, including provisions that unvested awards will be forfeited at the time of certain terminations of employment. Because these equity awards were made after the completion of fiscal year 2020, they are reported in the referenced footnote and not specifically reported in the compensation tables that follow. In addition, the compensation committee determined that to more greatly align Mr. Li’s

 

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compensation with stockholder interests, it would, for the second year in a row, increase the overall amount of his at-risk compensation by adjusting the size of Mr. Li’s equity awards. As a result, the equity awards made to Mr. Li reflect a greater percentage of his overall compensation package for fiscal year 2021.

As noted above, the compensation committee and the board of directors review on a periodic basis the hypothetical costs to the company of Mr. Li’s change-in-control severance protection agreement, and those of the company’s other executive officers and key employees who have such agreements.

Regulatory and Other Factors

Internal Revenue Code Section 162(m). In its review of compensation matters, one of the factors the compensation committee considers is the anticipated tax treatment to our company and to our executive officers of various payments and benefits. Section 162(m) of the Internal Revenue Code (“Section 162(m)”) generally places a $1 million limit on the amount of compensation payable to certain covered executive officers that a company may deduct in any one year. While the compensation committee generally considers this limit when determining executive compensation, there are instances in which the compensation committee has concluded, and reserves the discretion to conclude in the future, that it is appropriate to exceed the limitation on deductibility under Section 162(m) such that executive officers are compensated in a manner that it believes to be consistent with the company’s best interests and those of its stockholders. Furthermore, interpretations of and changes in the tax laws, and other factors beyond the compensation committee’s control, may also affect the deductibility of compensation.

It is no longer necessary to include specific Section 162(m)-related limitations or provisions in our compensation plans and programs or to request stockholder approval for the purpose of a performance-based compensation exception to the $1 million limit referenced above. The company will continue to seek stockholder approval of certain compensation plans as may be required by applicable laws, regulations, or the rules of the applicable exchange on which the company’s shares are listed.

Other Factors. As described above, our compensation committee uses awards of performance share units, restricted stock and restricted stock units in addition to grants of non-qualified stock options to, among other reasons, address the financial impact of the expensing of equity-based compensation required under FASB ASC Topic 718. In addition, the company has intended for its non-qualified deferred compensation plans and other plans, programs and agreements subject to the requirements of Internal Revenue Code Section 409A to be in compliance with such requirements.

COMPENSATION AND RISK

The company’s management, with a review by the audit committee and compensation committee of our board of directors and with support from the compensation committee’s independent compensation consultant, has assessed the risks associated with our compensation programs, policies and practices, and has determined that risks arising from them are not reasonably likely to have a material adverse effect on our company. In making this determination, our management considered the various elements of our compensation programs, policies and practices, such as the: mix of base salary, annual cash incentives under our STIP, and equity incentive program participations at various levels and throughout our company; balance between and among short-term and long-term compensation incentives in our programs; significant use of performance measures that are financial in nature such that they are readily measurable and verifiable, are regularly reviewed, and also are consistent with those that are publicly reported; use of performance measures that directly relate to the operations of our business such that they are readily measurable and verifiable, and are regularly reviewed; use of performance measures that relate to our business overall and avoid overdependence on one aspect of our business and its operations as opposed to another; multiple and cross-functional levels of review and verification prior to award approval; our system of internal controls and internal risk review and assessment processes; and, our general employment practices, policies and procedures.

 

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COMPENSATION COMMITTEE REPORT

The following report of the compensation committee does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other of our filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent we specifically incorporate this report by reference therein.

The compensation committee of the board of directors has reviewed and discussed the Compensation Discussion and Analysis with our company’s management, and based on the review and discussions, the compensation committee has recommended to the board of directors that the Compensation Discussion and Analysis be included in this proxy statement and the company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2020.

Submitted by Messrs. Reilly and Wild and Ms. Whitney, being all the current members of the compensation committee,

Paul J. Reilly

Susan M. Whitney, Chair

Geoffrey Wild

 

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EXECUTIVE COMPENSATION

The following tables set forth certain compensation information for our Chief Executive Officer, Chief Financial Officer, and three other most highly compensated executive officers of the company (collectively, the “named executive officers”) for the fiscal year ended September 30, 2020. Information for the fiscal years ended September 30, 2019 and September 30, 2018 is also presented for executive officers who were named executive officers during those years.

SUMMARY COMPENSATION TABLE

 

Name and Principal

Position

  Year    

Salary

($)

   

Bonus

($)1

   

Stock Awards

($)2

   

Option Awards

($)2

   

Non-Equity
Incentive

Plan
Compensation

($)3

   

All Other

Compen-

sation

($)4

   

Total Compen-

sation

($)

 
   

David H. Li

    2020       700,000             2,423,521       938,799       825,000       264,081       5,151,401  

President and Chief
Executive Officer

    2019       687,500             2,120,064       707,868       742,000       451,304       4,708,736  
    2018       645,000             2,009,726       578,591       1,300,000       948,234       5,481,551  
                   
   

Scott D. Beamer

    2020       418,000             531,294       260,822       304,800       46,896       1,561,812  

Vice President and

Chief Financial Officer

    2019       409,000             583,744       254,815       283,900       46,919       1,578,378  
    2018       283,333       100,000       1,776,780       216,284       390,000       22,532       2,788,929  
                   
   

Daniel D. Woodland

    2020       462,650             554,086       276,407       337,400       44,224       1,674,767  

Vice President and President, Electronic Materials

    2019       414,200             619,274       270,295       293,200       51,064       1,648,033  
                 
    2018       366,250             655,386       251,858       494,000       42,655       1,810,149  
                   
   

H. Carol Bernstein

    2020       400,000             459,137       233,483       291,700       48,678       1,432,998  

Vice President, Secretary and General Counsel

    2019       380,075             512,889       227,023       265,300       54,950       1,440,237  
    2018       362,650             528,567       208,464       438,400       50,293       1,588,374  
                   
   

Jeffrey M. Dysard

    2020       391,250             429,190       189,732       285,300       36,404       1,331,876  

Vice President and President, Performance Materials

    2019       337,278             353,972       154,470       221,200       127,462       1,194,383  

 

1

For Mr. Beamer, this amount represents a $100,000 sign-on bonus received in connection with the commencement of his employment with the company in January 2018. The sign-on bonus was subject to forfeiture on a pro rata basis in the event that his employment terminated under certain circumstances within 12 months of the date of his appointment, which forfeiture provision now has expired.

 

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2

The amounts in the column headed “Stock Awards” represent the aggregate grant date fair value of grants in fiscal years 2020, 2019 and 2018 computed in accordance with ASC 718. The actual value realized by a named executive officer related to stock or stock unit awards will depend on the market value of our common stock on the date the stock is sold. For restricted stock unit awards, the fair value is equal to the underlying value of the stock and is calculated using the closing price of our common stock on the award date. For performance share unit awards, the fair value is equal to the grant date fair value computed in accordance with ASC 718. The maximum potential value of the fiscal year 2020 performance share unit awards is shown below:

 

Name

 

  

Performance
Share

Units at
Maximum
Value ($)

 

 

Mr. Li

     3,263,230  

 

Mr. Beamer

  

 

 

 

604,302

 

 

Dr. Woodland

 

  

 

 

 

641,086

 

 

Ms. Bernstein

  

 

 

 

530,734

 

 

 

Dr. Dysard

  

 

 

 

439,302

 

 

The amounts in the column headed “Option Awards” represent the aggregate grant date fair value of grants in fiscal years 2020, 2019 and 2018 computed in accordance with ASC 718 (see Note 17 of Notes to Consolidated Financial Statements included in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended September 30, 2020 for a description of the assumptions used in that computation). The actual value realized by a named executive officer related to option awards will depend on the difference between the market value of our common stock on the date the option is exercised and the exercise price of the option.

During fiscal years 2020, 2019 and 2018, no stock awards held by any of our named executive officers were modified or cancelled (forfeited).

 

3 

The amounts in the column headed “Non-Equity Incentive Plan Compensation” represent the amounts earned under the STIP for fiscal years 2020, 2019 and 2018.

 

4 

The information in the column headed “All Other Compensation” predominantly reflects amounts that by nature generally recur each year, such as benefit costs we contribute on behalf of our named executive officers in the same manner in which we contribute such costs for all our employees. For example, the information in the column includes contributions (both “nonelective” employer contributions and “matching” contributions) made by us to our tax-qualified savings plan (the “401(k) Plan”) and accruals under our non-qualified supplemental savings plan (the “Supplemental Plan”) according to the standard terms of each of these plans as applied to all our employees, including our named executive officers and other executive officers. Under the 401(k) Plan in effect until December 31, 2019, we made a nonelective employer safe harbor contribution on each employee’s behalf of 4% of the employee’s eligible compensation (up to the I.R.S. eligible compensation limit), regardless of whether the employee made a contribution to the 401(k) Plan, and a matching contribution on each employee’s behalf of 100% of the first 4%, and 50% of the next 2%, that the employee contributed to the 401(k) Plan. As of January 1, 2020, under the 401(k) Plan in effect as of that date, we make a nonelective employer contribution on each employee’s behalf of 3% of the employee’s eligible compensation (up to the I.R.S. eligible compensation limit), regardless of whether the employee makes a contribution to the 401(k) Plan, and a safe harbor matching contribution on each employee’s behalf of 100% of the first 6% of the employee’s eligible compensation (up to the I.R.S. eligible compensation limit), that the employee contributes to the 401(k) Plan. With respect to the Supplemental Plan, which applies to all employees, including our named executive officers and other executive officers, at such time as they reach the I.R.S. eligible compensation limit under the 401(k) Plan, we continue to make an employer contribution of the equivalent of 4% of each employee’s eligible compensation (over the I.R.S.

 

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  eligible compensation limit) to the Supplemental Plan on the employee’s behalf. Employees are presently not able to make contributions to the Supplemental Plan.

For fiscal year 2020, contributions as such to the 401(k) Plan and the Supplemental Plan on behalf of the named executive officers were made in the following amounts:

 

Name

 

  

401(k) Plan ($)

 

    

Supplemental Plan ($)

 

 

Mr. Li

     25,650        45,526  

 

Mr. Beamer

  

 

 

 

25,650

 

 

  

 

 

 

16,224

 

 

 

Dr. Woodland

  

 

 

 

25,650

 

 

  

 

 

 

18,322

 

 

 

Ms. Bernstein

  

 

 

 

25,650

 

 

  

 

 

 

14,776

 

 

 

Dr. Dysard

  

 

 

 

23,763

 

 

  

 

 

 

11,953

 

 

Similarly, the amounts in the column headed “All Other Compensation” include amounts we provided on behalf of each of our named executive officers for basic life insurance and accidental death and dismemberment insurance coverage in fiscal year 2020, which was provided on the same basis to all our employees. There is no cash surrender value associated with this insurance coverage. The value paid for this coverage in fiscal year 2020 attributable to each named executive officer is $252 for each of Mr. Li, Mr. Beamer, Dr. Woodland, Ms. Bernstein, and Dr. Dysard.

In addition, the figures in the column headed “All Other Compensation” for fiscal year 2020 reflect, for Ms. Bernstein, a transportation allowance for fiscal year 2020 in the amount of $8,000 and for Mr. Beamer, an executive physical according to our program for executive officers, in the amount of $4,770.

The amounts in the column headed “All Other Compensation” for fiscal years 2020, 2019 and 2018 for Mr. Li include certain amounts covered by his employment letter dated December 12, 2014. For fiscal year 2020, the amounts included housing-related expenses of $98,077, transportation expenses of $93,826 (paid in Singapore dollars and converted to U.S. dollars), and tax preparation fees of $750. In fiscal year 2020, the amounts do not include a tax equalization amount due to a change in the underlying statutory tax rates resulting from his relocation from China to Singapore in fiscal year 2019.

Employment Letter with Mr. Li

As described in the Compensation Discussion and Analysis and as previously disclosed, on December 12, 2014, we entered into an employment letter with Mr. Li in connection with his appointment as our President and Chief Executive Officer effective as of January 1, 2015, which set forth his initial base salary and target bonus. Mr. Li also received an initial non-qualified stock option grant and an award of restricted shares of our common stock, each of which have vested in full.

Other than in a situation involving a change of control of our company, which would be addressed by Mr. Li’s Change in Control Severance Protection Agreement that had been previously entered into in 2008, in the event that Mr. Li’s employment is terminated by us without cause or by Mr. Li due to a material breach by us of the employment letter, (1) Mr. Li would be entitled to vesting of stock options and restricted shares held by him, including those described above, to the extent that such awards would have otherwise vested in accordance with their terms during the twelve-month period following the date of termination, and (2) Mr. Li would continue to receive his base salary for twelve months. Receipt of severance and the accelerated vesting described above is subject to Mr. Li’s execution and non-revocation of a release of claims against us.

In the event of a termination of Mr. Li’s employment in connection with a change of control of our company, Mr. Li’s rights are set forth in his existing change in control agreement. As of January 1, 2015, the severance amount multiple pursuant thereto is three times, and the benefits continuation period is 36 months.

Mr. Li is eligible to participate in all employee benefit plans, programs and arrangements applicable to our employees and executive officers. Due to the significant amount of time Mr. Li is expected to spend in Asia

 

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(Singapore since March 2019, and China prior to that time) and the United States, Mr. Li is also entitled to the continued provision of a car and driver in Singapore (China until March 2019) on the same basis as applied prior to January 1, 2015, a housing allowance of up to $100,000 per year to be used for housing expenses in Singapore (China until March 2019) and Aurora, Illinois, and a tax equalization benefit, on the same basis as applied prior to January 1, 2015. He also is able to utilize first class travel while he is employed by us.

Standard Employee Benefits

We have adopted various employee benefit plans and arrangements for the purpose of providing employee benefits to our employees, including our named executive officers and our other executive officers. In general, the same terms apply to all our employees, including our named executive officers and our other executive officers. These plans and arrangements include the Employee Stock Purchase Plan, the 401(k) Plan, the Supplemental Plan, and the CMC Health and Welfare Benefit Plan.

 

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2020 GRANTS OF PLAN-BASED AWARDS

The following table shows all awards granted to the named executive officers during the fiscal year ended September 30, 2020 pursuant to the 2012 Omnibus Incentive Plan and the STIP.

 

Name

 

 

Type of
Award

 

 

Grant
Date

 

   

 

Estimated Possible Payouts
Under Non-Equity Incentive
Plan Awards ($) (1)

   

 

Estimated Possible
Payouts Under Equity
Incentive Plan Awards (#)(2)

   

All Other
Stock
Awards:
Number
of Shares
of Stock
or
Units (#)(2)

 

   

All Other
Option
Awards:
Number of
Securities
Underlying
Options (#)(3)

 

   

Exercise
or Base
Price of
Option
Awards
($/Sh)(4)

 

   

Grant Date
Fair Value
of Stock
and Option
Awards
($)(4)

 

 
 

Threshold

 

   

Target

 

   

Maximum

 

   

Threshold

 

   

Target

 

   

Maximum

 

 

David H. Li

  PSU(5)     12/5/19                         6,210       12,420       29,808                         1,631,615  
    RSU(6)     12/5/19                                           6,212                   791,906  
    Option(6)     12/5/19                                                 23,612       127.48       938,799  
    STIP           0     735,000       1,470,000                                            

 

Scott D. Beamer

  PSU(5)     12/5/19                         1,150       2,300       5,520                         302,151  
    RSU(6)     12/5/19                                           1,720                   219,266  
    Option(6)     12/5/19                                                 6,560       127.48       260,822  
    STIP           0     271,700       543,400                                            

 

Daniel D. Woodland

  PSU(5)     12/5/19                         1,220       2,440       5,856                         320,543  
    RSU(6)     12/5/19                                           1,832                   233,543  
    Option(6)     12/5/19                                                 6,952       127.48       276,407  
    STIP           0       300,723       601,445                                            

 

H. Carol Bernstein

  PSU(5)     12/5/19                         1,010       2,020       4,848                         265,367  
    RSU(6)     12/5/19                                           1,520                   193,770  
    Option(6)     12/5/19                                                 5,672       127.48       233,483  
    STIP           0       260,000       520,000                                            

 

Jeffrey M. Dysard

  PSU(5)     12/5/19                         836       1,672       4,013                         219,651  
    RSU(6)     12/5/19                                           1,252                   159,605  
    Option(6)     12/5/19                                                 4,772       127.48       189,732  
    STIP           0       254,313       508,625                                            

 

1 

The amounts in these columns reflect the threshold (0%), target (100%) and maximum (200%) amounts that could be earned by each named executive officer pursuant to the STIP for fiscal year 2020. The target STIP opportunity for each named executive officer was based on a percentage of base salary, which was 105% for Mr. Li, and 65% for each of Mr. Beamer, Dr. Woodland, Ms. Bernstein and Dr. Dysard.

 

2 

The amounts in these columns do not include restricted stock units and performance share units awarded to our named executive officers after the end of fiscal year 2020. On December 3, 2020, as part of our annual equity incentive award program, we awarded restricted stock units to our named executive officers with a fair market value based on the closing price of our stock on the award date of $145.58 per share that lapse in equal increments upon each anniversary over four years, and performance share units to our named executive officers for the performance period of fiscal year 2021 through fiscal year 2023, in the amounts set forth in the table below:

 

Name

 

  

Restricted Stock

Unit Award (#)

 

    

Performance

Share

Unit Award
(#)

(Target)

 

 

Mr. Li

     6,680        13,360  

 

Mr. Beamer

  

 

 

 

1,903

 

 

  

 

 

 

2,538

 

 

 

Dr. Woodland

  

 

 

 

2,004

 

 

  

 

 

 

2,672

 

 

 

Ms. Bernstein

  

 

 

 

1,603

 

 

  

 

 

 

2,137

 

 

 

Dr. Dysard

  

 

 

 

1,703

 

 

  

 

 

 

2,271

 

 

 

 

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3 

As with all other grants of stock options and stock awards to our named executive officers and other executive officers, other than the number of options or restricted stock or restricted stock units awarded, the terms and conditions of the stock option grants in this column are the same as those made to all other employees.

These amounts do not include options granted to our named executive officers after the end of fiscal year 2020. On December 3, 2020, as part of our annual equity incentive award program, we granted options to our named executive officers that have an exercise price of $145.58, which as with all our grants and awards to date was the fair market value based on the closing price of our common stock on the date of grant, vest in equal increments upon each anniversary over four years and expire on December 3, 2030, in the amounts set forth in the table below:

 

Name

 

  

Securities Underlying Options (#)

 

 

 

Mr. Li

  

 

 

 

23,196

 

 

 

 

Mr. Beamer

  

 

 

 

 

 

6,610

 

 

 

 

 

Dr. Woodland

  

 

 

 

 

 

6,958

 

 

 

 

 

Ms. Bernstein

  

 

 

 

 

 

5,362

 

 

 

 

 

Dr. Dysard

  

 

 

 

 

 

5,915

 

 

 

 

4 

As with all our grants and stock awards to date, the exercise price was the fair market value based on the closing price of our stock on the date of grant.

The grant date fair value was estimated using the Black-Scholes option pricing formula on the basis of the following assumptions: expected volatility: 32.14%; risk free rate of return: 1.73%; annualized dividend yield: 1.32%; and expected time until exercise: 7.75 years for people who were retirement eligible at the date of grant or those who will become retirement eligible during the four-year vesting period, and 7.25 years for people who were not retirement eligible at the date of grant and who will not become retirement eligible during the four-year vesting period. The differing assumptions reflect the differing statistical likelihoods of the named executive officers satisfying the “Rule of 70” for retirement vesting, which is applicable to all option grants made in fiscal year 2020. The “Rule of 70” means that the employee or executive officer has achieved a combination of age and years of service of at least seventy (70), with a minimum of fifty-five (55) years of age. On the December 5, 2019 grant date, Ms. Bernstein was retirement eligible at the date of grant, and Mr. Li, Dr. Woodland, Mr. Beamer, and Dr. Dysard were not retirement eligible at the date of grant and will not become retirement eligible during the four-year vesting period.

During fiscal year 2020, no stock awards held by our named executive officers were modified or cancelled (forfeited).

 

5 

Payment of each performance share unit award is contingent on the company attaining certain levels of average annual revenue growth and cumulative earnings per share in the fiscal year 2020 through fiscal year 2022 performance period (weighted 50% each). If threshold, target, or stretch (maximum) performance goals are attained in the performance period, 50%, 100%, or 200% of the target amount, respectively, may be earned. If actual performance falls between the threshold and target goals or the target and stretch goals, the payout would be determined using linear interpolation. The shares initially earned based on performance against the performance metrics are subject to potential upward (+20%) or downward (-20%) adjustment based on the company’s relative TSR against a peer group during the performance period, resulting in a maximum payout of up to 240% of target.

 

6 

Each restricted stock unit award and stock option grant vests in 25% increments on each of the first four anniversaries of the grant date.

 

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Executive Officer Deposit Share Program

Our executive officers are eligible to participate in the Executive Officer Deposit Share Program that our board of directors adopted in March 2000. Under this program, our executive officers are entitled to use all or a portion of their after-tax annual cash incentive compensation to purchase at fair market value shares of restricted stock awarded under the 2012 Omnibus Incentive Plan. These shares are retained on deposit with us until the third anniversary of the date of deposit (“deposit shares”), and our company matches the deposit with a restricted stock award equal to 50% of the shares deposited by the participant (“award shares”). If the participant is employed by us on the third anniversary of the deposit date and the deposit shares have remained on deposit with us through such date, the restrictions on the award shares will lapse. As of January 7, 2021, Mr. Li, Mr. Beamer, and Dr. Dysard participate in the Executive Officer Deposit Share Program, as summarized in the table below:

 

Name

 

  

Shares on Deposit (#)

 

    

Corresponding Award Shares (#)

 

 

Mr. Li

     1,125        562  

 

Mr. Beamer

  

 

 

 

279

 

 

  

 

 

 

139

 

 

 

Dr. Dysard

  

 

 

 

1,398

 

 

  

 

 

 

699

 

 

 

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OUTSTANDING EQUITY AWARDS AT 2020 FISCAL YEAR-END

The following table shows outstanding equity awards as of September 30, 2020 for each named executive officer.

 

     Option Awards     Stock Awards  

Name

 

 

Number of
Securities
Underlying
Unexercised
Options

(#)

Exercisable(1)

 

   

Number of
Securities
Underlying
Unexercised
Options

(#)

Unexercisable(1)

 

   

Option
Exercise Price
($)

 

   

Option
Expiration
Date

 

   

Number of
Shares or Units
of Stock That
Have Not
Vested

(#)(2)

 

   

Market Value

of Shares or
Units of Stock

That Have Not
Vested

($)(2)

 

   

Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units, or
Other
Rights
That
Have Not
Vested

(#)(3)

 

   

Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units, or
Other
Rights
That Have
Not Vested

($)(3)

 

 

David H. Li

    49,325       19,775       60.27       12/5/2026            
      11,027       11,027       92.57       12/5/2027            
      6,356       19,068       101.73       12/6/2028            
            23,612       127.48       12/5/2029       20,354       2,977,450       26,148       3,796,991  

Scott D. Beamer

    3,898       3,898       97.89       1/16/2028            
      2,288       6,864       101.73       12/6/2028            
            6,560       127.48       12/5/2029       11,262       1,652,656       5,595       812,909  

Daniel D. Woodland

    1,055             46.45       12/3/2024            
      7,850             42.37       12/3/2025            
      11,850       3,950       60.27       12/5/2026            
      4,800       4,800       92.57       12/5/2027            
      2,427       7,281       101.73       12/6/2028            
            6,952       127.48       12/5/2029       7,475       1,096,759       5,934       862,162  

H. Carol Bernstein

      3,950       60.27       12/5/2026            
      3,900       3,900       92.57       12/5/2027            
      2,011       6,033       101.73       12/6/2028            
            5,672       127.48       12/5/2029       6,524       957,811       4,915       714,111  

Jeffrey M. Dysard

          1,293       60.27       12/5/2026            
            3,128       92.57       12/5/2027            
            4,161       101.73       12/6/2028            
            4,772       127.48       12/5/2029       4,404       643,486       3,669       532,870  

 

1 

These columns show the outstanding stock option awards that are classified as exercisable or unexercisable that were held by each named executive officer as of September 30, 2020. The option awards vest or vested over four years in equal increments upon each anniversary of the grant date, with a term expiring on the tenth anniversary of the grant date. Outstanding options that vested after September 30, 2020 are shown in the section entitled “Security Ownership of Certain Beneficial Ownership and Management” above.

 

2 

The restricted stock unit awards made to Mr. Li have the following vesting schedules: 6,212 units vest over four years in equal increments upon each anniversary of the December 5, 2019 grant date, 5,148 units vest over three years in equal increments upon each anniversary of the December 6, 2018 award date, 3,308 units vest over two years in equal increments upon each anniversary of the December 5, 2017 award date, and 4,750 units vested on December 5, 2020 upon the anniversary of the December 5, 2016 award date. The restricted stock awards made to Mr. Li under the Deposit Share Program have the following vesting schedules: 541 shares vested on December 11, 2020 upon the third anniversary of the December 11, 2017 award date, and 395 shares vest on December 12, 2021 upon the third anniversary of the December 12, 2018 award date.

 

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The restricted stock unit awards made to Mr. Beamer have the following vesting schedules: 1,720 units vest over four years in equal increments upon each anniversary of the December 5, 2019 grant date, 1,854 units vest over three years in equal increments upon each anniversary of the December 6, 2018 award date, and 7,616 units vest over two years in equal increments upon each anniversary of the January 16, 2018 award date. The restricted stock awards made to Mr. Beamer under the Deposit Share Program have the following vesting schedule: 72 shares vest on December 16, 2022 upon the third anniversary of the December 16, 2019 award date.

The restricted stock unit awards made to Dr. Woodland have the following vesting schedules: 1,832 units vest over four years in equal increments upon each anniversary of the December 5, 2019 grant date, 1,968 units vest over three years in equal increments upon each anniversary of the December 6, 2018 award date, 1,450 units vest over two years in equal increments upon each anniversary of the December 5, 2017 award date, and 2,225 units vested on December 5, 2020 upon the anniversary of the December 5, 2016 award date.

The restricted stock unit awards made to Ms. Bernstein have the following vesting schedules: 1,520 units vest over four years in equal increments upon each anniversary of the December 5, 2019 grant date, 1,629 units vest over three years in equal increments upon each anniversary of the December 6, 2018 award date, 1,150 units vest over two years in equal increments upon each anniversary of the December 5, 2017 award date, and 2,225 units vested on December 5, 2020 upon the anniversary of the December 5, 2016 award date.

The restricted stock unit awards made to Dr. Dysard have the following vesting schedules: 1,252 units vest over four years in equal increments upon each anniversary of the December 5, 2019 grant date, 1,125 units vest over three years in equal increments upon each anniversary of the December 6, 2018 award date, 938 units vest over two years in equal increments upon each anniversary of the December 5, 2017 award date, and 725 units vested on December 5, 2020 upon the anniversary of the December 5, 2016 award date. The restricted stock awards made to Dr. Dysard under the Deposit Share Program have the following vesting schedule: 364 shares vest on December 16, 2022 upon the third anniversary of the December 16, 2019 award date.

The value reported with respect to the stock awards held by each named executive officer equals the total number of unvested and unearned stock awards multiplied by $142.81, the closing market price of the company’s stock on the last business day of our fiscal year ending September 30, 2020, plus the following accrued dividend equivalents (which are not paid unless the underlying restricted stock units vest):

 

Name

 

 

  

Accrued Dividend Equivalents on
Outstanding Restricted Stock Unit
Awards ($)

 

Mr. Li

   70,695

 

Mr. Beamer

  

 

44,330

 

Dr. Woodland

  

 

29,254

 

Ms. Bernstein

  

 

26,119

 

Dr. Dysard

  

 

14,551

 

3 

The total amounts and values in these columns equal the total number of performance share units, at the target level for the fiscal year 2019-2021 performance period and at the target level for the fiscal year 2020-2022 performance period, held by each named executive officer and multiplied by the market price of company common stock at the close of the last trading day in fiscal year 2020, which was $142.81 per share. These amounts exclude the performance share units for the fiscal year 2018-2020 performance period that vested based on performance through September 30, 2020, and are reported in the “2020 Option Exercises and Stock Vested” table. In calculating the number of performance share units and their value, we are required by SEC rules to compare our performance through the end of fiscal year 2020 under the performance share unit grants against the threshold, target and maximum performance levels for the grant and report in these columns the applicable potential share number and payout amount. If the performance is

 

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  between levels, we are required to report the potential payout at the next highest level. For example, if performance through the previous year exceeded target, even by only a modest amount, and even if it is unlikely that we will achieve the results that would dictate the payment of the maximum amount, we are required by SEC rules to report the maximum potential payouts. For the second year of the fiscal year 2019 through fiscal year 2021 performance period, we exceeded threshold levels of average annual revenue growth and cumulative earnings per share and have accordingly reported the performance share units at the target award level for this performance period (i.e., 100% of target). For the first year of the fiscal year 2020 through fiscal year 2022 performance period, we exceeded threshold levels of average annual revenue growth and cumulative earnings per share and have accordingly reported the performance share units at the target award level for this performance period (i.e., 100% of target). Such numbers are further subject to potential upward (+20%) or downward (-20%) adjustment based on the application of the company’s relative TSR multiplier, which will be applied following the completion of each performance period. The total value reported with respect to the performance share units held by each named executive officer includes the following accrued dividend equivalents with respect to each performance period, at the target levels (which are not paid unless the performance goals are met with respect to the underlying performance share units):

 

Name   Number of Fiscal
Year 2019 through
Fiscal Year 2021
Performance Shares
(Target)
    Number of Fiscal
Year 2020 through
Fiscal Year 2022
Performance Shares
(Target)
   

Fiscal Year 2019 through

Fiscal Year
2021 Performance
Share Unit

Accrued Dividend
Equivalents ($)

   

Fiscal Year 2020 through

Fiscal Year
2022 Performance

Share Unit

Accrued Dividend
Equivalents ($)

 

 

Mr. Li

    13,728       12,420       41,184       21,611  

 

Mr. Beamer

    3,295       2,300       9,885       4,002  

 

Dr. Woodland

    3,494       2,440       10,482       4,246  

 

Ms. Bernstein

    2,895       2,020       8,685       3,515  

 

Dr. Dysard

    1,997       1,672       5,991       2,909  

2020 OPTION EXERCISES AND STOCK VESTED

The following table sets forth certain information regarding stock options exercised during fiscal year 2020 and stock awards vested during fiscal year 2020 for the named executive officers.

 

Name

 

  

Option Awards

 

    

Stock Awards

 

 
  

Number

of Shares

Acquired

on

Exercise

(#)

 

    

Value

Realized

on

Exercise

($)1

 

    

Number

of Shares

Acquired

on

Vesting

(#)

 

    

Value

Realized

on

Vesting

($)2

 

 

David H. Li

     38,850        4,417,786        31,404        4,372,264  

 

Scott D. Beamer

                   7,399        1,111,430  

 

Daniel D. Woodland

                   10,213        1,412,377  

 

H. Carol Bernstein

     8,075        884,291        9,084        1,249,754  

 

Jeffrey M. Dysard

     8,643        487,853        6,248        873,171  

 

1 

For option awards, the value realized on exercise is equal to the aggregate difference between the exercise price of the options and the fair market value of the shares on the date of exercise.

 

2 

For stock awards (restricted stock units, performance share units, and deposit share program award shares), the value realized is the number of shares vested multiplied by the fair market value of the shares at the time of vesting plus payout of any accrued dividend equivalents.

 

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PENSION BENEFITS

The company does not maintain a defined benefit pension program.

2020 NONQUALIFIED DEFERRED COMPENSATION

The company maintains the CMC Materials, Inc. Supplemental Employee Retirement Plan, which is a nonqualified supplemental savings plan (the “Supplemental Plan”). The following table discloses the earnings and balances of our named executive officers under the company’s Supplemental Plan that provides for compensation deferral on a non-tax-qualified basis.

 

Name   

Registrant

contributions

in last FY  ($)1

    

Aggregate

earnings

in last FY ($)

    

Aggregate

balance at

last FYE ($)

 
   

David H. Li

 

    

 

45,526

 

 

 

    

 

(5,657

 

 

    

 

298,608

 

 

 

   

Scott D. Beamer

 

    

 

16,224

 

 

 

    

 

2,239

 

 

 

    

 

43,377

 

 

 

   

Daniel D. Woodland

 

    

 

18,322

 

 

 

    

 

10,870

 

 

 

    

 

92,630

 

 

 

   

H. Carol Bernstein

 

    

 

14,776

 

 

 

    

 

56,376

 

 

 

    

 

430,980

 

 

 

   

Jeffrey M. Dysard

     11,953        180        35,570  

 

1 

These amounts are included in the “All Other Compensation” column of the Summary Compensation Table.

Effective May 1, 2000, the company adopted the Supplemental Plan covering all eligible employees as defined by the Supplemental Plan. Participants in the Supplemental Plan, including our named executive officers, do not make any contributions to the Supplemental Plan. The purpose of the Supplemental Plan is to provide for the deferral of the company contributions to certain highly compensated employees as defined under the provision of the Employee Retirement Income Security Act of 1974, as amended. Under the Supplemental Plan, the company contributes up to 4% of the named executive officers’ eligible compensation in excess of the I.R.S. eligible compensation limit. All amounts contributed by the company and earnings on these contributions are fully vested at all times. The same menu of investment funds under the 401(k) Plan is available under the Supplemental Plan. Like the 401(k) Plan, all investment decisions are made by the participants. Participants in the Supplemental Plan are not permitted to make hardship withdrawals prior to termination and distributions under the Supplemental Plan are paid in a lump sum.

 

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POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

The following table and the accompanying narrative show potential benefits payable to our named executive officers upon the occurrence of the events specified herein, assuming such events occurred on September 30, 2020 and excluding certain benefits generally available to all salaried employees. Footnotes describing the assumptions in calculations are included following the last table in this section, as is a description of the employment terms and plans providing benefits specified in the table below. Except as noted, the amounts disclosed below reflect the aggregate potential payments under each scenario and category. The table does not include amounts to the extent that the form and amount of any payment or benefit are fully disclosed in an earlier table.