DEF 14A 1 d764130ddef14a.htm DEF 14A DEF 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A INFORMATION

(Rule 14a-101)

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.     )

Filed by the Registrant             Filed by a Party other than the Registrant

Check the appropriate box:

 

Preliminary Proxy Statement

 

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

 

Definitive Proxy Statement

 

Definitive Additional Materials

 

Soliciting Material Pursuant to §240.14a-12

Cabot Corporation

 

(Name of Registrant as Specified In Its Charter)

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Fee paid previously with preliminary materials.

 

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

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LOGO

Cabot Corporation

2020 Proxy Statement

The Annual Meeting of Stockholders

of Cabot Corporation will be held:

Thursday, March 12, 2020 at 4:00 p.m. ET

Cabot Corporation

Two Seaport Lane, Suite 1300

Boston, MA 02210-2019 USA


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LOGO

 

 

 

January 24, 2020

Dear Fellow Cabot Corporation Stockholders,

You are cordially invited to attend the Annual Meeting of Stockholders of Cabot Corporation, which will be held on Thursday, March 12, 2020, at 4:00 pm, Eastern Time, at the Corporate Headquarters of Cabot Corporation, Two Seaport Lane, Suite 1300, Boston, Massachusetts.

At the Annual Meeting, we will ask you to elect three members of our Board of Directors, provide your advisory approval of our executive compensation, and ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for our fiscal year ending September 30, 2020. We will also discuss any other business matters properly brought before the meeting. The attached Proxy Statement explains our voting procedures, describes the business we will conduct, and provides information about the Company that you should consider when you vote your shares.

We are using the “Notice and Access” method of providing proxy materials to you via the Internet. We are mailing to you a Notice of Internet Availability of Proxy Materials (the “Notice”) instead of a paper copy of the proxy materials and 2019 Annual Report. Notice and Access provides a convenient and environmentally friendly way for you to access Cabot’s proxy materials. The Notice includes instructions on how to access our proxy statement and our 2019 Annual Report and how to vote your shares. The Notice also contains instructions on how to receive a paper copy of the proxy materials and our 2019 Annual Report, if you prefer.

Your vote is very important to us. Whether or not you plan to attend the Annual Meeting in person, we encourage you to vote promptly. You may vote by mailing a completed proxy card, by phone or the Internet.

Thank you for your continued support of Cabot Corporation.

Sincerely,

 

 

LOGO

SEAN D. KEOHANE

President and

Chief Executive Officer


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LOGO

 

Notice of Annual Meeting of Stockholders

 

Date:

March 12, 2020

 

Time:

4:00 p.m., Eastern Time

 

Place:

Corporate Headquarters of Cabot Corporation

 

  Two Seaport Lane, Suite 1300

 

  Boston, Massachusetts 02210-2019

 

Record Date:

You may vote if you were a stockholder of record at the close of business on January 15, 2020.

 

Voting by Proxy:

To ensure that your vote is properly recorded, please vote as soon as possible, even if you plan to attend the annual meeting. Stockholders who own shares in their own name (a record owner) have three options for submitting their vote by proxy: (1) by Internet, (2) by phone or (3) by mail. You may also vote in person if you attend the annual meeting. For further details about voting, please refer to the section entitled “About the Annual Meeting” beginning on page 1 of this proxy statement.

 

  If your shares are held in “street name” in a stock brokerage account or by a bank or other nominee, you must provide your broker, bank or other nominee with instructions on how to vote your shares in order for your shares to be voted on certain non-routine matters presented at the annual meeting. If you do not instruct your broker, bank or other nominee on how to vote in the election of directors or on the compensation of our named executive officers, your shares will not be voted on these matters. For an explanation of how you can vote your “street name” shares at the meeting, see “How do I vote?” on page 2.

 

Items of Business

  To elect three directors, Juan Enriquez, Sean D. Keohane and William C. Kirby, to the class of directors whose term expires in 2023;

 

   

To approve, in an advisory vote, our executive compensation;

 

   

To ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending September 30, 2020; and

 

   

To transact such other business as may properly come before the annual meeting or any adjournment or postponement thereof.

This notice and proxy statement are first being made available to stockholders on or about January 24, 2020. Our 2019 Annual Report is available at http://www.edocumentview.com/cbt.

By order of the Board of Directors,

Jane A. Bell

Secretary

Boston, Massachusetts 02210-2019

January 24, 2020


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2020 PROXY STATEMENT   

 

 

 

 

Table of Contents

 

About the Annual Meeting

    1  

Governance

    5  

Proposal 1 — Election of Directors

    5  

Certain Information Regarding Directors

    6  

Board Governance and Composition

    11  

Corporate Governance Guidelines

    11  

Board Composition

    11  

Important Factors in Assessing Director Qualifications

    11  

How we Assess Director Independence

    12  

Our Leadership Structure – Non-Executive Chair of the Board; Executive Sessions

    13  

How our Board Operates

    13  

How We Evaluate the Board’s Effectiveness

    16  

Our Board’s Role in Risk Oversight

    16  

Other Governance Policies and Practices

    18  

Transactions with Related Persons

    18  

Stockholder Engagement

    19  

Procedures for Stockholders to Recommend Director Nominees

    19  

Director Attendance at Meetings

    19  

Code of Business Ethics

    19  

Communications with the Board

    19  

Director Compensation

    20  

Director Compensation Table

    22  

Beneficial Stock Ownership of Directors, Executive Officers and Persons Owning More Than Five Percent of Common Stock

    23  

Executive Compensation

    25  

Compensation Committee Report

    25  

Compensation Discussion and Analysis

    25  

Summary Compensation Table

    45  

Grant of Plan-Based Awards Table

    47  

Outstanding Equity Awards at Fiscal Year-End Table

    49  

Option Exercises and Stock Vested Table

    50  

Pension Benefits

    51  

Deferred Compensation

    53  

Potential Payments Upon Termination or Change in Control

    54  

CEO Pay Ratio

    59  

Proposal 2 — Advisory Approval of Executive Compensation

    60  

Audit Committee Matters

    61  

Audit Committee Report

    61  

Audit Fees

    62  

Audit Committee Pre-Approval Policy

    62  

Proposal 3 — Ratification of Appointment of Independent Registered Public Accounting Firm

    63  

Other Information

    64  

Future Stockholder Proposals and Director Nominations

    64  

Annual Report on Form 10-K

    64  

Solicitation of Proxies

    64  

Miscellaneous

    64  

Appendix A — Non-GAAP Measures

    A-1  


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2020 PROXY STATEMENT   

 

 

 

 

About the Annual Meeting

 

Cabot Corporation

Two Seaport Lane, Suite 1300

Boston, Massachusetts 02210-2019

Proxy Statement

References to “the Company”, “Cabot”, “we”, “us”, and “our” in this proxy statement mean Cabot Corporation.

About the Annual Meeting

Who is soliciting my vote?

The Board of Directors of Cabot Corporation is soliciting your vote at the 2020 Annual Meeting of Stockholders (“2020 Annual Meeting” or the “meeting”).

What am I voting on?

You are voting on:

 

 

Proposal 1: Election of Juan Enriquez, Sean D. Keohane and William C. Kirby to the class of directors whose term expires in 2023 (see page 5);

 

 

Proposal 2: Advisory approval of our executive compensation (see page 60);

 

 

Proposal 3: Ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending September 30, 2020 (see page 63); and

 

 

Any other business properly coming before the meeting.

How does the Board recommend that I vote my shares?

The Board’s recommendation can be found with the description of each item in this proxy statement. In summary, the Board recommends that you vote:

 

 

FOR each of the three nominees for director;

 

 

FOR the advisory approval of our executive compensation (commonly referred to as “say-on-pay”);

 

 

FOR the ratification of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending September 30, 2020.

Who is entitled to vote?

Only stockholders of record at the close of business on January 15, 2020 will be entitled to vote at the 2020 Annual Meeting. As of that date, there were 56,676,158 shares of our common stock outstanding. Each share of common stock is entitled to one vote. There is no cumulative voting.

Why did I receive a “Notice of Internet Availability of Proxy Materials” but no proxy materials?

We are distributing our proxy materials to stockholders via the Internet under the “Notice and Access” approach permitted by rules of the Securities and Exchange Commission (“SEC”). This approach benefits the environment, while providing a timely and convenient method of accessing the materials and voting. On January 24, 2020, we will begin mailing a “Notice of Internet Availability of Proxy Materials” (the “Notice”) to stockholders. The Notice includes instructions on how to access our proxy statement and our 2019 Annual Report and how to vote your shares. The Notice also contains instructions on how to receive a paper copy of the proxy materials and our 2019 Annual Report, if you prefer.

 

CABOT CORPORATION    1


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2020 PROXY STATEMENT   

 

 

About the Annual Meeting (continued)

 

 

 

How many votes must be present to hold the meeting?

Your shares are counted as present at the 2020 Annual Meeting if you attend the meeting or if you properly return a proxy by Internet, telephone or mail. In order for us to hold our meeting, holders of a majority of our outstanding shares of common stock as of January 15, 2020 must be present in person or by proxy at the meeting. This majority is referred to as a quorum. Proxy cards or broker voting instruction forms that reflect abstentions and broker non-votes will be counted as shares present to determine whether a quorum exists to hold the 2020 Annual Meeting.

What is a broker non-vote?

Under the rules that govern brokers who have record ownership of shares that they hold in “street name” for their clients who are the beneficial owners of the shares, brokers normally have discretion to vote such shares on routine matters, such as ratifications of independent registered public accounting firms, but not on non-routine matters. Broker non-votes generally occur when the beneficial owner of shares held by a broker does not give the broker voting instructions on a non-routine matter for which the broker lacks discretionary authority to vote the shares. Proposals 1 and 2 are non-routine matters.

Therefore, if your shares are held in “street name” and you do not provide instructions as to how your shares are to be voted on proposals 1 and 2, your broker will not be able to vote your shares on these proposals. We urge you to provide instructions to your broker so that your votes may be counted on these important matters.

How are votes counted? How many votes are needed to approve each of the proposals?

For each of proposals 1, 2 and 3, you may vote “FOR”, “AGAINST”, or “ABSTAIN”.

 

 

Proposal 1 — Election of Directors. Pursuant to our bylaws, a nominee will be elected to the Board of Directors if the votes properly cast “for” his or her election exceed the votes properly cast “against” such nominee’s election. Broker non-votes and abstentions will have no effect on the results of this vote.

 

 

Proposal 2 — Say-on-Pay. Because proposal 2 is an advisory vote, there is no minimum vote requirement that constitutes approval of this proposal.

 

 

Proposal 3 — Ratification of Independent Registered Public Accounting Firm. The affirmative vote of a majority of the votes properly cast on proposal 3 is required to ratify the appointment of Cabot’s independent registered public accounting firm. Under Delaware law, abstentions are not considered “votes cast” and, therefore, will have no effect on the results of this vote. Brokers generally have discretionary authority to vote on the ratification of our independent registered public accounting firm, thus we do not expect any broker non-votes on this proposal. To the extent there are any broker non-votes, they will also have no effect on the results of this vote.

What if there are more votes “AGAINST” a nominee for director than votes “FOR”?

Each of the nominees is an incumbent director who has tendered a conditional resignation that is effective upon (i) the failure to receive a majority of the votes cast for his or her re-election at the 2020 Annual Meeting and (ii) the Board’s acceptance of this resignation. The Governance and Nominating Committee of the Board of Directors (the “Governance Committee”) would be responsible for initially considering the resignation and making a recommendation to the Board of Directors. The director whose resignation is under consideration is expected to abstain from participating in any decision regarding his or her resignation. The Governance Committee may consider any factors it deems relevant in deciding whether to accept a director’s resignation. If the resignation is not accepted, the director will continue to serve until his or her successor is elected and qualified.

How do I vote?

You can vote either in person at the meeting or by proxy without attending the meeting. Even if you plan to attend the 2020 Annual Meeting, we encourage you to vote your shares by proxy. If your shares are held in “street name” in a brokerage account or by a bank or other nominee and you wish to vote in person at the meeting, you must request a

 

2    CABOT CORPORATION


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2020 PROXY STATEMENT   

 

 

About the Annual Meeting (continued)

 

 

 

legal proxy from your bank, broker or other nominee and bring that proxy to the meeting. Stockholders who own shares in their own name (a record owner), have three options for submitting their votes by proxy:

 

  1.

by Internet – go to www.envisionreports.com/CBT and follow the instructions on the secure site,

 

  2.

by phone – call the toll-free number 1-800-652-VOTE and follow the instructions on your proxy card and the recorded telephone instructions, or

 

  3.

by mail – mark, sign and date the proxy card and return it promptly in accordance with the voting instructions on your proxy card.

In order for your vote to be counted you must return your completed and signed proxy card so that it is received by the Company’s transfer agent by March 11, 2020 or you must vote by telephone or over the Internet by 1:00 pm, Eastern Time, on March 12, 2020.

If your Cabot stock is held in a brokerage account or by a bank or other nominee, your ability to vote by telephone or over the Internet depends on your broker’s, bank’s or nominee’s voting process. Please follow the directions on your voting instruction form carefully.

How do I vote if I hold my stock through the Cabot 401(k) plan?

The Vanguard Fiduciary Trust Company is the trustee of the Cabot Common Stock Fund and the Cabot Common ESOP Fund portions of the Cabot 401(k) plan and is the record owner of all of those shares. If you hold Cabot stock through the Cabot 401(k) plan, you have the right to instruct Vanguard how to vote your shares. Vanguard will tabulate the voting instructions of each participant in the plan and will vote the shares of all participants by submitting a final proxy card representing the plan’s shares for inclusion in the tally at the 2020 Annual Meeting.

Your vote will influence how Vanguard votes those shares for which no instructions are received from other plan participants as those shares will be voted in the same proportion as shares for which instructions are received. If you hold shares in the plan and do not vote, Vanguard will vote your shares (along with all other shares in the plan for which instructions are not provided) in the same proportion as those shares for which instructions are received from other participants in the plan.

In order for your instructions to be followed, you must provide instructions for the shares you hold through the Cabot 401(k) plan by returning your completed and signed proxy card so that it is received by the Company’s transfer agent by March 9, 2020 or by voting by telephone or over the Internet by 9:00 a.m., Eastern Time, on March 10, 2020.

Can I change or revoke my vote?

Yes. You can change or revoke your vote by (1) re-voting by telephone or over the Internet as instructed above (only your latest telephone or Internet vote will be counted), (2) signing and dating a new proxy card or voting instruction form and submitting it as instructed above (only your latest proxy card or voting instruction form will be counted), or (3) attending the meeting and voting in person. If your shares are registered in your name, you may also revoke your vote by delivering timely notice to the Secretary, Cabot Corporation, Two Seaport Lane, Suite 1300, Boston, Massachusetts 02210. Attending the meeting in person will not in and of itself revoke a previously submitted proxy unless you specifically request it. If you hold shares through a bank or broker, you must follow the instructions on your voting instruction form to revoke or change any prior voting instructions.

Who counts the votes?

We have hired Computershare Trust Company, N.A., our transfer agent, to count the votes represented by proxies cast by ballot, telephone and the Internet. A representative of Computershare and either Cabot’s Secretary or Assistant Secretary will act as Inspectors of Election.

 

CABOT CORPORATION    3


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2020 PROXY STATEMENT   

 

 

About the Annual Meeting (continued)

 

 

 

What if I return my proxy card but don’t vote for some of the matters listed?

If you return a signed proxy card without indicating your vote, your shares will be voted in line with the recommendation of the Board of Directors for each of the proposals for which you did not indicate a vote.

Can other matters be decided at the 2020 Annual Meeting?

We are not aware of any other matters that will be considered at the 2020 Annual Meeting. If any other matters properly arise that require a vote, the named proxies will vote in accordance with their best judgment.

Who can attend the meeting?

The 2020 Annual Meeting is open to all Cabot stockholders. If you need directions to the meeting, please call Cabot’s Investor Relations Group at (617) 342-6255. When you arrive at Cabot’s Corporate Headquarters, please go to the 13th Floor and signs will direct you to the meeting room. You need not attend the 2020 Annual Meeting to vote.

Important Notice Regarding the Availability of Proxy Materials for the 2020 Annual Meeting

This proxy statement and our 2019 Annual Report on Form 10-K are available at the following Internet address: http://www.edocumentview.com/CBT.

 

4    CABOT CORPORATION


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2020 PROXY STATEMENT   

 

 

 

 

Governance

Proposal 1 — Election of Directors

 

Board of Directors

Our Board of Directors currently has twelve members and is divided into three classes serving staggered three-year terms. Directors for each class are elected at the annual meeting of stockholders held in the year in which the term for their class expires. Three directors are proposed to be elected at the 2020 Annual Meeting. The terms of Juan Enriquez, Sean D. Keohane and William C. Kirby expire at the 2020 Annual Meeting and our Board of Directors has nominated each of them for a three-year term that will expire at the annual meeting in 2023. All of them are current directors and have been elected by stockholders at previous annual meetings.

Patrick M. Prevost, whose term of office expires at the 2020 Annual Meeting, and John F. O’Brien, whose term of office expires at the 2021 Annual Meeting, have decided to retire from the Board effective at the 2020 Annual Meeting. Upon the election of the nominated directors, and with Mr. Prevost’s and Mr. O’Brien’s retirements, Cabot’s Board of Directors will have ten members. We expect that all of the nominees will be available for election, but if any of the nominees is not available at the time of the 2020 Annual Meeting, proxies received will be voted for substitute nominees to be designated by the Board of Directors or, if no substitute nominees are identified by the Board, proxies will be voted for a lesser number of nominees. In no event will the proxies be voted for more than three nominees.

Vote Required

A nominee will be elected to the Board of Directors if the votes properly cast “for” his election exceed the votes properly cast “against” such nominee’s election.

Recommendation

The Board of Directors recommends that you vote “FOR” the election of its three nominees.

 

CABOT CORPORATION    5


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2020 PROXY STATEMENT   

 

 

Proposal 1 — Election of Directors (continued)

 

 

 

Certain Information Regarding Directors

In addition to the information presented below regarding the specific experience, qualifications, attributes and skills that qualify the nominees and the directors whose terms of office will continue after the 2020 Annual Meeting to serve as a director of the Company, all the nominees and directors have a reputation for honesty, integrity, sound judgment and adherence to high ethical standards. Each of the nominees and directors has demonstrated the willingness and ability to make the significant commitment of time and energy to serve on our Board and its Committees, and to engage management and each other openly and constructively. Our Directors are committed to having a Board that reflects a balanced set of skills that is aligned with our strategic goals and reflects our diversity objectives.

 

 

LOGO

Juan Enriquez

(Nominee for Election)

 

 

Director Since: 2005

Committee Memberships: Audit

Term of Office Expires: 2020

Age: 60

Independent

Business Experience:

•   Chairman and CEO, Biotechonomy Ventures, a life sciences research and investment firm, since 2003

•   Managing Director, Excel Venture Management, a life sciences investment company, since March 2008

•   Director, Life Science Project at Harvard Business School, 2001 to 2003

Other Boards and Positions:

•   Director, various start-up companies

•   Boston Museum of Science (Trustee)

•   Harvard Medical School Advisory Council

•   Trustee, WGBH

Mr. Enriquez has significant expertise in technology, start-up companies and international business, and leadership experience from his broad experience in technology ventures.

 

   

 

LOGO

Sean D. Keohane

(Nominee for Election)

 

 

Director Since: 2016

Committee Memberships: Executive

Term of Office Expires: 2020

Age: 52

Business Experience:

•   President and CEO, Cabot Corporation, since March 2016

•   EVP, President, Reinforcement Materials, November 2014 to March 2016; SVP, President, Performance Chemicals, March 2012 to November 2014; General Manager, Performance Chemicals, May 2008 to March 2012; Vice President in March 2005; joined Cabot Corporation August 2002

•   General management positions, Pratt & Whitney, a division of United Technologies, prior to 2002

Other Boards and Positions:

•   Director, The Chemours Company, a global provider of performance chemicals (2018 to present)

•   Director, American Chemistry Council, a trade association representing the business of chemistry at the global, national and state levels (2016 to present)

Mr. Keohane has a deep understanding of Cabot’s businesses, strong knowledge of the chemicals industry and significant experience in management, strategic planning, manufacturing, international business and marketing.

 

   

 

6    CABOT CORPORATION


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2020 PROXY STATEMENT   

 

 

Proposal 1 — Election of Directors (continued)

 

 

 

 

LOGO

William C. Kirby

(Nominee for Election)

 

 

Director Since: 2012

Committee Memberships: Compensation

Term of Office Expires: 2020

Age: 69

Independent

Business Experience:

•   Spangler Family Professor of Business Administration, Harvard Business School; T.M. Chang Professor of China Studies, Harvard University, since July 2008

•   Harvard University Distinguished Service Professor and Chairman of the Harvard China Fund, since July 2006

•   Harvard faculty member since 1992, served as Chair of Harvard’s History Department, Director of the Harvard University Asia Center, Dean of the Faculty of Arts and Sciences and Director of the Fairbank Center for Chinese Studies

Other Boards and Positions:

•   Director, The China Fund, Inc., a non-diversified closed-ended management investment company (2007 to 2019)

•   Director, The Taiwan Fund, Inc., a diversified closed-ended management investment company (2013 to present)

•   Director, Harvard University Press

•   Director, Harvard Magazine

•   Director, JAMM Active Limited, a global producer of innovative performance fabrics for athletic use (2016 to present)

Mr. Kirby has extensive business knowledge and particular expertise regarding the business, economic and political environment in China.

 

   

 

LOGO

Cynthia A. Arnold

 

 

Director Since: 2018

Committee Memberships: SHE&S

Term of Office Expires: 2021

Age: 62

Independent

Business Experience:

•   Chief Technology Officer, The Valspar Corporation, a global paint and coatings company, January 2011 until retirement in May 2017

•   Chief Technology Officer, Sun Chemical Corporation, a producer of inks, coatings and supplies, pigments, polymers, liquid compounds, solid compounds and application materials, 2004 to December 2010

•   Vice President of Coatings, Adhesives and Specialty Chemicals Technology, Eastman
Chemical Company, a global advanced materials and specialty additives company, 2003-2004

•   Management and technology leadership positions, General Electric Company, a high technology industrial leader, 1994 to 2003

Other Boards and Positions:

•   Director, Milliken & Company, a global diversified industrial company for specialty chemicals, performance materials and textiles (April 2019 to present)

•   Director, Citrine Informatics, a global AI-driven materials data management company (2018 to present)

•   Member, Advisory Board, University of Minnesota Dept of Chemical Engineering and Materials Science

•   Member, Materials Advisory Board, Carbon 3D, Inc.

•   Board Member, Minnesota Zoo (Co-chair, Technology Task Force)

Dr. Arnold has a depth of global experience in the specialty chemicals industry, particularly in technology and innovation, with an understanding of the value chains in which Cabot participates.

 

   

 

CABOT CORPORATION    7


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2020 PROXY STATEMENT   

 

 

Proposal 1 — Election of Directors (continued)

 

 

 

 

LOGO

Mark S. Wrighton

 

 

Director Since: 1997

Committee Memberships: Compensation

Term of Office Expires: 2021

Age: 70

Independent

Business Experience:

•   Professor and Chancellor Emeritus, Washington University in St. Louis, June 2019 to present

•   Trustee, Washington University in St. Louis, July 2019 to present

•   Chancellor, Washington University in St. Louis, 1995 to May 2019

•   Faculty member, Massachusetts Institute of Technology, Provost, 1990 to 1995; Head of Chemistry Department, 1987 to 1990

Other Boards and Positions:

•   Director, Brooks Automation, Inc., a worldwide provider of automation, vacuum and instrumentation solutions to the global semiconductor and related industries (2005 to present)

•   Director, Corning, Inc., a specialty glass and ceramics company (2009 to present)

•   Director, A.G. Edwards, Inc., a financial services company (2000 to 2007)

•   Director, BJC HealthCare

•   Director, Donald Danforth Plant Science Center

•   Ex-officio Director, St. Louis Regional Chamber and Growth Association

•   Trustee, St. Louis Science Center

•   Director, Concordance Academy

Chancellor Wrighton has extensive scientific knowledge and understanding of complex technology, significant management and leadership experience, and a deep understanding of matters relating to public company management and oversight.

 

   

 

LOGO

Christine Y. Yan

 

 

Director Since: 2019

Committee Memberships: SHE&S

Term of Office Expires: 2021

Age: 54

Independent

Business Experience:

•   Vice President, Integration, Stanley Black & Decker, a manufacturer of industrial tools and household hardware and a provider of security products and locks, 2018 until her retirement that same year

•   President, Asia, Stanley Black & Decker, 2014 to 2018

•   President, Stanley Storage and Workspace Systems, Stanley Black & Decker, 2013 to 2014

Other Boards and Positions:

•   Director, Modine Manufacturing Company, a thermal management company (2014 to present)

•   Director, ON Semiconductor, a supplier of semiconductor-based solutions (2018 to present)

•   Director, Ansell Limited, a manufacturer of protective industrial and medical gloves (2019 to present)

Ms. Yan has years of experience in global manufacturing and engineering and significant experience with international business, particularly in Asia.

 

   

 

8    CABOT CORPORATION


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2020 PROXY STATEMENT   

 

 

Proposal 1 — Election of Directors (continued)

 

 

 

 

LOGO

Michael M. Morrow

 

 

Director Since: 2017

Committee Memberships: Audit (Chair), Governance

Term of Office Expires: 2022

Age: 64

Independent

Business Experience:

•   Partner, PricewaterhouseCoopers, a public accounting firm, 1986 until retirement in June 2016, as audit partner and in various leadership and governance roles, including Lead Director of PwC’s U.S. Board of Partners

•   Consultant, PwC, June 2016 to June 2017

Other Boards and Positions:

•   Chair, Financial Accounting Standards Advisory Committee (FASAC), an advisory body to the Financial Accounting Standards Board (FASB) (beginning January 2020, and Member from January 2019 to present)

•   Member, Board of Visitors, Wake Forest University School of Business (2011 to 2017)

•   Member, Business Advisory Council, University of Rhode Island School of Business (2010 to 2015)

Mr. Morrow has substantial expertise in accounting, finance and financial reporting matters, and significant leadership, business and corporate governance experience.

 

   

 

LOGO

Sue H. Rataj

Non-Executive

Chair of the Board

 

 

Director Since: 2011

Committee Memberships: Executive (Chair), Governance (Chair)

Term of Office Expires: 2022

Age: 63

Independent

Business Experience:

•   Chief Executive, Petrochemicals for BP, a global energy company, April 2008 until retirement in April 2011

•   Senior management positions with BP, including Group Vice President, Refining and Marketing, July 2007 to April 2008

Other Boards and Positions:

•   Director, Agilent Technologies, Inc., a global leader providing instruments, software and consumables to laboratories in the life sciences, diagnostics and applied chemical markets (2015 to present)

•   Supervisory Board Member, Bayer AG, a life science enterprise developing and manufacturing products in the pharmaceuticals, consumer health, animal health and crop science segments (2012 to 2017)

Ms. Rataj has substantial management leadership and strategic planning experience, significant expertise in operations, safety, health and environmental matters, risk management, accounting and finance matters, particularly in the context of a chemicals company, as well as corporate governance experience.

 

   

 

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Proposal 1 — Election of Directors (continued)

 

 

 

 

LOGO

Frank A. Wilson

 

 

Director Since: 2018

Committee Memberships: Audit

Term of Office Expires: 2022

Age: 61

Independent

Business Experience:

•   Senior Vice President and Chief Financial Officer, PerkinElmer, Inc., a life sciences diagnostics, discovery and analytical solutions company, May 2009 until retirement in May 2018

•   Finance, business development and investor relations leadership positions, Danaher Corporation, a life sciences and industrial conglomerate, 1999 to May 2009

Other Boards and Positions:

•   Director, Alkermes, a fully integrated, global biopharmaceutical company (September 2019 to present)

•   Director, Spartan Corporation, a provider of design, development and manufacturing services for electromechanical devices (2015 to March 2019)

Mr. Wilson has significant financial expertise and skills in strategic planning, investor relations and business development within international public companies.

 

   

 

LOGO

Matthias L. Wolfgruber

 

 

Director Since: 2014

Committee Memberships: SHE&S (Chair), Governance

Term of Office Expires: 2022

Age: 66

Independent

Business Experience:

•   CEO, Altana AG, a global specialty chemicals company, 2007 until retirement in January 2016

•   President and CEO, Altana Chemie AG, member of the management board of Altana AG, 2002 to 2007

•   Management positions at Wacker-Chemie in the U.S. and Europe, 1985 to 2002

Other Boards and Positions:

•   Supervisory Board Member, Lanxess AG, a leading global manufacturer of synthetic rubber and chemical intermediates (2015 to present)

•   Supervisory Board, Altana AG (2016 to present)

•   Supervisory Board, Grillo-Werke AG, a manufacturer and supplier of zinc alloy products and chemicals (2014 to present)

•   Chairman, Ardex Group, a global supplier of high-performance specialty building materials (2015 to present)

Dr. Wolfgruber has extensive leadership experience managing specialty chemicals businesses with global operations, with particular expertise in manufacturing, strategic investments and acquisitions.

 

   

 

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Board Governance and Composition

 

Corporate Governance Guidelines

Our Board of Directors has adopted Corporate Governance Guidelines that address director qualifications and independence, Board Committees, director compensation, Board performance evaluations, Board and Committee meetings, access to senior management, and Chief Executive Officer (“CEO”) performance evaluation and succession planning, among other matters. Many of the Board’s practices and policies set out in these Guidelines are described in this discussion of Board Governance and Composition. The Corporate Governance Guidelines are posted on our website (www.cabotcorp.com) under the heading “Company — About Cabot — Governance — Resources.”

Board Composition

The Governance Committee is charged with reviewing the composition of the Board and refreshing it as appropriate to ensure the Board as a whole reflects a range of talents, skills, diversity and expertise needed to meet the evolving needs of our businesses and to oversee the execution of our strategy.

Important Factors in Assessing Director Qualifications

Director Qualifications. The Governance Committee strives to maintain an engaged, independent board with broad and diverse experience and judgment that is committed to representing the interests of our stockholders. Board candidates as well as nominees for re-election are evaluated in the context of the current composition of the Board of Directors and in relation to the Board’s current and anticipated requirements. We expect our directors and any candidate or nominee to have integrity and to demonstrate high ethical standards. The Committee also considers a wide range of factors when assessing director qualifications, including:

Ensuring an experienced, qualified Board with expertise in areas relevant to Cabot. The Committee seeks directors who have held significant leadership positions and can bring to the Board specific types of experience relevant to Cabot. It is the Board’s policy that the Board as a whole reflect a range of talents, skills and expertise, particularly in these areas:

 

 

Management Leadership and Strategic Planning Experience. We believe that directors who have held significant leadership positions over an extended period of time possess strong leadership qualities and demonstrate a practical understanding of organizations, processes, strategy and risk management and know-how to drive change and growth. As a publicly traded company, we value experience on the boards of other publicly traded companies and other complex organizations.

 

Specialty Chemicals Industry and Operations Experience. We have sought directors with leadership and operational experience in the industries and value chains in which we operate.

 

Global Experience. We value directors with global business experience because our continued success depends, in part, on growing our businesses outside the United States. Further, we have significant manufacturing operations outside the U.S., and a majority of our revenues came from outside of the U.S. in fiscal 2019.

 

Accounting and Finance Experience. We use a broad set of financial metrics to measure our performance, and accurate financial reporting and robust auditing are critical to our success.

 

Technology and Market Experience. As a science and technology company and an innovator, we value directors with an understanding of technology and material science and the value chains in which we participate. We seek to grow organically by developing new products, and identifying new applications and markets for our existing products. Under our “Advancing the Core” strategy, this is critical as we continue to intensify our focus on application innovation and formulated solutions.

Enhancing the Board’s diversity of background. As a global company, we consider diversity an essential element of our culture. At the Board level and throughout our company we value the benefits we receive from different perspectives and strive for a talented and diverse workforce and a diverse Board that is representative of our global business, customers, employees and stockholders. In evaluating the suitability of individual Board nominees, the Governance

 

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Board Composition (continued)

 

 

 

Committee takes into account many factors, including general understanding of the disciplines relevant to the success of a publicly traded company with global manufacturing operations in today’s business environment, professional experience, background, education, skill, age, race, gender and national origin. Although the Board does not have a formal written policy that solely addresses diversity, our Corporate Governance Guidelines prioritize diversity of origin, gender, background, experience and thought as important director selection criteria. The Governance Committee reviews its effectiveness in balancing these considerations when assessing the composition of the Board.

Individual Attributes. The Board believes that to function effectively, all directors should demonstrate sound judgment, compassion, a willingness and ability to work with other members of the Board openly and constructively and the ability to communicate clearly and persuasively, and to dedicate the time sufficient to ensure the diligent performance of their duties on our behalf.

Complying with the Board’s independence guidelines. When selecting and recruiting candidates, the Board looks at other positions the candidate has held or holds, including other board memberships, to determine whether any material relationship with Cabot exists that could impair the candidate’s independence.

Candidate Recommendations. We identify candidates for election to the Board of Directors through the business networks of the directors and management and from recommendations made by third-party search firms upon the request of the Governance Committee. Over the past year, the Governance Committee retained a search firm to help identify potential candidates. We evaluate candidates recommended by our stockholders in the same manner and on the same basis as candidates recommended by our directors, management or third-party search firms. Ms. Yan was initially identified as a candidate for election to the Board by a third-party search firm, and upon the recommendation of the Governance Committee, the Board elected Ms. Yan a director effective May 2019. In considering Ms. Yan’s candidacy, the Board considered Ms. Yan’s years of experience in global manufacturing and engineering as well as her significant experience in international business, particularly in Asia.

Board Refreshment. A number of changes have occurred in our Company’s Board of Directors over the past several years as part of our continuing efforts to ensure that our Board has the right skills and tenures to best oversee management and the execution of our strategy and the associated risks. Taking into account the upcoming retirements of Messrs. Prevost and O’Brien, 40% of our directors have joined the Board in the last three years. Our Board does not have a mandatory retirement policy. With respect to director tenure, the Board is of the view that a mix of tenures that takes into consideration appropriate levels of continuity, institutional memory and fresh perspectives is critical in achieving and maintaining a high-performing board. The Board will continue to proactively manage its composition and make-up to ensure it has the appropriate mix of tenures and the requisite skills to address the Company’s current and future needs.

How we Assess Director Independence

The Board’s Guidelines. It is the Board’s policy that at least the majority of the Board’s members must be independent under our Corporate Governance Guidelines. The Governance Committee annually reviews the independence of all directors and reports its findings to the full Board. All our directors are “independent” under the Board’s director independence standards, other than Mr. Keohane, our President and CEO, and Mr. Prevost, our former President and CEO. For a director to be considered independent, the Board must determine that he or she does not have any material relationship with Cabot. The Board’s guidelines for director independence are consistent with the independence requirements in the New York Stock Exchange’s listing standards. In addition to applying these guidelines, the Board evaluates all relevant facts and circumstances in making an independence determination. In assessing director independence, the Board considers all known relationships, transactions and arrangements among directors, their family members, and Cabot. The Board concluded that none of the non-management directors who served as directors during the 2019 fiscal year, other than Mr. Prevost, had a material relationship with Cabot.

 

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Board Composition (continued)

 

 

 

Our Leadership Structure — Non-Executive Chair of the Board; Executive Sessions

Sue H. Rataj has served as Non-Executive Chair of the Board of Directors since March 9, 2018.

Although our Corporate Governance Guidelines do not require that our Chair and Chief Executive Officer positions be separate, our Board believes that this leadership structure is appropriate at this time because it allows our Chief Executive Officer to focus on the strategic and operational aspects of our business, while allowing the Non-Executive Chair of the Board to provide independent leadership for the Board. Our Board recognizes that future circumstances may lead it to change the leadership structure depending on Cabot’s needs at the time and, as such, believes that it is important to retain flexibility. In the future, if the Chief Executive Officer also serves as Chair of the Board, our Corporate Governance Guidelines require that an independent director be appointed annually as lead director to set the agenda for and lead the executive sessions of the non-management directors at Board meetings and to undertake such other responsibilities as the independent directors designate.

Key Responsibilities. Our Non-Executive Chair of the Board focuses on the Board’s processes and ensuring it is prioritizing the right matters. Specifically, the Chair has the following responsibilities, and may perform other functions at the Board’s request:

 

 

presiding over meetings of our Board and stockholders, including executive sessions of the non-management directors;

 

serving as an ex-officio member of each Board committee of which he or she is not a member and, upon invitation, attending those committee meetings where possible;

 

establishing an agenda for each Board meeting in collaboration with our CEO and meeting with our CEO following each meeting to discuss any open issues and follow-up items;

 

facilitating and coordinating communication among the non-management directors and our CEO and an open flow of information between management and our Board;

 

in collaboration with the Governance Committee, leading our Board’s annual performance review;

 

meeting with each non-management director at least annually;

 

providing assistance to our CEO by attending selected internal business management meetings and meeting with our CEO as necessary;

 

coordinating the periodic review of management’s strategic plan;

 

in collaboration with the Compensation Committee, leading our Board’s review of the succession plans for our CEO; and

 

working with management on effective stockholder communication and engagement.

How our Board Operates

Our Board of Directors has six scheduled Board meetings to review and discuss Cabot’s performance and prospects as well as the issues we face, with calls and communications between meetings as appropriate. The Board interacts directly with senior management during its meetings. The Board typically dedicates one multiple-day meeting a year to a discussion of longer-term strategic issues the Company faces. During this meeting, the Board allocates significant time for a discussion of talent management and management succession planning, as well as the Company’s diversity and inclusion objectives and achievements. During fiscal 2019, the Board met six times and acted by written consent once.

A significant portion of the Board’s oversight responsibility is carried out through its four operating committees.

Committee Composition. All of the members of our Audit Committee, Governance and Nominating Committee and Compensation Committee satisfy the NYSE’s definition of an independent director.

Committee Operations. Each Committee meets periodically throughout the year, reports its actions to the Board, receives reports from senior management, annually evaluates its performance and can retain outside advisors. Each Committee’s meeting materials are available for review by all directors.

Committee Responsibilities. The primary responsibilities of each Committee are listed below. For more detail about the responsibilities and functions of each Committee, see the Committee charters on our website (www.cabotcorp.com) under the heading “Company — About Cabot — Governance — Resources.”

 

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Board Composition (continued)

 

 

 

Audit Committee

Members

 

Michael M. Morrow, Chair

   Frank A. Wilson  

Juan Enriquez

    

8 meetings in fiscal 2019

Financial Acumen. Mr. Morrow and Mr. Wilson are “audit committee financial experts” under SEC rules and each of these directors as well as Mr. Enriquez are “financially literate” under NYSE rules.

Primary Responsibilities

The Audit Committee assists the Board of Directors in its oversight of (i) the integrity of Cabot’s financial statements, (ii) our compliance with legal and regulatory requirements, (iii) the independent registered public accounting firm’s qualifications and independence, (iv) the performance of our internal audit function and (v) our risk assessment and risk management processes. The Audit Committee, among other functions:

 

 

Has the sole authority to appoint, retain, terminate and determine the compensation of our independent registered public accounting firm.

 

Monitors the qualifications, independence and performance of our independent registered public accounting firm and approves professional services provided by the independent registered public accounting firm.

 

Reviews with our independent registered public accounting firm the scope and results of the audit engagement.

 

Reviews the activities and recommendations of our independent registered public accounting firm.

 

Discusses Cabot’s annual audited financial statements, quarterly financial statements and earnings releases with management and Cabot’s independent registered public accounting firm, including our disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

Reviews Cabot’s accounting policies, risk assessment and risk management processes, control systems, legal matters and compliance activities.

During fiscal 2019, the Committee’s other priorities included treasury matters, including cash and debt management, internal controls practices, tax matters and cyber-security risk.

Compensation Committee

Members

 

John F. O’Brien*, Chair

   Mark S. Wrighton   

William C. Kirby

     

 

*

Mr. O’Brien is retiring from the Board at the 2020 Annual Meeting

4 meetings and 2 actions by written consent in fiscal 2019

Primary Responsibilities

The primary responsibilities of the Compensation Committee are to:

 

 

Approve the corporate goals and objectives relevant to the compensation of our CEO, evaluate the CEO’s performance and approve the CEO’s salary and incentive compensation.

 

Establish policies applicable to the compensation, severance or other remuneration of Cabot’s Management Executive Committee, review and approve performance measures and goals under incentive compensation plans applicable to such employees, and approve their salaries, annual short-term and long-term incentive awards, any severance payments and any other remuneration.

 

Review and approve the aggregate amount of bonuses to be paid to participants in Cabot’s annual short-term incentive program.

 

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Board Composition (continued)

 

 

 

 

Administer Cabot’s incentive compensation plans, equity-based plans and supplemental benefits arrangements, which includes approving the aggregate number of shares of stock granted under Cabot’s long-term incentive program.

 

Appoint the members of the Company’s Benefits and Investment Committees and monitor their activities.

 

Review on a periodic basis reports prepared by management of gender pay equity at the Company.

Important items for fiscal 2019 included establishing the compensation arrangements for the newly appointed members of the Company’s Management Executive Committee.

Governance Committee

Members

 

Sue H. Rataj, Chair

   Michael M. Morrow   

John F. O’Brien*

   Matthias L. Wolfgruber   

 

*

Mr. O’Brien is retiring from the Board at the 2020 Annual Meeting

4 meetings in fiscal 2019

Primary Responsibilities

The Governance Committee is charged primarily with:

 

 

Developing and recommending to the Board corporate governance policies and procedures.

 

Identifying individuals qualified to become directors of Cabot.

 

Recommending director candidates to the Board to fill vacancies and to stand for election at the annual meeting of stockholders.

 

Recommending Committee assignments.

 

Leading the annual review of the Board’s performance.

 

Recommending compensation and benefit policies for Cabot’s directors.

 

Reviewing and making determinations regarding interested transactions under Cabot’s Related Person Transaction Policy and Procedures.

During fiscal 2019, the Governance Committee focused on Board composition and refreshment and reviewed the competitiveness of our director compensation program.

Safety, Health, Environment & Sustainability (“SHE&S”) Committee

Members

 

Matthias L. Wolfgruber, Chair    Patrick M. Prevost*   

Cynthia A. Arnold

   Christine Y. Yan   

 

*

Mr. Prevost is retiring from the Board at the 2020 Annual Meeting

3 meetings in fiscal 2019

Primary Responsibilities

The SHE&S Committee reviews aspects of Cabot’s safety, health, environmental and sustainability performance, process safety, security, product stewardship, community engagement and governmental affairs. In particular, the Committee reviews the following:

 

 

Cabot’s environmental reserve and risk management processes.

 

Environmental and safety audit programs, performance metrics, risk and opportunity assessments.

 

Management processes related to our safety, health, environment and sustainability programs.

 

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Board Composition (continued)

 

 

 

During fiscal 2019, the Committee focused on the Company’s safety improvement plans, chemical risks and hazard assessments program, sustainability program and reporting, product safety and toxicology matters, and environmental remediation activities.

Executive Committee

Members

 

Sue H. Rataj, Chair

   Michael M. Morrow   

Sean D. Keohane

   John F. O’Brien*   

 

*

Mr. O’Brien is retiring from the Board at the 2020 Annual Meeting.

Did not meet or act in fiscal 2019

Primary Responsibilities

The Executive Committee reviews and, where appropriate, approves corporate action with respect to the conduct of our business between Board of Directors’ meetings. Actions taken by the Executive Committee are reported to the Board at its next meeting.

How We Evaluate the Board’s Effectiveness

Each year, the Governance Committee leads our Board’s annual evaluation process. The process focuses on the effectiveness of the Board as a whole, prioritizing issues, and identifying specific issues for future discussion. In 2019, our General Counsel conducted individual interviews with each director. The conversations were guided by a series of questions provided to the directors in advance covering Board and Committee membership, operations and responsibilities, as well as open-ended questions so that each director had leeway to discuss the issues he or she believed to be the most pertinent. The key themes, observations and suggestions were summarized and discussed first with the Governance Committee and later with the full Board. Based on these discussions, opportunities to further enhance the Board’s effectiveness have been and are being implemented. In addition, our Non-Executive Chair conducted one-on-one discussions with each director and also solicited feedback on individual director performance.

Our Board’s Role in Risk Oversight

Our Board oversees our enterprise-wide program of risk management. Cabot management is primarily responsible for day-to-day risk management practices and, together with other personnel, regularly engages in an enterprise-wide risk assessment. This assessment is updated on a continual basis and includes a comprehensive review of a broad range of risks, including financial, operational, business, legal, regulatory, reputational, governance and managerial risks which may potentially affect the Company. From this assessment, the most significant risks in terms of their likelihood and severity are identified, and plans to manage and mitigate these risks are developed. Cabot management regularly reports to either the full Board or the relevant Committee of the Board our major risk exposures, their potential operational or financial impact on Cabot, and the steps we take to manage them.

Our Board has ultimate responsibility for risk oversight and oversees our corporate strategy, business development, capital structure, market exposure and country specific risks. Each Committee also has responsibility for risk oversight. The Audit Committee focuses on financial risk, including internal controls and legal and compliance risks and receives regular reports from our independent registered public accounting firm, our CFO, our Controller, our Director of Internal Audit and our General Counsel. The Audit Committee also oversees the Company’s enterprise risk management processes and cybersecurity program. The SHE&S Committee assists the Board in fulfilling its oversight responsibility by reviewing the effectiveness of our safety, health, environment and sustainability programs and initiatives and overseeing matters related to stewardship and sustainability of our products and manufacturing processes. The Compensation Committee considers human resources risks and evaluates and sets compensation programs that encourage decision-making predicated upon a level of risk consistent with our business strategy. The Compensation Committee also oversees senior management succession planning and development. Finally, the Governance Committee considers

 

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Board Composition (continued)

 

 

 

governance and Board succession risks, and evaluates director skills and qualifications to ensure each Committee has directors with the requisite skills to oversee the applicable risks that are the focus of that Committee. The Company has a robust risk management program, the strength of which is not dependent on the Board’s leadership structure.

Our Compensation Discussion and Analysis (“CD&A”) describes our compensation policies, programs and practices for our named executive officers. Our corporate goal-setting, assessment and compensation decision-making processes described in our CD&A apply to all participants in our corporate short- and long-term incentive programs.

Participants in our long-term incentive program receive awards consisting of time-based restricted stock units and performance-based restricted stock units, and, in the case of members of the Management Executive Committee and a limited number of other participants, stock options. Beyond our corporate short- and long-term incentive programs, a substantial number of our facilities offer an annual cash incentive plan.

The Compensation Committee directed management, working with the Committee’s independent consultant, Meridian Compensation Partners, to provide an evaluation on the design of all of our incentive plans to assess whether any portion of our incentive compensation programs encourages excessive risk taking. That assessment is presented to and reviewed by the Compensation Committee. Among the program features evaluated are the types of compensation offered, performance metrics, the alignment between performance goals, payout curves and the Company’s business strategy, and the overall mix of incentive awards. The Company’s compensation programs are designed with features that mitigate risk without diminishing the incentive nature of the compensation. Specific features of the programs to mitigate risk include, as applicable, the following: caps limiting the amount that can be paid under the corporate short- and long-term incentive programs and all of the local cash incentive programs; a balanced mix of annual and longer-term incentive opportunities; a mix of cash and equity incentives; multiple performance metrics; management processes to oversee risk associated with each of our incentive programs; stock ownership guidelines for members of the Management Executive Committee; a company compensation recoupment policy; and significant controls for important business decisions. In our CD&A we describe in more detail the features of our executive compensation programs that are designed to mitigate risk, including the oversight provided by the Compensation Committee, which reviews and approves the design, goals and payouts under our corporate short- and long-term incentive programs and each executive officer’s compensation. Based on our assessment, we believe our compensation policies, programs and practices do not create risks that are reasonably likely to have a material adverse effect on the Company.

 

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Other Governance Policies and Practices

 

Transactions with Related Persons

Policy and Procedures for the Review of Related Person Transactions

Our Board has adopted a written policy for the review and approval or ratification of transactions involving related persons. “Related persons” consist of any person who is or was (since the beginning of the fiscal year) a director, nominee for director or executive officer of Cabot, any greater than 5% stockholder of Cabot and the immediate family members of any of those persons. The Governance Committee is responsible for applying the policy with the assistance of our General Counsel.

Transactions covered by the policy consist of any transaction, arrangement or relationship (including any indebtedness or guarantee of indebtedness) or any series of similar transactions, arrangements, or relationships in which (1) the aggregate amount involved will or may be expected to exceed $100,000 with respect to any fiscal year, (2) Cabot is a participant and (3) any related person has or will have a direct or indirect interest, other than solely as a result of being a director or a less than 10% beneficial owner of another entity (an “interested transaction”). Under the policy, the following interested transactions have a standing pre-approval from the Governance Committee, even if the aggregate amount is greater than $100,000:

 

 

Certain sales of stock by executive officers to Cabot. (1) Sales of Cabot stock by an executive officer (including the CEO) to Cabot pursuant to the terms of our long-term incentive program or (2) other sales by executive officers (excluding the CEO) provided that the sale has been approved by our CEO, the per share purchase price is the fair market value of our common stock on the date of sale, the proceeds from the sale to the executive officer do not exceed $500,000, and the sale does not take place during a quarterly blackout period.

 

Certain transactions with other companies. Any transaction between Cabot and another company if the aggregate amount involved does not exceed the greater of $1,000,000 or 2% of that company’s total revenues, or any transaction where Cabot is indebted to another company if the total amount of Cabot’s indebtedness to the other company does not exceed 1% of that company’s total consolidated assets. In both cases, the pre-approval applies if the related person’s only relationship is as an employee (other than executive officer), director or beneficial owner of less than 10% of the other company’s shares.

 

Employment of executive officers; director compensation. Any employment by Cabot of an executive officer if the related compensation is required to be reported in our proxy statement or if the compensation was approved by our Compensation Committee. Any compensation paid to a director if the compensation is required to be reported in our proxy statement.

 

Other transactions. Competitively bid or regulated public utility services transactions; transactions involving trustee-type services; and transactions where the related person’s interest arises solely from the ownership of our common stock and all common stockholders received the same benefit on a pro rata basis.

Each interested transaction by a related person that does not have standing pre-approval under the policy should be reported to our General Counsel for presentation to the Governance Committee for approval before its consummation or for ratification, if necessary, after its consummation. The Chair of the Governance Committee has the authority to pre-approve or ratify (as applicable) any interested transaction with a related person in which the aggregate amount involved is expected to be less than $500,000. In determining whether to approve or ratify an interested transaction, the Governance Committee and the Chair may take into account such factors as they deem appropriate, which may include whether the interested transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related person’s interest in the transaction.

Transactions with Related Persons

Since the beginning of fiscal 2019, Cabot and its subsidiaries had no transactions, nor are there any currently proposed transactions in which Cabot or its subsidiaries was or is to be a participant and the amount involved exceeds $120,000 and any related person (as defined above) had or will have a direct or indirect material interest reportable under SEC rules.

 

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Other Governance Policies and Practices (continued)

 

 

 

Stockholder Engagement

The Company welcomes stockholder engagement. Our directors are available to answer questions from stockholders at the 2020 Annual Meeting. In addition, management of the Company conducts stockholder outreach throughout the year to ensure management and the Board understand and consider the issues that matter most to our stockholders. We provide regular updates regarding the Company’s performance and strategic actions to the investor community, and we participate in numerous investor conferences, one-on-one meetings, earnings calls, investor days, and educational investor and analyst conversations. We also communicate with stockholders and other stakeholders through various media, including our annual report, proxy statement and other filings with the SEC, news releases and our website. We believe ongoing stockholder engagement allows us to respond effectively to stockholder concerns.

Procedures for Stockholders to Recommend Director Nominees

The Governance Committee has a policy with respect to the submission of recommendations by stockholders of candidates for director nominees, which is available on our website. A stockholder wishing to recommend a candidate must submit the recommendation by a date not later than the 120th calendar day before the first anniversary of the date that Cabot released its proxy statement to stockholders in connection with the previous year’s annual meeting. Recommendations should be submitted to the Company’s Secretary in writing at Cabot Corporation, Two Seaport Lane, Suite 1400, Boston, Massachusetts 02210. The notice to the Secretary should include all information about the candidate that Cabot would be required to disclose in a proxy statement in accordance with Securities and Exchange Act rules or as required by the Company’s by-laws, consent of the candidate to serve on the Board of Directors, if nominated and elected, and agreement of the candidate to complete, upon request, questionnaires customary for Cabot directors and to comply with applicable Company policies.

Director Attendance at Meetings

During fiscal 2019, each director attended at least 75% of the aggregate of the total Board meetings and the total meetings held by all of the Committees on which he or she served during the periods that he or she served.

Code of Business Ethics

We have adopted a code of ethics that applies to all of our employees and directors, including the Chief Executive Officer, the Chief Financial Officer, the Controller and other senior financial officers. In fiscal 2019, each of our directors completed our Code of Business Ethics on-line compliance training program that we require our employees to complete. The Code of Business Ethics is posted on our website (www.cabotcorp.com) under the caption “Company — About Cabot — Code of Business Ethics.”

Communications with the Board

Stockholders or other interested parties wishing to communicate with the Board, the non-management directors or any individual director may contact the Non-Executive Chair of the Board by calling 1-800-853-7602; by sending an email through our website using the link that is located under the caption “Company — About Cabot — Governance — Contact the Board of Directors”; or by writing to Cabot Corporation Board of Directors, c/o Alertline Anonymous, P.O. Box 3767, 13950 Ballantyne Corporate Place, Suite 300, Charlotte, North Carolina 28277.

Anyone who has a complaint or concern regarding our accounting, internal accounting controls or auditing matters may communicate that concern to the Chair of the Audit Committee by calling 1-800-853-7602; by sending an email through our website using the link that is located under the caption “Company — About Cabot — Governance — Contact the Board of Directors”; or by writing to Cabot Corporation Audit Committee, c/o Alertline Anonymous, P.O. Box 3767, 13950 Ballantyne Corporate Place, Suite 300, Charlotte, North Carolina 28277. All such communications to the Board of Directors or the Audit Committee will also be sent to Cabot’s Office of Compliance.

 

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Director Compensation

 

Annual compensation for our non-employee directors is comprised of cash compensation and a grant of Cabot common stock. The Governance Committee is responsible for reviewing the form and amount of compensation paid to our non-employee directors and recommends changes to our Board of Directors as appropriate. In November 2018, the Governance Committee, with the assistance of Mercer LLC, a national executive compensation firm, evaluated the reasonableness of our director compensation and the appropriate mix of cash and equity compensation. This assessment included a review of director compensation data prepared for the Governance Committee by Mercer using the same peer group of companies our Compensation Committee uses for assessing the reasonableness of our executive compensation decisions. Based on this evaluation, and upon the recommendation of the Governance Committee, our Board of Directors approved, effective January 1, 2019, the following changes in our director compensation:

 

 

increased the annual equity compensation component of this program from a value of $110,000 to a value of $120,000

 

increased the annual cash retainer from $75,000 to $90,000

 

eliminated the separate $16,000 annual cash retainer for serving on the Audit Committee and the separate $7,000 annual cash retainer for serving on the Compensation, Governance or SHE&S Committee

 

reduced the annual retainer paid to the Chair of the Audit Committee from $25,000 to $20,000

 

increased the annual retainer paid to the Chair of the Compensation Committee from $10,000 to $15,000

 

retained the $10,000 cash retainer paid to the Chairs of the Governance and SHE&S Committees

 

eliminated the separate cash retainer paid to the Chair of the Governance Committee when the Chair of that Committee is also serving as Non-Executive Chair of the Board

 

retained the $110,000 annual cash retainer paid to our Non-Executive Chair of the Board.

Directors who are Cabot employees do not receive compensation for their services as directors.

Cash Compensation

Effective January 1, 2019, the annual cash compensation for our non-employee directors consists of the following components:

 

 

retainer of $90,000

 

$20,000 for serving as Chair of the Audit Committee

 

$15,000 for serving as Chair of the Compensation Committee

 

$10,000 for serving as Chair of the SHE&S Committee

 

$10,000 for serving as Chair of the Governance Committee, except when the Chair of the Governance Committee is also serving as Non-Executive Chair of the Board of Directors, in which case this retainer is waived

 

$110,000 for serving as Non-Executive Chair of the Board of Directors

Cash compensation is paid quarterly and, when changes occur in Board or Committee membership during a quarter, the compensation is pro-rated.

Stock Compensation

Under the Cabot Corporation 2015 Directors’ Stock Compensation Plan (the “Directors’ Stock Plan”), each non-employee director is eligible to receive each calendar year shares of Cabot common stock as part of his or her compensation for services to be performed in that year. For calendar year 2019, each non-employee director whose term of office continued after the 2019 Annual Meeting of Stockholders received an award of shares having a grant date value as close as possible to $120,000 (2,613 shares). John K. McGillicuddy, who retired at the 2019 Annual Meeting, received a pro-rated grant of 653 shares. The closing price of our common stock on January 10, 2019, the date such shares were granted, was $45.92. Upon her election to the Board effective May 13, 2019, Ms. Yan received a grant of 1,818 shares as compensation for her services as a non-employee director to be performed in calendar 2019. The closing price of our common stock on May 13, 2019 was $44.01.

As of January 10, 2020, there were 239,675 shares available for issuance under the Directors’ Stock Plan.

 

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Director Compensation (continued)

 

 

 

We believe that it is desirable for directors to have an equity interest in Cabot and we encourage all directors to own a reasonable amount of Cabot stock to align director and stockholder interests and to enhance a director’s long-term perspective. Accordingly, our Corporate Governance Guidelines require non-employee directors to have an equity ownership in Cabot of at least 10,000 shares. It is expected that this ownership level will generally be achieved within a five-year period beginning when a director is first elected to the Board. For purposes of determining a director’s compliance with this ownership requirement, any deferred shares held by a director are considered owned by the director. In addition, each non-employee director is required to retain the shares granted in any given year for a period of at least three years from the date of issuance or until the director’s earlier retirement.

Reimbursement of Certain Expenses; Charitable Giving

Our Corporate Governance Guidelines state that Cabot will not provide retirement or other benefits or perquisites to non-employee directors. Directors, however, are reimbursed for reasonable travel and out-of-pocket expenses incurred in connection with attending Board and Committee meetings and other Cabot business-related events and are covered by Cabot’s travel accident insurance policy for such travel. In connection with the retirement of Mr. McGillicuddy from the Board of Directors at the 2019 Annual Meeting and in recognition for his many years of service, we made an aggregate contribution on his behalf of $25,000 to charities he selected.

Deferred Compensation

Under the Cabot Corporation Non-Employee Directors’ Deferral Plan (the “Deferred Compensation Plan”), directors can elect to defer receipt of any cash compensation payable in a calendar year for a period of at least three years or until they cease to be members of the Board of Directors. In any year, these deferred amounts are, at the director’s choice, either (i) credited with interest at a rate equal to the Moody’s Corporate Bond Rate for the month of November prior to the beginning of the applicable year or (ii) treated as invested in Cabot phantom stock units, based on the market price of shares of Cabot common stock at the time of deferral (with dividends paid on shares credited and treated as if reinvested in Cabot phantom stock units). Mr. Enriquez and Dr. Wolfgruber elected to defer receipt of their calendar year 2019 cash compensation and treat the deferred amounts as invested in Cabot phantom stock units. Messrs. Kirby and Prevost elected to defer receipt of their calendar year 2019 cash compensation and have it credited with interest at a rate equal to the Moody’s Corporate Bond Rate. The Moody’s Corporate Bond Rate used to calculate interest during calendar year 2019 was 4.64%.

Under the Deferred Compensation Plan, directors also may defer receipt of the shares of common stock issuable to them under the Directors’ Stock Plan. For each share of stock deferred, a director is credited with one Cabot phantom stock unit to a notional account created in the director’s name. Dividends that would otherwise be payable on the deferred shares accrue in the account and are credited with interest at a rate equal to the Moody’s Corporate Bond Rate for the month of November prior to the beginning of the year. The rate used to calculate interest during calendar year 2019 was 4.64%. At the end of the deferral period, the deferred shares of Cabot common stock are issued to the director, along with the accrued cash dividends and interest earned, either in one issuance or in installments over a period of up to ten years, as selected by the director. Messrs. Enriquez, Kirby, McGillicuddy, Morrow, Prevost and Wilson, Ms. Yan and Dr. Wolfgruber elected to defer their calendar year 2019 stock awards.

 

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Director Compensation (continued)

 

 

 

Director Compensation Table

The following table sets forth the compensation earned by our non-employee directors in fiscal 2019:

 

Name

 

 

Fees Earned or

Paid in Cash

($)(1)

 

 

Stock

Awards

($)(2)

 

 

Change in

Pension

Value and
Nonqualified
Deferred
Compensation

Earnings($)(3)

 

 

All Other
Compensation

($)(4)

 

 

Total($)

 

 

  Cynthia A. Arnold

 

 

 

  88,000

 

   

 

 

 

 

119,989

 

 

 

         

 

 

 

 

 

 

 

   

 

 

 

 

207,989 

 

 

 

 

  Juan Enriquez

 

 

 

  90,250

 

   

 

 

 

 

119,989

 

 

 

   

 

 

 

 

1,805

 

 

 

   

 

 

 

 

 

 

 

   

 

 

 

 

212,044 

 

 

 

 

 

  William C. Kirby

 

 

 

  88,000

 

   

 

 

 

 

119,989

 

 

 

   

 

 

 

 

9,218

 

 

 

   

 

 

 

 

 

 

 

   

 

 

 

 

217,207 

 

 

 

 

 

  John K. McGillicuddy

 

 

 

  49,250

 

   

 

 

 

 

29,986

 

 

 

   

 

 

 

 

1,022

 

 

 

   

 

 

 

 

25,000

 

 

 

   

 

 

 

 

105,258 

 

 

 

 

 

  Michael M. Morrow

 

 

 

109,250

 

   

 

 

 

 

119,989

 

 

 

   

 

 

 

 

36

 

 

 

   

 

 

 

 

 

 

 

   

 

 

 

 

229,275 

 

 

 

 

  John F. O’Brien

 

 

 

103,500

 

   

 

 

 

 

119,989

 

 

 

   

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

   

 

 

 

 

223,489 

 

 

 

 

  Patrick M. Prevost

 

 

 

  88,000

 

   

 

 

 

 

119,989

 

 

 

   

 

 

 

 

3,208

 

 

 

   

 

 

 

 

 

 

 

   

 

 

 

 

211,197 

 

 

 

 

 

  Sue H. Rataj

 

 

 

200,500

 

   

 

 

 

 

119,989

 

 

 

   

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

   

 

 

 

 

320,489 

 

 

 

 

  Frank A. Wilson

 

 

 

  90,250

 

   

 

 

 

 

119,989

 

 

 

   

 

 

 

 

9

 

 

 

   

 

 

 

 

 

 

 

   

 

 

 

 

210,248 

 

 

 

 

  Matthias L. Wolfgruber

 

 

 

  99,750

 

   

 

 

 

 

119,989

 

 

 

   

 

 

 

 

219

 

 

 

   

 

 

 

 

 

 

 

   

 

 

 

 

219,958 

 

 

 

 

 

  Mark S. Wrighton

 

 

 

  88,000

 

   

 

 

 

 

119,986

 

 

 

   

 

 

 

 

7,518

 

 

 

   

 

 

 

 

 

 

 

   

 

 

 

 

215,507 

 

 

 

 

 

  Christine Y. Yan

 

 

 

  34,620

 

   

 

 

 

 

80,010

 

 

 

   

 

 

 

 

2

 

 

 

   

 

 

 

 

 

 

 

   

 

 

 

 

114,632 

 

 

 

 

1.

Cash compensation earned reflects changes in Board and Committee service that occurred during the fiscal year. The amounts reported in this column for Messrs. Enriquez, Kirby, Prevost and Dr. Wolfgruber were deferred under the Deferred Compensation Plan described above.

2.

Reflects the grant date fair value of shares of stock granted to each non-employee director computed in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures. The grant date fair value was calculated by multiplying the number of shares granted to the director by the closing price of our common stock on the date of grant, which, for all directors other than Ms. Yan, was January 10, 2019 ($45.92). The grant date for Ms. Yan was May 13, 2019 ($44.01). The stock awards reported in this column for Messrs. Enriquez, Kirby, McGillicuddy, Morrow, Prevost and Wilson, Ms. Yan and Dr. Wolfgruber were deferred under the Deferred Compensation Plan described above.

3.

Represents above-market interest (the portion exceeding 120% of the applicable long-term rate) on compensation deferred under the Deferred Compensation Plan by Messrs. Enriquez, Kirby, McGillicuddy, Morrow, Prevost, Wilson, Wrighton, Ms. Yan and Dr. Wolfgruber.

4.

Consists of a charitable contribution made on behalf of Mr. McGillicuddy in connection with his retirement from the Board of Directors at the 2019 Annual Meeting.

 

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Beneficial Stock Ownership of Directors, Executive Officers and Persons Owning More Than Five Percent of Common Stock

 

The following table shows the amount of Cabot common stock beneficially owned as of January 15, 2020 (unless otherwise indicated) by each person known by Cabot to beneficially own more than 5% of our outstanding common stock, by each director of Cabot, by each of our named executive officers and by all directors, nominees for director and executive officers of Cabot as a group. Unless otherwise indicated, each person has sole investment and voting power over the securities listed in the table.

 

 

Name

 

   Total Number
of Shares
(1)
   

Percent of  

Class(2)  

 

Holders of More than Five Percent of Common Stock

    

BlackRock, Inc.

     5,839,996 (3)      9.70

55 East 52nd Street

    

New York, NY 10055

    

The Vanguard Group

     5,103,090 (4)      8.50

100 Vanguard Blvd.

    

Malvern, PA 19355

    

Wellington Management Group LLP

     2,938,778 (5)      5.16

Wellington Group Holdings LLP

    

Wellington Investment Advisors Holdings LLP

    

c/o Wellington Management Company LLP

    

280 Congress Street

    

Boston, MA 02210

    

Directors and Executive Officers

    

Cynthia A. Arnold

     6,902       *  

Brian A. Berube

     99,831 (6)      *  

John R. Doubman

     54,859 (7)      *  

Juan Enriquez

     34,468 (8)      *  

Karen A. Kalita

     6,336 (9)      *  

Hobart C. Kalkstein

     95,677 (10)      *  

Sean D. Keohane

     365,593 (11)      *  

William C. Kirby

     16,782 (12)      *  

Erica McLaughlin

     31,250 (13)      *  

Michael M. Morrow

     9,584 (14)      *  

John F. O’Brien

     53,992       *  

Patrick M. Prevost

     220,219 (15)      *  

Sue H. Rataj

     18,828       *  

 

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Beneficial Stock Ownership of Directors, Executive Officers and Persons Owning More Than Five Percent of Common Stock (continued)

 

 

 

 

Name

 

   Total Number
of Shares
(1)
   

Percent of  

Class(2)  

 

Frank A. Wilson

     5,834 (16)      *  

Matthias L. Wolfgruber

     13,123 (17)      *  

Mark S. Wrighton

     47,068 (18)      *  

Christine Y. Yan

     4,453 (19)      *  

Directors and executive officers as a group (18 persons)

     1,192,950 (20)      2.08

 

*

Less than one percent.

1.

For Cabot’s executive officers the number includes shares of Cabot common stock held for their benefit by the trustee of Cabot’s 401(k) Plan. The shares of common stock allocated to the accounts of Cabot’s executive officers in the 401(k) Plan constitute less than 1% of our common stock.

2.

The calculation of percentage of ownership of each listed beneficial owner is based on 56,676,158 shares of Cabot common stock, which represents the number of shares outstanding on January 15, 2020, plus any shares that such individual or entity has the right to acquire within 60 days of January 15, 2020, unless otherwise noted.

3.

Based on an amendment to a Schedule 13G filed with the SEC on February 4, 2019 by BlackRock, Inc. (“BlackRock”). The Schedule 13G reports that BlackRock has sole voting power with respect 5,586,063 shares and sole dispositive power with respect to 5,839,996 shares.

4.

Based on an amendment to a Schedule 13G filed with the SEC on February 11, 2019 by The Vanguard Group (“Vanguard”). The Schedule 13G reports that Vanguard has sole voting power with respect to 29,018 shares, shared voting power with respect to 7,826 shares, sole dispositive power with respect to 5,072,656 shares and shared dispositive power with respect to 30,434 shares.

5.

Based on an amendment to a Schedule 13G filed with the SEC on January 8, 2020 by Wellington Management Group LLP (“WMG”) and Wellington Group Holdings LLP (“WGH”) and Wellington Investment Advisors Holdings LLP (“WIAH”, WMG, WGH and WIAH referred to collectively as “Wellington”). The Schedule 13G reports that Wellington has shared voting power with respect to 2,728,721 shares and shared dispositive power with respect to 2,938,778 shares.

6.

Includes 55,478 shares of common stock that Mr. Berube has the right to acquire within 60 days of January 15, 2020 upon the exercise of stock options and 9,046 shares of Cabot common stock held by the trustee for Cabot’s 401(k) Plan for his benefit.

7.

Includes 35,993 shares of common stock that Mr. Doubman has the right to acquire within 60 days of January 15, 2020 upon the exercise of stock options and 8,633 shares of Cabot common stock held by the trustee for Cabot’s 401(k) Plan for his benefit.

8.

Includes 32,368 shares the receipt of which Mr. Enriquez has deferred under applicable Cabot deferred compensation plans. Mr. Enriquez has shared investment power with respect to 2,100 shares.

9.

Includes 3,431 shares of common stock that Ms. Kalita has the right to acquire within 60 days of January 15, 2020 upon the exercise of stock options and 520 shares of Cabot common stock held by the trustee for Cabot’s 401(k) Plan for her benefit.

10.

Includes 50,271 shares of common stock that Mr. Kalkstein has the right to acquire within 60 days of January 15, 2020 upon the exercise of stock options and 6,388 shares of Cabot common stock held by the trustee for Cabot’s 401(k) Plan for his benefit.

11.

Includes 268,662 shares of common stock that Mr. Keohane has the right to acquire within 60 days of January 15, 2020 upon the exercise of stock options and 12,179 shares of Cabot common stock held by the trustee for Cabot’s 401(k) Plan for his benefit.

12.

Mr. Kirby has deferred receipt of these shares under applicable Cabot deferred compensation plans.

13.

Includes 23,471 shares of common stock that Ms. McLaughlin has the right to acquire within 60 days of January 15, 2020 upon the exercise of stock options.

14.

Includes 7,584 shares the receipt of which Mr. Morrow has deferred under applicable Cabot deferred compensation plans.

15.

Includes 6,301 shares the receipt of which Mr. Prevost has deferred under applicable Cabot deferred compensation plans, and 53 shares of Cabot common stock held by the trustee for Cabot’s 401(k) Plan for his benefit.

16.

Mr. Wilson has deferred receipt of these shares under applicable Cabot deferred compensation plans.

17.

Dr. Wolfgruber has deferred receipt of these shares under applicable Cabot deferred compensation plans.

18.

Includes 100 shares held by Dr. Wrighton’s wife, who retains sole voting control over the shares. Dr. Wrighton disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein.

19.

Ms. Yan has deferred receipt of these shares under applicable Cabot deferred compensation plans.

20.

Shares of our common stock shown as being beneficially owned by directors and executive officers as a group includes 36,819 shares of Cabot common stock held by the trustee for Cabot’s 401(k) Plan for the benefit of such persons, as applicable.

 

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Executive Compensation

 

Compensation Committee Report

The Compensation Committee of the Board of Directors (referred to as the “Compensation Committee” or the “Committee”) has reviewed the Compensation Discussion and Analysis (“CD&A”) section included in this Proxy Statement. The Compensation Committee has also reviewed and discussed the CD&A with the members of management who are involved in the compensation process.

Based on these reviews and discussions, the Compensation Committee recommended to the Board of Directors that the CD&A be included in this Proxy Statement and incorporated by reference into our Annual Report on Form 10-K for the fiscal year ended September 30, 2019.

John F. O’Brien, Chair

William C. Kirby

Mark S. Wrighton

Compensation Discussion and Analysis

As context for our named executive officers’ fiscal 2019 compensation, below we summarize Cabot’s fiscal 2019 performance and provide a brief overview of the decisions made with respect to executive compensation in fiscal 2019 and our executive compensation programs for that fiscal year. We then describe our compensation philosophy and objectives, our compensation setting process and other compensation and governance related policies, and compensation awarded, earned and paid for fiscal 2019. For fiscal 2019, our named executive officers and their current positions are:

 

 

Sean D. Keohane, President and Chief Executive Officer;

 

Erica McLaughlin, Senior Vice President and Chief Financial Officer;

 

Karen A. Kalita, Senior Vice President and General Counsel;

 

Hobart C. Kalkstein, Senior Vice President and President, Reinforcement Materials Segment, and President, Americas Region;

 

Brian A. Berube, former Senior Vice President and General Counsel(1); and

 

John R. Doubman, former Senior Vice President and President, Performance Additives business(2).

 

(1)

Mr. Berube voluntarily resigned from this position effective June 3, 2019 and he terminated his employment with the Company effective June 14, 2019.

(2)

Mr. Doubman stepped down from this position effective October 2, 2019 and his employment with Cabot terminated effective November 15, 2019.

Executive Summary

Our Performance in Fiscal 2019

Our “Advancing the Core” strategy is designed to extend our leadership in performance materials by (i) investing for growth in our core businesses, (ii) driving application innovation with our customers, and (iii) generating strong cash flows through efficiency and optimization. The aim of this strategy is to deliver sustained and attractive total shareholder return (“TSR”), built on earnings growth and a balanced capital allocation framework. This strategy is intended to ensure that we invest sufficiently in our core businesses to capture opportunities and drive long-term earnings growth while also providing our shareholders with a meaningful cash return.

During fiscal 2019, we delivered solid results despite challenging end markets. With respect to our financial performance, we:

 

 

generated diluted earnings per share (“EPS”) of $2.63 and adjusted EPS of $3.91*, which we believe was solid in light of weakening macroeconomic and key sector indicators we experienced during the fiscal year, including, most notably, a decline in industrial activity in China and declines globally in automotive production;

 

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Executive Compensation (continued)

 

 

 

 

generated cash flow from operating activities of $363 million and free cash flow* of $139 million, which allowed us to increase our quarterly cash dividend in 2019 by 6%; and

 

maintained a strong balance sheet and liquidity position by improving our net working capital days performance and through the issuance of 10-year bonds, which we believe improves our financial and operational flexibility.

While fiscal 2019 market fundamentals were weaker than we anticipated, we remained focused on our long-term strategy and capital allocation framework and executed important initiatives to extend our leadership positions and to drive sustained growth of earnings and free cash flow. During the year, we:

 

 

completed the divestiture of our Specialty Fluids business, the majority of the proceeds from which we used to repurchase shares above our stated capital allocation framework;

 

managed our investments to strengthen our core manufacturing asset footprint;

 

executed the successful start-up of a new fumed silica plant in China;

 

commenced work to upgrade the carbon black plant we purchased in China in 2018 for the production of specialty carbons;

 

improved the performance of the Purification Solutions segment through strong execution of the transformation plan we implemented early in the year intended to focus the segment’s portfolio, optimize its assets, and streamline its organizational structure; and

 

returned $253 million of cash to our shareholders, consisting of $173 million through share repurchases and $80 million in dividend payments.

We also continued to make progress driving application innovation in new markets. For example, with respect to our energy materials product line, we have achieved customer technical qualification with most of the top global battery manufacturers and launched a suite of conductive carbon additives that will form the base for long-term growth. We believe our continued efforts to broaden our range of conductive carbon additives and build formulation capability will differentiate our product offerings in this important high-growth application. Additionally, we continued to fund important growth investments in Cabot Elastomer Composites and achieved critical customer qualification milestones that are expected to lead to long-term growth of this transformative material in tires.

To improve our efficiency and optimize our operations, we implemented a number of cost reduction initiatives across the Company during the year. These included organizational structural changes and asset decisions that reduced headcount, and achieved, inclusive of savings derived from the Purification Solutions transformation plan, an approximately $30 million reduction in our costs.

In addition, during fiscal 2019 we advanced our sustainability agenda. Notably, all of our operating manufacturing sites in China have achieved certification under the Responsible Care® 14001 standard, the global standard for safety & health, environmental and security management systems established by the American Chemistry Council’s Responsible Care program, by auditors from the international registrar, BSI. In addition, we received a Gold rating from EcoVadis, an independent sustainability monitoring organization, for our Sustainability Report, which is the fourth consecutive year that we have received a Gold rating, and in 2019 we were named among the 100 Best Corporate Citizens by Corporate Responsibility Magazine for the second consecutive year. Further, we continued to make progress toward creating a more inclusive and diverse organization. Mr. Keohane signed the CEO Action for Diversity and Inclusion during the year, and we made further progress in increasing gender diversity representation on our Management Executive Committee. Currently, three of the ten members of our Management Executive Committee are women.

Executive Transitions

In June 2019, Mr. Berube, the Company’s former Senior Vice President and General Counsel, voluntarily resigned from Cabot. Ms. Kalita assumed responsibility as the Company’s chief legal officer, and was appointed Senior Vice President and General Counsel at that time. In addition, Mr. Doubman stepped down from his position as Senior Vice President and President, Performance Additives business, effective October 2, 2019, and his responsibilities were transitioned to other senior leaders within Cabot. Mr. Doubman’s employment with Cabot terminated effective November 15, 2019. The compensation decisions made in connection with these changes are described later in this CD&A.

 

*

Adjusted EPS and free cash flow are not measures of performance under U.S. generally accepted accounting principles (“GAAP”). Please see Appendix A for reconciliations to the most comparable GAAP financial measures.

 

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Executive Compensation (continued)

 

 

 

Highlights of our Fiscal Year 2019 Named Executive Officer Compensation Decisions and the Impact of Company Performance on Compensation.

We believe fiscal 2019 compensation appropriately aligned named executive officers’ pay with our corporate performance, with a significant portion of the compensation paid to our named executive officers based on our performance against pre-established corporate financial goals. Specifically, 65% of the total direct compensation opportunity (base salary, target STI award and LTI awards (with PSUs valued at target)) for our CEO was performance-based and not guaranteed, and, on average, the total direct compensation opportunities for our other named executive officers that was performance-based was 53%. The charts below show the total direct compensation opportunities provided to our named executive officers for fiscal 2019, as well as the mix between short- and long-term compensation, and the performance-based compensation.

 

LOGO             LOGO

Base Salary. All of our named executive officers received a base salary increase for calendar 2019 during our annual salary review process that took place in November 2018, with the exception of Mr. Doubman, who received a 10% increase in his base salary effective October 1, 2018, at the time of his promotion to President, Performance Additives business. The increases in the base salaries of our named executive officers other than Mr. Doubman made during the annual review process ranged from 3% to 15% and were made in recognition of the officers’ strong individual performance and leadership, and, in the case of Ms. McLaughlin and Mr. Kalkstein, to bring their base salaries closer to the market median of the benchmark compensation data used by the Committee, as further described below. In addition, Ms. Kalita received a 29% increase in her base salary effective at the time of her promotion in June 2019, after a review of benchmark compensation data and in recognition of the associated expanded job responsibilities she assumed. With these increases, we believe the base salaries of our named executive officers for fiscal 2019 were aligned and consistent with our compensation philosophy, which considers individual performance and leadership, scope of responsibilities, the number of years the executive has held the position, and benchmark compensation data to arrive at a market competitive base level of compensation appropriate for the individual. (See pages 39-42 for further details).

STI Awards and Payouts. The Company achieved performance below the target level of the adjusted earnings before interest and taxes (“EBIT”) goal and within the target range level of the net working capital (“NWC”) days goal established by the Committee under our short-term incentive (“STI”) program for fiscal 2019, resulting in a payout of the portion of the award that is based on our financial performance of 74.1% of target. The balance of the amounts paid in respect of STI awards to members of our Management Executive Committee, including our named executive officers, reflected their individual performance and leadership, and ranged from 75% to 110% of target. The total STI awards made to the members of our Management Executive Committee, including our named executive officers, ranged from 74% to 85% of the named executive officer’s target award. (See pages 39-42 for further details about awards and payouts made to our named executive officers).

 

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Executive Compensation (continued)

 

 

 

LTI Awards and Payouts. Our long-term incentive (“LTI”) program is 70% performance-based and 30% time-based, consisting of a combination of performance-based restricted stock units (“PSUs”) (35%), stock options (35%) and time-based restricted stock units (“TSUs”) (30%) (with percentages measured based on the awards’ grant date values, assuming target level achievement of applicable performance goals in the case of PSUs). The grant date value of the awards granted in fiscal 2019 to each named executive officer was based on an assessment of the named executive officer’s position, role and responsibilities within the Company, the overall competitiveness of his or her total direct compensation, and internal equity (the relationship of pay among the executive officers in the context of their responsibilities) considerations. In addition, as described below, Ms. Kalita received a supplemental LTI award in connection with her promotion to the role of Senior Vice President and General Counsel. (See pages 39-42 for further details.)

As described below, each PSU award is allocated evenly into three tranches, with each tranche having a separate fiscal year performance period and the entire award having a three-year vesting period. All performance goals for each performance period are established at the time of grant to cover the three-year period. Our financial performance in each fiscal year determines the percentage of the target award earned for that fiscal year performance period in three outstanding PSU awards. The percentage of the target awards earned for fiscal 2019 performance with respect to outstanding PSUs is set forth below. For each performance metric, adjusted EPS and adjusted return on net assets (“RONA”), achieving the target level of performance results in 100% of the portion of the award that relates to that metric being earned. We believe that the PSUs earned based on our fiscal 2019 financial results properly aligned our LTI compensation with our solid fiscal 2019 financial performance, consistent with the role of these awards in advancing our pay-for-performance philosophy.

 

LTI Award

 

  

 

Performance Metrics and % of

Target Earned based on

Fiscal 2019 Performance

 

    

Total % of Target PSU
Award Earned based on
Fiscal 2019 Performance

 

 

  Fiscal 2017 Grant covering fiscal 2017-2019, with all targets established November 2017

 

  

Adjusted EPS (137.8%); Adjusted RONA (115.0%)

 

    

133.2%

 

 

  Fiscal 2018 Grant covering fiscal 2018-2020, with all targets established November 2018

 

  

Adjusted EPS (134.5%); Adjusted RONA (133.3%)

 

    

134.3%

 

 

  Fiscal 2019 Grant covering fiscal 2019-2021, with all targets established November 2019

 

  

Adjusted EPS (77.3%); Adjusted RONA (70.7%)

 

    

76.0%

 

 

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Executive Compensation (continued)

 

 

 

Characteristics of our Executive Compensation Programs

Our executive compensation programs include a number of practices intended to align the interests of management and our shareholders.

 

What We Do    What We Don’t Do

  Link pay to performance; significant portion of executive pay is not guaranteed

 

  Tie performance-based awards to achievement of
pre-established financial metrics

 

  Use our STI awards to recognize individual performance and leadership and achievement of corporate goals

 

  Balance the mix of pay components, including cash, stock options, and restricted stock units (both performance- and time-based)

 

  Cap incentive awards under our STI and LTI programs

 

  Provide long-term focus by setting multiple years of performance goals for PSU grants at the time of grant

 

  Maintain stock ownership guidelines

 

  Subject STI and LTI program compensation to our recoupment policy

 

  Provide modest perquisites consisting primarily of financial planning and an executive physical examination

  

  Enter into employment contracts with our CEO and other named executive officers

 

  Provide for excise tax gross-ups in the event of a change in control

 

  Reprice underwater stock options without shareholder approval

 

  Permit hedging or short sales of company stock by executive officers

 

  Provide single-trigger change in control vesting in our equity awards

Consideration of Results of Shareholder Advisory Votes on Executive Compensation

At our 2019 Annual Meeting, we conducted an advisory (non-binding) shareholder vote on executive compensation, as required by the Dodd-Frank Act. Approximately 94% of the shares voted approved the executive compensation discussed and disclosed in the Compensation Discussion and Analysis, the Summary Compensation Table and other related tabular and narrative disclosures contained in our 2019 proxy statement. In considering the results of this most recent favorable advisory vote on executive compensation, among other things, the Compensation Committee determined that the Company’s executive compensation programs have been effective in implementing the Company’s stated compensation philosophy and objectives, and directly aligning compensation paid or earned with Company performance. Therefore, the Committee did not make any changes to the structure of these programs during fiscal 2019.

The Compensation Committee recognizes that executive pay practices and corporate governance principles continue to evolve. Accordingly, it will continue to monitor executive compensation practices and make adjustments as necessary to ensure that our executive compensation programs continue to support our corporate goals and objectives and reflect good corporate governance principles.

The Compensation Committee pays close attention to the advice of its compensation advisors and provides access for our shareholders who would like to communicate on executive compensation directly with the Compensation Committee or the Board. You may contact the Board of Directors through our website at “Company — About Cabot — Governance — Contact the Board of Directors”.

Compensation Philosophy, Objectives and Process

Continuing to position Cabot for future success requires the talent to support our business and Advancing the Core strategy. Our executive compensation programs are designed to provide a competitive and internally equitable compensation and benefits package that rewards individual and Company performance and reflects job complexity and the strategic value of the individual’s position while promoting long-term retention and motivation. We seek to accomplish these goals in a way that is aligned with the long-term interests of our shareholders.

 

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Executive Compensation (continued)

 

 

 

To achieve these goals, our executive compensation programs follow these principles:

 

 

Offer a total compensation opportunity and a benefits package that are competitive in our industry;

 

Reward executives based on our business performance by closely aligning a meaningful portion of their compensation with the performance of the Company on both a short- and long-term basis;

 

Set challenging but achievable performance goals that support the Company’s short- and long-term financial goals;

 

Motivate individual performance by rewarding the specific performance and achievements of individual executives and their demonstrated leadership; and

 

Align the interests of our executives and our shareholders through performance-based compensation, equity grants and stock ownership guidelines.

Our Compensation Setting Process

The Compensation Committee

As discussed under “Board Composition — How our Board Operates — Compensation Committee”, on page 14, the Compensation Committee is responsible for all compensation decisions related to members of the Company’s Management Executive Committee, which includes all our named executive officers.

The annual compensation process for the preceding fiscal year concludes at the Committee’s meeting in November, when the Committee evaluates the Company’s performance against the corporate performance goals set for the just-concluded fiscal year and also evaluates each executive officer’s individual performance and, on this basis, determines the amounts payable or earned, as applicable, in respect of the fiscal year under our STI and LTI programs. Each November, the Compensation Committee also (i) determines any adjustments to base salaries, with any adjustment typically effective the following January, (ii) sets corporate performance metrics applicable to our STI and LTI programs for the current fiscal year, (iii) grants LTI awards, and (iv) establishes performance goals and maximum payment levels under our STI and LTI programs for the current fiscal year, in each case, for each named executive officer.

A description of the Compensation Committee’s roles and responsibilities is set forth in its written charter adopted by the Board of Directors, which can be found at www.cabotcorp.com under “Company — About Cabot — Governance — Resources.”

Role of the Compensation Consultant

The Compensation Committee has retained Meridian Compensation Partners (“Meridian”) as its independent compensation consultant for purposes of advising on executive compensation matters since March 2018. During fiscal 2019, Meridian provided the Committee with advice on a broad range of executive compensation matters, including the following:

 

 

Apprising the Committee of compensation-related trends and developments in the marketplace;

 

Informing the Committee of regulatory developments relating to executive compensation practices;

 

Reviewing and assessing the composition of the group of peer companies used for benchmarking purposes;

 

Providing the Committee with an assessment of the market competitiveness of our executive compensation programs;

 

Assessing the relationship between executive compensation actually paid and corporate performance;

 

Identifying potential changes to our executive compensation programs to maintain market competitiveness and consistency with business strategies, good governance practices and alignment with shareholder interests;

 

Providing the Committee with an assessment of the proposed compensation arrangements for newly appointed members of the Company’s Management Executive Committee; and

 

Reviewing the disclosure of our executive compensation programs in the proxy statement.

Meridian attended all regularly scheduled meetings of the Compensation Committee during fiscal 2019.

The Compensation Committee has assessed the independence of Meridian pursuant to SEC rules and concluded that no conflict of interest exists that prevents Meridian from independently advising the Compensation Committee.

Role of the Chief Executive Officer and Other Officers

Each year, our CEO and our Chief Human Resources Officer (“CHRO”), working with internal resources as well as Meridian, review the design of our executive compensation programs and recommend modifications to existing, and/or the adoption of new, plans and programs to the Compensation Committee. In addition, our CEO recommends to the

 

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Executive Compensation (continued)

 

 

 

Committee the performance metrics and goals to be used to determine payouts under our STI and LTI programs, and each named executive officer’s individual performance goals (other than the CEO’s) are jointly developed by the executive and the CEO.

Before the Compensation Committee makes compensation decisions regarding the compensation of our named executive officers, the CEO provides his assessment of each named executive officer’s performance, other than his own, taking into consideration such factors as the officer’s achievement of individual goals, leadership accomplishments, contribution to Cabot’s performance and the achievement of Company goals, and areas of strength and areas for development. He then makes specific award recommendations. In preparing compensation recommendations for the Committee, our CEO, our CHRO and other members of management involved in the process review compensation and survey data compiled by the Committee’s independent compensation consultant for similarly-situated executives at our peer group of companies and external competitive market data provided by such consultant, as described below. Our CEO attends Compensation Committee meetings but is not present for, and does not participate in, any discussions concerning his own compensation. All decisions relating to the compensation of our named executive officers are made solely by the Committee and are reported to the full Board of Directors.

Use of Benchmarking Comparison Data

The companies we have included in our compensation peer group consist of companies in the diversified chemicals or specialty chemicals industries with similar products and services and with revenues and a market capitalization generally between one-third and three times the Company’s revenue and market capitalization. The Compensation Committee reviews executive compensation data for executives with comparable positions at these peer group companies to gauge the reasonableness of its executive compensation decisions and the competitiveness of our executive compensation programs. The Compensation Committee believes maintaining market-competitive executive compensation programs allows us to successfully attract and retain experienced executive talent who are critical to our long-term success.

The Compensation Committee annually reviews the companies included in our compensation peer group and may add or eliminate companies as it determines to be appropriate. For purposes of fiscal 2019 compensation matters our compensation peer group consisted of the following 20 companies:

 

•  Albemarle Corporation

•  Ashland Inc.

•  Axalta Coating Systems

•  Celanese Corporation

•  The Chemours Company

•  FMC Corporation

•  Ferro Corporation

•  H.B. Fuller Company

•  Huntsman Corporation

•  Innospec Inc.

  

•  Kraton Corporation

•  Minerals Technologies

•  NewMarket Corporation

•  Element Solutions, Inc. (formerly Platform Specialty Products Corporation)

•  PolyOne Corporation

•  RPM International Inc.

•  Stepan Company

•  Trinseo S.A.

•  Tronox Limited

•  W.R. Grace & Co.

In preparation for the fiscal 2020 executive compensation review season and the decisions that the Compensation Committee has made and will make with respect to fiscal 2020 compensation, the Compensation Committee reviewed, with Meridian, the peer group companies listed above and confirmed the continued appropriateness of the peer group for benchmarking the Company’s executive compensation programs. As a result, the Compensation Committee did not make any changes in our compensation peer group for fiscal 2020 compensation decisions.

The Compensation Committee and management also consider executive compensation survey data. The survey data used is based on information reported in the Willis Towers Watson Executive Compensation survey. For positions where compensation peer group and survey data are available, the peer group and survey data are averaged to provide a market composite perspective for compensation.

At least annually the Compensation Committee reviews tally sheets that detail all elements of each named executive officer’s compensation and benefits for the current and prior fiscal years, as well as a projection of his or her compensation for the upcoming fiscal year. These are provided to the Committee as a means to review the total compensation and benefits package for each named executive officer and the impact of any compensation decisions on such compensation

 

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Executive Compensation (continued)

 

 

 

and benefits levels. The Compensation Committee made no changes to our current executive compensation programs or any individual named executive officer’s proposed compensation for fiscal 2019 based on the information set forth in the tally sheets.

Factors Considered in Determining Amounts of Compensation

The Compensation Committee considers the following factors in determining each named executive officer’s total annual and long-term compensation opportunities:

 

 

the officer’s role, level of responsibility, performance, leadership, and experience;

 

the number of years the officer has held the position;

 

the current target total compensation for each officer;

 

employee retention and internal equity considerations; and

 

external competitiveness.

The Compensation Committee has adopted a targeting strategy for executive compensation decisions that defines competitiveness as a “range around the market 50th percentile” for all elements of total direct compensation (base salary, target STI awards and LTI awards (with PSUs valued at target)). The Committee believes that the use of a range provides the Committee with the framework to target the market median of the benchmarking data used by the Committee, as described under “Use of Benchmarking Comparison Data” above, but to vary compensation opportunities as it deems appropriate based on individual and Company circumstances.

Developing Company Performance Metrics

The performance metrics we use for our STI and LTI programs are intended to support our short- and long-term business plans and strategies. In fiscal 2019, we used four financial metrics to promote well-rounded Company and management performance, as described below.

For our STI awards we used adjusted EBIT as the principal financial performance metric because it reflects an important near-term goal of improving our operating profitability and is a key driver of TSR. To increase the focus on efficiently managing our working capital, and to measure our short-term financial health, we also used a NWC days metric in our STI awards.

For our PSU awards, we used adjusted EPS as the principal financial performance metric because it reflects an important longer-term financial goal of improving our after-tax profitability. Because our business is capital intensive, we believe it was also appropriate to include a return metric under our LTI program and, as a result, used adjusted RONA, which measures how effectively and efficiently we use our operating assets to generate earnings.

Our philosophy in setting goals for each of the metrics is to establish goals that will drive the achievement of our short- and long-term objectives under our Advancing the Core strategy. Accordingly, in setting our adjusted EBIT and adjusted EPS goals we begin with our performance in the just completed fiscal year and set a growth target from that base. In setting our NWC days goals we consider the prior fiscal year’s performance to establish goals that are intended to incentivize a reduction in our net working capital days and continued improvement in our NWC management. Finally, in setting adjusted RONA goals, we seek to drive earnings growth at return levels greater than our weighted average cost of capital. Overall, we intend to set challenging, but realizable, goals, including those that are realizable only as a result of strong execution and performance. We recognize that from time to time we may need to change the metrics we use to reflect new priorities and business circumstances. We expect to continue to reassess our performance metrics and goal setting process annually.

Our Performance-based Compensation Philosophy

Our executive compensation programs are designed to provide more than 50% of each named executive officer’s total direct compensation opportunity in the form of performance-based compensation (STI awards, stock options and PSUs). For fiscal 2019, 65% of the total direct compensation opportunity for our CEO was performance-based and not guaranteed. The performance-based portion of the total direct compensation opportunities for our other named executive officers (other than our CEO) for fiscal 2019 on average, was 53%.

 

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Executive Compensation (continued)

 

 

 

How Did our Fiscal 2019 STI Program Operate?

We provide annual STI awards to drive the achievement of key short-term business results and to recognize individuals based on their contributions to those results and Cabot’s overall performance. Each named executive officer has an annual target incentive opportunity under our STI program, which is expressed as a percentage of his or her base salary. Ms. Kalita’s target incentive opportunity was increased from 28% of her base salary to 55% of her base salary at the time of her promotion to the role of Senior Vice President and General Counsel. This increase was intended to bring her total direct compensation closer to the market median of the benchmark compensation data used by the Committee and in recognition of the expanded job responsibilities she assumed as a result of her promotion. Prior to her promotion, Ms. Kalita participated in our fiscal 2019 STI program on the same basis as non-executive employees, which is weighted 50/50 as between pre-established corporate financial goals and individual goals and achievements. Ms. Kalita’s fiscal 2019 STI payout was based on her blended base salary and target bonus opportunities for fiscal 2019 and a blended weighting between corporate financial goals and individual goals and achievements.

The actual amounts payable in respect of STI awards range from 0% to 200% of the target award opportunity, with 70% of each award based on the achievement of pre-established corporate financial goals and the remaining 30% of each award based on individual performance and achievements. We used two financial metrics to measure corporate performance for determining payouts under our STI program for fiscal 2019: adjusted EBIT, which had an 80% weighting, and NWC days, which had a 20% weighting. The Committee established threshold, target, and maximum performance level goals for each financial metric, and for adjusted EBIT, also a stretch performance level goal, with payout for performance between performance levels determined on a straight-line basis. For NWC days, the target level was a narrow “dead band” of days so that small variations around demonstrated performance levels would not be rewarded or penalized. If the threshold adjusted EBIT goal was not achieved, no payouts in respect of corporate performance under our STI program would be made. If threshold levels of performance are achieved, the Committee retains the discretion to adjust the amount of the awards earned under our STI program based on our level of achievement of other corporate goals in the areas of safety, environmental performance, customers, innovation and people or such other factors as it determines appropriate, but did not exercise such discretion with respect to fiscal 2019 awards.

At the beginning of each fiscal year, the non-Executive Chair, with input from the other independent directors, develops the individual performance goals for our CEO, which are then approved by the Committee. Each of our other executive officers develops with the CEO his or her individual performance goals for the year. In assessing each executive officer’s individual performance, the Committee considers the officer’s personal achievements, including his or her achievements against established individual performance goals, as well as individual contributions to the management team and to the Company, and leadership and management of the executive officer’s business, region or function, as applicable. The Committee does not assign specific numerical weightings or ratings to the individual performance goals and the performance of each officer is evaluated as a whole. Furthermore, there are no formal threshold levels of achievement applicable to the individual performance component of our STI program. Ultimately, the determination of the payout of the portion of the STI awards based on individual performance is based on the judgment of the Committee (with respect to our CEO) and our CEO and the Committee (with respect to our CEO’s direct reports), in each case, after reviewing all relevant factors, with the final determination made by the Committee.

 

 

LOGO

 

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Executive Compensation (continued)

 

 

 

We believe that the fiscal 2019 STI payouts properly aligned annual incentive compensation with the Company’s fiscal 2019 financial performance, consistent with the STI program’s role in our overall compensation program. The adjusted EBIT and NWC days targets for the fiscal 2019 STI awards and our actual fiscal 2019 performance were as follows:

Fiscal 2019 STI Program Targets and Results

 

     

 

Threshold
Level
(50%
payout)

 

    

 

Target
Level
(100%
payout)

 

    

 

Stretch
Level
(150%
payout)

 

    

 

Maximum
Level
(200%
payout)

 

    

 

Fiscal 2019
Results

 

    

 

Percent 
Payout 

 

 

  Adjusted EBIT (80%)

 

    

 

 

 

 

$369 million

 

 

 

      

 

 

 

 

$440 million

 

 

 

      

 

 

 

 

$461 million

 

 

 

      

 

 

 

 

$503 million

 

 

 

      

 

 

 

 

$394 million

 

 

 

      

 

 

 

 

67.6

 

 

 

 

  NWC Days (20%)

 

    

 

 

 

 

85

 

 

 

      

 

 

 

 

80-78

 

 

 

      

 

 

 

 

 

 

 

 

      

 

 

 

 

73

 

 

 

      

 

 

 

 

80

 

 

 

      

 

 

 

 

100.0

 

 

 

 

  Weighted average payout

 

                                                                     

 

 

 

 

74.1

 

 

 

The portion of the STI award that was earned by each named executive officer based on individual performance reflected his or her individual performance and leadership in fiscal 2019 (ranging from 75% to 110% of target), with the total STI awards earned ranging from 74% to 85% of the named executive officer’s target award. Detailed information about each named executive officer’s fiscal 2019 STI payout is set forth in the discussion below under the heading “Fiscal 2019 Compensation Decisions”.

How Did our Fiscal 2019 LTI Program Operate?

We provide our named executive officers with LTI awards to promote retention, to incentivize sustainable growth and long-term value creation, and to further align the interests of our executives with those of our shareholders by tying the executives’ realized compensation to stock price changes during the performance and/or vesting periods. The grant date value of LTI awards granted to each named executive officer for a given year is based on an assessment of the individual’s position, role and responsibilities within the Company, the overall competitiveness of his or her total direct compensation opportunity, and internal equity considerations. The Committee also considers compensation peer group and other market data for a general understanding of competitive equity compensation practices and considers the impact of the grants on equity incentive plan usage and share dilution, as well as the Company’s compensation expense and employee retention concerns.

70% of the target value of our executives’ LTI awards is performance-based, consisting of a combination of PSUs and stock options, which only provide value when the share price increases above the share price on the date of grant. When making LTI awards for fiscal 2019, the Compensation Committee first determined the total grant date value of the awards to be granted to each executive, and then delivered that value in three components: PSUs representing 35%, stock options representing 35%, and TSUs representing 30%, respectively, of the total grant date value of the award, assuming target level achievement of applicable performance goals for PSUs. The terms of each type of LTI award are described in further detail below, which terms are generally applicable to LTI awards granted in fiscal 2019 and in previous fiscal years.

PSUs reward performance and the execution of our goal to deliver year-over-year and long-term growth in earnings and to increase the operating profit we generate relative to the capital we invest in our businesses. Stock options are performance-based because no value is created unless the value of our common stock appreciates after grant and they encourage employee retention through the use of a time-based vesting schedule. TSUs encourage employee retention by providing some level of value to executives who remain employed for three years. PSUs, stock options and TSUs also support an ownership culture and thereby encourage our executives to take actions that are best for Cabot’s long-term success. Importantly, although each of these equity awards provides a competitive economic value on the date of grant, their ultimate value to an executive will depend upon the degree to which we achieve objectively measurable performance metrics and/or the market value of our common stock after the end of the relevant vesting period. That value will be largely dependent upon our performance and the performance of our stock.

 

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Executive Compensation (continued)

 

 

 

 

LOGO

PSUs

To reinforce the long-term nature of the PSU awards and to reward performance and the execution of our long-term growth goals, at the time of grant the performance metrics and goals for each of the three one-year performance periods of the award are established. Specifically, each award of PSUs is allocated evenly into three tranches, with each tranche having a one-year performance period and the entire award having a three-year vesting period. When the award vests at the end of the applicable three-year period, the number of shares of stock issuable, if any, will depend on the degree of achievement of corporate performance goals for each year within the three-year performance period. Based on the degree to which we achieve the performance goals, an executive may earn between 0% to 200% of the number of PSUs allocated to each tranche of his or her award.

To drive long-term performance, threshold, target, stretch and maximum goals are established for the corporate performance metrics for each tranche in the three-year performance period at or before the time of grant of the PSUs. In November 2018, at the time it approved the grant of PSU awards, the Committee established the specific performance metrics and goals for the fiscal 2019, fiscal 2020 and fiscal 2021 performance periods of these awards, based on the Company’s prior fiscal year performance and management’s expectations for incremental earnings growth and performance over that three-year period and taking into account our Advancing the Core strategy. Setting metrics and goals in this way serves to both reinforce the long-term nature of these awards and to incentivize our leaders to achieve incrementally more challenging goals for each fiscal year included in the award. Our actual performance against those goals determines the number of shares that will be issuable in respect of the PSUs when the awards vest, with the number of shares issuable for performance between performance levels interpolated on a straight-line basis. The financial metrics used to measure corporate performance are adjusted EPS, with an 80% weighting, and adjusted RONA, with a 20% weighting.

 

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Executive Compensation (continued)

 

 

 

 

LOGO

To reinforce the capital allocation goal of returning a substantial portion of free cash flow to shareholders under our Advancing the Core strategy, for PSUs granted in or after November 2016, dividend equivalent payments are made in cash in respect of PSUs that are earned based on the achievement of applicable performance metrics, but that have not vested based on time, when and if dividends are declared and paid on the Company’s common stock. The objective of providing such dividend equivalent payments is to help focus our executives on, and to reward them for, managing the business so as to produce cash that is capable of being distributed to shareholders in the form of a dividend. Dividend equivalents also mirror the income generation associated with stock ownership.

Stock options

Stock options are granted with an exercise price equal to 100% of the closing price of Cabot’s common stock on the date of grant. They generally vest, subject to continued employment, over a three-year period (30% on each of the first and second anniversaries of the date of grant and 40% on the third anniversary of the date of grant) and have a ten-year term.

TSUs

TSUs generally vest, subject to continued employment, in their entirety at the end of three years. When the TSUs vest, they are settled in shares of Cabot common stock. During the vesting period, dividend equivalents are paid in cash on each TSU when and if dividends are declared and paid on the Company’s common stock.

Practices Regarding the Grant of Equity Awards

Annual equity grants are made at the Compensation Committee’s regularly scheduled meeting in November to align the timing of grants with our fiscal year, most importantly for PSUs, which are earned based on a fiscal year performance period. The November meeting usually occurs approximately one week following our release of earnings for our fourth fiscal quarter. The exercise price of stock options is the closing price of Cabot stock on the NYSE on the date the options are granted. From time to time, equity awards outside of the annual grant program are made for recruiting or retention purposes or in connection with promotions or to recognize specific achievements or performance. In fiscal 2019, we granted Ms. Kalita an LTI award in connection with her promotion to SVP and General Counsel, as described in further detail below. We do not have a program, plan, or practice to time “off-cycle” awards in coordination with the release of material non-public information.

 

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Executive Compensation (continued)

 

 

 

PSUs Earned under PSU Award that Vested in 2019

The chart below shows the composite 2017 PSU achievement under the PSU awards granted in November 2016 that vested in November 2019. The performance periods of these awards were our 2017, 2018, and 2019 fiscal years. As described above, the Committee established the performance metrics and goals for each of these performance periods based on the Company’s expectations for the Company’s earnings growth and performance over that three-year period at the time of grant. We believe setting metrics in this way reinforces the long-term nature of these awards and incentivizes our leaders to achieve incrementally more challenging goals for each year in the award. The adjusted EPS and adjusted RONA targets set in November 2016 for each of the performance periods of the fiscal 2017 awards were higher than our actual adjusted EPS and adjusted RONA performance in fiscal 2016. In addition, in setting the performance goals for the 2017 PSU awards, we simplified the award structure by establishing a fixed range between the threshold and maximum goals. Overall, the composite PSU achievement under these awards was 153% of the target awards.

Results for PSUs granted in Fiscal 2017 that Vested 2019

 

 Performance Year 

 

  

Adjusted EPS
Target
(100% Payout)

 

  

Adjusted
EPS Actual

 

 

% Achieved

 

  

Adjusted RONA
Target
(100% Payout)

 

  

Adjusted
RONA
Actual

 

  

% Achieved

 

  

Overall
Achievement 

 

 2017 (Y1)

    

 

$3.30

 

    

 

$3.43

*

   

 

151.4%

 

    

 

12.0%

 

    

 

12.9%

 

    

 

159.6%

 

    

 

153%

 

 2018 (Y2)

    

 

$3.46

 

    

 

$4.03

*

   

 

170.6%

 

    

 

12.2%

 

    

 

14.3%

 

    

 

183.3%

 

    

 

173%

 

 2019 (Y3)

    

 

$3.63

 

    

 

$3.91

 

   

 

137.8%

 

    

 

12.4%

 

    

 

12.7%

 

    

 

115.0%

 

    

 

133%

 

 Composite

                                                                     

 

153%

 

 

*

Adjusted EPS results for fiscal 2017 in this table do not reflect the change we adopted in fiscal 2018 in our inventory valuation method of accounting for our U.S. carbon black inventories from the LIFO method to the FIFO method.

 

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Executive Compensation (continued)

 

 

 

PSUs Earned under Outstanding PSU Awards on the Basis of Fiscal 2019 Performance

The following tables show the performance metrics and goals and the relative weighting of each metric that the Committee set for the fiscal 2019 performance period of PSUs granted in fiscal 2017, 2018, and 2019, our degree of attainment of these goals and the percentage of the awards earned, measured against the target award. As the performance metrics and goals for the fiscal 2019 performance period of these awards were established at different times based on when they were granted, they each reflect the long-term goals and target-setting philosophy in place when they were awarded.

Performance Goals (set in November 2016) and Results for

Performance Year 3 of the PSUs that Vested in November 2019

 

     

 

Threshold
Level
(50%
payout)

 

  

 

Target
Level
(100%
payout)

 

  

 

Stretch
Level
(150%
payout)

 

  

 

Maximum
Level
(200%
payout)

 

  

 

Fiscal
2019
Results

 

  

 

Percent 
Earned 

 

 

  Adjusted EPS (80%)

 

    

 

 

 

 

$2.70

 

 

 

    

 

 

 

 

$3.63

 

 

 

    

 

 

 

 

$4.00

 

 

 

    

 

 

 

 

$4.50

 

 

 

    

 

 

 

 

$3.91

 

 

 

  

 

137.8%

 

 

  Adjusted RONA (20%)

 

    

 

 

 

 

9.00

 

 

%

 

    

 

 

 

 

12.4

 

 

%

 

    

 

 

 

 

13.40

 

 

%

 

    

 

 

 

 

15.00

 

 

%

 

    

 

 

 

 

12.7

 

 

%

 

  

 

115.0%

 

 

  Composite

 

                                                         

 

133.2%

 

Performance Goals (set in November 2017) and Results for

Performance Year 2 of the PSUs that Vest in November 2020

 

     

 

Threshold
Level
(50%
payout)

 

  

 

Target
Level
(100%
payout)

 

  

 

Stretch
Level
(150%
payout)

 

  

 

Maximum
Level
(200%
payout)

 

  

 

Fiscal
2019
Results

 

  

 

Percent 
Earned 

 

 

  Adjusted EPS (80%)

 

    

 

 

 

 

$2.70

 

 

 

    

 

 

 

 

$3.71

 

 

 

    

 

 

 

 

$4.00

 

 

 

    

 

 

 

 

$4.50

 

 

 

    

 

 

 

 

$3.91

 

 

 

  

 

134.5%

 

 

  Adjusted RONA (20%)

 

    

 

 

 

 

9.00

 

 

%

 

    

 

 

 

 

12.10

 

 

%

 

    

 

 

 

 

13.0

 

 

%

 

    

 

 

 

 

15.00

 

 

%

 

    

 

 

 

 

12.7

 

 

%

 

  

 

133.3%

 

 

  Composite

 

                                                         

 

134.3%

 

Performance Goals (set in November 2018) and Results for

Performance Year 1 of the PSUs that Vest in November 2021

 

     

 

Threshold
Level
(50%
payout)

 

  

 

Target
Level
(100%
payout)

 

  

 

Stretch
Level
(150%
payout)

 

  

 

Maximum
Level
(200%
payout)

 

  

 

Fiscal
2019
Results

 

  

 

Percent 
Earned 

 

 

  Adjusted EPS (80%)

 

    

 

 

 

 

$3.43

 

 

 

    

 

 

 

 

$4.31

 

 

 

    

 

 

 

 

$4.51

 

 

 

    

 

 

 

 

$5.04

 

 

 

    

 

 

 

 

$3.91

 

 

 

  

 

77.3%

 

 

  Adjusted RONA (20%)

 

    

 

 

 

 

11.5

 

 

%

 

    

 

 

 

 

14.40

 

 

%

 

    

 

 

 

 

15.1

 

 

%

 

    

 

 

 

 

16.8

 

 

%

 

    

 

 

 

 

12.7

 

 

%

 

  

 

70.7%

 

 

  Composite

 

                                                         

 

76.0%

 

 

38    CABOT CORPORATION


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2020 PROXY STATEMENT   

 

 

Executive Compensation (continued)

 

 

 

Fiscal 2019 Compensation Decisions

The compensation decisions the Committee made with respect to our named executive officers for fiscal 2019 are described below.

In considering each officer’s individual performance in fiscal 2019 and determining his or her STI award payout for fiscal 2019 and making the other compensation decisions discussed above, the Committee specifically considered the following:

Sean D. Keohane, President and CEO.

Fiscal 2019 Performance Summary

The Committee believes that Mr. Keohane performed well in fiscal 2019. The Committee specifically recognized Mr. Keohane’s role in:

 

 

our solid financial results despite the weakening of macroeconomic and key sector indicators we experienced throughout the year;

 

our execution of important strategic initiatives, including the divestiture of our Specialty Fluids business and the improved performance of the Purification Solutions segment following the implementation of the transformation plan;

 

the investments we made to strengthen our manufacturing asset footprint, reflected most notably in the successful start-up of our additional fumed silica capacity in China and the commencement of work to upgrade the carbon black plant we purchased in China in 2018 for the production of specialty carbons, which we expect to be completed in 2021;

 

implementing cost reduction initiatives across the Company that we view as important to our long-term sustainable growth, including organizational structural changes and asset decisions that reduced headcount;

 

our progress integrating sustainability throughout Cabot and in developing a more inclusive and diverse organization;

 

the strengthening of our investor outreach that resulted in, among other things, an increase in analyst coverage of the Company;

 

our efforts to build strong and sustainable customer and partner relationships; and

 

our recognition for the second consecutive year as one of the 100 Best Corporate Citizens by Corporate Responsibility Magazine, and, for the fourth consecutive year, our achieving a Gold rating from EcoVadis for our performance in sustainability.

Compensation Decisions for Fiscal 2019

 

 

Base Salary — Mr. Keohane’s annual base salary for calendar 2019 was $1,000,000, an increase of approximately 5% compared to his 2018 annual base salary.

 

STI Award — Mr. Keohane’s target STI award for fiscal 2019 was $1,200,000 (120% of his annual base salary) and his actual STI award payout for fiscal 2019 was $964,272, 80% of target, based on achievement of 74.1% of target in respect of corporate performance and 95% of target in respect of individual performance.

 

LTI Award — Mr. Keohane was granted an LTI award with a grant date value of $4,500,000, consisting of 31,500 PSUs, 27,000 TSUs and 137,674 stock options, with the number and grant date value of PSUs assuming target level of achievement of applicable performance goals.

Erica McLaughlin, SVP and CFO.

Fiscal 2019 Performance Summary

Among Ms. McLaughlin’s key achievements that the Committee considered were the following:

 

 

her integral role in managing the Company’s operating cash flow, which resulted in our generating $363 million of cash flow from operations, including a $25 million decrease in net working capital, and enabled us to increase our quarterly cash dividend by 6%;

 

her role in the execution of our capital allocation strategy, which included returning $253 million to our shareholders through share repurchases and dividends;

 

her commitment to disciplined financial policies and the maintenance of a strong balance sheet and liquidity position, including with the issuance of 10-year bonds to support our Advancing the Core strategy;

 

CABOT CORPORATION    39


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2020 PROXY STATEMENT   

 

 

Executive Compensation (continued)

 

 

 

 

her strong leadership of our M&A and other strategic activities, including the divestiture of our Specialty Fluids business and oversight of our transformation plan for our Purification Solutions segment; and

 

her role leading our investor communications program, including successful outreach efforts that resulted in an increase in analyst coverage of the Company.

Compensation Decisions for Fiscal 2019

 

 

Base Salary — Ms. McLaughlin’s annual base salary for calendar 2019 was $460,000, an increase of approximately 15% compared to her 2018 base salary.

 

STI Award — Ms. McLaughlin’s target STI award for fiscal 2019 was $322,000 (70% of her annual base salary) and her actual STI award payout for fiscal 2019 was $263,576, 82% of target, based on achievement of 74.1% of target in respect of corporate performance and 100% of target in respect of individual performance.

 

LTI Award — Ms. McLaughlin was granted an LTI award with a grant date value of $775,000, consisting of 5,425 PSUs, 4,650 TSUs and 23,710 stock options, with the number and grant date value of PSUs assuming target level of achievement of applicable performance goals.

Karen A. Kalita, SVP and General Counsel (since June 3, 2019), previously Chief Counsel, Reinforcement Materials Segment and Purification Solutions Segment and Assistant Corporate Secretary

Fiscal 2019 Performance Summary

Prior to her appointment as SVP and General Counsel, Ms. Kalita served as Chief Counsel for our Reinforcement Materials and Purification Solutions segments, Assistant Corporate Secretary and a member of the Company’s Office of Compliance. Ms. Kalita remains a member of the Office of Compliance. Among her key achievements that the Committee considered in her prior and current roles were the following:

 

 

in her position as Chief Counsel for our Reinforcement Materials and our Purification Solutions segments, her strong legal guidance and support of commercial, M&A and other strategic activities involving those segments;

 

her strong leadership within the Company’s Office of Compliance and to the Company on ethics and compliance matters, and her role in managing our regulatory compliance programs;

 

the smooth transition of leadership when she assumed responsibility as the Company’s chief legal officer;

 

her assistance to the Board on governance matters;

 

her role in overseeing the negotiation of key commercial agreements and providing risk management counsel; and

 

her effective oversight of complex litigation and environmental matters toward positive outcomes for the Company.             .

Compensation Decisions for Fiscal 2019

 

 

Base Salary — Ms. Kalita received an annual base salary increase of 3% during the annual salary review in November 2018, resulting in an annual salary for calendar 2019 of $259,284. Her annual base salary was increased by 29% to $335,000, effective June 3, 2019, in connection with her promotion to SVP and General Counsel.

 

STI Award — Ms. Kalita’s target STI award for fiscal 2019 was $109,813 (based on her blended annual base salary and target opportunities in 2019). Her actual STI award payout for fiscal 2019 was $90,263, 82% of target, based on achievement of 74.1% of target in respect of corporate performance and 95% of target in respect of individual performance (with the blended weighting of such components described under “How Did our Fiscal 2019 STI Program Operate” above).

 

LTI Award — Ms. Kalita was granted an LTI award with a grant date value of $325,000, including an LTI award with a $250,000 grant date value granted in connection with her promotion to SVP and General Counsel, consisting of 2,738 PSUs in the aggregate, 2,733 TSUs in the aggregate and 11,437 stock options in the aggregate, with the number and grant date value of PSUs assuming target level of achievement of applicable performance goals.

 

40    CABOT CORPORATION


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2020 PROXY STATEMENT   

 

 

Executive Compensation (continued)

 

 

 

Hobart C. Kalkstein, SVP and President, Reinforcement Materials Segment, and President, Americas Region.

Fiscal 2019 Performance Summary

Among Mr. Kalkstein’s key achievements that the Committee considered were the following:

 

 

his role in the strong business results of our Reinforcement Materials Segment, despite a challenging competitive environment in China and weak automotive fundamentals globally;

 

his role in effectively managing the new International Marine Organization regulations and their impact on our feedstock costs;

 

his leadership in strengthening strategic customer relationships within the Reinforcement Materials Segment and the successful negotiation of supply agreements with certain of our major tire customers;

 

his role in the development of our expansion project at our facility in Cilegon, Indonesia;

 

his role in advancing the Cabot Elastomer Composites business and the achievement of key customer qualification milestones; and

 

his role in leading our Americas Region.

Compensation Decisions for Fiscal 2019

 

 

Base Salary — Mr. Kalkstein’s annual base salary for calendar 2019 was $464,200, an increase of 10% compared to his 2018 annual base salary.

 

STI Award — Mr. Kalkstein’s target STI award for fiscal 2019 was $278,520 (60% of his annual base salary). His actual STI award payout for fiscal 2019 was $236,341, 85% of target, based on achievement of 74.1% of target in respect of corporate performance and 110% of target in respect of individual performance.

 

LTI Award — Mr. Kalkstein was granted an LTI award with a grant date value of $800,000, consisting of 5,600 PSUs, 4,800 TSUs and 24,475 stock options, with the number and grant date value of PSUs assuming target level of achievement of applicable performance goals.

Brian A. Berube, former SVP and General Counsel (until June 3, 2019).

Compensation Decisions for Fiscal 2019

 

 

Base Salary — Mr. Berube’s annual base salary for calendar 2019 was $461,440, an increase of 3% compared to his 2018 annual base salary.

 

STI Award — Mr. Berube voluntarily resigned from Cabot during fiscal 2019 and, accordingly, he did not receive an STI award payout for fiscal 2019.

 

LTI Award — Mr. Berube was granted an LTI award with a grant date value of $750,000, which he forfeited upon his resignation from the Company.

At the time of Mr. Berube’s resignation, the Company extended the exercise period for Mr. Berube’s vested stock options to the earlier of (i) October 14, 2020 and (ii) the original expiration date of the stock options in light of his many contributions during his long and successful career at Cabot.

John R. Doubman, former SVP, and President, Performance Additives business (until October 2, 2019).

Fiscal 2019 Performance Summary

Among Mr. Doubman’s key achievements that the Committee considered were the following:

 

 

his role in the successful start-up of our additional fumed silica capacity in China and in continuing to advance our capacity expansion project with DowDuPont, which secures access to long-term feedstock and will allow us to meet growing demand for our high-performance fumed silica;

 

his role in enabling the Company to upgrade the carbon black plant we purchased in China in 2018 for the production of specialty carbons, which we expect to be completed in 2021; and

 

his leadership of the business’s application development activities, particularly in energy materials and the successful program qualifications it has obtained with most of the major global battery manufacturers.

 

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2020 PROXY STATEMENT   

 

 

Executive Compensation (continued)

 

 

 

In determining Mr. Doubman’s STI award, the Committee also considered the results in the Performance Additives business, which were below management expectations.

Compensation Decisions for Fiscal 2019

 

 

Base Salary — Mr. Doubman’s annual base salary for calendar 2019 was $395,000, which reflects the 10% increase he received in his annual base salary effective as of October 1, 2018 at the time of his promotion.

 

STI Award — Mr. Doubman’s target STI award for fiscal 2019 was $237,000 (60% of his annual base salary) and his actual STI award payout for fiscal 2019 was $176,224, 74% of target, based on achievement of 74.1% of target in respect of corporate performance and 75% of target in respect of individual performance.

 

LTI Award — Mr. Doubman was granted an LTI award with a grant date value of $600,000, consisting of 4,200 PSUs, 3,600 TSUs and 18,356 stock options, with the number and grant date value of PSUs assuming target level of achievement of applicable performance goals. Of this award, 5,506 stock options vested in November 2019 in accordance with the terms of the award and Mr. Doubman forfeited the balance of the LTI award upon the termination of his employment on November 15, 2019.

Effective October 2, 2019, Mr. Doubman stepped down from his position as SVP and President, Performance Additives business of the Company. Mr. Doubman’s employment with the Company terminated effective November 15, 2019. Under the terms of his transition and separation agreement with Cabot, commencing on his termination of employment, the Company will pay to Mr. Doubman a total of $592,500, payable over an 18-month period. In addition, the Company extended the exercise period for Mr. Doubman’s vested stock options to the earlier of (i) November 15, 2021 and (ii) the original expiration date of the stock options. The Company also agreed to pay a portion of Mr. Doubman’s COBRA premiums for up to 18 months following the termination of his employment, to provide financial planning benefits on the same basis as if he had remained employed for a period of eighteen months following termination in an amount not to exceed $30,000, and to provide Mr. Doubman with outplacement services in an amount not to exceed $40,000. In exchange for the payments and benefits provided in the transition and separation agreement, the Company received a release of claims from Mr. Doubman, and Mr. Doubman agreed to covenants as to non-competition and non-solicitation for a period of twelve months following the termination of his employment. When considering the level of separation payments and benefits to be provided to Mr. Doubman, the Committee considered the length and level of his service with the Company, his significant contributions to the Company and the Company’s achievements under his leadership, as well as the advice provided by Meridian.

Risk Assessment

We monitor the risks associated with our executive compensation programs and policies on an on-going basis. In May 2019, management presented the Committee with the results of a study it conducted of our compensation programs to assess the potential risks arising from these programs. We believe the following policies and practices reflect sound risk management practices within our compensation programs and mitigate excessive risk-taking that could harm our value or reward poor judgment by our executives and other employees:

 

 

Use of short- and long-term performance periods in our LTI program and multiple levels of tiered performance (threshold, target, stretch and maximum) in both our STI and LTI programs;

 

Use of maximum payout caps in both the STI and LTI programs;

 

Use of different financial performance metrics across the STI and LTI programs;

 

Ability of the Committee to use discretion to modify STI awards;

 

Annual Committee review and approval of the STI and LTI program design, performance metrics and goals and earned payouts;

 

Mix of equity awards and multi-year vesting used in the LTI program;

 

Availability of a Company recoupment policy; and

 

Use of share ownership guidelines.

Based on these mitigating factors, the Committee agreed with the study’s findings that our compensation programs do not encourage inappropriate or unacceptable risk to the Company, and that any risks are within our ability to effectively monitor and manage and are not reasonably likely to have a material adverse effect on the Company.

 

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2020 PROXY STATEMENT   

 

 

Executive Compensation (continued)

 

 

 

Share Ownership Guidelines

To further align the interests of our executives and our shareholders, in November 2008 we adopted share ownership guidelines for members of our Management Executive Committee. Under our guidelines, we expect our CEO to own equity in the Company in an amount equal to five times his or her annual base salary, and each other officer who reports directly to the CEO to own equity in an amount equal to three times his or her annual base salary. Each executive has five years from the date he or she becomes subject to the share ownership guidelines to meet his or her target. The Committee reviews compliance with these guidelines annually. At the time of this filing, all of the members of the Management Executive Committee who have been subject to these guidelines for five years or longer had satisfied such share ownership guidelines.

Recoupment of Compensation

The Company adopted a recoupment (clawback) policy in 2012. The policy applies to performance-based compensation, such as STI and LTI compensation, paid to participants in our LTI program (which includes our named executive officers), and covers awards made for fiscal 2013 and thereafter. Under the policy, if the Company is required to restate its financial statements due to material non-compliance with financial reporting requirements under applicable securities laws, and the amount of performance-based compensation awarded or paid would have been lower had the achievement of applicable financial performance been calculated based on the restated financial results, the amount of the excess compensation awarded or paid during the three-year period preceding the date on which the Company is required to prepare the restatement is subject to recoupment, in the discretion of the Compensation Committee. In addition, if a participant knowingly engaged in misconduct that is a material factor in the Company’s obligation to restate its financial statements, the Company will have the right to seek recoupment of the proceeds from the sale of shares issued upon the exercise of stock options or upon the vesting of restricted stock units (including TSUs and PSUs) occurring during the twelve-month period following the filing with the SEC of the financial statements required to be restated, in an amount deemed appropriate by the Compensation Committee under the circumstances.

Other Information

Retirement and Other Benefit Programs

Our named executive officers participate in the full range of benefit programs and are covered by the same retirement plans on the same terms as are generally provided to our full-time U.S. salaried employees, are eligible to participate in and/or receive benefits under our Deferred Compensation Plan and our Death Benefit Protection Plan, and participate in our Senior Management Severance Protection Plan. These plans are described in the footnotes and text that accompany the compensation tables that follow this CD&A.

Health and Welfare Plans

The health and welfare plans offered to our named executive officers are the same as those offered to all other employees working in the same country.

Perquisites

We provide our named executive officers a modest level of perquisites, consisting principally of financial planning and tax assistance services and an executive physical examination. We provide these benefits to help our executives maintain their health and manage their finances, in each case, so that they are able to focus their attention on Cabot’s business.

Employment Arrangements

Our named executive officers serve without employment agreements. The compensation of our named executive officers is set by the Compensation Committee as described above.

 

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2020 PROXY STATEMENT   

 

 

Executive Compensation (continued)

 

 

 

Hedging Policy

The Company’s insider trading policy prohibits executives, directors, their family members who share the same address or are financially dependent upon them, and entities owned or controlled by any such persons, from, among other things, engaging in any “short sales”, including short sales “against the box”, or purchases, sales, or other arrangements involving, puts, calls or other derivative securities on the Company’s common stock, and issuing any standing or limit orders for the sale of the Company’s common stock that remain outstanding for more than five days, other than in connection with a Rule 10b5-1 trading plan adopted in compliance with the policy. No categories of hedging transactions are specifically permitted and, other than the transactions described above, no other categories of hedging transactions are specifically disallowed.

Tax and Accounting Information

We consider the tax and accounting rules associated with various forms of compensation when designing our compensation programs. However, to maintain flexibility to compensate our executive officers in a manner designed to promote short- and long-term corporate goals and objectives, the Compensation Committee has not adopted a policy that all compensation must be deductible or have the most favorable accounting treatment to the Company and has paid, and will continue to pay, compensation that is not deductible.

 

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2020 PROXY STATEMENT   

 

 

Executive Compensation (continued)

 

 

 

Summary Compensation Table

The following table and footnotes describe the compensation for our named executive officers for the three most recently completed fiscal years (or such shorter period as described in the footnotes below). Each component of our executive compensation program is described under the heading “Compensation Discussion and Analysis,” which begins on page 25.

 

Name and

Principal

Position

 

 

Year

 

   

Salary
($)
(3)

 

   

Stock
Awards
($)
(4)

 

   

Option
Awards
($)
(5)

 

   

Non-Equity
Incentive Plan
Compensation
($)

 

   

Change in
Pension

Value and
Nonqualified
Deferred
Compensation
Earnings
($)
(6)

 

   

All Other
Compensation
($)
(7)

 

   

Total

($)

 

 

 

  Sean D. Keohane

  President and CEO

 

 

 

 

 

2019

 

 

 

 

 

 

 

 

 

987,500

 

 

 

 

 

 

 

 

 

2,925,000

 

 

 

 

 

 

 

 

 

1,574,578

 

 

 

 

 

 

 

 

 

964,272

 

 

 

 

 

 

 

 

 

15,469

 

 

 

 

 

 

 

 

 

212,560

 

 

 

 

 

 

 

 

 

6,679,379

 

 

 

 

   

 

2018

 

 

 

   

 

937,500

 

 

 

   

 

2,599,951

 

 

 

   

 

1,399,898

 

 

 

   

 

1,567,500

 

 

 

   

 

 

 

 

   

 

270,593

 

 

 

   

 

6,775,442

 

 

 

    2017       887,500       2,079,911       1,119,647       1,252,000             232,734       5,571,792  

 

  Erica McLaughlin(1)

  Senior Vice President and CFO

 

 

 

 

 

2019

 

 

 

 

 

 

 

 

 

445,000

 

 

 

 

 

 

 

 

 

503,750

 

 

 

 

 

 

 

 

 

271,171

 

 

 

 

 

 

 

 

 

263,576

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

84,775

 

 

 

 

 

 

 

 

 

1,568,272

 

 

 

 

    2018       323,779       403,659       179,277       273,839             57,770       1,238,324  

 

  Karen A. Kalita(1)

  Senior Vice President and

  General Counsel

 

 

 

 

2019

 

 

 

 

 

 

281,756

 

 

 

 

 

 

237,454

 

 

 

 

 

 

87,516

 

 

 

 

 

 

90,263

 

 

 

 

 

 

819

 

 

 

 

 

 

39,818

 

 

 

 

 

 

737,626

 

 

 

  Hobart C. Kalkstein

  Senior Vice President,

  President, Reinforcement

  Materials Segment, and

  President, Americas Region

 

 

 

 

 

2019

 

 

 

 

 

 

 

 

 

453,650

 

 

 

 

 

 

 

 

 

520,000

 

 

 

 

 

 

 

 

 

279,921

 

 

 

 

 

 

 

 

 

236,341

 

 

 

 

 

 

 

 

 

2,629

 

 

 

 

 

 

 

 

 

88,466

 

 

 

 

 

 

 

 

 

1,581,007

 

 

 

 

   

 

2018

 

 

 

   

 

416,000

 

 

 

   

 

487,464

 

 

 

   

 

262,474

 

 

 

   

 

440,568

 

 

 

   

 

2,675

 

 

 

   

 

102,224

 

 

 

   

 

1,711,405

 

 

 

   

 

2017

 

 

 

   

 

392,250

 

 

 

   

 

438,699

 

 

 

   

 

236,170

 

 

 

   

 

350,000

 

 

 

   

 

3,604

 

 

 

   

 

85,875

 

 

 

   

 

1,506,598

 

 

 

                                                               

 

  Brian A. Berube(2)

  Former Senior Vice President

  and General Counsel

 

 

 

 

 

2019

 

 

 

 

 

 

 

 

 

320,596

 

 

 

 

 

 

 

 

 

487,500

 

 

 

 

 

 

 

 

 

422,805

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24,020

 

 

 

 

 

 

 

 

 

44,794

 

 

 

 

 

 

 

 

 

1,299,715

 

 

 

 

   

 

2018

 

 

 

   

 

444,750

 

 

 

   

 

487,464

 

 

 

   

 

262,474

 

 

 

   

 

427,392

 

 

 

   

 

7,650

 

 

 

   

 

103,059

 

 

 

   

 

1,732,789

 

 

 

    2017       427,500       487,444       262,410       367,000       11,639       95,101       1,651,094  

 

  John R. Doubman(1)(2)

  Former Senior Vice President

  and President, Performance

  Additives

 

 

 

 

2019

 

 

 

 

 

 

395,000

 

 

 

 

 

 

390,000

 

 

 

 

 

 

323,158

 

 

 

 

 

 

176,224

 

 

 

 

 

 

1,102

 

 

 

 

 

 

57,429

 

 

 

 

 

 

1,342,913

 

 

 

1.

For Ms. Kalita and Mr. Doubman, information is only provided for fiscal 2019 because they were not named executive officers in fiscal 2018 or 2017. For Ms. McLaughlin information is only provided for fiscal 2018 and 2019 because she was not a named executive officer in fiscal 2017.

2.

Mr. Berube voluntarily resigned from his position as Senior Vice President and General Counsel effective June 3, 2019 and his employment terminated effective June 14, 2019. Mr. Doubman stepped down from his position as Senior Vice President and President, Performance Additives business, effective October 2, 2019 and his employment terminated effective November 15, 2019.

3.

We review base salaries annually in November and any changes are generally effective on January 1 of the following calendar year. The amounts reported in this column reflect salary earned during each fiscal year. Ms. Kalita was promoted to Senior Vice President and General Counsel effective June 3, 2019, and her base salary was increased effective as of this date to reflect her promotion and the additional responsibilities she assumed as described further in the Compensation Discussion and Analysis section above.

4.

The amounts reported in this column reflect the aggregate grant date fair value of TSUs and PSUs granted in the applicable fiscal year to each named executive officer, computed in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures. The grant date fair value per unit of the TSUs and PSUs is equal to the closing price of Cabot common stock on the date of grant, with the grant date fair value of the PSUs calculated based on the probable outcome of applicable performance conditions, which assume that the target level of performance is achieved, and for awards made for fiscal 2019, these amounts are as follows: Mr. Keohane: $1,575,000; Ms. McLaughlin: $271,250; Ms. Kalita: $117,466; Mr. Kalkstein: $280,000; Mr. Berube: $262,500 and Mr. Doubman: $210,000. If the maximum level of performance were to be achieved under the PSUs granted in fiscal 2019, the grant date fair value of these awards would be as follows: Mr. Keohane: $3,150,000; Ms. McLaughlin: $542,500; Ms. Kalita: $234,932; Mr. Kalkstein: $560,000; Mr. Berube: $525,000 and Mr. Doubman: $420,000. For Ms. Kalita, the amount reported in this column for fiscal 2019 includes the grant date fair value of the supplemental award of TSUs and PSUs she received in connection with her promotion, as described further in the Compensation Discussion and Analysis section above. We pay dividend equivalents on all TSU awards, and on PSUs (to the extent earned) granted in or after fiscal 2017, if, and when, we pay dividends on our common stock, which is factored into the grant date fair value for these awards. The assumptions used to calculate the grant date fair value of stock awards are set forth in Note O to our Consolidated Financial Statements filed with our Annual Report on Form 10-K for fiscal 2019. Mr. Berube and Mr. Doubman forfeited their then unvested TSUs and PSUs upon their terminations of employment.

 

CABOT CORPORATION    45


Table of Contents

 

2020 PROXY STATEMENT   

 

 

Executive Compensation (continued)

 

 

 

5.   a.

The amounts reported in this column reflect the aggregate grant date fair value of stock option awards granted in the applicable fiscal year to each named executive officer, computed in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures, determined using the Black-Scholes option-pricing model. The assumptions used to calculate the grant date fair value of option awards under the Black-Scholes model are set forth in Note O to our Consolidated Financial Statements filed with our Annual Report on Form 10-K for fiscal 2019. The amount reported for Ms. Kalita in fiscal 2019 includes the grant date fair value of the supplemental stock option award she received in connection with her promotion, as described further in the Compensation Discussion and Analysis section above.

  b.

As further described in the Compensation Discussion and Analysis section above, in connection with Mr. Berube’s resignation from the Company, the Compensation Committee extended the exercise period of Mr. Berube’s vested stock options to the earlier of (i) October 14, 2020 and (ii) the original expiration date of the stock options. The amount reported in this column for Mr. Berube in fiscal 2019 consists of (i) $262,423, the grant date fair value of the stock options granted to Mr. Berube in fiscal 2019, and (ii) $160,382, the incremental fair value associated with extending the exercise period of his vested stock options, computed in accordance with FASB ASC Topic 718. Mr. Berube forfeited his unvested stock options upon his termination of employment.

  c.

As further described in the Compensation Discussion and Analysis section above, in connection with Mr. Doubman’s termination of employment, the Compensation Committee extended the exercise period of Mr. Doubman’s vested stock options to the earlier of (i) November 15, 2021 and (ii) the original expiration date of the stock options. The amount reported in this column for Mr. Doubman in fiscal 2019 consists of (i) $209,938, the grant date fair value of the stock options granted to Mr. Doubman in fiscal 2019, and (ii) $113,220, the incremental fair value associated with extending the exercise period of his vested stock options, computed in accordance with FASB ASC Topic 718. Mr. Doubman forfeited his unvested stock options upon termination.

6.

The amounts reported in this column consist of:

  a.

The aggregate change in the actuarial present value of each named executive officer’s accumulated pension benefits under the Cash Balance Plan and the Supplemental Cash Balance Plan measured from October 1 to September 30 as follows: for Mr. Keohane: $(10,173) in 2017, $(16,938) in 2018 and $15,469 in 2019; for Ms. McLaughlin: $(9,846) in 2018 and $(9,774) in 2019; for Ms. Kalita: $(5,580) in 2019; for Mr. Kalkstein: $(4,804) in 2017, $(8,655) in 2018 and $(2,686) in 2019; for Mr. Berube: $(9,996) in 2017; $(15,929) in 2018 and $18,393 in 2019; and for Mr. Doubman: $(2,501) in 2019. These figures are presented in accordance with SEC rules, which require the use of the same assumptions as required by FASB ASC Topic 715. When such amounts are negative, they are not reflected in the sum reported in the column. These pension plans are frozen and, therefore, the change in the Present Value of Accrued Benefits (PVAB) is due to (i) one less year to accumulate benefits to normal retirement, resulting in a shorter discounting period and an increase to the PVAB; and (ii) changes in the discount rate assumptions for these plans, the net effect of which decreased the PVAB. Details on the pension plans and the actuarial assumptions can be found below under the heading “Pension Benefits”.

  b.

Above-market interest (the portion exceeding 120% of the applicable federal long-term rate) credited to deferrals under Cabot’s deferred compensation plan as follows: for Ms. Kalita: $819 in 2019; for Mr. Kalkstein: $3,604 in fiscal 2017, $2,675 in fiscal 2018 and $2,629 in 2019; for Mr. Berube: $11,639 in fiscal 2017, $7,650 in fiscal 2018 and $5,627 in fiscal 2019; and for Mr. Doubman: $1,102 in 2019.

 

7.

The table below identifies the amounts shown for fiscal 2019 in the “All Other Compensation” column. All of the amounts reflect the actual cost to Cabot of providing the payment or benefit described below.

 

    

Company

Contributions

to 401(k)

Plan

($)(a)

   

Company

Contributions to

Supplemental

401(k) Plan

($)(a)

   

Company

Contributions

to Deferred

Compensation

Plan

($)(a)

   

Financial

Planning

and Tax

Assistance

($)(b)

   

Other

($)(c)

   

Total

($)

 

 

  Sean D. Keohane

 

 

 

 

28,000

 

 

 

 

 

 

167,158

 

 

 

 

 

 

 

 

 

 

 

 

14,771

 

 

 

 

 

 

2,631

 

 

 

 

 

 

212,560

 

 

 

  Erica McLaughlin

 

 

 

 

28,546

 

 

 

 

 

 

41,471

 

 

 

 

 

 

 

 

 

 

 

 

13,652

 

 

 

 

 

 

1,106

 

 

 

 

 

 

84,775

 

 

 

  Karen A. Kalita

 

 

 

 

29,023

 

 

 

 

 

 

9,181

 

 

 

 

 

 

 

 

 

 

 

 

1,385

 

 

 

 

 

 

229

 

 

 

 

 

 

39,818

 

 

 

  Hobart C. Kalkstein

 

 

 

 

28,000

 

 

 

 

 

 

33,983

 

 

 

 

 

 

7,000

 

 

 

 

 

 

14,974

 

 

 

 

 

 

4,509

 

 

 

 

 

 

88,466

 

 

 

  Brian A. Berube

 

 

 

 

22,154

 

 

 

 

 

 

10,338

 

 

 

 

 

 

 

 

 

 

 

 

11,389

 

 

 

 

 

 

913

 

 

 

 

 

 

44,794

 

 

 

  John R. Doubman

 

 

 

 

28,000

 

 

 

 

 

 

11,487

 

 

 

 

 

 

 

 

 

 

 

 

14,962

 

 

 

 

 

 

2,980

 

 

 

 

 

 

57,429

 

 

 

  a.

The 401(k) Plan, Supplemental 401(k) Plan, and Deferred Compensation Plan are described under the heading “Deferred Compensation” beginning on page 53.

  b.

Consists of amounts paid or reimbursed by Cabot for financial planning and tax assistance services during fiscal 2019.

  c.

Consists of the amount paid by Cabot for an annual physical exam for Messrs. Kalkstein, $3,300, and Doubman, $1,950; and for each named executive officer, the cost to Cabot of insurance premiums under our Death Benefit Protection Plan, which provides a death benefit equal to three times a named executive officer’s annual base salary at the time of his or her death, up to a maximum benefit of $3,000,000. These premiums are paid directly to the life insurance carriers.

 

      

The table does not include any amounts related to the use of tickets for sporting and cultural events by the named executive officers because no incremental costs were incurred by Cabot in providing these benefits. Cabot purchases season tickets to sporting and cultural events for business outings with customers and vendors. If the tickets are not being used for business purposes, the named executive officers and other employees may have opportunities to use these tickets.

 

46    CABOT CORPORATION


Table of Contents

 

2020 PROXY STATEMENT   

 

 

Executive Compensation (continued)

 

 

 

Grant of Plan-Based Awards Table

The following table reports plan-based awards granted to the named executive officers during fiscal 2019. The material terms of our STI and LTI awards are described in “Compensation Discussion and Analysis — Our Performance-based Compensation Philosophy” beginning on page 32.

 

Name   Grant
Date
   

 

 

Estimated Future Payouts

Under Non-Equity Incentive
Plan Awards(1)

   

 

 

Estimated Future Payouts

Under Equity Incentive
Plan Awards(2)

   

All Other

Stock

Awards:

Number

of Shares

of Stock

or

Units(3)

(#)

   

All Other

Option

Awards:

Number of

Securities

Underlying

Options

(#)

   

Exercise

or Base

Price of

Option

Awards

($/Sh)(4)

   

Grant

Date Fair

Value of

Stock

and

Option

Awards

($)(5)

 
  Threshold
($)
    Target
($)
    Maximum
($)
   

Threshold

(#)

    Target
(#)
    Maximum
(#)
 

  Sean D. Keohane

                                                                                       

  TSU

 

 

11/9/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

27,000

 

 

 

 

 

 

 

 

 

1,350,000

 

  PSU

 

 

11/9/2018

 

 

 

 

 

 

 

 

 

 

 

 

15,750

 

 

 

31,500

 

 

 

63,000

 

 

 

 

 

 

 

 

 

 

 

 

1,575,000

 

  Options

 

 

11/9/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

137,674

 

 

 

50.00

 

 

 

1,574,578

 

  Short-Term Incentive

  Compensation (“STI”)

 

 

 

 

 

420,000

 

 

 

1,200,000

 

 

 

2,400,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Erica McLaughlin

                     

  TSU

 

 

11/9/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,650

 

 

 

 

 

 

 

 

 

232,500

 

  PSU

 

 

11/9/2018

 

 

 

 

 

 

 

 

 

 

 

 

2,713

 

 

 

5,425

 

 

 

10,850

 

 

 

 

 

 

 

 

 

 

 

 

271,250

 

  Options

 

 

11/9/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23,710

 

 

 

50.00

 

 

 

271,171

 

  STI

 

 

 

 

 

112,700

 

 

 

322,000

 

 

 

644,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Karen A. Kalita

                     

  TSU

 

 

11/9/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

900

 

 

 

 

 

 

 

 

 

45,000

 

  PSU

 

 

11/9/2018

 

 

 

 

 

 

 

 

 

 

 

 

300

 

 

 

600

 

 

 

1,200

 

 

 

 

 

 

 

 

 

 

 

 

30,000

 

  TSU

 

 

6/3/2019

 

 

 

 

 

 

 

 

 

 

       

 

1,833

 

     

 

74,988

 

  PSU

 

 

6/3/2019

 

 

 

 

 

 

 

 

 

 

 

 

1,069

 

 

 

2,138

 

 

 

4,276

 

       

 

87,466

 

  Options

 

 

6/3/2019

 

 

 

 

 

 

 

 

 

 

         

 

11,437

 

 

 

40.91

 

 

 

87,516

 

  STI

 

 

 

 

 

33,603

 

 

 

109,813

 

 

 

219,626

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Hobart C. Kalkstein

                     

  TSU

 

 

11/9/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,800

 

 

 

 

 

 

 

 

 

240,000

 

  PSU

 

 

11/9/2018

 

 

 

 

 

 

 

 

 

 

 

 

2,800

 

 

 

5,600

 

 

 

11,200

 

 

 

 

 

 

 

 

 

 

 

 

280,000

 

  Options

 

 

11/9/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24,475

 

 

 

50.00

 

 

 

279,921

 

  STI

 

 

 

 

 

97,482

 

 

 

278,520

 

 

 

557,040

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Brian A. Berube

                     

  TSU

 

 

11/9/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,500

 

 

 

 

 

 

 

 

 

225,000

 

  PSU

 

 

11/9/2018

 

 

 

 

 

 

 

 

 

 

 

 

2,625

 

 

 

5,250

 

 

 

10,500

 

 

 

 

 

 

 

 

 

 

 

 

262,500

 

  Options

 

 

11/9/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

22,945

 

 

 

50.00

 

 

 

422,805

 

  STI

 

 

 

 

 

96,902

 

 

 

276,864

 

 

 

553,728

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  John R. Doubman

                     

  TSU

 

 

11/9/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,600

 

 

 

 

 

 

 

 

 

180,000

 

  PSU

 

 

11/9/2018

 

 

 

 

 

 

 

 

 

 

 

 

2,100

 

 

 

4,200

 

 

 

8,400

 

 

 

 

 

 

 

 

 

 

 

 

210,000

 

  Options

 

 

11/9/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18,356

 

 

 

50.00

 

 

 

323,158

 

  STI

 

 

 

 

 

82,950

 

 

 

237,000

 

 

 

474,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1.

The amounts in these columns represent bonus opportunities under our STI program and assume that performance goals for adjusted EBIT and NWC days, the financial metrics for corporate performance for fiscal 2019 as described in the Compensation Discussion and Analysis section of this proxy statement, are achieved at the threshold, target and maximum levels, as applicable. The threshold, target and maximum award amounts for Ms. Kalita are based on a blend of her pre- and post-promotion annual base salaries and target bonus opportunities. The amounts included in the “Threshold” column reflect 50% of the target bonus opportunity payable for corporate performance, which is weighted 70% in the executive STI program, and for Ms. Kalita, is weighted 61.2% based on the blend of her pre- and post-promotion roles, and do not reflect any payout for individual performance because there is no formal threshold payout level for individual performance. The amounts included in the “Target” column reflect 100% of the total target bonus opportunity payable for both corporate and individual performance. The amounts included in the “Maximum” column reflect 200% of the total target bonus opportunity payable for both corporate and individual performance. Actual bonus payments made under our STI program for fiscal 2019 are included in the Summary Compensation Table on page 45 in the column “Non-Equity Incentive Plan Compensation.” Mr. Berube did not receive a bonus payment for fiscal 2019 because his employment terminated prior to the end of the fiscal year.

 

CABOT CORPORATION    47


Table of Contents

 

2020 PROXY STATEMENT   

 

 

Executive Compensation (continued)

 

 

 

2.   a.

The amounts in these columns represent PSU awards. The November 9, 2018 PSU awards vest three years after the date of grant, generally subject to the named executive officer’s continued employment through the vesting date, and the number of shares issuable, if any, when the award vests will depend on the degree of achievement of corporate performance goals for each year within the three-year performance period. The supplemental PSU award granted to Ms. Kalita on June 3, 2019 in connection with her promotion has the same terms as the PSU awards granted on November 9, 2018. For fiscal 2019 awards, the two financial metrics used to measure corporate performance were adjusted EPS and adjusted RONA. The amount included in the “Target” column reflects the total number of shares that would be issued when the award vests if the Company achieves target financial performance against the adjusted EPS and adjusted RONA goals each year. The amount in the “Threshold” column reflects 50% of the target award and the total number of shares that would be issued when the award vests if the Company achieves threshold financial performance each year, and the amount in the “Maximum” column reflects 200% of the target award and the total number of shares that would be issued when the award vests if the Company achieves maximum financial performance each year.

       b.

The PSUs granted to Mr. Berube and Mr. Doubman in fiscal 2019 were forfeited effective on their respective separation dates with the Company.

3.

The amounts in this column represent TSU awards. The November 9, 2018 TSU awards vest three years after the date of grant, generally subject to the named executive officer’s continued employment through the vesting date. The supplemental TSU award granted to Ms. Kalita on June 3, 2019 in connection with her promotion has the same terms as the TSU awards granted on November 9, 2018.

4.

All stock options were granted with an exercise price equal to the closing price of our common stock on the date of grant and generally vest, subject to continued employment, over a three-year period (30% on each of the first and second anniversaries of the date of grant and 40% on the third anniversary of the date of grant). The stock options awarded to Ms. Kalita on June 3, 2019 in connection with her promotion vest as follows, generally subject to her continued employment through the applicable vesting date: 30% on November 9, 2019, 30% on November 9, 2020 and 40% on November 9, 2021.

5.   a.

Reflects the grant date fair value of TSUs, PSUs and option awards, calculated in accordance with FASB ASC Topic 718 as described in more detail in footnotes 4 and 5 to the Summary Compensation Table above.

       b.

In connection with Mr. Berube’s termination of employment with the Company, the Compensation Committee extended the exercise period of Mr. Berube’s vested stock options to the earlier of (i) October 14, 2020 and (ii) the original expiration date of the stock options. The amount reported in this column for Mr. Berube in fiscal 2019 consists of (i) $262,423, the grant date fair value of the stock options granted to Mr. Berube in fiscal 2019, and (ii) $160,382, the incremental fair value associated with extending the exercise period of his vested stock options, computed in accordance with FASB ASC Topic 718.

       c.

In connection with the termination of Mr. Doubman’s employment with the Company, the Compensation Committee extended the exercise period of Mr. Doubman’s vested stock options to the earlier of (i) November 15, 2021, and (ii) the originally expiration date of the stock options. The amount reported in this column for Mr. Doubman in fiscal 2019 consists of (i) $209,938, the grant date fair value of the stock options granted to Mr. Doubman in fiscal 2019 and (ii) $113,220, the incremental value associated with extending the exercise period of his vested stock options, computed in accordance with FAS ASC Topic 718.

       d.

The grant date fair value per unit for TSUs and PSUs is equal to the closing price of Cabot common stock on the date of grant ($50.00 for the November 9, 2018 grants and $40.91 for the June 3, 2019 grants) and, for PSUs, was calculated based on the probable outcome of applicable performance conditions, which assume that the target level of performance is achieved. The grant date fair value of these awards assuming the maximum level of performance is achieved is set forth in footnote 4 to the Summary Compensation Table. We pay dividend equivalents on all TSU awards, and on PSUs (to the extent earned), if, and when, we pay dividends on our common stock, which is factored into the grant date fair value for these awards. Option awards are valued using the Black-Scholes option pricing model. The assumptions used to calculate the grant date fair value of these awards are set forth in Note O to our Consolidated Financial Statements filed with our Annual Report on Form 10-K for fiscal 2019.

 

48    CABOT CORPORATION


Table of Contents

 

2020 PROXY STATEMENT   

 

 

Executive Compensation (continued)

 

 

 

Outstanding Equity Awards at Fiscal Year-End Table

The following table shows information regarding outstanding equity awards held by our named executive officers as of September 30, 2019.

 

   

 

Option Awards

               

 

Stock Awards

 
Name  

Number of

Securities

Underlying

Unexercised

Options

(#)

Exercisable

   

Number of

Securities

Underlying

Unexercised

Options

(#)(1)

Unexercisable

   

Option

Exercise

Price

($)

   

Option

Expiration

Date

                 

Number

of Shares

or Units

of Stock

That

Have Not

Vested

(#)

   

Market

Value of

Shares or

Units of

Stock That

Have Not

Vested

($)(5)

   

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

($)(5)

 

  Sean D. Keohane

    14,297             47.62       11/7/2023             19,024       862,168              
    17,857             46.03       11/13/2024             19,280       873,770              
    25,617             39.54       11/11/2025             27,000       1,223,640              
    26,455             49.26       3/20/2026             33,980 (2)      1,539,974              
    52,788       35,193       50.46       11/10/2026             22,882 (3)      1,037,012       11,247 (6)      509,714  
    27,576       64,347       62.24       11/9/2027             7,980 (4)      361,654       21,000 (7)      951,720  
            137,674       50.00       11/8/2028                                                  

  Erica McLaughlin

    2,295             46.03       11/13/2024             1,783       80,806              
    3,293             39.54       11/11/2025             1,542       69,883              
    2,120       1,414       50.46       11/10/2026             1,839       83,343              
    945       2,206       62.24       11/9/2027             4,650       210,738              
    2,673       6,237       61.17       5/14/2028             1,820 (2)      82,482              
          23,710       50.00       11/8/2028             1,045 (3)      47,359       515 (6)      23,340  
                  2,182 (3)      98,888       1,073 (6)      48,628  
                                                      1,374 (4)      62,270       3,617 (7)      163,922  

  Karen A. Kalita

          11,437       40.91       6/2/2029             772       34,987              
                  723       32,766              
                  900       40,788              
                  1,833       83,072              
                  789 (2)      35,757              
                  489 (3)      22,161       242 (6)      10,967  
                  152 (4)      6,889       400 (7)      18,128  
                                                      541 (4)      24,518       1,426 (7)      64,626  

  Hobart C. Kalkstein

    4,017             46.03       11/13/2024             4,013       181,869              
    5,763             39.54       11/11/2025             3,615       163,832              
    4,251             47.23       4/6/2026             4,800       217,536              
    11,134       7,424       50.46       11/10/2026             7,166 (2)      324,763              
    5,170       12,065       62.24       11/9/2027             4,289 (3)      194,377       2,109 (6)      95,580  
            24,475       50.00       11/8/2028                       1,418 (4)      64,264       3,734 (7)      169,225  

  Brian A. Berube

    13,344             47.62       10/14/2020                                
    15,625             46.03       10/14/2020                                
    8,967             39.54       10/14/2020                                
    12,372             50.46       10/14/2020                                
      5,170             62.24       10/14/2020                                          

  John R. Doubman

    4,017             46.03       11/13/2024             2,972       134,691              
    2,306             39.54       11/11/2025             2,651 (8)      120,143              
    2,834             47.23       4/6/2026             3,600 (8)      163,152              
    8,248       5,499       50.46       11/10/2026             5,310 (2)      240,649              
    3,791       8,848       62.24       11/9/2027             3,145 (3)(8)      142,531       1,547 (6)(8)      70,110  
            18,356       50.00       11/8/2028                       1,064 (4)(8)      48,220       2,800 (7)(8)      126,896  

 

CABOT CORPORATION    49


Table of Contents

 

2020 PROXY STATEMENT   

 

 

Executive Compensation (continued)

 

 

 

1.

Under our LTI Program, options generally vest over a three-year period as follows, generally subject to the named executive officer’s continued employment through the vesting date: 30% on each of the first and second anniversaries of the date of grant and 40% on the third anniversary of the date of grant. The stock options granted to Ms. Kalita on June 3, 2019 in connection with her promotion vest as follows, generally subject to her continued employment through the applicable vesting date: 30% on November 9, 2019, 30% on November 9, 2020 and 40% on November 9, 2021. Except for Mr. Berube, all options have a date of grant that is ten years prior to the “Option Expiration Date” listed in the table. The option expiration date for all of Mr. Berube’s outstanding vested options is October 14, 2020. In connection with Mr. Doubman’s termination of employment following the end of the fiscal year, the option expiration date for all of his vested options was extended to the earlier of (i) November 15, 2021, and (ii) the originally expiration date of the stock options and all of his then unvested options were forfeited. Further information regarding the treatment of Messrs. Berube’s and Doubman’s options on their respective terminations is included in the Compensation Discussion and Analysis section above.

2.

Reflects the portion of the fiscal 2017 PSUs earned based on the degree of achievement of the annual financial performance goals (adjusted EPS and adjusted RONA goals) for each of the three years within the three-year performance period of the award. These units vested on November 11, 2019, the third anniversary of the date of grant, and were settled on November 20, 2019, the date the Compensation Committee determined the achievement of the adjusted EPS and adjusted RONA goals used to determine the number of PSUs earned during fiscal year 2019.

3.

Reflects the portion of the fiscal 2018 PSUs earned based on the degree of achievement of the annual financial performance goals (adjusted EPS and adjusted RONA goals) for the first two years within the three-year performance period of the award. These units will vest on November 10, 2020, generally subject to the named executive officer’s continued employment through the vesting date.

4.

Reflects the portion of the fiscal 2019 PSUs earned based on the degree of achievement of the annual financial performance goals (adjusted EPS and adjusted RONA goals) for the first year within the three-year performance period of the award. These units will vest on November 9, 2021, generally subject to the named executive officer’s continued employment through the vesting date.

5.

The value of unvested restricted stock units was calculated by multiplying the closing price of our common stock on September 30, 2019 ($45.32) by the number of unvested restricted stock units.

6.

Reflects the portion of the fiscal 2018 PSUs that may be earned based on the degree of achievement of the annual financial performance goals (adjusted EPS and adjusted RONA goals) for the third year within the three-year performance period of the award. These units, to the extent earned, will vest on November 10, 2020, generally subject to the named executive officer’s continued employment through the vesting date. The number of shares shown for each named executive officer’s PSU award assumes the Company will achieve the stretch adjusted EPS goal and stretch adjusted RONA goal with respect to such award, based on fiscal 2019 performance.

7.

Reflects the portion of the fiscal 2019 PSUs that may be earned based on the degree of achievement of the annual financial performance goals (adjusted EPS and adjusted RONA goals) for the second and third year within the three-year performance period of the award. These units, to the extent earned, will vest on November 9, 2021, generally subject to the named executive officer’s continued employment through the vesting date. The number of shares shown for each named executive officer’s PSU award assumes the Company will achieve the target adjusted EPS goal and target adjusted RONA metrics goal with respect to such award, based on fiscal 2019 performance.

8.

Mr. Doubman forfeited these TSUs and PSUs upon the termination of his employment on November 15, 2019.

Option Exercises and Stock Vested Table

The following table shows the TSUs and PSUs that vested for each named executive officer during fiscal 2019. There were no option exercises by our named executive officers during fiscal 2019. The value of stock realized on the vesting of TSUs is the product of the number of shares vested and the closing price of our common stock on the vesting date. The value of stock realized on the vesting of PSUs is the product of the number of shares vested and the closing price of our common stock on the settlement date.

 

     Stock Awards  
            Name   

Number of

Shares

Acquired

On Vesting

(#)

    

Value  

Realized on  

Vesting  

($)  

 

 

  Sean D. Keohane

 

  

 

 

 

 

32,019

 

 

 

 

  

 

 

 

 

1,542,384  

 

 

 

 

 

  Erica McLaughlin

 

  

 

 

 

 

3,641

 

 

 

 

  

 

 

 

 

175,451  

 

 

 

 

 

  Karen A. Kalita

 

  

 

 

 

 

1,820

 

 

 

 

  

 

 

 

 

87,701  

 

 

 

 

 

  Hobart C. Kalkstein

 

  

 

 

 

 

8,880

 

 

 

 

  

 

 

 

 

427,863  

 

 

 

 

 

  Brian A. Berube

 

  

 

 

 

 

23,986

 

 

 

 

  

 

 

 

 

1,122,618  

 

 

 

 

 

  John R. Doubman

 

 

  

 

 

 

 

 

8,045

 

 

 

 

 

 

  

 

 

 

 

 

387,641  

 

 

 

 

 

 

 

50    CABOT CORPORATION


Table of Contents

 

2020 PROXY STATEMENT   

 

 

Executive Compensation (continued)

 

 

 

Pension Benefits

Cabot’s salaried employees in the U.S. who were employees prior to January 1, 2014 (including each of our named executive officers) participate in Cabot’s Cash Balance Plan and, in certain cases, our Supplemental Cash Balance Plan. The Cash Balance Plan and the Supplemental Cash Balance Plan were each frozen on December 31, 2013, and no further benefits will accrue under those plans.

The benefits provided under these plans are described below.

Cash Balance Plan

The Cash Balance Plan is a funded, tax-qualified defined benefit plan. Prior to January 1, 2014, participants in the Cash Balance Plan accrued benefits from defined notional contributions (“pay-based credits”) in an amount equal to 3% of eligible compensation during their first five years of service, 3.5% during their next five years of service and 4% for years after ten years of service. Additional credits of 2% of earnings were provided on eligible compensation in excess of the Social Security wage base. Eligible compensation included base salary and short-term incentive bonus payments. Participants also received a guaranteed rate of return (“interest-based credits”) on their account balances.

The Cash Balance Plan was terminated effective July 31, 2019 and following the regulatory process, including application for a Determination Letter from the IRS, the plan is expected to be fully settled during fiscal 2020 through the payment of lump sums and purchase of annuities.

While the plan is frozen, interest-based credits are earned on account balances during a calendar y