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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934

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Filed by a Party other than the Registrant o

Check the appropriate box:
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ý Definitive Proxy Statement
o Definitive Additional Materials
o Soliciting Material Pursuant to § 240.14a-12

AVERY DENNISON CORPORATION
(Name of Registrant as Specified In Its Charter)

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

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LOGO

Notice of 2018 Annual Meeting of Stockholders

To Our Stockholders:

        We cordially invite you to attend our 2018 Annual Meeting of Stockholders at the Embassy Suites, 800 North Central Avenue, Glendale, California 91203 on Thursday, April 26, 2018, at 1:30 p.m. Pacific Time. At the meeting, we will conduct the following items of business:

  GRAPHIC   Elect the 11 directors nominated by our Board to serve a one-year term;
  GRAPHIC   Approve, on an advisory basis, our executive compensation;
  GRAPHIC   Ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for fiscal year 2018; and
  GRAPHIC   Transact any other business properly brought before the meeting or any adjournment or postponement thereof.

        Our Board recommends that you vote FOR each of the director nominees in Item 1, and FOR Items 2 and 3. After Dean Scarborough, our Chairman, conducts these items of business at the meeting, Mitch Butier, our President and Chief Executive Officer, will discuss our 2017 performance and answer your questions.

        Stockholders of record as of February 26, 2018 are entitled to notice of, and to vote at, the meeting and any adjournment or postponement thereof.

        We will be mailing our Notice of Internet Availability of Proxy Materials, which includes instructions on how to access these materials on the Internet, on or before March 15, 2018. If you previously elected to receive a paper copy of our proxy materials, we will mail you our 2018 proxy statement; 2017 annual report, which includes a letter to stockholders from our Chairman and President/CEO; and a proxy card on or about March 16, 2018.

        We want your shares to be represented and voted. You can vote as shown in the chart below.

VOTING

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On the Internet

You can vote online at www.proxyvote.com before 11:59 p.m. Eastern Time on April 25, 2018. You will need the 16-digit control number on your Notice of Internet Availability or proxy card.


GRAPHIC

 

By Telephone

In the U.S. or Canada, you can vote by calling 1.800.690.6903 before 11:59 p.m. Eastern Time on April 25, 2018. You will need the 16-digit control number on your Notice of Internet Availability or proxy card.


GRAPHIC



By Mail

You can vote by mail by completing, dating and signing your proxy card and returning it in the postage-paid envelope or otherwise to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, New York 11717.


GRAPHIC

 

In Person

Except with respect to shares held through our Employee Savings Plan, you can vote in person at the Annual Meeting. Beneficial holders must contact their broker or other nominee if they want to vote in person.

        On behalf of the Board of Directors, management and employees of Avery Dennison, thank you for your continued support.

    By Order of the Board of Directors

 

 

Susan C. Miller
Corporate Secretary

 

 

March 15, 2018

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OUR PLAN TO WIN

 
   
   
Drive outsized growth in high value categories with higher growth and margin potential (e.g., specialty labels, graphics, industrial tapes and radio-frequency identification (RFID))
Grow profitably in our base business through tailored go-to-market strategies and disciplined execution
Maintain our relentless focus on productivity through continued operational excellence and enterprise lean sigma
Deploy capital effectively by balancing investments in organic growth, productivity and acquisitions, while returning cash to shareholders
      Our Strategies

 

    Our Values   GRAPHIC

 

 
   
   
Customers
We provide innovative, high quality products and solutions, with industry-leading service
Employees
We cultivate a diverse, engaged, safe and healthy workforce
Communities
We are responsible stewards of the environment and a force for good in our communities
Investors
We are committed to delivering superior shareholder returns over the long term
      Our Stakeholders

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PROXY SUMMARY

  i

PROXY STATEMENT

  1

GOVERNANCE, SUSTAINABILITY AND SOCIAL RESPONSIBILITY

  1

OUR BOARD OF DIRECTORS

  10

Overview

  10

Governance Guidelines

  12

Director Independence

  13

Board Leadership Structure

  14

Board Committees

  15

Executive Sessions

  17

Risk Oversight

  17

Human Capital Management

  20

Director Education

  20

Board and Committee Evaluations

  21

Stockholder Engagement and Communications

  22

ITEM 1 — ELECTION OF DIRECTORS

  23

Selection of Director Nominees

  23

Board Matrix

  25

Board Refreshment and Director Succession Planning

  25

Director Diversity

  27

2018 Director Nominees

  27

Director Compensation

  32

Director Compensation Table

  34

ITEM 2 — ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION

  35

COMPENSATION AND EXECUTIVE PERSONNEL COMMITTEE REPORT

  36

COMPENSATION DISCUSSION AND ANALYSIS (CD&A)

  37

Executive Summary

  37

Summary of Compensation Decisions for 2017

  48

Discussion of Compensation Components and Decisions Impacting 2017 Compensation

  50

Compensation-Setting Tools

  63

Independent Oversight and Expertise

  64

Other Considerations

  65

EXECUTIVE COMPENSATION TABLES

  67

2017 Summary Compensation Table

  67

2017 Grants of Plan-Based Awards

  69

2017 Outstanding Equity Awards at Fiscal Year-End

  70

2017 Option Exercises and Stock Vested

  72

2017 Pension Benefits

  74

2017 Nonqualified Deferred Compensation

  76

Payments Upon Termination as of December 30, 2017

  78

Equity Compensation Plan Information as of December 30, 2017

  82

CEO PAY RATIO

  83

ITEM 3 — RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

  84

AUDIT MATTERS

  85

AUDIT AND FINANCE COMMITTEE REPORT

  87

SECURITY OWNERSHIP INFORMATION

  90

Security Ownership of Management and Significant Stockholders

  90

Section 16(a) Beneficial Ownership Reporting Compliance

  91

Related Person Transactions

  91

VOTING AND MEETING Q&A

  92

APPENDIX A — RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP

  A-1

Avery Dennison Corporation  | 2018 Proxy Statement  | Table of Contents


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PROXY SUMMARY

        This section summarizes information described in greater detail in other parts of this proxy statement and does not contain all the information you should consider before voting. We encourage you to read the entire proxy statement before voting.

TIME AND LOCATION OF ANNUAL MEETING

        The Annual Meeting will take place at 1:30 p.m. Pacific Time on April 26, 2018 at the Embassy Suites, 800 North Central Avenue, Glendale, California 91203.

ITEMS BEING VOTED ON AT ANNUAL MEETING

        You are being asked to vote on the items of business shown below at the Annual Meeting. Our Board of Directors (our "Board") recommends that you vote FOR all 11 director nominees and FOR the two other items being brought before the stockholder vote.

ITEM
  BOARD
RECOMMENDATION

  VOTE
REQUIRED

  DISCRETIONARY
BROKER VOTING

  PAGE
REFERENCE

GRAPHIC   Election of directors   FOR each nominee   Majority of votes cast   No   23
GRAPHIC   Advisory vote to approve executive compensation   FOR   Majority of shares represented and entitled to vote   No   35
GRAPHIC   Ratification of appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm for fiscal year 2018   FOR   Majority of shares represented and entitled to vote   Yes   84

BUSINESS STRATEGY OVERVIEW

        We strive to create superior long-term, sustainable value for our customers, employees, and investors and improve the communities in which we operate. To realize the business aspects of this vision, we are focused on executing the following key strategies:

    Driving outsized growth in high value categories with higher growth and margin potential (e.g., specialty labels, graphics, industrial tapes and radio-frequency identification (RFID));

    Growing profitably in our base business through tailored go-to-market strategies and disciplined execution;

    Maintaining our relentless focus on productivity through continued operational excellence and enterprise lean sigma; and

    Deploying capital effectively by balancing investments in organic growth, productivity and acquisitions, while returning cash to stockholders.

FINANCIAL PERFORMANCE HIGHLIGHTS

        Strong Financial Performance and Execution of Strategic Priorities.    Fiscal year 2017 marked our sixth consecutive year of strong top-line growth, margin expansion and double-digit adjusted earnings per share (EPS) growth. We exceeded our financial goals for the year, with the accomplishments shown below and on the following page.

    Achieved net sales of approximately $6.6 billion, an increase of 8.7% over the prior year, through a balance of organic growth and acquisitions.

    Excluding the impact of currency, sales grew by 8.2%; on an organic basis, sales grew by 4.2%, driven by growth in high value product categories and businesses serving emerging markets.

Avery Dennison Corporation  | 2018 Proxy Statement  | i


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    Although reported EPS decreased from $3.54 in 2016 to $3.13 in 2017 due to a substantial increase in our provision for income taxes to reflect the provisional estimated impact of the Tax Cuts and Jobs Act (TCJA), adjusted EPS increased from $4.02 to $5.00, significantly exceeding the high end of the $4.30-$4.50 guidance range we gave in February 2017.

    With net cash provided by operating activities of $650.1 million, delivered free cash flow of $421.7 million.

    On reported net income of $281.8 million, achieved return on total capital (ROTC) of 12.9%; adjusted to exclude the net impact of the TCJA, ROTC increased to 18.8%.

    Continued our disciplined approach to capital allocation by investing $226.1 million in capital expenditures to support organic growth and $319.3 million in acquisitions and equity investments, while allocating $155.5 million to dividends and $129.7 million to share repurchases.

        Organic sales growth, adjusted EPS, free cash flow, ROTC and adjusted ROTC are non-GAAP financial measures that we provide to investors to assist them in assessing our performance and operating trends and define in the Compensation Discussion and Analysis section of this proxy statement. These non-GAAP financial measures are not in accordance with, nor are they a substitute for or superior to, the comparable financial measures under generally accepted accounting principles in the United States of America (GAAP) and are reconciled to GAAP in Appendix A of this proxy statement.

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        On Track to Deliver Financial Targets.    Our 2014-2018 financial goals included an organic sales growth target of 4% to 5%, reflecting confidence in the trajectory of our two largest businesses. We also targeted double-digit adjusted EPS growth. For the first time, we externally communicated a target for ROTC, which has long been a key internal financial metric for our company. We believe that the combination of our growth and ROTC targets captures our value creation objectives, which together are a proxy for economic value added (EVA), one of the performance objectives used in our long-term incentive (LTI) compensation program. As shown below, based on our results for the first four years of this five-year period, we are on track to achieve or exceed our 2018 commitments to investors.

   
   
  2014-2018
TARGETS*

  2014-2017
RESULTS


 

Organic Sales Growth

 

4%-5%

 

4%

 

Adjusted EPS Growth

 

12%-15%+

 

17%

 

ROTC

 

16%+ in 2018

 

13% in 2017
Adj. = 19% in 2017
  ON TRACK TO ACHIEVE OR EXCEED 2018 FINANCIAL TARGETS

 

*

 

Percentages for organic sales and adjusted EPS growth reflect compound annual growth rates with 2013 as the base period.

Avery Dennison Corporation  | 2018 Proxy Statement  | ii


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        In March 2017, we announced our 2017-2021 goals, targeting continued solid organic sales growth and double-digit growth in adjusted EPS on a compound annual basis. While we are only one year into this five-year period, we are on pace to deliver these targets, as shown below.

   
   
  2017-2021
TARGETS*

  2017
RESULTS


 

Organic Sales Growth

 

4+%
5+% with M&A

 

4%
8% with M&A

 

Adjusted EPS Growth

 

10+%

 

24%

 

ROTC

 

17%+ in 2021

 

13% in 2017
Adj. = 19% in 2017

 

ON PACE TO DELIVER 2021 FINANCIAL TARGETS

 

*

 

Percentages for organic sales growth and adjusted EPS growth reflect compound annual growth rates with 2016 as the base period. Target with M&A reflects completed acquisitions as of March 2017.

        Reported results for these periods are disclosed in the Compensation Discussion and Analysis section of this proxy statement.

        Disciplined Capital Allocation.    Effectively deploying capital is one of our key strategies, and we have been consistently disciplined in our execution by investing in organic growth and productivity and acquiring targeted companies, while continuing to return cash to stockholders through dividends and share repurchases.

        We have paid quarterly dividends for decades and raised our quarterly dividend rate by 125% since 2010. As shown in the graph below, over the last five years, we have allocated nearly $2 billion to dividends and share repurchases. Given our increased use of available capital for acquisitions and equity investments, we repurchased fewer shares in 2017 compared to prior years.

        We have also allocated capital to investing in our businesses to support organic growth and pursuing targeted acquisitions that support our strategy of increasing our exposure to high value product categories. During 2017, we successfully completed and integrated the acquisitions of (i) Hanita Coatings Rural Cooperative Association Limited, an Israel-based pressure-sensitive manufacturer of specialty films and laminates; (ii) Yongle Tape Ltd., a China-based manufacturer of specialty tapes and related products used in a variety of industrial markets; and (iii) Finesse Medical Limited, an Ireland-based manufacturer of healthcare products used in the management of wound care and skin conditions. We also made equity investments in two other companies.


Capital Allocated to Dividends,
Share Repurchases and Acquisitions*

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      * Amounts for acquisitions include equity investments in other companies.

Avery Dennison Corporation  | 2018 Proxy Statement  | iii


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        Three- and Five-Year Cumulative TSR Outperformance.    As shown below, with total stockholder return (TSR) of over 66% in 2017, we delivered cumulative TSR for the 2015-2017 three-year period and the 2013-2017 five-year period that significantly outperformed the S&P 500® and the median of the S&P 500 Industrials and Materials subsets (we are a member of the Materials subset, but also share many characteristics with members of the Industrials subset; investors have informed us that they look at both subsets in evaluating our relative performance, as we do internally). TSR measures the return we have provided to our stockholders, including stock price appreciation and dividends paid (assuming reinvestment thereof).

GRAPHIC

1-, 3- and 5-YEAR TSR

  2013   2014   2015   2016   2017   3-Year
TSR
  5-Year
TSR

AVY

  47.5%   6.2%   23.8%   14.6%   66.7%   136.4%   270.3%

S&P 500

  32.4%   13.7%   1.4%   12.0%   21.8%   38.3%   108.1%

S&P 500 Indus. & Mats.* (median)

  41.0%   11.7%   (4.7)%   19.0%   27.5%   49.2%   134.8%
*
Based on companies in subsets as of December 31, 2017.

Avery Dennison Corporation  | 2018 Proxy Statement  | iv


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STOCKHOLDER ENGAGEMENT

        We continued our longstanding practice of ongoing engagement and open dialogue with stockholders in 2017. Our engagement program takes place throughout the year, generally as shown below.

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ENGAGEMENT PROCESS

        In advance of the 2017 Annual Meeting, we contacted our 25 largest institutional stockholders, representing almost 50% of our then-outstanding shares. Board members, including our Lead Independent Director, and management were made available to answer questions and address concerns regarding our executive compensation and governance programs and the items being brought to stockholder vote at the Annual Meeting. While we received responses from stockholders representing 25% of our then-outstanding shares, none of them felt that there was a need to substantively engage during that busy time.

        In the fall, without the time pressures associated with proxy season, we reached out to our 30 largest institutional stockholders, representing nearly 55% of our then-outstanding shares. Proposed topics for these meetings included our business strategy and financial performance, executive compensation matters, Board composition and succession planning, and progress towards achieving our sustainability goals. We received responses from stockholders representing over 30% of our then-outstanding shares and spoke with stockholders representing approximately 11% of those shares. We substantively engaged with every stockholder who requested to do so.

Avery Dennison Corporation  | 2018 Proxy Statement  | v


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        The graphics below show the results of our 2017 engagement.

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STOCKHOLDER FEEDBACK DURING 2017 ENGAGEMENT

Governance Matters

        With respect to matters related to governance, we discussed several topics related to our Board's processes, including succession planning and refreshment, diversity, and evaluations. We also discussed the integration of sustainability into our business strategies, and our Board's oversight of our cybersecurity preparedness. Our stockholders expressed interest in the anticipated completion of our CEO transition and our Board's views on proxy access; both of these matters were subsequently addressed with our December 2017 announcement of Dean Scarborough's retirement as our Executive Chairman at the end of that year and our adoption of proxy access.

Executive Compensation Matters

        With respect to matters related to executive compensation, our stockholders expressed support for our program generally and appreciated the more graphical disclosure in our 2017 proxy statement. In addition, we discussed our approach to human capital management, in particular our diversity and inclusion efforts, as well as the linkage between our executive incentive compensation and business strategies. We also provided additional clarification on the market-leveraged stock units (MSUs) included in our LTI program.

        Our Board and management believe that ongoing stockholder engagement fosters a deeper understanding of investors' evolving expectations on compensation and governance matters. We look forward to maintaining our longstanding practice of connecting with stockholders to ensure our programs continue to align with best practices.

Avery Dennison Corporation  | 2018 Proxy Statement  | vi


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SUSTAINABILITY

        Sustainability is one of our values and has long been part of our approach to doing business. Our aim is to improve the sustainability of our products and processes while helping to create shared value for all of our stakeholders. Key to our progress has been integrating sustainability into our underlying business strategies and engaging employees at all levels.

        We report on our sustainability progress every two years. In September 2017, we issued our 2014-2016 Sustainability Report, summarizing our key achievements during the period and progress towards reaching the 2025 sustainability goals we set in 2015. We encourage you to review the report on our website at www.averydennison.com/sustainability. Our sustainability goals are shown below and our progress is described under Sustainability in the Governance, Sustainability and Social Responsibility section of this proxy statement.

2025 SUSTAINABILITY GOALS
 
  FOCUS AREA
  GOAL(S)
GRAPHIC
Greenhouse Gas Emissions   Achieve at least 3% absolute reduction year-over-year.

GRAPHIC

 

Paper

 

Source 100% certified paper, of which at least 70% will be Forest Stewardship Council®–certified.

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Films

 

Ensure that 70% of the films we buy conform to, or enable end products to conform to, our environmental and social guiding principles.

GRAPHIC

 

Chemicals

 

Ensure that 70% of the chemicals we buy conform to, or enable end products to conform to, our environmental and social guiding principles.

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Products and Solutions

 

Through innovation, deliver above-average growth in sales from sustainability-driven products and services.

Ensure that 70% of our products and solutions conform to, or enable end products to conform to, our environmental and social guiding principles.


GRAPHIC

 

Waste

 

Be 95% landfill-free, with at least 75% of our waste reused, repurposed or recycled.

Eliminate 70% of the matrix and liner waste from our value chain.


GRAPHIC




Transparency


 


Commit to goals publicly and be transparent in reporting our progress.

GRAPHIC

 

People

 

Continue to cultivate a diverse (40%+ female at the level of manager and above), engaged, safe (recordable injury rate of <0.25), productive and healthy workforce.

Continue to invest in our employees and the communities in which we work.

Avery Dennison Corporation  | 2018 Proxy Statement  | vii


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2018 DIRECTOR NOMINEES (ITEM 1)

        Our Board has overseen our strong recent performance, including the following:

    Successful execution of our Board-aligned business strategies, which has driven our strong TSR performance over the most recent three- and five-year periods of over 136% and 270%, respectively, in each case substantially outperforming the S&P 500;

    The closing and integration of five acquisitions and the completion of equity investments in three other companies in the last two years, demonstrating our disciplined approach to acquisitions through which we target companies that can enhance our existing capabilities and increase our exposure to high value product categories; and

    Seamless execution of our Board's executive succession planning with the 2016 election of Mitch Butier as our Chief Executive Officer (CEO), after serving as Chief Operating Officer under our previous CEO, Dean Scarborough (who then became our Executive Chairman), as well as the 2017 election of Greg Lovins as our Chief Financial Officer (CFO).

APPOINTMENT OF NEW DIRECTOR

        Upon the recommendation of our Governance and Social Responsibility Committee, our Board appointed Andres Lopez as an independent director on our Board, effective February 1, 2017. Mr. Lopez brings deep packaging industry expertise as President and CEO of Owens-Illinois, Inc., after having served in leadership roles of increasing responsibility at the glass container manufacturing company (as described in greater detail in his biography on page 28 of this proxy statement). Mr. Lopez was subsequently elected to our Board by our stockholders at the 2017 Annual Meeting.

RETIREMENT OF EXECUTIVE CHAIRMAN

        In December 2017, Mr. Scarborough, then Executive Chairman, notified the Board that he would be retiring from our company at the end of the year. He was our employee through December 31, 2017 and continues to serve as non-executive Chairman.

DIRECTOR NOMINEES

        Our director nominees have demonstrated their commitment to diligently executing their fiduciary duties on behalf of our stockholders, and we recommend that our stockholders elect each of the nominees shown in the chart below at the Annual Meeting.

NAME
  AGE
  DIRECTOR SINCE
  PRINCIPAL OCCUPATION
  INDEPENDENT
  AC
  CC
  GC
Bradley A. Alford   61   2010   Retired Chairman & CEO, Nestlé USA   GRAPHIC
    M   M
Anthony K. Anderson   62   2012   Retired Vice Chair & Managing Partner, Ernst & Young LLP   GRAPHIC   M       M
Peter K. Barker   69   2003   Retired Chairman of California, JPMorgan Chase & Co.   GRAPHIC
M     C
Mitchell R. Butier   46   2016   President & CEO, Avery Dennison Corporation   GRAPHIC            
Ken C. Hicks   65   2007   Retired Chairman, Foot Locker, Inc.   GRAPHIC
M   M  
Andres A. Lopez   55   2017   President & CEO, Owens-Illinois, Inc.   GRAPHIC   M        
David E. I. Pyott (LID)   64   1999   Retired Chairman & CEO, Allergan, Inc.   GRAPHIC
    M   M
Dean A. Scarborough   62   2000   Retired Executive Chairman, Avery Dennison Corporation   GRAPHIC            
Patrick T. Siewert   62   2005   Managing Director & Partner, The Carlyle Group   GRAPHIC
C    
Julia A. Stewart   62   2003   Former Chairman & CEO, DineEquity, Inc.   GRAPHIC       C   M
Martha N. Sullivan   61   2013   President & CEO, Sensata Technologies Holding N.V.   GRAPHIC
M   M  

AC = Audit & Finance Committee    CC = Compensation & Executive Personnel Committee GC = Governance & Social Responsibility Committee
M = Member    C = Chair    LID = Lead Independent Director

Avery Dennison Corporation  | 2018 Proxy Statement  | viii


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        Our director nominees bring a balance of skills, qualifications and demographic backgrounds in overseeing our company, as highlighted below and shown in greater detail in the Board Matrix included in Item 1 — Election of Directors of this proxy statement.

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GOVERNANCE HIGHLIGHTS

        Our governance program reflects our values and facilitates our Board's independent oversight of our company. The highlights of our program are shown below.

Stockholders Rights

    AnnualElection of Directors
    Majority Voting in Director Elections
    Single Class of Outstanding Voting Stock
    Market-Standard Proxy Access

    No Supermajority Voting Requirements
    No Poison Pill
    No Exclusive Forum or Fee Shifting Bylaws

Board Governance

    82% Independent
    Robust Lead Independent Director Role
    Ongoing Director Succession Planning and Board Refreshment
    Executive Succession Planning and Leadership Development
    Annual Board Evaluations
    Mandatory Director Retirement Policy
    Governance Guidelines
    Strong Committee Governance
    Direct Board Access to Management and Experts

ADOPTION OF PROXY ACCESS

        In December 2017, responding to feedback from our largest stockholders, our Board amended our bylaws to permit a stockholder, or a group of no more than 20 stockholders, owning at least 3% of our company's stock continuously for at least three years to submit director nominees (up to 20% of our Board) for inclusion in our proxy materials, subject to the terms and conditions described in our bylaws.

APPROVAL OF EXECUTIVE COMPENSATION (ITEM 2)

COMPENSATION DESIGN

        Our Board's Compensation and Executive Personnel Committee (the "Compensation Committee") designs our executive compensation program to motivate our executives to execute our business strategies and deliver long-term stockholder value. The program delivers pay for performance, with realized compensation dependent on our company achieving annual and long-term financial performance and value creation objectives that advance the interests of our stockholders.

Avery Dennison Corporation  | 2018 Proxy Statement  | ix


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PERFORMANCE-BASED COMPENSATION

        Target total direct compensation (TDC) to our executives is comprised of the following three components:

    Base salary;

    Performance-based cash incentive under our Annual Incentive Plan (AIP); and

    Long-term incentives delivered in performance-based equity awards, consisting 50% of performance units (PUs) and 50% of MSUs.

        The Compensation Committee establishes the target TDC of our Named Executive Officers (NEOs) to incent economic and stockholder value creation, giving consideration to the market median, role responsibilities, individual performance, tenure, retention and succession. The majority of this compensation is performance-based, meaning that our executives may ultimately not realize some or all of these components of compensation if we fail to achieve our financial objectives. In 2017, approximately 84% and 67% of the TDC of our CEO and average of our other current NEOs, respectively, was performance-based.


2017 Target Total Direct Compensation Mix

GRAPHIC

*    Mr. Lovins' 2017 AIP award was prorated based on his opportunity of 40% of base salary for the first six months of the year and his opportunity of 60% of base salary for the second six months of the year. His MSUs and PUs were awarded based on his previous LTI opportunity of 120% of base salary rather than his increased LTI opportunity of 180% of base salary.

PAY-FOR-PERFORMANCE

        Over the past five years, our cumulative TSR has increased over 270% while the total compensation of our CEO has increased by only 13%. In the graph below, CEO pay reflects the compensation of our former CEO, Mr. Scarborough, from 2013 to 2015 and the compensation of our current CEO, Mr. Butier, for 2016 and 2017.


Five-Year CEO Pay and Cumulative TSR

GRAPHIC

Avery Dennison Corporation  | 2018 Proxy Statement  | x


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COMPENSATION BEST PRACTICES

        As summarized below and described in further detail in the Compensation Discussion and Analysis section of this proxy statement, our executive compensation program aligns with our goals and strategies and reflects best practices.

What We Do


    Pay for performance — 84% of our CEO's 2017 target TDC was tied to company performance
    Emphasize long-term performance — 66% of our CEO's 2017 target TDC was equity-based and tied to delivering long-term stockholder value
    Use double-trigger change of control vesting provisions — vesting requires qualifying termination of employment within 24 months
    Manage share usage conservatively — our three-year average burn rate at the end of fiscal year 2017 of 0.8% was at the 50th percentile of companies in the S&P 500
    Maintain rigorous stock ownership guidelines — 6x base salary for our CEO (an increase for 2017 from the previous 5x) and 3x base salary for our other NEOs; require holding 50% of ownership level in vested shares
    Able to clawback compensation
    Use an independent compensation consultant retained directly by, and serving at the direction of, the Compensation Committee
    Annually evaluate the Compensation Committee and review its charter
    Periodically assess risks related to our compensation policies and practices
    Following termination, obtain releases from liability from and impose restrictive covenants on our departing executives
    Review tally sheets reflecting all compensation components for our NEOs

What We Don't Do


    No employment contracts with our NEOs
    No guaranteed AIP awards
    No excise tax gross-ups on change of control severance benefits
    No hedging or pledging of company stock by directors and officers
    No tax gross-ups on perquisites
    No above-market interest rates in our only deferred compensation plan currently open for deferrals
    No re-pricing of stock options without stockholder approval
    No payout of accrued dividends before performance conditions are met and underlying equity awards vest
    No granting of stock options below fair market value
    No NEOs with supplemental retirement benefits

RATIFICATION OF APPOINTMENT OF PwC (ITEM 3)

        Our Board's Audit and Finance Committee has appointed PricewaterhouseCoopers LLP (PwC) as our independent registered public accounting firm for fiscal year 2018, and our Board is seeking stockholder ratification of the appointment. PwC is very well qualified to act as our independent registered public accounting firm and has a deep understanding of our operations and accounting practices. The Audit and Finance Committee considered the qualifications, performance, and independence of PwC, the quality of its discussions with PwC, and the fees charged by PwC for the level and quality of services provided during 2017, and determined that the reappointment of PwC is in the best interest of our company and stockholders.

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PROXY STATEMENT

GOVERNANCE, SUSTAINABILITY AND SOCIAL RESPONSIBILITY

        We produce pressure-sensitive materials and a variety of tickets, tags, labels and other converted products. Some pressure-sensitive materials are sold to printers and converters that convert the materials into labels and other products through embossing, printing, stamping and die-cutting. We sell materials in converted form as tapes and reflective sheeting. We also manufacture and sell a variety of other converted products and items not involving pressure-sensitive components, such as fasteners, tickets, tags, radio-frequency identification inlays and tags, and imprinting equipment and related services, which we market to retailers, apparel manufacturers, and brand owners.

GOVERNANCE

        Under the oversight of our Board of Directors (our "Board"), we have designed our governance program to comply with applicable laws and regulations — including the rules of the Securities and Exchange Commission (SEC) and the listing standards of the New York Stock Exchange (NYSE) — and reflect best practices as informed by the practices of other large public companies, recommendations from our outside advisors, the voting guidelines of our stockholders and the policies of proxy advisory firms. The key features of our program and the related benefits to our stockholders are described in the Governance Highlights section of our Proxy Summary.

        We encourage you to visit the Corporate Governance section of our website at www.averydennison.com/corporategovernance, where you can review and download the following documents:

    Amended and Restated Certificate of Incorporation;

    Amended and Restated Bylaws ("Bylaws");

    Corporate Governance Guidelines (our "Governance Guidelines");

    Charters for our Board's Audit and Finance Committee (the "Audit Committee"), Compensation and Executive Personnel Committee (the "Compensation Committee"), and Governance and Social Responsibility Committee (the "Governance Committee");

    Code of Conduct;

    Code of Ethics for the Chief Executive Officer (CEO) and Senior Financial Officers; and

    Audit Committee Complaint Procedures for Accounting and Auditing Matters.

        You can access these documents on our website using the links contained in this proxy statement, but should note that information on our website is not and should not be considered part of, nor is it incorporated by reference into, this proxy statement. You can also receive copies of these documents, without charge, by writing to our Corporate Secretary at Avery Dennison Corporation, 207 Goode Avenue, Glendale, California 91203.

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CODE OF ETHICS

        We have adopted a Code of Ethics that requires our CEO, Chief Financial Officer (CFO) and Chief Accounting Officer (CAO) to act professionally and ethically in fulfilling their responsibilities.

Code of Ethics

    Our CEO, CFO and CAO must avoid actual or apparent conflicts of interest and disclose any material transaction or relationship that could reasonably be expected to raise a conflict of interest to the Governance Committee.

    In addition, they must:

    Ensure that our SEC filings are complete and accurate and contain understandable information;

    Respect the confidentiality of information acquired in the course of the performance of their responsibilities;

    Employ corporate assets responsibly; and

    Report violations of our Code of Ethics to the Chair of either the Audit Committee or the Governance Committee.

        Supporting the principles reflected in our Code of Ethics, our controllership and internal audit functions ensure that we maintain a robust internal control environment, with the leaders of these functions regularly reporting to, and periodically meeting in executive session with, the Audit Committee.

        Our Code of Ethics is available on our website at www.averydennison.com/codeofethics. Only the Audit Committee or Governance Committee can amend or waive the provisions of the Code of Ethics, and any amendments or waivers must be posted promptly on our website or timely filed with the SEC on a Current Report on Form 8-K. We last amended our Code of Ethics in April 2014.

CODE OF CONDUCT

        Our Code of Conduct applies to all of our directors, officers and employees. It has been translated into over 30 languages and our leaders affirm their commitment to complying with it when they first join our company and annually thereafter. We train employees on the Code of Conduct at least bi-annually, in addition to our online training program consisting of four courses per year covering specific risk areas from the Code of Conduct that designated computer-based employees are required to complete. To ensure that the policies and principles encompassed in our Code of Conduct reach all our employees globally, we also develop and launch three "Talkabout" toolkits (also in over 30 languages) each year, which managers are required to use to engage in meaningful discussion with their teams regarding topics from the Code of Conduct. These toolkits consist of presentation slides, a leader discussion guide and an introductory subtitled video, which includes messages from company leadership.

Recent Code Updates

        In 2017, we refreshed our Code of Conduct, which is available on our website at www.averydennison.com/codeofconduct, with updated leadership messages, additional guidance on certain higher risk areas, and case studies to provide additional guidance on more complex ethical situations. We introduced the updated Code of Conduct with manager and employee communications and created a pocket version for distribution to all employees.

        In 2018, we are further updating our Code of Conduct to reflect our recently updated values of Integrity, Courage, External Focus, Diversity, Sustainability, Innovation, Teamwork and Excellence. In an effort to reinforce our strengths and bring focus to areas in which we have opportunities to further develop, we streamlined and consolidated our previous values and leadership principles into a single set of eight simplified, more memorable values. Moving forward, these values will help shape our culture and guide our behavior as we continue to grow. Later this year, our "Values in Action" campaign will give our employees around the world an opportunity to demonstrate how they are living these values and helping maintain our collective values-based culture.

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Ethics-Based Policies

        The ethics-based policies and other matters discussed in our Code of Conduct are shown below. Our global supplier standards extend our commitment to many of these principles to our third party service providers, establishing our expectation that they also do business in an ethical manner.

GRAPHIC

Business Conduct GuideLine

            Our Business Conduct GuideLine is a hotline available at all hours for employees or third parties to report potential violations of our Code of Conduct, anonymously if they so choose.

        The GuideLine may be reached by (i) calling 888.567.4387 toll-free in the United States; 704.731.0166 collect from outside the United States; 10.800.711.0729 toll-free in North China; or 10.800.110.0672 toll-free in South China or (ii) visiting www.integrity-helpline.com/AveryDennison.jsp (www.financial-integrity.com/AveryDennison.jsp in Europe).

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The hotline is operated by an independent third party and accepts reports in any language to accommodate the needs of our global workforce and customer/supplier base. All reports are investigated under the direction of our Chief Compliance Officer, in consultation with our law department and senior management and with oversight from the Governance Committee. We prohibit retaliation for good-faith reporting.

COMPLAINT PROCEDURES FOR ACCOUNTING AND AUDITING MATTERS

            The Audit Committee has adopted procedures for the confidential, anonymous submission of complaints related to accounting, accounting standards, internal accounting controls and audit practices.

        These procedures relate to complaints of (i) fraud or deliberate error in the preparation, evaluation, review or audit of our financial statements or other financial reports; (ii) fraud or deliberate error in the recording or maintenance of our financial records; (iii) deficiencies in, or noncompliance with, our internal accounting controls; (iv) misrepresentation or false statement to or by a senior officer or accountant regarding any matter contained in our financial records, statements, or other reports; or (v) deviation from full and fair reporting of our financial condition. Any person, including third parties, may submit a good faith complaint regarding accounting and auditing matters and employees may do so without fear of dismissal or other retaliation. The Audit Committee oversees these procedures, which are available on our website at www.averydennison.com/auditprocedures. Investigations are conducted under the direction of our internal audit department in consultation with our Chief Compliance Officer, law department and senior management to the extent appropriate under the circumstances.

        Stockholders and other interested parties interested in communicating regarding these matters may make a confidential, anonymous report by contacting the Business Conduct GuideLine as described on the previous page or writing to the Audit and Finance Committee Chair, c/o Corporate Secretary, Avery Dennison Corporation, 207 Goode Avenue, Glendale, California 91203.

STOCK OWNERSHIP GUIDELINES

2017 Changes to Guidelines

        In the fourth quarter of 2016, the Compensation Committee evaluated the effectiveness and market consistency of our executive stock ownership guidelines to ensure that they effectively encourage our Named Executive Officers (NEOs) and other leaders to maintain meaningful ownership of our common stock.

        At the Compensation Committee's request, Willis Towers Watson reviewed market practices for stock ownership guidelines at companies with $3 billion to $10 billion in annual revenue. Based on this data, Willis Towers Watson recommended the following changes to our guidelines to make them more stringent and better reflect market practices. Upon the advice of its independent compensation consultant, the Compensation Committee approved the changes shown below to our stock ownership guidelines for NEOs and other executives, effective January 1, 2017.

    Eliminated the share guidelines, maintaining only the salary-multiple guidelines, which effectively increased the minimum number of shares required to achieve compliance.

    Increased our CEO's minimum ownership level from 5x to 6x his annual base salary.

    Discontinued counting unexercised stock option gains and began counting only 50% of unvested value of market-leveraged stock units (MSUs) (rather than 100%) for purposes of measuring compliance.

    Required holding 50% of the ownership level in vested shares.

        In February 2017, upon the advice of Willis Towers Watson, the Compensation Committee also approved the following changes to our non-employee director stock ownership guidelines, effective as of the 2017 Annual Meeting: (i) eliminated the share guideline, maintaining only the dollar guideline, and (ii) discontinued counting unexercised stock option gains towards measuring compliance, counting only shares owned, deferred stock units (DSUs) and unvested restricted stock units (RSUs), consistent with our revised executive stock ownership guidelines. Non-employee directors are also required to hold 50% of their ownership level in vested shares, which includes DSUs.

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2017 Guidelines

        Our revised stock ownership guidelines require that non-employee directors acquire and maintain a minimum equity interest in our company equal to $500,000 and our CEO and other NEOs acquire and maintain a minimum equity interest in our company equal to 6x and 3x their annual base salary, respectively.

            If a director or NEO fails to achieve or make reasonable progress towards achieving his or her minimum ownership level, he or she is required to retain shares acquired, net of taxes, from the exercise of stock options or vesting of stock awards until such level is met. Executives are not allowed to transact in company stock until they certify their compliance with our ownership guidelines after giving effect to the transaction they plan to effectuate.

        The following shares/units and their related values are considered in measuring compliance with our stock ownership guidelines: (i) shares beneficially owned or deemed to be beneficially owned, directly or indirectly, under federal securities laws; (ii) shares or units held in qualified and non-qualified employee benefit plans; (iii) unvested RSUs subject only to time-based vesting; and (iv) 50% of the value of unvested MSUs at the target payout level. Neither unvested PUs nor stock options are considered in measuring compliance.

        The Governance Committee reviewed the stock ownership of our non-employee directors in February 2018, noting that all of them had exceeded the minimum ownership level required by the guidelines, except for Mr. Lopez who became a director in February 2017 and has five years to reach the minimum ownership level. The Committee noted that because Mr. Lopez had made reasonable progress towards meeting the applicable level, he was also in compliance. On average, the ownership level of our non-employee directors was approximately 7x the minimum ownership level, aligning their interests with those of our stockholders and incenting their focus on creating long-term stockholder value.

        The Compensation Committee reviewed NEO stock ownership in October 2017 and determined that all of our Current NEOs were in compliance with our stock ownership guidelines, except for Mr. Gravanis.

COMPLIANCE WITH STOCK OWNERSHIP GUIDELINES
 
 
  SHARES AS OF
2017 FYE (#)

  GUIDELINE
  % OF GUIDELINE
  COMPLIANCE
 

NON-EMPLOYEE DIRECTORS

    $500,000      

Bradley Alford

    32,159         695%     GRAPHIC  

Anthony Anderson

    13,021         281%     GRAPHIC  

Peter Barker

    55,635         1203%     GRAPHIC  

Ken Hicks

    36,522         790%     GRAPHIC  

Andres Lopez

    2,408         52%     GRAPHIC  

David Pyott

    63,576         1374%     GRAPHIC  

Dean Scarborough

    51,095         1105%     GRAPHIC  

Patrick Siewert

    14,226         308%     GRAPHIC  

Julia Stewart

    52,125         1127%     GRAPHIC  

Martha Sullivan

    19,635         425%     GRAPHIC  

PRESIDENT & CEO

    6x Base Salary      

Mitchell Butier

    149,394   $6,798,000     238%     GRAPHIC  

OTHER CURRENT NEOs

    3x Base Salary      

Gregory Lovins

    19,818   $1,650,000     130%     GRAPHIC  

Georges Gravanis

    15,943   $1,885,785     91%     GRAPHIC  

Anne Hill

    48,110   $1,596,135     326%     GRAPHIC  

Susan Miller

    22,078   $1,643,082     145%     GRAPHIC  

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INSIDER TRADING POLICY

        Our insider trading policy prohibits our directors, officers and employees from (i) engaging in transactions in our company's stock while in the possession of material non-public information; (ii) engaging in transactions in the stock of other companies while in possession of material non-public information that they become aware of in performing their duties; and (iii) disclosing material non-public information to unauthorized persons outside our company.

Limited Trading Windows

        In addition, our insider trading policy restricts trading for directors and officers (including all NEOs) during blackout periods, which generally begin two weeks before the end of each fiscal quarter and end two business days after the release of earnings for the quarter.

Prohibition on Hedging and Pledging

        Our insider trading policy expressly prohibits our directors and executive officers from (i) purchasing financial instruments (such as prepaid variable forward contracts, equity swaps, collars and exchange funds) designed to hedge or offset any decrease in the market value of shares of our common stock they hold, directly or indirectly, or (ii) pledging any of their shares of common stock to secure personal loans or other obligations, including by holding such shares in a margin account.

            To our knowledge, based on our review of their written representations, all of our directors and executive officers complied with our insider trading policy during 2017.

SUSTAINABILITY

        Sustainability is one of our core values and has long been part of our approach to doing business, driving us to work collaboratively across our entire value chain to address the environmental and social impacts of our products. Our aim is to improve the sustainability of our products and processes to create shared value for all of our stakeholders. In 2017, management led the execution of our sustainability strategy through our Sustainability Council, chaired by Mitch Butier, our President/CEO, and comprised of other corporate and business leaders, with Board oversight through the Governance Committee.

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ENGAGING OUR STAKEHOLDERS

        We seek to ensure that our sustainability efforts are consistent with stakeholder expectations. We regularly communicate with individuals and organizations interested in how we do business generally and our sustainability efforts in particular, and also conduct stakeholder interviews as part of our regular sustainability assessments. These activities allow us to focus on the areas in which we can have the most impact.

GRAPHIC

SUSTAINABILITY STRATEGY

        The foundation of our sustainability strategy is a science-based sustainability framework developed by The Natural Step, an international NGO. The Natural Step framework serves as the basis of our environmental and social guiding principles, listed below.

    Create shared value for our customers, their value chains and the communities we serve.

    Do not pollute with manufactured materials.

    Discover and capture lost value at every stage of the value chain.

    Do not pollute with extracted materials.

    Empower our people to innovate and create value.

    Do not impede people's wellness, influence, competence, equity and meaning.

    Do not over-harvest or over-encroach on living systems.

    Embrace the collaboration that is inherent to sustainability.

ADVANCEMENTS TOWARDS 2025 SUSTAINABILITY GOALS

        We report on our sustainability progress every two years. In September 2017, we issued our 2014-2016 Sustainability Report, summarizing our achievements towards reaching the 2025 sustainability goals we set in 2015. In the first two years of the 10-year goal horizon, we made significant progress, the key to which has been integrating sustainability into our underlying business strategies and engaging employees at all levels. We encourage you to review the report, which contains more information on our progress summarized on the following page, on our website at www.averydennison.com/sustainability.

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2025 SUSTAINABILITY GOALS
FOCUS AREA
  GOAL(S)
  HIGHLIGHTS OF PROGRESS REPORTED IN SEPTEMBER 2017
Greenhouse
Gas Emissions



GRAPHIC





Achieve at least 3% absolute reduction year-over-year.   Reduced our absolute CO2 emissions over 3% from 2015-2016.

Reduced our energy consumption by nearly 4% during 2014-2016.

Paper


GRAPHIC

 

Source 100% certified paper, of which at least 70% will be Forest Stewardship Council® — certified.

 

Over 75% of the total volume of paper we procured in 2016 was responsibly sourced in accordance with the principles of the Forest Stewardship Council® or Programme for the Endorsement of Forest Certification.

Films


GRAPHIC






Ensure that 70% of the films we buy conform to, or enable end products to conform to, our environmental and social guiding principles.

 

Worked to employ renewable, bio-based film made from plants, such as the sugar-based Bonsucro®-certified filmic facestock we use in our bio-based polyethylene film product.

Chemicals


GRAPHIC

 

Ensure that 70% of the chemicals we buy conform to, or enable end products to conform to, our environmental and social guiding principles.

 

Completed the first phase of an enhanced enterprise-wide restricted substance list (RSL) program, focused on avoiding RSL chemicals in designing new products.

Products and
Solutions



GRAPHIC







Through innovation, deliver above-average growth in sales from sustainability-driven products and services.

Ensure that 70% of our products and solutions conform to, or enable end products to conform to, our environmental and social guiding principles.



 

Developed ClearIntent™, a growing portfolio of products made with materials that are responsibly sourced, reduced and recycled within our Label and Graphic Materials business.

Continued to enable customers to replace conventional packaging and brand elements with more environmentally friendly alternatives through our Retail Branding and Information Solutions business.

In 2016, added certified paper and fabric to the mix of factors customers can analyze as they seek a balance of cost, performance and sustainability through our Greenprint™ environmental impact-analysis tool.

Waste


GRAPHIC

 

Be 95% landfill-free, with at least 75% of our waste reused, repurposed or recycled.

Eliminate 70% of the matrix and liner waste from our value chain.

 

As of the end of 2016, diverted over 90% of our solid waste from landfills with 59 landfill-free sites worldwide, and recycled nearly 60% of the diverted waste.

Continued working with customers, recyclers and others to create a recycling infrastructure and network of processors to meet our customers' needs, using research to show that our label liners can be feasibly recycled by identifying capable recyclers worldwide.

Transparency


GRAPHIC






Commit to goals publicly and be transparent in reporting our progress.

 

Published our 2014-2016 sustainability report and continued stakeholder engagement with regular assessments.

People


GRAPHIC

 

Continue to cultivate a diverse (40%+ female at the level of manager and above), engaged, safe (recordable injury rate of <0.25), productive and healthy workforce.

Continue to invest in our employees and the communities in which we work.

 

Created a more flexible work environment, developed female employees' leadership skills and raised awareness of unconscious bias across our company. While making progress with our gender diversity efforts, our female representation at the management level was 32% at the end of 2016.

Continued our world class safety record, with a recordable incident rate of 0.25 in 2016, far surpassing the manufacturing industry average of 3.8 in 2015 (the then-most recently available industry average).

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SOCIAL RESPONSIBILITY

AVERY DENNISON FOUNDATION

        With Board oversight from the Governance Committee, our social responsibility efforts promote our spirit of community and help strengthen the places around the world in which we do business. We make most of our community investments through the Avery Dennison Foundation (the "Foundation"), which annually invests 5% of its assets from the prior year to advance women's empowerment, education and sustainability in the communities where our employees live and work and encourages employee engagement with a spirit of invention and innovation. The Foundation invests in communities by making grants to community-based organizations, promoting employee volunteerism and engagement, and awarding scholarships.

GLOBAL GRANTMAKING

        The Foundation's global grantmaking initiative is its primary means of giving. Grantmaking is also aided by our employees worldwide who help identify qualified nongovernmental organizations (NGOs). Grant decisions are guided by the following priorities:

GRAPHIC

EMPLOYEE ENGAGEMENT

        As the hands and heart of our company, our employees are critical to advancing the Foundation's efforts. Because they often have the best understanding of the needs of their communities, more than 110 employee-organized Community Investment Teams coordinate volunteerism locally at our global locations. Nearly 50% of the Foundation's grants are enhanced with volunteer time from our employees.

        The Foundation also engages employees through the Granting Wishes program, which allows employees in the U.S., Europe and Latin America to recommend one-time grants to local NGOs. Employees often have a connection to the organizations they nominate through volunteerism or service on the organization's board. In the seven years since the Foundation launched Granting Wishes, more than 700 of our employees have taken part, enabling grants of over $1.1 million to more than 200 organizations, including Doctors Without Borders, UNICEF, the American Red Cross and Habitat for Humanity.

SCHOLARSHIPS

        The Foundation provides scholarships to the children of our employees in the U.S., China and India. Since 1977, more than 600 scholarships totaling over $2.2 million have been awarded to students entering their first year of college.

        In China and India, the Foundation's InvEnt Scholarships have for more than a decade supported the next generation of innovators in science, technology, engineering and mathematics. By providing undergraduates with tuition assistance, an invention competition and professional development opportunities, the Foundation inspires the spirit of innovation in tomorrow's engineers and technology workers. As part of their application, students submit ideas for an invention they then design during their scholarship year. Scholarships are awarded to students who demonstrate outstanding innovative spirit and excellent practical competence.

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OUR BOARD OF DIRECTORS

OVERVIEW

        Our Board oversees, counsels and ensures management is serving the best interests of our company and stockholders, with the goal of maximizing the performance of our businesses to create long-term value.

        Our Board's primary responsibilities include the following:

    Establishing a strong governance program, with a Board and Committee structure that ensures independent oversight;

    Overseeing our businesses, strategies and risks;

    Maintaining the integrity of our financial statements;

    Evaluating the performance of our senior leaders and determining executive compensation;

    Conducting succession planning for our CEO and other senior executives, including ensuring we have a human capital management program that is developing our future leaders; and

    Approving our annual operating plan and significant strategic and operational actions, including significant capital expenditures and acquisitions.

BOARD COMPOSITION

        Our Bylaws provide that our Board be comprised of between eight and 12 directors, with the exact number fixed from time to time by Board resolution. Our Board currently has fixed the number of directors at 11. The nominees for election at the Annual Meeting — and the year of their initial appointment or election, current or most recent principal occupation, independence status, and committee memberships — are shown in the chart below.

NAME
  DIRECTOR
SINCE

  PRINCIPAL OCCUPATION
  INDEPENDENT
  AC
  CC
  GC
Bradley A. Alford   2010   Retired Chairman & CEO, Nestlé USA   GRAPHIC
    M   M
Anthony K. Anderson   2012   Retired Vice Chair & Managing Partner, Ernst & Young LLP   GRAPHIC   M       M
Peter K. Barker   2003   Retired Chairman of California, JPMorgan Chase & Co.   GRAPHIC
M     C
Mitchell R. Butier   2016   President & CEO, Avery Dennison Corporation   GRAPHIC            
Ken C. Hicks   2007   Retired Chairman, Foot Locker, Inc.   GRAPHIC
M   M  
Andres A. Lopez   2017   President & CEO, Owens-Illinois, Inc.   GRAPHIC   M        
David E. I. Pyott (LID)   1999   Retired Chairman & CEO, Allergan, Inc.   GRAPHIC
  M   M
Dean A. Scarborough   2000   Retired Executive Chairman, Avery Dennison Corporation   GRAPHIC            
Patrick T. Siewert   2005   Managing Director & Partner, The Carlyle Group   GRAPHIC
C    
Julia A. Stewart   2003   Former Chairman & CEO, DineEquity, Inc.   GRAPHIC       C   M
Martha N. Sullivan   2013   President & CEO, Sensata Technologies Holding N.V.   GRAPHIC
M   M  

AC = Audit & Finance Committee    CC = Compensation & Executive Personnel Committee    GC = Governance & Social Responsibility Committee
M = Member    C = Chair    LID = Lead Independent Director

        The ages of our director nominees range from 46 to 69, with an average age of 61. Their lengths of service range from one to 18 years, with an average tenure on our Board of ten years. None of our directors serves on more than two other boards of SEC-reporting companies, except for Messrs. Anderson and Pyott, who are both retired and serve on three such other boards.

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APPOINTMENT OF NEW INDEPENDENT DIRECTOR

        During the second half of 2016, the Governance Committee oversaw our Board's search for a new independent director. The Committee engaged Korn Ferry, an executive search firm, to assist with the search. Korn Ferry identified a number of potential candidates (including Andres Lopez) who were initially evaluated by the Governance Committee and our Chairman, with input from other Board members and senior management. The Governance Committee and other members of our Board interviewed Mr. Lopez, unanimously supporting his candidacy based on his extensive packaging industry expertise and the end customer insights he could bring to our Board. Upon the recommendation of the Governance Committee, our Board appointed Mr. Lopez to our Board effective February 1, 2017, recognizing his packaging industry experience, public company board experience and global exposure. Also upon the recommendation of the Governance Committee, our Board subsequently appointed Mr. Lopez to the Audit Committee, effective immediately after the 2017 Annual Meeting, at which he was first elected to our Board by our stockholders.

RETIREMENT OF EXECUTIVE CHAIRMAN

        In December 2017, Mr. Scarborough, then Executive Chairman, notified the Board that he would be retiring from our company at the end of the year. He was our employee through December 31, 2017 and continues to serve as non-executive Chairman.

BOARD MEETINGS AND ATTENDANCE

        Our Board met five times and acted three times by unanimous written consent during 2017. There were 16 Committee meetings during the year. All of our directors attended the Board and Committee meetings held during 2017 of which he or she was a member. Directors are strongly encouraged to attend our annual stockholder meetings under our Governance Guidelines and all of our directors attended the 2017 Annual Meeting.

Board and Committee meeting 2017 attendance = 100%

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GOVERNANCE GUIDELINES

        Our Governance Guidelines provide the governance framework for our company and reflect the values of our Board, as highlighted below. They are reviewed at least annually and amended from time to time to reflect changes in regulatory requirements, evolving market practices, recommendations from our advisors and feedback from our stockholders. Our Governance Guidelines were most recently amended in February 2017.

Governance Guidelines Highlights

Board Composition

      Reasonable Board size of 11 directors
      No over-boarded directors
      Mandatory retirement after age 72, with no term limits

Director Independence

      82% independent
      Executive sessions of independent directors at every 2017 Board meeting

Board Leadership Structure

      Annual review of Board leadership structure by the Governance Committee
      Robust Lead Independent Director role and independent Committee Chairs

Board Committees

      100% independent
      Act under charters delineating Committee responsibilities
      Directors required to attend Board and Committee meetings

Board Duties

      Directors entitled to rely on independent legal, financial or other advisors at our expense
      Regular review of long-term strategic plans, including major risks and mitigating strategies
      Regular succession planning for our CEO and other executive officers through the Compensation Committee

Continuous Board Improvement

      All new directors participate in an initial orientation to familiarize themselves with our company and after joining a Committee to understand its responsibilities
      Directors continue their education through meetings with management, visits to our facilities and attendance at accredited director education programs
      The Governance Committee oversees an annual evaluation process to ensure our Board, Committees, Chairman and Lead Independent Director are functioning effectively

Director Qualifications

      The Governance Committee reviews the skills and characteristics of our Board members and recommends director nominees

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DIRECTOR INDEPENDENCE

        Our Governance Guidelines require that our Board be comprised of a majority of directors who satisfy the criteria for independence under NYSE listing standards. These standards also require that our audit, compensation and nominating committees be comprised entirely of independent directors. An independent director is one who meets the independence requirements of the NYSE and who our Board affirmatively determines has no material relationship with our company, directly or indirectly as a partner, stockholder or officer of an entity with which we have a relationship.

        Each year, our directors complete a questionnaire designed to solicit information that may have a bearing on the annual independence determination, including all relevant relationships they have with our company, directly or indirectly through our company's sale or purchase of products or services to or from the companies or firms by which they are employed. The Governance Committee reviews any relevant disclosures made in the questionnaires with our General Counsel/Corporate Secretary, as well as any transactions our company has with director-affiliated entities. In February 2018, the Governance Committee reviewed the relationships impacting the independence of our director nominees referenced below.

    Mr. Butier.    Mr. Butier serves as our President and CEO.

    Mr. Scarborough.    Mr. Scarborough formerly served as our Executive Chairman and was an employee of our company through December 31, 2017.

    Mr. Lopez.    Although there were no sales in 2016 or 2017, in 2015 we sold products to Owens-Illinois, Inc., for which Mr. Lopez serves as President and CEO. The payments we received from the company were on competitive terms, in the ordinary course of business, and less than $1 million, the lower of the two applicable thresholds set forth in the NYSE's independence standards.

        After review and discussion of the relevant facts and circumstances, the Governance Committee concluded that only Messrs. Butier and Scarborough had relationships that were disqualifying under NYSE listing standards, otherwise material or impairing of director independence. Upon recommendation of the Governance Committee, our Board affirmatively determined the nine director nominees named below to be independent, representing 82% of our nominees.

 
   


GRAPHIC

 

GRAPHIC

        For a discussion of the potential impact of tenure on director independence, see the Board Refreshment and Director Succession Planning section of this proxy statement.

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BOARD LEADERSHIP STRUCTURE

        Our Board currently has a Chairman, who as a recent former employee is not independent, a separate CEO and a Lead Independent Director. Our Governance Guidelines give our Board — acting through its independent directors — the discretion to separate or combine the roles of Chairman and CEO as it deems appropriate based on the needs of our company at any given time; to facilitate this decision-making, the Governance Committee annually reviews our Board leadership structure, providing its recommendation on the appropriate structure for the following year to our independent directors. Our independent directors do not view any particular Board leadership structure as necessarily preferable, rather they make an informed annual determination taking into account, among other things, our financial position, business strategies and any feedback received from our stockholders.

        Our Lead Independent Director balances our non-independent Chairman and CEO roles, exercising critical duties in the boardroom to ensure effective and independent Board decision-making. Our Governance Guidelines clearly delineate these responsibilities, which are shown below. Mr. Pyott currently serves as our Lead Independent Director.

               

LEAD INDEPENDENT DIRECTOR   PRIMARY RESPONSIBILITIES
     
Current Selectee:
    David Pyott

Executive Sessions Led in 2017: 5


Lead Independent Director is selected annually by our independent directors.

 

Preside over executive sessions of independent directors and meetings of our Board at which the non-independent Chairman is not present

Serve as liaison between the non-independent Chairman and our independent directors

Approve meeting agendas and schedules and other information sent to our Board to ensure that appropriate items are discussed, with sufficient time for discussion of all items

Call meetings of independent directors when necessary or appropriate

If requested, consult and meet with our stockholders

        In addition to these responsibilities, Mr. Pyott performed the following activities as Lead Independent Director in 2017:

    Regularly consulted with each of the Chairman and CEO to help guide management's ongoing engagement with the Board on our strategic direction, including reviewing our business strategies and assessing acquisition opportunities;

    Provided feedback to our Chairman and our CEO after executive sessions of independent directors;

    Consulted on an ad hoc basis with other independent directors; and

    Met with members of senior management other than our CEO.

        Supplementing our Lead Independent Director in providing independent Board leadership are our Committee Chairs, all of whom are independent. The Governance Committee evaluated the performance of our Chairman and Lead Independent Director during the Board evaluation process conducted in the fourth quarter of 2017. Based on these evaluations, we believe our current Board leadership structure is providing effective independent oversight of our company. During our ongoing engagement with our stockholders on governance matters, none of them has expressed concerns with our current Board leadership structure, which we believe reflects support for our robust and clearly delineated Lead Independent Director role.

        In February 2018, the Governance Committee evaluated our Board leadership structure and recommended to our Board that Mr. Scarborough continue serving as Chairman, noting that his mentorship during our CEO transition has continued to assist management in executing our Board-aligned strategies to drive long-term stockholder value creation and that he received positive feedback on his performance from our independent directors during the 2017 Board evaluation process. Upon the recommendation of the Governance Committee, our Board elected Mr. Scarborough (with him abstaining) to continue serving as our Chairman, effective immediately after the Annual Meeting subject to his re-election. The Governance Committee also recommended that Mr. Pyott (with him abstaining) continue serving as Lead Independent Director. Mr. Pyott has significantly contributed to our executive compensation and governance programs through his strong, independent and strategic leadership of our Board. Upon the recommendation of the Governance Committee, our independent directors selected Mr. Pyott (with him abstaining) to continue serving as our Lead Independent Director, effective immediately after the Annual Meeting subject to his re-election.

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BOARD COMMITTEES

        Each of our Board committees has a written charter that describes its purposes, membership and meeting structure, and responsibilities. These charters, which may be found on our website at www.averydennison.com/corporategovernance, are reviewed by the respective committee at least annually, with any recommended changes adopted upon approval by our Board. Amended charters are promptly posted on our website. The Charters for the Audit, Compensation and Governance Committees were last amended in February 2017, December 2015 and December 2016, respectively.

        Each of our Board committees has the ability to form and delegate authority to subcommittees and may obtain advice and assistance from internal or external consultants, legal counsel or other advisors at our expense. In addition, each committee annually evaluates its performance. The primary responsibilities, membership and meeting information for the three committees of our Board are summarized below and on the following page.

               

AUDIT & FINANCE COMMITTEE   PRIMARY RESPONSIBILITIES

 

 

 
Independent Members:
  Patrick Siewert (Chair)
  Anthony Anderson
  Peter Barker
  Ken Hicks
  Andres Lopez
  Martha Sullivan

Meetings in 2017: 9

Average Attendance in 2017: 100%

All members satisfy the enhanced independence standards required by the NYSE and have been determined by our Board to be financially literate.

Each of Messrs. Anderson, Barker and Siewert has been determined by our Board to be an "audit committee financial expert" under applicable SEC regulations.

 

Oversee financial statement and disclosure matters, including our quarterly and annual financial results, earnings release documentation and SEC reports, internal controls and major financial risk exposures

Appoint and oversee our independent registered public accounting firm, including its qualifications, performance and independence, and the scope, staffing and fees for its annual audit and other audit, review or attestation services

Oversee our internal audit function, including appointing or dismissing the senior internal auditor, evaluating his performance, reviewing significant issues raised in its audits and management's response, and discussing the annual internal audit plan, budget and staffing

Perform compliance oversight responsibilities, including overseeing the procedures established for receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters; reviewing significant correspondence with governmental agencies and legal matters that may have a material impact on our financial statements; and making determinations and recommending actions to our Board regarding any violations of our Code of Ethics related to information contained in our SEC filings and other public communications

Conduct finance oversight responsibilities, including reviewing our capital structure and financing plans, capital allocation strategy, the funding status of our pension plans, and significant tax matters

Approve the Audit and Finance Committee Report included in our proxy statement

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COMPENSATION & EXECUTIVE
PERSONNEL COMMITTEE
  PRIMARY RESPONSIBILITIES

 

 

 
Independent Members:
  Julia Stewart (Chair)
  Bradley Alford
  Ken Hicks
  David Pyott
  Martha Sullivan

Meetings in 2017: 4

Average Attendance in 2017: 100%

All members satisfy the enhanced independence standards required by the NYSE.

All members qualify as "non-employee directors" under Rule 16b-3 of the Securities Exchange Act of 1934, as amended, and "outside directors" under Section 162(m) of the Internal Revenue Code of 1986, as amended.

Relies on expert advice of an independent compensation consultant that reports directly to the Committee.

 

Review and approve corporate goals and individual objectives for our CEO's compensation and evaluate our company's and his individual performance to determine annual CEO compensation

Review and approve senior executive compensation, including base salaries and incentive compensation, giving consideration to the recommendations of our CEO

Recommend compensation strategy, incentive plans and benefit programs

Approve our CD&A and the Compensation and Executive Personnel Committee Report included in our proxy statement

Oversee stockholder approval of executive compensation matters, including advisory votes on executive compensation and the frequency of such votes

Ensure no encouragement of excessive risk-taking in our compensation policies and programs

Recommend non-employee director compensation

Conduct executive succession planning for our CEO and other senior leaders

               

GOVERNANCE & SOCIAL
RESPONSIBILITY COMMITTEE
  PRIMARY RESPONSIBILITIES

 

 

 
Independent Members:
  Peter Barker (Chair)
  Bradley Alford
  Anthony Anderson
  David Pyott
  Julia Stewart

Meetings in 2017: 3

Average Attendance in 2017: 100%

 

Identify potential Board members and recommend director nominees using the criteria set forth in our Governance Guidelines

Periodically consider our Board leadership structure and recommend to our Board whether to separate or combine the positions of Chairman and CEO, as well as who should serve as Lead Independent Director

Recommend Board and Committee structure, chairs and members

Recommend our independent directors using the standards of the NYSE

Review and approve related person transactions

Oversee and conduct an annual performance evaluation of our Board and its Committees

Review our Governance Guidelines and recommend any changes to our Board

Discuss sustainability and corporate social responsibility

Oversee our values and ethics program and Code of Conduct, evaluate significant conflicts of interest or questions related to our Code of Conduct and policy on legal and ethical conduct, and make determinations and recommend actions to the Board regarding violations of the Code of Ethics (except for violations over which the Audit Committee has such authority)

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EXECUTIVE SESSIONS

        Our Board believes it is important to have executive sessions without our CEO, non-independent Chairman or other members of management present, which were held at every regular Board meeting during 2017. Our independent directors have robust and candid discussions at these executive sessions during which they critically evaluate the performance of our company, Chairman, CEO and management. As Lead Independent Director, Mr. Pyott presided over the five executive sessions of independent directors held during 2017.

        In addition, executive sessions were scheduled for each regular meeting of the Audit, Compensation and Governance Committees held. These executive sessions generally excluded Mr. Scarborough, Mr. Butier and other members of management, unless the Committee requested the presence of a member of management for a portion of the session to provide information or perspective.

RISK OVERSIGHT

        Management is responsible for managing the day-to-day risks confronting our businesses, but our Board has responsibility for overseeing enterprise risk management (ERM). The teams leading our businesses have incorporated ERM into developing and executing strategy, assessing the risks and mitigating strategies impacting their businesses on an ongoing basis. In addition, in consultation with our Chief Compliance Officer and senior management, these teams semiannually prepare a risk profile consisting of a heat map and a summary of their key risks and mitigating strategies, which are used to prepare a company risk profile based on identified business-specific risks as well as enterprise-wide risks. We also have robust global processes that support a strong internal control environment to promote the early identification and continued management of risks by our company's leadership. Our legal and compliance functions report into our General Counsel to provide independent evaluation of the challenges facing our businesses and our Vice President of Internal Audit reports to the Audit Committee in the conduct of his operational responsibilities, ensuring his independence from management.

        In performing its oversight role, our Board is responsible for ensuring that the risk management processes designed and implemented by management are functioning effectively, and that our culture fosters risk-adjusted decision-making.

        Our Board as a whole oversees risks related to our company and business strategies and operations, exercising this responsibility by considering the risks related to its decisions. Each year, our Board receives reports on the ERM process and the strategic plans and risks facing each of our businesses and our company as a whole. These risks may include financial risks, political risks, legal and regulatory risks, supply chain risks, competitive risks, information technology risks, and other risks related to the way in which we do business. Employees who lead various risk areas — such as information technology; environmental, health and safety; tax; sustainability; and social responsibility — report periodically to Board Committees and occasionally to our full Board.

        Our Board has delegated to its Committees elements of its risk oversight function to better coordinate with management to serve the long-term interests of our company and stockholders. Our Board receives reports from Committee Chairs regarding topics discussed at every Committee meeting, which includes the areas of risk overseen primarily by its Committees.

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Risk Oversight

GRAPHIC

        The Audit Committee oversees our internal control environment and evaluates the effectiveness of our internal controls at least annually. Supplementing these processes, the Audit Committee periodically meets in executive session with each of our CEO, CFO, CAO, General Counsel, Vice President of Internal Audit, and representatives of our independent registered public accounting firm. The Governance Committee also meets semiannually with our Chief Compliance Officer to, among other things, discuss our investigation of allegations reported to our Business Conduct GuideLine.

        During 2017, the following risk areas were of particular Board and Committee focus:

    The global economic environment;
    Changes in tax laws and regulations, in particular in the U.S.;
    Our U.S. pension plan liabilities;
    Cybersecurity and information technology, including the implementation of an enterprise resource planning system in our Label and Graphic Materials North America business; and
    Risks associated with our restructuring actions, acquisitions and integration activities.

RISKS ASSOCIATED WITH COMPENSATION POLICIES AND PRACTICES

        As described in the Compensation Discussion and Analysis section of this proxy statement, we maintain best practices in compensation that collectively encourage ongoing risk assessment and mitigation. The Compensation Committee periodically reviews our compensation programs to ensure that they do not provide incentives that encourage our employees to take excessive risks in managing their respective businesses or functional areas and conducted its most recent review in February 2018.

        Based on the advice of its independent compensation consultant, Willis Towers Watson, the Compensation Committee noted the risk-mitigating features of our compensation policies and practices shown on the following page.

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Governance and Oversight

    The Compensation Committee has discretion to decrease Annual Incentive Plan (AIP) awards and long-term incentive (LTI) grants based on individual performance, including as a result of excessive risk-taking.

    Our clawback policy serves as a deterrent to fraud or other misconduct in connection with our financial statements.

    The Compensation Committee annually evaluates the performance of our CEO and other executives in the context of our company and business goals and their individual contributions.

    Our stock ownership guidelines are rigorous and consistent with best practices, with a minimum ownership level of 6x base salary for our CEO and a requirement that 50% of the ownership level be held in vested shares.

    We prohibit our officers from hedging or pledging company stock and require them to engage in stock transactions only during limited trading windows.

Pay Philosophy and Structure

    Our programs prioritize incenting stockholder value creation, balanced by retention and other considerations.

    The substantial majority of executive compensation is delivered in equity to motivate the pursuit of strong long-term performance and sustainable growth.

    Our change of control and executive severance plans are reasonable and consistent with market practices, with change of control benefits provided on a double-trigger basis to mitigate the risk that such a transaction be pursued to advance personal interests rather than the best interests of our stockholders.

    Our incentive compensation consists of short- and long-term performance objectives that cover different time periods and is balanced with objectives for annual financial performance and long-term economic and stockholder value creation, as well as between growth and efficient capital deployment.

Incentive Program Design

    Our AIP and LTI awards incent annual profitable growth balanced with long-term financial value creation, using multiple performance objectives and providing realized compensation based primarily on our company's performance.

    AIP awards are not guaranteed, with below-threshold performance potentially resulting in zero payout and payments subject to an overall cap of 200%.

    Our equity award vehicles are performance-based, use multiple performance objectives, are subject to threshold and maximum payout opportunities, and have the following additional features that limit potential risk-taking:

    Our performance units (PUs) cliff vest at the end of three years with the payout for the relative total stockholder return (TSR) components capped at 100% of target for any three-year performance period in which absolute TSR is negative to prevent management from being unduly enriched when stockholders experience loss, while still incenting executives to deliver relatively strong performance during challenging economic periods; and

    Our market-leveraged stock units (MSUs) vest over one-, two-, three- and four-year performance periods (with an average performance period of 2.5 years), with challenging performance objectives, including a threshold performance level of absolute TSR of -15% and a target performance level of absolute TSR of 10%.

        Based on these and other factors, Willis Towers Watson determined that our compensation program strikes an appropriate pay-risk balance.

        The Compensation Committee has concluded that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on our company.

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HUMAN CAPITAL MANAGEMENT

LEADERSHIP DEVELOPMENT

        Our Board is actively involved in human capital management to identify and develop our future leaders. We maintain a robust performance review process and leadership development program for our employees. Management develops leadership at lower levels of our organization by identifying high potential talent and critical experts, cultivating the skills and capabilities to allow identified individuals to become our future leaders and providing them with developmental opportunities. Through regular reports from management, our Board has the opportunity to meet business leaders and functional leaders in law, finance, information technology, compliance, and human resources. In addition, Board members have freedom of access to all employees, and are encouraged to visit our facilities to meet local management and attend company events.

SUCCESSION PLANNING

        The Compensation Committee and/or our Board conducts executive succession planning semiannually, developing and refining succession plans for our CEO and key executive officers. Consistent with this practice, in April and October 2017, the Compensation Committee discussed talent that is currently ready — or, with continued development on their current trajectory with mentorship and coaching from our current leaders, will be ready — to fill executive officer positions in the event of a vacancy. Those discussions were then summarized and reported to our Board. In addition, the Compensation Committee reviews executive new hires, promotions and departures at its regularly-scheduled meetings.

DIRECTOR EDUCATION

INITIAL ORIENTATION

        Our initial director orientation generally covers (i) our strategies, performance and leadership; (ii) investor messaging; (iii) the strategies and risks of our businesses; (iv) finance matters, including our financial reporting policies and practices, internal control environment, internal audit deployment, tax planning and compliance, and capital structure; (v) legal matters, including our governance policies and procedures, values and ethics, compliance, and ERM; (vi) human resources matters, including executive compensation, succession planning, and non-employee director compensation; and (vii) information technology and cybersecurity.

        In connection with his initial appointment to our Board in early 2017, we provided Mr. Lopez with information regarding our businesses, strategic plans and risk-mitigating actions, competitors, non-employee director compensation policies and other matters. Our CEO then met with Mr. Lopez to discuss these matters. We conducted further orientation for Mr. Lopez in the spring of 2017 in connection with his appointment to the Audit Committee.

CONTINUING EDUCATION

        Our continuing director education program consists of periodic visits to our facilities and management presentations regarding our business operations, strategies, risks and values and ethics. We provide updates on relevant topics of interest to our Board at and between meetings throughout the year, and provide access to a boardroom news resource platform for them to keep informed of emerging best practices. We also reimburse directors who attend accredited director education for program fees and related expenses.

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BOARD AND COMMITTEE EVALUATIONS

        The Governance Committee oversees and conducts an annual performance evaluation of our Board, Chairman, Lead Independent Director and Board Committees, including the Committee Chairs. Our Board views the process as integral to assesing its effectiveness and identifying improvement opportunities in the pursuit of continued excellence. Many of the improvements in our governance practices and Board processes were identified and implemented as a result of the annual evaluation process.

GRAPHIC

        In response to feedback received in recent years during the evaluation process, our Board made the following enhancements to its processes:

    Identified the need for an independent director in the packaging industry, culminating in the appointment of Mr. Lopez to our Board;

    Given our increased strategic focus on acquisitions, enhanced discussion of M&A pipeline and targets actively under consideration, as well as the integration and performance of recently acquired companies;

    Continued its focus on executive succession planning and leadership development with more frequent discussions on director succession planning and the desired profile of future candidates;

    Continued our Board's and the Audit Committee's review and discussion of our cybersecurity preparedness and exposures related to pension liabilities;

    Enhanced interaction with management below the executive officer level; and

    Conducted post-investment reviews of the return on significant capital expenditures.

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STOCKHOLDER ENGAGEMENT AND COMMUNICATIONS

        We value stockholder feedback on our governance program, and we actively solicit input through stockholder engagement to ensure that our program reflects the changing business environment and stockholder expectations.

STOCKHOLDER ENGAGEMENT ON GOVERNANCE MATTERS IN 2017

        We continued our longstanding practice of open dialogue with stockholders in 2017. In advance of the 2017 Annual Meeting, we contacted our 25 largest institutional stockholders, representing almost 50% of our then-outstanding shares. Board members, including our Lead Independent Director, and management were made available to answer questions and address concerns regarding our executive compensation and governance programs and the items being brought to stockholder vote at the Annual Meeting. While we received responses from stockholders representing 25% of our then-outstanding shares, none of them felt that there was a need to substantively engage during that busy time.

        In the fall, we reached out to our 30 largest institutional stockholders, representing nearly 55% of our then outstanding shares, to learn what issues are important to them without the time pressures associated with proxy season. As a result of these efforts, we received responses from stockholders representing over 30% of our then-outstanding shares and spoke with stockholders representing approximately 11% of those shares. We substantively engaged with every stockholder who requested to do so.

        During our 2017 engagement program, with respect to matters related to governance, we discussed several topics related to our Board's processes, including succession planning and refreshment, diversity, and evaluations. We also discussed the integration of sustainability into our business strategies, and our Board's oversight of our cybersecurity preparedness. Our stockholders expressed interest in the anticipated completion of our CEO transition and our Board's views on proxy access; both of these matters were subsequently addressed with our December 2017 announcement of Mr. Scarborough's retirement as our Executive Chairman at the end of that year and our adoption of proxy access.

CONTACTING OUR BOARD

        We welcome ongoing feedback from all our stockholders. We review correspondence submitted by stockholders, discussing the feedback received with senior management and/or our Board as appropriate.

        Stockholders and other interested parties may contact our Board, Chairman, Lead Independent Director, any Committee or Committee Chair, or any other individual director concerning business matters by writing to: Board of Directors (or a particular subgroup or individual director), c/o Corporate Secretary, Avery Dennison Corporation, 207 Goode Avenue, Glendale, California 91203.

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ITEM 1 — ELECTION OF DIRECTORS

        Our Bylaws provide for a Board of between eight and 12 directors, with the exact number fixed by a resolution of our Board. Effective February 1, 2017, in conjunction with Mr. Lopez's appointment and upon the recommendation of the Governance Committee, our Board fixed the number of directors at 11. All nominees are standing for election at the Annual Meeting for a one-year term.

        Each of the 11 nominees is presently serving on our Board and has consented to being named in this proxy statement and serving if elected by our stockholders.

MAJORITY VOTING STANDARD; UNELECTED DIRECTOR RESIGNATION REQUIREMENT

        Our Bylaws provide for the approval by a majority of votes cast for the election of directors in uncontested elections like this one and require that an incumbent director who is not re-elected tender his or her resignation from our Board. Our Board, excluding the tendering director, is required to determine whether to accept the resignation — taking into account the recommendation of the Governance Committee and any other factors it considers appropriate — and publicly disclose its decision regarding the tendered resignation, including its rationale for the decision, within 90 days from the date election results are certified. In contested elections, plurality voting is the standard for election of directors.

        In voting for the election of directors, each share has one vote for each position to be filled and there is no cumulative voting.

RECOMMENDATION OF BOARD OF DIRECTORS

        Our Board of Directors recommends that you vote FOR each of the director nominees.     The persons named as proxies will vote for the election of each of the 11 nominees, unless you specify otherwise. If any director nominee were to become unavailable prior to the Annual Meeting, your proxy would be voted for a substitute nominee designated by our Board or we would decrease the size of our Board.

SELECTION OF DIRECTOR NOMINEES

        Director nominees are generally recommended by the Governance Committee for nomination by our Board and election by our stockholders. Director nominees may also be recommended by the Governance Committee for appointment to our Board, with their election by stockholders taking place at the next Annual Meeting. Our Board believes that our directors reflect a balance of skills, qualifications and demographics that allows them to effectively discharge their oversight responsibilities.

            In considering whether to recommend a candidate as a director nominee, the Governance Committee uses the following criteria set forth in our Governance Guidelines:

    Ability to qualify as independent, to ensure that a majority of our Board remains independent;

    Business and leadership experience, considering factors such as size, industry, scope, complexity and global operations;

    Experience as a board member of another public company;

    Experience in finance, accounting and/or executive compensation;

    Time commitments, including other boards on which the nominee serves;

    Potential conflicts of interest;

    Ability to contribute to the oversight and governance of our company; and

    Ability to represent the balanced interests of stockholders as a whole, rather than those of any special interest group.

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        For incumbent directors, the Governance Committee also evaluates contributions to our Board and Committees, attendance at Board and Committee meetings, compliance with our stock ownership guidelines, and mandatory retirement date to assist with director succession planning. The Governance Committee does not assign specific weights to the criteria and no particular criterion is necessarily applicable to all nominees.

        The Governance Committee reviews the qualifications of any candidate with those of our current directors in assessing how our Board can most effectively fulfill its oversight responsibilities. Sources for identifying potential nominees include current Board members, senior management, executive search firms, and our stockholders.

STOCKHOLDER SUBMISSION OF DIRECTOR NOMINEES

Advance Notice Nominees

        Stockholders may recommend director candidates by submitting the candidate's name, together with his or her biographical information, professional experience and written consent to nomination, to Governance and Social Responsibility Committee Chair, c/o Corporate Secretary, Avery Dennison Corporation, 207 Goode Avenue, Glendale, California 91203. To be considered at the 2019 Annual Meeting, advance notice stockholder nominations must comply with the requirements referenced in the last section of this proxy statement under Submission of Stockholder Items for 2019 Annual Meeting. The Governance Committee considers stockholder nominees on the same basis as it considers all other nominees.

Proxy Access Nominees

        Our Board recently amended our Bylaws to permit a stockholder, or a group of no more than 20 stockholders, owning at least 3% of our company's stock continuously for at least three years to submit director nominees (up to 20% of the Board) for inclusion in our proxy materials, subject to the requirements specified in our Bylaws. For further information on submitting proxy access nominees, please refer to Submission of Stockholder Items for 2019 Annual Meeting.

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BOARD MATRIX

        Our directors bring a balance of skills, qualifications and demographic backgrounds in overseeing our company, as shown in the matrix below. The Governance Committee regularly evaluates the skills and qualifications desirable for our Board to best meet the changing needs of our business.

GRAPHIC

BOARD REFRESHMENT AND DIRECTOR SUCCESSION PLANNING

        Our Board's ongoing director succession planning is designed to ensure an independent, well-qualified Board, with diversity in experience and background to effectively provide strong oversight.

NO TERM LIMITS

        Our Governance Guidelines reflect our Board's belief that directors should not be subject to term limits. While term limits could facilitate fresh ideas and viewpoints being brought to the Board, our Board believes they are counter-balanced by the disadvantage of causing the loss of a director who over a period of time has become well-versed in our strategies, operations and risks and is providing valuable contributions to Board deliberations. We believe that our Board's decision not to establish term limits is consistent with the prevailing practice among companies in the S&P 500.

        We recognize that certain governance stakeholders have suggested that longer-serving directors may have decreased independence and objectivity; however, we believe that arbitrarily removing knowledgeable directors and losing the oversight consistency they bring — particularly during periods of executive management change similar to our recent CEO and CFO transitions — weighs against implementing term limits. Ultimately, it is our Board's responsibility to establish appropriate board refreshment policies, using its discretion in the best interest of our company and stockholders.

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POLICIES SUPPORTING BOARD REFRESHMENT

        Our Board has adopted the policies described below to facilitate regular refreshment of our Board and ensure that it continues to independently challenge our management with refreshed points of view.

POLICY
  DESCRIPTION
  EVENTS OCCURRING AT OR SINCE
2017 ANNUAL MEETING

Mandatory Resignation Policy   Incumbent directors who are not elected by our stockholders must tender their resignation.   All incumbent directors were elected at the 2017 Annual Meeting.
Mandatory Retirement Policy   Directors must retire on the date of the annual meeting of stockholders that follows their reaching the age of 72. Since inception, this policy has never been waived.   No directors retired in 2017.
Resignation Tendered Upon Change in Principal Employment   Directors who change the principal occupation, position or responsibility they held when they were elected to our Board must volunteer to resign from the Board.   After being informed of his planned retirement from our company at the end of 2017, our Board determined that Mr. Scarborough should continue serving as a director. They subsequently re-elected him as Chairman, subject to his re-election.

Ms. Stewart resigned from DineEquity, Inc. effective March 2017 and volunteered to resign from our Board. After excusing her from the meeting, the Governance Committee determined that Ms. Stewart should remain on our Board.
Prior Notice Requirement to Prevent Over-Boarding   Directors must give prior notice before accepting another public company directorship so that the director's ability to fulfill Board responsibilities may be appropriately evaluated if he or she serves on more than four other public company boards.   In May 2017, Mr. Hicks joined the board of Whole Foods Corporation. Mr. Hicks only served on our Board at that time and Whole Foods was soon after acquired by another company.

        Over the past eight years, five directors retired from our Board as a result of our mandatory retirement policy and two directors resigned from our Board (not due to any disagreement with our company). Upon the recommendation of the Governance Committee, Mr. Lopez was appointed to our Board as an independent director in February 2017. In connection with our CEO transition, Mr. Butier joined our Board as a non-independent director in May 2016. We believe that this recent experience — coming after four new independent directors were appointed to our Board between 2009 and 2013 — demonstrates our Board's commitment to ongoing refreshment.

AGE AND TENURE

        The average age of our director nominees is 61, which we believe is comparable to the average board age in the S&P 500 and within the 60-63 year band in which the plurality of these companies fall. The average tenure of our director nominees is ten years, which we believe is comparable to the average tenure for companies in the S&P 500 and within the six-to-ten year band in which the majority of these companies fall. The charts on the following page show the age and tenure of our director nominees, which we believe is balanced between new directors who bring new ideas and insights and longer-serving directors with deep institutional knowledge of our Board and company.

Avery Dennison Corporation  | 2018 Proxy Statement  | 26


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Director Nominees

GRAPHIC

DIRECTOR DIVERSITY

        Although our Board does not have a formal policy regarding the consideration of diversity in selecting director nominees, the Governance Committee seeks to recommend individuals with a broad diversity of experience, profession, skill, geographic representation and background, which may include consideration of an individual's demographic background, including characteristics such as race, gender and national origin. While diversity is a consideration, nominees are not chosen or excluded solely or primarily on that basis; rather, the Governance Committee focuses on skills, experience and background that can complement our existing Board in light of the diverse and global nature of our businesses and operations.

        Our Board recognizes the benefits of racial, ethnic and gender diversity in the boardroom, including better reflecting our global customer base and the healthy debate that results from different viewpoints that may stem from diverse backgrounds. The racial, ethnic and gender diversity of our 2018 director nominees is shown in the chart below.

GRAPHIC

2018 DIRECTOR NOMINEES

        The following pages provide information on the directors nominated for election at the Annual Meeting, including his or her age, board leadership roles, and business experience during at least the past five years. We also indicate the name of any other public company board on which each nominee currently serves, or has served during the past five years; for these purposes, "public company" means one that is required to file reports with the SEC.

        In addition to the information presented regarding each nominee's experience and qualifications that led our Board to conclude that he or she should serve as a director — which includes senior leadership experience, industry experience, global exposure, financial sophistication, and public company board experience — we believe that each of them has integrity and adheres to our high ethical standards. Each nominee also has demonstrated the ability to exercise sound judgment and is committed to serving the long-term interests of our stockholders.

Avery Dennison Corporation  | 2018 Proxy Statement  | 27


Table of Contents

GRAPHIC

 

SELECT BUSINESS EXPERIENCE

Owens-Illinois, Inc., a glass container manufacturer and supplier to food and beverage brands

President & Chief Executive Officer since January 2016

Chief Operating Officer & President, Glass Containers, from February 2015 to December 2015

President, O-I Americas, from July 2014 to January 2015

President, O-I Latin America, from April 2009 to July 2014

    

Andres A. Lopez

Age 55


Director since February 2017


Independent


Other Public Company Boards

Current:

Owens-Illinois, Inc.

Past Five Years:

None

 

SELECT SKILLS AND QUALIFICATIONS

Senior leadership experience

Oversees a company with over $6.9 billion in 2017 revenues and more than 26,000 employees

Industry experience

Leads a multinational packaging company in the beverage segment of the consumer goods industry into which we sell our label and graphic materials

Global exposure

Led Latin America and Americas divisions, after having worked in positions of increasing responsibility throughout the region

Public board experience

Concurrent service on one other public board

BOARD LEADERSHIP ROLES

Audit Committee Member

     

GRAPHIC

 

SELECT BUSINESS EXPERIENCE

Ernst & Young LLP, an assurance, tax, transaction and advisory services firm

Vice Chair, Managing Partner and Member of the Executive Board from 2000 to March 2012

    

Anthony K. Anderson

Age 62


Director since December 2012


Independent


Other Public Company Boards

Current:

AAR Corporation

Exelon Corporation

Marsh & McLennan Companies, Inc.

Past Five Years:

First American Financial Corporation

 

SELECT SKILLS AND QUALIFICATIONS

Senior leadership experience

Served on the executive board of Ernst & Young for 12 years, and as the managing partner of the Midwest and Pacific Southwest regions

Director of Perspectives Charter School (Chairman), World Business Chicago (Executive Committee) and the Chicago Urban League (former Chairman)

Financial sophistication

35 years of financial statement and internal control expertise acquired through auditing global public companies

Substantial experience advising audit committees of large multinational corporations

Certified public accountant (now inactive)

Public board experience

Concurrent service on three other public boards and prior service on other public boards

BOARD LEADERSHIP ROLES

Audit Committee Member

Governance Committee Member

     

GRAPHIC

 

SELECT BUSINESS EXPERIENCE

Nestlé USA, a nutrition, health and wellness company

Chairman & Chief Executive Officer from January 2006 to October 2012

Nestlé Brands Company, an operating unit of Nestlé USA

President & Chief Executive Officer from 2003 to December 2005

Bradley A. Alford

Age 61


Director since April 2010


Independent


Other Public Company Boards

Current:

ConAgra Foods, Inc.

Perrigo Company plc

Past Five Years:

None

 

SELECT SKILLS AND QUALIFICATIONS

Senior leadership experience

Led a company then with $12+ billion in annual revenues and 26,000+ employees

Industry experience

30+ years in the consumer goods industry

Knowledge of the food and beverage segments of the consumer goods industry into which we sell our label and graphic materials

Global exposure

International management assignments

Significant M&A and integration experience

BOARD LEADERSHIP ROLES

Compensation Committee Member

Governance Committee Member



   

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GRAPHIC

 

SELECT BUSINESS EXPERIENCE

Allergan, Inc., a global health care company

Chairman & Chief Executive Officer from June 2013 to March 2015 and February 2006 to April 2011

Chairman, President & Chief Executive Officer from April 2011 to June 2013 and April 2001 to January 2006

President & Chief Executive Officer from January 1998 to March 2001

    

David E.I. Pyott

Age 64


Director since November 1999


Independent


Other Public Company Boards

Current:

Alnylam Pharmaceuticals Inc.

BioMarin Pharmaceutical Inc.

Koninklijke Philips N.V.

Past Five Years:

Allergan, Inc.

Edwards Lifesciences Corporation

 

SELECT SKILLS AND QUALIFICATIONS

Senior leadership experience

Led a company with over $7 billion in annual revenues and over 11,000 employees

Global exposure and industry experience

30+ years of strategic, operational, research and development and marketing experience in the healthcare industry into which we sell our industrial and healthcare materials

Public board experience

Concurrent service on three other public boards and prior service on other public boards

BOARD LEADERSHIP ROLES

Lead Independent Director

Compensation Committee Member

Governance Committee Member

     

GRAPHIC

 

SELECT BUSINESS EXPERIENCE

Avery Dennison Corporation

Executive Chairman from May 2016 to December 2017

Chairman & Chief Executive Officer from November 2014 to April 2016

Chairman, President & Chief Executive Officer from April 2010 to October 2014

President & Chief Executive Officer from May 2005 to April 2010

President & Chief Operating Officer from May 2000 to April 2005

    

Dean A. Scarborough

Age 62


Director since May 2000


Not Independent


Other Public Company Boards

Current:

Mattel, Inc.

Past Five Years:

None

 

SELECT SKILLS AND QUALIFICATIONS

Senior leadership experience

Seven years leading our company as Chairman, 11 years as Chief Executive Officer and 14+ years as President

Global exposure and industry experience

30+ years managing or overseeing our global label and graphic materials operations

Public board experience

Concurrent service on one other public board

BOARD LEADERSHIP ROLES

Chairman

     

GRAPHIC

 

SELECT BUSINESS EXPERIENCE

DineEquity, Inc., owner, operator and franchisor of IHOP and Applebee's restaurants

Chairman & Chief Executive Officer from June 2008 to March 2017

IHOP Corporation, DineEquity's predecessor entity

Chairman & Chief Executive Officer from May 2006 to May 2008

President, Chief Executive Officer & Chief Operating Officer from May 2002 to April 2006

President & Chief Operating Officer from December 2001 to May 2002

Julia A. Stewart

Age 62


Director since January 2003


Independent


Other Public Company Boards

Current:

None

Past Five Years:

DineEquity,  Inc.

 

SELECT SKILLS AND QUALIFICATIONS

Senior leadership experience

Led a large, publicly-traded full-service restaurant company

Global exposure

Substantial operational and marketing experience in the dining industry

Expertise in brand positioning, risk assessment, financial reporting and governance

Public board experience

Prior service on other public boards

BOARD LEADERSHIP ROLES

Compensation Committee Chair

Governance Committee Member



   

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GRAPHIC

 

SELECT BUSINESS EXPERIENCE

Foot Locker, Inc., a specialty athletic retailer

Executive Chairman from December 2014 to May 2015

Chairman, President & Chief Executive Officer from February 2010 to November 2014

President and Chief Executive Officer from August 2009 to February 2010

J.C. Penney Company, Inc., a retail company

President & Chief Merchandising Officer from January 2005 to July 2009

President & Chief Operating Officer from July 2002 to December 2004

Ken C. Hicks

Age 65


Director since July 2007


Independent


Other Public Company Boards

Current:

None

Past Five Years:

Foot Locker,  Inc.

Whole Foods Corporation

 

SELECT SKILLS AND QUALIFICATIONS

Senior leadership experience

Oversaw a company with over $7 billion in annual revenues and over 43,000 employees

Industry experience

29 years of senior marketing and operational experience in the retail industry into which we sell our retail branding and information solutions

Public board experience

Prior service on other public boards

BOARD LEADERSHIP ROLES

Audit Committee Member

Compensation Committee Member

     

GRAPHIC

 

SELECT BUSINESS EXPERIENCE

Sensata Technologies Holding N.V., a supplier of sensors and controls

President & Chief Executive Officer since January 2013

President from September 2010 to December 2012

Chief Operating Officer from April 2006 to August 2010

Texas Instruments, Inc., Sensata's predecessor entity

Vice President of Sensor Products from 1997 to 2006

Martha N. Sullivan

Age 61


Director since February 2013


Independent


Other Public Company Boards

Current:

Sensata Technologies Holding N.V.

Past Five Years:

None

 

SELECT SKILLS AND QUALIFICATIONS

Senior leadership experience

Leads a business-to-business enterprise with over $3.3 billion in 2017 revenues

Global exposure and industry experience

Oversees all business segments, global operations and strategic planning

Strong technology background, including experience overseeing a radio-frequency identification business

Public board experience

Concurrent service on one other public board

BOARD LEADERSHIP ROLES

Audit Committee Member

Compensation Committee Member

     

GRAPHIC

 

SELECT BUSINESS EXPERIENCE

Avery Dennison Corporation

President & Chief Executive Officer since May 2016

President & Chief Operating Officer from November 2014 to April 2016

Senior Vice President & Chief Financial Officer from June 2010 to October 2014; continued as CFO until March 2015

Vice President, Global Finance, and Chief Accounting Officer from March 2007 to May 2010

    

Mitchell R. Butier

Age 46


Director since April 2016


Not Independent


Other Public Company Boards

Current:

None

Past Five Years:

None

 

SELECT SKILLS AND QUALIFICATIONS

Senior leadership experience

Has held roles of increasing responsibility at our company, including CAO, CFO, COO and now President & CEO

Industry experience and global exposure

Served in senior leadership positions in our primary business segments, including international assignments in Europe

Financial sophistication

Served as our CFO for almost three years and our CAO for nearly five years

BOARD LEADERSHIP ROLES

None



   

Avery Dennison Corporation  | 2018 Proxy Statement  | 30


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GRAPHIC

 

SELECT BUSINESS EXPERIENCE

The Carlyle Group, a global alternative investment firm

Managing Director and Partner since April 2007

The Coca-Cola Company, a beverage company

Senior Advisor from February 2006 to March 2007

Group President, Asia, from August 2001 to February 2006

    

Patrick T. Siewert

Age 62


Director since April 2005


Independent


Other Public Company Boards

Current:

Mondelez International, Inc.

Past Five Years:

None

 

SELECT SKILLS AND QUALIFICATIONS

Industry experience and financial sophistication

Led a division of a global company in the beverage segment of the consumer goods industry into which we sell our label and graphic materials

Advises on investments in consumer goods businesses globally, particularly in Asia

Global exposure

Work experience in Asia, a region in which we manufacture many of our products and a region that is driving our growth in emerging markets

Public board experience

Concurrent service on one other public board

BOARD LEADERSHIP ROLES

Audit Committee Chair

     

GRAPHIC

 

SELECT BUSINESS EXPERIENCE

JPMorgan Chase & Co., a global financial services firm

Chairman of California and Executive Committee Member from September 2009 to January 2013

Goldman Sachs & Co., an investment banking, securities and investment management firm

Partner/Managing Director from 1982 to 1998

Peter K. Barker

Age 69


Director since January 2003


Independent


Other Public Company Boards

Current:

Fluor Corporation

Franklin Resources, Inc.

Past Five Years:

None

 

SELECT SKILLS AND QUALIFICATIONS

Senior leadership experience

Led a division then with over 21,000 employees

Member of the executive committee overseeing a global enterprise with $100+ billion in annual revenues

Financial sophistication

37 years of investment banking experience, advising companies on capital structure, strategic planning, financing, recapitalization, acquisitions and divestitures

Public board experience

Concurrent service on two other public boards and prior service on other public boards

BOARD LEADERSHIP ROLES

Governance Committee Chair

Audit Committee Member

Avery Dennison Corporation  | 2018 Proxy Statement  | 31


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DIRECTOR COMPENSATION

        In recommending non-employee director compensation to our Board, the Compensation Committee seeks to target compensation at the median of companies similar in size, global scope and complexity with which we compete for director talent. The majority of compensation is delivered in equity to align director interests with those of our stockholders. Because he retired from our company at the end of 2017, Mr. Scarborough will be compensated pursuant to our non-employee compensation program beginning in 2018.

MEDIAN TOTAL REMUNERATION

        After having been unchanged for three years, non-employee director compensation was increased in 2016 based upon the advice of Willis Towers Watson that our previous overall compensation was below the market median. To maintain the program's market-competitiveness and attract and retain qualified directors, upon the recommendation of the Compensation Committee, our Board approved changes to target total non-employee director remuneration at the market median through 2017. The primary components of our non-employee director compensation program are summarized in the charts below and described thereafter.

GRAPHIC   GRAPHIC

        Based on the advice of Willis Towers Watson, the Compensation Committee recommended to our Board that the supplemental Lead Independent Director retainer be further increased from $25,000 to $30,000 to more closely align with market practices. Our Board approved the increase effective May 1, 2017.

STOCK OWNERSHIP GUIDELINES

        Our stock ownership guidelines require non-employee directors to own $500,000 in our company stock, 50% of which must be held in vested shares. In February 2017, upon the advice of Willis Towers Watson, the Compensation Committee discontinued considering stock option gains towards measuring guideline compliance, counting only shares owned directly or in a trust, deferred stock units (DSUs) and RSUs. These changes, which made the guidelines more stringent, were consistent with the changes made to our executive stock ownership guidelines effective 2017.

        Directors are prohibited from hedging or pledging our common stock.

        Except for our newest director who has five years to reach his minimum ownership level, all of our directors satisfy the holding requirements of our stock ownership guidelines. None of our directors has hedged or pledged our common stock.

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EQUITY COMPENSATION

        The 2017 equity grant to non-employee directors was made in the form of RSUs that vest in one year, consistent with the one-year term to which directors are elected; however, unvested RSUs fully vest upon a director's death, disability, retirement from our Board after reaching age 72 or termination of service within 24 months after a change of control. Unvested RSUs are generally cancelled in the event a director voluntarily resigns, is not re-elected by stockholders or is otherwise asked to leave our Board. On May 1, 2017, each of our then-serving directors was granted 1,678 RSUs with a grant date value of approximately $140,000 based on the fair market value of our common stock on that date.

        On February 1, 2017, the date of his appointment to our Board, Mr. Lopez received a prorated equity grant for the remainder of the term expiring at the 2017 Annual Meeting consisting of 445 RSUs with a grant date value of approximately $35,000 based on the fair market value of our common stock on that date.

DEFERRABLE CASH COMPENSATION

        Cash retainers are paid semiannually and prorated for any director's partial service during the year. Directors are also reimbursed for travel expenses incurred to attend Board meetings and continuing education events.

        Non-employee directors may choose to receive this compensation in (i) cash, either paid directly or deferred into an account under our Directors Variable Deferred Compensation Plan, which accrues earnings at the rate of return of certain bond and equity investment funds managed by an insurance company; (ii) DSUs credited to an individual account pursuant to our Directors Deferred Equity Compensation Plan (DDECP); or (iii) a combination of cash and DSUs. None of our current non-employee directors participates in the DVDCP and eight of our non-employee directors participate in the DDECP. When a director participating in the DDECP retires or otherwise ceases serving as a director, the dollar value of the DSUs in his or her account is divided by the closing price of our common stock on the last date of the director's service, with the resulting number of shares of our common stock issued to the director. Dividend equivalents, representing the value of dividends per share paid on shares of our common stock calculated with reference to the number of DSUs held as of a dividend record date, are reinvested on the applicable payable date in the form of additional DSUs credited to the accounts of directors participating in the DDECP.

MATCHING GIFT PROGRAM

        We match up to $10,000 per year of a non-employee director's contributions to charitable organizations or educational institutions.

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DIRECTOR COMPENSATION TABLE

NAME
FEES
EARNED
OR PAID
IN CASH(1)

STOCK
AWARDS(2)

CHANGE IN
PENSION VALUE AND
NONQUALIFIED DEFERRED
COMPENSATION EARNINGS(3)

ALL OTHER
COMPENSATION(4)

TOTAL

Bradley A. Alford

$ 100,000 $ 136,973



$ 7,000 $ 243,973

Anthony A. Anderson

$ 100,000 $ 136,973 $ 236,973

Peter K. Barker

$ 115,000 $ 136,973



$ 10,000 $ 261,973

Ken C. Hicks

$ 100,000 $ 136,973 $ 10,000 $ 246,973

Andres A. Lopez

$ 91,667 $ 170,721







$ 262,388

David E.I. Pyott

$ 128,333 $ 136,973 $ 8,336 $ 10,000 $ 283,642

Patrick T. Siewert

$ 120,000 $ 136,973







$ 256,973

Julia A. Stewart

$ 115,000 $ 136,973 $ 10,000 $ 261,973

Martha N. Sullivan

$ 100,000 $ 136,973




$



$ 236,973

(1)
Messrs. Butier and Scarborough do not appear in the table because they were employed by our company in 2017 and did not receive any additional compensation to serve as directors. Amounts represent retainers earned as shown in the table below. At their election, the following directors deferred their cash compensation through the DDECP, with the following balances of DSUs in their accounts as of December 30, 2017, the last day of our 2017 fiscal year: Alford — 16,154; Anderson — 8,070; Barker — 27,225; Hicks — 12,512; Lopez — 285; Pyott — 47,642; Stewart — 35,475; and Sullivan — 7,967.
DIRECTOR
BOARD LEADERSHIP ROLES
BOARD
RETAINER

COMMITTEE
CHAIR RETAINER

LEAD DIRECTOR
RETAINER

Alford $ 100,000



Anderson   $ 100,000
Barker Governance Committee Chair $ 100,000 $ 15,000
Hicks   $ 100,000
Lopez $ 91,667



Pyott Lead Independent Director $ 100,000 $ 28,333
Siewert Audit Committee Chair $ 100,000 $ 20,000
Stewart Compensation Committee Chair $ 100,000 $ 15,000
Sullivan $ 100,000





(2)
Amounts reflect the grant date fair value, without adjustment for forfeitures, of 1,678 RSUs granted on May 1, 2017. Amount for Mr. Lopez also reflects the grant date fair value, without adjustment for forfeitures, of 445 RSUs granted on February 1, 2017 in connection with his appointment to our Board. The fair value of RSUs was determined based on the fair market value of our common stock on the grant date, adjusted for foregone dividends. Each non-employee director serving as of December 30, 2017 held 3,707 unvested RSUs, except for Mr. Lopez, who held 2,123 unvested RSUs.
(3)
We do not currently have a retirement benefit program for non-employee directors. Amount for Mr. Pyott reflects the change in present value of his accumulated benefits under a director retirement plan the accrual of benefits under which was frozen in 2002, based on an interest rate of 3.03% as of December 30, 2017.
(4)
Amounts reflect our matching gifts for contributions made to charitable organizations or educational institutions.

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ITEM 2 — ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION

        After considering the preliminary voting results of the advisory vote on the frequency of our say-on-pay vote at our 2017 Annual Meeting, our Board determined to hold say-on-pay votes annually, at least until the next advisory vote on the frequency of our say-on-pay vote (expected to occur at our 2023 Annual Meeting).

        In this Item 2, our stockholders are being asked to vote on the following resolution:

              RESOLVED, that the Company's stockholders approve, on an advisory basis, the compensation of the Company's Named Executive Officers (NEOs), as described in the Compensation Discussion and Analysis and Executive Compensation Tables sections of the Company's 2018 proxy statement.

RECOMMENDATION OF BOARD OF DIRECTORS

        We remain committed to ongoing engagement with our stockholders to solicit their viewpoints and discuss why we believe our executive compensation program properly aligns with our strategies by encouraging our leaders to deliver strong financial performance and create superior long-term, sustainable value for our customers, employees, investors and communities. Our Board of Directors recommends that you vote FOR approval, on an advisory basis, of our executive compensation. Properly dated and signed proxies will be so voted unless you specify otherwise.

MEANING OF ADVISORY VOTE

        The advisory vote is a vote to approve the compensation of our NEOs, as described in the Compensation Discussion and Analysis (CD&A) and Executive Compensation Tables sections of this proxy statement. It is not a vote on our general compensation policies or any specific element of compensation, the compensation of our non-employee directors, our CEO pay ratio, or the features of our compensation program designed to prevent excessive risk-taking as described in Risks Associated with Compensation Policies and Practices.

        The results of the advisory vote are not binding on our Board. However, in accordance with SEC regulations, the Compensation Committee will disclose the extent to which it takes into account the results of the vote in the CD&A of our 2019 proxy statement.

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COMPENSATION AND EXECUTIVE PERSONNEL COMMITTEE REPORT

        The Compensation and Executive Personnel Committee (referred to in this report as the "Committee") of our Board of Directors has reviewed and discussed the Compensation Discussion and Analysis (CD&A) required by Item 402(b) of Regulation S-K with management and, based on its review and those discussions, has recommended to our Board of Directors that the CD&A be included in our 2018 proxy statement and incorporated by reference into our 2017 Annual Report on Form 10-K.

        The Committee welcomes feedback regarding our executive compensation program. Stockholders may communicate with the Committee by writing to the Compensation and Executive Personnel Committee Chair, c/o Corporate Secretary, Avery Dennison Corporation, 207 Goode Avenue, Glendale, California 91203.

Julia A. Stewart, Chair
Bradley A. Alford
Ken C. Hicks
David E. I. Pyott
Martha N. Sullivan

Avery Dennison Corporation  | 2018 Proxy Statement  | 36


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS*

        This Compensation Discussion and Analysis (CD&A) describes the principles and practices underlying our executive compensation program and the decisions made by the Compensation and Executive Personnel Committee (referred to in this CD&A as the "Committee") related to 2017 compensation. This CD&A contains the sections shown below.

    Executive Summary
      Business Strategy Overview
      On Track to Deliver Financial Targets
      2017 Financial Performance
      Disciplined Capital Allocation
      Three- and Five-Year Cumulative TSR Outperformance
      2017 Say-on-Pay Vote and Stockholder Feedback During 2017 Engagement
      2017 NEOs
      Overview of Pay Philosophy and Executive Compensation Components
      Continuous Evolution of Compensation Program
      Strong Compensation Governance Practices
    Summary of Compensation Decisions for 2017
    Discussion of Compensation Components and Decisions Impacting 2017 Compensation
      Base Salary
      2017 AIP Awards
      2017 Grants of LTI Awards
      2017 Vesting of Previously Granted LTI Awards
      Perquisites
      Relocation and Other Temporary Benefits
      General Benefits
      Severance Benefits
    Compensation-Setting Tools
    Independent Oversight and Expertise
    Other Considerations

EXECUTIVE SUMMARY

BUSINESS STRATEGY OVERVIEW

        Over the last several years, we have been successfully executing our business strategies, which are designed to create long-term, sustainable value for our customers, employees, and investors and improve the communities in which we operate. From our stockholders' perspective, that value is best measured by our total stockholder return (TSR) and economic value added (EVA), both of which are performance objectives used in our LTI program and inform how we set goals for sales growth, margin improvement, asset efficiency, and capital allocation.

        We communicated long-term goals in 2014 for the organic sales growth, adjusted earnings per share (EPS) growth and return on total capital (ROTC) we planned to achieve by 2018, raising the bar over the five-year goals we established in 2012 and substantially achieved through 2015. With only one year remaining in the 2014-2018 period, we are on track to achieve or exceed our targets.

        In late 2016, we changed our operating structure to align with our overall business strategy. As a result, our results are now based on the following segments: Label and Graphic Materials (LGM), Retail Branding and Information Solutions (RBIS), and Industrial and Healthcare Materials (IHM). In March 2017, we announced new long-term goals for 2021 for these new segments, as well as for our company as a whole, targeting continued solid organic sales growth and double-digit growth in adjusted EPS on a compound annual basis.

   


*
This CD&A contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from the results, performance or achievements expressed or implied thereby. For a detailed discussion of these risks, see Part I, Item 1a. "Risk Factors" and Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2017 Annual Report on Form 10-K, filed on February 21, 2018 with the SEC (our "2017 Annual Report"). Stockholders should note that statements contained in this CD&A regarding our company and business performance targets and goals should not be interpreted as management's expectations, estimates of results or other guidance.

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        To achieve our targets, we have been consistently executing four key strategies. First, we are focused on driving outsized growth in high value product categories (organically and through acquisitions) to improve our portfolio mix over time. Product categories are defined as high value when they serve markets that are growing faster than gross domestic product (GDP), represent large pools of potential profit and leverage our core capabilities. Examples include specialty and durable label materials, graphic and reflective materials, industrial tapes, and radio-frequency identification (RFID) inlays and tags. In 2017, we delivered above-average growth in these categories, while also increasing our exposure to them through acquisitions.

        Second, we are focused on delivering solid growth in our base business by carefully balancing volume, price and mix; reducing complexity; and tailoring our go-to-market strategies.

        Third, we remain highly focused on continuously improving productivity to expand margins, enhance our competitiveness and provide a funding source for reinvestment. Product reengineering and lean operating principles are among the levers we use in executing this strategy.

        Our final key strategy is to be a highly disciplined allocator of capital. This applies to our acquisition criteria and how we deploy capital for organic growth and productivity, as well as our approach to stockholder distributions.

ON TRACK TO DELIVER FINANCIAL TARGETS

        Our 2014-2018 financial goals included an organic sales growth target of 4% to 5%, reflecting confidence in the trajectory of our two largest businesses. We also targeted double-digit adjusted EPS growth. For the first time, we externally communicated a target for return on total capital (ROTC), which has long been a key internal financial metric for our company. We believe that the combination of our growth and ROTC targets effectively communicates our value creation objectives, which together are a proxy for EVA, one of the performance objectives used in our LTI program. As shown on the following page, based on our results for the first four years of this five-year period, we are on track to achieve or exceed our 2018 commitments to investors. For the 2014-2017 period, on a compound annual basis, reported sales grew by 2%, reported EPS grew by 10% and reported net income grew by 7%.

        Organic sales growth, adjusted EPS, ROTC and adjusted ROTC — as well as free cash flow, which is described on page 40 — are non-GAAP financial measures that we provide to investors to assist them in assessing our performance and operating trends. These non-GAAP financial measures are not in accordance with, nor are they a substitute for or superior to, the comparable financial measures under generally accepted accounting principles in the United States of America (GAAP) and are reconciled to GAAP in Appendix A of this proxy statement.

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  2014-2018
TARGETS*

  2014-2017
RESULTS

Organic Sales Growth(1)   4%-5%   4%

Adjusted EPS Growth(2)

 

12%-15%+

 

17%

ROTC(3)

 

16%+ in 2018

 

13% in 2017
Adj.(4) 19% in 2017
         
ON TRACK TO ACHIEVE OR EXCEED 2018 FINANCIAL TARGETS

(1)

  Organic sales change refers to the increase or decrease in sales excluding the estimated impact of currency translation, product line exits, acquisitions and divestitures, and, where applicable, the extra week in our fiscal year. Percentages represent compound annual growth rates, with 2013 as the base period.

(2)

 

Adjusted net income per common share, assuming dilution (adjusted EPS) refers to adjusted net income divided by the weighted average number of common shares outstanding, assuming dilution. Adjusted net income is income from continuing operations before taxes tax-effected at the full-year GAAP tax rate and adjusted for tax-effected restructuring charges and other items. Adjusted tax rate is the full-year GAAP tax rate adjusted to include the impact of previously planned repatriation of foreign earnings for the fourth quarter of 2017 and exclude the provisional estimated impact of the impact of the Tax Cuts and Job Act (TCJA). Percentages represent compound annual growth rates, with 2013 as the base period.

(3)

 

ROTC refers to income from continuing operations excluding the expense and tax benefit of debt financing, divided by the average of beginning and ending invested capital (total debt plus shareholders' equity).

(4)

 

Adjusted ROTC excludes the estimated tax provision impact resulting from the TCJA of $172.0 million, less the impact of previously planned repatriation of foreign earnings for the fourth quarter of 2017 of $29.4 million.

        In March 2017, we announced 2017-2021 goals, targeting continued solid organic sales growth and double-digit growth in adjusted EPS on a compound annual basis. While we are only one year into this five-year period, we are on pace to deliver these targets, as shown below. Compared to 2016, in 2017, reported sales grew by 9% and — driven by the provisional estimated impact of the Tax Cuts and Job Act (TCJA) — reported EPS and reported net income each declined by 12%.

 
  2017-2021
TARGETS*

  2017
RESULTS

Organic Sales Growth   4+%
5+% with M&A

 
4%
8% with M&A

Adjusted EPS Growth

 

10+%

 

24%

ROTC

 

17+% in 2021

 

13% in 2017
Adj. = 19% in 2017
         
ON PACE TO DELIVER 2021 FINANCIAL TARGETS

*

  Percentages for organic sales growth and adjusted EPS growth reflect compound annual growth rates with 2016 as the base period. Target with M&A reflects completed acquisitions as of March 2017.

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2017 FINANCIAL PERFORMANCE

        Fiscal year 2017 marked our sixth consecutive year of strong top-line growth, margin expansion and double-digit adjusted EPS growth. We exceeded our financial goals for the year, with the accomplishments shown below.

    Achieved net sales of approximately $6.6 billion, an increase of 8.7% over the prior year, through a balance of organic growth and acquisitions.

    Excluding the impact of currency, sales grew by 8.2%; on an organic basis, sales grew by 4.2%, driven by growth in high value product categories and businesses serving emerging markets.

    Although reported EPS decreased from $3.54 in 2016 to $3.13 in 2017 due to a substantial increase in our provision for income taxes to reflect the provisional estimated impact of the TCJA, adjusted EPS increased from $4.02 to $5.00, significantly exceeding the high end of the $4.30-$4.50 guidance range we gave in February 2017.

    With net cash provided by operating activities of $650.1 million, delivered free cash flow of $421.7 million. Free cash flow refers to cash flow from operations, less payments for property, plant and equipment, software and other deferred charges, plus proceeds from sales of property, plant and equipment, plus (minus) net proceeds from sales (purchases) of investments.

    On reported net income of $281.8 million, achieved return on total capital (ROTC) of 12.9%; adjusted to exclude the net impact of the TCJA, ROTC increased to 18.8%.

    Continued our disciplined approach to capital allocation by investing $226.1 million in capital expenditures to support organic growth and $319.3 million in acquisitions and equity investments, while allocating $155.5 million to dividends and $129.7 million to share repurchases.

GRAPHIC

DISCIPLINED CAPITAL ALLOCATION

        We achieved these results while maintaining a healthy balance sheet and continuing the disciplined execution of our capital allocation strategy. Over the last five years, we have allocated nearly $2 billion to dividends and repurchases. In 2017, we deployed approximately $285 million to (i) repurchase 1.5 million shares at an aggregate cost of nearly $130 million and (ii) pay an annual dividend of $1.76 per share for an aggregate amount of over $155 million. We have paid quarterly dividends for decades and raised our quarterly dividend rate by 125% since 2010; most recently, we raised the quarterly dividend rate by 10% in April 2017. Given our increased use of available capital for acquisitions and equity investments, we repurchased fewer shares in 2017 compared to prior years.

   


For complete information regarding our 2017 performance, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" — in particular the information contained under the heading "Non-GAAP Financial Measures" — and our audited consolidated financial statements and notes thereto contained in our 2017 Annual Report.

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GRAPHIC

        We have also allocated capital to investing in our businesses to support organic growth and pursuing targeted acquisitions that support our strategy of increasing our exposure to high value product categories. In 2017, we increased our spending on capital expenditures by approximately 9% over the prior year to grow our business and continued to take actions to improve our profitability and expand our margins. In addition, we successfully completed and integrated the acquisitions of (i) Hanita Coatings Rural Cooperative Association Limited, an Israel-based pressure-sensitive manufacturer of specialty films and laminates; (ii) Yongle Tape Ltd., a China-based manufacturer of specialty tapes and related products used in a variety of industrial markets; and (iii) Finesse Medical Limited, an Ireland-based manufacturer of healthcare products used in the management of wound care and skin conditions. We also made equity investments in two other companies.

THREE- AND FIVE-YEAR CUMULATIVE TSR OUTPERFORMANCE

        As shown below, with TSR of nearly 67% in 2017, we delivered cumulative TSR for the 2015-2017 three-year period and the 2013-2017 five-year period that significantly outperformed the S&P 500® and the median of the S&P 500 Industrials and Materials subsets (we are a member of the Materials subset, but also share many characteristics with members of the Industrials subset; investors have informed us that they look at both subsets in evaluating our relative performance, as we do internally). TSR measures the return we have provided to our stockholders, including stock price appreciation and dividends paid (assuming reinvestment thereof).

GRAPHIC

1-, 3- and 5-YEAR TSR

  2013   2014   2015   2016   2017   3-Year
TSR
  5-Year
TSR

AVY

  47.5%   6.2%   23.8%   14.6%   66.7%   136.4%   270.3%

S&P 500

  32.4%   13.7%   1.4%   12.0%   21.8%   38.3%   108.1%

S&P 500 Indus. & Mats.* (median)

  41.0%   11.7%   (4.7)%   19.0%   27.5%   49.2%   134.8%
*
Based on companies in subsets as of December 31, 2017.

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2017 SAY-ON-PAY VOTE AND STOCKHOLDER FEEDBACK DURING 2017 ENGAGEMENT

        We continued our practice of maintaining ongoing dialogue with stockholders in 2017. The Committee made significant changes to our executive compensation program in recent years to address direct feedback from our stockholders and more closely align our LTI program with our financial profile and business strategies, demonstrating the Committee's commitment to paying for performance and being responsive to stockholder feedback. See Continuous Evolution of Compensation Program later in this CD&A. In 2017, during our ongoing stockholder engagement program, we discussed our executive compensation program with some of our stockholders, who expressed support for its current structure.

Results and Analysis of 2017 Vote

        At the 2017 Annual Meeting, approximately 94% of our stockholders approved, on an advisory basis, our executive compensation. The level of support we received was consistent with the high approval rates for the last two years. The Committee believes that our consistently high approval rate, along with the positive feedback we received during our engagement with stockholders, reflects strong support of the changes to our compensation program made in recent years, as well as our consistently improving CD&A disclosure.

Stockholder Engagement Process

        We value stockholder feedback on our executive compensation policies and practices, and we actively solicit input through our stockholder engagement program. Our ongoing engagement program takes place throughout the year, generally as shown in the graphic below.

GRAPHIC

Feedback During 2017 Engagement

        We continued our longstanding practice of open dialogue with stockholders in 2017. In advance of the 2017 Annual Meeting, we contacted our 25 largest institutional stockholders, representing almost 50% of our then-outstanding shares. Board members, including our Lead Independent Director, and management were made available to answer questions and address concerns regarding our executive compensation and governance programs and the items being brought to stockholder vote at the Annual Meeting. While we received responses from stockholders representing 25% of our then-outstanding shares, none of them felt that there was a need to substantively engage during that busy time.

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        In the fall, we reached out to our 30 largest institutional stockholders, representing nearly 55% of our then-outstanding shares, to learn what issues are important to them without the time pressures associated with proxy season. As a result of these efforts, we received responses from stockholders representing over 30% of our then-outstanding shares and spoke with stockholders representing approximately 11% of those shares. We substantively engaged with every stockholder who requested to do so.

        During our 2017 engagement, with respect to matters related to executive compensation, our stockholders expressed support for our program generally and appreciated the increased graphical disclosure in our 2017 proxy statement. In addition, we discussed our approach to human capital management, in particular our diversity and inclusion efforts, as well as the linkage between our executive incentive compensation and business strategies. We also provided additional clarification on the market-leveraged stock units (MSUs) included in our LTI program.

2017 NAMED EXECUTIVE OFFICERS (NEOs)

        In this CD&A and the Executive Compensation Tables section of this proxy statement, we provide compensation information for our 2017 NEOs, who are identified in the chart below.

2017 NEOs
NAME
  TITLE
Mitchell R. Butier   President & Chief Executive Officer
Gregory S. Lovins   Senior Vice President & Chief Financial Officer
Georges Gravanis   President, Label and Graphic Materials
Anne Hill   Senior Vice President & Chief Human Resources Officer
Susan C. Miller   Senior Vice President, General Counsel & Secretary
Anne L. Bramman   Former Senior Vice President & Chief Financial Officer

        The NEOs who served at the end of our 2017 fiscal year (which excludes Ms. Bramman) are collectively referred to in this CD&A as our "Current NEOs."

OVERVIEW OF PAY PHILOSOPHY AND EXECUTIVE COMPENSATION COMPONENTS

        The Committee has designed our executive compensation program to reflect its philosophy that a substantial majority of compensation should be tied to our success in meeting our performance objectives and creating stockholder value, providing higher compensation when we deliver superior, sustained performance. The objective of this strategy is to motivate our executives to achieve our annual and long-term financial goals and recognize their contributions to delivering strong performance.

        The Committee implements its pay-for-performance philosophy primarily through the following:

    Establishing total direct compensation (TDC) to incent economic and stockholder value creation, giving consideration to the market median of companies similar in size, scope and complexity with which we compete for executive talent, role responsibilities, individual performance, tenure, retention, and succession;

    Aligning our annual incentives with our annual operating plan and key financial and strategic goals; and

    Rewarding long-term performance using absolute and relative TSR, as well as cumulative EVA, to focus our executives on consistent and sustainable stockholder value creation.

        Incentive compensation for the year consisted of a target award opportunity under our Annual Incentive Plan (AIP) and long-term incentive (LTI) programs, with payouts determined based on our performance against goals established by the Committee in February 2017. The Committee structures annual incentive compensation to reward NEOs based on corporate or business performance to motivate them and align their compensation with stockholder interests, giving consideration to their individual contributions in achieving our financial results. Our LTI awards provide upside opportunity for exceeding performance targets and downside risk, up to and including cancellation, for failing to achieve threshold performance, with EVA targets generally consistent with our externally communicated long-term financial goals for earnings growth and ROTC. AIP targets are generally established at or above the midpoint of our annual guidance and consistent with our long-term financial goals.

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Elements of Total Direct Compensation for Corporate NEOs

GRAPHIC

        As shown in the graph below, the substantial majority of our Current NEOs' 2017 target TDC was performance-based.


2017 Target Total Direct Compensation

GRAPHIC
    *     Mr. Lovins' 2017 AIP award was prorated based on his opportunity of 40% of base salary for the first six months of the year and his opportunity of 60% of base salary for the second six months of the year. His MSUs and PUs were awarded based on his previous LTI opportunity of 120% of base salary rather than his increased LTI opportunity of 180% of base salary.

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        Over the past five years, our cumulative TSR has increased over 270% while the total compensation of our CEO has increased by only 13%. In the graph below, CEO pay reflects the compensation of our former CEO, Mr. Scarborough, from 2013 to 2015 and the compensation of our current CEO, Mr. Butier, for 2016 and 2017.


Five-Year CEO Pay and Cumulative TSR

GRAPHIC

CONTINUOUS EVOLUTION OF COMPENSATION PROGRAM

        Over the past several years, the Committee has discussed the views expressed by our stockholders and proxy advisory firms with management and Willis Towers Watson, the Committee's independent compensation consultant, and has taken several actions in light of this feedback. Highlights of these changes are shown on the timeline on the following page; together they demonstrate the Committee's ongoing evaluation of our executive compensation program and efforts undertaken to continuously evolve the program to reflect market practices and changes in our financial profile and strategic focus, as well as address feedback from our stockholders.

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Executive Compensation Changes Made in Recent Years

GRAPHIC

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STRONG COMPENSATION GOVERNANCE PRACTICES

        Our executive compensation program incorporates the best practices shown below, which the Committee believes ensure that it serves the long-term interests of our stockholders.

POLICY OR BEST PRACTICE
  DESCRIPTION AND BENEFIT TO OUR STOCKHOLDERS
PAY FOR PERFORMANCE
Majority of Compensation Performance-Based   84% of our CEO's target TDC and 67% of the average target TDC of our other Current NEOs for 2017 was tied to company performance and subject to cancellation if our performance is poor.
Capped Annual Incentive
Set At or Above
Midpoint of Guidance
  AIP award is based primarily on our achievement of performance objectives targeted at or above the midpoint of our annual guidance and consistent with our long-term financial goals, subject to downward discretion based on the Committee's assessment of our CEO's achievement of his predetermined and objectively measurable goals and our other NEOs' individual contributions, with awards capped at 200% of target.
Majority Long-Term Equity
Incentive Compensation

 
Our LTI awards emphasize long-term performance, with PUs cliff-vesting at the end of three years and MSUs having an average performance period of 2.5 years. Equity compensation aligns NEO interests with stockholder interests by delivering compensation based on our long-term performance and stockholder value creation.
Median Targeting   TDC (base salary + annual cash incentive opportunity + LTI equity opportunity) and its elements are targeted at the median of companies similar in size, scope and complexity, giving consideration to role responsibilities, individual performance, tenure, retention, and succession.
No Annual Stock Options   Given their past adverse impact on our burn rate and related stockholder feedback, we last made a regular grant of stock options in 2012, though they may be granted for special purposes such as promotion.
BEST PRACTICES
No Employment
Contracts

 
Our NEOs are employed at will.
Rigorous Stock
Ownership Guidelines
  Our CEO is currently required to maintain 6x his annual salary; at the end of 2017, Mr. Butier owned stock with a market value of approximately 14x his annual salary. Our other Current NEOs are required to maintain ownership of at least 3x their annual base salaries. Except for Mr. Gravanis, our Current NEOs were in compliance with our stock ownership guidelines at the end of 2017.
No Hedging
or Pledging

 
Our insider trading policy prohibits our directors and officers from hedging or pledging our common stock and all our Current NEOs are in compliance with the policy.
Limited Trading Windows   Our NEOs may only transact our common stock during approved trading windows after satsifying the clearance requirements under our insider trading policy, which now includes certifying that they will remain in compliance with our stock ownership guidelines after giving effect to the transaction they plan to effectuate.
Low Burn Rate   Our three-year average burn rate at the end of fiscal year 2017 of 0.8% was at the 50th percentile of the companies in the S&P 500.
Clawback Policy   Cash and equity incentive compensation is subject to clawback in the event of fraud or other intentional misconduct on the part of an NEO that necessitates a restatement of our financial results.
No Excise Tax
Gross Ups

 
We do not gross-up payments received in connection with termination following a change of control for excise taxes.
Double Trigger
Equity Vesting
  Equity awards are not accelerated on change of control, unless the NEO is terminated without cause or terminates employment for good reason within 24 months thereof.
No Repricing/Exchange of
Underwater Stock Options

 
Our equity plans prohibit the repricing or exchange of underwater options without stockholder approval.
Limited
Perquisites
  Other than a capped financial planning reimbursement and our payment for an annual physical examination, our corporate NEOs receive a flat taxable executive benefit allowance in lieu of enumerated perquisites that is not subject to any tax gross-up.
Reasonable
Severance Benefits

 
Severance formula requires qualifying termination:
CEO: 2x (annual salary + highest AIP award in last three years + cash value of 12 months of health insurance premiums)
Others: 1x (annual salary + highest AIP award in last three years + cash value of 12 months of health insurance premiums)
Reasonable Change of
Control Benefits
  Change of control severance formula requires qualifying termination within 24 months of a change of control:
CEO: 3x (annual salary + highest AIP award in last three years + cash value of 12 months of health insurance premiums) + prorated AIP award for year of termination
Others: 2x (annual salary + highest AIP award in last three years + cash value of 12 months of health insurance premiums) + prorated AIP award for year of termination
STRONG GOVERNANCE
Independent
Oversight

 
The Committee is comprised solely of independent directors and its executive compensation decisions are reviewed and ratified by all of our independent directors.

Independent
Expert Advice

 

Willis Towers Watson, which has been determined by the Committee to be independent and free of conflicts of interest, provides the Committee with expert executive compensation advice.

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SUMMARY OF COMPENSATION DECISIONS FOR 2017

        The Committee designs executive compensation to pay for performance, with the target TDC of NEOs established to incent economic and stockholder value creation, giving consideration to the market median of companies similar in size, scope and complexity with which we compete for executive talent, role responsibilities, individual performance, tenure, retention and succession. The majority of this compensation is performance-based, meaning that our executives may ultimately not realize some or all of these components of compensation if we fail to achieve our financial objectives. In 2017, approximately 84% and 67% of the TDC of our CEO and average of our other Current NEOs, respectively, was performance-based.

        In determining 2017 NEO compensation, the Committee considered the following:

    Company/Business Performance — Our company's overall financial performance, including our 2017 adjusted sales growth, adjusted EPS, and free cash flow for our corporate NEOs, and, for our business NEO, the performance of our LGM business;

    Stockholder Returns — Our TSR on an absolute basis, as well as relative to a designated group of peer group companies;

    Annual Individual Performance — Our CEO's performance against the predetermined and objectively measurable strategic objectives established for him at the beginning of the year and the individual contributions of our other Current NEOs;

    Competitiveness — Market pay practices and company performance relative to peers; and

    Responsiveness to Investors — The results of our 2017 say-on-pay vote and feedback on our executive compensation received during our ongoing stockholder engagement program.

        The key elements of 2017 NEO target TDC are shown in the following table. While we provide consistent, market-competitive TDC opportunities for our NEOs, the actual compensation they realize varies year-to-year based primarily on company and business performance; for 2017, the incentive compensation realized by our NEOs was based solely on performance.

2017 TOTAL DIRECT COMPENSATION (TDC)
COMPONENT
  DESCRIPTION
  DECISIONS IMPACTING 2017 EXECUTIVE COMPENSATION
            
FIXED

Base Salary

16% of TDC for CEO;
Avg. 33% of TDC for Other Current NEOs


 
Provides fixed, market competitive monthly income for performing daily responsibilities   Excluding promotions, the Committee provided NEOs limited salary increases of 3%, consistent with the average increase for U.S. employees, except for Mr. Gravanis, whose base salary increased by 5% to reflect the size and scope of his role.
            
PERFORMANCE-BASED CASH

Target AIP Award

Capped at 200%
of target

18% of TDC for CEO;
Avg. 20% of TDC for
Other Current NEOs

  Provides variable, cash-based incentive to motivate our executives to grow sales, increase profitability and deliver strong free cash flow consistent with our annual financial goals

AIP opportunity based on market survey data; financial modifier based on corporate or business performance; capped individual modifier based on our CEO's achievement against predetermined and objectively measurable strategic objectives and our other NEOs' individual contributions

  The only change to NEO target AIP opportunities in 2017 was an increase in Mr. Lovins' target AIP opportunity from 40% to 60% of base salary in connection with his promotion to CFO. His 2017 AIP award was prorated to reflect 40% of base salary for the first six months of the year and 60% of base salary for the second six months of the year.

Our company or business performance resulted in financial modifiers of 170% and 127% for our corporate NEOs and our business NEO (Mr. Gravanis), respectively.

The Committee determined in February 2017 generally to cap the individual modifiers for our CEO and the NEOs reporting to him at 100% (rather than the 150% applicable to other AIP participants) to prioritize delivery of long-term company and business performance and advance its pay-for-performance philosophy. The Committee approved individual modifiers of 100% for all Current NEOs.

2017 AIP awards fell within the range of 127% to 170% of target.

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2017 TOTAL DIRECT COMPENSATION (TDC)
COMPONENT
  DESCRIPTION
  DECISIONS IMPACTING 2017 EXECUTIVE COMPENSATION
            
PERFORMANCE-BASED EQUITY

LTI Awards

66% of TDC for CEO;
Avg. 47% of TDC for
Other Current NEOs



 
Provides variable, equity-based incentive compensation to align NEO interests with stockholder interests and drive long-term value creation

LTI opportunity based on market survey data; award vehicles, performance criteria and weightings based on expert advice and recommendations of Willis Towers Watson

  LTI Awards Granted in 2017

There were the following changes to NEO target LTI opportunities for 2017: (i) an increase in Mr. Butier's target LTI opportunity from 400% to 425% of base salary to bring his target LTI opportunity closer to the market median and (ii) an increase in Mr. Lovins' target LTI opportunity from 120% to 180% of base salary in connection with his promotion to CFO; however, his 2017 annual LTI awards were granted based on his previous target LTI opportunity.

50% in PUs that cliff-vest at the end of a three-year period with payout ranging from zero to 200% subject to our achieving at least the threshold level of performance for the cumulative EVA and relative TSR performance objectives established for the award. The payout for the TSR component is capped at 100% of target for any three-year performance period in which absolute TSR is negative. There were no changes to the performance objectives or weightings from the prior year.

 

 

50% in MSUs that vest based on our absolute TSR over one-, two-, three- and four-year performance periods, with an average performance period of 2.5 years. Consistent with recent years, the performance criteria were as follows: (i) the threshold performance level for absolute TSR, which results in a payout of 85%, was –15%; (ii) the target performance level, which results in a payout of 100%, requires a TSR of 10%; and (iii) the maximum performance level, which results in a payout of 200%, requires a TSR of 75%.

 

 

The Committee approved a one-time special equity award to Mr. Lovins in connection with his promotion to CFO. He was granted RSUs with a grant date fair value of approximately $550,000 on September 1, 2017, which vest in equal installments on the first, second, third and fourth anniversaries of the grant date, subject to his continued service.


 

 


 

LTI Awards Vesting in 2017

 

 

Our 2015-2017 TSR was at the 97th percentile of an objectively determined peer group established in February 2015. Cumulative EVA for our company was over $601 million, exceeding the maximum level of performance. The PUs granted in 2015 for the 2015-2017 performance period vested at 200% of target for all of our Current NEOs.

 

 

MSUs

            4th Tranche payout for MSUs granted in 2014
   

Paid out at 200% of target

            3rd Tranche payout for MSUs granted in 2015
   

Paid out at 200% of target

            2nd Tranche payout for MSUs granted in 2016
   

Paid out at 200% of target

            1st Tranche payout for MSUs granted in 2017
   

Paid out at 188% of target

2017 TDC TARGETED AT MEDIAN

        In addition to these primary elements of our executive compensation program, we also provide our NEOs with limited perquisites and benefits that the Committee believes are comparable to those offered by other multinational public companies.

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DISCUSSION OF COMPENSATION COMPONENTS AND
DECISIONS IMPACTING 2017 COMPENSATION

        The Committee aims to have base salaries at the market median, with the substantial majority of NEO compensation consisting of incentive compensation to advance the Committee's pay-for-performance philosophy, driving higher realized compensation when our financial performance is stronger and lower realized compensation when our financial performance is weaker. In addition, it provides the Committee with the flexibility to respond to changing business conditions, manage compensation to reflect career progression, and adjust compensation to reflect differences in executive experience and performance.

BASE SALARY

        Increases in base salary are generally driven by the average percentage merit increase given to our U.S. employees, subject to marginal increase or decrease based on the NEO's performance and the market median for positions with similar scope and responsibility. In February 2017, the Committee approved base salary increases of 3% for our then-serving NEOs consistent with the average increase for U.S. employees, except for Mr. Gravanis, whose base salary increased by 5% to reflect the size and scope of his role.

2017 AIP AWARDS

        The 2017 AIP was designed to incent management to create long-term stockholder value. NEOs are not eligible for guaranteed AIP awards. AIP awards are determined for each fiscal year using the formula below. Individual modifiers for NEOs are generally capped at 100%.

GRAPHIC

Target AIP Opportunities

        As a percentage of 2017 year-end base salary, the target AIP opportunities for 2017 were 125% for Mr. Butier; 75% for Ms. Bramman and Mr. Gravanis; 60% for Mses. Hill and Miller; and 50% for Mr. Lovins. Mr. Lovins' 2017 AIP award was prorated to reflect his target AIP opportunity of 40% of base salary for the first six months of the year and his target AIP opportunity of 60% of base salary for the second six months of the year.

AIP Performance Objectives and Weightings; Target-Setting Principles

        The following performance objectives and weightings for the 2017 AIP were established and weighted by the Committee, in consultation with Willis Towers Watson. Our CEO, Chief Human Resources Officer and then-serving CFO participated during portions of the meetings during which the Committee reviewed and recommended performance objectives for our AIP and analyzed our performance against these objectives.

        For our business participants (including Mr. Gravanis), the Committee determined to link 75% of the AIP financial modifier to their respective business' results and 25% to corporate results. Business performance objectives were designed to be achievable only if the relevant business substantially improved upon its 2016 performance and delivered results consistent with the achievement of our 2014-2018 financial targets.

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2017 AIP TARGETS

GRAPHIC

        In setting the targets for these objectives, the Committee aimed to ensure consistency with our long-term financial targets and require adjusted sales growth and adjusted EPS improvement from the results achieved in the prior year. These were the same objectives and weightings used for purposes of the 2016 AIP to continue incenting our NEOs to increase sales on an organic basis, improve profitability, and generate strong free cash flow.

        Target adjusted sales growth was set at the low end of our long-term target, reflecting top-line challenges in the retail apparel market served by our RBIS business; however, the target required improvement from the prior year. Target adjusted EPS was established above the midpoint of the guidance we announced to investors in February 2017 and represented a 11% increase (a 16% increase on a currency neutral basis) from our 2016 results for this measure. Although we did not externally communicate a free cash flow target as part of our 2018 goals, we continue to expect our businesses to generate strong free cash flow, an important metric used internally and by our investors in evaluating our performance. Although lower than our 2016 result, our 2017 target for free cash flow reflected increased capital expenditures planned for 2017 to support future growth and achieve our 2017-2021 financial targets.

CORPORATE 2017 AIP TARGETS VS. 2014-2018 TARGETS AND 2016 RESULTS 
    2014-2018 Target   2016 Results   2017 AIP Target
Adjusted Sales Growth   4%-5%   3.9%   4.0%
Adjusted EPS   12%-15%+ Growth   $4.02   $4.45
(up 11% from 2016*)
Free Cash Flow   N/A   $387M   $355M

*

 

On a currency neutral basis, the 2017 AIP target for adjusted EPS was 16% higher than the results we achieved in 2016.

Financial Modifiers

        Financial modifiers are capped at 200%. Consistent with prior years, in evaluating our achievement of these performance objectives, the Committee has the discretion to exclude the impact, positive or negative, of extraordinary items such as acquisitions and divestitures; restructuring and integration actions not included in our annual net income plan; changes in accounting principles, tax codes or related regulations and rulings; extraordinary events such as natural disasters, terrorism and war; costs related to the early extinguishment of debt; costs of litigation outside the normal course of business; and non-cash charges associated with the impairment of long-lived assets.

Avery Dennison Corporation  | 2018 Proxy Statement  | 51


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        The table below shows the AIP financial modifiers for our NEOs for 2017. As shown, we exceeded the target level established for all of the performance objectives established for our corporate NEOs and two of the performance objectives established for our business NEO. Our corporate and business performance resulted in an AIP financial modifier of 170% for our corporate Current NEOs and 127% for our business NEO. Because she was not employed at the end of 2017, Ms. Bramman was not eligible for a 2017 AIP award.

2017 AIP FINANCIAL MODIFIERS
 
  NEO
  PERFORMANCE OBJECTIVE
  WEIGHTING
  THRESHOLD (50%)
  TARGET (100%)
  MAXIMUM (200%)
  2017 ACTUAL
  MODIFIER
  WEIGHTED AVERAGE MODIFIER
   
    Butier
Lovins
  Total Company
Adjusted Sales Growth(1)

 
20%   1.9%   4.0%   8.1%   4.2%   105 % 21 %  
    Hill
Miller
  Total Company
Adjusted EPS(2)

 
60%   $4.20   $4.45   $4.95   $4.96   200 % 120 %  
        Total Company
Free Cash Flow(3)

 
20%   $280M   $355M   $505M   $423M   143 % 29 %  
    Corporate NEO Financial Modifier     170 %  
    Gravanis   Total Company
Adjusted EPS(2)

 
25%   $4.20   $4.45   $4.95   $4.96   200 % 50 %  
    Label and Graphic Materials (LGM)   LGM
Adjusted Sales Growth(4)

 
20%   2.9%   5.0%   8.4%   4.2%   78 % 16 %  
        LGM
Adjusted Net Income(4)(5)

 
35%   $366M   $385M   $424M   $384M   96 % 33 %  
        LGM
Free Cash Flow(4)

 
20%   $251M   $291M   $371M   $322M   140 % 28 %  
    Business NEO Financial Modifier     127 %  

(1)
Total Company Adjusted Sales Growth refers to reported sales growth of 8.7%, adjusted for the impact of currency translation of (0.5)% and the net impact of acquisitions and product line divestitures of (3.9)%. Total does not sum due to rounding.

(2)
Total Company Adjusted EPS refers to reported net income per common share, assuming dilution, of $3.13, adjusted for tax-effected restructuring costs, impact of the TCJA and other items of $1.87 and excluding the $.04 positive impact of the three acquisitions completed in 2017.

(3)
Total Company Free Cash Flow refers to cash flow from operations of $650.1 million, minus purchases of property, plant and equipment of $190.5 million and software and other deferred charges of $35.6 million, plus proceeds from sales of property, plant and equipment of $6.0 million, minus purchases of investments of $(8.3) million, plus cash flow of $1.3 million from the negative impact of the three acquisitions in 2017. Free cash flow is measured quarterly to ensure consistent management of working capital throughout the year, subject to adjustment if the full-year target is not achieved. While total company free cash flow was 119% of target, our average quarterly performance resulted in a modifier of 143% for that objective.

(4)
Adjusted sales growth, adjusted net income and free cash flow measures at the segment level are internal metrics. These metrics either exclude or make simplifying assumptions for items that cannot be allocated precisely by segment, such as interest and income tax expenses, and related balance sheet accounts, such as deferred tax assets and liabilities, income tax payables and receivables, and short- and long-term debt. Certain balance sheet accounts such as pension and other postretirement benefits and insurance that are generally managed at the corporate level, as well as the impact of foreign currency translation, are also excluded from the calculation of these metrics for the segments. In certain limited circumstances, one-time items may be excluded from segment adjusted net income. The impact of intercompany sales is included in segment metrics. While LGM's free cash flow was 111% of target, its average quarterly performance resulted in a modifier of 140% for that objective.

(5)
Adjusted net income refers to reported net income adjusted for tax-effected restructuring costs, the impact of the TCJA and other items.

Avery Dennison Corporation  | 2018 Proxy Statement  | 52


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NEO Performance Evaluations & Individual Modifiers

        Our NEOs are evaluated on their individual performance for the year, with the Committee approving our CEO's goals for the year and our CEO approving the goals of our other NEOs. The NEOs' performance is assessed in February of the following year. For the NEOs other than our CEO, this assessment considers the totality of their performance rather than assigning weightings to their performance goals. Individual modifiers for all participants are capped at 150%, subject to the total cap on AIP awards of 200%.

        In February 2017, our CEO recommended and the Committee agreed that for 2017 his individual modifier and that of the NEOs reporting to him generally be capped at 100%. All of the 2017 NEO individual modifiers were capped at 100%.

        The Committee reviewed and evaluated our CEO's 2017 performance, taking into account his performance against the predetermined and objectively measurable strategic objectives established in February 2017, his self-assessment of his performance, and market reference and other data provided by Willis Towers Watson. Our CEO is not involved in the decisions regarding his compensation, which are determined by the Committee meeting in executive session with Willis Towers Watson. The Committee determined the individual modifier for our CEO based on its assessment of his performance, within the context of the cap described above.

        For 2017, the Committee evaluated the performance of our CEO, determining that he substantially achieved or exceeded each of his strategic objectives for the year, as shown in the chart below.

 
   
   
   
   
2017 CEO PERFORMANCE EVALUATION

    STRATEGIC OBJECTIVE   WEIGHTING   EVALUATION    
  Drive outsized growth in high value categories — Achieve growth objectives for Graphics, Specialty, RFID and industrial tapes; integrate acquisitions and continue building M&A pipeline; and develop Intelligent Labels platform across LGM and RBIS   25%   Although growth objectives in Graphics and Specialty were not achieved, exceeded growth objectives for RFID and industrial tapes; built robust M&A pipeline; and made substantial progress developing Intelligent Labels platform  
    Grow profitably in base business — Maintain share in LGM's base product categories; grow volumes in RBIS' base categories; and achieve growth objectives in base business of Vancive Medical Technologies (Vancive)   25%   Gained share in LGM's base product categories; substantially grew volume in RBIS' base categories; and returned Vancive's base business to significant growth in the second half of the year    
  Continue relentless focus on productivity — Achieve targeted RBIS restructuring savings and ensure profitability of Vancive's base business   15%   Achieved targeted RBIS restructuring savings and achieved profitability for Vancive's base business by the fourth quarter of the year  
    Deploy capital effectively — Invest in capital expenditures to enable future growth; issue European-based debt to fund business and acquisitions; and repurchase shares   15%   Substantially delivered targeted capital expenditures; issued €500 million of senior notes due in 2025; and repurchased shares in disciplined and appropriate manner    
  Succession planning — Refine executive leadership development plans; execute regional business leader transitions; and develop CEO succession strategy to ensure availability of ready-now successors   15%   Refined executive leadership-plans; executed regional business leader transitions; and made substantial progress with CEO succession strategy by identifying and developing potential successors    
    Sustainability/Diversity — Make progress toward 2025 sustainability goals, including reduce greenhouse gas (GHG) emissions by 3%; ensure at least 90% of sites are landfill free; and improve enterprise-wide gender diversity at the level of manager and above   5%   GHG emissions decreased by over 10% from prior year; over 90% of sites were landfill-free; and enterprise-wide gender diversity at the level of manager and above increased by 1% from prior year    

 

 

 

 

 

 

 

 

 
    Individual Modifier Based on Committee Evaluation       100%    

BASED ON PERFORMANCE AGAINST PREDETERMINED AND MEASURABLE STRATEGIC OBJECTIVES

Avery Dennison Corporation  | 2018 Proxy Statement  | 53


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        Our CEO recommended to the Committee the individual modifiers for our other Current NEOs based on his assessment of their 2017 performance. The Committee considered our CEO's recommendations and challenged his assessments as needed, while retaining the discretion to approve individual modifiers for our other Current NEOs lower than what the CEO had recommended. Other than discussing with our CEO their performance against their individual performance plans, our other Current NEOs played no role in their compensation determinations.

        In determining the individual modifiers for our other Current NEOs and recognizing that the cap of 100% eliminated the potential upside from the individual modifier on their AIP awards, the Committee highlighted the following regarding the 2017 performance of the other Current NEOs:

      Mr. Lovins — Transitioned from Treasurer to Chief Financial Officer; led our finance function, delivering results that exceeded our 2017 goals for organic sales growth, adjusted EPS and free cash flow; and continued disciplined execution of capital allocation.

      Mr. Gravanis — Led our LGM business, delivering strong performance on key financial metrics; improved productivity, service and quality; integrated two acquisitions while expanding organizational capability to better serve high value product categories.

      Ms. Hill — Led our human resource and communications functions with particular focus on executive succession planning; diversity and inclusion initiatives; employee engagement; and the development and communication of our evolved values to support our business strategies.

      Ms. Miller — Led our legal function with particular focus on acquisitions and other investments; business transformation initiatives; and enhancements to our Values and Ethics program, including our updated Code of Conduct.

        Based on the above assessments and after giving consideration to the recommendations of our CEO (other than with respect to himself), the Committee approved individual modifiers of 100% for all Current NEOs.

AIP Awards

        Our NEOs received the AIP awards shown in the table below for 2017, based on their respective base salary, AIP opportunity, financial modifier and individual modifier.

2017 AIP AWARDS


NEO

  2017 YE
BASE SALARY
  AIP
OPPORTUNITY
  TARGET
AIP
AWARD
  FINANCIAL
MODIFIER
  INDIVIDUAL
MODIFIER
  AIP
AWARD

Butier

  $1,133,000   125%   $1,416,250   170%   100%   $2,407,625

Lovins*

  $550,000   50%   $275,000   170%   100%   $467,500

Gravanis*

  $628,595   75%   $471,446   127%   100%