DEF 14A of Capital Southwest Corp, Jun 2, 2023

DEF 14A of Capital Southwest Corp

Filed Jun 2, 2023 · FY20230000017313-23-000030

Open on EDGAR

  1. PROPOSAL ONE: ELECTION OF DIRECTORS

    PROPOSAL ONE: ELECTION OF DIRECTORS At the Annual Meeting, six directors will be elected to serve one-year terms expiring at the 2024 Annual Meeting of Shareholders. Christine S. Battist, David R. Brooks, Jack D. Furst, Ramona L. Rogers-Windsor, William R. Thomas, and Bowen S. Diehl are currently directors and each has been nominated to continue to serve as a director of the Company. The director nominees were selected by the Nominating/Corporate Governance Committee (the "NCG Committee") and approved by the Board for submission to the shareholders. Each director nominee has consented to being named in this Proxy Statement and to serving as a director if re-elected at the Annual Meeting. Accordingly, the Board has no reason to believe that the director nominees will be unable or unwilling to serve.

  2. Board Composition

    Board Composition The NCG Committee seeks directors with established, strong professional reputations and experience in areas relevant to our investment strategy. Each of the director nominees holds or has held senior executive positions in large, complex organizations and has experience that meets this objective. In these positions, each of the director nominees has also gained experience in core management skills, such as strategic and financial planning, public company financial reporting, compliance, risk management and leadership development. Each of our director nominees also has experience serving on or advising boards of directors and board committees of other organizations and has an understanding of corporate governance practices and trends. The NCG Committee also believes that each of the director nominees has other key attributes that are important to an effective board: integrity, candor, analytical skills, the willingness to engage management and each other in a constructive and collaborative fashion, and the ability and commitment to devote significant time and energy to serve on the Board and its committees. The NCG Committee takes into account diversity considerations in determining the director nominees and planning for director succession and believes that, as a group, the director nominees bring a diverse range of perspectives to the Board’s deliberations. In addition to the above, the NCG Committee also considered the specific experiences described in the biographical information below in determining to recommend to the Board to approve the nominations of the director nominees for election at the Annual Meeting.

  3. Director Qualifications

    Director Qualifications The NCG Committee reviews with the Board on an annual basis the appropriate skills and characteristics required of Board members in the context of the then-current composition of the Board. This assessment includes, in addition to qualities of intellect, integrity and judgment, the consideration of business experience and knowledge, reputation and character, issues of diversity, relevant industry and trade association knowledge and participation, accounting and financial expertise, public company experience, willingness and ability to devote the time and effort required to effectively serve on the Board and relevant legal and regulatory qualifications. The NCG Committee makes this determination in the context of an assessment of the perceived needs of the Board at that point in time. The Board recognizes that its members benefit from service on the boards of other companies. While we encourage that service, we also believe it is critical that directors have the ability to dedicate sufficient time to their service on our Board.

  4. Information about the Director Nominees

    Information about the Director Nominees For each director nominee, we have highlighted certain key areas of experience that qualify him or her to serve on the Board in each of their respective biographies below. The business address of each director nominee is 8333 Douglas Avenue, Suite 1100, Texas 75225. No director nominee otherwise serves as a director of an investment company subject to the Investment Company Act of 1940, as amended (the “1940 Act”). There are currently no family relationships among any director, nominee, or executive officer.

  5. Information about the Director Nominees

    | Name and Age | Position Held with Company | Year First Elected or Appointed | Principal Occupation | | Independent Directors | | | | | David R. Brooks (64) | Chairman of the Board | 2014 | Chairman and Chief Executive Officer of Independent Bank Group, Inc. | | Christine S. Battist (54) | Director | 2018 | Former Chief Financial Officer of Avison Young | | Jack D. Furst (64) | Director | 2014 | Founder of Oak Stream Investors | | Ramona L. Rogers-Windsor (62) | Director | 2021 | Former Managing Director and Portfolio Manager of Northwestern Mutual | | William R. Thomas (52) | Director | 2014 | President of Thomas Heritage Foundation | | Interested Director | | | | | Bowen S. Diehl (54) | Director, President and Chief Executive Officer | 2015 | President and Chief Executive Officer of Capital Southwest Corporation |

  6. Director Nominee Biographies

    Director Nominee Biographies

  7. Voting Standard for Election of Directors Changed from Plurality Standard to Majority of Votes Cast Standard

    Voting Standard for Election of Directors Changed from Plurality Standard to Majority of Votes Cast Standard On April 24, 2019, our Board adopted an amendment to our bylaws to change from a plurality standard to a majority of votes cast standard for the election of directors. To provide shareholders a meaningful role in director elections, our Board determined that the Company’s director election voting standard should be changed from a plurality voting standard to a majority of votes cast standard. The majority votes cast standard for director elections is fast becoming the norm at listed companies. Eighty-eight percent of S&P 500 companies have adopted a majority vote standard. We believe this change is in the best interests of our shareholders.

  8. DIRECTOR COMPENSATION

    DIRECTOR COMPENSATION Directors who are not employed by the Company receive an annual retainer of $112,000 for service as a director. Directors are also reimbursed for actual travel expenses related to attending Board meetings. In addition, for fiscal year ended March 31, 2023, any director who is not employed by the Company that serves as a non-voting, observer on the Company's investment committee receives an annual retainer of $17,500. For fiscal year ended March 31, 2023, the non-executive Chairman of the Board and committee chairs also receive additional annual fees as follows:

  9. DIRECTOR COMPENSATION

    | Position | Annual Fee | | Non-Executive Chairman of the Board | $40,000 | | Audit Committee Chair | 17,500 | | Compensation Committee Chair | 12,500 | | Nominating/Corporate Governance Committee Chair | 10,000 |

  10. DIRECTOR COMPENSATION

    The Capital Southwest Corporation 2021 Non-Employee Director Restricted Stock Plan (the "Non-Employee Director Plan") provides a means through which we may attract and retain qualified non-employee directors to enter into and remain in service on our Board. Under the Non-Employee Director Plan, at the beginning of each one-year term of service on our Board, each non-employee director receives a number of shares equivalent to $50,000 based on the market value at the close of the Nasdaq Global Select Market on the date of grant. These shares are subject to forfeiture provisions that will lapse as to an entire award at the end of the one-year term. The following table sets forth the total compensation paid to our non-employee directors for the fiscal year ended March 31, 2023.

  11. DIRECTOR COMPENSATION

    | Name | Fees Earned or Paid in Cash | Stock Awards (1) | Total | | Christine S. Battist | $147,579 | $50,018 | $197,597 | | David R. Brooks | 170,079 | 50,018 | 220,097 | | Jack D. Furst | 142,579 | 50,018 | 192,597 | | Ramona L. Rogers-Windsor | 147,579 | 50,018 | 197,597 | | William R. Thomas | 140,079 | 50,018 | 190,097 |

  12. DIRECTOR COMPENSATION

    (1)Each director received an award of 2,421 restricted shares on August 10, 2022 under the Non-Employee Director Plan, which will vest 100% on August 10, 2023. These amounts represent the grant date fair value of the 2022 restricted share awards in accordance with FASB ASC Topic 718 based on the closing price of our common stock on the date of the grant. Dividends paid on restricted share awards are reflected in the grant date fair value and, therefore, are not shown in the table. Pursuant to SEC rules, the amounts shown exclude the impact of any estimated forfeitures related to service-based vesting conditions. These amounts may not correspond to the actual value that will be recognized by our directors upon vesting. Each director had 2,421 unvested shares of restricted stock outstanding as of March 31, 2023. Please see the discussion of the assumptions made in the valuation of these awards in Note 8 to the audited consolidated financial statements included in the Annual Report. In October 2015, our NCG Committee adopted a stock ownership requirement for our non-employee directors to better align the interests of our Board with our shareholders. The stock ownership requirement initially provided that each non-employee director of our Board own shares of our common stock equal to 2.5 times the annual director retainer. On April 25, 2018, our Board amended this stock ownership requirement to require each non-employee director of our Board to own shares of our common stock equal to 3.5 times the annual director retainer. Christine S. Battist became a director of the Company on August 2, 2018 and, as of the date of this Proxy Statement, she does not yet own shares of our common stock equal to 3.5 times her annual director retainer. Ramona L. Rogers-Windsor became a director of the Company on March 26, 2021 and, as of the date of this Proxy Statement, she does not yet own shares of our common stock equal to 3.5 times her annual director retainer. The Board acknowledges that the stock ownership requirement allows new directors a reasonable amount of time to comply.

  13. Compensation Philosophy and Overview

    Compensation Philosophy and Overview The Compensation Committee has the primary authority to establish our compensation philosophy and the actual compensation levels for the NEOs and to administer all executive compensation arrangements and policies. The compensation programs of the Company adopted by our Compensation Committee are designed with the goal of providing compensation that is fair, reasonable and competitive. These compensation programs are intended to align the compensation paid to our NEOs with both our short-term and long-term objectives and the interests of shareholders, which we believe will contribute to the achievement of long-term sustainable investment returns. The key elements of our compensation philosophy include: (1) designing compensation programs that enable us to attract and retain the best talent in the industry in which we compete; (2) aligning executive compensation packages with the Company’s performance; and (3) using long-term equity awards to align employee and shareholder interests. The structure of the NEOs’ compensation program is designed to encourage and reward the following factors, among other things: •sourcing and pursuing attractively priced investment opportunities in lower middle-market companies and opportunistically in upper middle-market companies; •building a well performing investment portfolio that generates sustainable income and capital gains that sustain and grow the Company’s dividends and net asset value per share; •maintaining liquidity and capital flexibility to accomplish the Company’s business objectives, including the preservation of investor capital; •attaining superior risk-adjusted returns on the Company’s investment portfolio; and •promoting professional development and growth of individual executives, the management team and other employees. The Compensation Committee has the primary authority to establish compensation for the NEOs and other key employees and administers all executive compensation arrangements and policies. Our CEO assists the Compensation Committee by providing recommendations regarding the compensation of our CFO, our Senior MD and other key employees based on the compensation objectives set by the Compensation Committee as well as current business conditions. The Compensation Committee exercises its discretion by modifying or accepting the CEO’s recommendations. The Compensation Committee determines our CEO’s compensation without assistance or consultation from our CEO. The CEO routinely attends a portion of the Compensation Committee meetings. However, the Compensation Committee meets in executive session without the CEO or other members of executive management from time to time. In reviewing and deliberating over our fiscal 2023 compensation program, the Compensation Committee considered, among other things: •the macroeconomic factors that may impact our portfolio; •our business plan and underlying assumptions; •the goal of maintaining alignment between our senior management and our shareholders through the use of short- and long-term incentive compensation; •the benefits of maintaining a consistent approach to compensation and the structure of our compensation programs through business cycles; •the anticipated performance of our compensation programs based on our business plan and current financial position; and •information and reports prepared by proxy advisors, including Glass, Lewis & Co. and Institutional Shareholder Services Inc. To determine the competitiveness of executive compensation levels, the Compensation Committee also reviews the compensation and benefits practices of a group of other internally managed BDCs, investment management firms, public real estate investment trusts and asset managers to evaluate corporate and, to the extent available, executive performance measures established to achieve total returns for shareholders. The Compensation Committee does not specifically benchmark the compensation of our NEOs against that paid by other BDCs, but takes such data into account as a factor for determining the compensation of our NEOs.

  14. Elements of Executive Compensation

    | Compensation Element | Form of Compensation | Compensation Objective | | Base Salary | Cash paid on a regular basis throughout the year | Provide a level of fixed income that is competitive to allow the Company to attract and retain executive talent | | Annual Cash Incentive Opportunities | Cash awards paid on an annual basis following year-end audit completion | Reward NEOs who contribute to our financial performance and strategic success during the year and reward individual achievements | | Long-term Equity Compensation Awards | Restricted stock awards are subject to a graded vesting over four years and are contingent on continued employment with the Company | Reward NEOs who contribute to our success through the creation of shareholder value, to provide meaningful retention incentives, to reward individual achievements and to align interests with shareholders | | Other Benefits | Defined contribution plan and other employee benefit plans that are available to our general employee population | Provide competitive employee benefits and encourage employees’ retirement planning. Our NEOs participate in our defined contribution plan and other employee benefit plans on the same basis as our general employee population. |

  15. Annual Cash Incentive Opportunities

    Annual Cash Incentive Opportunities Annual cash incentive opportunities are intended to reward individual performance as well as operating results during the year and therefore can be highly variable from year to year. The Compensation Committee established the target annual cash incentive opportunities for the NEOs at the start of the year, taking into account the potential contribution by that NEO to overall company performance and each NEO’s industry experience, relative to the market. For the fiscal year ended March 31, 2023, the Compensation Committee set the annual cash incentive target at 150% of annual base salary for Mr. Diehl, 125% of annual base salary for Mr. Sarner and 125% of annual base salary for Mr. Weinstein, each of which are consistent with fiscal 2022 and fiscal 2021. At the start of each fiscal year, the Compensation Committee also establishes non-formulaic Company performance measures. The Compensation Committee strives to ensure that these non-formulaic performance measures utilized each year to evaluate NEO performance effectively align the performance of each individual NEO with the performance of the Company and the interests of shareholders. The fiscal 2023 non-formulaic Company performance measures used for determining the annual cash incentive for NEOs included, among other things, the following: •Dividend growth; •Preservation of net asset value; •Capital raised; •Portfolio growth; •Portfolio non-accruals; •Successful portfolio exits; and •Operating leverage. The Compensation Committee evaluated the overall outcome of these performance measures on a holistic basis in determining the annual cash incentive payout. In determining the cash incentive awards for the fiscal year ended March 31, 2023, the Compensation Committee considered the following: (1) declared $2.03 per share in regular cash dividends, an increase of 11.5% from the prior year, and $0.25 per share in special and supplemental cash dividends; (2) capital raised of approximately $347.9 million, consisting of (a) $65 million increase in commitments on the credit facility, (b) $80 million in SBA-guaranteed debentures (c) net proceeds of $158.8 million from the sale of shares pursuant to the Company's equity at-the-market program (the "ATM Program") and (d) net proceeds of $44.1 million from an underwritten public equity offering; (3) $1.2 billion of investments at fair value, compared to $937 million investments at fair value at the end of the prior year, an increase of 28.8%; (4) $105.5 million in proceeds received from nine portfolio company exits, generating a weighted average IRR of 15.1%; and (5) LTM operating leverage, defined as total operating expenses, excluding interest expense, divided by annual average total assets, decreased to 1.9% compared to 2.2% in the prior year. Other factors considered by the Compensation Committee included: (1) receiving an investment grade rating from Moody’s Investors Service, Inc.; (2) maintaining liquidity and capital flexibility, and when appropriate working to increase such liquidity and capital flexibility, to accomplish the Company’s business objectives and mitigate the potential impacts of unexpected economic volatility; and (3) efficient use of our ATM Program to issue equity as needed while maintaining a conservative regulatory leverage ratio. The Compensation Committee concluded that the performance of the Company and each individual NEO was at a consistently high level in fiscal 2023, resulting in excellent financial results. Based on the Board’s evaluation of fiscal 2023, and upon completion of the annual audit, Mr. Diehl was awarded an annual cash incentive of $1,235,264 (representing 150% of his target bonus), Mr. Sarner was awarded an annual cash incentive of $795,435 (representing 150% of his target bonus) and Mr. Weinstein was awarded an annual cash incentive of $683,139 (representing 150% of his target bonus). The Compensation Committee believes the annual cash incentives earned by the NEOs are appropriate in relation to Capital Southwest’s financial performance for fiscal 2023. In an effort to maintain appropriate dividend growth and coverage, the Compensation Committee and management will continually assess the appropriate annual cash incentive levels paid to our NEOs.

  16. Long-Term Equity Compensation

    Long-Term Equity Compensation The Board and its shareholders previously approved the 2010 Restricted Stock Award Plan and the 2021 Employee Plan. The 2010 Restricted Stock Award Plan previously allowed, and the 2021 Employee Plan allows Capital Southwest to provide long-term stock-based compensation opportunities to certain key employees, including our NEOs. Capital Southwest utilizes long-term stock-based awards as a component of NEO compensation in order to: (1) align compensation with the creation of shareholder value; (2) create opportunities for increased stock ownership by executives; and (3) attain competitive levels of total compensation over the long term.

  17. 2010 Restricted Stock Award Plan

    2010 Restricted Stock Award Plan The right to grant restricted stock awards under the 2010 Restricted Stock Award Plan terminated on July 18, 2021, ten years after the date that the 2010 Restricted Stock Award Plan was approved by the Company's shareholders pursuant to its terms. Pursuant to the 2010 Restricted Stock Award Plan, the Compensation Committee awarded shares of restricted stock to plan participants in such amounts and on such terms as the Compensation Committee determined in its sole discretion, provided that such awards were consistent with the conditions in the SEC’s exemptive order. Each restricted stock grant was for a fixed number of shares as set forth in an award agreement between the grantee and Capital Southwest. Award agreements described the applicable time vesting schedules and other appropriate terms and/or restrictions with respect to awards. Participants who have received restricted stock awards will receive dividends at the same time as our shareholders do and will have voting rights with respect to such shares. The restricted stock granted under the 2010 Restricted Stock Award Plan vest ratably over four or five years.

  18. 2021 Employee Restricted Stock Plan

    2021 Employee Restricted Stock Plan In connection with the termination of the 2010 Plan, the Board and shareholders approved the 2021 Employee Plan as part of the compensation package for its employees, the terms of which are, in all material respects, identical to the 2010 Restricted Stock Award Plan. On July 19, 2021, we received an exemptive order that supersedes the prior exemptive order relating to the 2010 Restricted Stock Award Plan (the “Order”) to permit the Company to (i) issue restricted stock as part of the compensation package for its employees in the 2021 Employee Plan, and (ii) withhold shares of the Company’s common stock or purchase shares of the Company’s common stock from the participants to satisfy tax withholding obligations relating to the vesting of restricted stock pursuant to the 2021 Employee Plan. On an annual basis, the Compensation Committee considers employee performance and future potential when determining the amount of restricted stock awards to recommend for each NEO. In addition, the Compensation Committee considers each NEO’s total cash compensation in relation to the proposed stock award and the effect of dilution of net asset value per share and earnings per share prior to awarding the stock grants. On April 20, 2022, the Board, through the Compensation Committee, approved restricted stock awards for our NEOs. Mr. Diehl was awarded 63,397 shares of restricted stock. The aggregate grant date fair value of the award was $1,347,186. The Compensation Committee's determination to grant this award is based on Mr. Diehl’s leadership in the strategic direction of the Company, the asset allocation strategy and the investment committee, which enabled us to achieve our operational and financial objectives. Mr. Diehl’s performance during this time period was vital to our Company’s success. Mr. Sarner was awarded 43,990 shares of restricted stock. The aggregate grant date fair value of the award was $934,788. The Compensation Committee's determination to grant this award is based on Mr. Sarner’s role in managing all financial aspects of our Company, and his leadership in matters relating to our capital structure, investment committee and investor relations. Mr. Sarner’s restricted stock awards also reflect his continued service as our CFO, Chief Compliance Officer, and Secretary, and Treasurer. Mr. Weinstein was awarded 37,473 shares of restricted stock. The Compensation Committee's determination to grant this award is based on Mr. Weinstein's role in originating, underwriting and managing our investment portfolio as well as his participation on the investment committee. The aggregate grant date fair value of the award was $796,301.

  19. Potential Payments upon Change in Control or Termination of Employment

    Potential Payments upon Change in Control or Termination of Employment Capital Southwest offers change-in-control benefits under its long-term incentive plans to motivate executives to focus on transactions that are likely in the best interests of Capital Southwest’s shareholders, even though such transactions may result in a loss of employment for the executives. Capital Southwest believes its programs are consistent with market practices and therefore also serve to attract and retain its executives. Restricted Stock awards granted under the 2010 Restricted Stock Award Plan and the 2021 Employee Plan that are outstanding at the time of a change of control will only vest upon such change in control if either (1) within two years following the change in control, the participant’s service is involuntarily terminated for reasons other than for cause or the participant terminates his or her employment or service for good reason or (2) such awards are not assumed or converted into replacement awards in a manner described in the 2010 Restricted Stock Award Plan and the 2021 Employee Plan.

  20. Clawback Policy

    Clawback Policy On April 25, 2018, our Board adopted a Clawback Policy effective for all incentive-based compensation granted on or after April 25, 2018. Under the Clawback Policy, “incentive-based compensation” refers to “(i) the annual and other short-term incentive awards granted or earned based on individual or Company-wide goals under the Company’s annual or short-term cash incentive compensation programs; (ii) the restricted stock awards and other long-term incentive awards granted or vested under the Company’s equity or long-term incentive plans and programs; and (iii) any other incentive-based compensation granted or earned pursuant to an “incentive plan,” as such term is defined for purposes of Regulation S-K under the 1934 Act; plus any shares of stock issued under, and/or any other benefit related to, such compensation.” The Board adopted the Clawback Policy in anticipation of the requirements to be adopted by the SEC and the listing requirements expected to be adopted by the Nasdaq Global Select Market that would implement the incentive-based compensation recovery requirements set forth in Section 10D of the 1934 Act. We believe our Clawback Policy supports our compensation structure and further aligns the interests of our executive officers to the interests and concerns of our shareholders. Our Clawback Policy applies to our executive officers, which currently consists only of our NEOs. If the Company is required to prepare an accounting restatement due to the Company’s material non-compliance with any financial reporting requirement under the U.S. federal securities laws and the Compensation Committee reasonably, and in good faith, determines that any current or former executive officer of the Company who was granted and received incentive-based compensation on or after April 25, 2018 has willfully committed misconduct that contributed to the non-compliance that resulted in the Company’s obligation to prepare the accounting restatement, then the Compensation Committee will direct the Company to, subject to the terms of the Clawback Policy, use prompt and reasonable efforts to recover from each such executive officer the excess incentive-based compensation, as determined by the Compensation Committee, in its sole discretion, such executive officer received over what would have been received based on the accounting restatement. For this purpose, “misconduct” means an act of fraud or dishonesty in the performance of an executive officer’s duties. A restatement of the Company’s financial statements due to a change in accounting policies or principles shall not require a clawback of excess incentive-based compensation. Additionally, if the Compensation Committee reasonably, and in good faith, determines that an executive officer who was granted and received incentive-based compensation on or after April 25, 2018 has engaged in detrimental activity, then the Compensation Committee will direct the Company to, subject to the terms of the Clawback Policy, use prompt and reasonable efforts to recover from such executive officer any incentive-based compensation that the Compensation Committee reasonably and in good faith deems appropriate. For this purpose, “detrimental activity” includes the following: (1) use for profit or disclosure to unauthorized persons of confidential information or trade secrets of the Company; or (2) engagement in any misconduct that results in significant financial or reputational harm to the Company or any of its subsidiaries. The Compensation Committee has the exclusive authority to determine the amount of the excess incentive-based compensation.

  21. Compensatory Risk Assessment

    Compensatory Risk Assessment Capital Southwest works to integrate sound risk management into its compensation programs. Capital Southwest implements a multi-faceted strategy to mitigate risk in compensation. Capital Southwest believes our focus on long-term stable compensation programs and our ability to retain long-term employees work to limit incentives to take unnecessary or imprudent risk-taking actions. Capital Southwest also provides stable fixed cash compensation to each of our executive officers to limit the financial exposure that our NEOs face as holders of significant equity in our enterprise. During fiscal 2023, the Compensation Committee reviewed the elements of the Company's compensation programs to determine whether any portion of compensation encourages excessive risk-taking and concluded: •compensation is allocated among base salary, cash bonus, and short-term and long-term compensation opportunities in such a way as to not encourage excessive risk-taking; •executive goals are appropriately established across several key metrics and criteria in order to avoid an outcome where the failure to achieve any individual target would result in a large percentage loss of compensation; and •multi-year vesting of restricted stock coupled with our executive stock ownership and holding policy and maximum annual incentive opportunity policy properly account for the time horizon of risks. In addition, the Compensation Committee believes that the total compensation paid to the NEOs in fiscal 2023 was consistent with the overall objectives of the Company’s executive compensation program.

  22. Summary Compensation Table

    Summary Compensation Table The following table includes information concerning compensation received by our NEOs for fiscal years ended March 31, 2023, 2022 and 2021, as applicable:

  23. Summary Compensation Table

    | Name and Principal Position | Fiscal Year | Salary | Bonus | Stock Awards (1) | Non-Equity Incentive Plan Compensation | All Other Compensation (2) | Total | | Bowen S. Diehl, | 2023 | $550,000 | $1,235,264 | $1,347,186 | $— | $346,766 | $3,479,216 | | President and Chief | 2022 | $475,000 | $1,081,877 | $1,260,437 | $— | $346,962 | $3,164,276 | | Executive Officer | 2021 | $454,000 | $814,067 | $1,011,459 | $— | $301,946 | $2,581,472 | | Michael S. Sarner, | 2023 | $425,000 | $795,435 | $934,788 | $— | $272,456 | $2,427,679 | | Chief Financial Officer, Chief Compliance Officer, | 2022 | $400,000 | $759,212 | $1,071,377 | $— | $294,393 | $2,524,982 | | Secretary and Treasurer | 2021 | $385,000 | $575,286 | $842,900 | $— | $254,995 | $2,058,181 | | Joshua S. Weinstein,(3) | 2023 | $365,000 | $683,139 | $796,301 | $— | $209,917 | $2,054,357 | | Senior Managing Director | 2022 | $350,000 | $664,310 | $913,808 | $— | $205,585 | $2,133,703 |

  24. Summary Compensation Table

    (1)These amounts represent the grant date fair value of restricted stock awards determined in accordance with ASC 718 based on the closing price of our common stock on the date of grant. Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. The amounts do not correspond to the actual value that will be recognized by our NEOs upon vesting of these grants. See Note 8 of the consolidated financial statements in Annual Report regarding assumptions underlying valuation of equity awards. (2)See “All Other Compensation” table below for information regarding amounts included in this column. (3)Mr. Weinstein did not serve as an executive officer of the Company during fiscal years ended March 31, 2021. Mr. Weinstein became an executive officer of the Company in connection with his promotion from a Managing Director to a Senior Managing Director of the Company, effective on April 21, 2021.

  25. Grants of Plan-Based Awards

    Grants of Plan-Based Awards The following table sets forth certain information with respect to each grant of a plan-based award to our NEOs in the fiscal year ended March 31, 2023.

  26. Grants of Plan-Based Awards

    | Name | Grant Date | Stock Awards: Number of Shares of Stock (1) | Grant Date Fair Value of Stock Awards (2) | | Bowen S. Diehl | 6/10/2022 | 63,397 | $1,347,186 | | Michael S. Sarner | 6/10/2022 | 43,990 | $934,788 | | Joshua S. Weinstein | 6/10/2022 | 37,473 | $796,301 |

  27. Grants of Plan-Based Awards

    (1)These restricted stock awards under the 2021 Employee Plan vest one-fourth each year beginning on the first anniversary of the grant date, subject to continued employment. Restricted stock awards entitle the holder to dividends and voting rights beginning on the grant date. (2)The amounts represent the grant date fair value of restricted stock awards determined in accordance with ASC 718 based on the closing price of our common stock on the date of grant.

  28. Outstanding Equity Awards at Fiscal Year End

    Outstanding Equity Awards at Fiscal Year End The following table sets forth certain information with respect to the outstanding equity awards held by our NEOs as of March 31, 2023.

  29. Outstanding Equity Awards at Fiscal Year End

    | Name | Number of securities underlying unexercised Options (#) exercisable | Number of securities underlying unexercised options (#) unexercisable | Number of securities underlying unexercised unearned options (#) | Option exercise price | Option expiration date | Number of shares of stock that have not vested(1) | Market value of shares of stock that have not vested(2) | | Bowen S. Diehl | — | — | — | — | — | 136,588 | $2,428,535 | | Michael S. Sarner | — | — | — | — | — | 105,616 | $1,877,852 | | Joshua S. Weinstein | — | — | — | — | — | 81,322 | $1,455,905 |

  30. Outstanding Equity Awards at Fiscal Year End

    (1)With respect to Mr. Diehl, 5,625 shares of restricted stock will vest on November 15, 2023, 16,658 shares of restricted stock will vest on each of June 10, 2023 and 2024, 11,417 shares of restricted stock will vest on each of June 10, 2023, 2024 and 2025, and 15,849 shares of restricted stock will vest on each of June 10, 2023, 2024, 2025 and 2026. With respect to Mr. Sarner, 4,750 shares will vest on November 15, 2023, 13,882 shares of restricted stock will vest on each of June 10, 2023 and 2024, 9,705 shares of restricted stock will vest on each of June 10, 2023, 2024 and 2025, and 10,998 shares of restricted stock will vest on each of June 10, 2023, 2024, 2025 and 2026. With respect to Mr. Weinstein, 2,875 shares of restricted stock will vest on November 15, 2023, 8,071 shares of restricted stock will vest on each of June 10, 2023 and 2024, 8,277 shares of restricted stock will vest on each of June 10, 2023, 2024 and 2025, and 9,368 shares of restricted stock will vest on each of June 10, 2023, 2024, 2025 and 2026. (2)The value of the non-vested restricted stock was computed by multiplying the number of non-vested shares of restricted stock by $17.78, the closing stock price on March 31, 2023, the last trading day of fiscal 2023.

  31. Potential Payments Upon Termination or Change in Control

    Potential Payments Upon Termination or Change in Control The agreements governing our restricted stock awards and our long-term cash incentive awards to employees, including NEOs, provide upon certain transactions involving a change in control or upon a participant’s death or disability (each as defined in the award agreement or plan documents), that unvested shares of restricted stock will fully vest and the long term cash incentive awards would be paid. The acceleration of unvested restricted stock would apply to Mr. Diehl, Mr. Sarner and Mr. Weinstein. The following table quantifies potential compensation that would have become payable to each of our NEOs if their employment had terminated on March 31, 2023, given the closing price of our common stock on that date. In addition, the table quantifies the compensation that would have become payable to each of our NEOs assuming that a change in control of Capital Southwest had occurred on March 31, 2023, and determining any amounts that would be payable under all compensation agreements in effect as of that date.

  32. Potential Payments Upon Termination or Change in Control

    | | Cash Payments | Acceleration of Equity Awards | Total | | Bowen S. Diehl | | | | | Termination for Cause | $— | $— | $— | | Termination without Cause | — | — | — | | Change in Control | — | — | — | | Double-Trigger Vesting(1) | — | 2,428,535 | 2,428,535 | | Death or Disability | — | 2,428,535 | 2,428,535 | | Michael S. Sarner | | | | | Termination for Cause | — | — | — | | Termination without Cause | — | — | — | | Change in Control | — | — | — | | Double-Trigger Vesting(1) | — | 1,877,852 | 1,877,852 | | Death or Disability | — | 1,877,852 | 1,877,852 | | Joshua S. Weinstein | | | | | Termination for Cause | — | — | — | | Termination without Cause | — | — | — | | Change in Control | — | — | — | | Double-Trigger Vesting(1) | — | 1,445,905 | 1,445,905 | | Death or Disability | — | 1,445,905 | 1,445,905 |

  33. Potential Payments Upon Termination or Change in Control

    (1)In the event of the consummation of a change in control in the Company, all outstanding awards granted under the 2010 Restricted Stock Award Plan and the 2021 Employee Plan will vest only where either (1) within two years following the change in control, the participant’s employment or service is involuntarily terminated for reasons other than for cause (as defined in the 2010 Restricted Stock Award Plan and the 2021 Employee Plan) or the participant terminates his or her employment or service for good reason (as defined in the 2010 Restricted Stock Award Plan and and the 2021 Employee Plan) or (2) such awards are not assumed or converted into replacement awards in a manner described in the 2010 Restricted Stock Award Plan and the 2021 Employee Plan, as applicable (hereinafter referred to as “Double-Trigger Vesting”).

  34. Pay Ratio Disclosure

    Pay Ratio Disclosure We are providing the following information about the relationship of the median of the annual total compensation of all of our employees (other than Mr. Diehl, our President and CEO) and the annual total compensation of Mr. Diehl. As of March 31, 2023, we determined that the median of the annual total compensation of all of our employees, other than our CEO, was $208,658 and the annual total compensation of our CEO, as reported in the Summary Compensation Table in this Proxy Statement, was $3,479,216. Based on this information, the ratio of the annual total compensation of our CEO to the median of the annual compensation of all employees in fiscal 2023 was 16.7 to 1. The pay ratio provided is a reasonable estimate as of March 31, 2023 calculated in a manner consistent with Item 402(u) of Regulation S-K. The data used to calculate the pay ratio are specific to our Company and our employee population. As a result, our pay ratio may not be comparable to the pay ratios of other companies. We had 25 employees (excluding Mr. Diehl) as of March 31, 2023, all of whom were located in our Dallas, Texas office. To identify the median employee from our employee population, we compared the salary, bonus, restricted stock awards, 401(k) Plan employer match and dividends. Upon identifying our median employee, we combined all of the elements of such employee’s compensation for fiscal 2023 in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, resulting in annual compensation for the median employee of $208,658. The Company annualized the salary and bonus component of total compensation for employees that were employed by the Company for less than the full fiscal year. We used the annual total compensation of our CEO as reported in the “Total” column of our Summary Compensation Table in this Proxy Statement.

  35. Pay versus Performance

    Pay versus Performance In accordance with the final rule adopted by the SEC in August 2022 implementing Section 953(a) of the Dodd-Frank Act, we are providing the following table that sets forth certain compensation measures for certain of our officers alongside certain performance metrics for the Company and certain of its industry peers:

  36. Pay versus Performance

    | Fiscal Year | Summary Compensation Table total for CEO | Compensation Actually Paid to CEO(1) | Average SCT Total for Non-CEO NEOs(2) | Average Compensation Actually Paid to Non-CEO NEOs(1) | Total Shareholder Return(3) | S&P 500 BDC Index Total Shareholder Return | Net Investment Income ($ in thousands) | Dividend Yield on NAV per Share(4) | | 2023 | $3,479,216 | $3,243,122 | $2,241,018 | $2,066,340 | $180.35 | $157.73 | $68,711 | 13.5% | | 2022 | 3,164,276 | 3,648,118 | 2,329,343 | 2,646,463 | 202.68 | 191.41 | 42,687 | 15.7 | | 2021 | 2,581,472 | 3,688,830 | 2,058,181 | 2,984,009 | 177.80 | 174.09 | 31,671 | 13.5 |

  37. Pay versus Performance

    (1)The amounts shown for Compensation Actually Paid have been calculated in accordance with Item 402(v) of Regulation S-K and do not reflect compensation actually earned, realized, or received by our CEO or Other NEOs. These amounts reflect the Summary Compensation Table Total (SCT) with certain adjustments as set forth in the following reconciliation table:

  38. Pay versus Performance

    | Name | Fiscal Year | SCT Total | SCT Stock Awards | Fair Value of Stock Awards Granted in the Covered Year | Change in Fair Value of Unvested Stock Awards from Prior Years | Fair Value of Stock Awards Granted and Vested in the Covered Year | Change in Fair Value of Stock Awards from Prior Years that Vested in the Covered Year | Fair Value of Stock Awards Forfeited | Value of Dividends on Unvested Stock Awards | Compensation Actually Paid | | CEO | 2023 | $3,479,216 | $(1,347,186) | $1,127,199 | $(203,793) | $— | $(144,498) | $— | $332,184 | $3,243,122 | | | 2022 | 3,164,276 | (1,260,437) | 1,083,702 | 78,458 | — | 248,443 | — | 333,676 | 3,648,118 | | | 2021 | 2,581,472 | (1,011,549) | 1,476,543 | 181,238 | — | 172,005 | — | 289,121 | 3,688,830 | | NEO Average | 2023 | 2,241,018 | (865,544) | 724,206 | (160,488) | — | (100,073) | — | 227,221 | 2,066,340 | | | 2022 | 2,329,343 | (992,593) | 853,414 | 51,699 | — | 167,858 | — | 236,742 | 2,646,463 | | | 2021 | 2,058,181 | (842,900) | 1,230,478 | 153,045 | — | 143,035 | — | 242,170 | 2,984,009 |

  39. Pay versus Performance

    (2)The Non-CEO NEOs for 2023 and 2022 were Michael S. Sarner and Joshua S. Weinstein. The Non-CEO NEOs for 2021 was Michael S. Sarner. (3)Total Shareholder Return represents the value of a hypothetical $100 investment beginning at market close on the last trading day of fiscal year ended March 31, 2020, assuming reinvestment of all dividends. (4)Dividend yield on NAV per share is calculated by dividing total dividends paid by beginning NAV per share. The graph below reflects the relationship between "Compensation Actually Paid to CEO" to "Average Compensation Actually Paid to Non-CEO NEOs" and total shareholder return for the Company and S&P 500 BDC Index Total Shareholder Return: The graph below reflects the relationship between "Compensation Actually Paid to CEO" to "Average Compensation Actually Paid to Non-CEO NEOs" and net investment income per share: The graph below reflects the relationship between "Compensation Actually Paid to CEO" to "Average Compensation Actually Paid to Non-CEO NEOs" and dividend yield on NAV per share: As described above, restrictions imposed by the 1940 Act restrict the Compensation Committee’s ability to use nondiscretionary or formulaic Company performance goals or criteria to determine executive incentive compensation. However, the Compensation Committee considers several financial performance metrics, along with other factors including operational goals and individual performance criteria, in determining the appropriate compensation for NEOs. Subject to the foregoing restrictions imposed by the 1940 Act, in the Company’s assessment, the following list of performance measures represent the most important performance measures used to link compensation actually paid to our NEOs, for the most recently completed fiscal year, to Company performance: •total dividends paid to shareholders; •distributable net investment income; •portfolio growth (based upon the fair value of investments); •portfolio non-accruals; and •operating leverage. Other key metrics considered by the Compensation Committee when determining the appropriate compensation for NEOs include net origination activities, maintenance of liquidity and capital flexibility and individual contributions to corporate objectives.