DEF 14A 1 d78752ddef14a.htm DEF 14A DEF 14A
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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

Filed by the Registrant 

Filed by a Party other than the Registrant 

Check the appropriate box:

 

Preliminary Proxy Statement

 

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

 

Definitive Proxy Statement

 

Definitive Additional Materials

 

Soliciting Material Pursuant to § 240.14a-12

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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Section III 2021 Notice and Proxy Statement


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NOTICE OF ANNUAL
MEETING OF STOCKHOLDERS

 

RECORD DATE   February 22, 2021
MEETING DATE   April 22, 2021
MEETING TIME   1:30 p.m. Pacific Time
MEETING FORMAT   Online at www.virtualshareholdermeeting.com/AVY2021

MEETING AGENDA

 

 

 1  

Elect the 9 directors nominated by our Board to serve a one-year term

 2   

Approve, on an advisory basis, our executive compensation

 3 

 

 

Ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for fiscal year 2021

 4 

 

 

Transact any other business properly brought before the meeting or any adjournment or postponement thereof

 

Our Board recommends that you vote FOR each of our nine director nominees in Item 1 and FOR Items 2 and 3.

Stockholders of record as of February 22, 2021 are entitled to notice of, and to vote during, the meeting and any adjournment or postponement thereof. This notice and our proxy materials are being distributed or made available to stockholders on or about March 8, 2021.

We want your shares to be represented and voted. We encourage you to vote promptly as this will save us the time and expense of additional proxy solicitation. As shown on the right, you can vote online, by telephone, by mail or during the meeting.

On behalf of the Board of Directors, management and employees of Avery Dennison, thank you for your continued support. We look forward to talking with you during the Annual Meeting.

By Order of the Board of Directors,

 

 

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Vikas Arora

Vice President, Associate General Counsel and

Corporate Secretary

March 5, 2021

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Online

You can vote online at www.proxyvote.com by 11:59 p.m. Eastern Time on April 21, 2021. You will need the 16-digit control number on your Notice of Internet Availability or proxy card.

 

LOGO

By Telephone

In the U.S. and Canada, you can vote by calling 1.800.690.6903 by 11:59 p.m. Eastern Time on April 21, 2021. You will need the 16-digit control number on your Notice of Internet Availability or proxy card.

 

 

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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.

 

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During Meeting

Unless your shares are held through our Employee Savings Plan, you can vote during the Annual Meeting. Beneficial holders must contact their broker or other nominee to be able to vote during the meeting.

 


Table of Contents

 

TABLE OF CONTENTS

 

 

   
PROXY SUMMARY     1  
GOVERNANCE     17  
SUSTAINABILITY     21  
Engaging Our Stakeholders     21  

Progress Toward Achieving 2025 Sustainability Goals;

New 2030 Goals

    22  
Diversity and Inclusion     23  
Other Human Capital Management Matters     23  
Community Investment     24  
   
OUR BOARD OF DIRECTORS     26  
Overview     26  
Governance Guidelines     28  
Director Independence     28  
Board Leadership Structure     29  
Board Committees     30  
Executive Sessions     32  
Risk Oversight     32  
Director Education     35  
Board and Committee Evaluations     36  
Stockholder Engagement and Communications     37  
Contacting Our Board     37  
   
ITEM 1 – ELECTION OF DIRECTORS     38  
Selection of Director Nominees     38  
Board Refreshment and Director Succession Planning     39  
Director Diversity     40  
2021 Director Nominees     41  
Director Compensation     45  
Director Compensation Table     47  
   
ITEM 2 – ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION    

 

48

 

 

 

TALENT AND COMPENSATION COMMITTEE REPORT     49  
   
COMPENSATION DISCUSSION AND ANALYSIS (CD&A)     50  
Executive Summary     50  
Summary of Compensation Decisions for 2020     61  
Discussion of Compensation Components and Decisions Impacting 2020 Compensation     63  
Compensation-Setting Tools     75  
Independent Oversight and Expertise     76  
Other Considerations     78  
   
EXECUTIVE COMPENSATION TABLES     79  
2020 Summary Compensation Table     79  
2020 Grants of Plan-Based Awards     80  
2020 Outstanding Equity Awards at Fiscal Year-End     81  
2020 Option Exercises and Stock Vested     82  
2020 Pension Benefits     83  
2020 Nonqualified Deferred Compensation     84  
Payments Upon Termination as of January 2, 2021     85  
Equity Compensation Plan Information as of January 2, 2021     88  
   
CEO PAY RATIO     89  
   
ITEM 3 – RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  

 

 

 

91

 

 

   
AUDIT MATTERS     92  
   
AUDIT AND FINANCE COMMITTEE REPORT     94  
   
SECURITY OWNERSHIP INFORMATION     97  
Security Ownership of Management and Significant Stockholders     97  
Related Person Transactions     98  
   
VOTING AND MEETING Q&A     99  
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES FROM GAAP  

 

 

 

104

 

 

 

 

Avery Dennison Corporation  |  2021 Proxy Statement  |  Table of Contents

 


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PROXY SUMMARY

 

This proxy summary contains highlights of 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 strongly encourage you to read the entire proxy statement before voting.

DISTRIBUTION OF PROXY MATERIALS

We will mail our Notice of Internet Availability of Proxy Materials, which includes instructions on how to access these materials online, on or about March 8, 2021. If you previously elected to receive a paper copy of our proxy materials, we will mail you our 2020 integrated report, which includes a letter to stockholders from our Chairman, President and Chief Executive Officer; our 2020 annual report; our notice and proxy statement for the 2021 Annual Meeting of Stockholders (the “Annual Meeting”); information regarding our businesses, financial achievements and continued progress as it relates to environmental, social and governance (ESG) matters; and a proxy card, on or about March 8, 2021.

TIME, DATE AND FORMAT OF ANNUAL MEETING

The Annual Meeting will take place at 1:30 p.m. Pacific Time on April 22, 2021. Due to continued public health concerns about in-person gatherings given the coronavirus/COVID-19 pandemic (“COVID-19”), particularly in Los Angeles County, California, the meeting will be held virtually, with attendance via the internet. To attend the virtual Annual Meeting, you will need to log in to www.virtualshareholdermeeting.com/AVY2021 using the 16-digit control number on your Notice of Internet Availability of Proxy Materials or proxy card.

The live audio webcast of the Annual Meeting will begin promptly. Online access will open at 1:15 p.m. Pacific Time to allow time for you to log in and test your device’s audio system. We encourage you to access the meeting in advance of the start time. For additional instructions on how to attend the Annual Meeting, please refer to the Voting and Meeting Q&A section of this proxy statement.

ITEMS BEING VOTED ON DURING ANNUAL MEETING

You are being asked to vote on the items of business shown below during the Annual Meeting. Our Board of Directors (our “Board”) recommends that you vote FOR each of our 9 director nominees and FOR the other two items being brought before the stockholder vote.

 

Item

  Board
Recommendation
   Vote
Required
   Discretionary
Broker Voting
   Page
Reference
1   Election of directors   LOGO   FOR
each nominee
   Majority of votes cast    No    38
2   Advisory vote to approve executive compensation   LOGO   FOR   

Majority of shares

represented and entitled

to vote

   No    48
3   Ratification of appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm for fiscal year 2021   LOGO   FOR   

Majority of shares

represented and entitled

to vote

   Yes    91

VOTING PRIOR TO OR DURING ANNUAL MEETING

You may vote your shares by submitting a proxy at www.proxyvote.com in advance of the Annual Meeting or voting during the meeting at www.virtualshareholdermeeting.com/AVY2021. If you hold your shares in “street name,” you may vote during the meeting only if you properly request and receive a legal proxy in your name from the broker, bank or other nominee that holds your shares. Whether or not you plan to attend the virtual Annual Meeting, we urge you to vote and submit your proxy in advance of the meeting as described in the Voting and Meeting Q&A section of this proxy statement.

 

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ASKING QUESTIONS DURING ANNUAL MEETING

We have designed the format of the Annual Meeting to ensure that stockholders are afforded the same rights and opportunities to participate as they would at an in-person meeting, using easy-to-use online tools that allow stockholders to attend and participate. After the business portion of the Annual Meeting concludes and the meeting is adjourned, our Chairman/CEO will lead a Q&A session during which we intend to answer all questions submitted on the day of or during the meeting that are pertinent to our company and the items being brought before stockholder vote. Answers to any questions not addressed during the meeting will be posted promptly after the meeting on the investors section of our website. For additional information on submitting questions during the Annual Meeting, please refer to the Voting and Meeting Q&A section of this proxy statement.

OUR COMPANY

We are a global materials science company specializing in the design and manufacture of a wide variety of labeling and functional materials. Our products, which are used in nearly every major industry, include pressure-sensitive materials for label and graphic applications; tapes and other bonding solutions for industrial, medical and retail applications; tags, labels and embellishments for apparel; and radio-frequency identification (RFID) solutions serving apparel and other markets. We employ more than 32,000 employees in more than 50 countries.

STRATEGY OVERVIEW

We are committed to the continuing success of all our stakeholders. In a challenging 2020 due to the extraordinary impact of COVID-19, we focused on ensuring the health and well-being of our employees, delivering for our customers, minimizing the impact of the pandemic-driven recession for our investors, and supporting our communities, while continuing to invest in the long-term success of our company. We have refined how we present our key strategies shown below and on the following page, but our areas of strategic focus are consistent with recent years.

 

      

     1    

 

       
            

Drive outsized growth in high-value categories

 

   

We strive to increase the proportion of our portfolio in high-value products and solutions, both organically and through acquisitions; high-value categories serve markets that are growing faster than gross domestic product (GDP), represent large pools of potential profit and leverage our core capabilities, and include our specialty and durable label materials, graphics and reflective solutions, industrial tapes, intelligent labels that use RFID tags and inlays, and external embellishments

 

   

In 2020, organic sales change in high-value product categories outpaced that of our base businesses by more than one point, driven by growth in specialty labels, external embellishments and RFID; also advanced our RFID platform through our acquisition of the Transponder (RFID inlay) division of Smartrac, a manufacturer of RFID products (which we refer to as “Smartrac”)

 

      

     2    

 

       
            

Grow profitability in our base businesses

 

   

We strive to improve profitability in our base businesses by carefully balancing volume, price and mix, reducing complexity and tailoring our go-to-market strategies

 

   

In 2020, we protected, and even grew, operating margins in our base businesses

 

      

     3    

 

       
            

Focus relentlessly on productivity

 

   

We employ product reengineering and enterprise lean sigma to expand our operating margins, enhance our competitiveness (particularly in our base businesses) and provide a funding source for reinvestment

 

   

In 2020, we significantly expanded operating margins, showing agility in response to COVID-19 by delivering approximately $200 million of cost reduction through both structural and temporary actions

 

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     4    

 

       
            

Effectively allocate capital

 

   

We balance our investments in organic growth, productivity, and acquisitions and venture investments, while continuing to return cash to stockholders through dividends and share repurchases

 

   

In 2020, leveraging our strong balance sheet, we invested nearly $220 million in capital expenditures to support organic growth; completed two acquisitions; and increased our quarterly dividend rate by 7% in October after having maintained it earlier in the year and resumed repurchase of shares in Q3 after having suspended it in March, in each case due to then-uncertain impact of COVID-19 on our businesses

 

      

     5    

 

       
            

Lead in an environmentally and socially responsible manner

 

   

We work to deliver innovations that advance the circular economy and reduce the environmental impact of our operations; build a more diverse workforce and inclusive culture; maintain a culture of health and safety; and support our communities primarily through the Avery Dennison Foundation

 

   

In 2020, we continued to make progress toward our 2025 sustainability goals, reducing the environmental impact of our operations and investing in innovation platforms focused on recyclability/enabling circularity and waste reduction/elimination; redoubling our efforts to drive sustainable change in diversity and inclusion, including by sharpening our focus on racial/ethnic workforce diversity, particularly in the U.S.; and contributing $10 million to the Avery Dennison Foundation to significantly increase the scope and pace of its grantmaking in the communities in which we operate

PERFORMANCE HIGHLIGHTS

COVID-19 Response

Our top priority in 2020 given the continuing public health crisis of COVID-19 was the health, safety and well-being of our employees, followed immediately by delivering for our customers. To minimize the impact of the pandemic-driven recession on our investors, we worked to mitigate the impact of COVID-19 on our supply chain, as well as ensure we maintained a strong balance sheet and financial flexibility as we confronted uncertain capital markets. We also took several actions to support our communities during this difficult time. The actions we took in response to COVID-19 are described in the chart on the following page.

 

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COVID-19 RESPONSE

Protecting

Employee Well-Being

  

 

  Early in pandemic, ensured that employees continued to receive full pay

 

  Extended salary continuation in jurisdictions with weaker social safety nets

 

  Provided supplemental payments to express gratitude to frontline workers, with ~84% of employees (all below manager level) receiving these payments

 

  Continually adapted rigorous site safety protocols based on continuously evolving health information and governmental regulations

 

Serving

Customers

  

 

  Adapted quickly to manage demand in label materials and address lockdowns impacting RBIS customers

 

  Leveraged operational excellence to maximize production capacity in label materials

 

  Developed and rapidly commercialized N95 masks primarily for sale to customers

 

  Continued to successfully execute large RFID rollouts

 

Mitigating

Supply Chain Risk

  

 

  Maintained strong relationships with suppliers and customers, which helped keep supply chains open for essential businesses

 

  Selectively built strategic inventory

 

  Leveraged global footprint with dual sourcing or readily available alternatives for most commodities

 

Maintaining

Strong Balance Sheet and Financial Flexibility

  

 

  Drew down $500 million under revolving credit facility in Q1 to mitigate dependence on then-unavailable commercial paper markets; promptly repaid in Q2

 

  Temporarily suspended share repurchases in March; resumed repurchases in Q3

 

  Increased dividend rate by 7% in October, after having maintained it earlier in year

 

  Heightened focus on working capital management

 

Supporting

Communities

  

 

  Made $10 million contribution to Avery Dennison Foundation to significantly increase scope and pace of its support of communities in which we operate

 

  Shifted resources to produce personal protective equipment and hand sanitizer to donate to local communities

 

  Donated face masks and other needed materials to local hospitals

 

  Avery Dennison Foundation made nearly $3 million in grants to bolster rapid community response; also established employee assistance fund (supplemented by employee donations) to support team members who were furloughed, laid off, suspended or terminated due to COVID-19

 

Strong 2020 Performance

In 2020, by consistently executing our strategies, we continued to prove our resilience across business cycles, delivering a year of strong earnings per share (EPS) growth, significant operating margin expansion and record free cash flow, despite the challenging macroeconomic environment caused by COVID-19. These results reflected the extraordinary efforts undertaken by our leaders and teams globally to respond to COVID-19 and mitigate its impact on our company. Although we could not have predicted the pandemic, our performance in its face evidences our rigorous scenario planning, which has enabled us to be prepared for a wide range of macroeconomic scenarios. We advanced all our key strategies and delivered strong performance, reflecting the preparedness and agility of our team members worldwide, who came together to help us navigate one of the most challenging periods in our company’s history.

Our strong performance in fiscal year 2020 reflects the strength of our markets, our industry-leading positions, the strategic foundations we have laid, and our talented team. Our key financial achievements for the year are described below and on the following page.

•      Reported net sales of $6.97 billion, down 1.4% from prior year due to impact of COVID-19, with growth rebounding in 2H from its low in Q2, and roughly one-point benefit from extra week in 2020 fiscal year

•      Excluding impact of currency, sales declined 1.7% due to impact of COVID-19; sales on organic basis declined by 3.4%. Sales declined slightly in our Label and Graphic Materials (LGM) reportable segment, where increase in

 

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sales in Label and Packaging Materials business, driven by increased consumption of packaged goods and growth of e-commerce, was more than offset by declines in combined Graphics and Reflective Solutions driven by sharp decline in demand in Q2 following government-mandated lockdowns. Sales declined more significantly in our Retail Branding and Information Solutions (RBIS) and Industrial and Healthcare Materials (IHM) reportable segments, markets of which were more adversely impacted by COVID-19

•      Reported EPS substantially increased from $3.57 in 2019 to $6.61 in 2020, reflecting prior-year settlement charges resulting from U.S. pension plan termination and significant operating margin expansion in 2020

•      Adjusted EPS increased 8% from $6.60 to $7.10, driven by operating margin expansion; adjusted EPS was at high end of $6.90 to $7.15 annual guidance range provided to investors in January 2020

•      With reported net cash provided by operating activities of $751.3 million, delivered record free cash flow of $547.5 million, exceeding 2020 goal of $500+ million

•      On reported net income of $555.9 million, achieved return on total capital (ROTC) of 18.1%

Sales change excluding the impact of currency (sales change ex. currency), organic sales change, adjusted EPS, free cash flow and ROTC are supplemental, financial measures that we provide to assist investors in assessing our performance and operating trends. These measures are defined, qualified and reconciled from generally accepted accounting principles in the United States of America (GAAP) in the last section of this proxy statement. These non-GAAP financial measures are not a substitute for or superior to the comparable financial measures under GAAP.

 

 

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Achieving Financial Targets

In March 2017, we announced five-year financial goals through 2021, including targets for compound annual organic sales growth, 2021 GAAP operating margin, compound annual adjusted EPS growth and 2021 ROTC. The combination of our growth and ROTC targets is a proxy for growth in economic value added (EVA), one of the performance objectives used in our long-term incentive (LTI) program. As shown below, based on our results for the first four years of this five-year period, we are largely on track to achieve these commitments. Our 2017-2020 compound annual organic sales growth of 2.0% was lower than our top-line target, but higher than forecasted global GDP growth (a key tenet of our top-line objective) of 1.5% over the same period.

For the 2017-2020 period, on a four-year compound annual basis (with 2016 as the base period), GAAP reported net sales and reported EPS increased by 3.5% and 16.9%, respectively, and reported net income increased by 14.7%.

 

  

 

   2017-2021 Targets    2017-2020 Results(1)

 

Sales Growth(2)

            5%+ ex. currency(3)

 

         4%+ organic

            3.8% ex. currency

 

         2.0% organic

GAAP Operating Margin

            11%+ in 2021             11.6% in 2020

Adjusted EPS Growth(2)

            10%+             15.3%

ROTC

            17%+ in 2021             18.1% in 2020
 
LARGELY ON TRACK TO ACHIEVE FINANCIAL TARGETS
  (1) 

Results for non-GAAP measures are reconciled from GAAP in the last section of this proxy statement.

 
  (2) 

Percentages for targets reflect five-year compound annual growth rates, with 2016 as the base period. Percentages for results reflect four-year compound annual growth rates, with 2016 as the base period.

 
  (3) 

Target for sales growth ex. currency reflects the impact of completed acquisitions as of March 2017 of approximately one point.

 

 

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Effective Capital Allocation

We have been consistently effective in executing our approach to capital allocation, balancing our investments in organic growth, productivity, and acquisitions and venture investments with continuing to return cash to stockholders through dividends and share repurchases. In 2020, on net income of $555.9 million, we invested $218.6 million in capital expenditures to support our future growth and further productivity improvement and allocated $350.4 million to acquisitions and venture investments; we also paid $196.8 million in dividends and repurchased $104.3 million in shares of our common stock.

We have invested in our businesses to support organic growth and pursued complementary and synergistic acquisitions. Our spending on capital expenditures in 2020 was 15% lower than 2019 but consistent with our externally communicated outlook for the year, during which we accelerated our pace of investment in high-value categories, particularly RFID. We also allocated over $350 million to acquisitions. In February 2020, we completed our acquisition of Smartrac for approximately $255 million. Together with our then-existing Intelligent Labels business, this acquisition created a platform with over $500 million in annual revenues, with increased potential for long-term growth and profitability, enhanced research and development capabilities, expanded product lines and additional manufacturing capacity. In December 2020, we completed our acquisition of ACPO, Ltd., an Ohio-based manufacturer of self-wound (linerless) pressure-sensitive overlaminate products, for approximately $88 million. During 2020, we also invested in three startup companies developing innovative technological solutions that we believe have the potential to advance our businesses.

In 2020, we deployed $301.1 million to pay an annual dividend of $2.36 per share and repurchase 0.8 million shares of our common stock. We raised our quarterly dividend rate by approximately 7% in October 2020, after having maintained it earlier in the year due to the impact of COVID-19. Given the uncertain impact of COVID-19 at that time, in March 2020, we suspended our repurchase of shares and did not resume repurchases until the third quarter; as a result, in 2020, we allocated less than half the capital we deployed to share repurchases in 2019.

As shown below, over the last five years, we have allocated over $900 million to acquisitions and venture investments and nearly $2 billion to dividends and share repurchases.

 

 

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Total Stockholder Return (TSR) Outperformance

We experienced strong TSR in 2020 despite the uncertain macroeconomic environment during most of the year as a result of COVID-19, delivering TSR of over 20% and outperforming the S&P 500. However, we believe that our longer-term TSR is a more meaningful measure of our performance than our one-year TSR, which can be significantly impacted by short-term market volatility that may be unrelated to our performance (as occurred at various times during 2020). We focus on TSR because it measures value we create for our stockholders, including stock price appreciation and dividends paid (assuming reinvestment of dividends). We compare ourselves to the median of the S&P 500 Industrials and Materials subsets because we are a member of the Materials subset, and also share many characteristics with members of the Industrials subset; this practice is further informed by feedback from our investors, who have indicated that they look at both subsets in evaluating our performance relative to that of our peers.

 

5-Year Cumulative TSR

 

 

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1-, 3- and 5-Year TSR

 

      AVY    S&P 500    S&P Indus. & Mats.*

2016

     15%      12%      21%

2017

     67%      22%      28%

2018

   (20)%      (4)%    (14)%

2019

     49%      32%      34%

2020

     21%      18%      17%

3-Year TSR

     43%      49%      32%

5-Year TSR

   173%    103%    116%
*

Based on median of companies in both subsets as of December 31, 2020.

 

 

STOCKHOLDER ENGAGEMENT

In addition to our extensive investor relations program through which members of management engage with our investors throughout the year, we have a longstanding practice of supplemental engagement with stockholders to discuss our strategies, performance, governance, executive compensation, sustainability and human capital management practices and solicit their feedback. This engagement program takes place throughout the year, as shown below.

 

 

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Summary of 2020 Engagement Results

In 2020, we contacted our top 30 investors (representing 60-65% of our outstanding shares) in both the spring and the fall. Board members, in particular our Lead Independent Director, and management were made available to answer questions and address concerns. In the aggregate, we received responses from and engaged with investors representing ~35% and ~30%, respectively, of our outstanding shares. We engaged with every stockholder who requested to meet, and our Lead Independent Director led the majority of our off-season engagements. We also discussed the process, results and feedback from our 2020 engagement with the Talent and Compensation Committee (the “Compensation Committee”) and the Governance Committee of our Board.

 

Our 2020 engagements focused primarily on two key areas of investor interest: our response to COVID-19’s impact on our employees, customers, investors and communities, and our diversity and inclusion progress in light of the demonstrated need for greater racial and social justice in society. We also shared with our top 30 investors our first ESG Download, a report that consolidates our ESG policies and metrics, which we published in August 2020. This document spurred substantial discussion how we have incorporated ESG matters into our business strategies and progress made in meeting our ESG goals.

In addition, following the lower support director Mark Barrenechea received for his reelection at our 2020 Annual Meeting, we again solicited our stockholders’ views on his board commitments. In these discussions, we highlighted his contributions to our Board, demonstrated commitment to our company and management, industry experience and information technology expertise, skill alignment with our strategic priorities, and consistently strong attendance and engagement during his tenure.

The results of our 2020 engagement with our top 30 stockholders on governance, executive compensation, sustainability and human capital management matters are shown below.

 

         2020 ENGAGEMENT RESULTS         
           

 

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Summary of 2020 Engagement Feedback

Our Board and management believe that regular stockholder engagement fosters a deeper understanding of investors’ evolving expectations on ESG matters and helps us ensure our programs continue to align with best practices.

Governance and Environmental Sustainability Matters

With respect to matters related to governance and environmental sustainability, inclusive of climate change, we discussed Board oversight of our strategies, our response to COVID-19 and progress toward our 2025 sustainability goals, including with respect to plastics recyclability and greenhouse gas emissions; our Board’s expanded stakeholder focus, as reflected in our strategies and evidenced in our ESG Download published in August 2020; and Board composition and refreshment, particularly the outside board commitments of one of our directors and the racial/ethnic and gender diversity on our Board.

Executive Compensation and Social Sustainability Matters

With respect to executive compensation and social sustainability, we discussed Board oversight of our strategies, our response to COVID-19 (including the potential for changes to executive compensation to address the impact of the pandemic, as well as measures implemented to support employees more broadly), and diversity and inclusion initiatives, particularly related to race/ethnicity in the U.S.; the potential for consideration of non-financial measures in our incentive compensation programs to address ESG topics while maintaining pay-for-performance alignment; the status of changes initially approved for 2020 CEO compensation but reversed due to COVID-19; and the Compensation Committee’s oversight of additional talent management topics such as succession planning, leadership development and pay equity.

 

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SUSTAINABILITY

Sustainability is one of our core values and has long been an integral part of the way we do business. Our aim is to improve the sustainability of our products and processes, build a more diverse workforce and an inclusive culture, maintain a culture of health and safety, and support our communities to create value for all our stakeholders. Key to our progress has been integrating sustainability into our business strategies and engaging employees at all levels.

In our 2020 integrated sustainability and annual report, we present highlights of our achievements against our 2025 sustainability goals and announce our more ambitious 2030 sustainability goals, which are focused on delivering innovations that advance the circular economy, reducing the environmental impact in our operations and supply chain, and making a positive social impact by enhancing the livelihood of our people and communities.

In the first five years of the 10-year horizon for our 2025 sustainability goals, we have made meaningful progress, as shown in the scorecard shown below. You can find additional information in our 2020 integrated sustainability and annual report, as well as on the sustainability section of our website.

 

2020 SUSTAINABILITY SCORECARD

Focus Area

 

Goal(s)

 

Baseline Year

 

Highlights of Progress

 

Greenhouse

Gas Emissions

 

 

LOGO

 

 

 

Achieve at least 3% absolute reduction year-over-year and at least 26% overall reduction by 2025

 

 

2015

 

 

Reduced absolute GHG emissions by ~19% in 12 months through Q3 2020 compared to same period in prior year, primarily due to increased purchase of renewable energy credits; GHG emissions fell ~45% compared to baseline year

 

Paper

 

LOGO

 

 

 

Source 100% certified paper, of which at least 70% is Forest Stewardship Council®-certified

 

 

2015

 

 

Of total volume of paper procured in 2020, ~92% was certified, with ~83% of facestocks Forest Stewardship Council®-certified

 

Films

 

LOGO

 

 

 

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

 

 

N/A

 

 

~97% of 2020 film volume conformed to LGM’s restricted substance list

 

Chemicals

 

LOGO

 

 

 

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

 

 

N/A

 

 

~96% of 2020 chemical volume conformed to LGM’s restricted substance list

 

Products and

Solutions

 

LOGO

 

 

 

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

 

 

2015

 

 

~44% and ~55% of LGM and RBIS sales, respectively, in 2020 came from sustainability-driven products that are responsibly sourced, enable recyclability, contain recycled content, or use less material without compromising performance

 

Waste

 

LOGO

 

 

 

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

 

 

2015

 

 

Diverted ~94% of solid waste from landfills and recycled ~67% of waste as of year-end 2020

 

People

 

LOGO

 

 

 

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

 

Continue to invest in our employees and the communities in which they live and work

 

 

2015

 

 

Increased female representation at level of manager and above by ~7% from baseline year; level was 34% at year-end 2020

 

Continued world-class safety record, with recordable incident rate of 0.21 in 2020, far surpassing manufacturing industry average of 3.0 in 2019 (most recently available industry average)

 

Transparency

 

LOGO

 

 

Commit to goals publicly and be transparent in reporting progress

 

 

N/A

 

 

Enhanced transparency by providing greater ESG disclosures in 2019 integrated sustainability and annual report published in March 2020, committing to publishing progress annually; first ESG Download published in August 2020; and 2020 integrated sustainability and annual report and ESG Download, both published in March 2021

 

Avery Dennison Corporation  |  2021 Proxy Statement

 

 

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DIVERSITY AND INCLUSION

Diversity is one of our core values, reflecting our interest in ensuring an inclusive and respectful environment for people of all backgrounds and orientations and our recognition that we gain strength from diverse ideas and teams. The importance of diversity and inclusion (D+I) to our company is further evidenced by the diversity-related targets included in our 2025 sustainability goals. Over the past several years, we have made consistent progress in our D+I journey, as shown below. In 2020, we redoubled our efforts to drive sustainable change, recognizing the need to accelerate our collective journey toward greater racial and social justice in society. We are for the first time making publicly available our EEO-1 statistics, which we collect as required by the U.S. Equal Opportunity Commission. This information, which reflects the voluntary self-identification by our U.S. employees in 2020, can be found in our ESG Download published in March 2021.

 

    HIGHLIGHTS OF D&I JOURNEY

2014-2015

 

LOGO

 

 

•   Established goal of 40%+ female at manager level and above

 

•   Employees established Northeast Ohio Chinese employee resource group (ERG)

 

2016

 

LOGO

 

 

•   Launched unconscious bias training for managers globally

 

•   Released D+I Talkabout Toolkit

 

•   Initiated Women.Empowered development program

 

•   Increased flexible work arrangements

 

•   Added inclusion index to employee engagement survey

 

2017

 

LOGO

 

 

•   Employees established Elevate, Women’s ERG

 

•   Required gender diverse hiring slate goals globally

 

•   Joined CEO Action for Diversity & Inclusion

 

2018

 

LOGO

 

 

•   Employees established Black ERG

 

•   Added diversity as company value

 

•   Launched Men as Allies program

 

•   Reviewed director+ level gender pay equity, making adjustments where needed

 

2019

 

LOGO

 

 

•   Employees established Veterans ERG

 

•   Employees established UNITE, LGBTQ+ ERG

 

•   Launched North America iBelong D+I employee engagement campaign

 

•   Expanded gender pay equity review, making adjustments where needed

 

2020

 

LOGO

 

 

•   Employees established Voz Latina ERG

 

•   Launched D+I Town halls in North America

 

•   Established Regional D+I Councils and certain Regional D+I Executive Councils

 

•   Increased transparency through greater ESG reporting

 

•   Began recruiting for enterprise-wide D+I leader

 

•   Continued expanding gender pay equity review and began evaluating U.S. racial/ethnic pay equity, making adjustments where needed

 

 

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2021 DIRECTOR NOMINEES (ITEM 1)

Matrix of Director Skills, Qualifications and Demographic Backgrounds

Our director nominees bring a balance of skills, qualifications and demographic backgrounds to their oversight of our company, as shown in the matrix below. In 2020, we asked each of our directors to complete a Board diversity questionnaire, with a long list of demographic characteristics for them to indicate the categories with which they self-identify; as a result, this matrix has been significantly expanded from previous years based on the characteristics we included in our questionnaire and updated to reflect our directors’ responses. The Governance Committee regularly evaluates the skills, qualifications and demographic backgrounds desirable for our Board to best advance our business strategies and serve the interests of all our stakeholders.

 

 

LOGO

 

 
Governance Guidelines Criteria

Independent

 

 

 

 

 

 

 

   

 

 

Senior Leadership Experience(1)

 

 

 

 

 

 

 

 

   

 

Industry Experience(2)

 

   

 

 

 

 

 

 

 

 

Global Exposure(3)

 

 

 

 

 

 

 

 

 

Board Experience(4)

 

 

 

 

 

 

 

   

 

 

Financial Expertise(5)

   

 

 

   

 

   

 

   

 

   

 

   

 

 

 

Industry Experience

Retail/Dining                                                                                            

   

 

   

 

   

 

 

 

   

 

   

 

   

 

   

 

Packaging

 

   

 

   

 

   

 

   

 

   

 

   

 

 

   

 

Consumer Goods

   

 

   

 

 

   

 

 

   

 

   

 

   

 

 

Industrial Goods/Technology

   

 

   

 

   

 

   

 

   

 

 

 

 

   

 

Demographic Background

Tenure (years)

 

4

 

8

 

11

 

18

 

13

 

2

 

8

 

4

 

15

Gender(6)

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

Female

   

 

   

 

   

 

 

   

 

   

 

 

   

 

   

 

Male

 

 

 

   

 

 

 

   

 

 

 

Non-Binary Gender

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

Age

 

58

 

65

 

64

 

65

 

68

 

56

 

64

 

49

 

65

Mandatory Retirement Year

 

2035

 

2028

 

2029

 

2028

 

2025

 

2037

 

2029

 

2044

 

2028

Race/Ethnicity(6)

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

Black or African American

   

 

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

Hispanic or Latino

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

White

 

   

 

 

 

 

 

 

 

 

Asian (including South Asian)

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

Native Hawaiian or Pacific Islander

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

Native American or Alaska Native

   

 

   

 

   

 

   

 

 

   

 

   

 

   

 

   

 

LGBTQ+(6)

                                   

Veteran(6)

   

 

   

 

   

 

   

 

 

   

 

   

 

   

 

   

 

Lives/Has Lived Abroad

 

   

 

 

   

 

   

 

 

   

 

 

 

 

(1)

Experience as president, chief executive officer or in similar senior executive positions.

(2)

Experience in the retail/dining, packaging, consumer goods or industrial goods/technology industries.

(3)

Seniority in a global enterprise or significant experience in international markets.

(4)

Prior or concurrent service on other U.S. public company boards.

(5)

Expertise in accounting, auditing, tax, banking, insurance or investments.

(6)

Based on each director’s self-identification in our 2020 Board diversity questionnaire.

 

Avery Dennison Corporation  |  2021 Proxy Statement

 

 

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Board Performance Highlights

Our Board provides strong oversight of our management team and company, with many notable accomplishments in recent years, highlights of which are described below.

 

   

Supported management in navigating challenges presented by COVID-19, ensuring we protected employee well-being, delivered for customers, mitigated supply chain risk, maintained strong balance sheet and financial flexibility, and supported communities, while continuing focus on long-term business strategies and ongoing risk mitigation

 

   

Supported consistent execution of strategic priorities, which delivered significant operating margin expansion and double-digit compound adjusted EPS growth in first four years of our 2017-2021 financial targets, as well as 2016-2020 TSR of 173%, substantially outperforming S&P 500

 

   

Oversaw completion of seven acquisitions that advanced our capabilities and increased proportion of our portfolio consisting of high-value product categories

 

   

Oversaw executive leadership development and succession planning, with several experienced leaders promoted to senior executive positions and effectively transitioning into roles, including both our Chief Human Resources Officer and our Chief Legal Officer in 2020

 

   

Onboarded and mentored CEO after he became Chairman in 2019 and successfully transitioned Patrick Siewert into Lead Independent Director role in 2020 following departure of David Pyott

 

   

Implemented thoughtful Board refreshment and succession planning, with 4 new directors appointed in last 8 years, 2 of whom increased racial/ethnic or gender diversity

Board Governance Highlights

Our Board’s governance program reflects our company values and facilitates our directors’ independent oversight of our company. Highlights of our program, which we believe is generally consistent and aligned with the Investor Stewardship Group’s Corporate Governance Principles for U.S. Listed Companies, are shown below.

 

 

Stockholder

Rights

  

 

  Market-standard proxy access

 

  No supermajority voting requirements

 

  No poison pill

 

  No exclusive forum or fee-shifting bylaws

 

Board

Governance

  

 

  Annual election of directors

 

  Majority voting in director elections

 

  Single class of outstanding voting stock

 

  Current directors 90% independent; director nominees 89% independent

 

  Robust Lead Independent Director role

 

  Regular director succession planning and Board refreshment

 

  Continuous executive succession planning and leadership development

 

  Annual Board evaluations

 

  Mandatory director retirement policy

 

  Governance Guidelines

 

  Strong Committee governance

 

  Direct access to management and experts

APPROVAL OF EXECUTIVE COMPENSATION (ITEM 2)

The Compensation Committee designs our executive compensation program to motivate our leaders to execute our business strategies and deliver long-term value for our investors. The program delivers pay for performance, with realized compensation dependent on our company achieving challenging annual and long-term financial performance targets and value creation objectives that advance the interests of our stockholders.

 

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Performance-Based Compensation

Target total direct compensation (TDC) for our corporate Named Executive Officers (NEOs) is comprised of the elements shown below.

ELEMENTS OF TARGET TDC FOR CORPORATE NEOs

 

LOGO     LOGO

The Compensation Committee establishes the target TDC of our NEOs to incent strong operational and financial performance and stockholder value creation, giving consideration to the market median, role responsibilities, individual performance, tenure, retention and succession. As shown below, the majority of this compensation is performance-based, meaning that our executives ultimately may not realize the value of the at-risk components of TDC if we fail to achieve our financial objectives.

 

 

LOGO

 

Avery Dennison Corporation  |  2021 Proxy Statement

 

 

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Pay for Performance

As shown in the graph below, over the past five years, our cumulative TSR has increased by 173% while the annual compensation of our CEO has remained relatively constant, except for 2016 when he received a one-time equity grant in connection with his promotion to CEO.    

 

 

LOGO

Changes in 2020 Executive Compensation

Changes Approved in April 2020

Given the uncertain impact of COVID-19 on market conditions, our CEO recommended to the Compensation Committee in April 2020 that the base salary increases for our executive leadership team (which includes all of our NEOs) approved by the committee in February 2020 be indefinitely postponed, and no such increases were given in 2020. In light of market conditions at the time and also at the recommendation of our CEO, the Compensation Committee determined that his 2020 target annual and long-term incentive opportunities should remain at 2019 levels. As a result, the Compensation Committee approved the reductions in CEO compensation for 2020 described below.

 

   

His target AIP opportunity for 2020 would remain at previous level of 125% of base salary rather than 140% of base salary approved by Compensation Committee in February 2020

 

   

His target LTI opportunity for 2020 would remain at previous level of 475% of base salary rather than 585% of base salary as approved by Compensation Committee in February 2020

 

   

Both target opportunities would be based on his 2019 year-end base salary of $1,133,000

In connection with these reductions, our CEO forfeited 5,811 PUs and 6,662 MSUs, with an aggregate grant date fair value of approximately $1.3 million, granted to him in February 2020.

Changes Approved in February 2021

Despite the adverse impact of COVID-19, no adjustments to short- or long-term incentive compensation were made for our corporate NEOs; their 2020 AIP awards and 2018-2020 PUs paid out on the basis of unadjusted company results. Similarly, the goals for their 2020-2022 PUs granted to them in February 2020 were not adjusted to reflect the impact of COVID-19.

COVID-19 had a disproportionate impact on RBIS’ results in 2020. As a result, although the business achieved its short-term objectives while managing a challenging environment during the year, the business did not achieve any of its original goals for 2020. However, RBIS delivered substantial temporary cost savings and accelerated restructuring actions to expand its operating margins; achieved its net income plan for the second half of the year and significantly grew sales on an organic basis in the fourth quarter; successfully integrated Smartrac and exceeded its 2020 performance targets for the acquisition; and achieved a high employee engagement score, despite having taken

 

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aggressive actions to reduce costs. Using its allowable discretion to exclude some of this impact, the Compensation Committee approved an AIP financial modifier of 60% for the RBIS team to recognize their achievements in navigating the challenges the business faced during the year. Given our business NEO’s 25% linkage to total company adjusted EPS, his overall adjusted AIP financial modifier was 76%.

The Compensation Committee also reviewed the performance of the 2018-2020 PUs for our business NEO. Noting that RBIS had entered 2020 with performance during the first two years of the three-year performance period in excess of the maximum level of performance and using its allowable discretion to exclude some of the extremely adverse impact, the Compensation Committee determined to increase the payouts for the 2018-2020 for all RBIS participants from 84% to 126% to recognize the team’s impressive EVA performance through 2019, as well as their achievements in navigating the challenges related to COVID-19 that the business faced during 2020. In addition, the Compensation Committee reviewed the performance of the 2020-2022 PUs for our business NEO. Noting that RBIS had taken substantial actions to protect operating margins during the year and using its allowable discretion to exclude some of this impact, the Compensation Committee determined to revise RBIS’ EVA goals originally approved in February 2020 for threshold, target and maximum EVA performance. The revised goals continue to require strong growth and margin improvement compared to the 2019 baseline for the business, although on a different trajectory than originally planned given the extraordinary impact of COVID-19 on RBIS’ markets in 2020.

2021 CEO Compensation

Based on expert advice provided by its independent compensation consultant, Willis Towers Watson, and giving further consideration to the feedback from investors received in 2019 and 2020, the Compensation Committee determined to reinstate the longer-term approach it intended for our CEO’s 2020 compensation for 2021. Consistent with the Committee’s initial decision in February 2020, our CEO’s 2021 target TDC was set between the market 50th and 75th percentiles of his market peers, reflecting his strong performance throughout his five-year tenure in the role, during which our company delivered top quartile performance. The committee’s current intent is not to revisit his compensation until 2024 unless warranted by market conditions or our company results.

Reviewing 2020 market pay rates and projected 2021 market pay rates for companies with annual revenues between $6 billion and $10 billion, the Compensation Committee determined to target our CEO’s target TDC for 2021 at $9.9 million by increasing (i) his base salary by 6% to $1.2 million, noting that his base salary had not been increased in the previous three years; (ii) his target AIP opportunity from 125% of base salary to 140% of base salary; and (iii) his target LTI opportunity from 475% of base salary to 585% of base salary. The Compensation Committee recognized that our CEO had delivered strong value creation for all our stakeholders by leading the execution of our strategies during his five-year tenure in the role and successfully navigating the impact of COVID-19 in 2020. The Compensation Committee noted that over 90% of his new target TDC would consist of at-risk, performance-based compensation; our CEO’s realized compensation will depend on our company achieving strong TSR performance, delivering our 2021 financial targets and 2025 sustainability goals, and continuing to engage our employees, serve our customers, deliver for our investors, and support the communities in which we operate.

 

Avery Dennison Corporation  |  2021 Proxy Statement

 

 

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Executive Compensation Best Practices

As summarized below and described in further detail in the CD&A section of this proxy statement, our executive compensation program aligns with our financial goals and business strategies and reflects best practices.

 

 

Pay-for-Performance

  

 

  86% of CEO 2020 target TDC tied to company performance

 

  68% of CEO 2020 target TDC equity-based to incent delivery of long-term stockholder value

 

  Rigorous stock ownership policy; requires CEO ownership of ~6x base salary, with 50%+ held in vested shares

 

Compensation

Best Practices

  

 

  Double-trigger equity vesting requires termination of employment after change of control

 

  Three-year average burn rate of 0.67% at year-end 2020 at 50th percentile of S&P 500 companies

 

  Compensation clawback in event of accounting restatement

 

  Independent compensation consultant retained and serving at direction of Compensation Committee

 

  Annual Compensation Committee evaluation and charter review

 

  Periodic formal risk assessment of compensation policies and practices

 

  Releases from liability and restrictive covenants for departing executives

 

  Review of NEO tally sheets reflecting all compensation components

  

 

× No NEO employment contracts

 

× No guaranteed AIP awards; NEO AIP awards based on company or business performance

 

× No excise tax gross-ups on change of control severance benefits

 

× No tax gross-ups on perquisites

 

× No above-market interest rates for deferred compensation

 

× No re-pricing of stock options without stockholder approval

 

× No payout of MSU dividend equivalents until vesting

 

× No grant of stock options below fair market value

 

× No 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 2021 and our Board is seeking stockholder ratification of the appointment. PwC remains well-qualified to act as our independent registered public accounting firm, has a deep understanding of our operations and accounting practices, and maintains rigorous procedures to continuously ensure auditor independence. The committee considered the qualifications, performance, independence and tenure of PwC, the quality of its discussions with PwC, and the fees charged by PwC for the level and quality of services provided by the firm during 2020, and determined the reappointment of PwC to be in the best interest of our company and stockholders.

 

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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 to 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 are described in the Board Governance Highlights section of the proxy summary; together they form a governance program that we believe is generally consistent and aligned with the Investor Stewardship Group’s Corporate Governance Principles for U.S. Listed Companies.

We encourage you to visit the investors section of our website under Corporate Governance, where you can view and download current versions of the documents shown below, which are referenced in this proxy statement:

 

   

Amended and Restated Certificate of Incorporation

 

   

Amended and Restated Bylaws (our “Bylaws”)

 

   

Corporate Governance Guidelines (our “Governance Guidelines”)

 

   

Charters for our Board’s Audit and Finance Committee (the “Audit Committee”), Talent and Compensation Committee (the “Compensation Committee”), and Governance Committee

 

   

Code of Conduct

 

   

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

 

   

Audit Committee Complaint Procedures for Accounting and Auditing Matters

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 receive copies of these documents, without charge, by writing to our Corporate Secretary at Avery Dennison Corporation, 207 Goode Avenue, Glendale, California 91203.

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. Only the Audit Committee or the Governance Committee can amend or waive the provisions of our 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 Ethics Responsibilities

 

•   Avoid actual or apparent conflicts of interest

 

•   Ensure complete and accurate SEC filings

 

•   Respect confidentiality of financial and other information

 

•   Employ corporate assets responsibly

 

•   Report Code of Ethics violations to Chair of Audit or Governance Committees

 

Supporting fulfillment of responsibilities, 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.

CODE OF CONDUCT

Our Code of Conduct applies to all of our directors, officers and employees and reflects our values of Integrity, Courage, External Focus, Diversity, Sustainability, Innovation, Teamwork and Excellence. It includes leadership messages, detailed information regarding higher risk areas, and case studies to provide guidance on situations that raise complex ethical questions. Our Code of Conduct has been translated into over 30 languages and our leaders affirm their commitment to complying with it when they first join our company and thereafter as part of our annual compliance certification. We train employees on the Code at least biannually, in addition to our online training program generally consisting of four courses per year covering specific risk areas from the Code that computer-based employees are required to complete.

 

Avery Dennison Corporation  |  2021 Proxy Statement

 

 

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To ensure that the policies and principles encompassed in our Code of Conduct reach all our employees, we develop and launch three “Talkabout” toolkits (also in over 30 languages) globally 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 and an introductory subtitled video, which includes messages from our Chief Compliance Officer and other company leaders.

Ethics-Based Corporate Culture and Policies

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

 

LOGO

Business Conduct GuideLine    

 

Our Business Conduct GuideLine (the “GuideLine”) is a whistleblower hotline available at all hours for employees or third parties to report potential   violations of our Code of Conduct or applicable laws, anonymously if they so choose.

The GuideLine may be reached by (i) calling 800.461.9330 toll-free in the U.S., 720.514.4400 direct with applicable charges from any location, or toll-free outside of the U.S. using the country-specific toll-free numbers found in our Code of Conduct or (ii) visiting averydennison.com/guidelinereport (averydennison.com/guidelinereport-eu in Europe). 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. 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.

 

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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 reports 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 retaliation. The Audit Committee oversees these procedures, with investigations 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 GuideLine or writing to the Audit and Finance Committee Chair, c/o Corporate Secretary, Avery Dennison Corporation, 207 Goode Avenue, Glendale, California 91203.

STOCK OWNERSHIP POLICY

Our stock ownership policy requires that non-employee directors acquire and maintain a minimum ownership interest in our company of $500,000 and our CEO and other current NEOs acquire and maintain a minimum ownership interest in our company equal to 6x and 3x his or her annual base salary, respectively; at least 50% of the applicable minimum ownership requirement must be held in vested shares.

The values of the following shares/units are considered in measuring compliance with our stock ownership policy: shares beneficially owned or deemed to be beneficially owned, directly or indirectly, under federal securities laws; for officers, shares or units held in qualified and non-qualified employee benefit plans, unvested restricted stock units (RSUs) subject to time-based vesting, and 50% of the value of unvested market-leveraged stock units (MSUs) at the target payout level; and, for non-employee directors, RSUs and deferred stock units (DSUs). Unvested performance units (PUs) and stock options are not considered in measuring compliance.

 

If a director or officer fails to achieve or make reasonable progress towards achieving his or her respective ownership requirement, 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. These individuals are not allowed to transact in company stock until they certify that they will remain in compliance with our stock ownership policy after giving effect to the transaction they plan to effectuate.

The Compensation Committee and the Governance Committee reviewed the stock ownership of our non-employee directors in December 2020 and February 2021, respectively. Both Committees determined that all of our non-employee directors were in compliance with our stock ownership policy, with average ownership of 10x the minimum ownership requirement, helping ensure their interests remain aligned with those of our stockholders and further incenting their focus on long-term stockholder value creation.

 

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The Compensation Committee reviewed executive stock ownership in December 2020 and determined that all of our executive officers, including all NEOs, were in compliance with our stock ownership policy.

 

STOCK OWNERSHIP POLICY COMPLIANCE  
  

 

   Shares* as of
2020 FYE (#)
    

Minimum

Requirement

  

% of

Requirement

     Policy
Compliance
 

Non-Employee Directors

  

 

 

 

   $ 500,000   

 

 

 

  

 

 

 

Bradley Alford

     41,050         

 

     1,266%             

Anthony Anderson

     16,992         

 

     524%             

Peter Barker

     64,465         

 

     1,988%             

Mark Barrenechea

     5,593         

 

     172%             

Ken Hicks

     42,828         

 

     1,320%             

Andres Lopez

     7,438         

 

     229%             

Patrick Siewert

     16,485         

 

     508%             

Julia Stewart

     61,570         

 

     1,899%             

Martha Sullivan

     27,184           

 

     838%             

Chairman, President & CEO

  

 

 

 

   6x Base Salary   

 

 

 

  

 

 

 

Mitchell Butier

     240,724          $6,798,000      546%             

Other NEOs

  

 

 

 

   3x Base Salary   

 

 

 

  

 

 

 

Gregory Lovins

     41,470          $1,854,000      345%             

Deon Stander

     30,339          $1,665,387      281%             

Anne Hill

     24,120          $1,644,018      226%             

Susan Miller

     14,865          $1,743,144      131%             

 

  *

Reflects shares/units considered in measuring compliance with our stock ownership policy rather than vested shares.

INSIDER TRADING POLICY

Our insider trading policy prohibits our Board members, officers and employees from engaging in transactions in our company’s stock while in the possession of material non-public information; 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 disclosing material non-public information to unauthorized persons outside our company.

Limited Trading Windows

Our insider trading policy restricts trading by Board members, officers (including our NEOs) and director-level employees 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. Additional blackout periods may be imposed, with or without notice depending on the circumstances.

Prohibitions on Hedging and Pledging

Our insider trading policy prohibits our directors, officers and employees from 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. In addition, directors and officers are expressly prohibited from – and our non-officer employees are strongly discouraged from – 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 in our annual director and officer questionnaire, all of our Board members and executive officers complied with our insider trading policy during 2020, and none of them has hedged or pledged shares of our common stock.

 

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SUSTAINABILITY

 

Sustainability and Diversity are two of our core values and have long been part of our approach to doing business, driving us to work within our company and across our entire value chain to address the environmental and social impacts of our products and practices. We aim to continually improve the environmental sustainability of our products and processes, build a more diverse and inclusive workforce, and provide meaningful support for our communities to create value for all our stakeholders.

With strategic guidance and direction provided by Mitch Butier, our Chairman, President and CEO, responsibility over ensuring that we continue to make meaningful progress toward achieving our 2025 sustainability goals resides with Deon Stander, Vice President and General Manager of our Retail Branding and Information Solutions business. Our enterprise-wide Sustainability Council, led by Mr. Stander and comprised of a cross-divisional and cross-functional group of leaders to drive broad accountability and continually accelerate our progress, generally meets bimonthly and updates our executive leadership team quarterly.

Board oversight over environmental sustainability and community investment is primarily conducted by the Governance Committee, which receives a report from management on each of these topics at least once a year. In addition, our full Board engages with business leaders on their sustainability initiatives during its regular review of their business strategies. In July and December 2020, our Board held strategy sessions focused on environmental sustainability and our innovation efforts to address the increasing need and demand for more sustainable products.

Board oversight over social sustainability is conducted primarily through the Compensation Committee, which regularly reviews our diversity and inclusion progress and discusses other matters related to human capital management. In December, substantially all members of our entire Board engaged with, and challenged, management in an in-depth discussion of our D+I journey, including by reviewing the initiatives being undertaken by each of Regional D+I Councils and analyzing D+I statistics for our executive leadership team and our U.S. workforce.

ENGAGING OUR STAKEHOLDERS

We seek to ensure that our sustainability efforts are consistent with the expectations of our stakeholders. 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 materiality assessments. These assessments help set our sustainability agenda, focusing us on the areas in which we can have the most impact. In 2020, we partnered with Environmental Resources Management to refresh our materiality assessment and reprioritize the sustainability topics most significant to our stakeholders. An updated materiality map showing the importance of various ESG topics to our company and our external stakeholders described on the following page may be found in our second ESG Download published in March 2021.

 

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SUSTAINABILITY STAKEHOLDERS

 

           1    

 

       
            

Industry

Working Groups        Conferences

 

           2    

 

       
            

Customers and Brand Owners

Product Collaborations        Surveys        Site Audits        Working Groups

 

           3    

 

       
            

Employees

Engagement Survey        Works Councils        Employee Resource Groups        Intranet/Town Halls

Code of Conduct        Training        Business Conduct GuideLine

 

           4    

 

       
            

Investors

Annual Meetings        Quarterly Earnings Calls        Investor Meetings        Stockholder Engagement Program

 

           5    

 

       
            

Non-Governmental Organizations

Consultations on Issues of Concern        Specific Initiatives (e.g., responsibility sourcing paper, reducing GHG emissions)

 

           6    

 

       
            

Policymakers and Regulators

Permitting        Audits        Certifications

 

           7    

 

       
            

Communities

Foundation Grantmaking        Employee Volunteerism        Civic Collaboration

 

           8    

 

       
            

Suppliers

Supplier Standards        Compliance Training        Supplier Audits        Joint Projects

PROGRESS TOWARD ACHIEVING 2025 GOALS; NEW 2030 GOALS

In our 2020 integrated sustainability and annual report, we present highlights of our progress against our 2025 sustainability goals and announce our more ambitious 2030 sustainability goals. After updating our materiality assessment to better understand the environmental and social sustainability challenges facing our company and stakeholders, we reframed our eight 2025 goals into the following three broader goals that we are aiming to achieve by 2030: deliver innovations that advance the circular economy; reduce the environmental impact in our operations and supply chain; and make a positive social impact by enhancing the livelihood of our people and communities. Within each of these goals, we have specific targets related to environmental and social sustainability. Going forward, we will report our progress against both sets of goals.

 

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In the first five years of the 10-year horizon for our 2025 sustainability goals, we have made meaningful progress, as shown in the scorecard in the proxy summary. You can find additional information in our 2020 integrated sustainability and annual report, our ESG Downloads available in the investors section of our website, and the sustainability section of our website.

In our ESG Downloads published at least annually, we disclose our ESG metrics using the frameworks of the Sustainability Accounting Standards Board (SASB), the Global Reporting Initiative (GRI) and CDP Worldwide. In November 2020, we joined the United Nations Global Compact and made commitments to the UN Sustainable Development Goals.

DIVERSITY AND INCLUSION

Diversity is one of our core values, reflecting our desire to ensure an inclusive and respectful environment for people of all backgrounds and orientations and our recognition that we gain strength from diverse ideas and teams. The importance of D+I to our company is further evidenced by the diversity-related targets included in our 2025 sustainability goals. D+I at our company is led by our cross-functional and cross-divisional D+I Council, chaired by our President/CEO and advised by our Chief Human Resources Officer. Highlights of our D+I journey are shown in the proxy summary and further described below.

In recent years, among other initiatives, our D+I efforts have focused on training our managers globally on unconscious bias; increasing the number of sites offering flexible work arrangements; adding an inclusion index to our annual employee engagement survey; and expanding our Women.Empowered program featuring interactive discussions among nominated female participants to facilitate and enhance their development. We joined CEO Action for Diversity & Inclusion, the largest CEO-driven business commitment to advance D+I in the workplace, externally committing ourselves to our internal value. We also began evaluating evaluated gender pay equity annually, making adjustments to compensation for both male and female employees where needed.

In 2019, we began formally encouraging and more actively supporting employee resource groups (ERGs), a few of which had already begun to form through the initiative of their individual founders. ERGs are voluntary executive-sponsored and employee-led groups comprised of individuals who join together based on common interests or demographic backgrounds such as race, ethnicity, sexual orientation and veteran status. Participation in these groups is not limited to individuals in these categories, but rather is open to all employees interested in learning about the experiences and challenges of their colleagues. Our ERGs expanded in number throughout 2019 and 2020, with increasing participation and engagement beyond the U.S. Our ERGs currently include groups centered around women, ethnic Chinese, Black employees, military veterans, Hispanic/Latinx employees, and LGBTQ+ individuals.

In 2020, we established Regional D+I Councils in North America; Latin America; Europe; Middle East and Africa; North Asia; and South Asia, which provide leadership of initiatives that more strongly resonate with employees in their respective regions. In addition, we established Regional D+I Executive Councils in certain of these regions to provide a direct avenue for the initiatives and outcomes sought by those Regional D+I Councils to be heard, aligned upon and implemented by their regional business leaders. We also began evaluating racial/ethnic pay equity in the U.S.

Having delayed the launch of the program in 2020 due to COVID-19, we plan to launch global harassment prevention training in 2021 to supplement the anti-harassment messages we continually reinforce as part of our Values and Ethics program. We are also hiring a global D+I leader for our company, as well as similarly dedicated resources in the regions in which we operate. Most important, we are increasing external transparency into our D+I journey with more robust, ongoing ESG reporting so our stakeholders may critically assess our progress and help us achieve our goals.

OTHER HUMAN CAPITAL MANAGEMENT MATTERS

Succession Planning

The Compensation Committee and our full Board conduct executive succession planning at least semiannually, reviewing succession plans for our CEO and other senior executives. Consistent with this practice, in October 2020, the Compensation Committee discussed potential successors to our CEO; in addition, in June 2020, the Compensation Committee reviewed talent that is ready – or, with continued development on their current trajectory with mentorship and coaching from our current leaders, will be ready – to fill other senior executive positions in the event of a vacancy. These assessments were further discussed with our full Board. The Compensation Committee also regularly reviews executive new hires, promotions, transfers and departures to assist with executive succession planning and leadership development.

 

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Leadership Development

Our Board is actively involved in overseeing our company’s human capital management to assist with identifying and developing our future leaders. We maintain a robust performance review process and provide leadership development opportunities for our employees. Senior management reports to the Compensation Committee or our full Board on leadership at executive 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 ensuring that they have appropriate development plans in place to progress them toward expanded responsibility. Through regular reports from management, our Board has the opportunity to meet our business leaders and functional leaders in law, finance, information technology and human resources. In addition, Board members have freedom of access to all our employees, and are encouraged to visit our facilities to meet local management and attend company events.

COMMUNITY INVESTMENT

With Board oversight from the Governance Committee, our community investment efforts help strengthen the locations around the world in which we operate. We make most of our community investments through the Avery Dennison Foundation (the “Foundation”), which annually distributes at least 5% of its assets from the prior year, historically to advance education, sustainability and women’s empowerment, as well as to encourage employee engagement with a spirit of invention and innovation. These priorities shifted in 2020 to supporting our communities respond to COVID-19. The Foundation supports communities by making grants to community-based organizations, promoting employee volunteerism and engagement, and awarding scholarships. In 2020, we made a $10 million contribution to the Foundation to ensure it is able to increase the scope and pace of its support for our communities, particularly at this time when they continue to be challenged by COVID-19.

 

In 2020, the Foundation shifted its resources and funds to help our communities respond to COVID-19. In a joint effort with our company, the Foundation provided nearly $3 million in grants to support the efforts of more than 100 nonprofit organizations actively assisting communities respond to the pandemic in over 30 countries, many of which were identified by our employees. These contributions helped serve basic human needs such as food, shelter, education and childcare.

Global Grantmaking

Foundation grantmaking, the primary means of our giving, is aided by our employees worldwide who help identify deserving nonprofit organizations serving communities where our employees live and work. In 2021, the Foundation plans to review its grantmaking areas of focus to ensure continued alignment with our company’s reframed strategies and advance our broader commitment to D+I, while continuing to support the communities in which we operate.

COVID-19 Employee Assistance Fund

In response to COVID-19, the Foundation launched an employee assistance fund to support our employees around the world who were furloughed, laid off, suspended or terminated. This fund was designed to help provide for basic needs such as housing and utilities, medical care, dependent care, and other expenses impacted by the pandemic. Grants were also made available to families of our employees who had died of COVID-19. A significant amount of employee donations supplemented the Foundation funds earmarked for this effort. The fund is administered by Global Impact, an independent third party.

Employee Engagement

As the hands and heart of our company, our employees are critical to advancing the Foundation’s efforts. Because they better understand the needs of their communities, more than 150 employee teams coordinate volunteerism locally at our global locations.

In addition, our employees around the world gave their time and resources to support their communities respond to COVID-19. Their efforts included adapting manufacturing lines to make plastic face shields donated to healthcare facilities; collecting food and other essential goods for colleagues in need; and creating iron-on patches celebrating healthcare workers, with all sales proceeds benefiting Doctors Without Borders/Médecins Sans Frontières.

 

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The Foundation also engages employees through its Granting Wishes program, which allows them 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 eight years since the Foundation launched Granting Wishes, more than 2,000 of our employees have made recommendations, enabling grants to more than 360 organizations.

In 2020, in light of COVID-19, the Foundation adjusted its Granting Wishes program, supporting 48 former grantees that remained in good standing, had the capacity to deploy funds quickly, and had a stated purpose related to pandemic response. These grants served communities in nearly 30 countries.

Scholarships

The Foundation provides scholarships to the children of our U.S. employees. To date, over 650 scholarships have been awarded to U.S. Scholars. This program is administered by Scholarship America, an independent third party.

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 in those communities with tuition assistance, an invention competition and professional development opportunities, the Foundation seeks to inspire the spirit of innovation in future engineers and technology workers. As part of their application, students submit ideas for an invention they then design during their scholarship year. To date, nearly 200 scholarships have been awarded to Chinese and Indian students who have demonstrated outstanding innovative spirit and strong practical competence.

Racial and Social Justice Funding

Following events in many of our communities globally during 2020 and recognizing the role we can play in accelerating society’s collective journey towards greater racial and social justice, we began taking a more public stand against racial and other forms of inequality. Our company is defining its goals and strategies related to this effort, and Foundation grantmaking will be part of the response. Initial focus areas in the U.S. include recruitment and retention of people of color and scholarships and internships with educational institutions and professional organizations. Beyond the U.S., the Foundation plans to support efforts to address issues involving not only racism, but also inequality and discrimination on the basis of other demographic characteristics such as caste, color, disability and LGBTQ+ status.

 

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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 and delivering long-term value for all our stakeholders.

PRIMARY BOARD RESPONSIBILITIES

 

   

Establish strong governance, with Board/Committee structure ensuring independent oversight

 

   

Conduct director succession planning to maintain engaged and diverse Board with balance of skills, qualifications and demographic backgrounds

 

   

Oversee businesses, strategy execution and risk mitigation

 

   

Approve annual operating plan and significant strategic actions, including significant capital expenditures and acquisitions

 

   

Maintain integrity of financial statements

 

   

Evaluate performance of senior leaders and determine executive compensation

 

   

Conduct executive succession planning and ensure effective human capital management

 

Our Board’s top priority in 2020 given the continuing public health crisis of COVID-19 was supporting management in protecting the health, safety and well-being of our employees, delivering for our customers, minimizing the impact of the pandemic-driven recession on our investors, and supporting our communities. We implemented rigorous protective measures at our operations worldwide, including requiring remote work for employees whose jobs allowed for it; implementing strict health screening measures at our facilities; mandating that masks be worn on our premises; more frequently disinfecting surfaces; suspending business travel and non-essential in-person meetings; and requiring team members having experienced COVID-19 exposure to quarantine in accordance with public health guidelines. With our Board’s oversight, we also took several other actions to support our employees and communities during this difficult time, including providing additional compensation and benefits in the early stage of the pandemic to reduce the financial impact on our employees in hard hit regions, providing supplemental payments to our frontline workers to thank them for their courage and agility in serving our customers, and increasing our commitment to community investment by, among other things, contributing $10 million to the Avery Dennison Foundation to increasing the scope and pace of its support of communities as they continue to be challenged by COVID-19.

2021 Director Nominees

Our Bylaws provide that our Board be comprised of between 8 and 12 directors, with the exact number fixed from time to time by Board resolution. Our Board has fixed the current number of directors at 10 and expects to reduce its size in April 2021 to reflect Peter Barker’s retirement on the date of the Annual Meeting as required by our age-based mandatory retirement policy. The 9 nominees for election in 2021 are shown in the chart below.

 

Name Age Director Since Principal Occupation Independent AC CC GC

Bradley A. Alford

  64   2010   Retired Chairman & CEO, Nestlé USA

 

 

 

¡ ¡

Anthony K. Anderson

  65   2012   Retired Vice Chair & Managing Partner, Ernst & Young LLP ¡

 

 

 

¡

Mark J. Barrenechea

  56   2018   Vice Chair, CEO & CTO, OpenText Corporation

 

 

 

¡

 

 

 

Mitchell R. Butier

  49   2016   Chairman, President & CEO, Avery Dennison Corporation

 

 

 

 

 

 

 

 

 

 

Ken C. Hicks

  68   2007   Chairman, President & CEO, Academy Sports + Outdoors

 

 

 

¡

 

 

 

Andres A. Lopez

  58   2017   President & CEO, O-I Glass, Inc. ¡

 

 

 

 

 

 

Patrick T. Siewert LOGO

  65   2005   Managing Director & Partner, The Carlyle Group ¡

 

 

 

¡

Julia A. Stewart

  65   2003   Chair & CEO, Alurx, Inc.

 

 

 

¡ ¡

Martha N. Sullivan

  64   2013   Retired CEO, Sensata Technologies Holding PLC ¡

 

 

 

 

 

 

AC = Audit and Finance Committee    CC = Talent and Compensation Committee    GC = Governance Committee

LOGO  = Lead Independent Director         ¡ = Chair        ¡ = Member

 

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The ages of our director nominees range from 49 to 68, with an average age of approximately 62. Their lengths of service range from 212 to 18 years, with an average tenure on our Board of approximately 912 years.

Our director nominees bring a balance of skills, qualifications and demographic backgrounds in overseeing our company, as shown by individual in the Board matrix shown in the proxy summary.

2020 Change in Board Leadership Structure

In February 2020, our then-serving Lead Independent Director, David Pyott, notified our Board of his intention not to stand for reelection at the 2020 Annual Meeting so that he could focus on other endeavors. As a result, his membership on our Board ended on the date of the 2020 Annual Meeting. Our Board regularly reviews its composition and assesses the need for refreshment, determining not to appoint an additional director at that time.

In February 2020, the Governance Committee evaluated our Board leadership structure and recommended to our Board that Patrick Siewert be selected to replace Mr. Pyott as Lead Independent Director. The committee’s decision took into account his significant contribution to our Board’s responsibility for maintaining the integrity of our financial statements as a member of the Audit and Finance Committee for 15 years and its then-Chair for the last four years, as well as his extensive international experience in Asia, a region from which nearly 35% of our sales originated and approximately 60% of our employees were located at that time. The Governance Committee determined that Mr. Siewert was best positioned to provide independent leadership of our Board in overseeing our strategies to deliver long-term value for our employees, customers, investors and communities. Upon the recommendation of the Governance Committee, the independent directors on our Board unanimously selected Mr. Siewert (with him and Mr. Pyott abstaining) to serve as our Lead Independent Director, effective immediately after the 2020 Annual Meeting. In February 2021, upon the recommendation of the Governance Committee, the independent directors on our Board unanimously selected Mr. Siewert (with him abstaining) to continue serving as our Lead Independent Director, effective immediately after the Annual Meeting subject to his reelection.

2021 Nomination of Mr. Barrenechea

In nominating Mr. Barrenechea for reelection, the Board evaluated the overboarding policies of certain of our investors and proxy advisory firms. As part of our ongoing stockholder engagement program, members of our Board – including our Chairman and our Lead Independent Director – and management proactively discussed this matter with stockholders, reviewing Mr. Barrenechea’s consistent attendance and robust and active engagement not only with the Board and its committees, but also with management by sharing his information technology expertise and mentoring key leaders. Most notably, Mr. Barrenechea has been actively engaged in helping guide management to advance our Intelligent Labels platform, which is the highest priority in our strategy to drive outsized growth in high-value categories and which we believe will be a substantial driver of our long-term profitable growth. This business is expected to continue being a key area of Board and management strategic focus through at least fiscal year 2022, beyond the one-year term to which Mr. Barrenechea is being nominated to serve.

After giving much consideration to the feedback from investors as evidenced both by their prior votes on his reelection and our candid discussions with them in recent years, as well as its assessment of Mr. Barrenechea’s demonstrated ability to meet the time demands of the director role, our Board determined that it was in the best interests of the company and our stockholders to nominate Mr. Barrenechea for reelection. In light of his contributions, commitment to our company and management, and skill alignment with our strategic priorities, our Board recommends that stockholders vote in favor of Mr. Barrenechea’s reelection, as well as that of our other director nominees.

Board Meetings and Attendance

Our Board met five times and acted five times by unanimous written consent during 2020. There were 15 Committee meetings during the year. In addition, our directors regularly discussed matters of critical importance with our Chairman/CEO throughout the year outside of meetings, particularly with regard to our COVID-19 response. All directors attended 100% of their respective Board and Committee meetings during 2020. Directors are strongly encouraged to attend our annual stockholder meetings under our Governance Guidelines and all directors attended the virtual 2020 Annual Meeting.

 

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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 2021.

 

BOARD GOVERNANCE HIGHLIGHTS

Board

Composition

  

  Reasonable Board size of 10 directors at year-end 2020 and 9 director nominees

 

  Mandatory retirement after age 72; no term limits

 

  On average, director nominee age of 62 years and tenure of 912 years

 

  55% of director nominees female or from underrepresented communities

Director

Independence

  

  Current directors and director nominees 90% and 89% independent, respectively

 

  Executive sessions of independent directors held at all five 2020 Board meetings

 

Board

Leadership

Structure

  

  Annual review of Board leadership structure

 

  Robust Lead Independent Director role and independent Committee Chairs

Board Committees

  

  100% independent

 

  Annual composition review and periodic membership rotation

 

  Act under regularly reviewed charters consistent with market trends and stakeholder expectations

 

  Directors required to attend Board/Committee meetings

Board Duties

  

  Regular CEO/senior executive succession planning

 

  Ongoing review of long-term strategic plans, including key risks and mitigating strategies

 

  Directors entitled to rely on independent legal, financial or other advisors at our expense

Continuous

Board

Improvement

  

  New directors participate in initial orientation to familiarize themselves with our company and after joining Board committees to understand their responsibilities

 

  Continuing education through meetings with management, visits to our facilities and participation in director education programs

 

  Annual evaluation process ensures Board, Committees, Chairman, Lead Independent Director and Committee Chairs are functioning effectively; includes peer evaluation

Director

Qualifications

  

  Regular review of Board composition (skills, qualifications and demographic backgrounds) and director succession planning

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 and 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 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 Chief Legal Officer and our Corporate Secretary, as well as any transactions our company has with director-affiliated entities. In February 2021, after review of the facts and circumstances relevant to all directors, the Governance Committee concluded that only Mr. Butier had a relationship that was disqualifying under NYSE listing standards, otherwise material or impairing of director independence. Upon recommendation of the Governance Committee, our Board affirmatively determined the 9 current directors named on the following page to be independent; 89% of our director nominees are independent.

 

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Independent Directors

 

Bradley Alford

Anthony Anderson

Peter Barker

Mark Barrenechea

Ken Hicks

Andres Lopez

Patrick Siewert

Julia Stewart

Martha Sullivan

 

    

 

Director Nominee Independence

 

LOGO

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.

BOARD LEADERSHIP STRUCTURE

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 one-year term to our independent directors taking into account, among other things, our financial position, business strategies and any feedback received from our stockholders.

Robust Lead Independent Director Role

Our Lead Independent Director role provides an effective balance with our combined Chairman/CEO role, exercising critical duties to ensure independent Board decision-making in the boardroom. Mr. Siewert began serving as our Lead Independent Director in April 2020. Our Governance Guidelines clearly define his primary responsibilities, as shown below.

 

   

LEAD INDEPENDENT DIRECTOR

  

PRIMARY RESPONSIBILITIES

Designee:

 

Patrick Siewert

  

•   Preside over executive sessions of independent directors and Board meetings where Chairman/CEO is not present

 

•   Serve as liaison between Chairman/CEO and independent directors

 

Selected annually by independent directors

  

•   Approve Board meeting agendas and schedules

 

•   Call meetings of independent directors

 

•   Consult and meet with stockholders

 

In addition to these responsibilities, Mr. Siewert performed the activities described below during his tenure as Lead Independent Director in 2020.

 

   

Led majority of off-season stockholder engagement discussions

 

   

Regularly engaged with Chairman/CEO to help guide strategic direction, including COVID-19 response, review of business strategies, mitigation of related risks and assessment of potential acquisitions

 

   

Consulted frequently with other independent directors and interviewed each of them during Board/Committee evaluation process

 

   

Provided feedback to Chairman/CEO based on discussions with independent directors

 

   

Met with members of senior management other than Chairman/CEO

Supplementing our Lead Independent Director in providing independent Board leadership are our Committee Chairs, all of whom are independent.

 

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2021 Board Leadership Structure

Our Board currently has a Chairman/CEO and a Lead Independent Director. The Governance Committee oversaw the evaluation of their respective performance during the Board evaluation process conducted in the fourth quarter of 2020, noting that Messrs. Butier and Siewert each received uniformly positive feedback from our independent directors in their respective roles. Based in part on these evaluations, we believe that our current Board leadership structure is providing effective oversight of our company. During our 2020 engagement with stockholders, none of them expressed concerns with our Board leadership structure, which we believe reflects support for our robust and clearly delineated Lead Independent Director role as well as Mr. Siewert’s direct engagement in many of those meetings.

In February 2021, the Governance Committee evaluated our Board leadership structure and recommended to our Board that Mr. Butier be elected to continue serving as Chairman, noting that he has successfully led our company as CEO for the last five years and is best positioned to lead our Board in overseeing our strategies to deliver long-term value for our employees, customers, investors and communities. The committee further noted that Mr. Butier has articulated and worked to realize a long-term vision for our company that has delivered top quartile TSR performance, and that we can best continue our progress toward achieving our 2021 financial targets and 2025 sustainability goals – as well as our 2021-2025 financial targets and ambitious 2030 sustainability goals being announced contemporaneously with the issuance of this proxy statement – with combined leadership in the boardroom at this time. Upon the recommendation of the Governance Committee, our Board unanimously elected Mr. Butier (with him abstaining) to serve as our Chairman, effective immediately after the Annual Meeting subject to his reelection.

At the same time, the Governance Committee recommended that Mr. Siewert (with him abstaining) continue serving as Lead Independent Director. Having an experienced director with financial expertise and substantial international experience serve as Lead Independent Director is providing Mr. Butier valuable mentorship and guidance while ensuring robust independent oversight of management. The Governance Committee determined that, in light of his commitment, engagement and leadership in the first year in which he served in such capacity, Mr. Siewert should continue in the role of ensuring independent stewardship of our Board in its oversight of our strategies to deliver long-term value for all our stakeholders. The committee’s decision took into account his significant contribution to the Board’s responsibilities as a member of the Audit Committee for 16 years and its Chair for four years, the current Chair of the Governance Committee, and his extensive international experience in Asia, a region from which approximately 34% of our sales originated and approximately 60% of our employees were located in 2020. Upon the recommendation of the Governance Committee, our independent directors unanimously selected Mr. Siewert (with him abstaining) to serve as Lead Independent Director, effective immediately after the Annual Meeting subject to his reelection.

BOARD COMMITTEES

Each of our Board committees has a written charter that describes its purposes, membership and meeting structure, and responsibilities. These charters may be found on the investors section of our website under Corporate Governance and 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 of the Audit, Compensation and Governance Committees were most recently amended in February 2021, which included changes to the names of the Compensation and Governance Committees.

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, current membership and 2020 meeting and attendance information for the three standing committees of our Board are summarized on the following pages.

 

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AUDIT AND

FINANCE COMMITTEE

  

PRIMARY RESPONSIBILITIES

   

Current Members:

 

Martha Sullivan (Chair)

Anthony Anderson

Peter Barker*

Andres Lopez

Patrick Siewert

 

2020 meetings: 9

 

2020 average attendance: 100%

 

Audit committee financial experts: Anderson, Barker, Siewert

 

All members satisfy NYSE enhanced independence standards

 

* Retiring on date of Annual Meeting

  

•   Oversee financial statement and disclosure matters, including quarterly and annual earnings release documentation and SEC reports, internal controls, critical accounting policies and practices, and major financial risk exposures

 

•   Appoint and oversee independent registered public accounting firm, including review its qualifications and independence, as well as scope, staffing and fees for annual audit and other audit, review or attestation services; annually review firm’s performance and regularly consider whether to change firm

 

•   Oversee internal audit function, including appointing/dismissing senior internal auditor, evaluating his performance, reviewing significant issues raised in internal audits and management’s response, and discussing annual internal audit plan, budget and staffing

 

•   Perform compliance oversight responsibilities, including overseeing cybersecurity risk management and risks related to information technology controls and security; maintaining procedures for complaints regarding accounting, internal accounting controls or auditing matters; reviewing financially material legal matters; and making determinations regarding certain Code of Ethics Violations

 

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

 

•   Approve Audit and Finance Committee Report for proxy statement

 

 

   

TALENT AND
COMPENSATION COMMITTEE

  

PRIMARY RESPONSIBILITIES

   

Current Members:

 

Julia Stewart (Chair)

Bradley Alford

Mark Barrenechea

Ken Hicks

 

2020 meetings: 4

 

2020 average attendance: 100%

 

All members satisfy NYSE enhanced independence standards and qualify as “non-employee directors” under Exchange Act Rule 16b-3

  

•   Review and approve corporate goals and CEO objectives and evaluate company and individual performance to determine annual CEO compensation

 

•   Review and approve senior executive compensation, including base salaries and incentive compensation

 

•   Oversee CEO succession planning and review succession and development planning for other senior executives; regularly review executive new hires, promotions and role changes, departures and open positions

 

•   Oversee appropriate compensation strategy, incentive plans and benefit programs

 

•   Review and provide oversight of policies and strategies related to talent management, including diversity and inclusion; leadership compensation plans, benefit programs, recruiting and retention strategies, and development programs; and employee engagement

 

•   Review stockholder engagement process, results and feedback related to executive compensation and talent management

 

•   Approve CD&A and Talent and Compensation Committee Report for proxy statement

 

•   Oversee stockholder approval of executive compensation matters, including say-on-pay votes and frequency of such votes

 

•   Ensure no encouragement of excessive risk-taking in compensation policies/programs

 

•   Recommend non-employee director compensation

 

 

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GOVERNANCE

COMMITTEE

  

PRIMARY RESPONSIBILITIES

   

Current Members:

 

Patrick Siewert (Chair)

Bradley Alford

Anthony Anderson

Peter Barker*

Julia Stewart

 

2020 meetings: 2

 

2020 average attendance: 100%

 

All members satisfy NYSE independence standards

 

* Retiring on date of Annual Meeting

  

•   Identify potential or incumbent Board members and recommend director nominees

 

•   Annually consider Board leadership structure and recommend whether to separate or combine positions of Chairman and CEO; if combined, recommend Lead Independent Director

 

•   Recommend Board and Committee structure, Chairs and members

 

•   Recommend independent directors under NYSE independence standards

 

•   Review and approve related person transactions

 

•   Oversee annual performance evaluation of Board and Committees

 

•   Review Governance Guidelines and recommend changes

 

•   Review and provide oversight over governance, environmental sustainability and community investment initiatives, policies and programs

 

•   Review stockholder engagement process, results and feedback related to governance, environmental sustainability and community investment

 

•   Review stockholder proposals

 

•   Oversee values and ethics program and Code of Conduct, evaluate significant conflicts of interest and make determinations regarding certain Code of Ethics violations

 

EXECUTIVE SESSIONS

Our Board believes it is important to have executive session with our Chairman/CEO and without him or other members of management present, which are generally held at all regular Board meetings. Our independent directors have robust and candid discussions at the executive sessions that exclude Mr. Butier during which they critically evaluate the performance of our company, Chairman/CEO and management. Patrick Siewert presided over the three executive sessions of independent directors held since he became Lead Independent Director in April 2020, with David Pyott, our previous Lead Independent Director, presiding over the two such executive sessions held before that date.

Executive sessions are also scheduled for regular meetings of the Audit, Compensation and Governance Committees. These executive sessions exclude our Chairman/CEO and other members of management, unless the Committee requests one or more of them to attend a portion of the session to provide additional information or perspective.

RISK OVERSIGHT

Management is responsible for managing the day-to-day risks confronting our businesses, and our Board has responsibility for overseeing enterprise risk management (ERM). The teams leading our businesses have incorporated ERM into developing and executing their strategies, assessing the risks impacting their businesses, and identifying and implementing appropriate mitigating actions 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, including risks related to ESG matters such as greenhouse gas emissions and energy use; materials management; advancing the circular economy; diversity, inclusion and equal opportunity; waste; and employee health and safety.

We have robust global processes that support a strong internal control environment to promote the early identification and continued mitigation of risks by our company’s leadership. Our legal and compliance functions report into our Chief Legal Officer 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 ERM processes designed and implemented by management are functioning effectively, and that our culture promotes risk-adjusted decision-making.

 

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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 our businesses and company as a whole; these risks include financial risks, geopolitical risks, legal and regulatory risks, supply chain risks, competitive risks, compliance risks, ESG risks, information technology risks, and other risks related to the ways in which we do business. Employees who lead various risk areas – such as information technology; environmental, health and safety; tax; compliance; sustainability; and community investment – report periodically to Board Committees and occasionally to our full Board.

Our Board has delegated elements of its risk oversight responsibility to its Committees to better coordinate with management to serve the long-term interests of all our stakeholders. Our Board receives reports from the Committee Chairs regarding topics discussed at committee meetings, including the areas of risk they primarily oversee.

 

      

 

 Risk Oversight  

      
           
                                                           

Board of Directors

 

•  Business strategies

•  Annual operating plan and significant capital expenditures

•  Corporate governance

•  Acquisitions, divestitures and other significant transactions

•  Enterprise risk management

                                                           

LOGO

 

LOGO   Audit Committee

 

 

   LOGO  Compensation Committee

 

 

LOGO   Governance Committee

 

•  Financial reporting processes and statements, and internal controls

•  Capital structure

•  Financing, including debt, liquidity, capital allocation and pension plan funding

•  Stockholder distributions (dividends and stock repurchases)

•  Information technology and cybersecurity

•  Legal, compliance and regulatory matters

 

•  Compensation plans and benefit programs

•  Executive compensation and CEO/senior executive succession planning

•  Performance objectives for annual and long-term incentive plans

•  Non-employee director compensation

•  Social sustainability and talent management, including diversity and inclusion, leadership compensation and development, and employee engagement

 

•  Board and Committee structure and composition

•  Director succession planning

•  Values and Ethics/Code of Conduct

•  Conflicts of interest and related person transactions

•  Governance, environmental sustainability and community investment

•  Legal, compliance and regulatory matters

 

                                                    

 

Management

 

•  Day-to-day management of risks facing our businesses

 

                                                       

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, Chief Legal Officer, Vice President of Internal Audit, and representatives of our independent registered public accounting firm. The Governance Committee meets semiannually with our Chief Compliance Officer to discuss, among other things, the investigation of allegations reported to the GuideLine.

 

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During 2020, our Board was particularly focused on the risk areas shown below.

 

      

 

   2020 Risk Focus Areas    

      
           
   

Impact of COVID-19 on our employees, customers, investors and communities – Prioritized health and well-being of global team members, followed immediately by delivering for customers. Among other things, COVID-19 response encompassed risks related to business continuity, governmental regulations impacting manufacturing operations, cybersecurity and information technology security in work-from-home environment for office-based employees, temporary cost-saving actions, and finance matters such as cash management, collections, liquidity, and stockholder distributions

 

   

Diversity and inclusion – Redoubled efforts to drive sustainable change in light of demonstrated societal need for enhanced focus on combatting inequality and enhancing social justice

 

   

Intelligent Labels – Continued to advance primary long-term profitable growth driver, including risks related to acquisition and integration of Smartrac

 

   

Innovation – Significantly upgraded and reinvigorated innovation program, including assessing and addressing risks related to investment in disruptive technologies

 

   

Sustainability – Increased focus on sustainable packaging, including risks related to strategic platforms to recycle/enable circularity and reduce/eliminate waste

 

   

M&A – Worked to maintain robust pipeline of acquisition opportunities, including evaluating risks related to our acquisitions of Smartrac and ACPO, integration of Smartrac and venture investments

 

   

New functional operating structure – Rationalized corporate/business functional support in areas of finance, law, human resources, and information technology

 

   

ESG and human capital management risks – Heightened focus on non-financial areas of stakeholder interest, resulting in more fulsome disclosures contained in first ESG Download published in August 2020; 2020 and 2021 integrated sustainability and annual reports; and second ESG Download published in March 2021

 

 

Risks Associated with Compensation Policies and Practices

As described in the CD&A section of this proxy statement, we maintain best practices in compensation that collectively encourage ongoing risk mitigation. The Compensation Committee annually discusses with management and its independent compensation consultant, Willis Towers Watson, whether our executive compensation programs are meeting the committee’s objectives. In addition, the Compensation periodically requests Willis Towers Watson to undertake a more formal assessment of our compensation programs to ensure they do not provide incentives that encourage our employees to take excessive risks in managing their respective businesses or functional areas. The committee conducted its most recent formal evaluation in 2018.

Based on the advice of Willis Towers Watson, the Compensation Committee noted the risk-mitigating features of our compensation program described on the following page, which are substantially the same as what they were at the time of the committee’s most recent formal assessment.

 

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   Risk-Mitigating Compensation Features    

      
           

Governance and

Oversight

  

 Compensation Committee has discretion to decrease Annual Incentive Plan (AIP) awards and long-term incentive (LTI) grants, including for excessive risk-taking

 Clawback policy deters fraud or other misconduct that could cause restatement of financial statements

 Compensation Committee annually evaluates CEO/senior executive performance against challenging company and business goals

 Rigorous stock ownership policy consistent with best practices, with minimum ownership level of 6x and 3x base salary for CEO and other current NEOs, respectively

 Prohibit officers from hedging or pledging company stock and require them to engage in stock transactions only during limited trading windows

 

Pay Philosophy

and Structure

  

 Prioritize incenting stockholder value creation, balanced by retention and other considerations

 Substantial majority of leadership compensation delivered in long-term equity or cash-based rewards to motivate pursuit of superior performance and sustainable growth

 Executive severance plans consistent with market practices, with double-trigger change of control benefits

 Incentive compensation designed to incent strong annual financial performance and long-term economic and stockholder value creation, and balance growth and efficient capital deployment

 

Incentive

Program Design

  

 AIP and LTI awards incent annual profitable growth and long-term financial value creation, using multiple performance objectives

 AIP awards are not guaranteed, with below-threshold performance resulting in zero payout, payments subject to overall cap of 200%, and NEO individual modifiers generally capped at 100%

 Equity awards use multiple performance objectives and are subject to threshold and maximum payout opportunities

•   Performance units (PUs) cliff vest at end of three years with payout for relative total stockholder return (TSR) component capped at 100% of target if absolute TSR is negative

•   Market-leveraged stock units (MSUs) vest over one-, two-, three- and four-year performance periods (average performance period of 2.5 years), with threshold performance at absolute TSR of (15)% and target performance at absolute TSR of 10%

 

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

 

Based on the expert advice of Willis Towers Watson, 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.

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 and compliance matters, including our governance policies and procedures, ESG matters Values and Ethics program, and ERM; (vi) executive compensation and human captial management matters, including succession planning, leadership development, and diversity and inclusion; and (vii) information technology and cybersecurity.

Continuing Education

Our continuing director education program consists of periodic visits to our facilities and management presentations regarding our business operations, performance, strategies, and risk mitigation activities. We provide updates on these topics to our Board during 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 continuing director education programs for fees and related expenses.

 

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BOARD AND COMMITTEE EVALUATIONS

The Governance Committee oversees an annual performance evaluation of our Board, Chairman, Lead Independent Director and Board Committees, including the Committee Chairs. As part of this process, our directors evaluate the performance of their peers serving on the Board, providing candid feedback to ensure continuous boardroom improvement and assist with director succession planning. Our Board views the evaluation process as integral to assessing its effectiveness and identifying improvement opportunities in the pursuit of continued excellence. We have made many improvements to our governance practices and Board processes in recent years as a result of the annual evaluation process, as shown below.

BOARD AND COMMITTEE EVALUATIONS

 

      

 

    1    

       
            

Process

 

   

Written evaluations on Board/Committee

 

   

Composition, including diversity of skill, experience and demographic background

 

   

Meeting materials

 

   

Meeting mechanics and structure

 

   

Fulfillment of responsibilities

 

   

Meeting content and conduct

 

   

Overall performance

 

   

Effectiveness of Chairman, Lead Independent Director and Committee Chairs

 

   

One-on-one interviews with Governance Committee Chair to provide more information and discuss feedback

 

   

Verbal peer reviews to identify potential improvement opportunities for individual directors

 

      

 

    2    

       
            

Review of Results

 

   

Discussion of evaluation results and feedback

 

   

Chairman/CEO, Governance Committee Chair/Lead Independent Director, Chief Legal Officer and Corporate Secretary

 

   

All members of Governance Committee

 

   

Full Board meeting in executive session with Chairman/CEO

 

      

 

    3    

       
            

Recent Improvement Actions

 

   

Sharpened focus on Board leadership roles in director succession planning, selecting new Lead Independent Director, appointing new Chairs for Audit and Governance Committees, and updating Committee memberships in 2020

 

   

Identified need for independent directors with packaging and information technology expertise, appointing Messrs. Lopez and Barrenechea within last 4 years

 

   

Expanded review of potential CEO successors and their development plans and increased engagement with leaders below NEO level to enhance executive succession planning and leadership development

 

   

Heightened focus on financial scenario planning and cybersecurity preparedness

 

   

Enhanced discussion of M&A pipeline and potential targets, as well as performance of acquired companies and integration learnings

 

   

Conducted annual post-investment reviews of returns on significant capital expenditures, acquisitions and information technology investments

 

   

Increased engagement on investor relations, stockholder engagement and competitive landscape to further bring external perspectives into boardroom

 

   

Increased Chairman/CEO engagement with directors between meetings, with frequent email updates and one-on-one calls/videoconferences between him and each director; particularly important in 2020 as we executed COVID-19 response, redoubled efforts on diversity and inclusion, and advanced ESG focus and transparency

 

   

Refined Board schedule and meeting process throughout 2020 to maintain robust dialogue despite move to virtual meetings given COVID-19, including beginning each meeting in executive session with Chairman/CEO to discuss management’s key focus areas and frame meeting discussions

 

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STOCKHOLDER ENGAGEMENT AND COMMUNICATIONS

We value stockholder feedback on our governance, environmental sustainability and community investment, and we actively solicit input through stockholder engagement to ensure that we reflect not only our evolving business strategies but also the expectations of our investors. In addition to our extensive investor relations program through which members of management engage with our investors throughout the year, this supplemental engagement program takes place throughout the year, as depicted the graphic shown in the proxy summary.

Stockholder Engagement on Governance and Environmental Sustainability Matters in 2020

With respect to matters related to governance and environmental sustainability, inclusive of climate risk, we discussed Board oversight of our strategies, our response to COVID-19 and progress toward our 2025 sustainability goals, including with respect to plastics recyclability and greenhouse gas emissions; our Board’s expanded stakeholder and ESG focus, as reflected in our strategies and evidenced in our ESG Download published in August 2020; and Board composition and refreshment, particularly the outside board commitments of one of our directors and the racial/ethnic and gender diversity on our Board.

CONTACTING OUR BOARD

Our Board welcomes feedback from all our stockholders. We review correspondence submitted by stockholders, discussing any substantive 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 Chair, or any other individual director concerning business matters by writing to Board of Directors (or particular Board 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 8 and 12 directors, with the exact number fixed by resolution of our Board. Our Board has fixed the current number of directors at 10; in April 2021, our Board expects to fix the number of directors at 9 to reflect Peter Barker’s retirement on the date of the Annual Meeting as required by our age-based mandatory retirement policy. All nominees are standing for election for a one-year term expiring at the 2022 Annual Meeting.

Each of our nominees is presently serving on our Board and has consented to being named in this proxy statement and serving if elected by 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 reelected 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 the rationale for its decision, within 90 days from the date election results are certified. In contested elections, plurality voting is the standard for the 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 our 9 director nominees. The persons named as proxies will vote for their election, 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 demographic backgrounds, as shown in the Board matrix shown in the proxy summary, that allows them to effectively discharge their oversight responsibilities.

 

In evaluating whether to recommend a new or incumbent director nominee, the Governance Committee primarily uses the criteria in our Governance Guidelines, which are described below.

 

   

Independence, to ensure substantial majority of Board remains independent

 

 

   

Business and leadership experience, including industry experience and global exposure and considering factors such as size, scope, and complexity

 

 

   

Board experience at other U.S. publicly-traded companies

 

 

   

Experience in finance, accounting and/or executive compensation

 

 

   

For incumbent directors, attendance and compliance with stock ownership policy

 

 

   

Time commitments, including service on other boards

 

 

   

Potential conflicts of interest

 

 

   

Demographic characteristics (including, without limitation, gender, race and ethnicity); when evaluating new nominees, committee will seek to consider (and ask any search firm engaged to provide) candidates that include highly qualified women and individuals from underrepresented communities

 

 

   

Ability to contribute to oversight and governance

 

 

   

Ability to represent balanced interests of all stockholders, rather than those of any special interest group

 

 

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For incumbent directors, the Governance Committee also considers their contributions to our Board and Committees and mandatory retirement dates 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 investors.

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 Committee Chair, c/o Corporate Secretary, Avery Dennison Corporation, 207 Goode Avenue, Glendale, California 91203. To be considered at the 2022 Annual Meeting, advance notice stockholder nominations must comply with the requirements described in the Voting and Meeting Q&A section of this proxy statement. The Governance Committee considers stockholder nominees on the same basis as it considers all other nominees.

Proxy Access Nominees

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 is permitted 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 information on submitting proxy access nominees for the 2022 Annual Meeting, please refer to the Voting and Meeting Q&A section of this proxy statement.

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 skills, qualifications and demographic backgrounds that aligns with our business strategies and enables effective 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 help facilitate fresh ideas and viewpoints being brought to the boardroom, our Board believes they could also result in the premature loss of a director who over a period of time has gained expertise in assessing our strategies, operations and risks and is continuing to provide valuable contributions to Board deliberations. We believe that our Board’s decision not to establish term limits at this time is consistent with the prevailing practice among companies in the S&P 500.

Our Board recognizes that certain governance stakeholders have suggested that longer-serving directors may have decreased independence and objectivity. However, our Board believes that, except as required by our mandatory retirement policy, removing knowledgeable directors and losing the oversight consistency they bring, particularly during periods of executive management change, such as our 2020 Chief Human Resources Officer and Chief Legal Officer transitions, or Board change, such as the 2019 departure of our former chairman and 2020 departure of our former Lead Independent Director, weighs against implementing term limits at this time. Ultimately, our Board believes that it is its responsibility to establish appropriate board refreshment policies in light of our strategies, leadership team and financial position at any particular time, exercising its discretion in the best interest of our company and stockholders. To assist in discharging this responsibility, in November 2020, the Governance Committee reviewed the skills, qualifications and demographic backgrounds of our Board members and conducted director succession planning to ensure that our Board continues to meet the needs of our businesses, align with our strategies and advance the interests of all our stakeholders.

 

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Policies and Events Supporting Regular Board Refreshment

Our Board has adopted the policies described below to facilitate regular refreshment of our Board and ensure that it continues to independently oversee, challenge and partner with our management team.

 

Policy   Description    Events Occurring at or Since 2020 Annual Meeting

Mandatory Resignation

Policy

  Incumbent directors not elected by stockholders must tender their resignation    All incumbent directors standing for election were elected at 2020 Annual Meeting

Mandatory Retirement

Policy

  Directors must retire on date of annual meeting of stockholders that follows their reaching age 72; since inception, this policy has never been waived    No directors retired under this policy since 2020 Annual Meeting; director Peter Barker will retire under this policy on date of Annual Meeting
Resignation Tendered
Upon Change in Principal Employment
  Directors who change their principal occupation, position or responsibility must volunteer to resign    No directors changed their principal employment since 2020 Annual Meeting
Prior Notice Requirement
to Prevent Over-Boarding
  Directors must give prior notice before accepting another U.S. public company directorship so that his/her ability to fulfill Board responsibilities may be evaluated if he/she serves on more than four other such boards    Mses. Stewart and Sullivan joined boards of Bite Acquisition Corp. and Goldman Sachs Acquisition Holding Company Corp II in January 2021 and July 2020, respectively. Although neither serves on more than four other U.S. public company boards, the Governance Committee affirmatively determined that they should remain directors. In addition, Academy Sports + Outdoors, for which Mr. Hicks serves as Chairman, President and CEO, began trading publicly in October 2020.

Upon the recommendation of the Governance Committee, Messrs. Barrenechea and Lopez were appointed to our Board as independent directors in September 2018 and February 2017, respectively. In connection with his becoming our CEO, Mr. Butier joined our Board in May 2016. Our former Chairman Dean Scarborough, and Messrs. Pyott and Barker departed or are scheduled to depart from our Board in April 2019, 2020 and 2021, respectively. We believe that this recent experience with both joining and departing directors demonstrates our Board’s commitment to thoughtful and regular refreshment.

DIRECTOR DIVERSITY

Our Board supports and reflects our values, recognizing the benefits of diversity in the boardroom, including the healthy debate that results from different viewpoints that may stem from diverse backgrounds.

Age and Tenure

The average age of our director nominees is 62, which we believe is comparable to the average director 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 912 years, which we believe is comparable to the average tenure for companies in the S&P 500 and within the 6-10-year band in which the majority of these companies fall. Our director nominees reflect a balance between newer directors who bring fresh ideas and insights and longer-serving directors with deep institutional knowledge of our Board and company.

 

          Age and Tenure           
           

 

 

LOGO                                      LOGO

 

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Demographic Background

Our Governance Guidelines reflect that the Governance Committee’s assessment of the qualifications of director candidates includes consideration of their demographic backgrounds, including, without limitation, race, gender and ethnicity. Although we have no 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 demographic background. 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. When evaluating new nominees, the committee will continue seeking to increase the overall diversity on our Board.

 

          Board Diversity           
           

2 of 4 most recently appointed independent directors increased Board diversity

 

 

                   LOGO

2021 DIRECTOR NOMINEES

The following pages provide information on the directors nominated for election, including his or her age, current Board roles, and business experience during at least the past five years. We also indicate the name of any other U.S. public company board on which each nominee currently serves, or has served during the past five years.

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, U.S. public company board experience, and financial expertise as defined in the Board matrix shown in the proxy summary – 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, fulfill the time commitments necessary to serve on our Board, and advance the long-term interests of all our stakeholders.

 

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         ANDRES A. LOPEZ          
            

 

    

LOGO

 

Age 58

 

Director since February 2017

 

Independent

 

 

 

RECENT BUSINESS EXPERIENCE

O-I Glass, Inc., a glass container manufacturer and supplier to food and beverage brands

•  President & CEO since January 2016

•  COO & 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

 

BOARD ROLES

Audit Committee Member

 

OTHER PUBLIC COMPANY BOARDS

Current:

    O-I Glass, Inc.

Past Five Years:

    None

 

 

SELECT SKILLS AND QUALIFICATIONS

Senior leadership experience

•  Oversees company with $6.1 billion revenues and more than 25,000 employees in 2020

 

Industry experience and global exposure

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

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

 

U.S. public company board experience

•  Concurrent service on one other board

 

         ANTHONY K. ANDERSON          
            

 

    

LOGO

 

Age 65

 

Director since December 2012

 

Independent

 

 

 

RECENT BUSINESS EXPERIENCE

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

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

 

BOARD ROLES

Audit Committee Member

Governance Committee Member

 

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

 

Financial expertise

•  40+ 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)

 

U.S. public company board experience

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

 

         BRADLEY A. ALFORD          
            

 

    

LOGO

 

Age 64

 

Director since April 2010

 

Independent

 

 

 

RECENT BUSINESS EXPERIENCE

Nestlé USA, a nutrition, health and wellness company

•  Chairman & CEO from January 2006 to October 2012

 

Nestlé Brands Company, an operating unit of Nestlé USA

•  President & CEO from 2003 to December 2005

 

BOARD ROLES

Compensation Committee Member

Governance Committee Member

 

OTHER PUBLIC COMPANY BOARDS

Current:

    Perrigo Company PLC

Past Five Years:

    Conagra Brands, Inc.

 

 

 

SELECT SKILLS AND QUALIFICATIONS

Senior leadership experience

•  Led company then with over $12 billion in annual revenues and more than 26,000 employees

 

Industry experience and global exposure

•  40+ years in consumer goods industry

•  Knowledge of food and beverage segments into which we sell our label and graphic materials

•  Substantial M&A and integration experience

 

U.S. public company board experience

•  Concurrent service on one other board and prior service on other boards

 

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         JULIA A. STEWART          
            

 

    

LOGO

 

Age 65

 

Director since January 2003

 

Independent

 

 

 

RECENT BUSINESS EXPERIENCE

Alurx, Inc., a health and wellness company

•  Founder, Chair & CEO since January 2020

 

Dine Brands Global, Inc. (formerly DineEquity, Inc.), owner, operator and franchisor of IHOP and Applebee’s restaurants

•  Chairman & CEO from June 2008 to March 2017

 

BOARD ROLES

Compensation Committee Chair

Governance Committee Member

 

OTHER PUBLIC COMPANY BOARDS

Current:

    Bite Acquisition Corp.

Past Five Years:

    Dine Brands Global, Inc.

 

 

SELECT SKILLS AND QUALIFICATIONS

Senior leadership experience

•  Led company then with over $600 million in annual revenues and nearly 1,000 employees

 

Global exposure

•  Substantial operational and marketing experience in retail/dining industry

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

 

U.S. public company board experience

•  Concurrent service on one other board and prior service on other boards

 

         KEN C. HICKS          
            

 

    

LOGO

 

Age 68

 

Director since July 2007

 

Independent

 

 

 

RECENT BUSINESS EXPERIENCE

Academy Sports + Outdoors, a sports and recreation retailer

•  Chairman, President & CEO since May 2018

 

Foot Locker, Inc., a specialty athletic retailer

•  Executive Chairman from December 2014 to May 2015

•  Chairman, President & CEO from February 2010 to November 2014

•  President and CEO from August 2009 to February 2010

 

BOARD ROLES

Compensation Committee Member

 

OTHER PUBLIC COMPANY BOARDS

Current:

    Academy Sports + Outdoors

Past Five Years:

    Whole Foods Corporation

 

 

SELECT SKILLS AND QUALIFICATIONS

Senior leadership experience

•  Leads company with nearly 300 U.S. locations, over $5 billion in annual revenues and more than 23,000 employees

 

Industry experience

•  30+ years of senior marketing and operational experience in retail industry into which we sell our retail branding and information solutions

 

U.S. public company board experience

•  Concurrent service on one other board and prior service on other boards

 

         MARK J. BARRENECHEA          
            

 

    

LOGO

 

Age 56

 

Director since September 2018

 

Independent

 

 

 

RECENT BUSINESS EXPERIENCE

OpenText Corporation, a global software company

•  Vice Chair, CEO & CTO since January 2012

 

BOARD ROLES

Compensation Committee Member

 

OTHER PUBLIC COMPANY BOARDS

Current:

    OpenText Corporation

    Dicks Sporting Goods

Past Five Years:

    None

 

 

 

SELECT SKILLS AND QUALIFICATIONS

Senior leadership experience

•  Leads company with over $3 billion in revenues and over 14,000 employees in 2020

 

Industry experience and global exposure

•  30+ years of experience in technology industry, including experience globally in software, cloud solutions, cybersecurity, and information technology transformation

 

U.S. public company board experience

•  Concurrent service on two other boards

 

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         MARTHA N. SULLIVAN          
            

 

    

 

LOGO

Age 64

 

Director since February 2013

 

Independent

 

 

 


RECENT BUSINESS EXPERIENCE

Sensata Technologies Holding PLC, a supplier of sensors and controls

•  President & CEO from January 2013 to March 2020

•  President & COO from September 2010 to December 2012

•  COO from April 2006 to August 2010

 

Texas Instruments, Inc., Sensata’s predecessor entity

•  Vice President of Sensor Products from 1997 to 2006

 

BOARD ROLES

Audit Committee Chair

 

OTHER PUBLIC COMPANY BOARDS

Current:

    Sensata Technologies Holding PLC

    Goldman Sachs Acquisition Holding Company

    Corp II

Past Five Years:

    None

 

 


SELECT SKILLS AND QUALIFICATIONS

Senior leadership experience

•  Led company then with approximately $3.5 billion in revenues and more than 21,000 employees

 

Industry experience and global exposure

•  Oversaw all business segments, global operations and strategic planning

•  Strong technology background, including experience overseeing an RFID business

 

U.S. public company board experience

•  Concurrent service on two other boards

 

         MITCHELL R. BUTIER          
            

 

    

LOGO

 

Age 49

 

Director since April 2016

 

Not Independent

 

 

 

RECENT BUSINESS EXPERIENCE

Avery Dennison Corporation

•  Chairman, President & CEO since April 2019

•  President & CEO from May 2016 to April 2019

•  President & COO from November 2014 to April 2016

•  Senior Vice President & CFO from June 2010 to October 2014; continued serving as CFO until March 2015

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

 

BOARD ROLES

Chairman

 

OTHER PUBLIC COMPANY BOARDS

Current:

    None

Past Five Years:

    None

 

 

SELECT SKILLS AND QUALIFICATIONS

Senior leadership experience

•  Held roles of increasing responsibility at our company, including CAO, CFO, COO and CEO

 

Industry experience and global exposure

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

 

Financial expertise

•  Served as CAO for 3 years and CFO for 5 years

 

         PATRICK T. SIEWERT           
            

 

    

LOGO

 

Age 65

 

Director since April 2005

 

Independent

 

 

 

RECENT BUSINESS EXPERIENCE

The Carlyle Group, a global alternative investment firm

•  Managing Director and Partner since April 2007

 

The Coca-Cola Company, a beverage company

•  Executive Committee member and Group President, Asia, from August 2001 to March 2007

 

BOARD ROLES

Lead Independent Director

Governance Committee Chair

Audit Committee Member

 

OTHER PUBLIC COMPANY BOARDS

Current:

    Mondelēz International, Inc.

Past Five Years:

    None

 

 

 

SELECT SKILLS AND QUALIFICATIONS

Industry experience and global exposure

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

•  Work experience, citizenship and residency in Asia, region in which we generate substantial amount of sales and majority of our employees is located

 

Financial expertise

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

 

U.S. public company board experience

•  Concurrent service on one other board

 

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DIRECTOR COMPENSATION

 

In recommending non-employee director compensation to our Board based on the independent expert advice of Willis Towers Watson, 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. Compensation is reviewed periodically (generally every three years) to ensure market competitiveness and consistency. The majority of compensation is delivered in equity to align director interests with those of our stockholders.

Median Target Compensation

The components of our non-employee director compensation program are summarized in the charts below and described thereafter.

 

2020 NON-EMPLOYEE DIRECTOR COMPENSATION PROGRAM

    LOGO

Target Grant Date Fair Value of Restricted Stock Units (RSUs)

  

$

155,000

 

Cash Retainer

  

$

100,000

 

Match of Charitable/Educational Contributions

  

$

10,000

 

Additional Cash Retainer for Lead Independent Director

  

$

30,000

 

Additional Cash Retainer for Audit Committee Chair

  

$

20,000

 

Additional Cash Retainer for Compensation Committee Chair

  

$

15,000

 

Additional Cash Retainer for Governance Committee Chair

  

$

15,000

 

 

TARGETED AT MEDIAN

 

 

Our 2017 Incentive Award Plan, under which RSUs are granted to our non-employee directors, limits the sum of the grant date fair value of equity awards and the amount of any cash compensation, in each case granted to any non-employee director during any calendar year, to $600,000. In 2020, all but one of our non-employee directors received less than half of the maximum compensation amount.

Compensation Setting

In early 2021, at the Compensation Committee’s request, Willis Towers Watson analyzed trends in non-employee director compensation and assessed the competitiveness of the components of our program, including total cash compensation (Board and Committee Chair retainers), annual equity grant, charitable match, total direct compensation (annual cash plus equity) mix and amount, our stock ownership policy, and the additional retainer for our Lead Independent Director.

Using benchmarking data from public filings of companies ranked in the Fortune 350-500, Willis Towers Watson recommended that the additional cash retainers for our Audit, Compensation and Governance Committee Chairs each be increased by $5,000 and the target grant date fair value of our annual equity grant to non-employee directors increase by $15,000, in each case to reflect the current market median. This change would bring total direct compensation to $270,000 (or $280,000 with the charitable match), the projected median non-employee director compensation of our Fortune 350-500 peers in 2024, the next time the Compensation Committee expects to review the program. Based on Willis Towers Watson’s recommendation, the Compensation Committee recommended to our Board in February 2021 that the additional cash retainers for our Audit, Compensation and Governance Committee Chairs be increased to $25,000, $20,000 and $20,000, respectively, and the target grant date fair value of RSUs granted annually to our non-employee directors be increased to $170,000.

After consideration of the advice from the independent compensation consultant, the recommendation of the Compensation Committee, and further discussion, our Board approved the revised non-employee director compensation program, effective as of the date of the Annual Meeting.

 

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Stock Ownership Policy

Our stock ownership policy requires non-employee directors to own $500,000 of our company stock, 50% of which must be held in vested shares. Stock option gains are not considered when measuring policy compliance; only shares owned directly or in a trust, deferred stock units (DSUs) and unvested RSUs count for these purposes. Our non-employee directors are prohibited from hedging or pledging our common stock.

 

All of our non-employee directors have achieved the minimum ownership required by our stock ownership policy; average non-employee director ownership was ~10x the required level at year-end 2020. Based on our review of their written representations in our 2020 director questionnaire, none of our non-employee directors has hedged or pledged our common stock.

Equity Compensation

The 2020 equity grant to non-employee directors was made in the form of RSUs that vest on the one-year anniversary of the grant date, consistent with the one-year term to which directors are elected. Unvested RSUs (i) 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 and (ii) are cancelled in the event a director voluntarily resigns, is not reelected by stockholders or is otherwise asked to leave our Board, unless the Compensation Committee determines otherwise. On May 1, 2020, each of our then-serving non-employee directors was granted 1,450 RSUs with a grant date fair value of $151,600.

In connection with his departure from our Board on the date of the 2020 Annual Meeting and as permitted by our 2017 Incentive Award Plan, the Compensation Committee determined to accelerate the vesting of the RSUs granted in May 2019 to David Pyott, our former Lead Independent Director. These RSUs were scheduled to vest a few days after his departure from our Board. In making its determination, the Compensation Committee noted that Mr. Pyott had served nearly the entire one-year term for which he had been elected by stockholders.

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 director education events.

Our 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 Program (DVDCP), which accrues earnings at the rate of return of certain bond and equity investment funds managed by a third party; (ii) DSUs credited to an individual account pursuant to our Directors Deferred Equity Compensation Program (DDECP); or (iii) a combination of cash and DSUs. None of our current non-employee directors participate in the DVDCP and eight of them currently 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.

Charitable Match

We match up to $10,000 per year of each 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      $ 151,600             $ 9,750      $ 261,350

Anthony A. Anderson

     $ 100,000      $ 151,600                    $ 251,600

Peter K. Barker

     $ 100,000      $ 151,600             $ 10,000      $ 276,600

Mark J. Barrenechea

     $ 100,000      $ 151,600             $ 10,000      $ 261,600

Ken C. Hicks

     $ 100,000      $ 151,600             $ 10,000      $ 261,600

Andres A. Lopez

     $ 100,000      $ 151,600                    $ 251,600

David E.I. Pyott(3)(5)

                                  

Patrick T. Siewert

     $ 145,000      $ 151,600             $ 10,000      $ 306,600

Julia A. Stewart

     $ 115,000      $ 151,600             $ 10,000      $ 276,600

Martha N. Sullivan

     $ 120,000      $ 151,600             $ 10,000      $ 281,600

 

(1) 

Mr. Butier does not appear in the table because he serves as President/CEO of our company and does not receive any additional compensation to serve as director or Chairman. 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 number of DSUs in their accounts as of January 2, 2021, the last day of our 2020 fiscal year: Alford – 19,835; Anderson – 11,266; Barker – 31,855; Barrenechea – 1,849; Hicks – 14,618; Lopez – 1,115; Pyott – 0; Stewart – 40,720; and Sullivan – 11,316. Mr. Pyott’s DDECP account was paid out to him in shares of our common stock after he left our Board in April 2020 in accordance with the program’s terms.

 

Director Board Leadership Roles Board Retainer Committee Chair Retainer Lead Director Retainer

Alford

 

$ 100,000    

Anderson

 

$ 100,000    

Barker

 

$ 100,000    

Barrenechea

 

$ 100,000    

Hicks

 

$ 100,000    

Lopez

 

$ 100,000    

Pyott

 

     

Siewert

Lead Independent Director,

Governance Committee Chair

$ 100,000 $ 15,000 $ 30,000

Stewart

Compensation Committee Chair $ 100,000 $ 15,000  

Sullivan

Audit Committee Chair $ 100,000 $ 20,000  

 

(2) 

Amounts reflect the grant date fair value of 1,450 RSUs granted on May 1, 2020 in accordance with Accounting Standards Codification Topic 718, Compensation, Tock Compensation) (ASC 718). Fair value was determined based on the fair market value of our common stock on the grant date, adjusted for foregone dividends, of $104.55. Each non-employee director serving as of January 2, 2021 held 1,450 unvested RSUs.

 

(3) 

None of our current non-employee directors has a retirement benefit. Mr. Pyott had a negative change in present value of his accumulated retirement benefits for 2020, based on an interest rate of 1.03% as of January 2, 2021 and equal to $(17,091) because he began receiving his benefits in 2020. These benefits were under a director retirement plan the accrual of benefits under which was frozen in 2002.

 

(4) 

Amounts reflect our match of director contributions made to charitable organizations or educational institutions.

 

(5) 

Mr. Pyott retired from the Board on the date of our 2020 Annual Meeting. Although he served as a non-employee director for four months of the year, he received no cash fees during this time since fees for the second half of a non-employee director’s term are paid in December of the previous year. In addition, he received no stock awards during the year, which are granted only to elected directors after the date of the Annual Meeting. However, in connection with his departure from our Board on the date of the 2020 Annual Meeting and as permitted by our 2017 Incentive Award Plan, the Compensation Committee determined to accelerate Mr. Pyott’s RSUs granted in May 2019 that were scheduled to vest a few days after his departure from our Board. In accelerating the vesting, the Compensation Committee noted that he had served nearly the entire one-year term for which he had been elected by stockholders.

 

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ITEM 2 — ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION

 

After considering the 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 (which we expect to take place 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 2021 proxy statement.

Recommendation of Board of Directors

We are committed to maintaining ongoing engagement with our stockholders to seek their feedback and discuss why we believe our executive compensation program properly aligns with our strategies by incenting 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 the Risks Associated with Compensation Policies and Practices section of this proxy statement.

The results of the advisory vote are not binding on our Board. However, in accordance with SEC regulations, the Compensation Committee will disclose its consideration of the results of the vote in the CD&A of our 2022 proxy statement.

 

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TALENT AND COMPENSATION COMMITTEE REPORT

 

The Talent and Compensation 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 2021 proxy statement and incorporated by reference into our 2020 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 Talent and Compensation Committee Chair, c/o Corporate Secretary, Avery Dennison Corporation, 207 Goode Avenue, Glendale, California 91203.

Julia A. Stewart, Chair

Bradley A. Alford

Mark J. Barrenechea

Ken C. Hicks

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

This Compensation Discussion and Analysis* (CD&A) describes our executive compensation program and the decisions made by the Talent and Compensation Committee of our Board of Directors (referred to in this CD&A as the “Committee”) related to 2020 executive compensation. This CD&A contains the sections shown below.

 

   

Executive Summary

    50  

Business Strategy Overview

    50  

Achieving Financial Targets

    52  

2020 Financial Performance

    52  

Effective Capital Allocation

    53  

TSR Outperformance

    54  

2020 Say-on-Pay Vote and Stockholder Feedback During 2020 Engagement

    54  

2020 Named Executive Officers (NEOs)

    55  

Overview of Pay Philosophy and Executive Compensation Components

    55  

Changes in NEO Compensation

    57  

Strong Compensation Governance Practices

    60  
   

Summary of Compensation Decisions for 2020

    61  

Discussion of Compensation Components and Decisions Impacting 2020 Executive Compensation

    63  

Base Salary

    63  

2020 AIP Awards

    63  

2020 Grants of LTI Awards

    68  

2020 Vesting of Previously Granted LTI Awards

    71  

Perquisites

    73  

General Benefits

    73  

Severance Benefits

    74  
   

Compensation-Setting Tools

    75  
   

Independent Oversight and Expertise

    76  
   

Other Considerations

    78  

EXECUTIVE SUMMARY

Business Strategy Overview

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

In March 2017, we announced long-term goals for our three reportable segments – Label and Graphic Materials (LGM), Retail Branding and Information Solutions (RBIS) and Industrial and Healthcare Materials (IHM) – and our company as a whole, targeting solid compound annual organic sales growth, significant operating margin expansion, double-digit compound annual adjusted earnings per share (EPS) growth, and the ROTC we planned to achieve by 2021.

 

*

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 2020 Annual Report on Form 10-K, filed on February 24, 2021 with the SEC (our “2020 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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We are committed to ensuring the continued success of all our stakeholders – our employees, customers, investors and communities. In a challenging 2020 due to the extraordinary impact of COVID-19, we focused on ensuring the health and well-being of our employees, delivering for our customers, minimizing the impact of the pandemic-driven recession for our investors, and supporting our communities, while continuing to invest in the long-term success of our company. For additional information on our COVID-19 response, please see the proxy summary. We have refined how we present our key strategies shown below, but our primary areas of strategic focus are consistent with recent years.

 

           1            
            

Drive outsized growth in high-value categories

 

   

We strive to increase the proportion of our portfolio in high-value products and solutions, both organically and through acquisitions

 

   

In 2020, organic sales change in high-value product categories outpaced that of our base businesses by more than one point, driven by growth in specialty labels, external embellishments and RFID; also advanced our RFID platform through our acquisition of the Transponder (RFID inlay) division of Smartrac, a manufacturer of RFID products (which we refer to as “Smartrac”)

 

           2            
            

Grow profitability in our base businesses

 

   

We strive to improve profitability in our base businesses by carefully balancing volume, price and mix, reducing complexity and tailoring our go-to-market strategies

 

   

In 2020, we protected, and even grew, operating margins in our base businesses

 

           3            
            

Focus relentlessly on productivity

 

   

We employ product reengineering and enterprise lean sigma to expand our operating margins, enhance our competitiveness (particularly in our base businesses) and provide a funding source for reinvestment

 

   

In 2020, we significantly expanded operating margins, showing agility in response to COVID-19 by delivering approximately $200 million of cost reduction through both structural and temporary actions

 

           4            
            

Effectively allocate capital

 

   

We work to balance our investments in organic growth, productivity, and acquisitions and venture investments, while continuing to return cash to stockholders through dividends and share repurchases

 

   

In 2020, leveraging our strong balance sheet, we invested nearly $220 million in capital expenditures to support organic growth; completed two acquisitions; and increased our quarterly dividend rate by 7% in October after having maintained it earlier in the year and resumed the repurchase of shares in Q3 after having suspended it in March, in each case due to then-uncertain impact of COVID-19 on our businesses

 

           5            
            

Lead in an environmentally and socially responsible manner

 

   

We work to deliver innovations that advance the circular economy and reduce the environmental impact of our operations; build a more diverse workforce and inclusive culture; maintain a culture of health and safety; and support our communities primarily through the Avery Dennison Foundation

 

   

In 2020, we continued to make progress toward our 2025 sustainability goals, reducing the environmental impact of our operations and investing in innovation platforms focused on recyclability/enabling circularity and waste reduction/elimination; redoubling our efforts to drive sustainable change in diversity and inclusion, including by sharpening our focus on racial/ethnic workforce diversity, particularly in the U.S.; and contributing $10 million to the Avery Dennison Foundation to significantly increase the scope and pace of its grantmaking in the communities in which we operate

 

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Achieving Financial Targets

The five-year financial goals through 2021 that we announced in March 2017 included targets for compound annual organic sales growth, 2021 GAAP operating margin, compound annual adjusted EPS growth and 2021 ROTC. The combination of our growth and ROTC targets is a proxy for growth in EVA, one of the performance objectives used in our LTI program. As shown below, based on our results of the first four years of this five-year period, we are largely on track to achieve these commitments. Our 2017-2020 compound annual organic sales growth of 2.0% was lower than our top-line target, but higher than forecasted global GDP growth (a key tenet of our top-line objective) of 1.5% over the same period.

Sales change ex. currency, organic sales change, adjusted EPS and ROTC – as well as free cash flow, which is used later in this CD&A – are financial measures not in accordance with generally accepted accounting principles in the United States of America (GAAP), which we provide investors to assist them in assessing our performance and operating trends. These non-GAAP financial measures are not a substitute for or superior to progress toward the comparable financial measures under GAAP and are defined, qualified and reconciled from GAAP in the last section of this proxy statement.

For the 2017-2020 period, on a four-year compound annual basis (with 2016 as the base period), GAAP reported net sales and reported EPS increased by 3.5% and 16.9%, respectively, and reported net income increased by 14.7%.

 

  

 

   2017-2021 Targets    2017-2020 Results(1)

Sales Growth(2)

  

5%+ ex. currency(3)

4%+ organic

  

3.8% ex. currency

2.0% organic

GAAP Operating Margin

   11%+ in 2021    11.6% in 2020

Adjusted EPS Growth(2)

   10%+    15.3%

ROTC

   17%+ in 2021    18.1% in 2020

 

LARGELY ON TRACK TO ACHIEVE FINANCIAL TARGETS

  (1) 

Results for non-GAAP measures are reconciled from GAAP in the last section of this proxy statement.

 
  (2) 

Percentages for targets reflect five-year compound annual growth rates, with 2016 as the base period. Percentages for results reflect four-year compound annual growth rates, with 2016 as the base period.

 
  (3) 

Target for sales growth ex. currency reflects the impact of completed acquisitions as of March 2017 of approximately one point.

 

2020 Financial Performance

In fiscal year 2020, we delivered another year of strong EPS growth, significant operating margin expansion and record free cash flow, despite the challenging macroeconomic environment during which the safety and well-being of our employees remained our top priority given the continuing public health crisis from COVID-19. These results reflect the extraordinary efforts undertaken by our leaders, including our CEO and other NEOs, and teams globally respond to COVID-19 and mitigate its impact on our company. We achieved our adjusted EPS and free cash flow financial goals for the year, with key financial results shown below and on the following page. For detailed information regarding our 2020 performance, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and notes thereto contained in our 2020 Annual Report.

 

          

 

NET SALES

 

$6.97B

 

Reported sales declined by 1.4% due to impact of COVID-19; sales ex. currency declined by 1.7% and sales on organic basis, sales declined by 3.4% with a slight decline in LGM and more significant declines in RBIS and IHM, markets of which were more adversely impacted by COVID-19

 

            

 

REPORTED EPS

 

$6.61

 

Reported EPS substantially increased reflecting prior-year settlement charges from U.S. pension plan termination and significant operating margin expansion in 2020; adjusted EPS increased by 8% driven by operating margin expansion to $7.10, which was at high end of January 2020 guidance range

 

          

 

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CASH FROM OPERATING ACTIVITIES

 

$751.3M

 

Free cash flow of $547.5 million was used in part to invest $218.6 million in capital expenditures, deploy $350.4 million of acquisitions and venture investments, pay dividends of $196.8 million, and repurchase $104.3 million in shares of our common stock

 

   

 

NET INCOME

 

$555.9M

 

Achieved return on total capital (ROTC) of 18.1%.

 

 

Effective Capital Allocation

We have been consistently effective in executing our approach to capital allocation, balancing our investments in organic growth, productivity, and acquisitions and venture investments with continuing to return cash to stockholders through dividends and share repurchases. In 2020, on net income of $555.9 million, we invested $218.6 million in capital expenditures to support our future growth and further productivity improvement and allocated $350.4 million to acquisitions and venture investments; we also paid $196.8 million in dividends and repurchased $104.3 million in shares of our common stock.

We have invested in our businesses to support organic growth and pursued complementary and synergistic acquisitions. Our spending on capital expenditures in 2020 was 15% lower than 2019 but consistent with our externally communicated outlook for the year, during which we accelerated our pace of investment in high-value categories, particularly RFID. We also allocated over $350 million to acquisitions. In February 2020, we completed our acquisition of Smartrac for approximately $255 million. Together with our then-existing Intelligent Labels business, this acquisition created a platform with over $500 million in annual revenues, with increased potential for long-term growth and profitability, enhanced research and development capabilities, expanded product lines and additional manufacturing capacity. In December 2020, we completed our acquisition of ACPO, Ltd., an Ohio-based manufacturer of self-wound (linerless) pressure-sensitive overlaminate products, for approximately $88 million. During 2020, we also invested in three startup companies developing innovative technological solutions that we believe have the potential to advance our businesses.

In 2020, we deployed $301.1 million to pay an annual dividend of $2.36 per share and repurchase 0.8 million shares of our common stock. We raised our quarterly dividend rate by approximately 7% in October 2020, after having maintained it earlier in the year due to the impact of COVID-19. Given the uncertain impact of COVID-19 at that time, in March 2020, we suspended our repurchase of shares and did not resume repurchases until the third quarter; as a result, in 2020, we allocated less than half the capital we deployed to share repurchases in 2019.

As shown below, over the last five years, we have allocated over $900 million to acquisitions and venture investments and nearly $2 billion to dividends and share repurchases.

 

 

LOGO   LOGO   LOGO

 

 

* Amounts for acquisitions include investments in unconsolidated businesses.

   

 

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TSR Outperformance

We experienced strong TSR in 2020 despite the uncertain macroeconomic environment during most of the year as a result of COVID-19, delivering TSR of over 20% and outperforming the S&P 500. However, we believe that our longer-term TSR is a more meaningful measure of our performance than our one-year TSR, which can be significantly impacted by short-term market volatility that may be unrelated to our performance (as occurred at various times during 2020). We focus on TSR because it measures value we create for our stockholders, including stock price appreciation and dividends paid (assuming reinvestment of dividends). We compare ourselves to the median of the S&P 500 Industrials and Materials subsets because we are a member of the Materials subset, and also share many characteristics with members of the Industrials subset; this practice is further informed by feedback from our investors, who have indicated that they look at both subsets in evaluating our performance relative to that of our peers.

 

5-Year Cumulative TSR

 

 

LOGO

1-, 3- and 5-Year TSR

 

      AVY    S&P 500    S&P Indus. & Mats.*

2016

  

  15%

  

  12%

  

  21%

2017

  

  67%

  

  22%

  

  28%

2018

  

(20)%

  

  (4)%

  

(14)%

2019

  

  49%

  

  32%

  

  34%

2020

  

  21%

  

  18%

  

  17%

3-Year TSR

  

  43%

  

  49%

  

  32%

5-Year TSR

  

173%

  

103%

  

116%

 

*

Based on median of companies in both subsets as of December 31, 2020.

 

 

2020 Say-on-Pay Vote and Feedback During Stockholder Engagement

In 2020, we continued our practice of maintaining proactive engagement with stockholders regarding executive compensation and talent management. The Committee continually reviews our executive compensation program, making changes – including previously replacing regular grants of stock options and time-vesting restricted stock units (RSUs) with performance-based market-leveraged stock units (MSUs), capping Annual Incentive Plan (AIP) awards at 200% of target, and establishing additional guardrails on PU and MSU performance criteria – to address feedback from our stockholders and more closely align our executive compensation program with our financial profile and business strategies. We believe this process and the specific actions taken demonstrate the Committee’s commitment to paying for performance and being responsive to investor feedback. In 2020, during our ongoing stockholder engagement program, we discussed elements of our executive compensation program with some of our stockholders, who generally expressed support for its structure. We also discussed the Committee’s approach to CEO compensation intended for 2020 but later reversed due to COVID-19, sharing the feedback with the Committee.

Results and Analysis of 2020 Vote

At the 2020 Annual Meeting, over 95% of our stockholders approved, on an advisory basis, our executive compensation. The level of support we received was consistent with the high approval rates we have received in recent years. The Committee believes that our say-on-pay vote results in recent years, as well as the generally positive feedback we have received during our ongoing engagement with stockholders, reflects strong support of our executive compensation program, as well as our consistently improving CD&A disclosure.

Stockholder Engagement Process

In addition to our extensive investor relations program through which members of management engage with our investors throughout the year, we have a longstanding practice of supplemental engagement with stockholders to discuss our strategies, performance, executive compensation and talent management practices and solicit their feedback. This engagement process, which takes place throughout the year, is depicted in the graphic shown in the proxy summary.

 

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Executive Compensation/Talent Management Feedback During 2020 Engagement

With respect to executive compensation and talent management, we discussed Board oversight of our strategies, response to COVID-19 (including the potential for changes to executive compensation to address the impact of the pandemic, as well as measures implemented to support employees more broadly), and diversity and inclusion initiatives, particularly related to race/ethnicity in the U.S.; potential consideration of non-financial measures in our incentive compensation programs to address environmental, social and governance (ESG) topics while maintaining pay-for-performance alignment; status of changes initially approved for 2020 CEO compensation but reversed due to COVID-19; and the Committee’s oversight of additional talent management topics such as executive succession, leadership development and pay equity.

2020 Named Executive Officers (NEOs)

In this CD&A and the Executive Compensation Tables section of this proxy statement, we provide compensation information for our 2020 NEOs, who are identified in the chart below. Mses. Hill and Miller retired from our company at the end of fiscal year 2020.

 

2020 NEOs
Name    Title

Mitchell R. Butier

   Chairman, President & Chief Executive Officer

Gregory S. Lovins

   Senior Vice President & Chief Financial Officer

Deon M. Stander

   Vice President & General Manager, RBIS

Anne Hill

   Former Senior Vice President & Chief Human Resources Officer

Susan C. Miller

   Former Senior Vice President, General Counsel & Secretary

Overview of Pay Philosophy and Executive Compensation Components

Our executive compensation program reflects the Committee’s philosophy that a substantial majority of compensation should be tied to our success in meeting our performance objectives and creating stockholder value, providing higher realized compensation when we deliver superior, sustained performance. The objectives of this strategy are to motivate our executives to achieve our annual and long-term financial goals, giving consideration to their contributions to delivering strong performance. In addition, recognizing our increased focus on ESG matters and greater transparency with all our stakeholders, the Committee considers our ESG progress in evaluating the performance of our CEO and other NEOs.

 

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

 

   

Establishing target total direct compensation (TDC) to incent strong operational and financial performance 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 for executives with our company’s annual operating plan and financial goals for the year; and

 

 

   

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

 

 

Incentive compensation consists of target award opportunities under our AIP and our LTI compensation program, with payouts determined based on our performance against goals originally established by the Committee in February 2020. The Committee structures annual incentive compensation to reward NEOs based on corporate and/or business performance to align their compensation with stockholder interests, giving consideration to their individual contributions to our performance. AIP targets are generally established at or above the midpoint of the guidance we give to our stockholders on our anticipated performance for the year and consistent with achievement of our long-term financial goals. Our LTI awards provide higher realized compensation for exceeding performance targets and downside risk (up to and including cancellation) for failing to achieve threshold performance, with EVA targets set consistent with our externally communicated long-term financial goals for earnings growth and ROTC.

 

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ELEMENTS OF TARGET TDC FOR CORPORATE NEOs

 

 

LOGO               LOGO

As shown in the graph below, the substantial majority of each of our NEOs’ 2020 target TDC was performance-based, meaning that our executives ultimately may not realize the value of the at-risk components of TDC if we fail to achieve our performance objectives.

 

LOGO

 

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As shown in the graph below, over the past five years, our cumulative TSR has increased by 173% while the annual compensation of our CEO has remained relatively constant, except for 2016 when he received a one-time equity grant in connection with his promotion to CEO.

 

LOGO

Changes in NEO Compensation

Changes in CEO Compensation Originally Approved for 2020

In the few years prior to 2020, the Committee discussed how best to ensure that it was compensating our CEO optimally and in alignment with the long-term interests of our stockholders. The Committee’s objectives were to:

 

   

Recognize our company’s performance and delivery of value to our customers, employees, investors and communities during his tenure as our CEO;

 

   

Enhance his incentive to continue creating value for these stakeholders, including by driving superior TSR for our investors; and

 

   

Encourage his retention for the long term.

The Committee was seeking to maintain market-competitive target TDC for our CEO that was well-aligned with our company’s performance and ensure that his target TDC did not fall substantially below the market median, without relying on the traditional approach of annual review and periodic increase to the components of his TDC – base salary, target AIP opportunity and target LTI opportunity – to maintain consistency with a continually rising market median.

After extensive discussion, and giving consideration to the feedback received from dialogue with some of our largest stockholders, in February 2020, the Committee determined to eliminate potential annual increases to our CEO’s base salary and target AIP and LTI opportunities in favor of a longer-term approach that would hold his target TDC constant for a three-year period. During the three-year period, the Committee would retain the discretion to review his target TDC if market conditions or company results warranted a change. At the end of the period, the Committee would evaluate both his and our company’s performance and market conditions before determining the appropriate level of his compensation, continuing to give consideration to factors such as individual performance, tenure, retention and succession. This approach to CEO compensation was intended to be more consistent with the long-term approach we take to planning our strategies, setting our financial targets and sustainability goals, creating value for our stockholders, developing an engaged and diverse workforce, and investing in the communities in which we operate.

To ensure our CEO’s compensation originally determined for 2020 remained competitive and mitigate the potential for his target TDC to substantially trail behind his peers in the next three years, the Committee, at that time determined to set his target TDC modestly above market median, recognizing that his base salary had not increased in the previous two years and his target AIP opportunity had not increased since he became CEO in 2016. The committee intended to make no additional increases until 2023. Anticipating that the median for market would continue to grow at historical rates, the

 

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Committee determined to set our CEO’s compensation package roughly halfway between the then–current 50th and 75th percentiles of his market peers, with the expectation that – at the end of the three-year period during which our CEO’s compensation was expected not to increase – his TDC would be at or around the market median. This approach was consistent with the longer-term, forward-looking approach taken by the Committee in recommending to our Board the compensation of our non-employee directors.

Based on 2019 market pay rates and projected 2020 market pay rates for companies with annual revenues between $6 billion and $10 billion, and with the expert advice and recommendation of its independent compensation consultant, Willis Towers Watson, the Committee determined in February 2020 to target our CEO’s TDC for that year at $9.9 million by increasing (i) his base salary by 6% to $1.2 million; (ii) his target AIP opportunity from 125% of base salary to 140% of base salary; and (iii) his target LTI opportunity from 475% of base salary to 585% of base salary. These targets were subject to decrease if warranted by market conditions or our company results. The Committee noted that over 90% of this target TDC would have consisted of at-risk, performance-based compensation; our CEO’s realized compensation would have depended on our company achieving strong TSR performance, delivering our 2021 financial targets and 2025 sustainability goals, and continuing to engage our employees, serve our customers, deliver for our investors, and support the communities in which we operate.

Changes in 2020 NEO Compensation

Changes Approved in April 2020

In light of the uncertain impact of COVID-19 on market conditions, in April 2020, our CEO recommended that the base salary increases for our executive leadership team (which includes all of our NEOs) approved by the committee in February of that year be indefinitely postponed, and no such increases were given in 2020. Given the market conditions at the time and also at the recommendation of our CEO, the Committee determined that it was in the best interests of our company and stockholders that his 2020 target AIP and LTI opportunities remain at 2019 levels rather than the levels approved by the Committee in February 2020. As a result, the Committee approved the reductions in CEO compensation for 2020 described below.

 

   

His target AIP opportunity for 2020 would remain at previous level of 125% of base salary rather than 140% of base salary approved in February 2020

 

   

His target LTI opportunity for 2020 would remain at previous level of 475% of base salary rather than 585% of base salary approved in February 2020

 

   

Both target opportunities would be based on his 2019 year-end base salary of $1,133,000

 

In connection with these reductions, our CEO forfeited 5,811 PUs and 6,662 MSUs, with an aggregate grant date fair value of approximately $1.3 million, granted to him in February 2020.

Changes Approved in February 2021

Despite the adverse impact of COVID-19, no adjustments to short- or long-term incentive compensation were made for our corporate NEOs; their 2020 AIP awards and 2018-2020 PUs paid out on the basis of unadjusted company results. Similarly, the goals for their 2020-2022 PUs granted to them in February 2020 were not adjusted to reflect the impact of COVID-19.

COVID-19 had a disproportionate impact on RBIS’ results in 2020. As a result, although the business achieved its short-term objectives related to managing the extremely challenging environment its markets faced during the year, it did not achieve any of its original goals for 2020. However, RBIS delivered substantial temporary cost savings and accelerated restructuring actions to expand its operating margins; achieved its net income plan for the second half of the year and significantly grew sales on an organic basis in the fourth quarter; successfully integrated Smartrac and exceeded its 2020 performance targets for the acquisition; and achieved a high employee engagement score, despite having taken aggressive actions to reduce costs. Using its allowable discretion to exclude some of this impact, in February 2021 the Committee approved an AIP financial modifier of 60% for the RBIS team to recognize their achievements in navigating the challenges the business faced during the year. Given our business NEO’s 25% linkage to total company adjusted EPS, his overall adjusted AIP financial modifier was 76%.

 

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The Committee also reviewed the performance of the 2018-2020 PUs for our business NEO. Noting that RBIS had entered 2020 with performance during the first two years of the three-year performance period in excess of the maximum level of performance and using its allowable discretion to exclude some of the extremely adverse 2020 impact, the Committee determined to increase the payouts for the 2018-2020 for all RBIS participants from 84% to 126% to recognize the team’s impressive EVA performance through 2019, as well as their achievements in navigating the challenges related to COVID-19 that the business faced during 2020. In addition, the Committee reviewed the performance of the 2020-2022 PUs for our business NEO. Noting that RBIS had taken substantial actions to protect operating margins during the year and using its allowable discretion to exclude some of this impact, the Committee determined to revise RBIS’ EVA goals for threshold, target and maximum performance originally approved in February 2020. The revised goals continue to require strong growth and margin improvement compared to the 2019 baseline for the business, although on a different trajectory than originally planned given the extraordinary impact of COVID-19 on RBIS’ markets in 2020.

2021 CEO Compensation

Based on the expert advice of Willis Towers Watson and giving further consideration to the feedback from investors received in 2019 and 2020, the Committee determined to reinstate the longer-term approach it intended for CEO compensation for 2020 in 2021. Consistent with the Committee’s initial decision in February 2020, our CEO’s 2021 target TDC was set between the market 50th and 75th percentiles of his market peers, reflecting his strong performance throughout his five-year tenure in the role, during which our company delivered top quartile performance. The Committee’s current intent is not to revisit his compensation until 2024 unless warranted by market conditions or our company results.

Reviewing 2020 market pay rates and projected 2021 market pay rates for companies with annual revenues between $6 billion and $10 billion, the Committee determined in February 2021 to target our CEO’s TDC for the year at $9.9 million by increasing (i) his base salary by 6% to $1.2 million; (ii) his target AIP opportunity from 125% of base salary to 140% of base salary; and (iii) his target LTI opportunity from 475% of base salary to 585% of base salary. The Committee recognized that our CEO had delivered strong value creation for all our stakeholders by leading the execution of our strategies during his five-year tenure in the role and successfully navigating the impact of COVID-19 in 2020. The Committee noted that over 90% of his new target TDC would consist of at-risk, performance-based compensation; our CEO’s realized compensation will depend on our company achieving strong TSR performance, delivering our 2021 financial targets and 2025 sustainability goals, and continuing to engage our employees, serve our customers, deliver for our investors, and support the communities in which we operate.

 

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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 Stockholder Benefit
PAY FOR PERFORMANCE

Compensation Primarily

Performance-Based

  

   86% of 2020 CEO target TDC and 72% of average 2020 target TDC of other NEOs tied to company and/or business performance

Capped Annual Incentive
Set At or Above
Midpoint of Guidance
  

   AIP award based primarily on achievement of performance objectives targeted at or above midpoint of annual guidance and consistent with long-term financial goals, subject to downward discretion based on Committee’s assessment of CEO’s achievement of predetermined goals and other NEOs’ individual contributions; awards capped at 200% of target and individual modifiers for NEOs generally capped at 100%

Majority Long-Term Equity Incentive Compensation   

   LTI awards prioritize long-term performance, with PUs cliff-vesting in 3 years and MSUs having average performance period of 2.5 years; realized compensation based on long-term performance and stockholder value creation

Strategic Targeting   

   TDC (base salary + target AIP opportunity + target LTI opportunity) set to incent strong performance and value creation, giving consideration to median of companies similar in size, global scope and complexity, role responsibilities, individual performance, tenure, retention, and succession

No Annual Stock Options   

   Last made regular grant of stock options in 2012, though stock options may be granted for special purposes such as promotion

COMPENSATION BEST PRACTICES
No Employment Contracts   

   NEOs employed at-will

Rigorous Stock

Ownership Policy

  

   CEO required to maintain 6x his base salary; at year-end 2020, he owned stock with market value of ~33x base salary and ~5x minimum requirement; other current NEOs required to maintain ownership of 3x their base salaries and all complied at year-end 2020

No Hedging or Pledging   

   Insider trading policy prohibits officers and employees from hedging – and officers from pledging – AVY common stock and all NEOs complied during 2020

Limited Trading Windows   

   NEOs may only transact in AVY common stock during approved trading windows after satisfying clearance requirements, including continued compliance with stock ownership policy

Median Burn Rate   

   Three-year average burn rate of 0.67% at year-end 2020 was at 50th percentile of S&P 500 companies

Clawback Policy   

   Cash and equity incentive compensation subject to clawback in event of fraud or other intentional misconduct on NEOs that necessitates accounting restatement

No Excise Tax Gross Ups   

   No gross-up payments for excise taxes for termination following change of control

Double Trigger

Equity Vesting

  

   Equity awards not accelerated on change of control, unless NEO is terminated without cause or terminates employment for good reason within 24 months following change of control

No Repricing/Exchange of Underwater Stock Options   

   No repricing or exchange of underwater options without stockholder approval

Limited Perquisites   

   Other than capped financial planning reimbursement and payment for annual physical examination, NEOs receive flat taxable executive benefit allowance not subject to tax gross-up

Reasonable
Severance Benefits
  

   Severance formula for qualifying termination:

    CEO: 2x (annual salary + target AIP award for year of termination + cash value of annual health insurance premium)

    Other NEOs: 1x (annual salary + target AIP award for year of termination + cash value of annual health insurance premium)

Reasonable Change of
Control Benefits
  

   Severance formula for qualifying termination within 24 months following a change of control:

    CEO: 3x (annual salary + target AIP award for year of termination + cash value of annual health insurance premium) + prorated target AIP award for year of termination

    Other NEOs: 2x (annual salary + target AIP award for year of termination + cash value of annual health insurance premium) + prorated target AIP award for year of termination

STRONG GOVERNANCE
Independent Oversight   

   Committee comprised of independent directors with executive compensation decisions reviewed and ratified by all independent directors

Expert Compensation

Consultant

  

   Willis Towers Watson is independent, free of conflicts of interest and provides Committee with expert executive compensation advice

 

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SUMMARY OF COMPENSATION DECISIONS FOR 2020

The Committee designs executive compensation to pay for performance, with the target TDC of NEOs established to incent strong financial performance and stockholder value creation, giving consideration to the market median of companies similar in size, global scope and complexity with which we compete for executive talent, role responsibilities, individual performance, tenure, retention and succession. Compensation is primarily performance-based, meaning that our executives may ultimately not realize some or all of the at-risk components of TDC if we fail to achieve our financial objectives. In 2020, approximately 86% and 72% of the target TDC of our CEO and average of our other NEOs, respectively, was performance-based.

In determining 2020 NEO compensation, in addition to the extraordinary impact COVID-19 had on our businesses and results in 2020 and our leaders’ continuous efforts during the year to mitigate this impact, the Committee considered the factors shown below.

 

   

Company/Business Performance – Our company’s financial performance, including our 2020 adjusted sales growth, adjusted EPS, and free cash flow for our corporate NEOs, and, for our business NEO, the performance of RBIS

 

   

Stockholder Returns – Our TSR on an absolute basis, as well as relative to an objectively determined group of peer companies

 

   

Annual Individual Performance – Our CEO’s performance against the predetermined strategic objectives established for him at the beginning of the year and the individual contributions of our other NEOs

 

   

Competitiveness – Market pay practices and company performance relative to peers

 

   

Investor Feedback – The results of our 2020 say-on-pay vote and feedback on executive compensation received during our ongoing stockholder engagement program

The key elements of 2020 NEO target TDC are described in the table shown below and on the following page. While we provide consistent, market-competitive target TDC opportunities for our NEOs, the actual compensation they realize varies year-to-year based primarily on company and business performance.

 

2020 EXECUTIVE COMPENSATION SUMMARY
Component   Rationale    Decisions Impacting 2020 Compensation

FIXED

 

Base Salary

 

14% of TDC for CEO;

Avg. 28% of TDC for

Other NEOs

 

Provide fixed, market competitive monthly income for performing daily responsibilities

  

In light of uncertain impact of COVID-19, in April 2020, Committee reversed increases originally approved for NEO base salaries in February 2020.

PERFORMANCE-BASED

SHORT-TERM CASH

 

Target

AIP Award

 

14% of TDC for CEO;

Avg. 18% of TDC for

all NEOs

 

Capped at 200% of

target

 

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

 

Target AIP opportunity based on market survey data; financial modifier based on company and/or business performance; capped individual modifier based on CEO’s achievement against predetermined strategic objectives and other NEOs’ individual contributions

  

No change to NEO target AIP opportunities for 2020; in April 2020, Committee reversed target AIP opportunity increase originally approved for our CEO in February 2020.

 

Company/business performance resulted in financial modifiers of 94% for corporate NEOs, with no adjustments made for impact of COVID-19. After making 60% aggregate adjustment to RBIS’ AIP financial modifier given disproportionate adverse impact of COVID-19 on its markets, approved AIP financial modifier of 76% for business NEO.

 

Despite its general 100% cap on AIP individual modifiers for NEOs, Committee approved individual modifiers of 150% for Messrs. Lovins and Stander, recognizing their performance in an exceptional year in which they demonstrated extraordinary leadership in navigating one of the most challenging periods in our company’s history. Mr. Butier’s individual modifier was capped at 100%, as were the individual modifiers of Mses. Hill and Miller, who transitioned their primary responsibilities to their successors midway through the year and retired from our company at year-end 2020.

 

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2020 EXECUTIVE COMPENSATION SUMMARY
Component   Rationale    Decisions Impacting 2020 Compensation

PERFORMANCE-BASED

LONG-TERM EQUITY

 

Target LTI Award

(50% PUs, 50% MSUs)

 

68% of TDC for CEO;

Avg. 54% of TDC for

Other NEOs

 

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

 

Target LTI opportunity based on market survey data; award vehicles, performance criteria and weightings selected based on recommendation of Willis Towers Watson

  

LTI Awards Granted in 2020

•   No change to NEO target LTI opportunities for 2020; in April 2020, Committee reversed target LTI opportunity increase originally approved for our CEO in February 2020.

 

•   50% in PUs that cliff-vest at the end of three-year period with payouts ranging from zero to 200% based on achievement of respective cumulative EVA and relative TSR performance objectives. Payout for TSR component is capped at 100% of target for any three-year performance period in which absolute TSR is negative. No change to performance objectives or weightings for 2020. No adjustments made for PUs granted to corporate NEOs; EVA goal for business NEO revised in February 2021 given disproportionate adverse impact of COVID-19 on its markets.

 

•   50% in MSUs that vest based on absolute TSR over one-, two-, three- and four-year performance periods, with average performance period of 2.5 years. Consistent with recent years, performance criteria were as follows: (i) threshold performance level, which results in payout at vesting of 85%, is TSR of (15)%; (ii) target performance level, which results in a payout at vesting of 100%, requires TSR of 10%; and (iii) maximum performance level, which results in payout at vesting of 200%, requires TSR of 75%. No adjustments made as a result of COVID-19.

 

 

 

  

LTI Awards Vesting at YE 2020

•   2018-2020 PUs: Our 2018-2020 TSR was at 79th percentile of objectively determined peer group established in February 2018. Cumulative EVA for our company was $985.1 million, 99% of target for EVA component for corporate NEOs, with no adjustments made for impact of COVID-19. Cumulative EVA for RBIS business EVA, as adjusted to reflect disproportionate impact of COVID-19 in 2020, was 110% of target, resulting in 126% payout on its sole performance objective. 2018-2020 PUs paid out at 147% of target for corporate NEOs and 126% of target for business NEO.

 

 

   

 

  

•  MSUs Vesting at YE 2020

•   4th Tranche of MSUs granted in 2017:

    2017-2020 Absolute TSR = 134%

    Paid out at 200% of target

•   3rd Tranche of MSUs granted in 2018:

    2018-2020 Absolute TSR = 40%

    Paid out at 146% of target

•   2nd Tranche of MSUs granted in 2019:

    2019-2020 Absolute TSR = 73%

    Paid out at 197% of target

•   1st Tranche of MSUs granted in 2020:

    2020 Absolute TSR = 23%

    Paid out at 120% of target

 

In addition to the primary elements of our executive compensation program described above, 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 2020 EXECUTIVE COMPENSATION

The Committee aims to have base salaries at or around 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.

Base Salary

Increases in base salary for NEOs are generally based on the average percentage merit increase given to our U.S. employees, subject to increase based on the NEO’s performance and market comparisons for positions with similar scope and responsibility. In light of the uncertain impact of COVID-19 and on the recommendation of our CEO, in April 2020, the Committee determined to reverse the base salary increases for him and our other NEOs of 6% and 3%, respectively, that it had originally approved in February of that year.

NEO base salaries at year-end 2020 were as follows: Mr. Butier – $1,133,000; Mr. Lovins – $618,000; Mr. Stander – $555,129; Ms. Hill – $548,006; and Ms.  Miller – $581,048.

2020 AIP Awards

The 2020 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% although the Committee retains the discretion to determine higher individual modifiers, up to 150%.

 

 

LOGO

Target AIP Opportunities

As a percentage of year-end base salary, the target AIP opportunities for 2020 were 125% for Mr. Butier, 75% for Mr. Lovins, and 60% for Mr. Stander and Mses. Hill and Miller. Because the Committee reversed the increased target AIP opportunity originally approved for Mr. Butier in February 2020, there were no changes to NEO target AIP opportunities for 2020.

AIP Performance Objectives and Weightings; Target-Setting Principles

The following performance objectives and weightings for the 2020 AIP were established by the Committee, in consultation with Willis Towers Watson. These were the same objectives and weightings used for the 2019 AIP to continue incenting our NEOs to increase sales on an organic basis, improve adjusted EPS and generate strong free cash flow. Our CEO, then-Chief Human Resources Officer and 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.

 

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For our business NEO, the Committee determined to link 75% of his AIP financial modifier to RBIS’ results and 25% to corporate results. RBIS performance objectives were designed to provide realized compensation only if the business improved upon its 2019 performance and delivered results consistent with achieving its 2021 financial targets

 

2020 AIP TARGETS

 

Objective

 

Description

  

Rationale

Adjusted Sales Growth

(20%)

  Focuses management on organic top-line growth, a key contributor to sustained long-term value creation for stockholders   

• Tied to total company for corporate NEOs (Butier, Lovins, Hill and Miller)

• Tied to RBIS for business NEO (Stander)

Profitability

(60%)

  Primary measure used by management, investors and analysts to evaluate our performance; focuses management on profitable growth and expense control   

• For corporate NEOs, based on our total company adjusted EPS, the measure we use to provide guidance regarding our anticipated annual performance to our stockholders

• For business NEO (as a proportion of profitability objective) based:

• 42% on total company adjusted EPS

• 58% on RBIS’ adjusted net income

Free Cash Flow

(20%)

 

Cash available after investment in our business, which can be allocated to acquisitions, dividends and share repurchases; focuses management on improving capital efficiency, including working capital

 

  

• Tied to total company for corporate NEOs

• Tied to RBIS for business NEO

In setting 2020 AIP targets, the Committee aimed to ensure consistency with our 2021 financial targets and require improvement over the prior year, considering the factors described below.

 

   

Target adjusted sales growth of 2.2% was set lower than our 2017-2021 target of at least 4% but higher than what we achieved in 2019, reflecting the anticipated impact of COVID-19 on 2020 performance.

 

   

Target adjusted EPS of $6.95 was established below the midpoint of the annual guidance we provided to investors in January 2020 due to the anticipated impact of COVID-19, which had only begun to emerge as a concern just a month earlier; target represented a 5% increase from our 2019 results for this measure. Adjusted EPS is the measure on which we provide annual guidance to our investors and a primary driver of stockholder value creation.

 

   

Although we did not externally communicate a free cash flow target as part of our 2021 financial goals, we aimed to generate 2020 free cash flow of $500+ million. Free cash flow is an important metric used internally and by our investors in evaluating the amount of cash we have available for debt reductions, dividends and share repurchases. Our 2020 target for corporate free cash flow was 5% higher than the free cash flow we generated in 2019, despite continued planned investment in fixed capital and cash restructuring payments to support our future growth and profitability.

 

CORPORATE 2020 AIP TARGETS VS. LONG-TERM TARGETS AND  2019 RESULTS

 

     

2017-2021 Long-Term Target

  

2019 Results

  

2020 AIP Target

Adjusted Sales Growth

   4%+    2.0%    2.2%

Adjusted EPS Growth

   10%+    $6.60    $6.95
(5% over 2019 results)

Free Cash Flow

   N/A    $512M    $540M
(5% over 2019 results)

Financial Modifiers

AIP financial modifiers are currently capped at 200%. 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; currency translation fluctuations; changes in accounting principles, tax codes or related regulations and rulings; extraordinary events such as natural disasters, outbreaks of epidemiological disease, terrorism and war; costs related to the early extinguishment of debt and pension plan terminations; costs of litigation outside the normal course of business; and non-cash charges associated with the impairment of long-lived assets.

 

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The table below shows the 2020 AIP financial modifiers for our NEOs. As shown, the target level was exceeded for two of the three performance objectives established for our corporate NEOs and one of the four performance objectives established for our business NEO. Corporate performance resulted in AIP financial modifiers of 94% for our corporate NEOs. No adjustments were made to AIP financial modifiers for corporate NEOs as a result of COVID-19.

Although RBIS achieved its short-term objectives while managing a challenging environment during the year, the business did not achieve any of its original goals for 2020 given the disproportionate impact COVID-19 had on its markets, particularly in the second quarter. However, RBIS delivered substantial temporary cost savings and accelerated restructuring actions to expand its operating margins; achieved its net income plan for the second half of the year and significantly grew sales on an organic basis in the fourth quarter; successfully integrated Smartrac and exceeded its 2020 performance targets for the acquisition; and achieved a high employee engagement score, despite having taken aggressive actions to reduce costs. Using its allowable discretion to exclude some of this impact, the Committee approved an AIP financial modifier of 60% for the RBIS team to recognize their achievements in navigating the challenges the business faced during the year. Given our business NEO’s 25% linkage to total company adjusted EPS, his overall AIP financial modifier was 76%.

 

2020 AIP FINANCIAL MODIFIERS
NEO(s)   

Performance

Objective

   Weighting    Threshold
(50%)
   Target
(100%)
   Maximum
(200%)
   2020
Actual
   Modifier   Weighted
Average
Modifier

Butier

Lovins

Hill

Miller

   Total Company
Adjusted Sales Growth(1)
   20%    0.8%    2.2%    5.6%    (3.4%)        0%     0%
  

 

Total Company
Adjusted EPS(2)

   60%    $6.60    $6.95    $7.58    $7.10    124%   75%
  

 

Total Company
Free Cash Flow(3)

   20%    $468M    $540M    $684M    $548M      97%   19%

Corporate NEO Financial Modifier

 

94%

Stander

   Total Company
Adjusted EPS(2)
   25%    $6.60    $6.95    $7.58    $7.10    124%   31%
   RBIS
Adjusted Sales Growth(4)
   20%    2.1%    4.2%    8.4%    (9.5%)        0%     0%
   RBIS

Adjusted Net
Income(4) (5)

   35%    $137M    $146.1M    $164.4M    $98.4M        0%     0%
     RBIS
Free Cash Flow(4)
   20%    $87M    $108M    $151M    $7M        0%     0%

Business NEO Financial Modifier (without COVID-19 adjustments)

 

31%

Business NEO Financial Modifier (with 60% aggregate COVID-19 adjustment for RBIS performance objectives)(6)

 

76%

 

(1) 

Total Company Adjusted Sales Growth refers to reported sales decline of 1.4%, adjusted for the impact of currency translation of 0.9%, acquisitions of (1.7%) and 53rd week of 2020 of (1.3%). Total does not sum due to rounding.

 

(2) 

Total Company Adjusted EPS refers to reported net income per common share, assuming dilution, of $6.61, adjusted for restructuring charges and other items of $0.49.

 

(3) 

Total Company Free Cash Flow refers to net cash provided by operations of $751.3 million, minus purchases of property, plant and equipment of $201.4 million and software and other deferred charges of $17.2 million, plus proceeds from sales of property, plant and equipment of $9.2 million, plus proceeds from insurance and sales (purchases) of investments, net, of $5.6 million. 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 101% of target, measurement of this objective on a quarterly basis, as required by the Committee to incent consistent delivery of free cash flow throughout the year, resulted in a lower modifier of 97% 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.

 

(5) 

Adjusted net income refers to income before taxes, tax-effected at the adjusted tax rate, and adjusted for tax-effected restructuring charges and other items. Adjusted tax rate is the full-year GAAP tax rate, adjusted to exclude certain unusual or infrequent events that are expected to significantly impact the GAAP tax rate, such as impacts related to the prior-year termination of our U.S. pension plan and the effects of discrete tax planning actions.

 

(6)

Although RBIS did not achieve any of its 2020 goals given the disproportionate impact COVID-19 had on its markets, the business delivered substantial temporary cost savings and accelerated restructuring actions to expand its operating margins; achieved its net income plan for the second half of the year and grew sales by over 3% on an organic basis in the fourth quarter; successfully integrated Smartrac and exceeded its 2020 performance targets for the acquisition; and achieved a high employee engagement score, despite having taken aggressive actions to reduce costs. The Committee used its discretion to approve an aggregate AIP financial modifier of 60% for the three RBIS components; our business NEO’s 25% company-tied component resulted in an AIP financial modifier of 76%.

 

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NEO Performance Evaluations & Individual Modifiers

Our NEOs are evaluated on their individual performance for the year. In a typical year, the Committee approves our CEO’s strategic objectives and our CEO approves the goals of our other NEOs, in each case in February of that year, with the performance of all NEOs evaluated in February of the following year. The Committee evaluates our CEO’s performance against his predetermined strategic objectives; for our NEOs other than the CEO, this assessment considers the totality of their performance rather than assigning weightings to their annual goals.

 

While the goal-setting process in 2020 was consistent with prior years, as it became clear that COVID-19 would have a significant impact on our company, navigating the challenging environment presented by the pandemic and protecting our employees, serving our customers, managing our supply chain risk, maintaining our strong balance sheet and financial flexibility, and supporting our communities became the primary objective for all our executives, especially our CEO and other NEOs who had to continually adjust our COVID-19 response in the face of continuously evolving health information, governmental regulations and economic conditions.

Individual modifiers for all participants are capped at 150%, subject to the total cap on AIP awards of 200%. Although it retains the discretion to determine individual modifiers of up to 150%, the Committee has determined that the individual modifiers for our CEO and other NEOs should generally be capped at 100%. Given the extraordinary impact of COVID-19 and their efforts managing the challenging environment, not all NEO individual modifiers for 2020 were capped at 100%, as they had been for the three prior years. As explained later in this section, the individual modifiers of Mr. Butier and Mses. Hill and Miller were capped at 100%; the individual modifiers of Messrs. Lovins and Stander were greater than 100%.

The Committee reviewed and evaluated our CEO’s annual performance, giving precedence to his having led the company through the extensive challenges presented by COVID-19 as well as considering his performance against the predetermined strategic objectives established in February 2020 and the self-assessment of his performance discussed with the Committee in February 2021. The Committee determined the individual modifier for our CEO based on its assessment of his performance, within the context of the limits described above. The Committee Chair, together with our Lead Independent Director, discussed with our CEO the feedback from discussions by the Committee and our full Board regarding his 2020 performance.

For 2020, the Committee evaluated the performance of our CEO against his original strategic objectives for the year, determining that he substantially achieved or exceeded them, as shown in the chart below and on the following page.

 

2020 CEO PERFORMANCE EVALUATION AGAINST PRE-COVID OBJECTIVES
Strategic Objective    Weighting   Evaluation

Accelerate exposure to high-value product categories – Deliver above-average organic growth rate in LGM’s Graphics and Specialty product categories; achieve targeted percentage of growth in RBIS’ external embellishments; achieve targeted percentage of growth in Intelligent Labels and deliver Smartrac integration objectives; and manage IHM through challenging macroeconomic environment

   30%   Substantially increased proportion of portfolio in high-value categories, despite impact of COVID-19; delivered above-average organic sales growth in Specialty categories although growth in Graphics declined as a result of COVID-19; grew external embellishments, although short of targeted amount; substantially increased sales change ex. currency in Intelligent Labels, with significant organic sales growth, and advanced platform by completing Smartrac acquisition; navigated even more challenging macroeconomic environment than expected for IHM, with results short of original target

Drive profitable growth in base business – Stabilize share in LGM’s North America business and maintain share position in other LGM regions; maintain share position in RBIS’ base product categories (adjusted for RFID); and accelerate near-term productivity in IHM, achieving targeted EBIT margin and EVA

   15%   Experienced slight decline in LGM share positions in its largest regions; maintained RBIS’ share position in base product categories; and failed to achieve targeted EBIT margin and EVA in IHM due to disproportionate impact COVID-19 had on its markets during the year

Continue relentless focus on productivity – Achieve targeted restructuring savings in LGM and RBIS, including execute designated significant projects in each business; begin executing key footprint optimization projects; and implement new functional operating structure and achieve targeted annualized savings by year-end

   10%   Substantially exceeded targeted restructuring savings in LGM and RBIS, reflecting both structural and temporary actions; executed designated projects in each business; and implemented new functional operating structure, realizing run rate savings in excess of target

 

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Strategic Objective    Weighting   Evaluation
     

Deploy capital effectively – Invest in capital expenditures within targeted range to enable future growth; continue to execute acquisitions and build M&A pipeline; complete upgrade of significant information technology platform in RBIS; invest targeted amount in accelerated growth platforms; and repurchase shares opportunistically

   10%   Invested nearly $220 million in capital expenditures to enable future growth, within targeted range and managed capital efficiently throughout the year; completed 2 acquisitions, made 3 venture investments and continued to ensure robust M&A pipeline; upgraded RBIS information technology platform; appropriately scaled back investments in accelerated growth platforms due to COVID-19, delivering significant but below-target growth; and appropriately paused repurchase of shares for nearly half the year due to impact of COVID-19 but still delivered $100+ million in share repurchases

Leadership succession planning – Progress CEO succession with goal of ready-now successors by targeted deadline; refine/execute executive leadership development plans; and execute plan for senior leadership transitions

   15%   Progressed CEO succession strategy; refined development plans for leadership; and executed plans for senior leadership transitions, including promoting and providing mentorship and guidance to new Chief Human Resources Officer and new Chief Legal Officer

Innovation/Progress Toward Sustainability Goals – Develop new innovation strategy and deployment program; reduce greenhouse gas emissions by targeted amount; develop accelerated roadmap to enable greater recyclability of consumer packaged goods in LGM; and further increase leadership diversity

   20%   Deployed new innovation strategy, creating two strategic platforms focused on recyclability/enabling circularity and waste reduction/elimination; reduced GHG emissions by 45% compared to 2015 baseline, exceeding 2025 sustainability goal; developed recyclability roadmap; and, although representation of females in manager-level and above roles remained at 34%, advancing D+I journey, with sharpened focus on racial/ethnic diversity

Individual Modifier Based on Evaluation and NEO Cap

       100%

Our CEO recommended to the Committee the individual modifiers for our other NEOs based on his assessment of their 2020 performance. The Committee considered our CEO’s recommendations and evaluated his assessments of their performance, retaining the discretion to approve individual modifiers for them different than what our CEO had recommended. Other than discussing with our CEO their performance against their individual performance plans, our other NEOs played no role in their compensation determinations.

In determining the individual modifiers for our other NEOs, the Committee noted the highlights of the 2020 performance of our other NEOs described below.

 

   

Mr. Lovins – Led our finance function, continuing to deliver for our stakeholders, including leading initiatives to ensure we delivered results that exceeded our goals for adjusted EPS despite the challenging environment caused by COVID-19. Mr. Lovins also ensured our balance sheet remained strong as we managed through the pandemic, while investing in our business, organically and through acquisitions, and returning cash to stockholders, and delivered strong operating margins and record free cash flow. In addition, he continued to serve as interim leader of our IHM segment, achieving operating margin expansion despite the challenging top-line environment, and oversaw the expended disclosures contained in our ESG Downloads.

 

   

Mr. Stander – Led our RBIS business through an unprecedentedly challenging year, ensuring continued elevation of global service and flexibility for customers while adjusting operating costs to sustain value creation; investing in and delivering continued growth in high-value categories of Intelligent Labels and external embellishments; and ensuring the safety of an engaged and diverse global team. Together with the rest of the RBIS leadership team, Mr. Stander was also named our 2020 Leader of the Year, an annual recognition given by our company to recognize extraordinary leadership in delivering for our business and living our values. He also continued to lead our enterprise-wide Sustainability Council, overseeing our progress toward our 2025 sustainability goals and the development of our 2030 sustainability goals.

 

   

Ms. Hill – Led the execution of our global human resources and communications strategies in support of our company’s overall strategic direction. Ms. Hill also led our response to the impact of COVID-19 on our global workforce while continuing to ensure our ongoing commitment to support the communities in which we operate. In addition, she oversaw our transition to a leaner leadership structure with continued focus on senior leadership succession and development, and completed the transition of her responsibilities to our new Chief Human Resources Officer.

 

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Ms. Miller – Led our legal function, overseeing the development and implementation of a new functional operational model aligned our company strategies that will accelerate departmental productivity, standardize processes and deploy best practices across the function. Ms. Miller also supported our capital allocation strategies, including M&A projects and footprint optimization efforts, and oversaw our values and ethics/compliance and risk management programs. In addition, she completed the transition of her responsibilities to our new Chief Legal Officer.

Based on these assessments and after giving consideration to the recommendations of our CEO (other than with respect to himself), the Committee approved individual modifiers of 150% for Messrs. Lovins and Stander, recognizing their performance in an exceptional year in which they demonstrated extraordinary leadership in navigating one of the most challenging periods in our company’s history. Mr. Butier’s individual modifier was capped at 100%, as were the individual modifiers of Mses. Hill and Miller, who transitioned their primary responsibilities to their successors midway through the year and retired from our company at year-end 2020.

AIP Awards

Our NEOs received the AIP awards shown in the table below for 2020, based on their respective year-end base salary, AIP opportunity, financial modifier and individual modifier.

 

2020 AIP AWARDS
NEO    2020 YE
Base Salary
   AIP
Opportunity
  Target
AIP Award
   Financial
Modifier
  Individual
Modifier
  AIP
Award

Butier

    

$

1,133,000

    

 

125

%

   

$

1,416,250

    

 

94

%

   

 

100

%

   

$

1,331,275

Lovins

    

$

 618,000

    

 

75

%

   

$

 463,500

    

 

94

%

   

 

150

%

   

$

 653,535

Stander

    

$

 555,129

    

 

60

%

   

$

 333,077

    

 

76

%

   

 

150

%

   

$

 379,708

Hill

    

$

548,006

    

 

60

%

   

$

328,804

    

 

94

%

   

 

100

%

   

$

 309,076

Miller

    

$

 581,048

    

 

60

%

   

$

 348,629

    

 

94

%

   

 

100

%

   

$

 327,711

2020 GRANTS OF LTI AWARDS

Our LTI program provides variable incentive compensation to enhance alignment of executive interests with stockholder interests and drive long-term value creation. The annual LTI awards granted in 2020 were fully performance-based and delivered through the equity vehicles described below.

 

   

50% in PUs that cliff-vest at the end of a three-year period subject to the achievement of the cumulative EVA and relative TSR performance objectives established for the respective award

 

 

   

50% in MSUs that vest at the end of the one-, two-, three- and four-year performance periods, with an average performance period of 2.5 years, based solely on our absolute TSR

 

Annual LTI awards were granted on February 27, 2020, the day our Board held its regularly scheduled meeting.

 

The Committee does not offset the loss or gain of prior year grants in determining current year grants, as doing so would compromise the intended risk/reward nature of these incentives.

Actual amounts, if any, realized by our NEOs from the vesting of these awards will be based on our performance, as well as our stock price at the time of vesting.

Target LTI Opportunity

As a percentage of base salary, the 2020 target LTI opportunities for our NEOs were 475% for Mr. Butier; 250% for Mr. Lovins; and 180% for Mr. Stander and Mses. Hill and Miller. Target LTI award opportunities represented 79% and 75%, respectively, of our CEO’s and other NEOs’ average performance-based incentive compensation. Because the Committee reversed the increased target LTI opportunity originally approved for our CEO in February 2020, there were no changes to NEO target AIP opportunities for 2020.

Performance Units (PUs)

PUs cliff-vest in shares of our common stock after the end of the three-year 2020-2022 period at threshold (50% payout), target (100% payout) and maximum (200% payout) levels based on our achievement of the performance objectives established for the award. PUs do not accrue dividend equivalents and are not counted toward measuring compliance with our stock ownership policy.

 

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2021 Proxy Statement  |  Avery Dennison Corporation

 


Table of Contents

The Committee established the following performance objectives for the 2020-2022 PUs. The Committee believes that these objectives continue to align executive compensation with the long-term interests of our stockholders because delivering cumulative EVA and strong TSR relative to peer companies reflects the value we create for our investors.

 

   

Cumulative EVA, weighted 50% for our corporate NEOs (based on our total company EVA) and 75% for our business NEO (based on RBIS’ cumulative EVA). EVA is a measure of financial performance calculated by deducting the economic cost associated with the use of capital (weighted average cost of capital multiplied by average invested capital) from after-tax operating profit. The Committee established cumulative EVA targets for our corporate NEOs consistent with our 2017-2021 financial goals for earnings growth and ROTC and our primary objective of delivering superior TSR, with the target payout at the midpoint of these targets and the maximum payout at the high end of these targets. The cumulative EVA target for our business NEO focused on RBIS’ EVA change compared to the prior three-year period, with the target payout at the midpoint of RBIS’ 2017-2021 targets and the cost of capital fixed over the performance period. In contrast to the AIP, cash restructuring charges – which include severance and related costs and exclude asset impairment charges and lease and other contract cancellation costs – are included in EVA calculations as the Committee expects that these investments will generate a return over the three-year performance period (in contrast to the AIP, which measures performance over one year). Whether linked to corporate or business results, the 2020-2022 cumulative EVA targets require continued improvement in financial performance.

 

   

Relative TSR compared to an objectively determined peer group of companies, weighted 50% for our corporate NEOs and 25% for our business NEO. TSR measures the return that we provide to our stockholders, including stock price appreciation and dividends paid (assuming reinvestment of dividends). Consistent with its pay-for-performance philosophy, the Committee designed the TSR objective to provide realized compensation only if our stockholder value creation compares favorably relative to the designated peer group. The Committee set the threshold payout at TSR at the 40th percentile, target payout at TSR at the 50th percentile, and maximum payout at TSR at the 80th percentile, which were the same levels used for the 2019-2021 PUs. Payouts for the relative TSR component of PUs are capped at 100% of target if our absolute TSR is negative for the 2020-2022 performance period. In assessing the rigor of the TSR objectives, the Committee noted that our stock price and TSR had significantly decreased in the second half of 2019; as a result, performing at the median relative to our peers over the 2020-2022 performance period would represent solid performance, particularly in light of the anticipated impact of COVID-19 on performance in 2020 and potentially beyond, as well as our relatively high exposure to the impact of foreign currency translation and continued geopolitical and trade-related uncertainty.

Consistent with the 2019-2021 PUs and upon the recommendation of Willis Towers Watson, to benchmark TSR, the Committee utilized a peer group† comprised of U.S. companies (i) in similar industries based on their classification in one of five GICS groups (diversified chemicals, specialty chemicals, metal and glass containers, paper packaging, and paper products) and (ii) with revenues during the last 12 months of $1 billion to $20 billion. Based on the formulaic application of the same objective criteria, the peer group changed from the prior year as follows: (A) Verso Corporation was added because its GICS classification changed; (B) Bemis Company Inc. was deleted because it had been acquired; and (C) Neenah Inc. and P.H. Glatfelter Company were deleted because each of their last 12 months’ revenues was less than $1 billion.

 

2020-2022 PUs
NEO    Performance Objectives    Weighting

Butier
Lovins

Hill
Miller

  

 

Total Company Cumula