DEF 14A 1 ful20180217_def14a.htm FORM DEF 14A ful20180217_def14a.htm

Table of Contents

SCHEDULE 14A INFORMATION

 

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

 

Filed by the Registrant    

 

Filed by a party other than the Registrant    

 

Check the appropriate box:

 

       Preliminary Proxy Statement

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

 

 

 

       Definitive Proxy Statement

  

  

 

 

 

       Definitive Additional Materials

 

 

 

 

 

       Soliciting Material Pursuant to § 240.14a-12

 

 

 

H.B. Fuller Company


(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:

 

 

 

 

 

 

  

 

 

 

 

 

Office:

1200 Willow Lake Boulevard

 

 

St. Paul, Minnesota 55110-5101

 

Mail:

P.O. Box 64683

 

 

St. Paul, Minnesota 55164-0683

 

Phone:

(651) 236-5062

 

Dear Shareholder:

 

Our 2018 Annual Meeting of Shareholders will be held on Thursday, April 12, 2018. This will be a "virtual only" meeting of shareholders. You may attend the meeting and vote your shares electronically during the meeting via the Internet by visiting www.virtualshareholdermeeting.com/FUL2018. The online meeting will begin promptly at 2:00 p.m. The Notice of Annual Meeting of Shareholders and the Proxy Statement describe the business to be conducted at the meeting.

 

We have elected to take advantage of the “notice and access” rules of the Securities and Exchange Commission to furnish most of our shareholders with proxy materials over the Internet. This method of delivery allows us to provide you with the information you need, while reducing printing and delivery expenses.

 

Your vote on the proposals is important. Whether or not you plan on attending the virtual meeting, we encourage you to vote your shares to make certain that you are represented at the meeting. You may vote via the Internet or, if you received a printed copy of the proxy materials, by telephone or by mailing a proxy or voting instruction card.

 

 

 

Sincerely,

   
 
 

James J. Owens

 

President and Chief Executive Officer

 

February 28, 2018

 

  

 

 

Office:

1200 Willow Lake Boulevard

 

 

St. Paul, Minnesota 55110-5101

 

Mail:

P.O. Box 64683

 

 

St. Paul, Minnesota 55164-0683

 

Phone:

(651) 236-5062

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

Date and Time:

Thursday, April 12, 2018 at 2:00 p.m. Central Time. You may attend the online meeting and vote your shares electronically during the meeting via the Internet by visiting www.virtualshareholdermeeting.com/FUL2018. You will need the 16-digit control number that is printed in the box marked by the arrow on your Notice Regarding the Availability of Proxy Materials to enter the Annual Meeting. We recommend that you log in at least 15 minutes before the meeting to ensure that you are logged in when the meeting starts.

   

Items of Business:

The election of three directors named in the attached Proxy Statement for a three-year term.

   

 

A non-binding advisory vote to approve the compensation of our named executive officers as disclosed in the attached Proxy Statement.

   

 

The ratification of the appointment of KPMG LLP as H.B. Fuller’s independent registered public accounting firm for the fiscal year ending December 1, 2018.

 

Approval of the H.B. Fuller Company 2018 Master Incentive Plan.

   

 

Any other business that may properly be considered at the meeting or any adjournment thereof.

   

Record Date:

You are entitled to vote on the above items of business if you were a shareholder of record at the close of business on February 14, 2018.

   

Voting by Proxy:

It is important that your shares be represented and voted at the meeting. Whether or not you plan to attend the meeting, we encourage you to submit your proxy as soon as possible. For specific instructions on how to vote your shares, please refer to the instructions on the Notice of Internet Availability of Proxy Materials you received in the mail, the section entitled “Questions and Answers about the Meeting” beginning on page 5 of the attached Proxy Statement, or if you received printed proxy materials, the enclosed proxy or voting instruction card. You can revoke a proxy at any time prior to its exercise at the meeting by following the instructions in the attached Proxy Statement.

 

 

By Order of the Board of Directors

 

 
   
 

Timothy J. Keenan

 

Vice President, General Counsel and Corporate Secretary

 

February 28, 2018

 

 

TABLE OF CONTENTS

 

 

PROXY SUMMARY

1

QUESTIONS AND ANSWERS ABOUT THE MEETING

5

What is the purpose of the meeting?

5

How does the Board recommend that I vote?

5

Who is entitled to vote at the meeting?

5

What is the difference between a shareholder of record and a street name holder?

5

What are the voting rights of the shareholders?

5

How many shares must be present to hold the meeting?

5

How do I vote my shares?

5

What does it mean if I receive more than one Notice of Internet Availability of Proxy Materials, proxy card or voting instructions card?

6

Can I vote my shares during the online meeting?

6

What vote is required for the proposals to be approved?

6

How are votes counted?

6

What if I do not specify how I want my shares voted?

7

Can I change my vote?

7

Who pays for the cost of proxy preparation and solicitation?

7

Why did I receive a notice in the mail regarding the Internet availability of proxy materials instead of a full set of paper copies?

8

Are the proxy and related materials available electronically?

8

Will any other business be considered at the meeting?

8

How can a shareholder present a proposal at the 2018 Annual Meeting?

8

How can a shareholder get a copy of the Company’s 2017 Annual Report on Form 10-K?

8

Who is the Corporate Secretary?

8

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

9

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

11

PROPOSAL 1—ELECTION OF DIRECTORS

11

Proposal

11

Who are the nominees?

11

How can a shareholder suggest a candidate for election to the Board?

13

Who are the remaining directors?

13

CORPORATE GOVERNANCE

18

Corporate Governance Guidelines

18

Code of Business Conduct

18

Communications with Directors

18

Director Independence

18

Meetings of the Board and Board Committees

18

What are the roles of the Board’s committees?

19

Board’s Role in Oversight of Risk

21

Board Leadership Structure

22

Director Elections

22

Board Performance Evaluation

22

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

23

DIRECTOR COMPENSATION

24

2017 Review of Director Compensation

24

Cash Fees

25

Expense Reimbursement

25

 

 

Equity Awards

25

Directors’ Deferred Compensation Plan

26

H.B. Fuller Company 2016 Master Incentive Plan

26

Physical Examinations

26

Matching Gifts to Educational, Arts and Cultural Organizations Program

26

Director Compensation Table—Fiscal Year 2017

26

Stock Ownership Guidelines

28

EXECUTIVE COMPENSATION

29

Compensation Discussion and Analysis

29

Compensation Committee Report

48

Summary Compensation Table

49

Grants of Plan-Based Awards During Fiscal 2017

51

Outstanding Equity Awards at Fiscal 2017 Year-End

53

Option Exercises and Stock Vested – Fiscal Year 2017

55

Nonqualified Deferred Compensation – Fiscal Year 2017

56

Potential Payments Upon Termination or Change-in-Control

59

Executive Benefit and Payments Upon Termination – Fiscal Year 2017

62

Proposal 2 — Non-Binding Advisory Vote on Executive Compensation

63

AUDIT COMMITTEE REPORT

64

FEES PAID TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

65

PROPOSAL 4 –APPROVAL OF THE H.B. FULLER COMPANY 2018 MASTER INCENTIVE PLAN

66

“HOUSEHOLDING” OF PROXY MATERIALS

80

ANNEX A – RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION

A-1

ANNEX B - H.B. FULLER COMPANY 2018 MASTER INCENTIVE PLAN

B-1

\\

 

 

PROXY STATEMENT

ANNUAL MEETING OF SHAREHOLDERS

APRIL 12, 2018

 

The Board of Directors (the "Board") of H.B. Fuller Company ("H.B. Fuller", the "Company" or "we") is soliciting proxies to be used at the Annual Meeting of Shareholders to be held on April 12, 2018, and at any adjournment and reconvening of the meeting. We first made this Proxy Statement and the Annual Report for the fiscal year ended December 2, 2017 available to our shareholders on or about February 28, 2018.

 

PROXY SUMMARY

 

Provided below are highlights of some of the information contained in this Proxy Statement. These highlights are only a summary. Please review the complete Proxy Statement and 2017 Annual Report to Shareholders before you vote.

 

ANNUAL MEETING OF SHAREHOLDERS

 

Date and Time: Thursday, April 12, 2018 at 2:00 p.m.

Place:

Via the Internet. You may attend the online meeting by visiting www.virtualshareholdermeeting.com/FUL2018.

Record Date: Wednesday, February 14, 2018

Voting:

You may vote at the meeting if you were a shareholder of record at the close of business on February 14, 2018 (see pages 5 - 8 for more information on voting)

 

PROPOSAL 1 – ELECTION OF DIRECTORS (see pages 11 - 13 for more information)

 

You are being asked to elect three directors. The Board is currently composed of nine directors and divided into three classes. The Class I directors are standing for election for a three year term at the Annual Meeting. The term of office for these Class I directors will expire at the Annual Meeting or until their successors are duly elected and qualified. All of our directors other than Mr. Owens are independent under New York Stock Exchange rules. Only independent directors serve on our Audit, Compensation, and Corporate Governance and Nominating Committees.

 

Vote required: Each director is elected by a plurality of the votes cast. However, if a nominee for director receives a greater number of votes “withheld’ from his or her election than votes “for” such election, the director shall submit to the Board a letter of resignation for consideration. See the heading “Director Elections” in the “Corporate Governance” section of this Proxy Statement for more information.

 

 

Information about our director nominees is set forth below:

 

Director Name

 

Age

 

Occupation

 

Director

Since

 

Independent?

 

Other

Public

Boards?

 

Committees

Serves On1

Thomas W. Handley

 

63

 

President and Chief Operating Officer, Ecolab Inc.

 

2010

 

Yes

 

Yes

 

A, C

Maria Teresa Hilado

 

53

 

Chief Financial Officer, Allergan plc

 

2013

 

Yes

 

No

 

A, C

Ruth Kimmelshue

 

55

 

Corporate Senior Vice President, Business Operations & Supply Chain, Cargill, Incorporated

 

2017

 

Yes

 

No

 

A, C

 


(1)

A – Audit Committee

 

C – Compensation Committee

 

The Board of Directors recommends a vote FOR election of each of the nominees.

 

PROPOSAL 2 – NON-BINDING ADVISORY VOTE ON EXECUTIVE COMPENSATION (see pages 63 - 64 for more information)

 

The Company is required to provide shareholders with an annual advisory (non-binding) vote on the compensation of our named executive officers as disclosed in this Proxy Statement (the “Say on Pay Proposal”).

 

The Board of Directors recommends a vote FOR this proposal.

 

PROPOSAL 3 – RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (see page 65 more information)

 

The Audit Committee has appointed KPMG LLP, as our independent registered public accounting firm for the fiscal year ending December 1, 2018. KPMG LLP has acted as our independent registered public accounting firm since 2004. Representatives of KPMG LLP will be present at the meeting and will have the opportunity to make a statement if they desire to do so and to respond to appropriate questions from shareholders.

 

The Board of Directors recommends a vote FOR this proposal.

 

PROPOSAL 4APPROVE THE H.B. FULLER COMPANY 2018 MASTER INCENTIVE PLAN (see pages 66 - 79 for more information)

 

On January 18, 2018, our Board of Directors adopted, upon recommendation of the Compensation Committee and subject to shareholder approval, the H.B. Fuller Company 2018 Master Incentive Plan (the “2018 Incentive Plan”). The purpose of the 2018 Incentive Plan is to promote the interests of the Company and our shareholders by aiding the Company in attracting and retaining employees, officers, consultants, independent contractors and non-employee directors capable of assuring the future success of the Company, to provide such persons with opportunities for stock ownership in the Company and to offer such persons other incentives to put forth maximum efforts for the success of the Company’s business.

 

The Board of Directors recommends a vote FOR this proposal.

 

 

2017 PERFORMANCE HIGHLIGHTS

 

Net income for the 2017 fiscal year was $58.2 million, or $1.13 per diluted share, versus net income of $124.1 million, or $2.42 per diluted share, in the 2016 fiscal year. Adjusted diluted earnings per share in the 2017 fiscal year were $2.45, up 1 percent versus the prior year adjusting for the extra week in the prior fiscal year.

 

Net revenue for the 2017 fiscal year was $2,306 million, up 10 percent compared to the 2016 fiscal year. Adjusting for the Royal acquisition and the extra week in fiscal 2016, constant currency revenue grew by 10.6 percent year-over-year and organic revenue, defined as constant currency revenue less the impact from acquisitions, was up 7 percent.

 

During the 2017 fiscal year, the Company had 52 weeks of operations while fiscal year 2016 was 53 weeks in length.

 

For the 48th consecutive year, we implemented an increase in the amount of the quarterly cash dividend paid to our shareholders, with a 7 percent increase this year.

 

More information on our 2017 performance can be found on pages 29 - 30. All non-GAAP information is reconciled with reported GAAP results in Annex A.

 

EXECUTIVE COMPENSATION PROGRAM (for more information, see pages 29 - 48)

 

Our focus is to accelerate profitable growth, and we motivate performance and measure our results in large part by the metrics contained in our annual short-term cash incentive plan (the "STIP"). Overall, in fiscal year 2017, based on the metrics used in our 2017 STIP, the Company performed as follows:

 

•       For the Company-wide financial metrics, we exceeded the target level for organic revenue, and we exceeded the threshold level for adjusted operating income ("AOI") and adjusted diluted earnings per share ("AEPS").

 

•       Performance related to regional and business short-term incentive metrics for our executive officers named in the "Summary Compensation Table" on page 49 (the "NEOs") other than our Chief Executive Officer (the "CEO") and the Chief Financial Officer (the "CFO"), was varied with all results but one exceeding the threshold metric and some results exceeding the target level. None of the regional and business short-term incentive results met or exceeded the superior level.

 

The achievement of our financial metrics resulted in short-term cash incentive payouts for our CEO and CFO of 93.0% and 88.7%, respectively, of target and ranged from 40.7% to 103.3% of target for our other NEOs.

 

 

With regard to our long-term incentive plan metric, which is return on invested capital ("ROIC"), we exceeded the target level for both fiscal year 2017 and fiscal year 2016 resulting in vesting of restricted stock units at a level above the target level for both fiscal years.

 

Our executive compensation program is also designed to provide a competitive compensation package that rewards executive officers for sustained financial and operating performance that creates long-term value for our shareholders. Highlights of our executive compensation program include:

 

 

A strong emphasis on pay for performance: Our STIP program is a key way in which we pay for performance. As noted above, in fiscal year 2017, we exceeded the threshold level for all company-wide short-term incentive metrics, which consisted of organic revenue, AOI and AEPS. Performance levels related to regional and segment and key market metrics were varied.

 

 

 

In addition, our grants of long-term incentive awards (stock options and performance-based restricted stock units ("RSUs")) to our CEO contain two different performance conditions that must be met prior to each grant of restricted stock units vesting. For grants of RSUs subject to STIP metric performance, this performance metric condition was met for fiscal year 2017 and previous years. For grants of RSUs subject to our ROIC performance, the ROIC metric was exceeded for the first year and second year of vesting, resulting in a vesting of 117.5% and 105% of target for all NEOs, respectively (including the CEO). Future vestings of these grants of performance-based RSUs will require meeting at least a threshold level of ROIC annually. Finally, the time-based RSUs granted to all NEOs (except the CEO) tie a significant portion of NEO total compensation to shareholder value creation, which is measured by share price performance. See further discussion and detail in the “Compensation Discussion and Analysis” section of this Proxy Statement.

 

 

A policy regarding “claw-backs” of executive and key manager incentive compensation;

 

 

A prohibition on hedging, pledging and certain other transactions in the Company's common stock by executive officers;

 

 

An emphasis on long-term equity awards to align the executives’ interests with long-term goals and shareholder interests,

 

 

A prohibition on re-pricing of stock options; and

 

 

Stock ownership goals for our executive officers.

 

For fiscal year 2017, our Compensation Committee approved the following:

 

 

Termination of the Bonus Multiplier Program for fiscal 2017. Therefore, there was no opportunity to increase (or decrease) an individual's short-term cash incentive payout by plus or minus five percent as provided for under this Program.

 

 

The short-term incentive plan had three performance levels -- threshold, target and superior. Previously, the STIP had four performance levels -- threshold, target, superior and superior stretch.

 

 

A special one-time RSU grant for most STIP participants (including all of the NEOs). The NEOs needed to be employed by the Company on January 26, 2017, to receive the grant. Additionally, NEOs will need to meet service requirements for this award to vest. The CEO's special one-time RSU grant contains a performance condition which must be met prior to vesting.

 

 

On October 20, 2017 the Company acquired Royal Adhesives, a manufacturer of high-value specialty adhesives and sealants. At that time, the Compensation Committee approved a special, one-time performance-based non-qualified stock option ("NQSO") award to NEOs to provide incentive for the successful integration of Royal's business with the Company's business. These performance-based NQSOs vest contingent upon the Company achieving adjusted earnings before interest, taxes depreciation and amortization ("AEBITDA") at least at a threshold level of AEBITDA performance for fiscal year 2020.

 

 

QUESTIONS AND ANSWERS ABOUT THE MEETING

 

What is the purpose of the meeting?

 

At our Annual Meeting, shareholders will act upon the matters disclosed in the Notice of Annual Meeting of Shareholders that accompanies this Proxy Statement. These matters include the election of three directors, a non-binding advisory vote to approve the compensation of our named executive officers as disclosed in this Proxy Statement (the “Say on Pay Proposal”), the ratification of the appointment of our independent registered public accounting firm, and the approval of the 2018 Incentive Plan.

 

At the meeting, the foregoing matters will be presented for a vote by the shareholders, and management will respond to questions from shareholders.

 

How does the Board recommend that I vote?

 

The Board of Directors recommends a vote “FOR” each of the nominees for director, “FOR” the Say on Pay Proposal, “FOR” the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 1, 2018, and "FOR" the 2018 Master Incentive Plan.

 

Who is entitled to vote at the meeting?

 

If you were a shareholder of record at the close of business on February 14, 2018, you are entitled to vote at the meeting.

 

As of the record date, 50,527,464 shares of common stock of the Company ("Common Stock") were outstanding and eligible to vote.

 

What is the difference between a shareholder of record and a street name holder?

 

If your shares are registered directly in your name, you are considered the “shareholder of record” with respect to those shares.

 

If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of those shares, and your shares are held in street name. If you are a “street name holder” you will receive a voting instruction card, which appears very similar to a proxy card. Please complete that card as directed in order to ensure your shares are voted at the meeting.

 

What are the voting rights of the shareholders?

 

Holders of Common Stock are entitled to one vote per share. Therefore, a total of 50,527,464 votes are entitled to be cast at the meeting. There is no cumulative voting for the election of directors.

 

How many shares must be present to hold the meeting?

 

A quorum is necessary to hold the meeting and conduct business. The presence of shareholders who can direct the voting of at least a majority of the outstanding shares of Common Stock as of the record date is considered a quorum. A shareholder is counted as present at the meeting if the shareholder is present at the online meeting and votes at the meeting or the shareholder has properly submitted a proxy by mail, telephone or Internet.

 

How do I vote my shares?

 

If you are a shareholder of record, you may give a proxy to be voted at the meeting either:

 

 

electronically, by following the instructions provided in the Notice of Internet Availability of Proxy Materials or proxy card; or

 

 

if you received printed proxy materials, you may also vote by mail or telephone as instructed on the proxy card.

 

 

If you hold shares beneficially in street name, you may also vote by proxy over the Internet by following the instructions provided in the Notice of Internet Availability of Proxy Materials or, if you received printed proxy materials, you may also vote by mail or telephone by following the instructions provided in the voting instruction card provided to you by your broker, bank, trustee or nominee.

 

The telephone and Internet voting procedures have been set up for your convenience. The procedures have been designed to authenticate your identity, to allow you to give voting instructions, and to confirm that those instructions have been recorded properly. You may also vote at the online meeting as described in “Can I vote my shares during the online meeting?” below.

 

If you hold any shares of Common Stock in the H.B. Fuller Company 401(k) & Retirement Plan (the “401(k) Plan”), you are being provided access to the same proxy materials as any other shareholder of record. However, your proxy vote will serve as voting instructions to the plan trustee. The shares held in the 401(k) Plan will be voted by the plan trustee.

 

What does it mean if I receive more than one Notice of Internet Availability of Proxy Materials, proxy card or voting instruction card?

 

It means you hold shares of Common Stock in more than one account. To ensure that all of your shares are voted, sign and return each proxy card or voting instruction card or, if you vote by telephone or via the Internet, vote once for each proxy card, voting instruction card or Notice of Internet Availability of Proxy Materials you receive.

 

Can I vote my shares during the online meeting?

 

Yes. If you are a shareholder of record, you may attend the meeting and vote your shares electronically during the online meeting by visiting www.virtualshareholdermeeting.com/FUL2018. You will need the 16-digit control number that is printed in the box marked by the arrow on your Notice Regarding the Availability of Proxy Materials to enter the Annual Meeting. We recommend that you log in at least 15 minutes before the meeting to ensure that you are logged in when the meeting starts. However, even if you currently plan to attend the online meeting, we recommend that you submit your proxy ahead of time so that your vote will be counted if, for whatever reason, you later decide to not attend the online meeting.

 

If you hold your shares of Common Stock in street name, you may vote your shares electronically during the online meeting only if you obtain a signed proxy from your broker, bank, trustee or other nominee giving you the right to vote such shares during the meeting.

 

If you are a participant in the 401(k) Plan, you may submit a proxy vote as described above, but you may not vote your 401(k) Plan shares during the online meeting.

 

 

What vote is required for the proposals to be approved?

 

Each director is elected by a plurality of the votes cast. However, if a nominee for director receives a greater number of votes “withheld’ from his or her election than votes “for” such election, the director shall submit to the Board a letter of resignation for consideration. See the heading “Director Elections” in the “Corporate Governance” section of this Proxy Statement for more information. With respect to the Say On Pay Proposal, the ratification of the appointment of KPMG LLP as our independent registered public accounting firm, and the approval of the 2018 Master Incentive Plan, the affirmative vote of a majority of the shares of Common Stock represented and entitled to vote on each proposal is required, provided that the total number of shares of Common Stock that vote in favor of the proposal represents more than 25% of the shares outstanding on the record date.

 

How are votes counted?

 

Shareholders may either vote “FOR” or “WITHHOLD” authority to vote for each nominee for election to the Board. Shareholders may vote “FOR,” “AGAINST” or “ABSTAIN” on the Say on Pay Proposal, on the ratification of the appointment of KPMG LLP and the approval of the 2018 Master Incentive Plan.

 

 

If you vote ABSTAIN or WITHHOLD, your shares will be counted as present at the meeting for the purposes of determining a quorum. If you ABSTAIN from voting on any proposal, your abstention has the same effect as a vote against that proposal. If you WITHHOLD authority to vote for one or more of the nominees for director, this withholding of authority to vote will have no effect on the election of any director from whom votes are withheld.

 

If you hold your shares in street name and do not provide voting instructions to your broker or nominee, your shares will be considered to be “broker non-votes” and will not be voted on any proposal on which your broker or nominee does not have discretionary authority to vote under the rules of the New York Stock Exchange. Shares that constitute broker non-votes will be present at the meeting for the purpose of determining a quorum, but are not considered entitled to vote on the proposal in question. Your broker or nominee has discretionary authority to vote your shares on the ratification of KPMG LLP as our independent registered public accounting firm even if your broker or nominee does not receive voting instructions from you. Your broker or nominee may not vote your shares on the election of directors, the Say on Pay Proposal or the 2018 Master Incentive Plan.

 

What if I do not specify how I want my shares voted?

 

If you do not specify on your returned proxy card or voting instruction card (or when giving your proxy by telephone or via the Internet) how you want to vote your shares, we will vote them:

 

 

FOR all of the nominees for director;

 

 

FOR the Say on Pay Proposal;

 

 

FOR the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for fiscal year ending December 1, 2018;

 

 

FOR the approval of the 2018 Master Incentive Plan; and

 

 

with respect to such other matters that may properly come before the meeting, in accordance with the judgment of the persons named as proxies.

 

Can I change my vote?

 

Yes. If you are a shareholder of record, you may change your vote and revoke your proxy at any time before it is voted at the online meeting in any of the following ways:

 

 

by sending a written notice of revocation to our Corporate Secretary;

 

 

by submitting another properly signed proxy card at a later date to our Corporate Secretary;

 

 

by submitting another proxy by telephone or via the Internet at a later date; or

 

 

by voting electronically at the online meeting.

 

If you are a street name holder, please consult your broker, bank, trustee or nominee for instructions on how to change your vote.

 

Who pays for the cost of proxy preparation and solicitation?

 

We pay for the cost of proxy preparation and solicitation, including the charges and expenses of brokerage firms or other nominees for forwarding proxy materials to beneficial owners of shares held in street name. We have retained The Proxy Advisory Group, LLC to assist in the solicitation of proxies for a fee of approximately $12,000 plus associated costs and expenses.

 

We are soliciting proxies primarily by mail. In addition, proxies may be solicited by telephone or facsimile, or personally by our directors, officers and regular employees. These individuals will receive no compensation (other than their regular salaries) for these services.

 

 

Why did I receive a notice in the mail regarding the Internet availability of proxy materials instead of a full set of paper copies?

 

In accordance with rules adopted by the Securities and Exchange Commission (the “SEC”), we may furnish proxy materials to our shareholders by providing access to these documents on the Internet instead of mailing printed copies. In general, you will not receive printed copies of the materials unless you request them. Instead, we mailed you the Notice of Internet Availability of Proxy Materials (unless you have previously consented to electronic delivery or already requested to receive paper copies), which instructs you as to how you may access and review all of the proxy materials on the Internet. The Notice of Internet Availability of Proxy Materials explains how to submit your proxy over the Internet. If you would like to receive a paper copy or e-mail copy of the proxy materials, please follow the instructions provided in the Notice of Internet Availability of Proxy Materials.

 

Are the proxy and related materials available electronically?

 

Yes.

 

Important Notice Regarding the Availability of Proxy Materials

for the Shareholder Meeting to be held on April 12, 2018

 

Our Proxy Statement and 2017 Annual Report, including our Annual Report on Form 10-K, are available at www.proxyvote.com.

 

Will any other business be considered at the meeting?

 

Our Bylaws provide that a shareholder may present a proposal at the annual meeting that is not included in this Proxy Statement only if proper written notice was received by us. No shareholder has given the timely notice required by our Bylaws in order to present a proposal at the annual meeting. The Board does not intend to present any other matters for a vote at the annual meeting. If you wish to present a proposal at the 2019 Annual Meeting, please see “How can a shareholder present a proposal at the 2019 Annual Meeting?” As of the date of this Proxy Statement, we do not know of any other business to be presented for consideration at the annual meeting.

 

 

How can a shareholder present a proposal at the 2019 Annual Meeting?

 

In order for a shareholder proposal to be considered for inclusion in our Proxy Statement for the 2019 Annual Meeting, the written proposal must be received at our principal executive offices by the close of business on October 25, 2018. The proposal must comply with SEC rules regarding the inclusion of shareholder proposals in company-sponsored proxy materials and with the requirements set forth in our Bylaws. Please contact our Corporate Secretary for a copy of such rules and for a description of the steps outlined in our Bylaws that must be taken to present such a proposal.

 

If a shareholder wishes to present a proposal at the 2019 Annual Meeting that would not be included in our Proxy Statement for such meeting, the shareholder must provide notice to us no later than January 8, 2019 and no earlier than December 7, 2018. Please contact the Corporate Secretary for a description of the steps to be taken to present such a proposal.

 

How can a shareholder get a copy of the Company’s 2017 Annual Report on Form 10-K?

 

Our 2017 Annual Report, including our Annual Report on Form 10-K for the year ended December 2, 2017, accompanies this Proxy Statement. The 2017 Annual Report, including our Annual Report on Form 10-K, is also available via the internet in the “Financial” section of our Investor Relations page of our website (www.hbfuller.com). If requested, we will provide you a paper copy of the 2017 Annual Report, including our Annual Report on Form 10-K without charge. We will also provide you with copies of any exhibits to the Form 10-K, upon written request and upon payment of a fee covering our reasonable expenses in furnishing the exhibits. You can request a paper copy of the 2017 Annual Report, or paper copies of exhibits to the Form 10-K by writing to the Corporate Secretary, H.B. Fuller Company, 1200 Willow Lake Boulevard, P.O. Box 64683, St. Paul, Minnesota 55164-0683.

 

Who is the Corporate Secretary?

 

The Corporate Secretary is Timothy J. Keenan. The mailing address is the Office of the Corporate Secretary, P.O. Box 64683, St. Paul, Minnesota 55164-0683.

 

 

SECURITY OWNERSHIP

OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table shows how many shares of Common Stock each director and NEO beneficially owned as of January 29, 2018. The table also shows the beneficial ownership of Common Stock by all directors and executive officers of H.B. Fuller as a group. In general, “beneficial ownership” includes those shares of Common Stock which a director or executive officer has the power to vote or transfer, as well as stock options that are exercisable currently or within 60 days and Common Stock underlying phantom stock units, time-based restricted stock units and performance-based restricted stock units that may be acquired, in certain circumstances, within 60 days. The detail of beneficial ownership is set forth in the following table. In addition, the table shows all shareholders known to us to be the beneficial owners of more than 5% of the outstanding shares of Common Stock.

 

Unless otherwise noted, the shareholders listed in the table have sole voting and investment power with respect to the shares of Common Stock owned by them, and the shares beneficially owned by our directors and executive officers are not subject to any pledge.

 

   

Amount and

 

Percent of

   

Nature of

 

Common Stock

Name of Beneficial Owner

 

Beneficial Ownership

 

Outstanding

BlackRock, Inc.

6,399,023

  1

 

12.68%

The Vanguard Group, Inc.

 

5,203,864

  2

 

10.31%

State Street Corporation

 

3,091,491

  3

 

6.13%

Mairs and Power, Inc.

 

3,057,749

  4

 

6.06%

           

Thomas W. Handley

19,015

  5

 

*

Maria Teresa Hilado

 

16,970

  5

 

*

J. Michael Losh

101,742

  5

 

*

Lee R. Mitau

95,449

  5, 6

 

*

Dante C. Parrini

 

12,541

  5

 

*

John C. van Roden, Jr.

48,030

  5

 

*

R. William Van Sant

41,008

  5

 

*

James J. Owens

782,672

  7

 

1.53%

John J. Corkrean

 

18,367

  8

 

*

Heather A. Campe

 

62,342

  9

 

*

Traci L. Jensen

105,104

  10

 

*

Patrick M. Kivits

 

27,637

  11

 

*

All directors and executive officers as a group (21 people) 12

  1,797,806

  13

  3.46%

 


*

Indicates less than 1%.

 

(1)

This information is based on a Schedule 13G/A filed with the SEC on January 17, 2018 reporting beneficial ownership as of December 31, 2017. BlackRock, Inc., a parent holding company, reported that it has sole voting power over 6,295,208 shares and sole dispositive power over all of the shares. The holder’s address is 55 East 52nd Street, New York, New York 10055.

 

(2)

This information is based on a Schedule 13G/A filed with the SEC on February 9, 2018 reporting beneficial ownership as of December 31, 2017. The Vanguard Group, Inc., an investment adviser, reported that it has sole voting power over 86,887 shares, shared dispositive power over 89,646 shares and sole dispositive power over 5,114,218 shares. The holder’s address is 100 Vanguard Blvd., Malvern, Pennsylvania 19355.

 

 

(3)

This information is based on a Schedule 13G filed with the SEC on February 14, 2018 reporting beneficial ownership as of December 31, 2017. State Street Corporation, a holding company, reported that it has shared voting and shared dispositive power over all of the shares. The holder’s address is State Street Financial Center, One Lincoln Street, Boston, Massachusetts 02111.

 

(4)

This information is based on a Schedule 13G/A filed by the holder with the SEC on February 14, 2018 reporting beneficial ownership as of December 31, 2017. Mairs and Power, Inc., an investment advisor, reported that it has sole voting power over 2,454,765 shares and sole dispositive power over 3,057,749 shares. The holder’s address is W-1520 First National Bank Building, 332 Minnesota Street, Saint Paul, Minnesota 55101.

 

(5)

Includes shares of Common Stock subject to phantom stock units credited to the accounts of directors who participate in the Directors’ Deferred Compensation Plan, described under the heading “Director Compensation, that may be acquired, in certain circumstances, within 60 days. The number of units credited to each director participating in this plan that may be acquired within 60 days is as follows:

 

Thomas W. Handley 

17,668

 

Dante C. Parrini.

11,200

Maria Teresa Hilado

15,624

 

John C. van Roden, Jr. 

33,069

J. Michael Losh

98,145

 

R. William Van Sant

17,843

Lee R. Mitau

52,676

     

 

Excludes shares of Common Stock subject to phantom stock units credited to the accounts of directors who participate in the Directors’ Deferred Compensation Plan, described under the heading “Director Compensation” that may not be acquired within 60 days. The number of units credited to each director participating in this plan that are excluded from the table is as follows:

 

Thomas W. Handley

19,725

 

R. William Van Sant

76,807

Lee R. Mitau 

100,814

     

 

None of the phantom stock units are entitled to vote at the meeting.

 

(6)

Includes 100 shares held by Mr. Mitau's daughter and over which Mr. Mitau does not have voting control.

 

(7)

Includes 346 shares held in trust under the 401(k) Plan, 280 shares held jointly by Mr. Owens’ wife and son and over which Mr. Owens does not have voting control and 617,967 shares that could be issued pursuant to stock options which are currently exercisable. Excludes 74,115 performance-based restricted stock units which are subject to forfeiture and which are not entitled to vote at the meeting.

 

(8)

Includes 13,320 shares that could be issued pursuant to stock options which are currently exercisable. Excludes 5,331 performance-based restricted stock units and 14,102 time-based restricted stock units which are subject to forfeiture and which are not entitled to vote at the meeting.

 

(9)

Includes 52,115 shares that could be issued pursuant to stock options which are currently exercisable. Excludes 4,811 performance-based restricted stock units and 6,354 time-based restricted stock units which are subject to forfeiture and which are not entitled to vote at the meeting.

 

(10)

Includes 85,822 shares that could be issued pursuant to stock options which are currently exercisable. Excludes 5,214 performance-based restricted stock units and 6,385 time-based restricted stock units which are subject to forfeiture and which are not entitled to vote at the meeting.

 

(11)

Includes 25,386 shares that could be issued pursuant to stock options which are currently exercisable. Excludes 3,910 performance-based restricted stock units and 6,183 time-based restricted stock units which are subject to forfeiture and which are not entitled to vote at the meeting.

   
(12) Ruth Kimmelshue was appointed as a director on October 4, 2017. As of January 29, 2018, Ms. Kimmelshue did not have beneficial ownership of any Common Stock.

 

(13)

Includes 1,586 shares held in trust under the 401(k) Plan, 1,179,758 shares that could be issued pursuant to stock options which are currently exercisable (or may be within 60 days), 5,002 time-based and performance-based restricted stock units, and 246,225 phantom stock units credited to directors’ individual H.B. Fuller Common Stock accounts under the Directors’ Deferred Compensation Plan that may be acquired, in certain circumstances, within 60 days. Excludes 198,165 phantom stock units credited to the individual accounts under the Directors’ Deferred Compensation Plan and the Key Employee Deferred Compensation Plan that may not be acquired within 60 days. Excludes 115,207 performance-based restricted stock units and 78,326 time-based restricted stock units which are subject to forfeiture. None of the performance-based restricted stock units, time-based restricted stock units or any of the phantom stock units in the Directors’ Deferred Compensation Plan or the Key Employee Deferred Compensation Plan are entitled to vote at the meeting.

 

 

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) requires the Company’s directors and executive officers to file initial reports of ownership and reports of changes in ownership of H.B. Fuller’s securities with the SEC. These reports are available for review on our website (www.hbfuller.com) in the “Financial” section of the Investor Relations page. Directors and executive officers are required to furnish us with copies of these reports. Based solely on a review of these reports and written representations from the directors and executive officers, we believe that all directors and executive officers complied with all Section 16(a) filing requirements for fiscal year 2017.

 

PROPOSAL 1—ELECTION OF DIRECTORS

 

Proposal

 

The Board of Directors is currently composed of nine directors and is divided into three classes. Each year one class of directors stands for election for a three-year term. The term of office for Class I directors, consisting of Thomas W. Handley, Maria Teresa Hilado and Ruth Kimmelshue, will expire at the annual meeting.

 

At the annual meeting, three persons are to be elected as Class I directors to hold a three-year term of office from the date of their election until the 2021 annual meeting or until their successors are duly elected and qualified. The three nominees for election as Class I directors are Thomas W. Handley, Maria Teresa Hilado and Ruth Kimmelshue, all of whom are currently directors. Each of the nominees has agreed to serve as a director if elected. Following the annual meeting, the Board will be comprised of nine directors. Pursuant to our Company’s Bylaws, no more than 15 persons may serve on the Board. For information on how a shareholder may suggest a person to be a nominee to the Board, see “How can a shareholder suggest a candidate for election to the Board?”

 

Unless earlier terminated due to retirement or resignation, the term of office for Class II directors, consisting of Dante C. Parrini, John C. van Roden, Jr. and James J. Owens, will expire at the annual meeting in 2019, and the term of office for Class III directors, consisting of J. Michael Losh, Lee R. Mitau and R. William Van Sant, will expire at the annual meeting in 2020. All of the directors except Ms. Kimmelshue, who was appointed during fiscal 2017, were elected to the Board of Directors by the shareholders.

 

If, for any reason, any nominee becomes unable to serve before the election, the persons designated as proxies will vote your shares for a substitute nominee selected by the Board of Directors. Alternatively, the Board of Directors, at its option, may reduce the number of directors constituting Class I directors.

 

The Board of Directors recommends a vote FOR election of each of the nominees.

 

Who are the nominees?

 

The nominees provided the following information about themselves as of January 31, 2018.

 

 

Class I (Term Ending in 2018)

   

Thomas W. Handley

 

Age:

63

Director Since:

2010

Principal Occupation:

President and Chief Operating Officer of Ecolab Inc. ("Ecolab"), a global company providing businesses with solutions for clean water, safe food, abundant energy and healthy environments.

Business Experience:

Mr. Handley has been with Ecolab since August 2003.  Prior to his appointment as President and Chief Operating Officer of Ecolab in September 2012, Mr. Handley served in a variety of senior management positions of increasing responsibility at the senior vice president, executive vice president and business president levels, including leading strategic planning for the company and leading a number of its domestic and global industrial, foodservice, healthcare and service businesses. Before joining Ecolab, he held various management positions with The Procter & Gamble Company ("P&G") from 1981 to 2003, including serving as Vice President and General Manager for P&G’s paper products businesses in Japan and Korea and as a Vice President for Strategic Planning and Marketing of the Global Feminine Care business. Mr. Handley also managed various businesses in Mexico and Latin America for P&G. Mr. Handley brings a valuable operating perspective to our Board due to his broad experience in a variety of markets and businesses both domestically and internationally while at P&G and Ecolab. He also has experience with increasing Ecolab’s presence in new markets, something which is critical to H.B. Fuller’s growth strategy. In addition, Mr. Handley has governance experience in a variety of settings, both from a management perspective at Ecolab, as a member on another public company board and as a current and former board member of several non-profit organizations and foundations.

 

The Board of Directors has determined that Mr. Handley is an audit committee financial expert as that term is defined under the rules of the SEC.

   

Other Directorships:

Mr. Handley is a director of Republic Services, Inc.

 

Maria Teresa Hilado

Age:

53

Director Since:

2013

Principal Occupation:

Chief Financial Officer, Allergan plc ("Allergan") a global pharmaceutical company focused on developing, manufacturing and commercializing high quality and innovative branded pharmaceutical products for patients around the world.

Business Experience:

In December 2014, Ms. Hilado joined Allergan, as Chief Financial Officer. She leads the global finance organization and has oversight over Treasury, Control, Audit, Investor Relations, Commercial Finance and Tax, to name a few. Ms. Hilado will retire as Chief Financial Officer of Allergan at the end of February 2018. Prior to December 2014, Ms. Hilado served as Senior Vice President, Finance and Treasurer at PepsiCo, Inc. ("PepsiCo"), a position which she held since 2009. During her time at PepsiCo, Ms. Hilado had global operating responsibility for the treasury organization of PepsiCo, including capital markets, cash management, international treasury, pensions, insurance and global procurement finance. Ms. Hilado has over 27 years of finance, treasury and strategic experience in large global public corporations across a variety of industries. Prior to joining PepsiCo in 2009, she served as the Vice President and Treasurer at Schering-Plough Corp., a pharmaceutical company now known as Merck & Co., from 2008 to 2009. She was responsible for the strategic oversight and direction of the global Treasury function. Ms. Hilado joined General Motors ("GM") Corporation in 1990, spending 17 years in a variety of senior finance roles including Assistant Treasurer. In addition, she held a variety of positions in M&A, labor negotiations and treasury. She also served as Chief Financial Officer of General Motors Acceptance Corporation Commercial Finance from 2001 to 2005. From May 2013 until August 2013, Ms. Hilado served on the board of directors of Bausch + Lomb. Ms. Hilado brings strategic leadership experience to our Board, providing our Board with her broad and extensive experience in the areas of corporate finance and treasury operations, skills that are particularly helpful in her service on our Board’s Audit Committee. She also has demonstrated business acumen, global experience and strategic insight, skills that greatly enhance our Board.

 

The Board of Directors has determined that Ms. Hilado is an audit committee financial expert as that term is defined under the rules of the SEC.

 

 

Ruth Kimmelshue

 

Age:

55

Director Since:

2017

Principal Occupation:

Corporate Senior Vice President, Business Operations & Supply Chain, Cargill, Incorporated ("Cargill"), a global company providing food, agriculture, financial and industrial products and services to the world.

Business Experience:

Since December 2015, Ms. Kimmelshue has lead Cargill’s Business Operations & Supply Chain, which is comprised of Cargill Strategic Sourcing & Procurement; Plant Operations; Cargill Transportation & Logistics; Environment, Health & Safety; Food Safety, Quality & Regulatory and Research & Development. The Business Operations & Supply Chain team is responsible for delivering integrated end-to-end supply chain capabilities and functional expertise to Cargill and its businesses. Ms. Kimmelshue is a member of Cargill’s Executive Team. Before taking her current role, from March 2015 to December 2015, Ms. Kimmelshue was a corporate leader for Cargill’s Animal Protein and Salt businesses, a position she was appointed to after serving as Business Unit President for Cargill Turkey & Cooked Meats from March 2013 to August 2015. Prior to this time, she served in several positions including Business Unit President of Cargill Salt, and Vice President and Commercial Manager of Cargill AgHorizons. From October 2003 to October 2005, Ms. Kimmelshue also led Cargill Supply Chain Solutions, an internal consulting organization serving Cargill’s businesses around the world, where she gained her understanding of strong supply chain processes and capabilities. Ms. Kimmelshue began her career in 1986 at Continental Grain Company ("Continental"). She held roles at Continental in grain and oilseed merchandising and trading, facility and general management, economic analysis, and marketing and sales in the U.S. and Europe. Cargill acquired Continental in 1999. Ms. Kimmelshue's depth of experience in leading successful global businesses, coupled with her experience in operations and supply chain, will be extremely valuable to the Board and our management team.

  

How can a shareholder suggest a candidate for election to the Board?

 

The Corporate Governance and Nominating Committee of the Board nominates all candidates for election to the Board. Generally, current directors or third party search firms engaged by the Corporate Governance and Nominating Committee identify candidates for consideration by the Committee. No third party search firm was engaged during fiscal 2017. The Corporate Governance and Nominating Committee will review all nominees to the Board of Directors, including an assessment of a nominee’s judgment, experience, independence and such other factors as the Corporate Governance and Nominating Committee concludes are pertinent in light of the Board’s needs. The Board of Directors believes that its membership should reflect a diversity of experience, skills, geography, gender and ethnicity. The Board of Directors considers each of these factors when evaluating director nominees and evaluates the makeup of the Board of Directors with regard to these factors on an ongoing basis as it searches for and asks director nominees to join the Board. The Corporate Governance and Nominating Committee will select qualified nominees and review its recommendations with the Board, which will decide whether to invite any nominee to join or stand for re-election to the Board. The Committee will consider candidates recommended by any shareholder using the same criteria set forth above. Recommendations may be sent to the Corporate Governance and Nominating Committee in care of the Corporate Secretary of H.B. Fuller. No shareholder recommended any candidate during fiscal year 2017.

 

Who are the remaining directors?

 

The directors not standing for election at the meeting and whose service will continue until the end of their respective terms provided the following information about themselves as of January 31, 2018.

 

 

Class II (Term Ending in 2019)

 

Dante C. Parrini

 

Age:

53

Director Since:

2012

Principal Occupation:

Chairman and Chief Executive Officer, P.H. Glatfelter Company ("Glatfelter"), a global supplier of specialty papers and engineered materials 

Business Experience:

Mr. Parrini joined Glatfelter in 1997, and is currently serving as its Chairman and Chief Executive Officer. He has served as President and Chief Executive Officer since January 2011, and Chairman of the Board since May 2011. He was previously Glatfelter’s Executive Vice President and Chief Operating Officer from 2005 until 2010. As a result of his positions at Glatfelter, Mr. Parrini brings a broad range of management experience to our Board. In his different capacities at Glatfelter, he has had responsibility for worldwide operations (including global profit and loss), international and domestic sales, marketing, new product development, global supply chain management, information technology, human resources, and strategy and development.  

   

John C. van Roden, Jr.

 

Age:

68

Director Since:

2003

Principal Occupation:

Independent Director

Business Experience:

Mr. van Roden served as Presiding Director of Airgas, Inc. ("Airgas"), the nation's leading single-source supplier of gases, welding equipment and supplies, and safety products, from 2010 to 2014. Mr. van Roden was Chairman of the Board of Airgas from September 2010 through August 2011. In February 2003, Mr. van Roden was appointed Executive Vice President and Chief Financial Officer of P.H. Glatfelter Company ("Glatfelter"), a global supplier of specialty papers and fiber-based engineered materials, and served in that capacity until January 2007, at which time he became a consultant to Glatfelter until 2009. Mr. van Roden brings a broad range of management and finance experience to our Board. During the course of his career, Mr. van Roden has held leadership roles in the finance area for a number of public companies, including as the Chief Financial Officer of Glatfelter, Conectiv, LLC (an energy company) and Lukens, Inc. (specialty steel manufacturer). This expertise, along with his extensive experience serving on the boards of several other public companies, provides additional depth to our Board’s leadership and governance capabilities. During his 15 years of service on our Board, Mr. van Roden has developed extensive knowledge of our Company and its businesses. He has been Chair of the Company's Audit Committee since 2015.

 

The Board of Directors has determined that Mr. van Roden is an audit committee financial expert as that term is defined under the rules of the SEC.

 

 

James J. Owens

 

Age:

53

Director Since:

2010

Principal Occupation:

President and Chief Executive Officer, H.B. Fuller Company

Business Experience:

Mr. Owens was appointed President and Chief Executive Officer of H.B. Fuller in November 2010. Prior to that appointment, he served as Senior Vice President, Americas from January to November 2010 and as Senior Vice President, North America from August 2008 to January 2010. Prior to joining H.B. Fuller, Mr. Owens served as Senior Vice President of Henkel Corporation, a global manufacturer of home care products, cosmetics, toiletries and adhesives products, from April to August 2008. Mr. Owens spent 22 years with National Starch’s adhesives business, a division of ICI (Imperial Chemical Industries Limited), in a variety of management positions, including serving as Corporate Vice President and General Manager (from December 2004 to April 2008), Vice President and General Manager of the Europe/Middle East and Africa adhesives business; Corporate Vice President and General Manager of the North American adhesives business; Business Director for the pressure sensitive and laminating adhesives businesses; Marketing Manager; and Technical Services Manager. As President and Chief Executive Officer of H.B. Fuller and through his career-long experience in the adhesives industry, Mr. Owens brings to Board discussions and deliberations his deep knowledge of the industry. In addition, Mr. Owens is the voice of management on the Board.

   
Other Directorships: Mr. Owens is a Director of Donaldson Company, Inc.

 

 

Class III (Term Ending in 2020)

   

J. Michael Losh

 

Age:

71

Director Since:

2001

Principal Occupation:

Independent Director

Business Experience:

Mr. Losh is currently the non-executive Chairman of MASCO Corporation ("MASCO"), a global leader in the design, manufacture and distribution of branded home improvement and building products. He was the interim Chief Financial Officer of Cardinal Health, Inc., a provider of products and services for the health care market, from July 2004 to May 2005. He was the Chairman of Metaldyne Corporation (now a wholly-owned subsidiary of Asahi Tec Corporation), a global designer and supplier of high quality, metal-formed components, assemblies and modules for the transportation industry, from 2000 to 2002. Prior to that position, Mr. Losh was employed by General Motors Company ("GM") from 1964 to 2000. Mr. Losh brings a wealth of global operating, financial and accounting experience through his 36-year career at GM, where he held a variety of roles in the United States, Brazil and Mexico, including Chief Financial Officer from 1994 to 2000. He also contributes extensive audit committee and corporate governance expertise, gained through his service on several other public company boards. During his 17 years of service on our Board, Mr. Losh has developed an in-depth knowledge of the Company and its businesses.

   

Other Directorships:

Mr. Losh is a director of Prologis, Inc. ("Prologis"), Aon plc ("AON"), and MASCO. Mr. Losh is chairman of the audit committees of Prologis and Aon. He is also chairman of the nominating and governance committee at MASCO.

 

Lee R. Mitau

 

Age:

69

Director Since:

1996, Chairman of the Board since December 2006

Principal Occupation:

Chairman of the Board, H.B. Fuller Company and Graco Inc. ("Graco")

Business Experience:

Mr. Mitau served as Executive Vice President and General Counsel of U.S. Bancorp from 1995 until March of 2013, when he retired. Mr. Mitau serves as Chairman of the Board, Chair of our Corporate Governance and Nominating Committee and as a member of our Compensation Committee, and has extensive public company legal and governance expertise. He is widely recognized as an expert in the area of corporate governance, and is a highly regarded and sought after speaker on the topic of corporate governance. He has gained expertise in the areas of corporate governance, corporate finance and mergers and acquisitions through his career as a practicing attorney with a global law firm, where he headed the firm’s corporate and securities practice, and as the Executive Vice President, General Counsel and Secretary of U.S. Bancorp. In addition, since 1990, Mr. Mitau has served on the board of Graco. During his 22 years of service on the Board, Mr. Mitau has developed an in-depth knowledge of our Company and its businesses. Mr. Mitau’s unique combination of experiences makes him particularly well-qualified to serve as our Chairman.

   

Other Directorships:

Mr. Mitau is Chairman of the Board of Graco

 

 

R. William Van Sant

 

Age:

79

Director Since:

2001, Vice Chairman of the Board since 2011

Principal Occupation:

Executive Chairman and Director, Builtrite Holdings, LLC ("Builtrite"), a portfolio company of TJM Capital Partners, which designs and produces broad families of truck mount and stationary electric material handlers and material handling attachments; Operating Partner, TJM Capital Partners ("TJM"), a private equity boutique; Senior Advisor, Yukon Partners II, L.L.C. ("Yukon") a mezzanine fund; Senior Advisor, Tenex Capital Management L.P. ("Tenex"), a private equity fund.

Business Experience:

Since April 2015, Mr. Van Sant has served as Executive Chairman and Director of Builtrite. Builtrite recently acquired S.A.S. of Luxemberg, Ltd. ("SAS"). SAS designs and produces unique auto processors and material handling attachments for auto recyclers. Since 2014, Mr. Van Sant has served as a Senior Advisor at Tenex and, from 2012 to 2014, he served as a Senior Operating Partner at Tenex. He also served as the Chairman or as a director of two portfolio companies of Tenex prior to 2017. Mr. Van Sant has also been a Senior Advisor at Yukon since July 2014. In addition to actively advising private equity funds and their portfolio companies, Mr. Van Sant may from time to time take ownership interests in the funds and portfolio companies he advises. From January 2008 until February 2013, he was an operating partner of Stone Arch Capital, LLC, a private equity firm. From August 2006 through December 2007, he was President and Chief Executive Officer of Paladin Brands Holding, Inc., which manufactures attachments for construction equipment. From 2003 until August 2006, Mr. Van Sant was Chairman, and from 2003 until November 2005, Mr. Van Sant was Chairman and Chief Executive Officer, of Paladin Brands, LLC. He was an operating partner of Norwest Equity Partners, a private equity firm, from 2001 to 2006. He also held roles of increasing responsibility over a nearly 30 year career at John Deere Company. Mr. Van Sant brings to our Board his expertise in management, finance and manufacturing operations, experience he has acquired over many years as a director, chairman or chief executive officer with a variety of manufacturing companies, including those listed above as well as Nortax Inc., Lukens, Inc., Blount Inc., Cessna Aircraft Company and Graco Inc. ("Graco"). Mr. Van Sant also brings a wealth of merger and acquisition experience and governance experience to our Board. Mr. Van Sant was appointed Vice Chairman of our Board of Directors in July 2011. In addition, Mr. Van Sant has gained a detailed understanding of our company and its businesses through his service on our Board during the past 17 years.

   

Other Directorships:

Mr. Van Sant is a director of Graco. He serves on the audit committee and governance committee of Graco's board of directors.

 

 

 CORPORATE GOVERNANCE

 

Corporate Governance Guidelines

 

The Board, upon recommendation of the Corporate Governance and Nominating Committee, has adopted Corporate Governance Guidelines, which summarize many of the corporate governance principles that the Board follows in governing H.B. Fuller. The guidelines are available for review on our website (www.hbfuller.com) in the “Governance” section of the Investor Relations page.

 

Code of Business Conduct

 

We have a Code of Business Conduct applicable to all of our directors and employees, including our principal executive officer, principal financial officer and principal accounting officer. A copy of this Code of Business Conduct is available for review on our website (www.hbfuller.com) in the “Governance” section of the Investor Relations page.

 

Communications with Directors

 

Any shareholder may contact the Board, any Board committee or any independent director, by mailing a letter addressed to the attention of the Corporate Secretary. The Corporate Secretary reviews all communications, and after ascertaining whether such communications are appropriate to the duties and responsibilities of the Board, will forward such correspondence to the directors for their information and consideration. The Board has requested that the Corporate Secretary not forward the following types of communications to the Board: general solicitations for business or products; job applications or resumes; advertisements, junk mail and surveys; and any other communication that does not relate to the responsibilities of the Board.

 

Director Independence

 

Pursuant to our Corporate Governance Guidelines and the listing standards of the New York Stock Exchange (“NYSE”), the Board has determined that all Board members, other than Mr. Owens, are independent. No director is considered independent unless the Board affirmatively determines that such director has no material relationship with H.B. Fuller. In assessing the materiality of any person’s relationship with H.B. Fuller, the Board considers all relevant facts and circumstances, including not only direct relationships between H.B. Fuller and each director but also any relationships between H.B. Fuller and any entity with which a director is affiliated.

 

The Board reviewed certain transactions between H.B. Fuller and our directors and entities with which they are affiliated and determined that they were made or established in the ordinary course of business and that the directors had no direct or indirect material interest in the transactions. Mr. Handley and Ms. Kimmelshue recused themselves from this review and determination as it related to the entities with which they are affiliated. The Board considered customer-supplier transactions between: (i) the Company and Ecolab, of which Mr. Handley is President and Chief Operating Officer and (ii) the Company and Cargill, of which Ms. Kimmelshue is Corporate Senior Vice President, Business Operations & Supply Chain. After consideration of these relationships, the Board of Directors determined that the directors had no direct or indirect material interest in the transactions. In addition, the dollar amounts involved in the transactions with Ecolab and Cargill fall below the thresholds set by the NYSE for director independence.

 

Meetings of the Board and the Board’s Committees

 

Directors are expected to attend the Annual Meeting of Shareholders and all meetings (including teleconference meetings) of the Board and each committee on which they serve. During the 2017 fiscal year, the Board held nine meetings. The directors attended greater than 75% of the meetings of the Board and Board committees on which the directors served during the 2017 fiscal year. In addition, all of the directors attended our Annual Meeting of Shareholders held on April 6, 2017.

 

 

What are the roles of the Board’s committees?

 

The Board of Directors is responsible for the overall affairs of H.B. Fuller. The Board conducts its business through meetings of the Board and three standing committees: Audit; Compensation; and Corporate Governance and Nominating. The Board has adopted a written charter for each committee. The charters for each of these committees are available for review on our website (www.hbfuller.com) in the “Governance” section of the Investor Relations page. Information regarding the three standing committees is set forth below. When necessary, the Board may also establish ad hoc committees to address specific issues.

 

Audit Committee

 

John C. van Roden, Jr. (Chair)

Maria Teresa Hilado

Thomas W. Handley

Ruth Kimmelshue

 

Number of Meetings in fiscal year 2017:  Nine

 

Functions:    The Audit Committee reviews the Company's financial information and disclosures, appoints the independent registered public accounting firm to audit our consolidated financial statements, oversees the audit and the independence and performance of our independent registered public accounting firm, determines and pre-approves the type and scope of all audit, audit-related and non-audit services provided by our independent registered public accounting firm, oversees our internal audit function, reviews the performance of our retirement plans and reviews our annual audited consolidated financial statements, accounting principles and practices and the adequacy of internal controls. In addition, the Audit Committee reviews the Company’s risk management policies and procedures to assess their adequacy and appropriateness in the context of the Company’s business and operating environment. This Committee also monitors compliance with legal and regulatory requirements, our Code of Business Conduct and our Policy and Procedures Regarding Transactions with Related Persons.

 

All of the members of the Audit Committee are considered independent as that term is defined by our Corporate Governance Guidelines, the listing standards of the NYSE and the applicable rules and regulations of the SEC. The Board of Directors has also determined that John C. van Roden, Jr., Thomas W. Handley and Maria Teresa Hilado satisfy the requirements of an audit committee financial expert as such term is defined under the rules and regulations of the SEC. The Audit Committee Report for fiscal year 2017 is included in this Proxy Statement.

 

Compensation Committee

 

R. William Van Sant (Chair)

Ruth Kimmelshue

Thomas W. Handley

Lee R. Mitau

Maria Teresa Hilado

Dante C. Parrini

 

Number of Meetings in fiscal year 2017:  Five

 

Functions:  The Compensation Committee establishes overall compensation programs and practices for executives and reviews and approves compensation, including salary, incentive programs, stock-based awards, retirement plans, perquisites and other supplemental benefits, employment agreements, severance agreements, change in control provisions and other executive compensation items for our executive officers. The Compensation Committee monitors the competitiveness, fairness and equity of our retirement plans and administers our stock-based compensation plans and individual awards.

 

The Compensation Committee annually reviews and approves compensation for our non-employee directors including retainers, fees, stock-based awards, and other compensation and expense items.

 

The Compensation Committee may delegate its authority to the Chair of the Compensation Committee to accelerate vesting of outstanding awards. The Committee intends this delegation of authority to be for situations of retirement or termination, and where it is impractical to obtain participation by all Committee members.

 

 

The Compensation Committee may use outside compensation consultants to provide compensation advice, competitive survey data and other reference market information related to trends and competitive practices in executive compensation. Since April 2010, the Compensation Committee has used Conduent, Inc. (formerly Buck Consultants, LLC) ("Conduent") to provide ongoing advice and information regarding design and implementation of the Company’s executive compensation programs as requested by the Compensation Committee.

 

The Compensation Committee retained Conduent to be its independent compensation consultant due to its independence and industry experience. Conduent advises the Compensation Committee on director and executive compensation, but does no other work for the Company. The Company uses Willis Towers Watson for actuarial, benefits and medical plan consulting services. During fiscal 2017, we purchased broad-based market compensation survey information from Willis Towers Watson and Hewitt Associates. See discussion in the “Compensation Discussion and Analysis” section of this Proxy Statement.

 

The Compensation Committee believes that Conduent provides candid, direct and objective advice to the Compensation Committee. To ensure independence:

 

 

The Compensation Committee directly hired and has the authority to terminate Conduent

 

 

Conduent is engaged by and reports directly to the Compensation Committee and its Chairman

 

 

None of the members of the Compensation Committee have a business or personal relationship with the Conduent consultant with whom the Committee works, outside of work he provides for the Compensation Committee. The individual advisor employed by Conduent with whom the Compensation Committee works does not have any business or personal relationship with any executive officer of the Company and he does not own any Common Stock.

 

 

The amount of fees that Conduent receives for work performed for the Company is de minimis as a percentage of Conduent’s annual revenue

 

 

Conduent does only work for the Compensation Committee that falls within the scope of work of the service agreement. No other work will be initiated without the Committee’s approval.

 

 

Conduent has direct access to all members of the Compensation Committee during and between meetings

 

 

No employee of Conduent works for the Company

 

 

The Compensation Committee has approved direct interaction between Conduent and management; however; these interactions are generally limited to discussions on behalf of the Compensation Committee and information that is presented to the Compensation Committee for approval.

 

In addition, the Compensation Committee has assessed the independence of Conduent pursuant to SEC rules and concluded that no conflict of interest exists that would prevent Conduent, or the individual advisor employed by Conduent with whom we work, from independently representing the Compensation Committee.

 

A representative of Conduent generally attends Compensation Committee meetings to serve as a resource for the Compensation Committee. In order to encourage independent review and discussion of executive compensation matters, the Compensation Committee and its chair may request meetings with the independent compensation consultant in executive session without management present.

 

During fiscal 2017, the Compensation Committee asked Conduent to conduct a review and analysis of non-employee director compensation. Conduent presented information regarding director compensation to the Compensation Committee, provided a market data report on director compensation and presented its findings and recommendations for discussion. Conduent provided these services and reported directly to the Compensation Committee Chair.

 

 

All of the members of the Compensation Committee are considered independent as that term is defined by our Corporate Governance Guidelines and the listing standards of the NYSE. The Compensation Committee Report for fiscal year 2017 is included in this Proxy Statement.

 

Corporate Governance and Nominating Committee

 

Lee R. Mitau (Chair)

John C. van Roden, Jr.

J. Michael Losh

R. William Van Sant

Dante C. Parrini

 

 

Number of Meetings in fiscal year 2017:  Three

 

Functions:    The Corporate Governance and Nominating Committee reviews matters of corporate governance, including our organizational structure and succession planning. This Committee evaluates and recommends new director nominees and evaluates each current director prior to nominating such person for re-election. The Corporate Governance and Nominating Committee reviews a director’s continued service if a director’s occupation changes during his or her term. This Committee also evaluates the performance of the Chairman of the Board, the President and Chief Executive Officer, and the directors, and makes recommendations to the Board regarding any shareholder proposals.

 

The Corporate Governance and Nominating Committee considers shareholder recommendations for potential director nominees. See “How can a shareholder suggest a candidate for election to the Board?”

 

All of the members of the Corporate Governance and Nominating Committee are considered independent as that term is defined by our Corporate Governance Guidelines and the listing standards of the NYSE.

 

Board’s Role in Oversight of Risk

 

In General

 

The Board believes that effective enterprise risk management must be an integral part of Board and Committee deliberations and activities throughout the year. As part of the enterprise risk management, the Board engages in the following activities throughout the fiscal year:

 

 

The full Board of Directors reviews the Company’s enterprise risk management process and a comprehensive assessment of key financial, operational and strategy risks identified by management, as well as mitigating practices.

 

 

The full Board of Directors discusses risks related to the Company’s annual financial plan and budget each fiscal year and risks related to the Company’s strategy at meetings where the strategy is presented and reviewed.

 

 

The Board of Directors also encourages management to promote a corporate culture that integrates risk management into the Company’s strategy and day-to-day business operations in a way that is consistent with the Company’s targeted risk profile.

 

 

Each committee conducts its own risk assessment and management activities throughout the year (some of which are highlighted in the section on Board committees above), and reports its conclusions to the Board.

 

Through these processes, the Board oversees a system to identify, assess and address material risks to the Company on a timely basis. In addition, the Board’s leadership structure, as described below in the section titled “Board Leadership Structure” supports its role in risk oversight. The Company presently has a separate Chairman of the Board and Chief Executive Officer. When those positions are combined, we have an independent Presiding Director. We have strong independent directors chairing each of our Board Committees, all of which are involved in risk oversight, and there is open communication between management and the non-employee directors.

 

 

Risk Assessment of Compensation Programs

 

Management conducted a risk assessment of the Company’s policies and programs relating to the compensation of employees, including those that apply to our executive officers. Management discussed the findings of the risk assessment with the Compensation Committee. Based on the assessment, the Company believes that its compensation policies and practices create an appropriate balance between our base salary compensation, short-term incentive compensation and long-term incentive compensation, thereby reducing the possibility of imprudent risk-taking and that its compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company.

 

Board Leadership Structure

 

Our Corporate Governance Guidelines provide that the Board of Directors has no policy with respect to the separation of the offices of Chairman and Chief Executive Officer. Separation of these offices is an issue that is to be addressed as part of the Company’s succession planning. When the Chairman and Chief Executive Officer are separate offices, the Chairman will serve as the Presiding Director. However, when the Chief Executive Officer also holds the position of Chairman, a Presiding Director will be appointed by the Board to further the achievement of a strong, independent Board with an appropriate balance between the Board and the Chief Executive Officer. In such cases, the Chair of the Corporate Governance and Nominating Committee shall serve as the Presiding Director.

 

Mr. Mitau has served as our independent Chairman of the Board since December 2006 and, in this capacity, has acted as the Presiding Director at Board of Director meetings and during executive sessions of the non-management directors. Our Board has separated the roles of Chairman of the Board and Chief Executive Officer since 2006. Mr. Mitau serves as the Chairman of the Board of Graco Inc. and has significant public company experience. The Chief Executive Officer, in consultation with the Chairman, establishes the agenda for each Board meeting. At the beginning of each fiscal year, the Chairman also publishes a schedule of topics to be discussed. In addition, Mr. Van Sant has served as Vice Chairman of the Board since fiscal 2011 and in this role he provides special assistance, oversight and guidance to the Chairman of the Board in performing the duties of the Chairman, and he provides counsel to the Chief Executive Officer.

 

Director Elections

 

With respect to the election of directors, during fiscal 2014, our Board adopted a so-called “plurality-plus” standard. In accordance with procedures set forth in our Corporate Governance Guidelines, at any shareholder meeting at which directors are subject to an uncontested election (i.e., an election where the only nominees are those recommended by the Board), any nominee for director who receives a greater number of votes “withheld” from his or her election than votes “for” such election shall submit to the Board a letter of resignation for consideration by the Corporate Governance and Nominating Committee. The Corporate Governance and Nominating Committee shall promptly consider the resignation offer and recommend to the full Board whether to accept it. In considering whether to accept or reject the resignation offer, the Corporate Governance and Nominating Committee will consider all factors deemed relevant by members of the Corporate Governance and Nominating Committee, including, without limitation, (i) the perceived reasons why shareholders withheld votes “for” election from the director, (ii) the length of service and qualifications of the director, (iii) the director’s contributions to the Company, (iv) compliance with listing standards, (v)  the purpose and provisions of the Corporate Governance Guidelines, and, (vi) the best interests of the Company and its shareholders. To the extent that one or more directors’ resignation are accepted by the Board, the Corporate Governance and Nominating Committee will recommend to the Board whether to fill such vacancy or vacancies or to reduce the size of the Board. Any director who tenders his or her offer to resign from the Board pursuant to this provision shall not participate in the Corporate Governance and Nominating Committee or Board deliberations regarding whether to accept the offer of resignation. The Board will act on the Corporate Governance and Nominating Committee’s recommendation within 90 days following the certification of the shareholder vote by the Inspector of Elections, which action may include, without limitation, acceptance of the offer of resignation, adoption of measures intended to address the perceived issues underlying the vote, or rejection of the resignation offer. Thereafter, the Board will publicly disclose its decision whether to accept the director’s resignation offer.

 

Board Performance Evaluation

 

The Board of Directors has a practice of annually reviewing its performance, and the performance of its committees and individual directors.

 

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

The Board of Directors has a written policy and procedures for the review, approval or ratification of transactions with executive officers, directors and nominees for director and their immediate family members. In general, the policy provides that certain transactions with these related persons and their immediate family members and certain transactions with any person who is a security holder known to us to be the beneficial owner of more than five percent of any class of our stock, are subject to the review, approval and/or ratification of the disinterested members of the Audit Committee. If ratification of a transaction is not forthcoming, management must make all reasonable efforts to cancel or annul that transaction. If a transaction with a related party is entered into without the pre-approval of the Audit Committee, it shall not be deemed to violate these policies and procedures, or be invalid or unenforceable, so long as the transaction is brought to the Audit Committee for ratification as promptly as reasonably practical after it is entered into or brought to the Company’s attention. All executive officers and directors of H.B. Fuller are informed in writing on an annual basis of these policies and procedures. The Audit Committee may use any process and review any information that it determines is reasonable in order to determine if a transaction is fair and reasonable and on terms no less favorable to H.B. Fuller than could be obtained in a comparable arm’s length transaction with a third party unrelated to H.B. Fuller.

 

In addition, on an annual basis, each of our directors and executive officers completes a questionnaire and discloses information regarding entities with which they and their immediate family members are affiliated. Any person nominated for election as a director must complete a questionnaire no later than the date he or she becomes a member of the Board of Directors. Any person who becomes an executive officer must complete a questionnaire as soon as reasonably practicable thereafter.

 

Our Audit Committee annually reviews all transactions and relationships disclosed in the director and officer questionnaires and approves or ratifies, as applicable, any transactions with related persons. The Board of Directors makes a formal determination regarding each director’s independence.

 

During fiscal year 2017, we had transactions, arrangements and relationships with entities with which some of our related persons, specifically certain of our directors, are affiliated. However, in accordance with the procedures in the Company’s policy, the Audit Committee determined that those related persons had no direct or indirect material interest in those transactions, arrangements and relationships.

 

 

DIRECTOR COMPENSATION

 

The form and amount of compensation for each non-employee director is determined and reviewed at least annually by the Compensation Committee. Such compensation reflects the practices of boards of similar public companies and is comprised of cash and H.B. Fuller Common Stock (or its equivalents). Similar to our executive compensation policy, the practice of generally aligning to the market median/50th percentile also applies to our non-employee director compensation.

 

2017 Review of Director Compensation

 

The Compensation Committee uses Conduent to provide ongoing advice and information regarding design and implementation of the Company’s executive and director compensation programs as requested by the Compensation Committee. See further discussion regarding the Compensation Committee’s independent consultant under the heading “Compensation Committee” in the Corporate Governance section in this Proxy Statement. At its July 2017 meeting, the Compensation Committee reviewed a market analysis conducted by Conduent relating to non-employee director compensation, including annual board retainers, committee chair retainers and annual stock-based awards. The market analysis included our peer group (see section titled “Executive Compensation – Compensation Discussion and Analysis – Competitive Market - Peer Group Data” in this Proxy Statement) and a subset of our peer group with revenues under $4.2 billion. We also use the Frederic W. Cook & Company 2016 Survey on Non-Employee Director Compensation Across Industry and Size (which includes 300 companies: 100 Small Cap (Less than $1B), 100 Mid Cap ($1B - $5B) and 100 Large Cap (Greater than $5B)), with mid cap company information as the primary point of reference.

 

After a review of the market comparison data, the Compensation Committee determined the non-employee directors’ annual equity-based grant was lower than the market median and decided to increase the annual equity-based award value from $100,000 to $115,000 to better align with market median. No other changes were made to our non-employee directors' compensation program.

 

 

Cash Fees

 

The fees paid to our non-employee directors are set forth in the table below. Mr. Owens, our President and Chief Executive Officer, does not receive separate compensation for serving as a director or for attendance at any meeting.

 

The following fees are paid to our non-employee directors:

 

Annual Cash Retainers

     
       

Board Member

   

$  90,000

Non-Executive Chairman

   

$  70,000

Non-Executive Vice Chairman

   

$  30,000

Audit Committee Chair

   

$  20,000

Compensation Committee Chair

   

$  15,000

Corporate Governance and Nominating Committee Chair

   

$  12,000

       

Equity Awards

     
       

Annual Award of Deferred Phantom Stock Units

   

Valued at $ 115,000

One-time Initial Award of Restricted Stock Units

   

1,300 units

 

Expense Reimbursement

 

We also reimburse each director for any out-of-pocket expenses related to attendance at any meeting or arising from other H.B. Fuller business.

 

Equity Awards

 

In addition to the board and chair retainers described above, the Board believes it is important that each director have an economic stake in our Common Stock. As a result, the Compensation Committee typically makes an annual grant of deferred stock units to each non-employee director, which pays out in shares of Common Stock under the terms of H.B. Fuller Company Directors’ Deferred Compensation Plan (“DDCP”) and pursuant to elections made by each director. This plan is described below.

 

On July 13, 2017, the Compensation Committee made a discretionary award in the amount of $115,000 to each non-employee director. This amount was divided by the fair market value of the Common Stock on the date of grant to determine the number of deferred stock units awarded under the DDCP.

 

In addition, each non-employee director typically receives a one-time grant of restricted stock units upon his or her initial election to the Board. These restricted stock units awards are granted under our H.B. Fuller Company 2016 Master Incentive Plan, which is described below. In general, these shares vest three years from the date of grant subject to continued service during that period. Ms. Kimmelshue received a grant of restricted stock units upon her election to the Board.

 

 

Directors’ Deferred Compensation Plan

 

Under this plan, directors may elect to defer all or a percentage of their board and chair retainers. Deferred amounts are credited with gains and losses based on the performance of certain mutual funds or the Common Stock as elected by the director prior to deferring any fees. Directors who elect their retainers to be deferred into Common Stock units as an investment are credited with phantom stock units that will be paid out in shares of Common Stock. Phantom stock units are credited with dividend equivalents equal to the amount of dividends, if any, paid on an equal number of shares of the Common Stock. The dividend equivalents are converted into additional phantom stock units based on the fair market value of Common Stock on the dividend payment date. If a participant elects to defer retainers into the Common Stock account in this plan, we make a 10% matching contribution of additional phantom stock units to the amount invested in Common Stock by the director. The phantom stock units credited to the directors’ accounts do not have voting rights. In addition, the Compensation Committee may make discretionary contributions to a participant’s H.B. Fuller Common Stock account under this plan. As described above, during fiscal year 2017, the Compensation Committee exercised this discretion and awarded each non-employee director 2,248.29 Common Stock units under this plan.

 

Any amounts deferred under this plan are paid in shares of Common Stock or cash (depending on the election made by the director) at the earliest to occur of:

 

 

The later of the date of the director’s retirement (that is, the date of resignation or removal from the Board or the end of the director’s elected term) or such other date as elected and specified by the director, which is subject to approval by the Compensation Committee and is made only at the time of the director’s initial elections and is irrevocable;

 

 

disability;

 

 

death;

 

 

the date of a change in control of H.B. Fuller; or

 

 

the date of termination of the plan.

 

H.B. Fuller Company 2016 Master Incentive Plan

 

Under the H.B. Fuller Company 2016 Master Incentive Plan (the "2016 Incentive Plan"), we may issue to non-employee directors restricted stock, restricted stock units, options, stock appreciation rights, performance awards or other stock-based awards. In addition, shares of H.B. Fuller Common Stock are issued under this plan to satisfy any requirements under the DDCP. The Compensation Committee determines the type, amount and other terms and conditions of any awards to executive officers under the 2016 Incentive Plan.

 

Physical Examinations

 

Non-employee directors are reimbursed for a preventative/diagnostic annual physical examination and local travel expenses. In fiscal year 2017, J. Michael Losh and Lee R. Mitau received reimbursement for a physical examination. These amounts are shown in the “All Other Compensation” column of the “Director Compensation Table” in this Proxy Statement.

 

Matching Gifts to Educational, Arts and Cultural Organizations Program 

 

Under this program, we match a non-employee director’s contributions (up to $1,000) to eligible educational, arts and cultural institutions. These amounts are shown in the “All Other Compensation” column of the “Director Compensation Table” in this Proxy Statement.

 

Director Compensation Table – Fiscal Year 2017

 

Name

 

Fees Earned or

Paid in Cash

($)

 

Stock Awards

($) 1

 

All Other

Compensation

($) 2

 

Total

($)

 

Thomas W. Handley 3

 

90,000

   

115,000

   

9,000

   

214,000

   

Maria Teresa Hilado 4

 

90,000

   

115,000

   

9,000

   

214,000

   

Ruth Kimmelshue

 

22,500

   

72,475

   

195

   

95,170

   

J. Michael Losh 5

 

90,000

   

115,000

   

11,044

   

216,044

   

Lee R. Mitau 6

 

172,000

   

115,000

   

20,457

   

307,457

   

Dante C. Parrini

 

90,000

   

115,000

   

-

   

205,000

   

Ann W. Simonds 7

 

22,500

   

-

   

2,250

   

24,750

   

John C. van Roden, Jr.

 

110,000

   

115,000

   

1,000

   

226,000

   

R. William Van Sant 8

 

135,000

   

115,000

   

13,500

   

263,500

   
                           

 


(1)

The amounts in this column are calculated based on the fair market value of the Common Stock on the date the award was made in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“FASB ASC Topic 718”). Each non-employee director, except Ms. Kimmelshue (who became a director October 4, 2017) received an award of 2,248.29 deferred stock units on July 13, 2017 with a grant date fair value of $115,000. Ms. Kimmelshue received a grant of 1,300 RSUs on October 4, 2017.

 

 

The aggregate number of deferred stock units and restricted stock units held by each non-employee director as of December 2, 2017 were as follows:

 

Name

 

Deferred
Common stock
Units

(#) 

 
         

Thomas W. Handley

 

37,393

   

Maria Teresa Hilado

 

15,624

   

Ruth Kimmelshue

 

1,303

   

J. Michael Losh

 

98,145

   

Lee R. Mitau

 

153,490

   

Dante C. Parrini

 

11,200

   

John C. van Roden, Jr.

 

33,069

   

R. William Van Sant

 

94,650

   

 

No non-employee director held any stock options as of December 2, 2017. Only Ms. Kimmelshue held RSUs as of 2017. As of 2017, Ms. Kimmelshue held 1,303 RSUs.

 

(2)

These amounts represent the following: for Mr. Handley, a 10% company match pursuant to the DDCP in the amount of $9,000; for Ms. Hilado a 10% company match pursuant to the DDCP in the amount of $9,000; for Ms. Kimmelshue, dividends paid on unvested restricted stock units; for Mr. Losh, a 10% company match pursuant to the DDCP in the amount of $9,000, a matching gift by H.B. Fuller to a qualified educational institution of $1,000 and a director physical in the amount of $1,044; for Mr. Mitau, a 10% company match pursuant to the DDCP in the amount of $17,200, a director physical in the amount of $2,877 and $380 for renewal of spouse passport; for Ms. Simonds, a 10% company match pursuant to the DDCP in the amount of $2,250; for Mr. van Roden, a matching gift by H.B. Fuller to a qualified educational institution of $1,000; and for Mr. Van Sant, a 10% company match pursuant to the DDCP in the amount of $13,500.

 

(3)

Mr. Handley elected to receive 100% of his annual retainer in Common Stock units in lieu of cash. That election resulted in the conversion of $90,000 into 1,745 Common Stock units. This amount does not include any dividend equivalents or match paid by the Company.

 

(4)

Ms. Hilado elected to receive 100% of her annual retainer in Common Stock units in lieu of cash. That election resulted in the conversion of $90,000 into 1,745 Common Stock units. This amount does not include any dividend equivalents or match paid by the Company.

 

(5)

Mr. Losh elected to receive 100% of his annual retainer in Common Stock units in lieu of cash. That election resulted in the conversion of $90,000 into 1,745 Common Stock units. This amount does not include any dividend equivalents or match paid by the Company.

 

 

(6)

Mr. Mitau elected to receive 100% of his annual retainer in Common Stock units in lieu of cash. That election resulted in the conversion of $172,000 into 3,334 Common Stock units. This amount does not include any dividend equivalents or match paid by the Company.

 

(7)

Ms. Simonds elected to receive 100% of her annual retainer in Common Stock units in lieu of cash. That election resulted in the conversion of $22,500 into 455 Common Stock units. This amount does not include any dividend equivalents or match paid by the Company. Ms. Simonds resigned from the Board on February 8, 2017.

 

(8)

Mr. Van Sant elected to receive 100% of his annual retainer in Common Stock units in lieu of cash. That election resulted in the conversion of $135,000 into 2,617 Common Stock units. This amount does not include any dividend equivalents or match paid by the Company.

 

Stock Ownership Guidelines

 

We have goals for stock ownership by all non-employee directors. Our goal for director stock ownership is five times the annual board retainer within five years of becoming a director. A review of director stock ownership was conducted using June 30, 2017 stock values. At the time of this review, all directors have met or exceeded this goal. Ms. Kimmelshue was appointed as a director on October 4, 2017. Therefore, she was not included in this review of stock ownership.

 

 

EXECUTIVE COMPENSATION

 

Compensation Discussion and Analysis

 

Executive Summary

 

This Compensation Discussion and Analysis describes the material elements of compensation awarded to each of our executive officers listed in the Summary Compensation Table in this Proxy Statement (the “NEOs”). This discussion and analysis focuses on the information contained in the NEO compensation tables and accompanying footnotes and narrative for fiscal year 2017 which follows. We discuss compensation actions taken during fiscal years 2016 and 2018 to the extent they enhance the understanding of our executive compensation program for fiscal year 2017.

 

Elements of Executive Compensation. We use base salary, a short-term cash incentive plan and a long-term incentive plan with equity grants to attract and motivate our executive officers to achieve results that increase shareholder value. We generally align with the market median for the three main elements of compensation, and we review these elements each year. The emphasis on short-term and long-term incentive compensation reflects our pay-for-performance philosophy. See "Key Elements of the Executive Compensation Program" on page 34.

 

Fiscal 2017 Business Results. Net income for the 2017 fiscal year was $58.2 million, or $1.13 per diluted share, versus net income of $124.1 million, or $2.42 per diluted share, in the 2016 fiscal year. Adjusted diluted earnings per share in the 2017 fiscal year were $2.45, up 1 percent versus the prior year adjusting for the extra week in the prior fiscal year.

 

Net revenue for the 2017 fiscal year was $2,306 million, up 10 percent versus the 2016 fiscal year. Adjusting for the Royal Adhesives acquisition and the extra week in fiscal 2016, constant currency revenue grew by 10.6 percent year-over-year and organic revenue, defined as constant currency revenue less the impact from acquisitions, was up 7 percent.

 

During the 2017 fiscal year, the Company had 52 weeks of operations while fiscal year 2016 was 53 weeks in length.

 

For the 48th consecutive year, we implemented an increase in the amount of quarterly cash dividends paid to shareholders, with a 7 percent increase this year.

 

More information on our 2017 performance can be found on pages 37 - 39. All non-GAAP information is reconciled with reported GAAP results in Annex A.

 

Performance Metrics. We measure our success in large part by the Company financial metrics used in our short-term incentive plan, which consist of organic revenue, operating income and adjusted earnings per share ("AEPS"). Organic revenue is a measure that focuses on our growth without taking into account acquisitions or foreign currency fluctuations. Operating income ("OI") is a measure of operational effectiveness and profitability, and AEPS is an overall measurement of profitability and the effectiveness of the growth strategies we follow:

 

  to grow organically by targeting our growth efforts on specific segments where we see opportunity for competitive strength;
     
  to manage margins by properly pricing our products and controlling expenses;
     
  to efficiently deploy cash generated from operations in order to repay debt balances and return additional value to shareholders; and
     
  to effectively integrate the Royal business and continue strong growth and profit enhancement in high value adhesive solutions.

 

 

 

Overall, in fiscal year 2017, with regard to the metrics used in our short-term incentive plan, the Company performed as follows:

 

       For the Company financial metrics, we exceeded the target level for organic revenue, and we exceeded the threshold level for adjusted operating income and AEPS.

 

      Performance related to regional and business short-term incentive metrics which factored into short-term incentives for our NEOs other than the CEO and CFO, was varied with all but one result exceeding threshold for each metric and some results exceeding the target metric. None of the regional and business short-term incentive results met or exceeded the superior level.

 

The achievements in our financial metrics resulted in short-term incentive payouts for our CEO and CFO of 93.7% and 88.7%, respectively, of target and ranged from 40.7% to 103.3% of target for our other NEOs.

 

With regard to our long-term incentive plan metric, return on invested capital ("ROIC"), we exceeded the target level for both fiscal 2016 and fiscal 2017 resulting in vesting of performance-based restricted stock units at a level above the target level for both fiscal years.

 

Please also see “Fiscal 2017 Short-Term Incentive Compensation" on pages 36 - 40 for more information on our fiscal 2017 financial performance versus target.

 

The above discussion contains non-GAAP financial measures. We have included this non-GAAP information to assist in understanding the operating performance of the Company as well as the comparability of results. See "Reconciliation of Non-GAAP Financial Information" in Annex A to this Proxy Statement for a reconciliation of these non-GAAP financial measures to GAAP results.

 

Fiscal 2017 Compensation Actions. In setting the financial metrics for our short-term incentive plan for fiscal year 2017, our Compensation Committee reviewed company performance expectations and budgeted targets. The primary annual short-term incentive metric targets were set based on predetermined ranges for the achievement of organic revenue, operating income and AEPS targets. All targets that were set were considered to be challenging, but achievable.

 

In January 2017, the Compensation Committee decided to terminate the Bonus Multiplier Program for fiscal 2017. Therefore, there was no opportunity to increase (or decrease) an individual's short-term incentive payout by plus or minus 5% as provided for under this Program.

 

The Compensation Committee made changes to the short-term incentive plan performance levels for fiscal 2017, reducing the performance levels from four in fiscal 2016 to three in fiscal 2017 in order to better align the Company's compensation program with market practice.

 

In January 2017, the Compensation Committee approved a special one-time RSU grant for most short-term incentive plan participants (including all NEOs). The NEOs needed to be employed by the Company on January 26, 2017, to receive it. Additionally, NEOs needed to meet service requirements for this award to vest. See discussion under "Special 2017 Restricted Stock Unit Award" later in this Compensation Discussion and Analysis.

 

On October 20, 2017 the Company acquired Royal Adhesives and Sealants ("Royal Adhesives"), a manufacturer of high-value specialty adhesives and sealants. At that time, the Compensation Committee approved a special, one-time performance-based non-qualified stock option ("NQSO") award to NEOs to provide incentive for the successful integration of the Royal Adhesives acquisition. These performance-based NQSOs vest contingent upon the Company achieving adjusted earnings before interest, taxes depreciation and amortization ("EBITDA") at least at a threshold level of EBITDA performance for fiscal year 2020. See discussion under "Special 2017 Performance-Based Non-Qualified Stock Option Award" later in this Compensation Discussion and Analysis.

 

All equity awards granted in fiscal year 2017 are shown in the "Grants of Plan-Based Awards During Fiscal 2017" Table later in this Proxy Statement. 

 

 

Executive Compensation Best Practices. The Company’s compensation program includes several best practices, such as:

 

 

a policy regarding “clawbacks” of executive officer and key manager incentive compensation which allows the Compensation Committee the discretion to claw back incentive-based compensation in the event that there is a material restatement of the Company’s financial statements or in the event of misconduct by an executive officer or key manager;

     
  a prohibition on hedging, pledging and certain other transactions in the Company stock by executive officers, including all of the NEOs;
     
  an emphasis on long-term equity awards to align the executives’ interests with long-term goals and shareholder interests, with performance-based vesting for at least 50% of the RSU portion of the long-term equity award (100% of the CEO's restricted stock units are performance-based);
     
  a prohibition on repricing of stock options; and
     
  stock ownership goals for our executive officers, which are reviewed annually.

 

Philosophy

 

The philosophy of our executive compensation program is to provide a competitive compensation package that rewards executive officers for sustained financial and operating performance that creates long-term value for our shareholders. We have designed and implemented our compensation programs for our executive officers to meet three principal goals:

 

 

Attract and retain qualified executive officers;

 

 

Motivate these individuals to achieve short-term and long-term corporate goals, without undue risk-taking; and

 

 

Promote equitable treatment of our executive officers, while considering external competitiveness and differences in job responsibilities.

 

To meet these goals, the Company has the following guidelines:

 

 

Pay compensation that is competitive with the practices of companies in a broad number of industries, including comparable companies in the chemical industry, with revenues comparable to our revenues;

 

 

Pay for performance by setting challenging performance goals for our executive officers and providing a short-term incentive plan that is based upon achievement of these goals; and

 

 

Provide long-term incentives in the form of stock options and restricted stock units that are designed to increase long-term shareholder value by aligning the interests of our executive officers with those of our shareholders.

 

We strive to keep the target value of each individual element of compensation at or near the market median/50th percentile, thereby maintaining target total compensation at or near the market median/50th percentile.

 

Use of Competitive Market Data

 

The Compensation Committee uses several surveys and data points when it reviews executive compensation as described below.

 

General Survey Data. We define our market as a broad range of companies across various industries with revenues varying from $1-3 billion. We chose this revenue category because revenue from our prior fiscal year was in this range and revenue from fiscal 2017 was expected to be in this range. The Compensation Committee uses published survey data from the following sources to analyze the appropriate level of compensation for our NEOS:

 

 

AON Hewitt ($1-2.49 billion revenue category for corporate positions (CEO and CFO) and relevant revenue categories for non-corporate positions (all other NEOs))

     
  Willis Towers Watson ($1-3 billion revenue category for corporate positions and relevant revenue categories for non-corporate positions)

 

 

The Company participates in both of these surveys. The Aon Hewitt survey includes 428 companies and is titled "AON Hewitt Total Compensation Measurement™ (TCM™) Executive Total Compensation by Industry – United States 2016", and the Willis Towers Watson survey includes 484 companies and is titled "Willis Towers Watson 2016 CDB General Industry Executive Compensation Survey Report – U.S.”

 

In the case of Mr. Kivits, our Senior Vice President, EIMEA, the Compensation Committee reviews his total compensation relative to the market approximately every other year. In 2016, market data was provided by Willis Towers Watson for Mr. Kivits' position.

 

Peer Group Data.  Our peer group consists of the following companies:

 

Albemarle Corp.

Donaldson Company, Inc.

Olin Corp.

Ashland Global Holdings Inc.

Ferro Corp.

OM Group, Inc.

Avery Dennison Corporation

FMC Corp.

Polyone Corp.

Axiall Corporation

Graco Inc.

RPM International Inc.

Cabot Corp.

Hexcel Corp.

A. Schulman, Inc.

Celanese Corporation

International Flavors & Fragrances Inc.

Sensient Technologies Corp.

Chemtura Corporation

Nordson Corporation

The Valspar Corporation

 

These companies represent comparable global, publicly-traded companies with revenues between $1.145 billion to $6.087 billion (for the most recent fiscal year).  For fiscal year 2017, we added Celanese Corp., Chemtura Corporation (acquired by LANXESS Corporation) and Donaldson Company, Inc. as these companies share common characteristics with the Company and serve as good comparators for compensation purposes. Due to completed acquisition activity, Axiall Corporation was removed from the peer group at the end of fiscal 2017. These changes also moved the Company to the 32nd percentile (for annual revenue) of the peer group. Due to their recent acquisitions, Chemtura Corporation and The Valspar Corporation will be removed from our peer group in 2018. OM Group, Inc. will also be deleted for 2018 due to it no longer being a public company.

 

Use of Market Data in Fiscal 2017. When analyzing compensation paid to our NEOs, the Compensation Committee uses specific data that matches revenue and job responsibilities from the published surveys named above, based on availability, by position. For fiscal 2017, the above-referenced survey data used by the Compensation Committee to review total compensation (base salary, short-term incentive compensation and long-term incentive compensation) for our executive officers showed that our total compensation was generally in line with the market data matched according to revenue and job responsibilities.

 

In addition, for the NEOs, management and the Compensation Committee used the peer group data, in conjunction with the general surveys, as a reference point for compensation design considerations. This data was derived from the most recent proxy statement available for each peer company. The primary data sources for pay level information for our executive officers are the survey sources listed under the heading “General Survey Data.” This survey data is supplemented by peer group data, which is adjusted for differences in the sizes of companies in the peer group.

 

 

The Compensation Committee uses survey data and peer group data because these sources of data are considered reliable market information. When we refer to competitive market data in the rest of this Compensation Discussion and Analysis, unless otherwise noted, we are referring to the “General Survey Data” and the “Peer Group Data” discussed above.

 

Compensation Process

 

The Compensation Committee reviews and approves all elements of compensation for our CEO, taking into account the Board of Directors’ review and assessment of the performance of the CEO as well as competitive market data and information from our human resources personnel and the Compensation Committee’s independent compensation consultant. The Compensation Committee also reviews and approves all elements of compensation for our other executive officers using the same sources noted above and taking into account the recommendations of the CEO.

 

In determining the particular elements of compensation that will be used to implement our overall compensation policies, the Compensation Committee takes into consideration factors related to our performance, such as our earnings and revenue growth, and business-unit-specific operational and financial performance. Other considerations include our business objectives, corporate responsibilities (including equity among executive officer positions and affordability), competitive practices and trends, and local legal requirements. In deciding on the type and amount of compensation for each executive officer, the Compensation Committee focuses on both the current pay and the opportunity for future increases in pay, and combines the compensation elements for each executive officer in a manner that optimizes the executive officer’s incentive to contribute to the Company's success.

 

The Compensation Committee on occasion meets with the CEO and/or certain other executive officers to obtain recommendations with respect to our compensation program, practices and packages for executive officers and directors. The Compensation Committee considers, but is not bound to and does not always accept, management’s recommendations with respect to executive compensation. The CEO typically attends the Compensation Committee’s meetings, except when his compensation package is discussed. In addition, the Compensation Committee also holds executive sessions not attended by any members of management, including the CEO.

 

The Role of Shareholder Say on Pay Votes. The Company provides its shareholders with the opportunity to cast an annual advisory vote on executive compensation (a “Say on Pay Proposal”). At the Company’s Annual Meeting of Shareholders held in April 2017, 94.3% of the votes cast on the Say on Pay Proposal were voted in favor of the proposal. The Compensation Committee believes this is an overall endorsement by the shareholders of support of the Company’s approach to executive compensation. The Compensation Committee will continue to take into account the outcome of the Company’s Say on Pay Proposal votes when making future compensation decisions for the NEOs.

 

Independent Compensation Consultant

 

The Compensation Committee uses Conduent, Inc. to provide ongoing advice and information regarding design and implementation of the Company’s executive compensation programs as requested by the Compensation Committee. See further discussion regarding the Compensation Committee’s independent compensation consultant under the heading “Compensation Committee” in the Corporate Governance Section in this Proxy Statement. In addition, from time to time, management receives information from the independent compensation consultant in preparation for Compensation Committee meetings.

 

 

Key Elements of the Executive Compensation Program

 

The key elements of the executive compensation program are:

 

Purpose 

 

Considerations 

Base salary

 

Attract and retain high caliber executive talent with competitive fixed compensation. Base salary is not performance based.

 

 

Each NEO’s job is positioned in a salary grade based upon market data and an analysis of the related job responsibilities. Salary ranges are established to generally reflect competitiveness at the market median/50th percentile. Within these salary ranges, base salaries are set considering the experience and skills each NEO brings to the position. Salary increases are determined considering individual performance.

     

Short-term incentive (cash)

   
     

Aligns executive performance with achievement of annual company strategic goals and objectives and provides financial reward for meeting or exceeding specific metrics. Payouts are dependent on achievement of predetermined annual financial performance goals.

 

Short-term incentive awards are set for each executive officer so that the expected payout at target performance levels would result in competitive market levels of such compensation. Payments under the short-term incentive plan can range from no payment to a payment no higher than 200% of the target, based upon actual results.

 

The annual short-term incentive plan is designed to achieve several goals, including emphasizing the Company’s commitment to competitive compensation practices, driving a high performance culture and ensuring accountability. The short-term incentive plan places emphasis on achievement of financial metrics and focuses attention on business results. It also reinforces the importance of measurable and aligned goals and objectives.

Long-term incentive (stock options, performance-based restricted stock units and time-based restricted stock units)

   
     

Stock options, performance-based restricted stock units and time-based restricted units attract, retain and reward high caliber executive talent; ownership of common stock encourages long-term strategic decision making that is aligned with shareholder interests.

 

Our long-term incentive plan ties a significant portion of our executive officers’ total compensation to shareholder value creation, as measured by share price performance. The combination of stock options, performance-based restricted stock units and time-based restricted stock units provides an appropriate balance between performance-based rewards and retention.

     

Stock options, performance-based restricted stock units and time-based restricted stock units reward for performance and promote stock ownership.

 

Increase in share price of H.B. Fuller Common Stock increases value of options and both performance-based and time-based restricted stock unit awards. Performance-based restricted stock units can pay out between 0% and 200% of target. 

     

Other Benefits (includes supplemental retirement and deferred compensation plans, severance, change-in-control and other perquisites)

   
     

Attract and retain high caliber executive talent. These benefits are not performance-based.

 

In order to attract and retain high caliber executive talent, we provide NEOs market competitive perquisite and other benefit programs. We also provide some of these benefits to assist our executive officers so that they may efficiently use their time on our business. Our U.S.-based NEOs participate in the same health and welfare programs as all other U.S.-based Company employees.

 

 

The graph below shows the percentage of each of the main elements of total compensation (base salary, short-term incentive, long-term incentive (stock options and performance-based stock options, and time-based and performance-based restricted stock units)) as measured by amounts for fiscal 2017 for the CEO and the other NEOs as set forth in the “Summary Compensation Table” in this Proxy Statement.

 

 

 

Additional information regarding base salary, short-term incentive compensation and long-term incentive compensation follows.

 

Fiscal 2017 Base Salaries

 

In General.    In January of each year, the Compensation Committee reviews and considers the annual performance of the CEO and the other NEOs. The effective date of annual merit increases is February 1st. In April, the Compensation Committee reviews the overall compensation (base salary, short-term incentive, long-term incentive and high-level review of benefits and perquisites) of all of the executive officers (excluding the CEO) for market competitiveness.

 

 

The amount of annual base salary and year-over-year increase for each of the NEOs in fiscal year 2017 are set forth in the following table.

 

Named Executive Officer

Base Salary as of

12/1/2016 ($)

 

Base Salary as of

2/1/2017 ($)

 

Percent

Increase from 12/1/2016

to 2/1/2017 (%)

 

James J. Owens

1,016,996

   

1,067,846

   

5.0%

   

John J. Corkrean

470,000

   

479,000

   

1.91%

   

Heather A. Campe

400,000

   

424,000

   

6.0%

   

Traci L. Jensen

465,515

   

465,515

   

0%

   

Patrick M. Kivits

418,3891

   

437,7831

   

4.64%

   

 


(1)

Non U.S.-based compensation paid to Mr. Kivits is denominated in Euros and has been converted to U.S. dollars at the same exchange rate used for financial reporting purposes. Mr. Kivits' base salary as of December 1, 2016 differs from the base salary reported for fiscal year 2016 in last year's proxy statement due to different exchange rates used for financial reporting purposes in fiscal 2016 and fiscal 2017, a merit increase and a mid-year salary adjustment.

 

Analysis of Fiscal 2017 Base Salaries. In January 2017, the Compensation Committee reviewed Mr. Owens’ base salary, short-term incentive target and long-term incentive target. The review included the following market data: 2016 U.S. MBD: Mercer Benchmark Database Executive Compensation Report (All Industry - data regressed to $2.1 billion in annual revenue); Towers Watson 2016 CSR Top Management Compensation Survey Report U.S.: Corporate, All Industry For Profit (excluding financial services) with annual revenues between $1—2.5 billion and median revenues of 2.2 billion); and AON Hewitt Total Compensation MeasurementTM (TCMTM) Executive Total Compensation by Industry – United States 2016 (all industries with revenues $1-2.49 billion). The Compensation Committee also reviewed market data relating to our peer group and a subset of our peer group with revenues under $4.2 billion. Based on this competitive market data review, there were no changes to the short-term and long-term incentive plan targets. Mr. Owens received a 5.0% merit increase after a review of his performance and the competitive market data review. Mr. Owens is in the fourth quartile of the CEO salary range. 

 

Mr. Corkrean received a merit increase of 1.91%. Mr. Corkrean was hired during fiscal year 2016 so was eligible for a pro-rated merit increase. Mr. Corkrean's fiscal 2017 base salary was in the third quartile of the salary range for his position. Ms. Campe received a merit increase of 6.0% in recognition of the strong business results in the Asia Pacific operating segment and the key market business she managed for most of fiscal 2016. Ms. Campe's base salary is in the second quartile of the salary range for her position. Ms. Jensen changed job responsibilities from Senior Vice President, Americas Adhesives to Senior Vice President, Global Construction Products in mid-2016. Ms. Jensen did not receive a merit increase on February 1, 2017. Her base salary is in the third quartile of the salary range for her position. Mr. Kivits received a merit increase of 4.64% due to the strong EIMEA operating segment performance. Mr. Kivits' base salary is in the third quartile of the salary range for his position.

 

For fiscal 2017, all merit increases for the NEOs fell within the Company’s general merit increase guidelines for our general employee population. The range of increases provided to NEOs was 0% to 6%.

 

Fiscal 2017 Short-Term Incentive Compensation

 

In General.  Each year, the Compensation Committee establishes the annual cash incentive target opportunities as a percentage of base salary. Under the short-term incentive plan, the Compensation Committee may also consider extraordinary circumstances that may positively or negatively impact the achievement of the total Company performance objectives.

 

 

The Compensation Committee made changes to the short-term incentive plan performance levels for fiscal 2017. For fiscal 2016, the short-term incentive plan included four performance levels - threshold, target, superior and superior stretch. Beginning in fiscal 2017, the short-term incentive plan has three performance levels -- threshold, target and superior. This change was made to better align the Company's compensation program with market practice.

 

For fiscal 2017, based on market data, the annual cash incentive target opportunity for our executive officers ranged from 52% to 100% of base salary at a target level of performance. Potential payouts range from 0% to 200% of the target award based on attainment of operating unit and/or Company predetermined financial goals. The threshold level for the annual cash incentive was set at 80% of each financial target goal, except the organic revenue metrics had a threshold amount of 90%. At these levels, the annual cash incentive would pay out at 50% of the target incentive. Higher payouts are possible if performance is above threshold levels. For example, at the superior level (110% for organic revenue and 120% for all other metrics), payout is 200% of target.

 

The Compensation Committee, in its discretion, has the right at any time to enhance, diminish or terminate all or any portion of any compensation plan or program, on a collective or individual basis for the NEOs. 

 

Analysis of Fiscal 2017 Short-Term Incentive Awards.  The financial performance metrics approved by the Compensation Committee in early fiscal 2017 were selected because management believed they were the most representative measurements of our financial results and were key financial measures that linked to our long-term strategic plan. In establishing the goals for these metrics for fiscal year 2017, we considered our prior year results, economic conditions and expected business opportunities. The specific performance goals for the target level were considered to be challenging but achievable. In addition, we set a superior goal which would pay amounts for performance exceeding the target. These are noted in the table below.

 

 

For fiscal 2017, the financial performance goals for threshold, target and superior performance and the actual performance were as set forth below. Amounts shown in the table below may differ from reported results due to adjustments which are allowed under the short-term incentive plan as set forth in footnote 2 in the table below. All performance goals for the NEOs, and the percentage of short-term incentive compensation based on these goals as established by the Compensation Committee, are set forth in the table below:

 

       

 Annual Cash Bonus, Weighting, and Goal Attainment Level

 

 

Named Executive Officer

2017

Target

Cash

2017

Actual

Cash

Bonus

Paid

Metric

Weighting

Threshold1

Target1

Superior1

Actual ($)2

 

James J. Owens

$1,059,207

$985,592

 

AEPS3

 

30%

$2.164

$2.704

$3.244

 

$2.49

       

 

Organic Revenue5

 

30%

$1,862,0604

$2,068,9504

$2,275,8504

 

$2,118,828

       

 

Operating Income6

 

40%

$169,9604

$212,4534

$254,9404

 

$194,649

 

John J. Corkrean

$310,355

$275,129

 

AEPS3

 

30%

$2.18

$2.72

$3.26

 

$2.50

       

 

Organic Revenue5

 

30%

$1,930,937

$2,145,486

$2,360,035

 

$2,186,806

       

 

Operating Income6

 

40%

$175,784

$219,730

$263,676

 

$195,355

 

Heather A. Campe

$272,949

$281,957

 

AEPS3

 

30%

$2.18

$2.72

$3.26

 

$2.50

       

Americas Adhesives Segment Organic Revenue5

 

20%

$780,367

$867,074

$953,781

 

$886,572

       

Americas Adhesives Segment Operating Income6

 

25%

$101,347

$126,684

$152,021

 

$113,356

       

Key Markets Revenue

15%

*9

*9

       

Key Markets Gross Margin7

10%

*9

*9

 

Traci L. Jensen

$302,585

$123,091

AEPS3

 

30%

$2.18

$2.72

$3.26

 

$2.50

       

Construction Products Segment Organic Revenue5

 

30%

$234,257

$260,286

$286,315

 

$237,288

       

Construction Products Segment EBITDA8

 

40%

$27,978

$34,973

$41,968

 

$22,877

 

Patrick M. Kivits

$225,932

$225,254

 

AEPS3

 

30%

$2.18

$2.72

$3.26

 

$2.50

       

EIMEA Segment Organic Revenue5

 

20%

$464,391

$515,990

$567,589

 

$531,186

       

EIMEA Segment Operating Income6

 

25%

$33,407

$41,759

$50,111

 

$40,699

       

Key Markets Revenue

15%

*9

*9

       

Key Markets Gross Margin7

10%

*9

*9

 

 

_____________________

(1)

All values in thousands except AEPS.

   

(2)

In calculating results used for our short-term incentive plan, the following guidelines apply: (a) individual legal settlements (payments or receipts) with a value (net of insurance) of $3 million or greater will not be included in metric calculations, (b) unbudgeted reorganization or restructuring-related items which cannot be offset by related benefits in the fiscal year will not be included in metric calculations, (c) unbudgeted asset write-downs in excess of $2 million will not be included in metric calculations, (d) adjustments needed to: (1) correct any inadvertent errors or miscalculations made in setting a performance target for our key markets (such as Hygiene, Packaging, or Durable Assembly), or (2) account for changes resulting from new accounting definitions, requirements or pronouncements, and (e) other items as publicly disclosed in the Company’s quarterly earnings release. However, the above adjustments (a) – (d) will not be made to the extent they are inconsistent with publicly disclosed earnings. Reconciliations from our audited financial statement GAAP results to the non-GAAP results used for our short-term incentive plan may be found in Annex A to this Proxy Statement.

   

(3)

AEPS is a non-GAAP financial measure which excludes costs referenced in Annex A. AEPS is reconciled with GAAP results in Annex A.

   

(4)

The CEO's performance metric targets for AEPS, organic revenue and OI are different from the other NEOs. The performance metric targets were approved for all NEOs in January 2017. In early 2017, the Company completed an acquisition of Wisdom Adhesives. In April 2017, the Compensation Committee approved revised targets for all NEOs, which included the effect of the Wisdom Adhesives acquisition. The targets for the CEO were not changed at that time in order to maintain favorable tax treatment under IRC Section 162(m).

   

(5)

Organic revenue is defined as the adjusted reported revenue as disclosed in the Company’s fourth quarter earnings release and is adjusted for currency impact compared to budgeted exchange rates. Unbudgeted acquisitions and divestitures are excluded from the calculation.

   

(6)

OI is defined as the adjusted gross profit minus adjusted selling, general and administrative expenses as disclosed in the Company’s fourth quarter earnings release and is adjusted for currency impact compared to budgeted exchange rates. Unbudgeted acquisitions and divestitures are excluded from the calculation. OI is a non-GAAP financial measure and is reconciled with GAAP results in Annex A.

   

(7)

Gross Margin (in dollars) is defined as net revenue less cost of sales.

   

(8)

EBITDA is defined as earnings before interest, tax, depreciation and amortization.

   

(9)

We consider the targets for our Key Market metrics to be confidential.

 

 

The following chart shows the percentage increase in fiscal year 2017 performance targets over fiscal year 2016 actual results for each measure used to determine the short-term incentive payouts:

 

Performance Metric

 

FY 2017 Target to FY
2016 Actual Increase
1

CEO AEPS/NEO AEPS

 

8.87/9.68%

CEO Company Organic Revenue2/NEO Company Organic Revenue

 

-1.22/2.43%

CEO Company Operating Income2/NEO Company Operating Income

 

3.18/6.71%

Americas Adhesives Segment Organic Revenue

 

7.8%

Americas Adhesives Segment Operating Income 

 

-.18%

Construction Products Segment Organic Revenue

 

1.78%

Construction Products Segment EBITDA

 

79.6%

EIMEA Segment Organic Revenue

 

2.6%3

EIMEA Segment Operating Income

 

6%4

Global Key Metrics

 

*5

_____________________

 

(1)

Fiscal year 2017 had 52 weeks and fiscal 2016 had 53 weeks.

   

(2)

The CEO's performance metric targets for AEPS, Company Organic Revenue and Company Operating Income are different from the other NEOs. See footnote 4 to the table immediately above this table.

   

(3)

In local currency, the Organic Revenue target was growth of 2.6%. In U.S. dollars, the growth is -5.15% and is negative due to the impact of foreign exchange rates and 52 weeks in 2017 versus 53 weeks in 2016.

   

(4)

In local currency, the Operating Income target was growth of 6%. In U.S. dollars, the growth is -6.21% and is negative due to the impact of foreign exchange rates and 52 weeks in 2017 versus 53 weeks in 2016.

   

(5)

We consider our Global Key Market metrics to be confidential. 

 

Named Executive Officer

 

Target Payment
as a % of Base
Salary
 

 

Actual Payment
as a % of Fiscal
Year Base
Salary
 

 

Actual Payment ($)1 

 

James J. Owens

 

100%

 

93%

 

985,592

 

John J. Corkrean

 

65%

 

57.6%

 

275,129

 

Heather A. Campe

 

65%

 

67.1%

 

281,957

 

Traci L. Jensen

 

65%

 

26.4%

 

123,091

 

Patrick M. Kivits

 

52%

 

51.8%

 

225,2542

 

 


 

(1)

The actual total payment that was made for the fiscal year is also found in the Non-Equity Incentive Plan Compensation column of the “Summary Compensation Table” in this Proxy Statement. The short-term incentive award payment opportunity at each level of performance for our NEOs for fiscal 2017 is shown in the “Grants of Plan-Based Awards During Fiscal Year 2017” table in this Proxy Statement.

   

(2)

Non U.S.-based compensation paid to Mr. Kivits is denominated in Euros and has been converted to U.S. dollars at the same exchange rate used for financial reporting purposes.

 

In January 2017, the Compensation Committee decided to terminate the Bonus Multiplier Program for fiscal 2017. Therefore, there was no opportunity to increase (or decrease) an individual's short-term incentive payout by plus or minus 5% as provided for under this program.

 

 

Fiscal 2017 Long-Term Incentive Compensation

 

In General.  The fiscal 2017 long-term incentive plan design includes grants with a mix of 50% nonqualified stock options and 50% restricted stock units based on the H.B. Fuller Common Stock value of the award on the date of grant as determined based on the value of our common stock. A return on invested capital ("ROIC") performance metric is tied to the vesting of 50% of the restricted stock unit grant.

 

Stock Options.  The standard nonqualified stock options typically vest in three equal installments on each anniversary date of the grant date, as long as the optionee continues to be employed by the Company, which enhances retention. Vested stock options provide a benefit to an executive officer only if the market value of the stock increases over the term of the option and if the executive officer remains employed with the Company. Stock options are granted for a 10-year term. Stock options are granted with an exercise price equal to the fair market value of our common stock on the date of grant.

 

In October 2017, a grant of performance-based NQSOs were awarded to our NEOs to provide incentive for the successful integration of the Royal Adhesives acquisition. See the section titled "Special Performance-Based Non-Qualified Stock Option Award" below.

 

Restricted Stock Units.  RSU awards provide a benefit to an employee only if the employee remains employed until the award vests. Dividends are accrued on restricted stock units during the period prior to vesting and are subject to the same vesting requirements, with payment in the form of additional shares once vesting has occurred. Restricted stock units do not have voting rights. In addition, if the market value of the stock increases over the grant date price of the award, the employee further benefits from that appreciation in value.

 

       Restricted Stock Units (Time-Based). Half of each RSU grant vests based on continued employment over time. RSU grants typically vest in three equal annual installments from the grant date, which enhances retention.

 

       Restricted Stock Units (Performance-Based). Half of each RSU grant vests only if the Company achieves at least a threshold level of ROIC performance. The performance-based restricted stock units vest ratably over three years if the ROIC metric for each year is at the threshold level or above. Payouts range from 0% to 200% of target.

 

       The CEO does not receive time-based RSUs. Half of his RSU grant will vest if the Company achieves at least a threshold level of AEPS, OI or organic revenue. The other half of his RSU grant will vest if the Company achieves at least a threshold level of ROIC performance.

 

The value of an individual’s target award is established to generally correlate with the market median/50th percentile for the applicable position and grade level. The CEO recommends to the Compensation Committee the number of stock options and RSUs (both time-based and performance-based RSUs) to be granted to each executive officer. The Compensation Committee retains full authority to accept, modify or reject these recommendations and to increase or decrease the value of the award. The Compensation Committee also reviews total Company performance and the CEO’s individual performance to determine the award for the CEO. The number of options is determined based on a Black-Scholes valuation, and a 30-day share price average is applied. To determine the number of restricted stock units to be awarded, a 30-day share price average is applied.

 

The Compensation Committee reviews and approves long-term incentives for our CEO and the other executive officers in January of each year. This long-term incentive grant date in January aligns with the annual individual performance review process and allows the grants to occur during the open trading period (after our fiscal year-end annual earnings release) for our common stock as provided under Company policy. We do not allow backdating of options, nor do we have a program, plan or practice to time stock option grants to executive officers in coordination with the release of material non-public information.

 

 

The target values for each named executive officer’s long-term incentive award are set forth in the table below. It is the general practice of the Compensation Committee to make awards to executive officers in a range of 80% to 120% of the target value below.

 

Named Executive Officer

 

Annual Target Value of
Long-Term Incentive
for FY 2017 ($)

   

Actual Value of
Long-Term Incentive
for FY 2017 ($)
1

 

James J. Owens

    3,203,538       3,203,538  

John J. Corkrean

    500,000       500,000  

Heather A. Campe

    500,000       500,000  

Traci L. Jensen

    500,000       500,000  

Patrick M. Kivits

    375,000       375,000  

________________

 

(1)

These amounts do not reflect: (a) a one-time restricted stock unit grant awarded in January 2017 and (b) a performance-based non-qualified stock option grant awarded in October 2017. See descriptions of these grants under the headings "Special 2017 Restricted Stock Unit Award" and "Special Performance-Based Non-Qualified Stock Option Award" below. These awards are summarized below and in the "Grants of Plan-Based Awards During Fiscal 2017" table later in this Proxy Statement.

 

 

 

Named Executive Officer

 

Special 2017

Restricted Stock Unit

Award ($)

   

Special Performance-Based

Non-Qualified Stock Option Award

(at Target) ($)

   

 

 

Total ($)

 

James J. Owens

    474,511       3,203,538       3,678,049  

John J. Corkrean

    77,290       600,000       677,290  

Heather A. Campe

    111,699       500,000       611,699  

Traci L. Jensen

    84,547       500,000       584,547  

Patrick M. Kivits

    117,859       500,000       617,859  

 

 

Analysis of Fiscal 2017 Long-Term Incentive Awards.  In January 2017, each NEO (excluding the CEO) received grants of restricted stock units. Half of the restricted stock units vest based on an ROIC performance metric and the other half are time based. The time-based restricted units vest ratably over three years if the NEO remains employed at the Company.

 

•       For the January 2016 grant, the ROIC metric for the second year of vesting was met. The metric target was 9.5% ROIC. The Company achieved 10.2% ROIC. Therefore, the vesting was at 117.5% of target.

 

       For the January 2017 grant, the ROIC metric for the first year of vesting was met. The metric target was 10.0% ROIC. The Company achieved 10.2% ROIC. Therefore, the vesting was at 105% of target.

 

The CEO also received grants of restricted stock units, all of which are performance based.

 

       Half of the restricted stock units vest based on an ROIC metric consistent with the other NEOs, as described above.

 

       The other half of the restricted stock units contain a requirement that the restricted stock units will vest in three equal installments only if (1) one or more of the performance measures in the CEO’s short-term incentive plan are met at the threshold level for fiscal 2017 as determined by the Compensation Committee and (2) our CEO continues to be employed by the Company on the respective vesting date. Both of these requirements were met as of January 26, 2018. Therefore, the remaining two installments of these restricted units will vest according to the three-year vesting schedule as long as Mr. Owens remains employed by the Company. There is no higher level of payout for these restricted stock units if target or superior performance is achieved for any of the measures.

 

 

During fiscal year 2017, all long-term incentive awards to the NEOs were granted at 100% of the target value above. Fiscal year 2017 long-term incentive awards of stock options and restricted stock units are set forth in the “Grants of Plan-Based Awards During Fiscal Year 2017 table in this Proxy Statement.

 

Special 2017 Restricted Stock Unit Award. During fiscal 2016, the Compensation Committee determined to reduce the payout under the Company's 2016 short-term incentive by 50% as part of cost containment efforts. In January 2017, the Compensation Committee approved a special, one-time RSU grant for most short-term incentive plan participants (including all NEOs) in the amount of the decrease of the fiscal 2016 short-term incentive. The NEOs needed to be employed by the Company on January 26, 2017, to receive the award. Additionally, NEOs need to meet service requirements for this award to vest. This award, was not part of the fiscal 2016 short-term incentive and was approved, in part, to motivate participants after fiscal year 2016 short-term incentive awards were reduced and to provide an incentive linked to the achievement of the Company's long-term goals.

 

Special 2017 Performance-Based Non-Qualified Stock Option Award. In October 2017, the Compensation Committee approved a special, one-time performance-based NQSO award to NEOs to provide incentive for the successful integration of the Royal Adhesives acquisition. These performance-based NQSOs vest on January 31, 2021 contingent upon the Company achieving adjusted earnings before interest, taxes depreciation and amortization ("EBITDA") at least at a threshold level of EBITDA performance for fiscal year 2020. The target level of the EBITDA metric is $600 million. For NEOs other than the CEO, the number of options may decrease to as low as 0% and increase to as high as 150% of target if superior levels of performance are achieved. However, the CEO's superior level is capped at the allowable maximum number of shares that may be granted per calendar year allowed under the H.B. Fuller Company 2016 Master Incentive Plan.

 

 

 

Other Executive Benefits and Perquisites

 

In General.  We provide the following perquisites and benefits to our executive officers who are based in the United States or who are U.S. expatriates:

 

Perquisites and Benefits 

 

Description

 

 

 

 

 

Defined Contribution Restoration Plan

 

Non-qualified retirement plan, consisting of the following three components:

 

 

 

 

 

 

 

 

3% non-elective (retirement) contribution restoration for compensation in excess of IRS limits for eligible U.S. employees,,

 

 

 

 

 

 

 

 

4% 401(k) match restoration for compensation match in excess of IRS limits, and

 

 

 

 

 

 

 

 

Additional credit equal to 7% of eligible earnings.

 

 

 

 

 

Key Employee Deferred Compensation Plan

 

Allows deferral of a portion of annual base salary and/or any annual incentive payment. If an executive defers a portion of his or her salary or incentive payment into the Company stock account, the Company credits units of Common Stock and matches 10% of the amount credited with units of Common Stock. Mr. Corkrean was the only NEO who participated in this plan during fiscal year 2017.

 

 

 

 

 

Financial Counseling

 

Up to $7,500 annually in financial planning and tax preparation.

 

 

 

 

 

Executive Health Exams

 

Annual preventive/diagnostic physical examination and local travel-related expenses. In lieu of this benefit, the CEO receives an annual medical benefits allowance of $7,500.

 

 

 

 

Excess Liability Insurance

 

Group personal excess liability insurance policy provides individual coverage up to $5,000,000. The Company pays the policy premium and the premium is included in the named executive officer’s income and is grossed up to pay the tax withholding (except where such payments are not taxable).

 

 

 

 

 

Relocation Expense

 

Assistance with relocation, sale and purchase of home, temporary living assistance, and movement of property, including a tax gross up for certain assistance that is taxable.

 

 

 

 

Long-Term Disability Insurance

 

Executives may elect to purchase long-term disability insurance coverage of 50% of their salary up to $20,000 per month.  The premiums are paid on an after-tax basis by the employee and then reimbursed by the Company.  

 

 

Of the perquisites and benefits set forth above, only the financial counseling, executive health exam, relocation and the excess liability insurance are provided to Mr. Kivits, who is not based in the United States and is not an expatriate. Other benefits provided to Mr. Kivits include:

 

Perquisites and Benefits 

 

Description

Retirement Plan

 

 

Mr. Kivits participates in a defined contribution scheme where contributions are age related and the contribution is shared between the Company and Mr. Kivits. The employee's contribution is always 5% of pensionable salary and the employer's contribution is age dependent. In fiscal year 2017, the employer's contribution was 12.6%. Pensionable salary is annual base salary minus the pension contribution made pursuant to statute in the Netherlands.

 

 

 

 

Additional Health and Life Insurance

 

We provide additional health insurance for Mr. Kivits and his family and a $1,189,626 (€1,000,000) fixed life insurance policy.

 

 

 

 

Auto Benefit

 

 

Lease of car

 


 

Analysis of Fiscal 2017 Executive Benefits and Perquisites. We provide perquisites to our executive officers to generally reflect competitiveness at the market median/50th percentile.

 

In conjunction with the annual review of executive officer total compensation, the Compensation Committee reviews executive officer benefits and perquisites for market prevalence. In fiscal 2017, the Compensation Committee reviewed market data on the prevalence of the following benefits and perquisites provided by the Company: the Key Employee Deferred Compensation Plan, executive health programs, financial counseling, Defined Contribution Restoration Plan and executive long-term disability. The survey data used to review the market prevalence of all of these benefits was provided by the Aon Hewitt TCM Executive Policies and Programs: U.S. 2016 survey (476 participating companies). The data also included a review of perquisite offerings from our peer group, which was provided by our compensation consultant. The Compensation Committee reviewed the data provided and made no changes due to the general market prevalence of these programs.

 

All perquisites paid to our NEOs are disclosed in the “Summary Compensation Table” under the “Other Compensation” column and the footnotes thereto.

 

Severance, Change-in-Control and other Employment-Related Agreements

 

In General. H.B. Fuller does not have employment agreements with any of the NEOs that provide for a specified term of employment. The Company does have an employment agreement with Mr. Kivits as discussed below. The Company also has change-in-control agreements discussed under the heading “Change-in-Control Agreements” and executive severance agreements discussed under the heading “Severance.”

 

Severance. The executive severance agreements provide for payment of the following severance benefits if the eligible executive officer’s employment is terminated involuntarily by the Company without cause (as defined in the agreement) or voluntarily by the executive officer for good reason (as defined in the agreement):

 

 

Severance pay equal to one times (two times for the CEO) base salary plus target annual bonus, payable over the 12 months (24 months for the CEO) following termination;

 

 

 

Continued group medical and dental insurance over 12 months (18 months for the CEO); and

 

 

Outplacement services with a value of up to $20,000.

 

Except as indicated above with respect to the CEO, the same form of agreement was provided to all NEOs other than for Mr. Kivits. The severance agreement with Mr. Kivits provides for a reduction in any severance pay due to him for any severance pay required by local law.

 

Change-in-Control Agreements. All NEOs have entered into change-in-control agreements with H.B. Fuller. The agreements are a critical and effective tool to attract and retain executives. These agreements provide for payments under certain circumstances following a change-in-control of the Company. The Compensation Committee believes that one of the purposes of providing change-in-control agreements is to provide financial security to the executive officer in the event the executive officer’s employment is terminated in connection with a change-in-control. The agreement is intended to ensure the executive officer remains focused on activities related to a change-in-control that could be in the best interest of the Company and its shareholders, and that the executive officer is not distracted by compensation implications as a result of a change-in-control. The Compensation Committee also believes that change-in-control agreements assist in the retention of executive officers at a time when their departure might be detrimental to the Company and shareholders.

 

The change-in-control agreements contain a “double trigger” for receipt of change-in-control payments. This means that there must be a change in control of the Company and a termination of employment (or a material change to the NEO's terms of employment (such as demotion, reduction in compensation or required relocation)) during the covered period for the provisions to apply and benefits to be paid. The Compensation Committee believes that a “double trigger” is more appropriate than a “single trigger,” because a double trigger prevents the unnecessary payment of benefits to an executive officer in the event that the change in control does not result in the executive officer’s termination of employment or a material change in the terms of the executive officer’s employment.

 

Our change-in-control arrangements have been structured to ensure that executives receive the full intended benefits of these arrangements in the event that a transaction should take place, particularly when their short tenure creates an imbalance between intended benefit and potential tax liability. Our approach has been to provide our executives with arrangements that include a modified tax gross up. These arrangements eliminate de minimis or inefficient gross-up payments, only providing tax gross up in cases of significant imbalance. The Compensation Committee reviews all change-in-control packages periodically to ensure their continued effectiveness.

 

An explanation of any payments to be made under the change-in-control agreements is found under the heading “Involuntary (Not for Cause) Termination or Good Reason Termination after a Change-in-Control” in the section of this Proxy Statement titled “Potential Payments Made Upon Termination or Change-In-Control.”

 

Other.  The Company has an employment agreement with Mr. Kivits, because employment agreements are customary in the Netherlands where Mr. Kivits is based. The agreement with Mr. Kivits sets forth his salary, job functions and benefits, and contains intellectual property ownership rights, termination, non-competition and confidentiality provisions. Mr. Kivits or the Company may terminate his employment at the end of a month, subject to statutory notice periods. See the section titled “Potential Payments made upon Termination or Change-in-Control” later in this Proxy Statement for contractual payments that the Company may owe Mr. Kivits under his employment agreement.

 

Stock Ownership

 

We believe that ownership of our common stock by executive officers encourages long-term, strategic decision making that helps to reduce undue short-term risk-taking and is aligned with the best interests of our shareholders and other constituents. Goals for recommended levels of executive stock ownership are reviewed annually by the Compensation Committee. An executive officer’s stock ownership goal (which includes common stock directly held by the executive officer and common stock held in our 401(k) Plan, restricted stock, restricted stock units (time-based and performance-based), and stock units held in the Key Employee Deferred Compensation Plan) ranges in dollar amount from one to five times the executive officer’s annual base salary.

 

 

The guideline for the CEO is ownership of at least five times his base salary in H.B. Fuller Common Stock, and the guideline for other NEOs is ownership of at least two to three times their base salaries, depending on their job grade. The guideline provides that an executive should strive to reach and then maintain the applicable stock ownership goal within five years of appointment to a new job grade. The review was based on job grades and stock values in effect as of June 30, 2017. All NEOs who had been in their job grade for at least five years, have met the applicable stock ownership goal.

 

If after five years in his or her job grade, an NEO has not met his/her stock ownership goal, the NEO must retain 100% of all after-tax profit shares from any exercise, vesting or payout of equity awards until the stock ownership guideline is met, unless a hardship exception is granted.

 

Named Executive Officer

Stock Ownership

Guideline as of

June 30, 2017

 

2017 % of Target as
of June 30, 2017

    Years at Grade/Target
as of June 30, 2017
 

James J. Owens

5 times base salary

 

>100%

      6  

John J. Corkrean

3 times base salary

    73%       1  

Heather A. Campe

3 times base salary

    74%    

 

<1  

Traci L. Jensen

3 times base salary

 

>100%

      4  

Patrick M. Kivits

3 times base salary

    47%       1  

 

Tax Considerations

 

Under Section 162(m) of the U.S. Internal Revenue Code ("Section 162(m)"), we must meet specified requirements related to our performance and must obtain shareholder approval of certain compensation arrangements in order for the Company to fully deduct compensation in excess of $1,000,000 paid to a covered executive. The H.B. Fuller Company 2016 Master Incentive Plan (the "2016 Master Incentive Plan) was approved by our shareholders and includes specific performance criteria to be used by the Compensation Committee when establishing performance awards that are intended to be fully deductible under Section 162(m). The Committee believes that performance-based cash and stock incentive awards and stock options granted under the 2016 Master Incentive Plan will be deductible. However, there can be no assurance that incentive awards intended to qualify for tax deductibility will ultimately be determined by the Internal Revenue Service to so qualify. Cash compensation voluntarily deferred by our executive officers under our Key Employee Deferred Compensation Plan is not subject to the Section 162(m) cap until the year paid.

 

The Tax Cuts and Jobs Act (the “Act”), which was signed into law at the end of 2017, makes significant changes to the deduction limit under Section 162(m), all of which will be effective for taxable years beginning on and after January 1, 2018. The Act eliminates the current exception to the deduction limit for qualified performance-based compensation and broadens the application of the deduction limit to certain current and former executive officers who previously were exempt from such limit. However, the Act also includes a transition provision, which exempts from the above changes compensation under a written binding agreement that was in effect on November 2, 2017 and was not subsequently materially amended. Therefore, compensation paid to a covered executive in excess of $1 million will not be deductible for taxable years beginning on and after January 1, 2018 unless it qualifies for transition or other regulatory relief.

 

The Compensation Committee intends that the annual short-term cash incentive, NQSOs and certain RSUs are considered performance-based compensation under Section 162(m) and therefore not subject to its deduction limits. However for fiscal year 2019 and thereafter, because uncertainties as to the application and interpretation of Section 162(m) and the regulations issued thereunder, including the uncertain scope of the transition relief under the legislation repealing Section 162(m)’s exemption from the deduction limit, no assurance can be given that compensation intended to satisfy the requirements for exemption from Section 162(m) will satisfy the requirements.

 

 

The Compensation Committee intends to continue its practice of paying competitive compensation consistent with our philosophy to attract, retain and motivate executive officers to manage our business in the best interests of the Company and our shareholders. The Compensation Committee, therefore, may choose to provide non-deductible compensation to our executive officers if it deems such compensation to be in the best interests of H.B. Fuller and our shareholders. In fiscal 2017, the compensation subject to Section 162(m) did not exceed the $1,000,000 cap for any of our covered executives, except for our CEO. Mr. Owens' compensation exceeded the $1,000,000 cap and his compensation for fiscal 2017 in excess of this limit was therefore not deductible for tax purposes.

 

Various programs, including our benefit plans that provide for deferrals of compensation are subject to Section 409A of the Internal Revenue Code. We have reviewed such plans for compliance with Section 409A and believe that they are in compliance.

 

Total Compensation for Named Executive Officers

 

We believe that the policies and programs described in the Compensation Discussion and Analysis maintain an appropriate balance between motivating achievement of short-term goals and strategically leading the Company in a direction to provide long-term success, and therefore serve the interests of the Company and its shareholders.

 

 

Non-GAAP Financial Measures

 

The "Compensation Discussion and Analysis" section of this Proxy Statement contains non-GAAP financial measures. See "Reconciliation of Non-GAAP Financial Information" in Annex A to this Proxy Statement for a reconciliation of these non-GAAP financial measures to GAAP results.

 

 

Compensation Committee Report

 

The Compensation Committee of the Board of Directors has reviewed and discussed with H.B. Fuller management the Compensation Discussion and Analysis. Based on this review and discussion with management, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and in the Annual Report on Form 10-K for the year ended December 2, 2017.

 

Compensation Committee of the Board of Directors of H.B. Fuller Company

 

 

R. William Van Sant, Chair

Ruth Kimmelshue  
 

Thomas W. Handley

Lee R. Mitau  
 

Maria Theresa Hilado

Dante C. Parrini  

 

 

 Summary Compensation Table

 

The following table shows the cash and non-cash compensation for the last three fiscal years awarded to or earned by individuals who served as Chief Executive Officer and Chief Financial Officer during fiscal year 2017 and each of the other three most highly compensated executive officers who were serving as executive officers at the end of fiscal year 2017.

 

Name and Principal Position

 

Year

   

Salary ($)1

   

Bonus ($)2

   

Stock Awards ($)3

   

Option Awards ($)4

   

Non-Equity Incentive Plan Compensation ($)1,5

   

Change in

Pension Value

and Non-

qualified

Deferred

Compensation

Earnings ($)6

   

All Other Compen-sation ($)7

   

Total ($)

 
                                                                                       

James J. Owens

 

2017

      1,059,632         -         2,135,063         4,891,466         985,592         12,120         299,655         9,383,528    

President and

 

2016

      1,031,760         -         1,390,144         1,389,140         474,511         9,073         327,779         4,622,407    

Chief Executive Officer

 

2015

      985,610         -         1,180,472         1,187,917         416,872         2,211         266,005         4,039,087    
                                                                                       

John J. Corkrean8

 

2017

      477,546         -         336,548         864,734         275,129         -         130,676         2,084,633    

Exec. Vice President &

  2016       260,308         -         657,330         163,002         77,290         -         47,093         1,205,023    

Chief Financial Officer

                                                                                     
                                                                                       

Heather A. Campe

 

2017

      420,123         -         371,568         763,436         281,957         1,157         85,858         1,924,099    

Senior Vice President

                                                                                     

Americas Adhesives

                                                                                     
                                                                                       

Traci L. Jensen

 

2017

      465,515         -         343,913         763,436         123,091         3,942         112,191         1,812,088    

Senior Vice President,

 

2016

      472,810         -         227,819         227,648         84,547         2,890         147,054         1,162,768    

Global Construction Products

 

2015

      454,393         -         238,620         240,150         154,538         677         92,902         1,181,280    
                                                                                       

Patrick Kivits

 

2017

      434,550         -         313,357         699,202         225,254         -         132,306         1,804,669    

Senior Vice President, EIMEA

 

2016

      353,705         106,644         170,838         170,736         117,859         -         141,760         1,061,542    

(Europe, India, Middle East, Africa)

                                                                                     

 

__________________________

(1)

Includes cash compensation deferred at the election of the executive under the 401(k) Plan and/or the Key Employee Deferred Compensation Plan. For Mr. Kivits only, includes cash compensation deferred at his election into the Adalis Corporation Pension Plan. For accounting and U.S. payroll purposes, fiscal year 2016 contained 53 weeks and fiscal years 2017 and 2015 contained 52 weeks.

 

(2)

The amount in this column for Mr. Kivits represents the final payment of a hiring bonus.

 

(3)

The amounts in this column represent the grant date fair value of time-based and performance-based restricted stock awards made in fiscal 2017, 2016 and 2015 calculated in accordance with FASB ASC Topic 718 based on the closing price of our Common Stock on the date of grant and based on the assumptions set forth in Note 9 to the audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 2, 2017, except that the assumption related to forfeitures is not included in the calculations for these purposes. See the "Grant of Plan-Based Awards Table During 2017" table in this Proxy Statement for additional information. The grant date fair value of performance-based restricted stock awards made in fiscal 2017, assuming maximum performance, are: for Mr. Owens, $1,631,356; for Mr. Corkrean, $254,608; for Ms. Campe, $254,608; for Ms. Jensen, $254,608; and for Mr. Kivits, $190,881.

 

(4)

The amounts in this column represent the grant date fair values of stock option awards. In accordance with FASB ASC Topic 718, the grant date fair value of these awards has been determined using the Black-Scholes method and based on the assumptions set forth in Note 9 to the audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 2, 2017, except that the assumption related to forfeitures is not included in the calculations for these purposes. The grant date fair value of performance-based stock option awards made in fiscal 2017, assuming maximum performance, are: for Mr. Owens, $3,518,502; for Mr. Corkrean, $911,697; for Ms. Campe, $759,751; for Ms. Jensen, $759,751; and for Mr. Kivits, $759,751.

 

(5)

As described in the “Compensation Discussion and Analysis” section of this Proxy Statement, the amounts in this column represent cash incentives paid out under our short-term incentive plan.

 

(6)

Amounts reported in this column for Mr. Owens, Ms. Campe and Ms. Jensen include the amount of interest accrued during the applicable fiscal year on the officer’s account in the Defined Contribution Restoration Plan that exceeded 120% of the applicable federal long-term rate in fiscal 2017. No NEOs participate in the H.B. Fuller Legacy Pension Plan.

 

 

(7)

The table below shows the components of this column for fiscal 2017, which include Company matching contributions to H.B. Fuller’s defined contribution plans, dividends on restricted stock, charitable contribution matches and donations and perquisites paid by the Company for the benefit of the executive officers. The amounts represent the amount paid by, or the incremental cost to, the Company. Amounts for Mr. Owens and Ms. Jensen for fiscal years 2016 and 2015 have been updated to include charitable matching contributions for those years that were inadvertently excluded.

 

All Other Compensation -- Fiscal Year 2017

 
                                                   

Name

 

Defined

Contribution Plan

Company Match

& Contributions

($)

   

Defined Contribution

Restoration

Plan

Contributions

($)

   

Dividends on Unvested

Restricted

Stock

($)

   

Perquisites (see

table below)

($)

   

Total

($)

 
                                                   

James J. Owens

    18,871         195,909         47,708         37,167         299,655    

John J. Corkrean

    19,638         51,857         11,466         47,715         130,676    

Heather A. Campe

    18,871         55,584         6,831         4,572         85,858    

Traci L. Jensen

    18,871         58,138         7,980         27,202         112,191    

Patrick M. Kivits

    -         66,606         6,387         59,313         132,306    

 

Perquisites - Fiscal Year 2017

 
                                                                                 

Name

 

Auto

Allowance

($)a

   

Insurance

($) b

   

Health

Exam

($)c

   

Tuition

($)d

   

Moving

Expenses

and

Transfer

Allowance

($)e

   

Financial

Counseling

($)

   

Charitable

Matching

Contributions

and

Donationsf

   

Total

Perquisites

($)

 
                                                                                 

James J. Owens

    -         4,823         7,500         -         -         7,500         17,344         37,167    

John J. Corkrean

    -         4,298         -         -         -         7,080         36,338         47,715    

Heather A. Campe

    -         1,706         -         -         -         2,866         -         4,572    

Traci L. Jensen

    -         4,238         3,585         -         7,366         7,500         4,513         27,202    

Patrick M. Kivits

    36,276         7,545         -         15,493         -         -         -         59,313    

 

 

 

(a)

U.S. based executives do not receive an auto allowance. Mr. Kivits, who does not work in the U.S., receives an auto allowance.

 

 

(b)

Includes premiums paid on a tax-protected basis on personal excess liability insurance of $1,106 and a related tax gross-up of $1,029 for Mr. Owens, $560 for Mr. Corkrean, $600 for Ms. Campe and $528 for Ms. Jensen. The amount for Mr. Kivits does not include a related tax gross-up. Also includes reimbursement for long-term disability insurance premiums in the following amounts: for Mr. Owens, $2,688, for Mr. Corkrean, $2,632, and for Ms. Jensen, $2,604. For Mr. Kivits, amount includes amounts reimbursed for additional health insurance and life insurance in the amount of $6,439.

 

 

(c)

Amounts for health exam include related expenses, if any.

 

 

(d)

Amount includes tuition for Mr. Kivits' child in the amount of $7,453 and a related tax gross up in the amount of $8,040.

 

 

(e)

Amount for Ms. Jensen includes relocation expenses of $4,000 and a related tax gross up in the amount of $3,366.

 

 

(f)

Amounts in this column represent matching contributions by the Company under a broad based plan for all U.S. employees to match charitable contributions between $50 and $1,000 made to qualifying 501(c)(3) nonprofit organizations and a 50% match on all donations by NEOS to the United Way. Also includes amounts under the Company’s Executive Charitable Board Support program under which key managers (including all the NEOs in this Proxy Statement) are eligible to direct H.B. Fuller Company Foundation charitable contributions to qualifying 501(c)(3) nonprofit organizations where they are serving as board members.

 

 

Grants of Plan-Based Awards During Fiscal 2017

 

The following table summarizes the grants of plan-based awards in fiscal year 2017 for each of the named executive officers in the Summary Compensation Table.

 

     

Estimated Future Payouts Under

Non-Equity Incentive Plan Awards1

   

Estimated Future Payouts Under

Equity Incentive Plan Awards2,3

   

All Other Stock Awards: Number of

Shares of

   

Option

Awards:

Number of

Securities

   

Exercise

or Base Price of

Option

   

  Grant Date Fair Value of Stock and

 

Name and Award Type

 

Grant Date

 

Threshold

($)

   

Target

($)

   

Maximum

($)

   

Threshold

(#)

   

Target

(#)

   

Maximum

(#)

   

Stock or

Units (#) 4

   

Underlying

Options (#)5

   

Awards

($/Sh)

   

Options

Awards ($)6

 

James J. Owens

                                                                                 

Short-Term Incentive

    529,604       1,059,207       2,118,414                                                          

LTI Award

1/26/2017

                                    25,928  7                                     1,298,993  

LTI Award

1/26/2017

                            8,140       16,281       32,562                               836,070  

LTI Award

1/26/2017

                                                            151,826       50.10       1,646,249  

Performance-based NQSO Award

10/20/2017

                            133,592       267,184       289,684                       57.70       3,245,217  
                                                                                   

John J. Corkrean

                                                                               

Short-Term Incentive

    155,178       310,355       620,710                                                          

LTI Award

1/26/2017

                                                    4,113                       206,061  

LTI Award

1/26/2017

                            1,270       2,541       5,082                               130,487  

LTI Award

1/26/2017

                                                            23,696       50.10       256,936  

Performance-based NQSO Award

10/20/2017

                            25,020       50,041       75,062                       57.70       607,798  
                                                                                   

Heather A. Campe

                                                                               

Short-Term Incentive

    136,475       272,949       545,899                                                          

LTI Award

1/26/2017

                                                    4,812                       241,081  

LTI Award

1/26/2017

                            1,270       2,541       5,082                               130,487  

LTI Award

1/26/2017

                                                            23,696       50.10       256,936  

Performance-based NQSO Award

10/20/2017

                            20,850       41,701       62,552                       57.70       506,500  
                                                                                   

Traci L. Jensen

                                                                               

Short-Term Incentive

    151,292       302,585       605,169                                                          

LTI Award

1/26/2017

                                                    4,260                       213,426  

LTI Award

1/26/2017

                            1,270       2,541       5,082                               130,487  

LTI Award

1/26/2017

                                                            23,696       50.10       256,936  

Performance-based NQSO Award

10/20/2017

                            20,850       41,701       62,552                       57.70       506,500  
                                                                                   

Patrick M. Kivits

                                                                               

Short-Term Incentive

    112,966       225,932       451,864