UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
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| Definitive Proxy Statement | |||
| Definitive Additional Materials | |||
| Soliciting Material | |||
| CTS CORPORATION |
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| April | |
 | Dear CTS Shareholder: You are cordially invited to attend the We are pleased to continue to take advantage of the Securities and Exchange Commission rules allowing us to furnish proxy materials to shareholders on the Internet. We believe that these rules provide you with proxy materials more quickly and reduce the environmental impact of our Annual Meeting. Accordingly, we are mailing to shareholders a Notice of Internet Availability of Proxy Materials containing instructions on how to access and review our We hope you will attend the meeting in person. Whether you plan to attend the meeting or not, we encourage you to read this proxy statement and to vote your shares. The vote of every shareholder is important. |
 | |
| Kieran O’Sullivan | |
Chairman, President and Chief Executive Officer | |
Table of Contents
| Preamble | |
i
EXHIBIT A | |
ii
CTS Corporation, 4925 Indiana Avenue, Lisle, Illinois 60532
NOTICE OF THE 20192020 ANNUAL MEETING OF SHAREHOLDERS
To Be Held On
May 16, 201914, 2020
To CTS Shareholders:
The 20192020 Annual Meeting of Shareholders of CTS Corporation will be held on Thursday, May 16, 2019,14, 2020, at 9:30 a.m. Central Time, at the Hotel Arista located at 2139 City Gate Lane, Naperville, Illinois 60563. To obtain directions to the meeting location, please call (630) 577‑8800, or see the map on page 3433 of the Proxy.
Only CTS shareholders of record at the close of business on March 18, 2019,16, 2020, may vote at this meeting or any adjournments that may take place. At the meeting, shareholders will vote on the following items:
| PROPOSAL 1 | Election of seven directors for a one‑year term; |
| PROPOSAL 2 | Approval, on an advisory basis, of the compensation of CTS’ named executive officers; |
| PROPOSAL 3 | Ratification of the appointment of Grant Thornton LLP as CTS’ independent auditor for |
| PROPOSAL 4 | Approval of Amendments to the CTS Articles of Incorporation principally to allow shareholders |
| to amend CTS' By-Laws; and | |
| Any other business properly presented at the meeting. | |
Your Board of Directors recommends that you vote in favor of the director nominees, in favor of the advisory approval of CTS’ named executive officer compensation, and in favor of the ratification of the appointment of Grant Thornton LLP.LLP, and in favor of the amendment to the Articles of Incorporation.
| By Order of the Board of Directors, | ||
 | ||
| Luis F. Machado Corporate Secretary | ||
April 4, 20192, 2020
As part of our contingency planning regarding the coronavirus (or COVID-19), we are preparing for the possibility that the Annual Meeting may be held solely by means of remote communication. If we take this step, we will announce the decision to do so in advance through a public filing with the Securities and Exchange Commission, and details will be available at http://www.ctscorp.com.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY The Notice, and http://www.ctscorp.com/investors |
This proxy statement is furnished in connection with the solicitation by the Board of Directors (“Board”) of CTS Corporation (“CTS”, “we”, “us”, “our” or the “Company”) of proxies to be voted at the 20192020 Annual Meeting of Shareholders (“Annual Meeting”). CTS will bear the cost of this solicitation. On or about April 4, 2019,2, 2020, the Company mailed to its shareholders the Notice of Internet Availability of Proxy Materials, and made available this proxy statement, the accompanying proxy card, and its Annual Report.
PROPOSAL 1: ELECTION OF DIRECTORS
CTS’ Articles of Incorporation provide that the number of directors will be between three and fifteen, as fixed from time‑to‑time to time by the Board. As part of the succession planning and search process, the Nominating and Governance Committee and the Board regularly assessassesses the Board’s size. The Board has established the number of authorized directors at seven. Ms. Murphy has not been nominated for re-election and will be leaving the Board immediately following the 2020 Annual Meeting of Shareholders. On February 6, 2020, based on the recommendation of a non-management director, the Board nominated Ye Jane Li to run for election as a director. There are seven director nominees for election.election and the number of authorized directors will remain at seven effective immediately following the Annual Meeting. Detailed information on each is provided below. All directors are elected annually and serve one‑year terms, or until their successors are elected and qualified.
Nominees for the Board of Directors. Each director nominee named below, other than Ms. Li, is currently a director of CTS. The ages shown are as of April 4, 2019,2, 2020, the date of this proxy statement. Each director nominee has agreed to serve as a director if elected. If one or more of the nominees becomes unavailable for election, the remaining members of the Board will, in their sole discretion and pursuant to authority granted by the CTS Bylaws, nominate and vote for a replacement director or reduce the authorized number of directors.
PATRICIA K. COLLAWN Age | Director since 2003 | |
 | Professional Experience: ▪ Chairman of PNM Resources, Inc. (2012 - Present) ▪ President and Chief Executive Officer of PNM Resources, Inc. (2010 - Present) ▪ Director of PNM Resources, Inc. (2010 - Present) ▪ President and Chief Operating Officer of PNM Resources, Inc. (2008 - 2010) ▪ Utilities President of PNM Resources, Inc. (2007 - 2008) ▪ President and Chief Executive Officer of Public Service Company of Colorado, an Excel Energy subsidiary (2005 - 2007) The Board believes that Ms. Collawn's experience as a sitting President and Chief Executive Officer of a publicly traded corporation, as well as substantial operations experience, make her well qualified to serve as a director. | |
GORDON HUNTER Age | Director Since 2011 | |
 | Professional Experience: ▪ Director, Chairman of Littelfuse, Inc. (2002 - Present) ▪ Chairman, President, and Chief Executive Officer of Littelfuse, Inc. (2003 - 2017) ▪ Director, Executive Chairman of Littelfuse, Inc. (2017) Other Public Company Boards: ▪ Director of Veeco Instruments, Inc. (2010 - Present); Chairman of Compensation Committee and Member of the Nominating and Governance Committee ▪ Director of Shure, Inc. (2018 - Present); Chairman of the Compensation Committee and Member of the Audit Committee The Board believes that Mr. Hunter's experience as a President and Chief Executive Officer of a publicly traded corporation serving global markets, as well as substantial experience in the electronics industry, make him well qualified to serve as a director. | |
WILLIAM S. JOHNSON Age | Director | ||
 | Professional Experience: ▪ Retired Chief Financial Officer of Cabot Microelectronics Corporation ▪ Senior Advisor of Cabot Microelectronics Corporation (2018) ▪ Executive Vice President and Chief Financial Officer of Cabot Microelectronics Corporation (2013 - 2018) ▪ Vice President and Chief Financial Officer of Cabot Microelectronics Corporation (2003 - ▪ Executive Vice President and Chief Financial Officer of Budget Group, Inc. (2000 - 2003) ▪ Various Management and Financial Positions held at BP Amoco (1984 - 2000) The Board believes that Mr. Johnson’s experience as a Chief Financial Officer of a publicly traded corporation serving global markets, in addition to his financial expertise in a range of industries, substantial risk management skills, and broad international business experience make him well qualified to serve as a director. | ||
Age | Director | ||
  | Professional Experience: ▪ ▪ ▪ General Manager, Huawei Symantec USA, Inc. (2010 - Other Public Company Boards: ▪ ▪ Director of The Board believes that Ms. | ||
KIERAN O’SULLIVAN Age | Director since 2013 | ||
 | Professional Experience: ▪ Chairman, President and Chief Executive Officer of CTS Corporation (2013 - Present) ▪ Executive Vice President of Continental AG's Global Infotainment & Connectivity Business (2006 - 2013) Other Public Company Boards: ▪ Director The Board believes that Mr. O’Sullivan’s more than twenty‑ | ||
ROBERT A. PROFUSEK Age | Director since 1998 | ||
 | Professional Experience: ▪ Partner and Global Chairman of the Mergers and Acquisitions Other Public Company Boards: ▪ Lead Director of Valero Energy Corporation (2005 - Present); Member of the Compensation Committee ▪ Lead Director of Kodiak Sciences, Inc. (2018 - Present); Chairman of the Nominating and Governance Committee The Board believes that Mr. Profusek’s substantial experience in mergers and acquisitions, corporate governance and experience serving as a director of other publicly traded companies make him well qualified to serve as a director. | ||
ALFONSO G. ZULUETA Age 57 | Director since 2018 | |
 | Professional Experience: ▪ Senior Vice President of Eli Lilly and Company (2014 - Present) ▪ President of Lilly International (2017 - Present) ▪ Member of the Executive Committee and Officer of Eli Lilly and Company ▪ President of Emerging Markets and various roles of Eli Lilly and Company (1988 - 2014) The Board believes that Mr. Zulueta’s broad global management experience, his exposure to a range of cultures, and his deep experience in medical markets make him well qualified to serve as a director. | |
Your Board recommends a vote FOR each of these director nominees.
COMMITTEES OF THE BOARD OF DIRECTORS
Directors are assigned to committees by the full Board each year following their election at the Annual Meeting.
Committee Membership in 2019
| Director | Audit Committee | Compensation Committee | Nominating & Governance Committee | Technology & Transactions Committee |
| Patricia K. Collawn | C | ü | ||
| Gordon Hunter | ü | ü | C | |
| William S. Johnson | C | ü | ||
| Diana M. Murphy | ü | C | ||
| Kieran O'Sullivan | ü | |||
| Robert Profusek | ü | |||
| Alfonso G. Zulueta | ü | ü | ||
ü Member C Chairman
Audit Committee
The Audit Committee is a standing committee of the Board. Directors Johnson, Hunter and Zulueta are the current members of the Audit Committee and each is financially literate and meets the independentindependence standards applicable to audit committee members under the NYSE Corporate Governance Listing Standards, as well as the CTS Corporation Corporate Governance Guidelines and the Audit Committee Charter. Mr. Johnson is the Chairman of the Audit Committee. The Board has determined that Mr. Johnson, Mr. Hunter, and Mr. Zulueta each qualifies as an audit committee financial expert under thisthe criteria set forth in Item 407(d)(5)(ii) of Regulation S-K.
The Audit Committee held eight meetings in 2018.2019. A copy of the Audit Committee Charter may be obtained free of charge from CTS’ website at http://www.ctscorp.com/wp-content/uploads/ACC.pdf.
The Audit Committee is responsible for appointing the independent auditor, approving engagement fees and non‑audit engagements, and reviewing the independence and quality of the independent auditor. The Audit Committee reviews audit plans, audit reports, systems of internal accounting controls, audit results, and recommendations of the independent auditor and the internal audit department. The Audit Committee also reviews and discusses with management CTS’ financial statements, earnings releases and earnings guidance. In addition, the Audit Committee reviews CTS’ compliance with public‑company regulatory requirements and with the CTS Code of Ethics.
Compensation Committee
The Compensation Committee is a standing committee of the Board. Directors Collawn, Hunter, and Murphy are the current members of the Compensation Committee and each is an independent director as defined by the NYSE Corporate Governance Listing Standards and the CTS Corporation Corporate Governance Guidelines. Ms. Collawn is the Chairman of the Compensation Committee. The Compensation Committee held three meetings in 2018.2019. A copy of the Compensation Committee Charter may be obtained free of charge from CTS’ website at http://www.ctscorp.com/wp-content/uploads/CC.pdf.
The Compensation Committee establishes executive compensation policies and reviews and approves senior executive compensation, as further described in the Compensation Discussion and Analysis section of this Proxy Statement. The Chief Executive Officer recommends the form and level of compensation for each named executive officer other than himself to the Compensation Committee. The Compensation Committee reviews and approves corporate goals and objectives relevant to the named executive officers, including the Chief Executive Officer's, compensation, evaluates the Chief Executive Officer’s performance against those objectives, and makes recommendations to the Board regarding the Chief Executive Officer’s compensation. The Compensation Committee does not delegate authority to perform any of the foregoing functions with respect to the compensation of any named executive officer. The Compensation Committee also administers the CTS Corporation 2018 Equity and Incentive Compensation Plan and the 2014 Performance and Incentive Compensation Plan, including the annual equity and non‑equity performance programs, and has delegated to management the oversight of those programs for participants who are not named executive officers. In addition, the Compensation Committee reviews director compensation annually and makes recommendations regarding director compensation to the Board for approval. The Compensation Committee also conducts an annual evaluation of its own performance.
The Compensation Committee may, from time‑to‑time to time, direct senior functionaries of the Company’s human resources department to research specific issues and make recommendations to the Compensation Committee. In addition, for 2019 and currently 2020, the Compensation Committee engaged Compensation Strategies, Inc. as its compensation consultant. The Compensation Committee has assessed the independence of Compensation Strategies, as required under stock exchange listing requirements. The Compensation Committee has also considered and assessed all relevant factors, including those required by the SEC, that could give rise to a potential conflict of interest with respect to Compensation Strategies during 2019.Strategies. Based on this review, the Compensation Committee did not identify any conflict of interest raised by the work performed by Compensation Strategies.
Compensation Committee Interlocks and Insider Participation. Directors Collawn, Hunter, and Murphy were appointed to the Compensation Committee following their election to the Board at CTS’ 20182019 Annual Meeting of Shareholders. During 2018,2019, no executive officer of CTS served as a director of any other entity for which any CTS director was an executive officer.
Nominating and Governance Committee
The Nominating and Governance Committee is a standing committee of the Board. Directors Murphy, Collawn, and Johnson are the current members of the Nominating and Governance Committee and each is an independent director as defined by the NYSE Corporate Governance Listing Standards and the CTS Corporation Corporate Governance Guidelines. Ms. Murphy is the Chairman of the Nominating and Governance Committee.
The Nominating and Governance Committee held two meetings in 2018.2019. A copy of the Nominating and Governance Committee Charter may be obtained free of charge from CTS’ website at http://www.ctscorp.com/wp-content/uploads/NGCC.pdf.
The Nominating and Governance Committee reviews and makes recommendations to the Board concerning committee assignments and director nominees for election at the Annual Meeting and oversees director recruitment efforts. The Nominating and Governance Committee reviews and makes recommendations to the full Board regarding CTS officers for election and succession, including succession planning for the Chief Executive Officer. The Nominating and Governance Committee also develops the CTS Corporation Corporate Governance Guidelines for the approval of the Board, and makes recommendations on matters of corporate governance.governance and oversees CTS' ESG initiatives and performance. CTS does not have a formal policy concerning whether the Nominating and Governance Committee will consider director nominees submitted by shareholders. CTS did not receive any shareholder director nominees for election at the 20192020 Annual Meeting. At this time, the Board does not believe a formal policy regarding shareholder director nominees is necessary since CTS’ Bylaws provide a process for nomination of directors and no shareholder nominations for director have been received in past years.
The Nominating and Governance Committee reviews with the Board, on an annual basis, the requisite skills and director characteristics of any new members as well as the composition of the Board as a whole. This review includes an assessment of whether each non‑management director qualifies as independent and an assessment of the diversity, age, skills, and experience of the directors in the context of the needs of the Board. Although the Nominating and Governance Committee has not established any specific minimum criteria or qualifications that a candidate must possess, the Nominating and Governance Committee seeks a diverse selection of candidates who possess the experience necessary to make a valuable contribution to the Board. The Board does not have a formal diversity policy,policy; it construes the notion of diversity broadly, considering differences in viewpoint, professional experience, education, skills, and other individual qualities, in addition to race, gender, and national origin. The Board believes that its efforts to foster a diverse board have been effective; while all directors are skilled in business, a variety of points of view, educational backgrounds, and experiences are represented on the Board. The Nominating and Governance Committee may retain and pay search firms for the purpose of identifying and evaluating director candidates.
Technology and Transactions Committee
The Technology and Transactions Committee reviews and makes recommendations to management regarding CTS’ technology strategy, new product development programs, and performance in the context of targeted market segments and strategic goals, as well as the Company’s organic development of technology and opportunities to acquire technology directly or through business acquisition or combination transactions. The Technology and Transactions Committee also reviews, on a preliminary basis, possible acquisitions, divestitures or other transactions identified by management for possible consideration by the full Board, assesses existing and future trends and threats in technology that may impact the Company’s strategy, and reports activities of the Committee to the full Board.
Directors Hunter, O’Sullivan, Profusek, and Zulueta are the current members of the Technology and Transactions Committee with Mr. Hunter as the Chairman. The Technology and Transactions Committee held two meetings in 2018.2019. A copy of the Technology and Transactions Committee Charter may be obtained free of charge from CTS’ website at http://www.ctscorp.com/wp-content/uploads/TTC.pdf.
FURTHER INFORMATION CONCERNING THE BOARD OF DIRECTORS
Attendance
During 2018,2019, the Board held four meetings and took action by unanimous written consent four times.once. In 2018,2019, all of the directors attended at least 75% of the regular meetings of the Board and the standing committees of which they were then members, either in person or by phone. It is the policy of the Board that each director endeavor to attend each Annual Meeting of Shareholders, unless exigent circumstances arise. Each director standing for re‑election at the 20182019 Annual Meeting of Shareholders attended that meeting.
Director Independence
In addition to the NYSE Corporate Governance Listing Standards, the CTS Corporation Corporate Governance Guidelines govern the determination thatwhether a director is independent. A copy of the CTS Corporation Corporate Governance Guidelines may be obtained free of charge from CTS’ website at http://www.ctscorp.com/wp-content/uploads/CGG.pdf.
The Board has determined that each non-management director and director nominee is or was an independent director and has or had no material relationship with CTS, apart from his or her service as a director. For purposes of determining whether a director has a material relationship with CTS apart from his or her service as a director, the Board has determined that CTS’ purchase of regulated electric and gas service from a utility company does not constitute a material relationship and that any transaction that is not required to be disclosed pursuant to Item 404(a) of Regulation S-K shall be deemed categorically immaterial.
The CTS Corporation Corporate Governance Guidelines provide that the Nominating and Governance Committee shall review any transaction that might be construed to disqualify a director as independent (including any transactions that are required to be reported under Item 404(a) of Regulation S-K) and, if appropriate, make a recommendation that the Board approve such transaction. The Board would then review and, if appropriate, approve such transaction. The Nominating and Governance Committee Charter further provides that the Nominating and Governance Committee shall review any potential director conflict of interest and recommend appropriate action to the Board.
Meetings of Non‑Management Directors
It is the policy of the Board to hold an independent session excluding management directors at each regularregularly scheduled Board meeting. In 2018,2019, an independent session was held at each regular Board meeting. The Lead Independent Director of the Board presides over the independent sessions.
Board Leadership Structure
CTS does not have a policy as to whether the role of Chief Executive Officer and Chairman of the Board should be separate or combined, or whether the Chairman should be a management or non‑management director. In the recent past, the Board has been structured with an independent or non‑management director as Chairman and alternatively structured with a combined Chairman/Chief Executive or Executive Chairman and Chief Executive Officer. Currently, Mr. O’Sullivan serves as Chairman of the Board, President and Chief Executive Officer and Mr. Profusek serves as Lead Independent Director. Mr. O’Sullivan is the only CTS director who is not independent. He does not receive any additional compensation for his service on the Board.
The Lead Independent Director is the leader of the independent directors, and leads all sessions of independent directors, which normally occur at the end of each Board meeting. A full description of his duties is as follows:
Preside at all meetings of the Board at which the Chairman is not present, including executive sessions of the independent directors;
Approve meeting agendas and schedules for the Board;
Review key strategic initiatives presented to the Board;
Serve as a liaison between the Chairman and the independent directors. To that end, ensure personal availability for consultation and communication with independent directors and with the Chief Executive Officer, as appropriate;
Call special meetings of the independent directors, as the Lead Independent Director may deem to be appropriate;
Be available, at the request of major shareholders, for consultation and direct communication. Respond directly to shareholder and other stakeholder questions and comments that are directed to the Lead Independent Director or to the independent directors as a group, consulting on such with the Chief Executive Officer or other directors as the Lead Independent Director may deem appropriate;
Act as a sounding board for the Chief Executive Officer and/or independent directors with respect to strategies, plans, organization, relationships, accountabilities, and other issues;
Between regularly scheduled Board meetings discuss with the Chief Executive Officer key corporate risks and current issues and plans for presentations on such to the full Board or its committees;
Lead the independent directors in appraising the Chief Executive Officer’s performance at least annually; and
Lead the directors in appraising the Board’s performance at least annually.
The General Counsel and Corporate Secretary’s Office provides support to the Lead Independent Director in fulfilling his role. The Lead Independent Director receives an annual retainer of $20,000 in addition to his ordinary director compensation, for the additional services the Lead Independent Director provides. The Board has established this leadership structure because the Board believes it is effective, efficient, appropriate to CTS’ size and complexity, and represents a cost‑effective allocation of responsibilities.
Contrasting with the cost and efficiency benefits is the desire to ensure that control over both management and corporate governance is not overly invested in one person. The Board is confident that, as currently constituted, it will provide ample counterbalance to a combined Chairman and Chief Executive Officer and that it continues to provide suitable independent oversight of management. The independent directors on the Board are all accomplished professionals possessing substantial business and business‑related experience as set forth in the chart below. Additionally, most have served on the Board for a number of years. As discussed above, the independent directors meet in separate session excluding management at each regular meeting of the Board. Further, any director has the right to submit items to be heard at any Board meeting. Lastly, the independent directors outnumber the one non‑independent director, the combined Chairman and Chief Executive Officer, by a large supermajority.
| Summary of Director Qualifications and Experience | Patricia K. Collawn | Gordon Hunter | William S. Johnson | Diana M. Murphy | Kieran O'Sullivan | Robert A. Profusek | Alfonso G. Zulueta | Patricia K. Collawn | Gordon Hunter | William S. Johnson | Ye Jane Li | Kieran O'Sullivan | Robert A. Profusek | Alfonso G. Zulueta |
| Years Served on the Board | 15 | 8 | 3 | 8 | 5 | 20 | 1 | 16 | 9 | 4 | - | 6 | 21 | 2 |
| Leadership and Strategy | ü | ü | ü | ü | ||||||||||
| Financial Expertise/Literacy | ü | ü | ü | ü | ||||||||||
| Risk Management | ü | ü | ü | ü | ü | ü | ||||||||
| International Business | ü | ü | ü | ü | ü | |||||||||
| Corporate Governance | ü | ü | ü | |||||||||||
| Industry Experience | ü | ü | ü | ü | ü | |||||||||
Board of Directors’ Role in Risk Oversight
As a part of its oversight function, the Board monitors how management operates the Company. Risk is an important part of deliberations at the Board and committee levels throughout the year. Committees consider risks associated with their particular areas of responsibility. The Board conducts periodic reviews of corporate risk management policies and procedures and annually reviews risk assessments prepared by management as a part of CTS' enterprise risk management process. The enterprise risk management process evaluates CTS' major risk exposures and the steps management has taken to monitor and mitigate these exposures. Therefore, the Board and its committees consider among other items, the relevant risks to CTS when granting authority to management and approving business strategies. The Board has utilized this risk management structure for a number of years. Although the Board retains the right to make changes in risk oversight responsibilities from time-to-time, the Board anticipates that the risk management responsibilities will continue in a substantially similar manner as described above, whether or not the Board's leadership structure changes.
Director Education
The CTS Corporation Corporate Governance Guidelines encourage all directors to participate in director continuing education programs. CTS reimburses directors for attendance at such programs. In addition, management monitors and reports to the directors regarding significant corporate governance initiatives. The directors also receive a presentation on new developments in corporate governance at least annually.
Stock Ownership Guidelines for Executives and Directors
The Board has adopted stock ownership guidelines that apply to non‑employee directors and executives in order to increase the alignment of their interests with those of shareholders and promote enduring shareholder value. The guidelines are administered by the Compensation Committee. A copy of the guidelines may be obtained free of charge from CTS’ website at http://www.ctscorp.com/wp-content/uploads/SOG.pdf.
Director Resignation Policy
The CTS Corporate Governance Guidelines designate the circumstances under which a director must offer his or her resignation to the Board in connection with a change of employment or a majority "against" or "withheld" vote by the Shareholders. The Guidelines also require that a director tender his or her resignation effective as of the next occurring Annual Meeting of Shareholders after the date on which he or she reaches the age of 75. The Nominating and Governance Committee may recommend to the full Board that an exception be made to this policy. The Board will evaluate the best interest of CTS and its shareholders and may consider any factors it deems relevant in deciding whether to accept a director's resignation.
Code of Ethics
CTS has adopted a Code of Ethics that applies to all CTS employees, including the principal executive officer, the principal financial officer, the principal accounting officer and/or controller, and all other executive officers and non‑employee directors. The Code of Ethics includes ethical standards concerning conflicts of interest and potential conflicts of interest. With respect to executive officers and other employees, potential conflicts of interest must be reported to management. The Audit Committee is responsible for reviewing compliance with the Code of Ethics and reviews any potential conflict of interest involving an executive officer. A copy of the Code of Ethics may be obtained free of charge from the Corporate Secretary upon request or from CTS’ website at http://www.ctscorp.com/wp-content/uploads/CE.pdf.
Additional Information Regarding Company Policies
CTS collects and reports information regarding Environmental, Social and Governance matters under "Corporate Governance" on the CTS website. In addition to overall governance and policies, the Nominating and Governance Committee oversees CTS' Environmental, Health and Safety performance metrics. The General Counsel's office collects information relating to these metrics and reviews such information with the Nominating and Governance Committee. Additional information regarding CTS' policies and guidelines with respect to Environmental, Social and Governance matters can be found on the CTS website at https://www.ctscorp.com/investors/corporate-governance/.
Communications to Directors
Shareholders and other interested parties may address written communications to individual directors, including non‑management directors, or to the Board, by writing to the Corporate Secretary at CTS’ executive offices located at 4925 Indiana Avenue, Lisle, Illinois 60532. All communications from shareholders must include the name and address of the shareholder as it appears on the record books of CTS and the name and address of the beneficial owner, if any, on whose behalf the communication is submitted. The Corporate Secretary will compile such communications and forward them to the directors on a periodic basis. However, the Corporate Secretary
has authority to disregard any communication that is primarily an advertisement or solicitation or is threatening, obscene, or similarly inappropriate in nature. Communications that have been disregarded for these reasons may be reviewed by any non‑management director upon request.
STOCK OWNERSHIP INFORMATION
Five Percent Owners of CTS Common Stock
The table below lists information about the persons known by CTS to beneficially own at least 5% of the outstanding shares of CTS common stock as of December 31, 2018.2019. There were 32,750,72732,472,406 shares of CTS common stock issued and outstanding as of December 31, 2018.2019. The shareholding information below is derived solely from the most recent Schedules 13F or 13G, and amendments thereto, filed with the Securities and Exchange Commission and the percentage ownership is based on the number of shares outstanding as reported herein and may vary from the percentage reported in the applicable Schedules13F or 13G.
| NAME AND ADDRESS | NUMBER OF SHARES | PERCENT OF CLASS | ||||
BlackRock, Inc. 55 East 52nd Street New York, New York 10022 | ||||||
| T. Rowe Price Associates, Inc. 100 E. Pratt Street Baltimore, MD 21202 | 2,889,690(2) | 8.80% | ||||
| GAMCO Investors, Inc. One Corporate Center Rye, New York | ||||||
| Wellington Management Group LLP 280 Congress Street Boston, Massachusetts 02210 | ||||||
| The Vanguard Group 100 Vanguard Blvd. Malvern, Pennsylvania 19355 | 2,036,482(5) | 6.24% | ||||
| Dimensional Fund Advisors LP Building One 6300 Bee Cave Road Austin, Texas 78746 | ||||||
(1) | As reported on Schedule 13G/A dated |
(2) | As reported on Schedule |
(3) | As reported on Schedule |
(4) | As reported on Schedule 13G/A dated February |
(5) | As reported on Schedule 13G/A dated February |
(6) | As reported on Schedule |
Directors’ and Officers’ Stock Ownership
The following table shows the number of shares of CTS common stock each named executive officer, director, and director nominee beneficially owned as of March 18, 2019,16, 2020, including shares of CTS common stock covered by stock options exercisable within 60 days of March 18, 2019.16, 2020. Please note that, as reported in this table, beneficial ownership includes those shares of CTS common stock a director or officer has the power to vote or transfer, as well as shares of CTS common stock owned by immediate family members that reside in the same household with the director or officer.
| Name | Beneficially Owned Shares(1) | Options Exercisable within 60 days | Shares Held in 401(k) | Directors’ Deferred Common Stock Units(2) | Total(3) | % of Shares Outstanding(4) | ||||||||
| Ashish Agrawal | 73,491 | — | — | 0 | 73,491 | * | ||||||||
| Patricia K. Collawn | 71,420 | — | — | 800 | 72,220 | * | ||||||||
| Gordon Hunter | 37,900 | — | — | 0 | 37,900 | * | ||||||||
| William S. Johnson | 19,500 | — | — | 0 | 19,500 | * | ||||||||
| Luis F. Machado | 26,492 | — | — | 0 | 26,492 | * | ||||||||
| Diana Murphy | 42,700 | — | — | 0 | 42,700 | * | ||||||||
| Kieran O’Sullivan | 291,065 | — | — | 0 | 291,065 | * | ||||||||
Robert A. Profusek(5) | 74,542 | — | — | 4,722 | 79,264 | * | ||||||||
| Alfonso G. Zulueta | 2,500 | — | — | — | 2,500 | |||||||||
| All Current Directors and Officers as a Group | 639,610 | — | — | 5,522 | 645,132 | 1.96% | ||||||||
| Name | Beneficially Owned Shares(1) | Options Exercisable within 60 days | Shares Held in 401(k) | Directors’ Deferred Common Stock Units(2) | Total(3) | % of Shares Outstanding(4) | ||||||||
| Ashish Agrawal | 87,391 | — | — | — | 87,391 | * | ||||||||
| Patricia K. Collawn | 73,820 | — | — | 800 | 74,620 | * | ||||||||
| Gordon Hunter | 42,100 | — | — | — | 42,100 | * | ||||||||
| William S. Johnson | 21,900 | — | — | — | 21,900 | * | ||||||||
| Ye Jane Li | 0 | — | — | — | 0 | * | ||||||||
| Luis F. Machado | 36,909 | — | — | — | 36,909 | * | ||||||||
| Diana Murphy | 45,100 | — | — | — | 45,100 | * | ||||||||
| Kieran O’Sullivan | 333,144 | — | — | — | 333,144 | 1.03% | ||||||||
Robert A. Profusek(5) | 76,942 | — | — | 4,722 | 81,664 | * | ||||||||
| Alfonso G. Zulueta | 6,700 | — | — | — | 6,700 | * | ||||||||
| All Current Directors and Officers as a Group | 724,006 | — | — | 5,522 | 729,528 | 2.25% | ||||||||
* Represents less than 1% of the outstanding shares of CTS common stock
(1) Includes shares of CTS common stock which will vest within 60 days of March 18, 2019.16, 2020.
(2) Includes Restricted Stock Units that are distributable upon the director’s separation from service and convert
on a one‑to‑one basis to shares of CTS common stock upon distribution.
(3) No director or executive officer has pledged his or her shares of CTS common stock.
(4) Based on 32,865,00832,455,711 shares of CTS common stock outstanding as of the record date.
(5) Excludes 1,800 shares held by Mr. Profusek’s spouse. Mr. Profusek disclaims any beneficial interest with
respect to these shares.
PROPOSAL 2: APPROVAL, ON AN ADVISORY BASIS, OF THE COMPENSATION OF
CTS’ NAMED EXECUTIVE OFFICERS
As required under the Dodd‑Frank Wall Street Reform and Consumer Protection Act and Section 14A of the Securities Exchange Act of 1934 (“Exchange Act”), our Board of Directors is submitting a “Say‑on‑Pay” proposal for shareholder consideration. The Compensation Discussion and Analysis section of this proxy statement describes CTS’ executive compensation program and the compensation decisions made by the Compensation Committee and the Board in 20182019 with respect to our named executive officers. CTS is asking shareholders to cast an annual advisory shareholder vote approving the compensation of CTS' named executive officers (commonly referred to as a "say-on-pay" vote). Our next say-on-pay vote will be held at the 2021 Annual Meeting of Shareholders.
CTS’ executive compensation program is designed to attract, retain, and motivate high‑quality executive talent, to provide executives with strong incentives to maximize CTS’ performance, and to align executives’ interests with those of shareholders.
CTS remains committed to the use of broad‑based metrics such as earnings per share, operating earnings, sales growth, and relative total shareholder return in measuring corporate performance.
For these reasons, the Board is asking shareholders to vote FOR the following resolution:
“RESOLVED, that the compensation of the named executive officers as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the compensation tables, and any related material disclosed in the CTS 20192020 proxy statement, is hereby approved.”
While the advisory vote we are asking you to cast is non‑binding, the Compensation Committee and the Board value the views of our shareholders and expect to take into account the outcome of the vote when considering future compensation decisions for our named executive officers.
Your Board recommends a vote FOR the advisory approval of CTS’ named
executive officer compensation.
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis provides details about CTS’ compensation practices for its named executive officers. The information provided in this section should be read together with the tables and narratives that accompany the information presented.
The following executives are CTS’ named executive officers for 2018,2019, as that term is defined by the Securities and Exchange Commission:
Mr. Kieran O’Sullivan, Chairman, President and Chief Executive Officer;
Mr. Ashish Agrawal, Vice President and Chief Financial Officer; and
Mr. Luis F. Machado, Vice President, General Counsel and Secretary.
Executive Summary
CTS’ executive compensation program is designed to attract, retain, and motivate high‑quality executive talent, to provide executives with strong incentives to maximize CTS’ performance, and to align executives’ interests with those of our shareholders. Our executive compensation structure consists of base salary, annual cash incentives, performance‑based equity compensation, service‑based equity compensation, health and welfare benefits, limited perquisites, and retirement benefits. Our named executive officers are required to comply with various good governance policies, such as CTS’ stock ownership guidelines, insider trading restrictions, and an anti‑hedging/pledging policy. Additionally, various compensation elements contain “clawback” features, which permit CTS to recoup compensation paid for improperly earned incentives. CTS believes that our executive compensation program provides the best means of attracting, retaining, and motivating executives with the skills and experience necessary to achieve our business goals and maximize shareholder value. CTS has remained committed to its fundamental compensation structure and philosophy over a period of many years, including recent periods of economic volatility.
Recent Governance Activity. We hold “Say‑on‑Pay” votes every year. At our 20182019 annual meeting of shareholders, we received approximately 97.7%97.9% approval, based on the total votes cast, for our advisory “Say‑on‑Pay” proposal to approve the compensation of our named executive officers. The Compensation Committee believes the voting results demonstrate significant continuing support for our overall executive pay program. After reviewing the 20182019 Say‑on‑Pay vote results, the Committee did not make any changes as a direct result of the vote and decided to continue to apply the same general philosophy, compensation objectives, and governing principles that it used in 20172018 regarding named executive officer compensation decisions and policies. The Committee remains dedicated to aligning executive pay with Company performance both in the existing executive pay programs and the governance environment surrounding the overall program.
Implications of 20182019 Results for Compensation. For the 20182019 Management Incentive Plan (or MIP), which is our annual performance‑based cash incentive plan, our named executive officers were each granted award opportunities weighted 60% on adjusted EPS performance goals, 30% on sales and 10% on individual personal goals relating to talent retention and development. CTS’ actual performance during 20182019 is calculated and 2019 MIP awards are paid in 20192020 and included in 20182019 compensation in this proxy statement. The threshold EPS performance goal was not achieved and no award was paid in respect of 2019 performance.
The Compensation Committee also continued the 2016‑20182017‑2019 Performance Restricted Stock Unit Plan, which is a three‑year performance‑based equity award program that like the MIP, is operated under the CTS Corporation 2014 Performance
and Incentive Compensation Plan. This program measures three‑year performance based on the following weighted criteria: 35% for achievement under a relative total shareholder return metric (or RTSR); 35% for achievement under a sales growth metric; and 30% for achievement under an operating cash flow metric (calculated as operating cash flow less capital expenditures). As a result of the Company’s three-year performance based on these metrics, Mr.Messrs. O’Sullivan received 78,837, Mr., Agrawal, received 25,064, and Mr. Machado received 21,986resulting payments of 52,372, 17,246, and 13,237 restricted stock units, respectively, in February of 2019.2020. Awards under the 2016-2018 2017-2019
Performance Restricted Stock Unit Plan were paid in 20192020 and were reported in the named executive officer’s compensation when granted in 2016.2017.
In each of February 20172018 and 2018,2019, the Compensation Committee established a new three-year performance-based equity compensation program for the 2017-20192018-2020 and 2018-20202019-2021 periods respectively. Each program is essentially the same as the 2016-20182017-2019 program described above, with the same applicable performance metrics and relative weightings as used for the 2016-2018 program described above, and using the same peer group which is listed on page 18.17. Grants made to named executive officers under each of these programs are reported in compensation at grant date fair value in the year the grant is made.
Compensation Objectives
CTS designs its named executive officer compensation program to achieve three main objectives:
Offer Competitive Compensation;
Link Compensation to Performance;Performance; and
Align Compensation with Shareholder Interests.
Additionally, the elements of total compensation are designed to reward the named executive officers for: (1) their core competencies, skills, experience, and contributions to CTS (in the form of base salary, retirement benefits, health and welfare benefits and limited perquisites); (2) achievement of annual corporate goals (in the form of annual performance‑based cash incentives); and (3) achievement of long‑term objectives that are beneficial to CTS and its shareholders (in the form of performance‑based and service‑based equity awards). The first compensation element helps CTS offer competitive compensation, while the second and third compensation elements help CTS link compensation to performance and align compensation with shareholder interests. Decisions on specific elements of compensation do not generally affect the Committee’s decisions regarding the other elements of compensation except to the extent that these categories of compensation are structured to provide a substantial portion of total compensation that is based on performance and at‑risk each year.
Compensation Philosophy
CTS’ executive compensation philosophy is to initially target potential total compensation for each named executive officer at approximately the fiftieth percentile of the compensation for similar positions at similarly situated companies based on market survey data provided by Compensation Strategies, the Compensation Committee’s independent compensation consultant (discussed in more detail below). This philosophy operates as only an initial, general guideline for CTS’ compensation decisions, rather than as a fixed rule or final determining factor. By initially targeting median compensation levels for its named executive officers, CTS believes it strikes the right balance between motivating named executive officers with market‑competitive factors and providing the compensation necessary to recruit and retain top executive talent.
| Elements of Total Compensation | Purpose | ||||
| ● Base Salary ● Retirement Benefits ● Health and Welfare Benefits ● Limited Perquisites | ● | Fixed cash and other customary compensation to attract and retain high‑quality executive talent. | |||
● Annual Performance‑Based Cash Incentives | ● | At‑risk, variable incentive compensation to promote the achievement of specific financial and operational performance objectives; and | |||
| ● | Attraction, retention, and motivation of high‑quality executive talent. | ||||
● Performance‑Based Equity Awards | ● | At‑risk, variable incentive compensation to promote the achievement of specific goals; | |||
| ● | Align executives’ interests with shareholder interests; and | ||||
| ● | Attraction, retention, and motivation of high‑quality executive talent. | ||||
● Service‑Based Equity Awards | ● | Fixed equity awards for long‑term retention of executive talent; and | |||
| ● | Align executives’ interests with shareholder interests. | ||||
CTS does not use a specific formula for allocating total compensation between current and long term compensation or between cash and non‑cash compensation. The amount allocated to each element of compensation generally reflects allocation percentages in Compensation Strategies’ market survey data for comparable positions, based on the analysis described below. Additionally, relevant factors such as an executive’s specific level of experience, responsibilities, demonstrated performance, length of service with the Company, achievement of individual and corporate goals, risk, and retention considerations also may affect compensation structure for a particular named executive officer.
Our named executive officers have a substantial percentage of their total compensation opportunities based on at-risk, variable elements of compensation. CTS believes that this practice is appropriate because CTS' named executive officers have the greatest ability to drive performance and, therefore, should have the most to gain or lose in terms of compensation opportunities based on performance. It is possible for CTS' named executives officers to earn above-market compensation in any year, but they may earn below-market compensation as well, depending on individual and corporate performance for that year.
CTS believes that named executive officers will consider the impact of decisions in both the short term and long term and will exercise careful judgment, so that while attempting to enhance shareholder value they will not take actions that pose unnecessary risk to the overall long term well‑being of the Company. As a result, CTS has determined that, for the named executive officers and for all of its other employees, CTS’ compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on CTS.
The amount of total compensation realized or potentially realizable from prior compensation awards does not directly influence the level of compensation paid in the current year or future pay opportunities. Factors such as the tax and accounting treatment of different forms of compensation may influence the form and structure of executive compensation, but do not necessarily affect the total amount of compensation.
How Final 20182019 Named Executive Officer Compensation was Determined
Mr. O’Sullivan recommended a total 20182019 compensation package to the Compensation Committee for each named executive officer other than himself using, among other factors, data provided by Compensation Strategies that aligned each named executive officer's total compensation opportunity at approximately the fiftieth percentile of similarly situated executives based upon the peer group of selected companies listed on page 18.17.
At its February 20182019 meeting, the Compensation Committee reviewed the data provided by Compensation Strategies and considered the recommendations of Mr. O'Sullivan, ultimately deciding on a total compensation package for each of the named executive officers. For named executive officers other than Mr. O'Sullivan, total compensation packages for the year were finalized when approved by the Compensation Committee. The Compensation Committee also reviewed information provided by Compensation Strategies based
on the same peer group information as described above to assess and recommend a total compensation package for Mr. O'Sullivan to the Board, which was discussed by the Board in Independent Session at its February 20182019 meeting, and became final upon its ratification.
Elements of 20182019 Named Executive Officer Compensation
Base Salary. Base salary is included as an element of total compensation to ensure that each named executive officer receivedreceives a base level of cash compensation and is rewarded for his service to the Company. A sufficient base salary also helps to ensure that named executive officers do not become unduly focused on achievement of shorter‑term incentive awards that may be to the detriment of the overall long‑term health of CTS.
The base salaries for the named executive officers that were set in 20182019 were as follows: Mr. O’Sullivan, $728,828;$758,000; Mr. Agrawal, $354,567;$368,750; and Mr. Machado, $319,300.$327,283. Messrs. O’Sullivan, Agrawal and Machado received a 3.0%4.0%, 4.0% and a 3.0%2.5% increase, respectively, to move their base salaries closer to the fiftieth percentile of the market. The 20182019 base salary levels described in this paragraph are not directly comparable to the amounts listed in the “Salary” column for 20182019 in the Summary Compensation Table because they were implemented in April 2018.2019.
Annual Performance‑Based Cash Incentive Plan (MIP). The MIP provides for annual cash payments to named executive officers based on CTS' financial performance and achievement of individual goals. A named executive officer's ultimate award is determined under a formula that provides for payment of zero to 200% of a target award based on CTS's actual performance versus the established quantitative financial performance goals. In addition, the Compensation Committee reserves the right to adjust awards guided by the named executive officer's actual performance.
In February 2018,2019, the Compensation Committee established a target award opportunity as a percentage of base salary and quantitative financial performance goals for each named executive officer. In setting target award opportunities, the Compensation Committee took into consideration the median percentile target awards in the Compensation Strategies reports described above, as well as internal parity.
The quantitative financial performance goals were based on CTS’ established business plan for 2018.2019. Each year, the Board reviews a business plan prepared by members of management that includes projections for revenues, earnings, key balance sheet metrics, and cash flow for each business unit. The Compensation Committee generally may use any of the metrics set out in the business plan to establish quantitative financial performance goals for the annual MIP.
In 2018,2019, the Compensation Committee set quantitative financial performance goals for participants who are named executive officers using a two tiered approach with the initial target being an operating earnings threshold which was fully achieved in 2018, followed by targets for earnings per share (or EPS) adjusted for planned restructuring expenses as defined in the MIP, CTS’ annual sales and an individual personal goal relating to talent retention and development. CTS chose earnings per share as a metric because it is a direct measurement of overall corporate performance that takes into consideration market conditions and provides a quantitative measurement from which CTS is able to assess the performance of its named executive officers. CTS chose sales as a metric because it places an emphasis on CTS’ annual sales growth goals. Each of the EPS and sales metrics asare set forth in the table below. An individual personal goal relating to talent development and retention was chosen as a measure of the individual's impact on the organization. As shown on the table below, the Compensation Committee set the performance levels for each metric and established a minimum performance level that had to be reached before MIP awards were paid. The MIP also includes a minimum threshold for adjusted EPS to achieve any award. Failure to reach the MIP’s threshold on this metric results in no payment for the entire award.
Determination of Actual Awards. Actual MIP award payments are based on a formula and can vary from zero to 200% of the target award opportunity based on achievement of the performance goals. If actual performance fails to meet the minimum or required threshold, the payout under the plan is zero. On the upside, payout increases linearly up to 200% as performance exceeds the threshold performance goals. One consequence of this cliff threshold and payout performance formula is that a named executive officer’s risk of receiving no award is greater than the named executive officer’s opportunity to obtain an award that is substantially above target. Another consequence is that payouts above target represent a fraction of the expected return to the Company from “better than plan” performance. Since payments are capped, a named executive officer cannot increase MIP awards beyond a fixed amount, counterbalancing the incentive to pursue outsized short‑term rewards at the expense of the long‑term health of the Company. While actual awards will vary above and below target from year to year, CTS expects that over a period of several years, payouts under the MIP will average about 100% of target. Over the past five years, payouts under the MIP based on corporate metrics averaged 115.4%96.8% of target.
How 20182019 Awards Were Calculated. For CTS’ named executive officers, performance measurements were weighted 60% for the adjusted EPS objective, 30% on sales, and 10% on an individual personal objective relating to talent retention and development and was set as a stretch goal. The target award opportunity which was based on base salary and unchanged from the prior year, was 100% for Mr. O’Sullivan, 65% for Mr. Agrawal, and 55% for Mr. Machado. For this purpose, base salary is calculated as actual salary received during the calendar year. These target award opportunities were derived in part from the data obtained from the Compensation Strategies
report and in part by the Compensation Committee’s judgment on internal equity of the positions, their relative value to CTS, and the desire to maintain a consistent annual target award incentive for named executive officers of CTS and the business units.
For 2018,2019, the threshold for the adjusted EPS metric was $1.25$1.50 and the maximum was $1.50.$1.84. The threshold for Company sales was $422$460 million with a maximum of $490$535 million. Actual results are shown in the table below. The adjusted EPS threshold was not achieved resulting in no payment under the MIP for 2019. Individual personal objective targets were set based on percentage of achievement, were achieved at 115%150% by the named executive officers, and are not shown on the table below.
| 2018 Management Incentive Plan Performance Goals at Target | 2018 Management Incentive Plan Performance Results | 2019 Management Incentive Plan Performance Goals at Target | 2019 Management Incentive Plan Performance Results | |||||||||||||||||||
| Executive | 2018 Base Salary ($) | 2018 Annual Target Award (%) | Adjusted EPS ($) | Sales (000s) ($) | Adjusted EPS ($) | Sales (000s) ($) | 2018 Annual Incentive Earned (%) | 2018 Annual Incentive Earned ($) | 2019 Base Salary ($) | 2019 Annual Target Award (%) | Adjusted EPS ($) | Sales (000s) ($) | Adjusted EPS ($) | Sales (000s) ($) | 2019 Annual Incentive Earned (%) | 2019 Annual Incentive Earned ($) | ||||||
| Kieran O’Sullivan | 728,828 | 100 | 1.38 | 445,000 | 1.53 | 470,483 | 179% | 1,300,958 | 758,000 | 100 | 1.67 | 495,000 | 1.45 | 469,000 | 0% | 0 | ||||||
| Ashish Agrawal | 354,567 | 65 | 1.38 | 445,000 | 1.53 | 470,483 | 179% | 411,386 | 368,750 | 65 | 1.67 | 495,000 | 1.45 | 469,000 | 0% | 0 | ||||||
| Luis Machado | 319,300 | 55 | 1.38 | 445,000 | 1.53 | 470,483 | 179% | 313,596 | 327,283 | 55 | 1.67 | 495,000 | 1.45 | 469,000 | 0% | 0 | ||||||
Performance‑Based Equity Compensation. Named executive officers may earn restricted stock unit (“RSU”) awards based upon, and thus are rewarded for, achievement of financial objectives that CTS believes are beneficial to the Company and its shareholders, or based upon CTS’ overall performance relative to peers over a longer term.
In 2016,2017, the Compensation Committee established a target award opportunity for each named executive officer in the form of a specific number of RSUs. The target RSU award opportunities for Messrs. O’Sullivan, Agrawal, and Machado were 50,200, 15,960,36,420; 11,993; and 14,0009,205 respectively.
The Compensation Committee selected RTSR, a comparison of the increase of CTS’ stock price against the stock price appreciation of the peer group described below (including aggregated dividends adjusted for stock splits over the period) as a performance goal because it is a meaningful measure of CTS’ overall relative performance in comparison to its peers. Three‑year sales growth was selected to reinforce senior management’s focus on increasing sales over the long‑term. Three‑year operating cash flow was selected to focus management’s attention on operational efficiency. The Compensation Committee selected a three‑year performance measurement period to encourage sustained performance beneficial to shareholders over more than just an annual period.
The Compensation Committee also determined the various performance levels that had to be achieved in order to earn an RSU award which are shown in the graphs below.
With the advice of Compensation Strategies, the Compensation Committee selected a peer group consisting of the following companies whose performance is compared to CTS’ performance over the three‑year performance period for RTSR measurement. A peer company may be removed from the list if delisted from its exchange for certain reasons not involving poor performance, including a merger.merger or, in the case of Electro Scientific Industries, Inc. and Maxwell Technologies, Inc, an acquisition.
| AVX Corporation | |||
| Cabot Microelectronics Corporation | Silicon Laboratories, Inc. | ||
| Dorman Products, Inc. | |||
| Littelfuse, Inc. | |||
| Fabrinet | Materion Corporation | ||
| Strattec Security Corporation | |||
| Mercury Systems, Inc. | Vishay Precision Group, Inc. | ||
| Gentherm Inc. | Methode Electronics, Inc. | ||
| Haynes International, Inc. | MTS Systems Corporation | ||
Participants must remain continuously employed by CTS through the end of the three‑year performance period to receive an award, subject to limited exceptions. The Compensation Committee can, in its discretion, adjust a participant’s payout of an award after consideration of other factors, including overall CTS performance and the individual participant’s contribution to CTS performance. The Compensation Committee can also adjust a payout of an award in its discretion to prevent the enlargement or dilution of the award because of extraordinary events or circumstances as determined by the Compensation Committee.
Three-year Performance Restricted Stock Unit Plans. In each of February 20172018 and February 2018,2019, the Compensation Committee established a new three‑year performance‑basedthree-year performance-based equity compensation program in which named executive officers participate. The plans are the same as the 2016‑20182017-2019 plan described above.
The Compensation Committee established a target award opportunity for each participating named executive officer in the form of a specific number of RSUs for each three-year performance plan targeting consistent value based on the compensation targets described above while accounting for changes in grant date share value. The target RSU award opportunities under the 2017-2019 Performance Restricted Stock Unit Plan are: Mr. O'Sullivan, 36,420; Mr. Agrawal, 11,993; and Mr. Machado, 9,205; and under the 2018-2020 Performance Restricted Stock Unit Plan are: Mr. O’Sullivan, 31,820; Mr. Agrawal, 11,377 and Mr. Machado, 9,316.9,316; and under the 2019-2021 Performance Restricted Stock Unit Plan are: Mr. O'Sullivan, 27,782; Mr. Agrawal, 11,048; and Mr. Machado 9,958. In February of 2019, the Board granted Mr. O'Sullivan a Supplemental Performance Restricted Stock Unit grant of 6,945 RSUs which qualify for award based on relative attainment of performance goals over the 2019-2021 period relating to succession planning.
Performance Vesting Stock Option Plan. In May 2015, the Compensation Committee established a special five‑year performance‑based equity compensation program called the Performance Vesting Stock Option Plan in which all of the named executive officers participate. The plan employs achievement of $600 million in revenue in any trailing four quarters within the five-year window as a performance vesting trigger. The Compensation Committee established a target award opportunity for Mr. O'Sullivan of 100,000 options; Mr. Agrawal of 35,000 options; and Mr. Machado of 30,000 options, each with a strike price of $18.37, in the form of performance stock options. This metric has not yet been achieved. If the performance metric is not met within the 5-year performance period, the Options will not vest and will be forfeited.
Service‑Based Equity Compensation. CTS believes that stock ownership and equity‑based compensation are valuable tools for motivating employees to improve, and rewarding them for improvements in, CTS’ long‑term performance. In February 2018,2019, the Compensation Committee awarded RSUs vesting over a three-year period to Messrs. Agrawal (7,719)(7,368) and Machado (6,317)(4,267) based on the recommendation of Mr. O'Sullivan. In making his recommendation, Mr. O'Sullivan analyzed the third party market information provided by Compensation Strategies and subjectively considered retention and performance factors. Mr. O'Sullivan's 20182019 RSU award was recommended by the Compensation Committee and approved by the entire Board (other than Mr. O'Sullivan, who abstained in discussions and votes related to his own awards). Mr. O'Sullivan's 20182019 grant was for 21,58123,258 RSUs based on benchmarking, retention, and performance factors. Each service-based RSU award is settled on a one-for-one basis onwith shares of CTS common stock upon vesting. Grants of equity awards made in 20182019 are reported in the "Summary Compensation Table" and the "2018"2019 Grants of Plan-Based Awards Table".Awards" table.
Defined Contribution Plan. Substantially all U.S.‑based CTS employees are eligible to participate in the CTS Corporation Retirement Savings Plan, referred to as the CTS 401(k) Plan. CTS matches an employee’s contributions dollar for dollar up to the first 3% of eligible pay, and thereafter at $0.50 for every dollar up to the next 2% of eligible pay, for a maximum matching contribution of 4%, subject to limitations under the Internal Revenue Code. All of the named executive officers participate in the 401(k) Plan.
Other Compensation. CTS provides a limited set of perquisites and other compensation in order to attract, retain, and motivate the named executive officers. For 2018,2019, compensation for named executive officers included reimbursements for tax preparation services, financial planning services, and an annual executive physical. The reimbursement for tax preparation services is capped at $2,500 for the named executive officers. The reimbursement for financial planning services is capped at $5,000 for each named executive officer. The reimbursement for executive physicals is capped at $2,000 for each of the named executive officers and their respective spouses. The notes to the 20182019 "Summary Compensation Table"Compensation" table delineate the various perquisites named executive officers received for 2018.2019.
Health and Welfare Benefits. Named executive officers are also eligible to participate in a standard set of health and welfare benefits, including medical insurance, dental insurance, vision insurance, life insurance, accidental death and dismemberment insurance, disability insurance, dependent life insurance, an employee assistance plan, and health care and dependent care reimbursement accounts.
The same terms of participation that apply to salaried employees generally govern the participation of named executive officers in these benefits.
Agreements and Arrangements with Named Executive Officers
Executive Severance Policy. In 2009, CTS enacted an Executive Severance Policy. This policy formalized and standardized CTS’ severance practices for certain officers and key employees. For more on the executive severance policy, please see the section of this proxy statement titled “Potential Payments Upon Termination or Change‑in‑Control” below.
Change‑In‑Control Severance Agreements. CTS has entered into change‑in‑control severance agreements with the named executive officers, the purpose of which is to help CTS retain named executive officers and encourage them to focus on corporate interests during times of change and uncertainty. As discussed in the “Potential Payments Upon Termination or Change‑in‑Control” section, these agreements reduced or eliminated certain payments, including an excise tax gross‑up, and placed a cap on the total severance benefit. For more on the severance agreements, please see the section of this proxy statement titled “Potential Payments Upon Termination or Change‑in‑Control” below.
Stock Ownership Guidelines
See the section titled "Stock Ownership Guidelines for Executives and Directors" of this Proxy for a discussion of CTS’ Stock Ownership Guidelines.
CTS Securities Hedging/Pledging Policy
CTS has adopted a policy prohibiting officers, directors and directorscertain other employees who receive CTS securities from engaging in any transaction in which they may profit from short‑term speculative swings in the value of those securities or from pledging CTS’ securities in lending transactions. These individuals may not trade in options, warrants, puts and calls or similar instruments relating to CTS securities, and may not engage in the purchasehedging or sale of put and call options, short sales, and other hedgingmonetization transactions designed to minimize the risk in owning CTS securities.securities, such as zero-cost collars and forward sale contracts. These individuals also may not pledge CTS’ securities as collateral for a loan, including, without limitation, in a margin account. The prohibitions described above do not apply to the exercise of stock options granted as a part of a CTS incentive plan.
Policy on Recovery of Awards
The CTS Corporation 2014 Performance and Incentive Compensation Plan under which various performance-based and service-based equity grants have been made includes a provision to address recoupment of incentive awards in the event of financial restatements. If the Board learns of any intentional misconduct by a plan participant that contributes to CTS' having to restate itits financial statements, the Board may require that individual to reimburse CTS for the difference between any award he or she received and the amount of the award he or she would have received based on the financial results as restated. The CTS Corporation 2018 Equity and Incentive Compensation Plan provides that any award agreement under the plan may reference a clawback policy of the Company or provide for the cancellation or forfeiture of an award or the forfeiture and repayment to the Company of any gain related to an Award, or other similar provisions, upon such terms and conditions as may be determined by the Compensation Committee, if a participant engages in detrimental activity. Further, any award agreement under the 2018 Equity and Incentive Compensation Plan or a clawback policy may also provide for the cancellation or forfeiture of an award or the forfeiture and repayment to the Company of any benefit related to an award, or other similar provisions, upon such terms and conditions as may be required by the Compensation Committee or under Section 10D of the Exchange Act. In addition, the Compensation Committee Charter provides that the Committee may adopt a claw-back policy as may be required or advisable under any law or regulation. The Compensation Committee reviews its Charter and policies at least annually to ensure appropriate recoupment of compensation is available to the Company.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed the foregoing Compensation Discussion and Analysis with management and approved its inclusion in this proxy statement. Based on this review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement and in CTS’ Annual Report on Form 10‑K for the year ended December 31, 2018.2019.
CTS Corporation 20182019 Compensation Committee
| Patricia K. Collawn, Chairman | Gordon Hunter |
| Diana M. Murphy | |
EXECUTIVE COMPENSATION
| Name and Principal Position | Year | Salary(1) ($) | Bonus ($) | Stock Awards (2) ($) | Option Awards ($) | Non- Equity Incentive Plan Compensation (3) ($) | Change in Pension Value and Non- Qualified Deferred Compensation Earnings ($) | All Other Compensation (4) ($) | Total ($) | Year | Salary(1) ($) | Bonus ($) | Stock Awards (2) ($) | Option Awards ($) | Non- Equity Incentive Plan Compensation (3) ($) | Change in Pension Value and Non- Qualified Deferred Compensation Earnings ($) | All Other Compensation (4) ($) | Total ($) |
| Kieran M. O'Sullivan | 2018 | 723,113 | - | 1,399,106 | 1,300,958 | - | 18,500 | 3,444,677 | 2019 | 750,146 | - | 1,669,389 | - | 18,700 | 2,438,235 | |||
| President and | 2017 | 707,600 | - | 1,462,301 | - | 1,016,704 | - | 31,911 | 3,218,516 | 2018 | 723,113 | - | 1,399,106 | - | 1,300,958 | - | 18,500 | 3,441,677 |
| Chief Executive Officer | 2016 | 702,849 | - | 1,595,887 | - | 1,073,941 | - | 22,460 | 3,395,137 | 2017 | 707,600 | - | 1,462,301 | - | 1,016,704 | - | 31,911 | 3,218,516 |
| Ashish Agrawal | 2018 | 350,896 | - | 500,315 | 411,386 | - | 16,129 | 1,262,597 | 2019 | 364,932 | - | 530,247 | - | 16,364 | 911,543 | |||
| Vice President and | 2017 | 338,256 | - | 495,914 | - | 318,409 | - | 14,536 | 1,167,115 | 2018 | 350,896 | - | 500,315 | - | 411,386 | - | 16,129 | 1,278,726 |
| Chief Financial Officer | 2016 | 327,308 | - | 502,510 | - | 315,866 | - | 4,164 | 1,149,848 | 2017 | 338,256 | - | 495,914 | - | 318,409 | - | 14,536 | 1,167,115 |
| Luis F. Machado | 2018 | 316,796 | - | 409,584 | 313,596 | - | 12,394 | 1,039,976 | 2019 | 325,133 | - | 409,538 | - | 18,630 | 753,301 | |||
| Vice President and | 2017 | 303,000 | - | 378,013 | - | 244,980 | - | 16,934 | 942,927 | 2018 | 316,796 | - | 409,584 | - | 313,596 | - | 12,394 | 1,052,370 |
| General Counsel & Secretary | 2016 | 279,615 | - | 346,903 | 80,600 | 247,354 | - | 13,209 | 967,681 | 2017 | 303,000 | - | 378,013 | - | 244,890 | - | 16,934 | 942,837 |
(1) |
(2) | The amounts reported in the “Stock Awards” column represent the aggregate grant date fair value computed in accordance with |
(3) | Amounts represent payments earned under the MIP in respect of that year's performance and paid in the subsequent year. |
(4) | Amounts in this column for |
| Estimated Possible Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of Stock or Units (#) | All Other Option Awards: Number of Securities Underlying Options (#) | Exercise or Base Price Of Option Awards ($/Sh) | Grant Date Fair Value of Stock and Option Awards ($) | ||||||
| Name | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | ||||
| Kieran M. O'Sullivan | |||||||||||
2018 Management Incentive Plan(1) | 364,414 | 728,828 | 1,457,656 | ||||||||
2018-2020 Performance Restricted Stock Unit Plan(2) | 2/16/2018 | 15,910 | 31,820 | 63,640 | 833,684 | ||||||
| 2014 Performance and Incentive Compensation Plan | 2/16/2018 | 21,581 | 565,422 | ||||||||
| Ashish Agrawal | |||||||||||
2018 Management Incentive Plan(1) | 115,235 | 230,469 | 460,937 | ||||||||
2018-2020 Performance Restricted Stock Unit Plan(2) | 2/8/2018 | 5,689 | 11,377 | 22,754 | 298,077 | ||||||
| 2014 Performance and Incentive Compensation Plan | 2/8/2018 | 7,719 | 202,238 | ||||||||
| Luis F. Machado | |||||||||||
2018 Management Incentive Plan(1) | 87,808 | 175,615 | 351,230 | ||||||||
2018-2020 Performance Restricted Stock Unit Plan(2) | 2/8/2018 | 4,658 | 9,316 | 18,632 | 244,079 | ||||||
| 2014 Performance and Incentive Compensation Plan | 2/8/2018 | 6,317 | 165,505 | ||||||||
| Estimated Possible Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of Stock or Units (#) | All Other Option Awards: Number of Securities Underlying Options (#) | Exercise or Base Price Of Option Awards ($/Sh) | Grant Date Fair Value of Stock and Option Awards ($) | ||||||
| Name | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | ||||
| Kieran M. O'Sullivan | |||||||||||
| 2019 Management Incentive Plan | 379,000 | 758,000 | 1,516,000 | ||||||||
2019-2021 Performance Restricted Stock Unit Plan(1) | 2/7/2019 | 13,891 | 27,782 | 55,564 | 799,844 | ||||||
2019 Service-based Restricted Stock Unit Plan(3) | 2/7/2019 | 23,258 | 669,598 | ||||||||
Supplemental 2019-2021 Performance Restricted Stock Unit Grant(2) | 2/7/2019 | 3,472 | 6,945 | 13,890 | 199,947 | ||||||
| Ashish Agrawal | |||||||||||
| 2019 Management Incentive Plan | 119,844 | 239,688 | 479,376 | ||||||||
2019-2021 Performance Restricted Stock Unit Plan(1) | 2/7/2019 | 5,524 | 11,048 | 22,096 | 318,072 | ||||||
2019 Service-based Restricted Stock Unit Plan(3) | 2/7/2019 | 7,368 | 212,175 | ||||||||
| Luis F. Machado | |||||||||||
| 2019 Management Incentive Plan | 90,003 | 180,006 | 360,012 | ||||||||
2019-2021 Performance Restricted Stock Unit Plan(1) | 2/7/2019 | 4,979 | 9,958 | 19,916 | 286,691 | ||||||
2019 Service-based Restricted Stock Unit Plan(3) | 2/7/2019 | 4,267 | 122,847 | ||||||||
(1) |
| In February of |
(2) | The Board granted Mr. O'Sullivan a Supplemental Performance Restricted Stock Unit Grant which qualify for award based on the relative attainment of performance goals relating to succession planning over 2019-2021 period. |
(3) | Service-based Restricted Stock Units under the 2018 Equity and Incentive Compensation Plan vest 1/3 annually on the anniversary of the grant date. |
Compensation Arrangements. CTS did not have employment agreements with any named executive officers for 2018.2019. In an effort to formalize and standardize CTS’ severance practices for other officers and key employees, CTS enacted an Executive Severance Policy in 2009, and CTS maintains change‑in‑control severance agreements with the named executive officers. For more on the executive change‑in‑control severance agreements and the Executive Severance Policy, please see the section of this proxy statement titled “Potential Payments upon Termination or Change‑ in‑Control” below.
Annual base salary for each named executive officer, other than Mr. O’Sullivan, is determined by the Compensation Committee. Mr. O’Sullivan’s annual base salary wasis determined by the Board based on recommendations by the Compensation Committee. Mr. O’Sullivan diddoes not receive any compensation for his service as a director.
Outstanding Equity Awards at 20182019 Fiscal Year‑End
| Option Awards | Stock Awards | Option Awards | Stock Awards | |||||||||||||||||||||||||||
| Name | Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Unexercisable (#)(1) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(2) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Unexercisable (#)(1) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(2) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | ||||||||||||||
| Kieran M. O’Sullivan | — | 100,000 | 18.37 | 5/26/2020 | 49,833 (3) | 1,290,176 | 118,440 | 3,066,412 | — | 100,000 | 18.37 | 5/26/2020 | 46,005 (3) | 1,380,610 | 102,967 | 3,090,040 | ||||||||||||||
| Ashish Agrawal | — | 35,000 | 18.37 | 5/26/2020 | 17,224 (4) | 445,929 | 39,330 | 1,018,254 | — | 35,000 | 18.37 | 5/26/2020 | 15,475 (4) | 464,405 | 34,418 | 1,032,884 | ||||||||||||||
| Luis F. Machado | — | 30,000 | 18.37 | 5/26/2020 | 13,773 (5) | 356,583 | 32,521 | 841,969 | — | 30,000 | 18.37 | 5/26/2020 | 10,713 (5) | 321,497 | 28,479 | 854,655 | ||||||||||||||
