BADGER METER, INC.
4545 West Brown Deer Road
Milwaukee, Wisconsin 53223
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
April 29, 201628, 2017
The Annual Meeting of the Shareholders of Badger Meter, Inc. will be held at the Milwaukee Public Museum, 800Badger Meter headquarters in the Customer Experience Center, 4545 W. Wells Street,Brown Deer Road, Milwaukee, Wisconsin 5323353223 on Friday, April 29, 2016,28, 2017, at 8:30 a.m., local time, for the following purposes:
1. To elect as directors the eightnine nominees named in the proxy statement,Proxy Statement, each for a one-year term;
2. To consider an advisory vote to approve the compensation of the company’s named executive officers;
3. To consider an advisory vote on the frequency of votes on executive compensation;
4. To ratify the appointment of Ernst & Young LLP as the independent registered public accounting firm for the company for the year ending December 31, 2016;
5. To transact such other business as may properly come before the meeting or any adjournments or postponements thereof.
Our Board of Directors recommends a vote “FOR ALL NOMINEES" in Proposal 1, and “FOR” Proposals 2 3 and 4.4 and a vote of "Three Years" for Proposal 3. The persons named as proxies will use their discretion to vote on other matters that may properly arise at the Annual Meeting.
Holders of record of our common stock at the close of business on February 29, 2016,28, 2017, are entitled to notice of and to vote at the meeting and any adjournments or postponements thereof. Shareholders are entitled to one vote per share.
| By Order of the Board of Directors | |
 | |
| William R. A. Bergum, | |
| Secretary | |
March 18, 201617, 2017
We urge you to submit your proxy as soon as possible. If the records of our transfer agent, American Stock Transfer & Trust Company, LLC, show that you own shares in your name, or you own shares in our Dividend Reinvestment Plan, then you can submit your proxy for those shares via the Internet or by using a toll-free telephone number provided on the proxy card. Or you can mark your votes on the proxy card we have enclosed, sign and date it, and mail it in the postage-paid envelope we have provided. Instructions for using these convenient services are set forth on the proxy card. If your shares are held in “street name” by a broker, nominee, fiduciary or other custodian, follow the directions given by the broker, nominee, fiduciary or other custodian regarding how to instruct them to vote your shares.
Important Notice Regarding the Availability of Proxy Materials for the
Shareholder Meeting to be held on April 29, 201628, 2017
This Proxy Statement and our 20152016 Annual Report on Form 10-K are available at
PROXY STATEMENT TABLE OF CONTENTS
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BADGER METER, INC.
4545 West Brown Deer Road
Milwaukee, Wisconsin 53223
PROXY STATEMENT
To the Shareholders of
BADGER METER, INC.
We are furnishing you with this Proxy Statement in connection with the solicitation of proxies by the Board of Directors of Badger Meter, Inc. to be used at our Annual Meeting of Shareholders (referred to as the Annual Meeting), which will be held at the Milwaukee Public Museum, 800Badger Meter headquarters in the Customer Experience Center, 4545 W. Wells Street,Brown Deer Road, Milwaukee, Wisconsin 53233,53223, on Friday, April 29, 2016,28, 2017, at 8:30 a.m., local time, and at any adjournment or postponement thereof.
If you execute a proxy, you retain the right to revoke it at any time before it is voted by giving written notice to us, by submitting a valid proxy bearing a later date or by voting your shares in person at the Annual Meeting. Unless you revoke your proxy, your shares will be voted at the Annual Meeting as you instructed in your proxy. Anyone who is a shareholder of record as of the close of business on February 29, 201628, 2017 (the “record date”), may attend the Annual Meeting and vote in person. If your shares are held in “street name” by a broker, nominee, fiduciary or other custodian, you may not vote in person at the Annual Meeting unless you first obtain a proxy issued in your name from your broker, nominee, fiduciary or other custodian.
As of the record date, we had 14,522,16429,112,415 shares of common stock, par value $1 per share, outstanding and entitled to vote. You are entitled to one vote for each of your shares of common stock.
If your shares are held in “street name” by a broker, nominee, fiduciary or other custodian, you will receive a full meeting package including a voting instruction form to vote your shares. Your broker, nominee, fiduciary or other custodian may permit you to vote by the Internet or by telephone. A broker non-vote occurs when your broker, nominee, fiduciary or other custodian submits a proxy card with respect to your shares, but declines to vote on a particular matter, either because such nominee elects not to exercise its discretionary authority to vote on the matter or does not have discretionary authority to vote on the matter. Your broker, nominee, fiduciary or other custodian has the authority under New York Stock Exchange rules to vote your unvoted shares on certain routine matters like the ratification of Ernst & Young LLP as the company’s independent registered public accounting firm for 2016,2017, but not on the election of directors, the advisory vote to approve the compensation of our named executive officers or the advisory vote to re-approve, for Section 162(m) purposes,on the performance criteria and the Badger Meter, Inc. 2011 Omnibus Incentive Plan previously approved by the shareholders.frequency of votes on executive compensation.
We commenced mailing this Proxy Statement and accompanying form of proxy on or about March 18, 2016.17, 2017.
NOMINATION AND ELECTION OF DIRECTORS
You and the other holders of the common stock are entitled to elect eightnine directors at the Annual Meeting. If you submit a proxy to us, it will be voted as you direct. If, however, you submit a proxy without specifying voting directions, it will be voted in favor of the election of each of the eightnine nominees for director identified below. If your shares are held in “street name” by your broker, nominee, fiduciary or other custodian, your broker, nominee, fiduciary or other custodian may only vote your shares with your specific voting instructions for the election of directors. Therefore, we urge you to respond to your brokerage firm so that your vote will be cast.
Directors will be elected by a plurality of votes cast at the Annual Meeting (assuming a quorum is present). If you do not vote your shares at the Annual Meeting, whether due to abstentions, broker nonvotes or otherwise, and a quorum is present, it will have no impact on the election of directors. Once elected, a director serves for a one-year term or until his/her successor has been duly appointed, or until his/her death, resignation or removal.
If a director receives more “withheld” votes than “for” votes in an uncontested election, then according to the process described in the company's current bylaws: that director will tender his or her resignation to the Chairman of the Board of Directors following certification of the shareholder vote, the Chairman will refer the resignation to the Board of Directors' Resignation Committee to consider whether or not to accept such resignation. Thereafter, the board will disclose its decision regarding whether to accept the director’s resignation (or the reason(s) for rejecting the resignation, if applicable) in a Current Report on Form 8-K furnished to the Securities and Exchange Commission.
The nominees of the Board of Directors for director, together with certain additional information concerning each such nominee, are identified below. All of the nominees are current directors of our company. If any nominee is unable or unwilling to serve, the named proxies have discretionary authority to select and vote for substitute nominees. The Board of Directors has no reason to believe that any of the nominees will be unable or unwilling to serve.
Nominees for Election to the Board of Directors
Two of the company’s current directors, Ronald H. Dix and Steven J. Smith, whose terms expire at the Annual Meeting, will not stand for re-election. James F. Stern was elected as a director on November 11, 2016. Mr. Stern was recommended by the Corporate Governance Committee. Todd A. Adams and Glen E. Tellock were elected as directors on February 10, 2017. Messrs. Adams and Tellock were recommended by the Corporate Governance Committee. Upon Messrs. Dix and Smith terminating their services as directors, the size of the Board of Directors will be set at nine members.
The following section provides information as of the date of this proxy statementProxy Statement about each nominee. The information presented includes information each director has given us about his/her age, all positions he/she holds, his/her principal occupation and business experience for the past five years, and the names of other companies, some of which are publicly-held, of which he/she currently serves as a director or has served as a director during the past five years. All directors meet the qualifications established by the Corporate Governance Committee as set forth beginning on Page 54 of this proxy statement.Proxy Statement.
In addition to the information presented below regarding each nominee’s specific experience, qualifications, attributes and skills that led our board to the conclusion that he/she should serve as a director, we also believe that all of our director nominees have a reputation for integrity, honesty and adherence to high ethical standards. They each have demonstrated business acumen and an ability to exercise sound judgment, as well as a commitment of service to the company and our board.
| Name | Age | Business Experience During Last Five Years | Director Since | Age | Business Experience During Last Five Years | Director Since | ||||
| Ronald H. Dix | 71 | Badger Meter, Inc.: Retired. Formerly, Senior Vice President - Administration. Mr. Dix has significant experience at the company as well as a broad knowledge of employee benefit and human resource issues which enable him to assist the company in dealing with such issues. | 2005 | |||||||
| Todd A. Adams | 46 | Rexnord: President and Chief Executive Officer since 2009 and also serves on its Board of Directors. Mr. Adams joined Rexnord in 2004; his prior roles at the company include President of the company’s Water Management platform, Senior Vice President & Chief Financial Officer, and Vice President - Controller & Treasurer. Prior to joining Rexnord, Mr. Adams held senior financial roles with The Boeing Company, APW Ltd., Applied Power and IDEX. Mr. Adams also serves on the board of Generac Holdings. Mr. Adams’ public company leadership and complex manufacturing expertise as well as experience in water management solutions are an excellent combination of skills to provide advice and guidance for the company. | 2017 | |||||||
| Thomas J. Fischer | 68 | Mr. Fischer is a consultant in corporate financial and accounting matters and a retired Senior Regional Managing Partner of Arthur Andersen LLP. At Arthur Andersen he served principally international public manufacturing and distribution companies. Mr. Fischer is also a director of Actuant Corporation, Regal-Beloit Corporation and WEC Energy Group. The Board benefits from Mr. Fischer’s expertise in the areas of financial, accounting and auditing matters, including financial reporting, corporate transactions and enterprise risk management. | 2003 | 69 | Mr. Fischer is a consultant in corporate financial and accounting matters and a retired Senior Regional Managing Partner of Arthur Andersen LLP. At Arthur Andersen he served principally international public manufacturing and distribution companies. Mr. Fischer is also a director of Regal-Beloit Corporation and WEC Energy Group. The Board benefits from Mr. Fischer’s expertise in the areas of financial, accounting and auditing matters, including financial reporting, corporate transactions and enterprise risk management. | 2003 | ||||
| Gale E. Klappa | 65 | WEC Energy Group (a holding company for electric and gas utilities): Chairman and Chief Executive Officer. Mr. Klappa is a director of WEC Energy Group and Joy Global, Inc. Mr. Klappa has significant experience as the Chief Executive Officer of a public company and as a manager of regulated utility companies. Further, he has in-depth knowledge of utility metering needs. He is able to provide valuable advice and guidance to the company in these areas. | 2010 | 66 | WEC Energy Group (a holding company for electric and gas utilities): Non-executive Chairman, former Chairman and Chief Executive Officer. Mr. Klappa is a director of WEC Energy Group, Joy Global, Inc. and Associated Banc-Corp. Mr. Klappa has significant experience as the Chief Executive Officer of a major public company and as a manager of regulated utility companies. Further, he has in-depth knowledge of utility metering needs. He is able to provide valuable advice and guidance to the company in these areas. | 2010 | ||||
| Gail A. Lione | 66 | Georgetown University School of Law: Adjunct Professor of Intellectual Property Law. Former Adjunct Professor of Intellectual Property Law at Marquette University School of Law. The Harley-Davidson Foundation: Retired President. Harley-Davidson, Inc.: Former Executive Vice President, General Counsel & Secretary and Chief Compliance Officer. Ms. Lione is a director of Sargento Foods Inc., a privately-held company where she serves on the compensation committee; and The F. Dohmen Co., a privately-held company where she serves on the audit committee. Ms. Lione has significant legal and management experience in manufacturing that includes securities law, intellectual property, corporate governance and corporate compliance, as well as human resources issues, which enables her to provide valuable advice and guidance to the company. | 2012 | |||||||
| Name | Age | Business Experience During Last Five Years | Director Since | Age | Business Experience During Last Five Years | Director Since | ||||
| Gail A. Lione | 67 | Dentons: Senior Counsel. Georgetown University School of Law: Adjunct Professor of Intellectual Property Law. Former Adjunct Professor of Intellectual Property Law at Marquette University School of Law. The Harley-Davidson Foundation: Retired President. Harley-Davidson, Inc.: Former Executive Vice President, General Counsel & Secretary and Chief Compliance Officer. Ms. Lione is a director of Sargento Foods Inc., a privately-held company where she serves on the compensation committee; and The F. Dohmen Co., a privately-held company where she serves on the audit committee. Ms. Lione is a Senior Fellow of the Governance Center of the Conference Board. Ms. Lione has significant legal and management experience in manufacturing that includes securities law, intellectual property, corporate governance and corporate compliance, as well as human resources issues, which enables her to provide valuable advice and guidance to the company. | 2012 | |||||||
| Richard A. Meeusen | 61 | Badger Meter, Inc.: Chairman, President and Chief Executive Officer. Mr. Meeusen is a director of Menasha Corporation and Serigraph Inc., both privately-held companies. Mr. Meeusen has significant experience in managing Badger Meter which enables him to provide the board with valuable insights and advice. | 2001 | 62 | Badger Meter, Inc.: Chairman, President and Chief Executive Officer. Mr. Meeusen is a director of Menasha Corporation and Serigraph Inc., both privately-held companies. Mr. Meeusen has significant experience in managing Badger Meter which enables him to provide the board with valuable insights and advice. | 2001 | ||||
| Andrew J. Policano | 66 | Paul Merage School of Business, University of California - Irvine: former Dean, Chaired Professor and Director - Center for Investment and Wealth Management. Formerly, Paul Merage School of Business, University of California - Irvine: Dean. Mr. Policano is a director of Rockwell-Collins, Inc. and a trustee of Payden & Rygel, a mutual fund company. Mr. Policano’s experience in general management and his involvement in and knowledge of new academic research into business issues enable him to provide valuable insights and advice to the company. | 1997 | 67 | Paul Merage School of Business, University of California - Irvine: former Dean, Chaired Professor and Director - Center for Investment and Wealth Management. Formerly, Paul Merage School of Business, University of California - Irvine: Dean. Mr. Policano is a director of Rockwell-Collins, Inc. and a trustee of Payden & Rygel, a mutual fund company. Mr. Policano’s experience in general management and his involvement in and knowledge of new academic research into business issues enable him to provide valuable insights and advice to the company. | 1997 | ||||
| Steven J. Smith | 65 | Journal Media Group (NYSE: JMG): Non-executive Chairman of the Board; Former Journal Communications, Inc. (a diversified media company with operations in television and radio broadcasting, publishing and digital media): Chairman and Chief Executive Officer. Formerly, Journal Communications, Inc.: Chairman, Chief Executive Officer and President. Mr. Smith was a director of Journal Communications, Inc. Mr. Smith has significant experience both in business management and as the Chief Executive Officer of a public company. He is able to provide valuable advice and insights for the company. | 2000 | |||||||
| Todd J. Teske | 51 | Briggs & Stratton Corporation (a producer of gasoline engines and outdoor power products): Chairman, President and Chief Executive Officer. Formerly, Briggs & Stratton Corporation: President and Chief Executive Officer, and President and Chief Operating Officer. Mr. Teske is a director of Briggs & Stratton Corporation and Lennox International, Inc. Mr. Teske has significant experience in management and as the Chief Executive Officer of a public company and in the operational management of a manufacturing company, including international operations, which enables him to provide valuable advice and guidance for the company. | 2009 | |||||||
| James F. Stern | 54 | A.O. Smith Corporation: Executive Vice President, General Counsel and Secretary. Mr. Stern has more than 25 years of experience in management, corporate governance and mergers & acquisitions. Mr. Stern joined A.O. Smith in 2007, and, in addition to his legal and corporate development involvement, has for the past several years chaired the company’s global water treatment steering committee, focusing on strategy, expansion and alignment of the company’s water treatment businesses. Prior to joining A.O. Smith, Mr. Stern was a partner in the transactional & securities practice group of Foley & Lardner LLP in Milwaukee, Wisconsin. Mr. Stern's legal, international and water background provides valuable advice and insights for the company. | 2016 | |||||||
| Glen E. Tellock | 56 | Lakeside Foods: President and Chief Executive Officer since May 2016. Prior to that, Mr. Tellock served The Manitowoc Company, Inc. from 1991 to 2015, holding various leadership positions with the company, including Chief Financial Officer, until his appointment as President and Chief Executive Officer in 2007 and Chairman, President and Chief Executive Officer in 2009. Prior to The Manitowoc Company, Inc., Mr. Tellock held roles at The Denver Post Corporation and Ernst & Whinney. Mr. Tellock currently serves on the board of Astec Industries, Inc. Mr. Tellock’s past experience in running a public manufacturing company and current experience in running Lakeside Foods enables him to provide valuable insights to the company. | 2017 | |||||||
| Name | Age | Business Experience During Last Five Years | Director Since | ||
| Todd J. Teske | 52 | Briggs & Stratton Corporation (a producer of gasoline engines and outdoor power products): Chairman, President and Chief Executive Officer. Formerly, Briggs & Stratton Corporation: President and Chief Executive Officer, and President and Chief Operating Officer. Mr. Teske is a director of Briggs & Stratton Corporation and Lennox International, Inc. Mr. Teske has significant experience in management and as the Chief Executive Officer of a public company and in the operational management of a manufacturing company, including international operations, which enables him to provide valuable advice and guidance for the company. | 2009 | ||
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT OUR SHAREHOLDERS VOTE "FOR ALL NOMINEES" AS IDENTIFIED ABOVE.
Independence, Committees, Meetings and Attendance
Our Board of Directors has three standing committees: the Audit and Compliance Committee (referred to as the Audit Committee), the Compensation Committee and the Corporate Governance Committee (referred to as the Governance Committee). The Board of Directors has adopted written charters for each committee, which are available on our website at www.badgermeter.com under the selection "Company"- "Investors"-"Corporate Governance"-"Highlights."
In making independence determinations, the board observes all criteria for independence established by the Securities and Exchange Commission, the New York Stock Exchange, and other governing laws and regulations. The board has determined that each of the directors (other than Mr. Meeusen) (i) is “independent” within the definitions contained in the current New York Stock Exchange listing standards and our Principles of Corporate Governance; (ii) meets the categorical independence standards adopted by the board (set forth below); and (iii) has no other “material relationship” with the company that could interfere with his/her ability to exercise independent judgment. In addition, the board has determined that each member of the Audit Committee and Compensation Committee, respectively, meets the additional independence standards for audit committee members. One of the Audit
The current committee assignments are:
| BOARD COMMITTEES | |||||
| Independent Director | Audit and Compliance | Compensation | Corporate Governance | ||
| Ronald H. Dix | X | ||||
| Thomas J. Fischer | X* | X | |||
| Gale E. Klappa | X | X | |||
| Gail A. Lione | X | X | |||
| Andrew J. Policano | X* | ||||
| Steven J. Smith | X | X* | |||
| Todd J. Teske | X | X | |||
| * | Chairman of the Committee |
New committee assignments will be made following the April 28, 2017 annual meeting of shareholders.
The Audit Committee met five times in 2015.2016. The Audit Committee oversees our financial reporting process on behalf of the board and reports the results of their activities to the board. The activities of the Audit Committee include employing, with shareholder ratification, an independent registered public accounting firm for us, discussing with the independent registered public accounting firm and internal auditors the scope and results of audits, monitoring our internal controls, ethics and compliance risk management, and pre-approving and reviewing audit fees and other services performed by our independent registered public accounting firm. The board has determined that each memberall four members of the Audit Committee qualifiesqualify as an “audit
committee financial expert” as defined by the Securities and Exchange Commission. Furthermore, the board has determined that all members of our Audit Committee meet the financial literacy requirements of the New York Stock Exchange.
In overseeing the independent registered public accounting firm, the Audit Committee, among other things, (i) reviews the independence of the independent registered public accounting firm; (ii) reviews periodically the level of fees approved for the independent registered public accounting firm and the pre-approved non-audit services it has provided; (iii) reviews the performance, qualifications and quality control procedures of the independent registered public accounting firm; and (iv) reviews the scope of and overall plans for the annual audit and the internal audit program. In addition to the Audit Committee’s responsibilities regarding the independent registered public accounting firm, the Audit Committee established, and oversees, procedures for the receipt, retention and treatment, on a confidential basis, of any concerns regarding questionable accounting, internal controls or auditing matters.
The Compensation Committee, which met threetwo times in 2015,2016, and one time in January 2016,2017, reviews and establishes all forms of compensation for our executive officers and directors, administers our compensation plans, including the various stock plans, reviews the various management development and succession programs and addresses compensation-related risks.
The Governance Committee, which met twofour times in 2015,2016, oversees all matters related to director performance, including the recommendation of nominees for the Board of Directors, assists the Board of Directors in providing oversight of the company’s enterprise risk management programs, and oversees all corporate governance matters, including developing and recommending to the board the company’s Principles of Corporate Governance.
The Board of Directors held five meetings in 2015.2016. During 2015,2016, all directors attended at least 75% of the meetings of the full board and the committees on which they served during the period. A closed session for only independent directors was held following each of the regular board meetings. All members of the board attended the 20152016 Annual Meeting of Shareholders. It is the board’s policy that all directors attend the Annual Meeting of Shareholders, unless unusual circumstances prevent such attendance.
Leadership Structure
Our Board of Directors currently believes it is in the best interests of the company to combine the positions of Chairman and Chief Executive Officer ("CEO") because this provides the company with unified leadership and direction. In addition, our current Chairman and CEO has an in-depth knowledge of our business that enables him to effectively set
appropriate board agendas and ensure appropriate processes and relationships are established with both management and the Board of Directors, as our board works together to oversee our management and affairs.
Because our Chairman is not an independent director, our independent directors believe it is appropriate to appoint an independent director as a Lead Outside Director. Our Lead Outside Director works with our Chairman and CEO and other board members to provide strong, independent oversight of our management and affairs. Among other things, our Lead Outside Director serves as the principal liaison between the Chairman and our independent directors and chairs the closed sessions that consist of only our independent directors. Ms. Lione currently serves as Lead Outside Director of the board.
Board Role in Risk Oversight
Our Board of Directors oversees an enterprise-wide approach to risk management, designed to support the achievement of organizational objectives, including strategic objectives, to improve long-term organizational performance and enhance shareholder value. A fundamental part of risk management is not only understanding the risks a company faces and what steps management is taking to manage those risks, but also understanding what level of risk is appropriate for the company. The involvement of the full Board of Directors in setting the company’s business strategy is a key part of its assessment of management’s tolerance for risk and also a determination of what constitutes an appropriate level of risk for the company. The full Board of Directors participates in an annual enterprise risk management assessment. In this process, risk is assessed by management throughout the business, focusing on four primary areas of risk: employment risks, facility risks, product risks and general business risks (which include strategic, financial, legal, compliance and reputational risks). A report is provided and presented to the board, which is reviewed thoroughly.
While the Board of Directors has the ultimate oversight responsibility for the risk management process, various committees of the board also have responsibility for risk management. In particular, the Audit Committee focuses on financial risk, including overseeing the integrity of the company’s financial statements, qualifications and independence of the independent registered public accounting firm, internal controls and general corporate ethics and compliance. In addition, the
Audit Committee annually reviews and assesses the effectiveness of the company’s overall compliance program. The Compensation Committee focuses on compensation risk including risks associated with the administration and structure of our employee benefit plans. The Governance Committee focuses on corporate governance policies that help mitigate risk.
Nomination of Directors
All members of the Governance Committee meet the definition of independence set forth by the New York Stock Exchange. The Governance Committee has responsibility for recommending nominees for our Board of Directors. The board has adopted a policy by which the Governance Committee will consider nominees for board positions, as follows:
When a vacancy occurs on the Board of Directors, the Governance Committee will initiate and oversee a search process for potential new candidates for Board of Director positions.
The Governance Committee will review each candidate’s qualifications in light of the needs of the Board of Directors and the company, considering the current mix of director attributes and other pertinent factors.
The following minimum qualifications must be met by each director nominee:
| ◦ | Each director must display the highest personal and professional ethics, integrity and values. |
| ◦ | Each director must have the ability to exercise sound business judgment. |
| ◦ | Each director must be highly accomplished in his or her respective field, with superior credentials and recognition and broad experience at the administrative and/or policy-making level in business, government, education, technology or public interest. |
| ◦ | Each director must have relevant expertise and experience, and be able to offer advice and guidance to the Chief Executive Officer based on that expertise and experience. |
| ◦ | Each director must be |
| ◦ | The majority of the directors must be independent, as defined herein and according to applicable rules of the Securities and Exchange Commission and the listing standards of the New York Stock Exchange. |
| ◦ | Each director must have sufficient time available to devote to activities of the |
| ◦ | At least one director should have the requisite experience and expertise to be designated as an “audit committee financial expert” as defined by applicable rules of the Securities and Exchange Commission. |
| ◦ | The |
| ◦ | No candidate, including current directors, may stand for reelection after reaching the age of 72. |
There are no differences in the manner in which the Governance Committee evaluates candidates recommended by shareholders and candidates identified from other sources.
To recommend a candidate, shareholders should write to the Board of Directors, c/o Secretary, Badger Meter, Inc., P.O. Box 245036, Milwaukee, WI 53224-9536, via certified mail. Such recommendation should include the candidate’s name and address, a brief biographical description and statement of qualifications of the candidate and the candidate’s signed consent to be named in the proxy statementProxy Statement and to serve as a director if elected.
To be considered by the Governance Committee for nomination and inclusion in our proxy statement,Proxy Statement, the Board of Directors must receive shareholder recommendations for director no later than October 15 of the year90 days prior to the relevant annual meetingsecond Saturday in the month of shareholders.April or as otherwise stated in the Company's Proxy Statement.
During 2015,2016, and as of the date of this Proxy Statement, the Governance Committee did not pay any fees to third parties to assist in identifying or evaluating potential candidates. Also, the Governance Committee did not receive any shareholder nominees for consideration at the Annual Meeting.
Communications with the Board of Directors
Shareholders and non-shareholders may communicate with the full Board of Directors, non-management directors as a group or individual directors, including the Lead Outside Director, by submitting such communications in writing to the intended recipient, c/o the Secretary of Badger Meter, Inc., P.O. Box 245036, Milwaukee, WI 53224-9536, via certified mail. The Secretary will forward communications received to the appropriate party. However, commercial advertisements or other forms of solicitation will not be forwarded.
Categorical Independence Standards for Directors
The company’s categorical independence standards for directors are contained in the company’s Principles of Corporate Governance, which are annually reviewed by the Governance Committee. If appropriate, changes are recommended to the Board of Directors for approval.
A director who at all times during the previous three years has met all of the following categorical standards and has no other material relationships with Badger Meter, Inc. will be deemed to be independent:
1. The company has not employed the director, and has not employed (except in a non-executive officer capacity) any of his or her immediate family members. Employment as an interim Chairman or Chief Executive Officer does not disqualify a director from being considered independent following that employment.
2. Neither the director, nor any of his or her immediate family members, has received more than $120,000 per year in direct compensation from the company, other than director and committee fees, and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service). Compensation received by a director for former service as an interim Chairman or Chief Executive Officer need not be considered in determining independence under this test. Compensation received by an immediate family member for service as a non-executive employee of the company need not be considered in determining independence under this test.
3. The director has not been employed by, or affiliated with the company’s present or former internal or external auditor, nor have any of his or her immediate family members been so employed or affiliated (except in a nonprofessional capacity).
4. Neither the director, nor any of his or her immediate family members, has been part of an “interlocking directorate” in which any of the company’s present executives serve on the compensation (or equivalent) committee of another company that employs the director or any of his or her immediate family members in an executive officer capacity.
5. Neither the director, nor any of his or her immediate family members (except in a non-executive officer capacity), has been employed by a company that makes payments to, or receives payments from, the company for property or services in an amount which, in any single fiscal year, exceeds the greater of $1 million or 2% of such other company’s consolidated gross revenues. In applying this test, both the payments and the consolidated gross revenues to be measured are those reported in the last completed fiscal year. The look-back provision for this test applies solely to the financial relationship between the company and the director’s or immediate family member’s current employer; the company need not consider former employment of the director or immediate family member.
6. Neither the director, nor any of his or her immediate family members, has been an employee, officer or director of a foundation, university or other non-profit organization to which the company gives directly, or indirectly through the provision of services, more than $1 million per annum or 2% of such organization’s consolidated gross revenues (whichever is greater).
In addition to satisfying the criteria set forth above, directors who are members of the Audit Committee will not be considered independent for purposes of membership on the Audit Committee unless they satisfy the following additional criteria:
1. A director who is a member of the Audit Committee may not, other than in his or her capacity as a member of the Audit Committee, the board, or any other board committee, accept directly or indirectly any consulting, advisory, or other compensatory fee from the company or any subsidiary thereof, provided that, unless the rules of the New York
Stock Exchange provide otherwise, compensatory fees do not include the receipt of fixed amounts of compensation under a retirement plan (including deferred compensation) for prior service with the company (provided that such compensation is not contingent in any way on continued service).
2. A director, who is a member of the Audit Committee may not, other than in his or her capacity as a member of the Audit Committee, the board, or any other board committee, be an affiliated person of the company.
3. If an Audit Committee member simultaneously serves on the audit committees of more than two other public companies, then the board must determine that such simultaneous service would not impair the ability of such member to effectively serve on the company’s Audit Committee. The company must disclose this determination in its proxy statement.Proxy Statement.
Available Corporate Governance Information
The company’s Code of Business Conduct, Principles of Corporate Governance, Code of Conduct for Financial Executives and Charters of all current board committees are available on our website at www.badgermeter.com under the selection “Company” - “Investors” - “Corporate Governance.” Copies can also be obtained by writing to the Secretary of Badger Meter, Inc., P.O. Box 245036, Milwaukee, WI 53224-9536.
RELATED PERSON TRANSACTIONS
We had no transactions during 2015,2016, and none are currently proposed, in which we were a participant and in which any related person had a direct or indirect material interest. Our Board of Directors has adopted policies and procedures regarding related person transactions. For purposes of these policies and procedures:
A “related person” means any person who is, or was at some time since the beginning of the last fiscal year, (a) one of our directors, executive officers or nominees for director, (b) a greater than five percent beneficial owner of our common stock, or (c) an immediate family member of the foregoing; and
A “related person transaction” generally is a transaction (including any indebtedness or a guarantee of indebtedness) in which we were or are to be a participant and the amount involved exceeds $120,000, and in which a related person had or will have a direct or indirect material interest.
Each of our executive officers, directors or nominees for director is required to disclose to the Governance Committee certain information relating to related person transactions for review, approval or ratification by the Governance Committee. Disclosure to the Governance Committee should occur before, if possible, or as soon as practicable after the related person transaction is effected, but in any event as soon as practicable after the executive officer, director or nominee for director becomes aware of the related person transaction. The Governance Committee’s decision whether or not to approve or ratify a related person transaction is to be made in light of the Governance Committee’s determination that consummation of the transaction is not or was not contrary to our best interests. Any related person transaction must be disclosed to the Board of Directors.
Certain related person transactions are deemed pre-approved, including, among others, (a) any transaction with another company, or charitable contribution, grant or endowment to a charitable organization, foundation or university, at which a related person’s only relationship is as an employee (other than an executive officer), director or beneficial owner of less than ten percent of that company’s shares, if the aggregate amount involved does not exceed the greater of $1 million or 2% of the company’s total annual revenues or the charitable organization’s total annual receipts, and (b) any transaction involving a related person where the rates or charges involved are determined by competitive bids.
STOCK OWNERSHIP OF BENEFICIAL OWNERS HOLDING MORE THAN FIVE PERCENT
The following table provides information concerning persons known by us to beneficially own more than five percent of our common stock as of February 29, 2016.28, 2017.
| Name | Aggregate Number of Shares and Percent of Common Stock Beneficially Owned | Aggregate Number of Shares and Percent of Common Stock Beneficially Owned | ||||
| T. Rowe Price Associates, Inc. | 1,800,476 | (1) | ||||
100 East Pratt Street Baltimore, MD 21202 | 12.40 | % | ||||
| BlackRock, Inc. | 1,401,695 | (2) | 3,267,116 | (1) | ||
55 East 52nd Street New York, NY 10055 | 9.70 | % | 11.20 | % | ||
| The Vanguard Group, Inc. | 2,614,452 | (2) | ||||
100 Vanguard Boulevard Malvern, PA 19355 | 8.98 | % | ||||
| Mairs and Power, Inc. | 1,175,581 | (3) | 2,109,514 | (3) | ||
332 Minnesota Street W-1520 First National Bank Building St. Paul, MN 55101 | 8.10 | % | 7.20 | % | ||
| The Vanguard Group, Inc. | 1,171,586 | (4) | ||||
100 Vanguard Boulevard Malvern, PA 19355 | 8.07 | % | ||||
| Neuberger Berman Group LLC | 816,651 | (5) | ||||
605 Third Avenue New York, NY 10158 | 5.63 | % | ||||
| Kayne Anderson Rudnick Investment Management, LLC | 1,661,360 | (4) | ||||
1800 Avenue of the Stars 2nd Floor Los Angeles, CA 90067 | 5.71 | % | ||||
| (1) | Information shown is based on a Schedule 13G filed with the Securities and Exchange Commission by |
| (2) | Information shown is based on a Schedule 13G filed with the Securities and Exchange Commission by |
| (3) | Information shown is based on a Schedule 13G filed with the Securities and Exchange Commission by Mairs and Power, Inc. on February |
| (4) | Information shown is based on a Schedule 13G filed with the Securities and Exchange Commission by |
STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth, as of February 29, 2016,28, 2017, the number of shares of common stock beneficially owned and the number of exercisable options outstanding by (i) each of our directors, (ii) each of the executive officers named in the Summary Compensation Table set forth below (referred to as the named executive officers or “NEOs”), and (iii) all of our directors and executive officers as a group. Securities and Exchange Commission rules define “beneficial owner” of a security to include any person who has or shares voting power or investment power with respect to such security.
| Name | Aggregate Number of Shares and Percent of Common Stock Beneficially Owned(1) | |||
* | (2) | |||
* | (3) | |||
| Thomas J. Fischer | 25,836 * | (4) | ||
| Gale E. Klappa | * | |||
| Gail A. Lione | * | |||
| Richard A. Meeusen | ||||
| Andrew J. Policano | * | |||
| Steven J. Smith | * | |||
| Glen E. Tellock | 0 * | |||
| Todd J. Teske | * | |||
| Gregory M. Gomez | ||||
* | (7) | |||
| Horst E. Gras | 22,069 * | (8) | ||
| Richard E. Johnson | * | (9) | ||
| James F. Stern | 0 | |||
| Kimberly K. Stoll | * | |||
| All Directors and Executive Officers as a Group | ||||
| * | Less than one percent |
| (1) | Unless otherwise indicated, the beneficial owner has sole investment and voting power over the reported shares, which includes shares from stock options that are currently exercisable or were exercisable within 60 days of February |
| (2) | Does not include deferred director fee holdings of |
| (2) | Does not include deferred director fee holdings of 10,336 phantom stock units held by Mr. Dix under the Badger Meter Deferred Compensation Plan for Directors. The value of the phantom stock units is based upon and fluctuates with the market value of the common stock. When a participant chooses to exit the plan, the phantom stock units are paid out only in cash. Ronald H. Dix has sole investment and voting power over |
| (3) | Thomas J. Fischer shares voting power with his spouse over the reported shares. |
| (4) | Richard A. Meeusen has sole investment and voting power over |
| (5) | Does not include deferred director fee holdings of |
| (6) | Gregory M. Gomez has sole investment and voting power over |
| (7) | Horst E. Gras has sole investment and voting power over |
| (8) | Richard E. Johnson holds |
| (9) | Kimberly K. Stoll has sole investment and voting power over |
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Overview of Compensation Policies and Procedures
Our executive compensation program for all executive officers, including each NEO,Named Executive Officer (NEO), is administered by the Compensation Committee. The Compensation Committee is composed of four independent directors - Mr. Smith (Chairman), Mr. Klappa, Ms. Lione and Mr. Teske.
The compensation philosophies that guide the Compensation Committee as it carries out its duties include the following:
Executive compensation programs should be designed to attract and retain qualified executive officers, as well as motivate and reward performance.
The payment of annual incentive compensation should be directly linked to the attainment of performance goals approved by the Compensation Committee. See “Total Compensation and Link to Performance” below.
Long-term incentive programs should be designed to align with shareholder interests by utilizing stock options, restricted stock and long-term cash incentives in order to ensure that our executive officers are committed to our long-term success.
The Compensation Committee should attempt to achieve a fair and competitive compensation structure for our executive officers by implementing both short-term and long-term plans with fixed and variable components.
Compensation policies should be structured to align the interests of management with the interests of shareholders, in a manner that does not encourage excessive risk taking. To discourage excessive risk taking, the Compensation Committee conducts an annual risk assessment of our compensation plans and places great emphasis on equity-based incentive compensation and stock ownership by executive officers.
In making its decisions and recommendations regarding executive compensation, the Compensation Committee reviews, among other things:
Compensation data obtained through an independent executive compensation consultant for competitive businesses of similar size and similar business activity. The data considered includes information relative to both base salary and bonus separately and on a combined basis, as well as total cash and long-term incentive compensation.
Our financial performance as a whole relative to the prior year, our budget and other meaningful financial data, such as sales, return on assets, return on equity, cash generated from operations and financial position.
The recommendations of the Chairman, President and Chief Executive Officer (“CEO”) with regard to the other executive officers.
In developing compensation plans for fiscal year 2016,2017, the Compensation Committee considered the positive “say on pay” vote of our shareholders at our 20152016 Annual Meeting of Shareholders. As a result, and as we describe in this Compensation Discussion and Analysis, the Compensation Committee kept in place for fiscal year 20162017 most of the same executive compensation program components that it had disclosed to shareholders in the proxy statementProxy Statement for the 20152016 Annual Meeting of Shareholders.
Executive Compensation and Governance Practices and Standards
We endeavor to maintain sound governance practices and standards consistent with our executive compensation philosophies. The following governance practices and standards were in effect during 2015:2016:
The Compensation Committee is comprised solely of independent directors.
The Compensation Committee engaged its own compensation consultant to assist with its 20152016 compensation review. This consultant performed no consulting or other services for the company.
The Compensation Committee conducts an annual review and approval of our compensation strategy, including a review of our compensation peer group used for comparative purposes.
Our directors and executive officers are prohibited from holding our common stock in a margin account or pledging our common stock as collateral for a loan.
Our directors and executive officers are prohibited from engaging in short sales of our common stock.
The Compensation Committee annually assesses the risk within the executive compensation program.
All executive officers are expected to hold company stock at least equal to two-times their annual base salaries.
The Company has a Compensation Recoupment Policy (commonly referred to as a “clawback policy”). The clawback policy is designed to ensure that incentive-based compensation is paid to executive officers based on accurate financial statements. In the event that we are required to prepare an accounting restatement due to the material noncompliance with accounting rules, the policy applies to incentive-based compensation that is granted to current or former executive officers of the company who received incentive-based compensation at any time after the effective date of policy and during the three-year period preceding the date on which we are required to prepare the accounting restatement. When final rules are adopted by the Securities and Exchange Commission regarding any additional clawback requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act, we intend to review our policy and amend it to comply with the new rules.
Role of Compensation Consultant
For 2015,2016, the Compensation Committee engaged Towers Watson & Co. as its independent executive compensation consultant. In December of 2015, Towers Watson became Willis Towers Watson PLC ("Willis Towers Watson"). The Compensation Committee generally engages an independent compensation consultant and has the authority to approve fees and other terms of the engagement. The consultant’s duties were to evaluate executive compensation, to discuss general compensation trends, to provide competitive market data and to assist our CEO in developing compensation recommendations to present to the committee for the executive officers other than himself. The compensation consultant provides the committee with advice, consultation and market information on a regular basis, as requested, throughout the year. The executive compensation consultant does not make specific recommendations on individual compensation amounts for the executive officers or the independent directors, nor does the consultant determine the amount or form of executive and director compensation. The Compensation Committee has assessed the independence of Willis Towers Watson pursuant to Securities and Exchange Commission rules and New York Stock Exchange Listing standards and affirmatively determined that Willis Towers Watson's services have not raised any conflicts of interest.
Total Compensation and Link to Performance
We strive to compensate our executive officers at competitive levels, with the opportunity to earn above-median compensation for above-market performance, through programs that emphasize performance-based incentive compensation in the form of annual cash payments, equity-based awards and a long-term incentive program. To that end, total executive compensation is tied to our performance and is structured to ensure that, due to the nature of our business, there is an appropriate balance focused on our long-term versus short-term performance, and also a balance between our financial performance and the individual performance of our executive officers, all of which is designed to align compensation with our shareholders’ interests. For example, the Annual Bonus Plan is based primarily on targeted annual growth in Earnings Before Interest and Taxes. Long-term bonus plans include cash awards based on either relative shareholder returns compared to a peer group or, beginning in 2016, operating income targets, over three-year periods, and restricted stock and option grants that increase in value with the stock price. These programs are further described under “Elements of Compensation” below.
For those compensation components where individual performance is a consideration, individual performance is considered as part of the overall evaluation process. This evaluation of individual performance impacts the annual adjustment to base salaries for all of our executive officers and also may impact payments made under the annual bonus plan for all officers except the CEO. For the periods disclosed, the Compensation Committee determined that the performance of all executive officers was satisfactory. As such, annual base salary adjustments were made for each executive officer based on recommendations from the CEO (for all executive officers except the CEO) and the judgment of the Compensation Committee, although no adjustments were made to the payments made under the Annual Bonus Plan.
We believe that the total compensation paid or awarded to our executive officers during 20152016 was consistent with our financial performance and the individual performance of each of the executive officers. Based on our analysis and the advice of
Willis Towers Watson, we also believe that the compensation was reasonable in its totality and is consistent with our compensation philosophies as described above.
To the extent that base salaries and equity grants vary by professional role in the marketplace, as demonstrated by the competitive market data supplied by our independent executive compensation consultant, the base salaries and equity grants of the executive officers will vary, sometimes significantly. For example, consistent with the level of responsibility and the executive compensation practices of the companies in the market comparisons, Chief Executive Officers typically earn significantly more in base salary and equity grants than other executive officers.
As noted above, our CEO serves in an advisory role to the Compensation Committee with respect to executive compensation for executive officers other than himself (the CEO does not participate in determining or recommending compensation for himself). His recommendations are given significant weight by the Compensation Committee, but the Compensation Committee remains responsible for all decisions on compensation levels for the executive officers and on our executive compensation policies and executive compensation programs. All decisions on executive compensation levels and programs are made by the Compensation Committee.
Amount and Elements of Compensation
The Compensation Committee determines the amounts and elements of compensation under our compensation program for our executive officers. The program involves base salaries, benefits, short-term annual cash incentive bonuses and a long-term incentive program using stock options, restricted stock and cash incentives.
Peer Group and Compensation Survey Data. Compensation levels are established for each executive officer by the Compensation Committee, with general reference to data supplied by Willis Towers Watson on organizations of similar size and business activity. Willis Towers Watson provided data from two sources: general industry survey data, and the recent proxy statements of a peer group selected by Willis Towers Watson and approved by the Compensation Committee. The general industry survey data was obtained from the 20152016 Willis Towers Watson Executive Compensation Database Survey and the 20152016 Willis Towers Watson Top Management Survey. This compensation data incorporates privately-held as well as publicly-held companies of similar size, and has a broad definition of similar business activity, thereby providing a more comprehensive basis for evaluating compensation relative to those companies that compete with us for executives. The data includes salaries, benefits, total cash compensation, long-term incentive compensation and total compensation. Where appropriate, the data was size-adjusted using regression analysis based on revenues.
Willis Towers Watson also developed a peer group of fifteenfourteen comparable publicly-held manufacturing companies that have business operations similar to ours in 20152016 (the “peer group”). For both 2015 and 2016, compensation information for the five highest paid executives at each of the fifteenfourteen companies was obtained from the proxy statements of the companies and compared to the compensation of our five highest paid executives. The companies in the peer group were A.O. Smith, CIRCOR International, CLARCOR, Inc., ESCO Technologies, Franklin Electric Co., Fuel Systems Solutions, Gorman-Rupp, Itron, Inc., Lindsay Corporation, MFRI, Mueller Water Products, Northwest Pipe Co., Rexnord Corporation, Sun Hydraulics Corp., and Watts Water Technologies. This was the same peer group used for the “Comparison of Cumulative Total Return” disclosure in our Annual Report on Form 10K for 2015.2016. Fuel Systems Solutions had been included in the peer group prior to 2016 but was excluded in 2016 due to its merger with Westport. The Compensation Committee annually reviews and approves the appropriateness of the peer group.
Base Salary. Our policy is to pay executive officers at market, with appropriate adjustments for performance and levels of responsibility. To aid the Compensation Committee in its understanding of each executive officer’s long-term performance and levels of responsibility, the Compensation Committee is given a five-year history, which sets forth the base salary, short-term incentive awards, and long-term compensation of each such officer. The Compensation Committee has consistently applied this policy and procedure with respect to base salaries for the past 2425 years.
Base salary increases for our executive officers approved as of November 12, 2015 for calendar year 2016, by the Compensation Committee, ranged from 2.5% to 10.0%. The Chairman, President and Chief Executive Officer’s compensation increased 3.0%. The other NEOs received base salary increases of 3.0% for Mr. Johnson, 2.5% for Mr. Gras, and 10.0% for
Mr. Gomez and Ms. Stoll. These increases were based primarily on our goal to keep base salaries at market, in order to maintain competitive salary levels, but they also reflect the positive impact each of our executive officers had on our financial and strategic results in 2015. The larger increases for Mr. Gomez and Ms. Stoll were deemed appropriate given their expanded responsibilities in 2015 and the average salaries of similar positions in comparable companies as recommended by Willis Towers Watson.
Base salary increases for our executive officers approved as of November 10, 2016 for calendar year 2017, by the Compensation Committee, ranged from 2.5% to 3.0%. The Chairman, President and Chief Executive Officer’s compensation increased 3.0%. The other NEOs received base salary increases of 2.5% to 3.0%. These increases were based primarily on our goal to keep base salaries at market, in order to maintain competitive salary levels, but they also reflect the positive impact each of our executive officers had on our financial and strategic results in 2016.
Annual Bonus Plan. Our annual bonus plan is designed to align our compensation with our shareholders’ interests over the long term. The plan is intended to provide a competitive level of compensation when the executive officers achieve their performance objectives. Under the annual bonus plan, the target bonus for the CEO was 100% of his base salary and the target bonus for all other NEOs was 35% - 55% of their base salary for 2015.2016. The targets set pursuant to the annual bonus plan for 20152016 were comprised of two components - a financial factor based on the attainment of a certain level of adjusted Earnings Before Interest and Taxes ("EBIT") and individual performance for all officers except the CEO.
The Compensation Committee approves the target level of earnings used for the financial component of the determination of an executive’s annual bonus at the beginning of each year. For 2015,2016, the target financial factor was based on achieving an increase in adjusted EBIT of 3%15% over the 20142015 adjusted EBIT, at which point the target annual bonus could be paid. Details of the annual bonus payout plan are as follows:
If the increase in adjusted EBIT in 20152016 was:
below 0%, no annual bonus would be paid;
at 0%, the annual bonus would be 50% of the target bonus;
between 0% and 3%15%, the annual bonus would be pro-rated between 50% and 100% of the target bonus;
between 3%15% and 15%23.2%, the annual bonus would be pro-rated between 100% and a "stretch" bonus equal to 150% of the target amount; and
above 15%23.2%, the annual bonus would equal the stretch bonus of 150% of the target amount.
The Compensation Committee adjustsmay adjust EBIT results for pension settlement or curtailment charges, costs (other than internal labor) associated with actual or potential acquisitions, results of newly acquired entities for the first twelve months after the effective date of acquisition and other non-operating items such as significant gains or losses from the disposal or impairment of long-term assets. For 2015,2016, the Compensation Committee approved adjustments to EBIT (and the related bonus payments) for earnings from an acquired company, net of acquisition costs, for the acquisition costs incurred in 20152016 associated with both completed and uncompleted acquisition activities and for settlement charges associated with the defined-benefit pension plan, such adjustments being consistent with past practices. After adjustment for these factors, the adjusted EBIT for 2016 increased 20.2% over the 2015 decreased 16.6% from the adjusted EBIT, for 2014, resulting in noa bonus payments.payment equal to 131.4% of the target bonus.
The 20152016 annual bonus for each executive officer except the CEO could also be adjusted up or down 10% at the discretion of the Compensation Committee. Further, the Compensation Committee has the authority to award special performance bonuses. No such adjustments were made for 20152016 for the regular program, and there were no special performance bonuses.
Long-Term Incentive Plan (referred to as LTIP)
In 2015,2016, long-term incentive compensation awards for the executive officers were comprised of 40%30% restricted stock awards, 30% stock option awards and 30% cash bonus. For 2016, the mix was changed to 30% restricted stock, 30% stock options and 40% cash bonus. The mix is intended to provide balance between performance-oriented long-term incentive vehicles (stock options and cash bonus) and retention-oriented long-term incentive vehicles (restricted stock) and the adjustment in 2016 is intended to shift the balance toward performance-oriented incentive vehicles.. We believe that the granting of company stock options and the use of cash bonus tied to an extended performance period serves to encourage the executive officers to direct efforts that will ultimately align our executive compensation program with our shareholders’ interests over the long term. We believe that the granting of restricted stock serves to encourage our executive officers to direct their efforts to increase shareholder value.
In determining the amount of incentive compensation to be awarded to each NEO, we consider the mix of long-term incentives provided by the companies in the competitive market data supplied by the compensation consultant as a guidepost, but we primarily structure the long-term incentive mix based on our compensation objectives. Specifically, the nature and amount of the long-term incentive compensation awarded to each of the NEOs was based primarily on our desire to ensure that
executive compensation is tied to our performance, with an appropriate balance focused on our long-term versus short-term
performance. The mix of the long-term incentive awards was the same for each of the NEOs. Furthermore, the individual performance of each NEO was considered as part of the overall evaluation process, with the Compensation Committee determining that the performance of each of the NEOs was satisfactory. As a result, in 20152016 the individual performance of any NEO did not result in any adjustments to the nature or amount of the long-term incentive compensation awarded to such NEO.
The LTIP program presents an opportunity for executive officers and other key employees to gain or increase their equity interests in our stock. See the discussion below under "Common Stock Ownership Guidelines."
Stock options and restricted stock awards are granted annually to the executive officers and other key employees at amounts determined each year by the Compensation Committee. In addition, one-time stock option awards are granted to new executive officers, within one year of becoming an executive officer. All of the stock options awards are granted with an exercise price equal to the closing price of our common stock on the date of grant.
In selecting a date of grant, the Compensation Committee establishes a date that avoids any inference of timing such awards to the release of material non-public information, and that coincides with the starting valuation dates of the Relative Total Shareholder Return program (this program is described below).
information. Restricted stock awards in 2016 will use an average of the prior 10 days closing prices to determine the number of shares granted based on a predetermined dollar value. Prior to 2016, restricted stock awards used the closing price on the date of grant to determine the number of shares granted based on a predetermined dollar value.
In addition to the above-mentioned awards, our LTIP provides for potential cash-based performance unit awards to all executive officers, including the NEOs. During 2015,2016, there were cash-based performance unit awards outstanding based on threetwo Relative Total Shareholder Return ("RTSR") goals for periods covering 2013-2015, 2014-2016 and 2015-2017. For the periodperiods 2016-2018 and 2017-2019, the Compensation Committee changed the cash-based performance unit awards to a new program described below.
We granted cash-based performance units based on RTSR in January of 20132014 to each of our executive officers for a three-year performance period (2013-2015)(2014-2016). At the end of the three-year performance period in 2015,2016, our total shareholder return, based on stock performance and reinvested dividends, was compared to the total shareholder return of our 20132014 peer group. The executive officers earned the performance units based on relative performance of our stock compared to the performance of the peer group. Under the program, at the 35, 55 and 75 percentile relative performance levels, the executive officers would earn 50%, 100% and 200% of the target performance units, respectively. Units earned would be pro-rated for performance between these amounts and converted to cash based on the Company’s stock price. In February of 2016,2017, payments were made to the NEOs under this program based on 200%197.5% of the target performance units since the Company’s total shareholder return for the period 2013-20152014-2016 was at the 8174.5stth percentile of the peer group.
In January of 2014 and again in January of 2015, the Compensation Committee continued the RTSR program by establishing twoa new three-year performance periods (2014-2016 and 2015-2017 respectively)period (2015-2017). Except for the differences in performance periods, these programs operate in the same manner as the RTSR described above.
In January of 2016, the Compensation Committee discontinued the RTSR program and replaced it with a new cash-based performance unit program based on operating income targets. The Compensation Committee made this change to better align performance targets with incentive payments. Under the new program, the Compensation Committee established three-year total operating income goals of $140.2 million, $169.2 million and $201.9 million for the threshold, target and maximum payout amounts for the period 2016-2018. At the threshold, target and maximum levels of operating income, the executive officers will earn 50%, 100% and 200% of the target cash payout for each officer, with the payouts pro-rated for performance between these amounts.
In January of 2017, the Compensation Committee continued the cash-based performance unit program by establishing a new three-year performance period (2017-2019). Except for the differences in performance periods, this program operates in the same manner as the cash-based performance unit program described above. The Compensation Committee established three-year total operating income goals of $171.1 million, $186.0 million and $206.4 million for the threshold, target and maximum payout amounts for the period 2017-2019.
For all cash-based performance units.units, the Compensation Committee will adjust the targets for pension settlement or curtailment charges, costs (other than internal labor) associated with actual or potential acquisitions, results of newly acquired entities for the first twelve months after the effective date of acquisition and other non-operating items such as significant gains or losses from the disposal or impairment of long-term assets.
Non-Officer Incentives
Annual bonuses are also paid to all U.S. salaried exempt employees using the same EBIT threshold and target levels as used for the executive officers and previously described under “Annual Bonus Plan.” For 2015,2016, approximately 280 non-
Other Benefits
Salary Deferral Plan. All executive officers, except Mr. Gras, a German citizen, are eligible to participate in a salary deferral planSalary Deferral Plan described in Note 1 of the “Nonqualified Deferred Compensation Table” below. The Compensation Committee believes that it is appropriate to offer this program to enable the executive officers to better manage their taxable income and retirement planning. Based on its analysis and the advice of our independent executive compensation consultant, the Compensation Committee believes that this program is competitive with comparable programs offered by other companies. As of December 31, 2015, one2016, Mr. Johnson is the only NEO who participates in the Salary Deferral Plan.
Supplemental Retirement Plans. We offer various supplemental retirement plans to certain employees, including executive officers except Mr. Gras, a German citizen. The purpose of these plans is to compensate the employees for pension reductions caused by salary deferrals or by regulatory limitations on qualified plans. We also maintain a nonqualified supplemental executive retirement plan designed to enhance the regular retirement programs. Currently, Messrs. Meeusen and Johnson are participants in this plan. The Compensation Committee believes that these supplemental retirement plans are appropriate to attract and retain qualified executives. For more information on these plans, see the discussion that follows the “Pension Benefits Table” below.
Additional benefits. Each executive officer receives his/her choice of either the use of a vehicle for both personal and business purposes, or a vehicle allowance. We also pay certain club dues for Mr. Meeusen. All executive officers, except Mr. Gras, participate in the Badger Meter, Inc. Employee Savings and Stock Ownership Plan and other benefit and pension plans provided to all of our U.S. employees.
Section 162(m) Limitations. Our compensation plans are designed generally to allow us to achieve tax deductibility of the compensation paid under the plans. This includes compliance with Section 162(m) of the Internal Revenue Code, which limits the amount of non-performance-based compensation paid to our NEOs (other than our CFO) that we may deduct for tax purposes to $1 million per year. The Compensation Committee generally intends to structure our compensation programs to preserve tax deductibility. The Committee believes, however, that shareholders’ interests are best served by not restricting its discretion and flexibility in structuring compensation programs, even though such programs may result in certain non-deductible compensation expenses. In addition, because of ambiguities and uncertainties as to the application and interpretation of Section 162(m) and related regulations, and the fact that such regulations and interpretations may change from time to time (with potentially retroactive effect), there is no certainty that compensation intended by the Committee to satisfy the requirements for deductibility under Section 162(m) will be deductible.
Tax Gross-ups: The Company does not provide tax gross-ups to any of the officers except in the unlikely event of a tax penalty in connection with the triggering of the Key Executive Employment and Severance Agreements as described in the “Potential Payments Upon Termination or Change-in-Control” below.
Potential Payments Upon Termination or Change-in-Control
We have entered into Key Executive Employment and Severance Agreements (each referred to as a KEESA) with all executive officers, whose expertise has been critical to our success, to remain with us in the event of any merger or transition period. The Compensation Committee has reviewed these agreements and determined that they are appropriate given competitive market practices. Each KEESA requires a “double-trigger,” providing for payments in the event there is a change-in-control and (1) the executive officer’s employment with us terminates (whether by us, the executive officer or otherwise) within 180 days prior to the change-in-control and (2) it is reasonably demonstrated by the executive officer that (a) any such termination of employment by us (i) was at the request of a third party who has taken steps reasonably calculated to effect a change-in-control or (ii) otherwise arose in connection with or in anticipation of a change-in-control, or (b) any such termination of employment by the executive officer took place because of an event that allowed the termination for good reason, which event (i) occurred at the request of a third party who has taken steps reasonably calculated to effect a change-in-control or (ii) otherwise arose in connection with or in anticipation of a change-in-control. For more information regarding the KEESAs, see the discussion in “Potential Payments Upon Termination or Change-in-Control” below.
Common Stock Ownership Guidelines and Hedging and Pledging Policies
We believe that it is important to align executive and shareholder interests by defining stock ownership guidelines for our executives. As a result, each executive officer is expected to hold common stock equal to at least two-times his or her annual base salary, except the CEO who is expected to hold common stock equal to at least three-times his annual base salary. New executive officers are expected to achieve this level of stock ownership within a reasonable time, but in any event, within six years of becoming an officer. Each NEO met the targeted level of stock ownership during 2015.2016.
Additionally, we have a policy that prohibits our executive officers, as well as our directors, from engaging in short selling, hedging transactions and from holding our common stock in a margin account or pledging our common stock as collateral for a loan. An exception to the prohibition of pledging may be granted where a person wishes to pledge our common stock as collateral for a loan (not including margin debt) and clearly demonstrates the financial capacity to repay the loan without resort to the pledged shares.
Risk Assessment
The Compensation Committee conducts an annual risk assessment of our compensation program to determine whether our compensation policies and practices are reasonably likely to have a material adverse effect on the company. Based on this assessment, the Compensation Committee believes that our compensation program is balanced and does not motivate or encourage unnecessary or excessive risk taking because of, in part, the following:
Base salaries are fixed in amount and thus do not encourage risk taking.
Our annual bonus plan is designed to align our compensation with our shareholders’ interests over the long term.
Our long-term incentive plan uses a mix of performance measures that are designed to award our executives only if the company is achieving positive long-term growth.
We maintain appropriate caps on incentives.
We have limited and appropriate perquisites.
Summary Compensation Table
The following table sets forth information concerning compensation earned or paid to each of the NEOs for each of the last three fiscal years, consisting of: the dollar value of base salary during the applicable fiscal year; the aggregate grant date fair value of stock and option awards computed in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 718; the dollar value of annual incentive bonus earned; the dollar value of the cash component of the long term incentives earned for the year ended under the RTSRthat program; the change in pension value and non-qualified compensation earnings during the applicable fiscal years; all other compensation for the applicable fiscal years; and finally; the dollar value of total compensation for the applicable fiscal years. The NEOs are our principal executive officer, principal financial officer and three most highly compensated executive officers employed as of December 31, 20152016 (each of whose total cash compensation exceeded $100,000 for fiscal year 2015)2016).
Summary Compensation Table for 20152016 (all amounts in $)
Non-Equity Incentive Plan Compensation | Change in Pension Value and Non-Qualified Deferred Compensation (5) | All Other Compensation (6) | Total | Non-Equity Incentive Plan Compensation | Change in Pension Value and Non-Qualified Deferred Compensation (5) (7) | All Other Compensation (6) | Total | |||||||||||||||||||||||||||||||||||||||||||||
| Name & Principal Position | Year | Salary | Stock Awards (1) | Option Awards (2) | Annual Bonus (3) | RTSR (4) | Year | Salary | Stock Awards (1) | Option Awards (2) | Annual Bonus (3) | LTIP CASH (4) | ||||||||||||||||||||||||||||||||||||||||
| Richard A. Meeusen — | 2015 | 625,000 | 371,973 | 278,991 | — | 562,380 | 171,611 | 47,558 | 2,057,513 | 2016 | 643,750 | 286,613 | 280,536 | 845,759 | 678,844 | 140,771 | 57,743 | 2,934,016 | ||||||||||||||||||||||||||||||||||
| Chairman, President & | 2014 | 605,000 | 351,981 | 263,998 | 816,750 | 209,840 | 108,908 | 47,345 | 2,403,822 | 2015 | 625,000 | 371,973 | 278,991 | — | 562,380 | 171,611 | 47,558 | 2,057,513 | ||||||||||||||||||||||||||||||||||
| CEO | 2013 | 587,100 | 366,724 | 231,205 | — | — | 125,841 | 44,798 | 1,355,688 | 2014 | 605,000 | 351,981 | 263,998 | 816,750 | 209,840 | 108,908 | 47,345 | 2,403,822 | ||||||||||||||||||||||||||||||||||
| Richard E. Johnson — | 2015 | 335,800 | 99,948 | 74,987 | — | 181,772 | 73,747 | 35,541 | 801,795 | 2016 | 345,900 | 76,987 | 75,396 | 249,944 | 186,317 | 66,437 | 39,885 | 1,040,866 | ||||||||||||||||||||||||||||||||||
| Sr. Vice President — Finance, | 2014 | 326,025 | 97,957 | 73,487 | 268,971 | 64,500 | 53,977 | 34,523 | 919,440 | 2015 | 335,800 | 99,948 | 74,987 | — | 181,772 | 73,747 | 35,541 | 801,795 | ||||||||||||||||||||||||||||||||||
| CFO and Treasurer | 2013 | 315,000 | 102,580 | 64,071 | — | — | 56,710 | 34,227 | 572,588 | 2014 | 326,025 | 97,957 | 73,487 | 268,971 | 64,500 | 53,977 | 34,523 | 919,440 | ||||||||||||||||||||||||||||||||||
| Gregory M. Gomez — | 2015 | 204,200 | 51,957 | 38,982 | — | 60,631 | 10,923 | 30,765 | 397,458 | 2016 | 224,600 | 40,023 | 39,192 | 118,032 | 86,755 | 8,114 | 30,290 | 547,006 | ||||||||||||||||||||||||||||||||||
| Vice President — | 2014 | 185,606 | 41,966 | 31,491 | 127,443 | 30,100 | 7,921 | 26,754 | 451,281 | 2015 | 204,200 | 51,957 | 38,982 | — | 60,631 | 10,923 | 30,765 | 397,458 | ||||||||||||||||||||||||||||||||||
| Flow Instrumentation | 2013 | 175,100 | 46,161 | 28,842 | — | — | 7,240 | 27,245 | 284,588 | 2014 | 185,606 | 41,966 | 31,491 | 127,443 | 30,100 | 7,921 | 26,754 | 451,281 | ||||||||||||||||||||||||||||||||||
| Horst E. Gras — | 2015 | 299,474 | 37,169 | 27,881 | 22,322 | 60,631 | 199,853 | 16,681 | 664,011 | 2016 | 313,644 | 28,607 | 28,029 | 137,318 | 68,756 | 45,130 | 24,179 | 645,663 | ||||||||||||||||||||||||||||||||||
| Vice President — | 2014 | 329,624 | 35,986 | 26,999 | 185,746 | 21,500 | 143,987 | 19,261 | 763,103 | 2015 | 299,474 | 37,169 | 27,881 | 22,322 | 60,631 | 199,853 | 16,681 | 664,011 | ||||||||||||||||||||||||||||||||||
Intl. Operations(7) | 2013 | 322,781 | 38,468 | 24,022 | 25,416 | — | 113,977 | 19,181 | 543,845 | 2014 | 329,624 | 35,986 | 26,999 | 185,746 | 21,500 | 143,987 | 19,261 | 763,103 | ||||||||||||||||||||||||||||||||||
| Kimberly K. Stoll — | 2015 | 204,200 | 51,957 | 38,982 | — | 60,631 | 3,137 | 34,784 | 393,691 | 2016 | 224,600 | 40,023 | 39,192 | 118,032 | 86,755 | 1,270 | 33,910 | 543,782 | ||||||||||||||||||||||||||||||||||
| Vice President — | 2014 | 185,606 | 41,966 | 31,491 | 112,443 | 30,100 | 841 | 30,202 | 432,649 | 2015 | 204,200 | 51,957 | 38,982 | — | 60,631 | 3,137 | 34,784 | 393,691 | ||||||||||||||||||||||||||||||||||
| Sales & Marketing | 2013 | 175,100 | 46,161 | 28,842 | — | — | 772 | 32,375 | 283,250 | 2014 | 185,606 | 41,966 | 31,491 | 112,443 | 30,100 | 841 | 30,202 | 432,649 | ||||||||||||||||||||||||||||||||||
| (1) | These amounts reflect the grant date fair value of the stock awards made in each respective year. |
| (2) | These amounts reflect the grant date fair value of the option awards made in each respective year. |
| (3) | “Non-Equity Incentive Plan Compensation - Annual Bonus” amounts represent annual incentive bonuses earned during the year indicated but paid in February of the following year. For example, any bonus earned during |
| (4) | “Non-Equity Incentive Plan Compensation - |
| (5) | “Change in Pension Value and Non-Qualified Deferred Compensation” includes the |
| (6) | “All Other Compensation” for |
| a. | Contributions to the Badger Meter, Inc. Employee Savings and Stock Ownership Plan (ESSOP) for Messrs. Meeusen and Johnson |
| b. | Dividends on restricted stock of |
| c. | Vehicle usage of |
| d. | Club dues for Mr. Meeusen of |
| (7) | Mr. Gras, a German resident and citizen, is paid primarily in Euros. The amounts shown reflect the U.S. dollar equivalent of that currency. Year-to-year comparisons are affected by changes in the exchange rate. Mr. Gras is not covered by the defined benefit pension plan. The company, through its European subsidiary, provides benefits similar to those of the other |
Grants of Plan-Based Awards
The following table sets forth information regarding all plan-based awards that were granted to the NEOs during 2015,2016, including incentive plan awards (equity-based and non-equity based) and other plan-based awards. Disclosure on a separate line item is provided for each grant of an award made to an NEO during the year. Non-equity incentive plan awards are awards that are not subject to FASB ASC Topic 718 and are intended to serve as an incentive for performance to occur over a specified period. There are no equity incentive-based awards, which are equity awards subject to a performance condition or a market condition as those terms are defined by FASB ASC Topic 718.
Grants of Plan-Based Awards for 20152016
| Name | Name | Grant Date | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | All Other Stock Awards: Number of Restricted Shares (#) | All Other Option Awards: Number of Securities Underlying Options (#) | Exercise Price of Option Awards ($/share) | Grant Date Fair Value of Stock and Option Awards ($) | Name | Grant Date | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | All Other Stock Awards: Number of Restricted Shares (#) | All Other Option Awards: Number of Securities Underlying Options (#) | Exercise Price of Option Awards ($/share) | Grant Date Fair Value of Stock and Option Awards ($) | ||||||||||||||||||||||||||||||||||
Threshold ($) | Target ($) | Maximum ($) | Threshold ($) | Target ($) | Maximum ($) | |||||||||||||||||||||||||||||||||||||||||||
| Richard A. Meeusen | Richard A. Meeusen | March 6, 2015 | 6,565 | 371,973 | Richard A. Meeusen | March 4, 2016 | 8,436 | 286,613 | ||||||||||||||||||||||||||||||||||||||||
| March 6, 2015 | 12,088 | 56.66 | 278,991 | March 4, 2016 | 20,658 | 33.975 | 280,536 | |||||||||||||||||||||||||||||||||||||||||
| (1 | ) | Jan. 28, 2015 | 139,500 | 279,000 | 558,000 | ) | Jan. 29, 2016 | 186,000 | 372,000 | 744,000 | ||||||||||||||||||||||||||||||||||||||
| (2 | ) | Jan. 28, 2015 | 312,500 | 625,000 | 937,500 | ) | Jan. 29, 2016 | 321,875 | 643,750 | 965,625 | ||||||||||||||||||||||||||||||||||||||
| Richard E. Johnson | Richard E. Johnson | March 6, 2015 | 1,764 | 99,948 | Richard E. Johnson | March 4, 2016 | 2,266 | 76,987 | ||||||||||||||||||||||||||||||||||||||||
| March 6, 2015 | 3,249 | 56.66 | 74,987 | March 4, 2016 | 5,552 | 33.975 | 75,396 | |||||||||||||||||||||||||||||||||||||||||
| (1 | ) | Jan. 28, 2015 | 37,500 | 75,000 | 150,000 | ) | Jan. 29, 2016 | 37,500 | 75,000 | 150,000 | ||||||||||||||||||||||||||||||||||||||
| (2 | ) | Jan. 28, 2015 | 92,345 | 184,690 | 277,035 | ) | Jan. 29, 2016 | 95,123 | 190,245 | 285,368 | ||||||||||||||||||||||||||||||||||||||
| Gregory M. Gomez | Gregory M. Gomez | March 6, 2015 | 917 | 51,957 | Gregory M. Gomez | March 4, 2016 | 1,178 | 40,023 | ||||||||||||||||||||||||||||||||||||||||
| March 6, 2015 | 1,689 | 56.66 | 38,982 | March 4, 2016 | 2,886 | 33.975 | 39,192 | |||||||||||||||||||||||||||||||||||||||||
| (1 | ) | Jan. 28, 2015 | 25,500 | 51,000 | 102,000 | ) | Jan. 29, 2016 | 26,000 | 52,000 | 104,000 | ||||||||||||||||||||||||||||||||||||||
| (2 | ) | Jan. 28, 2015 | 40,840 | 81,680 | 122,520 | ) | Jan. 29, 2016 | 44,920 | 89,840 | 134,760 | ||||||||||||||||||||||||||||||||||||||
| Horst E. Gras | Horst E. Gras | March 6, 2015 | 656 | 37,169 | Horst E. Gras | March 4, 2016 | 842 | 28,607 | ||||||||||||||||||||||||||||||||||||||||
| March 6, 2015 | 1,208 | 56.66 | 27,881 | March 4, 2016 | 2,064 | 33.975 | 28,029 | |||||||||||||||||||||||||||||||||||||||||
| (1 | ) | Jan. 28, 2015 | 13,950 | 27,900 | 55,800 | ) | Jan. 29, 2016 | 18,610 | 37,220 | 74,440 | ||||||||||||||||||||||||||||||||||||||
| (2 | ) | Jan. 28, 2015 | 61,174 | 122,347 | 183,521 | ) | Jan. 29, 2016 | 55,743 | 111,486 | 167,229 | ||||||||||||||||||||||||||||||||||||||
| Kimberly K. Stoll | Kimberly K. Stoll | March 6, 2015 | 917 | 51,957 | Kimberly K. Stoll | March 4, 2016 | 1,178 | 40,023 | ||||||||||||||||||||||||||||||||||||||||
| March 6, 2015 | 1,689 | 56.66 | 38,982 | March 4, 2016 | 2,886 | 33.975 | 39,192 | |||||||||||||||||||||||||||||||||||||||||
| (1 | ) | Jan. 28, 2015 | 25,500 | 51,000 | 102,000 | ) | Jan. 29, 2016 | 26,000 | 52,000 | 104,000 | ||||||||||||||||||||||||||||||||||||||
| (2 | ) | Jan. 28, 2015 | 40,840 | 81,680 | 122,520 | ) | Jan. 29, 2016 | 44,920 | 89,840 | 134,760 | ||||||||||||||||||||||||||||||||||||||
| (1) | These awards were granted in |
| (2) | These awards were granted in |
Stock Awards represent the fair value of restricted stock awards granted to each NEO on March 6, 20154, 2016 under the 2011 Omnibus Incentive Plan and are valued at the closing price of the common stock on that date ($56.6633.975 per share). The restricted stock vests 100% after three years from the date of grant. Dividends on the restricted shares are accrued during the vesting period and paid to the recipient upon full vesting of the shares.
Option Awards represent the fair value of stock options granted to each NEO on March 6, 2015.4, 2016. The assumptions made in valuing the option awards are included under the caption “Stock Options” in Note 5 to the Consolidated Financial Statements in our 20152016 Annual Report on Form 10-K and such information is incorporated herein by reference. All options were granted on March 6, 2015,4, 2016, with an exercise price set at the closing price of the common stock on that date ($56.6633.975 per share). All option awards vest at 20% per year over five years. The per share value of the options is $23.08$13.58 for the NEOs. The overall average fair value of all options issued in 20152016 was $23.08,$13.58, only a portion of which we expensed in fiscal year 2015.2016. This value was computed in accordance with FASB ASC Topic 718 under the Black-Scholes option pricing model, using the following
assumptions: risk-free interest rate of 1.74%1.42%; dividend yield of 1.32%1.16%; expected market price volatility factor of 49.5%
48.3% and a weighted average expected life of 5.3 years. All option awards have a ten-year life from the date of grant. All unvested awards are forfeited on retirement or termination of employment for cause or otherwise. The awards are not subject to any performance-based or other material conditions.
Outstanding Equity Awards At Year-End
The following table sets forth information on outstanding option and stock awards held by the NEOs at December 31, 2015,2016, including the number of shares underlying both exercisable and unexercisable portions of each stock option award as well as the exercise price and expiration date of each outstanding option.
Outstanding Equity Awards as of December 31, 20152016
| Name | Option Awards (1) | Stock Awards (1) | Option Awards (1) | Stock Awards (1) | ||||||||||||||||||||||||
Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable (2) | Option Exercise Price ($) | Option Expiration Date | Number of Shares of Stock That Have Not Vested (#) (2) | Market Value of Shares of Stock That Have Not Vested ($) | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable (2) | Option Exercise Price ($) | Option Expiration Date | Number of Shares of Stock That Have Not Vested (#) (2) | Market Value of Shares of Stock That Have Not Vested ($) | |||||||||||||||||
| Richard A. Meeusen | 4,800 9,000 10,200 10,640 11,280 4,547 2,362 0 | 0 0 0 2,660 7,520 6,820 9,450 12,088 | 52.81 38.69 38.41 36.59 36.15 51.29 54.36 56.66 | May 2, 2018 May 1, 2019 May 7, 2020 May 6, 2021 May 4, 2022 Mar. 1, 2023 Mar. 7, 2024 Mar. 6, 2025 | 20,190 | 1,182,932 | 9,600 18,000 20,400 26,600 30,080 13,640 9,450 4,835 0 | 0 0 0 0 7,520 9,094 14,174 19,341 20,658 | 26.405 19.345 19.205 18.295 18.075 25.645 27.180 28.330 33.975 | May 2, 2018 May 1, 2019 May 7, 2020 May 6, 2021 May 4, 2022 Mar. 1, 2023 Mar. 7, 2024 Mar. 6, 2025 Mar. 4, 2026 | 34,516 | 1,275,366 | ||||||||||||||||
| Richard E. Johnson | 0 0 0 0 0 | 1,000 3,000 1,890 2,631 3,249 | 36.59 36.15 51.29 54.36 56.66 | May 6, 2021 May 4, 2022 Mar. 1, 2023 Mar. 7, 2024 Mar. 6, 2025 | 5,566 | 326,112 | 2,000 3,000 1,260 1,316 1,300 0 | 0 3,000 2,520 3,946 5,198 5,552 | 18.295 18.075 25.645 27.180 28.330 33.975 | May 6, 2021 May 4, 2022 Mar. 1, 2023 Mar. 7, 2024 Mar. 6, 2025 Mar. 4, 2026 | 9,398 | 347,256 | ||||||||||||||||
| Gregory M. Gomez | 4,500 600 1,200 800 1,440 567 282 0 | 0 0 0 400 960 851 1,127 1,689 | 52.81 38.69 38.41 36.59 36.15 51.29 54.36 56.66 | May 2, 2018 May 1, 2019 May 7, 2020 May 6, 2021 May 4, 2022 Mar. 1, 2023 Mar. 7, 2024 Mar. 6, 2025 | 2,589 | 151,690 | 9,000 1,200 2,400 2,400 3,840 1,702 1,127 676 0 | 0 0 0 0 960 1,134 1,691 2,702 2,886 | 26.405 19.345 19.205 18.295 18.075 25.645 27.180 28.330 33.975 | May 2, 2018 May 1, 2019 May 7, 2020 May 6, 2021 May 4, 2022 Mar. 1, 2023 Mar. 7, 2024 Mar. 6, 2025 Mar. 4, 2026 | 4,556 | 168,344 | ||||||||||||||||
| Horst E. Gras | 0 0 0 0 0 | 240 640 709 966 1,208 | 36.59 36.15 51.29 54.36 56.66 | May 6, 2021 May 4, 2022 Mar. 1, 2023 Mar. 7, 2024 Mar. 6, 2025 | 2,068 | 121,164 | 640 473 482 483 0 | 640 945 1,450 1,933 2,064 | 18.075 25.645 27.180 28.330 33.975 | May 4, 2022 Mar. 1, 2023 Mar. 7, 2024 Mar. 6, 2025 Mar. 4. 2026 | 3,478 | 128,512 | ||||||||||||||||
| Kimberly K. Stoll | 240 400 480 567 282 0 | 0 400 960 851 1,127 1,689 | 38.41 36.59 36.15 51.29 54.36 56.66 | May 7, 2020 May 6, 2021 May 4, 2022 Mar. 1, 2023 Mar. 7, 2024 Mar. 6, 2025 | 2,589 | 151,690 | 480 1,600 1,920 1,702 1,127 676 0 | 0 0 960 1,134 1,691 2,702 2,886 | 19.205 18.295 18.075 25.645 27.180 28.330 33.975 | May 7, 2020 May 6, 2021 May 4, 2022 Mar. 1, 2023 Mar. 7, 2024 Mar. 6, 2025 Mar. 4, 2026 | 4,556 | 168,344 | ||||||||||||||||
| (1) | There were no stock or option awards outstanding for any of the NEOs as of December 31, |
| (2) | Restricted stock awards |
| Expiration Date | Grant Date | Vesting Term | Full Vesting | ||||
| May 4, 2017 | May 4, 2007 | 20% per year | May 4, 2012 | ||||
| May 2, 2018 | May 2, 2008 | 20% per year | May 2, 2013 | ||||
| May 1, 2019 | May 1, 2009 | 20% per year | May 1, 2014 | ||||
| May 7, 2020 | May 7, 2010 | 20% per year | May 7, 2015 | ||||
| May 6, 2021 | May 6, 2011 | 20% per year | May 6, 2016 | ||||
| May 5, 2022 | May 5, 2012 | 20% per year | May 5, 2017 | ||||
| Mar 1, 2023 | Mar 1, 2013 | 20% per year | Mar 1, 2018 | ||||
| Mar 7, 2024 | Mar 7, 2014 | 20% per year | Mar 7, 2019 | ||||
| Mar 6, 2025 | Mar 6, 2015 | 20% per year | Mar 6, 2020 | ||||
| Mar 4, 2026 | Mar 4, 2016 | 20% per year | Mar 4, 2021 | ||||
Option Exercises and Stock Vested
The following table sets forth information relating to the number of stock options exercised during the last fiscal year for each of the NEOs on an aggregate basis. It also gives the number of shares of restricted stock that vested during 20152016 and its value on the date of vesting at a price of $63.01$66.71 per share.share (pre-split value).
Option Exercises and Stock Vested for 20152016
| Option Awards | Stock Awards | Option Awards | Stock Awards | |||||||||||||||||||||
Number of Shares Acquired on Exercise | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting | Value Realized on Vested Shares ($) | Number of Shares Acquired on Exercise | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting | Value Realized on Vested Shares ($) | |||||||||||||||||
| Richard A. Meeusen | 5,400 | 155,032 | 8,800 | 554,488 | — | — | 7,150 | 476,977 | ||||||||||||||||
| Richard E. Johnson | 21,817 | 496,983 | 3,000 | 189,030 | — | — | 2,000 | 133,420 | ||||||||||||||||
| Gregory M. Gomez | — | — | 1,200 | 75,612 | — | — | 900 | 60,039 | ||||||||||||||||
| Horst E. Gras | 3,014 | 47,465 | 800 | 50,408 | 240 | 9,180 | 750 | 50,033 | ||||||||||||||||
| Kimberly K. Stoll | — | — | 1,200 | 75,612 | — | — | 900 | 60,039 | ||||||||||||||||
For further details regarding stock options and restricted stock, see the description of the LTIP in “Compensation Discussion and Analysis - Elements of Compensation” above.
Retirement Benefits
Qualified Defined Benefit Plan
The following table sets forth the actuarial present value of each NEO’s accumulated benefit under each defined benefit plan, assuming benefits are paid at normal retirement age based on current levels of compensation and the present value of the supplemental plans. Except for Mr. Gras, the valuation method and all material assumptions applied in quantifying the present value of the current accumulated benefit for each NEO are included under the caption “Employee Benefit Plans” in Note 7 to the Consolidated Financial Statements in our 20152016 Annual Report on Form 10-K, and such information is incorporated herein by reference. Through our subsidiary Badger Meter Europe, Mr. Gras will receive a monthly annuity for life based on 1.25% of pensionable salary per year of service, to a maximum of 50% of salary. We calculate the liability for Mr. Gras using similar valuations that comply with U.S. generally accepted accounting principles. The table also shows the number of years of credited service under such plans, computed as of the same pension plan measurement date used in the company’s audited financial statements for the year ended December 31, 2015.2016. Note that benefits under the U.S. defined benefit plan were frozen as of December 31, 2010 and replaced with a defined contribution plan (see discussion below). Interest will continue to be credited on the frozen balance at a rate of interest based upon 30-year U.S. Treasury securities. The table also reports any pension benefits paid to each NEO during the year.
Pension Benefits as of December 31, 20152016
| Name | Plan Name | Number of Years Credited Service | Present Value of Accumulated Benefit ($) | Payments During 2015 ($) | Plan Name | Number of Years Credited Service | Present Value of Accumulated Benefit ($) | Payments During 2016 ($) | ||||||||||||||
| Richard A. Meeusen | Qualified Pension Plan | 15 | 286,051 | — | Qualified Pension Plan | 16 | 296,982 | — | ||||||||||||||
Non-qualified Unfunded Supplemental Retirement Plan | 20 | 533,195 | — | Non-qualified Unfunded Supplemental Retirement Plan | 21 | 597,588 | — | |||||||||||||||
Non-qualified Unfunded Executive Supplemental Plan | N/A | 490,443 | — | Non-qualified Unfunded Executive Supplemental Plan | N/A | 555,889 | — | |||||||||||||||
| Richard E. Johnson | Qualified Pension Plan | 10 | 175,046 | — | Qualified Pension Plan | 11 | 181,738 | — | ||||||||||||||
Non-qualified Unfunded Supplemental Retirement Plan | 15 | 148,835 | — | Non-qualified Unfunded Supplemental Retirement Plan | 16 | 167,409 | — | |||||||||||||||
Non-qualified Unfunded Executive Supplemental Plan | N/A | 278,456 | — | Non-qualified Unfunded Executive Supplemental Plan | N/A | 314,142 | — | |||||||||||||||
| Gregory M. Gomez | Qualified Pension Plan | 27 | 202,396 | — | Qualified Pension Plan | 28 | 210,091 | — | ||||||||||||||
Non-qualified Unfunded Supplemental Retirement Plan | 32 | 2,243 | — | Non-qualified Unfunded Supplemental Retirement Plan | 33 | 2,662 | — | |||||||||||||||
| Horst E. Gras | Pension Liability* | 23 | 1,030,687 | — | Pension Liability* | 24 | 1,035,789 | — | ||||||||||||||
| Kimberly K. Stoll | Qualified Pension Plan | 2 | 21,542 | — | Qualified Pension Plan | 3 | 22,361 | — | ||||||||||||||
Non-qualified Unfunded Supplemental Retirement Plan | 7 | 2,212 | — | Non-qualified Unfunded Supplemental Retirement Plan | 8 | 2,663 | — | |||||||||||||||
*Calculated using U.S. Generally Accepted Accounting Principles translated at 12/31/1516 Euro rate.
Qualified Defined Contribution Plan
We maintain a defined contribution retirement plan (through the ESSOP) covering all domestic salaried employees, including each NEO except Mr. Gras, who is a German resident and citizen.
Under the defined contribution plan, Messrs. Meeusen, Johnson, Gomez and Ms. Stoll each have an account balance which is credited each year with dollar amounts equal to 5% of compensation, plus 2% of compensation in excess of the Social Security wage base. Individuals then invest the funds in various investment vehicles offered to all employees. Any amounts exceeding qualified plan limits are reflected in the “Non-qualified Unfunded Supplemental Retirement Plan” amounts in the above table. Amounts earned in 20152016 for Messrs. Meeusen and Johnson were $16,263 each, and for Mr. Gomez and Ms. Stoll were $16,278 each, and$13,435 each. These are included in “All Other Compensation” on the Summary Compensation Table for 2015.2016. Such amounts were credited to their accounts in early 2016.2017.
Non-Qualified Unfunded Supplemental Retirement Plan
Since benefits under our retirement programs are based on taxable earnings, any deferral of salary or bonus can result in a reduction of these benefits. To correct for this reduction, participants in the salary deferral program also participate in a non-qualified unfunded supplemental retirement benefit plan designed to compensate for reduced retirement benefits caused by the deferral of salary. Benefits under this plan represent the difference between normal retirement benefits that the executive officer would have earned if no salary had been deferred, and the reduced benefit level due to the salary deferral.
Internal Revenue Service regulations limit the amount of compensation to be considered in qualified pension benefit calculations to $265,000 in 2015,2016, and varying amounts for prior years. Any employee, including any NEO, whose compensation is in excess of the Internal Revenue Service limits also participates in the non-qualified unfunded supplemental retirement plan. Benefits from this plan are calculated to provide the participant the same retirement benefits as if there were no compensation limit. These benefits are included in the table above.
Non-Qualified Unfunded Executive Supplemental Plan
Messrs. Meeusen and Johnson participate in a non-qualified unfunded executive supplemental retirement plan. This is a defined contribution plan, under which we annually accrue 7.5% of each participant’s annual salary. Participants may elect a lump-sum payout or annual installments up to ten years. Interest is credited monthly on the beginning of the year balance at the prime rate of interest.
The following table sets forth annual contributions and earnings under the non-qualified unfunded executive supplemental plan and fiscal year-end balances in the plan.
Non-qualified Unfunded Executive Supplemental Plan for 20152016 ($)
| Name | Executive Contributions in 2015 | Company Contributions in 2015 $ | Aggregate Earnings in 2015(1) | Aggregate Withdrawals/ Distribution | Aggregate Balance at December 31, 2015 | Executive Contributions in 2016 | Company Contributions in 2016 | Aggregate Earnings in 2016(1) | Aggregate Withdrawals/ Distribution | Aggregate Balance at December 31, 2016 | ||||||||||||||||
| Richard A. Meeusen | — | 46,875 | 13,962 | — | 490,443 | — | 48,281 | 17,165 | — | 555,889 | ||||||||||||||||
| Richard E. Johnson | — | 25,185 | 7,972 | — | 278,456 | — | 25,940 | 9,746 | — | 314,142 | ||||||||||||||||
| (1) | Contributions shown in the above table are also included in the Summary Compensation Table along with the portion of the |
Non-qualified Deferred Compensation
The following table sets forth annual executive officer and company contributions under the non-qualified deferred compensation plan, as well as each NEO’s withdrawals, earnings and fiscal year-end balances in this plan. Messrs. Meeusen and Gomez and Ms. Stoll do not currently participate in the plan.
Non-qualified Deferred Compensation for 20152016 ($)
| Name | Executive Contributions in 2015(1)(2) | Company Contributions in 2015 | Aggregate Earnings in 2015(2) | Aggregate Withdrawals/ Distribution | Aggregate Balance at December 31, 2015 | Executive Contributions in 2016(1)(2) | Company Contributions in 2016 | Aggregate Earnings in 2016(2) | Aggregate Withdrawals/ Distribution | Aggregate Balance at December 31, 2016(3) | ||||||||||
| Richard E. Johnson | 83,950 | — | 12,270 | 32,670 | 459,741 | 127,983 | — | 12,785 | 67,196 | 533,313 |
