Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant X
Filed by a Party other than the Registrant Check the appropriate box:
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| Preliminary Proxy Statement |
| Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
X | Definitive Proxy Statement |
| Definitive Additional Materials |
| Soliciting Material Pursuant to § 240.14a-12 |
CIRCOR INTERNATIONAL, 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):
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X | 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: |
| (2) | Aggregate number of securities to which transaction applies: |
| (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): |
| (4) | Proposed maximum aggregate value of transaction: |
| (5) | Total fee paid: |
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| 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 of the Form or Schedule and the date of its filing. |
| (1) | Amount Previously Paid: |
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30 Corporate Drive, Suite 200
Burlington, MA 01803
+1 (781) 270-1200
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on Thursday, May 9, 2019
NOTICE IS HEREBY GIVEN that the Annual Meeting (the "Annual Meeting") of Stockholders of CIRCOR International, Inc. (the "Company") will be held on Thursday, May 9, 2019, at 12:00 PM local time. The Annual Meeting will be held at the Company's headquarters at CIRCOR International, Inc., 30 Corporate Drive, Suite 200, Burlington, MA 01803. The Annual Meeting is being called for the purpose of considering and voting upon the following proposals:
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1. | To elect two Class II directors for three-year terms, such terms to continue until the Annual Meeting of Stockholders in 2022 and until each such director's successor is duly elected and qualified or until such director's earlier resignation or removal; |
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2. | To ratify the selection by the Audit Committee of the Board of Directors of the Company of PricewaterhouseCoopers LLP as the Company's independent auditors for the fiscal year ending December 31, 2019; |
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3. | To consider an advisory resolution approving the compensation of the Company's Named Executive Officers; |
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4. | To approve the 2019 Stock Option and Incentive Plan; and |
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5. | Such other business as may properly come before the Annual Meeting and any adjournments or postponements thereof. |
The Board of Directors has fixed the close of business on March 19, 2019 as the record date for determination of stockholders entitled to notice of, and to vote at, the Annual Meeting and any adjournments or postponements thereof. Only holders of record of the Company's common stock, par value $0.01 per share, at the close of business on that date will be entitled to notice of, and to vote at, the Annual Meeting and any adjournments or postponements thereof.
All stockholders are cordially invited to attend the Annual Meeting in person. To assure your representation at the Annual Meeting, we urge you to vote via the Internet or by telephone by following the instructions on the Notice of Internet Availability of Proxy Materials (the "Notice") you received or, if you have requested a proxy card by mail, by signing, voting and returning your proxy card in the enclosed envelope. For specific instructions on how to vote your shares, please review the instructions for each of these voting options that are detailed in your Notice and in the Company's Proxy Statement. If you attend the Annual Meeting, you may vote in person even if you have previously voted via the Internet or by telephone or returned a proxy card.
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting to be Held on May 9, 2019: Our Proxy Statement, a form of proxy, a letter to stockholders from the Chairman of our Board of Directors, and a letter to stockholders from our President and Chief Executive Officer, together with our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, are available for viewing, printing and downloading at www.proxy.CIRCOR.com.
Directions to the Annual Meeting are included on the last page of the Company's Proxy Statement.
Scott Buckhout
President & CEO
Burlington, Massachusetts
March 29, 2019
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE REQUESTED TO COMPLETE YOUR PROXY AS INDICATED ABOVE. YOUR PROXY IS REVOCABLE UNTIL THE TIME SET FORTH IN THE COMPANY'S PROXY STATEMENT AND, IF YOU ATTEND THE ANNUAL MEETING, YOU MAY VOTE IN PERSON EVEN IF YOU HAVE PREVIOUSLY COMPLETED YOUR PROXY.
If you have any questions or need assistance voting your shares, please contact MacKenzie Partners, Inc., the Company's proxy solicitor, at (800) 322-2885 or (212) 929-5500 or at proxy@mackenziepartners.com.
PROXY STATEMENT
TABLE OF CONTENTS
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PROXY STATEMENT | |
CORPORATE GOVERNANCE | |
PROPOSAL 1 - ELECTION OF DIRECTORS | |
MANAGEMENT | |
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS | |
COMPENSATION DISCUSSION AND ANALYSIS | |
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION AND OTHER PAYMENTS TO THE NAMED EXECUTIVE OFFICERS | |
2018 Summary Compensation Table | |
2018 All Other Compensation Table | |
2018 Grants of Plan-Based Awards | |
Outstanding Equity Awards at 2018 Fiscal Year-End | |
2018 Option Exercises and Stock Vested | |
2018 Nonqualified Deferred Compensation | |
SEVERANCE AND OTHER BENEFITS UPON TERMINATION OF EMPLOYMENT OR CHANGE OF CONTROL | |
CEO PAY RATIO | |
DIRECTOR COMPENSATION | |
COMMITTEE REPORTS | |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | |
PROPOSAL 2 - RATIFICATION OF AUDITORS | |
PROPOSAL 3 - ADVISORY VOTE ON EXECUTIVE COMPENSATION | |
PROPOSAL 4 - THE 2019 STOCK OPTION AND INCENTIVE PLAN | |
EXPENSES OF SOLICITATION | |
SUBMISSION OF STOCKHOLDER PROPOSALS FOR ANNUAL MEETING IN 2020 | |
"HOUSEHOLDING" OF ANNUAL MEETING MATERIALS | |
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE | |
OTHER MATTERS | |
EXHIBIT A - RECONCILIATION OF KEY PERFORMANCE MEASURES TO COMMONLY USED GAAP PRINCIPLES | |
EXHIBIT B - 2019 STOCK OPTION AND INCENTIVE PLAN | |
Forward-Looking Statements
This Proxy Statement contains certain statements that are "forward-looking statements" as that term is defined under the Private Securities Litigation Reform Act of 1995 (the "Act"). The words "may," "hope," "should," "expect," "plan," "anticipate," "intend," "believe," "estimate," "predict," "potential," "continue," and other expressions which are predictions of or indicate future events and trends and which do not relate to historical matters, identify forward-looking statements. We believe that it is important to communicate our future expectations to our stockholders, and we, therefore, make forward-looking statements in reliance upon the safe harbor provisions of the Act. However, there may be events in the future that we are not able to accurately predict or control and our actual results may differ materially from the expectations we describe in our forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties, and other factors, which may cause our actual results, performance, or achievements to differ materially from anticipated future results, performance, or achievements expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, changes in the price of and demand for oil and gas in both domestic and international markets, our ability to successfully integrate acquired businesses, as contemplated, the possibility that expected benefits related to our recent acquisition of the fluid handling business of Colfax Corporation ("Fluid Handling") may not materialize as expected, any adverse changes in governmental policies, variability of raw material and component pricing, changes in our suppliers' performance, fluctuations in foreign currency exchange rates, changes in tariffs or other taxes related to doing business internationally, our ability to hire and retain key personnel, our ability to operate our manufacturing facilities at efficient levels, including our ability to prevent cost overruns and reduce costs, our ability to generate increased cash by reducing our working capital, our prevention of the accumulation of excess inventory, our ability to successfully implement our restructuring or simplification strategies, fluctuations in interest rates, our ability to continue to successfully defend product liability actions, as well as the uncertainty associated with the current worldwide economic conditions and the continuing impact on economic and financial conditions in the United States and around the world, including as a result of natural disasters, terrorist attacks, current Middle Eastern conflicts and related matters. For a discussion of these risks, uncertainties and other factors, see Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.
30 Corporate Drive, Suite 200
Burlington, MA 01803
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
To Be Held on Thursday, May 9, 2019
This Proxy Statement (the "Proxy Statement") is furnished in connection with the solicitation of proxies by the Board of Directors (the "Board") of CIRCOR International, Inc. (the "Company" or "CIRCOR") for use at the Annual Meeting of Stockholders of the Company to be held on Thursday, May 9, 2019, at 12:00 PM local time, and any adjournments or postponements thereof (the "Annual Meeting"). The Annual Meeting will be held at the Company’s headquarters at 30 Corporate Drive, Suite 200, Burlington, Massachusetts 01803.
At the Annual Meeting, the stockholders of the Company will be asked to consider and vote upon the following matters:
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1. | To elect two Class II directors for three-year terms, such terms to continue until the Annual Meeting of Stockholders in 2022 and until each such director's successor is duly elected and qualified or until such director's earlier resignation or removal; |
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2. | To ratify the selection by the Audit Committee of the Board of Directors of the Company of PricewaterhouseCoopers LLP as the Company's independent auditors for the fiscal year ending December 31, 2019; |
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3. | To consider an advisory resolution approving the compensation of the Company's Named Executive Officers; |
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4. | To approve the 2019 Stock Option and Incentive Plan; and |
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5. | Such other business as may properly come before the Annual Meeting and any adjournments or postponements thereof. |
This Proxy Statement and the form of proxy were first made available to stockholders on or about March 29, 2019. The Board has fixed the close of business on March 19, 2019 as the record date for the determination of stockholders entitled to notice of, and to vote at, the Annual Meeting (the "Record Date"). Only holders of record of the Company's common stock, par value $0.01 per share (the "Common Stock"), at the close of business on the Record Date will be entitled to notice of, and to vote at, the Annual Meeting. As of the Record Date, there were 19,873,316 shares of Common Stock outstanding and entitled to vote at the Annual Meeting. Each holder of our outstanding Common Stock as of the close of business on the Record Date will be entitled to one vote for each share held of record with respect to each matter submitted at the Annual Meeting.
The presence, in person or by proxy, of holders of at least a majority of the total number of outstanding shares of Common Stock entitled to vote is necessary to constitute a quorum for the transaction of business at the Annual Meeting. For Proposal 1, the election of two Class II directors, each nominee shall be elected as a director of the Company if such nominee receives the affirmative vote of a plurality of the votes cast. The approval of a majority of the votes cast is necessary to approve each of Proposal 2, the ratification of the selection of PricewaterhouseCoopers LLP as the Company's independent auditors for the
fiscal year ending December 31, 2019; Proposal 3, the consideration of an advisory resolution approving the compensation of the Company's Named Executive Officers; and Proposal 4, the approval of the 2019 Stock Option and Incentive Plan.
Shares that reflect abstentions or "broker non-votes" (i.e., shares represented at the meeting held by brokers or nominees as to which instructions have not been received from the beneficial owners or persons entitled to vote such shares and with respect to which the broker or nominee does not have discretionary voting power to vote such shares) will be counted for purposes of determining whether a quorum is present for the transaction of business at the Annual Meeting. With respect to the election of the directors (Proposal 1), votes may be cast "for" or "withheld" from the nominees. Votes cast "for" the nominees will count as "yes" votes; votes that are "withheld" from the nominees will not be voted with respect to the election of the nominees. With respect to Proposals 2, 3, and 4, votes may be cast "for," "against" or "abstain." In the case of Proposals 2 and 3, under our bylaws, abstentions are not considered votes cast on such matter and will have the effect of reducing the number of affirmative votes required to achieve a majority for such matters by reducing the total number of shares from which the majority is calculated. However, in the case of Proposal 4, under the rules of the New York Stock Exchange, for purposes of stockholder approval of an equity compensation plan, abstentions are counted as votes cast and will have the same effect as a vote against such matter. Proposals 1, 3, and 4, are each "non-discretionary" items and, therefore, brokers and nominees do not have discretionary voting power with respect to such matters. Broker non-votes will have no effect on Proposal 1, and with respect to Proposals 3 and 4, if you do not instruct your broker how to vote with respect to such matter, your broker may not vote with respect to these items and those non-votes will have the effect of reducing the number of affirmative votes required to achieve a majority for such matter by reducing the total number of shares from which the majority is calculated.
This year, pursuant to rules adopted by the Securities and Exchange Commission (the "SEC"), we have again elected to provide access to our proxy materials over the Internet. Accordingly, we have sent a Notice Regarding the Availability of Proxy Materials (the "Notice") to certain of our stockholders (excluding those stockholders who previously have requested that they receive electronic or paper copies of our proxy materials). Stockholders have the ability to access our proxy materials on the website referred to in the Notice or request a printed set of our proxy materials. Instructions on how to access our proxy materials over the Internet and request a printed copy of our proxy materials may be found in the Notice. In addition, stockholders may request to receive proxy materials in printed form by mail or electronically by email on an ongoing basis. We believe this process should expedite your receipt of our proxy materials and reduce the environmental impact of our Annual Meeting.
Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be Held on May 9, 2019: This Proxy Statement, a form of proxy, a letter to stockholders from the Chairman of our Board of Directors, a letter to stockholders from our President and Chief Executive Officer, together with our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 ("Fiscal Year 2018"), are available for viewing, printing and downloading at www.proxy.CIRCOR.com.
Your vote is important. If you are a stockholder whose shares are registered in your name, you may vote your shares in person at the meeting or by one of the following methods:
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1. | Vote by Internet by going to the web address www.voteproxy.com and following the instructions for Internet voting on such website or on your Notice or proxy card; |
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2. | Vote by telephone by dialing 1-800-PROXIES (776-9437) in the United States or 1-718-921-8500 from foreign countries and following the instructions; or |
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3. | Vote by proxy card if you received a paper copy of these materials by completing, signing, dating, and mailing your proxy card in the envelope provided. If you vote by Internet or telephone, please do not mail your proxy card. |
In order to vote via the Internet or by telephone, stockholders whose shares are registered in their name must have the stockholder identification number which is provided in the Notice.
If you hold your shares in street name, you will receive instructions from your broker, bank or other nominee that you must follow in order to have your shares voted.
Any properly completed proxy given by stockholders whose shares are registered in their name pursuant to this solicitation may be revoked by one of the following methods:
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1. | Filing with the Secretary of the Company, before the taking of the vote at the Annual Meeting, a written notice of revocation bearing a later date than the proxy; |
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2. | Properly casting a new vote via the Internet or by telephone at any time before the closure of the Internet or telephone voting facilities; |
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3. | Duly completing a later-dated proxy relating to the same shares and delivering it to the Secretary of the Company before the taking of the vote at the Annual Meeting; or |
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4. | Attending the Annual Meeting and voting in person (although attendance at the Annual Meeting will not in and of itself constitute a revocation of a proxy). |
To be effective, any written notice of revocation or subsequent proxy must be sent so as to be delivered to the Company's Secretary at the Company's corporate headquarters before the taking of the vote at the Annual Meeting. If your shares are held in "street name," contact your bank, broker or other nominee for instructions on changing your vote.
Common Stock represented by properly executed proxies received by the Company and not revoked will be voted at the Annual Meeting in accordance with the instructions contained therein. If instructions are not given therein, properly executed proxies will be voted "FOR" the election of the nominees for director listed in this Proxy Statement, "FOR" ratification of the selection of PricewaterhouseCoopers LLP as the Company's independent auditors for the fiscal year ending December 31, 2019, "FOR" approval of the resolution regarding compensation of the Company's Named Executive Officers, and "FOR" approval of the 2019 Stock Option and Incentive Plan. It is not anticipated that any other matters will be presented at the Annual Meeting. However, if other matters are duly presented, proxies will be voted in accordance with the discretion of the proxy holders.
Except where otherwise incorporated by reference, none of the Annual Report, the letter from the Chairman of our Board of Directors to our stockholders, or the letter from our President and Chief Executive Officer to our stockholders is a part of the proxy solicitation material.
If you have any questions or need assistance voting your shares, please contact MacKenzie Partners, Inc., our proxy solicitor, at (800) 322-2885 or (212) 929-5500 or at proxy@mackenziepartners.com.
CORPORATE GOVERNANCE
Independence of Directors
The Board, upon consideration of all relevant facts and circumstances and upon recommendation of the Nominating and Corporate Governance Committee, has affirmatively determined that each director, other than our Chief Executive Officer Scott Buckhout, is independent of the Company. The Board made a similar determination with respect to Douglas M. Hayes, who served as a director until his retirement from the Board effective December 31, 2018. In evaluating the independence of each director, the Board applied the standards and guidelines set forth in the applicable SEC and New York Stock Exchange ("NYSE") regulations in determining that each director has no material relationship with the Company, directly or as a partner, stockholder, or affiliate of an organization that has a relationship with the Company. The bases for the Board's determination include, but are not limited to, the following:
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• | No director other than Mr. Buckhout is an employee of the Company or its subsidiaries or affiliates. |
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• | No director has an immediate family member who is an officer of the Company or its subsidiaries or has any other current or past material relationship with the Company. |
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• | No director other than Mr. Buckhout receives, or in the past three years, has received, any compensation from the Company other than compensation for services as a director. |
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• | No director has a family member who has received any compensation during the past three years from the Company. |
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• | No director, during the past three years, has been affiliated with, or had an immediate family member who has been affiliated with, a present or former internal or external auditor of the Company. |
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• | No executive officer of the Company serves on the compensation committee or the board of directors of any corporation that employs a director or a member of any director's immediate family. |
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• | No director is an officer or employee (or has an immediate family member who is an officer or employee) of an organization that sells products and services to, or receives products and services from, the Company in excess of the greater of $1 million or 2% of such organization's consolidated gross revenues in any fiscal year. |
Board Leadership Structure
The Board has established a leadership structure that separates the roles of Chairman of the Board and Chief Executive Officer. In doing so, the Board considered that separating the roles of Chairman and Chief Executive Officer would most effectively provide the Company access to the judgments and experience of Mr. David F. Dietz, as Chairman of the Board, and Mr. Scott Buckhout, as Chief Executive Officer, while providing a mechanism for the Board's independent oversight of management. As Chairman of the Board, Mr. Dietz presides over the meetings of the Board and the stockholders, utilizing his extensive experience in corporate governance and legal matters and familiarity with the Company, including his service as a member of the Board of Directors since the Company's inception and as the lead independent director from 2004 until he was appointed Chairman of the Board in December 2012. Among his responsibilities as Chairman, in addition to presiding over Board meetings, Mr. Dietz approves Board agendas and schedules, monitors activity of the Board's committees, communicates regularly with the Chief Executive Officer and other management on behalf of the Board, monitors and participates in communication with major stockholders, leads the annual performance evaluations of the Board and the Chief Executive Officer, and leads the Chief Executive Officer succession planning process.
Principles of Corporate Governance
The Nominating and Corporate Governance Committee of the Board has developed, and the full Board has adopted, a set of Principles of Corporate Governance. The Principles of Corporate Governance are available on the Company's website at www.CIRCOR.com under the "Investors" sub link and a hardcopy will be provided by the Company free of charge to any stockholder who requests it by writing to the Company's Secretary at the Company's corporate headquarters. An annual review is conducted by the Nominating and Corporate Governance Committee to assess compliance with the guidelines.
In addition, to align the interests of the directors and executive officers of the Company with the interests of the stockholders, the Principles of Corporate Governance include Stock Ownership Guidelines for directors and executive officers.
Code of Conduct & Business Ethics / Compliance Training / Reporting of Concerns
The Company has implemented and regularly monitors compliance with a comprehensive Code of Conduct & Business Ethics (the "Code of Conduct"), which applies uniformly to all directors, executive officers, and employees. Among other things, the Code of Conduct addresses conflicts of interest, confidentiality, fair dealing, protection and proper use of Company assets, compliance with applicable laws (including insider trading and anti-bribery laws), and reporting of illegal or unethical
behavior. The Code of Conduct is available on the Company's website at www.CIRCOR.com under the "Investors" sub link and a hardcopy will be provided by the Company free of charge to any stockholder who requests it by writing to the Company's Secretary at the Company's corporate headquarters.
The Company has undertaken a number of additional steps to further the tenets of the Code of Conduct. Through a third-party provider, the Company maintains an on-line training program pursuant to which all officers and all employees with company-issued email accounts must take a series of courses designed to demonstrate the ways in which certain activities might run afoul of the Code of Conduct. In addition, although all employees are encouraged to personally report any ethical concerns without fear of retribution, the Company, through a third-party provider, maintains the Company's HelpLine (the "HelpLine"), a toll-free telephone and web-based system through which employees may report concerns confidentially and anonymously. The HelpLine facilitates the communication of ethical concerns and serves as the vehicle through which employees may communicate confidentially and anonymously with (i) the Audit Committee regarding any concerns relating to accounting or auditing issues and (ii) the Nominating and Corporate Governance Committee regarding any other concerns.
Nomination of Directors/Director Attendance at Annual Meetings
General Criteria
The Nominating and Corporate Governance Committee recognizes that the challenges and needs of the Company will vary over time and, accordingly, believes that the selection of director nominees should be based on skill sets most pertinent to the issues facing or likely to face the Company at the time of nomination. Accordingly, the Nominating and Corporate Governance Committee does not believe it is in the best interests of the Company to establish rigid criteria for the selection of nominees to the Board. When assessing nominees to serve as director, the Nominating and Corporate Governance Committee believes that the Company will benefit from a diversity of background and experience on the Board and, therefore, will consider and seek nominees who, in addition to general management experience and business knowledge, possess, among other attributes, an expertise in one or more of the following areas: finance, manufacturing, technology, international business, investment banking, business law, corporate governance, risk assessment, business strategy, organizational development, and investor relations. The Nominating and Corporate Governance Committee also believes that the Company benefits from gender and ethnic diversity. In addition, there are certain general attributes that the Nominating and Corporate Governance Committee believes all director candidates must possess, which include:
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• | A commitment to ethics and integrity; |
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• | A commitment to personal and organizational accountability; |
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• | A history of achievement that reflects superior standards for themselves and others; and |
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• | A willingness to express alternate points of view while, at the same time, being respectful of the opinions of others and working collaboratively with colleagues. |
Our Principles of Corporate Governance require that a majority of directors must be independent. The Nominating and Corporate Governance Committee, however, also believes that, absent special circumstances, all directors other than the Chief Executive Officer, if he or she is serving on the Board, should be independent. The Nominating and Corporate Governance Committee annually assesses the adequacy of the foregoing criteria for Board membership. We believe that, based on the background and experience of each director, as described below, the current Board reflects diversity in business and professional experience and skills.
As a matter of good corporate governance, we limit the number of public company directorships any director of the Company may hold to three, including that of the Company. We believe this policy assists the Board in continuing to focus on and carry out the Board activities of the Company efficiently. Ms. Tina Donikowski has been granted an exception to this policy so that she can serve on an additional public company board.
Director Candidates
The Nominating and Corporate Governance Committee will consider director candidates recommended by stockholders, provided that such recommendations are submitted to the Company not less than 120 calendar days prior to the first anniversary date on which the Company's proxy statement was released to stockholders in connection with the previous year's annual meeting.
To be considered by the Nominating and Corporate Governance Committee for nomination and inclusion in the Company's proxy statement for its annual meeting to be held in 2020, stockholder recommendations for directors must be received by the Company's Secretary at the Company’s corporate headquarters prior to November 30, 2019. Any such notice also must include (i) the name and address of record of the stockholder; (ii) a representation that the stockholder is a record holder of Common Stock or, if the stockholder is not a record holder, evidence of ownership in accordance with Rule 14a-8(b)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"); (iii) the name, age, business and residential address, educational background, current principal occupation or employment, and principal occupation or employment for the preceding five full fiscal years of the proposed director candidate; (iv) a description of the qualifications of the proposed director candidate which address the general criteria for directors as expressed in the Company's most recent proxy statement; (v) a description of all arrangements or understandings between the stockholder and the proposed director candidate; and (vi) the consent of the proposed director candidate to be named in the proxy statement and to serve as a director if elected at such meeting. Stockholders must also submit any other information regarding the proposed candidate that is required to be included in a proxy statement filed pursuant to the rules of the SEC. Recommendations of director candidates that meet the criteria described above will be forwarded to the Chairman of the Nominating and Corporate Governance Committee for further review and consideration by such committee. Stockholders also have the right to directly nominate director candidates, without any action or recommendation on the part of the Nominating and Corporate Governance Committee or the Board, by following the procedures set forth in the Company's bylaws and described in "Submission of Stockholder Proposals for Annual Meeting in 2020" below in this Proxy Statement.
Evaluation of Candidates
In evaluating candidates for director, the Nominating and Corporate Governance Committee applies the skills, experience, qualifications and demeanor of the individual against the general criteria set forth above, including the particular needs of and issues facing, or likely to face, the Company at the time of consideration of the individual. In addition, with regard to current directors, the Nominating and Corporate Governance Committee takes into consideration such individuals' performance as directors. The Nominating and Corporate Governance Committee intends to evaluate any stockholder candidates in the same manner as candidates from any other sources.
Board Self-Evaluations
On a periodic basis, the Board solicits and reviews feedback of self-evaluations submitted by the directors, addressing matters such as the composition of the Board, the relationship between the Board and management of the Company, conduct of meetings of the Board, and strategic priorities for the Board. Each of the committees of the Board undertakes a similar self-evaluation process.
Director Attendance at Annual Meetings
To date, our Board has not adopted a formal policy regarding director attendance at annual meetings of our stockholders. However, the Board typically schedules a meeting of the Board either on or the day before the date of the annual meeting of stockholders, and our directors, therefore, are encouraged to (and typically do) attend the annual meeting. At our last annual meeting of stockholders, which was held on May 10, 2018, all of our then-serving directors were in attendance.
Our Board and Committee Structure
The Board
Our Board currently consists of seven members who are divided into three classes, with three directors in Class I, two directors in Class II, and two directors in Class III. Directors serve for staggered three-year terms, with one class of directors being elected by the Company's stockholders at each annual meeting. Our Board maintains three standing committees: an Audit Committee, a Compensation Committee, and a Nominating and Corporate Governance Committee.
The table below sets forth the name, age, class, and committee membership for each of our directors as of March 29, 2019:
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Director | Age | Director Class | Audit Committee | Compensation Committee | Nominating and Corporate Governance Committee | Independent |
David F. Dietz (1) | 69 | I | | | | X |
Samuel R. Chapin | 61 | I | | | M | X |
Tina M. Donikowski | 59 | I | M | M | | X |
Helmuth Ludwig | 56 | II | M | | C | X |
Peter M. Wilver | 59 | II | C | M | | X |
John (Andy) O’Donnell | 70 | III | | C | M | X |
Scott Buckhout | 52 | III | | | | |
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| C | Chairman of Committee | Director Class Term Expires at Annual Meeting: | I = 2021 |
| M | Committee Member | | II = 2019 |
| | | | III = 2020 |
(1) Chairman of the Board of Directors |
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Director Qualifications
The biographies of each of the nominees and continuing directors below contain, among other things, information regarding the person's service as a director, business experience, director positions held currently or at any time during the last five years, information regarding involvement in certain legal or administrative proceedings, if applicable, and the experiences, qualifications, attributes or skills that, among other things, led the Nominating and Corporate Governance Committee and the Board to the conclusion that such individual should serve as a director for the Company.
Scott Buckhout. Mr. Buckhout joined CIRCOR as President and Chief Executive Officer and was appointed to the Board in April 2013. Prior to joining CIRCOR, Mr. Buckhout had served as President, Fire & Security at United Technologies Corporation (UTC), a diverse, multinational manufacturing company. He previously held a number of senior level positions at UTC, including President, Global Fire Products and President, Systems and Firefighting. Before joining UTC, Mr. Buckhout held a number of senior roles at Honeywell International Corporation in the Consumer Products and Friction Materials divisions. He spent five years in Europe for UTC and Honeywell, including as Vice President and General Manager, Consumer Products Group, Honeywell EMEA and Vice President and General Manager, Honeywell Friction Materials - Europe. He also previously worked in general management and strategy consulting roles at Booz Allen & Hamilton and The Boeing Company. Mr. Buckhout's qualifications to sit on our Board include his extensive experience in leading, improving the operational performance of, and profitably growing large, multinational manufacturing businesses through both organic and acquisition-related growth.
David F. Dietz. Mr. Dietz has served as a member of the Board since its inception in July 1999. Mr. Dietz was a partner of the law firm of Goodwin Procter from 1984 to his retirement from the firm in October 2016. Mr. Dietz is also a director and Chairman of the Independent Directors and Compensation Committee of The Andover Companies, a property and casualty insurance company. Mr. Dietz's qualifications to sit on our Board include his experience in corporate acquisitions, corporate finance, and corporate governance and legal matters.
Samuel R. Chapin. Mr. Chapin joined the Board in January 2019. Mr. Chapin served as Executive Vice Chairman at the Bank of America Merrill Lynch, a multinational investment bank, from 2010 to his retirement in June 2016. Mr. Chapin joined Merrill Lynch in 1984 as a member of the Mergers and Acquisitions group and he was named a Managing Director in Investment Banking in 1993. Mr. Chapin was named Senior Vice President and head of Merrill Lynch's Global Investment Banking Division in 2001 and was named Vice Chairman in 2003. While at Merrill Lynch and Bank of America Merrill Lynch, Mr. Chapin was responsible for managing relationships with a number of the firm's largest corporate clients. He currently serves on the Board of Directors of PerkinElmer, Inc. and the Board of Trustees at Lafayette College. Mr. Chapin was recommended to become a director by an independent third-party retained search firm. Mr. Chapin's qualifications to sit on our Board include his experience and significant knowledge of the industrials market with a mastery of strategic M&A accrued over more than 35 years in investment banking.
Tina M. Donikowski. Ms. Donikowski has served as a member of the Board since March 2017. Ms. Donikowski retired from General Electric Company, a diversified industrial company, in October 2015 after 38 years with the company. She served in a number of senior positions during her career at General Electric Company, including most recently as Vice President, Global Locomotive Business, GE Transportation, from January 2013 until her retirement. She currently also serves on the Board of Directors of Atlas Copco AB, a world-leading provider of sustainable productivity solutions based in Stockholm, Sweden; TopBuild Corp., a leading installer and distributor of insulation and building material products to the U.S. construction industry based in Daytona Beach, Florida; Advanced Energy Industries, Inc., a designer and manufacturer of highly-engineered precision power, measurement, and control solutions for mission-critical applications and processes; and Eriez Magnetics, a privately held manufacturer and designer of magnetic, vibratory, and metal detection applications based in Erie, Pennsylvania. She also serves as a member of the Board of Trustees, Gannon University, and the Board of Trustees, Boys & Girls Club of Erie, Pennsylvania. Ms. Donikowski's qualifications to sit on our Board include her extensive experience in leading technology businesses and her strong operations background.
Helmuth Ludwig. Dr. Ludwig has served as a member of the Board since January 2016. Since October 2016, he has served as Global Head of Information Technology of Siemens, a global industrial manufacturing company. He previously served in a number of positions at subsidiaries/affiliates of Siemens AG, including as Executive Vice President, Digital Enterprise Realization, of Siemens PLM Software from October 2014 to October 2016 and Chief Executive Officer, Siemens Industry Sector in North America of Siemens Industry Inc. from October 2011 to September 2014. Dr. Ludwig is a known expert and regular speaker at industry conferences on the Internet of Things and "Industry 4.0". When Siemens acquired PLM Software in 2007, Dr. Ludwig was appointed President of PLM Software and is credited for having successfully led the integration of the organization’s 50 legal entities and multiple facilities across 26 countries. Earlier in his career, Dr. Ludwig held a number of international assignments at Siemens in Europe, Latin America, and Asia. He teaches as adjunct professor for International
Strategy at Southern Methodist University's Cox School of Business in Dallas. Dr. Ludwig’s qualifications to sit on our Board include his proven manufacturing leadership skills, extensive international experience, and his success in leading the integration and simplification of a complex global enterprise.
John (Andy) O'Donnell. Mr. O'Donnell has served as a member of the Company's Board since November 2011. Until his January 2014 retirement, Mr. O'Donnell had worked at Baker Hughes, an oilfield services company, since 1975. He served as Vice President of Baker Hughes since 1998 and was appointed to Vice President, Office of the Chief Executive Officer in 2012, a role in which he served until his retirement. From 2009 to 2011, Mr. O'Donnell was President, Western Hemisphere Operations of Baker Hughes. He was President of Baker Petrolite Corporation from 2005 to 2009 and President of Baker Hughes Drilling Fluids from 2004 to 2005. He served as Vice President, Business Process Development at Baker Hughes from 1998 to 2002 and as Vice President of Manufacturing at Baker Oil Tools from 1990 to 1998. Mr. O’Donnell also serves on the Board of Directors of Cactus, Inc., where he is a member of its Audit, Compensation, and Nominating and Corporate Governance Committees. Mr. O'Donnell's qualifications to sit on the Board include his experience in international energy markets and leading multinational manufacturing operations.
Peter M. Wilver. Mr. Wilver has served as a member of the Company's Board since February 2010. Mr. Wilver was Executive Vice President and Chief Administrative Officer of Thermo Fisher Scientific Inc. ("Thermo Fisher"), a leading provider of laboratory products and services, from August 2015 until his retirement in March 2017. He previously spent 11 years as Chief Financial Officer of Thermo Fisher from October 2004 to July 2015. Before joining Thermo Fisher in 2000, Mr. Wilver worked for General Electric, Grimes Aerospace Company, and Honeywell International (formerly AlliedSignal), where he most recently served as Vice President and Chief Financial Officer of the electronic materials business. He currently also serves on the Board of Directors of Evoqua Water Technologies, where he is Chairman of its Audit Committee, and served on the Board of Directors of Tenet Healthcare, where he was a member of its Audit and Human Resources Committee from November 2016 until May 2018. Mr. Wilver is a certified public accountant. Mr. Wilver's qualifications to sit on the Board include his experience in strategic planning and business development as well as in leading the financial, accounting and investor relations functions of large, multinational manufacturing companies.
Committees
Audit Committee. The Audit Committee, which consists of Mr. Wilver, Ms. Donikowski, and Dr. Ludwig (each of whom has been affirmatively determined by the full Board to be an independent director, as well as meeting the stricter independence standards applicable to audit committee members under NYSE listing standards and the rules of the SEC), oversees the integrity of the Company's financial statements and is directly responsible for the appointment, compensation, retention and oversight of the work of the firm of independent auditors (the "Auditors") that audits the Company's financial statements and performs services related to the audit. Among other responsibilities, the Audit Committee reviews the scope and results of the audit with the Auditors, reviews with management and the Auditors the Company's annual and quarterly operating results, considers the adequacy of the Company's internal accounting procedures and controls, and considers the effect of such procedures on the Auditors' independence. The Audit Committee also is responsible for overseeing the Company's internal audit function and the Company's compliance with legal and regulatory requirements. To satisfy these oversight responsibilities, the Audit Committee separately meets regularly with the Company's Chief Financial Officer; Director of Internal Audit; Auditors; and management. Pursuant to the requirements of the NYSE, the Audit Committee operates in accordance with a charter (the "Audit Committee Charter"), which is available on the Company's website at www.CIRCOR.com under the "Investors" sub link. The Company will provide a hardcopy of the Audit Committee Charter to stockholders free of charge upon written request to the Company's Secretary at the Company's corporate headquarters. Each member of the Audit Committee meets the financial literacy requirements of the NYSE and, in addition, the Board has determined that at least one of the Committee's members, Mr. Wilver, is an "audit committee financial expert" under the disclosure standards adopted by the SEC.
Compensation Committee. The Compensation Committee, which consists of Mr. O'Donnell, Ms. Donikowski, and Mr. Wilver (each of whom has been affirmatively determined by the full Board to be an independent director, as well as meeting the stricter independence standards applicable to compensation committee members under NYSE listing standards and the rules of the SEC), reviews and determines the compensation arrangements for the Company's Chief Executive Officer; reviews the recommendations of the Chief Executive Officer and approves the compensation arrangements for all other officers and senior level employees; reviews general compensation levels for other employees as a group; determines the awards to be granted to eligible persons under the Company's 2014 Stock Option and Incentive Plan (the "Equity Incentive Plan"); and takes such other action as may be required in connection with the Company's compensation and incentive plans, including with respect to compensation and risk-management issues. The Compensation Committee has the sole authority from the Board for the appointment, compensation and oversight of the Company's outside compensation consultant.
Since early 2012, the Compensation Committee has engaged Pearl Meyer & Partners ("Pearl Meyer") as its compensation consultant. In so doing, the Compensation Committee affirmatively determined that Pearl Meyer is independent and has no conflict of interest as contemplated under rules adopted by the SEC and the NYSE, and has conducted annual reviews to confirm that Pearl Meyer remains free of conflict per these rules. Pearl Meyer reports directly to the Compensation Committee and does not provide any additional services to the Company. The executive compensation services provided by Pearl Meyer include assisting in defining the Company's executive compensation strategy, providing market benchmark information, recommending the composition of the compensation peer group used as a benchmark by the Compensation Committee, advising with respect to the design of both short-term and long-term incentive compensation plans, and summarizing regulatory and governance guidelines. In making its compensation decisions, the Compensation Committee relies significantly on the information provided by Pearl Meyer.
The independent compensation consultant spoke with the chair of the Compensation Committee, as well as with management, in preparing for Committee meetings, regularly attended Committee meetings, and met from time to time in executive session with the Compensation Committee without the presence of management.
The Compensation Committee also receives reports and recommendations from management. Throughout 2018, Mr. Buckhout provided input regarding the compensation of those executives who reported directly to him. In connection with these recommendations, Mr. Buckhout consulted with the Company’s Chief Human Resources Officer and met periodically with the Compensation Committee’s independent compensation consultant to review the market reference data. In addition, Mr. Buckhout provided recommendations to the Compensation Committee related to the performance measures used in the Company’s short-term and long-term incentive plans. These recommendations directly aligned with the Company's operating strategy.
Although Mr. Buckhout regularly attended Compensation Committee meetings, any discussions concerning his compensation were held by the Committee in executive sessions without him present. The Compensation Committee also met regularly in executive session without the presence of Mr. Buckhout or any other members of management, to consider, among other things, the compensation recommendations proposed by Mr. Buckhout.
The Compensation Committee operates in accordance with a charter (the "Compensation Committee Charter"), which is available on the Company's website at www.CIRCOR.com under the "Investors" sub link. The Company also will provide a hardcopy of the Compensation Committee Charter to stockholders free of charge upon written request to the Company's Secretary at the Company's corporate headquarters.
Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee, which consists of Dr. Ludwig, Mr. Chapin, and Mr. O’Donnell (each of whom has been affirmatively determined by the full Board to be an independent director), is responsible for establishing criteria for selection of new directors, identifying individuals qualified to become directors, and recommending candidates to the Board for nomination as directors. In addition, the Nominating and Corporate Governance Committee is responsible for recommending to the Board a set of corporate governance principles applicable to the Company, overseeing the evaluation of the Board and its committees, recommending to the Board appropriate levels of director compensation and, together with the Audit Committee, monitoring compliance with the Company's Code of Conduct. The Nominating and Corporate Governance Committee operates in accordance with a charter (the "Nominating and Corporate Governance Charter"), which is available on the Company's website at www.CIRCOR.com under the "Investors" sub link. The Company also will provide a hardcopy of the Nominating and Corporate Governance Charter to stockholders free of charge upon written request to the Company's Secretary at the Company's corporate headquarters.
Ad Hoc Committees. From time to time, the Board may establish ad hoc committees and delegate certain of its authority for the purpose of addressing particular matters (including, for example, the approval of financing or credit agreements or other matters that the Board believes would be appropriate for review by an ad hoc committee).
Except for the availability of this Proxy Statement and the Form of Proxy for the Annual Meeting of Stockholders, which are available for viewing, printing and downloading at www.proxy.CIRCOR.com, the information on the Company's website is not part of this Proxy Statement.
Board and Committee Meetings
The following table sets forth the number of meetings held during the year ended December 31, 2018 by the Board and by each committee thereof. Each of the directors attended at least 75% of the total number of meetings of the Board and of the committees of which such director was a member.
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| Number of Meetings |
Board of Directors | 7 |
Audit Committee | 7 |
Compensation Committee | 6 |
Nominating and Corporate Governance Committee | 4 |
Board Risk Oversight
We believe that our current Board leadership structure fosters appropriate risk oversight for the Company for a number of reasons, the most significant of which are discussed below. The Board is actively involved in oversight of risks that could affect the Company. This administration is coordinated primarily through the committees of the Board, as disclosed in the descriptions of each of the committees above and in the charters of each of the committees (which are available on the Company's website at www.CIRCOR.com under the "Investors" sub link). The full Board, however, retains responsibility for the general oversight of risk. The Board satisfies this responsibility through full reports from each committee chair regarding the committee's considerations and actions under its purview, as well as through regular reports directly from personnel of the Company responsible for oversight of particular risks within the Company. This process enables the Board and its committees to coordinate and supervise risk oversight, particularly with respect to risks that are overseen by different committees of the Board and different personnel within the Company. Executive sessions of the Board without any management present allow the independent directors to review key decisions and discuss matters in a manner that is independent of the Chief Executive Officer. The Chairman of the Board leads all such executive sessions. In addition, all committees of the Board are comprised solely of, and chaired by, independent directors.
In addition, the management of the Company engages in an annual enterprise risk assessment with the Board, assessing, among other concerns, risks associated with the Company's products, customers, supply chain, management, staff, efficiency, and cybersecurity. Management of the Company regularly reports to the Board concerning its risk mitigation initiatives.
Communication with Independent Directors
The Board has established a process through which interested parties, including stockholders, may communicate with the independent directors. Specifically, communications may be sent directly to the Chairman of the Board, who, as discussed above, is an independent director, at the following address: P.O. Box 772, Burlington, Massachusetts 01803.
PROPOSAL 1
ELECTION OF DIRECTORS
At the Annual Meeting, two Class II directors will be elected to serve until the annual meeting of stockholders in 2022 and until each such director's successor is duly elected and qualified or until each such director's earlier resignation or removal. The Nominating and Corporate Governance Committee has recommended, and the full Board has nominated, Helmuth Ludwig and Peter M. Wilver, the current Class II directors, for election at the Annual Meeting. Dr. Ludwig and Mr. Wilver have served as Class II directors since January 2016 and February 2010, respectively; in each of their cases, the appointments resulted from extensive searches conducted by the Board utilizing the assistance of independent third-party retained search firms. Unless otherwise specified in the proxy, it is the intention of the persons named in the proxy to vote the shares represented by each properly executed proxy for the election of Dr. Ludwig and Mr. Wilver. Each of Dr. Ludwig and Mr. Wilver has agreed to stand for election and to serve, if elected, as a director. If, however, either of Dr. Ludwig or Mr. Wilver fails to stand for election or is unable to accept election, the proxies will be voted for the election of such other person as the Board may recommend.
Board Recommendation
THE BOARD RECOMMENDS A VOTE "FOR" THE ELECTION OF THE NOMINEES OF THE BOARD AS DIRECTORS OF THE COMPANY.
UNLESS OTHERWISE INSTRUCTED, PROXIES SOLICITED BY THE BOARD WILL BE VOTED "FOR" THE ELECTION OF THE NOMINEES OF THE BOARD.
Vote Required For Approval
A quorum being present, each nominee shall be elected as a director of the Company if such nominee receives the affirmative vote of a plurality of the votes cast.
MANAGEMENT
Executive Officers and Key Employees
Our executive officers and key employees, and their respective ages and positions as of March 29, 2019, are as follows:
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Name | Age | Position |
Scott Buckhout | 52 | President and Chief Executive Officer, and Director |
Chadi Chahine | 46 | Senior Vice President and Chief Financial Officer |
Sumit Mehrotra | 43 | President, Industrial Group |
Tony Najjar | 58 | President, Aerospace and Defense Group |
Lane Walker | 42 | President, Energy Group |
Andrew Farnsworth | 60 | Senior Vice President and Chief Human Resources Officer |
Arjun Sharma | 42 | Senior Vice President, Business Development |
David F. Mullen | 50 | Senior Vice President, Finance and Corporate Controller |
Tanya Dawkins | 58 | Vice President, Corporate Treasurer |
Scott Buckhout. Mr. Buckhout joined CIRCOR as President and Chief Executive Officer and was appointed to the Board in April 2013. Prior to joining CIRCOR, Mr. Buckhout served as President, Fire & Security at United Technologies Corporation (UTC), a diverse, multinational manufacturing company. He previously held a number of senior level positions at UTC, including President, Global Fire Products and President, Systems and Firefighting. Before joining UTC, Mr. Buckhout held a number of senior roles at Honeywell International Corporation in the Consumer Products and Friction Materials divisions. He spent five years in Europe for UTC and Honeywell, including as Vice President and General Manager, Consumer Products Group, Honeywell EMEA and Vice President and General Manager, Honeywell Friction Materials - Europe. He also previously worked in general management and strategy consulting roles at Booz Allen & Hamilton and The Boeing Company. Mr. Buckhout earned a Master of Business Administration in Operations & Finance from the J.L. Kellogg Graduate School of Management at Northwestern University, and a Bachelor of Science in Aerospace Engineering from Texas A&M University.
Chadi Chahine. Mr. Chahine joined CIRCOR as Senior Vice President and Chief Financial Officer in January 2019. Prior to joining CIRCOR, Mr. Chahine served as Division CFO - USA of Smith & Nephew, a global medical technology company (Smith & Nephew), from February 2017 until December 2018 and served as Divisional CFO - International Markets of Smith & Nephew, from January 2012 until January 2017. He previously spent 13 years at Abbott Laboratories in positions of increasing responsibility within finance and general management. Mr. Chahine is a Certified Public Accountant and received a Bachelor of Science in math and economics from the University of Montreal and earned a Bachelor of Commerce in accounting from the University of Quebec.
Sumit Mehrotra. Mr. Mehrotra has served as President, Industrial Group since February 2018. Before assuming his current role, he served as President, Advanced Flow Solutions Group from October 2016 to February 2018 and Senior Vice President, Global Supply Chain & Product Management from June 2015 to October 2016. Mr. Mehrotra joined CIRCOR in September 2013 as Vice President, Global Supply Chain, a role in which he was responsible for developing the global supply chain function for CIRCOR, including material planning, strategic sourcing, purchasing, and logistics, and continued in that role until June 2015. He had also assumed additional responsibilities for the Company's engineering and product management functions beginning in June 2015. Mr. Mehrotra joined CIRCOR from Honeywell International, a multinational manufacturing company, where, over 12 years, his career spanned multiple leadership roles in Engineering, Six Sigma, Advanced Manufacturing and Strategic Sourcing. Prior to joining CIRCOR, he served as Director, Strategic Sourcing for Honeywell Aerospace. He holds a Masters of Business Administration from Arizona State University, a Master of Science in Aerospace Engineering from the University of Cincinnati, and a Bachelor of Aeronautical Engineering from Punjab Engineering College, India.
Tony Najjar. Mr. Najjar has served as President, Aerospace and Defense Group since February 2018. Before assuming his current role, he served as Vice President, Aerospace and Defense in the Advance Flow Solutions Group from October 2016 to February 2018 and Vice President, Sales & Marketing, Aerospace and Defense Group, from April 2015 to October 2016. Before joining CIRCOR, Mr. Najjar served as Programs Manager, Business Development and Mergers & Acquisitions at Rockwell Collins, a multinational manufacturing company, from October 2011 to April 2015. He has spent nearly 30 years in the aerospace and defense industry in engineering, sales, and general management roles, including leadership positions at Rockwell Collins and Kaiser Aerospace. Mr. Najjar holds both a bachelor's degree and a Master of Science degree in Mechanical Engineering from Oklahoma State University and an MBA from Pepperdine University.
Lane Walker. Mr. Walker joined CIRCOR as President, Energy Group in June 2018. Prior to joining CIRCOR, Mr. Walker served as President, Testing Services at Schlumberger, a provider of technology for reservoir characterization, drilling, production, and processing to the oil and gas industry, from October 2017 to May 2018, where he managed Schlumberger's downhole and surface testing business, and from September 2016 to September 2017 he served as Human Resources Director at Schlumberger. He previously served as President, Production Systems at OneSubsea, a Schlumberger Company, a provider of integrated solutions, products, systems and services for the subsea oil and gas market, from October 2014 to August 2016 and as Director, Operations and Projects North and South America at Cameron International, a global provider of flow equipment products, systems and services that was subsequently acquired by Schlumberger, from October 2012 to September 2014. Mr. Walker earned his bachelor's degree in finance from the University of Texas at Austin and an MBA from Harvard Business School.
Andrew Farnsworth. Mr. Farnsworth has served as Senior Vice President and Chief Human Resources Officer since joining CIRCOR in June 2015. Prior to joining CIRCOR, Mr. Farnsworth acted as a human resources consultant from July 2014 until May 2015. From October 2009 through June 2014, he served as the Group Human Resources Director of Unibail-Rodamco, a European commercial property company. He previously served as International Human Resources Director for Brocade Communications, Group Human Resources Director at Temenos, and Emerging Markets Human Resources Director for HP/Compaq covering Eastern Europe, Middle East and Africa. Before that, Mr. Farnsworth held a variety of senior operations and finance positions at Compaq and Digital Equipment Corporation in Europe and the United States. He holds a BA in Psychology and Social Relations from Harvard University and an MBA from the Tuck School of Business at Dartmouth College.
Arjun Sharma. Mr. Sharma has served as Senior Vice President, Business Development of the Company since joining CIRCOR in 2009, overseeing the Company's mergers and acquisitions and strategic planning functions. Prior to joining CIRCOR, Mr. Sharma served as managing director at Global Equity Partners, a venture capital and strategy consulting firm, from January 2009 to September 2009, where he was responsible for executing equity investments and leading client engagements on acquisitions, divestitures, and growth strategy. From 2007 to 2008, he was Director of Mergers and Acquisitions at Textron Inc., a multi-industry company with a global network of aircraft, defense, industrial and finance businesses, where he was responsible for developing the company's M&A strategy and leading acquisition and divestiture transactions. From 2002 to 2007, Mr. Sharma held various positions of increasing responsibility at SPX Corporation, a Fortune 500 multi-industry company, culminating in his appointment as Director of Corporate Development. Mr. Sharma holds a Master of Science degree in Finance from Drexel University and a Bachelor of Commerce degree from Delhi University. Mr. Sharma is a graduate of the PLD program at Harvard Business School.
David F. Mullen. Mr. Mullen was promoted to Senior Vice President, Finance and Corporate Controller in July 2018. He previously served as Vice President, Finance and Corporate Controller from September 2015 to July 2018, and as Vice President for Finance Operations upon joining the Company in April 2015 until September 2015. Prior to joining CIRCOR, Mr. Mullen served as Vice President, Finance, Anatomical Pathology Division of Thermo Fisher Scientific Inc., a leading provider of laboratory products and services, from November 2011 to April 2015. He previously held a number of senior finance positions at Thermo Fisher Scientific Inc. He started his career as an auditor with Deloitte & Touche and is a Certified Public Accountant and a Chartered Global Management Accountant. He continues to oversee the company's Financial Planning & Analysis function and supports Investor Relations and strategy activities. Mr. Mullen brings over 20 years of financial management experience and technical accounting expertise to the role. He holds a Bachelor of Science degree in Accounting from Fairfield University.
Tanya Dawkins. Ms. Tanya Dawkins was promoted to Vice President, Corporate Treasurer in March 2018. She previously served as Senior Director, Corporate Treasurer from September 2015 to March 2018. From 2001 to September 2015, Ms. Dawkins held a variety of senior finance positions at CIRCOR including Global Treasury Manager, External Reporting Manager, and Corporate Accounting Manager. Prior to joining CIRCOR, Ms. Dawkins served as Director of Finance for GenRad Corporation (now part of Teradyne). Ms. Dawkins previously had spent 10 years at Digital Equipment Corporation in a variety of senior finance positions. She is a Certified Treasury Professional and holds a Bachelor of Business Administration in Finance from the University of Texas at Austin, and an MBA from Simmons Graduate School of Management.
Under the Company's bylaws, each of the officers of the Company holds office until the regular annual meeting of the Board of Directors following the next annual meeting of stockholders and until his or her successor is elected and qualified or until his or her earlier resignation or removal.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Review and Approval of Related Person Transactions
The Company's Code of Conduct includes our written policy that any proposed transaction, involving the Company or a subsidiary of the Company, in which a director or executive officer has direct economic or beneficial interest shall be analyzed and reviewed first by the Nominating and Corporate Governance Committee of the Board for potential conflicts, and then by all of the members of the Board.
Related Person Transactions
During Fiscal Year 2018, except as noted below, the Company was not a party to any transaction in which the amount involved exceeded $120,000 and in which an executive officer, director, director nominee or 5% stockholder (or their immediate family members) had a material direct or indirect interest, and no such person was indebted to the Company. During 2018, the Company paid Colfax, who was a greater than 5% stockholder of the Company during the first six months of 2018, approximately $2.6 million pursuant to a transition services agreement which facilitated the orderly separation of the Fluid Handling business from Colfax Corporation ("Colfax"). This arrangement was entered into in connection with the Company’s acquisition in December 2017 of the Fluid Handling business from Colfax.
Compensation Committee Interlocks and Insider Participation
None of the Company's executive officers serves as a member of the board of directors or compensation committee of any entity that has one or more of its executive officers serving as a member of the Company's Compensation Committee. In addition, none of the Company's executive officers serves as a member of the compensation committee of any entity that has one or more of its executive officers serving as a member of the Board.
COMPENSATION DISCUSSION AND ANALYSIS
Overview
In this section, we describe the executive compensation program for our Named Executive Officers (the "NEOs"). Our intent is to help stockholders understand the framework of our overall program, its objectives, and the rationale for the Compensation Committee’s compensation decisions. Our NEOs for Fiscal Year 2018 were as follows:
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Named Executive Officer | Title |
Scott Buckhout | President and Chief Executive Officer ("CEO") |
Rajeev Bhalla(1) | Executive Vice President, Chief Financial Officer ("CFO") |
Sumit Mehrotra | President, Industrial Group |
Lane Walker(2) | President, Energy Group |
Arjun Sharma | Senior Vice President, Business Development |
Erik Wiik(3) | Former President, Energy Group |
(1) On January 2, 2019, the Board announced the appointment of Chadi Chahine as Senior Vice President and Chief Financial Officer. Mr. Chahine succeeds Mr. Bhalla who remained in the role of Chief Financial Officer until December 31, 2018.
(2) Mr. Walker joined the Company as President of the Energy Group effective June 4, 2018.
(3) Mr. Wiik terminated his position as President of the Energy Group effective June 1, 2018.
Executive Summary
Our Business: 2018 Performance Overview
CIRCOR designs, manufactures, and markets differentiated flow control solutions and highly engineered products for the industrial, oil & gas, aerospace & defense, and commercial marine markets. Our diversified product portfolio consisting of recognized, market-leading brands is targeted toward meeting the most critical and demanding application needs of our customers. The Company's strategy is to grow organically and through complementary acquisitions, achieve world class operational excellence, and attract and retain top industry talent. We are a global company with major manufacturing facilities in North America, Western Europe, Morocco, and India.
In 2018, we reorganized our business to drive top line growth through better alignment with our key end markets. We operate through three industry segment groups - Industrial, Energy, and Aerospace & Defense. The Industrial Group is headquartered in Radolfzell, Germany, and is comprised of most of the businesses added as part of the Fluid Handling acquisition in 2017, along with our legacy Industrial and Power and Process businesses. The Energy Group is headquartered in Houston, TX, and is comprised of our legacy Energy businesses, combined with the Reliability Services business that was acquired with Fluid Handling. The Aerospace & Defense Group is headquartered in Corona, CA, combining the existing CIRCOR Aerospace businesses with the Warren Pump and Portland Valve Defense businesses acquired with Fluid Handling.
2018 was a very strong year for CIRCOR's end markets. Growth in the Industrial markets we serve expanded throughout the year, with many of our major industrial OEM customers experiencing solid earnings growth and double-digit orders increases over the previous year. The commercial marine markets served by our Industrial business also saw better than forecast performance for the year, as the industry continues to recover from a sharp downturn. The Oil & Gas markets continued to recover, with growth in the downstream and midstream sectors served by our Refinery Valves and Pipeline Engineering businesses, respectively, outpacing growth for our upstream businesses. The Aerospace & Defense markets we serve remained strong, resulting in several large contract wins for both commercial aerospace and naval programs. The industry realignment of our business enabled CIRCOR to take advantage of this market strength through better customer engagement and focus.
We also over delivered on our integration and synergy commitments related to the Fluid Handling acquisition, most notably in Selling, General & Administrative synergy and margin expansion in our European Pumps businesses. We simplified the business by closing loss-making operations in Mexico for our Reliability Services business, and divested a loss-making systems integration business in the Netherlands. The majority of the businesses from the Fluid Handling acquisition also drove strong growth in orders and sales in 2018 as they were integrated into CIRCOR.
In addition, CIRCOR chartered a new initiative around cash flow in the second quarter of 2018, and we made substantial progress towards implementing a corporate cash management function to drive best practices across all of our businesses. The cash management office succeeded in delivering positive cash flow in the second half of 2018, the majority of which was applied to paying down our long-term debt.
Overall, 2018 was a transformational year for the business, during which CIRCOR was able to capitalize on our expanded scope and deliver strong results, while strategically positioning the company for future growth with our key customers.
2018 Financial Achievements (in thousands, except percentages)
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Business Segment | Net Sales | Free Cash Flow* | Adjusted Operating Margin** |
CIRCOR (Overall Corporate) | $1,175,825 | $30,637 | 8.2% |
Energy | $451,232 | $56,248 | 7.4% |
Aerospace & Defense | $237,017 | $47,346 | 15.2% |
Industrial | $487,576 | $46,190 | 11.8% |
* Free Cash Flow is defined as net cash provided by operating activities less cash purchases of property plant and equipment plus proceeds from the sale of property plant and equipment. Segment Free Cash Flow also excludes the impact of cash payments or receipts for interest, income taxes and restructuring and special charges.
**Adjusted Operating Margin ("AOM") is defined as Adjusted Operating Income divided by Net Sales. Adjusted Operating Income is defined as GAAP operating income excluding intangible amortization and amortization of fair value step-ups of inventory and fixed assets from acquisitions completed after December 31, 2011, the impact of restructuring related inventory write-offs, impairment charges and special charges or gains. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is set forth on Exhibit A to this Proxy.
The Company's results and overall business environment were considered when determining compensation paid for 2018, as discussed below. Please see Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company's Annual Report on Form 10-K for the Fiscal Year ended December 31, 2018 for a more detailed description of the Company's financial results.
2018 Stockholder Engagement, Say-on-Pay Results & Program Changes
The Company regularly evaluates its compensation programs and considers the results of its most recent stockholder advisory vote on executive compensation ("say-on-pay"), as well as feedback received directly from stockholders through our ongoing engagement.
At the May 2018 annual meeting of stockholders, we received say-on-pay support of approximately 98%. While this result indicated continued strong support, the Compensation Committee took steps to further strengthen the executive compensation program's alignment with stockholder interests, especially given the expanded scope of our Company and cyclical nature of our business, by adjusting certain features of our program. Key adjustments to the executive compensation program included:
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• | "Double-trigger" vesting provisions for equity awards. New Change of Control agreements for our NEOs provide for double trigger vesting for equity awards. We amended existing NEO Change of Control agreements to provide double trigger vesting for new equity awards. |
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• | Simplified approach to Annual Incentive Plan for Business Segments. NEOs in our Energy, Aerospace & Defense and Industrial segments were each measured on segment-specific performance metrics based 33.3% on each of Free Cash Flow, Net Sales and AOM. Corporate NEOs were measured on adjusted EPS (25% of score) and the incentive scores of the Energy, Aerospace and Defense and Industrial Groups each counting for 25% of the total incentive score. |
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• | Shifted equity vehicle mix for NEOs (other than the CEO). Long-term incentives (LTI) were granted during 2018 using 50% performance share units (PSUs), 25% stock options and 25% restricted stock units (RSUs). Mr. Buckhout’s LTI awards continue to be granted as a mix of PSUs (50%) and stock options (50%). Shifting our equity vehicle mix towards RSUs allows us to better manage our overall shareholder dilution levels relating to our equity plans while also supporting our leadership retention strategy. |
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• | Implemented a new PSU award grant design. The Compensation Committee established pre-determined one-, two- and three-year cumulative goals for PSUs Adjusted ROIC (50%) and AOM (50%) over a three-year performance period. Performance is assessed at the end of each year and the NEOs will progressively earn their shares based on results. However, any shares earned based on performance generally will not become vested until after the end of the three-year performance period. |
Going forward, we plan to continue to engage with our stockholders and consider their perspectives' regarding compensation and governance matters. The Compensation Committee's goal is to continue to win investor support for our compensation practices and policies.
2018 Compensation Highlights
Based on our performance, and consistent with the design of our program, the Compensation Committee made the following executive compensation decisions for fiscal 2018:
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• | Base Salaries: The NEOs, except for Mr. Mehrotra, received base salary increases ranging between approximately 3% to 6%, to better align their pay with our peer companies. Mr. Mehrotra received an increase of 26% in recognition of his expanded scope of responsibilities as President of the Industrial Group and to bring his base salary to levels more appropriately aligned with the market. |
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• | Annual Incentive Plan: Based on performance results, our NEOs employed during all of 2018 received an average of 101% of their target annual incentive opportunity. Mr. Bhalla (who departed at year end), received 100% of his target annual incentive opportunity, and Mr. Walker (who joined us mid-year) received a pro-rata bonus at target. |
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• | LTI Plan: The Company did not achieve our threshold 2016-2018 performance targets for either three-year average Adjusted ROIC or three-year average AOM, and as a result none of the PSUs granted in 2016 were earned. |
Base salaries, target annual incentives and the grant date value of LTI for the NEOs in 2018 in aggregate approximated the market median for our peer group, although there was variation in market position by executive due to factors including tenure, individual performance, and consideration of past awards.
Special equity awards were made to certain of our NEOs in connection with the successful execution of the Fluid Handling acquisition.
Mr. Buckhout. We granted Mr. Buckhout an additional stock option award with a grant date fair market value of $250,000 on March 5, 2018, at the same time as the regular annual LTI award. The award value was determined based on the closing price of our Common Stock on the date of the grant on March 5, 2018. The award will generally vest 1/3 per year on each anniversary of the grant date provided Mr. Buckhout remains employed by CIRCOR.
Messrs. Bhalla and Sharma. We granted each of these NEOs additional time-based RSUs with a grant date fair market value of $100,000 in addition to their regular LTI awards. The value of these RSUs was determined based on the closing price of our Common Stock on the date of the grant on March 5, 2018. These awards will generally vest 1/3 per year on each anniversary of the grant date provided the NEO remains employed by CIRCOR. Mr. Bhalla forfeited his entire RSU award when he left the Company at year end.
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Onboarding Mr. Walker
Mr. Walker joined the Company as President of the Energy Group effective as of June 4, 2018. As part of his new-hire agreement, his annual base salary for 2018 was set at $410,000. He received a lump sum sign-on bonus of $170,000, as well as a one-time, new hire grant of RSUs with a grant date fair market value of $450,000. This award amount was determined based on the closing price of our common stock on the date of the grant on June 4, 2018 and will vest 1/3 per year on each anniversary of the grant date. Mr. Walker was guaranteed a minimum payout of his prorated target award covering the period between his date of hire and December 31, 2018. Mr. Walker did not receive a regular, "annual" equity award under the LTI program. In addition, if Mr. Walker voluntarily terminates from the Company prior to completion of two years of employment, he will be responsible for repaying the entire amount of his cash sign-on bonus upon termination.
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CEO Pay At-A-Glance (Target v. Realized)
The chart below shows 2016-2018 target and realized compensation for Mr. Buckhout. Target Total Direct Compensation represents base salary, target annual bonus, and grant date fair value of LTI awards or RSUs purchased under our Management Stock Purchase Plan ("MSP") during each year. Realized Compensation represents base salary, annual bonus actually paid in cash, and the value realized on exercise (in the case of stock options) or vesting (in the case of PSUs or RSUs) of LTI awards or MSP RSUs during each year. Realized Compensation has substantially trailed Target Total Direct Compensation in each year, reflecting the rigor of our goal-setting process for annual bonus and PSU awards and the pay for performance nature of our LTI design.
Good Compensation Governance
The Compensation Committee continually evaluates the Company's compensation policies and practices to ensure that they are consistent with good governance principles. Below are highlights of what we do and what we do not do:
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What We Do | What We Do Not Do |
ü | We place the majority of weight on performance-based, at-risk, long-term compensation. | X | We do not provide any compensation-related tax gross-ups (except in connection with relocation expenses). |
ü | We deliver rewards that are based on achieving long-term objectives and the creation of stockholder value. | X | We do not provide significant perquisites. |
ü | We target total direct compensation at approximately the market median for our peer group, but only if targeted performance levels are achieved.
| X | We do not allow officers or directors to hedge Company stock. |
ü | We maintain stock ownership guidelines for our directors and our executives, including our CEO and other NEOs. | X | We do not allow officers or directors to pledge Company stock. |
ü | We have "double-trigger" change of control vesting of cash severance payments and new equity awards. | X | We do not reprice or replace out-of-the-money stock options. |
ü | Our Compensation Committee seeks advice from an independent compensation consultant. | X | We do not have contracts that guarantee employment with any executives (all employment is terminable-at-will). |
ü | We maintain a clawback policy with respect to incentive-based cash and equity compensation. | X | We do not pay dividends on unvested PSUs; dividends accrue and are paid only if and when applicable performance criteria are achieved. |
ü | We cap annual bonus payouts to eliminate potential windfalls for executives. | | |
ü | We encourage executives to invest their cash incentives in the Company through the Management Stock Purchase Plan ("MSP"). | | |
What Guides Our Program
Our Compensation Guiding Principles
The philosophy underlying our executive compensation program is to attract, retain, and motivate highly qualified and talented executives and reward the achievement of specific annual, long-term and strategic goals that promote the profitable growth of the Company and enhance stockholder value. To this end, the following principles guide the structure of our program:
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• | Link to business priorities and performance. A significant portion of an executive’s total compensation should be "at risk," subject to the attainment of certain specific and measurable performance goals and objectives. We select performance metrics that are most directly tied to the creation of enterprise value and that our management team can meaningfully influence. As performance goals are met or exceeded, executives are rewarded commensurately; conversely, if goals are not met, actual earned compensation is lower. |
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• | Alignment of executives with stockholders’ interests. Our compensation program should encourage our executives to hold a meaningful amount of equity. In addition, we believe compensation to our executives should be based on a balance of short and long-term financial performance factors. This approach also supports our retention strategy and promotes our achievement-oriented culture. |
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• | Competitiveness of Pay Position. Total Target Direct Compensation should be competitive with that being offered to individuals holding comparable positions at other public companies with which we compete for executive talent. Still, long‑term compensation for our executives other than base salary is "at-risk." In general, we position Total Target Direct Compensation for our NEOs in the aggregate near the median of our peer group. We place greater emphasis on at-risk, performance-based elements of compensation than is typical among our peers, and consequently tend to be positioned lower relative to market with respect to base salaries and higher relative to market with respect to target bonus and annual equity awards. |
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• | Maintenance of Governance Standards. We believe that maintaining best-practice executive compensation governance standards is in the best interests of our stockholders and executives and critical to the ability to manage risk. |
Elements of Compensation
Our compensation philosophy is supported by the following elements of compensation:
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Pay Element | How It’s Paid | What It Does | How It Links to Performance |
Base Salary | Cash (Fixed) | Provides a competitive fixed rate of pay relative to similar positions in the market, and enables the Company to attract and retain critical executive talent | Based on job scope, level of responsibilities, individual performance, experience, tenure and market levels |
Annual Incentive Plan | Cash (At-Risk) | Focuses executives on achieving annual financial and strategic goals that enhance long-term stockholder value | Tied to achievement of targets relating to AOM, Free Cash Flow, Net Sales and, for our Corporate level NEOs, adjusted EPS No payouts for performance below threshold Award capped at 300% of target value, with the exception of Net Sales (capped at 200%) |
Long Term Incentive (LTI) Plan | Equity (Variable) | Provides incentives for executives to execute on longer-term goals that promote the efficient use of capital and assets, especially when cyclical demand declines | |
PSUs | Rewards achievement of pre-determined financial goals measured over a three-year performance period | Tied to achievement of targets relating to Adjusted ROIC and AOM Earned over a three-year period based on the achievement of annual, cumulative goals No payouts for performance below threshold Number of shares is capped at 200% of target |
Stock Options | Rewards for stock price appreciation | In absence of positive stockholder returns from date of grant, award provides no value to recipient |
RSUs | Supports leadership retention strategy | Paid in CIRCOR shares at vesting |
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How We Further Foster Stock Ownership and Strengthen Alignment with Stockowners
In order to more closely align the interests of our executives with those of our stockholders, our NEOs are also eligible to participate in the MSP, which is designed to encourage our NEOs to invest up to 100% of their own earned incentive compensation in equity of the Company.
The Compensation Committee approves the participants in the MSP. Participants are entitled to purchase RSUs under the MSP at a discount of 33% to the closing price of the Company's Common Stock two trading days after the announcement of our annual financial results using all or a portion of their pre-tax annual cash incentive award. RSUs purchased under the MSP vest in whole after a three-year period. Any NEO who departs the Company prior to vesting may lose the benefits associated with the discounted purchase price of RSUs purchased under the MSP, as well as any further appreciation in stock price and accrued dividends associated with such RSUs.
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Total Pay Mix at Target
A significant portion of our NEOs' compensation is designed to be "at risk," subject to the attainment of specific and measurable performance goals and objectives. For example, as shown in the table below, 82% of the target total direct compensation of our CEO and 60% of the target total direct compensation of our other NEOs (other than Mr. Walker who joined the Company in June 2018) is allocated to a combination of PSUs, stock options and target bonus, and therefore based on achieving financial and operating metrics or increasing the Company's stock price.
The above chart includes 2018 Target Total Direct Compensation, which we define to include annualized base salaries, 2018 bonus amounts assuming target performance under our annual incentive plan, the grant date fair value of stock options and RSUs, and the grant date fair value of PSUs granted in 2018 under our LTI plan to our NEOs assuming target performance.
The Decision-Making Process
The Role of the Compensation Committee. The Compensation Committee oversees the executive compensation program for our NEOs. The Compensation Committee is comprised of independent, non-employee members of the Board. The Committee works very closely with its independent consultant and management to examine the effectiveness of the Company’s executive compensation program throughout the year. Details of the Compensation Committee’s authority and responsibilities are specified in the Compensation Committee's charter, which may be accessed at our website, www.CIRCOR.com, by clicking "Investors," and then "Corporate Governance."
When making decisions regarding the compensation of the NEOs, the Compensation Committee considers information from a variety of sources. The Compensation Committee also regularly assesses our incentive plan measures in light of current business context, relevance to stockholders, and alignment with peer company practices. The Compensation Committee analyzes both individual elements and total compensation for each of the NEOs. While actual compensation reflects the Company's performance, the Company's goal is for total target compensation, as well as each element of total target compensation, to be at or around the median target compensation for executives with similar positions at our peer group companies (described in further detail below). The Compensation Committee also incorporates flexibility into its compensation programs and into the assessment process to respond to changing business needs, and to take into consideration individual performance, including the relative complexity and strategic importance of specific roles.
In setting meaningful performance goals for both our annual incentive plan and PSUs, the Compensation Committee carefully considers a number of factors, including the general economic and industry climate, anticipated customer spending, projected revenue from current contracts and renewals, and deals in the pipeline. Based on these factors, a range of performance scenarios is developed. Goals are then set at the threshold, target, and maximum performance levels with the target goals aligning with the Company’s operating plan. CIRCOR strives for alignment between our PSU performance targets and our operating plan and the financial guidance we provide externally. We believe achievement of the meaningful performance targets that result from this rigorous goal-setting process will drive long-term value creation for our investors.
To promote a collaborative culture, the Compensation Committee also considers internal pay equity in setting compensation levels for the NEOs, and we believe that managing for the achievement of operating goals increases collaboration among our executives. Attracting and retaining a team of outstanding executives with complementary skills is one of the Company's priorities.
The Compensation Committee makes all final compensation and equity award decisions regarding our NEOs, except for the CEO, whose compensation is determined by the independent members of the full Board, based upon recommendations of the Compensation Committee.
The Role of Management. Members of our management team attend regular meetings where executive compensation, Company and individual performance, and competitive compensation levels and practices are discussed and evaluated. Only the Committee members can vote on decisions regarding NEO compensation.
The CEO reviews his recommendations pertaining to other executives (non-NEO) pay with the Committee providing transparency and oversight. Decisions on non-NEO pay are made by the CEO. The CEO does not participate in the deliberations of the Committee regarding his own compensation.
The Role of the Independent Consultant. The Compensation Committee engages an independent compensation consultant to provide expertise on competitive pay practices, program design, and an objective assessment of any inherent risks of any programs. Pursuant to authority granted to it under its charter, the Committee has engaged Pearl Meyer as its independent consultant. Pearl Meyer reports directly to the Committee and does not provide any additional services to management. The Committee has conducted an independence assessment of Pearl Meyer in accordance with SEC rules.
The Role of Market References - Peer Group Companies. Our executive compensation program considers the compensation practices of companies with which the Company competes or could compete for executive talent. In its review of 2018 executive compensation, the Compensation Committee compared the Company’s overall compensation structure (mix of pay) and levels for the NEOs (total annual compensation, as well as each component of their total compensation) with the peer group companies.
Peer group companies generally have similar business models (e.g., multiple product lines, significant concentration of international sales, exposure to the energy sector, manufacturing operations) and are within comparable size ranges (e.g., market capitalization, revenue). For the purposes of setting 2018 compensation, and with the support of Pearl Meyer, the Compensation Committee updated the peer group (listed below) in recognition of the Company’s increased operating size and complexity following the Fluid Handling acquisition. Specifically, the Committee removed the smallest companies (based on revenue and employee headcount), which included Badger Meter, Inc., Columbus McKinnon Corporation, Kadant Inc., Lindsay Corporation and Lydall, Inc. The Committee added Actuant Corporation, Forum Energy Technologies, Inc., Rexnord Corporation, SPX Corporation, and SPX FLOW, Inc. based on business model comparability, revenue (all except Forum Energy Technologies above $1.0 billion) and market capitalization (below $3.0 billion).
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Peer Group for Setting 2018 Compensation |
Albany International Corp. | ESCO Technologies, Inc. | SPX FLOW, Inc. |
Actuant Corporation | Forum Energy Technologies, Inc. | Standex International Corporation |
Altra Industrial Motion Corp. | Mueller Water Products, Inc. | Tennant Company |
Barnes Group Inc. | NN, Inc. | TriMas Corporation |
Chart Industries, Inc. | Rexnord Corporation | Watts Water Technologies, Inc. |
EnPro Industries, Inc. | SPX Corporation | |
In determining 2018 compensation for its NEOs, the Committee also considered information compiled by Pearl Meyer from the 2018 Willis Towers Watson General Industry Top Management Compensation Survey. This survey aggregated compensation data across a broad spectrum of manufacturing companies and was used to help inform the Compensation Committee regarding market executive compensation levels, particularly for positions other than the CEO, EVP and CFO, and Group Presidents.
2018 Executive Compensation In Detail
As set forth above, the principal elements of the Company’s executive compensation program consist of base salary, annual incentives, MSP, and long-term incentives.
Base Salary
NEOs’ base salaries are determined by evaluating factors such as the responsibilities and complexity of the position, the experience and performance of the individual, market data for similar roles, overall company performance, and internal equity within the Company.
At the beginning of each fiscal year, the Compensation Committee generally reviews and adjusts the base salaries for each of the Company’s executives, with any adjustments to become effective on April 1st of the fiscal year. The NEOs, except for Mr. Mehrotra, received base salary increases ranging between approximately 3% to 6%, to better align their pay with the market. Mr. Mehrotra received an increase of 26% in recognition of his expanded scope of responsibilities as President of the Industrial segment and to bring his base salary to a level more appropriately aligned with the market.
Base salaries for each NEO are shown below:
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NEO | 2017 Year-End Base Salary | 2018 Year-End Base Salary | % Change |
Scott Buckhout | $700,000 | $745,000 | 6.4% |
Rajeev Bhalla | $510,513 | $526,000 | 3.0% |
Lane Walker(1) | N/A | $410,000 | N/A |
Sumit Mehrotra | $270,000 | $340,000 | 25.9% |
Arjun Sharma | $270,000 | $278,000 | 2.96% |
(1) Mr. Walker joined the Company as President of the Energy segment effective as of June 4, 2018.
Annual Incentive Plan
Target Award Opportunities. The 2018 annual incentive plan provided our NEOs the opportunity to earn a performance-based annual cash bonus. Actual bonus payouts depend on the achievement of pre-established performance objectives and can range from 0% to 300% of target award amounts (but not more than 200% for Net Sales performance goals), depending on the financial measure. Target annual award opportunities for the NEOs are approved by the Compensation Committee and are intended to be competitive in the market in which the Company competes for talent and reflect the level of responsibility of the role. They are therefore set at or around the median for comparable positions in the market. For 2018, target award amounts, which are stated as a percentage of base salary, were as follows:
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NEO | Target Award Opportunity (as % of base salary) |
Scott Buckhout(1) | 110% |
Rajeev Bhalla | 70% |
Lane Walker | 60% |
Sumit Mehrotra | 55% |
Arjun Sharma | 50% |
(1) Mr. Buckhout’s target award opportunity increased 10% in 2018 (from 100% of base salary in 2017) to better align target total cash with the market.
Performance Measures, Weightings and Goals. Our incentive plans pay out to participants based on levels of performance against rigorous metrics established by the Board. The performance measures vary depending upon the role and responsibility of the NEO.
For 2018, annual incentive awards for Corporate NEOs (Messrs. Buckhout and Sharma) were based on the achievement of the following performance measures and weightings:
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Performance Measures | Weightings |
Adjusted EPS(1) | 25% |
Energy Score | 25% |
A&D Score | 25% |
Industrial Score | 25% |
(1) Adjusted EPS is defined as GAAP EPS excluding per share amounts related to intangible amortization and amortization of fair value step-ups of inventory and fixed assets from acquisitions completed after December 31, 2011, the impact of restructuring related inventory write-offs, impairment charges and special charges or gains and the associated tax impacts of these items.
For purposes of calculating each Segment Score (for Energy, A&D and Industrial), segment-specific Free Cash Flow, Net Sales and Adjusted Operating Margin (AOM) are considered.
For 2018, the annual incentive award for Mr. Mehrotra was based on the achievement of the following performance measures and weightings:
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Performance Measures | Weightings |
Free Cash Flow | 33.3% |
Net Sales | 33.3% |
AOM | 33.3% |
The table below summarizes the threshold, target, stretch and above stretch performance levels and the actual results for each performance measure for 2018. For actual performance between Threshold, Target, Stretch, and Above Stretch, bonus pool funding will be determined by linear interpolation.
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Measure | Threshold | Target | Stretch | Above Stretch | Achievement |
Adjusted EPS | $1.56 | $2.23 | $2.90 | $3.57 | $2.17 |
Energy Segment Net Sales(1) | $410.7M | $456.3M | $502.0M | N/A | $451.2M |
Energy Segment Free Cash Flow | $38.1M | $54.4M | $70.7M | $87.0M | $56.2M |
Energy Segment AOM | 7.7% | 11.0% | 14.4% | 17.7% | 7.4% |
A&D Segment Net Sales(1) | $196.5M | $218.3M | $240.2M | N/A | $237.0M |
A&D Segment Free Cash Flow | $22.5M | $32.2M | $41.9M | $51.5M | $47.3M |
A&D Segment AOM | 10.6% | 15.1% | 19.7% | 24.2% | 15.2% |
Industrial Segment Net Sales(1) | $441.2M | $490.3M | $539.3M | N/A | $487.6M |
Industrial Segment Free Cash Flow | $33.9M | $48.4M | $62.9M | $77.4M | $46.2M |
Industrial AOM | 8.5% | 12.2% | 15.9% | 19.5% | 11.8% |
(1) Net Sales are capped at 200% of target.
The above performance measures include non-GAAP financial measures and will differ from amounts shown in the Company’s financial statements. For reconciliation to the most comparable GAAP measure see Exhibit A.
Based on the outlook at the time the goals were set and with input from Pearl Meyer, the Compensation Committee concluded that these performance goals struck an appropriate balance in providing both a reasonable probability of attainment and sufficient rigor and motivation of superior performance. The Committee considered probability of achievement of different levels of performance as well as the uncertainty concerning the Company’s performance in 2018. Our track record of past payouts demonstrates that the metrics established for executives are meaningful targets that in many instances have not been met. Over the last five years, total payouts under the annual incentive plan based on corporate performance have averaged 60% of target:
Annual Incentive Plan Results. The following table shows incentives paid to the NEOs under the annual incentive plan. The plan gives the Compensation Committee discretion to consider individual performance and to adjust awards accordingly. Awards to the NEOs for 2018 were determined by formula based on Company performance relative to performance goals.
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NEO | Total Target Amount | Actual Award (as a % of Target) | Actual Award (in Dollars) |
Scott Buckhout | $819,500 | 107.16% | $878,152 |
Rajeev Bhalla(1) | $368,080 | 100.00% | $368,080 |
Lane Walker(2) | $142,208 | 100.00% | $142,206 |
Sumit Mehrotra | $187,000 | 89.46% | $167,290 |
Arjun Sharma | $139,050 | 107.16% | $149,002 |
Erik Wiik(3) | $106,758 | 66.82% | $71,335 |
(1) In accordance with his separation agreement, Mr. Bhalla received 100% of his annul incentive target award.
(2) Mr. Walker's target amount is prorated to cover the period between his start date, June 4, 2018, and December 31, 2018. In accordance with his new-hire agreement, Mr. Walker was guaranteed a minimum payout of his prorated target award covering the period between his date of hire (June 4, 2018) and December 31, 2018.
(3) Mr. Wiik's target amount is prorated to cover the period between January 1, 2018 and his departure date, June 1, 2018. In accordance with his separation agreement, Mr. Wiik received his prorated target award adjusted to performance.
Management Stock Purchase Plan (MSP)
As a group, the NEOs excluding Messrs. Bhalla and Wiik, who were unable to purchase RSUs through the MSP due to the timing of their departure, deferred approximately 59% of their annual incentive awards to acquire RSUs through the MSP. The following table shows elections made by our NEOs for 2018.
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NEO | Percentage of Annual Cash Bonus Deferred |
Scott Buckhout | 50% |
Rajeev Bhalla | 0% |
Lane Walker | 25% |
Sumit Mehrotra | 100% |
Arjun Sharma | 100% |
The Compensation Committee believes that the MSP has been an effective mechanism for fostering stock ownership by our executives, which promotes long-term alignment with stockholder value creation. The Compensation Committee also believes it has proven to be an effective retention vehicle. Departing executives, under certain conditions, will lose the benefits associated with the discounted purchase price of such awards, as well as any further appreciation in stock price and accrued dividends.
Long-Term Incentive Awards
Long-term incentives (LTI) are intended to provide executives with a continuing stake in the long-term success of the Company and to align their interests with those of stockholders. LTI awards are also used to attract, retain and motivate executives responsible for the Company’s long-term success.
The Compensation Committee evaluates the LTI program annually relative to its objectives as well as practices within the Peer Group Companies. The 2018 program included a combination of PSUs, stock options and time-based RSUs. The Committee believes that using different types of awards provides balance to the Company’s LTI program and mitigates risk.
Target LTI awarded to each of our NEOs in 2018 was expressed in dollar amounts based on grant date fair value and vary based on consideration of factors such as role, level of responsibility, performance and past award history:
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NEO | PSUs(5) | Stock Options(6) | RSUs(5) | Total Value |
Scott Buckhout (1) | $ | 1,200,000 |
| $ | 1,450,000 |
| $0 |
| $ | 2,650,000 |
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Rajeev Bhalla (2) | $ | 322,000 |
| $ | 161,000 |
| $ | 261,000 |
| $ | 744,000 |
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Lane Walker (3) | N/A |
| N/A |
| N/A |
| N/A |
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Sumit Mehrotra | $ | 100,000 |
| $ | 50,000 |
| $ | 50,000 |
| $ | 200,000 |
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Arjun Sharma (4) | $ | 81,000 |
| $ | 40,500 |
| $ | 140,500 |
| $ | 262,000 |
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(1) Mr. Buckhout received $1,200,000 PSUs and $1,200,000 stock options as part of his regular LTI plus an additional $250,000 in stock options in recognition of the Fluid Handling acquisition.
(2) Mr. Bhalla received $322,000 in PSUs, $161,000 in stock options, and $161,000 in RSUs as part of his regular LTI plus an additional $100,000 in RSUs in recognition of the Fluid Handling acquisition. Mr. Bhalla forfeited each of these awards when he left the Company.
(3) Mr. Walker did not receive a regular,"annual" equity award under the LTI program. Rather, in conjunction with his new hire arrangement, he received a one-time, new-hire grant of RSUs with a grant date fair market value of $450,000. The number of units for this award was determined based on the closing price of our Common Stock on the previous trading day before the grant date of June 4, 2018. This award will vest 1/3 per year on each anniversary of the grant date.
(4) Mr. Sharma received $81,000 PSUs, $40,500 stock options, and $40,500 RSUs as part of his regular LTI plus an additional $100,000 in RSUs in recognition of the Fluid Handling acquisition.
(5) Award amounts for PSUs and RSUs were determined based on the closing price of our Common Stock on the previous trading day before the grant date of March 5, 2018 for all the NEOs other than Mr. Walker.
(6) Individual share award amounts were calculated based on Black-Scholes values. |
The 2018 LTI program is outlined in the table below:
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Equity Vehicle | Weight | Payout | Metric | Performance Period | Vesting |
PSUs | 50% | Below Threshold: 0% of Target Threshold: 0.01% of Target Target: 100% of Target Stretch: 200% of Target | Adjusted ROIC: 50% AOM: 50% | 2018-2020 | Vesting at end of three-year performance period |
Stock Options | 25% | 100% | N/A | N/A | Vests 1/3 Annually; seven-year term |
RSUs | 25% | 100% | N/A | N/A | Vests 1/3 annually |
A Closer Look at PSUs. The value of the actual PSUs awards granted in 2018 are based on performance over three years (January 1, 2018 - December 31, 2020). For each performance year in the three-year performance period, cumulative goals are set for each performance metric. Performance is assessed at the end of each year and shares are earned based on performance against the respective cumulative goal. Shares become fully vested after the end of the three-year performance period.
The PSUs will be earned only if pre-established financial goals are met. No PSUs will be earned if performance falls below threshold and maximum units will be capped at 200% of target.
The following table outlines our performance targets and degree of achievement for our PSUs granted in 2016, for which the performance goals consisted of Fiscal Year 2016 - 2018 Average Adjusted ROIC and Fiscal Year 2016 - 2018 Average AOM, each weighted 50%.
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Performance Measures | Performance Range | Actual Performance | Payout Factor | Shares Earned and Vested (as a % of Target) |
Threshold | Target | Maximum |
Fiscal Year 2016 - 2018 Average Adjusted ROIC
| 8.0% | 10.0% | 12.0% | 5.7% | 0% | 0% |
Fiscal Year 2016 - 2018 Average AOM | 8.4% | 9.4% | 10.4% | 7.7% | 0% | 0% |
Long-Term Incentive Granting Practices
Most LTI awards are granted at the time of the annual grant in the first quarter of the year, although awards may be granted as part of the hiring process or in connection with a change in responsibility. Annual LTI grants are approved at a specified, regularly scheduled meeting of the Compensation Committee. The Compensation Committee approves the type and number of awards to be granted and the performance criteria for PSUs.
LTI awards granted during the year have a grant date no earlier than the date of approval. Grants that require the approval of the Compensation Committee are typically reviewed and approved at a regularly scheduled Compensation Committee meeting or by written consent in advance of the individual’s employment commencement or promotion date. For these awards, the grant date is the date of the meeting if the individual receiving the grant has already commenced employment. If the individual has not yet commenced employment, the date of grant is the business day following the individual’s first day of employment.
Other Executive Compensation Practices & Policies
Stock Ownership Guidelines
To further align the interests of the executive officers of the Company with the interests of the stockholders, the Company has adopted Stock Ownership Guidelines for executive officers. These guidelines establish an expectation that, within a five-year period, each NEO shall achieve and maintain an equity interest in the Company at least equal to a specified multiple of such individual's annual base salary. The applicable multiples are as follows:
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| |
Position | Target |
Chief Executive Officer | 5x annual base salary |
Chief Financial Officer | 3x annual base salary |
Other NEOs | 2x annual base salary |
In calculating an individual's equity interest, credit is given for (i) the value of actual shares of Common Stock owned beneficially, (ii) the before-tax value of all vested stock options, and (iii) the before-tax value of all outstanding RSU awards (including those which the individual has received in lieu of bonus compensation). The calculation of an individual's equity interest, however, does not include the value of any outstanding equity awards subject to risk of forfeiture by virtue of performance.
An annual review is conducted by our Nominating and Corporate Governance Committee to assess compliance with the guidelines. As of February 26, 2019, our NEO's met their applicable ownership guidelines, or, for NEO's who have been with the Company for less than five years, were on track to achieve their ownership guidelines by the applicable target compliance date.
Clawback Policy
Under our clawback policy, if our Board of Directors determines that an officer engaged in fraud or willful misconduct that resulted in a restatement of the Company’s financial results, then the Board may review all performance-based compensation awarded to or earned by that officer on the basis of performance during the fiscal periods materially affected by the restatement. If, in the view of our Board of Directors, the performance-based compensation would have been lower if it had been based on the restated financial results, the Board of Directors may, to the extent permitted by applicable law, seek recoupment from that officer of any portion of such performance-based compensation as it deems appropriate after a review of all relevant facts and circumstances. Any recoupment under this policy may be in addition to, and shall not otherwise limit, any other remedies that may be available to the Company under applicable law, including disciplinary actions up to and including termination of employment.
Insider Trading, Anti-Hedging & Anti-Pledging Policies
We maintain an insider trading policy which prohibits hedging the economic risk of ownership of our stock. No person who is considered an "insider" of the Company, which includes each of our NEOs and directors, may directly or indirectly sell any securities of the Company that are not owned by the person at the time of the sale (short sale). Such persons also may not purchase or sell puts, calls, options or other derivative instruments in respect of our securities at any time without the approval of the Company’s Clearance Officer. We also do not allow officers or directors to pledge Company stock.
Risk Assessment and Mitigation of Compensation Policies and Practices
The Compensation Committee has reviewed our incentive compensation programs, discussed the concept of risk as it relates to our compensation program, considered various mitigating factors, and reviewed these items with its independent consultant, Pearl Meyer. In addition, our Compensation Committee asked Pearl Meyer to conduct an independent risk assessment of our executive compensation program. Based on these reviews and discussions, the Compensation Committee does not believe our compensation program creates risks that are reasonably likely to have a material adverse effect on our business.
Other Benefits
The Company maintains a defined contribution 401(k) plan in which substantially all of our U.S. employees, including our NEOs, are eligible to participate. We also maintain a nonqualified deferred compensation plan to provide benefits, at the company’s discretion, that would otherwise be provided under the qualified 401(k) plan to certain participants but for the imposition of certain maximum statutory limits imposed on qualified plan benefits (for example, annual limits on eligible pay and contributions). While historically the Company has made a matching contribution to the excess 401(k) plan, no matching contribution was made in 2018. Additionally, although the Company typically makes a discretionary contribution on behalf of
each participant equal to a percentage of the participant’s compensation during the recently concluded fiscal year (regardless of whether the participant contributes to the plan), no discretionary contribution was made in 2018.
We also provide our NEOs with a limited number of perquisites as part of their compensation arrangements, which we consider to be reasonable and consistent with competitive practice. These perquisites include annual car allowances and financial counseling/tax preparation services, which, in total, comprise a de minimis part of the NEO's target total direct compensation.
In order to attract and retain key executives, the Company has entered into severance and change of control agreements with our executive officers.
The agreements are intended to support management continuity and align with market practice. The change of control agreements are intended to maintain focus on stockholder value creation in the event of an actual or threatened change of control. Pursuant to Company policy, the Company does not provide tax gross-ups in connection with any compensatory arrangements. As a result, we do not have any change of control agreements that provide for tax gross-ups. More detail is provided below in Severance and Other Benefits upon Termination of Employment or Change of Control.
Deductibility of Executive Compensation
Section 162(m) of the Code (Section 162(m)) generally disallows a tax deduction to public companies for compensation paid in excess of $1 million for any fiscal year to a company’s chief executive officer or other named executive officers (excluding the company’s principal financial officer, in the case of tax years commencing before 2018). However, in the case of tax years commencing before 2018, the statute exempted qualifying performance-based compensation from the deduction limit if certain requirements were met. Section 162(m) was amended in December 2017 by the Tax Cuts and Jobs Act to eliminate the exemption for performance-based compensation (other than with respect to payments made pursuant to certain "grandfathered" arrangements entered into prior to November 2, 2017) and to expand the group of current and former executive officers who may be covered by the deduction limit under Section 162(m). While the Company’s stockholder approved incentive plans were previously structured to provide that certain awards could be made in a manner intended to qualify for the performance-based compensation exemption, that exemption will no longer be available for future tax years (other than with respect to certain "grandfathered" arrangements as noted above). In addition, while the Compensation Committee intended that certain incentive awards granted to our NEOs on or prior to November 2, 2017 be deductible as "performance-based compensation" and has assessed the possibility that certain awards will be grandfathered from the changes made by the Tax Cuts and Jobs Act, it cannot guarantee that result. The Committee has taken the potential impact of the Tax Cuts and Jobs Act into consideration when approving payout amounts for performance periods ending on December 31, 2018. The Committee expects in the future to authorize compensation in excess of $1 million to NEO's that will not be deductible under Section 162(m) when it believes doing so is in the best interests of the Company and its stockholders.
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION AND
OTHER PAYMENTS TO THE NAMED EXECUTIVE OFFICERS
The following sections provide a summary of cash and certain other amounts earned by the NEOs in Fiscal Year 2018 (and the preceding two fiscal years). Except where noted, the information in the Summary Compensation Table generally pertains to compensation to the NEOs for Fiscal Year 2018. We encourage you to read the following tables closely. The narratives preceding the tables and the footnotes accompanying each table are important parts of each table. Also, we encourage you to read this section in conjunction with the Compensation Discussion and Analysis above.
Summary Compensation Table
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| | | | | | | | | | | | | | | |
Name and Principal Position | Year | Salary ($) | Bonus ($) (1) | Stock Awards ($) (2) (3) | Option Awards ($) (4) | Non-Equity Incentive Plan Compensation ($) (5) | All Other Compensation($) (6) | Total ($) (7) |
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) |
Scott Buckhout President and Chief Executive Officer | 2018 | 732,885 |
| — |
| 1,416,261 |
| 1,450,000 |
| 878,152 |
| 15,361 |
| 4,492,659 |
|
2017 | 676,539 |
| — |
| 1,182,692 |
| 1,080,000 |
| 297,850 |
| 14,267 |
| 3,251,348 |
|
2016 | 664,250 |
| — |
| 1,093,184 |
| 952,500 |
| 408,045 |
| 16,251 |
| 3,134,230 |
|
Rajeev Bhalla (8) Executive Vice President, Chief Financial Officer | 2018 | 521,705 |
| — |
| 583,000 |
| 161,000 |
| — |
| 918,183 |
| 2,183,888 |
|
2017 | 499,075 |
| 50,000 |
| 341,904 |
| 272,000 |
| 202,056 |
| 22,131 |
| 1,387,166 |
|
2016 | 493,027 |
| — |
| 481,814 |
| 375,852 |
| 211,459 |
| 21,846 |
| 1,583,998 |
|
Sumit Mehrotra President, Industrial Group | 2018 | 323,846 |
| — |
| 228,681 |
| 50,000 |
| 167,290 |
| 517,725 |
| 1,287,542 |
|
2017 | 270,000 |
| — |
| 115,678 |
| 74,500 |
| 93,110 |
| 136,818 |
| 690,106 |
|
2016 | 233,095 |
| — |
| 110,485 |
| 50,000 |
| 56,859 |
| 77,878 |
| 528,317 |
|
Lane Walker President, Energy Group | 2018 | 220,769 |
| 170,000 |
| 467,510 |
| 0 |
| 142,206 |
| 60,533 |
| 1,061,018 |
|
Arjun Sharma Senior Vice President, Business Development
| 2018 | 275,919 |
| — |
| 294,889 |
| 40,500 |
| 149,002 |
| 20,847 |
| 781,157 |
|
2017 | 270,000 |
| 50,000 |
| 167,919 |
| 65,000 |
| 107,443 |
| 14,746 |
| 675,108 |
|
2016 | 229,922 |
| — |
| 172,431 |
| 100,083 |
| 65,676 |
| 18,782 |
| 586,894 |
|
Erik Wiik (9) Former President, Energy Group
| 2018 | 194,222 |
| — |
| 115,500 |
| 38,500 |
| — |
| 540,029 |
| 888,251 |
|
2017 | 411,892 |
| — |
| 114,278 |
| 102,500 |
| 47,825 |
| 20,512 |
| 697,007 |
|
2016 | 407,308 |
| — |
| 165,779 |
| 100,000 |
| 145,283 |
| 20,160 |
| 838,530 |
|
|
| |
(1) | Reflects sign-on bonus payment for Mr. Walker. For each of Mr. Bhalla and Mr. Sharma, in addition to the base bonus payment amount calculated under the bonus plan, also reflects a bonus award of $50,000 under the plan in recognition of extraordinary contributions associated with the Fluid Handling acquisition. |
(2) | Reflects the grant date fair value of performance-based restricted stock units (PSUs), the grant date fair value of time-based restricted stock units (Time RSUs), and the grant date fair value of the 33% discount on restricted stock units (MSP RSUs) purchased under our Management Stock Purchase Plan (MSP) determined in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718. For PSUs and Time RSUs, a discussion of the assumptions used in calculating the amounts in this column may be found in Note 11 ("Share-Based Compensation") to our audited consolidated financial statements for the year ended December 31, 2018 included in our Annual Report on Form 10-K filed with the SEC on March 1, 2019. For MSP RSUs, the grant date fair value of the discount purchased by each of our NEOs on March 4, 2019 was based on a 33% discount from the closing price of our Common Stock on March 1, 2019 (the date preceding our annual grant). The 2018 grant date fair values of PSUs and MSP RSUs granted to each of our NEOs are shown in the table below: |
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| | | | |
NEO | Grant Date Fair Value of PSUs | Grant Date Fair Value of MSP RSUs | Grant Date Fair Value of Time RSUs | Total |
Scott Buckhout..................................................... | $1,200,000 | $216,261 | $— | $1,416,261 |
Rajeev Bhalla....................................................... | $322,000 | $— | $261,000 | $583,000 |
Sumit Mehrotra.................................................... | $100,000 | $78,681 | $50,000 | $228,681 |
Lane Walker......................................................... | $— | $17,510 | $450,000 | $467,510 |
Arjun Sharma....................................................... | $81,000 | $73,389 | $140,500 | $294,889 |
Erik Wiik.............................................................. | $77,000 | $— | $38,500 | $115,500 |
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| |
(3) | Included in this column is the fair value of the target number of PSUs granted to each NEO, which we consider to be the probable outcome of the performance conditions as of the grant date. The following table shows for each NEO the grant date fair value of the target number of PSUs granted to each such officer that is included in the Summary Compensation Table and the grant date fair value of the maximum number of PSUs. Since Mr. Walker did not join the Company until June 2018, he was not granted any PSUs in 2018. Since Messrs. Bhalla and Wiik departed the Company during 2018, their PSUs were forfeited. |
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NEO | Target Number of PSUs | Grant Date Fair Value of Target Number of Performance RSUs | Maximum Number of PSUs | Grant Date Fair Value of Maximum Number of Performance RSUs |
Scott Buckhout.......................... | 28,156 | $1,200,000 | 56,312 | $2,400,000 |
Rajeev Bhalla............................ | 7,556 | $322,000 | 15,112 | $644,000 |
Sumit Mehrotra......................... | 2,347 | $100,000 | 4,694 | $200,000 |
Lane Walker............................... | — | $— | — | $— |
Arjun Sharma............................ | 1,901 | $81,000 | 3,802 | $162,000 |
Erik Wiik................................... | 1,807 | $77,000 | 3,614 | $154,000 |
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| The target value of PSUs awarded in 2018 is earned if our Average ROIC and AOM goals are achieved for the three-year average of fiscal years 2018-2020, as described in "Long Term Equity Incentives" in "Compensation Discussion and Analysis". The maximum value of PSUs is two times the Target value, as described above in "Long Term Equity Incentives" in "Compensation Discussion and Analysis". Maximum value of Performance RSUs is earned if our actual average adjusted ROIC and average AOM achievement exceeds the maximum percentages set by the Compensation Committee for the three-year average of fiscal years 2018-2020. |
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(4) | Reflects the aggregate grant date fair value of stock options granted under the Equity Incentive Plan. For a discussion of the assumptions related to the calculation of the amounts in this column, please refer to Note 11 ("Share-Based Compensation") to the Company's audited consolidated financial statements for the year ended December 31, 2018 included in our Annual Report on Form 10-K filed with the SEC on March 1, 2019. The stock options granted in Fiscal Year 2018 were granted on March 5, 2018 whereas the 2017 and 2016 stock option awards were granted on February 27, 2017 and February 23, 2016, respectively. |
(5) | Reflects the amounts earned under our annual cash bonus plan by each NEO, whether received in cash or restricted stock units (RSUs). Our NEOs elected to use all or a portion of their annual cash incentive to purchase RSUs under our MSP. The number of MSP RSUs purchased by each NEO is as follows: |
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| | | | | |
NEO | Year | Percentage of Annual Incentive Used to Purchase RSUs | Amount of Bonus for Year | Amount of Bonus Used to Purchase RSUs | Number of Purchased RSUs |
Scott Buckhout | 2018 | 50% | $878,152 | $439,076 | 19,486 |
| 2017 | 70% | $297,850 | $208,495 | 7,301 |
| 2016 | 70% | $408,045 | $285,632 | 6,989 |
Rajeev Bhalla | 2018 | —% | $368,080 | $0 | — |
| 2017 | 20% | $202,056 | $40,411 | 1,415 |
| 2016 | 20% | $211,459 | $42,292 | 1,034 |
Sumit Mehrotra | 2018 | 100% | $167,290 | $167,290 | 7,089 |
| 2017 | 100% | $93,110 | $93,110 | 3,209 |
| 2016 | 100% | $56,859 | $51,742 | 1,266 |
Lane Walker | 2018 | 25% | $142,206 | $35,552 | 1,577 |
Arjun Sharma | 2018 | 100% | $149,002 | $149,002 | 6,612 |
| 2017 | 100% | $107,443 | $107,443 | 3,762 |
| 2016 | 100% | $65,676 | $65,676 | 1,607 |
Erik Wiik | 2018 | —% | $71,335 | $0 | — |
| 2017 | 50% | $47,825 | $23,913 | 837 |
| 2016 | 50% | $145,283 | $72,642 | 1,777 |
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| |
| Under our MSP, the purchase price for RSUs is 67% of the closing price of our Common Stock on the business day prior to the date of grant. The grant date fair value of the 33% discount is referred to as MSP RSUs, and the MSP RSUs have been included under the Stock Awards column as additional compensation to the NEOs. The total number of RSUs purchased was determined by dividing the dollar amount of bonus used in the above table by $22.53 for 2018, $42.62 for 2017, and $40.86 for 2016, which is 67% of the closing price of our Common Stock on March 1, 2019, March 2, 2018, and February 24, 2017, respectively. The actual number of RSUs purchased under the MSP may be reduced to pay for tax withholding. |
(6) | See "2018 All Other Compensation Table" for specific items in this category. |
(7) | The amounts in this column reflect the total of the following columns: Salary, Bonus Stock Awards, Option Awards, Non-Equity Incentive Plan Compensation, and All Other Compensation. |
(8) | Mr. Bhalla served as Executive Vice President, Chief Financial Officer from December 2, 2013 to December 31, 2018. The equity awards granted to Mr. Bhalla and disclosed in the Summary Compensation Table have been forfeited. |
(9) | Mr. Wiik served as President, Energy Group from March 5, 2015 to June 1, 2018. The equity awards granted to Mr. Wiik and disclosed in the Summary Compensation Table have been forfeited. |
2018 All Other Compensation Table
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| | | | | | | | |
Name | Perquisites and Other Personal Benefits ($) (1) | Tax Preparation and Financial Planning ($) | Insurance Premiums ($) (2) | Severance Payment ($) (3) | Relocation Payments ($) (4) | Payments Relating to Employee Savings Plan ($) (5) | Other ($) (6) | Total ($) |
Scott Buckhout...................... | — | 1,275 | 1,346 | — | — | 6,875 | 5,865 | 15,361 |
Rajeev Bhalla........................ | 12,000 | 1,950 | 2,426 | 893,908 | — | 6,875 | 1,024 | 918,183 |
Lane Walker.......................... | 6,462 | — | 897 | — | 48,680 | 4,494 | 0 | 60,533 |
Sumit Mehrotra...................... | 8,400 | 3,312 | 644 | — | 498,894 | 5,322 | 1,153 | 517,725 |
Arjun Sharma........................ | 8,400 | 5,392 | 644 | — | — | 5,347 | 1,064 | 20,847 |
Erik Wiik............................... | 5,538 | 0 | 1,120 | 495,808 | — | 4,608 | 32,955 | 540,029 |
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(1) | The amounts shown in this column reflect each NEO's annual car allowance. |
(2) | The amounts shown in this column reflect group term life insurance premiums paid on behalf of each NEO. |
(3) | The amounts shown in this column reflect lump sum payments to Messrs. Bhalla and Wiik totaling $893,908 and $495,808, respectively. Mr. Bhalla's lump sum payment was equal to his base salary of $525,828 plus his target bonus of $368,080 whereas Mr. Wiik's lump sum payment was equal to his base salary of $424,473 plus a pro-rated bonus of $71,335. |
(4) | The amounts shown in this column reflect taxable relocation payments paid on behalf of Messrs. Walker and Mehrotra in the amounts of $48,680 and $498,894, respectively. |
(5) | The amounts shown in this column reflect Company matching contributions to each NEO's 401(k) savings account of up to 4.0% of base pay subject to the limits imposed by IRS regulations. |
(6) | The amounts shown in this column with respect to Messrs. Buckhout, Bhalla, Mehrotra and Sharma reflect dividend equivalents paid on vested RSUs. The amount shown in this column with respect to Mr. Wiik reflects dividend equivalents paid on vested RSUs of $596, a lump sum payment of $31,411 for the vacation balance due upon termination and a non-qualified compensation contribution of $948. |
2018 Grants of Plan-Based Awards
The following table summarizes the grant of plan-based awards made to our NEOs in 2018.
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Name | Type of Award (1) | Grant Date | Approval Date | Estimated Future Payouts Under Non-Equity Incentive Plan Awards (2) | Estimated Future Payouts Under Equity Incentive Plan Awards (3) | All Other Stock Awards: Number of Shares of Stock or Units (#) | All Other Option Awards: Number of Securities Underlying Options (#) | Exercise or Base Prices of Option Awards ($ / Sh) (4) | Grant Date Fair Value of Stock and Option Awards ($) (5) |
Thresh-hold ($) | Target ($) | Maxi-mum ($) | Thresh-hold (#) | Target (#) | Maxi-mum (#) |
(a) | | (b) | | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | (k) | (l) |
Scott Buckhout | Option | 03/05/18 | 02/07/18 | — | — | — | — | — | — | — | 98,775 | 42.62 | 1,450,000 |
| PSU | 03/05/18 | 02/07/18 | — | — | — | 12,000 | 28,156 | 56,312 | — | — | — | 1,200,000 |
| AIP | | | 4,900 | 490,000 | 1,470,000 | — | — | — | — | — | — | — |
Rajeev Bhalla | Option | 03/05/18 | 02/07/18 | — | — | — | — | — | — | — | 10,968 | 42.62 | 161,000 |
| PSU | 03/05/18 | 02/07/18 | — | — | — | 3,220 | 7,556 | 15,112 | — | — | — | 322,000 |
| AIP | | | 715 | 71,472 | 214,416 | — | — | — | — | — | — | — |
| Time RSU | 03/05/18 | 02/07/18 | — | — | — | — | — | — | 7,556 | — | — | 261,000 |
Sumit Mehrotra | Option | 03/05/18 | 02/07/18 | — | — | — | — | — | — | — | 3,408 | 42.62 | 50,000 |
| PSU | 03/05/18 | 02/07/18 | — | — | — | 1,000 | 2,347 | 4,694 | — | — | — | 100,000 |
| AIP | | | 1,215 | 121,500 | 321,975 | — | — | — | — | — | — | — |
| Time RSU | 03/05/18 | 02/07/18 | — | — | — | — | — | — | 1,176 | — | — | 50,000 |
Lane Walker | Time RSU | 06/04/18 | 05/15/18 | — | — | — | — | — | — | 9,222 | — | — | 450,000 |
Arjun Sharma | Option | 03/05/18 | 02/07/18 | — | — | — | — | — | — | — | 2,760 | 42.62 | 40,500 |
| PSU | 03/05/18 | 02/07/18 | — | — | — | 810 | 1,901 | 3,802 | — | — | — | 81,000 |
| AIP | | | 1,350 | 135,000 | 405,000 | — | — | — | — | — | — | — |
| Time RSU | 03/05/18 | 02/07/18 | — | — | — | — | — | — | 3,300 | — | — | 140,500 |
Erik Wiik | Option | 03/05/18 | 02/07/18 | — | — | — | — | — | — | — | 2,625 | 42.62 | 38,500 |
| PSU | 03/05/18 | 02/07/18 | — | — | — | 770 | 1,807 | 3,614 | — | — | — | 77,000 |
| AIP | | | 1,255 | 125,460 | 376,380 | — | — | — | — | — | — | — |
| Time RSU | 03/05/18 | 02/07/18 | — | — | — | — | — | — | 906 | — | — | 38,500 |
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| |
(1) | Type of Award: |
| Option = Stock option subject to time-based vesting |
| PSU = RSU award subject to performance conditions |
| AIP = Cash award subject to performance conditions under the annual incentive plan |
| Time RSU = RSU award subject to time-based vesting only |
| Each of these Option and PSU awards was granted under our LTI plan. See Summary Compensation Table and the footnotes thereto for additional information on these types of awards. |
(2) | The amounts in these columns indicate the threshold, target and maximum performance bonus amounts payable under our annual incentive plan prior to deducting any amounts the NEO elected to use to purchase RSUs under the MSP. Each of our NEOs, other than Mr. Bhalla, elected to use a portion of his annual incentive bonus to purchase RSUs under our MSP in Fiscal Year 2018. See footnote (5) to the "Summary Compensation Table" for a description of the actual amount of annual bonus earned by each of the NEOs for Fiscal Year 2018, the amount of each NEO's bonus that was used to purchase MSP RSUs, and the number of purchased MSP RSUs. The potential bonus amounts payable under the annual incentive plan are based on the achievement of specific financial performance metrics. The NEOs would receive a bonus payout equal to 0.1% of their target bonus at the threshold level of performance and 200% or 300% (depending on the performance metric) of their target bonus at the maximum level of performance. If none of the threshold performance metrics are met, no bonus would be payable to the NEOs under the annual incentive plan.
|
(3) | The amounts in these columns indicate the threshold, target and maximum number of shares that the NEO could receive if an award payout is achieved under the PSUs. These potential share amounts are based on achievement of specific performance goals. The NEO would receive 0.1% of the target number of shares at the threshold level of performance and 200% of the target number of shares at the maximum level of performance. If none of the threshold performance targets are met, then our NEOs will not receive any shares. |
(4) | The exercise price of Options is equal to the closing price of our Common Stock on the business day before the grant date. For more details, see footnote (3) under Outstanding Equity Awards at 2018 Fiscal Year-End. |
(5) | The amounts in this column reflect the aggregate grant date fair values of the PSUs reflected in column (g) calculated in accordance with accounting guidance, as well as the aggregate fair value of the Option awards reflected in column (j) as determined using the Black Scholes option pricing model. |
Outstanding Equity Awards at 2018
Fiscal Year-End
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| | | | | | | | | | | | |
| | Option Awards | Stock Awards |
Name | Type of Award (1) | Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Unexercisable (#) (2) | Equity Incentive Plan Awards: Number of Securities Underlying unexercised unearned options (#) | Option Exercise Price ($) | Option Expiration Date |
Award Grant Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) (3) | Equity Incentive Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) (3) |
(a) | | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | (k) |
Scott Buckhout | Perf Option | 150,000 (4) | — | — | 41.17 | 4/09/2023 | 4/09/2013 | — | — | — | — |
| Perf Option | — | — | 100,000 (5) | 70.42 | 3/05/2024 | 3/05/2014 | — | — | — | — |
| Option | 39,141 | — | — | 51.84 | 2/23/2022 | 2/23/2015 | — | — | — | — |
| Option | 53,318 | 26,659 | — | 38.89 | 2/23/2023 | 2/23/2016 | — | — | — | — |
| Option | 18,596 | 37,192 | — | 60.99 | 2/27/2024 | 2/27/2017 | — | — | — | — |
| Option | — | 98,775 | — | 42.62 | 3/05/2025 | 3/05/2018 | — | — | — | — |
| PSU | — | — | — | — | — | 2/23/2016 | — | — | 24,493 | 521,701 (7) |
| MSP RSU | — | — | — | — | — | 2/23/2016 | 249 | 5,304 (6) | — | — |
| PSU | — | — | — | — | — | 2/27/2017 | — | — | 17,708 | 377,180 (8) |
| MSP RSU | — | — | — | — | — | 2/27/2017 | 6,989 | 148,866 (6) | — | — |
| PSU | — | — | — | — | — | 3/05/2018 | — | — | 28,156 | 599,723 (9) |
| MSP RSU | — | — | — | — | — | 3/05/2018 | 7,301 | 155,511 (6) | — | — |
Rajeev Bhalla | Option | 11,901 | — | — | 71.56 | 3/31/2019 | 3/03/2014 | — | — | — | — |
| Option | 22,368 | — | — | 51.84 | 3/31/2019 | 2/23/2015 | — | — | — | — |
| Option | 21,040 | — | — | 38.89 | 3/31/2019 | 2/23/2016 | — | — | — | — |
| Option | 5,545 | — | — | 60.99 | 3/31/2019 | 2/27/2017 | — | — | — | — |
Sumit Mehrotra | Option | 984 | — | — | 71.56 | 3/03/2021 | 3/03/2014 | — | — | — | — |
| Option | 1,959 | — | — | 51.84 | 2/23/2022 | 2/23/2015 | — | — | — | — |
| Option | 2,800 | 1,400 | — | 38.89 | 2/23/2023 | 2/23/2016 | — | — | — | — |
| Option | 1,283 | 2,566 | — | 60.99 | 2/27/2024 | 2/27/2017 | — | — | — | — |
| Option | — | 3,408 | — | 42.62 | 3/05/2025 | 3/05/2018 | — | — | — | — |
| Time RSU | — | — | — | — | — | 2/23/2016 | 729 | 15,528 (10) | — | — |
| MSP RSU | — | — | — | — | — | 2/23/2016 | 42 | 895 (6) | — | — |
| PSU | — | — | — | — | — | 2/27/2017 | — | — | 1,222 | 26,029 (8) |
| MSP RSU | — | — | — | — | — | 2/27/2017 | 1,266 | 26,966 (6) | — | — |
| PSU | — | — | — | — | — | 3/05/2018 | — | — | 2,347 | 49,991 (9) |
| MSP RSU | — | — | — | — | — | 3/05/2018 | 3,209 | 68,352 (6) | — | — |
| Time RSU | — | — | — | — | — | 3/05/2018 | 1,176 | 25,049 (10) | — | — |
Lane Walker | Time RSU | — | — | — | — | — | 6/04/2018 | 9,222 | 196,429 (10) | — | — |
Arjun Sharma | Option | 3,212 | — | — | 39.00 | 2/28/2021 | 2/28/2011 | — | — | — | — |
| Option | 2,799 | — | — | 32.76 | 3/05/2022 | 3/05/2012 | — | — | — | — |
| Option | 3,168 | — | — | 71.56 | 3/03/2021 | 3/03/2014 | — | — | — | — |
| Option | 3,663 | 0 | — | 51.84 | 2/23/2022 | 2/23/2015 | — | — | — | — |
| Option | 5,604 | 2,802 | — | 38.89 | 2/23/2023 | 2/23/2016 | — | — | — | — |
| Option | 1,981 | 3,962 | — | 60.99 | 2/27/2024 | 2/27/2017 | — | — | — | — |
| Option | — | 2,760 | — | 42.62 | 3/05/2025 | 3/05/2018 | — | — | — | — |
| PSU | — | — | | — | — | 2/23/2016 | — | — | 2,574 | 54,826 (7) |
| MSP RSU | — | — | | — | — | 2/23/2016 | 54 | 1,150 (6) | — | — |
| Time RSU | — | — | | — | — | 2/23/2016 | 343 | 7,306 (10) | — | — |
| PSU | — | — | | — | — | 2/27/2017 | — | — | 1,886 | 40,172 (8) |
| MSP RSU | — | — | | — | — | 2/27/2017 | 1,607 | 34,229 (6) | — | — |
| PSU | — | — | | — | — | 3/05/2018 | — | — | 1,901 | 40,491 (9) |
| MSP RSU | — | — | | — | — | 3/05/2018 | 3,762 | 80,131 (6) | — | — |
| Time RSU | — | — | | — | — | 3/05/2018 | 3,300 | 70,290 (10) | — | — |
|
| |
(1) | Type of Award: |
| Time RSU = RSU award subject to time-based vesting only |
| PSU = RSU award subject to performance conditions |
| Perf Option = Inducement stock option subject to a service period and a market vesting condition |
| Option = Stock option subject to time-based vesting |
| MSP RSU = MSP RSU awards subject to performance conditions under Management Stock Purchase Plan |
| With the exception of the Perf Option awards to Mr. Buckhout on April 9, 2013 (which were granted as special inducement awards under the NYSE regulations), each of these RSU and option awards was granted under our Equity Incentive Plan. |
(2) | The stock options listed in this column were granted pursuant to our Equity Incentive Plan. The stock option grant on February 28, 2011 vested three years from such date and has a ten-year term. The stock option grants on March 5, 2012 vested ratably 33% per year generally beginning on the first anniversary from such date and have a ten-year term. The stock option grants on March 3, 2014, February 23, 2015, February 23, 2016, February 27, 2017, and March 5, 2018 vest ratably 33% per year generally beginning on the first anniversary from such date and have a seven-year term. |
(3) | The amounts shown in these columns reflect the market value of unvested RSUs calculated by multiplying the number of such unvested RSUs by $21.30, the closing price of our Common Stock on December 31, 2018. |
(4) | On April 9, 2013, an inducement stock option award of 200,000 shares was granted to Mr. Buckhout with an exercise price of $41.17 per share. This inducement stock option award was granted pursuant to the inducement award exemption under Section 303A.08 of the NYSE Listed Company Manual. This stock option award includes both a service period and a market vesting condition. In 2014, certain of these targets were achieved and 150,000 shares vested and remain exercisable. The remaining 50,000 shares were canceled during 2018 due to lack of performance achievement. |
(5) | On March 5, 2014, Mr. Buckhout received a stock option award that includes both a service period and a market vesting condition. The stock options will vest if the following stock price targets are met based on the stock closing at or above these targets for 60 consecutive trading days: $87.50 (25,000 cumulative vested shares); $100.00 (50,000 cumulative vested shares); $112.50 (75,000 cumulative vested shares); $125.00 (100,000 cumulative vested shares). Vested options may be exercised 25% at the time of vesting, 50% one year from the date of vesting and 100% two years from the date of vesting and have a ten-year term but to the extent that the market conditions (stock price targets shown above) are not met within five years from the grant date, these options will not vest and will forfeit. |
(6) | The amounts reflect the unvested portion of MSP RSUs pursuant to the MSP provisions allowing executives to receive MSP RSUs in lieu of a specified percentage or dollar amount of their annual incentive cash bonus. Such MSP RSUs vest in whole on the date that is three years from the date of the grant, provided that the NEO is then employed with the Company, at which time they convert into shares of Common Stock and are issued to the executive unless the executive has selected a longer deferral period. For example, awards with a grant date of March 5, 2018 vest on March 5, 2021. |
(7) | The amounts reflect the unvested portion of long-term grants in the form of PSUs pursuant to our Equity Incentive Plan. Such grants are subject to financial performance conditions for the three years ended December 31, 2016 through December 31, 2018 and reflect the target amount of the award.
|
(8) | The amounts reflect the unvested portion of long-term grants in the form of PSUs pursuant to our Equity Incentive Plan. Such grants are subject to financial performance conditions for the three years ended December 31, 2017 through December 31, 2019 and reflect the target amount of the award.
|
(9) | The amounts reflect the unvested portion of long-term grants in the form of PSUs pursuant to our Equity Incentive Plan. Such grants are subject to financial performance conditions for the three years ended December 31, 2018 through December 31, 2020 and reflect the target amount of the award. |
(10) | The amounts reflect the unvested portion of long-term incentive grants in the form of Time RSUs pursuant to our Equity Incentive Plan. Such grants generally vest ratably over a three-year period, beginning on the first anniversary of the date of grant, subject to any longer deferral period selected by the executive. |
2018 Option Exercises and Stock Vested
|
| | | | |
| Option Awards | Stock Awards |
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) (1) | Value Realized on Vesting ($) (2) |
(a) | (b) | (c) | (d) | (e) |
Scott Buckhout (3) | — | — | 13,033 | 645,915 |
Rajeev Bhalla (4) | — | — | 2,518 | 124,792 |
Sumit Mehrotra (5) | — | — | 2,806 | 139,065 |
Lane Walker (6) | — | — | 0 | 0 |
Arjun Sharma (7) | — | — | 2,513 | 123,220 |
Erik Wiik (8) | 5,598 | 32,813 | 2,747 | 107,149 |
|
| |
(1) | With respect to shares acquired upon vesting of RSUs, NEOs have shares withheld to pay associated income taxes. The number of shares reported represents the gross number prior to withholding of such shares. In certain cases, the actual receipt of shares underlying vested RSUs may have been deferred pursuant to a previous election made by the NEO. This table reports the number of shares vested regardless of whether distribution actually was made. |
(2) | The amounts shown in this column reflect the value realized upon vesting of Time RSUs, PSUs, and MSP RSUs as follows: (i) for Time RSUs and PSUs, the value realized upon vesting is determined by multiplying the number of RSUs vested (prior to withholding of any shares to pay associated income taxes) and the closing price of our Common Stock on the day prior to vesting and (ii) for MSP RSUs, the value realized upon vesting is determined by multiplying (a) the number of MSP RSUs vested (prior to withholding of any shares to pay associated income taxes) and (b) the difference between the closing price of our Common Stock on the day prior to vesting and the purchase price of the MSP RSUs. |
(3) | Mr. Buckhout had 13,033 MSP RSUs vest on February 23, 2018 with a price of $49.56. |
(4) | Mr. Bhalla had 1,788 MSP RSUs and 730 Time RSUs vest on February 23, 2018 with a price of $49.56. |
(5) | Mr. Mehrotra had 1,851 MSP RSUs and 955 Time RSUs vest on February 23, 2018 with a price of $49.56. |
(6) | Mr. Walker joined CIRCOR on June 4, 2018 and had no options or stock awards vest during 2018. |
(7) | Mr. Sharma had Time RSUs and MSP RSUs vest during 2018 as follows: 1,964 MSP RSUs and 343 Time RSUs with a price of $49.56 on February 23, 2018, and 206 Time RSUs with a price of $43.13 on July 30, 2018. |
(8) | Mr. Wiik had Time RSUs and MSP RSUs vest during 2018 as follows: 258 Time RSUs with a price of $49.56 on February 23, 2018, 1,258 RSUs with a price of $42.62 on March 5, 2018, and 1,231 MSP RSUs with a price of $33.10 on December 3, 2018. |
2018 Nonqualified Deferred Compensation
In 2007, we implemented a nonqualified 401(k) excess plan to provide benefits that would have otherwise been provided to participants in our 401(k) plan but for the imposition of certain maximum statutory limits imposed on qualified plans, such as annual limits on eligible pay and contributions. Effective August 27, 2018, the Company changed its 401(k) matching contribution on behalf of each participant from 50% of the first 5% of compensation contributed to the plan by the participant to 100% of the first 4% of compensation contributed to the plan by the participant. In addition, under the 401(k) plan, the Company has the option to make core contributions on behalf of each participant (regardless of whether the participant contributes to the plan). The Company also may, in its discretion, make the same contributions to the nonqualified 401(k) excess plan but only with respect to compensation in excess of the annual limit on eligible pay. In 2018, the Company elected not to make core contributions to the 401(k) plan or the nonqualified 401(k) excess plan. Any contribution credits that we provide to participants under the nonqualified 401(k) plan are invested, at the discretion of plan participants, in one or more mutual funds selected by the plan participants. The same mutual funds that we make available under our 401(k) plan are also available under the nonqualified 401(k) excess plan and there are no minimum or guaranteed rates of return to the participants on such investments. Distributions from the nonqualified 401(k) excess plan are made in a lump sum in connection with a participant's separation from service.
As discussed above, our MSP allows our NEOs to defer the payment of their annual incentive compensation in the form of RSUs. We also permit the grantees of our RSUs to defer the settlement of RSUs beyond the vesting date. The deferral period is a stated period of years selected in advance by the grantee. In general, if the grantee's employment terminates before the end of the deferral period for reasons other than retirement, the RSUs will be settled in shares of our Common Stock upon termination of employment. If the grantee retires before the end of the deferral period, the RSUs will be settled in shares of our Common Stock at the end of the deferral period. During the deferral period, any dividends that would otherwise be paid on the deferred RSUs accumulate in cash and will be paid out at the same time that the deferred RSUs are settled.
Under either deferred compensation arrangement, if distribution is made on account of separation from service, the distribution will be delayed by six months if the participant is considered a specified employee within the meaning of Section 409A of the Internal Revenue Code.
The following table outlines employee and employer contributions to each deferred compensation arrangement for Fiscal Year 2018. The table also includes earnings or losses during Fiscal Year 2018, and the aggregate balances as of December 31, 2018.
2018 Nonqualified Deferred Compensation
|
| | | | | | |
Name (a) | Item | Executive Contributions in Last FY ($) (b) | Registrant Contributions in Last FY ($) (c) | Aggregate Earnings/(Loss) in Last FY ($) (d) | Aggregate Withdrawals/ Distributions (e) | Aggregate Balance at Last FYE ($) (f) (1) |
Scott Buckhout | Excess 401K | — | — | (1,037) | — | 35,267 |
Rajeev Bhalla | Excess 401K | — | — | (499) | — | 16,974 |
Sumit Mehrotra | Excess 401K | — | — | (106) | — | 1,141 |
Lane Walker | Excess 401K | — | — | — | — | — |
Arjun Sharma | Excess 401K | — | — | (312) | — | 10,600 |
Erik Wiik | Excess 401K | — | — | (12) | — | — |
|
| |
(1) | These amounts include employer contributions that have been reflected in the Summary Compensation Table in prior years' proxy statements and all earnings on such contributions. |
SEVERANCE AND OTHER BENEFITS UPON
TERMINATION OF EMPLOYMENT OR CHANGE OF CONTROL
To achieve our compensation objective of attracting, retaining and motivating qualified executives, we believe that we need to provide our executive officers with severance and change of control protections that are competitive with the protections offered by our Peer Group Companies. Offering our executive officers these payments and benefits facilitates the operation of our business, allows them to better focus their time, attention and capabilities on our business, assists us in recruiting and motivating executive officers, provides for a clear and consistent approach to managing involuntary departures with mutually understood separation benefits, and aligns with market practice. The following section describes our severance and change of control agreements for our NEOs employed with us at year end along with estimated payments if their employment had terminated with us as of December 31, 2018. Actual severance benefits provided to Mr. Bhalla and Mr. Wiik are set forth in the Summary Compensation Table.
Severance Agreements
Each of Messrs. Buckhout, Mehrotra, Walker, and Sharma have entered into an agreement providing severance benefits if he resigns from the Company for good reason or the Company terminates him other than for cause (the "Severance Agreements"). In such circumstances, Mr. Buckhout's Severance Agreement entitles him to a lump sum payment equal to (i) his then-current base salary and (ii) his target annual incentive compensation in effect during the fiscal year in which the termination occurs. In the same circumstances, each of Messrs. Mehrotra's, Walker's, and Sharma's Severance Agreement entitles him to a lump sum payment equal to his then-current base salary and annual incentive compensation for the fiscal year in which the termination occurs, to the extent that performance goals are met for that year, prorated based on the date of resignation or termination.
In addition, the severance benefit for Mr. Buckhout includes the Company continuing to pay for medical coverage (if COBRA coverage is elected) in the same proportion it did on the date of termination for up to 18 months following termination. The severance benefit for Messrs. Mehrotra, Walker, and Sharma includes the Company continuing to pay for medical coverage (if COBRA coverage is elected) in the same proportion it did on the date of termination for up to one year following termination.
To receive the benefits described above, each such NEO must execute a general release of claims in a manner satisfactory to the Company within 21 days of the termination of employment. Each of the NEOs listed above also has agreed to comply with non-competition and non-solicitation obligations lasting for the term of employment and one year following termination as consideration for the severance benefits.
The Severance Agreements continue to apply after a change in control. No benefits, however, are payable under the Severance Agreements if severance benefits become payable under the Change in Control Agreements as described below.
Change of Control Agreements
Each of Messrs. Buckhout, Mehrotra, Walker, and Sharma have entered into an agreement providing benefits in the event of a change of control of the Company (the "Change of Control Agreements"). The term of each Change of Control Agreement is one-year subject to annual one-year extensions unless there is a notice of non-renewal. Each of the Change of Control Agreements provides enhanced severance benefits if, within one year following a change of control, such NEO's employment is terminated by the Company without cause or he resigns from the Company for good reason. In such circumstances, the cash benefit to the NEO will be a lump sum payment equal to two times (i) his then-current base salary and (ii) his target annual incentive compensation in effect during the fiscal year in which the termination occurs (or, in the case of Mr. Sharma, the highest annual incentive compensation received by him in any of the three immediately preceding fiscal years).
In addition, the severance benefit for Messrs. Buckhout, Mehrotra, and Walker includes the Company continuing to pay for medical coverage (if COBRA coverage is elected) in the same proportion it did on the date of termination for up to two years following termination. The severance benefit for Mr. Sharma includes the Company continuing to pay for medical coverage (if COBRA coverage is elected) in the same proportion it did on the date of termination for up to one year following termination.
Upon the occurrence of a change of control, irrespective of whether his employment with the Company terminates, each such NEO's stock options and stock-based awards (including RSUs and PSUs) will immediately vest for grants made prior to the change in control. In some circumstances, immediate vesting will not apply to performance stock options granted in connection with commencing employment. As discussed above, for equity awards on or after change in control, there will not be automatic vesting upon closing of a deal, but instead only accelerated vesting upon certain termination of employment after a change in control.
A "change of control" for purposes of the Change of Control Agreements means any of the following: (i) acquisition of 25% or more of the voting power or economic value of the Company’s then outstanding securities; (ii) failure of incumbent directors (including any director nominated for election by a vote of at least a majority of the incumbent directors other than in connection with a proxy contest) to constitute at least a majority of the Board; (iii) stockholder approval of (A) consolidation or merger of the Company that results in stockholders owning less than 50% voting shares of the consolidated or merge entity (or its ultimate parent corporation, if any), (B) any sale or similar transaction of substantially all of the assets of the Company, or (C) entry of the Company into a plan of liquidation.
As noted above, the NEO's would not be entitled to benefits under the Severance Agreements in connection with any termination from the Company with respect to which benefits under the Change of Control Agreements would be payable. Each of the NEOs listed above also has agreed to comply with non-competition and non-solicitation provisions lasting for the term of employment and one year following termination as consideration for the change of control benefits.
The following tables list the estimated amounts that Messrs. Buckhout, Mehrotra, Walker, and Sharma would have become entitled to in the event of a termination from the Company or change of control of the Company had such termination or change of control occurred on December 31, 2018. Assumptions used in preparing these estimates are set forth in the footnotes to each table. These tables do not include amounts that are otherwise earned and vested prior to a termination of employment or a change in control, such as vested stock options or nonqualified deferred compensation, amounts payable under disability or life insurance coverages or the annual incentive bonus which was actually earned for 2018.
|
| | | | | | | | | | | | | | | | | | | | |
Scott Buckhout | | | | | | | | | |
Severance and Other Benefits | | | | | | | |
| Involuntary Without Cause or Voluntary Resignation With Good Reason Within One Year Following Change of Control | | Involuntary Other Than For Cause or Voluntary Resignation With Good Reason at Any Other Time | | Involuntary For Cause or Voluntary Resignation Without Good Reason | | Change of Control (Irrespective of Whether Termination or Resignation Occurs) | | Death or Disability | (8) |
| 12/31/2018 | | 12/31/2018 | | 12/31/2018 | | 12/31/2018 | | 12/31/2018 | |
Cash Severance | $ | 3,129,000 |
| (1) | $ | 1,564,500 |
| (4) | | | | | | |
Health Benefits | $ | 60,985 |
| (2) | $ | 45,739 |
| (5) | | | | | | |
Long-Term Incentives | | | | | | | | | | |
Gain on accelerated stock options | — |
| | — |
| | — |
| | — |
| (6) | — |
| (6) |
Value of accelerated restricted stock units | — |
| | — |
| | — |
| | $ | 1,808,285 |
| (7) | $ | 1,808,285 |
| (7) |
Total Long-Term Incentives | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,808,285 |
| | $ | 1,808,285 |
| |
TOTAL Value: | $ | 3,189,985 |
| (3) | $ | 1,610,239 |
| | $ | — |
| | $ | 1,808,285 |
| | $ | 1,808,285 |
| |
|
|
(1) This amount reflects payment to Mr. Buckhout that would equal two times his (i) then-current base salary and (ii) then- effective target annual incentive compensation. |
(2) This amount reflects payments to Mr. Buckhout that would equal the cost of the health insurance premiums necessary to allow Mr. Buckhout and any covered spouse and dependents to continue to receive health insurance coverage substantially similar to the coverage they received prior to the date of termination for a period of two years following the date of termination. |
(3) These amounts do not reflect a 20% excise tax under Section 4999 of the Internal Revenue Code that may apply depending upon the facts and circumstances in the event of a change of control. This estimate also does not reflect that payments are subject to being reduced in certain circumstances to avoid this tax. |
(4) This amount reflects payment to Mr. Buckhout that would equal his (i) then-current base salary and (ii) his then-effective target annual incentive compensation. |
(5) This amount reflects payments to Mr. Buckhout that would equal the cost of the health insurance premiums necessary to allow Mr. Buckhout and any covered spouse and dependents to continue to receive health insurance coverage substantially similar to the coverage they received prior to the date of termination for a period of 18 months following the date of termination. |
|
|
(6) This amount reflects the incremental value to which Mr. Buckhout would be entitled due to the immediate vesting of all unvested stock options, subject to accelerated vesting on change of control, using the closing stock price of $21.30 on December 31, 2018. |
(7) This amount reflects the total value to which Mr. Buckhout would be entitled due to the immediate vesting of all unvested RSUs including PSUs at Target and MSP RSUs using the closing stock price of $21.30 on December 31, 2018. The amount attributable to MSP RSU vesting includes the prior incentive bonus that was earned and used to purchase MSP RSUs. |
(8) "Disability" for this purpose means qualifying for receipt of long-term disability benefits under the Company’s long-term disability plan as in effect from time to time. |
|
| | | | | | | | | | | | | | | | | | | | |
Sumit Mehrotra | | | | | | | | | | |
Severance and Other Benefits | | | | | | | |
| | | | | | | | | | |
| Involuntary Without Cause or Voluntary Resignation With Good Reason Within One Year Following Change of Control | | Involuntary Other Than For Cause or Voluntary Resignation With Good Reason at Any Other Time | | Involuntary For Cause or Voluntary Resignation Without Good Reason | | Change of Control (Irrespective of Whether Termination or Resignation Occurs) | | Death or Disability | (8) |
| 12/31/2018 |
| | 12/31/2018 |
| | 12/31/2018 |
| | 12/31/2018 |
| | 12/31/2018 |
| |
Cash Severance | $ | 1,054,000 |
| (1) | $ | 507,290 |
| (4) | | | | | | |
Health Benefits | $ | 60,985 |
| (2) | $ | 30,492 |
| (5) | | | | | | |
Long-Term Incentives | | | | | | | | | | |
Gain on accelerated stock options | — |
| | — |
| | — |
| | — |
| (6) | — |
| (6) |
Value of accelerated restricted stock units | — |
| | — |
| | — |
| | $ | 212,808 |
| (7) | $ | 212,808 |
| (7) |
Total Long-Term Incentives | $ | — |
| | $ | — |
| | $ | — |
| | $ | 212,808 |
| | $ | 212,808 |
| |
TOTAL Value: | $ | 1,114,985 |
| (3) | $ | 537,782 |
| | $ | — |
| | $ | 212,808 |
| | $ | 212,808 |
| |
|
|
(1) This amount reflects payment to Mr. Mehrotra that would equal two times his (i) then-current base salary and (ii) then-effective target annual incentive compensation. |
(2) This amount reflects payments to Mr. Mehrotra that would equal the cost of the health insurance premiums necessary to allow Mr. Mehrotra and any covered spouse and dependents to continue to receive health insurance coverage substantially similar to the coverage they received prior to the date of termination for a period of two years following the date of termination. |
(3) These amounts do not reflect a 20% excise tax under Section 4999 of the Internal Revenue Code that may apply depending upon the facts and circumstances in the event of a change of control. This estimate also does not reflect that payments are subject to being reduced in certain circumstances to avoid this tax. |
(4) This amount reflects payment to Mr. Mehrotra that would equal his (i) then-current base salary and (ii) then-effective target annual incentive compensation, to the extent that performance goals were met, prorated based on the date of resignation or termination (no proration in this example since the assumed date of termination is December 31, 2018). |
(5) This amount reflects payments to Mr. Mehrotra that would equal the cost of the health insurance premiums necessary to allow Mr. Mehrotra and any covered spouse and dependents to continue to receive health insurance coverage substantially similar to the coverage they received prior to the date of termination for a period of one year following the date of termination. |
(6) This amount reflects the incremental value to which Mr. Mehrotra would be entitled due to the immediate vesting of all unvested stock options using the closing stock price of $21.30 on December 31, 2018. |
(7) This amount reflects the total value to which Mr. Mehrotra would be entitled due to the immediate vesting of all unvested RSUs including Time RSUs and MSP RSUs using the closing stock price of $21.30 on December 31, 2018. The amount attributable to MSP RSU vesting includes the prior incentive bonus that was earned and used to purchase MSP RSUs. |
(8) "Disability" for this purpose means qualifying for receipt of long-term disability benefits under the Company’s long-term disability plan as in effect from time to time. |
|
| | | | | | | | | | | | | | | | | | | | |
Arjun Sharma | | | | | | | | | | |
Severance and Other Benefits | | | | | | | |
| | | | | | | | | | |
| Involuntary Without Cause or Voluntary Resignation With Good Reason Within One Year Following Change of Control | | Involuntary Other Than For Cause or Voluntary Resignation With Good Reason at Any Other Time | | Involuntary For Cause or Voluntary Resignation Without Good Reason | | Change of Control (Irrespective of Whether Termination or Resignation Occurs) | | Death or Disability | (8) |
| 12/31/2018 | | 12/31/2018 | | 12/31/2018 | | 12/31/2018 | | 12/31/2018 | |
Cash Severance | $ | 878,796 |
| (1) | $ | 427,102 |
| (4) | | | | | | |
Health Benefits | $ | 10,074 |
| (2) | $ | 10,074 |
| (5) | | | | | | |
Long-Term Incentives | | | | | | | | | | |
Gain on accelerated stock options | — |
| | — |
| | — |
| | — |
| (6) | — |
| (6) |
Value of accelerated restricted stock units | — |
| | — |
| | — |
| | $ | 328,595 |
| (7) | $ | 328,595 |
| (7) |
Total Long-Term Incentives | $ | — |
| | $ | — |
| | $ | — |
| | $ | 328,595 |
| | $ | 328,595 |
| |
TOTAL Value: | $ | 888,870 |
| (3) | $ | 437,176 |
| | $ | — |
| | $ | 328,595 |
| | $ | 328,595 |
| |
|
| | | | | | | | | | |
(1) This amount reflects payment to Mr. Sharma that would equal two times his (i) then-current base salary and (ii) the highest short-term incentive amount he received in any of the immediately preceding three years (excluding the incentive award of $50,000 that he received in recognition of extraordinary contributions associated with the Fluid Handling acquisition in 2017). |
(2) This amount reflects payments to Mr. Sharma that would equal the cost of the health insurance premiums necessary to allow Mr. Sharma and any covered spouse and dependents to continue to receive health insurance coverage substantially similar to the coverage they received prior to the date of termination for a period of one year following the date of termination. |
(3) These amounts do not reflect a 20% excise tax under Section 4999 of the Internal Revenue Code that may apply depending upon the facts and circumstances in the event of a change of control. This estimate also does not reflect that payments are subject to being reduced in certain circumstances to avoid this tax. |
(4) This amount reflects payment to Mr. Sharma that would equal his (i) then-current base salary and (ii) then-effective target annual incentive compensation, to the extent that performance goals were met, prorated based on the date of resignation or termination (no proration in this example since the assumed date of termination is December 31, 2018).
|
(5) This amount reflects payments to Mr. Sharma that would equal the cost of the health insurance premiums necessary to allow Mr. Sharma and any covered spouse and dependents to continue to receive health insurance coverage substantially similar to the coverage they received prior to the date of termination for a period of one year following the date of termination. |
(6) This amount reflects the incremental value to which Mr. Sharma would be entitled due to the immediate vesting of all unvested stock options using the closing stock price of $21.30 on December 31, 2018. |
(7) This amount reflects the total value to which Mr. Sharma would be entitled due to the immediate vesting of all unvested RSUs including Time RSUs, PSUs at Target and MSP RSUs using the closing stock price of $21.30 on December 31, 2018. The amount attributable to MSP RSU vesting includes the prior incentive bonus that was earned and used to purchase MSP RSUs. |
(8) "Disability" for this purpose means qualifying for receipt of long-term disability benefits under the Company’s long-term disability plan as in effect from time to time. |
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| | | | | | | | | | | | | | | | | | | | |
Lane Walker | | | | | | | | | | |
Severance and Other Benefits | | | | | | | |
| | | | | | | | | | |
| Involuntary Without Cause or Voluntary Resignation With Good Reason Within One Year Following Change of Control | | Involuntary Other Than For Cause or Voluntary Resignation With Good Reason at Any Other Time | | Involuntary For Cause or Voluntary Resignation Without Good Reason | | Change of Control Without Termination (Irrespective of Whether Termination or Resignation Occurs) | | Death or Disability | (8) |
| 12/31/2018 | | 12/31/2018 | | 12/31/2018 | | 12/31/2018 | | 12/31/2018 | |
Cash Severance | $ | 1,312,000 |
| (1) | $ | 505,022 | |