DEF 14A of Patrick Industries Inc
Filed Apr 1, 2024 · FY20230001193125-24-083390
Aligning Pay to Differentiated Performance
| • | The annual Short-Term Cash Compensation Plan provides for enhanced payouts for performance above plan up to a maximum of 200% of target compensation at 115% of plan and incorporates a threshold payout of 50% of target compensation at 75% of plan. |
Aligning Pay to Differentiated Performance
| • | The annual Long-Term Incentive Compensation Plan is designed to drive the executive’s focus on long-term profitability through both organic and inorganic growth over the three-year award performance period. This equity plan is also designed to motivate leadership to perform above plan with a maximum payout of 200% of target compensation at 120% of plan and a threshold payout of 50% of target compensation at 80% of plan. |
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| Notice of 2024 Annual Meeting of Shareholders & Proxy Statement | 6 |
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| 2023 Board Composition and Governance Highlights | | | | | Size of Board | 9 | Annual Election of All Directors | ✓ | | Average Age (in years) of Directors | 59 | Diverse Board Committee Chairs | ✓ | | Number of Independent Directors | 7/9 | Independent Directors Meet Without Non-Independent Directors Present | ✓ | | Directors that are Gender or Racially/ Ethnically Diverse | 33% | Board Orientation and Continuing Education | ✓ | | Audit Committee Expertise | 67% | Board-level Oversight of Environmental, Social & Governance (ESG) Matters | ✓ | | Average Tenure (in years) on Board | 10.9 | Annual Review of Committee Charters, Code of Ethics & Governance Guidelines | ✓ | | Separate Chairman and CEO positions | ✓ | Succession Planning | ✓ | | Lead Independent Director | ✓ | Sustainability Reporting Framework: SASB | ✓ |
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Andy Nemeth, CEO
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| Nominees for Election | |
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| | Biography Joseph M. Cerulli, age 64, has been employed by Tontine Associates, LLC, an investment management firm (together with its affiliates, “Tontine”), since January 2007. Qualifications Mr. Cerulli possesses extensive knowledge with respect to business operations, strategic planning, financial and investment matters, including investment banking, capital markets, and mergers and acquisitions strategy. | | Joseph M. Cerulli Age 64 Director since 2008 Committees Corporate Governance and Nominations (Chair) | |
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| | Biography Todd M. Cleveland, age 56, has been our Chairman of the Board since January 1, 2023 and Executive Chairman of the Board from January 2020 to December 31, 2022. Prior to that, Mr. Cleveland was Chairman of the Board from May 2018 to December 2019 and our Chief Executive Officer from February 2009 to December 2019. Mr. Cleveland was President of the Company from May 2008 to December 2015 and Chief Operating Officer of the Company from May 2008 to March 2013. Mr. Cleveland has served as a Director of IES Holdings, Inc. (“IES”) from 2017 to the present, and he has been the chairman of IES’s Human Resources and Compensation Committee since February 2019 and a member of IES’s Audit Committee since February 2021. | | Todd M. Cleveland Age 56 Director since 2008 Committees None Other Public Board Directorships IES Holdings, Inc. | Qualifications Mr. Cleveland has over 33 years of RV, marine, manufactured housing, and industrial experience in various operating capacities. He also has extensive knowledge of our Company and the industries to which we sell our products. Mr. Cleveland’s experience includes management development and leadership, acquisitions, strategic planning, finance and capital allocation, and the manufacturing and sales of our products. |
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| Notice of 2024 Annual Meeting of Shareholders & Proxy Statement | 8 |
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| | Biography John A. Forbes, age 64, has been a partner with Outcomes LLC and Full Sails LLC, two firms engaged in new product development and strategic business consulting, since June 2017. In addition, Mr. Forbes served as the interim Chief Financial Officer (“CFO”) of the Company from June 2020 to November 2020. Previously, Mr. Forbes was the President of Utilimaster, a business unit of Shyft Group (formerly known as Spartan Motors USA, Inc.), from July 2010 to June 2017. Prior to that time, he was the CFO of Utilimaster from May 2009 to July 2010, the CFO of Nautic Global Group, LLC from 2007 to 2009 and the CFO of Adorn, LLC from 2003 to 2007. Mr. Forbes has served as a director of Chase Packaging Corporation since March 2019. | | John A. Forbes Age 64 Director since 2011 Committees Audit • Compensation • Corporate Governance and Nominations Other Public Board Directorships Chase Packaging Corporation | Qualifications Mr. Forbes has over 37 years of experience in serving various manufacturing industries, having held senior financial leadership roles. Mr. Forbes also has extensive experience with operations and talent management, acquisitions, strategic planning, risk management and banking relations. He has been determined by our Board to be an “audit committee financial expert” under the rules and regulations of the Securities and Exchange Commission (the “SEC”). |
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| | Biography Michael A. Kitson, age 65, served as a fractional Chief Financial Officer (“CFO”) at Ascent CFO Solutions, a provider of outsourced financial and accounting services, from May 2022 to March 2023. Prior to that time, Mr. Kitson served as the CFO of oVertone Haircare, Inc. from July 2018 through January 2022. Previously, Mr. Kitson was a principal with AVL Growth Partners, a firm that provides Chief Financial Officer and other financial advisory services, from March 2017 to July 2018. Prior to that, Mr. Kitson was the CFO of MikaTek, Ltd. from January 2016 to July 2016, the Chief Executive Officer (“CEO”) of SharpShooter Imaging from March 2015 to January 2016, the CEO of Nautic Global Group (“Nautic”) from March 2011 to October 2013, and the CFO of Nautic from August 2010 to March 2011. | | Michael A. Kitson Age 65 Director since 2013 Committees Audit (Chair) • Compensation • Corporate Governance and Nominations | Qualifications Mr. Kitson has over 37 years of experience in serving various manufacturing industries in senior financial leadership roles. Mr. Kitson also has extensive experience with corporate and operations management, finance and capital allocation, strategic planning and risk management. He has been determined by our Board to be an “audit committee financial expert” under the SEC’s rules and regulations. |
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| | Biography Pamela R. Klyn, age 53, has been the Executive Vice President of Corporate Relations and Sustainability at Whirlpool Corporation, a leading global major appliance company, since August 2023 and the Senior Vice President of Corporate Relations and Sustainability at Whirlpool from January 2022 to July 2023. Prior to that time, Ms. Klyn was a Senior Vice President in the Global Product Organization at Whirlpool Corporation from 2018 to 2021, and has held various leadership positions in marketing and engineering with Whirlpool Corporation since 1993. | | Pamela R. Klyn Age 53 Director since 2019 Committees Audit • Compensation • Corporate Governance and Nominations | Qualifications Ms. Klyn has over 30 years of experience in the home appliance industry and has extensive experience in marketing, engineering, strategic planning, new product development, and sustainability practices. |
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| | Biography Derrick B. Mayes, age 50, has been a Managing Partner of Bonaventure Equity, LLC since 2022. Prior to that time, Mr. Mayes was a Managing Partner of Play Like a Champion Capital, LLC from 2020 to 2022, and Vice President of WME/IMG, a strategic advisory firm to the sports and entertainment industry, from 2015 to 2021. Previously, he was the Chief Executive Officer of Executive Action Sports & Entertainment, serving as a strategic adviser to high profile individuals, groups and organizations in the sports and entertainment industry, from 2007 to 2015. | | Derrick B. Mayes Age 50 Director since 2019 Committees Audit • Compensation • Corporate Governance and Nominations | Qualifications Mr. Mayes has over 23 years of experience in strategic planning, mergers and acquisitions, and executive leadership, with extensive experience in the digital communications space, and has been a leadership and diversity speaker to numerous public companies and private organizations, particularly in the sports and entertainment markets. |
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| Notice of 2024 Annual Meeting of Shareholders & Proxy Statement | 10 |
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| | Biography Andy L. Nemeth, age 55, has been the Company’s Chief Executive Officer since January 2020. Prior to that time, Mr. Nemeth was the President from January 2016 to July 2021, Executive Vice President of Finance and Chief Financial Officer from May 2004 to December 2015, and Secretary-Treasurer from 2002 to 2015. He was also the Vice President of Finance and Chief Financial Officer from 2003 to 2004. | | Andy L. Nemeth Age 55 Director since 2006 Committees None | Qualifications Mr. Nemeth has over 32 years of RV, marine, manufactured housing, and industrial experience in various financial and management capacities. Mr. Nemeth also has particular knowledge of our Company and the industries to which we sell our products and has extensive experience with corporate management, development and leadership, acquisitions, strategic planning, risk management, capital allocation, and banking and finance relations. |
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| | Biography Denis G. Suggs, age 58, has been the Chief Executive Officer of LCP Transportation, LLC, a non-emergency medical transportation company, since February 2020. Prior to that time, Mr. Suggs was the President and Chief Executive Officer of Strategic Materials Corp. from March 2014 to January 2020 and also served as Chairman from 2017 to 2020. Prior to that time, Mr. Suggs was the Global Executive Vice President of Belden, Inc. from 2009 to 2013 and the President of the Americas Division / Vice President of Belden, Inc. from 2007 to 2009. Mr. Suggs has served as a director of Smith & Wesson Brands, Inc. from May 2021 to present. | | Denis G. Suggs Age 58 Director since 2019 Committees Compensation (Chair) • Audit • Corporate Governance and Nominations Other Public Board Directorships Smith & Wesson Brands, Inc. | Qualifications Mr. Suggs has over 25 years of experience in leading complex global businesses, having also held senior financial executive leadership roles with Danaher Corporation and Public Storage Corporation. Mr. Suggs also has extensive experience with corporate and operations management, strategic planning, mergers and acquisitions and risk management. Mr. Suggs served as a director of the Education Corporation of America from 2015 to 2018 and of Strategic Materials, Inc. and the Glass Packaging Institute from 2014 to 2020. He has been determined by our Board to be an “audit committee financial expert” under the SEC’s rules and regulations. |
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| | Biography M. Scott Welch, age 64, has been the President and Chief Executive Officer of Welch Packaging Group, a large independently owned corrugated packaging company, since 1985. Prior to establishing Welch Packaging Group, he worked at Northern Box, Performance Packaging and Elkhart Container. Mr. Welch has served as a director of Lakeland Financial Corporation (“Lakeland”) from 1998 to present and a member of the compensation committee since 2012, and he was Lakeland’s lead independent director from 2012 to 2019. He has also served as a trustee of DePauw University since 2005. | | M. Scott Welch Age 64 Director since 2015 Lead Independent Director since 2018 Committees Audit • Compensation • Corporate Governance and Nominations Other Public Board Directorships Lakeland Financial Corporation | Qualifications Mr. Welch has over 42 years of experience in the packaging industry and has extensive experience in sales, marketing, acquisitions, organizational development, strategic planning, finance and capital allocation. He has been determined by our Board to be an “audit committee financial expert” under the SEC’s rules and regulations. |
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| Notice of 2024 Annual Meeting of Shareholders & Proxy Statement | 12 |
2023 Non-Employee Director Compensation
2023 Non-Employee Director Compensation
2023 Non-Employee Director Compensation
| | 01/01/2023-12/31/2023 | (1) Non-employee directors receive an annual restricted stock grant in May of each year, which vests upon such director’s continued service as a Board member for one year from the grant date or earlier upon certain events. In addition, non-employee directors receive cash dividends on their restricted common stock holdings. The Company does not have stock ownership guidelines for its directors. | | Chairman of the Board Annual Retainer | $400,000 | | | Annual Retainer (Non-Chairman Members) | 90,000 | | | Committee Chairpersons Annual Retainer: | | | | ● Audit | 20,000 | | | ● Compensation | 15,000 | | | ● Corporate Governance and Nominations | 10,000 | | | Lead Independent Director Additional Annual Retainer | 25,000 | | | Annual Restricted Stock Grant (1) | 125,000 | |
2023 Non-Employee Director Compensation
In addition to the compensation described above, the Company reimburses the non-employee directors’ expenses, including travel, accommodations and meals, for attending Board and Board Committee meetings, our Annual Meeting of Shareholders and any other activities related to our business. Employee directors receive no compensation as such. The compensation paid by the Company to the directors for 2023, other than Mr. Nemeth, is set forth in the table below. Information on compensation for Mr. Nemeth is set forth in the “Executive Compensation” section.
2023 Non-Employee Director Compensation
| Name | Fees Earned Or Paid In Cash (2) | Stock Awards (3) | Other Compensation (4) | Total | | Joseph M. Cerulli | $100,000 | $125,020 | $3,477 | $228,497 | | Todd M. Cleveland (1) | 400,000 | 173,719 | 2,974 | 576,693 | | John A. Forbes | 90,000 | 125,020 | 3,477 | 218,497 | | Michael A. Kitson | 110,000 | 125,020 | 3,477 | 238,497 | | Pamela R. Klyn | 90,000 | 125,020 | 3,477 | 218,497 | | Derrick B. Mayes | 90,000 | 125,020 | 3,477 | 218,497 | | Denis G. Suggs | 105,000 | 125,020 | 3,477 | 233,497 | | M. Scott Welch | 115,000 | 125,020 | 3,477 | 243,497 |
2023 Non-Employee Director Compensation
(1) Effective January 1, 2023, Mr. Cleveland was appointed Chairman of the Board (a non-executive position). Prior to that time, Mr. Cleveland was Executive Chairman of the Board of the Company (a named executive officer position) from January 2020 through December 31, 2022. (2) Fees consist of an annual cash retainer for the Board, lead independent director, and committee chairperson’s service. (3) Amounts shown do not represent compensation actually received. Such amounts reflect the aggregate grant date fair value of 1,803 shares of restricted stock granted to each non-employee director, at a closing stock price of $69.34 on May 25, 2023. In addition, upon Mr. Cleveland’s appointment as Chairman of the Board, he was granted an additional 799 shares of restricted stock at a closing stock price of $60.95 on January 3, 2023, which represents a pro-rated portion of the restricted stock granted to the other non-employee directors on May 12, 2022. These shares were 100% vested on May 12, 2023. (4) Amounts shown represent cash dividends paid by the Company in 2023 on unvested shares held by the non-employee directors.
2023 Non-Employee Director Compensation
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Compensation Committee
In its oversight of executive officer compensation, the Compensation Committee seeks assistance from our management and our independent compensation consultant, Willis Towers Watson, as further described below under the heading “Compensation Discussion and Analysis.” Willis Towers Watson’s fees are approved by the Compensation Committee. Willis Towers Watson provides the Compensation Committee with data about the compensation paid by our peer group and industry benchmark groups, updates the Compensation Committee on new developments in areas that fall within the Compensation Committee’s scope and is available to advise the Compensation Committee regarding all of its responsibilities, including best practices, market trends in executive compensation, and pay versus performance disclosures. Our Compensation Committee has assessed the independence of Willis Towers Watson pursuant to SEC and NASDAQ listing rules and determined that their work did not give rise to any conflicts of interest. The Board has determined each of the current members of the Compensation Committee, as of the date of this proxy, is independent as defined in the NASDAQ listing standards and our Corporate Governance Guidelines.
Corporate Governance and Nominations Committee
| • | Reviewing and recommending to the Board the compensation of directors; |
and Analysis
and Analysis We believe our compensation plan, as it relates to the NEOs and other executives, should be aligned with the Company’s short-term and long-term organizational strategic agendas and its operating performance and cash flows and ensure appropriate management ownership in the Company. Messrs. Nemeth, Rodino, Ellis, Filer, Petkovich and Duthie comprise our NEOs for fiscal 2023, as such term is used under SEC rules. Our philosophy and objectives are to provide a comprehensive market competitive compensation program designed to attract, retain and motivate the best qualified talent from inside and outside the industry and to align the interests of our senior management team with the interests of our shareholders, in both the short-term and long-term. The Company utilizes a “pay-for-differentiated performance” compensation philosophy that establishes base salaries that are generally low relative to its peer group companies while offering the opportunity for greater upside potential by establishing performance-based short-term and long-term incentives that are generally high relative to its peer group companies. Our performance management system links compensation to achieving or exceeding certain objectives based on our short-term and long-term goals. In order to meet these objectives, the Compensation Committee has met numerous times over the past year and has conducted independent benchmark studies and analyses, in conjunction with the utilization of a third-party compensation consultant, to develop a comprehensive performance and rewards compensation strategy as it relates to our NEOs and other executives. See “Plan Components” discussion below.
Non-Equity Incentive Plan Compensation (Short-Term Incentive Plan)
Non-Equity Incentive Plan Compensation (Short-Term Incentive Plan) The 2023 Short-Term Incentive Plan (“STIP”) was designed to reward the CEO and each of the other NEOs for differentiated incremental performance against the net income of the plan year (net of 2023 acquisitions) and individual performance goals of each NEO. The STIP is designed to be 100% variable, performance dependent, pay-at-risk. Assuming target performance, the net income metric performance accounts for 70% of the performance payout and each NEO’s personal strategic objectives account for 30% of the performance payout, allowing for differentiation of each individual NEO’s contributions to the performance of the Company. STIP compensation may range from 0% to 200% of target. If an individual’s performance rating is below the threshold performance rating, such individual is not eligible for a STIP award regardless of Company performance. If the Company’s net income (net of acquisitions) performance is below the threshold Company performance, no individual is eligible for that performance plan year’s annual STIP award regardless of individual performance. The STIP threshold, target, stretch and maximum performance levels for both net income (net of 2023 acquisitions) and personal performance and related payouts, are noted below for reference.
Company Performance (70% Of Target Performance Payout)
Company Performance (70% Of Target Performance Payout)
Company Performance (70% Of Target Performance Payout)
| Net Income Performance | Performance To Plan (%) | Payout (%) | | Less Than Threshold | <75 | - | | Threshold | 75 | 50 | | Target (Plan) | 100 | 100 | | Stretch | 110 | 175 | | Maximum | 115 | 200 |
NEO Individual Performance (30% Of Target Performance Payout)
NEO Individual Performance (30% Of Target Performance Payout)
NEO Individual Performance (30% Of Target Performance Payout)
| Personal Performance | Performance Rating (0-5 Scale) | Payout (%) | | Less Than Threshold | <2.5 | - | | Threshold | 2.5 | 50 | | Target (Plan) | 3.5 | 100 | | Stretch | 4.4 | 175 | | Maximum | 5.0 | 200 |
NEO Individual Performance (30% Of Target Performance Payout)
The STIP target amount for the CEO and each of the other NEOs is designed to align to the 50th to 75th percentile range of established peer group and general industry pay percentiles.
NEO Individual Performance (30% Of Target Performance Payout)
| Executive | 2023 Target STIP | Fixed Or Variable Pay | | CEO | $1,800,000 | Variable Pay | | All Other NEOs Combined (1) | 2,650,000 | Variable Pay |
NEO Individual Performance (30% Of Target Performance Payout)
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Long-Term Incentive Plan Compensation (Long-Term Incentive Plan)
Long-Term Incentive Plan Compensation (Long-Term Incentive Plan) The 2023 Long-Term Incentive Plan (“LTIP”) was designed to reward the NEOs for sustained, long-term performance while ensuring incremental reward for differentiated performance against the Company’s three-year cumulative earnings before interest, taxes, depreciation and amortization (“EBITDA”) plan. The design of the LTIP creates 80% of the target value of the award in the form of performance-dependent variable pay and 20% in the form of retentive, time-based fixed compensation with three-year cliff vesting. The LTIP threshold, target, stretch and maximum performance levels for three-year cumulative EBITDA and related payouts are noted below for reference.
Long-Term Incentive Plan Compensation (Long-Term Incentive Plan)
| 3-Year Cumulative EBITDA | Performance To Plan (%) | Payout (%) | | Less Than Threshold | <80 | - | | Threshold | 80 | 50 | | Target (Plan) | 100 | 100 | | Stretch | 110 | 150 | | Maximum | 120 | 200 |
Long-Term Incentive Plan Compensation (Long-Term Incentive Plan)
The LTIP target amount for the CEO and each of the other NEOs is designed to align to the 25th to 50th percentile range of peer and general industry pay percentiles. The target value of the LTIP is awarded in Restricted Stock Units (“RSUs”). The table below outlines the target LTIP amount for the CEO and all the other NEOs combined.
Long-Term Incentive Plan Compensation (Long-Term Incentive Plan)
| Executive | 2023 Target LTIP | Variable Pay (80%) | Fixed Pay (20%) | | CEO | $3,000,000 | $2,400,000 | $600,000 | | All Other NEOs Combined (1) | 3,113,000 | 2,490,400 | 622,600 |
Long-Term Incentive Plan Compensation (Long-Term Incentive Plan)
(1) All other NEOs comprised of Messrs. Rodino, Ellis, Filer and Duthie. Mr. Petkovich is excluded.
Benchmark Sources and Fiscal Year 2023 Peer Group
Benchmark Sources and Fiscal Year 2023 Peer Group In an effort to provide a better aligned peer group for purposes of market comparison of our executive compensation packages based on our general guidelines and as described under “Plan Components,” an important factor in establishing the 2023 Executive Compensation Plan is the external market for comparable roles. In addition, based on the data utilized from an index of General Industry companies provided by the Central Data Base Survey of Willis Towers Watson, our independent compensation committee consultant, there were no changes made by the Compensation Committee to the benchmark peer group for the period ended December 31, 2023 (as compared to the 2022 peer group). We believe the following companies listed represent an effective comparator group of similar size and with similar scope of revenue and market capitalization.
Benchmark Sources and Fiscal Year 2023 Peer Group
| • | American Woodmark Corporation |
Benchmark Sources and Fiscal Year 2023 Peer Group
| • | Apogee Enterprises, Inc. |
Benchmark Sources and Fiscal Year 2023 Peer Group
| • | Brunswick Corporation |
Benchmark Sources and Fiscal Year 2023 Peer Group
| • | Cavco Industries, Inc. |
Benchmark Sources and Fiscal Year 2023 Peer Group
| • | EnPro Industries, Inc. |
Benchmark Sources and Fiscal Year 2023 Peer Group
| • | Hyster-Yale Materials Handling, Inc. |
Benchmark Sources and Fiscal Year 2023 Peer Group
| • | LCI Industries, Inc. |
Benchmark Sources and Fiscal Year 2023 Peer Group
| • | Masonite International Corporation |
Benchmark Sources and Fiscal Year 2023 Peer Group
| • | Modine Manufacturing Company |
Benchmark Sources and Fiscal Year 2023 Peer Group
| • | Mueller Industries, Inc. |
Benchmark Sources and Fiscal Year 2023 Peer Group
| • | Polaris, Inc. |
Benchmark Sources and Fiscal Year 2023 Peer Group
| • | Thor Industries, Inc. |
Benchmark Sources and Fiscal Year 2023 Peer Group
| • | UFP Industries, Inc. |
Benchmark Sources and Fiscal Year 2023 Peer Group
| • | Wabash National Corporation |
Benchmark Sources and Fiscal Year 2023 Peer Group
| • | Winnebago Industries, Inc. |
Benchmark Sources and Fiscal Year 2023 Peer Group
| Notice of 2024 Annual Meeting of Shareholders & Proxy Statement | 28 |
Base Salary
Base Salary The Compensation Committee reviews and approves the base salaries of the NEOs each year, as well as at the time of promotion, change in job responsibilities or any other change deemed to be a material event. Base salaries are set during the first quarter of each year. The Compensation Committee sets the salary for the CEO and approves the base salaries for the other NEOs and other executive officers based on recommendations by the CEO. When determining base salary adjustments for its NEOs, the Compensation Committee considers a combination of (i) peer group data, (ii) market data, including industry norms and benchmarking data from companies of similar size and scope and (iii) outstanding Company and individual performance. In general, the Compensation Committee targets the 25th to 50th percentile of the Company’s peer group in determining base salaries.
Non-Equity Incentive Plan Awards
Non-Equity Incentive Plan Awards The short-term incentive portion of the 2023 Executive Compensation Plan consists of annual non-equity incentive plan awards, which are reviewed and approved each year and are based on the Company’s financial results and the individual’s performance against defined objectives. Several key components were considered in the development of the 2023 STIP to align the 2023 STIP with shareholder interest by measuring the Company’s financial performance and the individual’s performance in support of the Company’s short- and long-term strategies. The components are noted on pages 25. The STIP metric components for 2023 are as follows:
Non-Equity Incentive Plan Awards
| 2023 STIP Award Component ($ in millions) | Threshold Performance | Target Performance | Maximum Performance | | Company Performance (Net Income) (1) | $124.5 | $166.0 | $190.9 | | Individual Rating | 2.5 | 3.5 | 5.0 | | Payout as a Percentage of Target Award | 50% | 100% | 200% |
Non-Equity Incentive Plan Awards
(1) All net income targets are net of the contributions of 2023 acquisitions and certain one-time and non-recurring charges and credits. The Company achieved adjusted fiscal 2023 net income of $147.0 million (net of 2023 acquisitions and non-recurring charges and credits) which equated to 89% of the target Company performance. When combined with the individual performance rating for each NEO, the actual STIP award payouts for 2023 were as follows:
Non-Equity Incentive Plan Awards
| Name / Benefit | 2023 Base Salary (1) | Target Award As % Of Base Salary (2) | Target STIP Award | Actual Award Amount As % Of Target Award | Actual 2023 STIP Award Payout | | Andy L. Nemeth | $850,000 | 212% | $1,800,000 | 91% | $1,632,600 | | Jeffrey M. Rodino | 575,000 | 174% | 1,000,000 | 93% | 931,900 | | Kip B. Ellis | 525,000 | 171% | 900,000 | 88% | 793,890 | | Matthew S. Filer (3) | 350,000 | 71% | 250,000 | 104% | 260,800 | | Jacob R. Petkovich (4) | 475,000 | 153% | 725,000 | N/A | - | | Joel D. Duthie | 475,000 | 105% | 500,000 | 93% | 465,950 |
Non-Equity Incentive Plan Awards
(1) The 2023 Base Salary for each of the NEOs reflects the Base Salary in effect of as of January 2023. (2) The target award as a percentage of base salary for the NEOs, with the exception of Mr. Filer, was determined by the Compensation Committee and applied to the base salary in effect as of January 2023. The target award as a percentage of base salary was established for each NEO in 2023 in alignment with the Company’s “pay-for-differentiated-performance” philosophy, market competitive positions for earned payout, and further enhancement of the pay-at-risk for each NEO. (3) Mr. Filer’s actual 2023 STIP award payout excluded an additional $300,000 discretionary bonus payment related to his service as Interim CFO from May 2023 through December 2023. (4) Mr. Petkovich’s target STIP award represents his full year target award. He did not receive an STIP award payout for the 2023 fiscal year.
Non-Equity Incentive Plan Awards
| Notice of 2024 Annual Meeting of Shareholders & Proxy Statement | 30 |
Non-Equity Incentive Plan Awards
While these targets were used in fiscal year 2023, the Compensation Committee reserves the right to modify, cancel, change or reallocate any components of this calculation or criteria at any time. Each NEO’s individual performance rating takes into account four strategic performance objectives in assessing the personal performance of the NEOs named in the Summary Compensation Table for 2023. The four strategic objectives are specific for each NEO and are linked to the Company’s strategic plan and that year’s organizational strategic agenda and include, among others:
Non-Equity Incentive Plan Awards
| 1. | Improving the revenue and profitability of business units under the leadership and control of the NEO; |
Non-Equity Incentive Plan Awards
| 2. | The introduction of new product lines and product line extensions to achieve target revenue growth levels and market share; |
Non-Equity Incentive Plan Awards
| 3. | The ongoing evaluation of strategic opportunities related to our capital allocation strategy and the execution of those opportunities, as appropriate; and |
Non-Equity Incentive Plan Awards
| 4. | Objectives linked to developing and managing talent consistent with the Company’s values and enhancing and developing the leadership capabilities of the Company’s future leaders. |
Non-Equity Incentive Plan Awards
The NEOs, other than Mr. Nemeth, initially developed their own individual objectives for the plan year which were then reviewed and approved by the CEO. For the 2023 STIP award, Mr. Filer initially developed his own objectives for the plan year, based on his then role of Senior Vice President of Finance. His objectives were reviewed and approved by Mr. Petkovich. Mr. Nemeth developed his own objectives for the plan year which were reviewed and approved by the Board. In assessing the NEOs’ individual performance, the Compensation Committee is provided with detailed quantitative and qualitative documentation substantiating individual performance against each individual objective. The Compensation Committee looks to the CEO’s performance assessments of the other NEOs and his recommendations regarding a performance rating for each, as well as input from the non-management Board members. These recommendations may be adjusted by the Compensation Committee prior to finalization. The personal performance assessment of our CEO is determined by the Compensation Committee with input from members of the Board. While the achievement of corporate objectives is quantified with an individual rating, each NEO’s relative contribution to those objectives is only one qualitative component against which the individual’s performance is assessed by the Compensation Committee. Based upon their individual achievements, as evaluated by the Compensation Committee, and by the CEO for Messrs. Rodino, Ellis, Filer and Duthie, the individual performance rating achieved by each of these four NEOs exceeded the target performance rating of 3.5 set by the Compensation Committee.
Discretionary Bonus
Discretionary Bonus In recognition of Mr. Filer’s contributions to the Company in the role of Interim CFO during 2023, Mr. Filer was awarded a year-end 2023 discretionary cash bonus in the amount of $300,000.
Long-Term Equity Incentive Plan
Long-Term Equity Incentive Plan We believe long-term incentive compensation represents an important and appropriate motivational tool to achieve certain long-term Company goals and closely align the interests of our management team with those of our shareholders. Our executive officers participate in our long-term incentive plan as a result of their ability to make a significant contribution to the Company’s financial performance, their level of responsibility, their ability to meet performance objectives and their leadership potential and execution. In 2023, the Compensation Committee adopted a Board approved “pay-for-differentiated-performance” based Long-Term Incentive Plan (“2023 LTIP”) for each of the NEOs. The 2023 LTIP utilizes a long-term incentive target award, which is established as a percentage of base compensation for each of the NEOs. The target award is comprised of a restricted share award (80% of which is Company performance-contingent and 20% of which is time-based contingent). In determining the number of shares comprising the restricted share award, the target value of the restricted share component is divided by the stock price per share as established by the Board for the particular plan year, reflecting the trading price range of the common stock preceding the grant date ($68.00 for the 2023 LTIP award). The awarded target shares vest over a three-year period as follows:
Long-Term Equity Incentive Plan
| • | Time-based shares cliff vest at the conclusion of the three-year period from the grant date. |
Long-Term Equity Incentive Plan
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Long-Term Equity Incentive Plan
| • | Performance-contingent shares are earned based on the achievement of three-year cumulative Company EBITDA performance (2023 to 2025) against target from 0% up to a maximum payout of 200% of target. |
Long-Term Equity Incentive Plan
The 2023 LTIP further reflects the Company’s “pay-for-differentiated-performance” philosophy through its upside potential for performance in excess of target levels. For 2023, the target as a percentage of base compensation did not change from the 2022 LTIP for the NEOs, with the exception of Mr. Filer, in alignment with the Company’s “pay-for-differentiated-performance” philosophy, anticipated conditions in the Company’s end markets, market competitive positions for earned payout, and the increased component of the pay-at-risk compensation for each NEO. The table below shows a sample calculation of 2023 LTIP award components:
Long-Term Equity Incentive Plan
| Base Salary | Target Award As A % Of Base Salary | Target Award (1,500 Restricted Shares @ $68.00 Per Share) | Restricted Shares Target Award: Performance-Contingent (80%) (Shares @ $68.00 Per Share) | Restricted Shares Target Award: Time-Based (20%) (Shares @ $68.00 Per Share) | | $340,000 | 30% | $102,000 | 1,200 | 300 |
Long-Term Equity Incentive Plan
The restricted share award is divided into (i) restricted shares with time-based vesting (“Time-Based Shares”) and (ii) restricted shares with performance-based vesting (“Performance-Contingent Shares”). The Compensation Committee believes that the use of Time-Based Shares and Performance-Contingent Shares aligns the NEOs’ focus with the Company’s long-term financial performance objectives and ensures a significant retention value of the granted equity is maintained for each NEO. The threshold, target, stretch and maximum performance metrics for the 2023 LTIP are outlined below:
Long-Term Equity Incentive Plan
| Plan Component | Threshold EBITDA Performance (1) Payout As % Of Target | Target EBITDA Performance (1) Payout As % Of Target | Stretch EBITDA Performance (1) Payout As % Of Target | Maximum EBITDA Performance (1) Payout As % Of Target | | Time-Based Shares | 100% | 100% | 100% | 100% | | Performance- Contingent Shares | 50% | 100% | 150% | 200% |
Long-Term Equity Incentive Plan
(1) The Company EBITDA performance is measured as the cumulative EBITDA achieved in 2023, 2024 and 2025. The target 2023 LTIP award components for the NEOs, as approved by the Board in January 2023, were as follows:
Long-Term Equity Incentive Plan
| Name | Total Target Award As % Of Base Salary | Total Target Award ($) | Total Target Award (Shares) | Target Time-Based Share Award (Shares) | Target Performance - Contingent Share Award (Shares) | | Andy L. Nemeth | 353% | $3,000,000 | 44,118 | 8,824 | 35,294 | | Jeffrey M. Rodino | 222% | 1,275,000 | 18,750 | 3,750 | 15,000 | | Kip B. Ellis | 210% | 1,100,000 | 16,177 | 3,235 | 12,942 | | Matthew S. Filer | 68% | 238,000 | 3,500 | 700 | 2,800 | | Jacob R. Petkovich | 221% | 1,050,000 | 15,442 | 3,088 | 12,354 | | Joel D. Duthie | 105% | 500,000 | 7,353 | 1,471 | 5,882 |
Long-Term Equity Incentive Plan
Individual NEO threshold, target, stretch and maximum payouts in shares for each long-term incentive component of the 2023 LTIP are outlined below:
Long-Term Equity Incentive Plan
| Notice of 2024 Annual Meeting of Shareholders & Proxy Statement | 32 |
Long-Term Equity Incentive Plan
| Name | Threshold EBITDA Performance Component Award (Shares) | Target EBITDA Performance Component Award (Shares) | Stretch EBITDA Performance Component Award (Shares) | Maximum EBITDA Performance Component Award (Shares) | (1) Represents the number of shares for the threshold, target, stretch and maximum payouts for the Time-Based Shares and Performance- Contingent Shares for the 2023 LTIP award. (2) The Time-Based Shares cliff vest at the conclusion of the required three-year service period. (3) Mr. Petkovich’s Time-Based Shares and Performance- Contingent Shares were forfeited upon the termination of his employment with the Company effective May 14, 2023. | | Time-Based Shares (1) (2) | | | | | | | Andy L. Nemeth | 8,824 | 8,824 | 8,824 | 8,824 | | | Jeffrey M. Rodino | 3,750 | 3,750 | 3,750 | 3,750 | | | Kip B. Ellis | 3,235 | 3,235 | 3,235 | 3,235 | | | Matthew S. Filer | 700 | 700 | 700 | 700 | | | Jacob R. Petkovich (3) | 3,088 | 3,088 | 3,088 | 3,088 | | | Joel D. Duthie | 1,471 | 1,471 | 1,471 | 1,471 | | | Performance-Contingent Shares (1) | | | | | | | Andy L. Nemeth | 17,647 | 35,294 | 52,941 | 70,588 | | | Jeffrey M. Rodino | 7,500 | 15,000 | 22,500 | 30,000 | | | Kip B. Ellis | 6,471 | 12,942 | 19,413 | 25,884 | | | Matthew S. Filer | 1,400 | 2,800 | 4,200 | 5,600 | | | Jacob R. Petkovich (3) | 6,177 | 12,354 | 18,531 | 24,708 | | | Joel D. Duthie | 2,941 | 5,882 | 8,823 | 11,764 | |
Long-Term Equity Incentive Plan
The Company records the estimated compensation expense over the life of the LTIP Plan performance period assuming the stretch payout (150%) and adjusts its estimates on a periodic basis, if required. For Mr. Filer’s Performance-Contingent award, the Company recorded the estimated compensation expense over the life of the LTIP plan performance period in alignment with the Company’s LTIP program target payout (100%). The NEOs have voting rights with respect to all of the shares as of the date of grant and the shares will be returned to the Company in the event that performance targets or time-based vesting requirements are not achieved. The actual payout under the 2023 LTIP for all the NEOs will be determined at the conclusion of the three-year performance period ending on December 31, 2025 (the third year in the cumulative EBITDA performance measurement period) and payment of the award will be settled in stock. Dividends on unvested shares are held in escrow by the Company and are paid in cash when the shares become fully vested. See “Potential Payments Upon Termination or Upon a Change of Control”, payable to each of the NEOs upon termination or a change in control.
Tax and Accounting Considerations
Tax and Accounting Considerations Under the rules in effect before 2018, compensation that qualified as “performance-based compensation” under Section 162(m) was deductible without regard to a $1 million limit. The 2017 Tax Cuts and Jobs Act generally eliminated the performance-based compensation exception under Section 162(m), effective January 1, 2018, subject to a special rule that “grandfathers” certain awards and arrangements that were in effect on or before November 2, 2017. While the Compensation Committee intended that certain incentive awards granted to our NEOs on or prior to November 2, 2017 be deductible as “performance-based compensation,” it cannot assure that result. We expense equity awards in accordance with Accounting Standards Codification 718 Compensation—Stock Compensation (“ASC 718”). See Note 15 to the Consolidated Financial Statements in our 2023 Annual Report on Form 10-K for the assumptions used in determining the fair value of equity awards consisting of stock options and SARS.
Summary Compensation Table
Summary Compensation Table The following Summary Compensation Table sets forth information about the compensation paid to our NEOs for the years ended December 31, 2023, 2022 and 2021. There were no stock options or SARS awarded to our NEOs for the years ended December 31, 2023, 2022 and 2021.
Summary Compensation Table
| Name And Principal Position | Year | Salary (1) | Bonus (2) | Stock Awards (3) | Option Awards (4) | Non-Equity Incentive Plan Compensation (5) | Change In Pension Value And Non-Qualified Deferred Compensation Earnings (6) | All Other Compensation (7) | Total | | Andy L. Nemeth Chief Executive Officer (8) | 2023 | $817,308 | - | $4,200,020 | - | $1,632,600 | $69,223 | $29,400 | $6,748,551 | | | 2022 | 832,692 | - | 3,516,100 | - | 3,374,820 | 58,449 | 28,400 | 7,810,461 | | | 2021 | 742,788 | - | 4,067,280 | - | 3,145,000 | 41,017 | 27,713 | 8,023,798 | | Jeffrey M. Rodino President (9) | 2023 | 546,250 | - | 1,785,000 | - | 931,900 | - | 25,800 | 3,288,950 | | | 2022 | 611,442 | - | 1,494,376 | - | 1,850,000 | - | 24,800 | 3,980,618 | | | 2021 | 439,231 | - | 1,162,153 | - | 1,642,590 | - | 19,985 | 3,263,959 | | Kip B. Ellis Chief Operating Officer and Executive Vice President of Operations | 2023 | 504,808 | - | 1,540,064 | - | 793,890 | - | 25,800 | 2,864,562 | | | 2022 | 516,346 | - | 1,289,264 | - | 1,710,090 | - | 24,800 | 3,540,500 | | | 2021 | 472,596 | - | 1,452,673 | - | 1,433,750 | - | 20,628 | 3,379,647 | | Matthew S. Filer Interim Chief Financial Officer, Executive Vice President of Finance, and Treasurer (10) | 2023 | 336,539 | 300,000 | 238,000 | - | 260,800 | - | 64,985 | 1,200,324 | | Jacob R. Petkovich Former Chief Financial Officer, Executive Vice President of Finance and Treasurer (11) | 2023 | 205,529 | - | 1,470,092 | - | - | - | 12,530 | 1,688,151 | | | 2022 | 470,673 | - | 1,230,670 | - | 1,377,573 | - | 24,200 | 3,103,116 | | | 2021 | 447,596 | - | 1,234,710 | - | 1,295,000 | - | 184,716 | 3,162,022 | | Joel D. Duthie Executive Vice President, Chief Legal Officer and Secretary (12) | 2023 | 456,731 | - | 699,992 | - | 465,950 | - | 25,800 | 1,648,473 |
Summary Compensation Table
(1) For information on base salaries, see “Base Salary”. (2) The NEOs did not receive any payments that would be characterized as “Bonus” Payments for the fiscal years ended December 31, 2021, 2022 and 2023, with the exception of Mr. Filer who received a discretionary bonus payment related to his service as Interim CFO. See “Discretionary Bonus” for additional information. (3) Amounts shown do not reflect compensation actually received. Such amounts reflect the aggregate fair value of stock awards granted during the year which is generally the total amount that the Company expects, as of the grant date, to expense in its financial statements over the awards vesting schedule in accordance with ASC 718. See Note 15 to the Consolidated Financial Statements in our 2023 Annual Report on Form 10-K for the assumptions used in determining the fair value of equity awards. See “Long-Term Equity Incentive Plan” for additional information. (4) There were no stock option awards granted for the fiscal years ended December 31, 2021, 2022 and 2023.
Summary Compensation Table
| Notice of 2024 Annual Meeting of Shareholders & Proxy Statement | 36 |
Summary Compensation Table
(5) Amounts shown represent the short-term incentive awards (STIPs) earned each year by each of the NEOs, with the exception of Mr. Petkovich, and approved by the Compensation Committee, based on the achievement of Company and individual performance targets for such year. See “Non-Equity Incentive Plan Awards” for additional information. (6) Amounts shown do not reflect compensation actually received. Such amounts reflect the aggregate change in the present value of the NEO’s accumulated benefit under the Executive Retirement Plan and the NQDC Plan. In computing these amounts, the Company uses various assumptions including remaining years of service, estimated discount rates and present value calculations. (7) The amounts included in “All Other Compensation” are detailed in the following table:
Summary Compensation Table
| Name And Principal Position | Year | 401(k) Matching Contribution | Other (A) | Total All Other Compensation | | Andy L. Nemeth | 2023 | $13,200 | $16,200 | $29,400 | | | 2022 | 12,200 | 16,200 | 28,400 | | | 2021 | 12,413 | 15,300 | 27,713 | | Jeffrey M. Rodino | 2023 | 13,200 | 12,600 | 25,800 | | | 2022 | 12,200 | 12,600 | 24,800 | | | 2021 | 7,385 | 12,600 | 19,985 | | Kip B. Ellis | 2023 | 13,200 | 12,600 | 25,800 | | | 2022 | 12,200 | 12,600 | 24,800 | | | 2021 | 8,028 | 12,600 | 20,628 | | Matthew S. Filer (B) | 2023 | 5,385 | 59,600 | 64,985 | | Jacob R. Petkovich (C) | 2023 | 7,530 | 5,000 | 12,530 | | | 2022 | 12,200 | 12,000 | 24,200 | | | 2021 | 2,310 | 182,406 | 184,716 | | Joel D. Duthie | 2023 | 13,200 | 12,600 | 25,800 |
Summary Compensation Table
(A) Amounts shown reflect an automobile allowance, the Company contribution to individual Health Savings Accounts, and health club reimbursement pursuant to the Company’s general health and welfare program. For 2021, 2022 and 2023, cash dividends paid on the Time-Based and Performance-Contingent Share awards that were granted in January 2018, January 2019 and January 2020, and which fully vested in January 2021, January 2022 and January 2023, respectively, were not required to be included in other compensation as the value of the original awards reflected the assumed effective dividend rate in the award’s initial grant date fair value calculation. (B) Other amount in 2023 for Mr. Filer also includes a one-time cash payment related to relocation expenses upon his joining the Company in November 2022. (C) Other amount in 2021 for Mr. Petkovich also reflects the payment of a one-time cash sign-on bonus related to his appointment as Chief Financial Officer of the Company in November 2020. (8) Effective January 1, 2020, Mr. Nemeth assumed the position of CEO of the Company. Mr. Nemeth was President of the Company from January 2016 to July 2021. (9) Mr. Rodino was appointed President of the Company effective July 2021. Mr. Rodino was Chief Sales Officer and Executive Vice President of Sales from September 2016 to July 2021. (10) Effective with Mr. Petkovich’s departure from the Company, Mr. Filer assumed the position of Interim CFO on May 15, 2023, a position he held through March 4, 2024, at which time he returned to his previous role as Senior Vice President of Finance. (11) Mr. Petkovich’s employment with the Company terminated effective May 14, 2023. The unvested stock awards granted to Mr. Petkovich in November 2020 and in January 2021, 2022 and 2023 were 100% forfeited upon his termination date and the Company adjusted the related compensation expense in its financial statements in accordance with ASC 718 in the period of forfeitures. (12) Mr. Duthie was appointed Executive Vice President, Chief Legal Officer and Secretary of the Company in May 2021.
Summary Compensation Table
| | 37 |
Grants of Plan-Based Awards
Grants of Plan-Based Awards
Outstanding Equity Awards as of December 31, 2023
Outstanding Equity Awards as of December 31, 2023 The following table summarizes the outstanding stock awards held by the NEOs as of December 31, 2023.
Stock Options And Stock Appreciation Rights Exercises And Stock Vested In Fiscal 2023
Stock Options And Stock Appreciation Rights Exercises And Stock Vested In Fiscal 2023 The table below sets forth information about the value realized by the NEOs on vesting of stock awards and the exercise of stock options in 2023. There were no SARs exercised by the NEOs in 2023.
Stock Options And Stock Appreciation Rights Exercises And Stock Vested In Fiscal 2023
| Name | Stock Awards (1) (2) | | Option Awards (3) | | | | Number Of Shares Acquired On Vesting | Value Realized on Vesting | Number Of Shares Acquired On Exercise | Value Realized On Exercise | | Andy L. Nemeth | 82,800 | $5,406,932 | 78,000 | $4,590,900 | | Jeffrey M. Rodino | 21,600 | 1,410,504 | 30,825 | 1,473,127 | | Kip B. Ellis | 36,000 | 2,350,840 | 21,000 | 977,130 | | Matthew S. Filer | - | - | - | - | | Jacob R. Petkovich | 10,666 | 694,250 | 19,500 | 214,305 | | Joel D. Duthie | 1,250 | 93,825 | - | - |
Stock Options And Stock Appreciation Rights Exercises And Stock Vested In Fiscal 2023
(1) For Messrs. Nemeth, Rodino and Ellis, the table below includes the number of Time-Based Shares awarded on January 23, 2020, which vested on January 23, 2023, using the NASDAQ Stock Market closing price of $66.99 per share times the total number of shares acquired on vesting. For Mr. Duthie, includes the number of Time-Based Shares awarded on October 1, 2020, which vested on October 1, 2023, using the NASDAQ Stock Market closing price of $75.06 per share times the total number of shares acquired on vesting.
Stock Options And Stock Appreciation Rights Exercises And Stock Vested In Fiscal 2023
| | Nemeth | Rodino | Ellis | Filer | Petkovich | Duthie | | Number of Shares (1) | 9,200 | 2,400 | 4,000 | - | - | 1,250 | | Value | $616,308 | $160,776 | $267,960 | - | - | $93,825 |
Stock Options And Stock Appreciation Rights Exercises And Stock Vested In Fiscal 2023
(2) For Messrs. Nemeth, Rodino and Ellis, the table below includes the number of Performance-Contingent Shares awarded on January 23, 2020, which vested at 200% of target on January 20, 2023 (the date the performance conditions were met), using the NASDAQ Stock Market closing price of $65.09 per share times the total number of shares acquired on vesting. For Mr. Petkovich, includes the number of Performance-Contingent Shares awarded on November 24, 2020, which vested at 200% of target on January 20, 2023 (the date the performance conditions were met), using the NASDAQ Stock Market closing price of $65.09 per share times the total number of shares acquired on vesting.
Stock Options And Stock Appreciation Rights Exercises And Stock Vested In Fiscal 2023
| | Nemeth | Rodino | Ellis | Filer | Petkovich | Duthie | | Number of Shares (2) | 73,600 | 19,200 | 32,000 | - | 10,666 | - | | Value | $4,790,624 | $1,249,728 | $2,082,880 | - | $694,250 | - |
Stock Options And Stock Appreciation Rights Exercises And Stock Vested In Fiscal 2023
(3) The number of shares acquired on exercise in 2023 for Messrs. Nemeth and Ellis are related to stock options granted on May 14, 2020 which became 100% vested on May 14, 2023. The number of shares acquired on exercise in 2023 for Mr. Rodino are related to stock options granted on January 17, 2017 which became 100% vested on January 17, 2021. The number of shares acquired on exercise for Mr. Petkovich in 2023 are related to stock options granted on November 24, 2020 which became 100% vested on May 14, 2023. The value realized on exercise was based on the difference between the market price per share of the common stock on the date of exercise and the option exercise price.
Stock Options And Stock Appreciation Rights Exercises And Stock Vested In Fiscal 2023
| | 41 |
Non-Qualified Deferred Compensation
Non-Qualified Deferred Compensation
Non-Qualified Deferred Compensation
| Notice of 2024 Annual Meeting of Shareholders & Proxy Statement | 42 |
Non-Qualified Deferred Compensation
| | Potential Payments Upon Termination or Upon a Change of Control | | | Executive Employment Agreements The Company has entered into Employment Agreements (the “Agreements”) with Messrs. Nemeth, Rodino, Ellis, Petkovich and Duthie, pursuant to which they agreed to serve as executive officers of the Company. The Agreements contain a non-compete clause and certain other stipulations and provide for a severance package that includes 12 months base salary. Under the Agreements, voluntary termination by the NEO or termination by the Company for cause will not result in any obligation of the Company to make payments. Upon termination by the Company without cause (as defined in the Agreement), each NEO would be entitled to: (i) one year of base salary; and (ii) annual non-equity incentive compensation that the NEO would have been entitled to receive at the end of the fiscal year. In addition, if the NEO’s employment is terminated prior to the end of the fiscal year due to death or disability or without cause, any non-equity incentive compensation due to the NEO is to be pro-rated as of the effective date of the termination. The base salary portion would be paid out in equal bi-weekly payments on the regular payroll cycle, and the non-equity incentive compensation would be calculated and paid in accordance with the terms of the applicable plan on a pro-rata basis from the date of termination. Upon termination due to death or disability, the NEO would only receive base salary through the end of the month in which the disability or death occurred. In addition, each of the NEOs has agreed not to compete with the Company for the two-year period following termination of employment subject to certain exceptions. We believe that the Company should provide reasonable severance benefits to our NEOs and other general employees that are fair and commensurate with their job duties, functions, and responsibilities. We believe it is in the best interest of the Company to obtain a release from employees whose employment is terminated as well as a non-compete agreement from certain employees in the form of an employment agreement. |
Non-Qualified Deferred Compensation
| | 43 |
CEO Pay Ratio
CEO Pay Ratio As required by the Dodd-Frank Wall Street Reform and Consumer Protection Act and SEC rules, the Company is providing information about the relationship of the annual total compensation of its employees and the annual total compensation of the CEO during 2023. The total annual compensation of our median employee based on total annual compensation (other than our CEO) was $46,971. The annual total compensation of the CEO was $6,748,551. Based on this information, the ratio of the total compensation of the CEO for fiscal 2023 to the median employee’s total annual compensation is 144 to 1. This pay ratio is a reasonable estimate calculated in good faith, in a manner consistent with Item 402(u) of Regulation S-K, based on the Company’s payroll and employment records and the methodology described below. The SEC rules for identifying the “median employee” and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions and to make reasonable estimates and assumptions that reflect their compensation practices. As such, the pay ratios reported by other companies may not be comparable to the pay ratio set forth above, as other companies may have different employment and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios. To identify the median of the annual total compensation of all employees, as well as to determine the annual total compensation of the “median employee,” the methodology and the material assumptions, adjustments and estimates used were as follows:
CEO Pay Ratio
| 1. | The median employee was identified using active employee information as of December 31, 2023. |
CEO Pay Ratio
| 2. | Fiscal 2023 earnings (gross pay) of cash compensation were used as the consistently applied compensation measure to identify the median employee within the employee population. Cash compensation is the most prevalent measure of pay across the organization. Using this methodology, the median employee’s compensation was $46,971 and was determined to be a full-time, hourly, United States-based employee. |
CEO Pay Ratio
| 3. | The total compensation of the CEO for fiscal 2023 was $6,748,551, which is the total of the compensation amounts reported in the Summary Compensation Table. |
CEO Pay Ratio
| Notice of 2024 Annual Meeting of Shareholders & Proxy Statement | 46 |
Pay Versus Performance
Pay Versus Performance The following table sets forth a comparison of Pay Versus Performance (“PVP”) related to compensation reported in the Summary Compensation Table to compensation actually paid to our Principal Executive Officer (“PEO”) and other NEOs as well as information on our Company performance.
Pay Versus Performance
| Year | Summary Compensation Table Total for PEO (1) | Compensation Actually Paid to PEO (5) | Average Summary Compensation Table Total for Non-PEO NEOs (2) | Average Compensation Actually Paid to Non-PEO NEOs (5) | Value of Initial Fixed $100 Investment Based on: | | Company Net Income ($ in millions) | Company EBITDA (4) ($ in millions) | | | | | | | Company Total Shareholder Return (3) | Peer Group Total Shareholder Return (3) | | | | 2023 | $6,748,551 | $15,496,536 | $2,138,092 | $3,039,172 | $207 | $146 | $143 | $405 | | 2022 | 7,810,461 | 4,230,620 | 3,416,649 | 1,780,081 | 122 | 112 | 328 | 627 | | 2021 | 8,023,798 | 12,877,899 | 3,789,459 | 6,581,026 | 159 | 145 | 225 | 457 | | 2020 | 7,469,365 | 11,918,983 | 2,624,006 | 3,835,865 | 133 | 116 | 97 | 247 |
Pay Versus Performance
(1) Mr. Nemeth served as our PEO for each year. (2) The Company’s Non-PEO NEOs for the years ended December 31, 2023, 2022, 2021 and 2020 were as follows: • 2023 - Messrs. Rodino, Ellis, Filer, Petkovich and Duthie • 2022 and 2021 – Todd M. Cleveland and Messrs. Rodino, Ellis and Petkovich • 2020 - Messrs. Cleveland, Rodino, Ellis, Petkovich, John A. Forbes and Joshua A. Boone (a) Mr. Petkovich joined the Company as CFO in November 2020 and resigned from the Company in May 2023. (b) Mr. Filer joined the Company as Senior Vice President of Finance in November 2022 and served as Interim CFO from May 2023 through March 4, 2024, at which time he returned to his previous role as Senior Vice President of Finance. (c) Mr. Cleveland served as Executive Chairman during 2020-2022 and served as our PEO through December 31, 2019. Equity awards granted to Mr. Cleveland while he served as PEO continued to vest during 2020-2022. (d) Mr. Boone resigned as CFO of the Company in June 2020. (e) Mr. Forbes, an independent member of our Board, served as interim CFO from June 2020 until November 2020. The compensation for Mr. Forbes reflected in this table relates to the salary, bonus and equity grant Mr. Forbes received while serving as interim CFO. The table does not include any compensation Mr. Forbes received related to his service as a member of the Board of Directors. (3) Company Total Shareholder Return (“TSR”) reflects $100 invested as of market close on December 31, 2019, the final trading day of fiscal 2019. The Peer Group TSR values for 2020, 2021 and 2022 have been updated from those reported in last year’s table to reflect a market cap weighting effective date of December 31, 2019. Peer Group TSR reflects a customized peer group of companies, which includes Brunswick Corporation, Cavco Industries, Inc., LCI Industries, Malibu Boats, Inc., Polaris, Inc., Thor Industries, Inc., Winnebago Industries, Inc., and Wabash National Corporation. See Stock Performance Graph on page 28 of our Form 10-K for the fiscal year ended December 31, 2023. Company selected measure of EBITDA, calculated as earnings before interest, taxes, depreciation and amortization, is the primary metric used in our LTIP as discussed in the CD&A beginning on page 24. The following table sets forth a reconciliation from the Summary Compensation Table (“SCT”) to Compensation Actually Paid to our PEO and for the average paid for our Non-PEO NEOs for the year ended December 31, 2023.
Pay Versus Performance
| | PEO | Average Non-PEO NEOs | | | 2023 | 2023 | | SCT Total Compensation | $6,748,551 | $2,138,092 | | SUBTRACT Grant Fair Value of Equity Awards Made During Year (a) | (4,200,020) | (1,146,630) | | ADD Year End Fair Value of Equity Awards Made During Year (b) | 6,198,117 | 1,258,228 | | ADD Year Over Year Change in Fair Value of Outstanding and Unvested Equity Awards (c) | 5,999,844 | 1,173,818 | | ADD Change in Fair Value of Equity Awards Granted in Prior Years That Vested During Year (d) | 448,652 | (161,035) | | ADD Fair Value at Vesting of Equity Awards Made During Year That Also Vested During Year (e) | - | - | | SUBTRACT Fair Value at the End of the Prior Year of Equity Awards That Were Forfeited During Year (f) | - | (276,990) | | ADD Value of Dividends Paid on Equity Awards That Vested During Year Not Included in SCT Total Compensation (g) | 301,392 | 53,689 | | Total Adjustments Related to Equity Awards | $8,747,985 | $901,080 | | Total Adjustments Related to Pension Value (h) | - | - | | Total Compensation Actually Paid | $15,496,536 | $3,039,172 |
Pay Versus Performance
(a) Represents the grant date fair value of equity-based awards made during the fiscal year. (b) Represents the year-end fair value of equity awards that were made during the fiscal year and were unvested as of year-end. (c) Represents the change in fair value during the fiscal year of equity-based awards granted in prior fiscal years that were still unvested as of year-end. (d) Represents the change in fair value during the fiscal year of equity-based awards granted in prior fiscal years that vested during the current fiscal year. (e) Represents the fair value of equity awards that vested during the same year as grant. (f) Represents the prior year-end fair value of equity awards forfeited during the year. Upon his resignation in May 2023, Mr. Petkovich forfeited all of his unvested equity awards. (g) Dividends accrued during vesting period on restricted equity awards are paid only on shares that vest and at same time as vesting. (h) Mr. Nemeth is the only participant in the Executive Retirement Plan. The annual interest credit on the annuity benefit is reported using the same value in the SCT and in Compensation Actually Paid.
Pay Versus Performance
| Notice of 2024 Annual Meeting of Shareholders & Proxy Statement | 48 |
Pay Versus Performance
The Company grants Performance-Contingent Shares to executive officers annually under its LTIP and typically reports the grant date fair value of these shares at 150% of the nominal “target” award (shown as “stretch” awards in the Grants of Plan-Based Awards Table) and accrues expense for these awards based on that projected payout, unless performance results and projections of future performance require a change to that estimate. Performance-Contingent Shares are earned based on the achievement of three-year cumulative Company EBITDA (after the Compensation Committee certifies the actual EBITDA achievement) compared to target EBITDA at the conclusion of the cumulative three-year performance measurement period. The Company generally grants Time-Based Share awards to executive officers annually and also at time of hire for certain other officers. Annual Time-Based Share awards cliff-vest on the third anniversary of the grant date. The Company granted stock options and SARS to certain executive officers in 2016 and 2017, and stock options in 2020 as part of the NEOs’ annual equity grant. Grants awarded in 2016 and 2017 vested and became exercisable on a pro-rata basis over four years from the date of grant, and expire on the ninth anniversary of the grant date (subject to earlier expiration based on certain employment terminations). Several of the grants in 2016 and 2017 had exercise prices that exceeded the Company’s closing stock price on the date of grant (premium-priced options and SARS). Option grants made in 2020 vested and became fully exercisable in May 2023. Fair values at time of grant, at year-end 2020, 2021, 2022 and 2023, and on vesting dates for awards that vested during 2020 to 2023, were all determined using the Black-Scholes model. The table below summarizes the option fair values and related assumptions used to calculate Compensation Actually Paid for fiscal year 2023.
Pay Versus Performance
| Valuation Purpose for PVP | Company Stock Price | Option Exercise Price | Expected Term (years) | Stock Price Volatility | Risk-Free Rate | Dividend Yield | Option Fair Value | | Year-end 2022 | $60.60 | $41.33 - $66.66 | 1.67 - 3.17 | 56.9% | 4.20% - 4.52% | 3.0% | $20.40 - $25.36 | | 2023 Vesting | $64.58 | $41.33 - $66.66 | 1.16 - 2.62 | 56.2% | 3.77% - 4.63% | 2.8% | $20.94 - $27.01 |
Pay Versus Performance
| | 49 |
Pay Versus Performance
| KEY FINANCIAL MEASURES Adjusted Net Income EBITDA |
Pay Versus Performance
The Company considers Adjusted Net Income (net of 2023 acquisitions and non-recurring charges and credits) and EBITDA to be the most important key financial performance measures that link the Company’s performance during 2023 to how compensation is actually paid to its PEO and non-PEO NEOs. As discussed in the CD&A, the annual STIP uses adjusted Net Income (net of acquisitions and non-recurring charges and credits) as the primary financial measure. Performance-Contingent Shares are earned based on cumulative EBITDA achieved during the three-year measurement period.
Analysis of Compensation Actually Paid and Company Performance
Analysis of Compensation Actually Paid and Company Performance Since a majority of total compensation provided to the PEO and the average paid to the Non-PEO NEOs is via equity-based grants that vest over multi-year periods, the primary driver of changes in “Compensation Actually Paid” totals for the PEO and the average for the Non-PEO NEOs is the fluctuations in the Company’s stock price performance and our varying levels of achievement against pre-established performance goals under our long-term incentive plans. The charts shown illustrate total Compensation Actually Paid (“CAP”) to the PEO and the Non-PEO NEOs versus: (a) the Company’s TSR and the TSR of the customized peer group of companies; (b) CAP versus Net Income; and (c) CAP versus EBITDA for each of the years ended December 31, 2020, 2021, 2022 and 2023.