DEF 14A 1 d641447ddef14a.htm DEF 14A DEF 14A

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

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MASCO CORPORATION

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

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LOGO


 

A LETTER FROM THE CHAIR OF OUR BOARD

 

LOGO   

 

Masco Corporation

17450 College Parkway

Livonia, MI 48152

313-274-7400

www.masco.com

 

    

March 29, 2019

Dear Stockholder:

On behalf of our entire Board of Directors, I am pleased to invite you to attend Masco Corporation’s Annual Meeting of Stockholders. Our meeting will be held at 9:30 a.m. on Friday, May 10, 2019 at our corporate office in Livonia, Michigan. Following our formal meeting, management will provide a review of our operations and we will respond to your questions.

Board Oversight of Our Strategy

To optimize the effectiveness of our Board, we engage with management throughout the year to understand and oversee our Company’s strategic objectives, which focus on driving the full potential of our businesses, leveraging opportunities across our portfolio and actively managing our portfolio. Annually, we hold a strategy session with management to discuss the Company’s execution of those objectives and our Company’s long-term plans to drive stockholder value. At Board meetings throughout the year, management also provides updates on the progress toward achieving our strategy. The Board also sees our Company’s strategy and corporate culture in action when leaders of our businesses present their specific growth objectives to us at Board meetings and when we visit one business unit each year to engage with its broader leadership team.

Board Composition and Refreshment

Our Board is comprised of eleven directors who bring a diverse set of skills and experience that promote active and engaged discussions to ensure an effective and highly functioning Board. Our Corporate Governance and Nominating Committee regularly reviews our Board’s composition to ensure alignment with long-term strategy, and as a result, has recommended to our Board the appointment of seven new independent directors since 2012. We also have performed an annual self-evaluation for a number of years. This focus on board refreshment and self-evaluation has brought a valued balance of fresh perspectives and deep historical knowledge of our Company to our Board’s role as stewards of your investment in Masco Corporation. We will continue to focus on maintaining an appropriate balance of tenure, skills, experience and diversity, along with ensuring our Board continues to conduct itself effectively.

 


 


 

Commitment to Pay-for-Performance

We believe that our Organization and Compensation Committee has demonstrated a consistent commitment to developing and overseeing executive compensation programs that align our executive management team’s interests with delivering strong financial performance and driving long-term stockholder value. Our efforts to enhance our pay-for-performance practices resulted in 98% of the votes cast last year in favor of the compensation paid to our named executive officers. In 2018, approximately 87% of our CEO’s compensation consisted of performance-based pay. In addition, as discussed in the Compensation Discussion and Analysis, we have incorporated numerous best practices into our executive compensation programs.

We Value Your Support

On behalf of our entire Board, I thank you for your continued support of Masco Corporation and your confidence in us as Board members. Your vote is very important to us, and I urge you to carefully read this proxy statement. Voting instructions for the proposals to be presented at our Annual Meeting can be found on the enclosed proxy card. Please submit your vote today by internet, telephone or mail.

Sincerely,

 

LOGO

J. Michael Losh

Chair of the Board

THIS PROXY STATEMENT AND THE ENCLOSED PROXY CARD ARE BEING MAILED OR OTHERWISE MADE AVAILABLE TO STOCKHOLDERS ON OR ABOUT MARCH 29, 2019.

 

 


 


MASCO 2019  |  NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

LOGO   

MASCO CORPORATION

Notice of Annual Meeting

of Stockholders

 

    

Stockholders of record at the close of business on March 15, 2019 are entitled to vote at the Annual Meeting or any adjournment or postponement of the meeting. Whether or not you plan to attend the Annual Meeting, you can ensure that your shares are represented at the meeting by promptly voting by internet or by telephone, or by completing, signing, dating and returning your proxy card in the enclosed postage prepaid envelope. Instructions for each of these methods and the control number that you will need are provided on the proxy card. You may withdraw your proxy before it is exercised by following the directions in the proxy statement. Alternatively, you may vote in person at the meeting.

By Order of the Board of Directors,

 

 

LOGO

Kenneth G. Cole

Vice President, General Counsel and Secretary

 

 

  Date:   May 10, 2019
  Place:   Masco Corporation Corporate Office, 17450 College Parkway, Livonia, Michigan 48152
  Time:   9:30 a.m. – 10:00 a.m.
  Website:   www.masco.com
  

The purposes of the Annual Meeting are:

 

1.To elect four Class I directors;

 

2.To consider and act upon a proposal to approve the compensation paid to our named executive officers;

 

3.To ratify the selection of PricewaterhouseCoopers LLP as our independent auditors for 2019; and

 

4.To transact such other business as may properly come before the meeting.

 

The Company recommends that you vote as follows:

 

•  FOR each Class I director nominee;

 

•  FOR the approval of the compensation paid to our named executive officers; and

 

•  FOR the selection of PricewaterhouseCoopers LLP as our independent auditors for 2019.

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDER MEETING TO BE HELD ON MAY 10, 2019: THIS PROXY STATEMENT AND THE MASCO CORPORATION 2018 ANNUAL REPORT TO STOCKHOLDERS, WHICH INCLUDES THE COMPANY’S ANNUAL REPORT ON FORM 10-K, ARE AVAILABLE AT:

http://www.ezodproxy.com/masco/2019

THE COMPANY WILL PROVIDE A COPY OF ITS ANNUAL REPORT ON FORM 10-K, WITHOUT CHARGE, UPON A STOCKHOLDER’S WRITTEN REQUEST TO: INVESTOR RELATIONS, MASCO CORPORATION, 17450 COLLEGE PARKWAY, LIVONIA, MICHIGAN 48152.

 



2019 PROXY STATEMENT SUMMARY  |  MASCO 2019

 

LOGO   

 

 

2019 Proxy

Statement Summary

 

 

This summary highlights information to assist you in reviewing the proposals you will be voting on at our 2019 Annual Meeting. This summary does not contain all of the information you should consider; you should read the entire proxy statement carefully before voting. The proposals for our Annual Meeting are the election of our Class I Directors, the approval of the compensation paid to our named executive officers (who we generally refer to as our “executive officers” in this proxy statement), and the ratification of the selection of PricewaterhouseCoopers LLP as our independent auditors for 2019.

CORPORATE GOVERNANCE AND OUR BOARD OF DIRECTORS

Our Board of Directors is committed to maintaining our high standards of ethical business conduct and corporate governance principles and practices. Our corporate governance practices include:

 

  ü  

Robust Stockholder Engagement - We reach out to our largest stockholders each spring and fall to discuss a broad range of executive compensation and governance topics.

 

  ü  

Board Refreshment - Seven new independent directors have joined our Board since 2012.

 

  ü  

Organization and Talent Review - Our Organization and Compensation Committee performs an annual review of our talent strategy and CEO and senior management succession planning.

 

  ü  

Political Contribution Oversight - Our Corporate Governance and Nominating Committee oversees our political contributions in accordance with our Political Contribution Policy.

 

  ü  

Separation of our CEO and Chair of the Board - The positions of our CEO and Chair of the Board are currently separated; our Chair of the Board is an independent director.

 

  ü  

Board Self-Evaluation - Annually, our directors review the effectiveness of our Board through a self-evaluation process.

 

  ü  

Majority Voting for our Directors - In uncontested elections, our director nominees must receive more than 50% of the votes cast to be elected to our Board.

 

  ü  

Director Independence - Nine of our eleven directors are independent, and all of the members of our Audit, Organization and Compensation, and Corporate Governance and Nominating Committees are independent.

 


 


MASCO 2019  |  2019 PROXY STATEMENT SUMMARY

 

DIRECTOR NOMINEES

The Class I Director Nominees for our Board of Directors are:

 

LOGO

Marie A. Ffolkes

 

DIRECTOR SINCE: 2017

 

POSITION: President, Industrial Gases, Americas of Air Products & Chemicals, Inc.

 

 

 

 

INDEPENDENT: Yes

 

COMMITTEES: Audit Committee; Organization and Compensation Committee

 

LOGO

Donald R. Parfet

 

DIRECTOR SINCE: 2012

 

POSITION:

 

•  Managing Director, Apjohn Group, LLC, a business development company

•  General Partner, Apjohn Ventures Fund, Limited Partnership, a venture capital fund

 

INDEPENDENT: Yes

 

COMMITTEES: Audit Committee; Organization and Compensation Committee (Chair)

 

LOGO

Lisa A. Payne

 

DIRECTOR SINCE: 2006

 

POSITION: Former Vice Chairman and Chief Financial Officer of Taubman Centers, Inc., a real estate investment trust

 

 

 

INDEPENDENT: Yes

 

COMMITTEES: Audit Committee (Chair); Organization and Compensation Committee

 

LOGO

Reginald M. Turner

 

DIRECTOR SINCE: 2015

 

POSITION: Attorney and Member, Clark Hill PLC, a Detroit, Michigan-based law firm; and currently serves on its Executive Committee

 

 

 

INDEPENDENT: Yes

 

COMMITTEES: Audit Committee; Corporate Governance and Nominating Committee

 

 

 

If elected, each would serve for a three-year term concluding at our 2022 Annual Meeting.    

BOARD REFRESHMENT

We have had significant Board refreshment over the past several years. Seven new independent directors have joined our Board since 2012, which, combined with our directors who have experience with us, provides a desirable balance of deep, historical understanding of our Company and new and diverse perspectives.

STOCKHOLDER OUTREACH

In determining our executive compensation and corporate governance practices, our Board believes it is important to consider feedback from our stockholders. In 2018, we continued our robust stockholder engagement program and requested the opportunity to engage with stockholders holding approximately 50% of our outstanding shares. We ultimately engaged with stockholders representing 20% of our outstanding shares, and discussed our Board’s oversight of our strategy and risk, board composition and refreshment, corporate sustainability and our annual and long-term performance-based compensation programs. We received positive feedback from the stockholders with whom we spoke regarding the structure of our compensation programs and practices, which was reflective of the strong support we received for our say-on-pay proposal over the past years. We provide reports on the feedback we receive to our Organization and Compensation Committee (“Compensation Committee”) and Corporate Governance and Nominating Committee (“Governance Committee”).

 


 


2019 PROXY STATEMENT SUMMARY  |  MASCO 2019

 

2018 FINANCIAL PERFORMANCE

We delivered solid financial results in 2018. Our reported sales for the full year increased 9% to $8.4 billion and we increased our operating profit for the full year 1% to $1.2 billion. Our sales growth was driven by our acquisitions of Kichler Lighting in March 2018 and Mercury Plastics in December 2017, strong consumer demand due to increased repair and remodel activity and new home construction in the U.S. and net selling price increases. Our operating profit grew despite the rising price of raw materials and logistics costs, Enterprise Resource Planning System costs and a purchase accounting adjustment related to our acquisition of Kichler Lighting, demonstrating our ability to manage our costs.

In addition to delivering sales and operating profit growth, we continued to execute on our capital allocation strategy. In 2018 we returned value to our stockholders by repurchasing $654 million in shares of our stock and increasing our annual dividend for the fifth year in a row. In addition, we deployed $549 million to complete the acquisition of Kichler Lighting.

2018 EXECUTIVE COMPENSATION

Based on our financial performance in 2018, we exceeded the target for our working capital as a percent of sales goal, but we did not achieve our target operating profit goal.

2018 Annual Performance Program

Under our annual performance program, we pay cash bonuses and grant restricted stock to our executive officers if we meet our performance goals for operating profit and working capital as a percent of sales. The following tables reflect our 2018 target goals, our performance relative to our target goals and the compensation we paid to our executive officers under our 2018 annual performance program:

 

     

   Performance Metric

 

  

Target

 

      

 

Performance
(as adjusted)

 

      

 

Weighted
Performance
Percentage

 

   
     

   Operating Profit (in millions)

 

   $1,300

 

     $1,272

 

    

 

89%

 

 

 

 

   Working Capital as a Percent of Sales

 

  

15.3%

 

      

15.1%

 

       

 

   

See “Our 2018 Annual Performance Program” in our Compensation Discussion and Analysis for a description of our calculation of operating profit and working capital as a percent of sales performance.

 

     

   Name

 

  

Cash
Bonus ($)

 

      

Restricted
Stock
Award ($)

 

      

Total 2018
Annual
Performance
Compensation
($)

 

   
     

   Keith J. Allman

 

   1,603,600

 

     1,781,683

 

     3,385,283

 

 
     

   John G. Sznewajs

 

  

469,700

 

      

469,574

 

      

939,274

 

   
     

   Richard A. O’Reagan

 

   368,000

 

     367,987

 

     735,987

 

 
     

   Jai Shah

 

  

410,700

 

      

410,611

 

      

821,311

 

   
     

   Kenneth G. Cole

 

   270,300

 

     270,307

 

     540,607

 

 

 

   

Mr. Shah served as the General Manager of one of our business units until he was promoted to Group President in November 2018. His cash bonus and restricted stock award were determined using a prorated performance percentage of 104%, which is based on the performance of that business unit and our corporate performance in 2018.

 


 


MASCO 2019  |  2019 PROXY STATEMENT SUMMARY

 

2016-2018 Long-Term Performance Program

Under our 2016-2018 Long Term Cash Incentive Program (“LTCIP”), our executive officers had the opportunity to earn a performance award in cash based on our achievement of a performance goal over the three-year period. The following tables reflect our target return on invested capital (“ROIC”) goal for the 2016-2018 LTCIP performance period, our performance relative to our target goal and the compensation we paid to our executive officers:

 

     

   Performance Metric

 

  

Target

 

      

Performance
(as adjusted)

 

      

Performance
Percentage

 

   
     
     

   Return on Invested Capital

 

   12.0%

 

     15.0%

 

     160%

 

 
     

 

   

See “Our Long-Term Incentive Program” in our Compensation Discussion and Analysis for a description of our calculation of ROIC performance.

 

 

   Name

 

  

LTCIP for
2016-2018 ($)

 

   
 
 

   Keith J. Allman

 

   2,640,000

 

 
 
 

   John G. Sznewajs

 

  

772,800

 

   
 
 

   Richard A. O’Reagan

 

   556,200

 

 
 
 

   Jai Shah

 

  

407,100

 

   
 
 

   Kenneth G. Cole

 

   431,600

 

 
 

OUR COMPENSATION PRACTICES

During 2018, our Compensation Committee reviewed our compensation programs and practices to ensure our interests and the objectives for our compensation programs are aligned. At our 2018 Annual Meeting, 98% of the votes cast on our say-on-pay proposal approved the compensation we paid to our executive officers. Although the say-on-pay vote is advisory and non-binding, our Compensation Committee believes this approval percentage indicates strong support for our continued efforts to enhance our pay-for-performance practices, and our Compensation Committee concluded that our stockholders endorse our current executive compensation programs and practices.

Our compensation practices include:

 

  ü  

Long-Term Incentives - Our compensation programs are weighted toward long-term incentives. We give approximately equal weight to performance-based restricted stock, stock options and our three-year incentive program. In 2017, we modified our three-year incentive program by replacing the cash award with performance-based restricted stock units (“PRSUs”).

 

  ü  

Five-Year Vesting for Equity Awards - Our performance-based restricted stock and stock option awards vest over five years, which is longer than typical market practice.

 

  ü  

Long-Term Performance Program - A significant portion of our executive officers’ compensation opportunity is based on the achievement of a long-term performance goal.

 

  ü  

Capped Awards - Our annual and long-term incentive compensation plan payouts are limited to 200% of the target opportunity.

 

  ü  

Clawback Policy - If we restate our financial statements, other than as a result of changes to accounting rules or regulations, our clawback policy allows us to recover incentive compensation paid to our executives in the three-year period prior to the restatement, regardless of whether misconduct caused the restatement.

 


 


2019 PROXY STATEMENT SUMMARY  |  MASCO 2019

 

  ü  

Stock Ownership Requirements - We have minimum stock ownership requirements for our executive officers, including requiring our CEO to own stock valued at six times his base salary. As of December 31, 2018, each of our executive officers met his or her stock ownership requirement.

 

  ü  

Double-Trigger Vesting - We have double-trigger vesting of equity on a change in control.

 

  ü  

Tally Sheets and Risk Analysis - Our Compensation Committee uses tally sheets and analyzes risk in setting executive compensation.

 

  ü  

Competitive Analysis - On an annual basis, our Compensation Committee reviews a market analysis of executive compensation paid by our peer companies and published survey data for comparably-sized companies.

 

  ü  

Limited Perquisites - We provide limited perquisites to our executive officers.

Our compensation practices do not include:

 

 

Excise Tax Gross-Ups - We have eliminated the excise tax gross-up feature on all of the equity grants made since 2012.

 

 

Hedging or Pledging - Our policy prohibits executives and directors from hedging our stock and from making future pledges of our stock.

 

 

Contractual Termination Arrangements - We have no change in control agreements, contractual severance agreements or employment agreements providing for severance payments with our executive officers.

 

 

Option Repricing - Our equity plan prohibits the repricing of options without stockholder approval.

 


 


MASCO 2019  |  TABLE OF CONTENTS

 

Table of Contents

 

 PART I - CORPORATE GOVERNANCE

  

 Director and Director Nominees

     1  

 Director Nominees for Class  I (Term Expiring at Annual Meeting in 2022)

     2  

 Class II Directors (Term Expiring at the Annual Meeting in 2020)

     4  

 Class III Directors (Term Expiring at the Annual Meeting in 2021)

     6  

 Board of Directors

     8  

Leadership Structure of our Board of Directors

     8  

Director Independence

     9  

Board Refreshment

     10  

Board Membership and Composition

     10  

Risk Oversight

     11  

Board Meetings and Attendance

     12  

Communications with our Board of Directors

     12  

 Committees of our Board of Directors

     13  

 Director Compensation Program

     16  

 Related Person Transactions

     18  

 Proposal 1: Election of Class I Directors

     20  

 PART II - COMPENSATION DISCUSSION AND ANALYSIS

  

 Compensation Discussion and Analysis Summary

     21  

 Compensation Decisions in 2018

     25  

Our 2018 Financial Performance

     25  

How We Performed Against our Performance Compensation Goals

     25  

Our 2018 Annual Performance Program

     25  

Our Long Term Incentive Program

     28  

Stock Options Granted in 2018

     31  

Other Components of our Executive Compensation Program

     31  

 Our Executive Compensation Program Highlights

     32  

We Provide Long-Term Equity Incentives

     32  

We Have a Long-Term Performance Program

     33  

We Can Clawback Incentive Compensation

     33  

We Require Minimum Levels of Stock Ownership by our Executives

     33  

We Adopted Double-Trigger Change of Control Provisions for our Equity Awards

     34  

Our Compensation Committee Conducts an Annual Compensation Risk Evaluation

     34  

The Structure of our Compensation Programs Encourages Executive Retention and Protects Us

     34  

We Prohibit Excise Tax Gross-Up Payments

     34  

We Prohibit Hedging and Pledging

     35  

We Do Not Have Contractual Termination Agreements

     35  

 Our Annual Compensation Review Process

     35  

Annual Management Talent Review and Development Process

     35  

Compensation Data Considered by our Compensation Committee

     35  

 



TABLE OF CONTENTS  |  MASCO 2019

 

Our Peer Group

     37  

Retention of Discretion by our Compensation Committee

     37  

Outside Compensation Consultant

     37  

 Tax Treatment

     38  

 Conclusion

     38  

 Compensation Committee Report

     39  

  Proposal 2: Advisory Vote to Approve the Compensation of Our Named Executive Officers

     40  

 PART III - COMPENSATION OF EXECUTIVE OFFICERS

  

 Summary Compensation Table

     41  

 Grants of Plan-Based Awards

     45  

  Outstanding Equity Awards at Fiscal Year-End

     46  

 Option Exercises and Stock Vested

     49  

 Retirement Plans

     49  

 Payment Upon Change in Control

     52  

 Payment Upon Retirement, Termination, Disability or Death

     53  

 CEO Pay Ratio

     56  

 PART IV - AUDIT MATTERS

  

 Audit Committee Report

     57  

 PricewaterhouseCoopers LLP Fees

     58  

  Audit Committee Pre-Approval Policies and Procedures

     58  

 Proposal 3: Ratification of Selection of Independent Auditors

     59  

 PART V - EXECUTIVE OFFICERS AND BENEFICIAL OWNERSHIP

  

 Executive Officers

     60  

 Security Ownership of Management and Certain Beneficial Owners

     62  

 Section 16(a) Beneficial Ownership Reporting Compliance

     64  

 PART VI - GENERAL INFORMATION

  

2019 Annual Meeting of Stockholders – Questions and Answers

     65  

Who is entitled to vote at the Annual Meeting?

     65  

What is the difference between holding shares as a record holder and as a beneficial owner?

     66  

What is a broker non-vote?

     66  

How are abstentions and broker non-votes treated?

     66  

What constitutes a quorum?

     66  

How can I submit my vote?

     66  

How many votes are needed for each proposal to pass?

     67  

Is my proxy revocable?

     67  

Who is paying for the expenses involved in preparing and mailing this proxy statement?

     67  

What happens if additional matters are presented at the Annual Meeting?

     67  

What is “householding” and how does it affect me?

     67  

Our Website

     68  

 2020 Annual Meeting of Stockholders

     69  

Proxy Statement Proposal

     69  

Matter for Annual Meeting Agenda

     69  

Director Candidate Nomination

     69  

 Other Matters

     70  

 

 



PART I - CORPORATE GOVERNANCE  |  MASCO 2019

 

LOGO   

 

 

 

Corporate Governance

 

 

This section of our proxy statement provides information on the qualifications and experience of our director nominees and incumbent directors, the composition of our Board and structure of our Board committees, and other important corporate governance matters.

DIRECTORS AND DIRECTOR NOMINEES

Our Board is divided into three classes. Following the election of the Class I directors nominated at this Annual Meeting, the terms of office of our Class I, Class II and Class III directors will expire at the Annual Meeting of Stockholders in 2022, 2020 and 2021, respectively, or when their respective successors are elected and qualified.

In addition to meeting the criteria that are described below under “Board Membership and Composition,” each of our director nominees and each continuing director brings a strong and unique background and set of skills to our Board. As a result, our Board as a whole possesses competence and experience in a wide variety of areas.

 

 

Skills and Expertise Represented by our Directors and Director Nominees

 

                     

 

Business

development

and M&A

 

     

 

Executive

management

 

    

 

Government

relations

 

     

 

Legal and

compliance

 

    

 

Retail/channel

management

 

                     

 

Consumer

products and

manufacturing

 

     

 

Finance and

accounting

 

    

 

Growth strategy

 

     

 

Marketing and

brand

management

 

    

 

Risk

management

 

                     

 

Corporate

governance

 

 

     

 

Global

operations

 

 

    

 

Innovation

 

 

     

 

Portfolio

strategy

 

 

    

 

Talent

management

 

 

 


 

1


MASCO 2019  |  PART I - CORPORATE GOVERNANCE

 

DIRECTOR NOMINEES FOR CLASS I

(Term Expiring at the Annual Meeting in 2022)

 

LOGO

    

 

Marie A. Ffolkes

 

 

AGE: 46

 

 

DIRECTOR SINCE: 2017

 

 

POSITION:

• President, Industrial Gases, Americas of Air Products Chemicals, Inc., an industrial gases company, since 2015                              
            

 

 

RELEVANT SKILLS AND EXPERIENCE:

As President, Industrial Gases, Americas of Air Products & Chemicals, Inc., Ms. Ffolkes is responsible for leading the strategy implementation and profitability of the company’s industrial gases operations in North America and South America. Ms. Ffolkes’ strong leadership experience allows her to provide valuable contributions and perspectives to our Board in areas important to our performance including operations, finance, international markets, marketing and personnel.

 

 

 

BUSINESS EXPERIENCE:

•  Tenneco:

•  Global Vice President and General Manager, Ride Performance Group (2013-2015)

•  Vice President and General Manager, Global Elastomers (2011-2013)

•  Johnson Controls International plc (formerly, Johnson Controls):

•  Vice President & General Manager South America Region, Automotive Group (2010-2011)

•  Vice President and General Manager, Hyundai-Kia Customer Business Unit (2008-2010)

•  Global Vice President, Japan (2006-2008)

 

LOGO

    

 

Donald R. Parfet

 

 

AGE: 66

 

 

DIRECTOR SINCE: 2012

 

 

POSITION:

• Managing Director, Apjohn Group, LLC, a business development company, since 2000

• General Partner, Apjohn Ventures Fund, Limited Partnership, a venture capital fund, since 2003

 

 

RELEVANT SKILLS AND EXPERIENCE:

As an executive with responsibilities for numerous global businesses, Mr. Parfet brings extensive financial and operating experience to our Board, particularly in areas of financial and corporate staff management and senior operational practices for multiple global business units. His experience in business development and venture capital firms provides our Board with a valued perspective on growth and strategy. He is also experienced in leading strategic planning, risk assessment, human resource planning and financial planning and controls. His global operating experience, strong financial background and proven leadership capabilities are especially important to our Board’s consideration of product and geographic expansion and business development opportunities.

 

 

 

BUSINESS EXPERIENCE:

•  Chairman of the Board of Kelly Services, Inc., Lead Independent Director of Rockwell Automation, Inc. and Chairman of the Board of Sierra Oncology, Inc.

•  Senior Vice President, Pharmacia Corporation, a pharmaceutical company, from which he retired in
2000

•  Served as a senior corporate officer of Pharmacia &
Upjohn and The Upjohn Company, predecessors of Pharmacia Corporation

•  Director and trustee of a number of charitable and civic organizations
                 

 

 

 


 

2


PART I - CORPORATE GOVERNANCE  |  MASCO 2019

 

 

LOGO

    

 

Lisa A. Payne

 

 

AGE: 60

 

 

DIRECTOR SINCE: 2006

 

 

POSITION:

• Former Vice Chairman and Chief Financial Officer of Taubman Centers, Inc., a real estate investment trust

 

 

 

RELEVANT SKILLS AND EXPERIENCE:

Ms. Payne provides leadership and executive management experience to our Board. She also possesses substantial financial, accounting and corporate finance expertise gained through her experience as Chief Financial Officer of Taubman Centers and as an investment banker. Her financial focus and proficiency helped guide Taubman Centers through the economic recession and increase shareholder value. She brings to our Board an understanding of growth strategy. In addition, Ms. Payne’s extensive experience in real estate investment, development and acquisition gives her an informed and thorough understanding of macroeconomic factors that may impact our business.

 

 

 

BUSINESS EXPERIENCE:

•  Director of J.C. Penney Company, Inc. and Rockwell Automation, Inc.

•  Chairman of the Board of Soave Enterprises, LLC, a privately held diversified management and investment company (2016-2017)

•  President of Soave Real Estate Group (2016-2017)

•  Taubman Centers, Inc.:

•  Vice Chairman (2005-2016)

•  Chief Financial Officer (2005-2015)

•  Executive Vice President and Chief Financial and Administrative Officer (1997-2005)

• During the past five years, served as director of Taubman Centers, Inc. and Soave Enterprises, LLC

• Investment banker, Goldman, Sachs & Co. (1987-1997)

 

 

LOGO

    

 

Reginald M. Turner

 

 

AGE: 59

 

 

DIRECTOR SINCE: 2015

 

 

POSITION:

Attorney and Member, Clark Hill PLC, a Detroit,    Michigan-based law firm, since April 2000, and    currently serves on its Executive Committee

 

 

RELEVANT SKILLS AND EXPERIENCE:

As an accomplished litigator and legal advisor with expertise in labor and employment law and government relations, Mr. Turner brings to our Board substantial insight in these areas. His background, coupled with his service as a director of a financial institution and a member of its enterprise risk committee, make him a valuable asset to our Board in the areas of risk management and finance. Mr. Turner has numerous and varied experiences in business, civic and charitable leadership roles, and his skills and insight benefit our Board as it considers issues of risk management, corporate governance and legal risk.

 

 

 

BUSINESS EXPERIENCE:

•  Director of Comerica Incorporated since 2005, where he currently chairs that board’s Enterprise Risk Committee and serves on its Audit Committee and Qualified Legal Compliance Committee

•  Past President of the National Bar Association and past President of the State Bar of Michigan

•  Active in public service and with civic and charitable organizations, serving in leadership positions with the Detroit Public Safety Foundation, the Detroit Institute of Arts, and the Community Foundation for Southeast Michigan

•  Past chair of the United Way for Southeastern Michigan; Mr. Turner continues to serve on its executive committee

 

 

 


 

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MASCO 2019  |  PART I - CORPORATE GOVERNANCE

 

CLASS II DIRECTORS

(Term Expiring at the Annual Meeting in 2020)

 

LOGO

    

 

Keith J. Allman

 

 

AGE: 56

 

 

DIRECTOR SINCE: 2014

 

 

POSITION:

• Our President and Chief Executive Officer, since 2014

 

 

RELEVANT SKILLS AND EXPERIENCE:

Mr. Allman brings to our Board strong business leadership skills, hands-on operational experience with our businesses and valuable insight into our culture. He played an integral role in developing our strategies to strengthen our brands and improve our execution, which has helped to provide the foundation for the current direction of our Company. His key leadership positions within our Company have given him deep knowledge of all aspects of our business, and he also possesses a significant understanding of, and experience with, complex operations as well as company- specific customer expertise.

 

 

 

BUSINESS EXPERIENCE:

•  Masco Corporation:

•  Group President (2011-2014)

•  President, Delta Faucet (2007-2011)

•  Executive Vice President, Builder Cabinet Group (2004-2007)

•  Served in various management positions of increasing responsibility at Merillat Industries
(1998-2003)

• Director of Oshkosh Corporation

 

 

 

LOGO

    

 

J. Michael Losh

 

 

AGE: 72

 

 

DIRECTOR SINCE: 2003

 

 

POSITION:

• Retired Chief Financial Officer and Executive Vice
President of General Motors Corporation, a global
automotive company

 

 

RELEVANT SKILLS AND EXPERIENCE:

Mr. Losh has strong leadership skills gained through significant executive leadership positions and through his service on boards of other publicly held companies in various industries. His current activities provide him with valuable exposure to developments in board oversight responsibilities, corporate governance, risk management, accounting and financial reporting, which enhances his service to us as Chairman of our Board. In addition, Mr. Losh has experience with and understands complex international financial transactions. He possesses substantial finance and accounting expertise gained through his experience as Chief Financial Officer of large organizations and through his service on other boards and audit committees.

 

 

 

BUSINESS EXPERIENCE:

•  Director of Prologis, Aon plc, H.B. Fuller Company, Cardinal Health, Inc. and Amesite Inc.

•  During the past five years, served as a director of CareFusion Corporation and TRW Automotive Holdings Corp.

•  Interim Chief Financial Officer of Cardinal Health, Inc. (2004-2005)

•  Served for 36 years in various capacities at General Motors Corporation until his retirement in 2000

 

 

 

 

 


 

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PART I - CORPORATE GOVERNANCE  |  MASCO 2019

 

 

LOGO

    

 

Christopher A. O’Herlihy

 

 

AGE: 55

 

 

DIRECTOR SINCE: 2013

 

 

POSITION:

• Vice Chairman of Illinois Tool Works Inc., a global diversified industrial manufacturer of specialized industrial equipment, consumables, and related service businesses, since 2015

 

 

RELEVANT SKILLS AND EXPERIENCE:

Mr. O’Herlihy joined Illinois Tool Works Inc. in 1989. During his 30 years with Illinois Tool Works, he has held several executive positions through which he has acquired extensive knowledge and experience in all aspects of business, including business strategy, operations, mergers and acquisitions, emerging markets, financial performance and structure, legal matters and human resources/talent management. His current responsibilities include developing and executing the company’s overall corporate growth strategy. He brings to our Board strategic insight and understanding of complex business and manufacturing operations, as well as a valuable perspective of international business operations, gained through his experience with a multi-billion dollar diversified global organization.

 

 

 

BUSINESS EXPERIENCE:

•  Illinois Tool Works Inc.:

•  Executive Vice President, with worldwide responsibility for Illinois Tool Works’ Food Equipment Group (2010-2015)

•  Group President – Food Equipment Group Worldwide (2010)

•  Group President – Food Equipment Group International (2009-2010)

•  For almost 30 years, served in various positions of increasing responsibility, including as Group President of the Polymers and Fluids Group

    

    

    

 

 

 

 

LOGO

    

 

Charles K. Stevens, III

 

 

AGE: 59

 

 

DIRECTOR SINCE: 2018

 

 

POSITION:

•  Retired Executive Vice President and Chief Financial
Officer of General Motors Company, a global
automotive company

 

 

 

RELEVANT SKILLS AND EXPERIENCE:

Mr. Stevens joined General Motors Company in 1983 with the Buick Motor Division. In his over 30 years with General Motors Company, Mr. Stevens acquired significant leadership experience in financial and accounting operations. His extensive background and expertise provide to our management and Board a valuable understanding of finance, financial operations, international financial matters, mergers and acquisitions and consumer goods. His past responsibilities include being a vital contributor to developing and executing business strategies to drive profitable growth, which benefit our Board as it oversees our strategy.

 

 

 

BUSINESS EXPERIENCE:

•  Director of Flex, Ltd. since 2018

•  General Motors Company:

•  Executive Vice President and Chief Financial Officer (2014-2018)

•  Chief Financial Officer of GM North America (2010-2014)

•  Interim Chief Financial Officer of GM South America (2011-2013)

•  Chief Financial Officer of GM de Mexico (2008-2010)

•  Chief Financial Officer of GM Canada (2006-2008)

•  For more than 30 years, served in various positions of increasing responsibility, including several leadership positions with GM’s Asia Pacific region including China, Singapore, Indonesia and Thailand

 

 

 

 

 

 

 


 

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MASCO 2019  |  PART I - CORPORATE GOVERNANCE

 

CLASS III DIRECTORS

(Term Expiring at the Annual Meeting in 2021)

 

LOGO    

 

Mark R. Alexander

 

 

AGE: 54

 

 

DIRECTOR SINCE: 2014

 

 

POSITION:

• Chief Executive Officer, Icelandic Provisions, Inc., since February 2019

 

 

   RELEVANT SKILLS AND EXPERIENCE:

Through his experience as a current CEO and as the former President of Campbell Soup Company’s largest division, Mr. Alexander brings to our Board strong leadership skills and experience in developing and executing business growth strategies. His past business responsibilities include investing in brand-building, innovation and expanded distribution, which correspond to areas of focus at our business operations. His extensive international experience with consumer branded products and his background in marketing and customer relations also provide our Board with expertise and insight as we leverage our consumer brands in the global market.

 

 

 

   BUSINESS EXPERIENCE:

•  Campbell Soup Company:

•  Senior Vice President (2009-2018)

•  President of Americas Simple Meals and Beverages (2015-2018)

•  President of Campbell North America (2012-2015), Campbell International (2010-2012) and Asia Pacific (2006-2009)

•  Chief Customer Officer and President – North America Baking & Snacking (2009-2010)

•  Served in various marketing, sales and management roles in the United States, Canada, Europe and Asia since 1989

 

 

 

 

 

LOGO

 

   Richard A. Manoogian

 

 

AGE: 82

 

 

DIRECTOR SINCE: 1964

 

 

POSITION:

•  Our Chairman Emeritus, since 2012

 

 

 

RELEVANT SKILLS AND EXPERIENCE:

Mr. Manoogian was instrumental in the dramatic growth of Masco to become a global leader in the design, manufacture and distribution of branded home improvement and building products. His experience in navigating our Company through various phases of its transformation and diversification provides our Board with unique and extensive knowledge of our Company’s history and strategies. As a long-term leader at Masco, Mr. Manoogian possesses firsthand knowledge of our operations as well as a deep understanding of the residential repair and remodeling and new home construction industries.

 

 

 

BUSINESS EXPERIENCE:

•  Our Chairman of the Board (1985-2012)

•  Masco Corporation:

•  Executive Chairman (2007-2009)

•  Chief Executive Officer (1985-2007)

•  Elected President in 1968 and Vice President in 1964

•  Director of Ford Motor Company (2001-2014)

    

    

    

    

    

 

 

 

 

 

 


 

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PART I - CORPORATE GOVERNANCE  |  MASCO 2019

 

 

LOGO

    

 

John C. Plant

 

 

AGE: 65

 

 

DIRECTOR SINCE: 2012

 

 

POSITION:

• Chief Executive Officer (since February 2019) and Chairman of the Board (since 2017) of Arconic Inc. (formerly Alcoa Inc.)

 

 

RELEVANT SKILLS AND EXPERIENCE:

Based on his leadership positions with multi-billion dollar diversified global companies, Mr. Plant brings to our Board strategic insight and understanding of complex operations as well as a valuable perspective of international business. He understands how to manage a company through economic cycles and major transactions. He has a strong background in finance and extensive knowledge and experience in all aspects of business, including operations, business development matters, mergers and acquisitions, financial performance and structure, legal matters and human resources.

 

 

 

BUSINESS EXPERIENCE:

•  Director of Jabil Circuit, Inc. and Gates Corporation

•  TRW Automotive Holdings Corp.:

•  Chairman of the Board (2011-2015)

•  President and Chief Executive Officer and Director (2003-2015)

•  Co-member of the Chief Executive Office of TRW Inc. and the President and Chief Executive Officer of the automotive business of TRW Inc. (2001-2003)

•  Director Emeritus of the Automotive Safety Council

 

 

 

 

 

 


 

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MASCO 2019  |  PART I - CORPORATE GOVERNANCE

 

BOARD OF DIRECTORS

Our Board of Directors is committed to maintaining our high standards of ethical business conduct and corporate governance principles and practices.

 

 

  Key Facts about our Board

 

•  Chair of the Board: J. Michael Losh

•  Our current Chair and CEO roles are separate

•  Each member of our Audit Committee, Compensation Committee and Governance Committee is independent

•  6 Board meetings were held in 2018, including one business unit site visit

•  We have had significant board refreshment, as indicated by our range of director tenure:

 

Number of directors:    

3

   

5

   

3

Service on Board:    

0-4 years

   

5-9 years

   

10+ years

 

 

82%

   

3

   

73%

   

59

   
 

 

Independent

directors

 

   

 

Directors diverse

by race and/or

gender

 

   

 

Joined our Board

in the last 7 years

 

   

 

Average age of

our independent directors

 

   

Leadership Structure of our Board of Directors

Mr. J. Michael Losh was appointed as Chair of our Board on May 4, 2015. At that time, Mr. Losh also became the Chair of our Corporate Governance and Nominating Committee. Mr. Losh has served on our Board since 2003, including as the Chair of our Audit Committee from 2008-2015.

Effective Oversight of our Company

As an independent Chair of our Board, Mr. Losh has a strong working relationship with the other directors and with our management. His responsibilities include:

 

   

presiding at Board meetings and at executive sessions of the independent directors;

 

   

providing advice to our CEO;

 

   

consulting with management regarding information sent to our Board;

 

   

approving our Board’s meeting agendas and assuring that there is sufficient time for discussion of all agenda items;

 

   

overseeing the Board’s annual review of our strategic plan and its execution;

 

   

calling meetings of the independent directors, as necessary; and

 

   

overseeing our Board and Committee self-evaluation process.

 


 

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PART I - CORPORATE GOVERNANCE  |  MASCO 2019

 

Separation of our Chair of the Board and CEO Roles

Our Board believes that its leadership structure is in the best interests of the Company and our stockholders at this time; however, our Board has no policy with respect to the separation of the roles of CEO and Chair and believes that this matter should be discussed and determined by the Board from time to time, based on all of the then-current facts and circumstances. If the roles of Chair and CEO are combined in the future, the role of Lead Director could become part of our Board leadership structure.

Communications with our Chair of the Board

If you are interested in contacting the Chair of our Board, you may send your communication in care of our Secretary to the address specified in “Communications with Our Board of Directors” below.

Director Independence

Our Corporate Governance Guidelines require that a majority of our directors qualify as “independent” under the requirements of applicable law and the New York Stock Exchange’s listing standards.

Director Independence Standards

For a director to be considered independent, our Board must determine that the director does not have any direct or indirect material relationship with us. Our Board has adopted standards to assist it in making a determination of independence for directors. These standards are posted on our website at www.masco.com.

Assessment of our Directors’ Independence

Our Board has determined that nine of our eleven directors, including all of our non-employee directors other than Mr. Manoogian, are independent. As an employee, Mr. Allman, our President and Chief Executive Officer, is not an independent director. Our independent directors are Messrs. Alexander, Losh, O’Herlihy, Parfet, Plant, Stevens and Turner, Ms. Ffolkes and Ms. Payne.

In making its independence determinations, our Board reviewed all transactions, relationships and arrangements for the last three fiscal years involving each non-employee director and the Company.

 

   

In evaluating Mr. O’Herlihy’s independence, our Board considered our purchases of goods from Illinois Tool Works Inc. and its subsidiaries. The aggregate amount of these purchases was approximately $0.4 million in 2018. Illinois Tool Works has reported revenue of $14.8 billion in 2018. Our Board does not believe that Mr. O’Herlihy has a material interest in these transactions.

 

   

In evaluating Ms. Ffolkes’s independence, our Board considered our purchases of goods from Air Products & Chemicals, Inc. and its subsidiaries. The aggregate amount of these purchases was approximately $0.6 million in 2018. Air Products and Chemicals has reported revenue of $8.9 billion for its fiscal year ended September 30, 2018. Our Board does not believe that Ms. Ffolkes has a material interest in these transactions.

Our Board also determined that we did not make any discretionary charitable contributions exceeding the greater of $1 million or 2% of the revenues of any charitable organization in which any of our directors was actively involved in the day-to-day operations.

Committee Member Independence Assessment

Our Board has determined that each member of our Audit Committee, Compensation Committee and Governance Committee qualifies as independent.

 


 

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MASCO 2019  |  PART I - CORPORATE GOVERNANCE

 

Board Refreshment

Our Governance Committee reviews current director tenure, including whether any vacancies are expected on our Board due to retirement or otherwise, and periodically assesses the composition of our Board by reviewing our directors’ skills and expertise. Our Board completes a director skills exercise periodically to provide our Governance Committee insight into our Board composition. The Committee uses this information to evaluate the skills and experience represented on our Board and to identify anticipated skills and experience that would be valuable in the future to best support the Company’s strategic objectives. In 2017, our Governance Committee and Board focused on director candidate recruitment, which resulted in the appointment of two new independent directors, Ms. Marie Ffolkes and Mr. Charles Stevens.

Director Refreshment

Seven new independent directors have joined our Board since 2012, bringing fresh and diverse perspectives. These directors have particular strength in the areas of executive management, finance and accounting, global operations, business and growth strategy, brand management, consumer products, risk management, talent management, corporate governance and government relations. We believe the addition of these new directors, combined with our directors who have experience with us, provides a desirable balance of deep, historical understanding of our Company and new perspectives, resulting in strong guidance and oversight to our executive management team.

Board Membership and Composition

Board Membership

Our Governance Committee believes that directors should possess exemplary personal and professional reputations, reflecting high ethical standards and values. The expertise and experience of directors should provide a source of strategic oversight, advice and guidance to our management. A director’s judgment should demonstrate an inquisitive and independent perspective with intelligence and practical wisdom. Directors should be free of any significant business relationships which would result in a potential conflict in judgment between our interests and the interests of those with whom we do business. Each director should be committed to serving on our Board for an extended period of time and to devoting sufficient time to carry out the director’s duties and responsibilities in an effective manner for the benefit of our stockholders. Our Governance Committee also considers additional criteria adopted by our Board for director nominees and the independence, financial literacy and financial expertise standards required by applicable law and by the New York Stock Exchange.

Board Composition

Neither our Board nor our Governance Committee has adopted a formal Board diversity policy. However, as part of its assessment of Board composition and evaluation of potential director candidates, our Governance Committee considers whether our directors hold diverse viewpoints, professional experiences, education and other skills and attributes that are necessary to enhance our Board’s effectiveness. In addition, our Governance Committee believes that it is desirable for directors to possess diverse characteristics of gender, race, national origin, ethnicity and age, and considers such factors in its evaluation of candidates for Board membership.

Director Candidate Recommendations

The Governance Committee uses a number of sources to identify and evaluate director nominees. It is the Governance Committee’s policy to consider director candidates recommended by stockholders. All Board candidates, including those recommended by stockholders, are evaluated against the criteria described above. Stockholders wishing to have the Governance Committee consider a candidate should

 


 

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PART I - CORPORATE GOVERNANCE  |  MASCO 2019

 

submit the candidate’s name and pertinent background information to our Secretary at the address stated below in “Communications with our Board of Directors.” Stockholders who wish to nominate director candidates for election to our Board should follow the procedures set forth in our Certificate of Incorporation and Bylaws. For a summary of these procedures, see “2020 Annual Meeting of Stockholders” below.

Risk Oversight

Our Board oversees our risk management practices, both directly and through its committees. Our Board exercises its risk oversight through review and discussion of comprehensive analyses prepared by management on material risks facing us and related mitigating activities; updates regarding these risks are presented at Board meetings throughout the year, as necessary.

Key risk oversight activities of our Board include:

 

 

  Strategic risk

 

 

 

•  Each year our Board holds a strategy session in which management and our directors engage in a discussion of the execution of our current strategic objectives and the development of our long-term strategy.

 

•   In 2018, our Board’s strategy session included a presentation from an investment banker that provided our directors an external perspective of our Company.

 

    
    
    

 

  Financial and

  operational risk

 

•   Each year our Board and management discuss our enterprise risk management profile, including the financial and operational risks material to us, and the activities we are pursuing to mitigate those risks.

 

•   During the year, our directors discuss with management our financial performance and the opportunities and risks in achieving our annual and long-term operating plans.

 

•   During the year, our directors discuss with certain of our business unit general managers their business and industry and the strategic objectives of those business units.

 

    
    
    
    
    
    
    
    

 

  Legal, regulatory, ethics  

  and compliance risk

 

 

 

•   Each year our Board and management discuss an analysis of material legal, regulatory and ethics and compliance risk areas and the activities we are pursuing to mitigate those risks areas.

 

•   During the year, our directors discuss with management risks as they arise and activities being taken to mitigate those risks.

 

    
    
    
    

Our Board has delegated certain responsibilities for risk oversight to our Audit and Compensation Committees, as follows:

 

 

 

Key Risk Oversight Responsibilities of our

Audit Committee

 

   

 

Key Risk Oversight Responsibilities of our

Compensation Committee

 

 
 

 

• Financial reporting

 

• Internal controls over financial reporting

 

• Legal and regulatory compliance

 

• Ethics and compliance program

 

   

 

• Executive compensation programs and policies

 

• CEO and executive management succession planning

 

 

 


 

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MASCO 2019  |  PART I - CORPORATE GOVERNANCE

 

For a detailed description of the risk oversight activities of our Audit and Compensation Committees, see the “Committees of the Board of Directors” section.

Board Meetings and Attendance

Board Meetings

Our Board held six meetings in 2018, one of which focused primarily on reviewing our long-term strategic plan with management. In addition to the Board meetings at our corporate headquarters, in 2018 our directors visited Behr Paint’s headquarters and manufacturing and distribution facilities to observe operations and meet with Behr’s management team.

Meeting Attendance

Each director attended at least 75% of our Board meetings and applicable committee meetings that were held in 2018 while such person served as a director. It is our policy to encourage directors to attend our Annual Meeting of Stockholders, and all of our directors attended our 2018 Annual Meeting.

Executive Sessions

Our non-employee directors frequently meet in executive session without management, and the independent directors meet separately at least once per year. Mr.  Losh, as our Chair of the Board, presides over these executive sessions.

Communications with our Board of Directors

If you are interested in contacting our Chair of our Board, an individual director, our Board as a group, our independent directors as a group, or a specific Board committee, you may send a communication, specifying the individual or group you wish to contact, in care of: Kenneth G. Cole, Secretary, Masco Corporation, 17450 College Parkway, Livonia, Michigan 48152.

 


 

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PART I - CORPORATE GOVERNANCE  |  MASCO 2019

 

COMMITTEES OF OUR BOARD OF DIRECTORS

The standing committees of our Board are the Audit Committee, the Compensation Committee and the Governance Committee. These committees function pursuant to written charters adopted by our Board. The committee charters, as well as our Corporate Governance Guidelines and our Code of Ethics, are posted on our website at www.masco.com and are available to you in print from our website or upon request.

 

Audit Committee

 

LOGO

Lisa A. Payne Chair Mark R. Alexander Marie A. Ffolkes Christipher A. O Herlihy Donald R. Parfet John C. Plant Charles K. Stevens Reginald M. Turner

 

5 meetings in 2018

 

 

All members are independent and financially literate

 

Ms. Payne and Ms. Ffolkes and Messrs. Alexander, O’Herlihy, Parfet, Plant and Stevens qualify as “audit committee financial experts” as defined in Item 407(d)(5)(ii) of Regulation S-K

    

 

Audit Committee key activities in 2018:

 

    reviewed and approved our 2017 Form 10-K

 

    reviewed our Form 10-Qs filed in 2018

 

    reviewed and approved our independent auditor’s 2019 integrated audit plan and service fees

 

    reviewed and approved our 2019 internal audit annual operating plan

 

    discussed with management quarterly updates on our internal controls over financial reporting

 

    reviewed the performance of our internal and independent auditors

 

    reviewed with management quarterly updates on ethics hotline matters

 

    discussed with management certain risk management matters

 

    reviewed impact of adoption of new accounting standards

Audit Committee responsibilities include assisting the Board in its oversight of:

 

    the integrity of our financial statements;

 

    the effectiveness of our internal controls over financial reporting;

 

    the qualifications, independence and performance of our independent auditors;

 

    the performance of our internal audit function; and

 

    the compliance with legal and regulatory requirements, including our employees’ compliance with our Code of Ethics.

In addition, our Audit Committee reviews and discusses with management certain key financial and non-financial risks.

 

 


 

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MASCO 2019  |  PART I - CORPORATE GOVERNANCE

 

Organization and Compensation Committee

 

LOGO

Donald R. Parfet Chair Marie A. Ftolkes J. Michael Losh Christopher A. O' Herlihy Lisa A. Payne

6 meetings in 2018

 

 

All members are independent

 

    

 

Compensation Committee key activities in 2018:

 

    reviewed and approved the incentive compensation for 2017 paid to our executive officers

 

    reviewed the alignment of our business strategy with the current incentive compensation structure for our executive officers

 

    established the 2018 performance metrics and goals for our 2018 Annual Incentive Program and 2018-2020 Long Term Incentive Plan

 

    reviewed with management a pay-for-performance analysis of our CEO’s compensation as compared to our peer group

 

    discussed with management an organization and talent update and our talent strategy, including an update on our diversity and inclusion initiative

 

    reviewed with management our 2018 shareholder engagement activities

 

    discussed with management the impact of tax reform legislation on executive compensation

 

    assessed the risk of our compensation programs and policies

Our Compensation Committee is responsible for:

 

    determining the compensation paid to our executive officers;

 

    evaluating the performance of our senior executives;

 

    determining and administering restricted stock awards and options granted under our stock incentive plan;

 

    administering our annual and long-term performance compensation programs; and

 

    reviewing our management succession plan, including periodically reviewing our CEO’s evaluation and recommendation of potential successors.

In addition, our Compensation Committee evaluates risks arising from our compensation policies and practices, and has determined that such risks are not reasonably likely to have a material adverse effect on us. Our executive officers and other members of management report to the Compensation Committee on executive compensation programs at our business units to assess whether these programs or practices expose us to excessive risk.

 

 


 

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PART I - CORPORATE GOVERNANCE  |  MASCO 2019

 

 

Corporate Governance and Nominating Committee

 

LOGO

J. Michael Losh Chair Mark R. Alexander John C. Plant Charles K. Stevens Reginald M. Turner

 

4 meetings in 2018

 

 

All members are independent

 

    

 

Governance Committee key activities in 2018:

 

    reviewed and evaluated the composition of the Board and committees

 

    reviewed the results of our Board’s 2018 self- evaluation

 

    reviewed with management a report on our 2018 shareholder engagement activities

 

    reviewed director independence

 

    reviewed 2017 corporate and political contributions in accordance with our Political Contributions Policy

 

    discussed with management significant governance trends

Our Governance Committee is responsible for:

 

    advising our Board on the governance structure and conduct of our Board;

 

    developing and recommending to our Board appropriate corporate governance guidelines and policies;

 

    Board succession planning, including reviewing our Board’s structure and composition and the tenure of our directors;

 

    identifying and recommending qualified individuals for nomination and re-nomination to our Board;

 

    recommending directors for appointment and re- appointment to Board committees; and

 

    reviewing and recommending to the Board our director compensation.
 

 


 

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MASCO 2019  |  PART I - CORPORATE GOVERNANCE

 

DIRECTOR COMPENSATION PROGRAM

Our non-employee directors receive the following compensation for service on our Board:

 

 
   Compensation Element    Amount

 

   Annual Cash Retainer

  

 

$130,000

 

   Annual Equity Retainer (a)

  

 

Restricted stock with a value of $140,000 that vests in three equal installments over three years

 

   Annual Chair of the Board Cash Retainer

  

 

$200,000

 

   Annual Committee Chair Cash Retainer (b)

  

 

$22,000 for the Audit Committee

$20,000 for the Compensation Committee

$15,000 for the Governance Committee

 

   Meeting Fee (c)

  

 

None

 

   Stock Retention Guideline

  

 

Directors must retain at least 50% of the shares of restricted stock they receive from us until

their service as a director concludes

Annual Equity Retainer (row a): The restricted stock is granted under our Non-Employee Directors Equity Program.

Annual Governance Committee Chair Cash Retainer (row b): The Governance Committee Chair retainer is not paid if the director who chairs that committee also serves as the Chair of our Board. Currently Mr. Losh serves as both our Chair of the Board and Governance Committee Chair so he does not receive the Governance Committee Chair retainer.

Meeting Fee (row c): Our Board may approve the payment of meeting fees to directors serving on three or more standing committees or serving as members of a special committee constituted by our Board. No such fees were paid for 2018.

Other Compensation

Our non-employee directors may also receive the following benefits, which are available to all of our employees:

 

   

Matching gifts program under which we will match up to $5,000 of a director’s contributions to eligible 501(c)(3) tax-exempt organizations each year. Non-employee directors may participate in the matching gifts program until December 31 of the year in which their services as a director ends.

 

   

Employee purchase program under which a director may obtain rebates on certain of our products purchased for their personal use.

In addition, if space is available, a director’s spouse is permitted to accompany a director who travels on Company aircraft to attend Board or committee meetings.

Annual Review of our Director Compensation Program

Our Governance Committee reviews our director compensation program annually, including reviewing an analysis of the competitiveness of the program, and recommends any changes to our Board. During 2018, upon the recommendation of our Governance Committee, our Board made the following changes to our director compensation program:

 

   

Increased the annual cash retainer and annual equity retainer paid to non-employee directors each by $10,000, for a total annual retainer of $270,000;

 

   

Increased the Compensation Committee Chair retainer by $2,000; and

 

   

Increased the Governance Committee Chair retainer by $3,000.

 


 

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PART I - CORPORATE GOVERNANCE  |  MASCO 2019

 

In 2016, upon the recommendation of our Governance Committee, our Board amended our Non- Employee Director Equity Program to impose a limit on the amount of equity a director may receive during a year. The Board adopted an annual limit of the greater of 25,000 shares or restricted shares with a grant date value of $500,000 as the limit for each director.

DIRECTOR COMPENSATION TABLE

The following table reflects 2018 compensation paid to our directors, other than Mr. Allman, who is also a Company employee and receives no additional compensation for his service as a director.

 

2018 Director Compensation

 

       

Name

Cash Fees
Earned ($)
Restricted Stock
Awards ($) (a)
All Other
Compensation
($) (b)
Total ($)
       
       

Mark R. Alexander

 

127,500 140,098 267,598
       
       

  Marie A. Ffolkes

 

127,500 140,098 2,000 269,598
       
       

J. Michael Losh

 

327,500 140,098 5,000 472,598
       
       

  Richard A. Manoogian

 

127,500

140,098

267,598

       
       

  Christopher A. O’Herlihy

 

127,500 140,098 5,000 272,598
       
       

  Donald R. Parfet

 

147,000

140,098

5,000

292,098

       
       

Lisa A. Payne

 

149,500 140,098 289,598
       
       

  John C. Plant

 

127,500

140,098

267,598

       
       

Charles K. Stevens

 

127,500 172,538 300,038
       
       

  Reginald M. Turner

 

127,500

140,098

267,598

       
       

Mary Ann Van Lokeren

 

30,000 30,000
       

Restricted Stock Awards (column a): In May 2018, we granted 3,680 shares of restricted stock to each non-employee director, except for Ms. Van Lokeren, whose service as a director concluded in May 2018. In addition, we granted Mr. Stevens 770 shares in February 2018, when his service as a director began, as pro-rated equity compensation for the months of February through April 2018. The amounts reported in this column reflect the aggregate grant date fair value of the shares, calculated in accordance with accounting guidance. Directors realize the value of restricted stock awards over time because the vesting of awards occurs pro rata over three years, and one-half of these shares must be retained until completion of their service on our Board.

All Other Compensation (column b): The amounts reported in this column reflect our contributions in 2018 to eligible tax-exempt organizations under our matching gifts program, as described above, for which directors receive no direct financial benefit.

 


 

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MASCO 2019  |  PART I - CORPORATE GOVERNANCE

 

Unvested Restricted Stock and Stock Options Outstanding: The following table reports the aggregate number of shares of unvested restricted stock, and the aggregate number of stock options outstanding, held on December 31, 2018 by each director who was serving on that date. Our Board ceased granting stock options to non-employee directors in 2010; however, a portion of the stock options granted before then remained outstanding at December 31, 2018.

 

   

Director

Unvested
Restricted Stock
Stock Options
Outstanding  
   

Mark R. Alexander

7,426
   
   

Marie A. Ffolkes

5,870
   
   

J. Michael Losh

7,426 9,117
   
   

Richard A. Manoogian

7,426
   
   

Christopher A. O’Herlihy

7,426
   
   

Donald R. Parfet

7,426
   
   

Lisa A. Payne

7,426 9,117
   
   

John C. Plant

7,426
   
   

Charles K. Stevens

4,450
   
   

Reginald M. Turner

7,426
   

RELATED PERSON TRANSACTIONS

Our Board of Directors has adopted a Related Person Transaction Policy that requires our Board or a committee of independent directors to approve or ratify any transaction involving us in which any director, director nominee, executive officer, 5% beneficial owner or any of his or her immediate family members has a direct or indirect material interest.

Related Persons Transaction Policy

Our policy covers:

 

   

financial transactions and arrangements, or any series of similar transactions;

 

   

indebtedness and guarantees of indebtedness; and

 

   

transactions involving employment.

Our policy excludes transactions determined by our Board not to involve a material interest of the related person, such as:

 

   

ordinary course of business transactions of $120,000 or less;

 

   

transactions in which the related person’s interest is derived from service as a director of another entity or ownership of less than 10% of another entity’s stock; and

 

   

transactions in which the related person’s interest is derived from service as a director, trustee or officer of a not-for-profit organization or charity that receives donations from us, which are made in accordance with our matching gifts program.

 


 

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PART I - CORPORATE GOVERNANCE  |  MASCO 2019

 

Assessing Related Person Transactions

Our policy requires directors, director nominees and executive officers to provide prompt written notice to our Secretary of any related transaction so it can be reviewed by our Governance Committee. If the Governance Committee determines that the related person has a direct or indirect material interest in the transaction, it will consider all relevant information to assess whether the transaction is in, or not inconsistent with, our best interests and the best interests of our stockholders. The Governance Committee annually reviews previously-approved ongoing related transactions to determine whether the transactions should continue.

Related Persons Transactions for 2018

There have been no transactions since January 1, 2018 required to be described in this proxy statement that were not subject to review, approval or ratification in accordance with this policy.

On-Going Related Person Transactions

Our Governance Committee previously approved the on-going related transaction described below.

Transactions with Mr. Richard A. Manoogian

In accordance with the terms of our 2009 agreement with Mr. Manoogian, who transitioned to Chairman Emeritus in 2012, we provide him with an administrative assistant and reasonable equipment and supplies for his personal use, which together aggregated approximately $158,000 for 2018. We also charged Mr. Manoogian the incremental cost for his use of our aircraft (with prior approval from our CEO), which was approximately $23,000 for 2018.

 


 

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MASCO 2019  |  PART I - CORPORATE GOVERNANCE

 

 

Proposal 1: Election of Class I Directors

 

 

The term of office of our Class I Directors, who are Marie A. Ffolkes, Donald R. Parfet, Lisa A. Payne and Reginald M. Turner, expires at this meeting.

Our Board proposes the re-election of Ms. Ffolkes, Ms. Payne and Messrs. Parfet and Turner to serve as Class I Directors. The term of the Class I Directors elected at this Annual Meeting will expire at the Annual Meeting of Stockholders in 2022, or when their respective successors are elected and qualified.

Our Board expects that the persons named as proxy holders on the proxy card will vote the shares represented by each proxy for the election of each director nominee unless a contrary direction is given. If, prior to the meeting, a nominee is unable or unwilling to serve as a director, which our Board does not expect, the proxy holders may vote for an alternate nominee recommended by our Board, or our Board may reduce its size.

Information regarding each of our director nominees can be found above in “Director Nominees for Class I.”

Our Board recommends a vote FOR the election to our Board of Directors of each of the following Class I Director nominees:

 

     
Name Age   Director  
Since
  Occupation
     
     
Marie A. Ffolkes 46 2017 President, Industrial Gases, Americas of Air Products & Chemicals, Inc., since 2015
     
     
Donald R. Parfet 66 2012   •   Managing Director, Apjohn Group, LLC, a business development company, since 2000
     
     

•   General Partner, Apjohn Ventures Fund, Limited Partnership, a venture capital fund, since 2003

     
     
Lisa A. Payne 60 2006   Former Vice Chairman and Chief Financial Officer of Taubman Centers, Inc., a real estate
investment trust
     
     
Reginald M. Turner 59 2015 Attorney and Member, Clark Hill PLC, a Detroit, Michigan-based law firm, since April 2000, and currently serves on its Executive Committee
     

The affirmative vote of a majority of the votes cast by shares entitled to vote is required for the election of directors. Abstentions and broker non-votes are not counted as votes cast, and therefore do not affect the outcome of the election.

 


 

20


PART II - COMPENSATION DISCUSSION AND ANALYSIS  |  MASCO 2019

 

LOGO

  

Compensation Discussion and Analysis Summary

 

 

Our executive compensation programs are designed to promote the long-term interests of our stockholders by attracting and retaining talented executives and motivating them to achieve our strategic business objectives and to drive stockholder value. We believe that our financial performance and the creation of long-term stockholder value should impact a significant portion of our executive officers’ compensation. Our Compensation Committee oversees our compensation programs and the compensation paid to our executive officers.

HOW OUR 2018 FINANCIAL PERFORMANCE IMPACTED OUR EXECUTIVE OFFICERS’ COMPENSATION

We delivered solid sales and operating profit growth in 2018. Our reported annual sales increased 9% to $8.4 billion and our annual operating profit increased 1% to $1.2 billion. Our operating profit margin decreased to 14.5% from 15.6% due to significant headwinds from increased commodity and logistics costs, Enterprise Resource Planning System costs, and a purchase accounting adjustment related to our acquisition of Kichler Lighting. Based on our financial performance in 2018, our executive officers earned incentive compensation under our performance-based compensation programs, which include:

 

   

An annual performance program under which we pay cash bonuses and grant restricted stock to our executive officers if we meet annual performance goals; and

 

   

A Long Term Cash Incentive Program (“LTCIP”) under which we make cash awards to our executive officers if we meet performance goals over a three-year period.

The following tables reflect our target goals for our 2018 annual performance program and our 2016-2018 LTCIP and our performance relative to those goals. For our annual performance program, we exceeded the target for our working capital as a percent of sales goal, but we did not achieve our target operating profit goal, which reduced the payout to our executive officers.

 

2018 ANNUAL PERFORMANCE PROGRAM

 

     

   Performance  

   Metric

 

 

  Target  

 

     

  Performance  

  (as adjusted)  

 

     

Weighted

  Performance  
Percentage

 

   
     

Operating Profit
(in millions)

 

  $1,300

 

    $1,272

 

   

 

89%

 

Working Capital as a Percent of Sales

 

   15.3%

 

    15.1%

 

   

 

2016-2018 LTCIP

 

   Performance

   Metric

 

 

  Target  

 

     

 

  Performance  

(as adjusted)

 

     

 

  Performance  
Percentage

 

   
     

 

Return on Invested
Capital

 

 

 

 

 12.0%

 

 

   

 

15.0%

 

 

   

 

160%

 

 

 
 

 

   

See “Our 2018 Annual Performance Program” and “Our Long-Term Incentive Program” below for a description of our calculation of operating profit, working capital as a percent of sales and ROIC performance.

 


 

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MASCO 2019  |  PART II - COMPENSATION DISCUSSION AND ANALYSIS

 

 

Compensation Discussion and Analysis Summary

 

 

 


 

Based on this performance, we paid the following compensation to our executive officers under our 2018 annual performance program and 2016-2018 LTCIP:

 

       

Name

Cash
  Bonus ($)  
Restricted
Stock
  Award ($)  

2016-2018

LTCIP Cash
  Award ($)  

  Total ($)  
       
       

Keith J. Allman

1,603,600 1,781,683 2,640,000 6,025,283
       
       
  John G. Sznewajs 469,700 469,574 772,800 1,712,074
       
       

Richard A. O’Reagan

368,000 367,987 556,200 1,292,187
       
       
  Jai Shah 410,700 410,611 407,100 1,228,411
       
       

Kenneth G. Cole

270,300 270,307 431,600 972,207
       

 

   

Mr. Shah served as the General Manager of one of our business units until he was promoted to Group President in November 2018. His cash bonus and restricted stock award were determined using a prorated performance percentage of 104%, which is based on the performance of that business unit and our corporate performance in 2018.

OTHER PERFORMANCE COMPENSATION WE PAID IN 2018

We grant stock options annually to our executive officers to align their long-term interests with those of our stockholders by reinforcing the goal of long-term share price appreciation. These stock options will provide value to our executive officers only if the price of our common stock increases above the option exercise price. In 2018, our Compensation Committee awarded to our executive officers the following stock options that vest ratably over five years:

 

     

   Name

 

Stock

Options

  Awarded  

(#)

 

Option

Exercise

Price

  ($ per share)  

 

   Value of Stock    

   Options Awarded    

   ($)    

 

     

Keith J. Allman

 

166,830

 

42.13

 

2,087,694    

 

     

  John G. Sznewajs

 

45,830

 

42.13

 

573,512    

 

     

Richard A. O’Reagan

 

32,820

 

42.13

 

410,706    

 

     

  Jai Shah

 

22,490

 

42.13

 

281,438    

 

     

Kenneth G. Cole

 

24,110

 

42.13

 

301,710    

 

 

   

The value of the stock options awarded is the aggregate grant date fair value of stock options, calculated in accordance with accounting guidance.

 


 

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PART II - COMPENSATION DISCUSSION AND ANALYSIS  |  MASCO 2019

 

 

Compensation Discussion and Analysis Summary

 

 

 


 

OUR EXECUTIVE OFFICERS’ PERFOMANCE-BASED TARGET COMPENSATION

Our target compensation mix for our CEO and our other executive officers reflects our emphasis on long-term, performance-based compensation that incentivizes our executive officers to make strategic decisions that will strengthen our business and create long-term value for our stockholders. In 2018, 87% of our CEO’s target compensation and 74% of our other executive officers’ target compensation was performance-based, as shown in the graphs below.

 

 

LOGO

OUR COMPENSATION PROGRAM HIGHLIGHTS

Our compensation practices include:

 

  ü  

Long-Term Incentives - Our compensation programs are weighted toward long-term incentives. We give approximately equal weight to performance-based restricted stock, stock options and our three- year incentive program. In 2017, we modified our three-year incentive program by replacing the cash award with performance-based restricted stock units (“PRSUs”).

 

  ü  

Five-Year Vesting for Equity Awards - Our performance-based restricted stock and stock option awards vest over five years, which is longer than typical market practice.

 

  ü  

Long-Term Performance Program - A significant portion of our executive officers’ compensation opportunity is based on the achievement of a three-year performance goal.

 

  ü  

Capped Awards - Our annual and long-term incentive compensation plan payouts are limited to 200% of the target opportunity.

 

  ü  

Clawback Policy - If we restate our financial statements, other than as a result of changes to accounting rules or regulations, our clawback policy allows us to recover incentive compensation paid to our executives in the three-year period prior to the restatement, regardless of whether misconduct caused the restatement.

 

  ü  

Stock Ownership Requirements - We have minimum stock ownership requirements for our executive officers, including requiring our CEO to own stock valued at six times his base salary. As of December 31, 2018, each of our executive officers met his or her stock ownership requirement.

 


 

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MASCO 2019  |  PART II - COMPENSATION DISCUSSION AND ANALYSIS

 

 

Compensation Discussion and Analysis Summary

 

 

 


 

 

  ü  

Double-Trigger Vesting - We have double-trigger vesting of equity on a change in control.

 

  ü  

Tally Sheets and Risk Analysis - Our Compensation Committee uses tally sheets and analyzes risk in setting executive compensation.

 

  ü  

Competitive Analysis - On an annual basis, our Compensation Committee reviews a market analysis of executive compensation paid by our peer companies and published survey data for comparably-sized companies.

 

  ü  

Limited Perquisites - We provide limited perquisites to our executive officers.

Our compensation practices do not include:

 

   

Excise Tax Gross-Ups - We eliminated the excise tax gross-up feature on all of the equity grants made since 2012.

 

   

Hedging or Pledging - Our policy prohibits executives and directors from hedging our stock and from making future pledges of our stock.

 

   

Contractual Termination Arrangements - We have no change in control agreements, contractual severance agreements or employment agreements providing for severance payments with our executive officers.

 

   

Option Repricing - Our equity plan prohibits the repricing of options without stockholder approval.

STOCKHOLDER ENGAGEMENT

At our 2018 Annual Meeting, 98% of the votes cast on our say-on-pay proposal approved the compensation we paid to our executive officers. Although the say-on-pay vote is advisory and non-binding, our Compensation Committee believes this approval percentage indicates strong support for our continued efforts to enhance our pay-for-performance practices, and our Compensation Committee concluded that our stockholders endorse our current executive compensation programs and policies.

In 2018, we continued our robust stockholder engagement program and requested the opportunity to engage with stockholders holding approximately 50% of our outstanding shares. We ultimately engaged with stockholders representing 20% of our outstanding shares. We received positive feedback from the stockholders with whom we spoke regarding the structure of our compensation programs and practices, which was reflective of the strong support we received for our say-on-pay proposal over the past years. We provide reports on the stockholder feedback we receive to our Compensation Committee and Governance Committee.

 


 

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PART II - COMPENSATION DISCUSSION AND ANALYSIS  |  MASCO 2019

 

COMPENSATION DECISIONS IN 2018

Our 2018 Financial Performance

We delivered solid financial results in 2018. Our reported sales for the full year increased 9% to $8.4 billion and we increased our operating profit for the full year 1% to $1.2 billion. Our sales growth was driven by our recent acquisitions of Kichler Lighting in March 2018 and Mercury Plastics in December 2017, strong consumer demand due to increased repair and remodel activity and new home construction in the U.S. and net selling price increases. Our operating profit grew despite the rising price of raw materials and logistics costs, Enterprise Resource Planning System costs and a purchase accounting adjustment related to our acquisition of Kichler Lighting, demonstrating our ability to manage our costs.

In addition to delivering sales and operating profit growth, we continued to execute on our capital allocation strategy. In 2018 we returned value to our stockholders by repurchasing $654 million in shares of our stock and increasing our annual dividend for the fifth year in a row. In addition, we deployed $549 million to complete the acquisition of Kichler Lighting.

How We Performed Against our Performance Compensation Goals

Our 2018 annual performance program was based on operating profit and working capital as a percent of sales metrics. We exceeded the working capital as a percent of sales goal for this program, but we did not achieve the operating profit target, which resulted in an overall performance percentage of 89%. As a result, consistent with our commitment to pay-for-performance, our executive officers earned cash bonuses and restricted stock awards based on this achievement (see “Our 2018 Annual Performance Program” below).

Our LTCIP for the three-year performance period of 2016 to 2018 was based on a return on invested capital (“ROIC”) metric, and we improved our ROIC over the three-year period. Our adjusted ROIC in 2016, 2017 and 2018 was 14.0%, 15.3% and 15.8% respectively, for an average adjusted ROIC of 15.0% over the three-year performance period. This level of performance exceeded the target ROIC goal for this program, and we achieved a performance percentage of 160% (see “Our Long-Term Incentive Program” below).

Our 2018 Annual Performance Program

Program Opportunities

We provide annual performance-based cash bonus and restricted stock opportunities to our executive officers to emphasize achievement of rigorous annual performance goals, provide incentive to achieve our strategic business objectives, and align our executive officers’ interests with those of our stockholders.

Our Compensation Committee establishes the cash bonus and restricted stock opportunities available to each executive officer as a percent of the officer’s annual base salary. Under our annual performance program, if the threshold goal is not achieved, our executive officers do not earn a payout. If the maximum goal is exceeded, the payout percentage is capped at 200% of the target opportunity.

 


 

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MASCO 2019  |  PART II - COMPENSATION DISCUSSION AND ANALYSIS

 

Our executive officers had the following target opportunities in 2018 under our annual performance program:

 

   
     Target Opportunity for             
Cash Bonus as a % of              
Annual Base Salary             
   Target Opportunity for             
Restricted Stock Award              
as a % of Annual Base             
Salary              
   
   

Keith J. Allman

   150%             167%         
   
   
  John G. Sznewajs    75%             75%         
   
   

Richard A. O’Reagan  

   75%             75%         
   
   
  Jai Shah    75%             75%         
   
   

Kenneth G. Cole

   65%             65%         
   

In 2018, our Compensation Committee increased Mr. Allman’s restricted stock award target opportunity from 150% to 167% of his annual base salary. In making this decision, our Compensation Committee took into consideration a number of factors, including our strong earnings growth, ROIC and total shareholder return relative to our peers as well as Mr. Allman’s overall pay positioning. Our Compensation Committee determined to increase Mr. Allman’s target equity compensation opportunity to ensure his long-term interests with those of our shareholders. Neither Mr. Allman’s annual base salary or cash bonus opportunity increased in 2018.

Performance Metrics

Our Compensation Committee selected operating profit and working capital as a percent of sales metrics for our annual 2018 performance program because it believed that improvement in these metrics would continue to reinforce our executive officers’ focus on long-term growth and capital efficiency and drive stockholder value. These metrics are easily derived from our audited financial statements, which our Compensation Committee believes provides transparency both for our stockholders (as requested from stockholders when we sought feedback) and our executive officers. Our Compensation Committee gave a 75% weighting to the operating profit metric and a 25% weighting to the working capital as a percent of sales metric.

Program Targets and Achievement

In setting our performance targets, our Compensation Committee reviews our operating profit forecast for the year, taking into account general economic and industry conditions. In establishing the 2018 performance targets, it was expected there would be continued improvement in the overall economy, that consumer spending for both large and small home improvement projects and housing starts would increase in 2018 and that there would be improved performance from all of our businesses. Our Compensation Committee also expected that we would incur increasing expenses related to commodity inflation, freight and logistics.

In 2018, we achieved 72% of our operating profit target and 140% of our working capital as a percent of sales target. After weighting the operating profit metric at 75% and the working capital as a percent of sales metric at 25%, our performance percentage for the 2018 annual performance program was 89% of target.

 


 

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PART II - COMPENSATION DISCUSSION AND ANALYSIS  |  MASCO 2019

 

 

 

LOGO

To calculate achievement of our operating profit performance target, we adjusted our 2018 reported operating profit from continuing operations of $1,211 million to exclude the effects of expense recognized due a purchase accounting adjustment related to our acquisition of Kichler Lighting ($40 million), rationalization charges ($14 million) and other unusual non-recurring net gains and losses ($7 million). Our operating profit for purposes of the annual performance program was $1,272 million.

To determine achievement of our working capital as a percent of sales performance target, we define working capital as a percent of sales as a twelve-month average of our reported accounts receivable and inventories, less accounts payable, divided by our reported sales for the year. For 2018, our working capital as a percent of sales was 15.1%.

Compensation Paid Under the 2018 Program

We calculated the actual cash bonuses to be paid and restricted stock award values to be granted to our executive officers under the 2018 annual performance program by multiplying the target opportunities for each executive officer, by the 89% performance percentage (except for Mr. Shah; see note below) and multiplying that result by each executive officer’s base salary as of December 31, 2018, as follows:

 

                 
   Name

 

Target
   Opportunity   

 

 

   Performance   
Percentage (a)

 

 

Base
   Salary ($)   

 

 

   Amount of   
Cash
Bonus ($)

 

Value of
Restricted
   Stock Award   
($) (b)

 

 

Total
2018 Annual
Performance
   Compensation   
($)

 

                 

 

Keith J. Allman

(cash bonus)

 

150%

 

 

  ×  

 

89%

 

 

  ×  

 

 

1,201,200

 

 

  =  

 

 

 

 

 

1,603,600

 

 

 

 

1,603,600

 

                 

Keith J. Allman

(restricted stock award)

 

 

167%

 

 

  ×  

 

 

89%

 

 

  ×  

 

 

1,201,200

 

 

  =  

 

 

1,781,683

 

 

1,781,683

 

                 

 

Keith J. Allman

(total)

 

 

3,385,283

                 

 

John G. Sznewajs

 

 

75%

 

 

  ×  

 

 

89%

 

 

  ×  

 

 

703,700

 

 

  =  

 

 

 

 

 

469,700

 

 

 

 

469,574

 

 

939,274

 

                 

 

Richard A. O’Reagan

 

 

75%

 

 

  ×  

 

 

89%

 

 

  ×  

 

 

551,300

 

 

  =  

 

 

 

 

 

368,000

 

 

 

 

367,987

 

 

735,987

 

                 

   Jai Shah

 

75%

  ×  

104%

  ×  

525,000

  =  

410,700

410,611

821 ,311

                 

 

Kenneth G. Cole

 

65%

 

  ×  

 

89%

 

  ×  

 

467,300

 

  =  

 

 

 

270,300

 

 

270,307

 

540,607

 

 


 

27


MASCO 2019  |  PART II - COMPENSATION DISCUSSION AND ANALYSIS

 

Performance Percentage (column a): Mr. Shah served as the General Manager of one of our business units until he was promoted to Group President in November 2018. His cash bonus and restricted stock award were determined using a prorated performance percentage of 104%, which is based on the performance of that business unit in 2018.

Value of Restricted Stock Award (column b): The number of shares of restricted stock granted is determined by dividing the value of the restricted stock award by the closing price of our common stock on the grant date and rounding to the nearest ten shares. The amount reflected in this column is the value of the shares of restricted stock granted. These restricted stock awards vest on a pro-rata basis over five years following the grant date, so our executive officers do not realize the value of these stock awards until they vest.

Our Long-Term Incentive Program

Program Opportunities

In 2012, our Compensation Committee established a long-term incentive program to provide a meaningful incentive for our executive officers to achieve long-term growth and profitability. Under our 2016-2018 LTCIP, our executive officers had the opportunity to earn a performance award in cash based on our achievement of a performance goal over the three-year period. Under our long-term incentive program, if the threshold goal is not achieved, our executive officers do not earn a payout. If the maximum goal is exceeded, the payout percentage is capped at 200% of the target opportunity.

Our Compensation Committee established the long-term incentive program opportunity available to each executive officer as a percent of the executive officer’s annual base salary at the beginning of each three-year performance period. Our executive officers had the following LTCIP target opportunities under the 2016-2018 LTCIP:

 

 

Name

   Target Opportunity Under             
2016-2018  LTCIP as a % of             
Annual Base Salary             
 
 

Keith J. Allman

   150%             
 
 
  John G. Sznewajs    75%             
 
 

Richard A. O’Reagan

   75%             
 
 
  Jai Shah    65%             
 
 

Kenneth G. Cole

   65%             
 

In 2017, to further align our executives’ compensation with the interests of our stockholders, our Compensation Committee modified our long-term incentive program by replacing the cash award with performance-based restricted stock units (“PRSUs”). Beginning in 2017, PRSUs have been granted to our executive officers at the beginning of each three-year performance period under the Long-Term Incentive Program (“LTIP”). The grant of PRSUs may entitle our executive officers to receive shares of our stock based on achieving a performance goal over a three-year period. For 2018, our executive officers continued to have the opportunity to receive a performance award in cash in connection with the 2016-2018 LTCIP performance period.

Performance Metric

Our Compensation Committee chose the ROIC performance metric because ROIC reinforces our executive officers’ focus on capital efficiency and consistent return on capital and helps ensure our executive officers are encouraged to make new, profitable investments. Additionally, our stockholders continue to provide us feedback that ROIC is a measure of importance to them in their assessment of our long-term stockholder value.

 


 

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Program Targets and Achievement

Our Compensation Committee established the following ROIC goals and corresponding payout percentages for the 2016-2018 LTCIP performance period and the 2017-2019 and 2018-2020 LTIP performance periods. These performance goals are consistent with our long-range business plan and require a high level of performance to achieve:

 

  Three-Year Average ROIC
  Threshold
(40% Payout)
Target
(100% Payout)
Maximum
(200% Payout)
     

2016-2018 LTCIP Performance Period

 

 

 

9.0%

 

 

 

 

 

12.0%

 

 

 

 

 

17.0%

 

 

 

     

2017-2019 LTIP Performance Period

 

 

 

11.0%

 

 

 

 

 

14.0%

 

 

 

 

 

19.0%

 

 

 

     

2018-2020 LTIP Performance Period

 

 

 

16.0%

 

 

 

 

 

17.5%

 

 

 

 

 

20.0%

 

 

 

From 2016 to 2018, we improved our ROIC through our improved operating profit performance, cost reductions and market share gains. As a result, we achieved adjusted ROIC of 15.8% in 2018. Under the LTCIP, we use the annual ROIC performance averaged over a three-year period to determine the award amount. Our average adjusted ROIC was 15.0% for the 2016-2018 performance period (as noted in the box below), resulting in a performance percentage of 160%.

 

LOGO

Performance Metric Threshold (40% Payout) Target (100%Payout) Maximum (200% Payout) Performance Percentage 15.0% Return on Invested Capital 9.0% 12.0% 17.0% 160%

Under the LTCIP, we define ROIC as after-tax operating profit from continuing operations adjusted to exclude the effect of special charges and certain other non-recurring income and expenses, divided by adjusted invested capital. Adjusted invested capital includes shareholders’ equity, which we adjust to add back the cumulative after-tax impact of goodwill and intangible asset impairment charges and to exclude the impact of certain non-operating income and expenses and the effects of special charges, plus short-term and long-term debt minus cash. For the calculation of ROIC for the 2016-2018 performance period under the LTCIP, cash was adjusted for the cash outflow related to the Kichler Lighting and Mercury Plastics acquisitions, as these acquisitions were not anticipated at the time the ROIC goals were established. Our Compensation Committee believes that these adjustments are important to reflect our actual investment at the time we invested in our current businesses. The following shows our ROIC in 2016, 2017 and 2018 taking these adjustments into account:

 

   
   

ROIC

  As Reported  

 

ROIC

    As Adjusted    
Under  LTCIP

   

2016

 

 

40.1%

 

 

14.0%

 

   

2017

 

 

42.1%

 

 

15.3%

 

   

2018

 

 

35.9%

 

 

15.8%

 

   

2016-2018 Three-Year Average

 

     

15.0%

 

 


 

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MASCO 2019  |  PART II - COMPENSATION DISCUSSION AND ANALYSIS

 

Compensation Paid Under the 2016-2018 LTCIP

The following table reflects the cash awards paid to our executive officers under the 2016-2018 LTCIP. We calculated the award amount by multiplying the target opportunity for each executive officer by 160%, the performance percentage achieved, and multiplying the result by each executive officer’s base salary in 2016.

 

             

Name

     Target     
   Opportunity     
         Payout     
   Percentage     
      Base Salary     
in 2016 ($)     
     

2016 - 2018 LTCIP   

Cash Award ($)     

             

Keith J. Allman

 

  150%     

 

     ×   

 

  160%     

 

     ×   

 

  1,100,000

 

     =   

 

  2,640,000

 

             

John G. Sznewajs

 

  75%     

 

     ×   

 

  160%     

 

     ×   

 

  644,000

 

     =   

 

  772,800

 

             

Richard A. O’Reagan

 

  75%     

 

     ×   

 

  160%     

 

     ×   

 

  463,500

 

     =   

 

  556,200

 

             

Jai Shah

 

  65%     

 

     ×   

 

  160%     

 

     ×   

 

  391,400

 

     =   

 

  407,100

 

             

Kenneth G. Cole

 

  65%     

 

     ×   

 

  160%     

 

     ×   

 

  415,000

 

     =   

 

  431,600

 

PRSUs Granted Under the 2018-2020 LTIP

The following table reflects the PRSUs granted to our executive officers under the 2018-2020 LTIP. The amounts reflected in the PRSU Grant column are based upon the number of PRSUs granted on March 21, 2018, which we valued at $41.55 per share, the closing price of our stock on the day of the grant, and assuming the target award would be earned at the end of the three-year performance period under our LTIP. The actual number of shares of stock awarded, if any, will be determined after the three-year performance period concludes on December 31, 2020.

 

             

Name

Target
 Opportunity 
  Base Salary as
 of 3/21/2018 ($) 
  Stock Price
 on 3/21/2018 ($) 
   2018 - 2020 LTIP 
PRSU Grant (#)
             

Keith J. Allman

 

167%

 

   ×  

 

1,201,200

 

   ÷  

 

41.55

 

   =  

 

48,180

 

             

John G. Sznewajs

 

75%

 

   ×  

 

683,200

 

   ÷  

 

41.55

 

   =  

 

12,330

 

             

Richard A. O’Reagan

 

75%

 

   ×  

 

525,000

 

   ÷  

 

41.55

 

   =  

 

9,480

 

             

Jai Shah

 

65%

 

   ×  

 

415,200

 

   ÷  

 

41.55

 

   =  

 

6,500

 

             

Kenneth G. Cole

 

65%

 

   ×  

 

445,000

 

   ÷  

 

41.55

 

   =  

 

6,960

 

In 2018, our Compensation Committee increased Mr. Allman’s target opportunity under our LTIP from 150% to 167% of his annual base salary. In making this decision, our Compensation Committee took into consideration a number of factors, including our strong earnings growth, ROIC and total shareholder return relative to our peers as well as Mr. Allman’s overall pay positioning. Our Compensation Committee determined to increase Mr. Allman’s target equity compensation opportunity to ensure his long-term interests with those of our shareholders. Neither Mr. Allman’s annual base salary or cash bonus opportunity increased in 2018.

 


 

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PART II - COMPENSATION DISCUSSION AND ANALYSIS  |  MASCO 2019

 

Stock Options Granted in 2018

We grant stock options annually to our executive officers. The value of the stock option grants approximates the equity target opportunity for each executive officer with respect to our annual performance program. Our Compensation Committee believes that stock options are an important component of our executive compensation program because they align our executive officers’ long-term interests with those of our stockholders by reinforcing the goal of long-term share price appreciation. In 2018, our Compensation Committee awarded to our executive officers the following stock options that vest ratably over five years:

 

     

Name

Stock
Options

Awarded (#)

Option
Exercise Price ($)

Value of Stock Options
Awarded ($)

(a)

     

Keith J. Allman

 

166,830

 

42.13

 

2,087,694

 

     

John G. Sznewajs

 

45,830

 

42.13

 

573,512

 

     

Richard A. O’Reagan

 

32,820

 

42.13

 

410,706

 

     

Jai Shah

 

22,490

 

42.13

 

281,438

 

     

Kenneth G. Cole

 

24,110

 

42.13

 

301,710

 

Value of Stock Options Awarded (column a): The value of stock options awarded is the aggregate grant date fair value of the stock options awarded, calculated in accordance with accounting guidance.

Other Components of our Executive Compensation Program

Base Salary

We pay our executive officers a base salary to provide each of them with a minimum, base level of cash compensation. In determining the base salary adjustments for our executive officers, our Compensation Committee conducts a review with our CEO of the performance and contributions of our executive officers in the prior year; considers market survey data in published executive compensation surveys for companies with annual revenues similar to ours and significant changes in the scope and complexity of the executive officer’s role; and receives input from Semler Brossy.

Based on our Compensation Committee’s review and analysis, our Compensation Committee approved the following base salary increases in 2018:

 

     

Name

  Previous Base       
Salary ($)       
  Salary Increase       
Percentage       
  Current Base       
Salary ($)       
     

John G. Sznewajs

 

  683,200     

 

  3%     

 

  703,700     

 

     

Richard A. O’Reagan

 

  525,000     

 

  5%     

 

  551,300     

 

     

Kenneth G. Cole

 

  445,000     

 

  5%     

 

  467,300     

 

In connection with his promotion to Group President in November 2018, the Compensation Committee established Mr. Shah’s base salary at $525,000.

 


 

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MASCO 2019  |  PART II - COMPENSATION DISCUSSION AND ANALYSIS

 

Perquisites and Other Compensation

We offer a limited number of perquisites to our executive officers, as follows:

 

   

Personal use of our Company aircraft, which we maintain for business purposes. Our Compensation Committee has evaluated our policies and valuation practices for personal use of these aircraft, and our Board has requested that our CEO use our aircraft for both business and personal travel, with personal travel subject to prior approval by the Chair of our Board. We may occasionally permit other executive officers to use our aircraft for personal travel.

 

   

An estate and financial planning program to assist in financial planning and tax preparation. This program provides up to $10,000 per year.

 

   

Relocation benefits, which may include reimbursement for certain moving and temporary living expenses and incidental costs, and travel allowances.

Retirement Programs

We maintain the following defined contribution retirement plans for all of our employees, including our executive officers:

 

   

401(k) Savings Plan: Our 401(k) Savings Plan is a tax-qualified plan that includes a matching and profit sharing component, if applicable.

 

   

Benefits Restoration Plan (“BRP”): Our BRP enables all of our highly-compensated employees to obtain the full financial benefit of the 401(k) Savings Plan, notwithstanding various limitations imposed on the plans under the Internal Revenue Code (the “Code”).

Our executive officers may also be entitled to receive benefits under the following frozen defined benefit plans:

 

   

Masco Corporation Pension Plan;

 

   

BRP applicable to the Masco Corporation Pension Plan; and

 

   

Supplemental Executive Retirement Plan (“SERP”): Mr. Sznewajs is the only current executive officer eligible to receive benefits under the SERP.

In 2010, we froze accruals in all of these defined benefit plans, as well as in all of our other defined benefit plans offered to our U.S. employees. Consequently, the pension benefits ultimately payable to executive officers are essentially fixed, although Mr. Sznewajs’s vesting in the frozen accrued SERP benefit has continued. Mr. Sznewajs will not be fully vested in his frozen SERP benefit unless he continues to be employed with us until he is age 55, or we experience a change in control (see “Payment Upon a Change in Control” below).

OUR EXECUTIVE COMPENSATION PROGRAM HIGHLIGHTS

We Provide Long-Term Equity Incentives

We believe that having a significant ownership interest in our stock is critical to aligning the interests of our executive officers with the long-term interests of our stockholders. Accordingly, restricted stock awards and stock options are important components of our executive officers’ compensation. Our equity awards are priced based on the closing price on the date of grant, unless the grant date occurs within ten days prior to the release of our financial results. In that event, the grant is effective at the end of the first trading day after the release of the results and priced based on the closing price of our common stock on that date. Our restricted stock awards and stock options vest in 20% installments over five years. Five-year vesting defers

 


 

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PART II - COMPENSATION DISCUSSION AND ANALYSIS  |  MASCO 2019

 

the executives’ realization of the full benefit of equity-based compensation for a substantial period of time and is longer than typical market practice. The value our executive officers ultimately realize from equity awards depends on the long-term performance of our common stock. Further, upon retirement, equity awards generally continue to vest in accordance with the remaining vesting period. Our executive officers understand that our performance will continue to impact them financially even after they retire, thereby reinforcing their focus on the long-term enhancement of stockholder value.

We Have a Long-Term Incentive Program

Through our stockholder engagement we learned that our stockholders strongly support a performance compensation program that measures performance over several years. Based on this feedback, in 2012, we implemented our long-term incentive program, which measures performance over a three-year period. For the 2018-2020 performance period we are measuring performance based on ROIC. As a result, a significant portion of our executive officers’ compensation opportunity is based on the achievement of a three-year performance goal.

In 2017, to further align our executives’ compensation with the interests of our stockholders, our Compensation Committee modified our long-term incentive program by replacing the cash award with PRSUs. Beginning in 2017, PRSUs are granted to our executive officers at the beginning of each three-year performance period under the LTIP. The grant of PRSUs may entitle our executive officers to receive shares of our stock if we achieve a performance goal over a three-year period. For 2018, our executive officers continued to have the opportunity to receive a performance award in cash in connection with the 2016-2018 LTCIP performance period.

We Can Clawback Incentive Compensation

If we restate our financial statements, other than as a result of changes to accounting rules or regulations, our Compensation Committee may recover from our executives incentive compensation that was paid or granted in the three-year period prior to the restatement, regardless of whether misconduct caused the restatement.

We Require Minimum Levels of Stock Ownership by our Executives

We require minimum stock ownership for our executive officers to further reinforce the alignment of their long- term financial interests with the interests of our stockholders. This requirement ensures that our executive officers maintain a substantial investment in our common stock and that a meaningful amount of each executive officer’s personal net worth is invested in our Company. Our executive officers are required to achieve the stock ownership necessary to meet the stock ownership requirements within three years of becoming subject to them.

Our Compensation Committee reviews our executive officers’ ownership of our common stock annually to ensure compliance with our stock ownership guidelines. Our executive officers’ direct stock holdings and unvested restricted stock awards (but not unvested PRSUs) are counted toward satisfaction of the guidelines. As of December 31, 2018, when the closing price of our common stock was $29.24, each of our executive officers met the stock ownership requirement.

 


 

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MASCO 2019  |  PART II - COMPENSATION DISCUSSION AND ANALYSIS

 

 

   

Minimum Stock Ownership

Requirements

 

 

Actual Ownership      

 

       

Name

  Multiple of     
Base Salary     
  Multiple Expressed     
in Dollars as of     
12/31/2018 ($)     
  Multiple of     
Base Salary     
  Value of Shares     
Held by Executive as of     
12/31/2018 ($)     
       

Keith J. Allman

 

  6

 

  7,207,200

 

  8.9

 

  10,704,150

 

       

John G. Sznewajs

 

  3

 

  2,111,100

 

  9.5

 

  6,668,474

 

       

Richard A. O’Reagan  

 

  2

 

  1,102,600

 

  3.3

 

  1,796,593

 

       

Jai Shah

 

  2

 

  1,050,000

 

  2.6

 

  1,347,789

 

       

Kenneth G. Cole

 

  2

 

  934,600

 

  5.2

 

  2,439,873

 

We Adopted Double-Trigger Change of Control Provisions for our Equity Awards

The terms of our unvested equity awards provide that the awards will vest only if there is both a change in control of our Company and the recipient of the award is terminated from employment at the time of the change in control or within two years after the change in control, or terminates employment for good reason (for example, if his or her job duties have been significantly diminished), or if the recipient’s awards are not replaced with comparable awards by the acquiring company.

Our Compensation Committee Oversees an Annual Compensation Risk Evaluation

Our Compensation Committee annually oversees a risk assessment of our compensation programs, including our executive compensation programs, focusing on the components of our compensation programs and analyzing whether those components present undue risk to us. In 2018, our Compensation Committee reviewed the risk assessment process to assure it reflects current best practices. As a result of this review, the risk assessment incorporates consideration of our material business risks and their potential impact on our compensation programs. The Compensation Committee has concluded that our programs do not encourage excessive risk taking. While the compensation program is designed to balance short- and long-term rewards, the largest portion of the compensation opportunity for our executive officers is through equity-based long-term incentives. Executive officers are also required to own a substantial amount of our stock to further encourage a long-term perspective. Our annual cash bonus and stock award programs, LTCIP and LTIP have established maximum payout opportunities in line with competitive practice.

The Structure of our Compensation Programs Encourages Executive Retention and Protects Us

We believe several features of our compensation programs, including the terms and conditions of our equity plan, improve our retention of our executive officers and also reduce the potential that executive officers might engage in post-termination conduct that would be harmful to us. Our executive officers generally forfeit unvested awards of restricted stock, stock options and PRSUs when their employment terminates prior to retirement. Additionally, executive officers may only exercise vested options for a limited period of time following termination. The terms of our awards prohibit our executive officers from competing with us for one year after termination. If an executive officer violates this restriction, we can recover the gain the executive officer realized from awards that vested within two years prior to termination.

We Prohibit Excise Tax Gross-Up Payments

Our Board has adopted a policy prohibiting excise tax gross-up payments, except for such payments committed to in equity awards and frozen SERP agreements entered into prior to 2012. Specifically, equity awards made in 2012 and thereafter are not included for purposes of determining future excise tax gross-up

 


 

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PART II - COMPENSATION DISCUSSION AND ANALYSIS  |  MASCO 2019

 

payments. With the exception of tax equalization gross-up payments made to employees in connection with reimbursement of relocation or foreign expatriate expenses incurred at our request, we do not provide any other tax gross-up payments.

We Prohibit Hedging and Pledging

Our anti-hedging and anti-pledging policy prohibits our executive officers and our directors from engaging in any hedging transactions (including transactions involving options, puts, calls, prepaid variable forward contracts, equity swaps, collars and exchange funds or other derivatives) that are designed to hedge or speculate on any change in the market value of our equity or debt securities. Additionally, our executive officers and directors are prohibited from making any future purchases of our securities on margin or from pledging our securities as collateral for a loan, unless the arrangement is preapproved by our Governance Committee for any executive or by our Board for any director.

We Do Not Have Contractual Termination Arrangements

Our executive officers do not have employment contracts and are “at-will” employees who may be terminated at our discretion. We believe this preserves greater flexibility in our employment arrangements with our executive officers. Our executive officers also do not have change in control or severance contracts, although we have, from time to time, entered into severance arrangements with departing executive officers. For further discussion regarding change in control, see “Payment Upon Change In Control” below.

OUR ANNUAL COMPENSATION REVIEW PROCESS

We review and make decisions regarding the amount of eligible annual performance-based restricted stock awards, cash bonus payments and stock option grants in the first quarter of the year. We believe that determining these elements of compensation together at the beginning of the year gives us a better foundation for establishing our performance criteria and opportunity levels for the current year. This practice also better enables our Compensation Committee to determine our executive officers’ appropriate compensation mix and to align compensation with ongoing talent review and development in conjunction with our annual management talent review and development process.

Annual Management Talent Review and Development Process

Our annual management talent review and development process is used by our Compensation Committee and our CEO in making compensation decisions and for succession planning purposes. As part of this process, our CEO provides our Compensation Committee with an assessment of each executive who reports to him. The assessment includes an evaluation of each executive’s performance, development, progress and potential for advancement, and considers market demand for the executive’s skill set. Our Compensation Committee also receives information, analyses and recommendations from our Vice President, Chief Human Resource Officer. While our Compensation Committee gives significant weight to the evaluations by our CEO, the final determination of compensation to be paid to our executive officers, including our CEO, rests solely with our Compensation Committee.

Compensation Data Considered by our Compensation Committee

Tally Sheets

Our Compensation Committee reviews a tally sheet that summarizes the various components of total compensation for our executive officers and other members of management. The tally sheet includes base salary, annual performance-based restricted stock and cash bonus, LTCIP awards, stock options,

 


 

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MASCO 2019  |  PART II - COMPENSATION DISCUSSION AND ANALYSIS

 

dividends on unvested shares of restricted stock, and our costs for the foregoing and for perquisites and other benefits, including the annual costs under retirement plans. The tally sheet allows our Compensation Committee to compare an executive officer’s compensation with the compensation of our other executive officers as part of its consideration of internal and external pay equity. Amounts actually realized by an executive officer from prior equity grants are not necessarily a factor in establishing current compensation, although the current value of outstanding equity awards may be considered by our Compensation Committee when assessing pay equity.

Market Data

Our Compensation Committee also reviews compensation for each of our executive officers with compensation information disclosed in the proxy statements of our peer group and with AonHewitt’s and Willis Towers Watson’s published compensation surveys for companies with annual revenues between $5 and $10 billion. When we achieve targeted levels of performance, our executive compensation program seeks to provide total target compensation (base salary, target annual bonus and the target value of long-term incentives) at approximately the median compensation level provided to executives in comparable positions at these companies. While our Compensation Committee generally targets total compensation for each executive officer at the median, it considers other factors, such as performance, the officer’s roles and responsibilities and the length of time the officer has served in the current position. Our Compensation Committee also reviews actual compensation paid as reported in published surveys and by our peer group to help inform individual pay decisions. We believe understanding market data allows us to attract and retain the talent we need while enabling us to manage our compensation expense.

The following table shows how our current executive officers’ target compensation and actual compensation in 2018 compared to market data published in 2018. Actual compensation is defined as the sum of base salary, actual cash bonuses paid under our annual program and under our LTCIP, and the grant date fair value of restricted stock awards and stock options.

 

 
    

Comparison to Market Compensation

 

 

   

Executive Officer

 

  

    2018 Target Compensation    

 

  

2018 Actual Compensation

 

   

Keith J. Allman

President and Chief Executive Officer

 

  

Between the 50th and 75th

percentile

 

  

Between the 50th and 75th

percentile

 

   
   

John G. Sznewajs

Vice President, Chief Financial Officer

 

  

Between the 50th and 75th

percentile

 

  

Between the 50th and 75th

percentile

 

   
   

Richard A. O’Reagan

Group President

 

  

Approximately 50th percentile

 

  

Approximately 50th percentile

 

   
   

Jai Shah

Group President

 

  

Between the 25th and 50th

percentile

 

  

Between the 25th and 50th

percentile

 

   
   

Kenneth G. Cole

Vice President, General Counsel and Secretary

 

  

Approximately 50th percentile

 

  

Approximately 50th percentile

 

   

Pay-for-Performance Alignment

Finally, our Compensation Committee reviews the overall pay-for-performance alignment of our CEO’s compensation compared to our peer group over one-year and three-year periods. During 2018, our Compensation Committee reviewed data showing that our total stockholder return was at the 94th percentile of our peers and at the 93rd percentile of the S&P 500 for the three-year period ended December 31, 2017. While our CEO’s target compensation approximated the median of our peer group during this three-year period, our CEO’s realizable compensation was at the 52nd percentile of our peer

 


 

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PART II - COMPENSATION DISCUSSION AND ANALYSIS  |  MASCO 2019

 

group. We define realizable compensation as the sum of salary, actual cash bonus, the target value of long-term cash incentives, and the value of restricted stock awards and stock options based on our stock price as of December 31, 2017.

Our Peer Group

Given the many and diverse businesses in which we operate, composition of an appropriate peer group is challenging, as historically there have been few companies providing a mix of products similar to ours. Our Compensation Committee annually considers the composition of our peer group and believes that our current peer group listed below reflects the companies with whom we compete for executive talent and that have a range of annual revenues and business and operational characteristics similar to ours.

 

Current Peer Group of Companies

 

    

Dover Corporation

 

   Owens Corning

 

Fortive Corp.

 

   Parker-Hannifin Corporation

 

Fortune Brands Home & Security, Inc.

   Pentair plc

 

Illinois Tool Works Inc.

 

   PPG Industries, Inc.

 

Ingersoll-Rand plc

 

   RPM International Inc.

 

JELD-WEN Holding, Inc.

 

   Stanley Black & Decker, Inc.

 

Mohawk Industries, Inc.

 

   The Sherwin-Williams Company

 

Newell Rubbermaid Inc.

 

   Whirlpool Corporation

 

Retention of Discretion by our Compensation Committee

Our approach to executive compensation emphasizes corporate rather than individual performance, echoing our operating strategy that encourages collaboration and cooperation among our businesses and corporate functions. We believe that the effectiveness of our executive compensation programs requires not only objective, formula-based arrangements, but also the exercise of discretion and sound business judgment by our Compensation Committee. Accordingly, our Compensation Committee retains discretion to adjust the mix of cash and equity compensation, adjust the mix of restricted stock and stock options awarded, and offer different forms of equity-based compensation. With this discretion, our Compensation Committee is best able to reward the individual contributions of each executive officer and to respond to an executive’s expanding responsibilities, market practices and our changing business needs.

In addition to granting performance-based restricted stock based on prior year performance, our Compensation Committee also has the discretion to award shares of time-based restricted stock to our executive officers, other than our CEO, if it determines that an executive officer has made outstanding individual contributions during the prior year. The total value of these awards cannot exceed 20% of the combined annual base salaries of the executive officers (excluding the salary of our CEO). No discretionary awards were made in 2018.

Outside Compensation Consultant

Our Compensation Committee has engaged Semler Brossy Consulting Group, LLC (Semler Brossy) as its compensation consultant. Semler Brossy was chosen by our Compensation Committee based on its deep experience in the area of executive compensation and its creative and proactive approach in analyzing

 


 

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MASCO 2019  |  PART II - COMPENSATION DISCUSSION AND ANALYSIS

 

executive compensation practices and programs. During 2018, Semler Brossy attended Compensation Committee meetings, met with our Compensation Committee in executive sessions without our executive officers or other members of management and met individually with our Compensation Committee members and our Compensation Committee Chair. Semler Brossy advised our Compensation Committee on its overall implementation of our compensation objectives, on the Company’s peer group, on director compensation practices and on the compensation for our executive officers, including performing a competitive analysis of CEO pay levels within our peer group, as well as for similarly situated companies outside of that group. After considering the factors promulgated by the SEC for assessing the independence of its advisers, our Compensation Committee has determined that the work of Semler Brossy has not raised any conflict of interest.

TAX TREATMENT

For tax years beginning before January 1, 2018, Section 162(m) of the Internal Revenue Code limited the deductibility of annual compensation in excess of $1 million paid to certain of our executive officers, unless this compensation qualified as “performance-based.” Section 162(m) was amended in December 2017 by the Tax Cuts and Jobs Act to eliminate the exemption for performance-based compensation, other than for payments that qualify for transition relief applicable to certain arrangements in place as of November 2, 2017.

Prior to 2018, our stockholder-approved plan permitted our Compensation Committee to grant cash and equity awards intended to qualify under Section 162(m) so that they may be tax-deductible. Because this exemption is no longer available, compensation in excess of $1 million paid to our executive officers generally will not be deductible unless the compensation qualifies for certain transition relief.

CONCLUSION

We recognize the importance of attracting and retaining executive officers who can effectively lead our business, and in motivating them to maximize our corporate performance and drive long-term value for our stockholders. We believe in rewarding our executive officers to a significant degree based on our performance. We continue to thoughtfully and thoroughly analyze our compensation practices and programs and to regularly reach out to a significant number of our stockholders to understand their perspectives regarding our compensation programs. We believe our compensation practices and programs strongly align our executive officers’ interests with the long-term interests of stockholders, reward our executive officers based on our performance and incentivize them to focus on our strategic business objectives.

 


 

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PART II - COMPENSATION DISCUSSION AND ANALYSIS  |  MASCO 2019

 

Compensation Committee Report

The Organization and Compensation Committee, which is responsible for overseeing the Company’s executive compensation programs, has reviewed and discussed the Compensation Discussion and Analysis with management. Based on our review and discussion, the Organization and Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in Masco Corporation’s proxy statement.

Donald R. Parfet, Chair

Marie A. Ffolkes

J. Michael Losh

Christopher A. O’Herlihy

Lisa A. Payne

 


 

39


MASCO 2019  |  PART II - COMPENSATION DISCUSSION AND ANALYSIS

 

Proposal 2: Advisory Vote to Approve the Compensation of Our Named Executive Officers

We are seeking your advisory vote approving the compensation paid to our named executive officers (whom we refer to as “executive officers” in this Proposal 2). We believe the structure of our executive compensation programs promotes the long-term interests of our stockholders by attracting and retaining talented executives and motivating them to achieve our critical business objectives and to create long-term value for our stockholders.

At our 2018 Annual Meeting, we submitted a non-binding advisory proposal to our stockholders to approve the compensation paid to our executive officers (a “say-on-pay proposal”). We also submitted a proposal to our shareholders at our 2018 Annual Meeting, as to the frequency of seeking their non-binding approval of our say-on-pay proposal and determined that such vote will occur annually. Approximately 98% of the votes cast on our say-on-pay proposal approved the compensation paid to our executive officers. We believe that this strong approval resulted from our continued focus on pay-for-performance.

Our executive officers earned compensation pursuant to the following performance-based compensation programs.

 

   

Our 2018 annual performance program was based on operating profit and working capital as a percent of sales goals. We achieved a performance percentage of 89%, and as a result, consistent with our commitment to pay-for-performance, our executive officers earned restricted stock awards and cash bonuses based on this achievement.

 

   

Our 2016-2018 Long Term Cash Incentive Program was based on return on invested capital (“ROIC”). For the three-year period 2016-2018, we exceeded the target ROIC goal and achieved a performance percentage of 160%.

Our executive officers’ potential performance-based compensation represents a significant percentage of total annual target compensation. In 2018, the percentage of total target compensation (base salary, target annual cash bonus and restricted stock award and the target value of long-term incentives) that was performance-based was 87% for our CEO and 74% for our other executive officers.

We believe that having a significant ownership interest in our stock is critical to aligning the interests of our executive officers with the long-term interests of our stockholders. Accordingly, equity grants in the form of restricted stock awards and stock options are an important component of compensation for our executive officers. In 2017, we modified our long-term incentive program by replacing the cash award with performance- based restricted stock units.

Our Board recommends a vote FOR the following resolution providing an advisory approval of the compensation paid to our named executive officers:

RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed pursuant to the compensation disclosure rules of the SEC, including the Compensation Discussion and Analysis, the compensation tables and the related materials disclosed in this proxy statement, is hereby approved.

Although the vote on this proposal is advisory and non-binding, our Compensation Committee and our Board will review and consider the result of the vote when making future determinations regarding our executive compensation programs. The affirmative vote of a majority of the votes cast by shares entitled to vote thereon is required for the approval of the foregoing resolution. Abstentions and broker non-votes are not counted as votes cast, and therefore do not affect the approval of the resolution.

 


 

40


PART III - COMPENSATION OF EXECUTIVE OFFICERS  |  MASCO 2019

 

Compensation of Executive Officers

SUMMARY COMPENSATION TABLE

The following table reports compensation earned during the years indicated by Mr. Allman, our principal executive officer, Mr. Sznewajs, our principal financial officer, and Messrs. O’Reagan, Shah and Cole, our three other most highly compensated executive officers in 2018. We refer to the individuals listed in the table collectively as our “executive officers.”

2018 SUMMARY COMPENSATION TABLE    

 

               

Name and

Principal Position

 

Year
(a)

 

Salary ($)
(b)

 

Stock
Awards ($)
(c)

 

Option
Awards ($)
(d)

 

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

 

Change in
Pension Value
and Non-
Qualified
Deferred
Compensation
Earnings ($)
(f)

 

All Other
Compensation ($)
(g)

 

Total ($)
(h)

 

 

Keith J. Allman

 

2018

 

1,201,200

 

3,783,562

 

2,087,694

 

4,243,600

 

 

320,383

 

11,636,439

President and Chief

2017 1,177,212 3,876,629 1,675,328 4,322,100 48,027 405,144 11,504,440

Executive Officer

 

2016

 

1,126,654

 

2,442,825

 

1,327,054

 

4,224,800

 

33,376

 

611,019

 

9,765,728

 

 

John G. Sznewajs

 

2018

 

698,185

 

981,886

 

573,512

 

1,242,500

 

 

86,851

 

3,582,934

Vice President, Chief

2017 672,867 1,107,228 531,850 1,228,600 462,362 141,241 4,144,148

Financial Officer

 

2016

 

653,353

 

701,325

 

442,351

 

1,320,200

 

257,598

 

128,344

 

3,503,171

 

               

 

Richard A. O’Reagan

 

2018

 

544,222

 

761,881

 

410,706

 

924,200

 

 

78,128

 

2,719,137

Group President

2017 512,019 843,641 362,625 914,100 4,303 104,380 2,741,068

2016

 

481,188

 

528,863

 

279,888

 

528,700

 

3,147

 

102,351

 

1,924,137

 

               

Jai Shah

Group President

2018 439,312 680,686 281,438 817,800 143,914 2,363,150
               

 

Kenneth G. Cole

 

2018

 

461,306

 

559,495

 

301,710

 

701,900

 

 

57,970

 

2,082,381

Vice President, General

2017 435,914 622,007 268,729 657,400 12,328 86,700 2,083,078

Counsel and Secretary

2016

 

421,058

 

391,838

 

217,154

 

666,400

 

8,911

 

81,955

 

1,787,316

 

Year (column a): Information is included in the table only for those years in which the individual has served as an executive officer and was named in our Summary Compensation Table. Mr. Shah was not a named executive officer for 2017 and 2016.

Salary (column b): Salary includes amounts voluntarily deferred by each executive officer as salary reductions under our 401(k) Savings Plan.

 


 

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MASCO 2019  |  PART III - COMPENSATION OF EXECUTIVE OFFICERS

 

Stock Awards (column c): This column reports both grants of restricted stock awards for the applicable performance year and grants of PRSUs made in 2018 under our LTIP, as follows:

2018 STOCK AWARDS

 

     

Name

Restricted Stock
Awards ($)
Performance-Based
Restricted Stock Units
($)
Total ($)
     
     

Keith J. Allman

1,781,683 2,001,879 3,783,562
     
     
  John G. Sznewajs 469,574 512,312 981,886
     
     

Richard A. O’Reagan

367,987 393,894 761,881
     
     
  Jai Shah 410,611 270,075 680,686
     
     

Kenneth G. Cole

270,307 289,188 559,495
     

 

 

The amounts reflected in the Restricted Stock Awards column above and in the Stock Awards column (c) of the Summary Compensation Table are the estimated fair value of the restricted stock award opportunity for the applicable performance year, even though the restricted stock award is not granted until the following year. Although the SEC rules require the estimated fair value to be based on the probable outcome of the performance or service award at the grant date, the Stock Awards column (c) reflects the actual awards for the 2018, 2017 and 2016 performance year, as applicable, since the grant date for the award occurred when the award was actually determined in early 2019, 2018 and 2017, respectively. The threshold, target and maximum dollar values applicable to 2018 performance are reported in the 2018 Grants of Plan-Based Awards Table below. Our executive officers do not realize the value of restricted stock awards until those awards vest over the five-year vesting period following the grant date.

 

 

The amounts reflected in the Performance-Based Restricted Stock Units column above and in the Stock Awards column (c) of the Summary Compensation Table for 2018 are based upon the number of PRSUs granted on March 21, 2018 under our LTIP, which we valued at $41.55 per share, the closing price of our stock that day, and assuming the target award would be earned at the end of the three-year performance period under our LTIP. If the maximum goal under our LTIP is achieved or exceeded, the payout to each executive officer would be: $4,004,080 for Mr. Allman; $1,024,800 for Mr. Sznewajs; $787,500 for Mr. O’Reagan; $539,760 for Mr. Shah; and $578,500 for Mr. Cole. The actual number of shares of stock awarded, if any, will be determined after the three-year performance period concludes on December 31, 2020.

As explained in further detail in the footnote “Total (column h),” as a result of the inclusion of the grants of PRSUs for the three-year periods beginning in 2017 and 2018, the compensation paid to our executive officers for 2017 and 2018 appears higher than the amounts decided upon by our Compensation Committee for the respective year.

Option Awards (column d): This column reports the aggregate grant date fair value of stock options, calculated in accordance with accounting guidance. In determining the fair market value of stock options, we used the same assumptions that can be found in the notes to our financial statements included in our Annual Report on Form 10-K for the corresponding year. These amounts do not correspond to the actual value the executive officer will realize, which will depend on overall market conditions, the future performance of our common stock and the timing of exercise of the option.

Non-Equity Plan Incentive Compensation (column e): The amounts reported in this column are based on the achievement of our performance targets, which are described in the Compensation Discussion and Analysis

 


 

42


PART III - COMPENSATION OF EXECUTIVE OFFICERS  |  MASCO 2019

 

above. In addition to the annual performance-based cash bonuses that were earned for the year indicated, this column includes, in accordance with SEC rules, the performance-based payments under our LTCIP that were earned for the three-year period ending in the year indicated, as follows:

2018 NON-EQUITY PLAN INCENTIVE COMPENSATION

 

     

Name

Annual
Performance-Based
Cash Bonus ($)

LTCIP for
Three-Year Period

2016-2018 ($)

Total ($)
     
     

Keith J. Allman

1,603,600 2,640,000 4,243,600
     
     
  John G. Sznewajs 469,700 772,800 1,242,500
     
     

Richard A. O’Reagan

368,000 556,200 924,200
     
     
  Jai Shah 410,700 407,100 817,800
     
     

Kenneth G. Cole

270,300 431,600 701,900
     

As explained in further detail in the footnote “Total (column h),” as a result of the inclusion of LTCIP cash payments for the three-year periods ending in 2017 and 2018, the compensation paid to our executive officers for 2017 and 2018 appears higher than the amounts decided upon by our Compensation Committee for the respective year.

Change in Pension Value & Nonqualified Deferred Compensation Earnings (column f): This column reports changes in the sum of year-end pension values, which reflect actuarial factors and variations in interest rates used to calculate present values. Increases in pension values do not represent increased benefit accruals, since benefits in our domestic defined benefit plans were frozen effective January 1, 2010. These values were obtained by comparing the present value of accumulated benefits for December 31 of the year indicated (shown for 2018 in the “2018 Pension Plan Table”) to the comparable amount for the prior year. We calculated the pension values for each of 2018, 2017 and 2016 using the same assumptions that can be found in the notes to our financial statements included in our Annual Report on Form 10-K for the corresponding years. The executive officers did not have any above-market earnings under any of the plans in which they participate. The 2018 Summary Compensation Table shows no increases for 2018, since all values decreased due to the effect of rising interest rate assumptions used in the calculations.

All Other Compensation (column g): We provided our executive officers with the following other benefits in 2018:

2018 ALL OTHER COMPENSATION

 

             

Name

Profit
Sharing and

401(k)
Matching

Contributions
($)

Financial

Planning

Expense
($)

Personal Use

of Company

Aircraft ($)

Relocation

Benefits ($)

Travel

Allowance ($)

Other

Perquisites ($)

Total
($)

             

Keith J. Allman

182,420

10,000

127,654

309

320,383

             

John G. Sznewajs

82,591

4,260

86,851

             

Richard A. O’Reagan

68,128

10,000

78,128

             

Jai Shah

75,081

4,400

4,433

60,000

143,914

             

Kenneth G. Cole

57,970

57,970

 


 

43


MASCO 2019  |  PART III - COMPENSATION OF EXECUTIVE OFFICERS

 

 

The amounts reflected in the Profit Sharing and 401(k) Matching Contributions column include contributions under the 401(k) Savings Plan and the portions of the Benefit Restoration Plan applicable to that plan.

 

 

The travel allowance for Mr. Shah is in connection with housing and other living expenses and commuting expenses incurred in 2018 while he served as the General Manager of one of our business units until he was promoted to Group President in November 2018. We also incurred nominal incremental cost in connection with Mr. Shah’s personal travel on company aircraft when the aircraft was used by other company personnel for business purposes.

 

 

We incurred nominal incremental cost in connection with spousal travel on company aircraft for Mr. Shah and Mr. O’Reagan when the aircraft was used for transportation to a Company event.

Total (column h): A significant portion of the increase in total compensation for our executive officers in 2018 and 2017 as compared to 2016 is a result of our transition in 2017 from cash payments awarded under our LTCIP to PRSUs granted under our LTIP. Based on SEC rules, the cash awards paid under our LTCIP are reported in the Non-Equity Incentive Plan Compensation column following the conclusion of the three-year performance period and the determination of the award. Conversely, we are required to report the grant date fair market value of the PRSUs granted under our LTIP in the Stock Awards column for the year in which the grant was made. For enhanced comparability to 2016 compensation reported in this table, the adjusted total compensation of each executive officer (except Mr. Shah, who was not included in our Summary Compensation Table in 2017 or 2016), excluding the grant date fair market value of the PRSUs granted in 2018 and 2017, is as follows:

 

   

Name

2018
Adjusted
Total ($)
2017
Adjusted
Total ($)
   

Keith J. Allman

9,634,560 9,771,806
   

John G. Sznewajs

3,070,622 3,646,542
   

Richard A. O’Reagan

2,325,694 2,365,913
   

Kenneth G. Cole

1,793,193 1,805,273

 


 

44


PART III - COMPENSATION OF EXECUTIVE OFFICERS  |  MASCO 2019

 

GRANTS OF PLAN-BASED AWARDS

The following table provides information about:

 

   

the potential payouts available to our executive officers under our 2018 annual performance-based cash bonus and stock award opportunity;

 

   

the potential payouts available to our executive officers under our 2018-2020 LTIP; and

 

   

the actual grants of PRSUs under our 2018-2020 LTIP and stock options we made in 2018 to our executive officers.

Our Compensation Discussion and Analysis above describes our annual performance-based cash bonus and stock award opportunities, performance targets, our LTIP and grants of stock options.

2018 GRANTS OF PLAN-BASED AWARDS

 

         
        

Estimated Future

Payouts Under Non-

Equity Incentive

Plan Awards

 

Estimated Future

Payouts Under

Equity Incentive

Plan Awards

 

 

Estimated Future

Payouts Under

Equity Incentive

Plan Awards

 

All
Other
Stock
Awards:
Number

of
Shares
of

Stock
or Units

 

All

Other
Option
Awards:
Number

of

Securities
Underlying
Options
(a)

 

Exercise

or Base

Price

of

Option

Awards

($ Per

Share)

 

Grant

Date

Fair

Value

of Stock

and

Option

Awards

($)

(b)

     

Name

 

Grant

Date

 

Threshold

($)

 

Target

($)

 

Maximum

($)

 

Threshold

(#)

 

Target

(#)

 

Maximum

(#)

 

Threshold

($)

 

Target

($)

 

Maximum

($)

               

Allman

 

N/A-1

 

720,720

 

1,801,800

 

3,603,600

                             
               
 

3/21/2018

         

 

48,180

 

96,360

         

48,180

       

2,001,879

 
               
 

N/A-2

                 

800,816

 

2,002,040

 

4,004,080

             
               
 

2/7/2018

                             

166,830

 

42.13

 

2,087,694

 
               

Sznewajs

 

N/A-1

 

211,110

 

527,775

 

1,055,550

                             
               
   

3/21/2018

              

 

12,330

 

24,660

              

12,330

          

512,312

     
               
   

N/A-2

                           

211,110

 

527,775

 

1,055,550

                       
               
   

2/7/2018

                                             

45,830

 

42.13

 

573,512

     
               

O’Reagan

 

N/A-1

 

165,390

 

413,475

 

826,950

                             
               
 

3/21/2018

         

 

9,480

 

18,960

         

9,480

       

393,894

 
               
 

N/A-2

                 

165,390

 

413,475

 

826,950

             
               
 

2/7/2018

                             

32,820

 

42.13

 

410,706

 
               

Shah

 

N/A-1

 

157,500

 

393,750

 

787,500

                             
               
   

3/21/2018

              

 

6,500

 

13,000

              

6,500

          

270,075

     
               
   

N/A-2

                           

157,500

 

393,750

 

787,500

                       
               
   

2/7/2018

                                             

22,490

 

42.13

 

281,438

     
               

Cole

 

N/A-1

 

121,498

 

303,745

 

607,490

                             
               
 

3/21/2018

         

 

6,960

 

13,920

         

6,960

       

289,188

 
               
 

N/A-2

                 

121,498

 

303,745

 

607,490

             
               
 

2/7/2018

                             

24,110

 

42.13

 

301,710

 

Estimated Future Payouts Under Non-Equity Incentive Plan Awards: The amounts that correspond to grant date “N/A-1” reflect the threshold, target, and maximum opportunities under our 2018 annual performance-

 


 

45


MASCO 2019  |  PART III - COMPENSATION OF EXECUTIVE OFFICERS

 

based cash bonus program described in our Compensation Discussion and Analysis. The resulting cash bonus payments were made in February 2019 and are reported in the 2018 Summary Compensation Table above.

Estimated Future Payouts Under Equity Incentive Plan Awards:

 

   

The amounts that correspond to grant date “3/21/2018” reflect the threshold, target, and maximum opportunities under our LTIP relating to the 2018-2020 performance period. In 2018, our executives received grants of PRSUs under our LTIP, which we valued at $41.55 per share, the closing price of our common stock on the day of the grant, and assuming the target award would be earned at the end of the three-year performance period under our LTIP. The actual number of shares awarded, if any, will be determined after the three-year performance period concludes on December 31, 2020.

 

   

The amounts that correspond to grant date “N/A-2” reflect the threshold, target and maximum opportunities under our 2018 annual performance-based restricted stock program described in our Compensation Discussion and Analysis. The resulting restricted stock awards were made in February 2019 and are reported in the 2018 Summary Compensation Table above.

All Other Option Awards (column a): These amounts reflect the number of stock options granted to each executive officer in 2018. The stock options granted vest in equal installments of 20% over a period of five years and remain exercisable until ten years from the date of grant.

Grant Date Fair Value of Stock and Option Awards (column b):

 

   

The amounts that correspond to grant date “3/21/2018” are based upon the number of PRSUs granted on March 21, 2018 under our LTIP, which we valued at $41.55 per share, the closing price of our stock on the day of the grant, and assuming the target award would be earned at the end of the three-year performance period under our LTIP. The actual number of shares awarded, if any, will be determined after the three-year performance period concludes on December 31, 2020.

 

   

The amounts that correspond to grant date “2/7/2018” reflect the grant date fair value of the stock option award on the grant date, which is determined in accordance with accounting guidance. Regardless of the value placed on a stock option on the grant date, the actual value of the option will depend on the market value of our common stock at a future date when the option is exercised.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

We make equity grants pursuant to our 2014 Long Term Stock Incentive Plan; outstanding grants made prior to May 2014 were made pursuant to our 2005 Long Term Stock Incentive Plan. We refer to these plans in this proxy statement collectively as our “Long Term Stock Incentive Plan.” In addition, beginning in 2017, we make PRSU grants pursuant to our LTIP. The following table shows, for each executive officer as of December 31, 2018:

 

   

each vested and unvested stock option outstanding;

 

   

the aggregate number of unvested shares of restricted stock;

 

   

the market value of unvested shares of restricted stock based on the closing price of our common stock on December 31, 2018, which was $29.24 per share;

 

   

the aggregate number of PRSUs granted under our 2017-2019 LTIP and 2018-2020 LTIP; and

 

   

the market value of PRSUs based on the number of PRSUs granted and the closing price of our common stock on December 31, 2018.

 


 

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PART III - COMPENSATION OF EXECUTIVE OFFICERS  |  MASCO 2019

 

Unvested restricted shares are held in the executive officer’s name, and the executive officer has the right to vote the shares and receive dividends on the restricted shares, but may not sell the shares until they vest. The value each executive officer will realize when the restricted shares vest will depend on the value of our common stock on the vesting date.

2018 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

 

   
        Option Awards   Stock Awards       
                 

Name

      Original    
    Grant Date    
  Number of  
Securities  
Underlying  
Unexercised  
Options (#)  
Exercisable  
  Number of  
Securities  
Underlying  
Unexercised  
Options (#)  
Unexercisable  
  Option  
Exercise  
Price  
($)  
  Option  
Expiration  
Date  
  Number of  
Shares or  
Units of  
Stock  
That  
Have   Not  
Vested (#)  
(a)  
  Market Value  
of Shares or  
Units of  
Stock  
That Have  
Not Vested
($)  
  Equity  
Incenitve  
Plan  
Awards:  
Number  
of  
Unearned  
Shares,  
Units or  
Other  
Rights  
That  
Have Not  
Vested  
(#) (b)  
  Equity
Incenitve
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
that Have
Not
Vested ($)
     
                 

Keith J. Allman

           

194,403

 

5,684,344

 

99,260

 

2,902,362

 
 

12/05/2011  

 

18,234

 

 

8.26

 

12/05/2021  

         
                 
 

02/15/2012  

 

33,049

 

 

10.24

 

02/15/2022  

         
                 
 

02/13/2013  

 

49,574

 

 

17.87

 

02/13/2023  

         
                 
 

02/12/2014  

 

92,311

 

30,770

 

19.66

 

02/12/2024  

         
                 
 

02/11/2015  

 

112,824

 

75,216

 

22.92

 

02/11/2025  

         
                 
 

02/10/2016  

 

82,500

 

123,750

 

25.51

 

02/10/2026  

         
                 
 

02/10/2017  

 

34,650

 

138,600

 

33.75

 

02/10/2027  

         
                 
 

02/09/2018  

 

 

166,830

 

42.13

 

02/09/2028  

         
                 

John G. Sznewajs

           

66,888

 

1,955,805

 

27,000

 

789,480

 
 

02/12/2010  

 

165,248

 

 

12.12

 

02/12/2020  

         
                 
 

02/16/2011  

 

85,473

 

 

11.25

 

02/16/2021  

         
                 
 

02/15/2012  

 

82,624

 

 

10.24

 

02/15/2022  

         
                 
 

02/13/2013  

 

82,624

 

 

17.87

 

02/13/2023  

         
                 
 

02/12/2014  

 

50,144

 

12,536

 

19.66

 

02/12/2024  

         
                 
 

02/11/2015  

 

37,608

 

25,072

 

22.92

 

02/11/2025  

         
                 
 

02/10/2016  

 

27,500

 

41,250

 

25.51

 

02/10/2026  

         
                 
 

02/10/2017  

 

11,000

 

44,000

 

33.75

 

02/10/2027  

         
                 
   

02/09/2018  

 

 

45,830

 

42.13

 

02/09/2028  

                       

 


 

47


MASCO 2019  |  PART III - COMPENSATION OF EXECUTIVE OFFICERS

 

   
        Option Awards   Stock Awards       
                 

Name

      Original    
    Grant Date    
  Number of  
Securities  
Underlying  
Unexercised  
Options (#)  
Exercisable  
  Number of  
Securities  
Underlying  
Unexercised  
Options (#)  
Unexercisable  
  Option  
Exercise  
Price  
($)  
  Option  
Expiration  
Date  
  Number of  
Shares or  
Units of  
Stock  
That  
Have   Not  
Vested (#)  
(a)  
  Market Value  
of Shares or  
Units of  
Stock  
That Have  
Not   Vested
($)  
  Equity  
Incenitve  
Plan  
Awards:  
Number  
of  
Unearned  
Shares,  
Units or  
Other  
Rights  
That  
Have Not  
Vested  
(#) (b)  
  Equity
Incenitve
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
that Have
Not
Vested ($)
     
                 

Richard A.

O’Reagan

           

45,646

 

1,334,689

 

20,540

 

600,590

 
 

02/11/2015  

 

23,248

 

15,499

 

22.92

 

02/11/2025  

         
                 
 

02/10/2016  

 

17,400

 

26,100

 

25.51

 

02/10/2026  

         
                 
 

02/10/2017  

 

7,500

 

30,000

 

33.75

 

02/10/2027  

         
                 
 

02/09/2018  

 

 

32,820

 

42.13

 

02/09/2028  

         
                 

Jai Shah

           

46,094

 

1,347,789

 

14,220

 

415,793

 
 

02/12/2014  

 

13,675

 

3,419

 

19.66

 

02/12/2024  

         
                 
 

02/11/2015  

 

10,256

 

6,838

 

22.92

 

02/11/2025  

         
                 
 

02/10/2016  

 

12,700

 

19,050

 

25.51

 

02/10/2026  

         
                 
 

02/10/2017  

 

5,240

 

20,960

 

33.75

 

02/10/2027  

         
                 
 

02/09/2018  

 

 

22,490

 

42.13

 

02/09/2028  

         
                 

Kenneth G. Cole

           

32,598

 

953,166

 

15,150

 

442,986

 
 

2/12/2010  

 

9,117

 

 

12.12

 

02/12/2020  

         
                 
 

7/31/2013  

 

34,189

 

 

18.01

 

07/31/2023  

         
                 
 

2/12/2014  

 

13,675

 

3,419

 

19.66

 

02/12/2024  

         
                 
 

2/11/2015  

 

16,226

 

10,817

 

22.92

 

02/11/2025  

         
                 
 

2/10/2016  

 

13,500

 

20,250

 

25.51

 

02/10/2026  

         
                 
 

2/10/2017  

 

5,558

 

22,232

 

33.75

 

02/10/2027  

         
                 
 

02/09/2018  

 

 

24,110

 

42.13

 

02/09/2028  

         

Option Awards: Stock option awards vest in equal annual installments of 20% commencing in the year following the year of grant.

Stock Awards (column a): This column reflects restricted stock awards. Restricted stock awards granted in 2010 and after vest in equal annual installments of 20% commencing in the year following the year of grant.

Stock Awards (column b): This column reflects PRSUs that were granted under our 2017-2019 LTIP and our 2018-2020 LTIP. The number of PRSUs granted was based upon an assumption that the target award would be earned at the end of the three-year performance period. The actual number of shares awarded, if any, will be determined after the three-year performance period concludes.

 


 

48


PART III - COMPENSATION OF EXECUTIVE OFFICERS  |  MASCO 2019

 

OPTION EXERCISES AND STOCK VESTED

The following table shows the number of shares acquired, and the value realized, by each of our executive officers during 2018, in connection with the exercise of stock options and the vesting of restricted stock previously awarded to each executive officer.

2018 OPTIONS EXERCISED AND STOCK VESTED

 

       

Name

  Number of Shares Acquired   
on Exercise (#)   
     Value Realized on Exercise   
   ($)   
  Number of Shares Acquired   
on Vesting (#)   
 

Value Realized on Vesting   

($)   

   
       

Keith J. Allman

      59,055   2,702,356  
       

John G. Sznewajs

  96,869   3,090,230   33,967   1,554,330  
       

Richard A. O’Reagan

      20,086   915,316  
       

Jai Shah

  75,219   1,908,972   21,174   968,922  
       

Kenneth G. Cole

      14,874   652,103  

RETIREMENT PLANS

This section describes the retirement plans available to our executive officers.

Defined Contribution Plans

Our defined contribution plans are the tax-qualified 401(k) Savings Plan and the non-qualified Benefits Restoration Plan (“BRP”) applicable to the 401(k) Savings Plan. All of our executive officers participate in both of our defined contribution plans. We offer no other plans of deferred compensation that would permit the election of deferrals of cash compensation by our executive officers.

401(k) Savings Plan

Our 401(k) Savings Plan is available to eligible employees, and provides two employer contribution components, if applicable. The first employer contribution component is a matching contribution under which we match a percentage of an employee’s compensation deferred into the 401(k) Savings Plan. The second component is a discretionary profit sharing contribution that is guided by the operating profit performance target goal used to determine annual performance-based cash bonuses and restricted stock awards (see “Our 2018 Annual Performance Program” above). Our Compensation Committee has established our maximum contribution percentage at 10% of each participant’s annual earnings (base salary and cash bonus).

Defined Contribution Portion of the BRP

The defined contribution portion of our BRP is available to our highly compensated employees and is not funded. Under the BRP, we make account allocations reflecting our 401(k) Savings Plan employer match (in 2018, for contributions up to $18,500), profit sharing contribution amounts that exceed the Code’s limitations, and earnings (or losses) on participants’ accounts. Following a participant’s termination of employment, the BRP account is paid by us in a lump sum.

 


 

49


MASCO 2019  |  PART III - COMPENSATION OF EXECUTIVE OFFICERS

 

2018 NON-QUALIFIED DEFERRED COMPENSATION

(Defined Contribution Portion of the Benefits Restoration Plan)

 

       

Name

Masco Allocations ($)
(a)
Aggregate Earnings ($)
(b)

Aggregate Withdrawals /
Distributions ($)

(c)

Aggregate Balance at
December 31, 2018 ($)
(d)
       

Keith J. Allman

157,945

(65,070)

1,090,042

       

John G. Sznewajs

58,116

(69,773)

697,039

       

Richard A. O’Reagan

43,653

(20,064)

340,527

       

Jai Shah

46,756

(28,668)

399,627

       

Kenneth G. Cole

33,495

(11,913)

198,638

Masco Allocations (column a): This column reports the amount of our 2018 plan year allocation to each executive officer’s BRP account. Amounts in this column are included in the All Other Compensation column in the 2018 Summary Compensation Table.

Aggregate Earnings (column b): This column reports the amount of earnings (or losses) posted to the account in 2018.

Aggregate Withdrawals / Distributions (column c): This column reports the aggregate amount of all withdrawals or distributions from the account in 2018.

Aggregate Balance (column d): This column reports the account’s ending balance at December 31, 2018. The following amounts included in this column were previously reported as compensation in our Summary Compensation Table for 2016 and 2017:

 

   

Name

Masco Allocations
Reported in 2016 ($)
Masco Allocations
Reported in 2017 ($)
   

Keith J. Allman

263,175

285,251

   

John G. Sznewajs

93,024

98,854

   

Richard A. O’Reagan

64,018

71,170

   

Jai Shah

   

Kenneth G. Cole

50,420

53,490

Defined Benefit Pension Plans

Our defined benefit pension plans are the tax-qualified Masco Corporation Pension Plan (the “Pension Plan”), the non-qualified BRP applicable to the Pension Plan and the non-qualified Supplemental Executive Retirement Plan (“SERP”). Our defined benefit pension plans were frozen for future benefit accruals effective January 1, 2010. Consequently, the defined benefit pension benefits accrued for each of our executive officers are essentially fixed.

The Pension Plan and BRP

The Pension Plan and BRP provide that at age 65, a participant receives monthly payment for the remainder of his or her life, with five years’ payments guaranteed. Employees became 100% vested in their pension benefit after completing five years of employment with us. The benefits paid are reduced for early retirement if commenced prior to age 65. The maximum credited service under the Pension Plan and the defined benefit portion of the BRP was 30 years. A participant who has ten or more years of service with us is eligible to receive a disability benefit equal to the participant’s accrued benefit.

 


 

50


PART III - COMPENSATION OF EXECUTIVE OFFICERS  |  MASCO 2019

 

Messrs. Allman, Sznewajs, O’Reagan, Shah and Cole are participants in our Pension Plan, and each is 100% vested in their Pension Plan benefits. Messrs. Allman, Sznewajs and Shah are participants in our BRP applicable to the Pension Plan.

SERP

Mr. Sznewajs is the only executive officer that participates in the SERP, which provides that at age 65, he will receive a monthly payment for life of an amount up to 60% of the average of his highest three years’ cash compensation (base salary plus annual cash bonus, up to 60% of that year’s maximum bonus opportunity) earned on or before January 1, 2010. SERP payments are reduced by certain benefits paid by our other retirement plans or by retirement benefits payable by other employers. The maximum benefit under the SERP accrues after 15 years. When the SERP was frozen on January 1, 2010, Mr. Sznewajs’s accrual of 52% was frozen, and he is now 60% vested. Mr. Sznewajs will not be fully vested in his frozen SERP benefit unless he continues to be employed with us until he reaches age 55, or we have a change in control.

The SERP provides a disability benefit if Mr. Sznewajs becomes disabled while employed by us. The disability benefit is paid until the earlier of death, recovery from disability or age 65; is offset by payments from long-term disability insurance we have paid for; and is equal to 60% of his annual salary and bonus (up to 60% of the maximum bonus opportunity) as of January 1, 2010. At age 65, payments revert to a calculation based on the highest three-year average compensation as of January 1, 2010. Under the SERP, Mr. Sznewajs and his spouse may also receive medical benefits.

The present value of SERP payments to Mr. Sznewajs is reported in the 2018 Pension Plan Table below. His surviving spouse would receive reduced benefits.

Pension Plan Table

The 2018 Pension Plan Table below reports the estimated present values on December 31, 2018 of accumulated benefits for each of our executive officers under the Pension Plan, the defined benefit portion of the BRP and the SERP, as applicable. The amounts payable to Mr. Sznewajs under the SERP have been reduced by amounts payable to him under the Pension Plan and the defined benefit portion of the BRP. Mr. Sznewajs’ SERP amount has also been reduced by the January 1, 2010 benefits payable under the profit sharing component of the 401(k) Savings Plan and the defined contribution portion of the BRP.

2018 PENSION PLAN TABLE

 

     

Name

   Plan Name   

Number of Years     
Credited     
Service (#)     

(a)     

  

Present Value of     
Accumulated     
Benefits ($)     

(b)     

     
     

Keith J. Allman

  

Pension Plan

  

12     

  

300,476     

     
     
  

Defined Benefit Portion – BRP  

  

12     

  

92,805     

     
     

John G. Sznewajs

  

Pension Plan

  

14     

  

289,046     

     
     
  

Defined Benefit Portion – BRP  

  

14     

  

245,302     

     
     
  

SERP

  

14     

  

2,602,062     

     
     

Richard A. O’ Reagan

  

Pension Plan

  

1     

  

33,434     

     
     

Jai Shah

  

Pension Plan

  

6     

  

139,207     

     
     
  

Defined Benefit Portion – BRP  

  

6     

  

29,097     

     
     

Kenneth G. Cole

  

Pension Plan

  

6     

  

92,665     

     

 


 

51


MASCO 2019  |  PART III - COMPENSATION OF EXECUTIVE OFFICERS

 

Number of Years Credited Service (column a): This column reports:

 

   

For the Pension Plan and BRP, credited service through January 1, 2010, the date on which accruals under our defined benefit pension plans were frozen, for years of employment with us, and our subsidiaries; and

 

   

For the SERP, credited servi