DEF 14A of Timken Co
Filed Mar 14, 2024 · FY20230001206774-24-000261
Beneficial Shareholders (those holding shares through a stock brokerage account or by a bank or other holder of record)
| 73 | CEO Pay Ratio | | 74 | Pay Versus Performance | | 78 | Proposal No. 3: Ratification of Appointment of Independent Auditor | | 79 | Auditor | | 79 | Audit Committee Report | | 80 | Proposal No. 4: Approval of the Amendment and Restatement of The Timken Company 2019 Equity and Incentive Compensation Plan | | 92 | Proposal No. 5: Shareholder Proposal – Adopt Ambitious Emissions Reduction Targets | | 97 | Other Information | | 97 | Participation at the Annual Meeting | | 97 | Proxy Solicitation | | 98 | How Proxies Will be Voted | | 98 | Voting at the Meeting | | 98 | Submission of Shareholder Proposals | | 99 | General | | A-1 | Appendix A | | B-1 | Appendix B |
Director Nominees
Director Nominees See Proposal No. 1 on page 12 of the Proxy Statement for more details on the 10 nominees for Director. The following information describes relevant information about each nominee as of March 1, 2024.
Director Nominees
| | | | | Committee Memberships | | | | | Name and Title | Age | Director since | Independent | Audit | Compensation | Nominating & Corporate Governance | Other Public Boards | | Maria A. Crowe Retired President of Manufacturing Operations, Eli Lilly and Company | 64 | 2014 | ✓ | ✓ | | ✓ Chair | _ | | Elizabeth A. Harrell Retired Major General, U.S. Air Force | 70 | 2017 | ✓ | | ✓ | ✓ | _ | | Richard G. Kyle President and Chief Executive Officer, The Timken Company | 58 | 2013 | | | | | 1 | | Sarah C. Lauber Executive Vice President, CFO and Secretary, Douglas Dynamics, Inc. | 52 | 2021 | ✓ | ✓ | ✓ | | _ | | Christopher L. Mapes Executive Chairman of the Board, Lincoln Electric Holdings, Inc. | 62 | 2014 | ✓ | ✓ | | ✓ | 3 | | James F. Palmer Retired Corporate Vice President and Chief Financial Officer, Northrop Grumman Corporation | 74 | 2015 | ✓ | ✓ Chair | ✓ | | _ | | Ajita G. Rajendra Retired Executive Chairman, President and CEO A. O. Smith Corporation | 72 | 2014 | ✓ | ✓ | ✓ Chair | | 2 | | Frank C. Sullivan Chairman and Chief Executive Officer, RPM International Inc. | 63 | 2003 | ✓ | | ✓ | ✓ | 1 | | John M. Timken, Jr. Chairman, Board of Directors, The Timken Company | 72 | 1986 | ✓ Independent Chairman | | | | _ | | Ward J. Timken, Jr. Chief Executive Officer, McKinley Strategies, LLC | 56 | 2002 | ✓ | | | | _ | | Average Age / Median Tenure | 64 | 10 years | | | | | |
PROPOSAL NO. 1: ELECTION OF DIRECTORS
PROPOSAL NO. 1: ELECTION OF DIRECTORS We currently have 11 Directors. Pursuant to our Amended Regulations, all nominees for Director will stand for election for a one-year term to expire at the 2025 Annual Meeting of Shareholders. Candidates for Director receiving the greatest number of votes will be elected. Abstentions and “broker non-votes” (where a broker, other record holder, or nominee indicates on a proxy card that it does not have authority to vote certain shares on a particular matter) will not be counted in the election of Directors and will not have any effect on the result of the vote. Pursuant to the Majority Voting Policy of the Board of Directors, any Director who fails to receive a majority of the votes cast in his or her election will submit his or her resignation to the Board of Directors promptly after the certification of the election results. The Board of Directors and the Nominating and Corporate Governance Committee will then consider the resignation in light of any factors they consider appropriate, including the Director’s qualifications and service record, as well as any reasons given by shareholders as to why they withheld votes from the Director. The Board of Directors is required to determine whether to accept or reject the tendered resignation within 90 days following the election and to disclose on a Current Report on Form 8-K its decision, as well as the reasons for rejecting any tendered resignation, if applicable. John A. Luke, Jr., a Director of the Company since 1999, is retiring from the Board effective as of the 2024 Annual Meeting of Shareholders. In connection with Mr. Luke’s retirement, at its meeting on February 8, 2024, the Board approved a resolution decreasing the size of the Board from 11 to 10 Directors effective as of the 2024 Annual Meeting of Shareholders. We thank Mr. Luke for his significant contributions to the Company during his service on the Board. At its meeting on February 8, 2024, the Board also approved a resolution, based on the recommendation of the Nominating and Corporate Governance Committee, nominating the 10 individuals set forth below to be elected Directors at the 2024 Annual Meeting of Shareholders to serve for a term of one year expiring at the 2025 Annual Meeting of Shareholders (or until their respective successors are elected and qualified). Each of the nominees previously was elected as a Director by our shareholders and each has consented to serve as a Director if elected. If any nominee becomes unable, for any reason, to serve as a Director, or should a vacancy occur before the election (which events are not anticipated), the Directors then in office may substitute another person as a nominee or may reduce the number of nominees as they deem advisable. Unless otherwise indicated on any proxy card, the persons named as proxies on the enclosed proxy card intend to vote the shares covered by such proxy card in favor of the nominees below.
PROPOSAL NO. 1: ELECTION OF DIRECTORS
| THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF THE FOLLOWING NOMINEES. |
Nominees
Nominees The following information, obtained in part from the respective nominee and in part from our records, describes the background and select experience of each nominee as of March 1, 2024:
Nominees
| Maria A. Crowe Age: 64 Director since 2014 Committees: ● Audit ● Nominating and Corporate Governance (Chair) | Business Experience Ms. Crowe served as President of Manufacturing Operations for Eli Lilly and Company, a global manufacturer of pharmaceutical products, from 2012 until her retirement in December 2017. Ms. Crowe joined Eli Lilly and Company in 1982 and served in multiple leadership roles of increasing responsibility. Qualifications Ms. Crowe provides the Board with extensive experience in manufacturing, sourcing and procurement for a global manufacturing company. Ms. Crowe also brings valuable experience on production capacity expansion and innovation efforts. | | Elizabeth A. Harrell Age: 70 Director since 2017 Committees: ● Compensation ● Nominating and Corporate Governance | Business Experience Ms. Harrell retired as a Major General in October 2006, serving more than 30 years with the U.S. Air Force. After her retirement from the U.S. Air Force, Ms. Harrell was a consultant with The Spectrum Group until 2009 and a consultant to Northrop Grumman Corporation until 2012. Qualifications Ms. Harrell’s extensive knowledge of aerospace technology, global supply chain management and government relations align with the Company’s growth priorities and are valuable to her service as a member of the Board. |
Nominees
| Richard G. Kyle Age: 58 Director since 2013 | Business Experience Mr. Kyle was appointed President and Chief Executive Officer of The Timken Company in 2014. Mr. Kyle joined the Company in 2006 and has served in multiple leadership roles of increasing responsibility during his tenure with the Company. Since 2015, Mr. Kyle has served as a director of Sonoco Products Company, a global provider of consumer packaging, industrial products, protective solutions, and display and packaging services, and is a member of its Audit and Governance and Nominating Committees and Chair of its Executive Compensation Committee. Qualifications Mr. Kyle has significant experience with global manufacturing organizations and has demonstrated the ability to lead change and growth. In addition to his role as Chief Executive Officer of the Company, Mr. Kyle’s strong engineering and operational background, coupled with his strategic perspective, provide valued skills to the Board. | | Sarah C. Lauber Age: 52 Director since 2021 Committees: ● Audit ● Compensation | Business Experience Ms. Lauber is Executive Vice President, CFO and Secretary of Douglas Dynamics, Inc., a premier manufacturer and upfitter of work truck attachments and equipment, a position she has held since March 2023 after serving as Chief Financial Officer & Secretary beginning in 2017. Prior to joining Douglas Dynamics, Inc., she served as the Senior Vice President and Chief Financial Officer of Jason Industries Inc., a diversified industrial company, from 2015 to 2017. Ms. Lauber has over 25 years of professional experience in various finance and strategic functions and began her career as an accountant at KPMG. Qualifications Ms. Lauber’s expertise leading the finance and accounting function of multiple publicly traded manufacturing companies and her experience with financial planning and acquisition integration makes her well-suited to serve on our Board. |
Nominees
| Christopher L. Mapes Age: 62 Director since 2014 Committees: ● Audit ● Nominating and Corporate Governance | Business Experience Mr. Mapes is Executive Chairman of the Board of Lincoln Electric Holdings, Inc., a global manufacturer of welding, cutting and joining products. He has held the position of Chairman since December 2013 and was President and Chief Executive Officer from December 2012 until December 2023. Mr. Mapes has been a director of Lincoln Electric Holdings, Inc. since 2010; a director of A. O. Smith Corporation, a global water technology company and manufacturer of residential and commercial water heating and water purification equipment, since 2023 where he serves on the Audit Committee; and a director of Nordson Corporation, a manufacturer of precision dispensing, fluid management and related technologies, since 2024 where he also serves on the Audit Committee. Qualifications As a seasoned executive with extensive experience leading global manufacturing and distribution companies, Mr. Mapes understands the challenges of global growth and the complexity of managing international operations. | | James F. Palmer Age: 74 Director since 2015 Committees: ● Audit (Chair) ● Compensation | Business Experience Mr. Palmer served as the Corporate Vice President and Chief Financial Officer of Northrop Grumman Corporation, a global security company and a provider of products, systems and solutions in the fields of aerospace, electronics, information systems and technical services, from March 2007 until February 2015 and as a Corporate Vice President of Northrop Grumman until his retirement in July 2015. Qualifications Mr. Palmer’s broad executive background in the aerospace and defense industry, his service as the chief financial officer of multiple large publicly traded companies, and his extensive experience with business acquisitions, debt financings and other complex transactions make him well qualified to serve as a member of the Board. |
Nominees
| Ajita G. Rajendra Age: 72 Director since 2014 Committees: ● Audit ● Compensation (Chair) | Business Experience Mr. Rajendra served as Executive Chairman of A. O. Smith Corporation, a global water technology company and manufacturer of residential and commercial water heating and water purification equipment, from September 2018 until his retirement on May 1, 2020. He had held the position of Chairman since 2014 and was President and Chief Executive Officer from 2013 until 2018. Mr. Rajendra has been a director of A. O. Smith Corporation since 2011 and has been a director of Donaldson Company, Inc., a vertically integrated filtration company, since 2010, where he is Chair of the Human Resources Committee. Qualifications Mr. Rajendra’s extensive manufacturing and international experience leading businesses and negotiating acquisitions and joint ventures, along with his experience as a director of other publicly traded companies, provides valuable skills to the Board. | | Frank C. Sullivan Age: 63 Director since 2003 Committees: ● Compensation ● Nominating and Corporate Governance | Business Experience Mr. Sullivan has held the position of Chairman and Chief Executive Officer of RPM International Inc. (“RPM”), a world leader in specialty coatings, since 2008. Mr. Sullivan was appointed RPM’s Chief Executive Officer in 2002, prior to which he held the position of Chief Financial Officer since 1993. Mr. Sullivan has been a director of RPM since 1995 and is chair of RPM’s Executive Committee. Qualifications As a chief executive officer and director of a multinational company, Mr. Sullivan brings invaluable executive experience and financial expertise on a wide array of issues, including strategic planning and the evaluation and execution of acquisition opportunities. |
Nominees
| John M. Timken, Jr. Age: 72 Director since 1986 Independent Chairman of the Board | Business Experience Mr. Timken is a private investor and a successful entrepreneur, who has been a significant shareholder of the Company for many years. Mr. Timken is co-founder of Amgraph Packaging, a national supplier of flexible package printing used by major food and beverage brands and private labels. His entrepreneurial activities and passion for business-building have included involvement in ventures ranging from injection molding, to ophthalmic laboratories, to logistics and trucking. He also has owned a cable television business and established one of the largest commercial mushroom farms in North America. Qualifications Mr. Timken’s ability as an investor to identify and help increase value across a range of industries, as well as his familiarity with the Company’s businesses, provides the Board with critical input in evaluating and making capital allocation decisions. Since joining the Board, he has played an important role in the Company’s strategic drive to add product lines that complement its bearing product portfolio. | | Ward J. Timken, Jr. Age: 56 Director since 2002 | Business Experience Mr. Timken co-founded McKinley Strategies, LLC, a political consulting firm, and has served as its Chief Executive Officer since January 2020. Prior to that, Mr. Timken served as Chairman, Chief Executive Officer and President of TimkenSteel (renamed Metallus Inc. in 2024), a leader in customized alloy steel products and services, from 2014 to 2019. Mr. Timken previously served as Executive Chairman of the Board of The Timken Company from 2005 to May 2014. Qualifications Mr. Timken provides the Board with relevant experience from having served in key leadership positions during his tenure with the Company. Mr. Timken’s broad-based experience and familiarity with our businesses, along with his understanding of the global industry dynamics across the Company’s markets, enable Mr. Timken to provide valuable input to the Board. |
Director Compensation
Director Compensation Directors who are not Timken employees receive an annual retainer fee, annual committee fees (as applicable) and an annual equity award. The independent Chairman and each committee chairperson receive additional retainer fees. Richard G. Kyle, our President and CEO, does not receive any additional compensation for his service as a Director.
2023 Director Compensation Table
2023 Director Compensation Table The following table provides the compensation and benefits applicable to our nonemployee Directors for 2023:
2023 Director Compensation Table
| Name (1) | Fees Earned or Paid in Cash (2) | Stock Awards (3) | All Other Compensation (4) | Total | | Maria A. Crowe | $124,500 | $140,257 | $2,864 | $267,621 | | Elizabeth A. Harrell | $105,000 | $140,257 | $14,335 | $259,592 | | Sarah C. Lauber | $112,500 | $140,257 | $13,089 | $265,846 | | John A. Luke, Jr. | $105,000 | $140,257 | $13,772 | $259,029 | | Christopher L. Mapes | $112,500 | $140,257 | $11,362 | $264,119 | | James F. Palmer | $132,500 | $140,257 | $2,864 | $275,621 | | Ajita G. Rajendra | $127,500 | $140,257 | $13,397 | $281,154 | | Frank C. Sullivan | $105,796 | $140,257 | $2,864 | $248,917 | | John M. Timken, Jr. | $215,000 | $140,257 | $16,462 | $371,719 | | Ward J. Timken, Jr. | $90,000 | $140,257 | $11,941 | $242,198 | | Jacqueline F. Woods | $36,318 | - | $122,380 | $158,698 |
2023 Director Compensation Table
| (1) Richard G. Kyle, our President and CEO, is not included in this table as he is an employee of the Company and receives no additional compensation for his services as a Director. Ms. Woods retired from the Board of Directors effective as of the 2023 Annual Meeting of Shareholders. |
2023 Director Compensation Table
| (2) The amount shown for each Director includes fees earned or paid in cash during fiscal 2023, including their annual retainer fees and additional annual fees for serving on a committee of the Board. Ms. Lauber elected to defer receipt of these cash fees under the Director Deferred Compensation Plan for distribution in the future. |
2023 Director Compensation Table
| (3) The amount shown for each Director includes the grant date fair value of the award of 1,845 restricted stock units made on May 5, 2023. These restricted stock units vest 100% one year following the grant date. Ms. Harrell and Ms. Lauber elected to defer the award made on May 5, 2023 under the Director Deferred Compensation Plan for distribution in the future. The amounts shown in this column are computed in accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic 718. |
2023 Director Compensation Table
| (4) All other compensation reflects cash dividend equivalents paid to the Directors in 2023 for unvested restricted stock units granted in the prior year and cash dividends paid to certain Directors for unvested restricted shares or restricted stock units granted in connection with their initial election to the Board, in each case upon vesting of such restricted stock units or restricted shares in 2023. Ms. Harrell elected to defer her annual restricted stock unit award granted in 2022 as well as corresponding cash dividend equivalents in the amount of $2,864 under the Director Deferred Compensation Plan for distribution in the future. For Ms. Woods, amounts also include accumulated dividends of $119,516 paid in 2023 on previously deferred shares. The amount shown also includes the incremental value of spousal travel for Ms. Harrell, Ms. Lauber, Mr. Luke, Mr. Mapes, Mr. Rajendra, Mr. John M. Timken, Jr., and Mr. Ward J. Timken, Jr. to a Company Board meeting during 2023. |
2023 Director Compensation Table
As of December 31, 2023, unvested restricted stock units were held by the nonemployee Directors as follows:
2023 Director Compensation Table
| Name | Unvested Restricted Stock Units | | Maria A. Crowe | 1,845 | | Elizabeth A. Harrell | 1,845 | | Sarah C. Lauber | 3,045 | | John A. Luke, Jr. | 1,845 | | Christopher L. Mapes | 1,845 | | James F. Palmer | 1,845 | | Ajita G. Rajendra | 1,845 | | Frank C. Sullivan | 1,845 | | John M. Timken, Jr. | 1,845 | | Ward J. Timken, Jr. | 1,845 |
COMPENSATION DISCUSSION AND ANALYSIS
| 47 | Key Elements of the Executive Compensation Program | | 48 | Analysis of 2023 Compensation | | 48 | Base Salary | | 48 | Annual Cash Incentive | | 50 | Long-Term Incentives | | 53 | Retirement Programs | | 55 | Deferred Compensation | | 55 | Other Benefits | | 56 | Severance Agreements | | 56 | Stock Ownership Guidelines | | 57 | Anti-Hedging/Pledging Policies | | 57 | Compensation Risk Assessment | | 57 | Clawback Provisions | | 58 | Compensation Committee Report |
2023 Performance
We ended the year with a strong balance sheet with total debt of $2.40 billion and net debt of $1.98(3) billion. Our net-debt-to-adjusted-EBITDA ratio of 2.1(3) times at December 31, 2023, is well within our 1.5 to 2.5 times targeted range and puts us in an excellent position to continue to drive our strategy and create shareholder value in 2024 and beyond. Strong execution of our strategy has created shareholder value by delivering TSR of 2.9%, 18.8%, and 9.8% over the past three-, five-, and ten-year periods, respectively. Our TSR for the five-year period outpaced the median of our 2023 compensation peer group, the S&P 500 Industrials and the S&P 400 Industrials, while our TSR for the three-year period lagged. Our ten-year TSR also exceeded the median of our 2023 compensation peer group and was slightly below the S&P 500 Industrials and the S&P 400 Industrials over this timeframe. The S&P 500 Industrials comprises those companies included in the S&P 500 index that are classified as members of the GICS industrials sector, while the S&P 400 Industrials comprises those companies included in the S&P MidCap 400 that are classified as members of the GICS industrials sector. (3) See Appendix A for reconciliations of adjusted earnings-before-interest-taxes-depreciation-and-amortization (“EBITDA”), net debt, and the ratio of net debt to adjusted EBITDA to their most directly comparable GAAP financial measures. The performance metrics discussed above are used for external reporting purposes and may not correlate exactly to their corresponding compensation metrics due to slight differences in methodology (see pages 49 to 53 for more details on how the compensation metrics are calculated). *TSR for the Company was calculated on an annualized basis and assumes quarterly reinvestment of dividends. The 10-year period takes into account the value of TimkenSteel common shares distributed in the Spinoff. TimkenSteel was renamed Metallus Inc. in 2024. **See page 44 for the companies that are included in the compensation peer group for 2023. The Peer Median excludes Altra Industrial Motion Corp. since it is no longer a standalone public company after being acquired by Regal Rexnord Corp. during 2023. ***The S&P 500 Industrials and S&P 400 Industrials comprise those companies that are classified as members of the GICS industrials sector included in the S&P 500 index and S&P MidCap 400 index, respectively.
2023 Compensation Decisions and Actions
| | Mr. Coughlin, and on March 31, 2026, for Mr. Fracassa, both contingent on continued employment with the Company. The entire award will be forfeited if either individual voluntarily leaves the Company for any reason prior to the vesting date. Both awards were granted under the Equity and Incentive Compensation Plan. | | 2024 Program Updates | New Compensation Peer Group Referenced for 2024 Executive Compensation In 2023, as part of its annual review of executive and director compensation, the Compensation Committee, in consultation with WTW, conducted a review of the peer group utilized in 2023 and assessed whether any changes were needed for 2024. As a result of that review, the Company replaced Altra Industrial Motion Corp. with Pentair plc due to Regal Rexnord Corp.’s 2023 acquisition of Altra Industrial Motion Corp. See page 44 for more details regarding year-over-year changes to the peer group, and the use of peer group and market data for our executive compensation program. |
CEO Pay At-A-Glance
| The Company’s Approach to Rewarding Performance Elements of our named executive officer compensation consist of base salary, annual cash incentive, long-term incentives that include time-based and performance-based restricted stock units, other primarily broad-based employee benefits and limited perquisites. Annual Cash Incentive • Reward achievement of short-term individual and corporate performance goals Time-Based Restricted Stock Units • Reward long-term shareholder value creation • Reinforce ownership in the Company • Support retention of executives • Align executive compensation with shareholder interests Performance-Based Restricted Stock Units • Reward long-term financial results that drive shareholder value • Reinforce ownership in the Company • Align executive compensation with shareholder interests |
CEO Pay At-A-Glance
Target pay for 2023 for Mr. Kyle was determined by the Compensation Committee after consideration of the factors described below under “Determining Compensation for 2023.” The Compensation Committee considered the total compensation package in relation to the target established for the position, taking into account the experience level, performance and scope of responsibilities for the particular position. Further details are provided on page 45. The chart below provides annualized targeted 2023 compensation levels for Mr. Kyle as compared to the median of our 2023 compensation peer group and general industry survey data. This data represents targeted compensation levels excluding the impact of “all other compensation” and pension value changes. For 2023, lower interest rates resulted in positive changes in actuarial pension values from the prior year measurement period. Mr. Kyle’s 2023 targeted pay reflects his experience level and performance in the role as the Company has experienced significant growth during his tenure. *See page 44 for more details on the companies in the peer group, which consists of U.S. industrial companies with median revenue of $4.24 billion (as of the time the market study was conducted). **Survey data consists of pay practices of general industry companies in the WTW Executive Compensation Database adjusted to $4.5 billion in annual revenue via the use of regression analysis.
Aligning Pay with Performance
Aligning Pay with Performance The Company’s success depends largely on the contributions of motivated and engaged employees all working together to achieve our strategic and financial objectives. This strategy shapes our approach to providing a competitive compensation and benefits package to our CEO and the other NEOs. Pay-for-performance is one of the principles that make up our executive compensation philosophy. To ensure that we are adhering to this principle, we evaluate the degree of alignment of our total incentive compensation to our business results, including the level of adjusted EBITDA, adjusted EBITDA margin, free cash flow, adjusted ROIC, adjusted EPS and relative TSR, which we believe are key performance metrics that drive long-term shareholder value and cash generation that supports our capital allocation objectives. The Company uses a balance of short- and long-term incentives as well as cash and non-cash compensation to meet these objectives. The elements of executive compensation provided to our NEOs for 2023 consisted of base salary, annual cash incentive, long-term incentives including time-based restricted stock units and performance-based restricted stock units, other primarily broad-based employee benefits, and limited perquisites. Our executive compensation program is designed to link pay and performance.
Aligning Pay with Performance
| | Short-Term (Cash) Annual Incentive* | Long-Term (Equity) Performance-Based Restricted Stock Units* 60% of NEO Annual Equity Grants | Long-Term (Equity) Time-Based Restricted Stock Units 40% of NEO Annual Equity Grants | | Objective | Short-term financial and operational business priorities and shareholder value creation | Long-term strategic financial goals and shareholder value creation | Long-term shareholder value creation | | Time Horizon and 2022 Metrics | One year 60% adjusted EBITDA 20% adjusted EBITDA margin 20% free cash flow | Three years 50% adjusted EPS** 30% adjusted ROIC** 20% relative TSR** | Four-year vesting period (25% per year) |
Aligning Pay with Performance
*See “Annual Cash Incentive” and “Long-Term Incentives: Performance-Based Restricted Stock Units” sections on pages 48 and 51, respectively, for more details. **Added relative TSR as a long-term incentive plan metric for the 2023 plan year. Weightings were adjusted to 50% adjusted EPS, 30% adjusted ROIC and 20% relative TSR from 60% adjusted EPS and 40% adjusted ROIC. Adjusted ROIC performance is calculated using the average of annual adjusted ROIC over the three-year period. Other key features of our executive compensation program include:
Use of Peer Group and Market Data
Use of Peer Group and Market Data The Company establishes compensation levels that are consistent with market practice and general internal equity considerations relative to base salaries, target annual cash incentive awards and long-term incentive grants, as well as with the Compensation Committee’s assessment of the appropriate pay element mix for the position. In order to gauge the competitiveness of its compensation programs, the Company reviews compensation practices and pay opportunities from general industry survey data, as well as from a selection of publicly traded peer companies. The Company attempts to position itself to attract and retain qualified senior executives in the face of competitive pressures in its relevant labor markets. Specifically, in early 2023, the Company used information regarding the pay practices of general industry companies in the WTW Executive Compensation Database, regressed to $4.5 billion in annual revenue, to inform the determination of the NEO’s target compensation levels for 2023. The Company believes that revenue and operational footprint are appropriate indicators of the size and complexity of an organization, which should be reflected in determining compensation levels. The compensation data resulting from this analysis was a significant factor considered by the Compensation Committee with respect to its 2023 executive compensation decisions for our NEOs. The Company also used a compensation peer group as an additional reference point when determining executive compensation. The 2023 peer group (used to set compensation levels for 2023) consisted of a select group of U.S. industrial companies that our Compensation Committee believed to be representative of the talent market in which we compete. When reviewing market pay to determine 2023 target compensation levels, Meritor, Inc. was replaced by Snap-on Inc. due to Cummins Inc.’s 2022 acquisition of Meritor, Inc. Additional factors taken into consideration when setting the 2023 compensation peer group included comparisons of various financial metrics, such as revenue and market capitalization, operational footprint, relevant end-user markets, and product portfolio of added companies compared to Timken’s current product portfolio. The complete 2023 compensation peer group is as follows:
Use of Peer Group and Market Data
| 2023 Peer Group | | | Agco Corp. Altra Industrial Motion Corp. Carlisle Companies Inc. Crane Co. Dana Inc. Dover Corp. Flowserve Corp. Fortive Corp. Gates Industrial Corp. plc | Ingersoll Rand Inc. ITT Inc. Kennametal Inc. Oshkosh Corp. Regal Rexnord Corp. Snap-on Inc. Terex Corp. Westinghouse Air Brake Technologies Corp. Woodward, Inc. |
Use of Peer Group and Market Data
While the Compensation Committee considered general industry and peer group data in determining the general competitiveness of executive compensation, market data is only one factor taken into consideration when determining the total compensation for our NEOs. The Compensation Committee also considered other factors listed in “Factors Guiding Our Decisions” on page 39.
New Compensation Peer Group Referenced for 2024 Executive Compensation
New Compensation Peer Group Referenced for 2024 Executive Compensation In 2023, as part of its annual review of executive and director compensation, the Compensation Committee, in consultation with WTW, reviewed the peer group utilized in 2023 and assessed whether any further adjustments were needed to the peer group referenced for setting compensation levels in 2024. For fiscal 2024, the only expected change is to replace Altra Industrial Motion Corp. with Pentair plc due to Regal Rexnord Corp’s 2023 acquisition of Altra Industrial Motion Corp.
Role of the CEO and Management
Role of the CEO and Management The CEO, in consultation with executive compensation leadership and WTW, prepares compensation recommendations for the NEOs (other than the CEO) and presents these recommendations to the Compensation Committee. These recommendations are based on the CEO’s personal review of each NEO’s performance, general internal equity considerations, job responsibilities and importance to our overall business strategy, as well as our compensation philosophy. Although these recommendations are given significant weight, the Compensation Committee retains full discretion when determining compensation for the NEOs. As part of this process, individual elements of compensation provided to our NEOs are generally compared to general industry market data and peer group data as described above and the total compensation package is considered in relation to the target established for the position, taking into account the scope of responsibilities for the particular position. Total direct compensation (base salary, annual cash incentive and long-term incentive grants) also is evaluated in relation to the total compensation for positions with similar levels of responsibility derived from the general industry market data and peer group data described above.
Role of the Compensation Consultant
Role of the Compensation Consultant To add rigor in the review process and to inform the Compensation Committee of market trends, the Compensation Committee engages the services of WTW as our independent executive compensation consultant to analyze our executive compensation structure and plan designs, and to assess whether the compensation program is competitive and supports the Compensation Committee’s goal to align the interests of executive officers with those of shareholders. WTW also provides the Compensation Committee with market data on compensation levels and incentive design practices, which the Compensation Committee generally references as a market check when determining compensation for non-employee Directors and executive officers. For purposes of 2023 compensation decisions, WTW’s primary areas of assistance to the Compensation Committee were:
Role of the Compensation Consultant
| • | Gathering information related to current trends and practices in executive compensation in response to questions raised by the Compensation Committee and management; |
Role of the Compensation Consultant
| • | Keeping the Compensation Committee and management aware of any regulatory developments, including any actions it should consider in light of new regulations; |
Role of the Compensation Consultant
| • | Developing analyses that help evaluate and inform on how the compensation programs are working, including pay-for-performance and pay-versus-performance analyses, peer group reviews and risk assessments; |
Role of the Compensation Consultant
| • | Preparing market compensation levels for the NEOs based on peer group and general industry practices; |
Role of the Compensation Consultant
| • | Reviewing information developed by management for the Compensation Committee and providing its input on such information to the Compensation Committee; |
Role of the Compensation Consultant
| • | Providing insights, analysis and perspectives on ad hoc issues and questions raised by the Compensation Committee and management; |
Role of the Compensation Consultant
| • | Attending and participating in meetings with the Compensation Committee, as well as briefings with the Compensation Committee Chair and management prior to meetings; and |
Role of the Compensation Consultant
| • | Reviewing with management and the Compensation Committee materials to be used in preparing the Company’s Proxy Statement. |
Role of the Compensation Consultant
The Compensation Committee has authorized WTW to interact with the Company’s management, as needed, on behalf of the Compensation Committee with respect to executive compensation matters. WTW also provides actuarial, pension administration and other services to the Company, which are unrelated to the work that WTW provides to the Compensation Committee. The WTW consultants who advise the Compensation Committee are different from the WTW employees who perform work for the Company in other areas. In order to maintain independence, WTW has adopted formal executive compensation consulting protocols that help to ensure that its advice to the Compensation Committee is fully objective and independent and that the business unit providing such advice remains separate from WTW’s other business units that provide advice to the Company’s management. For more information regarding fees paid to WTW by the Company in 2023 and the Compensation Committee’s assessment that there is no conflict of interest in the work performed by WTW with respect to executive compensation, see page 23 of the Proxy Statement.
Annual Cash Incentive
Annual Cash Incentive The Company’s annual cash incentive program provides the NEOs with the opportunity to earn additional compensation based on the achievement of annual corporate performance goals established by the Compensation Committee and approved by the Board. It is intended to focus the NEOs on specific performance goals of the Company in the applicable year. For all NEOs, the 2023 annual cash incentive opportunity was delivered through the shareholder-approved Equity and Incentive Compensation Plan.
Annual Cash Incentive
| Linking Compensation to Performance The Compensation Committee established adjusted EBITDA as the primary performance measure because it believes this measure is closely correlated with the creation of shareholder value. |
Annual Cash Incentive
In 2023, Mr. Kyle, as CEO, had an annual cash target award opportunity of 125% of base salary and the other NEOs had target award opportunities ranging from 70% to 80% of base salary. Annual cash incentive payouts for our participants (including the NEOs) were determined by corporate performance (measured by adjusted EBITDA, adjusted EBITDA margin and free cash flow(4)) subject to individual performance modifiers (however, for 2023, no such modifiers were applied to any of the NEOs). Specific factors that go into setting the targets include consideration of Company results for prior years, results for U.S. industrial peers, current market conditions, cyclicality and outlook, acquisitions, divestitures, working capital requirements, past targets and performance against those targets, and macro-economic factors. Performance goals for the Company’s corporate annual cash incentive plan were set near the beginning of 2023 (using comparable exclusions) at levels the Compensation Committee believed were appropriately challenging given uncertain market conditions. The 2023 adjusted EBITDA target was originally set approximately 2% higher than the actual 2022 adjusted EBITDA results. The 2023 adjusted EBITDA margin target was set at the actual 2022 adjusted EBITDA margin results. The 2023 free cash flow target was originally set approximately 5% higher than the actual 2022 free cash flow results. 2023 Annual Performance Award Decisions The corporate annual cash incentive plan metrics were chosen to drive short-term operational business priorities that the Compensation Committee believes will help deliver shareholder value over time. The targets for the corporate plan for 2023 were established at challenging levels requiring performance to remain at or above 2022 results, and the payouts are a reflection of strong performance and results for 2023, despite challenging business conditions across several sectors and geographies. Under the corporate annual cash incentive plan, actual performance under each of the three financial metrics needed to reach the respective minimum threshold for that portion of the award to be payable. Performance targets and actual performance levels for the 2023 corporate annual cash incentive plan are shown in the table below. Straight-line interpolation is used to calculate actual payouts under the plan.
Corporate Annual Cash Incentive Plan
Corporate Annual Cash Incentive Plan
Corporate Annual Cash Incentive Plan
| | Threshold | Target | Maximum | Actual*** | | Adjusted EBITDA* (60% weighting) | $656M | $875M | $1,094M | $920M (120.8% payout) | | Adjusted EBITDA Margin** (20% weighting) | 14.0% | 19.0% | 21.0% | 19.8% (141.6% payout) | | Free Cash Flow* (20% weighting) | $209M | $298M | $522M | $398M (144.8% payout) | | | • | • | • | • | | Plan Payout | 50% | 100% | 200% | 129.8% payout |
Corporate Annual Cash Incentive Plan
* The Adjusted EBITDA and Free Cash Flow targets were modified slightly due to the divestment of Jiangsu TWB Bearings Co., Ltd (“TWB”). In 2022, TWB posted revenue of approximately $40 million. ** Adjusted EBITDA Margin less than 12.5% would have resulted in zero payout for the plan. Between 12.5% and 14.0%, a payout under the Adjusted EBITDA metric and/or Free Cash Flow metric would have been possible. *** Based on adjusted earnings used for external reporting, further adjusted to exclude post-closing operating results of acquisitions closed in 2023. Free Cash Flow results were further adjusted to exclude the impact of the Company’s sale of 7.6 million shares of Timken India Limited in 2023, which represented an unusual and unplanned item that was not factored into the plan at the time targets were set. (4) Based on adjusted earnings used for external reporting, further adjusted to exclude post-closing operating results of acquisitions closing in 2023. Free cash flow is defined as net cash provided by operating activities minus capital expenditures. See Appendix A for reconciliations of adjusted EBITDA, adjusted EBITDA margin and free cash flow as used for external reporting to their most directly comparable GAAP financial measures. Actual performance for adjusted EBITDA, adjusted EBITDA margin, and free cash flow caused the 2023 corporate annual cash incentive plan to be scored at 129.8% for corporate participants, resulting in a 2023 cash award payout of 129.8% of the target opportunity for Messrs. Kyle, Fracassa, Coughlin, Patel and Roellgen. While payouts to participants in the corporate plan are subject to certain modifiers based upon individual performance, no such modifiers were applied to the 2023 cash award payouts for the NEOs.
Long-Term Incentives
Long-Term Incentives The Compensation Committee administers the Equity and Incentive Compensation Plan. Awards under the Equity and Incentive Compensation Plan can be made in the form of common shares, nonqualified stock options, incentive stock options, stock appreciation rights, performance shares, performance units, restricted shares, restricted stock units, deferred shares and dividend equivalents. All long-term incentives settle in equity to further align our executives’ long-term financial interests with those of our shareholders. In 2023, the Company granted to the NEOs under the Equity and Incentive Compensation Plan:
Long-Term Incentives
| • | Performance-based restricted stock units that are earned based on the achievement of objective performance metrics measured over a three-year period and are intended to further align the long-term financial interests of our executives with those of our shareholders and link compensation to building long-term shareholder value; and |
Long-Term Incentives
| • | Time-based restricted stock units that vest 25% per year over four years and provide strong alignment between the interests of Company executives and shareholders. |
Long-Term Incentives
The value of each type of long-term incentive grant is linked directly to the performance of the Company or the price of its common shares. For performance-based restricted stock units, the value of the grant is tied to both the Company’s share price and the achievement of specified financial metrics, while the value of time-based restricted stock units is solely tied to the Company’s share price. In each case described above, an executive must remain employed by the Company for a specified period of time to earn the full value of an award, which aids the Company in retaining executives. In total, the Company believes that these grants provide a balanced focus on shareholder value creation and retention of key managers. These grants also serve to balance the short-term operating focus of the Company and align the long-term financial interests of executive management with those of our shareholders. The size of the long-term incentive grants and the allocation of grant value among the long-term incentive grant types are based on a combination of an analysis of market practice and the relative importance of the objectives behind each of the grants. In connection with the Company’s ongoing executive officer succession planning process, the Company made one-time grants to Mr. Coughlin and Mr. Fracassa to promote their retention. Mr. Coughlin received a grant of 8,000 deferred shares in February 2023 and Mr. Fracassa received a grant of 12,000 deferred shares in December 2023. The award values were calibrated to provide a meaningful incentive, over and above the level of pay they might expect from alternative employment opportunities, to remain with the Company. These shares will vest in full on March 31, 2025, for Mr. Coughlin, and on March 31, 2026, for Mr. Fracassa, both contingent on continued employment with the Company. The entire award will be forfeited if either individual voluntarily leaves the Company for any reason prior to the vesting date. Both awards were granted under the Equity and Incentive Compensation Plan. 2023 Long-Term Incentive Decisions For the annual grants made in February 2023, the target value to be delivered in performance-based restricted stock units and time-based restricted stock units was 520% of the base salary midpoint for Mr. Kyle, as CEO, and between 175% and 260% of the base salary midpoint for the other NEOs. The allocation percentage between the two types of equity for NEOs receiving the annual grant was 60% performance-based restricted stock units and 40% time-based restricted stock units.
Long-Term Incentives
| Driving Shareholder Return Long-term incentive grants are intended to balance short-term operating objectives of the Company with long-term objectives and align the financial interests of our executives with those of our shareholders. |
Long-Term Incentives
In determining the number of shares granted in 2023, the target value for each grant was converted to a number of shares based on the opening share price on the day of the grant. For 2023, the Compensation Committee made long-term incentive grants at the first regularly scheduled meeting when the Compensation Committee determined all elements of the NEOs’ compensation for the year. Performance-Based Restricted Stock Units To further align the long-term interests of executive leadership with those of our shareholders, and to provide an incentive to achieve long-term financial and operating objectives, the Compensation Committee granted performance-based restricted stock units to key employees (including the NEOs) that vest based on the achievement of specified performance objectives. Performance-based restricted stock units also serve to both reward and retain executives, as the receipt of a payout is linked to performance and the value of the payout is linked to the share price when the shares vest. Cumulative dividend equivalents are paid in cash based on the actual number of shares delivered at the end of the performance cycle. 2023-2025 Performance-Based Restricted Stock Units Cycle The performance metrics for performance-based restricted stock units granted in 2023 were cumulative adjusted EPS, adjusted ROIC and relative TSR for a three-year performance period (2023-2025). The Compensation Committee selected the financial performance metrics because it believed they are highly correlated to driving long-term shareholder value and achieving the Company’s business strategy. The Committee selected the relative TSR metric to reflect the growing prevalence of the use of relative TSR among peer companies. Actual performance for adjusted EPS and adjusted ROIC is calculated based on adjusted earnings as used for external reporting in 2023(5), with the ability to exclude the effect of material changes in accounting principles, methods, or significant changes in tax law that are not reflected in the plan, and/or the impact on results from a single acquisition of $700 million or greater during the three-year performance cycle. For both the Company and the chosen comparison group, which is the S&P 400 Capital Goods Index, relative TSR performance is measured by comparing the average closing stock price for the last 30 calendar days of the performance period, minus the average closing stock price for the 30 calendar days prior to the start of the performance period, plus cumulative dividends, divided by the average closing stock price for the 30 calendar days prior to the start of the performance period. The S&P 400 Capital Goods Index was chosen as the comparison group for relative TSR given that the Company is a member of the index, operates in similar markets and geographies to other members of the index, and competes for investor capital with other index members. For the 2023-2025 performance-based restricted stock unit cycle, the cumulative adjusted EPS target was set approximately 7% higher than the actual cumulative adjusted EPS results for the 2020-2022 cycle (calculated to exclude intangible amortization from acquisitions and utilizing net debt instead of total debt), which was the most recently completed cycle at the time the 2023-2025 target was established and was also record three-year performance at that time. The three-year target for adjusted ROIC was set (5) See Appendix A for reconciliations of adjusted EPS and adjusted ROIC as used for external reporting to their most directly comparable GAAP financial measures. Beginning with our grants made in 2023, the Company calculates adjusted EPS as excluding intangible amortization from acquisitions in addition to the Company’s prior adjustments used for external reporting purposes. In addition, as of our 2023 grants, the Company calculates adjusted ROIC as adjusted net operating profit after taxes and excluding tax-effected acquisition intangible amortization divided by a two-point average of net debt plus total equity over the period. equal to the adjusted ROIC target for the 2022-2024 cycle (calculated to exclude tax-effected acquisition intangible amortization and utilizing net debt instead of total debt) because the Compensation Committee continued to find this to be a challenging target that would drive profitable growth and disciplined capital allocation. The factors that go into setting the adjusted EPS and adjusted ROIC targets include consideration of prior-year results for the Company as compared to results for U.S. industrial peers, current market conditions, cyclicality and outlook, acquisitions, divestitures, past targets and performance against those targets and other factors. The Company’s performance targets for the performance-based restricted stock units granted in 2023 are shown in the table below. Straight-line interpolation is used to calculate payouts for these performance-based restricted stock units. 2023-2025 Performance-Based Restricted Stock Units Cycle: Metrics and Weightings
Long-Term Incentives
| | Threshold | Target | Maximum | | Three-Year Cumulative Adjusted EPS (50% weighting) | $13.06 | $17.41 | $21.76 | | Adjusted ROIC* (30% weighting) | 9.8% | 12.7% | 16.2% | | Relative TSR** (20% weighting) | 25th percentile | 50th percentile | 75th percentile | | | • | • | • | | Plan Funding | 50% | 100% | 200% |
Long-Term Incentives
*Adjusted ROIC less than 8.5% will result in zero payout for the cycle. Between adjusted ROIC of 8.5% to 9.8%, a payout under the Three-Year Cumulative Adjusted EPS metric is possible. ** See “2023-2025 Performance-Based Restricted Stock Units Cycle” on page 51, for information regarding how performance for relative TSR is calculated. For information about the specific performance-based restricted stock units awarded to the NEOs in 2023, see the “2023 Grants of Plan-Based Awards” table on page 62. Results for the 2021-2023 Performance-Based Restricted Stock Units Cycle In 2021, the NEOs received awards of performance-based restricted stock units to cover a three-year performance period (2021-2023). The performance metrics for performance-based restricted stock units granted in 2021 were cumulative adjusted EPS and adjusted ROIC for the three-year performance period. The Compensation Committee selected these metrics because it believed they are highly correlated to driving long-term shareholder value and achieving the Company’s business strategy. Actual performance for adjusted EPS and adjusted ROIC is calculated based on fully adjusted EPS as used for external reporting(6), with the ability to exclude the effect of changes in accounting principles or methods that are not reflected in the plan. No such exclusions were applied to the 2021-2023 performance-based restricted stock unit cycle, and fully adjusted EPS and adjusted ROIC as used for external reporting were used to determine actual performance for the applicable compensation adjusted metrics. The Compensation Committee believed that the targets for the performance-based restricted stock units granted in 2021 were appropriately challenging and that achievement would be supportive of shareholder value creation. The adjusted EPS target for the 2021-2023 performance-based restricted stock unit cycle was 10% higher than the actual cumulative adjusted EPS for the 2018-2020 performance cycle and 54% higher than the target set for that cycle. The adjusted ROIC target for the 2021-2023 cycle was set at the actual average adjusted ROIC for the 2018-2020 performance cycle and 100 basis points higher than the target set for that cycle. (6) See Appendix A for reconciliations of adjusted EPS and adjusted ROIC as used for external reporting to their most directly comparable GAAP financial measures. Beginning with our grants made in 2023, the Company calculates adjusted EPS as excluding intangible amortization from acquisitions in addition to the Company’s prior adjustments used for external reporting purposes. In addition, as of our 2023 grants, the Company calculates adjusted ROIC as adjusted net operating profit after taxes and excluding tax-effected acquisition intangible amortization divided by a two-point average of net debt plus total equity over the period. Grants made prior to 2023 do not include these additional adjustments. Performance-based restricted stock units were earned at 145.9%, reflecting very strong performance throughout the cycle including record three-year cumulative adjusted EPS over the period and strong average adjusted ROIC performance. The Company’s performance goals and actual calculated results for the 2021-2023 cycle are summarized in the table below. Straight-line interpolation is used to calculate actual payouts for these performance-based restricted stock units. 2021-2023 Performance-Based Restricted Stock Units Cycle: Metrics, Weightings and Actual Results
Long-Term Incentives
| | Threshold | Target | Maximum | Actual | | Three-Year Cumulative Adjusted EPS (60% weighting) | $9.92 | $14.17 | $18.42 | $17.11 | | ROIC (40% weighting) | 8.5% | 11.5% | 14.0% | 11.8% | | | • | • | • | • | | Plan Funding | 50% | 100% | 200% | 145.9% |
Long-Term Incentives
Under accounting rules, performance-based restricted stock units are expensed over the vesting period using the fair value on the date of grant and adjusted quarterly to account for actual and anticipated performance. Time-Based Restricted Stock Units Time-based restricted stock units that were awarded in 2023 to each NEO vest 25% each year over a four-year period. Cumulative dividend equivalents are paid in cash upon vesting. For information about the specific number of time-based restricted stock units awarded to the NEOs in 2023, see the “2023 Grants of Plan-Based Awards” table on page 62. Under accounting rules, time-based restricted stock units are expensed over the vesting period using the fair value on the date of grant.
Severance Agreements
Severance Agreements In addition to retirement payments, the Company provides termination-related payments through severance agreements with individual NEOs in the event of involuntary termination of employment without cause or, following a change in control, in the event of involuntary termination of employment without cause or termination of employment by the executive under certain circumstances. Severance agreements are provided based on competitive market practice and the Company’s desire to ensure some level of income continuity should an executive’s employment be terminated without cause or terminated under other qualifying circumstances. The level of severance benefits reflects the Company’s perception of competitive market practice for the NEOs’ positions, based on an assessment by WTW. Severance pay was established as a multiple of base salary and actual annual cash incentive compensation. In the event of a qualifying termination of employment, an NEO would also be entitled to vesting of equity-based awards in accordance with the respective grant agreement, health and welfare benefits, outplacement services, and (in the event of a qualifying termination that follows a change in control) benefits under our retirement benefit programs. The severance agreements do not contain excise tax gross-up provisions. The types of severance benefits for which our NEOs are potentially eligible, and the potential benefit and compensation amounts, are further described and quantified below under “Potential Payments Upon Termination or Change in Control” on page 67 and in the “Termination Scenarios” table on page 70.
Clawback Provisions
Clawback Provisions Historically, the Company has maintained specific provisions in its incentive compensation programs regarding the recovery of awards to deter certain types of conduct, including conduct that leads to a restatement of the Company’s financial statements. During 2023, in light of new rules promulgated by NYSE and SEC requirements, we adopted the Clawback Policy to comply with the new requirements. Mandatory Accounting Restatement Provisions The Clawback Policy provides for the reasonably prompt recovery (or clawback) of certain excess incentive-based compensation received during an applicable three-year recovery period by current or former executive officers (including the NEOs) in the event the Company is required to prepare an accounting restatement due to the material noncompliance with any financial reporting requirement under the securities laws. Excess incentive-based compensation for these purposes generally means the amount of incentive-based compensation received (on or after October 2, 2023) by such executive officer that exceeds the amount of incentive-based compensation that would have been received by such executive officer had it been determined based on the restated amounts, without regard to any taxes paid. Incentive-based compensation potentially subject to recovery under the mandatory accounting restatement provisions of the Clawback Policy is generally limited to any compensation granted, earned or vested based wholly or in part on the attainment of one or more financial reporting measures. The Clawback Policy includes limited exceptions to the requirement to clawback amounts in the event of an accounting restatement in accordance with NYSE rules and SEC requirements. Amounts received prior to the adoption of the Clawback Policy continue to be governed by the historical clawback provisions in the Company’s incentive compensation documentation. Permissive Accounting Restatement Provisions The Clawback Policy also provides for permissive clawback (at the election of the Compensation Committee) from covered Company employees (including the NEOs) who are determined to be personally responsible for causing the accounting restatement due to their personal misconduct or fraudulent activity. Such recovery may include up to 100% of short-term incentive awards received during an applicable recovery period and up to 100% of certain equity awards identified in the Clawback Policy (but limited in both cases to the amount by which such awards exceeded the amounts that would have been earned and paid based on the restated amounts). Detrimental Activity and Restrictive Covenant Provisions The Clawback Policy further provides for forfeiture of outstanding but unpaid equity awards by certain Company employees (including the NEOs) who are determined to have engaged in certain detrimental activity during employment or service with the Company. In addition, the Clawback Policy requires certain Company employees (including the NEOs) to forfeit equity awards and dividend equivalents (and/or make certain repayments to the Company regarding such awards) if they breach their obligations under any restrictive covenant arrangements with the Company.
2023 Summary Compensation Table
2023 Summary Compensation Table The following table sets forth information concerning compensation for our NEOs:
2023 Summary Compensation Table
| Name and Principal Position | Year | Salary | Stock Awards (2) | Non-Equity Incentive Plan Compensation (3) | Change in Pension Value and Nonqualified Deferred Compensation Earnings (4) | All Other Compensation (5) | Total | | Richard G. Kyle | 2023 | $1,145,380 | $5,982,334 | $1,857,835 | $1,258,413 | $534,447 | $10,778,409 | | President & CEO | 2022 | $1,067,072 | $4,876,769 | $1,873,405 | $0 | $420,284 | $8,237,530 | | | 2021 | $1,037,145 | $4,422,240 | $958,338 | $2,674,337 | $573,270 | $9,665,330 | | Philip D. Fracassa | 2023 | $644,225 | $2,498,858 | $668,767 | $539,632 | $207,484 | $4,558,966 | | Executive Vice President and Chief | 2022 | $608,396 | $1,405,114 | $683,603 | $0 | $150,144 | $2,847,257 | | Financial Officer | 2021 | $573,159 | $1,249,358 | $337,694 | $708,956 | $166,410 | $3,035,577 | | Christopher A. Coughlin | 2023 | $646,726 | $2,342,105 | $671,363 | $0 | $229,463 | $3,889,657 | | Executive Vice President and | 2022 | $621,135 | $2,122,694 | $697,917 | $0 | $120,723 | $3,562,469 | | President Industrial Motion | 2021 | $572,970 | $1,333,395 | $337,582 | $498,724 | $158,935 | $2,901,606 | | Andreas Roellgen (1) | 2023 | $525,349 | $1,062,483 | $511,278 | $292,321 | $90,855 | $2,482,286 | | Executive Vice President and | 2022 | $420,777 | $570,775 | $405,792 | $0 | $135,198 | $1,532,542 | | President Engineered Bearings | 2021 | $375,501 | $472,478 | $151,609 | $0 | $72,420 | $1,072,008 | | Hansal N. Patel | 2023 | $502,533 | $921,672 | $456,468 | $11,188 | $107,536 | $1,999,397 | | Vice President, General Counsel | 2022 | $457,692 | $777,261 | $445,068 | - | $61,887 | $1,741,908 | | & Secretary | 2021 | $415,215 | $704,048 | $198,400 | - | $53,761 | $1,371,424 |
2023 Summary Compensation Table
| (1) Mr. Roellgen’s compensation is generally based in Euros. The conversion rate used for purposes of converting the Euros earned by Mr. Roellgen into U.S. Dollars for purposes of the Change in Pension Value and Nonqualified Deferred Compensation Earnings column for 2023 was €1.00 = $1.1039, which was the applicable exchange rate as of December 31, 2023. For all other columns in this table, the conversion rate used for purposes of converting the Euros earned by Mr. Roellgen into U.S. Dollars for 2023 was €1.00 = $1.0817 (the average monthly exchange rate for the 2023 calendar year), which approach we believe provides a reasonable representation of his compensation by accounting for currency exchange fluctuations that occurred throughout the calendar year. |
2023 Summary Compensation Table
| (2) The amounts shown in this column for 2023 include the grant date fair value of time-based restricted stock units granted in 2023. See the description of time-based restricted stock units on page 53. Additionally, this column includes the grant date fair market value of the performance-based restricted stock units for the 2023-2025 performance cycle at target. See the description of the performance-based restricted stock units on page 51. Should performance equal or exceed the maximum goals for these performance-based restricted stock units, the grant date fair value for such awards would be: Mr. Kyle - $7,177,094; Mr. Fracassa - $1,915,883; Mr. Coughlin - $2,014,024; Mr. Roellgen - $1,275,833; and Mr. Patel - $1,105,153. |
2023 Summary Compensation Table
For Mr. Coughlin, the amount shown in this column for 2022 also includes the grant date fair value of a grant of 10,000 deferred shares made to Mr. Coughlin on August 3, 2022 in connection with being named Executive Vice President, President of Industrial Motion. These shares vested in full on December 31, 2023. The amount shown in this column for 2023 also includes the grant date fair value of an award of 8,000 deferred shares made to Mr. Coughlin on February 10, 2023, and an award of 12,000 deferred shares to Mr. Fracassa on December 7, 2023. These one-time grants were made in connection with the Company’s ongoing executive officer succession planning process to promote the retention of Mr. Coughlin and Mr. Fracassa. These shares vest in full on March 31, 2025, for Mr. Coughlin, and on March 31, 2026, for Mr. Fracassa, both contingent on continued employment with the Company. The entire award will be forfeited if either individual voluntarily leaves the Company for any reason prior to the vesting date. The amounts shown in this column are computed in accordance with FASB ASC Topic 718.
2023 Summary Compensation Table
| (3) The amounts shown in this column for 2023 represent actual cash award payouts under the annual cash incentive plan for 2023 performance. Both Mr. Fracassa and Mr. Patel elected to defer receipt of a portion of their 2023 annual cash incentive plan payout under the Deferred Compensation Plan. |
2023 Summary Compensation Table
| (4) The amounts shown in this column for 2023 represent the difference between the accumulated benefit amounts shown in the 2023 Pension Benefits Table as of December 31, 2023 and those amounts calculated as of December 31, 2022. See “2023 Pension Benefits Table” on page 65 for a description of how the amounts as of December 31, 2023 were calculated. For U.S.-based NEOs, the amounts as of December 31, 2022 were calculated in the same manner as the December 31, 2023 amounts, except that discount rates of 5.70% for nonqualified plans and 5.62% for qualified plans were used (compared to discount rates of 5.45% and 5.37%, respectively, for the 2023 amounts). For Mr. Roellgen, the amounts as of December 31, 2022 were calculated in the same manner as 2023 amounts, except that a discount rate of 3.75% was used (compared to a discount rate of 3.20% for 2023). Values were determined assuming retirement at age 62 for U.S. NEOs and 63.75 for Mr. Roellgen, the earliest age unreduced pension benefits are payable from the applicable plans in each case. While the Summary Compensation Table includes a $0 value for change in pension value for Mr. Coughlin, the value of his pension actually decreased $68,151 in 2023, primarily due to Mr. Coughlin having passed age 62. Mr. Patel does not participate in the Pension Plan, receive supplemental pension plan benefits, or have an Excess Benefit Agreement. The amounts shown in this column for 2023 also include above-market interest, as defined by the SEC, earned on amounts deferred under the Deferred Compensation Plan for Mr. Kyle, Mr. Fracassa and Mr. Patel, in the amounts of $54,049, $71,215, and $11,188, respectively. The above-market interest earned resulted from an increase in the prime rate, relative to long term interest rates, due to the current interest rate environment. |
2023 Summary Compensation Table
| (5) The amounts shown in this column for 2023 are detailed in the following table: |
2023 Summary Compensation Table
| Name | Annual Company Contribution to SIP, Core DC, and/or French DC (a) | Annual Company Contribution to Post-Tax Savings Plan (b) | Executive Physicals | Personal Use of Company Country Club Memberships (c) | Personal and Spousal Travel and Related Expenses (d) | Cash Dividend Equivalents (e) | Life Insurance (f) | Other (g) | | Richard G. Kyle | $28,050 | $228,547 | $2,110 | $10,347 | $20,068 | $240,046 | $5,279 | - | | Philip D. Fracassa | $28,050 | $84,815 | $3,013 | $12,660 | $9,894 | $66,131 | $2,921 | - | | Christopher A. Coughlin | $29,700 | $91,318 | $1,316 | $4,790 | $7,930 | $89,807 | $4,602 | - | | Andreas Roellgen | $37,673 | - | $3,369 | - | $2,398 | $21,308 | $1,523 | $24,584 | | Hansal N. Patel | $24,750 | $46,320 | $1,868 | - | $7,865 | $26,234 | $499 | - |
2023 Summary Compensation Table
| (a) “SIP” refers to the Savings and Investment Retirement Plan, which is the Company’s primary U.S. qualified defined contribution plan for eligible salaried employees, under which the Company makes matching contributions and “Core DC” contributions to the accounts of eligible U.S. salaried employees. Messrs. Kyle, Fracassa, Coughlin and Patel received SIP matching contributions and Core DC contributions during 2023. “French DC” refers to the Company’s French qualified defined contribution plan under which Mr. Roellgen received contributions. See the “Retirement Programs” section on page 53 for plan details. |
2023 Summary Compensation Table
| (b) The “Post-Tax Savings Plan” is the Company’s non-tax qualified restoration plan for eligible U.S. salaried employees whose contributions and benefits in qualified retirement plans are limited by Section 415 of the Code. |
2023 Summary Compensation Table
| (c) The amounts shown for personal use of country club memberships reflect prorated amounts of Company-paid annual membership dues in 2023 that relate to personal use by the NEOs. There are no incremental costs to the Company for personal use, as just one annual payment is made to cover membership dues for both business use and personal use, but all personal expenses are allocated to, and borne by, the NEOs. |
2023 Summary Compensation Table
| (d) The amounts shown in this column represent expenses related to spousal travel and/or personal travel. If applicable, spousal travel amounts may include the incremental cost of transportation and meals while traveling. Personal travel amounts may include incremental travel expenses for personal use of the Company aircraft such as direct variable operating costs related to fuel, maintenance expenses, landing and parking fees, crew accommodations and meals. Since the aircraft is used primarily for business travel, the Company does not include in the calculation the fixed costs that do not change based on usage. No tax gross-ups on the related imputed income are paid. |
2023 Summary Compensation Table
| (e) Reflects cumulative dividend equivalents paid in cash in 2023 upon vesting for applicable time-based restricted stock units, performance-based restricted stock units, and deferred shares (if applicable). |
2023 Summary Compensation Table
| (f) The amounts shown represent the actual premiums paid by the Company for term life insurance (which is provided by the Company for all eligible employees at a level equal to one times their annual salary) and long-term disability insurance. |
2023 Summary Compensation Table
| (g) This column reflects Mr. Roellgen’s Company car benefit, Company contributions into his TESOP, and an additional amount of $11,250 paid under the legally required French profit-sharing plan. |
2023 Grants of Plan-Based Awards
2023 Grants of Plan-Based Awards The following table sets forth information concerning certain grants made to our NEOs during 2023:
2023 Grants of Plan-Based Awards
| Name | Grant Date | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards | | | Estimated Future Payouts Under Equity Incentive Plan Awards | | | All Other Stock Awards: Number of Shares of Stock or Units | Grant Date Fair Value of Stock and Option Awards (5) | | | | Threshold | Target | Maximum | Threshold | Target | Maximum | | | | Richard G. | 02/09/2023 RSUs (1) | | | | | | | 28,050 | $2,393,787 | | Kyle | 02/09/2023 CSTIP (2) | $143,172 | $1,431,725 | $2,863,450 | | | | | | | | 02/09/2023 Perf RSUs (3) | | | | 4,205 | 42,050 | 84,100 | | $3,588,547 | | Philip D. | 02/09/2023 RSUs (1) | | | | | | | 7,475 | $637,917 | | Fracassa | 02/09/2023 CSTIP (2) | $51,538 | $515,380 | $1,030,760 | | | | | | | | 02/09/2023 Perf RSUs (3) | | | | 1,123 | 11,225 | 22,450 | | $957,942 | | | 12/7/2023 Def Shrs (4) | | | | | | | 12,000 | $903,000 | | Christopher A. | 02/09/2023 RSUs (1) | | | | | | | 7,875 | $672,053 | | Coughlin | 02/09/2023 CSTIP (2) | $51,738 | $517,380 | $1,034,761 | | | | | | | | 02/09/2023 Perf RSUs (3) | | | | 1,180 | 11,800 | 23,600 | | $1,007,012 | | | 02/10/2023 Def Shrs (4) | | | | | | | 8,000 | $663,040 | | Andreas | 02/09/2023 RSUs (1) | | | | | | | 4,975 | $424,567 | | Roellgen | 02/09/2023 CSTIP (2) | $39,568 | $395,683 | $791,365 | | | | | | | | 02/09/2023 Perf RSUs (3) | | | | 748 | 7,475 | 14,950 | | $637,917 | | Hansal N. | 02/09/2023 RSUs (1) | | | | | | | 4,325 | $369,096 | | Patel | 02/09/2023 CSTIP (2) | $35,177 | $351,773 | $703,546 | | | | | | | | 02/09/2023 Perf RSUs (3) | | | | 648 | 6,475 | 12,950 | | $552,577 |
2023 Grants of Plan-Based Awards
| (1) The “RSUs” amounts shown reflect the time-based restricted stock units granted to each NEO in 2023 under the Equity and Incentive Compensation Plan. See the description of time-based restricted stock units on page 53. |
2023 Grants of Plan-Based Awards
| (2) The “CSTIP” amounts shown reflect payout opportunities at threshold, target and maximum performance levels under the annual cash incentive plan design for 2023. Threshold is reflected as the minimum payout if (a) the adjusted EBITDA results would lead to a payout under that metric of zero, (b) one of either the adjusted EBITDA margin or free cash flow metric results would lead to a payout of zero, (c) the results for the other metric identified in clause (b) (either adjusted EBITDA margin or free cash flow) would lead to a payout at threshold under that metric, and (d) adjusted EBITDA margin was greater than 12.5%. See the “Annual Cash Incentive” section on page 48 for additional details. |
2023 Grants of Plan-Based Awards
| (3) The “Perf RSUs” amounts shown indicate aggregate threshold, target and maximum award opportunities for the performance-based restricted stock units covering the 2023-2025 cycle granted to each NEO in 2023 under the Equity and Incentive Compensation Plan. Threshold is reflected as the minimum payout if the adjusted EPS metric pays at threshold, the adjusted ROIC metric pays at threshold, but performs above the plan circuit breaker, and the relative TSR metric pays at threshold. See the description of the performance-based restricted stock units on page 51. |
2023 Grants of Plan-Based Awards
| (4) The “Def Shrs” amounts shown reflect a one-time grant of 8,000 deferred shares made to Mr. Coughlin on February 10, 2023, and a one-time grant of 12,000 deferred shares made to Mr. Fracassa on December 7, 2023. These one-time grants were made in connection with the Company’s ongoing executive officer succession planning process to promote the retention of Mr. Coughlin and Mr. Fracassa. These shares vest in full on March 31, 2025, for Mr. Coughlin, and on March 31, 2026, for Mr. Fracassa, both contingent on continued employment with the |
2023 Grants of Plan-Based Awards
Company. The entire award will be forfeited if either individual voluntarily leaves the Company for any reason prior to the vesting date.
2023 Grants of Plan-Based Awards
| (5) The amounts shown reflect the grant date fair value of time-based restricted stock units and performance-based restricted stock units granted in 2023, calculated in accordance with FASB ASC Topic 718. The fair market value of time-based restricted stock units and performance-based restricted stock units is the opening price of our common shares on the date of grant multiplied by the number of shares granted (or, for performance-based restricted stock units, the “target” number of shares granted, which represents the probable outcome of the applicable performance conditions as of the grant date). |
2023 Grants of Plan-Based Awards
For more information regarding certain compensation arrangements with our NEOs, please refer to the “Potential Payments Upon Termination or Change in Control” section on page 67. For information regarding the amount of various compensation elements in proportion to total compensation, see the NEO pay mix charts in the “Aligning Pay with Performance” section on page 43.
2023 Grants of Plan-Based Awards
| Outstanding Equity Awards at 2023 Fiscal Year-End |
2023 Grants of Plan-Based Awards
The following table sets forth information concerning unexercised Company stock options and stock awards that have not vested for each of our NEOs as of December 31, 2023:
2023 Grants of Plan-Based Awards
| | Option Awards (1) | | | | | Stock Awards | | | | | | Name | Grant Date | Number of Securities Underlying Unexercised (#) Options | Number of Securities Underlying Unexercised (#) Options | Option Exercise Price | Option Expiration Date | Grant Date | Number of Shares or Units of Stock That Have Not Vested | Market Value of Shares or Units of Stock That Have Not Vested | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested | | | | Exercisable | Unexercisable | | | | | | | | | Richard G. Kyle | | | | | | 02/10/2020 (2) | 8,338 | $668,291 | - | - | | | | | | | | 02/10/2021 (2) | 11,838 | $948,816 | - | - | | | | | | | | 02/10/2022 (3) | - | - | 43,575 | $3,492,536 | | | | | | | | 02/10/2022 (2) | 21,788 | $1,746,308 | - | - | | | | | | | | 02/09/2023 (3) | - | - | 42,050 | $3,370,308 | | | | | | | | 02/09/2023 (2) | 28,050 | $2,248,208 | - | - | | Philip D. Fracassa | | | | | | 02/10/2020 (2) | 2,313 | $185,387 | - | - | | | | | | | | 02/10/2021 (2) | 3,350 | $268,503 | - | - | | | | | | | | 02/10/2022 (3) | - | - | 12,550 | $1,005,883 | | | | | | | | 02/10/2022 (2) | 6,282 | $503,502 | - | - | | | | | | | | 02/09/2023 (3) | - | - | 11,225 | $899,684 | | | | | | | | 02/09/2023 (2) | 7,475 | $599,121 | - | - | | | | | | | | 12/07/2023 (4) | 12,000 | $961,800 | - | - | | Christopher A. Coughlin | 02/13/2017 | 36,825 | - | $45.35 | 02/13/2027 | 02/10/2020 (2) | 2,513 | $201,417 | - | - | | | 02/12/2018 | 37,925 | - | $44.65 | 02/12/2028 | 02/10/2021 (2) | 3,575 | $286,536 | - | - | | | 02/12/2019 | 40,750 | - | $42.60 | 02/12/2029 | 02/10/2022 (3) | - | - | 13,275 | $1,063,991 | | | | | | | | 02/10/2022 (2) | 6,638 | $532,036 | - | - | | | | | | | | 02/09/2023 (3) | - | - | 11,800 | $945,770 | | | | | | | | 02/09/2023 (2) | 7,615 | $610,342 | - | - | | | | | | | | 02/10/2023 (4) | 8,000 | $641,200 | - | - | | Andreas Roellgen | 02/13/2017 | 6,850 | - | $45.35 | 02/13/2027 | 02/10/2020 (2) | 744 | $59,632 | - | - | | | 02/12/2018 | 7,925 | - | $44.65 | 02/12/2028 | 02/10/2021 (2) | 1,263 | $101,229 | - | - | | | 02/12/2019 | 8,525 | - | $42.60 | 02/12/2029 | 02/10/2022 (3) | - | - | 5,100 | $408,765 | | | | | | | | 02/10/2022 (2) | 2,550 | $204,383 | - | - | | | | | | | | 02/09/2023 (3) | - | - | 7,475 | $599,121 | | | | | | | | 02/09/2023 (2) | 4,975 | $398,746 | - | - | | Hansal N. Patel | | | | | | 02/10/2020 (2) | 944 | $75,662 | - | - | | | | | | | | 02/10/2021 (2) | 1,888 | $151,323 | - | - | | | | | | | | 02/10/2022 (3) | - | - | 6,950 | $557,043 | | | | | | | | 02/10/2022 (2) | 3,469 | $278,040 | - | - | | | | | | | | 02/09/2023 (3) | - | - | 6,475 | $518,971 | | | | | | | | 02/09/2023 (2) | 4,325 | $346,649 | - | - |
2023 Grants of Plan-Based Awards
| (1) All option awards shown are nonqualified stock options that vest 25% per year over the four-year period from the date of grant and will expire ten years after the date of grant. Nonqualified stock options were eliminated from our long-term incentive award mix in 2020. |
2023 Grants of Plan-Based Awards
| (2) Time-based restricted stock units vest 25% per year over the four-year period from the date of grant. Upon an NEO becoming retirement eligible, restricted stock units may be withheld prior to vesting for taxes owed on such restricted stock units being deemed nonforfeitable. |
2023 Grants of Plan-Based Awards
| (3) Performance-based restricted stock units vest after the end of the three-year performance cycle based on the achievement of performance objectives. For the performance-based restricted stock units granted on February 10, 2022 and February 9, 2023, amounts are shown at target. |
2023 Grants of Plan-Based Awards
| (4) Deferred shares for Mr. Fracassa granted on December 7, 2023 vest 100% on March 31, 2026. Deferred shares for Mr. Coughlin granted on February 10, 2023 vest 100% on March 31, 2025. Both grants vest in full, contingent on continued employment with the Company. |
2023 Grants of Plan-Based Awards
The market value of the stock awards shown in the table above was determined based upon the closing price of our common shares on December 31, 2023, which was $80.15.
2023 Grants of Plan-Based Awards
| 2023 Option Exercises and Stock Vested |
2023 Grants of Plan-Based Awards
The following table sets forth information with respect to the exercise of stock options by and vesting of other equity-based awards for our NEOs during 2023:
2023 Grants of Plan-Based Awards
| | Option Awards (1) | | Stock Awards (2) | | | Name | Number of Shares Acquired on Exercise | Value Realized on Exercise (3) | Number of Shares Acquired on Vesting | Value Realized on Vesting | | Richard G. Kyle | 289,725 | $10,786,837 | 78,529 | $6,428,868 | | Philip D. Fracassa | 34,825 | $1,509,438 | 22,009 | $1,801,557 | | Christopher A. Coughlin | 57,475 | $3,346,195 | 32,965 | $2,678,631 | | Andreas Roellgen | - | - | 8,093 | $662,062 | | Hansal N. Patel | 968 | $31,537 | 11,433 | $934,324 |
2023 Grants of Plan-Based Awards
| (1) Nonqualified stock options were eliminated from our long-term incentive award mix in 2020. |
2023 Grants of Plan-Based Awards
| (2) Stock awards include time-based restricted stock units and performance-based restricted stock units for all NEOs. For Mr. Coughlin, stock awards also include deferred shares. The value realized on vesting for time-based and performance-based restricted stock units and deferred shares is the number of shares that vested in 2023 multiplied by the fair market value of our common shares on the date of vesting. Fair market value for performance-based restricted stock units is determined by the average of the high and low price of our common shares on the date of vesting, which is the date that the Compensation Committee approves the performance score payout associated with such award. |
2023 Grants of Plan-Based Awards
| (3) The value realized on the exercise of stock options is the difference between the exercise price and the fair market value of our common shares at the time of exercise. Fair market value is determined by a real-time trading quote from the NYSE at the time of exercise. |
2023 Grants of Plan-Based Awards
| 2023 Pension Benefits Table |
2023 Grants of Plan-Based Awards
Year-over-year changes in pension values are influenced by plan participation, age, length of service, and, solely for Mr. Roellgen, changes in annual cash compensation, as well as external factors such as changes to mortality assumptions, discount rates, and interest on the prior year’s values as the benefits are one year closer to being paid. Lower interest rates resulted in positive change in actuarial pension values from the prior year measurement period for the frozen U.S. defined benefit pension plans. The following table sets forth the number of years of credited service and actuarial present value of the defined benefit pension plans for our NEOs as of December 31, 2023 (see the “Retirement Programs” section on page 53 for additional details of the material features of these plans):
2023 Grants of Plan-Based Awards
| Name | Plan Name | Number of Years Credited Service | Present Value of Accumulated Benefit (1) | | Richard G. Kyle (2) | Supplemental Pension Plan | 16.7 | $12,978,198 | | | Pension Plan | - | - | | Philip D. Fracassa (2) | Supplemental Pension Plan | 17.2 | $4,653,375 | | | Pension Plan | - | - | | Christopher A. Coughlin | Supplemental Pension Plan | 38.5 | $5,550,356 | | | Pension Plan | 38.5 | $1,125,944 | | Andreas Roellgen (3) | Europe Executive Plan | 15.3 | $662,302 | | | FRIP | 26.3 | $279,884 | | Hansal N. Patel (2) | Supplemental Pension Plan | - | - | | | Pension Plan | - | - |
2023 Grants of Plan-Based Awards
| (1) The “Present Value of Accumulated Benefit” is the present value of pension benefits earned as of December 31, 2023 that would be payable under that plan for the life of the executive, beginning at age 62 for U.S. NEOs and age 63.75 for Mr. Roellgen. See Note 17 – Retirement Benefit Plans in the Notes to the Consolidated Financial Statement in the Company’s Annual Report on Form 10-K for the fiscal year ending December 31, 2023 for details about the assumptions used to determine present value. |
2023 Grants of Plan-Based Awards
| (2) Because Mr. Kyle, Mr. Fracassa and Mr. Patel were not employed by the Company as of December 31, 2003, they did not accumulate any service under the Pension Plan. Mr. Patel also does not receive Supplemental Pension Plan benefits. |
2023 Grants of Plan-Based Awards
| (3) Because Mr. Roellgen is based in Colmar, France, he is not eligible for either the Pension Plan or the Supplemental Pension Plan. Instead, Mr. Roellgen is a participant in the FRIP and the Europe Executive Plan. Mr. Roellgen had earned 15.3 years of service under the Europe Executive Plan when his accumulation of years of service under such plan was frozen at the end of 2012. Mr. Roellgen’s compensation is based in Euros. The conversion rate used for purposes of converting the Euros earned by Mr. Roellgen into U.S. Dollars for purposes of this table was €1.00 = $1.1039, which was the applicable exchange rate as of December 31, 2023. |
2023 Grants of Plan-Based Awards
| 2023 Nonqualified Deferred Compensation |
2023 Grants of Plan-Based Awards
The table below sets forth information regarding Deferred Compensation Plan contributions, earnings and withdrawals during 2023 and the account balances as of December 31, 2023 for the NEOs:
2023 Grants of Plan-Based Awards
| Name | Executive Contributions in 2023 (1) | Company Contributions in 2023 | Aggregate Earnings in 2023 (2) | Aggregate Withdrawals/ Distributions | Aggregate Balance at December 31, 2023 (3) | | Richard G. Kyle | $229,076 | - | $113,688 | - | $1,468,735 | | Philip D. Fracassa | $581,063 | - | $148,311 | - | $1,868,852 | | Christopher A. Coughlin | - | - | - | - | - | | Andreas Roellgen | - | - | - | - | - | | Hansal N. Patel | $66,907 | - | $23,456 | - | $305,052 |
2023 Grants of Plan-Based Awards
| (1) Amounts shown as executive contributions in 2023, if any, were reported in the 2023 Summary Compensation Table (for base salary) or in the 2022 Summary Compensation Table (for payments made under the annual cash incentive plan). |
2023 Grants of Plan-Based Awards
| (2) This column includes interest earned from cash deferrals. In 2023, Mr. Kyle, Mr. Fracassa and Mr. Patel earned above-market interest, as defined by the SEC, on amounts deferred under the Deferred Compensation Plan in the amounts of $54,049, $71,215, and $11,188, respectively. The above-market interest earned resulted from an increase in the prime rate, relative to long term interest rates, due to the current interest rate environment. The earnings during previous years were not above market or preferential; therefore, these amounts were not included in the 2023 Summary Compensation Table. |
2023 Grants of Plan-Based Awards
| (3) Includes $914,021 for Mr. Kyle, $897,794 for Mr. Fracassa, and $198,419 for Mr. Patel that was previously reported as compensation in Summary Compensation Tables for prior years. |
2023 Grants of Plan-Based Awards
The Deferred Compensation Plan allows certain employees, including the U.S.-based NEOs, to defer, on a pre-tax basis, the receipt of certain types of compensation until a specified point in the future. Eligible compensation includes salary and incentive compensation payable in cash. Cash deferrals earn interest quarterly at a rate equal to the prime rate plus 1%. For further information, see the “Deferred Compensation” section on page 55.
2023 Grants of Plan-Based Awards
| Potential Payments Upon Termination or Change in Control |
2023 Grants of Plan-Based Awards
We have entered into severance agreements with each of the NEOs that provide for compensation in the event of termination of employment under certain circumstances (the “Severance Agreements”). In addition, the NEOs are entitled to post-termination payments or benefits under agreements entered into under the Equity and Incentive Compensation Plan, the Predecessor Long-Term Incentive Plan, and our retirement and benefit plans in certain situations. The following circumstances would trigger post-termination payments to the NEOs: change in control followed by certain events described below; involuntary termination without cause; retirement; permanent disability; and death. All scenarios are assumed to have occurred on December 31, 2023.
CEO PAY RATIO
CEO PAY RATIO For 2023, the ratio of our CEO’s annual total compensation (“CEO Compensation”) to the median of the annual total compensation of all of our employees (other than our CEO and the Excluded Employees (as defined below)) as described below (“Median Annual Compensation”), commonly referred to as the “CEO Pay Ratio”, was 193 to 1. This CEO Pay Ratio disclosure is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K using the data and assumptions described below, but there may be a degree of imprecision due to the permitted use of reasonable estimates and assumptions in preparing this CEO Pay Ratio disclosure. In this summary, we refer to the employee who received our Median Annual Compensation as our “Median Employee.” For purposes of this disclosure, the date used to identify our Median Employee was October 1, 2023 (the “Determination Date”). We did not use the same Median Employee to calculate the CEO Pay Ratio for 2023 that we identified for the calculation in 2022 (the “2022 Median Employee”), as there was a material change in our employee population in 2023 which resulted in the selection of a new Median Employee. Our new Median Employee holds a position in our operations group in the United States. For purposes of this CEO Pay Ratio disclosure, CEO Compensation was $10,778,409, which represents the total compensation reported for our CEO in the “2023 Summary Compensation Table” on page 59. Also, for purposes of this CEO Pay Ratio disclosure, Median Annual Compensation was $55,740, which was calculated by totaling all applicable elements of compensation that our Median Employee earned during the 2023 fiscal year in accordance with Item 402(c)(2)(x) of Regulation S-K. To identify our Median Employee in 2023, we utilized the consistently applied compensation measure of “target total direct compensation” for the period from January 1, 2023 to December 31, 2023, which measure consisted of the sum of annual base pay plus the targeted value of annual and long-term incentives. For hourly workers, annual base pay was calculated using a reasonable estimate of hours worked during 2023 multiplied by the applicable hourly rate. In addition, we annualized the total compensation (based on reasonable assumptions and estimates relating to our employee compensation program) for any employees (full-time and part-time) that commenced employment with the Company after January 1, 2023. To establish our employee pool, as permitted by the applicable SEC rules, we excluded 849(7) non-U.S employees (the “Excluded Employees”) from our total global workforce of 19,233 employees as of October 1, 2023 who were employed in locations that individually represented less than 5% of our total global workforce from our Median Employee determination process to arrive at a pool of 18,386 employees (this pool, excluding the Excluded Employees and the CEO, is hereinafter referred to as the “Employee Pool”). The Employee Pool did not include any independent contractors or “leased” workers and excluded employees of businesses acquired by us in 2023, as permitted by the applicable SEC rules. We next calculated the median target total direct compensation for our Employee Pool and identified the subset of employees who were paid within a 1% range of such median (the “Comparison Group”). Finally, we selected a representative employee from the Comparison Group as our Median (7)The Excluded Employees included the following number of employees from the following countries: (a) Austria – 28 employees; (b) Brazil – 130 employees; (c) Colombia – 4 employees; (d) Egypt – 2 employees; (e) Ghana – 2 employees; (f) Indonesia – 6 employees; (g) Kazakhstan – 2 employees; (h) the Republic of Korea – 18 employees; (i) Malaysia – 1 employee; (j) Nigeria – 1 employee; (k) Philippines – 1 employee; (l) Portugal – 5 employees; (m) Singapore – 17 employees; (n) Slovakia – 524 employees; (o) South Africa – 81 employees; (p) Sweden – 1 employee; (q) Switzerland – 1 employee; (r) Thailand – 4 employees; (s) Tunisia – 1 employee; (t) Turkey – 8 employees; (u) Ukraine – 1 employee; and (v) United Arab Emirates – 11 employees. Employee in 2023. We did not utilize any cost-of-living adjustments for purposes of this CEO Pay Ratio disclosure.
PAY VERSUS PERFORMANCE
PAY VERSUS PERFORMANCE
Pay Versus Performance Table
Pay Versus Performance Table As required by the SEC’s pay versus performance rules (“PVP Rules”), the below Pay Versus Performance table (“PVP Table”) provides information about compensation for this Proxy Statement’s NEOs, as well as certain prior years’ NEOs. The PVP Rules require disclosure from this year’s Proxy Statement and each of our preceding three years of proxy statements (each of 2020, 2021, 2022, and 2023, a “Covered Year”). The PVP Table also provides information about the results for certain financial performance measures during those same Covered Years. In reviewing this information, there are a few important things to consider:
Pay Versus Performance Table
| • | The information in columns (b) and (d) comes directly from this and prior year’s Summary Compensation Tables, without adjustment; |
Pay Versus Performance Table
| • | As required by the PVP Rules, we describe the information in columns (c) and (e) as “compensation actually paid” (or “CAP”) to the applicable NEOs, but these CAP amounts do not entirely reflect compensation that our NEOs actually earned for their service in the Covered Years. Instead, CAP reflects a calculation involving a combination of realized pay and realizable or accrued pay; |
Pay Versus Performance Table
| • | The PVP Rules require that we use a peer group or index for purposes of total shareholder return (“TSR”) comparisons, and we have continued to use the S&P 400 Industrials index (the “PVP Peer Index”) for this purpose; and |
Pay Versus Performance Table
| • | As required by the PVP Rules, we provide information about our PVP Peer Index TSR results and U.S. GAAP net income results (collectively, the “External Measures”) during the Covered Years in the PVP Table, but we did not base any compensation decisions for the NEOs on, or link any NEO pay to, these particular External Measures. |
Pay Versus Performance Table
Pursuant to the PVP Rules, the Company is required to designate one financial metric as the “Company-Selected Measure,” or the most important financial measure that demonstrates how the Company sought to link 2023 executive pay to performance. For 2023, the Company has again selected adjusted EPS, as it did for 2022. However, the Company believes that all of the metrics designated in the chart under “Most Important Financial Performance Measures” section on page 77 are important drivers of Company performance that are designed to link executive pay to performance. Pay Versus Performance (1)
Pay Versus Performance Table
| | | | | | Value of initial fixed $100 Investment based on: | | | | | Year | Summary Compensation Table ("SCT") Total for PEO | Compensation Actually Paid to PEO | Average Summary Compensation Total for Non- PEO NEOs | Average Compensation Actually Paid to Non-PEO NEOs | Total Shareholder Return | PVP Peer Index Total Shareholder Return | Net Income | Adjusted EPS | | (a) | (b) | (c)(2) | (d) | (e)(2) | (f )(3) | (g)(3) | (h)(4) | (i)(5) | | 2023 | $10,778,409 | $13,340,698 | $3,232,577 | $3,862,463 | $153 | $174 | $394 | $7.05 | | 2022 | $8,237,530 | $12,315,153 | $2,289,681 | $3,076,448 | $133 | $132 | $407 | $6.02 | | 2021 | $9,665,330 | $4,260,457 | $1,968,075 | $1,224,728 | $128 | $150 | $369 | $4.72 | | 2020 | $11,264,263 | $15,459,072 | $2,576,293 | $3,260,353 | $140 | $116 | $285 | $4.10 |
Pay Versus Performance Table
| (1) Richard G. Kyle was our principal executive officer (“PEO”) for each of the Covered Years. In this disclosure, we refer to our NEOs other than Mr. Kyle in any Covered Year as our “Other NEOs” or our “Non-PEO NEOs.” Christopher A. Coughlin, Philip D. Fracassa and Andreas Roellgen were “Other NEOs” for each of the Covered Years. In addition, Hansal N. Patel was an “Other NEO” for 2023, 2022 and 2021, Ronald J. Myers was an “Other NEO” for 2021 and 2020, and Hans Landin was an “Other NEO” for 2022. |
Pay Versus Performance Table
| (2) For each Covered Year, in determining both the CAP for our PEO and the average CAP for our Other NEOs, we deducted from or added back the following amounts to the total amounts of compensation reported in column (b) and column (d) for such Covered Year: |
Pay Versus Performance Table
| Item and Value Added (or Deducted) | 2023 | 2022 | 2021 | 2020 | | For Mr. Kyle: | | | | | | - change in actuarial present value of pension benefits, as reported in SCT for Covered Year | ($1,204,364) | $0 | ($2,674,337) | ($4,448,000) | | + service cost of pension benefits, as calculated for Covered Year | $0 | $0 | $53,321 | $872,557 | | + prior service cost of pension benefits, as calculated for Covered Year | N/A | N/A | N/A | N/A | | - SCT “Stock Awards” column value | ($5,982,334) | ($4,876,769) | ($4,422,240) | ($4,421,376) | | - SCT “Option Awards” column value | N/A | N/A | N/A | N/A | | +/- adjusted amount for applicable stock/option awards, as calculated for Covered Year | $9,748,987 | $8,954,392 | $1,638,383 | $12,191,628 | | + the Covered Year-end fair value of equity awards granted in (and still outstanding as of the end of) the Covered Year | $7,438,418 | $7,260,305 | $3,978,892 | $5,830,701 | | +/- the change in fair value of equity awards granted in prior Covered Years (and still outstanding as of the end of the Covered Year) | $1,057,923 | $1,468,606 | ($1,565,525) | $4,965,371 | | + the vesting date fair value of equity awards granted and vested in the Covered Year | $0 | $0 | $0 | $0 | | +/- the change in fair value of equity awards granted in prior Covered Years that vested in the Covered Year | $1,252,645 | $225,480 | ($774,984) | $1,395,557 | | - the prior Covered Year-end fair value of equity awards granted in prior Covered Years that were forfeited in the Covered Year | $0 | $0 | $0 | $0 | | + dividends/earnings paid or accrued on equity awards during or for the Covered Year (if not otherwise included in CAP) | $0 | $0 | $0 | $0 | | Total: | $2,562,289 | $4,077,623 | ($5,404,873) | $4,194,809 |
Pay Versus Performance Table
| For the Other NEOs (on Average): | | | | | | - change in actuarial present value of pension benefits, as reported in SCT for Covered Year | ($190,185) | $0 | ($277,922) | ($840,500) | | + service cost of pension benefits, as calculated for Covered Year | $2,043 | $7,436 | $17,114 | $23,144 | | + prior service cost of pension benefits, as calculated for Covered Year | N/A | N/A | N/A | N/A | | - SCT “Stock Awards” column value | ($1,706,280) | ($1,077,573) | ($868,388) | ($949,966) | | - SCT “Option Awards” column value | N/A | N/A | N/A | N/A | | +/- adjusted amount for applicable stock/option awards, as calculated for Covered Year | $2,524,308 | $1,856,904 | $385,849 | $2,451,383 | | + the Covered Year-end fair value of equity awards granted in (and still outstanding as of the end of) the Covered Year | $2,035,626 | $1,555,912 | $781,349 | $1,255,379 | | +/- the change in fair value of equity awards granted in prior Covered Years (and still outstanding as of the end of the Covered Year) | $227,637 | $277,332 | ($271,499) | $942,616 | | + the vesting date fair value of equity awards granted and vested in the Covered Year | $0 | $0 | $0 | $0 | | +/- the change in fair value of equity awards granted in prior Covered Years that vested in the Covered Year | $261,046 | $23,660 | ($124,001) | $253,388 | | - the prior Covered Year-end fair value of equity awards granted in prior Covered Years that were forfeited in the Covered Year | $0 | $0 | $0 | $0 | | + dividends/earnings paid or accrued on equity awards during or for the Covered Year (if not otherwise included in CAP) | $0 | $0 | $0 | $0 | | Total: | $629,887 | $786,767 | ($743,347) | $684,060 |
Pay Versus Performance Table
Footnote disclosure is included for the 2020-2022 Covered Years for the Other NEOs to reflect our updated calculations for such Covered Years to include four one-time equity grants made to the Non-PEO NEO group over the 2017 to 2022 fiscal years that were previously omitted from the 2022 PVP Table disclosure. These updates were not significant in the aggregate but led to an increase of approximately 4% to the 2022 CAP, a decrease of approximately 2% to the 2021 CAP, and an increase of approximately 5% to the 2020 CAP for the Other NEOs as reported in column (e) in the 2022 PVP Table disclosure.
Pay Versus Performance Table
| (3) TSR as set forth in the PVP Table assumes, in each case, an initial investment of $100 on December 31, 2019, in (A) Timken common shares for our cumulative TSR, and (B) the PVP Peer Index for the PVP Peer Index cumulative TSR, based on market prices at the end of each fiscal year through and including December 31, 2023, and reinvestment of dividends. |
Pay Versus Performance Table
| (4) Net income for purposes of this pay versus performance disclosure is calculated as the consolidated net income of the Company and its subsidiaries, determined in accordance with U.S. GAAP. Dollar values are in millions. |
Pay Versus Performance Table
| (5) For purposes of this pay versus performance disclosure, adjusted EPS is calculated based on the Company’s adjusted earnings per share as used for external reporting purposes for the Covered Year (net of taxes), further adjusted to exclude the effect of material changes in accounting principles, methods, and/or significant changes in tax law that are not reflected in externally reported diluted earnings per share. See Appendix A for a reconciliation of adjusted EPS as used for external reporting to its most directly comparable GAAP financial measure. |