DEF 14A of Graco Inc
Filed Mar 13, 2024 · FY20230001193125-24-066451
BOARD OF DIRECTORS
BOARD OF DIRECTORS
Nominees and Continuing Directors
Nominees and Continuing Directors The following information is given with respect to the three nominees for election at the Meeting and the other six directors whose terms of office will continue after the Meeting, and includes a description of the particular experience, qualifications, attributes or skills that led the Board to conclude that each of the nominees and directors should serve as members of the Board. Nominees for election at the Meeting to terms expiring in 2027:
Heather L. Anfang
Heather L. Anfang Ms. Anfang, 51, is President, Dairy Foods, Executive Vice President of Land O’ Lakes, Inc., an agribusiness and food company and one of the largest producers of dairy products in the United States. She assumed this position in February 2024. Prior to that, Ms. Anfang held various positions at Land O’ Lakes, including Senior Vice President, General Manager, U.S. Dairy Foods from 2019 to February 2024, Vice President, Ecommerce/Ebusiness from 2017 to 2019, Vice President, Marketing, Land O’ Lakes SUSTAIN during 2017, Vice President, Marketing and General Manager, U.S. Dairy Foods from 2014 to 2016, Director, Marketing and General Manager, Land O’ Lakes, Retail Foods during 2013, Director, Marketing, Retail Foods Butter & Spreads from 2010 to 2013, Director, Sales & Marketing, Ingredients Solutions from 2008 to 2010, Manager, Marketing, Ingredient Solutions from 2005 to 2008, Manager, Marketing, Retail Cheese from 2003 to 2005, and Assistant Manager, Marketing, Retail Butter from 1999 to 2003. Before joining Land O’ Lakes, Ms. Anfang held marketing, sales and client services roles at The Pillsbury Company, LLC and Information Resources, Inc. Ms. Anfang has been a director of Graco since May 2023. Among other qualifications, Ms. Anfang brings to our Board an array of marketing, sales, ecommerce, operational and leadership skills. In her current role at Land O’ Lakes, Ms. Anfang is responsible for overseeing a multibillion-dollar business. This experience, together with the diversity of other professional experiences upon which she is able to draw, provides further depth of insight and new perspectives to our Board and enhances its leadership and strategic capabilities.
Archie C. Black
Archie C. Black Mr. Black, 61, was Chief Executive Officer of SPS Commerce, Inc., a cloud-based supply chain management software company, from 2001 until his retirement in October 2023. Since October 2023, he has held the position of Executive Chair of the Board of SPS Commerce. Mr. Black served as Senior Vice President and Chief Financial Officer of SPS Commerce from 1998 to 2001. Prior to that, he served as Senior Vice President and Chief Financial Officer of Investment Advisors, Inc. from 1987 to 1998. Before joining Investment Advisors, Inc., Mr. Black spent three years as an auditor at Price Waterhouse. Mr. Black has served as a director of SPS Commerce since 2001, and has served as a director of Proto Labs, Inc. since 2016 and as Chairman of the Board of Proto Labs since May 2020. Mr. Black has been a director of Graco since February 2023. Among other qualifications, Mr. Black brings to our Board unique perspectives on leveraging technology to improve business processes, outcomes and performance, an in-depth understanding of the requirements of managing a public company, proven leadership, and a wealth of valuable insights and business experience. He has been designated by our Board as an audit committee financial expert.
Brett C. Carter
Brett C. Carter Mr. Carter, 57, was Executive Vice President and Group President, Utilities and Chief Customer Officer of Xcel Energy Inc., a major U.S. electric and natural gas delivery company, from March 2022 until October 2023. Mr. Carter served as Executive Vice President and Chief Customer and Innovation Officer of Xcel Energy from May 2018 to March 2022. Prior to that, Mr. Carter served as Senior Vice President and Shared Services Executive of Bank of America, one of the world’s largest financial institutions, from October 2015 to May 2018, and as Senior Vice President and Chief Operating Officer of Bank of America from March 2015 to October 2015. Before joining Bank of America, Mr. Carter held several leadership roles at Duke Energy Co. from 2005 to 2015, including most recently as Senior Vice President and Chief Distribution Officer from 2013 to March 2015. Mr. Carter has been a director of Graco since February 2021. Among other qualifications, Mr. Carter brings to our Board substantial experience overseeing key business areas of operations, marketing, information technology, cyber and physical security, customer service and brand strategy at several major public companies. He has been designated by our Board as an audit committee financial expert. Directors whose terms continue until 2025:
Eric P. Etchart
Eric P. Etchart Mr. Etchart, 67, was Senior Vice President, Business Development of The Manitowoc Company, Inc., a manufacturer of cranes and foodservice equipment, from 2015 until his retirement in 2016. Mr. Etchart served as President of Manitowoc Cranes and Senior Vice President of The Manitowoc Company from 2007 until 2015. From 2001 to 2007, Mr. Etchart was Executive Vice President, Asia Pacific and President, Zhang Jia Gang Company of the Manitowoc Crane Group in Shanghai, China. Prior to that, Mr. Etchart held various management positions at Potain S.A., until it was acquired by Manitowoc Crane Group in 2001, and at PPM Cranes S.A. Mr. Etchart has been a director of Graco since 2010. He also serves as a director of Alamo Group Inc. and of WD-40 Company, and is Chair of the Nominating/Corporate Governance Committee of Alamo Group and is Chair of the Corporate Governance Committee of WD-40 Company. Mr. Etchart is also a director of UPERIO Group, which sells, rents and services tower cranes and self-erecting cranes, and chairs its Environmental, Social and Governance (“ESG”) Committee. Mr. Etchart is a National Association of Corporate Directors (“NACD”) Board Leadership Fellow, and has successfully completed the Diligent Climate Leadership and ESG Leadership certification programs, which collectively focus on climate risk and related business strategy, the board’s related fiduciary obligations, climate-related government regulations, reporting and disclosure requirements, investor engagement, ESG oversight and the development of sustainable growth strategies. Among other qualifications, Mr. Etchart brings to our Board over thirty years of global manufacturing experience, as well as extensive knowledge of and expertise in finance and marketing. Mr. Etchart, a French-national with over twenty years of experience in management positions outside of the U.S., including positions in China, Singapore, Italy, France and the Middle East, is particularly well-suited to provide an international perspective to the Board as we develop our business in global markets.
Jody H. Feragen
Jody H. Feragen Ms. Feragen, 68, was Executive Vice President and Chief Financial Officer of Hormel Foods Corporation, a multinational marketer and manufacturer of brand name food and meat products, from 2010 until her retirement in 2016. She served as Hormel’s Senior Vice President and Chief Financial Officer from 2007 to 2010, and as Vice President of Finance and Treasurer from 2005 to 2007. She also served on Hormel’s board of directors from 2007 until 2016. Ms. Feragen has been a director of Graco since 2015 and is also a director of Patterson Companies, Inc. Ms. Feragen brings to our Board a wealth of financial expertise, business acumen, strong leadership skills and extensive public company experience. Our Board recognizes this expertise, leadership and experience through its designation of Ms. Feragen as one of our audit committee financial experts and by her appointment as Chair of the Audit Committee.
J. Kevin Gilligan
J. Kevin Gilligan Mr. Gilligan, 69, was Chief Executive Officer of Capella Education Company, an online education provider, from 2009 until August 2018. He also served as a director of Capella Education from 2009 until August 2018, and as Chairman from 2010 until August 2018. Mr. Gilligan served as Executive Vice Chairman of Strategic Education, Inc. from August 2018 until July 2019 in connection with its merger with Capella Education, and served as Vice Chairman of Strategic Education from August 2019 to April 2023. Mr. Gilligan was President and Chief Executive Officer of United Subcontractors, Inc., a national construction services company, from 2004 until 2009. Mr. Gilligan was President and Chief Executive Officer, Automation and Control Solutions, Honeywell International, Inc., a diversified technology and manufacturing company, from 2001 until 2004. Mr. Gilligan has been a director of Graco since 2001 and has served as Chair of the Board of Graco since February 2024. From 2004 until 2009, Mr. Gilligan was a director of ADC Telecommunications, Inc., and served as lead director from 2008 until 2009. Among other qualifications, Mr. Gilligan brings to our Board over twenty-five years of global operational experience as well as comprehensive knowledge of the construction industry, one of the key industries Graco serves. Mr. Gilligan’s public company experience as both an executive and a director provides additional depth to our Board’s leadership capabilities. Our Board recognizes this experience and leadership by his appointment as Chair of our Board and Chair of the Governance Committee. Nominees whose terms continue until 2026:
Martha A. Morfitt
Martha A. Morfitt Ms. Morfitt, 66, is President and Chief Executive Officer of River Rock Partners, Inc., a business and cultural transformation consulting firm. She assumed this position in 2008. Ms. Morfitt formerly served as Chief Executive Officer of Airborne, Inc., a manufacturer of dietary supplements, from 2009 until 2012. Ms. Morfitt left her position at Airborne in 2012 as a result of the acquisition of Airborne by Schiff Nutrition Group. She also served as President and Chief Executive Officer of CNS, Inc., a manufacturer and marketer of consumer products, from 2001 until 2007. Ms. Morfitt left her position at CNS in 2007 as a result of the acquisition of CNS by GlaxoSmithKline plc. Ms. Morfitt has been a director of Graco since 1995 and is also a director and Chair of the Board of lululemon athletica inc. and a director and Chair of the Audit Committee of Olaplex Holdings, Inc. From May 2017 until June 2020, Ms. Morfitt served as a director of Mercer International, Inc.; from 2008 until 2015, she served as a director of Life Time Fitness, Inc.; from 1998 until 2007, she served as a director of CNS; from 2005 until 2006, she served as a director of Intrawest Corporation; and from 2007 until 2010, she served as a director of Solta Medical, Inc. f/k/a Thermage, Inc. Among other qualifications, Ms. Morfitt brings a wealth of global marketing and leadership skills to our Board. Her experience as CEO at River Rock Partners, Airborne and CNS, as well as her experience as a Vice President at Pillsbury Company, allow her to provide our Company with significant strategic and product marketing guidance. Ms. Morfitt’s long service on our Board and her considerable knowledge of our business make her well-suited to provide advice with respect to our strategic plans and marketing programs. Our Board recognizes Ms. Morfitt’s expertise, leadership and experience by her appointment as Chair of the Management Organization and Compensation Committee.
Mark W. Sheahan
Mark W. Sheahan Mr. Sheahan, 59, is President and Chief Executive Officer of Graco Inc., a position he has held since June 2021. He served as Chief Financial Officer and Treasurer from June 2018 until June 2021. He was Vice President and General Manager, Applied Fluid Technologies Division from 2008 until June 2018. He served as Chief Administrative Officer from 2005 until 2008, and was Vice President and Treasurer from 1998 to 2005. Prior to becoming Treasurer in 1996, he was Manager, Treasury Services. Mr. Sheahan joined the Company in 1995, and has been a director since June 2021. Mr. Sheahan has over twenty-eight years of progressive experience in various manufacturing, finance and administration roles while at Graco. He has extensive operating experience and in-depth knowledge of financial and managerial accounting practices at Graco. Mr. Sheahan also serves on the board of managers of Fernweh Group, LLC, an organization that makes investments in, and provides consulting services to, companies in the industrial and industrial-technology sectors.
Kevin J. Wheeler
Kevin J. Wheeler Mr. Wheeler, 64, is Chairman, President and Chief Executive Officer of A. O. Smith Corporation, one of the world’s leading manufacturers of residential and commercial water heating equipment and boilers, as well as a manufacturer of water treatment and air purification products. Mr. Wheeler was elected President and Chief Executive Officer effective September 2018, and before that served as President and Chief Operating Officer of A. O. Smith from June 2017 to August 2018. From 2013 to May 2017, Mr. Wheeler held the position of Senior Vice President of A. O. Smith and President and General Manager of its North America, India, Europe Water Heating and Export business, which was then A. O. Smith’s largest operating unit. Mr. Wheeler previously served as Managing Director of A. O. Smith’s European operations, where he had responsibility for its water heater business in Europe and the Middle East, and upon his return to the United States from the Netherlands, served as Vice President-International, with responsibility for all European and Asian operations, including China. Mr. Wheeler joined A. O. Smith in 1994, and has served as a director of A. O. Smith since July 2017 and as Chairman since May 2020. Mr. Wheeler has been a director of Graco since February 2020. Among other qualifications, Mr. Wheeler brings to our Board extensive sales, manufacturing and international experience, and his background as both an executive and a director of a public company provides additional depth to our Board’s leadership capabilities.
Qualification Standards
Qualification Standards Our Company will only consider as candidates for director individuals who possess a high level of ethics and integrity, and who are committed to representing the long-term interests of our shareholders. Such candidates must be able to make a significant contribution to the governance of our Company by virtue of their business and financial expertise, educational and professional background, and current or recent experience as a CEO or other senior leader of a public company or other major organization. The business discipline that may be sought at any given time will vary depending on the needs and strategic direction of our Company and the disciplines represented by incumbent directors. In evaluating candidates for nomination as a director of Graco, the Governance Committee will also consider other criteria, including geographical representation, independence, practical wisdom, mature judgment and the ability of the candidate to represent the interests of all shareholders and not those of a special interest group. One or more of our directors is required to possess the education or experience required to qualify as an audit committee financial expert as defined in the applicable rules of the Securities and Exchange Commission (“SEC”). Once elected, all directors are subject to the standards set forth in our Corporate Governance Guidelines, which include, among others, the requirement to tender the director’s resignation if his or her employment status significantly changes, and the requirement to resign from the Board effective as of the date of the Annual Meeting of Shareholders following the director’s 75th birthday unless the Board makes the determination that the director has current, substantial engagement in business activities that requires skills relevant to our business and useful to the Board. Each of Lee R. Mitau and R. William Van Sant has reached age 75 and will retire from the Board as of the Annual Meeting of Shareholders in April 2024 in accordance with the retirement policy contained in our Corporate Governance Guidelines. Our Board recognizes that directors need to be in a position to commit sufficient time and energy in order to be effective representatives of our shareholders’ interests. As such, our Corporate Governance Guidelines provide that directors who serve as chief executive officers of a public company may not serve on more than two other public company boards and all other directors may not serve on more than three other public company boards, without the prior approval of the Governance Committee. The Governance Committee is responsible for the identification and recruitment of suitable prospective director candidates and has the sole authority to hire an outside search firm to identify director candidates. The Governance Committee may retain an outside search firm as a resource for future candidate sourcing and succession planning as the Governance Committee deems appropriate. In 2023, Ms. Anfang was introduced to the Company through a director search and placement firm that had been engaged by Ms. Anfang, at a time when the Board was open to adding a new director who satisfied various criteria in terms of characteristics, background and skills, including current experience as an active executive. Following initial introductions to Mr. Sheahan, our President and Chief Executive Officer (“CEO) and a director, and Mr. Mitau, then Chair of the Board and Chair of the Governance Committee, the Governance Committee reviewed and evaluated Ms. Anfang as a potential director candidate, including assessing whether she satisfied the standards and expectations described above. Following this process, the Governance Committee recommended that the Board appoint Ms. Anfang as a director.
COMMITTEES OF THE BOARD OF DIRECTORS
COMMITTEES OF THE BOARD OF DIRECTORS The Board of Directors has an Audit Committee, a Governance Committee, and a Management Organization and Compensation Committee. Membership as of February 26, 2024, the record date, was as follows:
COMMITTEES OF THE BOARD OF DIRECTORS
| Audit | Governance | Management Organization and Compensation | | Jody H. Feragen, Chair | J. Kevin Gilligan, Chair | Martha A. Morfitt, Chair | | Heather L. Anfang | Eric P. Etchart | Heather L. Anfang | | Archie C. Black | Jody H. Feragen | Archie C. Black | | Brett C. Carter | Lee R. Mitau | Brett C. Carter | | Eric P. Etchart | Martha A. Morfitt | J. Kevin Gilligan | | R. William Van Sant | R. William Van Sant | Lee R. Mitau | | Kevin J. Wheeler | | Kevin J. Wheeler |
COMMITTEES OF THE BOARD OF DIRECTORS
Ms. Anfang was appointed to serve as a member of the Audit Committee and the Management Organization and Compensation Committee upon her appointment to the Board, effective May 12, 2023. Mr. Gilligan was appointed to succeed Mr. Mitau as the Chair of the Governance Committee, effective February 16, 2024. Ms. Morfitt was appointed to succeed Mr. Gilligan as the Chair of the Management Organization and Compensation Committee, effective February 16, 2024. Audit Committee (8 meetings in fiscal year 2023) The Audit Committee is composed entirely of directors who meet the independence requirements of the Securities Exchange Act of 1934. All of the Audit Committee members are, in the judgment of the Board, financially literate. Our Board has determined that Ms. Feragen and Messrs. Black, Carter and Van Sant are audit committee financial experts. The Audit Committee assists the Board in its oversight of the integrity of our financial statements, our compliance with legal and regulatory requirements, the qualification and independence of the independent auditor, and the performance of the internal audit function and the independent auditors. The responsibilities of the Audit Committee are set forth in a written charter. The Audit Committee has reviewed and reassessed the adequacy of its charter and concluded that the charter satisfactorily states the responsibilities of the Audit Committee. The Audit Committee Charter was most recently approved by the Board on February 18, 2022. Governance Committee (3 meetings in fiscal year 2023) The Governance Committee is composed entirely of directors who meet the independence requirements of the NYSE. The Governance Committee has the following functions:
COMMITTEES OF THE BOARD OF DIRECTORS
| • | Sets criteria for the selection of prospective Board members, identifies and recruits suitable candidates, presents director nominees to the Board, and oversees director on-boarding and orientation; |
COMMITTEES OF THE BOARD OF DIRECTORS
| • | Periodically evaluates our Company’s shareholder value protections, board structure, and business continuity provisions, and recommends any changes to the Board; and |
COMMITTEES OF THE BOARD OF DIRECTORS
| • | Recommends to the Board: requirements for Board membership, including minimum qualifications and retirement policies; the appropriate number of directors; the compensation, benefits and retirement programs for directors; the committee structure, charters, chairs and membership; the number and schedule of Board meetings; a set of Corporate Governance Guidelines; and the appropriate person(s) to hold the positions of Chair of the Board and CEO. |
COMMITTEES OF THE BOARD OF DIRECTORS
The responsibilities of the Governance Committee are fully set forth in its written charter, which was most recently approved by the Board on February 18, 2022. Management Organization and Compensation Committee (3 meetings in fiscal year 2023) The Management Organization and Compensation Committee is composed entirely of directors who meet the independence requirements of the NYSE. The Management Organization and Compensation Committee has the following functions:
COMMITTEES OF THE BOARD OF DIRECTORS
| • | Develops our Company’s philosophy and structure for executive compensation; |
COMMITTEES OF THE BOARD OF DIRECTORS
| • | Determines the compensation of the CEO and reviews and approves the compensation of the other executive officers; |
COMMITTEES OF THE BOARD OF DIRECTORS
| • | Reviews and discusses with management, and recommends to the Board the inclusion of, the Compensation Discussion and Analysis in our Company’s annual proxy statement; |
COMMITTEES OF THE BOARD OF DIRECTORS
| • | Leads the review of the performance of the CEO based on individual goals and objectives, and communicates to the CEO its assessment of the CEO’s performance on an annual basis; |
COMMITTEES OF THE BOARD OF DIRECTORS
| • | Administers our Company’s stock options and other equity-based compensation plans; and |
COMMITTEES OF THE BOARD OF DIRECTORS
| • | Oversees executive management organization and succession plans. |
COMMITTEES OF THE BOARD OF DIRECTORS
The responsibilities of the Management Organization and Compensation Committee are fully set forth in its written charter, which was most recently approved by the Board on April 28, 2023.
DIRECTOR COMPENSATION
DIRECTOR COMPENSATION
DIRECTOR COMPENSATION
| 2023 Non-Employee Director Compensation | Amount | | Annual Equity Grant | $140,000(1) | | Annual Board Retainer(2) | $80,000 | | Additional Retainers: | | | Annual Chair Retainer | $30,000 | | Annual Committee Retainer: | | | Audit Committee | $12,500 | | Management Organization and Compensation Committee | $7,500 | | Governance Committee | $6,000 | | Annual Committee Chair Retainer: | | | Audit Committee | $20,000 | | Management Organization and Compensation Committee | $12,500 | | Governance Committee | $10,000 |
DIRECTOR COMPENSATION
| (1) Approximate economic value of annual equity grant based on Black-Scholes value per share on the date of grant. Increased from $130,000 to $140,000 effective February 17, 2023. |
DIRECTOR COMPENSATION
| (2) Increased from $71,000 to $80,000 effective May 1, 2023. |
DIRECTOR COMPENSATION
A non-employee director may elect to receive shares of our common stock instead of cash for all or part of the director’s annual retainers. A director may choose to receive the shares currently or defer receipt until the director leaves the Board, at which time the director may receive the shares in a lump sum or installments. Payments, whether in a lump sum or by installments, will be made in shares of common stock, plus cash in lieu of any fractional share. When our Board declares a dividend, the director’s deferred stock account is credited with additional shares of deferred stock in an account held by a trustee in the name of the director equivalent to the number of shares that could be purchased with the dividends at the current fair market value of the shares. Non-employee directors receive an annual option grant. In February 2023, non-employee directors received an annual option grant of 6,250 shares. The number of shares granted was based on a Black-Scholes value of $22.40 per share on February 16, 2023, and an economic value of approximately $140,000. In February 2024, non-employee directors received an annual option grant of 4,830 shares. The number of shares granted was based on a Black-Scholes value of $28.96 per share on February 15, 2024, and an economic value of approximately $140,000. Upon first joining the Board, non-employee directors are also eligible to receive an initial option grant with an economic value equal to that of the most recent option grant for non-employee directors. Mr. Black received an initial option grant of 6,160 shares on February 20, 2023, upon his appointment to the Board. The number of shares granted to Mr. Black was based on a Black-Scholes value of $22.72 on February 17, 2023, and an economic value of approximately $140,000. Ms. Anfang received an initial option grant of 5,940 shares on May 12, 2023, upon her appointment to the Board. The number of shares granted to Ms. Anfang was based on a Black-Scholes value of $23.54 on May 11, 2023, and an economic value of approximately $140,000. Options granted to non-employee directors are issued under the Graco Inc. 2019 Stock Incentive Plan (the “Plan”). The options are non-statutory, have a 10-year duration and become exercisable in equal installments over four years, beginning with the first anniversary of the date of the grant. The option exercise price is the fair market value of the stock on the date of grant, as defined in the Plan. The Plan defines “fair market value” as the closing sales price of the stock on the principal securities market on which it trades on the date immediately preceding the date of grant. Our Board’s philosophy is to target retainer compensation at a level approximately comparable to the median of the market, and to target equity compensation in the form of stock options at a level approximately comparable to the 75th percentile of the market, in order to attract and retain capable Board members, to encourage above-market Company performance, and to strengthen the link between our director compensation program and the interests of our shareholders in Graco stock performance. Our Governance Committee retained Willis Towers Watson to conduct a peer group comparison of director compensation and present such data at its February 2023 meeting. The peer companies selected for the 2023 comparison matched the peer group identified for executive compensation on page 23 of the Compensation Discussion and Analysis section of the Proxy Statement for the 2023 Annual Meeting of Shareholders. In reviewing the peer group comparison, the Governance Committee concluded that non-employee director retainer compensation fell below the median of the peer group, and that non-employee director equity compensation was below the 75th percentile of the peer group. As a result, the Board of Directors, upon recommendation of the Governance Committee, determined that the economic value of the annual option grant for non-employee directors would increase from $130,000 to $140,000 effective February 17, 2023, and the annual retainer for non-employee directors would increase from $71,000 to $80,000 effective May 1, 2023. No other adjustments were made to the non-employee directors’ compensation. Our Governance Committee requested that the Graco Compensation Department conduct a peer group comparison of director compensation and present such data at its February 2024 meeting. The peer companies used for the 2024 benchmarking study matched the peer group identified for executive compensation on page 23 of the Compensation Discussion and Analysis section of this Proxy Statement. In reviewing the peer group comparison, the Governance Committee concluded that current non-employee director retainer compensation was approximately at the median of the peer group, and that non-employee director equity compensation was approximately at the 75th percentile of the peer group, so no changes were proposed for 2024. Share ownership guidelines for our directors require each of our non-employee directors to own a minimum of approximately five times the total value of their annual retainers in Company stock. Shares of common stock directly and beneficially owned, as well as deferred stock shares, are used to calculate each director’s ownership level; stock options are not used. Directors have five years from their initial date of appointment to reach the minimum ownership level. All of our directors who have served for at least five years exceed this ownership requirement. In February 2001, our Board terminated the retirement benefit for non-employee directors, which provided that, upon cessation of service, a non-employee director who has served for five full years or more will receive payments for five years at a rate equal to the director’s annual retainer in effect on the director’s last day of service on the Board. The annual retainer calculation is set at the rate then in effect for the non-Chair annual retainer and does not include Committee Chair retainer fees. Such retirement payments will be prorated and made quarterly. Payments will be made in accordance with this retirement benefit to Mr. Mitau and Ms. Morfitt, who satisfied the service requirement in 2001, upon their respective retirements.
Director Compensation Table for Fiscal Year Ended December 29, 2023
Director Compensation Table for Fiscal Year Ended December 29, 2023 The following table summarizes the total compensation paid to or earned by our non-employee directors for their service during the fiscal year ended December 29, 2023:
Director Compensation Table for Fiscal Year Ended December 29, 2023
| Name | Fees Earned or Paid in Cash(1) ($) | Stock Awards(2) ($) | Option Awards(3) ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings(4, 5) ($) | Total ($) | | Heather Anfang | — | 63,736 | 139,828 | — | 203,564 | | Archie Black | — | 84,361 | 139,955 | — | 224,316 | | Brett C. Carter | 131 | 96,869 | 140,000 | — | 237,000 | | Eric P. Etchart | — | 95,500 | 140,000 | — | 235,500 | | Jody H. Feragen | — | 115,500 | 140,000 | — | 255,500 | | J. Kevin Gilligan | — | 103,000 | 140,000 | — | 243,000 | | Lee R. Mitau | — | 130,500 | 140,000 | 42,000 | 312.500 | | Martha A. Morfitt | 90,500 | — | 140,000 | 42,000 | 272,500 | | R. William Van Sant | — | 95,500 | 140,000 | — | 235,500 | | Kevin J. Wheeler | — | 97,000 | 140,000 | — | 237,000 |
Director Compensation Table for Fiscal Year Ended December 29, 2023
| (1) Mr. Carter elected to receive 100% of his retainers in shares of common stock plus cash in lieu of any fractional share. Ms. Morfitt elected to receive 100% of her retainers in cash. All other non-employee directors elected to receive all retainers in deferred stock. |
Director Compensation Table for Fiscal Year Ended December 29, 2023
| (2) During all or a portion of their service on the Board, Messrs. Black, Carter, Etchart, Gilligan, Mitau, Van Sant and Wheeler and Mses. Anfang, Feragen and Morfitt elected to defer some or all of their compensation. The amounts in the Stock Awards column reflect the sum of the grant date fair values of the stock, whether deferred or direct stock, for each of the four calendar quarters. The grant date fair value is based on the closing price of the stock on the last trading day of the calendar quarter. The Deferred Stock Account balances as of 2023 fiscal year-end are as follows: |
Director Compensation Table for Fiscal Year Ended December 29, 2023
| Name | Account Balance (Shares) | | Ms. Anfang | 504 | | Mr. Black | 766 | | Mr. Carter | 1,285 | | Mr. Etchart | 14,360 | | Ms. Feragen | 9,968 | | Mr. Gilligan | 91,868 | | Mr. Mitau | 191,653 | | Ms. Morfitt | 110,009 | | Mr. Van Sant | 75,879 | | Mr. Wheeler | 5,001 |
Director Compensation Table for Fiscal Year Ended December 29, 2023
| (3) Messrs. Carter, Etchart, Gilligan, Mitau, Van Sant and Wheeler and Mses. Feragen and Morfitt received an annual option grant of 6,250 shares on February 17, 2023. Mr. Black received an appointment option grant of 6,160 shares on February 20, 2023, and Ms. Anfang received an appointment option grant of 5,940 shares on May 12, 2023. The amounts reported in the Option Awards column represent the aggregate grant date fair value of stock options granted in 2023, computed in accordance with financial accounting principles, which is based on a per share value of $22.40 for options granted on February 17, 2023, $22.72 for options granted on February 20, 2023 and $23.54 for options granted on May 12, 2023. |
Director Compensation Table for Fiscal Year Ended December 29, 2023
Information concerning the assumptions used in accounting for equity awards may be found in Item 8, Financial Statements and Supplementary Data, Note H to the Consolidated Financial Statements in our 2023 Annual Report on Form 10-K. The aggregate number of outstanding option grants at fiscal year-end 2023 are as follows:
Director Compensation Table for Fiscal Year Ended December 29, 2023
| Name | Unvested Shares | Exercisable Shares | | Ms. Anfang | 5,940 | — | | Mr. Black | 6,160 | — | | Mr. Carter | 18,725 | 9,065 | | Mr. Etchart | 18,488 | 83,440 | | Ms. Feragen | 18,488 | 47,182 | | Mr. Gilligan | 18,488 | 65,182 | | Mr. Mitau | 18,488 | 81,502 | | Ms. Morfitt | 18,488 | 95,440 | | Mr. Van Sant | 18,488 | 34,312 | | Mr. Wheeler | 21,426 | 24,524 |
Director Compensation Table for Fiscal Year Ended December 29, 2023
| (4) Prior to February 2001, non-employee directors who served five or more full years on the Board were eligible for a retirement benefit when they left the Board. In February 2001, the Board terminated this retirement benefit for those non-employee directors who had not met the five-year service level. Mr. Mitau and Ms. Morfitt, who satisfied the service requirement in 2001, will receive this retirement benefit when they leave the Board. The underlying plan provides that, upon retirement, an eligible non-employee director shall receive quarterly payments for five years equal to one-fourth of the annual base retainer of the non-Chair directors in effect immediately prior to the director’s retirement. The plan further provides that if an eligible non-employee director dies before retirement, payment shall be made to the director’s beneficiary (or estate if no beneficiary is designated) in one lump sum in an amount equal to the total amount of the payments that would have been made had he or she retired on the date of his or her death and survived to the date of the final payment. |
Director Compensation Table for Fiscal Year Ended December 29, 2023
| (5) The assumptions that were made in calculating the aggregate change in the actuarial present value of the accumulated benefit are as follows: |
Director Compensation Table for Fiscal Year Ended December 29, 2023
| • | Discount rate: 5.3% at December 31, 2022 and 5.0% at December 31, 2023. |
Director Compensation Table for Fiscal Year Ended December 29, 2023
| • | Retirement age: The plan does not have a specified normal retirement age. Therefore, the values reflect the increase/decrease in present value of the accrued benefit as of December 31, 2023. |
Director Compensation Table for Fiscal Year Ended December 29, 2023
| • | Form of payment: Five-year certain (payable quarterly). |
Compensation Philosophy
| Pay-for-Performance | Shareholder Alignment | Accountability for Short- and Long- Term Performance | | All components of variable compensation are tied to the performance of the Company, division or region. | Long-term incentives are designed to align the financial interests of the executive officers with the interests of the Company’s shareholders in creating long-term shareholder value. | Annual performance bonuses and long-term incentives are intended 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 Philosophy
| Competitiveness | Attraction and Retention | | All components of compensation are designed to be competitive with companies in similar industries with comparable sales volume and financial performance in order to attract, retain and motivate high performing executives in an environment where companies are increasingly competing for high-caliber talent. | Graco’s executive compensation program is designed to achieve the Company’s goal of attracting, developing and retaining global business leaders who can establish and drive financial and strategic growth objectives that are intended to build long-term shareholder value. | | Reducing the Possibility for Excessive Risk-Taking | | | The Company’s executive compensation program is designed to motivate and reward the executive officers for their performance during the fiscal year and over the long-term, and for taking appropriate risks toward achieving the long-term financial and strategic growth objectives of the Company. Certain characteristics of the Company’s executive compensation program are designed to motivate our executive officers, individually and as a group, to not take excessive risks that could maximize short-term results at the expense of long-term value. These characteristics include: • Balanced Mix of Pay Components: The target compensation mix represents a balance of base salary and short-term and long-term incentive-based compensation. • Vesting Schedules: Long-term incentives typically vest over four years and have overlapping vesting schedules, thereby reducing an executive officer’s motivation to maximize performance in any one period. • Capped Incentive Awards: Annual short-term incentive payouts are capped. • Incentive Compensation Recovery Policy - Restatements: We have adopted an Incentive Compensation Recovery Policy in compliance with SEC rules and NYSE listing standards. Under the policy, the Company is required to recover from covered executive officers on a reasonably prompt basis the amount of any erroneously awarded incentive-based compensation resulting from an accounting restatement due to the material noncompliance of the Company with any financial reporting requirement under the securities laws. The policy applies to incentive-based compensation received by covered executive officers on or after October 2, 2023. • Incentive Compensation Recoupment Policy – Misconduct Contributing to Restatements: We have also adopted the Executive Officer Misconduct Incentive Compensation Recoupment Policy, under which the Company is entitled to recoup all the incentive compensation received by an executive officer during the applicable period when such executive officer’s intentional misconduct or fraud causes or contributes to the Company’s issuance of a material restatement of its financial statements. This policy replaces, and is generally consistent with, the Executive Officer Incentive Compensation Recoupment Policy that was previously in effect, but it includes a three-year look-back period on the recovery of incentive compensation. • Stock Ownership Guidelines: We require our executive officers to retain, until retirement or other termination of employment, an amount equal to 50% of net shares from awards granted under the Company’s equity programs on or after April 23, 2010, until such time as the executive officer holds shares equal in value to: (a) in the case of our CEO, five times their current base salary; (b) in the case of executive officers reporting directly to our CEO, three times their current base salary; and (c) in the case of executive officers reporting to someone other than our CEO, two times their current base salary. For purposes of determining the shares held by our executive officers for purposes of these guidelines, we include shares owned after shares are sold or withheld to pay the exercise price of stock options, withholding taxes and other transaction costs, but do not include shares subject to unexercised stock options. | |
Compensation Risk Assessment
Compensation Risk Assessment The Company’s Internal Audit Department conducts an annual risk assessment on the Company’s executive compensation program and presents its findings to the MOCC and the Audit Committee. The risk assessment identifies, among other things, certain potential risks in the Company’s short-term and long-term incentive plans and the Company’s severance and change of control arrangements, and various factors that serve to mitigate those risks. Such mitigating factors include those set forth above, as well as the annual plan design and benchmarking review by the independent compensation consultant and the MOCC, the MOCC’s review and approval of incentive awards, the Company’s internal controls, and the use of “double-triggers” in cash severance and change of control arrangements. At its September 2023 meeting, the MOCC reviewed and discussed the risk assessment and determined that the Company’s executive compensation program is not likely to have a material adverse impact on the Company, and it recommended that the Audit Committee make the same determination as well. As a result, the MOCC did not make any material changes to the structure of the Company’s executive compensation program.
Executive Compensation Consultant
Executive Compensation Consultant The MOCC has the authority under its charter to engage the services of outside consultants, to determine the scope of the consultants’ services and to terminate such consultants’ engagement. The MOCC retained Willis Towers Watson as its independent outside executive compensation consultant to advise the MOCC on matters relating to the determination of base salary and short-term and long-term incentive programs for the Company’s executive officers. In its capacity as the executive compensation consultant, Willis Towers Watson advises the MOCC on the following matters:
Executive Compensation Consultant
| • | Preparing a competitive compensation review of the CEO and other executive officer positions, including a peer group analysis; |
Executive Compensation Consultant
| • | Providing advice and guidance with respect to trends and regulatory issues related to executive compensation; |
Executive Compensation Consultant
| • | Reviewing the composition of the industry peer group used to benchmark executive compensation; and |
Executive Compensation Consultant
| • | Reviewing the Company’s executive compensation risk assessment. |
Executive Compensation Consultant
Our Company’s management engaged Willis Towers Watson to perform certain non-executive compensation services in 2023. The total fees for these services were less than $120,000. The MOCC reviews the independence of the executive compensation consultant on an annual basis. In evaluating Willis Towers Watson’s independence, the MOCC considers all factors relevant to Willis Towers Watson’s independence from management, including the following:
Executive Compensation Consultant
| • | The provision of other services to the Company by Willis Towers Watson; |
Executive Compensation Consultant
| • | The amount of fees received by Willis Towers Watson from the Company as a percentage of Willis Towers Watson’s total revenue; |
Executive Compensation Consultant
| • | Willis Towers Watson’s compliance with the policies and procedures it has adopted to prevent conflicts of interest; |
Executive Compensation Consultant
| • | The lack of any business or personal relationships between the individual Willis Towers Watson consultants performing services for the Company and any member of the MOCC; |
Executive Compensation Consultant
| • | The lack of any ownership of Company stock by the individual Willis Towers Watson consultants performing services for the Company; and |
Executive Compensation Consultant
| • | The lack of any business or personal relationships between any executive officers of the Company and Willis Towers Watson or the individual Willis Towers Watson consultants performing services for the Company. |
Executive Compensation Consultant
Based on its review, the MOCC concluded there was no conflict of interest that impaired Willis Towers Watson’s independence.
Role of Management in Executive Compensation Decisions
| • | Our CEO annually recommends to the MOCC base salary adjustments and long-term incentive awards for all executive officers, other than himself/herself (management does not make a recommendation on CEO pay or pay components); and |
Benchmarking
Benchmarking The MOCC annually retains Willis Towers Watson to provide survey market data of companies with similar revenues for all executive officer positions, with a focus on the manufacturing industry. The MOCC meets in the fall of each year to review this market data. The market data is derived from Willis Towers Watson’s database and is statistically adjusted to reflect variation in revenues among the companies. The MOCC is presented with data showing total direct compensation amounts at the 50th and 75th percentiles of the market data. In addition, the MOCC considers data from this survey reflecting the general mix of compensation elements among base salary, short-term incentives and long-term incentives. At the same time, the MOCC reviews information showing the relative positioning of the compensation of the Company’s executive officers in relation to the market data. When reviewing the relative positioning of each executive officer’s total direct compensation level, the MOCC compares each executive officer to generally comparable positions identified within the market data. The purpose of this annual review is to gather a general sense for whether the Company’s compensation levels and mix of compensation elements are generally consistent with this market data, with a general expectation that total direct compensation should be between the 50th and the 75th percentiles of the market data depending on Company and individual performance. At the same time, Willis Towers Watson provides general information to the MOCC about market trends and expected compensation level changes for the upcoming fiscal year (“Market Increase Projection”). At the MOCC’s last meeting of each fiscal year, the MOCC sets base salaries for executive officers for the upcoming fiscal year. The decisions about the specific base salary levels are based on individual performance and budgetary constraints and are guided by the 50th percentile of the market data without a specific market position targeted. At the MOCC’s first meeting of each fiscal year, the MOCC approves short-term incentive targets and long-term incentive awards. The target short-term cash award is determined as a percentage of base salary for the executive officer annual incentive plan, which percentage has been consistent for many years. The MOCC targets the value of the long-term incentive awards for our NEOs at the 75th percentile for comparable positions within the Willis Towers Watson database, although the number of shares granted may be adjusted downward based on the Company’s stock dilution guidelines and internal equity. The reason for targeting the 75th percentile is to encourage above-market performance. In addition, the MOCC believes that the opportunity for above-market compensation should be primarily earned in the area of long-term performance. Once the value of the long-term incentive award is determined, the number of shares subject to the equity awards granted to each executive officer is determined by dividing the long-term incentive award value by a projected Black-Scholes value based on assumptions used for financial accounting purposes. Refer to the discussions of each compensation element below, as well as the “Compensation of Individual Named Executive Officers” section below, for specific information on how this benchmarking process applied to specific compensation decisions for our NEOs for 2023.
Our Company’s Peer Group
Our Company’s Peer Group The Company’s compensation peer group (the “Graco Peer Group”) was reviewed and analyzed with Willis Towers Watson in September 2022 to ensure the group is large enough to maintain reliable market outcomes and is appropriately aligned with the Company in terms of industry, size, life cycle stage, labor market, and revenue and market capitalization characteristics. At that time, Willis Towers Watson did not recommend any changes to the Graco Peer Group, and the MOCC determined not to make any changes to the Graco Peer Group, believing it achieved the foregoing objectives. Willis Towers Watson validated the ongoing viability of the Graco Peer Group in September 2023. The following table lists the companies that were in the Graco Peer Group when the MOCC set 2023 compensation levels for the executive officers, and includes financial and headcount data for the Company and the median of the Graco Peer Group:
Our Company’s Peer Group
| Graco Peer Group | | | | | | Albany International Corp. | Franklin Electric Co., Inc. | | Snap-on Inc. | | | Allegion plc | IDEX Corporation | | Tennant Company | | | A. O. Smith Corporation | ITT Inc. | | The Middleby Corporation | | | Barnes Group Inc. | Kennametal Inc. | | The Toro Company | | | Chart Industries Inc. | Nordson Corporation | | TransDigm Group Incorporated | | | Crane Holdings, Co. | Pentair plc | | Woodward, Inc. | | | Donaldson Company, Inc. | Polaris Inc. | | | | | Enerpac Tool Group Corp. | Simpson Manufacturing Co., Inc. | | | | | | Most Recent Fiscal Year | | | | | | Revenue ($B) | Market Capitalization ($B) | Market Cap-to- Revenue Ratio | Employees | | Graco | 2,195.6 | 14,751.0 | 6.72 | 4,270 | | Graco Peer Group - Median(1) | 3,084.8 | 6,961.0 | 2.29 | 9,584 |
Our Company’s Peer Group
(1) Represents most recent fiscal year data available from Equilar as of February 6, 2024. Given that compensation data for the CEO and Chief Financial Officer (“CFO”) positions of the Graco Peer Group are readily available in securities filings, the MOCC used the applicable Graco Peer Group as a primary source of data when setting 2023 and 2024 compensation levels for the Company’s CEO and CFO. Compensation data for all other executive officer positions in the Graco Peer Group are limited to those executive officers identified in securities filings, which positions may or may not correspond to the positions held by, and responsibilities of, our other executive officers. Therefore, the MOCC used the Willis Towers Watson benchmarking data as a primary source of data, and the relevant Graco Peer Group as a secondary source of data to the extent applicable, when setting 2023 and 2024 compensation levels for the Company’s other executive officers.
Components of the Executive Compensation Program
| Component | Form of Compensation | Purpose | Key Characteristics | Performance-Based/At Risk | | Base Salary | Cash | Recognizes individual work experience, performance, skill and level of responsibility | Fixed compensation Guided by the 50th percentile market data, but subject to individual performance in prior year, role, tenure, relative position in marketplace and budget constraints Used to compute other components of compensation | No | | Short-Term Incentives (STI) | Cash | Establishes a strong link between pay and results Motivates attainment of annual key business objectives | Variable compensation tied to actual performance Bonus thresholds, targets and maximums are set as a percentage of base salary | Yes, fluctuates based on corporate and division/region performance; may not pay out if pre-established, measurable goals are not met | | Long-Term Incentives (LTI) | Stock options | Motivates attainment of long-term goals and overall operational growth Aligns executives’ interests with shareholders’ interests in creating long-term shareholder value Retains executive talent through gradual vesting schedule | Variable compensation provided to reward Company’s long-term performance Annual vesting of 25% over a four-year period from grant date Stock options expire ten years from grant date | Yes, stock options increase in value only if share price rises above grant date fair market value |
Short-Term Incentives (STI)
Short-Term Incentives (STI) The Graco Inc. Incentive Bonus Plan (the “Incentive Bonus Plan”) is designed to motivate the executive officers of the Company to improve the overall performance of the Company and to reward them when the Company achieves specific measurable results. The Incentive Bonus Plan provides cash rewards to executive officers to encourage them to produce a strong return for the Company’s shareholders and to encourage them to remain employees of the Company. The MOCC has the discretion to designate executive officers and other employees of the Company as participants in the Incentive Bonus Plan. The Incentive Bonus Plan also permits the MOCC to establish performance periods of any length. Potential payouts under the Incentive Bonus Plan are expressed as a percentage of base salary, which percentages have remained constant within each level (CEO and other executive officers) for many years. Specific financial performance thresholds must be attained in order for the executive officers to earn an incentive payment. If specified performance levels are not achieved or exceeded, there is no payout. The annual incentives, to the extent earned, are typically paid in cash in March following the calendar year to which they relate and are based upon the MOCC’s determination of financial performance against pre-established targets. At its meeting in February 2023, the MOCC approved participation of our CEO and other executive officers in the Incentive Bonus Plan for 2023. The threshold, target and maximum payout levels as a percent of target and as a percent of base salary for 2023 are displayed below. Achievement of performance levels between threshold and target, and target and maximum, result in a payout that is interpolated based on the level of performance, and permit a partial payout as soon as the threshold level of achievement has been exceeded. The MOCC established two financial measures for the Incentive Bonus Plan: Net Sales and Incentive EPS growth over the prior year. Net Sales and Incentive EPS growth were selected as the metrics against which to measure the executive officers’ performance for the Incentive Bonus Plan because the MOCC desires to motivate the executive officers to achieve profitable business growth consistent with our long-term financial objectives. In 2023, the MOCC adjusted these metrics relative to prior years from a weighting of 50% Net Sales and 50% Incentive EPS growth to a weighting of 40% Net Sales and 60% Incentive EPS growth in order to further increase the incentive to drive earnings. The MOCC utilized projected global gross domestic product (GDP) growth rates as a guide in setting the 2023 target performance levels. At the time the MOCC established the 2023 target performance levels, the MOCC once again determined that final bonus payout calculations for corporate, worldwide division and region Incentive EPS would exclude certain purchase accounting and one-time transaction costs related to acquisitions and divestitures, the initial valuation of acquisitions and potential earn out adjustments, and the effects of excess tax benefits from stock option exercises. Final corporate, worldwide division and region Incentive EPS calculations for 2023 bonus payouts excluded these items. Consistent with its authority to adjust Incentive Bonus Plan awards based on unanticipated or special circumstance, the MOCC also elected to exclude the impact of a non-cash pension settlement loss related to our pension plan restructuring in 2023 when determining final Incentive EPS calculations as the restructuring was determined to be in the Company’s best interest and was not contemplated at the time 2023 target performance levels were established. The MOCC believes these adjustments provide a better measure of operating performance for 2023. These adjustments did not impact the amount of the 2023 Incentive Bonus Plan award payouts, as Incentive EPS growth over 2022, even before taking into account these adjustments, already exceeded the maximum Incentive EPS growth threshold for purposes of calculating such payouts. The 2023 Incentive Bonus Plan award payouts were based upon the achievement of specified levels of Net Sales and Incentive EPS at the corporate, worldwide divisional and regional levels. Financial performance levels and actual results for the 2023 Incentive Bonus Plan were as follows:
Short-Term Incentives (STI)
| Financial Metric | Metric Weighting | 2023 Target Performance Level (As % of 2022 Actual Results) | 2023 Threshold Performance Level (As % of 2023 Target Performance) | 2023 Maximum Performance Level (As % of 2023 Target Performance) | 2023 Results (As % of 2023 Target Performance) | | CEO, CFO and Function Executives (HR, Legal, Finance and Operations) | | | | | | | Corporate Net Sales | 40% | 102% | 90% | 105% | 100% | | Corporate Incentive EPS | 60% | 102% | 90% | 105% | 113% | | Division and Region Executives | | | | | | | Corporate Net Sales | 20% | 102% | 90% | 105% | 100% | | Corporate Incentive EPS | 30% | 102% | 90% | 105% | 113% | | Worldwide Division or Region Net Sales | 20% | 102% | 90% | 105% | 97-106% | | Worldwide Division or Region Incentive EPS | 30% | 102-103% | 90% | 105% | 105-132% |
Short-Term Incentives (STI)
The 2023 financial results produced above target payouts for the Incentive Bonus Plan for each of our NEOs. The Incentive Bonus Plan targets as a percentage of base salary, awards at target, performance achievements, actual payouts and payouts as a percentage of base salary for each NEO were as follows:
Short-Term Incentives (STI)
| Named Executive Officer | 2023 Base Salary | Target as a % of Base Salary | Award at Target | Performance Achievement | Payout Based on Performance Achievement | Payout as a % of Base Salary | | Mark W. Sheahan | $985,000 | 100% | $985,000 | 132% | $1,299,436 | 132% | | David M. Lowe | $449,400 | 70% | $314,580 | 132% | $415,002 | 92% | | Christian E. Rothe | $540,600 | 70% | $378,420 | 141% | $533,299 | 99% | | Dale D. Johnson | $566,400 | 70% | $396,480 | 125% | $495,489 | 87% | | Caroline M. Chambers | $379,600 | 70% | $265,720 | 136% | $360,405 | 95% |
Short-Term Incentives (STI)
The MOCC has the authority to award special bonuses outside of the Incentive Bonus Plan to individual executive officers, but no such special bonuses were awarded for 2023.
Long-Term Incentives (LTI)
Long-Term Incentives (LTI) The MOCC typically grants long-term incentive awards in the form of stock options to each executive officer at its regularly scheduled February meeting based on a review of the market data. The MOCC is guided by the 75th percentile of the market data for comparable groupings of positions to determine the economic value of such awards. The stock option awards are designed to promote the interests of the Company and its shareholders through the attraction and retention of experienced and capable leaders. The MOCC considers, except in the case of the award to our CEO, the recommendation of our CEO for such awards. The MOCC also considers the dilutive effect on our shareholders in determining the number of stock options granted to each executive officer. As part of its review of the market data and trends in executive compensation, the MOCC periodically considers whether to utilize other long-term incentive vehicles in addition to or in lieu of stock options. While the MOCC has on rare occasions granted restricted stock to certain executive officers, the MOCC has determined that the use of stock options as the sole long-term incentive vehicle for the executive officer compensation program has successfully motivated the executive officers to attain long-term goals and operational growth for the Company, and has aligned the executive officers’ interests with our shareholders’ interests in creating long-term shareholder value. The MOCC has utilized stock options as the sole long-term incentive vehicle for the executive officer compensation program for over 30 years. Over the past 30 years, the Company’s cumulative total shareholder return has been 14,146% versus 923% for the S&P 500 and 904% for the Dow Jones Industrial Average. Assuming all dividends were reinvested, a $1,000 investment in the Company’s common stock at the beginning of the 30-year period would have been worth $142,463 on December 29, 2023, while a $1,000 investment in each of the S&P 500 Index and the Dow Jones Industrial Average Index would have been worth $10,226 and $10,040, respectively, on December 29, 2023. The MOCC believes these results demonstrate that stock options have been highly effective in aligning management’s interests with our shareholders’ interests and creating significant value for our shareholders over the long term. Under the terms of the Graco Inc. 2019 Stock Incentive Plan (the “2019 Plan”), the MOCC must approve all stock option grants to executive officers. In February 2023, executive officers were awarded non-qualified stock options with an exercise price equal to the fair market value of our common stock on the grant date, defined in the 2019 Plan as the last sale price of the stock on the day immediately preceding the grant date. Each option has a 10-year term and becomes exercisable in equal installments over four years, beginning with the first anniversary of the grant date. Additionally, the 2019 Plan prohibits the repricing of stock options. In 2023, the MOCC granted the following stock option awards to our NEOs under the 2019 Plan:
Long-Term Incentives (LTI)
| Named Executive Officer | Stock Option Award (Number of Shares) | Grant Date Fair Value ($) | | Mark W. Sheahan | 245,530 | 5,499,872 | | David M. Lowe | 37,940 | 849,856 | | Christian E. Rothe | 22,320 | 499,968 | | Dale D. Johnson | 22,320 | 499,968 | | Caroline M. Chambers | 22,320 | 499,968 |
Compensation of Individual Named Executive Officers
Compensation of Individual Named Executive Officers Mark W. Sheahan President and Chief Executive Officer Mr. Sheahan’s base salary as of December 2022 was below the median of the Graco Peer Group. In December 2022, the MOCC approved a base salary increase of 7% to $985,000 for 2023 based on Mr. Sheahan’s relative position in the market and individual performance. The increase was in line with the Market Increase Projection. Based on 2023 corporate Net Sales and corporate Incentive EPS performance, Mr. Sheahan received a $1,299,436 bonus payment under the Incentive Bonus Plan. Mr. Sheahan’s bonus payout represented 132% of his target award. Based on the process described above for setting long-term incentive awards, Mr. Sheahan received a stock option award of 245,530 shares in February 2023. David M. Lowe Chief Financial Officer and Treasurer Mr. Lowe’s base salary as of December 2022 was below the median of the Graco Peer Group. In December 2022, the MOCC approved a base salary increase of 6% to $449,400 based on Mr. Lowe’s relative position in the market and individual performance. Based on 2023 corporate Net Sales and corporate Incentive EPS performance, Mr. Lowe received a $415,002 bonus payment under the Incentive Bonus Plan. Mr. Lowe’s bonus payout represented 132% of his target award. Based on the process described above for setting long-term incentive awards, Mr. Lowe received a stock option award of 37,940 shares in February 2023. Christian E. Rothe President, Worldwide Industrial Division Mr. Rothe’s base salary as of December 2022 was above the median of the 2022 Willis Towers Watson survey data. In December 2022, the MOCC approved a 4% increase to Mr. Rothe’s base salary to $540,600 for 2023 based on his relative position in the market and individual performance. Based on 2023 corporate Net Sales, corporate Incentive EPS, worldwide Industrial Division Net Sales, and worldwide Industrial Division Incentive EPS performance, Mr. Rothe received a $533,299 bonus payment under the Incentive Bonus Plan. Mr. Rothe’s bonus payout represented 141% of his target award. Based on the process described above for setting long-term incentive awards, Mr. Rothe received a stock option award of 22,320 shares in February 2023. Dale D. Johnson Chief Commercial Development Officer Mr. Johnson’s base salary as of December 2022 was above the median of the 2022 Willis Towers Watson survey data. In December 2022, the MOCC approved a 4% increase to Mr. Johnson’s base salary to $566,400 for 2023 based on individual performance and internal pay relationships. Based on 2023 corporate Net Sales, corporate Incentive EPS, worldwide Contractor Equipment Division Net Sales, and worldwide Contractor Equipment Division Incentive EPS performance, Mr. Johnson received a $495,489 bonus payment under the Incentive Bonus Plan. Mr. Johnson’s bonus payout represented 125% of his target award. Based on the process described above for setting long-term incentive awards, Mr. Johnson received a stock option award of 22,320 shares in February 2023. Caroline M. Chambers President, EMEA Ms. Chambers’ base salary as of December 2022 was above the median of the 2022 Willis Towers Watson survey data. In December 2022, the MOCC approved a base salary increase of 4% to $379,600 for 2023 based on Ms. Chambers’ relative position in the market and individual performance. Based on 2023 corporate Net Sales, corporate Incentive EPS, EMEA Region Net Sales, and EMEA Region Incentive EPS performance, Ms. Chambers received a $360,405 bonus payment under the Incentive Bonus Plan. Ms. Chambers’ bonus payout represented 136% of her target award. Based on the process described above for setting long-term incentive awards, Ms. Chambers received a stock option award of 22,320 shares in February 2023.
Benefits and Perquisites
| • | Restoration Plan. Since the Internal Revenue Code limits the pension benefits that can be accrued under a tax-qualified defined benefit pension plan, we established the Graco Restoration Plan. This plan is a nonqualified excess benefit plan designed to provide retirement benefits to eligible participants in the United States as a replacement for those retirement benefits reduced under the Graco Employee Retirement Plan by operation of Section 415 and Section 401(a)(17) of the Internal Revenue Code. |
Benefits and Perquisites
| • | Supplemental Long-Term Disability Program. Each U.S. executive officer is enrolled in an individual executive long-term disability plan under which Graco pays the premiums. Each plan provides the executive officer with a monthly disability benefit of up to $21,800 in the event of long-term disability. |
Severance and Change of Control Arrangements
Severance and Change of Control Arrangements We have entered into Key Employee Agreements with the CEO and each of the other NEOs, the terms of which are described below under “Change of Control and Post-Termination Payments.” The MOCC believes it is in the best interests of our Company and its shareholders to design compensation programs that:
Severance and Change of Control Arrangements
| • | Assist our Company in attracting and retaining qualified executive officers; |
Severance and Change of Control Arrangements
| • | Assure our Company will have the continued dedication of our Company’s executive officers in the event of a pending, threatened or actual change of control; |
Severance and Change of Control Arrangements
| • | Provide certainty about the consequences of terminating the employment of our executive officers; |
Severance and Change of Control Arrangements
| • | Protect our Company by obtaining non-compete covenants from our executive officers that continue after their termination of employment not involving a change of control; and |
Severance and Change of Control Arrangements
| • | Obtain a release of any claims from those former executive officers. |
Severance and Change of Control Arrangements
Accordingly, the Key Employee Agreements generally provide for certain benefits if the NEO’s employment or service is involuntarily terminated by our Company without cause prior to a change of control or if, within two years after a change of control, the NEO’s employment or service is terminated involuntarily by the Company without cause or the NEO resigns for good reason. The form of Key Employee Agreement to which each of our NEOs is a party was approved by the MOCC in April 2021 after the MOCC’s review of the key employee agreements previously in effect and current market practices related to severance arrangements and benefit levels related thereto. The MOCC reviews the form of Key Employee Agreement on a periodic basis in consultation with the executive compensation consultant and legal advisors. The MOCC most recently conducted such a review in November 2023, at which time it approved certain changes to the form of Key Employee Agreement, principally to account for developments in local laws related to non-competition agreements that may apply to persons hired or promoted to be executive officers of the Company following such approval, depending on their location. These changes do not impact the Key Employee Agreements we entered into with our executive officers prior to such approval, and we do not anticipate they will impact the form of Key Employee Agreement we offer to persons hired or promoted to be executive officers of the Company following such approval, if the local laws that apply to them do not require these changes. The MOCC believes it is imperative to diminish any potential distraction of the executive officers by the personal uncertainties and risks created by a pending or threatened change of control. By offering Key Employee Agreements that will financially protect an executive officer in the event their employment or service is involuntarily terminated or terminated by the executive officer for good reason following a change of control, the MOCC believes an executive officer’s full attention and dedication to our Company will be enhanced. The MOCC also believes the executive officers’ dedication will help the Company appropriately evaluate and complete a change of control transaction and facilitate an orderly transition. In the event of a change of control of our Company, the Key Employee Agreements provide benefits only if the executive officer’s employment or service is terminated involuntarily without cause or if the executive officer resigns for good reason, including by reason of material demotion, decrease in compensation, relocation or increased travel, within two years after the change of control. The MOCC believes this “double-trigger” approach is most consistent with the objectives described above. The MOCC believes a termination by an executive officer for good reason may be conceptually the same as termination by our Company without cause, and that a potential acquirer would otherwise have an incentive to constructively terminate the executive officer’s employment to avoid paying severance benefits. Thus, the Key Employee Agreements provide severance benefits in the case of an NEO’s resignation for good reason following a change of control. The MOCC believes it is important to attract and retain our executive officers by agreeing to provide certain benefits if the executive officer’s employment or service is terminated without cause prior to a change of control. In addition, the MOCC believes that, in jurisdictions where employee non-compete agreements are permitted or where the benefits are conditioned upon not competing, these benefits are appropriate to compensate the executive officers for not working with competitors for a specified period of time following termination of employment, and that compensation enhances the enforceability of these non-compete covenants. The MOCC also believes the Company benefits from obtaining a release of any claims from these former executive officers and the severance payments provide consideration for obtaining the release. Our equity awards for our NEOs provide for accelerated vesting or lapse of restrictions upon a change of control. The MOCC believes that acceleration upon a change of control is appropriate to minimize the risk that executive officers might favor a transaction based on the likely impact on the executive officers’ equity awards, to increase the likelihood that the employees will remain with us after becoming aware of a pending or threatened change of control, and due to the increased likelihood that employees may be terminated by a successor through no fault of their own.
Summary Compensation Table
Summary Compensation Table The table below summarizes the total compensation for the last three fiscal years awarded to, earned by or paid to individuals who served as our CEO and our CFO during fiscal year 2023 and each of the other three most highly compensated executive officers who were serving as executive officers at the end of fiscal year 2023, collectively, the NEOs.
Summary Compensation Table
| Name and Principal Position | Year | Salary ($) | Bonus(1) ($) | Stock Awards(2) ($) | Option Awards(3) ($) | Non-Equity Incentive Plan Compensation(4) ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings(5) ($) | All Other Compensation(6) ($) | Total ($) | | Mark W. Sheahan President and Chief Executive Officer(7) | 2023 | 985,000 | — | — | 5,499,872 | 1,299,436 | 1,425,000 | 26,758 | 9,236,066 | | | 2022 | 918,800 | — | — | 4,499,875 | 788,695 | 191,000 | 18,702 | 6,417,072 | | | 2021 | 706,321 | — | — | 3,499,890 | 938,523 | 256,000 | 21,405 | 5,422,139 | | David M. Lowe Chief Financial Officer and Treasurer(8) | 2023 | 449,400 | — | — | 849,856 | 415,002 | 105,000 | 22,234 | 1,841,492 | | | 2022 | 424,000 | — | — | 749,820 | 254,772 | 0 | 24,574 | 1,453,166 | | | 2021 | 387,972 | — | — | 499,955 | 407,370 | 0 | 27,842 | 1,323,139 | | Christian E. Rothe President, Worldwide Industrial Division | 2023 | 540,600 | — | — | 499,968 | 533,299 | — | 28,355 | 1,602,222 | | | 2022 | 519,800 | — | — | 499,944 | 353,615 | — | 24,691 | 1,398,050 | | | 2021 | 499,800 | — | — | 499,955 | 524,790 | — | 31,846 | 1,556,391 | | Dale D. Johnson Chief Commercial Development Officer(9) | 2023 | 566,400 | — | — | 499,968 | 495,489 | 78,000 | 42,500 | 1,682,357 | | | 2022 | 544,600 | — | — | 499,944 | 206,322 | 0 | 15,412 | 1,266,278 | | | 2021 | 518,700 | 3,172 | 1,734,500 | 574,833 | 544,635 | 0 | 24,406 | 3,400,246 | | Caroline M. Chambers President, EMEA | 2023 | 379,600 | — | — | 499,968 | 360,405 | 328,000 | 1,101,224 | 2,669,197 |
Summary Compensation Table
| (1) Bonus includes any anniversary service awards or discretionary bonuses. |
Summary Compensation Table
| (2) The amount reported in the Stock Awards column is the aggregate grant date fair value of restricted stock units granted in the fiscal year. This amount represents the number of restricted stock units granted multiplied by the closing market value of $69.38 per share of common stock on the date immediately preceding the date of grant. |
Summary Compensation Table
| (3) The amounts reported in the Option Awards column represent the aggregate grant date fair market value of stock options granted in the fiscal year, as estimated for financial accounting purposes. Information concerning the assumptions used in accounting for equity awards may be found in Item 8, Financial Statements and Supplementary Data, Note H to the Consolidated Financial Statements in our 2023 Annual Report on Form 10-K. |
Summary Compensation Table
| (4) The amounts reported in the Non-Equity Incentive Plan Compensation column represent awards earned under the Incentive Bonus Plan. The Incentive Bonus Plan has a 100% of base salary target payout and a 150% of base salary maximum payout for Mr. Sheahan and a 70% of base salary target payout and a 105% of base salary maximum payout for the other NEOs. See “Grants of Plan-Based Awards in 2023” below. At its February 16, 2024 meeting, the MOCC certified that the NEOs who participated in the Incentive Bonus Plan for 2023 were entitled to payouts as follows: |
Summary Compensation Table
| 2023 Incentive Bonus Plan | | | | Named Executive Officer | Payout as a Percent of Target Opportunity | Payout as a Percent of 2023 Base Salary | | Mark. W. Sheahan | 132% | 132% | | David M. Lowe | 132% | 92% | | Christian E. Rothe | 141% | 99% | | Dale D. Johnson | 125% | 87% | | Caroline M. Chambers | 136% | 95% |
Summary Compensation Table
| (5) The amount shown in the Change in Pension Value and Nonqualified Deferred Compensation Earnings column reflects the aggregate change in the actuarial present value of the NEOs’ accumulated benefit under the qualified Graco Employee Retirement Plan and nonqualified excess benefits plan, known as the Graco Restoration Plan. As of December 31, 2023, the changes were as follows: Mr. Sheahan: $178,000 (qualified pension) and $1,247,000 (nonqualified restoration); Mr. Lowe: $84,000 (qualified pension) and $21,000 (nonqualified restoration); Mr. Johnson: $104,000 (qualified pension) and ($26,000) (nonqualified restoration); and Ms. Chambers: $203,000 (qualified pension) and $125,000 (nonqualified restoration). Applicable SEC rules require that we report negative numbers as zero in the table above. |
Summary Compensation Table
| (6) The amounts shown in the All Other Compensation column for 2023 reflect the following for Messrs. Sheahan, Lowe, Johnson, and Rothe, and Ms. Chambers: |
Summary Compensation Table
| | Mr. Sheahan | Mr. Lowe | Mr. Rothe | Mr. Johnson | Ms. Chambers | | Employee Investment Plan Matching Contribution | $9,900 | $9,900 | $9,900 | $16,327 | $9,900 | | Employee Investment Plan Basic Contribution | — | — | $6,600 | — | — | | Other Perquisites(a) | $16,858 | $12,334 | $11,855 | $26,173 | $109,052 | | Tax Gross-Up and Equalization Payments(b) | — | — | — | — | $982,271 | | Total | $26,758 | $22,234 | $28,355 | $42,500 | $1,101,224 |
Summary Compensation Table
| (a) Other Perquisites consists of Company-provided incremental cost for long-term disability coverage, financial planning, spousal travel, miscellaneous travel and an executive physical. None of these individual perquisite categories exceeded the greater of $25,000 or 10% of the total perquisite amount. In Ms. Chambers’ case, Other Perquisites also includes the following benefits provided to her in connection with her expatriate assignment to Belgium: (1) $6,108 for goods and services differential; (2) $35,018 for housing, utilities, home maintenance and monitoring; (3) $3,503 for payment of travel expenses related to home leave; (4) $42,563 for tax services; and (5) $16,542 for Company-provided automobile and related expenses. |
Summary Compensation Table
| (b) The amount for Mr. Chambers consists of (1) $769,421 for tax gross-up payments and (2) $212,850 for tax equalization payments related to Ms. Chambers’ expatriate assignment. |
Summary Compensation Table
| (7) Mr. Sheahan served as Chief Financial Officer and Treasurer through June 9, 2021, and became President and Chief Executive Officer effective June 10, 2021. |
Summary Compensation Table
| (8) Mr. Lowe served as President, Worldwide Process Division through June 9, 2021, and became Chief Financial Officer and Treasurer effective June 10, 2021. |
Summary Compensation Table
| (9) Mr. Johnson served as President, Worldwide Contractor Equipment Division through December 31, 2023, and became Chief Commercial Development Officer effective January 1, 2024, in which capacity he will support the Contractor Equipment Division leadership transition to his successor, as well as facilitate various commercial and cross-divisional initiatives. Mr. Johnson has advised the Company of his intention to retire in the first quarter of 2025. |
Grants of Plan-Based Awards in 2023
Grants of Plan-Based Awards in 2023 On February 17, 2023, the MOCC awarded a non-qualified stock option to each executive officer, including the NEOs, under the 2019 Plan. The amounts shown in the table below in the column entitled “All Other Option Awards: Number of Securities Underlying Options” reflect the number of common shares covered by the stock option granted to each NEO. Each option has a 10-year term and becomes exercisable in equal installments over four years, beginning with the first anniversary of the grant date. Under the Incentive Bonus Plan, the payout upon achievement of applicable financial measures ranges from a minimum of 0% to a maximum of 150% of base salary for Mr. Sheahan and a minimum of 0% to a maximum of 105% of base salary for the other NEOs.
Grants of Plan-Based Awards for Fiscal Year Ended December 29, 2023
Grants of Plan-Based Awards for Fiscal Year Ended December 29, 2023
Grants of Plan-Based Awards for Fiscal Year Ended December 29, 2023
| Name | Grant Date | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | | | All Other Option Awards: Number of Securities Underlying Options (#) | Exercise or Base Price of Option Awards ($/sh)(1) | Closing Market Price of Common Stock on Grant Date ($/sh)(1) | Grant Date Fair Value of Stock or Option Awards ($)(2) | | | | Threshold ($) | Target ($) | Maximum ($) | | | | | | Mark W. Sheahan | 2/17/2023 | | | | 245,530 | 71.47 | 72.47 | 5,499,872 | | | | 0 | 985,000 | 1,477,500 | | | | | | David M. Lowe | 2/17/2023 | | | | 37,940 | 71.47 | 72.47 | 849,856 | | | | 0 | 314,580 | 471,870 | | | | | | Christian E. Rothe | 2/17/2023 | | | | 22,320 | 71.47 | 72.47 | 499,968 | | | | 0 | 378,420 | 567,630 | | | | | | Dale D. Johnson | 2/17/2023 | | | | 22,320 | 71.47 | 72.47 | 499,968 | | | | 0 | 396,480 | 594,720 | | | | | | Caroline M. Chambers | 2/17/2023 | | | | 22,320 | 71.47 | 72.47 | 499,968 | | | | 0 | 265,720 | 398,580 | | | | |
Grants of Plan-Based Awards for Fiscal Year Ended December 29, 2023
| (1) The 2019 Plan requires the exercise price of an option to be the fair market value of the shares on the date of the grant. The fair market value of the shares is defined as the last sale price on the day preceding the date of grant, unless otherwise determined by the MOCC. The MOCC has not changed this definition. |
Grants of Plan-Based Awards for Fiscal Year Ended December 29, 2023
| (2) The aggregate grant date fair value of the award was calculated in accordance with U.S. accounting standards, using a value of $22.40 per share. |
Outstanding Equity Awards at 2023 Fiscal Year End
Outstanding Equity Awards at 2023 Fiscal Year End The following table summarizes the outstanding equity awards held by each Named Executive Officer on December 29, 2023:
Outstanding Equity Awards at 2023 Fiscal Year End
| | | Option Awards | | | | Stock Awards | | | Name | Grant Date | Number of Securities Underlying Unexercised Options(1, 2) | | Option Exercise Price ($)(2) | Option Expiration Date | | | | | | Exercisable (#) | Unexercisable (#) | | | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | | Mark W. Sheahan | 2/17/2023 | 0 | 245,530 | 71.4700 | 2/17/2033 | | | | | 2/18/2022 | 59,022 | 177,068 | 71.7300 | 2/18/2032 | | | | | 6/10/2021 | 68,745 | 68,745 | 73.7000 | 6/10/2031 | | | | | 2/12/2021 | 25,480 | 25,480 | 71.9200 | 2/12/2031 | | | | | 2/14/2020 | 45,142 | 15,048 | 56.3500 | 2/14/2030 | | | | | 2/15/2019 | 49,180 | 0 | 45.5600 | 2/15/2029 | | | | | 2/16/2018 | 35,180 | 0 | 43.9000 | 2/16/2028 | | | | | 2/17/2017 | 52,620 | 0 | 30.3467 | 2/17/2027 | | | | | 2/12/2016 | 63,510 | 0 | 23.8467 | 2/12/2026 | | | | | 2/13/2015 | 47,130 | 0 | 24.7934 | 2/13/2025 | | | | | 2/14/2014 | 43,080 | 0 | 24.9334 | 2/14/2024 | | | | David M. Lowe | 2/17/2023 | 0 | 37,940 | 71.4700 | 2/17/2033 | | | | | 2/18/2022 | 9,835 | 29,505 | 71.7300 | 2/18/2032 | | | | | 2/12/2021 | 14,155 | 14,155 | 71.9200 | 2/12/2031 | | | | | 2/14/2020 | 28,590 | 9,530 | 56.3500 | 2/14/2030 | | | | | 2/15/2019 | 36,880 | 0 | 45.5600 | 2/15/2029 | | | | | 2/16/2018 | 33,220 | 0 | 43.9000 | 2/16/2028 | | | | | 2/17/2017 | 51,360 | 0 | 30.3467 | 2/17/2027 | | | | | 2/12/2016 | 63,510 | 0 | 23.8467 | 2/12/2026 | | | | | 2/13/2015 | 47,130 | 0 | 24.7934 | 2/13/2025 | | | | | 2/14/2014 | 43,080 | 0 | 24.9334 | 2/14/2024 | | | | Christian E. Rothe | 2/17/2023 | 0 | 22,320 | 71.4700 | 2/17/2033 | | | | | 2/18/2022 | 6,557 | 19,673 | 71.7300 | 2/18/2032 | | | | | 2/12/2021 | 14,155 | 14,155 | 71.9200 | 2/12/2031 | | | | | 2/14/2020 | 30,090 | 10,030 | 56.3500 | 2/14/2030 | | | | | 2/15/2019 | 40,980 | 0 | 45.5600 | 2/15/2029 | | | | | 2/16/2018 | 54,730 | 0 | 43.9000 | 2/16/2028 | | | | | 2/17/2017 | 65,760 | 0 | 30.3467 | 2/17/2027 | | | | | 2/12/2016 | 79,380 | 0 | 23.8467 | 2/12/2026 | | | | Dale D. Johnson | 2/17/2023 | 0 | 22,320 | 71.4700 | 2/17/2033 | | | | | 2/18/2022 | 6,557 | 19,673 | 71.7300 | 2/18/2032 | | | | | 2/26/2021 | | | | | 25,000(3) | 2,169,000(4) | | | 2/12/2021 | 16,275 | 16,275 | 71.9200 | 2/12/2031 | | | | | 2/14/2020 | 31,597 | 10,533 | 56.3500 | 2/14/2030 | | | | | 2/15/2019 | 40,980 | 0 | 45.5600 | 2/15/2029 | | | | | 2/16/2018 | 35,180 | 0 | 43.9000 | 2/16/2028 | | | | | 2/17/2017 | 52,620 | 0 | 30.3467 | 2/17/2027 | | | | | 2/12/2016 | 63,510 | 0 | 23.8467 | 2/12/2026 | | | | Caroline M. Chambers | 2/17/2023 | 0 | 22,320 | 71.4700 | 2/17/2033 | | | | | 2/18/2022 | 6,557 | 19,673 | 71.7300 | 2/18/2032 | | | | | 2/12/2021 | 14,155 | 14,155 | 71.9200 | 2/12/2031 | | | | | 2/14/2020 | 25,575 | 8,525 | 56.3500 | 2/14/2030 | | | | | 2/15/2019 | 32,780 | 0 | 45.5600 | 2/15/2029 | | | | | 2/16/2018 | 27,360 | 0 | 43.9000 | 2/16/2028 | | | | | 2/17/2017 | 43,830 | 0 | 30.3467 | 2/17/2027 | | | | | 2/12/2016 | 51,600 | 0 | 23.8467 | 2/12/2026 | | | | | 2/13/2015 | 32,280 | 0 | 24.7934 | 2/13/2025 | | |
Outstanding Equity Awards at 2023 Fiscal Year End
| (1) All options have a 10-year term and become exercisable in equal installments over four years, beginning with the first anniversary of the grant date. |
Outstanding Equity Awards at 2023 Fiscal Year End
| (2) Adjusted for three-for-one stock split completed December 27, 2017. |
Outstanding Equity Awards at 2023 Fiscal Year End
| (3) The restricted stock units will vest in full on December 31, 2024, subject to Mr. Johnson’s continued employment through that date. If Mr. Johnson’s employment terminates for any reason other than death, disability or termination by the Company without cause, all restricted stock units will be forfeited. |
Outstanding Equity Awards at 2023 Fiscal Year End
| (4) Market value determined using the closing market price of $86.76 per share of common stock on the last day of the fiscal year multiplied by the number of restricted stock units granted. |
Option Exercises and Stock Vested in 2023
Option Exercises and Stock Vested in 2023 The following table summarizes the options exercised by each Named Executive Officer in 2023:
Option Exercises and Stock Vested in 2023
| Name | Option Awards | | | | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($)(1) | | Mark W. Sheahan | 0 | 0 | | David M. Lowe | 54,000 | 2,731,860 | | Christian E. Rothe | 0 | 0 | | Dale D. Johnson | 90,210 | 4,914,536 | | Caroline M. Chambers | 27,060 | 1,480,959 |
Option Exercises and Stock Vested in 2023
| (1) The value realized on the exercise of stock options is the difference between the market price of Graco common stock at exercise and the exercise price of the stock option. |
Potential Payments Upon Termination or Following a Change of Control at December 29, 2023
Potential Payments Upon Termination or Following a Change of Control at December 29, 2023
Potential Payments Upon Termination or Following a Change of Control at December 29, 2023
| Name | Involuntary (Not for Cause) or Good Reason Termination Following Change of Control(1) ($) | Involuntary (Not for Cause) Termination(2) ($) | Retirement ($) | Death(3) ($) | Disability(4) ($) | | Mark W. Sheahan | 13,024,937 | 4,366,634 | 389,100 | 1,374,100 | 642,276 | | David M. Lowe | 3,378,059 | 1,031,059 | 251,300 | 701,300 | 512,900 | | Christian E. Rothe | 3,028,722 | 944,788 | 0 | 541,000 | 258,000 | | Dale D. Johnson | 8,141,291 | 3,732,609 | 584,900 | 3,320,900 | 3,013,448 | | Caroline M. Chambers | 2,706,886 | 924,542 | 261,700 | 641,700 | 519,700 |
Potential Payments Upon Termination or Following a Change of Control at December 29, 2023
| (1) The amounts represent aggregated payments if a Change of Control and qualifying termination of employment occurred on December 29, 2023, which include: |
Potential Payments Upon Termination or Following a Change of Control at December 29, 2023
| • | Severance payment under the Key Employee Agreement. Upon certain terminations of employment within two years following a Change of Control, Mr. Sheahan is entitled to a severance payment equal to the sum of three times his base salary plus target annual bonus and the other NEOs are entitled to a severance payment equal to the sum of two times their base salary plus target annual bonus. |
Potential Payments Upon Termination or Following a Change of Control at December 29, 2023
| • | The intrinsic value of restricted stock units where vesting would be accelerated. The value of restricted stock units is determined by multiplying the number of restricted stock units by the closing price of common stock on December 29, 2023. |
Potential Payments Upon Termination or Following a Change of Control at December 29, 2023
| • | The intrinsic value (or spread between the exercise and market price) of the stock options whose exercisability would be accelerated. The value of accelerated stock options is determined by multiplying the number of unvested options by the difference between the closing share price on December 29, 2023, and the option exercise price. |
Potential Payments Upon Termination or Following a Change of Control at December 29, 2023
| • | Annual incremental qualified pension and restoration benefit amount. Actuarial annual retirement benefit amount of the accumulated benefit and the accompanying valuation method and assumptions applied for the qualified Graco Employee Retirement Plan and the nonqualified Graco Restoration Plan may be found in the Pension Benefits table and the accompanying narrative on page 38. The incremental benefit amount was determined using additional pay and earnings based on December 29, 2023, base pay and target bonus amounts. The Change of Control annual retirement benefit amount providing for additional years of service credit is calculated as of the earliest possible benefit commencement date. Assuming a December 29, 2023 termination date, current year bonus would be paid in accordance with the Incentive Bonus Plan. See the Non-Equity Incentive Plan Compensation column and accompanying footnotes in the Summary Compensation Table on page 31. |
Potential Payments Upon Termination or Following a Change of Control at December 29, 2023
| • | The value of other benefits (post-employment health and dental care premiums and life insurance premiums). |
Potential Payments Upon Termination or Following a Change of Control at December 29, 2023
Under the Key Employee Agreement, the payment may be reduced in situations where the NEO would otherwise be subject to excise tax liability under Section 280G of the Code if the amount of such reduced payment would be greater than the full payment less the excise tax. The amounts in the table above do not reflect any reductions that might be made.
Potential Payments Upon Termination or Following a Change of Control at December 29, 2023
| (2) Reflects two years of base salary and target annual bonus for Mr. Sheahan and one year of base salary and target annual bonus for the other NEOs; annual incremental qualified pension and restoration benefit amount; and the value of other benefits (post-employment health and dental care premiums and life insurance premiums). Should our Company elect to extend the non-compete duration beyond one year, the payment amount for the NEOs, except for Mr. Sheahan, would increase. |
Potential Payments Upon Termination or Following a Change of Control at December 29, 2023
| (3) Reflects life insurance benefit and, for Messrs. Sheahan, Lowe, and Johnson, and Ms. Chambers, annual incremental qualified pension and restoration benefit amount. |
Potential Payments Upon Termination or Following a Change of Control at December 29, 2023
| (4) Assumes NEO is not age 65 or above and disabled for a full calendar year. Benefit reflects an annualized amount that would be paid on a monthly basis and would cease if NEO reaches their Social Security normal retirement age or is no longer disabled. In addition, for Messrs. Sheahan, Lowe and Johnson, and Ms. Chambers, reflects annual incremental qualified pension and restoration benefit amount. |
Graco Employee Retirement Plan
Graco Employee Retirement Plan The Graco Employee Retirement Plan – Blue (2017 Statement) (the “Retirement Plan”) is a funded, tax-qualified defined benefit pension plan designed to coordinate with Social Security benefits to provide a basic level of retirement benefits for all eligible employees. Eligible executive officers participate in the Retirement Plan on the same terms as the rest of our eligible employees. The Retirement Plan is frozen to employees hired on or after January 1, 2006. Each of the Named Executive Officers is eligible for benefits under the Retirement Plan, except for Mr. Rothe, as he was hired by the Company after January 1, 2006. Benefits for those eligible under the Retirement Plan consist of a fixed benefit, which is designed to provide a retirement income at age 65 of 43.5% of a participant’s average monthly compensation, less 18% of Social Security-covered compensation (calculated in a life annuity option) for an employee with 30 years of service. Average monthly compensation is defined as the average of the five consecutive highest years’ cash compensation during the last ten years of service, divided by sixty. The Retirement Plan defines eligible cash compensation as base salary, holiday pay, income earned outside of the United States but paid in the United States, annual bonus, CEO award, sales incentive, area differential, short-term disability payments, vacation pay, paid out accrued vacation, deferrals made under a cash or deferred agreement under Code Section 401(k), contributions to a plan established under Code Section 125, and transit and parking reimbursements made under Code Section 132. Benefits under the Retirement Plan vest upon five years of benefit service. Normal retirement age is defined as age 65 or age 62 with at least 30 years of service. Early retirement is available to participants age 55 or older with 5 years of vesting service. The monthly amount of a participant’s benefit when retiring prior to age 65, or age 62 with less than 30 years of benefit service, will be reduced by 0.5% for each month by which a participant’s benefit is to begin prior to the participant turning age 65 (or age 62, as the case may be). If a participant continues in employment with the Company after the participant’s normal retirement date, payment of the benefit shall be suspended for each calendar month during which the participant continues employment. The default form of pension benefit is a single life annuity that provides a monthly benefit for the life of the participant. A participant may elect an optional form of payment. The optional forms available are a joint and survivor annuity or a term certain annuity. A joint and survivor annuity is an annuity that is payable monthly to and for the lifetime of the participant with a survivor annuity that is payable monthly after the participant dies to and for the lifetime of a participant’s designated joint annuitant in an amount equal to 50%, 66 2/3%, 75% or 100% (as elected by the participant) of the amount payable during the joint lives of the participant and the designated joint annuitant. The value of the amounts payable in the joint and survivor annuity form of pension shall be actuarially equivalent to the value of the amounts payable in the single life annuity form of pension. A term certain annuity is a form of annuity that is payable monthly to and for the lifetime of the participant or, if longer, for 120 or 180 months, as elected by the participant before the participant’s pension is to begin.
Pension Benefits at 2023 Fiscal Year End
Pension Benefits at 2023 Fiscal Year End
Pension Benefits at 2023 Fiscal Year End
| Name(3) | Plan Name | Number of Years Credited Service (#) | Present Value of Accumulated Benefit(1, 2) ($) | Payments During Last Fiscal Year ($) | | Mark W. Sheahan | Graco Employee Retirement Plan | 28.3 | 1,228,000 | — | | | Graco Restoration Plan | 28.3 | 4,144,000 | — | | David M. Lowe | Graco Employee Retirement Plan | 28.9 | 1,194,000 | — | | | Graco Restoration Plan | 28.9 | 1,558,000 | — | | Dale D. Johnson | Graco Employee Retirement Plan | 47.9 | 1,922,000 | — | | | Graco Restoration Plan | 47.9 | 4,245,000 | — | | Caroline M. Chambers | Graco Employee Retirement Plan | 31.9 | 1,413,000 | — | | | Graco Restoration Plan | 31.9 | 1,599,000 | — |
Pension Benefits at 2023 Fiscal Year End
| (1) Information concerning the assumptions used in accounting for retirement benefits may be found in Item 8, Financial Statements and Supplementary Data, Note J to the Consolidated Financial Statements in our 2023 Annual Report on Form 10-K. |
Pension Benefits at 2023 Fiscal Year End
| (2) Benefits for both the Retirement Plan and the Restoration Plan are based on either age 65 or the earliest date the NEO would receive unreduced benefits. |
Pension Benefits at 2023 Fiscal Year End
| (3) Based on age and credited years of service, Mr. Sheahan and Ms. Chambers are eligible for early retirement benefits, and Messrs. Lowe and Johnson are eligible for unreduced benefits, under the Retirement Plan and the Restoration Plan. |
Nonqualified Deferred Compensation
Nonqualified Deferred Compensation The Graco Inc. Deferred Compensation Plan (2005 Statement) (the “Deferred Compensation Plan”) is a nonqualified, unfunded deferred compensation plan intended to meet the requirements of Section 409A of the Code. Our Company has purchased insurance contracts on the lives of certain employees who are eligible to participate in the Restoration Plan and the Deferred Compensation Plan to fund the Company’s liability under these plans. These insurance contracts are held in trust and are available to general creditors in the event of the Company’s insolvency. Only a select group of management and highly compensated employees are eligible to participate in the Deferred Compensation Plan. A participant in the Deferred Compensation Plan may elect to defer 1% to 50% of their base salary or sales incentive advances and/or 1% to 100% of their annual bonus and year-end sales incentive award. The Deferred Compensation Plan uses measurement funds to value the performance of the participants’ accounts. Participants can select one or more measurement funds and allocate their accounts in whole percentages. Participants have the ability to change their measurement funds on a daily basis. Participants are fully vested in the funds credited to their account at all times. Upon enrollment in the Deferred Compensation Plan, the participant elects the year distributions are to begin, which may coincide with the participant’s separation from service, and the form of distribution. The participant may elect a one-time change to the year in which the distribution is to begin. A change will delay the first distribution date for at least five years after the date the distributions would have begun under the original election. Participants have the ability to select between the following distribution forms: lump sum or annual installments for five, ten or fifteen years. In the event of a distribution made in connection with the participant’s separation from service, the account will be distributed as soon as administratively possible in the January next following the date of separation from service. For a specified employee (as defined by Code Section 409A), distributions made due to a separation from service will be delayed until the first of the month following the date that is six months after the date the specified employee separated from service.
Nonqualified Deferred Compensation at 2023 Fiscal Year End
Nonqualified Deferred Compensation at 2023 Fiscal Year End As of December 29, 2023, Ms. Chambers was the only named executive officer contributing to the Deferred Compensation Plan.
Nonqualified Deferred Compensation at 2023 Fiscal Year End
| Name | Executive Contributions in Last Fiscal Year (2023) ($) | Registrant Contributions in Last Fiscal Year (2023) ($)(1) | Aggregate Earnings in Last Fiscal Year (2023)(2) ($) | Aggregate Withdrawals/ Distributions in 2023 ($) | Aggregate Balance as of 12/29/2023 ($)(3) | | Caroline Chambers | — | — | 45,203 | — | 336,751 |
Nonqualified Deferred Compensation at 2023 Fiscal Year End
| (1) The Company has not made any contributions to Ms. Chambers’ account, and she has not received any earnings on deferred compensation that are above-market or preferential. |
Nonqualified Deferred Compensation at 2023 Fiscal Year End
| (2) Participants are permitted to choose to have their account balance indexed to crediting rate alternatives that generally mirror the investment choices and actual rates of return available under the Company’s 401(k) plan. |
Nonqualified Deferred Compensation at 2023 Fiscal Year End
| (3) This amount represents cash compensation from prior years that are not included in the Summary Compensation for any prior year because Ms. Chambers first became an NEO for 2023 and related earnings on such deferrals. |
CEO Pay Ratio
CEO Pay Ratio As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 402(u) of Regulation S-K, we are providing the ratio of the annual total compensation of our CEO to the median of the annual total compensation of our employees (excluding our CEO). In 2023, the annual total compensation of our CEO was $9,236,066, and the annual total compensation of our median employee was $88,426, resulting in a ratio of approximately 104 to 1. To identify our median employee, we generated a list of all individuals employed by the Company and its consolidated subsidiaries as of December 29, 2023, excluding our CEO. We did not exclude any non-U.S. employees from the list. We then used base compensation (defined as base salary or wages) for calendar 2023 as the consistently applied compensation measure for all employees, and sorted the list based on this measure to identify the median compensation of our employees. Compensation in currencies other than the U.S. dollar was converted into U.S. dollars at the applicable exchange rate in effect as of December 29, 2023. We identified an employee at the median of base compensation, and then calculated the total annual compensation of the identified median employee for 2023 using the same methodology we used to calculate the annual total compensation of our CEO in the Summary Compensation Table. The SEC’s rules for identifying the median employee, calculating the median employee’s annual total compensation, 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 employee populations and compensation practices. As a result, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies have different employee populations 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 As required by Section 953(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 402(v) of Regulation S-K, the table below discloses, for the last four fiscal years: (i) the total compensation paid (as reported in the Summary Compensation Table (“SCT”)) and the compensation actually paid (“CAP”) to the individuals who served as the CEO; (ii) the average of the total compensation paid (as reported in the SCT) and the average CAP to the individuals who served as non-CEO Named Executive Officers (“NEOs”); (iii) the cumulative total shareholder return of the Company and peer group cumulative total shareholder return; (iv) net income; and (v) net sales.
Pay Versus Performance Table
| Year | Summary Compensation Table Total for Current CEO (1) ($) | Compensation Actually Paid to Current CEO (1)(4) ($) | Summary Compensation Table Total for Former CEO (2) ($) | Compensation Actually Paid to Former CEO (2)(4) ($) | Average Summary Compensation Table Total for Non-CEO NEOs (3) ($) | Average Compensation Actually Paid to Non-CEO NEOs (3)(4) ($) | Value of Initial Fixed $100 Investment (5) Based On: | | Net Income (in thousands) ($) | Net Sales (7) (in thousands) ($) | | | | | | | | | Cumulative Total Shareholder Return ($) | Peer Group Cumulative Total Shareholder Return (6) ($) | | | | 2023 | 9,236,066 | 10,871,942 | — | — | 1,948,817 | 2,226,741 | 175 | 160 | 506,511 | 2,195,606 | | 2022 | 6,417,072 | 6,011,113 | — | — | 1,324,147 | 1,237,294 | 134 | 126 | 460,645 | 2,143,521 | | 2021 | 5,422,139 | 5,758,222 | 1,686,160 | 2,042,742 | 1,901,127 | 1,896,267 | 158 | 144 | 439,866 | 1,987,608 | | 2020 | — | — | 8,992,789 | 8,345,564 | 1,576,933 | 1,674,459 | 141 | 116 | 330,456 | 1,650,115 |
Pay Versus Performance Table
| (1) Mark W. Sheahan became President and Chief Executive Officer effective June 10, 2021. |
Pay Versus Performance Table
| (2) Patrick J. McHale served as President and Chief Executive Officer from June 2007 through June 9, 2021. |
Pay Versus Performance Table
| (3) The non-CEO NEOs were as follows: David M. Lowe, Dale D. Johnson, Christian E. Rothe and Caroline M. Chambers (2023); David M. Lowe, Dale D. Johnson, Christian E. Rothe and Jeffrey P. Johnson (2022 and 2021); and Mark W. Sheahan, Dale D. Johnson, Christian E. Rothe and Jeffrey P. Johnson (2020). |
Pay Versus Performance Table
| (4) The table below sets forth the amounts deducted from and added to SCT total compensation to calculate CAP to Mr. Sheahan and average CAP to the non-CEO NEOs for 2023. |
Pay Versus Performance Table
| Adjustments | Current CEO ($) | Average of Non-CEO NEOs ($) | | Total Compensation from SCT | 9,236,066 | 1,948,817 | | Adjustments for defined benefit and actuarial pension plans: | | | | Subtract aggregate change in the actuarial present value of accumulated benefits under all defined benefit and pension plans reported in the SCT | 1,425,000 | 127,750 | | Add service cost | 398,000 | 82,250 | | Add prior service cost | 0 | 0 | | Adjustments for stock and option awards: | | | | Subtract SCT amounts of stock and option awards | 5,499,872 | 587,440 | | Add fair value at year-end of awards granted during fiscal year 2023 that are outstanding and unvested at year-end | 6,459,894 | 689,980 | | +/- The difference between fair value of awards from the end of fiscal year 2022 to the end of fiscal year 2023 for awards granted in any prior fiscal year that are outstanding and unvested at year-end | 1,390,782 | 175,534 | | Add the fair value as of the vesting date for awards granted and vesting during fiscal year 2023 | 312,072 | 45,350 | | +/- The change in fair value from the end of fiscal year 2022 to the vesting date for awards granted in any prior fiscal year for which all applicable vesting conditions were satisfied during fiscal year 2023 | 0 | 0 | | Subtract fair value at end of prior year for awards granted in any prior fiscal year that fail to meet the applicable vesting conditions during fiscal year 2023 | 0 | 0 | | Add dividends or other earnings paid on stock or option awards in 2023 prior to vesting if not otherwise included in total compensation for fiscal year 2023 | 0 | 0 | | Compensation Actually Paid (as calculated) | 10,871,942 | 2,226,741 |
Pay Versus Performance Table
| (5) Total shareholder return is calculated based on a fixed investment of one hundred dollars measured from the market close on the last trading day of fiscal 2019 through and including the end of each fiscal year reported in the table. |
Pay Versus Performance Table
| (6) The peer group used in this Pay Versus Performance table is the Dow Jones U.S. Industrial Machinery 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. |
Pay Versus Performance Table
| (7) Our Company-selected measure, which is the measure we believe represents the most important financial performance not otherwise presented in the table above that we use to link CAP to our NEOs for fiscal 2023 to our Company’s performance, is Net Sales. |
Supplemental Pay Versus Performance Disclosure
Supplemental Pay Versus Performance Disclosure As discussed in the Compensation Discussion and Analysis section of this Proxy Statement, paying for performance is the cornerstone of the Company’s compensation philosophy and program. The MOCC uses Net Sales and Incentive EPS growth as the sole metrics for our short-term cash incentive plan, and stock options as the sole vehicle for our long-term incentive plan, to motivate our executive officers to attain annual and long-term goals and operational growth for the Company, and to align our executive officers’ interests with our shareholders’ interests in creating long-term shareholder value. As depicted in the chart below, over the past 10 years, the Company’s cumulative total shareholder return has been 284% versus 211% for the S&P 500 and 193% for the Dow Jones U.S. Industrial Machinery Index. The MOCC believes these results demonstrate the use of Net Sales and Incentive EPS growth as the sole metrics in our short-term incentive program and stock options as the sole vehicle in our long-term incentive program have been highly effective in aligning our executive officers’ interests with our shareholders’ interests in creating shareholder value over the long term.
ELECTION OF DIRECTORS
ELECTION OF DIRECTORS The number of directors of our Company is currently set at eleven, and there are currently eleven directors. Given the retirements of Lee R. Mitau and R. William Van Sant from the Board effective as of the Meeting, the number of directors will be reduced to nine, and the number of directors set at nine, as of the Meeting. The directors are divided into three classes, each class being as equal in number as reasonably possible. Vacancies may be filled by a majority vote of the directors then in office, though less than a quorum, and directors so chosen are subject to election by the shareholders at the next Annual Meeting of Shareholders. Directors elected at an Annual Meeting of Shareholders to succeed directors whose terms expire are elected for three-year terms. Once elected, all directors are subject to the standards set forth in our Corporate Governance Guidelines, which include, among others, the requirement to tender the director’s resignation if his or her employment status significantly changes, and the requirement to resign from the Board effective as of the date of the Annual Meeting of Shareholders following the director’s 75th birthday unless the director has current, substantial engagement in business activities that require skills relevant to Graco’s business and useful to the Board. At the Meeting, three persons will be nominated for election to our Board of Directors. Upon recommendation of the Governance Committee, which acts as the nominating committee of the Board, the Board has nominated Heather L. Anfang, Archie C. Black and Brett C. Carter for three-year terms expiring in the year 2027. Each of Ms. Anfang, Mr. Black and Mr. Carter’s current terms expire at the Meeting. Mr. Carter has previously been elected as a director by the shareholders of our Company, and Ms. Anfang and Mr. Black are standing for election by the shareholders of our Company for the first time. For additional information about the nominees, please see the “Nominees and Continuing Directors” section of this Proxy Statement beginning on page 6. Unless otherwise instructed not to vote for the election of directors, proxies will be voted to elect the nominees set forth above. A director nominee must receive the vote of a majority of the votes cast at the Meeting in order to be elected. In the event that an incumbent director does not receive a majority of the votes cast, our Corporate Governance Guidelines require that the director promptly offer to tender his or her resignation to the Board. The Governance Committee will make a recommendation to the Board on whether to accept or reject the offer. The Board, taking into account the recommendation of the Governance Committee, will decide whether to accept or reject the offer, and will publicly disclose its decision and the rationale behind it within 90 days after the date of the election. Unless the Board reduces the number of directors, your proxy will be voted to elect any replacement nominee designated by the Board in the event that a nominee is unable or unwilling to serve. The Board of Directors, upon recommendation of the Governance Committee, recommends that shareholders vote FOR the election of Ms. Anfang, Mr. Black and Mr. Carter to terms expiring in 2027.