DEF 14A 1 d754396ddef14a.htm DEF 14A DEF 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.      )

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

Check the appropriate box:

 

Preliminary Proxy Statement

 

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

 

Definitive Proxy Statement

 

Definitive Additional Materials

 

Soliciting Material Pursuant to §240.14a-12

PARKER-HANNIFIN CORPORATION

(Name of Registrant as Specified In Its Charter)

 

  

 

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

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Fee paid previously with preliminary materials.

 

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

 

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LOGO

  

PARKER-HANNIFIN CORPORATION

6035 Parkland Boulevard—Cleveland, Ohio 44124-4141

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

OCTOBER 23, 2019

TO OUR SHAREHOLDERS:

You are cordially invited to attend the Annual Meeting of Shareholders of Parker-Hannifin Corporation. The meeting will be held at our headquarters located at 6035 Parkland Boulevard, Cleveland, Ohio 44124-4141, on Wednesday, October 23, 2019, at 9:00 a.m., Eastern Daylight Time, for the following purposes:

 

  1.

To elect Lee C. Banks, Robert G. Bohn, Linda S. Harty, Kevin A. Lobo, Candy M. Obourn, Joseph Scaminace, Åke Svensson, Laura K. Thompson, James R. Verrier, James L. Wainscott and Thomas L. Williams as Directors for a term expiring at the Annual Meeting of Shareholders in 2020;

 

  2.

To ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending June 30, 2020;

 

  3.

To approve, on a non-binding, advisory basis, the compensation of our Named Executive Officers;

 

  4.

To approve the Parker-Hannifin Corporation Amended and Restated 2016 Omnibus Stock Incentive Plan;

 

  5.

To consider and vote upon a shareholder proposal to adopt a policy that requires the Chairman of the Board to be an independent member of the Board of Directors; and

 

  6.

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

Shareholders of record at the close of business on August 30, 2019 are entitled to vote at the meeting. Your vote is important, so if you do not expect to attend the meeting, or if you do plan to attend but wish to vote by proxy, please mark, date, sign and return the enclosed proxy card promptly in the envelope provided or vote electronically via the internet or by telephone in accordance with the instructions on the enclosed proxy card. Please refer to the section “How to Attend the Annual Meeting of Shareholders” and to the back page of this Proxy Statement for directions to attend the Annual Meeting.

Thank you for your support of Parker-Hannifin Corporation.

 

By Order of the Board of Directors

LOGO
Joseph R. Leonti
Secretary

September 23, 2019

Important Notice Regarding the Availability of Proxy Materials for

the Annual Meeting of Shareholders to be held on October 23, 2019.

This Proxy Statement, along with our Annual Report on Form 10-K for the fiscal year ended June 30, 2019, is available free of charge on our investor relations website (www.phstock.com).


Table of Contents

Table of Contents

 

    

    Page    

Proxy Statement

   1

Governance Documents

   1

Proxy Statement Summary

   1

Item 1 – Election of Directors

   4

Nominees for Election As Directors for Terms Expiring in 2020

   4

Annual Elections; Majority Voting; No Cumulative Voting

   10

New Elections and Retirements

   10

Corporate Governance: Board of Directors

   11

Meetings and Attendance; Executive Sessions

   11

Number; Current Term; Relationships

   11

Director Independence

   11

Current Leadership Structure

   12

Director Selection and Nomination, Qualifications and Diversity

   13

Risk Management

   15

Committees of Our Board of Directors

   16

Board Committees; Committee Charters

   16

The Human Resources and Compensation Committee

   17

The Corporate Governance and Nominating Committee

   18

The Audit Committee

   18

Other Governance Matters

   20

Review and Approval of Transactions with Related Persons

   20

Delinquent Section 16(a) Reports

   20

Proxy Access

   21

“Claw-Back” Policy

   21

Stock Ownership Guidelines

   21

Stock Ownership Restrictions - Speculative Transactions / Hedging

   22

Compensation Discussion and Analysis

   23

Executive Summary—Fiscal Year 2019

   23

Objectives and Philosophies of the Executive Compensation Program

   23

Categories and Elements of Executive Compensation

   23

“Pay-for-Performance”—Structure, Key Financial Metrics and Impact on Compensation

   24

Administration, Oversight and Determination of Executive Compensation

   27

Human Resources and Compensation Committee

   27

Board of Directors

   27

Executive Officers

   27

Compensation Consultants and Benchmarking

   28

General Policies and Practices Relating to Executive Compensation

   30

Allocation of Executive Compensation

   30

Accounting and Tax Considerations

   32

Committee Discretion

   33

Elements of Executive Compensation

   33

Base Salaries

   33

Annual Cash Incentive Compensation

   34

Long-Term Incentive Compensation

   40

Employee Benefits

   44

Executive Perquisites

   50

Consideration of 2018 Say-on-Pay Voting Results

   52

Compensation Committee Report

   53

Compensation Tables

   54

Summary Compensation Table for Fiscal Year 2019

   54

Grants of Plan-Based Awards for Fiscal Year 2019

   56

Outstanding Equity Awards at June 30, 2019

   58

Option Exercises and Stock Vested for Fiscal Year 2019

   60

Pension Benefits for Fiscal Year 2019

   61

 

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    Page    

Nonqualified Deferred Compensation for Fiscal Year 2019

   62

Potential Payments Upon Termination or Change of Control at June 30, 2019

   63

Chief Executive Officer Pay Ratio

   72

Director Compensation for Fiscal Year 2019

   73

Report of the Audit Committee

   75

Item  2 – Ratification of the Appointment of Independent Registered Public Accounting Firm

   76

Item  3 – Proposal to Approve the Compensation of our Named Executive Officers on a Non-Binding, Advisory Basis

   78

Item  4 – Approval of the Parker-Hannifin Corporation Amended and Restated 2016 Omnibus Stock Incentive Plan

   80

Equity Compensation Plan Information

   89

Item  5 – Shareholder Proposal to Adopt a Policy that Requires the Chairman of the Board to be an Independent Member of the Board of Directors

   91

Principal Shareholders

   95

Shareholders’ Proposals

   96

Shareholder Recommendations for Director Nominees

   97

Communications with Directors

   97

General

   98

How to Attend the Annual Meeting of Shareholders

   101

Exhibit A: Parker-Hannifin Corporation Amended and Restated 2016 Omnibus Stock Incentive Plan

   A-1

 

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PARKER-HANNIFIN CORPORATION

6035 Parkland Boulevard—Cleveland, Ohio 44124-4141

PROXY STATEMENT

This Proxy Statement is furnished in connection with the solicitation by our Board of Directors of proxies to be voted at the Annual Meeting of Shareholders scheduled to be held on October 23, 2019, and at all adjournments thereof. Only shareholders of record at the close of business on August 30, 2019, will be entitled to vote at the meeting. On August 30, 2019, 128,498,788 common shares were outstanding and entitled to vote at the meeting. Each share is entitled to one vote. This Proxy Statement and the form of proxy are being mailed to shareholders on or about September 23, 2019.

GOVERNANCE DOCUMENTS

Our Global Code of Business Conduct, our Corporate Governance Guidelines, and our Independence Standards for Directors are posted and available on the Corporate Governance page of our investor relations website at www.phstock.com. Shareholders may request copies of these documents, free of charge, by writing to Parker-Hannifin Corporation, 6035 Parkland Boulevard, Cleveland, Ohio 44124-4141, Attention: Secretary, or by calling (216) 896-3000. The information contained on or accessible through our website is not a part of this Proxy Statement.

PROXY STATEMENT SUMMARY

This summary highlights certain information relating to our 2019 Annual Meeting of Shareholders and our corporate governance and executive compensation. Additional details are found throughout this Proxy Statement.

 

 

General Information for 2019 Annual Meeting of Shareholders

 

 

Time and Date

 

 

    October 23, 2019 at 9:00 a.m. EDT

 

Place

 

 

    Parker-Hannifin Corporation

    6035 Parkland Boulevard

    Cleveland, Ohio 44124-4141

 

Record Date

 

 

    August 30, 2019

     

 

Voting Matters and Board Recommendations

 

 

Voting Matters

 

 

Board Recommendations

 

Election of Directors

 

 

FOR ALL NOMINEES

 

Ratification of Deloitte & Touche LLP as Independent Auditor

 

 

FOR

 

Advisory Vote to Approve Named Executive Officer Compensation

 

 

FOR

 

Approval of the Amended and Restated Parker-Hannifin Corporation 2016 Omnibus Stock Incentive Plan

 

 

FOR

 

Shareholder Proposal to Adopt a Policy that Requires the Chairman of the Board to be an Independent Member of the Board of Directors

 

 

AGAINST

 

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We are pleased to provide the following key governance, sustainability and compensation highlights for fiscal year 2019. We believe these measures will better position us to continue to drive employee engagement, premier customer experience, profitable growth and financial performance and otherwise compete and win as a leading worldwide diversified manufacturer of motion and control technologies and systems. In considering our governance and compensation programs for fiscal year 2019, we utilized insights drawn from engagement with our shareholders and the results of our shareholder votes.

Our Board of Directors is committed to sound corporate governance and sustainability practices, promoting the long-term interests of our shareholders and holding itself and management accountable for our performance. The following table summarizes some of the key elements of our corporate governance framework.

 

 

Corporate Governance Highlights

 

 

    Annual election of all Directors

     

 

    Separate Chairman of the Board and independent Lead Director roles

 

    Published Corporate Governance Guidelines

     

 

    Published Global Code of Business Conduct applicable to our Board of Directors

 

    Majority voting and resignation policy for uncontested Director elections

     

 

    Board Committees are 100% comprised of independent Directors

 

    Average age of our Director nominees is 61

     

 

    Our Amended and Restated Regulations permit proxy access for eligible shareholders

 

    Director retirement is mandatory after reaching age 72

     

 

    Robust stock ownership guidelines for our Directors and executive officers (all of whom are compliant with such guidelines)

 

    Each Committee of our Board of Directors has a published charter that is reviewed and evaluated at least annually

     

 

    The Board of Directors includes three women

 

    No shareholder rights plan

     

 

    Annual Board, Committee and individual Director evaluations

 

    Each of our Director nominees attended between 89% – 100% of his or her meetings of our Board of Directors and his or her Committee meetings during fiscal year 2019

     

 

    Annual reviews of our Chief Executive Officer by all independent Directors

 

    None of our Director nominees are “overboarded” – five do not sit on any other public company board of Directors, four sit on just one other public company Board of Directors and two sit on just two other public company Boards of Directors

     

 

    64% of our Director nominees have a tenure of under 10 years. Tenure of this year’s Director nominees:

 

0-5 years: 36.5%

6-9 years: 27.0%

³10 years: 36.5%

 

    Our Chairman of the Board and Lead Director ensure the entire Board of Directors maintains regular oversight of key risk areas, such as corporate strategy, management succession planning, cyber security, enterprise risk management, and environmental, social and governance matters

     

 

    Independent Directors meet regularly and frequently (at least four times per year) without management present

 

    Our Sustainability Report is published annually, addressing the many ways in which we apply our core technologies to make a positive impact on the world, including through social responsibility, our people, our environmental initiatives, product stewardship, and governance, ethics and compliance. The Report is available on our website at www.phstock.com.

 

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The following table highlights some of the key aspects of our executive compensation program for fiscal year 2019. This table is not a substitute for, nor does it purport to include, all of the information provided in our Compensation Discussion and Analysis section and the Compensation Tables presented later in this Proxy Statement.

 

 

Executive Compensation Highlights

 

 

    Executive compensation program with pay-for-performance structure aligned with The Win StrategyTM

     

 

    The target compensation package for our Chief Executive Officer is a mix of 10% fixed and 90% at risk, and for our other Named Executive Officers is an average mix of 18% fixed and 82% at risk

 

    Annual advisory vote on executive compensation with consistent high degree of approval

     

    One-year minimum vesting or performance period requirements for restricted stock awards, restricted stock unit awards, unrestricted stock awards, grants of stock options, and stock appreciation rights, under our 2016 Omnibus Stock Incentive Plan

 

 

    Claw-back policy to recover or withhold incentive-based compensation to executive officers in certain circumstances

     

    Anti-hedging and anti-pledging policy for Directors and executive officers

 

 

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ITEM 1 – ELECTION OF DIRECTORS

Shareholder approval is sought to elect Lee C. Banks, Robert G. Bohn, Linda S. Harty, Kevin A. Lobo, Candy M. Obourn, Joseph Scaminace, Åke Svensson, Laura K. Thompson, James R. Verrier, James L. Wainscott and Thomas L. Williams for a term that will expire at our Annual Meeting of Shareholders in 2020.

Our Board of Directors has concluded that the nominees presented in this “Item 1—Election of Directors” collectively represent a highly-qualified and diverse group of individuals who will effectively serve the long-term interests of our business, our employees and our shareholders. Our Board of Directors believes that each nominee should serve on our Board for the coming year based on his or her record of effective past service on our Board and the specific experiences, qualifications, attributes and skills described in his or her biographical information presented in this “Item 1—Election of Directors” section.

Should any nominee become unable to accept nomination or election, the proxies will be voted for the election of another person as our Board of Directors may recommend. However, our Board of Directors has no reason to believe that this circumstance will occur.

NOMINEES FOR ELECTION AS DIRECTORS FOR TERMS EXPIRING IN 2020

 

 

LOGO

Director since 2015

  

 

LEE C. BANKS

Age: 56

Committees:  None

 

Mr. Banks has been our President and Chief Operating Officer since February 2015. He was our Executive Vice President from August 2008 to February 2015 and our Operating Officer from November 2006 to February 2015. Mr. Banks is also a Director of Nordson Corporation.

 

Our Board of Directors believes that Mr. Banks will effectively serve our Board of Directors, our business, our employees and our shareholders based on his significant and diverse experiences, skills, qualifications and viewpoints from, among other things:

 

•  extensive service as President and Chief Operating Officer and Executive Vice President and Operating Officer and in various operational leadership positions during his 28-year career with us;

 

•  intimate, working knowledge of our day-to-day business, plans, strategies and initiatives;

 

•  present service on another public company board;

 

•  proven ability to work efficiently and effectively with our other Directors to oversee and address issues and risks facing our business; and

 

•  high level of commitment to our Board, our business, our employees and our shareholders, and a high level of integrity, honesty, judgment and professionalism.

 

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LOGO

Director since 2010

  

 

ROBERT G. BOHN

Age: 66

Committees:  Audit Committee

           Human Resources and Compensation Committee

 

Now retired, Mr. Bohn was Chairman of the Board of Oshkosh Corporation (specialty vehicles and vehicle bodies manufacturing) from January 2000 to February 2011. Mr. Bohn is also a Director of Carlisle Companies, Inc. and The Manitowoc Company, Inc.

 

Our Board believes that Mr. Bohn will effectively serve our Board of Directors, our business, our employees and our shareholders based on his significant and diverse experiences, skills, qualifications and viewpoints from, among other things:

 

•  extensive service as Chairman of the Board and Chief Executive Officer of Oshkosh Corporation, a successful global industrial company of significant size;

 

•  past and present service on other public company boards;

 

•  independence under the applicable independence standards of the New York Stock Exchange and our Independence Standards for Directors;

 

•  proven ability to work efficiently and effectively with our other Directors to oversee and address issues and risks facing our business; and

 

•  high level of commitment to our Board of Directors and integrity, honesty, judgment and professionalism.

 

LOGO

Director since 2007

  

 

LINDA S. HARTY

Age: 59

Committees:  Audit Committee (Chair)

           Corporate Governance and Nominating Committee

 

Now retired, Ms. Harty was Treasurer of Medtronic plc (medical technology) from February 2010 to April 2017. Ms. Harty is also a Director of Wabtec Corporation and Syneos Health, Inc.

 

Our Board believes that Ms. Harty will effectively serve our Board of Directors, our business, our employees and our shareholders based on her significant and diverse experiences, skills, qualifications and viewpoints from, among other things:

 

•  extensive service in senior finance and accounting leadership positions at Medtronic plc and other successful global companies of significant size;

 

•  present service on other public company boards;

 

•  qualification as an audit committee financial expert as defined in the federal securities laws;

 

•  independence under the applicable independence standards of the New York Stock Exchange and our Independence Standards for Directors;

 

•  proven ability to work efficiently and effectively with our other Directors to oversee and address issues and risks facing our business; and

 

•  high level of commitment to our Board of Directors and integrity, honesty, judgment and professionalism.

 

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LOGO

Director since 2013

  

 

KEVIN A. LOBO

Age: 54

Committees:  Audit Committee

          Human Resources and Compensation Committee

 

Mr. Lobo has been Chairman of the Board of Stryker Corporation (medical technology) since July 2014 and has been Chief Executive Officer, President and a Director since October 2012.

 

Our Board believes that Mr. Lobo will effectively serve our Board of Directors, our business, our employees and our shareholders based on his significant and diverse experiences, skills, qualifications and viewpoints from, among other things:

 

•  extensive service in senior leadership positions at Stryker Corporation and other successful global companies of significant size;

 

•  present service on another public company board;

 

•  qualification as an audit committee financial expert as defined in the federal securities laws;

 

•  independence under the applicable independence standards of the New York Stock Exchange and our Independence Standards for Directors;

 

•  proven ability to work efficiently and effectively with our other Directors to oversee and address issues and risks facing our business; and

 

•  high level of commitment to our Board of Directors and integrity, honesty, judgment and professionalism.

 

LOGO

Director since 2002

  

 

CANDY M. OBOURN

Age: 69

Committees:  Human Resources and Compensation Committee (Chair)

           Corporate Governance and Nominating Committee

 

Ms. Obourn has been Chairman of Isoflux Incorporated (coating technologies) since April 2012.

 

Our Board believes that Ms. Obourn will effectively serve our Board of Directors, our business, our employees and our shareholders based on her significant and diverse experiences, skills, qualifications and viewpoints from, among other things:

 

•  service as Chief Executive Officer and President of a coating technologies company, Chief Executive Officer and President of a health care products company and in senior leadership positions at other global companies of significant size;

 

•  independence under the applicable independence standards of the New York Stock Exchange and our Independence Standards for Directors;

 

•  proven ability to work efficiently and effectively with our other Directors to oversee and address issues and risks facing our business; and

 

•  high level of commitment to our Board of Directors and integrity, honesty, judgment and professionalism.

 

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LOGO

Director since 2004

  

JOSEPH SCAMINACE

Age: 66

Committees:  Corporate Governance and Nominating Committee

           Human Resources and Compensation Committee

 

Mr. Scaminace was a Director and Chief Executive Officer of OM Group, Inc. (metal-based specialty chemicals) from June 2005 to October 2015 and Chairman of the Board of OM Group from August 2005 to October 2015. Mr. Scaminace is also Lead Director of Cintas Corporation.

 

Our Board believes that Mr. Scaminace will effectively serve our Board of Directors, our business, our employees and our shareholders based on his significant and diverse experiences, skills, qualifications and viewpoints from, among other things:

 

•  extensive service as Chief Executive Officer and Chairman of the Board of OM Group, Inc., and prior leadership positions at other global industrial companies of significant size;

 

•  past and present service on other public company boards;

 

•  independence under the applicable independence standards of the New York Stock Exchange and our Independence Standards for Directors;

 

•  proven ability to work efficiently and effectively with our other Directors to oversee and address issues and risks facing our business; and

 

•  high level of commitment to our Board of Directors and integrity, honesty, judgment and professionalism.

 

LOGO

 

Director since 2010

  

ÅKE SVENSSON

Age: 67

Committees:  Audit Committee

           Corporate Governance and Nominating Committee

 

Mr. Svensson has been Chairman of the Association of Swedish Engineering Industries, and Board Member of the Confederation of Swedish Enterprise since May 2018, and Chairman of Swedavia AB (transport infrastructure) since April 2016. He was previously Director General of Swedish Engineering Industries from September 2010 to August 2016. Mr. Svensson serves on the Board of Business Sweden (export support organization), and was formerly a director of Saab AB.

 

Our Board believes that Mr. Svensson will effectively serve our Board of Directors, our business, our employees and our shareholders based on his significant and diverse experiences, skills, qualifications and viewpoints from, among other things:

 

•  extensive service as Chief Executive Officer and President of Saab AB, a successful European aerospace, defense and security company of significant size;

 

•  extensive knowledge of European aerospace, defense and security businesses and related issues and trends;

 

•  independence under the applicable independence standards of the New York Stock Exchange and our Independence Standards for Directors;

 

•  proven ability to work efficiently and effectively with our other Directors to oversee and address issues and risks facing our business; and

 

•  high level of commitment to our Board of Directors and integrity, honesty, judgment and professionalism.

 

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LOGO

  

LAURA K. THOMPSON

Age: 55

Committees:   Subject to and effective upon her election at the Annual Meeting of Shareholders:

Audit Committee

Corporate Governance and Nominating Committee

 

Now retired, Ms. Thompson served as Executive Vice President of The Goodyear Tire & Rubber Company (tire manufacturing) from December 2013 until her retirement in March 2019, and Chief Financial Officer of Goodyear from December 2013 until October 2018.

Director since 2019   

Our Board believes that Ms. Thompson will effectively serve our Board of Directors, our business, our employees and our shareholders based on her significant and diverse experiences, skills, qualifications and viewpoints from, among other things:

 

•  extensive service as Executive Vice President and Chief Financial Officer and in other key leadership positions at The Goodyear Tire & Rubber Company, a manufacturing company of significant size;

 

•  qualification as an audit committee financial expert as defined in the federal securities laws;

 

•  independence under the applicable independence standards of the New York Stock Exchange and our Independence Standards for Directors;

 

•  proven ability to work efficiently and effectively with our other Directors to oversee and address issues and risks facing our business; and

 

•  high level of commitment to our Board of Directors and integrity, honesty, judgment and professionalism.

 

LOGO

Director since 2016

  

JAMES R. VERRIER

Age: 56

Committees:  Audit Committee

          Human Resources and Compensation Committee

 

Now retired, Mr. Verrier served as a Board Advisor to BorgWarner, Inc. (powertrain solutions) from August 1, 2018 until his retirement on February 28, 2019. He previously served as Chief Executive Officer and Director of BorgWarner, Inc. from January 2013 until July 31, 2018, and President of BorgWarner from March 2012 until July 31, 2018.

 

Our Board believes that Mr. Verrier will effectively serve our Board of Directors, our business, our employees and our shareholders based on his significant and diverse experiences, skills, qualifications and viewpoints from, among other things:

 

•  service as a director, Chief Executive Officer and President of BorgWarner, Inc., a successful publicly-traded global automotive industry components and parts supplier of significant size;

 

•  prior service on another public company board;

 

•  independence under the applicable independence standards of the New York Stock Exchange and our Independence Standards for Directors;

 

•  proven ability to work efficiently and effectively with our other Directors to oversee and address issues and risks facing our business; and

 

•  high level of commitment to our Board of Directors and integrity, honesty, judgment and professionalism.

 

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LOGO

Director since 2009

  

 

JAMES L. WAINSCOTT

Age: 62

Committees:  Corporate Governance and Nominating Committee

           (Chair and Lead Director)

           Human Resources and Compensation Committee

 

Now retired, Mr. Wainscott was Chairman of the Board of AK Steel Holding Corporation (steel producer) from January 2006 to May 2016; and President, Chief Executive Officer and a Director of AK Steel Holding Corporation from October 2003 to January 2016.

 

Our Board believes that Mr. Wainscott will effectively serve our Board of Directors, our business, our employees and our shareholders based on his significant and diverse experiences, skills, qualifications and viewpoints from, among other things:

 

•  extensive service as President, Chief Executive Officer and Chairman of the Board of AK Steel Holding Corporation, a successful global industrial company of significant size;

 

•  prior service on other public company boards;

 

•  independence under the applicable independence standards of the New York Stock Exchange and our Independence Standards for Directors;

 

•  proven ability to effectively serve as our Lead Director and to otherwise work efficiently and effectively with our other Directors to oversee and address issues and risks facing our business; and

 

•  high level of commitment to our Board of Directors and integrity, honesty, judgment and professionalism.

 

LOGO

Director since 2015

  

THOMAS L. WILLIAMS

Age: 60

Committees:  None

 

Mr. Williams has been our Chairman of the Board since January 2016; and our Chief Executive Officer since February 2015. He was our Executive Vice President from August 2008 to February 2015 and our Operating Officer from November 2006 to February 2015. Mr. Williams is also a director at The Goodyear Tire & Rubber Company as of February 26, 2019, and was a director of Chart Industries, Inc. until May 22, 2019.

 

Our Board believes that Mr. Williams will effectively serve our Board of Directors, our business, our employees and our shareholders based on his significant and diverse experiences, skills, qualifications and viewpoints from, among other things:

 

•  extensive service as Chief Executive Officer and Executive Vice President and Operating Officer and in various operational leadership positions during his 16-year career with us;

 

•  intimate, working knowledge of our day-to-day business, plans, strategies and initiatives;

 

•  present service on another public company board;

 

•  proven ability to work efficiently and effectively with our other Directors to oversee and address issues and risks facing our business; and

 

•  high level of commitment to our Board of Directors, our business, our employees and our shareholders, and a high level of integrity, honesty, judgment and professionalism.

 

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ANNUAL ELECTIONS; MAJORITY VOTING; NO CUMULATIVE VOTING

Our Amended and Restated Regulations provide for the annual election of our entire Board of Directors. Accordingly, each Director elected at this Annual Meeting of Shareholders will hold office until the next Annual Meeting of Shareholders and until his or her successor is elected.

Our Amended Articles of Incorporation provide for a majority voting standard in the annual election of our Directors. Accordingly, at each Annual Meeting of Shareholders, each candidate for Director is elected only if the votes “for” the candidate exceed the votes “against” the candidate, unless the number of candidates exceeds the number of Directors to be elected. If the number of candidates exceeds the number of Directors to be elected, then in that election the candidates receiving the greatest number of votes shall be elected. Abstentions and broker non-votes shall not be counted as votes “for” or “against” a candidate, and shareholders are not able to cumulate votes in the election of Directors.

NEW ELECTIONS AND RETIREMENTS

On October 24, 2018, Robert J. Kohlhepp, Klaus-Peter Műller and Wolfgang R. Schmitt retired from our Board of Directors in accordance with the mandatory Director retirement provisions of our Corporate Governance Guidelines. Immediately prior to those retirements, Mr. Kohlhepp served on the Human Resources and Compensation Committee, Mr. Műller served on the Corporate Governance and Nominating Committee, and Mr. Schmitt served on the Audit Committee and the Corporate Governance and Nominating Committee.

Laura K. Thompson was identified as a potential Director candidate by a third-party search firm and was evaluated by management and our Corporate Governance and Nominating Committee. Upon our Corporate Governance and Nominating Committee’s recommendation and as permitted under our Amended and Restated Regulations, our Board of Directors elected Ms. Thompson to our Board of Directors on January 23, 2019 for a term expiring at this Annual Meeting of Shareholders. More detail and information on our Director recruiting, succession and refreshment process can be found under the caption “Director Selection and Nomination, Qualifications and Diversity.”

 

RECOMMENDATION REGARDING PROPOSAL 1:

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR

EACH OF THE NOMINEES TO THE BOARD OF DIRECTORS.

 

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CORPORATE GOVERNANCE

BOARD OF DIRECTORS

MEETINGS AND ATTENDANCE; EXECUTIVE SESSIONS

During fiscal year 2019, there were nine meetings of our Board of Directors. Each Director attended at least 75% of the meetings held by our Board of Directors and the Committees of our Board of Directors on which he or she served.

We hold a regularly scheduled meeting of our Board of Directors in conjunction with our Annual Meeting of Shareholders. Directors are expected to attend the Annual Meeting of Shareholders absent an appropriate reason. All of the members of our Board of Directors at the time of our 2018 Annual Meeting of Shareholders attended that meeting.

In accordance with the listing standards of the New York Stock Exchange, our non-management Directors are scheduled to meet regularly in executive sessions without management and, if required, our independent Directors will meet at least once annually. Additional meetings of our non-management Directors may be scheduled from time to time when our non-management Directors determine that such meetings are desirable. Our non-management Directors met four times during fiscal year 2019.

NUMBER; CURRENT TERM; RELATIONSHIPS

Our Board of Directors presently consists of eleven members. The current term of each member of our Board of Directors expires at our 2019 Annual Meeting of Shareholders. Assuming the election of all of the Director nominees, we expect our Board of Directors to consist of eleven members after the 2019 Annual Meeting of Shareholders. None of our Directors are related to each other and no arrangements or understandings exist pursuant to which any Director was selected as a Director or Director nominee.

DIRECTOR INDEPENDENCE

Our Corporate Governance Guidelines require at least a majority of our Directors to be “independent” as defined in the listing standards established by the New York Stock Exchange. Our Board of Directors has also adopted standards for Director independence, which are set forth in our Independence Standards for Directors.

We strongly favor a governance structure that includes an independent Board of Directors. Of the eleven current members of our Board of Directors, nine are independent based on our Board of Directors’ consideration of the applicable independence standards of the New York Stock Exchange and our Independence Standards for Directors. In addition, in fiscal year 2019, each of the Audit Committee, the Corporate Governance and Nominating Committee and the Human Resources and Compensation Committee of our Board of Directors was composed entirely of independent Directors. As a result, our independent Directors directly oversee critical matters such as our executive compensation program for executive officers, our corporate governance guidelines, policies and practices, the integrity of our financial statements and our internal controls over financial reporting.

Our Board of Directors has affirmatively determined that the following nine individuals who currently serve as Directors are independent: Robert G. Bohn, Linda S. Harty, Kevin A. Lobo, Candy M. Obourn, Joseph Scaminace, Åke Svensson, Laura K. Thompson, James R. Verrier and James L. Wainscott.

Among other things, our Board of Directors does not consider a Director to be independent unless it affirmatively determines that the Director has no material relationship with us either directly or as a

 

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partner, shareholder or officer of an organization that has a relationship with us. Our Board of Directors annually reviews and determines which of its members are independent based on the applicable independence standards of the New York Stock Exchange and our Independence Standards for Directors. During such review, our Board of Directors broadly considers all facts and circumstances which it deems relevant, including any commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships between us and any of our Directors.

In fiscal year 2019, after considering the facts and circumstances applicable to each Director, our Board of Directors determined that each of Ms. Thompson, and Messrs. Lobo and Verrier served as an executive officer of a company that has an existing customer or supplier relationship with us, and that each such relationship required further analysis to confirm his or her independence. Our Board of Directors further analyzed these relationships and found that none of these Directors receive any direct or indirect personal benefits as a result of these relationships, and that the amounts paid to or by us under such relationships fell significantly below the thresholds for independence provided in the applicable independence standards of the New York Stock Exchange and our Independence Standards for Directors. Based on such further analyses, our Board of Directors affirmatively concluded that each of these Directors is independent.

CURRENT LEADERSHIP STRUCTURE

Our Board of Directors currently employs a “dual leadership” structure. We have a Lead Director who is also the Chair of the Corporate Governance and Nominating Committee, and a Chairman of the Board, who is our Chief Executive Officer. Our Lead Director is elected solely by the independent members of our Board of Directors and holds a position separate and independent from our Chairman of the Board. Our Corporate Governance Guidelines provide that the Chair of the Corporate Governance and Nominating Committee will serve as our Lead Director and that the Chair of the Corporate Governance and Nominating Committee is elected every five years.

The specific authorities, duties and responsibilities of our Lead Director are described in our Corporate Governance Guidelines. Among other things, our Lead Director presides over and supervises the conduct of all meetings of our independent Directors, calls meetings of our independent Directors, and prepares and approves all agendas and schedules for meetings of our Board.

Our Board believes that having a Lead Director who is elected by our independent Directors ensures that our Board will at all times have an independent Director in a leadership position. At the same time, our Board of Directors believes that it is important to maintain flexibility in its leadership structure to allow for a member of management to serve in a leadership position alongside the Lead Director if our Board of Directors determines that such a leadership structure best meets the needs of our Board, our business, our employees and our shareholders.

Our Board has determined that this leadership structure is currently more efficient and effective than a structure which employs a single, independent Chairman of the Board. Our Board of Directors views this structure as one that ensures both independence in leadership and a balance of knowledge, power and authority. For example, our leadership structure employs both a Chairman of the Board who is also our Chief Executive Officer and who possesses an intimate, working knowledge of our day-to-day business, plans, strategies and initiatives, and a Lead Director who has a strong working relationship with our non-management, independent Directors. These two individuals combine their unique knowledge and perspectives to ensure that management and our independent Directors work together as effectively as possible. Among other things, our Chairman of the Board ensures that our Board addresses strategic issues that management considers critical, while our Lead Director ensures that our Board addresses strategic issues that our independent Directors consider critical.

 

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Our Board recognizes, however, that no single leadership model may always be appropriate. Accordingly, our Board of Directors regularly reviews its leadership structure to ensure that it continues to represent the most efficient and effective structure for our Board of Directors, our business, our employees and our shareholders.

DIRECTOR SELECTION AND NOMINATION, QUALIFICATIONS AND DIVERSITY

The Corporate Governance and Nominating Committee of our Board is responsible for identifying, evaluating and recommending potential Director candidates. The Corporate Governance and Nominating Committee ensures that Director recruiting, succession and refreshment are persistent areas of focus and regularly reviews the size, composition and independence of our Board, and any expected vacancies, in determining whether and to what extent to actively recruit new Directors or to replace departing Directors.

The Corporate Governance and Nominating Committee utilizes a variety of methods and processes to identify potential Director candidates, including through reputable third-party search firms, unsolicited recommendations from other third-party search firms, and referrals from current or past members of our Board. In addition, the Corporate Governance and Nominating Committee will give appropriate consideration to qualified persons recommended by shareholders for nomination as Directors (provided that such recommendations comply with the procedures set forth under the caption “Shareholder Recommendations for Director Nominees”) and will consider such candidates on the same basis as candidates recommended by other sources. The Corporate Governance and Nominating Committee generally will not, however, consider recommendations for Director nominees submitted by individuals who are not affiliated with us.

 

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The Corporate Governance and Nominating Committee has developed and implemented a robust process to ensure that its formal Director searches are appropriately scoped and designed to produce a slate of potential candidates representing a broad range of backgrounds, educations, experiences, skills and viewpoints that will enable them, individually and collectively, to address the issues affecting our Board, our business, our employees and our shareholders, and optimize the functioning and decision-making and oversight roles of our Board and its Committees. The Corporate Governance and Nominating Committee currently focuses on the following key search and evaluation criteria, but considers the entirety of each proposed candidate’s credentials and all available information that may be relevant to each candidate’s nomination.

 

 

Key Criteria

  

 

Overall Philosophy and Approach

Culture and Values

   The Corporate Governance and Nominating Committee places high value on cultural fit. Our Directors must be able to work together to oversee efficiently and effectively the issues and risks facing our business, and have the commitment, integrity, honesty, judgment and professionalism required under our Corporate Governance Guidelines and Global Code of Business Conduct, and to otherwise serve the long-term interests of our Board of Directors, our business, our employees and our shareholders.

Diversity

   The Corporate Governance and Nominating Committee firmly believes diversity is critical to a well-functioning Board of Directors, and is committed to enhancing diversity on our Board. As a result, the Corporate Governance and Nominating Committee directs its search firms to identify and evaluate a robust selection of qualified candidates representing a broad range of diverse characteristics, including gender, race, ethnicity, and cultural and geographical backgrounds. In our most recent Director search, for example, a majority of the candidates presented for consideration were diverse candidates and the search ultimately resulted in the election of a female Director.

Skills and Qualifications

  

The Corporate Governance and Nominating Committee also believes it is essential to have a Board with the range of skills and experience needed to effectively evaluate, monitor and oversee the wide range of considerations presented by the size and scope of our Company, operations, products and markets. As a result, the Corporate Governance and Nominating Committee seeks to identify nominees who are well equipped with a broad set of key skills, including the following:

 

•  current or recent service as a Chief Executive Officer, Chief Operating Officer or Chief Financial Officer, or other senior leadership positions at publicly-traded companies;

 

•  significant experience in corporate strategy, manufacturing, sales and marketing, industrial business, aerospace business, international businesses, finance and accounting, technology and digital applications, and other key areas;

 

•  ability to effectively evaluate, monitor and oversee the most critical risks facing our business; and/or

 

•  independence under the applicable independence standards of the New York Stock Exchange and our Independence Standards for Directors.

 

 

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Following its initial screening and evaluations, the Corporate Governance and Nominating Committee may seek additional information regarding, and may request interviews with any candidate it wishes to further pursue. Based on all information reviewed and interviews conducted, the Corporate Governance and Nominating Committee collectively determines whether to recommend the candidate to our entire Board of Directors.

The Corporate Governance and Nominating Committee, utilizing its robust and thoughtful approach to Director recruiting, succession and refreshment, has built an experienced, diverse and independent Board that provides significant oversight over our plans and strategies for growth, financial performance and shareholder value creation.

RISK MANAGEMENT

Management and our Board of Directors and its Committees are collectively engaged in identifying, overseeing, evaluating and managing the material risks facing our business to ensure that our strategies and objectives work to minimize such risks. Our Board of Directors has the ultimate responsibility to monitor the risks facing our business. Among other things, our Board of Directors reviews and discusses in detail, at least annually, our corporate strategy and annual operating plan, which covers significant strategic topics such as our key markets, operational priorities under The Win Strategy, strategic positioning, financial and operational outlooks, capital allocation, balance sheet strength, debt portfolio and positions, share repurchase activity, and dividend history and strategies. Our Board also maintains regular oversight of other key risk areas such as corporate strategy, management succession planning, cybersecurity, enterprise risk management, and environmental, social and governance matters.

Various members of our management are responsible for our day-to-day risk management activities, including members of our Human Resources, Internal Audit and Compliance, Legal, Tax, Risk Management, Treasury, Finance, and Information Technology departments, and our internal Cyber Security Committee. Those individuals are charged with identifying, overseeing, evaluating and managing risks in their areas of responsibility and for ensuring that any significant risks are addressed with our Board or the appropriate Board Committees. The Committees of our Board of Directors are each responsible for the various areas of risk oversight as described in the “Committees of our Board of Directors” section of this Proxy Statement. Management and the Chair of the applicable Committee ensure that any significant risks are reported to and addressed with the entire Board of Directors. Our Lead Director and the other Committee Chairs ensure that risk management is a recurring agenda item for meetings of our Board and its Committees.

Management and our Board of Directors and its Committees also engage outside advisors where appropriate to assist in the identification, oversight, evaluation and management of the risks facing our business. These outside advisors include our independent registered public accounting firm, external legal counsel and insurance providers, and the independent executive and non-employee Director compensation consultant retained by the Human Resources and Compensation Committee of our Board of Directors.

Our Board believes that its current level of independence, leadership structure and qualifications and diversity of its members facilitate the effective identification, oversight, evaluation and management of risk. Our Lead Director meets regularly with our other independent Directors without management to discuss current and potential risks and the means of mitigating those risks, and has the authority to direct and evaluate our risk management efforts.

Management and our Board of Directors and its Committees view the risk management role of our Board of Directors and its Committees, and their relationship with management in the identification, oversight, evaluation and management of risk, as paramount to the short-term viability and long-term

 

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sustainability of our business. The ability to effectively monitor and oversee the most critical risks facing our business is a key consideration for our Board and its Committees in identifying potential Director nominees and evaluating our current Directors and Committee assignments.

COMMITTEES OF OUR BOARD OF DIRECTORS

BOARD COMMITTEES; COMMITTEE CHARTERS

Our Board has established and delegated certain authorities and responsibilities to three committees: the Human Resources and Compensation Committee, the Corporate Governance and Nominating Committee, and the Audit Committee. Each Committee of our Board is governed by a written charter which is posted and available on the Corporate Governance page of our investor relations website at www.phstock.com. Shareholders may request copies of these charters, free of charge, by writing to Parker-Hannifin Corporation, 6035 Parkland Boulevard, Cleveland, Ohio 44124-4141, Attention: Secretary, or by calling (216) 896-3000.

All members of each Committee are independent under the listing standards of the New York Stock Exchange as well as our Independence Standards for Directors. Each Committee regularly reports its activities to the full Board of Directors.

Information about the respective Committee purposes, memberships and number of meetings are reflected in the following chart:

 

Standing Committee   Purpose  

 

Members in
FY2019

 

 

 

 

Meetings in  

FY2019  

 

 

Human Resources & Compensation

Committee

 

Oversight of our processes plans and programs for compensation of our executive officers and non-employee Directors, succession planning for executive officers, employee benefit, equity and incentive compensation plans, and other related matters.

 

 

C. Obourn*

R. Bohn

K. Lobo

J. Scaminace

J. Verrier

J. Wainscott

  5  

Corporate

Governance &

Nominating

Committee

  Oversight of our corporate governance framework, structure and policies, and other related matters.  

J. Wainscott*

L. Harty

C. Obourn

J. Scaminace

Å. Svensson

 

 

2  

 

Audit Committee  

Oversight of our audit, compliance, and other related matters, including integrity of financial statements and financial reporting, accounting practices, legal and regulatory compliance, internal audit functions and processes, and independence, qualifications, and performance of the independent auditor.

 

 

L. Harty* (ACFE)

R. Bohn

K. Lobo (ACFE)

Å. Svensson

J. Verrier

  5  

* Committee Chair

Our Board of Directors has determined that each of Linda S. Harty, the Chair of the Audit Committee, and Kevin A. Lobo, a member of the Audit Committee, are audit committee financial experts (designated in the above chart as ACFE) as defined in the federal securities laws.

Each of our Committees works with the applicable members of our Human Resources, Internal Audit and Compliance, Legal, Tax, Risk Management, Treasury, Finance, and Information Technology

 

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departments and other management personnel to oversee and evaluate risks or relevant concerns to each Committee.

THE HUMAN RESOURCES AND COMPENSATION COMMITTEE

The Human Resources and Compensation Committee oversees the administration, structure and determination of our executive compensation program. In addition, the Human Resources and Compensation Committee works with its independent executive compensation consultant and our human resources, legal and other management personnel to oversee and evaluate risks arising from and relating to our compensation policies and practices for all employees, our succession planning and talent development strategies and initiatives, and other human resources issues facing our business.

In particular, the Human Resources and Compensation Committee monitors any significant existing or potential risks arising from our compensation policies and practices for all employees through its oversight of an annual compensation risk review conducted by management and the Human Resources and Compensation Committee’s independent executive compensation consultant. The results of this review are evaluated and discussed among management, the Human Resources and Compensation Committee and its independent executive compensation consultant and, if any significant risks are identified, the full Board of Directors. Based on the review conducted during fiscal year 2019, we believe that our current compensation policies and practices are designed to mitigate risks related to compensation, and such policies and practices are not reasonably likely to have a material adverse effect on our business.

The annual compensation risk review begins with a global assessment of any plans or programs that could potentially encourage excessive risk-taking or otherwise present significant risks to our business. The review also takes into account our individual business units to determine whether any of them carries a significant portion of our risk profile, structures compensation significantly different than others or is significantly more profitable than others. The review then evaluates whether the applicable plans and programs are likely to encourage excessive risk-taking or detrimental behavior, vary significantly from our risk-reward structure, or otherwise present significant risks to our business.

During our fiscal year 2019 compensation risk review, we also identified and evaluated various mechanisms that we currently have in place that may serve to mitigate any existing or potential risks arising from our compensation policies and practices, including the following:

 

   

our executive officers and other management-level employees are compensated with a mix of annual and long-term incentives, fixed and at-risk compensation, cash and multiple forms of equity compensation;

 

   

compensation packages gradually become more focused on long-term, at-risk and equity compensation as our employees ascend to and through management-level positions;

 

   

our global compensation plans and programs generally utilize the same or substantially similar performance measures;

 

   

we use multiple performance measures to determine payout levels under certain elements of incentive compensation and different performance measures for our annual incentives as compared to our long-term incentives;

 

   

the performance of our employees is not evaluated or measured based solely on changes in our stock price;

 

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our incentive compensation programs generally limit payouts to a specified maximum, while those that do not are mitigated by other factors (e.g., stock appreciation rights are mitigated by long-term vesting periods and stock ownership guidelines);

 

   

we do not offer “guaranteed” bonuses and all of our incentive compensation elements carry downside risk for participants;

 

   

our executive officers are subject to specific stock ownership guidelines, a “claw-back” policy and provisions requiring forfeiture of certain elements of incentive compensation upon termination for cause;

 

   

our compensation packages, including severance packages and supplemental pensions, are within market ranges;

 

   

the Human Resources and Compensation Committee has the discretion to assess the quality of our results in relation to our various performance measures and the risks taken to attain those results in approving final incentive payouts;

 

   

our de-centralized organizational structure lessens the impact of any excessive risks taken by individual business units or operating groups; and

 

   

our employees are evaluated, measured and assessed based on their compliance with our Global Code of Business Conduct and other internal policies and controls, and the extent to which they act in the best interests of our business and our shareholders.

During the annual compensation risk review, we also consider whether any changes to our compensation plans and programs may be necessary to further mitigate risk. The Human Resources and Compensation Committee did not make any changes based on the results of our fiscal year 2019 review.

THE CORPORATE GOVERNANCE AND NOMINATING COMMITTEE

Among other things, the Corporate Governance and Nominating Committee is responsible for evaluating and recommending to our Board of Directors qualified nominees for election as Directors and qualified Directors for Committee membership, establishing evaluation procedures for the performance of our Board of Directors and its Committees, developing corporate governance guidelines and independence standards, and considering other matters regarding our corporate governance structure. In addition, the Corporate Governance and Nominating Committee works with our legal and other management personnel to oversee and evaluate:

 

   

Director independence, qualifications and diversity issues;

 

   

Board of Directors and Committee leadership, composition, function and effectiveness;

 

   

alignment of the interests of our shareholders with the performance of our Board of Directors;

 

   

compliance with applicable corporate governance rules and standards; and

 

   

other corporate governance issues and trends.

THE AUDIT COMMITTEE

The Audit Committee of our Board of Directors is our standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. Each member of our Audit Committee is independent, as defined in our Independence Standards for Directors and in compliance with the independence standards applicable to audit committee members under the New York Stock Exchange listing standards and under the federal securities laws.

 

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Among other things, the Audit Committee is responsible for appointing, compensating, retaining, and overseeing our independent registered public accounting firm and evaluating its independence, approving all audit and non-audit engagements with our independent registered public accounting firm, and reviewing our annual and quarterly financial statements, internal and independent audit plans, the results of such audits and the adequacy of our internal control structure.

In addition, the Audit Committee works with our internal audit and compliance, legal, tax, treasury and finance departments and other management personnel to oversee and evaluate risks, including major financial, tax, strategic, and operational risk exposures and risks related to compliance with legal and regulatory requirements, and significant litigation and claims.

The Audit Committee also meets privately at each of its meetings with representatives from our independent registered public accounting firm and our Vice President – Audit, Compliance and Enterprise Risk Management.

 

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OTHER GOVERNANCE MATTERS

REVIEW AND APPROVAL OF TRANSACTIONS WITH RELATED PERSONS

The Corporate Governance and Nominating Committee is responsible for considering questions of possible conflicts of interest of Directors and executive officers and for making recommendations to prevent, minimize or eliminate such conflicts of interest. Our Global Code of Business Conduct provides that our Directors, officers, employees and their spouses and other close family members must avoid interests or activities that create any actual or potential conflict of interest. These restrictions cover, among other things, interests or activities that result in receipt of improper personal benefits by any person as a result of his or her position as our Director, officer, employee or as a spouse or other close family member of any of our Directors, officers or employees. Our Global Code of Business Conduct also requires our Directors, officers and employees to promptly disclose any potential conflicts of interest to our Corporate Compliance Office. We also require that each of our executive officers and Directors complete a detailed annual questionnaire that requires, among other things, disclosure of any transactions with a related person meeting the minimum threshold for disclosure under the relevant U.S. Securities and Exchange Commission, or SEC, rules. All responses to the annual questionnaires are reviewed and analyzed by our legal counsel and, as necessary or appropriate, presented to the Corporate Governance and Nominating Committee for analysis, consideration and, if appropriate, approval.

The Corporate Governance and Nominating Committee will consider the following in determining if any transaction with a related person or party should be approved, ratified or rejected:

 

   

the nature of the related person’s interest in the transaction;

 

   

the material terms of the transaction;

 

   

the importance of the transaction to the related person and to us;

 

   

whether the transaction would impair the judgment or the exercise of the fiduciary obligations of any Director or executive officer;

 

   

the possible alternatives to entering into the transaction;

 

   

whether the transaction is on terms comparable to those available to third parties; and

 

   

the potential for an actual or apparent conflict of interest.

During fiscal year 2019, we reviewed the annual questionnaires and determined that no related-party transactions exist. This review included a detailed evaluation of the transactions reviewed and analyzed by our Board of Directors in determining Director independence as described in the “Director Independence” section of this Proxy Statement. Based on management’s review and analysis, no actual or potential related-party transactions were presented to the Corporate Governance and Nominating Committee for analysis, consideration or approval.

DELINQUENT SECTION 16(A) REPORTS

Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers, Directors and beneficial owners of more than 10% of our Common Shares to file initial stock ownership reports and reports of changes in ownership with the SEC. SEC regulations require that we receive copies of these reports. Based solely on a review of these reports and upon written representations from our executive officers and Directors, we believe that all Directors, Officers and 10% or greater beneficial owners complied with all such filing requirements for fiscal year 2019, except that (i) Catherine A. Suever, Executive Vice President – Finance & Administration and Chief Financial Officer, filed one late Form 4 to correct the inadvertent underreporting of 1,620 shares awarded to her, and (ii) Robert G. Bohn, Director, filed one late Form 4 to report 120 shares acquired through a broker dividend reinvestment plan.

 

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PROXY ACCESS

In 2018, our Shareholders approved an amendment to our Code of Regulations (subsequently restated and named Amended and Restated Regulations) to permit a shareholder, or a group of up to twenty shareholders, owning three percent or more of the Company’s outstanding shares of Common Stock continuously for at least three years to nominate and include the Company’s annual meeting proxy materials a number of director nominees up to a greater of (x) two, or (y) twenty percent of the Board, provided that the shareholder(s) and nominee(s) satisfy the requirements specified in the Amended and Restated Regulations.

“CLAW-BACK” POLICY

Our Board of Directors maintains a “claw-back” policy which allows us to recover or withhold any Target Incentive Bonuses, General RONA Bonuses, Converted RONA Bonuses or LTIP Awards which are paid or payable to an executive officer if:

 

   

payment, grant or vesting was based on the achievement of financial results that were subsequently the subject of a restatement of any of our financial statements filed with the SEC;

 

   

our Board of Directors determines in its sole discretion that the fraud or misconduct of the executive officer caused or contributed to the need for the restatement;

 

   

the amount that would have been paid or payable to the executive officer would have been less if the financial results had been properly reported; and

 

   

our Board of Directors determines in its sole discretion that it is in our best interests and in the best interests of our shareholders to require the executive officer to repay or forfeit all or any portion of the amount paid or payable.

STOCK OWNERSHIP GUIDELINES

In 2015 our Board of Directors approved amended stock ownership guidelines to further align the financial interests of our executive officers and Directors with those of our shareholders by encouraging the accumulation and retention of our common stock by our Directors and executive officers. The current guidelines for our Directors and executive officers are as follows:

 

 

Participants

 

 

Guidelines

 

Chairman of the Board and Chief Executive Officer

 

 

Six times annual base salary *

President and Chief Operating Officer

 

Four times annual base salary

Executive or Senior Vice Presidents

 

Three times annual base salary

Other executive officers

 

Two times annual base salary

Non-Management Directors

 

 

Five times annual retainer

 

 

*

The Board approved an increase in the stock ownership guidelines applicable to our Chairman of the Board and Chief Executive Officer from five to six times annual base salary effective on August 15, 2019.

The recommended time period for achieving compliance with the guidelines is five years from election or appointment to the position that is subject to the guidelines. The Human Resources and Compensation Committee reviews share ownership information with the Chief Executive Officer in August of each year to ensure compliance with the guidelines. As of June 30, 2019, all executive officers and Directors in their positions for at least five years were in compliance with the guidelines.

 

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STOCK OWNERSHIP RESTRICTIONS - SPECULATIVE TRANSACTIONS / HEDGING

We maintain an insider trading policy that applies to all of our Directors, officers, employees and consultants. The insider trading policy prohibits those covered by the policy from engaging in speculative transactions with respect to Company securities that could lead to inadvertent violations of securities laws, such as short sales and acquiring exchange-traded options (including puts, calls and other derivatives). Furthermore, the insider trading policy prohibits certain arrangements that could result in sales or transfers of Company securities without the covered person’s consent at times at which he or she is not permitted to trade in Company securities, including holding Company securities in margin accounts or pledging them as collateral.

The insider trading policy also prohibits those covered by the policy from entering into hedging or monetization transactions (such as zero-cost collars and forward sale contracts) with respect to Company securities, because such transactions may provide ownership of Company securities without the full risks and rewards of such ownership.

 

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COMPENSATION DISCUSSION AND ANALYSIS

EXECUTIVE SUMMARY—FISCAL YEAR 2019

Objectives and Philosophies of the Executive Compensation Program

The Win StrategyTM has been the foundation of our business and has represented the unified strategic vision of our employees worldwide since it was first introduced in 2001. The Win Strategy defines the key goals, operational priorities and metrics used to profitably grow our business. We are confident that our continuing focus on The Win Strategy maximizes long-term shareholder value by helping us realize our goal of top-quartile performance among our competitors and peers and steady appreciation of our stock price.

The Win Strategy also provides the means by which we measure and reward success. In fact, the objective of our executive compensation program is to encourage and reward performance that implements the strategies and advances the goals of The Win Strategy. The program is designed to:

 

   

align the financial interests of our executive officers and our shareholders by encouraging and rewarding our executive officers for performance that achieves or exceeds significant financial and operational performance goals and by holding them accountable for results;

 

   

encourage and reward our executive officers for experience, expertise, level of responsibility, continuity of leadership, leadership qualities, advancement, individual accomplishment and other significant contributions to the enhancement of shareholder value and to the success of our business;

 

   

provide market competitive compensation to attract, retain and motivate highly-talented and ethical individuals at all levels who are focused on the long-term success of our business and who are equipped, motivated and poised to lead and manage our business presently and in the future;

 

   

promote accountability by providing executive officers a mix of cash and equity compensation, allocating a greater proportion of the compensation for executive officers, as compared to other employees, to elements that are dependent on the performance of our business; and

 

   

maintain a level of flexibility sufficient to adjust for trends and changes in the continuously evolving global business and regulatory environment.

Categories and Elements of Executive Compensation

Our executive compensation program covers all compensation paid to our executive officers. Our executive officers include, among others, our Chief Executive Officer, our Chief Financial Officer and our three other most highly compensated executive officers identified in the Summary Compensation Table for Fiscal Year 2019, which we refer to as the Named Executive Officers.

 

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Our executive compensation program offers the categories and elements of compensation identified in the following table. Each element of compensation is more specifically defined and described in the “Elements of Executive Compensation” section beginning on the page indicated in the table.

 

     

Category of Compensation

 

 

Element(s) of Compensation

 

  Defined/Described
Beginning on:

 

 

  Base Salaries

 

 

 

Base Salaries

 

 

 

Page 33

 

 

  Annual Cash Incentive Compensation

 

 

Target Incentive Bonuses

General RONA Bonuses

Converted RONA Bonuses

PGI Plan

 

 

 

Page 35

Page 36

Page 36

Page 39

 

 

  Long-Term Incentive Compensation

 

 

LTIP Awards

Stock Incentives

Restricted Stock Units

 

 

 

Page 40

Page 43

Page 44

 

 

  Employee Benefits

 

 

 

Various

 

 

 

Page 44

 

 

  Executive Perquisites

 

 

 

Various

 

 

 

Page 50

 

“Pay-for-Performance”—Structure, Key Financial Metrics and Impact on Compensation

Our executive compensation program is structured to ensure that a significant portion of the compensation for executive officers is dependent upon the performance of our business. This “pay-for-performance” structure drives the program to achieve its objective to encourage and reward performance that implements the strategies and advances the goals of The Win Strategy. Our program is also structured to ensure that the compensation for our executive officers is not overly weighted toward annual cash incentive compensation and does not otherwise have the potential to threaten long-term shareholder value by promoting unnecessary or excessive risk-taking by our executive officers. The “Allocation of Executive Compensation” section describes our policies and practices for allocating executive compensation among the various categories and elements.

To illustrate, the following chart shows the mix of fixed and at-risk annual and long-term cash and equity compensation represented by base salaries and the elements of annual cash incentive compensation and long-term incentive compensation for the Named Executive Officers. The percentages of total compensation reflected in this chart were calculated using each Named Executive Officer’s fiscal year 2019 base salary, target annual cash incentive compensation and target long-term incentive compensation.

 

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LOGO

The “Elements of Executive Compensation” section provides detailed discussion and analysis regarding how each element of compensation encourages and rewards performance that implements the strategies and advances the goals of The Win Strategy. Our compensation structure includes both fixed and at-risk compensation comprised of various cash and equity elements, which is structured generally as follows:

 

 

LOGO

* General RONA and Converted RONA, which are based on our return on net assets.

We provide base salaries, employee benefits and executive perquisites primarily to ensure that our executive compensation program remains competitive to attract, retain and motivate the individuals needed to implement and advance our strategies and goals. In addition, as illustrated in the following

 

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table, we provide each element of annual cash incentive compensation and each element of long-term incentive compensation primarily to encourage and reward performance that implements and advances The Win Strategy, in particular, our strategies and goals relating to financial performance and profitable growth, aligning such elements with our performance in certain key financial metrics that we use to measure the overall performance of our business.

The following table shows the behaviors, key financial metrics and fiscal year 2019 results driven by each element of at-risk compensation provided to the Named Executive Officers.

 

                 
   

 

Element of Compensation

 

 

 

Encourages executive officers to maximize...

 

     

 

By focusing on various key business strategies, such as...

      Fiscal year 2019 results...        
LOGO  

RONA Bonuses (General and Converted)

(cash)

  return on net assets      

 

value pricing and strategic supply chain, market-driven innovation, system solutions and strong distribution channels

 

      Our return on consolidated net assets was above target.       LOGO
 

Target Incentive Bonuses

(cash)

  free cash flow      

 

continuous improvement in net income, lean initiatives, inventory controls, collection of receivables, control of payables and capital expenditures, and the ability to finance dividends, acquisitions and product innovations

 

      Our operating cash flows were $1.730 billion or 12.08% of sales, resulting in a free cash flow margin of 12.12%.*    
 

Profitable Growth Incentive Plan**

(cash)

  sales growth (organic and through acquisitions)       profitable and sustainable sales growth      

 

The Profitable Growth Incentive Plan multiplier was applied to Mr. Malone’s and Ms. Parmentier’s General RONA Bonus with the effect of increasing both Mr. Malone’s General RONA Bonus payout by approximately 30% and Ms. Parmentier’s General RONA Bonus by approximately 2%.

 

   
 

LTIP Awards

(equity)

  long-term sales growth, earnings per share growth, and growth in average return on invested capital       market-driven innovation, on-time delivery of quality products, value-added services and systems, strategic supply chain, lean enterprise, value pricing and profitable growth      

 

Our results for average return on invested capital were between the median and top quartile performance levels, and our results for revenue growth and earnings per share growth were at top quartile, resulting in a payout at 183.52% of target.

 

     

 

LOGO

 

Stock Incentives/Restricted Stock Units

(equity)

  our stock price      

 

sustained profitable growth and financial and operational performance that contribute to appreciation of our stock price

 

     

 

Our average daily closing per share stock price was $167.99 in fiscal year 2019, as compared to $177.39 in fiscal year 2018.

 

   

* Free cash flow margin is calculated as disclosed on page 35

** Officer participation on our Profitable Growth Incentive Plan is limited to our operating group presidents; as such, Mr. Malone (Vice President and President—Filtration Group) and Ms. Parmentier (Vice President and President—Motion Systems Group) are the only Named Executive Officers who were eligible for the Profitable Growth Incentive Plan in fiscal year 2019.

 

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ADMINISTRATION, OVERSIGHT AND DETERMINATION OF EXECUTIVE COMPENSATION

Human Resources and Compensation Committee

The Human Resources and Compensation Committee, which we refer to in this Compensation Discussion and Analysis as the Committee, consists solely of independent Directors and has various duties and responsibilities with respect to the administration, oversight and determination of executive compensation. As described in the Committee’s Charter, which is posted and available on the Corporate Governance page of our investor relations website at www.phstock.com, these duties and responsibilities include:

 

   

establishing our executive compensation program and philosophies and overseeing their development and implementation;

 

   

reviewing and approving the performance and compensation of our Chief Executive Officer and other executive officers; and

 

   

performing other duties and responsibilities assigned by our Board of Directors.

The Committee also retains the discretion to authorize periodic compensation adjustments due to promotions or increases in the responsibilities of our executive officers.

In fulfilling its duties and responsibilities, the Committee seeks periodic input, advice and recommendations from various sources, including our Board of Directors, our executive officers and the Committee’s independent executive compensation consultant. The Committee is not bound by that input or advice or those recommendations. The Committee at all times exercises independent discretion in its executive compensation decisions.

Board of Directors

Our Board of Directors approves all incentive compensation plans and equity-based plans reviewed and recommended by the Committee and all other plans and programs which, by their terms, require approval of our Board. Our Board does not authorize or approve any other specific executive compensation matters. Our Board of Directors oversees the Committee’s activities and performance, including the identification, evaluation and monitoring of risks arising from our compensation policies and practices, and reviews all material information relating to executive compensation matters approved by the Committee. This oversight ensures that the Committee fulfills its duties and responsibilities and that the executive compensation program is reasonable and appropriate, meets its objectives and effectively serves the interests of our business and our shareholders.

Executive Officers

Our executive officers also play a role in the administration, oversight and determination of executive compensation. At the beginning of each fiscal year, each executive officer sets annual performance goals for his or her direct reports, which may include other executive officers. The performance goals are designed to promote individual performance consistent with the strategies and goals of The Win Strategy. Throughout the fiscal year, each executive officer’s performance is reviewed and evaluated against his or her performance goals. At the end of the fiscal year, each executive officer conducts a final performance review for each of his or her direct reports. Based on those reviews, our executive officers, other than our Chief Executive Officer, recommend any annual compensation adjustments and awards for their executive officer direct reports to our Chief Executive Officer.

Our Chief Executive Officer similarly reviews and evaluates his direct reports, which include each of the other Named Executive Officers except for Mr. Malone and Ms. Parmentier who are reviewed

 

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and evaluated by Mr. Banks. Our Chief Executive Officer also reviews and evaluates the recommendations made with respect to all of our other executive officers and makes any modifications that he deems appropriate. Our Chief Executive Officer then recommends to the Committee annual compensation adjustments and awards for all of our executive officers other than himself.

Our Chief Executive Officer, our Chief Operating Officer, our Executive Vice President—Human Resources & External Affairs and our Secretary attend all meetings of the Committee other than executive sessions, and neither our Chief Executive Officer nor our Chief Operating Officer attends any meetings relating to his performance or compensation. Our executive officers prepare and provide to the Committee performance summaries for certain executive officers, which are used by the Committee to understand and measure the performance and effectiveness of our annual cash incentive compensation and long-term incentive compensation. Our executive officers also periodically consult with and assist the Committee in calculating incentive compensation payouts, establishing and monitoring performance goals and addressing other appropriate executive compensation matters.

COMPENSATION CONSULTANTS AND BENCHMARKING

The Committee regularly monitors, reviews and evaluates our executive compensation program to ensure that it provides reasonable compensation ranges at competitive, appropriate and effective levels. The Committee engages Mercer Human Resource Consulting, an independent human resources and compensation consulting firm, which we refer to as Mercer, to assist the Committee in its monitoring, review and evaluation responsibilities, and to otherwise provide assistance and guidance to the Committee on executive officer and Director compensation matters. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies, Inc. The Committee first engaged Mercer in fiscal year 2009 following a robust procurement process involving multiple consulting firms. The Committee selected Mercer based on its level of expertise and financial and strategic fit. Mercer reports directly to the Committee and attends all meetings of the Committee. The Committee has sole authority for the appointment, removal, replacement, compensation and oversight of Mercer and its affiliates for executive officer and Director compensation matters.

Mercer provides a wide range of executive officer and Director compensation consulting services for the Committee. Mercer prepares and provides to the Committee a comprehensive annual review of base salaries, target annual cash incentive compensation, target long-term incentive compensation and target total cash and direct compensation for all of our executive officers. Mercer uses this annual review to advise the Committee with respect to the effectiveness and competitiveness of our executive compensation program. The Committee considers this annual review when establishing compensation levels and otherwise to ensure that our executive compensation program remains competitive and effective.

Mercer uses proxy statement data and surveys published by leading human resources and compensation consultants to conduct market analyses of base salaries, target annual bonuses, target long-term incentive compensation and target total cash and direct compensation offered to executives of other diversified industrial companies with revenues and market values comparable to ours, which we refer to as the Peer Group or Peer Group companies. Mercer also uses broader market data on companies outside of the Peer Group to the extent that it is available and appropriate.

The Committee regularly reviews and, when necessary or advisable, updates the Peer Group to make sure it consists of companies that directly compete with us for talented employees and shareholder investment, and it otherwise represents a meaningful group of peers. In evaluating the Peer Group companies, the Committee looks for companies in the Diversified Industrials sector with

 

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characteristics and business strategies similar to ours. The Peer Group companies for fiscal year 2019 remained the same as fiscal year 2018 and consisted of the following companies:

 

•   Caterpillar Inc.

 

•   Eaton Corporation plc

 

•   Ingersoll-Rand plc

•   Colfax Corporation

 

•   Emerson Electric Co.

 

•   ITT Corporation

•   Cummins Inc.

 

•   Flowserve Corporation

 

•   Johnson Controls International plc

•   Danaher Corporation

 

•   Fortive Corporation

 

•   Rockwell Automation, Inc.

•   Deere & Company

 

•   Honeywell International Inc.

 

•   SPX Flow, Inc.

•   Dover Corporation

 

•   Illinois Tool Works Inc.

 

•   Textron Inc.

Mercer also provided other compensation consulting services to the Committee during fiscal year 2019, including:

 

   

preparing for and participating in the Committee’s meetings and conference calls, including advance and subsequent meetings with the chair of the Committee and senior management;

 

   

conducting a pay-for-performance review to evaluate the level of alignment between our executive compensation program and performance levels relative to our Peer Group companies;

 

   

preparing and providing to the Committee a comprehensive review of compensation provided to our non-management Directors;

 

   

assessing our free-cash flow performance versus peers over a one, three and five-year period;

 

   

working with management to conduct the annual compensation risk review; and

 

   

periodically assisting management on other select executive compensation topics.

In fiscal year 2019, we paid $232,945 in fees, administrative charges, out-of-pocket expenses and other costs to Mercer for executive officer and Director compensation consulting services provided to the Committee.

We also directly engage Marsh & McLennan Companies, Inc. and its affiliates (including Mercer) in the ordinary course of business, without the approval of our Board of Directors or the Committee, to provide services in areas other than executive officer and Director compensation. These additional services included:

 

   

consulting services regarding life insurance, prescription drug and other benefits programs for our employees generally;

 

   

consulting services regarding investment options available under our benefit plans for our employees generally;

 

   

providing benchmarking surveys for information on compensation and benefits for our employees generally; and

 

   

providing services as an insurance broker.

In fiscal year 2019, we paid $1,242,045 in fees, administrative charges, commissions, out-of-pocket expenses and other costs to Marsh & McLennan Companies, Inc. and its affiliates (including Mercer) for these additional services. The majority of these fees were not paid pursuant to

 

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engagements of Marsh & McLennan Companies, Inc. by management, but were rather either paid by our third-party administrators to Marsh & McLennan Companies, Inc. relating to risk insurance and for insurance and prescription drug services provided under our employee health and welfare plans, or were direct engagements with Marsh & McLennan Companies, Inc. made by various divisions worldwide for market surveys related to those particular divisions. The consolidated revenues of Marsh & McLennan Companies, Inc. were $14.95 billion as reported in its Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

The Committee has considered and assessed all relevant factors, including but not limited to those set forth in Rule 10C-1(b)(4)(i) through (vi) under the Securities Exchange Act of 1934, that could give rise to a potential conflict of interest with respect to Mercer. Based on this review, we are not aware of any conflict of interest that has been raised by the work performed by Mercer. The Committee also periodically reviews the relationship with Mercer to determine whether sufficient internal safeguards are in place to ensure that Mercer provides services to the Committee independent of any influence from management. The Committee identified the following safeguards:

 

   

Mercer reports directly to the Committee and not to management on executive officer and Director compensation matters;

 

   

at each Committee meeting, Mercer and the Committee meet in executive session without members of management present;

 

   

all non-executive compensation services are provided by Mercer consultants who are not involved in providing executive officer and Director compensation consulting services to the Committee;

 

   

the Committee has exclusive authority to retain and set the compensation for Mercer’s executive officer and Director compensation consulting services;

 

   

the individual Mercer consultants to the Committee do not provide any services to us other than those provided for the Committee;

 

   

the individual Mercer consultants to the Committee do not participate in any client development activities that are not directly related to executive officer or Director compensation services for the Committee; and

 

   

the amounts paid to Mercer by the Committee are not directly impacted by any growth in the fees we pay to Marsh & McLennan Companies, Inc. and its affiliates (including Mercer).

GENERAL POLICIES AND PRACTICES RELATING TO EXECUTIVE COMPENSATION

Allocation of Executive Compensation

The Committee seeks to provide compensation, employee benefits and executive perquisites which are competitive with the market and help us attract, retain and motivate present and future executive officers. Annually, base salaries, target annual cash incentive compensation and long-term incentive compensation for each executive officer is compared to the median of companies included in Mercer’s annual review with the objective that, in the aggregate, our target compensation generally remains at the median of the Peer Group companies.

When deciding whether to increase or decrease the amount of any element of compensation, the Committee considers Mercer’s annual review, the annual performance reviews of the executive officers and the performance of our business as a whole. The Committee does not consider amounts realized from prior compensation in determining the levels of compensation paid to executive officers.

 

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To ensure that our executive compensation program meets its objectives to drive and support The Win Strategy, the Committee allocates the majority of compensation for executive officers to annual cash incentive compensation and long-term incentive compensation. Each of the at-risk elements of compensation within those categories is directly tied to appreciation of our stock price and/or to significant financial and operational performance goals. More than one-half of the targeted total compensation for the executive officers is, therefore, “at risk” and may significantly fluctuate from year to year based on our financial, operational and stock performance. In addition, the Committee makes sure that executive officers have a greater proportion of their total compensation allocated to these at-risk elements than other employees. The Committee structures the program in this manner to better align the financial interests of our executive officers with the financial interests of our shareholders, to better ensure a “pay-for-performance” result and to promote internal equity by recognizing that our executive officers, as compared to other employees, have greater responsibility and influence over the performance of our business.

Our executive compensation program is also structured to offer a reasonable balance of annual and long-term, as well as cash and equity, elements of compensation. The program provides a mix of those elements specifically designed to encourage and reward performance that contributes to the advancement of The Win Strategy. The Committee does not have any formal policies or guidelines with respect to the allocation of executive compensation between annual and long-term elements, cash and equity elements or different forms of equity elements. In practice, however, the Committee has taken the following approaches.

 

   

Allocation between annual and long-term elements. The Committee considers Mercer’s annual review as it sets each executive officer’s base salary and annual cash incentive compensation to ensure that it is reasonable in the context of the midpoint value of his or her comparable position within the Peer Group. The Committee also considers Mercer’s annual review as it sets the total target value of each executive officer’s long-term incentive compensation as a multiple of the midpoint of the base salary range of his or her comparable position within the Peer Group companies.

 

   

Allocation between cash and equity elements. Base salaries and annual cash incentive compensation are paid in cash. Long-term incentive compensation is generally paid in equity because of the long-term nature of equity awards and our desire to encourage performance that drives long-term shareholder value.

 

   

Allocation between different forms of equity elements. The Committee generally allocates 50% of the total target value of each executive officer’s long-term incentive compensation to LTIP Awards and 50% to Stock Incentives. The Committee takes this approach to balance the allocation between elements based on long-term financial, operational and strategic metrics and those based on long-term performance of our common stock.

The Committee generally makes all elements of executive compensation available to all executive officers and makes executive compensation decisions on a consistent and equitable basis. The Committee generally does not offer any element to an executive officer that is not available to other executive officers. As described beginning on page 39, however, the PG RONA Multiplier is applied only to our operating group presidents, and, therefore, Mr. Malone and Ms. Parmentier are our only Named Executive Officers to whom the PG RONA Multiplier was applied in fiscal year 2019. The Committee also occasionally grants retention and/or recognition awards to executive officers who make extraordinary contributions to the Company’s success, or for whom a retention incentive is appropriate.

 

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Accounting and Tax Considerations

Our executive compensation program is structured to achieve flexibility, maximize benefits and minimize detriments to our business and our executive officers from a tax and accounting perspective. As a result, we continuously review and evaluate the impact of changes in tax laws and accounting practices and interpretations and similar factors affecting our executive compensation program. For example, Financial Accounting Standards Board ASC Topic 718, which results in recognition of compensation expense for Stock Incentives, and Section 409A of the Internal Revenue Code, which impacts deferred compensation arrangements, are considered as we evaluate structure and implement changes to the program.

In addition, our executive compensation program has historically been designed to allow us to deduct compensation payments for tax purposes. For example, while the Committee believes that tax deduction is only one of several relevant considerations in setting compensation, the Committee generally tried to make sure that annual cash incentive compensation and long-term incentive compensation qualified as fully deductible “performance-based” compensation under Section 162(m) of the Internal Revenue Code.

The Tax Cuts and Jobs Act, enacted December 22, 2017, included a number of significant changes to Section 162(m), such as the repeal of the “performance-based” compensation exemption and the expansion of the definition of “covered employees” (for example, by including the chief financial officer as a covered employee). As a result of these changes, compensation to each Named Executive Officer in excess of $1,000,000 generally will no longer be tax deductible. In addition, each Named Executive Officer will be subject to the limit under Section 162(m) for all future tax years. We will continue to comply with the requirements of Section 162(m) to the extent to which our outstanding awards are determined to be tax deductible under the transitional relief; however, there are still uncertainties regarding the scope of transitional relief available. The Committee may also determine that certain good governance practices of Section 162(m) should remain in place, such as establishing performance goals within the first ninety days of a performance period, selecting performance goals that are set forth in our 2016 Omnibus Stock Incentive Plan and requiring the Committee to certify results prior to the payout of any award. The Committee, however, reserves the right to modify any compensation program if it determines that such modification is consistent with our business needs.

 

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Committee Discretion

The Committee does not change the pre-determined performance goals or increase the amount of any at-risk compensation following the grant date except as permitted by applicable laws and regulations. The Committee may increase the amount of any award of annual cash incentive compensation made outside of the Performance Bonus Plan if appropriate to account for corporate policy changes, executive compensation program changes and major corporate programs, and to account for the negative impact of acquisitions on goodwill and amortization expense, losses on dispositions of real property during plant moves or shutdowns and other unexpected occurrences that negatively impact awards. The Committee has historically exercised this discretion only with respect to General RONA Bonuses (to encourage our employees to engage in activities and initiatives that drive and support The Win Strategy but may have an adverse impact on General RONA Bonuses), and once used such discretion with respect to Target Incentive Bonuses.

The Committee may reduce the amount of any award of annual cash incentive compensation or long-term incentive compensation made outside of the Performance Bonus Plan other than Stock Incentives. The Committee also has the discretion to reduce the amount of any award made under the Performance Bonus Plan as long as the award, if eligible for such treatment, continues to qualify as “performance-based” compensation under Section 162(m). The Committee retains this downward discretion for the following purposes:

 

   

to ensure greater control over final performance-based compensation amounts based on its assessment of the quality of our results relative to our various performance measures, the risks taken to attain those results and our overall financial performance;

 

   

to ensure that performance-based compensation continues to effectively serve the interests of our business and our shareholders; and

 

   

to avoid inappropriately rewarding executive officers based on events or circumstances that were not expected at the beginning of the performance period.

The Committee has historically exercised this downward discretion with respect to General RONA Bonuses awarded under the Performance Bonus Plan to the Chief Executive Officer, the Chief Financial Officer and certain other executive officers. At the beginning of the year, the Committee determines for each of these executive officers a General RONA Bonus award opportunity that is large enough to ensure that we meet our objectives for annual cash incentive compensation and, at the same time, preserve the ability of the Committee to exercise its discretion to reduce the amount of the award payout to an appropriate level as compared to the final payouts made to executive officers who receive annual cash incentive compensation outside the Performance Bonus Plan and after taking into account individual performance and contributions to the success of our business. In addition, our calculation methodology for LTIP Award payouts also allows the Committee to exercise this discretion with respect to LTIP Award payouts.

ELEMENTS OF EXECUTIVE COMPENSATION

Our executive compensation program provides the Named Executive Officers with the elements of compensation described below. All of these elements are designed to contribute to our continuing effort to achieve top-quartile performance among our peers and encourage behavior that promotes long-term value creation for our shareholders within the framework of The Win Strategy.

Base Salaries

Each of the Named Executive Officers receives an annual base salary to:

 

   

encourage and reward attainment of individual performance goals established during the annual performance review process;

 

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recognize experience, expertise, level of responsibility, continuity of leadership, leadership qualities, advancement, individual accomplishment and other significant contributions to the enhancement of shareholder value and the success of our business; and

 

   

attract, retain and motivate the highly-talented and values-driven individuals we need to advance the goals of The Win Strategy.

The Committee establishes a base salary range for each Named Executive Officer by using Mercer’s annual review to analyze base salaries of persons holding comparable positions within the Peer Group companies. The Committee determines the base salary for each Named Executive Officer for the next fiscal year based on the Named Executive Officer’s annual performance review, and compares the amount to the applicable market range to make sure that it is reasonable. The Committee may increase base salaries, where appropriate, periodically throughout the fiscal year based on the results of interim performance reviews. The Committee generally tries to target base salary amounts at approximately the median of the Peer Group companies. During fiscal year 2019, the Named Executive Officers received the base salaries included in the “Salary” column of the Summary Compensation Table for Fiscal Year 2019.

Annual Cash Incentive Compensation

Our executive officers are eligible to receive annual cash incentive compensation based on pre-determined financial and growth objectives that are dependent on free cash flow margin, return on net assets and revenue growth. This category of compensation consists of three specific elements, which we refer to as Target Incentive Bonuses, General RONA Bonuses, and Converted RONA Bonuses. All of the Named Executive Officers are eligible to receive Target Incentive Bonuses, General RONA Bonuses and Converted RONA Bonuses. As described beginning on page 39, Mr. Malone and Ms. Parmentier are the only Named Executive Officers whose General RONA Bonus is subject to the application of our Profitable Growth Incentive Plan, which we refer to as the PGI Plan.

The Committee allocates a significant portion of the total cash compensation for executive officers to annual cash incentive compensation, which is wholly dependent on achieving pre-determined financial and operational goals. At the beginning of fiscal year 2019, Target Incentive Bonuses, General RONA Bonuses and Converted RONA Bonuses, at target, represented the following percentages of base salary for each of our Named Executive Officers:

 

Target Percentage of Base Salary    

 

  Named Executive Officer

 

 

Target Incentive Bonuses    

General RONA Bonuses and    

Converted RONA Bonuses    

 

  Thomas L. Williams

 

156%

  Catherine A. Suever

 

  92%

  Lee C. Banks

 

108%

  Robert W. Malone

 

  74%

  Jennifer A. Parmentier

 

 

  74%

 

The Committee pre-determines the performance measures applicable to each element by analyzing our annual goals and objectives for each performance measure and, for Target Incentive Bonuses, Mercer’s annual review. The Committee directly and materially links annual cash incentive compensation to performance that drives and supports The Win Strategy.

 

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Target Incentive Bonuses

During fiscal year 2019, the Named Executive Officers received annual cash incentive compensation based on our free cash flow margin, which we refer to as Target Incentive Bonuses. Free cash flow margin is calculated as the percentage of sales represented by actual operating cash flow less capital expenditures, excluding any discretionary pension contributions made during the fiscal year.

The Committee identified free cash flow margin as a performance measure critical to the profitable growth and financial performance goals of The Win Strategy. Maximizing free cash flow allows us to continue to pay annual dividends, strategically acquire our outstanding shares, and reinvest in our business by funding innovation and financing growth through acquisitions of businesses and technologies. Target Incentive Bonuses encourage executive officers to maximize free cash flow by increasing net income, implementing lean initiatives, controlling inventory, collecting receivables, controlling accounts payable, and optimizing capital expenditures. We have also identified a strong correlation between increases in free cash flow and increases in operating earnings.

Target Incentive Bonuses are designed to directly reward executive officers for free cash flow margin performance against our annual plan and the performance of the Peer Group. Specifically, the Committee determines the target award opportunity for each of the executive officers and establishes the levels of performance for threshold, target and maximum payouts after evaluating our annual plan for free cash flow margin and the one-year, three-year and five-year average free cash flow margin within the Peer Group. Based on this data, the Committee estimated that 5.5%, 8.5% and 11.5% free cash flow margins would represent bottom-quartile, median and top-quartile free cash flow margin results, respectively, within the Peer Group companies during fiscal year 2019. After review and consideration of such data and our annual plan for free cash flow margin, the Committee increased the free cash flow payout thresholds for our Target Incentive Bonuses in fiscal year 2019 from 5.0% to 5.5% for a 50% payout, 8.0% to 8.5% for a 100% payout, and 11% to 11.5% for a 200% payout.

The following table illustrates how final fiscal year 2019 Target Incentive Bonus amounts would be calculated:

 

         
FY19 Free Cash Flow Margin:   

Less than

5.5%

   5.5%    8.5%   

Greater than or equal  

to 11.5%  

Payout %

  

0%

  

50%

  

100%

  

200%

This table illustrates that each recipient of a Target Incentive Bonus would receive a year-end payout of 100% of his or her target award if our free cash flow margin for fiscal year 2019 was 8.5% and a maximum payout of 200% of his or her target award if our free cash flow margin was greater than or equal to 11.5%, representing top-quartile free cash flow margin. This table also illustrates that no Target Incentive Bonuses would be paid if our free cash flow margin for fiscal year 2019 was less than 5.5%. The payout percentage that is applied is interpolated on a linear basis between the points in the above table.

 

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In consideration of the foregoing, at the beginning of fiscal year 2019, the Committee approved the following Target Incentive Bonuses for each of the Named Executive Officers:

 

   
Named Executive Officer       Target Awards—Target   
Incentive Bonuses

Thomas L. Williams

  

$812,500

Catherine A. Suever

  

$300,300

Lee C. Banks

  

$450,000

Robert W. Malone

  

$151,300

Jennifer A. Parmentier*

  

$137,900

 

*

Ms. Parmentier received a Target Incentive Bonus award of $131,900 at the beginning of fiscal year 2019, with an adjusted Target Incentive Bonus award of $146,300, effective February 1, 2019 due to her promotion to Vice President and President – Motion Systems Group. Ms. Parmentier’s pro-rata target award is $137,900.

Our actual free cash flow margin for fiscal year 2019 was 12.12% (calculated by taking the difference of fiscal year 2019 cash flow from operating activities of $1,730,140,000 less fiscal year 2019 capital expenditures of $195,089,000, plus a $200,000,000 discretionary pension contribution, and dividing the result by fiscal year 2019 net sales of $14,320,324,000). Accordingly, each of the Named Executive Officers received 200% of their Target Incentive Bonus award. These amounts are included in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table for Fiscal Year 2019.

Target Incentive Bonuses are paid in one lump sum in August for each executive officer whose Target Incentive Bonus is awarded under the Performance Bonus Plan, and are paid in three installments in March, June and August for all other executive officers. The March and June payments are estimated based on year-to-date results, and the August payment represents the balance of the Target Incentive Bonus payable based on the actual results for the entire fiscal year. We generally hold back 25% of the year-to-date estimate from each March and June payment to ensure that we have the flexibility to reconcile the August payments to final year-end results. All payments are made in cash, except that the August payment may, at the election of the recipient, be deferred as a credit to the recipient’s account under the Executive Deferral Plan, which we describe in the section, “Non-Qualified Benefit Plans”.

General RONA Bonuses and Converted RONA Bonuses

During fiscal year 2019, each of the Named Executive Officers was eligible for, and received, annual cash incentive compensation based on our return on net assets, which we refer to as General RONA Bonuses and Converted RONA Bonuses. The Committee awards General RONA Bonuses to our executive officers to encourage and reward performance which maximizes our returns on net assets. The Committee awards Converted RONA Bonuses to our executive officers in place of certain executive perquisites.

The performance measures used to determine payouts on General RONA Bonuses are as follows:

 

   

for executive officers who receive General RONA Bonuses under the Performance Bonus Plan, return on consolidated net assets;

 

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for executive officers who are operating group presidents and do not receive General RONA Bonuses under the Performance Bonus Plan or who are not Executive Vice Presidents, return on average division net assets for divisions in the applicable operating group; and

 

   

for all other executive officers, return on average net assets for all divisions.

The performance measure used to determine the amount of the payouts on Converted RONA Bonuses is the return on average net assets for all of our divisions.

Return on net assets is calculated by dividing earnings (year-to-date segment operating income) by average assets (average of inventory, accounts receivable, prepaid expenses, property, plant and equipment, goodwill and intangibles, less trade accounts payable and contract reserves, at the beginning of the fiscal year and at the end of each applicable quarter.

The Committee identified return on net assets as a performance measure critical to the financial performance and profitable growth goals of The Win Strategy. The Committee uses General RONA Bonuses and Converted RONA Bonuses to encourage executive officers and other employees to increase segment operating income and control net average assets by reducing investments in assets and increasing efficiency in managing those investments. In addition, General RONA Bonuses and Converted RONA Bonuses encourage executive officers and other employees to increase sales and to reduce operating expenses and other costs associated with managing our working capital and investments. The Committee also believes that offering Converted RONA Bonuses in lieu of certain eliminated executive perquisites is appropriate to keep us competitive in attracting, retaining, and motivating present and future executive officers and to hold our executive officers accountable for results.

General RONA Bonuses awarded under the Performance Bonus Plan are paid in one lump sum in August. General RONA Bonuses awarded outside the Performance Bonus Plan and Converted RONA Bonuses, which are not awarded under the Performance Bonus Plan, are paid in four installments in October, January, April and August. Each installment is based on actual year-to-date results. We generally hold back 25% of the year-end estimate from each October, January and April installment to ensure that we have the flexibility to reconcile the August payments with final year-end results. All payments are made in cash, except that General RONA Bonus payments made in August may, at the election of the recipient, be deferred as a credit to the recipient’s Executive Deferral Plan account.

The Committee determines and calculates General RONA Bonuses and Converted RONA Bonuses as follows:

 

   

Setting Target Amounts: During the first quarter of the fiscal year, the Committee determines target General RONA Bonuses and target Converted RONA Bonuses for each of the executive officers. The Committee makes these determinations after review and consideration of Mercer’s annual review, and focuses on setting targets that are reasonable in relation to the median of similar compensation offered to executives in similar positions by the Peer Group companies.

 

   

Converting Target Amounts to “RONA shares”: Once determined, the target amounts set for General RONA Bonuses and Converted RONA Bonuses are converted into a number of “RONA shares” based on our annual goals for return on net assets. In fiscal year 2019, we established and communicated an overall goal of 21.4% return on net assets on a consolidated basis, with a target “multiple” of 5% of base salary for each “share”. The target amounts were converted into “shares” at the 5% target multiple by dividing the executive officer’s General RONA Bonus or Converted RONA Bonus target by the product of the executive officer’s base salary and the 5% target “multiple.”

 

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Determining the Actual Multiple: At each installment date, the actual return on net assets is calculated and, as follows, used to determine the actual “multiple”: (a) for that portion of the applicable return on net assets which is less than or equal to 35%, the actual multiple is 1% for every 5.6% of return on net assets; and (b) for that portion of return on net assets in excess of 35%, the actual multiple is 1% for every 11.2% of the excess. We allow our divisions to consider the benefit of intercompany sales when calculating return on net assets, and, therefore, to compensate for this additional benefit, we require an actual return on net assets of 28% for a payout multiple at the 5% target (i.e., 28.0% ÷ 5.6%). In other words, the 28% internal goal represents our estimate of division-level return on net assets performance (which would include intercompany sales) needed to achieve 21.4% return on net assets on a consolidated basis (after excluding intercompany sales).

 

   

Calculating the Actual RONA Bonuses: For General RONA Bonuses and Converted RONA Bonuses, the amounts of the actual bonuses earned are calculated by multiplying the executive officer’s “shares” by his or her multiple, and multiplying that total by his or her base salary for the fiscal year.

The following tables show each of the Named Executive Officers’ General RONA Bonus and Converted RONA Bonus target amounts, “shares”, “multiples” and actual amounts.

 

 
General RONA Bonuses
           
Named Executive Officer  

Base

Salary

 

Target

General

RONA

Bonus

Amount

 

General

RONA

Bonus

“Shares”

  

General

RONA

Bonus

“Multiple”

 

Actual

General

RONA

Bonus

Amount

Thomas L. Williams

 

$1,250,000

 

$1,062,500

 

17

  

6.68%

 

$1,419,500

Catherine A. Suever

 

$   750,800

 

$ 337,860

 

9

  

6.68%

 

$  451,381

Lee C. Banks

 

$1,000,000

 

$ 550,000

 

11

  

6.68%

 

$  734,800

Robert W. Malone(1)

 

$   605,000

 

$ 242,000

 

8

  

6.81%

 

$  329,604

Jennifer A. Parmentier(2)(3)

 

$   551,458

 

$ 220,583

 

8

  

6.70%

 

$  295,581

 

(1)

In fiscal year 2019, Mr. Malone received his General RONA Bonus under the Performance Bonus Plan. As a result, the Committee used return on consolidated net assets to determine that his maximum General RONA Bonus “Multiple” was 10.23%. As described below, however, Mr. Malone’s General RONA Bonus “Multiple” was reduced to 5.24% upon the Committee’s exercise of downward discretion, and then increased to 6.81% after applying his PG RONA Multiplier under our PGI Plan.

(2)

In fiscal year 2019, Ms. Parmentier’s General RONA Bonus was increased to 6.70% from 6.58% after applying her PG RONA Multiplier under our PGI Plan.

 

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(3)

Ms. Parmentier’s Target General RONA Bonus target payout amount was $211,000 at the beginning of fiscal year 2019, with an adjusted target payout amount of $234,000 due to her promotion in February 2019. Ms. Parmentier’s applicable pro-rata portion of her target amount is $220,583.

 

 
Converted RONA Bonuses
         
Named Executive Officer  

Target

Converted

RONA

Bonus

Amount

 

Converted

RONA

Bonus

“Shares”

 

Converted

RONA

Bonus

“Multiple”

 

Actual

Converted

RONA

Bonus

Amount

Thomas L. Williams

 

$78,140

 

1.19

 

6.68%

 

$104,395

Catherine A. Suever

 

$53,610

 

1.48

 

6.68%

 

$  71,623

Lee C. Banks

 

$77,720

 

1.69

 

6.68%

 

$103,834

Robert W. Malone

 

$53,440

 

1.86

 

6.68%

 

$  71,396

Jennifer A. Parmentier

 

$53,341

 

1.86

 

6.68%

 

$  71,263

Each of the Named Executive Officers received the General RONA Bonuses and Converted RONA Bonuses included in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table for Fiscal Year 2019. In arriving at these amounts, the Committee compared the original target award opportunities for executive officers receiving General RONA Bonuses under the Performance Bonus Plan (including each of the Named Executive Officers other than Ms. Parmentier) with the final payout amounts of annual cash incentive compensation for the other executive officers, and evaluated the individual performance and contributions to the success of our business of the executive officers receiving General RONA Bonuses under the Performance Bonus Plan. Based on that comparison and evaluation, the Committee determined that it would be appropriate to exercise downward discretion and reduce the final General RONA Bonus payout amounts for General RONA Bonuses awarded to the Named Executive Officers under the Performance Bonus Plan by approximately 35%. The amounts reported in the tables above represent the final amounts paid to the Named Executive Officers following that exercise of discretion.

Converted RONA Bonus payments are not eligible for deferral under the Executive Deferral Plan, the Retirement Savings Plan, or the Savings Restoration Plan. Converted RONA Bonuses are also not considered in calculating benefits under the Pension Plan, the Pension Restoration Plan, the Supplemental Retirement Program, the Defined Contribution Supplemental Retirement Program, the Executive Long-Term Disability Plan, and the Change in Control Agreements. The Committee determined that it would not be appropriate to allow Converted RONA Bonuses to be deferred under those plans or considered in those calculations because they are intended to replace executive perquisites which, historically, were not used or taken into account for those purposes.

Profitable Growth Incentive Plan

Our PGI Plan is designed to implement the strategies and advance the goals of The Win Strategy by encouraging and rewarding participants for sales growth, organically and through acquisitions at the operating group or division level. The Committee identified sales growth, organically and through acquisitions, as a performance measure critical to advance the financial performance and profitable growth goals of The Win Strategy. Under our PGI Plan, the General RONA Bonuses for participants may be adjusted after each fiscal year on the basis of a multiplier, which we refer to as the PG RONA Multiplier, that is determined by the three-year compound annual growth rate of external customer sales for the applicable operating group or division, which we refer to as 3-year CAGR. The following

 

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table sets forth examples of the PG RONA Multiplier that may be applied to, and which may increase or decrease, the General RONA Bonuses under our PGI Plan after each fiscal year:

 

         
3-year CAGR:  

Less than or equal  

to -5%

  3%-5%     8%      

Greater than or equal  

to 15%

PG RONA Multiplier:

 

90%

 

100%  

 

105%    

 

130%

The PG RONA Multiplier is interpolated on a linear basis between the points in the above table. Of our executive officers, only our operating group presidents’ General RONA Bonuses are subject to our PGI Plan, and, therefore, the PGI Plan applies to Mr. Malone and Ms. Parmentier, but not to any of our other Named Executive Officers. During fiscal year 2019, the three-year CAGR applicable to: Mr. Malone’s General RONA Bonus was 29.30%, resulting in a PG RONA Multiplier of 130%; and to Ms. Parmentier’s General RONA Bonus was 6.17%, resulting in a PG RONA Multiplier of 102%. These PG RONA Multipliers were applied to Mr. Malone’s and Ms. Parmentier’s final RONA Bonuses causing the increase from a 5.24% General RONA Bonus multiple to 6.81% for Mr. Malone, and the increase from a 6.58% General RONA Bonus multiple to 6.70% for Ms.  Parmentier, as reflected in the General RONA Bonuses chart above.

Long-Term Incentive Compensation

The Named Executive Officers receive long-term incentive compensation consisting of long-term incentive performance awards, which we refer to as LTIP Awards, and stock appreciation rights, which we refer to as Stock Incentives. The target amounts of LTIP Awards and the number of Stock Incentives awarded to the Named Executive Officers are based on similar compensation awarded to persons holding comparable positions within the Peer Group companies. In fiscal year 2019, the Committee also granted Messrs. Banks and Malone and Ms. Parmentier restricted stock units for retention purposes and in recognition of their extraordinary contributions to our success in furtherance of The Win Strategy.

LTIP Awards and Stock Incentives encourage long-term focus on shareholder value and are directly and materially linked to performance that advances both the financial performance and profitable growth goals of The Win Strategy over the long-term. LTIP Award payouts are based on a comparison of our performance against the Peer Group companies in certain key financial metrics over a three-year performance period. The holders of Stock Incentives realize a payout only if our stock price increases above the applicable grant price over a three-year pro-rata vesting period. LTIP Awards and Stock Incentives work together to align the long-term financial interests of our executive officers and shareholders.

LTIP Awards are granted to eligible employees on an annual basis at the January meeting of the Committee. This meeting is typically scheduled at least one year in advance. The only exceptions to this practice are that pro-rated LTIP Awards are granted to individuals who become executive officers, are promoted to new executive officer positions, or are given increased responsibilities during a performance period.

Stock Incentives are granted to eligible employees on an annual basis at the August meeting of the Committee. This meeting is typically scheduled at least one year in advance.

The Committee does not grant LTIP Awards or Stock Incentives to executive officers in anticipation of the release of significant positive earnings announcements or other material non-public information likely to result in changes to the price of our common stock. Similarly, the Committee does not time the release of material non-public information based on Stock Incentive grant dates.

LTIP Awards

During the third quarter of fiscal year 2011, the Committee adopted a Long-Term Incentive Performance Plan under the Performance Bonus Plan, which we refer to as the Officer LTIP Plan, to

 

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establish the terms and conditions for LTIP Awards granted to our executive officers during and after fiscal year 2011. In fiscal year 2019, after review of benchmarking surveys conducted by Mercer, the Committee approved certain changes to the Officer LTIP Plan to more closely align certain aspects of the LTIP awards with market and Peer Group compensation practices. The changes were effective for the fiscal year 2019 LTIP awards and are as follows:

 

  (i)

The Committee changed the calculation methodology used to determine the number of target LTIP Award shares to grant. Previously, in setting target share amounts, the Committee considered the Company’s average stock price for the preceding twelve months. To set target share amounts in fiscal 2019 and going forward, the Committee will use the Company’s average stock price for the month preceding the determination of target LTIP award amounts;

 

  (ii)

The Committee determined that LTIPs would accrue dividend equivalent units on earned LTIP Award shares beginning with the 2019-20-21 LTIP awards; and

 

  (iii)

The Committee changed the vesting provisions of LTIP Awards received in or after January 2019 such that upon retirement, death or disability of the participant, outstanding LTIP awards would vest ratably based on the completed months of service of the participant within the applicable performance period.

During the third quarter of fiscal year 2019, the Committee granted to each of the Named Executive Officers, under our Officer LTIP Plan and our 2016 Omnibus Stock Incentive Plan, which we refer to as the 2016 Equity Plan, the following target LTIP Awards based on the following target LTIP Award values:

 

         
Named Executive Officer   Target LTIP Award Shares        Target LTIP Award Values    

Thomas L. Williams

 

32,670

     

$5,000,000

   

Catherine A. Suever

 

  8,820

     

$1,350,000

   

Lee C. Banks

 

14,700

     

$2,250,000

   

Robert W. Malone

 

  3,920

     

$  600,000

   

Jennifer A. Parmentier*

 

  2,660

     

$  407,500

   

 

*

Ms. Parmentier received supplemental LTIP Awards for the calendar year 2017-18-19, 2018-19-20 and 2019-20-21 performance periods in the amounts of 351, 677 and 1,225 target shares respectively, for a total number of 2,253 additional LTIP target shares having a target award value of $370,371, in connection with her promotion to Vice President and President—Motion Systems Group in February 2019.

The target LTIP Award shares shown in this table (along with the awarded dividend equivalent units applicable to the calendar year 2019-20-21 performance period) are also included in the “Estimated Future Payouts Under Equity Incentive Plan Awards—Target” column of the Grants of Plan-Based Awards for Fiscal Year 2019 table. The “Stock Awards” column of the Summary Compensation Table for Fiscal Year 2019 includes the aggregate grant date fair value of these awards in fiscal year 2019.

Under the Officer LTIP Plan, the actual payouts for these LTIP Awards will be calculated following the three-year performance period ending December 31, 2021, as follows:

 

   

The Committee will first determine if, during the performance period, we achieved an average return on average equity of 4% or an average free cash flow margin of 4%.

 

   

If at least one of these threshold performance measures are not achieved, participants will not receive a payout.

 

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If at least one of these threshold performance measures are achieved, participants will become eligible to receive the maximum payout of 200% of the applicable target LTIP Award value. The Committee will then, if appropriate, apply its discretion to reduce the final payouts based on any performance measures that the Committee determines to be appropriate. The Committee determined that this calculation methodology would provide the Committee with more flexibility to ensure payout levels are as accurately reflective of the Company’s performance against the Peer Group as possible and are otherwise in the best interests of our business and our shareholders.

To provide the Committee with guidelines for exercising its discretion, the Officer LTIP Plan provides that the Committee may, among other things, following the calendar year 2019-20-21 performance period compare our revenue growth, growth in fully diluted earnings per share from continuing operations and average return on invested capital from continuing operations against the corresponding results of the Peer Group companies during their three most recent fiscal years. The Committee has identified long-term revenue growth, earnings per share growth and return on invested capital as performance measures critical to the financial performance and profitable growth goals of The Win Strategy because, among other things, they encourage our executive officers to provide on-time delivery of quality products, value-added services and systems, strategic supply chain, lean enterprise, value pricing, market-driven innovation and strong distribution.

Specifically, the Officer LTIP Plan provides for using weights of 20% for revenue growth, 40% for growth in fully diluted earnings per share from continuing operations, and 40% for average return on invested capital from continuing operations for the applicable performance periods, and the following table to calculate final LTIP Award payouts:

 

         

Peer Group Percentile Rank:

  Less than 35th   35th   50th    75th or higher

Payout%

 

0%

 

50%

 

100%

  

200%

At the end of calendar year 2021, if we achieve an average return on average equity or an average free cash flow margin of 4% or greater, the Committee may exercise discretion in determining the appropriate payout by determining our percentile rank as compared to the Peer Group for each of the three performance measures. Using this table, the Committee will calculate the portion of the target LTIP Award value earned with respect to each performance measure. The Committee will multiply each portion by its applicable weight and add up the total to determine the total LTIP Award payout for the calendar year 2019-20-21 performance period. This table illustrates that recipients of LTIP Awards granted during calendar year 2019 will receive the maximum payout of 200% of the applicable target LTIP Award value if we rank at or above the 75th percentile among the Peer Group companies in the aggregate based on all three performance measures, and will receive no payout if we rank at or below the 35th percentile in the aggregate based on all three performance measures. The payout percentage that is applied is interpolated on a linear basis between the points in the above table.

LTIP Award payouts for the calendar year 2019-20-21 performance period may only be paid after the end of the applicable three-year performance period in unrestricted shares of our common stock.

The Committee designed these LTIP Awards to reward executive officers directly in relation to our long-term performance against the Peer Group. The Committee determined that requiring performance in excess of the 50th percentile for a payout in excess of 100% would encourage executive officers to achieve performance above median Peer Group performance. The Committee also determined that requiring performance at the 75th percentile for a maximum payout, and awarding no payout for performance at or below the 35th percentile, would further encourage executive officers to achieve top-quartile performance within the Peer Group companies.

 

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In addition, each of the Named Executive Officers received a payout under LTIP Awards granted during the third quarter of fiscal year 2016 for the three-year performance period ending December 31, 2018. We exceeded our threshold performance measures with an average return on average equity for the three-year performance period of 20.4% and average free cash flow margin for the three-year performance period of 10.4%. The Committee decided to exercise discretion to determine the appropriate payout and determined that we achieved the following percentile rankings among the Peer Group companies with respect to the LTIP Award performance measures for the calendar year 2016-17-18 performance period:

 

       
Performance Measure    Result     Percentile Rank   

Weighted    

Payout    

Percentage    

 

Revenue growth

  

 

22.19%

 

 

88th

  

 

200.00

Growth in fully diluted EPS

  

 

73.89%

 

 

76th

  

 

200.00

Average return on invested capital

  

 

18.20%

 

 

65th

  

 

158.80

As a result, each of the Named Executive Officers received the LTIP Award payout during fiscal year 2019 included in the “Number of Shares Acquired on Vesting” column of the Option Exercises and Stock Vested for Fiscal Year 2019 table. Each payment represents a total payout of 183.52% of the target LTIP Award values for the three-year performance period ended December 31, 2018.

Stock Incentives

Each of the Named Executive Officers received Stock Incentives under our 2016 Equity Plan during the first quarter of fiscal year 2019. The Committee grants Stock Incentives to executive officers to encourage and reward efforts and accomplishments that advance the goals of The Win Strategy and make other contributions to maximize long-term shareholder value.

The number of Stock Incentives granted by the Committee is determined by utilizing the Black-Scholes valuation model to convert a target dollar value into the number of Stock Incentives to be granted. The Committee uses Mercer’s annual review to ensure the target dollar values are reasonable in relation to the median of similar compensation offered within the companies included in Mercer’s annual review. The following table shows the Target Value and the number of Stock Incentives granted to each of the Named Executive Officers in the first quarter of fiscal year 2019:

 

     
Named Executive Officer    Target Value             

Stock Incentive Grants

(# of Underlying Shares)

 

Thomas L. Williams

  

$5,000,000          

  

 

81,180

 

Catherine A. Suever

  

$1,350,000          

  

 

21,920

 

Lee C. Banks

  

$2,250,000          

  

 

36,530

 

Robert W. Malone

  

$   600,000          

  

 

9,740

 

Jennifer A. Parmentier

  

$   407,500          

  

 

6,620

 

The fiscal year 2019 Stock Incentive grants shown above are also included in the “All Other Option Awards: Number of Securities Underlying Options” column of the Grants of Plan-Based Awards for Fiscal Year 2019 table and the “Option Awards—Number of Securities Underlying Unexercised Options—Unexercisable” column of the Outstanding Equity Awards at June 30, 2019 table. The “Option Awards” column of the Summary Compensation Table for Fiscal Year 2019 includes the aggregate grant date fair value of these awards in fiscal year 2019.

 

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As required by the terms of our 2016 Equity Plan, these fiscal year 2019 Stock Incentives have an exercise price equal to the closing price of our common stock on the date of grant. The plan does not permit the re-pricing of Stock Incentives. The Committee analyzed the terms of our 2016 Equity Plan and considered Mercer’s annual review to establish all other terms of these Stock Incentives. These fiscal year 2019 Stock Incentives have a ten-year term and vest in one-third increments over three years following the grant date. When vested, each Stock Incentive will entitle the holder to receive the increase in value of one common share from the grant date to the date of exercise.

Upon exercise of fiscal year 2019 Stock Incentives, common shares will be issued directly to the holder. The appreciation in these Stock Incentives will be calculated by subtracting the grant price from the fair market value of the common shares at exercise, and multiplying the result by the number of Stock Incentives exercised. The number of common shares to be issued is determined by dividing that appreciation by the market price of the common shares at exercise.

During fiscal year 2019, none of the Named Executive Officers exercised Stock Incentives previously granted under our 2016 Equity Plan, 2009 Omnibus Stock Incentive Plan and 2003 Stock Incentive Plan.

Restricted Stock Units

During fiscal year 2019, the Committee granted retention and recognition awards of restricted stock units, which we refer to as RSUs, to the following Named Executive Officers for retention purposes and in recognition of their significant performance and contributions to the execution of the goals of The Win Strategy:

 

       
Named Executive Officer    Grant Date   Number of RSUs    
Granted    
   Vesting Date  

Lee C. Banks

  

July 24, 2018

 

15,020

  

 

August 5, 2022

 

Robert W. Malone

  

August 15, 2018

 

  6,010

  

 

August 5, 2022

 

Jennifer A. Parmentier

  

August 15, 2018

 

  6,010

  

 

August 5, 2022

 

Each RSU represents the right to receive one share of common stock. The RSUs will vest in full on the applicable vesting date identified above, provided that the Named Executive Officer remains an active full-time employee throughout the vesting period. If the Named Executive Officer ceases to be employed by us for any reason, other than death, disability or a Change in Control as defined beginning on page 68, she or he will forfeit the entire award. In the event of the Named Executive Officer’s death, disability or a Change in Control prior to the applicable vesting date, the RSUs will vest immediately. Upon the applicable vesting date, the RSUs will be paid to the Named Executive Officer or her or his estate in shares of our common stock. The Named Executive Officer does not receive dividends nor does she or he have voting rights in the common shares underlying the RSUs, however, she or he does receive dividend equivalents.

The above described RSUs are included in the “Estimated Future Payouts Under Equity Incentive Plan Awards—Target” column of the Grants of Plan-Based Awards for Fiscal Year 2019 table. The “Stock Awards” column of the Summary Compensation Table for Fiscal Year 2019 includes the aggregate grant date fair value of this award in fiscal year 2019.

Employee Benefits

The Named Executive Officers are eligible to participate in various employee benefit plans and programs. These plans and programs reward experience, expertise, level of responsibility, continuity of leadership and advancement. We use these plans to ensure that our executive compensation program remains sufficiently competitive to attract, retain and motivate the executive officers and other employees necessary to advance the goals of The Win Strategy.

 

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Qualified Benefit Plans

During fiscal year 2019, the Named Executive Officers participated in the following tax-qualified benefit plans and programs:

 

   

The Parker-Hannifin Consolidated Pension Plan, which we refer to as the Pension Plan, except for Mr. Malone and Ms. Parmentier who are not eligible to participate in the Pension Plan; and

 

   

The Parker Retirement Savings Plan, which we refer to as the Retirement Savings Plan.

The Pension Plan is a qualified defined benefit pension plan in which most full-time non-union U.S. salaried employees hired prior to April 1, 2004, participate. The Pension Plan offers normal retirement, early retirement and death benefits. The monthly normal retirement benefit is the greater of a minimum benefit and an amount based on final average pay. The minimum benefit and final average pay amounts are calculated as follows:

 

  Minimum Benefit:

 

 $21.00 multiplied by years of service, up to a maximum of 40 years.

  Final Average Pay

  Amount:

 

•   0.75% of the highest five consecutive year average of monthly base salary, Target Incentive Bonuses and General RONA Bonuses up to the social security wage base, multiplied by years of service up to a maximum of 35 years; plus

 

•   1.36% of the highest five consecutive year average of monthly base salary, Target Incentive Bonuses and General RONA Bonuses in excess of the social security wage base, multiplied by years of service up to a maximum of 35 years; plus

 

•   0.50% of the highest five consecutive year average of monthly base salary, Target Incentive Bonuses and General RONA Bonuses, multiplied by years of service in excess of 35 up to a maximum of five years.

The amount of the benefit is reduced by 6% per year for each year prior to age 65 if retirement occurs and payments commence before age 65 and after age 55. We elected to freeze new participation in the Pension Plan in 2004. All participants as of April 1, 2004, were given the option to either remain in the Pension Plan or terminate in favor of maintaining a retirement income account under the Retirement Savings Plan. Employees hired after April 1, 2004, including Mr. Malone and Ms. Parmentier, were not eligible to participate in the Pension Plan and instead maintain a retirement income account under the Retirement Savings Plan. Each of the Named Executive Officers who are in the Pension Plan elected to remain in and continue to accrue benefits under the Pension Plan. All benefits accrued by employees who elected to terminate participation in the Pension Plan were frozen as of June 30, 2004. Those employees initiated their retirement income accounts on July 1, 2004.

The Retirement Savings Plan is a qualified defined contribution pension plan under Section 401(k) of the Internal Revenue Code. Most full-time U.S. employees are eligible to participate in the Retirement Savings Plan. Participants may make pre-tax and post-tax contributions to the Retirement Savings Plan up to the applicable statutory limit. Converted RONA Bonuses are not eligible for deferral under the Retirement Savings Plan. We provide to each participant a matching contribution of 100% on the first 3% of pay contributed and 50% on the 4th and 5th percent of pay contributed on a pre-tax basis or Roth basis. As described above, certain participants also maintain a retirement income account within the Retirement Savings Plan. We provide to each holder of a retirement income account an annual contribution equal to a percentage of the amount of the participant’s annual compensation

 

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up to the Internal Revenue Service statutory limit (currently $280,000 per year), based on age and length of service. These contributions range from 0.5% to 6% of the participant’s compensation which does not exceed that limit. Participants accrue earnings on contributions based on the performance of various investment funds available within the Retirement Savings Plan. The contributions made by us under the Retirement Savings Plan for the Named Executive Officers during fiscal year 2019 are included in the “All Other Compensation” column of the Summary Compensation Table for Fiscal Year 2019 on page 54.

Non-Qualified Benefit Plans

During fiscal year 2019, the Named Executive Officers participated in the following non-qualified benefit plans and programs:

 

   

The Parker-Hannifin Corporation Savings Restoration Plan, which we refer to as the Savings Restoration Plan;

 

   

The Parker-Hannifin Corporation Executive Deferral Plan, which we refer to as the Executive Deferral Plan, except for Mr. Malone and Ms. Parmentier who do not participate in the Executive Deferral Plan;

 

   

The Parker-Hannifin Corporation Pension Restoration Plan, which we refer to as the Pension Restoration Plan, except for Mr. Malone and Ms. Parmentier who are not eligible to participate in the Pension Restoration Plan as they are not participants in the Pension Plan;

 

   

The Parker-Hannifin Corporation Supplemental Executive Retirement Benefits Program, which we refer to as the Supplemental Retirement Program, except for Mr. Malone and Ms. Parmentier who are not eligible to participate in the Supplemental Retirement Program; and

 

   

The Parker-Hannifin Corporation Defined Contribution Supplemental Executive Retirement Program, which we refer to as the Defined Contribution Supplemental Retirement Program (Mr. Malone and Ms. Parmentier are the only Named Executive Officers who participate in the Defined Contribution Supplemental Retirement Program).

The Savings Restoration Plan is available to employees who earn base salaries equal to or in excess of $150,000 per year and who are otherwise eligible to participate in the plan. The Savings Restoration Plan was established to restore deferral opportunities and matching contributions lost because of statutory limits in the Retirement Savings Plan. Specifically, the Savings Restoration Plan allows executive officers to defer a portion of their pre-tax compensation and receive matching contributions from us that would have been available under the Retirement Savings Plan if the Internal Revenue Service statutory limit did not exist. Converted RONA Bonuses are not eligible for deferral under the Savings Restoration Plan. Each Named Executive Officer may annually defer to his or her Savings Restoration Plan account any portion of the compensation that he or she cannot defer under the Retirement Savings Plan due to the statutory limit, other than Converted RONA Bonuses, up to the greater of 20% of base pay or $25,000. We provide to each participant a matching contribution of common stock equal to 100% on the first 3% of pay contributed and 50% on the 4th and 5th percent of pay contributed, reduced by the maximum matching contribution available to the participant under the Retirement Savings Plan. We also take into account the matching contributions made under the Retirement Savings Plan to ensure that the maximum match under both plans does not exceed $17,000. In addition, all participants who maintain a retirement income account within the Retirement Savings Plan also maintain a separate retirement income account within the Savings Restoration Plan. We provide to each holder of a retirement income account an annual contribution equal to a percentage of the amount of the participant’s annual compensation in excess of the Internal Revenue

 

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Service statutory limit determined based on age and length of service. These contributions range from 0.5% to 6% of the amount of the participant’s compensation in excess of that limit. All deferrals and contributions are made under the Savings Restoration Plan by accounting entry rather than any physical exchange of cash or common stock. Participants also accrue earnings, on an accounting-entry basis, on deferrals based on the performance of various investment fund choices and on contributions based on the performance of our common stock. Participants are our unsecured creditors for their respective account balances.

Savings Restoration Plan and Executive Deferral Plan account balances are paid out upon any of the following events as follows:

 

   

 

Retirement:

  

 

Balances are distributed to the participant in either a lump sum or in periodic installments, based on a prior election by the participant. The participant can delay the commencement of payments up to five years following retirement. Balances continue to accumulate earnings under the various investment funds at all times during the payout period.

 

 

Termination Before

Retirement:

  

 

Balances accruing on or prior to December 31, 2004 are, at our election, distributed to the participant in either a lump sum upon termination or in periodic installments. Account balances accruing on or after January 1, 2005 are distributed to the participant in a lump sum upon termination.

 

 

Disability:

  

 

If we determine that a participant is totally disabled, the participant’s account balance will be paid upon termination in the same manner as if he or she retired.

 

 

Withdrawals During

Employment:

  

 

Balances can be withdrawn without penalty during employment only if we determine that the participant suffered severe financial hardship. Balances accruing on or prior to December 31, 2004 can also be withdrawn voluntarily during employment, subject to a 10% forfeiture penalty.

 

 

Death:

  

 

Balances are distributed to the participant’s beneficiary in a lump sum or, if elected by the participant, in installments.

 

 

Change in Control:

  

 

Under the Savings Restoration Plan, balances accruing on or prior to December 31, 2004 are distributed to the participant in a lump sum without penalty if the participant expressly elected a lump sum. If the participant did not expressly elect a lump sum, distributions are treated as unscheduled withdrawals and are subject to a forfeiture penalty of 5% if they are withdrawn within 30 days or 10% if they are withdrawn beyond the 30-day period. Balances accruing on or after January 1, 2005 are distributed to the participant in a lump sum. Under the Executive Deferral Plan, balances are distributed to the participant in a lump sum.

 

Our matching contributions made under the Savings Restoration Plan for the Named Executive Officers during fiscal year 2019 are included in the “All Other Compensation” column of the Summary Compensation Table for Fiscal Year 2019. All contributions, earnings, withdrawals, distributions and aggregate balances for the Named Executive Officers participating in the Savings Restoration Plan during fiscal year 2019 are included in the Nonqualified Deferred Compensation for Fiscal Year 2019 table.

The Executive Deferral Plan is available to executive officers and certain other key employees. The Executive Deferral Plan provides executive officers with an opportunity to defer a portion of their compensation (in addition to that deferred under the Retirement Savings Plan and the Savings

 

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Restoration Plan) on a pre-tax basis, including Target Incentive Bonuses and General RONA Bonuses, and to accumulate tax-deferred earnings on the deferrals. LTIP Award payouts and Converted RONA Bonuses are not eligible for deferral under the Executive Deferral Plan. Each executive may defer to his or her account up to 80% of base salary and 80% of General RONA Bonuses paid in August and Target Incentive Bonuses paid in August. Similar to the Savings Restoration Plan, all deferrals are made under the Executive Deferral Plan by accounting entry rather than any physical exchange of cash. Participants also accrue earnings on an accounting-entry basis based on the performance of various investment fund choices. Participants are our unsecured creditors for their respective account balances. Account balances in the Executive Deferral Plan are paid as indicated in the chart below. For those who were participants in the Executive Deferral Plan prior to January 1, 2016, prior to distribution, the balances are increased to reflect any “gross-up” amount necessary to offset federal excise taxes and any after-tax value the participant would have received if the account had remained in place and been paid as elected by the participant. Any balances on distribution to a participant in the Executive Deferral Plan who becomes a participant on or after January 1, 2016, are no longer increased to reflect any “gross-up” amount to offset federal excise taxes and any after-tax value the participant would have received if the account had remained in place and been paid as elected by the participant. All contributions, earnings, withdrawals, distributions and aggregate balances for the Named Executive Officers participating in the Executive Deferral Plan during fiscal year 2019 are included in the Nonqualified Deferred Compensation for Fiscal Year 2019 table.

The Pension Restoration Plan is available to all individuals who participate in the Pension Plan and who are otherwise eligible to participate in the Pension Restoration Plan. The Pension Restoration Plan was established to restore benefits lost because of statutory limits on the Pension Plan. Specifically, the benefits available under the Pension Restoration Plan equal the amount that would be payable to the participant under the Pension Plan in excess of the Internal Revenue Service statutory limit if that limit did not exist and the participant had not elected to defer any compensation under the Savings Restoration Plan and the Executive Deferral Plan. Similar to the Pension Plan, Converted RONA Bonuses are not considered in calculating the benefits available under the Pension Restoration Plan.

The Supplemental Retirement Program was established to provide executive officers with retirement benefits supplemental to the benefits under the Pension Plan. The benefit provided under the Supplemental Retirement Program is intended, at age 65, to provide to participants with at least 15 years of service 55% of the average of the three highest years of base salary plus annual cash incentive compensation. Similar to the Pension Plan and the Pension Restoration Plan, Converted RONA Bonuses are not considered in calculating the benefits available under the Supplemental Retirement Program. LTIP Awards and Stock Incentives are also not considered in calculating the benefits available under the Supplemental Retirement Program. The benefit is subject to reduction for early retirement, less than 15 years of service, benefits under the Pension Plan, the Pension Restoration Plan and any of our non-U.S. pension plans, 50% of primary social security benefits and 100% of any similar non-U.S. state-provided retirement benefits, and contributions to the participant’s retirement income accounts under the Retirement Savings Plan and the Savings Restoration Plan. Participants vest at age 60, or at age 55 with the consent of the Committee, and with five years of participation in the Supplemental Retirement Program, or a lesser period established by the Committee at the time they become participants. To receive a benefit under the Supplemental Retirement Program, however, a vested participant must have at least five years of service. In January 2015, the Committee closed the Supplemental Retirement Program to new participants as of July 1, 2014.

The Defined Contribution Supplemental Retirement Program was established to provide executive officers and certain other key management employees with retirement benefits supplemental to the benefits under the Retirement Savings Plan and the Savings Restoration Plan. The Defined Contribution Supplemental Retirement Program was established to replace the Supplemental Retirement Program for executive officers who are designated as participants on or after July 1, 2014.

 

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Depending on a participant’s salary grade on December 31 of each year, we provide an annual non-discretionary employer contribution of 8%, 10% or 12% of a participant’s base salary, Target Incentive Bonus and General RONA Bonus that was paid during the calendar year. The Committee may determine to make an additional annual discretionary contribution to a designated participant’s account. Participants vest at age 60, or at age 55 with the consent of the Committee, and with five years of participation in the Defined Contribution Supplemental Retirement Program, or a lesser period established by the Committee at the time they become participants. To receive a benefit under the Defined Contribution Supplemental Retirement Program, however, a vested participant must have at least five years of service. Mr. Malone and Ms. Parmentier are our only Named Executive Officers who participate in the Defined Contribution Supplemental Retirement Program.

Our contributions made under the Defined Contribution Supplemental Retirement Program for Mr. Malone and Ms. Parmentier during fiscal year 2019 are included in the “All Other Compensation” column of the Summary Compensation Table for Fiscal Year 2019. All contributions, earnings, withdrawals, distributions and aggregate balances for the Named Executive Officers participating in the Defined Contribution Supplemental Retirement Program during fiscal year 2019 are included in the Nonqualified Deferred Compensation for Fiscal Year 2019 table.

Health and Welfare Benefits

The Named Executive Officers participated in various health and welfare programs generally available to all employees during fiscal year 2019. The Named Executive Officers also participated in our Officer Life Insurance Plan and our Executive Long-Term Disability Plan.

Under the Officer Life Insurance Plan, we pay all required premiums for life insurance on executive officers who were participants prior to January 1, 2008 (which includes Named Executive Officers Messrs. Williams and Banks) for the longer of 10 years or until the executive officer reaches age 65. For those executive officers who were participants after January 1, 2008 (which includes Named Executive Officers Mses. Suever and Parmentier and Mr. Malone) we pay all required premiums for life insurance until retirement up to age 65. The premiums are designed to maintain death benefits equal to:

 

   

five times base salary during employment and two times final base salary after retirement at age 65 for our Chief Executive Officer;

 

   

four times base salary during employment and two times final base salary after retirement at age 65 for our Chief Financial Officer and our President and Chief Operating Officer; and

 

   

three times base salary during employment and two times final base salary after retirement at age 65 for all other Named Executive Officers and other participants.

If the participant retires between ages 55 and 65, the post-retirement death benefit is reduced by 10% of base salary for each year prior to age 65 that the participant retires. The amount of the death benefit is adjusted each year on January 1st based on the participant’s base salary as of the preceding December 1st. The policies underlying the plan are cash value life insurance policies owned by the participants. The premiums we paid on behalf of the Named Executive Officers during fiscal year 2019 are included in the “All Other Compensation” column of the Summary Compensation Table for Fiscal Year 2019.

The Executive Long-Term Disability Plan is intended to replace a reasonable amount of an executive officer’s income upon disability. The plan provides a total benefit in the event of a qualifying disability of two-thirds of base salary plus Target Incentive Bonuses and General RONA Bonuses (after applying the PG RONA Multiplier if applicable) paid during the calendar year ending December 31 of

 

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the year prior to the disability, up to a maximum monthly benefit, in the case of Messrs. Williams and Banks and Ms. Suever, of $33,000, or, in the case of Mr. Malone and Ms. Parmentier, of $35,000. Our executive officers are not eligible to receive the long-term disability benefit generally available to other employees.

Change in Control Agreements

We are not a party to any written employment agreements with our executive officers. We have, however, entered into separate Change in Control Severance Agreements with our executive officers, which we refer to as the Change in Control Agreements. We are not obligated to pay severance to executive officers under any agreement other than the Change in Control Agreements. The executive officers are, however, eligible to receive severance upon termination for reasons other than a change in control in accordance with our general severance policy for salaried employees. The Change in Control Agreements are designed to attract, retain and motivate executive officers, provide for stability and continuity of management in the event of any actual or threatened change in control, encourage executive officers to remain in service after a change in control and ensure that executive officers are able to devote their entire attention to maximizing shareholder value and safeguarding employee interests in the event of a change in control. The Committee determined that the amounts payable under the Change in Control Agreements are reasonable and necessary to achieve those objectives. The Potential Payments upon Termination or Change of Control at June 30, 2019, tables and the related narrative descriptions provide additional information on the Change in Control Agreements, including a brief discussion of the material provisions of the Change in Control Agreements under the captions “Payments upon a Change in Control” and “Payments upon a Qualifying Termination in Connection with a Change in Control.”

Indemnification Agreements

We enter into separate Indemnification Agreements with each of our executive officers. Each agreement remains in effect during and after employment with respect to any action taken while the individual serves as an executive officer. The agreements are designed to attract, retain and motivate executive officers by encouraging reasonable and measured risk-taking in the interests of our business and our shareholders, and protecting against liabilities incurred in the performance of their duties to the maximum extent permitted by Ohio law.

The agreements provide for indemnification for all expenses, including attorney fees, judgments, fines, and settlement amounts, that the executive officer incurs by reason of his or her service:

 

   

in a civil action or proceeding by another party (unless it is proven that the officer’s act or failure to act was taken with deliberate intent to cause injury to our business or in reckless disregard for the best interest of our business); or

 

   

in a criminal action or proceeding (unless the officer had reasonable cause to believe his or her conduct was unlawful).

Executive Perquisites

During fiscal year 2019, we made various executive perquisites available to each of the Named Executive Officers. These perquisites are offered to promote the business objectives for each perquisite as described below and to ensure that our executive compensation program remains competitive to attract, retain and motivate the individuals necessary to advance the goals of The Win Strategy. The costs of these perquisites for the Named Executive Officers reportable for fiscal year 2019 are included in the “All Other Compensation” column of the Summary Compensation Table for Fiscal Year 2019.

 

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Private Clubs. We pay or reimburse initiation fees for one private club for each executive officer. We offer this perquisite to encourage executive officers to entertain business colleagues and customers, engage in social interaction with peers from other companies, local leadership and the community, and hold business meetings at offsite locations. Historically we have paid or reimbursed the initiation fees and provided gross up payments on those fees for additional clubs for the Chief Executive Officer, the Chief Financial Officer, the President and Chief Operating Officer and at the Executive and Senior Vice President levels on a business-needs basis and only with appropriate advance approval. We maintain a policy of not providing gross up payments on private club initiation fees, and in fiscal year 2019 no such gross up payments were made.

Spousal Travel. In limited circumstances and only with appropriate advance approval, we reimburse our executive officers for transportation, lodging, meals, entertainment and other travel expenses for their spouses or other family members who accompany them on out-of-town business. We offer these perquisites to encourage executive officers to spend an appropriate amount of time with their direct reports in locations away from corporate headquarters, to allow executive officers and their spouses to develop a more personal relationship with the executive officers’ subordinates and their families, and to encourage spouses to attend retirement parties, funerals, business dinners and other corporate functions at locations away from their homes.

Executive Physicals. We pay for annual physicals and any necessary travel vaccinations for each of our executive officers and certain other key employees. We offer this benefit as part of our overall preventive medicine program to promptly identify and address medical issues and to preserve our investment in our executive officers by encouraging them to maintain healthy lifestyles and be proactive in addressing actual or potential health issues.

Leased Vehicles. We lease an automobile for each of our executive officers and for certain other key employees. We offer this perquisite to provide executive officers with use of a company car for business travel needs, recognizing that the vehicles can also be used for personal purposes. We pay or reimburse each executive officer for lease payments on one automobile, typically for a three-year term. Each executive officer has a maximum allowance of $1,570 per month. We also reimburse each executive officer for the cost of tires and maintenance and provide insurance on each vehicle during the lease term. We require each executive officer to take title to his or her vehicle at the end of the lease term because we amortize the entire cost of the vehicle over the lease term. We pay or reimburse each executive officer for sales taxes on his or her vehicle at the time of title transfer, but the executive officer is responsible for the payment of all income taxes assessed on payments and reimbursements made during the lease term and at the time of title transfer, including those assessed on the fair market value of the vehicle at the time of title transfer.

Matching Gifts Program. We match any amount in excess of $20 contributed to any accredited educational institution by an active, full-time employee, retiree, or member of our Board of Directors with at least one year of service. Our matching contributions are capped at $5,000 per fiscal year for any individual’s contribution to any single institution, and $10,000 per fiscal year for any individual’s aggregate contributions to all institutions.

Company Apartments. We maintain apartments in Cleveland, Ohio, Newport Beach, California and London, England to provide accommodations to employees working off-site at or relocating to our primary facilities. The apartments are also available to the executive officers for personal use with appropriate advance approval if the apartments are not otherwise being used for business purposes.

Entertainment Venues. We maintain loges, boxes and tickets at various entertainment venues to provide civic support to arts, entertainment and other cultural activities at certain significant business locations and to provide a favorable setting for our employees to entertain customers and other business associates. The loges, boxes and tickets are, however, available to executive officers for

 

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personal use if they are not otherwise being used for business purposes. We pay all costs of admission, but all costs of food are paid by the executive officer using the venue only for personal use.

Corporate Aircraft. Effective May 1, 2019, the Committee elected to offer limited non-business use of our corporate aircraft to our Chief Executive Officer, Chief Operating Officer and Chief Financial Officer for purposes of their safety, security, confidentiality and productivity while traveling. Such use is limited to U.S. domestic travel only and 50 hours of flight time per fiscal year for our Chief Executive Officer and 30 hours of flight time per fiscal year to each of our Chief Operating Officer and Chief Financial Officer. Otherwise, non-business use of our corporate aircraft by our executive officers is only available if (a) the flight was previously authorized for business purposes, there are available seats that are not being used for those business purposes and the officer’s use does not involve a deviation or extension of the planned business-travel itinerary, or (b) there is a medical emergency or other special circumstance and the flight is pre-approved by our Chief Executive Officer, Chief Operating Officer or Chief Financial Officer.

CONSIDERATION OF 2018 SAY-ON-PAY VOTING RESULTS

At our 2018 Annual Meeting of Shareholders, we received approval, based on the total votes cast, for our advisory “say-on-pay” vote to approve the compensation of our Named Executive Officers. The Committee and Mercer specifically considered the voting results when exploring potential changes to our executive compensation program in fiscal year 2019. The Committee believes the voting results demonstrate strong, consistent support for our executive compensation program. The Committee will continue to explore with Mercer potential improvements to our executive compensation program to the extent appropriate to keep our executive compensation program aligned with best practices in our competitive market.

 

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COMPENSATION COMMITTEE REPORT

The Human Resources and Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with the Corporation’s management and, based on such review and discussions, the Human Resources and Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.

Human Resources and Compensation Committee:

Candy M. Obourn, Chair

Robert G. Bohn

Kevin A. Lobo

Joseph Scaminace

James R. Verrier

James L. Wainscott

 

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COMPENSATION TABLES

SUMMARY COMPENSATION TABLE FOR FISCAL YEAR 2019

The following table sets forth compensation information for our Named Executive Officers.

 

Name and Principal

Position

  Year   

Salary

($)(1)

   

Stock
Awards

($)(2)

   

Option
Awards

($)(3)

    Non-Equity
Incentive Plan
 Compensation 
($)(4)
   

 

Change in
Pension

Value and
Nonqualified
Deferred
Compensation
Earnings

($)(5)

    All Other
Compensation
($)(6)
   

Total

($)

 

Thomas L. Williams,

 

2019

 

 

1,250,000

 

 

 

5,173,005

 

 

 

2,980,930

 

 

 

3,148,895

 

 

 

4,757,754

 

 

 

161,916

 

 

 

17,472,500

 

Chief Executive Officer
and Chairman of the Board

  2018     1,200,000       6,068,600       2,961,344       2,167,473       5,667,239       173,790       18,238,446  
  2017     1,125,000       5,303,474       2,935,010       2,418,118       3,372,639       173,860       15,328,101  

 

Catherine A. Suever,

Executive Vice President –
Finance and Administration
and Chief Financial Officer

 

2019

 

 

750,800

 

 

 

1,396,550

 

 

 

804,902

 

 

 

1,123,604

 

 

 

2,732,897

 

 

 

99,632

 

 

 

6,908,385

 

  2018     715,000       1,580,843       771,284       860,970       1,461,719       106,816       5,496,632  
  2017     570,747       1,849,646       153,010       538,377       343,023       96,011       3,550,814  
                                                           

Lee C. Banks,

 

2019

 

 

1,000,000

 

 

 

4,828,211

 

 

 

1,341,382

 

 

 

1,738,634

 

 

 

2,632,389

 

 

 

234,326

 

 

 

11,774,942

 

President and Chief
Operating Officer

  2018     950,000       2,909,002       1,419,098       1,417,466       2,102,817       150,410       8,948,793  
  2017     900,000       2,571,744       1,422,993       1,622,363       931,306       166,586       7,614,992  

Robert W. Malone,

 

2019

 

 

605,000

 

 

 

1,621,259

 

 

 

357,653

 

 

 

703,600

 

 

 

--

 

 

 

784,314

 

 

 

4,071,826

 

Vice President and President –
Filtration Group

  2018     565,100       758,053       370,088       491,122       --       708,893       2,893,256  
  2017     467,575       892,289       275,696       433,069       --       643,788       2,712,417  

Jennifer A. Parmentier(7)

 

2019

 

 

551,458

 

 

 

1,793,819

 

 

 

243,086

 

 

 

642,674

 

 

 

--

 

 

 

540,551

 

 

 

3,771,588

 

Vice President and President –
Motion Systems Group

 

                 
                                                           

 

(1)

Includes the following amounts deferred under the Savings Restoration Plan and the Executive Deferral Plan for fiscal year 2019:

 

    

Savings Restoration Plan: Mr. Williams—$25,000; Ms. Suever—$25,895; Mr. Banks—$26,250; Mr. Malone—$25,520; and Ms. Parmentier—$26,820.

 

    

Executive Deferral Plan: no amounts deferred.

 

    

These amounts are also reported in the “Executive Contributions in Last Fiscal Year” column of the Nonqualified Deferred Compensation for Fiscal Year 2019 table on page 62.

 

(2)

For 2019, these amounts consist of (i) the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 of LTIP Awards granted during fiscal year 2019 to each of the Named Executive Officers; and (ii) retention and recognition awards of RSUs granted in fiscal year 2019 to Messrs. Banks and Malone and Ms. Parmentier with the following grant date fair value: Mr. Banks—$2,500,680; Mr. Malone—$1,000,605; and Ms. Parmentier—$1,000,605. For the LTIP awards, the amounts do not reflect whether a Named Executive Officer has actually realized a financial benefit from the LTIP awards. The amounts were calculated by multiplying the closing price on the date of grant by the number of LTIP Awards received and assuming a payout of 100%. As described beginning on page 40, however, LTIP Award payouts will be calculated following the applicable three-year performance period and could range from a minimum of 0% to a maximum of 200%. The grant date fair value of the LTIP Awards granted during fiscal year 2019 at the maximum payout of 200% are: Mr. Williams—$10,346,010; Ms. Suever—$2,793,100; Mr. Banks—$4,655,062; Mr. Malone—$1,241,308; and Ms. Parmentier—$1,586,428. Dividends in the form of dividend equivalent units will be awarded as earned LTIP award shares for those LTIP awards beginning with the calendar year 2019-20-21 performance period. Dividends are paid on the LTIP Awards awarded prior to the calendar year 2019-20-21 performance period after the prior performance periods end and the shares are issued at which point they will be paid in proportion to the actual amount of shares earned for the applicable performance period.

 

(3)

Amounts reflect the aggregate grant date fair value for Stock Appreciation Rights granted in fiscal year 2019 computed in accordance with FASB ASC Topic 718 of Stock Incentive grants. The amounts do not reflect whether a Named Executive Officer has actually realized a financial benefit from the award. The amounts were calculated using the Black-Scholes option pricing model with the following weighted-average assumptions:

 

               

Fiscal Year

of Grant

  Participant      

Grant    

Date    

 

Type of    

Grant    

 

Risk-free    

Interest Rate    

 

Expected Life    

of Award    

 

Expected Dividend    

Yield of Stock    

 

Expected Volatility

of Stock

2019

 

 

 

Named Executive    

Officers    

 

  8/15/2018    

 

  annual grant  

 

  2.81%    

 

  5.68 years    

 

  1.92%    

 

  24.1%

 

 

    

During fiscal year 2019, no Stock Incentive awards were forfeited by any of the Named Executive Officers.

 

(4)

Amounts consist of the following Target Incentive Bonuses, General RONA Bonuses with PGI Multiplier, if applicable, and Converted RONA Bonuses for fiscal year 2019, which were paid in one or more installments with the final payments in August 2019:

 

    

Target Incentive Bonus for fiscal year 2019: Mr. Williams—$1,625,000; Ms. Suever—$600,600; Mr. Banks—$900,000; Mr. Malone—$302,600; and Ms. Parmentier—$275,800.

 

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General RONA Bonus for fiscal year 2019: Mr. Williams—$1,419,500; Ms. Suever—$451,381; Mr. Banks—$734,800; Mr. Malone—$329,701; and Ms. Parmentier—$295,611.

 

    

Converted RONA Bonus for fiscal year 2019: Mr. Williams—$104,395; Ms. Suever—$71,623; Mr. Banks—$103,834; Mr. Malone—$71,396; and Ms. Parmentier—$71,263.

 

(5)

Amounts consist of the change in annual actuarial present value of pension benefits for Messrs. Williams and Banks and Ms. Suever, as also reported in the Pension Benefits for Fiscal Year 2019 table. Mr. Malone and Ms. Parmentier do not have a benefit under our defined benefit pension plans. None of the Named Executive Officers received above-market or preferential earnings on deferred compensation.

 

(6)

The following table describes each component of the All Other Compensation column:

 

           
Name  

  Company Contributions  

  to  

  Defined Contribution  

  Plans (a)  

   

  Life Insurance  

  Premiums Paid  

   

  Dividend  

  Equivalents  

  on  

  RSUs (b)  

 

  Perquisites  

  (c)  

   

  Total “All Other 

  Compensation” 

 

  Thomas L. Williams

 

 

$17,117               

 

 

 

$81,254       

 

 

       $0

 

 

$63,545     

 

 

 

$161,916       

 

  Catherine A. Suever

 

 

17,055               

 

 

 

44,251       

 

 

13,588

 

 

24,738     

 

 

 

99,632       

 

  Lee C. Banks

 

 

17,330               

 

 

 

53,408       

 

 

92,316

 

 

71,272     

 

 

 

234,326       

 

  Robert W. Malone

 

 

651,081               

 

 

 

53,100       

 

 

46,168

 

 

33,965     

 

 

 

784,314       

 

  Jennifer A. Parmentier

 

 

 

 

454,218               

 

 

 

 

 

 

35,035       

 

 

 

 

18,992

 

 

 

 

32,306     

 

 

 

 

 

 

540,551       

 

 

 

 

  (a)

Amount consists of the following company contributions to our Defined Contribution Plans:

Retirement Savings Plan: Mr. Williams—$11,317; Ms. Suever—$10,990; Mr. Banks—$11,230; Mr. Malone—$22,263; and Ms. Parmentier—$21,088.

Savings Restoration Plan: Mr. Williams—$5,800; Ms. Suever—$6,065; Mr. Banks—$6,100; Mr. Malone—$35,696; and Ms. Parmentier—$32,887.

Defined Contribution Supplemental Retirement Program: Mr. Malone—$593,122; and Ms. Parmentier—$400,243.

 

  (b)

Reported in this column are cash dividends that Ms. Suever and Messrs. Banks and Malone received as dividend equivalents on RSUs that they were granted in Fiscal Years 2017 and 2019, and cash dividends that Ms. Parmentier received as dividend equivalents on RSUs that she was granted in Fiscal Year 2019.

 

  (c)

Reported in this column are amounts reimbursed or incurred by us with respect to: (i) executive long-term disability insurance premiums; (ii) one or more of the following executive perquisites: (A) leased vehicle, including state sales tax if applicable; (B) spousal travel; (C) executive physicals; (D) matching gifts program and (E) corporate aircraft travel. The Named Executive Officers also use our loges, box seats or tickets to various entertainment venues. However, there is no incremental cost to us for their use of these loges, box seats and tickets. No Named Executive Officer received an executive perquisite in an amount that exceeds the greater of $25,000 or 10% of the total amount of executive perquisites received by the Named Executive Officer.

 

(7)

Ms. Parmentier was not a Named Executive Officer for Fiscal Years 2018 and 2017.

 

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GRANTS OF PLAN-BASED AWARDS FOR FISCAL YEAR 2019

The following table sets forth information with respect to non-equity and equity incentive plan awards granted to the Named Executive Officers during fiscal year 2019. The LTIP Awards, RSUs and Stock Incentives listed below have been granted under our 2016 Equity Plan.

 

               
Name  

Date

   

 Compensation 
Committee
Action Date

(If Different

than Grant
Date)

 

Estimated Future Payouts

Under Non-Equity Incentive

Plan Awards

 

Estimated Future Payouts
Under Equity Incentive

Plan Awards

 

All Other
Option
Awards:
Number of
Securities
 Underlying 

Options

(#)

 

 Exercise 
or Base
Price of
Option

Awards
($/Sh)

 

Grant

Date

  Fair Value of  
Stock and
Option

Awards

($)

 

 Threshold 
($)

 

 

 Target 
($)

 

   

 Maximum 
($)

 

 

 Threshold 
(#)

 

 

 Target 
(#)

 

 

 Maximum 
(#)

 

Thomas L. Williams

                           
Target Incentive Bonus     8/15/2018       0     812,500     1,625,000            
General RONA Bonus     8/15/2018       0     1,062,500     (1)            
Converted RONA Bonus     8/15/2018       0     78,140     (1)            
LTIP Award (CY 19-20-21) (3)     1/23/2019                 0   32,989   65,978       5,173,005(2)
Stock Incentives     1/23/2019                       81,180   166.49   2,980,930    

Catherine A. Suever

                           
Target Incentive Bonus     8/15/2018       0     300,300     600,600            
General RONA Bonus     8/15/2018       0     337,860     (1)            
Converted RONA Bonus     8/15/2018       0     53,610     (1)            
LTIP Award (CY 19-20-21) (3)     1/23/2019                 0   8,906   17,812       1,396,550(2)
Stock Incentives     1/23/2019                       24,050   166.49   804,902 

Lee C. Banks

                           
Target Incentive Bonus     8/15/2018       0     450,000     900,000            
General RONA Bonus     8/15/2018       0     550,000     (1)            
Converted RONA Bonus     8/15/2018       0     77,720     (1)            
RSUs (4)     8/15/2018     7/24/2018               15,020   15,020       2,500,680    
LTIP Award (CY 19-20-21) (3)     1/23/2019                 0   14,843   29,686       2,327,531(2)
Stock Incentives     1/23/2019                       36,530   166.49   1,341,382    

Robert W. Malone

                           
Target Incentive Bonus     8/15/2018       0     151,300     218,400            
General RONA Bonus     8/15/2018       0     242,000     (1)            
Converted RONA Bonus     8/15/2018       0     53,440     (1)            
RSUs (4)     8/15/2018                   6,010   6,010       1,000,605      
LTIP Award (CY 19-20-21) (3)     1/23/2019                 0   3,958   7,916         620,654(2)
Stock Incentives     1/23/2019                           9,740   166.49     357,653    

Jennifer A. Parmentier

                           
Target Incentive Bonus     8/15/2018       0     146,300     292,600            
General RONA Bonus     8/15/2018       0     234,000     (1)            
Converted RONA Bonus     8/15/2018       0     53,270     (1)            
RSUs (4)     8/15/2018                   6,010   6,010       1,000,605      
LTIP Award (CY 19-20-21) (3)     1/23/2019                 0   2,685   5,370         421,035(2)
Stock Incentives     1/23/2019                       6,620   166.49   1,102,164      
LTIP Award (CY 17-18-19) (5)     2/1/2019                 0   351   702           57,701(2)
LTIP Award (CY 18-19-20) (5)     2/1/2019                 0   677   1,354         111,292(2)
LTIP Award (CY 19-20-21) (3)(5)     2/1/2019                 0   1,236   2,472         203,186(2)

 

(1)

There are no maximum amounts for General RONA Bonuses or Converted RONA Bonuses. General RONA Bonuses and Converted RONA Bonuses are calculated as described in the Compensation Discussion and Analysis beginning on page 23.

(2)

Calculated assuming a payout of 100% as described in footnote 2 to the Summary Compensation Table for Fiscal Year 2019.

 

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(3)

Includes earned LTIP award shares in the form of dividend equivalent units for those LTIPs awarded for the calendar year 2019-20-21 performance period.

(4)

Messrs. Banks and Malone and Ms. Parmentier received RSUs granted on August 15, 2018.

(5)

Ms. Parmentier received additional target awards under her LTIP Awards due to her promotion to Vice President and President – Motion Systems Group on February 1, 2019.

The elements of executive compensation included in each Named Executive Officer’s total compensation as reported in the Summary Compensation Table for Fiscal Year 2019 on page 54 and the compensation programs under which the grants described in the Grants of Plan-Based Awards for Fiscal Year 2019 table above were made are described in the Compensation Discussion and Analysis section of this Proxy Statement.

 

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OUTSTANDING EQUITY AWARDS AT JUNE 30, 2019

The following table sets forth information with respect to Stock Incentives and stock awards held by the Named Executive Officers as of June 30, 2019.

 

     Option Awards   Stock Awards  
Name  

Number of
Securities
Underlying
Unexercised
Options

(#)
    Exercisable    

 

Number of
Securities
Underlying
Unexercised
Options

(#)
    Unexercisable    

 

Option
Exercise
Price

($)

    Option
    Expiration    
Date
 

Equity
Incentive

Plan

Awards:
Number

of

Shares,
Unearned
Units or

Other

Rights
    That Have    

Not

Vested

(#)

 

 

Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
($)(1)

 

  Thomas L. Williams

  0   33,422(2)     116.46     1/31/2025   —               —       
    67,200   0         113.23     8/11/2025   —               —       
    26,240   0         113.19     8/12/2024   —               —       
    34,840   0         106.18     8/13/2023   —               —       
    70,333   35,167(3)     124.36     8/16/2026   —               —       
    30,780   61,560(4)     158.79     8/15/2027   —               —       
    0   81,180(5)     166.49     8/14/2028   —               —       
      —        —           35,470(6)     6,030,255  
      —        —           29,060(7)     4,940,491  
      —        —           32,989(8)     5,608,460  

  Catherine A. Suever

  2,080   0         62.35     8/10/2020   —               —       
    5,200   0         69.10     8/16/2021   —               —       
    5,230   0         81.86     8/14/2022   —               —       
    6,660   0         106.18     8/13/2023   —               —       
    5,010   0         113.19     8/12/2024   —               —       
    4,820   0         113.23     8/11/2025   —               —       
    3,667     1,833(3)     124.36     8/16/2026   —               —       
    8,017   16,033(4)     158.79     8/15/2027   —               —       
    0   21,920(5)     166.49     8/14/2028   —               —       
      —        —           7,833(6)     1,331,688  
      —        —           7,570(7)     1,286,976  
                    8,906(8)     1,514,109  
      —        —           4,300(9)     731,043  

  Lee C. Banks

  0   22,281(2)     116.46     1/31/2025   —               —       
    44,800   0         113.23     8/11/2025   —               —       
    26,240   0         113.19     8/12/2024   —               —       
    34,840   0         106.18     8/13/2023   —               —       
    35,990   0         81.86     8/14/2022   —               —       
    34,100   17,050(3)     124.36     8/16/2026   —               —       
    14,750   29,500(4)     158.79     8/15/2027   —               —       
    0   36,530(5)     166.49     8/14/2028   —               —       
      —        —           17,200(6)     2,924,172  
      —        —           13,930(7)     2,368,239  
      —        —           14,843(8)     2,523,458  
                    14,194(10)     2,413,122  
      —        —           15,020(11)     2,553,550  

  Robert W. Malone

  8,680   0         113.23     8/11/2025   —               —       
    2,920   0         113.19     8/12/2024   —               —       
    3,870   0         106.18     8/13/2023   —               —       
    6,607     3,303(3)     124.36     8/16/2026   —               —       
    3,847     7,693(4)     158.79     8/15/2027   —               —       
    0     9,740(5)     166.49     8/14/2028   —               —       
      —        —           4,614(6)     784,426  
      —        —           3,630(7)     617,136  
      —        —           3,958(8)     672,900  
      —        —           8,600(12)     1,462,086  
      —        —           6,010(13)     1,021,760  

  Jennifer A. Parmentier

  587      1,173     81.86     8/14/2022   —               —       
    1,653         827     106.18     8/13/2023   —               —       
    2,330   0         113.19     8/12/2024   —               —       
    8,680   0         113.23     8/11/2025   —               —       
    6,607     3,303(3)     124.36     8/16/2026   —               —       
    2,614     5,226(4)     158.79     8/15/2027   —               —       
    0     6,620(5)     166.49     8/14/2028   —               —       
      —        —           3,681(6)     625,807  
      —        —           3,147(7)     535,021  
      —        —           3,921(8)     666,609  
                        6,010(13)

 

   

 

1,021,760

 

 

 

 

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Table of Contents

 

  (1)

The market value is calculated by multiplying the closing price of our Common Stock on June 30, 2019, $170.01, by the number of shares.

  (2)

Represents a Stock Incentive granted on February 1, 2015. Assuming continued full-time employment, the grant will vest on February 1, 2020.

  (3)

Represents Stock Incentives granted on August 17, 2016. The Stock Incentives vest in three equal annual installments beginning August 17, 2017.

  (4)

Represents Stock Incentives granted on August 16, 2017. The Stock Incentives vest in three equal annual installments beginning August 16, 2018.

  (5)

Represents Stock Incentives granted on August 15, 2018. The Stock Incentives vest in three equal annual installments beginning August 15, 2019.

  (6)

Assumes that we meet our target performance goals and payout will be at 100% of the target LTIP Award value. Assuming continued employment through the end of the performance period (December 31, 2019), actual payouts under the calendar year 2017-18-19 LTIP Awards will be in common shares issued in April 2020 following the Committee’s certification of our performance results, subject to the Committee’s exercise of any discretion to reduce the amount payable and the Committee’s authorization of payment.

  (7)

Assumes that we meet our target performance goals and payout will be at 100% of the target LTIP Award value. Assuming continued employment through the end of the performance period (December 31, 2020), actual payouts under the calendar year 2018-19-20 LTIP Awards will be in common shares to be issued in April 2021 following the Committee’s certification of our performance results, subject to the Committee’s exercise of any discretion to reduce the amount payable and the Committee’s authorization of payment.

  (8)

Assumes that we meet our target performance goals and payout will be at 100% of the target LTIP Award value. Assuming continued employment through the end of the performance period (December 31, 2021), actual payouts under the calendar year 2019-20-21 LTIP Awards will be in common shares to be issued in April 2022 following the Committee’s certification of our performance results, subject to the Committee’s exercise of any discretion to reduce the amount payable and the Committee’s authorization of payment. These amounts include the dividend equivalent units for LTIP awards beginning January 2019.

  (9)

Represents two grants of 2,150 each of Restricted Stock Units, awarded on January 25, 2017, and April 19, 2017, respectively, to Ms. Suever. Assuming continued full-time employment, the grants will vest on January 25, 2020 and April 19, 2020, respectively.

  (10)

Represents the grant of 14,194 Restricted Stock Units, awarded on August 17, 2016, to Mr. Banks. Assuming continued full-time employment, the grants will vest on August 17, 2022.

  (11)

Represents the grant of 15,020 Restricted Stock Units, awarded August 15, 2018, to Mr. Banks. Assuming continued full-time employment, the grants will vest on August 5, 2022.

  (12)

Represents the grant of 8,600 Restricted Stock Units, awarded January 25, 2017, to Mr. Malone. Assuming continued full-time employment, the grants will vest on January 25, 2022.

  (13)

Represents the grant of 6,010 Restricted Stock Units, awarded August 15, 2018, to Mr. Malone and Ms. Parmentier. Assuming continued full-time employment, the grants will vest on August 5, 2022.

 

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Table of Contents

OPTION EXERCISES AND STOCK VESTED FOR FISCAL YEAR 2019

The following table sets forth information with respect to Stock Incentives that were exercised during fiscal year 2019 and common shares issued under LTIP Awards and RSUs that vested for the Named Executive Officers during fiscal year 2019.

 

     
     

Option Awards

  

Stock Awards

 
         
Name   

   Number of Shares          

Acquired on       

Exercise       

(#)       

  

Value Realized on     

Exercise     

($)(1)     

  

  Number of Shares  

Acquired on

Vesting

(#)

    

   Value Realized on   

Vesting

($)(2)

 

Thomas L. Williams

  

0       

  

0     

  

 

32,109

 

  

 

4,788,737          

 

Catherine A. Suever

  

0       

  

0     

  

 

5,694

 

  

 

849,204          

 

Lee C. Banks

  

0       

  

0     

  

 

32,520

 

  

 

4,850,033          

 

Robert W. Malone

  

0       

  

0     

  

 

7,837

 

  

 

1,168,811          

 

Jennifer A. Parmentier

 

  

0       

 

  

0     

 

  

 

 

6,295

 

 

 

  

 

 

938,837          

 

 

 

 

(1)

Calculated by multiplying the number of shares acquired by the difference between the exercise price and closing price of our common stock on the exercise date.

(2)

Calculated by multiplying the number of shares acquired by the closing price of our common stock on the applicable vesting date.

 

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Table of Contents

PENSION BENEFITS FOR FISCAL YEAR 2019

The following table sets forth the actuarial present value of the benefits accumulated by each of the Named Executive Officers under the Pension Plan, the Pension Restoration Plan and the Supplemental Retirement Program.

 

         
Name   Plan Name  

Number of Years    

of Credited    

Service    

(#)(1)    

 

  Present Value of  

Accumulated

Benefit

($)(2)

   

  Payments During  

Last Fiscal Year
($)

 

Thomas L. Williams

 

 

Pension Plan

Pension Restoration Plan

Supplemental Retirement Program

 

 

15.6       

14.9       

15.6       

 

 

 

 

599,492       

5,846,704       

17,201,906       

 

 

 

 

 

 

0

0

0

 

Catherine A. Suever

 

 

Pension Plan

Pension Restoration Plan

Supplemental Retirement Program

 

 

32.1       

31.3       

32.1       

 

 

 

 

1,306,387       

3,171,889       

3,687,467       

 

 

 

 

 

 

0

0

0

 

Lee C. Banks

 

 

Pension Plan

Pension Restoration Plan

Supplemental Retirement Program

 

 

27.6       

27.6       

27.6       

 

 

 

 

907,481       

7,042,993       

6,576,685       

 

 

 

 

 

 

0

0

0

 

Robert W. Malone (3)    

 

 

Pension Plan

Pension Restoration Plan

Supplemental Retirement Program

 

 

—       

—       

—       

 

 

 

 

0    

0    

0    

 

 

 

 

 

 

0

0

0

 

Jennifer A. Parmentier (3)  

 

 

Pension Plan

Pension Restoration Plan

Supplemental Retirement Program

 

 

 

—       

—       

—       

 

 

 

 

 

 

0    

0    

0    

 

 

 

 

 

 

 

 

0

0

0

 

 

(1)

Credited Service in the Pension Restoration Plan is frozen as of the date the Named Executive Officer becomes 100% vested in the Supplemental Retirement Program (typically age 60).

 

(2)

The present value of the accumulated benefits is calculated under each plan using the following assumptions: (i) a discount rate of 3.28% for the Pension Plan; (ii) a discount rate of 3.04% for each of the Pension Restoration Plan and Supplemental Retirement Program; (iii) no pre-retirement decrements; and (iv) retirement at age 65.

 

    

For the Pension Plan, additional assumptions include: (i) participants elect a life annuity; and (ii) the RP-2006 Mortality Table projected generationally with Scale MP-2018.

 

    

For the Pension Restoration Plan, using each Named Executive Officer’s participant elections under the Pension Restoration Plan, additional assumptions include: (i) calculating lump sums using the applicable mortality table under Section 417(e) of the Internal Revenue Code (ii) discount segment rates of 2.72%, 3.76% and 4.33%.

 

    

For the Supplemental Retirement Program, using each Named Executive Officer’s participant elections under the Supplemental Retirement Program, additional assumptions include: (i) calculating lump sums using the applicable mortality table under Section 417(e) of the Internal Revenue Code; and (ii) a discount rate of 2.89%.

 

(3)

Mr. Malone and Ms. Parmentier are not eligible to participate in these plans.

The Pension Plan, the Pension Restoration Plan and the Supplemental Retirement Program are described in the Compensation Discussion and Analysis section of this Proxy Statement.

 

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NONQUALIFIED DEFERRED COMPENSATION FOR FISCAL YEAR 2019

The following table sets forth the contributions, earnings, withdrawals/distributions and aggregate balances for the Named Executive Officers participating in the Savings Restoration Plan, the Executive Deferral Plan and the Defined Contribution Supplemental Retirement Program during fiscal year 2019.

 

           
Name   Executive
Contributions in
Last Fiscal Year
($)(1)
    Registrant
Contributions in
Last Fiscal Year
($)(2)
   

Aggregate
Earnings in Last
Fiscal Year

($)

   

Aggregate
Withdrawals/

Distributions
($)

   

Aggregate Balance at
  Last Fiscal Year

  End ($)

 

Thomas L. Williams

               

Savings Restoration Plan

 

 

25,000

 

 

 

5,800

 

 

 

51,465

 

 

 

0

 

 

 

782,178(3)

 

Executive Deferral Plan

 

 

0

 

 

 

0

 

 

 

1,518

 

 

 

0

 

 

 

24,668    

Defined Contribution Supplemental Retirement Program

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0    

Catherine A. Suever

               

Savings Restoration Plan

 

 

25,895

 

 

 

6,065

 

 

 

31,732

 

 

 

0

 

 

 

763,521(3)

 

Executive Deferral Plan

 

 

0

 

 

 

0

 

 

 

16,813

 

 

 

0

 

 

 

275,834    

Defined Contribution Supplemental Retirement Program

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0    

Lee C. Banks

               

Savings Restoration Plan

 

 

26,250

 

 

 

6,100

 

 

 

61,561

 

 

 

0

 

 

 

1,327,978(3)

 

Executive Deferral Plan

 

 

0

 

 

 

0

 

 

 

326,848

 

 

 

0

 

 

 

8,618,634    

Defined Contribution Supplemental Retirement Program

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0    

Robert W. Malone

               

Savings Restoration Plan

 

 

25,520

 

 

 

35,696

 

 

 

5,458

 

 

 

0

 

 

 

173,632(3)

 

Executive Deferral Plan

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0    

Defined Contribution Supplemental Retirement Program

 

 

0

 

 

 

593,122

 

 

 

84,406

 

 

 

0

 

 

 

3,323,043    

Jennifer A. Parmentier

               

Savings Restoration Plan

 

 

26,820

 

 

 

32,887

 

 

 

13,105

 

 

 

0

 

 

 

194,584(3)

 

Executive Deferral Plan

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0    

Defined Contribution Supplemental Retirement Program

 

 

0

 

 

 

400,243

 

 

 

68,626

 

 

 

0

 

 

 

1,773,014    

 

(1)

For each of the Named Executive Officers, amounts are included in the “Salary” column and referenced in footnote 1 of the Summary Compensation Table for Fiscal Year 2019.

(2)

Amounts are included along with our contributions to the Retirement Savings Plan, which is a qualified deferred compensation plan, in the “Company Contributions to Defined Contribution Plans” column in the All Other Compensation components table in footnote 6 of the Summary Compensation Table for Fiscal Year 2019.

(3)

Includes the following amounts that were deferred during fiscal year 2018 under the Savings Restoration Plan: Mr. Williams—$25,000; Ms. Suever—$24,612; Mr. Banks—$26,250; Ms. Parmentier—$25,130; and Mr. Malone—$0.

The Savings Restoration Plan, the Executive Deferral Plan, and the Defined Contribution Supplemental Retirement Program are described in the Compensation Discussion and Analysis section of this Proxy Statement. The investment options under each of the plans are identical. During fiscal year 2019, there were up to eleven investment funds that a Named Executive Officer could choose with annual rates of return for the year ended June 30, 2019, ranging from (13.26)% to 12.08%. Under the plans, participants have the ability to change their investments at any time.

 

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POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL

AT JUNE 30, 2019

Each of the Named Executive Officers may be entitled to payments under our executive compensation program upon a termination of employment or a change in control. The events which may trigger these payments include death, long-term disability, retirement, termination for cause, termination without cause, resignation, change in control or a qualifying termination in connection with a change in control. The following narratives and tables describe the payments the Named Executive Officers may receive under the written terms of our executive compensation program plans and arrangements as in effect on June 30, 2019, for each triggering event as if the triggering event occurred on June 30, 2019.

During fiscal year 2016 we adopted new Change in Control Agreements and amended our Executive Deferral Plan to exclude tax gross-ups and to eliminate “modified single trigger” vesting acceleration on a change in control; however, each of the Named Executive Officers became an executive officer prior to our implementation of these changes and, therefore, continue to have agreements that contain tax gross-ups on a change in control and modified single trigger vesting acceleration on a change in control.

For each of the termination of employment scenarios described in this section, the estimated potential payments and benefits that might be received by each Named Executive Officer is displayed in the table that immediately follows that description.

Payments Generally Available

A Named Executive Officer will generally receive the following upon termination of employment:

 

   

base salary earned but not yet paid as of the date of termination;

 

   

Target Incentive Bonuses, General RONA Bonuses (with the PG RONA Multiplier if applicable), and Converted RONA Bonuses earned but not yet paid as of the date of termination;

 

   

LTIP Award payouts for the most recently completed three-year performance period not yet paid as of the date of termination;

 

   

amounts accrued and vested under the Pension Plan, the Pension Restoration Plan and the Supplemental Retirement Program as of the date of termination, as described in the Compensation Discussion and Analysis section of this Proxy Statement;

 

   

vested account balances under the Retirement Savings Plan, the Savings Restoration Plan, the Executive Deferral Plan and the Defined Contribution Supplemental Retirement Program as of the date of termination, as described in the Compensation Discussion and Analysis section of this Proxy Statement; and

 

   

any accrued and unused vacation pay as of the date of termination.

The Committee may, however, reduce any payments of a Target Incentive Bonus, General RONA Bonus (with the PG RONA Multiplier if applicable), or LTIP Award payout in its sole discretion, up to and including a reduction to zero.

In determining the amounts reflected in the following tables, we used the following general assumptions and principles.

 

   

We assumed that each of the triggering events occurred on June 30, 2019. This includes our assumption that, upon a qualifying termination in connection with a change in control, the qualifying termination and change in control both occurred on June 30, 2019.

 

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We did not include amounts for base salaries, Target Incentive Bonuses, General RONA Bonuses (including the PG RONA Multiplier if applicable), or Converted RONA Bonuses in the following tables because the amounts are already earned and are not affected by the triggering events, which are assumed to occur on June 30, 2019.

 

   

Amounts were calculated based on each Named Executive Officer’s age, compensation and years of service as of June 30, 2019.

 

   

All present values of pension amounts shown for the Pension Plan assume a 3.28% discount rate, the RP-2006 Mortality Table projected generationally with Scale MP-2018, and assume that the annuity payment elected is 50% joint and survivor.

 

   

With the exception of the values for the Supplemental Retirement Program in the “Change in Control” and “Qualifying Termination in Connection with a Change in Control” columns, all lump sum values of pension amounts shown assume the following:

 

   

for the Pension Restoration Plan, segment rates (after phase-in) of 2.72%, 3.76% and 4.33%, and the applicable mortality table under Section 417(e) of the Internal Revenue Code; and

 

   

for the Supplemental Retirement Program, a 2.89% discount rate and the applicable mortality table under Section 417(e) of the Internal Revenue Code.

 

   

We did not include amounts for account balances in the Retirement Savings Plan because this plan is available to all salaried employees. We did not include amounts for account balances under the Savings Restoration Plan and the Executive Deferral Plan because these amounts, which are reported under the “Aggregate Balance at Last Fiscal Year End” column in the Nonqualified Deferred Compensation for Fiscal Year 2019 table on page 62, would not be increased in connection with any triggering event.

Payments upon Death

Upon the death of a Named Executive Officer, in addition to the “Payments Generally Available” described above, the estate or beneficiary of the Named Executive Officer will receive the following:

 

   

accelerated vesting of all outstanding Stock Incentives;

 

   

for Stock Incentives granted on or before August 11, 2010, and for Stock Incentives granted on or after August 17, 2011, if the Named Executive Officer is not retirement eligible at the time of death, retention of all outstanding Stock Incentives for the earlier of (i) two years after the Named Executive Officer’s death or (ii) the expiration date listed in the grant letter;

 

   

for Stock Incentives granted on or after August 17, 2011, if the Named Executive Officer is retirement eligible at the time of death, retention of all outstanding Stock Incentives until the expiration date listed in the grant letter;

 

   

accelerated vesting of the unvested portion of the Named Executive Officer’s account under our Executive Deferral Plan;

 

   

account balance in the Defined Contribution Supplemental Retirement Program provided the Named Executive Officer has completed 60 calendar months of service at his or her date of death;

 

   

pro-rated LTIP Award payouts for the calendar years 2017-18-19 and 2018-19-20 performance periods to be determined at the end of the respective performance periods, based on the full number of calendar quarters of continuous employment during the 2017-18-19 and 2018-19-20 calendar year performance periods;

 

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pro-rated LTIP Award payouts for the calendar year 2019-20-21 performance period to be determined at the end of the respective performance periods, based on the full number of months of continuous employment during the 2019-20-21 calendar year performance period; and

 

   

death benefits under the Officer Life Insurance Plan as described in the Compensation Discussion and Analysis beginning on page 23.

In determining the amounts payable upon death reported in the following tables, the following assumptions and principles were used;

 

   

To calculate the estimated value of the LTIP Awards, we assumed a payout of 100% of the pro-rated LTIP Award target amount and used our closing stock price on June 30, 2019, $170.01. Because the payout of the LTIP Awards is dependent upon our performance against the Peer Group companies during the three-year performance period, a Named Executive Officer’s actual payout could range from a minimum of zero to a maximum of 200% of the Named Executive Officer’s pro-rated LTIP Award target amount.

 

   

The death benefit payable under the Officer Life Insurance Plan is funded through individual life insurance policies owned by each of the Named Executive Officers that would be paid by the insurance company issuing the policy.

 

Officer

 

 

Accelerated 
Vesting of 
Stock 
Incentives 

 

 

Accelerated 
Vesting of 
Restricted 
Stock Units 

 

 

Pension 
Plan 

 

 

Pension 
Restoration 
Plan 

 

 

Supplemental 
Retirement 
Program 

 

 

LTIP
Awards

 

 

Defined
Contribution
Supplemental 
Retirement
Program

 

 

Officer
Life
 Insurance 
Death
Benefit

 

 

Totals

 

Thomas L. Williams

 

3,395,122

 

 

302,644 

 

2,512,867

 

21,484,239

 

8,430,201 

 

 

3,400,000

 

39,525,073 

Catherine A. Suever

 

     83,676

 

   731,043

 

575,448 

 

1,328,817

 

  6,492,379

 

2,003,143 

 

 

3,003,200

 

14,217,706 

Lee C. Banks

 

1,971,480

 

4,966,672

 

357,294 

 

2,288,816

 

12,460,621

 

4,041,506 

 

 

4,000,000

 

30,086,389 

Robert W. Malone

 

   150,782

 

2,483,846

 

 

 

 

1,074,407 

 

3,323,043

 

1,815,000

 

  8,847,078 

Jennifer A. Parmentier

 

   306,969

 

1,021,760

 

 

 

 

   900,118 

 

1,773,014

 

1,582,500

 

  5,584,361 

Payments upon Long-Term Disability

Upon the long-term disability of a Named Executive Officer, the Named Executive Officer will receive the “Payments Generally Available” described above and the “Payments Upon Death” described above, except that:

 

  (i)

the term for all outstanding Stock Incentives will continue for the remainder of their ten-year terms;

 

  (ii)

the account balance in the Defined Contribution Supplemental Retirement Program will be paid in a single lump sum as of the date of disability; and

 

  (iii)

the Named Executive Officer will not receive death benefits under the Officer Life Insurance Plan until death subsequently occurs.

 

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In addition, the Named Executive Officer will receive the following:

 

   

monthly benefits under the Executive Long-Term Disability Plan;

 

   

six months of premium payments for medical and dental insurance based on the applicable COBRA rates for the Named Executive Officer; and

 

   

for those Named Executive Officers who were participants prior to January 1, 2008, premium payments under the Officer Life Insurance Plan for the greater of ten years from commencement of plan participation or the number of years until the Named Executive Officer reaches age 65. For those Named Executive Officers who became participants on or after January 1, 2008, the participant will receive premium payments under the Officer Life Insurance Plan until retirement up to age 65.

The benefit in the following table for each of the Named Executive Officers under the Executive Long-Term Disability Plan represents one year of long term disability benefits. The disability benefit payable under the plan is funded through group and individual long-term disability insurance policies owned by each of the Named Executive Officers that would be paid by the insurance company issuing the policies.

 

                       

Officer

 

 

Accelerated 
Vesting of 
Stock 
Incentives 

 

 

Accelerated 
Vesting of 
Restricted 
Stock Units 

 

 

Pension
Plan

 

 

Pension 
Restoration 
Plan 

 

 

Supplemental 
Retirement 
Program 

 

 

LTIP
Awards

 

 

Defined 
Contribution 
Supplemental 
Retirement 
Program 

 

 

Executive 
Long-
Term 
Disability 
Benefit 

 

 

Medical 
and 
Dental 
Benefit 

 

 

Officer 
Life 
Insurance 
Premiums 

 

 

Totals

 

Thomas L. Williams

 

3,395,122

 

 

   621,388 

 

5,225,679

 

22,658,045

 

8,430,201 

 

 

396,000 

 

  6,558 

 

40,531

 

40,773,524 

Catherine A. Suever

 

     83,676

 

731,043

 

1,304,219 

 

2,856,363

 

  5,653,245

 

2,003,143 

 

 

396,000 

 

  3,198 

 

20,495

 

13,051,382 

Lee C. Banks

 

1,971,480

 

4,966,672

 

   789,318 

 

5,756,902

 

12,081,893

 

4,041,506 

 

 

396,000 

 

  5,163 

 

28,254

 

30,037,188 

Robert W. Malone

 

   150,782

 

2,483,846

 

 

 

 

1,074,407 

 

3,323,043

 

420,000 

 

10,158 

 

38,218

 

  7,500,454 

Jennifer A. Parmentier

 

   306,969

 

1,021,760

 

 

 

 

   900,118 

 

1,773,014

 

420,000 

 

10,248 

 

42,542

 

  4,474,651 

Payments upon Retirement

Upon the retirement of a Named Executive Officer at (A) age 65 or older, or (B) age 60 or older with at least ten years of service, the Named Executive Officer will receive the “Payments Generally Available” described above and the “Payments Upon Death” described above, except that:

 

  (i)

the vesting schedule in all outstanding Stock Incentives will continue as if employed;

 

  (ii)

the term for all outstanding Stock Incentives will continue for the remainder of their ten-year terms;

 

  (iii)

if the Named Executive Officer is (A) age 65 or older, or (B) age 60 or older with at least ten years of service and 12 months of continuous employment during the performance periods, he or she will receive a full LTIP Award payout for calendar years 2017-18-19, 2018-19-20, and 2019-20-21 performance periods, to be determined at the end of the performance periods, as if he or she had remained continuously employed through the end of the performance periods; and

 

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  (iv)

the Named Executive Officer will not receive death benefits under the Officer Life Insurance Plan unless death subsequently occurs.

If a Named Executive Officer retires outside of the age and service thresholds stated in (iii) above, he or she will receive (a) pro-rated LTIP Award payouts for the calendar years 2017-18-19 and 2018-19-20 performance periods, to be determined at the end of the respective performance periods, based on the number of full calendar quarters served during each of the performance periods; and (b) pro-rated LTIP Award payout for the calendar year 2019-20-21 performance period, to be determined at the end of the performance period, based on the number of full months served during the performance period.

If the Named Executive Officer is less than 60 years of age on the date of retirement, then the Named Executive Officer must seek early retirement approval from the Human Resources and Compensation Committee to receive payments with respect to the following:

 

   

the Supplemental Retirement Program;

 

   

the Defined Contribution Supplemental Retirement Program; and

 

   

account balance in the unvested portion of the Named Executive Officer’s LTIP Award deferrals under our Executive Deferral Plan.

In addition, Named Executive Officers must be at least 55 years of age on the date of retirement to continue to receive premium payments under the Officer Life Insurance Plan which if needed will continue for the greater of ten years from commencement of plan participation or the number of years until they reach age 65. As of June 30, 2019, Mr. Williams and Ms. Suever had reached 60 years of age with at least 10 years of service and Mr. Banks had reached 55 years of age with at least 10 years of service. Since Ms. Suever, Mr. Malone and Ms. Parmentier each became an executive officer after January 1, 2008, we will not make any post-retirement premium payments on their behalf.

In determining the amounts payable upon retirement reported in the following table, in the case of Messrs. Banks and Malone and Ms. Parmentier, we assumed that they did not receive Human Resources and Compensation Committee approval for early retirement.

 

Officer

 

Pension
Plan

 

Pension
Restoration
Plan

 

Supplemental
Retirement
Program

 

LTIP
Awards

 

Post-
Retirement
Insurance
Premiums

 

Totals

 

Thomas L. Williams

   621,388

5,225,679

22,658,045

11,905,460

40,531

40,451,103

Catherine A. Suever

1,304,219

2,856,363

  5,653,245

  2,868,579

12,682,406

Lee C. Banks

   789,318

5,756,902

  4,041,506

28,254

10,615,980

Robert W. Malone

  1,074,407

  1,074,407

Jennifer A. Parmentier

     900,118

     900,118

Payments upon Termination for Cause or Resignation

Upon the termination for cause or the resignation of a Named Executive Officer, the Named Executive Officer will receive the “Payments Generally Available” described above, except that the Named Executive Officer will (i) forfeit his or her Supplemental Retirement Program benefit and his or her Defined Contribution Supplemental Retirement Program benefit if the termination for cause is the result of competition by the Named Executive Officer against us, and (ii) forfeit his or her LTIP Awards if the termination or resignation occurs during the applicable performance period.

 

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In determining the amounts payable upon termination for cause under the Supplemental Retirement Program and the Defined Contribution Supplemental Retirement Program, we assumed that the termination did not result from competition against us.

 

                                                                                                           

Officer

 

 

Pension
Plan

 

 

Pension
Restoration
Plan

 

 

Supplemental 
Retirement
Program

 

 

Totals

 

Thomas L. Williams

 

   621,388

 

5,225,679

 

22,658,045

 

28,505,112

Catherine A. Suever

 

1,304,219

 

2,856,363

 

  5,653,245

 

  9,813,827

Lee C. Banks

 

   789,318

 

5,756,902

 

 

  6,546,220

Robert W. Malone

 

 

 

 

                0

Jennifer A. Parmentier

 

 

 

 

                0

Payments upon Termination without Cause

Upon the termination without cause of a Named Executive Officer, the Named Executive Officer will receive the “Payments Generally Available” described above. In addition, if the Named Executive Officer signs a release of all claims against us, the Named Executive Officer will receive a lump sum payment equal to one week’s pay for each full year of service up to a maximum of twenty-six weeks of pay and continuation of premium payments for medical and dental insurance based on the applicable COBRA rates for the Named Executive Officer for up to three months.

Additionally, he or she will be entitled to (a) pro-rated LTIP Award payouts for the calendar year 2017-18-19 and 2018-19-20 performance periods, to be determined at the end of the respective performance periods, based on the number of full calendar quarters served during each of the performance periods; and (b) pro-rated LTIP Award payout for the calendar year 2019-20-21 performance period, to be determined at the end of the performance period, based on the number of full months served during the performance period.

In determining the amounts payable upon termination without cause reported in the following tables, we assumed that the Named Executive Officer signed a release.

 

                                                                                                                                                                                                                                   
             

Officer

 

 

Severance
Pay

 

 

Pension
Plan

 

 

Pension
Restoration
Plan

 

 

Supplemental 
Retirement
Program

 

 

Medical and
Dental
Benefits

 

 

Totals

 

Thomas L. Williams

 

336,532

 

621,388

 

5,225,679

 

22,658,045

 

3,279

 

28,844,923

Catherine A. Suever

 

375,388

 

1,304,219

 

2,856,363

 

5,653,245

 

1,599

 

10,190,814

Lee C. Banks

 

499,980

 

789,318

 

5,756,902

 

12,081,893

 

5,163

 

19,133,256

Robert W. Malone

 

  58,170

 

 

 

 

5,079

 

     63,249

Jennifer A. Parmentier

 

123,750

 

 

 

 

5,124

 

   128,874

Payments upon a Change in Control

A Change in Control occurs if and when:

 

   

subject to certain exceptions, any “person” (as such term is used in Sections 13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934) is or becomes a beneficial owner, directly or indirectly, of securities representing 20% or more of the combined voting power of our then outstanding securities eligible to vote for the election of the Board of Directors;

 

   

during any period of 24 consecutive months, individuals who at the beginning of such 24-month period were our Directors, which we refer to as the Incumbent Board, cease to constitute at least a majority of the Board of Directors, unless the election, or nomination for election, of any person becoming a Director subsequent to the beginning of such 24-month period was approved by a vote of at least two-thirds of the Incumbent Board;

 

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our shareholders approve a plan of complete liquidation or dissolution; or

 

   

we enter into a merger, consolidation or other reorganization, or sell all of our assets, unless:

 

   

immediately following the business combination, (1) more than 50% of the total voting power eligible to elect Directors of the resulting entity is represented by shares that were common shares immediately prior to the business combination, (2) subject to certain exceptions, no person becomes the beneficial owner, directly or indirectly, of 20% or more of the voting power of the entity resulting from the business combination, and (3) at least a majority of the members of the board of Directors of the resulting entity were members of the Incumbent Board at the time of the approval by the Board of Directors of the execution of the initial agreement providing for such business combination; or

 

   

the business combination is effected by means of the acquisition of common shares from us, and the Board of Directors approves a resolution providing expressly that such business combination does not constitute a Change in Control.

On July 21, 2008, we adopted certain amendments to our deferred compensation plans and arrangements to comply with Section 409A of the Internal Revenue Code. The amendments included certain modifications to the above definition of “Change in Control” for purposes of those plans and arrangements which were necessary to comply with the definition required by Section 409A.

A Change in Control, either with or without a qualifying termination of a Named Executive Officer (as described below in “Payments upon a Qualifying Termination in Connection with a Change in Control”), has the following effects under the executive compensation plans:

 

   

any outstanding unvested Stock Incentive held by a Named Executive Officer vests and becomes exercisable immediately upon a Change in Control;

 

   

any outstanding LTIP Award will be paid in common shares equal to the greater of (i) the target LTIP Award or (ii) the LTIP Award that would be payable at the end of the performance period assuming a level of financial performance equivalent to that existing at the fiscal quarter end immediately preceding the date of the Change in Control;