DEF 14A of Clearfield, Inc.
Filed Jan 11, 2024 · FY20230001171843-24-000212
PROPOSAL 1: ELECTION OF DIRECTORS
PROPOSAL 1: ELECTION OF DIRECTORS Eight directors will be elected at the Annual Meeting to serve until the next Annual Meeting of Shareholders or until their successors have been elected and shall qualify. Proxies cannot be voted for a greater number of persons than the number of nominees named. Pursuant to our bylaws, the authorized number of directors is set at eight and the Board of Directors has nominated for election the eight persons named below. All eight nominees are currently serving as directors of Clearfield. The persons acting as proxies intend to vote the proxies held by them in favor of the nominees named below as directors, unless otherwise directed. Should any nominee for director become unable to serve as a director for any reason, the proxies have indicated they will vote for such other nominee as the Board of Directors may propose. The Board of Directors has no reason to believe that any candidate will be unable to serve if elected and each has consented to being named a nominee. We know of no arrangements or understandings between a director or nominee and any other person pursuant to which he or she has been selected as a director or nominee. There is no family relationship between any of the nominees, our directors or our executive officers except that Ms. Beranek and Mr. Hill are related through the marriage of their daughter and son, respectively.
Information Regarding Nominees
Information Regarding Nominees Set forth below is biographical and other information with respect to each nominee, as well as a discussion of the specific experience, qualifications, attributes, and skills that led to the conclusion that the nominee should serve as a director of Clearfield at this time.
Information Regarding Nominees
| Cheryl Beranek Age: 61 Director Since: December 2007 Committees: ● None | Professional Background and Experience | | | | ● | President and Chief Executive Officer, Clearfield, Inc. (2007 – present) | | | ● | President, APA Cables and Networks, Inc., a cable assembly and contract manufacturing operation and former subsidiary of Clearfield (2003 – 2007) | | | ● | President, Americable, a niche-market provider of fiber termination and distribution equipment (2002 - 2003) | | | ● | Chief Operating Officer, Americable (2001 - 2002) | | | ● | Vice President of Marketing, Transition Networks Inc., a manufacturer of networking equipment for the worldwide fiber optic premise market (1996 – 2001) | | | Qualifications | | | | Ms. Beranek is qualified to serve on the Clearfield Board of Directors because she brings to the Board a keen understanding of our business and industry developed through her tenure as our President and Chief Executive Officer and in her previous position as the President of our former subsidiary. Additionally, Ms. Beranek’s role as our President and Chief Executive Officer allows her to provide the Board with her unique insight as a member of management on our business and our operations. | | | | Other Directorships | | | | ● | Director, Key Tronic Corporation (Nasdaq: KTCC) (January 2024 – present) | | | ● | Director, CyberOptics Corporation (Nasdaq: CYBE) (May 2020 – November 2022) (CyberOtpics was acquired by Nordson Corporation in November of 2022) |
Information Regarding Nominees
| Patrick F. Goepel Age: 62 Director Since: 2015 Committees: ● Audit ● Compensation | Professional Background and Experience | | | | ● | CEO, Asure Software, Inc. (Nasdaq: ASUR), a provider of workplace management software (2010 – present) | | | ● | Interim CEO, Asure Software, Inc. (2009 – 2010) | | | ● | President and CEO, Human Resources Services Division, Fidelity Investments, a provider of financial planning, advisory, wealth management and brokerage services (2006 – 2008) | | | ● | President and CEO, Advantec, a provider of human resources outsourcing and professional employer organization services (2005 – 2006) | | | Qualifications | | | | Mr. Goepel’s public company executive management and board experience, as well as his background in successful execution of global expansion, operational and M&A initiatives, qualify him to serve as a director of Clearfield. In addition, Mr. Goepel qualifies as an audit committee financial expert. | | | | Other Directorships | | | | ● | Chairman of the Board, Asure Software, Inc. (August 2020 – present), and Director (2009 – present) | | | ● | Director, APPD Investments (2007 – present) (private) | | | ● | Director, SafeGuard World International (2015 – present) (private) |
Information Regarding Nominees
| Roger G. Harding Age: 68 Director Since: 2016 Committees: ● Audit | Professional Background and Experience | | | | ● | Private investor (2008 – present) | | | ● | Vice President & General Manager, Global Switching, Alcatel-Lucent, a multinational provider of telecommunications equipment and services (2001 – 2008) | | | ● | Business & Operations Senior Director, Special Customer Operations, Alcatel-Lucent (1995 – 2001) | | | Qualifications | | | | Mr. Harding has a strong background in operations and the development and execution of key strategies and operating practices, as well as a deep understanding of the telecommunications and networking markets. These attributes qualify him to serve as a director of Clearfield. In addition, Mr. Harding qualifies as an audit committee financial expert. | | | | Other Directorships | | | | ● | None |
Information Regarding Nominees
| Charles N. Hayssen Age: 72 Director Since: 2008 Committees: ● Audit (Chair) | Professional Background and Experience | | | | ● | President, Safeway Driving Schools, a privately held provider of driver’s education services (2009 – August 2021) | | | ● | Private investor (2007 – 2008) | | | ● | Chief Operating Officer, AllOver Media, Inc., a privately-held out-of-home media company (2004 – 2007) | | | ● | Chief Financial Officer, ThinkEquity Partners LLC, an equity capital markets firm (2002 – 2004) | | | Qualifications | | | | Mr. Hayssen brings strong executive management and financial management experience to the Board, as well as experience earlier in his career as a director and audit committee chair of a publicly traded company, all of which qualify him to serve as a director of Clearfield. In addition, Mr. Hayssen qualifies as an audit committee financial expert. | | | | Other Directorships | | | | ● | None |
Information Regarding Nominees
| Donald R. Hayward Age: 66 Director Since: 2007 Committees: ● Audit ● Nominating and Corporate Governance (Chair) | Professional Background and Experience | | | | ● | President, Schaffer Manufacturing, a privately held metal fabrication manufacturing company serving a variety of industries, including telecommunications (September 2017 – October 2020) | | | ● | Executive advisor, Schaffer Manufacturing (September 2016 – August 2017; November 2020 – April 2021) | | | ● | President, Engel Diversified Industries, a privately held manufacturer of fabricated metal products serving multiple industries (2006 – 2017) | | | ● | Director of Corporate Services, Minnesota Technology, Inc., a publicly funded, private non-profit in support of Minnesota’s technology community (1997 – 2006) | | | Qualifications | | | | Mr. Hayward’s executive leadership experience, his familiarity with the business and operations of a manufacturing company developed through his service at Schaffer Manufacturing and Engel Diversified Industries, and his background in technology developed through his service at Minnesota Technology, where he specialized in business growth, concentrating on strategic and leadership development, qualify him to serve as a director of Clearfield, where, among things, he concentrates on board-level matters relating to ESG, succession planning, and strategic development. | | | | Other Directorships | | | | ● | None |
Information Regarding Nominees
| Walter L. Jones, Jr. Age: 58 Director Since: December 2021 Committees: ● Compensation ● Nominating and Corporate Governance | Professional Background and Experience | | | | ● | Advisor, Harmoni Towers, an owner, operator, and builder of mission-critical communications infrastructure (August 2021 – present) | | | ● | Independent board advisor and operations consultant (2015 – present) | | | ● | Vice President of Network Transformation, Verizon Communications Inc., one of the world’s leading providers of communications, technology, information and entertainment products and services to consumers, businesses, and government entities (2015) | | | ● | Region President of Consumer Mass Business, Verizon Communications Inc. (2013 – 2015) | | | ● | Area Vice President of Network, Verizon Communications Inc. (2008 – 2013) | | | Qualifications | | | | Mr. Jones’s deep background in telecommunications operations and technology, along with his strong understanding of a Tier 1 telecommunications company, qualify him to serve as a director of Clearfield. Mr. Jones is recognized as NACD Directorship Certified by the National Association of Corporate Directors. | | | | Other Directorships | | | | ● | None |
Information Regarding Nominees
| Ronald G. Roth Age: 78 Director Since: 2002 Chairman Since: 2002 Committees: ● Compensation ● Nominating and Corporate Governance | Professional Background and Experience | | | | ● | Chairman of the Board and investor, Phillips Recycling Systems, a privately-held recycler of scrap and waste materials (1990 – 2007) | | | ● | Chairman of the Board and investor, Access Cash International LLC, a privately-held provider of ATMs and related processing and financial services (1995 to 2000) | | | ● | Chairman of the Board, CEO and investor, Waste Systems Corp., a privately-held waste hauling and disposal company (1970 – 1995) | | | Qualifications | | | | Mr. Roth is qualified to serve on the Clearfield Board of Directors because he brings to the Board a strong background in executive management, mergers and acquisitions, business development and marketing through his service for more than 35 years as a Chairman of the Board, executive and owner of several companies. | | | | Other Directorships | | | | ● | None |
Information Regarding Nominees
| Carol A. Wirsbinski Age: 60 Director Since: December 2021 Committees: ● Compensation (Chair) ● Nominating and Corporate Governance | Professional Background and Experience | | | | ● | Chief Sales Officer, Consolidated Communications Holdings, Inc. (Nasdaq: CNSL), a national internet and telecommunications service provider (2014 – 2017) | | | ● | Chief Operating Officer and Corporate Vice President, Enventis Corporation (formerly known as Hickory Tech Corporation) (Nasdaq: ENVE), an integrated communication service provider serving a five state Midwest area (2011 – 2014) | | | ● | President and Chief Executive Officer, Citilink Broadband Solutions, a wireless broadband service provider (2009 – 2010) | | | ● | Senior Vice President of Sales, CEB, Inc., a provider of consumer research and strategic advisory services (2007 – 2008) | | | ● | Senior Vice President, Minnesota and North Dakota, Integra Telecom, an infrastructure and telecommunications service provider (2000 – 2006) | | | Qualifications | | | | Ms. Wirsbinski’s substantial experience in executive management, particularly her experience leading transformational growth, and her depth of understanding of the telecommunications industry, particularly the community broadband market, qualify her to serve as a director of Clearfield. | | | | Other Directorships | | | | ● | Director, Underline Infrastructure Inc. (December 2022 – present) (private) | | | ● | Director, Somos Inc. (March 2019 – March 2022) (private) |
Information Regarding Nominees
Under Minnesota law and our bylaws, directors are elected by a plurality of the votes cast at the Annual Meeting by holders of common stock voting for the election of directors. This means that since shareholders will be electing eight directors, the eight nominees receiving the highest number of votes will be elected. However, in an uncontested election (where, as at the Annual Meeting, the number of nominees does not exceed the number of directors to be elected), any nominee for director who does not receive a majority of votes cast for his or her election is required under our Governance Guidelines to promptly tender his or her resignation following certification of the shareholder vote. Votes against a nominee’s election do not include broker non-votes. The Nominating and Corporate Governance Committee will consider the resignation offer and recommend to the Board whether to accept it. The Board will act on the Nominating and Corporate Governance Committee’s recommendation within 90 days following certification of the shareholder vote. The Board will promptly disclose its decision whether to accept the director’s resignation offer (and the reasons for rejecting the resignation offer, if applicable) in a Current Report on Form 8-K filed with the Securities and Exchange Commission. Any director who tenders his or her resignation as described above will not participate in the Nominating and Corporate Governance Committee’s recommendation or Board action regarding whether to accept the resignation offer. Proxies will be voted in favor of each nominee unless otherwise indicated. In addition, if each member of the Nominating and Corporate Governance Committee receives a majority against vote at the same election, then the independent directors who did not receive a majority against vote shall appoint a committee amongst themselves to consider the resignation offers and recommend to the Board whether to accept them.
Our Compensation Philosophy
| ● | Performance-based compensation should constitute a significant portion of the executive’s overall compensation and be available to the executive when they individually deliver, and we as a company deliver, high performance. | | ● | Base salaries should be set at levels that recognize the significant potential compensation opportunities available through performance-based compensation. | | ● | Long-term incentives should be designed to align the financial interests of the executives with the interests of our shareholders in creating long-term shareholder value. | | ● | Annual cash incentive pay and long-term incentives should be designed to reward a reasonable and competitive balance of short- and long-term financial and strategic business results, with an emphasis on managing the business over the long-term. | | ● | Compensation packages should be competitive to attract and retain superior executive talent. | | ● | The design of our compensation program should not encourage the executives to take unnecessary or undesirable risks. |
Overview of Compensation Process – Use of Compensation Consultant and Role of Management
Overview of Compensation Process – Use of Compensation Consultant and Role of Management The responsibility of the Compensation Committee is to review and approve the compensation and other terms of employment of our Chief Executive Officer and our other executive officers. The Compensation Committee has also been appointed by the Board of Directors to administer our equity compensation plans, which for fiscal 2023 consisted of the 2007 Plan and following approval by our shareholders in February 2023, the 2022 Plan. No further awards will be granted under the 2007 Plan. In carrying out its duties, the Compensation Committee participates in the design and implementation and ultimately reviews and approves, or recommends to the Board for approval, specific compensation programs. In February 2023, the Board of Directors approved the establishment of a cash incentive compensation program for fiscal 2023 (the “2023 Bonus Program”) for certain of our employees including the named executive officers. The 2023 Bonus Program and the named executive officers’ participation in the program was recommended by the Compensation Committee. The 2023 Bonus Program is summarized below. Under the Compensation Committee’s charter, the Compensation Committee has the authority to retain, at our expense, such independent counsel or other advisors as it deems necessary to carry out its responsibilities. The compensation consultant and any other advisor retained by the Compensation Committee report to the Compensation Committee. In August 2022, the Compensation Committee retained Compensia, a national compensation consulting firm, as its independent compensation consultant to provide advice for fiscal 2023 on matters relating to the compensation of our executive officers and non-employee directors. Compensia assisted and advised the Compensation Committee in the development of a compensation peer group, conducted a market assessment of the Company’s executive compensation program, advised on bonus plan practices, updated the Compensation Committee on market and regulatory trends and developments, provided advice and guidance for the future introduction of performance-based equity, and provided advice and recommendations on the compensation of our non-employee directors. In determining compensation for our named executive officers for fiscal 2023, the Compensation Committee considered and assessed the performance of each of the named executive officers in fiscal 2022, as well as the competitive market data and recommendations provided by Compensia, in establishing base salaries, the 2023 Bonus Program, and equity awards. The Chief Executive Officer recommended to the Compensation Committee the financial performance goals under the 2023 Bonus Program based upon Clearfield’s budget for fiscal 2023 that was approved by the Board of Directors. No named executive officer, other than the Chief Executive Officer, had a role in establishing executive compensation for 2023. From time to time, the named executive officers are invited to attend meetings of the Compensation Committee. However, no named executive officer attends any executive session of the Compensation Committee or is present during deliberations or determination of such named executive officer’s compensation.
Compensation Peer Group
Compensation Peer Group In August 2022, the Compensation Committee requested Compensia assist the Compensation Committee in the development of a compensation peer group to be used as an input in defining the competitive landscape for executive talent, along with additional data sourced from Compensia’s database. A primary goal in developing the peer group was to ensure the peer group would be reasonably reflective of Clearfield in terms of size, value and market for executive talent. In developing the peer group, companies were targeted based on several selection criteria, including the following:
Compensation Peer Group
| ● | Revenue: ~ 0.3x to ~ 2.5x Clearfield’s estimated annual revenue. | | ● | Market Capitalization: ~ 0.25x to ~ 4.0x Clearfield’s market capitalization. | | ● | Industry: Communications/Electronic Equipment, Electronic Manufacturing Services, and Wireless Telecommunication Services. | | ● | Location: Headquartered in the U.S. | | ● | Refinement Factors: Companies that (i) name Clearfield in their own peer groups, and (ii) show positive revenue growth. |
Compensation Peer Group
Companies were not required to meet all the selection criteria listed above. The Compensation Committee evaluated each of the companies against all the selection criteria to identify a peer group that, taken as a whole, is reflective of Clearfield and its market for executive talent. The final peer group for fiscal 2023 consisted of the following companies:
Compensation Peer Group
| Clearfield Peer Group | | | ADTRAN Holdings | Inseego | | Aviat Networks | Iteris | | Bel Fuse | KVH Industries | | Calix | Lantronix | | Cambium Networks | Luna Innovations | | CTS | Netlist | | Digi International | nLIGHT | | DZS | Preformed Line Products | | EMCORE | RF Industries | | Gogo | Shenandoah Telecommunications | | Harmonic | Vicor |
Base Salaries
Base Salaries Based on a review of peer group executive officer compensation information provided by Compensia, the Compensation Committee recommended to the Board of Directors, and the Board of Directors approved, an increase in the annual base salaries of the named executive officers for fiscal 2023. The purpose of the increase in the case of the Chief Executive Officer and the Chief Financial Officer was to better align their base salaries with the 50th percentile of the peer group. The Compensation Committee set the base salary of the Chief Operating Officer to be the same as for our Chief Executive Officer as explained above. For fiscal 2023, base salaries were set at the following amounts: Ms. Beranek, $425,000 (an increase of 13.5%); Mr. Herzog, $340,000 (an increase of 36.9%); and Mr. Hill, $425,000 (an increase of 13.5%).
Design of and Payouts Under the 2023 Bonus Program
Design of and Payouts Under the 2023 Bonus Program Consistent with its compensation philosophy and the objectives of annual cash incentive programs generally, the Compensation Committee recommended, and the Board of Directors approved, the 2023 Bonus Program and the incentive pay opportunities for the named executive in February 2023. The 2023 Bonus Program and the executive officers’ participation in the program was recommended by the Compensation Committee after consideration of the advice from Compensia. Under the 2023 Bonus Program, the Compensation Committee determined minimum, target and maximum performance goals for fiscal 2023 net sales and fiscal 2023 adjusted EBITDA, which were weighted 75% and 25%, respectively. Net sales are to be determined on a consolidated basis in conformity with accounting principles generally accepted in the United States of America (GAAP). Adjusted EBITDA is defined as the Company’s consolidated GAAP net income excluding items related to interest income and expense, the impact of income-based taxes, depreciation and amortization, stock-based compensation, foreign currency gains and losses, the 2023 Bonus Program amounts, and other non-operating income and expenses. The Compensation Committee retained the discretion to include or exclude items from each of the performance metrics and to determine the achievement of the performance goals for the purposes of calculating incentive pay under the 2023 Bonus Program. The Compensation Committee also approved the cash incentive pay the executive officers could earn at the minimum, target and maximum level of achievement as a percentage of their respective annual base salaries as follows: Ms. Beranek and Mr. Hill, 60%, 100% and 200%, respectively; and Mr. Herzog, 60%, 75% and 100%, respectively. Under the 2023 Bonus Program, achievement of a performance metric at less than or greater than target level would result in proportionately decreasing or increasing incentive pay relating to that performance metric. If the minimum performance goal for a performance metric is not achieved, there would be no incentive pay with respect to that performance metric. The maximum incentive pay that could be earned under the 2023 Bonus Program by an executive officer would not exceed that executive officer’s bonus opportunity at the maximum level, even if actual performance exceeded the maximum level for either or both of the performance metrics. The Compensation Committee determined target net sales and target adjusted EBITDA would be the same as the Company’s guidance for net sales and adjusted EBITDA to align the interests of the named executive officers and other participants with the interests of the Company’s shareholders. Due to the challenging nature of achievement of target net sales and adjusted EBITDA, the Compensation Committee further determined the minimum payout levels should be set based on achievement of 90% of target, and, for consistency, the maximum payout levels should be set based on achievement of 110% of target. All payments, if any, to the executive officers under the 2023 Bonus Program would be subject to “clawback” under the Company’s Compensation Recoupment Policy adopted September 23, 2021, as amended through September 28, 2023. The following table shows the named executive officers’ 2023 Bonus Program opportunity as a percentage of base salary at various performance levels and the actual payout as a percentage of salary and in dollars. Given the Company’s fiscal 2023 net sales and adjusted EBITDA were below the minimum performance goals, the Compensation Committee determined no payouts would be made to the executive officers and other participants under the 2023 Bonus Program. The payout amount is also reflected in the Summary Compensation Table under the column titled “Non-Equity Incentive Plan Compensation.” Further, the 2023 Bonus Program payouts that would have been earned if the various levels were achieved are reflected in the “Grants of Plan-Based Awards for Fiscal Year Ending September 30, 2023” table under the column titled “Estimated Future Payouts under Non-Equity Incentive Plan Awards” and associated footnotes.
Design of and Payouts Under the 2023 Bonus Program
| | Bonus Opportunity As a Percentage of Base Salary | | | Actual 2023 Bonus | Actual 2023 | | Executive Officer | Minimum Level Achievement | Target Level Achievement | Maximum Level Achievement | Program Payout as a Percentage of Base Salary | Bonus Program Payout ($) | | Cheryl Beranek | 60% | 100% | 200% | 0% | 0 | | Daniel R. Herzog | 60% | 75% | 100% | 0% | 0 | | John P. Hill | 60% | 100% | 200% | 0% | 0 |
Long-Term Equity Compensation
Long-Term Equity Compensation The Compensation Committee grants equity awards to executive officers for their performance during a fiscal year, typically in November of each year, although the Compensation Committee may approve equity awards outside of the normal grant cycle to select individuals in the event of extraordinary circumstances. The Compensation Committee’s policy is to grant all equity awards under shareholder approved equity compensation plans, such as the 2022 Plan, except in limited and special circumstances. The Compensation Committee believes that equity awards incentivize financial progress, sustained shareholder value creation, and the following key compensation objectives:
Long-Term Equity Compensation
| ● | Focus on the importance of stock price appreciation and shareholder returns. | | ● | Align executives’ interests with the shareholders’ interests in creating long-term shareholder value. | | ● | Promote the achievement of financial performance over the long-term. | | ● | Encourage executive retention. | | ● | Promote meaningful levels of Clearfield stock ownership by executives. |
Long-Term Equity Compensation
Consistent with these principles, the Compensation Committee granted restricted stock awards to the executive officers in February 2023, contingent on shareholder approval of the 2022 Plan and with a grant date of the first business day following the 2023 Annual Meeting of Shareholders. Based on the executive officer’s position, the Compensation Committee targeted an award value within the median range for long-term equity compensation based on the Company’s peer group. For Ms. Beranek and Mr. Hill, the Compensation Committee targeted $1,000,000 in restricted stock and for Mr. Herzog, the Compensation Committee targeted $500,000 in restricted stock. Rather than use the stock price on the date of grant to determine the number of shares of restricted stock to be issued to each executive officer, the Compensation Committee determined to use a price of $100 per share, which is the same as the price to the public in the Company’s December 2022 underwritten public offering of common stock. The Compensation Committee used this higher common stock value due to the Compensation Committee’s view that the lower market price on the date of grant did not reflect the inherent value of the Company, in order to avoid a windfall to the executive officers based on the timing of the grant, and in order to provide a performance-based element to the restricted stock award, noting that the executive officers would receive the targeted award value only if the stock price increases to $100 per share. Accordingly, Ms. Beranek and Mr. Hill were granted 10,000 shares of restricted stock and Mr. Herzog was granted 5,000 shares of restricted stock under the 2022 Plan. To align vesting of the restricted shares with the Company’s historic timing of equity grants, the Compensation Committee determined the restricted stock awards would vest as to one-third of the shares on each of November 16, 2023, November 16, 2024, and November 16, 2025, subject to continued employment through each such date.
Compensation Decisions for 2024
Compensation Decisions for 2024 In November 2023, the Compensation Committee determined not to increase the base salaries for the named executive officers for fiscal 2024 in light of the market-adjustments made to their base salaries for fiscal 2023, the Company’s financial performance in fiscal 2023, and current challenges in the telecommunications industry as a whole. The Compensation Committee also approved the establishment of the 2024 Bonus Program applicable to the Company’s executive officers and set the cash incentive pay opportunities for each such officer. The Compensation Committee determined target and maximum performance goals for fiscal year 2024 net sales and fiscal year 2024 gross profit, which will be weighted 75% and 25%, respectively. Net sales and gross profit will be determined on a consolidated basis in conformity with GAAP. The Compensation Committee retained the discretion to include or exclude items from each of the performance metrics and to determine the achievement of the performance goals for the purposes of calculating incentive pay under the 2024 Bonus Program. The Compensation Committee also approved the cash incentive pay the executive officers may earn at the target and maximum level of achievement as a percentage of their respective annual base salaries as follows: Ms. Beranek and Mr. Hill, 60% and 200%, respectively; and Mr. Herzog, 60% and 100%, respectively. Under the 2024 Bonus Program, achievement of a performance metric at greater than target level will result in proportionately increasing incentive pay relating to that performance metric. If the target performance goal for a performance metric is not achieved, there will be no incentive pay with respect to that performance metric. The maximum incentive pay that may be earned under the 2024 Bonus Program by an executive officer will not exceed that executive officer’s bonus opportunity at the maximum level, even if actual performance exceeds the maximum level for either or both of the performance metric. The Compensation Committee determined the maximum payout level should be set based on achievement of 125% of target. In November 2023, the Compensation Committee added PSUs to the executive compensation program for fiscal 2024 due to the strong alignment between performance-based equity awards and the Compensation Committee’s philosophy of emphasizing performance-based compensation. The Compensation Committee determined to keep the overall target value of the equity grants to the named executive officers flat year-over-year, but to divide the target value of the equity grants evenly between restricted shares and PSUs. Accordingly, for Ms. Beranek and Mr. Hill, the Compensation Committee targeted $500,000 in restricted stock and $500,000 in PSUs, and for Mr. Herzog, the Compensation Committee targeted $250,000 in restricted stock and $250,000 in PSUs. The PSUs will vest, and the restrictions on the PSUs will lapse, on the first anniversary of the date of grant, subject to continued employment through such date and the Company attaining fiscal 2024 target adjusted EBITDA. The Compensation Committee intends to grant PSUs that vest over a three-year period as part of the fiscal year 2025 executive compensation program. All payments to the executive officers under the 2024 Bonus Program and all PSUs awarded to the executive officers under the 2022 Plan will be subject to “clawback” under the Company’s Compensation Recoupment Policy adopted September 23, 2021, as amended through September 28, 2023.
Employment Agreements and Change in Control Provisions
Employment Agreements and Change in Control Provisions In December 2008, we entered into employment agreements with Ms. Beranek and Mr. Hill that remained in effect throughout fiscal 2023. In November 2010, we established a Code 280G Tax Gross Up Payment Plan (the “Tax Gross Up Plan”). For fiscal 2023, Ms. Beranek and Mr. Hill were participants in the Tax Gross Up Plan. In 2017, we entered into an employment agreement with Mr. Herzog that was amended in December 2019 and continued in effect throughout fiscal 2023. Mr. Herzog is not a participant in the Tax Gross Up Plan. Since it was established in November 2010, the Tax Gross Up Plan has not been amended or modified and the participants in the Tax Gross Up Plan are limited to two executives, Ms. Beranek and Mr. Hill. In January 2023, consistent with its long-standing practice, the Compensation Committee determined that Clearfield would not approve any additional participants in the Tax Gross Up Plan and would not amend or modify the Tax Gross Up Plan to expand any benefit to any executive officer participant in the Tax Gross Up Plan. See “Executive Compensation – Employment Arrangements with Named Executive Officers” for summaries of the employment agreements with Ms. Beranek, Mr. Hill, and Mr. Herzog, as well as a summary of the Tax Gross Up Plan.
Equity Granting Policy
Equity Granting Policy Effective September 30, 2022, Clearfield adopted an equity granting policy. The policy documents the Compensation Committee’s well-established, disciplined process for granting equity awards and its long-standing practice of granting awards only at a time that directors and executive officers are not in possession of material, non-public information and during the periods of time that trading would be permitted under our trading policy, which is referred to above as an “open window period.” Additionally, the Company’s policy is that no equity awards will be granted to executive officers within the period starting four business days before the filing of a periodic report on Form 10-Q or Form 10-K, or the filing or furnishing of a current report on Form 8-K that discloses material non-public information (including earnings information), and ending one business day after such filing. The equity granting policy also establishes procedures for equity awards granted by our Chief Executive Officer under authority delegated from the Compensation Committee. The Chief Executive Officer may grant equity awards to newly hired employees, newly promoted employees or in recognition of the performance or achievement of an employee, provided that the employee is not an executive officer of Clearfield, the equity award does not exceed the per grant limitation, and all awards granted under delegated authority do not exceed, in the aggregate, the total amount established on an annual basis by the Compensation Committee. The equity granting policy also requires concurrent documentation and reporting to the Compensation Committee of all equity awards granted under delegated authority. Consistent with the equity granting policy’s prohibition on timing equity awards to the release of material non-public information, the grant date for a new hire grant or recognition grant to non-officer employees under delegated authority will be the second Tuesday of the month following the employee’s start date or the recognition date, or if the Nasdaq Stock Market was closed on such date, the next succeeding trading day.
Summary Compensation Table
Summary Compensation Table The following table shows information concerning compensation earned for services in all capacities during the last three fiscal years for (i) Cheryl Beranek, our President and Chief Executive Officer; (ii) Daniel R. Herzog, our Chief Financial Officer; and (iii) the one other executive officer of Clearfield, John P. Hill, our Chief Operating Officer (together referred to as our “named executive officers”).
Summary Compensation Table
| Name and Principal Position | Year | Salary ($) | Bonus ($)(1) | Stock Awards ($)(2) | Option Awards ($)(2) | Non-Equity Incentive Plan Compen- sation ($)(3) | All Other Compen- sation ($)(4) | Total ($) | | Cheryl Beranek President and Chief Executive Officer | 2023 | 425,000 | — | 615,600 | — | — | 21,262 | 1,061,862 | | | 2022 | 374,415 | — | 398,649 | 224,642 | 954,757 | 20,112 | 1,972,574 | | | 2021 | 361,753 | 379,371 | 72,336 | 144,697 | 542,630 | 15,671 | 1,516,456 | | Daniel R. Herzog Chief Financial Officer | 2023 | 340,000 | — | 307,800 | — | — | 18,592 | 666,392 | | | 2022 | 248,433 | — | 219,167 | 149,055 | 315,510 | 14,279 | 946,444 | | | 2021 | 240,032 | 125,976 | 48,002 | 96,011 | 180,024 | 12,645 | 702,691 | | John P. Hill Chief Operating Officer | 2023 | 425,000 | — | 615,600 | — | — | 21,164 | 1,061,764 | | | 2022 | 374,415 | — | 398,649 | 224,642 | 954,757 | 19,072 | 1,971,534 | | | 2021 | 361,753 | 379,371 | 72,336 | 144,697 | 542,630 | 16,367 | 1,517,152 |
Summary Compensation Table
| (1) For 2021, represents a bonus approved by the Compensation Committee as a discretionary increase to the cash bonus the named executive officer earned under the 2021 Bonus Program. |
Summary Compensation Table
| (2) Represents the aggregate grant date fair value of stock awards and the grant date fair value of option awards in the respective fiscal year, as computed in accordance with FASB ASC Topic 718, Compensation — Stock Compensation using the assumptions discussed in Note 2, “Shareholders’ Equity,” in the notes to financial statements included in our Annual Report on Form 10-K for the year ended September 30, 2023. For 2022, includes the value of stock awards approved by the Compensation Committee as a discretionary increase to the cash bonus the named executive officer earned under the 2022 Bonus Program in the following amounts: Ms. Beranek, $286,364; Mr. Hill, $286,364; and Mr. Herzog, $144,643. |
Summary Compensation Table
| (3) Represents bonuses paid to the named executive officers under our cash bonus program for the year noted, which are reported for the year in which the related services were performed. See “Compensation Discussion & Analysis – Design of and Payouts Under the 2023 Bonus Program” for a description of the cash bonus program for 2023. |
Summary Compensation Table
| (4) Represents the following amounts: |
Summary Compensation Table
| Name | Year | Matching Contributions to 401(k) Plan ($) | Term Life Insurance Premiums ($)(1) | Long Term Disability ($) | | | 2023 | 15,498 | 4,904 | 860 | | Cheryl Beranek | 2022 | 13,488 | 5,730 | 893 | | | 2021 | 13,187 | 1,650 | 834 | | | 2023 | 17,687 | 45 | 860 | | Daniel R. Herzog | 2022 | 13,341 | 45 | 893 | | | 2021 | 11,767 | 45 | 834 | | | 2023 | 15,614 | 4,690 | 860 | | John P. Hill | 2022 | 13,488 | 4,690 | 893 | | | 2021 | 12,883 | 2,650 | 834 |
Summary Compensation Table
| (1) Represents amounts paid by us for term life insurance policies that have been in place since 2011. Ms. Beranek’s policy provides a $2 million benefit payable to Ms. Beranek’s estate upon her death and expires in the year 2058. Mr. Hill’s policy provides a $2 million benefit payable to Mr. Hill’s estate upon his death and expires in the year 2060. We also have corresponding term insurance policies of each Ms. Beranek and Mr. Hill for $2 million each where the death benefit is payable to us. |
Grants of Plan-Based Awards in Fiscal Year 2023
Grants of Plan-Based Awards in Fiscal Year 2023 The following table sets forth certain information concerning plan-based awards granted to the named executive officers during the year ending September 30, 2023.
Grants of Plan-Based Awards in Fiscal Year 2023
| | | Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) | | | All Other Stock | All Other Option Awards | Exercise or Base | Grant Date Fair | | Name | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Awards Number of Shares of Stock (#) | Number of Securities Underlying Options (#) | Price of Option Awards ($) | Value of Stock and Option Awards (#) | | Cheryl Beranek | — | 255,000 | 425,000 | 850,000 | — | — | — | — | | Cheryl Beranek | 2/16/23 | — | — | — | 10,000 | — | — | 615,600 | | Daniel R. Herzog | — | 204,000 | 255,000 | 340,000 | — | — | — | — | | Daniel R. Herzog | 2/16/23 | — | — | — | 5,000 | — | — | 307,800 | | John P. Hill | — | 255,000 | 425,000 | 850,000 | — | — | — | — | | John P. Hill | 2/16/23 | — | — | — | 10,000 | — | — | 615,600 |
Grants of Plan-Based Awards in Fiscal Year 2023
| (1) Represents incentive pay that may have been earned by the named executive officers under our 2023 Bonus Program. Threshold refers to the minimum amount payable upon achievement of the minimum performance levels required to earn any payment. Target refers to the amount payable if specified targets were reached. Maximum refers to the maximum payout possible under the 2023 Bonus Program. See the column entitled “Non-Equity Incentive Plan” of the Summary Compensation Table for the amounts actually paid under the 2023 Bonus Program. For an explanation of the 2023 Bonus Program, refer to the description under the heading of Compensation Discussion and Analysis entitled “Design of and Payouts Under the 2023 Bonus Program.” |
Outstanding Equity Awards at Fiscal Year-End
Outstanding Equity Awards at Fiscal Year-End The following table sets forth certain information concerning equity awards outstanding to the named executive officers at September 30, 2023.
Outstanding Equity Awards at Fiscal Year-End
| | Option Awards | | | | Stock Awards | | | Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares of Stock That Have Not Vested (#) | Market Value of Shares of Stock That Have Not Vested ($)(1) | | Cheryl Beranek (2) | — | — | — | — | 4,250 | 121,805 | | Cheryl Beranek (3) | — | — | — | — | 1,016 | 29,109 | | Cheryl Beranek (4) | 8,000 | 16,000 | 12.43 | 11/13/2025 | — | — | | Cheryl Beranek (5) | 11,851 | 5,925 | 23.74 | 11/16/2025 | — | — | | Cheryl Beranek (6) | — | — | — | — | 1,126 | 32,271 | | Cheryl Beranek (7) | 2,932 | 5,865 | 66.48 | 11/16/2026 | — | — | | Cheryl Beranek (8) | — | — | — | — | 10,000 | 286,600 | | Daniel R. Herzog (2) | — | — | — | — | 1,500 | 42,990 | | Daniel R. Herzog (3) | — | — | — | — | 674 | 19,317 | | Daniel R. Herzog (4) | 7,200 | 4,800 | 12.43 | 11/13/2025 | — | — | | Daniel R. Herzog (5) | 7,863 | 3,932 | 23.74 | 11/16/2025 | — | — | | Daniel R. Herzog (6) | — | — | — | — | 747 | 21,419 | | Daniel R. Herzog (7) | 1,946 | 3,891 | 66.48 | 11/16/2026 | — | — | | Daniel R. Herzog (8) | — | — | — | — | 5,000 | 143,300 | | John P. Hill (2) | — | — | — | — | 4,250 | 121,805 | | John P. Hill (3) | — | — | — | — | 1,016 | 29,109 | | John P. Hill (4) | 8,000 | 16,000 | 12.43 | 11/13/2025 | — | — | | John P. Hill (5) | 11,851 | 5,925 | 23.74 | 11/16/2025 | — | — | | John P. Hill (6) | — | — | — | — | 1,126 | 32,271 | | John P. Hill (7) | 2,932 | 5,865 | 66.48 | 11/16/2026 | — | — | | John P. Hill (8) | — | — | — | — | 10,000 | 286,600 |
Outstanding Equity Awards at Fiscal Year-End
| (1) Value based on a share price of $28.66, which was the closing sales price of our common stock on The Nasdaq Stock Market on September 30, 2023. |
Outstanding Equity Awards at Fiscal Year-End
| (2) Restricted stock vests in annual installments of 10% per year for ten years beginning August 21, 2015. |
Outstanding Equity Awards at Fiscal Year-End
| (3) Restricted stock vests as to one-third of the shares on the first three anniversaries of the date of grant beginning November 16, 2021. |
Outstanding Equity Awards at Fiscal Year-End
| (4) Stock options vest as to one-fifth of the options on the first five anniversaries of the date of grant beginning November 13, 2020. |
Outstanding Equity Awards at Fiscal Year-End
| (5) Stock option vests as to one-third of the options on the first three anniversaries of the date of grant beginning November 16, 2021. |
Outstanding Equity Awards at Fiscal Year-End
| (6) Restricted stock vests as to one-third of the shares on the first three anniversaries of the date of grant beginning November 16, 2022. |
Outstanding Equity Awards at Fiscal Year-End
| (7) Stock option vests as to one-third of the options on the first three anniversaries of the date of grant beginning November 16, 2022. |
Outstanding Equity Awards at Fiscal Year-End
| (8) Restricted stock vests as to one-third of the shares on the first three anniversaries of the date beginning November 16, 2023. |
Option Exercises and Stock Vested in Fiscal 2023
Option Exercises and Stock Vested in Fiscal 2023 The following table sets forth certain information concerning options exercised and stock awards vested during fiscal 2023 for the named executive officers.
Option Exercises and Stock Vested in Fiscal 2023
| | Option Awards | | Stock Awards | | | Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($)(1) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($)(1) | | Cheryl Beranek | — | — | 9,162 | 287,962 | | Daniel R. Herzog | — | — | 4,214 | 127,294 | | John P. Hill | — | — | 9,162 | 287,962 |
Option Exercises and Stock Vested in Fiscal 2023
| (1) For option awards, represents the difference between the exercise price and the fair market value of our common stock on the respective dates of exercise and for stock awards, represents the number of shares vested multiplied by the fair market value of our stock on the vesting date. |
CEO Pay Ratio
CEO Pay Ratio We are providing the following information regarding the ratio of the median of the annual total compensation of our employees and the annual total compensation of Cheryl Beranek, our President and Chief Executive Officer. For fiscal 2023:
CEO Pay Ratio
| ● | the median of the annual total compensation of all employees of our company (excluding Ms. Beranek) was reasonably estimated to be $55,808; |
CEO Pay Ratio
| ● | the annual total compensation of Ms. Beranek was $1,061,862 as set forth in the Summary Compensation Table; and |
CEO Pay Ratio
| ● | based on this information, the ratio of the annual total compensation of our chief executive officer to the median of the annual total compensation of all other employees is estimated to be 19 to 1. |
CEO Pay Ratio
To identify our median employee for the purposes of this analysis for fiscal 2023, we made the following assumptions:
CEO Pay Ratio
| ● | We included all individuals (excluding our Chief Executive Officer) employed on September 30, 2023; and |
CEO Pay Ratio
| ● | We utilized W-2, Box 5 (and foreign equivalent) payroll data for 2023 as our consistently applied compensation measure, annualizing pay for those individuals employed less than a full calendar year. |
CEO Pay Ratio
Once we identified our median employee, we added together all of the elements of such employee’s compensation for fiscal 2023 in the same way that we calculate the annual total compensation of our named executive officers in the Summary Compensation Table. To calculate our ratio, we divided Ms. Beranek’s annual total compensation, as reported in the Summary Compensation Table above, by the median employee’s annual total compensation. This pay ratio is a reasonable estimate calculated in a manner consistent with SEC rules. The SEC rules for identifying the median compensated employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their compensation practices. As such, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies may have different employment and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios.
Pay Versus Performance
Pay Versus Performance
Pay Versus Performance Table
Pay Versus Performance Table The table below discloses for fiscal 2021, 2022 and 2023: (i) the total compensation (as reported in the Summary Compensation Table (“SCT”)) and the compensation actually paid (“CAP”) to the Company’s Chief Executive Officer; (ii) the average of the total compensation (as reported in the SCT) and the average CAP to the Company’s non-CEO Named Executive Officers (“NEOs”); (iii) the cumulative total shareholder return of the Company and the peer group; (iv) net income; and (v) net sales, which is the Company’s selected measure.
Pay Versus Performance Table
| | | | | | Value of Initial Fixed $100 Investment Based On: | | | | | Year | Summary Compensation Table Total for CEO(1) ($) | Compensation Actually Paid to CEO(2) ($) | Average Summary Compensation Table Total for Non-CEO NEOs(1) ($) | Average Compensation Actually Paid to Non-CEO NEOs(2) ($) | Total Shareholder Return ($) | Peer Group Total Shareholder Return(3) ($) | Net Income (in thousands) ($) | Net Sales (in thousands) ($) | | 2023 | 1,061,862 | (2,349,316) | 864,078 | (1,275,161) | 143.43 | 149.69 | 32,533 | 268,720 | | 2022 | 1,972,574 | 6,012,670 | 1,458,989 | 4,432,054 | 518.78 | 114.34 | 49,362 | 270,883 | | 2021 | 1,516,456 | 3,173,910 | 1,109,922 | 2,338,110 | 218.89 | 140.49 | 20,327 | 140,755 |
Pay Versus Performance Table
| (1) Cheryl Beranek is the Chief Executive Officer and Daniel R. Herzog and John P. Hill are the non-CEO NEOs for the years shown. |
Pay Versus Performance Table
| (2) The table below sets forth the amounts deducted from and added to SCT total compensation to calculate CAP to Ms. Beranek and average CAP to Messrs. Herzog and Hill. |
Pay Versus Performance Table
| | 2023 | | 2022 | | 2021 | | | Adjustments | CEO ($) | Average of Non-CEO NEOs ($) | CEO ($) | Average of Non-CEO NEOs ($) | CEO ($) | Average of Non-CEO NEOs ($) | | Total Compensation from SCT | 1,061,862 | 864,078 | 1,972,574 | 1,458,989 | 1,516,456 | 1,109,922 | | Less, value of Stock Awards and Option Awards reported in SCT | (615,600) | (461,700) | (623,291) | (495,756) | (217,032) | (180,523) | | Plus, year-end fair value of Stock Awards and Option Awards granted during year that are outstanding and unvested at year-end | 286,600 | 214,950 | 698,543 | 581,037 | 567,997 | 472,446 | | Plus, vesting date fair value of Stock Awards and Option Awards granted during the year that vested during the year | - | - | 286,364 | 215,503 | - | - | | Plus, change in year-end fair value of Stock Awards and Option Awards granted in any prior year that are outstanding and unvested at year-end | (2,457,990) | (1,439,070) | 2,789,634 | 1,976,020 | 1,173,002 | 839,000 | | Plus, change in fair value as of vesting date of any Stock Awards and Option Awards granted in any prior year that vested during covered year | (624,188) | (453,419) | 888,846 | 696,261 | 133,488 | 97,265 | | Less, fair value at end of prior year of Stock Awards and Option Awards that failed to meet applicable vesting conditions during year | - | - | - | - | - | - | | Compensation Actually Paid | (2,349,316) | (1,275,161) | 6,012,670 | 4,432,054 | 3,173,910 | 2,338,110 |
Pay Versus Performance Table
| (3) The peer group used in this Pay Versus Performance table is the S&P 1500 Communications Equipment Index, which is the same peer group the Company uses for purposes of the stock performance graph in our Annual Report on Form 10-K. |
DIRECTOR COMPENSATION
DIRECTOR COMPENSATION
DIRECTOR COMPENSATION
| 2023 Non-Employee Director Compensation | Amount | | Annual Equity Grant | $60,000(1) | | Annual Board Retainer | $40,000 | | Additional Retainers: | | | Annual Board Chair Retainer | $10,000 | | Annual Audit Committee Chair Retainer | $10,000 | | Annual Compensation Committee Chair Retainer | $10,000 | | Annual Nominating and Corporate Governance Committee Chair Retainer | $10,000 |
DIRECTOR COMPENSATION
| (1) Approximate economic value of annual restricted stock grant. Actual value determined by dividing $60,000 by the fair market value per share on the date of grant and rounding down to the nearest whole share. The award of restricted stock will vest and the restrictions thereon lapse one day prior to the 2024 Annual Meeting of Shareholders. |
DIRECTOR COMPENSATION
For services in fiscal year 2023, each non-employee director received a cash retainer of $40,000. The Chair of the Board and each committee chair received an additional cash retainer of $10,000. On February 23, 2023, the first business day following the 2023 Annual Meeting of Shareholders, each of the non-employee directors elected at the 2023 Annual Meeting received a restricted stock award of 974 shares under the 2022 Plan. The restricted stock award had a value of approximately $60,000 as of the date of the grant and the restrictions will lapse on the restricted stock one day prior to the 2024 Annual Meeting of Shareholders. In August 2023, the Compensation Committee reviewed the compensation of the Board of Directors in comparison to the peer group director compensation information provided by Compensia. While the compensation of our Board of Directors is considerably below the 50th percentile of the peer group, the Compensation Committee determined it would not be appropriate to increase the Board’s compensation for fiscal 2024 in light of the Company’s performance in fiscal 2023 and current market conditions. The following table shows for fiscal 2023 the cash and other compensation earned or paid by us to each of our non-employee directors:
DIRECTOR COMPENSATION
| Name | Fees Earned or Paid in Cash ($)(1) | Restricted Stock Awards ($)(2) | Total ($) | | Patrick F. Goepel | 40,000 | 59,959 | 99,959 | | Roger G. Harding | 40,000 | 59,959 | 99,959 | | Charles N. Hayssen | 50,000 | 59,959 | 109,959 | | Donald R. Hayward | 50,000 | 59,959 | 109,959 | | Walter L. Jones, Jr. | 40,000 | 59,959 | 99,959 | | Ronald G. Roth | 50,773 | 59,959 | 110,733 | | Carol A. Wirsbinski | 49,227 | 59,959 | 109,186 |
DIRECTOR COMPENSATION
| (1) Represents cash retainers for fiscal year 2023 as described above, which have been prorated for time served in these roles. |
DIRECTOR COMPENSATION
| (2) Represents the aggregate grant date fair value of the restricted stock award described above, computed in accordance with FASB ASC Topic 718, Compensation — Stock Compensation. The fair value of the restricted stock award is determined as the average price of our stock on the date of grant as discussed in Note 2, “Shareholders’ Equity,” in the notes to financial statements included in our Annual Report on Form 10-K for the year ended September 30, 2023. |
DIRECTOR COMPENSATION
There were no stock options outstanding at September 30, 2023 held by any of our non-employee directors. At September 30, 2023, each of Messrs. Goepel, Harding, Hayssen, Hayward, Jones and Roth and Ms. Wirsbinski held 974 shares of unvested restricted stock that will vest one day prior to the next Annual Meeting. Cheryl Beranek, who served as our director and an executive officer in fiscal year 2023, received no compensation for Board or committee service during fiscal year 2023.