DEF 14A 1 ful20210212_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

 

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☐       Soliciting Material Pursuant to § 240.14a-12

 

 

 

H.B. Fuller Company


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Office:

1200 Willow Lake Boulevard

 

St. Paul, Minnesota 55110-5101

Mail:

P.O. Box 64683

 

St. Paul, Minnesota 55164-0683

Phone:

(651) 236-5023

 

 

Dear Shareholder:

 

Our 2021 Annual Meeting of Shareholders will be held on Thursday, April 8, 2021. This year’s Annual Meeting will once again be a completely virtual meeting, which will be conducted via live webcast. A virtual meeting provides expanded access from any location around the world, improved communication and cost savings for our shareholders and the Company, and helps to safeguard public health during the COVID-19 pandemic.

 

You can attend the meeting via the Internet at www.virtualshareholdermeeting.com/FUL2021, where you will be able to vote and submit questions electronically prior to and during the meeting. Specific instructions for accessing the meeting are provided in the attached Notice of Annual Meeting of Shareholders. The virtual meeting will begin promptly at 10:00 a.m. Central Time. 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 by telephone or, if you received a printed copy of the proxy materials, by Internet, telephone or by mailing a proxy or voting instruction card.

 

 

Sincerely,

 

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James J. Owens

 

President and Chief Executive Officer

 

February 24, 2021

 

 

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Office:

1200 Willow Lake Boulevard

 

St. Paul, Minnesota 55110-5101

Mail:

P.O. Box 64683

 

St. Paul, Minnesota 55164-0683

Phone:

(651) 236-5023

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

Date and Time:

Thursday, April 8, 2021 at 10:00 a.m. central time. You may attend the virtual meeting, submit questions and vote your shares electronically during the meeting via the Internet by visiting www.virtualshareholdermeeting.com/FUL2021. You will need your 16-digit control number to enter the Annual Meeting. You can find your control number in the Notice Regarding the Availability of Proxy Materials, proxy card, instruction form or email you received relating to the meeting. In the Notice, proxy card and voting information form, the control number is in the box marked by the arrow. 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:

1.    The election of three directors named in the attached Proxy Statement. Three directors will serve for a three-year term until the 2024 Annual Meeting of Shareholders and until their successors are duly elected and qualified or upon their earlier resignation or removal.

   

 

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

   

 

3.     The ratification of the appointment of Ernst & Young LLP as H.B. Fuller’s independent registered public accounting firm for the fiscal year ending November 27, 2021.

 

4.    Amend and restate the H.B. Fuller Company 2020 Master Incentive Plan (the “Plan”) to increase the number of shares of common stock of the Company authorized for issuance under the Plan by 900,000 shares, and to adopt certain other amendments to the Plan.

   

 

5.    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 10, 2021.

   

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 in the materials you received, the section entitled “Questions and Answers about the Meeting” beginning on page 9 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

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Timothy J. Keenan

 

Vice President, General Counsel and Corporate Secretary

 

February 24, 2021

 

 

TABLE OF CONTENTS 

 

PROXY SUMMARY

1

QUESTIONS AND ANSWERS ABOUT THE MEETING

9

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

14

DELINQUENT SECTION 16(a) REPORTS

16

PROPOSAL 1—ELECTION OF DIRECTORS

16

Proposal

16

Who are the nominees?

16

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

19

Who are the remaining directors?

19

CORPORATE GOVERNANCE

24

Corporate Governance Guidelines

24

Code of Business Conduct

24

Communications with Directors

24

Director Independence

24

Meetings of the Board and the Board's Committees

24

What are the roles of the Board’s Committees?

25

Board’s Role in Oversight of Risk

26

Board Leadership Structure

27

Director Elections

28

Board Performance Evaluation

28

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

29

DIRECTOR COMPENSATION

30

2020 Review of Director Compensation

30

Cash Fees

30

Expense Reimbursement

30

Equity Awards

30

Directors’ Deferred Compensation Plan

31

H.B. Fuller Company 2020 Master Incentive Plan

31

Physical Examinations

31

Matching Gifts to Educational, Arts and Cultural Organizations Program

32

Director Compensation Table—Fiscal Year 2020

32

Stock Ownership Guidelines

33

EXECUTIVE COMPENSATION

34

Compensation Discussion and Analysis

34

Compensation Committee Report

54

Summary Compensation Table

55

Grants of Plan-Based Awards During Fiscal 2020

58

Outstanding Equity Awards at Fiscal 2020 Year-End

60

Option Exercises and Stock Vested – Fiscal Year 2020

62

Nonqualified Deferred Compensation – Fiscal Year 2020

62

Potential Payments Upon Termination or Change-in-Control

65

Executive Benefit and Payments Upon Termination – Fiscal Year 2020

68

CEO PAY RATIO DISCLOSURE

68

Proposal 2 — Non-Binding Advisory Vote on Executive Compensation

69

AUDIT COMMITTEE REPORT

70

FEES PAID TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

71

PROPOSAL 3 – RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

71

PROPOSAL 4 – APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE H.B. FULLER COMPANY 2020 MASTER INCENTIVE PLAN TO INCREASE SHARES AND ADOPT CERTAIN OTHER AMENDMENTS

72

“HOUSEHOLDING” OF PROXY MATERIALS

86

ANNEX A – RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION

A-1

ANNEX B – AMENDED AND RESTATED H.B. FULLER COMPANY 2020 MASTER INCENTIVE PLAN

B-1

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PROXY STATEMENT

ANNUAL MEETING OF SHAREHOLDERS

APRIL 8, 2021

 

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 8, 2021, and at any adjournment and reconvening of the meeting. We first made this Proxy Statement and the Annual Report for the fiscal year ended November 28, 2020 available to our shareholders on or about February 24, 2021.

 

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 2020 Annual Report to Shareholders before you vote.

 

ANNUAL MEETING OF SHAREHOLDERS

         

Date and Time:  Thursday, April 8, 2021 at 10:00 a.m. Central Time

Place:

Via the Internet. You may attend the virtual meeting by visiting www.virtualshareholdermeeting.com/FUL2021

 

For technical support on the day of the meeting, call:

USA: 844-986-0822

  International: 303-562-9302
Record Date:   Wednesday, February 10, 2021

Voting:

You may vote by proxy or at the virtual meeting if you were a shareholder of record at the close of business on February 10, 2021 (see pages 9 - 13 for more information on voting)

 

PROPOSALS REQUIRING YOUR VOTE

 

Your vote is important. Whether or not you plan to attend the virtual meeting, we encourage you to vote your shares to make certain that you are represented at the meeting.

 

 

1

Proposal 1 – Election of Directors

Board Recommendation

Page

 

In selecting director nominees, our Board carefully considers the qualifications of each candidate and the overall composition of the Board. The following table provides summary information about each of the director nominees:

FOR

16

       
  Name Director Since Roles on the Board Independent? Other Public Company Boards      
 

Thomas W. Handley

(Class I)

2010 Audit Committee (Financial Expert), Compensation Committee Yes Republic Services, Inc.      
 

Maria Teresa Hilado

(Class I)

2013 Compensation Committee and Corporate Governance and Nominating Committee Yes Campbell Soup Company, Zimmer Biomet Holdings, Inc. and PPD, Inc.      
 

Ruth S. Kimmelshue

(Class I)

2017 Audit Committee and Compensation Committee Yes        
                 
  If elected, Mr. Handley, Ms. Hilado and Ms. Kimmelshue would serve as Class I directors for a three-year term until the 2024 Annual Meeting and until their successors are duly elected and qualified or upon their earlier resignation or removal.     

 

 

2

Proposal 2 – Non-Binding Advisory Vote on Executive Compensation

   
 

In fiscal year 2020, shareholders showed their support for our executive compensation program with over 80% of the votes cast for approval of the annual advisory vote on executive compensation. While shareholders have endorsed the Company’s executive compensation program, the Compensation Committee made changes to the long-term incentive plan moving to a three-year cliff vesting for performance share units, as described under the heading “Fiscal 2021 Changes to the Executive Compensation Program.” The Company’s executive compensation program is 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. 

FOR

69

3

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

   
 

The Audit Committee has approved the appointment of Ernst & Young LLP as the Company’s independent auditor for fiscal year 2021. Shareholders are asked to ratify this appointment.

FOR

71

4

Proposal 4 – Approve Amendment and Restatement of the H.B. Fuller Company 2020 Master Incentive Plan to Increase Shares and Adopt Certain Other Amendments

   
 

The purpose of the 2020 Master 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. Shareholders are asked to approve an amendment and restatement of the 2020 Master Incentive Plan to increase the number of shares of common stock of the Company authorized for issuance under the Plan by 900,000 shares and to adopt certain other amendments to the Plan.

FOR

72

 

 

2020 PERFORMANCE HIGHLIGHTS

 

Fiscal 2020 Business Results. During fiscal year 2020, the COVID-19 pandemic had a significant disruptive impact on global economies, supply chains and industrial production, which resulted in reduced demand in some markets, while at the same time driving elevated demand for adhesive solutions for paper products, food and e-commerce packaging, and hygiene and medical goods. We effectively managed our global operations throughout the pandemic, implementing rigorous protocols focused on the health and safety of our employees and ensuring business continuity across our supplier, manufacturing and distribution networks. These actions enabled us to meet our customers’ increased demands for adhesive solutions for essential goods, effectively allocate our resources and manage expenses, and deliver strong financial results, while maintaining a safe workplace for employees. Recognizing the success of the Company and our ability to meet the unexpected challenges of fiscal year 2020, we compensated our NEOs according to the design of our executive compensation programs as adopted at the beginning of the fiscal year. Overall, the compensation provided to our NEOs is aligned with our fiscal year 2020 business results. No adjustments were made for our NEOs and we maintained the metrics and targets that were originally established for our fiscal year 2020 annual and long-term incentive plans.

 

At the beginning of fiscal year 2020, the Company moved from five to three reporting segments: Hygiene, Health and Consumable Adhesives, Engineering Adhesives and Construction Adhesives, in order to enhance its strategic alignment across end markets, and position the Company to better develop and deliver adhesive solutions around the world.

 

Net income for the 2020 fiscal year was $124 million, or $2.36 diluted earnings per share (“EPS”), versus net income of $131 million, or $2.52 EPS, in the 2019 fiscal year. Adjusted diluted earnings per share (“AEPS”) in the 2020 fiscal year were $2.84, down 4.1% versus the prior year.

 

Net revenue for the 2020 fiscal year was $2,790 million, down 3.7% versus the 2019 fiscal year.

 

Adjusted Earnings Before Interest, Taxes, Debt and Amortization (“Adjusted EBITDA”) for fiscal year 2020 was $407 million, down 5.9% compared with $432 million in the 2019 fiscal year. The Company’s cash flow from operations of $322 million increased 23% year-over-year, and enabled us to pay down a total of $205 million of debt for the year, above our $200 million target.

 

 

Within our Hygiene, Health and Consumable Adhesives segment, which accounts for 48% of our net revenue, segment revenue totaled $1,333 million for fiscal year 2020, an increase of 0.3% from fiscal year 2019, and segment Adjusted EBITDA totaled $182 million, an increase of 9.5% from fiscal year 2019.

 

 

Within our Engineering Adhesives segment, which accounts for 39% of our net revenue, segment revenue totaled $1,088 million for the 2020 fiscal year, a decrease of 6.1% from fiscal year 2019, and segment adjusted EBITDA totaled $168 million, a decrease of 15.1% from the fiscal year 2019.

 

 

Within our Global Construction Adhesives segment, which accounts for 13% of our net revenue, segment revenue totaled $369 million for fiscal year 2020, a decrease of 6.9% from fiscal year 2019, and segment adjusted EBITDA totaled $52 million, a decrease of 8.5% from fiscal year 2019.

 

For the 51st consecutive year, we implemented an increase in the amount of quarterly cash dividends paid to shareholders, with a 2% increase this year.

 

More information on our 2020 performance can be found on pages 34 -37.  AEPS, Adjusted Net Revenue, and Adjusted EBITDA are non-GAAP financial metrics that are reconciled with the most directly comparable GAAP financial metrics in Annex A.

 

 

EXECUTIVE COMPENSATION PROGRAM (for more information, see pages 34 -54)

 

Our executive compensation program is 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. Our program emphasizes pay for performance through the use of short- and long-term incentive awards as a significant percentage of total compensation.

 

The graphs below show each element of total direct compensation (base salary, short-term incentive and long-term incentive) as a percentage of total direct compensation for fiscal 2020 for the Chief Executive Officer (“CEO”) and the other named executive officers listed in the “Summary Compensation Table” the “NEOs”). Long-term incentive awards are composed of non-qualified stock options (“NQSOs”), time-based restricted stock units (“RSUs”) and performance-based restricted stock units (“PSUs”).

 

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Short-Term Incentive Awards

 

The short-term incentive plan (“STIP”) aligns executive performance with achievement of annual company strategic goals and objectives and provides cash rewards for meeting or exceeding specific targets.

 

For fiscal year 2020, the Compensation Committee approved the following changes to the design of the STIP for the NEOs:

 

 

the Adjusted Operating Income metric was replaced with Adjusted EBITDA to better align with our key financial metrics;

 

 

due to the restructuring of the business into three global business units, “key market” metrics were no longer needed and deleted; 

 

 

to ensure equal focus for EBITDA and revenue, the weighting of Adjusted EBITDA was established at 35%, and the weighting of Adjusted Net Revenue was increased to 35%, while AEPS remained at a weighting of 30%; and

 

 

there were two plan designs: one for corporate positions including the Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and Chief Operating Officer (“COO”), and one for executive officers in global business units.

 

The Company’s fiscal year 2020 performance against STIP metrics is summarized below:

 

 

Company-wide financial metrics were AEPS, Adjusted Net Revenue and Adjusted EBITDA, and they factored into short-term incentives for all our NEOs. We exceeded the threshold level for AEPS, Adjusted Net Revenue and Adjusted EBITDA.

 

 

 

Business unit financial metrics were operating segment-based measures of Adjusted Net Revenue and Adjusted EBITDA and they factored into short-term incentives for our NEOs other than our CEO, CFO and COO.

 

 

Actual results on all STIP metrics are set forth in a table on page 46 of this Proxy Statement. STIP payments can range from 0% to 200% of target. In fiscal year 2020, the achievement of our financial metrics resulted in short-term cash incentive payouts for our CEO, CFO and COO of 71% of target and ranged from 38.7% to 100.79% of target for our other NEOs.

 

 

All short-term incentive awards earned for fiscal year 2020 are shown in the “Non-Equity Incentive Plan Compensation” column of the “Summary Compensation Table” later in this Proxy Statement.

 

AEPS, Adjusted Net Revenue and Adjusted EBITDA are non-GAAP financial metrics that are reconciled with the most directly comparable GAAP financial metrics in Annex A. See “STIP Peformance Metrics” for information on the use of non-GAAP numbers in our STIP program.

 

Long-Term Incentive Awards

 

Our long-term incentive plan (“LTIP”) is equity-based and used to attract, retain and reward high caliber executive talent and to encourage long-term strategic decision making that is aligned with shareholder interests. We grant the following awards, which are periodically benchmarked against market data. These awards tie a significant portion of NEO total direct compensation to shareholder value creation, which is measured by share price performance.

 

 

For all NEOs except the CEO, 25% of their equity awards are RSUs vesting in three equal annual installments.

 

 

For the CEO, instead of RSUs, 25% of his equity awards are PSUs vesting ratably over three years only if the Company achieves at least a threshold level of AEPS, Adjusted Net Revenue or Adjusted EBITDA in the first year. These thresholds were met in fiscal year 2020.

 

 

For all NEOs, including the CEO, 25% of their equity awards are PSUs only vesting upon the fulfillment of certain annual goals for return on invested capital (“ROIC”) over a three-year period. Performance-based payouts can range from 0% to 200% of target. The Company achieved 6.7% ROIC for fiscal year 2020. The 2020 portions of PSU awards vested between 0% - 72.5% of target for all NEOs.

 

 

For all NEOs (unless otherwise noted), 50% of their equity awards are NQSOs vesting in three equal annual installments.

 

 

All equity awards granted in fiscal year 2020 are shown in the “Grants of Plan-Based Awards During Fiscal 2020” table later in this Proxy Statement.

 

See further discussion and detail in the “Compensation Discussion and Analysis” section of this Proxy Statement. ROIC is a non-GAAP financial metric that is reconciled with the most directly comparable GAAP financial metric in Annex A. Discussion of the use of ROIC as a metric can be found in the “LTIP Performance Metrics” section of this Proxy Statement.

 

Other Highlights of Our Executive Compensation Program

 

 

A policy regarding “claw-backs” of executive and key manager incentive compensation if there is a material restatement of the Company’s financial statements or if there is misconduct by an executive or key manager;

 

 

 

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

 

 

Policies for responsible share usage and governance of our equity compensation plans, including a prohibition on re-pricing of stock options;

 

 

For equity grants to named executive officers in mid-fiscal year 2018, a double-trigger for accelerated equity vesting upon a change-in-control;

 

 

Removal of tax gross-up provisions from change-in-control agreements entered into beginning in mid-fiscal year 2018; and

 

 

Stock ownership goals of five times base salary for our CEO and three times base salary for our other executive officers, which goals are reviewed annually.

 

Fiscal 2021 Changes to Executive Compensation Program

 

Effective for LTIP awards granted in January 2021, PSUs that vest based on ROIC performance will move from three-year ratable vesting to three-year cliff vesting. The ROIC metric for these PSUs will not change. However, the metric target is a three-year average of annual ROIC, versus individual annual ROIC targets. This change better aligns the PSU grant vesting with the focus of ROIC performance over the three-year performance period of the award, incentivizes long-term strategic thinking and behavior, and enhances the focus on retention. In addition, the PSU grant for the CEO that vests over three years only if the Company achieves at least a threshold level of AEPS, Adjusted Net Revenue or Adjusted EBITDA in the first year of the grant, has been revised to be time-based RSUs. This change was made to increase the long-term orientation of the CEO’s compensation and to be consistent with the time-based RSU grants received by the other NEOs.

 

 

Board Composition and Diversity

 

The Board believes that its membership should reflect a diversity of experience, skills, geography, gender and ethnicity that can enrich its deliberations. The following tables provide information about certain aspects of our Board’s diversity as of January 31, 2021.

 

Board Diversity

 

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Average Board Tenure: 9.0 years

 

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0-4 years: 4

5-9 years: 2

10+ years: 5

 

Additional information on our policies with regard to Board composition and Board diversity may be found in the “Corporate Governance” section of this Proxy Statement.

 

Shareholder Engagement

 

We have periodically proactively reached out to many of our long-term shareholders to obtain their input on our governance, sustainability and compensation programs.  We have generally received positive feedback and have made adjustments in our programs based in part on such feedback when appropriate.

 

 

H.B. FULLER COMPANY’S SUSTAINABILITY EFFORTS, HUMAN RIGHTS POLICY,

CORPORATE GIVING AND EMPLOYEE VOLUNTEERISM

 

At H.B. Fuller, we are committed to creating positive change for all of our stakeholders – customers, employees, shareholders, and communities. We know that our company is best positioned for success when we win the right way, by creating sustainable solutions, taking care of our communities, and planning for the future. Social responsibility is fundamental to who we are as a company, and is also a source of competitive advantage. We continually strive to minimize the environmental impact of our operations, while holding safety as a top priority and providing a dynamic and supportive workplace for our employees. We are also committed to basic human rights in our business and across our supply chain, as sated in the H.B. Fuller Human Rights Policy, which can be found in the “Corporate Responsibility” section of our corporate website (hbfuller.com). We set performance targets for Sustainability, Volunteerism and Philanthropy, and we report on our progress annually, which may be downloaded from the “Corporate Responsibility” section of our corporate website (hbfuller.com). This report, our Human Rights Policy and our website are not incorporated by reference in, and are not part of, this Proxy Statement.

 

 

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 amendments contained in an amendment and restatement of the H.B. Fuller Company 2020 Master Incentive Plan.

 

How can I attend the virtual meeting and vote my shares during the meeting?

 

If you are a shareholder of record, you may attend the meeting and vote your shares electronically during the virtual meeting by visiting www.virtualshareholdermeeting.com/FUL2021. 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 virtual 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 virtual meeting.

 

If you have difficulty logging into the Annual Meeting, please contact technical support at 844-986-0822 (in the U.S.) and at 303-562-9302 (International calls). The virtual meeting website will also present an option for you to attend the Annual Meeting as a guest without logging in, but guests will not be able to vote during the Annual Meeting.

 

If you hold your shares of Common Stock in street name, you may vote your shares electronically during the virtual 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 H.B. Fuller Company 401(k) and Retirement Plan (the “401(k) Plan”) or the H.B. Fuller Canada Retirement & Savings Plan (“CRS Plan”), you may submit a proxy vote as described above, but you may not vote your 401(k) Plan shares in those plans during the virtual meeting.

 

How will management respond to questions during the virtual meeting?  

 

The Company has held its Annual Meeting of Shareholders as a virtual meeting webcast via the Internet since 2016. While our Annual Meeting is just one of the forums where we engage with shareholders, it is an important one. The Board believes that holding the Annual Meeting in a virtual format provides the opportunity for participation by a broader group of shareholders, while reducing the costs and environmental impact associated with planning, holding and arranging logistics for an in-person meeting and helps to safeguard public health during the COVID-19 pandemic. We welcome your suggestions on how we can improve our virtual meeting and make it more effective and efficient.

 

Management will respond to questions from shareholders in the same way as it would if the Company held an in-person meeting. Shareholders who wish to submit a question to the Company for the meeting may do so in advance at www.proxyvote.com and live during the meeting at www.virtualshareholdermeeting.com/FUL2021. 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.

 

 

We intend that the virtual meeting format provide shareholders a level of participation and transparency as close as possible to the traditional in-person meeting format, and we take the following steps to ensure such an experience:

 

●  providing shareholders with the ability to submit appropriate questions in advance of the meeting to ensure thoughtful responses from management and the Board;

 

●   providing shareholders with the ability to submit appropriate questions real-time, limiting questions to one per shareholder unless time otherwise permits;

 

●   answering as many questions as possible in the time allotted for the meeting (the question and answer session will be limited to 15 minutes), without discrimination, as long as the questions are submitted in accordance with the meeting rules of conduct (for example, the Company does not intend to answer questions that are irrelevant to the business of the Company or to the business of the Annual Meeting);

 

●   if there are appropriate questions that we cannot answer during the meeting, we will post the questions and answers thereto on hbfuller.com in the Investor Relations area of our website; and

 

●   offering separate engagement opportunities with shareholders on appropriate matters of governance or other relevant topics as outlined under the “Communications with Directors” section on page 24 in this Proxy Statement.

 

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 Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending November 27, 2021 and “FOR” the approval of the amendment and restatement of the H.B. Fuller Company 2020 Master Incentive Plan to increase shares and adopt certain other amendments.

 

Who is entitled to vote at the meeting?

 

If you were a shareholder of record at the close of business on February 10, 2021, you are entitled to vote at the meeting.

 

As of the record date, 52,091,995 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 52,091,995 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 virtual 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?

 

You may give a proxy to be voted at the meeting either:

 

 

by Internet or telephone, 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 Internet, mail or telephone as instructed on the proxy card, or if you hold shares beneficially in street name, the voting instruction card provided to you by your broker, bank, trustee or nominee.

 

If you hold shares beneficially in street name, you may also vote by proxy over the Internet or by telephone 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 Internet, 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 virtual meeting as described in “Can I vote my shares during the virtual meeting?” below.

 

If you hold any shares of Common Stock in the 401(k) Plan or the CRS 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 and the CRS Plan will be voted by the applicable 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.

 

 

What vote is required for the proposals to be approved?

 

Each director is elected by a plurality of the votes cast, meaning that the three nominees receiving the most votes will be elected. However, in an uncontested election, 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 Ernst & Young LLP as our independent registered public accounting firm, and the approval of the amendment and restatement of the H.B. Fuller Company 2020 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, the ratification of the appointment of Ernst & Young LLP and the approval of the amendment and restatement of the H.B. Fuller Company 2020 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 (“NYSE”). 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 Ernst & Young 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 approval of the amendment and restatement of the H.B. Fuller Company 2020 Master Incentive Plan unless it receives voting instructions from you. Broker non-votes will generally have no effect in determining whether any proposals to be voted on at the meeting are approved.

 

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 Ernst & Young as our independent registered public accounting firm for fiscal year ending November 27, 2021;

 

 

FOR the amendment and restatement of the H.B. Fuller Company 2020 Master Incentive Plan to increase shares and adopt certain other amendments; 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 virtual 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 virtual 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 engaged The Proxy Advisory Group, LLC to assist in the solicitation of proxies and provide related advice and informational support, for a services fee and the reimbursement of customary disbursements which are not expected to exceed $16,000 in total.

 

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 or by telephone. 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. Our Proxy Statement and 2020 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 2022 Annual Meeting, please see “How can a shareholder present a proposal at the 2022 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 2022 Annual Meeting?

 

In order for a shareholder proposal to be considered for inclusion in our Proxy Statement for the 2022 Annual Meeting, the written proposal must be received at our principal executive offices by the close of business on October 27, 2021. 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 or to nominate a director at the 2022 Annual Meeting that would not be included in our Proxy Statement for such meeting, the shareholder must provide notice to us no later than the close of business on January 10, 2022 and no earlier than the close of business on December 9, 2021. The proposal must comply with the requirements set forth in our Bylaws. Please contact the Corporate Secretary for a description of the steps to be taken to present such a proposal or to nominate a director.

 

How can a shareholder get a copy of the Company’s 2020 Annual Report on Form 10-K?

 

If you receive a printed copy of the proxy materials in the mail, our 2020 Annual Report, including our Annual Report on Form 10-K for the year ended November 28, 2020, accompanies this Proxy Statement. The 2020 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 2020 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 2020 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.

 

How do I contact 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 27, 2021. 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, RSUs and PSUs 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.

8,431,517

 1 

 

16.20

%

The Vanguard Group, Inc.

 

5,661,432

 2 

 

10.88

%

State Street Corporation

 

3,311,693

 3 

 

6.36

%

Mairs and Power, Inc.

  2,956,228

 4 

  5.68 %
             

Daniel L. Florness

 

10,718

 5 

 

 

*

Thomas W. Handley

21,106

 5 

 

 

*

Michael J. Happe

 

0

   

 

*

Maria Teresa Hilado

 

29,274

 5 

 

 

*

Ruth S. Kimmelshue

 

3,470

 5 

 

 

*

Lee R. Mitau

101,418

 5, 6 

 

 

*

Dante C. Parrini

 

20,228

 5 

 

 

*

Teresa J. Rasmussen

 

0

   

 

*

John C. van Roden, Jr.

56,604

 5 

 

 

*

R. William Van Sant

20,390

 5 

 

 

*

James J. Owens

1,244,773

 7 

 

2.35

%

John J. Corkrean

 

137,872

 8 

 

 

*

Theodore M. Clark

111,156

 9 

 

 

*

Andrew E. Tometich

 

79,003

 10 

 

 

*

Zhiwei Cai

 

86,261

 11 

 

 

*

All directors and executive officers as a group (19 people)

 

2,255,961

 12 

 

4.19

%

 


*

Indicates less than 1%.

 

 

(1)

This information is based on a Schedule 13G filed with the SEC on January 25, 2021 reporting beneficial ownership as of December 31, 2020. BlackRock, Inc., a parent holding company, reported that it has sole voting power over 8,276,857 shares and sole dispositive power over all of the shares. The holder’s address is 55 East 52nd Street, New York, New York 10055.  As disclosed in the Schedule 13G, BlackRock’s position includes shares held on behalf of iShares Core Small-Cap ETF, constituting more than five percent of our total outstanding common stock.

 

(2)

This information is based on a Schedule 13G/A filed with the SEC on February 10, 2021 reporting beneficial ownership as of December 31, 2020. The Vanguard Group, Inc., an investment adviser, reported that it has shared voting power over 94,403 shares, sole dispositive power over 5,522,497 shares and shared dispositive power over 138,935 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 10, 2021 reporting beneficial ownership as of December 31, 2020. State Street Corporation, a holding company, reported that it has shared voting power over 3,092,308 shares 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 16, 2021 reporting beneficial ownership as of December 31, 2020. Mairs and Power, Inc., an investment advisor, reported that it has sole voting power over 2,934,328 shares and sole dispositive power over all of the 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:

 

Daniel L. Florness

10,718

Lee R. Mitau 

58,747

Thomas W. Handley

19,759

Dante C. Parrini 

18,887

Maria Teresa Hilado

27,928

John C. van Roden, Jr.

41,643

Ruth S. Kimmelshue

2,119

R. William Van Sant

20,390

 

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

32,893

Lee R. Mitau 

120,640

Ruth S. Kimmelshue

9,471

R. William Van Sant

94,930

 

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

 

(6)

Includes 42,671 shares held by a grantor retained annuity trust.

 

(7)

Includes 360 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 1,020,430 shares that could be issued pursuant to stock options which are currently exercisable.

 

(8)

Includes 105,340 shares that could be issued pursuant to stock options which are currently exercisable.

 

(9)

Includes 10,000 shares held by the Clark Family Trust and 99,343 shares that could be issued pursuant to stock options which are currently exercisable.

 

(10)

Includes 69,112 shares that could be issued pursuant to stock options which are currently exercisable.

 

(11)

Includes 59,850 shares that could be issued pursuant to stock options which are currently exercisable.

 

(12)

Includes 366 shares held in trust under the 401(k) Plan, 1,640,008 shares that could be issued pursuant to stock options which are currently exercisable, and 200,190 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.

 

 

DELINQUENT SECTION 16(a) REPORTS

 

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 2020, except that, due to administrative error, James Owens was one day late in filing a Form 4 reporting an open-market sale on June 26, 2020.

 

 

PROPOSAL 1—ELECTION OF DIRECTORS

 

Proposal

 

The Board of Directors is currently composed of eleven directors and is divided into three classes. Generally, 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, Ruth S. Kimmelshue and R. William Van Sant will expire at the Annual Meeting. Thomas W. Handley, Maria Teresa Hilado and Ruth S. Kimmelshue are being nominated to serve an additional three-year term of office until the 2024 Annual Meeting and until their successors are duly elected and qualified or upon their earlier resignation or removal. Mr. Van Sant will retire following the Annual Meeting. Thomas W. Handley, Maria Teresa Hilado and Ruth S. Kimmelshue each have agreed to serve as a director if elected. Following the Annual Meeting, the Board of Directors will be comprised of ten directors. 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 Michael J. Happe, James J. Owens, Dante C. Parrini and John C. van Roden, Jr., will expire at the Annual Meeting in 2022, and the term of office for Class III directors, consisting of Daniel L. Florness, Lee R. Mitau and Teresa J. Rasmussen will expire at the Annual Meeting in 2023.

 

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, at its option, may reduce the number of directors constituting Class I directors. Ms Rasmussen was appointed as a Class III director effective November 20, 2020, and Mr. Happe was appointed as a Class II director effective January 20, 2021.

 

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

 

 

Who are the nominees?

 

The following directors are standing for re-election for a three-year term until the 2024 Annual Meeting of Shareholders and until the successors are duly elected and qualified or upon their earlier resignation or removal.

 

 

Class I (Term Ending in 2021)

 

Thomas W. Handley

 

Age 67

Biography

Independent Director since 2010

 

Committees: Audit, Compensation

Chief Operating Officer (August 2019-present) for Investment Operations of William H. Gates III and Melinda F. Gates and the Bill & Melinda Gates Foundation Trust (“BMGFT”). Previously, Mr. Handley served in various senior executive positions for Ecolab, Inc.("Ecolab"), a global company providing businesses with solutions for clean water, safe food, abundant energy and healthy environments, including President and Chief Operating Officer (2012-April 2019). He also held various management positions (1981-2003) with The Procter & Gamble Company ("P&G"), 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.

 

Qualifications

 

Mr. Handley brings to our Board a valuable operating perspective due to his broad experience in a variety of markets and businesses both domestically and internationally while at BMGFT, P&G and Ecolab. He also has experience with increasing Ecolab’s presence in new markets, 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.

 

Other Public Company Boards: Republic Services, Inc.

 

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.

 

 

Maria Teresa Hilado

 

Age 56

Biography

Independent Director since 2013

 

Committees: Compensation, Corporate Governance and Nominating

Independent Director. Previously, Ms. Hilado served as Chief Financial Officer (2014-2018), at Allergan plc ("Allergan") a global pharmaceutical company; Senior Vice President (2009-2014), Finance and Treasurer of PepsiCo, Inc. ("PepsiCo"); Vice President and Treasurer (2008-2009) of Schering-Plough Corp., a pharmaceutical company now known as Merck & Co. (“Merck”); Assistant Treasurer and a variety of senior finance roles (1990-2007) at General Motors ("GM") Corporation, including positions in M&A, labor negotiations and treasury; and as a Chief Financial Officer (2001-2005) of General Motors Acceptance Corporation Commercial Finance.

 

Qualifications

 

Ms. Hilado brings to our Board strategic leadership experience, providing our Board with her broad and extensive experience in the areas of corporate finance and treasury operations for public companies, based on her experience at Allergan, PepsiCo, Merck and GM. She also has demonstrated business acumen, global experience and strategic insight, skills that greatly enhance our Board. Ms. Hilado also contributes deep audit committee and corporate governance expertise, gained through her service on several other public company boards.

 

Other Public Company Boards: Campbell Soup Company, Zimmer Biomet Holdings, Inc. and PPD, Inc.

 

Ruth S. Kimmelshue

 

Age 57

Biography

Independent Director since 2017

 

Committees: Audit, Compensation

Corporate Senior Vice President, Business Operations & Supply Chain (2015-present) of Cargill, Incorporated ("Cargill"), a global company providing food, agriculture, financial and industrial products and services globally. Ms. Kimmelshue served as a Corporate Leader (2015) for Cargill’s Animal Protein and Salt businesses; Business Unit President (2013-2015) for Cargill Turkey & Cooked Meats; several positions (1999-2013) including Business Unit President of Cargill Salt, and Vice President, Commercial Manager of Cargill AgHorizons, and leader of Cargill Supply Chain Solutions. She also held various positions (1986-1999), at Continental Grain, including roles in grain and oilseed merchandising and trading, facility and general management, economic analysis, and marketing and sales in the U.S. and Europe.

 

Qualifications

 

Ms. Kimmelshue brings to our Board, a depth of experience in leading successful global businesses at Cargill and Continental Grain. She has extensive experience in operations and supply chain, which is 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 reviews and recommends 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 year 2020. The Corporate Governance and Nominating Committee reviews candidates and reports their recommendations to the Board of Directors, including an assessment of a candidate’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 that can enrich its deliberations. The Board invites each candidate to self-identify diversity characteristics, which may include but are not limited to gender, racial or ethnic background, as well as diverse work experiences, military service, or socio-economic or demographic characteristics. It considers diversity when evaluating director candidates and setting priorities for director searches.

 

The Committee considers 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 2020. For the Board to consider a candidate for nomination at the 2022 Annual Meeting, shareholders must submit the required information to the Corporate Secretary by the close of business on October 27, 2021.

 

 Who are the remaining directors?

 

 The following directors are not standing for re-election at the Annual Meeting and their service will continue until the end of their respective terms provided the following information about themselves as of January 31, 2021.

 

 

Class II (Term Ending in 2022)

 

Michael J. Happe

 

Age 49

Biography

Independent Director since January 2021

 

Committees: Audit and Compensation

President and Chief Executive Officer (2016-present), of Winnebago Industries, Inc. (Winnebago), leading North American manufacturer of outdoor lifestyle products that are used primarily in leisure travel and outdoor recreation activities. Prior to joining Winnebago, Mr. Happe served as Executive Officer and Group Vice President at The Toro Company (“Toro”). During his 19 years at Toro, he held a series of senior leadership positions across a variety of domestic and international businesses.

 

Qualifications

 

Mr. Happe brings to the Board a strong business acumen in leading domestic and international businesses at Winnebago and Toro. He is a proven leader with experience at building strong organization structures and driving global sales growth. His extensive experience as an executive leader of significant manufacturing companies will be a great benefit to the Company and the Board.

 

Other Public Company Boards: Winnebago Industries, Inc..

 

James J. Owens

 

Age 56

Biography

Director since 2010

 

Committees: None

President and Chief Executive Officer (2010-present) of H.B. Fuller Company. Previously, Mr. Owens served as Senior Vice President, Americas (2010) and Senior Vice President, North America (2008–2010). He was also Senior Vice President of Henkel Corporation (“Henkel”), a global manufacturer of home care products, cosmetics, toiletries and adhesives products (2008).

 

Qualifications

 

Mr. Owens brings to the Board his extensive experience in the global adhesives business. In addition to his experience with H.B. Fuller and Henkel, Owens spent 22 years with National Starch’s adhesive business, a division of ICI (Imperial Chemical Industries Limited) in a variety of management positions, including experience as a Corporate Vice President and General Manager and as a Vice President and General Manager of Europe/Middle East and Africa. Also, Mr. Owens currently serves as a director of the American Chemical Association. Mr. Owens brings to Board discussions and deliberations his deep knowledge of the adhesives industry and public company Board experience and is the voice of management on the Board.

 

Other Public Company Boards: Donaldson Company, Inc.

 

 

Dante C. Parrini

 

Age 56

Biography

Independent Director since 2012

 

Committees: Compensation (Chair), Corporate Governance and Nominating

Chairman and Chief Executive Officer (2011-present), Glatfelter Corporation ("Glatfelter"), a leading global supplier of engineered materials. Previously Mr. Parrini served as Executive Vice President and Chief Operating Officer (2005-2010) at Glatfelter.

 

Qualifications

 

Mr. Parrini brings to the Board a broad range of management experience, CEO experience and public company Board experience. In his different capacities during 23 years 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.

 

Other Public Company Boards: Glatfelter Corporation

 

John C. van Roden, Jr.

 

Age 71

Biography

Independent Director since 2003

 

Committees: Audit (Chair), Corporate Governance and Nominating

Retired Executive Vice President and Chief Financial Officer (2003-2007) and Consultant (2007-2009) of P.H. Glatfelter Company (“Glatfelter”), a leading global supplier of engineered materials. Mr. van Roden served as Chairman of the Board (2010-2011) and Presiding Director (2010–2014) of Airgas, Inc. ("Airgas"), the nation's leading single-source supplier of gases, welding equipment and supplies, and safety products; Chairman of the Board of Airgas (2010-2011); Executive Vice President and Chief Financial Officer (2003–2007) and Consultant (2007-2009), P.H. Glatfelter Company (“Glatfelter”), a leading global supplier of engineered materials.

 

Qualifications

 

Mr. van Roden brings to the Board a broad range of management, finance and corporate governance experience. 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 and Lukens, Inc., a 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 17 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.

 

 

Class III (Term Ending in 2023)

 

Daniel L. Florness

 

Age 57

Biography

Independent Director since 2018

 

Committees: Audit and Compensation

President and Chief Executive Officer (2016-present),of Fastenal Company (“Fastenal”), which provides fasteners, tools, and supplies to companies to manufacture products, build structures, protect personnel, and maintain facilities and equipment. Previously, Mr. Florness served as Executive Vice President and Chief Financial Officer (2002-2015) and Chief Financial Officer (1996-2002) of Fastenal, and as a Senior Manager (1986-1996) of KPMG LLP.

 

Qualifications

 

Mr. Florness brings to the Board a broad range of financial and management experience, CEO experience and public company Board experience. Prior to becoming CEO at Fastenal, his responsibilities included finance, leadership of a portion of a manufacturing division, product development and procurement, and Fastenal’s national accounts business. He also brings deep knowledge and understanding of corporate strategy, and experience growing a business from a $250 million business with operations in two countries to a $5.6 billion global entity with a direct presence in 25 countries.

 

Other Public Company Boards: Fastenal Company

 

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

 

 

Lee R. Mitau

 

Age 72

Biography

Independent Director since 1996, Independent Chairman of the Board since 2006

 

Committees: Corporate Governance and Nominating (Chair) and Compensation

Chairman of the Board (2002-2006 and 2007 to present) of Graco Inc. (“Graco”). Previously, Mr. Mitau served as Executive Vice President and General Counsel (1995-2013) of U.S. Bancorp.

 

Qualifications

 

Mr. Mitau brings to the Board extensive public company legal and governance expertise. He is widely recognized as an expert and highly regarded speaker in the area of corporate governance. He also has expertise in the areas of corporate governance, corporate finance and mergers and acquisitions through his career as a practicing attorney with Dorsey & Whitney LLP, a global law firm, where he headed the firm’s corporate and securities practice. Since 1990, he has also served on the board of Graco. During his 24 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 Public Company Boards: Chairman of the Board of Graco Inc.

 

Teresa J. Rasmussen

 

Age 64

Biography

Independent Director since November 2020

 

Committees: Audit and Compensation

President and Chief Executive Officer (2018-present) of Thrivent Financial for Lutherans (“Thrivent”), a not-for-profit financial services organization. Previously, Ms. Rasmussen served as President of Thrivent’s core business (2015-2018) and Senior Vice President, General Counsel and Secretary (2005-2015) of Thrivent. Ms. Rasmussen served in a variety of executive roles, including Vice President, Chief Legal Officer and Senior Lawyer with American Express as well as in legal roles at Northeast Securities Corporation, Oppenheimer Wolff & Donnelly LLP, and the U.S. Department of Justice.

 

Qualifications

 

Mr. Rasmussen brings to the Board unique strengths given her extensive financial and legal experience, in addition to her executive and leadership roles at Thrivent. She will contribute greatly to ongoing strategic growth initiatives. She has a deep understanding of how to address changing market trends, build and sustain strong organizational cultures, and deliver quality and service commitments to customers and clients. Ms. Rasmussen serves on the Board of Directors of Thrivent.

 

 

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

 

Interested parties may contact the Board, any Board committee, the Chairman or any independent director, by communicating through the Corporate Secretary, whose contact information may be found on page 13. 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. Florness, Mr. Happe 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 Fastenal Company, of which Mr. Florness is the President and Chief Executive Officer, (ii) the Company and Cargill, Incorporated, of which Ms. Kimmelshue is Corporate Senior Vice President, Business Operations & Supply Chain and (iii) the Company and Winnebago Industries, Inc., of which Mr. Happe is the Chief Executive Officer. In addition, the dollar amounts involved in the transactions with Fastenal, Cargill and Winnebago 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 2020 fiscal year, the Board held five meetings. Each of the directors attended greater than 75% of the meetings of the Board and Board committees on which the directors served during the 2020 fiscal year. In addition, all the directors (except Mr. Happe and Ms. Rasmussen, who were not directors at the time of the Annual Meeting) attended our Annual Meeting of Shareholders held on April 2, 2020.

 

 

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) Michael J. Happe
Daniel L. Florness   Rush S. Kimmelshue
Thomas W. Handley Teresa J. Rasmussen

 

Number of Meetings in fiscal year 2020:  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., Daniel L. Florness and Thomas W. Handley 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 2020 is included in this Proxy Statement.

 

Compensation Committee

 

Dante C. Parrini (Chair) Michael J. Happe Lee R. Mitau
Daniel L. Florness Maria Teresa Hilado Teresa J. Rasmussen
Thomas W. Handley Ruth S. Kimmelshue R. William Van Sant

 

Number of Meetings in fiscal year 2020:  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.

 

 

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 2020 is included in this Proxy Statement.

 

Corporate Governance and Nominating Committee

 

Lee R. Mitau John C. van Roden, Jr.
Maria Teresa Hilado R. William Van Sant
Dante C. Parrini  

 

Number of Meetings in fiscal year 2020:  Four

 

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, strategy and compliance/regulatory risks identified by management, as well as mitigating practices.

 

 

The Company’s strategy is reviewed with the Board on a regular basis and management considers input from the Board in setting and adjusting the Company’s strategy. 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 and compliance and regulatory risks at meetings where these items are 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. During fiscal year 2020, the Board specifically reviewed risks relating to the impact of the COVID-19 pandemic. The Board reviewed a business continuity plan that was enhanced through learnings during the COVID-19 pandemic and the Company’s efforts to ensure the safety of employees while leveraging our global business unit structure to better understand and react to our customer’s needs and to improve speed of decision-making and execution.

 

 

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 does not require 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. Since Mr. Van Sant will be retiring from the Board after the Annual Meeting, the Board will consider the future of the Vice Chair role in the course of its succession planning.

 

 

Director Elections

 

With respect to the election of directors, our Board has adopted a so-called “plurality-plus” standard. A plurality voting standard means that the three nominees receiving the most votes will be elected. 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 is 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. Extensive input is received from each director during these annual performance reviews, as well as during the course of the year, through written evaluation forms and other informal means of communication with the Chairman, Vice Chairman and other members of the Board.

 

 

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, 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, and immediate family members of these parties. In general, the policy provides that certain transactions with these related persons 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 including any 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 2020, 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 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.

 

2020 Review of Director Compensation

 

The Compensation Committee uses an independent compensation consultant to provide ongoing advice and information regarding design and implementation of the Company’s director compensation programs as requested by the Compensation Committee. See further discussion regarding the Compensation Committee’s independent consultant under the heading “Independent Compensation Consultant” in the “Compensation Discussion and Analysis” section in this Proxy Statement. During fiscal 2018 and fiscal 2019, the Company conducted an in-depth market review, including annual board retainers, committee chair retainers and annual stock-based awards. The findings indicated that H.B. Fuller’s non-employee director compensation program was generally aligned to market practice. Due to economic conditions during fiscal 2020, the Compensation Committee determined that no non-employee director compensation program changes would be made during fiscal 2020 and therefore, no market review was conducted.

 

Cash Fees

 

The fees paid to our non-employee directors are set forth in the table below. Non-employee directors may elect to defer their fees into deferred phantom stock units or other deferred investments. If the director elects to defer their cash fees into phantom stock units, the number of phantom stock units received equals the cash retainer divided by the closing price of a share of the Company common stock on the payment date, plus the Company’s 10% matching contribution as described below under Directors’ Deferred Compensation Plan. 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

 
   

Discretionary 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 phantom 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 8, 2020, 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 phantom 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 unit awards are granted under our H.B. Fuller Company 2020 Master Incentive Plan, which is described below. In general, these awards vest three years from the date of grant subject to continued service during that period.

 

Directors’ Deferred Compensation Plan

 

Under this plan, directors may elect to defer all or a percentage of their board and chair retainers into several investments. 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 to defer their retainers into phantom stock units will eventually 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 2020, the Compensation Committee exercised this discretion and awarded each non-employee director 2,654.05 deferred phantom stock units having a grant date fair value of $115,000 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 2020 Master Incentive Plan

 

Under the H.B. Fuller Company 2020 Master Incentive Plan (the “2020 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.

 

Physical Examinations

 

Non-employee directors are reimbursed for a preventative/diagnostic annual physical examination and local travel expenses. 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 2020

 

Name

 

Fees Earned or
Paid in Cash
($)

 

Stock Awards
($)
1

 

All Other
Compensation
($)
2

 

Total
($)

                                 

Daniel L. Florness

    18,000       194,200       863       213,063  

Thomas W. Handley

    -       214,000       140       214,140  

Maria Teresa Hilado

    82,336       123,430       -       205,766  

Ruth S. Kimmelshue

    -       214,000       651       214,651  

Michael J. Losh3

    -       49,500       1,000       50,500  

Lee R. Mitau

    -       304,200       3,088       307,288  

Dante C. Parrini

    99,966       115,000       140       215,106  

Teresa J. Rasmussen

    22,500       -       -       22,500  

John C. van Roden, Jr.

    110,000       115,000       -       225,000  

R. William Van Sant

    -       255,250       4,015       259,265  

 


 

(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 (with the exception of Mr. Losh, Ms. Rasmussen and Mr. Happe), received an award of 2,654.05 deferred phantom stock units on July 8, 2020 with a grant date fair value of $115,000. Also included in this column are fees deferred into deferred phantom stock units at the election of the director. Elections are made on a calendar year basis. For calendar year 2020: Ms. Hilado, Ms. Rasmussen, Mr. Parrini and Mr. van Roden elected to receive their retainers in cash; Mr. Florness elected to receive 20% of his retainer in cash and 80% in deferred phantom stock units; and Mr. Handley, Ms. Kimmelshue, Mr. Losh, Mr. Mitau and Mr. Van Sant elected to receive 100% of their retainers in deferred phantom stock units. A portion of Ms. Hilado’s first quarter retainer was deferred into phantom stock units due to her deferral election for calendar year 2019. For those directors who elect to defer all or a portion of their fees into deferred phantom stock units, the Company makes a 10% matching contribution of additional phantom stock units. These amounts are also included in this column. This column does not include any dividend equivalents. Mr. Happe is not included in this table as he was appointed effective January 20, 2021.

 

During all or a portion of their service on the Board, Mr. Florness, Mr. Handley, Ms. Hilado, Ms. Kimmelshue, Mr. Mitau, Mr. van Roden and Mr. Van Sant elected to defer some or all of their compensation into deferred phantom stock units. The aggregate number of deferred phantom stock units and restricted stock units held by each non-employee director as of November 28, 2020 were as follows:

 

 

Name

 

Deferred
phantom stock
Units

(#)

         

Daniel L. Florness

    10,339  

Thomas W. Handley

    52,178  

Maria Teresa Hilado

    27,928  

Ruth S. Kimmelshue

    11,116  

Lee R. Mitau

    178,483  

Dante C. Parrini

    18,886  

John C. van Roden, Jr.

    41,642  

R. William Van Sant

    114,689  

 

No non-employee director held any stock options as of November 28, 2020. Only Mr. Florness held RSUs as of fiscal 2020 year end. As of November 28, 2020, Mr. Florness held 1,344 RSUs.

 

(2)

These amounts represent the following: for Mr. Florness, dividends paid on unvested restricted stock units in the amount of $863; for Mr. Handley, a prize in the amount of $140; for Ms. Kimmelshue, dividends paid on restricted stock units that vested during fiscal year 2020 in the amount of $651; for Mr. Losh, a matching gift by the Company to a qualified educational institution of $1,000; for Mr. Mitau, a director physical in the amount of $3,088; for Mr. Parrini, a prize in the amount of $140; and for Mr. Van Sant, a prize in the amount of $140, a matching gift by the Company to a qualified educational institution of $1,000 and director physicals in the amount of $2,875.

 

(3)

Mr. Losh retired from the Board effective April 2, 2020.

 

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, 2020 stock values. At the time of this review, all directors have met or exceeded this goal or are on track to meet this goal within five years of being elected as a director.

 

 

EXECUTIVE COMPENSATION 

 

Compensation Discussion and Analysis

 

Executive Summary

 

This Compensation Discussion and Analysis describes our executive compensation program, including its underlying philosophy, policies and practices; significant executive compensation developments during the fiscal year; and the determinations made on material elements of compensation awarded to each of our executive officers (the “NEOs”) for fiscal year 2020:

 

James J. Owens

President and Chief Executive Officer

John J. Corkrean

Executive Vice President and Chief Financial Officer

Theodore M. Clark

Executive Vice President and Chief Operating Officer

Andrew E. Tometich

Executive Vice President, Hygiene, Health and Consumable Adhesives

Zhiwei Cai

Executive Vice President, Engineering Adhesives

 

This discussion and analysis focuses on the information contained in the following compensation tables and accompanying footnotes and narrative for fiscal year 2020. We discuss compensation actions taken during other fiscal years to the extent they enhance the understanding of our executive compensation program for fiscal year 2020.

 

Elements of Executive Compensation. We use base salary, a short-term incentive plan with cash awards (“STIP”) and a long-term incentive plan with equity grants (“LTIP”), as well as benefits, to attract and motivate our executive officers to achieve results that increase shareholder value. We generally align with the market median for base salary, short-term incentive and long-term incentive, which comprise total direct 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 Executive Compensation Program" on page 42.

 

Fiscal Year 2020 Business Results. During fiscal year 2020, the COVID-19 pandemic had a significant disruptive impact on global economies, supply chains and industrial production, which resulted in reduced demands in some markets, while at the same time driving elevated demand for adhesive solutions for paper products, food and e-commerce packaging, and hygiene and medical goods. We effectively managed our global operations throughout the pandemic, implementing rigorous protocols focused on the health and safety of our employees and ensuring business continuity across our supplier, manufacturing and distribution networks. These actions enabled us to meet our customers’ increased demands for adhesive solutions for essential goods, effectively allocate our resources and manage expenses, and deliver strong financial results, while maintaining a safe workplace for employees. Recognizing the success of the Company and our ability to meet the unexpected challenges of fiscal year 2020, we compensated our NEOs according to the design of our executive compensation programs as adopted at the beginning of the fiscal year. Overall, the compensation provided to our NEOs is aligned with our fiscal year 2020 business results. No adjustments were made for our NEOs and we maintained the metrics and targets that were originally established for our fiscal year 2020 annual and long-term incentive plans.

 

At the beginning of fiscal year 2020, the Company moved from five to three reporting segments: Hygiene, Health and Consumable Adhesives, Engineering Adhesives and Construction Adhesives, in order to enhance its strategic alignment across end markets, and position the Company to better develop and deliver adhesive solutions around the world.

 

 

Net income for the 2020 fiscal year was $124 million, or $2.36 diluted earnings per share (“EPS”), versus net income of $131 million, or $2.52 EPS, in the 2019 fiscal year. Adjusted diluted earnings per share (“AEPS”) in the 2020 fiscal year were $2.84, down 4.1% versus the prior year.

 

Net revenue for the 2020 fiscal year was $2,790 million, down 3.7% versus the 2019 fiscal year.

 

Adjusted Earnings Before Interest, Taxes, Debt and Amortization (“Adjusted EBITDA”) for fiscal year 2020 was $407 million, down 5.9% compared with $432 million in the 2019 fiscal year. The Company’s cash flow from operations of $322 million increased 23% year-over-year, and enabled us to pay down a total of $205 million of debt for the year, above our $200 million target.

 

 

Within our Hygiene, Health and Consumable Adhesives segment, which accounts for 48% of our net revenue, segment revenue totaled $1,333 million for fiscal year 2020, an increase of 0.3% from fiscal year 2019, and segment Adjusted EBITDA totaled $182 million, an increase of 9.5% from fiscal year 2019.

 

 

Within our Engineering Adhesives segment, which accounts for 39% of our net revenue, segment revenue totaled $1,088 million for the 2020 fiscal year, a decrease of 6.1% from fiscal year 2019, and segment adjusted EBITDA totaled $168 million, a decrease of 15.1% from the fiscal year 2019.

 

 

Within our Global Construction Adhesives segment, which accounts for 13% of our net revenue, segment revenue totaled $369 million for fiscal year 2020, a decrease of 6.9% from fiscal year 2019, and segment adjusted EBITDA totaled $52 million, a decrease of 8.5% from fiscal year 2019.

 

For the 51st consecutive year, we implemented an increase in the amount of quarterly cash dividends paid to shareholders, with a 2% increase this year.

 

More information on our fiscal year 2020 performance can be found on pages 34 - 37. AEPS, Adjusted Net Revenue and Adjusted EBITDA are defined in footnotes 4, 5 and 6 on page 47.  These metrics are non-GAAP financial metrics that are reconciled with the most directly comparable GAAP financial metrics in Annex A.

 

STIP Performance Metrics. For our short-term incentive plan, we measure our success primarily by the Company-wide financial metrics which are aligned with our strategic plan. These metrics consist of Adjusted Net Revenue, Adjusted EBITDA, and AEPS. For fiscal year 2020 we replaced Adjusted Operating Income with Adjusted EBITDA to better align how we evaluate the Company’s operating performance. Adjusted EBITDA is a measure of operational effectiveness and profitability, and AEPS is an overall measurement of profitability and the effectiveness of the following growth strategies:

 

 

to grow organically by targeting our growth efforts on high value adhesive solutions and specific segments where we see opportunity for competitive strength;

 

 

to manage margins by properly pricing our products and controlling expenses;

 

 

to effectively execute the Company’s Global Business Unit realignment, including streamlining our organizational structure, standardizing and simplifying key process and reducing costs; and

 

 

 

to efficiently deploy cash generated from operations in order to repay debt balances and return additional value to shareholders.

 

AEPS, Adjusted Net Revenue and Adjusted EBITDA are non-GAAP measures. A definition of these measures is found on page 47, and a full reconciliation of these items is found in Annex A of this Proxy Statement.

 

The annual, short-term incentive plan targets for AEPS, Adjusted Net Revenue and Adjusted EBITDA are consistent with the Company’s strategic financial targets.

 

STIP Performance and Compensation Outcomes.

 

 

Company-wide financial metrics were AEPS, Adjusted Net Revenue and Adjusted EBITDA, and they factored into short-term incentives for all our NEOs. We exceeded the threshold level for Adjusted Net Revenue, Adjusted EBITDA and AEPS.

 

 

Business financial metrics were operating segment measures of Adjusted Net Revenue and Adjusted EBITDA and they factored into short-term incentives for our NEOs other than our CEO, CFO and COO.

 

 

Actual results on all STIP metrics are set forth in a table on page 46 of this Proxy Statement. STIP payments can range from 0% to 200% of target. In fiscal year 2020, the achievement of our financial metrics resulted in short-term cash incentive payouts for our CEO, CFO and COO of 71% of target and ranged from 38.7% to 100.79% of target for our other NEOs.

 

 

All short-term incentive awards earned for fiscal year 2020 are shown in the “Non-Equity Incentive Plan Compensation” column of the “Summary Compensation Table” later in this Proxy Statement.

 

AEPS, Adjusted Net Revenue, and Adjusted EBITDA are non-GAAP financial metrics that are defined on page 47 and reconciled with the most directly comparable GAAP financial metrics in Annex A.

 

LTIP Performance Metrics. For our LTIP, we use ROIC as the performance metric for PSUs, which account for 25% of the equity awards granted to our NEOs, including our CEO. ROIC is a common metric for LTIPs and it is a key measure for assessing how much profit a company is generating for every dollar that is invested, providing a clear picture of how efficiently a company is using the capital that has been invested in it to generate income. Further, the CEO’s PSUs which account for 25% of his equity awards vest if at least a threshold level of AEPS, Adjusted Net Revenue or Adjusted EBITDA is met. We use these metrics in the STIP and the LTIP because they are key financial metrics for both our annual and long-term strategic plans.

 

LTIP Performance and Compensation Outcomes.

 

 

For all NEOs except the CEO, 25% of their equity awards are RSUs vesting in three equal annual installments.

 

 

For the CEO, instead of RSUs, 25% of his equity awards are PSUs vesting ratably over three years only if the Company achieves at least a threshold level of AEPS, Adjusted Net Revenue or Adjusted EBITDA in the first year. These thresholds were met in fiscal year 2020.

 

 

For all NEOs, including the CEO, 25% of their equity awards are PSUs vesting only upon the fulfillment of annual goals for ROIC over a three-year period. Performance-based payouts can range from 0% to 200% of target. The Company achieved 6.7% ROIC for fiscal year 2020.

 

  For the January 2018 grant, the metric target was 8.1% ROIC. Therefore, the vesting for that part of the grant was at 65% of target for all NEOs;

 

 

 

For the January 2019 grant, the metric target was 9.0% ROIC. Therefore, the vesting for that part of the grant was at 0% of target for all NEOs; and

 

 

For the January 2020 grant, the metric target was 7.8% ROIC. Therefore, the vesting for that part of the grant was at 72.5% of target for all NEOs;

 

 

All equity awards granted in fiscal year 2020 are shown in the “Grants of Plan-Based Awards During Fiscal 2020” table later in this Proxy Statement.

 

The fiscal year 2020 ROIC target of 7.8% is lower than in previous years due to fiscal year 2019 results being negatively impacted by foreign currency and the impact of the divestiture of the surfactants and thickeners business. Therefore, the fiscal year 2020 ROIC target was established based on a lower baseline.

 

ROIC is a non-GAAP financial metric that is reconciled with the most directly comparable GAAP financial metric in Annex A.

 

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

 

 

A policy regarding “clawbacks” of executive and key manager incentive compensation if there is a material restatement of the Company’s financial statements or if there is misconduct by an executive or key manager;

 

 

A prohibition on hedging, pledging and certain other transactions in Company securities by directors and executive officers;

 

 

Policies for responsible share usage and governance of our equity compensation plans, including a prohibition on re-pricing of stock options;

 

 

For equity grants to NEOs beginning in mid-fiscal year 2018, a double-trigger for accelerated equity vesting upon a change-in-control;

 

 

Removal of tax gross-up provisions from change-in-control agreements entered into beginning in mid-fiscal year 2018; and

 

 

Stock ownership goals of five times base salary for our CEO and three times base salary for our other executive officers, which goals 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, restricted stock units and performance 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 peer group data points when it reviews executive compensation as described below.

 

General Survey Data. This year, we reviewed survey data for companies with a revenue range of $1-6 billion based on our fiscal year 2019 revenue and expectations for fiscal year 2020 revenue. The Compensation Committee used published survey data from the following sources to analyze the appropriate level of compensation for our U.S.-based NEOs:

 

    ●  AON Hewitt ($2.5 – 4.99 billion revenue categories for corporate positions (excluding the CEO) and relevant revenue categories for non-corporate positions (other U.S.-based NEOs))

 

   ●  Willis Towers Watson ($1-6 billion revenue category for corporate positions (CEO, COO and CFO) and relevant revenue categories for non-corporate positions (other U.S.-based  NEOs))

 

The Company participates in both surveys. The Aon Hewitt survey includes 450 companies and is titled "AON Hewitt U.S. Total Compensation Measurement™ (TCM™) Total Compensation Industry – Executive and Senior Management – 2019”, and the Willis Towers Watson survey includes 811 companies and is titled "Willis Towers Watson 2019 CDB General Industry Executive Compensation Survey Report – U.S.”

 

Peer Group Data. Our peer group consists of comparable, publicly-traded companies with revenues between $1.018 - $7.070 billion (for the most recent fiscal year):

 

Albemarle Corporation

FMC Corporation

Ashland Global Holdings Inc.

Graco Inc.

Avery Dennison Corporation

Hexcel Corporation

Avient Corporation

International Flavors & Fragrances Inc.

Cabot Corporation

Nordson Corporation

Celanese Corporation

Olin Corporation

Donaldson Company, Inc.

RPM International Inc.

Ferro Corporation

Sensient Technologies Corporation

 

From fiscal year 2019 to 2020, there were no changes to our peer group, except that PolyOne Corporation changed its name to Avient Corporation.

 

 

Use of Market Data in Fiscal 2020. 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 year 2020, 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 supplements the survey data with peer group data, as a reference point for compensation design considerations. This data is derived from the most recent proxy statement available for each peer company.

 

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 sources noted above and taking into account the recommendations of the CEO.

 

In determining the particular elements of the executive compensation program, the Compensation Committee selects elements that will motivate executives to enhance our performance, such as our earnings and revenue growth, and business-unit-specific operational and financial performance. Other considerations include furthering our business objectives, fulfilling corporate responsibilities (including equity among executive officer positions and affordability), maintaining competitive practices and trends, and observing 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.

 

Independent Compensation Consultant

 

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. The Compensation Committee engages Willis Towers Watson US LLC (“WTW”) to provide ongoing advice and information regarding design and implementation of the Company’s executive compensation programs as requested by the Compensation Committee. In addition, from time to time, management receives information from the independent compensation consultant in preparation for Compensation Committee meetings.

 

 

In fiscal year 2020, the Company paid WTW for services as noted below.

 

Services

 

Fees

Executive and Board Compensation Support

    $112,744  

North America Benefits Consulting, Administration and Actuarial Valuations

    $747,103  

Retirement Plan Investment Advisory Services (EIMEA)

    $109,475  

 

WTW also provides broker services for insurance in Brazil but receives no direct payment from the Company.

 

All additional services performed by WTW, along with their affiliated companies, were approved by management and performed at the direction of management in the ordinary course of business. In assessing the independence of WTW, the Compensation Committee considered the factors contained in the applicable SEC and NYSE rules, including the amount and nature of the additional consulting work provided to the Company by WTW and concluded that no conflict of interest exists that would prevent WTW from independently advising the Committee.

 

A representative of the independent compensation consultant generally attends Compensation Committee meetings to serve as a resource for the Compensation Committee. 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.

 

 

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 2020, over 80% of the votes cast on the Say on Pay Proposal were voted in favor of the proposal. While shareholders have endorsed the Company’s executive compensation program, the Compensation Committee made changes to the long-term incentive plan moving to a three-year cliff vesting for PSUs, as described under the heading “Fiscal 2021 Changes to the Executive Compensation Program.” The Compensation Committee will continue to take into account the outcome of the Company’s Say on Pay Proposal votes.

 

 

Key Elements of the Executive Compensation Program

 

Element and Purpose 

 

Features and Market Positioning

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-wide financial goals and objectives, as well as segment goals and objectives. 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)

   
     

Non-qualified stock options (“NQSOs”), performance-based restricted stock units (“PSUs”) and time-based restricted stock units (“RSUs”) attract, retain and reward high caliber executive talent; reward for performance and 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 NQSOs, PSUs and RSUs provides an appropriate balance between performance-based rewards and retention. Appreciation of Common Stock increases value of equity awards. PSUs 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.

 

We provide NEOs market competitive perquisite and other benefit programs. Some of these benefits 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.

 

 

 Fiscal 2020 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 2020 are set forth in the following table.

 

Named Executive Officer

 

Base Salary as of

12/1/2019 ($)

   

Base Salary as of

2/1/2020 ($)

   

Percent Increase from
12/1/2019 to 2/1/2020 (%)

 

James J. Owens

President and Chief

Executive Officer

  1,177,300     1,236,165     5.00%  
                   

John J. Corkrean

Executive Vice President

and Chief Financial Officer

  525,000     545,000     3.81%  
                   

Theodore M. Clark

Executive Vice President

and Chief Operating Officer

  525,000     545,000     3.81%  
                   

Andrew E. Tometich

Executive Vice President,

Hygiene, Health and Consumable Adhesives

  503,000     503,0001     n/a1  
                   

Zhiwei Cai

Executive Vice President,

Engineering Adhesives

  500,000     525,000     5.0%  

 


(1)

Mr. Tometich joined the Company effective August 27, 2019 and was therefore ineligible for a base salary increase as of February 1, 2020.

 

Analysis of Fiscal 2020 Base Salaries and Incentive Targets. Based on the competitive market data review, the Compensation Committee approved changing Mr. Owens’ short-term incentive target from 110% of base salary to 120% of base salary and the long-term incentive target from 350% of base salary to 400% of base salary. Mr. Owens received a 5.0% merit increase after a review of his performance and the competitive market data. Mr. Owens’ base salary is in the fourth quartile of the CEO salary range.

 

Mr. Corkrean’s short-term incentive target remained at 75% of base salary, and his long-term incentive target increased from $750,000 to $1,000,000 based on a 2019 review of market data for the CFO position. Mr. Corkrean received a merit increase of 3.81% after a review of his performance. Mr. Corkrean’s base salary is in the second quartile of the salary range for his position.

 

 

Mr. Clark’s short-term incentive target is 75% of base salary, and his long-term incentive target is $1,000,000. Mr. Clark received a merit increase of 3.81% after a review of his performance. Mr. Clark’s base salary is in the second quartile of the salary range for his position.

 

Mr. Tometich’s short-term incentive target remained at 65% of base salary and his long-term incentive target is $600,000. Due to Mr. Tometich’s start date of August 27, 2019, he was not eligible for a merit increase during fiscal year 2020. Mr. Tometich’s base salary is in the third quartile of the salary range for his position. In connection with his hiring during fiscal year 2019, Mr. Tometich also received a long-term incentive grant in January 2020 with a value of $300,000 (consisting of 50% non-qualified stock options and 50% restricted stock units), vesting 50% in 2021 and 50% in 2022 based on continued employment.

 

Mr. Cai’s short-term incentive target remained at 65% of base salary and his long-term incentive target increased from $500,000 to $529,000 in fiscal year 2020 based on a review of market data for his position. Due to his performance, Mr. Cai received a long-term incentive award valued at $600,000 and his base salary increased by 5%. Mr. Cai’s base salary is in the third quartile of the salary range for his position.

 

For fiscal year 2020, all merit increases for the NEOs (except for Mr. Tometich, who was not eligible for a merit increase in fiscal year 2020 based on his hire date) fell within the Company’s general merit increase guidelines for our general employee population. The range of merit increases provided to NEOs was 0% to 5%.

 

Fiscal 2020 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.

 

For fiscal year 2020, based on market data, the annual cash incentive target opportunity for our executive officers ranged from 65% to 120% of base salary at a target level of performance. Potential payouts range from 0% to 200% of the target award based on attainment of segment operating and/or Company-wide financial goals. The threshold level of performance for the annual cash incentive was set at 80% of each financial target, except the net revenue metrics had a threshold level of 90% of target, meaning that financial performance must meet or exceed these thresholds for executive officers to earn at least 50% of the target incentive. Higher payouts are possible if performance is above target levels. For example, at the superior level of performance (110% of target for net revenue and 120% of target for all other metrics), payout is 200% of target.

 

For fiscal year 2020, the Compensation Committee of the Company approved the following changes to the design of the STIP for the NEOs:

 

 

the Adjusted Operating Income metric was replaced with Adjusted EBITDA to better align with our key financial metrics;

 

 

due to the restructuring of the business into three global business units, “key market” metrics were no longer needed and deleted;

 

 

to ensure equal focus for EBITDA and revenue, the weighting of Adjusted EBITDA was established at 35%, and the weighting of Adjusted Net Revenue was increased to 35%, while AEPS remained at a weighting of 30%, to ensure equal focus for revenue and EBITDA; and

 

 

there were two plan designs: one for corporate positions including the CEO, the CFO and the COO, and one for executive officers in global business units.

 

 

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 2020 Short-Term Incentive Awards. The Compensation committee approved the STIP metrics because they were representative 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 2020, we considered our prior year results, economic conditions and expected business opportunities. At the beginning of fiscal year 2020, the targets were challenging but achievable, and they became even more challenging with the onset of the global COVID-19 pandemic.

 

 

For fiscal year 2020, the goals for threshold, target and superior level of performance, the weighting of the metrics, and the actual performance were as set forth below. These amounts are shown on a non-GAAP basis, which differs from the reported GAAP results discussed under the section entitled “Fiscal 2020 Business Results”, due to adjustments which are allowed under the short-term incentive plan as set forth in a footnote in the table below.

 

 

Named

Executive

Officer

2020 Target Cash

Incentive 

2020

Actual
Cash

Incentive
Paid ($
and % of

base salary)1

 

Metric

 

Weighting

Threshold

(50% payout)2

Target

100% payout)2

Superior

(200% payout)2

 

Actual
Performance
($ and
% of
Target
)2,3

James J. Owens

 

 

 

John J. Corkrean

 

 

 

Theodore M. Clark

$1,471,432

(120% of base salary)

 

 

$406,209

(75% of base salary)

 

 

$406,209

(75% of base salary)

$1,044,717

(85.20% of base salary)

 

 

$288,408

(53.25% of base salary)

 

 

$288,408

(53.25% of base salary)

 

 

 

 

AEPS4

 

 

 

 

30%

 

$2.68

 

 

$3.35

 

 

$4.02

 

 

 

$2.83

(84.48% of target)

     

 

Adjusted Net Revenue5

 

35%

$2,634,210

 

$2,926,900

 

$3,219,590

 

$2,802,731

(95.76% of target)

     

 

Adjusted EBITDA6

 

35%

$366,080

 

$457,600

 

$549,120

 

$405,521

(88.62% of target)

 

Andrew E. Tometich

 

$326,950

(65% of base salary

 

$329,517

(65.51% of base salary)

 

AEPS4

 

30%

$2.68

 

$3.35

 

$4.02

 

 

$2.83

(84.48% of target)

     

Hygiene, Health and Consumable Adhesives Segment Net Revenue5

 

 

35%

$1,199,265

 

$1,332,516

 

$1,465,768

 

 

$1,344,234

(100.88% of target)

     

Hygiene, Health and Consumable Adhesives Segment Adjusted EBITDA6

35%

$139,026

 

$173,782

 

$208,538

 

 

$183,052

(105.33% of target)

 

Zhiwei Cai

 

$338,497

(65% of base salary

 

$130,982

(25.15% of base salary)

 

AEPS4

 

30%

$2.68

 

$3.35

 

$4.02

 

$2.83

(84.48% of target)

     

Engineering Adhesives Segment Adjusted Net Revenue5

 

35%

$1,070,734

 

$1,189,705

 

$1,308,675

 

$1.089,984

(91.62% of target)

     

Engineering Adhesives Segment Adjusted EBITDA6

 

35%

$175,605

 

$219,506

 

$263,407

 

$166,142

(75.69% of target)

 

 

_____________________

(1)

The actual cash incentive paid 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 year 2020 is shown in the “Grants of Plan-Based Awards During Fiscal Year 2020” table in this Proxy Statement.

 

(2)

All values in this column are in thousands except for AEPS.

 

(3)

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, will not be included in metric calculations and (e) other items as publicly disclosed in the Company’s quarterly earnings release will not be included in metric calculations. However, the above adjustments (a) – (d) will not be made to the extent they are inconsistent with publicly disclosed earnings.

 

(4)

AEPS is a non-GAAP financial measure which excludes unusual items referenced in Annex A. Management believes that these adjustments improve the comparability of period-to-period results and are consistent with how it evaluates the Company’s operating performance. AEPS is reconciled with the most directly comparable GAAP measure in Annex A.

 

(5)

Adjusted Net Revenue is a non-GAAP measure which 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. Management believes that these adjustments improve the comparability of period-to-period results and are consistent with how it evaluates the Company’s operating performance. Adjusted Net Revenue is reconciled with the most directly comparable GAAP measure in Annex A.

 

(6)

Adjusted EBITDA is a non-GAAP financial measure which is defined as earnings before interest, tax, depreciation and amortization on a constant currency basis. Management believes that these adjustments improve the comparability of period-to-period results and are consistent with how it evaluates the Company’s operating performance. Adjusted EBITDA is reconciled to the most directly comparable GAAP measure in Annex A.

 

 

The following chart shows the percentage increase in fiscal year 2020 performance targets over fiscal year 2019 actual results for each measure used to determine the short-term incentive payouts:

 

     

FY 2020 Target to FY
2019 Actual Increase/Decrease

AEPS

    13.56 %

Company Adjusted Net Revenue

    .3 %

Company Adjusted EBITDA

    5.36 %

Hygiene, Health and Consumable Adhesives Segment Adjusted Net Revenue

    -.71 %1,2

Hygiene, Health and Consumable Adhesives Segment Adjusted EBITDA

    4.09 %1

Engineering Adhesives Segment Adjusted Net Revenue

    2.07 %1

Engineering Adhesives Segment Adjusted EBITDA

    10.39 %1

 

_____________________

 

 

(1)

For comparative purposes, FY2019 actual results were recast retrospectively to reflect the Company’s realignment from five to three reportable segments as of December 1, 2019.

 

 

(2)

Fiscal year 2020 target is lower than fiscal year 2019 actual results due to expected negative foreign currency exchange effects.

 


 

Fiscal 2020 Long-Term Incentive Compensation

 

In General. For all NEOs except the CEO, the fiscal year 2020 long-term incentive plan design included grants with a mix of 50% NQSOs, 25% RSUs and 25% PSUs, based on the grant date fair market value of common stock. Instead of RSUs, the CEO received PSUs, in a mix of 50% NQSOs and 50% PSUs.

 

Stock Options. The NQSOs 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, or once employee becomes retirement eligible. Retirement eligibility is defined as 55 years of age and 10 years of service. If an NEO is retirement eligible, stock options immediately vest upon retirement. For awards granted in fiscal year 2019 and later, if an NEO does not remain employed for 180 days from the grant date, the award is forfeited regardless of retirement eligibility. 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.

 

Restricted Stock Units. Restricted stock units provide a benefit to an employee only if the employee remains employed until the award vests or once the employee becomes retirement eligible. 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. We grant two kinds of restricted stock units.

 

 

RSUs. For NEOs other than the CEO, 25% of their equity awards are RSUs vesting based on continued employment over time. RSUs typically vest in three equal annual installments from the grant date, which enhances retention.

 

 

Instead of RSUs, the CEO receives a PSU grant that will vest ratably over three years if the Company achieves at least a threshold level of AEPS, Adjusted Net Revenue or Adjusted EBITDA in the first year.

 

 

PSUs. For all NEOs including the CEO, 25% of their equity awards are PSUs vesting only if the Company achieves at least a threshold level of ROIC performance. PSUs vest ratably over three years depending on our performance against the ROIC metric for each year. Payouts range from 0% to 200% of target. Beginning in fiscal year 2021, PSUs will cliff vest three years from the grant date.

 

 

If an NEO is retirement eligible, RSUs and PSUs continue to vest pursuant to the terms of the award. For awards granted in fiscal year 2019 and later, if an NEO does not remain employed for 180 days from the grant date, the award is forfeited regardless of retirement eligibility.

 

Fiscal 2020 Long-Term Incentive Awards. 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 value of stock options, RSUs and PSUs 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

 

Target Value of
Long-Term Incentive
for FY 2020 ($)

 

Approximate Value of
Long-Term Incentive
for FY 2020 ($)

James J. Owens

    4,944,661  1      4,944,661  1

John J. Corkrean

    1,000,000  2      1,000,000  

Theodore M. Clark

    1,000,000       1,000,000  

Andrew E. Tometich

    600,000       600,000  

Zhiwei Cai

    529,000  3      600,000  

________________

 

(1)

Based on a review of market data, the target value for Mr. Owens increased from 350% of base salary to 400% of base salary.

 

 

(2)

Based on a review of market data, the target value for the EVP, CFO position increased from 750,000 to 1,000,000.

 

 

(3)

Based on a review of market data, the target value for EVP, Engineering Adhesives position increased from $500,000 to $529,000. Due to his performance, Mr. Cai received a long-term Incentive award valued at $600,000.

 

In addition to his long-term incentive award, Mr. Tometich received a new hire grant of 50% NQSOs and 50% RSUs with a grant date fair value of approximately $300,000. The NQSOs and RSUs vested 50% on January 24, 2021 and 50% will vest on January 24, 2022, subject to continued employment. Mr. Tometich’s grant was given to both attract Mr. Tometich to the Company and to help offset the loss of awards at his previous employer.

 

 

All grants are set forth in the “Grants of Plan-Based Awards During Fiscal 2020” table later in this Proxy Statement.

 

Analysis of Fiscal 2018 -2020 Long-Term Incentive Awards. Fiscal year 2020 ROIC performance and related vesting of PSUs are set forth below.

 

Fiscal Year 2020 ROIC Performance Goals and Achievement

 

2018 PSU
Grant (Year 3)

2019 PSU
Grant (Year 2)

2020 PSU
Grant (Year 1)

       

Superior

12.1%

13.0%

11.8%

Target

8.1%

9.0%

7.8%

Threshold

6.1%

7.0%

5.8%

< Threshold

0%

0%

0%

Actual

6.7%

6.7%

6.7%

Payout Percent

65%

-0-

72.5%

 

The fiscal year 2020 ROIC target of 7.8% is lower than in previous years due to fiscal year 2019 results being negatively impacted by foreign currency and the impact of the divestiture of the surfactants and thickeners business. Therefore, the fiscal year 2020 ROIC target was established based on a lower baseline.

 

For all grants, if performance in a year is less than threshold (target ROIC less 2%), no shares will be earned. If the threshold level is achieved, the PSUs will vest at 50%. If the target level is achieved, the PSUs will vest at 100%. If the superior level (target ROIC plus 4%) is achieved, the PSUs will vest at 200%. Performance between threshold and target and target and superior will be calculated on a straight-line basis.

 

ROIC is a non-GAAP financial metric that is reconciled with the most directly comparable GAAP financial metric in Annex A.

 

25% of the CEO’s equity awards are PSUs vesting in three equal installments only if one or more of the performance measures in the CEO’s short-term incentive plan (AEPS, Adjusted Net Revenue or Adjusted EBITDA) are achieved at the threshold level for fiscal year 2020 as determined by the Compensation Committee. For the January 2020 grant of PSUs, the threshold level was met for each of these measures as of January 24, 2021. Therefore, these PSUs will vest according to the three-year vesting schedule. There is no higher level of payout for these PSUs if target or superior performance is achieved for any of the measures.

 

Fiscal year 2020 RSU and PSU awards are set forth in the “Grants of Plan-Based Awards During Fiscal Year 2020 table in this Proxy Statement.

 

Fiscal 2017 Performance-Based NQSO Award. In October 2017, the Compensation Committee approved a one-time performance-based NQSO award to NEOs to provide incentive for the successful integration of the Royal Adhesives acquisition. These performance-based NQSOs would have vested on January 31, 2021 if the Company had achieved Adjusted EBITDA at a certain threshold level for fiscal year 2020. The threshold performance level was not achieved. Therefore, none of these NQSOs vested.

 

 

Other Executive Benefits and Perquisites

 

In General. We provide the following perquisites and benefits to our executive officers:

 

Perquisites and Benefits

 

Description

     

Defined Contribution Restoration Plan

 

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

     1% non-elective (retirement) contribution restoration for compensation in excess of IRS limits for eligible U.S. employees and an opportunity for a discretionary contribution of 0% to 3% of eligible pay in excess of IRS limits, based on EPS performance.1 

     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 deferred phantom stock units and matches 10% of the amount credited with phantom stock units. Mr. Corkrean, Mr. Cai and Mr. Tometich participated in this plan during fiscal year 2020.

     

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 and $1,000,000 in uninsured/underinsured motorist liability coverage. 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. 

 


 

 

(1)

Information regarding calculation of the fiscal year 2020 contribution is found in the “All Other Compensation” column and related footnotes to the “Summary Compensation Table” on page 55.

 

 

Analysis of Fiscal 2020 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 typically reviews executive officer benefits and perquisites for market prevalence. However, due to the pandemic, the Compensation Committee determined that only a limited review of benefits and perquisites would be made. The Compensation Committee reviewed findings on the executive long-term disability program and reviewed prior year market data related to the other programs. The Compensation Committee determined not to make any changes to these programs due to general market competitiveness.

 

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 has executive severance agreements discussed under the heading Severance” and change in control agreements discussed under the headingChange-in-Control Agreements.

 

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.

 

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.

 

 

For change-in-control agreements entered into prior to mid-fiscal year 2018 (for Mr. Owens, Mr. Corkrean and Mr. Cai), the arrangements were structured to ensure that executives receive the full intended benefits of these arrangements in the event that a transaction should take place. Our approach was to provide our executives with arrangements that include a modified tax gross-up. These arrangements eliminated de minimis or inefficient gross-up payments, only providing tax gross-up in cases of significant imbalance. For change-in-control agreements entered into starting in mid-fiscal year 2018 (for Mr. Clark and Mr. Tometich), the Company does not include a tax gross-up provision. The Company instead references a best of net provision whereby the individual is responsible for any excise tax, or the benefit is reduced so as to not trigger an excise tax. The Company would calculate both scenario estimates and the individual would receive the provision with the highest after-tax benefit estimate.

 

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.”

 

Stock Ownership

 

Goals and levels of executive stock ownership are reviewed annually by the Compensation Committee. An executive officer’s stock ownership 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 phantom stock units held in the Key Employee Deferred Compensation Plan.

 

The guideline for the CEO is ownership of at least five times his base salary in Common Stock, and the guideline for the other NEOs is ownership of at least three times their base salary. 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. For the 2020 review of stock ownership, all NEOs who had been in their job grade for at least five years had met the applicable stock ownership goal. If after five years in a job grade, an NEO has not met the 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.

 

Tax Considerations

 

Section 162(m) of the U.S. Internal Revenue Code ("Section 162(m)") imposes a $1,000,000 annual deduction limit on compensation payable to certain current and former named executive officers. The Compensation Committee intends to pay 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.

 

Prior to the Tax Cuts and Jobs Act (the “Act”), Section 162(m) permitted a deduction for compensation in excess of $1,000,000 paid to a covered executive if specified requirements related to our performance were met and shareholder approval was obtained. The Act eliminated the exception to the deduction limit for qualified performance-based compensation (and broadened the application of the deduction limit to certain current and former executive officers who previously were exempt from such limit). However, the Act also included a transition provision which exempts from the above changes made to performance-based compensation payable under a written binding agreement that was in effect on November 2, 2017, if such agreement is not subsequently materially amended. As a result of the transition rule, certain performance-based awards that were outstanding as of November 2, 2017 but which may vest and pay out in future tax years may be fully deductible if they qualify for transition relief.

 

 

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.

 

Fiscal 2021 Changes to Executive Compensation Program

 

Effective for LTIP awards granted in January 2021, PSUs that vest based on ROIC performance will move from three-year ratable vesting to three-year cliff vesting. The ROIC metric for these PSUs will not change. However, the metric target is a three-year average of annual ROIC, versus individual annual ROIC targets. This change better aligns the PSU grant vesting with the focus of ROIC performance over the three-year performance period of the award, incentivizes long-term strategic thinking and behavior, and enhances the focus on retention. In addition, the PSU grant for the CEO that vests over three years only if the Company achieves at least a threshold level of AEPS, Adjusted Net Revenue or Adjusted EBITDA in the first year of the grant, has been revised to be time-based RSUs. This change was made to increase the long-term orientation of the CEO’s compensation and to be consistent with the time-based RSU grants received by the other NEOs.

 

Non-GAAP Financial Measures

 

The "Compensation Discussion and Analysis" section of this Proxy Statement contains non-GAAP financial measures, including AEPS, Adjusted Net Revenue, Adjusted EBITDA and ROIC measured on a company-wide basis and certain financial measures for individual business segments. See "Reconciliation of Non-GAAP Financial Information" in Annex A to this Proxy Statement for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measure.

 

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 November 28, 2020.

 

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

 

Dante C. Parrini, Chair Maria Teresa Hilado
Daniel L. Florness   Ruth S. Kimmelshue
Thomas W. Handley Lee R. Mitau
Michael J. Happe Teresa J. Rasmussen
R. William Van Sant  

                         

 

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 2020 and three other most highly compensated executive officers.

 

 

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 ($)8

 

Total ($)

                                                                   

James J. Owens

2020

    1,225,977       -       2,367,071       2,342,618       1,044,717       45,542       362,306       7,388,231  

President and

2019

    1,167,813       -       2,595,195       2,194,071       956,994       43,430       350,655       7,308,158  

Chief Executive Officer

2018

    1,112,408       -       1,662,920       1,675,099       948,233       21,066       373,222       5,792,948  
                                                                   

John J. Corkrean8

2020

    455,498       -       636,759       473,766       230,727       4,211       148,594       1,949,555  

Executive Vice President &

2019

    449,905       -       526,663       399,347       291,920       2,861       149,840       1,820,536  

Chief Financial Officer

2018

    440,872       -       309,158       248,995       291,900       573       152,743       1,444,241  
                                                                   

Theodore M. Clark

2020

    541,539       -       478,665       473,766       288,408       -       110,928       1,893,306  

Executive Vice President &

                                                                 

Chief Operating Officer

                                                                 
                                                                   

Andrew E. Tometich

2020

    503,000       -       430,799       426,379       329,517       -       112,923       1,802,618  

Executive Vice President, Hygiene,

2019

    133,488       150,000       517,684       471,598       64,064       -       116,682 7     1,453,516  

Health and Consumable Adhesives

                                                                 
                                                                   

Zhiwei Cai

2020

    524,535       -       308,493       284,256       123,123       4,865       92,219       1,337,491  

Executive Vice President,

2019

    475,503       -       332,400       266,231       284,311       4,146       87,569       1,450,160  

Engineering Adhesives

                                                                 

__________________________

(1)

Includes cash compensation deferred at the election of the executive under the 401(k) Plan and/or the Key Employee Deferred Compensation Plan (“KEDCP”). During fiscal year 2020, only Mr. Corkrean and Mr. Cai contributed to H.B. Fuller “stock fund” in the KEDCP. Mr. Corkrean contributed $86,040 of his salary and $57,682 of his short-term incentive plan payment into phantom units in the KEDCP and received a 10% match from the Company on those contributions. Mr. Cai contributed $11,499 of his salary and $7,859 of his short-term incentive plan payment into phantom units in the KEDCP and received a 10% match from the Company on those contributions. These amounts have been subtracted from the applicable “Salary” and “Bonus” columns of this table (as applicable) and the value of the phantom units and match are shown in the “Stock Awards” column of this table. Their contributions are also shown in the “Non-Qualified Deferred Compensation” table and in the “Grants of Plan-Based Awards” table. Amount for Mr. Cai in the “Salary” column includes amounts paid for accrued but unused vacation pay.

 

(2)

The amount in this column for Mr. Tometich represents the payment of a hiring bonus in fiscal year 2019. If. Mr. Tometich voluntarily terminates prior to the second anniversary of his hire date, he must pay this bonus back to the Company.

 

(3)

The amounts in this column represent the grant date fair value of (a) phantom units deferred under the KEDCP, plus a 10% match from the Company, as described in footnote 1, and (b) time-based and performance-based restricted stock awards made in fiscal years 2020, 2019 and 2018 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 November 28, 2020, 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 2020" table in this Proxy Statement for additional information. The grant date fair value of performance-based restricted stock awards in this column made in fiscal year 2020, assuming maximum performance (200% of target), are: for Mr. Owens, $2,367,023 (amount reported in the column is $1,183,511) and $1,183,560 (amount reported in this column is the same, as no superior level is applicable); for Mr. Corkrean, $478,665 (amount reported in this column is $239,333); for Mr. Clark, $478,665 (amount reported in this column is $239,333); for Mr. Tometich, $287,199 (amount reported in this column is $143,600), and for Mr. Cai, $287,199 (amount reported in this column is $143,600).

 

(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 November 28, 2020, except that the assumption related to forfeitures is not included in the calculations for these purposes.

 

 

(5)

As described in the “Compensation Discussion and Analysis” section of this Proxy Statement, the amounts in this column represent cash incentives earned under our short-term incentive plan less any amounts deferred into phantom stock units in the KEDCP. See footnote 1 above.

 

(6)

Amounts reported in this column for Mr. Owens, Mr. Corkrean, Mr. Clark and Mr. Cai 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 monthly rate in fiscal year 2020. No NEOs participate in the H.B. Fuller Legacy Pension Plan.

 

(7)

Amount includes $14,813 of moving expenses and $15,356 of related tax gross up that were inadvertently not included in the prior year.

 

(8)

The table below shows the components of this column for fiscal year 2020, which include Company matching contributions to H.B. Fuller’s defined contribution plans, dividends on restricted stock, and perquisites paid by the Company for the benefit of the executive officers.

 

 

All Other Compensation -- Fiscal Year 2020

 
                                         

Name

 

Defined
Contribution Plan
Company Match
& Contributions
($)

 

Defined
Contribution
Restoration
Plan
Contributions
($)a

 

Dividends on
Unvested
Restricted
Stock Units
($)

 

Perquisites (see
table below)
($)b

 

Total
($)

                                         

James J. Owens

    14,229       247,727       60,401       39,949       362,306  

John J. Corkrean

    14,229       81,484       14,042       38,839       148,594  

Theodore M. Clark

    15,276       81,931       6,445       7,276       110,928  

Andrew E. Tometich

    13,469       50,318       8,549       40,587       112,923  

Zhiwei Cai

    14,229       62,994       8,950       6,046       92,219  

 

 

(a)

For the contributions related to the discretionary contribution of 0% to 3% of eligible earnings in excess of IRS limits, based on EPS performance of $2.83, no discretionary contribution was made as the threshold of $3.18 was not met. Target level was $3.35 and the superior level was $3.69. Straight line interpolation is used for performance above $3.18 up to $3.69. See further discussion in the section titled “Other Executive Benefits and Perquisites” in the “Compensation Discussion and Analysis” section of this Proxy Statement on page 51.

 

 

(b)

The perquisites presented below are valued at the amount paid by, or the incremental cost to, the Company.

 

 

Perquisites - Fiscal Year 2020  
                                                 

Name

 

Insurance

($)i

 

Health
Exam
($)ii

 

Moving
Expenses

and
Transfer
Allowance
($)iii

 

Financial
Counseling
($)

 

Charitable
Matching
Contributions
and

Donationsiv

 

Total
Perquisites
($)

                                                 

James J. Owens

    4,753       7,500       -       7,500       20,196       39,949  

John J. Corkrean

    2,145       -       -       7,500       29,194       38,839  

Theodore M. Clark

    2,276       -       -       -       5,000       7,276  

Andrew E. Tometich

    4,161       -       24,214       7,500       4,712       40,587  

Zhiwei Cai

    4,274       -       -       1,600       172       6,046  

 

 

(i)

Includes premiums paid on a tax-protected basis on personal excess liability insurance of $1,489 and a related tax gross-up of $1,248 for Mr. Owens, $656 for Mr. Corkrean, $787 for Mr. Clark, $657 for Mr. Tometich, and $787 for Mr. Cai. Also includes reimbursement for long-term disability insurance premiums in the following amounts: $2,016 for Mr. Owens, $2,016 for Mr. Tometich and $1,998 for Mr. Cai.

 

 

(ii)

Amounts for health exam include related expenses, if any.

 

 

(iii)

Amount for Mr. Tometich includes moving expenses of $11,889 and a related tax gross up of $12,325.

 

 

(iv)

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 2020

 

The following table summarizes the grants of plan-based awards in fiscal year 2020 for each of the named executive officers in the “Summary Compensation Table”. For more information on the terms of these awards, see “Fiscal 2020 Short-Term Incentive Compensation” and “Fiscal 2020 Long-Term Incentive Compensation” in the “Compensation Discussion and Analysis”.

 

          Estimated Future Payouts Under Non-Equity Incentive Plan Awards1   Estimated Future Payouts Under Equity Incentive Plan Awards2  

All Other
Stock Awards:

Number of

Shares of

Stock or

 

Option

Awards:

Number of

Securities

Underlying

 

Exercise or

Base Price of

Option

 

Grant Date

Fair Value of

Stock and

Name and Award Type

 

Grant Date

 

Approval

Date

 

Threshold ($)

 

Target ($)

 

Maximum ($)

 

Threshold (#)

 

Target (#)

 

Maximum (#)

 

Units

(#)

 

Options

(#)3

 

Awards

($/Sh)

 

Options

Awards ($)4

James J. Owens

                                                                                   

Short-Term Incentive

    220,715       1,471,432       2,942,864                                                          

LTI Award

1/24/2020

 

1/15/2020

                                    24,479 5                                     1,183,560  

LTI Award

1/24/2020

 

1/15/2020

                            12,239       24,478       48,956                               1,183,511  

LTI Award

1/24/2020

 

1/15/2020

                                                            238,872       48.35       2,342,618  
                                                                                       

John J. Corkrean

                                                                                   

Short-Term Incentive

    60,931       406,209       812,418                                                          

LTI Award

1/24/2020

 

1/15/2020

                                                    4,950 6                     239,333  

LTI Award

1/24/2020

 

1/15/2020

                            2,475       4,950       9,900                               239,333  

LTI Award

1/24/2020

 

1/15/2020

                                                            48,309       48.35       473,766  

Key Employee Deferred Compensation Plan

                                            3,499 7                     158,093  
                                                                                       

Theodore M. Clark

                                                                               

Short-Term Incentive

    60,931       406,209       812,418                                                          

LTI Award

1/24/2020

 

1/15/2020

                                                    4,950 6                     239,333  

LTI Award

1/24/2020

 

1/15/2020

                            2,475       4,950       9,900                               239,333  

LTI Award

1/24/2020

 

1/15/2020

                                                            48,309       48.35       473,766  
                                                                                       

Andrew E. Tometich

                                                                               

Short-Term Incentive

    49,043       326,950       653,900                                                          

LTI Award

1/24/2020

 

1/15/2020

                                                    2,970 6                     143,600  

LTI Award

1/24/2020

 

1/15/2020

                                                    2,970 8                     143,600  

LTI Award

1/24/2020

 

1/15/2020

                            1,485       2,970