DEF 14A 1 a20-37094_2def14a.htm DEF 14A

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.     )

 

Filed by the Registrant  x

Filed by a Party other than the Registrant  o

Check the appropriate box:

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Preliminary Proxy Statement

o

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

x

Definitive Proxy Statement

o

Definitive Additional Materials

o

Soliciting Material under Rule 14a-12

 

Hormel Foods Corporation

(Name of Registrant as Specified In Its Charter)

 

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

 

Payment of Filing Fee (Check the appropriate box):

x

No fee required

o

Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11

 

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(3)

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Fee paid previously with preliminary materials.

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

 

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HORMEL FOODS CORPORATION

 

AUSTIN, MINNESOTA

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

 

 

To the Stockholders:

 

The Annual Meeting of Stockholders of Hormel Foods Corporation, a Delaware corporation, will be held on Tuesday, January 26, 2021, at  6:00 p.m. Central Standard Time in a virtual meeting format via live webcast at www.virtualshareholdermeeting.com/HRL2021.  Stockholders will not be able to physically attend the Annual Meeting. Additional information is provided below under the heading “Meeting Admission.”

 

The items of business are:

 

1.              Elect a board of 12 directors for the ensuing year;

 

2.              Ratify the appointment by the Audit Committee of the Board of Directors of Ernst & Young LLP as independent registered public accounting firm for the fiscal year ending October 31, 2021;

 

3.              Advisory vote to approve Named Executive Officer compensation as disclosed in the Company’s 2021 annual meeting proxy statement; and

 

4.              Such other matters as may properly come before the meeting.

 

The Board of Directors has fixed November 27, 2020, at the close of business, as the record date for the determination of stockholders entitled to notice of, and to vote at, the meeting.

 

By Order of the Board of Directors

BRIAN D. JOHNSON
Vice President and

Corporate Secretary

 

December 16, 2020

 

 

 

Important Notice Regarding the Availability of Proxy Materials

for the Stockholder Meeting to be Held on January 26, 2021

 

The Proxy Statement and Annual Report to Stockholders

are available at www.proxyvote.com

 


Table of Contents

 

 

TABLE OF CONTENTS

 

 

Page

 

 

GENERAL INFORMATION

1

 

 

MEETING ADMISSION

2

 

 

CONDUCT OF MEETING

2

 

 

ITEM 1 – ELECTION OF DIRECTORS

2

 

 

DIRECTOR NOMINEES

4

 

 

CORPORATE GOVERNANCE

7

 

 

Corporate Governance Guidelines

7

Board Leadership Structure

8

Code of Ethical Business Conduct

8

Stock Ownership Guidelines

8

Stock Pledging and Hedging Policies

9

Board Independence

9

Board of Director and Committee Meetings

9

Board Role in Risk Oversight

11

Policy Regarding Attendance at Annual Meetings

11

Board Communication

11

 

 

COMPENSATION OF DIRECTORS

12

 

 

AUDIT COMMITTEE REPORT AND INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEES

14

 

 

Audit Committee Report

14

Independent Registered Public Accounting Firm Fees

14

Audit Committee Preapproval Policies and Procedures

14

 

 

ITEM 2 – RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

14

 

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

15

 

 

SECURITY OWNERSHIP OF MANAGEMENT

16

 

 

EXECUTIVE COMPENSATION

16

 

 

COMPENSATION COMMITTEE REPORT

16

 

 

COMPENSATION DISCUSSION AND ANALYSIS

17

 

 

Executive Summary

17

2020 Business Highlights

17

2020 Say-on-Pay

18

 

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2020 Compensation Decisions and Outcomes

18

Best Compensation Governance Practices

18

What Guides Our Program

19

Compensation Objectives

19

Principal Components of Pay

19

How Compensation Decisions are Made

20

The Executive Compensation Program In Detail

21

Base Salary

21

Operators’ Share Incentive Plan

21

Annual Incentive Plan

21

Changes to AIP Metrics for 2021

23

Long-Term Incentive Plan

23

Stock Incentives

24

Other Compensation-Related Policies, Practices And Guidelines

25

Stock Ownership Guidelines

25

Stock Pledging and Hedging Policies

25

Clawback Policy

25

Pension Plan

25

Supplemental Executive Retirement Plan

26

Nonqualified Deferred Compensation Plan

26

Survivor Income Protection Plan

26

Perquisites

27

Tax Deductibility

27

 

 

ANALYSIS OF RISK ASSOCIATED WITH OUR COMPENSATION PLANS

27

 

 

COMPENSATION OF NAMED EXECUTIVE OFFICERS (NEOs)

28

 

 

SUMMARY COMPENSATION TABLE

28

GRANTS OF PLAN-BASED AWARDS FOR FISCAL 2020

30

OUTSTANDING EQUITY AWARDS AT FISCAL 2020 YEAR END

31

VESTING SCHEDULE FOR UNEXERCISABLE OPTIONS

32

OPTION EXERCISES AND STOCK VESTED FOR FISCAL 2020

33

PENSION BENEFITS

34

NONQUALIFIED DEFERRED COMPENSATION

34

POTENTIAL PAYMENTS UPON TERMINATION

35

POTENTIAL PAYMENTS UPON TERMINATION AT FISCAL 2020 YEAR END

36

 

 

CEO PAY RATIO DISCLOSURE

38

 

 

ITEM 3 – ADVISORY VOTE ON EXECUTIVE COMPENSATION

38

 

 

RELATED PARTY TRANSACTIONS

39

 

 

VIEWING AND DELIVERY OF PROXY MATERIALS

39

 

 

STOCKHOLDER PROPOSALS FOR 2022 ANNUAL MEETING OF STOCKHOLDERS

39

 

 

OTHER MATTERS

39

 

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PROXY STATEMENT

 

HORMEL FOODS CORPORATION
(CUSIP No. 440452100)
1 HORMEL PLACE
AUSTIN, MINNESOTA 55912

 

The enclosed proxy is solicited by the Board of Directors of Hormel Foods Corporation (“Company”) for use at the Annual Meeting of Stockholders to be held on January 26, 2021.  This proxy statement and form of proxy, or a Notice of Internet Availability of Proxy Materials, are first being mailed to stockholders on or about December 16, 2020.

 

GENERAL INFORMATION

 

Voting Securities -   Only stockholders of record at the close of business as of November 27, 2020 are entitled to vote at the meeting.  The Company had 539,918,117 shares of common stock outstanding as of November 27, 2020.  Each share of stock is entitled to one vote.  There is no cumulative voting.  The Company has no other class of shares outstanding.

 

Quorum -   A majority of the outstanding shares will constitute a quorum at the meeting.

 

Voting Your Proxy -   Whether or not you plan to attend the virtual meeting, we encourage you to grant a proxy to vote your shares.  Follow the instructions on your proxy card or electronic delivery notice to cast your vote via the internet or telephone.  If you received a proxy card, you may vote your shares by completing the card with your vote, signature and date, and returning it by mail in the envelope provided.

 

The table below summarizes the proposals that will be voted on, the vote required to approve each item, how votes are counted and how the Board recommends you vote:

 

 

Vote Required

Voting
Options

Board
Recommendation
(1)

Broker
Discretionary
Voting
Allowed
(2)

Impact of
Abstention
(3)

Item 1: Elect 12 directors

Majority of the votes cast(4)(5)

“FOR”

“AGAINST”

“ABSTAIN”

“FOR”

No

None

Item 2: Ratify the appointment by the Audit Committee of the Board of Directors of Ernst & Young LLP as independent registered public accounting firm for the fiscal year ending October 31, 2021

Majority of votes present in person or by proxy and entitled to vote on this item

“FOR”

“AGAINST”

“ABSTAIN”

“FOR”

Yes

“AGAINST”

Item 3: Advisory vote to approve Named Executive Officer compensation as disclosed in the Company’s 2021 annual meeting proxy statement

Majority of the votes cast(4)

“FOR”

“AGAINST”

“ABSTAIN”

“FOR”

No

None

 

(1)                                 If you submit a proxy without giving specific voting instructions, your shares will be voted in accordance with the Board of Directors’ recommendations set forth above.

 

(2)                                 If a stockholder holds shares in “street name” and does not provide voting instructions to the holder of the account regarding non-discretionary matters, such shares are considered “broker nonvotes.”   “Street name” means the shares are held in a stock brokerage account or by a bank, trust or other institution.  Broker nonvotes are counted for purposes of determining the presence of a quorum for the transaction of business.  Shares represented by broker nonvotes are not considered entitled to vote and thus are not counted for purposes of determining whether a proposal has been approved.  The New York Stock Exchange (“NYSE”) rules determine whether uninstructed brokers have discretionary voting power on a particular proposal.

 

(3)                                 Shares represented by abstentions are counted for purposes of determining the presence of a quorum for the transaction of business and as shares represented at the meeting.

 

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(4)                                 A majority of the votes cast means that there are more “FOR” votes than “AGAINST” votes.

 

(5)                                 An incumbent director who is not re-elected under this standard must promptly offer to resign.  The Governance Committee will make a recommendation on the offer and the Board must accept or reject the offer within 90 days and publicly disclose its decision and rationale.  In the event of a contested election, directors will be elected by a plurality of the votes cast.

 

The persons appointed as proxies will vote in their discretion on other matters as may properly come before the meeting.

 

Revoking Your Proxy and Changing Your Vote -   You may revoke your proxy or change your vote at any time before it is exercised by submitting a later-dated proxy, voting in person at the meeting or sending a written notice of revocation to the Corporate Secretary.

 

Expenses -   The expenses of soliciting proxies will be paid by the Company.  Proxies may be solicited at Company expense personally, or by mail, telephone or electronic communication, by directors, officers and other employees.  Such persons will not receive additional compensation.  The Company will reimburse banks, brokerage firms and other nominees for their reasonable out-of-pocket expenses incurred in sending proxy materials to beneficial owners.  Your cooperation in promptly granting a proxy to vote your shares will help to avoid additional expense.

 

MEETING ADMISSION

 

Due to health and safety concerns relating to the COVID-19 pandemic, the Annual Meeting will be held in a virtual only meeting format. Stockholders will not be able to physically attend the Annual Meeting.

 

If you are a registered stockholder or beneficial owner of our common stock at the close of business on November 27, 2020, you may attend the virtual Annual Meeting by visiting www.virtualshareholdermeeting.com/HRL2021. You will need the 16-digit control number found on your Notice of Internet Availability, your proxy card or on the instructions that accompany your proxy materials to participate in the Annual Meeting and vote your shares electronically.  If your shares are held in the name of a bank, broker or other holder of record, you should follow the instructions provided by your bank, broker or other holder of record to be able to participate in the meeting.

 

If you lost your 16-digit control number or are not a stockholder at the close of business on November 27, 2020, you will be able to attend the meeting by visiting www.virtualshareholdermeeting.com/HRL2021 and registering as a guest.  If you enter the meeting as a guest, you will not be able to vote your shares or submit a question during the meeting.

 

You may log into www.virtualshareholdermeeting.com/HRL2021 beginning at 5:45 p.m. Central Standard Time on January 26, 2021.  The Annual Meeting will begin promptly at 6:00 p.m. Central Standard Time on January 26, 2021.  If you experience any technical difficulties during the meeting, a toll free number will be available on our virtual shareholder meeting site for assistance.

 

This year’s stockholders question and answer session will include questions submitted in advance of the Annual Meeting and questions submitted live during the virtual meeting.  You may submit a question in advance of the meeting at www.proxyvote.com after logging in with your control number.  Questions may be submitted during the Annual Meeting through www.virtualshareholdermeeting.com/HRL2021.

 

If you are not able to attend the virtual Annual Meeting, a recorded version of the meeting will be available on www.virtualshareholdermeeting.com/HRL2021.

 

CONDUCT OF MEETING

 

The Chairman will preside over the Annual Meeting of Stockholders pursuant to the Bylaws and by action of the Board of Directors.  The Chairman has broad authority to ensure the orderly conduct of the meeting.  This includes discretion to recognize stockholders who wish to comment and to determine the extent of discussion on each item of business.  Rules governing the conduct of the meeting will be available to attendees at www.virtualshareholdermeeting.com/HRL2021.  The Chairman may also rely on applicable law to ensure that the meeting is conducted in a manner that is fair to all stockholders.

 

ITEM 1 – ELECTION OF DIRECTORS

 

Identifying and Evaluating Nominees for Director -  The Governance Committee is responsible for establishing procedures to identify and review the qualifications of all nominees for Board membership.  The Committee considers recommendations of director candidates made by directors, senior management, and the Company’s stockholders.  The Committee applies the same criteria for consideration of stockholder nominees as it does to nominees proposed by other sources.  The Committee may engage an independent search firm to assist the Committee in identifying and evaluating potential director nominees to fill vacancies on the Board.

 

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Stockholders wishing to make a recommendation may do so by contacting the Governance Committee, c/o Brian D. Johnson, Vice President and Corporate Secretary, 1 Hormel Place, Austin, Minnesota 55912.  Stockholders should send:

 

1.              Name of the candidate and the candidate’s business and residence addresses;

 

2.              A resume or biographical sketch of the candidate, which includes the candidate’s principal occupation or employment;

 

3.              A document(s) evidencing the number of shares of Company stock currently held by the candidate and the candidate’s willingness to serve as a director if elected; and

 

4.              A signed statement as to the submitting stockholder’s current status as a stockholder, which includes the stockholder’s address and the number of shares of Company stock currently held.

 

The Committee’s procedures include making a preliminary assessment of each proposed nominee.  Such assessment is based upon the resume and biographical information, an indication of the individual’s willingness to serve, and business experience and leadership skills.  This information is evaluated against the criteria set forth below and the Company’s specific needs at that time.  Based upon a preliminary assessment of the candidates, those who appear best suited to meet the Company’s needs may be invited to participate in a series of interviews, which are used to further evaluate candidates.  On the basis of information learned during this process, the Committee determines which nominees to recommend to the Board.

 

Director Qualifications – The Governance Committee determines the selection criteria of director nominees based upon the Company’s needs at the time nominees are considered.  In evaluating director candidates, the Committee will consider, among other qualifications the Committee deems appropriate, a candidate’s:

 

·                  Intellect;

 

·                  Integrity;

 

·                  Broad-based experience at the policy-making level in business, government, education or the public interest;

 

·                  Analytical ability;

 

·                  Ability to qualify as an independent director;

 

·                  Ability and willingness to devote time and energy to effectively carry out all Board responsibilities; and

 

·                  Unique qualifications, skills and experience.

 

The Committee reviews past performance on the Board for directors seeking reelection.  The Board’s annual self-evaluation process assists the Committee in this review.

 

The Committee considers the diversity of director candidates and seeks to enhance the overall diversity of the Board.  Each candidate’s diversity in terms of race/ethnicity, gender and other personal characteristics is considered.  The Committee also assesses each candidate’s contribution to the diversity of the Board in a broader sense, including age, education, experience, skills and other qualifications.  While the Committee carefully considers diversity when evaluating director candidates, it has not adopted a formal diversity policy.

 

The Committee recommends director nominees to the Board to submit for election at the next Annual Meeting of Stockholders.  The Board selects director nominees based on its assessment and consideration of various factors.  These factors include the current Board profile, the long-term interests of stockholders, the needs of the Company, and the goal of creating an appropriate balance of knowledge, experience and diversity on the Board.

 

Our Nominees for Director –  Each of our director nominees is well qualified under the criteria described above.  As an employee of the Company, Mr. Snee does not qualify as an independent director.  Each director nominee brings a variety of qualifications, skills, attributes and experience to the Board of Directors.

 

A common trait among our director nominees is executive leadership experience with a large company or organization.  Such experience brings a variety of benefits, including an understanding of business management, various business functions and strategic planning.  Other advantages of an executive leadership background include experience with policy making, risk management and corporate governance matters.

 

Another common characteristic of our director nominees is each has prior service on our Board.  Each director nominee has a demonstrated record of regular attendance, advance preparation and active participation in Board and Board committee meetings.  Through prior service on the Board committees, our director nominees have demonstrated and further developed expertise relating to the duties assigned to the Board committees.

 

The biographical information below identifies and highlights additional qualifications, skills, attributes and experience each director nominee brings to the Board.

 

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The diversity of our director nominees in terms of race/ethnicity, gender, age and tenure on our Board is demonstrated in the following graphs:

 

 

 

 

 

 

 

The Board of Directors recommends a vote FOR each of the 12 director nominees listed below.  The persons named as proxies will vote FOR the election of these 12 nominees to hold office as directors until the next Annual Meeting of Stockholders and until their successors are elected and qualify, unless stockholders specify otherwise.  If any of such nominees become unavailable for any reason, it is intended that the proxies will vote for the election of such substitute persons as may be designated by the Board of Directors.  Directors are elected by a majority of the votes cast, whereby there must be more “FOR” votes than “AGAINST” votes for the nominee.  An incumbent director who is not re-elected under this standard must promptly offer to resign.

 

DIRECTOR NOMINEES

 

 

PRAMA BHATT, age 50, director since 2019.

Ms. Bhatt is Chief Digital Officer of Ulta Beauty, Inc., a provider of retail beauty products and services, a position she has held since December 2019.  She served Ulta Beauty, Inc. as Senior Vice President, Digital & eCommerce from April 2017 to December 2019 and Vice President, Digital & eCommerce from July 2014 to March 2017.  Ms. Bhatt was Vice President, eCommerce of Kenneth Cole Productions, Inc., a fashion company, from 2011 to 2014.  She held various management positions with Toys “R” Us, Inc., from 2002 to 2011, culminating with the position of Vice President, General Manager, eCommerce, US from 2008 to 2011.  Her prior experience includes the position of management consultant with Booz Allen Hamilton, Inc. and a tenure at Ford Motor Company where she held various roles in product strategy, design and development.  Ms. Bhatt brings extensive expertise in digital commerce and consumer product marketing to the Board, as well as ongoing experience as an active senior executive responsible for digital commerce for a large business.

 

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GARY C. BHOJWANI, age 52, director since 2014.

Mr. Bhojwani is Chief Executive Officer of CNO Financial Group, Inc., a provider of health and life insurance and retirement solutions, a position he has held since January 2018.  He was President of CNO Financial Group, Inc. from April 2016 to December 2017.   Mr. Bhojwani was founder and Chief Executive Officer of GCB, LLC, an insurance and financial services consulting company, from April 2015 to April 2016.  He was Chairman of Allianz Life Insurance Company of North America, a provider of retirement solutions, and a member of the Board of Management of Allianz SE from 2012 to January 2015 and Chief Executive Officer of Allianz Life Insurance Company of North America from 2007 to 2011.  Mr. Bhojwani was President of Commercial Business, Fireman’s Fund Insurance Company from 2004 to 2007, Chief Executive Officer of Lincoln General Insurance Company from 2002 to 2004, founder and Chief Executive Officer of Avalon Risk Management from 1998 to 2002, and President, Trade Insurance Services from 1995 to 1997.  He is a member of the Board of Directors of CNO Financial Group, Inc., Carmel, Indiana and Allina Health System, Minneapolis, Minnesota.  Mr. Bhojwani brings extensive expertise in risk management, finance and consumer product marketing to the Board, as well as ongoing experience as the active Chief Executive Officer of a publicly held company whose stock is traded on the NYSE.

 

 

 

 

TERRELL K. CREWS, age 65, director since 2007.

Mr. Crews retired from Monsanto Company, an agricultural company, in 2009.  He served as Executive Vice President, Chief Financial Officer and Vegetable Business CEO for Monsanto Company from 2007 to 2009, and Executive Vice President and Chief Financial Officer from 2000 to 2007.  Mr. Crews is a member of the Board of Directors of Archer-Daniels-Midland Company, Chicago, Illinois, WestRock Company, Richmond, Virginia, Teays River Investments, LLC, Zionsville, Indiana, and Junior Achievement of Greater St. Louis, Chesterfield, Missouri, and the Board of Trustees of Freed-Hardeman University, Henderson, Tennessee.  Mr. Crews brings extensive expertise in finance and related functions to the Board, as well as significant knowledge of corporate development, agri-business and international operations.

 

 

 

 

STEPHEN M. LACY, age 66, director since 2011.

Mr. Lacy is Chairman of the Board of Meredith Corporation, a media and marketing company, a position he has held since 2010. He served Meredith Corporation as Executive Chairman of the Board from February 2018 to March 2019, Chairman of the Board and Chief Executive Officer starting in 2016, Chairman of the Board, President and Chief Executive Officer starting in 2010, President and Chief Executive Officer starting in 2006, President and Chief Operating Officer starting in 2004, President, Publishing Group, and President, Interactive and Integrated Marketing Group, starting in 2000, and Chief Financial Officer starting in 1998.  Mr. Lacy is a member of the Board of Directors of Meredith Corporation, Des Moines, Iowa, and Great Western Bancorp, Inc., Sioux Falls, South Dakota.  Mr. Lacy brings extensive expertise in finance, corporate development and consumer product marketing to the Board, as well as recent experience as the Chief Executive Officer of a publicly held company whose stock is traded on the NYSE.

 

 

 

 

ELSA A. MURANO, Ph.D., age 61, director since 2006.

Dr. Murano has served Texas A&M University as Director of the Norman Borlaug Institute for International Agriculture since 2014, Professor, Department of Animal Science, since 2001, and President Emerita since 2009.  She was Interim Director of the Norman Borlaug Institute for International Agriculture from 2012 to 2014, President of Texas A&M University from 2008 to 2009, and Vice Chancellor and Dean of Agriculture, Director of the Texas Agricultural Experiment Station, from 2005 to 2007.  Dr. Murano was Undersecretary for Food Safety, U.S. Department of Agriculture from 2001 to 2004. She is a member of the Board of Directors of Food Safety Net Services, San Antonio, Texas and the Board of Trustees of the International Livestock Research Institute, Nairobi, Kenya.  Dr. Murano brings preeminent food safety expertise and significant experience in agri-business and regulatory affairs to the Board.

 

 

 

 

SUSAN K. NESTEGARD, age 60, director since 2009.

Ms. Nestegard is Advisor for True Wealth Ventures, a venture capital fund, a position she has held since July 2017.  She was President, Global Healthcare Sector, of Ecolab Inc., a provider of cleaning and sanitizing products and services, from 2010 to 2012, Executive Vice President, Global Healthcare Sector, from 2008 to 2010, and Senior Vice President, Research, Development and Engineering, and Chief Technical Officer, from 2003 to 2008.  Ms. Nestegard served as interim Chief Executive Officer of Cambridge Major Laboratories, Inc., a pharmaceutical company, from March 2014 to August 2014.  She also has over 20 years of experience with 3M Company in product development, research and development, and business unit management.  Ms. Nestegard is a member of the Board of Directors of ALLETE, Inc., Duluth, Minnesota.  She was a member of the Board of Directors of American Capital, Ltd., Bethesda, Maryland, from June 2013 to January

 

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2017.  Ms. Nestegard brings significant expertise in food safety, research and development, foodservice, and international business to the Board.

 

 

 

 

WILLIAM A. NEWLANDS, age 62, director since 2018.

Mr. Newlands is President and Chief Executive Officer of Constellation Brands, Inc., a beverage alcohol company, a position he has held since March 2019.  He served Constellation Brands, Inc. as President and Chief Operating Officer from February 2018 to February 2019, Executive Vice President and Chief Operating Officer from January 2017 to February 2018, Executive Vice President and President, Wine & Spirits Division from January 2016 to January 2017, and Executive Vice President and Chief Growth Officer from January 2015 to January 2016.  Mr. Newlands was Senior Vice President and President, North America of Beam Inc., a beverage alcohol company, from October 2011 to August 2014, and Senior Vice President and President, North America of Beam Global Spirits & Wine, Inc. from December 2010 to October 2011 and Senior Vice President and President, USA of Beam Global Spirits & Wine, Inc. from February 2008 to December 2010.  His prior experience includes several senior leadership roles in the beverage alcohol industry. Mr. Newlands is a member of the Board of Directors of Constellation Brands, Inc., Victor, New York, and Canopy Growth Corporation, Smith Falls, Ontario, Canada.  Mr. Newlands brings extensive expertise in innovation, consumer product marketing, corporate development and international business to the Board, as well as ongoing experience as the active Chief Executive Officer of a publicly held company whose stock is traded on the NYSE.

 

 

 

 

CHRISTOPHER J. POLICINSKI, age 62, director since 2012.

Mr. Policinski is Chief Executive Officer of VitaKey, Inc., a food ingredient company, a position he has held since August 2020. He retired from Land O’Lakes, Inc., a member-owned cooperative which produces and markets dairy-based food products and agricultural supplies, in June 2018.  He served Land O’Lakes, Inc. as President and Chief Executive Officer from 2005 to June 2018, as Chief Operating Officer of the Dairy Foods business unit from 1999 to 2005, and Vice President of Strategy and Business Development from 1997 to 1999.  His prior experience includes various management positions at Kraft General Foods Corporation, a food company, Bristol Myers Squibb, a biopharmaceutical and consumer goods company, and Pillsbury Company, a food company.  Mr. Policinski is a member of the Board of Directors of VitaKey, Inc., Washington, D.C., Xcel Energy, Inc., Minneapolis, Minnesota, and Isidro Investments, Baltimore, Maryland.  Mr. Policinski brings extensive expertise in agri-business, consumer product marketing and corporate development to the Board, as well as recent experience as the Chief Executive Officer of a large Minnesota-based company operating globally in the food industry.

 

 

 

 

JOSE LUIS PRADO, age 66, director since 2019.

Mr. Prado is Vice Chairman of Evans Food Group Ltd., a snack food company, a position he has held since August 2019.  He was Chairman and Chief Executive Officer of Evans Food Group Ltd. from April 2016 to August 2019.  Mr. Prado was President, Quaker Oats North America and Global Baking, for PepsiCo, Inc. from January 2011 to September 2014, President and CEO, Grupo Gamesa-Quaker, a Division of PepsiCo, Mexico, from 2002 to 2010, Regional Vice President, Andean Region, Frito Lay International, from 2000 to 2002, President, PepsiCo Snacks Argentina, from 1997 to 2000, President, Frito Lay Snacks Caribbean, from 1994 to 1997, and Finance Vice President and CFO, Matutano, Frito Lay International, from 1993 to 1994.  Mr. Prado is a member of the Board of Directors of Northern Trust Corporation, Chicago, Illinois, the Chicago Council on Global Affairs, Chicago, Illinois and the Latino Corporate Directors Association, Washington, D.C.  He was a member of the Board of Directors of Brinker International, Inc., Dallas, Texas, from July 2015 to March 2019.  Mr. Prado brings extensive expertise in consumer product marketing, corporate development, international business and the food industry to the Board, as well as significant executive leadership experience.

 

 

 

 

SALLY J. SMITH, age 62, director since 2014.

Ms. Smith retired from Buffalo Wild Wings, Inc., a restaurant company, in February 2018. She served Buffalo Wild Wings, Inc. as President and Chief Executive Officer from 1996 to February 2018 and as Chief Financial Officer from 1994 to 1996.  Ms. Smith was Controller, from 1984 to 1987, and Chief Financial Officer, from 1987 to 1994, of Dahlberg, Inc., a manufacturer of hearing aids.  She began her career with KPMG LLP, an international accounting and consulting firm. Ms. Smith is a member of the Board of Directors of Alerus Financial Corporation, Grand Forks, North Dakota, Digi International Inc., Minnetonka, Minnesota, Allina Health System, Minneapolis, Minnesota, The Marvin Companies, Warroad, Minnesota, and the National Restaurant Association, Washington, D.C.  Ms. Smith was a member of the Board of Directors of Buffalo Wild Wings Inc., Minneapolis, Minnesota, from 1996 to June 2017.  Ms. Smith brings extensive expertise in finance,

 

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corporate development and the foodservice industry to the Board, as well as recent experience as the Chief Executive Officer of a Minnesota-based publicly held company.

 

 

 

 

JAMES P. SNEE, age 53, director since 2015.

Mr. Snee is Chairman of the Board, President and Chief Executive Officer of the Company, serving in that capacity since November 2017.  He was President and Chief Executive Officer from October 2016 to November 2017, President and Chief Operating Officer from October 2015 to October 2016, Group Vice President and President, Hormel Foods International Corporation from October 2012 to October 2015, Vice President and Senior Vice President, Hormel Foods International Corporation from October 2011 to October 2012, and Vice President, Affiliated Business Units from October 2008 to October 2011.  Mr. Snee is a member of the Board of Directors of Republic Services, Inc., Phoenix, Arizona, the Consumer Brands Association, Washington, D.C., and The Hormel Foundation, Austin, Minnesota.  In addition to his executive leadership experience, Mr. Snee brings broad sales, marketing, supply chain and international business expertise to the Board, as well as in-depth knowledge of the Company and food industry developed during his 31-year career with the Company.

 

 

 

 

STEVEN A. WHITE, age 60, director since 2014.

Mr. White is President, Comcast West Division, of Comcast Corporation, an entertainment and communications company, a position he has held since 2009.   He has announced his retirement from this position effective December 31, 2020.  Mr. White will continue to serve Comcast in a part-time role as President, Special Counsel to the CEO.   He served Comcast as Regional Senior Vice President, Comcast California from 2007 to 2009 and as Regional Senior Vice President, Comcast Mid-South Region from 2002 to 2007.  Mr. White was Regional Vice President of AT&T Broadband, LLC from 2000 to 2002 and Regional Vice President of Telecommunications, Inc. from 1997 to 2000.  His prior experience includes various marketing positions with Colgate-Palmolive Company from 1991 to 1997.  Mr. White is a member of the Board of Directors of W.W. Grainger, Inc., Lake Forest, Illinois, and Comcast Foundation, Philadelphia, Pennsylvania.  He has been nominated for election to the Board of Directors of Shaw Communications Inc., Calgary, Alberta, Canada.  Mr. White brings significant expertise in digital commerce and consumer product marketing to the Board, as well as recent experience as the President of a large business.

 

No family relationship exists between any of the director nominees or executive officers of the Company.

 

CORPORATE GOVERNANCE

 

Corporate Governance Guidelines

 

The Board of Directors has adopted Corporate Governance Guidelines which include the following:

 

·                                          At all times a substantial majority of the Board will be independent, as that term is defined in relevant law and the NYSE listing standards;

 

·                                          Directors who (1) retire from or change their principal employment, (2) resign or are removed from, or fail to be re-elected to, the board of directors of any other public company, or (3) take action that creates a conflict of interest with the Company, must submit a letter of resignation from the Board.  The Board may accept or reject a letter of resignation;

 

·                                          It is the Board’s general policy that no person may stand for election to the Board after reaching age 72;

 

·                                          The Board and Board committees will conduct annual self-evaluations.  This self-evaluation process currently includes the completion and anonymous submission of Board and Board committee assessment surveys by all Board members and personal interviews conducted by the Lead Director with all Board members;

 

·                                          Directors participate in an annual strategic planning retreat, which provides directors a detailed overview of the Company’s strategic business plans and an opportunity to access senior management of the Company;

 

·                                          All independent directors will typically meet in executive session at the end of every regular Board meeting but in all circumstances at least quarterly;

 

·                                          The Compensation Committee will evaluate the Chief Executive Officer’s performance annually.  This evaluation is based in part on a self-evaluation by the Chief Executive Officer (“CEO”), which is reviewed by all the nonemployee directors.  The annual evaluation will take into account the CEO’s performance measured against established goals.  After the process has been completed, the

 

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Compensation Committee will set the CEO’s compensation and obtain the Board’s ratification of such compensation;

 

·                                          Directors will have full access to officers and employees of the Company; and

 

·                                          The Board and each committee have the power to hire independent legal, financial or other advisers, without consulting or obtaining the approval of any officer of the Company.

 

The Company’s Corporate Governance Guidelines may be found on the Company’s Web site at www.hormelfoods.com under “Investors - Governance - Governance Documents.”

 

Board Leadership Structure

 

The Board takes a flexible approach to the issue of whether the offices of Chairman and CEO should be separate or combined.  This approach allows the Board to regularly evaluate whether it is in the best interests of the Company for the CEO or another director to hold the position of Chairman.

 

Mr. Snee currently serves as both Chairman and CEO of the Company.  The Board believes there are important advantages to Mr. Snee serving in both roles at this time.  Mr. Snee is the director most familiar with our Company’s business and industry and best situated to propose the Board’s agendas and lead Board discussions on important matters.  Mr. Snee provides a strong link between management and the Board, which promotes clear communication and enhances strategic planning and implementation of corporate strategies.  Another advantage is the clarity of leadership provided by one person representing the Company to employees, stockholders and other stakeholders.

 

When the Chairman is not an independent director, the Board will appoint a “Lead Director.”  The Lead Director position is held by an independent director elected by the Board of Directors.  The Board’s policy is that a director’s term as Lead Director should generally be limited to five consecutive years.

 

Christopher J. Policinski has been the Lead Director since September 2016.  The duties of the Lead Director include the following:

 

·                                          Serve as a liaison between the Chairman and the nonemployee directors;

 

·                                          Serve as a liaison among the nonemployee directors;

 

·                                          Provide input to the Chairman on the preparation of Board meeting agendas, including content, sequence, and time allocations;

 

·                                          Have the authority to call meetings of the nonemployee directors, with advance notice of such meetings to be given to the Chairman;

 

·                                          Preside at meetings of the Board in the absence of the Chairman;

 

·                                          Preside at executive sessions of the nonemployee or independent directors;

 

·                                          In conjunction with the Governance Committee, take an active role in the Board’s annual self-evaluation; and

 

·                                          In conjunction with the Compensation Committee, take an active role in the annual evaluation of the CEO.

 

The independent directors who chair the Company’s Audit, Compensation and Governance Committees also provide leadership to the Board in their assigned areas of responsibility.   The Board believes the substantial majority of independent directors on the Board, use of a Lead Director, independent Committee chairs and executive sessions of the independent directors safeguard the independent governance of the Board.

 

Code of Ethical Business Conduct

 

The Company has adopted a Code of Ethical Business Conduct that covers its directors, officers and employees.  This Code of Ethical Business Conduct may be found on the Company’s Web site at www.hormelfoods.com under “Investors - Governance - Governance Documents.”

 

Stock Ownership Guidelines

 

The Company’s officers and directors are subject to stock ownership guidelines.   Officers are required to hold shares of Company stock with a value equal to their five-year average base salary times a multiple of 1.5 to 5, depending on position.  Directors need to hold shares of Company stock with a value equal to their five-year average annual Board retainer times a multiple of 5.  For both officers and directors, the required stock ownership value is divided by the five-year average Company stock price, based on fiscal year end prices, to calculate the number of shares to be held.  The Company’s officers

 

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and directors must hold all shares of Company stock acquired (net of shares withheld or sold to fund an option exercise or satisfy withholding taxes) until their stock ownership guidelines have been met.

 

The value of shares individually owned, held in Company benefit plans, and deferred in the Company’s deferred compensation plans are counted toward the guidelines.   Individual ownership of shares is determined under Section 16 of the Securities Exchange Act of 1934, as amended (“Exchange Act”).   Stock options, restricted stock units and restricted shares are not counted toward the guidelines.

 

Officers and directors have approximately five years from their initial election to comply with the guidelines.  Officers promoted to a level requiring higher stock ownership under the guidelines have five years to achieve compliance.  All officers and directors who are subject to the guidelines are in compliance with the guidelines.

 

Stock Pledging and Hedging Policies

 

The Company has a pledging policy which prohibits officers and directors from holding Company stock in a margin account or pledging Company stock as collateral for a loan.

 

The Company has adopted a policy prohibiting hedging.  The policy prohibits employees, officers and directors of the Company, and their designees, from purchasing any financial instruments (including without limitation prepaid variable forward contracts, equity swaps, collars, and exchange funds) or otherwise engaging in transactions that hedge or offset, or are designed to hedge or offset, any decrease in the market value of the Company’s securities granted to the employee, officer or director as compensation or held directly or indirectly by the employee, officer or director.

 

Board Independence

 

The Company’s Corporate Governance Guidelines require that a substantial majority of the Company’s directors be independent.  The NYSE listing standards require that a majority of the Company’s directors be independent and that the Audit, Compensation and Governance Committees be comprised entirely of independent directors.  The Board of Directors has adopted standards to assist it in making the annual determination of each director’s independence status. These Director Independence Standards are consistent with the NYSE listing standards. The Director Independence Standards are posted on the Company’s Web site at www.hormelfoods.com under “Investors - Governance - Governance Documents.”  A director will be considered “independent” if he or she meets the requirements of the Director Independence Standards and the independence criteria in the NYSE listing standards.

 

The Board of Directors has affirmatively determined that the following directors have no direct or indirect material relationship with the Company and satisfy the requirements to be considered independent:

 

Prama Bhatt

Elsa A. Murano

Christopher J. Policinski

Gary C. Bhojwani

Susan K. Nestegard

Jose Luis Prado

Terrell K. Crews

William A. Newlands

Sally J. Smith

Stephen M. Lacy

Dakota A. Pippins*

Steven A. White

*- retiring when term expires on January 26, 2021

 

The Board of Directors also has determined that each of the Company’s Audit, Compensation and Governance Committees is composed solely of independent directors.  In making the independence determinations, the Board reviewed all of the directors’ relationships with the Company.  This review is based primarily on a review of the responses of the directors to questions regarding employment, business, family, compensation and other relationships with the Company and its management.  In making the independence determination for Mr. White, President, West Division of Comcast Corporation, the Board considered the relationship arising out of the transactions in the ordinary course of business between the Company and Comcast Corporation, a service provider to the Company.  The Board determined that this relationship was not material and did not impair Mr. White’s independence.  The dollar amount of the Company’s transactions with Comcast Corporation are well below the thresholds for commercial transactions under the independence criteria in the NYSE listing standards.

 

Board of Director and Committee Meetings

 

Board of Directors and Committees -   The Board of Directors conducts its business through meetings of the Board and its committees.  The Lead Director presides at executive sessions of the nonemployee or independent directors.  The Board held six meetings during fiscal 2020.  Each director attended at least 75% of the total meetings during the fiscal year of the Board and Board committees on which he or she served.

 

The Board of Directors has established the following Board committees: Audit, Compensation and Governance.  The following table shows membership and meeting information for each committee for fiscal 2020.

 

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Name

 

Audit
Committee
(1) (2) (3)

Compensation
Committee
(4)(5)

Governance
Committee
(2)(5)(6)(7)

Prama Bhatt

 

X

 

 

Gary C. Bhojwani

 

 

X

X*

Terrell K. Crews

 

X

 

 

Stephen M. Lacy

 

X

X*

 

Elsa A. Murano

 

 

 

X

Susan K. Nestegard

 

 

 

X

William A. Newlands

 

X

X

 

Dakota A. Pippins

 

 

 

X

Christopher J. Policinski

 

 

X

X

Jose Luis Prado

 

X

 

 

Sally J. Smith

 

X*

X

 

Steven A. White

 

 

X

X

Total Meetings in Fiscal 2020

 

12

5

5

 


* Committee Chair

 

(1)                                 Prama Bhatt joined the Board at the Board’s November 25, 2019 meeting, and was appointed to the Audit Committee effective at the end of that meeting.

 

(2)                                 Dakota A. Pippins moved from the Audit Committee to the Governance Committee effective at the end of the January 28, 2020 Board meeting.

 

(3)                                 Sally J. Smith was appointed Audit Committee Chair effective at the end of the January 28, 2020 Board meeting, replacing Terrell K. Crews.

 

(4)                                 Terrell K. Crews left the Compensation Committee, and William A. Newlands and Steven A. White were appointed to the Compensation Committee, effective at the end of the January 28, 2020 Board meeting.

 

(5)                                 Robert C. Nakasone served on the Compensation and Governance Committees until his term expired on January 28, 2020.

 

(6)                                 Gary C. Bhojwani was appointed Governance Committee Chair effective at the end of the January 28, 2020 Board meeting, replacing Robert C. Nakasone.

 

(7)                                 Glenn S. Forbes served on the Governance Committee until his term expired on January 28, 2020.

 

Each of the Audit, Compensation and Governance Committees has adopted and operates under a written charter.  These charters may be found on the Company’s Web site at www.hormelfoods.com under “Investors - Governance - Governance Documents.”

 

Audit Committee -  Each member of the Audit Committee is financially literate as determined by the Board of Directors.  The Board also determined that Terrell K. Crews, Stephen M. Lacy and Sally J. Smith each is an audit committee financial expert, as defined by the rules of the Securities and Exchange Commission (“SEC”).   The duties of the Audit Committee include the following:

 

·                  Select and evaluate the performance of the independent registered public accounting firm;

 

·                  Discuss with the internal auditors and independent registered public accounting firm the overall scope and plans for their respective audits;

 

·                  Ensure that the independent registered public accounting firm is accountable to the Committee and that the firm has no relationship with management or the Company that would impair its independence;

 

·                  Review and discuss with management and the external auditors the quarterly and annual financial statements of the Company;

 

·                  Establish procedures for the handling of complaints received by the Company regarding accounting, internal controls or auditing matters, including the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters;

 

·                  Provide an open avenue of communication between the internal auditors, the external auditors, Company management and the Board;

 

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·                  Oversee the Company’s risk management function, including assessment of the steps management takes to manage the Company’s key areas of risk; and

 

·                  Oversee the Company’s compliance function, including assessment of the Company’s compliance program and oversight of the Code of Ethical Business Conduct.

 

Compensation Committee -   The duties of the Compensation Committee include the following:

 

·                  Establish compensation arrangements for all senior officers of the Company;

 

·                  Engage a compensation consultant to review the Company’s compensation programs;

 

·                  Make recommendations to the Board regarding incentive compensation and equity-based compensation plans, and administer such plans;

 

·                  Make recommendations to the Board regarding compensation to be paid to the Company’s directors; and

 

·                  Establish investment policies for the Company’s defined benefit pension plans, and periodically review investments for consistency with those policies.

 

Governance Committee -   The duties of the Governance Committee include the following:

 

·                  Establish criteria for new directors and evaluate potential candidates;

 

·                  Make recommendations to the Board regarding the composition of Board committees;

 

·                  Make recommendations to the Board of a member of the Board for election as Lead Director;

 

·                  Review the Company’s executive succession plans;

 

·                  Periodically assess the Company’s Corporate Governance Guidelines, as well as the Company’s adherence to them;

 

·                  Monitor the Company’s sustainability, environmental, and corporate social responsibility activities;

 

·                  Evaluate objectives and policies regarding the Company’s management of its human resources; and

 

·                  Oversee the annual evaluation of the Board.

 

Board Role in Risk Oversight

 

The Board of Directors takes an active role in risk oversight.  The Board administers its risk oversight function through the full Board and each of its committees.  Management of the Company, which is responsible for day-to-day risk management, maintains an enterprise risk management (“ERM”) process.  The ERM process is designed to identify and assess the Company’s risks globally and develop steps to mitigate and manage risks.  The Board receives regular reports on the ERM process.

 

The Board’s oversight of risk includes engaging in an annual strategic planning retreat with senior management, approving annual operating plans and strategic plans, and approving significant transactions.  In addition, the Board receives regular reports on the Company’s overall business, specific segments and financial results, as well as specific presentations on topics relating to risks and risk management.

 

The Audit Committee assists the Board with its risk oversight in a variety of areas, including financial reporting, internal controls and legal and regulatory compliance.   The Audit Committee has oversight of the Company’s internal audit, risk management and compliance functions, including oversight of the Company’s Code of Ethical Business Conduct.  The Audit Committee also appoints the independent registered public accounting firm and approves the services it provides to the Company. The Compensation Committee oversees risk in connection with compensation programs, including incentive compensation plans and equity-based plans.  The Governance Committee oversees risk in connection with corporate governance practices.  All of these committees make regular reports of their activities to the full Board.

 

Policy Regarding Attendance at Annual Meetings

 

The Company encourages, but does not require, its Board members to attend the Annual Meeting of Stockholders.  Last year all then-serving directors of the Company attended the Annual Meeting of Stockholders except for one director, who was retiring from the Board effective at the end of that meeting.

 

Board Communication

 

Interested parties may communicate with the Board of Directors by sending a letter directed to the Board of Directors, nonemployee directors or specified individual directors, addressed to:  Brian D. Johnson, Vice President and Corporate Secretary, 1 Hormel Place, Austin, Minnesota 55912.  All communications, whether signed or anonymous, will be directed

 

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to the Lead Director or the Chair of one of the committees based on the subject matter of the communication, or to the nonemployee directors or the specified directors, if so directed.

 

COMPENSATION OF DIRECTORS

 

In fiscal 2020, the Company provided the following elements of compensation to nonemployee directors:

 

·                  Annual retainer of $80,000;

 

·                  Additional annual retainer of $25,000 for Lead Director;

 

·                  Additional annual retainer of $25,000 for chair of the Audit Committee;

 

·                  Additional annual retainer of $10,000 for Audit Committee members;

 

·                  Additional annual retainer of $20,000 for chair of the Compensation Committee;

 

·                  Additional annual retainer of $7,500 for Compensation Committee members;

 

·                  Additional annual retainer of $15,000 for chair of the Governance Committee;

 

·                  Additional annual retainer of $5,000 for Governance Committee members; and

 

·                  An award of restricted shares of Company common stock having a value of $160,000 on February 1 based on the NYSE closing price for the stock at the end of that day (rounded to the nearest whole share number), subject to a restricted period which expires upon the date of the Company’s next annual stockholders meeting.

 

The retainers are paid half on February 1 and half on August 1.  These payments and the equity award are made on the first business day after February 1 and August 1 if those dates fall on a non-business day.

 

Nonemployee directors first elected to the Board other than at the annual stockholders meeting receive a prorated annual retainer and award of restricted shares based on the number of regular Board meetings scheduled from the time the director joins the Board to the next annual stockholders meeting out of the total number of regular Board meetings between annual stockholders meetings.  The restricted period for restricted shares awarded to newly elected nonemployee directors expires upon on the date of the second succeeding annual meeting of the Company’s stockholders.

 

Nonemployee directors appointed as a new Committee Chair or member receive a pro-rated annual Committee retainer based on the number of regular Board meetings scheduled from the time the director takes the new Committee assignment to the next annual stockholders meeting out of the total number of regular Board meetings between annual stockholders meetings.

 

The NYSE closing price of the Company’s stock was $47.43 on February 3, 2020.  This price resulted in an award of 3,373 restricted shares of Company common stock to each nonemployee director on that date.

 

The awards of restricted shares on February 3, 2020 were made pursuant to the terms of the stockholder-approved Hormel Foods Corporation 2018 Incentive Compensation Plan (“Incentive Compensation Plan”).  Each nonemployee director and the Company entered into a Restricted Stock Award Agreement consistent with the Incentive Compensation Plan.  Directors receive declared dividends on, and are entitled to vote, the restricted shares prior to vesting.

 

Nonemployee directors may defer all or a portion of retainer and meeting fees under the Company’s Nonemployee Director Deferred Stock Subplan pursuant to the Incentive Compensation Plan.  Deferred fees times 105% are credited as stock units under the plan.  The stock units have the same value as Company common stock and receive dividend equivalents.  Stock units become payable in shares of Company common stock following termination of service as a director.

 

Directors who are employees of the Company receive no additional compensation for service on the Board pursuant to Compensation Committee policy.

 

The Compensation Committee reviews the compensation to be paid to the Company’s nonemployee directors.  The Committee uses a compensation consultant, Pearl Meyer, to provide advice regarding nonemployee director compensation.  The consultant analyzes each element of director compensation and total director compensation for the same peer group of companies which is used to evaluate executive compensation.  See “How Compensation Decisions are Made” on page 20 for a list of these peer companies.  The Committee reviews the consultant’s report of competitive director compensation and determines whether to recommend to the Board a change in the Company’s nonemployee director compensation.  If such a change is recommended by the Committee, the full Board would then determine whether to ratify the change.

 

The Compensation Committee’s current policy is to review nonemployee director compensation every other year.  After this process was completed in late 2020, the Company’s nonemployee director compensation policy was not modified. The next regular review of nonemployee director compensation is scheduled to take place in late 2022.

 

The fiscal 2020 compensation of our nonemployee directors is shown in the following table.

 

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DIRECTOR COMPENSATION FOR FISCAL 2020

Name(1)

Fees Earned
or Paid in
Cash ($)
(1)

Stock
Awards
($)
(2) (3)

Option
Awards
($)
(3)

All Other
Compensation
($)
(4)

Total
($)

Prama Bhatt

120,000

213,303

-

-

333,303

Gary C. Bhojwani

102,500

159,981

-

538

263,019

Terrell K. Crews

90,000

159,981

-

2,605

252,586

Glenn S. Forbes(5)

-

-

-

2,078

2,078

Stephen M. Lacy

110,000

159,981

-

5,000

274,981

Elsa A. Murano

85,000

159,981

-

-

244,981

Robert C. Nakasone(5)

-

-

-

30,224

30,224

Susan K. Nestegard

85,000

159,981

-

12,091

257,072

William A. Newlands

97,500

159,981

-

1,237

258,718

Dakota A. Pippins

85,000

159,981

-

21,619

266,600

Christopher J. Policinski

117,500

159,981

-

17,910

295,391

Jose Luis Prado

90,000

159,981

-

472

250,453

Sally J. Smith

112,500

159,981

-

10,391

282,872

Steven A. White

92,500

159,981

-

11,149

263,630

 

(1)                                 Consists of annual retainer and additional annual retainers for Lead Director, committee chairs, and committee members.  Includes amounts voluntarily deferred under the Company’s Nonemployee Director Deferred Stock Subplan pursuant to the Incentive Compensation Plan.

 

(2)                                 Consists of the aggregate grant date fair value of restricted stock awarded to each nonemployee director in fiscal 2020, calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (Compensation – Stock Compensation) (“FASB ASC Topic 718”).  Each nonemployee director on February 3, 2020 received a grant of 3,373 shares of restricted stock.  Ms. Bhatt also received a prorated grant of 1,247 shares of restricted stock when she joined the Board on November 25, 2019.  The grant date fair value is based on the NYSE closing price of our common stock on the grant date, which was $42.76 on November 25, 2019 and $47.43 on February 3, 2020.

 

(3)                                 As of October 25, 2020, nonemployee directors held the following number of unexercised stock options and unvested shares of restricted stock:

 

Name

Unexercised
Options
(#)

Unvested Shares
of Restricted
Stock (#)

Prama Bhatt

-

4,620

Gary C. Bhojwani

-

3,373

Terrell K. Crews

13,200

3,373

Glenn S. Forbes

-

-

Stephen M. Lacy

19,800

3,373

Elsa A. Murano

26,400

3,373

Robert C. Nakasone

17,600

-

Susan K. Nestegard

13,200

3,373

William A. Newlands

-

3,373

Dakota A. Pippins

-

3,373

Christopher J. Policinski

6,600

3,373

Jose Luis Prado

-

7,004

Sally J. Smith

-

3,373

Steven A. White

-

3,373

 

(4)                                 Consists primarily of dividend equivalents paid on stock units under the Company’s Nonemployee Director Deferred Stock Subplan pursuant to the Incentive Compensation Plan and the 2009 Nonemployee Director Deferred Stock Plan.  Also includes matching gifts to educational institutions made by the Company on behalf of directors as follows:  Mr. Lacy - $5,000; and Mr. Nakasone - $10,000.  This matching gift program is available to all full-time and retired employees and directors of the Company.

 

(5)                                 Dr. Forbes’ term and Mr. Nakasone’s term expired on January 28, 2020.

 

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AUDIT COMMITTEE REPORT AND

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEES

 

Audit Committee Report

 

The Audit Committee oversees the Company’s financial reporting process on behalf of the Board of Directors.  Management has the primary responsibility for the financial statements and the reporting process, including the systems of internal controls.  The Committee has the sole authority to appoint or replace the Company’s independent registered public accounting firm.  The independent registered public accounting firm reports directly to the Audit Committee.

 

The Audit Committee has reviewed and discussed the Company’s fiscal year 2020 audited financial statements with management and with Ernst & Young LLP (“Ernst & Young”), the Company’s independent registered public accounting firm. The Audit Committee also has discussed with Ernst & Young the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board (“PCAOB”) and the SEC.

 

The Audit Committee has received from Ernst & Young the written disclosures and the letter required by the applicable requirements of the PCAOB regarding Ernst & Young’s communications with the Audit Committee concerning independence, and has discussed with Ernst & Young its independence from the Company.

 

Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors that the fiscal year 2020 audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended October 25, 2020, for filing with the SEC.

 

THE AUDIT COMMITTEE

Sally J. Smith, Chair

Stephen M. Lacy

Prama Bhatt

William A. Newlands

Terrell K. Crews

Jose Luis Prado

 

Independent Registered Public Accounting Firm Fees

 

The following table shows aggregate fees billed to the Company for fiscal years ended October 25, 2020 and October 27, 2019 by Ernst & Young, our independent registered public accounting firm.

 

 

Fiscal 2020

Fiscal 2019

Audit fees

$2,617,425

$1,969,803

Audit-related fees

   $165,000

   $134,300

Tax fees

              $0

              $0

All other fees

              $0

              $0

 

Audit Fees -   Audit fees are for audit of the Company’s financial statements and the audit of internal control over financial reporting for fiscal years 2020 and 2019.  Audit fees also include reviews of the financial statements included in the Company’s quarterly reports on Form 10-Q and statutory audits required internationally.

 

Audit-Related Fees -   Audit-related fees are for services related to the performance of the audit.  These services consist of benefit plan audits.

 

Audit Committee Preapproval Policies and Procedures

 

The Audit Committee has adopted policies and procedures requiring preapproval by the Committee of audit and nonaudit services provided to the Company by the independent registered public accounting firm.  The Audit Committee preapproved all of the services performed by Ernst & Young during fiscal years 2020 and 2019.  The Audit Committee approves all audit and nonaudit fees in advance at each quarterly meeting.

 

ITEM 2 – RATIFICATION OF APPOINTMENT OF

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Audit Committee of the Board of Directors appointed Ernst & Young as the independent registered public accounting firm to audit the consolidated financial statements of the Company and its subsidiaries for the fiscal year ending October 31, 2021.  Ernst & Young has served as the Company’s public auditors since 1931.

 

At the annual meeting, stockholders will be asked to ratify the appointment of Ernst & Young as the Company’s independent registered public accounting firm for the fiscal year ending October 31, 2021.  Stockholder approval of this appointment is not required.  The Board is requesting ratification in order to obtain the views of the Company’s stockholders.  If the appointment is not ratified, the Audit Committee will reconsider its selection.  Representatives of Ernst & Young are expected to attend the annual meeting, will be afforded an opportunity to make a statement, and will be available to respond to appropriate questions.

 

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Ratification of this appointment will require the affirmative vote of the majority of the shares of common stock represented in person or by proxy at the meeting.  The Board of Directors recommends a vote FOR ratification of the appointment of Ernst & Young LLP.  Properly dated and signed proxies will be so voted unless stockholders specify otherwise.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

 

Information as to the persons or groups known by the Company to be beneficial owners of more than five percent of the Company’s common stock, as of November 27, 2020, is shown below:

 

Name and Address of Beneficial Owner

 

Amount and Nature of
Beneficial Ownership

 

Percent
of Class

The Hormel Foundation
329 North Main Street, Suite 102L, Austin, Minnesota 55912

 

256,433,116(1)

 

47.49%

 

 

 

 

 

The Vanguard Group, Inc.
100 Vanguard Blvd., Malvern, Pennsylvania 19355

 

34,613,026(2)

 

6.41%

 

 

 

 

 

BlackRock, Inc.
55 East 52
nd Street, New York, New York 10055

 

  30,086,540(3)

 

5.57%

 

 

 

 

 

State Street Corporation
One Lincoln Street, Boston, Massachusetts 02111

 

  28,826,258(4)

 

5.34%

 

(1)                                 The Hormel Foundation (“Foundation”) holds 28,726,892 of such shares as individual owner and 227,706,224 of such shares as trustee of various trusts.  The Foundation, as trustee, votes the shares held in trust.  The Foundation has a remainder interest in all of the shares held in trust.  The remainder interest consists of principal and accumulated income in various trusts.  These interests are to be distributed when the trusts terminate upon the death of designated beneficiaries, or upon the expiration of twenty-one years after the death of such designated beneficiaries.

 

The Foundation was converted from a private foundation to a public foundation on December 1, 1980.  The Certificate of Incorporation and Bylaws of the Foundation provide for a Board of Directors, a majority of whom represent nonprofit agencies to be given support by the Foundation.  Each member of the Board of Directors of the Foundation has equal voting rights. Members of the Board of Directors of the Foundation are: Chair, Jeffrey M. Ettinger, former Chairman of the Board, President and CEO of Hormel Foods; Vice Chair, Bonnie B. Rietz, former Mayor of the City of Austin; Treasurer, Roland G. Gentzler, former Vice President, Finance and Treasurer of Hormel Foods; Secretary, Steven T. Rizzi, Jr., Attorney, Austin; Gema J. Alvarado-Guerrero, Executive Director, Parenting Resource Center, Inc., Austin, representing the Parenting Resource Center; Dr. Adenuga O. Atewologun, President, Riverland Community College, representing the Riverland Community College Austin campus; Diane B. Baker, CEO of YMCA of Austin, MN, representing the YMCA of Austin; Dr. Mark R. Ciota, President and Chief Executive Officer of Mayo Clinic Health System-Albert Lea and Austin, representing Mayo Clinic Health System-Austin; Dr. Robert C. Clarke, Executive Director, The Hormel Institute, Austin, representing the University of Minnesota, Hormel Institute; Thomas J. Dankert, Director of Administrative Services for the City of Austin, representing the City of Austin; Craig W. Johnson, Attorney, Austin; Michelle M. King, Attorney, Austin; Randall J. Kramer, Certified Financial Planner, Austin; David M. Krenz, Superintendent of Austin Public Schools, representing Austin Public Schools; Molly S. Lanke, Executive Director, United Way of Mower County, Inc., representing the United Way of Mower County; Richard R. Pavek, Executive Director, Cedar Valley Services, Inc., Austin, representing Cedar Valley Services; Larry J. Pfeil, former Vice President, Engineering of Hormel Foods; James P. Snee, Chairman of the Board, President and CEO of Hormel Foods; and Major Jeffrey L. Strickler, Commanding Officer, The Salvation Army of Austin, representing the Salvation Army of Austin.

 

(2)                                 Based on information provided in an Amendment No. 3 to a Schedule 13G filed with the Securities and Exchange Commission on February 12, 2020, The Vanguard Group, Inc. reported it has sole power to vote 413,336 shares, shared power to vote 184,744 shares, sole power to dispose of 34,034,239 shares, and shared power to dispose of 578,787 shares; Vanguard Fiduciary Trust Company, an investment manager, is the beneficial owner of 313,458 shares; and Vanguard Investments Australia, Ltd., an investment manager, is the beneficial owner of 360,532 shares.

 

(3)                                 Based on information provided in a Schedule 13G filed with the Securities and Exchange Commission on February 7, 2020, BlackRock, Inc. reported it has sole power to vote 26,497,489 shares and sole power to dispose of 30,086,540 shares.

 

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(4)                                 Based on information provided in a Schedule 13G filed with the Securities and Exchange Commission on February 13, 2020, State Street Corporation reported it has shared power to vote 26,317,666 shares and shared power to dispose of 28,794,438 shares.

 

SECURITY OWNERSHIP OF MANAGEMENT

 

Information as to beneficial ownership of the Company’s common stock by directors, nominees, executive officers of the Company named in the Summary Compensation Table on page 28, and all current directors and executive officers of the Company as a group as of November 27, 2020, is shown below:

 

 

Amount and Nature of
Beneficial Ownership

 

Name of Beneficial Owner

Shares(1)

Right to
Acquire Within
60 Days
(2)

Percent
of Class

Prama Bhatt

4,620

-

*

Gary C. Bhojwani

33,542

-

*

Deanna T. Brady(3)

46,848

208,219

*

Terrell K. Crews

101,926

13,200

*

Thomas R. Day(3)

135,069

399,500

*

Stephen M. Lacy

56,354

19,800

*

Glenn R. Leitch(3)

112,500

561,886

*

Lori J. Marco(3)

30,404

150,775

*

Elsa A. Murano

94,621

26,400

*

Susan K. Nestegard

103,831

13,200

*

William A. Newlands

10,531

-

*

Dakota A. Pippins

87,001

-

*

Christopher J. Policinski

69,226

6,600

*

Jose Luis Prado

8,993

-

*

James N. Sheehan(3)(4)

167,900

312,479

*

Sally J. Smith

45,726

-

*

James P. Snee(3)

183,330

701,950

*

James M. Splinter(3)

122,552

467,000

*

Steven A. White

45,360

-

*

All Directors and Executive Officers as a Group (27 persons)(4)

1,404,900

2,915,996

0.80%

 

___________________________________________________

* One percent or less.

 

(1)                                 Except as otherwise indicated and subject to applicable community property and similar statutes, the persons listed as beneficial owners of the shares of the Company’s common stock have sole voting and investment powers with respect to the shares.  None of the shares are pledged as security.  Holdings are rounded to the nearest full share.

 

(2)                                 Consists of shares subject to options exercisable on or within 60 days of November 27, 2020 and RSUs eligible for vesting due to a qualified retirement on or within 60 days of November 27, 2020.

 

(3)                                 Shares listed as beneficially owned include, where applicable, shares allocated to participants’ accounts under the Hormel Tax Deferred Investment Plan A – 401(k), and a pro-rata share of unallocated shares held in the Company’s Joint Earnings Profit Sharing Trust for the benefit of participants.

 

(4)                                 Includes 57,228 shares of the Company’s common stock beneficially owned by members of Mr. Sheehan’s household.

 

EXECUTIVE COMPENSATION

 

COMPENSATION COMMITTEE REPORT

 

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis that follows this report. Based on this review and discussion, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into the Company’s Annual Report on Form 10-K for the fiscal year ended October 25, 2020.

 

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THE COMPENSATION COMMITTEE

 

Stephen M. Lacy, Chair

Christopher J. Policinski

Gary C. Bhojwani

Sally J. Smith

William A. Newlands

Steven A. White

 

COMPENSATION DISCUSSION AND ANALYSIS

 

Our executive compensation program aims to attract, retain, and reward high caliber management talent who will lead our business and drive long-term stockholder value. This CD&A outlines our 2020 executive compensation philosophy and objectives, describes the elements of our executive compensation program, and explains how the Compensation Committee of the Board of Directors arrived at its compensation decisions for our 2020 named executive officers (“NEOs”) listed below:

 

NEO

Position/Title

James. P. Snee

Chairman of the Board, President and Chief Executive Officer

James N. Sheehan

Executive Vice President and Chief Financial Officer

Glenn R. Leitch

Executive Vice President, Supply Chain

Thomas R. Day

Former Executive Vice President, Refrigerated Foods (Retired April 24, 2020)

Deanna T. Brady

Executive Vice President, Refrigerated Foods

James M. Splinter

Former Group Vice President, Corporate Strategy (Retired June 18, 2020)

Lori J. Marco

Senior Vice President, External Affairs, and General Counsel

 

Executive Summary

 

2020 Business Highlights

 

Performance Results

 

The Compensation Committee believes the Company’s executive compensation programs have been effective at incenting the achievement of strong financial performance and long-term returns to stockholders.  Fiscal 2020 net earnings were $908 million, with $1.66 diluted EPS.  With the COVID-19 pandemic impacting more than half the year, fiscal 2020 was still the third most profitable year in the Company’s history.  Our fourth quarter earnings release and annual report provide more details on the Company’s financial performance.

 

The Company’s financial performance has led to superior returns to the Company’s stockholders over a longer-term horizon.  The chart below shows how the Company’s stock outperformed the Dow-Jones Industrials 30 Stock Average, the Standard & Poor’s 500 Index, and the Standard & Poor’s 500 Packaged Foods and Meats Index in total return for the ten-year period ended October 23, 2020, the last trading day in fiscal 2020.

 

COMPARISON OF TOTAL RETURN*

 

 

 

 

 

Ended 10/23/2020

1-Year

2-Year

3-Year

5-Year

10-Year

Hormel Foods

24.7%

12.0%

20.1%

9.8%

17.9%

Dow-Jones Industrials 30 Stock Average

5.1%

7.1%

6.5%

9.9%

9.8%

S & P 500

16.8%

16.4%

12.5%

13.1%

13.7%

S & P 500 Packaged Foods and Meats

12.2%

10.8%

6.0%

4.1%

10.5%

 

* The chart indicates total stockholder return for each period based on a $100 investment in the stock or index, including reinvestment of dividends.

 

In fiscal 2020, the Company paid a record amount of dividends to stockholders.  In November 2020, the Company announced a $0.05 per share (5.4%) increase to its annual dividend rate, making the new dividend $0.98 per share. This represents the 55th consecutive annual dividend increase and follows eleven consecutive annual dividend increases of ten percent or more.

 

Response to COVID-19

 

Throughout the COVID-19 pandemic, our number one priority has been to keep our people safe, especially those who are not in a position to work remotely. We do this all with a sense of responsibility and pride as we maintain the constant supply of safe, high-quality food which has provided a sense of security and comfort to millions of consumers. The Company has invested in the safety of its team members through innovation in its facilities, providing personal protective equipment, temperature screenings, COVID-19 testing and focused efforts on facility redesign for social distancing. Our leadership team has continued to enhance and refine our safety practices throughout the pandemic. Our awareness and

 

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education campaign KEEP COVID OUT! is also helping prevent the spread of the virus in the communities where we live and work, with a focus on keeping the virus out of our production facilities by outlining the various preventive measures we can all practice in order to stay safe. We have partnered with federal, state and local health officials, including a partnership review by the CDC of our blue ribbon efforts related to COVID-19.  The Company currently meets or exceeds all guidance from the CDC and OSHA at all of our production facilities. The Company’s crisis team will continue to work with health and safety experts to ensure that our efforts are leading-edge.

 

Corporate Responsibility

 

During the COVID-19 pandemic, we donated more than $1 million and 1 million meals to hunger causes, supporting communities and causes around the world. Our Inclusion and Diversity Guiding Coalition guided the Company’s response to the social unrest that occurred during the summer. Hormel’s Inspired Giving platform paved the way for the Company’s team members to choose causes to support. This team selected three organizations to make donations to: Minorities in Agriculture, Natural Resources and Related Sciences, the NAACP Legal Defense and Education Fund and UNCF. These organizations are all helping change the world by tackling equality and education.  We believe education has the power to change the world and access to educational opportunities can lift up people and communities. Equality and education can be game changers, and we have decided to promote those causes. Through a new program called Inspired Pathways, we are going to make the dream of a two-year college education available to the children of our team members in the United States.

 

2020 Say-on-Pay

 

At the 2020 Annual Meeting of Stockholders, the Company provided stockholders an advisory vote on executive compensation.  The stockholders approved, on an advisory basis, the compensation of the Company’s NEOs, as disclosed pursuant to the compensation disclosure rules of the SEC, including the Compensation Discussion and Analysis, compensation tables and narrative discussion set forth in the Company’s 2020 annual meeting proxy statement.  Of the shares voted for or against the Company’s executive compensation, 98.17% voted in favor.

 

The Committee took into account the result of the stockholder vote in determining executive compensation policies and decisions since that vote.  The Committee viewed the vote as an expression of the stockholders’ general satisfaction with the Company’s current executive compensation programs.  While the Committee considered this stockholder satisfaction in determining to continue the Company’s executive compensation programs for fiscal 2021, decisions regarding incremental changes in individual compensation were made in consideration of the factors described below.

 

Consistent with the stockholders’ preference expressed in voting at the 2017 Annual Meeting of Stockholders, the Company’s Board of Directors determined that an advisory vote on the compensation of the Company’s NEOs will be conducted every year.

 

2020 Compensation Decisions and Outcomes

 

The Compensation Committee took several actions in 2020 to ensure market-competitive NEO compensation, emphasizing performance-based compensation programs tied directly to value creation for the Company’s stockholders. The Compensation Committee approved salary increases, Operators’ Shares grants, annual incentive plan (“AIP”) award target amounts, long-term incentive plan (“LTIP”) performance awards, restricted stock units (“RSUs”) awards, and stock option grants for the NEOs and other key executives. The resulting fiscal 2020 compensation levels for the NEOs are detailed in the Summary Compensation Table on page 28 and the supporting tables that follow. At target performance, NEO total direct compensation is approximately the median of market consensus data.

 

Based on our actual performance results for fiscal 2020, NEO compensation relative to target was as follows:

 

·                  Operators’ Shares were 6% below target, tied directly to the Company’s under achievement on EPS;

 

·                  Actual AIP payouts for the NEOs were 73% of target, on average. As described below, 2020 AIP awards were tied to the achievement of a combination of Company EBIT and Asset Management performance results; and

 

·                  The performance period for the LTIP awards made in 2017 ended June 19, 2020.  The Company’s 3-year total shareholder return was at the 90.5 percentile of its peer group, generating a payout of 204.8% of target.

 

Best Compensation Governance Practices

 

Our executive pay program accomplishes our goals by incorporating certain pay practices while avoiding other, more problematic or controversial practices.

 

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What We Do

What We Don’t Do

ü

Place a heavy emphasis on variable, performance-based compensation

×

No significant perquisites

ü

Have robust stock ownership guidelines

×

No employment agreements, severance or related tax gross ups

ü

Use a mix of relative and absolute financial performance metrics

×

No pledging or hedging of stock

ü

Use an independent, external compensation consultant

×

No repricing or exchange of underwater options(1)

 

ü

Hold an annual say-on-pay vote

×

No dividends are paid on unvested RSUs. Dividend equivalents in the form of additional RSUs are only payable to the extent the RSUs ultimately vest

ü

Maintain a clawback policy in the event of a material financial restatement

 

 

 

 

(1)                                 Our Incentive Compensation Plan prohibits repricing or exchange of underwater options without stockholder approval.

 

What Guides Our Program

 

The Compensation Committee establishes and administers the compensation and benefit programs for executive officers.  The Compensation Committee consists exclusively of nonemployee, independent directors.  The Committee uses a compensation consultant, Pearl Meyer, to provide compensation advice independent of Company executives.  The Committee determined the consultant’s work did not raise any conflict of interest. Pearl Meyer does not provide any additional consulting services to the Company.  The Committee and its consultant work with senior management to implement and monitor the programs the Committee approves.

 

Compensation Objectives

 

The Company’s executive compensation programs are designed to achieve two primary goals:

 

·                  Attract and retain highly qualified executive officers; and

 

·                  Incent the behavior of executive officers to create stockholder value.

 

These two goals are achieved by providing a competitive total compensation program that offers competitive “fixed pay” (i.e., base salary and benefits) along with “variable, performance-based pay” designed to pay for performance.

 

Total compensation for executive officers is leveraged toward performance-based compensation rather than base salary.  Performance-based compensation is comprised of both short-term and long-term incentives.  An appropriate balance of short-term and long-term incentives assures executive officers are properly balancing the need for consistent annual performance with the need for improved long-term performance.  This compensation balance provides both downside risk and upside opportunity for Company performance.

 

Principal Components of Pay

 

The Company’s target pay positioning reflects the strong pay-for-performance philosophy.  The Compensation Committee considers several factors in its review and approval of overall target compensation, including market competitive pay, individual performance and internal equity.  In addition to reviewing target pay levels, the Committee also considers the range of potential payouts under the plans as well as balancing long-term and short-term performance.  As indicated in the table below, target pay levels and incentive plans are designed to create alignment between actual relative pay and relative performance.

 

Pay Component

Performance Factors

Performance Time Horizon

Performance
Leverage

% of Target Total
Direct Compensation
for NEOs

Base Salary

Individual performance

Annual

Low

10 – 25%

Operators’ Shares

Company EPS

Annual

Low/Moderate

5 – 15%

AIP

Company EBIT, segment profit and asset management

Annual

Moderate/High

15 – 25%

LTIP

Relative total shareholder return performance

3-year performance period

Moderate/High

15 – 35%

 

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Stock Options

Stock price growth

4-year vesting; 10-year term

High

13 – 20%

RSUs

Stock price

3-year vesting

Low/Moderate

13 – 20%

 

The Hormel Foods Corporation 2018 Incentive Compensation Plan (“Incentive Compensation Plan”) is administered by the Compensation Committee and is utilized for both short-term and long-term and for both cash and equity compensation programs.  The Incentive Compensation Plan allows the Compensation Committee to grant the NEOs different types of incentive awards.

 

How Compensation Decisions are Made

 

The Compensation Committee reviews and approves recommendations for pay changes for a group of key executives who hold senior positions within the Company, including all the Company’s executive officers (the CEO and such executives, collectively, the “Senior Management Group”).  Each year, the Committee asks its outside consultant to update the competitive analysis for each of these positions.

 

For the Senior Management Group, the consultant develops “market consensus” data using both a peer group of companies similar to the Company in size and industry (listed below) and a combination of several compensation surveys.  The use of peer group data (1) provides the Compensation Committee with more specific information regarding market practices than is available from surveys and (2) allows the Committee to compare the Company’s relative pay positioning in relation to the Company’s relative performance positioning to ensure a proper pay-for-performance alignment.  The use of survey data (1) provides information based on specific position responsibilities rather than pay level and (2) provides pay information for positions that fall below the NEOs.  The consultant works with the Company’s Senior Vice President of Human Resources to ensure a proper understanding of the roles, responsibilities and revenue scope of each position reviewed.

 

Hormel Foods Compensation Peer Group

Campbell Soup Company

ConAgra Brands, Inc.

Flowers Foods, Inc.

Fresh Del Monte Produce Inc.

General Mills, Inc.

Hain Celestial Group, Inc.

Hershey Company

J.M. Smucker Company

Kellogg Company

Kraft Foods Group Inc.

McCormick & Company, Inc.

Mondelez International Inc.

Pilgrim’s Pride Corporation

Post Holdings, Inc.

Sanderson Farms, Inc.

Seaboard Corporation

Treehouse Foods, Inc.

Tyson Foods Inc.

2019/2020 Fiscal Year Data
($ in millions)

Hormel Foods
(Fiscal 2020)

25th Percentile

Median

75th Percentile

Revenues

$9,497

$4,704

$7,894

$13,036

Market Capitalization

$26,770

$4,687

$14,041

$28,928

 

The Committee has established a separate performance peer group for purposes of measuring relative total shareholder return, called the “LTIP Peer Companies.”  The companies in the above Compensation Peer Group are different than the LTIP Peer Companies because the purpose of each list is different.  The Compensation Peer Group consists of food companies which are more similar in size to the Company.  The LTIP Peer Companies consist of a broader group of food and beverage companies that are used to determine relative total shareholder return performance.  This broader group assures there will be a sufficient number of comparison companies at the end of the three-year LTIP performance cycle if some of the companies are acquired, go bankrupt or are eliminated due to unforeseen events.  The LTIP Peer Companies are listed on page 24.

 

In July of each year, the Committee reviews and approves the Compensation Peer Group and the LTIP Peer Companies with input from the consultant. The Compensation Peer Group listed above was approved in July 2020 and is the same as the Compensation Peer Group approved in July 2019, except that Dean Foods Company was removed.

 

Upon completing the competitive analysis, the consultant provides the Compensation Committee with a report of the relative pay and performance findings.  Based on the results of this analysis, the Committee discusses strategic goals for the program and establishes broad parameters for annual pay decisions, including overall pay mix.  The consultant then works with the CEO and the Senior Vice President of Human Resources to develop an initial set of recommendations for annual pay decisions, consistent with the guidelines established by the Committee.  The consultant presents preliminary recommendations based on each executive’s market positioning and relative internal positioning.  The CEO and Senior Vice President of Human Resources then modify those recommendations based on their assessment of each individual’s performance and contribution.  The initial results are submitted to the Committee for review and discussion.  Based on the Committee’s discussion, modifications are made to the initial recommendations and the Committee approves the final

 

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recommendations at a subsequent meeting.  The CEO does not participate in the Committee’s process for establishing the CEO’s compensation.

 

The Executive Compensation Program In Detail

 

Base Salary

 

Base salary levels are the fixed portion of the executive compensation package. Base salary levels typically represent less than 25% of an executive officer’s total direct compensation.  Salary levels are based on competitive pay levels and the executive’s experience, responsibilities and performance. In keeping with the Company’s focus on paying for performance, base salaries are generally below competitive median levels.

 

Operators’ Share Incentive Plan

 

Why Operators’ Shares?

 

The Hormel Foods Corporation 2018 Operators’ Share Incentive Compensation Subplan pursuant to the Incentive Compensation Plan (“Operators’ Share Plan”) is a short-term incentive.  The basic concept of the Operators’ Share Plan structure has been in place since 1932.

 

This annual cash incentive plan rewards employee participants for Company financial performance, as measured by earnings per share (“EPS”).  The Operators’ Share Plan rewards employees as the EPS of the Company rises over time.  Improved EPS, over time, results in an increase in the stock price, which improves stockholder value.

 

How the Plan Works

 

Upon initial eligibility for plan participation, an employee receives a grant of Operators’ Shares.  Operators’ Shares are phantom units, not actual shares of stock or the right to receive the value of stock.  Operators’ Shares represent the right to receive performance-based cash compensation under the Operators’ Share Plan.

 

The Compensation Committee determines grants of Operators’ Shares to the Senior Management Group.  Operators’ Shares are awarded at a level that results in competitive total annual cash compensation relative to market pay levels, taking into consideration length of service and performance.  The total of an executive’s base pay plus the projected value of the Operators’ Shares is generally at the 50th percentile of the market for base pay.

 

During the year, participants receive “dividend equivalents.”  These are cash payments equal to declared dividends multiplied by the number of Operators’ Shares held.

 

Following the end of each fiscal year, the Company calculates each participant’s Operators’ Share Plan award.  This is done by multiplying the Company’s annual EPS by the number of Operators’ Shares identified for that participant.  This award is decreased by the total amount of dividend equivalents paid during the year to determine the final Operators’ Shares payment.

 

Annual Incentive Plan

 

Why AIP?

 

The AIP is a short-term incentive granted under the Incentive Compensation Plan.  The AIP is an annual cash incentive program that rewards participants for the Company’s financial performance.  The AIP rewards achievement of profit objectives and asset management.  The Committee believes the AIP further aligns performance pay to key drivers of the Company’s financial success.

 

How the Program Works

 

Payout under the AIP is based on the achievement of certain financial goals in relation to the Company’s annual operating plan approved by the Board of Directors.  The CEO’s goal is based on earnings before interest and taxes (“EBIT”) for the consolidated Company.  Participants who are heads of one of the Company’s segments (Grocery Products, Refrigerated Foods, Jennie-O Turkey Store, and International & Other) will have their goal weighted, with one-half based on segment profit for their particular segment and one-half based on EBIT for the consolidated Company.  All other NEOs have their goal based on EBIT for the consolidated Company.

 

Performance goals for EBIT and segment profit are based on the annual operating plan approved by the Board of Directors.  The Committee has authority to modify a performance period and/or make adjustments to or waive the achievement of performance goals for unusual or infrequently occurring events.  As a result, the calculation of fiscal 2020 Total Company EBIT and segment profit for Refrigerated Foods excluded the effects of the acquired Sadler’s business in order to ensure the equitable comparability of the performance to the goal.

 

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Target award amounts under the AIP for the Senior Management Group are determined by the Compensation Committee and will vary based on the participant’s position within the Company and the competitive market rate.  Performance levels at threshold, target, and maximum, and their payout levels are established at the beginning of the fiscal year.   Payouts are a percentage of target as follows:

 

 

EBIT/Segment Profit as a
% of Plan

Payout as a%
of Target

 

> 120%

200%

Maximum

120%

200%

Target

100%

100%

Threshold

80%

50%

 

< 80%

0%

 

Awards are interpolated for EBIT and segment profit between the discrete percentages.

 

The AIP modifier is a secondary measure applied to the AIP award.

 

·                  For most participants, including all of the NEOs, the modifier is based on asset management.  Asset management is calculated as the average measured assets (including accounts receivable, inventories, prepaid expenses, intangible assets, property, plant & equipment, investments, and other assets) as a percentage of the annual operating plan.  The asset management modifier may increase or decrease the payout based on EBIT/segment profit.  Asset management within 95% to 105% of the plan will have no impact on the payout.  Asset management below 95% of the plan will increase the payout by 20%.  Asset management above 105% of the plan will decrease the payout by 20%.

·                  The Committee has authority to modify a performance period and/or make adjustments to or waive the achievement of performance goals for unusual or infrequently occurring events.  As a result, the measurement of asset management for Total Company and Refrigerated Foods excluded the assets attributed to the acquisition of Sadler’s business and savings from a capital project for the Company’s Burke Corporation pizza topping business.

 

The maximum payout under the AIP is 200% of the target incentive.  The Compensation Committee retains discretion to reduce the amount of any award payout.

 

The fiscal 2020 AIP payout percentage varied for the NEOs, based upon the Total Company results and/or their segment results, as follows:

 

 

Target
Incentive

Basis for AIP Incentive
Payment

AIP Payout % Including
Asset Management Modifier

James P. Snee

$1,400,000

Total Company

78%

James N. Sheehan

$475,000

Total Company

78%

Glenn R. Leitch

$460,000

  1/2 Jennie-O Turkey Store

53%

 

 

  1/2 Total Company

78%

 

 

               Weighted Total

65%

Thomas R. Day

$475,000

  1/2 Refrigerated Foods

1/2 Total Company

Weighted Total

60%

78%

69%

Deanna T. Brady

$375,000

  1/2 Refrigerated Foods

1/2 Total Company

Weighted Total

60%

78%

69%

James M. Splinter

$335,000

Total Company

78%

Lori J. Marco

$270,000

Total Company

78%

 

The Grocery Products and International segments achieved their respective segment profit goals for fiscal 2020, but the Total Company along with the Jennie-O Turkey Store and Refrigerated Foods segments did not. Grocery Products and Jennie-O Turkey Store segments met their asset management goals.  The resulting payout percentages represent this performance.  The Total Company EBIT goal for fiscal 2020 was $1,203,790,000.  The Total Company’s actual EBIT performance was $1,099,948,000, which was adjusted to $1,094,470,000 after adjusting for Sadler’s, resulting in 91% achievement of the EBIT goal.  The Total Company asset goal for fiscal year 2020 was $7,040,351,000.  The Total Company’s actual average measured assets employed, excluding measured assets attributed to the acquired Sadler’s business and Burke expansion savings, were $6,964,628,000, resulting in 99% achievement of the goal.  Since the actual achievement fell within the 95% to 105% range, no payout modifier was applied.

 

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SEC rules provide that the Company does not have to disclose confidential financial information if doing so would result in competitive harm to the Company.  The quantitative factors identified below are all maintained by the Company as confidential and proprietary information.  The Compensation Committee believes disclosure of such information would result in competitive harm to the Company.  Such harm would be caused by factors including the following:

 

·                  Segment profit targets and results are competitively sensitive information that the Company does not publicly disclose; and

 

·                  Segment asset management targets and results are competitively sensitive information that the Company does not publicly disclose.

 

The target-level goals can be characterized as “strong performance,” meaning that based on historical performance, although attainment of this performance level is uncertain, it can be reasonably anticipated that target performance may be achieved, while the threshold goals are more likely to be achieved and the maximum goals represent more aggressive levels of performance.

 

Changes to AIP Metrics for 2021

 

Our executive compensation program emphasizes variable pay that aligns compensation with performance and stockholder value. For the NEOs, the mix of compensation elements has always been heavily weighted toward variable, performance-based compensation, and the AIP has had a historically strong focus on profitability and returns. As investors are increasingly looking for companies to balance top-line growth with profitability, as well as demonstrate progress toward environmental, social and governance (“ES&G”) issues, the Compensation Committee approved changes to the 2021 AIP metrics to provide a better balance among these factors. Specifically, for fiscal 2021, AIP awards for NEOs will be based on the following:

 

 

The CEO’s goal is based 80% on EBIT for the consolidated Company, 10% Net Sales for the Company, and 10% based on achievement of key ES&G initiatives, such as inclusion and diversity.  Participants who are heads of one of the Company’s segments (Grocery Products, Refrigerated Foods, Jennie-O Turkey Store, and International & Other) will have their goal weighted, with 25% based on segment profit for their particular segment, 10% based on Net Sales for their segment,  55% based on EBIT for the consolidated Company, and 10% based on achievement towards Total Company ES&G metrics.  All other NEOs have their goal based on EBIT, Net Sales, and ES&G metrics for the consolidated Company.

 

For EBIT, Segment Profit, and Net Sales, threshold begins at 80% achievement of plan with a 50% target payout; 100% payout when plan is achieved; and 200% payout at 120% achievement of plan. Awards are interpolated between the discrete percentages. The ES&G payout ranges are 0-200% based upon improvement in our ES&G metrics.

 

The AIP modifier is a secondary measure applied to the AIP award. This modifier is based on Return on Assets (“ROA”). ROA is calculated by dividing net income by average total assets relative to the annual operating plan.  The ROA modifier may increase or decrease the payouts associated with EBIT and segment profit.  ROA within 90% to 110% of the plan will have no impact on the payout.  ROA below 90% of the plan will decrease the payouts by 20%.  ROA above 110% of the plan will increase the payout by 20%.

 

The maximum payout under the AIP will remain 200% of the target incentive.  The Compensation Committee retains discretion to reduce the amount of any award payout.

 

Long-Term Incentive Plan

 

Why LTIP Performance Awards?

 

LTIP performance awards granted under the Incentive Compensation Plan are designed to provide a small group of key employees selected by the Committee with an incentive to maximize stockholder value.  LTIP performance awards granted in fiscal 2020 provide an additional incentive opportunity based on the Company’s long-term “Total Shareholder Return”

 

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performance compared to its peers.  The Committee feels that the relative performance nature of these LTIP awards balances the absolute performance of the stock options, and recognizes the cyclicality of the business.  In other words, if the Company underperforms versus peers in a very strong market, the options may be valuable, but the LTIP awards will be worthless.  Conversely, if the Company outperforms its peers in a very weak market, the options may be worthless, but the LTIP awards would generate a reward.

 

How the LTIP Performance Awards Work

 

“Total Shareholder Return” measures the increase in stock price and any reinvested dividends.  Each participant, including the NEOs, is given a target dollar award opportunity for the three-year performance period.  In selecting the cash incentive target for each participant, the Compensation Committee considers the responsibilities of the employee, his or her contributions to the Company’s success, and competitive market data.

 

In July 2020, the annual LTIP performance awards were granted.  The performance cycle for each award is three years and participants can have up to three overlapping LTIP performance awards at any time. If, during any three-year performance cycle, a subsequent target award is increased or decreased due to a promotion or job change, that change will be applied to any existing target awards as of the subsequent award’s effective date.

 

If the Company’s actual Total Shareholder Return for the three-year period is at the 50th percentile of the peer group, then the target award is earned.  If the Company’s actual Total Shareholder Return ranks highest among the peers, then the award payout equals three times the target opportunity.  No award is paid unless actual Total Shareholder Return is above the 25th percentile of the peers.  Awards will be interpolated for Company performance between the discrete points.  The Compensation Committee retains discretion to reduce the amount of any award payout.  The peer group for LTIP awards granted in fiscal 2020 consists of 21 publicly traded companies in the food industry, listed below.

 

LTIP Peer Companies

Campbell Soup Company

Clorox Company

Coca-Cola Company

Hain Celestial Group, Inc.

Hershey Company

J.M. Smucker Company

PepsiCo Inc.

Pilgrim’s Pride Corp.

Post Holdings, Inc.

ConAgra Brands, Inc.

Flowers Foods, Inc.

Fresh Del Monte Produce Inc.

Kellogg Company

Kraft Heinz Company

McCormick & Company, Inc.

Sanderson Farms, Inc.

Seaboard Corporation

Treehouse Foods Inc.

General Mills, Inc.

Mondelez International Inc.

Tyson Foods Inc.

 

The LTIP Peer Companies listed above were approved in July 2020 and is the same as the LTIP Peer Companies approved in July 2019, except that Dean Foods Company was removed.

 

For the LTIP performance period June 12, 2017 through June 19, 2020, the Company’s Total Shareholder Return was at the 90.5 percentile of its peer group, resulting in a payout at 204.8% of the target awards.

 

Stock Incentives

 

Why Stock?

 

The Incentive Compensation Plan also allows the Committee to grant several types of equity awards, including stock options, restricted stock and other stock-based awards.  Prior to 2020, the Committee relied on stock options as the primary form of annual equity award.  In response to market practices and to enhance recruiting and retention, the Committee added RSUs as part of the annual stock incentive awards. The Committee believes that the combination of options and RSUs creates the right balance between performance and retention. Options only provide value to the participant when the market price of the stock exceeds the grant price.  Options are intended to provide long-term performance-based compensation tied specifically to increases in the price of the Company’s stock, aligning the financial interests of executives and stockholders.  By comparison, RSUs convey real, immediate value to participants as of the grant date, thereby providing much stronger retention incentive than other compensation vehicles. For fiscal 2020, the Compensation Committee determined the total equity award value for executive officers would be delivered 50% in the stock options and 50% in RSUs.

 

Stock option grants typically vest equally over a four-year period and have a term of ten years. This extended vesting period and term encourage executives to balance how business decisions made in the near-term affect the Company’s long-term stock price performance.  RSUs have a 3-year cliff vesting schedule, which serves as a retention incentive.  Stock options and RSUs are granted annually, effective on the first Tuesday of December, for all eligible employees except the CEO.  This practice ensures that grant dates cannot be manipulated for a more favorable exercise price or market price.  The Committee determined to make the CEO’s stock option and RSUs grants effective the same date as the nonemployee directors’ restricted share grants, February 1.  This date was chosen because it falls shortly after conclusion of the annual CEO evaluation process.  Options are always granted at the market price of the Company’s stock at the date of grant.

 

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RSUs are credited with dividend equivalents in the form of additional RSUs each time a cash dividend is paid on our common stock.  The declared dividends multiplied by the number of RSUs held are deemed reinvested in additional RSUs based on the market value of our common stock on the dividend payment date.  Such additional RSUs are subject to the same terms as the underlying RSUs, including the timing of vesting.

 

How Awards are Determined

 

The Compensation Committee determines, with the assistance of its independent outside consultant, the amount of options and RSUs to be granted to the Senior Management Group.  The CEO adds his input and recommendations regarding grants to members of the Senior Management Group (other than himself).  The Committee reviews such recommendations and determines all final option and RSU grants to the Senior Management Group.

 

Option and RSUs awards generally reflect the Compensation Committee’s assessment of the influence an employee’s position has on stockholder value.  The number of options and/or RSUs awarded may vary up or down from prior year awards based on the level of an individual executive officer’s contribution to the Company in a particular year, determined in part on the recommendation of the CEO.  The Committee’s determination of option and RSUs grants in fiscal 2020 and in past years took into consideration the individual’s contributions to the Company during the last fiscal year, potential for contributions in the future, and as a component of competitive total compensation based on market data.

 

Other Compensation-Related Policies, Practices And Guidelines

 

Stock Ownership Guidelines

 

The Company’s officers are required to hold Company stock with a value equivalent to 1.5 to 5 times their five-year average annual base salary.  The required stock ownership value is divided by the five-year average Company stock price, based on fiscal year end prices, to calculate the number of shares to be held.  The Company’s officers must hold all shares of Company stock acquired (net of shares withheld or sold to fund an option exercise or satisfy withholding taxes) until their stock ownership guidelines have been met.  See “Stock Ownership Guidelines” on page 8 for more information on the Company’s stock ownership guidelines.

 

Stock Pledging and Hedging Policies

 

The Company has a pledging policy which prohibits officers from holding Company stock in a margin account or pledging Company stock as collateral for a loan. The Company has also adopted a policy prohibiting hedging of the Company’s securities.  See “Stock Pledging and Hedging Policies” on page 9 for the Company’s pledging and hedging policies.

 

Clawback Policy

 

The Committee has adopted a “clawback” policy which provides for recoupment of incentive compensation in certain circumstances. If the Company restates its reported financial results for reasons other than a restatement required by a change in applicable accounting standards, the Board will review the bonus and other awards made to the executive officers based on financial results during the period subject to the restatement and, to the extent practicable under applicable law, the Company will seek to recover or cancel any such awards which were awarded as a result of achieving performance targets that would not have been met under the restated financial results.

 

Pension Plan

 

The Company maintains noncontributory defined benefit pension plans covering substantially all salaried employees.

 

The Salaried Employees Pension Plan (“Pension Plan”) consists of two parts, a base benefit and a supplemental benefit.    Pension benefits are based on average annual compensation and utilize covered compensation as a supplemental benefit. The base benefit will be an 8% or 10% credit for each year of service after January 1, 2017.  If the sum of the employee age and years of service as of the beginning of the plan year is 75 or less, the employee receives an 8% base pay credit.  If it is greater than 75, the employee receives a 10% base pay credit.  An annual supplemental credit of 4% for each year is included if average annual compensation is greater than covered compensation at termination of employment.

 

At termination of employment, the sum of the base pay annual credits is multiplied by the average annual compensation with the result being the base portion of the pension benefit.  The sum of supplemental credits is multiplied by the result of the average annual compensation minus covered compensation with the result being the supplemental portion of the pension benefit.  The pension benefit is payable in a lump sum or an annuity.

 

The earliest eligible retirement age is 55 years, after completion of 15 years of service.  The base benefit is discounted 0.5% for every month retirement occurs before age 62.  However, an employee may retire with 30 years of service after attaining age 60 and avoid the discount on the base benefit.  The supplemental benefit is multiplied by an adjustment factor which increases from 0.48 at age 55 to 1.00 at age 65.

 

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On December 31, 2016, the Pension Plan (Traditional Pension Plan) benefit was frozen.  The base benefit is 0.95% of the average annual compensation multiplied by the years of benefit service, limited to 40 years, at retirement.  The supplemental benefit is 0.65% of average annual compensation less covered compensation multiplied by the years of benefit service, limited to 35 years.  Average annual compensation is the average of the highest five years of compensation of the last ten completed calendar years as of December 31, 2016.  For this purpose, annual compensation consists of base salary, Operators’ Share Plan payments and AIP payments.  Covered compensation is derived from a published table based on year of birth that averages the maximum social security wage bases during the participant’s working life.

 

The match in the Company’s Tax Deferred Investment Plan A - 401(k) (“401(k) Plan”) covering these employees increased effective October 31, 2016 in conjunction with this modification.

 

Supplemental Executive Retirement Plan

 

Why have a SERP?

 

The Hormel Supplemental Executive Retirement Plan (“SERP”) provides an annual pension benefit to a select group of management, including all NEOs, based on the same pension formula as the Pension Plan.  The SERP bases the benefit on compensation that is not allowable in the Pension Plan.  Such compensation includes amounts over the qualified plan compensation limit, currently $280,000, restricted stock awards, and deferrals to nonqualified deferred income plans.  Rather than adding a different measure of value, the SERP merely restores the value executives lose under the Pension Plan (described above) due to government limitations.

 

Nonqualified Deferred Compensation Plan

 

Why have a NQDCP?

 

The Company also maintains a supplemental retirement plan to replace the portion of an executive’s pension benefit that cannot be paid under the broad-based plans because of the Internal Revenue Service (“IRS”) limitation.  In the same way that the SERP restores the full value of the Pension Plan, the nonqualified deferred compensation plan, the Executive Deferred Income Plan (“NQDCP”), eliminates the IRS limitations on the 401(k) Plan.  The Company’s NQDCP permits eligible employees, including all NEOs, to annually defer certain compensation.  This compensation includes base salary, Operators’ Shares dividend equivalents and year-end payments, AIP payments, and LTIP payments.  The Company makes contributions on behalf of participants for 401(k) match amounts which could not be contributed to the 401(k) Plan because of IRS limitations.  The Company also may make discretionary contributions to the participant’s deferral accounts.

 

Deferrals of cash compensation are credited with deemed investment gains and losses.  Similar to a 401(k) plan, the participant may choose from a number of investments, none of which provide above-market interest rates.  Payments under the NQDCP are made on the date(s) selected by each participant in accordance with the terms of the plan or on such other date(s) as specified in the plan.  Payments relating to deferrals of cash compensation are paid in cash.

 

In connection with the NQDCP, the Company has created a grantor trust, commonly known as a “rabbi trust.”  The Company is under no obligation to further fund this trust and would do so only at its discretion.  The assets of the trust are intended to be used to pay benefits under the plan, but the assets of the trust are subject to the claims of general creditors of the Company.

 

The Compensation Committee believes that the SERP and the NQDCP together provide a competitive retirement package for executives that is consistent with the retirement benefits provided to all Company employees.

 

Survivor Income Protection Plan

 

Why have a SIPE?

 

The Hormel Survivor Income Plan for Executives (“SIPE”) is provided in addition to the life insurance plan which is available to all salaried employees.  As with the qualified pension plans, there are limits on the levels of insurance provided under the broad-based plan.  The Company offers the SIPE to provide a death benefit commensurate with the income levels of the participants.  The SIPE is available to a designated group of management employees, including all NEOs.

 

The SIPE pays a benefit to the employee’s spouse or dependent child of 60% of average salary (based on a five-year average) for up to 20 years if the eligible employee died while actively employed.  If the payment is made to a beneficiary instead of a spouse or dependent child, the maximum duration is five years (for participants joining the SIPE in 2000 or after) or 20 years (for participants joining the SIPE prior to 2000).  If the eligible employee died after retirement, payment to the spouse or dependent child is 1% per year of service up to 40% of average salary for 15 years.  If the payment is made to a beneficiary, not to a spouse or dependent child, the maximum duration is five years (for participants joining the SIPE in 2000 or after) or ten years (for participants joining the SIPE prior to 2000).  The SIPE was amended in fiscal 2009 to discontinue the post-retirement benefit for new officers effective on or after October 26, 2009.

 

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Perquisites

 

The Company provides limited perquisites to its executive officers.  The Company maintains two corporate aircraft, but executive use of the aircraft has been limited to business purposes.  While the CEO’s use of corporate aircraft to attend outside public company board meetings is disclosed as a perquisite under SEC rules, the Compensation Committee believes such use of corporate aircraft by the CEO serves an appropriate purpose and has approved that use.  Additionally, with the onset of the COVID-19 pandemic, the Compensation Committee has asked the CEO to use the corporate aircraft for any personal travel to maintain his health and safety.

 

The Company maintains a condominium in Vail, Colorado.  The condominium is made available to members of senior management as a vacation destination.  The taxable value of the use of this property is charged as taxable income to the employee, in accordance with IRS regulations.

 

The Company provides cars to executive officers.  Due to business travel needs, the Company has chosen to provide a Company car in lieu of paying mileage for the use of a personal vehicle.  The annual taxable value of the vehicle is charged as taxable income to the employee, in accordance with IRS regulations.

 

The Company provides a designated group of managers, including executive officers, an annual medical physical.  Assuring these key managers are in good health minimizes the chance business operations will be interrupted due to an unexpected health condition.

 

Tax Deductibility

 

Due to the enactment of the Tax Cuts and Jobs Act of 2017 (“Tax Cuts Act”) in December 2017, compensation paid to our NEOs in excess of $1 million for taxable years beginning after December 31, 2017 (for the Company, beginning in fiscal 2019) will not be deductible.  Consequently, performance-based compensation we paid in fiscal 2020 to our NEOs in excess of $1 million will not be deductible unless it qualifies for transitional relief applicable to certain binding, written performance-based compensation arrangements that were in place as of November 2, 2017.

 

To the extent we determine it to be practicable and consistent with our best interests and the interests of our stockholders, we intend to preserve the applicability of transitional relief to existing performance-based compensation awards. However, no assurance can be given that the compensation associated with these awards will qualify for transitional relief, due to ambiguities and uncertainties as to the application and interpretation of revised Section 162(m), the limited IRS guidance issued concerning the application of transitional relief and the related transitional relief requirements.

 

The Compensation Committee continues to believe that stockholder interests are best served if its discretion and flexibility in structuring and awarding compensation is not restricted, even though some compensation awards may have resulted in the past, and are expected to result in the future, in non-deductible compensation expenses to us.  The Compensation Committee’s ability to properly incentivize our executive officers is considered critical to our success and to advancing the interests of our stockholders.

 


 

ANALYSIS OF RISK ASSOCIATED WITH OUR COMPENSATION PLANS

 

In making decisions regarding compensation program design and pay levels, our Compensation Committee and senior management consider many factors, including any potential risks to the Company and its stockholders.  Although a significant portion of our executives’ compensation is performance-based and “at-risk,” we believe the Company’s compensation plans are appropriately structured and are not reasonably likely to have a material adverse effect on the Company.

 

Senior management, with the direction and oversight of the Committee, implements and administers the compensation program for all employees of the Company other than the Senior Management Group.

 

The Committee, with the assistance of its independent outside consultant, oversees all aspects of the executive compensation program including:

 

·                  Approval of the companies included in the peer group for comparison purposes;

 

·                  Approval of threshold, target and performance goals for short- and long-term incentives;

 

·                  Approval of all pay actions and equity grants for the Senior Management Group; and

 

·                  Establishment of parameters for equity grants to management employees of the Company outside of the Senior Management Group which may be approved by the CEO under authority delegated to him by the Committee.

 

Specifically, the Committee notes the following design features that mitigate potential risk:

 

1.              Our short-term variable pay consists of two programs that provide a strong balance of performance measures:

 

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·                  The Operators’ Share Plan rewards absolute Company-wide EPS performance.  The plan ties all participants to the results of the total Company;

·                  The AIP rewards the achievement of operating income and asset management relative to Committee-approved goals;

§                  The inclusion of asset management discourages decisions focused purely on short-term results;

§                  Including both Company-wide and segment measures creates a balance between focus on overall results and a pay-for-performance relationship for executives leading segments; and

§                  The cap on annual payouts mitigates the risk of excessive rewards for temporary, unsustainable results.

2.              Our long-term incentive structure consists of two programs that balance absolute and relative shareholder value creation over a multi-year period:

·                  The LTIP performance awards program rewards relative total shareholder return over a three-year performance period;

§                  The relative nature of the measurement mitigates the risk of overpayment for absolute performance that lags industry expectations;

·                  The Stock Option grants vest over a four-year period and RSUs have three-year cliff vesting, and provide reward for the achievement of absolute stock price performance;

§                  Multi-year vesting of options and RSUs mitigates the risk that executives can reap excessive rewards from temporary stock price increases;

·                  In addition, executives (and directors) are subject to stock ownership guidelines, which require minimum stock holdings for the duration of the executives’ employment; and

·                  Further, the multi-year nature of both plans also serves as a retention tool, mitigating the risk of unwanted executive turnover.

3.              Executive officers’ incentive compensation is subject to recoupment in the event of certain financial restatements to recover amounts that would not have been earned based on the restated financial results.

 

COMPENSATION OF NAMED EXECUTIVE OFFICERS (NEOs)

 

The following tables and narrative disclosure should be read in conjunction with the Compensation Discussion and Analysis, which presents the objectives of our executive compensation and benefit programs.  The table below presents compensation for our NEOs for fiscal 2020.

 

SUMMARY COMPENSATION TABLE

 

Name and
Principal Position

Year

Salary
($)
(1)

Bonus
($)
(2)

Stock
Awards
($)
(3)

Option
Awards
($)
(4)

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

Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
(6)

All Other
Compensation
($)
(7)

Total
($)

James P. Snee

2020

966,360

300

1,625,047

1,625,184

5,410,600

439,523

213,116

10,280,130

 Chairman of the Board, President

2019

932,760

400

 -

2,750,350

3,309,597

1,147,502

183,658

8,324,267

 and Chief Executive Officer

2018

882,750

250

-

2,374,691

2,955,987

-

139,577

6,353,255

James N. Sheehan

2020

491,340

300

350,020

349,752

1,268,925

396,723

74,123

2,931,183

 Executive Vice President and

2019

468,090

400

-

650,328

886,371

881,775

69,895

2,956,859

 Chief Financial Officer       

2018

439,430

250

-

600,138

808,529

4,516

70,807

1,923,670

Glenn R. Leitch

2020

456,240

300

300,018

299,897

1,237,960

309,861

74,717

2,678,993

 Executive Vice President

2019

434,790

400

-

575,436

865,300

605,755

65,090

2,546,771

 

2018

421,725

250

-

550,242

776,123

-

69,412

1,817,752

Thomas R. Day

2020

237,510

300

350,020

349,752

932,047

518,657

63,402

2,451,688

 Former Executive Vice President

2019

466,380

400

-

624,732

973,293

1,284,662

82,826

3,432,293

 

2018

425,850

250

-

550,242

974,091

-

82,117

2,032,550

Deanna T. Brady

2020

422,600

300

240,041

240,071

869,595

223,751

63,662

2,060,020

 Executive Vice President

 

 

 

 

 

 

 

 

 

James M. Splinter

2020

215,534

300

245,005

244,673

851,196

289,073

41,274

1,887,055

 Former Group Vice President

2019

349,770

400

-

430,392

770,162

659,088

63,314

2,273,126

 

2018

338,280

250

-

415,107

794,710

-

65,988

1,614,335

Lori J. Marco

2020

368,270

300

170,001

170,274

801,450

221,179

73,141

1,804,615

 Senior Vice President

 

 

 

 

 

 

 

 

 

 

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(1)                                 Includes amounts voluntarily deferred under the Company’s Tax Deferred Investment Plan A - 401(k) and the Executive Deferred Income Plan.

 

(2)                                 Consists of a discretionary bonus that was paid, in the same amount, to all other eligible employees.

 

(3)                                 Consists of the aggregate grant date fair value of RSUs granted during the fiscal year, calculated in accordance with FASB ASC Topic 718.  The grant date fair value is based on the NYSE closing price for the Company’s common stock on the grant date.

 

(4)                                 Consists of the aggregate grant date fair value of stock options granted during the fiscal year, calculated in accordance with FASB ASC Topic 718.  The grant date fair value is based on the Black-Scholes valuation model.  Assumptions used to calculate these amounts are included in Note A, “Summary of Significant Accounting Policies – Stock-Based Compensation,” and Note K, “Stock-Based Compensation,” of the audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended October 25, 2020.

 

(5)                                 Consists of Operators’ Share Plan and AIP incentive payments earned during the fiscal year, the majority of which were paid subsequent to fiscal year end, and payouts under the LTIP performance awards, as shown in the table below.  For the LTIP performance period June 12, 2017 through June 19, 2020, the Company’s Total Shareholder Return was at the 90.5 percentile of its peer group, resulting in a payout at 204.8% of the target awards.  Includes amounts voluntarily deferred under the Executive Deferred Income Plan.

 

 

Name

Year

Operators’
Share Plan
Payment
($)

AIP Payment
($)

LTIP Payout
($)

Total Non-Equity
Incentive Plan
Compensation
($)

James P. Snee

2020

332,000

1,085,000

3,993,600

5,410,600

2019

360,000

1,040,000

1,909,597

3,309,597

2018

372,000

870,000

1,713,987

2,955,987

James N. Sheehan

2020

132,800

368,125

768,000

1,268,925

 

2019

144,000

360,000

382,371

886,371

 

2018

148,800

308,125

351,604

808,529

Glenn R. Leitch

2020

232,400

299,000

706,560

1,237,960

2019

252,000

286,000

327,300

865,300

 

2018

260,400

154,063

361,660

776,123

Thomas R. Day

2020

124,500

163,281

644,266

932,047

 

2019

270,000

397,813

305,480

973,293

 

2018

279,000

361,251

333,840

974,091

Deanna T. Brady

2020

132,800

257,813

478,982

869,595

James M. Splinter

2020

129,480

168,756

552,960

851,196

 

2019

216,000

268,000

286,162

770,162

 

2018

223,200

232,000

339,510

794,710

Lori J. Marco

2020

182,600

209,250

409,600

801,450

 

(6)                                 Consists of the annual increase in the actuarial present value of accumulated benefits under the Pension Plan and the SERP.  In fiscal 2018, the annual change in the actuarial present value of accumulated benefits under the Pension Plan and the SERP was a negative amount for the following NEOs:  Mr. Snee – ($118,308); Mr. Day – ($157,109); Mr. Leitch – ($75,440); and Mr. Splinter – ($90,567).  In accordance with SEC rules, the present value was determined using the same assumptions applicable for valuing pension benefits for purposes of our financial statements.  See “Pension Benefits” on page 34. The NEOs had no above-market or preferential earnings on deferred compensation.

 

(7)                                 All other compensation for fiscal 2020 includes for all the NEOs (except as noted) the following:  (a) Joint Earnings Profit Sharing distributions, (b) Company matching payments under the Hormel Tax Deferred Investment Plan A - 401(k), (c) Company contributions to the Executive Deferred Income Plan on behalf of participants for 401(k) match amounts which could not be contributed to the 401(k) Plan because of IRS limitations, (d) the aggregate incremental cost to the Company of a vehicle provided for business and personal use, (e) for all the NEOs except for Ms. Brady and Mr. Splinter, the aggregate incremental cost to the Company of use of a Company-owned condominium in Vail, Colorado, (f) for Ms. Brady, Mr. Splinter and Ms. Marco, costs of physical medical examinations paid for by the Company, and (g) for Mr. Snee, the aggregate incremental cost to the Company of Mr. Snee’s use of Company aircraft for personal travel during the COVID-19 pandemic and to attend outside public company board meetings.

 

The Joint Earnings Profit Sharing distributions were as follows:  Mr. Snee - $32,981; Mr. Sheehan - $16,913; Mr. Leitch - $15,725; Mr. Day - $8,034; Ms. Brady - $14,380; Mr. Splinter - $5,125; and Ms. Marco - $12,515.  The Company contributions to the Executive Deferred Income Plan for 401(k) match amounts which could not be

 

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contributed to the 401(k) Plan because of IRS limitations were as follows:  Mr. Snee - $84,972; Mr. Sheehan - $29,128; Mr. Leitch - $29,196; Mr. Day - $24,321; Ms. Brady - $19,853; Mr. Splinter - $16,116; and Ms. Marco - $20,209.

 

The aggregate incremental cost to the Company of Mr. Snee’s use of Company aircraft for personal travel during the COVID-19 pandemic and to attend outside public company board meetings was $62,836.  This cost includes landing fees, parking, crew travel expenses, aircraft fuel, and maintenance expenses.

 

The following table describes each stock option and non-equity incentive plan award made to each NEO in fiscal 2020.

 

GRANTS OF PLAN-BASED AWARDS FOR FISCAL 2020

 

Estimated Future Payouts Under Non-
Equity Incentive Plan Awards

All Other
Stock

All Other
Option

Grant
Date

Award
Approval

Operators’
Shares
(1)

Threshold

Target

Maximum

Awards:
Number
of Shares
of Stock
or Units

Awards:
Number of
Securities
Underlying
Options

Exercise 
or Base
Price of
Option
Awards

Fair
Value of
Stock and
Option
Awards

Name

Grant Date

Date

(#)

($)

($)

($)

(#)

(#)

($/Sh.)

($)

James P. Snee

 

1/28/2020(1)

200,000

360,000

 

 

 

 

 

1/28/2020(2)

 

700,000

1,400,000

2,800,000

 

 

 

 

2/3/2020(3)

1/28/2020

 

 

 

 

34,262

 

 

1,625,047

 

2/3/2020(4)

1/28/2020

 

 

 

 

 

205,200

47.43

1,625,184

7/27/2020(5)

 

1,625,000

3,250,000

9,750,000

 

 

 

 

James N. Sheehan

 

11/25/2019(1)

80,000

 

144,000

 

 

 

 

 

 

11/25/2019(2)

 

237,500

475,000

950,000

 

 

 

 

 

12/3/2019(3)

11/25/2019

 

 

 

 

7,686

 

 

350,020

 

12/3/2019(4)

11/25/2019

 

 

 

 

 

45,600

45.54

349,752

 

 

7/27/2020(5)

 

237,500

475,000

1,425,000

 

 

 

 

Glenn R. Leitch

 

11/25/2019(1)

140,000

252,000

 

 

 

 

11/25/2019(2)

 

230,000

460,000

920,000

 

 

 

 

 

12/3/2019(3)

11/25/2019

 

 

 

 

6,588

 

 

300,018

12/3/2019(4)

11/25/2019

 

 

 

 

39,100

45.54

299,897

7/27/2020(5)

 

225,000

450,000

1,350,000

 

 

 

 

Thomas R. Day(6)

 

11/25/2019(1)

150,000

 

270,000

 

 

 

 

 

 

11/25/2019(2)

 

237,500

475,000

950,000

 

 

 

 

 

12/3/2019(3)

11/25/2019

 

 

 

 

7,686

 

 

350,020

 

12/3/2019(4)

11/25/2019

 

 

 

 

 

45,600

45.54

349,752

Deanna T. Brady

 

11/25/2019(1)

80,000

144,000

 

 

 

 

 

11/25/2019(2)

 

187,500

375,000

750,000

 

 

 

 

 

12/3/2019(3)

11/25/2019

 

 

 

 

5,271

 

 

240,041

12/3/2019(4)

11/25/2019

 

 

 

 

 

31,300

45.54

240,071

7/27/2020(5)

 

155,000

310,000

930,000

 

 

 

 

James M. Splinter(6)

 

11/25/2019(1)

120,000

 

216,000

 

 

 

 

 

 

 

11/25/2019(2)

 

167,500

335,000

670,000

 

 

 

 

 

12/3/2019(3)

11/25/2019

 

 

 

 

5,380

 

 

245,005

 

12/3/2019(4)

11/25/2019

 

 

 

 

 

31,900

45.54

244,673

Lori J. Marco

 

11/25/2019(1)

110,000

 

198,000

 

 

 

 

 

 

 

11/25/2019(2)

 

135,000

270,000

540,000

 

 

 

 

 

12/3/2019(3)

11/25/2019

 

 

 

 

3,733

 

 

170,001

 

12/3/2019(4)

11/25/2019

 

 

 

 

 

22,200

45.54

170,274

 

 

7/27/2020(5)

 

105,000

210,000

630,000

 

 

 

 

 

(1)                                 The “Operators’ Shares” column discloses the number of Operators’ Shares granted to each NEO for fiscal 2020.  The “Target” column shows the estimated possible Operators’ Share payment for fiscal 2020 based on fiscal 2019 EPS of $1.80.  In accordance with SEC rules, this estimated possible payment is based on the previous fiscal year’s performance since the fiscal 2020 EPS results are not determinable when the award is made at the beginning of fiscal 2020.  The actual Operators’ Share payment earned in fiscal 2020 for each NEO based on fiscal

 

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2020 EPS of $1.66 was paid subsequent to fiscal year end and is included under “Non-Equity Incentive Plan Compensation” in the Summary Compensation Table on page 28.  See “Operators’ Share Incentive Plan” on page 21 for a description of Operators’ Shares.

 

(2)                                 Consists of AIP performance awards granted in fiscal 2020. These awards include target amounts and are subject to threshold and maximum payouts under the AIP.  The actual AIP payment earned in fiscal 2020 for each NEO was paid subsequent to fiscal year end and is included under “Non-Equity Incentive Plan Compensation” in the Summary Compensation Table on page 28.  See “Annual Incentive Plan” on page 21 for a description of the AIP and AIP payouts for fiscal 2020.

 

(3)                                 Consists of RSUs granted under the Company’s Incentive Compensation Plan.  These RSUs vest in full on the third anniversary of the grant date.  The grant date fair value is included under “Stock Awards” in the Summary Compensation Table on page 28.  See “Potential Payments Upon Termination” on page 35 for a discussion of how RSUs are treated under various termination scenarios.

 

(4)                                 Consists of stock options granted under the Company’s Incentive Compensation Plan.  These options vest at 25% per year on the anniversary of the grant date.  The grant date fair value is included under “Option Awards” in the Summary Compensation Table on page 28.  See “Potential Payments Upon Termination” on page 35 for a discussion of how stock options are treated under various termination scenarios.

 

(5)                                 Consists of LTIP performance awards made in fiscal 2020. The performance period is June 8, 2020 through the 20th trading day after the Company’s second fiscal quarter 2023 earnings release, ending June 30, 2023 at the latest.  The actual cash amounts payable at the end of the performance period under these LTIP performance awards, if any, cannot be determined because the amount earned will be based on the Company’s future performance and the future performance of the peer group.    See “Long-Term Incentive Plan” on page 23 for a description of the LTIP awards and potential payouts for LTIP awards.

 

(6)                                 Mr. Day retired on April 24, 2020 and Mr. Splinter retired on June 18, 2020, both of which were qualified retirements for purposes of their grants of plan-based awards for fiscal 2020.  They each received Operators’ Share Plan and AIP incentive payments prorated based on their retirement date.  Mr. Day’s and Mr. Splinter’s RSUs vested on their retirement date, including accrued dividend equivalents in the form of additional RSUs.  Their stock option grants continue to vest per the original vesting schedule.

 

The following table summarizes the total outstanding equity awards as of October 25, 2020 for each of the NEOs.

 

OUTSTANDING EQUITY AWARDS AT FISCAL 2020 YEAR END

 

OPTION AWARDS

 

STOCK AWARDS

Name

Number of Securities
Underlying Unexercised
Options
(#) Exercisable

Number of Securities
Underlying Unexercised
Options
(#) Unexercisable
(1)(2)

Option
Exercise

Price
($)

Option

Expiration

Date 

 

Number of Shares or
Units of Stock That
Have Not Vested
(#)
(3)(4)

Market Value of Shares
or Units of Stock That
Have Not Vested
($)
(5)

James P. Snee

60,600

 

-

 

22.99

 

12/3/2023

 

 

 

59,600

 

-

 

26.38

 

12/2/2024

 

 

 

107,000

 

-

 

37.755

 

12/1/2025

 

 

 

208,050

 

69,350

 

35.62

 

2/1/2027

 

 

 

182,950

 

182,950

 

34.08

 

2/1/2028

 

 

 

 

83,750

 

251,250

 

42.00

 

2/1/2029

 

 

 

-

 

205,200

 

47.43

 

2/3/2030

 

 

 

 

 

 

 

 

 

 

34,581

1,715,563

James N. Sheehan

32,400

 

-

 

22.99

 

12/3/2023

 

 

 

 

39,600

 

-

 

26.38

 

12/2/2024

 

 

 

 

31,200

 

-

 

37.755

 

12/1/2025

 

 

 

 

68,100

 

22,700

 

33.31

 

12/6/2026

 

 

 

 

43,300

 

43,300

 

37.10

 

12/5/2027

 

 

 

 

17,150

 

51,450

 

44.91

 

12/4/2028

 

 

 

 

-  

 

45,600

 

45.54

 

12/3/2029

 

 

 

 

 

 

 

 

 

 

 

 

7,795

386,710

Glenn R. Leitch

140,000

 

-

 

15.49

 

12/4/2022

 

 

 

 

87,000

 

-

 

22.99

 

12/3/2023

 

 

 

 

85,400

 

-

 

26.38

 

12/2/2024

 

 

 

 

61,000

 

-

 

37.755

 

12/1/2025

 

 

 

 

61,575

 

20,525

 

33.31

 

12/6/2026

 

 

 

 

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39,700

 

39,700

 

37.10

 

12/5/2027

 

 

 

 

15,175

 

45,525

 

44.91

 

12/4/2028

 

 

 

 

-

 

39,100

 

45.54

 

12/3/2029

 

 

 

 

 

 

 

 

 

 

 

 

6,681

331,444

Thomas R. Day(6)

76,800

 

-

 

22.99

 

12/3/2023

 

 

 

 

81,400

 

-

 

26.38

 

12/2/2024

 

 

 

 

58,400

 

-

 

37.755

 

12/1/2025

 

 

 

 

59,250

 

19,750

 

33.31

 

12/6/2026

 

 

 

39,700

 

39,700

 

37.10

 

12/5/2027

 

 

 

16,475

 

49,425

 

44.91

 

12/4/2028

 

 

 

-

 

45,600

 

45.54

 

12/3/2029

 

 

 

Deanna T. Brady

51,600

 

-

 

26.38

 

12/2/2024

 

 

 

 

39,000

 

-

 

37.755

 

12/1/2025

 

 

 

 

38,475

 

12,825

 

33.31

 

12/6/2026

 

 

 

 

23,450

 

23,450

 

37.10

 

12/5/2027

 

 

 

 

8,975

 

26,925

 

44.91

 

12/4/2028

 

 

 

 

-

 

31,300

 

45.54

 

12/3/2029

 

 

 

 

 

 

 

 

 

 

 

 

5,346

265,215

James M. Splinter(6)

40,000

 

-

 

14.80

 

12/6/2021

 

 

 

100,000

 

-

 

15.49

 

12/4/2022

 

 

 

71,800

 

-

 

22.99

 

12/3/2023

 

 

 

70,400

 

-

 

26.38

 

12/2/2024

 

 

 

 

46,000

 

-

 

37.755

 

12/1/2025

 

 

 

 

47,400

 

15,800

 

33.31

 

12/6/2026

 

 

 

 

29,950

 

29,950

 

37.10

 

12/5/2027

 

 

 

 

11,350

 

34,050

 

44.91

 

12/4/2028

 

 

 

 

-

 

31,900

 

45.54

 

12/3/2029

 

 

 

Lori J. Marco

41,600

 

-

 

37.755

 

12/1/2025

 

 

 

 

38,475

 

12,825

 

33.31

 

12/6/2026

 

 

 

 

23,450

 

23,450

 

37.10

 

12/5/2027

 

 

 

 

8,575

 

25,725

 

44.91

 

12/4/2028

 

 

 

 

-

 

22,200

 

45.54

 

12/3/2029

 

 

 

 

 

 

 

 

 

 

 

 

3,786

187,823

 

(1)                                 Stock option grants generally vest in four equal annual installments, starting with one-fourth of the grant vesting on the first anniversary of the grant date.  The stock options have a term of ten years.  The grant date is thus ten years prior to the option expiration date shown in this table.   Specific vesting dates are listed in footnote 2 below. See “Potential Payments Upon Termination” on page 35 for a discussion of how stock options are treated under various termination scenarios.

 

(2)                                 The table below shows the vesting schedule for all unexercisable options.  These options vest on the anniversary of the grant date in the year indicated.  For example, the December 3, 2019 option grant for Mr. Sheehan vested as to 11,400 shares on December 3, 2020 and will vest as to 11,400 shares on each of December 3, 2021, December 3, 2022 and December 3, 2023.

 

VESTING SCHEDULE FOR UNEXERCISABLE OPTIONS

 

Name

Option
Grant
Date

Vested in
December 
2020

Will Vest
in 2021

Will Vest
in 2022

Will Vest
in 2023

Will Vest
in 2024

James P. Snee

2/1/2017

-

69,350

-

-

-

 

2/1/2018

-

91,475

91,475

-

-

 

2/1/2019

-

83,750

83,750

83,750

-

 

2/3/2020

-

51,300

51,300

51,300

51,300

James N. Sheehan

12/6/2016

22,700

-

-

-

-

 

12/5/2017

21,650

21,650

-

-

-

 

12/4/2018

17,150

17,150

17,150

-

-

 

12/3/2019

11,400

11,400

11,400

11,400

-

 

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Glenn R. Leitch

12/6/2016

20,525

-

-

-

-

12/5/2017

19,850

19,850

-

-

-

12/4/2018

15,175

15,175

15,175

-

-

12/3/2019

9,775

9,775

9,775

9,775

-

Thomas R. Day

12/6/2016

19,750

-

-

-

-

 

12/5/2017

19,850

19,850

-

-

-

 

12/4/2018

16,475

16,475

16,475

-

-

 

12/3/2019

11,400

11,400

11,400

11,400

-

Deanna T. Brady

12/6/2016

12,825

-

-

-

-

 

12/5/2017

11,725

11,725

-

-

-

 

12/4/2018

8,975

8,975

8,975

-

-

 

12/3/2019

7,825

7,825

7,825

7,825

-

James M. Splinter

12/6/2016

15,800

-

-

-

-

 

12/5/2017

14,975

14,975

-

-

-

 

12/4/2018

11,350

11,350

11,350

-

-

 

12/3/2019

7,975

7,975

7,975

7,975

-

Lori J. Marco

12/6/2016

12,825

-

-

-

-

12/5/2017

11,725

11,725

-

-

-

12/4/2018

8,575

8,575

8,575

-

-

12/3/2019

5,550

5,550

5,550

5,550

-

 

(3)                                 Consists of RSUs and includes dividend equivalents in the form of additional RSUs that have accrued during the vesting period.  RSUs generally vest in full on the third anniversary of the grant date.   Specific vesting dates are noted in footnote 4 below. See “Potential Payments Upon Termination” on page 35 for a discussion of how RSUs are treated under various termination scenarios.

 

(4)                                 The vesting date for the RSUs held by Mr. Snee is February 3, 2023.  The vesting date for the RSUs held by Mr. Sheehan, Mr. Leitch, Ms. Brady and Ms. Marco is December 3, 2022.

 

(5)                                 The market value is calculated using the $49.61 closing price of the Company’s stock on October 23, 2020, the last trading day of the fiscal year.

 

(6)                                 Mr. Day retired on April 24, 2020 and Mr. Splinter retired on June 18, 2020, both of which were qualified retirements for purposes of their outstanding equity awards. Their outstanding stock options continue to vest per the original vesting schedule and retain the original expiration date.  Mr. Day’s and Mr. Splinter’s RSUs vested on their retirement date, including accrued dividend equivalents in the form of additional RSUs, resulting in no RSUs being outstanding at fiscal 2020 year end.

 

The following table summarizes the option awards exercised and stock awards vested during fiscal 2020 by each of the NEOs.

 

OPTION EXERCISES AND STOCK VESTED FOR FISCAL 2020

 

 

OPTION AWARDS

 

STOCK AWARDS

Name

Number of
Shares Acquired
on Exercise (#)

Value Realized
Upon Exercise
($)
(1)

 

Number of Shares
Acquired on
Vesting (#)
(2)

Value Realized
On Vesting
($)
(3)

James P. Snee

216,000

6,714,560

 

-

-

James N. Sheehan

 60,000

1,877,400

 

-

-

Glenn R. Leitch

96,000

3,216,644

 

-

-

Thomas R. Day

130,000

4,371,543

 

7,723

359,970

Deanna T. Brady

52,600

1,465,734

 

-

-

James M. Splinter

120,000

4,175,313

 

5,432

261,558

Lori J. Marco

218,200

6,152,504

 

-

-

 

(1)                                 Amount is the difference between the market price (current NYSE price or NYSE current day closing price, depending on exercise method) of the Company stock at the time of exercise and the exercise price of the options.

 

(2)                                 RSUs vested includes dividend equivalents in the form of additional RSUs that accrued during the vesting period.

 

(3)                                 The value realized is calculated using the closing price of the Company’s stock on the vesting date.

 

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The following table shows present value of accumulated benefits that NEOs are entitled to under the Pension Plan and SERP.

 

PENSION BENEFITS

 

Name

Plan Name

Number of Years
Credited Service
(#)

Present Value of
Accumulated Benefit
($)

Payments During
Last Fiscal Year
($)

James P. Snee

Pension Plan

31-6/12

1,055,238

-

SERP

31-6/12

3,313,671

-

James N. Sheehan(1)

Pension Plan

42-5/12

2,077,314

-

SERP

42-5/12

3,549,588

-

Glenn R. Leitch(1)

Pension Plan

19-9/12

785,024

-

SERP

19-9/12

2,214,773

-

Thomas R. Day(2)

 

Pension Plan

39-4/12

1,776,659

56,772

SERP

39-4/12

5,232,193

-

Deanna T. Brady(1)

Pension Plan

24-2/12

894,032

-

SERP

24-2/12

1,280,810

-

James M. Splinter(2)

Pension Plan

25-10/12

1,022,141

-

 

SERP

25-10/12

2,102,766

-

Lori J. Marco

Pension Plan

16-5/12

539,822

-

 

SERP

16-5/12

1,187,597

-

 

(1)                                 Mr. Sheehan is eligible for retirement under both the Pension Plan and the SERP.  Mr. Leitch and Ms. Brady are eligible for early retirement under both the Pension Plan and the SERP.  The retirement provisions of these plans are described under “Pension Plan” on page 25 and “Supplemental Executive Retirement Plan” on page 26.

 

(2)                                 Mr. Day and Mr. Splinter retired during fiscal 2020.

 

In accordance with SEC rules, the present value of accumulated benefits that NEOs are entitled to under these plans was determined using the same assumptions applicable for valuing pension benefits for purposes of our financial statements. See Note F, “Pension and Other Post-retirement Benefits,” of the audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended October 25, 2020.  The material terms of these plans are described under “Pension Plan” on page 25 and “Supplemental Executive Retirement Plan” on page 26.

 

The following table shows information about each NEO’s participation in the Company’s Executive Deferred Income Plan.

 

NONQUALIFIED DEFERRED COMPENSATION

 

Name

Executive
Contributions in
Last Fiscal Year
($)
(1)

Company
Contributions
in Last Fiscal Year
($)
(1)

Aggregate
Earnings in
Last Fiscal Year
($)
(1)

Aggregate
Withdrawals/
Distributions

($)

Aggregate Balance
at October 25,
2020
($)
(1)

James P. Snee

1,081,420

84,972

117,968

-

3,217,711

James N. Sheehan

-

29,128

2,556

-

173,501

Glenn R. Leitch

-

29,196

22,501

-

1,263,594

Thomas R. Day

-

24,321

444,011

-

3,582,568

Deanna T. Brady

47,898

19,853

9,297

-

233,788

James M. Splinter

-

16,116

75,729

-

691,980

Lori J. Marco

109,760

20,209

73,445

-

824,806

 

(1)                                 The following table identifies amounts that have already been reported as compensation in our Summary Compensation Table for the current and prior years:

 

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Name

Amount of Fiscal 2020
Contributions and Earnings
Reported as Compensation
in Fiscal 2020 Summary
Compensation Table
($)

Amounts in “Aggregate
Balance at October 25, 2020”
Column Reported as
Compensation in Summary
Compensation Tables for Prior Years
($)

James P. Snee

1,166,392

1,677,549

James N. Sheehan

29,128

76,826

Glenn R. Leitch

29,196

564,629

Thomas R. Day

24,321

102,619

Deanna T. Brady

67,751

-

James M. Splinter

16,116

41,879

Lori J. Marco

129,969

-

 

The material terms of the Company’s Executive Deferred Income Plan are described under “Nonqualified Deferred Compensation Plan” on page 26.

 

POTENTIAL PAYMENTS UPON TERMINATION

 

Our executive officers do not have employment or severance agreements with the Company.  Consequently, no executive officer has any right to cash severance of any kind.

 

Our stock option awards include standard provisions that result in the vesting or forfeiture of awards upon termination of employment, depending on the reason for termination.  These provisions are summarized as follows:

 

·                  All options vest immediately upon death of the executive;

 

·                  Qualified retirement or disability results in the continued vesting of options per the original vesting schedule, except that all options granted under the Company’s 2009 Long-Term Incentive Plan (the “Prior Plan”) vest immediately upon disability;

 

·                  Vesting ends upon voluntary termination of employment and all options expire three months after such termination, except that options granted under the Prior Plan continue to vest during this three month post termination period;

 

·                  Upon a change in control of the Company via a corporate transaction such as a merger, a sale of assets, or a tender or exchange offer, if the options are not continued or replaced by the surviving entity, then the options fully vest and the Compensation Committee may in its discretion permit some or all options to be exchanged for a cash payment;

 

·                  Upon a change in control of the Company that does not involve a corporate transaction, the Compensation Committee may in its discretion take action which the Committee deems appropriate, including accelerating vesting of options or permitting the exchange of options for a cash payment;

 

·                  For options granted under the Prior Plan, upon a change in capital structure of the Company, including a change in control of the Company via a merger, a sale of assets, or a tender or exchange offer, the Compensation Committee may in its discretion take action which the Committee deems appropriate, including accelerating vesting of options or permitting the exchange of options for a cash payment or substitute options;

 

·                  Options are forfeited immediately upon termination for cause; and

 

·                  Options will be cancelled upon (1) a material breach of the Company’s Code of Ethical Business Conduct, (2) a breach of any nondisclosure or similar obligation or (3) rendering services for any organization or engaging directly or indirectly in any business that is competitive with, prejudicial to or in conflict with the interests of the Company.  For options granted under the Prior Plan, options will be cancelled upon rendering services for any organization or engaging directly or indirectly in any business that is competitive with, prejudicial to or in conflict with the interests of the Company and options are forfeited immediately upon breach of a confidentiality or non-compete agreement, as determined by the Compensation Committee.  All NEOs have signed the Company’s current form of confidentiality, non-compete, non-solicitation and invention assignment agreement.

 

Our RSU awards include standard provisions that result in the vesting or forfeiture of awards upon termination of employment, depending on the reason for termination.  These provisions are summarized as follows:

 

·                  All RSUs vest immediately upon death, qualified retirement or disability of the executive;

 

·                  All unvested RSUs are forfeited upon termination of employment for reasons other than the death, qualified retirement or disability of the executive; and

 

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·                  Upon a change in control of the Company via a corporate transaction such as a merger, a sale of assets, or a tender or exchange offer