DEF 14A 1 bmi-def14a_20200424.htm DEF 14A bmi-def14a_20200424.htm

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.    )

 

Filed by the Registrant

 

Filed by a Party other than the Registrant

 

Check the appropriate box:

Preliminary Proxy Statement

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

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material under Rule 14a-12

Badger Meter, Inc.

(Name of registrant as specified in its charter)

(Name of person(s) filing proxy statement, if other than the registrant)

Payment of Filing Fee (Check the appropriate box):

No fee required.

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

(1)

Title of each class of securities to which transaction applies:

 

 

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(3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

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Total fee paid:

Fee paid previously with preliminary materials.

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

 

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BADGER METER, INC.

4545 West Brown Deer Road

Milwaukee, Wisconsin 53223

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

April 24, 2020

The Annual Meeting of the Shareholders of Badger Meter, Inc. will be held at the Badger Meter headquarters in the Customer Experience Center, 4545 W. Brown Deer Road, Milwaukee, Wisconsin 53223 on Friday, April 24, 2020, at 8:30 a.m., local time, for the following purposes:

1.

To elect as directors the eight nominees named in the Proxy Statement, each for a one-year term;

2.

To consider an advisory vote to approve the compensation of the company’s named executive officers;

3.

To ratify the appointment of Ernst & Young LLP as the independent registered public accounting firm for the company for the year ending December 31, 2020;

4.

To vote on a shareholder proposal regarding employee representation on the Board of Directors; and

5.

To transact such other business as may properly come before the meeting or any adjournments or postponements thereof.

Our Board of Directors recommends a vote “FOR ALL NOMINEES" in Proposal 1, “FOR” Proposals 2 and 3, and “AGAINST” Proposal 4.  The persons named as proxies will use their discretion to vote on other matters that may properly arise at the Annual Meeting.

Holders of record of our common stock at the close of business on February 28, 2020 are entitled to notice of and to vote at the meeting and any adjournments or postponements thereof. Shareholders are entitled to one vote per share.

 

By Order of the Board of Directors

 

 

 

 

William R. A. Bergum,

 

Secretary

 

 

March 20, 2020

We urge you to submit your proxy as soon as possible. If the records of our transfer agent, American Stock Transfer & Trust Company, LLC, show that you own shares in your name, or you own shares in our Dividend Reinvestment Plan, then you can submit your proxy for those shares via the Internet or by using a toll-free telephone number provided on the proxy card. Or you can mark your votes on the proxy card we have enclosed, sign and date it, and mail it in the postage-paid envelope we have provided. Instructions for using these convenient services are set forth on the proxy card. If your shares are held in “street name” by a broker, nominee, fiduciary or other custodian, follow the directions given by the broker, nominee, fiduciary or other custodian regarding how to instruct them to vote your shares.

Important Notice Regarding the Availability of Proxy Materials for the

Shareholder Meeting to be held on April 24, 2020

This Proxy Statement and our 2019 Annual Report on Form 10-K are available at

www.proxyvote.com

 

 

 


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2020 ANNUAL MEETING OF SHAREHOLDERS

PROXY STATEMENT TABLE OF CONTENTS

 

 

 

 

 


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BADGER METER, INC.

4545 West Brown Deer Road

Milwaukee, Wisconsin 53223

PROXY STATEMENT

To the Shareholders of

BADGER METER, INC.

We are furnishing you with this Proxy Statement in connection with the solicitation of proxies by the Board of Directors of Badger Meter, Inc. (“company”) to be used at our Annual Meeting of Shareholders (the “Annual Meeting”), which will be held at the Badger Meter headquarters in the Customer Experience Center, 4545 W. Brown Deer Road, Milwaukee, Wisconsin 53223, on Friday, April 24, 2020, at 8:30 a.m., local time, and at any adjournment or postponement thereof.

If you execute a proxy, you retain the right to revoke it at any time before it is voted by giving written notice to us, by submitting a valid proxy bearing a later date or by voting your shares in person at the Annual Meeting. Unless you revoke your proxy, your shares will be voted at the Annual Meeting as you instructed in your proxy. Anyone who is a shareholder of record as of the close of business on February 28, 2020 (the “record date”) may attend the Annual Meeting and vote in person. If your shares are held in “street name” by a broker, nominee, fiduciary or other custodian, you may not vote in person at the Annual Meeting unless you first obtain a proxy issued in your name from your broker, nominee, fiduciary or other custodian.

As of the record date, we had 29,113,211 shares of common stock, par value $1 per share, outstanding and entitled to vote. You are entitled to one vote for each of your shares of common stock.

If your shares are held in “street name” by a broker, nominee, fiduciary or other custodian, you will receive a full meeting package including a voting instruction form to vote your shares. Your broker, nominee, fiduciary or other custodian may permit you to vote by the Internet or by telephone. A broker non-vote occurs when your broker, nominee, fiduciary or other custodian submits a proxy card with respect to your shares, but declines to vote on a particular matter, either because such nominee elects not to exercise its discretionary authority to vote on the matter or does not have discretionary authority to vote on the matter. Your broker, nominee, fiduciary or other custodian has the authority under New York Stock Exchange (“NYSE”) rules to vote your unvoted shares on certain routine matters like the ratification of Ernst & Young LLP as the company’s independent registered public accounting firm for 2020, but not on the election of directors, the advisory vote to approve the compensation of our named executive officers, or the shareholder proposal regarding employee representation on the Board of Directors.

We commenced distribution of this Proxy Statement and accompanying form of proxy on or about March 20, 2020.

NOMINATION AND ELECTION OF DIRECTORS

You and the other holders of the common stock are entitled to elect eight directors at the Annual Meeting. If you submit a proxy to us, it will be voted as you direct. If, however, you submit a proxy without specifying voting directions, it will be voted in favor of the election of each of the eight nominees for director identified below. If your shares are held in “street name” by your broker, nominee, fiduciary or other custodian, your broker, nominee, fiduciary or other custodian may only vote your shares with your specific voting instructions for the election of directors. Therefore, we urge you to respond to your brokerage firm so that your vote will be cast.

Directors will be elected by a plurality of votes cast at the Annual Meeting (assuming a quorum is present). If you do not vote your shares at the Annual Meeting, whether due to abstentions, broker non-votes or otherwise, and a quorum is present, it will have no impact on the election of directors. Once elected, a director serves for a one-year term or until his/her successor has been duly appointed, or until his/her death, resignation or removal.

If a director receives more “withheld” votes than “for” votes in an uncontested election, then according to the process described in the company’s current bylaws, that director will tender his or her resignation to the Chairman of the Board of Directors following certification of the shareholder vote, and the Chairman will refer the resignation to the Board of Directors' Resignation Committee to consider whether or not to accept such resignation. Thereafter, the board will disclose its decision regarding whether to accept the director’s resignation (or the reason(s) for rejecting the resignation, if applicable) in a Current Report on Form 8-K furnished to the Securities and Exchange Commission.

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The nominees of the Board of Directors for director, together with certain additional information concerning each such nominee, are identified below. All of the nominees are current directors of our company. If any nominee is unable or unwilling to serve, the named proxies have discretionary authority to select and vote for substitute nominees. The Board of Directors has no reason to believe that any of the nominees will be unable or unwilling to serve.

Nominees for Election to the Board of Directors

The Board of Directors currently consists of ten directors, including Mr. McGill who was appointed as a director on February 26, 2020 after recommendation by the Corporate Governance Committee.  Mr. Richard A. Meeusen retired from the board effective December 31, 2019.  Current directors Thomas J. Fischer and Todd J. Teske, who served as directors since 2003 and 2009, respectively, will not stand for re-election and will cease to be directors as of the Annual Meeting.  The size of the board will be reduced from ten to eight.  Proxies may not be voted for any individuals who are not nominees.

The following section provides information as of the date of this Proxy Statement about each of the eight nominees. The information presented includes information each director has given us about his/her age, positions held, principal occupation and business experience for the past five years, and the names of other companies, some of which are publicly-held, of which he/she currently serves as a director or has served as a director during the past five years.

In addition to the information presented below regarding each nominee’s specific experience, qualifications, attributes and skills that led our board to the conclusion that he/she should serve as a director, we also believe that all of our director nominees have a reputation for integrity, honesty and adherence to high ethical standards. They each have demonstrated business acumen and an ability to exercise sound judgment, as well as a commitment of service to the company and our board.

 

Name

 

Age

 

Business Experience During Last Five Years

 

Director

Since

Todd A. Adams

 

49

 

Rexnord (a producer of process and motion control components and water management products, headquartered in Milwaukee, WI): President and Chief Executive Officer since 2009 and also serves on its board of directors. Mr. Adams joined Rexnord in 2004 where his prior roles included President of the Water Management platform, Senior Vice President & Chief Financial Officer, and Vice President - Controller & Treasurer. Prior to Rexnord, Mr. Adams held senior financial roles with The Boeing Company, APW Ltd., Applied Power and IDEX. Mr. Adams’ public company leadership and complex manufacturing expertise as well as experience in water management solutions are an excellent combination of skills to provide advice and insights for the company.

 

2017

Kenneth C. Bockhorst

 

47

 

Badger Meter, Inc.: Chairman, President and Chief Executive Officer. Mr. Bockhorst joined Badger Meter as Chief Operating Officer in October 2017 and was promoted to President in April 2018, Chief Executive Officer in 2019 and Chairman of the Board in 2020.  Prior to Badger Meter, he served six years at Actuant Corporation (a diversified industrial company; now named Enerpac Tool Group), most recently as Executive Vice President of the Energy segment. Prior to Actuant, he held product management and operational leadership roles at IDEX and Eaton. He has significant global operational and M&A experience which enables him to provide the board with valuable advice and insights.

 

2018

 

 

 

 

 

 

 

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Name

 

Age

 

Business Experience During Last Five Years

 

Director

Since

Gale E. Klappa

 

69

 

WEC Energy Group (one of the nation’s largest electric and natural gas delivery companies, headquartered in Milwaukee, WI): Executive Chairman, February 2019 to present; previously Chairman and CEO from 2004 to May 2016 and October 2017 to January 2019; Non-Executive Chairman from May 2016 to October 2017. President from 2003 to August 2013. Mr. Klappa is a director of WEC Energy Group and its wholly owned subsidiary, Wisconsin Electric Power Company, and Associated Banc-Corp., headquartered in Green Bay, WI. Mr. Klappa has significant experience as a former CEO of a major public company and as a manager of regulated utility companies. Further, he has in-depth knowledge of utility metering needs and financial and accounting matters. He is able to provide valuable advice and insights to the company in these areas.

 

2010

Gail A. Lione

 

70

 

Dentons (a global law firm): Senior Counsel. Georgetown University School of Law: Adjunct Professor of Intellectual Property Law. Former Adjunct Professor of Intellectual Property Law at Marquette University School of Law. The Harley-Davidson Foundation: Retired President. Harley-Davidson, Inc.: Former Executive Vice President, General Counsel & Secretary and Chief Compliance Officer. Ms. Lione is a director of Sargento Foods Inc., a privately-held company headquartered in Plymouth, WI. Ms. Lione is a Senior Fellow of the ESG Center of the Conference Board.  She has significant legal and management experience in manufacturing that includes securities law, intellectual property, corporate governance and corporate compliance, as well as human resources issues, which enables her to provide valuable advice and insights to the company.

 

2012

James W. McGill

 

64

 

Retired Executive – Eaton Corporation (global power management company): President-Electrical Sector Americas, Eaton from 2015 to his retirement in 2017; President Electrical Products Group 2013-2015; other roles of global responsibility including Chief Human Resources Officer.  Mr. McGill is a director of Powell Industries.  Mr. McGill has significant public company and global leadership experience and expertise in human resources, continuous improvement, and corporate governance, which allows him to provide valuable advice and insights to the company.

 

2020

Tessa M. Myers

 

44

 

Rockwell Automation (world’s largest company dedicated to industrial automation and information, headquartered in Milwaukee, WI): Regional President-North America. Ms. Myers has more than 20 years of experience serving in a variety of sales, channel management, and regional business unit leader roles including global responsibilities in Singapore and Canada for Rockwell.  Throughout her marketing and engineering roles, she has developed expertise in “smart” devices, data and analytics connectivity and Internet of Things (IoT) which allows her to provide valuable advice and insights to the company.

 

2019

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Name

 

Age

 

Business Experience During Last Five Years

 

Director

Since

James F. Stern

 

57

 

A. O. Smith Corporation (a manufacturer of water heating equipment and water treatment and air purification products, headquartered in Milwaukee, WI): Executive Vice President, General Counsel and Secretary since 2007. Mr. Stern has more than 25 years of experience in management, corporate governance and M&A. For the past several years he has chaired A. O. Smith’s global water treatment steering committee, focusing on strategy, expansion and alignment of the water treatment businesses. Prior to joining A. O. Smith, Mr. Stern was a partner at Foley & Lardner LLP in Milwaukee, WI.  Mr. Stern’s legal, international and water background provides valuable advice and insights to the company.

 

2016

Glen E. Tellock

 

59

 

Lakeside Foods (a premier private brand supplier of high quality canned and frozen vegetables, headquartered in Manitowoc, WI): President and Chief Executive Officer since May 2016. Prior to that, Mr. Tellock served The Manitowoc Company, Inc. (a crane and foodservice manufacturing company) from 1991 to 2015, holding various leadership positions including Chief Financial Officer, until his appointment as President and Chief Executive Officer in 2007 and Chairman, President and Chief Executive Officer in 2009. Prior to The Manitowoc Company, Inc., Mr. Tellock held roles at The Denver Post Corporation and Ernst & Whinney. Mr. Tellock currently serves on the board of Astec Industries, Inc. Mr. Tellock’s past experience as Chief Executive Officer of a public manufacturing company and current experience at Lakeside Foods enables him to provide valuable advice and insights to the company.

 

2017

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT OUR SHAREHOLDERS VOTE “FOR ALL NOMINEES” AS IDENTIFIED ABOVE

 

Independence, Committees, Meetings and Attendance

Our Board of Directors has three standing committees: the Audit and Compliance Committee (referred to as the Audit Committee), the Compensation Committee and the Corporate Governance Committee (referred to as the Governance Committee). The Board of Directors has adopted written charters for each committee, which are available on our website at badgermeter.com under the selection “Company”- “Investors”-“Governance”-“Governance Documents.”

In making independence determinations, the board observes all criteria for independence established by the Securities and Exchange Commission (“SEC”), the NYSE, and other governing laws and regulations. The board has determined that each of the directors (other than Mr. Bockhorst) (i) is “independent” within the definitions contained in the current NYSE listing standards and our Principles of Corporate Governance; (ii) meets the categorical independence standards adopted by the board (set forth below); and (iii) has no other “material relationship” with the company that could interfere with his/her ability to exercise independent judgment. In addition, the board has determined that each member of the Audit Committee and Compensation Committee, respectively, meets the additional independence standards of the NYSE.

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The current committee assignments are:

 

 

 

BOARD COMMITTEES

Independent Director

 

Audit and

Compliance

 

Compensation

 

Corporate

Governance

Todd A. Adams

 

X

 

 

 

 

Thomas J. Fischer (1)

 

X*

 

 

 

X

Gale E. Klappa

 

 

 

X*

 

X

Gail A. Lione

 

 

 

X

 

X

James W. McGill

 

 

 

X

 

 

Tessa M. Myers

 

 

 

 

 

X

James F. Stern

 

X

 

X

 

 

Glen E. Tellock

 

X

 

 

 

 

Todd J. Teske (1)

 

 

 

X

 

X*

 

 

 

 

 

 

 

(1)

Messrs. Fischer and Teske will not be standing for re-election.

 

*

Current Chair of the Committee

Committee assignments are made following the annual meeting of shareholders each year.  

The Audit Committee met five times in 2019. The Audit Committee oversees our financial reporting process on behalf of the board and reports the results of their activities to the board. The activities of the Audit Committee include selecting and engaging, with shareholder ratification, an independent registered public accounting firm, discussing with the independent registered public accounting firm and internal auditors the scope and results of audits, monitoring our internal controls, ethics and compliance risk management, and pre-approving and reviewing audit fees and other services performed by our independent registered public accounting firm. The board has determined that three Audit Committee members qualify as an “audit committee financial expert” as defined by the Securities and Exchange Commission. Furthermore, the board has determined that all members of our Audit Committee meet the financial literacy requirements of the New York Stock Exchange.

In overseeing the independent registered public accounting firm, the Audit Committee, among other things, (i) reviews the independence of the independent registered public accounting firm; (ii) reviews periodically the level of fees approved for the independent registered public accounting firm and the pre-approved non-audit services it has provided; (iii) reviews the performance, qualifications and quality control procedures of the independent registered public accounting firm; and (iv) reviews the scope of and overall plans for the annual audit and the internal audit program. In addition to the Audit Committee’s responsibilities regarding the independent registered public accounting firm, the Audit Committee established, and oversees, procedures for the receipt, retention and treatment, on a confidential basis, of any concerns regarding questionable accounting, internal controls or auditing matters.

The Compensation Committee, which met three times in 2019, reviews and establishes all forms of compensation for our executive officers and directors, oversees our compensation plans, including the various stock plans, reviews the various management development and succession programs and addresses compensation-related risks.

The Governance Committee, which met two times in 2019, oversees all matters related to director performance, including the recommendation of nominees for the Board of Directors, assists the Board of Directors in providing oversight of the company’s enterprise risk management program, and oversees all corporate governance matters, including monitoring and evaluating Board and Committee skills, tenure, diversity and performance and developing and recommending to the board the company’s Principles of Corporate Governance.

The Board of Directors held four meetings in 2019. During 2019, all directors attended at least 75% of the meetings of the full board and the committees on which they served during the period. A closed session for only independent directors was held following each of the regular board meetings. All members of the board attended the 2019 Annual Meeting of Shareholders in person or by phone. It is the board’s policy that all directors participate in the Annual Meeting of Shareholders, unless unusual circumstances prevent such attendance.

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Leadership Structure

During 2019, the positions of Chairman of the Board of Directors and the Chief Executive Officer (“CEO”) were separated between Mr. Meeusen and Mr. Bockhorst.  This allowed Mr. Bockhorst to focus on the day-to-day business operations during his first year as CEO.  Effective January 1, 2020, coincident with Mr. Meeusen’s retirement from the Board, Mr. Bockhorst was appointed Chairman of the Board.  The Board of Directors believes it is in the best interests of the company to combine the positions of Chairman and CEO because it provides unified leadership and direction.   In addition, Mr. Bockhorst has an in-depth knowledge of the business that enables him to effectively set appropriate board agendas and ensure processes and relationships are established with both management and the independent directors, as the board works together to oversee the company’s management and affairs.  The board retains the authority to modify this leadership structure as and when appropriate to best address the company’s circumstances and advance the interests of all shareholders.

Because our Chairman is not an independent director, our independent directors believe it is appropriate to appoint an independent director as a Lead Outside Director. Our Lead Outside Director, if elected as a director on an annual basis by our shareholders, serves for a three-year term and if reappointed, can serve up to two consecutive terms.  The Lead Outside Director works with our Chairman and CEO and other board members to provide strong, independent oversight of our management and affairs. Among other things, our Lead Outside Director serves as the principal liaison between the Chairman and our independent directors and chairs the closed sessions that consist of only our independent directors. As the current Lead Outside Director, Mr. Teske, is not standing for re-election, the board will appoint a new independent Lead Outside Director after the Annual Meeting.

Board Role in Risk Oversight

Our Board of Directors oversees an enterprise-wide approach to risk management, designed to support the achievement of organizational objectives, including strategic objectives, to improve long-term organizational performance and enhance shareholder value. A fundamental part of risk management is not only understanding the risks a company faces and what steps management is taking to manage those risks, but also understanding what level of risk is appropriate for the company. The involvement of the full Board of Directors in setting the company’s business strategy is a key part of its assessment of management’s tolerance for risk and also a determination of what constitutes an appropriate level of risk for the company. The full Board of Directors participates in an annual enterprise risk management assessment, which includes an assessment of cyber security risk. In this process, risk is assessed by management throughout the business. A report is provided and presented to the board annually, which is reviewed thoroughly.

While the Board of Directors has the ultimate oversight responsibility for the risk management process, various committees of the board also have responsibility for risk management. In particular, the Audit Committee focuses on financial risks, including overseeing the integrity of the company’s financial statements, qualifications and independence of the independent registered public accounting firm, internal controls and general corporate ethics and compliance. In addition, the Audit Committee annually reviews and assesses the effectiveness of the company’s overall compliance program. The Compensation Committee focuses on compensation risks including risks associated with our workforce and the administration and structure of our employee benefit plans. The Governance Committee focuses on corporate governance policies and practices that help mitigate risk.

Corporate Responsibility – ESG (Environmental, Social, Governance)  

With the support and oversight of our Board of Directors, we continue to focus on sustainability and corporate responsibility. We promote sustainability in our products and solutions as well as our operations - combining economic success, social responsibility and environmental protection in our business operations, thereby enabling our customers to manage and preserve the world's most precious resources.  A newly established ESG Steering Committee was commissioned within the company to prioritize, drive and monitor these efforts. Below is an overview of a few of the recent accomplishments:

 

Established an Environmental Policy with a goal to reduce wastes and emissions, minimize adverse environmental impacts, and promote resource conservation at all of our operations worldwide.

 

Formalized a Human Rights Policy to affirm our commitment to respect and support internationally recognized human rights and freedoms and not be complicit in human rights abuses.

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Created a Supplier Code of Conduct and scorecard that outlines the expectations of our suppliers to fully comply with applicable laws and to adhere to internationally recognized environmental, social and corporate governance standards.

 

Conducted investor outreach to gain feedback and assess priorities surrounding a variety of sustainability, diversity, compensation and governance matters.

For more information on our ESG activities, please visit: https://www.badgermeter.com/corporate-sustainability/

Nomination of Directors

All members of the Governance Committee meet the definition of independence set forth by the NYSE. The Governance Committee has responsibility for recommending nominees for our Board of Directors. The board has adopted a policy by which the Governance Committee will consider nominees for board positions, as follows:

 

When a vacancy occurs on the Board of Directors, the Governance Committee will initiate and oversee a search process for potential new candidates for Board of Director positions.

 

The Governance Committee will review each candidate’s qualifications in light of the needs of the Board of Directors and the company, considering the current mix of director attributes and other pertinent factors.

 

The following minimum qualifications must be met by each director nominee:

 

Each director must display the highest personal and professional ethics, integrity and values.

 

Each director must have the ability to exercise sound business judgment.

 

Each director must be highly accomplished in his or her respective field, with superior credentials and recognition and broad experience at the administrative and/or policy-making level in business, government, education, technology or public interest.

 

Each director must have relevant expertise and experience, and be able to offer advice and guidance to the CEO based on that expertise and experience.

 

Each director must be able to represent all shareholders of the company and be committed to enhancing long-term shareholder value.

 

The majority of the directors must be independent, as defined herein and according to applicable rules of the SEC and the listing standards of the NYSE. 

 

Each director must have sufficient time available to devote to activities of the board and to enhance his or her knowledge of the company’s business.

 

At least one director should have the requisite experience and expertise to be designated as an “audit committee financial expert” as defined by applicable rules of the SEC.

 

The board believes that maintaining a diverse membership with varying backgrounds, skills, expertise and other differentiating personal characteristics promotes inclusiveness, enhances the board’s deliberations and enables the board to better represent all of the company’s constituents.  Accordingly, the board is committed to seeking out highly qualified women and minority candidates as well as candidates with diverse backgrounds, skills and experiences as part of each board search the company undertakes.

 

No candidate, including current directors, may stand for reelection after reaching the age of 72.

 

The Governance Committee will consider candidates recommended by shareholders.  There are no differences in the manner in which the Governance Committee evaluates candidates recommended by shareholders and candidates identified from other sources.

 

To recommend a candidate, shareholders should write to the Board of Directors, c/o Secretary, Badger Meter, Inc., P.O. Box 245036, Milwaukee, WI 53224-9536, via certified mail. Such recommendation should include the candidate’s name and address, a brief biographical description and statement of qualifications of the candidate and the candidate’s signed consent to be named in the Proxy Statement and to serve as a director if elected.

 

To be considered by the Governance Committee for nomination and inclusion in our Proxy Statement, the Board of Directors must receive shareholder recommendations for director no less than 60 days and no more than 90 days prior to the second Saturday in the month of April or as otherwise stated in the company’s Proxy Statement. See “Other Matters” for the deadline for shareholder recommendations for directors with respect to the 2021 Annual Meeting of Shareholders.

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During 2019, and as of the date of this Proxy Statement, the Governance Committee did not pay any fees to third parties to assist in identifying or evaluating potential candidates. Also, the Governance Committee did not receive any shareholder nominees for consideration at the Annual Meeting.

Communications with the Board of Directors

Shareholders and non-shareholders may communicate with the full Board of Directors, non-management directors as a group or individual directors, including the Chairman or Lead Outside Director, by submitting such communications in writing to the intended recipient, c/o Secretary, Badger Meter, Inc., P.O. Box 245036, Milwaukee, WI 53224-9536, via certified mail. The Secretary will forward communications received to the appropriate party. However, commercial advertisements or other forms of solicitation will not be forwarded.

Categorical Independence Standards for Directors

The company’s categorical independence standards for directors are contained in the company’s Principles of Corporate Governance, which are annually reviewed by the Governance Committee. If appropriate, changes are recommended to the Board of Directors for approval.

A director who at all times during the previous three years has met all of the following categorical standards and has no other material relationships with Badger Meter, Inc. will be deemed to be independent:

1.

The company has not employed the director, and has not employed (except in a non-executive officer capacity) any of his or her immediate family members. Employment as an interim Chairman or CEO does not disqualify a director from being considered independent following that employment.

2.

Neither the director, nor any of his or her immediate family members, has received more than $120,000 per year in direct compensation from the company, other than director and committee fees, and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service). Compensation received by a director for former service as an interim Chairman or CEO need not be considered in determining independence under this test. Compensation received by an immediate family member for service as a non-executive employee of the company need not be considered in determining independence under this test.

3.

The director has not been employed by, or affiliated with the company’s present or former internal or external auditor, nor have any of his or her immediate family members been so employed or affiliated (except in a nonprofessional capacity).

4.

Neither the director, nor any of his or her immediate family members, has been part of an “interlocking directorate” in which any of the company’s present executives serve on the compensation (or equivalent) committee of another company that employs the director or any of his or her immediate family members in an executive officer capacity.

5.

Neither the director, nor any of his or her immediate family members (except in a non-executive officer capacity), has been employed by a company that makes payments to, or receives payments from, the company for property or services in an amount which, in any single fiscal year, exceeds the greater of $1 million or 2% of such other company’s consolidated gross revenues. In applying this test, both the payments and the consolidated gross revenues to be measured are those reported in the last completed fiscal year. The look-back provision for this test applies solely to the financial relationship between the company and the director’s or immediate family member’s current employer; the company need not consider former employment of the director or immediate family member.

6.

Neither the director, nor any of his or her immediate family members, has been an employee, officer or director of a foundation, university or other non-profit organization to which the company gives directly, or indirectly through the provision of services, more than $1 million per annum or 2% of such organization’s consolidated gross revenues (whichever is greater).

In addition to satisfying the criteria set forth above, directors who are members of the Audit Committee will not be considered independent for purposes of membership on the Audit Committee unless they satisfy the following additional criteria:

1.

A director who is a member of the Audit Committee may not, other than in his or her capacity as a member of the Audit Committee, the board, or any other board committee, accept directly or indirectly any consulting, advisory, or other compensatory fee from the company or any subsidiary thereof, provided that, unless the rules of the NYSE provide otherwise, compensatory fees do not include the receipt of fixed amounts of compensation under a retirement plan (including deferred compensation) for prior service with the company (provided that such compensation is not contingent in any way on continued service).

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2.

A director, who is a member of the Audit Committee may not, other than in his or her capacity as a member of the Audit Committee, the board, or any other board committee, be an affiliated person of the company.

3.

If an Audit Committee member simultaneously serves on the audit committees of more than two other public companies, then the board must determine that such simultaneous service would not impair the ability of such member to effectively serve on the company’s Audit Committee. The company must disclose this determination in its Proxy Statement.

Available Corporate Governance Information

The company’s Code of Business Conduct, Principles of Corporate Governance, Code of Conduct for Financial Executives and Charters of all current board committees are available on our website at badgermeter.com under the selection “Company” - “Investors” – “Governance”- “Governance Documents”. Copies can also be obtained by writing to the Secretary of Badger Meter, Inc., P.O. Box 245036, Milwaukee, WI 53224-9536.

RELATED PERSON TRANSACTIONS

We had no transactions during 2019, and none are currently proposed, in which we were a participant and in which any related person had a direct or indirect material interest. Our Board of Directors has adopted policies and procedures regarding related person transactions. For purposes of these policies and procedures:

 

A “related person” means any person who is, or was at some time since the beginning of the last fiscal year, (a) one of our directors, executive officers or nominees for director, (b) a greater than five percent beneficial owner of our common stock, or (c) an immediate family member of the foregoing; and

 

A “related person transaction” generally is a transaction (including any indebtedness or a guarantee of indebtedness) in which we were or are to be a participant and the amount involved exceeds $120,000, and in which a related person had or will have a direct or indirect material interest.

Each of our executive officers, directors or nominees for director is required to disclose to the Governance Committee certain information relating to related person transactions for review, approval or ratification by the Governance Committee. Disclosure to the Governance Committee should occur before, if possible, or as soon as practicable after the related person transaction is effected, but in any event as soon as practicable after the executive officer, director or nominee for director becomes aware of the related person transaction. The Governance Committee’s decision whether or not to approve or ratify a related person transaction is to be made in light of the Governance Committee’s determination that consummation of the transaction is not or was not contrary to our best interests. Any related person transaction must be disclosed to the Board of Directors.

Certain related person transactions are deemed pre-approved, including, among others, (a) any transaction with another company, or charitable contribution, grant or endowment to a charitable organization, foundation or university, at which a related person’s only relationship is as an employee (other than an executive officer), director or beneficial owner of less than ten percent of that company’s shares, if the aggregate amount involved does not exceed the greater of $1 million or 2% of the company’s total annual revenues or the charitable organization’s total annual receipts, and (b) any transaction involving a related person where the rates or charges involved are determined by competitive bids.

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STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following table provides information concerning persons known by us to beneficially own more than five percent of our common stock as of February 28, 2020.

 

Name

 

Aggregate

Number of

Shares

 

 

Percent of

Common Stock

Beneficially

Owned

 

 

BlackRock, Inc.

 

 

4,556,032

 

 

 

15.7

%

(1)

55 East 52nd Street

New York, NY 10055

 

 

 

 

 

 

 

 

 

The Vanguard Group, Inc.

 

 

3,399,208

 

 

 

11.7

%

(1)

100 Vanguard Boulevard

Malvern, PA 19355

 

 

 

 

 

 

 

 

 

Impax Asset Management Ltd.

 

 

1,486,166

 

 

 

5.1

%

(1)

30 Panton Street, 7th Floor

London UK SW1Y 4AJ

 

 

 

 

 

 

 

 

 

 

(1)

Share ownership at December 31, 2019 per Schedule 13G and/or 13F filings.

The following table sets forth, as of February 28, 2020, the number of shares of common stock beneficially owned and the number of exercisable options outstanding by (i) each of our directors and nominees, (ii) each of the executive officers named in the Summary Compensation Table set forth below (referred to as the named executive officers or “NEOs”), and (iii) all of our directors and executive officers as a group. Securities and Exchange Commission rules define “beneficial owner” of a security to include any person who has or shares voting power or investment power with respect to such security.

 

Named Executive Officers and Director Nominees

 

Aggregate Number of

Shares of Common

Stock Beneficially

Owned (1)

 

 

Percent of

Common Stock

Beneficially

Owned (1)

 

 

Todd A. Adams

 

 

2,627

 

 

*

 

(2)

Kenneth C. Bockhorst

 

 

29,657

 

 

*

 

(3)

Gale E. Klappa

 

 

18,004

 

 

*

 

(4)

Gail A. Lione

 

 

27,568

 

 

*

 

 

James W. McGill

 

 

-

 

 

*

 

(5)

Tessa M. Myers

 

 

3,532

 

 

*

 

 

James F. Stern

 

 

6,285

 

 

*

 

 

Glen E. Tellock

 

 

6,285

 

 

*

 

 

Gregory M. Gomez

 

 

46,794

 

 

*

 

(6)

Trina L. Jashinsky

 

 

7,345

 

 

*

 

(7)

Kimberly K. Stoll

 

 

18,206

 

 

*

 

(8)

Robert A. Wrocklage

 

 

7,557

 

 

*

 

(9)

All Director Nominees and Executive Officers as a Group (17 persons, including those named above)

 

 

238,501

 

 

 

0.8

%

(10)

Directors Not Standing for Re-Election

 

 

 

 

 

 

 

 

 

Thomas J. Fischer

 

 

29,494

 

 

*

 

(11)

Todd E. Teske

 

 

18,004

 

 

*

 

 

 

*

Less than one percent

(1)

Unless otherwise indicated, the beneficial owner has sole investment and voting power over the reported shares, which includes shares from stock options that are currently exercisable or were exercisable within 60 days of February 28, 2020.

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(2)

Does not include deferred director fee holdings of 7,592 phantom stock units held by Mr. Adams under the Badger Meter Deferred Compensation Plan for Directors. The value of the phantom stock units is based upon and fluctuates with the market value of the common stock. When a participant chooses to exit the plan, the phantom stock units are paid out only in cash.

(3)

Mr. Bockhorst has sole investment and voting power over 5,431 shares he holds directly, 191 shares in our Employee Savings and Stock Ownership Plan, 7,282 shares subject to stock options that are currently exercisable or were exercisable within 60 days of February 28, 2020 and 16,753 shares of restricted stock.

(4)

Mr. Klappa shares voting power with his spouse for 10,998 of the reported shares, and sole power for the remainder.

(5)

Mr. McGill was appointed to the Board on February 26, 2020.

(6)

Mr. Gomez has joint investment and voting power with his spouse over the 13,060 shares he holds directly, and sole investment and voting power over 13,015 shares in our Employee Savings and Stock Ownership Plan, 18,593 shares subject to stock options that are currently exercisable or were exercisable within 60 days of February 28, 2020 and 2,126 shares of restricted stock.

(7)

Ms. Jashinsky has sole investment and voting power over 287 shares in our Employee Savings and Stock Ownership Plan, 5,167 shares subject to stock options that are currently exercisable or were exercisable within 60 days of February 28, 2020 and 1,891 shares of restricted stock.

(8)

Ms. Stoll has sole investment and voting power over 5,592 shares in our Employee Savings and Stock Ownership Plan, 6,330 shares she holds directly, 3,364 shares subject to stock options that are currently exercisable or were exercisable within 60 days of February 28, 2020 and 2,417 shares of restricted stock.   She has shared investment and voting power over 503 shares she owns with her spouse.

(9)

Mr. Wrocklage has joint investment and voting power with his spouse over the 1,158 shares he holds directly, and sole investment and voting power over 110 shares in our Employee Savings and Stock Ownership Plan, 659 shares subject to stock options that are currently exercisable or were exercisable within 60 days of February 28, 2020 and 5,630 shares of restricted stock.

(10)

For the group, the percentage was calculated by including all shares that the members have the right to acquire within 60 days of February 28, 2020.

(11)

Mr. Fischer shares voting power with his spouse for all reported shares.

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

This Compensation Discussion and Analysis provides information about our executive compensation programs for 2019 and discusses the compensation decisions that we made with respect to our Named Executive Officers (NEOs).   For 2019, our NEOs were:

 

Mr. Kenneth C. Bockhorst, President and Chief Executive Officer (1);

 

Mr. Robert A. Wrocklage, Vice President – Chief Financial Officer (2);

 

Ms. Kimberly K. Stoll, Vice President – Sales and Marketing;

 

Mr. Gregory M. Gomez, Vice President – Global Flow Instrumentation and International Utility; and

 

Ms. Trina L. Jashinsky, Vice President – Human Resources.

 

(1)

On January 1, 2020 Mr. Bockhorst was promoted to Chairman, President and Chief Executive Officer.

 

(2)

On January 1, 2020 Mr. Wrocklage was promoted to Senior Vice President – Chief Financial Officer.

 

 

Overview of Compensation Policies and Procedures

Our executive compensation program for all executive officers, including each NEO, is administered by the Compensation Committee. The Compensation Committee is composed of five independent directors.

 

The Compensation Committee is committed to developing and implementing an executive compensation program that directly aligns the interests of all executive officers with the long-term interests of shareholders.  The compensation philosophies that guide the Compensation Committee as it carries out its duties include the following:

 

Executive compensation programs should be designed to attract and retain qualified executive officers, as well as motivate and reward performance.

 

The Compensation Committee should attempt to achieve a fair and competitive compensation structure for our executive officers by implementing both short-term and long-term plans with fixed and variable components.

 

The payment of annual incentive compensation should be directly linked to the attainment of performance goals approved by the Compensation Committee. See “Total Compensation and Link to Performance” below.

 

Long-term incentive programs should be designed to align with shareholder interests by utilizing stock options, restricted stock and long-term cash incentives in order to ensure that our executive officers are committed to our long-term success.

 

Compensation policies should be structured to align the interests of management with the interests of shareholders, in a manner that does not encourage excessive risk taking. To discourage excessive risk taking, the Compensation Committee conducts an annual risk assessment of our compensation plans and places great emphasis on equity-based incentive compensation and stock ownership by executive officers.

While the Compensation Committee retains sole authority in making its decisions and recommendations regarding executive compensation, it considers and reviews, among other things:

 

 

Compensation data obtained through an independent executive compensation consultant for competitive businesses of similar size and business activity. The data considered includes information relative to both base salary and bonus separately and on a combined basis, as well as total cash and long-term incentive compensation.

 

Our financial performance as a whole relative to the prior year, our budget and other meaningful financial data, such as sales, return on assets, cash generated from operations and financial position.

 

The recommendations of the CEO with regard to the other executive officers, including the NEOs.

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In developing compensation plans for fiscal year 2020, the Compensation Committee considered the positive “say on pay” vote of our shareholders at our 2019 Annual Meeting of Shareholders. As a result, and as we describe in this Compensation Discussion and Analysis, the Compensation Committee kept in place for fiscal year 2020 most of the same executive compensation program components that it had disclosed to shareholders in the Proxy Statement for the 2019 Annual Meeting of Shareholders.

Executive Compensation and Governance Practices and Standards

We endeavor to maintain sound governance practices and standards consistent with our executive compensation philosophies. Below is a summary of those practices and standards:

 

What We Do

 

What We Do Not Do

   Use performance metrics to align pay with performance

 

 Provide excessive executive perquisites

   Cap payouts under our annual cash bonus and long-term incentive plans

   Have robust stock ownership guidelines for our CEO, NEOs and all executive officers

   Apply clawback provisions to annual cash bonus and long-term incentive plans

   Engage an independent compensation consultant that reports to the Compensation Committee

 

 Provide single-trigger change-in-control severance   benefits

 Reprice stock options

 Provide incentive programs that encourage excessive risk taking

   Prohibit short sales, hedging or pledging of our stock by our executive officers and directors

   Comprise the Compensation Committee of entirely independent directors

   Require a double trigger in change-of-control provisions

   Compensation Committee regularly meets in executive session without management present and performs an annual risk assessment of compensation practices

 

 

 

Role of Compensation Consultant

For 2019, the Compensation Committee engaged Willis Towers Watson PLC (“WTW”), an independent compensation consultant. The Compensation Committee generally engages an independent compensation consultant and has the authority to approve fees and other terms of the engagement. The consultant’s duties were to evaluate executive compensation, to discuss with the Compensation Committee general compensation trends, to provide the Compensation Committee with competitive market data relating to the compensation of each of our NEOs, and to assist our CEO in developing compensation recommendations to present to the Compensation Committee for the executive officers other than himself. The compensation consultant provides the Committee with advice, consultation and market information on a regular basis, as requested, throughout the year. The executive compensation consultant does not make specific recommendations on individual compensation amounts for the executive officers, nor does the consultant determine the amount or form of executive compensation. The Compensation Committee has assessed the independence of WTW pursuant to SEC rules and NYSE listing standards and affirmatively determined that WTW's services have not raised any conflicts of interest.

Total Compensation and Link to Performance

 

We strive to compensate our executive officers at competitive levels, with the opportunity to earn above-median compensation for above-market performance, through programs that emphasize performance-based incentive compensation in the form of annual cash payments, equity-based awards and a long-term incentive program. To that end, total executive compensation is tied to our performance and is structured to ensure that, due to the nature of our business, there is an appropriate balance focused on our long-term versus short-term performance, and also a balance between our financial performance and the individual performance of our executive officers, all of which is designed to align compensation with our shareholders’ interests. For example, the annual bonus plan is based primarily on targeted annual growth in adjusted operating earnings. Long-term bonus plans include cash awards based upon operating earnings targets over three-year performance periods, and restricted stock and option grants that increase or decrease in value with changes in the stock price. These programs are further described under “Elements of Compensation” below.

 

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For those compensation components where individual performance is a consideration, individual performance is considered as part of the overall evaluation process. This evaluation of individual performance impacts the annual adjustment to base salaries for all of our executive officers and also may impact payments made under the annual bonus plan for all officers except the CEO. For the period disclosed, the Compensation Committee determined that the performance of all executive officers was satisfactory, with certain NEOs determined to have exceeded various performance goals in 2019. As such, annual base salary adjustments were made for each executive officer based upon recommendations from the CEO (for all executive officers except the CEO) and the judgment of the Compensation Committee, and three NEOs received discretionary increases to the payments made under the annual bonus plan within permissible limits described below.

 

We believe that the total compensation paid or awarded to our executive officers during 2019 was consistent with our financial performance and the individual performance of each of the executive officers. Based on our analysis and the advice of WTW, we also believe that the compensation was reasonable in its totality and is consistent with our compensation philosophies as described above.

 

As noted above, our CEO serves in an advisory role to the Compensation Committee with respect to executive compensation for executive officers other than himself (the CEO does not participate in determining or recommending compensation for himself). His recommendations are given significant weight by the Compensation Committee, but the Compensation Committee remains responsible for all decisions on compensation levels for the executive officers and on our executive compensation policies and executive compensation programs. All decisions on executive compensation levels and programs are made by the Compensation Committee.

Amount and Elements of Compensation

The Compensation Committee determines the amounts and elements of compensation under our compensation program for our executive officers. The program involves base salaries, benefits, short-term annual cash bonus plan and a long-term incentive program using a mix of stock options, restricted stock and cash incentives.

 

Peer Group and Compensation Survey Data. Compensation levels are established for each executive officer by the Compensation Committee, with general reference to data supplied by WTW on organizations of similar size and business activity. For 2019, WTW provided data from two sources: general industry survey data and the recent proxy statements of a peer group selected by the company and approved by the Compensation Committee. The general industry survey data was obtained from the 2019 WTW Executive Compensation Database Survey. This compensation data incorporates primarily publicly-traded companies, and has a broad definition of similar business activity, thereby providing a comprehensive basis for evaluating Badger Meter’s compensation compared to market. The survey includes salaries, bonus opportunities, total cash compensation, long-term incentive compensation and total direct compensation. Where appropriate, the data was size-adjusted using regression analysis based on company revenues.

 

We developed a peer group of thirteen comparable publicly-held manufacturing companies that have business operations similar to ours (the “peer group”). The compensation information for the five highest paid executives at each of the thirteen companies was obtained from the proxy statements of the companies and compared to the compensation of our five highest paid executives. The Compensation Committee annually reviews and approves the appropriateness of the selected peer group.   The companies in the peer group for 2019 were:

 

A.O. Smith

Helios

Perma-Pipe

CIRCOR International

Itron, Inc.

Rexnord Corporation

ESCO Technologies

Lindsay Corporation

Watts Water Technologies

Franklin Electric Co.

Mueller Water Products

 

Gormann-Rupp

Northwest Pipe Co.

 

 

Base Salary. Our policy is to pay executive officers at market, with appropriate adjustments for performance and levels of responsibility. To aid the Compensation Committee in its understanding of each executive officer’s performance and levels of responsibility, the Compensation Committee is given a five-year history, which sets forth the base salary, short-term incentive awards, and long-term compensation of each such officer.

 

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Base salary increases across all executive officers for calendar year 2019 were approved by the Compensation Committee on November 8, 2018 and ranged from 2.0% to 11.0%. Mr. Bockhorst was promoted to President and CEO effective January 1, 2019 and received a base salary increase of 9.5% to $575,000.  Mr. Wrocklage was promoted to Vice President-Chief Financial Officer effective January 1, 2019 and received a base salary increase of 11%.  The other executive officers received base salary increases ranging from 3.0% to 3.5%. These increases were based primarily on our philosophy to set base salaries at market to maintain competitive salary levels, but they also reflect certain increases in responsibility and the positive impact the executives had on our financial and strategic results in 2018.

 

Base salary increases for our executive officers for calendar year 2020 were approved by the Compensation Committee on November 7, 2019 and ranged from 2.0% to 9.0%.  These increases were based primarily on our philosophy to set base salaries at market to maintain competitive salary levels, but they also reflect salary progression to market for less tenured executives and the positive impact each of our executive officers had on our financial and strategic results in 2019.

 

Annual Bonus Plan. Our annual bonus plan is designed to reward executive officers, along with other leaders and most salaried employees of Badger Meter.   The plan is intended to provide a competitive level of compensation when performance objectives and metrics are achieved. Under the annual bonus plan, the target bonus level for the CEO was 100% of base salary and the target bonus levels for all other NEOs ranged from 35% - 55% of base salary in 2019, depending on scope of the NEOs duties and responsibilities. The targets set pursuant to the annual bonus plan for 2019 were comprised of two components - a financial factor based on the attainment of a certain level of adjusted operating earnings and individual performance for all officers except the CEO.

 

The Compensation Committee approves the target level of adjusted operating earnings used for the financial component of the determination of an executive’s annual bonus at the beginning of each year. For 2019, the target financial factor was based on achieving an increase in adjusted operating earnings of 10.0% over 2018.  

 

Per the terms of our annual bonus plan, the Compensation Committee may make adjustments to reported operating earnings for certain items such as pension settlement, curtailment or termination charges, costs (other than internal labor) associated with actual or potential acquisitions, results of newly acquired entities for the first twelve months after the effective date of acquisition and other non-operating items such as significant gains or losses from the disposal or impairment of long-term assets. For 2019, the Compensation Committee approved an adjustment to operating earnings (and the related bonus payments) for costs associated with acquisition due diligence incurred in 2019.

 

Details of the annual bonus targets and achievement specific to executive officers, including our NEOs, for 2019 were as follows (in millions):

 

 

 

2019 Annual Bonus Scale

 

 

2019 Annual

Bonus

Achievement

 

 

 

Threshold

 

 

Target

 

 

Maximum

 

 

Actual

 

2019 Adjusted Operating Earnings

 

$

59.23

 

 

$

65.00

 

 

$

71.00

 

 

$

62.34

 

Bonus Payout

 

 

50

%

 

 

100

%

 

 

200

%

 

 

77.0

%

% Operating Earnings Increase from 2018

 

 

0

%

 

 

10

%

 

 

20

%

 

 

5.3

%

 

 

The 2019 annual bonus for each executive officer, except the CEO, could also be adjusted up or down 10% at the discretion of the Compensation Committee. Further, the Compensation Committee has the authority to award special performance bonuses.   Discretionary adjustments were made by the Compensation Committee for five of our executive officers in 2019 for exceeding certain individual performance goals.  Three of these were NEOs who each received a 10% upward adjustment (Mr. Wrocklage, Mr. Gomez and Ms. Jashinsky).  

 

Details of the 2020 bonus targets (in millions) are as follows:

 

 

 

2020 Annual Bonus Scale

 

 

 

Threshold

 

 

Target

 

 

Maximum

 

2020 Adjusted Operating Earnings

 

$

62.34

 

 

$

67.30

 

 

$

71.50

 

Bonus Payout

 

 

50

%

 

 

100

%

 

 

200

%

% Operating Earnings Increase from 2019

 

 

0

%

 

 

8

%

 

 

15

%

 

 

 

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Long-Term Incentive Plan (referred to as LTIP)

 

Each year, we grant annual long-term incentive compensation awards to each of our executive officers in an amount determined by our Compensation Committee. The purpose of the long-term incentive grants is to align our executive officers’ interests with those of our shareholders, and to present an opportunity for our executive officers to gain or increase their equity interests in our stock. (See the discussion below under Common Stock Ownership Guidelines).

 

In 2019, long-term incentive compensation awards for the executive officers were comprised of 30% restricted stock awards, 30% stock option awards and 40% cash bonus. The mix is intended to provide balance between performance-oriented long-term incentive vehicles (stock options and cash bonus) and retention-oriented long-term incentive vehicles (restricted stock). We believe that the granting of stock options and the use of a cash bonus tied to an extended performance period serves to encourage the executive officers to direct efforts that will ultimately align our executive compensation program with our shareholders’ interests over the long term. We believe that the granting of restricted stock serves to encourage our executive officers to direct their efforts to increase shareholder value.

 

In determining the amount of incentive compensation to be awarded to each NEO, we consider the mix of long-term incentives provided by the companies in the competitive market data supplied by WTW and the peer group as a guidepost, but we primarily structure the long-term incentive mix based on our compensation objectives. Specifically, the nature and amount of the long-term incentive compensation awarded to each of the NEOs was based primarily on our desire to ensure that executive compensation is tied to our performance, with an appropriate balance focused on our long-term versus short-term performance. The mix of the long-term incentive awards was the same for each of the NEOs. Furthermore, the individual performance of each NEO was considered as part of the overall evaluation process, with the Compensation Committee determining that the performance of each of the NEOs was satisfactory.  

 

In addition to the annual stock option and restricted stock grants described above, one-time stock option or restricted stock awards may be granted to new executive officers either upon hire or within one year of becoming an executive officer.  No such awards were granted to NEOs in 2019.

 

In selecting a date of grant for any stock option and restricted stock awards, the Compensation Committee establishes a date that avoids any inference of timing such awards to the release of material non-public information. Restricted stock awards use an average of the prior 10 days closing prices to determine the number of shares granted based on a predetermined dollar value. Stock option awards are granted with an exercise price equal to the closing price of our common stock on the date of grant.

In addition to stock option and restricted stock awards, our LTIP incentive plan provides for cash-based performance unit awards to all executive officers, including the NEOs.  Under the LTIP cash award program, the Compensation Committee establishes three-year adjusted operating earnings goals that are the basis for threshold, target and maximum payout amounts for the three-year performance period. At the threshold, target and maximum levels of operating earnings, the executive officers earn 50%, 100% and 200%, respectively, of the target cash payout for each officer, with the payouts pro-rated for performance between these amounts. The table below summarizes the threshold, target, and maximum operating earnings goals (in millions) for each granted performance period, as well as the actual achievement (in millions) for the most recently completed three-year performance period:  

 

 

 

LTIP Incentive Plan (Cash Award) - Adjusted Operating

Earnings Targets

 

 

LTIP Incentive

Achievement

Performance Period

 

Threshold (50%)

 

 

Target (100%)

 

 

Maximum (200%)

 

 

Actual

2017 - 2019

 

$

171.1

 

 

$

186.0

 

 

$

206.4

 

 

$179.0 (76.5%)

2018 - 2020

 

$

190.1

 

 

$

210.0

 

 

$

229.4

 

 

NA

2019 - 2021

 

$

196.1

 

 

$

215.2

 

 

$

235.0

 

 

NA

2020 - 2022

 

$

202.4

 

 

$

218.5

 

 

$

232.2

 

 

NA

 

Adjusted operating earnings utilized to determine achievement for the LTIP cash award is determined in a manner similar to the annual bonus plan and is subject to the same potential and approved adjustments as described above.  

 

 

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Salaried Employee Annual Cash Bonus

Annual cash bonuses are also paid to various salaried employees using the same adjusted operating earnings threshold and target levels as used for the executive officers and previously described under “Annual Bonus Plan.” For 2019, approximately 380 salaried employees participated in that bonus plan.

Other Benefits

Salary Deferral Plan. All executive officers are eligible to participate in a Salary Deferral Plan described in Note 1 of the “Nonqualified Deferred Compensation Table” below. The Compensation Committee believes that it is appropriate to offer this program to enable the executive officers to better manage their taxable income and retirement planning. Based on its analysis and the advice of WTW, the Compensation Committee believes that this program is competitive with comparable programs offered by other companies. As of December 31, 2019, no current executive officers had balances in the Salary Deferral Plan.

 

Supplemental Retirement Plans. We offer a supplemental retirement plan to certain employees, including executive officers. The purpose of this plan is to compensate certain employees for compensation reductions caused by salary deferrals or by regulatory limitations on qualified plans. The Compensation Committee believes that this supplemental retirement plan is appropriate to attract and retain qualified executives. For more information, see “Retirement Benefits” below.

 

Additional benefits. Each executive officer receives his/her choice of either the use of a vehicle for both personal and business purposes, or a vehicle allowance. All executive officers participate in the Badger Meter, Inc. Employee Savings and Stock Ownership Plan and other benefit plans provided to all of our U.S. employees.  During 2019, we implemented a company-paid long-term disability plan for executive officers that provides replacement income for approximately 60% of executive base salary and bonus in the event of long-term disability.

 

Clawback Policy.  The company has a Compensation Recoupment Policy (commonly referred to as a “clawback policy”). The clawback policy is designed to ensure that incentive-based compensation is paid to executive officers based on accurate financial statements and ethical and legal conduct. In the event that we are required to prepare an accounting restatement due to the material noncompliance with accounting rules, or we determine that an executive officer engaged in illegal or fraudulent conduct or materially breached the company’s Code of Business Conduct, the result of which is adverse to the company, whether financial or reputational harm, the policy requires the recoupment of certain incentive-based compensation that was granted to current or former executive officers of the company who received incentive-based compensation at any time after the effective date of policy and during the three-year period preceding the date on which we are required to prepare the accounting restatement, or, respectively, the date on which we determined the conduct occurred that caused the company the aforementioned harm.

Section 162(m) Limitations. The company’s compensation programs were designed generally to ensure tax deductibility of the compensation paid under the incentive plans based on tax regulations in effect at the time the plans were adopted, including Section 162(m) of the Internal Revenue Code. In December 2017, the Tax Cuts and Jobs Act of 2017 (“Tax Act”) was enacted in the United States. Among other changes, the Tax Act eliminated prospectively the provisions under Section 162(m) of the Internal Revenue Code that allowed tax deductions for certain performance-based compensation above the $1.0 million deductibility limit for certain executive officers, subject to transitional provisions for compensation and grants awarded prior to November 2017. Although the Tax Act substantially changed certain elements of tax deductibility of executive compensation, including the loss of certain deductions keyed to the former specified performance-based standards, the Compensation Committee intends to continue to structure compensation programs to be consistent with its pay-for-performance philosophy. During the transition period, the Compensation Committee anticipates taking appropriate action to preserve the deductibility for past awards to the extent reasonably possible and as permitted by transitional provisions.

 

Tax Gross-ups. The company does not provide tax gross-ups to any of the executive officers except in the unlikely event of a tax penalty in connection with the triggering of the Key Executive Employment and Severance Agreements as described in the “Potential Payments Upon Termination or Change-in-Control” below.

 

 

 

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Potential Payments Upon Termination or Change-in-Control

We have entered into Key Executive Employment and Severance Agreements (each referred to as a KEESA) with all executive officers, whose expertise has been critical to our success, to encourage them to remain with us in the event of any merger or transition period. The Compensation Committee has reviewed these agreements and determined that they are appropriate given competitive market practices. Each KEESA requires a “double-trigger,” providing for payments in the event there is a change-in-control and (1) the executive officer’s employment with us terminates (whether by us, the executive officer or otherwise) within 180 days prior to the change-in-control and (2) it is reasonably demonstrated by the executive officer that (a) any such termination of employment by us (i) was at the request of a third party who has taken steps reasonably calculated to effect a change-in-control or (ii) otherwise arose in connection with or in anticipation of a change-in-control, or (b) any such termination of employment by the executive officer took place because of an event that allowed the termination for good reason, which event (i) occurred at the request of a third party who has taken steps reasonably calculated to effect a change-in- control or (ii) otherwise arose in connection with or in anticipation of a change-in-control. For more information regarding the KEESAs, see the discussion in “Potential Payments Upon Termination or Change-in-Control” below.

Common Stock Ownership Guidelines and Hedging and Pledging Policies

We believe that it is important to align executive and shareholder interests by defining stock ownership guidelines for our executives. As a result, each executive officer is expected to hold common stock equal to at least two-times his or her annual base salary, except the CEO who is expected to hold common stock equal to at least three-times his annual base salary. New executive officers are expected to achieve this level of stock ownership within a reasonable time, but in any event, within six years of becoming an executive officer. Each executive officer, including each NEO either met the targeted level of stock ownership, or are within the permitted six-year window to achieve the ownership requirement.

 

Additionally, we have a policy that prohibits our executive officers, as well as our directors, from engaging in short selling, hedging transactions (including the purchase of prepaid variable forward contracts, equity swaps, collars and exchange funds) and from holding our common stock in a margin account or pledging our common stock as collateral for a loan.

Risk Assessment

The Compensation Committee conducts an annual risk assessment of our compensation program to determine whether our compensation policies and practices are reasonably likely to have a material adverse effect on the company. Based on this assessment, the Compensation Committee believes that our compensation program is balanced and does not motivate or encourage unnecessary or excessive risk taking because of, in part, the following:

 

Base salaries are fixed in amount and thus do not encourage risk taking;

 

Our annual bonus plan is designed to align compensation with our shareholders’ interests over the long term;  

 

Our long-term incentive plan uses a mix of performance measures that are designed to award our executives only if the company is achieving positive long-term growth;

 

We have a clawback policy;

 

We maintain appropriate caps on incentives; and

 

We have limited and appropriate perquisites.

 

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Summary Compensation Table

The following table sets forth information concerning compensation earned or paid to each of the NEOs for each of the last three fiscal years in which they were an NEO, as applicable. The NEOs are our principal executive officer, principal financial officer and three other most highly compensated executive officers employed as of December 31, 2019.

Summary Compensation Table for 2019 (all amounts in $)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Equity Incentive

Plan Compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

Name & Principal Position

 

Year

 

Salary

 

 

Bonus

(1)

 

 

Stock

Awards

(2)

 

 

Option

Awards

(3)

 

 

Annual

Bonus

(4)

 

 

LTIP

CASH

(5)

 

 

Change in Pension Value (6)

 

 

All Other

Compensation

(7)

 

 

Total

 

Kenneth C. Bockhorst

 

2019

 

 

575,000

 

 

 

 

 

 

277,524

 

 

 

278,988

 

 

 

442,750

 

 

 

 

 

 

48,578

 

 

 

42,357

 

 

 

1,665,197

 

President & CEO

 

2018

 

 

525,000

 

 

 

 

 

 

191,258

 

 

 

194,990

 

 

 

293,580

 

 

 

 

 

 

22,430

 

 

 

44,393

 

 

 

1,271,651

 

 

 

2017

 

 

110,417

 

 

 

 

 

 

700,000

 

 

 

 

 

 

96,289

 

 

 

 

 

 

 

 

 

2,140

 

 

 

908,846

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Robert A. Wrocklage

 

2019

 

 

300,000

 

 

 

16,500

 

 

 

59,670

 

 

 

59,987

 

 

 

127,050

 

 

 

 

 

 

4,056

 

 

 

34,493

 

 

 

601,756

 

Vice President - Chief

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Kimberly K. Stoll

 

2019

 

 

245,300

 

 

 

 

 

 

37,287

 

 

 

37,492

 

 

 

75,552

 

 

 

38,275

 

 

 

4,024

 

 

 

35,667

 

 

 

473,597

 

Vice President - Sales and

 

2018

 

 

238,200

 

 

 

 

 

 

36,777

 

 

 

37,500

 

 

 

66,601

 

 

 

51,272

 

 

 

5,080

 

 

 

36,794

 

 

 

472,224

 

Marketing

 

2017

 

 

231,300

 

 

 

 

 

 

37,580

 

 

 

37,489

 

 

 

114,706

 

 

 

128,889

 

 

 

14,831

 

 

 

37,573

 

 

 

602,368

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gregory M. Gomez

 

2019

 

 

244,200

 

 

 

9,768

 

 

 

32,798

 

 

 

32,997

 

 

 

75,214

 

 

 

33,682

 

 

 

3,735

 

 

 

31,608

 

 

 

464,002

 

Vice President - Flow Instru-

 

2018

 

 

237,100

 

 

 

 

 

 

32,342

 

 

 

32,986

 

 

 

66,293

 

 

 

51,272

 

 

 

5,041

 

 

 

33,920

 

 

 

458,954

 

mentation and Global Utility

 

2017

 

 

230,200

 

 

 

 

 

 

33,060

 

 

 

32,988

 

 

 

114,161

 

 

 

126,355

 

 

 

81,463

 

 

 

34,242

 

 

 

652,469

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trina L. Jashinsky

 

2019

 

 

215,300

 

 

 

7,536

 

 

 

29,805

 

 

 

29,994

 

 

 

58,023

 

 

 

29,089

 

 

 

130

 

 

 

32,626

 

 

 

402,503

 

Vice President - Human

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Resources

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

The amount reflects a discretionary bonus representing a 10% upward adjustment to the annual bonus awarded for exceeding various individual performance goals.

 

(2)

For all NEO’s, these amounts reflect the grant date fair value of the restricted stock awards made in each respective year, which is determined based on the market price of the shares on the grant date. More details regarding the assumptions made in valuing these awards can be found under the caption “Restricted Stock” in Note 5 to the Consolidated Financial Statements in our 2019 Annual Report on Form 10-K.  Except for Mr. Bockhorst (in 2017), these awards were made on the first Friday of March in each year. In connection with his appointment as Senior Vice PresidentChief Operating Officer on October 11, 2017, Mr. Bockhorst received a one-time equity grant of $700,000 in the form of restricted stock, which vests ratably over a five-year period.  

(3)

These amounts reflect the grant date fair value of the option awards made in each respective year. The strike price is the closing price of our common stock on the NYSE on the first Friday of March of each year. The assumptions made in valuing the option awards are included under the caption “Stock Options” in Note 5 to the Consolidated Financial Statements in our 2019 Annual Report on Form 10-K and such information is incorporated herein by reference.  

(4)

“Non-Equity Incentive Plan Compensation - Annual Bonus” amounts represent annual incentive bonuses earned during the year indicated but paid in February of the following year. For example, any bonus earned during 2019 was paid in February of 2020 under the bonus program described in the “Compensation Discussion and Analysis”.

(5)

The “Non-Equity Incentive Plan Compensation - LTIP Cash” represents the amount earned for the three-year plan ending as of the year shown under our LTIP plan, as described in the “Compensation Discussion and Analysis”. At the conclusion of each three-year plan, any amounts earned are paid in February of the following year.  For example, amounts earned under our LTIP for the three-year performance period 2017-2019 were paid in February 2020.

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(6)

Change in Pension Value” includes the 2019 aggregate increase in the actuarial present value of each NEO’s accumulated benefit under our non-qualified unfunded supplemental retirement plan, using the same assumptions and measurement dates used for financial reporting purposes with respect to our audited financial statements.

(7)

“All Other Compensation” for 2019 includes the following items:

 

a.

Contributions to the Badger Meter, Inc. Employee Savings and Stock Ownership Plan (ESSOP) of $4,750 each for Mr. Bockhorst, Mr. Wrocklage and Ms. Stoll, $4,200 for Mr. Gomez and $4,658 for Ms. Jashinsky.  The defined contribution feature of the plan resulted in contributions of $16,942 for all NEOs except Ms. Jashinsky who received $15,974.

 

b.

Dividends on restricted stock of $11,302 for Mr. Bockhorst, $3,801 for Mr. Wrocklage, $1,455 for Mr. Gomez, $1,630 for Ms. Stoll and $1,136 for Ms. Jashinsky.

 

c.

Vehicle usage of $9,363 for Mr. Bockhorst, $9,000 for Mr. Wrocklage, $9,011 for Mr. Gomez, $12,345 for Ms. Stoll and $10,859 for Ms. Jashinsky.

 

Grants of Plan-Based Awards

The following table sets forth information regarding all plan-based awards that were granted to the NEOs during 2019, including incentive plan awards (equity-based and non-equity based) and other plan-based awards. Disclosure on a separate line item is provided for each grant of an award made to an NEO during the year. Non-equity incentive plan awards are awards that are not subject to FASB ASC Topic 718 and are intended to serve as an incentive for performance to occur over a specified period. There are no equity incentive-based awards, which are equity awards subject to a performance condition or a market condition as those terms are defined by FASB ASC Topic 718.

Grants of Plan-Based Awards for 2019

 

 

 

 

 

Estimated Future Payouts Under

Non-Equity Incentive Plan

Awards

 

 

All Other

Stock

 

 

All Other

Option

Awards:

 

 

Exercise

 

 

Grant Date

Fair Value of

 

Name

 

Grant

Date

 

Threshold

($)

 

 

Target

($)

 

 

Maximum

($)

 

 

Awards:

Restricted

Shares

(#)

 

 

Securities

Underlying

Options

(#)

 

 

Price of

Option

Awards

($/share)

 

 

Stock and

Option

Awards

($)

 

Kenneth C. Bockhorst

 

Mar 1, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,637

 

 

 

 

 

 

 

 

 

 

 

277,524

 

 

 

Mar 1, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15,329

 

 

 

59.85

 

 

 

278,988

 

 

 

Jan 31, 2019

(1)

 

186,000

 

 

 

372,000

 

 

 

744,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jan 31, 2019

(2)

 

287,500

 

 

 

575,000

 

 

 

1,150,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Robert A. Wrocklage

 

Mar 1, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

997

 

 

 

 

 

 

 

 

 

 

 

59,670

 

 

 

Mar 1, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,296

 

 

 

59.85

 

 

 

59,987

 

 

 

Jan 31, 2019

(1)

 

40,000

 

 

 

80,000

 

 

 

160,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jan 31, 2019

(2)

 

82,500

 

 

 

165,000

 

 

 

330,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Kimberly K. Stoll

 

Mar 1, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

623

 

 

 

 

 

 

 

 

 

 

 

37,287

 

 

 

Mar 1, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,060

 

 

 

59.85

 

 

 

37,492

 

 

 

Jan 31, 2019

(1)

 

25,000

 

 

 

50,000

 

 

 

100,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jan 31, 2019

(2)

 

49,060

 

 

 

98,120

 

 

 

196,240

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gregory M. Gomez

 

Mar 1, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

548

 

 

 

 

 

 

 

 

 

 

 

32,798

 

 

 

Mar 1, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,813

 

 

 

59.85

 

 

 

32,997

 

 

 

Jan 31, 2019

(1)

 

22,000

 

 

 

44,000

 

 

 

88,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jan 31, 2019

(2)

 

48,840

 

 

 

97,680

 

 

 

195,360

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trina L. Jashinsky

 

Mar 1, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

498

 

 

 

 

 

 

 

 

 

 

 

29,805

 

 

 

Mar 1, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,648

 

 

 

59.85