DEF 14A of Graham Corp
Filed Jul 8, 2024 · FY20240001193125-24-175951
Election of Directors
Election of Directors The Board currently consists of seven members which will be reduced to six following the Annual Meeting. Our By-laws provide for a classified board of directors consisting of three classes of directors, with each class serving a staggered three-year term. As a result, stockholders elect only a portion of our Board each year. The terms of three of our directors, Alan Fortier, Lisa M. Schnorr and Daniel Thoren, will expire at the Annual Meeting. Upon the recommendation of the Nominating and Corporate Governance Committee, the Board has unanimously nominated Lisa M. Schnorr and Daniel Thoren for election as directors. If elected, each of Ms. Schnorr and Mr. Thoren will hold office for a three-year term expiring in 2027 or until his or her successor is duly elected and qualified. Mr. Fortier’s service as a director will end at the Annual Meeting. Our Board does not contemplate that either of the nominees will be unable to serve as a director, but if that contingency should occur before the proxies are voted, the designated proxies reserve the right to vote for such substitute nominee(s) as they, in their discretion, determine. Our By-laws do not permit re-election after a director reaches the age of 75. Board Recommendation The Board unanimously recommends a vote FOR the election of each of Ms. Schnorr and Mr. Thoren as a director to serve for a three-year term expiring in 2027.
Nominees Proposed for Election as Directors at the Annual Meeting
| Lisa M. Schnorr Ms. Schnorr has served as a director since 2014. Before retiring in May 2021, she worked for Constellation Brands (NYSE: STZ), a Fortune 500 company and a leading international producer of beer, wine and spirits with operations in the U.S., Mexico, New Zealand and Italy. Ms. Schnorr joined Constellation Brands in 2004 and earned promotions through a series of positions with increasing responsibility, including Vice President of Compensation and HRIS (2011-2013), Senior Vice President of Total Rewards (2014-2015), Corporate Controller (2015-2017), Chief Financial Officer of the Wine & Spirits Division (2017-2019), and Senior Vice President and Project Lead of Digital Enablement (2019-2021). Before joining Constellation Brands, Ms. Schnorr held financial and accounting positions at various public and private companies and she began her career in 1987 at PricewaterhouseCoopers (formerly Price Waterhouse), all in Rochester, New York. Ms. Schnorr has been a member of the board of directors of Vintage Wine Estates (NASDAQ: VWE), since June 2021 where she serves as Chair of the Audit Committee and Warrior Met Coal (NYSE: HCC), since August 2022 where she serves as Chair of the Nominating and Corporate Governance Committee. She holds a B.S. degree in Accounting from the State University of New York at Oswego. | Former Senior Vice President and Project Lead, Digital Enablement for Constellation Brands, Inc. AGE DIRECTOR SINCE 58 2014 TERM EXPIRES 2024 COMMITTEES ▶ Audit (Chair) ▶ Compensation | | Qualifications With her background and experience in strategic planning, audit, financial planning and analysis, capital allocation, public company governance and risk management, human resources and investor relations, Ms. Schnorr offers a global business and organizational perspective to the Board. The Board believes that Ms. Schnorr’s background and expertise enables her to guide us through a continued period of organic and acquisition-related growth and allows her to provide insight and leadership to our Audit Committee and Compensation Committee. | |
Directors Whose Terms Expire at the Annual Meeting
Directors Whose Terms Expire at the Annual Meeting
Directors Whose Terms Expire at the Annual Meeting
| Alan Fortier Mr. Fortier has served as President of Fortier & Associates, Inc., a strategy and profit improvement consulting firm focused on capital goods and chemicals companies, since 1988. Over his 30+ year consulting career he has helped hundreds of manufacturing businesses exceed aggressive profit targets, in all regions globally. He has also been a Strategic Advisory Board member for Genstar Capital, a middle market private equity group with over $30 billion in assets under management, since January 2019. In addition, between 2007 and 2016, Mr. Fortier was a guest lecturer at Columbia Business School’s MBA and Executive Education programs. Prior to entering consulting he held technical and management positions with DuPont. | President of Fortier & Associates, Inc. AGE DIRECTOR SINCE 67 2008 TERM EXPIRES 2024 COMMITTEES ▶ Compensation ▶ Nominating and Corporate Governance | | Qualifications Mr. Fortier brings to the Board more than 35 years of global industrial experience as a strategy and execution consultant and manager. Our Board and management team benefit from his extensive background in our served markets, including energy, petrochemicals, chemicals and large engineering firms, as well as his extensive experience advising boards and senior executives of global capital goods businesses on business strategy, mergers and acquisitions, global growth, pricing, organizational development and management control. | |
Directors Whose Terms do not Expire at the Annual Meeting
Directors Whose Terms do not Expire at the Annual Meeting
Directors Whose Terms do not Expire at the Annual Meeting
| Cari L. Jaroslawsky Ms. Jaroslawsky is the founder and President of Compliance Right, LLC, a board and executive consulting service provider formed in January 2022. Ms. Jaroslawsky served as the Senior Vice President and General Manager of Eaton Mission Systems, a leading aerospace and defense manufacturer and a division of Eaton Corporation plc (“Eaton”), from January 2019 until her retirement in December 2022, having previously served as Senior Vice President of Finance from October 2016 to December 2018 for Cobham International until it was acquired by Eaton. Prior to her position with Cobham International, Ms. Jaroslawsky served as the Chief Financial Officer and Treasurer of Servotronics, Inc. (NYSE American: SVT), a designer and manufacturer of advanced technology and consumer products, from 2005 until 2016. Ms. Jaroslawsky is a certified public accountant. She also serves on the board of directors of Rand Capital Corporation (Nasdaq: RAND). | President of Compliance Right, LLC AGE DIRECTOR SINCE 55 2022 TERM EXPIRES 2025 COMMITTEES ▶ Audit ▶ Nominating and Corporate Governance (Chair) | | Qualifications Ms. Jaroslawsky brings to the Board substantial operational and leadership experience, defense industry knowledge and a significant background in accounting and financial matters, including through her prior service as the Chief Financial Officer and Treasurer of a publicly traded company. | |
Directors Whose Terms do not Expire at the Annual Meeting
| GRAHAM CORPORATION 2024 PROXY STATEMENT | 9 |
Directors Whose Terms do not Expire at the Annual Meeting
| Proposal One: Election of Directors • Directors Whose Terms do not Expire at the Annual Meeting |
Directors Whose Terms do not Expire at the Annual Meeting
| Jonathan W. Painter Mr. Painter has served as the Chair, since July 2019, and a director, since January 2010, of Kadant Inc. (NYSE: KAI), a leading global supplier of components and engineered systems used in process industries, including the pulp and paper industry. Mr. Painter served as President and Chief Executive Officer of Kadant from January 2010 to July 2019 and as President and Chief Operating Officer from September 2009 to December 2009. | Chair of Kadant Inc. AGE DIRECTOR SINCE 65 2014 TERM EXPIRES 2025 CHAIR OF THE BOARD COMMITTEES ▶ Audit ▶ Compensation | | Qualifications Mr. Painter brings valuable experience to the Board and management as a former executive officer of a public company that, similar to us, is in the business of designing, manufacturing and marketing specialized, engineered equipment. The Board believes that Mr. Painter’s diverse experience in operations, finance, mergers and acquisitions and corporate strategy enables him to provide critical insight to the Board and management that will help us to achieve our strategic goals. | |
Directors Whose Terms do not Expire at the Annual Meeting
| James J. Barber, Ph.D. Dr. Barber has been an independent consultant and the principal of Barber Advisors, LLC, a consulting business advising firms and non-profits in the areas of strategy, management, marketing and operations, since September 2007. From January 2000 to May 2007, Dr. Barber was the President and Chief Executive Officer of Metabolix, Inc. (NASDAQ: MBLX), currently known as Yield10 Bioscience, Inc. (OTC: YTEN), a bioscience company focused on plastics, chemicals and energy. He was responsible for transforming Metabolix, Inc. from a research boutique into a leader in “clean tech” and industrial biotechnology. Dr. Barber served as the independent non-executive Chair of Itaconix plc (formerly Revolymer plc) (LON: ITX), a specialty chemicals company, from December 2018 to July 2022, and served as a non-executive director of Itaconix plc from September 2016 to November 2018. He has also served as a director of numerous private companies. | Independent Consultant and Principal of Barber Advisors, LLC AGE DIRECTOR SINCE 70 2011 TERM EXPIRES 2026 COMMITTEES ▶ Audit ▶ Compensation (Chair) ▶ Nominating and Corporate Governance | | Qualifications Dr. Barber brings to our Board substantial executive level leadership experience and a deep understanding of product and business development in highly technical industries and alternative energy markets. Dr. Barber also has significant experience in structuring both joint venture and acquisition transactions. | |
Directors Whose Terms do not Expire at the Annual Meeting
| Troy A. Stoner Mr. Stoner has served as the Senior Director, Electronic Systems for Maritime and Intelligence Systems, Space Intelligence and Weapons Systems division of Boeing Defense, Space and Security since June 2023. Mr. Stoner served as Chief Executive Officer of Argon ST, a specialist in systems engineering and a subsidiary of The Boeing Company from April 2020 until May 2023. Prior to that, Mr. Stoner served Boeing in a series of advancing roles including Senior Program Manager, Missions & Payloads, Autonomous Systems from December 2019 to March 2020, Senior Manager, Autonomous Systems, Boeing Strategy from November 2017 to November 2019, Senior Maritime Representative, Boeing Global Sales and Marketing, April 2016 to October 2017, and Senior Manager, Boeing Strategy from May 2015 to March 2016. Mr. Stoner retired from the U.S. Navy after 30 years of service. | Senior Director, Electronic Systems, Maritime & Intelligence Systems, Space Intelligence & Weapons Systems division of Boeing Defense, Space and Security AGE DIRECTOR SINCE 60 2022 TERM EXPIRES 2026 COMMITTEES ▶ Compensation ▶ Nominating and Corporate Governance | | Qualifications Mr. Stoner brings to the Board extensive business experience with strategy, leadership and operations at companies within the defense, space and security markets. Our Board and management team value his in-depth knowledge of the U.S. Navy as well as his extensive expertise in military defense systems and U.S. Navy planning and procurement processes. | |
Directors Whose Terms do not Expire at the Annual Meeting
| 10 | GRAHAM CORPORATION 2024 PROXY STATEMENT |
Directors Whose Terms do not Expire at the Annual Meeting
| Corporate Governance • Director Independence |
Our “Pay for Performance” Philosophy
| • | A significant portion of our named executive officers’ compensation is “at-risk,” and depends on either meeting performance-based criteria or continuing in service to the Company. Both our short-term and long-term incentive compensation programs use goals that tie to our performance in key financial metrics. During fiscal year 2024, we paid 50% of our long-term incentive compensation in performance-vesting restricted stock units (“PSUs”). The PSUs cliff vest on the third anniversary of the date of grant only upon the achievement of predetermined performance metrics. Our named executive officers received the other 50% of long-term incentive compensation in time-vesting restricted stock units (“RSUs”) that vest in equal installments on each of the first three anniversaries of the date of grant, subject to the executive officer’s continued employment at each such date. |
Principles and Objectives
| • | to provide market competitive compensation that includes an appropriate balance of fixed and incentive elements which allows us to both attract and retain executive personnel best suited by training, ability and other relevant criteria for our management requirements; |
Use of Peer Group Compensation Data and Tally Sheets
Use of Peer Group Compensation Data and Tally Sheets Peer Group Compensation Data. When making compensation decisions, the Compensation Committee may consider executive compensation programs and individual elements of compensation paid to other named executive officers at a group of comparably-sized companies both within our industry and in our geographic region or which we otherwise consider to be our peers. When selecting our peer group shown below, the Compensation Committee considered the companies’ revenue, market capitalization, number of employees, and industry classification.
Use of Peer Group Compensation Data and Tally Sheets
| Allient, Inc. | Energy Recovery, Inc. | Perma-Pipe International Holdings, Inc. | | Astronics Corporation | Gulf Island Fabrication, Inc. | SIFCO Industries, Inc. | | CECO Environmental Corp. | Hurco Companies, Inc. | The Eastern Company | | CPI Aerostructures, Inc. | Natural Gas Services Group, Inc. | The Gorman-Rupp Company | | DMC Global, Inc. | Park Aerospace Corp. | Thermon Group Holdings, Inc. |
Use of Peer Group Compensation Data and Tally Sheets
During fiscal year 2024, Air Industries Group, Allied Motion Technologies Inc., Capstone Green Energy Corporation, and Orbital Energy Group, Inc. were removed from our peer group as they were no longer within the size parameters that the Compensation Committee has set and/or there was a material decline in performance and market capitalization. The Compensation Committee believes that fifteen companies is still an adequate size for a peer group. The Compensation Committee may use peer group compensation data to provide an informational perspective on our compensation practices, levels of base salary, and the design of annual cash and long-term equity incentive compensation programs and the overall competitiveness of our compensation program. During fiscal year 2024, the Compensation Committee reviewed a competitive analysis provided by its compensation consultant, F.W. Cook, to inform pay decisions with respect to future fiscal years. This competitive analysis compared our named executive officers’ total target compensation, including base salary, target annual cash incentive and target long-term incentives to the same compensation elements paid to named executive officers in comparable positions
Use of Peer Group Compensation Data and Tally Sheets
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Use of Peer Group Compensation Data and Tally Sheets
with our peer group companies listed above. Our compensation consultant’s analysis demonstrated that Mr. Thoren’s fiscal year 2024 base salary was positioned below the 25th percentile and that the fiscal year 2024 base salaries for Messrs. Thome, Malone and Smith were positioned between the 25th and 50th percentile compared to other named executive officers in our peer group. Taking into consideration this competitive analysis, as well as other considerations and the recommendations of our Chief Executive Officer for the named executive officers other than himself, the Compensation Committee adjusted the base salaries of our named executive officers, as discussed under “Annual Base Salaries” below. Tally Sheets. The Compensation Committee analyzes tally sheets prepared for each named executive officer as part of its responsibilities for our executive compensation programs. Tally sheets present the dollar amount of each component of compensation for each named executive officer. The purpose of tally sheets is to bring together, in summary form, all of the elements of total direct compensation for our named executive officers so that the Compensation Committee may analyze both the individual elements of compensation (including the weighting of each element as compared to each other element) and the aggregate amount of total direct compensation. During fiscal year 2024, the Compensation Committee used tally sheets to assist in its review of the compensation of our named executive officers. No compensation changes were made with respect to fiscal year 2024 compensation based on those tally sheet reviews.
Executive Compensation Components
| Total Direct Compensation | = | Base Salary | + | Annual Incentive Compensation | + | Long-Term Incentive Compensation |
Executive Compensation Components
| Compensation Element | Form of Compensation | Purpose | Performance Criteria | | Base Salary | Cash | Provide compensation that is not “at-risk” to compensate our named executive officers for services rendered during the fiscal year | Not performance based | | Annual Incentive Compensation | Cash | Motivate our named executive officers to attain vital short-term Company and individual objectives | Adjusted net income or operating profit, bookings and individual officer goals linked to achievement of Company strategic objectives | | Long-term Incentive Compensation | PSUs | Incentivize our named executive officers to focus on Company growth and profitability, align their compensation with our business strategy, and create value for our stockholders | Three-year cumulative adjusted EBITDA metric | | | RSUs | Encourage retention of our named executive officers over a three-year period | Not performance based |
Executive Compensation Components
The Compensation Committee seeks to align our annual and long-term compensation elements to our strategic plan. We strive to strike a balance between establishing incentives that motivate our named executive officers to achieve meaningful results, while ensuring that we sufficiently recognize our named executive officers for achieving results that are within their control. The Compensation Committee believes that the diversity of the selected forms of compensation and performance metrics help to manage the pay for performance challenges presented by our business while creating the proper focus among our named executive officers to facilitate our growth. We establish each element that comprises targeted total direct compensation for the named executive officers annually. We do not have a specific policy for the allocation of compensation between short-term and long-term compensation or cash and equity compensation, as the allocation of these items is primarily driven by market compensation information and Company performance and goals. We generally do not consider gains realized from prior compensation, such as stock option exercises, restricted stock vesting and vesting of RSUs or PSUs, in setting other elements of compensation. We believe that reducing or limiting awards because of prior gains realized by a named executive officer would unfairly penalize the officer for outstanding past performance and reduce the motivation for continued outstanding achievement. Similarly, our severance and change-in-control arrangements, which we discuss in detail under the heading “Potential Payments upon Termination or Change in Control,” do not affect our decisions regarding other elements of compensation. Those arrangements serve specific purposes that are unrelated to the determination of a named executive officer’s compensation for a specific year. In support of our compensation philosophy, our executive compensation is heavily weighted toward incentive (variable) compensation, and the proportion of variable, or “at risk,” compensation increases as the level of responsibility increases. As shown below, in fiscal year 2024, we provided 67% of our Chief Executive Officer’s target compensation through annual and long-term incentive compensation, and, on average, we provided 50% of our other named executive officers’ target compensation through annual and long-term incentive compensation. Beginning in fiscal year 2023, our Compensation Committee grants awards consisting of RSUs and PSUs. We believe the use of such awards supports our long-term compensation philosophy as well as emphasizes performance and alignment of executives’ interests with our stockholders. The Compensation Committee will continue to review our executive compensation programs, as well as consider the outcome of the “say-on-pay” votes when making future compensation decisions for the named executive officers.
Fiscal Year 2024 Total Target Compensation*
| * The fair market value of the RSUs and PSUs are based upon the closing price at the date of grant. Information is presented as of March 31, 2024. |
Annual Cash Incentive Compensation
Annual Cash Incentive Compensation Our Annual Executive Cash Bonus Program, which we refer to as the Cash Bonus Program, is designed to compensate our named executive officers for above-average performance through an annual cash incentive award related both to Company and individual performance. We instituted the Cash Bonus Program to effectively align short-term individual performance with Company performance. The Compensation Committee designed the Cash Bonus Program to provide a clear link between the named executive officers’ goals and our performance and business objectives. In fiscal year 2024, the Compensation Committee used a combination of consolidated adjusted net income or divisional operating income, consolidated bookings or divisional bookings, and personal objectives as the performance metrics to evaluate our named executive officers’ performance under the Cash Bonus Program. The consolidated adjusted net income and divisional operating income performance metrics are based on 2024 fiscal year-end results. Consolidated bookings and divisional bookings represent new orders received by us (or the applicable division) and entered into backlog during fiscal year 2024, reduced by the impact of any backlog cancellations. Consolidated bookings include consolidated net orders for Batavia, NY, Barber-Nichols, Ahmedabad, India, and Suzhou, PRC. The Compensation Committee selected consolidated adjusted net income/divisional operating income and consolidated bookings/divisional bookings as the quantitative measures of short-term performance because it believes that these metrics impact our annual profitability and growth. For fiscal year 2024, the Compensation Committee established personal goals for our named executive officers, which included the following:
Annual Cash Incentive Compensation
| • | Mr. Thoren - Generate future products and service roadmap, further develop acquisition pipeline and continue development of leadership and succession planning. |
Annual Cash Incentive Compensation
| • | Mr. Thome - Develop capital allocation strategy to support future growth, define financial, risk and corporate reporting structure and develop financial planning and analysis processes and value enhancing corporate level shared services. |
Annual Cash Incentive Compensation
| • | Mr. Smith - Optimize business development and sales process, oversee implementation of enterprise resource planning (“ERP”) in the Batavia facility, and complete research and development testing on specified products. |
Annual Cash Incentive Compensation
| • | Mr. Malone - Define performance-oriented culture, initiatives and measures at Barber-Nichols to improve performance, develop succession plan, assist with Company compliance and identify acquisition targets. |
Annual Cash Incentive Compensation
The Compensation Committee assigned the weightings applicable to the three metrics to align our named executive officers’ goals with our current business objectives as follows:
Annual Cash Incentive Compensation
| Metric | Weighting | | Adjusted Net Income/Divisional Operating Income(1) | 50% | | Bookings(2) | 20% | | Personal goals | 30% |
Annual Cash Incentive Compensation
| (1) For Messrs. Thoren and Thome includes consolidated adjusted net income and for Messrs. Smith and Malone includes consolidated adjusted net income (15%) and divisional operating income (35%). |
Annual Cash Incentive Compensation
| (2) For Messrs. Thoren and Thome includes consolidated bookings and for Messrs. Smith and Malone includes consolidated bookings (6%) and divisional bookings (14%). |
Annual Cash Incentive Compensation
The Compensation Committee typically establishes the goals for the Cash Bonus Program during our annual budgeting process following the commencement of the fiscal year. The Compensation Committee typically approves such goals during our first quarter, subject to the ratification of the Board. The Compensation Committee approves the personal goals for our Chief Executive Officer. Our Chief Executive Officer develops the personal goals for our other named executive officers in alignment with our corporate strategy and recommends these goals to our Compensation Committee Chair for approval.
Annual Cash Incentive Compensation
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Annual Cash Incentive Compensation
For fiscal year 2024, the Compensation Committee set target bonus levels as follows: Mr. Thoren – 100% of base salary; and Messrs. Thome, Smith and Malone – 50% of base salary. The Compensation Committee uses a stretch maximum payout level to better incentivize and reward above target performance. Each named executive officer may receive anywhere from 0% to 200% of his target bonus level depending on the attainment of objectives, as follows:
Annual Cash Incentive Compensation
| Target Level | Adjusted Net Income/Divisional Operating Income Payout as Percentage of Target Bonus | Bookings Payout as Percentage of Target Bonus | | Threshold | 50% | 50% | | Target | 100% | 100% | | Maximum | 200% | 200% |
Annual Cash Incentive Compensation
We may use linear interpolation to determine the percentage of the target bonus payable based on performance in between threshold and target or target and maximum. The Compensation Committee may consider extraordinary events that either positively or negatively affect financial performance, and may in its discretion, include or exclude the impact of these events in approving awards under the Cash Bonus Program. During fiscal year 2024, the Compensation Committee exercised this discretion and adjusted net income to add back ERP implementation costs, debt amendment costs, acquisition related costs, Barber-Nichols earnout costs and P3 P3 retention costs and to deduct net income derived from P3. The Compensation Committee also exercised this discretion to add back ERP implementation costs to Batavia divisional operating income and to add back Barber Nichols earnout costs and acquisition related costs to Barber-Nichols divisional operating income during fiscal year 2024. For fiscal year 2024, threshold, target, maximum, and actual quantitative performance metrics used under the Cash Bonus Program for our named executive officers were as follows (millions of dollars):
Annual Cash Incentive Compensation
| Performance Measure | Threshold | Target | Maximum | Actual | | Adjusted Net Income(1) | $4.0 | $5.3 | $7.9 | $9.1 | | Bookings | $156.3 | $195.3 | $234.4 | $269.3 | | Divisional Operating Income - Graham Manufacturing | $6.5 | $8.7 | $13.1 | $10.1 | | Divisional Bookings - Graham Manufacturing | $97.2 | $121.5 | $145.8 | $213.9 | | Divisional Operating Income - Barber-Nichols | $4.3 | $5.7 | $8.6 | $8.1 | | Divisional Bookings - Barber-Nichols | $59.0 | $73.8 | $88.6 | $55.4 |
Annual Cash Incentive Compensation
| (1) Refer to Appendix A of this proxy statement for our definition of Adjusted Net Income and a reconciliation of such measure to the most directly comparable U.S. GAAP measure. |
Annual Cash Incentive Compensation
At its May 22, 2024 meeting, the Compensation Committee reviewed the achievement of Company and individual objectives during fiscal year 2024 and approved the award of cash incentive compensation under the Cash Bonus Program for each named executive officer. Based on our performance during fiscal year 2024, the Compensation Committee determined that the consolidated adjusted net income achieved was above the maximum level for the consolidated adjusted net income component; the consolidated bookings achieved was above the maximum level for the consolidated bookings component; the divisional operating income – Graham Manufacturing achieved was above the target level but below the maximum level for the divisional operating income – Graham Manufacturing component; the divisional bookings – Graham Manufacturing achieved was above the maximum level for the divisional bookings – Graham Manufacturing component; the divisional operating income – Barber-Nichols achieved was above the target level but below the maximum level for the divisional operating income – Barber-Nichols component; and the divisional bookings – Barber-Nichols achieved was below the threshold level for the divisional bookings – Barber-Nichols component of the Cash Bonus Program. The Compensation Committee determined that each of our named executive
Annual Cash Incentive Compensation
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Annual Cash Incentive Compensation
officers, achieved the following percentages of their respective target personal goals: Mr. Thoren – 115%; Mr. Thome – 100%; Mr. Smith – 130%; and Mr. Malone – 180%. Based on these results and achievements, the cash incentive compensation earned under the Cash Bonus Program for our named executive officers for fiscal year 2024 was as follows:
Annual Cash Incentive Compensation
| Named Executive Officer | Bonus Award | Percent of Target Bonus | Percent of Maximum Available Bonus | | Daniel J. Thoren | $698,000 | 175% | 87% | | Christopher J. Thome | $265,200 | 170% | 85% | | Alan E. Smith | $241,566 | 155% | 77% | | Matthew Malone | $249,678 | 160% | 80% |
Annual Cash Incentive Compensation
The Compensation Committee sets what it believes are challenging goals for maximum bonus awards and expects that maximum bonus awards will be made only in extraordinary circumstances. The amount of these cash awards earned by each named executive officer in fiscal year 2024 is shown in the “Non-Equity Incentive Plan Compensation” column of the Fiscal Year 2024 Summary Compensation Table. Under the Cash Bonus Program, special awards may be made to a named executive officer who has made an extraordinary contribution to us during the fiscal year. Such awards are generally recommended in writing by our Chief Executive Officer to the Chair of the Compensation Committee and approved by the Compensation Committee before grant. The Compensation Committee did not approve any such awards in fiscal year 2024.
Long-Term Equity Incentive Compensation
Long-Term Equity Incentive Compensation The Compensation Committee designed our Stock-Based Long-Term Incentive Award Plan for Senior Executives, which we refer to as the Stock Bonus Plan, to motivate our named executive officers to increase stockholder value by providing them with long-term stock-based awards for above-average Company performance. Our long-term incentive opportunities are intended to be competitive with the long-term incentive opportunities offered by the companies constituting our peer group. We issue awards pursuant to our 2020 Plan, a comprehensive executive compensation plan that provides for the grant of stock options, restricted stock, RSUs, PSUs and other stock-related awards, as well as other awards that may be settled in cash or other property. All of our named executive officers currently employed by us are eligible to participate in the 2020 Plan. The Compensation Committee designed the Stock Bonus Plan to create a tight link between the named executive officers’ stock-based compensation and the Company’s performance and business objectives. In fiscal year 2024, the Compensation Committee granted half of the awards in the form of RSUs, and the other half in the form of PSUs. RSUs. We granted RSUs because we believe that RSUs help us retain our named executive officers by offering our named executive officers the opportunity to receive shares of our common stock if they continue to be employed by us on the date the RSUs vest. Unless the Compensation Committee determines otherwise, shares granted vest in equal installments on each of the first three anniversaries of the date of grant, subject to the named executive officer’s continued employment at each such date. PSUs. We granted PSUs because we believe that PSUs help us reward our named executive officers by conditioning the receipt of shares of our common stock upon the satisfaction of longer-term predetermined Company objectives. Unless the Compensation Committee determines otherwise, the PSUs vest on the third anniversary of the date of grant, subject to satisfaction of the performance metrics for the applicable three-year period and subject to continued employment through the third anniversary of the date of grant. The Compensation Committee typically approves the performance metrics and the other terms of the PSUs during our first quarter. For fiscal year 2024 grants, the performance metric applicable to the PSUs is based upon the Company’s three-year cumulative adjusted EBITDA metric with linear interpolation applied between points and no payout if the results are below threshold. With respect to these grants, the Compensation Committee may consider extraordinary events that either positively or negatively affect the three-year cumulative adjusted EBITDA metric, and may in its discretion, include or exclude the impact of these events.
Long-Term Equity Incentive Compensation
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Long-Term Equity Incentive Compensation
The Compensation Committee determines the number of RSUs and PSUs to award to our named executive officers based on a percentage of each named executive officer’s annual base salary. The Compensation Committee determined the number of RSUs and PSUs to award to our named executive officers by using each such officer’s Long-Term Incentive Percentage, which we refer to as the L-T Percentage. For fiscal year 2024, the L-T Percentage in effect for each of our named executive officers was as follows: Mr. Thoren – 100%; and Messrs. Thome, Smith and Malone – 50%. The number of RSUs awarded was determined by multiplying 50% of each named executive officer’s base salary in effect on the date of grant by such officer’s L-T Percentage, and then dividing the product by the closing price of the Company’s common stock on the NYSE on the date of grant. The number of PSUs was determined by multiplying 50% of each named executive officer’s base salary in effect on the date of grant by such officer’s L-T Percentage, and then dividing the product by the closing price of the Company’s common stock on the NYSE on the date of grant. The closing price of our common stock was $10.95 on May 17, 2023, the date of grant. The Compensation Committee seeks to establish performance goals that are challenging but attainable based on our three-year business and financial plan for the year. When establishing performance goals, the Compensation Committee reviews and discusses our business and financial plans for that year and the opportunity to generate stockholder value. The Compensation Committee establishes a range of performance goals for the performance period as well as payment thresholds, targets and maximums for each goal. Additional information regarding the awards granted to each named executive officer in fiscal year 2024 is set forth in the Fiscal Year 2024 Summary Compensation Table and the Fiscal Year 2024 Grants of Plan-Based Awards table.
Retirement Benefits
Retirement Benefits We provide retirement benefits to our named executive officers to attract, retain and reward named executive officers by providing an overall benefit package similar to those received by similarly-situated executive officers at comparably-sized companies in our industry and geographic region. All of our named executive officers participate in our Incentive Savings Plan (the “401(k) Plan”), which is a defined contribution plan that provides for both employer and employee contributions. The 401(k) Plan uses a “safe harbor” design that provides for a matching contribution of 100% of a participant’s deferrals up to 3% of compensation plus 50% of the next 2% of deferrals (for a maximum 4% matching contribution). Matching contributions under the 401(k) Plan are immediately vested. Additionally, eligible employees hired after January 1, 2003, including Messrs. Thoren, Thome and Malone, with at least one hour of service during the relevant plan year who are employed by us at the end of such year receive a contribution in an amount equal to 3.25% of eligible compensation received during such year, which contribution is paid on the first $345,000 of compensation, as adjusted for cost-of-living increases, in accordance with Section 401(a)(17) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”).These additional contributions under the 401(k) Plan fully vest after four years of employment. Mr. Smith is eligible to participate in our Retirement Income Plan, which is a defined benefit pension plan for the benefit of our domestic employees hired prior to January 1, 2003. Benefits are based on the employee’s years of service and average annual base salary for the five highest consecutive calendar years of compensation in the ten-year period preceding retirement, reduced to take into account a participant’s Social Security benefits paid for by the Company.
Retirement Benefits
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Retirement Benefits
Mr. Smith is also eligible to participate in our Supplemental Executive Retirement Plan, which we refer to as the Supplemental Plan. The Supplemental Plan is intended to provide eligible participants and their surviving spouses and beneficiaries with the amount of employer-provided retirement benefits that the Retirement Income Plan would provide, but for the limitation on compensation that may be recognized under tax-qualified plans imposed by Section 401(a)(17) of the Code and the limitations on benefits imposed by Section 415 of the Code. As of March 31, 2024, Mr. Smith had not accrued any benefit under our Supplemental Executive Retirement Plan. We have provided more information about our defined benefit retirement plans and the benefits payable to our named executive officers under such plans under the heading “Pension Benefits at March 31, 2024.”
Employment Agreements and Potential Payments upon Termination or Change in Control
Employment Agreements and Potential Payments upon Termination or Change in Control We have employment agreements with each of our named executive officers. The decisions to enter into employment agreements and the terms of those agreements were based on our need to motivate and retain talent for our long-term growth and are consistent with similarly-situated executive officers at comparably sized companies in our industry and geographic region. The material terms of the employment agreements with our named executive officers are described under the heading “Employment Agreements.” Pursuant to their respective employment agreements, we have agreed to provide payments to certain of our named executive officers in the event of a termination of employment as a result of normal and early retirement, involuntary termination, death, and disability. Messrs. Thoren and Thome are also eligible to receive additional payments in the event of termination following a change in control. We believe these arrangements promote stability and continuity of leadership to the benefit of our named executive officers and the Company. See “Potential Payments upon Termination or Change in Control” for further information regarding these arrangements.
Certain Tax and Accounting Implications
| Name and Principal Position | Fiscal Year | Salary(1) ($) | Bonus ($) | Stock Awards(2) ($) | Non-Equity Incentive Plan Compensation(3) ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings(4) ($) | All Other Compensation(5) ($) | Total ($) | | Daniel J. Thoren | 2024 | 400,000 | 730,000(6) | 400,004 | 698,000 | — | 23,039 | 2,251,043 | | CEO | 2023 | 400,000 | — | 400,000 | 238,000 | — | 36,557 | 1,074,557 | | Christopher J. Thome | 2024 | 312,000 | — | 155,994 | 265,200 | — | 24,693 | 757,887 | | VP - Finance, CFO, CAO and Corporate Secretary | 2023 | 288,884 | — | 144,996 | 115,999 | — | 15,057 | 564,936 | | Alan E. Smith | 2024 | 312,000 | — | 155,994 | 241,566 | 70,072 | 16,165 | 795,797 | | VP and General Manager - Batavia | | | | | | | | | | Matthew Malone | 2024 | 312,000 | 312,396(7) | 155,994 | 249,132 | — | 45,486 | 1,075,008 | | VP and GM - Barber-Nichols | 2023 | 300,000 | — | 150,008 | 144,900 | — | 35,432 | 630,340 |
Employment Agreements
| Executive Compensation • Outstanding Equity Awards at March 31, 2024 |
Employment Agreements
| Executive Compensation • Fiscal Year 2024 Stock Vested |
Estimated Payments Upon Termination or Change in Control
Estimated Payments Upon Termination or Change in Control
Estimated Payments Upon Termination or Change in Control
| | Involuntary Termination without Cause ($) | Voluntary Termination for Good Reason ($) | Death ($) | Disability ($) | Termination Following Change in Control ($) | | Daniel J. Thoren | | | | | | | Continued salary | 400,000 | 400,000 | — | — | — | | Life insurance proceeds | — | — | 1,750,000 | — | — | | Accelerated vesting of RSAs, RSUs, PSAs and PSUs | — | — | 1,653,481 | 1,653,481 | 2,811,259 | | Short-term disability payments | — | — | — | 18,000 | — | | Cash severance payment | — | — | — | — | 2,000,000 | | Health and medical coverage | — | — | — | — | 21,570 | | Total(1) | 400,000 | 400,000 | 3,403,481 | 1,671,481 | 4,832,829 | | Christopher J. Thome | | | | | | | Continued salary | 312,000 | 312,000 | — | — | — | | Life insurance proceeds | — | — | 250,000 | — | — | | Accelerated vesting of RSUs and PSUs | — | — | 367,125 | 367,125 | 791,120 | | Cash severance payment | — | — | — | — | 936,000 | | Short-term disability payments | — | — | — | 180,000 | — | | Health and medical coverage(2) | — | — | — | — | — | | Total(1) | 312,000 | 312,000 | 617,125 | 547,125 | 1,727,120 | | Alan E. Smith | | | | | | | Continued salary | 312,000 | 312,000 | — | — | — | | Life insurance proceeds | — | — | 3,189,765 | — | — | | Accelerated vesting of RSAs, RSUs PSAs and PSUs | — | — | 1,139,863 | 1,139,863 | 1,580,412 | | Short-term disability payments | — | — | — | 165,000 | — | | Health and medical coverage | — | — | — | — | — | | Total(1) | 312,000 | 312,000 | 4,329,628 | 1,304,863 | 1,580,412 | | Matthew Malone | | | | | | | Continued salary | 312,000 | 312,000 | — | — | — | | Life insurance proceeds | — | — | 250,000 | — | — | | Accelerated vesting of RSAs, RSUs, PSAs and PSUs | — | — | 625,098 | 625,098 | 1,064,875 | | Short-term disability payments | — | — | — | 18,000 | — | | Total(1) | 312,000 | 312,000 | 875,098 | 643,098 | 1,064,875 |
Estimated Payments Upon Termination or Change in Control
| (1) Such amount takes into account limitations imposed by our employment agreement with the named executive officer whereby certain amounts otherwise payable to the named executive officer upon termination following a change in control may be reduced in connection with limitations on deductibility by the Company for federal income tax purposes imposed by Section 280G of the Internal Revenue Code. |
Estimated Payments Upon Termination or Change in Control
| (2) Mr. Thome’s employment agreement provides for continued health and medical coverage in the event of a change in control, however, as of the date of this proxy statement, Mr. Thome has elected not to receive health and medical coverage from the Company. |
Estimated Payments Upon Termination or Change in Control
| GRAHAM CORPORATION 2024 PROXY STATEMENT | 43 |
Estimated Payments Upon Termination or Change in Control
Pay Versus Performance The following table sets forth the compensation information of our principal executive officer (the “PEO”), our former PEO, and the average compensation information of our other named executive officers (“non-PEO NEOs”), both as reported in the Summary Compensation Table in this proxy statement and with certain adjustments to reflect the “compensation actually paid” to such individuals, as defined under the SEC’s pay versus performance disclosure rules, for each of fiscal year 2024, fiscal year 2023 and fiscal year 2022. For further information concerning our pay-for-performance philosophy and how we align executive compensation with Company financial performance, refer to the CD&A in this proxy statement.
Estimated Payments Upon Termination or Change in Control
| Year | Summary Compensation Table Total for First PEO(1) | Summary Compensation Table Total for Second PEO(2) | Compensation “Actually Paid” to First PEO(3) | Compensation “Actually Paid” to Second PEO(3) | Average Summary Compensation Table Total for non-PEO NEOs(4) | Average Compensation “Actually Paid” to non- PEO NEOs(5) | Value of Initial Fixed $100 Investment Based On Total Shareholder Return(6) | Net Income(7) | | 2024 | $2,251,043 | — | $4,758,685 | $0 | $876,231 | $1,780,074 | $198.19 | $4,556 | | 2023 | $1,074,557 | — | $1,849,004 | $0 | $597,638 | $832,497 | $95.03 | $367 | | 2022 | $950,904 | $1,064,678 | $815,028 | $(212,834) | $565,042 | $836,226 | $53.62 | $(8,773) |
Estimated Payments Upon Termination or Change in Control
| (1) Reflects total compensation reported for Daniel J. Thoren (our First PEO) as reported in the Summary Compensation Table for the corresponding fiscal year. Mr. Thoren has served as our Chief Executive Officer since September 2021. |
Estimated Payments Upon Termination or Change in Control
| (2) Reflects total compensation reported for James R. Lines (our second PEO), our former Chief Executive Officer, as reported in the Summary Compensation Table for the corresponding fiscal year. Mr. Lines retired from the Company effective as of August 31, 2021. |
Estimated Payments Upon Termination or Change in Control
| (3) The dollar amounts reported represent the amount of compensation “actually paid” to our First PEO and Second PEO in the applicable fiscal year, as computed in accordance with the SEC’s pay versus performance disclosure rules. The dollar amounts do not necessarily reflect the actual amount of compensation earned by or paid to our First PEO or our Second PEO during the applicable fiscal year. The following table provides additional information as to the amounts deducted from and added to the Summary Compensation Table Total for fiscal year 2024 for our First PEO and our Second PEO pursuant to the SEC’s rules to determine Compensation “Actually Paid” to PEO: |
Estimated Payments Upon Termination or Change in Control
| | First PEO | | | 2024 | | Summary Compensation Table Total for PEO | $2,251,043 | | Adjustments for defined benefit pension plan | | | (Deduct): Aggregate change in actuarial present value included in Summary Compensation Table Total for the covered fiscal year | — | | Add: Service cost for the covered fiscal year | — | | Add: Prior service cost for the covered fiscal year | — | | Adjustments for stock awards and option awards | | | (Deduct): Aggregate value for stock awards and option awards included in Summary Compensation Table Total for the covered fiscal year | $400,004 | | Add: Fair value at year end of awards granted during the covered fiscal year that were outstanding and unvested at the covered fiscal year end | $1,494,808 | | Add: Year-over-year change in fair value at covered fiscal year end of awards granted in any prior fiscal year that were outstanding and unvested at the covered fiscal year end | $1,418,268 | | Add: Vesting date fair value of awards granted and vested during the covered fiscal year | — | | Add: Change as of the vesting date (from the end of the prior fiscal year) in fair value of awards granted in any prior fiscal year for which vesting conditions were satisfied during the covered fiscal year | $(5,430) | | (Deduct): Fair value at end of prior fiscal year of awards granted in any prior fiscal year that failed to meet the applicable vesting conditions during the covered fiscal year | — | | Add: Change in incremental fair value of awards modified during the covered fiscal year | — | | Add: Dividends or other earnings paid on awards in the covered fiscal year prior to vesting if not otherwise included in the Summary Compensation Table Total for the covered fiscal year | — | | Compensation “Actually Paid” to PEO | $4,758,685 |
Estimated Payments Upon Termination or Change in Control
| 44 | GRAHAM CORPORATION 2024 PROXY STATEMENT |
Estimated Payments Upon Termination or Change in Control
| (4) Reflects the average compensation information for the non-PEO NEOs as a group based on total compensation reported in the Summary Compensation Table for the corresponding year. The non-PEO NEOs for fiscal year 2024 were Christopher J. Thome, Alan E. Smith and Matthew Malone, the non-PEO NEOs for fiscal year 2023 were Christopher J. Thome and Matthew Malone and the non-PEO NEOs for fiscal year 2022 were Matthew Malone and Jeffrey F. Glajch. |
Estimated Payments Upon Termination or Change in Control
| (5) The dollar amounts reported represent the average amount of compensation “actually paid” to the non-PEO NEOs in the applicable year, as computed in accordance with the SEC’s pay versus performance disclosure rules. The dollar amounts do not necessarily reflect the actual average amount of compensation earned by or paid to the non-PEO NEOs during the applicable fiscal year. The following table provides additional information as to the amounts deducted from and added to the Average Summary Compensation Table Total for fiscal year 2024 for non-PEO NEOs pursuant to the SEC’s rules to determine Average Compensation “Actually Paid” to non-PEO NEOs: |
Estimated Payments Upon Termination or Change in Control
| | Other Non-PEO NEOs (Average) | | | 2024 | | Summary Compensation Table Total for Non-PEO NEOs | $876,231 | | Adjustments for stock awards and option awards | | | Deduct: Aggregate value for stock awards and option awards included in Summary Compensation Table Total for the covered fiscal year | $155,994 | | Add: Fair value at year end of awards granted during the covered fiscal year that were outstanding and unvested at the covered fiscal year end | $582,946 | | Add: Year-over-year change in fair value at covered fiscal year end of awards granted in any prior fiscal year that were outstanding and unvested at the covered fiscal year end | $522,551 | | Add: Vesting date fair value of awards granted and vested during the covered fiscal year | — | | Add: Change as of the vesting date (from the end of the prior fiscal year) in fair value of awards granted in any prior fiscal year for which vesting conditions were satisfied during the covered fiscal year | $(5,871) | | Deduct: Fair value at end of prior fiscal year of awards granted in any prior fiscal year that failed to meet the applicable vesting conditions during the covered fiscal year | $39,789 | | Add: Change in incremental fair value of awards modified during the covered fiscal year | — | | Add: Dividends or other earnings paid on awards in the covered fiscal year prior to vesting if not otherwise included in the Summary Compensation Table Total for the covered fiscal year | — | | Compensation “Actually Paid” to Non-PEO NEOs | $1,780,074 |
Estimated Payments Upon Termination or Change in Control
| (6) Total Stockholder Return (“TSR”) is cumulative for the measurement periods calculated in accordance with Item 201(e) of Regulation S-K. Cumulative Company TSR is calculated by dividing the difference between the Company’s stock price at the end and the beginning of the measurement period by the Company’s stock price at the beginning of the measurement period. |
Estimated Payments Upon Termination or Change in Control
| (7) The dollar amounts reported represent the amount of net income (loss) reflected in the Company’s audited financial statements for the applicable fiscal year. |
Estimated Payments Upon Termination or Change in Control
| GRAHAM CORPORATION 2024 PROXY STATEMENT | 45 |
Analysis of the Information Presented in the Pay Versus Performance Table
Analysis of the Information Presented in the Pay Versus Performance Table In accordance with Item 402(v) of Regulation S-K, the Company is providing the following graphs with respect to the relationships between information presented in the Pay Versus Performance table. For purposes of these graphs, we refer to compensation “actually paid” as “CAP.”
Analysis of the Information Presented in the Pay Versus Performance Table
| 46 | GRAHAM CORPORATION 2024 PROXY STATEMENT |
Analysis of the Information Presented in the Pay Versus Performance Table
| Director Compensation • Director Compensation Programs |
Director Compensation
Director Compensation Director Compensation Programs The Compensation Committee annually reviews and approves compensation for our independent directors. Mr. Thoren, our Chief Executive Officer is not an independent director under applicable NYSE and SEC rules and, therefore, does not receive any additional compensation for services as a director. The compensation that we pay to Mr. Thoren in fiscal year 2024 is disclosed in the Fiscal Year 2024 Summary Compensation Table in this proxy statement. We use a combination of cash and equity-based compensation to attract and retain our independent directors. As described below, independent director compensation consists of an annual cash retainer, payable quarterly; an additional annual cash retainer for the Chair of the Board and the chair of each committee of the Board, payable quarterly; and RSUs. We also reimburse our independent directors for reasonable expenses incurred in connection with their attendance at Board and committee meetings. We do not provide retirement benefits to our independent directors. Cash Compensation. For fiscal year 2024, each of our independent directors received an annual cash retainer fee of $50,000 for service on the Board. The Compensation Committee approved an increase to the annual cash retainer fee for service on the Board to $55,000 for the fiscal year ended March 31, 2025 (“fiscal year 2025”). The Chair of the Board and each of our independent directors serving as a chair of committees of the Board receive additional fees for such service. For fiscal year 2024, the Chair of the Board received an additional annual fee of $50,000, the Chair of the Audit Committee received an additional annual fee of $15,000, the Chair of the Compensation Committee received an additional annual fee of $10,000 and the Chair of the Nominating and Corporate Governance Committee received an additional annual fee of $7,000. The Compensation Committee approved an increase to the additional annual fee for the Chair of the Compensation Committee to $12,500 for fiscal year 2025. Restricted Stock Units. During fiscal year 2024, equity compensation awards to independent directors were made in the form of RSUs awarded under the 2020 Plan. On May 17, 2023, the Compensation Committee awarded 6,393 RSUs to each of our then serving independent directors, with a grant date fair market value of approximately $70,003 and which vest on the first anniversary of the date of grant. Messrs. Stoner and Painter and Ms. Schnorr elected to defer the payment of shares of common stock underlying these RSUs until he or she is no longer a member of the Board. The Compensation Committee approved a change to our director compensation to increase the grant value of the independent director annual stock award to $75,000 for fiscal year 2025.
Stock Ownership Guidelines
| Director Compensation • Fiscal Year 2024 Director Compensation Table |
Stock Ownership Guidelines
| Name | Fees Earned or Paid in Cash ($) | Stock Awards(1) ($) | All Other Compensation ($) | Total ($) | | James J. Barber | 60,000 | 70,003 | — | 130,003 | | Alan Fortier | 50,000 | 70,003 | — | 120,003 | | Cari L. Jaroslawsky | 57,000 | 70,003 | — | 127,003 | | Jonathan W. Painter | 100,000 | 70,003 | — | 170,003 | | Lisa M. Schnorr | 65,000 | 70,003 | — | 135,003 | | Troy A. Stoner | 50,000 | 70,003 | — | 120,003 |