DEF 14A 1 a19-2510_1def14a.htm DEF 14A

 

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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Definitive Additional Materials

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Soliciting Material under §240.14a-12

 

Regal Beloit Corporation

(Name of Registrant as Specified In Its Charter)

 

 

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

 

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REGAL BELOIT CORPORATION

 

200 State Street
Beloit, Wisconsin 53511

 

Notice of 2019 Annual Meeting of Shareholders
To Be Held April 30, 2019

 

To the Shareholders of Regal Beloit Corporation:

 

You are hereby notified that the 2019 Annual Meeting of Shareholders of Regal Beloit Corporation will be held at the James L. Packard Learning Center located at our corporate headquarters, 200 State Street, Beloit, Wisconsin 53511, on Tuesday, April 30, 2019 at 9:00 a.m., Central Daylight Time, for the following purposes:

 

1.                                      To elect eight directors for terms expiring at the 2020 Annual Meeting of Shareholders.

 

2.                                      To consider a shareholder advisory vote on the compensation of our named executive officers as disclosed in the accompanying proxy statement.

 

3.                                      To ratify the selection of Deloitte & Touche LLP as our independent registered public accounting firm for the year ending December 28, 2019.

 

4.                                      To transact such other business as may properly come before the meeting or any adjournment or postponement thereof.

 

Our Board of Directors has fixed the close of business on March 7, 2019 as the record date for the determination of the shareholders entitled to notice of and to vote at the annual meeting.

 

We are furnishing our proxy materials to our shareholders over the Internet.  This process expedites the delivery of proxy materials, maintains convenient access to the proxy materials by our shareholders and provides clear instructions for receiving proxy materials and voting your shares.  It is also friendly to the environment.

 

On March 21, 2019, we mailed to our shareholders the Notice of Internet Availability of Proxy Materials.  That Notice contains instructions on how to access our 2019 Proxy Statement and 2018 Annual Report and how to vote online.  In addition, the Notice of Internet Availability of Proxy Materials contains instructions on how our shareholders can (i) receive a paper copy of the Proxy Statement and Annual Report, if the shareholder received only a Notice of Internet Availability of Proxy Materials this year, or (ii) elect to receive their Proxy Statement and Annual Report only over the Internet, if the shareholder received them by mail this year.

 

We hope that you will be able to attend the meeting in person, but if you are unable to do so, it is important that your shares are represented at the annual meeting.  You may vote your shares over the Internet at the website identified in the Notice of Internet Availability of Proxy Materials or via the toll-free telephone number identified in that Notice.  If you received a paper copy of the proxy card by mail, then you may sign and date the proxy card and return it by mail in the envelope provided.  The Notice of Internet Availability of Proxy Materials contains instructions for use of all three methods of voting.  If, for any reason, you should subsequently change your plans, you may, of course, revoke your proxy at any time before it is actually voted.

 

 

By Order of the Board of Directors

 

REGAL BELOIT CORPORATION

 

 

 

 

 

 

Thomas E. Valentyn

Beloit, Wisconsin

Vice President, General Counsel and Secretary

March 21, 2019

 

 


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PROXY STATEMENT

 

This Proxy Statement relates to the solicitation by Regal Beloit Corporation (“we” or our “Company”), on behalf of its Board of Directors (our “Board”), of your proxy to vote your shares of our Company’s common stock at the 2019 Annual Meeting of Shareholders and all adjournments or postponements thereof (the “Annual Meeting”).  We mailed our Notice of Internet Availability of Proxy Materials and we are making available this proxy statement on March 21, 2019.  We solicit proxies to give all shareholders of record an opportunity to vote on matters that will be presented at the Annual Meeting.  In this proxy statement, you will find information on these matters, which is provided to assist you in voting your shares.

 

COMMONLY ASKED QUESTIONS AND ANSWERS

ABOUT THE ANNUAL MEETING

 

Q:                                   What am I being asked to vote on?

 

A:                                   ·                 The election of directors;

 

·                  An advisory vote on the compensation of our named executive officers as disclosed in this proxy statement; and

 

·                  Ratification of the selection of Deloitte & Touche LLP as our independent registered public accounting firm for the year ending December 28, 2019.

 

Q:                                   Who can vote?

 

A:                                   Holders of our common stock as of the close of business on the record date, March 7, 2019, may vote at the Annual Meeting, either in person or by proxy.  Each share of common stock is entitled to one vote.

 

Q:                                   How do I vote?

 

A:                                   On March 21, 2019, we mailed our Notice of Internet Availability of Proxy Materials, which includes instructions for accessing this proxy statement and our 2018 Annual Report, as well as instructions for our shareholders to vote over the Internet, via a toll-free telephone number or by mail by signing, dating and returning a paper proxy card.  You can vote in the following ways:

 

By Proxy—Before the Annual Meeting, you can give a proxy to vote your shares of common stock in one of the following ways:

 

·                  by telephone;

 

·                  by using the Internet; or

 

·                  by completing and signing a proxy card and mailing it in time to be received prior to the Annual Meeting if you request to receive a paper copy of a proxy card.

 

The telephone and Internet voting procedures are designed to confirm your identity, to allow you to give your voting instructions and to verify that your instructions have been properly recorded. If you wish to vote by telephone or Internet, please follow the instructions that are printed on the Notice of Internet Availability of Proxy Materials.

 

If you mail your properly completed and signed proxy card to us, or vote by telephone or the Internet, then your shares of common stock will be voted

 

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according to the choices that you specify. If you sign and mail your proxy card to us without making any choices, your proxy will be voted:

 

·                  FOR the election of all persons nominated by our Board for election as directors;

 

·                  FOR the approval of the compensation of our named executive officers; and

 

·                  FOR the ratification of the selection of Deloitte & Touche LLP as our independent registered public accounting firm for the year ending December 28, 2019.

 

Other than the election of directors, approval of the compensation of our named executive officers and the ratification of the selection of our independent registered public accounting firm, we are not currently aware of any other matters that will be brought before the Annual Meeting.  However, by giving your proxy, you appoint the persons named as proxies as your representatives at the Annual Meeting.  If a matter comes up for a vote at the Annual Meeting that is not included in the proxy materials, then the proxy holders will vote your shares in accordance with their best judgment.

 

In Person—You may come to the Annual Meeting and cast your vote there.  If your shares are held in the name of your broker, bank or other nominee and you wish to vote at the Annual Meeting, then your broker, bank or other nominee will provide you with instructions for voting your shares.

 

Q:                                   May I change or revoke my vote?

 

A:                                   You may change your vote or revoke your proxy at any time prior to your shares being voted by:

 

·                  notifying our Secretary in writing that you are revoking your proxy;

 

·                  giving another signed proxy that is dated after the date of the proxy that you wish to revoke;

 

·                  using the telephone or Internet voting procedures; or

 

·                  attending the Annual Meeting and voting in person (attendance at the Annual Meeting alone will not revoke your proxy).

 

Q:                                   Will my shares be voted if I do not provide my proxy?

 

A:                                   It depends on whether you hold your shares in your own name or in the name of a brokerage firm.  If you hold your shares directly in your name, then they will not be voted unless you provide a proxy or vote in person at the Annual Meeting.  Brokerage firms or other nominees generally have the authority to vote customers’ uninstructed shares on certain “routine” matters.  If your shares are held in the name of a brokerage firm, the brokerage firm may have the discretionary authority to vote your shares in connection with the ratification of our independent registered public accounting firm if you do not timely provide your proxy because this matter is considered “routine” under the New York Stock Exchange (“NYSE”) listing standards.

 

However, if you have not provided directions to your broker, your broker will not be able to vote your shares with respect to the election of directors or the approval of the compensation of our named executive officers.  We strongly encourage you to submit your proxy card and exercise your right to vote as a shareholder.

 

Q:                                   What constitutes a quorum?

 

A:                                   As of the record date, March 7, 2019, 42,808,942 shares of our common stock were issued and outstanding and entitled to vote at the Annual Meeting.  To conduct the Annual Meeting, a majority of the shares entitled to vote must be

 

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present in person or by proxy. This is referred to as a “quorum.” If you submit a properly executed proxy card or vote by telephone or the Internet, then you will be considered present at the Annual Meeting for purposes of determining the presence of a quorum.  Abstentions and broker “non-votes” will be counted as present and entitled to vote for purposes of determining the presence of a quorum.  A broker “non-vote” occurs when a broker or other nominee who holds shares for another person has not received voting instructions from the owner of the shares and, under NYSE rules, does not have discretionary authority to vote on a proposal.

 

Q:                                   What vote is needed for these proposals to be adopted?

 

A:                                   Proposal 1—The affirmative vote of the holders of a majority of the shares of our common stock represented in person or by proxy at the Annual Meeting is required to elect each director (assuming a quorum is present).  Abstentions and broker “non-votes” will have the effect of votes against the election of director nominees.

 

Proposal 2—The affirmative vote of the holders of a majority of the shares of our common stock represented in person or by proxy at the Annual Meeting is required to approve the compensation of our named executive officers (assuming a quorum is present).  Because this vote is advisory, the results of the vote are not binding on our Board or our Compensation and Human Resources Committee.  However, if there is a significant vote against the compensation of our named executive officers, then our Board and our Compensation and Human Resources Committee will carefully evaluate whether any actions are necessary to address those concerns.  Abstentions and broker non-votes will have the effect of votes against this proposal.

 

Proposal 3—The affirmative vote of the holders of a majority of the shares of our common stock represented and voted at the Annual Meeting (assuming a quorum is present) is required to ratify the selection of Deloitte & Touche LLP as our independent registered public accounting firm for the year ending December 28, 2019.  Abstentions will have the effect of votes against this proposal.

 

Q:                                   Who conducts the proxy solicitation and how much will it cost?

 

A:                                   We are requesting your proxy for the Annual Meeting and will pay all costs of soliciting shareholder proxies.  In addition to soliciting proxies by mail and through the Internet, we may request proxies personally and by telephone, fax or other means.  We can use our directors, officers and regular employees to request proxies.  These people do not receive additional compensation for these services. We will reimburse brokerage houses and other custodians, nominees and fiduciaries for their reasonable out-of-pocket and clerical expenses for forwarding solicitation materials to beneficial owners of our common stock.

 

Q:                                   Are our Company’s proxy materials available on the Internet?

 

A:                                   Yes.  Our Company’s proxy statement for the Annual Meeting and 2018 Annual Report to Shareholders are available at www.proxyvote.com.

 

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PROPOSAL 1:  ELECTION OF DIRECTORS

 

Our Board is currently comprised of ten directors with the terms of each director expiring this year.  Our Board has nominated Stephen M. Burt, Anesa T. Chaibi, Christopher L. Doerr, Thomas J. Fischer, Dean A. Foate, Rakesh Sachdev, Curtis W. Stoelting and Jane L. Warner, each of whom is currently serving as a director, for election at the Annual Meeting to serve until the 2020 annual meeting of shareholders and until their successors are duly elected and qualified.  We include background information on all of the nominees below.

 

Upon election, the directors will hold office for a term expiring at the next annual meeting and until their successors have been elected and qualified.  Our Board has established a retirement age of 72 within the Corporate Governance Guidelines and our Company Bylaws.  Specifically, a director is expected to retire from our Board on the day and hour of the annual shareholders meeting next following his or her 72nd birthday.  Pursuant to the Corporate Governance Guidelines and the Bylaws, our Board considered the status of Jane L. Warner, who has attained the age of 72.  After due consideration of her qualities, skills and attributes, and taking into account all the circumstances, our Board has waived the retirement age with respect to Ms. Warner based on its determination that it would be beneficial to have Ms. Warner continue to serve as a director due to her knowledge and experience with our Company, her contributions to our Board and to the Corporate Governance and Director Affairs Committee and her significant involvement in ongoing governance matters.  Accordingly, Ms. Warner is one of the directors nominated for election at the Annual Meeting.

 

We previously announced in October 2018 that Mark J. Gliebe would be retiring following the completion of calendar year 2018, and after his successor has been appointed.  Our Board has recently announced the election of Louis V. Pinkham to serve as Mr. Gliebe’s successor as Chief Executive Officer, with a start date of April 1, 2019.  Mr. Gliebe will retire as Chief Executive Officer on March 31, 2019.  Through the Annual Meeting, Mr. Gliebe will continue to serve in the role of Chairman, after which he will no longer serve as a director of our Company.  Our Board has determined that Mr. Sachdev will serve as Chairman following Mr. Gliebe’s departure from our Board.  Our Board expects to elect Mr. Pinkham to serve as a director following the Annual Meeting.  After serving on our Board since 1987, Henry W. Knueppel will be retiring from our Board at the expiration of his term at the Annual Meeting.  Our Board has acted to reduce the size of the Board to nine directors.  Our Board has proposed eight nominees for election at the Annual Meeting and expects that Mr. Pinkham will be elected to serve as the ninth director following the Annual Meeting.

 

Unless shareholders otherwise specify, the shares represented by the proxies received will be voted in favor of our Board’s nominees for election as directors.  Our Board has no reason to believe that any of the listed nominees will be unable or unwilling to serve as a director if elected.  However, in the event that any nominee should be unable or unwilling to serve, the shares represented by proxies received will be voted for another nominee selected by our Board.

 

Our Corporate Governance and Director Affairs Committee periodically reviews and recommends to our Board the qualities, skills and attributes desired in our directors to reflect the unique challenges facing, and business strategies of, our Company.  The Corporate Governance and Director Affairs Committee reviews the qualities, skills and attributes of proposed nominees when it makes director nominee recommendations to our Board and compares them against the desired

 

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qualities, skills and attributes.  Our Board reviews this information when considering proposed nominees.

 

Some of the challenges and strategies we face in our business, and the corresponding desired qualities, skills and attributes, are described in the following table.

 

Challenges/Strategies

 

Desired Qualities, Skills, Attributes

We are a global company with operations and customers around the world

 

·                       Diversity of gender, race, nationality, cultural and/or professional experience

·                       Experience in global markets

·                       Experience as a current or former chief executive or chief operating officer, or significant operations experience

 

 

 

We have grown substantially through acquisition, and future acquisitions are one component of our capital deployment strategy

 

·                       Business development/M&A experience

·                       Knowledge of investment banking and/or capital markets

 

 

 

Our presence and sales in multiple global jurisdictions and across several business platforms results in a wide variety of transactions in many different currencies

 

·                       Experience as a current or former chief financial officer

·                       Expertise in matters of public accounting

 

 

 

We believe that good corporate governance will improve our operating performance and aligns with the interests of our shareholders

 

·                       Public company board experience

·                       Knowledgeable in corporate governance

 

 

 

Our industry has numerous unique challenges associated with manufacturing our products as well as conducting our business

 

·                       Knowledge and experience in our industry

·                       Current or past experience with manufacturing

 

 

 

One of the key elements of our strategy is to grow organically by innovating our products around the themes of energy efficiency and disruptive technologies

 

·                       Experience in driving growth with innovative products, systems or services

·                       Entrepreneurial experience

 

The following sets forth certain information, as of March 7, 2019, about each of our Board’s nominees for election at the Annual Meeting.  Except as otherwise noted, each nominee has engaged in the principal occupation or employment and has held the offices shown for more than the past five years.

 

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Nominees for Election at the Annual Meeting:

 

Name

 

Age

 

Director
Since

 

Principal Occupation; Office, if any,
Held in our Company; Other Directorships

 

 

 

 

 

 

 

 

Stephen M. Burt

 

54

 

2010

 

Mr. Burt is the Managing Director of Duff & Phelps (a provider of independent financial advisory and investment banking services). Mr. Burt is currently the leader of the firm’s Mergers and Acquisitions Advisory practice as well as the President of Duff & Phelps Securities, LLC (a provider of merger and acquisition advisory services) and has been with the company since 1994. Mr. Burt has a B.S. in Finance from Indiana University and an M.B.A. in Finance from DePaul University. Mr. Burt is an NACD Board Leadership Fellow and serves on the Finance Advisory Board in the Driehaus College of Business at DePaul University. Among the qualities, skills, and attributes desired by our Board, Mr. Burt has

·                       Extensive M&A experience;

·                       Investment banking and capital markets expertise;

·                       Experience in our industry;

·                       Global experience;

·                       Corporate governance knowledge; and

·                       Shareholder / Investor relations experience.

 

 

 

 

 

 

 

 

Anesa T. Chaibi

 

52

 

2014

 

Ms. Chaibi is the Chief Executive Officer and a director of Optimas OE Solutions, LLC (a global provider of integrated supply chain solutions and engineering support) since 2016. Prior to that role, Ms. Chaibi served as President and Chief Executive Officer of HD Supply Facilities Maintenance, a division of HD Supply Holdings, Inc. (an industrial supplier), from 2005-2015. Previously, Ms. Chaibi held a variety of roles of increasing responsibility within several business units of General Electric Company from 1989-2005. Ms. Chaibi has a B.S. in Chemical Engineering from West Virginia University and an M.B.A. from the Fuqua School of Business at Duke University. Ms. Chaibi is an NACD Board Leadership Fellow. Among the qualities, skills, and attributes desired by our Board, Ms. Chaibi has

·                       CEO experience;

·                       Extensive M&A experience;

·                       Gender, ethnic or racial diversity;

·                       Innovation / Entrepreneurial experience;

·                       Experience in manufacturing;

·                       Global experience;

·                       Engineering / IT / Technical expertise; and

·                       Sustainability expertise.

 

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Name

 

Age

 

Director
Since

 

Principal Occupation; Office, if any,
Held in our Company; Other Directorships

 

 

 

 

 

 

 

 

Christopher L. Doerr

 

69

 

2003

 

Mr. Doerr is the Chief Executive Officer of Passage Partners, LLC (a private investment company) since 2016 and served as the Co-Chief Executive Officer from 2001-2016. In prior roles, Mr. Doerr served as the Co-Chief Executive Officer of Sterling Aviation Holdings, Inc. (an aircraft management and charter company) from 2004-2014, Executive Chairman and Chief Executive Officer of Karl’s Rental, Inc. (a global manufacturer and supplier of portable event structures and related equipment) from 2009-2011, and President and Co-CEO of Leeson Electric Corporation from 1986-2001. Mr. Doerr has served as a director of several privately-held and publicly-traded companies and currently serves as a director of Roadrunner Transportation Systems, Inc. Among the qualities, skills, and attributes desired by our Board, Mr. Doerr has

·                       CEO experience;

·                       Extensive M&A experience;

·                       Public company board experience;

·                       Innovation / Entrepreneurial experience;

·                       Experience in our industry;

·                       Experience in manufacturing;

·                       Global experience;

·                       Engineering / IT / Technical expertise; and

·                       Marketing expertise.

 

 

 

 

 

 

 

 

Thomas J. Fischer

 

71

 

2004

 

Mr. Fischer is a corporate financial, accounting, and governance consultant of Fischer Financial Consulting LLC since 2002. He is the retired Deputy Managing Partner for the Great Plains Region of Arthur Andersen, LLP (an accounting firm), where he worked from 1969-2001. Mr. Fischer has a B.A. in Accounting from Notre Dame, and he serves as a director of Badger Meter Inc. and WEC Energy Group. He previously served as a director of Actuant Corporation from 2003-2017. Among the qualities, skills, and attributes desired by our Board, Mr. Fischer has

·                       Extensive M&A experience;

·                       CFO experience;

·                       Expertise in matters of public accounting;

·                       Public company board experience;

·                       Experience in our industry; and

·                       Corporate governance knowledge.

 

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Name

 

Age

 

Director
Since

 

Principal Occupation; Office, if any,
Held in our Company; Other Directorships

 

 

 

 

 

 

 

 

Dean A. Foate

 

60

 

2005

 

Mr. Foate is the non-executive Chairman of the Board of Plexus Corporation (an electronics manufacturing services company) since 2016. Previously, he served Plexus Corporation as President and Chief Executive Officer from 2002-2016, including Chairman of the Board from 2013-2016, and as Chief Operating Officer from 2001-2002. Prior to that time, Mr. Foate held other various leadership roles with Plexus Corporation since joining the company in 1984. Mr. Foate has a B.S. in Electrical and Computer Engineering from the University of Wisconsin, and an M.S. in Engineering Management from the Milwaukee School of Engineering. Among the qualities, skills, and attributes desired by our Board, Mr. Foate has

·                       CEO experience;

·                       Extensive M&A experience;

·                       Public company board experience;

·                       Innovation / Entrepreneurial experience;

·                       Experience in manufacturing;

·                       Global experience;

·                       Engineering / IT / Technical expertise;

·                       Marketing expertise;

·                       Corporate governance knowledge; and

·                       Shareholder / Investor relations experience.

 

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Name

 

Age

 

Director
Since

 

Principal Occupation; Office, if any,
Held in our Company; Other Directorships

 

 

 

 

 

 

 

 

Rakesh Sachdev

 

63

 

2007

 

Mr. Sachdev is a director of Element Solutions Inc (formerly Platform Specialty Products Corporation, a global diversified producer of high-technology specialty chemicals and a provider of technical services) since 2016. He recently retired from his position as the Chief Executive Officer of Platform Specialty Products Corporation. Prior to that role, Mr. Sachdev served as a director and the President and Chief Executive Officer of Sigma-Aldrich Corporation (a life science and technology company) from 2010-2015 and as the Vice President and Chief Financial Officer from 2008-2010. Mr. Sachdev also served in various executive positions with ArvinMeritor, Inc. (a supplier of automotive components) from 1999-2008. Mr. Sachdev has a B.S. in Mechanical Engineering from the Indian Institute of Technology in New Delhi, India, an M.B.A. in Finance from Indiana University, and an M.S. in Mechanical Engineering from the University of Illinois. Mr. Sachdev serves as a director of Edgewell Personal Care Products Corp. Among the qualities, skills, and attributes desired by our Board, Mr. Sachdev has

·                       CEO experience;

·                       Extensive M&A experience;

·                       CFO experience;

·                       Expertise in matters of public accounting;

·                       Public company board experience;

·                       Gender, ethnic or racial diversity;

·                       Innovation / Entrepreneurial experience;

·                       Investment banking and capital markets expertise;

·                       Experience in manufacturing;

·                       Global experience;

·                       Engineering / IT / Technical expertise;

·                       Corporate governance knowledge; and

·                       Shareholder / Investor relations experience.

 

Mr. Sachdev recently retired as Chief Executive Officer of Platform Specialty Products Corporation. Our Board believes that Mr. Sachdev’s current and prior professional commitments and experience provide Mr. Sachdev with broad industry and corporate governance perspective that enhance his ability to serve as the future Chairman.

 

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Name

 

Age

 

Director
Since

 

Principal Occupation; Office, if any,
Held in our Company; Other Directorships

 

 

 

 

 

 

 

 

Curtis W. Stoelting

 

59

 

2005

 

Mr. Stoelting is the Chief Executive Officer of Roadrunner Transportation Systems, Inc. (a transportation and logistics service provider) since May 2017 and was previously the President and Chief Operating Officer of Roadrunner from 2016-2017. Prior to that role, Mr. Stoelting served as the Chief Executive Officer and a director of TOMY International (formerly RC2 Corporation, a designer, producer, and marketer of products for infants and toddlers) from 2003-2013. Previously, Mr. Stoelting served in several leadership roles with RC2 from 1994-2003, including as the Chief Operating Officer and a director beginning in 2000. Mr. Stoelting has a B.A. in Accounting from the University of Illinois and is a Certified Public Accountant. Mr. Stoelting serves as a director of Roadrunner Transportation Systems, Inc. Among the qualities, skills, and attributes desired by our Board, Mr. Stoelting has

·                       CEO experience;

·                       Extensive M&A experience;

·                       CFO experience;

·                       Expertise in matters of public accounting;

·                       Public company board experience;

·                       Investment banking and capital markets expertise;

·                       Global experience;

·                       Marketing expertise;

·                       Corporate governance knowledge; and

·                       Shareholder / Investor relations experience.

 

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Name

 

Age

 

Director
Since

 

Principal Occupation; Office, if any,
Held in our Company; Other Directorships

 

 

 

 

 

 

 

 

Jane L. Warner

 

72

 

2013

 

Ms. Warner is retired and most recently was the Executive Vice President, Decorative Surfaces and Finishing Systems of Illinois Tool Works Inc. (a manufacturer of specialized industrial equipment, consumables, and related service businesses) from 2005-2013. Prior to that role, Ms. Warner served as the President of Plexus Systems LLC from 2004-2005. (Note: Plexus Systems LLC is not affiliated with Plexus Corporation where another director, Dean A. Foate, serves as non-executive Chairman of the Board.) Ms. Warner also served in various capacities with Electronic Data Systems Corporation (an informational technology equipment and services company) from 2000-2004, including as President, Global Manufacturing Industry Group. Prior to that role, Ms. Warner served as the Executive Vice President of Textron Automotive (a first-tier supplier for automotive markets) from 1994-1999 and previously in multiple executive positions in manufacturing, engineering, and human resources with General Motors Corporation. Ms. Warner has both an M.A. and a B.A. from Michigan State University, and she has an M.B.A. from Stanford University. Ms. Warner is a member of the NACD Nominating and Governance Committee Chair Advisory Council and serves as a director of Brunswick Corporation and Tenneco Inc. She previously served as a director of MeadWestvaco Corporation. Among the qualities, skills, and attributes desired by our Board, Ms. Warner has

·                       Public company board experience;

·                       Gender, ethnic or racial diversity;

·                       Experience in manufacturing;

·                       Global experience;

·                       Corporate governance knowledge; and

·                       Sustainability expertise.

 

 

OUR BOARD RECOMMENDS THE FOREGOING NOMINEES FOR ELECTION AS DIRECTORS AND URGES EACH SHAREHOLDER TO VOTE “FOR” ALL NOMINEES.

 

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BOARD OF DIRECTORS

 

Corporate Governance Highlights

 

We believe good governance is one critical element to achieving long-term shareholder value. We are committed to governance policies and practices that serve our and our shareholders’ long-term interests, as well as enable solid risk management and our performance-based focus.  The following table summarizes certain highlights of our corporate governance practices and policies:

 

·    Annual election of all directors
·    Majority voting for directors
·    At least 20% of our Board is female
·    All standing committees are composed entirely of

independent directors

·    Annual Board and Committee evaluations
·    Cyclical individual director evaluations

 

·    Right of shareholders to call special meetings
·    No “poison pill”
·    Share ownership guidelines for directors and executives
·    Commitment to sustainability
·    Proxy access right granted to shareholders

 

Corporate Governance and Independent Directors

 

Our Board has in effect Corporate Governance Guidelines that, in conjunction with our Board committee charters, establish processes and procedures to help ensure effective and responsive governance by our Board.  The Corporate Governance Guidelines are available, free of charge, on our website at www.regalbeloit.com.  We are not including the information contained on or available through our website as a part of, or incorporating such information by reference into, this Proxy Statement.

 

The Corporate Governance Guidelines provide that a majority of the members of our Board must be independent directors under the listing standards of the NYSE.  Our Board has also adopted certain categorical standards of director independence to assist it in making determinations of director independence and which are contained in the Corporate Governance Guidelines.  The categorical standards of director independence adopted by our Board are available on our website at www.regalbeloit.com.

 

Based on these standards, our Board has affirmatively determined by resolution that Messrs. Burt, Doerr, Fischer, Foate, Sachdev and Stoelting and Ms. Warner and Ms. Chaibi have no material relationship with our Company, and, therefore, each is independent in accordance with the NYSE listing standards and with the categorical standards of director independence adopted by our Board.  Our Board will regularly review the continuing independence of the directors.

 

Code of Business Conduct and Ethics

 

Our Board has adopted the Regal Beloit Corporation Code of Business Conduct and Ethics (the “Code”), which applies to our directors, officers and employees. The Code is available, free of charge, on our website at www.regalbeloit.com.

 

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Board Leadership Structure

 

Our Board does not maintain a policy on whether or not the roles of CEO and Chairman of the Board (Chairman) should be separate.  Our Board reserves the right to vest the responsibilities of the CEO and Chairman in different individuals or in the same individual if, in our Board’s judgment, a combined CEO and Chairman position is in the best interest of our Company.  In the circumstance where the responsibilities of the CEO and Chairman are vested in the same individual, or where the Chairman is not considered independent, our Board will designate a Presiding Director from among the independent directors.  The position of the Presiding Director has rotated periodically among the non-employee directors as determined by our Board upon the recommendation of the Corporate Governance and Director Affairs Committee.  The Presiding Director is an independent and empowered director who is appointed by the independent directors and who works closely with the Chairman.  The Corporate Governance Guidelines outline the role and responsibilities of the Presiding Director.  Through 2018 and expected through the time of the Annual Meeting, Mr. Gliebe has served as the combined CEO and Chairman and Mr. Sachdev has served as the Presiding Director.

 

We announced in October 2018 that Mr. Gliebe would be retiring following the completion of calendar year 2018, and after his successor has been appointed.  Our Board has recently announced the election of Louis V. Pinkham to serve as Mr. Gliebe’s successor as Chief Executive Officer, with a start date of April 1, 2019.  Mr. Gliebe will retire as Chief Executive Officer on March 31, 2019.  Through the Annual Meeting, Mr. Gliebe will continue to serve in the role of Chairman, after which he will no longer serve as a director of our Company.  Our Board believes that Mr. Gliebe, serving as the combined CEO and Chairman, has best served the needs of our Board and our shareholders during his tenure in these roles.  Our Board made this determination because it believes that Mr. Gliebe’s extensive experience and qualifications within our industries and in-depth knowledge of our markets and customer base allowed him to provide strong leadership and act as a unified spokesperson on behalf of our Company.  Our Board also believes that having Mr. Gliebe serve as both our CEO and our Chairman allowed him to leverage the information gained from both roles to lead our Company most effectively.

 

Our Board has determined that Mr. Sachdev will serve as the Chairman, following Mr. Gliebe’s departure from our Board.  Mr. Sachdev currently serves as the Presiding Director, which is a role that has supplemented the combined Chairman and CEO position.  Our Board believes that the transition to Mr. Pinkham as our new CEO will be supported by an independent Chairman who has a deep understanding of our business and governance structure, and that the separation of these positions will allow Mr. Pinkham to more fully focus his attention on the requirements of the CEO role.  Our Board has determined that once Mr. Sachdev is appointed as the Chairman, which will be effective following the Annual Meeting, there will not be a need for a Presiding Director.

 

Oversight of Risk Management

 

Our full Board is responsible for the oversight of our Company’s operational and strategic risk management process. Our Board believes that oversight of risk management belongs at the full Board level rather than with any one particular committee primarily because of the importance of understanding and mitigating risk to the overall success of our Company.  In furtherance of our Board’s risk management oversight goals, our Board oversees the work of a Risk and Compliance Committee comprised of senior management and key managers of certain of our Company’s business units and functions around the world.  The Risk and Compliance Committee is charged with, among other things,

 

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identifying, assessing and developing a mitigation strategy for significant risks that could impact our ability to meet our objectives and execute our strategies.

 

The Risk and Compliance Committee identifies and clarifies significant risks (including cybersecurity and sustainability matters) that may impact our Company and assesses those risks, resulting in the establishment of a plan response/mitigation strategy for significant risks.  The Risk and Compliance Committee delivers a summary of its activities and findings directly to our CEO, the Audit Committee, and our full Board.  The summary is also used by our management team as part of our disclosure controls and procedures to ensure that information regarding material risks applicable to our Company are appropriately disclosed in our public filings.

 

While our Board has determined to maintain responsibility for oversight of risk management, it relies on our Audit Committee to address significant financial risk exposures facing our Company and the steps management has taken to monitor, control and report such exposures, with appropriate reporting of these risks to be made to the full Board.  Our Board also relies on our Compensation and Human Resources Committee to address significant risk exposures facing our Company with respect to compensation programs and incentives, also with appropriate reporting of these risks to be made to the full Board.  Our Board’s role in our Company’s risk oversight has not affected our leadership structure.

 

Executive Sessions

 

Our Board will have at least four regularly scheduled meetings per year at which the non-employee directors will meet in executive session without members of our management being present, and at least one regularly scheduled meeting per year at which the independent directors will meet in executive session without members of management or other directors present.  The non-employee directors may also meet without management present at such other times as they determine appropriate.  Members of our Company’s senior executive management who are not members of our Board will participate in Board meetings to present information, make recommendations, and be available for direct interaction with members of our Board.

 

Communications with our Board

 

Shareholders and other interested parties may communicate with the full Board, the Chairman, non-management directors as a group or individual directors, including the Presiding Director, by delivering a written communication to Regal Beloit Corporation, Attention: Board of Directors, 200 State Street, Beloit, Wisconsin 53511, or by sending an e-mail communication to board.inquiry@regalbeloit.com.  The communications should be addressed to the specific director or directors whom the shareholder or interested party wishes to contact and should specify the subject matter of the communication. Our Company’s Secretary will deliver appropriate communication directly to the director or directors to whom it is addressed.  The Secretary will generally not forward to the director or directors communication that he determines to be primarily commercial in nature or concerns our day-to-day business activities, or that requests general information about our Company.

 

Concerns about accounting or auditing matters or possible violations of the Code should be reported pursuant to the procedures outlined in the Code, which is available on our website at www.regalbeloit.com.

 

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Committees

 

We have three standing committees of our Board: Audit Committee, Compensation and Human Resources Committee, and Corporate Governance and Director Affairs Committee.  Ad hoc committees are created for specific purposes from time to time.  Each committee is appointed by and reports to our Board.  Our Board has adopted, and may amend from time to time, a written charter for each of the standing committees.  We make copies of each of these charters available free of charge on our website at www.regalbeloit.com.

 

Audit Committee.  The Audit Committee consists of Messrs. Burt (Chairperson), Fischer and Foate.  Each of the members of the committee is independent as defined by the NYSE listing standards and the rules of the Securities and Exchange Commission (the “SEC”).  Our Board has determined that each of Messrs. Burt, Fischer and Foate qualifies as an “audit committee financial expert” as defined in SEC rules and meets the expertise requirements for audit committee members under the NYSE listing standards.  The principal functions performed by the Audit Committee, which met five times in 2018, are to assist our Board in monitoring the overall quality of our Company’s financial statements and financial reporting, our independent registered public accounting firm’s qualifications and independence, our accounting controls and policies, the performance of our internal audit function and independent registered public accounting firm, and our compliance with legal and regulatory requirements. The Audit Committee has the sole authority to appoint, retain, compensate and terminate our independent registered public accounting firm and to approve the compensation paid to our independent registered public accounting firm.  The Audit Committee has presented to shareholders for ratification at the Annual Meeting its selection of our independent registered public accounting firm for 2019.  See “Proposal 3: Ratification of Deloitte & Touche LLP as Our Independent Registered Public Accounting Firm for 2019.”

 

Compensation and Human Resources Committee.  The Compensation and Human Resources Committee consists of Messrs. Stoelting (Chairperson), Doerr and Sachdev.  Each of the members of the Compensation and Human Resources Committee is independent as defined by the NYSE listing standards.  The principal functions of the Compensation and Human Resources Committee, which met five times in 2018, are to help develop our overall compensation philosophy; administer our incentive compensation plans (including our equity incentive plans); determine and approve the compensation of the Chief Executive Officer and the other principal corporate officers; review and monitor succession and leadership development planning; and review, formulate, recommend and administer short- and long-range compensation programs for the principal corporate officers and key employees.  A more complete description of our Compensation and Human Resources Committee’s practices can be found in the Compensation Discussion and Analysis section of this Proxy Statement.  The Compensation and Human Resources Committee from time to time uses independent compensation consultants to assist the Committee in the performance of its responsibilities.  As part of its evaluation of potential compensation consultants, the Committee considers all factors relevant to the consultant’s independence from management and potential conflicts of interest in accordance with applicable SEC rules and NYSE listing standards.  After selecting an independent compensation consultant, the Committee periodically meets with that consultant throughout the year at such times as the Committee deems appropriate, and receives reports and advice from the consultant on matters of executive compensation.  In 2018, the Committee selected Willis Towers Watson PLC (“Willis Towers Watson”) to serve as its independent compensation consultant.  Willis Towers Watson does not perform any other services for us or our named executive officers other than the services provided at the direction of the Committee.

 

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Corporate Governance and Director Affairs Committee.  The Corporate Governance and Director Affairs Committee consists of Ms. Warner (Chairperson), Ms. Chaibi and Mr. Foate.  Each of the members of the Corporate Governance and Director Affairs Committee is independent as defined by the NYSE listing standards.  The principal functions of the Corporate Governance and Director Affairs Committee, which met five times in 2018, are to develop and recommend to our Board a set of corporate governance principles applicable to our Company, including matters of Board organization, membership, compensation, independence and function, and committee structure and membership; take a leadership role in shaping our corporate governance; identify directors qualified to serve on the committees established by our Board; and to recommend to our Board the members and the chairperson for each committee to be filled by our Board. This Committee also serves as the nominating committee of our Board and is responsible for identifying individuals qualified to become directors (consistent with the criteria approved by our Board) and to recommend candidates for all directorships to be filled by our Board or by our shareholders.

 

Nominations of Directors

 

In 2017, our Board amended and restated our Company’s Amended and Restated Bylaws to implement proxy access.  Proxy access is provided to a shareholder, or a group of up to 20 shareholders, owning at least 3% of our Company’s outstanding common stock continuously for at least three years.  Eligible shareholders are permitted to nominate up to 20% of the total number of directors, rounded down to the nearest whole number (but not less than two), provided that the shareholders and nominees satisfy the requirements specified in the Bylaws.  Nominating shareholders are required to satisfy certain informational and procedural requirements, including (i) that such shareholders do not have an intent or objective to influence or change control of our Company and (ii) that their nominees will not have entered into any agreements as to how they will vote or act on different matters.  Under the Bylaws, we must receive notice of a shareholder’s director nomination for the 2020 annual meeting pursuant to the proxy access by-law provision no sooner than October 23, 2019 and no later than November 22, 2019. If the notice is received outside of that time frame, then we are not required to include the nominees in our proxy materials for the 2020 annual meeting.

 

The Corporate Governance and Director Affairs Committee will also consider persons recommended by shareholders to become nominees for election as directors in accordance with the criteria set forth in the Corporate Governance Guidelines under the heading “The Directors-Qualifications.”  The Corporate Governance and Director Affairs Committee will only review recommendations for director nominees from any shareholder or group of shareholders beneficially owning in the aggregate at least 5% of the issued and outstanding shares of our common stock for at least one year as of the date that the recommendation is made.  Recommendations with respect to the 2020 annual meeting of shareholders must be submitted by November 22, 2019 for the recommendation to be considered by the Corporate Governance and Director Affairs Committee.

 

In identifying and evaluating nominees for director, the Corporate Governance and Director Affairs Committee believes that all directors should be financially literate and must be committed to understanding our Company and its industry, and must also possess the highest personal and professional ethics, integrity and values, and commitment to representing the long-term interest of the shareholders.  Directors must also possess a diverse set of skills and experience with a background in areas that are relevant to our activities. Directors should also be inquisitive and have an objective perspective, a practical wisdom and mature judgment. Directors must be willing and able to devote

 

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whatever time is necessary to carry out their duties and responsibilities effectively. Directors will not be nominated unless they are willing to serve for an extended period of time.

 

While the Corporate Governance and Director Affairs Committee does not have a formal policy relating specifically to the consideration of diversity in its process to select and evaluate director nominees, the Committee does consider diversity of viewpoint, background, industry knowledge and perspectives, as well as ethnic and gender diversity, as part of its overall evaluation of candidates for director nominees.  Specifically, our criteria for director nominees, included as Appendix A to our Corporate Governance Guidelines, provide that directors should be selected so that our Board represents diverse backgrounds and perspectives.

 

For a timely recommendation submitted by a shareholder to be considered by the Corporate Governance and Director Affairs Committee, the candidate recommended by a shareholder must be “independent” as defined in the NYSE independence standards and SEC regulations, and meet the minimum expectations for a director set forth in our Company’s Corporate Governance Guidelines.  The Corporate Governance and Director Affairs Committee will have sole discretion whether to nominate an individual recommended by a shareholder. As to any candidate identified by the Corporate Governance and Director Affairs Committee to become a nominee, the candidate must possess the requisite qualifications, although the Corporate Governance and Director Affairs Committee need not require such nominee to be independent. Nevertheless, we strive to have all directors, other than those directors who are current or former members of our management, be independent as defined by the NYSE independence standards and SEC regulations.

 

Sustainability

 

We believe that a commitment to sustainability is about commitment to doing everything better.  We believe that positive environmental, social and governance-related business practices strengthen our Company, increase our connection with our stakeholders and help us better serve our customers and the communities in which we operate.  We believe that sustainability goes beyond compliance and extends to worker health and safety, the environment, anti-corruption and trade compliance, responsible sourcing, human rights and labor practices.  At Regal, we believe that decreasing our footprint and increasing our handprint are creating a better tomorrow.  Our Sustainability Report is available on our website at sustainability.regalbeloit.com.

 

Among the ways in which we have demonstrated our commitment to sustainability are the following:

 

·                  We implement environmentally-friendly solutions for our customers, including innovative products to minimize water usage, energy consumption, wastewater discharge and sound levels.

 

·                  Our formal environmental, health, safety and sustainability program, called our Compliance Citizenship Review, helps us to systematically decrease our footprint, and we assess progress at each of our sites at least twice a year.

 

·                  We contribute to the communities where we live and work by supporting local charitable organizations and contributing countless volunteer hours.

 

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·                  We foster a strong corporate culture that promotes the highest standards of ethics and compliance for our business, including the Code that sets forth principles to guide the conduct of our directors, officers and employees.

 

·                  We maintain an Integrity Alert Line whereby suspected violations of the Code can be reported via phone or the web on a confidential basis and are investigated.

 

·                  We are committed to continually improving workplace safety through our “zero harm” expectation.

 

·                  We invest in training employee-led “high energy teams” to actively participate in our safety programs and drive improvements in safety, speed, quality, cost and sustainability.

 

·                  We have global anti-corruption and third-party engagement policies and conduct regular audits and assessments of our business partners.

 

·                  We are an equal opportunity employer, emphasizing inclusion and committed to maintaining a workplace free of harassment and discrimination.

 

·                  We promote having a diverse talent pipeline by ensuring that we employ and promote qualified people without discrimination.

 

Policies and Procedures Regarding Related Person Transactions

 

Our Board has adopted written policies and procedures regarding related person transactions.  For purposes of these policies and procedures:

 

·                  a “related person” means any of our directors, executive officers, nominees for director or a person who has a greater than 5% beneficial ownership, and any of their immediate family members, as well as any entity in which any of these persons is employed or is a partner or principal or in a similar position or in which such person has a 5% or greater beneficial ownership interest; and

 

·                  a “related person transaction” generally is a transaction in which we were or are to be a participant and the amount involved exceeds $120,000, and in which any related person had or will have a direct or indirect interest.

 

The related person, the director, executive officer, nominee or beneficial owner who is an immediate family member of a related person, or a business unit or function/department leader of our Company responsible for a proposed related person transaction must notify our General Counsel of certain information relating to proposed related person transactions.  If our General Counsel determines that a proposed transaction is a related person transaction subject to the policy, then he will submit the transaction to the Corporate Governance and Director Affairs Committee for consideration at the next committee meeting or, if expedited consideration is required, to the committee chairperson.  The committee or chairperson, as applicable, will consider all of the relevant facts and circumstances available regarding the proposed related person transaction and will approve only those related person transactions that are in, or are not inconsistent with, the best interests of our Company and our

 

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shareholders.  The chairperson is required to report to the committee at the next committee meeting any approval granted under the policy.

 

The policy also provides for ongoing review by the General Counsel of any amounts paid or payable to, or received or receivable from, any related person.  Additionally, at least annually, the Corporate Governance and Director Affairs Committee is required to review any previously approved or ratified related person transactions that remain ongoing and have a remaining term of more than six months or remaining amounts payable to or receivable from us of more than $60,000.  Based on all relevant facts and circumstances, the committee will determine if it is in the best interests of our Company and our shareholders to continue, modify or terminate the related person transaction.

 

If any of our Chief Executive Officer, Chief Financial Officer or General Counsel becomes aware of a pending or ongoing related person transaction that has not been previously approved or ratified under the policy, then the transaction must be disclosed to the Corporate Governance and Director Affairs Committee or its chairperson.  The committee or the chairperson must then determine whether to ratify, amend or terminate the related person transaction, or take any other appropriate action.  If the related person transaction is complete, then the committee or its chairperson will evaluate the transaction to determine if rescission of the transaction and/or any disciplinary action is appropriate.

 

In 2018, there were no proposed, pending or ongoing related person transactions subject to review by the Corporate Governance and Director Affairs Committee under the policy.

 

Meetings and Attendance

 

Our Board held six meetings in 2018.  Each director attended at least 75% of the aggregate of (a) the total number of meetings of our Board and (b) the total number of meetings held by all committees of our Board on which the director served during 2018, in each case during the period in which the director was serving on our Board or the applicable committee.

 

Directors are expected to attend our annual meeting of shareholders each year.  All but one of our directors then serving on our Board attended the 2018 annual meeting in person.

 

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STOCK OWNERSHIP

 

Management

 

The following table sets forth information, as of March 7, 2019, regarding beneficial ownership of our common stock by each director and nominee, each of our current named executive officers as set forth in the Summary Compensation Table, and all of the directors and current executive officers as a group.  As of March 7, 2019, no director or executive officer beneficially owned one percent or more of our common stock.  On that date, the directors and executive officers as a group beneficially owned 1.9% of our common stock.  Except as otherwise indicated in the footnotes, all of the persons listed below have sole voting and investment power over the shares of our common stock identified as beneficially owned.

 

Name of Beneficial Owner

 

Amount and Nature of Beneficial
Ownership(1)(2)(3)(4)(5)(6)

 

Restricted Stock
Units(7)

 

Stephen M. Burt

 

14,024

 

1,740

 

Anesa T. Chaibi

 

5,326

 

1,740

 

Terry R. Colvin, former Vice President, Corporate Human Resources

 

65,594

 

5,750

 

Christopher L. Doerr

 

12,252

 

1,740

 

Thomas J. Fischer

 

20,749

 

1,740

 

Dean A. Foate

 

27,424

 

1,740

 

Mark J. Gliebe, Chief Executive Officer through March 31, 2019

 

418,855

 

62,400

 

Terrence S. Hahn, former director

 

 

830

 

Charles A. Hinrichs, former Vice President and Chief Financial Officer

 

25,554

 

 

Henry W. Knueppel

 

84,579

 

1,740

 

Robert J. Rehard

 

4,367

 

2,940

 

Rakesh Sachdev

 

16,024

 

1,740

 

Jonathan J. Schlemmer

 

127,452

 

17,325

 

Curtis W. Stoelting

 

26,031

 

1,740

 

Thomas E. Valentyn

 

3,790

 

6,900

 

Jane L. Warner

 

8,721

 

1,740

 

All current directors and executive officers as a group (15 persons)

 

807,250

 

110,620

 

 


(1)                                 Includes shares subject to currently exercisable rights to acquire common stock and options exercisable within 60 days of March 7, 2019 as follows:  Mr. Colvin, 44,040 shares; Mr. Gliebe, 286,190 shares; Mr. Rehard, 2,496 shares; Mr. Schlemmer, 92,145 shares; Mr. Valentyn, 3,580 shares; and all directors and executive officers as a group, 454,810 shares.

(2)                                 The amount shown for Mr. Hahn is based on Mr. Hahn’s last Form 4 filed with the SEC.

(3)                                 The amount shown for Mr. Hinrichs is based on Mr. Hinrichs’ last Form 4 filed with the SEC.

(4)                                 The amount shown for Mr. Knueppel includes 80,853 shares held in a trust account. Mr. Knueppel will be retiring from our Board at the expiration of his term at the Annual Meeting.

(5)                                 The amount shown for Mr. Stoelting includes 9,202 shares held in the Curtis W. Stoelting 1994 Revocable Trust over which Mr. Stoelting retains sole voting and investment power during his lifetime and 805 shares held by Mr. Stoelting’s children, over which he retains investment power.

 

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(6)                                 Amounts shown for Messrs. Colvin, Gliebe, and Schlemmer include 2,195 shares, 845 shares and 1,575 shares, respectively, held in trust under our Company’s 401(k) plans as of December 31, 2018.

(7)                                 This column includes shares of restricted stock or restricted stock units that are subject to forfeiture until they vest on either the first or the third anniversary of the date of grant.

 

Other Beneficial Owners

 

The following table sets forth information, as of December 31, 2018 or otherwise, as noted, regarding beneficial ownership by the only persons known to us to own more than 5% of our outstanding common stock.  The beneficial ownership information set forth below has been reported on filings made on Schedule 13G with the SEC by the beneficial owners.

 

 

 

Amount and Nature of Beneficial Ownership

 

 

 

Percent

 

Name and Address

 

Voting Power

 

Investment Power

 

 

 

of

 

of Beneficial Owner

 

Sole

 

Shared

 

Sole

 

Shared

 

Aggregate

 

Class

 

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

 

4,361,331

 

0

 

4,559,846

 

0

 

4,559,846

 

10.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dimensional Fund Advisors LP
Building One
6300 Bee Cave Road
Austin, TX 78746

 

2,821,634

 

0

 

2,897,287

 

0

 

2,897,287

 

6.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FMR LLC
245 Summer Street
Boston, MA 02210

 

280,669

 

0

 

4,042,544

 

0

 

4,042,544

 

9.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Vanguard Group(1)
100 Vanguard Blvd.
Malvern, PA 19355

 

22,058

 

5,166

 

4,290,352

 

21,658

 

4,312,010

 

10.1

%

 


(1)                                 This information is provided as of February 28, 2019 based on a Schedule 13G/A filed with the SEC by The Vanguard Group on March 11, 2019.

 

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COMPENSATION DISCUSSION AND ANALYSIS

Introduction

 

This Compensation Discussion and Analysis provides detailed information about our compensation programs for our named executive officers (“NEOs”) for fiscal 2018.  During fiscal 2018, a significant development affecting our NEO compensation programs was our announcement that Mark J. Gliebe, our Chief Executive Officer, would be retiring after an orderly transition to a new Chief Executive Officer, following completion of calendar year 2018.  Our Board recently announced the election of Louis V. Pinkham to serve as Mr. Gliebe’s successor as Chief Executive Officer, with a start date of April 1, 2019.  Mr. Gliebe will retire from the role of Chief Executive Officer on March 31, 2019.  The compensation-related actions taken or to be taken in connection with these developments are described below under the headings “Severance and Change in Control Benefits” and “Potential Payments on a Termination or Change in Control — Retirement Agreement.”

 

Compensation Philosophy

 

What is your compensation philosophy?

 

Our overall compensation philosophy can be summarized as follows:

 

·                  In order to attract and retain talented executives, we believe we should offer overall compensation levels that are competitive in the marketplace.  As a result, we seek to set compensation levels so that our NEOs can earn total compensation at approximately the median level compared to similarly situated executives in our peer group.  We consider compensation within a 15% range above or below the fiftieth (50th) percentile of peer group data to be at approximately the “median” level.

 

·                  The compensation of our NEOs should be structured so that their interests are aligned with the long-term interests of our shareholders.  We have a “pay-for-performance” philosophy, meaning that we will pay higher compensation to the NEOs if the performance of the Company delivers incremental value to the shareholders.

 

·                  To further align our NEOs’ interests with the interests of our shareholders, and to reinforce our pay-for-performance philosophy, we believe our NEOs should have the opportunity to earn above-median total compensation if the Company performs well, and should earn below-median total compensation if it does not.

 

We believe this to be a conservative approach to executive compensation.

 

Do you consider the results of the shareholders’ “say on pay” vote in your philosophy and in determining compensation?

 

Our shareholders cast a non-binding vote on our NEOs’ compensation annually (the “say on pay” vote).  Each year we and the Compensation and Human Resources Committee of the Board of Directors (for purposes of this Compensation Discussion and Analysis, the “Committee”) scrutinize the results of that vote and consider other shareholder inputs to determine whether our shareholders believe we need to change our compensation philosophy or practices.  Most recently, in May 2018, our

 

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shareholders supported our NEOs’ compensation with more than 93% of votes cast in favor.  Consistent with this strong vote of shareholder approval, we have not undertaken any material changes to our executive compensation philosophy or programs in response to the outcome of the vote.

 

What compensation policies and practices reflect your compensation philosophy?

 

What We Do

 

 

Pay for Performance (page 24)

 

Balance Long-Term and Short-Term Incentives (pages 25-26)

 

Use Multiple Performance Metrics, Including a Relative Metric, for Incentive Compensation (pages 34-35)

 

Benchmark Compensation Against an Appropriate Peer Group (page 28)

 

Maintain a Clawback Policy (page 68)

 

Monitor for Risk-Taking Incentives (pages 67-69)

 

Maintain Stock Ownership Requirements (page 39)

 

Prohibit Hedging, Pledging and the Like (page 40)

 

Limit Perquisites (pages 38-39)

 

Engage an Independent Compensation Consultant (pages 27-28)

 

Hold Executive Sessions at Each Committee Meeting

 

What We Do Not Do

 

 

No New Agreements With Gross-Ups for Taxes (page 41)

 

No Employment Agreements with Pre-Change of Control Severance (page 40)

 

No “Single Trigger” Severance Agreements (page 41)

 

No Repricing of Options

 

No Guaranteed Bonuses or Salary Increases

 

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Did the NEOs’ compensation in 2018 align with corporate performance and the creation of shareholder value?

 

We believe our executive compensation in fiscal 2018 aligned well with the objectives of our compensation philosophy and with our corporate performance.  In 2018, our Company achieved record sales and record adjusted earnings.  Sales grew 6.9% or 5.4% on an organic basis, adjusted earnings per share grew 23.2%, and we generated free cash flow to adjusted net income of 116% while purchasing $127.8 million of our shares.  Additionally, the Company has paid a dividend every quarter since January 1961 and increased the dividend by over 7% in fiscal 2018.

 

These operating results led our Committee to approve annual cash incentives under our Incentive Compensation Plan (“ICP”) at 100% of target for fiscal 2018 for our NEOs.  The Committee’s determination of the annual cash incentives is described further below under “What were the NEOs’ target cash incentive amounts for 2018 and how much did they earn?”

 

Our Committee also approved the payout of shares under our performance share unit (“PSU”) awards that we granted in 2016 with a performance period of 2016-2018 at a level of 62% of target based on our achievement of total shareholder return of 28% and return on invested capital (“ROIC”) of 8.3% over the three-year performance period.

 

We believe the compensation of our NEOs aligns well with our performance, but we also believe that this alignment is not always reflected in the Summary Compensation Table in the same way we view the alignment for our internal purposes.  This is because the Summary Compensation Table values are required by Securities and Exchange Commission rules to include the full grant date fair value of equity awards in the year the awards are granted.  The grant date fair value is an accounting value that projects the potential value of awards based on assumptions about, among other things, certain future events.  The grant date fair value is different from the economic value of the awards to our NEOs, which may be lower or higher than the grant date fair value depending on the price of our common stock.  For this reason, we are including in this proxy statement, as a supplement to the required Summary Compensation Table, a comparison of our NEOs’ realizable pay for 2018 with their total compensation as shown in the Summary Compensation Table.

 

Name and Principal Position

 

2018 Summary
Compensation
Table Total
Compensation ($)

 

2018 Total
Realizable
Compensation ($)

 

Mark J. Gliebe

 

 

 

 

 

Chairman and Chief Executive Officer

 

7,084,604

 

5,547,559

 

Robert J. Rehard

 

 

 

 

 

Vice President and Chief Financial Officer (Since April 1, 2018)

 

1,068,350

 

728,046

 

Charles A. Hinrichs

 

 

 

 

 

Former Vice President and Chief Financial Officer (Through March 31, 2018)

 

468,248

 

468,248

 

Jonathan J. Schlemmer

 

 

 

 

 

Chief Operating Officer

 

2,656,501

 

2,236,284

 

Thomas E. Valentyn

 

 

 

 

 

Vice President, General Counsel and Secretary

 

1,310,606

 

1,041,962

 

Terry R. Colvin

 

 

 

 

 

Vice President, Corporate Human Resources

 

1,186,843

 

1,105,745

 

 

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The 2018 total realizable pay disclosure in the table above is the same as the 2018 compensation shown in the Summary Compensation Table except that the equity-based compensation that we granted during 2018 is valued based on the price of our common stock at fiscal year-end and, in the case of PSUs, the relevant performance trend at fiscal year-end.  Specifically, restricted stock units (“RSUs”) are valued as the product of the number of shares granted to the officer during the year multiplied by the year-end stock price, assuming for purposes of this disclosure that the grants were vested.  Stock appreciation rights (“SARs”) are valued as the product of the number of rights granted to the officer during the year multiplied by the excess, if any, of the year-end stock price over the grant price of the rights, assuming for purposes of this disclosure that the grants were vested.  PSUs with a performance metric of relative total shareholder return (“TSR PSUs”) are valued using 119% of the target number of shares that we granted to each NEO during 2018 (which is approximately the number of shares that would vest if our total relative total shareholder return for the entire applicable performance period is the same as it was at the end of 2018), multiplied by the year-end stock price.  PSUs with a performance metric of return on invested capital (“ROIC PSUs”) are valued using 128% of the target number of shares that we granted to each NEO during 2018 (which is approximately the number of shares that would vest if our ROIC for the entire applicable performance period is the same as it was at the end of 2018), multiplied by the year-end stock price.  The 2018 total realizable pay disclosure in the table above does not include equity-based compensation granted in prior years that was paid or became payable in 2018.

 

Since you have a pay-for-performance compensation philosophy, what percentage of your NEOs’ target compensation is “at risk”?

 

To focus on both our short and long-term success, our NEOs’ target compensation includes a significant portion—more than 69% on average—that is “at risk” because the value of such compensation is determined based on the achievement of specified results or subject to forfeiture.  This “at risk” compensation includes compensation elements intended to reward the achievement of both short- and long-term financial goals.  If such goals are not achieved, then performance-related compensation will decrease.  If goals are exceeded, then performance-related compensation will increase.

 

Payments under the ICP are “at risk” because the payments are dependent on achievement of one-year performance goals.  In addition, compensation paid in the form of equity awards, such as RSUs, SARs and PSUs, instead of cash is at-risk because its value varies with changes in the stock price.  By creating a total compensation package where a considerable percentage is paid in equity awards that are subject to vesting over multiple years or dependent on achieving multi-year performance goals, our NEOs have a significant stake in our long-term success and gain financially along with our shareholders.

 

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As shown in the following charts, in fiscal 2018, 79% of the CEO’s target compensation and, on average, 60% of the other NEOs’ target compensation was at-risk.  For purposes of this disclosure, target compensation includes base salary, target annual incentive awards, grant date fair value of equity awards, change in pension value and all other compensation.

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Setting Executive Compensation

 

What is the role of the Board in setting NEOs’ compensation?

 

The Board’s primary roles in setting our executive compensation are:

 

·                  to annually review and consider our compensation philosophy;

 

·                  to appoint the members of the Committee; and

 

·                  to review and approve certain recommendations of the Committee relating to compensation.

 

The Committee consists entirely of independent directors who are “non-employee directors” for purposes of the Securities Exchange Act of 1934.  The current members of the Committee are Messrs. Stoelting (Chairman), Doerr and Sachdev.

 

What is the role of the Committee in setting NEOs’ compensation?

 

The Committee is responsible for determining the components of our executive compensation program, consistent with the compensation philosophy determined by our Board, and the executive compensation packages offered to our NEOs.  The Committee determines executive salaries, administers the ICP, administers our long-term equity incentive plans and makes awards under the plans.

 

The Committee reviews data from market surveys and proxy statements from our established peer group and retains an independent compensation consultant to assess our competitive position with respect to total executive compensation.

 

The Committee takes various factors into account in setting compensation levels and does not use a formulaic approach, but generally seeks to closely align target total direct compensation (i.e., the sum of base salary, target annual cash incentive opportunity and target long-term incentives) with the peer group and survey median.

 

What is the role of the CEO in setting NEOs’ compensation?

 

In its decision-making process, the Committee receives and considers the recommendations of our CEO with respect to compensation to be paid to our NEOs other than himself.  Our CEO makes no recommendation with respect to his own compensation.

 

Does the Committee use an independent compensation consultant to help in setting NEOs’ compensation?

 

Yes.  The Committee periodically solicits proposals from independent compensation consultants to assist the Committee in the performance of its responsibilities.  As part of its evaluation of potential compensation consultants, the Committee considers all factors relevant to the consultant’s independence from management and potential conflicts of interest in accordance with applicable SEC rules and NYSE listing standards.  After selecting an independent compensation consultant, the Committee periodically meets with that consultant throughout the year at such times as the Committee

 

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deems appropriate, and receives reports and advice from the consultant on matters of executive compensation.

 

Willis Towers Watson served as the Committee’s independent compensation consultant for 2018.  In July 2018, the Committee reviewed the independence of Willis Towers Watson and the individual representatives of Willis Towers Watson who served as the Committee’ consultants, including considering factors contained in applicable SEC rules and NYSE listing standards.

 

The Committee concluded, based on the evaluation described in the preceding paragraph, that Willis Towers Watson was independent and that no conflict of interest was raised by the services performed by Willis Towers Watson.  Willis Towers Watson did not perform any services for our Company in 2018 other than the services provided at the direction of the Committee.

 

How did the compensation consultant help the Committee in setting NEOs’ compensation for 2018?

 

In setting compensation for 2018, the Committee directed Willis Towers Watson to assemble compensation data for our NEOs and compare the data against aggregated peer group proxy data and general industry survey data for persons holding similarly situated positions in our peer group.  The Committee’s policy is generally to review the composition of the peer group every two years for potential changes in light of acquisitions, changes in comparable revenue size, or other factors it deems appropriate.

 

In updating our peer group for 2018, the Committee selected companies that it believed to be comparable to our Company by generally using the following criteria:

 

·                  Comparable revenue (target companies with annual revenues ranging from approximately 0.5 to 2.0 times our annual revenues and with an overall median revenue that approximates ours);

 

·                  Compete in an industry similar to ours and/or have the level of complexity and business model similar to ours; and

 

·                  Contains companies that we compete with for executive talent.

 

The Committee expects to conduct another full review of peer group companies in 2020 unless there are substantial changes to the Company that would merit an earlier review.

 

For 2018, the 20 companies in our peer group for purposes of NEO benchmarking were:

 

AMETEK, Inc.

 

Colfax Corporation

 

Crane Co.

Donaldson Company, Inc.

 

Flowserve Corp.

 

Hubbell Incorporated

Kennametal Inc.

 

Lennox International

 

Lincoln Electric Holdings Inc.

Owens Corning

 

Pentair plc

 

Rexnord Corp.

Rockwell Automation, Inc.

 

Rockwell Collins Inc.

 

Roper Technologies, Inc.

Snap-On Incorporated

 

Terex Corporation

 

The Timken Co.

Valmont Industries, Inc.

 

Xylem Inc.

 

 

 

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During 2018, the Committee approved replacing Rockwell Collins Inc., Roper Technologies, Inc. and Snap-On Incorporated with Carlisle Companies Incorporated, Dover Corporation and ITT Inc. in our peer group effective as of January 1, 2019. The Committee approved these replacements because Rockwell Collins Inc. was being acquired by another company and because the Committee determined that Carlisle Companies Incorporated, Dover Corporation and ITT Inc. were more appropriate peer companies than Roper Technologies, Inc. and Snap-On Incorporated based on a peer-of-peers analysis, revenue size, relative market capitalization, pay structure and product portfolio.

 

During 2018, Willis Towers Watson benchmarked our executive compensation opportunities using (i) the above referenced peer group as the primary benchmark for our CEO, Chief Financial Officer and General Counsel positions and (ii) general industry data from Willis Towers Watson’s Executive Compensation Survey as the primary benchmark for our Chief Operating Officer, VP and Chief Information Officer and Vice President, Corporate Human Resources positions.

 

In reviewing and analyzing these data, Willis Towers Watson considered information for each NEO position with respect to the following elements of compensation:

 

·                  Base salary;

 

·                  Target annual cash incentive under the ICP;

 

·                  Target total cash compensation (salary and target annual cash incentive);

 

·                  Target of annual long-term incentives at grant-date value; and

 

·                  Target total direct compensation (sum of target cash and target long-term incentives).

 

In keeping with the Committee-approved methodology, Willis Towers Watson analyzed each element of target total direct compensation for our NEOs compared to the market median from the two different data sources.  Willis Towers Watson reported on the methodology that it used in its analysis and provided a summary of its findings and its observations on our programs relative to the data and market trends in executive compensation.  In connection with this review, Willis Towers Watson also analyzed our annual share utilization rate and dilution relative to market practice.

 

During 2018, the Committee also reviewed market data relating to perquisites provided to our executive officers using the same peer group and general industry survey data provided by Willis Towers Watson discussed above.  Consistent with prior years, we continued to limit the perquisites that we provide our executive officers, including our NEOs.  We did not make any changes as a result of our 2018 review.  However, as a result of our perquisite review in fiscal 2017, effective January 1, 2018, we implemented a program under which we pay for annual medical physicals for each of our NEOs.

 

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The Elements of Total Compensation

 

We achieve our executive compensation objectives through the following ongoing programs.  All of our NEOs participate in these programs except as otherwise noted below.

 

Program

 

Description

 

Participants

 

Objectives

Annual Cash Compensation

Base Salary

 

Annual cash compensation

 

All employees

 

Retention

 

Competitive Practices

 

Individual contribution

ICP Annual Cash Incentive

 

Annual cash incentive with target awards established at each employee level

 

Payments can be higher (subject to a 200% cap) or lower than target, based on Company annual results

 

Amounts earned above target are deferred and remain subject to forfeiture until they are paid; payment occurs in three equal annual installments beginning in the second year following the performance period

 

All executive officers and key employees

 

Drive superior performance

· Across total Company

· Across business segments

 

Competitive Practices

 

Retention

 

Shareholder Alignment

 

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Program

 

Description

 

Participants

 

Objectives

Long-Term Incentive Programs

Long-Term Incentive (LTI) Equity Awards

 

Long-term incentive awards paid in SARs, RSUs and PSUs

 

All executive officers and key employees

 

Drive superior performance

 

 · Individual

    contribution

 · Increase stock price

 

Focus on long-term

success

 

Ownership

 

Retention

 

Shareholder Alignment

Retirement Programs

Retirement (401(k)) Savings Plan

 

Company matching and annual contributions

 

All U.S. Employees

 

Retention

 

Competitive Practices

Target Supplemental Retirement Plan (the “Target SRP”) (Closed to New Participants 1/1/2017)

 

Defined benefit retirement plan for executives who have at least 10 years of service and work with the Company until the age of 58

 

Key Executives eligible prior to January 1, 2017

 

Retention

 

Competitive Practices

Supplemental Defined Contribution Retirement Plan (the “SDCRP”)

 

Defined contribution retirement plan for executives who have at least 10 years of service and work with the Company until the age of 58

 

Key Executives not covered by the Target SRP

 

Retention

 

Competitive Practices

Other Executive Benefits

Perquisites and Executive Benefits

 

Available to certain executives to assure protection of Company assets and/or focus on Company business with minimal disruption

 

Specific benefits are offered to different groups of executive officers based on business purpose

 

Retention

 

Competitive Practices

Other Benefits

 

Medical, welfare and other benefits

 

All employees

 

Retention

 

Competitive Practices

 

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Base Salaries

 

How do you determine base salaries, and what were the NEOs’ base salaries for 2018?

 

We determine base salaries for our NEOs based upon job responsibilities, level of experience, individual performance and expectations with respect to contributions to our future performance as well as comparisons to the salaries of executives in similar positions as compared to our peer group.  In April 2018, the Committee set the base salaries of our NEOs in accordance with the factors identified in the preceding sentence.  Effective as of April 1, 2018, the base salaries of our NEOs were as follows:

 

Name

 

Base Salary

 

Change from 2017

Mark J. Gliebe

 

$

1,000,000

 

+2.0%

Robert J. Rehard

 

$

350,000

 

+32.1%

Charles A. Hinrichs

 

$

515,000

 

Jonathan J. Schlemmer

 

$

615,000

 

+1.7%

Thomas E. Valentyn

 

$

415,000

 

+10.7%

Terry R. Colvin

 

$

380,000

 

+2.7%

 

In setting base salary levels, the Committee compared the NEOs’ base salary levels to the salary levels of the executive officers in our peer group based on proxy statement data as well as general industry data from Willis Towers Watson’s Executive Compensation Database.

 

In connection with his promotion to Vice President and Chief Financial Officer, the Committee approved an increase in Mr. Rehard’s base salary to the level shown in the table above, resulting in his base salary being approximately 35% below the median base salary of similarly situated executive officers. We expect to continue to increase Mr. Rehard’s compensation to competitive market levels over the next few years.

 

After reviewing the market data provided by Willis Towers Watson, the Committee determined that Mr. Valentyn’s base salary was below the median base salaries of similarly situated executive officers, and thus decided to increase his base salary by 10.7% for 2018, resulting in Mr. Valentyn’s 2018 base salary being approximately 6% below the median.

 

With respect to each of our other NEOs, compared to the median base salaries of similarly situated executive officers in the data reviewed by the Committee, Mr. Gliebe’s salary for 2018 placed him 2% below the median, and the salaries of Messrs. Hinrichs, Schlemmer and Colvin for 2018 placed them 5% below the median, at the median and at the median, respectively.  The base salary levels set by the Committee did not affect decisions regarding other compensation elements.

 

Annual Cash Incentives

 

Do you provide annual cash incentive awards?  If so, how are they structured?

 

In fiscal year 2018, we provided annual cash incentive awards through our ICP, which was approved by shareholders at our annual meeting of shareholders on April 25, 2016.  Under our ICP, annual cash

 

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incentive awards are paid out based on the Company’s achievement of performance goals related to certain financial measures.

 

How does the ICP work?

 

Early in 2018, the Committee set performance goals (as described below under “What were the ICP performance measures for 2018?  How did you determine the target for each metric?”) and a targeted level of annual cash incentive compensation for each NEO that would be earned for achievement of target performance.  For each NEO, the target cash incentive amount is based on a percentage of base salary.  The Committee, in consultation with Willis Towers Watson and our CEO (other than with respect to his own compensation), set annual cash incentive targets under the ICP near the median level with respect to each respective position held by our NEOs relative to our peer group, except for Mr. Rehard, whose annual cash incentive target under the ICP was below the median level relative to the peer group due to his recent promotion to the position of Vice President and Chief Financial Officer.  We expect to increase Mr. Rehard’s compensation, including his target under the ICP, to competitive market levels over the next few yearsOur NEOs whose annual cash incentive targets under the ICP were set near the median level were given the opportunity to earn above median annual cash incentive awards if the Company-wide financial targets under the ICP plan were exceeded, while being at risk of receiving below median awards (or no awards at all) if our financial performance did not meet the targeted results.  For 2018, the target cash incentive amounts for each of our NEOs were as follows:

 

Name

 

Target % of Base Salary

 

Target Amount

 

Mark J. Gliebe

 

120

%

$

1,200,000

 

Robert J. Rehard

 

50

%

$

175,000

 

Charles A. Hinrichs(1)

 

75

%

$

386,250

 

Jonathan J. Schlemmer

 

90

%

$

553,500

 

Thomas E. Valentyn

 

60

%

$

249,000

 

Terry R. Colvin

 

60

%

$

228,000

 

 


(1) Mr. Hinrichs’s award was pro rated due to his retirement.

 

If the Company-wide financial performance goals described in the section below titled What were the ICP performance goals for 2018?  How did you determine the target for each metric?” are met at the target level, then each eligible NEO receives their target amount.  However, actual incentive compensation can range from zero to two times the target amount, as described in more detail below, depending on our financial performance during the year.

 

There was also a threshold requirement for our NEOs to receive any amount under the ICP for 2018.  The requirement was that we have positive adjusted operating profit (as determined by the Committee) for fiscal year 2018.  If we had positive adjusted operating profit for the year, then up to the maximum ICP amount was authorized, subject to the Committee’s discretion to reduce the amount payable based on our financial performance as described below.

 

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What were the ICP performance measures for 2018?  How did you determine the target for each measure?

 

Our ICP performance goals for 2018, as established by the Committee, were based on sales growth, adjusted operating profit as a percentage of sales and trade working capital as a percentage of sales.  We selected sales growth, adjusted operating profit as a percentage of sales and trade working capital as a percentage of sales as performance measures under the ICP because they are what we consider to be the best three fundamental operational metrics of our business that, when improved, increase shareholder value.

 

We defined these performance measures in the ICP as follows:

 

·                  “Sales” means adjusted net sales reported in our earnings release for fiscal 2018.

 

·                  “Adjusted operating profit” means adjusted operating profit as reported in our earnings release for fiscal 2018.

 

·                  “Trade working capital” means (1) the aggregate of average accounts receivable on the last day of each of the 13 months beginning with December 2017 and ending with December 2018 plus (2) the aggregate of average inventory on the last day of each of the same 13 months minus (3) the aggregate of average accounts payable on the last day of each of the same 13 months.

 

At the beginning of fiscal 2018, as part of our annual business planning process, the Committee established the following total year targets for sales, adjusted operating profit as a percentage of sales and trade working capital as a percentage of sales:

 

Performance Measure

 

Threshold

 

Target

 

Maximum

 

Sales ($ in millions)

 

$

3,360

 

$

3,510

 

$

3,660

 

Adjusted Operating Profit as % of Sales

 

10.1

%

10.9

%

11.6

%

Trade Working Capital as % of Sales

 

26.3

%

24.5

%

22.7

%

 

The incentive under the ICP was determined based on performance against the targets established by the Committee as follows:

 

·                  75% of the incentive was based on performance against the combined total year targets for:

 

·                  Sales growth

 

·                  Adjusted operating profit as a percentage of sales

 

·                  25% of the incentive was based on performance against the total year target for working capital as a percentage of sales

 

The 75% of the incentive based on sales growth and adjusted operating profit as a percentage of sales rewards performance where actual sales are greater than target and/or adjusted operating profit as a percentage of sales is greater than target and reduces the bonus where actual sales are less than target and/or adjusted operating profit as a percentage of sales is less than target.

 

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The 25% of the incentive based on trade working capital as a percentage of sales rewards performance where trade working capital as a percentage of sales is lower than target and reduces the bonus where trade working capital as a percentage of sales is higher than target.

 

Performance under the ICP was adjusted to exclude the impact of acquisitions and divestitures and our discontinuation of our residential hermetic motor business during the year.

 

The Committee also set the following threshold, target and maximum payout percentages under the ICP:

 

Performance Measure

 

Weight
(applied
to Target 
Amount)

 

Payout %
at 
Threshold

 

Payout %
at
Target

 

Payout %
at 
Maximum

Sales Growth and Adjusted Operating Profit as % of Sales

 

75%

 

25%

 

100%

 

200%

Trade Working Capital as % of Sales

 

25%

 

25%

 

100%

 

200%

 

As noted in the table, if the maximums were met for sales growth, adjusted operating profit percentage and the trade working capital percentage, then the NEOs would be eligible to receive 200% of their target amount.  If only the thresholds were met for the three performance measures, then the NEOs would be eligible to receive 25% of their target amount.  If the actual results were to fall between threshold and target, or target and maximum, then the payout percentage would be interpolated between threshold and target, or target and maximum, respectively.  If the actual results were to fall below threshold, then each eligible NEO would still be eligible to receive, at the discretion of the Committee, an annual cash incentive award equal to 25% of his target amount if the NEO met specified individual performance targets approved by the CEO (for the NEOs other than himself).  The CEO’s personal objectives are approved by the Board.  If actual results were to fall below threshold for both the trade working capital percentage and the adjusted operating profit percentage, and the NEO were not to meet his individual goals, then the NEO would not receive any annual incentive compensation.

 

How much did the NEOs actually earn under the ICP in 2018?

 

As discussed above, the annual incentive amount actually earned by each NEO for fiscal 2018 was dependent upon actual Company performance with respect to sales growth, adjusted operating profit as a percentage of sales and trade working capital as a percentage of sales.  Our actual results for 2018 were as follows:

 

Performance Measure

 

Weight

 

Actual Results for 
Fiscal 2018

 

Actual Payout %

Sales Growth and Adjusted Operating Profit as % of Sales

 

75%

 

Sales of $3.495 Billion and Adjusted Operating Profit as% of Sales of 11.1%

 

116.9%

Trade Working Capital as % of Sales

 

25%

 

25.9%

 

49.2%

Total:

 

100%

 

 

100%

 

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The actual results for the 2018 ICP Performance Measures were:  (1) sales growth was 1.3% above target; (2) adjusted operating profit as a percentage of sales was 10 basis points above target; and (3)  trade working capital as a percentage of sales was 1.4 percentage points below target.  Adjusted operating profit was consistent with any adjustments made in our quarterly SEC filings.

 

As a result, each NEO earned annual cash incentive compensation under the ICP equal to the following:

 

Name

 

Annual Incentive 
Compensation

 

Mark J. Gliebe

 

$

1,200,000

 

Robert J. Rehard

 

$

175,000

 

Charles A. Hinrichs(1)

 

$

95,249

 

Jonathan J. Schlemmer

 

$

553,500

 

Thomas E. Valentyn

 

$

249,000

 

Terry R. Colvin

 

$

228,000

 

 


(1) Mr. Hinrichs’s award was pro rated due to his retirement.

 

Long-Term Incentives

 

Do you provide long-term incentives?  If so, how are they structured?

 

We provide long-term incentives to our NEOs in the form of equity-based compensation.  Consistent with our compensation philosophy, we believe long-term equity incentives help to ensure that our NEOs have a continuing stake in the long-term success of our Company and allow our NEOs to earn above-median compensation only if our shareholders experience appreciation in their equity holdings.

 

Other than in the case of newly hired executives, we generally make determinations concerning long-term equity-based awards in April of each year at the same time we complete our annual performance reviews.  In any event, we grant all equity-based awards effective two days after the release of either our quarterly or annual financial results.

 

What long-term incentives were provided to NEOs in 2018?

 

In 2018, as in 2017, the Committee granted SARs, RSUs and PSUs.  These awards were granted under our new 2018 Equity Incentive Plan that was approved by our shareholders at our 2018 annual shareholders meeting (our “2018 Plan”).   The proportion of overall long-term incentive target value represented by each form of award granted in 2018 was 34% SARs, 33% RSUs and 33% PSUs, the same proportions as the awards that we granted in 2017.  The Committee granted SARs, RSUs and PSUs to each of our NEOs in 2018 in the amounts indicated in the “Grants of Plan-Based Awards Table for Fiscal 2018” and the narrative following the table.  We value SARs using a Black-Scholes formula and PSUs using either a Monte Carlo methodology (in the case of PSUs using a TSR performance metric) or grant date fair market value (in the case of PSUs using an ROIC metric). Consistent with our overall compensation philosophy, the Committee, after consultation with Willis Towers Watson, granted long-term compensation awards in 2018 at levels approximating the median level of these awards granted by

 

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the companies in our peer group.  In connection with his promotion to Vice President and Chief Financial Officer, the Committee approved grants of long-term compensation awards to Mr. Rehard approximately 60.4% below the median level of similarly situated executive officers. We expect to increase Mr. Rehard’s long-term compensation award grants to competitive market levels over the next few years.   The target long-term incentive levels set by the Committee did not affect decisions regarding other compensation elements.

 

Award 
Type

 

Description

 

Other

 

Vesting Period

SARs

 

The right to receive stock in an amount equal to the appreciation in value of a share of stock over the base price per share.

 

The base price per share of all of the SARs is equal to the closing market price of our common stock on the date of grant so that SARs will have value only if the market price of our common stock increases after the grant date. The Committee granted SARs rather than stock options because it views SARs as less dilutive to our shareholders.

 

Five years (40% on the second anniversary of the grant date and 20% on each of the third, fourth and fifth anniversaries of the grant date)

RSUs

 

The right to have us issue a share of our common stock upon the vesting date specified in the award, if the participant is still employed by us at the time of vesting.

 

In addition to providing competitive compensation and an incentive to create shareholder value, these awards are intended to align management and shareholder interests as well as provide a retention incentive for the NEO to remain employed by our Company.

 

Cliff vest on the third anniversary of the grant date

PSUs

 

The right to have us issue a share of our common stock upon achievement of the performance conditions specified in the award

 

The 2018 grants have a three-year performance period. Fifty percent (50%) of the PSUs will be earned or forfeited based on a performance metric of total shareholder return, or TSR, relative to our peer group over our fiscal years 2018-2020. The other fifty percent (50%) of the PSUs will be earned or forfeited based on a performance metric of return on invested capital, or ROIC.

 

For the PSUs using a TSR performance metric, TSR at or below the 25th percentile of the peer group will result in no PSUs being earned. For TSR at the 50th percentile of the peer group, the target number of PSUs will be earned. For TSR at the 75th percentile of the peer group, the maximum number of PSUs (which is 200% of the target PSUs) will be earned. For performance between the 50th and 75th percentile, the number of PSUs earned is interpolated between target and maximum.

For the PSUs using an ROIC performance metric, ROIC below the minimum threshold ROIC level will result in no PSUs being earned. For ROIC at the target ROIC level, the target number of PSUs will be earned. For ROIC at or above the maximum threshold level, the maximum number of PSUs (which is 200% of the target PSUs) will be earned. For ROIC between the threshold and target levels, or between the target and maximum levels, the number of PSUs earned is interpolated between threshold and target, or between target and maximum, respectively.

 

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As indicated in the description above, the PSUs granted in fiscal 2018 had two performance metrics, TSR and ROIC, which were the same metrics we used for the PSUs that we granted in 2017.  Half of the 2018 PSUs were subject to the TSR performance metric and half were subject to the ROIC metric.

 

In 2018, the three-year performance period for the PSUs that we granted to our NEOs in 2016 (the “2016 PSUs”) was completed.  The 2016 PSUs were subject to two performance metrics: half were subject to a relative TSR metric (the “2016 TSR PSUs”) and half were subject to an ROIC metric (the “2016 ROIC PSUs”).  For the 2016 TSR PSUs, if our TSR was at or below the 25th percentile of the peer group, that would have resulted in none of the 2016 TSR PSUs being earned.  For TSR at the 50th percentile of the peer group, the target number of 2016 TSR PSUs would have been earned, and for TSR at the 75th percentile of the peer group, the maximum number of 2016 TSR PSUs (which was 200% of the target 2016 TSR PSUs) would have been earned.  For our 2016 ROIC PSUs, the threshold, target and maximum ROIC levels were 7.7%, 8.4% and 9.4%, respectively.   ROIC below the minimum threshold level would result in no 2016 ROIC PSUs being earned.  For ROIC at the target level, the target number of 2016 ROIC PSUs would be earned. For ROIC at or above the maximum ROIC level, the maximum number of 2016 ROIC PSUs (which is 200% of the target 2016 ROIC PSUs) would be earned.  For both the 2016 TSR PSUs and 2016 ROIC PSUs, performance between the threshold and target levels, or between the target and maximum levels, the number of 2016 PSUs earned would be interpolated between threshold and target, or between target and maximum, respectively.  Based on our performance for the period ending in 2018, 44% of the 2016 TSR PSUs were earned, and 79% of the 2016 ROIC PSUs were earned.

 

In connection with Mr. Hinrichs’s retirement effective March 31, 2018, the Committee approved accelerated vesting of his outstanding equity-based awards in recognition of his significant contributions to our Company during his tenure as our Vice President and Chief Financial Officer.  The performance level used to calculate the number of PSUs that accelerated was based on actual performance through the date of his retirement. The approximate value of all of the outstanding equity-based awards that vested on an accelerated basis, measured using the closing share price on the date of Mr. Hinrichs’s retirement, was $1,450,000.

 

Other Benefits and Perquisites

 

Do you provide any other benefits or perquisites to your NEOs?

 

We have certain other plans that provide, or may provide, compensation and benefits to our NEOs.  The Committee considers all of these plans and benefits when reviewing total compensation of our NEOs.  These plans include the following:

 

Plan or 
Benefit

 

Description

 

Other

401(k)

 

Participants are eligible to contribute a portion of their compensation on a pre-tax basis, up to the limits imposed by the Internal Revenue Service and we make a matching contribution equal to 100% of the first 1% and 50% of the next 5% of base salary contributed by the employees into their 401(k) accounts.

 

 

 

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Plan or 
Benefit

 

Description

 

Other

 

 

 

 

 

Target SRP

 

A supplemental defined benefit pension benefit plan that provides a competitive retirement package by extending retirement benefits without regard to statutory limitations under tax-qualified plans.

 

In 2017, the Committee decided to close the Target SRP to new participants and replaced the Target SRP with the SDCRP for individuals who became eligible after December 31, 2016. Each of our current NEOs other than Messrs. Rehard and Valentyn participates in the Target SRP.

SDCRP

 

A supplemental defined contribution plan that provides a competitive retirement package through annual contributions to eligible participants’ accounts.

 

In 2018, Messrs. Rehard and Valentyn were our only NEOs who participated in the SDCRP.

Disability Benefits

 

Provides short-term disability benefit in the form of up to six months of base salary replacement.

Provides long-term disability benefit of 60% of base salary.

 

 

Life Insurance

 

We provide our NEOs with Company-paid term life insurance.

 

The premiums paid for each of our NEOs for this life insurance in 2018 are included below in the “Summary Compensation Table for Fiscal Years 2016-2018” in the column entitled “All Other Compensation.” We do not provide a tax gross up in connection with this benefit.

Perquisites

 

Each of the NEOs had use of a company car for business and personal travel. We also pay for annual medical physicals for our NEOs. In 2018, we also reimbursed Mr. Gliebe for legal fees relating to the preparation of his retirement agreement.

 

 

 

Executive Stock Ownership Requirements

 

To underscore the importance of linking executive compensation and shareholder interests, we have implemented stock ownership requirements for certain executives, including our NEOs.  Executives subject to these stock ownership requirements must own a certain dollar value amount of stock before they are permitted to sell shares (other than shares sold to pay option exercise prices or shares sold or surrendered to cover taxes).  Executives who sell shares in violation of these requirements may be ineligible for future long-term incentive awards.  The stock ownership policy requires the following levels of ownership:

 

Position

 

Ownership Required as 
Multiple of Base Salary

Chief Executive Officer

 

5x

Chief Financial Officer and Chief Operating Officer

 

3x

Other Executive Officers

 

1x

 

Each of our NEOs are in compliance with this policy either because they own the target value of stock or because they have not sold shares.

 

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Policy Against Hedging and Pledging Transactions

 

We have adopted a policy prohibiting our employees, including our NEOs, and our directors from trading in puts, calls and other derivative securities relating to our common stock.  The prohibition includes the purchase of any financial instruments designed to hedge or offset any decrease in the market value of our common stock, whether or not such instruments are classified as derivative securities.  We also prohibit our employees, including our NEOs, and directors from pledging shares of our common stock that he or she owns as collateral to secure personal loans or other obligations under our Insider Trading Policy.

 

Severance and Change in Control Benefits

 

During fiscal 2018, we had no employment agreements with any of our NEOs that provided benefits prior to a change in control of our Company.  However, as previously disclosed, in connection with the announcement of Mr. Gliebe’s retirement in fiscal 2018, we entered into a retirement agreement with him.  Mr. Gliebe’s retirement agreement is described below under the heading “Potential Payments Upon Termination or Change in Control — Retirement Agreement.”  In fiscal 2019, in connection with the election of Mr. Pinkham to succeed Mr. Gliebe as our Chief Executive Officer effective April 1, 2019, we entered into an employment agreement with him that provides for severance benefits upon certain terminations of employment.  The terms of Mr. Pinkham’s employment agreement are disclosed in the Current Report on Form 8-K we filed with the SEC in connection with the announcement of his appointment and will be described in greater detail in our proxy statement for our 2020 annual meeting of shareholders.

 

In addition, we have entered into change in control and termination agreements with Messrs. Gliebe, Rehard, Schlemmer, Valentyn and Colvin and, effective April 1, 2019, Mr. Pinkham.  Prior to his retirement in March 2018, we also maintained a change in control and termination agreement with Mr. Hinrichs.  Mr. Colvin announced his retirement from our Company effective on March 30, 2019.  Timothy J. Oswald, formerly Vice President, Human Resources, was promoted to the role of Vice President, Corporate Human Resources effective January 19, 2019.  In connection with Mr. Colvin’s retirement and facilitation of an orderly transition to Mr. Oswald, the Committee approved the accelerated vesting of his outstanding equity-based awards.  The estimated value of Mr. Colvin’s equity-based awards that were subject to accelerated vesting, measured using the closing share price on the last day of our fiscal year, was $658,509.

 

The Committee believes the retirement agreement with Mr. Gliebe, and the change in control and termination benefits under the change in control and termination agreements and our equity incentive plans, are consistent with the Committee’s overall objective of building shareholder value and contain terms that are similar to those offered to executives of comparable companies.

 

The purpose of the retirement agreement with Mr. Gliebe is to ensure an orderly and successful transition and provide an appropriate retention incentive for Mr. Gliebe to continue to lead our company until his successor has been appointed.

 

The purpose of the change in control and termination benefits under the change in control and termination agreements and our equity incentive plans is to focus our NEOs on taking actions that are in the best interests of our shareholders without regard to whether such action may ultimately have an

 

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impact on their job security, and to avoid the loss of key managers that may occur in connection with an anticipated or actual change in control.

 

All of our change in control agreements contain “double trigger” provisions, which means that, for an NEO to receive severance benefits under the agreement, in addition to the change in control there must be some adverse change in the circumstances of the NEO’s employment.  The Committee selected the triggering events for change in control and termination benefits to our NEOs based on its judgment that these events were likely to result in the job security distractions and retention concerns described earlier in this paragraph.

 

Other than the change in control and termination agreements, we have no formal severance program in place for our NEOs.

 

The Committee has adopted a policy eliminating tax gross-ups from all new change in control and termination agreements that we enter into with our executive officers, including our NEOs.  This policy was applied to the change in control and termination agreements entered into with Messrs. Rehard, Hinrichs, Schlemmer and Valentyn, which contain no tax gross-ups.

 

Tax Reform’s Impact on Executive Compensation

 

Code Section 162(m) generally disallows a tax deduction to public corporations for compensation in excess of $1 million paid for any fiscal year to covered employees, generally including our NEOs.   For compensation paid for taxable years beginning prior to January 1, 2018, the statute generally exempted qualifying performance-based compensation from the $ 1 million annual deduction limit if certain conditions were met.   As a result of changes made to Code Section 162(m) by the Tax Cuts and Jobs Act in 2017, starting with the tax year beginning January 1, 2018, only qualifying performance-based compensation that is paid pursuant to a binding contract in effect on November 2, 2017 that is not subsequently modified in a material way is exempt from the deduction limit.  Accordingly, any compensation paid for tax years beginning January 1, 2018 and later pursuant to compensation arrangements entered into or materially modified after November 2, 2017, even if performance-based, will count towards the $1 million fiscal year deduction limit if paid to a covered employee.  Because many different factors influence a well-rounded, comprehensive executive compensation program, and as a result of the changes made to Code Section 162(m) by the Tax Cuts and Jobs Act, some of the compensation we provide to our NEOs may not be deductible as a result of Code Section 162(m).

 

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EXECUTIVE COMPENSATION

 

Summary Compensation Table

 

The following table sets forth for each of our NEOs: (1) the dollar value of base salary and annual cash incentive earned during the years indicated; (2) the full grant date fair value of RSUs, SARs and PSUs granted during the years indicated, computed in accordance with Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 718; (3) the dollar value of earnings for services pursuant to awards granted during the indicated year under non-equity incentive plans; (4) the change in pension value and non-qualified deferred compensation earnings during the years indicated; (5) all other compensation for the years indicated; and (6) the dollar value of total compensation for the years indicated.  Our NEOs are our Chairman and CEO, our Vice President and Chief Financial Officer, our former Vice President and Chief Financial Officer and each of our three other most highly compensated executive officers as of December 29, 2018, the last day of our most recent fiscal year.  In accordance with the rules of the SEC, the table includes information for the fiscal years ended December 31, 2016, December 30, 2017 and December 29, 2018.

 

SUMMARY COMPENSATION TABLE FOR FISCAL YEARS 2016-2018

 

Name and Principal Position

 

Year

 

Salary
($)(1)

 

Bonus
($)

 

Stock
Awards
($)(2)(3)

 

Option
Awards
($)(3)(4)

 

Non-
Equity
Incentive
Plan
Compensation
($)

 

Change in
Pension
Value and
Non-
qualified
Deferred
Compensation
Earnings
($)(5)

 

All Other
Compensation
($)(6)

 

Total
($)

 

Mark J. Gliebe

 

2018

 

995,000

 

0

 

2,876,286

 

1,506,712

 

1,200,000

 

424,673

 

81,933

 

7,084,604

 

Chairman and Chief
Executive Officer

 

2017

 

973,750

 

0

 

2,905,640

 

1,496,003

 

1,147,776

 

1,310,920

 

32,339

 

7,866,428

 

 

2016

 

955,000

 

0

 

2,904,348

 

1,496,596

 

585,606

 

1,585,197

 

32,835

 

7,559,582

 

Robert J. Rehard

 

2018

 

350,000

 

0

 

321,474

 

167,665

 

175,000

 

0

 

54,211

 

1,068,350

 

Vice President and
Chief Financial Officer(7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Charles A. Hinrichs

 

2018

 

128,750

 

0

 

0

 

0

 

95,249

 

227,093

 

17,156

 

468,248

 

Fmr Vice President &
Chief Financial Officer(8)

 

2017

 

511,250

 

0

 

694,414

 

357,246

 

376,980

 

302,899

 

23,769

 

2,266,558

 

 

2016

 

497,500

 

0

 

693,349

 

357,220

 

191,625

 

258,428

 

23,782

 

2,021,904

 

Jonathan J. Schlemmer

 

2018

 

612,500

 

0

 

786,566

 

412,058

 

553,500

 

268,075

 

23,802

 

2,656,501

 

Chief Operating Officer

 

2017

 

601,250

 

0

 

811,734

 

418,438

 

501,908

 

406,101

 

18,776

 

2,758,207

 

 

 

2016

 

590,000

 

0

 

811,890

 

418,469

 

241,192

 

319,518

 

15,988

 

2,397,057

 

Thomas E. Valentyn

 

2018

 

405,000

 

0

 

384,653

 

200,630

 

249,000

 

0

 

71,323

 

1,310,606

 

Vice President, General
Counsel and Secretary

 

2017

 

356,250

 

0

 

331,209

 

170,173

 

219,600

 

0

 

79,318

 

1,156,550

 

Terry R. Colvin

 

2018

 

377,500

 

0

 

269,977

 

142,089

 

228,000

 

152,866

 

16,411

 

1,186,843

 

Vice President, Corporate
Human Resources

 

2017

 

367,500

 

0

 

271,251

 

139,285

 

216,672

 

211,619

 

22,871

 

1,229,198

 

 

2016

 

360,000

 

0

 

260,217

 

134,290

 

110,376

 

212,011

 

23,792

 

1,100,686

 

 


(1)     The salary amounts shown in the table reflect amounts actually earned during the year, rather than the annual base salary rates in effect any point in time. 

 

(2)     These amounts reflect the full grant date fair value of the RSU awards and PSU awards granted during the indicated fiscal year, computed in accordance with ASC Topic 718, Compensation-Stock Compensation.  In the case of PSUs, the amounts shown are based on the probable outcome of performance conditions, consistent with the

 

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estimate of aggregate compensation cost to be recognized over the service period determined as of the grant date under ASC Topic 718 as follows: Mr. Gliebe — $1,453,768; Mr. Rehard — $163,416; Mr. Hinrichs — $0; Mr. Schlemmer —$397,930;  Mr. Valentyn — $194,984; and Mr. Colvin — $136,093. The values of the PSUs at the grant date if the highest level of performance conditions were to be achieved would be as follows: Mr. Gliebe — $2,692,720; Mr. Rehard — $302,640; Mr. Hinrichs — $0; Mr. Schlemmer — $737,200; Mr. Valentyn — $360,840; and Mr. Colvin — $252,200.  Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions.  The assumptions made in valuing the stock awards for 2018, 2017 and  2016 are included under the caption “Shareholders’ Equity” in Note 9 of the Notes to Consolidated Financial Statements in the 2018, 2017 and 2015 Annual Reports on Form 10-K, and such information is incorporated herein by reference.

 

(3)     As previously disclosed, the unvested equity-based awards held by Messrs. Gliebe and Hinrichs were modified in connection with their respective retirement arrangements.  No incremental fair value pursuant to ASC Topic 718 resulted from these modifications, so no value is shown in the table with respect to the modifications.  The estimated intrinsic value of the unvested equity-based awards that were made subject to retirement-vesting in connection with their respective retirement arrangements was, for Mr. Gliebe, $8,259,873 (estimated using pro ration through, and the closing share price on, October 10, 2018, the date of his retirement agreement), and, for Mr. Hinrichs, $1,450,000 (estimated using the closing share price on March 31, 2018, the date of his retirement). 

 

(4)     These amounts reflect the full grant date fair value of all option awards granted during the indicated fiscal year, computed in accordance with ASC Topic 718.  Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions.   The assumptions made in valuing the stock awards for 2018, 2017 and 2016 are included under the caption “Shareholders’ Equity” in Note 9 of the Notes to Consolidated Financial Statements in the 2018, 2017 and 2016 Annual Reports on Form 10-K, and such information is incorporated herein by reference.

 

(5)     The values shown are not current cash benefits, but rather actuarial calculations of the change in the accumulated benefit obligations under the Target SRP. Mr. Gliebe has 37 years of credited service with our Company under the Target SRP. We do not pay above market earnings under the SDCRP, and as such, no accumulated benefits under such plan are included in this table, consistent with SEC rules.

 

(6)     The amounts shown include payments for personal benefits and for the other items identified in the following sentences.  We provide a modest level of personal benefits to NEOs.  These personal benefits in 2018 included use of a company car and spousal travel on the corporate aircraft in connection with business travel by the NEO and, for Mr. Gliebe, $50,000 in reimbursement to cover the cost of his legal fees relating to the preparation of his retirement agreement.  Other items included in this column for 2018 included the payment of life insurance premiums, the cost of annual executive physicals and Company contributions to the NEOs’ 401(k) plan accounts and, for Messrs. Rehard and Valentyn, our contributions to their SDCRP accounts.

 

(7)     Mr. Rehard was appointed Vice President and Chief Financial Officer effective April 1, 2018.

 

(8)     Mr. Hinrichs retired effective March 31, 2018.

 

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Grants of Plan-Based Awards

 

The following table sets forth information regarding all incentive plan awards that the Committee made to our NEOs during fiscal 2018, including incentive plan awards (equity-based and non-equity based) and other plan-based awards.  Disclosure on a separate line item is provided for each grant of an award made to a NEO during the year.  The information supplements the dollar value disclosure of stock, option and non-stock awards in the Summary Compensation Table by providing additional details about these awards.  Non-equity incentive plan awards are awards that are not subject to ASC Topic 718 and are intended to serve as an incentive for performance to occur over a specified period.

 

GRANTS OF PLAN-BASED AWARDS TABLE FOR FISCAL 2018

 

 

 

 

 

Date of

 

Estimated Future Payouts Under Non-
Equity Incentive Plan Awards (1)

 

Estimated Future Payouts Under
Equity Incentive Plan Awards (2)

 

All Other Stock
Awards:
Number of

 

All Other
Option
Awards:
Number of
Securities

 

Exercise or
Base Price of
Option

 

Grant Date Fair

 

Name

 

Grant Date

 

Committee
Action

 

Threshold
($)

 

Target ($)

 

Maximum
($)

 

Threshold
(#)

 

Target
(#)

 

Maximum
(#)

 

Shares of Stock
or Units (#)(3)

 

Underlying
Options (#)

 

Awards
($/Sh)

 

Value of Stock and
Option Awards ($)

 

Mark J. Gliebe

 

5/9/2018

 

4/29/2018

 

 

 

 

 

 

 

0

 

17,350

 

34,700

 

 

 

 

 

 

 

1,453,768

 

 

 

5/9/2018

 

4/29/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

19,125

 

 

 

 

 

1,422,518

 

 

 

5/9/2018

 

4/29/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

66,275

 

77.60

 

1,506,712

 

 

 

 

 

 

 

0

 

1,200,000

 

2,400,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Robert J. Rehard

 

5/9/2018

 

4/29/2018

 

 

 

 

 

 

 

0

 

1,950

 

3,900

 

 

 

 

 

 

 

163,416

 

 

 

5/9/2018

 

4/29/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

2,125

 

 

 

 

 

158,058

 

 

 

5/9/2018

 

4/29/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,375

 

77.60

 

167,665

 

 

 

 

 

 

 

0

 

553,500

 

1,107,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Charles A. Hinrichs

 

 

 

 

 

0

 

386,250

 

772,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jonathan J. Schlemmer

 

5/9/2018

 

4/29/2018

 

 

 

 

 

 

 

0

 

4,750

 

9,500

 

 

 

 

 

 

 

397,930

 

 

 

5/9/2018

 

4/29/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

5,225

 

 

 

 

 

388,636

 

 

 

5/9/2018

 

4/29/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18,125

 

77.60

 

412,058

 

 

 

 

 

 

 

0

 

553,500

 

1,107,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Date of

 

Estimated Future Payouts Under Non-
Equity Incentive Plan Awards (1)

 

Estimated Future Payouts Under
Equity Incentive Plan Awards (2)

 

All Other Stock
Awards:
Number of

 

All Other
Option
Awards:
Number of
Securities

 

Exercise or
Base Price of
Option

 

Grant Date Fair

 

Name

 

Grant Date

 

Committee
Action

 

Threshold
($)

 

Target ($)

 

Maximum
($)

 

Threshold
(#)

 

Target
(#)

 

Maximum
(#)

 

Shares of Stock
or Units (#)(3)

 

Underlying
Options (#)

 

Awards
($/Sh)

 

Value of Stock and
Option Awards ($)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thomas E. Valentyn

 

5/9/2018

 

4/29/2018

 

 

 

 

 

 

 

0

 

2,325

 

4,650

 

 

 

 

 

 

 

194,984

 

 

 

5/9/2018

 

4/29/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

2,550

 

 

 

 

 

189,669

 

 

 

5/9/2018

 

4/29/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,825

 

77.60

 

200,630

 

 

 

 

 

 

 

0

 

249,000

 

498,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Terry R. Colvin

 

5/9/2018

 

4/29/2018

 

 

 

 

 

 

 

0

 

1,625

 

3,250

 

 

 

 

 

 

 

136,093

 

 

 

5/9/2018

 

4/29/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

1,800

 

 

 

 

 

133,884

 

 

 

5/9/2018

 

4/29/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,250

 

77.60

 

142,089

 

 

 

 

 

 

 

0

 

228,000

 

456,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


(1)         These columns reflect the estimated future payouts at the time these awards were granted under the ICP, based on the base salaries that become effective on April 1, 2018.  The amounts earned under these awards based on performance during fiscal year 2018 are shown in the “Non-Equity Incentive Compensation” column for fiscal year 2018 in the Summary Compensation Table.

 

(2)         These columns show the range of potential payouts for the PSUs that we described in the section titled “The Elements of Total Compensation — Long-Term Incentives” in the Compensation Discussion and Analysis. The number of PSUs that are earned, if any, will be based on performance for fiscal years 2018 to 2020 and will be determined after the end of fiscal year 2020.

 

(3)         The amounts shown in this column reflect the number of RSUs we granted to each NEO pursuant to our 2018 Plan.

 

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Equity Incentive Plan Awards

 

As reflected in the tables above, the Committee granted equity-based awards to our NEOs in 2018.  The Committee granted these awards under our 2018 Plan.  Our equity incentive plans are administered by the Committee with respect to key employee participants, and the Committee generally has the authority to set the terms of awards under the plans except to the extent the plans specify such terms.

 

Effective May 2018, the Committee awarded the RSUs indicated in the table above under the 2018 Plan.  Pursuant to its practice of granting equity-based awards only during an “open window” period following the release of our quarterly or annual financial results, the Committee awarded these RSUs with an effective grant date of May 9, 2018, which was the beginning of the first open window period following the Committee’s action.  These RSUs had a grant date fair value of $77.60 per share as determined pursuant to ASC Topic 718, which is equal to the closing market price of a share of our common stock on the date of grant.  All of the units granted to our NEOs during 2018 remain subject to forfeiture for three years following the date of grant.

 

The Committee also granted the SARs shown in the table above under the 2018 Plan at a per share base price of $77.60.  Pursuant to its practice of granting equity-based awards only during an “open window” period following the release of our quarterly or annual financial results, the Committee awarded these SARs with an effective grant date of May 9, 2018, which was the beginning of the first open window period following the Committee’s action.  The base price of the SARs equals the closing market price of a share of our common stock on the date of grant.  The SARs vest and become exercisable over a five-year period, with 40% vesting on the second anniversary of the grant date and 20% vesting on each of the third, fourth and fifth anniversaries of the grant date.  The SARs will expire on May 9, 2028.

 

The Committee also granted the PSUs shown in the table above under the 2018 Plan.  The Committee approved the performance goals and maximum potential values for the awards in early 2018, and determined the final terms for the grants in April 2018. The PSUs have a three-year performance period, from fiscal year 2018 to fiscal year 2020, and will be earned or forfeited based on performance metrics of total shareholder return relative to our peer group and return on invested capital.

 

Awards under the 2018 Plan and any rights under such awards are generally not assignable, alienable, saleable or transferable by participants.

 

Incentive Compensation Plan Cash Awards

 

As reflected in the non-equity incentive columns of the tables above, our NEOs participated in the ICP, which is designed to promote the maximization of shareholder value over the long term, during fiscal 2018.  The ICP provides annual cash incentive opportunities to our NEOs if the Company meets or exceeds certain financial target metrics during the fiscal year.  Company performance above target earns an annual cash incentive more than the target annual cash incentive while Company performance below target earns an annual cash incentive less than the target annual cash incentive.  Under the ICP, the annual cash incentives earned up to 100% of the target amount are fully paid in cash following the end of that year.

 

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Table of Contents

 

Annual cash incentive amounts earned above 100% of the target amount are paid in installments, with one-third of the above-target amount being paid to the participant in cash after the end of each of the following three years, as long as the NEO’s employment with us has not been voluntarily terminated (other than upon retirement) or terminated for cause.  We do not credit participants with interest on amounts subject to payment in installments.

 

Supplemental Retirement Plans

 

The column entitled “Change in Pension Value and Nonqualified Deferred Compensation Earnings” in the Summary Compensation Table includes amounts attributable to the change in the actuarial present value of the respective accumulated benefits under the Target SRP for each of the NEOs.

 

Outstanding Equity Awards at Fiscal Year-End

 

The following table sets forth information on outstanding stock options, SARs and other equity-based awards held by our NEOs on December 29, 2018, including the number of shares underlying both exercisable and unexercisable portions of each stock option and SAR as well as the exercise or grant price and expiration date of each outstanding option and SAR.

 

OUTSTANDING EQUITY AWARDS AT FISCAL 2018 YEAR-END

 

 

 

Option Awards (1)

 

Stock Awards

 

Name

 

Number of 
Securities 
Underlying 
Unexercised 
Options
(#) Exercisable

 

Number of 
Securities 
Underlying 
Unexercised 
Options 
(#) Unexercisable

 

Option Exercise
Price ($)

 

Option Expiration
Date

 

Number
of 
Shares 
or Units 
of Stock 
That 
Have 
Not 
Vested 
(#)(2)

 

Market
Value of 
Shares 
or Units 
of Stock
That
Have 
Not 
Vested 
($)(3)

 

Equity
Incentive
Plan
Awards;
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have
Not
Vested
(#)(2)

 

Equity
Incentive
Plan
Awards;
Market
or Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
($)(3)

 

Mark J. Gliebe(4)

 

42,500

 

0

 

61.36

 

5/5/2020

 

 

 

 

 

 

 

 

 

 

 

65,000

 

0

 

72.29

 

5/4/2021

 

 

 

 

 

 

 

 

 

 

 

99,600

 

0

 

63.56

 

5/3/2022

 

 

 

 

 

 

 

 

 

 

 

63,850

 

0

 

64.99

 

5/2/2023

 

 

 

 

 

 

 

 

 

 

 

44,520

 

11,130

(5)

75.76

 

5/7/2024

 

 

 

 

 

 

 

 

 

 

 

38,880

 

25,920

(6)

78.15

 

5/12/2025

 

 

 

 

 

 

 

 

 

 

 

39,340

 

59,010

(7)

57.43

 

5/11/2026

 

 

 

 

 

 

 

 

 

 

 

0

 

64,175

(8)

80.70

 

5/10/2027

 

 

 

 

 

 

 

 

 

 

 

0

 

66,275

(9)

77.60

 

5/09/2028

 

 

 

 

 

 

 

 

 

 

47


Table of Contents

 

 

 

Option Awards (1)

 

Stock Awards

 

Name

 

Number of 
Securities 
Underlying 
Unexercised 
Options
(#) Exercisable

 

Number of 
Securities 
Underlying 
Unexercised 
Options 
(#) Unexercisable

 

Option Exercise
Price ($)

 

Option Expiration
Date

 

Number 
of 
Shares 
or Units 
of Stock 
That 
Have 
Not 
Vested 
(#)(2)

 

Market 
Value of 
Shares 
or Units 
of Stock
That 
Have 
Not 
Vested 
($)(3)

 

Equity
Incentive
Plan 
Awards;
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have
Not
Vested
(#)(2)

 

Equity
Incentive
 Plan
Awards;
Market
or Payout
Value of
Unearned
Shares,
Units or
Other
Rights
 That
Have Not
Vested
($)(3)

 

 

 

 

 

 

 

 

 

 

 

62,400

(10)

4,370,496

 

66,700

 

4,671,668

 

Robert J. Rehard

 

1,230

 

820

(11)

78.15

 

5/12/2025

 

 

 

 

 

 

 

 

 

 

 

1,266

 

1,899

(12)

57.43

 

5/11/2026

 

 

 

 

 

 

 

 

 

 

 

0

 

2,065

(13)

80.70

 

5/10/2027

 

 

 

 

 

 

 

 

 

 

 

0

 

7,375

(14)

77.60

 

5/9/2028

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,940

(15)

205,707

 

4,928

 

345,157

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Charles A. Hinrichs

 

0

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0

 

0

 

0

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jonathan J. Schlemmer

 

6,000

 

0

 

61.36

 

5/5/2020

 

 

 

 

 

 

 

 

 

 

 

16,500

 

0

 

72.29

 

5/4/2021

 

 

 

 

 

 

 

 

 

 

 

26,000

 

0

 

63.56

 

5/3/2022

 

 

 

 

 

 

 

 

 

 

 

16,200

 

0

 

64.99

 

5/2/2023

 

 

 

 

 

 

 

 

 

 

 

11,840

 

2,960

(16)

75.76

 

5/7/2024

 

 

 

 

 

 

 

 

 

 

 

10,605

 

7,070

(17)

78.15

 

5/12/2025

 

 

 

 

 

 

 

 

 

 

 

11,000

 

16,500

(18)

57.43

 

5/11/2026

 

 

 

 

 

 

 

 

 

 

 

0

 

17,950

(19)

80.70

 

5/10/2027

 

 

 

 

 

 

 

 

 

 

 

0

 

18,125

(20)

77.60

 

5/9/2028

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,325

(21)

1,213,443

 

18,450

 

1,292,238

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thomas E. Valentyn

 

3,580

 

5,370

(22)

57.43

 

5/11/2026

 

 

 

 

 

 

 

 

 

 

 

0

 

7,300

(23)

80.70

 

5/10/2027

 

 

 

 

 

 

 

 

 

 

 

0

 

8,825

(24)

77.60

 

5/9/2028

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,900

(25)

483,276

 

8,300

 

581,332

 

 

48


Table of Contents

 

 

 

Option Awards (1)

 

Stock Awards

 

Name

 

Number of 
Securities 
Underlying 
Unexercised 
Options
(#) Exercisable

 

Number of 
Securities 
Underlying 
Unexercised 
Options 
(#) Unexercisable

 

Option Exercise
Price ($)

 

Option Expiration
Date

 

Number 
of 
Shares 
or Units 
of Stock 
That 
Have 
Not 
Vested 
(#)(2)

 

Market 
Value of 
Shares 
or Units 
of Stock
That 
Have 
Not 
Vested 
($)(3)

 

Equity
Incentive
Plan
Awards;
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have
Not
Vested
(#)(2)

 

Equity
Incentive
Plan
Awards;
Market
or Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
($)(3)

 

Terry R. Colvin

 

12,000

 

0

 

61.36

 

5/5/2020

 

 

 

 

 

 

 

 

 

 

 

8,000

 

0

 

72.29

 

5/4/2021

 

 

 

 

 

 

 

 

 

 

 

8,200

 

0

 

63.56

 

5/3/2022

 

 

 

 

 

 

 

 

 

 

 

5,125