DEF 14A of Graham Corp
Filed Jul 10, 2023 · FY20230001193125-23-184244
Election of Directors
Election of Directors The Board currently consists of seven members. Our By-laws provide for a classified board of directors consisting of three classes of directors, with each class serving a staggered three-year term. As a result, stockholders elect only a portion of our Board each year. The terms of two of our directors, James J. Barber and Troy A. Stoner, will expire at the Annual Meeting. Upon the recommendation of the Nominating and Corporate Governance Committee, the Board has unanimously nominated James J. Barber and Troy A. Stoner for election as directors. If elected, each of Messrs. Barber and Stoner will hold office for a three-year term expiring in 2026 or until his successor is duly elected and qualified. Our Board does not contemplate that either of the nominees will be unable to serve as a director, but if that contingency should occur before the proxies are voted, the designated proxies reserve the right to vote for such substitute nominee(s) as they, in their discretion, determine. Our By-laws do not permit re-election after a director reaches the age of 75. Board Recommendation The Board unanimously recommends a vote FOR the election of each of Mr. Barber and Mr. Stoner as a director to serve for a three-year term expiring in 2026.
Directors Whose Terms do not Expire at the Annual Meeting
Directors Whose Terms do not Expire at the Annual Meeting
Directors Whose Terms do not Expire at the Annual Meeting
| Alan Fortier Mr. Fortier has served as President of Fortier & Associates, Inc., a strategy and profit improvement consulting firm focused on capital goods and chemicals companies, since 1988. Over his 30+ year consulting career he has helped hundreds of manufacturing businesses exceed aggressive profit targets, in all regions globally. He has also been a Strategic Advisory Board member for Genstar Capital, a middle market private equity group with over $30 billion in assets under management, since January 2019. In addition, between 2007 and 2016, Mr. Fortier was a guest lecturer at Columbia Business School’s MBA and Executive Education programs. Prior to entering consulting he held technical and management positions with DuPont. | President of Fortier & Associates, Inc. AGE DIRECTOR SINCE 66 2008 TERM EXPIRES 2024 COMMITTEES ▶ Compensation ▶ Nominating and Corporate Governance (Chair) | | Qualifications Mr. Fortier brings to the Board more than 35 years of global industrial experience as a strategy and execution consultant and manager. Our Board and management team benefit from his extensive background in our served markets, including energy, petrochemicals, chemicals and large engineering firms, as well as his extensive experience advising boards and senior executives of global capital goods businesses on business strategy, mergers and acquisitions, global growth, pricing, organizational development and management control. | |
Directors Whose Terms do not Expire at the Annual Meeting
| Lisa M. Schnorr Ms. Schnorr has served as a director since 2014. Before retiring in May 2021, she worked for Constellation Brands (NYSE: STZ), a Fortune 500 company and a leading international producer of beer, wine and spirits with operations in the U.S., Mexico, New Zealand and Italy. Ms. Schnorr joined Constellation Brands in 2004 and earned promotions through a series of positions with increasing responsibility, including Vice President of Compensation and HRIS (2011-2013), Senior Vice President of Total Rewards (2014-2015), Corporate Controller (2015-2017), Chief Financial Officer of the Wine & Spirits Division (2017-2019), and Senior Vice President and Project Lead of Digital Enablement (2019-2021). Before joining Constellation Brands, Ms. Schnorr held financial and accounting positions at various public and private companies and she began her career in 1987 at PricewaterhouseCoopers (formerly Price Waterhouse), all in Rochester, New York. Ms. Schnorr has been a member of the board of directors of Vintage Wine Estates (NASDAQ: VWE), since June 2021 where she serves as Chair of the Audit Committee and Warrior Met Coal (NYSE:HCC), since August 2022 where she serves as Chair of the Nominating and Corporate Governance Committee. She holds a B.S. degree in Accounting from the State University of New York at Oswego. | Former Senior Vice President and Project Lead, Digital Enablement for Constellation Brands, Inc. AGE DIRECTOR SINCE 57 2014 TERM EXPIRES 2024 COMMITTEES ▶ Audit (Chair) ▶ Compensation | | Qualifications With her background and experience in strategic planning, audit, financial planning and analysis, capital allocation, public company governance and risk management, human resources and investor relations, Ms. Schnorr offers a global business and organizational perspective to the Board. The Board believes that Ms. Schnorr’s background and expertise enables her to guide us through a continued period of organic and acquisition-related growth and allows her to provide insight and leadership to our Audit Committee and Compensation Committee. | |
Directors Whose Terms do not Expire at the Annual Meeting
| Daniel J. Thoren Mr. Thoren has served as our Chief Executive Officer since September 2021 and became our President and Chief Operating Officer in June 2021. Prior to joining the Company, Mr. Thoren had been employed by Barber-Nichols, LLC (“Barber-Nichols”), a premier supplier of specialty turbomachinery, pumps and electronic drives that address critical applications for the defense and aerospace/space industries, from 1991 until we acquired Barber-Nichols in June 2021, and served in progressively increasing roles, including his service as Barber-Nichol’s President and Chief Executive Officer from 1997 until May 2021 and its Chairman of the Board of Directors through June 2021. | Chief Executive Officer of the Company AGE DIRECTOR SINCE 59 2021 TERM EXPIRES 2024 | | Qualifications As our Chief Executive Officer, and as a result of his day-to-day leadership of the business, Mr. Thoren provides the Board with valuable insight regarding the operations of our Company and our management team and he performs a critical role in the Board’s discussions regarding strategic planning and development. Our Board also benefits from Mr. Thoren’s proven strong leadership skills and experience at Barber-Nichols. | |
Directors Whose Terms do not Expire at the Annual Meeting
| 10 | GRAHAM CORPORATION 2023 PROXY STATEMENT |
Directors Whose Terms do not Expire at the Annual Meeting
| Cari L. Jaroslawsky Ms. Jaroslawsky is the founder and President of Compliance Right, LLC, a board and executive consulting service provider formed in January 2022. Ms. Jaroslawsky served as the Senior Vice President and General Manager of Eaton Mission Systems, a leading aerospace and defense manufacturer and a division of Eaton Corporation plc (“Eaton”), from January 2019 until her retirement in December 2022, having previously served as Senior Vice President of Finance from October 2016 to December 2018 for Cobham International until it was acquired by Eaton. Prior to her position with Cobham Mission Systems, Ms. Jaroslawsky served as the Chief Financial Officer and Treasurer of Servotronics, Inc. (NYSE American: SVT), a designer and manufacturer of advanced technology and consumer products, from 2005 until 2016. Ms. Jaroslawsky is a certified public accountant. She also serves on the board of directors of Rand Capital Corporation (Nasdaq: RAND). | President of Compliance Right, LLC AGE DIRECTOR SINCE 54 2022 TERM EXPIRES 2025 COMMITTEES ▶ Audit ▶ Nominating and Corporate Governance | | Qualifications Ms. Jaroslawsky brings to the Board substantial operational and leadership experience and a significant background in accounting and financial matters, including through her prior service as the Chief Financial Officer and Treasurer of a publicly traded company. | |
Directors Whose Terms do not Expire at the Annual Meeting
| Jonathan W. Painter Mr. Painter has served as the Chair, since July 2019, and a director, since January 2010, of Kadant Inc. (NYSE: KAI), a leading global supplier of components and engineered systems used in process industries, including the pulp and paper industry. Mr. Painter served as President and Chief Executive Officer of Kadant from January 2010 to July 2019 and as President and Chief Operating Officer from September 2009 to December 2009. | Chair of Kadant Inc. AGE DIRECTOR SINCE 64 2014 TERM EXPIRES 2025 CHAIR OF THE BOARD COMMITTEES ▶ Audit ▶ Compensation | | Qualifications Mr. Painter brings valuable experience to the Board and management as a former executive officer of a public company that, similar to us, is in the business of designing, manufacturing and marketing specialized, engineered equipment. The Board believes that Mr. Painter’s diverse experience in operations, finance, mergers and acquisitions and corporate strategy enables him to provide critical insight to the Board and management that will help us to achieve our strategic goals. | |
Directors Whose Terms do not Expire at the Annual Meeting
| GRAHAM CORPORATION 2023 PROXY STATEMENT | 11 |
Directors Whose Terms do not Expire at the Annual Meeting
| Corporate Governance • Director Independence |
Our “Pay for Performance” Philosophy
| • | A significant portion of our named executive officers’ compensation is “at-risk,” and depends on either meeting performance-based criteria or continuing in service to the Company. Both our short-term and long-term incentive compensation programs use goals that tie to our performance in key financial metrics. During fiscal year 2023, we paid 50% of our long-term incentive compensation in performance-vesting restricted stock units (“PSUs”). The PSUs cliff vest on the third anniversary of the date of grant only upon the achievement of predetermined performance metrics. Our named executive officers received the other 50% of long-term incentive compensation in time-vesting restricted stock units (“RSUs”) that vest in equal installments on each of the first three anniversaries of the date of grant, subject to the executive officer’s continued employment at each such date. |
Principles and Objectives
| • | to provide market competitive compensation that includes an appropriate balance of fixed and incentive elements which allows us to both attract and retain executive personnel best suited by training, ability and other relevant criteria for our management requirements; |
Use of Peer Group Compensation Data and Tally Sheets
Use of Peer Group Compensation Data and Tally Sheets Peer Group Compensation Data. When making compensation decisions, the Compensation Committee may consider executive compensation programs and individual elements of compensation paid to other named executive officers at a group of comparably-sized companies both within our industry and in our geographic region or which we otherwise consider to be our peers. When selecting our peer group shown below, the Compensation Committee considered the companies’ revenue, market capitalization, number of employees, and industry classification.
Use of Peer Group Compensation Data and Tally Sheets
| Air Industries Group | DMC Global, Inc. | Park Aerospace Corp. | | Allied Motion Technologies Inc. | Energy Recovery, Inc. | Perma-Pipe International Holdings, Inc. | | Astronics Corporation | Gulf Island Fabrication, Inc. | SIFCO Industries, Inc. | | Capstone Green Energy Corporation | Hurco Companies, Inc. | The Eastern Company | | CECO Environmental Corp. | Natural Gas Services Group, Inc. | The Gorman-Rupp Company | | CPI Aerostructures, Inc. | Orbital Energy Group, Inc. | Thermon Group Holdings, Inc. |
Use of Peer Group Compensation Data and Tally Sheets
The Compensation Committee may use peer group compensation data to provide an informational perspective on our compensation practices, levels of base salary, and the design of annual cash and long-term equity incentive compensation programs and the overall competitiveness of our compensation program. Tally Sheets. The Compensation Committee analyzes tally sheets prepared for each named executive officer as part of its responsibilities for our executive compensation programs. Tally sheets present the dollar amount of each component of compensation for each named executive officer. The purpose of tally sheets is to bring together, in summary form, all of the elements of total direct compensation for our named executive officers so that the Compensation Committee may analyze both the individual elements of compensation (including the weighting of each element as compared to each other element) and the aggregate amount of total direct compensation. During fiscal year 2023, the Compensation Committee regularly used tally sheets to assist in its review of the compensation of our named executive officers. No compensation changes were made with respect to fiscal year 2023 compensation based on those reviews.
Use of Peer Group Compensation Data and Tally Sheets
| GRAHAM CORPORATION 2023 PROXY STATEMENT | 23 |
Executive Compensation Components
| Total Direct Compensation | = | Base Salary | + | Annual Incentive Compensation | + | Long-Term Incentive Compensation |
Executive Compensation Components
| Compensation Element | Form of Compensation | Purpose | Performance Criteria | | Base Salary | Cash | Provide compensation that is not “at-risk” to compensate our named executive officers for services rendered during the fiscal year | Not performance based | | Annual Incentive Compensation | Cash | Motivate our named executive officers to attain vital short-term Company and individual objectives | Net income or operating profit, bookings and individual officer goals linked to achievement of Company strategic objectives | | Long-term Incentive Compensation | PSUs | Incent our named executive officers to focus on Company growth, align their compensation with our business strategy, and create value for our stockholders | Three-year cumulative EBITDA metric | | | RSUs | Encourage retention of our named executive officers over a three-year period | Not performance based |
Executive Compensation Components
The Compensation Committee seeks to align our annual and long-term compensation elements to our strategic plan. We strive to strike a balance between establishing incentives that motivate our named executive officers to achieve meaningful results, while ensuring that we sufficiently recognize our named executive officers for achieving results that are within their control. The Compensation Committee believes that the diversity of the selected forms of compensation and the applicable performance metrics help to manage the pay for performance challenges presented by the cyclicality of our business while creating the proper focus among our named executive officers to facilitate our growth. We establish each element comprising target total direct compensation for the named executive officers annually. We do not have a specific policy for the allocation of compensation between short-term and long-term compensation or cash and equity compensation, as the allocation of these items is primarily driven by market compensation information and Company performance and goals. We generally do not consider gains realized from prior compensation, such as stock option exercises, restricted stock vesting and vesting of RSUs or PSUs, in setting other elements of compensation. We believe that reducing or limiting awards because of prior gains realized by a named executive officer would unfairly penalize the officer for outstanding past performance and reduce the motivation for continued outstanding achievement. Similarly, our severance and change-in-control arrangements, which we discuss in detail under the heading “Potential Payments upon Termination or Change in Control,” do not affect our decisions regarding other elements of compensation. Those arrangements serve specific purposes that are unrelated to the determination of a named executive officer’s compensation for a specific year.
Executive Compensation Components
In support of our compensation philosophy, our executive compensation is heavily weighted toward incentive (variable) compensation, and the proportion of variable, or “at risk,” compensation increases as the level of responsibility increases. As shown below, in fiscal year 2023, we provided 67% of our Chief Executive Officer’s target compensation through annual and long-term incentive compensation, and, on average, we provided 50% of our other named executive officers’ target compensation through annual and long-term incentive compensation. Beginning in fiscal year 2023, our Compensation Committee grants awards consisting of RSUs and PSUs. We believe the use of such awards supports our long-term compensation philosophy as well as emphasizes performance and alignment of executives’ interests with our stockholders. The Compensation Committee will continue to review our executive compensation programs, as well as consider the outcome of the “say-on-pay” votes when making future compensation decisions for the named executive officers.
Fiscal Year 2023 Total Target Compensation*
| * The fair market value of the RSUs and PSUs are based upon the closing price at the date of grant. Information is presented as of March 31, 2023. |
Annual Cash Incentive Compensation
Annual Cash Incentive Compensation Our Annual Executive Cash Bonus Program, which we refer to as the Cash Bonus Program, is designed to compensate our named executive officers for above-average performance through an annual cash incentive award related both to Company and individual performance. We instituted the Cash Bonus Program to effectively align short-term individual performance with Company performance. The Compensation Committee designed the Cash Bonus Program to provide a clear link between the named executive officers’ goals and our performance and business objectives. In fiscal year 2023, the Compensation Committee used a combination of net income or divisional operating income, bookings and personal objectives as the performance metrics to evaluate our named executive officers’ performance under the Cash Bonus Program. The net income and divisional operating income performance metrics are based on 2023 fiscal year-end results. Bookings represent new orders received by us and entered into backlog during fiscal year 2023, reduced by the impact of any backlog cancellations. Consolidated bookings include consolidated net orders for Batavia, NY, Barber-Nichols, Ahmedabad, India, and Suzhou, PRC. The Compensation Committee selected net income and bookings as the quantitative measures of short-term performance because it believes that these metrics impact our annual profitability and growth. For fiscal year 2023, the Compensation Committee established personal goals for our named executive officers, which included the following:
Annual Cash Incentive Compensation
| • | Mr. Thoren - strengthen our business units and build on our succession planning and development for our business units. |
Annual Cash Incentive Compensation
| • | Mr. Thome - enhance communication with the Board and advance our corporate finance functionality by establishing and promoting corporate level finance policies and processes. |
Annual Cash Incentive Compensation
| • | Mr. Malone - continue to develop personal leadership skills and implement programs that strengthen our long-term competitive position. |
Annual Cash Incentive Compensation
| 26 | GRAHAM CORPORATION 2023 PROXY STATEMENT |
Annual Cash Incentive Compensation
The Compensation Committee assigned the weightings applicable to the three metrics to align our named executive officers’ goals with our current business objectives as follows:
Annual Cash Incentive Compensation
| Metric | Weighting | | Net income/Operating Income(1) | 50% | | Bookings(2) | 20% | | Personal goals | 30% |
Annual Cash Incentive Compensation
| (1) For Messrs. Thoren and Thome includes consolidated net income and for Mr. Malone consolidated net income (15%) and divisional operating income (35%). |
Annual Cash Incentive Compensation
| (2) For Messrs. Thoren and Thome includes consolidated bookings and for Mr. Malone includes consolidated bookings (6%) and divisional bookings (14%). |
Annual Cash Incentive Compensation
The Compensation Committee typically establishes the goals for the Cash Bonus Program during our annual budgeting process following the commencement of the fiscal year. The Compensation Committee typically approves such goals during our first quarter, subject to the ratification of the Board. The Chair of our Compensation Committee, in consultation with the Chair of the Board, approves personal goals for our Chief Executive Officer. Our Chief Executive Officer develops the personal goals for our other named executive officers in alignment with our corporate strategy and recommends these goals to our Compensation Committee Chair for approval. For fiscal year 2023, the Compensation Committee set target bonus levels at 100% attainment of both Company and individual objectives as follows: Mr. Thoren – 100% of base salary; Mr. Thome – 50% of base salary; and Mr. Malone – 50% of base salary. The Compensation Committee uses a stretch maximum payout level to better incentivize and reward above target performance. Each named executive officer may receive anywhere from 0% to 200% of his target bonus level depending on the attainment of objectives, as follows:
Annual Cash Incentive Compensation
| Target Level | Net Income/Divisional Operating Income Payout as Percentage of Target Bonus | Bookings Payout as Percentage of Target Bonus | | Threshold | 50% | 50% | | Target | 100% | 100% | | Maximum | 200% | 200% |
Annual Cash Incentive Compensation
We may use linear interpolation to determine the percentage of the target bonus payable based on performance in between threshold and target or target and maximum. The Compensation Committee may consider extraordinary events that either positively or negatively affect financial performance, and may in its discretion, include or exclude the impact of these events in approving awards under the Cash Bonus Program. During fiscal year 2023, the Compensation Committee exercised this discretion and adjusted Net income for debt amendment costs and acquisition related costs. For fiscal year 2023, threshold, target, maximum, and actual quantitative performance metrics used under the Cash Bonus Program for our named executive officers were as follows (millions of dollars):
Annual Cash Incentive Compensation
| Performance Measure | Threshold | Target | Maximum | Actual | | Adjusted Net Income(1) | $2.6 | $3.4 | $5.1 | $0.6 | | Bookings | $124 | $155 | $186 | $202.7 | | Divisional Operating Income - Arvada, CO | $2.9 | $3.8 | $5.7 | $3.4 | | Divisional Bookings - Arvada, CO | $40 | $50 | $60 | $63.8 |
Annual Cash Incentive Compensation
| (1) Refer to Appendix A of this proxy statement for our definition of Adjusted Net Income and a reconciliation of such measure to the most directly comparable U.S. GAAP measure. |
Annual Cash Incentive Compensation
At its May 17, 2023 meeting, the Compensation Committee reviewed each named executive officer’s achievement of Company and individual objectives during fiscal year 2023 and approved the award of cash incentive compensation under the Cash Bonus Program for each named executive officer. Based on our performance during fiscal year 2023, the Compensation Committee determined that Messrs. Thoren and Thome did not achieve the threshold level for the net income component and achieved above the maximum for the bookings component of the Cash Bonus Program and Mr. Malone achieved above the threshold but below target level for the divisional operating income component and
Annual Cash Incentive Compensation
| GRAHAM CORPORATION 2023 PROXY STATEMENT | 27 |
Annual Cash Incentive Compensation
achieved above the maximum for the divisional bookings component of the Cash Bonus Program. The Compensation Committee determined that each of our named executive officers, achieved the following percentages of their respective target personal goals: Mr. Thoren – 65%; Mr. Thome – 133%; and Mr. Malone – 100%. Based on these results and achievements, the cash incentive compensation earned under the Cash Bonus Program for our named executive officers for fiscal year 2023 was as follows:
Annual Cash Incentive Compensation
| Named Executive Officer | Bonus Award | Percent of Target Bonus | Percent of Maximum Available Bonus | | Daniel J. Thoren | $238,000 | 60% | 30% | | Christopher J. Thome | $115,999 | 80% | 40% | | Matthew Malone | $144,900 | 97% | 48% |
Annual Cash Incentive Compensation
The Compensation Committee sets what it believes are challenging goals for maximum bonus awards and expects that maximum bonus awards will be made only in extraordinary circumstances. The amount of these cash awards earned by each named executive officer in fiscal year 2023 is shown in the “Non-Equity Incentive Plan Compensation” column of the Fiscal Year 2023 Summary Compensation Table. Under the Cash Bonus Program, special awards may be made to a named executive officer who has made an extraordinary contribution to us during the fiscal year. Such awards are generally recommended in writing by our Chief Executive Officer to the Chair of the Compensation Committee and approved by the Compensation Committee before grant. The Compensation Committee did not approve any such awards in fiscal year 2023.
Long-Term Equity Incentive Compensation
Long-Term Equity Incentive Compensation The Compensation Committee designed our Annual Stock-Based Long-Term Incentive Award Plan for Senior Executives, which we refer to as the Stock Bonus Plan, to motivate our named executive officers to increase stockholder value by providing them with long-term stock-based awards for above-average Company performance. Our long-term incentive opportunities are intended to be competitive with the long-term incentive opportunities offered by the companies constituting our peer group. We issue awards pursuant to our 2020 Plan, a comprehensive executive compensation plan that provides for the grant of stock options, restricted stock, RSUs, PSUs and other stock-related awards, as well as other awards that may be settled in cash or other property. All of our named executive officers currently employed by us are eligible to participate in the 2020 Plan. The Compensation Committee designed the Stock Bonus Plan to create a tight link between the named executive officers’ goals and the Company’s performance and business objectives. In fiscal year 2023, the Compensation Committee granted half of the awards in the form of RSUs, and the other half in the form of PSUs. RSUs. We granted RSUs because we believe that RSUs help us retain our named executive officers by offering our named executive officers the opportunity to receive shares of our common stock if they continue to be employed by us on the date the RSUs vest. Unless the Compensation Committee determines otherwise, shares granted vest in equal installments on each of the first three anniversaries of the date of grant, subject to the executive officer’s continued employment at each such date. PSUs. We granted PSUs because we believe that PSUs help us reward our named executive officers by conditioning the grant of shares of our common stock upon the satisfaction of predetermined Company objectives. Unless the Compensation Committee determines otherwise, the PSUs vest on the third anniversary of the date of grant, subject to satisfaction of the performance metrics for the applicable three-year period and subject to continued employment through the vesting date. The Compensation Committee typically approves such metrics and the other terms of the grants during our first quarter. For fiscal year 2023 grants, the performance metric applicable to the PSUs is based upon the Company’s three-year cumulative EBITDA metric with linear interpolation applied between points and no payout if the results are below threshold. With respect to these grants, the Compensation Committee may consider extraordinary events that either positively or negatively affect the cumulative EBITDA metric, and may in its discretion, include or exclude the impact of these events.
Long-Term Equity Incentive Compensation
| 28 | GRAHAM CORPORATION 2023 PROXY STATEMENT |
Long-Term Equity Incentive Compensation
The Compensation Committee determines the number of RSUs and PSUs to award to our named executive officers based on a percentage of each named executive officer’s annual base salary. The Compensation Committee determined the number of RSUs and PSUs to award to our named executive officers by using each such officer’s Long-Term Incentive Percentage, which we refer to as the L-T Percentage. For fiscal year 2023, the L-T Percentage in effect for each of our named executive officers was as follows: Mr. Thoren – 100%; Mr. Thome – 50%; and Mr. Malone – 50%. The number of RSUs awarded was determined by multiplying 50% of each named executive officer’s base salary in effect on the date of grant by such officer’s L-T Percentage, and then dividing the product by the closing price of the Company’s common stock on the NYSE on the date of grant. The number of PSUs was determined by multiplying 50% of each named executive officer’s base salary in effect on the date of grant by such officer’s L-T Percentage, and then dividing the product by the closing price of the Company’s common stock on the NYSE on the date of grant. The closing price of our common stock was $8.19 on May 23, 2022, the date of grant. The Compensation Committee seeks to establish performance goals that are challenging but attainable based on our business and financial plan for the year. When establishing performance goals, the Compensation Committee reviews and discusses our business and financial plans for that year and the opportunity to generate stockholder value. The Compensation Committee establishes a range of performance goals for the year as well as individual payment thresholds, targets and maximums for each goal. Additional information regarding the awards granted to each named executive officer in fiscal year 2023 is set forth in the Fiscal Year 2023 Summary Compensation Table, the Fiscal Year 2023 Grants of Plan-Based Awards table, and in the narrative in this CD&A.
Employment Agreements and Potential Payments upon Termination or Change in Control
Employment Agreements and Potential Payments upon Termination or Change in Control We have employment agreements with each of our named executive officers. The decisions to enter into employment agreements and the terms of those agreements were based on our need to motivate and retain talent for our long-term
Employment Agreements and Potential Payments upon Termination or Change in Control
| GRAHAM CORPORATION 2023 PROXY STATEMENT | 29 |
Employment Agreements and Potential Payments upon Termination or Change in Control
growth and are consistent with similarly-situated executive officers at comparably sized companies in our industry and geographic region. The material terms of the employment agreements with our named executive officers are described under the heading “Employment Agreements.” Pursuant to their respective employment agreements, we have agreed to provide payments to certain of our named executive officers in the event of a termination of employment as a result of normal and early retirement, involuntary termination, death, and disability. Messrs. Thoren and Thome are also eligible to receive additional payments in the event of termination following a change in control. We believe these arrangements promote stability and continuity of leadership to the benefit of our named executive officers and the Company. See “Potential Payments upon Termination or Change in Control” for further information regarding these arrangements.
Certain Tax and Accounting Implications
| Name and Principal Position | Fiscal Year | Salary(1) ($) | Bonus ($) | Stock Awards(2) ($) | Non-Equity Incentive Plan Compensation(3) ($) | All Other Compensation(4) ($) | Total ($) | | Daniel J. Thoren | 2023 | 400,000 | — | 400,000 | 238,000 | 36,557 | 1,074,557 | | CEO | 2022 | 324,583 | — | 480,420 | 127,237 | 18,664 | 950,904 | | Christopher J. Thome | 2023 | 288,884 | — | 144,996 | 115,999 | 15,057 | 564,936 | | VP - Finance, CFO, CAO and Corporate Secretary | | | | | | | | | Matthew Malone | 2023 | 300,000 | — | 150,008 | 144,900 | 35,432 | 630,340 | | VP and GM - Barber-Nichols | 2022 | 208,333 | — | 155,247 | 135,521 | 12,848 | 511,949 |
Employment Agreements
| Executive Compensation • Outstanding Equity Awards at March 31, 2023 |
Employment Agreements
| Executive Compensation • Fiscal Year 2023 Stock Vested |
Estimated Payments Upon Termination or Change in Control
Estimated Payments Upon Termination or Change in Control
Estimated Payments Upon Termination or Change in Control
| | Involuntary Termination without Cause ($) | Voluntary Termination for Good Reason ($) | Death ($) | Disability ($) | Termination Following Change in Control ($) | | Daniel J. Thoren | | | | | | | Continued salary | 400,000 | 400,000 | — | — | — | | Life insurance proceeds | — | — | 250,000 | — | — | | Accelerated vesting of RSAs, RSUs, and PSUs | — | — | 649,663 | 649,663 | 963,577 | | Short-term disability payments | — | — | — | 18,000 | — | | Cash severance payment | — | — | — | — | 1,400,000 | | Health and medical coverage | — | — | — | — | 20,304 | | Total(1) | 400,000 | 400,000 | 899,663 | 667,663 | 2,383,881 | | Christopher J. Thome | | | | | | | Continued salary | 290,000 | 290,000 | — | 145,000 | — | | Life insurance proceeds | — | — | 250,000 | — | — | | Accelerated vesting of RSAs, RSUs and PSUs | — | — | 148,850 | 148,850 | 231,568 | | Cash severance payment | — | — | — | — | 722,210 | | Health and medical coverage | — | — | — | — | —(2) | | Total(1) | 290,000 | 290,000 | 398,850 | 293,850 | 953,778 | | Matthew Malone | | | | | | | Continued salary | 300,000 | 300,000 | — | — | 300,000 | | Life insurance proceeds | — | — | 250,000 | — | — | | Accelerated vesting of restricted stock | — | — | 222,190 | 222,190 | 222,190 | | Short-term disability payments | — | — | — | 18,000 | — | | Total | 300,000 | 300,000 | 472,190 | 240,190 | 522,190 |
Estimated Payments Upon Termination or Change in Control
| (1) Such amount takes into account limitations imposed by our employment agreement with the named executive officer whereby certain amounts otherwise payable to the named executive officer upon termination following a change in control may be reduced in connection with limitations on deductibility by the Company for federal income tax purposes imposed by Section 280G of the Internal Revenue Code. |
Estimated Payments Upon Termination or Change in Control
| (2) Mr. Thome’s employment agreement provides for continued health and medical coverage in the event of a change in control, however, as of the date of this proxy statement, Mr. Thome has elected not to receive health and medical coverage from the Company. |
Estimated Payments Upon Termination or Change in Control
| 40 | GRAHAM CORPORATION 2023 PROXY STATEMENT |
Estimated Payments Upon Termination or Change in Control
Pay Versus Performance The following table sets forth the compensation information of our principal executive officer (the “PEO”), our former PEO, and the average compensation information of our other named executive officers (“non-PEO NEOs”), both as reported in the Summary Compensation Table in this proxy statement and with certain adjustments to reflect the “compensation actually paid” to such individuals, as defined under the SEC’s pay versus performance disclosure rules, for each of fiscal year 2023 and fiscal year 2022. For further information concerning our pay-for-performance philosophy and how we align executive compensation with Company financial performance, refer to the Compensation Discussion and Analysis in this proxy statement.
Estimated Payments Upon Termination or Change in Control
| Year | Summary Compensation Table Total for First PEO(1) | Summary Compensation Table Total for Second PEO(2) | Compensation “Actually Paid” to First PEO(3) | Compensation “Actually Paid” to Second PEO(3) | Average Summary Compensation Table Total for non-PEO NEOs(4) | Average Compensation “Actually Paid” to non- PEO NEOs(5) | Value of Initial Fixed $100 Investment Based On Total Shareholder Return(6) | Net Income(7) | | 2023 | $1,074,557 | — | $1,849,004 | — | $597,638 | $832,497 | $95.03 | $367 | | 2022 | $950,904 | $1,064,678 | $815,028 | $(212,834) | $565,042 | $836,226 | $53.62 | $(8,773) |
Estimated Payments Upon Termination or Change in Control
| (1) Reflects total compensation reported for Daniel J. Thoren (our First PEO) as reported in the Summary Compensation Table for the corresponding fiscal year. Mr. Thoren has served as our Chief Executive Officer since September 2021. |
Estimated Payments Upon Termination or Change in Control
| (2) Reflects total compensation reported for James R. Lines (our second PEO), our former Chief Executive Officer, as reported in the Summary Compensation Table for the corresponding fiscal year. Mr. Lines retired from the Company effective as of August 31, 2021. |
Estimated Payments Upon Termination or Change in Control
| GRAHAM CORPORATION 2023 PROXY STATEMENT | 41 |
Estimated Payments Upon Termination or Change in Control
| (3) The dollar amounts reported represent the amount of compensation “actually paid” to our First PEO and Second PEO in the applicable fiscal year, as computed in accordance with the SEC’s pay versus performance disclosure rules. The dollar amounts do not necessarily reflect the actual amount of compensation earned by or paid to our First PEO or our Second PEO during the applicable fiscal year. The following table provides additional information as to the amounts deducted from and added to the Summary Compensation Table Total for our First PEO and our Second PEO pursuant to the SEC’s rules to determine Compensation “Actually Paid” to PEO: |
Estimated Payments Upon Termination or Change in Control
| | First PEO | | Second PEO | | | 2023 | 2022 | 2022 | | Summary Compensation Table Total for PEO | $1,074,557 | $950,904 | $1,064,678 | | Adjustments for defined benefit pension plan | | | | | (Deduct): Aggregate change in actuarial present value included in Summary Compensation Table Total for the covered fiscal year | — | — | 4,295 | | Add: Service cost for the covered fiscal year | — | — | — | | Add: Prior service cost for the covered fiscal year | — | — | — | | Adjustments for stock awards and option awards | | | | | (Deduct): Aggregate value for stock awards and option awards included in Summary Compensation Table Total for the covered fiscal year | 400,000 | 480,420 | 496,813 | | Add: Fair value at year end of awards granted during the covered fiscal year that were outstanding and unvested at the covered fiscal year end | 958,241 | 344,544 | — | | [Add]: Year-over-year change in fair value at covered fiscal year end of awards granted in any prior fiscal year that were outstanding and unvested at the covered fiscal year end | 213,318 | — | — | | Add: Vesting date fair value of awards granted and vested during the covered fiscal year | — | — | — | | [Add]: Change as of the vesting date (from the end of the prior fiscal year) in fair value of awards granted in any prior fiscal year for which vesting conditions were satisfied during the covered fiscal year | 2,888 | — | 3,863 | | (Deduct): Fair value at end of prior fiscal year of awards granted in any prior fiscal year that failed to meet the applicable vesting conditions during the covered fiscal year | — | — | 780,267 | | Add: Change in incremental fair value of awards modified during the covered fiscal year | — | — | — | | Add: Dividends or other earnings paid on awards in the covered fiscal year prior to vesting if not otherwise included in the Summary Compensation Table Total for the covered fiscal year | — | — | — | | Compensation “Actually Paid” to PEO | $1,849,004 | $815,028 | $(212,834) |
Estimated Payments Upon Termination or Change in Control
| (4) Reflects the average compensation information for the non-PEO NEOs as a group based on total compensation reported in the Summary Compensation Table for the corresponding year. The non-PEO NEOs for fiscal year 2023 were Christopher J. Thome and Matthew Malone. The non-PEO NEOs for fiscal year 2022 were Matthew Malone and Jeffrey F. Glajch. |
Estimated Payments Upon Termination or Change in Control
| 42 | GRAHAM CORPORATION 2023 PROXY STATEMENT |
Estimated Payments Upon Termination or Change in Control
| (5) The dollar amounts reported represent the average amount of compensation “actually paid” to the non-PEO NEOs in the applicable year, as computed in accordance with the SEC’s pay versus performance disclosure rules. The dollar amounts do not necessarily reflect the actual average amount of compensation earned by or paid to the non-PEO NEOs during the applicable fiscal year. The following table provides additional information as to the amounts deducted from and added to the Average Summary Compensation Table Total for non-PEO NEOs pursuant to the SEC’s rules to determine Average Compensation “Actually Paid” to non-PEO NEOs: |
Estimated Payments Upon Termination or Change in Control
| | Other Non-PEO NEOs (Average) | | | | 2023 | 2022 | | Summary Compensation Table Total for Non-PEO NEOs | $597,638 | $565,042 | | Adjustments for stock awards and option awards | | | | Deduct: Aggregate value for stock awards and option awards included in Summary Compensation Table Total for the covered fiscal year | 147,502 | 181,565 | | Add: Fair value at year end of awards granted during the covered fiscal year that were outstanding and unvested at the covered fiscal year end | 353,356 | 89,351 | | Add: Year-over-year change in fair value at covered fiscal year end of awards granted in any prior fiscal year that were outstanding and unvested at the covered fiscal year end | 29,229 | (49,151) | | Add: Vesting date fair value of awards granted and vested during the covered fiscal year | — | — | | Add: Change as of the vesting date (from the end of the prior fiscal year) in fair value of awards granted in any prior fiscal year for which vesting conditions were satisfied during the covered fiscal year | (224) | 825 | | Deduct: Fair value at end of prior fiscal year of awards granted in any prior fiscal year that failed to meet the applicable vesting conditions during the covered fiscal year | — | 48,594 | | Add: Change in incremental fair value of awards modified during the covered fiscal year | — | — | | Add: Dividends or other earnings paid on awards in the covered fiscal year prior to vesting if not otherwise included in the Summary Compensation Table Total for the covered fiscal year | — | — | | Compensation “Actually Paid” to Non-PEO NEOs | $832,497 | $836,226 |
Estimated Payments Upon Termination or Change in Control
| (6) Total Stockholder Return (“TSR”) is cumulative for the measurement periods calculated in accordance with Item 201(e) of Regulation S-K. Cumulative Company TSR is calculated by dividing the difference between the Company’s stock price at the end and the beginning of the measurement period by the Company’s stock price at the beginning of the measurement period. |
Estimated Payments Upon Termination or Change in Control
| (7) The dollar amounts reported represent the amount of net income (loss) reflected in the Company’s audited financial statements for the applicable fiscal year. |
Estimated Payments Upon Termination or Change in Control
| GRAHAM CORPORATION 2023 PROXY STATEMENT | 43 |
Analysis of the Information Presented in the Pay Versus Performance Table
Analysis of the Information Presented in the Pay Versus Performance Table In accordance with Item 402(v) of Regulation S-K, the Company is providing the following graphs with respect to the relationships between information presented in the Pay Versus Performance table. For purposes of these graphs, we refer to compensation “actually paid” as “CAP.”
Analysis of the Information Presented in the Pay Versus Performance Table
| 44 | GRAHAM CORPORATION 2023 PROXY STATEMENT |
Analysis of the Information Presented in the Pay Versus Performance Table
| Director Compensation • Director Compensation Programs |
Director Compensation
Director Compensation Director Compensation Programs The Compensation Committee annually reviews and approves compensation for our independent directors. Mr. Thoren, our Chief Executive Officer is not an independent director under applicable NYSE and SEC rules and, therefore, does not receive any additional compensation for services as a director. The compensation that we pay to Mr. Thoren in fiscal year 2023 is disclosed in the Fiscal Year 2023 Summary Compensation Table in this proxy statement. We use a combination of cash and equity-based compensation to attract and retain our independent directors. As described below, independent director compensation consists of an annual cash retainer, payable quarterly; an additional annual cash retainer for the Chair of the Board and the chair of each committee of the Board, payable quarterly; and RSUs. We also reimburse our independent directors for reasonable expenses incurred in connection with their attendance at Board and committee meetings. We do not provide retirement benefits to our independent directors. Cash Compensation. For fiscal year 2023, each of our independent directors receives an annual cash retainer fee of $50,000 for service on the Board. The Chair of the Board and each of our independent directors serving as a chair of committees of the Board receive additional fees for such service. For fiscal year 2023, the Chair of the Board received an additional annual fee of $25,000, the Chair of the Audit Committee received an additional annual fee of $15,000, the Chair of the Compensation Committee received an additional annual fee of $10,000 and the Chair of the Nominating and Corporate Governance Committee received an additional annual fee of $7,000. The Compensation Committee has approved a change to the compensation for the Chair of the Board such that the Chair will receive an additional annual fee of $50,000 in fiscal year 2024. Options. Our independent directors are also eligible to participate in the 2020 Plan, pursuant to which they may be granted options to purchase shares of our common stock. No options were granted to our independent directors during fiscal year 2023. Restricted Stock. During fiscal year 2023, equity compensation awards to independent directors were made in the form of RSUs awarded under the 2020 Plan. On May 23, 2022, the Compensation Committee awarded 6,105 RSUs, with a grant date fair market value of approximately $50,000 to each of our then serving independent directors. The RSUs awarded to our independent directors vest on the first anniversary of the date of grant. The Compensation Committee has approved a change to our director compensation such that directors will receive a stock award with a grant date fair market value of $70,000 in fiscal year 2024.
Stock Ownership Guidelines
| Director Compensation • Fiscal Year 2023 Director Compensation Table |
Stock Ownership Guidelines
| Name | Fees Earned or Paid in Cash ($) | Stock Awards(1) ($) | All Other Compensation ($) | Total ($) | | James J. Barber | 60,000 | 50,000 | — | 110,000 | | Alan Fortier | 57,000 | 50,000 | — | 107,000 | | Cari L. Jaroslawsky | 50,000 | 50,000 | — | 100,000 | | Jonathan W. Painter | 75,000 | 50,000 | — | 125,000 | | Lisa M. Schnorr | 65,000 | 50,000 | — | 115,000 | | Troy A. Stoner | 50,000 | 50,000 | — | 100,000 |
Approve Amendment No. 1 to the 2020 Graham Corporation Equity Incentive Plan
| • | Combining the separate limits on director compensation of $50,000 for equity awards and $100,000 for cash fees into a single increased aggregate limit of $250,000 for equity awards and cash fees |