The content of the following table relating to age and business experience is based upon information furnished to the Company by the nominees and directors, as of February 18, 2016.
* Less than one percent.
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(1) | Except as otherwise indicated by footnote, each named person claims sole voting and investment power with respect to the shares indicated. |
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(2) | This column reflects shares subject to options exercisable within 60 days, and these shares are included in the column captioned "Shares Beneficially Owned." |
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(3) | Includes 500 shares held by Mr. Hoekstra’s wife in an individual retirement account. |
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(4) | Includes 60,000 shares held in a trust established by Mr. Mulder's spouse, and Mr. Mulder disclaims beneficial ownership of these shares. |
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(5) | Mr. Newton was no longer an executive officer as of June 22, 2015. |
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(6) | Includes 348 shares owned by Mr. Sotok’s spouse through a partnership, and Mr. Sotok disclaims beneficial ownership of these shares. |
(1)Except as otherwise indicated by footnote, each named person claims sole voting and investment power with respect to the shares indicated.
(2)This column reflects shares subject to options exercisable within 60 days, and these shares are included in the column captioned "Shares Beneficially Owned."
(3)Includes 40,000 shares held in a trust established by Mr. Mulder's spouse, and Mr. Mulder disclaims beneficial ownership of these shares.
(4)Includes 348 shares owned by Mr. Sotok's spouse through partnership, and Mr. Sotok disclaims beneficial ownership of these shares.
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table contains information with respect to ownership of the Company’s common stock by persons or entities that are beneficial owners of more than five percent of the Company’s voting securities as of December 31, 2015.2019.
| | | | | | | | |
Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percent of Class |
The Vanguard Group 100 Vanguard Boulevard Malvern, PA 19355 | 24,931,717 | | 9.9 | % |
Black Rock Inc. 40 East 52nd Street, New York, NY 10022 | 24,461,354 | | 9.7 | % |
|
| | | | |
Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percent of Class |
Black Rock Inc. 40 East 52nd Street, New York, NY 10022 | 20,332,447 |
| 7.0 | % |
The Vanguard Group 100 Vanguard Boulevard Malvern, PA 19355 | 19,836,674 |
| 6.8 | % |
CORPORATE GOVERNANCE
The Company operates within a comprehensive plan of corporate governance set forth in the Gentex Corporation Corporate Governance Guidelines (*) as adopted for the purpose of defining responsibilities, setting high standards of professionalism and personal conduct, and assuring compliance with such responsibilities and standards. The Company regularly monitors developments in the area of corporate governance.
The Board of Directors has an Audit Committee, a Compensation Committee, and a Nominating and a Corporate Governance Committee, and, in accordance with the Company's Bylaws, may appoint other committees from time to time. Each standing committee has a written charter. All such charters, as well as any documents marked with an asterisk (*) in this Proxy Statement, are available under the headingheadings, "Corporate Governance", then "Documents & Charters" on the Company’s web site at http://ir.gentex.com. A hard copy of any of these documents will be provided to any shareholder who submits a request in writing to the Corporate Secretary, Gentex Corporation, 600 North Centennial Street, Zeeland, MI 49464.
Each member of the Board of Directors is expected to abide by the Gentex Corporation Board of Directors Attendance and Overboarding Policy (*), includingunless an exception thereto has been approved by the Board. That includes the expectation to attend all meetings of the Board, all applicable committee meetings, and each annual meeting of shareholders. All then members of the Board attended the 20152019 Annual Meeting of Shareholders.Meeting. Each of the current members of the Board, including all nominees for the Board, except Ms. Brown (who will be traveling), is expected to attend the 20162020 Annual Meeting of Shareholders. During 2015,2019, the Board held fivefour Board meetings. All directors then serving attended at least 75 percent of the aggregate number of meetings of the Board and Board committees on which they served.
Responsiveness to Shareholders
•The fact that the Company has declassified its Board of Directors and implemented majority voting for directors (in the form of a director resignation Bylaw) in response to shareholder proposals, as well as allowing its shareholder rights plan (poison pill) to expire, demonstrates recent
responsiveness to expressed shareholder concerns. In fact, implementation of majority voting for directors (in the form of a director resignation Bylaw) was done with the input and concurrence of the shareholder proponent as to form of adoption of the same.
•The fact that the Company hasalso implemented a Lead Independent Director Policy (*) also demonstratesto address concerns raised by shareholders when the Company had a non-independent Chair of the Board, again demonstrating its commitment to good corporate governance and ongoing engagement with shareholders.
•The Company has added a Sustainability section to its website (which is updated periodically) and publishes an annuala Sustainability Report annually that provides key information regarding progress that the Company is making for sustainability report andinitiatives in response to shareholder suggesitons.
•The Company has added additional diversity considerations to its director nominating policies in response to suggestions from shareholders. Such diversity considerations, along with the actual practices of the Nominating and Corporate Governance Committee, have led to a broader and more diverse director candidate pool, including nomination of the Company's first female director.pool.
The Company's on-going efforts concerning diversity have led to increasing diversity through all levels of the organization.
In addition to demonstrating recent responsiveness to shareholder concerns, the Company has historically demonstrated its commitment toward corporate governance by its compensation system, which ensures that all team members share in financial opportunities and sacrifices so employees win when shareholders win. The Company does not have any "golden parachutes" or other excessive perquisites.
Lead Independent Director/Independent Directors
Under the Company's Lead Independent Director Policy, Mr. Wallace has been elected Lead Independent Director by the Board of Directors independent directors.
In addition to acting as a liaison between the independent directors and the Chairman, the Lead Independent Director has such duties and responsibilities as the Board of Directors may assign to him or her, including: presiding at all meetings of the Board at which the Chairman is not present; presiding at all executive sessions of independent directors and the ability to call such meetings; approving all information being sent to the Board, including meeting agendas and board meeting schedules (to ensure enough time for discussion of all agenda items); being available for meetings with major shareholders upon request; and retaining advisors.
In accordance with the NASDAQ Stock Market Rules, in order for a director to qualify as "independent," the Board of Directors must affirmatively determine that the director has no material relationship with the Company that would impair the director’s independence. The Board has affirmatively determined a majority of its members are independent, and they include Messrs. Goode, Hoekstra, Hollars, Mulder, Schaum, Sotok, and Wallace. In addition, the Board has determined that new nominee, Ms. Leslie Brown, will be independent, if elected. Given the foregoing, a majority of the Board is comprised of independent directors as defined in the NASDAQ Stock Market Rules. In fact, a super majority of Board members are independent.
A meeting of the independent directors, separate from management, is an agenda item at each Board of Directors meeting. During 2015, the independent directors met on five occasions.
Board of Directors Leadership Structure
Fred Bauer has•James Wallace serves as an independent Chair of the Board.
•While the Company had a CEO who also served as ChairmanChair of the Board, of Directors and Chief Executive Officer (CEO) of the Company for 35 plus years. The Company’s market capitalization has increased from approximately $17 million at the initial public offering in 1981 to approximately $4.35 billion as of March 1, 2016. As a founder of the Company, Mr. Bauer is uniquely situated to serve as Chairman and CEO, which has been demonstrated by the Company's historical performance.
As noted above, the Board also hasimplemented a Lead Independent Director Policy and thehad a Lead Director thereunder. The independent members of the Board have as an agenda item in connection withat each Board meeting for the opportunity toa session where they meet without management (and have met on other occasions as well). present.
•The Company acknowledges that independent board leadership is important, and believes that it is already getting such leadership from itsthe independent directors which has been bolstered by electionwill continue to meet outside of a Lead Independent Director. As such, there is no need at this time to separate the Chairman and CEO roles as a matterpresence of policy (although it could be appropriate to do so inmanagement.
•Even with an independent Chair of the future).
TheBoard, the Company continues to believeremains of the belief that it is important that the Board have flexibility to determine the most qualified person to serve as Board ChairmanChair rather than unduly impairing such flexibility with any policy requiring an independent Chair of the Board.
•While the Board Chairman.now has an independent Chair, alleviating the need for a Lead Director, the Lead Independent Director Policy remains in place to continue to provide the Board appropriate flexibility.
•The Board, continues to believe that the Company is fortunate to have Mr. Bauer, a founder of the Company, serve as Chairmanand each standing committee of the Board, undertake annual self-evaluations which include: written evaluations; collection of relevant information; summary and Chief Executive Officerreview of the Company, as his 35 plus years of experience makes himsame by the best choiceBoard and each committee; and the opportunity for peer review and for each of these roles.director to comment thereupon. This process has helped inform the Board in regard to existing director qualifications, skills, attributes, and experience and those needed for the future.
The Board has also determined that having Mr. Bauer serve in each of these roles has allowed the Company to speak with one voice, avoid the dilution of leadership, and empowered Mr. Bauer to act with determination, all of which have benefited the Company and its shareholders. The Board believes that having the flexibility to choose the Chairman best suited to serve in the future is important as well.
Audit Committee
•The Company’s Audit Committee currently includes Messrs.Mr. Goode (Chairman)(Chair), Mr. Schaum, Ms. Starkoff, and Mr. Sotok.
•The Audit Committee met fourfive times during the fiscal year ended December 31, 2015.2019. Information regarding the functions performed by the Committee is set forth in the following "Report of the Audit Committee".Committee."
•The Board of Directors has affirmatively determined that all members of the Audit Committee meet the appropriate tests for independence, including those set forth in the NASDAQ Stock Market Rules.
•All Audit Committee members possess the required level of financial literacy and the Board of Directors has determined that at least one member of the Audit Committee, Mr. Goode, meets the current standard of audit committee financial expert as required by the Sarbanes-Oxley Act.
•The Audit Committee operates pursuant to the Gentex Corporation Audit Committee Charter (*).
•The Company’s independent auditors report directly to the Audit Committee.Committee and the Audit Committee is actively engaged in selecting the audit engagement partner.
•The Audit Committee, consistent with the Sarbanes-Oxley Act and the rules adopted thereunder, meets with management and the auditors prior to the filing of officer certifications with the SEC to receive information concerning, among other things, any significant deficiencies or material weaknesses in the design or operation of internal controls.
•The Audit Committee’s policy regarding the pre-approval of audit and non-audit services provided by the Company’s independent auditors is outlined in a document called "Revised Audit Committee Procedures for Approval of Audit and Non-Audit Services by Independent Auditors,"Auditors" (*), which is attached as Appendix A to this Proxy Statement.
•The Audit Committee reviews and discusses with the Company's independent auditors all relationships the independent auditor has with the Company so as to be able to determine the auditor's objectivity and independence.
•The Audit Committee has adopted a policy titled "Complaint Procedures for AccountingSubmission and Auditing Matters"Handling Policy" (*), to enable confidential and anonymous reporting to the Audit Committee.Committee and to the Company as appropriate.
•The Audit Committee reviews and approves all related-party transactions in accordance with itsthe Audit Committee Charter. This review and approval covers all manners of related-party transactions, which are viewed in light of applicable disclosure requirements, independence standards for directors, and applicable Company codes and policies.
Compensation Committee
•The Company’s Compensation Committee currently includes Messrs. Goode (Chairman)Schaum (Chair), Schaum,Goode, and Wallace.
•The Compensation Committee met 5nine times during the fiscal year ended December 31, 2015.2019. The Compensation Committee is responsible for administering all of the Company’s stock-based incentive plans and supervising other
compensation arrangements for executive officers of the Company. Information regarding functions performed by the Committee is set forth in the following "Compensation Committee Report".Report."
•The Board of Directors has affirmatively determined that all members of the Compensation Committee meet the appropriate tests for independence, including those set forth in the NASDAQ Stock Market Rules.
•The Compensation Committee operates pursuant to the Gentex Corporation Compensation Committee Charter (*).
•More information regarding the scope of authority of the Compensation Committee, any delegation of its authority, and the role of executive officers is set forth in the "Compensation Discussion and Analysis" below.
Although the•The Compensation Committee has authority under itsthe Compensation Committee Charter to hire consultants, it has not done soobtain the advice of compensation consultants. In 2019, consistent with the Compensation Committee Charter, the Compensation Committee engaged an independent compensation consultant, Mercer (US) Inc. ("Mercer") to dateadvise on certain compensation matters. Mercer's engagement in 2019 included: an ongoing assessment of the Company's existing compensation program; a competitive analysis of a peer-group of publicly-traded organizations, including base salaries, annual incentives, and long-term incentives; plan design alternatives; pay trends; performance metrics; stock ownership guidelines; director compensation; and reporting on the foregoing. The Compensation Committee did consider the independence of Mercer in assessing the information and recommendations provided by Mercer as such,set forth herein. Mercer provided peer group and industry compensation consultantsdata to both management and other advisors have played no role in determining or recommending the amounts or formCompensation Committee for executives and directors. Such data was used by the Compensation Committee as a frame of executivereference for confirming the Company's compensation structure as more fully described herein, including establishing officer compensation targets for base pay, annual cash bonuses, and director compensation.long-term equity incentives.
•The Board, of Directors, based on the recommendation of the Compensation Committee, has also adopted "Stock Ownership Guidelines" (*), an "Anti-Hedging and Anti-Pledging Policy" (*) and a "Clawback Policy" (*).
•The Compensation Committee does not believe that the Company's compensation policies and practices are reasonably likely to have a material adverse effect on the Company.
Nominating and Corporate Governance Committee
•The Company’s Nominating and Corporate Governance Committee currently includes Messrs.Mr. Wallace (Chairman)(Chair), Ms. Brown, and Goode.Mr. Goode, although such committee regularly receives input from other directors.
•The Nominating and Corporate Governance Committee met formally one time during the fiscal year ended December 31, 2015 (holding2019 (and met informally and held other discussions at regularly scheduled Board of Directors meetings, and otherwise, including consideration of potential candidates for nomination to the Board). The Nominating and Corporate Governance Committee is responsible for identifying and recommending qualified individuals to serve as members of the Company’s Board and met in February 20162020 in accordance with such responsibilities.
•The Board of Directors has affirmatively determined that all members of the Nominating and Corporate Governance Committee meet the appropriate tests for independence, including those set forth in the NASDAQ Stock Market Rules.
•The Nominating and Corporate Governance Committee operates pursuant to the Gentex Corporation Nominating and Corporate Governance Committee Charter (*).
•The Nominating and Corporate Governance Committee has adopted certain procedures contained in a document called "Selection Process for Board Candidates" (*) to consider candidates for director nominations. Generally, for each election of directors the Chair of the Nominating and Corporate Governance Committee identifies candidates, from a variety of resources to ensure a diverse pool of candidates, with support of the other committee member(s), other boardBoard members and management, as needed. Candidates that meet the established criteria are identified and presented to the entire Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee, with other Board members involved as well, will then conduct interviews and reviews, as appropriate and necessary. The Nominating and Corporate Governance Committee then meets to consider and approve the most qualified candidates so it can make its recommendationrecommendations to the full Board of Directors.Board.
•The Nominating and Corporate Governance Committee has established the minimum qualifications for candidates, which are contained in a document called "Position Profile:Profile of a Member of the Board of Directors" (*). Those required qualifications include: working and/or experience with an entrepreneurial company; high level of personal and professional integrity; successful and distinguished business management career (using the Company's core principles); understanding of the Company's markets; and ability to work effectively with current Board members. The Position Profile also sets forth other desirable experience and qualifications, including gender, race, ethnic, and country of origin diversity.
•The Nominating and Corporate Governance Committee continually refines its on-boarding process for new directors, which is now led by Ms. Brown.
•The Nominating and Corporate Governance Committee has not, to date, paid any third party a fee to assist in identifying and evaluating nominees, but has the authority to do so.
•The Nominating and Corporate Governance Committee has not, to date, received any potential director candidates for nomination from any shareholder that beneficially owns more than five percent of the Company's common stock.
•The Nominating and Corporate Governance Committee (and the entire Board) is committed to increasing diversity on the Board. As such, the Nominating and Corporate Governance Committee will continue to avail itself of a variety of resources in its efforts to identify qualified and diverse director candidates. Candidates are sought not only in traditional corporate environments, but also other environments such as government, academia, private enterprise, nonprofit organizations, and a variety of professions. In order to promote diversity, the Nominating and Corporate Governance Committee is: willing to consider exceptions to the Board Attendance and Overboarding Policy for appropriate candidates; considering search firms with a track record of identifying qualified, diverse director candidates; as appropriate, seeking to engage with organizations representing the interests of women and minorities; and periodically reviewing its processes and procedures to ensure there are no structural impediments to increasing Board diversity.
•The Nominating and Corporate Governance Committee will consider nominees for the Board of Directors from a variety of sources, including current directors, management, retained third-party search firms, and shareholders. The Nominating and Corporate Governance Committee avails itself of a variety of available resources for candidates (and from non-executive positions and/or non-traditional environments). If you want to recommend a director candidate, you may do so in accordance with the Company’s procedures or the Company’s Restated Articles of Incorporation. If a shareholder desires to recommend a candidate for consideration by the Nominating and Corporate Governance Committee for inclusion in the Company’s 20172021 Proxy Statement as a Board nominee, that recommendation should be submitted in writing, together with appropriate biographical information, to the ChairmanChair of the Nominating and Corporate Governance Committee, c/o Corporate Secretary’s Office, Gentex Corporation, 600 North Centennial Street, Zeeland, Michigan 49464. Any such nominations should be received by the ChairmanChair of the Nominating and Corporate Governance Committee by no later than December 31, 2016,2020, to allow adequate time for consideration of the nominee. Other nominations by shareholders for any directorship
may be submitted to the Board
of Directors by written notice as set forth in the Company’s Restated Articles of Incorporation and Bylaws, or pursuant to the rules and regulations promulgated under the Securities Exchange Act of 1934.
In accordance with the above-referenced Selection Process for Board Candidates and the Position Profile, the independent directors approved the slate of nominees standing for election at the 2016 Annual Meeting of Shareholders, and recommended the same to the entire Board of Directors.
•The Nominating and Corporate Governance Committee now has corporate governance responsibilities as delegated by the Board of Directors.Board.
Codes
•The Board of Directors has adopted a "Code of Ethics for Certain Senior Officers" (*) that applies to certain of the Company’s officers and including the chief executive officer, principal financial officer and principal accounting officer. Information concerning any alleged violations is to be reported to the Audit CommitteeCommittee.
•The Company has also adopted a "Code of Business Conduct and Ethics" (*). This Code applies to all directors, officers and employees of the CompanyCompany.
•No waivers of either of the foregoing codes have occurred to datedate.
Shareholder Communication with Members of the Board of Directors
•You may contact any of our directors by writing them: Board, of Directors, c/o Corporate Secretary’s Office, Gentex Corporation, 600 North Centennial, Zeeland, Michigan 49464. Employees and others who wish to contact the Board or any member of the Audit Committee may do so anonymously, if they wish, by using this address. Such correspondence will not be screened and will be forwarded in its entiretyentirety.
Personal Loans to Executive Officers and Directors
•The Company complies with and will operate in a manner consistent with an act of legislation outlawing extensions of credit in the form of personal loans to or for its directors and executive officersofficers.
Director and Executive Officer Stock Transactions
•Under the regulations of the Securities and Exchange Commission (SEC), directors and executive officers are required to file notice with the SEC within two (2) business days of any purchase or sale of the Company’s stock. Information on filings made by any of our directors or executive officers can be found on the Company’s web site under "SEC Filings" at http://ir.gentex.com.ir.gentex.com. The Company has in place an Anti-Hedging and Anti-Pledging Policy which prohibits directors and officers from engaging in transactions such as puts, calls, options, other derivative securities, collars, forward sales contracts, and short selling with respect to the Company's stock. See "Compensation Discussion and Analysis" below.
Sustainability
•The Company has a Sustainability section of its website (https://www.gentex.com/about/sustainability) to provide insight into how the Company is looking out for the environment, while at the same time striving to execute a wide variety of social responsibility initiatives.
•Environmental Policy. The Company meets or exceeds all relevant legal and customer requirements, which necessitates continual improvement in minimizing waste and preventing pollution. In fact, the Company periodically establishes objectives and targets to minimize pollution and adverse impacts on the environment associated with its business activities.
•Gentex Environmental Management System. The Company's environmental management system is based on ISO 14001 (international environmental standard). This system governs environmental performance by addressing the impact of the Company's activities, products, and services on the environment.
•Energy and Climate Change. The Company has in place continuous improvement efforts to improve energy efficiency. Automated building management systems, energy-efficient lights, and efficient HVAC equipment are all employed to decrease energy usage. A robust recycling strategy has also lowered scrap and otherwise minimized waste. New initiatives to reduce, reuse, and recycle have been successful in meeting established goals for continuous improvement, minimizing waste, and decreasing pollution.
Human Capital Management/Social Concerns
•The Company values its people as demonstrated by empowering employees at all levels and making a significant investment in them each day by providing high quality health care (including onsite health care), wellness programs, and state of the art fitness facilities.
•The Company not only values employee wellness, but as importantly, employee safety with the Board receiving a report at each Board meeting of total recordable cases, which remain well below industry averages. Prioritizing safety not only improves morale and efficiency, but lowers costs overall as well.
•The Company supports an environment of equal opportunity and conducts all practices related to recruitment, hiring, promotion, discipline, and other terms and conditions of employment in a manner which does not discriminate on the basis of race, color, religion, national origin, ethnicity, age, sex, sexual orientation, gender expression, handicap, marital status, military service, height, or weight.
•The Company's ongoing efforts to promote diversity, equity and inclusion include: the appointment of Mr. Joe Matthews as Diversity Officer; numerous diversity programs; training courses; and awareness initiatives. Such efforts have increased diversity through all levels of the organization, including the Board. The Company has also guided the launch of two resource groups, Women at Gentex and Gentex Veterans.
•The Company has significantly increased its involvement in the communities in which it operates, through strategic community investment and employees being supported in volunteering thousands of community service hours.
•The potential social and economic impact on the Company, its employees, customers, and vendors is considered in everything the Company does.
Risk Oversight
•While the Board of Directors oversees risk management generally, management of the Company is charged with managing risk through appropriate internal processes and internal controls.
•On behalf of the Board, the Audit Committee oversees Company risk policies and procedures relating to its financial statements and financial reporting processes, cyber security risks, credit risks, liquidity risks, and liquidityother business risks. Further,
•The Audit Committee engages in accordance withtypical oversight of internal control over financial reporting.
•The Audit Committee also requires as an annual agenda item a business risk update covering facilities, IT infrastructure, manufacturing, materials/supply chain, and human resources.
•In addition, the Audit Committee Charter,further requires as an annual agenda item an IT security update covering cyber security, the IT security framework, and IT security initiatives, using benchmarking as appropriate.
•The foregoing allows the Audit Committee periodically discusses with management the Company's risk assessment and risk management and steps taken by management to control and mitigate risk exposure (other than risks arising from the Company’s compensation policies and practices, which are overseen by the Compensation Committee on behalf of the Board). Such discussions withengage management and the independent auditors address significantwith respect to risk assessment, risk management, risk mitigation, and appropriate action plans with respect thereto, if and when necessary.
•The Compensation Committee designs the officer compensation system so as to minimize risks exposures,arising therefrom, including avoidance of excessive risk taking as further discussed in "Compensation Discussion and judgments as well as steps taken by management to address them. Analysis."
•The Audit Committee and the Compensation Committee respectively,each report to the Board periodically and as appropriate with respectregard to such topics. Thistheir respective risk oversight functions.
•The foregoing risk oversight does not necessarily have anya material effect on the Company's leadership structure.
•The Board also annually reviews the Company’sCompany's various insurance coveragescoverages.
Report of the Audit Committee
The primary purpose of the Audit Committee is to assist the Board of Directors in fulfilling its oversight responsibilities for management’s conduct of the Company’s accounting and financial reporting processes and the Company’s system of internal controls regarding finance, accounting, legal compliance and ethics. The Audit Committee’s function is more fully described in its Audit Committee Charter, which the Board of Directors has adopted and is available on the Company's website. The Audit Committee reviews this Audit Committee Charter on an annual basis. The Board of Directors annually reviews the NASDAQ listing standards’Nasdaq Global Select Market definition of independence for audit committee members and has determined that each member of the Audit Committee meets that standard.
Management is responsible for the preparation, presentation, and integrity of the Company’s financial statements, and financial reporting principles, internal controls and procedures designed to ensure compliance with accounting standards, applicable laws and regulations. The Company’s independent auditors, Ernst & Young LLP, are responsible for performing an independent audit of the consolidated financial statements and expressing an opinion on the conformity of those financial statements with generally accepted accounting principles.
Pursuant to a meetingaction of the Audit Committee on February 17, 2016,19, 2020, the Audit Committee reports that it has: (i) reviewed and discussed the Company's audited financial statements with management; (ii) discussed with the independent auditors the matters required to be discussed by the statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1. AU section 380), as adopted byapplicable requirements of the Public Company Accounting Oversight Board in Rule 3200T;and the Securities and Exchange Commission; and (iii) received the written disclosures and the letter from the independent accountants required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant's communications with the Audit Committee concerning independence, and has discussed with the independent accountant the independent accountant's independence. Based on the review and discussions referred to in Items (i)-(iii) above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company's annual report on Form 10-K for the year ended December 31, 2015,2019, for filing with the Securities and Exchange Commission.
The Audit Committee has selected Ernst & Young LLP as the Company’s independent auditors for the year ending December 31, 2016,2020, and has submitted the same to the shareholders for ratification at the Annual Meeting.
This report of the Audit Committee does not constitute "soliciting material" and should not be deemed "filed" or incorporated by reference into any of the other Company filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically requests that the information be treated as soliciting material or specifically incorporates this report by reference therein.
Audit Committee: Gary Goode, ChairmanChair
Richard Schaum
Frederick Sotok
Kathleen Starkoff
Richard Schaum
Fred Sotok
February 17, 201619, 2020
Compensation Committee Report
The primary purpose of the Compensation Committee of the Board of Directors of the Company is to assist the Board of Directors in discharging its responsibilities related to compensation of the Company's executives.officers. The Compensation Committee's function is more fully described in its Charter, which the Board of Directors has adopted and is available on the Company's website. The Compensation Committee reviews its Compensation Committee Charter on an annual basis, recommending changes to the Board of Directors when and as appropriate. The Compensation Committee is comprised of three members, each of whom the Board of Directors has determined meets the appropriate independence tests for compensation committee members under the NASDAQ listing standards.
Pursuant to a meetingaction of the Compensation Committee held on February 17, 2016,19, 2020 the Compensation Committee reports that it has reviewed and discussed the Company's Compensation Discussion and Analysis with management. Based on the above-referenced review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company's annual report on Form 10-K for the year ended December 31, 2015,2019, and this Proxy Statement, for filing with the Securities and Exchange Commission.
This report of the Compensation Committee does not constitute "soliciting material" and should not be deemed "filed" or incorporated by reference into any of the other Company filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically requests that the information be treated as soliciting material or specifically incorporates this report by reference therein.
Compensation Committee: Richard Schaum, Chair
Gary Goode Chairman
James Wallace
Richard Schaum
February 19, 2020
James Wallace
February 17, 2016
COMPENSATION DISCUSSION AND ANALYSIS
IntroductionINTRODUCTION
Overview of Our Compensation System
Discussion and Analysis describes the key principles and approaches used to determine the elements of compensation awarded to, earned by, and paid to each of our named executive officers ('NEOs") during 2019. The discussion provides information and context to the compensation disclosures included in the accompanying compensation tables and footnotes therein. It should be read in conjunction with such disclosures. It also addresses any changes to the same for 2020.
The Primary Objectives Are
The following Company executives are our NEOs for 2019:
create and maintain an entrepreneurial culture
motivate employees to:
- continue technical developments
- improve customer satisfaction
create and maintain teamwork
maintain a performance-based model balancing short-term and long-term performance of individuals and the Company
| | | | | |
Name | Title |
Steve Downing | President and CEO |
Neil Boehm | Vice President, Engineering and CTO |
Kevin Nash | Vice President, Finance, CFO and Treasurer |
Matt Chiodo | Vice President, Sales |
Scott Ryan | Vice President, General Counsel and Corporate Secretary |
The Elements Comprise
base salary
bonuses
stock-based incentives
We first provide a brief overview of our officer compensation program and then discuss and analyze topics including:
What We Do
Relationship Between Pay & Performance How Compensation Decisions are Made
emphasizeElements of the Executive Compensation ProgramCompensation Policies & Practices
OVERVIEW
Our Performance
Given industry and market trends, we were pleased with our 2019 financial performance and we believe we are well positioned for long term success. For 2019, our revenues outperformed our underlying markets by approximately seven percent. Continued execution of our product development and growth strategy, including execution of our capital allocation strategy, has provided the opportunity for our stock to perform well compared to our peer group during the most recently completed year.
Compensation Philosophy
Our compensation program is designed to balance short-term performance with long-term growth. Our compensation and benefits must be competitive with compensation arrangements provided to officers at comparably-sized companies with whom we compete for talent. Our officer compensation philosophy is reviewed annually by the Compensation Committee, and has the following key objectives:
•Reward performance - An increasing percentage of officer pay is performance-based, incentivesand therefore, at risk. Our pay and equity awards
stock-based compensation intended to align executive and employee interestsprograms reflect our “pay-for-performance” culture that aligns officer incentives with the interests of our shareholders (appropriately structured soshareholders. This philosophy permeates our organization as even below the officer level all other employees receive profit sharing bonuses and are eligible to not encourage inappropriate risk taking)
performance-based compensation may be "clawed-back"purchase stock under the Employee Stock Purchase Plan at a 15% discount, in appropriate circumstances
addition to over 1,500 employees receiving stock options and/or restricted stock.
What
•Emphasize long-term incentive compensation - We Do Not Do
no "golden parachute" agreements
no excessive perquisites
no pension arrangements
no option repricing
no hedging or monetizing transactions by directors or employees to lock inshare a portion of the value created for shareholders with those responsible for the results through our use of equity incentives. In order to promote this, the Company rewards officers for delivering long-term earnings before interest, taxes, depreciation, and amortization ("EBITDA") and return on invested capital ("ROIC") with performance shares that have cliff-vesting over a three-year performance period and restricted stock by directors or employees
no purchasing Company stock on margin, borrowing against Company stock on margin, or pledgingthat also has three year cliff-vesting to minimize management turnover and further align officer incentives with those of Company stock
our shareholders.
Responsibilities
•Drive ownership mentality - We expect officers and directors to personally invest in our success and have adopted Stock Ownership Guidelines that set forth expectations that our executive officers and non-employee directors own or acquire a significant amount of our stock.
•Attract, retain and reward the best talent to achieve superior results - To be consistently better than our competitors, we need to recruit and retain superior talent that is able to drive superior results. We have structured our compensation program to motivate and reward such results.
Compensation Alignment with Business Strategy
Our long-term strategy builds on our strong technology foundation and leverages our operating model to drive performance in our primary industries, while at the same time seeking opportunities in other industries.
Our officer compensation program reflects our short-term and long-term strategy by design and uses certain key, objective performance metrics to evaluate performance. These key, objective performance metrics are important financial measures that help provide sharp focus on critical results in running our business efficiently and
effectively.
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Achieve Top Line Growth | | Alignment with Incentive Plan Metrics |
- Strengthen customer centricity to deliver growth | | Annual Incentive Plan |
| | –Revenue 33.33% |
Drive Profitability | | –Operating Income - 33.33% |
- Achieve both short-term and long-term profitability goals | ó | –Earnings per Diluted Share - 33.33% |
| | |
Maximize performance Returns and maintain a Strong balance sheet | | Long-Term Incentive Plan |
- Generate cash flow to support future growth through capital and technology investments and to provide returns to shareholders | | –3 year cumulative EBITDA - 50% |
- Deliver appropriate return on invested capital (ROIC) | | –3 year cumulative ROIC - 50% |
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Our Officer Compensation Practices
Our officer compensation program features many best practices that serve shareholder interests.
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What We Do… | | What We Don't Do... | |
ü | Base a significant portion of compensation on the achievement of objective, pre-established goals tied to financial, operational, and strategic measures. | û | No excise tax gross ups |
ü | Award incentive compensation based primarily on objective measures, both short-term and long-term. | û | No excessive perquisites |
ü | Provide compensation in equity to help meet Stock Ownership Guidelines. | û | No hedging or pledging of stock |
ü | Maintain a clawback policy to recapture unearned incentive payments. | û | No excessive change-in-control severance provisions |
ü | Retain an independent compensation consultant. | û | No dividends paid if performance shares are not earned |
ü | Include double trigger of vesting of equity awards upon an appropriately defined change in control. | | |
Say on Pay
Last year’s advisory vote on executive compensation was supported by our shareholders. The Board remains committed to understanding the views of our shareholders by taking into account the results of advisory votes on NEO compensation. Given the 2019 say-on-pay results, the Compensation Committee made fewer modifications to the officer compensation program than it did in 2019, understanding that steps taken to further align compensation with our business goals and objectives and make it more performance-based were supported by our shareholders. The Board and the Compensation Committee will again consider the results of the 2020 advisory vote on NEO compensation.
2020 Compensation Structure
For 2020, the Compensation Committee kept in place its Amended and Restated Annual Incentive Performance Based Bonus Plan ("Annual Incentive Plan") and Long-Term Incentive Plan ("Long-Term Incentive Plan"), pursuant to the Gentex Corporation 2019 Omnibus Incentive Plan ("2019 Omnibus Plan"), that was approved at the 2019 Annual meeting. Below is a summary of the Annual Incentive Plan and Long-Term Incentive Plan along with rationale for each:
Incentive Plans
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Annual Incentive Plan | | | | |
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2019 Metrics* | | 2020 Metrics* | Reasons | |
Revenue | | Revenue | Aligns short-term officer incentive pay with appropriate objective performance targets. | |
Operating Income | ð | Operating Income | | |
Earnings per Diluted Share | | Earnings per Diluted Share | | |
* As adjusted to avoid impact of certain one-time or unusual events.
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Long-Term Incentive Plan | | | | |
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2019-2021 Metrics* | | 2020-2022 Metrics* | Reasons | |
3-year cumulative EBITDA | | 3-year cumulative EBITDA | EBITDA and ROIC have been identified by the Compensation Committee as key measures for management to drive growth and create shareholder value. These metrics provide clear measures of our long-term performance | |
3-year cumulative ROIC | ð | 3 year cumulative ROIC | | |
(using performance shares and restricted stock) | | (using performance shares and restricted stock) | | |
*As adjusted to avoid impact of certain one-time or unusual events.
Base Salaries
The Compensation Committee continues to consider market median of an appropriately selected peer group in determining base salaries of our Board of Directors is appointed to assist our Board in discharging its responsibilities relating to the compensation of our executives. The Compensation Committee:
is comprised of three directors, each of whom has been determined by our Board to be independent under applicable standards and none of whom receive any consulting, advisory, or other compensation fee (other than fees for service as Board or committee members)
operates under and in accordance with the written Compensation Committee Charter
has a chair that sets meeting agendas and the calendar for meetings
The Chief Executive Officer and other members of management attend meetings of the Compensation Committeeofficers. In 2020, however, at the request of the Committee. The Compensation Committee does, however, meet in executive session as appropriate. The Compensation Committee has the authority to engage outside consultants and advisors to advise the Committee with respect to compensation of executives, in its discretion, but has not done so to date.
Board of Directors The Board of Directors has responsibility to annually assess our director compensation program. Members of management attend meetings of the Board at the Board's request, but the Board meets in executive session when required.
Role of Executives in Establishing Compensation
While the Compensation Committee is responsible for recommending CEO and other executive officer compensation to the Board of Directors for approval in accordance with the Compensation Committee Charter, the CEO in particular provides input and makes recommendations to the Compensation Committee with respect to compensation decisions for non-CEO executive officers. In fact, the CEO (along with other senior management) is primarily responsible for making compensation decisions for our other employees within guidelines established by the Compensation Committee. The Compensation Committee does, however, set, review, and approve all stock-based awards and other performance-based bonuses. Since the Compensation Committee and the entire Board recognize that the CEO and other executive officers have the greatest opportunity to influence our performance, our Compensation Committee concentrates its efforts on establishing proper rewards and incentives for executive officers. This structure provides our CEO and executive officers the freedom to influence and motivate our employees to positively impact our Company performance (within the guidelines established by the Compensation Committee).
Compensation Committee Activity
During fiscal year 2015, the Compensation Committee met 5 times and also met in February 2016 to: review and approve the Compensation Committee Report; review and approve other compensation disclosures included in the Proxy Statement; to set targets with respect to, and review and approve performance-based bonuses; and to do reviews of non-CEO executive officers. Among the activities of the Compensation Committee is a review of each element of compensation payable to named executive officers, as well as the total compensation payable to them, which includes use of an executive officer equity compensation tally sheet (including stock appreciation). These tally sheets help reflect compensation for a certain number of previous years so that compensation decisions ofNEOs, the Compensation Committee and the Board can be placeddecided not to increase NEO base salaries. In lieu thereof, the Board, based on a recommendation of the Compensation Committee, has provided the NEOs additional upside under the Long-Term Incentive Plan as discussed below.
See below for additional information on 2020 NEO compensation.
RELATIONSHIP BETWEEN PAY & PERFORMANCE
Comparator Compensation Data
One of the factors our Compensation Committee uses in setting officer compensation is an evaluation of how our target compensation and benefit levels compare to those of similarly-situated executives at companies that comprise our officer compensation peer group ("Peer Group"). Our philosophy for officer pay, including NEO pay, is
to target the 50th percentile of our Peer Group and to use general industry market data as provided by the Compensation Committee’s independent compensation consultant as appropriate. In addition to market data, other factors such as an individual’s experience, responsibilities, and long-term strategic value are also considered when making recommendations and decisions on compensation.
The Peer Group used for benchmarking officer pay, including for NEOs, is made up of companies that are:
•in similar industries where we compete for talent, customers and capital;
•of similar size (as measured by annual revenue, profitability and market capitalization); and
•of similar complexity.
The Peer Group is reviewed by the Compensation Committee every year and modifications are made to ensure each company in the appropriate context.group meets the above comparison criteria. The companies shown in the table below comprise our Peer Group:
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Allison Transmission Holdings, Inc. | Briggs & Stratton Corporation |
Cooper-Standard Holdings | Franklin Electric Co., Inc. |
Gentherm Incorporated | Hillenbrand, Inc. |
ITT Inc. | LCI Industries |
Meritor, Inc. | Modine Manufacturing Company |
Shiloh Industries, Inc. | Standard Motor Products, Inc. |
Superior Industries International, Inc. | The Timken Company |
Consistency
Pay for Performance
As part of adopting the Long-Term Incentive Plan, the Compensation Committee considered the correlation between NEO realizable compensation and Company performance. The Company has not wavered its compensation philosophy which isCompensation Committee will continue to ensure its compensation program structure and features alignreview the interests of executives and employees with thosealignment between pay of our shareholders. While the Company updates aspects of its compensation model from time to time as appropriate (including recent changes subjecting certain bonuses toNEO's and our performance metrics), the core elements, which are consistent with our compensation philosophy, have remained.
Objectives of Compensation Program
Compensation Philosophy. Our compensation program is comprised of three fundamental elements:
base salary
bonuses
stock-based incentives
These elements are intended to reflect our cultural emphasis on all team members sharing in the financial opportunities and sacrifices at our Company, just as our shareholders do and are intended and structured to avoid encouraging excessive and unnecessary risk taking. The compensation program is designed in light of our desire to maintain an entrepreneurial culture and to incentivize desired performance and growth. The elements of compensation are utilized to accomplish several objectives, including:
attract, motivate, and retain personnel
encourage continued technical development and improve customer satisfaction
stay competitive for talent
encourage and reward individual achievement as well as overall Company performance
balance short-term performancea short and long-term performance by aligning the interests ofbasis.
NEO Pay Mix
To align pay levels for our teamNEOs with the interests of our shareholders
Except with respect to certain performance-based bonuses and timing of restricted stock grants,Company's performance, the compensation program is generally available to allplaces the greatest emphasis on performance-based incentives. A significant majority (In 2019, 75% of our salaried employeesCEO’s target compensation and in operation provides for64% of the same methodaverage target compensation of allocation of benefits betweenour other NEOs) is performance-based.
ELEMENTS OF THE EXECUTIVE COMPENSATION PROGRAM
Our executive and non-executive participants. The only difference between executive officers and other salaried employees is that: certain potentialcompensation program has three primary pay components: base salary; annual performance-based cash bonuses for executive officers are subject to performance metrics (further emphasizing performance-based compensation)(under the Annual Incentive Plan); and restricted stock grants are considered annually rather than every three years (in part duelong-term equity incentives (under existing plans and the Long-Term Incentive Plan). The Long-Term Incentive Plan was adopted in 2019, which implements the use of performance share awards.
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Cost | Element | Key Characteristic | Why We Pay this Element | How we Determine the Amount |
Fixed | Base Salary | Fixed compensation payable in cash. Reviewed annually and adjusted when appropriate. | Provide a base level of competitive cash compensation for attracting and retaining officer talent. | Experience, job scope, individual performance, and market data, including market median of our Peer Group. |
Variable | Annual cash incentive award | Variable compensation payable in cash based on annual performance-related financial goals. | Motivate high performance and award results, in the near term. | Based on financial performance metrics (revenue, operating income, and earnings per diluted share) and market data, including market median of our Peer Group. |
| Performance Share Award ("PSA") | PSAs vest after a three-year performance period based on meeting cumulative performance related to financial objectives. | Align the interests of officers with long-term shareholder value and retain officer talent. | Target awards based on job scope and market data, including market median of our Peer Group. |
| | | Minimize risk taking behaviors for positive long-term results. | Payouts are based on our performance on financial metrics (EBITDA and ROIC), on a cumulative basis over a three-year period. |
| Restricted Stock ("RS") | RS vests on the third anniversary of the grant date. | Increase equity-ownership and focus officers on providing shareholders with appropriate returns. | Target award based on job scope and market data, including market median of our Peer Group. |
| | | Vesting terms and Stock Ownership Guidelines promote retention and a linkage to the interest of shareholders. | |
Base Salary
We provide base salaries to compensate our officers, including NEOs, for their primary roles and responsibilities and to provide a stable level of annual compensation. Actual NEO salary levels and adjustments thereto vary based on the Company's Stock Ownership Guidelines). Our compensation program is reviewedNEOs role, level of responsibility, experience, individual performance, future potential and compared to market periodically, though its core elements remain since these elements continue to accomplish the objectives of the compensation program. Ingenuityvalue, and market data including market median of our employees, employee turnover, employee morale, ability to hire, and individual and Company performance are important factorsPeer Group. In addition, salary increases may be warranted because of a promotion or change in assessing whether our compensation program is consistent with our philosophy and is meeting its objectives.responsibilities.
Compensation Elements in General
As noted above,previously disclosed, the compensation program is comprised of three fundamental elements: (1) base salary; (2) bonuses; and (3) stock-based incentives.
Base Pay. Base compensation for executive officers is predicated primarily on:
competitive circumstances for managerial talent
positions reflecting comparable responsibility
Historically,Compensation Committee, intended to move base salaries for our employees have been belowNEOs toward the market and incentive compensation has received more emphasis to encourage and implement our entrepreneurial culture. A varietymedian of factors are considered concerning executive officer compensation which are discussed in more detail below.
Bonuses. Bonus compensation is comprisedthe Company's established peer group over a three-year period. At the request of two elements:
Profit-Sharing Bonus payments (including a further performance-based element)
bonuses, including performance-based bonuses for executive officers and certain other key employees
All of our full-time employees, including the CEO and other executiveNEOs, the Compensation Committee and the Board have decided not to increase base salaries at this time. In lieu thereof, the Board, based on a recommendation of the Compensation Committee, has provided the NEOs additional upside under the Long-Term Incentive Plan as discussed herein. 2020 Base Salary as approved by the Board is set forth below as follows:
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Executive Officer | 2020 Base Salary | | 2019 Base Salary |
Steve Downing | $750,000 | | | $750,000 | |
Neil Boehm | $407,000 | | | $407,000 | |
Kevin Nash | $400,000 | | | $400,000 | |
Matt Chiodo | $380,000 | | | $380,000 | |
Scott Ryan | $350,000 | | | $350,000 | |
Annual Incentive Plan
The Annual Incentive Plan is a cash-based plan intended to motivate and reward employees based on Company performance metrics (revenue, operating income, and earning per dilute shares) that we believe drive shareholder value.
The Annual Incentive Plan covers all officers, including our NEOs. At the beginning of each year, the Compensation Committee reviews and approves an annual cash bonus target for each NEO, as a percentage of base salary for the year, as set forth in further detail below. The NEOs may earn from 0% to 200% of base salary. The performance-related targets for revenue, operating income, and earnings per diluted share, are set by, and achievement of targets are approved by, the Compensation Committee and/or the Board.
For our NEOs, the 2019 Annual target payout opportunities and results weightings are shown in the table below:
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Executive Officer | Threshold | Target | Maximum |
Steve Downing | 50% | | 100% | | 200% | |
Neil Boehm | 37.5% | | 75% | | 150% | |
Kevin Nash | 37.5% | | 75% | | 150% | |
Matt Chiodo | 37.5% | | 75% | | 150% | |
Scott Ryan | 37.5% | | 75% | | 150% | |
No changes were made to the Annual Incentive Plan target opportunities for NEOs in 2020, as the target and maximum opportunity levels remain within the competitive pay range for each position. The foregoing payout opportunities are multiplied by the weighting factor of a particular performance metric to determine the amount of cash bonuses payable to the extent the threshold, target, or maximum performance for each metric is exceeded. Linear interpolation is used to determine prorated Annual Incentive Plan bonuses for performance in between threshold and target and in between target and maximum.
Those certain financial performance metrics (for 2019 and 2020) determine overall Annual Incentive Plan awards for the officers, including NEOs weighted as follows: Revenue (33.33%), Operating Income (33.33%) and Earnings per Diluted Share (33.33%). These metrics are not only appropriate measures of our underlying performance, but also align with our overall business strategy.
To determine whether Annual Incentive Plan awards are paid, performance for the year is measured against pre-determined target levels for each financial performance metric. The target for the three performance metrics reflects a level of performance, which at the time determined, was anticipated to be challenging but achievable. The threshold level is set to be reflective of performance at which the Compensation Committee believed a portion of the award opportunity should be earned. The maximum level was set well above the target, requiring significant achievements and reflecting performance at which the Compensation Committee agreed that an additional 100% of the target award was warranted.
2019 Annual Incentive Plan Performance
For 2019, the pre-established target performance (along with the pre-established thresholds and maximums) and actual results for the performance metrics are as follows:
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AIP Performance Metrics | Weight | Threshold* | Target* | Maximum* | Actual* |
Revenue | 33.33 | % | $ | 1,504,000 | | $ | 1,880,000 | | $ | 2,256,000 | | $ | 1,858,897 | |
Operating Income | 33.33 | % | $ | 411,300 | | $ | 514,126 | | $ | 616,951 | | $ | 505,447 | |
Earnings per Diluted Share | 33.33 | % | $ | 1.384 | | $ | 1.730 | | $ | 2.076 | | $ | 1.733 | |
* amounts in thousands (000) except for per share amounts. Amounts may be modified in the discretion of the Compensation Committee as appropriate to ensure the performance metrics are not unsuitable. Threshold, Target, and Maximum for Operating Income and Earnings per Diluted Share were adjusted to address the estimated impact of tariffs and the Actual Performance was similarly adjusted with respect to the actual impact of tariffs.
2019 Annual Incentive Plan Payments
The Annual Incentive Plan payments for 2019, based on actual Revenue, Operating Income, and Earnings per Diluted Share (adjusted as appropriate by the Compensation Committee) and performance of the NEOs are shown in the table below:
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Executive Officer | 2019 Annual Award Performance Bonus | 2019 Discretionary Bonus |
Steve Downing | $ | 735,272 | | $ | — | |
Neil Boehm | $ | 299,256 | | $ | — | |
Kevin Nash | $ | 294,109 | | $ | — | |
Matt Chiodo | $ | 279,403 | | $ | — | |
Scott Ryan | $ | 257,345 | | $ | — | |
The performance and payout range (threshold, target and maximum incentive opportunity) of annual cash incentives for reaching 2019 performance goals under the Annual Incentive Plan for each of our NEOs is provided in the table titled “Grants of Plan-Based Awards.” The actual performance bonus paid, as shown in the table above, is also provided in the “Non-Equity Incentive Plan Compensation” column of the “Summary Compensation Table” below. No discretionary bonuses were paid to NEO's under the 2019 Annual Incentive Plan.
For 2020, the Compensation Committee has established thresholds, targets, and maximums for Revenue, Operating Income, and Earnings per Diluted Share as the Annual Incentive Plan performance metrics.
Long-Term Incentive Plan
2019. We continue to believe that our long-term performance is driven through an ownership culture that rewards officers for creating and maximizing shareholder value. That is a philosophy that permeates our organization as evidenced by the fact that over 1,500 employees receive stock option and/or RS awards. The Long-Term Incentive Plan provides officers, including our NEOs, with incentive awards that serve an important role by balancing other applicable short-term goals with long-term shareholder value creation while minimizing risk-taking behaviors that could negatively affect long-term results.
The Board and/or the Compensation Committee approves the amount of the long-term incentive awards, which are based on a percentage of the officers, including NEO’s, base salary. Each officer's, including NEO’s, award opportunity is based on a target dollar value (determined toward the beginning of the performance period) as a percentage of base salary assigned to his or her position based on market comparisons for similar positions, using both Peer Group and general industry market data. The following target opportunities apply for the 2019-2021 performance period under the Long-Term Incentive Plan:
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Executive Officer | Long-Term Plan Target Opportunity Percentage of Base Salary for 2019-2021 |
Steve Downing | 200% | |
Neil Boehm | 100% |
Kevin Nash | 100% |
Matt Chiodo | 100% |
Scott Ryan | 100% |
2020. For 2020, the Target was moved to 240% for Mr. Downing, 150% for Mr. Boehm, 140% for Mr. Nash, 130% for Mr. Chiodo, and 125% for Mr. Ryan in lieu of base salary increases. The Compensation Committee had intended to move base salaries for NEOs toward the market median of the Company's established Peer Group (as previously discussed and disclosed), but instead provided more upside under the Long-Term Plan for 2020. No other changes were made in 2020 with respect to the Long-Term Incentive Plan.
Achievement at threshold performance yields 50% of the target award and achievement of maximum performance yields another 100% of the target award. To the extent performance exceeds threshold or target, as applicable, for an applicable performance objective, but does not meet or exceed the established target or maximum, as applicable, linear interpolation is used to determine the pro rata portion of such award.
Seventy percent (70%) of the total value of the target long-term incentive opportunity is delivered through PSAs and the other thirty percent (30%) through RS. We believe both PSAs and RS are forms of performance-based incentive compensation because PSAs provide direct alignment with shareholder interests and the value of RSUs fluctuates based on stock price performance.
In addition to requiring achievement of performance objectives in respect to PSAs, PSAs and RS require the NEO to remain employed with the Company for three years from the grant date, unless the NEO attains retirement age, departs for good reason, dies, or becomes disabled whereby an award may be paid or partially paid.
Performance Shares
The Long-Term Incentive Plan is designed to provide PSAs for officers, including our NEOs. PSAs, which are 70% of the total long-term incentive opportunity, are tied to the achievement of two performance objectives, each weighted equally: EBITDA (50%) and ROIC (50%), adjusted as determined by the Compensation Committee. Each performance objective is based on a three-year performance period (2019-2021) with a performance range that can result in PSAs of 0% to another 100% of the target opportunity. Under the Long-Term Incentive Plan, PSAs are generally granted in February to officers, including NEOs and vest based on achievement of the performance objectives and remaining employed until the third anniversary of the grant.
EBITDA drives the ability to commit resources to continued growth, but is also a measure of ability to provide shareholder return. It also drives profitable sales growth and optimizes our cost structure. ROIC ensures management uses our capital in an effective manner that drives shareholder return. Since the value of PSAs is also tied to our actual performance in key performance objectives over a three year period, PSAs align the officers' interests with those of shareholders. The target opportunities of PSAs for the NEOs are shown in the table below:
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Executive Officer | Number of PSAs awarded in 2019 (Target ) for 2019-2021 |
Steve Downing | 49,575 | |
Neil Boehm | 13,451 | |
Kevin Nash | 13,220 | |
Matt Chiodo | 12,559 | |
Scott Ryan | 11,568 | |
Restricted Stock Awards
The other 30% of the total value of the long-term incentive opportunity consists of RS awards. RS incents and rewards executives for improving long-term stock value and serve as a retention tool. Under the Long-Term Incentive Plan, RS is generally granted in February to officers, including our NEOs, and cliff vest on the third anniversary of the grant, provided the recipient remains employed on the third anniversary of the grant. The RS awarded in 2019, based on the target opportunities, for the NEOs are shown in the table below:
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Executive Officer | Number of RS Awarded in 2019 for 2019-2021 |
Steve Downing | 21,246 | |
Neil Boehm | 5,765 | |
Kevin Nash | 5,666 | |
Matt Chiodo | 5,382 | |
Scott Ryan | 4,958 | |
Equity awards granted to our NEOs are shown in the "Grant of Plan-Based Awards" table and in the "Summary Compensation Table" below.
Retirement and Deferred Compensation
Each of the NEOs is eligible to participate in the following retirement and deferred compensation benefit plans:
•Retirement Savings Plan
•Deferred Compensation Plan
The Gentex Corporation Retirment Savings Plan is a tax-qualified, "safe harbor" 401(k) plan for our U.S.-based employees of the Company, including NEOs. Participants may elect to contribute a portion of their earnings to the plan each year. We match 100% on an employee's contributions up to 3% of compensation and 50% on an employee's contributions on the the next 2% of compensation. The matching amounts for the NEOs is listed in the "Summary Compensation Table" in the Proxy Report.
The Gentex Corporation Non-Qualified Deferred Compensation Plan (the "Deferred Compensation Plan") provides a vehicle for key employees and officers to defer compensation on a tax-favored basis. The Deferred Compensation Plan is intended to enhance retirement savings among a select group of management and highly compensated employees who contribute significantly to the success of the Company. Only select management and highly compensated employees, including NEOs, are eligible to shareparticipate allowing them to elect, on a pre-tax basis, to defer receipt of certain compensation by making an election in our Profit-Sharing Bonuses.accordance with the terms of the Deferred Compensation Plan. Participants are immediately vested in their own deferrals and related earnings. The Company may, but is not required, to match participant deferrals. Participants are generally vested in any such matching contributions 50% after two years but before three years of service and 100% after three years of service. A percentageparticipant's vested credit balance will generally be paid on the earliest to occur of: a separation from service; a fixed date or event; a change of pre-tax income aftercontrol; or a minimum thresholdplan termination. A participant can elect whether to receive his or her vested credit balance in a lump sum on the relevant payment date or in installments thereafter. The Deferred Compensation Plan maintains a "rabbi trust" to assist the Company in meeting its obligations under the Deferred Compensation Plan. The assets in such trust remain subject to the creditors of profitability has been achieved is paid to eligible employees quarterly. This structurethe Company and are not property of any participant. The Deferred Compensation Plan is intended to incentivize employeescomply with Section 409A of the Internal Revenue Code.
In fiscal year 2019, participants were eligible to produce above industry average financialelect to defer up to 75% of their base pay and up to 75% of any incentive performance thereby aligning employeebonus, quarterly profit sharing bonus or look back performance bonus into the plan on a tax-deferral basis. For 2019 the Company elected to make discretionary company credit of 10% of contributions into all participants accounts. The deferral amount and shareholder interests. For 2015, Profit-Sharing Bonusesthe Company matching amounts for the NEOs are listed, respectively, in the total amount"Summary Compensation Table" and the "Non-Qualified Deferred Compensation Table" each below.
HOW COMPENSATION DECISIONS ARE MADE
Role of approximately $41.3 million were paid to approximately 4,913 employees. Historically, those Profit-Sharing Bonuses have paid employees between 0 percent to 25 percent of base salary, which supplements base salaries (since base salaries have been historically lower than market), consistent with our philosophy that employees win when shareholders win.
In addition, the Company has adopted an additional bonus based on the Profit-Sharing Bonuses already paid (in accordance with the Company's Performance-Based Bonus Plan). Under that plan, certain key employees, including the CEO and executive officers, are eligible to receive a ten percent (10%) increase in the Profit-Sharing Bonus percentage for each one percent (1%) by which net sales for the relevant year exceed net sales for the prior year (less payments of Profit-Sharing Bonuses already made for such year). The plan is designed to even further align shareholder return with executive officer compensation, in that incentive is provided to continue growing the Company.
In addition, performance-based bonuses are awarded under the Performance-Based Bonus Plan based on pre-established performance metrics of EBITDA, Diluted Earnings per Share, and Quality (each factor being weighted one-third). The Compensation Committee selected these measures to provide a balanced focus and because they impact shareholder value. During 2015, the Compensation Committee discussed, considered, and reviewed a threshold and a target for each of the foregoing performance metrics (based on IHS light vehicle production data, internal estimates of take rates and volumes, and expense budgets), and in February 2016 formally adopted and moved forward with implementation of the Performance-Based Bonus Plan (making it effective for 2015). There is no bonus payable under the plan until the pre-established threshold for a performance metric is exceeded and a maximum bonus of ten percent (10%) of base salary is payable for achievement of all targets. Pro rata bonuses (based on the percentage
of the target achieved in excess of the threshold) are payable based upon exceeding the thresholds but not meeting or exceeding the targets.CEO
The Compensation Committee will meet each February to verify the achievement of the above-described additional profit-sharing bonusBoard assists the Board in fulfilling its obligations related to the compensation of the Company's officers and, in general, with respect to equity compensation for all employees. Our current Compensation Committee consists of a chair and independent directors who are appointed annually by the performance metrics for the performance-based bonuses.Board. Under the Performance-Based Bonus Plan, the Compensation Committee retainsCharter, the right, based on performance, to increase performance bonuses up to twenty-five percent (25%Compensation Committee must have a minimum of three members who meet the requirements for independence as set forth by the Securities and Exchange Commission ("SEC") and the NASDAQ Stock Market Rules. Members of the performance-basedCompensation Committee must also qualify as “non-employee directors” within the meaning of Exchange Act Rule 16b-3 and as “outside directors” for purposes of Section 162(m) of the Internal Revenue Code.
The Compensation Committee members during 2019 were: Richard Schaum (Chair), Gary Goode, and James Wallace.
The Compensation Committee’s responsibilities include, but are not limited to, reviewing our officer compensation philosophy and strategy, participating in the performance evaluation process for our President and CEO, setting base salary and incentive opportunities for our President and CEO and other NEOs, establishing the overarching pay philosophy for our management team, establishing incentive compensation and performance goals and objectives for our NEO's and other officers and determining whether performance objectives have been achieved. Executive sessions are held by the Compensation Committee without the participation of any member of management. Each year, the Compensation Committee reviews the performance and total compensation package of our NEOs. The Compensation Committee reviews and establishes each NEOs total target and actual compensation for the current year, which includes base salary, annual bonus opportunities, and long-term equity incentive awards as more fully described herein. The Compensation Committee also approves equity compensation for all employees.
Our President and CEO is responsible for making recommendations to pay non-CEO employee participants bonuses for personal goal achievement of up to twenty-five percent (25%) ofthe Compensation Committee regarding base salary and incentive opportunities for the NEOs, other than with respect to his own compensation, but does not vote with respect thereto.
Compensation decisions are made by the Compensation Committee using its sole judgment, but may be recommended to the full Board for approval as well. The Compensation Committee focuses primarily on each NEO’s performance against financial and strategic objectives and the Company's overall performance.
Role of the Independent Compensation Consultant
The Compensation Committee Charter states that the Compensation Committee may retain outside compensation consultants, legal advisors, or other advisors in its discretion. During 2019, the Compensation Committee did not engage its independent compensation consultant Mercer (of the Marsh & McLennan Companies), to provide it with any new or expanded services related to compensation matters beyond those services previously disclosed. When engaging Mercer, the Compensation Committee considers the relevant independence factors to ensure such work does not raise any conflict of interest. Mercer did not provide any other services to the Company in 2019 and its fees for such disclosed services were $46,000.
We continued to use Marsh USA Inc. ("Marsh"), another of the Marsh & McLennan Companies, to provide insurance services in 2019. The Company paid Marsh approximately $426,000 in 2019. The total fees paid to Mercer and Marsh for 2019 was approximately $472,000, which is approximately .0028% of the revenues of Marsh & McLennan Companies for 2019. The decision by the Compensation Committee to engage Mercer was done with the knowledge that Marsh was engaged to provide insurance services.
COMPENSATION POLICIES & PRACTICES
Stock Ownership Guidelines
Our Stock Ownership Guidelines are intended to encourage executives to own a significant number of shares of our common stock. The Stock Ownership Guidelines are calculated based on a multiple of the NEO’s
annual base salary (five times for the President and CEO and three times for the other NEOs). Further, the stock ownership guidelines also apply to non-employee directors using a multiple of their annual retainer (five times).
Such Stock Ownership Guidelines provide for the NEOs and non-employee directors to achieve the targeted stock ownership levels on a schedule within five years. In determining if our NEOs and non-employee directors have satisfied the ownership requirements, we generally include RS that has been granted and any shares owned outright by the NEO or non-employee directors.
Clawback Provisions
To mitigate risk of paying either annual or long-term incentives including equity incentives based on faulty financial results, we have a Clawback Policy such thatregarding adjustment of compensation in the event of a restatement of our financial results. It provides that the Compensation Committee will review all bonuses and other compensation paid or awarded to our executive officers based on the achievement of corporate performance goals during the period covered by a restatement. If the amount of such compensation paid or payable to any current or former executive officer based on the originally reported financial results differs from the amount that would have been paid or payable based on the restated financial results, the Company will seek recovery from the executive officer of any compensation exceeding that to which he or she would have been entitled based on the restated results.
Hedging and Pledging of Stock
Under the terms of our Anti-Hedging and Anti-Pledging Policy, no officer or director is permitted to engage in securities transactions that would allow them either to insulate themselves from or profit from, a decline in the Company's financial statements,stock price. Similarly, no officer or director may enter into hedging transactions in the bonuses payable underCompany's stock. Such transactions include, but are not limited to, short sales as well as any hedging transactions in derivative securities (e.g. puts, calls, options, collars, etc.) or other speculative transactions relating to the Performance-Based Bonus Plan may be clawed back.
Stock-Based Compensation. Stock-based compensationCompany's stock. Pledging of our stock is prohibited as well. This policy is intended to align the interestsensure our officers and directors have full risks and rewards of shareholders and executives and other employees by making our executives and other employees shareholders in a meaningful amount. We attempt to foster and maintain an entrepreneurial culture that seems to work best when our employees are owners and, therefore, win when our shareholders win. History and the current climate have confirmed for us that stock-based compensation provides appropriate incentives to incent long-term performance and is also a good retention tool. Stock-based compensation includes:
stock options
restricted stock
Stock options are granted under our existing Employee Stock Option Plan, as amended, and restricted stock is granted under our Second Restricted Stock Plan, as amended, each of which has been approved by our shareholders. Our stock-based incentives vest over time to encourage our employees to take a long-term perspective.
Details of Compensation Program Design
The fundamental elementsownership of our compensation program allow compensationstock.
Equity-Based Grant Practices
Under our equity-based grant practices, we make annual equity-based grants to be impacted byofficers, including NEOs, in the first quarter of the calendar year at a meeting of the Board. The exercise price, in the case of any stock options, or the value in the case of PSAs or RS, is now the average closing price of our overall performancecommon stock on the NASDAQ for the twenty (20) trading days preceding the day of the grant (but prior to that, the date of grant was used) for NEOs, officers, and by individual performance as well.
Impact of Performance on Compensation
Each year, thenon-employee directors. The Compensation Committee undertakes a CEO performance review which involves a multi-step process. First, the entire Board of Directors evaluates CEO performance on a variety of factors including:
leadership
strategic planning
financial results
succession planning
human resources/diversity
communications withapproves all equity-based grants, though the Board management, employees, and shareholdersalso approves all NEO compensation.
external relations
Board relationsMitigation of Potential Risk in Pay Programs
The Compensation Committee gathershas reviewed our compensation policies and practices and determined that there are no risks arising from our compensation policies and practices for our employees that are reasonably likely to have a material adverse effect on the Company. To avoid excessive risk-taking behaviors, we have put in place several mechanisms, including, but not limited to:
•Stock Ownership Guidelines;
•Caps on annual incentive payouts;
•Financial performance-based annual incentive program;
•Long-term incentive awards (which are delivered in the form of equity) based on remaining with the Company and/or financial performance objectives;
•Mix of multiple types of awards;
•Use of multiple performance objectives to determine annual and long-term incentive payouts; and
•Clawback Policy and Anti-Hedging and Anti-Pledging Policy.
Impact of Accounting and Tax Treatments
Internal Revenue Code Section 162(m)
Subject to certain exceptions, Section 162(m) of the Internal Revenue Code limits our ability to deduct compensation in excess of $1 million per year paid to certain covered employees. The exemption from Section 162(m)’s deduction limit for performance-based compensation has been repealed, effective for taxable years beginning after December 31, 2017, such that compensation paid to our covered executive officers in excess of $1 million will not be deductible unless it qualifies for transition relief applicable to certain arrangements entered prior to November 2, 2017 and which are not materially amended thereafter. We do not believe the foregoing has had a material impact on the Company's compensation-related decision making or our results of this evaluation. Theoperations.
Accounting for Stock-Based Compensation Committee then considers these evaluations and discusses the same
We account for stock-based payments under our equity-based plans in accordance with the CEO. Based on the foregoing, the Compensation Committee then makes CEO compensation recommendations to the entire Boardrequirements of Directors. Pursuant toFASB ASC Topic 718. Further information about this process, the CEO's base salaryaccounting treatment can be found in Notes 1 and stock-based awards are determined and approved by the Board. Evaluations, as stated herein, are also undertaken for non-CEO executive officers. Through these evaluation processes, the Compensation Committee and the Board can exercise positive or negative discretion concerning compensation decisions. Evaluations of our employees generally take place on or about the employee's anniversary date of employment, except the CEO evaluation which occurs in August and evaluations of non-CEO executive officers which now occur occur in February of each year to coincide with the Compensation Committee verification of achievement5 of the performance metrics related to payment of the additional profit-sharing bonuses and performance-based bonuses.
The Compensation Committee considers the foregoing factorsConsolidated Financial Statements in varying degrees in its review of the CEO. In its 2015 review of CEO performance which occurred in August 2015, the Compensation Committee and the Board highlighted positive reviews with respect to financial results, leadership, and staffing. Succession planning was also covered in the 2015 CEO performance review.
Specificsour Annual Report on Elements of Compensation for 2015
Tables. The "Summary Compensation Table for 2015" shows the base salary, bonuses (including performance-based bonuses and personal goal achievement bonuses), restricted stock awards, stock option awards, and other compensation for each of our named executive officers. Total compensation for each applicable named executive officer is also reflected in that Table. The "Grants of Plan-Based Awards for 2015" Table sets forth stock-based compensation. The "Outstanding Equity Awards at Fiscal Year-End December 31, 2015," Table and the "Option Exercises and Stock Vested for 2015" Table further demonstrate efforts to align our executive officers' interests with those of our shareholders. We continue to believe these compensation elements and the mix of these elements are appropriate for the Company given its culture, performance, industry, and current opportunities and challenges.
Base Salary. The base salaries for our named executive officers are set forth in the "Summary Compensation Table for 2015." The Company approved guidelines for 2015 that salaried employees, including executive officers, were eligible for an increase in base salary of up to 4 percent per year for performance alone, and up to 10 percent per year total if increased responsibilities are undertaken (or, potentially more in the case of a promotion). These guidelines have been left in place for 2016 with the exception of base salary, which may be increased up to 5 percent for performance alone.
For 2015, our CEO received a 4 percent increase in base pay, based on Company guidelines of 0-4 percent. Mr. Downing received a 50 percent increase in base pay due to his promotion and an increase in responsibilities, Mr. Nash received a 15 percent increase in base pay due to an increase in responsibilities, Mr. Ryan received an 8 percent increase in base pay due to an increase in responsibilities, and Mr. Matthews received a 4 percent increase in base pay based on Company guidelines.
Increases were predicated largely on financial performance of the Company during the previous twelve months. The qualitative factors included above in the review of CEO performance also impacted other executive officer compensation determinations.
Base salaries for executives still remain below market as performance-based (including stock-based), incentive compensation is emphasized, consistent with the Company's entrepreneurial culture.
Bonuses. Profit-Sharing Bonuses and other performance-based bonuses, as discussed above, and discretionary bonuses for named executive officers are also set forth in the "Summary Compensation Table for 2015." The Company has approved a guideline such that employees, other than participants in the Performance-Based Compensation Plan, are eligible for personal goal achievement bonuses of up to 50 percent of base salary (or, potentially more, in the case of exemplary performance). The additional profit-sharing bonuses and performance-based bonuses earned in 2015 under the Performance-Based Bonus Plan are set forth in the Non-Equity Incentive Plan Compensation Column of the "Summary Compensation Table for 2015." Personal goal achievement bonuses earned in 2015 are set forth in the Bonus Column of the "Summary Compensation Table for 2015."
For 2015, participants in the Performance-Based Bonus Plan became eligible for an increase in the Profit-Sharing Bonus percentage due to a 12 percent year-over-year increase in sales, with such bonus calculated as set forth herein.
With respect to the performance metrics for the performance bonus under the Performance-Based Bonus Plan for 2015:
|
| | | | |
Performance Metric | Weighting Factor | Threshold | Target | Actual Result |
EBITDA | 1/3 | $415,653,830 | $500,285,000 | In excess of Target |
Diluted Earnings Per Share | 1/3 | $0.88 | $0.99 | In excess of Target |
Quality | 1/3 | * | * | In excess of Target |
*Quality thresholds and targets are a non-variable calculation based on parts per million plus over-all corporate cost of quality.
In February 2016, the Compensation Committee verified achievement of a year-over-year increase in sales and the above performance metrics under the Performance-Based Bonus Plan and implemented the Performance-Based Bonus Plan (effective for 2015). As such, each executive officer was awarded an initial Profit-Sharing Bonus and a performance bonus of ten percent (10%) of base salary, as set forth in the "Summary Compensation Table for 2015" and as set forth in Part III, Item 11 of the Company's formForm 10-K for the year ended December 31, 2015.2019.
Personal goal achievement bonuses reflect our Compensation Committee's and Board of Directors' positive and negative discretion. As noted, theDIRECTOR COMPENSATION
Our Compensation Committee and the Board generally prefer to emphasize stock-based compensation for the CEO, which is evidenced by the CEO not receiving any personal goal achievement bonuses for 2015, 2014, or 2013.
Stock-Based Compensation. Our named executive officers are also eligible to receive grants of stock options under our Employee Stock Option Plan and grants of restricted stock under our Second Restricted Stock Plan. The Company has approved guidelines so that stock option awards up to an established percentage may be made under our Employee Stock Option Plan and restricted stock awards of up to an established percentage may be made under our Second Restricted Stock Plan. During 2015:
CEO -135,000 stock option shares granted
Other Executive Officers - 4,580 to 16,880 stock option shares granted
Restricted Stock Awards of 1,650 shares to 6,000 shares
These awards are predicated on both individual and company performance, while creating incentives to help achieve our long-term goals and align employee interests with those of our shareholders. In particular, in the case of our CEO, the Compensation Committee prefers stock option grants to the CEO rather than more significantly increasing base pay or bonuses to a level that might be more commensurate with the market for chief executive talent. In light of the fact that our CEO's base pay is low, and the fact that he received no personal goal achievement bonus or restricted stock award, along with the Company's emphasis on incentive compensation, our CEO was granted the foregoing stock option award in 2015, which will only benefit him if our shareholders benefit as well.
Our Employee Stock Option Plan, as amended and restated, makes stock options generally available to all of our salaried employees. All options are granted to employees around the end of the quarter in which their anniversary date of employment occurs at scheduled meetings of the Compensation Committee (except in the case of named executive officer stock option grants, which are done when approved by the entire Board of Directors as discussed above). Stock options are only granted at their fair market value on the date of Compensation Committee meetings with all such grants being reviewed and approved by the Compensation Committee (except named executive officer stock option grants, which are only granted at their fair market value on the date approved by the entire Board). Generally, stock option awards to officers have a seven-year term and become exercisable (as long as employment continues), for 20 percent of the shares on each anniversary of the grant date commencing on the first anniversary of the grant date, although a five-year term might be used in order to accommodate certain circumstances. Stock options for other employees generally carry a five- to seven-year term and similarly vest over time.
Restricted stock awards are granted at the discretion of the Compensation Committee at scheduled meetings of the Compensation Committee (except in the case of named executive officers restricted stock awards, which are made when approved by the entire Board of Directors, as noted below). Historically, grants of restricted stock to eligible employees have been considered once every three years for each eligible employee. Beginning in February 2016, the Compensation Committee expects to grant restricted stock awards annually for non-CEO named executive officers at the time of the reviews of such individuals (and annually for certain other officers as well). Usually, these share grants are restricted for five years from the
date of grant, and as such are viewed as an important retention tool. Dividends are paid on restricted shares so granted if, and to the extent, we pay dividends on our common stock. The vesting schedules associated with stock option and restricted stock awards, in part, discourage excessive and unnecessary risk-taking (especially when considered in connection with the stock ownership guidelines for executive officers).
Other Compensation. All other compensation for named executive officers set forth in the "Summary Compensation Table for 2015" includes "matching" contributions by the Company pursuant to our 401(k) plan, restricted stock dividends, the personal use of designated Company automobiles by certain executive officers or reimbursement for business use of personal vehicles, and certain costs associated with the personal use of Company aircraft, as detailed in the notes to the "Summary Compensation Table for 2015." Also, membership fees at a local country club are paid as detailed in the notes to the "Summary Compensation Table for 2015." We make available to certain executives Company aircraft for personal use, provided it does not conflict with any business purpose for the aircraft. All executives are assessed the value of the incremental costs of personal use of Company aircraft. The cost to the Company related to personal use of Company aircraft is calculated using the SIFL (Standard Industry Fare Level) rates as outlined by the IRS in accordance with Treasury Regulation Section 1.61-21 (Taxation of fringe benefits). Certain costs associated with the personal use of Company aircraft are considered a taxable fringe benefit as reflected in the notes to the "Summary Compensation Table for 2015." For tax purposes, the additional income that is considered a taxable fringe benefit is subject to income inclusion as reflected in the notes to the "Summary Compensation Table for 2015."
Director Compensation
Our Board of Directors has responsibility for periodically assessing our director compensation program.
For 2015,2019, each director who was not an employee at the Company received, as applicable:
Annual retainer - $80,000
Chair of the Company received:Board retainer - $75,000
Audit Committee Chair retainer - $12,500
$12,000 annual directors' retainer fee ($3,000 per quarter)
$1,750 for each Board meeting attended
$1,250 for each Committee meeting attended
An option to purchase 7,000 shares of our common stock
The Lead Independent Director received an additional retainer fee in the amount of $10,000 for 2015. The Chairmen of our Compensation and Audit Committees also received an additional retainer fee in the amount of $5,000 for each committee for 2015. For 2016, Board fees have been set at: $14,400 annual directors' retainer fee ($3,600 per quarter); $2,100 for each Board meeting attended; and $1,500 for each Committee meeting attended. For 2016, the Lead Independent Director, Compensation Committee Chairman,Chair retainer - $10,000
Nominating and Corporate Governance Committee Chair retainer - $10,000
Audit Committee Chairman additionalMember retainer fees have been set(non-chair) - $7,500
Compensation Committee Member retainer (non-chair) - $5,000
Nominating and Corporate Governance Committee Member (non-chair) - $5,000
All of the foregoing amounts are payable quarterly. As of 2019, directors elected at $12,000, $6,000, and $6,000, respectively. The non-employee directors annual optioneach Annual Meeting receive a grant of RS equal to purchase 7,000 shares of our common stock is at a$100,000 divided by the average closing price per share equal toof the closing price of ourCompany's common stock on the NASDAQ ontwenty (20) days preceding the date of each annual meeting of shareholders in accordance with our shareholder approved 2012 Amended and Restated Non-Employee Director Stock Option Plan, as amended. See the "Director Compensation Table for 2015." Like executives, Board members may make personal use of Company aircraft if such use does not conflict with any business purpose for the aircraft. The costgrant rounded to the Company relatednearest whole share of such RS. Each such RS grant will vest on the first anniversary of the grant.
PAY RATIO
As a result of rules adopted under the Dodd-Frank Act, the SEC requires disclosure of the CEO to such personal use by directors is calculated using SIFL (Standard Industry Fare Level) ratesmedian employee pay ratio. In 2019, the CEO's annual total compensation was $3,059,702 as discussed above. We believe this director compensation to be reasonable and appropriate.
Stock Ownership
The Company has adopted Stock Ownership Guidelines (*) providing that executive officers should own three times their annual salaries in Company common stock and directors should own two times their annual director fees in Company common stock. As noted above, such guidelines help discourage excessive and unnecessary risk-takingreflected in the context"Summary Compensation Table." Our median employee's annual compensation for 2019 was $48,462. As a result, we estimate that the CEO's annual total compensation was approximately 63 times that of our median employee in 2019. This pay ratio is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K.
For purposes of determining our CEO pay ratio, SEC rules allow us to use the Company’s emphasis on stock-based compensation. The Compensation Committee continuessame median paid employee for three years as long as there has been no change in our employee population or employee comensation arrangements that we reasonably believe would result in a significant change to assessour CEO pay ratio disclosure. We analyzed the Stock Ownership Guidelines, compliance with2018 gross earnings (as described in the following paragraph) for our employee population, and as a result of such guidelines, and appropriate means to ensure compliance with such guidelines. In addition, the Company's Anti-Hedging and Anti-Pledging Policy prohibit directors and executive officers from leveraging their ownership of Company stock or pledging Company stock to secure personal loans.
Impact of Regulatory Requirements
In making compensation design and award decisions, we have considered the ability to deduct compensation in accordance with Internal Revenue Code Section 162(m). We have also considered the impact of Section 16 of the Securities and Exchange Act of 1934 and rules promulgated thereunder. Sinceanalysis, we do not currentlybelieve any such change occurred during 2019. Therefore, we have a deferredutilized the same median paid employee for this year's CEO pay ratio disclosure as we used for 2018.
To identify our median paid employee for 2018, we analyzed our employee population as of 12/31/2018. Our employee population was approximately 5,800. We identified our median paid employee based on gross annualized earnings for 2018, which included gross wages, bonus payments, stock compensation plan, consideration ofexpense and taxable benefits. Compensation earned in currencies other than U.S. Dollars was translated into U.S. Dollars.
We determined the impact of Internal Revenue Code Section 409A inmedian paid employee's annual total compensation designusing the methodology for calculating total compensation for the Summary Compensation Table and award decisions has not been significant. The executive compensation disclosure rules applicable to annual reports and proxy statements with respectcompared that to the disclosureannual total compensation of compensation-related risks for all employees, certain matters related to compensation consultants, reporting of equity awardsour CEO, as disclosed in the compensation tables, and the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act related to compensation have had no material impact on our decisions regarding compensation. The shareholder advisory vote on named executive officer compensation occurring this year, as well as future shareholder advisory votes on named executive officer compensation, will be considered by theSummary Compensation Committee and Board of Directors in making future compensation decisions.Table.
ConclusionCONCLUSION
We have reached the conclusion that each individual element of compensation, as well as the total compensation, delivered to our named executive officersNEOs and to our directors during 20152019 are reasonable, appropriate, and in the best interests of ourthe Company and our shareholders. We believe the elements of compensation for 2020 will be the same. That determination is based on a continuation of our compensation philosophy and practices which we believe align both the short-term and long-term interests of our employeesofficers with those of our shareholders. It remains the case that each element of our compensation program is important to accomplishing the Company's goals of creating an entrepreneurial environment so that our employees are motivated to remain with us, individually perform to the best of their abilities, and focus on our long-term success.
EXECUTIVE COMPENSATION
Summary Compensation
The following table sets forth the compensation earned by the principal executive officer, principal financial officer, and other executive officers for services rendered to the Company for the fiscal year ended December 31, 2015.2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Summary Compensation Table for 2019 | | | | | | | | | |
Name and Principal Position | Year | Salary ($) | Bonus ($) | (1) Stock Awards ($) | (2) Option Awards ($) | (3) Non-Equity Incentive Plan Compensation | Change in Pension Value and Non-qualified Deferred Compensation Earnings ($) | (5) All Other Compensation ($) | Total ($) |
Steve Downing, President and CEO | 2019 | 733,846 | | — | | 1,444,748 | | — | | 735,272 | | — | | 145,836 | | 3,059,702 | |
| 2018 | 618,173 | | 180,000 | | 1,559,920 | | 636,017 | | 323,989 | | — | | 109,351 | | 3,427,450 | |
| 2017 | 420,959 | | 182,358 | | 286,130 | | — | | 96,809 | | — | | 88,514 | | 1,074,770 | |
Neil Boehm, Vice President - Engineering and CTO (4) | 2019 | 395,046 | | — | | 392,006 | | — | | 299,256 | | — | | 68,838 | | 1,155,146 | |
| 2018 | 317,734 | | 80,000 | | 183,520 | | 188,916 | | 129,412 | | — | | 58,428 | | 958,010 | |
Kevin Nash, Vice President - Finance, CFO and Treasurer | 2019 | 396,308 | | — | | 385,274 | | — | | 294,109 | | — | | 76,251 | | 1,151,942 | |
| 2018 | 327,075 | | 90,000 | | 183,520 | | 170,024 | | 132,132 | | — | | 87,485 | | 990,236 | |
| 2017 | 225,504 | | 104,254 | | 134,447 | | — | | 51,451 | | — | | 84,757 | | 600,413 | |
Matt Chiodo, Vice President - Sales (4) | 2019 | 372,893 | | — | | 365,996 | | — | | 279,403 | | — | | 63,193 | | 1,081,485 | |
| 2018 | 321,270 | | 80,000 | | 183,520 | | 188,916 | | 130,578 | | — | | 50,949 | | 955,233 | |
Scott Ryan, Vice President, General Counsel and Corporate Secretary | 2019 | 348,346 | | — | | 337,130 | | — | | 257,345 | | — | | 63,608 | | 1,006,429 | |
| 2018 | 305,573 | | 80,000 | | 183,520 | | 157,430 | | 122,417 | | — | | 77,805 | | 926,745 | |
| 2017 | 237,776 | | 87,838 | | 68,373 | | — | | 54,433 | | — | | 48,332 | | 496,752 | |
| | | | | | | | | | | | | | | |
(1) | | The amounts shown in this column for 2019 include the aggregate grant date fair market value of RS granted in 2019 and the aggregate grant date fair market value of PSAs awarded for the 2019-2021 performance cycle at target. The amounts in this column for 2018 and 2017 are solely the outstanding RS award with the value shown in the aggregate grant date fair value. The values in this column are computed in accordance with FASB ASC Topic 718 (as opposed to what is included in the Company's financial statements). See the Company's Annual Report (Footnote 5) for the years ended December 31, 2019, 2018 and 2017 for the assumptions made in the valuation of the RS grants and PSA grants. The actual number of RS shares granted and PSA shares granted is shown in the "Grants of Plan-Based Awards" table included in this Proxy Statement. Dividends for RS grants are and will be paid on the shares, if, and to the same extent, paid on the Company's common stock. Dividend equivalents are earned and accumulated over the performance period for PSAs, if, and at a similar rate and to the same extent, paid on the Company's common stock. NEOs are eligible to receive RS awards and PSA awards at the discretion of the Compensation Committee in accordance with the 2019 Omnibus Plan as discussed in the "Compensation Discussion and Analysis" section of this Proxy Statement. | | | | | | |
(2) | | For each outstanding stock option award, the value shown is the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 (as opposed to what is included in the Company's financial statements). See the Company's Annual Report (Footnote 5) for the years ended December 31, 2019, 2018 and 2017 for the assumptions made in the valuation of stock options. The actual number of stock options granted is shown in the "Outstanding Equity Awards at Fiscal Year-End" table included in this Proxy Statement. | | | | | | |
(3) | | Amounts set forth relate to performance-based bonuses earned under the Annual Incentive Plan based on the achievement of performance metrics set forth therein and are discussed further in the "Compensation Discussion and Analysis" section of this Proxy Statement. | | | | | | |
(4) | | Mr. Boehm and Mr. Chiodo became NEOs of the Company in February of 2018. | | | | | | |
(5) | | Other compensation includes the sum of RS dividends, PSA deemed dividends, matching contributions by the Company pursuant to its 401(k) Plan, matching contributions by the Company pursuant to its Deferred Compensation Plan, and the use of Company automobiles or reimbursement for the use of personal automobiles pursuant to the Company's policy for use of such vehicles, detailed in the table set forth below. Other compensation also includes membership fees at local country clubs and certain costs associated with the personal use of Company aircraft which is subject to income inclusion as a taxable fringe benefit, as summarized below in "Other Perquisites". | | | | | | |
|
| | | | | | | | | | | | | | | | | |
Summary Compensation Table for 2015 |
Name and Principal Position | Year | Salary ($) | (1) Bonus ($) | (2) Stock Awards ($) | (3) Option Awards ($) | (4) Non-Equity Incentive Plan Compensation | Change in Pension Value and Non-qualified Deferred Compensation Earnings ($) | (5) All Other Compensation ($) | Total ($) |
Fred Bauer, Chairman and CEO | 2015 | 523,102 |
| 118,033 |
| — |
| 662,466 |
| 204,022 |
| — |
| 29,076 |
| 1,536,699 |
|
2014 | 496,513 |
| 119,097 |
| — |
| 1,224,080 |
| — |
| — |
| 93,902 |
| 1,933,592 |
|
2013 | 479,960 |
| 103,368 |
| — |
| 1,081,769 |
| — |
| — |
| 43,672 |
| 1,708,769 |
|
Steve Downing, Senior Vice President and CFO | 2015 | 253,846 |
| 60,307 |
| 93,000 |
| 66,515 |
| 126,026 |
| — |
| 53,413 |
| 653,107 |
|
2014 | 193,209 |
| 116,569 |
| — |
| 80,933 |
| — |
| — |
| 28,140 |
| 418,851 |
|
2013 | 134,057 |
| 96,817 |
| 229,140 |
| 68,458 |
| — |
| — |
| 8,207 |
| 536,679 |
|
Kevin Nash, Vice President – Accounting and CAO | 2015 | 163,046 |
| 49,793 |
| 46,500 |
| 31,760 |
| 83,773 |
| — |
| 42,177 |
| 417,049 |
|
2014 | 149,827 |
| 68,953 |
| 160,620 |
| 52,732 |
| — |
| — |
| 28,513 |
| 460,645 |
|
Scott Ryan, Assistant General Counsel | 2015 | 184,424 |
| 44,121 |
| 26,416 |
| 18,446 |
| 83,656 |
| — |
| 24,060 |
| 381,123 |
|
Joseph Matthews, Vice President - Purchasing | 2015 | 147,430 |
| 66,265 |
| — |
| 23,586 |
| 72,096 |
| — |
| 24,060 |
| 333,437 |
|
2014 | 133,121 |
| 51,883 |
| 107,080 |
| 40,205 |
| — |
| — |
| 14,428 |
| 346,717 |
|
Mark Newton, Former Senior Vice President | 2015 | 299,261 |
| 42,699 |
| — |
| — |
| — |
| — |
| 482,935 |
| 824,895 |
|
2014 | 362,592 |
| 150,539 |
| — |
| 171,721 |
| — |
| — |
| 30,820 |
| 715,672 |
|
2013 | 296,861 |
| 132,426 |
| 127,300 |
| 165,059 |
| — |
| — |
| 19,953 |
| 741,599 |
|
(1) Amounts set forth include discretionary bonuses for Messrs. Nash, Ryan and Matthews of $12,000, $2,500 and $33,000 respectively.
(2) For each outstanding restricted stock award, the value shown is the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 (as opposed to what is included in the Company's financial statements). See the Company’s Annual Report (Footnote 5) for the years ended December 31, 2015, 2014 and 2013 for the assumptions made in the valuation of restricted stock. The actual number of restricted shares granted is shown in the "Grants of Plan-based Awards for 2015" table included in this Proxy Statement. Assuming continued employment with the Company, restrictions on shares lapse upon expiration of five years from date of grant. Dividends are and will be paid on the shares if, and to the same extent, paid on the Company's common stock. Executive officers are eligible to receive restricted stock awards at the discretion of the Compensation Committee in accordance with the Restricted Stock Plan and as discussed in the "Compensation Discussion and Analysis" section of this Proxy Statement.
| | | | | | | | | | | | | | | | | | | | | | | |
Name | Restricted Stock Dividends ($) | Performance Share Deemed Dividends ($) | 401(k) Employer Match ($) | NQDC Employer Match ($) | Personal Use of Automobiles ($) | Other Perquisites ($) | Total Other Compensation($) |
Steve Downing | $ | 50,211 | | 23,052 | 11,200 | 20,893 | 25,956 | 14,524 | 145,836 |
Neil Boehm | $ | 13,452 | | 6,255 | 11,200 | 5,576 | 20,364 | 11,991 | 68,838 |
Kevin Nash | $ | 15,454 | | 6,147 | 11,200 | 6,371 | 15,454 | 21,517 | 76,143 |
Matt Chiodo | $ | 11,648 | | 5,840 | 11,200 | 8,673 | 22,992 | 2,425 | 62,778 |
Scott Ryan | $ | 8,368 | | 5,379 | 11,200 | 6,115 | 24,648 | 7,898 | 63,608 |
(3)For each outstanding stock option award, the value shown is the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 (as opposed to what is included in the Company's financial statements). See the Company’s Annual Report (Footnote 5) for the years ended December 31, 2015, 2014, and 2013 for the assumptions made in the valuation of stock options. The actual number of stock options granted is shown in the "Grants of Plan-based Awards for 2015" table included in this Proxy Statement.
(4) Amounts set forth relate to the additional profit-sharing bonuses and performance-based bonuses earned in 2015 under the Performance-Based Bonus Plan and are discussed further in the "Compensation Discussion and Analysis" section of this Proxy Statement.
(5)Other compensation includes the sum of restricted stock dividends and "matching" contributions by the Company pursuant to its 401(k) Plan. In addition, other compensation includes the use of Company automobiles or reimbursement for personal vehicles pursuant to the Company's policy for use of such vehicles and membership fees at a local country club for Messrs. Bauer, Downing and Nash. Other compensation for Messrs. Bauer, Downing and Nash also includes certain costs associated with the personal use of Company aircraft which is subject to income inclusion as a taxable fringe benefit. Other compensation for Mr. Newton includesamounts paid, pursuant to Mr. Newton's severance agreement further described in the Company's 8-K filing on June 22, 2015.
The Company makes Company aircraft available to the executives when personal use does not conflict with any business purpose for the aircraft. The cost of the flight is calculated using the SIFL (Standard Industry Fare Level) rates published by the IRS in accordance with Treasury Regulation Section 1.61-21 (Taxation of fringe benefits).
(6)As disclosed in previously filed Form 8-K's, Mr. Nash became an executive officer effective June 16, 2014, Mr. Matthews became an executive officer effective July 22, 2014, Mr. Newton was no longer an executive officer as of June 18, 2015, and Mr. Ryan became an executive officer on August 20, 2015.
Grant of Plan-Based Awards
The following table discloses the actual number of restricted stockRS awards, PSAs, and stock options granted and the grant date of those awards. It also captures potential future payouts under the Company's non-equity and equity incentive plans.
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Grants of Plan-Based Awards for 2019 | | | | | | | | | | | |
Name | (1) Grant Date | (2) Estimated Future Payouts Under Non-Equity Incentive Plans | | | (3) Estimated Future Payouts Under Equity Incentive Plan Awards | | | (4) 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 ($/Sh) | (5) Grant Date Fair Value of Stock and Option Awards ($) |
| | Thres-hold ($) | Target ($) | Maximum ($) | Thres-hold (#) | Target (#) | Maxi-mum (#) | | | | |
Steve Downing | 02/13/19 | $ | 375,000 | | $ | 750,000 | | $ | 1,500,000 | | 24,788 | | 49,575 | | 99,150 | | 21,246 | | — | | — | | $ | 1,444,748 | |
Neil Boehm | 02/13/19 | $ | 152,625 | | $ | 305,250 | | $ | 712,250 | | 6,726 | | 13,451 | | 26,902 | | 5,765 | | — | | — | | $ | 392,006 | |
Kevin Nash | 02/13/19 | $ | 150,000 | | $ | 300,000 | | $ | 700,000 | | 6,610 | | 13,220 | | 26,440 | | 5,666 | | — | | — | | $ | 385,274 | |
Matt Chiodo | 02/13/19 | $ | 142,500 | | $ | 285,000 | | $ | 665,000 | | 6,280 | | 12,559 | | 25,118 | | 5,382 | | — | | — | | $ | 365,996 | |
Scott Ryan | 02/13/19 | $ | 131,250 | | $ | 262,500 | | $ | 612,500 | | 5,784 | | 11,568 | | 23,136 | | 4,958 | | — | | — | | $ | 337,130 | |
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Grants of Plan-Based Awards for 2015 |
Name | (1) Grant Date | (2) Estimated Future Payouts Under Non-Equity Incentive Plans | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of Stock or Units (#) | (3) All Other Option Awards: Number of Securities Underlying Options (#) | (4) Exercise or Base Price of Option Awards ($/Sh)
| (5) Grant Date Fair Value of Stock and Option Awards ($)
|
Thres-hold ($) | Target ($) | Maxi-mum ($) | Thres-hold (#) | Target (#) | Maxi-mum (#) |
Fred Bauer | 09/19/15 | $ | — |
| $ | 137,020 |
| $ | 197,309 |
| — |
| — |
| — |
| — |
| 135,000 |
| $15.89 | $ | 662,466 |
|
Steve Downing | 09/30/15 | $ | — |
| $ | 88,380 |
| $ | 131,040 |
| — |
| — |
| — |
| 6,000 |
| 16,880 |
| $15.50 | $ | 159,515 |
|
Kevin Nash | 09/30/15 | $ | — |
| $ | 48,770 |
| $ | 72,311 |
| — |
| — |
| — |
| 3,000 |
| 8,060 |
| $15.50 | $ | 78,260 |
|
Scott Ryan | 12/31/15 | $ | — |
| $ | 55,360 |
| $ | 82,082 |
| — |
| — |
| — |
| 1,650 |
| 4,580 |
| $16.01 | $ | 44,862 |
|
Joseph Matthews | 03/31/15 | $ | — |
| $ | 37,532 |
| $ | 55,648 |
| — |
| — |
| — |
| — |
| 4,950 |
| $18.30 | $ | 23,586 |
|
Mark Newton | | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
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(1) | | The Grant Date is the date when the Compensation Committee's recommendation was approved by the entire Board. |
(2) | | For 2019 under the Annual Incentive Plan, the Compensation Committee has established ratios of 50% of base salary for the President and CEO and 37.5% of base salary for the other NEOs upon achievement of the threshold, 100% of base salary for the President and CEO and 75% of base salary for the other NEOs upon achievement of the target, and another 100% of base salary for the President and CEO and another 75% of base salary for the other NEOs upon achievement of the maximum. At its February 2019 meeting, the Compensation Committee also established thresholds, targets, and maximums for the Revenue, Operating Income, and Earnings per Diluted Share performance metrics. As such, the columns reflect potential payments for each NEO under the Annual Incentive Plan. |
(3) | | These columns reflect the potential issuance of shares of common stock for each NEO under the PSA component of the Long-Term Incentive Plan for 2019. PSAs accounted for seventy percent (70%) of the Long-Term Incentive Plan awards in 2019 as discussed in the Long-Term Incentive Plan section of "Compensation Discussion and Analysis". Such PSAs cliff vest at the end of a three year period based on the Company's performance against established metrics as discussed in "Compensation Discussion and Analysis". |
(4) | | These RS awards represent the number of shares of restricted common stock awarded under the Long-Term Incentive Plan. RS accounted for thirty percent (30%) of the Long-Term Incentive Plan awards in 2019 as discussed in the Long-Term Incentive Plan section of "Compensation Discussion and Analysis." Such RS cliff vests three (3) years from the grant date. |
(5) | | This column represents the fair value (at grant date) of RS awards and PSAs granted to each of the NEOs in 2019. See the Company's Annual Report on Form 10-K, Note 5, for the year ended December 31, 2019 for the assumptions made in the valuation of RS awards and PSAs. |
(1) The Grant Date is the date the Compensation Committee met to approve the grants or when the Compensation Committee's recommendation was approved by the entire Board of Directors in the case of Mr. Bauer.
(2) Estimated future payouts under the Company's Pay for Performance Plan is based on the plan guidelines as approved by the Board of Directors as of February 18, 2016. Estimated "Target" payments are based on the Company achieving growth and performance metrics at the mid-point of its estimated 2016 public guidance as disclosed in the Company's 8-K filing on January 28, 2016. "Maximum" payments are based on the Company achieving growth and performance metrics at the top end of the range also disclosed on January 28, 2016. Should the Company achieve growth above the top end of its guided range, "Maximum" payments could increase beyond what is shown in this table.
(3) The option grants for Messrs. Bauer, Downing, Nash, Ryan and Matthews, are seven-year options that become exercisable, as long as employment with the Company continues, for 20 percent of the shares on each anniversary of the grant date commencing with the first anniversary of the grant date.
(4) The exercise price was the closing price of the stock on the date the Compensation Committee met to approve the option grants or as of the day when the Compensation Committee's recommendation was approved by the entire Board of Directors. The exercise price may be paid in cash, in shares of the Company's common stock, and/or by the surrender of the exercisable options valued at the difference between the exercise price and the market value of the underlying shares.