DEF 14A 1 d945626ddef14a.htm DEF 14A DEF 14A
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

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 under §240.14a-12

CARPENTER TECHNOLOGY CORPORATION

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

  No fee required.
  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
  (1)  

Title of each class of securities to which transaction applies:

 

     

  (2)  

Aggregate number of securities to which transaction applies:

 

     

  (3)  

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

 

     

  (4)  

Proposed maximum aggregate value of transaction:

 

     

  (5)  

Total fee paid:

 

     

  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.
  (1)  

Amount Previously Paid:

 

     

  (2)  

Form, Schedule or Registration Statement No.:

 

     

  (3)  

Filing Party:

 

     

  (4)  

Date Filed:

 

     

 

 

 


Table of Contents

LOGO

MARKETS SERVED Aerospace & Defense Energy Industrial & Consumer Medical Transportation Todays Performance, Tomorrows Breakthroughs. TM NOTICE OF 2019 Annual Meeting and Proxy Statement www.CarpenterTechnology.com


Table of Contents

LOGO

Carpenter Technologys Strategy Driving Force: Distinctive Product and Process Capabilities Areas of Excellence: Business Purpose: Our driving force is to leverage our core technical strength in engineered materials and process capabilities to solve our customers current and anticipated challenges. We will grow in market segments where we can provide differentiated and value-added solutions to complex problems. We will solidify our position as the industry leader by being the preferred solutions provider and providing our customers a competitive advantage. Technology Development Respond quickly to customer technical questions Establish and maintain process expertise and excellence Rapidly translate customer needs into solutions Capture internal "know-how" Develop proprietary and breakthrough products Operational Excellence Be safe and compliant Employ root cause problem solving Practice System Thinking Perform daily management Develop and execute standard work Control key process variables Identify and eliminate waste Strategic Marketing Think, act and execute in a future outcome manner Segment and target markets based on potential value and growth Translate broad strategies into actionable plans Provide timely customer solutions Demonstrate market knowledge Support the go-to-market approach and advantage Talent Engagement Acquire talent on an ongoing basis Develop talent based upon criticality to the organization Provide attractive mix of rewards and recognition Anticipate changing requirements of a shifting workforce and marketplace Sustain a high-performance environment Create compelling careers Employ a living, strategic work plan


Table of Contents

LOGO

September 17, 2020

Dear Stockholders:

You are cordially invited to attend the 2020 Annual Meeting of Stockholders of Carpenter Technology Corporation to be held on October 13, 2020, at 11:00 a.m. Eastern Daylight Time. This year’s Annual Meeting will be completely virtual. You will be able to attend the Annual Meeting as well as vote and submit your questions during the live webcast of the meeting by visiting www.virtualshareholdermeeting.com/CRS2020. Details regarding admission to the meeting and the business to be conducted are provided in the accompanying Notice of Annual Meeting and Proxy Statement.

Safety Culture Enabled Safe and Continuous Operation of Facilities to Service Customers’ Critical Needs during COVID-19 Pandemic, with Deliberate and Immediate Actions Taken to Address Near-Term Challenges and Emerge Even Stronger

The COVID-19 pandemic has created significant challenges across the global economy. Carpenter Technology has met these challenges head on, and we have been operating our facilities continuously and safely since the beginning of the pandemic.

 

   

Safety is our highest value, with our ultimate goal being a zero-injury workplace. That safety mindset and culture enabled us to quickly adapt to the challenges of operating our production facilities during a widespread COVID-19 pandemic. The cornerstone of the response has been the Rapid Response Team, made up of a cross functional group of individuals, whose sole focus is dealing with the day-to-day challenges of COVID-19 and ensuring the safety of our employees. The Rapid Response Team has been tasked with developing and implementing extensive protocols to operationalize social distancing, enhanced hygiene, employee self-reporting and modularization of our facilities. Of course, none of these efforts would be possible without the dedication, engagement and commitment of the women and men who make up our workforce.

 

   

We have managed our capital allocation closely over the years and we entered this challenging environment well positioned from a liquidity perspective. We have taken meaningful actions to reduce our costs and further strengthen our already healthy liquidity position. They included the execution of targeted portfolio changes, including exiting our Amega West oil and gas business, idling a powder facility in West Virginia and divesting a powder facility in Rhode Island. In addition, we reduced approximately 20% of our global salaried workforce and implemented a hiring freeze as well as temporary rolling furloughs. With a focus on cash generation, we reprioritized capital spending for our upcoming fiscal year and expect to reduce capital expenditures by $50 million in fiscal year 2021 as our significant future growth investments are largely behind us.

 

   

As a critical supplier to our customers, we continue to support our customers’ needs for mission critical never fail products. Our demonstrated resilience and ability to work collaboratively with our customers to address near-term demand adjustments has enabled us to reinforce strong customer relationships and enhance supply agreements across key markets.

 

   

Our long-standing commitment to providing direct returns to our stockholders is clear as fiscal year 2020 marks our 113th straight year of uninterrupted dividend payments.

As we look ahead, I am confident that the actions and efforts we have taken have made us a stronger company both today and in the future. Now more than ever, our strategy to be the preferred solutions provider in specialty materials with a reputation for zero injuries, unquestionable quality, intimate customer connections, innovative growth, creative technology and engaged talent remains clearly in focus.

Thank you for your continued support and confidence in Carpenter Technology. I hope you can join us at the Annual Meeting.

 

 

         LOGO

 

Sincerely,

 

LOGO

 

Tony R. Thene

President & Chief Executive Officer


Table of Contents

 

Notice of Annual Meeting

of Stockholders

 

 

 

 

Carpenter Technology Corporation will hold its 2020 Annual Meeting of Stockholders virtually via live webcast at www.virtualshareholdermeeting.com

/CRS2020 on Tuesday, October 13, 2020, at 11:00 a.m. We will vote on the following matters:

 

1.

The election of three directors to three-year terms expiring in 2023;

 

2.

Approval of the appointment of PricewaterhouseCoopers LLP as Carpenter Technology’s independent registered public accounting firm for fiscal year 2021;

 

3.

Approval of our named executive officers’ compensation, in an advisory vote;

 

4.

Approval of the amended and restated Stock-Based Incentive Compensation Plan for Officers and Key Employees; and

 

5.

Any other business that is properly presented at the meeting.

Due to the current public health impact of the coronavirus pandemic (COVID-19) and to support the health and well-being of our stockholders, employees and their families, the 2020 Annual Meeting of Stockholders of Carpenter Technology Corporation will be held in a virtual meeting format only, via live webcast. We also believe that holding the Annual Meeting virtually will allow us to increase stockholder accessibility and to broaden participation.

Only stockholders who were record owners of our common stock at the close of business on August 14, 2020, may vote at the meeting. A list of those stockholders will be available at the meeting on the internet at www.virtualshareholdermeeting.com/CRS2020. Carpenter Technology’s Board of Directors solicits this proxy.

How to Vote:

It is important that you vote your shares. We encourage you to take advantage of the easy and cost-effective internet and telephone voting that Carpenter Technology offers.

 

       

LOGO

 

 

Internet:

 

Visit the website listed on your proxy card. You will need the control number that appears on your proxy card when you access the web page.

 

   

    

 

 

 

LOGO

 

Mail:

 

Complete and sign the proxy card and return it in the enclosed postage pre-paid envelope.

       
       

LOGO

 

Telephone:

 

If your shares are held in the name of a broker, bank, or other nominee: Follow the telephone voting instructions, if any, provided on your proxy card. If your shares are registered in your name: Call 1-800-690-6903 and follow the telephone voting instructions. You will need the control number that appears on your proxy card when you call.

 

   


    

 

 

 

 

LOGO

 

At the Meeting:

 

You may attend the Annual Meeting virtually and vote during the live webcast at www.virtualshareholdermeeting.com
/CRS2020.

Important notice regarding the availability of proxy materials for the Annual Meeting to be held on October 13, 2020. This Proxy Statement and our Annual Report to Stockholders for the fiscal year ending June 30, 2020, are available electronically at www.proxyvote.com.

Selected information from Carpenter Technology’s 2020 Annual Report on Form 10-K, including financial statements, is being delivered along with this Proxy Statement, but is not incorporated as part of the Proxy Statement and is not to be considered part of the proxy solicitation material.

This Proxy Statement and the accompanying Notice of Annual Meeting of Stockholders are being sent to stockholders on or about September 17, 2020.

On behalf of the Board of Directors,

 

LOGO

James D. Dee

Senior Vice President, General Counsel and Secretary

 

 

   
   CARPENTER TECHNOLOGY 2020 PROXY STATEMENT


Table of Contents

Table of Contents

 

Proxy Summary     6  
Proposal No. 1 – Election of Directors     10  
Nomination Process and Criteria for Selection     10  
Director Skills Summary     11  
Nominees and Current Directors     12  
Corporate Governance     18  
Board Information     18  

Majority Voting Standard for Election of Directors

    18  

Board Independence

    18  

Board Leadership Structure

    18  

Meetings of the Board, Committees and Independent Directors

    18  

Board Committees

    19  
Board of Directors’ Role in Risk Oversight     21  
Stockholder Engagement and Communication with the Board     22  
Environmental and Social Issues     23  
Governance Policies and Practices     24  
Transactions with Related Parties     25  
Compensation Committee Interlocks and Insider Participation     26  
Delinquent Section 16(a) Reports     26  
Security Ownership of Principal Beneficial Owners     27  
Directors, Nominees and Management Stock Ownership     28  
Director Compensation     30  
Fiscal Year 2020 Director Compensation Table     32  
Proposal No. 2 – Approval of Appointment of Independent Registered Public Accounting Firm     33  
Audit/Finance Committee Report     35  
Proposal No. 3 – Advisory Vote to Approve the Compensation of our Named Executive Officers     37  
Compensation Committee Report     38  
Proposal No. 4 – Approval of the Amended and Restated Stock-Based Incentive Compensation Plan for Officers and Key Employees     39  
Compensation Discussion and Analysis (Table of Contents)     51  
Executive Compensation (Table of Contents)     75  
General Information     92  

Why We Solicit Proxies

    92  

Method and Cost of Solicitation

    92  

Who Can Vote

    92  

How to Vote

    92  

Broker Non-Votes and Abstentions

    93  

Quorum and Required Votes

    93  

If You Change Your Mind After Voting

    94  

Stockholder Nominations to the Board of Directors

    94  

2021 Stockholder Proposals

    94  

Householding of Proxy Materials

    94  

Where You Can Find More Information

    95  
Other Matters     95  
Exhibit A     A-1  
 

 

Safe Harbor Statement: Please refer to the Safe Harbor Statement in our Form 10-K for information about factors that could cause future results to differ materially from forward-looking statements, expectations, and assumptions expressed or implied in this proxy statement.

 

   
CARPENTER TECHNOLOGY 2020 PROXY STATEMENT   


Table of Contents

Proxy Summary

 

 

Annual Meeting of Stockholders

 

Meeting Date:

October 13, 2020

 

Time:

11:00 a.m.

 

Held Virtually at:

www.virtualshareholder
meeting.com/CRS2020

 

Record Date:

August 14, 2020

 

This summary gives you an overview of selected information in this year’s proxy. Please read the entire proxy before voting.

Agenda and Voting Matters

 

Proposal

 

  

Board

Recommendation

 

  

Page

Reference

 

 

 

1. Election of three directors to three-year terms expiring in 2023

 

  

 

For all nominees

 

  

 

 

 

 

10

 

 

 

 

 

2. Ratification of PricewaterhouseCoopers LLP as our independent auditors for fiscal year 2021

 

  

 

For

 

  

 

 

 

 

33

 

 

 

 

 

3. Advisory vote to approve the compensation of our named executive officers

 

  

 

For

 

  

 

 

 

 

37

 

 

 

 

 

4. Approval of the amended and restated Stock-Based Incentive Compensation Plan for Officers and Key Employees

 

  

 

For

 

  

 

 

 

 

39

 

 

 

 

Director Nominees: Terms to Expire 2023

 

Name

 

 

Director
Since

 

  

Experience and
Qualifications

 

 

Board
Committees

 

  

Board
Tenure

 

 

 

Steven E. Karol

 

 

2012

  

 

Chief Executive Officer and Deep Industry Knowledge

 

 

 

  Compensation

  Corporate Governance

  Strategy

  

 

 

 

8 years

 

 

 

Gregory A. Pratt

 

 

2002

  

 

Financial and Operational Experience

 

 

 

    

  

 

 

 

18 years

 

 

 

Tony R. Thene

 

 

2015

  

 

Chief Executive Officer and Financial Experience

 

 

 

  Strategy

  

 

 

 

5 years

 

 

 

LOGO

Board Composition Board Tenure Diversity of skills and experience

 

   
6    CARPENTER TECHNOLOGY 2020 PROXY STATEMENT


Table of Contents

 

Proxy Summary • Governance Highlights    

 

 

Governance Highlights:

Our commitment to good corporate governance is illustrated by the following practices:

 

  Board independence (9 out of 10 directors are independent)

 

  Strong corporate governance guidelines and policies

 

  Diversity of Board skills and experience

 

  Robust stock ownership guidelines for Directors and Executive Management

 

  Directors attended 99% of all Board and Committee meetings in fiscal year 2020

 

  Separate Chairman and Chief Executive Officer

 

  Succession planning process
  Majority voting with Director resignation policy for uncontested elections

 

  Stockholder outreach program

 

  Director training and education

 

  Annual Board and Committee evaluations

 

  Mandatory retirement policy

 

  Board risk oversight and assessment

 

  Independent Directors meet in executive sessions without management present
 

 

Compensation Governance Practices

Our executive compensation program reflects the Board’s strong commitment to good governance.

 

       

What we do

       

Balanced portfolio: The program design provides a balanced mix of cash and equity, annual and long-term incentives, and performance metrics (financial and operational goals).

 

Double-trigger benefits: We have a double-trigger for change-in-control separation benefits. This means that a change-in-control of Carpenter Technology alone does not trigger any severance obligations to our Named Executive Officers (“NEOs”) under our Change in Control Severance Plan or vesting of awards granted after July 18, 2018.

 

Clawback policy: We have a clawback policy that applies to both annual cash bonuses and short- and long-term cash incentives, as well as equity awards for NEOs and other senior executives.

 

Key practices: The Compensation Committee analyzes performance against robust and diversified performance metrics, ensures substantial share ownership guidelines, annually reviews compensation peer groups, and provides and oversees limited perquisites.

 

    

Equity ownership guidelines: We maintain equity ownership guidelines that require Corporate Vice Presidents and above to achieve an equity ownership level, over a five-year period, equal to a certain multiple of base salary. For the CEO, the level is 5x base salary; for Senior Vice Presidents, 3x base salary; and for Corporate Vice Presidents, 2x base salary.

 

Independent compensation consultants: We engage independent compensation consultants who provide information to support the Compensation Committee’s work, including a peer group analysis, market compensation data, and an analysis of various compensation instruments and metrics.

 

Risk assessment: The Compensation Committee reviews an annual assessment by the independent compensation consultant to confirm that metrics and goals are appropriate to drive high performance without encouraging risk-taking beyond established risk parameters.

  

 

   
CARPENTER TECHNOLOGY 2020 PROXY STATEMENT    7


Table of Contents

 

Proxy Summary • Compensation Governance Practice

 

 

       

What we don’t do

       

Excise tax gross-ups: The compensation program does not include any change-in-control tax gross-ups to our executives.

 

Dividend payments or accruals on unearned restricted stock units (RSUs): We do not pay or accrue dividends on unearned restricted stock units. Dividend equivalents are paid on time-based RSU awards granted prior to October 8, 2019, and will only be paid upon satisfaction of the terms and conditions applicable to the underlying RSUs on time-based RSU awards granted on or after October 8, 2019. Additionally, no dividend equivalent rights are granted on shares underlying stock options.

 

Excessive perquisites: We do not provide excessive perquisites to our NEOs. Those offered are primarily financial and tax counseling, tax preparation, medical examinations, individual disability income protection plans, relocation expenses and parking fee reimbursements at our Philadelphia headquarters.

 

    

Hedging/pledging of company stock: Our policy prohibits hedging or pledging of Carpenter Technology stock by NEOs.

 

Option repricing: Our long-term incentive plan does not permit repricing of stock options without stockholder approval. Additionally, the plan does not permit Carpenter Technology to offer a cash buyout of underwater options.

 

Employment contracts: We do not provide employment contracts to our NEOs.

  

 

   
8    CARPENTER TECHNOLOGY 2020 PROXY STATEMENT


Table of Contents

 

Proxy Summary • Stockholder Engagement and Advisory Say-On-Pay Vote    

 

 

Stockholder Engagement and Advisory Say-On-Pay Vote

We have provided stockholders with an annual say-on-pay advisory vote on compensation of our NEOs since 2012. We are very pleased that stockholders have expressed their continued support of our compensation practices.

Pay for Performance

Our compensation program targets market median positioning but is strongly focused on delivering a substantial portion of that compensation through performance-based compensation elements. This ensures proper alignment with our stockholders and ties the ultimate value delivered to NEOs (above/below target) to Carpenter Technology’s performance.

Target Direct Compensation Mix – CEO

 

 

LOGO

19% Restricted Stock Units (Time) 19% Base Salary 19% Target Bonus 31% Restricted Stock Units (Target Performance) 12% Stock Options 62% Performance Based

Target Direct Compensation Mix – NEOs*

 

 

LOGO

12% Restricted Stock Units 39% Base Salary 22% Target Bonus 19% Restricted Stock Units (Target Performance) 8% Stock Options 49% Performance Based

 

*

Represents target pay mix for Messrs. Dee, Lain, Malloy and Murtagh.

 

   
CARPENTER TECHNOLOGY 2020 PROXY STATEMENT    9


Table of Contents

Proposal 1:

Election of Directors

Carpenter Technology has a strong Board, bringing diverse experience and perspectives in areas vital to our business of manufacturing, fabricating and distributing specialty metals, including products for critical industries in aerospace, defense, energy, medical, and industrial and consumer end-use markets.

Our Board has ten directors that serve in three classes, with each class serving for three-year terms. The term of office of one class of directors expires each year at the Annual Meeting. Steven E. Karol, Gregory A. Pratt and Tony R. Thene have been re-nominated for election at the 2020 Annual Meeting of Stockholders to serve for an additional term. If elected, their terms will expire at the 2023 Annual Meeting.

Unless otherwise directed by the stockholders, the shares represented by proxies will be voted for the three nominees. Each nominee has consented to being nominated as a director and is expected to serve as a director if elected.

Majority voting standard: Generally, directors will be elected by a majority of the votes cast. In the event of a contested election, where the number of candidates exceeds the number of directors to be elected, directors will be elected by a plurality of the votes cast.

Resignation policy: If an incumbent director fails to obtain the required majority vote in an uncontested election, that director must promptly tender a resignation to the Board. The Corporate Governance Committee will recommend to the Board whether to accept or reject the resignation. The Board will then decide whether to accept or reject the resignation and publicly disclose its decision within 90 days following certification of the election results.

Mandatory retirement policy: All non-management directors must retire at the Annual Meeting of Stockholders that occurs after the director attains age 72 unless the Board determines there are extraordinary circumstances that warrant a longer tenure. A management director (officer of Carpenter Technology) must retire from the Board at the earlier of attaining age 65 or retiring as an officer of Carpenter Technology.

Robert R. McMaster has attained the mandatory retirement age and will retire from the Board at this year’s Annual Meeting of Stockholders.

Nomination Process and Criteria for Selection

The Board’s Corporate Governance Committee is responsible for identifying and recommending qualified individuals to become members of the Board of Directors. Candidates are considered for nomination based upon various criteria, including their general training and experience in business, science, engineering, finance or administration, and their personal integrity and judgment. The Corporate Governance Committee will review and consider any candidates for director recommended by a stockholder of record who is entitled to vote at an annual meeting and who satisfies the notice, information and consent provisions set forth in Carpenter Technology’s By-laws. The Corporate Governance Committee will use the same evaluation criteria and process for director nominees recommended by stockholders as it uses for other director nominees. The Corporate Governance Committee functions pursuant to a written charter that was adopted and is reviewed annually by the Board. A copy of the charter is posted on Carpenter Technology’s website at www.carpentertechnology.com.

In evaluating candidates to recommend to the Board of Directors, the Corporate Governance Committee considers whether a candidate enhances the diversity of the Board. The Corporate Governance Committee considers a number of characteristics, including each candidate’s professional background and capabilities, knowledge of specific industries, and experience working outside the United States. We believe the foremost responsibility of a Carpenter Technology director is to represent the interests of stockholders, which requires directors to have time available to devote to Board activities. Accordingly, Carpenter Technology seeks to attract and retain highly qualified directors who have sufficient time to attend to their substantial duties and responsibilities to Carpenter Technology. Carpenter Technology believes there should be mostly independent directors on the Board, and it is our policy to avoid nominating outside professionals, such as lawyers, investment bankers, or accountants, whose firms provide services to Carpenter Technology.

 

   
10    CARPENTER TECHNOLOGY 2020 PROXY STATEMENT


Table of Contents

 

Proposal 1: Election of Directors    

 

 

Director Skills Summary

Our Board of Directors brings diverse experience and perspectives to areas critical to our business. Their collective knowledge ensures appropriate management and risk oversight and supports our strategy of long-term sustainable stockholder value creation.

 

Director Name

 

 

CEO Experience

 

 

Key Industry
Experience

 

 

Operational
Manufacturing
Experience

 

 

Financial
Expertise

 

 

Strategy
Experience

 

 

International
Experience

 

 

R&D or Innovation
Experience

 

 

Dr. Viola L. Acoff

 

     

 

 

                 

 

 

 

Dr. A. John Hart

 

     

 

 

                 

 

 

 

I. Martin Inglis

 

     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Steven E. Karol

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

Kathleen Ligocki

 

 

 

 

 

 

 

 

 

 

     

 

 

 

 

 

   

 

Robert R. McMaster

 

 

 

 

 

 

 

     

 

 

 

 

 

       

 

Gregory A. Pratt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     

 

 

 

Tony R. Thene

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

Dr. Jeffrey Wadsworth

 

 

 

 

 

 

 

         

 

 

     

 

 

 

Stephen M. Ward, Jr.

 

 

 

 

 

 

 

         

 

 

 

 

 

 

 

 

 

 

 

 

 

LOGO

 

 

 

 

 

 

 

FOR

  

 

The Board of Directors recommends that you vote FOR the election of Steven E. Karol, Gregory A. Pratt and Tony R. Thene.

 

 

   
CARPENTER TECHNOLOGY 2020 PROXY STATEMENT    11


Table of Contents

 

    Proposal 1: Election of Directors

 

 

Nominees

 

Terms to Expire 2023

 

Steven E. Karol

 

Mr. Karol is Managing Partner and founder of Watermill Group, a private investment firm specializing in strategic and operational management. He serves on the Boards of private companies owned by the Watermill Group, including Tenere, Inc., Quality Metalcraft, Inc., Experi-Metal, Inc., Cooper and Turner, LTD., Beck Industries, and ENBI Global, Inc. Additionally, Mr. Karol is Chairman of the Board and CEO of HMK Enterprises, Inc., a privately-held investment company. From 2006 through February 2012, Mr. Karol served as a Director of Latrobe Specialty Metals, Inc. (“Latrobe”), a manufacturer and distributor of high-performance materials, which was partially owned by the Watermill Group during this time period and was acquired by Carpenter Technology in February 2012.

 

Mr. Karol is currently a member of the Board of Advisors of The Walter Group. He has also served as Chairman of the Board at Mooney Aircraft Company, Director and Chairman of the Audit Committee at StockerYale, and as a Director for Jeepers! Inc., Intelligent Energy Limited, Inter-Tel Corp., Superior Tubes, and Fine Tubes.

 

Mr. Karol is currently a member of the Young President’s Organization-Gold and has served as a member of the leadership team for this organization. During this time, Mr. Karol served on the International Board of Directors (1991—2001), Chairman of Strategic Planning (1993—1996), and as International President (1998—1999). He is currently a trustee of Tufts University and is Chairman of the Council of Advisors. He received the 2009 Tufts Distinguished Service Award. He is also past Chairman of the Board of Trustees of Vermont Academy, and a Director Emeritus at the National Brain Tumor Society. In addition, he is a co-founder and President of the Herbert M. Karol Cancer Foundation. He formerly served as a member of the Board of Overseers of the Boston Symphony Orchestra, and he is a Trustee Emeritus of the Boston Ballet.

 

    

LOGO

 

Managing Partner, Watermill Group; Chairman and Chief Executive Officer, HMK Enterprises, Inc.

 

AGE                          DIRECTOR SINCE

 

66                   2012

 

COMMITTEES

  Strategy (Chair)

  Corporate Governance

  Compensation

 

CURRENT NON-CARPENTER TECHNOLOGY PUBLIC DIRECTORSHIPS 0

Qualifications

       

  Chief Executive Officer

 

  Deep Industry Knowledge

 

  Strategic Experience

 

  Financial Knowledge

  

Mr. Karol’s qualifications include, among other things, his extensive business experience and experience as a Chief Executive Officer and Chairman of the Board, which enable him to contribute to the Board’s operational and growth initiatives. In addition, Mr. Karol’s experience as a Director of Latrobe (a wholly owned subsidiary of Carpenter Technology) enhances his contributions to the Board, particularly with respect to his industry knowledge and expertise.

 

    

 

 

   
12    CARPENTER TECHNOLOGY 2020 PROXY STATEMENT


Table of Contents

 

Proposal 1: Election of Directors    

 

 

Gregory A. Pratt

 

Mr. Pratt is the Chairman of the Board of Directors and served as interim President and Chief Executive Officer of Carpenter Technology in fiscal years 2010 and 2015. Mr. Pratt is former Vice Chairman and director of OAO Technology Solutions, Inc. (“OAOT”), an information technology and professional services company. He joined OAOT in 1998 as President and Chief Executive Officer after OAOT acquired Enterprise Technology Group, Inc., a software engineering firm founded by Mr. Pratt. Mr. Pratt served as President and Chief Operations Officer of Intelligent Electronics, Inc. from 1991 through 1996, and was co-founder, and served variously as Chief Financial Officer and President, of Atari (US) Corporation from 1984 through 1991.

 

Mr. Pratt serves as Chairman of the Nominating and Governance Committee and a member of the Audit Committee at Tredegar Corporation, a public company listed on the NYSE, and as an independent director on the Board of Anterix, Inc., a public company listed on NASDAQ. He served as a Director and Audit Committee Chairman of AmeriGas Propane, Inc., a public company listed on the NYSE, for seven years.

 

Mr. Pratt is a National Association of Corporate Directors (“NACD”) Board Leadership Fellow. He has demonstrated his commitment to boardroom excellence by completing NACD’s comprehensive program of study for experienced corporate directors, which is a rigorous suite of courses spanning leading practices for boards and committees. He also was appointed to serve a three-year term on the Standing Advisory Group of the Public Company Accounting Oversight Board ending November 2016. He supplements his skill sets through ongoing engagement with the director community and access to leading practices.

 

    

LOGO

 

Chairman, Carpenter Technology Corporation; Prior Vice Chair, OAO Technology Solutions, Inc.

 

AGE                          DIRECTOR SINCE

 

71                     2002

 

CURRENT NON-CARPENTER TECHNOLOGY PUBLIC DIRECTORSHIPS 2

  Tredegar Corporation (since 2014)

  Anterix Inc. (since June 2020)

 

FORMER DIRECTORSHIPS

  AmeriGas Propane, Inc.

  OAO Technology Solutions

  Intelligent Electronics

  Atari Corporation

Qualifications

       

  Finance

 

  Information Technology

 

  Operations

 

  International

 

   Mr. Pratt’s qualifications include, among other things, his extensive financial expertise, his leadership skills, and significant operational and international management experience as president of a large public company, all of which contribute to the valuable perspective Mr. Pratt brings to our Board of Directors.     

 

Tony R. Thene

 

Mr. Thene was appointed to serve as Carpenter Technology’s President and Chief Executive Officer in July 2015, when he was also appointed to the Board of Directors. He previously served as Carpenter Technology’s Senior Vice President and Chief Financial Officer from January 2013 until June 2015. Prior to joining Carpenter Technology, Mr. Thene served as the Chief Financial Officer of the Engineered Products and Solutions Business Group at Alcoa, Inc. from 2010 until 2013. Previously, he served as Vice President, Controller and Chief Accounting Officer of Alcoa. He also previously held various other positions during his 23-year career at Alcoa, including Director, Investor Relations; Chief Financial Officer for the Flat Rolled Products Group; Chief Financial Officer for Alcoa World Alumina and Chemicals; and manufacturing manager for the Alumina Chemicals business.

 

Mr. Thene earned his undergraduate degree in Accounting from Indiana State University and his MBA from Case Western Reserve University, Cleveland, Ohio. He is also a Certified Public Accountant.

 

Mr. Thene serves on the Board of Directors of Neenah, Inc., a leading global specialty materials company focused on premium niche markets that value performance and image. He also serves on Furman University’s Board of Trustees.

 

    

LOGO

 

President and Chief Executive Officer, Carpenter Technology Corporation

 

AGE                           DIRECTOR SINCE

 

59                     2015

 

COMMITTEES

  Strategy

 

CURRENT NON-CARPENTER TECHNOLOGY PUBLIC DIRECTORSHIPS 1

  Neenah, Inc. (since 2018)

Qualifications

       

  Finance

 

  Key Industry Experience

 

  Operations

 

   Mr. Thene’s qualifications include his extensive accounting and financial knowledge, operational and manufacturing experience, and his leadership skills.     

 

   
CARPENTER TECHNOLOGY 2020 PROXY STATEMENT    13


Table of Contents

 

    Proposal 1: Election of Directors

 

 

Terms to Expire 2021

 

Dr. A. John Hart

 

Dr. Hart is a Professor of Mechanical Engineering at the Massachusetts Institute of Technology (“MIT”). He is also the Director of the MIT Laboratory for Manufacturing and Productivity, and the MIT Center for Additive and Digital Advanced Production Technologies (APT). Dr. Hart joined the MIT faculty in 2013. He has worked extensively with industry via his research and as a consultant, and is a co-founder of Desktop Metal, Inc. and VulcanForms, Inc.

 

Dr. Hart earned his master’s and Ph.D. degrees from MIT, and his undergraduate degree from the University of Michigan. He has received numerous awards for his research and teaching accomplishments.

 

    

LOGO

 

Professor of Mechanical Engineering at the Massachusetts Institute of Technology

 

AGE                          DIRECTOR SINCE

 

41                     2019

 

COMMITTEES

  Audit/Finance

  Strategy

 

CURRENT NON-CARPENTER TECHNOLOGY PUBLIC DIRECTORSHIPS 0

 

Qualifications

       

  Research and Development

 

  Key Industry Experience

 

  Innovation

  

Dr. Hart’s qualifications include, among other things, his extensive work in the areas of additive manufacturing, advanced materials, machine design, and automation. His industry expertise and his background as a professor in these areas add valuable support to both the Board and Carpenter Technology.

 

  

 

Kathleen Ligocki

 

Kathleen Ligocki is a former CEO and current board member. From 2015 to 2019, she served as the CEO of Agility Fuel Solutions, a leader in sustainable clean energy storage and propulsion solutions for commercial vehicles around the world. From 2014 to 2015, Ms. Ligocki served as the Chief Executive Officer of Harvest Power, one of the leading organics management companies in North America with a mission to create a more sustainable future by transforming organic wastes into bioenergy and soil amendment products. From 2012 to 2014, she worked as an Operating Partner at Kleiner Perkins Caufield & Byers, one of Silicon Valley’s top venture capital providers. From 2010 to 2012, Ms. Ligocki served as Chief Executive Officer of Next Autoworks, an auto company with a unique low-cost business model. From 2008 to 2009, Ms. Ligocki served as Chief Executive Officer of GS Motors, a Mexico City based auto retailer owned by Grupo Salinas, a large Mexican conglomerate. From 2003 to 2007, she served as Chief Executive Officer of Tower Automotive, a Fortune 1000 global auto supplier. Ms. Ligocki also founded her own firm, Pine Lake Partner, a consultancy firm focused on start-ups and turnarounds. She has held executive positions at Ford and United Technologies where she led operations in the Americas, Europe, Africa, the Middle East and Russia. She started her career at General Motors in manufacturing leadership, sales and strategy/program management.

 

Ms. Ligocki earned a bachelor’s degree with highest distinction from Indiana University Kokomo and holds an MBA from the Wharton School at the University of Pennsylvania. She also has been awarded honorary doctorate degrees from Indiana University Kokomo and Central Michigan University. Currently she serves on the boards of Lear Corporation, a publicly traded Fortune 200 automotive supplier, PPG Industries, a Fortune 200 global coatings company, and Farmers Business Network, a venture capital-backed technology company in the agriculture sector. She is also a board member at the Indiana University Foundation.

 

    

LOGO

 

Former CEO of Agility Fuel Solutions

 

AGE                           DIRECTOR SINCE

 

63                     2017

 

COMMITTEES

  Compensation (Chair)

  Corporate Governance

  Strategy

 

CURRENT NON-CARPENTER TECHNOLOGY PUBLIC DIRECTORSHIPS 2

  Lear Corporation (since 2012)

  PPG Industries (since 2020)

Qualifications

         

  Chief Executive Officer

 

  International

 

  Key Industry Experience

 

  Operational Manufacturing Experience

 

  

Ms. Ligocki’s qualifications include, among other things, her Chief Executive Officer experience and leadership skills. Her international knowledge and operational manufacturing experience bring valuable insight to the Board.

 

    

 

   
14    CARPENTER TECHNOLOGY 2020 PROXY STATEMENT


Table of Contents

 

Proposal 1: Election of Directors    

 

 

Dr. Jeffrey Wadsworth

 

Dr. Wadsworth, now retired, was President and Chief Executive Officer of Battelle, a research and development enterprise headquartered in Columbus, Ohio from January 2009 to September 2017. He formerly was Executive Vice President, Global Laboratory Operations at Battelle, Director of Oak Ridge National Laboratory, Chief Executive Officer and President of UT-Battelle LLC, and Senior Vice President for U.S. Department of Energy Science Programs at Battelle. Previously, he was Director of Homeland Security Programs at Battelle and part of the White House Transition Planning Office during the formation of the U.S. Department of Homeland Security. From 1992 to 2002, Dr. Wadsworth was at the Lawrence Livermore National Laboratory in Livermore, California, where from 1995 he was Deputy Director for Science and Technology. Prior to that, he was with Lockheed Missiles and Space Company, Research and Development Division.

 

Dr. Wadsworth was elected to the U.S. National Academy of Engineering in 2005, has been elected Fellow of three technical societies, and holds numerous awards and honors. Dr. Wadsworth holds a bachelor’s degree in metallurgy, a Ph.D., and D.Met, and D.Eng. degrees from Sheffield University, England.

 

    

LOGO

 

Retired President and Chief Executive Officer, Battelle

 

AGE                           DIRECTOR SINCE

 

70                     2006

 

COMMITTEES

  Science and Technology (Chair)

  Audit/Finance

 

CURRENT NON-CARPENTER TECHNOLOGY PUBLIC DIRECTORSHIPS 1

  3D Systems (since 2017)

 

Qualifications

       

  Chief Executive Officer

 

  Research and Development

 

  Key Industry Experience

  

Dr. Wadsworth’s qualifications include, among other things, his strong background in Carpenter Technology’s primary area of focus—metallurgy. Additionally, Dr. Wadsworth’s significant leadership experience in the research and development arena enriches his contributions to the Board, particularly with respect to innovation and strategy matters.

 

  

 

Terms to Expire 2022

 

Dr. Viola L. Acoff

 

Dr. Acoff is currently the Associate Dean for Undergraduate and Graduate Programs at The University of Alabama College of Engineering, a position she has held since 2014. Dr. Acoff joined the faculty at The University of Alabama in 1994. Since 2004, she has been a full professor in the University’s Department of Metallurgical and Materials Engineering, where she served as Department Head from 2009 to 2014. Dr. Acoff also led the Department of Chemical and Biological Engineering. She is a Doctor of Philosophy in Materials Engineering and holds graduate and undergraduate degrees in the same field. All degrees were earned at the University of Alabama at Birmingham.

 

Dr. Acoff also serves on the Executive Board of Boy Scouts of America (Black Warrior Council), the Board of Trustees for TMS Foundation, and the Four Little Girls Memorial Fund. She holds multiple awards, honors, and publications.

 

    

LOGO

 

Associate Dean for Undergraduate and Graduate Programs at the University of Alabama College of Engineering

 

AGE                          DIRECTOR SINCE

 

53                   2019

 

COMMITTEES

  Corporate Governance

  Compensation

  Science and Technology

 

CURRENT NON-CARPENTER TECHNOLOGY PUBLIC DIRECTORSHIPS 0

 

Qualifications

       

  Innovation

 

  R&D

 

  Intellectual Property

 

  

Dr. Acoff’s qualifications include, among other things, her expertise in additive manufacturing, advanced materials, welding metallurgy, physical metallurgy and materials characterization. Additionally, Dr. Acoff’s strong background as a professor in the metallurgical and materials area enables her to contribute valuable knowledge to our Board.

 

  

 

   
CARPENTER TECHNOLOGY 2020 PROXY STATEMENT    15


Table of Contents

 

    Proposal 1: Election of Directors

 

 

I. Martin Inglis

 

Mr. Inglis joined Battelle, a research and development enterprise headquartered in Columbus, Ohio, in 2004, and served as Executive Vice President and Chief Operating Officer, retiring in July 2014. Through July 2013, he also served as Chief Financial Officer. Previously, he had retired as Group Vice President, Business Strategy for Ford Motor Company. He joined Ford of Europe in London in 1971 and held various finance and operations positions in international and domestic markets. He was named head, Global Products and Business Strategy, and elected a corporate Vice President in 1996; President, Ford South America, in 1999; head, Ford North America, in 2000; and Chief Financial Officer in 2001. Mr. Inglis also served on the Advisory Board of three venture funds (Reservoir Ventures, Battelle Ventures, and Fletcher Spaght), stepping down in mid-2015 from the first two.

 

Mr. Inglis is active in local charities and serves on the Board of Breckenridge Creative Arts where he is the Treasurer. He served as the Chairman of the Columbus Symphony Orchestra for six years through 2014. He holds a bachelor’s degree in business economics from Strathclyde University, Glasgow, Scotland.

 

    

LOGO

 

Retired Chief Operating Officer, Battelle; Previous Chief Financial Officer, Ford Motor Company

 

AGE                          DIRECTOR SINCE

 

69                     2003

 

COMMITTEES

  Audit/Finance (Chair)

  Strategy

 

CURRENT NON-CARPENTER TECHNOLOGY PUBLIC DIRECTORSHIPS 0

Qualifications

       

  Finance

 

  Strategic Experience

 

  Labor Relations

  

Mr. Inglis’ qualifications include, among other things, his extensive financial expertise and background as a Chief Financial Officer in both the public and private sectors. Additionally, Mr. Inglis’ substantial operational and labor relations experience and broad international knowledge enable him to provide valuable perspective to support Carpenter Technology’s growth strategies.

 

  

 

Stephen M. Ward, Jr.

 

Mr. Ward is the retired President and Chief Executive Officer of Lenovo Corporation, the international computer company formed by the acquisition of IBM’s PC business by Lenovo. Mr. Ward is a member of the founding team of C3.ai, the leading developer of Artificial Intelligence enterprise platforms and serves as a board member and Compensation Committee Chairperson at C3.ai. Mr. Ward is co-founder of E2open, a leading provider of supply chain software applications. Mr. Ward also serves on the Board of KLX Energy Services Holdings, Inc. where he is Chair of the Governance Committee.

 

Prior to joining Lenovo, Mr. Ward was senior vice president and general manager of IBM’s Personal Systems Group, responsible for the Personal Computing Division, the Retail Store Solutions Division, and the Printing Systems Division. In his 26-year career with IBM, he also served as IBM’s Chief Information Officer, and IBM Vice President of Business Transformation, directing business process and information technology investments. Mr. Ward was also general manager of IBM’s Global Industrial Sector, responsible for the marketing, sales, and service of IBM products and services to all manufacturing and industrial companies worldwide and General Manager of the IBM ThinkPad product lines. Mr. Ward began his career at IBM as an engineer in the Storage Products Division. He held various management positions in manufacturing, production control, and project development for disk drive, tape, and optical storage projects and software development, and was also an assistant to the IBM chairman.

 

Previously, he held positions on the boards of Lenovo, E-Ink, E2open, ODVision, and KLX Aerospace. Mr. Ward earned a BS degree in mechanical engineering from California Polytechnic State University at San Luis Obispo.

 

    

LOGO

 

Retired President and Chief Executive Officer, Lenovo Corporation

 

AGE                           DIRECTOR SINCE

 

65                     2001

 

COMMITTEES

  Corporate Governance (Chair)

  Compensation

  Science and Technology

 

CURRENT NON-CARPENTER TECHNOLOGY PUBLIC DIRECTORSHIPS 1

  KLX Energy Services Holdings, Inc. (since 2018)

Qualifications

       

  Chief Executive Officer

 

  Chief Information Officer

 

  Information Technology and Digital Transformation

 

  Innovation

 

  International Markets Experience

 

  

Mr. Ward’s qualifications include, among other things, his broad executive experience and focus on General Management, Digital Transformation, Cyber, Product and Services innovation, which enable him to share with the Board valuable perspectives on a variety of issues relating to management, strategic planning, tactical capital investments, and international growth.

 

    

 

   
16    CARPENTER TECHNOLOGY 2020 PROXY STATEMENT


Table of Contents

 

Proposal 1: Election of Directors    

 

 

Term to Expire 2020 – Robert R. McMaster is retiring from the Board at the 2020 Annual Meeting of Stockholders since he has attained the mandatory retirement age.

 

Robert R. McMaster

 

Mr. McMaster held various positions at KPMG, LLP, an international audit, advisory and tax services firm, from May 1970 to June 1997, including Ohio Valley Area Managing Partner. He served from 1992 to 1997 as a member of KPMG’s Management Committee. From June 1997 to February 2005, Mr. McMaster was Chairman and Chief Executive Officer of Westward Communications and President and Chief Executive Officer of its successor company, ASP Westward Holdings, publishers of community newspapers in Texas, Arkansas, and Colorado.

 

Mr. McMaster serves as Chairman of the Board and Audit Committee Chairman of Sally Beauty Holdings Inc., a public company listed on the NYSE. Additionally, from September 2008 through May 2013, Mr. McMaster served as Senior Financial Advisor to the Chairman of Worthington Industries, a diversified metal processing company. He also is a former Board member of American Eagle Outfitters, Inc. and Dominion Homes Inc.

 

He has been active in a wide variety of community affairs organizations in the Columbus, Ohio region. He received his B.S., magna cum laude, in accounting from Miami University, Oxford, Ohio in 1970, and is the recipient of the Haskins & Sells Foundation Award for excellence in accounting.

 

    

LOGO

 

Retired Chairman and Chief Executive Officer, Westward Communications; Prior Area Managing Partner, KPMG, LLP

 

AGE                           DIRECTOR SINCE

 

72                     2007

 

COMMITTEES

  Audit/Finance

  Science and Technology

 

CURRENT NON-CARPENTER TECHNOLOGY PUBLIC DIRECTORSHIPS 1

  Sally Beauty Holdings Inc. (since 2006)

 

FORMER DIRECTORSHIPS

  American Eagle Outfitters, Inc.

  Dominion Homes Inc.

 

Qualifications

       

  Chief Executive Officer

 

  Accounting and Finance

  

Mr. McMaster’s qualifications include, among other things, his extensive accounting and financial expertise and background as managing partner at a large international firm providing audit, tax and advisory services.

 

  
  
  

 

   
CARPENTER TECHNOLOGY 2020 PROXY STATEMENT    17


Table of Contents

Corporate Governance

Carpenter Technology’s business, property and affairs are managed under the direction of its Board of Directors in accordance with the General Corporation Law of the State of Delaware and Carpenter Technology’s Certificate of Incorporation and By-Laws. While Carpenter Technology’s non-employee directors are not involved in day-to-day operating details, they are kept informed of Carpenter Technology’s business through written reports and documents provided to them regularly, as well as by operating, financial and other reports presented by Carpenter Technology’s officers during meetings of the Board of Directors and its committees.

Board Information

Majority Voting Standard for Election of Directors

The By-Laws provide that directors will be elected by a majority of the votes cast except in the event of a contested election, where the number of candidates for election exceeds the number of directors to be elected. In a contested election, directors will be elected by a plurality of the votes cast.

Board Independence

In determining independence, each year the Board evaluates whether directors have a “material relationship” with Carpenter Technology. To assess the “materiality” of a director’s relationship with Carpenter Technology, the Board considers all relevant facts and circumstances, including the individuals or organizations with which the director has an affiliation. When a director is affiliated with one of Carpenter Technology’s service providers or customers, the Board considers how often or regularly services are provided, whether the services are being carried out at arm’s length in the ordinary course of business, and whether the services are being provided substantially on the same terms as those prevailing at the time for unrelated parties in comparable transactions.

Mr. Thene was appointed Carpenter Technology’s President and CEO and a member of Carpenter Technology’s Board of Directors effective July 1, 2015. With the exception of Mr. Thene, all other members of the Board of Directors qualify as independent directors under the applicable requirements of the Securities and Exchange Commission (the “SEC”) and the New York Stock Exchange (the “NYSE”). Board committees also satisfy applicable requirements for certain of their members to qualify as independent directors.

Board Leadership Structure

At Carpenter Technology, the roles of Chairman and Chief Executive Officer are split into two separate positions. The Board believes this split is the most appropriate leadership structure for Carpenter Technology to clearly distinguish the functions of the Board and management. The separation of the Chairman and Chief Executive Officer positions allows our Chief Executive Officer to concentrate on operational and strategic issues while the Chairman focuses on governance and Board leadership.

Meetings of the Board, Committees, and Independent Directors

Carpenter Technology expects attendance and active participation by directors at Board and committee meetings. Each director attended at least 75% of the total number of meetings of the Board and the committees on which the director served during fiscal year 2020.

 

   
18    CARPENTER TECHNOLOGY 2020 PROXY STATEMENT


Table of Contents

 

Corporate Governance • Board Information    

 

 

As required by Carpenter Technology’s Corporate Governance Guidelines, the independent directors of the Board meet in an executive session at least twice per year to review the performance of the Chief Executive Officer and to address any other matters of concern. Gregory A. Pratt, Chairman of the Board, presided over all executive sessions in fiscal year 2020.

 

Board/Committee

 

 

# Meetings Held

 

 

 

Full Board

 

 

 

 

 

 

Total: 6

 

 

 

 

 

Audit/Finance

 

 

 

 

 

 

12

 

 

 

 

 

Corporate Governance

 

 

 

 

 

 

5

 

 

 

 

 

Compensation

 

 

 

 

 

 

7

 

 

 

 

 

Science and Technology

 

 

 

 

 

 

5

 

 

 

 

 

Strategy

 

 

 

 

 

 

5

 

 

 

 

 

Total Meetings

 

 

 

 

 

 

Total: 40

 

 

 

 

 

Executive Sessions

(Independent directors meet without management present)

 

 

 

 

 

5

 

 

 

Annual Meeting of Stockholders

 

 

 

 

 

 

1

 

 

 

 

 

Average Director Attendance

 

 

 

 

 

 

99%

 

 

 

 

 

All directors attended last year’s Annual Meeting and are expected to attend in 2020

 

       

Board Committees

The Board of Directors has three standing committees: Audit/Finance, Corporate Governance, and Compensation. The Board currently also has two additional committees: Science and Technology, and Strategy. The Board periodically establishes ad hoc committees, on an interim basis, to assist the Board with specific matters when prudent and advisable. Summary information about each committee is shown in the following table.

 

   
CARPENTER TECHNOLOGY 2020 PROXY STATEMENT    19


Table of Contents

 

    Corporate Governance • Board Information

 

 

Significant Functions of the Committee

 

Audit/Finance Committee

 

   Assists the Board in its oversight of the integrity of Carpenter Technology’s financial statements:

 

   qualifications, independence and performance of Carpenter Technology’s independent registered public accounting firm;

 

   performance of Carpenter Technology’s internal audit personnel; and

 

   overall compliance with accounting, legal, regulatory, ethical and business conduct requirements.

 

   Selects the independent registered public accounting firm and provides a recommendation to the Board with respect to including the Company’s audited financial statements in the Annual Report on Form 10-K.

 

   Reviews and provides recommendations to the Board relating to major financial matters affecting the Company.

 

 

 

COMMITTEE AND MEMBERS

 

I. Martin Inglis, Chair

 

A. John Hart

 

Robert R. McMaster

 

Jeffrey Wadsworth

 

  All members are independent

 

  All members are financially literate under NYSE standards

Corporate Governance Committee

 

   Functions as a nominating committee with respect to directors:

 

   assists the Board in identifying qualified individuals to become directors; and

 

   recommends the overall composition of the Board and its committees.

 

   Assists the Board in developing, implementing and monitoring a set of corporate governance principles for the Company, and overseeing processes to assess the performance and effectiveness of the Board, its committees and Carpenter Technology’s management.

 

   Ensures orderly succession at the Board and management levels.

 

 

 

COMMITTEE AND MEMBERS

 

Stephen M. Ward, Jr., Chair

 

Viola L. Acoff

 

Steven E. Karol

 

Kathleen Ligocki

 

  All members are independent

Compensation Committee

 

   Establishes the philosophy for executive compensation.

 

   Designs and oversees administration of Carpenter Technology’s equity and incentive compensation plans.

 

   Reviews and approves compensation of Carpenter Technology’s executive officers, except for the CEO.

 

   Reviews and approves annually the corporate goals and objectives relevant to compensation of the CEO and evaluates the CEO’s performance in light of those goals and objectives.

 

   Reviews succession plans for Carpenter Technology’s CEO and executive officers.

 

   Assists the Board with other human resource matters, including overseeing management’s work to promote organizational effectiveness, leadership development, and the design and administration of employee benefits programs.

 

 

 

COMMITTEE AND MEMBERS

 

Kathleen Ligocki, Chair

 

Viola L. Acoff

 

Steven E. Karol

 

Stephen M. Ward, Jr.

 

  All members are independent

 

   
20    CARPENTER TECHNOLOGY 2020 PROXY STATEMENT


Table of Contents

 

Corporate Governance • Board of Directors’ Role in Risk Oversight    

 

 

Significant Functions of the Committee

 

Science and Technology Committee

 

   Reviews and monitors major scientific or technological developments that could affect Carpenter Technology’s current business or operations or implicate significant strategic planning or considerations for the future.

 

   Makes periodic recommendations to the Board concerning major developments or potential business opportunities for Carpenter Technology with respect to scientific or technological matters.

 

 

 

COMMITTEE AND MEMBERS

 

Jeffrey Wadsworth, Chair

 

Viola L. Acoff

 

Robert R. McMaster

 

Stephen M. Ward, Jr.

 

  All members are independent

Strategy Committee

 

   Ensures that Carpenter Technology has developed a relevant operative strategy for the Company’s industry and markets.

 

   Reviews and monitors implementation and maintenance of the corporate strategy.

 

   Reviews implementation of the corporate strategy through capital investments and corporate developments, including acquisitions, divestitures, joint ventures, strategic alliances and facility utilization.

 

 

 

COMMITTEE AND MEMBERS

 

Steven E. Karol, Chair

 

A. John Hart

 

I. Martin Inglis

 

Kathleen Ligocki

 

Tony R. Thene

 

  All members are independent except Mr. Thene, Carpenter Technology’s President and CEO

 

Board of Directors’ Role in Risk Oversight

As a part of its oversight function, the Board monitors management’s processes for operating Carpenter Technology’s business, including risk management. The Board’s oversight of risk includes monitoring management’s work to identify risks and manage risk parameters, including those relating to enterprise, financial, operational, cybersecurity, business and reputation risks.

In addition to the formal compliance program, the Board encourages management to promote a corporate culture that understands and is committed to risk management and also incorporates business integrity into Carpenter Technology’s overall corporate strategy and day-to-day business operations.

Oversight of Carpenter Technology’s risk management processes is an important part of Board and committee work throughout the year.

 

   
CARPENTER TECHNOLOGY 2020 PROXY STATEMENT    21


Table of Contents

 

    Corporate Governance • Stockholder Engagement and Communication with the Board

 

 

Risk Oversight Role and Responsibilities

 

       

Full Board

 

The full Board oversees management’s processes for managing significant strategic and business risks, such as those relating to our products, markets, capital investments, and cybersecurity.

 

      
 
                                                                     
         
                                                            

Audit/Finance Committee

 

    

Corporate Governance Committee

 

    

Compensation Committee

    

Science and Technology Committee

    

Strategy Committee

Oversees management’s processes for managing business and operational risks that could have a financial impact, such as those relating to internal controls, liquidity or raw materials

    

Oversees management’s processes for managing the risks associated with governance issues, such as the independence of the Board and key executive succession

    

Sets incentive metrics and the mix of incentive pay for executive compensation plans and policies; strives to drive high performance while avoiding an inadvertent incentive to take risks beyond the established risk parameters

    

Oversees management’s processes for managing the risks associated with major scientific or technological developments that could affect business, operations or strategic planning

    

Oversees management’s processes for the continual development, implementation and maintenance of Carpenter Technology’s corporate strategy, and ensures that the annual business plan is aligned with and supports the corporate strategy

 

         
                                                                       
 
                               
       

Management

 

Carpenter Technology’s risk management processes include continuous work to assess and analyze the most likely areas of future risk and to address them in our long-term planning process and in our daily risk management activities.

 

      

Stockholder Engagement and Communication with the Board

Carpenter Technology has long supported a robust investor relations program to communicate regularly with investors about economic, financial, operational and strategic matters. As a result of institutional investors’ changing practices, the Board worked with management to establish further engagement with investors’ governance personnel to discuss leadership, compensation, social responsibility and other governance matters. James D. Dee, Carpenter Technology’s General Counsel and Chief Governance Officer, and Timothy Lain, Carpenter Technology’s Chief Financial Officer and head of Investor Relations, assist the Board in understanding stockholders’ priorities and views on an ongoing basis. Messrs. Dee’s and Lain’s roles are to communicate with stockholders throughout the year about investor relations, governance, compensation and social responsibility developments; to solicit feedback from stockholders and disseminate that information to the Board and management; to keep the Board and others in management apprised of stockholder views and priorities; and to arrange appropriate direct interactions for stockholders with the CEO, management, and directors.

The Board also requested that the Corporate Governance Committee regularly interact with the Chief Governance Officer, and that the Audit/Finance Committee regularly interact with the Chief Financial Officer (“CFO”) to help the Board stay well informed of stockholder views.

 

   
22    CARPENTER TECHNOLOGY 2020 PROXY STATEMENT


Table of Contents

 

Corporate Governance • Environmental and Social Issues    

 

 

Any stockholder who wishes to interact with the Board directly should send a request to our Chief Governance Officer, who will work with the Corporate Governance Committee to arrange appropriate interactions. Stockholders can contact Mr. Dee at jdee@cartech.com or 610-208-3423. Also, stockholders can contact Mr. Lain at tlain@cartech.com or 610-208-2210 regarding Investor Relations matters.

How to Communicate with our Board of Directors

Stockholders can communicate with the Board of Directors by sending a letter addressed to Carpenter Technology’s Board of Directors, c/o Corporate Secretary, 1735 Market Street, 15th Floor, Philadelphia, PA 19103. Carpenter Technology’s Corporate Secretary will review the correspondence and forward it to the Chairman of the Board or to the Chair of the appropriate Board committee or to any individual director or directors to whom the communication may be specifically directed. If the communication is unduly hostile, threatening or illegal, does not reasonably relate to Carpenter Technology or its business, or is similarly inappropriate, the Corporate Secretary will not forward the communication, and will notify the sender if and as appropriate. Stockholders and other interested parties may also communicate with the non-employee directors, non-executive Chairman, or the Audit/Finance Committee by sending an email to boardauditcommittee@cartech.com.

Environmental and Social Issues

Carpenter Technology is committed to being a good corporate citizen that benefits the communities in which we live, work and play. We strive to maintain the highest ethical, environmental and safety standards and we encourage and celebrate our employees’ active participation in achieving these goals. Our business is managed for long-term success in a manner that we believe is economically, environmentally and socially responsible. Highlights of Carpenter Technology’s Environmental, Social and Governance (“ESG”) efforts are provided below. More ESG details are available at https://ir.carpentertechnology.com.

Carpenter Technology Safety Vision

Above all else, the safety of our employees is Carpenter Technology’s top priority. We believe that it is the shared responsibility of every employee to actively participate in all aspects of the safety program and to strive for our ultimate goal of a zero injury workplace. The hallmarks of our safety program are:

 

 

dedicated leadership, accountability and employee empowerment;

 

 

continual improvement plans (Plan-Do-Check-Act);

 

 

tools, resources, and education to improve total workplace safety and health; and

 

 

a skilled, technology-driven workforce that proactively assesses risks, strives to eliminate hazards, and integrates learning from incidents and near-misses to prevent further occurrences.

Safety and COVID-19

Carpenter Technology’s commitment to safety has not waivered during the COVID-19 pandemic. We acted swiftly and decisively, enacting policies and procedures designed to keep our employees safe while our facilities remained operational. We immediately formed a Rapid Response Team comprised of employees in various functions including operations, Environmental, Health and Safety (EH&S), human resources, communications, finance, commercial, legal and the Company’s medical vendor to enact a companywide, coordinated response to COVID-19. Carpenter Technology quickly implemented a strategy based on layers of protection that included modularization of our operations, enhanced cleaning protocols, allowing for airgaps between shifts, requiring social distancing at all times, enhanced personal protective equipment (PPE), and health and temperature screenings for all employees, visitors or contractors entering our site. Our response has been dynamic; we have altered our approach as we learned more about COVID-19 and have cascaded any changes or alterations to our protocols companywide. We provide regular communications to our employees to ensure the safety procedures and protocols that have been put in place are understood and adhered to. We have created a dedicated website that hosts all our current policies, procedures and safety protocols so employees, vendors and suppliers are aware of our efforts and abide by our safety procedures while on-site.

Community Relations

We believe that part of being a responsible corporate citizen is improving the communities where our employees live and work. This commitment spans a wide variety of engagement and activities, both in terms of our employees’ volunteerism and monetary donations on behalf of Carpenter Technology and by our employees, with the aim of

 

   
CARPENTER TECHNOLOGY 2020 PROXY STATEMENT    23


Table of Contents

 

    Corporate Governance • Governance Policies and Practices

 

 

strengthening our communities. Our Carpenter Cares program provides employees a variety of ways to support the causes that are important to them. This year, we used an online platform that lets employees donate funds through payroll deductions to the charitable organizations they wish to support. Employees are also able to request grants through the online platform to support recognized 501(c)(3) organizations. To ensure our charitable giving and the causes we support align, an employee review committee regularly reviews all financial donation applications. The committee makes recommendations for or against awarding all corporate donations, and executive leadership takes these recommendations into strong consideration when making final decisions. We encourage employee volunteerism at all our locations through organized activities and by contributing to local charitable organizations and educational efforts from working at the food pantry, to taking children fishing, to creating Thanksgiving baskets for veterans. Our employees are passionate about our communities and enjoy working together for the greater good.

Examples of how Carpenter Technology supports our local communities include:

 

 

Promoting science and math curriculum design in public schools and providing scholarship funding to educational efforts, such as summer materials camps, science and engineering fairs and STEM programs;

 

 

Supporting the United Way and locally based non-profit organizations through monetary gifts and employee volunteerism; and

 

 

Supporting programs for children, seniors and veterans in need.

Environmental

Carpenter Technology is committed to responsible environmental performance throughout our operations. We recently formed an Environmental, Social and Governance Working Committee to oversee our sustainability efforts including the implementation of a companywide Environmental Management System. We have enhanced our environmental policies and procedures to help ensure we are operating in a manner that meets or exceeds all applicable environmental, health, safety, and security regulations and laws. We believe in reducing waste across our operations by reusing, reducing or recycling materials and energy whenever possible, and we strive to manage our operations waste in a more sustainable manner, including more opportunities to recycle waste in lieu of disposing of it. Some of the highlights of our environmental practices include:

 

 

Minimizing waste by evaluating operations and ensuring efficiency, recycling and re-use, while promoting a zero-waste policy. The goal of the zero-waste policy in the steelmaking process is to significantly minimize the amount of waste sent to landfills, reduce emissions, and preserve raw materials;

 

 

Working with governmental agencies in support of effective environmental standards and regulations;

 

 

Working towards ISO14001 certification for primary US and global operational sites and continuing to seek suppliers and vendors that are also ISO14001 attested;

 

 

Collecting data on companywide greenhouse gas emissions and water usage in order to assess the risks and opportunities available to Carpenter Technology in order to reduce our carbon footprint;

 

 

Seeking vendors and suppliers that adhere to a similar set of environmental standards;

 

 

Participating in pollution prevention, waste management, and recycling and energy conservation;

 

 

Continuous efforts to increase the use of recycled materials in our business;

 

 

Investments to increase our manufacturing efficiencies to reduce our environmental impact and that of our customers; and

 

 

Advancements in emerging technologies such as additive manufacturing and soft magnetic solutions facilitating light weighting, increased fuel efficiency and reduced carbon emissions in end-use applications.

Governance Policies and Practices

Corporate Governance Guidelines and Charters

Carpenter Technology’s Corporate Governance Guidelines, as well as the charters for all the Board committees and our Code of Business Conduct and Ethics, are available on Carpenter Technology’s website at www.carpentertechnology.com. Copies will be mailed to stockholders upon written request to the Corporate Secretary, Carpenter Technology Corporation, 1735 Market Street, 15th Floor, Philadelphia, PA 19103.

 

   
24    CARPENTER TECHNOLOGY 2020 PROXY STATEMENT


Table of Contents

 

Corporate Governance • Transactions with Related Parties    

 

 

Code of Ethics

The Board of Directors has adopted a Code of Ethics for Carpenter Technology’s CEO and senior financial officers. There were no waivers of the Code of Ethics for fiscal year 2020 or through the date of this Proxy Statement.

 

 

Ethics Hotline: Carpenter Technology has established an independent web-based ethics hotline for employees to voice any concerns they may have in a confidential manner. A Board appointed corporate staff member reviews any reports and, if necessary, involves the legal, finance, asset protection, human resources or other department, as applicable.

Annual Board Performance Self-Evaluation

The Board conducts an annual self-evaluation to determine whether the Board and its committees are functioning effectively. The Corporate Governance Committee oversees the self-evaluation process. Results of the self-evaluation process are discussed with the Board as soon as practicable. The Corporate Governance Committee also evaluates individual directors as each is considered for re-election to the Board.

Director Training and Education

We have an orientation process for new directors that involves meeting with senior management and visiting our manufacturing facilities. All directors are encouraged to attend outside educational seminars presented by accredited third-party organizations as well as internal programs organized by Carpenter Technology for the directors’ ongoing education.

Succession Planning

The Corporate Governance Committee is responsible for determining the process for evaluating our CEO succession planning. Carpenter Technology’s CEO presents an annual report to the Board on succession planning for the CEO position. The CEO also recommends, on a continuing basis, a suitable successor should the CEO be unexpectedly disabled or otherwise unavailable to perform the duties of that office.

The Compensation Committee is responsible for monitoring succession planning and management development for positions other than that of the CEO.

Transactions with Related Parties

 

 

A “related party transaction” is a transaction with Carpenter Technology in an amount exceeding $120,000 in which a related person has a direct or indirect material interest. A related person includes an executive officer, director, or five percent stockholder of Carpenter Technology and any immediate family member of such a person. If Carpenter Technology management identifies a related party transaction, the transaction is brought to the attention of the Audit/Finance Committee for its approval, ratification, revision, or rejection after considering all the relevant facts and circumstances.

Any proposed transactions with executive officers, directors, substantial stockholders, or the family members or affiliates of any of those parties, require approval by the Audit/Finance Committee and will be disclosed as required by the SEC. Carpenter Technology’s Code of Business Conduct and Ethics requires that Carpenter Technology’s officers and directors avoid conflicts of interest, as well as the appearance of conflicts of interest, and disclose to Carpenter Technology’s General Counsel any material transaction or relationship that could reasonably be expected to give rise to a conflict of interest between private interests and the interests of the Company. Carpenter Technology checks for any potential related party transactions primarily by circulating a Directors and Officers Questionnaire to each member of the Board of Directors and each NEO annually.

Fiscal Year 2020 Related Party Transactions

During fiscal year 2020, there were no related party transactions.

 

   
CARPENTER TECHNOLOGY 2020 PROXY STATEMENT    25


Table of Contents

 

    Corporate Governance • Compensation Committee Interlocks and Insider Participation

 

 

Compensation Committee Interlocks and Insider Participation

No member of the Compensation Committee was a current or former officer or an employee of Carpenter Technology or any of its subsidiaries during fiscal year 2020, or had any relationship requiring disclosure by Carpenter Technology under the SEC’s proxy rules.

Delinquent Section 16(a) Reports

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires Carpenter Technology’s directors and executive officers, and persons that own more than 10% of Carpenter Technology common stock, to file with the SEC and the NYSE reports of ownership and changes in ownership. Directors, executive officers, and greater than 10% stockholders are required by SEC regulations to give Carpenter Technology copies of all Section 16(a) forms they file.

Based solely on the review of the reports furnished to Carpenter Technology and other company records or information otherwise provided, Carpenter Technology believes that all applicable Section 16(a) reports were timely filed by its directors, executive officers, and more than 10% stockholders during fiscal year 2020.

 

   
26    CARPENTER TECHNOLOGY 2020 PROXY STATEMENT


Table of Contents

Security Ownership of

Principal Beneficial Owners

Principal Beneficial Owners

Listed below are the only individuals and entities known by Carpenter Technology (through their Section 13 filings) to own more than 5% of the Company’s outstanding common stock as of the record date of August 14, 2020. Except as noted below, these investment advisors and their investment vehicles have sole voting and investment power over these shares of Carpenter Technology stock.

 

Name and Address of Beneficial Owner     

Amount and Nature of

Beneficial Ownership

 

 

      

Percent

of Class(1)

 

 

BlackRock Fund Advisors

400 Howard Street

San Francisco, CA 94105

     5,570,231 (2)         11.62%  

The Vanguard Group LLP

P.O. Box 2600, V26

Valley Forge, PA 19482

     4,917,545 (3)         10.26%  

Dimensional Fund Advisors, L.P. (U.S.)

6300 Bee Cave Road

Building One

Austin, TX 78746

     3,981,202 (4)         8.30%  

 

(1)

The percentages are calculated on the basis of 47,946,758 shares of common stock outstanding as of August 14, 2020.

 

(2)

This information was based upon the BlackRock Inc. Section 13 filing reflecting shares owned as of June 30, 2020. BlackRock is an investment advisor registered under the Investment Advisors Act of 1940. It furnishes investment advice to investment companies and serves as investment manager to certain other investment vehicles, including commingled group trusts. BlackRock reports sole voting power with respect to 5,570,231 shares of Carpenter Technology stock. The investment companies and investment vehicles own all these shares.

 

(3)

This information was based upon The Vanguard Group, Inc. Section 13 filing reflecting shares owned as of June 30, 2020. Vanguard is an investment advisor registered under the Investment Advisors Act of 1940. It furnishes investment advice to investment companies and serves as investment manager to certain other investment vehicles, including commingled group trusts. Vanguard reports sole voting power with respect to 0 shares of Carpenter Technology stock, and shared voting power with respect to 48,893 shares of Carpenter Technology stock. The investment companies and investment vehicles own all these shares of Carpenter Technology stock.

 

(4)

This information was based upon the Dimensional Fund Advisors, L.P. (US) Section 13 filing reflecting shares owned as of June 30, 2020. Dimensional is an investment advisor registered under the Investment Advisors Act of 1940. It furnishes investment advice to investment companies and serves as investment manager to certain other investment vehicles, including commingled group trusts. Dimensional reports sole voting power with respect to 3,981,202 shares of Carpenter Technology stock. The investment companies and investment vehicles own all the shares. Dimensional disclaims beneficial ownership of these shares.

 

   
CARPENTER TECHNOLOGY 2020 PROXY STATEMENT    27


Table of Contents

Directors, Nominees and

Management Stock Ownership

The following table shows the ownership of Carpenter Technology common stock as of August 14, 2020, by each director or nominee, the executive officers during fiscal year 2020 who are considered to be named executive officers (“NEOs”) under applicable SEC regulations, and Carpenter Technology’s directors and executive officers as a group. Except as noted below, the directors and executive officers have sole voting and investment power over their respective shares of common stock.

 

Name   Number of Shares
Beneficially Owned(1)
   

Employee
Restricted

Stock Units(2)

     Director Stock
Units(3)
     Shares and Units
Beneficially Owned(1)
   

Percentage of

Outstanding
Shares(4)(5)

 

Acoff, V. L.

 

 

6,318

 

 

 

0

 

  

 

3,922

 

  

 

10,240

 

 

 

0.0

Hart, A. J.

 

 

6,318

 

 

 

0

 

  

 

3,922

 

  

 

10,240

 

 

 

0.0

Inglis, I. M.

 

 

26,908

(6) 

 

 

0

 

  

 

44,651

 

  

 

71,559

(6) 

 

 

0.1

Karol, S. E.

 

 

591,520

(6)(7) 

 

 

0

 

  

 

21,617

 

  

 

613,137

(6)(7) 

 

 

1.2

Ligocki, K.

 

 

16,704

 

 

 

0

 

  

 

7,632

 

  

 

24,336

 

 

 

0.0

McMaster, R. R.

 

 

25,229

 

 

 

0

 

  

 

35,319

 

  

 

60,548

 

 

 

0.1

Pratt, G. A.

 

 

474,050

 

 

 

2,371

 

  

 

72,110

 

  

 

548,531

 

 

 

1.0

Wadsworth, J.

 

 

20,371

 

 

 

0

 

  

 

35,323

 

  

 

55,694

 

 

 

0.0

Ward, Jr., S. M.

 

 

41,699

(6) 

 

 

0

 

  

 

54,661

 

  

 

96,360

(6) 

 

 

0.1

Thene, T. R.

 

 

559,589

 

 

 

24,470

 

  

 

0

 

  

 

584,059

 

 

 

1.2

Lain, T.

 

 

74,631

 

 

 

4,512

 

  

 

0

 

  

 

79,143

 

 

 

0.2

Dee, J. D.

 

 

146,065

 

 

 

3,500

 

  

 

0

 

  

 

149,565

 

 

 

0.3

Malloy, B. J.

 

 

105,837

(6) 

 

 

3,500

 

  

 

0

 

  

 

109,337

(6) 

 

 

0.2

Murtagh, M. T.

 

 

28,463

 

 

 

3,755

 

  

 

0

 

  

 

32,218

 

 

 

0.1

 

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

 

 

 

 

2,123,702

 

(6)(7) 

 

 

 

 

42,108

 

 

  

 

 

 

279,157

 

 

  

 

 

 

2,444,967

 

(6)(7) 

 

 

 

 

4.3

 

 

(1)

The amounts include the following shares of common stock that the individuals have the right to acquire by exercising outstanding stock options within 60 days after August 14, 2020:

 

Acoff, V. L.

 

 

6,318

 

  

McMaster, R. R.

 

 

20,171

 

  

Lain, T.

  

 

57,173

 

Hart, A. J.

 

 

6,318

 

  

Pratt, G. A.

 

 

469,437

 

  

Dee, J. D.

  

 

111,514

 

Inglis, I. M.

 

 

23,308

 

  

Wadsworth, J.

 

 

20,171

 

  

Malloy, B. J.

  

 

79,816

 

Karol, S. E.

 

 

22,397

 

  

Ward, Jr., S. M.

 

 

20,171

 

  

Murtagh, M.

  

 

19,231

 

Ligocki, K.

 

 

8,204

 

  

Thene, T. R.

 

 

432,949

 

             

 

  

All directors and executive officers as a group (14 persons): 1,297,178

 

(2)

These stock units convert to an equivalent number of shares of common stock when they become vested as per the terms of the relative agreement(s) and the plan. The stock unit values are equivalent to Carpenter Technology’s common stock values, but the units have no voting rights.

 

(3)

These stock units convert to an equivalent number of shares of common stock upon the director’s termination of service as allowed under the plan. The stock unit values are equivalent to Carpenter Technology’s common stock values, but the units have no voting rights.

 

(4)

Ownership is rounded to the nearest 0.1% and is 0% when less than 0.1%.

 

(5)

The percentages are calculated based on the number of shares of common stock outstanding plus the number of shares of common stock that would be outstanding if the individual’s options were exercised, but does not include any shares issuable upon the conversion of stock units.

 

   
28    CARPENTER TECHNOLOGY 2020 PROXY STATEMENT


Table of Contents

 

Directors, Nominees and Management Stock Ownership    

 

 

(6)

Voting and investment power is shared with respect to the following shares of common stock:

 

 

Inglis, I. M.

  

 

400

 

    

 

Karol, S. E.

  

 

10,000

 

 

Malloy, B. J.

  

 

10,066

 

 

Ward, Jr., S. M.

  

 

21,528

 

 

(7)

The amount includes shares held by the following institutions, of which Mr. Karol is an affiliate:

 

    

 

SEK Limited

  

 

283,580

 

 

HMK Enterprises Inc.

  

 

45,000

 

 

   
CARPENTER TECHNOLOGY 2020 PROXY STATEMENT    29


Table of Contents

Director Compensation

The Board regularly reviews director compensation with the assistance of its outside advisor to ensure that it is appropriate and competitive in light of market circumstances and prevailing “best practices” for corporate governance. The compensation elements reflect the Board’s view that compensation to the non-employee directors should consist of an appropriate mix of cash and equity awards. Our director compensation approach provides for quarterly vesting of equity awards and allows elective deferral of the delivery of earned shares and cash.

Elements of Annual Director Compensation

 

Pay Element    Board Year 2020 Compensation     

 

Annual Retainer (50% Cash/50% Stock Units)

  

 

Board Members:

 

 

$130,000 Cash/Stock Units

 

At least 50% of the annual retainer is paid in stock units, which aligns the directors’ personal interests with those of our stockholders.   

Board Chair*:

 

 

$200,000 Cash/Stock Units

 

  

*The roles of Chairman and CEO are separate, and the Chairman attends Board and committee meetings.

 

Committee Chair Retainers (Cash)

  

Audit/Finance Committee:

 

 

$25,000

 

  

Compensation Committee:

 

 

$17,500

 

    

Corporate Governance, Strategy and

Science and Technology Committees:

 

 

$12,500

 

Stock Options (Equity)

  

Directors receive an annual stock option award subject to the conditions stated below.

 

Non-Retainer Stock Units (Equity)

  

Directors receive additional awards of stock units subject to the conditions stated below.

 

Stock Options and Stock Units

Initial Grant: Directors receive up to 4,000 stock options upon joining the Board.

Annual Stock Option Grant: In addition to any initial grant of stock options, each director is granted a number of stock options annually, on or about the date of Carpenter Technology’s Annual Meeting of Stockholders or on another date as the Board may determine. These options will have a fair value on the grant date, alone or in combination with the annual non-retainer stock units described below, of up to $90,000 (or such different number as determined by the Board).

Annual Non-Retainer Stock Units Grant: In addition to the grant of options or an award of retainer stock units, each director is granted an additional award of stock units annually having a fair value on the grant date, alone or in combination with the annual stock option grant described above, of up to $90,000 (or such different number as determined by the Board).

Grant Date: The grant date for the awards described above will be on or about the date of the Annual Meeting of Stockholders, or such other date as determined by the Board. The number of units and options is based on the trading price of Carpenter Technology’s common stock on the date of grant.

Vesting: Subject generally to the director’s continued service, one-quarter of the stock options or stock units vest for every three months of service following the grant date, and are fully vested on the first anniversary of the grant date. All stock options have ten-year terms.

 

Upon a Change in Control: In the event of a change-in-control, all stock units vest immediately and are payable in shares of common stock, and stock options become immediately exercisable. A director may exercise vested options at any time during the original term. In the event a director is removed for cause, all existing stock options and unvested stock units are forfeited.

 

Upon Death or Disability: In the event of separation from service due to death or Disability, all stock units and stock options vest immediately.

 

 

   
30    CARPENTER TECHNOLOGY 2020 PROXY STATEMENT


Table of Contents

 

Director Compensation • Director Stock Ownership Policy    

 

 

Deferral Policy: Directors may elect to have distribution of all or a portion of their stock units deferred until the later of their separation from service or a specific date/event. Carpenter Technology distributes a participating director’s deferred units, based on the director’s advanced election, in a lump sum or in any number of annual installments up to a maximum of 15, beginning on the later of the director’s separation from service or the date/event elected.

Dividend Equivalents: Each director’s account is credited with stock units corresponding to dividend equivalents paid on outstanding common stock. Dividend equivalents are reinvested in the form of additional stock units, with the number of units credited determined by dividing the dividend dollar amount by the closing price of Carpenter Technology common stock on the NYSE on the dividend equivalent payment date. Stock units that are attributable to dividend equivalents vest on the same basis as the underlying stock unit award. No dividend equivalent rights are granted on shares underlying stock option awards.

Director Stock Ownership Policy

It is our policy that non-employee directors must maintain a reasonable equity interest in order to provide them with a proprietary interest in Carpenter Technology’s growth and performance, to generate an increased incentive to contribute to the Company’s future success and prosperity by their personal efforts, and generally to enhance the community of interest between directors and our stockholders.

The current policy requires each director to hold equity in Carpenter Technology with an aggregate fair market value equal to at least six times the annual cash retainer. There is a five-year phase-in period for satisfying the minimum equity holding requirements, and a director is expected to retain the equity for the duration of Board service. All current non-employee directors satisfy the minimum equity holding requirements with the exception of Ms. Ligocki, Dr. Acoff and Dr. Hart, who are each within the phase-in period.

Compensation for Non-Employee Directors

Directors have three options with respect to payment of the cash portion of their annual retainer and 100% of committee chair fees:

 

 

receive cash currently;

 

 

defer all or a portion until a future date/event and then receive cash under Carpenter Technology’s Deferred Compensation Plan for Non-Management Directors (“Director Cash Deferral Plan”); or

 

 

defer all or a portion until the later of their separation from service or a specific date/event and then receive common stock under the Stock-Based Compensation Plan for Non-Employee Directors (“Director Stock Plan”).

Under the Director Cash Deferral Plan, interest is credited semi-annually at Carpenter Technology’s “Five-Year Medium-Term Note Borrowing Rate,” a term defined in the Director Cash Deferral Plan. Carpenter Technology distributes a participating director’s deferred cash based on the director’s advanced election, in a lump sum or in any number of annual installments up to a maximum of 15, beginning on a future date or upon the event elected.

 

   
CARPENTER TECHNOLOGY 2020 PROXY STATEMENT    31


Table of Contents

 

    Director Compensation • Fiscal Year 2020 Director Compensation Table

 

 

Fiscal Year 2020 Director Compensation Table

This table shows the compensation paid or awarded to each non-employee director during fiscal year 2020. Our CEO is not compensated for his Board service.

 

Name  

Fees Earned or

Paid in Cash
(excludes Chair
Retainer)

($)

    

Committee

Chair

Retainer

($)

    

Stock   

Awards(1)

($)   

    

Option   

Awards(2)

($)   

    

Change in   

pension value   

and   

nonqualified   

deferred   

compensation   

earnings(3)

($)   

    

All Other   

Compensation(4)

($)   

    

Total

($)

 

 

Acoff, Viola L.

 

 

 

 

$62,500

 

 

  

 

 

 

$         0

 

 

  

 

 

 

$115,077   

 

 

  

 

 

 

$35,011   

 

 

  

 

 

 

$       0   

 

 

  

 

 

 

$  2,608   

 

 

  

 

 

 

$215,196

 

 

 

Hart, A. John

 

 

 

 

$62,500

 

 

  

 

 

 

$         0

 

 

  

 

 

 

$115,077   

 

 

  

 

 

 

$35,011   

 

 

  

 

 

 

$       0   

 

 

  

 

 

 

$  2,608   

 

 

  

 

 

 

$215,196

 

 

 

Inglis, I. Martin

 

 

 

 

$62,500

 

 

  

 

 

 

$25,000

 

 

  

 

 

 

$115,077   

 

 

  

 

 

 

$35,011   

 

 

  

 

 

 

$       0   

 

 

  

 

 

 

$34,585   

 

 

  

 

 

 

$272,173

 

 

 

Karol, Steven E.

 

 

 

 

$62,500

 

 

  

 

 

 

$12,500

 

 

  

 

 

 

$115,077   

 

 

  

 

 

 

$35,011   

 

 

  

 

 

 

$       0   

 

 

  

 

 

 

$16,501   

 

 

  

 

 

 

$241,589

 

 

 

Ligocki, Kathleen

 

 

 

 

$62,500

 

 

  

 

 

 

$13,125

 

 

  

 

 

 

$115,077   

 

 

  

 

 

 

$35,011   

 

 

  

 

 

 

$       0   

 

 

  

 

 

 

$  5,522   

 

 

  

 

 

 

$231,235

 

 

 

McMaster, Robert R.

 

 

 

 

$62,500

 

 

  

 

 

 

$         0

 

 

  

 

 

 

$115,077   

 

 

  

 

 

 

$35,011   

 

 

  

 

 

 

$   429   

 

 

  

 

 

 

$27,265   

 

 

  

 

 

 

$240,282

 

 

 

Pratt, Gregory A.

 

 

 

 

$97,500

 

 

  

 

 

 

$         0

 

 

  

 

 

 

$200,044   

 

 

  

 

 

 

$60,007   

 

 

  

 

 

 

$       0   

 

 

  

 

 

 

$55,795   

 

 

  

 

 

 

$413,346

 

 

 

Turner, Kathryn C.

 

 

 

 

$30,000

 

 

  

 

 

 

$  4,375

 

 

  

 

 

 

$           0   

 

 

  

 

 

 

$         0   

 

 

  

 

 

 

$   215   

 

 

  

 

 

 

$26,541   

 

 

  

 

 

 

$  61,131

 

 

 

Wadsworth, Jeffrey

 

 

 

 

$62,500

 

 

  

 

 

 

$12,500

 

 

  

 

 

 

$115,077   

 

 

  

 

 

 

$35,011   

 

 

  

 

 

 

$       0   

 

 

  

 

 

 

$27,277   

 

 

  

 

 

 

$252,365

 

 

 

Ward, Jr., Stephen M.

 

 

 

 

$62,500

 

 

  

 

 

 

$12,500

 

 

  

 

 

 

$115,077   

 

 

  

 

 

 

$35,011   

 

 

  

 

 

 

$1,246   

 

 

  

 

 

 

$42,444   

 

 

  

 

 

 

$268,778

 

 

 

(1)

The grant date fair value of stock units granted to our directors in fiscal year 2020 was computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, Compensation – Stock Compensation. Assumptions made in this valuation are set forth in Note 16 to the financial statements contained in Carpenter Technology’s 2020 Annual Report on Form 10-K. Annual stock units granted and credited to each director’s account are subject to partial forfeiture if the director separates from Board service prior to the first anniversary of the grant date for any reason other than death or Disability.

 

 

Each director, with the exception of Mr. Pratt and Ms. Turner was credited with 2,362 stock units for fiscal year 2020 on October 8, 2019, representing a grant date fair value of $115,077. Retainer stock units credited to each director represent $65,041 of the annual retainer. The remaining stock units credited represent an annual award of additional stock units as described above with a grant date fair value of $50,036.

 

 

Mr. Pratt, who serves as Chairman, was credited with 4,106 stock units for fiscal year 2020 on October 8, 2019, representing a grant date fair value of $200,044. Of this total number, 2,053 stock units represent $100,022 of his annual retainer. The remaining stock units credited represent an annual award of additional stock units with a grant date fair value of $100,022.

 

 

Ms. Turner retired from the Board on October 8, 2019, and did not receive a stock unit grant.

 

 

The total number of stock units credited to each director under Carpenter Technology’s Stock-Based Compensation Plan for Non-Employee Directors as of June 30, 2020, including stock units that were credited with respect to prior fiscal years and reinvested dividend equivalents, was: V. Acoff – 3,922; A. J. Hart – 3,922; I. M. Inglis – 44,651; S. Karol – 21,617; K. Ligocki – 7,632; R. McMaster – 35,327; G. Pratt – 72,110; K. Turner – 26,073; J. Wadsworth – 35,343; and S. Ward, Jr. – 54,661.

 

(2)

The grant date fair value of option awards granted to our directors in fiscal year 2020 was computed in accordance with FASB ASC Topic 718, Compensation – Stock Compensation. Assumptions made in this valuation are set forth in Note 16 to the financial statements contained in Carpenter Technology’s 2020 Annual Report on Form 10-K.

 

 

Each director, with the exception of Mr. Pratt and Ms. Turner, received an annual award of 2,318 stock options for fiscal year 2020 on October 8, 2019, representing a grant date fair value of $35,011. Mr. Pratt received an annual award of 3,973 stock options for fiscal year 2020 on October 8, 2019, representing a grant date fair value of $60,007. Ms. Turner retired from the Board on October 8, 2019, and did not receive a stock option grant.

 

 

The total number of shares subject to stock options credited to each director that remains outstanding as of June 30, 2020, including stock options that were granted in prior fiscal years, was: V. Acoff – 6,318; A. J. Hart – 6,318; I. M. Inglis – 23,308; S. Karol – 22,397; K. Ligocki – 8,204; R. McMaster –20,171; G. Pratt – 28,634; K. Turner – 17,853; J. Wadsworth – 20,171; and S. Ward, Jr. – 20,171.

 

(3)

Reflects above-market earnings equal to 91% above 120% of the AFR Long-Term Rate on compensation deferred that is not tax qualified.

 

(4)

Includes the aggregate dollar amount of dividend equivalents paid in fiscal year 2020 on the stock unit balance credited to each director’s account with respect to dividends paid on outstanding common stock during fiscal year 2020. Dividend equivalents are reinvested in the form of additional stock units, with the number of units credited being determined by dividing the dividend dollar amount by the closing price on the NYSE on the dividend equivalent payment date.

 

   
32    CARPENTER TECHNOLOGY 2020 PROXY STATEMENT


Table of Contents

Proposal 2:

Approval of Appointment of Independent

Registered Public Accounting Firm

The Audit/Finance Committee has selected PricewaterhouseCoopers LLP (“PwC”), subject to approval by the stockholders at the Annual Meeting, to serve as Carpenter Technology’s independent registered public accounting firm for fiscal year 2021. PwC would be engaged to audit and report upon Carpenter Technology’s financial statements and internal controls over financial reporting for fiscal year 2021. PwC, or one of its predecessor firms, has served as Carpenter Technology’s independent registered public accounting firm since 1918. The Audit/Finance Committee and the Board of Directors believe PwC is well qualified to act in this capacity. A representative of PwC is expected to attend the Annual Meeting of Stockholders.

Vote Required for Approval

The affirmative vote of a majority of the votes cast is required to approve the appointment of PwC as the Company’s independent registered public accounting firm.

Audit Fees

The aggregate fees billed by PwC for professional services rendered for the annual audit of Carpenter Technology’s consolidated financial statements and internal controls over financial reporting for fiscal year 2020, the reviews of the financial statements included in Carpenter Technology’s quarterly reports on Form 10-Q, audit and attestation services related to statutory or regulatory filings required by certain foreign locations, issuance of comfort letters, and review of registration statements, were $1,795,000 compared to $1,760,000 for fiscal year 2019.

Audit-Related Fees

PwC billed $10,000 in audit-related fees in fiscal year 2020 compared to $85,000 in fiscal year 2019. The fees in both fiscal year 2019 and 2020 were principally related to services related to the adoption of new accounting guidance and agreed upon procedures and engagements related to Carpenter Technology’s compliance with certain federal and state environmental reporting requirements.

Tax Fees

The aggregate fees billed by PwC for tax services were $372,400 for fiscal year 2020, compared to $472,396 in fiscal year 2019. Fees in fiscal year 2020 were primarily for domestic and international tax compliance services and other tax projects.

All Other Fees

The aggregate fees billed by PwC for all other services were $4,000 in fiscal year 2020, the same as those in fiscal year 2019. These services are for subscriptions to certain PwC reference tools.

Pre-Approval Policies and Procedures for Audit and Non-Audit Services

Policy Statement

The Audit/Finance Committee is required to specifically pre-approve the audit and non-audit services performed by the independent auditor to ensure that such services do not impair the auditor’s independence.

Delegation

The Chairman of the Audit/Finance Committee has the Committee’s delegated authority to pre-approve requests for services that were not approved at a scheduled meeting. The Chairman reports any pre-approval decisions to the Audit/Finance Committee at its next scheduled meeting. All services, regardless of fee amounts, are subject to restrictions to ensure the services will not impair the independence of the auditor. In addition, all fees are subject to ongoing monitoring by the Audit/Finance Committee.

Audit Services

The annual audit services engagement terms and fees are subject to the specific pre-approval of the Audit/Finance Committee. The Committee must approve any changes in terms, conditions and fees resulting from changes in audit scope. In addition to the annual audit services engagement, the Audit/Finance Committee may grant pre-approval for other audit services, which are those services that only the independent auditor reasonably can provide.

 

   
CARPENTER TECHNOLOGY 2020 PROXY STATEMENT    33


Table of Contents

 

    Proposal 2: Approval of Appointment of Independent Registered Public Accounting Firm

 

 

Audit-Related Services

Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review of Carpenter Technology’s financial statements as traditionally performed by its independent auditor. The Audit/Finance Committee believes the performance of audit-related services does not impair the independence of the auditor.

Tax Services

The Audit/Finance Committee believes the independent auditor can provide tax services to the Company, such as domestic and international tax consulting and compliance services, without impairing the auditor’s independence.

All Other Services

The Audit/Finance Committee may grant pre-approval of those permissible non-audit services classified as “all other services” that it believes are routine and recurring services that will not impair the independence of the auditor.

 

 

 

 

 

 

 

 

LOGO

 

 

 

 

 

 

 

 

 

 

 

 

FOR

  

 

 

The Board of Directors recommends that you vote FOR the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm for fiscal year 2021.

 

 

 

   
34    CARPENTER TECHNOLOGY 2020 PROXY STATEMENT


Table of Contents

Audit/Finance Committee Report

The Audit/Finance Committee consists of four members, each of whom has been determined by the Board to be an independent director under applicable rules or other requirements of the NYSE and the SEC with respect to qualification of members of an audit committee. Each member is financially literate as required by NYSE standards, and each of Messrs. Inglis and McMaster qualifies as an “audit committee financial expert” under applicable SEC standards. The Audit/Finance Committee functions pursuant to a written charter that was adopted and is reviewed annually by the Board. A copy of the charter is posted on Carpenter Technology’s website at www.carpentertechnology.com.

 

 

The Audit/Finance Committee’s primary responsibilities include appointing the independent registered public accounting firm to be retained to audit Carpenter Technology’s consolidated financial statements and recommending to the Board the inclusion of these financial statements in the Annual Report on Form 10-K. The Audit/Finance Committee is also responsible for approving any non-audit services to be provided by the independent registered public accounting firm. Additionally, the Audit/Finance Committee reviews the adequacy of Carpenter Technology’s financial reporting and internal controls over financial reporting, the integrity of Carpenter Technology’s financial statements, and the independence and performance of Carpenter Technology’s independent registered public accounting firm.

 

Management is primarily responsible for the preparation, presentation and integrity of Carpenter Technology’s financial statements; establishing, maintaining and evaluating the effectiveness of disclosure controls and procedures; establishing, maintaining and evaluating the effectiveness of internal controls over financial reporting; and evaluating any change in internal controls over financial reporting that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.

 

The independent registered public accounting firm is responsible for performing an independent audit of Carpenter Technology’s financial statements in accordance with standards established by the Public Company Accounting Oversight Board (“PCAOB”) and expressing an opinion on whether those financial statements conform to U.S. generally accepted accounting principles, as well as expressing an opinion on the effectiveness of Carpenter Technology’s internal controls over financial reporting.

 

 

The Audit/Finance Committee reviewed and discussed with management and Carpenter Technology’s independent registered public accounting firm, PricewaterhouseCoopers LLP (“PwC”), Carpenter Technology’s audited financial statements and schedule for fiscal year 2020 and the report of PwC. The Committee also discussed other matters with PwC, such as the quality (in addition to acceptability), clarity, consistency and completeness of Carpenter Technology’s financial reporting and including the matters required to be discussed by the applicable requirements of PCAOB and the SEC.

The Audit/Finance Committee met with management periodically during fiscal year 2020 to consider the adequacy of Carpenter Technology’s internal controls and discussed these matters and the overall scope and plans for the audit with PwC. The Audit/Finance Committee also discussed with management and PwC Carpenter Technology’s disclosure controls and procedures and the certifications by Carpenter Technology’s CEO and CFO. In particular, the Audit/Finance Committee was kept apprised by management of the progress of the evaluation of Carpenter Technology’s system of internal control over financial reporting and provided oversight and advice to management during the process. In connection with this oversight, the Audit/Finance Committee received periodic updates provided by senior management and PwC at several meetings during the fiscal year. At the conclusion of the process, management provided the Audit/Finance Committee with, and the Audit/Finance Committee reviewed, a report on the effectiveness of Carpenter Technology’s internal controls over financial reporting. The Audit/Finance Committee also reviewed PwC’s report on Carpenter Technology’s internal controls over financial reporting.

The Audit/Finance Committee has considered whether the independent registered public accounting firm can maintain independence while also providing non-audit services, and has received from PwC written disclosures and a letter concerning the firm’s independence from Carpenter Technology, as required by applicable requirements of the PCAOB. These disclosures have been reviewed by the Audit/Finance Committee and discussed with PwC.

 

   
CARPENTER TECHNOLOGY 2020 PROXY STATEMENT    35


Table of Contents

 

    Audit/Finance Committee Report

 

 

Based on the reviews and discussions described in this report, the Audit/Finance Committee has recommended to the Board that Carpenter Technology’s audited consolidated financial statements be included in Carpenter Technology’s 2020 Annual Report on Form 10-K for filing with the SEC.

Submitted by the Audit/Finance Committee of the Board of Directors,

CHAIR: I. Martin Inglis

Members:

Dr. A. John Hart

Robert R. McMaster

Dr. Jeffrey Wadsworth

 

   
36    CARPENTER TECHNOLOGY 2020 PROXY STATEMENT


Table of Contents

Proposal 3:

Advisory Vote to Approve the Compensation

of Our Named Executive Officers

Each year since 2012, we have asked our stockholders to vote to approve, on an advisory basis, the compensation of our named executive officers (“NEOs”) as disclosed in this Proxy Statement, including the Compensation Discussion and Analysis (“CD&A”), the Compensation Tables, and any related material as required pursuant to Section 14A of the Securities Exchange Act of 1934. This proposal, commonly known as a “say-on-pay” proposal, gives our stockholders the opportunity to express their views on our NEO compensation. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our NEOs and the philosophy, policies and practices described in this Proxy Statement. We expect to continue conducting the say-on-pay vote annually.

The say-on-pay vote is advisory, and therefore not binding on the Company, the Compensation Committee or the Board of Directors. However, the Board of Directors and the Compensation Committee value our stockholders’ opinions. If there is a significant vote against the NEO compensation, the Compensation Committee will evaluate whether any actions are necessary to address stockholder concerns.

 

 

Our Pay-for-Performance Compensation

 

Our executive compensation programs are designed to provide compensation levels benchmarked to attract, motivate and retain exceptional managerial talent for the present and future, to reward executives for achieving financial and strategic company goals, and to align their interests with the interests of stockholders.

 

We believe the compensation of our NEOs is reasonable, competitive and strongly focused on pay-for-performance principles. We emphasize compensation opportunities that appropriately reward executives for delivering financial results that meet or exceed pre-established goals, and executive compensation varies depending upon the achievement of those goals.

 

Through stock ownership requirements and equity incentives, we believe we have aligned the interests of our NEOs with those of our stockholders and the long-term interests of the Company.

 

 

We believe that the compensation policies and procedures articulated in this Proxy Statement are effective in achieving Carpenter Technology’s goals, and that the executive compensation reported was appropriate and aligned with fiscal year 2020 results. Before voting, we encourage you to read the CD&A and “Executive Compensation” sections of this Proxy Statement for details about our executive compensation programs and NEO compensation in fiscal year 2020.

The Compensation Committee continually reviews the compensation programs for our NEOs to ensure that they achieve the desired goal of offering total compensation consisting of base salary competitive with an identified peer group of companies and incentive opportunities that are performance-oriented and linked to the interests of stockholders. We are asking stockholders to indicate their support for our NEO compensation as described in this Proxy Statement. We expect that we will hold a say-on-pay vote again at next year’s annual meeting.

 

 

 

 

 

LOGO

 

 

 

 

 

 

 

 

FOR

  

 

 

The Board of Directors recommends that you vote FOR Proposal 3 to approve the compensation of the NEOs as disclosed in this Proxy Statement on an advisory basis.

 

 

 

   
CARPENTER TECHNOLOGY 2020 PROXY STATEMENT    37


Table of Contents

Compensation Committee Report

The Compensation Committee consists of four members, each of whom has been determined by the Board to meet the NYSE and SEC requirements for compensation committee members. The Compensation Committee functions pursuant to a written charter that was adopted and is reviewed annually by the Board. A copy of the charter is posted on Carpenter Technology’s website at www.carpentertechnology.com.

The Compensation Committee has reviewed and discussed the CD&A with management, legal counsel, and its independent compensation consultant. The Compensation Committee also considered the results of the 2019 say-on-pay vote and input from stockholder engagement during the last fiscal year when reviewing the CD&A.

Based on such review and discussion, the Compensation Committee recommended to the Board that the CD&A be included in this Proxy Statement and incorporated by reference into our 2020 Annual Report on Form 10-K.

Submitted by the members of the Compensation Committee,

Chair: Kathleen Ligocki

Members:

Dr. Viola L. Acoff

Steven E. Karol

Stephen M. Ward, Jr.

 

   
38    CARPENTER TECHNOLOGY 2020 PROXY STATEMENT


Table of Contents

Proposal 4:

Approval of the Amended and Restated

Stock-Based Incentive Compensation Plan

for Officers and Key Employees

We are asking stockholders to approve the amended and restated Stock-Based Incentive Compensation Plan for Officers and Key Employees (the “Omnibus Plan”). Carpenter Technology’s Board of Directors approved the adoption of the amended and restated Omnibus Plan to be effective October 13, 2020, subject to stockholder approval. The amendment to the Omnibus Plan increases the number of shares of Carpenter Technology common stock reserved for issuance by 1,350,000 shares and will increase the term of the Omnibus Plan until the 10th anniversary of the date the Omnibus Plan is approved by the stockholders. Although stockholders approved the addition of 1,775,000 shares for issuance under the Omnibus Plan at the Company’s 2019 Annual Meeting of Stockholders, which we anticipated would be sufficient to last through our 2021 Annual Meeting of Stockholders, the impact of the COVID-19 pandemic and the significant decline in the price of Carpenter Technology’s common stock could deplete our current share reserve more rapidly than anticipated. The Board has determined that it is advisable to increase the share reserve under the Omnibus Plan at this time to ensure that we have sufficient shares to make equity-based awards over the next three fiscal years in amounts determined appropriate by the Compensation Committee of the Board of Directors to promote retention and alignment of interests of key employees with those of our stockholders. As of August 30, 2020, approximately 1,650,238 shares remained available for issuance under the Omnibus Plan. Separately, we also had approximately 464,921 shares available for issuance under the Stock-Based Compensation Plan for Non-Employee Directors. Also as of August 30, 2020, 3,330,045 shares were subject to outstanding Awards under all plans, including 2,130,578 Options with a weighted average exercise price of $44.57 and weighted average remaining term of 5.32 years, and 1,199,467 full-value awards.(1) The Omnibus Plan provides for a fungible plan design in determining the number of shares of common stock subject to an award, described more fully below.

 

Purpose of the Omnibus Plan – Why our Board recommends you vote to approve this proposal

The purpose of the Omnibus Plan is to attract and retain valued employees by offering them a greater stake in Carpenter Technology’s success and a closer identity with it, and to encourage ownership of the Company’s common stock. Our Omnibus Plan is designed to motivate our key employees to achieve superior performance as measured by financial and operating metrics as well as stock price appreciation.

We believe that equity granted under the Omnibus Plan is a critical component of our compensation program and pay-for-performance culture. Equity compensation contributes to long-term sustainable growth and aligns management’s interests with the interests of our stockholders.

The Board believes your vote to approve this proposal will help us to achieve superior performance in the future.

The Omnibus Plan as amended and restated if this proposal is approved is described in more detail below. If this proposal is not approved by our stockholders, the amendment and restatement of the Stock-Based Incentive Compensation Plan for Officers and Key Employees will not become effective, but the Stock-Based Incentive Compensation Plan for Officers and Key Employees (the “Original Plan”) will remain in effect in accordance with its present terms, unaffected by this amendment and restatement.

Compensation Governance Highlights of the Omnibus Plan as Amended and Restated

 

 

Awards are subject to potential reduction, cancellation or forfeiture in certain circumstances

 

 

No tax gross-ups

 

 

No discounted options may be granted

 

 

No repricing of stock options without stockholder approval

 

(1) 

Full-value awards as of August 30, 2020 were as follows: 532,439 time-vested employee RSUs; 320,879 Director Stock Units; and 346,149 open performance-based awards (reserved at their maximum potential payout of 100% of Target for fiscal year 2019 and fiscal year 2020 awards, reflecting modifications approved by Carpenter Technology’s Compensation Committee and more fully described in the Incentive Program Changes section of the CD&A, and 200% for the fiscal year 2021 awards).

 

   
CARPENTER TECHNOLOGY 2020 PROXY STATEMENT    39


Table of Contents

 

    Proposal 4: Approval of the Amended and Restated Stock-Based Incentive Compensation Plan for Officers and Key Employees

 

 

 

Minimum one-year vesting requirement

 

 

Limited discretionary accelerated vesting

 

 

Dividends on restricted stock and dividend equivalents on time-based and earned but unvested performance-based restricted stock units for awards granted under the amended and restated plan are paid subject to the vesting and payment terms applicable to the underlying awards

 

 

No dividend equivalent rights are granted on shares of Common Stock underlying stock option awards

Key Elements of the Omnibus Plan

 

 

Administration

  

 

Compensation Committee, which is made up entirely of independent directors.

 

 

Effective Date

  

 

The amended and restated version of this plan would become effective upon approval by Carpenter Technology’s stockholders.

 

 

Eligible Participants

  

 

Awards may be granted to any officer, management director or other key employee of the Company or a subsidiary, who is selected by Carpenter Technology to participate in the Omnibus Plan.

 

 

Total Shares Available for Awards Under Plan

  

 

1,350,000 shares recently approved by the Board, plus approximately 1,650,238 shares that remained available for issuance as of August 30, 2020 under the Original Plan, as well as shares that are subject to awards that are forfeited, canceled or expired unexercised, which may again become available for issuance under the terms of the Omnibus Plan.

 

 

Unavailable for Issuance

  

 

The following will not again become available for issuance under the Omnibus Plan:

 

   any shares tendered or withheld to pay the exercise price of stock options;

 

   any shares withheld in respect of taxes; and

 

   any shares repurchased by the Company from an optionee with proceeds from the exercise of stock options.

 

 

Award Types

  

 

Stock Options, Restricted Stock and Restricted Stock Units; only non-qualified Options may be granted under the Omnibus Plan.

 

 

Performance Metrics

  

 

Performance Goals may be measured on an absolute or relative basis.

 

 

Nontransferability of Awards

  

 

In general, during a Participant’s lifetime, Awards are exercisable only by the Participant and are not transferable other than by will or laws of descent and distribution.

 

However, the Compensation Committee may provide for limited lifetime transfers of Awards to certain family members, trusts for the benefit of family members, or partnerships in which such family members are the only partners. In addition, the Compensation Committee may provide in any Award Agreement terms and conditions under which the Participant must sell or offer to sell any vested Awards and any Common Stock acquired pursuant to an Award to the Company.

 

 

Amendments and Termination

  

 

Stockholder approval is required for any amendment which:

 

   increases the number of shares available for Awards under the Omnibus Plan (other than to reflect a change in the Company’s capital structure);

 

   decreases the price at which Awards may be granted; or

 

   as otherwise required by applicable law, regulation, or rules of any stock exchange or automated quotation system on which the Common Stock may then be listed or quoted.

 

Unless earlier terminated by the Compensation Committee/Board, the Omnibus Plan will terminate and expire on the date which is ten years after the most recent stockholder approval of the Omnibus Plan or upon the date on which all outstanding Awards have expired, terminated, been paid or otherwise provided for, and no Awards under the Omnibus Plan shall thereafter be granted.

 

 

   
40    CARPENTER TECHNOLOGY 2020 PROXY STATEMENT


Table of Contents

 

Proposal 4: Approval of the Amended and Restated Stock-Based Incentive Compensation Plan for Officers and Key Employees    

 

 

Summary of the Omnibus Plan as Amended and Restated

The following general description of certain features of the Omnibus Plan is qualified in its entirety by reference to the Omnibus Plan, which is attached as Exhibit A. Capitalized terms not otherwise defined in this summary have the meanings given to them in the Omnibus Plan.

General. The Omnibus Plan authorizes the grant of Options, Restricted Stock, and Restricted Stock Units (collectively, “Awards”). Only non-qualified Options may be granted under the Omnibus Plan.

Number of Shares Reserved. Carpenter Technology’s Board of Directors has reserved an additional 1,350,000 shares of Common Stock, along with approximately 1,650,238 shares that remained available as of August 30, 2020, for issuance pursuant to Awards granted under the Omnibus Plan. The maximum number of shares that may be granted to any Employee as Awards under the Omnibus Plan during any calendar year shall not exceed 500,000.

The Omnibus Plan provides for a fungible plan design in counting the maximum number of shares that may be issued under the Plan. In determining the number of shares of Common Stock available for Awards under the Plan, a share of Common Stock subject to an award of Restricted Stock, Restricted Stock Unit, or any other full value share award shall count against the number of shares available for Awards under the Plan as two and one-half (2.5) shares of Common Stock for Awards granted prior to October 13, 2020, and two (2.0) shares of Common Stock for Awards granted on or after October 13, 2020, and a share of Common Stock subject to an Option shall count against the number of shares available for Awards under the Plan as one (1) share of Common Stock.

To the extent any shares subject to an Award are forfeited or to the extent an Award otherwise terminates for any reason without an actual distribution of shares to the Participant, any shares counted against the number of shares available for issuance pursuant to the Omnibus Plan with respect to such Award shall, to the extent of any such forfeiture or termination, again be available for Awards under the Omnibus Plan. However, the following will not again become available for issuance under the Omnibus Plan: any shares withheld in respect of taxes; any shares tendered or withheld to pay exercise price of stock options; and any shares repurchased by the Company from an optionee with proceeds from the exercise of stock options.

In the event that any stock dividend, recapitalization, forward split or reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase or share exchange, extraordinary or unusual cash distribution or other similar corporate transaction or event, affects the Common Stock such that an adjustment is appropriate in order to prevent dilution or enlargement of the rights of Participants under the Omnibus Plan, then the Compensation Committee will, in such manner as it may deem equitable, adjust any or all of the following:

 

 

the number and kind of shares of Common Stock which may thereafter be issued in connection with Awards;

 

 

the number and kind of shares of Common Stock issuable in respect of outstanding Awards;

 

 

the aggregate number and kind of shares of Common Stock available under the Omnibus Plan; and

 

 

the exercise or Award-date price relating to any Award or, if deemed appropriate, make provision for a cash payment with respect to any outstanding Award.

Administration. The Compensation Committee administers the Omnibus Plan. Subject to the other provisions of the Omnibus Plan, the Compensation Committee has the authority to:

 

 

select the employees who will receive Awards pursuant to the Omnibus Plan;

 

 

determine the type(s) of Awards to be granted to each Participant;

 

 

determine the number of shares of Common Stock to which an Award will relate, the terms and conditions of any Award granted under the Omnibus Plan (including, but not limited to, restrictions as to vesting, transferability or forfeiture, exercisability or settlement of an Award and waivers or accelerations thereof as described under “Termination of Employment” below, and waivers of or modifications to performance conditions relating to an Award, based in each case on such considerations as the Committee shall determine) and all other matters to be determined in connection with an Award;

 

 

determine whether, to what extent, and under what circumstances an Award may be canceled, forfeited, or surrendered;

 

 

determine whether, and to certify that, Performance Goals to which the settlement of an Award is subject are satisfied;

 

   
CARPENTER TECHNOLOGY 2020 PROXY STATEMENT    41


Table of Contents

 

    Proposal 4: Approval of the Amended and Restated Stock-Based Incentive Compensation Plan for Officers and Key Employees

 

 

 

correct any defect or supply any omission or reconcile any inconsistency in the Omnibus Plan, and to adopt, amend and rescind such rules and regulations as, in its opinion, may be advisable in the administration of the Omnibus Plan; and

 

 

make all other determinations as it may deem necessary or advisable for the administration of the Omnibus Plan.

The Compensation Committee may delegate to the Company’s CEO its authority under the first four items above, to grant Awards covering a pre-determined aggregate number of shares of Common Stock. Such delegation is limited to the authority to grant and amend Awards to Participants who are not subject to the requirements of Rule 16b-3 of the Exchange Act. Any Awards granted or amended by the CEO are to be subject to the terms of the Omnibus Plan. The CEO shall report to the Compensation Committee, in a form and manner to be determined by the Compensation Committee, at least annually on the disposition of shares subject to Awards granted or amended by the CEO. Any reference to the Compensation Committee hereafter includes the CEO to the extent the Compensation Committee has delegated the authority to grant or amend Awards.

Eligibility. Awards may be granted to any officer or other key employee of the Company or a subsidiary including a director who is such an employee, who is selected by the Company to participate in the Omnibus Plan. The maximum number of shares that may be awarded to any Participant as Awards in any calendar year may not exceed 500,000.

As of August 30, 2020, approximately 4,020 employees were eligible to participate in the Original Plan and would be eligible to participate in the Omnibus Plan upon its approval. Of the total employees eligible to participate in the Original Plan, approximately 480 received awards under the Original Plan during fiscal year 2020. Non-employee directors and consultants are not eligible to participate in either the Omnibus Plan or the Original Plan.

Each Award granted under the Omnibus Plan will be evidenced by a written agreement between the Participant and the Company that describes the Award and states the terms and conditions applicable to such Award. The principal terms and conditions of each particular type of Award are described below.

Performance Goals. The Award Agreements may provide for vesting of the Award based on achievement of Performance Goals during a specified period. Performance Goals may be measured on an absolute or relative basis.

The Performance Goals may be applied to the Company, any affiliate or any business unit, either individually, alternatively or in combination.

Adjustments. The Committee may modify the Performance Goals previously established with respect to a particular grant of an Award to address accounting expenses of equity compensation; amortization of acquired technology and intangibles; asset write-downs; litigation-related events; changes in laws affecting reported results; reorganization and restructuring programs; discontinued operations; and extraordinary or nonrecurring or infrequent events.

Types of Awards. The following table provides details about each type of Award under the Omnibus Plan.

 

Award Type    Information Detail

Options

 

An Option is the right to purchase shares of Common Stock for a specified period of time at a fixed price (the “exercise price”).

 

Each Award Agreement will specify the exercise price, the term of the Option, and the date or dates when the Option will become exercisable.

 

Options shall only be transferable by will or under the laws of descent and distribution, and, during the Participant’s lifetime, may only be exercised by the Participant.

 

Only Non-Qualified Options may be granted under the Omnibus Plan.

  

 

Vesting. Subject to certain exceptions, Options shall not vest and are not exercisable sooner than one (1) year from the grant date of the Award.

 

Exercise Price. The Compensation Committee will determine the exercise price of an Option at the time the Option is granted. The exercise price of an Option will not be less than 100% of the Fair Market Value of Common Stock on the date the Option is granted. For purposes of the Omnibus Plan, Fair Market Value is defined as the closing price of a share of Common Stock on the New York Stock Exchange, or, in the absence of a closing price on such date, the closing price on the last trading day preceding such date. However, the Compensation Committee may use the closing price as of the indicated date, the average price or value as of the indicated date or for a period certain ending on the

 

 

   
42    CARPENTER TECHNOLOGY 2020 PROXY STATEMENT


Table of Contents

 

Proposal 4: Approval of the Amended and Restated Stock-Based Incentive Compensation Plan for Officers and Key Employees    

 

 

Award Type    Information Detail
    

indicated date, the price determined at the time the transaction is processed, the tender offer price for shares of Common Stock, or any other method which the Compensation Committee determines is reasonably indicative of the Fair Market Value of the Common Stock; provided, however, that for purposes of granting Options or Restricted Stock Units, Fair Market Value of Common Stock shall be determined in accordance with the requirements of Code Section 409A. Other than in connection with a change in capitalization, the exercise price of an Option may not be reduced without stockholder approval.

 

Consideration. The means of payment for shares issued upon exercise of an Option will be specified in each Award Agreement and generally may be made by the Participant in cash, by the surrender at Fair Market Value of Common Stock, by any combination of cash and shares of Common Stock, by “cashless exercise” arrangements such as through a broker or by net exercise, to the extent permitted by applicable law. The Compensation Committee will determine the methods by which, or the time or times at which, Common Stock will be delivered or deemed to be delivered to the Participant upon the exercise of such Option. The Committee may not permit payment through any method that would constitute a prohibited extension of credit to those officers of the Company who are subject to the provisions of the Sarbanes-Oxley Act of 2002.

 

Term of the Option. The term of an Option granted under the Omnibus Plan will be no longer than ten years from the date of grant.

 

Reload Grants. Options shall not be granted in consideration for and shall not be conditioned upon the delivery of shares of Common Stock to the Company in payment of the exercise price and/or tax withholding obligation under any other option held by a Participant.

 

No dividend equivalent rights. No dividend equivalent rights are granted on shares underlying stock option awards.

 

Restricted Stock

 

An Award of Restricted Stock is a grant to the recipient of a specified number of shares of Common Stock that are subject to forfeiture upon specified events during the Restriction Period.

 

Each grant of Restricted Stock is to specify the duration of the Restriction Period and any other conditions under which the Restricted Stock would be forfeitable to the Company, including any applicable Performance Goals, and will include restrictions on transfer to third parties during the Restriction Period.

  

 

Subject to certain exceptions, the Restriction Period for such Awards must be at least:

 

   three years for Awards that vest solely on the passage of time unless otherwise determined by the Compensation Committee, and

 

   one year for Awards that are earned in whole or in part upon the attainment of Performance Goals.

 

During the Restriction Period, the Compensation Committee may, but is not required to, authorize the payment of a dividend declared and paid on Carpenter Technology’s Common Stock to any Participant awarded

 

 

   
CARPENTER TECHNOLOGY 2020 PROXY STATEMENT    43


Table of Contents

 

    Proposal 4: Approval of the Amended and Restated Stock-Based Incentive Compensation Plan for Officers and Key Employees

 

 

Award Type    Information Detail
    

Restricted Stock. Any dividend with respect to Restricted Stock will only be paid upon satisfaction of the performance, employment or other conditions and

subject to the payment terms applicable to the Restricted Stock. Payment may be made in cash or deemed reinvested in Restricted Stock as determined by the Committee in its sole discretion. During the Restriction Period, the Participant will have the right to vote the shares of Restricted Stock.

 

Restricted Stock Units

 

A Restricted Stock Unit is a book-entry unit with a value equal to one share of Common Stock.

 

A grant of Restricted Stock Units will vest and become payable to the Participant upon other future events, including the achievement of Performance Goals established by the Compensation Committee or the passage of time.

 

Each grant of Restricted Stock Units will specify the conditions, including the passage of time and Performance Goals, if applicable, that must be satisfied in order for payment to be made.

 

Payment of Restricted Stock Units may be made in cash, shares of Common Stock, or a combination of both, equal to the Fair Market Value of the shares of Common Stock to which the Award relates.

  

 

The Compensation Committee may, but is not required to, authorize the payment of an amount equivalent to a dividend declared and paid on Carpenter Technology’s Common Stock to any Participant awarded Restricted Stock Units. Any dividend equivalent paid with respect to Restricted Stock Units subject to Awards granted under the amended and restated Plan will only be paid upon satisfaction of the terms and conditions and subject to the payment terms applicable to the Restricted Stock Units.

 

Such dividend equivalent will be in the form of:

 

   cash, or

 

   additional Restricted Stock Units that are subject to the provisions of the Award Agreement governing the Restricted Stock Units upon which the dividend is paid.

 

A Participant will not have voting rights with respect to Restricted Stock Units prior to payment of Common Stock in satisfaction of such Restricted Stock Units.

 

General Provisions

Vesting. Awards under the Plan generally have a minimum Restriction Period or minimum vesting period of one year, unless the Award is a part of a pool of Awards representing no more than five percent (5%) of the shares of Common Stock available for Awards under the Plan.

Nontransferability of Awards. In general, during a Participant’s lifetime, his or her Awards shall be exercisable only by the Participant and shall not be transferable other than by will or laws of descent and distribution. However, the Compensation Committee may provide for limited lifetime transfers of Awards to certain family members, trusts for the benefit of family members, or partnerships in which such family members are the only partners.

In addition, the Compensation Committee may provide in any Award Agreement terms and conditions under which the Participant must sell or offer to sell any vested Awards and any Common Stock acquired pursuant to an Award to the Company.

 

   
44    CARPENTER TECHNOLOGY 2020 PROXY STATEMENT


Table of Contents

 

Proposal 4: Approval of the Amended and Restated Stock-Based Incentive Compensation Plan for Officers and Key Employees    

 

 

Termination of Employment. Each Award Agreement will provide rules for the exercise or vesting of such Award following termination of employment for any reason, which may include, but not be limited to, death, Disability, termination for Cause or Retirement. The Compensation Committee may take actions and provide in Award Agreements for such post-termination rights that it believes to be equitable under the circumstances or in the best interests of the Company with respect to Awards that are not fully earned, vested or exercisable, subject to the terms of the Plan. However, in the absence of specific Committee resolution to the contrary, the following terms will apply to Awards following a Participant’s termination:

In the event of the Participant’s death on or after the one-year anniversary of the grant of an Option, the Option will vest immediately and the Participant’s beneficiary may exercise the Option at any time before the expiration of the term of the Option. In the event of the Participant’s termination due to Disability or Retirement (unless the Compensation Committee determines otherwise with respect to Retirement) on or after the one-year anniversary of the grant of an Option, the Option will vest immediately and will be exercisable for the remainder of the term. A Participant will have three months following termination for any reason other than death, Disability or Retirement to exercise any Option, to the extent exercisable at the time of such termination.

In the event of the Participant’s death, Disability, or Retirement prior to the payment of an Award of Restricted Stock or Restricted Stock Units, the Award will vest immediately (unless the Committee determines otherwise with respect to Retirement), except in the case of an Award based upon the Company’s achievement of Performance Goals. In that case, the Award will vest based upon the Company’s achievement of Performance Goals at the time the Award would have otherwise vested had the Participant’s employment continued. If the Participant’s death, Disability, or Retirement occurred prior to the completion of the Performance Period, the Award may be pro-rated (unless the Committee determines otherwise with respect to Retirement).

Notwithstanding the foregoing, the Compensation Committee retains the right to revoke or revise the terms of any unearned, unvested, or unexercised Award in the event of a Participant’s termination for Cause.

Change in Control. Subject to certain exceptions with respect to Awards granted prior to July 18, 2018, the outstanding Awards under the Omnibus Plan are assumed or converted into awards under another plan of a successor entity or business in the event of a Change in Control and the Participant is terminated other than for Cause or resigns for Good Reason within two (2) years after such Change in Control, then the vesting shall fully accelerate, other restrictions applicable to such Award shall terminate, and any performance criteria shall be deemed satisfied, either on an absolute basis or at the pre-established target level as applicable. If the Award is assumed or converted in connection with a Change in Control and the Participant’s employment is not terminated or is terminated by the Company for Cause or by the Participant for reasons other than for Good Reason, then the otherwise applicable terms of this Plan and the Award continue to apply.

If an Award is not assumed or converted into awards under another plan of a successor entity or business, in the event of the Change in Control, the vesting of the Award shall fully accelerate, other restrictions applicable to such Award shall terminate, and any performance criteria shall be deemed satisfied, either on an absolute basis or at the pre-established target level as applicable.

For purposes of the Omnibus Plan, “Change in Control” is defined in Section 2.6 of the Omnibus Plan document presented as Exhibit A.

Effective Date, Amendments, and Termination of the Omnibus Plan. The Omnibus Plan will be effective upon its approval by Carpenter Technology stockholders. The Board of Directors or the Compensation Committee has the authority to amend or terminate the Omnibus Plan at any time. However, stockholder approval is required for any amendment which:

 

 

increases the number of shares available for Awards under the Omnibus Plan (other than to reflect a change in the Company’s capital structure);

 

 

constitutes a repricing or exchange of any Awards, or involves the buy-out, whether in cash or otherwise, of any previously granted Award with an exercise price that is greater than Fair Market Value; or

 

 

as otherwise required by applicable law, regulation, or rules of any stock exchange or automated quotation system on which the Common Stock may then be listed or quoted.

 

   
CARPENTER TECHNOLOGY 2020 PROXY STATEMENT    45


Table of Contents

 

    Proposal 4: Approval of the Amended and Restated Stock-Based Incentive Compensation Plan for Officers and Key Employees

 

 

Unless earlier terminated by the Board or the Compensation Committee, the Omnibus Plan will terminate and expire on the date which is ten years after the most recent stockholder approval of the Plan, or upon the date on which all outstanding Awards have expired, terminated, been paid or otherwise provided for, and no Awards under the Omnibus Plan shall thereafter be granted.

Certain Federal Income Tax Considerations

The following discussion is a summary of certain federal income tax considerations that may be relevant to Participants in the Omnibus Plan. The discussion is for general informational purposes only and is not intended to address specific federal income tax considerations that may apply to a Participant based on his or her particular circumstances, nor does it address state or local income tax, or other tax considerations that may be relevant to a Participant.

Participants are urged to consult their own tax advisors with respect to the particular federal income tax consequences to them of participating in the Omnibus Plan, as well as with respect to any applicable state or local income tax or other tax considerations.

Non-Qualified Options

A Participant realizes no taxable income and the Company is not entitled to a deduction when a Non-Qualified Option is granted. Upon exercise of a Non-Qualified Option, a Participant will realize ordinary income equal to the excess of the Fair Market Value of the shares received over the exercise price of the Non-Qualified Option, and, subject to Section 162(m) of the Code, the Company will be entitled to a corresponding deduction. A Participant’s tax basis in the shares of Common Stock received upon exercise of a Non-Qualified Option will be equal to the Fair Market Value of such shares on the exercise date, and the Participant’s holding period for such shares will begin at that time. Upon sale of the shares of Common Stock received upon exercise of a Non-Qualified Option, the Participant will realize short-term or long-term capital gain or loss, depending upon whether the shares have been held for more than one year. The amount of such gain or loss will be equal to the difference between the amount realized in connection with the sale of the shares, and the Participant’s tax basis in such shares.

Under the Omnibus Plan, Non-Qualified Options may, with the consent of the Committee, be exercised in whole or in part with shares of Common Stock held by the Participant. Payment in Common Stock will be treated as a tax-free exchange of the shares surrendered for an equivalent number of shares of Common Stock received, and the equivalent number of shares received will have a tax basis equal to the tax basis of the surrendered shares. The Fair Market Value of shares of Common Stock received in excess of the number of shares surrendered will be treated as ordinary income and such shares have a tax basis equal to their Fair Market Value on the date of the exercise of the Non-Qualified Option.

Restricted Stock

Restricted Stock received pursuant to Awards will be considered subject to a substantial risk of forfeiture for federal income tax purposes. If a Participant who receives such Restricted Stock does not make the election described below, the Participant realizes no taxable income upon the receipt of Restricted Stock and the Company is not entitled to a deduction at such time. When the forfeiture restrictions with respect to the Restricted Stock lapse, the Participant will realize ordinary income equal to the Fair Market Value of the shares at that time, and, subject to Section 162(m) of the Code, the Company will be entitled to a corresponding deduction. A Participant’s tax basis in Restricted Stock will be equal to the Fair Market Value when the forfeiture restrictions lapse, and the Participant’s holding period for the shares will begin when the forfeiture restrictions lapse. Upon sale of the shares, the Participant will realize short-term or long-term gain or loss, depending upon whether the shares have been held for more than one year at the time of sale. Such gain or loss will be equal to the difference between the amount realized upon the sale of the shares and the tax basis of the shares in the Participant’s hands.

 

   
46    CARPENTER TECHNOLOGY 2020 PROXY STATEMENT


Table of Contents

 

Proposal 4: Approval of the Amended and Restated Stock-Based Incentive Compensation Plan for Officers and Key Employees    

 

 

 

Section 83(b) Elections. Participants receiving Restricted Stock may make an election under Section 83(b) of the Code with respect to the shares. By making a Section 83(b) election, the Participant elects to realize compensation income with respect to the shares when the shares are received rather than at the time the forfeiture restrictions lapse. The amount of compensation income will be equal to the Fair Market Value of the shares when the Participant receives them (valued without taking the restrictions into account), and the Company will be entitled to a corresponding deduction at that time.

 

By making a Section 83(b) election, the Participant will realize no additional compensation income with respect to the shares when the forfeiture restrictions lapse and will instead recognize gain or loss with respect to the shares when they are sold. The Participant’s tax basis in the shares will be equal to their Fair Market Value when received by the Participant, and the Participant’s holding period for such shares begins at that time. If, however, the shares are subsequently forfeited to the Company, the Participant will not be entitled to claim a loss with respect to the shares to the extent of the income realized by the Participant upon the making of the Section 83(b) election. To make a Section 83(b) election, a Participant must file an appropriate form of election with the Internal Revenue Service and with the Company, each within 30 days after shares of Restricted Stock are granted, and the Participant must also attach a copy of his or her election to his or her federal income tax return for the year in which the shares are granted.

 

Generally, during the restriction period, dividend equivalents and distributions paid with respect to Restricted Stock will be treated as compensation income (not dividend income) received by the Participant. Dividend payments received with respect to shares of Restricted Stock for which a Section 83(b) election has been made will be treated as dividend income, assuming the Company has adequate current or accumulated earnings and profits.

Restricted Stock Units

A Participant typically realizes no taxable income and the Company is not entitled to a deduction when Restricted Stock Units payable in the future and subject to conditions such as the passage of time or achievement of Performance Goals are granted. When Restricted Stock Units vest and become payable as a result of the satisfaction of the terms and conditions on such Award, including, if applicable, achievement of Performance Goals, the Participant will realize ordinary income equal to the amount of cash received or the Fair Market Value of the shares received minus any amount paid for the shares, and, subject to Section 162(m) of the Code, the Company will be entitled to a corresponding deduction.

A Participant’s tax basis in shares of Common Stock received upon payment will be equal to the Fair Market Value of such shares when the Participant receives them. Upon sale of the shares, the Participant will realize short-term or long-term capital gain or loss, depending upon whether the shares have been held for more than one year at the time of sale. Such gain or loss will be equal to the difference between the amount realized upon the sale of the shares and the tax basis of the shares in the Participant’s hands.

The Compensation Committee may, but need not, permit a Participant to defer receipt of payment in satisfaction of Restricted Stock Units, provided that any such deferral shall be administered in compliance with Section 409A of the Code and the guidance thereunder. The Committee is authorized to take such action as it deems necessary and reasonable to avoid the application of the additional tax described in Section 409A(a)(1)(B) of the Code to any Award deferred hereunder.

Section 162(m) Limitations

Section 162(m) of the Code limits the deductibility of compensation paid to certain executive officers.

Withholding

The Company is entitled to deduct from the payment of any Award (whether made in stock or in cash) all applicable income and employment taxes required by federal, state, local or foreign law to be withheld, or may require the Participant to pay such withholding taxes to the Company as a condition of receiving payment of the Award. The Committee may allow a Participant to satisfy his or her withholding obligations by directing the Company to retain the number of shares necessary based on the maximum individual federal and state statutory tax rates in the applicable jurisdiction to satisfy the withholding obligation, or by delivering shares held by the Participant to the Company in an amount necessary to satisfy the withholding obligation.

 

   
CARPENTER TECHNOLOGY 2020 PROXY STATEMENT    47


Table of Contents

 

    Proposal 4: Approval of the Amended and Restated Stock-Based Incentive Compensation Plan for Officers and Key Employees

 

 

Securities Authorized for Issuance Under Equity Compensation Plans

The following table provides information as of June 30, 2020, regarding the number of shares of Common Stock that may be issued under the Company’s equity compensation plans:

 

Equity Compensation Plan Information  

Plan category

 

 

Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
(a)

 

   

Weighted-average exercise
price of outstanding options,
warrants and rights
(b)

 

   

Number of securities   

remaining available for   

future issuance under equity   

compensation plans   

(excluding securities   

reflected in column (a))(1)

(c)   

 

 

Equity compensation plans approved by security holders

 

 

2,149,541

 

 

 

$44.50

 

 

 

3,456,694   

 

Equity compensation plans not approved by security holders

 

 

-

 

 

 

-

 

 

 

-   

 

Total

 

 

2,149,541

 

 

 

$44.50

 

 

 

3,456,694   

 

 

(1)

Includes 2,991,773 shares available for issuance under the Stock-Based Incentive Compensation Plan for Officers and Key Employees (which provides for the issuance of stock options, restricted stock, and restricted stock units) and 464,921 shares available under the Stock-Based Compensation Plan for Non-Employee Directors (which provides for issuance of stock options, stock and units).

New Plan Benefits

Because our Compensation Committee has discretion to grant future equity awards of a type and amount determined in its discretion, it is not possible at present to determine the persons to whom awards will be granted under the Omnibus Plan for the fiscal year ending June 30, 2021, or the amounts and types of any such individual grants. Alternatively, because the Omnibus Plan, if approved, would be similar to the Original Plan, the below table instead sets forth the grants made in the fiscal year ended June 30, 2020, under the Original Plan.

 

   
48    CARPENTER TECHNOLOGY 2020 PROXY STATEMENT


Table of Contents

 

Proposal 4: Approval of the Amended and Restated Stock-Based Incentive Compensation Plan for Officers and Key Employees    

 

 

Stock-Based Incentive Compensation Plan for Officers and Key Employees

 

Name and Position   

Number of

Time-Based
Restricted
Stock Units

    

Number of   

Performance-Based   

Restricted   

Stock Units(1)

     Number of
Stock Options
 

 

Thene, Tony R.

President and

Chief Executive Officer

 

  

 

 

 

19,720

 

 

  

 

 

 

65,734   

 

 

  

 

 

 

43,500

 

 

 

Lain, Timothy

Vice President and Chief

Financial Officer

 

  

 

 

 

3,400

 

 

  

 

 

 

11,332   

 

 

  

 

 

 

7,498

 

 

 

Dee, James D.

Vice President, General

Counsel and Secretary

 

  

 

 

 

2,822

 

 

  

 

 

 

9,406   

 

 

  

 

 

 

6,224

 

 

 

Malloy, Brian J.

Vice President – Chief

Commercial Officer

 

  

 

 

 

2,822

 

 

  

 

 

 

9,406   

 

 

  

 

 

 

6,224

 

 

 

Murtagh, Michael

Vice President and Group

President – Specialty Alloys

Operations

 

  

 

 

 

2,822

 

 

  

 

 

 

9,406   

 

 

  

 

 

 

6,224

 

 

 

Executive Group (NEOs)

 

  

 

 

 

31,586

 

 

  

 

 

 

105,284   

 

 

  

 

 

 

69,670

 

 

 

Non-Executive Director

Group

 

  

 

 

 

-

 

 

  

 

 

 

-   

 

 

  

 

 

 

-

 

 

 

Non-Executive Officer

Employee Group

 

  

 

 

 

6,295

 

 

  

 

 

 

20,988   

 

 

  

 

 

 

13,262

 

 

 

All employees as a group

who are not part of the

executive group (NEOs) or

the non-executive officer

employee group

 

  

 

 

 

102,950

 

 

  

 

 

 

58,340   

 

 

  

 

 

 

36,702

 

 

 

(1)

Represents the maximum (200% of Target) number of units the Participant could have received based upon attainment of Performance Goals approved at the time the Award was granted. The Compensation Committee subsequently approved modifications to these awards, including a capped payout of 100% of Target, due to the substantial impact the COVID-19 pandemic has had on the Company’s results. The modifications are more fully described in the Incentive Program Changes section in the CD&A.

In accordance with SEC rules, the following table lists all Options granted to the individuals and groups indicated below since the adoption of the Original Plan, through June 30, 2020. The option awards listed below for the covered executives include the Option awards listed in the executive compensation tables beginning on page 76 of this Proxy Statement and are not additional awards. As of June 30, 2020, the closing price of a share of our Common Stock was $24.28 per share.

 

   
CARPENTER TECHNOLOGY 2020 PROXY STATEMENT    49


Table of Contents

 

    Proposal 4: Approval of the Amended and Restated Stock-Based Incentive Compensation Plan for Officers and Key Employees

 

 

Name and Position    Number of Stock Options  

 

Thene, Tony R.

President and Chief Executive Officer

 

  

 

 

 

510,817

 

 

 

Lain, Timothy

Vice President and Chief Financial Officer

 

  

 

 

 

64,621

 

 

 

Dee, James D.

Vice President, General Counsel and Secretary

 

  

 

 

 

122,040

 

 

 

Malloy, Brian J.

Vice President – Chief Commercial Officer

 

  

 

 

 

85,390

 

 

 

Murtagh, Michael

Vice President and Group President – Specialty Alloys Operations

 

  

 

 

 

25,340

 

 

 

Executive Group (NEOs)

 

  

 

 

 

 

808,208

 

 

 

 

 

Non-Executive Director Group

 

  

 

 

 

 

-

 

 

 

 

 

Non-Executive Officer Employee Group

 

  

 

 

 

 

291,457

 

 

 

 

All employees as a group who are not part of the executive group (NEOs) or the non-executive officer employee group

 

  

 

 

 

8,950,072

 

 

Vote Required for Approval

The affirmative vote of a majority of the votes cast is required to approve the proposed amendment and restatement of the Omnibus Plan. If not approved, the Omnibus Plan will continue in its pre-amended form.

 

 

 

 

 

LOGO

 

 

 

 

 

 

 

FOR

  

 

The Board of Directors recommends that you vote FOR Proposal 4 to approve the Amended and Restated Stock-Based Incentive Compensation Plan for Officers and Key Employees.

 

 

   
50    CARPENTER TECHNOLOGY 2020 PROXY STATEMENT


Table of Contents

Compensation Discussion and Analysis

This Compensation Discussion and Analysis (“CD&A”) describes our compensation philosophy and the key criteria the Compensation Committee (“Committee”) uses to set compensation levels, determine actual compensation, and establish future compensation opportunities for our executives. In implementing the fiscal year 2020 executive compensation program, the Committee considered last year’s say-on-pay vote, stockholder feedback, and advice from the Committee’s independent compensation consultant.

 

Our Named Executive Officers

 

Our Named Executive Officers (“NEOs”) for fiscal year 2020 are:

Tony R. Thene,

 

President and Chief Executive Officer

 

Timothy Lain,

 

Vice President and Chief Financial Officer

(appointed Senior Vice President and Chief Financial Officer effective August 11, 2020)

  

James D. Dee,

 

Vice President, General Counsel and Secretary

(appointed Senior Vice President, General Counsel and Secretary effective August 11, 2020)

 

Brian J. Malloy,

 

Vice President – Chief Commercial Officer

(appointed Senior Vice President and Chief Commercial Officer effective August 11, 2020)

 

Michael Murtagh,

 

Vice President and Group President – Specialty Alloys Operations (SAO) (resigned as Vice President and Group President – Specialty Alloys Operations (SAO) effective June 30, 2020)

 

Table of Contents

Executive Summary

    52  

Stockholder Engagement

    54  

Incentive Program – Changes Made to Fiscal Year 2020

    54  

Incentive Program – Planned Changes for Fiscal Year 2021

    55  

Executive Compensation Philosophy and Framework

    55  

Elements of our Fiscal Year 2020 Compensation Program

    58  

Annual Compensation

    60  

Executive Stock Plan

    62  

Compensation Program Risk Assessment

    64  

Fiscal Year 2020 NEO Compensation

    66  

Executive Compensation Practices

    68  

Tax Policies

    74  

 

   
CARPENTER TECHNOLOGY 2020 PROXY STATEMENT    51


Table of Contents

Executive Summary

The Committee is committed to ensuring the Carpenter Technology executive compensation program promotes the alignment of executives’ and stockholders’ interests. We have designed the program to attract and retain outstanding leaders, to motivate and reward them for achieving specified business and financial goals, and to support the creation of sustainable stockholder value. The Committee believes the fiscal year 2020 executive compensation decisions reward Carpenter Technology executives appropriately for their performance during the fiscal year and encourage them to focus on long-term value creation.

The onset of the COVID-19 pandemic created significant challenges to operating our manufacturing facilities while keeping our employees safe. Carpenter Technology relied heavily on its safety culture to quickly develop and implement extensive protocols to ensure our manufacturing facilities could continue to operate and at the same time keep employees, their families, and visitors safe. The COVID-19 pandemic also had a significant impact on customer demand conditions across most of Carpenter Technology’s end-use markets. The impact of COVID-19 on Carpenter Technology’s operations and business conditions was carefully considered in the Committee’s executive compensation decisions and strategy for fiscal year 2020. Nevertheless, despite the significant unforeseen impact of COVID-19 on Carpenter Technology’s financial results for fiscal year 2020, the Committee did not modify the fiscal year 2020 financial performance metrics or targets. However, the Committee modified fiscal year 2019 and fiscal year 2020 Performance Stock Unit awards to use a three-year average, while also capping the attainment percentage for the three-year average at 100% for these awards. A detailed description of our fiscal year 2020 executive compensation program can be found below under “Executive Compensation Philosophy and Framework,” “Elements of our Fiscal Year 2020 Compensation Program,” and “Annual Compensation.” In addition, due to the market uncertainty caused by the pandemic, the Committee strategically modified the long-term incentive design for fiscal year 2021. A summary of the modifications for fiscal year 2021 is provided in the “Incentive Program - Planned Changes for Fiscal Year 2021” section. The Committee continues to closely monitor the impact of the COVID-19 pandemic on the business and reserves the right to re-evaluate compensation decisions as the situation evolves.

Summary of Fiscal Year 2020 Performance

Carpenter Technology has worked diligently over the last several years to make safety the cornerstone of our Company culture. The ultimate goal of a zero-injury workplace is embedded across all locations. With that same mindset, Carpenter Technology quickly responded to the COVID-19 pandemic with an immediate focus on protecting our employees, their families, and our facilities. Carpenter Technology’s specialty metal alloy materials are unique, and in some cases, the sole source for proven material solutions in critical applications, making them vital for continued production of essential manufactured products. Based on our role as an essential business, it was and continues to be important to continue to operate our facilities despite the challenges of the pandemic. We took immediate actions to operationalize policies and procedures to protect our employees, such as remote working, enhanced personal hygiene, social distancing and limiting access to our facilities. The broader pandemic response is much deeper and complex. To manage this response centrally, a Rapid Response Team made up of employees from multiple disciplines was formed and tasked with focusing their efforts on safely operating our facilities during the COVID-19 pandemic. In addition, a robust Self-Reporting and Self-Isolation program was implemented which requires all employees to self-report to our outside medical vendor if they meet any of the detailed criteria. If deemed necessary, employees may be placed on a paid self-isolation period. We also implemented a modularized or “POD” work environment that acts as a circuit breaker to virus transmission within a department or shift. The PODs consist of two fundamental principles: a full separation between shifts with a 30-minute air gap and strict defined boundaries within a shift. As an additional layer of protection, temperature screening is required for anyone entering a Carpenter Technology site. Extensive protocols and work instructions have been implemented and continue to be modified or expanded as conditions change. Because of Carpenter Technology’s deep-rooted safety culture, we have been able to keep our facilities operating, while providing unparalleled safety protections for our employees.

Further evidence of our ongoing focus on keeping our employees safe is reflected in our safety performance for fiscal year 2020 as measured by a 1.1 Total Case Incident Rate (“TCIR”), which is the average number of work-related injuries incurred by 100 full-time workers during a one-year period for the year. The fiscal year 2020 TCIR rate represents the lowest annual incident rate to date as we continue our journey to a zero-injury workplace.

Carpenter Technology delivered solid operating results in fiscal year 2020 into the third quarter when the pandemic began to broadly impact global economic conditions. The momentum leading up to our third quarter of fiscal year 2020 was demonstrated by the SAO segment achieving operating margins at historic highs, our 12th consecutive quarter of year-over-year sales and earnings growth, and the Company was on track for the best financial performance year in our history. Beginning in the last month of our fiscal third quarter, the widespread impact of the pandemic, including costs associated with ensuring our facilities could continue to operate safely as well as the pandemic’s impact on customer

 

   
52    CARPENTER TECHNOLOGY 2020 PROXY STATEMENT


Table of Contents

 

Compensation Discussion and Analysis    

 

 

demand, had a significant impact on our operating results. The Company addressed the challenging conditions directly and acted swiftly by executing targeted cost reduction actions and portfolio restructuring, including exiting the oil and gas business in our Performance Engineered Products (“PEP”) segment, divesting a powder facility and idling another powder facility, reducing 20 percent of our global salaried workforce as well as implementing a hiring freeze and targeted rolling furloughs across the organization. Operating income in fiscal year 2020 decreased to $25.3 million, or $157.7 million excluding restructuring and asset impairment charges. Operating income was $241.4 million in fiscal year 2019, $242.6 when adjusted for acquisition related costs. Free cash flow was positive $21.8 million in fiscal year 2020 as compared to negative $53.7 million for the same period a year prior. Operating cash flow in the current fiscal year was negatively impacted by lower earnings resulting from COVID-19 offset by improvements in working capital, primarily inventory. Prior year free cash flow results included the impact of the acquisition of LPW Technology Ltd., for a cash purchase price of $79.0 million.

Our core business was strong prior to the COVID-19 pandemic, and the long-term outlook for our markets remains robust. While the pandemic has caused near-term challenges for us as well as our entire industry, we have demonstrated a resiliency that is resonating with customers and winning market share for Carpenter Technology. We have enriched and/or extended supply agreements at the request of key Aerospace, Medical and semiconductor customers who expressed concern about the stability and long-term reliability of other suppliers. Our manufacturing teams also continue to implement the Carpenter Technology Operating Model across the entire organization to enhance production efficiencies.

Carpenter Technology is and will remain a trusted solutions provider of critical applications. While maintaining our focus on our core business, we also continued to strengthen our growing leadership position in innovative areas such as additive manufacturing and soft magnetics. Our healthy liquidity position and strong financial position provide the flexibility to weather this near-term storm. We have taken aggressive actions to reduce our cost structure through several targeted initiatives and portfolio restructurings, which will enable us to drive accelerated growth when demand levels normalize. Entering fiscal year 2021, our focus is on cash generation as we continue to evaluate additional actions to bolster our position. We are working closely with our customers to re-prioritize our production schedules and accommodate changing orders as well as urgent requests. Ultimately, we will continue to pursue our long-term strategy of being the preferred solutions provider for our customers and emerge on the other side of COVID-19 with stronger customer relationships as well as meaningful share gains across key platforms and applications in Aerospace and Defense, Medical and other end-use markets.

Financial Metrics

 

LOGO

 

*

Fiscal year 2020 excludes impact of special items ($29.3 million of inventory write-downs from restructuring; $68.5 million of restructuring and asset impairment charges; $34.6 million of goodwill impairment charges. Fiscal year 2019 excludes impact of special item ($1.2 million of acquisition related costs).

**

Fiscal year 2020 excludes $12.1 million of cash costs associated with restructuring.

***

Excludes impact of special items excluded from operating income and net pension expense.

 

   
CARPENTER TECHNOLOGY 2020 PROXY STATEMENT    53


Table of Contents

 

    Compensation Discussion and Analysis • Stockholder Engagement

 

 

Stockholder Value Creation

 

 

Capital Returned to Stockholders

 

LOGO

    

 

LOGO

 

 

*

Reflects achievement of fiscal year 2017 through fiscal year 2019 three-year performance period

 

**

Reflects achievement of fiscal year 2018 through fiscal year 2020 three-year performance period

Stockholder Engagement

Stockholder Engagement on Compensation and Advisory Vote on Executive Compensation (“Say-on-Pay”)

Carpenter Technology has provided stockholders with an annual say-on-pay advisory vote on the compensation of its NEOs since 2012. Additionally, we have an active stockholder outreach program, and the Board has tasked the General Counsel & Chief Governance Officer and Chief Financial Officer & head of Investor Relations with communicating with stockholders throughout the year about governance and compensation matters. They also solicit feedback from stockholders throughout the year and disseminate that information to the Committee and management to keep them apprised of stockholder views and to arrange direct interactions between stockholders and the CEO, management and directors. The Committee considers the results of the annual say-on-pay advisory vote, as well as input received from stockholders, when designing our executive compensation program.

At the 2019 Annual Meeting of Stockholders, approximately 98% of the votes cast were in favor of the say-on-pay advisory vote to approve the executive compensation program. In light of the stockholder feedback received, and in consideration of the 2019 say-on-pay advisory vote results, the Committee made limited changes to the Company’s compensation programs for fiscal year 2020 as discussed below.

At the 2020 Annual Meeting of Stockholders, Carpenter Technology will again hold an annual advisory vote to approve executive compensation. We will continue to engage with our stockholders throughout the year and consider the results from this year’s and future advisory say-on-pay votes on executive compensation, as well as feedback from our stockholders.

Incentive Program – Changes made to Fiscal Year 2020

As described in the “Summary Fiscal Year 2020 Performance” section, the COVID-19 pandemic had a significant impact on the Company’s operations and fiscal year 2020 financial performance. The pandemic has also adversely impacted global economic conditions creating uncertainty. We had to balance the unpredictability of the pandemic’s impact on the Company’s performance, particularly over a three-year timeframe, against the need to provide reasonable incentives with attainable goals that will reward executives when the pandemic subsides and stability returns to our end-use markets. We believed that changes to the compensation program were required to properly fulfill our compensation philosophy, and our recent decisions are intended to align executive’s interests with those of stockholders. With the compensation philosophy in mind, and to account for stockholder losses in recent months, the Committee did not adjust the fiscal year 2020 financial performance metrics attainment as they apply to the annual cash incentive program. This resulted in a substantially below-target payout under the Annual Cash Incentive for fiscal year 2020.

To further align executives’ interests with those of stockholders, we modified the measurement of all outstanding performance-based RSUs by switching from a three-year cumulative measurement to a three-year average measurement period. This was done without adjusting any of the already achieved attainment for the past fiscal

 

   
54    CARPENTER TECHNOLOGY 2020 PROXY STATEMENT


Table of Contents

 

Compensation Discussion and Analysis • Incentive Program – Planned Changes for Fiscal Year 2021    

 

 

years. The metrics for a new fiscal year will be established at the beginning of that fiscal year. We will then use the average of the attainment over a three-year period to determine the total payout percentage. We have buttressed this approach by applying a 100% cap to the three-year average such that the performance share attainment average percentage for a given three-year period does not exceed 100%. We view this as a short-term approach until the COVID-19 pandemic and its impact on the economy subside. More details on this approach are in the “Goals for Performance-Based RSUs” section.

Incentive Program – Planned Changes for Fiscal Year 2021

As described in the section “Elements of our Fiscal Year 2020 Compensation Program,” Carpenter Technology provides a mix of both annual and long-term incentives.

 

 

To promote the alignment of executives’ and stockholders’ interests, we have modified the performance-based Restricted Stock Unit component of our long-term incentive program as follows:

 

   

Performance shares will be measured on Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) and Adjusted Return on Invested Capital (“ROIC”) over a three-year performance period. As discussed in the “Incentive Program – Changes Made to Fiscal Year 2020 Performance Awards” section, these performance shares will move to annual measurement periods and averaged over a three-year period to set attainable goals during the pandemic and drive retention.

 

 

The mix of our long-term incentive program has been modified to include 50% performance-based RSUs and 50% time-based RSUs. This short-term modification reflects the elimination of stock options from the mix because we believe that at a time where the Company’s market sector has been depressed by the pandemic, stock options do not drive retention as strongly as the other equity vehicles.

A summary of LTI changes is listed below:

 

     Incentive Program   Metric   FY20
Weighting
  FY21
Weighting

LTI

 

 

Adjusted EBITDA-based RSUs

 

 

Adjusted EBITDA vs. target each year for a three-year consecutive period with a TSR modifier of +/- 20%

 

 

 

25%

 

 

25%

 

 

 

Adjusted ROIC-based RSUs

 

 

 

Adjusted ROIC over each year for a three-year consecutive period with a TSR modifier of +/- 20%

 

 

 

25%

 

 

25%

 

 

 

Time-based RSUs

 

 

A three-year time-based restriction period

 

 

 

30%

 

 

50%

 

 

 

Stock Options

 

 

Performance-based as they only deliver value if Carpenter Technology stock price increases

 

 

 

20%

 

 

0%

 

Executive Compensation Philosophy and Framework

Our Guiding Principles

The overarching goal of our executive compensation program is to drive long-term high performance and stockholder value creation through our pay programs. As a result, there are strong ties to performance in many aspects of the compensation program, including pay levels, incentive payouts and pay opportunities.

The Committee structures the executive compensation program to reward our NEOs when performance achieves or exceeds goals. A significant component of our incentive structure is weighted towards overall leadership team performance against targeted goals (rather than individual performance), so that if we meet or exceed our goals, the team earns target or above awards. Conversely, if the team fails to meet the minimum thresholds, components of performance-based compensation will not be awarded.

In general, the Committee targets total NEO compensation at the median of market practices.

 

   
CARPENTER TECHNOLOGY 2020 PROXY STATEMENT    55


Table of Contents

 

    Compensation Discussion and Analysis • Executive Compensation Philosophy and Framework

 

 

Goals

We design our compensation program to achieve the following:

 


    

  

 

1

 

Motivate and reward our executives to achieve or exceed Carpenter Technology’s financial and operating performance objectives.

 

 

  

  

 

2

 

Propel our business forward through a focus on operational excellence and execution of our business strategy.

 

  

  

 

3

 

Link executives’ compensation with specific business objectives that are designed to drive stockholder value in both the short- and long-term.

   
              
    

 

4

 

Link executives’ compensation with the interests of our stockholders by tying a significant portion of total compensation opportunity to the value of our stock.

 

 

    

 

5

 

Reward individual performance and accomplishments while reinforcing accountability and collaboration.

    

 

6

 

Ensure we retain a deep and talented leadership team that can successfully drive and implement our growth and operational excellence strategies.

 

 

 

    

Our Compensation Policies and Practices

Our executive compensation program reflects the Board’s strong commitment to good governance practices with respect to executive compensation. During fiscal year 2020, we continued with the practices described below.

 

       

What We Do

       

Balanced portfolio: The Committee ensures a balanced mix of cash and equity, annual and long-term incentives, and performance metrics, including operating income, free cash flow, safety, Adjusted ROIC, Adjusted EBITDA and TSR.

 

Double-trigger benefits: We have a double-trigger for change-in-control separation benefits. This means that a change in control of Carpenter Technology alone does not trigger any severance obligations to our NEOs under our Change-in-Control Severance Plan or vesting of awards granted after July 18, 2018.

 

Clawback policy: We have a clawback policy that applies to both annual cash bonuses and short- and long-term cash incentives, as well as equity awards for NEOs and other senior executives.

 

Key practices: The Committee analyzes performance against robust and diversified performance metrics, ensures substantial share ownership guidelines, annually reviews compensation peer groups, and provides and oversees limited perquisites.

 

    

Equity ownership guidelines: We maintain equity ownership guidelines that require Corporate Vice Presidents and above to achieve an equity ownership level, over a five-year period, equal to a certain multiple of base salary. For the CEO, the level is 5x base salary; for Senior Vice Presidents, 3x base salary; and for Corporate Vice Presidents, 2x base salary.

 

Independent compensation consultants: We engage independent compensation consultants who provide information to support the Committee’s work, including a peer group analysis, market compensation data, and an analysis of various compensation instruments and metrics. The Committee retains its own compensation consultant.

 

Risk assessment: The Committee reviews an annual assessment by an independent compensation consultant to confirm that metrics and goals are appropriate to drive high performance without encouraging risk-taking beyond established risk parameters.

 

  

 

   
56    CARPENTER TECHNOLOGY 2020 PROXY STATEMENT


Table of Contents

 

Compensation Discussion and Analysis • Executive Compensation Philosophy and Framework    

 

 

       

What We Don’t Do

       

Excise tax gross-ups: The compensation program does not include any change-in-control tax gross-ups to our executives.

 

Dividend payments or accruals on unearned restricted stock units (RSUs): We do not pay or accrue dividends on unearned restricted stock units. Dividend equivalents are paid on time-based RSU awards granted prior to October 8, 2019, and will only be paid upon satisfaction of the terms and conditions applicable to the underlying RSUs on time-based RSU awards granted on or after October 8, 2019. Additionally, no dividend equivalent rights are granted on shares underlying stock options.

 

Excessive perquisites: We do not provide excessive perquisites to our NEOs. Those offered are primarily financial and tax counseling, tax preparation, medical examinations, Individual Disability Income protection plans, relocation expenses and parking fee reimbursements at our Philadelphia headquarters.

 

    

Hedging/pledging of Company stock: Our policy prohibits hedging or pledging of Carpenter Technology stock by NEOs.

 

Option repricing: Our long-term incentive program does not permit repricing of stock options without stockholder approval. Additionally, the program does not permit Carpenter Technology to offer a cash buyout of underwater options.

 

Employment contracts: We do not provide any employment contracts to our NEOs.

  

 

   
CARPENTER TECHNOLOGY 2020 PROXY STATEMENT    57


Table of Contents

 

    Compensation Discussion and Analysis • Elements of our Fiscal Year 2020 Compensation Program

 

 

Elements of our Fiscal Year 2020 Compensation Program

Our compensation program is designed to be competitive and to align the interests of our executive officers and other senior leaders with Company performance and stockholder returns. For our NEOs, this is accomplished through a mix of base salary and time- and performance-based rewards, including cash incentives and equity awards. We also provide minimal perquisites, retirement plans, and post-employment benefits that are not intended to be the focus of the program. Performance-based compensation (annual and long-term) continues to constitute a significant portion of total compensation. A brief overview of each element of compensation is provided in the chart below, with further details provided later in this CD&A.

Overview of Key Compensation Elements

 

      Compensation Element

 

  

Description

 

  

Rationale

 

  LOGO  

 

 

  

Base Salary

  

   Fixed component of pay targeted at the median of the market.

 

  

   Provides fixed compensation for executive to perform job functions.

 

  

Annual Cash Incentive

  

   Delivered in cash annually.

 

   Tied to achievement of financial and operational goals (operating income, free cash flow and safety metrics).

 

   Executives can earn 0-200% of their target award based on achievement of pre-established targets.

 

 

  

   Rewards achievement of key drivers of our annual operating plan.

 

   Provides tangible, achievable goals and reinforces key priorities of the organization.

  LOGO  

  

 

Adjusted ROIC-Based

Restricted Stock Units

 

(25% of LTI)

  

 

   Executives can earn 0-200% (as described above, in response to COVID-19, this has been capped at 100% for FY19 and FY20 awards) of their target award based upon Adjusted ROIC achieved vs. target over a three-year period with a TSR modifier of +/- 20%.

 

   Vests at the end of the three-year period, if earned.

 

   Dividend equivalents are not accrued or paid on these RSUs.

 

  

 

   Critical to incent management to invest and manage assets to deliver the greatest return.

 

   Vesting period is consistent with market practice and assists with retention.

  

 

Adjusted EBITDA-Based

Restricted Stock Units

 

(25% of LTI)

  

 

   Executives can earn 0-200% (as described above, in response to COVID-19, this has been capped at 100% for FY19 and FY20 awards) of their target award based upon Adjusted EBITDA achieved vs. target over a three-year period with a TSR modifier of +/- 20%.

 

   Vests at the end of the three-year period, if earned.

 

   Dividend equivalents are not accrued or paid on these RSUs.

 

  

 

   Focuses executives on achievement of our Adjusted EBITDA goal, which is strongly tied to stockholder value creation.

 

   Provides tangible, achievable goal as senior leaders have the greatest ability to drive Adjusted EBITDA.

 

   Vesting period is consistent with market practice and assists with retention.

  

 

Time-Based Restricted Stock

Units

 

(30% of LTI)

  

 

   Vests in one-third annual increments over three years, subject to continued employment on the vesting date.

 

  

 

   Vesting period is consistent with market practice and assists with retention.

  

 

Stock Options

 

(20% of LTI)

  

 

   Granted with an exercise price equal to the fair market value of Carpenter Technology stock on the date of grant.

 

   Vests in one-third annual increments over three years, subject to continued employment on the vesting date.

 

  

 

   Provides strong tie to stockholder interests as executives realize value only if the stock price increases.

 

   Vesting period is consistent with market practice and assists with retention.

 

   
58    CARPENTER TECHNOLOGY 2020 PROXY STATEMENT


Table of Contents

 

Compensation Discussion and Analysis • Elements of our Fiscal Year 2020 Compensation Program    

 

 

Target Compensation Strategy and Pay Mix

The Committee developed fiscal year 2020 compensation levels through a framework that aligns the long-term interests of our leadership with those of our stockholders. The Committee benchmarked against the Comparator Group and survey data.

NEO pay is generally targeted to be within a competitive range around market median.

Pay Mix

A substantial portion of target total compensation is delivered through variable performance-based incentives that are at risk. Variable performance-based incentives constitute 62% of our CEO compensation mix and 49% of our compensation mix for our other NEOs.

Target Direct Compensation Mix - CEO

 

LOGO

19% Restricted Stock Units (Time) 19% Base Salary 19% Target Bonus 31% Restricted Stock Units (Target Performance) 12% Stock Options 62% Performance Based

Target Direct Compensation Mix - NEOs*

 

LOGO

12% Restricted Stock Units 39% Base Salary 22% Target Bonus 19% Restricted Stock Units (Target Performance) 8% Stock Options 49% Performance Based

 

*

Represents target pay mix for Messrs. Dee, Lain, Malloy and Murtagh.

CEO Target Total Direct Compensation

The Committee targets CEO total direct compensation (salary plus target annual incentive and target long-term incentives) at the market median. The Committee sets pay by taking into account a number of factors, such as experience in the position, Company performance, individual performance and future potential.

In setting target total direct compensation for the CEO, the Committee considers peer group data and supplements this information with CEO pay data from compensation surveys using revenue and industry comparators appropriate for Carpenter Technology. The Committee believes the blend of proxy data with survey data more accurately reflects CEO market pay levels.

Mr. Thene has completed five fiscal years as our CEO. The Committee has guided Mr. Thene’s target total direct compensation to within the range of the median of the peer group as he has gained experience in the position and demonstrated his abilities in the CEO role. The Committee determined that Mr. Thene’s base salary was within competitive range of the market and opted to increase the value of his annual equity grant in lieu of a base salary increase to encourage focus on the Company’s longer-term interests, strategic business decisions and retention.

The Committee took the following actions regarding Mr. Thene’s pay in fiscal year 2020:

 

 

base salary remained the same despite his very strong performance (see above explanation);

 

 

annual bonus under the Executive Bonus Compensation Plan was paid at 20.0% of Target, consistent with operating results and other executives; and

 

 

annual long-term incentive award was increased 3.6% in lieu of a base salary increase. The annual long-term incentive award was denominated 30% in time-based RSUs, 25% in Adjusted ROIC-based RSUs, 25% in Adjusted EBITDA-based RSUs, and 20% in stock options. This is consistent with other executives and balances the goals of driving retention, absolute operational performance, relative stock price performance, and alignment with stockholders.

 

   
CARPENTER TECHNOLOGY 2020 PROXY STATEMENT    59


Table of Contents

 

    Compensation Discussion and Analysis • Annual Compensation

 

 

Target Total Direct Compensation

The Committee believes that a compensation program that targets market median positioning, but delivers a significant portion of that compensation through performance-based compensation elements, ensures proper alignment with our stockholders and ties the ultimate value delivered to NEOs (above/below target) to Company performance.

The Committee may further differentiate the compensation of individual NEOs through multiple mechanisms. The Committee retains discretion to adjust performance-based cash and performance-based equity payouts, in appropriate circumstances.

Annual Compensation

Base Salaries

The Committee reviews base salaries annually and may also do so in connection with a promotion or other major change in responsibilities. In performing such a review, the Committee usually considers, among other factors, the person’s job duties, critical skills, performance and achievements, and the level of pay relative to comparable individuals at relevant companies reviewed by the Committee. This review includes our Comparator Group.

Executive Bonus Compensation Plan

Carpenter Technology maintains an Executive Bonus Compensation Plan (“EBCP”) because we believe that a significant portion of our NEOs’ potential compensation should be contingent on Company business results and successful leadership of our business. This is what will ultimately drive long-term value for our stockholders. The Committee oversees the EBCP and establishes the metrics that will be used each year, with input from management and outside compensation consultants. For fiscal year 2020, the metrics, the respective weightings, and the rationale for the selection of each metric for the NEOs are detailed in the following table.

Executive Bonus Compensation Plan Metrics Summary

 

Metric    Definition    Rationale

Operating Income

Weighting: 60%

 

LOGO

  

Net Sales minus Operating Expenses

 

includes:

 

   cost of sales, and selling, general and administrative expenses.

  

   Focuses management on driving top line growth and managing expenses.

 

   Drives tangible goal achievement and focuses on factors most in the organization’s control.

 

   When considered in conjunction with Adjusted EBITDA (used for long-term incentive), focuses management on the overall profitability of the organization.

 

Free Cash Flow

Weighting: 30%

 

LOGO

  

Cash flows provided from operating activities,

 

less:

 

   cash paid for purchases of property net of insurance recoveries, equipment and software, acquisitions of businesses and dividends paid.

 

plus:

 

   cash received from the disposal of property and equipment.

 

  

   Focuses management on achievement of positive free cash flow through increased earnings and management of working capital levels and capital expenditures.

 

   
60    CARPENTER TECHNOLOGY 2020 PROXY STATEMENT


Table of Contents

 

Compensation Discussion and Analysis • Annual Compensation    

 

 

Metric    Definition    Rationale

Safety Metrics

Weighting: 10%

 

LOGO

  

   Measured using TCIR* and reported in terms of percent improvement over prior fiscal year.

  

   Emphasizes that our employees’ safety is our top priority.

 

*

TCIR is the average number of work-related injuries incurred by 100 full-time workers during a one-year period.

Executive Bonus Compensation Plan Opportunity

The Committee sets performance goals for each metric at threshold, target and maximum levels. The NEOs’ potential annual incentive awards for overall achievement toward these goals are expressed as a percentage of their respective base salaries, as follows:

 

 

LOGO

 

The overall attainment is based on the total weighted attainment of all of the individual metrics.

In order to verify EBCP awards, the Audit/Finance Committee reviews the performance data relative to Carpenter Technology’s operating results for financial reporting purposes. The Committee then makes its award determinations.

Executive Bonus Compensation Plan Metrics and Attainment

The primary objective for setting the fiscal year 2020 annual incentive metrics was to encourage earnings performance. The Committee selected these specific targets after an in-depth review of our operating plan and the industry within which Carpenter Technology operates, including certain external analysis as well as peer company practices. After reviewing all available information and analysis, the Committee applied judgment to define appropriate targets to align the relationship between pay and performance.

Targets are based on Carpenter Technology’s fiscal year 2020 annual operating plan, and the annual operating plan is set each year based on certain assumptions. The following assumptions were considered in developing the fiscal year 2020 annual operating plan:

 

 

A bottoms-up assessment of market growth potential was considered for each end-use market. Targets were provided for each market related to expectations for price increases, net share gains, and new product sales. As a result of the overall assessment, net sales were expected to increase 12 percent in fiscal year 2020 compared to actual fiscal year 2019 results.

 

 

Operating cost savings were targeted in excess of expected inflationary cost increases. The cost reductions were anticipated as a result of aggressive deployment of the Carpenter Technology Operating Model to increase efficiency and productivity and drive capacity enhancements.

 

 

Approved spending increases related to certain investments in strategic areas such as commercial, research and development, and information technology that were considered necessary to drive long-term sustainable growth.

 

 

An increase in anticipated free cash flow in fiscal year 2020 resulting from expected higher earnings and targeted reductions in working capital, principally inventory.

 

   
CARPENTER TECHNOLOGY 2020 PROXY STATEMENT    61


Table of Contents

 

    Compensation Discussion and Analysis • Executive Stock Plan    

 

 

For fiscal year 2020, the achievement targets for the Operating Income, Free Cash Flow, and Safety metrics, and actual year-end attainment adjusted as described below, were as follows:

 

 

EBCP Metrics and Attainment

 

LOGO

 

 

*

As detailed in the paragraph below, the outcome of the safety metric was adjusted due to the Company’s COVID-19 response.

Despite the significant unforeseen impact of the COVID-19 pandemic on Carpenter Technology’s financial results for fiscal year 2020, no adjustment was made to the financial metrics (i.e., Operating Income and Free Cash Flow) for fiscal year 2020. However, the Committee recognized that in response to the onset of the pandemic, Carpenter Technology swiftly enacted safety protocols to protect employees, their families, and the community while the facilities remained operational. Carpenter Technology immediately formed a Rapid Response Team comprised of employees in various functions including operations, EH&S, human resources, communications, finance, commercial, legal and the Company’s medical vendor to enact a companywide, coordinated response to the pandemic. Carpenter Technology quickly implemented a strategy based on layers of protection that included modularization of its operations, enhanced cleaning protocols, allowing for airgaps between shifts, requiring social distancing at all times, enhanced PPE, and health and temperature screenings for all employees, visitors or contractors entering its site. Carpenter Technology’s response has been dynamic; the Company has altered its approach as it learned more about COVID-19 and has cascaded any changes or alterations to its protocols companywide. Carpenter Technology provides regular communications to its employees to ensure the safety procedures and protocols that have been put in place are understood and adhered to. Carpenter Technology created a dedicated website that hosts all of its current policies, procedures and safety protocols so employees, vendors and suppliers are aware of our efforts and abide by our safety procedures while on-site. Carpenter Technology remained operational throughout the entire pandemic, thereby providing the Company a competitive advantage.

The EBCP attainment for safety for fiscal year 2020 would have been 50% based on our traditional metric of Total Case Incident Rate. To recognize the significant efforts across the organization to respond to the challenges of COVID-19 to safely and continuously operate facilities, the Committee adjusted the safety attainment to a maximum of 200% which, when weighted, resulted in an overall attainment of 20%.

Executive Stock Plan

Long-Term Equity Incentives

We use the Stock-Based Incentive Compensation Plan for Officers and Key Employees (the “Executive Stock Plan”) to provide equity compensation to NEOs and other key personnel. The Executive Stock Plan uses a combination of time-based and performance-based equity vehicles to attract and retain executives who can drive our performance and to create alignment between our executives and our stockholders. The Committee believes such awards focus executives on Carpenter Technology’s longer-term interests and strategic business decisions and encourage retention.

To determine the mix of equity vehicles for the long-term incentive program, the Committee considered current industry trends, practice among our Comparator Group, and the behaviors the awards are intended to promote. The overall mix of incentive vehicles under the Executive Stock Plan for fiscal year 2020 is shown below:

 

   
62    CARPENTER TECHNOLOGY 2020 PROXY STATEMENT


Table of Contents

 

    Compensation Discussion and Analysis • Executive Stock Plan    

 

 

Fiscal Year 2020 NEO Target LTI Opportunities

For fiscal year 2020, the Committee relied on benchmarking and each executive’s contributions toward corporate goals to determine the following target values of incentives under the LTI program:

 

NEO   

Total LTI

Opportunity

    

Time-Based RSU

30% of LTI

    

3-Year Performance-

Based RSU
(Adjusted EBITDA)

25% of LTI

    

3-Year Performance-

Based RSU
(Adjusted ROIC)

25% of LTI

    

Stock Options

20% of LTI

 

Tony R. Thene

     $2,900,800        $870,240        $725,200        $725,200        $580,160  

Timothy Lain

     $   500,000        $150,000        $125,000        $125,000        $100,000  

James D. Dee

     $   415,000        $124,500        $103,750        $103,750        $  83,000  

Brian J. Malloy

     $   415,000        $124,500        $103,750        $103,750        $  83,000  

Michael Murtagh

     $   415,000        $124,500        $103,750        $103,750        $  83,000  

Goals for Performance-Based RSUs

We have two types of performance-based RSUs: those tied to achievement of ROIC goals over a three-year performance period, and those tied to achievement of EBITDA goals over a three-year performance period. The performance-based RSUs include a Total Stockholder Return (“TSR”) modifier. The number of shares to be awarded under both EBITDA and ROIC measures may be modified up to twenty percent either positively or negatively depending on TSR performance relative to the Russell RSCC Materials & Processing Growth Index over the three-year performance period. TSR is used as a modifier to continue to promote alignment with stockholder value. The goals and attainment results for these fiscal year 2020 awards will conclude at the end of fiscal year 2022.

Before recent modifications approved by the Committee, the Adjusted EBITDA targets were based on a cumulative three-year compound annual growth rate (“CAGR”) based on a bottoms-up assessment of market growth potential for each end-use market over a three-year period, which includes expected price increases, net share gains, and new product sales. The use of Adjusted EBITDA in the LTI program reinforces the importance of earnings improvement over both the mid-term and the long-term and ensures a focus on both growth and improvement.

Before recent modifications approved by the Committee, the Adjusted ROIC targets were based on the cumulative three-year Adjusted EBITDA noted above with no changes in long-term debt or capital structure. The use of Adjusted ROIC is critical to incent management to invest and manage assets to deliver the greatest return.

Due to difficulties in setting three-year performance goals during the COVID-19 pandemic and the need to motivate our employees with attainable goals that will reward executives when the pandemic subsides and stability returns to our industry sectors, we have temporarily modified the measurement of performance-based RSUs to drive high performance and, in the process, better align executive compensation with the interests of our stockholders. Instead of measuring RSUs for fiscal years 2019 and 2020 on a three-year cumulative basis, we will measure the awards one year at a time and measure the average over three years for a total payout percentage. To strengthen alignment with stockholders, we have capped the performance share attainment percentage for a given three-year period at 100%. Going forward, we will establish performance goals for each fiscal year balancing the significant market volatility due to COVID-19 while continuing to drive the Company’s performance.

As an example, the measurement period for fiscal year 2019 performance-based RSUs is fiscal years 2019-2021. We have applied no adjustment to the attainment for fiscal year 2019 performance-based RSUs. Although the pandemic significantly impacted the fiscal year 2020 performance-based RSUs resulting in an attainment of 0% for that particular year of the three-year performance period, we applied no adjustment to that attainment. We have, however, established the targets for fiscal year 2021 at the beginning of that fiscal year, factoring into the analysis the impact of the pandemic. We will then average the performance equity attainment for fiscal years 2019, 2020, and 2021. We will apply a 100% cap to the performance share attainment average so that it does not exceed 100%.

The measurement period for fiscal year 2020 performance-based RSUs is fiscal years 2020-2022. Following the same approach, we will leave the attainment for fiscal year 2020 performance-based RSUs unchanged at 0% even though the pandemic significantly impacted fiscal performance for that year. We established the targets for fiscal year 2021 at the

 

   
CARPENTER TECHNOLOGY 2020 PROXY STATEMENT    63


Table of Contents

 

    Compensation Discussion and Analysis • Compensation Program Risk Assessment    

 

 

beginning of the fiscal year and will establish the targets for fiscal year 2022 at the beginning of that fiscal year, factoring the impact of the pandemic into the analysis. We will average the performance-based RSUs attainment percentage, again capping it at 100%.

We believe these modifications to performance-based RSUs will allow this compensation to be calibrated more accurately to our volatile industry sector that has been impacted by the COVID-19 pandemic while still encouraging strong, focused performance within reasonably attainable levels. This is consistent with our overarching goal of rewarding executives for achieving corporate growth, aligns executive’s interests with those of stockholders, and fulfills our compensation philosophy.

Results of the Fiscal Year 2018-2020 Program

The goals and attainment results for the three-year TSR performance awards granted in fiscal year 2018, with a three-year performance cycle concluding at the end of fiscal year 2020, are detailed below. The Committee believed that the fiscal year 2018 annual Adjusted EBITDA performance awards coupled with the three-year TSR performance awards provided an appropriate balance to the performance-based awards, driving both short-term operating performance and longer-term stockholder value creation. All annual Adjusted EBITDA performance periods were closed prior to fiscal year 2020, and the remaining awards vested on June 30, 2020.

The three-year TSR metric resulted in a payout of 64.8% of target for TSR awards with a cycle concluding in fiscal year 2020. Each of the equity awards carries performance-based criteria, and payouts were commensurate with financial performance. We believe the performance periods are appropriate to motivate longer-term thinking while not so remote as to stagnate performance incentives in the immediate term.

 

 

LOGO

 

 

*

Reflects achievement of three-year TSR performance targets granted in fiscal year 2018.

Compensation Program Risk Assessment

The Committee retains an independent compensation consultant to confirm that Carpenter Technology’s compensation policies and practices do not encourage excessive or unnecessary risk taking and assess whether the executive compensation program contains a reasonable amount of risk. In its most recent review of Carpenter Technology’s compensation program, the compensation consultant concluded that it was not reasonably likely that our compensation policies and practices would have a materially adverse effect on the Company.

 

   
64    CARPENTER TECHNOLOGY 2020 PROXY STATEMENT


Table of Contents

 

    Compensation Discussion and Analysis • Compensation Program Risk Assessment    

 

 

Consultant Analysis of Risk Concepts in Carpenter Technology Compensation Design

 

Compensation Element    Balanced Approach   Balance Achieved
 

Performance Metrics  

 

 

 

Growth  

 

 

Profitability

  Compensation program does not inappropriately emphasize performance along one metric.
 

 

Returns  

 

 

 

Stockholders’ Experience    

 

Target Setting  

 

 

 

Internal  

Perspective  

 

 

 

 

External

Perspective

 

 

Objectives are meaningful and appropriate.

 

Pay outcomes make sense.

Measurement Approach  

  Absolute  

Performance  

  Relative

Performance

 

Enables executive team to unite behind shared absolute goals and performance standards.

 

Recognizes external conditions impacting industry.

Form of Compensation  

 

 

 

 

 

Cash  

 

 

 

 

 

Equity

 

 

 

Individual pay mix balances an executive’s (group’s) impact on Company results, link to stockholders’ experience, and risk/reward profile.

   
 

 

 

Annual  

 

 

 

 

 

 

Long-Term

 

 

 

         

Time Horizon  

 

 

 

  Short-term

(1 year)

  Intermediate (2 to 4 years)    Long-term
(>5 years)
 

Less emphasis on attaining short-term goals.

 

Varying time horizons help mitigate risk.

  LOGO
    Sustainable Performance

 

Additionally, the Committee considers the following features of our compensation program and our Company generally to be important in discouraging excessive risk:

 

 

Code of Business Conduct and Ethics

We are a performance-based company and hold each other accountable to high standards of excellence in all that we do. Our Code of Business Conduct and Ethics reflects our corporate culture. The Committee believes that Carpenter Technology’s values-oriented culture is a key factor in reducing risky behavior.

 

 

Performance Goals and Variable Pay Mix

We set our performance goals at levels that are high enough to encourage strong performance, but within reasonably attainable levels to discourage risky business strategies or actions. Consistent with market practices, the NEO total pay program has a heavy emphasis on long-term incentives that encourage our executives to engage in business strategies or actions that promote long-term growth over actions that may produce risky short-term outcomes. In addition, incentive awards are capped.

 

 

Stock Ownership Guidelines

Our NEOs are required to hold substantial amounts of equity. We believe that stock ownership encourages appropriate decision-making that aligns with the long-term interests of our stockholders.

 

 

Peer Group Compensation Benchmarking

Annual benchmarking of compensation program target levels ensures consistency with our peer group.

 

   
CARPENTER TECHNOLOGY 2020 PROXY STATEMENT    65


Table of Contents

 

    Compensation Discussion and Analysis • Fiscal Year 2020 NEO Compensation    

 

 

Fiscal Year 2020 NEO Compensation

Pay-for-Performance Framework

Our executive compensation program includes strong ties between pay and performance, spurring team accomplishment and attracting and retaining executives who can drive overall company performance. Each NEO’s total compensation is targeted to the market median while actual compensation is linked to performance. Carpenter Technology’s performance-driven compensation program has maintained a strong alignment between company performance, as measured by stockholder value creation and key financial metrics, and total direct compensation.

How our Pay Supports our Strategy

Our compensation program is one of the most powerful tools for shaping our executives’, as well as our organization’s, behavior and influencing our company performance. Our system is designed to drive performance, retain top performers, promote responsible behavior and impact our return to stockholders. Our articulated philosophy provides the ability to react to the changing circumstances of our market and serves as an asset to Carpenter Technology.

Our system promotes the type of executive behavior we need to meet our overall vision in an efficient way. It can contribute to our organizational objectives through our mix of base pay and performance pay and the specific ways we deliver these components. Our pay structure drives behavior consistent with our values and the business challenges we face in our operating environment. It recognizes our rapidly changing business environment with complex technologies and sources that differentiates us from our competitors. The pay program for our executives provides for common goals via a mix of team-based, individual, and company-wide components.

As detailed in other sections, we proactively assess and adjust our reward system to ensure that it continues to support our human resources and business strategies in the most efficient and effective way.

Individual and Company Pay-for-Performance Criteria

Our incentive programs take into account both individual and company performance, and actual pay will fluctuate above and below target pay based upon performance.

 

 

INDIVIDUAL PERFORMANCE CRITERIA

 

   Successful execution of key strategic goals

 

   Leadership capability

 

   Individual contribution to both short- and long-term business results

 

   Ethical conduct and regulatory compliance

 

         

 

COMPANY PERFORMANCE METRICS

 

   Operating Income

 

   Free Cash Flow

 

   Safety

 

   Adjusted EBITDA

 

   Adjusted ROIC

 

   TSR

 

We believe that Carpenter Technology’s fiscal year 2020 incentive programs were aligned with our operational performance as well as our total stockholder return performance.

Compensation Decisions

Fiscal Year 2020 Base Salary Compensation Decisions

Changes to NEO base salary compensation in fiscal year 2020 consisted of the following:

 

 

Mr. Thene’s base salary remained the same despite his very strong performance (see explanation under “CEO Target Total Direct Compensation”).

 

 

Mr. Lain’s base salary increased by 8%, based on market data, performance and a stepped increase strategy to recognize additional experience gained in the role of Vice President and Chief Financial Officer.

 

 

Mr. Dee’s base salary remained the same based on the Committee’s determination that it was in competetive range of the market and opted to increase the value of his annual equity grant in lieu of a base salary increase.

 

   
66    CARPENTER TECHNOLOGY 2020 PROXY STATEMENT


Table of Contents

 

    Compensation Discussion and Analysis • Fiscal Year 2020 NEO Compensation    

 

 

 

Mr. Malloy’s base salary remained the same based on the Committee’s determination that it was within competetive range of the market and opted to increase the value of his annual equity grant in lieu of a base salary increase.

 

 

Mr. Murtagh’s base salary remained the same based on the Committee’s determination that it was within competetive range of the market and opted to increase the value of his annual equity grant in lieu of a base salary increase.

Fiscal Year 2020 Annual and Long-Term Incentive Decisions

 

Pay Element    Fiscal Year 2020 Compensation Decisions

Annual Incentives

   Executive Bonus Compensation Plan resulted in attainment at 20.0% of target incentive.

Long-Term Incentives (LTI)

   LTI with a performance cycle concluding at the end of fiscal year 2020 resulted in attainment at 64.8% of target for TSR-based RSUs.

 

   
CARPENTER TECHNOLOGY 2020 PROXY STATEMENT    67


Table of Contents

 

    Compensation Discussion and Analysis • Executive Compensation Practices

 

 

Executive Compensation Practices

Our Process

We have a rigorous review process for determining executive compensation using both internal and external resources. The various roles in our compensation process are detailed below.

 

 

Role of Compensation Committee

 

The Compensation Committee assists the Board of Directors in its overall responsibility for oversight of compensation matters. To that end, the Compensation Committee:

 

   reviews and approves goals and objectives relevant to compensation of the CEO, evaluates the CEO’s performance in light of those goals and objectives, and sets the CEO’s compensation level based on such evaluation;

 

   reviews and approves corporate goals, objectives and awards relevant to compensation of the NEOs;

 

   administers Carpenter Technology’s incentive compensation programs and plans;

 

   reviews benchmarking and pay recommendations from the outside compensation consultant(s);

 

   approves compensation plans and related targets for any management-proposed changes in benefits or perquisites;

 

   oversees activities relative to incentive stock plans; and

 

   ensures executive compensation programs are properly coordinated and achieving their intended purpose.

 

In addition, the Compensation Committee reviews our compensation programs to ensure they do not incorporate practices that would encourage excessive risk.

 

       

Role of the Full Board

 

While the Compensation Committee has the authority to make all decisions concerning executive compensation, it actively seeks input from and frequently discusses executive compensation matters with the full Board. The Board approves the CEO compensation. The Board also determines what drives long-term performance, and the Compensation Committee considers input from the Board in linking performance to compensation.

 

The Compensation Committee considers input from all directors, each of whom has a variety of experience and expertise, and from time-to-time will seek out those with expertise in the industry when determining what will drive long-term high performance or what might encourage excessive risk-taking. The Compensation Committee may consult with one or more directors with particular expertise in certain areas when considering an executive’s performance (i.e., consult with Audit/Finance Committee members when considering CFO performance).

 

 

   
68    CARPENTER TECHNOLOGY 2020 PROXY STATEMENT


Table of Contents

 

    Compensation Discussion and Analysis • Executive Compensation Practices    

 

 

 

Role of Management

 

As part of its decision-making process, the Compensation Committee invites and considers the input of certain officers (but not with respect to such officer’s own compensation), including the CEO, General Counsel, and Chief Human Resources Officer, particularly about how specific metrics and goals might drive high performance without encouraging undue risk-taking, or in negotiating compensation packages with prospective executives other than the CEO.

 

The Compensation Committee also considers input from the CEO as to the performance of other executives and other executives’ contributions to overall performance. At times, the Compensation Committee may request that senior management obtain information on its behalf to assist with decision-making relating to the compensation program. Pursuant to the Compensation Committee’s charter, it may also delegate authority to members of management in appropriate circumstances.

 

In formulating recommendations, management reviews information from a variety of sources, including input provided by outside compensation consultants. During fiscal year 2020, Willis Towers Watson served as management’s outside compensation consultant. In this capacity, Willis Towers Watson provided market data and other information, including a pay level assessment for senior executives and a review of incentive plan design practices (overall approach, competitive target levels, and share utilization).

 

       

Roles of Compensation Consultants

 

The Compensation Committee engaged Korn Ferry, an independent compensation consulting firm, to provide the following services relating to fiscal year 2020 compensation determinations:

 

   conduct a competitive assessment of our compensation program for the NEOs;

 

   make NEO compensation recommendations;

 

   update and review peer group member companies;

 

   conduct the annual risk assessment for our compensation programs and provide advice and information on compensation trends and regulatory developments in the market;

 

   analyze impact of the COVID-19 pandemic on executive compensation strategy; and

 

   provide ongoing advice as needed to the Compensation Committee, including guidance on our CEO compensation package.

 

 

Compensation Consultants

For fiscal year 2020 executive compensation determinations, the Committee engaged Korn Ferry (“KF”), an outside compensation consulting firm, to conduct a competitive assessment of our executive compensation program for the NEOs and to make recommendations for the Committee’s review and approval. KF updated and reviewed peer group member companies and provided ongoing advice as needed to the Committee, including guidance on our CEO compensation package and our executive compensation program for the NEOs for fiscal year 2021. KF was also engaged to conduct an annual risk assessment of Carpenter Technology’s compensation programs. A representative from the outside compensation consulting firm also regularly attends Committee meetings to provide advice and guidance on Carpenter Technology’s executive compensation program. The Committee’s decision to engage KF in fiscal year 2020 was not made or recommended by management.

Additionally, Willis Towers Watson (“WTW”), an outside compensation consulting firm, was engaged by management to provide compensation market data, CEO pay ratio analyses and other information, including a pay level assessment for senior executives and a review of the stock plan and incentive plan design practices (overall approach, competitive target levels, and share utilization). This information was made available to the Committee.

The Committee and management believe that there was no conflict of interest between Carpenter Technology and either KF or WTW during fiscal year 2020. In reaching this conclusion, the Committee and management considered the factors set forth by the SEC and NYSE regarding compensation advisor independence. Specifically, the Committee analyzed whether the work of KF and WTW as compensation consultants raised any conflict of interest, taking into consideration the following factors:

 

 

whether the consultant provides other services to Carpenter Technology;

 

   
CARPENTER TECHNOLOGY 2020 PROXY STATEMENT    69


Table of Contents

 

    Compensation Discussion and Analysis • Executive Compensation Practices

 

 

 

the amount of fees Carpenter Technology paid to the consultant as a percentage of the consultant’s total revenue;

 

 

the policies and procedures of the consultant that are designed to prevent conflicts of interest;

 

 

any business or personal relationship of the consultant or its individual compensation advisors with an executive officer of the Company;

 

 

any business or personal relationship of the individual compensation advisors with any member of the Committee; and

 

 

any Carpenter Technology stock owned by the consultant or its individual compensation advisors.

How We Benchmark Compensation

In developing competitive compensation recommendations with respect to the NEOs, KF established a benchmark match for each position based on a broad perspective of the relevant market and detailed competitive survey data and proxy disclosures of peer companies, for each of the following elements of compensation:

 

 

base salary;

 

 

annual cash incentive;

 

 

total cash compensation;

 

 

long-term incentives; and

 

 

total direct compensation.

The Committee accepted the consultants’ recommendation to use a comparator group for competitive compensation analysis that consists of fifteen public companies that manufacture and sell specialty metals and related products and that draw upon similar executive talent (the “Comparator Group”). The Comparator Group for fiscal year 2020 consisted of the public companies shown below. These companies operate in various parts of the world and have a median revenue of $1,885 million (compared to Carpenter Technology’s fiscal year 2020 revenue of $2,181 million).

Comparator Group

These companies were selected for inclusion in the Comparator Group based on industry, size, and US-based headquarters, with a particular focus on companies with which Carpenter Technology competes for executive talent, customers, or investor capital.

 

($ in millions)

 

       
Company Name    Revenue*        Market Cap as of June 30, 2020  

Allegheny Technologies Inc.

  

 

$3,763

 

    

 

$  1,290

 

The Timken Company

  

 

$3,537

 

    

 

$  3,415

 

Teledyne Technologies Incorporated

  

 

$3,164

 

    

 

$11,401

 

Cabot Corporation

  

 

$2,782

 

    

 

$  2,092

 

Valmont Industries Inc.

  

 

$2,737

 

    

 

$  2,427

 

Avient Corporation (formerly PolyOne Corporation)

  

 

$2,685

 

    

 

$  2,397

 

Hexcel Corp.

  

 

$2,057

 

    

 

$  3,775

 

Kennametal Inc.

  

 

$1,885

 

    

 

$  2,380

 

W. R. Grace & Co.

  

 

$1,815

 

    

 

$  3,362

 

Century Aluminum Company

  

 

$1,697

 

    

 

$     638

 

Minerals Technologies Inc.

  

 

$1,664

 

    

 

$  1,601

 

SunCoke Energy Inc.

  

 

$1,522

 

    

 

$     245

 

Kaiser Aluminum Corporation

  

 

$1,389

 

    

 

$  1,157

 

Barnes Group Inc.

  

 

$1,309

 

    

 

$  1,996

 

Haynes International, Inc.

  

 

$   430

 

    

 

$     291

 

Carpenter Technology Corporation

  

 

$2,181

 

    

 

$  1,161

 

 

*Reflects

revenue for the period July 1, 2019, through June 30, 2020.

 

   
70    CARPENTER TECHNOLOGY 2020 PROXY STATEMENT


Table of Contents

 

    Compensation Discussion and Analysis • Executive Compensation Practices    

 

 

Peer Group for Fiscal Year 2020

Our peer group consisted of 15 companies who accurately reflect Carpenter Technology’s specialty metals business.

 

LOGO

Individual Performance Criteria

While the Committee uses benchmark data as a reference point, it is not the sole determining factor in making our executive compensation decisions. The Committee also considers each individual’s performance and importance to the organization.

Our individual performance criteria include:

 

 

successful execution of key strategic goals;

 

 

leadership capability;

 

 

contribution to both short- and long-term business results; and

 

 

ethical conduct and regulatory compliance.

The market data is used primarily to ensure that, in totality, our executive compensation program is competitive when the Company achieves targeted performance levels.

Equity Ownership Guidelines

Equity awards earned through Carpenter Technology’s long-term incentive program help NEOs and other executives meet the Company’s equity ownership guidelines. These guidelines require that Corporate Vice Presidents and above hold specific values of equity, expressed as a multiple of the executive’s base salary. Holdings may consist of either earned restricted or unrestricted stock or stock units, including shares held in retirement accounts. There is a five-year phase-in period after a NEO is elected for satisfying the minimum equity holding requirements. As of June 30, 2020, all NEOs were in compliance with the guidelines by either meeting their respective multiple or being in the stated phase-in period. The significant decline in our stock price as a result of recent events, including the COVID-19 pandemic, has severely impacted the value of equity held by the NEOs. The Committee, with the input of outside consultants, reviews these requirements regularly and continues to believe these levels are competitive with the market.

 

LOGO

 

   
CARPENTER TECHNOLOGY 2020 PROXY STATEMENT    71


Table of Contents

 

    Compensation Discussion and Analysis • Executive Compensation Practices

 

 

Hedging/Pledging Policy

Executive officers (including NEOs) and directors are prohibited from hedging their ownership of Carpenter Technology stock, including short sales (a sale of securities that are not then owned) of Carpenter Technology securities, “a sale against the box” (a sale with delayed delivery of the Carpenter Technology securities), and the purchase of financial instruments (such as prepaid variable forward contracts, collars, equity swaps and exchange funds) that are designed to hedge or offset any decrease in the market value of Carpenter Technology stock. In addition, no NEO or director may trade in “puts” or “calls” (publicly-traded options to sell or buy stock) in Carpenter Technology securities or pledge Company stock as collateral for a loan.

Clawback Policy

We have a clawback policy that applies to both annual cash bonuses and short- and long-term cash incentives, as well as equity awards for NEOs and other senior executives.

Minimal Perquisites

We provide a limited number of perquisites and other personal benefits to NEOs, which we believe are reasonable and consistent with market practices. Carpenter Technology believes each perquisite offered also provides a benefit to the Company as noted below:

 

 

annual tax preparation fees up to $1,500 and annual financial planning and tax planning expenses up to $8,500 encourage NEOs to keep up to date and in compliance with complex regulations;

 

 

annual medical examination up to $7,500 for NEOs to encourage proactive health management;

 

 

individual disability income protection plan;

 

 

employment relocation expenses to reduce the administrative burden of relocation in order to encourage new executives to focus on their job with us as soon as possible; and

 

 

parking fees at our Philadelphia headquarters.

Carpenter Technology believes these items are advantageous to our Company and our stockholders, and they keep executives focused on the legitimate interests of the business.

Carpenter Technology 401(k) Retirement Plans and Deferred Compensation Plan

Carpenter Technology employees and certain affiliates are eligible to participate in Carpenter Technology’s 401(k) Retirement Plan, a tax-qualified profit sharing plan. We also maintain a retirement plan for employees of Amega West Services LLC (a wholly-owned subsidiary), and a retirement plan for collectively bargained employees of Latrobe Steel Company (a wholly-owned subsidiary).

Pursuant to the 401(k) Retirement Plan, credits are made to the account of every eligible participant annually with an employer contribution of 3% of base salary and an employer matching contribution of up to 6% (subject to IRS limits on the maximum compensation that may be taken into account for this purpose). Eligible participants may contribute up to 100% of base salary to their individual accounts (subject to the same IRS limit on maximum compensation that can be taken into account for such purposes).

Participant contributions can not exceed $19,500 in calendar year 2020. If the participant is or becomes age 50 or older during calendar year 2020, such limit is $26,000. The plans allow for immediate participation by all eligible employees and immediate vesting of all contributions.

As further described in the “Tax-Qualified Defined Contribution Pension Plans” section of this Proxy, if the Company’s contribution to a retirement plan for any executive is limited under the Code, the executive will receive any lost contributions under the Company’s deferred compensation plan discussed immediately below.

Carpenter Technology sponsors a non-qualified, deferred compensation plan for executives, including NEOs, to supplement these tax-qualified retirement plans. If the Company’s contribution to a retirement plan for any executive is limited under the Code, the executive will receive any lost contributions under this deferred compensation plan. Executives, including NEOs, may annually defer up to 35% of their base pay and up to 100% of their cash incentive payout. Executives are fully vested in all amounts deferred under this plan, including any Company contributions. These sums are deliverable to the executive either on a date selected by the participant or upon the occurrence of a specified event.

 

   
72    CARPENTER TECHNOLOGY 2020 PROXY STATEMENT


Table of Contents

 

    Compensation Discussion and Analysis • Executive Compensation Practices    

 

 

Health Benefits and Disability Insurance

Carpenter Technology currently provides its executive officers with the same health and disability insurance plans offered to all employees. In addition, effective June 1, 2019, each of our NEOs is entitled to participate in an individual disability income (IDI) protection plan, the premiums of which are paid by Carpenter Technology. Carpenter Technology also encourages each NEO to have a periodic physical examination, and reimburses executives for certain additional out-of-pocket health costs associated with those exams that are not covered by insurance. This reimbursement is tax deductible to the Company.

Severance and Employment Arrangements

Carpenter Technology maintains an executive severance plan to address certain terminations in the absence of a change in control. In addition, the Company also maintains a change-in-control severance plan, which provides certain payments and benefits in the event of a change in control. These plans are discussed in more detail in the “Potential Payments Upon Termination of Employment” section of this Proxy.

Retirement and Post-Employment Benefits

We believe retirement plans and other post-employment benefits serve to attract and retain talented personnel generally, but they should not be a significant part of the overall compensation program. Ours are largely legacy programs closed to new participants.

The General Retirement Plan for Employees of Carpenter Technology Corporation (“GRP”) is a tax-qualified plan that generally provides retirement benefits to employees at age 65 (with five years of service), from age 55 (with ten years of service), or at any age with 30 years of service. For most employees these benefits are based on either:

 

 

a fixed monthly rate for each year of service; or

 

 

the sum of

 

   

the employee’s highest average annual earnings multiplied by 1.3% for each of the first 20 years of service, and

 

   

the employee’s highest average annual earnings multiplied by 1.4% for each year of service over 20.

This average is calculated from the highest five annual periods (within the last 20 years) ending on the date of retirement. For purposes of this calculation, “earnings” generally includes salary, bonuses and other cash compensation.

The GRP was closed to new hires and rehires effective January 1, 2012, and therefore does not apply to Messrs. Malloy, Murtagh and Thene. Benefits under the GRP, including Messrs. Dee’s and Lain’s benefits, were frozen as of December 31, 2016.

Carpenter Technology has a restoration plan for those participants whose benefits under the GRP are reduced by limitations under the Code.

 

 

The Benefits Restoration Plan (“BRP”) restored any benefits lost due to Code limitations on compensation and annual benefit limits under the GRP that may be considered in the calculation of benefits under the GRP.

In general, benefits under these plans were subject to the same administrative rules as the GRP.

Effective December 31, 2016, all benefit and service accruals were frozen for all BRP participants.

The Health Protection Account (“HPA”) provides retiree medical benefits for certain employees, including NEOs, who are eligible to receive an immediate retirement benefit from the GRP upon termination of employment. The benefits are equal to monthly credits that participants can use to pay for qualified medical expenses. The monthly credits are determined at retirement by multiplying a participant’s “earned percentage” by the applicable premiums for the Carpenter Technology sponsored retiree medical plan in the year of retirement, and vary before and after the age at which a participant or the participant’s dependents are eligible for Medicare. Monthly credits are capped at $528 per month pre-Medicare and $338 per month post-Medicare for single coverage, and at $922 per month pre-Medicare and $593 per month post-Medicare for family coverage. The earned percentage is equal to 3% per year of continuous service, but not less than 50% nor more than 90% of the cap. The HPA was closed to new hires effective January 1, 2012, and therefore does not apply to Messrs. Malloy, Murtagh and Thene.

 

   
CARPENTER TECHNOLOGY 2020 PROXY STATEMENT    73


Table of Contents

 

    Compensation Discussion and Analysis • Tax Policies

 

 

Carpenter Technology also provides retiree life insurance benefits for some employees, including NEOs, who are eligible to receive an immediate retirement benefit from the GRP upon termination of employment. The face amount of the retiree life insurance benefit is equal to $5,000.

Benefits for NEOs under the above plans are discussed in detail in the “Executive Compensation” section of this Proxy Statement.

Tax Policies

To the extent the aggregate compensation subject to Code Section 162(m) paid to any NEO (other than our principal financial officer, prior to the amendment discussed below) exceeds $1 million, it is not deductible by Carpenter Technology for federal income tax purposes unless it is grandfathered under the definition of “performance-based” compensation within the transitional provisions of Code Section 162(m) as amended by The Tax Cuts and Jobs Act of 2017 (the “Act”). The Act was enacted on December 22, 2017, and included changes to certain provisions of Code Section 162(m), including expanding the executives covered by the limitation to include the principal financial officer, as well as executives covered by the limitation in prior periods. Stock option awards granted under the Executive Stock Plan on or before November 2, 2017 are treated as grandfathered and continue to constitute performance-based compensation excepted from the $1 million deduction limitation. With the exception of stock option awards, other awards issued under the Executive Stock Plan before November 2, 2017 may not meet the grandfathering requirements because they are subject to reduction by the Compensation Committee. The tax laws do not require that all incentive compensation be deductible; however, the Committee may consider the impacts of the changes included in the Act when determining executive compensation in the future.

 

   
74    CARPENTER TECHNOLOGY 2020 PROXY STATEMENT


Table of Contents

Executive Compensation

Table of Contents

Summary Compensation Table

    76  

All Other Compensation Table

    77  

Fiscal Year 2020 Grants of Plan-Based Awards Table

    78  

Outstanding Equity Awards at End of Fiscal Year 2020 Table

    79  

Fiscal Year 2020 Option Exercises and Stock Vested Table

    82  

Pension Benefits

    82  

Pension Benefits Table

    83  

Tax-Qualified Defined Benefit Pension Plans

    84  

Non-Qualified Defined Benefit Pension Plans

    85  

Non-Qualified Deferred Compensation Plan for Officers and Key Employees

    86  

Fiscal Year 2020 Non-Qualified Deferred Compensation Table

    86  

Tax-Qualified Defined Contribution Pension Plans

    86  

CEO Pay Ratio

    87  

2020 Summary Compensation Table Total Compensation Breakdown

    87  

Potential Payments Upon Termination of Employment

    87