DEF 14A 1 def14a.htm DEF 14A ppg_CurrentFolio_2019_Def14A

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.           )

 

 

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Definitive Proxy Statement

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Soliciting Material under §240.14a‑12

 

 

 

 

PPG Industries, Inc.

(Name of Registrant as Specified In Its Charter)

 

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

 

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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

 

 

WHEN

April 18, 2019 at 11:00 AM Eastern Time

WHERE

Fairmont Pittsburgh, Grand Ballroom
510 Market Street
Pittsburgh, Pennsylvania 15222

WHAT

1.

To elect as directors the four named nominees to serve in a class whose term expires in 2022;

 

2.

To approve the appointment of Steven A. Davis and Catherine R. Smith as directors to serve in a class whose term expires in 2021; 

 

3.

To vote on a nonbinding resolution to approve the compensation of the Company’s named executive officers on an advisory basis;

 

4.

To vote on an amendment of the Company’s Articles of Incorporation to provide for the annual election of directors;

 

5.

To vote on an amendment of the Company’s Articles of Incorporation and Bylaws to replace the supermajority voting requirements;

 

6.

To ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2019; and

 

7.

To transact any other business that may properly come before the meeting.

RECORD DATE

February 22, 2019

ANNUAL MEETING

Admission to the Annual Meeting will be by Admission Card only. You must also present a photo ID for admission to the Meeting. 

 

 

PLEASE VOTE

Please know that your vote is very important to us and we encourage you to vote promptly. Whether or not you expect to attend the Annual Meeting in person, please vote via the Internet or telephone, or by paper proxy card or vote instruction form, which you should complete, sign and return by mail, so that your shares may be voted.

 

 

 

 

 

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Internet
Visit www.cesvote.com. You will need the 11‑digit control number included in your proxy card, voter instruction form or notice.

Mobile App
You can scan this QR code to vote with your mobile phone. You will need the 11‑digit control number included in your proxy card, voter instruction form or notice.

Phone
Call 1‑888‑693‑8683. You will need the 11‑digit control number included in your proxy card, voter instruction form or notice.

Mail
Send your completed and signed proxy card or voter instruction form to the address on your proxy card or voter instruction form.

In Person
See below regarding Attendance at the Meeting.

 

 

 

 

Picture 5

 

Daniel G. Fayock
Assistant General Counsel and Secretary

 

March 7, 2019

 

 

 

 

 

Picture 26

2019 Proxy Statement    1

 


 

 

TABLE OF CONTENTS

 

 

 

Page

Proposal 1: Election of Directors to Serve in a Class Whose Term Expires in 2022

5

Proposal 2 Approval of the Appointment of Steven A. Davis and Catherine R. Smith as Directors to Serve in a Class Whose Term Expires in 2021 

13

Corporate Governance 

15

Compensation of Directors 

25

Compensation Discussion and Analysis 

28

Compensation of Executive Officers 

44

Proposal 3: Advisory Vote on Approval of the Compensation of the Named Executive Officers

59

Proposal 4: Proposal to Amend the Articles of Incorporation to Provide for the Annual Election of Directors

62

Proposal 5: Proposal to Amend the Articles of Incorporation and Bylaws to Replace the Supermajority Voting Requirements

64

Independent Registered Public Accounting Firm 

66

Proposal 6: Ratification of Independent Registered Public Accounting Firm

67

Equity Compensation Plan Information 

68

Beneficial Ownership 

69

Section 16(a) Beneficial Ownership Reporting Compliance 

71

General Matters 

72

Other Information 

76

Annex A—Reconciliation of Non‑GAAP Financial Measures 

A‑1

Annex B—Proposed Amendment of the Articles of Incorporation to Declassify the Board of Directors 

B-1

Annex C—Proposed Amendment of the Articles of Incorporation to Replace the Supermajority Voting Requirements 

C-1

Annex D—Proposed Amendment of the Bylaws to Replace the Supermajority Voting Requirements 

D-1

 

 

 

 

 

2    2019 Proxy Statement

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PROXY SUMMARY

This summary highlights information contained in this Proxy Statement. It does not contain all of the information you should consider. You should read the entire Proxy Statement carefully before voting. Please see the General Matters section beginning on page 72 for important information about proxy materials, voting, the Annual Meeting, Company documents and communications.

TIME AND PLACE OF THE ANNUAL MEETING

Thursday, April 18, 2019

11:00 AM Eastern Time

Fairmont Pittsburgh, Grand Ballroom

510 Market Street

Pittsburgh, Pennsylvania 15222

MEETING AGENDA

 

 

 

 

Voting Matters

Board Recommendations

 

Page

Election of Four Director Nominees

FOR

5

Approval of the appointment of Steven A. Davis and Catherine R. Smith as directors to serve in a class whose term expires in 2021;

FOR

13

Advisory Vote on Approval of the Compensation of the Named Executive Officers

FOR

58

Vote on an Amendment of the Company’s Articles of Incorporation to Provide for the Annual Election of Directors

FOR

61

Vote on an Amendment of the Company’s Articles of Incorporation and Bylaws to Replace the Supermajority Voting Requirements

FOR

63

Ratification of PricewaterhouseCoopers LLP as the Company’s Independent Registered Public Accounting Firm for 2019

FOR

66

DIRECTOR NOMINEES

Nominees to Serve in a Class Whose Term Expires in 2022

 

 

 

 

 

 

 

 

 

 

 

PRINCIPAL OCCUPATION

 

AGE
DIRECTOR SINCE

 

COMMITTEES

 

OTHER PUBLIC
COMPANY BOARDS

 

 

 

 

 

 

 

 

 

James G. Berges

 

Partner, Clayton, Dubilier &
Rice, LLC

 

71
Director since 2000

 

Officers‑Directors
Compensation
Nominating and
Governance

 

None

 

 

 

 

 

 

 

 

 

John V. Faraci

 

Retired Chairman and
CEO of International
Paper Company

 

69
Director since 2012

 

Technology and
Environment
Nominating and
Governance

 

ConocoPhillips
United Technologies Corporation

 

 

 

 

 

 

 

 

 

Gary R. Heminger

 

Chairman and CEO of
Marathon Petroleum
Corporation

 

65
Director since 2017

 

Audit
Nominating and
Governance

 

Marathon Petroleum Corporation
Fifth Third Bancorp
MPLX GP LLC
Tesoro Logistics GP, LLC

 

 

 

 

 

 

 

 

 

Michael H. McGarry

 

Chairman and CEO of
PPG Industries, Inc.

 

61
Director since 2015

 

None

 

None

 

 

 

 

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2019 Proxy Statement    3

 


 

Approval of the Appointment of Directors to Serve in a Class Whose Term Expires in 2021

 

 

 

 

 

 

 

 

 

 

 

PRINCIPAL OCCUPATION

 

AGE

 

COMMITTEES

 

OTHER PUBLIC
COMPANY BOARDS

 

 

 

 

 

 

 

 

 

Steven A. Davis

 

Former Chairman and
CEO of Bob Evans
Farms, Inc.

 

60

 

None

 

Marathon Petroleum
Corporation
Legacy Acquisition Corp.

 

 

 

 

 

 

 

 

 

Catherine R. Smith

 

Executive Vice President
and Chief Financial
Officer of Target
Corporation

 

55

 

None

 

Baxter International Inc.

SKILLS, EXPERTISE AND EXPERIENCE OF OUR DIRECTORS AND DIRECTOR APPOINTEES

The table below lists some of the key skills, experience and expertise possessed by our directors and director appointees.  The biographies of our directors and director appointees include more information about our directors’ and director appointees’ relevant skills, experience and qualifications.

 

 

 

 

 

 

 

 

 

 

Leadership

Finance

Manufacturing

Global

Industry

Environmental

Retail /
Marketing

Technology

Stephen F. Angel

James G. Berges

 

 

Steven A. Davis

 

 

John V. Faraci

 

 

 

Hugh Grant

 

Victoria F. Haynes

 

 

 

 

Melanie L. Healey

 

 

 

Gary R. Heminger

 

 

 

 

Michele J. Hooper

 

 

 

 

 

Michael W. Lamach

 

Michael H. McGarry

 

Catherine R. Smith

 

 

 

Martin H. Richenhagen

 

 

QUESTIONS AND ANSWERS

Please see General Matters beginning on page 72 for important information about the proxy materials, voting, attending the 2019 Annual Meeting and the deadlines to submit shareholder proposals and director nominees for the 2020 Annual Meeting of Shareholders.

LEARN MORE ABOUT PPG AND OUR SUSTAINABILITY ACHIEVEMENTS

You can learn more about PPG by visiting our website at www.ppg.com. Please also visit our Sustainability website at www.sustainability.ppg.com to learn more about PPG’s sustainability initiatives and achievements and PPG’s community and employee engagement programs.

 

 

 

4    2019 Proxy Statement

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PROPOSAL 1: Election of Directors to Serve in a Class Whose Term Expires in 2022

Four directors are nominated for election to a class that will serve until the 2022 annual meeting of shareholders and until their successors have been duly elected and qualified, or their earlier retirement or resignation. It is intended that the shares represented by each proxy will be voted, in the discretion of the proxies, FOR the nominees for directors set forth below, each of whom is an incumbent, or for any substitute nominee or nominees designated by our Board of Directors in the event any nominee or nominees become unavailable for election. In the event that an incumbent director receives a greater number of votes against his election than votes for such election, he is required to tender his resignation for consideration by the Nominating and Governance Committee of the Board of Directors in accordance with our Bylaws, as described on page 17 under “Director Resignation Policy.” The principal occupations of, and certain other information regarding, the nominees and our continuing directors are set forth below. In addition, information about each director’s specific experience, attributes and skills that led the Board to the conclusion that each of the directors is highly qualified to serve as a member of the Board is set forth below. Our Corporate Governance Guidelines require that any director who has attained the age of 72 retire at the next annual meeting following the director’s 72nd birthday. In accordance with this policy, if elected, Mr. Berges will retire at the 2020 Annual Meeting of Shareholders.

The Board believes that each of the Company’s directors is highly qualified to serve as a member of the Board. Each of our directors has contributed to the mix of skills, core competencies and qualifications of the Board. Our directors are highly educated and have diverse backgrounds and talents and extensive track records of success in what we believe are highly relevant positions with some of the most admired organizations in the world. Many of our directors also benefit from an intimate knowledge of our operations and corporate philosophy. The Board believes that each director’s service as the chairman, chief executive officer, chief operating officer, president or group president of a well‑respected company has provided the directors with skills that are important to serving on our Board. The Board has also considered the fact that all of our directors have worked for, or served on the boards of directors of, a variety of companies in a wide range of industries. Specifically, the Board has noted that our directors have skills that, among others, have made them particularly suited to serve as a director of PPG, a global manufacturer of high technology paints, coatings and specialty materials for industrial and consumer markets, with operations in more than 70 countries. The Board believes that through their varying backgrounds, our directors bring a wealth of experiences, new ideas and solutions to our Board.

Vote Required

Each director nominee who receives a majority of the votes cast (the number of shares voted “for” the director must exceed 50% of the votes cast with respect to that director) at the Annual Meeting will be elected as a director.

THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE ELECTION
OF EACH OF THE DIRECTOR NOMINEES.

 

 

 

 

 

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2019 Proxy Statement    5

 


 

Nominees to Serve in a Class Whose Term Expires in 2022

 

 

 

 

James G. Berges

Picture 14

Age: 71
Partner, Clayton, Dubilier & Rice, LLC

Professional Experience:

Mr. Berges has been a Director of PPG since 2000. He became a partner in Clayton, Dubilier & Rice, LLC, a private equity investment firm, in 2006. Prior to that, he was President of Emerson Electric Co. from 1999 until his retirement in 2005. Emerson Electric Co. is a global manufacturer of products, systems and services for industrial automation, process control, HVAC, electronics and communications, and appliances and tools. Mr. Berges is Chairman of Core & Main LP, a portfolio company of Clayton, Dubilier & Rice. Mr. Berges served as a director of Atkore International Group, Inc. from 2010 to 2018, as a director of NCI Building Systems, Inc. from 2009 to 2018, as Chairman of HD Supply, Inc. from 2007 to 2015 and as Chairman of Hussmann International, Inc. from 2012 to 2016.

Qualifications: As a partner with private equity investment firm Clayton, Dubilier & Rice, Mr. Berges works with portfolio companies in a wide range of industries to improve their operations. Previously, he served as President of Emerson Electric Company, a diversified global technology company. As a result of Mr. Berges’ experience advising and serving on the boards of directors of numerous companies, he can draw from a diverse set of leadership experiences and operational and governance perspectives.

 

 

 

 

 

 

 

John V. Faraci

Picture 17

Age: 69
Retired Chairman and
Chief Executive Officer of
International Paper
Company

Professional Experience:

Mr. Faraci has been a Director of PPG since 2012. Mr. Faraci retired as Chairman and Chief Executive Officer of International Paper, a global manufacturer of paper and packaging products, in December 2014. Mr. Faraci was named Chairman and Chief Executive Officer of International Paper in November 2003. Earlier in 2003, Mr. Faraci was elected President and a director of International Paper. Mr. Faraci is an Operating Partner with Advent International and a member of the RBC Capital Markets Advisory Council. He is also a director of United Technologies Corporation and ConocoPhillips.

Qualifications: Mr. Faraci has significant leadership and financial expertise gained from years of service at a large multinational manufacturing company. He has served as both the Chief Executive Officer and Chief Financial Officer of International Paper Company, where he led a transformation to refocus International Paper on its paper and packaging business. Mr. Faraci's experience repositioning International Paper was instrumental as PPG transformed its business to focus on coatings products. Mr. Faraci also has international operational expertise gained from years of experience leading a large multinational company and his experience leading one of International Paper's former international subsidiaries.

 

 

 

 

6    2019 Proxy Statement

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consolidated master limited partnerships formed by Marathon Petroleum Corporation.

 

 

 

Gary R. Heminger

Picture 18

Age: 65
Chairman and
Chief Executive Officer of Marathon Petroleum Corporation

Professional Experience:

Mr. Heminger has been a Director of PPG since 2017. Mr. Heminger has been Chairman of the Board of Marathon Petroleum Corporation since 2016 and its Chief Executive Officer since 2011. Marathon Petroleum is one of the largest independent petroleum product refining, marketing, retail and pipeline transportation companies in the United States. Mr. Heminger has spent over 40 years in a variety of leadership, financial and marketing positions with Marathon Petroleum. From 2011 to 2017, he served as President and Chief Executive Officer of Marathon Petroleum Corporation, and from 2001 to 2011, Mr. Heminger served as both Executive Vice President – Downstream, Marathon Oil Corporation and as President of Marathon Petroleum Company LLC. Previously, he served as Executive Vice President, Supply, Transportation and Marketing for Marathon Ashland Petroleum from January to September 2001, as Senior Vice President, Business Development from 1999 to January 2001 and as Vice President, Business Development from 1998 to 1999. Since 2012, Mr. Heminger has served as Chairman of the Board and Chief Executive Officer of MPLX GP LLC, a wholly owned, indirect subsidiary of Marathon Petroleum and the general partner of MPLX LP, a consolidated master limited partnership formed to own and operate midstream energy infrastructure assets. Since October 2018, Mr. Heminger has served as Chairman of the Board and Chief Executive Officer of Tesoro Logistics GP, LLC, a wholly owned, indirect subsidiary of Marathon Petroleum Corporation and the general partner of Andeavor Logistics LP, a consolidated master limited partnership formed to own and operate midstream energy infrastructure assets that was acquired by Marathon Petroleum as part of its October 1, 2018 acquisition of Andeavor.  Mr. Heminger is also a director of Fifth Third Bancorp, MPLX GP LLC and Tesoro Logistics GP, LLC. MPLX GP LLC and Tesoro Logistics GP, LLC each manage master limited partnerships that are controlled and consolidated by Marathon Petroleum Corporation.

Qualifications: Mr. Heminger has significant leadership and financial expertise gained from years of service at a large petroleum product refining, transport, marketing and retail company. His over 40 years of experience leading a complex manufacturing and marketing business provides useful guidance in managing PPG’s complex organization with many of the same challenges and opportunities as faced by PPG. Mr. Heminger also brings to the Board marketing and retail expertise gained from overseeing Marathon Petroleum Corporation’s extensive network of gasoline retail locations and convenience stores.

PPG’s Board of Directors has reviewed Mr. Heminger’s service on the boards of directors of Fifth Third Bancorp, Marathon Petroleum Corporation, MPLX GP LLC and Tesoro Logistics GP, LLC and has determined that his service on these boards has not negatively impacted his service on PPG’s Board. MPLX GP LLC and Tesoro Logistics GP, LLC are each the general partner of a controlled, consolidated master limited partnerships held by Marathon Petroleum Corporation to operate Marathon Petroleum Corporation’s transportation, logistics and processing operations. His duties as an officer and director of these companies are integrally related to his role as the Chairman and Chief Executive Officer of Marathon Petroleum Corporation. As related companies, the board meetings of MPLX GP LLC and Tesoro Logistics GP, LLC typically are held in succession with those of Marathon Petroleum Corporation. In 2018, Mr. Heminger attended all of PPG’s Board meetings and all meetings of the Committees on which he serves. The Board believes that Mr. Heminger has been a valuable contributor to our Board and that his leadership of a business that serves both industry and retail consumers like PPG is very important to our Board’s overall skills and experience.

 

 

 

 

 

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2019 Proxy Statement    7

 


 

 

 

 

 

 

Michael H. McGarry

Picture 318

Age: 61
Chairman and
Chief Executive Officer of PPG Industries, Inc.

Professional Experience:

Mr. McGarry has been a Director of PPG since 2015. Mr. McGarry has been Chairman and Chief Executive Officer of PPG since September 1, 2016. Previously, he served as President and Chief Executive Officer from September 1, 2015 to September 1, 2016, President and Chief Operating Officer from March 2015 until September 1, 2015 and Chief Operating Officer from August 2014 until March 2015. Mr. McGarry has also served as Executive Vice President from 2012 until 2014; Senior Vice President, Commodity Chemicals from 2008 until 2012; Vice President, Coatings, Europe, and Managing Director, PPG Europe from 2006 until 2008; and Vice President, Chlor-Alkali and Derivatives from 2004 to 2006. He joined PPG in 1981. Mr. McGarry served as a director of Axiall Corporation from 2013 through August 2016.

Qualifications: Mr. McGarry has been an employee of PPG for over 35 years and has served in executive level positions at PPG since 2004. He has served in a variety of key business and functional leadership roles in the United States, Europe and Asia. Mr. McGarry has been at the forefront of PPG’s portfolio transformation leading the acquisition of SigmaKalon; the separation of PPG’s former commodity chemicals business; the acquisition and integration of AkzoNobel’s North American architectural coatings business; the acquisition of Consorcio Comex, S.A. de C.V.; and the dispositions of PPG’s flat glass and fiber glass businesses. Mr. McGarry also has extensive product stewardship, manufacturing and logistics experience gained through years of working in PPG’s former commodity chemicals business.

 

 

 

 

8    2019 Proxy Statement

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Continuing Directors—Term Expires in 2020

Stephen F. Angel

Picture 20

Age: 63
Chief Executive Officer of
Linde plc

Professional Experience:

Mr. Angel has been a Director of PPG since 2010. He has been Chief Executive Officer and a director of Linde plc, a global producer and distributor of atmospheric and process gases and high‑performance surface coatings, since October 31, 2018 upon the closing of the combination of Praxair, Inc. with Linde AG to form Linde plc. He served as Chairman of the Board, President and Chief Executive Officer of Praxair, Inc. from 2007 until October 31, 2018. Mr. Angel served as President and Chief Operating Officer of Praxair, Inc. from March to December 2006 and as Executive Vice President of Praxair, Inc. from 2001 to 2006. Prior to joining Praxair, Inc., Mr. Angel spent 22 years in a variety of management positions with General Electric Company.

Qualifications: Mr. Angel has diverse managerial and operational experience within the manufacturing industry. As the Chief Executive Officer of Linde plc and a former senior operating executive at General Electric, Mr. Angel understands the challenges faced by a global manufacturer of diversified products, and his experience provides the Board with insight into sales and marketing and operational matters.

 

 

 

 

‑off of the company in 2002.

 

Hugh Grant

Picture 21

Age: 60
Retired Chairman of the Board and Chief Executive
Officer of Monsanto
Company

Professional Experience:

Mr. Grant has been a Director of PPG since 2005. Mr. Grant retired as Chairman of the Board and Chief Executive Officer of Monsanto Company, a global provider of technology-based solutions and agricultural products that improve farm productivity and food quality, on June 7, 2018 upon the closing of the merger of Monsanto Company and Bayer AG. Mr. Grant served as Chairman of the Board and Chief Executive Officer of Monsanto Company from 2003 until June 7, 2018. He previously served as Executive Vice President and Chief Operating Officer of Monsanto Company at the time of an initial public offering in 2000 and remained in that position for the subsequent spin‑off of the company in 2002.

Qualifications: Mr. Grant has an extensive background in the global agricultural technology industry, having served in various positions at Monsanto Company, where he was the Chairman of the Board and Chief Executive Officer. Mr. Grant brings to the Board significant leadership, managerial and operational expertise gained from years of experience leading the operations of a large multinational company.

 

 

 

 

 

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2019 Proxy Statement    9

 


 

 

 

 


Company

 

 

 

 

Melanie L. Healey

Picture 22

Age: 57
Former Group President,
North America of
The Procter & Gamble
Company

Professional Experience:

Ms. Healey has been a Director of PPG since 2016. She served as Group President at Procter & Gamble, one of the world’s leading providers of branded consumer packaged goods, from 2007 to 2015, serving as President and Advisor to the Chairman and Chief Executive Officer from January to June 2015, as Group President, North America from 2009 to 2015 and as Group President, Global Feminine and Health Care from 2007 to 2009. She previously served as President, Global Feminine Care and Adult Care Business from 2005 to 2007 and as Vice President and General Manager, Feminine Care North America from 2001 to 2005. Ms. Healey joined Procter & Gamble in 1990. She has more than 30 years of experience in the consumer goods industry having previously held positions with S. C. Johnson & Son, Inc. and Johnson & Johnson. Ms. Healey is also a director of Hilton Worldwide Holdings Inc., Target Corporation and Verizon Communications Inc.

Qualifications: Ms. Healey has extensive experience in the consumer goods industry with three multinational companies. She has a thorough understanding of strategy, branding, consumer marketing and international operations, including 18 years working outside the United States. Ms. Healey brings to the Board significant marketing, brand building, managerial and international expertise gained from years of experience marketing consumer products to customers worldwide.

 

 

 

 

‑founded, and became the Managing Partner of, The Directors’ Council, a private company that works with corporate boards to increase their independence, effectiveness and diversity. She was named to her current position in 2009. Ms. Hooper was President and Chief Executive Officer of Voyager Expanded Learning, a developer and provider of learning programs and teacher training for public schools, from 1999 until 2000. Prior to that, she was President and Chief Executive Officer of Stadtlander Drug Company, Inc., a provider of disease‑specific pharmaceutical care from 1998 until Stadtlander was acquired in 1999. Ms. Hooper is also a director of UnitedHealth Group Incorporated and United Continental Holdings, Inc.

 

Michele J. Hooper

Picture 16

Age: 67
President and Chief
Executive Officer of
The Directors’ Council

Professional Experience:

Ms. Hooper has been a Director of PPG since 1995. In 2003, she co‑founded, and became the Managing Partner of, The Directors’ Council, a private company that works with corporate boards to increase their independence, effectiveness and diversity. She was named to her current position in 2009. Ms. Hooper was President and Chief Executive Officer of Voyager Expanded Learning, a developer and provider of learning programs and teacher training for public schools, from 1999 until 2000. Prior to that, she was President and Chief Executive Officer of Stadtlander Drug Company, Inc., a provider of disease‑specific pharmaceutical care from 1998 until Stadtlander was acquired in 1999. Ms. Hooper is also a director of UnitedHealth Group Incorporated and United Continental Holdings, Inc. She served as a director of Warner Music Group from 2006 to 2011 and as a director of AstraZeneca plc from to 2003 to 2012.

Qualifications: Ms. Hooper is an expert in corporate governance and board diversity. As President and Chief Executive Officer of The Directors’ Council, she works with major companies to enhance the effectiveness of their corporate governance. Ms. Hooper also has significant experience leading the audit committees of several major companies, including a 14-year tenure as chair of PPG’s Audit Committee. In addition to having chaired PPG’s Audit Committee, she serves on or has served on the audit committees of UnitedHealth Group, AstraZeneca (Chair), Warner Music Group (Chair), Seagram Company Ltd. and Target Corporation (Chair). In addition, Ms. Hooper has served as a Public Board Member and former Vice Chair of the Center for Audit Quality, Chair of the CAQ Initiative for Deterring and Detecting Financial Reporting Fraud, and co‑Chair of the National Association of Corporate Directors Blue Ribbon Commission on Audit Committee Responsibilities. Ms. Hooper’s experience as a senior executive at a range of companies and her corporate governance and accounting expertise provides the Board with a unique set of skills that enhances the Board’s leadership and oversight capabilities.

 

 

 

 

10    2019 Proxy Statement

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Continuing Directors—Term Expires in 2021

 

 

 

 

Victoria F. Haynes

Picture 50

Age: 71
Retired President
and Chief Executive
Officer of RTI
International

Professional Experience:

Dr. Haynes has been a Director of PPG since 2003. She served as the President and Chief Executive Officer of RTI International, which performs scientific research and development in advanced technologies, public policy, environmental protection, and health and medicine, from 1999 until 2012. She was Vice President of the Advanced Technology Group and Chief Technical Officer of BF Goodrich Company from 1992 to 1999. She is also a director of Nucor Corporation and Royal DSM N.V. Dr. Haynes served as a director of Archer Daniels Midland Company from 2007 through 2011 and as a director of Axiall Corporation from 2013 through August 2016.

Qualifications: Dr. Haynes is a leader in advanced technology and research. Her previous service as President and Chief Executive Officer of RTI International as well as her scientific leadership positions with BF Goodrich Company provide her with insight into the research and development issues currently faced by global companies. Dr. Haynes’ science background, coupled with her experience leading a high technology institution, is a valuable resource for the Board when reviewing our technological innovations.

 

 

 

 

‑Rand plc, a diversified manufacturer and services provider of climate and refrigeration systems, industrial technologies and small electric vehicles, since June 2010 and a director since February 2010. Previously, Mr. Lamach served in several roles with Ingersoll‑Rand, including President and Chief Executive Officer from February 2010 to June 2010; President and Chief Operating Officer from February 2009 to February 2010; President of Trane Commercial Systems from June 2008 to February 2009; and President of the Security Technologies Sector from February 2004 to June 2008. Prior to joining Ingersoll‑Rand, Mr. Lamach spent 17 years in a variety of management positions with Johnson Controls. He served as a director of Iron Mountain, Inc. from 2007 to 2015.

 

Michael W. Lamach

Picture 23

Age: 55
Chairman, President
and Chief Executive
Officer of
Ingersoll-Rand plc

Professional Experience:

Mr. Lamach has been a Director of PPG since 2015. He has been the Chairman, President and Chief Executive Officer of Ingersoll‑Rand plc, a diversified manufacturer and services provider of climate and refrigeration systems, industrial technologies and small electric vehicles, since June 2010 and a director since February 2010. Previously, Mr. Lamach served in several roles with Ingersoll‑Rand, including President and Chief Executive Officer from February 2010 to June 2010; President and Chief Operating Officer from February 2009 to February 2010; President of Trane Commercial Systems from June 2008 to February 2009; and President of the Security Technologies Sector from February 2004 to June 2008. Prior to joining Ingersoll‑Rand, Mr. Lamach spent 17 years in a variety of management positions with Johnson Controls. He served as a director of Iron Mountain, Inc. from 2007 to 2015.

Qualifications: During his 30‑year career, Mr. Lamach has lead a number of businesses serving different end‑use markets, including automotive components, controls, security systems and HVAC systems. As Chairman, President and Chief Executive Officer of Ingersoll‑Rand plc, he brings to the Board experience leading a global company that sells a diverse range of products and services to both industrial and consumer customers. Mr. Lamach’s service as the Vice Chair of the Board and a member of the Executive Committee of the National Association of Manufacturers provides him with keen insight into the challenges facing manufacturers.

 

 

 

 

 

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‑based manufacturer of agricultural and forest machinery, serving as Group President from 2000 until 2003. Mr. Richenhagen is also a director of Linde plc.

 

Martin H. Richenhagen

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Age: 66
Chairman, President
and Chief Executive
Officer of AGCO
Corporation

Professional Experience:

Mr. Richenhagen has been a Director of PPG since 2007. He has been Chairman, President and Chief Executive Officer of AGCO Corporation, an agricultural equipment manufacturer, since 2006. From 2004 to 2006, he served as President and Chief Executive Officer of AGCO. From 2003 to 2004, Mr. Richenhagen was Executive Vice President of Forbo International SA, a Swiss flooring materials company. From 1998 to 2003, he was with CLAAS KgaA MbH, a German‑based manufacturer of agricultural and forest machinery, serving as Group President from 2000 until 2003. Mr. Richenhagen is also a director of Linde plc. Mr. Richenhagen was a director of Praxair, Inc. from 2015 until the closing of its combination with Linde AG in October 2018 to form Linde plc.

Qualifications: Mr. Richenhagen has been leading global manufacturing companies for many years. As Chairman, President and Chief Executive Officer of AGCO Corporation, he leads a global manufacturer of agricultural equipment with dealers and distributors in more than 140 countries worldwide. Mr. Richenhagen brings considerable international business experience to the Board, having served as a senior executive at multinational companies located in Europe and the United States.

 

 

 

 

 

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PROPOSAL 2: Approval of the Appointment of Steven A. Davis and Catherine R. Smith as Directors to Serve in a Class Whose Term Expires in 2021

According to PPG’s Amended and Restated Bylaws, vacancies on the Board of Directors may be filled by the affirmative vote of a majority of the remaining directors. On February 21, 2019, the Board of Directors increased the size of the Board to 13 directors, effective as of April 18, 2019, and appointed Steven A. Davis and Catherine R. Smith to fill the vacancies subject to the approval of their appointment by the Company’s shareholders at the 2019 Annual Meeting. If their appointment is approved by the Company’s shareholders, the director appointees will become directors of the Company on April 18, 2019 and will join the class of directors that will serve until the 2021 annual meeting of shareholders and until their successors have been duly elected and qualified, or their earlier retirement or resignation. It is intended that the shares represented by each proxy will be voted, in the discretion of the proxies, FOR approval of the director appointees. The principal occupations of, and certain other information regarding, the director appointees are set forth below. In addition, information about each director appointee’s specific experience, attributes and skills that led the Board to the conclusion that each of the director appointees is highly qualified to serve as a member of the Board is set forth below.

Vote Required

Each director appointee who receives a majority of the votes cast (the number of shares voted “for” the director appointee must exceed 50% of the votes cast with respect to that director appointee) at the Annual Meeting will become a director as discussed above on April 18, 2019.

 

 

THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE APPROVAL
OF THE APPOINTMENT OF EACH OF THE DIRECTOR APPOINTEES.

Director Appointees to Serve in a Class Whose Term Expires in 2021

 

 

 

 

Steven A. Davis

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Age: 60
Former Chairman and
Chief Executive Officer of
Bob Evans Farms, Inc.

Professional Experience:

Mr. Davis, served as Chairman and Chief Executive Officer of Bob Evans Farms, Inc., an operator of nearly 500 family style restaurants in 18 states and a leading producer and distributor of refrigerated and frozen convenience food items, from 2006 to 2015.  From 1993 to 2006, Mr. Davis held a variety of senior leadership roles at YUM! Brands, Inc., an operator of over 45,000 KFC, Pizza Hut and Taco Bell restaurants in 140 countries and territories, including president of its Long John Silver’s and A&W All-American Food Restaurants. Mr. Davis is a director of Marathon Petroleum Corporation, Albertsons Companies, Inc. and Legacy Acquisition Corp. Mr. Davis served as a director of Sonic Corp. from 2017 to 2018 until Sonic Corp. was acquired by Inspire Brands, Inc. and as a director of Walgreens Boots Alliance from 2009 to 2015.

Qualifications: Mr. Davis’s experience as Chairman and Chief Executive Officer of Bob Evans Farms and his leadership roles at YUM! Brands provide him with significant operational, marketing, retail and branding experience. He brings to the Board significant experience managing a network of branded retail locations with a focus on customer service.

 

 

 

 

 

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Catherine R. Smith

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Age: 55
Executive Vice President
and Chief Financial Officer
of Target Corporation

Professional Experience:

Ms. Smith has served as Executive Vice President and Chief Financial Officer of Target Corporation, a national retailer with approximately 1,850 stores in the United States, since 2015, with plans for a May 2020 retirement. From February to December 2014, Ms. Smith was Executive Vice President and Chief Financial Officer of Express Scripts Holding Company, a Fortune 20 company and the United States’ largest pharmacy benefit manager, leaving the company in March 2015. From 2010 to 2014, she was Executive Vice President of Strategy and Chief Financial Officer of the Walmart International segment of Wal-Mart Stores, Inc., a discount retailer and e-commerce company with approximately 11,700 stores in 28 countries. Ms. Smith is a director of Baxter International Inc.

Qualifications: Ms. Smith has significant expertise gained from years of leading the complex finance organizations of some of the largest companies in the United States. Her experience in financial reporting, accounting and internal controls brings valuable expertise to the Board. In addition, Ms. Smith has extensive experience leading retail companies with a national and international footprint like PPG.

 

 

 

 

 

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CORPORATE GOVERNANCE

Board Composition, Refreshment and Diversity

PPG’s business, property and affairs are managed under the direction of the Board of Directors. The Board is currently comprised of 11 members, divided into three classes. Terms of the classes are staggered, with one class standing for election each year. The Board has placed on the ballot for the Annual Meeting a proposal to amend PPG’s Articles of Incorporation to provide for the annual election of all directors. Please see Proposal 4 for more information. The Board is elected by our shareholders to oversee management of the Company in the long‑term interests of all shareholders. The Board also considers the interests of other constituencies, which include customers, employees, retirees, suppliers, the communities we serve and the environment. The Board strives to ensure that PPG conducts business in accordance with the highest standards of ethics and integrity.

The Board seeks to maintain an appropriate balance of directors with varying tenure, diversity and skills. The Nominating and Governance Committee continually evaluates potential director candidates with the goal of finding directors whose skills complement the skills of PPG’s current directors, who add to the expertise of the Board as a whole and who have experience to contribute insight into our strategy. Using a skills matrix that includes the experience and skills of our current directors and keeping in mind the skills that the Board believes would add to the capabilities and knowledge of our Board, the Nominating and Governance Committee regularly reviews the skills and experience of our directors and potential director candidates. More information about the skills and experience of our directors and director appointees can be found in the matrix on page 4 and within the biographies of our directors and director appointees beginning on page 6.

Our Corporate Governance Guidelines require that any director who has attained the age of 72 retire at the next annual meeting following the director's 72nd birthday. Four new directors have joined the Board since 2015, and in this proxy statement we are asking shareholders to approve the appointment of two new directors. Since the end of 2012, the average age of our directors has remained 64 and our average director tenure has remained approximately 10 years.

The Nominating and Governance Committee does not a have formal policy with regard to the consideration of diversity in identifying director candidates. However, we endeavor to have a Board representing diverse experience at policy‑making levels in business, government, education and technology, and in areas that are relevant to the Company’s global activities. The Nominating and Governance Committee seeks to find director candidates who have demonstrated executive leadership ability and who are representative of the broad scope of shareholder interests by identifying candidates from diverse industries having diverse cultural backgrounds, ethnic backgrounds, viewpoints and ages. The Nominating and Governance Committee believes that the current members of the Board provide this diversity as five of our 11 directors and both of our director appointees (subject to shareholder approval) are diverse based on gender, ethnicity and cultural background.

Shareholder Engagement

Through engagement with our shareholders, the Board and our senior management team are provided with feedback on a variety of topics, including strategic and financial performance, operations, corporate governance, executive compensation, Board composition, and environmental and social issues. These constructive engagements enable the Board and management to evaluate and assess our company from different perspectives and viewpoints. During 2018, one or more members of management met with active, institutional investors representing approximately 80% of our outstanding shares. In addition, members of management held governance-focused meetings with active, institutional investors representing approximately 45% of our outstanding shares. Our Lead Director, Hugh Grant, participated in a number of these governance-focused meetings. The key themes of feedback received during our engagement meetings as well as efforts we are taking in consideration of the feedback we received were shared with the Board. These initiatives help to ensure that the Board is apprised of key trends and topics being considered by our shareholders.

Corporate Governance Guidelines, Board Self-Evaluation and Board Orientation

The Board has adopted Corporate Governance Guidelines. These guidelines are revised from time to time to better address particular needs as they change over time. In 2014, the Board revised the Corporate Governance Guidelines to include additional responsibilities for the Company’s Lead Director. In 2015, the Board revised the Corporate Governance Guidelines to better delineate the responsibilities of the Chairman of the Board and those of the Chief Executive Officer. The Corporate Governance Guidelines may be accessed from the Corporate Governance section of our website at www.ppg.com/investor.

 

 

 

 

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The Board annually evaluates its own performance and that of the individual committees. The evaluation process is coordinated by the Nominating and Governance Committee and has three parts: committee self‑assessments, full Board evaluations and evaluations of the individual directors in the class whose term is expiring at the next annual meeting. The committee self‑assessments consider whether and how well each committee has performed the responsibilities listed in its charter. The full Board evaluations consider the committee self‑assessments, as well as the quality of the Board’s meeting agendas, materials and discussions. All assessments and evaluations focus on both strengths and opportunities for improvement and are shared with the Board.

The Board has a program for orienting new directors which includes presentations from members of senior management regarding our operations, governance, finances and compensation programs. The Company also provides for continuing education for all directors, including the reimbursement of expenses for continuing education.

Director Independence

In accordance with the rules of the New York Stock Exchange, the Board affirmatively determines the independence of each director and nominee for election as a director or appointment in accordance with the categorical guidelines it has adopted, which include all objective standards of independence set forth in the exchange listing standards. Based on these standards, at its meeting held on February 21, 2019, the Board determined that each of the following non‑employee directors and director appointees is independent and has no material relationship with PPG, except as a director and shareholder:

 

 

Stephen F. Angel

Gary R. Heminger

James G. Berges

Melanie L. Healey

Steven A. Davis

Michele J. Hooper

John V. Faraci

Michael W. Lamach

Hugh Grant

Martin H. Richenhagen

Victoria F. Haynes

Catherine R. Smith

In addition, based on such standards, the Board affirmatively determined that Michael H. McGarry is not independent because he is an officer of PPG. The categorical independence standards adopted by the Board are contained in the Corporate Governance Guidelines, which may be accessed from the Corporate Governance section of our website at www.ppg.com/investor.

Board Leadership Structure

We believe our Board leadership structure provides the appropriate balance of independent directors and management directors. We have a traditional board leadership structure under which Mr. McGarry serves as our Chief Executive Officer and Chairman of the Board. We currently have ten other directors, each of whom is independent. Our Board has four standing committees, each of which is comprised solely of independent directors with a committee chair. The Board believes that Mr. McGarry is the best person to serve as Chairman because he is the director most familiar with our business and industry and the director most capable of identifying strategic priorities and executing our business strategy. The Board believes the combined role of Chairman and Chief Executive Officer serves as a highly effective bridge between the Board and management and provides the leadership to execute our business strategy and create shareholder value.

In addition, having one person serve as both Chairman and Chief Executive Officer demonstrates to our employees, suppliers, customers, shareholders and other stakeholders that PPG has strong leadership setting the tone and having the responsibility for managing our operations. Having a single leader eliminates the potential for confusion and provides clear leadership for PPG. We believe that our Board consists of directors with significant leadership skills, as discussed above. All of our independent directors have served as the chairman, chief executive officer, president or group president of other companies. Accordingly, we believe that our independent directors have demonstrated leadership in large enterprises and are well versed in board processes and that having directors with significant leadership skills benefits our Company and our shareholders.

In accordance with our Bylaws and our Corporate Governance Guidelines, the Chairman is responsible for chairing Board meetings and setting the agenda for these meetings. Each director also may suggest items for inclusion on the agenda and may raise at any Board meeting subjects that are not on the agenda for that meeting. As required by our Corporate Governance Guidelines, our independent directors meet separately, without management present, at each meeting of the Board. In addition, each of the Board’s standing committees regularly meets without members of management present.

 

 

 

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The Board has designated the chair of the Nominating and Governance Committee to serve as the Lead Director. In their discretion, the independent directors may select another independent director to serve as the Lead Director. Aside from chairing meetings of the independent directors, the Lead Director presides at all meetings where the Chairman is not present, serves as a liaison between the independent directors and the Chairman and Chief Executive Officer, has the power to call meetings of the independent directors, consults with the Chairman and Chief Executive Officer about the concerns of the Board, approves Board meeting agendas and other types of information sent to the Board, approves meeting schedules to assure that there is sufficient time for discussion of all agenda items, and is available for consultation and direct communication with major shareholders as appropriate.

As part of its annual self‑evaluation process, the Board evaluates our leadership structure to ensure that it provides the optimal structure for PPG. We believe that having a director with day‑to‑day oversight of Company operations, coupled with experienced independent directors who have appointed a Lead Director and four wholly-independent board committees, is the appropriate leadership structure for PPG.

The Board’s Role in Risk Management

In accordance with New York Stock Exchange requirements, our Audit Committee charter provides that the Audit Committee is responsible for overseeing our risk management process. The Audit Committee is updated on a regular basis on relevant and significant risk areas. This includes periodic updates from certain officers of the Company and a formal annual update by the Director of Corporate Audit Services. The annual update provides a comprehensive review of PPG’s enterprise risks and includes the feedback of most of the Company’s officers. The Audit Committee, in turn, reports to the full Board. While the Audit Committee has primary responsibility for overseeing risk management, our entire Board is actively involved in overseeing risk management for the Company by engaging in periodic discussions with Company officers and other employees as the Board may deem appropriate. In 2018, the Board spent additional time reviewing our cybersecurity program. In addition, each of our Board committees considers the risks within its areas of responsibility. For example, our Technology and Environment Committee considers risks related to our environment, health, safety, product stewardship and other sustainability policies, programs and practices. Our Audit Committee focuses on risks inherent in our accounting, financial reporting, cybersecurity and internal controls. Our Officers—Directors Compensation Committee considers the risks that may be implicated by our executive compensation program. We believe that the leadership structure of our Board supports the Board’s effective oversight of the Company’s risk management.

Director Resignation Policy

Our Bylaws provide that if an incumbent director is not elected by majority vote in an “uncontested election” (where the number of nominees does not exceed the number of directors to be elected), the director must offer to tender his or her resignation to our Board of Directors. The Nominating and Governance Committee would then make a recommendation to the Board whether to accept or reject the resignation, or whether other action should be taken. The Board will act on the Nominating and Governance Committee’s recommendation and publicly disclose its decision and the rationale behind it within 90 days from the date the election results are certified. The director who tenders his or her resignation will not participate in the Board’s decision with respect to their resignation. The election of directors that will be held at the 2019 Annual Meeting is an uncontested election.

Executive Succession Planning

One of the Board’s primary responsibilities is to oversee the development of appropriate executive-level talent to successfully execute PPG’s strategy. Management succession is regularly discussed by the Board with Mr. McGarry and with PPG’s Vice President, Human Resources. The Board reviews candidates for all executive officer positions to confirm that qualified successor-candidates are available for all key positions and that development plans are being utilized to strengthen the skills and qualifications of successor-candidates. At least annually, as required by our Corporate Governance Guidelines, and typically more often, the Board’s discusses CEO succession planning. Mr. McGarry provides the Board with recommendations for and evaluations of potential CEO successors and reviews with the Board development plans for these successors. Directors engage with potential CEO and senior management talent at Board and committee meetings and in less formal settings to enable directors to personally interact with candidates. The Board reviews management succession in the ordinary course of business as well as contingency planning in the event of an emergency or unanticipated event.

 

 

 

 

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Board Oversight of PPG’s Strategy

PPG’s Board is actively engaged in developing our strategy and overseeing the execution of our strategy, including major business and organizational initiatives, capital allocation priorities and potential business development opportunities. The Board devotes at least one full day each year to reviewing and formulating our strategy. Throughout the year, the Board uses its experience in manufacturing, global business, science and technology and marketing to oversee the execution of our strategy and capital allocation and works with senior management to guide our strategy.

Review and Approval or Ratification of Transactions with Related Persons

The Board and its Nominating and Governance Committee have adopted written policies and procedures relating to approval or ratification of “Related Person Transactions.” Under these policies and procedures, the Nominating and Governance Committee (or its chair, under some circumstances) reviews the relevant facts of all proposed Related Person Transactions and either approves or disapproves of the entry into the Related Person Transaction, by taking into account, among other factors it deems appropriate:

·

The benefits to PPG of the transaction;

·

The impact on a director’s independence, in the event the “Related Person” is a director or an immediate family member of a director or an entity in which a director is a partner, shareholder or executive officer;

·

The availability of other sources for comparable products or services;

·

The terms of the transaction; and

·

The terms available to unrelated third parties or to employees generally.

No director may participate in any consideration or approval of a Related Person Transaction with respect to which he or she or any of his or her immediate family members is the Related Person. Related Person Transactions are approved only if they are determined to be in, or not inconsistent with, the best interests of PPG and its shareholders.

If a Related Person Transaction that has not been previously approved or previously ratified is discovered, the Nominating and Governance Committee, or its chair, will promptly consider all of the relevant facts. In addition, the committee generally reviews all ongoing Related Person Transactions on an annual basis to determine whether to continue, modify or terminate the Related Person Transaction.

Under our policies and procedures, a “Related Person Transaction” is generally a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which PPG was, is or will be a participant and the amount involved exceeds $120,000, and in which any Related Person had, has or will have a direct or indirect material interest. A “Related Person” is generally any person who is, or at any time since the beginning of PPG’s last fiscal year was, (i) a director or executive officer of PPG or a nominee to become a director of PPG; (ii) any person who is known to be the beneficial owner of more than 5% of any class of PPG’s voting securities; or (iii) any immediate family member of any of the foregoing persons.

Certain Relationships and Related Transactions

As discussed above, the Nominating and Governance Committee is charged with reviewing potential conflicts of interest and all Related Person Transactions. PPG and its subsidiaries purchase products and services from and/or sell products and services to companies of which certain of the directors and/or executive officers of PPG are directors and/or executive officers. During 2018, PPG entered into the following transactions with Related Persons that are required to be reported under the rules of the Securities and Exchange Commission:

Martin H. Richenhagen, a director of PPG, is the Chairman, President and Chief Executive Officer of AGCO Corporation. During 2018, PPG and its subsidiaries sold approximately $4.2 million of coatings products to AGCO Corporation.

Michael W. Lamach, a director of PPG, is Chairman, President and Chief Executive Officer of Ingersoll‑Rand plc. During 2018, PPG and its subsidiaries sold approximately $4.2 million of coatings products to Ingersoll‑Rand.

Stephen F. Angel, a director of PPG, is the Chief Executive Officer and a director of Linde plc. During 2018, PPG and its subsidiaries purchased approximately $2.4 million of industrial gases from Linde plc and its predecessors, Praxair, Inc. and Linde AG,  and sold approximately $900,000 of coatings products to Linde plc and its predecessors.

 

 

 

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The Nominating and Governance Committee does not consider the amounts involved in such transactions material. Such purchases from and sales to each company involved less than 1% of the consolidated gross revenues for 2018 of each of the purchaser and the seller and all of such transactions were in the ordinary course of business.

Board Meetings and Committees

The Board currently has four standing committees: Audit Committee, Nominating and Governance Committee, Officers—Directors Compensation Committee and Technology and Environment Committee. The current composition of each Board committee is indicated below. The charter of each Board committee is available on the Corporate Governance section of our website at www.ppg.com/investor.

 

 

 

 

AUDIT COMMITTEE

NOMINATING AND
GOVERNANCE COMMITTEE

OFFICERS—DIRECTORS
COMPENSATION COMMITTEE

TECHNOLOGY AND
ENVIRONMENT COMMITTEE

Victoria F. Haynes

James G. Berges

Stephen F. Angel

Stephen F. Angel

Melanie L. Healey

John V. Faraci

James G. Berges*

John V. Faraci

Gary R. Heminger

Hugh Grant*

Hugh Grant

Victoria F. Haynes*

Michael W. Lamach

Gary R. Heminger

Michael W. Lamach

Melanie L. Healey

Martin H. Richenhagen*

Michele J. Hooper

Martin H. Richenhagen

Michele J. Hooper

*      Committee Chair

During 2018, the Board of Directors held eight regular and three special meetings, the Audit Committee held 10 meetings, the Nominating and Governance Committee held seven meetings, the Officers—Directors Compensation Committee held four meetings, and the Technology and Environment Committee held three meetings. The average attendance at meetings of the Board and committees during 2018 was 99%, and no incumbent director attended less than 75% of the total number of meetings of the Board and committees on which such director served. PPG does not have a formal policy requiring attendance at the annual meeting of shareholders; however, all directors serving at the time of the 2018 annual meeting of shareholders attended the meeting.

Our independent directors meet separately, without any management present, at each meeting of the Board. The Board has designated the chair of the Nominating and Governance Committee to serve as the Lead Director and to preside over the independent director sessions. In their discretion, the independent directors may select another independent director to serve as the Lead Director.

Audit Committee

The Audit Committee is comprised of five directors, each of whom is independent under the standards adopted by the Board, the listing standards of the New York Stock Exchange and the applicable rules of the Securities and Exchange Commission. The committee’s charter, which may be accessed on the Corporate Governance section of our website at www.ppg.com/investor, describes the composition, purposes and responsibilities of the committee. Among other things, the charter provides that the committee will be comprised of independent, non‑employee directors. The functions of the committee are primarily to review with our independent auditors and our internal auditors their respective reports and recommendations concerning audit findings and the scope of and plans for their future audit programs and to review audits, annual and quarterly financial statements and accounting and financial controls. The committee also appoints our independent registered public accounting firm, oversees our internal audit department, assists the Board in oversight of our compliance with legal and regulatory requirements related to financial reporting matters and oversees the risk management process. The Board has determined that each member of the committee is “financially literate” in accordance with the applicable rules of the New York Stock Exchange. In addition, the Board has determined that all of the members of the committee, including Mr. Richenhagen, the chair of the committee, are “audit committee financial experts” in accordance with the applicable rules of the Securities and Exchange Commission.

Audit Committee Report to Shareholders

The primary role of the Audit Committee is to oversee and review on behalf of the Board of Directors PPG’s processes to provide for the reliability and integrity of the Company’s financial reporting, including the Company’s disclosure practices, risk management processes and internal controls. The Audit Committee operates under a written charter adopted by the Board of Directors.

 

 

 

 

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The Audit Committee is responsible for the appointment of both the independent registered public accounting firm and PPG’s lead internal auditor, the Director of Corporate Audit Services. In 2016, the Audit Committee approved the appointment of a new Director of Corporate Audit Services. In 2018, the Audit Committee approved the appointment of an interim Director of Corporate Audit Services when the then current Director of Corporate Audit Services was named the Acting Controller, and the Audit Committee then participated in the appointment of a new Director of Corporate Audit Services. In addition, the Audit Committee led the appointment and retention of PricewaterhouseCoopers LLP as PPG’s independent registered public accounting firm for 2018 and participated in the selection process for a new lead audit partner due to the required rotation of PPG’s current lead audit partner after completion of the 2017 audit. For the work performed on the 2018 audit, the Audit Committee discussed and evaluated PricewaterhouseCoopers’ performance, which included an evaluation by the Company’s management of PricewaterhouseCoopers’ performance. The Audit Committee is responsible for the compensation of the independent registered public accounting firm and has reviewed and approved in advance all services performed by PricewaterhouseCoopers.

The Audit Committee discussed with, and received regular status reports from, the Director of Corporate Audit Services and PricewaterhouseCoopers on the overall scope and plans for their audits, their plans for evaluating the effectiveness of PPG’s internal control over financial reporting and the coordination of efforts between them. The Audit Committee reviewed and discussed the key risk factors used in developing PPG’s internal audit and PricewaterhouseCoopers’ audit plans. The Audit Committee also reviewed with the Company’s management PPG’s risk management practices and an assessment of significant risks.

The Audit Committee met separately with both the Director of Corporate Audit Services and PricewaterhouseCoopers, with and without management present, to discuss the results of their examinations, their audits of PPG’s financial statements and internal control over financial reporting and the overall quality of PPG’s financial reporting. The Audit Committee also met separately with the Company’s Senior Vice President and Chief Financial Officer and with the Company’s Senior Vice President and General Counsel. The Audit Committee annually reviews its performance and receives feedback on its performance from the Company’s management and PricewaterhouseCoopers, when appropriate.

The Company’s management is responsible for the preparation and accuracy of PPG’s financial statements. The Company is also responsible for establishing and maintaining adequate internal control over financial reporting. In 2018, PPG’s independent registered public accounting firm, PricewaterhouseCoopers, was responsible for auditing the consolidated financial statements and expressing an opinion as to their conformity with generally accepted accounting principles, as well as expressing an opinion on the effectiveness of PPG’s internal control over financial reporting.

In carrying out its responsibilities, the Audit Committee discussed and reviewed with the Company’s management the process to assemble the financial statements, including the Company’s internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations.

In 2018, the Audit Committee, with the assistance of outside counsel and forensic accountants, oversaw an investigation into certain accounting irregularities that resulted in PPG restating its audited consolidated financial statements for the years ended December 31, 2017 and 2016 and certain quarterly periods within those fiscal years in order to correct PPG’s previously issued financial statements. In connection with the preparation of the Company’s 2018 financial statements, management has determined that material weakness identified in the Company’s internal control over financial reporting has been remediated.

The Audit Committee reviewed and discussed the audited consolidated financial statements as of and for the year ended December 31, 2018 and management’s report on internal control over financial reporting with management and with PricewaterhouseCoopers. The Audit Committee also discussed with PricewaterhouseCoopers the matters required by the applicable requirements of the Public Company Accounting Oversight Board, including Auditing Standard No. 16, Communications with Audit Committees.

The Audit Committee has received the written independence disclosures and letter from PricewaterhouseCoopers required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence and discussed with PricewaterhouseCoopers its independence. In addition, the Audit Committee considered whether PricewaterhouseCoopers’ provision of non‑audit services to PPG is compatible with maintaining its independence.

 

 

 

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Based upon these reviews and discussions, the Audit Committee recommended to the Board that the audited financial statements be included in the Annual Report on Form 10‑K for the year ended December 31, 2018 for filing with the Securities and Exchange Commission.

The Audit Committee:

Victoria F. Haynes

Melanie L. Healey

Gary R. Heminger

Michael W. Lamach

Martin H. Richenhagen (Chair)

Notwithstanding anything to the contrary set forth in any of our previous filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that incorporate future filings, including this Proxy Statement, in whole or in part, the foregoing Audit Committee Report to Shareholders shall not be incorporated by reference into any such filings.

Nominating and Governance Committee

The Nominating and Governance Committee is comprised of five directors, each of whom is independent under the standards adopted by the Board and the listing standards of the New York Stock Exchange. The committee’s charter, which may be accessed on the Corporate Governance section of our website at www.ppg.com/investor, describes the composition, purposes and responsibilities of the committee. Among other things, the charter provides that the committee will be comprised of independent, non‑employee directors. The charter also provides that the committee is responsible for identifying and recommending to the Board of Directors persons to be nominated by the Board to stand for election as directors at each annual meeting of shareholders, the persons to be elected by the Board to fill any vacancy or vacancies on the Board, and the persons to be elected by the Board to be Chairman of the Board, Vice Chairman of the Board, if any, President, if any, and the other executive officers of PPG. The committee also recommends to the Board actions to be taken regarding the structure, organization and functioning of the Board, and the persons to serve as members of the standing committees of, and other committees appointed by, the Board. The charter gives the committee the responsibility to develop and recommend corporate governance guidelines to the Board, to recommend to the Board the process and criteria to be used in evaluating the performance of the Board and to oversee the evaluation of the Board.

The Nominating and Governance Committee is responsible for identifying and screening potential director candidates and for recommending to the Board qualified candidates for nomination. The committee considers recommendations of potential candidates from current directors, management and shareholders. The committee also has authority to retain and terminate search firms to assist in identifying director candidates. From time to time, search firms have been paid a fee to identify candidates. In February 2019, the Board of Directors appointed Mr. Davis and Ms. Smith as directors of PPG subject to approval by the Company’s shareholders at the 2019 Annual Meeting. Mr. Davis was initially identified as a potential nominee by Mr. Heminger. Following an interview process undertaken by Mr. McGarry, Mr. Grant and a number of other directors and a review of his candidacy by the Nominating and Governance Committee, Mr. Davis was recommended by the Nominating and Governance Committee as an appointee for election to the Board. Ms. Smith was initially identified as a potential nominee by Mr. McGarry and Ms. Healey. Mr. McGarry interviewed Ms. Smith and invited her to meet with other members of the Board. Following meetings with a number of other directors and a review of her candidacy by the Nominating and Governance Committee, Ms. Smith was recommended by the Nominating and Governance Committee as an appointee for election to the Board.

Director Candidate Attributes.  In evaluating director candidates, the committee looks for candidate having the skills that the Board believes would add to the capabilities and knowledge of our Board, including the skills and attributes set forth below:

·

age shall be considered only in terms of experience of the candidate, seeking candidates who have broad experience in business, finance, the sciences, administration, government affairs or law;

·

candidates for director should have knowledge of the global operations of industrial and retail businesses such as those of PPG;

·

candidates for director should be cognizant of PPG’s societal responsibilities in conducting its operations;

·

each candidate should have sufficient time available to be a meaningful participant in Board affairs. Candidates should not be considered if there is either a legal impediment to service or a foreseeable conflict of interest which might materially hamper full and objective participation in all matters considered by the Board of Directors;

 

 

 

 

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·

absent unforeseen health problems, each candidate should be able to serve as director for a sufficient period of time to make a meaningful contribution to the Board’s guidance of PPG’s affairs; and

·

the Board will be comprised of a majority of independent directors.

In applying these criteria, the committee seeks to establish a Board that, when taken as a whole, should:

·

be representative of the broad scope of shareholder interests, without orientation to any particular constituencies;

·

challenge management, in a constructive way, to reach PPG’s goals and objectives;

·

be sensitive to the cultural and geographical diversity of shareholders, associates, operations and interests;

·

be comprised principally of active or retired senior executives of publicly held corporations or financial institutions, with consideration given to those individuals who are scientifically‑oriented, educators and government officials having corporate experience, whenever the needs of PPG indicate such membership would be appropriate;

·

include directors of varying ages, but whose overriding credentials reflect maturity, experience, insight and prominence in the community; and

·

be small enough to promote open and meaningful boardroom discussion, but large enough to staff the necessary Board committees.

Shareholder Recommendations or Nominations for Director and Proxy Access

The Nominating and Governance Committee considers recommendations of potential candidates from shareholders. Candidates recommended by shareholders are evaluated against the same criteria used to evaluate all candidates. Shareholders wishing to recommend or nominate a nominee for director should send their recommendation or nomination to the corporate secretary at PPG Industries, Inc., One PPG Place, Pittsburgh, Pennsylvania 15272.

PPG’s Bylaws provide for “proxy access.” Proxy access is a process that allows an eligible shareholder or a group of eligible shareholders to nominate director candidates to appear in PPG’s proxy materials. Proxy access is available to shareholders or groups consisting of no more than 20 shareholders that have held at least 3% of PPG’s outstanding stock for at least three years and who have met the other requirements set forth in Article I of PPG’s Bylaws. A shareholder recommendation or nomination of a director candidate must be submitted by the deadlines and with the information and written representations that are described in Article I of our Bylaws. Director nominations submitted pursuant to PPG’s proxy access Bylaw for consideration at the 2020 annual meeting of shareholders must be received by PPG no earlier than October 9, 2019 and no later than November 8, 2019. A copy of PPG’s Bylaws may be accessed on the Corporate Governance section of our website at www.ppg.com/investor.

Officers—Directors Compensation Committee

The Officers—Directors Compensation Committee is comprised of five directors, each of whom is independent under the standards adopted by the Board and the listing standards of the New York Stock Exchange. The committee’s charter, which may be accessed on the Corporate Governance section of our website at www.ppg.com/investor, describes the composition, purposes and responsibilities of the committee. Among other things, the charter provides that the committee will be comprised of independent, non‑employee directors.

Committee meetings are regularly attended by our Chairman and Chief Executive Officer and our Vice President of Human Resources, as well as a representative of the outside compensation consulting firm retained by the committee, FW Cook. At each meeting, the committee meets in executive session. The committee’s chair reports the committee’s recommendations on executive compensation to the Board. The human resources department supports the committee in its duties and, along with the Compensation and Employee Benefits Committee, a committee comprised of members of senior management, may be delegated authority to fulfill certain administrative duties regarding our compensation programs. The committee has authority under its charter to retain, approve fees for and terminate advisors, consultants and agents as it deems necessary to assist in the fulfillment of its responsibilities.

The committee approves, adopts, administers, interprets, amends, suspends and terminates our compensation plans applicable to, and fixes the compensation and benefits of, all of our directors and executive officers. Recommendations regarding compensation of other officers are made by our Chairman and Chief Executive Officer. The conclusions reached and recommendations based on these reviews, including with respect to salary adjustments and annual award amounts, are presented to the committee. The committee can exercise its discretion in modifying any recommended adjustments or awards to executives. The committee regularly reviews tally sheets that set forth the Company’s total

 

 

 

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compensation obligations to our senior executives under various scenarios, including retirement, voluntary and involuntary termination and termination in connection with a change in control of PPG.

The committee engaged FW Cook to advise the committee on all matters related to executive officer and director compensation. Specifically, FW Cook provides relevant market data, current updates regarding trends in executive and director compensation, and advice on program design, specific compensation recommendations for the Chairman and Chief Executive Officer and on the recommendations being made by management for executives other than the Chairman and Chief Executive Officer. The committee meets independently with its consultant at each regularly scheduled meeting. All of the services that the compensation consultant performs for PPG are performed at the request of the committee, are related to executive and director compensation and are in support of decision making by the committee.

In 2018, the committee considered the independence of FW Cook in light of Securities and Exchange Commission rules and New York Stock Exchange listing standards. The committee requested and received a letter from FW Cook addressing FW Cook’s and the senior advisor involved in the engagement’s independence, including the following factors: (1) other services provided to us by FW Cook; (2) fees paid by us as a percentage of FW Cook’s total revenue; (3) policies or procedures maintained by FW Cook that are designed to prevent a conflict of interest; (4) any business or personal relationships between the senior advisor and a member of the committee; (5) any company stock owned by FW Cook or the senior advisor; and (6) any business or personal relationships between our executive officers and FW Cook or the senior advisor. The committee discussed these considerations and concluded that the work performed by FW Cook and FW Cook’s senior advisor involved in the engagement did not raise any conflict of interest.

Officers—Directors Compensation Committee Report to Shareholders

We have reviewed and discussed the Compensation Discussion and Analysis section of this Proxy Statement with management. Based on our review and discussion with management, we have recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated in the Annual Report on Form 10‑K for the year ended December 31, 2018.

The Officers—Directors Compensation Committee:

Stephen F. Angel

James G. Berges (Chair)

Hugh Grant

Michael W. Lamach

Martin H. Richenhagen

Notwithstanding anything to the contrary set forth in any of our previous filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that incorporate future filings, including this Proxy Statement, in whole or in part, the foregoing Officers—Directors Compensation Committee Report to Shareholders shall not be incorporated by reference into any such filings.

Compensation Program Design Mitigates Risk

Annually, PPG management undertakes a review of all of PPG’s compensation programs to identify any inherent material risks to PPG created by these programs. Certain of these compensation programs are also periodically reviewed by the Company’s internal auditors. The framework used to identify any potential risks that could be incentivized by our compensation programs was developed with input from members of our human resources, finance, and legal functions and our independent executive compensation consultant, FW Cook. Based on the results of the 2018 review, we concluded that the design of our compensation programs does not encourage our employees to take unnecessary or excessive risks that could harm the long‑term value of PPG. Features of our compensation programs and practices that mitigate risk include, among other things: (i) incentive plans that are appropriately weighted between short‑term and long‑term performance and cash and equity; (ii) long‑term incentives that consist of a mix of stock options, performance‑based restricted stock units and total shareholder return contingent shares, which provides for a balanced mix of performance measures; (iii) ranges of performance and multiple performance targets are utilized to determine incentive compensation payouts, rather than a single performance target that provides an “all or nothing” basis for compensation; (iv) maximum payouts are in place in our incentive compensation programs to limit excessive payments; (v) determination of incentive compensation payouts is subject to managerial approval and/or Officers—Directors Compensation Committee discretion; and (vi) our executive officers are subject to a recoupment policy in the event of a financial restatement affecting their incentive compensation payout.

 

 

 

 

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Compensation Committee Interlocks and Insider Participation

No member of the Officers—Directors Compensation Committee was at any time during 2018 an officer or employee of PPG or any of our subsidiaries nor is any such person a former officer of PPG or any of our subsidiaries. In addition, no “Officers-Directors Compensation Committee interlocks” existed during 2018. For information concerning Related Person Transactions involving members of the Officers—Directors Compensation Committee, see “Corporate Governance—Certain Relationships and Related Transactions” on page 18.

Technology and Environment Committee

The Technology and Environment Committee is comprised of five directors, each of whom is independent under the standards adopted by the Board. The committee’s charter, which may be accessed on the Corporate Governance section of our website at www.ppg.com/investor, describes the composition, purposes and responsibilities of the committee. The primary purpose of the committee is to discharge certain of the Board’s responsibilities relating to the oversight of programs, initiatives and activities of PPG in the areas of science, technology and sustainability. The functions of the committee are primarily to assess the science and technology capabilities of PPG in all phases of its activities in relation to its corporate strategies and plans; review with management the existing and emerging technologies, and environment, health, safety, product stewardship and other sustainability issues, that can have a material impact on PPG; and review the status of our environment, health, safety, product stewardship and other sustainability policies, programs and practices. More information about PPG’s sustainability goals, metrics, initiatives and achievements and PPG’s community and employee engagement programs can be found in PPG’s sustainability website located at www.sustainability.ppg.com.

Codes of Ethics

Our Global Code of Ethics, which was updated in 2017, is applicable to all directors and employees worldwide, embodies our global principles and practices relating to the ethical conduct of our business and our long‑standing commitment to honesty, fair dealing and compliance with all laws affecting our business. We also have a Code of Ethics for Senior Financial Officers that is applicable to our principal executive officer, principal financial officer, principal accounting officer, controller or persons performing similar functions. The Global Code of Ethics and Code of Ethics for Senior Financial Officers are available on the Corporate Governance section of our website at www.ppg.com/investor. In addition, we intend to post on our website all disclosures that are required by law, the Form 8‑K rules or the New York Stock Exchange listing standards concerning any amendments to, or waivers from, any provision of our codes.

The Board has established a means for employees, customers, suppliers, shareholders or other interested parties to submit confidential and anonymous reports of suspected or actual violations of our Global Code of Ethics. Any employee, shareholder or other interested party can call the PPG Ethics HELPLINE toll‑free to submit a report. In North America, this number is (800) 461-9330. This number is operational 24 hours a day, seven days a week. PPG Ethics HELPLINE numbers for other regions may be found on the Ethics page of our website at www.ppg.com/ethics.

Communications with the Board

Shareholders and other interested parties may send communications to the Board, the independent directors (individually or as a group) or the Lead Director in writing by sending them in care of our corporate secretary at PPG Industries, Inc., One PPG Place, Pittsburgh, Pennsylvania 15272. All communications received will be opened by the corporate secretary for the sole purpose of determining whether the contents represent a message to directors. Communications deemed by the corporate secretary to be frivolous or otherwise inappropriate for the Board’s consideration will not be forwarded. The corporate secretary will maintain a log of all such communications. Communications of an urgent nature are promptly reported to the Board. Communications to directors may also be forwarded within PPG for review by a subject matter expert.

 

 

 

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COMPENSATION OF DIRECTORS

Overview

The compensation program for the directors who are not also officers of PPG, to whom we refer as non‑employee directors, is reviewed annually by the Officers—Directors Compensation Committee to ensure that the program remains competitive. As a part of the Officers-Directors Compensation Committee’s review, the types and levels of compensation offered to our non‑employee directors are compared with those provided by a select group of comparable companies. Target total annual compensation for our directors is set at or near the market median using a comparator group of companies. The companies comprising this comparator group are used for review of the executive officer compensation program as well. The comparator group used in 2017 to set 2018 compensation was:

 

 

 

 

3M Company

Eastman Chemical Company

Honeywell  International Inc.

Parker‑Hannifin Corporation

Air Products and Chemicals, Inc.

Eaton Corporation

Illinois Tool Works Inc.

Praxair, Inc.

Arconic Inc.

Ecolab Inc.

International Paper Company

The Sherwin‑Williams Company

The Dow Chemical Company

Emerson Electric Co.

Johnson Controls, Inc.

Stanley Black & Decker, Inc.

E.I. du Pont de Nemours and Company

Goodyear Tire & Rubber Company

Monsanto Company

Textron Inc.

Taking into consideration the size of PPG relative to this comparator group and advice from FW Cook, the Officers-Directors Compensation Committee reports its recommendations to the Board for approval. The Officers-Directors Compensation Committee does not determine director compensation, but only makes recommendations to the Board. Changes to the non‑employee directors’ compensation program generally become effective as of the year following adoption.

Directors Compensation Table (2018)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FEES EARNED OR

 

 

 

 

 

 

 

 

 

 

 

PAID IN CASH ($)(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COMMITTEE

 

 

 

 

 

 

 

 

 

 

 

ANNUAL

 

CHAIRPERSON

 

STOCK

 

ALL OTHER

 

 

 

NAME

 

RETAINER

 

FEES

 

AWARDS ($)(2)

 

COMPENSATION ($)(3)

 

TOTAL ($)

S. F. Angel

    

$

135,000

    

$

 —

    

$

135,093

    

$

10,000

    

$

280,093

J. G. Berges

 

$

135,000

 

$

20,000

 

$

135,093

 

$

 —

 

$

290,093

J. V. Faraci

 

$

135,000

 

$

 —

 

$

135,093

 

$

10,000

 

$

280,093

H. Grant

 

$

135,000

 

$

45,000

 

$

135,093

 

$

10,000

 

$

325,093

V. F. Haynes

 

$

135,000

 

$

15,000

 

$

135,093

 

$

 —

 

$

285,093

M. L. Healey

 

$

135,000

 

$

 —

 

$

135,093

 

$

 —

 

$

270,093

G. R. Heminger

 

$

135,000

 

$

 —

 

$

135,093

 

$

 —

 

$

270,093

M. J. Hooper

 

$

135,000

 

$

 —

 

$

135,093

 

$

 —

 

$

270,093

M. W. Lamach

 

$

135,000

 

$

 —

 

$

135,093

 

$

 —

 

$

270,093

M. H. Richenhagen

 

$

135,000

 

$

25,000

 

$

135,093

 

$

 —

 

$

295,093

(1)

Fees include an annual cash retainer of $135,000, plus an additional cash retainer for each committee chair and for the Lead Director. For 2018, the annual retainer for service as a committee chair or as the Lead Director was as follows: $25,000 for the chair of the Audit Committee; $25,000 for the Lead Director; $20,000 for the chair of each of the Nominating and Governance Committee and the Officers-Directors Compensation Committee; and $15,000 for the chair of the Technology and Environment Committee. 

(2)

In April 2018, each director received 1,227 time-based restricted stock units, or RSUs. The RSUs will vest on April 17, 2019 and the grant date fair value of each RSU grant was $110.10. Dollar values represent the grant date fair value calculated in accordance with FASB ASC Topic 718. The assumptions made in calculating the grant date fair values are set forth in Note 18 to our Financial Statements for the year ended December 31, 2018, which is located on pages 86 through 88 of our Annual Report on Form 10-K. As of December 31, 2018, each director had 1,227 unvested RSUs.

 

 

 

 

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(3)

Amounts in this column reflect donations made by the PPG Industries Foundation under our charitable awards program. The PPG Industries Foundation matches up to $10,000 of donations made by a director in any one year. However, matching payments by the PPG Industries Foundation may be paid in a year subsequent to the donation depending on the timing of the director’s donation during the year and the timing of the PPG Industries Foundation's verification process.  This may result in matching payments that exceed $10,000 in one year. For additional information regarding charitable awards, see "Charitable Awards Program" on page 27.

Annual Retainer

For 2018, each of our non‑employee directors received an annual retainer with a value equal to $270,000, of which $135,000 was paid in cash and $135,000 in equity in the form of time‑based restricted stock units, or TBRSUs. The cash portion of the retainer was payable in quarterly installments, with the first quarterly installment paid after the annual shareholders meeting. The number of TBRSUs a director received was determined by dividing $135,000 by the weighted average closing price of our stock on the grant date, which was the date of the 2018 annual meeting of shareholders. A TBRSU represents the right to receive a share of PPG common stock upon vesting and earns dividend equivalents during the vesting period when dividends are declared on PPG common stock, but does not carry voting rights or other rights afforded to a holder of PPG common stock. TBRSUs granted in 2018 vest on the day prior to the 2019 Annual Meeting of Shareholders. Beginning in 2019, the annual retainer will increase to $280,000, of which $135,000 will be paid in cash and $145,000 will be paid in equity in the form of TBRSUs.

Additional Retainers for Committee Chairs and the Lead Director

In addition to the annual retainer for each non‑employee director, each non‑employee director who chairs a Board standing committee is entitled to an additional annual cash retainer, which is payable at the same time as the regular annual retainer. The Officers—Directors Compensation Committee also determined to begin paying an additional cash retainer to the Lead Director beginning in 2018 in recognition of the additional time and effort required by the Lead Director in his role, including, among other responsibilities, planning Board meetings, meeting with management and engaging with our shareholders. For 2018, the additional annual retainer for service as a committee chair or as the Lead Director was:

 

 

 

 

 

    

RETAINER

COMMITTEE

 

AMOUNT

Audit

 

$

25,000

Lead Director

 

$

25,000

Nominating and Governance

 

$

20,000

Officers—Directors Compensation

 

$

20,000

Technology and Environment

 

$

15,000

Insurance Coverage

We pay the premiums to provide each of our non‑employee directors with the following insurance coverage:

·

Accidental death and dismemberment insurance coverage, which provides $250,000 for accidental loss of life, and up to 100% of the death benefit for loss of limb. The aggregate cost to PPG of providing this coverage to non‑employee directors for 2018 was $1,664; and

·

PPG aircraft travel insurance coverage, which provides up to a $1,000,000 per seat voluntary settlement allowance, for travel on a PPG‑owned aircraft, and a reduced amount for travel on a PPG leased or chartered aircraft. The aggregate cost to PPG of providing this coverage to non‑employee directors for 2018 was $17,105.

Deferred Compensation

A non‑employee director may elect to have all or a portion of his or her retainer fees (including fees payable in TBRSUs) credited to the PPG Industries, Inc. Deferred Compensation Plan for Directors, thus deferring receipt of such fees until after the director leaves the Board. All amounts held in a director’s account under the Deferred Compensation Plan are credited as hypothetical shares of our stock, or what we refer to as common stock equivalents, the number of which is determined by dividing the dollar amount of the deferral by the closing stock price of PPG common stock on the New York Stock Exchange on the date of the deferral. Common stock equivalents earn dividend equivalents (that are converted into additional common stock equivalents) when dividends are declared on PPG common stock, but do not carry voting rights or other rights afforded to a holder of PPG common stock. Each non‑employee director will generally be paid his or her deferred compensation account balance no earlier than six months and ten days after leaving the

 

 

 

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Board of Directors, except in circumstances of death or disability, in which case payment shall be made as soon as administratively possible. Each non‑employee director’s account balance related to compensation deferred on or after January 1, 2005 will be paid in a lump sum; however, a non‑employee director may elect to receive payment of his or her account balance related to compensation deferred prior to January 1, 2005 in one to 15 annual installments. All distributions are made in the form of one share of PPG common stock for each common stock equivalent credited to the director’s deferred account (and cash as to any fractional common stock equivalents).

Charitable Awards Program

As part of our overall program to promote charitable giving, we established a directors’ charitable award program funded by insurance policies on the lives of directors who were initially elected before July 17, 2003. Upon the death of any of these directors, PPG will donate an amount up to and including a total of $1 million to one or more qualifying charitable organizations designated by any such director and approved by PPG. We will be reimbursed subsequently from the proceeds of the life insurance policies. Directors derive no financial benefit from this program since all charitable deductions accrue solely to PPG. This program is not applicable to any director initially elected on or after July 17, 2003. The aggregate cost of this program to PPG for 2018 was $59,627.

In addition to the above program, all of our current directors are eligible to participate in the PPG Industries Foundation Matching Gifts Program, which encourages charitable donations by our directors by matching his or her contributions to eligible institutions. Contributions of up to a total of $10,000 per year may be matched under the program. Most charitable organizations are eligible for the Matching Gifts Program, with a few exceptions.

Stock Ownership

We established stock ownership guidelines for all non‑employee directors effective January 1, 2005. Under the guidelines, each non‑employee director is required to own shares of our stock with a value equal to five times the portion of the annual retainer that is paid in cash. For non‑employee directors, unvested TBRSUs and common stock equivalent shares credited to the director under the Deferred Compensation Plan are counted toward meeting this requirement. Ms. Healey and Messrs. Lamach and Heminger are within their five‑year compliance period and should meet the ownership requirement by the end of such period. All other non‑employee directors have met or exceeded the ownership requirement.

 

 

 

 

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COMPENSATION DISCUSSION AND ANALYSIS ROADMAP 

Picture 37

HOW DID WE PERFORM?

Delivered solid adjusted earnings per diluted share growth

Increased sales about 4%

Returned approximately $2.2 billion to shareholders, including $1.7 billion of share repurchases and an increased annual per share dividend payout of about $450 million

Generated about $1.5 billion in cash from continuing operations

 

Completed several acquisitions, increasing both geographic and product scope

While our financial performance was strong, we did not achieve our adjusted earnings per diluted share, adjusted cash flow or sales volume/mix growth targets resulting in below target incentive compensation awards

 

Picture 38

HOW DO WE DETERMINE COMPENSATION?

Based on our pay‑for‑performance philosophy

Executive Compensation is approved by our independent Officers‑Directors Compensation Committee

We utilize general industry and comparator group data that is intended to be representative of the market in which we compete most directly for executive talent and pay is set at or near the market median

Picture 39

HOW DO WE ADDRESS RISK?

Our officers are subject to stock ownership requirements

Our officers may not engage in transactions that are contrary to the interests of shareholders

Executive officers are subject to a “clawback” policy

Incentive plans that are appropriately weighted between short‑term and long‑term performance and cash and equity using multiple award types and performance measures

Picture 40

HOW DO WE PAY OUR EXECUTIVES?

Our annual compensation policies reflect our pay‑for‑performance philosophy with over 70% of pay tied to performance

Our executive officers receive two forms of annual compensation—base salary and annual incentive awards—which together constitute an executive’s total annual compensation

Our executive officers receive three forms of long‑term incentive compensation—stock options, performance based RSUs and total shareholder return contingent shares—which together constitute an executive’s total long‑term incentive compensation

Picture 41

WHY YOU SHOULD APPROVE OUR SAY‑ON‑PAY?

Base salary and annual incentive targets for our executive officers are established annually to maintain parity with the competitive market for executives in comparable positions and are set at or near the market median

Our compensation program is heavily weighted toward pay for meeting performance objectives and increasing PPG’s stock price

Our shareholders overwhelmingly approved the compensation of our named executive officers, with approximately 93% of shareholder votes cast in favor of our 2018 say‑on‑pay resolution

 

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

Executive Summary

PPG’s vision is to be the world’s leading coatings company by consistently delivering high‑quality, innovative and sustainable solutions that customers trust to protect and beautify their products and surroundings. This vision is enabled by a strategy of accelerated profitable growth and enhanced operational excellence. Our executive compensation program is a key factor in promoting this strategy and a crucial tool in aligning the interests of our senior leadership with those of our shareholders.

The Company’s strong performance and focus on shareholder value is evident in our continuing legacy of outstanding cash generation and rewarding shareholders. PPG has paid uninterrupted annual dividends since 1899 and has increased its annual dividend payout for 47 consecutive years. Continuing with that legacy, in 2018 PPG returned about $2.2 billion to shareholders in the form of an increased annual per share dividend payout and share repurchases.

Executive compensation is based on our pay‑for‑performance philosophy, which emphasizes executive performance measures that correlate closely with the achievement of both shorter‑term performance objectives and longer‑term shareholder value creation. To this end, a substantial portion of our executives’ annual and long‑term compensation is performance‑based, with the payment being contingent on the achievement of performance goals. We believe the program strikes the appropriate balance between effectively incentivizing our executives based on performance and utilizing responsible, market competitive pay practices in order that our executives dedicate themselves fully to value creation for our shareholders. This balance is evidenced by the following:

·

In 2018, the Company delivered solid financial performance despite significant and persistent raw material and logistics cost inflation, which impacted the entire coatings industry. Total net sales from continuing operations for 2018 were approximately $15.4 billion, up about 4% compared to 2017, including net favorable foreign currency translation of less than 1%. The Company’s 2018 full-year reported net income from continuing operations was $1.3 billion, or $5.40 per diluted share, versus $1.4 billion, or $5.31 per diluted share, in 2017. Adjusted net income from continuing operations for 2018 was $1.45 billion, versus $1.51 billion in 2017.

·

In September, the Company raised the per‑share dividend by 7%—paying approximately $450 million in dividends in 2018. The Company also repurchased approximately $1.7 billion of stock in 2018.

·

In 2018, the Company completed several acquisitions, increasing both geographic and product scope. Cash spending for these acquisitions totaled approximately $380 million.

The following charts contain adjusted earnings‑per‑diluted share from continuing operations, net sales from continuing operations and adjusted net income from continuing operations as used for determining the compensation of our executive officers for each of the last five fiscal years:

Picture 2

Adjusted earnings‑per‑diluted share from continuing operations and adjusted net income from continuing operations are not recognized financial measures determined in accordance with U.S. generally accepted accounting principles (U.S. GAAP) and should not be considered a substitute for earnings‑per‑diluted share or net income or other financial measures as computed in accordance with U.S. GAAP. PPG’s management considers this information useful in providing insight into the company’s ongoing operating performance because it excludes the impact of items that cannot

 

 

 

 

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2019 Proxy Statement    29

 


 

reasonably be expected to recur on a quarterly basis or that are not attributable to our primary operations. A Regulation G reconciliation of adjusted earnings‑per‑share from continuing operations and adjusted net income from continuing operations to reported adjusted earnings‑per‑diluted share from continuing operations and net income from continuing operations is included in Annex A to this Proxy Statement.

·

Although we had solid performance in 2018, we did not achieve our adjusted earnings per diluted share target, our adjusted cash flow target or our sales volume/mix growth target. As a result, annual incentive awards that were paid to executive officers ranged from 37% to 116% of target. Our total shareholder return over the past three years when measured against the S&P 500 was in the 31st percentile resulting in the payment of long‑term TSR share awards at 32.5% of target.

·

Between 70% and 89% of the named executive officers’ target total direct compensation opportunity for 2018 was in the form of performance‑based variable compensation and long‑term incentives motivating them to deliver strong business performance and create shareholder value.

·

Base salary and annual incentive targets for our executive officers are established annually to maintain parity with the competitive market for executives in comparable positions. Target total annual compensation for each position is set at or near the market median.

·

PPG’s compensation programs are reviewed annually to identify any inherent material risks to PPG created by these programs. Based on the results of the 2018 review, we concluded that the design of our compensation programs does not encourage our employees to take unnecessary or excessive risks that could harm the long‑term value of PPG.

·

At the 2018 annual meeting, we held a shareholder advisory vote on the compensation of our named executive officers, commonly referred to as a say‑on‑pay vote. Our shareholders overwhelmingly approved the compensation of our named executive officers, with approximately 93% of shareholder votes cast in favor of our 2018 say‑on‑pay resolution. Following its review of this vote, the Officers—Directors Compensation Committee recommended to the full Board that we retain our general approach to executive compensation, with an emphasis on short‑ and long‑term incentive compensation that rewards our executive officers when they deliver value for our shareholders. Consistent with this philosophy:

·

Our performance metrics are focused on increasing shareholder value and are tied to measures impacting both shorter‑term and longer‑term performance. Shorter‑term performance metrics include adjusted earnings‑per‑diluted share from continuing operations, cash flow from operating activities-continuing operations, pre‑tax, pre‑interest income, working capital reduction, and sales volume/mix growth. Longer‑term performance metrics include total shareholder return, adjusted earnings per diluted share growth, cash flow return on capital and stock price appreciation.

·

Payment of long‑term incentive awards is based solely on Company performance. We have three‑year award and payout cycles for both performance‑based restricted stock units, or PBRSUs, and total shareholder return shares, or TSR shares. We also have three‑year vesting for stock options.

·

We provide very limited perquisites to our executive officers.

Our officers are subject to stock ownership requirements. Our Chief Executive Officer must own shares of PPG common stock with a value of six times his base salary and the other executive officers must own shares of PPG common stock with a value of three times his or her base salary. Officers are expected to meet these ownership requirements within five years of election. Those officers who have not yet met this requirement are paid 20% of their annual incentive in PPG stock, which is restricted from sale for a period of two to five years. In addition, for officers who have been subject to the policy for more than five years at their current requirement level and have not met the ownership requirement, 100% of the vested shares delivered from the PBRSU award and TSR share award must be held by the officer for a minimum of one year and until the requirement is met. The executive officers named in the Summary Compensation Table have met their ownership requirement, except for Ms. Liebert who joined the Company in June 2018. Ms. Liebert is within the five‑year compliance period.

·

Our officers may not engage in transactions that are contrary to the interests of shareholders, such as “short sales,” “short sales against the box,” “put” and “call” options and hedging transactions designed to minimize an executive’s risk inherent in owning PPG stock. In addition, officers may not hold PPG stock in a margin account and may not pledge PPG stock as collateral for a loan.

 

 

 

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·

Executive officers are subject to a “clawback” policy that is designed to recoup incentive compensation when a financial restatement occurs and certain other conditions exist.

·

We do not provide tax gross‑ups on perquisites to our named executive officers.

Compensation Philosophy and Objectives

PPG’s philosophy in establishing compensation policies for our executive officers is to align compensation with our strategic objectives, while concurrently providing competitive compensation that enables us to attract and retain top‑quality executive talent. The primary objectives of our compensation policies for executive officers are to:

·

Attract and retain executive officers by offering total compensation that is competitive with that offered by similarly situated companies and rewarding outstanding personal performance;

·

Promote and reward the achievement of short‑term objectives that our Board of Directors and management believe will lead to long‑term growth in shareholder value; and

·

Closely align the interests of executive officers with those of our shareholders by making long‑term incentive compensation dependent upon the Company’s financial performance and total shareholder return.

Principal Components of Executive Compensation

The principal components of our executive compensation program are:

 

 

 

COMPENSATION COMPONENT

OVERVIEW

OBJECTIVES

Base Salary

Fixed compensation that is established annually.

Maintain parity with the competitive market for executives in comparable positions.

Annual Incentive Awards

Variable compensation that is based on Company, business, and individual performance.

Incentivize executive officers to achieve our short‑term performance objectives.

Long‑Term, Equity‑Based Incentives

Variable compensation that is based solely on Company performance.

Retain our executive officers, align their financial interests with the interests of shareholders, and incentivize achievement of our long‑term strategic goals.

Mix of Compensation Components

Executive compensation is based on our pay‑for‑performance philosophy, which emphasizes executive performance measures that correlate closely with the achievement of both shorter‑term performance objectives and longer‑term shareholder value creation. To this end, a substantial portion of our executives’ annual and long‑term compensation is performance‑based, with the payment being contingent on the achievement of performance goals. The portion of compensation that is performance‑based increases with the executive’s level of responsibility. We use performance-based compensation for more senior positions because these roles have greater leadership responsibility and influence on the performance of the Company as a whole.

Compensation Program Design Mitigates Risk

In 2018, the Company’s management undertook a review of all of PPG’s compensation programs to identify any inherent material risks to PPG created by these programs. Based on the results of this review, we concluded that the design of our compensation programs does not encourage our employees to take unnecessary or excessive risks that could harm the long‑term value of PPG. For more information about this review and the features of our compensation program that mitigate risk, see “Corporate Governance—Compensation Program Design Mitigates Risk” on page 23.

Annual Compensation Programs

Our executive officers receive two forms of annual compensation—base salary and annual incentive awards—which together constitute an executive’s total annual compensation. Please note that “total annual compensation,” as discussed in this Compensation Discussion and Analysis, differs from the “Total” compensation column of the Summary Compensation Table on page 44, which includes long‑term incentive and other forms of compensation. The levels of base salary and annual incentive targets for our executive officers are established annually under a program intended to

 

 

 

 

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maintain parity with the competitive market for executives in comparable positions. Target total annual compensation for each position is set at or near the “market value” for that position.

To determine market value, the Officers-Directors Compensation Committee considers compensation data based on a comparator group, as well as the most recently available data from nationally‑recognized independent executive compensation surveys representing a cross section of manufacturing companies.

For purposes of establishing the 2018 executive compensation program, the Officers-Directors Compensation Committee considered a competitive analysis of total direct compensation levels and compensation mixes for our executive officers, using information from:

·

two general industry surveys as provided by management: the Aon Hewitt Associates 2017 TCM Executive Total Compensation Survey and the Willis Towers Watson 2017 U.S. General Industry Executive Database. The competitive consensus for top five named executive officers consists of an equally‑weighted average of median data from both general industry surveys; and

·

comparison company median data from a comparator group consisting of 20 companies. The comparator group used in 2017 to set 2018 compensation was:

 

 

 

 

3M Company

Eastman Chemical Company

Honeywell International Inc.

Parker‑Hannifin Corporation

Air Products and Chemicals, Inc.

Eaton Corporation

Illinois Tool Works Inc.

Praxair, Inc.

Arconic Inc.

Ecolab Inc.

International Paper Company

The Sherwin‑Williams Company

The Dow Chemical Company

Emerson Electric Co.

Johnson Controls, Inc.

Stanley Black & Decker, Inc.

E.I. du Pont de Nemours and Company

Goodyear Tire & Rubber Company

Monsanto Company

Textron Inc.

Our comparator group is intended to be representative of the market in which we compete most directly for executive talent. The selection of companies comprising our comparator group is based on similarity in revenue size, lines of business, participation in global markets and market capitalization. The peer group is constructed to target PPG near the median of the composite ranking of the financial and operating metrics of the companies in the comparator group.

The Officers-Directors Compensation Committee annually reviews this group of companies with our independent executive compensation consultant, FW Cook, to ensure that it remains an appropriate benchmark for us.

We target the median levels of compensation to derive our market value by adjusting this compensation data to reflect differences in company revenues using regression analysis. The competitive analysis showed that the 2018 target total direct compensation for the Company’s named executive officers was positioned within the market median range on average.

In addition, the Officers-Directors Compensation Committee annually reviews a tally sheet of each executive officer’s compensation. Each tally sheet includes detailed data for each of the following compensation elements:

·

Annual compensation: Information regarding base salary and annual incentive targets for the current year;

·

Long‑term incentive awards: Information regarding all equity‑based awards, whether vested or unvested, including total pre‑tax value to the executive and holdings relative to our stock ownership requirements;

·

Benefits and perquisites: Line item summary showing the annualized cost to the Company of health and welfare benefits, life insurance and perquisites;

·

Pension and deferred compensation: Annualized cost to the Company of pension plan benefits (qualified plan and non‑qualified plan) and defined contribution plans (401(k) and deferred compensation); and

·

Description and quantification of all compensation and benefits payable upon retirement, termination of employment or change in control.

The Officers-Directors Compensation Committee reviews the information presented in the tally sheet to ensure that it is informed of the compensation and benefits each executive is receiving annually.

 

 

 

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The charts below illustrate the allocation of the principal compensation components for our named executive officers for 2018.

Picture 1

Annual Compensation Policies

Our annual compensation policies reflect our pay‑for‑performance philosophy. We set target total annual compensation for our executive officers to be competitive with the market value for comparable positions, taking into account each executive’s experience in the position and performance. Annual incentive awards are targeted at a level that, when combined with base salaries, is intended to yield total annual compensation that approximates market value. As a result, total annual compensation for a position generally should exceed its market value when our financial performance exceeds our applicable annual targets and individual performance contributes to meeting our objectives. Total annual compensation generally should be below market value when our financial performance does not meet targets and/or individual performance does not have a favorable impact on our objectives.

Base Salary.    Based on the Officers-Directors Compensation Committee’s review of the applicable compensation data as discussed above, in February 2018 the Officers-Directors Compensation Committee set base salaries effective March 1, 2018 for all executive officers in relation to the market value for comparable positions. Mr. McGarry received a base salary increase of $40,000; Mr. Morales received a based increase of $75,000; Mr. Bost received a base salary increase of $5,000; and Mr. Knavish received a base salary increase of $20,000.

On July 1, 2018, Mr. Knavish’s annual base salary increased $105,000 to $625,000.

Ms. Liebert joined PPG in June 2018, and pursuant to her offer letter with the Company, Ms. Liebert received an annual base salary of $625,000. For a description of the material terms of Ms. Liebert’s offer letter, see “Compensatory Arrangements with Certain Executive Officers” on page 51.

Annual Incentive Awards.  In February 2018, the Officers-Directors Compensation Committee established annual incentive awards based primarily on target levels set for each executive officer and pre‑established, short‑term performance objectives. On an annual basis, the Officers-Directors Compensation Committee establishes a target annual incentive award for each executive officer based on the executive’s position and the market value of comparable positions in our comparator group. For 2018, this target, when expressed as a percentage of base salary, was as follows for each of the executive officers named in the Summary Compensation Table: Mr. McGarry, 145%; Mr. Morales, 90%; Ms. Liebert, 70%; Mr. Bost, 85%; and Mr. Knavish, 70%. The amount of an executive’s actual annual incentive award, in relation to the executive’s target opportunity, is determined on the basis of achievement of short‑term performance objectives. The performance objectives for our Chairman and Chief Executive Officer, our Chief

 

 

 

 

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Financial Officer and our Senior Vice President, Law, Compliance and Special Projects include specific financial targets for Company performance (weighted 70%) and personal performance (weighted 30%). The performance objectives for our other executive officers include specific financial targets for Company performance (weighted 20%), business performance (weighted 50%) and personal performance (weighted 30%).

For many years, PPG has been committed to sustainability. Recognizing the importance of sustainability and its ability to drive innovation in our business, PPG includes sustainability goals in the performance goals of its Chairman and Chief Executive Officer. Performance against these goals is reviewed by the Officers—Directors Compensation Committee of the Board of Directors.

Annual incentive compensation of PPG’s executives and senior managers is partially (30 percent) based on personal goals that tie to overall corporate business goals, with the remainder based on company and business financial performance. Although PPG does not require that its executives and senior managers have personal goals linked to social or environmental performance, some executives and senior managers, by virtue of their responsibilities, may have goals related to those issues. In addition, executive business unit leaders receive sustainability scorecards for their business unit, and they are responsible for driving improvement in their business unit’s sustainability metrics. Safety, waste costs, energy usage and costs, and sustainable product sales are part of these executives’ annual performance review.

The potential payout of the Company performance component of the annual incentive is based on a pre‑determined schedule recommended by management and approved by the Officers-Directors Compensation Committee. The schedule corresponds to various levels of potential Company financial performance measured by adjusted earnings‑per‑diluted share from continuing operations (weighted 60%), adjusted cash flow from operating activities (weighted 20%) and sales volume/mix growth (weighted 20%), assuming the minimum adjusted earnings‑per‑diluted share from continuing operations threshold is met. The maximum payout of this component under the schedule is 220% of target.

In assessing Company performance against objectives, the Officers-Directors Compensation Committee considers actual results against the approved target objectives, considering whether significant unforeseen obstacles or favorable circumstances altered the expected difficulty of achieving the desired results and the extent to which economic assumptions underlying the performance targets materialized. The overall assessment for Company performance then determines the percentage of the target award that will be paid to each executive for the Company performance component of the annual incentive award. For 2018, as described below, the Officers-Directors Compensation Committee exercised discretion in applying certain non‑operating adjustments to the actual earnings‑per‑diluted share from continuing operations and cash flow from operating activities – continuing operations results, consistent with guidelines established previously by the Officers-Directors Compensation Committee. These adjustments generally relate to legacy litigation or legacy environmental remediation, accounting rule changes and major portfolio changes, including planned restructuring initiatives.

In February 2018, the Officers-Directors Compensation Committee approved a financial performance standard for the Company component of the award of $6.44 adjusted earnings per diluted share from continuing operations, adjusted cash flow from operating activities of $1,925 million and sales volume/mix growth of 1.7%. If achieved, this standard would generate 100% of the target bonus for the Company component of the award. The approved performance standard for 2018 included a threshold adjusted earnings per diluted share from continuing operations of $4.83, below which no bonus would be paid, regardless of either the adjusted cash flow from operating activities or the sales volume/mix growth performance, and a minimum cash flow from continuing operations performance of $1,198 million and a minimum sales growth/mix growth performance of 0.0% for payment on those two components. In addition, the approved performance standard for 2018 included a maximum bonus opportunity of 220% if adjusted earnings per diluted share from continuing operations of $7.08, adjusted cash flow from operating activities of $2,156 million and sales volume/mix growth of 2.6% were achieved.

For 2018, the Officers-Directors Compensation Committee approved the actual Company performance component for incentive awards based on adjusted earnings per diluted share from continuing operations of $5.82, adjusted cash flow from operating activities of $1,661 million and sales volume/mix growth of 0.7%. The earnings per diluted share performance component included adjustments of $0.24 for environmental remediation charges and other costs, $0.18 for a business restructuring charge, $0.03 for legacy legal settlements, $0.03 for accelerated depreciation from restructuring actions, $0.03 for an impairment of a non-manufacturing asset, $0.02 for brand rationalization, $0.02 for transaction-related costs, offset by a $0.08 gain on the sale of non-operating assets and $0.05 for the tax benefit related to the U.S. Tax Cuts and Jobs Act. Adjustments to the cash flow from operating activities performance component included adding back $99 million for cash contributions to pension plans and $95 million for restructuring cash spending.

 

 

 

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Adjusted earnings per diluted share from continuing operations of $5.82, adjusted cash flow from operating activities of $1,661 million and sales volume/mix growth of 0.7% resulted in a payout of 56% of target for the Company performance component, based on the schedule discussed above. For the adjusted earnings per diluted share component, this schedule yielded a payout of 59% for the result of $5.82 per share. For the adjusted cash flow component, this schedule yielded a payout of 63% for the result of $1,661 million. For the sales volume/mix growth component, this schedule yielded a payout of 41% for the result of 0.7%. Combining these three results using the 60%, 20% and 20% weightings, respectively, yielded an overall result of 56%, which was approved by the Officers-Directors Compensation Committee.

Approved 2018 Performance Components

Picture 10

The personal performance component of the annual incentive is based on measures of individual performance relevant to the particular individual’s job responsibilities. The personal performance assessment of our Chairman and Chief Executive Officer is determined by the Officers-Directors Compensation Committee, with input from the other non‑management members of the Board. The personal performance of each other executive officer is determined by our Chairman and Chief Executive Officer. The following factors were considered in assessing the personal performance of the executive officers named in the Summary Compensation Table for 2018 against individual objectives:

Under Mr. McGarry’s leadership, the Company delivered adjusted earnings per diluted share growth despite significant and persistent raw material and logistics cost inflation, which impacted the entire coatings industry. Total net sales from continuing operations for 2018 were approximately $15.4 billion, up about 4% compared to 2017, including net favorable foreign currency translation of less than 1%. The Company’s 2018 full-year reported net income from continuing operations was $1.3 billion, or $5.40 per diluted share, versus $1.4 billion, or $5.31 per diluted share, in 2017. Adjusted net income from continuing operations for 2018 was $1.45 billion, versus $1.51 billion in 2017. Mr. McGarry led the expansion of our coatings portfolio with the signing and completion of a number of acquisitions. Mr. McGarry was also successful in leading the Company’s efforts to increase prices to recover margins. These results met expectations.

Mr. Morales led the finance organization. In 2018, the Company generated cash from operations of about $1.5 billion, which was consistent with 2017, and completed more than $1.7 billion of share repurchases. Mr. Morales led the Company’s efforts to contain its costs and return capital to shareholders. In addition, he provided guidance over the signing and completion of several acquisitions. Mr. Morales effectively led initiatives to modernize the Finance function and performed effectively as a member of the Executive Committee, positively influencing the results of the Company. In 2018, the Company discovered that the Company’s former Vice President and Controller directed his subordinates to improperly override the Company’s internal controls during the Company’s financial close process, which directions were followed and not disclosed to others in senior management. This discovery led to an Audit Committee investigation and a restatement of the Company’s financial statements. Subsequent to the Audit Committee investigation, Mr. Morales has been involved in the Company’s remediation efforts. These results partially met expectations. 

 

 

 

 

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Ms. Liebert made an effective transition to the role of Senior Vice President, Automotive Coatings after joining the Company in June 2018. She led the automotive original equipment manufacturer (OEM) business and the Latin America region. Sales volumes expanded in Latin America, primarily from automotive OEM coatings, industrial coatings, packaging coatings and automotive refinish coatings. Ms. Liebert also began efforts to increase prices and reorganized the automotive coatings business to be more effective. These results met expectations.

Mr. Bost was Senior Vice President and General Counsel for the period January through July, during which time he led the legal organization’s assistance of the Audit Committee’s investigation into certain accounting matters and was instrumental in signing and completing a number of acquisitions. In addition, he effectively performed as a member of the Executive Committee, positively influencing the results of the Company. In August, he made a successful transition to his role as Senior Vice President, Law, Compliance and Special Projects. These results exceeded expectations.

Mr. Knavish led the industrial business and the Asia Pacific region. He also oversaw the packaging coatings businesses through June. Under Mr. Knavish’s leadership, industrial coatings and packaging coatings achieved increased sales volumes aided by new product technologies. Industrial coatings sales volumes growth was the strongest in Europe due to strong end-use market demand for coil and heavy-duty equipment materials. In 2018, despite significant positive price and lower overheads, margins declined due to raw material cost inflation in both Asia and his business unit accountability. Mr. Knavish was instrumental in securing two definitive agreements for acquisitions. He provided leadership to his staff responsibilities for the global supply management organization. These results partially met expectations.

Business unit short‑term performance objectives and their assessment are specific to each particular business and are based on pre‑tax, pre‑interest earnings, working capital reduction, and sales volume/mix growth. The overall assessment of business performance determines the percent of target paid to applicable executives for the business component of the annual incentive award.

For 2018, we assessed the performance of 10 defined businesses against the criteria discussed above. Actual payouts of the business performance component ranged from 0% to 190% of target. The business performance component payouts for two of our executive officers named in the Summary Compensation Table, Ms. Liebert and Mr. Knavish, are based on the performance of each of the specific businesses and regions for which each of them is responsible.

Ms. Liebert’s business performance component, for the period from her hire date in June through December, was a composite of the results of the automotive coatings business and the Latin America region. The composite performance of these businesses partially met performance objectives for pre-tax, pre-interest earnings, working capital reductions and sales volume/mix growth and resulted in a payout of 20% of target for this component.

Mr. Knavish’s business performance component was a composite of the results of the industrial and packaging coatings businesses and the Asia Pacific region. The composite performance of these businesses partially met performance objectives for pre-tax, pre-interest earnings, working capital reductions and sales volume/mix growth and resulted in a payout of 40% of target for this component.

The level of achievement of corporate and personal performance objectives for 2018 for Messrs. McGarry, Morales and Bost corresponded to payouts of 63%, 37% and 78% of target, respectively. The level of achievement of business, corporate and personal performance objectives for 2018 for Ms. Liebert and Mr. Knavish corresponded to payouts of 65%, and 69% of target, respectively. Ms. Liebert’s annual incentive award was prorated as she joined the Company on June 21, 2018. The annual incentive awards actually paid to each of these executives for 2018 are shown in the “Non‑Equity Incentive Plan Compensation” column of the Summary Compensation Table on page 44. Annual incentive awards for these executive officers have ranged from 37% to 159% of target.

Annual incentive awards are payable in cash, except that any executive who does not meet the stock ownership requirements described under “PPG Stock Ownership Requirements” on page 43 receives 20% of his or her annual incentive award in the form of PPG common stock. Such stock is restricted from sale by such executive for a period of between two and five years, depending upon the level of stock ownership of the executive. In addition, for officers who have been subject to the policy for more than five years at their current requirement level and have not met the ownership requirement, 100% of the vested shares delivered from the PBRSU award and TSR share award must be held by the officer for a minimum of one year and until the requirement is met. U.S.‑based participants are entitled to defer part or all of an annual incentive award under our deferred compensation plan. The executive officers named in the Summary Compensation Table have met their stock ownership requirement, except for Ms. Liebert who joined the Company in June 2018. Ms. Liebert is within the five‑year compliance period. For additional information concerning our deferred compensation plan, see “Deferred Compensation Opportunities” on page 40.

 

 

 

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Long‑Term Incentive Compensation

Our Officers-Directors Compensation Committee believes that long‑term incentive compensation is an important component of our program because it has the effect of retaining executives, aligning executives’ financial interests with the interests of shareholders and incentivizing achievement of PPG’s long‑term strategic goals. Payment of long‑term incentive awards is based solely on Company performance. Grants are targeted at levels that approximate market value for comparable positions, utilizing the same compensation data used for setting total annual compensation. Each February, the Officers-Directors Compensation Committee reviews and approves equity‑based compensation for that year to be granted to executive officers. Three types of long‑term incentive awards are granted annually to executive officers:

·

Stock options;

·

Total Shareholder Return contingent shares, or TSR shares; and

·

Performance‑based Restricted Stock Units, or PBRSUs.

The number of stock options, TSR shares and PBRSUs granted to executive officers is intended to represent an estimated potential value that, when combined with total annual compensation, as discussed above, will approximate the market value of total annual and long‑term compensation paid to executives in our comparator group and in a cross‑section of general industrial companies represented in nationally‑recognized executive compensation surveys.

These types of long‑term incentive awards were selected to provide a program that focuses on different aspects of long‑term performance: stock price appreciation, total return to shareholders and earnings‑per‑share growth and cash flow return on capital. The estimated potential value of the awards granted to each executive officer is delivered equally through each instrument, so that approximately one‑third of the value of the total award is in stock options, one‑third is in performance‑based RSUs, and one‑third is in TSR shares. The Officers-Directors Compensation Committee selected equal distribution to emphasize its view that each of the three equity‑based vehicles serves a particular purpose and is equally important in supporting our long‑term compensation strategy.

Stock Options.  Stock options provide our executive officers with the opportunity to purchase and maintain an equity interest in PPG and to share in the appreciation of the value of our stock. All stock options granted to executive officers in 2018 were granted from our shareholder‑approved Omnibus Incentive Plan. Some features of our stock option program include:

·

Options become exercisable on the third anniversary of the date of grant;

·

The term of each grant does not exceed ten years;

·

The exercise price is equal to the closing market price on the date of grant (we do not backdate or grant discounted stock options);

·

We do not grant options with “reload” or “restored” provisions; and

·

Repricing of stock options is prohibited.

We continue to use stock options as a long‑term incentive because stock options focus the management team on delivering levels of company financial performance over a longer term that contribute to shareholder value. For additional information concerning the timing of grants of stock options, see “Our Policies with Respect to the Granting of Equity Awards” on page 42.  In February 2018, the following stock options were awarded to each of the executive officers named in the Summary Compensation Table: Mr. McGarry, 105,057; Mr. Morales, 17,072; Mr. Bost, 17,072; and Mr. Knavish, 11,819. Ms. Liebert was awarded a one-time grant of 15,272 stock options in June 2018 when she joined the Company. Such awards are consistent with our program to distribute long‑term incentive awards equally among three different equity‑based vehicles, as discussed above.

 

 

 

 

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TSR Shares.  TSR shares represent a contingent share grant that is made at the beginning of a three‑calendar‑year performance period and vests on the last day of the performance period. The grant is settled in a combination of cash and shares of PPG common stock at the end of the performance period. The award amount generated by the grant is based on PPG’s total shareholder return relative to the S&P 500 comparison group. This comparison group represents the entire S&P 500 Index as it existed at the beginning of the performance period, excluding any companies that have been removed from the Index because they ceased to be publicly traded during the performance period. The calculation of total shareholder return assumes that all dividends were reinvested. Summarized below are the material provisions of the TSR share program:

 

 

 

BASIS OF PAYOUT

PERFORMANCE PERIOD

VESTING AND PAYOUT OF BENEFIT

Total shareholder return of PPG compared to total shareholder return for S&P 500 companies (as described above)

 

Payout is 0% to 220% of original TSR shares awarded:

3 calendar years

Vest on last day of performance period

 

Settled in a combination of cash and shares at end of performance period

 

Dividend equivalents are awarded at the end of the performance period, based on the actual number of shares earned and paid

 

 

 

 

 

PPG TSR

    

GRANT PAYOUT

90th percentile

 

220

%

80th percentile

 

180

%

70th percentile

 

140

%

60th percentile

 

100

%

50th percentile

 

80

%

40th percentile

 

50

%

30th percentile

 

30

%

Below

 

 —

%

If minimum performance is not achieved, no payment is made with respect to the TSR share grant. If performance is above target, payment may exceed the original number of contingent TSR shares awarded. Target performance is set at the 60th percentile rank, which allows for a 100% payout only if our performance is greater than the median performance for the comparison set of companies. The minimum and maximum number of shares that may be issued upon settlement of a TSR share grant ranges from 0% to 220% of the original number of contingent TSR shares awarded. Dividend equivalents are awarded at the end of the performance period, based on the actual number of shares earned and paid to an executive. TSR shares are intended to reward executives only when we provide a greater long‑term return to shareholders relative to a percentage of the comparison set of companies, which is consistent with our pay‑for‑performance compensation philosophy.

In February 2018, the following TSR shares were awarded to each of the executive officers named in the Summary Compensation Table: Mr. McGarry, 22,925; Mr. Morales, 3,725; Mr. Bost, 3,725; and Mr. Knavish, 2,579. Ms. Liebert was awarded a one-time grant of 3,172 TSR shares in June 2018 when she joined the Company. Such awards are consistent with our program to distribute long‑term incentive awards equally among three different equity‑based vehicles, as discussed above under “Long‑Term Incentive Compensation.”

The performance period for the TSR shares granted in 2016 ended on December 31, 2018. PPG’s total shareholder return was measured against that of the S&P 500 (as described above) over the three‑year period ending December 31, 2018. PPG’s ranking on this performance measure was at the 31st percentile, resulting in payouts at 32.5% of target. The payouts were distributed 50% in shares of PPG common stock and 50% in cash. The cash payment was calculated based on the average PPG stock closing price during the month of December 2018. Payouts to the executive officers named in the Summary Compensation Table for the 2016 TSR grants were: Mr. McGarry, 3,934 shares and $397,486; Mr. Morales, 160 shares and $16,174; Mr. Bost, 713 shares and $72,077; and Mr. Knavish, 286 shares and $28,912. Such share payouts, which vested in December 2018, are reflected in the Option Exercises and Stock Vested table on page 48.

Performance‑based RSUs.  Performance‑based RSUs, or PBRSUs, represent a contingent share grant that is made at the beginning of a three‑calendar‑year performance period and vests on the last day of the performance period. If we achieve certain pre‑determined performance thresholds, payment is settled in shares of PPG common stock in the February immediately after the end of the three‑year performance period. The performance criteria for each year in the three‑year performance period are 10% growth in adjusted earnings‑per‑diluted share and 12% cash flow return on capital, taking into account the same adjustment categories utilized by the Officers-Directors Compensation Committee

 

 

 

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in determining adjusted earnings‑per‑diluted share for purposes of annual incentive awards (see “Annual Incentive Awards” above). If minimum performance is not achieved, no shares are issued with respect to the grant. If performance is above target, the number of shares issued may exceed the original number of contingent shares awarded. The minimum and maximum number of shares that may be issued upon settlement of an PBRSU ranges from 0% to 180% of the original number of contingent shares awarded, depending on the number of goals attained during the three‑year period (see the table below for a breakdown of the payout percentages). No dividend equivalents are awarded on performance‑based RSUs. By including performance‑based RSUs in the long‑term incentive mix, executives are rewarded when financial performance objectives are achieved over an extended period of time. Summarized below are the material provisions of the performance‑based RSUs:

 

 

 

BASIS OF PAYOUT

PERFORMANCE PERIOD

VESTING AND PAYOUT OF BENEFIT

Performance Goals:

 

10% growth in adjusted earnings‑per‑diluted share

 

12% cash flow return on capital

 

Payout is 0% to 180% of original PBRSU shares awarded:

3 calendar years

Vest on last day of performance period

 

Settled in shares in the February immediately after the end of performance period

 

No dividend equivalents are awarded

 

 

 

 

 

GOALS ATTAINED IN PERFORMANCE PERIOD

    

PAYOUT

6 goals

 

180

%

4 or 5 goals in 3 years

 

150

%

4 goals in 2 years

 

100

%

3 goals

 

100

%

2 goals

 

50

%

1 goal

 

25

%

0 goals

 

 —

%

In February 2018, the following PBRSUs were awarded to each of the executive officers named in the Summary Compensation Table: Mr. McGarry, 24,205; Mr. Morales, 3,933; Mr. Bost, 3,933; and Mr. Knavish, 2,723. Ms. Liebert was awarded a one-time grant of 3,172 PBRSUs in June 2018 when she joined the Company. Such awards are consistent with our program to distribute long‑term incentive awards equally among three different equity‑based vehicles, as discussed above under “Long‑Term Incentive Compensation.”

The performance period for the PBRSUs granted in 2016 ended on December 31, 2018. For the 2016 grants, three of the annual goals were achieved in three years, yielding payouts at 100% of target. Specifically, the results were as follows:

PBRSU Performance Measures for 2016‑2018 Performance Period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2016

 

2017

 

2018

 

2016 - 2018

 

 

EPS

 

CASH FLOW

 

EPS

 

CASH FLOW

 

EPS

 

CASH FLOW

 

TOTAL GOALS

 

 

GROWTH

 

ROC

 

GROWTH

 

ROC

 

GROWTH

 

ROC

 

MET

Goal Result

    

7.2

%  

15.6

%

3.9

%

12.9

1.0

12.0

    

Goals Met

 

 —

 

 1

 

 —

 

 1

 

 —

 

 1

 

 3

The Company made share payouts to the executive officers named in the Summary Compensation Table for the 2016 PBRSU grants as follows: Mr. McGarry, 25,338; Mr. Morales, 980; Mr. Bost, 4,595; and Mr. Knavish, 1,755. Such payouts, which vested in December 2018, are reflected in the Option Exercises and Stock Vested table on page 48.

In February 2019, the Officers-Directors Compensation Committee determined to change the cash flow return on capital performance goal for the PBRSUs from 12% to 11% beginning with the 2019 performance goal. This change was made as a result of the Company’s adoption of Accounting Standards Update No. 2016-02, “Leases,” effective January 1, 2019. The adoption of this standard will require the Company to recognize the value of its right to use assets and lease liabilities on the balance sheet as the rights and obligations created by lease arrangements with terms greater than 12 months. These lease obligations will be classified as debt which will increase the Company’s reported total debt and will have the effect of reducing the Company’s cash flow return on capital. The Company is nearly complete in assessing the impact the adoption of this standard will have on its consolidated financial statements and expects an impact on assets and liabilities on its consolidated balance sheet in the range of $700 million to $750 million.

 

 

 

 

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2019 Proxy Statement    39

 


 

Time-based RSUs.  In connection with her hiring in June 2018, Ms. Liebert was awarded a one-time grant of 29,923 time-based RSUs, which vest 10,228 on December 31, 2019; 14,271 on December 31, 2020; 3,996 on December 31, 2022; and 1,428 on December 31, 2023.

Perquisites and Other Benefits

In addition to the annual and long‑term compensation described above, executive officers named in the Summary Compensation Table receive certain perquisites and other benefits. Such perquisites may include financial counseling services and limited personal use of PPG’s corporate aircraft. At the direction of the Officers-Directors Compensation Committee, in 2011 executive officer perquisites were reviewed and reduced. Effective January 1, 2012, personal club memberships were discontinued and financial counseling benefits were limited to current participants only. Other benefits for our executive officers may include Company matching contributions under our Deferred Compensation Plan. These perquisites and other benefits are provided to increase the availability of the executives to focus on the business of the enterprise or because we believe they are important to our ability to attract and retain top‑quality executive talent. The costs to PPG associated with providing these benefits for executive officers named in the Summary Compensation Table are reflected in the “All Other Compensation” column of the Summary Compensation Table on page 44 and in the All Other Compensation Table on page 45.

We also provide other benefits, such as medical, dental and life insurance and disability coverage, to each executive named in the Summary Compensation Table under our benefit plans, which are also provided to most eligible U.S.‑based salaried employees. In addition, all of our U.S.‑based executive officers are eligible to participate in the PPG Industries Foundation Matching Gift Program, which encourages charitable donations by all of our U.S. employees by matching his or her contributions to eligible institutions. Contributions of up to a total of $10,000 per year may be matched under the program. Most charitable organizations are eligible for the Matching Gifts Program, with a few exceptions. The value of these benefits is not included in the Summary Compensation Table because such benefits are made available on a Company‑wide basis to most U.S. salaried employees. We also provide vacation and other paid holidays to all employees, including the executive officers named in the Summary Compensation Table, which are comparable to those provided at other large companies.

Deferred Compensation Opportunities

Another aspect of our executive compensation program is our Deferred Compensation Plan. The plan is a voluntary, non‑tax qualified, unfunded, deferred compensation plan available to all U.S.‑based executive officers and other participants in our management incentive plans to enable them to save for retirement by deferring a portion of their current compensation. The plan also provides eligible employees with supplemental contributions equal to the contributions they would have received under our Employee Savings Plan, but for certain limitations under the Internal Revenue Code. Under the plan, compensation may be deferred until death, disability, retirement or termination or, in the case of the cash portion of certain incentive awards, other earlier specified dates the participants may select. Deferred amounts (other than the PPG common stock portion of deferred incentive awards, which must be invested in PPG stock) are credited to an investment account that earns a return based on the investment options chosen by the participant. The value of a participant’s investment account is based on the value of the investments selected. Benefits are paid out of our general assets. For additional information concerning our Deferred Compensation Plan, see “Defined Contribution Retirement Plans and Deferred Compensation Plan” and the accompanying Non‑Qualified Deferred Compensation Table on page 51.

Retirement Plans

For certain longer‑serving, U.S.‑based, salaried employees, we maintain both a tax‑qualified defined benefit pension plan, called Retirement Plan C, and a non‑qualified defined benefit pension plan, called the Non‑Qualified Retirement Plan. U.S.‑based salaried employees hired on or after January 1, 2006 are not eligible to participate in these plans. Each of the U.S.‑based executive officers named in the Summary Compensation Table participate in these plans, except Ms. Liebert. The compensation covered by Retirement Plan C, which is compulsory and noncontributory, is the base salary of a participant as limited by applicable Internal Revenue Service regulations. Our Non‑Qualified Retirement Plan is an unfunded supplemental plan that provides benefits paid out of our general assets in an amount substantially equal to the difference between the amount that would have been payable under Retirement Plan C, in the absence of legislation limiting pension benefits and earnings that may be considered in calculating pension benefits, and the amount actually payable under Retirement Plan C. The Non‑Qualified Retirement Plan also includes a benefit based on bonus awards for certain U.S. management bonus program participants. We believe this supplemental retirement benefit is competitive with that provided by other companies with which we compete for executive talent. For additional

 

 

 

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information concerning our retirement plans, see “Pension Benefits” and “Defined Contribution Retirement Plans and Deferred Compensation Plan” on pages 48 through 51.

Through December 31, 2015, we maintained a tax‑qualified defined contribution retirement plan, called the Defined Contribution Retirement Plan, which was established by PPG for certain employees hired on or after January 1, 2006. The plan was funded by contributions made by the Company. Contributions were between 2% and 5% of a participant’s eligible plan compensation, based on age and years of service. If contributions made for the benefit of an executive were limited due to requirements of the Internal Revenue Code, we credited such excess contributions to the executive officer’s account in the Deferred Compensation Plan. An executive had a fully vested benefit under the plan upon completing three years of service with the Company and when the employee was within ten years of his or her Social Security normal retirement age or upon termination of employment after reaching early retirement age. On January 1, 2016, the Defined Contribution Retirement Plan was terminated and all balances were transferred to the PPG Industries Employee Savings Plan. Former participants in the Defined Contribution Retirement Plan now receive the same contributions they would have received under the Defined Contribution Retirement Plan as additional Company contributions to the Employee Savings Plan.

The PPG Industries Employee Savings Plan covers substantially all employees in the U.S. The Company makes matching contributions to the Savings Plan, at management’s discretion, based upon participants’ savings, subject to certain limitations. For most participants not covered by a collective bargaining agreement, Company‑matching contributions are established each year at the discretion of the Company and are applied to participant savings up to a maximum of 6% of eligible participant compensation. Employees can contribute from 1% to 50% of eligible plan compensation to the Savings Plan, subject to certain Plan or legal limits that may apply. Employees are always 100% vested in any money employees contribute or the Company contributes to the Savings Plan as a matching contribution. All of our executive officers participate in the Savings Plan. Executive officers and other employees who were participants in the former Defined Contribution Retirement Plan now receive the same contributions they would have received under the Defined Contribution Retirement Plan as an additional Company contribution to the Employee Savings Plan. These contributions vest upon completion of three years of service with the Company.

Change In Control Agreements

We have agreements in place with each of the executive officers named in the Summary Compensation Table providing for their continued employment for a period of up to three years in the event of an actual or threatened change in control of PPG (as “change in control” is defined in the agreements). We believe that these agreements serve to maintain the focus of our senior executives and ensure that their attention, efforts and commitment are aligned with maximizing the success of PPG and shareholder value. These agreements avoid distractions involving executive management that arise when the Board is considering possible strategic transactions involving a change in control and assure continuity of executive management and objective input to the Board when it is considering any strategic transaction. For additional information concerning our change in control agreements, see “Potential Payments Upon Termination or Change in Control” on pages 52 through 57.

Regulatory Considerations

The tax and accounting consequences of utilizing various forms of compensation are considered when adopting new or modifying existing compensation programs. For example, we considered limitations on the deductibility of personal use of corporate aircraft under the American Jobs Creation Act when adopting our policies regarding use of our aircraft by executive officers. In addition, we have administered our incentive and equity compensation programs, severance plans and change in control agreements in compliance with federal tax rules affecting non‑qualified deferred compensation.

Section 162(m) of the Internal Revenue Code limits the deductibility of compensation in excess of $1 million paid to any one named executive officer during any fiscal year. Under the rules in effect before 2018, compensation that qualified as “performance-based” under Section 162(m) was deductible without regard to this $1 million limit. To maintain flexibility in compensating executives in a manner designed to promote varying corporate goals, the Officers-Directors Compensation Committee did not adopt a policy requiring all compensation to be deductible under Section 162(m) and continues to reserve the right to structure compensation arrangements and issue awards that may not be deductible under Section 162(m). However, the Officers-Directors Compensation Committee historically has considered, among other factors, deductibility under Section 162(m) with respect to compensation arrangements for executives. Prior to 2018, we generally designed our annual and long-term incentive compensation programs for executives in a manner that was intended to qualify as performance-based compensation under Section 162(m), with the understanding that these programs may not qualify from time to time.

 

 

 

 

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The Tax Cuts and Jobs Act, which was signed into law December 22, 2017, eliminated the performance-based compensation exception under Section 162(m), effective January 1, 2018, subject to a special rule that “grandfathers” certain awards and arrangements that were in effect on or before November 2, 2017. As a result, compensation that our Officers-Directors Compensation Committee structured in 2017 and prior years with the intent of qualifying as performance-based compensation under Section 162(m) that is paid on or after January 1, 2018 may not be fully deductible, depending on the application of the special grandfather rules. Moreover, from and after January 1, 2018, compensation awarded in excess of $1,000,000 to our named executive officers, including our chief financial officer, generally will not be deductible. While the Tax Cuts and Jobs Act will limit the deductibility of compensation paid to our named executive officers, our Officers-Directors Compensation Committee will, consistent with its past practice,  continue to retain flexibility to design compensation programs that are in the best long-term interests of PPG and our shareholders, with deductibility of compensation being one of a variety of considerations taken into account. We continue to analyze whether to redesign any of our compensation programs in light of the amendments to Section 162(m) and other sections of the Internal Revenue Code that became effective in 2018.

Financial Restatement

It is our policy that we will, to the extent permitted by governing law, seek recoupment of incentive compensation paid to any executive officer where:

·

the payment was predicated upon the achievement of certain financial results that were subsequently the subject of a restatement;

·

the executive officer is found to have engaged in fraud or misconduct that caused or partially caused the need for the restatement; and

·

a lower payment would have been made to the executive officer based upon the restated financial results.

In each such instance, we will, to the extent practicable, seek to recover the amount by which the individual executive officer’s incentive compensation for the relevant period exceeded the payment that would have been made based on the restated financial results, plus a reasonable rate of interest.

Our Policies with Respect to the Granting of Equity Awards

Equity awards may be granted by either the Officers-Directors Compensation Committee or its delegate. The Officers-Directors Compensation Committee only delegates authority to grant equity awards to employees who are not executive officers, and only in aggregate amounts not exceeding amounts approved by the Officers-Directors Compensation Committee. The Board generally does not grant equity awards, although the Officers-Directors Compensation Committee regularly reports its activity, including approval of grants, to the Board.

Timing of Grants.  Equity awards are granted in February at a regularly scheduled meeting of the Officers-Directors Compensation Committee, and generally further grants are not made for the remainder of the year. These meetings occur approximately one month after the release of our earnings for the immediately preceding year. On limited occasions, grants may occur on an interim basis, primarily for the purpose of approving a compensation package for a newly hired or promoted executive officer. The timing of these grants is driven solely by the activity related to the need for the hiring or promotion, not our stock price or the timing of any release of Company information.

Option Exercise Price.  The exercise price of a newly granted stock option is the closing price on the New York Stock Exchange on the date of grant. With respect to the occasional interim grants to a newly hired or promoted executive, the exercise price is the closing price on the New York Stock Exchange on the date of grant, which is the later of the approval date or the hire or promotion date; provided, however, that if the date of hire or promotion would fall within a Company imposed blackout period, the grant date will be the first business day following such blackout period.

 

 

 

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PPG Stock Ownership Requirements

The Officers-Directors Compensation Committee also believes that it is in the best interests of shareholders for our officers to own a significant amount of PPG common stock, thereby aligning their interests with the interests of shareholders. Accordingly, in 2003 the Officers-Directors Compensation Committee implemented stock ownership requirements applicable to all of our officers based on a multiple of base salary. The current stock ownership requirements are:

 

 

Chief Executive Officer

6 times base salary

Other executive officers

3 times base salary

Other officers

1 or 2 times base salary

Ownership for purposes of these requirements includes shares of PPG common stock personally owned as well as all stock holdings in PPG’s savings plan and deferred compensation accounts. Unexercised options and unvested shares awarded under our long‑term incentive plans are not counted for these purposes. Officers are expected to meet these ownership requirements within five years of election, appointment or promotion. The executive officers named in the Summary Compensation Table have met their ownership requirement, except for Ms. Liebert who joined the Company in June 2018. Ms. Liebert is within the five‑year compliance period.

Securities Trading Policy

PPG officers and directors may not engage in any transaction in which they may profit from short‑term speculative swings in the value of PPG’s securities. This prohibition includes “short sales” (selling borrowed securities that the seller hopes can be purchased at a lower price in the future) or “short sales against the box” (selling owned, but not delivered securities), “put” and “call” options (publicly available rights to sell or buy securities within a certain period of time at a specified price) and other hedging transactions designed to minimize an executive’s risk inherent in owning PPG stock, such as zero‑cost collars and forward sale contracts. In addition, officers may not hold PPG stock in a margin account and may not pledge PPG stock as collateral for a loan. This policy is designed to ensure compliance with all insider trading rules.

 

 

 

 

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COMPENSATION OF EXECUTIVE OFFICERS

Summary Compensation Table (2016‑2018)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

CHANGE

  

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IN PENSION

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

VALUE AND

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NONQUALIFIED

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NON-EQUITY

 

DEFERRED

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STOCK

 

OPTION

 

INCENTIVE PLAN

 

COMPENSATION

 

ALL OTHER

 

 

 

NAME AND POSITION

 

YEAR

 

SALARY(3)

 

BONUS(4)

 

AWARDS(5)

 

AWARDS(6)

 

COMPENSATION(7)

 

EARNINGS(8)

 

COMPENSATION(9)

 

TOTAL

M. H. McGarry

 

2018

 

$

1,258,333

 

$

 —

 

$

5,334,995

 

$

2,666,347

 

$

1,160,000

 

$

1,223,849

 

$

140,880

 

$

11,784,404

Chairman and Chief

 

2017

 

$

1,212,500

 

$

 —

 

$

5,000,022

 

$

2,500,015

 

$

1,855,600

 

$

3,509,536

 

$

172,188

 

$

14,249,861

Executive Officer

 

2016

 

$

1,100,000

 

$

 —

 

$

4,666,753

 

$

2,333,538

 

$

2,100,000

 

$

2,095,675

 

$

172,708

 

$

12,468,674

V. J. Morales(1)

 

2018

 

$

562,500

 

$

 —

 

$

866,866

 

$

433,287

 

$

190,000

 

$

248,630

 

$

34,983

 

$

2,336,266

Senior Vice President

 

2017

 

$

483,333

 

$

 —

 

$

518,123

 

$

266,490

 

$

500,000

 

$

590,573

 

$

30,579

 

$

2,389,098

and Chief Financial Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

R. B. Liebert(1)(2)

 

2018

 

$

330,729

 

$

 —

 

$

3,610,807

 

$

333,388

 

$

150,000

 

$

 —

 

$

1,254,493

 

$

5,679,417

Senior Vice President,