DEF 14A of Hurco Companies Inc
Filed Jan 29, 2024 · FY20230001104659-24-007544
PROPOSAL 1. ELECTION OF DIRECTORS
PROPOSAL 1. ELECTION OF DIRECTORS The Board currently consists of eight members. The Board, acting on the recommendation of our Nominating and Governance Committee, has nominated the eight individuals identified below for election as directors. Each of the nominees is currently a director. No fees were paid to any third parties to identify or evaluate potential nominees. Unless authority is specifically withheld, the shares being voted by proxy will be voted in favor of each of these nominees. Each nominee who is elected will serve for a term of one year, which expires at our next Annual Meeting of Shareholders or such later date as his or her successor has been elected and qualified. Proxies cannot be voted for a greater number of persons than eight, which is the number of nominees named in this proxy statement. If any of these nominees becomes unable to serve, we expect that the persons named in the proxy will exercise their voting power in favor of such other person or persons as the Board may recommend. Each of the nominees has consented to being named in this proxy statement and to serve if elected. The Board knows of no reason why any of the nominees would be unable to serve.
Director Nominees
Director Nominees The names of the persons who are nominees for election and their current positions and offices with Hurco, if any, are set forth below. There are no family relationships among any of our directors or officers.
Director Nominees
| Nominees | Positions and Offices Held with Hurco | | Thomas A. Aaro | Director | | Michael Doar | Executive Chairman and Director | | Cynthia Dubin | Director | | Timothy J. Gardner | Director | | Jay C. Longbottom | Director | | Richard Porter | Director | | Janaki Sivanesan | Director | | Gregory S. Volovic | President, Chief Executive Officer, and Director |
Director Nominees
Thomas A. Aaro, age 66, has been a member of the Board since March 2015. From 2002 to 2017, Mr. Aaro was the founder and Managing Partner of BlueBlack LLC, an independent integrated/shopper marketing agency that provides strategic and promotional consulting, training, and implementation services to consumer-packaged goods (“CPG”) companies, marketing agencies, marketing services, and digital marketing companies. Previously, he served as the Partner/Chief Executive Officer of Marketing Drive-MGR, an integrated promotional marketing agency and as Chief Marketing Officer/Consultant for a number of technology-oriented companies, including Supermarkets Online, a division of Catalina, a CPG internet savings site, and Wavetel, a startup wireless Internet Service Provider in North Carolina. Mr. Aaro brings to our Board extensive knowledge of marketing and entrepreneurship. His over 30 years of experience leading marketing strategy for numerous CPG and technology companies and experience as an entrepreneur provides valuable insight to our Board. Michael Doar, age 68, has been a member of the Board since 2000. Mr. Doar was elected Chairman of the Board and appointed our Chief Executive Officer (“CEO”) in fiscal year 2001, a position he held until March 2021, when he transitioned to the role of Executive Chairman. Mr. Doar also served as our President from November 2009 to March 2013. Prior to joining Hurco, Mr. Doar served as Vice President of Sales and Marketing of Ingersoll Contract Manufacturing Company, a subsidiary of Ingersoll International, an international engineering and machine tool systems business, having previously held various management positions with Ingersoll International from 1989. Mr. Doar also serves as a director of Twin Disc, Incorporated (“Twin Disc”), a manufacturer of marine and heavy duty off-highway power transmission equipment, and currently serves on Twin Disc’s Nominating & Governance and Compensation & Executive Development Committees. Mr. Doar led Hurco for more than 20 years. As our current Executive Chairman and former CEO, Mr. Doar brings to our Board his in-depth knowledge of our business, strategy, people, operations, competition, and financial position. Cynthia Dubin, age 62, has been a member of the Board since March 2019. Ms. Dubin is an experienced chief financial officer and board director. In February 2019, Ms. Dubin was appointed to the board of the U.K. Competition and Markets Authority (“CMA”) and is currently the Chair of its Nominations Committee and Audit and Risk Assurance Committee. The CMA is a non-ministerial government department in the United Kingdom, responsible for strengthening business competition and preventing and reducing anti-competitive activities. Since December 2020, Ms. Dubin has also served as a director for ICE Futures Europe, an exchange for futures and options contracts for crude oil, interest rates, equity derivatives, natural gas, power, coal, emissions, and soft commodities, and is currently also the chair of its Risk and Audit Committee. From May 2021 to August 2023, Ms. Dubin served as a director, Chair of the Audit Committee, and member of the Compensation Committee for Franchise Group, Inc. Franchise Group is a holding company for a franchising platform for an increasingly diverse collection of market-leading and emerging brands. From September 2020 through November 2022, Ms. Dubin served as a director, Chair of the Audit Committee, and a member of the Remuneration and Nomination Committees of Synthomer plc, a U.K. publicly-traded chemicals manufacturer specializing in aqueous polymers. From 2015 to September 2020, she served on the Board of Directors of Babcock & Wilcox Enterprises, Inc. (“B&W”), a NYSE-listed global provider of advanced energy and environmental technologies for the power and industrial markets with operations, subsidiaries, and joint ventures worldwide. During that time, she also served as Chair of B&W’s Audit Committee and a member of its Governance Committee. Ms. Dubin also served as the CFO of Pivot Power LLP, an emerging leader in power storage and electric vehicle infrastructure in the U.K., from August 2018 to March 2019; as CFO of JKX Oil & Gas Ltd. (“JKX”) from 2011 to 2016; and CFO for Canamens Ltd. (“Canamens”) from 2006 to 2011. JKX and Canamens are London Stock Exchange listed and private equity-backed oil and gas exploration and production companies, respectively. Additionally, Ms. Dubin was European CFO for Edison Mission Energy, a builder, owner, and operator of large-scale power generation projects, and started her career as a project finance banker with Irving Trust Company. Ms. Dubin brings to our Board thorough knowledge and understanding of complex international corporate finance, mergers and acquisitions, capital markets, and risk management and oversight. Timothy J. Gardner, age 68, has been a member of the Board since March 2017. A seasoned leader in industrial and international manufacturing operations, from 2016 to March 2021, Mr. Gardner served as the Managing Director of Akoya Capital (“Akoya”), responsible for leading Akoya’s industrial product sector. From 2015 to December 2020, Mr. Gardner also served as a Senior Advisor for Pritzker Private Capital (“Pritzker”) and a board member of LBP Manufacturing, a packaging company acquired by Pritzker. From 2009 to 2014, Mr. Gardner served as the Executive Vice President of Illinois Tool Works (“ITW”) and led ITW’s consumer products segment, a $1.6 billion business focused on packaging and specialty decorating. Between 1997 and 2009, Mr. Gardner held various leadership positions within ITW. Mr. Gardner brings to our Board extensive leadership experience in industrial and international manufacturing operations, as well as extensive knowledge and experience in finance and acquisitions and divestitures. During his tenure at ITW, Mr. Gardner led ten acquisitions and four divestitures and managed multiple division and group financial controllers. Jay C. Longbottom, age 70, has been a member of the Board since March 2015. Mr. Longbottom is currently an Operating Partner of the BERKS Group, a privately held investment initiative, a position he has held since 2018. Previously, from 2013 to 2017, Mr. Longbottom was CEO of Robert Family Holdings (“RFH”), a privately-held company that manages a portfolio of specialty manufacturers, was a board member of RFH from 2008 to 2017, and served as RFH’s Audit Committee Chair from 2008 to 2013. For one year prior to his RFH tenure, Mr. Longbottom served as CEO of Trostel, LLC, a rubber products company. Additionally, from 2002 to 2012, Mr. Longbottom was an executive of Haldex AB, a Swedish, publicly-traded, company that provides proprietary and innovative solutions to improve safety, vehicle dynamics, and environmental sustainability in the global commercial vehicle industry. Mr. Longbottom served as the CEO and President of Haldex AB from 2011 to 2012. Prior to 2011, he was the Executive Vice President and Head of the Commercial Vehicle Systems Division and the President of the Hydraulics Division of Haldex Group. Mr. Longbottom brings to our Board significant knowledge in finance, mergers and acquisitions, and international manufacturing operations. His experience as a CEO of a Swedish, publicly-traded, company is especially relevant to understanding regulations and capital market requirements. Mr. Longbottom also currently serves as a director of two privately-held companies, was a director of RFH for nine years, and has served as a director for a number of international companies. Richard Porter, age 68, has been a member of the Board since 2012. Mr. Porter has managed a private equity portfolio of manufacturing companies since 2007. Previously, he was President of CB Manufacturing, a cutting tool company, and President of Ingersoll Contract Manufacturing Company, a subsidiary of Ingersoll International.
Director Nominees
Mr. Porter brings to our Board extensive experience in the machine tool industry, particularly in product and contract manufacturing. Mr. Porter also has experience serving on the boards of a number of private companies with annual revenues ranging from approximately $40 million to $480 million. Janaki Sivanesan, age 52, has been a member of the Board since 2008. Ms. Sivanesan is a practicing attorney and founding principal of a private equity firm focused on middle-market investments. She previously served as a partner at a large, New York law firm. She was admitted to the bars of the States of New York and Georgia in 2007 and 1996, respectively. Since 2020, Ms. Sivanesan has also served as a director of Essential Properties Realty Trust, Inc., a publicly-traded real estate investment trust that acquires, owns, and manages primarily single-tenant properties that are net leased on a long-term basis to companies operating service-oriented or experience-based businesses. Ms. Sivanesan has experience in a wide range of corporate transactions, from mergers and acquisitions to corporate finance, including private debt, equity investments, and venture capital transactions. Ms. Sivanesan also has experience in cross-border transactions related to manufacturing and outsourcing and is particularly knowledgeable with respect to business operations in India. Ms. Sivanesan served as the General Counsel and Chief Compliance Officer of Hayfin Capital Management, LLC (formerly known as Kingsland Capital Management, LLC), from 2011 to 2018, and has been self-employed as an attorney in private practice since 2009. Ms. Sivanesan provides to the Board and Audit Committee thorough knowledge and understanding of complex legal and capital markets transactions, as well as corporate mergers and acquisitions. Gregory S. Volovic, age 60, has been a member of the Board since March 2019. He has been employed by us since March 2005, was appointed as our President in March 2013, and served as our Chief Operating Officer from March 2019 until he was appointed as our CEO in March 2021. Mr. Volovic oversees all of Hurco’s operations, including worldwide sales, service, end-to-end management of research and development, new product development activities, and operational initiatives. He has held various positions within Hurco, most recently Executive Vice President, Software and Engineering, before becoming President in 2013. Prior to joining Hurco, Mr. Volovic led the advanced manufacturing equipment development program for the CRT division of RCA/Thomson and the worldwide development of Information Technology (IT) and E-business/Knowledge Management technologies. He also held various positions within Thomson, including Director of E-Business, Engineering, and Information Technology. Mr. Volovic started his career as a software developer for Unisys Corporation, where he was a Linux programmer. Mr. Volovic also serves on the boards of two private industrial and manufacturing companies and is a board member of the Association of Manufacturing Technology (AMT). Mr. Volovic brings to our Board his significant knowledge of the machine tool industry, as well as his experience and understanding of our technologies, product development, business strategies, people, and operations. Mr. Volovic also provides leadership and vision for the development and execution of our strategic plans and the achievement of our business goals and objectives.
Philosophy
Philosophy The goals of our executive compensation program are to foster the creation of shareholder value while, at the same time, motivating and retaining managerial personnel. Our executive compensation program has been designed to hold executives accountable for the financial and operational performance of the Company, as well as to reflect the value of the Company’s stock. Therefore, a substantial amount of an executive’s compensation is at risk and tied to the performance of the Company on both a short-term and long-term basis. Our compensation program includes the use of Company common stock and stock ownership guidelines that serve to align the interests of our executives with the interests of our shareholders. Our compensation program is designed to reward executives at levels comparable to our peers to promote fairness and success in attracting and retaining executives. We believe that our compensation program does not promote excessive risk-taking and various elements of our policies that are in place (such as capped incentive opportunities, stock ownership guidelines, recoupment policies, and governance processes) serve to mitigate excessive risk. Any written employment agreements with our named executive officers that provide for a change in control severance benefit have a “double-trigger” (i.e., requires both a change in control and termination of the executive’s employment in order to receive that benefit).
Alignment of Executive Pay-for-Performance
| ● | cash award opportunities under the short-term incentive compensation plan based on the Company’s operating income margin and certain strategic objectives set for fiscal year 2023; | | ● | restricted shares that vest in equal installments over three years granted to promote executive retention; | | ● | performance stock units (“PSUs”) that will be earned based on the Company’s average net income for fiscal years 2023 through 2025; and | | ● | PSUs that will be earned based on the Company’s average free cash flow from operations for fiscal years 2023 through 2025. |
Alignment of Executive Pay-for-Performance
| ● | PSUs granted in fiscal year 2021 that were earned based on the Company’s average return on invested capital, or ROIC, for fiscal years 2021 through 2023; and | | ● | PSUs granted in fiscal year 2021 that were earned based on the Company’s total shareholder return performance, or TSR, relative to companies in an established peer group, for fiscal years 2021 through 2023. |
Alignment of Recent Executive Pay-for-Performance and Impact of the COVID-19 Pandemic
Alignment of Recent Executive Pay-for-Performance and Impact of the COVID-19 Pandemic During fiscal year 2020, the Company experienced reduced demand resulting from extraordinary uncertainty associated with the COVID-19 pandemic, including business disruptions from government-mandated stay-at-home or shelter orders in many of the largest machine tool markets in the world. Despite the Company’s ability to achieve certain strategic objectives and maintain a strong balance sheet during this period – improving its cash position, supporting global operations, executing a stock repurchase program, and continuing its cash dividend program, all without incurring indebtedness – the reduced demand and changes in the business macroenvironment had a negative impact on the Company’s fiscal year 2020 financial performance. The Committee believes that the impact to compensation realized by the named executive officers during this period and to date also indicates a strong pay-for-performance alignment between the Company’s executive compensation program and Company performance. More specifically, as further described in the Company’s proxy statements for its 2021, 2022, and 2023 Annual Meetings of Shareholders and the section below titled “Compensation Decisions for Fiscal Year 2023,” the Committee recognized the following impacts to executive pay based, at least in part, upon the Company’s fiscal years 2020 through 2023 performance: (1) delayed increases in base salaries for named executive officers for fiscal year 2021; (2) no bonuses payable to the named executive officers under their 2020 short-term incentive compensation arrangements and/or under the non-named executive officer discretionary bonus program, as applicable, despite their attainment of certain strategic objectives – some previously-established as part of the short-term incentive compensation arrangement and others critically important that were established during the year as a result of extremely challenging business, political, and public health environments; (3) no PSUs – TSR or PSUs – ROIC payable to the named executive officers under their respective 2018 long-term incentive compensation arrangements for the three-year performance period ending October 31, 2020, even though that performance period also included a record revenue year and two years of historically high earnings per share; (4) a decrease of approximately 33% in the 2021 grant value of the CEO’s total long-term incentive award; (5) no PSUs – TSR or PSUs – ROIC payable to the named executive officers under their respective 2019 long-term incentive compensation arrangements for the three-year performance period ending October 31, 2021; and (6) no PSUs – ROIC payable to the named executive officers under their respective 2020 and 2021 long-term incentive compensation arrangements for the three-year performance periods ending October 31, 2022 and 2023, respectively. The Committee also recognized that these impacts on executive pay are likely amplified by the fact that (1) some of the named executive officers’ base salary is positioned at or slightly below market, based on assessments conducted by its independent compensation consultant; and (2) a large percentage of the named executive officers’ total target compensation is both at-risk and performance-based.
2023 Executive Compensation Mix
2023 Executive Compensation Mix Base Salaries. Our industry is highly cyclical, and we believe that offering competitive base salaries is a key factor in attracting and retaining talent, particularly since our program places a significant proportion of executive compensation at-risk and tied to company performance. In deciding on the appropriate base salary for each named executive officer, the Committee takes into consideration the results of the most recent competitive market assessment, as well as the individual’s performance, his or her roles and responsibilities, related experience in those roles, and long-term executive succession planning strategies. Short-Term Incentive Compensation. For the fiscal year 2023 short-term incentive compensation arrangement, pursuant to the Hurco Companies, Inc. Cash Incentive Plan (“Cash Incentive Plan”), which was approved by shareholders at our 2016 Annual Meeting of Shareholders, the Committee selected the applicable performance measures, specified the performance goals based on those performance measures, and specified the method for calculating the amount payable to named executive officers if the performance goals are satisfied. Like the 2022 short-term incentive compensation plan, the 2023 arrangement provides for cash incentives tied to the achievement of targets for objective performance measures that are based on our fiscal year 2023 operating income margin and certain strategic objectives for each named executive officer. The Committee determined to maintain operating income margin and strategic objectives as the performance measures for the short-term incentive compensation arrangement for fiscal year 2024 under the Cash Incentive Plan, since the Committee believes those performance measures appropriately align executive compensation with Company and individual performance. See “Compensation Decisions for Fiscal Year 2024.” Long-Term Incentive Compensation. The Company has a shareholder-approved plan that permits the Committee to grant several types of equity-based awards. The Committee believes that equity-based awards that include certain vesting requirements provide our executive officers with an ownership stake in the Company and promote executive retention. The Committee also believes that grants of restricted shares are an effective means to align the interests of executives more closely with those of our shareholders and that grants of PSUs directly link executive compensation with Company performance. In fiscal year 2023, the Committee awarded a combination of restricted shares and PSUs to the named executive officers, which have a three-year vesting or performance period, respectively. Although the Committee retained the overall general allocation of award value between restricted shares (targeted at approximately 25% of long- term incentive compensation award value) and PSUs (targeted at approximately 75% of long-term incentive compensation award value) as it had used in prior years, the Committee decided to tie the vesting and earning of the PSUs to the performance measures of net income (“PSUs – NI”) and free cash flow (“PSUs – FCF”), which are among the performance measures permitted by the Hurco Companies, Inc. 2016 Equity Incentive Plan (as amended, the “2016 Plan”), instead of ROIC and TSR. In reaching its decision to select net income and free cash flow as the performance measures under the long-term incentive compensation arrangement for the performance period of fiscal years 2023- 2025, the Committee considered a number of factors, including, among others, that: (1) net income remains a powerful, yet simple, metric of company profitability by concentrating crucial information into a single number; (2) net income for public companies is readily available through many third- party intermediary sources, which facilitates accountability by allowing investors to compare investments across sectors and industries and against alternative investments among peers; (3) as a measure of profitability, assuming appropriate thresholds are set, net income performance measures would generally avoid vesting and payment of awards in periods of sustained company unprofitability; (4) free cash flow may provide insight into how financially capable a company is at having quick access to cash in case of unexpected debts or obligations, which is particularly important to companies operating in cyclical industries like ours; (5) net income and free cash flow both align with our balanced approach to capital allocation strategy of prioritizing a strong balance sheet and liquidity position while recognizing the importance of accretive growth and returning value to shareholders through dividends and stock repurchases when appropriate; and (6) net income and free cash flow remain among some of the most popular performance measures for public company executive compensation arrangements and, therefore, are likely in line with market and shareholder expectations. For all these reasons, the Committee believes that net income and free cash flow appropriately align executive compensation with Company and individual performance. In reaching its decision to move away from relative TSR and average ROIC, the Committee considered a number of factors, including among others, that: (1) profit margin and profitability are already sufficiently taken into consideration by virtue of the operating income margin performance measure under the fiscal year 2023 short-term incentive arrangement and the net income performance measure under the new 2023 long-term incentive compensation arrangement; (2) relative TSR can be difficult to establish or identify at any one point in time and is often not readily available on an interim basis to investors, shareholders, or other Company stakeholders; and (3) relative TSR has inherent limitations when representative peer groups are difficult to establish and maintain due to the following: (a) our position as a small-cap industrial company results in few options for comparably sized peers; (b) our significant geographic footprint and contributions from international business are less applicable to many other small-cap industrial companies; (c) our non-calendar fiscal year-end could distort relative share performance due to natural seasonality in capital markets and/or other timing differences among the peer group and normally-recurring earnings announcements; (d) the additional inherent relative business cyclicality in a business focused on capital goods specifically, rather than industrials, more generally; and (e) the frequent disqualification of peers due to business combination transactions or other external factors or forces. For these reasons and others, the Committee believes it was an appropriate time to consider alternative performance measures under its 2023 long-term incentive compensation arrangement that might better focus executive compensation with Company and individual performance. For the fiscal year 2024 long-term incentive compensation plan, the Committee determined to maintain both the general allocation of award value between restricted shares and PSUs and the performance measures tied to net income and free cash flow for the PSU awards. See “Compensation Decisions for Fiscal Year 2024.”
2023 Executive Compensation Mix
Stock Ownership Guidelines. Our Corporate Governance Principles include stock ownership guidelines for our executive officers and independent directors. The Committee is responsible for interpreting and reviewing compliance with the stock ownership guidelines as they relate to the executive officers. The Committee believes that the executive stock ownership guidelines align executives’ interests with those of shareholders through equity-based incentives and stock ownership guidelines that facilitate a culture of ownership. The guidelines provide that the executive officers are expected to acquire and maintain ownership of shares of our common stock (including unvested restricted stock awards) having an aggregate market value that is at least equal to five times annual base salary for the CEO, three times annual base salary for the President, if separate from the CEO role, and two times annual base salary for the CFO and other executive officers. The executive officers are expected to retain ownership of all net shares (shares of common stock acquired as a result of the exercise or vesting of equity incentive awards granted, reduced by any shares sold, tendered, or retained to pay exercise price or tax withholding requirements related to such awards) acquired with respect to awards granted under the Company’s equity incentive plans, until the requisite ownership has been achieved. If an executive officer fails to comply with the guidelines, the Committee may determine that such person is not eligible for awards under the Company’s equity incentive plan until such time as he or she is in compliance. Any shares of stock subject to pledges or security interests will not be considered as owned in determining compliance with the stock ownership guidelines. Hedging Prohibitions. The Hurco Companies, Inc. Insider Trading Policy (the “Insider Trading Policy”) prohibits our executive officers and directors from hedging the economic risk of ownership of our common stock. More specifically, the Insider Trading Policy provides that such persons “are also prohibited from engaging in the following transactions with respect to Company securities: (1) purchasing Company securities on margin, holding any Company securities in a margin account, or otherwise pledging Company securities; (2) short sales of Company securities (selling securities not owned at the time of sale); (3) buying or selling put or call options or other derivative securities based on Company securities; (4) purchasing financial instruments (including prepaid variable forward contracts, equity swaps, collars, and exchange funds) or otherwise engaging in transactions that are designed to or have the effect of hedging or offsetting any decrease in the market value of equity securities (i) granted to the individual by the Company as part of the compensation of the individual or (ii) held, directly or indirectly, by the individual; and (5) engaging in limit orders or other pre-arranged transactions that execute automatically, except for “same-day” limit orders and approved 10b5-1 plans.” These restrictions apply to all Company securities owned directly or indirectly by such covered persons, including Company securities owned by family members where such covered person is deemed to beneficially own such securities, and their respective designees. The restrictions, however, do not prevent any individuals from engaging in general portfolio diversification or investing in broad-based index funds. Medical, Disability and Life Insurance. All full-time employees, including the named executive officers, are eligible to participate in insurance benefits coverage to help manage the financial impact of ill health, disability, and death. In addition, our named executive officers are provided supplemental disability benefits and our Executive Chairman and President and CEO are each provided with split-dollar life insurance benefits. Retirement Benefits. We sponsor a 401(k) plan in which all full-time employees are eligible to participate. The purpose of the plan is to provide an incentive for employees to save for their retirement income needs and to assist in our attraction and retention of employees. Our named executive officers participate in the 401(k) plan on the same basis as other eligible employees. We currently match 100% of the first 6% of a participant’s annual earnings that he or she contributes, up to the maximum permitted by law. We also maintain a deferred compensation program in which our named executive officers and other senior management employees may voluntarily participate. For additional information regarding the deferred compensation program, see “Nonqualified Deferred Compensation in 2023.” Perquisites. The Committee believes that, even though the level of perquisites provided to the named executive officers is relatively minimal, perquisites are an integral component in establishing the competitiveness of our overall compensation program. Perquisites offered to the named executive officers include the use of company leased vehicles. For additional information regarding perquisites, see “Tabular Compensation Information.”
Employment Agreements
Employment Agreements We have employment agreements with the following named executive officers: Mr. Volovic, Mr. Doar, and Ms. McClelland. Information regarding these employment agreements is found in this section under the heading “Employment Agreements” on page 52. Under the heading “Potential Payments upon Termination” on page 54, we also estimate the benefits that we would have paid to any of our named executive officers if their employment had terminated on October 31, 2023, under various scenarios. The Committee believes that these agreements are an important part of the overall compensation arrangements for the applicable executives by helping to secure for us the continued employment and dedication of the executives (as well as certain noncompetition and other restrictive covenants), while simultaneously providing a reasonable amount of assurance of continued employment to them.
Compensation Decisions for Fiscal Year 2023
Short-Term Incentive Compensation. On January 3, 2023, pursuant to the Cash Incentive Plan, the Committee approved the short-term incentive compensation arrangement for fiscal year 2023 for all named executive officers, with payout to occur thereunder in January 2024, if and to the extent the performance goals were attained during fiscal year 2023. Similar to fiscal year 2022, the Committee selected operating income margin and certain strategic objectives for the named executive officers as the performance measures, which are among the performance measures set forth in the Cash Incentive Plan. In determining the required performance levels for operating income margin that it established for fiscal year 2023, the Committee considered many factors including the Company’s short- and long-term strategic plan objectives that take into account the importance of factors such as the impact of any recently completed acquisitions, research and development of new products, market penetration into new and sometimes price-competitive markets, diversification of products to include entry-level, mid-range, and premium products, and continued growth of the existing markets and product lines – all of which can significantly impact the level of operating income the Company achieves from year to year. The performance goals related to our fiscal year 2023 operating income margin and certain strategic objectives for the named executive officers and payouts were weighted 70% on operating income margin and 30% on strategic objectives for each named executive officer. Operating income margin was chosen as the primary performance metric because the Committee believes it continues to most directly correlate to our executives’ performance. An executive could earn a short-term incentive award due to success in achieving individual strategic objectives, even if performance fell below threshold on the operating income margin; however, the weighting of the two performance metrics encourages decisions that should benefit our overall profitability. Further, the Committee provided that if the fiscal year 2023 operating income margin was zero or negative, then no amounts would be paid under the 2023 short-term incentive arrangement, even if all or a portion of the performance goals under the strategic objectives component were attained. Participants had the ability to earn between 50% of target for achieving threshold performance and 200% of target for achieving maximum performance for each metric. In January 2023, the Committee established the following payout levels that would be associated with the degree to which the operating income margin was attained for fiscal year 2023, which were the same as those approved by the Committee under the short-term incentive compensation plan for fiscal year 2022:
Compensation Decisions for Fiscal Year 2023
| Operating Income Margin | Threshold | Target | Exceeds | Maximum | | Actual Results | 3% | 6% | 8% | 10% | | Percentage Payout Level | 50% | 100% | 150% | 200% |
Compensation Decisions for Fiscal Year 2023
On January 4, 2024, the Committee determined the degree to which the operating income margin metric and the strategic objectives for fiscal year 2023 were attained, and the resulting payout level relative to the target amount for each metric. For fiscal year 2023, the Company achieved a 3.0% operating income margin and, therefore, the Committee determined that the resulting percentage payout level relative to the target amount for that metric was 50%. In determining the potential payout level associated with the above strategic objectives set for fiscal year 2023 for each of the named executive officers, the Committee assessed the level of achievement of those strategic objectives and the projected impact of various payout levels related to the strategic objectives on the Company’s operating income metric under the short-term incentive plan for fiscal year 2023. As a result, the Committee determined that the resulting percentage payout level relative to the target amount for the strategic objectives was 50% for each named executive officer. The weightings applicable to each of the operating income margin metric and the 2023 strategic objectives metric set forth above for each named executive officer were then applied to the percentage payout level for each metric as determined by the Committee, resulting in a weighted-average percentage payout level relative to the target amount for each such executive. The weighted-average percentage payout level applicable to each named executive officer was then multiplied by his or her target amount of fiscal year 2023 base salary listed above. The Committee retained the discretion to adjust downward, but not upward, the amount of the compensation that would otherwise be payable under the 2023 short-term incentive compensation arrangement. The Committee did not exercise that discretion with respect to the amounts payable under the 2023 short-term incentive compensation arrangement. The following table sets forth the total short-term incentive compensation amounts awarded to each named executive officer related to fiscal year 2023:
Compensation Decisions for Fiscal Year 2023
| | Operating Income | Strategic | Total Short-Term | | | Margin | Objectives | Compensation | | Gregory S. Volovic | $207,116 | $88,764 | $295,880 | | Michael Doar | $133,947 | $57,406 | $191,353 | | Sonja K. McClelland | $105,447 | $45,192 | $150,639 | | HaiQuynh Jamison | $25,725 | $11,025 | $36,750 | | Jonathon D. Wright | $36,708 | $15,732 | $52,440 |
Compensation Decisions for Fiscal Year 2023
Long-Term Incentive Compensation. Earned PSU Awards for Fiscal Years 2021-2023. On January 4, 2024, the Committee also determined the degree to which the long-term incentive compensation arrangement approved for the fiscal years 2021-2023 performance period was attained, and the resulting payout level relative to the target amount for each metric. The performance and payout standards for the PSUs – TSR for the fiscal years 2021-2023 performance period that were established by the Committee in 2021 are set forth immediately below:
Compensation Decisions for Fiscal Year 2023
| PSUs – TSR | Threshold | Target | Maximum | | Performance Range | 30th Percentile | 55th Percentile | 90th Percentile | | Payout Range | 50% of Target Shares | 100% of Target Shares | 200% of Target Shares |
Compensation Decisions for Fiscal Year 2023
Awards will be interpolated for results between the 30th and 55th percentiles and the 55th and 90th percentiles For fiscal years 2021 through 2023, the Company’s TSR performance over the three-year period of -22.1% was positioned between the 30th percentile TSR of -30.2% and the 55th percentile TSR of 24.6%, relative to the TSR of the companies in our 2021 peer group. As such and based on the applicable performance and payout standards noted above, the Committee determined that the resulting interpolated percentage payout level relative to the target amount for the fiscal years 2021-2023 PSUs – TSR was 57.4%. The performance and payout standards for the PSUs – ROIC for the fiscal years 2021-2023 performance period that were established by the Committee in 2021 are set forth immediately below.
Compensation Decisions for Fiscal Year 2023
| PSUs – ROIC | Threshold | Target | Maximum | | Average ROIC | 4% | 6% | 12% | | Payout Range | 50% of Target Shares | 100% of Target Shares | 200% of Target Shares |
Compensation Decisions for Fiscal Year 2023
Awards will be interpolated for results between 4% and 6% and 6% and 12% As calculated under our 2021 long-term incentive compensation arrangement, the Company’s average ROIC for fiscal years 2021 through 2023 was 2.9%. As such and based on the applicable performance and payout standards previously noted, the Committee determined that the resulting percentage payout level relative to the target amount for the fiscal years 2021-2023 PSUs – ROIC was zero. Based on these determinations, the Committee approved the following number of PSUs earned and vested pursuant to the long-term incentive compensation plan for each named executive officer, except Ms. Jamison and Mr. Wright, who did not hold any PSUs with the fiscal years 2021-2023 performance period:
Compensation Decisions for Fiscal Year 2023
| | Target Performance Shares | | Grant Date Fair Value | Actual Performance Shares Earned | | Vest Date Fair Value | | | TSR | ROIC | $(1) | TSR | ROIC | $(2) | | Gregory S. Volovic | 13,313 | 11,014 | $674,984 | 7,642 | - | $164,532 | | Michael Doar | 14,792 | 12,238 | $749,981 | 8,490 | - | $182,790 | | Sonja K. McClelland | 11,094 | 9,178 | $562,473 | 6,367 | - | $137,082 |
Compensation Decisions for Fiscal Year 2023
| (1) Amounts related to target PSU awards represent the value at the grant date based upon the probable outcome of the performance conditions. Amounts related to the PSUs designated as “PSUs-TSR” were calculated using the Monte Carlo approach. Amounts related to the PSUs designated as “PSUs-ROIC” were calculated using the closing sales price of our common stock on the grant date. |
Compensation Decisions for Fiscal Year 2023
| (2) Amounts related to PSU awards that were earned and vested represent the value at the vest date based upon the actual outcome of the performance conditions. Amounts were calculated using the closing sales price of our common stock on the vest date of January 4, 2024. |
Compensation Decisions for Fiscal Year 2023
Because Ms. Jamison and Mr. Wright were not executive officers in January 2021 when the PSUs described above were granted to our executive officers, they did not receive such grants. However, Ms. Jamison and Mr. Wright each received 682 restricted shares in November 2020 as part of the fiscal year 2021 annual equity grants to key employees, which restricted shares vest in thirds on each of the three anniversaries of the date of grant. Restricted Share and PSU Awards for Fiscal Years 2023-2025. On January 3, 2023, the Committee approved a long-term incentive compensation arrangement for the named executive officers in the form of restricted shares and PSUs awarded under the 2016 Plan. The awards were weighted as approximately 25% time-based vesting (in equal installments over three years) and approximately 75% performance-based vesting (at the end of a three-year period, to the extent certain performance metrics or criteria are satisfied). The three-year performance period for those awards is fiscal years 2023 through 2025. The Committee granted the awards of restricted shares and target number of PSUs to the named executive officers effective as of January 3, 2023, as follows:
Compensation Decisions for Fiscal Year 2023
| | Restricted Shares | PSUs – NI | PSUs – FCF | | Gregory S. Volovic | 11,846 | 18,953 | 16,584 | | Michael Doar | 8,529 | 13,646 | 11,940 | | Sonja K. McClelland | 7,107 | 11,372 | 9,950 | | HaiQuynh Jamison | 947 | 1,516 | 1,326 | | Jonathon D. Wright | 947 | 1,516 | 1,326 |
Compensation Decisions for Fiscal Year 2024
Short-Term Incentive Compensation. On January 4, 2024, pursuant to the Cash Incentive Plan, the Committee approved the short-term incentive compensation arrangement for fiscal year 2024 for all named executive officers, with payout to occur thereunder in January 2025, if and to the extent the performance goals are attained during fiscal year 2024. Similar to fiscal year 2023, the Committee selected operating income margin and certain strategic objectives for the named executive officers as the performance measures. Following the end of fiscal year 2024, the Committee will determine the degree to which the operating income margin goal and the strategic objectives were attained, and the resulting payout level relative to the target amount for each metric. Long-Term Incentive Compensation. On January 4, 2024, employing the methodology described above under “Elements of Compensation,” the Committee also determined the amount, terms, and conditions of the long-term incentive compensation arrangement for the named executive officers for the performance period of fiscal years 2024-2026. The Committee decided to both (1) maintain the overall general allocation of award value between restricted shares (targeted at approximately 25% of long-term incentive compensation award value) and PSUs (targeted at approximately 75% of long-term incentive compensation award value) and (2) similar to the 2023 long-term incentive arrangement, tie the vesting and earning of the PSUs to the performance measures of net income and free cash flow, which are among the performance measures permitted by the 2016 Plan. Therefore, effective January 4, 2024, the Committee granted the awards below of restricted shares and target number of PSUs to each of the named executive officers. The restricted shares will vest in equal installments over three years and the three-year performance period for the PSUs will be fiscal years 2024 through 2026.
Compensation Decisions for Fiscal Year 2024
| | Restricted Shares | PSUs – NI | PSUs - FCF | | Gregory S. Volovic | 14,514 | 23,223 | 20,320 | | Michael Doar | 10,450 | 16,720 | 14,630 | | Sonja K. McClelland | 8,708 | 13,934 | 12,192 | | HaiQuynh Jamison | 1,161 | 1,857 | 1,625 | | Jonathon D. Wright | 1,741 | 2,786 | 2,438 |
The Committee’s Processes and Analyses
Pay Governance may, from time to time, contact our executive officers for information necessary to fulfill its assignment and may make reports and presentations to and on behalf of the Committee that our executive officers also receive. Pay Governance and its affiliates did not provide any other services to us or our affiliates during 2022 or 2023. In addition, the Committee has determined that the work of Pay Governance and its employees has not raised any conflict of interest. Use of Peer Group Data. With the assistance of Pay Governance, in 2022 and 2023, the Committee approved the composition of a peer group of publicly-traded companies that were selected on the basis of industry, revenue, global operations, employee size, and market capitalization for use in the Committee’s 2023 fiscal year and 2024 fiscal year analyses of executive compensation. The following companies made up the peer group utilized for fiscal year 2023 executive compensation determinations:
The Committee’s Processes and Analyses
The Committee uses the peer group data as one of several inputs when making compensation determinations. Periodically, the Committee also reviews trends data for the manufacturing industry from Willis Towers Watson to obtain a general understanding of current compensation practices in that industry as part of its analysis of executive compensation. In addition to the market data, the Committee may consider other factors such as an executive’s individual performance, experience in his or her position, and responsibilities that may not necessarily be benchmarked in market data.
Recoupment Policy
Recoupment Policy The Company has in place the Hurco Companies, Inc. Compensation Recovery Policy (the “Recoupment Policy”). The Recoupment Policy applies to all incentive-based compensation, which is any compensation that is granted, earned, or vested based wholly or in part upon the attainment of a financial reporting measure, received by our executive officers, including our named executive officers. The Recoupment Policy applies in the case of an accounting restatement due to the material noncompliance of the Company with any financial reporting requirement under the securities laws, including any required accounting restatement to correct an error in previously issued financial statements that is material to the previously issued financial statements, or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period. The Recoupment Policy provides that promptly following such an accounting restatement, the Committee will determine the amount of the erroneously awarded compensation, which is the excess of the amount of incentive-based compensation received by current and former executive officers during the three completed fiscal years immediately preceding the required restatement date over the amount of incentive-based compensation that otherwise would have been received had it been determined based on the restated amounts. The Company will provide each such executive officer with a written notice of such amount and a demand for repayment or return. If such repayment or return is not made within a reasonable time, the Recoupment Policy provides that the Company will recover the erroneously awarded compensation in a reasonable and prompt manner using any lawful method, subject to limited exceptions as permitted by Nasdaq listing standards. Notably, (1) under the Recoupment Policy, covered executives are required to reimburse the Company for all expenses reasonably incurred by the Company in recovering erroneously awarded compensation (including legal fees); and (2) under applicable equity award documents, covered executives explicitly consent, acknowledge, and agree that all equity awards received from the Company are subject to compensation recoupment policies of the Company in place from time to time, including the Recoupment Policy. A full copy of the Recoupment Policy is publicly available as Exhibit 97.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2023.
SUMMARY COMPENSATION TABLE
SUMMARY COMPENSATION TABLE
SUMMARY COMPENSATION TABLE
| Name and Principal Position | Fiscal Year | Salary $ | Bonus $(1) | Stock Awards $(2) | Non-Equity Incentive Plan Compensation $(3) | All Other Compensation $(4) | Total $ | | Gregory S. Volovic | 2023 | 587,383 | 88,764 | 1,249,963 | 295,880 | 96,429 | 2,318,419 | | President and Chief Executive Officer | 2022 | 547,820 | - | 999,953 | 509,255 | 82,987 | 2,140,015 | | | 2021 | 435,601 | - | 899,980 | 312,770 | 34,804 | 1,683,155 | | Michael Doar | 2023 | 453,848 | 57,406 | 899,954 | 191,353 | 86,803 | 1,689,364 | | Executive Chairman | 2022 | 476,856 | - | 899,998 | 356,792 | 92,620 | 1,826,266 | | | 2021 | 509,850 | - | 999,976 | 408,849 | 90,564 | 2,009,239 | | Sonja K. McClelland | 2023 | 399,450 | 45,192 | 749,957 | 150,639 | 23,074 | 1,368,312 | | Executive Vice President, Treasurer and Chief Financial Officer | 2022 | 387,793 | - | 749,958 | 261,788 | 23,447 | 1,422,986 | | | 2021 | 368,473 | - | 749,975 | 227,655 | 22,469 | 1,368,572 | | HaiQuynh Jamison | 2023 | 208,077 | 11,025 | 99,954 | 36,750 | 16,584 | 372,390 | | Corporate Controller | 2022 | 192,835 | - | 99,955 | 62,650 | 13,963 | 369,403 | | and Principal Accounting Officer | 2021 | 160,097 | 33,750 | 19,983 | - | 9,840 | 223,670 | | Jonathon D. Wright | 2023 | 256,008 | 15,732 | 99,954 | 52,440 | 20,867 | 445,001 | | General Counsel and Corporate Secretary | 2022 | 219,182 | - | 99,955 | 96,198 | 15,889 | 431,224 | | | 2021 | 170,922 | 40,000 | 19,983 | - | 10,490 | 241,395 |
SUMMARY COMPENSATION TABLE
| (1) For fiscal year 2023, represents discretionary cash bonuses awarded to each named executive officer, as described further above under “Compensation Discussion and Analysis – Compensation Decisions for Fiscal Year 2023 – Discretionary Bonuses.” For fiscal year 2021, represents discretionary cash bonuses awarded to Ms. Jamison and Mr. Wright under the Company’s non-named executive officer discretionary cash bonus program related to fiscal year 2021 performance. Because Ms. Jamison and Mr. Wright were not executive officers at the time the fiscal year 2021 short-term incentive compensation parameters for executive officers were established, they did not participate in that arrangement for fiscal year 2021. |
SUMMARY COMPENSATION TABLE
| (2) Represents the grant date fair value of stock awards determined in accordance with Accounting Standards Codification Topic 718, or ASC 718. The stock awards consist of restricted share awards and PSU awards for Mr. Volovic, Mr. Doar and Ms. McClelland in fiscal years 2021 and for all named executive officers in fiscal years 2022 and 2023. Amounts related to restricted share awards are calculated using the closing sales price of our common stock on the grant date. Amounts related to PSU awards represent the value at the grant date based upon the probable outcome of the performance conditions. Amounts related to the PSUs designated as “PSUs – TSR” are calculated using the Monte Carlo approach. Amounts related to the PSUs designated as “PSUs – ROIC,” “PSUs – NI,” and “PSUs – FCF” are calculated using the closing sales price of our common stock on the grant date. |
SUMMARY COMPENSATION TABLE
| (3) Represents amounts earned in the specified fiscal year and paid in the following fiscal year under the specified fiscal year’s short-term incentive compensation arrangement. See “Compensation Discussion and Analysis—Compensation Decisions for Fiscal Year 2023—Short-Term Incentive Compensation” for additional information regarding the 2023 short-term incentive compensation arrangement. |
SUMMARY COMPENSATION TABLE
| (4) The following table summarizes the information included in the All Other Compensation column in the Summary Compensation Table: |
SUMMARY COMPENSATION TABLE
The following table presents the grant date fair value of the PSU awards included in the “Stock Awards” column and the grant date fair value of these awards assuming that the highest level of performance conditions would be achieved:
SUMMARY COMPENSATION TABLE
| | | | PSU Awards | | | | Fiscal Year of Grant | Performance Period | Grant Date Fair Value (Based on Probable Outcome) | Grant Date Fair Value (Based on Maximum Performance) | | Gregory S. Volovic | 2023 | 2023-2025 | 937,466 | 1,874,932 | | | 2022 | 2022-2024 | 749,995 | 1,499,990 | | | 2021 | 2021-2023 | 674,984 | 1,349,968 | | Michael Doar | 2023 | 2023-2025 | 674,959 | 1,349,918 | | | 2022 | 2022-2024 | 674,990 | 1,349,980 | | | 2021 | 2021-2023 | 749,983 | 1,499,966 | | Sonja K. McClelland | 2023 | 2023-2025 | 562,474 | 1,124,948 | | | 2022 | 2022-2024 | 562,482 | 1,124,964 | | | 2021 | 2021-2023 | 562,473 | 1,124,946 | | HaiQuynh Jamison | 2023 | 2023-2025 | 74,972 | 149,944 | | | 2022 | 2022-2024 | 74,975 | 149,950 | | | 2021 | 2021-2023 | - | - | | Jonathon D. Wright | 2023 | 2023-2025 | 74,972 | 149,944 | | | 2022 | 2022-2024 | 74,975 | 149,950 | | | 2021 | 2021-2023 | - | - |
SUMMARY COMPENSATION TABLE
| | Fiscal Year | Leased Auto ($) | Supplemental Disability Insurance ($) | Matching 401(k) Plan Contributions ($) | Life Insurance ($) | Total ($) | | Gregory S. Volovic | 2023 | - | 18,299 | 19,800 | 58,330 | 96,429 | | | 2022 | - | 18,054 | 18,300 | 46,633 | 82,987 | | | 2021 | - | 17,404 | 17,400 | - | 34,804 | | Michael Doar | 2023 | 31,001 | 9,839 | 19,800 | 26,163 | 86,803 | | | 2022 | 31,560 | 13,171 | 18,300 | 29,589 | 92,620 | | | 2021 | 29,441 | 10,761 | 17,400 | 32,962 | 90,564 | | Sonja K. McClelland | 2023 | - | 3,274 | 19,800 | - | 23,074 | | | 2022 | - | 5,147 | 18,300 | - | 23,447 | | | 2021 | - | 5,069 | 17,400 | - | 22,469 | | HaiQuynh Jamison | 2023 | - | 340 | 16,244 | - | 16,584 | | | 2022 | - | 323 | 13,640 | - | 13,963 | | | 2021 | - | 240 | 9,600 | - | 9,840 | | Jonathon D. Wright | 2023 | - | 340 | 20,527 | - | 20,867 | | | 2022 | - | 323 | 15,566 | - | 15,889 | | | 2021 | - | 240 | 10,250 | - | 10,490 |
SUMMARY COMPENSATION TABLE
The amounts shown in the Leased Auto column represent either the portion of the lease cost for automobiles leased by us allocable to an executive’s personal use of the automobile or the sum of a monthly car allowance that is added to an executive’s salary. For automobiles leased by us where the automobile is used for both business and personal purposes, the percentage of personal use is calculated and applied to the lease and operating expenses. The Split-Dollar Life Insurance amounts represent a portion of the premium paid on insurance policies we own on the life of the employee. All cash contributions are returned to us upon employee separation or death of the insured. We pay the full amount of the premiums and are the beneficiary for a portion of the policies’ death benefit. By policy endorsement, the employee has the right to designate the beneficiary for the death benefit.
GRANTS OF PLAN-BASED AWARDS IN 2023 TABLE
GRANTS OF PLAN-BASED AWARDS IN 2023 TABLE The following table provides information regarding awards related to the 2023 short-term incentive compensation arrangement (referred to as “2023 S-T Compensation” in the table), PSU awards, and restricted share awards granted during fiscal year 2023 to the named executive officers.
GRANTS OF PLAN-BASED AWARDS IN 2023 TABLE
| Name & Awards | Grant Date | Estimated Possible Payouts Under Non- Equity Incentive Plan Awards | | | Estimated Possible Payouts Under Equity Incentive Plan Awards | | | All Other Stock Awards: Number of Shares of Stock or Units (#) | Grant Date Fair Value of Stock and Option Awards ($)(1) | | | | Threshold | Target | Maximum | Threshold | Target | Maximum | | | | | | ($) | ($) | ($) | (#) | (#) | (#) | | | | Gregory S. Volovic | | | | | | | | | | | 2023 S-T Compensation | 1/3/23 | 295,880 | 591,760 | 1,183,520 | | | | | | | 2023-2025 PSU-NI | 1/3/23 | | | | 9,477 | 18,953 | 37,906 | | 499,980 | | 2023-2025 PSU-FCF | 1/3/23 | | | | 8,292 | 16,584 | 33,168 | | 437,486 | | 2023-2025 Restricted Shares | 1/3/23 | | | | | | | 11,846 | 312,497 | | Michael Doar | | | | | | | | | | | 2023 S-T Compensation | 1/3/23 | 191,352 | 382,704 | 765,408 | | | | | | | 2023-2025 PSU-NI | 1/3/23 | | | | 6,823 | 13,646 | 27,292 | | 359,981 | | 2023-2025 PSU-FCF | 1/3/23 | | | | 5,970 | 11,940 | 23,880 | | 314,977 | | 2023-2025 Restricted Shares | 1/3/23 | | | | | | | 8,529 | 224,995 | | Sonja K. McClelland | | | | | | | | | | | 2023 S-T Compensation | 1/3/23 | 150,638 | 301,276 | 602,552 | | | | | | | 2023-2025 PSU-NI | 1/3/23 | | | | 5,686 | 11,372 | 22,744 | | 299,993 | | 2023-2025 PSU-FCF | 1/3/23 | | | | 4,975 | 9,950 | 19,900 | | 262,481 | | 2023-2025 Restricted Shares | 1/3/23 | | | | | | | 7,107 | 187,483 | | HaiQuynh Jamison | | | | | | | | | | | 2023 S-T Compensation | 1/3/23 | 36,750 | 73,500 | 147,000 | | | | | | | 2023-2025 PSU-NI | 1/3/23 | | | | 758 | 1,516 | 3,032 | | 39,992 | | 2023-2025 PSU-FCF | 1/3/23 | | | | 663 | 1,326 | 2,652 | | 34,980 | | 2023-2025 Restricted Shares | 1/3/23 | | | | | | | 947 | 24,982 | | Jonathon D. Wright | | | | | | | | | | | 2023 S-T Compensation | 1/3/23 | 52,440 | 104,880 | 209,760 | | | | | | | 2023-2025 PSU-NI | 1/3/23 | | | | 758 | 1,516 | 3,032 | | 39,992 | | 2023-2025 PSU-FCF | 1/3/23 | | | | 663 | 1,326 | 2,652 | | 34,980 | | 2023-2025 Restricted Shares | 1/3/23 | | | | | | | 947 | 24,982 |
GRANTS OF PLAN-BASED AWARDS IN 2023 TABLE
| (1) Amounts represent the grant date fair value of the awards determined in accordance with ASC 718, calculated using $26.38, the closing price of our common stock as reported by Nasdaq on January 3, 2023, for the restricted shares and the PSUs. Amounts related to PSU awards represent the value at the grant date based upon the probable outcome of the performance conditions. |
GRANTS OF PLAN-BASED AWARDS IN 2023 TABLE
Our named executive officers are eligible to participate in the 2016 Plan, which was approved by our shareholders in March 2016 and amended upon approval by our shareholders in March 2022. The 2016 Plan provides for equity-based incentive awards in the form of stock options, stock appreciation rights, restricted stock, stock units, and other stock-based awards. Under the 2016 Plan, the Compensation Committee has the authority to determine the persons to whom awards will be granted, the timing, type and number of shares covered by each award, and the terms and conditions of the awards. Prior to shareholder approval of the 2016 Plan, the named executive officers were eligible to participate in the Hurco Companies, Inc. 2008 Equity Incentive Plan (the “Prior Plan”). Upon shareholder approval of the 2016 Plan, no further awards have been or will be made under the Prior Plan. The number of shares of our common stock that may be the subject of awards and issued under the 2016 Plan is equal to the following: (1) 470,000, which was the number of shares available under the 2016 Plan when it originally became effective; plus (2) 850,000, the number of additional shares that became available when the 2016 Plan was amended and restated upon approval of our shareholders in March 2022; plus (3) 386,048 shares that remained available for future grants under the Prior Plan on the date our shareholders originally approved the 2016 Plan. In addition, any shares of our common stock subject to an award under the 2016 Plan, or to an award granted under the Prior Plan that was outstanding on the date our shareholders approved the 2016 Plan, that expires, is cancelled, or forfeited, or is settled for cash will, to the extent of such cancellation, forfeiture, expiration, or cash settlement, automatically become available for future awards under the 2016 Plan. As of October 31, 2023, there were 775,948 shares of our common stock available for issuance of future awards under the 2016 Plan.
OUTSTANDING EQUITY AWARDS AT 2023 FISCAL YEAR END TABLE
OUTSTANDING EQUITY AWARDS AT 2023 FISCAL YEAR END TABLE The following table summarizes the outstanding equity awards held by the named executive officers as of October 31, 2023:
OUTSTANDING EQUITY AWARDS AT 2023 FISCAL YEAR END TABLE
| | Stock Awards | | | | | | Time-Based Awards | | Performance-Based Awards | | | Name and 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 ($)(1) | Equity Incentive Plan 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 ($)(1) | | Gregory S. Volovic | | | | | | 01/05/21 | 2,626(2) | 52,520 | | | | 01/04/22 | 5,486(3) | 109,720 | 11,759(6) | 235,180 | | 01/03/23 | 11,846(4) | 236,920 | 35,537(7) | 710,740 | | Michael Doar | | | | | | 01/05/21 | 2,916(2) | 58,320 | | | | 01/04/22 | 4,939(3) | 98,780 | 10,583(6) | 211,660 | | 01/03/23 | 8,529(4) | 170,580 | 25,586(7) | 511,720 | | Sonja K. McClelland | | | | | | 01/05/21 | 2,189(2) | 43,780 | | | | 01/04/22 | 4,116(3) | 82,320 | 8,819(6) | 176,380 | | 01/03/23 | 7,107(4) | 142,140 | 21,322(7) | 426,440 | | HaiQuynh Jamison | | | | | | 11/12/20 | 228(5) | 4,560 | | | | 01/04/22 | 549(3) | 10,980 | 1,176(6) | 23,520 | | 01/03/23 | 947(4) | 18,940 | 2,842(7) | 56,840 | | Jonathon D. Wright | | | | | | 11/12/20 | 228(5) | 4,560 | | | | 01/04/22 | 549(3) | 10,980 | 1,176(6) | 23,520 | | 01/03/23 | 947(4) | 18,940 | 2,842(7) | 56,840 |
OUTSTANDING EQUITY AWARDS AT 2023 FISCAL YEAR END TABLE
| (1) Market value is calculated by multiplying the number of shares by $20.00, the closing price of our common stock as reported by Nasdaq on October 31, 2023, the last trading day of our 2023 fiscal year. |
OUTSTANDING EQUITY AWARDS AT 2023 FISCAL YEAR END TABLE
| (2) These restricted shares vested on January 5, 2024. |
OUTSTANDING EQUITY AWARDS AT 2023 FISCAL YEAR END TABLE
| (3) One-half of these restricted shares vested on January 4, 2024, and one-half will vest on January 4, 2025. |
OUTSTANDING EQUITY AWARDS AT 2023 FISCAL YEAR END TABLE
| (4) These restricted shares vest in thirds on each of the first, second, and third anniversary of the grant date, provided the recipient remains employed by the Company through that date. |
OUTSTANDING EQUITY AWARDS AT 2023 FISCAL YEAR END TABLE
| (5) These restricted shares vested on November 12, 2023. |
OUTSTANDING EQUITY AWARDS AT 2023 FISCAL YEAR END TABLE
| (6) Represents PSUs designated as “PSUs – TSR” and “PSUs – ROIC” that were granted in 2022 with a performance period of fiscal years 2022-2024. The PSUs shown represent the threshold number of PSUs that have not yet been earned. The actual number of PSUs that will be earned and will vest after the 2022-2024 three-year performance period for the “PSUs – TSR” will be based on our total shareholder return over the three-year period, relative to the total shareholder return over that period of the companies in our 2022 peer group. The actual number of PSUs that will be earned and will vest after the 2022-2024 three-year performance period for the “PSUs – ROIC” will be based on the achievement of pre-established goals related to our average ROIC over the three-year period. |
OUTSTANDING EQUITY AWARDS AT 2023 FISCAL YEAR END TABLE
| (7) Represents PSUs designated as “PSUs – NI” and “PSUs – FCF” that were granted in 2023 with a performance period of fiscal years 2023-2025. The PSUs shown represent the target number of PSUs that have not yet been earned. The actual number of PSUs that will be earned and will vest after the 2023-2025 three-year performance period will depend on the extent to which the performance conditions outlined under “Compensation Discussion and Analysis – Compensation Decisions for Fiscal Year 2023 – Long-Term Incentive Compensation” are satisfied. |
OPTION EXERCISES AND STOCK VESTED IN 2023
OPTION EXERCISES AND STOCK VESTED IN 2023 The following table provides information regarding the exercise of stock options by the named executive officers during fiscal year 2023 and stock awards held by the named executive officers that vested during fiscal year 2023.
OPTION EXERCISES AND STOCK VESTED IN 2023
| | Option Awards | | Stock Awards | | | | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($)(1) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($)(2) | | Gregory S. Volovic | - | - | 14,986(3) | 357,056 | | Michael Doar | 8,256 | 14,448 | 17,172(4) | 410,235 | | Sonja K. McClelland | 3,303 | 5,780 | 12,255(5) | 291,412 | | HaiQuynh Jamison | - | - | 687(6) | 17,411 | | Jonathon D. Wright | - | - | 687(6) | 17,411 |
OPTION EXERCISES AND STOCK VESTED IN 2023
| (1) Represents the difference between the option exercise price and the closing price of our common stock, as reported on the Nasdaq Global Select Market, on the date of exercise, multiplied by the number of shares of our common stock underlying the stock option. |
OPTION EXERCISES AND STOCK VESTED IN 2023
| (2) Value realized is calculated (a) for the restricted shares that vested, by multiplying the closing price of our common stock, as reported on the Nasdaq Global Select Market, on the date of vesting by the number of restricted shares that vested; and (b) for the PSUs that were earned and vested, by multiplying the closing price of our common stock, as reported on the Nasdaq Global Select Market, on January 4, 2024, the date that the Compensation Committee certified the number of PSUs earned and vested, by the number of PSUs that were earned and vested. |
OPTION EXERCISES AND STOCK VESTED IN 2023
| (3) Reflects (a) the vesting of 7,344 restricted shares, from which 2,106 shares were withheld for tax purposes; and (b) 7,642 PSUs that were earned and vested for the fiscal years 2021-2023 performance period that ended on October 31, 2023, based on the attainment of the applicable performance measures, of which 2,192 shares were withheld for tax purposes. |
OPTION EXERCISES AND STOCK VESTED IN 2023
| (4) Reflects (a) the vesting of 8,682 restricted shares, from which 2,490 shares were withheld for tax purposes; and (b) 8,490 PSUs that were earned and vested for the fiscal years 2021-2023 performance period that ended on October 31, 2023, based on the attainment of the applicable performance measures, of which 2,435 shares were withheld for tax purposes. |
OPTION EXERCISES AND STOCK VESTED IN 2023
| (5) Reflects (a) the vesting of 5,888 restricted shares, from which 1,689 shares were withheld for tax purposes; and (b) 6,367 PSUs that were earned and vested for the fiscal years 2021-2023 performance period that ended on October 31, 2023, based on the attainment of the applicable performance measures, of which 1,826 shares were withheld for tax purposes. |
OPTION EXERCISES AND STOCK VESTED IN 2023
| (6) Reflects the vesting of restricted shares, from which 197 and 199 shares were withheld for tax purposes for Ms. Jamison and Mr. Wright, respectively. Because Ms. Jamison and Mr. Wright were not executive officers in January 2020 when the PSUs for the fiscal years 2021-2023 performance period were granted to our executive officers, they did not receive such grants. However, Ms. Jamison and Mr. Wright each received restricted shares in November 2019, November 2020, and November 2021, as part of the annual equity grants to key employees, which restricted shares vest in thirds on each of the three anniversaries of the date of grant. |
NONQUALIFIED DEFERRED COMPENSATION IN 2023
NONQUALIFIED DEFERRED COMPENSATION IN 2023 For Mr. Volovic and Mr. Doar, the only two named executive officers participating in the nonqualified deferred compensation plan, the following table provides information regarding fiscal year 2023 executive contributions, fiscal year 2023 earnings, and aggregate balances as of October 31, 2023. There were no Company contributions or aggregate withdrawals or distributions in fiscal year 2023.
NONQUALIFIED DEFERRED COMPENSATION IN 2023
| Name | Executive Contributions in Last Fiscal Year ($) | Aggregate Earnings in Last Fiscal Year ($) | Aggregate Balance at Last Fiscal Year End ($) | | Michael Doar | 27,231 | 64,565 | 1,442,057 | | Gregory S. Volovic | 109,664 | 18,943 | 543,787 |
NONQUALIFIED DEFERRED COMPENSATION IN 2023
The amounts shown in this table are also included in the amounts shown in the “Salary” column of the Summary Compensation Table. All of the contributions by Mr. Doar and Mr. Volovic in fiscal year 2023 and prior fiscal years were reported in the Summary Compensation Table in fiscal year 2023 or prior fiscal years, as applicable. The aggregate balance shown includes earnings on such contributions. The Hurco Companies, Inc. Deferred Compensation Plan II, or the DCPII, is a nonqualified deferred compensation plan in which senior managers and other highly compensated employees are eligible to participate. A committee consisting of our CEO, CFO, and Director of Human Resources administers the DCPII. This committee is authorized to interpret the DCPII, establish, amend, and rescind any rules and regulations relating to the DCPII, determine the terms and provisions of any agreements made pursuant to the DCPII, and make all other determinations that may be necessary or advisable for the administration of the DCPII. Eligible participants are able to defer between 2% and 50% percent of their base salary and up to 100% of their annual bonus less required and voluntary payroll deductions in a given plan year. Deferral elections are made by eligible executives in January of each year for amounts to be earned in the following year. The Board may declare a discretionary amount of matching credits for participants deferring compensation, up to a maximum of 6% of compensation. The Board has not awarded any such matching credits to Mr. Doar or Mr. Volovic. Participants are 100% vested in all deferral and matching accounts under the DCPII at all times. Amounts deferred under the DCPII are credited with earnings at the rate of return generated by the Vanguard mutual fund investment options elected by the participants that are offered in our 401(k) plan. The earnings do not reflect any above-market or preferential rates of return. Participants may change their investment options under the DCPII at any time by contacting Vanguard. Account balances in the DCPII are payable at the election of the participant either in a single lump sum or in monthly, quarterly, or annual installments with a term of between two and ten years. Distributions under the DCPII will not commence prior to the expiration of a six-month period from the date of separation of service or the participant’s death, if earlier.
CEO Pay Ratio Disclosure
CEO Pay Ratio Disclosure As required by the Dodd-Frank Wall Street Reform and Consumer Protection Act and applicable SEC rules, the following is a reasonable estimate of the ratio of the annual total compensation of our CEO to the annual total compensation of the median of the Company’s other employees, together with an explanation of the Company’s methodology in calculating the same. For fiscal year 2023:
CEO Pay Ratio Disclosure
| ● | The annual total compensation of the Median Employee (as defined below) was $41,703 using the average of the applicable month-end exchange rates during our fiscal year, as published by The Wall Street Journal. | | ● | The annual total compensation of the Company’s CEO, as reported in the above Summary Compensation Table, was $2,318,419. | | ● | The ratio of the annual total compensation of the Company’s CEO to the annual total compensation of the Company’s Median Employee, was reasonably estimated to be 56 to 1. |
CEO Pay Ratio Disclosure
Because this pay ratio is a reasonable estimate, and because SEC rules allow companies to adopt a variety of methodologies and assumptions and to apply certain exclusions, the pay ratio reported by other companies may not be comparable to the pay ratio reported by the Company. As permitted by the pay ratio rule, because we did not experience changes in our employee population or employee compensation arrangements during fiscal year 2023 that we reasonably believe would result in a significant change to our pay ratio disclosure, we used the median employee identified in fiscal year 2021 for purposes of calculating the pay ratio disclosure for fiscal year 2023 that is required in this proxy statement. To identify the Company’s median employee for fiscal year 2021, the Company determined that the Company and its subsidiaries employed approximately 749 employees (excluding the CEO) as of an August 1, 2021, determination date (the “Non-CEO Employee Population”). The Company identified “annual cash compensation” as its consistently applied compensation measure. The Company defined the term “annual cash compensation” as gross amounts of cash compensation paid for the period beginning on January 1, 2020, and ending on December 31, 2020 (the “Measurement Period”), which included salary or hourly wages (including overtime pay), as applicable, plus sales commissions and cash bonuses. For permanent employees within the Non-CEO Employee Population employed by the Company or its subsidiaries for part but not all of the Measurement Period, the Company annualized their cash compensation paid. For permanent employees within the Non-CEO Employee Population employed by the Company or its subsidiaries as of the August 1, 2021, determination date but not employed during the Measurement Period, the Company applied an annual cash compensation equal to $0. For non-U.S. employees, the annual cash compensation was converted into U.S. currency using the applicable exchange rates as of October 29, 2021 (the last trading date of fiscal year 2021), as reported by The Wall Street Journal. The Company did not apply any cost-of-living adjustments to non-US employees. The Company then sorted the listing of the annual cash compensation of each employee in the Non-CEO Employee Population from lowest to highest and selected the employee at the median (the “Median Employee”). The Company calculated the Median Employee’s total annual compensation for fiscal year 2023 using the same rules that apply to reporting the compensation of our named executive officers in the “Total” column of the Summary Compensation Table listed previously.
Potential Payments upon Termination
Potential Payments upon Termination
Potential Payments upon Termination
| | Resignation ($) | Death ($) | Disability ($)(1) | Retirement ($) | Termination Without Cause or by Executive for Good Reason Prior to a Change in Control ($)(2) | Termination For Cause ($)(2) | Certain Terminations Within Specified Period After Change in Control or Equity Awards Not Assumed ($)(2) | | Gregory S. Volovic | | | | | | | | | Severance Pay(3) | - | - | - | - | 989,606 | - | 1,979,212 | | Deferred Compensation(4) | 543,787 | 543,787 | 543,787 | 543,787 | 543,787 | 543,787 | 543,787 | | Restricted Shares(5) | - | - | - | - | - | - | 399,160 | | Performance Shares(6) | - | 152,840 | 152,840 | 152,840 | 152,840 | - | 702,525 | | Health Care Coverage(7) | - | - | 591,528 | - | 47,633 | - | 95,266 | | Life Insurance(8) | - | 1,895,007 | - | - | - | - | - | | Michael Doar | | | | | | | | | Severance Pay(10) | - | - | - | - | 593,986 | - | 1,187,972 | | Deferred Compensation(4) | 1,442,057 | 1,442,057 | 1,442,057 | 1,442,057 | 1,442,057 | 1,442,057 | 1,442,057 | | Restricted Shares(5) | - | - | - | - | - | - | 327,680 | | Performance Shares(6) | - | 169,800 | 169,800 | 169,800 | 169,800 | - | 622,292 | | Health Care Coverage(7) | - | - | 345,120 | - | 35,725 | - | 53,588 | | Life Insurance(9) | - | 2,592,104 | - | - | - | - | - | | Sonja K. McClelland | | | | | | | | | Severance Pay(10) | - | - | - | - | 470,906 | - | 941,812 | | Restricted Shares(5) | - | - | - | - | - | - | 268,240 | | Performance Shares(6) | - | 127,340 | 127,340 | 127,340 | 127,340 | - | 504,414 | | Health Care Coverage(7) | - | - | 377,820 | - | 49,679 | - | 74,518 | | Life Insurance(11) | - | 399,000 | - | - | - | - | - | | HaiQuynh Jamison | | | | | | | | | Severance Pay(10) | - | - | - | - | 48,018 | - | 48,018 | | Restricted Shares(5) | - | - | - | - | - | - | 34,480 | | Performance Shares(6) | - | - | - | - | - | - | 50,261 | | Health Care Coverage(7) | - | - | 165,000 | - | - | - | - | | Life Insurance(11) | - | 208,000 | - | - | - | - | - | | Jonathon D. Wright | | | | | | | | | Severance Pay(10) | - | - | - | - | 29,539 | - | 29,539 | | Restricted Shares(5) | - | - | - | - | - | - | 34,480 | | Performance Shares(6) | - | - | - | - | - | - | 50,261 | | Health Care Coverage(7) | - | - | 191,100 | - | - | - | - | | Life Insurance(11) | - | 256,000 | - | - | - | - | - |
Potential Payments upon Termination
| (1) “Disability” giving rise to the Company’s right to terminate the employment agreements in question would exist (a) when the executive is deemed disabled and entitled to benefits in accordance with any Company-provided long-term disability insurance policy or plan, if any is applicable, covering the executive; (b) upon the inability of the executive, because of injury, illness, disease or bodily or mental infirmity, to perform, with or without reasonable accommodation, the essential functions of the executive’s job for more than 90 days during any period of 12 consecutive months; or (c) upon the written determination by a physician selected by the Company that, because of an injury, illness, disease, or bodily or mental infirmity, the executive is unable to perform, with or without reasonable accommodation, the essential functions of the executive’s job, and, as of the date of determination, such condition is reasonably expected to last for a period of 90 days or longer after the date of determination, based on the medical information reasonably available to such physician at the time of determination. |
Potential Payments upon Termination
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Potential Payments upon Termination
| (2) “Cause” for the Company’s termination of the employment agreement would exist if the executive (a) is convicted of, or pleads no contest to, a felony, (b) engages in fraudulent or dishonest conduct, (c) fails to follow the lawful instructions of a superior or the Company’s Board of Directors, (d) breaches the terms of the employment agreement, (e) violates written policies or procedures, (f) engages in willful misconduct, or (g) misuses alcohol or drugs. “Good Reason” for the executive’s termination of the employment agreement would exist if the Company (a) fails to automatically extend the term of the employment agreement, (b) decreases the executive’s base salary by more than 5% a year unless the decrease is part of a broader cost reduction (and in the case of Mr. Doar, unless such reduction exceeding 5% is in connection with his transition to the Executive Chairman or a different role with the Company), (c) demotes the executive or assigns duties that are inconsistent with the executive’s position, (d) eliminates or materially reduces employee benefits other than as part of a broader cost reduction, (e) requires the executive to relocate more than 30 miles from the Company office at which the executive was based immediately prior to such relocation, (f) materially breaches any material term of the employment agreement, or (g) fails to have the employment agreement assumed as part of a merger or sale of the Company. There are notice and cure provisions with respect to certain grounds for termination for Cause or Good Reason. “Change in Control” means (a) the acquisition of 25% or more of the voting securities of the Company, (b) a majority of the directors of the Company being elected who were not approved by a majority of the persons who were previously serving as directors, or (c) a merger, other reorganization or liquidation involving the Company or a sale of substantially all of the assets of the Company, unless (i) the Company’s shareholders would own 55% or more of the voting power of the successor entity, (ii) no individual person would own 25% or more of the successor entity and (iii) a majority of the directors of the successor entity were directors of the Company. Although Ms. Jamison and Mr. Wright are currently not parties to a written employment agreement with the Company, they would potentially remain eligible for severance pay under the Company’s severance pay policy eligible to all employees, which is based on the length of continuous service and annual wage at the time of termination. |
Potential Payments upon Termination
| (3) If the Company terminates Mr. Volovic’s employment without Cause or he resigns for Good Reason prior to a Change in Control, then he will be entitled to severance payments in the form of a salary continuation benefit at base salary then in effect for a period of 12 months; an additional monthly amount during the severance period equal to 1/12 of the average of his annual cash bonuses for the preceding three years; and an additional monthly payment during the severance period equal to 140% of the Company’s monthly cost at the time of termination for continuation of health insurance. If Mr. Volovic’s employment is terminated by the Company without Cause or by him for Good Reason within 12 months following a Change in Control, then he will be entitled to the severance amounts disclosed in the preceding sentence for a period of 24 months. |
Potential Payments upon Termination
| (4) Amounts can be paid in lump sum distribution or installments depending on the participant’s election. |
Potential Payments upon Termination
| (5) Reflects the value of unvested restricted shares that would vest as a result of the specified termination event occurring as of October 31, 2023, using the closing price of $20.00 per share on that date. A participant’s rights with respect to the unvested portion of the restricted shares will terminate if a participant ceases continuous service for any reason, except in the event of an involuntary termination without cause within 18 months after a change in control that involves a Corporate Transaction. Generally, if a participant is involuntarily terminated without cause within 18 months after such a change in control, unvested restricted shares will vest in full. Further, if a participant’s unvested restricted shares are not continued, assumed, or replaced in connection with a change in control that involves a Corporate Transaction, such unvested restricted shares will vest in full. |
Potential Payments upon Termination
| (6) Reflects the value of unvested PSUs that would vest as a result of the specified termination event occurring as of October 31, 2023, using the closing price of $20.00 per share on that date. A participant’s rights with respect to unvested PSUs will terminate if a participant ceases continuous service for any reason, except in the event of an involuntarily termination without cause within 18 months after a change in control that involves a Corporate Transaction. Generally, if a participant is involuntarily terminated without cause within 18 months after such a change in control, unvested PSUs will vest assuming the target level of performance for all performance metrics and the vested portion of the award at that level of performance will be proportionate to the portion of the performance period that has elapsed as of the effective time of the Corporate Transaction. Further, if a participant’s unvested PSUs are not continued, assumed, or replaced in connection with a change in control that involves a Corporate Transaction, such PSUs will vest assuming the target level of performance for all performance metrics and the vested portion of the award at that level of performance will be proportionate to the portion of the performance period that has elapsed as of the effective time of the Corporate Transaction. |
Potential Payments upon Termination
| (7) “Health Care Coverage” includes the following: (a) in the event of a termination due to Disability, payments and the market value of any supplemental disability insurance or plans for which the executive would have been entitled, if such termination occurred on October 31, 2023, and that either discriminate in scope, terms or operation, in favor of the executive, or that are not generally otherwise available to all salaried employees; and (b) in the event of a termination by the Company without Cause or by the executive for Good Reason, an amount equal to 140% of the “COBRA Premium Rate” during the applicable “Severance Period.” For purposes of the foregoing, (y) the term “COBRA Premium Rate” means the monthly amount charged, as of the termination date, for COBRA continuation coverage options and coverage levels applicable to the executive and the executive’s covered dependents immediately prior to the termination date; and (z) the term “Severance Period” means (i) with respect to a termination without Cause by the Company or by the executive for Good Reason, a period of nine months after employment termination for Mr. Doar and Ms. McClelland and a period of 12 months for Mr. Volovic; and (ii) with respect to a termination without Cause by the Company or by the executive for Good Reason within 12 months after a Change in Control, a period of 18 months for Mr. Doar and Ms. McClelland and a period of 24 months for Mr. Volovic. |
Potential Payments upon Termination
| (8) Amount includes $2,000,000 maximum benefit for term life and accidental death insurance policies, less cumulative premiums paid by the Company. |
Potential Payments upon Termination
| (9) Amount includes split-dollar life insurance payment of two times annual salary plus one times bonus, less cumulative premiums paid by the Company, and $870,000 maximum benefit for term life and accidental death insurance policies. |
Potential Payments upon Termination
| (10) If the Company terminates the executive’s employment without Cause or he or she resigns for Good Reason prior to a Change in Control, then he or she will be entitled to severance payments in the form of a salary continuation benefit at base salary then in effect for a period of nine months; an additional monthly amount during the severance period equal to 1/12 of the average of the executive’s annual cash bonuses for the preceding three years; and an additional monthly payment during the severance period equal to 140% of the Company’s monthly cost at the time of termination for continuation of health insurance. If the executive’s employment is terminated by the Company without Cause or by the executive for Good Reason within 12 months following a Change in Control, then he or she will be entitled to the severance amounts disclosed in the preceding sentence for a period of 18 months. Although Ms. Jamison and Mr. Wright are currently not parties to a written employment agreement with the Company, they would potentially remain eligible for severance pay under the Company’s severance pay policy eligible to all employees, which is based on the length of continuous service and annual wage at the time of termination. |
Potential Payments upon Termination
| (11) Amounts include life insurance of one-time annual salary, rounded to the nearest thousand, up to a maximum annual salary of $400,000 under accidental death insurance policy. |
Pay Versus Performance
Pay Versus Performance As required by Section 953(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(v) of Regulation S-K (collectively, the “PvP Rule”), we are providing certain information about the relationship between compensation paid to our named executive officers (“NEOs”) and certain financial performance metrics of the Company using a methodology that has been prescribed by the SEC. For information concerning the Compensation Committee’s pay-for-performance philosophy and how it aligns executive compensation with the Company’s performance, refer to the “Compensation Discussion and Analysis” section of this proxy statement. As a recently-qualified “smaller reporting company” under the SEC’s rules, we have elected to provide the level of disclosure permitted under Item 402(v) of Regulation S-K applicable to “smaller reporting companies” with respect to this Pay Versus Performance section. Parenthetical letter references in the table below correlate to column letters or names referenced directly in the PvP Rule.
Pay Versus Performance
| | Summary | | Average Summary Compensation | Average Compensation | Value of Initial Fixed $100 Investment Based on: | | | Fiscal Year | Compensation Table Total for PEO(1) | Compensation Actually Paid to PEO(1)(2) | Table Total for Non-PEO NEOs(1) | Actually Paid to Non-PEO NEOs(1) (2) | Total Shareholder Return | Net Income ($ millions) | | (a) | (b) | (c) | (d) | (e) | (f) | (h) | | 2023 | $2,318,419 | $1,625,725 | $968,767 | $680,771 | $64.71 | $4.4 | | 2022 | $2,140,015 | $1,292,435 | $1,012,470 | $596,870 | $72.92 | $8.2 |
Pay Versus Performance
(1) Mr. Volovic served as our principal executive officer (“PEO”) for the full fiscal year in each of 2023 and 2022. Our other NEOs (the “Non-PEO NEOs”) for fiscal years 2023 and 2022 were Messrs. Doar and Wright and Mses. McClelland and Jamison. (2) The following amounts were deducted from / added to the Summary Compensation Table (“SCT”) total compensation in accordance with the SEC-mandated adjustments to calculate Compensation Actually Paid (“CAP”) to our PEO and the average CAP to our Non-PEO NEOs. The fair value of equity awards was determined using methodologies and assumptions developed in a manner substantively consistent with those used to determine the grant date fair value of such awards. None of our NEOs participate in a pension plan; therefore, no adjustment from the SCT total related to pension value was made. PEO SCT Total to CAP Reconciliation
Pay Versus Performance
| Fiscal Year | 2022 | 2023 | | SCT Total | $2,140,015 | $2,318,419 | | - Grant Date Fair Value of Stock Awards Granted in Covered Fiscal Year | $(999,953) | $(1,249,963) | | + Fair Value at Covered Fiscal Year-End of Outstanding and Unvested Stock Awards Granted in Covered Fiscal Year | $686,632 | $912,834 | | ± Change in Fair Value from End of Prior Fiscal Year to End of Covered Fiscal Year of Outstanding and Unvested Stock Awards Granted in Prior Fiscal Years | $(527,457) | $(405,237) | | ± Fair Value at Vesting Date of Stock Awards Granted in Covered Fiscal Year That Vested During Covered Fiscal Year | $0 | $0 | | ± Change in Fair Value from End of Prior Fiscal Year to Vesting Date of Stock Awards Granted in Prior Fiscal Years For Which Applicable Vesting Conditions Were Satisfied During Covered Fiscal Year | $(16,287) | $36,298 | | - Fair Value as of Prior Fiscal Year-End of Stock Awards Granted in Prior Fiscal Years That Failed to Meet Applicable Vesting Conditions During Covered Fiscal Year | $0 | $0 | | + Dividends or Other Earnings Paid on Stock Awards in the Covered Fiscal Year Prior to the Vesting Date that are not otherwise included in the Total Compensation for the Covered Fiscal Year | $9,485 | $13,374 | | Compensation Actually Paid | $1,292,435 | $1,625,725 |
Pay Versus Performance
Non-PEO NEO Average SCT Total to Average CAP Reconciliation
Pay Versus Performance
| Fiscal Year | 2022 | 2023 | | Average SCT Total | $1,012,470 | $968,767 | | - Grant Date Fair Value of Stock Awards Granted in Covered Fiscal Year | $(462,467) | $(462,455) | | + Fair Value at Covered Fiscal Year-End of Outstanding and Unvested Stock Awards Granted in Covered Fiscal Year | $317,561 | $337,724 | | ± Change in Fair Value from End of Prior Fiscal Year to End of Covered Fiscal Year of Outstanding and Unvested Stock Awards Granted in Prior Fiscal Years | $(266,610) | $(189,375) | | ± Fair Value at Vesting Date of Stock Awards Granted in Covered Fiscal Year That Vested During Covered Fiscal Year | $0 | $0 | | ± Change in Fair Value from End of Prior Fiscal Year to Vesting Date of Stock Awards Granted in Prior Fiscal Years For Which Applicable Vesting Conditions Were Satisfied During Covered Fiscal Year | $(8,932) | $20,495 | | - Fair Value as of Prior Fiscal Year-End of Stock Awards Granted in Prior Fiscal Years That Failed to Meet Applicable Vesting Conditions During Covered Fiscal Year | $0 | $0 | | + Dividends or Other Earnings Paid on Stock Awards in the Covered Fiscal Year Prior to the Vesting Date that are not otherwise included in the Total Compensation for the Covered Fiscal Year | $4,848 | $5,615 | | Average Compensation Actually Paid | $596,870 | $680,771 |
Pay Versus Performance
Charts of CAP Versus Performance Metrics The chart below illustrates the relationship between the PEO and the average Non-PEO NEO CAP amounts and the Company’s cumulative TSR for fiscal years 2022 and 2023. The chart below illustrates the relationship between the PEO and the Non-PEO NEO CAP amounts and the Company’s net income for fiscal years 2022 and 2023. Notably, several of the NEOs received market-based increases to their respective fiscal 2023 compensation arrangements to bring their overall target and actual paid compensation more in line with market competitive ranges for their respective roles and responsibilities. The charts above describing the NEOs’ fiscal year 2023 CAP reflect, and are inclusive of, such market-based increases. The Compensation Committee continues to believe that the executive compensation actually paid by the Company is strongly aligned with Company performance.
Compensation of Directors
Compensation of Directors
DIRECTOR COMPENSATION TABLE
DIRECTOR COMPENSATION TABLE
DIRECTOR COMPENSATION TABLE
| | Fees Earned or | Stock | | | | Paid in Cash | Awards | Total | | | ($) | ($)(1) | ($) | | Thomas A. Aaro | 45,000 | 79,986 | 124,986 | | Cynthia Dubin | 50,000 | 79,986 | 129,986 | | Timothy J. Gardner | 52,500 | 79,986 | 132,486 | | Jay C. Longbottom | 45,000 | 79,986 | 124,986 | | Richard Porter | 65,000 | 79,986 | 144,986 | | Janaki Sivanesan | 55,000 | 79,986 | 134,986 |
DIRECTOR COMPENSATION TABLE
| (1) Amounts reflect the grant date fair value of restricted shares issued to each non-employee director during the year ended October 31, 2023, calculated in accordance with ASC 718. Each non-employee director received 2,871 restricted shares on March 9, 2023, the date of our 2023 Annual Meeting of Shareholders. The grant date fair value is calculated by multiplying the closing price of our common stock on Nasdaq on the date of grant, which was $27.86, by the number of restricted shares awarded. The restricted shares vest one year from the date of grant or upon the Company’s next Annual Meeting of Shareholders, whichever is earlier. |
DIRECTOR COMPENSATION TABLE
In fiscal year 2023, we paid our directors as follows: (1) the quarterly retainer for all non-employee directors was $11,250, (2) the Presiding Independent Director quarterly retainer was $3,750, and (3) the fair market value of the annual grant of restricted shares to non-employee directors was $79,986. In addition to the quarterly retainer for all non-employee members of the Board, we paid the chair of the Audit Committee a quarterly retainer of $2,500, the chair of the Compensation Committee a quarterly retainer of $1,875, and each Audit Committee member a quarterly retainer of $1,250. We also paid our directors’ travel expenses incurred to attend Board meetings, which are not included in the Director Compensation Table above. Mr. Doar’s compensation and Mr. Volovic’s compensation for fiscal year 2023 are set forth in the Summary Compensation Table and the preceding tables and narrative. Mr. Doar and Mr. Volovic are not included in this table because they did not receive any additional compensation for their services as directors.
Directors
Directors Section 1. Number. The number of directors may be fixed from time to time by the By-Laws of the Corporation at any number not less than three (3). In the absence of a by-law fixing the number of directors, the number shall be nine (9). Section 2. Qualification. Directors shall be American citizens and may, but need not be, shareholders of the Corporation. Section 3. Staggered Terms. If there are nine (9) or more directors, the By-Laws of the Corporation may provide for staggering their terms by dividing the total number of directors into two (2) or three (3) groups, with each group containing one-half (1/2) or one-third (1/3) of the total, as near as may be. Section 4. Removal of Directors. At any meeting of shareholders of the Corporation called for the purpose of removing directors, the shareholders may remove any director for cause, by a majority vote of shares entitled to vote, and may remove any director without cause by a seventy-five percent (75%) vote of shares entitled to vote. Record holders of outstanding shares of Common Stock and Preferred Stock of the Corporation may only vote in respect to the removal of directors elected by said class of stock. ARTICLE VIII.