DEF 14A 1 d850726ddef14a.htm DEF 14A DEF 14A
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A

(RULE 14a-101)

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934 (Amendment No.                 )

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Filed by a Party other than the Registrant  

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Preliminary Proxy Statement

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material Pursuant to §240.14a-12

TIMKENSTEEL CORPORATION

 

(Name of Registrant as Specified In Its Charter)

 

 

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Table of Contents

LOGO

Dear Shareholders,

TimkenSteel invites you to attend its 2020 annual meeting of shareholders at 10 a.m. local time on May 6, 2020, at our corporate headquarters in Canton, Ohio. We will consider matters that are important to our company and to you, our investors.

The past year was one of significant change for TimkenSteel. During the fourth quarter of 2019, Tim Timken stepped down from his position as Chairman, Chief Executive Officer and President and as a member of the Board of Directors. Jack Reilly assumed the role of Chairman of the Board and Terry Dunlap was named Interim Chief Executive Officer and President.

Earlier in the year, we implemented an aggressive profitability improvement plan that helped to partially offset weak end market demand and is expected to benefit the company in the years to come. These actions included:

 

   

refinancing of our asset-based revolving credit facility;

   

reduction of salaried workforce by 14 percent;

   

freezing of certain salaried long-term benefit plans;

   

the closure of our TimkenSteel Material Services facility in Houston, Texas and the divestiture of our scrap processing facility in Akron, Ohio, both in the first quarter of 2020.

In total, these and other actions resulted in realized savings of approximately $40 million in 2019, with expected annualized savings of $70 million going forward.

While the company improved working capital and generated positive free cash flow for the year, TimkenSteel’s net sales and profitability fell short of expectations. For full-year 2019, net sales were $1.2 billion with a net loss of $110 million. In comparison, full-year 2018 net sales were $1.6 billion with a net loss of $10 million. In light of this performance, none of our executive officers received variable pay for 2019, validating that our pay-for-performance compensation plans operated as intended.

We operate in challenging and competitive markets and we know there is much more work to be done to realize the company’s potential. We are aligned in our efforts to operate safely, improve profitability and cash flow generation and serve our customers. We intend to capture the significant opportunities ahead and appreciate your ongoing support.

Sincerely,

 

LOGO   LOGO
Jack Reilly   Terry Dunlap
Chairman of the Board   Interim Chief Executive Officer and President

March 19, 2020

Enclosure

 


Table of Contents

Table of Contents

 

Notice of annual meeting

     

Proxy summary

        1  

Proposal 1

   Election of directors      8  
   Nominees for election      10  
   Continuing directors      11  

Board of Directors information

   Audit committee      14  
   Audit committee report      14  
   Compensation committee      15  
   Compensation committee report      16  
   Nominating and corporate governance committee      16  
   Director compensation      18  

Corporate governance

   Director independence      20  
   Board leadership structure      20  
   Risk oversight      21  
   Related-party transactions      21  

Our commitment to  corporate sustainability

        22  

Beneficial ownership of common stock

  

 

 

Directors and officers ownership

     23  
  

 

Five percent shareholders

     24  

Proposal 2

   Ratification of appointment of independent auditor      25  

Proposal 3

   Approval, on an advisory basis, of named executive officer compensation      27  

Compensation discussion and analysis

   Executive summary      28  
   Our compensation philosophy      30  
   Determining compensation for 2019      31  
   Elements of our executive compensation      33  
   Analysis of 2019 compensation      34  
   Retirement and other benefits      43  


Table of Contents
   Other compensation program features    44

Compensation of executive officers

   2019 Summary compensation table    46
   2019 Grants of plan-based awards table    48
   Outstanding equity awards at 2019 year-end table    49
   2019 Option exercises and stock vested table    50
   Pension benefits    51
   2019 Nonqualified deferred compensation table    53
   Potential payments upon termination or change in control    54
   CEO pay ratio    58

Proposal 4

   Approval of TimkenSteel Corporation 2020 Equity and Incentive Compensation Plan    59

Equity compensation plan information

      71

Annual meeting information

   Questions and answers    72
   General information    76

Appendix A

   Non-GAAP financial measures    A-1

Appendix B

   TimkenSteel Corporation 2020 Equity and Incentive Compensation Plan    B-1


Table of Contents

 

Notice of annual meeting of shareholders

 

Annual meeting information

Date: May 6, 2020

Time: 10 a.m. Eastern time

Place: 1835 Dueber Ave., S.W., Canton, Ohio 44706

Record date: February 28, 2020

Agenda

 

1.

Election of the following directors to serve a three-year term expiring at the 2023 annual meeting: Randall H. Edwards, Leila L. Vespoli and Randall A. Wotring

 

2.

Ratification of the selection of Ernst & Young LLP as the company’s independent auditor for the fiscal year ending December 31, 2020

 

3.

Approval, on an advisory basis, of the compensation of the company’s named executive officers

 

4.

Approval of the TimkenSteel Corporation 2020 Equity and Incentive Compensation Plan

Admission to the meeting

Only holders of TimkenSteel common shares or the holders’ authorized representatives may attend the meeting.

If your shares are held through a broker, bank or some other nominee, you will need to present proof of your ownership as of the record date, February 28, 2020, for your admission to the meeting. Proof of ownership could include a proxy card or a letter from your bank or broker.

This proxy statement and the accompanying proxy card are being made available to shareholders beginning on or about March 19, 2020.

March 19, 2020

Frank A. DiPiero

Executive Vice President, General Counsel and Secretary

 


 

Your vote is important

 

Please vote as soon as possible.

 

Whether or not you plan to attend the 2020 annual meeting of shareholders in person, please sign and date the enclosed proxy card and return it in the postage-paid envelope provided, or vote your shares electronically on the internet or by telephone.

 

How to vote:

 

LOGO

  

 

 

Online: www.cesvote.com

 

 

    LOGO

  

 

 

Phone: 1-888-693-8683

 

 

  LOGO

  

 

Mail: Sign, date and return your proxy card in the enclosed envelope

 

 

    LOGO

  

 

 

In-person: Attend the annual meeting and vote in person

 

 

Additional voting instructions are provided in this proxy statement and on the accompanying proxy card.

 

 

 


 

 

 

Important notice regarding the availability of proxy materials for the 2020 annual meeting of shareholders to be held on May 6, 2020: This proxy statement and our 2019 annual report to shareholders are available free of charge on the following website: www.ReadMaterial.com/TMST. Directions to the annual meeting are posted on the investor page of our website at http://investors.timkensteel.com.


Table of Contents

Proxy summary

This summary highlights information contained elsewhere in this proxy statement and contains only a portion of the information you should consider. You should read the entire proxy statement carefully before voting.

Our annual meeting

 

  Date and time   Record date   Place   Who can vote

  May 6, 2020

  10 a.m. Eastern time

  February 28, 2020  

TimkenSteel Corporation

1835 Dueber Ave., S.W.,

Canton, Ohio 44706

  Shareholders of record of common shares at the close of business on February 28, 2020

 

  Item   Proposals   Board vote recommendations   Page #  
1   Election of three directors to serve a three-year term expiring at the 2023 annual meeting   LOGO   FOR each director nominee   8
2   Ratification of the selection of Ernst & Young LLP as the company’s independent auditor for the fiscal year ending December 31, 2020   LOGO   FOR   25
3   Approval, on an advisory basis, of the compensation of the company’s named executive officers   LOGO   FOR   27
4   Approval of the TimkenSteel Corporation 2020 Equity and Incentive Compensation Plan   LOGO   FOR   59

Director nominees — term to expire in 2023

 

  Name   Age  

Director

since

 

Principal

occupation

  Independent  

 

Current committee memberships

 

Other

public
company

boards

                    Audit   Compensation   Nominating and
Corporate
Governance
   

Randall H. Edwards

  61   2015  

President and Chief

Executive Officer of

Premier Pipe, LLC

              0

Leila L. Vespoli

  60   2019   Retired Executive Vice President of Corporate Strategy, Regulatory Affairs and Chief Legal Officer of FirstEnergy Corp.               0

Randall A. Wotring

  63   2014   Chief Operating Officer of AECOM Technology Corporation             0

 

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Table of Contents

Diverse board skills and composition

Members of TimkenSteel’s Board of Directors possess a broad and diverse mix of executive leadership, strategic, financial, human resources and industry experience and skills that enable them to effectively oversee the management of the business and drive strategy that creates long-term, sustainable shareholder value.

 

LOGO

 

2


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Commitment to ethics and corporate governance

TimkenSteel’s Board of Directors is committed to good corporate governance, as it promotes the long-term interests of shareholders, strengthens Board and management accountability and builds public trust in the company. The “Corporate governance” section of this proxy statement describes our governance framework, which includes the following highlights:

 

 

  

Non-executive Chairman of the Board

 

 

 

  

Anti-hedging and anti-pledging policies

 

 

  

All directors, other than Mr. Dunlap, are independent

 

 

 

  

Comprehensive director and employee code of conduct and ethics and compliance program

 

 

  

Independent Audit, Compensation and Nominating and Corporate Governance Committees

 

 

 

  

Commitment to safety, sustainability and the community

 

 

  

Annual Board and committee evaluations

 

 

 

  

Robust share ownership and holding requirements for executive officers and directors

 

 

  

Regular executive sessions of independent directors at Board and committee meetings

 

 

 

  

Majority voting policy in uncontested elections of directors

 

 

  

Risk oversight by the full Board of Directors and its committees, under Audit Committee guidance

 

 

 

  

Related-party transactions approval policy

 

 

  

Two designated financial experts on Board of Directors*

 

 

 

  

Annual review by Board of Directors of succession plans for CEO and key executives

 

* Mr. Dunlap is one of two designated financial experts on the Board of Directors. He served on the Audit Committee of the Board of Directors until his appointment as Interim CEO and President on October 8, 2019, at which time he became a non-independent director and, accordingly, stepped down from the Audit Committee. Please see “Board of directors information — Audit Committee” for additional information.

2019 performance

 

 

Improved working capital management resulted

in approximately $70M of operating cash flow and $32M

of free cash flow

 

    

Record on-time delivery of
94% at year end
    

 

Company drove
$40M in savings
from profitability
improvement actions

 

 

3


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LOGO

 

(1) Net loss includes a loss $21.8M in 2017, $43.5M in 2018 and $40.6M in 2019 from the remeasurement of benefit plans.

 

(2) Adjusted EBITDA is a non-GAAP financial measure. Please see appendix for a reconciliation of this financial measure to the most comparable GAAP financial measures.

 

Corporate sustainability

At TimkenSteel, we focus on creating long-term shareholder value by employing sustainable practices. Our commitment to operating responsibly helps ensure we create and maintain a safe and healthy workplace, look after our environmental resources and develop sustainable technologies and business practices that contribute to economic growth and prosperity.

TimkenSteel ranks in the top 15% of the lowest-emitting EAF steel plants according to the World Steel Association

1,074,695 tons of 100% recycled scrap were delivered to TimkenSteel melt shops in 2019

 

 

LOGO

 

4


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Aligning pay with performance

Our compensation objectives and philosophy

At TimkenSteel, our executive compensation program is designed to align our executives’ interests with those of our shareholders; to reward leaders for strong business results; and to attract, retain and motivate the best talent in the industry.

Our executive compensation philosophy embodies the following principles:

  Recognizes people are our strongest asset

  Rewards results linked to short- and long-term performance (pay-for-performance)

  Positions pay affordably and competitively in the marketplace

  Drives a focus on increasing shareholder value

 

Named executive officer    Title
      

Ward J. “Tim” Timken, Jr.*

   Former Chairman, CEO and President

Terry L. Dunlap

   Interim CEO and President

Kristopher R. Westbrooks

   Executive Vice President and Chief Financial Officer

Frank A. DiPiero

   Executive Vice President, General Counsel and Secretary

William P. Bryan

   Executive Vice President, Manufacturing and Supply Chain

Thomas D. Moline

   Executive Vice President, Commercial Operations

*Mr. Timken’s employment with the company ended on October 8, 2019, at which time Mr. Dunlap was appointed Interim CEO and President.

 

2019

target pay mix

In support of our pay-for-performance philosophy, a substantial majority of the target total direct compensation for our former CEO, Mr. Timken, and our other named executive officers (“NEOs”) (not including Mr. Dunlap) was performance-based in 2019.

 

CEO

   Other NEOs (average)

LOGO

   LOGO

 

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Upon the appointment of Mr. Dunlap as Interim CEO and President in October 2019, the Compensation Committee approved a new compensation package for Mr. Dunlap for his service in this temporary position. Under this compensation package (which we expect to remain materially unchanged for the duration of Mr. Dunlap’s service as our Interim CEO and President), Mr. Dunlap receives a cash payment of $115,000 per month, guaranteed for a minimum period of one year from his appointment unless Mr. Dunlap is terminated for cause. Mr. Dunlap also received a special award of restricted stock units (“RSUs”) at the time of his appointment, which RSUs will generally vest on the first anniversary of the grant date. Mr. Dunlap is not eligible for annual incentive payments. While Mr. Dunlap’s pay mix is less performance-based than that of the former (or any permanent) CEO, the committee believes that this compensation structure is appropriate for Mr. Dunlap’s service in the temporary position as Interim CEO and President. Further, the award of RSUs as part of Mr. Dunlap’s compensation structure closely aligns his interests with those of our shareholders and incentivizes shareholder value creation.

Mr. Dunlap’s service as Interim CEO and President is currently expected to be temporary in nature, and the compensation package provided to Mr. Dunlap, including the amount of base salary, the form of long-term incentives, and the performance-based mix, was not intended to be and is not indicative of the ongoing compensation structure that the committee would expect to provide to a permanent CEO in the future. For a permanent CEO, the committee currently expects to revert to a compensation structure that is competitive with the market and best practices and, like the compensation program for our previous CEO, weighted significantly toward performance-based compensation.

See “Compensation discussion and analysis — Analysis of 2019 compensation — Compensation for Interim CEO” and “Compensation discussion and analysis — Analysis of 2019 compensation — Long-term incentives awarded to Interim CEO” for additional information.

Pay and performance at a glance

We pay for performance, and our incentive compensation plans operated as intended across the organization in 2019. Performance was well below threshold requirements, resulting in no payouts under the annual incentive plan. Additionally, participants in our long-term incentive plan forfeited the outstanding performance shares scheduled to vest for the 2018-2019 performance period due to average return on invested capital (“ROIC”) and base sales falling below threshold performance requirements.

 

2019 Annual incentive plan

 

     

2018-2019 Performance shares

 

     EBIT/BIC   Cash flow  

  Key process  

path sales

                 Average ROIC     Base sales  

Weighting

   70%   15%   15%    

Weighting

  50%   50%

Performance target

   10.9%   $106M   $765M    

Performance target

  10%   $2.495B

Result

   -4.0%   $35M   $567M    

Result

  -1.1%   $2.070B

Metric performance

   0%   0%   0%    

Metric performance

  0%   0%

Payout percentage

   0%   0%   0%    

Payout percentage

  0%   0%

 

6


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Total realizable compensation

The actual realizable compensation as compared to target compensation for our NEOs reflects performance that did not meet the thresholds for 2019, resulting in no payout on our 2019 annual incentive plan and the cancellation of all performance shares scheduled to vest for the 2018-2019 performance period.

 

      Named executive officer   Title   2019 Target
compensation
  2019 Realizable
compensation**
  Percent of  
target  
realizable  
                 

Ward J. “Tim” Timken, Jr.*

  Former Chairman, CEO and President   $4,362,591   $6,004,465   138%

Terry L. Dunlap ^

  Interim CEO and President   -   $1,708,853   -

Kristopher R. Westbrooks

  EVP and Chief Financial Officer   $1,307,413   $728,783   56%

Frank A. DiPiero

  EVP, General Counsel and Secretary   $1,092,345   $790,655   72%

William P. Bryan

  EVP, Manufacturing and Supply Chain   $711,059   $516,983   73%

Thomas D. Moline

  EVP, Commercial Operations   $711,059   $531,217   75%

*Mr. Timken’s employment with the company ended on October 8, 2019.

** Realizable compensation for 2019 includes base salary paid and long-term incentives, which include in-the-money stock options, unvested restricted stock units and performance shares assuming target performance for the performance shares granted for the 2019—2021 performance period. The value of long-term incentives is based on the closing price on December 31, 2019 of $7.86 per share.

For Mr. Timken, realizable compensation includes compensation earned through the termination of his employment with the company, as well as compensation paid in accordance with the terms of a severance agreement previously entered into by Mr. Timken and the company. See “Compensation of executive officers — Potential payments upon termination or change in control” for additional information.

^Mr. Dunlap was appointed Interim CEO and President on October 8, 2019. Due to the temporary nature of his appointment, a target compensation level was not established by the committee. See “Compensation Discussion and Analysis — Analysis of 2019 Compensation — Compensation for Interim CEO” for additional information.

Looking ahead in 2020

In 2019, shareholders approved the compensation of our NEOs with approximately 91% of votes cast in favor of our “say-on-pay” proposal. Our Compensation Committee considered the results of this vote, shareholder feedback received in previous years, the changes made to executive compensation programs for 2019 and market data in its annual review of executive compensation plans. Based on this evaluation, the Compensation Committee determined to make modest changes to the company’s executive compensation plans for 2020, including simplifying the annual incentive plan with a focus on safety, profitability and cash flow generation, as well as making certain changes to the performance shares utilized as part of the company’s long-term incentive program. For 2020, the metric used to determine whether (and how many) performance shares are earned will be relative total shareholder return measured over a three-year performance cycle. See “Compensation discussion and analysis — Executive summary — 2019 say-on-pay vote and 2020 executive compensation changes” for additional information.

Seeking approval for a new equity compensation plan

At the 2020 annual meeting of shareholders, we will seek shareholders’ approval for a new equity plan, the TimkenSteel Corporation 2020 Equity and Incentive Compensation Plan (the “2020 Plan”). The 2020 Plan, which will replace the previously approved equity plan, authorizes the Compensation Committee to provide cash awards and equity-based compensation in the form of stock options, stock appreciation rights, restricted shares, restricted share units, performance shares, performance units, dividend equivalents, and certain other awards for the primary purpose of providing our employees, officers and directors incentives and rewards for service and/or performance. We believe our future success depends in part on our ability to attract, motivate and retain high-quality employees and directors and that the ability to provide equity-based and incentive-based awards under the 2020 Plan is critical to achieving this success. The use of common shares as part of our compensation program also is important because equity-based awards are an essential component of our compensation program for key employees, as they help link compensation with long-term shareholder value creation and reward participants based on service and/or performance. See “Proposal 4 — Approval of the TimkenSteel Corporation Amended and Restated 2020 Equity and Incentive Compensation Plan” for additional information.

 

7


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Proposal 1

Election of directors

The company has 10 members on its Board of Directors. Our Board is divided into three classes for purposes of election, with three-year terms of office ending in successive years.

The Board of Directors has nominated the following individuals for election as directors at the 2020 annual meeting of shareholders, to serve for a term of three years expiring at the 2023 annual meeting of shareholders (or until their respective successors are elected and qualified): Randall H. Edwards, Leila L. Vespoli and Randall A. Wotring. Each of the nominees currently serves as a director and has agreed to continue his or her service if elected. Biographical information on each of the nominees and a description of his or her qualifications to serve as a director, as well as similar information about the other directors, is provided in the pages that follow.

If any of the nominees is unable to stand for election, the Board of Directors may designate a substitute. Shares represented by proxies may be voted for the substitute but will not be voted for more than three nominees.

Directors are elected by a plurality of the votes cast. The three nominees receiving the greatest number of votes will be elected.

Pursuant to the majority voting policy of the Board of Directors, any director who receives a greater number of “withhold” votes than votes “for” his or her election in an uncontested election will submit his or her resignation to the Board of Directors promptly after the certification of the election results. The Nominating and Corporate Governance Committee and the Board of Directors will then consider the tendered resignation in light of any factors they consider appropriate, including the director’s qualifications and contributions to the Board of Directors, as well as any reasons given by shareholders regarding why they withheld votes from the director. The Board of Directors is required to determine whether to accept or reject the tendered resignation within 90 days following the election and to promptly disclose its decision, as well as the reasons for rejecting any tendered resignation, if applicable.

Holders of TimkenSteel common shares are entitled to cast one vote for each share held on the record date for up to three nominees for director. A shareholder may not cumulate his or her shares in voting for director nominees. For example, a shareholder who owns 100 TimkenSteel common shares may vote 100 shares for each of the three nominees. The shareholder may not, however, vote more than 100 shares for any one nominee, or vote for more than three nominees.

Shares represented by proxy will be voted FOR these nominees unless specified otherwise in the voting instructions.

 

LOGO  

Your Board of Directors recommends a vote

for these nominees.

 

8


Table of Contents

Our knowledgeable Board of Directors

Members of the TimkenSteel Board of Directors have diverse skills, qualifications and experiences that enable them to effectively oversee the management of the company’s business and affairs. These directors represent the interests of TimkenSteel’s stakeholders and help to drive strategic decisions for the company’s long-term success.

 

                   
  LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO
     CEO or
chairperson
experience
  Finance/
accounting/
capital
markets
  Human
resources/
executive
compensation/
labor
  Relevant
industry/end
market
experience
 

Public company

board and

corporate

governance

 

Corporate
development/
mergers and

acquisitions

  International
operations
  Manufacturing
and technology
  Environmental
and safety

 

Joseph A. Carrabba

 

 

 

 

     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diane C. Creel

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Terry L. Dunlap

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Randall H. Edwards

 

 

 

 

     

 

 

 

 

 

     

 

 

 

 

 

 

 

 

   

 

Donald T. Misheff

 

 

 

 

 

 

 

     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

John P. Reilly

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ronald A. Rice

 

     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marvin A. Riley

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leila L. Vespoli

 

     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     

 

 

 

 

 

 

Randall A. Wotring

 

     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Biographical information for each of the nominees for election and the other continuing directors with unexpired terms of office is provided on the following pages. All information is as of March 2, 2020, unless otherwise indicated.

 

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Nominees for election to serve a three-year term expiring at the 2023 annual meeting of shareholders

 

 

LOGO         

Randall H. Edwards          LOGO    LOGO    LOGO    LOGO    LOGO    LOGO   

 

Age: 61

 

Term: Expires in 2020; director since 2015

 

Committee: Audit

 

Other public company boards: None

 

Business experience: Mr. Edwards has been President and Chief Executive Officer of Premier Pipe, LLC (a leader in the supply and management of engineered premium oil country tubular goods) since 2015. Previously, he served as President and Chief Operating Officer of Premier Pipe from 2014 to 2015. From 1999 to 2014, Mr. Edwards held various positions with NOV Grant Prideco (a leading supplier of oil field drill stem components), including President of NOV Grant Prideco from 2008 to 2014. He began his career at Wilson Supply, where he managed Wilson’s oil country tubular goods and its drill pipe product line.

         

 

LOGO

        

 

 

 

Leila L. Vespoli           LOGO    LOGO    LOGO    LOGO    LOGO    LOGO    LOGO   

 

Age: 60

 

Term: Expires in 2020; director since 2019

 

Committee: Audit

 

Other public company boards: None

 

Business experience: Ms. Vespoli retired from her position as Executive Vice President of Corporate Strategy, Regulatory Affairs and Chief Legal Officer of FirstEnergy Corp. (an electric utility headquartered in Akron, Ohio, whose subsidiaries are involved in the transmission, distribution and generation of electricity) in April 2019, a position which she had held since May 2016. Prior to that, she served as Executive Vice President, Markets and Chief Legal Officer from January 2014 through May 2016. She began her career with Ohio Edison, a predecessor company of FirstEnergy, in 1984 and served since 2000 in numerous executive leadership roles at FirstEnergy with a broad range of responsibilities in a highly complex and regulated industry.

         

 

LOGO

        

 

 

 

Randall A. Wotring LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   

 

Age: 63

 

Term: Expires in 2020; director since 2014

 

Committees: Compensation; Nominating and Corporate Governance

 

Other public company boards: None

 

Business experience: Mr. Wotring is Chief Operating Officer of AECOM Technology Corporation (a premier, fully integrated infrastructure and support services firm and the largest engineering design firm in the world), a position he has held since July 2017. He previously served as President, Technical and Operational Services of AECOM from July 2016 until July 2017; as President, Management Services of AECOM from October 2014 until July 2016; and as Corporate Vice President and President of the Federal Services division of URS Corporation from 2004 until October 2014 when URS was acquired by AECOM.

   

 

 

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Continuing directors

 

 

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Joseph A. Carrabba  LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   

 

Age: 67

 

Term: Expires in 2021; director since 2014

 

Committees: Compensation; Nominating and Corporate Governance

 

Other public company boards: Mr. Carrabba has been a director of Aecon Group Inc. since 2013 and Niocorp Developments Ltd. since 2014. Mr. Carrabba formerly was a director of Cliffs Natural Resources; KeyBank Corporation, Lithium X Energy Corp, Fura Gems Inc. and Newmont Mining Corporation.

 

Business experience: Mr. Carrabba is President and Chief Executive Officer of Bond Resources Inc. (a Canada-based mineral exploration company), a position he has held since November 2019. He also is Executive Chairman of Winston Gold Corp. (a mining company focused on advancing high grade, low-cost mining opportunities), a position he has held since July 2019. Previously, Mr. Carrabba served as President and Chief Executive Officer of Ram River Coal Corporation (a Canadian company holding a 100% interest in property that contains two well-defined metallurgical coal deposits in Alberta, Canada) from 2017 until September 2018, and as Chief Executive Officer and President of Irati Energy Corporation (an oil and gas exploration company focused on southern Brazil oil shale development projects) from 2016 until April 2018. Mr. Carrabba also previously served as Chairman, Chief Executive Officer and President of Cliffs Natural Resources Inc. (an international mining and natural resources company) from 2005 until his retirement in 2013. Prior to joining Cliffs Natural Resources in 2005, Mr. Carrabba served for more than 20 years in a variety of leadership capacities at Rio Tinto, a global mining company, at locations worldwide, including the United States, Asia, Australia, Canada and Europe.

         

 

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Diane C. Creel   LOGO    LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   

 

Age: 71

 

Term: Expires in 2022; director since 2014

 

Committee: Compensation (Chairperson)

 

Other public company boards: Ms. Creel has been Chair of the Board of Allegheny Technologies Incorporated (ATI) since 2019, a director of ATI since 1996 and a director of EnPro Industries, Inc. since 2009. She was formerly a director of Goodrich Corporation, URS Corporation and The Timken Company.

 

Business experience: Ms. Creel served as Chairman, Chief Executive Officer and President of Ecovation Inc., a subsidiary of Ecolab Inc. (a waste stream technology company using patented technologies), until her retirement in 2008. Prior to Ecovation, Ms. Creel was Chairman, Chief Executive Officer and President of Earth Tech, Inc. from 1992 to 2003.

 

 

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LOGO

 

    

 

 

Terry L. Dunlap  LOGO    LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   

 

Age: 60

 

Term: Expires in 2021; director since 2015

 

Committee: None

 

Other public company boards: Mr. Dunlap has been a director of Matthews International Corporation since 2015 and a director of Ampco-Pittsburgh Corporation since 2019.

 

Business experience: Mr. Dunlap is the Interim Chief Executive Officer and President of TimkenSteel Corporation, a position he has held since October 2019. Previously, Mr. Dunlap spent 31 years with Allegheny Technologies Incorporated (ATI) (a diversified specialty metals producer), where he held numerous positions in sales, marketing, manufacturing, supply chain, logistics and information technology. He served as Executive Vice President of ATI’s flat-rolled products group from 2011 until his retirement in December 2014. He also was President of ATI Allegheny Ludlum from 2002 to 2014 and served on the boards of two ATI joint venture companies.

         

 

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Donald T. Misheff     LOGO    LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   

 

Age: 63

 

Term: Expires in 2022; director since 2014

 

Committee: Audit (Chairperson)

 

Other public company boards: Mr. Misheff has been Non-Executive Chairman of the Board of FirstEnergy Corp. since 2018 and a director since 2012. He has been a director of Trinseo S.A. since 2015.

 

Business experience: Mr. Misheff was Managing Partner of the Northeast Ohio offices of Ernst & Young LLP (a public accounting firm), from 2003 until his retirement in 2011. He began his career at Ernst & Young in 1978 and has more than 30 years of experience in taxation and in performing, reviewing and overseeing financial statement audits for a wide range of public companies and advising those companies on financial and corporate governance issues.

         

 

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John P. Reilly     LOGO    LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO

 

Age: 76

 

Term: Expires in 2021; director since 2014

 

Committees: Audit; Nominating and Corporate Governance (Chairperson)

 

Other public company boards: Mr. Reilly was formerly a director of The Timken Company, Exide Technologies and Material Sciences Corporation.

 

Business experience: Mr. Reilly has been Chairman of the Board of Directors of TimkenSteel Corporation since October 2019. Prior to his appointment as Chairman, he served as the company’s lead independent director since 2014. Previously, Mr. Reilly served as Chairman, President and Chief Executive Officer of Figgie International (an international diversified operating company) from 1995 until 1998. He has more than 30 years of experience in the automotive industry, where he served as President and Chief Executive Officer of several automotive suppliers, including Stant Corporation and Tenneco Automotive. He also held leadership positions at Chrysler Corporation and Navistar International and served as President of Brunswick Corporation.

 

 

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LOGO

 

    

 

 

 

 

 

 

 

Ronald A. Rice      LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   

 

Age: 57

 

Term: Expires in 2022; director since 2015

 

Committees: Compensation; Nominating and Corporate Governance

 

Other public company boards: None

 

Business experience: Mr. Rice retired in 2018 from his position as President and Chief Operating Officer of RPM International Inc. (a manufacturer of specialty coatings, sealants and building materials and provider of related services for industrial and consumer markets globally), a position he had held since 2008. Previously, Mr. Rice held a variety of increasingly responsible positions with RPM from 1995 to 2008. He began his career with The Wyatt Company, an actuarial consulting firm, known today as Willis Towers Watson, in 1985.

 

         

 

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Marvin A. Riley  LOGO    LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   

 

Age: 45

 

Term: Expires in 2022; director since 2018

 

Committee: Audit

 

Other public company boards: None

 

Business experience: Mr. Riley is President and Chief Executive Officer of EnPro Industries (a leader in sealing products, metal polymer and filament-wound bearings, components and service for reciprocating compressors, diesel and dual-fuel engines and other engineered products used in critical applications in industries worldwide), a position he has held since July 2019. Prior to his current role, Mr. Riley was Chief Operating Officer of EnPro from July 2017 through June 2019. Previously, Mr. Riley served in various leadership positions at EnPro, including as President of its Fairbanks Morse division, focused on marine engines and power generation; Vice President of its manufacturing function; Vice President of Americas; and head of global operations for its GGB Bearing Technology division. Prior to joining EnPro, Mr. Riley served in leadership roles at General Motors Corporation, working within the vehicle manufacturing group.

 

 

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Board of directors information

Meetings and committees

The standing committees of the Board of Directors consist of the Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee. During the 2019 fiscal year, there were ten meetings of the Board of Directors, seven meetings of the Audit Committee, four meetings of the Compensation Committee and four meetings of the Nominating and Corporate Governance Committee. All directors attended 75% or more of the aggregate number of meetings of the Board and its committees on which they served. It is our policy that all members of the Board of Directors should attend the annual meeting of shareholders, and all directors attended the 2019 annual meeting of shareholders. The independent directors met separately in executive session without management present at least quarterly in conjunction with regularly scheduled meetings of the Board in 2019, and intend to meet separately in executive sessions without management present at least quarterly in conjunction with regularly scheduled meetings of the Board of Directors in 2020 and thereafter.

Audit committee

The Audit Committee has oversight responsibility with respect to the company’s independent auditor and the integrity of its financial statements. The Audit Committee currently is composed of Donald T. Misheff (chairperson), Randall H. Edwards, John P. Reilly, Marvin A. Riley and Leila L. Vespoli. Philip R. Cox served on the Audit Committee until his retirement from the Board on August 31, 2019, and Terry L. Dunlap served on the Audit Committee until his appointment as Interim CEO and President on October 8, 2019. Our Board of Directors has determined that each current or former member of the Audit Committee named above is financially literate and, during the term of their service on the Audit Committee, independent as defined in the listing standards of the New York Stock Exchange (“NYSE”) and the rules of the Securities and Exchange Commission (“SEC”). Our Board of Directors also has determined that Donald T. Misheff qualifies as an audit committee financial expert. Previously, the Board had determined that Terry L. Dunlap also qualified as an audit committee financial expert. As noted previously, Mr. Dunlap became a non-independent director upon his appointment as Interim CEO and President and, accordingly, stepped down from the Audit Committee.

The Board of Directors has adopted a written Audit Committee charter, which is reviewed and reassessed annually. A current copy of the Audit Committee charter is available on the company’s website at www.timkensteel.com.

Audit committee report

The Audit Committee has reviewed and discussed with management and the company’s independent auditor the audited financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. The Audit Committee also has discussed with our independent auditor the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board (“PCAOB”) and the SEC.

The Audit Committee has received and reviewed the written disclosure and the letter from our independent auditor required by applicable requirements of the PCAOB regarding the independent accountant’s communications with the Audit Committee concerning independence, has discussed with our independent auditor such independent auditor’s independence, and has considered the compatibility of non-audit services with the auditor’s independence.

Based on the review and discussions referred to above, the Audit Committee recommended to our Board of Directors that the audited financial statements be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC.

Donald T. Misheff (Chairperson)

Randall H. Edwards

John P. Reilly

Marvin A. Riley

Leila L. Vespoli

 

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Compensation committee

The Compensation Committee establishes and administers our policies, programs and procedures for compensating our senior management and Board of Directors. Members of the Compensation Committee are Diane C. Creel (chairperson), Joseph A. Carrabba, Ronald A. Rice and Randall A. Wotring. Our Board of Directors has determined that all members of the Compensation Committee are independent as defined in the listing standards of the New York Stock Exchange, and that no member of the Compensation Committee has any relationship to the company that is material to his or her ability to be independent from management in connection with the duties of a member of the Compensation Committee. Each member of the committee is also a “non-employee director” for purposes of Section 16 of the Securities Exchange Act of 1934 (the “Exchange Act”).

The Compensation Committee has adopted a written charter, which is reviewed and reassessed annually. A current copy of the Compensation Committee charter is available on the company’s website at www.timkensteel.com.

With the guidance and approval of the Compensation Committee, the company has developed compensation programs for its executive officers, including the Interim CEO and the other executive officers named in the summary compensation table, that are intended to align the interests of our executives and shareholders; reward executives for sustained, strong business and financial results; and enable us to attract, retain and motivate the best talent.

The agenda for meetings of the Compensation Committee is determined by its chairperson with the assistance of the Executive Vice President, Human Resources and Corporate Relations and the Vice President, Total Rewards. The meetings are regularly attended by the Interim CEO and President (and previously by the former Chairman, CEO and President), the Executive Vice President and Chief Financial Officer, the Executive Vice President and General Counsel, the Executive Vice President, Human Resources and Corporate Relations and the Vice President, Total Rewards. The Compensation Committee meets in executive session at each of its meetings, and the chairperson reports the committee’s actions regarding compensation of executive officers to the full Board of Directors. Our human resources department supports the Compensation Committee in its duties and the committee may delegate to the human resources department and to our General Counsel certain administrative duties in connection with the company’s compensation programs.

The Compensation Committee has the sole authority to retain and terminate compensation consultants to assist in the evaluation of director and executive officer compensation and the sole authority to approve the fees and other retention terms of any compensation consultants. The committee has selected Meridian Compensation Partners, LLC, to serve as its independent compensation consultant. The Compensation Committee has engaged Meridian to analyze our executive compensation structure and plan designs, to assess whether the compensation program is competitive and supports the Compensation Committee’s goal to align the interests of executive officers with those of shareholders and, from time to time, to review the total compensation of directors. Meridian also provides market data directly to the Compensation Committee, which the committee references when determining compensation for executive officers. Additional information regarding the committee’s engagement of Meridian, including a discussion of the committee’s assessment of the independence of Meridian, is available in the “Compensation discussion and analysis” (“CD&A”) section of this proxy statement under the caption “Determining compensation for 2019 — Role of the compensation consultant.”

The Compensation Committee also plays an active role in our executive officer succession planning process by meeting regularly with senior management to ensure an effective succession process is in place and to discuss potential successors for executive officers.

 

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Compensation committee interlocks and insider participation

No member of the Compensation Committee is, or was during 2019, an officer or employee of the company or was formerly an officer or employee of the company. Further, during 2019, no member of the Compensation Committee had a relationship that is required to be disclosed under SEC rules regarding related-party transactions. Finally, no executive officer of the company serves or served on the compensation committee or board of directors of any company where any member of the Compensation Committee or the TimkenSteel Corporation Board of Directors is, or was during 2019, an executive officer.

Compensation committee report

The Compensation Committee has reviewed and discussed with our management the CD&A for the year ended December 31, 2019. Following and based on that review and discussion, the Compensation Committee recommended to our Board of Directors, and our Board approved, the inclusion of the CD&A in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, and its inclusion in this proxy statement for filing with the SEC.

Diane C. Creel (Chairperson)

Joseph A. Carrabba

Ronald A. Rice

Randall A. Wotring

Nominating and corporate governance committee

The Nominating and Corporate Governance Committee is responsible for, among other things, evaluating new director candidates and incumbent directors and recommending directors to serve as members of our Board’s standing committees. Members of the Nominating and Corporate Governance Committee are John P. Reilly (chairperson), Joseph A. Carrabba, Ronald A. Rice and Randall A. Wotring. Our Board of Directors has determined that all members of the Nominating and Corporate Governance Committee are independent as defined in the listing standards of the New York Stock Exchange.

Director candidates recommended by our shareholders will be considered in accordance with the criteria outlined below. In order for a shareholder to submit a recommendation, the shareholder must deliver a communication by registered mail or in person to the Nominating and Corporate Governance Committee, c/o TimkenSteel Corporation, Attn: Secretary, 1835 Dueber Ave. S.W., Canton, Ohio 44706. Such communication should include the proposed candidate’s qualifications, any relationship between the shareholder and the proposed candidate, and any other information that the shareholder would consider useful for the Nominating and Corporate Governance Committee to consider in evaluating such candidate.

A shareholder who wishes to nominate a person for election as a director must provide written notice to the company’s secretary in accordance with the procedures specified in Article I, Sections 13 and 14 of our Code of Regulations. In general, to be timely, the written notice must be received by our secretary at our principal executive offices not less than 90 nor more than 120 days prior to the first anniversary of the date on which the company held the preceding year’s annual meeting of shareholders. If the date of the annual meeting of shareholders is scheduled for a date more than 30 days prior to or more than 30 days after the first anniversary of the preceding year’s annual meeting of shareholders, then a shareholder’s notice must be delivered to our secretary at our principal executive offices not later than the close of business on the later of the 90th day prior to the annual meeting of shareholders or the 10th day following the day on which public announcement of the date of the annual meeting of shareholders is first made. The notice must provide certain information required by the Code of Regulations, including but not limited to (a) biographical and share ownership information of the shareholder (and certain affiliates), (b) descriptions of any material interests of the shareholder (and certain affiliates) in the nomination and any arrangements between the shareholder (and certain affiliates) and another person or entity with respect to the nomination, (c) biographical and employment information of each nominee, and (d) a brief description of any arrangement or understanding between each individual proposed as a nominee and any other person pursuant to which the individual was proposed as a nominee.

 

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The Nominating and Corporate Governance Committee has utilized and expects to utilize a variety of sources to identify possible director candidates, including professional associations and Board member recommendations. In recommending candidates, the Nominating and Corporate Governance Committee considers the qualifications of candidates such as business experience and other attributes and skills, including high standards of integrity and ethical behavior, which qualify the candidate to serve as a director of the company in light of the company’s business and structure. The Nominating and Corporate Governance Committee also may consider such other elements as it deems appropriate, consistent with the factors in the company’s Corporate Governance Guidelines, including whether the candidate enhances the diversity of the Board. Such diversity includes professional background and capabilities, knowledge of specific industries and geographic experience, as well as the more traditional diversity concepts of race, gender and national origin. The Nominating and Corporate Governance Committee also is responsible for reviewing the qualifications of, and making recommendations to the Board of Directors regarding, director nominations submitted by our shareholders. The committee will consider all potential candidates in the same manner regardless of the source of recommendation.

The Nominating and Corporate Governance Committee will periodically review the appropriate size of the Board and plans for director succession. In the event vacancies are anticipated or arise, the committee will consider potential director candidates. As part of this process, the committee will assess the skills and attributes of our Board as a whole and of each individual director and evaluate whether prospective candidates possess complementary and supplementary skills and attributes that would strengthen our Board.

The Nominating and Corporate Governance Committee has adopted a written charter, which is reviewed and reassessed annually. A current copy of the Nominating and Corporate Governance Committee charter is available on the company’s website at www.timkensteel.com.

 

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Director compensation

The compensation program under which non-employee directors were compensated for their services as directors during 2019 is summarized below. As noted previously, this program is reviewed periodically by the Compensation Committee and the Board to ensure that director compensation remains appropriate and competitive.

Cash compensation

Each non-employee director is paid an annual cash retainer for services as a director. For 2019, the annual cash retainer paid to each non-employee director was $80,000. An additional annual fee of $20,000 was paid to the lead director. Further, the following additional annual fees were paid to the chairperson of each standing committee of our Board of Directors:

 

  Committee       Chairperson fee    
 

Audit

  $    15,000
 

Compensation

  $    10,000
 

Nominating and Corporate Governance

  $    10,000

Any director also employed by the company is not paid any compensation for serving as a director.

With the resignation of Mr. Timken as Chairman, CEO and President on October 8, 2019, and the appointment of Mr. Reilly as non-executive Chairman of the Board, the annual fee payable to Mr. Reilly for his service as lead director was increased from $20,000 to $90,000 in recognition of the increased responsibilities associated with the role of Chairman. For 2019, the increase was prorated to reflect the period of time during which Mr. Reilly served as Chairman of the Board. At the same time, with the appointment of Mr. Dunlap as Interim CEO and President, the annual cash retainer payable to him as a non-employee director was discontinued effective October 9, 2019.

Stock compensation

Each non-employee director serving at the time of our annual meeting of shareholders will receive a grant of our common shares following the meeting. The common shares are granted as deferred shares that vest on the first anniversary of the grant date, provided the director continues to serve as a non-employee director on that date. For 2019, the approximate target value of the grant was $120,000. A non-employee director who is first elected to the Board after the date of the annual meeting will receive a grant of common shares at the time of his or her election to the Board.

The company requires that the common shares granted to a non-employee director be held for as long as the director remains on the TimkenSteel Board. In addition, the Compensation Committee of the Board of Directors has adopted stock ownership guidelines that require non-employee directors to own common shares with a value equal to five times the director’s annual cash retainer. The company considers all shares owned by the director, plus unvested deferred shares, in determining whether the director has met the ownership guidelines. As of March 2, 2020, each of the non-employee directors, with the exception of Mr. Riley who joined the Board in August 2018 and Ms. Vespoli who joined the Board in November 2019, had achieved at least 50% of his or her ownership requirement.

Compensation deferral

Any non-employee director may elect to defer the receipt of all or a specified portion of his or her cash and/or stock compensation in accordance with the provisions of the Amended and Restated TimkenSteel Corporation Director Deferred Compensation Plan. Pursuant to the plan, cash fees can be deferred and paid at a future date requested by the director. The amount will be adjusted based on investment crediting options, which include interest earned quarterly at a rate based on the prime rate plus one percent or the total shareholder return of our common shares, with amounts paid in cash either in a lump sum or in installments. Stock compensation can be deferred to a future date and paid either in a lump sum or installments and is payable in shares plus an amount representing dividend equivalents, if any dividends are declared during the deferral period.

 

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2019 Director compensation table

The following table provides details of non-employee director compensation in 2019:

 

   Name(1)

Fees earned or

paid in cash(2)

Stock awards(3) (4) Total
     

Joseph A. Carrabba

$    80,000 $  115,120 $  195,120
     

Phillip R. Cox

$    60,000 $  115,120 $  175,120
     

Diane C. Creel

$    90,000 $  115,120 $  205,120
     

Randall H. Edwards

$    80,000 $  115,120 $  195,120
     

Donald T. Misheff

$    95,000 $  115,120 $  210,120
     

John P. Reilly

$  125,978 $  115,120 $  241,099
     

Ronald A. Rice

$    80,000 $  115,120 $  195,120
     

Marvin A. Riley

$    80,000 $  115,120 $  195,120
     

Leila L. Vespoli

$    20,000 $  110,415 $  130,415
     

Randall A. Wotring

$    80,000 $  115,120 $  195,120

 

(1) 

Ward J. “Tim” Timken, Jr., Former Chairman, Chief Executive Officer and President, is not included in this table as he was an employee of the company and received no additional compensation for his services as a director. Compensation paid to Terry L. Dunlap for his service as a non-employee director prior to his appointment as Interim Chief Executive Officer and President on October 8, 2019 is included in the Summary compensation table of this proxy statement.

 

(2) 

Mr. Cox retired from the Board of Directors effective August 31, 2019. Ms. Vespoli was appointed as a director effective November 13, 2019. The amounts shown for Mr. Cox and Ms. Vespoli reflect the annual cash retainer payable to non-employee directors, prorated to reflect the calendar quarters during which each of them, respectively, served as a director during 2019.

 

(3) 

The amount shown for each director, other than Ms. Vespoli, is the grant date fair value of 11,735 deferred shares awarded on May 7, 2019, as computed in accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic 718. With respect to Ms. Vespoli, the amount shown is the grant date fair value of 18,810 deferred shares awarded on November 13, 2019, the date she was appointed as a director, as computed in accordance with FASB ASC Topic 718. These awards have a one-year vesting period.

 

(4) 

As of December 31, 2019, each director other than Mr. Cox and Ms. Vespoli held 11,735 unvested deferred shares, which are scheduled to vest on May 7, 2020. In connection with Mr. Cox’s retirement on August 31, 2019, 8,801 of the 11,735 unvested deferred shares awarded to him on May 7, 2019, were canceled. The remaining 2,934 unvested deferred shares will vest on May 7, 2020. As of December 31, 2019, Ms. Vespoli held 18,810 unvested deferred shares, which are scheduled to vest on November 13, 2020. No director had any outstanding company stock options.

 

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Corporate governance

Corporate governance guidelines

The Board of Directors has adopted the TimkenSteel Corporation Corporate Governance Guidelines. These guidelines outline the responsibilities of the Board of Directors, director selection criteria and procedures, board composition criteria and various policies and procedures designed to ensure effective and responsive governance. The TimkenSteel Corporation Corporate Governance Guidelines are reviewed annually by the Nominating and Corporate Governance Committee and are available on our website at www.timkensteel.com.

Code of Conduct

Each of our employees and directors is required to comply with the TimkenSteel Corporation Code of Conduct, a code of business conduct and ethics adopted by the company. Ethics and integrity, defined by the principles of honesty, fairness, respect and responsibility, are core values of the company. The TimkenSteel Corporation Code of Conduct sets forth policies covering a broad range of subjects, including antitrust and competition, corruption and bribery, conflicts of interest, inside information, accurate financial records, harassment, environmental health and safety and intellectual property, among other matters, and requires strict adherence to laws and regulations applicable to the company’s business. Any waiver of the Code of Conduct for executive officers or directors may be made only by the Board of Directors or its Nominating and Corporate Governance Committee and will be disclosed promptly in accordance with applicable law and rules of the New York Stock Exchange. The TimkenSteel Corporation Code of Conduct is reviewed periodically by the Nominating and Corporate Governance Committee and is available on our website at www.timkensteel.com.

Director independence

The Board of Directors has adopted the independence standards of the New York Stock Exchange listing requirements for determining the independence of directors. After consideration of all relevant facts and circumstances, including each individual’s commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships with the company, the Board has determined that the following directors meet those independence standards and that each of these individuals is independent and free of any material relationships with the company other than as established through his or her service as a director of the company: Joseph A. Carrabba, Phillip R. Cox (prior to his retirement effective August 31, 2019), Diane C. Creel, Terry L. Dunlap (prior to his appointment as Interim CEO and President on October 8, 2019), Randall H. Edwards, Donald T. Misheff, John P. Reilly, Ronald A. Rice, Marvin A. Riley, Leila L. Vespoli and Randall A. Wotring. When Mr. Dunlap was appointed to the role of Interim CEO and President in October 2019, he became a non-independent director and stepped down from the Audit Committee of the Board.

Board leadership structure

The Board of Directors believes it is important to retain flexibility to allocate the responsibilities of the offices of the chairman and chief executive officer in a manner that is in the best interests of the company’s shareholders. When Ward J. “Tim” Timken, Jr. stepped down as Chairman, Chief Executive Officer and President on October 8, 2019, the Board of Directors separated the positions of chairman and chief executive officer and appointed John P. Reilly as its non-executive chairman. As non-executive chairman, among other duties, Mr. Reilly presides over all meetings of the Board of Directors (including executive sessions of the independent directors), provides direction and input on agendas, schedules, and materials for Board meetings, acts as the Board of Directors’ liaison to senior management and is available for consultation and direct communications with major shareholders as appropriate.

At this time, the Board of Directors believes that the separation of the chairman and chief executive officer positions is in the best interests of shareholders because it allows Mr. Dunlap, the company’s Interim CEO and President, to focus his time and energy on driving the company’s business, strategy, and performance, while allowing Mr. Reilly to lead the Board of Directors in its fundamental role of providing advice, counsel and oversight to management regarding the company’s business, strategy and performance.

 

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Risk oversight

The Board of Directors, in close coordination with its standing committees, oversees the company’s management of risk, including the company’s processes for identifying, reporting and mitigating risks. The Audit Committee reviews and discusses the guidelines, policies and processes by which the CEO and senior management of the company assess and manage risks and discusses the company’s major financial risk exposures and the steps management has taken to monitor and control these exposures. Where the Board of Directors, directly or through another committee of the Board, has processes in place to manage non-financial risks, the Audit Committee will review such risk management processes in a general manner. The Board believes that this approach, supported by our senior leadership structure, provides appropriate checks and balances against undue risk-taking.

Related-party transactions approval policy

As noted, our directors and employees, including our executive officers, are subject to the TimkenSteel Corporation Code of Conduct, which requires employees and directors to act in the best interests of the company and to avoid actual or potential conflicts of interest. To fulfill this duty, employees and directors must avoid situations in which their actions or loyalties are, or may appear to be, divided. While not every situation can be identified in a written policy, our Code of Conduct specifically prohibits the following situations:

 

   

holding a significant financial interest or directorship in any of our customers, competitors or suppliers;

   

entering into personal transactions with our customers or suppliers on terms other than those generally available to the public or our company’s employees;

   

investing in customers, suppliers or competitors that are not publicly traded;

   

making or receiving a loan or credit from any of the company’s customers, competitors or suppliers or from a director, officer or employee of a customer, competitor or supplier, other than in the ordinary course of our company’s business;

   

giving or receiving gifts, gratuities or entertainment except to the extent they are customary, of nominal value and not intended to influence a business decision;

   

taking personal advantage of corporate opportunities that the company might be interested in pursuing;

   

using the company’s assets for personal gain;

   

using the company’s property other than in connection with our business; and

   

conducting business with or supervising family members or friends.

Pursuant to the Code of Conduct, employees’ requests for waivers of the Code of Conduct, including but not limited to waivers of any potential or actual conflict of interest, must be submitted to and approved by the General Counsel. Any requested waivers of the Code of Conduct for directors or executive officers can be made only by the Board of Directors or the Nominating and Corporate Governance Committee of the Board. Any such waivers for directors or executive officers will be disclosed promptly in accordance with applicable law and the rules of the New York Stock Exchange. There were no requests for, or grants of, waivers of the Code of Conduct for any of our executive officers or directors in 2019.

The Nominating and Corporate Governance Committee also is responsible for reviewing and, if appropriate, approving or ratifying any related-party transaction required to be disclosed under Item 404(a) of Regulation S-K of the Securities Act of 1933. In this regard, during 2019, the company purchased approximately $3,641,922 in products from, and sold approximately $13,055,148 in products to, various companies affiliated with Ellwood Group, Inc. (“Ellwood”). As of March 2, 2020 and throughout 2019, Ellwood owned more than 5% of the company’s outstanding common shares and therefore constituted a “related party” for purposes of Item 404(a). The purchases and sales between the company and affiliates of Ellwood were made in the ordinary course of business and on an arms-length basis and have been approved by the Nominating and Corporate Governance Committee.

Anti-hedging policy

Our insider trading policies prohibit all employees (including our executive officers) and directors from engaging in any speculative transactions involving company stock or securities, including short sales; the purchase or sale of puts, calls or listed options; and other hedging transactions such as zero-cost collars and forward contracts. Additionally, certain employees (including our executive officers) and directors are prohibited from holding company securities in a margin account or pledging company securities as collateral for a loan.

 

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Our commitment to corporate sustainability

At TimkenSteel, operating responsibly and sustainably is as important to us as making the world’s cleanest steel.

 

Guided by our core values of ethics and integrity, quality, innovation and independence, we focus on creating long-term shareholder value by employing sustainable practices throughout the company. TimkenSteel’s commitment to operating responsibly helps us create and maintain a safe and healthy workplace, look after our environmental resources and develop sustainable technologies and business practices that contribute to economic growth and prosperity.

 

Serving as the foundation of our sustainability program are business ethics and stakeholder engagement. We are committed to operating in accordance with the highest standards of ethics and integrity and maintaining robust compliance programs. In addition, we believe that communicating regularly and transparently with stakeholders and responding to feedback is key to our overall success.

 

 

 

LOGO

Built on that foundation are the pillars of social and cultural leadership, environmental stewardship and economic impact, comprised of the following nine areas in which we are focusing our sustainability efforts:

 

   

safety and health

 

   

total wellbeing

 

   

community impact

 

   

resource conservation

 

   

sound environmental management

 

   

continuous improvement in environmental practices

 

   

shareholder value

 

   

corporate governance

 

   

risk management

Corporate sustainability committee

Our cross-functional corporate sustainability committee oversees TimkenSteel’s corporate responsibility objectives and regularly monitors our progress toward achieving them. Progress reports are provided to the company’s leadership team and the Board of Directors periodically.

TimkenSteel’s Corporate Sustainability Policy and more information on our corporate sustainability program can be found at www.timkensteel.com/corporatesustainability. Please note, however, that information contained on the website is not incorporated by reference in this proxy statement or considered to be a part of this document.

 

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Beneficial ownership of common stock

The following table shows, as of March 2, 2020, the beneficial ownership of our common shares by each director, nominee for director and NEO, and by all directors, nominees for director and executive officers as a group.

 

    Name

Number of shares of common

stock beneficially  owned(1)(2)

Percent of  class(3)
   

Joseph A. Carrabba

  39,079   *
   

Diane C. Creel

  35,996   *
   

Randall H. Edwards

  30,835   *
   

Donald T. Misheff

  30,587   *
   

John P. Reilly

  47,428   *
   

Ronald A. Rice

  58,448   *
   

Marvin A. Riley

  8,715   *
   

Randall A. Wotring

  61,094   *
   

Leila L. Vespoli

 
   

Terry L. Dunlap

  29,650   *
   

William P. Bryan

  64,954   *
   

Frank A. DiPiero

  98,260   *
   

Thomas D. Moline

  75,264   *
   

Kristopher R. Westbrooks

  17,385   *
   

Ward J. “Tim” Timken, Jr.(4)

  3,667,736   8.0%
   

All directors, nominees for director and executive officers as a group(2)(5) (14 individuals)

  597,695   1.3%

 

*

Percent of class is less than 1%.

 

(1) 

Except as otherwise indicated below, for the purposes of this table beneficial ownership of our common shares is based on the sole or shared power to vote or direct the voting or to dispose or direct the disposition of our common shares. Beneficial ownership as determined in this manner does not necessarily bear on the economic incidents of ownership of our common shares. None of the shares owned by directors, nominees or the named executive officers have been pledged as security.

 

(2) 

The following table provides additional details regarding beneficial ownership of our common shares:

 

    Name     Outstanding  options(a)         Deferred common  shares(b)    
   

Joseph A. Carrabba

  0   39,079
   

Diane C. Creel

  0   0
   

Terry L. Dunlap

  0   0
   

Randall H. Edwards

  0   0
   

Donald T. Misheff

  0   29,987
   

John P. Reilly

  0   3,401
   

Ronald A. Rice

  0   0
   

Marvin A. Riley

  0   8,715
   

Randall A. Wotring

  0   49,534
   

Leila L. Vespoli

  0   0
   

William P. Bryan

  39,160   0
   

Frank A. DiPiero

  74,560   0
   

Thomas D. Moline

  46,925   0
   

Kristopher R. Westbrooks

  10,035   0
   

Ward J. “Tim” Timken, Jr.

  992,660   0

 

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  (a) 

Includes shares that the individual named in the table has the right to acquire on or before May 2, 2020, through the exercise of stock options pursuant to the TimkenSteel Corporation Amended and Restated 2014 Equity and Incentive Compensation Plan. Including those listed (but not including Mr. Timken), all directors, nominees for director, and executive officers as a group have the right to acquire 170,680 shares on or before May 2, 2020, through the exercise of stock options pursuant to the TimkenSteel Corporation Amended and Restated 2014 Equity and Incentive Compensation Plan. These shares have been treated as outstanding for the purpose of calculating the percentage of the class beneficially owned by such individual or group, but not for the purpose of calculating the percentage of the class owned by any other person.

 

  (b) 

Acquired through deferrals of directors’ cash or equity compensation; these shares will not be issued until a later date under the TimkenSteel Corporation Director Deferred Compensation Plan.

 

(3) 

Calculated using 44,938,082 shares as the number of common shares outstanding.

 

(4) 

Includes 362,823 shares over which Mr. Timken exercises sole voting and investment authority, 2,312,253 shares with respect to which Mr. Timken shares voting and investment discretion, and 992,660 shares which Mr. Timken has the right to acquire as discussed above. Of the shares reported, Mr. Timken disclaims beneficial ownership of 2,269,149 shares, including 1,405 shares held by his spouse, 3,000 shares held by the Ward J. Timken Trust FBO Grandchildren, and 2,264,744 shares held by The Timken Foundation of Canton.

 

(5) 

Shares beneficially owned by Mr. Timken are not included in the shares beneficially owned by all directors, nominees for director and executive officers as a group, as Mr. Timken’s service as an executive officer and director of the company ended on October 8, 2019.

The following table provides information known to us about each beneficial owner of more than 5% of our common shares as of March 2, 2020, unless otherwise indicated below.

 

   Beneficial owner Amount Percent of  class(6)

BlackRock Inc.(1)

55 East 52nd Street

New York, NY 10022

  6,622,417   14.7 %
Timken family(2)   5,130,914   11.4 %

Ellwood Group, Inc.(3)

1105 N. Market Street

P.O. Box 8985, Suite 1300

Wilmington, DE 19810

  4,285,026   9.5 %

Dimensional Fund Advisors LP(4)

Building One

6300 Bee Cave Road

Austin, TX 78746

  3,644,170   8.1 %

The Vanguard Group Inc.(5)

100 Vanguard Blvd.

Malvern, PA 19355

  2,786,480   6.2 %

 

(1) 

Pursuant to a Schedule 13G/A filed with the SEC on February 4, 2020, BlackRock Inc. reported it is the beneficial owner of, and has sole dispositive power over, 6,622,417 of our common shares, with respect to which it has sole voting power over 6,520,066 shares and shared voting power over no shares.

 

(2) 

Members of the Timken family, including Ward J. “Tim” Timken, Jr., have in the aggregate sole or shared voting and dispositive power with respect to 5,130,914 of our common shares, which includes 992,660 shares that Ward J. “Tim” Timken, Jr. has the right to acquire on or before May 2, 2020. The Timken Foundation of Canton (the “Foundation”), 200 Market Avenue North, Suite 210, Canton, Ohio 44702, holds 2,264,744 of these shares, representing 5.0% of our outstanding common shares. Ward J. Timken, Joy A. Timken, Ward J. “Tim” Timken, Jr., William R. Timken, Jr. and Mark Scheffler are trustees of the Foundation and share the voting and investment power with respect to such shares. There are no voting agreements or other arrangements among the members of the Timken family or the Foundation and its trustees regarding the 5,130,914 common shares and, accordingly, the members of the Timken family are not a “group” for purposes of Rule 13d-3 under the Exchange Act with respect to such shares. Further, each member of the Timken family disclaims beneficial ownership of any of the company’s common shares as to which such member does not have sole or shared voting or investment power.

 

(3) 

Pursuant to a Schedule 13D/A filed with the SEC on January 5, 2016, Ellwood Group, Inc. and its wholly-owned subsidiary, Ellwood Group Investment Corp., reported it is the beneficial owner of, and has sole voting and dispositive power with respect to, 4,285,026 of our common shares.

 

(4) 

Pursuant to a Schedule 13G/A filed with the SEC on February 12, 2020, Dimensional Fund Advisors LP reported it is the beneficial owner of, and has sole dispositive power over, 3,644,170 of our common shares, with respect to which it has sole voting power over 3,472,600 shares and shared voting power over no shares. Dimensional Fund Advisors LP disclaims beneficial ownership of the shares reported in the Schedule 13G as all such shares are owned by investment companies and other commingled funds, group trusts and separate accounts for which Dimensional Fund Advisors provides investment advice or serves as investment manager or sub-adviser.

 

(5) 

Pursuant to a Schedule 13G/A filed with the SEC on February 12, 2020, The Vanguard Group Inc. reported it is the beneficial owner of 2,786,480 of our common shares, with respect to which it has sole voting power over 38,009 shares, shared voting power over 3,035 shares, sole dispositive power over 2,749,831 shares and shared dispositive power over 36,649 shares.

 

(6) 

Calculated using 44,938,082 shares as the number of common shares outstanding.

 

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Proposal 2

Ratification of appointment of

independent auditor

Appointment of independent auditor for 2020

The Audit Committee of the Board of Directors has selected Ernst & Young LLP, an independent registered public accounting firm, to perform the audit of the company’s financial statements and our internal control over financial reporting for the 2020 fiscal year. Ernst & Young has served as TimkenSteel’s independent auditor since 2012.

The selection of Ernst & Young as our independent auditor is not required to be submitted to a vote of our shareholders for ratification, but our Board of Directors believes obtaining shareholder ratification is a sound governance practice. If our shareholders fail to vote in favor of the selection of Ernst & Young, the Audit Committee will reconsider whether to retain Ernst & Young and may retain that firm or another firm without resubmitting the matter to our shareholders. Even if the shareholders ratify this appointment, the Audit Committee may, in its discretion, direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the company’s best interest.

Representatives of Ernst & Young are expected to be present at the 2020 annual meeting of shareholders. They will have an opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions.

Ratification of the appointment of Ernst & Young as the company’s independent auditor for the 2020 fiscal year requires the affirmative vote of a majority of the votes cast on the proposal.

Shares represented by proxy will be voted FOR this proposal unless you specify otherwise in your voting instructions.

 

LOGO    Your Board of Directors recommends a vote for the
ratification of the selection of Ernst & Young LLP as the
independent auditor for the 2020 fiscal year.

 

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Services of independent auditor for 2019

Set forth below are the aggregate fees billed by Ernst & Young for professional services rendered to the company for the fiscal years ended December 31, 2018 and 2019:

 

    

2019

    

2018

 

Audit fees(a)

 

$

        1,273,585

 

  

$

        1,096,300

 

Audit-related fees(b)

 

 

233,479

 

  

 

 

Tax fees

 

 

 

  

 

 

All other fees

 

 

 

  

 

 

Total fees

 

$

1,507,064

 

  

$

1,096,300

 

 

(a)

Audit fees consist of fees for professional services rendered for the audit of our annual consolidated financial statements and internal control over financial reporting, and the statutory audit performed in the UK. For 2019, audit fees also include professional services provided in connection with changes in accounting and accounting and financial reporting associated with non-recurring transactions.

 

(b)

Audit-related fees consist of fees for transaction advisory services provided in connection with sell-side due diligence related to the company’s divestiture of its City Scrap & Salvage operations, and a working capital project performed during the third quarter of 2019.

Audit committee pre-approval policies and procedures

The Audit Committee annually approves the scope of services and fees payable for the year-end audit and statutory audits to be performed by the independent auditor for the next fiscal year. In addition, the Audit Committee has adopted a pre-approval policy pursuant to which the committee annually approves certain audit, audit-related and tax services which may be provided by the independent auditor, along with the associated fees for such services, during the upcoming fiscal year. Other than services pre-approved in connection with the annual engagement of the independent auditor or pursuant to the pre-approval policy, all services to be provided by the independent auditor must be pre-approved by the Audit Committee. Requests for pre-approval must contain sufficient detail to ensure the Audit Committee knows precisely what services it is being asked to pre-approve so that it can make a well-reasoned assessment of the impact of the service on the auditor’s independence. With certain specified limitations, the Audit Committee has delegated its pre-approval authority to its chairperson, who must report any pre-approval decisions to the full Audit Committee at its next scheduled meeting. All of the services described above were approved by the Audit Committee in accordance with the foregoing policies and procedures.

 

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Proposal 3

Approval, on an advisory basis,

of named executive officer

compensation

 

At the 2019 annual meeting of shareholders, the advisory vote to approve the compensation of the company’s named executive officers passed with approximately 91% of the votes cast in favor of the company’s “say-on-pay” proposal. Our Compensation Committee considered the results of this vote, shareholder feedback received in previous years, the changes made to executive compensation programs for 2019 and market data in its review of executive compensation plans for 2020. Based on this evaluation, the Compensation Committee determined to make modest changes to the company’s executive compensation plans for 2020, including simplifying the annual incentive plan metrics and, for the long-term incentive plan, implementing a relative total shareholder return calculation over a three-year performance cycle as the metric used to determine whether (and how many) performance shares are earned. Please see “Executive summary – 2019 say-on-pay vote and 2020 executive compensation changes” in the CD&A for additional information.

We believe the compensation programs for our named executive officers:

 

   

align the interests of our executives with those of our shareholders;

 

   

reward executives for sustained, strong business and financial results; and

 

   

enable us to attract, retain and motivate the best talent.

As required under the Dodd-Frank Wall Street Reform and Consumer Protection Act and Section 14A of the Exchange Act, we are asking you to approve, on an advisory (non-binding) basis, the following resolution at our 2020 annual meeting of shareholders:

RESOLVED, that the compensation of the named executive officers as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the compensation discussion and analysis, the compensation tables and any related material disclosed in this proxy statement, is hereby APPROVED.

We encourage you to carefully review the compensation discussion and analysis, the compensation tables, and related disclosures included in this proxy statement. The Board recommends that shareholders indicate their support for the compensation of the company’s named executive officers as described in this proxy statement by voting “FOR” approval of this proposal at the annual meeting.

As an advisory vote, this resolution is not binding. Nonetheless, the Compensation Committee, which is responsible for designing and administering our executive compensation program, values the opinions expressed by our shareholders with respect to this proposal. The Compensation Committee will consider the affirmative vote of a majority of the votes cast on this proposal as approval of the compensation paid to the company’s executive officers. If there are a significant number of negative votes, the Compensation Committee will seek to understand and consider the concerns that influenced such votes in making future decisions about executive compensation programs.

Shares represented by proxy will be voted FOR this proposal unless you specify otherwise in your voting instructions.

 

LOGO    Your Board of Directors recommends a vote for
advisory approval of the compensation of our
named executive officers.

 

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Compensation discussion and analysis

This Compensation Discussion and Analysis (“CD&A”) provides an overview of our executive compensation philosophy and practices, and the factors considered by the Compensation Committee in granting and delivering executive compensation for 2019.

This CD&A focuses on the following individuals, whom we have determined to be the named executive officers (“NEOs”) of TimkenSteel for 2019.

 

Named executive officer

 

Title

    

 

    

Ward J. “Tim” Timken, Jr.*

 

Former Chairman, CEO and President

Terry L. Dunlap

 

Interim CEO and President

Kristopher R. Westbrooks

 

Executive Vice President and Chief Financial Officer

Frank A. DiPiero

 

Executive Vice President, General Counsel and Secretary

William P. Bryan

 

Executive Vice President, Manufacturing and Supply Chain

Thomas D. Moline

 

Executive Vice President, Commercial Operations

*Mr. Timken’s employment with the company ended on October 8, 2019, at which time Mr. Dunlap was appointed as Interim CEO and President.

Executive summary

2019 developments

On October 8, 2019, Mr. Timken stepped down from his position as Chairman, CEO and President and as a member of the Board of Directors, on which date the Board of Directors appointed director Terry L. Dunlap as Interim CEO and President. Due to the temporary nature of his appointment, Mr. Dunlap did not receive an annual incentive or long-term incentive target pursuant to the company’s incentive compensation programs described more fully below, but instead the Compensation Committee approved a cash payment of $115,000 per month and a special award of time-vested RSUs at the time of his appointment. Please see “Analysis of 2019 compensation – Compensation for Interim CEO” and “Analysis of 2019 compensation – Long-term incentives awarded to Interim CEO” in this CD&A for additional information.

Our 2019 business performance

During 2019, the company implemented an aggressive profitability improvement plan which included new leadership, organizational restructuring, debt repayment, refinancing of our revolving credit facility and the sale and/or closure of non-core assets. Although these efforts resulted in savings of approximately $40 million for 2019, they did not offset declines in volume and, therefore, net sales and profitability fell short of expectations.

Operating cash flow for the year was $70 million. The company improved working capital and generated positive free cash flow(3) of $32 million for the year.

Our pay-for-performance compensation plans operated as intended. Performance on all metrics was below threshold, resulting in no variable compensation plans paying out.

 

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2019

Net sales $1.21B

 

Net loss $(110.0M) (2)

 

Adjusted EBITDA(3)

$32.4M

 

   

 

as

compared

with

   

 

 

2018 (1)

Net sales $1.61B

 

Net loss $(9.9M) (2)

 

Adjusted EBITDA(3)

$127.0M

 

 

(1)

Financials have been restated for 2018 due to the retrospective adoption of a change in accounting principles. During the fourth quarter of 2019, the company elected to change its method of accounting for inventories from the last-in, first-out (“LIFO”) to the first-in, first-out (“FIFO”) method.

(2)

Net loss includes a loss of $43.5M in 2018 and $40.6M in 2019 from the remeasurement of benefit plans.

(3)

Free cash flow and Adjusted EBITDA are non-GAAP financial measures. Please see appendix for a reconciliation of these financial measures to the most comparable GAAP financial measures.

Pay for performance

At TimkenSteel, we believe in rewarding employees, including our NEOs, for helping us achieve our corporate goals, deliver exceptional performance and build shareholder value. In this spirit, we designed our executive compensation program to:

 

Objectives:

    

   Align the interests of our executives and shareholders

   Reward executives for strong business and financial results

   Attract, retain and motivate the best talent

The compensation of our NEOs during 2019 reflects our financial results and demonstrates that our compensation plans pay for performance as intended.

 

   

The metrics established for our annual performance award plan (“APA plan”) for 2019 were based on (i) percentage of earnings before interest and taxes to beginning invested capital (“EBIT/BIC”), (ii) cash flow and (iii) sales of the company’s most profitable products or, as we call them, “key process path sales.”

 

   

There were no payouts awarded to our executives under the APA plan for 2019, as performance was below threshold on all metrics, driven primarily by weak end markets.

 

   

Since 2015, our executives have received, in the aggregate, annual incentive payments equal to 23% of target, reflecting the company’s performance during that challenging business cycle.

 

   

Cumulative base sales and average return on invested capital achieved over the 2018-2019 performance period were below threshold requirements for the 2018-2019 performance share cycle. As a result, the 2018-2019 performance share grants did not vest.

 

   

Since 2015, all performance shares granted to our NEOs have been forfeited, as the threshold performance requirements have not been met.

 

   

As a result, our NEOs’ aggregate realizable compensation for 2019, as in prior years, was significantly lower than established target compensation.

2019 say-on-pay vote and 2020 executive compensation changes

In 2019, shareholders approved the compensation of our NEOs with approximately 91% of votes cast in favor of our “say-on-pay” proposal. Our Compensation Committee considered the results of this vote, shareholder feedback received in previous years, the changes made to executive compensation programs for 2019 and market data during its annual review of executive compensation plans. Based on this evaluation, the Compensation Committee determined to make modest changes to the company’s executive compensation plans for 2020, including:

 

   

Simplifying the annual incentive plan by utilizing two commonly understood key performance metrics, earnings before interest, tax, depreciation and amortization (“EBITDA”) and operating cash flow with a performance modifier if certain safety objectives are achieved.

 

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Implementing a relative total shareholder return calculation over a three-year performance cycle as the metric used to determine whether (and how many) performance shares are earned.

With respect to the annual incentive plan, the safety modifier supports our focus on safety as the company’s top priority and will be measured by our performance on OSHA recordables and lost-time incidents.

With respect to the long-term incentive plan, beginning in 2020 the metric used to determine whether (and how many) performance shares are earned will be based on total shareholder return over a three-year period as compared to an identified peer group of steel companies. The committee believes this change to the performance share metric, more precisely focused on share price appreciation, will further align the interests of management with the interests of the company’s shareholders.

Executive compensation highlights

 

 

What we do

    

What we don’t do

 

 

 Pay for performance

  

 

 

x   Provide tax gross-ups

 

 

 Establish target pay based on market norms

  

 

 

x   Re-price stock options

 

 

 Deliver total direct compensation primarily through variable pay

  

 

 

x   Pay current dividends on performance-based restricted stock units

 

 

 Set challenging short- and long-term incentive award goals

  

 

 

x   Provide excessive perquisites

 

 

 Provide strong oversight that ensures adherence to incentive grant regulations and limits

  

 

 

x   Reward executives without a link to performance or creation of shareholder value

 

 

 Maintain robust stock ownership requirements

  

 

 

 

 

 

 Include double-trigger vesting in the event of a change in control

  

 

 

 

 

 

 Adhere to an incentive compensation recoupment “clawback” policy

  

 

 

 

 

 

 Maintain anti-hedging and anti-pledging policies with respect to company stock

  

 

 

 

 

 

 Offer market-competitive benefits

  

 

 

 

 

 

 Consult with an independent advisor on pay

  

 

 

 

Our compensation philosophy

At TimkenSteel, our executive compensation program is designed to align our executives’ interests with those of our shareholders, to reward leaders for strong business results, and to attract, retain and motivate the best talent in the industry.

Our executive compensation philosophy embodies the following principles:

 

 

Recognizes people are our strongest asset

 

 

Rewards results linked to short- and long-term performance (pay-for-performance)

 

 

Positions pay affordably and competitively in the marketplace

 

 

Drives a focus on increasing shareholder value

 

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Rewarding performance

 

TimkenSteel’s success depends largely on the contributions by motivated, focused and energized people working together to achieve our strategic objectives. This understanding shapes our approach to providing a competitive total rewards package to our CEO and the other NEOs.

 

As noted above, pay-for-performance is one of the four principles of our executive compensation philosophy. To ensure we are adhering to this principle, we regularly evaluate our incentive compensation plans to ensure that the opportunities and metrics drive desired business results, including for 2019:

 

•  EBIT/BIC;

•  Cash flow;

•  Key process path sales;

•  Average return on invested capital; and

•  Base sales.

 

The Compensation Committee uses a comprehensive process to assess company performance. We believe the metrics used in our incentive compensation plans focus management on the appropriate objectives for creating both short- and long-term shareholder value.

 

Performance-based pay comprised 83% of the target total direct compensation for Mr. Timken and between 58% and 70% of the target total direct compensation for the other NEOs (other than Mr. Dunlap). Although Mr. Dunlap’s pay mix is less performance-based than that of the former CEO, the Compensation Committee believes that this compensation structure is appropriate for Mr. Dunlap’s position as Interim CEO and President.

        

 

The company’s approach to rewarding performance

 

Annual incentive

 

•   Reward achievement of short-term
corporate and individual performance
goals

 

Restricted stock units and stock options

 

•   Reward long-term value creation

 

•   Reinforce ownership in the company

 

•   Support retention of executives

 

Performance shares

 

•   Reward achievement of long-term financial results that drive value creation

 

•   Link compensation to building long-term shareholder value

 

•   Reinforce ownership in the company

 

•   Support executive retention

 

Determining compensation for 2019

Role of the Compensation Committee: Deciding on compensation

 

The Compensation Committee determines the appropriate level of compensation for all executive officers, including the CEO and other NEOs. The committee reviews all compensation components and determines whether each individual’s total compensation is reasonable and consistent with the company’s compensation philosophy. In making this determination, the committee may consider:         

 

The Compensation Committee considers whether the company’s compensation programs encourage unnecessary or excessive risk-taking and has determined that they do not.

 

 

   

With respect to all NEOs other than the CEO, the CEO’s recommendations;

   

Market data provided by the committee’s external compensation consultant; and

   

Additional factors such as the executive’s operating responsibilities, experience level, retention risk, tenure and performance in the position.

In light of these considerations, the Compensation Committee may make adjustments to a particular element of an executive’s compensation. The committee then approves, with any modifications it deems appropriate, base salary ranges, target annual performance award opportunities and long-term incentive opportunities and grants for the company’s NEOs. With respect to the CEO, the committee determines the compensation package for the CEO and then presents its recommendation to the independent members of the Board of Directors for approval during executive session.

The amount of past compensation realized or potentially realizable does not directly impact the level at which current and long-term pay opportunities are set, although the Compensation Committee does consider this information in its deliberations.

 

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Role of the CEO and management: Providing compensation recommendations

The CEO, working with human resources leadership and the compensation consultant, prepares compensation recommendations for the NEOs (other than the CEO) and presents them to the Compensation Committee. These recommendations are based on:

 

   

The CEO’s personal review of the other NEOs’ performance, job responsibilities and importance to the company’s overall business strategy; and

   

The company’s compensation philosophy.

In preparing compensation recommendations for the NEOs, the CEO and human resources leadership together consider market data for the key elements of NEO compensation and evaluate the total compensation package in relation to the target established for the position, taking into account the scope of responsibilities for the particular position. The CEO, human resources leadership and compensation consultant also evaluate total direct compensation (base salary, annual incentives and long-term incentive grants) in relation to total compensation of comparable positions derived from general market data as well as internal equity considerations.

Although these recommendations are given significant weight, the committee retains full discretion when determining compensation.

Role of the compensation consultant: Advising the Compensation Committee

The Compensation Committee retains the authority to approve and monitor all compensation and benefit programs (other than broad-based welfare benefit programs). The committee engages the services of a compensation consultant to add rigor in the review process and to provide insight into market trends. The consultant analyzes the company’s executive compensation structure and plan designs and assesses whether the compensation program is competitive and supports the goal of aligning the interests of NEOs with those of shareholders. The consultant also provides market data directly to the Compensation Committee for its use in determining compensation for NEOs and assessing board compensation.

The committee retained Meridian Compensation Partners, LLC as its compensation consultant.

In 2019 Meridian’s primary areas of assistance were:

 

   

Gathering information related to current trends and practices in board of directors and executive compensation;

 

   

Reviewing information developed by management for the Compensation Committee and providing its input to the committee;

 

   

Attending and participating in meetings with the Compensation Committee, as well as briefings with the committee chairperson and management between regularly scheduled meetings;

 

   

Advising the committee with respect to compensation matters related to the separation from employment of Mr. Timken and the appointment of Mr. Dunlap as the company’s Interim CEO and President;

 

   

Assisting the CEO and human resources leadership in determining compensation recommendations for the NEOs (other than the CEO); and

 

   

Reviewing with management and the Compensation Committee materials to be used in the company’s proxy statement.

While the consultant reports directly to the Compensation Committee, the committee has authorized the consultant to interact with company management, as needed, on the committee’s behalf. The Compensation Committee has the sole authority to approve the independent compensation consultant’s fees and terms of the engagement. Thus, the committee annually reviews its relationship with its consultant – including services provided, quality of services and associated fees – to ensure executive compensation consulting independence.

 

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Elements of our executive compensation program

TimkenSteel’s executive compensation program is designed to align the interests of our executives with those of our shareholders and to encourage the personal and collective growth of our executives to foster improved company performance. The company uses a balance of short- and long-term incentives as well as cash and non-cash compensation to meet its executive compensation program objectives. The company’s incentive compensation programs for executives are designed to link compensation with the full spectrum of the company’s short- and long-term business goals. Our executive compensation program for 2019 consisted of the following elements:

 

    Compensation element   Link to program objectives
         

LOGO

  Base salary  

 

Provides a stable source of income and is a standard element in executive compensation packages.

 

  Annual incentive  

 

Encourages executives to focus on specific corporate performance goals. Target incentive opportunity is set as a percentage of base salary and awards are earned after threshold performance levels are met. Metrics for 2019 include:

 

•   EBIT/BIC

 

•   Cash flow

 

•   Key process path sales of our most profitable products

 

   
   

LOGO

  Nonqualified stock options  

 

Helps ensure executive pay is directly linked to value created for shareholders. Four-year vesting promotes retention, and NEOs holding nonqualified stock options will receive greater value if the stock price rises.

 

  Performance shares  

 

Links executive compensation to building long-term shareholder value, balances short-term operating focus, and aligns executive management’s long-term financial interests with those of our shareholders, as value is linked to the stock price. For shares awarded in 2019, performance is scored and the number of shares earned is determined at the end of a two-year performance period based on attainment of specific goals:

 

•   Base sales

 

•   Return on invested capital

 

Shares vest following an additional one-year holding period; the final value of the award is determined by the share price on the last day of the holding period.

 

 

Restricted stock units

 

 

Rewards long-term shareholder value creation. Three-year cliff vesting promotes retention and enhances executive stock ownership.

 

   
   

LOGO

  Retirement and savings  

 

Helps attract and retain executive talent. NEOs receive retirement benefits through several plans:

 

•   Qualified and nonqualified defined contribution plans;

 

•   Qualified and nonqualified defined benefit plans; and

 

•   Deferred compensation plan.

 

  Other benefits  

 

Helps attract and retain executive talent. NEOs are eligible to participate in the benefit plans available to salaried employees including medical and dental benefits and life, accidental death and disability insurance. Perquisites are limited in amount and are not grossed up for taxes, and the Compensation Committee limits eligibility and use.

 

  Severance and change in control agreements  

Helps ensure NEOs remain focused on creating sustainable performance. Agreements protect the company and the NEOs from risks by providing:

 

•   Economic stability;

 

•   Death or disability payments; and

 

•   Payments and benefits in the event of a change in control.

 

 

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Analysis of 2019 compensation

The following factors guided compensation decisions for 2019:

 

   

Executive compensation program objectives and philosophy;

 

   

Expected and actual financial performance;

 

   

Recommendations of the former Chairman, CEO and President for the other NEOs;

 

   

Assessment of risk associated with our compensation plans, including avoiding unnecessary or excessive risk-taking;

 

   

Advice of an independent compensation consultant; and

 

   

Market pay practices as reflected by a newly adopted compensation peer group as well as external executive compensation data, studies and trends.

Introduction of a compensation peer group

In 2018, the Compensation Committee approved the adoption of a compensation peer group to serve as the primary benchmark in setting target compensation for the CEO and CFO beginning in 2019. The peer group consists of 18 steel and related-industry companies that are generally within an appropriate revenue and market capitalization range.

 

2019 Peer group companies

    

Allegheny Technologies Incorporated

  

L.B. Foster Corporation

Actuant Corporation

  

Materion Corporation

Barnes Group

  

NN, Incorporated

Carpenter Technology Corporation

  

Olympic Steel, Incorporated

Century Aluminum Corporation

  

Ryerson Holding Corporation

Columbus McKinnon Corporation

  

Schnitzer Steel Industries, Incorporated

Harsco Corporation

  

SunCoke Energy, Incorporated

Haynes International Inc.

  

TriMas Corporation

Kaiser Aluminum Corporation

  

Worthington Industries, Incorporated

Guidelines for CEO and CFO base salaries, annual incentives and long-term incentive grants are initially based on the 50th percentile of peer group data for those roles.

With respect to the other NEOs, external general industry surveys of compensation practices for positions with similar levels of responsibilities remains the primary benchmark for setting target compensation, with guidelines for salaries, annual incentives, long-term incentives and target total direct compensation for these NEOs initially based on the 50th percentile of general industry data.

The company may provide target compensation above or below the 50th percentile for a particular position, based on factors such as the executive’s operating responsibilities, experience level, retention risk, tenure and performance in the position.

The company establishes compensation levels in this way for two reasons:

 

   

First, this approach sets fair and reasonable pay levels needed to attract and retain qualified executives; and

   

Second, it requires excellent individual performance and company performance for pay that is higher than that indicated in the peer group or general industry data, as applicable, for comparable roles.

 

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Compensation for former CEO

In setting Mr. Timken’s target pay for 2019, the Compensation Committee reviewed compensation information for the CEO positions within our peer group. As a result of this review, the committee concluded that target pay for Mr. Timken should be reduced to better align with the market data. As such, the committee reduced Mr. Timken’s long-term incentive opportunity, resulting in a 10% decrease in total target direct compensation. The Compensation Committee believed the reduced target compensation was better aligned with market practices while still acknowledging Mr. Timken’s unique experience and qualifications.

 

 

LOGO

In support of our pay-for-performance philosophy, a substantial majority of the target total direct compensation for Mr. Timken was performance-based in 2019.

2019 CEO target pay mix

 

 

LOGO

 

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Compensation for Interim CEO

Upon the appointment of Mr. Dunlap as Interim CEO and President in October 2019, the Compensation Committee approved a new compensation package for Mr. Dunlap for his service in this temporary position. In determining the appropriate compensation package for Mr. Dunlap, the Compensation Committee considered peer group data, the former CEO’s compensation package, and information provided by Meridian regarding interim CEO compensation practices, including form and amount of compensation relative to both market and outgoing CEO compensation levels. Under this compensation package (which we expect to remain materially unchanged for the duration of Mr. Dunlap’s service in the temporary position as our Interim CEO and President), Mr. Dunlap receives a cash payment of $115,000 per month, guaranteed for a minimum period of one year from the date of his appointment unless Mr. Dunlap is terminated for cause. At the time of his appointment, Mr. Dunlap also received a special award of restricted stock units, which will generally vest on the first anniversary of the grant date. Mr. Dunlap is not eligible for annual incentive payments. While Mr. Dunlap’s pay mix is less performance-based than that of the former (or any permanent) CEO, the committee believes that this compensation structure is appropriate for Mr. Dunlap’s service in the temporary position as Interim CEO and President. Further, the award of RSUs as part of Mr. Dunlap’s compensation structure closely aligns his interests with those of our shareholders and incentivizes shareholder value creation.

Mr. Dunlap’s service as Interim CEO and President is currently expected to be temporary in nature, and the compensation package provided to Mr. Dunlap, including the amount of base salary, the form of long-term incentives, and the performance-based mix, was not intended to be and is not indicative of the ongoing compensation structure that the committee would expect to provide to a permanent CEO in the future. For a permanent CEO, the committee currently expects to revert to a compensation structure that is competitive with the market and best practices and, like the compensation program for our previous CEO, weighted significantly toward performance-based compensation.

Please see “Analysis of 2019 compensation – Long-term incentives awarded to Interim CEO” in this CD&A for additional information.

Base salary

Base salaries for the remaining NEOs are intended to be competitive and reflect the scope of their responsibilities, the length of their experience performing those responsibilities and their performance. The Compensation Committee initially determines base salary ranges for the CEO and CFO using the compensation peer group, and external surveys of salary practices for positions with similar levels of responsibility for the remaining NEOs. The committee also reviews the NEOs’ base salaries annually in light of each officer’s performance, experience, leadership, current salary and position in the salary range.

Base salaries for all NEOs (with the exception of Mr. Dunlap who joined the company in October 2019) were increased at the market rate for executives in 2019.

2019 Base salary decisions

 

 

 

  Base salary (annualized)  

 

 

 

      2018 Salary      

 

 

 

      2019 Salary      

 

 

 

    Percent change    

 

 Ward J. “Tim” Timken, Jr.*

 

 

$891,156

 

 

 

$917,891

 

 

 

3%

 

 Terry L. Dunlap

 

 

-

 

 

 

$1,380,000

 

 

 

-

 

 Kristopher R. Westbrooks

 

 

$391,850

 

 

 

$403,798

 

 

 

3%

 

 Frank A. DiPiero

 

 

$382,459

 

 

 

$393,933

 

 

 

3%

 

 William P. Bryan

 

 

$290,151

 

 

 

$298,856

 

 

 

3%

 

 Thomas D. Moline

 

 

$290,151

 

 

 

$298,856

 

 

 

3%

 

*Mr. Timken’s employment with the company ended on October 8, 2019. For actual salary paid to Mr. Timken during 2019, please see “Compensation of executive officers – 2019 Summary compensation table.”

 

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Annual incentive

The company’s annual incentive provides the NEOs (other than Mr. Dunlap, who does not participate in the annual incentive plan) the opportunity to earn rewards based on achieving corporate performance goals established in advance by the Compensation Committee. It is intended to focus the NEOs on specific performance goals in the current year. For the NEOs, the annual incentive is delivered through the APA plan.

 

The Compensation Committee determined target award opportunity levels for the NEOs based on our compensation peer group for the CEO and CFO and external surveys for positions with similar levels of responsibility for the remaining NEOs. The actual awards could be higher or lower than the target opportunity based on the results for each performance measure, consideration of individual performance and the extent to which the committee uses discretion to adjust the awards. Performance measures factor the award between zero and 200% and individual performance further indexes the award by a factor ranging from 70% to 130%, providing an absolute range from zero to 260% of the target award.

  

 

Linking pay to performance

The Compensation Committee established corporate EBIT/BIC as the primary performance measure under the annual incentive plan because it believes this measure is closely correlated with the creation of shareholder value.

 

 

 

   

Annual incentive

 

       Target opportunity as a     

     percent of base salary     

 

  Ward J. “Tim” Timken, Jr.*

 

120%

  Terry L. Dunlap ^

 

-

  Kristopher R. Westbrooks

 

70%

  Frank A. DiPiero

 

60%

  William P. Bryan

 

50%

  Thomas D. Moline

 

50%

*Mr. Timken’s employment with the company ended on October 8, 2019. For actual annual incentives paid to Mr. Timken during 2019, please see “Compensation of executive officers – 2019 Summary compensation table.”

^Mr. Dunlap is not a participant in the annual incentive plan.

2019 Annual performance award decisions

Payouts under the APA plan are determined by the following factors:

 

   

Earnings measured by EBIT/BIC;

 

   

Cash flow;

 

   

Key process path sales; and

 

   

Individual performance.

 

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The following charts show performance targets and actual performance levels for each metric in the 2019 APA plan.

 

 

LOGO

Dollars in millions. Payout percentage is expressed as the percent of target opportunity.

Actual performance on the EBIT/BIC measure of -4.0%, cash flow of $35 million and key process path sales of $567 million each were below the threshold performance requirement. Therefore, there was no payout under the 2019 APA plan.

For the 2019 APA plan, the EBIT/BIC metric was defined as EBIT/BIC excluding mark-to-market remeasurement gains or losses; the effect of changes in tax law, accounting principles or other laws or provisions affecting reported results; LIFO charges or credits incremental to the approved business plan; and the effects of any recapitalization, restructuring, reorganization, merger, acquisition, divestiture, consolidation, spinoff, split-up, combination, liquidation, facility shutdown, dissolution, sale of assets, stock or debt refinancing, impairment, goodwill or other similar transaction. The operating cash flow metric was defined as net cash flow for the year ended December 31, 2019, excluding cash provided or used by financing activity; changes in applicable accounting principles, tax laws or regulations; Board-approved capital investments incremental to the annual plan; and the effects of any recapitalization, restructuring, reorganization, merger, acquisition, divestiture, consolidation, spinoff, split-up, combination, liquidation, facility shutdown, dissolution, sale of assets, stock or debt refinancing, impairment, goodwill or other similar transaction. The key process path sales metric was defined as base sales of the company’s most profitable products. Base sales is net sales excluding raw material surcharges and excluding the effects of acquisition and/or divestiture efforts.

 

   

2019 Annual incentive payouts

   

 

    Target opportunity    

as a percent of
base salary

 

 

     2019 Award     

 

Ward “Tim” J. Timken, Jr.

 

120%

 

$0

Terry L. Dunlap

 

-

 

-

Kristopher R. Westbrooks

 

70%

 

$0

Frank A. DiPiero

 

60%

 

$0

William P. Bryan

 

50%

 

$0

Thomas D. Moline

 

50%

 

$0

 

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For information about annual incentive opportunities awarded to each of the NEOs in 2019, see the “2019 Grants of plan-based awards table.”

Long-term incentives

In 2019, consistent with prior years, three different types of long-term incentive grants were used for the NEOs (other than Mr. Dunlap):

 

   

Nonqualified stock options, which vest 25% per year over four years and are intended to provide value to the holder only if shareholders receive additional value (in the form of share price appreciation) after the date of grant;

 

   

Restricted stock units, which cliff-vest at the end of a three-year period and have a value that changes based on changes in the company’s stock price; and

 

   

Performance shares, which are performance-based restricted stock units designed to reward executives for attainment of specified two-year corporate performance goals and which vest following an additional one-year holding period, with the final value of the award determined by the share price on the last day of the holding period.

For the participating NEOs, the Compensation Committee approved a mix of performance shares, stock options and restricted stock units to address retention while keeping the majority of the NEOs’ long-term incentives performance-based. With respect to Mr. Timken, to better align his long-term incentive opportunity with market practice, the Compensation Committee reduced his long-term incentive opportunity in 2019 and, at the same time, adjusted the mix to include restricted stock units. Previously, Mr. Timken’s long-term incentive opportunity included only stock options and performance shares.

 

   

Long-term incentive mix

   

 

Performance-based

 

 

Time-based

    

Performance

shares

 

 

Stock

options

 

 

Restricted stock 

units

 

 

Former chief executive officer

   

 

55

%

   

 

20

%

   

 

25

%

 

Other NEOs

   

 

25

%

   

 

30

%

   

 

45

%

The Compensation Committee believes these grants, in total, provide a balanced emphasis on shareholder value creation and retention of executive management over the course of a full business cycle. These grants also serve to balance the short-term operating focus of the company and align executive management’s long-term financial interests with those of the company’s shareholders.

The value of the entire long-term incentive grant is linked directly to the price of the company’s common stock. For nonqualified stock options, the recipient recognizes value only to the extent the stock price rises above the market price of the stock at the time the option is granted. For restricted stock units, value rises or falls depending on stock price performance. For performance shares, the value is tied to both the company’s stock price and the achievement of financial objectives.

The size of the long-term incentive grants and the allocation of grant value among the long-term incentive grant types are based on a combination of market practice, internal equity considerations and the relative importance of the objectives underlying each of the grant types.

 

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2019 Long-term incentive decisions

 

   

Long-term incentives**

   

Target grant

opportunity*

 

 

Number of

stock options

 

 

Value of stock

options

 

 

Number of

restricted
stock units

 

 

Value of

restricted stock
units

 

 

Number of

performance
shares

 

 

 

Value of

performance shares

(at target)

 

 

Total value 

of award

 

 

Ward J. “Tim”
Timken, Jr. ^

  325%   92,200   $510,788   51,100   $636,195   112,300   $1,398,135   $2,545,118

 

Kristopher R.
Westbrooks

  135%   33,100   $183,374   22,000   $273,900   12,200   $151,890   $609,164

 

Frank A.
DiPiero

  120%   24,600   $136,284   16,400   $204,180   9,100   $113,295   $453,759

 

William P.
Bryan

  85%   14,000   $77,560   9,300   $115,785   5,200   $64,740   $258,085

 

Thomas D.
Moline

  85%   14,000   $77,560   9,300   $115,785   5,200   $64,740   $258,085
*

As a percentage of base salary midpoint.

^

Mr. Timken’s employment ended on October 8, 2019. Please see “2019 Grants of plan-based awards table” for additional information about the long-term incentives awarded to Mr. Timken in 2019 and the impact of the termination of his employment on these awards.

**

Mr. Dunlap is not included in this table as the long-term incentives awarded to him are discussed below.

The target value for each grant is converted to a number of options or shares based on a calculated average stock price over a defined period prior to the grant. The Compensation Committee used the average closing price over the five trading days immediately preceding the grant date in determining the number of shares granted in 2019.

The Compensation Committee typically makes long-term incentive grants at its first regularly scheduled meeting of each year, when the committee determines all elements of the NEOs’ compensation for the year. Board and committee meetings are generally scheduled at least a year in advance.

Long-term incentive award to Interim CEO

As part of the compensation package awarded to Mr. Dunlap in connection with his appointment as Interim CEO and President on October 8, 2019, the committee determined to award Mr. Dunlap $1 million in value of restricted stock units in order to closely align his interests with those of our shareholders and to incentivize long-term shareholder value creation. The committee intended that the number of restricted stock units to be awarded would be based on the closing market price on October 9, 2019 ($5.37 per share), after news of the change in leadership had been absorbed by the markets and reflected in the company’s stock price. This would have resulted in a grant of 186,219 restricted stock units. On October 8, 2019, the date of Mr. Dunlap’s appointment as Interim CEO and President, an initial grant of 165,600 restricted stock units was made. In the compensation tables below, this grant has a grant date fair value of $970,416. To fulfill the committee’s original intention, on March 2, 2020, the committee awarded Mr. Dunlap an additional 20,619 restricted stock units. This grant had a grant date fair value of $108,456. These restricted stock units will generally vest on the first anniversary of their respective grant dates.

Stock options

In 2019, our key employees (including all NEOs other than Mr. Dunlap) received nonqualified stock options that:

 

   

have an exercise price equal to the closing price of the stock on the date of grant;

 

   

generally will vest over a four-year period in equal amounts each year; and

 

   

generally will expire ten years after the date of grant.

The Compensation Committee believes these awards help the company retain executives and focus their attention on the company’s longer-term performance. Stock options are an effective motivational tool because they have value only to the extent the stock price on the date of exercise exceeds the exercise price set on the grant date. For information about stock options awarded to the NEOs in 2019, see the “2019 Grants of plan-based awards table.”

Restricted stock units

Restricted stock units represent an interest in TimkenSteel stock and are issued as shares pursuant to a three-year vesting schedule. Restricted stock units serve to both reward and retain executives, as the value of the shares is linked to the stock price when the shares vest, generally on the third anniversary of the grant. For information about service-based restricted stock units awarded to the NEOs in 2019, see the “2019 Grants of plan-based awards table.”

 

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Performance shares

Performance shares are performance-based restricted stock units, with vesting and the number of shares received contingent upon the achievement of specified performance objectives. The performance objectives are closely tied to the company’s long-range plan. Performance is scored and the number of shares earned is determined at the end of a two-year performance period. Shares vest following an additional one-year holding period; the final value of the award is determined by the company’s share price on the last day of the holding period. Performance shares serve to both reward and retain executives, as the receipt of a payout is linked to performance, and the value of the payout is linked to the share price when the shares vest.

The performance objectives for performance shares granted in 2019 are average return on invested capital and cumulative base sales for the 2019-2020 performance period. The Compensation Committee selected these metrics because it believes both metrics align to growth tactics. Base sales growth aligns with commercial execution of the strategy to grow the company, while return on invested capital is an indicator of the profitability of that growth as it relates to productivity and throughput. Actual performance for the ROIC metric is calculated excluding mark-to-market remeasurement gains or losses; calculated assuming a planning income tax rate of 1.3%, excluding cash and cash equivalents, long-term debt, non-current pension liability, non-current deferred tax liability and accrued interest; and the effects of any recapitalization, restructuring, reorganization, merger, acquisition, divestiture, consolidation, spinoff, split-up, combination, liquidation, facility shutdown, dissolution, sale of assets, stock or debt refinancing, impairment, goodwill or other similar corporate transaction. Actual performance for the base sales metric is calculated excluding the impact of any actions related to the company’s restructuring efforts and/or acquisition, divestiture or asset impairment. At the time the specific performance targets for the metrics were established, the Compensation Committee believed the target for the performance shares granted in 2019 was very challenging, but achievable.

In order for any performance shares awarded for the 2019-2021 performance share cycle to be earned, actual performance must achieve at least the threshold performance level for average return on invested capital. If the threshold performance level for that measure is not attained, then no award will be earned, even if base sales exceeds threshold. Average return on invested capital and base sales metrics are weighted equally at 50%. If an award is payable, the number of shares earned could range from 50% to 150% of target based upon actual performance over the two-year performance period. Shares vest following an additional one-year holding period. The value of a share is equal to the share price when the shares vest. Final awards are settled in cash or in company shares, as follows:

 

   

NEOs who have met their share ownership requirement at the time of grant receive the value of any final award in cash; and

 

   

NEOs who have not met their share ownership requirement at the time of grant receive the value of any final award in shares.

For information about performance shares awarded to the NEOs in 2019, see the “2019 Grants of plan-based awards table.”

 

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2018-2019 Performance shares canceled

In 2018, the NEOs (other than Messrs. Dunlap and Westbrooks) received awards of performance shares for the 2018-2019 performance period. The performance objective for shares granted in 2018 was average ROIC and base sales for the two-year period. The Compensation Committee selected these metrics because it believed both aligned to growth tactics. Actual performance for the ROIC metric was calculated excluding mark-to-market remeasurement gains or losses; effects of changes in tax laws or accounting principles; and the effects of any recapitalization, restructuring, reorganization, merger, acquisition, divestiture, consolidation, spinoff, split-up, combination, liquidation, facility shutdown, dissolution, sale of assets, stock or debt refinancing, impairment, goodwill or other similar corporate transaction. Actual performance for the base sales metric was calculated excluding the impact of any actions related to the company’s restructuring efforts and/or acquisition, divestiture or asset impairment. Because actual performance fell below both threshold requirements of -1.1% for average ROIC and $2.070 billion for base sales, the 2018-2019 performance share awards were canceled.

 

 

LOGO

 

   

 

  Number of canceled performance  

shares*

 

 

 

2018-2019

 

Ward J. “Tim” Timken Jr.

 

115,000

Frank A. DiPiero

 

7,600

Thomas D. Moline

 

4,300

William P. Bryan

 

4,300

*Mr. Westbrooks is not included in this table as he was not awarded performance shares for the 2018-2019 performance share cycle when he was appointed Executive Vice President and Chief Financial Officer of the company effective September 24, 2018. Mr. Dunlap is not included in this table as he was not awarded performance shares in connection with his appointment as Interim CEO and President on October 8, 2019.

 

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Retirement and other benefits

 

Retirement income programs

 

The company’s retirement income programs are an important retention tool. The company maintains both qualified and nonqualified retirement income programs. The NEOs participate in qualified plans on the same terms and conditions as all other salaried employees, and they also participate in the company’s nonqualified retirement income programs. The company currently provides retirement income through several types of plans:

     The company’s retirement income programs support an additional component of the retention strategy of our executive compensation program objectives.

 

   

Qualified and nonqualified defined contribution plans provide for savings based on each executive’s contributions, company matching contributions and core defined contributions. The nonqualified defined contribution arrangement in which the NEOs participate is the post-tax savings benefit. This benefit is primarily intended to restore benefits that would be provided under the qualified retirement plans were it not for limits on benefits and compensation imposed by the Internal Revenue Code.

 

   

Qualified and nonqualified defined benefit plans provide for a targeted percentage of salary and annual incentive income that will continue through retirement. The nonqualified defined benefit plan in which Messrs. Bryan, Moline and Timken participate is the supplemental executive retirement program for executive officers (“SERP”). The SERP provides for a benefit based on final average earnings with offsets for benefits provided under the company’s other retirement programs. Messrs. DiPiero, Dunlap and Westbrooks are not eligible to participate in the defined benefit plans. Their retirement savings are provided solely through the defined contribution plans.

Although the policies and procedures underlying the company’s retirement income programs are the same for all participants, the age and length of service (including service as an officer of the company) of each participant can have a significant effect on an individual’s benefit calculation because the programs have changed over time. In addition, because benefits under the company’s defined benefit plans are based on final average earnings (base salary and cash annual incentive compensation for the five highest non-consecutive years out of the final ten years), pension values can increase significantly as salary and cash annual incentive compensation increase. Pension values also are influenced by external factors and actuarial assumptions. See “Compensation of executive officers -- Pension benefits” for additional information.

The value of the nonqualified retirement income programs is quantified each year and these programs are periodically reviewed for their competitiveness. The value of these programs has not had a significant impact on decisions regarding salary, annual incentive awards or long-term incentive grants.

In November 2019, the qualified and nonqualified defined benefit plans in which certain of the NEOs participate, as described above, were amended to provide that additional benefit accruals for any remaining active participants will cease effective December 31, 2020.

Deferred compensation

The company maintains a deferred compensation plan that allows certain employees, including the NEOs, to defer receipt of all or a portion of their salary, employee contributions and company matching contributions that would otherwise be paid out post-tax, and incentive compensation payable in cash, until a specified point in the future. Cash deferrals earn interest quarterly at a rate based on the prime rate plus one percent. In 2019, none of the NEOs earned “above-market” interest as defined by the Securities and Exchange Commission.

The deferred compensation plan is not funded by the company, and participants have an unsecured contractual commitment by the company to pay the amounts due under the plan. When such payments are due, they will be distributed from the company’s general assets. In the event of a change in control of the company, as defined in the plan, participants are entitled to receive deferred amounts immediately. The Compensation Committee believes that providing employees with tax deferral opportunities aids in the attraction and retention of such employees. The value of the deferred compensation program is quantified each year and the program is reviewed periodically for its competitiveness. The value of deferred compensation has not had a significant impact on decisions regarding salary, annual incentive awards or long-term incentive grants for our NEOs.

 

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Other benefits

The company’s executive officers, including the NEOs, are eligible to participate in a number of broad-based benefit programs including health, disability and life insurance programs.

The NEOs also may receive certain perquisites including term life insurance coverage (although this program is closed to new entrants), financial counseling and tax preparation assistance, executive physicals, access to corporate country club memberships (although personal expenses are not reimbursed), spousal travel benefits and home security systems (although this program is closed to new entrants). The value of these benefits is reflected in the “All other compensation” column in the “2019 Summary compensation table.”

The company does not provide tax gross-ups for these benefits to executives. These benefits are intended to provide executives with a competitive perquisite program that is reasonable and consistent with the company’s overall approach to executive compensation. The total cost of these benefits is a small percentage of each NEO’s total compensation.

The financial counseling and tax preparation assistance, country club memberships, home security system and spousal travel benefits are being discontinued at various dates on or before March 31, 2020.

Severance agreements

In addition to retirement payments, the company provides termination-related payments to individual executives through severance agreements, in the event of involuntary termination without cause and involuntary termination without cause following a change in control. Severance agreements are provided based on competitive market practice and the company’s desire to ensure some level of income continuity should an executive’s employment be terminated without cause. The company believes providing for such income continuity results in greater management stability and less unwanted and disruptive management turnover.

The level of severance benefits reflects the company’s perception of competitive market practice for the NEOs’ positions, based on assessments conducted by the Compensation Committee’s consultant. Severance pay was established as a multiple of base salary and actual annual incentive compensation. The committee did not target specific dollar values. The amounts of potential payouts are outlined in the “Termination scenarios table” below.

Other compensation program features

 

Stock ownership guidelines

 

Stock ownership guidelines have been established for all senior executives and are intended to align the interests of executive management with those of our shareholders. The Compensation Committee has established guidelines of six-times base salary for the company’s CEO, three-times base salary for the CFO and two-times base salary for the other NEOs.

    

 

Linking compensation to stock performance

 

Stock ownership guidelines align the interests of the NEOs with those of our shareholders, given that the increase or decrease in our stock price impacts the value of the NEOs’ personal holdings.

In determining whether the executive has met the applicable ownership targets, the company considers all shares owned by the executive plus deferred shares and restricted stock units still subject to forfeiture, but not shares that are subject to unexercised options or performance shares still subject to forfeiture. As of March 2, 2020, none of the NEOs met the established guidelines. Each NEO is required to retain shares (net of tax withholding) earned under the company’s long-term incentive plan until the ownership target is achieved.

Anti-pledging and anti-hedging policy

The company prohibits pledging company stock or hedging the economic risk related to such stock ownership. Please see “Corporate governance – Anti-hedging policy” for additional information.

Clawback provisions

The company maintains specific policies regarding the recovery (“clawback”) of awards to deter certain types of conduct, including conduct that could affect the accuracy of the company’s financial statements. These provisions apply to both short- and long-term incentive programs whereby, if personal misconduct or any fraudulent activity on the part of the executive leads to the restatement of company financial results, the company can clawback all or part

 

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of an award. In such cases, the Compensation Committee has discretion, based on applicable facts and circumstances, to cause the company to recover all or any portion of the incentive paid or payable to the executive for some or all of the years covered by the restatement.

Tax accounting rules and regulations

Section 162(m) of the Internal Revenue Code generally disallows a federal income tax deduction to publicly traded companies for compensation paid to certain executives (and, beginning in 2018, certain former executive officers) to the extent such compensation exceeds $1 million per executive in any fiscal year. Effective for tax years beginning after December 31, 2017, the exemption for performance-based compensation from the deduction limitation of Section 162(m) was repealed, unless certain transition relief for certain compensation arrangements in place as of November 2, 2017 is available. As such, certain compensation paid to covered individuals in excess of $1 million may not be deductible.

The Compensation Committee retains the flexibility to award compensation that is consistent with the company’s objectives and philosophy even if it does not qualify for a tax deduction. The Compensation Committee believes the tax deduction limitation should not be permitted to compromise the company’s ability to design and maintain executive compensation arrangements that will attract and retain the executive talent we need to compete successfully. Accordingly, achieving the desired flexibility in the design and delivery of compensation may result in compensation that in certain cases is not deductible for federal income tax purposes.

 

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Compensation of executive officers

2019 Summary compensation table

The following table sets forth information concerning compensation for our NEOs for the fiscal years ending December 31, 2019, 2018 and 2017:

 

  Name and principal

  position

  Year     Salary    

Stock

awards(3)

   

Option

awards(4)

   

Non-equity

incentive plan

compensation(5)

   

Change in

pension value

and

nonqualified

deferred

compensation

earnings(6)

   

All other

compensation(7)

    Total  

 

Ward J. “Tim” Timken, Jr.

Former Chairman, CEO and

President (1)

 

 

 

 

 

 

2019

2018

2017

 

 

 

 

 

 

 

 

$

$

$

 

 

703,917

886,830

    865,200

 

 

 

 

 

 

 

 

$

$

$

 

 

    2,034,330

1,905,550

1,882,824

 

 

 

 

 

 

 

 

$

$

$

 

 

510,788

1,508,412

    1,455,360

 

 

 

 

 

 

 

 

$

$

$

 

 

0

309,870

    358,395

 

 

 

 

 

 

 

 

$

$

$

 

 

    4,521,000

0

1,441,000

 

 

 

 

 

 

 

 

$

$

$

 

 

    4,145,813

125,358

105,126

 

 

 

 

 

 

 

 

$

$

$

 

 

    11,915,848

4,736,020

6,107,905

 

 

 

 

 

 

 

Terry L. Dunlap

Interim CEO and

President (2)

 

 

 

 

2019

 

 

 

 

$

 

376,739

 

 

 

 

$

 

1,085,536

 

 

 

 

$

 

0

 

 

 

 

$

 

0

 

 

 

 

$

 

0

 

 

 

 

$

 

15,519

 

 

 

 

$

 

1,477,794

 

 

 

Kristopher R. Westbrooks

Executive Vice

President and Chief

Financial Officer

 

 

 

 

 

2019

2018

 

 

 

 

 

$

$

 

401,807

106,126

 

 

 

 

 

$

$

 

425,790

106,116

 

 

 

 

 

$

$

 

183,374

45,619

 

 

 

 

 

$

$

 

0

44,992

 

 

 

 

 

$

$

 

0

0

 

 

 

 

 

$

$

 

24,130

3,076

 

 

 

 

 

$

$

 

1,035,101

305,929

 

 

 

 

Frank A. DiPiero

Executive Vice

President, General

Counsel and Secretary

 

 

 

 

 

2019

2018

2017

 

 

 

 

 

 

$

$

$

 

392,021

380,602

369,517

 

 

 

 

 

 

$

$

$

 

317,475

351,284

286,344

 

 

 

 

 

 

$

$

$

 

136,284

145,470

119,808

 

 

 

 

 

 

$

$

$

 

0

138,307

76,533

 

 

 

 

 

 

$

$

$

 

0

0

0

 

 

 

 

 

 

$

$

$

 

30,470

47,234

39,134

 

 

 

 

 

 

$

$

$

 

876,250

1,062,897

891,336

 

 

 

 

 

William P. Bryan

Executive Vice President,

Manufacturing and Supply

Chain

 

 

 

 

 

 

2019

2018

2017

 

 

 

 

 

 

 

 

$

$

$

 

 

297,405

288,743

263,970

 

 

 

 

 

 

 

 

$

$

$

 

 

180,525

198,840

143,172

 

 

 

 

 

 

 

 

$

$

$

 

 

77,560

82,806

59,904

 

 

 

 

 

 

 

 

$

$

$

 

 

0

92,483

43,031

 

 

 

 

 

 

 

 

$

$

$

 

 

275,000

0

154,000

 

 

 

 

 

 

 

 

$

$

$

 

 

22,644

26,090

20,604

 

 

 

 

 

 

 

 

$

$

$

 

 

853,134

688,962

684,681

 

 

 

 

 

 

 

Thomas D. Moline

Executive Vice President,

Commercial Operations

 

 

 

 

 

 

2019

2018

2017

 

 

 

 

 

 

 

 

$

$

$

 

 

297,405

288,743

271,758

 

 

 

 

 

 

 

 

$

$

$

 

 

180,525

198,840

190,314

 

 

 

 

 

 

 

 

$

$

$

 

 

77,560

82,806

79,872

 

 

 

 

 

 

 

 

$

$

$

 

 

0

87,438

46,905

 

 

 

 

 

 

 

 

$

$

$

 

 

270,000

0

157,000

 

 

 

 

 

 

 

 

$

$

$

 

 

15,699

20,759

20,760

 

 

 

 

 

 

 

 

$

$

$

 

 

841,189

678,586

766,609

 

 

 

 

 

 

 

(1)

Mr. Timken’s employment with the company ended on October 8, 2019. The amount reported as 2019 salary for Mr. Timken includes all salary compensation paid to him in 2019.

 

(2)

The amount reported as salary for Mr. Dunlap reflects the sum of (a) amounts received as a non-employee director for his service as a member of the Board of Directors prior to his appointment as Interim CEO and President on October 8, 2019 and (b) amounts earned as Interim CEO and President from October 9, 2019  through December 31, 2019. Of the total salary amount, $61,739 is attributable to non-employee director fees and $315,000 is attributable to monthly salary earned as Interim CEO and President. Of the total stock awards, $115,120 is attributable to the award of 11,735 deferred shares to Mr. Dunlap in May 2019 for his service as a non-employee director, and $970,416 is attributable to the grant of 165,600 restricted stock units in connection with his appointment as Interim CEO and President.

 

(3) 

The amounts shown in this column represent, for 2019, the grant date fair value (calculated in accordance with FASB ASC Topic 718) of (a)(i) restricted stock units granted to Messrs. Timken, Westbrooks, DiPiero, Bryan and Moline on March 1, 2019 and to Mr. Dunlap on October 8, 2019 and (ii) deferred shares granted to Mr. Dunlap on May 7, 2019 for his service as a non-employee director, disregarding in each case estimates for forfeitures; and (b) performance shares (subject to being earned based upon achievement of the established performance objectives) granted to Messrs. Timken, Westbrooks, DiPiero, Bryan and Moline on March 1, 2019, assuming target achievement of the established performance objectives, which was the probable outcome on the grant date. Should performance equal or exceed the maximum goals for these 2019 performance shares, the grant date fair value for such awards would be as follows: Mr. Timken — $2,097,203; Mr. Westbrooks – $227,835; Mr. DiPiero — $169,943; Mr. Bryan — $97,110 and Mr. Moline — $97,110.

 

  

The restricted stock units granted to Messrs. Westbrooks, DiPiero, Bryan and Moline will vest in full on March 1, 2022, provided the named executive officer remains continuously employed by the company through that date. For Mr. Dunlap, the grant of deferred shares will vest in full on May 7, 2020 and the grant of restricted stock units will vest in full on October 8, 2020, provided he remains continuously in the service of the company through those respective dates. As a result of Mr. Timken’s employment with the company ending on October 8, 2019, 7,097 of the 51,100 restricted stock units awarded to him in 2019 were canceled. The remaining 41,313 restricted stock units will vest on March 1, 2022.

 

  

The performance shares granted in 2019 to Messrs. Timken, Westbrooks, DiPiero, Bryan and Moline were awarded to track performance for the 2019-2021 cycle with a one-year holding period applied to allow for share price to impact the final award. On December 31, 2020, achievement of the established performance objectives for the 2019-2020 performance period will be scored and the portion of the performance shares which have been earned by each NEO, if any, will be determined, with any earned shares vesting on December 31, 2021. As a result of Mr. Timken’s employment with the company ending on October 8, 2019, 9,358 of the 112,300 performance shares awarded to Mr. Timken were canceled. Any portion of the remaining 102,942 performance shares which are earned by Mr. Timken (based on achievement of the established performance objectives for the 2019-2020 performance period) will vest on December 31, 2021. Based

 

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  on assessment of ownership levels at the time of grant, the settlement for any 2019 performance shares earned will be in cash for Mr. Timken and in shares for Messrs. Westbrooks, DiPiero, Bryan and Moline.

 

(4) 

The amounts shown in this column represent, for each year, the grant date fair value of nonqualified stock options (calculated in accordance with FASB ASC Topic 718) using the Black-Scholes model. All stock options vest at a rate of 25% per year. Assumptions used to determine the value of these nonqualified stock options are described in Note 16 of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2019. As a result of Mr. Timken’s employment with the company ending on October 8, 2019, 46,100 options granted to Mr. Timken on March 1, 2019 and 50,550 options granted to Mr. Timken on February 14, 2018 were canceled and all remaining unvested options granted in 2017, 2018 and 2019 were vested.

 

(5) 

The amounts shown in this column for 2019 represent cash payouts earned under the TimkenSteel Corporation Annual Performance Award plan for Messrs. Timken, Westbrooks, DiPiero, Bryan and Moline. Because the company’s performance failed to meet threshold performance requirements in 2019, no APA payouts were earned for 2019. Mr. Dunlap does not participate in the Annual Performance Award plan. For additional information, see “Analysis of 2019 compensation — Annual incentive — 2019 Annual performance award decisions” in the Compensation Discussion and Analysis section of this proxy statement.

 

(6) 

The amounts shown in this column for 2019 represent the difference between the amounts shown in the “2019 Pension benefits table” as of December 31, 2019, and those amounts calculated as of December 31, 2018. The amounts were calculated using the same assumptions used in 2018 and included in the footnotes of the “2019 Pension benefits table,” except that the calculations as of December 31, 2019 utilized (a) a discount rate of 3.51% (while a discount rate of 4.40% was used for the calculation as of December 31, 2018) and (b) updated mortality statistics consistent with the 2019 mortality projection scale of the Society of Actuaries. The increase in value of $4.521 million for Mr. Timken is comprised of an increase of $1.692 million from the use of the lower discount rate and an increase of $2.905 million from other assumption changes due to Mr. Timken’s employment ending, offset by a decrease of $76,000 from the use of the updated mortality projection scale. The increase in value of $275,000 for Mr. Bryan is comprised of an increase of $146,000 from the use of the lower discount rate and an increase of $137,000 from the accrual of additional benefit service, offset by a decrease of $8,000 from the use of the updated mortality projection scale. The increase in value of $270,000 for Mr. Moline is comprised of an increase of $165,000 from the use of the lower discount rate and an increase of $112,000 from the accrual of additional benefit service, offset by a decrease of $7,000 from the use of the updated mortality projection scale. Messrs. Dunlap, Westbrooks and DiPiero are not eligible for company-paid pension benefits. For additional information, please see “2019 Pension benefits table” in this proxy statement.

 

  

Liabilities were determined assuming no probability of termination, retirement, death or disability before age 62 (the earliest age unreduced pension benefits are payable from the plans) except for Mr. Timken, for whom a commencement age of 55 was used. None of the NEOs earned above-market earnings in a deferred compensation plan. For additional information, see the discussion below under “Pension benefits.”

 

(7) 

The amounts shown in this column for 2019 are broken down in detail in the following table (a):

 

  Name  

Annual

company

contribution

to SIP plan

and core

DC

program(b)

   

Annual

company

contribution

to post-tax

savings

benefit(c)

   

Annual

life

insurance

premium

(company

paid)

   

Executive

physicals

(company

recommended)

   

Financial

planning

reimbursement

   

Home

security

   

Personal

use of

company’s

country

club

member-

ships(d)

   

Spousal

travel(e)

    Life
insurance
(f)
    Other(g)  

Ward J. “Tim”

Timken Jr.

  $     25,200     $     75,168     $     2,937     $     1,374     $ 0     $     378     $ 99     $       0     $     1,937     $     4,038,721  

Terry L. Dunlap

  $ 0     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0     $ 2,633     $ 12,886  

Kristopher R.

Westbrooks

  $ 18,200     $ 1,317     $ 0     $ 2,828     $ 1,375     $ 0     $ 0     $ 0     $ 410     $ 0  

Frank A. DiPiero

  $ 23,800     $ 0     $ 0     $ 2,063     $     1,970     $ 0     $ 0     $ 0     $ 2,637     $ 0  

William P. Bryan

  $ 12,600     $ 0     $ 0     $ 1,743     $ 5,000     $ 0     $     1,392     $ 0     $ 1,909     $ 0  

Thomas D.

Moline

  $ 12,600     $ 0     $ 0     $ 0     $ 1,855     $ 0     $ 0     $ 0     $ 1,244     $ 0  

 

  (a)

The company does not provide tax gross-ups for executive benefits.

  (b)

The “SIP plan” refers to the Savings and Investment Pension Plan, which is the company’s qualified defined contribution plan for salaried employees. “Core DC program” refers to the core defined contribution program for salaried employees hired on or after January 1, 2004, as well as for salaried employees whose age plus years of service with The Timken Company (the company’s former parent company) equaled less than 50 as of December 31, 2003. In 2019, Messrs. Timken, Westbrooks and DiPiero received core DC program contributions.

  (c) 

The “Post-tax savings benefit” is the company’s non-tax qualified restoration benefit for salaried employees whose contributions and benefits in qualified retirement plans are limited by Section 415 of the Internal Revenue Code.

  (d) 

The amounts shown for Messrs. Timken and Bryan represent compensation attributable to personal use of country club memberships during 2019. Amounts shown for personal use of country club memberships include pro-rated amounts of company-paid annual membership dues attributed to the personal use of country clubs by the NEO. There are no incremental costs to the company for other personal expenses associated with such personal use, as all such costs are borne by the executive.

  (e) 

None of the NEOs received compensation attributable to spousal travel during 2019. If an NEO had received compensation in the form of spousal travel benefits, amounts shown for spousal travel would have included actual incremental travel expenses.

  (f) 

The amounts shown represent imputed income for the cost of pre-tax term life insurance (which is provided by the company for all salaried employees equal to one times their annual salary) for the portion that exceeds the IRS pre-tax limit of $50,000.

  (g) 

The amount shown for Mr. Timken represents payments made as a result of his separation from the company on October 8, 2019 and in accordance with the severance agreement previously entered into between Mr. Timken and the company. Pursuant to this agreement, Mr. Timken received severance pay equal to two times his current base salary plus two times his target annual cash incentive opportunity. For additional information, see “Potential payments upon termination or change in control.” The amount shown for Mr. Dunlap represents personal benefits received as a result of his appointment as Interim CEO and President on October 8, 2019, including rental payments for his apartment in Canton and mileage reimbursement for commutes to his primary residence.

 

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2019 Grants of plan-based awards table

The following table sets forth information concerning potential awards payable to our NEOs with respect to the short-term and long-term incentive award opportunities granted in 2019:

 

  Name   Grant date  

Estimated future payouts under

non-equity incentive plan awards

   

Estimated future payouts under

equity incentive plan awards

   

All other

stock
awards:

number of
shares of
stock

or units

   

All other

option

awards:
number of
securities

underlying

options

   

Exercise or

base price

of option

awards

($/share)

   

Grant date

fair value

of stock

and option

awards(6)

 
  Threshold     Target     Maximum     Threshold     Target     Maximum  
                     

Ward J. “Tim” Timken, Jr.

 

03/01/2019 APA(1)

03/01/2019 RSUs(2)

03/01/2019 NQSOs(3)

03/01/2019 Perf RSUs(4)

  $         0     $ 844,700     $  1,689,400    

 

 

 

56,150

 

 

 

 

 

 

112,300

 

 

 

 

 

 

168,450

 

 

 

 

 

 

51,100

 

 

 

 

 

 

92,200

 

 

 

 

$

 

12.45

 

 

 

 

$

$

$

 

636,195

510,788

 1,398,135

 

 

 

 

                     

Terry L. Dunlap

 

05/07/2019 Def.

Shares(5)

10/08/2019 RSUs(2)

                                                 

 

 

 

11,735
165,600

 

 
 

                 

 

$

$

 

115,120

970,416

 

 

 

                     

Kristopher R. Westbrooks

 

03/01/2019 APA(1)

03/01/2019 RSUs(2)

03/1/2019 NQSO(3)

03/01/2019 Perf RSUs(4)

  $ 0     $ 281,265     $ 562,529    

 

 

 

6,100

 

 

 

 

 

 

12,200

 

 

 

 

 

 

18,300

 

 

 

 

 

 

22,000

 

 

 

 

 

 

33,100

 

 

 

 

$

 

12.45

 

 

 

 

$

$

$

 

273,900

183,374

151,890

 

 

 

 

                     

Frank A. DiPiero

 

03/01/2019 APA(1)

03/01/2019 RSUs(2)

03/01/2019 NQSOs(3)

03/01/2019 Perf RSUs(4)

  $ 0     $ 235,212     $ 470,425    

 

 

 

4,550

 

 

 

 

 

 

9,100

 

 

 

 

 

 

13,650

 

 

 

 

 

 

16,400

 

 

 

 

 

 

24,600

 

 

 

 

$

 

12.45

 

 

 

 

$

$

$

 

204,180

136,284

113,295

 

 

 

 

                     

William P. Bryan

 

03/01/2019 APA(1)

03/01/2019 RSUs(2)

03/01/2019 NQSOs(3)

03/01/2019 Perf RSUs(4)

  $ 0     $ 148,703     $ 297,405    

 

 

 

2,600

 

 

 

 

 

 

5,200

 

 

 

 

 

 

7,800

 

 

 

 

 

 

9,300

 

 

 

 

 

 

14,000

 

 

 

 

$

 

12.45

 

 

 

 

$

$

$

 

115,785

77,560

64,740

 

 

 

 

                     

Thomas D. Moline

 

03/01/2019 APA(1)

03/01/2019 RSUs(2)

03/01/2019 NQSOs(3) 03/01/2019 Perf RSUs(4)

  $ 0     $ 148,703     $ 297,405    

 

 

 

2,600

 

 

 

 

 

 

5,200

 

 

 

 

 

 

7,800

 

 

 

 

 

 

9,300

 

 

 

 

 

 

14,000

 

 

 

 

$

 

12.45

 

 

 

 

$

$

$

 

115,785

77,560

64,740

 

 

 

 

 

(1)

“APA” reflects the annual incentive opportunity available to each of the NEOs under the TimkenSteel Corporation Annual Performance Award plan at threshold, target and maximum performance levels for the 2019 performance period. Mr. Dunlap does not participate in the Annual Performance Award plan.

 

(2) 

“RSUs” refers to restricted stock units granted to each of the NEOs on the grant date indicated. Restricted stock units reported in this table for Messrs. Westbrooks, DiPiero, Bryan and Moline will vest in full on March 1, 2022 provided the executive maintains continuous employment with the company through that date. For Mr. Dunlap, the restricted stock units reported in this table reflect the grant received upon his appointment as Interim CEO and President on October 8, 2019, which will vest in full on October 8, 2020 provided he remains in the continuous service of the company through that date. For Mr. Timken, because his employment ended on October 8, 2019, 7,097 of the 51,100 restricted stock units awarded to him were canceled. The remaining 41,313 of Mr. Timken’s restricted stock units will vest on March 1, 2022. For additional information, see “Analysis of 2019 compensation – Long-term incentives” in the Compensation discussion and analysis section of this proxy statement. For additional information regarding vesting of equity in the event of a change in control or other termination scenarios, see “Potential payments upon termination or change in control.”

 

(3) 

“NQSOs” refers to the nonqualified stock options granted to each of the NEOs (except Mr. Dunlap, who was not awarded nonqualified stock options) on the grant date indicated. Each grant of NQSOs reported in the table has an exercise price equal to the fair market value (as defined in the plan) on the date of grant, has a ten-year term and will become exercisable over four years in 25% increments on the anniversary of the grant date. As a result of Mr. Timken’s employment with the company ending on October 8, 2019, 46,100 options granted to Mr. Timken on March 1, 2019 were canceled and the remaining 46,100 options were vested. For additional information, see “Analysis of 2019 Compensation — Long-term incentives” in the Compensation discussion and analysis section of this proxy statement. For additional information regarding vesting of equity in the event of a change in control or other termination scenarios, see “Potential payments upon termination or change in control.”

 

(4) 

The “Perf RSUs” amounts reported in this table indicate threshold, target and maximum award opportunities for the performance shares granted to the NEOs (except Mr. Dunlap, who was not awarded performance shares) on March 1, 2019. The performance shares granted in 2019 were awarded to track performance for the 2019-2021 cycle with a one-year holding period applied to allow for share price to impact the final award. On December 31, 2020, achievement of the established performance objectives for the 2019-2020 performance period will be scored and the portion of the performance shares which have been earned by each NEO, if any, will be determined, with any shares earned vesting on December 31, 2021. As a result of Mr. Timken’s employment with the company ending on October 8, 2019, 9,358 of the 112,300 performance shares awarded to Mr. Timken were canceled. Any portion of the remaining 102,942 performance shares which are earned by Mr. Timken (based on achievement of the established performance objectives for the 2019-2020 performance period) will vest on December 31, 2021. For additional information, see “Analysis of 2019 Compensation – Long-term incentives” in the Compensation discussion and analysis section of this proxy statement. For additional information regarding vesting of equity in the event of a change in control or other termination scenarios, see “Potential payments upon termination or change in control.”

 

(5) 

“Def. Shares” refers to deferred shares awarded to Mr. Dunlap on May 7, 2019, for his service as a non-employee director. These deferred shares will vest in full on May 7, 2020, provided Mr. Dunlap remains in the continuous service of the company through that date.

 

(6) 

The amounts shown in this column reflect the fair value on the date of grant of RSUs, deferred shares, stock options and performance shares granted in 2019, computed in accordance with FASB ASC Topic 718. The fair value of RSUs and deferred shares is equal to the closing price of TimkenSteel common shares on the date of grant multiplied by the number of RSUs or deferred shares granted. The fair value of stock options is determined using the Black-Scholes model. The fair value of performance shares is equal to the closing price of TimkenSteel common shares on the date of grant multiplied by the target number of performance shares granted, which was the probable outcome on the grant date.

 

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Outstanding equity awards at 2019 year-end table

The following table sets forth information concerning unexercised stock options and stock awards that have not yet vested for each of our NEOs as of December 31, 2019:

 

 

 

Option awards(1)

 

Stock awards(2)

  Name Grant date

Number of
securities
underlying
unexercised
options

exercisable

Number of
securities
underlying
unexercised
options

unexercisable

Option
exercise
price

($/share)

Option
expiration

date

Grant date

Number of

shares or

units of

stock that

have not
vested

Market value

of shares or

units of stock

that have

not vested

Equity incentive

plan awards:

number of

unearned

shares, units or

other rights

that have not

vested

Equity incentive

plan awards:

market or payout

value of unearned

shares, units or

other rights that

have not vested

Ward J. “Tim”

Timken, Jr. (3)

 

02/08/2010

02/08/2011

02/09/2012

02/07/2013

02/13/2014

01/29/2015

02/17/2016

02/15/2017

02/14/2018

03/01/2019


 

52,300

53,000

45,100

46,450

46,000

95,000

319,960

189,500

151,650

46,100


 

0

0

0

0

0

0

0

0

0

0


$

$

$

$

$

$

$

$

$

$

13.61

29.95

31.06

33.76

34.26

29.00

7.46

17.46

16.57

12.45


 

02/08/2020

02/08/2021

02/09/2022

10/08/2022

10/08/2022

10/08/2022

10/08/2022

10/08/2022

10/08/2022

10/08/2022


  03/01/2019   41,313 $ 324,720   51,471 $     404,562

Terry L. Dunlap

 

05/07/2019

10/08/2019


 

11,735

165,600


$

$

92,237

  1,301,616


Kristopher R.

Westbrooks

 

09/24/2018

03/01/2019


 

1,760

0


 

5,280

33,100


$

$

14.34

12.45


 

09/24/2028

03/01/2029


 

09/24/2018

03/01/2019


 

7,400

22,000


$

$

58,164

172,920


 

 

 

6,100

 

 

$

 

47,946

 

Frank A. DiPiero

 

08/05/2014

01/29/2015

02/17/2016

02/15/2017

02/14/2018

03/01/2019


 

8,700

9,000

21,945

7,800

4,875

0


 

0

0

7,315

7,800

14,625

24,600


$

$

$

$

$

$

46.08

 29.00

7.46

17.46

16.57

12.45


 

08/05/2024

01/29/2025

02/17/2026

02/15/2027

02/14/2028

03/01/2029


 

02/15/2017

02/14/2018

03/01/2019


 

10,500

13,600

16,400


$

$

$

82,530

106,896

128,904


 

 

 

 

 

4,550

 

 

 

 

$

 

 

35,763

 

 

William P. Bryan

 

02/08/2011

02/09/2012

02/07/2013

02/13/2014

01/29/2015

02/17/2016

02/15/2017

02/14/2018

03/01/2019


 

1,300

1,800

1,800

1,600

5,500

8,570

3,900

2,775

0


 

0

0

0

0

0

3,690

3,900

8,325

14,000


$

$

$

$

$

$

$

$

$

29.95

31.06

33.76

34.26

29.00

7.46

17.46

16.57

12.45


 

02/08/2021

02/09/2022

02/07/2023

02/13/2024

01/29/2025

02/17/2026

02/15/2027

02/14/2028

03/01/2029


 

02/15/2017

02/14/2018

03/01/2019


 

5,300

7,700

9,300


$

$

$

41,658

60,522

73,098


 

 

 

 

 

2,600

 

 

 

 

$

 

 

20,436

 

 

Thomas. D

Moline

 

02/08/2011

02/09/2012

02/07/2013

02/13/2014

01/29/2015

02/17/2016

02/15/2017

02/14/2018

03/01/2019


 

2,800

2,150

2,250

1,750

5,500

10,750

5,200

2,775

0


 

0

0

0

0

0

4,875

5,200

8,325

14,000


$

$

$

$

$

$

$

$

$

29.95

31.06

33.76

34.26

29.00

7.46

17.46

16.57

12.45


 

02/08/2021

02/09/2022

02/07/2023

02/13/2024

01/29/2025

02/17/2026

02/15/2027

02/14/2028

03/01/2029


 

02/15/2017

02/14/2018

03/01/2019


 

7,000

7,700

9,300


$

$

$

55,020

60,522

73,098


 

 

 

 

 

2,600

 

 

 

 

$

 

 

20,436

 

 

 

(1) 

All option awards reported in this table are nonqualified stock options that vest ratably 25% per year over the four-year period from the date of grant.

 

(2) 

Stock awards reported in this table include, for Messrs. Timken, DiPiero, Bryan and Moline, performance shares and restricted stock units; and, for Mr. Dunlap, deferred shares and restricted stock units. Performance shares (reported under the Equity incentive plan awards column) were granted on March 1, 2019, with performance against the established objectives measured over a two-year performance period ending on December 31, 2020, and with any earned shares vesting following an additional one-year holding period to allow for share price to impact the value of the final award. The number of shares reported for the performance shares granted on March 1, 2019 reflects the number of shares that would be earned by each respective NEO assuming threshold performance is achieved under the established performance objectives. The settlement for any performance shares earned will be in cash for Mr. Timken and in shares for Messrs. Westbrooks, DiPiero, Bryan and Moline.

 

  

Restricted stock units were granted to Messrs. DiPiero, Bryan and Moline on February 15, 2017, February 14, 2018 and March 1, 2019; to Mr. Westbrooks on September 24, 2018 and March 1, 2019; and to Mr. Timken on March 1, 2019. Each of these grants of RSUs vests on the third anniversary of their respective grant dates.

 

  

Deferred shares were granted to Mr. Dunlap on May 7, 2019 as compensation for his service as a non-employee director, and restricted stock units were granted to Mr. Dunlap on October 8, 2019 in connection with his appointment as Interim CEO and President. Each of Mr. Dunlap’s stock awards will vest on the first anniversary of grant date.

 

  

The market value of all shares and awards reported in this table was determined based upon the closing price of TimkenSteel’s common shares on December 31, 2019, the last trading day of the year, which was $7.86.

 

(3) 

As a result of Mr. Timken’s employment with the company ending on October 8, 2019, 46,100 options granted to Mr. Timken on March 1, 2019 and 50,550 options granted to Mr. Timken on February 14, 2018 were canceled and the remaining 321,940 unvested options granted in 2016, 2017, 2018 and 2019 were immediately vested. As a result of Mr. Timken’s employment with the company ending, all outstanding options remain exercisable for three years. Additionally, 7,097 of the 51,100 restricted stock units awarded to Mr. Timken in 2019 were canceled, and 2,690 of the restricted stock units awarded in 2019 were withheld to satisfy tax withholding requirements as the awards are no longer subject to a substantial risk of forfeiture. Finally, 9,358 of the 112,300 performance shares awarded to Mr. Timken on March 1, 2019 were canceled.

 

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Table of Contents

2019 Option exercises and stock vested table

The following table sets forth information with respect to the exercise of stock options by and vesting of stock-based awards for our NEOs during 2019.

 

    

 

Option awards (1)

 

Stock awards (2)

Name

 

Number of shares

acquired on exercise

 

Value realized

on exercise

 

Number of shares

acquired on vesting

 

Value realized

on vesting

       
Ward J. “Tim” Timken, Jr. 0 0 0 $0
       
Terry L. Dunlap(3) 0 0 7,155 $76,201
       
Kristopher R. Westbrooks 0 0 0 $0
       
Frank A. DiPiero 0 0 14,750 $183,638
       
William P. Bryan 0 0 7,500 $93,375
       
Thomas D. Moline 0 0 10,000 $124,500

 

(1) 

There were no exercises of stock options by any of our NEOs during 2019.

 

(2)

The value realized on vesting for stock awards is calculated by multiplying the number of shares acquired on vesting by the fair market value of TimkenSteel common shares on the vesting date. For purposes of this calculation, the fair market value of restricted stock units which vest is equal to the closing price of our common shares on the vesting date. The value shown in the table does not include performance shares granted for the 2018-2019 cycle, as performance results for the cycle fell below threshold requirements. Accordingly, all performance shares granted for the 2018-2019 performance cycle were canceled without a payout.

 

(3) 

The value realized on vesting of stock awards for Mr. Dunlap reflects the vesting of deferred shares granted to Mr. Dunlap in 2018 for his service as a non-employee director. These shares vested on May 7, 2019, prior to his appointment as Interim CEO and President.

 

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Table of Contents

Pension benefits

Qualified Plan

In connection with the spinoff of TimkenSteel from The Timken Company on June 30, 2014, TimkenSteel adopted a tax-qualified defined benefit retirement plan (the “Qualified Plan”) which is substantially similar to the defined benefit retirement plan maintained by The Timken Company prior to spinoff. Years of service with The Timken Company prior to spinoff count toward years of service under the Qualified Plan.

Pursuant to the Qualified Plan, salaried employees whose age plus years of service equaled or exceeded 50 as of December 31, 2003, participate in a defined benefit plan with a formula of 0.75% per year of service times average earnings, including base salary and cash annual incentive compensation, for the highest five non-consecutive years of the ten years preceding retirement (“Final Average Earnings”). For all employees in a defined benefit plan as of December 31, 2003, the formula in effect at the time of service, using Final Average Earnings at retirement, is applied to such service.

The benefit is generally payable beginning at age 65 for the lifetime of the employee, with alternative forms of payment available with actuarial adjustments. Participants may retire early for purposes of the Qualified Plan if they meet any of the following eligibility requirements:

 

   

Age 62 and 15 years of service;

 

   

Age 60 and 25 years of service; or

 

   

Any age and 30 years of service.

In addition, participants age 55 with at least 15 years of service may retire and receive the portion of their Qualified Plan benefit attributable to service earned after 2003.

Benefits for service after December 31, 1991, are reduced for early commencement at a rate of 3% per year before the age of 60 for the portion of the benefit attributable to service earned between 1992 and 2003, and 4% per year before age 62 for the portion of the benefit attributable to service earned after 2003.

Benefits for a NEO who dies while actively employed are payable to the surviving spouse from the defined benefit pension plans at the NEO’s normal retirement date (or on a reduced basis at an early retirement date) if the NEO had at least five years of service. The benefit is equal to 50% of the benefit payable if the NEO had terminated employment on the date of his death, survived to the payment date (as elected by his spouse), elected the 50% joint and survivor form of payment and died the next day. If the NEO had at least 15 years of service at the time of his death, the benefit is equal to 50% of the accrued benefit at time of death payable immediately, but with any applicable early commencement reduction.

Supplemental Pension Plan

In connection with the spinoff, the company also adopted the Supplemental Pension Plan of TimkenSteel Corporation (effective June 30, 2014), or the TimkenSteel SERP, which is substantially similar to the supplemental pension plan maintained by The Timken Company prior to the spinoff. Supplemental retirement income benefits under the TimkenSteel SERP are calculated using a target benefit of 60% of Final Average Earnings, offset by any defined benefit plan payments provided by the company and the aggregate earnings opportunity provided by any company contributions under the core defined contribution program (the TimkenSteel Corporation Savings and Investment Pension Plan) and the post-tax savings benefit. The supplemental benefit will vest after five years of service as an officer of the company, with normal retirement being considered as of age 62. Early retirement at age 55 with at least 15 years of company service is available, but if benefits are commenced early, they will be reduced by 4% per year for each year of early commencement prior to age 62.

For both the Qualified Plan and the TimkenSteel SERP, only actual years of service with TimkenSteel and, prior to the spinoff, The Timken Company, are counted in calculating pension benefits, except in the case of involuntary termination without cause, in which case up to two additional years of service will be credited.

In November 2019, the Qualified Plan and the SERP were each amended to provide that additional benefit accruals for any remaining active participants will cease effective December 31, 2020.

 

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Table of Contents

2019 Pension benefits table

The following table sets forth the number of years of credited service and actuarial value of the defined benefit pension plans for our NEOs as of December 31, 2019:

 

   Name

 

 

Plan name

 

  

 

  Number of  

  years of  

  credited  

  service  

 

  

          Present value of         
          accumulated benefit 
(1)  

 

 

 

   Ward J. “Tim” Timken, Jr.(2)

 

 

Supplemental Plan

   27.6     $                     13,055,000       
   

 

Qualified Plan

   11.6     $                              227,000       

 

   Terry L. Dunlap(3)

 

 

Supplemental Plan

   N/A     $ -       
   

 

Qualified Plan

   N/A     $ -       

 

   Kristopher R. Westbrooks(3)

 

 

Supplemental Plan

   N/A     $ 0       
   

 

Qualified Plan

   N/A     $ 0       

 

   Frank A. DiPiero(3)

 

 

Supplemental Plan

   N/A     $ 0       
   

 

Qualified Plan

   N/A     $ 0       

 

   William P. Bryan

 

 

Supplemental Plan

   42.5     $ 335,000       
   

 

Qualified Plan

   42.5     $ 1,107,000       

 

   Thomas D. Moline

 

 

Supplemental Plan

   35.5     $ 301,000       
   

 

Qualified Plan

   35.5     $ 1,007,000       

 

(1) 

The “Present Value of Accumulated Benefit” is the present value, as of December 31, 2019. Age 62 is the earliest age an unreduced benefit is payable from the plans. The assumptions used to determine the present value include a 3.51% discount rate and updated mortality statistics consistent with the 2019 Society of Actuaries revised mortality projection scale. Benefits for the applicable NEOs were determined assuming no probability of termination, retirement, death or disability before age 62, except for Mr. Timken for whom a commencement age of 55 was used.

 

(2) 

Because Mr. Timken did not have a combination of age and service that equaled or exceeded 50 as of December 31, 2003, he did not accumulate any service under the Qualified Plan after December 31, 2003.

 

(3) 

Because Messrs. Dunlap, Westbrooks and DiPiero were hired after January 1, 2004, they do not accumulate any service under either the Supplemental or Qualified Plan.

 

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Table of Contents

2019 Nonqualified deferred compensation table

The table below sets forth information regarding contributions, earnings and withdrawals during 2019 and the account balances as of December 31, 2019, for the NEOs under the TimkenSteel Corporation Deferred Compensation Plan:

 

    Name  

Executive

contributions in

2019 (1)

   

  Company  

  contributions in  

  2019 (1)  

   

Aggregate

earnings in

2019 (2)

   

Aggregate

withdrawals/

distributions in

2019

   

Aggregate

balance at

December 31,

2019 (3)

 
         

Ward J. “Tim” Timken, Jr.

  $         35,827     $         75,168     $     206,263     $                 -     $   2,802,387  
         

Terry L. Dunlap

  $ -     $ -     $ -     $ -     $ -  
         

Kristopher R. Westbrooks

  $ -     $ 1,317     $ -     $ -     $ 1,317  
         

Frank A. DiPiero

  $ -     $ -     $ -     $ -     $ -  
         

William P. Bryan

  $ -     $ -     $ -     $ -     $ -  
         

Thomas D. Moline

  $ -     $ -     $ -     $ -     $ -  

 

(1) 

Amounts shown as executive contributions or company contributions in 2019 are reported in the 2019 Summary compensation table.

 

(2) 

This amount includes interest earned from cash deferrals. Earnings during this year and previous years were not above market or preferential; therefore, these amounts are not included in the 2019 Summary compensation table.

 

(3) 

Amounts included in the aggregate balances that previously were reported as compensation in the Summary compensation table for previous years (or would have been had the recipient been identified as a NEO for such years) are as follows: Mr. Timken, $1,776,608.

 

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Table of Contents

Potential payments upon termination or change in control

The company has entered into severance agreements with each of its NEOs (other than Mr. Dunlap) that provide for compensation in the event of termination of employment under certain circumstances (the “Severance Agreements”). In addition, our NEOs are entitled to post-termination payments or benefits under award agreements entered into under the TimkenSteel Amended and Restated 2014 Equity and Incentive Compensation Plan and, under certain circumstances, under our retirement and benefit plans. The following circumstances would trigger post-termination payments to our named executive officers: change in control followed by certain events described below; involuntary termination without cause; retirement; permanent disability; and death. For purposes of calculating the payments that would be due to each of our NEOs, the termination scenarios described below assume a December 31, 2019 termination date.

Change in control

Under the Severance Agreements with our NEOs, when certain events occur, such as a reduction in responsibilities or termination of employment without cause, following a change in control of the company (as defined in the Severance Agreements), the NEO is entitled to receive a cash severance payment in an amount equal to a multiple of three times the sum of his annual base salary and the greater of: (1) his target annual amount of incentive compensation for the year in which he terminates employment; or (2) his target annual amount of incentive compensation for the year in which the change in control occurs. The form of Severance Agreement does not contain an excise tax gross-up provision. Rather, the agreements provide that the NEO can choose the “best net” benefit of either: (1) paying all excise taxes incurred with respect to the change in control benefits, without a gross-up by the company; or (2) accepting aggregate change in control benefits that do not exceed the excise tax threshold. In the event of a change in control, the amounts payable under the Severance Agreements would become secured by a trust arrangement.

In addition, the NEO would receive a lump sum amount representing the SERP benefit. The lump sum amount is determined by calculating the benefit under the Qualified Plan and the SERP assuming the NEO continued to earn service for three additional years with annual earnings during those three years equal to the compensation described above. This lump sum is determined based on mortality tables and interest rates promulgated by the IRS under Section 417(e)(3) of the Internal Revenue Code and would be reduced by the lump sum equivalent of the benefit payable from the Qualified Plan.

Under the terms of the agreements pursuant to which equity is awarded to our NEOs, if following a change in control there would be a loss of equity by the NEO because (a) the equity of the company is not continued and the value of the equity award is not replaced with an equivalent equity instrument of the surviving entity or (b) the NEO’s employment is involuntarily terminated or voluntarily terminated with good cause (as defined in the agreement), then in those circumstances any unvested equity-based grants would vest and become nonforfeitable and the NEO would have three years to exercise all stock options.

Finally, the NEO would be entitled to continuation of health and welfare benefits for three years and career outplacement services.

Voluntary termination

In the case of a voluntary termination of employment by an NEO, the NEO is not entitled to receive, and the company will not make any cash severance, retirement benefits or other perquisite payments, and unvested equity-based grants will not vest.

Involuntary termination with cause

The company provides no cash severance, retirement benefits, other perquisite payments or vesting of any equity-based grants when an NEO is terminated by the company with cause. As used in the Severance Agreements, termination with “cause” means the commission of an intentional act of fraud, embezzlement or theft in connection with the NEO’s duties with the company; an intentional wrongful disclosure of secret processes or confidential information of the company or a company subsidiary; or an intentional wrongful engagement in any competitive activity (as defined in the Severance Agreements) which would constitute a material breach of the officer’s duty of loyalty to the company.

 

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If the company terminates the NEO’s employment for cause, any benefit payable from a qualified plan will be forfeited.

Involuntary termination without cause

The Severance Agreements with our NEOs provide that, in the case of an involuntary termination without cause, the NEO is entitled to severance equal to 1.5 times the sum of his base salary and highest annual incentive compensation during the preceding five years (not to exceed target), except that the agreement with our former Chairman, CEO and President entitled him to severance of 2 times the sum of his base salary and highest annual incentive compensation during the preceding five years (not to exceed target). Each NEO also is entitled to continuation of health and welfare benefits through the severance period and career outplacement services. In consideration for providing severance benefits, the company receives confidentiality and non-compete covenants from the NEOs, as well as a release of liability for all claims against the company.

Retirement

“Retirement” means either: (1) retirement of the NEO prior to age 62, if the Compensation Committee of the Board of Directors determines that such retirement is for the convenience of the company; or (2) retirement of the NEO on or after age 62.

In addition to retirement benefits shown in the “2019 Pension benefits table” (which are not shown in the following table of termination scenarios), NEOs who retire under the circumstances described above will be entitled to receive prorated payouts of performance shares and continued normal vesting of other unvested equity awards as if the officer had remained in the continuous employ of the company for the remainder of the vesting period.

Death or permanent disability

“Permanent Disability” occurs if the NEO qualifies for permanent disability benefits under a disability plan or program of the company or, in the absence of a disability plan or program of the company, under a government-sponsored disability program.

All equity-based awards immediately vest in the event of death or permanent disability except performance shares, which are prorated and then vest at the end of the performance period. In the case of disability, the NEO has up to five years to exercise stock options. In the case of the NEO’s death, the NEO’s beneficiary will have one year following the death to exercise stock options.

 

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Table of Contents

Termination scenarios for NEOs

 

Mr. Timken (7)  
    

Voluntary

resignation

   

Termination

with cause

    Retirement(6)    

Death and

disability

   

Termination

without cause

   

Change in

control

 

Cash severance

  $             0     $             0     $ 0     $ 0     $ 4,038,721     $ 0  

Equity

  $ 0     $ 0     $ 0     $ 0     $ 1,261,828     $ 0  

Retirement benefits

  $ 0     $ 0     $ 0     $ 0     $ 0     $ 0  

Other benefits

  $ 0     $ 0     $ 0     $ 0     $ 50,000     $ 0  

Excise tax gross-up(5)

                                          $ 0  

Total

  $ 0     $ 0     $ 0     $ 0     $ 5,350,549     $ 0  
Mr. Dunlap (8)  
    

Voluntary

resignation

   

Termination

with cause

    Retirement(6)    

Death and

disability

   

Termination

without cause

   

Change in

control

 

Cash severance

  $ 0     $ 0             $ 1,035,000     $ 1,035,000     $ 1,035,000  

Equity

  $ 0     $ 0             $ 1,393,853     $ 314,128     $ 1,393,853  

Retirement benefits

  $ 0     $ 0             $ 0     $ 0     $ 0  

Other benefits

  $ 0     $ 0             $ 0     $ 0     $ 0  

Excise tax gross-up(5)

                                          $ 0  

Total

  $ 0     $ 0     $ 0     $ 2,428,853     $ 1,349,128     $ 2,428,853  
Mr. Westbrooks  
    

Voluntary

resignation

   

Termination

with cause

    Retirement(6)    

Death and

disability

   

Termination

without cause

   

Change in

control

 

Cash severance(1)

  $ 0     $ 0             $ 0     $ 1,029,685     $ 2,059,370  

Equity(2)

  $ 0     $ 0             $ 263,048     $ 262,390     $ 236,976  

Retirement benefits(3)

  $ 0     $ 0             $ 0     $ 0     $ 97,000  

Other benefits(4)

  $ 0     $ 0             $ 0     $ 42,500     $ 65,000  

Excise tax gross-up(5)

                                          $ 0  

Total

  $ 0     $ 0     $ 0     $ 263,048     $ 1,334,575     $ 2,458,346  
Mr. DiPiero  
    

Voluntary

resignation

   

Termination

with cause

    Retirement(6)    

Death and

disability

   

Termination

without cause

   

Change in

control

 

Cash severance(1)

  $ 0     $ 0             $ 0     $ 945,439     $ 1,890,878  

Equity(2)

  $ 0     $ 0             $ 316,456     $ 352,217     $ 364,140  

Retirement benefits(3)

  $ 0     $ 0             $ 0     $ 0     $ 115,000  

Other benefits(4)

  $ 0     $ 0             $ 0     $ 42,500     $ 65,000  

Excise tax gross-up(5)

                                          $ 0  

Total

  $ 0     $ 0     $ 0     $ 316,456     $ 1,340,156     $ 2,435,018  
Mr. Bryan  
    

Voluntary

resignation

   

Termination

with cause

    Retirement(6)    

Death and

disability