DEF 14A 1 d947411ddef14a.htm DEF 14A DEF 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

(Rule 14a-101)

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

 

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

Check the appropriate box:

 

 

Preliminary Proxy Statement

  Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
  Definitive Proxy Statement
  Definitive Additional Materials
  Soliciting Material Pursuant to § 240.14a-12

KENNAMETAL INC.

(Name of Registrant as Specified in Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):

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

Title of each class of securities to which transaction applies:

 

     

  (2)  

Aggregate number of securities to which transaction applies:

 

     

  (3)  

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

 

     

  (4)  

Proposed maximum aggregate value of transaction:

 

     

  (5)  

Total fee paid:

 

     

  Fee paid previously with preliminary materials:
  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.
  (1)  

Amount previously paid:

 

     

  (2)  

Form, Schedule or Registration Statement No.:

 

     

  (3)  

Filing Party:

 

     

  (4)  

Date Filed:

 

     

 

 

 


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A Message From Our Board of Directors

 

Dear Fellow Shareowners,

 

I am pleased to invite you to the Kennametal Annual Meeting of Shareowners at 2:00 p.m. (Eastern Time) on October 27, 2020. Due to COVID-19, this year’s Annual Meeting will be held virtually, via a live, audio only webcast.

 

Our Board is committed to good corporate governance and ethical conduct, promoting the best interests of our shareowners. As noted in this proxy statement, the Board has established corporate governance policies that are in line with these interests. Additionally, the Company published its inaugural Environmental, Social, and Governance Report for Fiscal 2020 to provide all stakeholders additional insight into how the Company approaches these important topics. The report is available on the Corporate Sustainability page of Kennametal.com.

 

Fiscal 2020 presented many challenges, most notably the global COVID-19 pandemic and associated economic impacts. We implemented extensive safety protocols across our global operations to protect the health and safety of our employees, while continuing to serve our customers globally. Despite those challenges, the Board and executive team remained focused on executing our strategic initiatives to grow and to improve the long-term profitability of the Company.

 

The Annual Meeting will include consideration of the matters included in the accompanying Notice of Annual Meeting and Proxy Statement. Every shareowner’s vote is important to us. Therefore, if you cannot attend the virtual meeting, please see the Notice of Annual Meeting of Shareowners for details on voting.

 

On behalf of the Board of Directors, thank you for your continued ownership and support of Kennametal.

 

LOGO

 

 

Sincerely,

 

 

LOGO

 

Lawrence W. Stranghoener

Chairman of the Board

September 15, 2020


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Notice of Annual Meeting of Shareowners

 

 

  When:

  

 

2:00 p.m. (Eastern Time) on Tuesday, October 27, 2020

  Where:    Virtually, via live audio webcast at www.virtualshareholdermeeting.com/KMT2020
  Record Date:   

Tuesday, September 1, 2020 (Only shareowners of record at the close of business on the Record Date are entitled to notice of, and to vote at, the Annual Meeting.)

 

Agenda

 

 

The Annual Meeting of Shareowners (“Annual Meeting”) will be held to consider and act upon the following matters:

 

1.

The election of nine directors for terms to expire in 2021;

 

2.

The ratification of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending June 30, 2021;

 

3.

A non-binding (advisory) vote to approve the compensation paid to the Company’s named executive officers, as disclosed in this Proxy Statement; and

 

4.

The approval of the Kennametal Inc. 2020 Stock and Incentive Plan.

Shareowners also will be asked to consider such other business as may properly come before the meeting. The Board of Directors has fixed Tuesday, September 1, 2020 as the record date (the “Record Date”). Only shareowners of record at the close of business on the Record Date are entitled to notice of, and to vote at, the Annual Meeting.

How to Vote

 

 

We are utilizing a U.S. Securities and Exchange Commission Rule that allows companies to furnish their proxy materials over the Internet rather than in paper form. We believe that this delivery process will reduce our environmental impact, and over time, lower the costs of printing and distributing our proxy materials. We believe that we can achieve these benefits with no impact on our shareowners’ timely access to this important information. If you have received a Notice, and you would prefer to receive proxy materials (including a proxy card) in printed form by mail or electronically by email please follow the instructions contained in the Notice.

 

LOGO

 

 

LOGO

 

 

LOGO

 

 

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It is not necessary to attend the Annual Meeting to vote your shares. You may vote by proxy via telephone, Internet or by completing, dating, signing and returning a paper proxy card.

 

   By Order of the Board of Directors   
   Michelle R. Keating   
   Vice President, Secretary   
   and General Counsel   

September 15, 2020

 

 

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS

FOR THE ANNUAL MEETING OF SHAREOWNERS TO BE HELD

OCTOBER 27, 2020

 

 

This Proxy Statement and the 2020 Annual Report are available for viewing at

www.proxyvote.com


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2020 Proxy Summary

This 2020 Proxy Summary highlights certain information contained elsewhere in this Proxy Statement. This summary does not contain all of the information that you should consider before voting, and we strongly encourage you to carefully read the Proxy Statement before voting.

 

 

General Information About the 2020 Annual Meeting of Shareowners

 

 

LOGO

   2:00 p.m. (Eastern Time) on Tuesday, October 27, 2020

 

LOGO

   Virtually, via live audio webcast at www.virtualshareholdermeeting.com/KMT2020

 

LOGO

   September 1, 2020

 

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   For all matters, shareowners as of the Record Date have one vote for each share of capital stock held by such person on the Record Date

 

 

Proposals to be Considered and Board Recommendations

 

                  Proposal

 

Board Voting

Recommendation

 

Page Reference

(for more detail)

       
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Election of nine directors with terms to expire
in 2021

 

 

LOGO

FOR each

Director Nominee

  7
LOGO  

 

Ratification of PricewaterhouseCoopers LLP as the
Company’s independent registered public
accounting firm for the fiscal year ending June 30,
2021

  LOGO

FOR

  31
LOGO  

 

Non-binding (advisory) vote to approve
the compensation paid to the Company’s named
executive officers, as disclosed in this Proxy
Statement

  LOGO

FOR

  85
LOGO  

 

Approval of the Kennametal Inc. 2020 Stock and
Incentive Plan

  LOGO

FOR

  89

 

 



 

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    PROXY SUMMARY

 

Board Nominees

 

       

Director

Since (1)

         

 

Committee

Memberships

 

 

Other Public

Company

Boards

  Name   Age   Occupation   Independent       AC           CC       N/CG

 

Joseph Alvarado

 

 

 

68

 

 

 

2018

 

 

 

Board of Directors,

Arcosa, Inc.,

PNC Financial Services Group,

Inc., and Trinseo, S.A.

 

 

 

Yes

 

 

 

 

 

 

 

 

 

 

 

 

Arcosa, Inc.;

PNC Financial
Services Group, Inc.;

Trinseo, S.A.

 

 

Cindy L. Davis

 

 

 

58

 

 

 

2012

 

 

 

Board of Directors,

Brinker International, Inc. and

Deckers Outdoor
Corporation

 

 

Yes

 

     

 

 

 

 

 

 

 

Brinker
International, Inc.;

Deckers Outdoor
Corporation

 

 

William J. Harvey

 

 

 

69

 

 

 

2011

 

 

 

Board of Directors,
Bridgestone Americas, Inc.,
Origin Materials and Huber
Engineered Woods LLC

 

 

Yes

 

 

 

 

 

 

 

 

 

Chair

 

 

 

 

 

William M. Lambert

 

 

 

62

 

 

 

2016

 

 

 

Board of Directors, MSA

Safety, Inc.

 

 

Yes

 

 

 

Chair

 

 

 

 

 

 

 

 

 

MSA Safety, Inc.

 

 

Lorraine M. Martin

 

 

 

58

 

 

 

2018

 

 

 

President and CEO, National
Safety Council

 

 

Yes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sagar A. Patel

 

 

 

54

 

 

 

2016

 

 

 

Business Unit President,
Aerospace Aftermarket and
Hydraulic Systems,
Woodward, Inc.

 

 

Yes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Christopher Rossi

 

 

 

56

 

 

 

2017

 

 

 

President and Chief
Executive Officer (“CEO”),
Kennametal Inc.

 

 

No

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lawrence W. Stranghoener

 

 

 

66

 

 

 

2003

 

 

 

Chairman of the Board,
Kennametal Inc.

 

 

Yes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Steven H. Wunning

 

 

 

69

 

 

 

2005

 

 

 

Board of Directors, Black &
Veatch Holding Company,
Summit Materials, Inc., and
The Sherwin Williams
Company

 

 

 

Yes

 

 

 

 

 

 

Chair

 

 

 

 

 

 

Summit Materials,
Inc.; The Sherwin
Williams Company

 

 

(1)

References are to calendar years.

AC

Audit Committee

CC

Compensation Committee

N/CG

Nominating/Corporate Governance Committee

 

 

Attendance:    In Fiscal 2020, each of our director nominees serving on the Board in that year attended at least 75% of the Board and committee meetings on which he or she sat.

 

 

Director Elections:    Directors are elected by a majority of votes cast; meaning that the number of votes cast “for” such director nominee must exceed the number of votes cast “against” such nominee in order for a director to be elected.

 

 



 

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PROXY SUMMARY    

 

Corporate Governance Highlights

Our Board has a strong commitment to ethical conduct and good corporate governance, which promotes the long-term interests of shareowners, strengthens Board and management accountability and helps build public trust in the Company. The dashboard below provides a snapshot of the Company’s current corporate governance policies.

 

 

Declassified Board of Directors — The Company’s By-Laws provide for a declassified Board of Directors, whereby all Directors are elected to one-year terms.

 

 

Separation of CEO and Chairman — The roles of the Chief Executive Officer and the Chairman of the Board are separate. An independent director serves as our Chairman of the Board.

 

 

Majority Voting in Director Elections — Director elections are conducted on a majority voting basis and without cumulative voting.

 

 

Change in Control Double-Trigger Vesting Provision — The Company’s 2016 Stock and Incentive Plan and proposed 2020 Stock and Incentive Plan require both a change in control of the Company and termination of the executive’s employment (“double-trigger”) for unvested or unearned equity awards to vest on an accelerated basis.

 

 

Governance Guidelines — The Board has established Corporate Governance Guidelines which provide a framework for the effective governance of the Company. The guidelines address matters such as the Board’s mission, a Director’s responsibilities, Director qualifications, determination of Director independence, Board committee structure, Chief Executive Officer performance evaluations and management succession. The Board regularly reviews developments in corporate governance and updates the Corporate Governance Guidelines and other governance materials as it deems necessary and appropriate. The Company’s Corporate Governance Guidelines are available on its website at www.kennametal.com on the “Corporate Governance” page under “Investor Relations.”

 

 

Independent Directors — Our Board is comprised of all independent directors, other than our President and CEO.

 

 

Independent Directors Regularly Meet — Our independent directors meet in executive sessions, led by our independent Chairman of the Board, at each regularly scheduled Board meeting.

 

 

Independent Board Committees — We have three standing Board committees with only independent directors serving as members.

 

 

Annual Board and Committee Self-Evaluation — Our Board and Board committees engage in a self-evaluation process annually.

 

 

High Rate of Board Attendance — In Fiscal 2020, each of our directors serving on the Board in that year attended at least 75% of the Board and committee meetings on which he or she sat.

 

 

No Poison Pill — The Company currently does not have a poison pill in place.

 

 

Strong Stock Ownership Guidelines for Directors and Executive Officers — We have adopted Stock Ownership Guidelines for directors, executives and key managers to effectively link the interests of management and our shareowners and to promote an ownership culture throughout our organization. We believe that stock should be acquired and held in quantities that encourage management to make decisions and take actions that will enhance Company performance and increase its value.

 

 

Policies Prohibiting Hedging, Pledging, and Shorting Company Securities — Our insider trading policy prohibits the hedging, pledging and shorting of Company stock by any member of the Board, executive



 

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    PROXY SUMMARY

 

  officer, or other corporate officer, as defined in the policy, and their family members, without the prior approval and express authorization of the Company’s General Counsel. An exception to this prohibition may be granted where an individual wishes to pledge Company stock as collateral for a loan (not including margin debt) and clearly demonstrates the financial capacity to repay the loan without resorting to the pledged stock.

 

 

Fiscal 2020 Summary

The COVID-19 pandemic has had a significant impact on the Company’s customers, supply chains, and financial results. The Company implemented a number of cost control measures in the second half of Fiscal 2020 to conserve cash, maintain liquidity, and reduce operating expenses, including, among other things reductions in discretionary spending, extensive travel restrictions, and reduced production at global manufacturing facilities to align with the lower demand environment. In June 2020, the Company announced a 20% base salary reduction for all executives, effective July 1, 2020. For Fiscal 2021, the Company announced the acceleration of its structural cost reduction plans with a restructuring of approximately 10% of salaried employees globally to be substantially complete in the first half of Fiscal 2021. The Company also continued to make significant progress on its strategic initiatives. Regarding its simplification/modernization program, the associated capital spend is substantially complete. In support of its strategic growth initiatives, the Company announced that as of July 1, 2020, it has combined its former Industrial and WIDIA business segments to form one Metal Cutting business segment. This move will enable the Company to more effectively direct its commercial resources, products, and technical expertise toward capturing a larger share-of-wallet in addition to executing a new brand strategy.

The Company achieved the following performance in sales, profitability and returns for Fiscal 2020 (see Appendix A for a reconciliation of these non-GAAP financial measures to the comparable GAAP measures):

 

 

Net loss attributable to Kennametal for Fiscal 2020 was $5.7 million compared to net income attributable to Kennametal of $242 million in Fiscal 2019.

 

 

Return on Invested Capital (“ROIC”) for Fiscal 2020 was 1.0% compared with 13.5% in Fiscal 2019. Adjusted ROIC for Fiscal 2020 was 5.2% compared with Adjusted ROIC of 14.3% in Fiscal 2019.

 

 

Earnings Before Interest and Taxes (“EBIT”) for Fiscal 2020 was $34.7 million, 1.8% margin (as adjusted to exclude restructuring and related charges, goodwill and other intangible asset impairment charges and loss on divestiture: $153.8 million, 8.2% margin).

 

 

Working capital was $543 million as of June 30, 2020 compared to $729 million as of June 30, 2019. Primary Working Capital as a Percent of Sales Revenues (“PWCPS”) was 35.4% as of June 30, 2020 compared to 31.4% as of June 30, 2019.

 

 

Sales of $1.9 billion for Fiscal 2020, down compared with sales of $2.4 billion for Fiscal 2019.

 

 

Compensation Highlights for Fiscal 2020

The following are the highlights of our 2020 compensation program:

 

 

Our Compensation Committee has adopted a strong pay-for-performance philosophy which is tested on an annual basis through a realizable pay-for-performance alignment assessment conducted for the CEO position by the Committee’s independent consultant.



 

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PROXY SUMMARY    

 

 

Compensation is paid in a mix of base salary, annual cash-based incentives under our Annual Incentive Plan (“AIP”), and equity-based long-term incentive awards (consisting of restricted stock units and performance stock units) under our Long-Term Incentive Plan (“LTIP”).

 

 

Compensation is tied mainly to Company financial and stock performance, so that a substantial portion of the compensation provided to our executive officers is at risk.

 

 

Payment of annual cash-based incentives under the AIP is based on achieving critical measures of Company performance, consistent with our pay-for-performance philosophy. AIP payments for Fiscal 2020 performance were based on three performance metrics: Adjusted EBIT; PWCPS; and individual performance.

 

 

Our equity-based LTIP is intended to drive the achievement of critical long-term business objectives, align management’s interests with those of our shareowners and foster retention of key executives. In Fiscal 2020, 60% of the target value of each executive’s LTIP opportunity was granted as performance stock units (“PSUs”) and 40% was granted as restricted stock units (“RSUs”) (all are settled in stock).

 

 

Vesting of Fiscal 2020 PSUs is based on the attainment of an Adjusted ROIC financial performance goal (100% weight) with a Relative Total Shareholder Return (“TSR”) multiplier. PSUs are subject to an additional continuous service requirement, which provides that award recipients must remain employed by the Company through the payout date in order to receive the payout, generally three years after the grant date. RSUs time vest in equal increments over a three year period based on continuous service with the Company.

 

 

Our Fiscal 2020 financial performance had the following effects on the performance-based awards held by our named executive officers (“NEOs”):

Fiscal 2020 AIP

 

   

Our fiscal 2020 AIP was based 83.3% on financial metrics (Adjusted EBIT weighted 62.5% and PWCPS weighted 20.8%) for our CEO and 16.7% on individual performance for our CEO and 80% on financial metrics (Adjusted EBIT weighted 60% and PWCPS weighted 20%) and 20% on individual performance for our other NEOs. The individual metrics consisted of individual performance goals. Any payment under the AIP, either through achievement under the financial objectives or individual performance objectives, is contingent on achieving the minimum performance requirement of corporate net profit for the fiscal year. Since the Company recorded a net loss of $5.7 million for Fiscal 2020, the minimum performance requirement was not met and no portion of the AIP could be earned with regard to Adjusted EBIT, PWCPS or individual performance; therefore, no bonus was paid under the 2020 AIP to any NEOs.

Performance Stock Units

 

   

The first tranche (13) of the 2020 PSUs, as measured by ROIC performance, was achieved at a 0% multiple of target with the Relative TSR multiplier yet to be calculated for the three-year period ending June 30, 2022.

 

   

The second tranche (13) of the 2019 PSUs, as measured by ROIC performance, was achieved at a 0% multiple of target with the Relative TSR multiplier yet to be calculated for the three-year period ending June 30, 2021.

 

   

The third tranche (13) of the 2018 PSUs, as measured by ROIC performance, was achieved at a 0% multiple of target for a cumulative total payout multiple of 81.4% for the combined three years of ROIC performance, and the Relative TSR multiplier for the three-year period ending June 30, 2020 was achieved at 80%, for an aggregate 65.1% multiple of target Fiscal 2018 PSUs vesting.



 

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Table of Contents

 

 

GENERAL INFORMATION

 

    

 

1

 

 

 

PROPOSAL I. ELECTION OF DIRECTORS

 

    

 

7

 

 

 

ETHICS AND CORPORATE GOVERNANCE

 

    

 

14

 

 

 

Code of Conduct

     14  

Corporate Governance

     14  

The Board’s Oversight of Risk Management

     21  

Environmental, Social and Governance Matters

     21  

BOARD OF DIRECTORS AND BOARD COMMITTEES

 

    

 

22

 

 

 

Meeting Information

     22  

Board Committees

     22  

Committee Functions

     23  

Board of Directors Compensation and Benefits

     24  

AUDIT COMMITTEE REPORT

 

    

 

29

 

 

 

PROPOSAL  II. RATIFICATION OF PRICEWATERHOUSECOOPERS LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

    

 

31

 

 

 

EXECUTIVE COMPENSATION

 

    

 

33

 

 

 

COMPENSATION DISCUSSION AND ANALYSIS

 

    

 

33

 

 

 

Fiscal 2020 Summary

     33  

Compensation Highlights for Fiscal 2020

     34  

Relationship Between Pay and Performance

     36  

Design of our Executive Compensation Program

     39  

How Compensation Decisions are Made

     43  

2021 Executive Compensation Program

     55  

COMPENSATION COMMITTEE REPORT

 

    

 

61

 

 

 

ANALYSIS OF RISK INHERENT IN OUR COMPENSATION POLICIES AND PRACTICES

 

    

 

62

 

 

 

Executive Compensation Tables

     63  

2020 Nonqualified Deferred Compensation

     70  

Retirement Programs

     71  

EQUITY COMPENSATION PLANS

 

    

 

73

 

 

 

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

 

    

 

75

 

 

 

CEO PAY RATIO FOR FISCAL YEAR 2020

 

    

 

84

 

 

 

PROPOSAL III. NON-BINDING (ADVISORY) VOTE TO APPROVE THE COMPENSATION PAID TO THE COMPANY’S NAMED EXECUTIVE OFFICERS

 

    

 

85

 

 

 

OWNERSHIP OF CAPITAL STOCK BY DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS

 

    

 

86

 

 

 

PRINCIPAL HOLDERS OF VOTING SECURITIES

 

    

 

88

 

 

 

PROPOSAL IV. APPROVAL OF THE KENNAMETAL 2020 STOCK AND INCENTIVE PLAN

 

    

 

89

 

 

 

FORM 10-K ANNUAL REPORT

 

    

 

97

 

 

 

OTHER MATTERS

 

    

 

98

 

 

 

Delinquent Section 16(a) Reports

     98  

APPENDIX A — ADJUSTED EBIT, PWCPS AND ADJUSTED ROIC RECONCILIATIONS

 

    

 

A-1

 

 

 

APPENDIX B — KENNAMETAL INC. 2020 STOCK AND INCENTIVE PLAN

 

    

 

B-1

 

 

 


Table of Contents

General Information

When and where is the 2020 Annual Meeting?

The 2020 Annual Meeting of shareowners (the “Annual Meeting”) will be held virtually, through a live, audio only webcast, on Tuesday, October 27, 2020 at 2:00 p.m. (Eastern Time). Shareowners of record may attend the Annual Meeting online, vote and submit questions during the Annual Meeting by visiting www.virtualshareholdermeeting.com/KMT2020 and entering the 16-digit Control Number included on the Notice, on the proxy card or on the instructions that accompanied the proxy materials. There will not be a physical meeting location.

Why did I receive a Notice in the mail regarding the Internet availability of proxy materials instead of a full set paper copy of this Proxy Statement and the 2020 Annual Report?

We are utilizing an SEC rule that allows companies to furnish their proxy materials over the Internet rather than in paper form. This rule allows a company to send some or all of its shareowners a Notice regarding Internet availability of proxy materials (“Notice”). Instructions on how to access the proxy materials over the Internet or how to request a paper copy of proxy materials may be found in the Notice.

If you have received a Notice and you would prefer to receive proxy materials (including a proxy card) in printed form by mail or electronically by email, please follow the instructions contained in the Notice.

Why didn’t I receive a Notice in the mail regarding the Internet availability of proxy materials?

The SEC rules that allow us to furnish our proxy materials over the Internet rather than in paper form do not require us to do so for all shareowners. We may choose to send certain shareowners the Notice, while sending other shareowners a full set paper copy of our Proxy Statement, 2020 Annual Report, Notice and proxy card.

How can I access the proxy materials over the Internet?

The Notice contains instructions on how to view the proxy materials on the Internet, vote your shares on the Internet and obtain printed or electronic copies of the proxy materials. An electronic copy of this Proxy Statement and the 2020 Annual Report are available at www.proxyvote.com.

When was the Notice or other proxy materials mailed to shareowners?

The Notice of this Proxy Statement was first mailed to shareowners on or about September 15, 2020. Once the Notice is received, shareowners have the option of (1) accessing the proxy materials, including instructions on how to vote online; or (2) requesting that those materials be sent to the shareowner in paper. Opting to receive your proxy materials online will save the Company the cost of producing and mailing documents to your home or business and will also give you an electronic link to the proxy voting site.

Why did I receive a Notice or a copy of this Proxy Statement?

The Board of Directors of Kennametal Inc. (“we,” “us,” “Kennametal” or the “Company”) is soliciting proxies to be voted at the Annual Meeting to be held on October 27, 2020, and at any adjournment of the Annual Meeting. When we ask for your proxy, we must provide you with a proxy statement that contains certain information specified by law.

What will the shareowners vote on at the Annual Meeting?

The Board of Directors has submitted four proposals for your consideration at this meeting:

 

 

The election of nine directors for terms to expire in 2021;

 

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GENERAL INFORMATION

 

 

The ratification of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending June 30, 2021;

 

 

A non-binding (advisory) vote to approve the compensation paid to the Company’s named executive officers, as disclosed in this Proxy Statement; and

 

 

The approval of the Kennametal Inc. 2020 Stock and Incentive Plan.

Will there be any other items of business on the agenda?

We do not expect any other items of business to be presented at the meeting. However, in case there is an unforeseen need, your proxy also gives discretionary authority to the named proxy holders with respect to any other matters that might be brought before the meeting. Those proxy holders intend to vote your proxy on any such matter in accordance with their best judgment.

Who is entitled to vote?

Shareowners as of the close of business on Tuesday, September 1, 2020 (the “Record Date”) may vote at the Annual Meeting. For all matters, you have one vote for each share of capital stock you hold on the Record Date, including shares:

 

 

Held directly in your name as the shareowner of record;

 

 

Held for you in an account with a broker, bank or other nominee; and

 

 

Attributed to your account in one of our Company-sponsored 401(k) plans.

What constitutes a quorum?

A majority of the outstanding shares, present or represented by proxy, constitutes a quorum for the Annual Meeting. As of the Record Date, 83,246,915 shares of our capital stock were issued and outstanding. Abstentions and broker non-votes (which are explained below) will be counted for purposes of determining a quorum, but will not be counted as votes cast, except that for purposes of the Proposal 4, approval of the 2020 Stock and Incentive Plan, in which case abstentions have the same effect as a vote against the proposal.

How many votes are required for the approval of each item?

 

 

The nine nominees for director for terms expiring in 2021 are elected by a majority of votes cast, meaning that the number of votes cast “for” such director nominee must exceed the number of votes cast “against” such nominee in order for a director to be elected. Abstentions, broker non-votes and instructions to withhold authority to vote for one or more of the nominees will result in those nominees receiving fewer votes but will not count as votes against the nominee.

 

 

The ratification of the selection of the independent auditors will be approved if the proposal receives the affirmative vote of at least a majority of the votes cast by shareowners present, virtually or by proxy, at the meeting. Abstentions will not be counted as votes cast either for or against the proposal.

 

 

The compensation paid to our named executive officers, as disclosed in this Proxy Statement, will be approved (on a non-binding, advisory basis) if the proposal receives the affirmative vote of at least a majority of the votes cast by shareowners present, virtually or by proxy, at the meeting. Abstentions and broker non-votes will not be counted as votes cast either for or against the proposal.

 

 

The Kennametal Inc. 2020 Stock and Incentive Plan will be approved if the proposal receives the affirmative vote of at least a majority of the votes cast (including abstentions) by shareowners present, virtually or by proxy, at the meeting. Abstentions have the same effect as a vote against the proposal, and broker non-votes will not be counted as votes cast either for or against the proposal.

 

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GENERAL INFORMATION

 

What are “Broker Non-Votes?”

If your shares are held by a broker (i.e., “in street name”), the broker will ask you how you want your shares to be voted. If you give the broker instructions, your shares will be voted as you direct. If you do not give instructions to your broker, one of two things can happen, depending on the type of proposal. For the ratification of the selection of the independent auditors, which is considered a “routine” matter, the broker may vote your shares in its discretion.

Brokers do not have the discretion to vote your shares for the election of directors, for the non-binding advisory vote to approve the compensation paid to our named executive officers, as disclosed in this Proxy Statement, or for the approval of the Kennametal Inc. 2020 Stock and Incentive Plan, because these proposals are considered to be “non-routine” matters. If you do not provide voting instructions to your broker for these non-routine matters, the broker may not vote your shares on these proposals at all. When that happens, it is called a “broker non-vote.”

How do I vote?

If you are a shareowner of record, you may vote your shares by any one of the following methods:

 

 

By Internet.    You may vote online prior to the meeting at www.proxyvote.com. Follow the instructions on the Notice or in the proxy card for voting prior to the meeting. Voting on the Internet has the same effect as voting by mail. If you vote on the Internet, you do not need to return a proxy card. Internet voting will be available until 11:59 p.m. Eastern Time on October 26, 2020.

 

 

By telephone. You may vote by telephone by dialing 1-800-690-6903. Follow the instructions on your Notice or proxy card. Voting by telephone has the same effect as voting by mail. If you vote by telephone, you do not need to return a proxy card. Telephone voting will be available until 11:59 p.m. Eastern Time on October 26, 2020.

 

 

By mail. The Notice includes directions on how to request paper copies of this Proxy Statement, the 2020 Annual Report and a proxy card. Once you receive a paper proxy card, you may vote your shares by signing and dating each proxy card that you receive and returning it in the prepaid envelope. Sign your name exactly as it appears on the proxy card. If you are signing in a representative capacity (for example, as an attorney-in-fact, executor, administrator, guardian, trustee or the officer or agent of a corporation or partnership), please indicate your name and your title or capacity. If the stock is held in custody for a minor (for example, under the Uniform Transfers to Minors Act), the custodian should sign, not the minor. If the stock is held in joint ownership, one owner may sign on behalf of all owners.

 

 

Online during meeting. If you are a shareowner of record, you may vote your shares online by attending the virtual Annual Meeting. However, we encourage you to vote in advance by proxy card, by telephone or on the Internet even if you plan to attend the virtual Annual Meeting.

How do I vote shares that are held by my broker?

If you own shares held by a broker or other nominee (i.e., in “street name”), you may instruct your broker or other nominee to vote your shares by following the instructions that your broker or nominee provides to you. Most brokers offer voting by mail, by telephone and on the Internet.

How do I vote my shares in the 401(k) plan?

You will receive voting instructions from the plan trustee. You may instruct the plan trustee on how to vote (including not to vote) your shares in the 401(k) plan in writing, or by other means available.

 

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GENERAL INFORMATION

 

How can I revoke a proxy or change my vote?

You have the right to revoke your proxy and change your vote at any time before the meeting by (1) notifying our Vice President, Secretary and General Counsel in writing or (2) delivering a later-dated proxy card by telephone, on the Internet or by mail. If you are a shareowner of record, you may also revoke your proxy by voting online during the virtual Annual Meeting.

Who are “Named Proxies” and how will they vote my shares?

Our Board of Directors selected the persons named on the Notice and proxy card (the “Named Proxies”) to act as proxies for the Annual Meeting. If you specify a voting choice, the shares will be voted in accordance with that choice. If you vote your shares, but do not indicate your voting preferences, the Named Proxies will vote on your behalf for the election of the nominees for director listed below, for the ratification of the selection of the independent auditors, for the approval (on a non-binding advisory basis) of the compensation paid to our named executive officers as disclosed in this Proxy Statement, and for the approval of the Kennametal Inc. 2020 Stock and Incentive Plan.

How will the advisory vote related to executive compensation be treated?

Although the advisory vote to approve the compensation paid to our named executive officers is non-binding, our Board of Directors will review the results of this vote and, consistent with our strong record of shareowner engagement, will take the result of the vote into account in making future determinations concerning executive compensation.

What does it mean if I receive more than one Notice, proxy card or voting instruction?

It means that you hold shares in more than one account. To ensure that all of your shares are voted, please vote as instructed in each Notice or sign and return each proxy card (if you have requested and received paper copies of this Proxy Statement and a proxy card). If you vote by telephone or on the Internet, you will need to vote once for each Notice, proxy card or voting instruction card you receive.

Who tabulates the votes?

The votes are tabulated by Carideo Group, which acts as an independent inspector of election.

What should I do if I want to attend the Annual Meeting?

You are entitled to attend the Annual Meeting if you were a shareowner of record as of the Record Date for the Annual Meeting, or you hold a valid proxy for the Annual Meeting. You will need the 16-digit Control Number located on your Notice, on your proxy card or on the instructions that accompanied your proxy materials. You can attend the Annual Meeting, vote and submit questions during the Annual Meeting by visiting www.virtualshareholdermeeting.com/KMT2020 and using your 16-digit Control Number to enter the meeting. Shareowners may also submit written questions in advance of the Annual Meeting by visiting www.virtualshareholdermeeting.com/KMT2020 and using your 16-digit Control Number to access the Annual Meeting website. A transcript of the Annual Meeting including the questions received and our answers will be posted on the Investors Relations page of our website at www.kennametal.com as soon as practical after the Annual Meeting.

We encourage you to access the Annual Meeting website prior to the start time. Please allow sufficient time for online check-in. If you experience technical difficulties, please contact the technical support phone number posted on the log-in page of the Annual Meeting website. Rules of Conduct for the Annual Meeting are established, affording the same treatment to all participating shareowners, and will be followed during the

 

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GENERAL INFORMATION

 

Annual Meeting. We will use technology for the virtual Annual Meeting that verifies the identity of each participating shareowner and ensures that shareowners are granted the same access rights they would have if attending an in-person meeting.

Even if you plan to attend the Annual Meeting, we recommend that you vote your shares in advance, so that your vote will be counted if you later decide not the attend the Annual Meeting.

Can I view the Proxy Statement and 2020 Annual Report electronically?

Yes. Copies of this Proxy Statement and our 2020 Annual Report to Shareowners (the “2020 Annual Report”) are available free of charge for electronic (online) access and viewing at www.proxyvote.com.

You may also view the Proxy Statement and 2020 Annual Report free of charge on our website at www.kennametal.com in the “Investor Relations” section under “SEC Filings”.

What is “householding”?

We have adopted “householding,” a procedure under which shareowners of record who have the same address and last name and do not receive proxy materials electronically will receive only one copy of our Annual Report and Proxy Statement unless one or more of these shareowners notifies us that they wish to continue receiving individual copies, per the instructions below. This procedure saves printing and postage costs by reducing duplicative mailings. Shareowners who participate in householding will continue to receive separate proxy cards. Householding will not affect dividend check mailings. Beneficial shareowners can request information about householding from their banks, brokers or other holders of record.

What if I want to receive a copy of the Annual Report and Proxy Statement?

You may access the Proxy Statement or Annual Report via our website, www.kennametal.com, under “About Us,” “Investor Relations.” If you prefer, you may request these materials by calling our Vice President, Secretary and General Counsel at 412-248-8309 or writing to Kennametal Inc., Attention: Vice President, Secretary and General Counsel, 525 William Penn Place, Suite 3300, Pittsburgh, Pennsylvania 15219:

 

 

If you participate in householding and wish to receive a separate copy of the 2020 Annual Report, Proxy Statement, or Notice of Internet Availability of Proxy Materials, or

 

 

If you do not participate in householding, but would like a print copy of either the 2020 Annual Report or Proxy Statement, or would like to participate in householding with regard to the Annual Report, Proxy Statement, or Notice of Internet Availability of Proxy Materials, or

 

 

If you wish to receive separate copies of future annual reports and proxy statements.

We will deliver the requested documents to you promptly upon your request at no charge.

How can I contact the Company, the Board of Directors, independent Chairman of the Board or any of the independent Directors?

The address of our principal executive offices is 525 William Penn Place, Suite 3300, Pittsburgh, Pennsylvania 15219.

You can send written communications to any of our Board members, addressed to:

Kennametal Inc.

c/o Michelle R. Keating

Vice President, Secretary and General Counsel

525 William Penn Place, Suite 3300

Pittsburgh, Pennsylvania 15219

 

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GENERAL INFORMATION

 

We will forward any communication we receive to the relevant director(s), except for advertisements, solicitations or other matters unrelated to the Company.

What are the procedures for submitting a shareowner proposal or nomination for the 2021 Annual Meeting?

We expect to hold our 2021 Annual Meeting in October 2021. If a shareowner wishes to have a proposal considered for inclusion in next year’s proxy statement, such shareowner must submit the proposal in writing so that we receive it by May 18, 2021. Proposals should be addressed to Kennametal Inc., Attention: Vice President, Secretary and General Counsel, 525 William Penn Place, Suite 3300, Pittsburgh, Pennsylvania 15219. Proposals must comply with Rule 14a-8 of Regulation 14A of the proxy rules and must contain certain information specified in the Company’s By-Laws.

In addition, our By-Laws provide that any shareowner wishing to propose any other business at the 2021 Annual Meeting must give the Company written notice no earlier than May 1, 2021 and no later than June 30, 2021. That notice must provide certain other information as described in the By-Laws.

Specifically, shareowner nominations for directors to be elected at the 2021 Annual Meeting must be submitted to the Vice President, Secretary and General Counsel in writing no earlier than May 1, 2021 and no later than June 30, 2021. The By-Laws contain certain requirements for the information that must be provided in any shareowner nomination, including information about the nominee and the nominating shareowner. Please see “Committee Functions — Nominating/Corporate Governance Committee” under the “Board of Directors and Board Committees” section of this Proxy Statement for additional information regarding shareowner nominations to be considered by the Nominating/Corporate Governance Committee.

Any shareowner may obtain a copy of the By-Laws or any of our corporate governance materials by submitting a written request to Kennametal Inc., Attention: Vice President, Secretary and General Counsel, 525 William Penn Place, Suite 3300, Pittsburgh, Pennsylvania 15219.

Who pays for the solicitation of proxies?

Kennametal pays all costs related to the Company’s solicitation of proxies. We may solicit proxies by mail, or our directors, officers or employees may solicit proxies personally, by telephone, facsimile or the Internet. We have retained the services of Morrow Sodali LLC, 470 West Avenue, Stamford, CT 06902, to assist in soliciting proxies from brokerage houses, custodians, nominees, other fiduciaries and other shareowners of the Company. We will pay all fees and expenses of Morrow Sodali LLC in connection with the solicitation and we do not expect those fees and expenses to exceed $10,000. We will reimburse brokerage firms and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for sending proxy materials to shareowners and obtaining their votes.

What is the Company’s Fiscal Year?

Kennametal’s fiscal year begins each year on July 1 and ends on the following June 30. Any reference to a “year” in this Proxy Statement is to a fiscal year, except whereas otherwise noted. For example, references to “2020,” “fiscal year 2020,” or “Fiscal 2020” mean the fiscal year beginning July 1, 2019 and ending June 30, 2020.

 

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Proposal I. Election of Directors

Kennametal seeks directors with strong reputations and experience in areas relevant to the strategy and operations of our businesses, particularly industries and growth segments that we serve, as well as key geographic markets where we operate.

Each person elected as a director of the Corporation, whether elected to succeed a person whose term of office as a director has expired (including the expiration of such director’s term) or to fill any vacancy, shall be elected for a one-year term expiring at the next annual meeting of shareowners.

Our Board of Directors has nominated our current nine directors, Joseph Alvarado, Cindy L. Davis, William J. Harvey, William M. Lambert, Lorraine M. Martin, Sagar A. Patel, Christopher Rossi, Lawrence W. Stranghoener, and Steven H. Wunning, for re-election to serve as directors with a term that will expire in 2021.

Each of the nominees for election as a director at the Annual Meeting and each of the Company’s current directors hold or have held senior executive positions in large, complex organizations and have operating experience that meets our objectives, as described below. In these positions, they have also gained experience in core management skills, such as strategic and financial planning, public company financial reporting, corporate governance, risk management and leadership development. Included in each Director nominee’s biography below is an assessment of the specific qualifications, attributes, skills and experience of such nominee based on the qualifications described above.

We have no reason to believe that any of the nominees will be unable or unwilling to serve if elected. However, if any nominee should become unable for any reason or unwilling for good cause to serve, proxies may be voted for another person nominated as a substitute by the Board.

The Board believes that the combination of the various qualifications, skills and experiences of the Director nominees will contribute to an effective and well-functioning Board and that, individually and as a whole, the Director nominees possess the necessary qualifications to provide effective oversight of the business and quality advice and counsel to the Company’s management.

 

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PROPOSAL I. Election of Directors

 

The following table highlights each director’s specific skills, knowledge and experience. A particular director may possess additional skills, knowledge or experience even though they are not indicated below.

Director Skills and Experience Matrix

 

   

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SKILLS / EXPERIENCE

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

 

 

CEO Experience

 

 

 

 

 

                 

 

 

 

 

                 

 

 

 

 

 

 

 

 

 

 

       

 

 

Corporate Finance (public company)

 

 

 

 

 

                 

 

 

 

 

                       

 

 

 

 

       

 

 

Corporate Governance / Corporate Responsibility

 

 

 

 

 

         

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

       

 

 

 

 

       

 

 

Current or Recent Executive Experience

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diversity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

       

 

 

 

 

 

 

 

 

 

 

 

 

Environmental / Health / Safety

 

 

 

 

 

         

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                       

 

 

Government / Military

 

 

 

 

 

         

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

         

 

 

 

 

 

 

 

Industry / Manufacturing Knowledge

 

 

 

 

 

             

 

 

 

 

         

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

International

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Legal — Transactions

 

 

 

 

 

     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

         

 

 

Operations / Production

 

 

 

 

 

         

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

         

 

 

 

 

 

 

 

Public Company Board Experience

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Management

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and Marketing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Strategic Planning

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Technology / Engineering

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

         

 

 

 

 

 

 

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PROPOSAL I. Election of Directors

 

 

 

 

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THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE FOR THE ELECTION
OF EACH OF THE NOMINEES.

We have provided additional information about each nominee and each director whose term of office will continue after the Annual Meeting below, if elected, including the specific characteristics and traits that we believe qualify these individuals to serve as directors of our Company.

 

      

 

Joseph Alvarado

 

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Age: 68

Director since 2018

 

Independent

 

Committee Memberships:

Compensation

Nominating / Corporate

Governance

 

Other Directorships:

Arcosa, Inc.

PNC Financial Services Group, Inc.

Trinseo, S.A.

  

Mr. Alvarado is the former Chairman, President and CEO of Commercial Metals Company (“CMC”), a global manufacturer, recycler and marketer of steel and other metals. He joined CMC in April 2010 as Executive Vice President and Chief Operating Officer (“COO”) and became President and COO in April 2011. He was named President and CEO and elected to CMC’s Board in September 2011; he served as Chairman of the Board from January 2013 until his retirement in January 2018. Prior to joining CMC, Mr. Alvarado was Operating Partner for Wingate Partners and The Edgewater Funds from 2009 to 2010. He was the President of U.S. Steel Tubular Products, Inc., a division of United States Steel Corporation, from 2007 through 2009. Mr. Alvarado was President and COO of Lone Star Technologies, Inc., a producer and marketer of products for the oil and gas, industrial, automotive and power generation industries, from 2004 until the company’s acquisition by United States Steel Corporation in 2007. Prior to that, he was Vice President-Long Products Sales and Marketing for Ispat North America, Inc. from 1998 to 2004 and he was Executive Vice President, Commercial at Birmingham Steel Company from 1997 to 1998. Mr. Alvarado began his career in steelmaking at Inland Steel Company in 1976, serving in roles of increasing responsibility, and was President of Inland Steel Bar Company from 1995 to 1997. Mr. Alvarado has an MBA from Cornell University and a Bachelor of Arts degree in Economics from the University of Notre Dame.

 

  

 

Qualifications:

 

Mr. Alvarado is a strong leader with significant experience in managing global businesses. With his extensive knowledge of the metals industry and years of experience in manufacturing, he understands the challenges and opportunities facing Kennametal. He provides strategic insight and valuable perspective to our Board. Mr. Alvarado is an “audit committee financial expert” based on his relevant experience with financial and accounting matters.

 

      

 

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PROPOSAL I. Election of Directors

 

      

 

Cindy L. Davis

 

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Age: 58

Director since 2012

 

Independent

 

Committee Memberships:

Compensation

Nominating / Corporate

Governance

 

Other Directorships:

Brinker International, Inc.

Deckers Outdoor Corporation

 

  

Ms. Davis is a retired Vice President of Nike, Inc., and retired President, Nike Golf, a global leading innovator in athletic footwear, apparel, equipment and accessories, positions she held from 2008 through January 2015. Ms. Davis joined Nike, Inc. in 2005 as General Manager, Nike Golf USA after holding a variety of marketing and executive positions for companies such as the Arnold Palmer Golf Company and The Golf Channel. She previously served on the Board of Directors of Buffalo Wild Wings, a casual dining restaurant and sports bar franchise, from January 2015 through February 2018. Ms. Davis earned an MBA in Marketing and Finance at the University of Maryland, and a Bachelor of Arts degree in Economics at Furman University in Greenville, South Carolina.

 

  

 

Qualifications:

 

Ms. Davis’ experience with brand strategy and global brands adds valued perspective to our Board. Her winning track record of driving innovation and profitable growth, globally, positions her as an excellent fit to our Board of Directors.

 

  

    

  

    

  

    

  

    

  

    

  

    

    

    

      

 

William J. Harvey

 

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Age: 69

Director since: 2011

 

Independent

 

Committee Memberships:

Compensation

Nominating / Corporate

Governance (Chair)

 

Other Directorships:

Bridgestone Americas, Inc.

Huber Engineered Woods LLC

Origin Materials

 

  

Mr. Harvey is the retired President of DuPont Packaging & Industrial Polymers, a multi-billion dollar global business unit of E.I. DuPont de Nemours & Company, a science and technology-based company, serving in that position from 2009 through 2015. Mr. Harvey joined DuPont in 1977 and left in 1992 to become General Manager of the Peroxygen Chemical Division of FMC Corporation, a diversified chemical company. He rejoined DuPont in 1996 as Global Business Director for DuPont Packaging & Industrial Polymers. Mr. Harvey held various management-level positions with DuPont including Vice President and General Manager of the DuPont Advanced Fiber businesses, Kevlar and Nomex Fibers, Vice President of DuPont Corporate Operations and Vice President of DuPont Corporate Plans. Mr. Harvey holds a Bachelor’s degree in Economics from Virginia Commonwealth University and a Master’s degree from the University of Virginia Darden Graduate School of Business. He is Vice-Chair of the Board of Trustees of Washington College where he serves on the Executive Committee and chairs the Admissions and Financial Aid Committee. Mr. Harvey previously held Board of Trustee positions at the Darden School at the University of Virginia and Delaware State University.

 

  

 

Qualifications:

 

Mr. Harvey brings to the Board keen strategic insight and commercial expertise. His wealth of global experience and business acumen make an excellent contribution to our Board. Mr. Harvey currently serves as Chair of our Nominating/Corporate Governance Committee.

 

    

    

 

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PROPOSAL I. Election of Directors

 

      

 

William M. Lambert

 

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Age: 62

Director since: 2016

 

Independent

 

Committee Memberships:

Audit (Chair)

 

Other Directorships:

MSA Safety Incorporated

 

  

Mr. Lambert is a member of the Board of Directors of MSA Safety Incorporated (“MSA”), a global leader in the manufacture and supply of workplace safety products, having stepped down as Non-Executive Chairman of MSA in May 2020. He is the retired President and Chief Executive Officer of MSA, having served in this position from 2008 until May 2018. Mr. Lambert has been a director on MSA’s Board since 2007, holding the Chairman position from May 2015 through May 2020. He joined MSA in 1981 as a design engineer and over the years served the company in a variety of capacities of increasing responsibility. He previously served on the Board of Directors of EQT Corporation, a natural gas producer, from November 2018 through July 2019. Mr. Lambert has achieved “Fellow” status with the National Association of Corporate Directors (NACD). He holds a Bachelor’s degree in Mechanical Engineering from Penn State University and a Master’s degree in Industrial Administration from Carnegie Mellon University.

 

  

 

Qualifications:

 

Mr. Lambert has extensive experience leading a global manufacturing company and he brings to the board valuable knowledge in business strategy, product development, marketing and finance. He currently serves as Chair of our Audit Committee and is an “audit committee financial expert” based on his relevant experience with financial and accounting matters.

      
      

 

Lorraine M. Martin

 

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Age: 58

Director since: 2018

 

Independent

 

Committee Memberships:

Audit

 

Other Directorships:

National Safety Council

  

Ms. Martin is a director, President and CEO of the National Safety Council since June 2019. She is also co-founder and President of Pegasus Springs Foundation, a nonprofit organization focused on education and mentoring. Ms. Martin is the retired Executive Vice President and Deputy of Rotary and Mission Systems (RMS) for Lockheed Martin Corporation, a global aerospace, defense, security and advance technologies company. Prior to RMS, Ms. Martin was Executive Vice President and General Manager for the F-35 Lightning II Program for Lockheed Martin Aeronautics Company. Her leadership of the F-35 program earned Pentagon recognition for reducing program costs while increasing production and fielding more aircraft worldwide. She joined Lockheed Martin in 1988 and during her tenure, held a variety of high visibility leadership positions across the corporation. Prior to joining Lockheed Martin, she served as an officer in the U.S. Air Force, holding various leadership positions for software intensive technology and development programs. She has a Master of Science degree in Computer Science from Boston University and a Bachelor of Arts degree in Computational Mathematics from DePauw University.

 

  

 

Qualifications:

 

Ms. Martin has over 35 years’ experience in the aerospace industry and is a proven leader in a variety of challenging roles. Her experience in international business and manufacturing are of significant value to Kennametal. She brings a unique perspective to our Board with her extensive knowledge of the aerospace industry, technology, supply chain management and strategic planning.

 

         

 

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PROPOSAL I. Election of Directors

 

      

 

Sagar A. Patel

 

LOGO

 

Age: 54

Director since: 2016

 

Independent

 

Committee Memberships:

Audit

 

  

Mr. Patel is the Business Unit President, Aerospace Aftermarket and Hydraulic Systems for Woodward, Inc., a manufacturer and service provider of control solutions for the aerospace and industrial markets. He joined Woodward, Inc. in June 2011 as President of Aircraft Turbine Systems and in 2019, he became Business Unit President, Fuel Systems and Controls, where he served until assuming his current position in January 2020. Before joining Woodward, Mr. Patel worked at General Electric, where he last served as President, Mechanical Systems, GE Aviation in Cincinnati, Ohio. At GE’s Aviation and Transportation businesses, Mr. Patel held roles with increasing responsibilities in engineering, operations, services and P&L management. Earlier in his career, he worked for a utility company in India for three years. Mr. Patel served as Chairman of the Rockford Area Economic Development Council (RAEDC) in Rockford, Illinois, in addition to serving on the Illinois Governor’s Innovation Advisory Council. Mr. Patel holds a Master’s degree in Electrical Engineering from the University of Pittsburgh and a Bachelor’s degree in Controls and Instrumentation Engineering from Gujarat University in India.

 

  

 

Qualifications:

 

Mr. Patel has more than 30 years’ experience in the aerospace, transportation and energy industries, bringing to our Board extensive experience in product and advanced manufacturing innovation, global operations and strategic growth areas.

      
      

 

Christopher Rossi

 

LOGO

 

Age: 56

Director since: 2017

 

Non-Independent

 

  

Mr. Rossi is President and CEO and a member of the Board of Directors of Kennametal Inc., serving in these positions since August 2017. Prior to that, Mr. Rossi was CEO of Dresser-Rand at Siemens Aktiengesellschaft, from September 2015 to May 2017. Dresser-Rand is part of the Seimens business, a leading global supplier of custom-engineered rotating equipment solutions for the oil, gas, petrochemical, power and process industries. Mr. Rossi held numerous leadership positions at Dresser-Rand including Executive Vice President of Global Operations from September 2012 to August 2015, where he was responsible for Product Manufacturing Operations and certain related functions, Vice President of Technology and Business Development from January 2009 to September 2012 and Executive Vice President of Product Services Worldwide from February 2007 to December 2008. He joined Dresser-Rand in 1987, having been responsible for the areas of Engineering, Production, Supply Chain Management, Sales and Business Development, and throughout his career there, served as the Vice President and General Manager of North American Operations, Vice President and General Manager of Painted Post Operation, and a Vice President, Supply Chain Management Worldwide. Mr. Rossi holds a Bachelor of Science degree in Mechanical Engineering from Virginia Tech and an MBA in Corporate Finance and Operations Management from the University of Rochester’s Simon School of Business.

 

  

 

Qualifications:

 

Mr. Rossi has extensive experience leading and managing a complex global manufacturing company, having held positions of progressive responsibility at Dresser-Rand. As a former CEO, Mr. Rossi brings diverse manufacturing, technology, and strategy experience as well as leadership skills to Kennametal Inc.

      

 

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PROPOSAL I. Election of Directors

 

      

 

Lawrence W.

Stranghoener

 

LOGO

 

Age: 66

Director since: 2003

 

Chairman of the Board

 

Independent

  

Mr. Stranghoener is Chairman of the Board of Directors for Kennametal Inc., serving in this position since July 1, 2018. Prior to that, he was the independent Lead Director of Kennametal’s Board from August 2017 to June 2018. Mr. Stranghoener is the retired Executive Vice President, Strategy and Business Development for Mosaic Company, a global crop nutrition company, a position he held from August 2014 until his retirement in January 2015. He served as Mosaic’s interim Chief Executive Officer from June 2014 to August 2014, and was Executive Vice President and Chief Financial Officer from September 2004 to June 2014. Before joining Mosaic, Mr. Stranghoener was the Executive Vice President and Chief Financial Officer of Thrivent Financial, a Fortune 500 financial services company, from 2001 to 2004. Prior to that, Mr. Stranghoener spent 17 years at Honeywell Inc. where he held various positions in finance, including Vice President and Chief Financial Officer from 1997 to 1999. He started his career as an Investment Analyst at Dain Rauscher. Mr. Stranghoener serves on the Board of Trustees for Goldman Sachs Exchange Traded, Closed End and Interval Funds. He holds a Bachelor of Arts degree from St. Olaf College and an MBA from Northwestern University.

 

  

 

Qualifications:

 

Mr. Stranghoener has extensive experience as a Chief Financial Officer for a variety of organizations. He brings strong leadership skills and a deep understanding of financial reporting and risk management to our Board. His knowledge of the financial and capital markets enables him to provide guidance and valuable insight to our Board and management. In his capacity as independent Chairman of the Board, he serves as the independent liaison between our management, our shareowners and the Board.

      
      

 

Steven H. Wunning

 

LOGO

 

Age: 69

Director since: 2005

 

Independent

 

Committee Memberships:

Compensation (Chair)

Nominating / Corporate

Governance

 

Other Directorships:

Black & Veatch Holding Company

Summit Materials, Inc.

The Sherwin Williams Company

 

  

Mr. Wunning is the retired Group President and Executive Office member of Caterpillar Inc., a global manufacturer of construction, mining, and industrial equipment, having served in those positions from January 2004 to January 2015. In that capacity, he had administrative responsibility for the Resource Industries Group which included Advanced Components & Systems Division, Integrated Manufacturing Operations Division, Mining Products Division, Mining Sales & Marketing Division, and Product Development & Global Technology Division. Mr. Wunning joined Caterpillar in 1973 and served in positions of increasing responsibility, including Vice President and then President of Cat Logistics and Corporate Vice President of the Logistics & Product Services Division. Mr. Wunning is a member of the Board of Trustees of the Missouri University of Science and Technology. He has a Bachelor of Science degree in Metallurgical Engineering from the University of Missouri at Rolla, now Missouri University of Science and Technology, and an Executive MBA from the University of Illinois.

 

  

 

Qualifications:

 

Mr. Wunning has extensive operational and management experience in the areas of quality, manufacturing, product support and logistics for a complex, global organization. He understands the challenges of managing a global manufacturing organization and provides valuable insight and perspective to our Board with respect to operations, supply chain logistics and customer relations. Mr. Wunning currently serves as the Chair of our Compensation Committee.

      

 

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Ethics and Corporate Governance

Code of Conduct

All of our directors, officers and employees, including our Chairman, Chief Executive Officer, Chief Financial Officer and Corporate Controller, must strictly adhere to our Code of Conduct (sometimes referred to as the “Code”).

The Code is designed to:

 

 

Proactively promote ethical behavior;

 

 

Protect our valued reputation and the reputations of our directors, officers and employees;

 

 

Assist all employees to act as good corporate citizens around the world; and

 

 

Continue to demonstrate that we, and the individuals we employ, can be successful while maintaining the values which have served us well over the years.

We view violations of the Code very seriously. Personal consequences for violations can be severe and can include termination and/or legal action. Directors, officers and employees who know of or suspect a violation of the Code must report the matter to us promptly. Any of these individuals can report a concern or potential violation of the Code:

 

 

By approaching or telephoning such person’s immediate supervisor or manager, another supervisor or manager, such person’s local Human Resource professional, the Office of the General Counsel or the Office of Ethics and Compliance;

 

 

In writing directed to Kennametal Inc., Attention: Vice President, Secretary and General Counsel, 525 William Penn Place, Suite 3300, Pittsburgh, Pennsylvania 15219 or by email: k-corp.ethics@kennametal.com;

 

 

By calling the Office of Ethics and Compliance at 412-248-8275;

 

 

By calling the Company’s toll-free, third-party managed, HELPLINE (1-877-781-7319). The HELPLINE is accessible twenty-four (24) hours a day. The HELPLINE may be used on a confidential and anonymous basis (where allowed by law); or

 

 

By accessing the Company’s web-based HELPLINE portal accessible at the following link: kennametal.ethicspoint.com.

The Code is posted on our website at www.kennametal.com on the “Ethics and Compliance” page, which is accessible under the “About Us” tab. We will disclose any future amendments to the Code that relate to our directors or executive officers on our website, as well as any waivers of the Code that relate to directors and executive officers.

Corporate Governance

Our Board of Directors adopted the Kennametal Inc. Corporate Governance Guidelines (the “Guidelines”) to assist the Board in the exercise of its duties and responsibilities and to serve the best interests of the Company. The Guidelines reflect the Board’s commitment to monitor the effectiveness of policy and decision-making both at the Board and management level.

 

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A complete copy of the Guidelines is available on our website at www.kennametal.com on the “Corporate Governance” page, which is accessible under the “Investor Relations” page under the “About Us” tab. Any changes to the Guidelines in the future will also be posted on our website. Following is a summary that provides highlights of our Guidelines and many related corporate governance matters:

Selection of New Director Candidates and Criteria for Board Membership

 

 

Kennametal believes that overall the Board should encompass a range of talent, skill, diversity and expertise that enable it to provide sound guidance with respect to our operations and interests. Board nominees are identified, screened and recommended by the Nominating/Corporate Governance Committee and approved by the full Board. The Nominating/Corporate Governance Committee evaluates and ultimately selects director nominees based on a number of criteria, including independence, integrity, diversity, business and industry experience, areas of expertise, ability to exercise sound judgment in areas relevant to our businesses, and willingness to commit sufficient time to the Board. In addition to considering a candidate’s background and accomplishments, candidates are reviewed in the context of the current composition of the Board and the evolving needs of our businesses.

 

 

The Nominating/Corporate Governance Committee strives to nominate directors with a variety of complementary skills so that, as a group, the Board will possess the appropriate talent, skills and expertise to oversee the Company’s businesses.

 

 

Although the Nominating/Corporate Governance Committee does not have a formal policy with respect to consideration of diversity in identifying director candidates, as noted above, diversity is one of the many important factors considered in any evaluation of a director or director nominee. The Nominating/Corporate Governance Committee believes that in this context the term “diversity” encompasses a broad array of personal characteristics, including traditional concepts such as age, gender, race and ethnic background. Equally important to any evaluation of diversity, however, are characteristics such as geographic origin and exposure, skills and training, education, viewpoint, industry exposure and professional experience. The Nominating/Corporate Governance Committee recognizes that diversity of all types can bring distinctive skills, perspectives and experiences to the Board.

 

 

The Nominating/Corporate Governance Committee will consider any director candidate nominated by a shareowner in accordance with our By-Laws and applicable law. For further information on shareowner nominating procedures, please refer to the response to the question “What are the procedures for submitting a shareowner proposal or nomination for the 2021 Annual Meeting?” under the “General Information” section of this Proxy Statement.

 

 

All Board members are expected to ensure that other existing and planned future commitments do not materially interfere with their service as a director of the Company.

Board Composition and Independence

 

 

A majority of Board members must qualify as independent directors under the listing standards of the New York Stock Exchange (“NYSE”), the rules and regulations of the Securities and Exchange Commission (the “SEC”) and the requirements of any other applicable regulatory authority. Currently, Mr. Rossi, our President and CEO, is the only director on our Board who is not independent.

 

 

Only those directors who the Board affirmatively determines have no material relationship with the Company, either directly or indirectly, will be considered independent directors. The Board’s determination is based on the requirements for independence set forth under the listing standards of the NYSE and those of any other applicable regulatory authority and also on additional qualifications set forth in the Guidelines regarding:

 

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Indebtedness of the director, or his or her immediate family members or affiliates, to the Company;

 

   

Indebtedness of the Company to affiliates of the director; and

 

   

A director’s relationships with charitable organizations.

 

 

In June and July 2020, our management compiled and summarized our directors’ responses to a questionnaire asking them to disclose any relationships they (or any of their immediate family members or affiliates) have with the Company and any other potential conflicts of interest. Their responses, along with materials provided by management related to transactions, relationships or arrangements between the Company and the directors or parties related to the directors, were presented to the Nominating/Corporate Governance Committee for its review and consideration. The Nominating/Corporate Governance Committee determined that none of our non-employee directors, has had during the last three years (i) any of the relationships described above; or (ii) any other material relationship with the Company that would compromise his or her independence under the listing standards of the NYSE, the rules and regulations of the SEC and/or the requirements set forth in our Guidelines. The table below includes a description of the transactions, relationships or arrangements considered by the Nominating/Corporate Governance Committee in reaching its determination. The Nominating/Corporate Governance Committee presented its findings to the Board at its July 2020 meeting. Based upon the conclusions and recommendation of the Nominating/Corporate Governance Committee, the Board determined that all non-employee directors then considered are independent, and that all of the members of the Audit, Compensation and Nominating/Corporate Governance Committees also meet the independence tests referenced above.

 

Name

   Independent    Transactions/Relationships/Arrangements Considered

Joseph Alvarado

   Yes    None

Cindy L. Davis

   Yes    None

William J. Harvey

   Yes    None

William M. Lambert

   Yes    Commercial relationships between MSA and Kennametal Inc. (MSA as a supplier to Kennametal) — immaterial

Lorraine M. Martin

   Yes    Membership relationship between National Safety Council and Kennametal Inc. (Kennametal as a member of the National Safety Council) — immaterial

Timothy R. McLevish(1)

   Yes    None

Sagar A. Patel

   Yes    Commercial relationships between Woodward, Inc. and its subsidiaries and Kennametal Inc. (Kennametal as a supplier to Woodward, Inc.) — immaterial

Christopher Rossi

   No    President and CEO of Kennametal Inc.

Lawrence W. Stranghoener

   Yes    None

Steven H. Wunning

   Yes    None

 

(1)

Timothy R. McLevish retired from the Board on January 1, 2020.

 

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ETHICS AND CORPORATE GOVERNANCE

 

Outside Board Membership

Employee directors are required to seek and obtain the approval of the Board before accepting outside board memberships. Non-management directors must advise the independent Chairman of the Board and the Chair of the Nominating/Corporate Governance Committee in advance of accepting an invitation to serve on another board. Sitting on another public company’s board should not create a conflict of interest or impair the director’s ability to provide sufficient time to carry out his or her duties as a director of the Company.

Retirement Age

Unless otherwise determined by the Nominating/Corporate Governance Committee due to special circumstances, no director may be nominated for re-election or re-appointment to the Board if he or she would be age seventy-three (73) or older at the time of election or appointment.

Conflicts of Interest

Directors must avoid any action, position or interest that conflicts with an interest of the Company, or gives the appearance of conflict. We solicit information annually from directors in order to monitor potential conflicts of interest. Any potential conflict of interest must be immediately reported to the independent Chairman and the Chair of the Nominating/Corporate Governance Committee. If a director has a personal interest in a matter before the Board, the director must disclose the interest to the Board, excuse himself or herself from participation in the matter and not vote on the matter.

Directors Orientation and Continuing Education

 

 

Each new director must participate in the Company’s orientation program, which should be conducted within two (2) months of the meeting at which the new director is elected.

 

 

Directors are encouraged to participate in continuing education programs, as appropriate, to maintain the skills necessary to perform their director duties and responsibilities.

Board Compensation

 

 

In accordance with our Stock Ownership Guidelines (which are applicable to our directors, executives and key managers), directors are required to hold meaningful equity ownership positions in the Company in order to further the direct correlation of directors’ and shareowners’ economic interests. Please see “Equity Ownership by Directors” under the “Board of Directors and Board Committees” section of this Proxy Statement for additional information regarding our Stock Ownership Guidelines, as they apply to our directors.

 

 

Directors who serve on the Audit Committee, Compensation Committee and/or Nominating/Corporate Governance Committee do not receive any additional compensation from us other than director fees, including fees paid for service on Board committees.

 

 

Directors who are employees (currently only our President and CEO, Mr. Rossi) do not receive additional cash or equity compensation for their service as a director.

Board Leadership Structure

Our By-Laws and the Guidelines give the Board the flexibility to determine whether the roles of Chief Executive Officer and Chairman of the Board should be held by the same person or by two separate individuals. When the roles of Chairman of the Board and Chief Executive Officer are combined in one individual, the Board also may designate a Lead Director to provide additional leadership and guidance to the Board. Currently, the roles of Chief Executive Officer and Chairman of the Board are separate. Based on the current Company characteristics, we determined that the leadership structure is appropriate including for purposes of efficient and effective corporate governance.

 

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Our independent Chairman of the Board, Mr. Stranghoener, sets agendas and establishes Board priorities and procedures. Mr. Stranghoener presides over executive sessions of the non-management directors and acts as the principal liaison between the non-management directors and the CEO. Our Guidelines contain a list of the various responsibilities with which Mr. Stranghoener, as independent Chairman of the Board, is tasked. In addition to the responsibilities described above, the independent Chairman of the Board also:

 

 

Consults with the Compensation Committee in connection with the annual evaluation of the CEO’s performance and, together with the Chair of the Compensation Committee, meets with the CEO to discuss that evaluation;

 

 

Provides feedback to the CEO with respect to the quality, quantity and timeliness of the flow of information from management to the non-management directors; and

 

 

Assists the Board and management in assuring implementation of and compliance with the Guidelines and our Code of Conduct.

Selection of Agenda Items for Board Meetings

Agendas for Board meetings are established by the independent Chairman of the Board in consultation with the Board members and the CEO. Board members are also encouraged to raise, at any Board meeting, subjects that are not on the agenda for that meeting.

The Chair of each committee, considering recommendations of committee members and in consultation with appropriate members of management, establishes the agenda for each committee meeting.

Distribution of Board Materials

A preliminary agenda and presentation materials are distributed to Board and committee members in advance of each meeting, to the extent practicable.

Executive Sessions of the Board/Communications with Directors

 

 

Non-management directors meet privately in regularly scheduled executive sessions without the presence of any management. The independent Chairman of the Board presides over these executive sessions.

 

 

Any interested party that wishes to communicate with the independent Chairman of the Board, CEO, non-management directors or independent directors individually or as a group may do so by:

 

   

Sending correspondence directed to our Vice President, Secretary and General Counsel, Ms. Michelle R. Keating, at the address set forth in the “General Information” section of this Proxy Statement in the response to the question “How can I contact the Company, the Board of Directors, the Chairman of the Board or any of the independent Directors?”

 

   

Calling the Company’s toll-free, third-party managed, HELPLINE (1-877-781-7319). The HELPLINE is accessible twenty-four (24) hours a day. The HELPLINE may be used on a confidential and anonymous basis (where allowed by law).

 

   

Accessing the Company’s web-based HELPLINE portal accessible at the following link: kennametal.ethicspoint.com.

We will forward any communication we receive regarding our Company to the appropriate director or directors as soon as practicable, except for advertisements, solicitations or other matters unrelated to the Company.

 

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Board Access to Management and Independent Advisors

 

 

Board members have complete access to management and the Company’s outside advisors.

 

 

The Board is authorized to retain, as it deems necessary and appropriate, independent advisors of its choice with respect to any issue relating to its activities.

Assessing the Performance of the Board

The Board’s performance is evaluated annually to determine whether the Board and its committees are functioning effectively. The Chairman of the Board also meets with each Board member at least annually to obtain feedback regarding individual director performance, which is shared with each director during individual meetings. The Chair of the Nominating/Corporate Governance Committee conducts the same assessment annually of the independent Chairman of the Board and thereafter provides the feedback to the Chairman. The Nominating/Corporate Governance Committee oversees the overall Board evaluation process.

Board Committees

 

 

The Board has three standing committees: Audit, Compensation and Nominating/Corporate Governance.

 

 

Only independent directors serve on our committees. Directors serving on the Audit Committee and Compensation Committee must also meet the additional independence (and financial literacy qualifications for Audit Committee members), as required under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the listing standards of the NYSE and the rules and regulations of any other applicable regulatory authority.

 

 

Each committee has a written charter, which details its duties and responsibilities. The committee charters are posted on our website at www.kennametal.com on the “Corporate Governance” page, which is accessible under the “Investor Relations” tab.

 

 

Each committee is led by a Chair, who is appointed by the Board annually, based upon the recommendation of the Nominating/Corporate Governance Committee.

 

 

Minutes of each committee meeting are provided to each Board member to assure that the Board remains fully apprised of topics discussed and actions taken by each of the committees. The Chair of each committee also regularly reports to the Board at Board meetings on committee matters.

Board of Director Review and Approval of Related Person Transactions

 

 

The Board is responsible for the review, approval and monitoring of transactions involving the Company and “related persons” (generally directors and executive officers or their immediate family members or entities that they may be deemed to control, or shareowners owning five percent or greater of the Company’s outstanding stock). The Nominating/Corporate Governance Committee assists the Board with the evaluation and monitoring of any of these transactions.

 

 

The Board and/or the Nominating/Corporate Governance Committee must review any related person transaction that meets the minimum threshold for disclosure in the Proxy Statement under the relevant SEC rules (generally, transactions involving amounts exceeding $120,000 in which a related person has a direct or indirect material interest). The Board and/or the Nominating/Corporate Governance Committee is guided by the following parameters when considering any transaction with a related person:

 

   

Related person transactions must be approved by the Board or the Nominating/Corporate Governance Committee, who will approve the transaction only if they determine that it is in the best interests of the Company. In considering the transaction, the Board or the Nominating/Corporate Governance Committee will consider all relevant factors, including, as applicable: (a) the Company’s business rationale for entering into the transaction; (b) the alternatives to entering into a related person transaction; (c) whether the transaction is on terms comparable to those available to third parties, or in the case of employment relationships, to employees generally; (d) the potential for the

 

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  transaction to lead to an actual or apparent conflict of interest and any safeguards that may be imposed to prevent such actual or apparent conflicts; (e) the overall fairness of the transaction to the Company; and (f) if a director is involved in the transaction, whether or not the approval of the transaction would impact his or her status as independent.

 

 

The Nominating/Corporate Governance Committee will periodically monitor any related person transaction to ensure that there are no changed circumstances that would render it advisable for the Company to adjust the terms of or terminate the transaction. The Nominating/Corporate Governance Committee will also periodically report at Board meetings on related person transaction matters to assure that the Board remains fully apprised of issues discussed and actions taken.

 

 

Procedures for review, approval and monitoring of related person transactions are set forth in our Guidelines and summarized below:

 

   

Management or the affected director or executive officer must bring the matter to the attention of the independent Chairman of the Board, the Chair of the Nominating/Corporate Governance Committee or the Vice President, Secretary and General Counsel.

 

   

The independent Chairman of the Board will determine whether the matter should be considered by the Board or by the Nominating/Corporate Governance Committee. If the independent Chairman of the Board is involved, then management or the affected director or executive officer shall consult with the Chairs of the standing committees to determine whether the matter should be reviewed by the full Board or by the Nominating/Corporate Governance Committee.

 

   

If a director is involved in the transaction, he or she will be recused from all discussions and decisions about the transaction.

 

   

The transaction must be approved in advance whenever practicable and, if not practicable, must be ratified, amended or terminated as promptly as practicable after proper review.

Formal Evaluation of the CEO

 

 

The Compensation Committee, together with the independent Chairman of the Board, and the rest of the non-management directors, annually evaluates the overall performance of the CEO.

 

 

The evaluation is based on objective criteria, including performance of the business, accomplishment of long-term strategic objectives and development of management. For additional information about the Compensation Committee’s evaluation of the CEO, as well as how the evaluation relates to compensation decisions, please see the discussion in the “Compensation Discussion and Analysis” section of this Proxy Statement.

Succession Planning

Each year, the CEO delivers a report on succession planning to the Board, which includes an assessment of senior officers and their potential to succeed the CEO and other senior management positions.

Review of the Guidelines and Code of Conduct

The Nominating/Corporate Governance Committee annually reviews the Guidelines and the Code of Conduct, and recommends any changes to the Board.

 

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The Board’s Oversight of Risk Management

The Board recognizes that companies face a variety of risks, including credit risk, liquidity risk, strategic risk and operational risk. The Board believes an effective risk management system will (1) timely identify the material risks that the Company faces; (2) communicate necessary information with respect to material risks to senior executives and, as appropriate, to the Board or relevant Board committee; (3) implement appropriate and responsive risk management strategies consistent with the Company’s risk profile; and (4) integrate risk management into Company decision-making. The Board has designated the Audit Committee to take the lead in overseeing risk management. The Audit Committee makes periodic reports to the Board regarding briefings provided by management and advisors as well as the committee’s own analysis and conclusions regarding the adequacy of the Company’s risk management processes. The full Board receives an annual overview of the Company’s enterprise risk management processes, operations, material risks and uncertainties facing the Company, and the Company’s strategic and operational plans for addressing and mitigating those risks. In addition to the formal risk management program, the Board encourages and management promotes a corporate culture that incorporates risk management into the Company’s corporate strategy and day-to-day business operations. The Board also continually works, with the input of our management and executive officers, to assess and analyze the most likely areas of future risk for the Company.

Prohibited Transactions

The Company’s insider trading policy includes hedging and pledging prohibitions that prohibit any director, executive officer or other corporate officer, as defined in the policy, and their family members from engaging in various transactions, including short sales of the Company’s securities and transactions in put options, call options or other derivative securities. Additionally, under the policy the Company’s directors, executive officers and corporate officers and their family members are prohibited from engaging in any hedging or monetization transactions and from pledging Company securities as collateral for a loan or holding Company securities in a margin account, in each case without the prior approval and express authorization of the Company’s General Counsel. An exception to the prohibition on pledging Company securities may be granted where an individual wishes to pledge Company securities as collateral for a loan (not including margin debt) and clearly demonstrates the financial capacity to repay the loan without resort to the pledged securities. These policies do not apply generally to all other employees of the Company.

Environmental, Social and Governance Matters

We published our inaugural Environmental, Social and Governance Report (“ESG Report”) for Fiscal 2020 in September 2020. Our ESG Report is available on our Corporate Sustainability webpage at https://www.kennametal.com/us/en/about-us/corporate-sustainability.html. The report details the various ways in which we have incorporated robust environmental, social responsibility, and corporate governance practices into how we conduct business. The ESG Report is prepared in accordance with the Sustainability Accounting Standards Board Industrial Machinery and Goods Sustainability Accounting Standard, as well as the four pillars of the Task Force on Climate-related Financial Disclosures.

 

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Board of Directors and Board Committees

Meeting Information

The Board of Directors held thirteen meetings during Fiscal 2020. Each director attended at least 75% of the total number of meetings of the Board and the committees on which he/she served (during the periods the director served on the Board or their respective committees). We expect our directors to attend our Annual Meeting absent exceptional circumstances. All Directors then serving on the Board attended the Annual Meeting in October 2019.

The table below shows committee membership and the number of meetings of the full Board and each committee in Fiscal 2020.

🌑 Member

 

    LOGO     LOGO   LOGO   LOGO

Lawrence W. Stranghoener

    Chairman of the Board              

Joseph Alvarado

    🌑         🌑   🌑

Cindy L. Davis(1)

    🌑         🌑   🌑

William J. Harvey

    🌑         🌑   Chair

William M. Lambert

    🌑     Chair        

Lorraine M. Martin

    🌑     🌑        

Timothy R. McLevish(2)

    🌑         🌑    

Sagar A. Patel

    🌑     🌑        

Christopher Rossi

    🌑              

Steven H. Wunning

    🌑         Chair   🌑

Number of Meetings
in Fiscal Year 2020

    13     8   5   5

 

(1)

Cindy L. Davis rotated off the Audit Committee in connection with her appointment to the Compensation Committee, effective May 1, 2020.

 

(2)

Timothy R. McLevish rotated off the Audit Committee in connection with his appointment to the Compensation Committee, effective July 1, 2019. Mr. McLevish subsequently retired from the Board on January 1, 2020.

Board Committees

The Board has three standing committees: Audit, Compensation and Nominating/Corporate Governance. Each member of these committees is independent under the NYSE’s listing standards, SEC regulations and the standards set forth in our Guidelines, as discussed above.

Each committee has a written charter, which details its duties and responsibilities. The current committee charters are posted on our website at www.kennametal.com on the “Corporate Governance” page, which can be found under the “Investor Relations” tab.

 

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BOARD OF DIRECTORS AND BOARD COMMITTEES

 

Each committee performs an annual self-evaluation, using the roles and responsibilities outlined in its committee charter as a foundation for the review and evaluation. The Nominating/Corporate Governance Committee reviews and considers the results of each committee’s self-evaluation. The Chair of each committee also reports the results of the committee’s self-evaluation to the full Board.

Committee Functions

Audit Committee: The Audit Committee, established in accordance with Section 3(a)(58)(A) of the Exchange Act, assists the Board in overseeing the Company’s financial reporting process. You can find additional information about the functions of the Audit Committee under the “Audit Committee Report” section of this Proxy Statement. The Board has determined that all the members of the Audit Committee are “financially literate” and independent and that Mr. Lambert qualifies as an “audit committee financial expert” as that term is defined by SEC regulations.

Compensation Committee: The Compensation Committee’s functions include: recommending an overall compensation philosophy to the Board; having direct authority and responsibility for matters relating to the compensation of our executive officers; overseeing the Company’s compensation policies and procedures and monitoring risks related to them; advising the Board regarding management succession; and administering our equity compensation plans, cash incentive plans and deferred compensation plans. The Compensation Committee has the authority under its charter to delegate any of its duties and responsibilities (or functions) to a subcommittee of the Compensation Committee consisting of one or more members, as appropriate. You can find additional information about the Compensation Committee’s functions and processes in the “Compensation Discussion and Analysis” section of this Proxy Statement.

Compensation Committee Interlocks and Insider Participation: There are no Compensation Committee interlocks and no insider participation in compensation decisions that are required to be disclosed in this Proxy Statement. The names of the members of the Compensation Committee appear under the heading “Compensation Committee Report” below.

Nominating/Corporate Governance Committee: The Nominating/Corporate Governance Committee’s functions include: ensuring that the Board is properly constituted to meet its fiduciary responsibilities; identifying and recommending qualified candidates for membership to the Board; having direct responsibility for matters relating to the compensation of our directors; and recommending directors for committee membership. The committee also takes a leadership role in shaping the Company’s corporate governance.

The Nominating/Corporate Governance Committee will evaluate shareowner nominees on the same basis as all other nominees. Section 8 of our By-Laws describes the process by which shareowners may submit director nominations at an annual meeting or special meeting. Any shareowner of the Company who is entitled to vote at a meeting, who has complied with the notice procedures set forth in Section 8 may propose a director nomination. The procedures for a shareowner to nominate a director include, without limitation, the following requirements:

 

 

The shareowner must have given timely written notice in proper form to the Vice President, Secretary and General Counsel of the Company including, without limitation, the shareowner’s name and address. The deadlines for providing notice to the Company of a proposed director nomination for our next annual meeting are set forth in our By-Laws and summarized in the response to the question “What are the procedures for submitting a shareowner proposal or nomination for the 2021 Annual Meeting?” under the “General Information” section of this Proxy Statement.

 

 

The notice provided to the Secretary of the Company must set forth in reasonable detail information concerning the nominee and must include all information relating to a nominee that would be required to be disclosed in a Proxy Statement or other filings.

 

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BOARD OF DIRECTORS AND BOARD COMMITTEES

 

 

The notice provided to the Secretary of the Company must include a description of all arrangements or understandings between the shareowner making the nomination and any other person or persons (naming such person or persons) pursuant to which the nomination is to be made by the shareowner.

 

 

The notice provided to the Secretary of the Company must include a representation that the shareowner making the nomination is a holder of record of stock of the Company entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to present the nomination.

 

 

The notice provided to the Secretary of the Company must include the consent of each nominee to serve as director of the Company if elected.

The foregoing summary of our shareowner director nomination procedures is not complete and is qualified in its entirety by reference to the full text of our By-Laws that has been publicly filed with the SEC and is available at www.sec.gov.

Board of Directors Compensation and Benefits

The Board has delegated primary responsibility for matters relating to compensation of our directors to the Nominating/Corporate Governance Committee. Because the Nominating/Corporate Governance Committee is also responsible for the recruitment of new directors and ensuring that the Board and committees are properly constituted, the Board believes that compensation matters relating to our directors should also reside with the Nominating/Corporate Governance Committee. The Nominating/Corporate Governance Committee, in consultation with the Board’s independent compensation consultant, Pay Governance, as appropriate, recommends the overall compensation structure for directors to the full Board for review and approval.

Committee Review of Director Compensation

The Nominating/Corporate Governance Committee determines appropriate levels of compensation for our non-employee directors by reviewing data from other publicly-traded companies and conferring with independent outside advisors as necessary, to obtain information on competitive director compensation practices and trends. The Committee uses this information to determine appropriate levels of non-employee director compensation. The Committee then makes recommendations regarding non-employee director compensation to the full Board for approval.

In April 2020, the Nominating/Corporate Governance Committee commissioned a director compensation assessment that was conducted by the Compensation Committee’s independent consultant. The consultant compared the Company’s director compensation levels and program practices to those of the Company’s comparator group of 20 companies and a broader set of over 200 general industrial companies of similar size to Kennametal. The consultant also advised the Committee of current trends and practices in director compensation, which include shareowner approval of equity award limits to directors. The consultant considered that the Company maintains a directors’ equity award limit of $500,000 in Company stock, which is contained in the 2016 Stock and Incentive Plan approved by the Company’s shareowners. The equity award limit prevents any individual director from receiving more than $500,000 in Company stock in any individual year. The proposed 2020 Stock and Incentive Plan adds an overall limit of $850,000 per year for all non-employee director compensation, including equity, cash fees and cash awards.

Given economic conditions facing the Company, among other factors, the Nominating/Corporate Governance Committee, at its April 9, 2020 committee meeting, recommended to the full Board a 25% reduction in the quarterly portion of the cash retainer (inclusive of the cash retainer for Board and committee chair service) paid to directors for the fourth quarter of Fiscal 2020. The full Board approved the above recommendation for the fourth quarter Fiscal 2020, at its April 9, 2020 meeting.

 

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BOARD OF DIRECTORS AND BOARD COMMITTEES

 

Based upon the assessment conducted by the compensation consultant and in consideration of continued challenging economic conditions, among other considerations, the Nominating/Corporate Governance Committee, at its April 27, 2020 committee meeting, recommended no changes in director compensation for Fiscal 2021. Further, at its June 4, 2020 meeting, the full Board approved a 20% reduction in the cash retainer (inclusive of the cash retainer for Board and committee chair service) paid to directors for the first-half of Fiscal 2021, starting July 1, 2020. This proposal was recommended and supported by the Nominating/Corporate Governance Committee.

Equity Ownership by Directors

The Board believes that directors should hold meaningful equity ownership positions in the Company. Accordingly, a significant portion of overall director compensation is in the form of Company equity, as shown in the “Overview of Director Compensation” section below. Our Stock Ownership Guidelines require our directors to accumulate and maintain equity ownership in the Company having a value of no less than five times the annual retainer within five years of the date they become subject to the policy.

Overview of Director Compensation

We do not pay any additional cash compensation to management employees who serve as directors. In addition, no director who is employed by the Company may serve on any Board committee. Mr. Rossi, our President and CEO, is the only employee of the Company who serves as a director. Our non-employee directors receive a combination of cash and equity compensation for their services as a director or committee member as described below.

Cash Compensation for Non-Employee Directors

In 2020, our non-employee directors were entitled to receive the following cash compensation:

 

Annual Cash Retainer

        

All Non-Employee Directors

   $ 85,000  

Additional Annual Cash Retainers

        

Non-Executive Chairman of the Board or Independent Lead Director

   $ 100,000  

Audit Committee Chair

   $ 15,000  

Compensation Committee Chair

   $ 12,000  

Nominating/Corporate Governance Committee Chair

   $ 10,000  

Equity Compensation

Equity compensation for our non-employee directors consists of:

 

Annual Grant of Restricted Stock, Restricted

Stock Units or Deferred Stock Credits (grant amount is rounded up to the next whole share)

     $124,995  

 

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BOARD OF DIRECTORS AND BOARD COMMITTEES

 

Perquisites and Personal Benefits

All non-employee directors receive $50,000 of life insurance coverage, which is paid for by the Company. Directors do not receive tax reimbursements for income imputed to them for the premiums we pay for life insurance coverage. We reimburse directors for customary travel and related expenses for their attendance at Board and committee meetings, as well as continuing education programs, as appropriate.

Deferred Fee Plan

We have a Deferred Fee Plan for non-employee directors (the “Deferred Fee Plan”). On an annual basis, our non-employee directors may elect to defer payment of all or a portion of the cash fees they are entitled to receive from the Company for their services as a director and as a committee Chair, if applicable, all of which amounts will be credited as stock credits under the Directors Stock Incentive Plan (described below).

Directors Stock Incentive Plan

Under the Directors Stock Incentive Plan, any non-employee director may elect (i) to receive shares of the Company’s capital stock in lieu of all or any portion of cash compensation they are otherwise entitled to receive; or (ii) to have stock credits (representing an equivalent amount of the cash being deferred) credited to an account established by the Company for such participating director.

If a non-employee director elects to receive shares of the Company’s capital stock in lieu of all or any portion of the cash compensation otherwise payable to such director, the director will receive, on the date that the compensation otherwise would have been paid, the number of shares of capital stock of the Company that could have been purchased on that date based on the amount of cash compensation and the fair market value of the Company’s capital stock on that date.

If a non-employee director makes a stock credit election, an account established for the non-employee director is credited with a number of stock credits equal to the number of shares of capital stock that could have been purchased with the amount of cash compensation being deferred based on the fair market value of the Company’s capital stock on the day that the compensation would have been paid to the non-employee director. Dividend equivalents are credited to the account of any director who has elected to receive stock credits in lieu of cash compensation. Dividend equivalents are calculated at the same rate as the current dividend; there is no preferential or above-market earnings potential for deferrals into stock credits. In the event of a change in control, issued and outstanding shares of capital stock equal to the aggregate number of stock credits in each non-employee director’s stock credit account would be contributed to a deferred compensation trust (a “Rabbi Trust”) established by the Company and administered by an independent trustee. Generally, unless a director has selected a different payment option, as permitted under the plan, the director will receive upon his/her Separation from Service (as defined in the plan) that number of shares of the Company’s capital stock equal to the number of stock credits in such director’s account multiplied by the fair market value of the Company’s capital stock as of the date of the director’s Separation from Service.

Matching Gifts Program

Directors are eligible to participate in our Matching Gifts Program, which is also generally available to all U.S. employees. Under the program, the Kennametal Foundation will match gifts to qualified institutions on a dollar-for-dollar basis up to $5,000 per calendar year.

 

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BOARD OF DIRECTORS AND BOARD COMMITTEES

 

2020 Non-Employee Director Compensation

The following table shows the actual compensation we paid to our non-employee directors for service on the Board and applicable committees in 2020.

2020 Non-Employee Director Compensation

 

Name

  

Fees Earned or

Paid in Cash

($)(1)

  

Restricted

Stock Unit

Awards

($)(2)(3)

  

All Other

Compensation

($)(4)

   Total($)

Joseph Alvarado

       79,688          124,995          5,086          209,769  

Cindy L. Davis

       79,688          124,995          86          204,769  

William J. Harvey

       89,063          124,995          2,086          216,144  

William M. Lambert

       93,750          124,995          86          218,831  

Lorraine M. Martin

       77,306          124,995          1,086          203,387  

Timothy R. McLevish(5)

       42,500          124,995          43          167,538  

Sagar A. Patel

       79,688          124,995          86          204,769  

Lawrence W. Stranghoener

       173,438          124,995          86          298,519  

Steven H. Wunning

       88,237          124,995          86          213,318  

 

(1)

Our directors may elect to receive these fees in cash, in shares of our capital stock, or in deferred stock credits.

 

(2)

On August 15, 2019, each non-employee director received a grant of RSUs with a grant date fair value of $124,995 or deferred stock credits amounting to $124,995 for those who elected to defer their restricted unit awards into deferred stock credits. RSUs vest at a rate of one-third per year over a three-year period beginning on the first anniversary of the grant date. Deferred stock credits may not be paid until the third anniversary of the grant date. The aggregate number of equity awards held by each director as of June 30, 2020 is set forth below in the Supplemental Table to 2020 Non-Employee Director Compensation Table. The values set forth in this column are based on the aggregate grant date fair value of the awards computed in accordance with FASB ASC Topic 718 (excluding the effect of estimated forfeitures). Please refer to Note 18 to the financial statements included in Kennametal’s Annual Report on Form 10-K for 2020 for a discussion of additional assumptions used in calculating grant date fair value.

 

(3)

We pay dividend equivalents on unvested RSUs during the restriction period, but the dividends are not preferential. For those directors who elected to defer their RSUs into deferred stock credits, their accounts are credited quarterly with dividend equivalents, but again, these are not preferential.

 

(4)

These amounts consist of premiums paid by the Company for life insurance. For Ms. Martin and Messrs. Alvarado and Harvey, the amounts also include donations made by us on behalf of the directors to charitable organizations under the Matching Gifts Program described above of $1,000, $5,000 and $2,000, respectively.

 

(5)

This compensation reflects fees and awards earned by Timothy R. McLevish prior to his retirement from the Board on January 1, 2020.

 

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BOARD OF DIRECTORS AND BOARD COMMITTEES

 

Supplemental Table to 2020 Non-Employee Director Compensation Table

 

Name

  

Aggregate Stock

Options

Outstanding at

Fiscal Year End

  

Aggregate Unvested

Restricted Stock Units

Outstanding at

Fiscal Year End

  

Aggregate Deferred

Unvested Restricted

Stock Units

Outstanding at

Fiscal Year End(1)

Joseph Alvarado

                  7,089             

Cindy L. Davis

       35,000          7,770             

William J. Harvey

       49,000          7,770             

William M. Lambert

       14,000          7,770             

Lorraine M. Martin

                                

Timothy R. McLevish

                             11,513  

Sagar A. Patel

                             11,513  

Lawrence W. Stranghoener

       35,000                     11,513  

Steven H. Wunning

       35,000          7,770             

 

(1)

Represents RSUs that were electively deferred by the Board member into deferred stock credits subject to a minimum deferral period of three years from the date of the grant.

 

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Audit Committee Report

Functions of the Audit Committee

The Audit Committee (“we” or the “committee”) assists the Board in its oversight of: the quality and integrity of the Company’s financial statements, internal controls and disclosures; the Company’s compliance with legal and regulatory requirements; the performance, qualifications and independence of the Company’s independent auditors; and the performance of the internal audit function. We have the sole authority to appoint, retain, terminate and replace the Company’s independent auditors, subject to shareowner ratification with respect to retention at the next regularly scheduled annual meeting of shareowners. We perform an annual self-assessment to evaluate the composition, activities and interactions of the committee and submit the results of the self-assessment to both the Nominating/Corporate Governance Committee and the Board.

Responsibilities

Management is responsible for the Company’s financial reporting process and system of internal controls and for the preparation and presentation of consolidated financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”). The independent auditors are responsible for planning and carrying out an audit of the financial statements and internal control over financial reporting in accordance with standards established by the Public Company Accounting Oversight Board (“PCAOB”) and issuing a report on that audit. Our responsibility is to provide oversight to these processes. We do not certify the financial statements or guarantee the auditor’s report. To fulfill our oversight role, we rely (without independent verification) on the information provided to us, the representations made by management and the independent auditors and the report of the independent auditors.

Complaints

Anyone, including any Company employee, who has a complaint or concern regarding the Company’s accounting, internal auditing controls or auditing matters may communicate that complaint or concern to the committee:

 

 

In writing directed to Kennametal Inc., Attention: Vice President, Secretary and General Counsel, 525 William Penn Place, Suite 3300, Pittsburgh, Pennsylvania 15219;

 

 

By calling the Company’s toll-free, third-party managed, HELPLINE (1-877-781-7319); or

 

 

By accessing the Company’s web-based HELPLINE portal accessible at the following link: kennametal.ethicspoint.com

Monitoring Activities in 2020

We held eight meetings in 2020. During these meetings, we discussed with management, the internal auditors and the Company’s independent auditors, PricewaterhouseCoopers LLP (“PwC”) (to the extent applicable), the quality and adequacy of the Company’s internal control over financial reporting, the internal audit function’s organization, responsibilities, budget and staffing and the results of internal audit examinations. We also reviewed with both PwC and the internal auditors their respective audit plans, audit scope and identification of audit risks, and met separately with PwC and with the internal auditors, without management present, to discuss the results of their examinations, their evaluations of the Company’s internal control over financial reporting and the overall quality of the Company’s financial reporting. We reviewed the interim financial information contained in each quarterly earnings announcement and each Form 10-Q filed with the SEC in 2020 and discussed this information with PwC and with the Company’s Chief Financial Officer and Corporate Controller prior to release. We also reviewed and discussed with both management and PwC the audited financial statements for the year ended June 30, 2020 prior to release.

 

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AUDIT COMMITTEE REPORT

 

The discussions with PwC included the matters required by GAAP, including those described in the Statement on Auditing Standards No. 1301 related to communication with audit committees. We received from PwC written disclosures and the letter required by applicable requirements of the PCAOB regarding PwC’s communications with us concerning their independence, and discussed with PwC their independence.

Based on these reviews, meetings, discussions and reports, we have recommended to the Board of Directors that the Company’s audited consolidated financial statements be included in the Annual Report on Form 10-K for the fiscal year ended June 30, 2020 for filing with the SEC. We have retained PwC as the Company’s auditor for the fiscal year ending June 30, 2021, and are submitting that decision for shareowner ratification at the Annual Meeting as discussed below.

AUDIT COMMITTEE REPORT

Audit Committee

William M. Lambert, Chair

Lorraine M. Martin

Sagar A. Patel

 

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Proposal II. Ratification of

PricewaterhouseCoopers LLP as our

Independent Registered Public Accounting

Firm for the Fiscal Year Ending June 30, 2021

The Audit Committee has retained PwC as the Company’s independent registered public accountants for the fiscal year ending June 30, 2021. As a matter of good corporate practice, the Audit Committee is submitting its selection to our shareowners for ratification at the Annual Meeting. Unless otherwise directed by the shareowners, proxies will be voted in favor of the ratification of the selection of PwC as the Company’s independent public accountants for the fiscal year ending June 30, 2021. In the event that this selection is not ratified by the shareowners, the Audit Committee will consider this vote in determining its future selection of an auditor. Even if the selection is ratified, the Audit Committee in its discretion may change the appointment at any time during the year if it determines that a change would be in the best interests of the Company and its shareowners.

Representatives of PwC attended all meetings of the Audit Committee held during Fiscal 2020. The Audit Committee reviewed the non-audit services provided by PwC in 2020 and, based on that review, determined that the non-audit services provided by PwC were compatible with maintaining the independence of PwC.

Representatives of PwC will attend the Annual Meeting, and will have the opportunity to make a statement at the meeting if they wish. They also will be available to respond to appropriate questions from shareowners in accordance with the rules of the meeting.

Fees and Services

Fees for professional services (including expense) rendered by PwC to the Company and its subsidiaries in 2020 and 2019 were as follows (in millions):

 

    

2020 ($)

  

2019 ($)

Audit Fees(1)

    

 

3.6

 

    

 

3.7

 

Audit-Related Fees(2)

    

 

0.0

 

    

 

0.1

 

Tax Fees(3)

    

 

0.5

 

    

 

0.2

 

All Other Fees(4)

    

 

1.3

 

    

 

1.5

 

TOTAL

    

 

5.4

 

    

 

5.5

 

 

(1)

These fees relate to services provided for the audit of the consolidated financial statements, subsidiary and statutory audits, and assistance with the review of documents filed with the SEC. Also included are fees for services related to the audit of the Company’s internal control over financial reporting.

 

(2)

These fees relate primarily to procedures related to adoption of new accounting standards in future years, employee benefit plan audits, and agreed-upon procedures.

 

(3)

These fees relate primarily to tax compliance services, tax planning advice and tax audit assistance.

 

(4)

These fees relate primarily to strategy-related advisory services, licenses for accounting research software and other permissible services that do not fall into the other three categories listed above.

Audit Committee Pre-Approval Policy

The Audit Committee annually adopts a policy for pre-approval of audit and non-audit services to be provided by the independent auditors. Under the policy, the Audit Committee pre-approves categories of services and fee caps for each category. The pre-approved services include: (i) audit services, such as statutory audits and

 

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PROPOSAL II. Ratification of PricewaterhouseCoopers LLP as our Independent Registered Public Accounting Firm

 

internal control-related services, services associated with regulatory filings and consultations regarding disclosure treatment of certain transactions or events; (ii) audit-related services, such as due diligence and accounting consultations; (iii) tax services, such as tax compliance (domestic and international) and tax planning and advice; and (iv) other permissible non-audit services that the Audit Committee believes will not impair the auditor’s independence. The Audit Committee must specifically pre-approve the terms of the annual audit services engagement. All other audit and permissible non-audit services not specifically covered by the policy, and any proposed services which materially exceed the pre-approved fee levels, require separate specific pre-approval by the Audit Committee. The Audit Committee has delegated pre-approval authority to its Chairman. The Chairman must report any specific pre-approval decisions to the Audit Committee at the next scheduled meeting for review and ratification. The policy requires the auditor to provide the Audit Committee with detailed supporting documentation regarding the specific services to be provided.

All audit and non-audit services provided by PwC in 2020 were pre-approved under this policy.

Vote Required

The ratification of the selection of PwC as our independent registered public accountants for the fiscal year ending June 30, 2021 will be approved if the proposal receives the affirmative vote of at least a majority of the votes cast by shareowners present, virtually or by proxy, at the meeting. Abstentions will not be counted as votes cast either for or against the proposal.

 

LOGO    THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING JUNE 30, 2021.

 

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Executive Compensation

Compensation Discussion and Analysis

The following is a discussion and analysis of our compensation programs as they apply to our President and Chief Executive Officer, Chief Financial Officer, and the next three most highly compensated executive officers in Fiscal 2020 as listed below (collectively our “named executive officers” or our “NEOs”):

 

 

Christopher Rossi: President and Chief Executive Officer (“CEO”)

 

 

Damon Audia: Vice President and Chief Financial Officer (“CFO”)

 

 

Peter A. Dragich: Former Vice President and Chief Operations Officer, Metal Cutting

 

 

Ronald L. Port: Vice President and Chief Commercial Officer, Metal Cutting

 

 

Judith L. Bacchus, Vice President and Chief Administrative Officer

Mr. Dragich ceased to serve as Vice President and Chief Operations Officer, Metal Cutting as of August 31, 2020, and will remain an employee of the Company for transition purposes until November 2020, or such earlier time as agreed to by the Company and Mr. Dragich.

In this Compensation Discussion and Analysis (“CD&A”), we discuss our compensation policies and practices as they relate to our NEOs, compensation decisions made in Fiscal 2020 affecting our NEOs’ compensation, highlights of the Company’s financial performance for Fiscal 2020 and its effect on compensation paid to our NEOs in that year, as well as recent changes we have made to our executive compensation program.

Fiscal 2020 Summary

The COVID-19 pandemic has had a significant impact on the Company’s customers, supply chains, and financial results. The Company implemented a number of cost control measures in the second half of Fiscal 2020 to conserve cash, maintain liquidity, and reduce operating expenses, including, among other things reductions in discretionary spending, extensive travel restrictions, and reduced production at global manufacturing facilities to align with the lower demand environment. In June 2020, the Company announced a 20% base salary reduction for all executives, effective July 1, 2020. For Fiscal 2021, the Company announced the acceleration of its structural cost reduction plans with a restructuring of approximately 10% of salaried employees globally to be substantially complete in the first half of Fiscal 2021. The Company also continued to make significant progress on its strategic initiatives. Regarding its simplification/modernization program, the associated capital spend is substantially complete. In support of its strategic growth initiatives, the Company announced that as of July 1, 2020, it has combined its former Industrial and WIDIA business segments to form one Metal Cutting business segment. This move will enable the Company to more effectively direct its commercial resources, products, and technical expertise toward capturing a larger share-of-wallet in addition to executing a new brand strategy.

The Company achieved the following performance in sales, profitability and returns for Fiscal 2020 (see Appendix A for a reconciliation of these non-GAAP financial measures to the comparable GAAP measures):

 

 

Net loss attributable to Kennametal for Fiscal 2020 was $5.7 million compared to net income attributable to Kennametal of $242 million in Fiscal 2019.

 

 

Return on Invested Capital (“ROIC”) for Fiscal 2020 was 1.0% compared with 13.5% in Fiscal 2019. Adjusted ROIC for Fiscal 2020 was 5.2% compared with Adjusted ROIC of 14.3% in Fiscal 2019.

 

 

Earnings Before Interest and Taxes (“EBIT”) for Fiscal 2020 was $34.7 million, 1.8% margin (as adjusted to exclude restructuring and related charges, goodwill and other intangible asset impairment charges and loss on divestiture: $153.8 million, 8.2% margin).

 

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EXECUTIVE COMPENSATION: Compensation Discussion and Analysis

 

 

Working capital was $543 million as of June 30, 2020 compared to $729 million as of June 30, 2019. Primary Working Capital as a Percent of Sales Revenues (“PWCPS”) was 35.4% as of June 30, 2020 compared to 31.4% as of June 30, 2019.

 

 

Sales of $1.9 billion for Fiscal 2020, down compared with sales of $2.4 billion for Fiscal 2019.

Compensation Highlights for Fiscal 2020

The following are the highlights of our 2020 compensation program:

 

 

Our Compensation Committee has adopted a strong pay-for-performance philosophy which is tested on an annual basis through a realizable pay-for-performance alignment assessment for the CEO position conducted by the Committee’s independent consultant.

 

 

Compensation is paid in a mix of base salary; annual cash-based incentives under our AIP; and equity-based long-term incentive awards (consisting of Restricted Stock Units (RSUs) and Performance Stock Units (PSUs)).

 

 

Compensation is tied mainly to Company financial and stock performance, so that a substantial portion of the compensation provided to our executive officers is at risk.

 

 

Payment of annual cash-based incentives under the AIP is based on achieving critical measures of Company performance, consistent with our pay-for-performance philosophy. Eligibility for AIP payments for Fiscal 2020 performance were based on three performance metrics: Adjusted EBIT, Primary Working Capital as a Percent of Sales (PWCPS), and individual performance.

 

 

Our equity-based long-term incentive program is intended to drive the achievement of critical long-term business objectives, align management’s interests with those of our shareowners and foster retention of key executives. In Fiscal 2020, 60% of the target value of each executive’s long-term incentive opportunity was granted as PSUs and 40% was granted as RSUs (all are settled in stock).

 

 

Vesting of Fiscal 2020 PSUs is based on the attainment of an Adjusted ROIC financial performance goal (100% weight) with a Relative TSR multiplier. PSUs are subject to an additional continuous service requirement, which provides that award recipients must remain employed by the Company through the payout date to receive the payout, generally three years after the grant date. RSUs time vest in equal increments over a three year period based on continuous service with the Company.

 

 

Our Fiscal 2020 financial performance had the following effects on the performance-based awards held by our NEOs:

Fiscal 2020 AIP

 

   

For our CEO, Fiscal 2020 AIP was based 83.3% on financial metrics (Adjusted EBIT weighted 62.5% and PWCPS weighted 20.8%) and 16.7% on individual performance. For all other NEOs, Fiscal 2020 AIP was based 80% on financial metrics (Adjusted EBIT weighted 60% and PWCPS weighted 20%) and 20% on individual performance. The individual metrics consisted of individual performance goals for each NEO. Any payment under the Plan, either through achievement under the financial objectives or individual performance objectives, was contingent on achieving the minimum performance requirement of corporate net profit for the fiscal year. Since the Company recorded a net loss of $5.7 million for Fiscal 2020, the minimum performance requirement was not met and no portion of the AIP could be earned with regard to Adjusted EBIT, PWCPS or Individual Performance; therefore, no bonus was paid under the Plan to any NEOs.

 

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Performance Stock Units

 

   

The first tranche (1/3) of the 2020 PSUs, as measured by ROIC performance, was achieved at a 0% multiple of target with the Relative TSR multiplier yet to be calculated for the three-year period ending June 30, 2022.

 

   

The second tranche (1/3) of the 2019 PSUs, as measured by ROIC performance, was achieved at a 0% multiple of target with the Relative TSR multiplier yet to be calculated for the three-year period ending June 30, 2021.

 

   

The third tranche (1/3) of the 2018 PSUs, as measured by ROIC performance, was achieved at a 0% multiple of target for a cumulative total payout multiple of 81.4% for the combined three years of ROIC performance, and the Relative TSR multiplier for the three-year period ending June 30, 2020 was achieved at 80%, for an aggregate 65.1% multiple of target Fiscal 2018 PSUs vesting.

 

   

Any tranche earned based on performance is not paid until the end of the performance period and is subject to risk of forfeiture until paid.

Results of 2019 Shareowner Vote on NEO Compensation

Our shareowners overwhelmingly approved the compensation paid to our NEOs in Fiscal 2019, with approximately 98% of votes cast in favor of the advisory vote on executive compensation presented at our Annual Meeting held on October 29, 2019.

The Compensation Committee believes that this high level of support of the compensation paid in Fiscal 2019 illustrates our shareowners’ support of our pay-for-performance philosophy, which is designed to link the compensation paid to our NEOs to the Company’s financial performance and shareowner value. Accordingly, in determining the structure of the compensation of our NEOs for Fiscal 2020, the Compensation Committee decided to retain our general approach to executive compensation, with an emphasis on performance-based incentive compensation components that reward our executives when they deliver value to the Company and our shareowners.

Summary of Compensation Actions for Fiscal 2021

At its July 2020 meeting, the Compensation Committee approved the following actions regarding the Company’s compensation program for Fiscal 2021. The Committee’s actions were influenced by the Company’s current financial and share performance, a desire to maintain strong pay-for-performance alignment, as well as market insights and advice provided by the Committee’s independent consultant. Given the uncertainty related to the Company’s Fiscal 2021 business plan and projected financial results, the Committee decided to delay the approval of performance goals under the AIP and LTIP PSU awards until during the second quarter of Fiscal 2021 in order to better understand the pace of the economic recovery and related impacts on Company results. The Company’s compensation program for Fiscal 2021 is as follows:

 

 

Retained both the AIP corporate financial metrics, but modified the weightings for each as follows: Adjusted EBIT to be weighted 50%, compared to 60% in Fiscal 2020, and Primary Working Capital as a Percentage of Sales (“PWCPS”) to be weighted 20%.

 

 

Modified the individual performance component for each of the NEO’s AIP to be weighted 30%, compared to 20% in Fiscal 2020.

 

 

Eliminated the AIP minimum financial performance requirement of corporate net profit for the fiscal year.

 

 

Modified the LTIP grant date value weightings for each of the NEOs at 50% PSUs, compared to 60% in Fiscal 2020, and 50% RSUs, compared to 40% in Fiscal 2020. PSUs will be measured 100% on Adjusted ROIC performance. The relative TSR multiplier will continue to modify the results of ROIC by +/-25%. The ROIC

 

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  performance goals and ranges will be established for Fiscal 2021 during the second quarter of Fiscal 2021, and prior to the start of Fiscal 2022 and Fiscal 2023 to help mitigate end market uncertainties.

Executive Compensation Philosophy

Kennametal’s executive compensation philosophy is based on the following principles, which we believe form the foundation of an effective and responsible compensation program:

 

 

Pay-for-Performance. Executive compensation should be tied to both individual performance and Company performance (annual and long-term).

 

 

Align the Ratio of Fixed to Variable Components of Compensation with the Executive’s Level of Responsibility and Accountability. As executives progress to higher levels of responsibility within the Company, a greater proportion of their overall compensation should be variable and linked directly to Company performance and shareowner returns.

 

 

Promote a Long-Term Perspective. Our compensation program should promote the long-term focus and strategic vision required for our future growth and success.

 

 

Offer Competitive Compensation. We believe that highly-qualified and skilled executives can differentiate us and provide a competitive advantage in the marketplace. Our objective is to offer compensation that is competitive with that offered by other companies that compete with us for talent.

Objectives of the Executive Compensation Program

To support our overall compensation philosophy, we have designed our executive compensation program to:

 

 

Maintain executive compensation at a competitive level to attract, incent and retain high-performing talent;

 

 

Recognize individual contributions to the Company;

 

 

Focus our executives’ attention on the attainment of significant business objectives and the creation of long-term shareowner value;

 

 

Ensure alignment between management’s interests and the interests of our shareowners; and

 

 

Share the financial benefits of strong Company performance.

Relationship Between Pay and Performance

In January 2020, our Compensation Committee reviewed the relationship between our CEO’s “realizable compensation” (defined below) and the Company’s performance from Fiscal 2017 through Fiscal 2019 (the “Reviewed Period”) for which period both compensation and performance data was readily available for our peers. The analysis, which was prepared by the Compensation Committee’s independent consultant, Pay Governance, compared our CEO’s realizable compensation and the Company’s performance, relative to our peer group, to assess whether the Company’s performance and the realizable compensation paid to our CEO were aligned. The Committee believes this analysis helps to support our pay-for-performance philosophy.

Realizable compensation is defined as (i) base salary paid over the Reviewed Period; (ii) actual bonus earned and paid during the Reviewed Period; (iii) the aggregate current value of restricted stock/restricted unit grants made during the Reviewed Period; (iv) the aggregate in-the-money value of stock option grants made during the Reviewed Period; (v) the actual payouts of performance-based equity awards with performance periods beginning and ending during the Reviewed Period; and (vi) the estimated payout for performance-based equity awards that were granted during the Reviewed Period but remained unvested at its conclusion. Realizable compensation for our CEO was calculated in the same manner as for the CEOs of our peer group companies.

 

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The realizable value of long-term equity-based awards was calculated using each company’s closing stock price on June 28, 2019. The Company believes that realizable compensation is a relevant measure for analyzing the pay-for-performance alignment, which may be more meaningful than grant date or target compensation. Realizable compensation focuses on the actual value of earned pay rather than pay opportunity by analyzing current stock prices and actual payouts from short-term and long-term incentives to provide an estimate of the actual compensation that executives realized during the subject period. The required grant date and target compensation amounts are reported in the Executive Compensation Tables of this Proxy Statement.

The financial performance of the Company and the peer companies was evaluated over the Reviewed Period using the following four performance measures: (i) Adjusted EBIT margin; (ii) Adjusted EBIT growth; (iii) ROIC; and (iv) TSR. These measures were selected because some are used or have been used in the Company’s short-term and/or long-term incentive plans and are considered by proxy advisors and Pay Governance to be reasonable indicators of a company’s performance. The Company’s percentile ranking for each performance measure relative to the peers was averaged to form a composite performance ranking.

Over the Reviewed Period, our CEO’s realizable compensation ranked above the median (60th percentile) of the peer group and our composite performance (average ranking of all performance metrics) ranked above the median (63rd percentile) of the peer group, resulting in a sufficiently strong composite net correlation. The Compensation Committee continues to analyze the alignment of realizable compensation and the Company’s performance, in addition to grant date value comparisons, to observe such things as:

 

 

Whether the targeted pay levels relative to our peers is appropriate;

 

 

Whether the mix of fixed versus variable incentive compensation is appropriate;

 

 

Whether performance goals have been set at appropriately challenging and achievable levels over the Reviewed Period; and

 

 

Whether the weighting assigned to each long-term incentive vehicle is weighted appropriately resulting in an acceptable amount of leverage.

 

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Based on this analysis, the Compensation Committee is satisfied with the alignment of our CEO’s realizable compensation with the performance of the Company during the Reviewed Period. The chart below provides an illustration of this realizable pay-for-performance analysis over the Reviewed Period. The Compensation Committee expects to continue to review and present the alignment of compensation with the Company’s financial performance, including as may be required to comply with regulations issued by the Securities and Exchange Commission, which are currently in proposed form.

 

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Design of Our Executive Compensation Program

Overall Design of the Executive Compensation Program

Each of our executives receives a compensation and benefits package comprised of some or all of the five basic components described in the table below which also provides an explanation of why we provide the particular compensation component, how we determine the amount and what such compensation component is designed to reward.

 

       

Compensation

Component

  Why We Provide it   How We Determine the Amount   What it is Intended to Reward
   

Base Salary

 

•  Consistent with competitive practice

 

•  Salary midpoints at approximately the median of similarly-sized manufacturing companies

 

•  Individual performance and level of experience, expertise and responsibility within the Company

   

Annual Incentive Plan (AIP)

 

•  To link pay and company performance over the fiscal year

 

•  To drive the achievement of annual business objectives

 

•  Consistent with competitive practice

 

•  Awards are performance-based and calculated as a percentage of base salary:

—    Target award opportunities are determined on an individual basis and range from modestly below median to modestly above median for similar positions in peer group manufacturing and general industrial companies

 

•  Annual Company financial performance and individual performance

   

Long-Term

Incentives

(includes

restricted stock units

and

performance

stock units)

 

•  To link pay and company performance over multiple fiscal years

 

•  To drive the achievement of critical long-term business objectives

 

•  To align management’s interests with those of our shareowners

 

•  To foster the long-term retention of key executives

 

•  Consistent with competitive practice

 

•  Total long-term incentive opportunity is determined on an individual basis based on the executive’s performance and career potential (internal and individual factors), and taking into account the long-term compensation paid to similar positions in peer group, manufacturing and general industrial companies

 

•  For Fiscal 2020, the total long-term incentive opportunity was allocated between PSUs (60%) and RSUs (40%)

 

•  PSU awards are performance based:

 

—    Target award opportunities are determined on an individual basis and range from modestly below median to modestly above median for similar positions in peer group of companies

 

•  Long-term Company performance and individual performance

 

•  PSUs—increased return on capital and shareowner value and overall Company performance over the long-term

 

•  RSUs—increased shareowner value and long-term commitment to the Company

   

Retirement

Benefits

 

•  Consistent with competitive practice

 

•  Approximately the median of market practice and Company-specific circumstances

 

•  To provide long-term financial security to executives who have demonstrated a long-term commitment to the Company

   

Executive

Benefits and

Perquisite

Allowance

 

•  Program is discontinued for any new executive hired after December 2015

 

•  Consistent with competitive practice prior to its discontinuance

 

•  Approximately the median of peer group of companies

 

•  Executive contributions to our Company’s short-term and long-term success

 

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We have designed our executive compensation program to target total direct compensation for each of our executives at the median level for executives in similar positions within our industry and peer group with the opportunity to earn actual compensation above or below median compensation depending on Company and individual performance. We believe that the design of the compensation program allows for actual compensation earned under our incentive plans to be above-median compensation for exceptional performance, as well as below-median compensation when performance falls below our expectations. Also, we may deviate from targeting the median if, in the judgment of management and/or the Compensation Committee, the value of an executive’s experience, performance and specific skill set warrants. For individual executives, compensation may also vary depending on the executive’s experience, responsibility and expertise, such person’s contribution to our business strategy and the market’s demand for such skills and talent. The foundation of our program is based on a system of benchmark market pricing. Each executive’s compensation is competitively benchmarked against executives in comparable positions in similar revenue-sized manufacturing and general industrial companies and, in some cases, against a peer group of companies. This benchmarking process as well as an internal assessment of the position’s internal value to the Company, scope and complexity of responsibilities generally defines a range of opportunities for base salary, annual incentives and long-term incentives. The pay ranges give the Compensation Committee flexibility to position individual compensation above or below market median levels depending on the individual’s job performance, professional qualifications, business experience, technical expertise and career potential.

Factors that Influence Compensation

The Compensation Committee believes that an effective compensation program reflects a balance between individual factors (i.e., level of responsibility, skills, experience, expertise and individual performance), organizational measures (i.e., Company or business unit segment performance), and external or market factors (i.e., competitive benchmarking and survey data). We incorporate each of these factors into the design of our executive compensation program. Accordingly, we compensate our executives based upon an assessment of:

 

 

Individual Performance. All of our executives are evaluated against an annual, individual performance plan. The performance plan is based on individual performance objectives that will further the goals of the executive’s business unit, if applicable, and the strategic goals of the Company. These objectives, which include both quantitative and qualitative goals, are reviewed and assessed periodically by the executive with the CEO and by the CEO with the Board. At the end of the fiscal year there is a comprehensive analysis of the executive’s actual performance vis-à-vis the individual’s performance plan, and that analysis is provided to the Compensation Committee for review.

 

 

Company Performance. The primary objective of our compensation philosophy is to align our executive officers’ compensation with the performance of the Company (“pay-for-performance”). When making compensation decisions related to our executives, the Compensation Committee evaluates the Company’s achievement of pre-established internal metrics (which are predicated on our annual and long-term financial plans and goals, along with other strategic and operational initiatives) and external measures (which are predicated on external factors such as our market valuation and growth in our stock price).

 

 

Market Intelligence. Individual and Company performance are weighted most heavily in compensation decisions. However, when appropriate, the Compensation Committee also considers external factors, such as market and survey data and pay positioning for our executives relative to market data, as explained in further detail below under the subheading “Pay Positioning Relative to Market — Benchmarking.”

Variable Compensation and Promotion of a Long-Term Perspective

We increase the variable component of compensation for our executives as they progress through our management levels and adjust the ratio of short-term to long-term compensation to promote accountability

 

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and a long-term perspective. We structure our executive compensation program so that the proportion of variable versus fixed compensation increases as the role and responsibility of the executive increases. We believe this is appropriate because the executives are best positioned to be able to affect the Company’s performance. Therefore, they should receive a substantial portion of their total compensation value in the form of long-term incentives that measure and reward Kennametal’s performance over a period of greater than one year. The table below illustrates that the actual percentage of variable pay relative to total compensation depends on the executive’s position within the Company. In general, the higher the executive’s position within the Company, the greater the proportion of variable pay that is linked to Company performance and shareowner return metrics. Similarly, as the executive rises to positions of greater responsibility within our Company, short-term compensation begins to decrease proportionately relative to long-term compensation which, in most cases, begins to represent a greater proportion of the executive’s total compensation. Accordingly, the decision to emphasize variable elements for these individuals results in a reduced emphasis of fixed elements of compensation. In some cases, the variances between short-term and long-term compensation are related to length of tenure in the position or initial compensation package provided upon hiring.

The following chart summarizes the breakout of fixed versus variable compensation and short-term versus long-term compensation as disclosed in the Summary Compensation Table for our NEOs in Fiscal 2020.

 

     Fixed vs. Variable Breakout    Variable Breakout

Title

  

% of Annual

Compensation

Fixed

  

% of Annual

Compensation

Variable

  

% of Short-

Term

Compensation

  

% of Long-

Term

  Compensation  

President and CEO

    

 

20%

 

    

 

80%

 

    

 

0%

 

    

 

100%

 

Vice President and CFO

    

 

36%

 

    

 

64%

 

    

 

0%

 

    

 

100%

 

Vice President and Chief Operations Officer, Metal Cutting

    

 

36%

 

    

 

64%

 

    

 

0%

 

    

 

100%

 

Vice President and Chief Commercial Officer, Metal Cutting

    

 

33%

 

    

 

67%

 

    

 

0%

 

    

 

100%

 

Vice President and Chief Administrative Officer

    

 

46%

 

    

 

54%

 

    

 

0%

 

    

 

100%

 

Competitive Compensation

Pay Positioning Relative to Market — Benchmarking.

When we make compensation decisions, we compare the compensation paid to our executive officers to the compensation paid to similarly-positioned executives at other companies within our industry to gain a general understanding of current market compensation practices for these positions. Specifically, we benchmark total compensation levels and certain of the individual elements of our compensation packages (mainly base salary, AIP (together, “total cash compensation”) and long-term incentives (together with total cash compensation, “total direct compensation”)) to both published survey data of comparable companies and to a custom peer group of public companies within the manufacturing industry.

Benchmark data is part of the external information we consider when designing and executing our compensation programs.

The Compensation Committee’s independent compensation consultant assists the Compensation Committee in its benchmarking efforts. Pay Governance collects compensation data for our peer group companies from available sources, including, in most cases, the executive compensation data included in the most recently

 

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available annual proxy statement for each company. Pay Governance can also provide survey data representing industry-specific and general industrial companies included in the Willis Towers Watson Executive Compensation Database. In consultation with management, the consultant provides the Compensation Committee with the results of its benchmarking efforts on an annual basis. The benchmarking data helps us assess the competitiveness of our executives’ compensation compared to that of other executives at our peer companies and in the broader market. We also use the data to help ensure proper alignment between executive and shareowner interests, and to assess compensation versus Company performance.

When we evaluate our compensation structure, we compare the target range for total direct compensation, the mix of compensation components and the allocation of those components in our executives’ individual compensation packages against benchmark data. Each year we evaluate the total cash compensation and total direct compensation we provide to our executives against the benchmark data to determine whether our compensation structure accurately reflects our goal of providing compensation at approximately the median level within our peer group and industry. We analyze both target compensation opportunities as well as the actual compensation paid to our executives. The Compensation Committee considers this information, along with data provided by the consultant, the Company and individual performance factors, when it sets compensation levels.

Pay Governance annually reviews our peer group to ensure that the peer companies continue to be appropriate comparisons for performance purposes and for compensation purposes. The companies in our current peer group are included based on their alignment with the following selection criteria: comparable annual revenue, market capitalization, operational scope and organizational complexity. While some of the peers are smaller than we are, others are larger. Nevertheless, we include these companies to help us understand the effect size and complexity has on compensation levels and designs.

 

The following companies comprised our peer group for both performance and compensation purposes for Fiscal 2020(1):

 

 

•   Actuant Corporation, now known as Enerpac Tool Group

  

•   IDEX Corporation

 

•   Allegheny Technologies Incorporated

  

•   ITT Inc.

 

•   AMETEK, Inc.

  

•   Lincoln Electric Holdings, Inc.

 

•   Barnes Group Inc.

  

•   Manitowoc Company, Inc.

 

•   Carpenter Technology Corporation

  

•   Nordson Corporation

 

•   Crane Co.

  

•   Rexnord Corporation

 

•   Donaldson Company, Inc.

  

•   SPX Corporation

 

•   Flowserve Corporation

  

•   SPX Flow, Inc.

 

•   Graco Inc.

  

•   The Timken Company

 

•   Harsco Corporation

  

•   Woodward, Inc.

 

(1)

The Peer Group used for calculating the Relative TSR portion of the PSUs is the S&P 400 Capital Goods Index.

 

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How Compensation Decisions Are Made

Role of the Compensation Committee and CEO in Determining Executive Compensation

The Compensation Committee designs and implements our executive compensation program, evaluates executive performance, including that of the CEO, and oversees, along with the full Board of Directors, the development of executive succession plans.

The Compensation Committee solicits information from our management and from the Committee’s compensation consultant during the compensation-setting process, but it is the Compensation Committee that ultimately sets and approves compensation for our CEO and all other executive officers.

The Compensation Committee uses substantially the same process for determining CEO compensation as it uses for determining our other executive officers’ compensation. Each year, the Compensation Committee reviews all components of compensation for the CEO and for each of our other executives over the course of several regularly-scheduled meetings from April to July. Final compensation decisions are made in July for the current fiscal year. The Compensation Committee is assisted in its review by members of management, the human resources department, and its compensation consultant.

In keeping with our compensation philosophy, the Compensation Committee considers three main categories of information with respect to each executive: (i) individual performance; (ii) Company performance; and (iii) market data. The Compensation Committee evaluates each executive’s current compensation and solicits input from management on the executive’s future potential, performance for the year, leadership skills, and contribution to the Company’s performance. The Compensation Committee also considers factors relating to the Company, such as our overall performance and achievement of specific strategic and operational initiatives. Finally, the Compensation Committee assesses the market competitiveness of each executive’s total compensation package.

CEO Compensation. The Compensation Committee meets with the CEO each year in July (the beginning of our fiscal year) to set the CEO’s performance goals (both individual and Company objectives) for the fiscal year. These goals are then reflected in the CEO’s individual performance plan for the year. The CEO periodically reports on his progress with respect to his performance goals at Compensation Committee meetings throughout the year. At the end of the fiscal year, the Compensation Committee evaluates, in consultation with the independent Chairman of the Board and the rest of the non-management directors and the Board, as it deems necessary or appropriate, the CEO’s performance against the goals included in his performance plan for the year. Pursuant to this review, the Committee determines and approves the CEO’s compensation based in part on his achievement of those goals and in part on the Company’s performance, while taking into account the overall objectives of our compensation program. The Compensation Committee also considers the compensation being paid to other CEOs at similarly situated companies in making compensation decisions affecting the CEO.

Other Executives’ Compensation. Each fiscal year, each of our non-CEO executives must develop an individual performance plan for the fiscal year, with goals that align with the CEO’s objectives, and include individual and Company objectives. These plans are discussed with and approved by the CEO and the executives report to the CEO on their progress towards the achievement of the goals set forth in their plans periodically throughout the year. At the end of the year, the CEO and the Compensation Committee together assess the performance of the executives. Based upon these evaluations and recommendations from the CEO, the Compensation Committee determines the executives’ compensation. The executives do not play a role in the determination of their compensation, other than discussing individual performance objectives and achievements with the CEO.

 

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Role of the Compensation Consultant

Pay Governance has been engaged by and serves as the Compensation Committee’s independent compensation consultant and provides no other services to the Company. The Compensation Committee annually reviews its retention of Pay Governance as its compensation consultant, as well as its performance in advising the Committee.

Pay Governance provides the Compensation Committee with the objective information and expertise necessary to make informed decisions that are in the best long-term interests of our business and shareowners and also keeps the Compensation Committee informed as to compensation trends and regulatory developments affecting public companies in general and the manufacturing industry in particular. The Compensation Committee solicits advice and counsel from its consultant on all matters related to executive compensation design and delivery. Specifically, the compensation consultant is requested to provide, and delivers, the following types of services to the Committee:

 

 

Competitive data and benchmarking analytics for all components of pay for executive officers (including the CEO);

 

 

Equity dilution, value sharing, and performance assessment analyses relative to peers;

 

 

Compensation program analysis, redesign considerations, and recommendations;

 

 

Diagnostic assessments regarding the rigor of performance goals;

 

 

Tax, accounting, regulatory, and other compensation-related education;

 

 

Individual pay considerations for the CEO, as well as executive officer promotions and new hires;

 

 

Review of compensation plan payouts for the CEO and executive officers;

 

 

Assessment of risk regarding compensation policies and practices;

 

 

Assessment of pay-for-performance alignment; and

 

 

CD&A review and recommendations.

Pay Governance attends each of the Compensation Committee meetings and may attend executive sessions at the request of the Committee. The compensation consultant also collaborates with our management team for purposes of meeting planning, program design and analysis and other logistics, but all executive compensation-related services performed by the consultants are ultimately at the direction of the Compensation Committee.

The Compensation Committee reviews the fees and performance of Pay Governance each year and provides feedback to the Board as necessary. The Compensation Committee has the authority to terminate the relationship with Pay Governance at any point in time.

Each year, the Compensation Committee reviews and determines the independence of its compensation consultant. When gauging the independence of an adviser, the Compensation Committee considered the following six factors, as required by the New York Stock Exchange and SEC rules and regulations:

 

 

If the adviser’s firm provides other services to the Company;

 

 

The amount of fees received from the Company as a percentage of the total revenue of the adviser’s firm;

 

 

Policies and procedures of the adviser’s firm designed to prevent conflicts of interest;

 

 

Any business or personal relationship of the compensation consultant, counsel or other adviser with members of the compensation committee;

 

 

Company stock owned by the adviser; and

 

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Any business or personal relationship between the adviser or the adviser’s firm and an executive officer of the Company.

Based on the Compensation Committee’s review of the factors above, it determined that its adviser, Pay Governance, is independent and free of conflicts of interest.

2020 Executive Compensation Program

Base Salary

Base salary provides a competitive level of fixed income for our executives. We target base salary range midpoint levels for each executive position at median pay levels for similar positions in the market. The level of base salary an executive receives is determined based on the results of an annual evaluation of the executive with respect to certain objective and subjective factors. Objective factors include the executive’s level of responsibility, skills and training, accomplishment of the goals set forth in such person’s annual individual performance plan, and, for newer executives, prior experience. Subjective factors include the Compensation Committee’s assessment of the executive’s future potential and individual contributions. The Compensation Committee evaluates the CEO with input from the independent Chairman of the Board and the other non-management Board members, as noted above. The CEO evaluates each of the executives who report directly to him. Both objective and subjective factors are considered, as relevant, and the CEO makes recommendations to the Compensation Committee for changes to base salary (other than his own) during the annual compensation setting process. The Compensation Committee evaluates the CEO’s and other executives’ base salary on an annual basis, and may make changes in its discretion as part of the broader compensation setting process.

In setting the NEOs’ base salaries for Fiscal 2020, the Compensation Committee considered all of the factors described above for each executive and conducted an examination of the applicable market data.

In July 2019, the Compensation Committee approved increases to the base salaries of Messrs. Rossi, Audia, Dragich and Port and Ms. Bacchus in the amounts of 4.5%, 2%, 3%, 8% and 8.75%, respectively. As further discussed below, NEO base salaries were reduced by 20%, effective July 1, 2020.

AIP

Overview. The AIP is a shareowner-approved, formula-based, pay-for-performance annual cash incentive plan. The AIP is the main vehicle we use to reward participants for their contributions to strong annual business performance. The purpose of the AIP is to motivate participants to help the Company to achieve pre-established shorter-term financial and strategic goals, which are designed to create sustainable long-term shareowner value, and to reward participants to the extent the Company achieves those goals. All of our executives, our senior management team members, and certain team members in other key positions participate in the AIP.

AIP Target Amounts. AIP target amounts are established for each participant based on a combination of individual factors and market-competitive data for similar jobs at other companies and are established as a percentage of such participant’s base salary. Consistent with our executive compensation philosophy, individuals with greater job responsibilities have a greater proportion of their total cash compensation tied to Company performance through the AIP. Each year, the Compensation Committee sets AIP target amounts for our CEO and other executives based on recommendations from our management and the CEO (except with respect to his own target AIP) and its own evaluation of the competitiveness of each executive’s compensation package based on input from its compensation consultant.

 

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AIP Performance Goals. We link AIP opportunities directly with Company performance to maximize shareowner value. Each executive is assigned one or more performance goals at the beginning of the fiscal year, which are based upon the overall performance goals of the Company and which have been approved by the full Board as part of management’s overall financial and strategic plans. The Board approves the goals for overall Company performance based upon management’s financial and strategic plans.

Once the Board has approved the overall performance goals for the Company, the Compensation Committee reviews and approves the AIP structure and individual performance goals for the CEO and all other executive officers, which may be based on one or more of the Company’s overall corporate performance goals and/or individual achievement goals. To ensure alignment with our shareowners’ interests, the Compensation Committee assigns the CEO both quantitative and qualitative performance goals that are aggressive and designed to stretch performance and significantly impact the growth or improvement of the Company or a business unit. For each of the other executives, the Compensation Committee, with the input of the CEO, sets individual performance goals which it considers achievable, but which require personal performance and stewardship above the plan levels for the coming year. These individual goals may vary by executive.

Individual Performance. At its meeting following fiscal year-end each year, the Compensation Committee reviews each executive officer’s achievement of his/her performance goals for the previous year and approves any corresponding amounts to be paid under the AIP. Regarding AIP determinations, the Compensation Committee considers the individual performance of the executive and the recommendations of the CEO (for all executives other than himself). The Compensation Committee has the discretion to adjust an executive’s calculated AIP award based on its assessment of the individual’s performance, contingent upon achievement of the positive net income threshold.

2020 AIP. The 2020 AIP design was comparable to the 2019 AIP design regarding the Adjusted EBIT Corporate Performance Goals, with the weighting remaining at 60% and the threshold multiple of the target Adjusted EBIT remaining at 50% with a corresponding payout multiple at 30%, and the maximum multiple of target Adjusted EBIT remaining at 140% with a corresponding payout multiple at 200%. For the 2020 AIP, PWCPS was weighted 20% with a threshold multiple of the target PWCPS at 120% with a corresponding payout multiple at 30% and the maximum multiple of target PWCPS at 80% with a corresponding payout multiple at 200%. The Compensation Committee and management believe the use of PWCPS will help to focus team members on the successful execution of the simplification/modernization of manufacturing efforts at the Company. The Compensation Committee also determined that an individual performance component remained appropriate weighted 20% in conjunction with the Corporate Performance Goals weighted 80% in total. In comparison to the weighting established for other executives, the CEO’s Corporate Performance Goals of Adjusted EBIT and PWCPS were weighted 62.5% and 20.8%, respectively, and individual performance goals weighted 16.7%, with an AIP opportunity of 120% of base salary for Fiscal 2020. The individual performance goals were set and approved by the Compensation Committee and conditioned upon achievement of a positive net income threshold.

 

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2020 Target AIP Amounts. For 2020, the weightings described above applied to the Compensation Committee approved target AIP amounts as a percentage of base salary for our NEOs at the following levels:

 

Name

   Target Annual Incentive Amount as a Percentage of Base Salary(1)        

Christopher Rossi

       120%          

Damon Audia

       80%          

Peter A. Dragich

       75%          

Ronald L. Port

       75%          

Judith L. Bacchus

       55%          

 

(1)

All NEO target bonus amounts are weighted 80% (except for Mr. Rossi’s which is weighted 83.3% ) on the Company’s Corporate Performance goals and 20% (except for Mr. Rossi’s which is weighted 16.7%) on individual strategic objectives with a positive net income threshold.

The following tables present the possible payouts under the AIP at different levels of performance relative to the target performance goals established for the year:

2020 Corporate Performance Metrics.

Corporate Performance Metrics (Adjusted EBIT and PWCPS)

 

    

Performance Range as a Percentage of Target

 

Metric

       Below Threshold            Threshold            Target            Maximum    

Adjusted EBIT

   Less than 50%        50%          100%          140%  

PWCPS

   More than 120%        120%          100%          80%  

Payout Range

   0%        30%          100%          200%  

With respect to each of the corporate performance metrics, no AIP is awarded if actual performance is below the threshold for the performance goal and no payout is made in excess of 200% of the AIP target amount, regardless of the performance achieved. Under the terms of the AIP, the Compensation Committee makes the same adjustments that are made for non-recurring or unusual items in our financial results as reported to our shareowners in determining whether performance goals have been met.

2020 Corporate Performance Goals. At its July 2019 meeting, the Board established Corporate Performance Goals for the Company consisting of: Adjusted EBIT of $357.950 million and PWCPS of 30.3%, which reflected the Company’s business plan for Fiscal 2020. At the time it set these goals, the Board considered the targets to be challenging for the Company, but achievable if the financial and strategic plans of the Company were well executed. The Compensation Committee’s independent consultant then tested the appropriateness and rigor of these goals by considering the general economic environment for the upcoming year, considering analyst expectations, reviewing growth in the goals over the previous year and conducting probability analyses based on historical results. The consultant found the goals to be challenging. These Corporate Performance Goals were then adopted by the Compensation Committee as the target Corporate Performance Goals under the 2020 AIP.

 

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2020 Individual Strategic Performance Goals for Mr. Rossi (President and CEO).

Performance goals for Mr. Rossi were based on the overall financial and strategic goals adopted for the Company. Mr. Rossi’s AIP opportunity was composed of two components:

 

 

Component (1) related to the Company’s financial performance and was based solely upon the achievement of the Corporate Performance Goals (bonus opportunity of 100% of base salary) described above, which were established in July 2019; and

 

 

Component (2) related to Mr. Rossi’s individual strategic performance and was based upon his achievement of the following strategic and operational goals and initiatives set by the Compensation Committee in July 2019 (bonus opportunity of 20% of base salary): (i) values, including safety, trust and accountability; (ii) profitable growth and performance excellence; (iii) technology and product development; (iv) talent and people; and (v) strategy.

In defining the above individual strategic performance goals, the Compensation Committee considered them to be strategically important to the Company and its business plan, and sufficiently aggressive, but achievable with strong leadership, concentrated effort and focus by Mr. Rossi. The Compensation Committee undertook a systematic evaluation of Mr. Rossi’s performance relative to the above defined individual strategic performance goals in determining his AIP award for Fiscal 2020. Based upon that systematic evaluation and considering that the minimum financial performance requirement of corporate net profit for the individual component was not achieved for Fiscal 2020, the Compensation Committee approved no Fiscal 2020 AIP payout for Mr. Rossi, as described in the “2020 Performance” section below.

2020 Performance Goals for other NEOs.

The 2020 AIP opportunities established for Messrs. Audia, Dragich and Port and Ms. Bacchus were based on the Corporate Performance Goals (80% weight) described above as well as the individual performance goals (20% weight) and conditioned upon the achievement of a positive net income threshold. In July 2019, the following categories of strategic and operational goals and initiatives were considered by Mr. Rossi to set specific individual goals for Messrs. Audia, Dragich and Port and Ms. Bacchus (i) values, including safety, trust and accountability; (ii) profitable growth and performance excellence; (iii) technology and product development; (iv) talent and people; and (v) strategy. A minimum performance requirement of positive net income after compensation expense must also be met in order for the AIP to be earned. Since the minimum financial performance requirement of positive net income after compensation expense was not achieved for Fiscal 2020, the Compensation Committee approved no Fiscal 2020 AIP payment for Messrs. Audia, Dragich and Port and Ms. Bacchus.

2020 Performance.

Since the Company recorded a net loss of $5.7 million for Fiscal 2020, the minimum performance requirement was not met and no portion of the AIP could be earned with regard to Adjusted EBIT, PWCPS or Individual Performance.

The following tables show the performance achieved (as a percentage of target), with no 2020 AIP awards paid to any of our NEOs due to the minimum performance requirement not being met.

 

Component 1: FY 2020 AIP Financial Performance Measures Achievements

 
     Threshold     Target     Maximum     Actual  

Financial Performance

Measures

   $ / %    

% of

Target

    $ / %    

% of

Target

    $ / %    

% of

Target

    $ / %    

% of

    Target    

Adjusted EBIT (millions)

     $178.950       50     $357.950       100     $501.060       140     $153.800       0

PWCPS

     36.36     120     30.30     100     24.24     80     35.40     117

 

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                    Actual FY 2020 AIP Earned    
    

FY 2020 AIP Opportunities

as a % of Base Salary

   Corporate Financial
Performance Component
  

Individual

Component

   

Name and Principal Position

   Minimum    Target    Maximum   

% of

Base

Salary(1)

   $   

% of

Base

Salary

   $    

Christopher Rossi, President and CEO

       60%          120%          240%          0%              —              0%                     

Damon Audia, Vice President and CFO

       40%          80%          160%          0%              —              0%                     

Peter A. Dragich, Former Vice President and Chief Operations Officer, Metal Cutting

       37.5%          75%          150%          0%              —              0%                     

Ronald L. Port, Vice President and Chief Commercial Officer, Metal Cutting

       37.5%          75%          150%          0%              —              0%                     

Judith L. Bacchus, Vice President and Chief Administrative Officer

       27.5%          55%          110%          0%              —              0%                     

 

(1)

The financial component percentage of base salary is reflective of the percentage of salary stated in the Summary Compensation Table.

Long-Term Incentives

Overview. Kennametal’s long-term incentives are designed to focus our employees on sustainable, long-term performance. We use these incentives because we believe they promote an ownership culture, align the interests of our employees and shareowners, and foster the long-term perspective necessary to increase shareowner value. They also aid in retention and help advance stock ownership by our employees.

All of our executives, members of senior management, and a significant number of key employees are eligible to receive long-term incentive awards under our broad-based LTI program. We use a portfolio approach to our LTI program, which includes RSU awards and PSU awards. We provide more information about each of these components below.

The Compensation Committee approves all equity and other long-term incentive awards for our executives. All of our NEOs’ outstanding long-term incentive awards, including those under the LTI program have been granted under shareowner approved plans, including the Kennametal Inc. Stock and Incentive Plan of 2002, as amended (the “2002 Plan”), the Kennametal Inc. Stock and Incentive Plan of 2010 (the “2010 Plan”), the Kennametal Inc. Stock and Incentive Plan of 2010 (as Amended and Restated October 22, 2013 and as further amended by Amendment No. 1 on January 27, 2015) (the “A/R 2010 Plan”) and the Kennametal Inc. Stock and Incentive Plan of 2016 (the “2016 Plan”). Since the 2016 annual meeting, all awards have been granted under the 2016 Plan, which provides for the granting of non-statutory and incentive stock options, incentive bonus awards, performance share awards, PSU awards, restricted stock awards, RSU awards, stock appreciation rights, share awards, stock unit awards, and other share-based awards.

Target Long-Term Incentive Award Amounts. Each year the Compensation Committee establishes target LTI program opportunities for each of our executives based on the executive’s performance and career potential (individual factors). The Compensation Committee also considers the long-term compensation paid by our competitors for similar positions based on the peer group and survey data provided by its compensation consultant (external factors). LTI grants are determined based on market opportunities and the NEO’s individual performance. The Compensation Committee sets target LTI program opportunities for our executives for the relevant three-year cycle at its meeting following fiscal year-end each year.

 

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Fiscal 2020 LTI Decisions.

The following table shows the target level annual LTI opportunities, as a percentage of base salary as of August 1, 2019, set for each of our NEOs under our LTI program for Fiscal 2020:

 

Name

  

 

Target Long-Term Incentive Opportunity as a Percentage of Base Salary        

Christopher Rossi

       350%          

Damon Audia

       175%          

Peter A. Dragich

       175%          

Ronald L. Port

       175%          

Judith L. Bacchus

       100%          

Timing of Equity Grants. The Compensation Committee grants equity-based awards to our executives on both an annual and as-desired basis. We do not have any program, plan or practice to time annual or ad hoc grants of equity-based awards in coordination with the release of material non-public information or otherwise.

 

 

Annual Grants. We generally make LTI grants to our NEOs and other senior management on an annual basis. As part of its standing agenda, the Compensation Committee approves annual grants of equity-based awards to our executives at its regularly scheduled meeting in July of each year. The dates for these meetings are typically scheduled two years in advance. Since 2007, the grant date for annual awards has been August 1 of each year. The Compensation Committee has continued to refine its process for determining the date for the annual grant of equity awards, with the intent of insulating the choice of date from any market influences that might affect the decision at a given time. Accordingly, for Fiscal 2021, the Compensation Committee determined in advance that grants would be awarded on August 15, 2020.

 

 

Special or One-Time Grants. The Compensation Committee retains the discretion to make additional awards to executives at other times relating to the initial hiring of a new officer, for recognition or retention purposes or otherwise. Refer to the section “2020 Special Recognition, Attraction and Retention Awards” below.

RSU Awards. Since 2010, we have granted restricted stock unit (“RSU”) awards as part of our LTI program. We grant RSU awards because we believe they build ownership in the Company, serve to promote the retention of our employees and address the cyclicality of our business, thereby aligning the interests of our employees and our shareowners. We typically grant RSU awards annually to our executives as part of our broader LTI program, but we sometimes make these grants for other purposes. For example, we may grant these awards to attract new talent or to recognize or motivate our employees. RSU awards granted under the LTI vest at the rate of one-third per year over three years. The vesting schedules may differ depending on the reasons for the grant of RSUs. We believe our use of RSU awards helps to promote our retention efforts in that any unvested portion of a RSU award is forfeited if an executive voluntarily terminates employment prior to the applicable vesting date.

The number of RSUs awarded to each NEO in Fiscal 2020 was determined by dividing 40% of the total LTI opportunity grant value by the fair market value of our stock on the grant date.

PSU Awards. In Fiscal 2011, the Company began awarding annual PSU awards to certain executives. These awards are both performance-based and service-based, which can only be earned if the Company achieves certain performance criteria established by the Compensation Committee and requires the executive to be employed by the Company through the vesting date following the performance period. The Compensation Committee established specific ROIC and Relative TSR goals for fiscal years 2018, 2019 and 2020 for the PSUs granted in Fiscal 2018 (the “2018 PSUs”); for fiscal years 2019, 2020 and 2021 for the PSUs granted in Fiscal 2019 (the “2019 PSUs”); and for fiscal years 2020, 2021, and 2022 for PSUs granted in Fiscal 2020 (the “2020 PSUs”).

 

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For the 2018, 2019, and 2020 PSUs, 100% of the PSUs were weighted based on ROIC performance with the opportunity to earn a multiple based on the cumulative three-year Relative TSR, with one-third (1/3) of the PSUs underlying such awards that could be earned each year based on the ROIC for that year, with the Relative TSR multiple applied at the end of the three-year period.

Goals have been established at threshold, target and maximum award levels for each year within the applicable performance period. PSUs that are deemed earned for any given fiscal year remain subject to an additional service condition that requires the executive to be employed by us through the vesting date following the three-year performance period (which for the 2018 PSUs means August 2020; for the 2019 PSUs means August 2021; and for the 2020 PSUs means August 2022). The Compensation Committee has established this approach to address the cyclicality of our industry and to partially mitigate the risk of establishing long-term performance goals at either the peak or trough of the business cycle. In addition, the service condition encourages retention.

The number of target PSUs awarded to each NEO in Fiscal 2020 was determined by dividing 60% of the total LTI opportunity grant value by the fair market value of our stock on the grant date, with the opportunity to earn more or less than the target PSUs awarded as described below.

The tables below present the ROIC and Relative TSR goals for the 2018 PSUs for Fiscal 2020 (which was the third year of the 2018 PSUs):

 

 

LOGO

The tables below present the ROIC and Relative TSR goals for the 2019 PSUs for Fiscal 2020 (which was the second year of the 2019 PSUs):

 

 

LOGO

 

The tables below present the ROIC and Relative TSR goals for the 2020 PSUs for Fiscal 2020 (which was the first year of the 2020 PSUs):

 

LOGO

 

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The following tables present the possible payout for the third year of the 2018 PSUs at different levels of performance, with payout amounts interpolated between the relevant thresholds:

 

ROIC Metric (100% Weight)
    Below Threshold   Threshold   Target   Maximum

Performance

 

 

Less than 70%

 

 

70%

 

 

100%

 

 

140% or Greater

 

   

(As a Percentage of Achievement of Target Performance Goal)

Payout

 

 

0%

 

 

50%

 

 

100%

 

 

150%

 

   

(As Percentage of Target PSU Amount)

 

Relative TSR Vesting Multiple
                           Threshold   Target   Maximum

Performance

 

 

                                 

 

 

at or below the 25th percentile

 

 

at the

 

50th percentile

 

at or above the

 

75th percentile

       

(As a Percentage of Achievement of Target Performance Goal)

 

Payout

 

 

                                 

 

 

80%

 

 

100%

 

 

120%

       

(As Percentage of Target PSU Amount)

The following tables present the possible payouts for the second year of the 2019 PSUs at different levels of performance, with payout amounts interpolated between the relevant thresholds:

 

ROIC Metric (100% Weight)
    Below Threshold   Threshold   Target   Maximum

 

Performance

 

 

Less than 70%

 

 

70%

 

 

100%

 

 

140% or Greater

   

(As a Percentage of Achievement of Target Performance Goal)

 

Payout

 

 

0%

 

 

50%

 

 

100%

 

 

150%

   

(As Percentage of Target PSU Amount)

 

Relative TSR Vesting Multiple
                           Threshold   Target   Maximum

Performance

 

 

                                 

 

 

at or below the 25th percentile

 

 

at the 50th percentile

 

 

at or above the

 

75th percentile

       

(As a Percentage of Achievement of Target Performance Goal)

 

Payout

 

 

                                 

 

 

80%

 

 

100%

 

 

120%

       

(As Percentage of Target PSU Amount)

 

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The following tables present the possible payouts for the first year of the 2020 PSUs at different levels of performance, with payout amounts interpolated between the relevant thresholds:

 

ROIC Metric (100% Weight)
    Below Threshold   Threshold   Target   Maximum

 

Performance

 

 

Less than 70%

 

 

70%

 

 

100%

 

 

140% or Greater

   

(As a Percentage of Achievement of Target Performance Goal)

 

Payout

 

 

0%

 

 

50%

 

 

100%

 

 

160%

   

(As Percentage of Target PSU Amount)

 

Relative TSR Vesting Multiple
                           Threshold   Target   Maximum

Performance

 

 

                                 

 

 

at or below the

 

25th percentile

 

at the

 

50th percentile

 

at or above the

 

75th percentile

       

(As a Percentage of Achievement of Target Performance Goal)

 

Payout

 

 

                                 

 

 

80%

 

 

100%

 

 

125%

       

(As Percentage of Target PSU Amount)

PSUs Earned for Fiscal 2020.

At its meeting in July 2020, the Compensation Committee determined that with regard to the 2018 PSUs, ROIC performance for Fiscal 2020 was 5.2% which was at 43% of the target ROIC of 12.0% earning 0% of the target PSUs, for a total three year ROIC performance earning 81.37% of the target PSUs, and Relative TSR performance for the three-year period ending in Fiscal 2020 was at the 16.9 percentile earning 80% of the target PSUs, resulting in a total of 65.1% of the target 2018 PSUs being earned and vested in Fiscal 2020.

The Compensation Committee determined that regarding the 2019 PSUs, ROIC performance for Fiscal 2020 was 5.2% which was at 40% of the target ROIC of 13.0% earning 0% of the target PSUs, and with the three-year Relative TSR performance only in its second year, no PSUs have yet been earned under this measure.

The Compensation Committee determined that regarding the 2020 PSUs, ROIC performance for Fiscal 2020 was 5.2% which was at 40% of the target ROIC of 13.0% earning 0% of the target PSUs, and with the three-year Relative TSR performance only in its first year, no PSUs have yet been earned under this measure.

The Company did not grant any Stock Option Awards in Fiscal 2020. The Stock Option Awards granted in prior years are disclosed in the compensation tables provided below.

2020 Special Recognition, Attraction and Retention Award

On a limited and selective basis, we sometimes pay additional compensation to our employees in the form of special recognition, attraction or retention awards. For example, we may provide a special award to an individual to reimburse him/her for compensation he/she would forfeit by terminating previous employment, or to recognize contributions to a critical strategic initiative.

Employees at all levels of the Company are eligible to receive special awards. We may provide awards in the form of cash bonuses, equity, or a combination of cash and equity, in each case depending on the reason for the

 

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bonus. The amount of any special recognition or retention award depends on the reason it is being granted. The Compensation Committee must approve any special awards for our executives. For Fiscal 2020, the Committee approved no special long-term incentive award for any of the NEOs.

Retirement Plans

We maintain both qualified and non-qualified defined benefit and qualified defined contribution retirement plans that are designed to work together to provide retirement pay to our executives. We provide certain pension and retirement benefits as part of our broader executive compensation program to attract and retain our executives.

Qualified Plans. We maintain a qualified retirement plan for substantially all U.S. employees, including our executive officers. The Thrift Plus Plan (“TPP”) is a defined contribution or “401(k)” plan in which all NEOs participate. The TPP was established to encourage investment and savings for eligible employees of business units, business entities and locations of Kennametal and its affiliates. Most eligible employees may elect to contribute from 1% to 50% of their salary to the TPP in the form of pre-tax, after-tax and/or Roth contributions. Unless they make a contrary election, any eligible employee who does not elect to participate by the first payroll period occurring no earlier than 45 days nor later than 90 days of first becoming eligible will have a 3% pre-tax contribution made on his or her behalf.

Participating employees receive a Company matching contribution of 100% of employee pre-tax, after tax and/or Roth contributions up to 6% of base salary. Matching contributions made to eligible employees working after January 1, 2017 are 100% vested and can be made in the form of cash or Kennametal stock. The employee contributions, Company contributions and earnings thereon are invested and ultimately paid out in accordance with elections made by the participant. Participants have the right to direct the TPP trustee regarding how to vote any shares of Company stock held in their accounts. Shares as to which no instructions are received are voted by the trustee in its sole discretion. See the Summary Compensation Table and accompanying notes for more information about Company contributions to the NEOs’ accounts.

Non-Qualified Plan. We maintain two non-qualified retirement plans: the Executive Retirement Plan (“ERP”) and the Kennametal Restoration Plan. Our ERP provides a formula-based benefit to eligible NEOs that is payable on a lump sum basis. The amount of the benefit is based upon an executive’s accrued benefit percentage (which varies by age) and compensation (base salary together with AIP target awards averaged for the three most recent fiscal years). ERP benefits vest once an executive’s accrued benefit percentage reaches 150%. If an executive terminates employment prior to reaching age 62, then the accrued benefit percentage is reduced to reflect the accrued benefit percentage that was applicable to the executive two years prior to the date of termination. Mr. Dragich and Ms. Bacchus participate in the ERP. The ERP was frozen as of December 31, 2016, with no new participants permitted into the ERP and those in the ERP as of December 31, 2016, are grandfathered in the ERP.

Beginning January 1, 2018, our Kennametal Restoration Plan, a non-qualified retirement plan, allows eligible NEOs to make pre-tax contributions on eligible compensation in excess of the Internal Revenue Code (IRC) Section 401(a)(17) dollar limits ($285,000 for 2020) applicable to the TPP. In addition, it provides for a “make whole” Company contribution equal to the maximum matching contribution not provided to eligible employees under the TPP on compensation in excess of this IRC limit on compensation that can be taken into account by the TPP. Company contributions are vested when made, subject, however, to later forfeiture in the event the NEO is terminated for cause or engages in any business activities determined to be in competition with the Company. The NEO contributions, Company contributions and earnings thereon are invested in the same “notional options” available under the TPP (other than the ability to select investments not available under the

 

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TPP through the self-directed investment or brokerage option) and ultimately paid out in cash, in accordance with elections made by the participant.

The amount payable under each retirement plan for each eligible NEO is determined by the plan’s benefit formula. The amount of benefits varies based upon the plan, the NEO’s years of service with us, and the NEO’s compensation. Please see the tabular disclosures in the 2020 Pension Benefits table below as well as the narrative discussion following that table for more information on these plans.

Perquisites Allowance

In Fiscal Year 2020, effective August 1, 2019, we eliminated the fixed perquisite allowance for all executives.

To promote our emphasis on the health, safety and wellness of our employees, we continue to provide for officer life insurance to certain executive officers who were eligible for such insurance prior to December 2015, at which time such benefit was frozen to new executive officers. Ms. Bacchus and Mr. Dragich are the only two NEOs who are eligible for officer life insurance.

Personal benefits paid to our NEOs (e.g., life insurance) for 2020 (or portion of the year) are included in a supplemental table to the Summary Compensation Table as part of the footnotes to the Summary Compensation Table. Other than the personal benefits included therein, our executives receive the same benefits that are generally provided to other salaried employees, including eligibility to participate in group medical and dental plans, vision, long- and short-term disability, group life insurance, accidental death and dismemberment insurance, business travel accident insurance, health care and dependent care spending accounts, qualified retirement plans, and other benefits, in accordance with the terms of the programs.

2021 Executive Compensation Program

2021 Compensation Information

In July 2020, the Compensation Committee made the following determinations regarding the Company’s executive compensation program for the NEOs.

Changes to 2021 Base Salary

For Fiscal 2021, the Compensation Committee approved no base salary increases for any of our NEOs. At a special meeting on June 4, 2020, the full Board approved a 20% base salary reduction for all executives, effective July 1, 2020, and intended such reductions to continue through December 31, 2020.

Changes for 2021 AIP

 

 

Modified the AIP corporate financial goals for all of our NEOs as Adjusted EBIT weighted 50%, compared to 60% in Fiscal 2020, and retained PWCPS weighted at 20%.

 

 

Modified the individual performance component for all of our NEOs weighted 30%, compared to 20% in Fiscal 2020.

 

 

Eliminated the financial performance threshold applicable to the components.

At its meeting in July 2020, the Compensation Committee determined that the financial performance goals would be modified to make up 70% of the incentive opportunity with Adjusted EBIT at a 50% weighting and PWCPS to be weighted 20%, with the individual goal being weighted 30%. The performance goals and curves for

 

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EXECUTIVE COMPENSATION: Compensation Discussion and Analysis

 

Adjusted EBIT and PWCPS will be determined and approved by the Compensation Committee during the second quarter of Fiscal 2021 given the uncertainty of the economic recovery and the Company’s financial results. The individual performance goals curve will remain the same. Each metric will be calculated independently with a pro-rata calculation between performance levels. With regard to achieving the individual performance goals, an AIP opportunity of 30% to 90% of target is earned for a performance rating of “Meets Low Expectations;” 91% to 110% of target award is earned for a performance rating of “Fully Meets Expectations;” 111% to 160% of target award is earned for a performance rating of “Meets High Expectations;” and 161% to 200% of target award is earned for a performance rating of “Exceeds Expectations;” with calculation interpolated between performance levels. The individual performance goals are set and approved by the Compensation Committee and generally reflect individual objectives within the responsibility of the executive that will lead the Company into and through the recovery phase of the pandemic over the next fiscal year. The Compensation Committee approved the removal of the minimum performance requirement of positive net income after compensation expense for Fiscal 2021, given the uncertainty of the economic recovery and the Company’s results.

Changes for 2021 LTI Program

At its meeting in July 2020, the Compensation Committee temporarily modified the 2021 LTI design for NEOs with 50% of the LTI target opportunity granted in the form of PSUs and 50% granted in the form of RSUs, compared to 60% and 40%, respectively, in Fiscal 2020. The Compensation Committee also determined that the RSUs would continue to vest at the rate of one-third per year on each grant date anniversary over three-years and the performance goals underlying the PSUs to be granted in Fiscal 2021 would continue to be based on Adjusted ROIC results (100% weight) with Relative TSR as a vesting multiple based on (i) the Corporation’s TSR relative to the Peer Group TSR for the cumulative three-year performance period ending on June 30, 2023 (“Performance Period”) and (ii) satisfaction of the condition of employment. Given the uncertainty of the economic recovery in these unprecedented times, the Compensation Committee agreed that the Adjusted ROIC performance goals and curves would be determined during the second quarter of Fiscal 2021 for the Fiscal Year 2021, and determined the Fiscal Year 2022 and Fiscal Year 2023 ROIC performance goals and curves would be determined immediately prior to the beginning of each of the applicable fiscal years.

The Committee believes the use of ROIC will continue to strengthen the line of sight attributable to working capital and inventory management and that the use of Relative TSR as a modifier will provide a direct alignment to increases or decreases in shareowner value relative to other manufacturing companies. The Committee believes the use of these measures will continue to support the focus on the Company’s strategic objectives, leading to greater levels of shareowner value. Additionally, the Compensation Committee agreed to provide for grants of RSUs for the 2021 LTI Program.

The following table shows the target level annual LTI opportunities, as a percentage of base salary as of August 1, 2020, set for each of our NEOs, under our LTI program for Fiscal 2021:

 

Name

 

  

Target

Long-Term Incentive
Opportunity as a
Percentage of Base
Salary

 

   

Christopher Rossi

 

      

 

350%

 

 

 

         

Damon Audia

 

      

 

175%

 

 

 

         

Peter A. Dragich(1)

 

      

 

175%

 

 

 

         

Ronald L. Port

 

      

 

175%

 

 

 

         

Judith L. Bacchus

       100%            

 

(1)

Mr. Dragich ceased to serve as Vice President and Chief Operations Officer, Metal Cutting as of August 31, 2020.

 

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EXECUTIVE COMPENSATION: Compensation Discussion and Analysis

 

Stock Ownership Guidelines

We have adopted Stock Ownership Guidelines for directors, executives and key managers to effectively link the interests of management and our shareowners and to promote an ownership culture throughout our organization. We believe that stock should be acquired and held in quantities that encourage management to make decisions and take actions that will enhance Company performance and increase its value. These guidelines were first adopted in 1995 and are reviewed annually by the Compensation Committee at its October meeting as a standing agenda item. Employees have five years from the date they become subject to the guidelines to acquire the requisite holdings.

The current guidelines are:

 

    

FY20

Multiple of

Base Salary

 

   

President and CEO

 

   5X

 

         

CFO, Top Industrial Segment Executive and Top Infrastructure Segment Executive

 

   3X

 

         

All Other Executive Leadership Team Members Reporting to the President and CEO

 

   2X

 

         

Senior Leadership Direct Reports to the Executive Leadership Team (e.g. Vice President
and Managing Director)

  

 

0.5X

         

Shares owned outright, restricted stock and RSUs, deferred stock credits, and shares owned in benefit plans (such as a 401(k)) count toward fulfilling the ownership guidelines.

Insider Trading Policy / Hedging and Pledging Policy

We have an insider trading policy that prohibits executives from engaging in any transaction in our stock unless that transaction has been pre-cleared and approved. Although we generally do not mandate when executives may trade, among other requirements, our insider trading policy defines pre-clearance procedures and trading window periods, which open 24 hours after our quarterly earnings release and remain open for approximately 1 1/2 months thereafter.

Our insider trading policy includes hedging and pledging prohibitions that prohibit the hedging of Company stock by directors, executive officers and other corporate officers, as defined in the policy, and their family members, without the prior approval and express authorization of the Company’s General Counsel. Further, this policy also prohibits the pledging of Company stock by directors, executive officers and other corporate officers and their family members, unless the General Counsel has granted an exception to the individual. An exception to this prohibition may be granted where an individual wishes to pledge Company stock as collateral for a loan (not including margin debt) and clearly demonstrates the financial capacity to repay the loan without resort to the pledged stock. For additional detail about the Company’s insider trading policy, see the subsection entitled Prohibited Transactions under the Ethics and Corporate Governance section above.

Employment Agreements

We have employment agreements with all executive officers. We have summarized the material terms of these agreements below.

 

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EXECUTIVE COMPENSATION: Compensation Discussion and Analysis

 

General. The agreements require our executives to devote their entire time and attention to the business and affairs of Kennametal while they are employed.

Term. There is no predetermined term. Each executive entered into the agreement upon commencing duties as an executive officer of the Company.

Compensation. Except as noted below, the executive officer’s base salary, AIP opportunity, if any, and any other compensation for services are not specified under the agreements but rather are determined by the Compensation Committee upon the commencement of employment and assignment of the executive to a salary band. Thereafter, the Compensation Committee makes determinations regarding base salary, incentive awards, and all other components of compensation as described in this CD&A section.

Non-competition/non-disclosure. Unless the Company provides prior consent in writing, if an executive officer decides to voluntarily terminate his or her employment or the Company terminates the executive’s employment for cause, then for two or three years after the date of termination (depending on the executive), the executive cannot, in any geographic area in which the Company is offering its services and products: (a) directly or indirectly engage in; or (b) assist or have an active interest in; or (c) enter the employ of, or act as agent for, or advisor or consultant to, any entity which is or is about to become directly or indirectly engaged in any business that is competitive with any business of the Company or any of our subsidiaries or affiliates in which the executive is or was engaged. The non-competition provision does not apply if the Company terminates Mr. Dragich without cause. Messrs. Audia and Port and Ms. Bacchus are subject to a one-year non-competition provision if terminated by the Company without cause. Mr. Rossi is subject to a two-year non-competition provision if terminated by the Company without cause. However, in case of termination for any reason, the executive cannot disclose any of our confidential or trade secret information.

Assignment of Inventions. Each executive officer must assign to us all inventions conceived or made during his or her employment with the Company.

Employment Termination. The executive officer’s employment may be terminated by either party at any time, for any reason or no reason at all; provided, that the Company may only terminate an executive officer’s employment with the approval and authorization of the Board.

Severance. If, with Board authorization, we involuntarily terminate an executive officer’s employment prior to a change in control and not for cause, the executive is entitled to 12 months of severance in the form of salary continuation, except for our CEO, Mr. Rossi, who is entitled to 24 months of severance in the form of salary continuation. Our executive officers are not entitled to severance under any other termination scenario outside of a change in control context.

Change in Control. Under certain circumstances, the agreements provide for payments to an executive officer if his employment is terminated after a change of control. See “Termination Conditions and Arrangements” below and the “Potential Payments upon Termination or Change in Control” section of this Proxy Statement for a more detailed discussion.

No partial excise tax gross-up in agreements. Our executive officer employment agreements do not provide for any partial excise tax gross-up.

Termination Conditions and Arrangements

In a non-change in control context, our executive employment agreements provide for severance if the executive’s employment is terminated by us without “cause.” Additional details regarding the severance provisions and potential payments to our NEOs outside of a change in control context can be found in the “Potential Payments upon Termination or Change in Control” section.

 

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EXECUTIVE COMPENSATION: Compensation Discussion and Analysis

 

Our executive employment agreements, stock and incentive plans and certain of our retirement and post-employment plans contain change in control provisions. The change in control provisions in the executive employment agreements are applicable only for those executives that have entered into these agreements, which includes each of our NEOs. The provisions of our incentive plans and retirement plans are applicable to a broader base of our employees and include all those who participate in those plans. We include these provisions because we believe they help to align executive, Company, and shareowner interests. If we evaluate a possible transaction, we want our management to focus on the potential fit with our corporate goals and strategy and the creation of long-term value for our shareowners. We believe that change in control protections enable our management to consider corporate transactions objectively and to decide whether they are in the best interests of the Company and its shareowners without undue concern over whether the transactions may jeopardize future employment.

The change in control protections under our executive employment agreements only provide payments upon the occurrence of a “double trigger,” rather than on the single occurrence of a change in control when the executive has not experienced a separation from service. For severance benefits to be “triggered,” a change in control must take place and an executive must be involuntarily terminated by us (other than for “cause” or Disability (as defined in the employment agreements)) or must voluntarily leave for “good reason” within 6 months prior to or 24 months following the change in control in the case of Messrs. Rossi, Audia, and Port and Ms. Bacchus. For Mr. Dragich, the period is 36 months following the change in control. For additional information concerning the change in control arrangements for our NEOs, see the “Potential Payments upon Termination or Change in Control” section of this Proxy Statement.

Recoupment of Awards and Incentive Payments

In any case where there has been an allegation of fraud or misconduct, the Board of Directors would investigate and carefully review the facts and circumstances of the alleged misconduct before determining the appropriate course of action. If, after completing its investigation, the Board were to determine that an employee or officer did engage in fraudulent behavior or misconduct, the Board would take appropriate action, which could include, among other things, termination of employment, institution of legal proceedings against the wrongdoer, or bringing the misconduct to the attention of the proper authorities. If the misconduct results in a material restatement of the Company’s financial results, then the Board, in addition to the above remedies, may also seek repayment of any bonus received for the period restated, seek repayment of gains realized because of exercising stock options awarded for the period restated, or cancel any outstanding stock options or other equity or incentive compensation.

The Company also incorporates restrictive covenants (prohibiting working for competitors for a period following separation from employment and disclosure of confidential or proprietary information) into the executive employment agreements, and the ERP. If the Board of Directors determines that a violation of any one of these covenants has occurred, it may, in its discretion, discontinue any future payments and/or take appropriate legal action to recoup amounts paid under these programs.

Tax, Accounting, and Regulatory Considerations

We consider the effect of tax, accounting and other regulatory requirements in designing and implementing compensation programs, and while these factors may impact plan designs, ultimately decisions reflect the pay strategy of the Company and the program intent.

Section 162(m) of the Code currently imposes a $1 million limit on the amount that a public company may deduct for compensation paid to an employee who is chief executive officer, chief financial officer, or another “covered employee” (as defined by Section 162(m)), or was such an employee beginning in any year after 2017. Prior to the enactment of the Tax Cuts and Jobs Act, Section 162(m) of the Code generally disallowed public

 

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EXECUTIVE COMPENSATION: Compensation Discussion and Analysis

 

companies a tax deduction for compensation in excess of $1,000,000 paid to their chief executive officer and their three other most highly compensated executive officers (excluding the chief financial officer) unless certain performance and other requirements were met. As part of the Tax Cuts and Jobs Act, the exemption from the deduction limitation for performance-based compensation provided by Section 162(m) was repealed effective for taxable years beginning after December 31, 2017. As a result, compensation paid to certain executive officers which exceeds $1,000,000 will not be deductible unless it qualifies for transition relief applicable to certain arrangements in place as of November 2, 2017.

There can be no assurance that compensation structured with the intent of qualifying as performance-based compensation, even prior to the effectiveness of the legislative changes, will be deductible under Section 162(m), depending on the application of the grandfather rule.

Additionally, we reserve the right to design programs and to structure other compensation arrangements that recognize a full range of performance criteria important to our success or that contain different terms, even where the compensation paid under such programs may not be deductible. This discretion is an important feature of the Committee’s compensation practices because it provides the Committee with sufficient flexibility to respond to specific circumstances facing the Company.

Tools and Analytics

The Compensation Committee utilizes various tools and analytics provided by both Pay Governance and our internal management and human resources personnel to execute its duties. These tools and analyses provide internal and external context and perspective to assist the Compensation Committee with its decision-making process. The Compensation Committee reviews and considers the following information, as appropriate, when making compensation decisions:

 

 

Total compensation tally sheets and pay histories for the CEO and executive officers;

 

 

CEO and executive officer competitive assessments for all elements of pay;

 

 

Realizable pay-for-performance and value sharing assessments versus our peer group;

 

 

Dilution and share utilization assessments, projections and comparisons;

 

 

Equity expense comparisons versus our peer group;

 

 

Incentive design and vehicle prevalence analyses;

 

 

Internal goal setting and achievement analyses;

 

 

Compensation policy and practices risk assessment;

 

 

Executive retention analyses;

 

 

Annual and long-term incentive plan performance and progress updates;

 

 

Executive perquisite prevalence analyses; and

 

 

Other ad hoc analyses performed at the Compensation Committee’s direction.

The information above is reviewed either annually or by special request of the Compensation Committee.

Compensation for Non-Employee Directors

The Nominating/Corporate Governance Committee has responsibility for the review and oversight of non-employee director compensation. The role of the Nominating/Corporate Governance Committee in this context is explained in further detail in the “Ethics and Corporate Governance” section of this Proxy Statement. The compensation of non-employee directors in 2020 is described more fully in the “Board of Directors Compensation and Benefits” section of this Proxy Statement.

 

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Compensation Committee Report

The Compensation Committee (“we” or “the committee”) recommends an overall compensation policy to the Board, has direct responsibility for matters relating to compensation of the executive officers, advises the Board regarding management succession, and administers the Company’s equity compensation plans and deferred compensation plans. Management has the primary responsibility for the Company’s financial statements and reporting process, including the disclosure of executive compensation. Accordingly, we have reviewed and discussed with management the Compensation Discussion and Analysis section of this Proxy Statement. Based on that review and discussion, we have recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement for filing with the Securities and Exchange Commission.

Compensation Committee:

Steven H. Wunning, Chair

Joseph Alvarado

Cindy L. Davis

William J. Harvey

 

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Analysis of Risk Inherent in our Compensation Policies and Practices

During 2020, the Compensation Committee directed the Company’s management to work with Pay Governance to conduct a risk assessment of all of our compensation policies and practices to ensure that they do not foster risk taking above the level of risk associated with our business model. Based upon that review and a review by management of the Company’s internal controls, the Compensation Committee has concluded that our compensation programs do not encourage executives or other employees to take inappropriate risks that are reasonably likely to have a material adverse effect on the Company. The Compensation Committee based its conclusion on a variety of factors, including the following specific aspects of the Company’s compensation practices:

 

 

The AIP is based on balanced performance metrics that promote disciplined progress towards longer-term Company goals;

 

 

We do not offer significant short-term incentives that might drive high-risk investments at the expense of long-term Company and shareowner value;

 

 

At the senior management and executive levels, our compensation programs are weighted towards offering long-term incentives that reward sustainable long-term performance, especially when considering our share ownership guidelines and vesting requirements; and

 

 

All compensation awards are capped at reasonable and sustainable levels, as determined by a review of our economic position and prospects, as well as the compensation offered within our peer group and by comparable companies.

 

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ANALYSIS OF RISK INHERENT IN OUR COMPENSATION POLICIES AND PRACTICES

 

Executive Compensation Tables

The tables and discussion below show the compensation paid to our NEOs for Fiscal 2020. Only 2020 and 2019 compensation amounts are provided for Mr. Audia, because 2019 was his first year as an employee of the Company. Ms. Bacchus was not an NEO in 2018.

Summary Compensation Table

 

Name and

Principal Position

  Year  

Salary

($)

 

Bonus

($)

 

Stock

Awards

($)(1)

 

Option

Awards

($)

 

Non-Equity

Incentive

Plan

Compensation

($)(2)

 

Change in

Pension Value

and

Nonqualified

Deferred

Compensation

Earnings

($)(3)

 

All Other

Compensation

($)(4)

 

Total

($)

Christopher Rossi

   

 

2020

 

   

 

857,573

 

             

 

3,824,404

 

             

 

 

             

 

116,251

 

   

 

4,798,228

 

President and Chief

   

 

2019

 

   

 

888,958

 

             

 

3,210,648

 

             

 

966,042

 

             

 

348,462

 

   

 

5,414,110

 

Executive Officer

   

 

2018

 

   

 

779,167

 

   

 

500,000

 

   

 

2,756,592

 

             

 

1,558,560

 

             

 

50,580

 

   

 

5,644,899

 

Damon Audia

   

 

2020

 

   

 

516,930

 

             

 

1,001,248

 

                                 

 

59,821

 

   

 

1,577,998

 

Vice President and

   

 

2019

 

   

 

423,958

 

             

 

4,408,108

 

             

 

391,600

 

             

 

38,621

 

   

 

5,262,287

 

Chief Financial Officer

   

 

2018

 

                                                                               

Peter A. Dragich

   

 

2020

 

   

 

434,914

 

             

 

843,103

 

             

 

 

   

 

250,157

 

   

 

51,908

 

   

 

1,580,082

 

Former Vice President and

   

 

2019

 

   

 

456,820

 

             

 

1,065,368

 

             

 

306,142

 

   

 

247,528

 

   

 

78,905

 

   

 

2,154,763

 

Chief Operations Officer,

   

 

2018

 

   

 

435,400

 

             

 

891,911

 

             

 

527,764

 

   

 

261,954

 

   

 

24,196

 

   

 

2,141,225

 

Metal Cutting

                                                                                         

Ronald L. Port

   

 

2020

 

   

 

364,910

 

             

 

811,752

 

             

 

 

             

 

37,473

 

   

 

1,214,135

 

Vice President and

   

 

2019

 

   

 

365,708

 

             

 

776,459

 

             

 

243,210

 

             

 

84,451

 

   

 

1,469,828

 

Chief Commercial Officer,

   

 

2018

 

   

 

327,146

 

             

 

520,641

 

             

 

392,201