The Human Resources and Compensation Committee makes compensation decisions for our NEOs after reviewing our performance for the preceding fiscal year, our short- and long-term strategies, and current economic and market conditions, and carefully evaluating each NEO’s performance during the preceding fiscal year against established organizational goals, leadership qualities, operational performance, business responsibilities, career with us, current compensation arrangements and long-term potential to enhance enterprise value. The Human Resources and Compensation Committee takes a holistic view in its assessment of executive compensation arrangements, taking into consideration the foregoing factors and shareholder considerations, not necessarily relying on any one factor exclusively in determining compensation for our NEOs. In making compensation decisions, the Human Resources and Compensation Committee receives advice from FW Cook and input from our Chief Executive Officer (and other executive officers), as further discussed below.
Cook provides our Human Resources and Compensation Committee with input and guidance on all components of our executive compensation program. Except for services provided to the Human Resources and Compensation Committee related to executive and director compensation and non-employee director compensation, FW Cook did not provide any additional services to us during 2017.2019.
The Human Resources and Compensation Committee has evaluated whether any work performed by FW Cook raised any conflict of interest and determined that it did not.
For purposes of determining the size of the long-term incentive awards that were granted to our NEOs in February 20172019 (as described below in the “Long-Term Equity Incentive Awards” section), the Human Resources and Compensation Committee considered the results of the late 20162018 benchmarking study as a factor, in addition to individual performance levels and responsibilities and providing an appropriate long-term retention incentive for the NEOs (none of whichthese factors were individually weighted).
In addition, the Human Resources and Compensation Committee approved base salary merit adjustments in 2017February 2019 for Messrs. Tiejema, Hair, White and TiejemaPaxton (as described below in the “Elements of Our Executive Compensation Program - Base Salary” section), increases in each NEOs’ target annual bonus percentage (as described below in the “Elements of Our Executive Compensation Program - Annual Cash Incentive Bonus” section), and an increase in the target value for Mr. Hair’s annual long-term incentive grant (as described below in the “Elements of Our Executive Compensation Program - Long-Term Equity Incentive Awards” section), after taking into consideration the results of the late 20162018 benchmarking and other factors discussed in the relevant sections.
The Human Resources and Compensation Committee intends to continue to strive to provide paycompensation opportunities that generally align each NEO’s target total direct compensation within a competitive range of the market median and expects that a significant portion of each NEO’s total compensation package will continue to be focused on rewarding long-term future performance through a combination of at-risk cash and equity incentive awards.
Base salary is designed to provide our NEOs with a fixed amount of income that is competitive in relation to the responsibilities of each NEO’s position. In February 2017,2019, the Human Resources and Compensation Committee approved base salary merit adjustments for certain of the NEOs after considering prevailing market practices for executive merit adjustments and the results of the late 20162018 benchmarking study. Messrs.Mr. Lynch and Lewis and Ms. Auerbach did not receive aan increase because he announced his retirement in December 2018. The merit adjustment in 2017 because the Human Resourcesadjustments for Messrs. Tiejema, Hair, White, and Compensation Committee determined that their base salaries were already competitive in comparison to the market. Mr. Tiejema’s merit adjustmentPaxton reflected the Human Resource and Compensation Committee’s desire to bring Mr. Tiejema’s target total direct compensation closer to the market median for his position. Mr. Hair’s merit adjustment reflected his contemplated promotion to President of our Global Residential Business and related increased level of responsibility within the organization as well as the Human Resource and Compensation Committee's desire to recognize his performance and enhance our ability to retain him. them and to reward them for their performance. Mr. Heckes' base salary was set as a result of the negotiation of his employment agreement in connection with his joining as our new Chief Executive Officer.
The compensation program for our NEOs includes our MIP. The MIP a sub-plan of our 2012 Plan, is a formulaic short-term incentive plan which provides executive officers with a cash bonus award based on the achievement of annual performance goals. The Human Resources and Compensation Committee approves the MIP each year, including the funding threshold, the maximum bonus that may become payable to each participant, the applicable
performance goals, and the weighting, payout parameters and specific targets for each performance goal. Each fiscal year, Mr.our CEO (Mr. Lynch for 2019), following discussions with our Senior Vice President of Human Resources and our Executive Vice President and Chief Financial Officer, makes recommendations to the Human Resources and Compensation Committee for the MIP performance goals (and the applicable targets for achievement of each such performance goal at threshold, target and maximum levels of
performance) applicable to all NEOs (including himself) as well as any proposed changes in the terms of the MIP for that fiscal year. The Human Resources and Compensation Committee considers these recommendations, as well as input from FW Cook regarding both current incentive plan design trends and specific feedback regarding Mr. Lynch’sour CEO's recommendations, in approving the MIP for each fiscal year. Mr. LynchOur CEO has no involvement in the determination of a NEO's actual MIP payout each year, including his own.
After considering management’s recommendations and input from FW Cook, the Human Resources and Compensation Committee determined that the performance measures for the 20172019 MIP would focus on our ability to grow the total Company top line (MIP Net Revenue) and total Company profitability (MIP Adjusted EBITDA) and our ability to improve the relationship between the net revenue we receive for our products and the material costs that go into producing such products (Price/Cost Improvement) (each as defined in the "MIP and LTIP Definitions and Reconciliation" section below). For fiscal year 2017,2019, the MIP performance goals and the individual weighting assigned to each performance goal as a percentage of the applicable target bonus were established as follows:
The table below shows the threshold, target and maximum MIP performance goals for fiscal year 2017:2019:
Residential Business and to recognize his performance and enhance our ability to retain him, Mr. Tiejema’s target bonus percentages was increased from 60% to 70% in connection with the Human Resources and Compensation Committee’s desire to bring Mr. Tiejema’s target total direct compensation closer to the market median for his position, and Mr. Lewis and Ms. Auerbach’s bonus percentages were increased from 50% to 55% based on the Human Resources and Compensation Committee’s review of the market data and considering input from Mr. Lynch, to better align their target total direct compensation with the applicable market data. Applying the above-described formula, the bonuses paid to each NEO eligible to participate in the 20172019 MIP were as follows:
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Executive | | Base Salary (000) | | Target Bonus as Percentage of Base Salary | | 2019 Overall Plan Payout Percentage | | 2019 Bonus | |
Howard C. Heckes* | | $850.0 | | | 115% | | | 173.4% | | | $984,485 | | |
Frederick J. Lynch* | | $950.0 | | | 115% | | | 173.4% | | | $794,089 | | |
Russell T. Tiejema | | $470.0 | | | 70% | | | 173.4% | | | $570,486 | | |
James A. “Tony” Hair | | $515.0 | | | 75% | | | 173.4% | | | $669,758 | | |
Randal A. White | | $415.0 | | | 60% | | | 173.4% | | | $431,766 | | |
Robert A. Paxton | | $388.0 | | | 60% | | | 173.4% | | | $403,676 | | |
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Executive | | Base Salary | | Target Bonus as Percentage of Base Salary | | 2017 Overall Plan Payout Percentage | | 2017 Bonus |
Frederick J. Lynch | | $935,000 | | 115% | | 38.8% | | $417,197 | |
James A. “Tony” Hair | | $500,000 | | 70% | | 38.8% | | $135,800 | |
Russell T. Tiejema | | $440,000 | | 70% | | 38.8% | | $119,504 | |
Robert E. Lewis | | $412,000 | | 55% | | 38.8% | | $87,921 | |
Gail N. Auerbach | | $366,000 | | 55% | | 38.8% | | $78,105 | |
*Mr. Lynch's bonus was prorated to reflect that he retired from the Company's employment on June 2, 2019 and Mr. Heckes' bonus was prorated to reflect that he joined the Company on June 3, 2019. Bonuses earned under the 20172019 MIP were paid in March 2018.2020.
New Hire Sign-On Bonuses
In certain circumstances, we provide cash sign-on bonuses to attract executive talent. We determine whether to provide a newly hired executive with a sign-on bonus on a case-by-case basis after taking into account the specific circumstances involving hiring the executive, such as compensating the executive for certain bonus payments that the executive may forfeit from a previous employer or creating an additional incentive for the executive to join us. Pursuant to Mr. Heckes' employment agreement Mr. Heckes received a sign-on bonus of $150,000 on June 13, 2019, subject to repayment of some or all of the sign-on bonus if he resigns from employment or is terminated for cause (as defined in his employment agreement) on or before June 2, 2020.
Long-Term Equity Incentive Awards
February 20172019 Annual Long-Term Incentive Grant
The Human Resources and Compensation Committee believes that a significant portion of the equity awards granted to our executive officers should be earned based on the level of our performance pursuant to the financial and operating objectives described below. Tying a significant portion of the annual equity grants to our long-term performance serves to align a greater portion of our NEOs’ compensation to the achievement of our long-term financial and operating performance objectives and serves as a balance to the MIP, which measures
our performance over a one-year period. For 2017, the Human Resources and Compensation Committee determined that the target equity value granted to Mr. Lynch would consist of 60% restricted stock units subject to performance-based vesting conditions, 20% restricted stock units subject to only time-based vesting conditions, and 20% SARs subject to only time-based vesting conditions.did not receive a long-term equity incentive award in 2019. Because he did not join the Company until June 2019, Mr. Heckes did not receive a long-term equity incentive award in February 2019. For 2017,2019, the Human Resources and Compensation Committee determined that the target equity value granted to each of Messrs. Tiejema, Hair, Tiejema, Lewis,White and Ms. Auerbach respectivelyPaxton would consist of 50% restricted stock units subject to performance-based vesting conditions, 30% restricted stock units subject only to only time-based vesting conditions, and 20% SARs subject
only to only time-based vesting conditions. The Human Resources and Compensation Committee believed that a greater portion of Mr. Lynch’s annual equity award should be earned based upon our long-term performance in light of his responsibilities for the Company as a whole.
After taking into consideration the results of the late 20162018 benchmarking study, in addition to individual performance levels and responsibilities and providing an appropriate long-term retention incentive for the NEOs other than Mr. Lynch (none of which factors were individually weighted), the Human Resources and Compensation Committee approved target values for long-term incentive grants in 20172019 as follows. These target values werefollows (which remained unchanged from the target values in 2016 except that Mr. Hair’s target value was increased to 125% in connection with his contemplated promotion to President of our Global Residential Business and to recognize his performance and to enhance our ability to retain him:
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Executive | | 20172019 Target Equity Value as a Percentage of Base Salary |
Frederick J. LynchRussell T. Tiejema | | 135% | | 300% |
James A. “Tony” Hair | | 125%135% | |
Russell T. TiejemaRandal A. White | | 100% | | 125% |
Robert E. LewisA. Paxton | | 100% | | 100% |
Gail N. Auerbach | | 100% |
On February 27, 2017,25, 2019, the Human Resources and Compensation Committee granted to each of our NEOs (other than Messrs. Lynch and Heckes) an award consisting of the following.
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Executive | | Performance- Vesting Restricted Stock Units (at Target) | | Time-Vesting Restricted Stock Units | | Stock Appreciation Rights |
Russell T. Tiejema | | 5,515 | | 3,309 | | 8,020 |
James A. "Tony" Hair | | 6,043 | | 3,626 | | 8,788 |
Randal A. White | | 3,607 | | 2,164 | | 5,245 |
Robert A. Paxton | | 3,372 | | 2,023 | | 4,904 |
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Executive | | Performance- Vesting Restricted Stock Units (at Target) | | Time-Vesting Restricted Stock Units | | Stock Appreciation Rights |
Frederick J. Lynch | | 21,857 | | 7,285 | | 24,765 |
James A. “Tony” Hair | | 4,058 | | 2,435 | | 5,518 |
Russell T. Tiejema | | 3,571 | | 2,142 | | 4,855 |
Robert E. Lewis | | 2,675 | | 1,605 | | 3,637 |
Gail N. Auerbach | | 2,376 | | 1,425 | | 3,231 |
Performance-Vesting Restricted Stock Units
One-half of the performance-vesting restricted stock units vest on the third anniversary of the date of grant subject tobased on the level at which the 2019annual improvement (expressed in basis points) in LTIP Adjusted EBITDA Margin during each year of the three-year performance goal is achieved,period of 2019 through 2021, with a baseline number being set each year using the year-end results of the prior year. At the end of the three-year performance period, the final results are calculated using the arithmetic average of the three one-year performance periods, with 100% of the units vesting upon achievement at the target level, 50% of the units vesting for performance at the threshold level, and 200% of the units vesting for performance at the maximum level. The remaining one-half of the performance-vesting restricted
stock units vest on the third anniversary of the date of grant subject tobased on the level at which theannual improvement (expressed in basis points) in Return on Assets (“ROA”)during each year of the three-year performance goal is achieved,period of 2019 through 2021, with a baseline number being set each year using the year-end results of the prior year. At the end of the three-year performance period, the final results are calculated using the arithmetic average of the three one-year performance periods, with 100% of the units vesting upon achievement at the target level, 50% of the units vesting for performance at the threshold level, and 200% of the units vesting for performance at the maximum level. In each case, straight-line interpolation will be used to determine the number of units that will vest if the level of achievement is between threshold and target or between target and maximum and any outstanding units that do not vest once the applicable level of performance has been determined will be automatically forfeited. For purposes of this grant, "LTIP Adjusted EBITDA Margin" means 2019 LTIP Adjusted EBITDA (asfor each performance period divided by Net Revenue for the corresponding performance period (each as defined under the “MIP and LTIP Definitions and Reconciliation” section below) divided by 2019 Net Revenue (as defined under the MIP except that acquisitions and divestitures affect the calculation in the year of completion using the methodology established by the Human Resources and Compensation Committee) and "ROA". "Return on Assets" means 2019 LTIP Adjusted EBITDA for each performance period divided by total assets at the end of the fiscal 2019year of the corresponding performance period (as determined in accordance with generally accepted accounting principles and using the methodology established by the Human Resources and Compensation Committee). In 2019 the Human Resources and Compensation Committee changed to the approach of using three annual performance periods instead of the prior three-year cliff vesting methodology in order to more evenly weight performance over the three-year term of the award and to emphasize continuous growth and improvement of the Company's financial results. The Human Resources and Compensation Committee believesbelieved that Adjusted EBITDA Margin and ROA areReturn on Assets were the most appropriate metrics for measuring financial performance under the LTIP because they encourage management to focus on actions to improve the long term financial health of the Company, which the Human Resources and Compensation Committee in turn believes is important to investors.
With respect to Adjusted EBITDA Margin, management is incentivized to grow the business profitably versus simply emphasizing revenue growth. With respect to ROA,Return on Assets, management is incentivized to achieve growth in an efficient manner while optimizing the amount of investment required to attain desired higher profitability. We believe that these performance targets will be challenging to achieve and will require substantial efforts from management in order to achieve them.
Time-Vesting Restricted Stock Units
We grant a portion of the annual long-term incentive grant in the form of time-vesting restricted stock units to help build ownership in our company and to aid in our ability to retain our management team over a longer time horizon. The time-vesting restricted stock units vest over three years, with 25% vesting on the first anniversary of the date of grant, 25% on the second anniversary and 50% on the third anniversary.
Stock Appreciation Rights
We also grant a portion of the annual long-term incentive grant in the form of SARs in order to help build ownership in our company and to aid in our ability to retain our management team over a longer time horizon. The SARs vest over three years, with 33% vesting on the first anniversary of the date of grant, 33% on the second anniversary and 34% on the third anniversary and expire 10 years after grant. Upon exercise, the SARs are settled in unrestricted shares of our
Common Stock having an aggregate fair market value equal to the positive difference between the fair market value of a share of our Common Stock on the exercise date and the exercise price of the SAR multiplied by the number of shares for which the SAR is exercised. The exercise price of the SARs granted to the NEOs is the closing price of our Common Stock on the New York Stock Exchange on the day before the grant. The number of SARs granted is determined using the Black-Scholes model which calculates the current economic value of a SAR using assumptions that include the exercise price, the term of the award, a risk-free rate of interest, dividend yield, and market volatility.
Each of the awards described above are subject to accelerated vesting under certain circumstances as described below in the "Potential Payments on Termination or Change in Control" section.
2015
New Hire Award
In certain circumstances, the Human Resources and Compensation Committee makes limited grants of equity awards to compensate newly hired executives for equity or other benefits lost upon termination of their previous employment or to otherwise induce them to join the Company.
Pursuant to his employment agreement, on June 2, 2019, Mr. Heckes was granted a new hire equity award consisting of: (i) 10,515 time-vesting restricted stock units, determined by dividing $500,000 by the closing price of our stock as of the date immediately preceding the date of his employment start date of June 3, 2019, and (ii) 56,645 stock appreciation rights with a strike price equal to 120% of the fair market value of a Company share on the grant date, with the number of stock appreciation rights granted determined by dividing $500,000 by the Black-Scholes model value of a stock appreciation right on the award date, in each case in order to provide Mr. Heckes with an incentive to join us. These time-vesting restricted stock units and stock appreciation rights vest ratably on each of the first three anniversaries of the grant date.
Mr. Heckes' new hire award is subject to accelerated vesting under certain circumstances as described below in the "Potential Payments on Termination or Change in Control" section.
2017 Performance-Vesting Restricted Stock Unit Award
In February 2015,2017, the Human Resources and Compensation Committee granted the following target number of performance-vesting restricted stock units to the following NEOs: Mr. Lynch – 30,347,- 21,857, Mr. Lewis – 3,811, Ms. Auerbach – 3,382, andTiejema - 3,571, Mr. Hair – 3,430. Mr. Tiejema- 4,058. Messrs. White, Paxton, and Heckes did not join the Company until November 2015September 25, 2017, February 26, 2018, and June 3, 2019, respectively, and therefore did not receive an award of 20152017 performance-vesting restricted stock units.
As previously disclosed, the performance measures for these awards were 20172019 Adjusted EBITDA Margin (targeted at 13.0%19.0% for maximum vesting) and 20172019 Return on Assets (targeted at 17.5%25.0% for maximum vesting) (each as described under the "Performance-Vesting Restricted Stock Units" section of our proxy statement for our 20162017 annual meeting of shareholders)Shareholders). 2017 Return on Assets was adjusted to reduce the amount of total assets by $95.4 million to take into consideration the amount of cash on hand that was above normalized levels (calculated at 4% of annual net sales) due to the successful execution of the Company’s 2017 bond offering which the Human Resources and Compensation Committee determined to be an unusual and non-recurring event. This adjustment increased 2017 Return on Assets from 15.4% to 16.3%. Subject to the level at which the respective performance measure is achieved (as described below), the award vested in February 2018.
Following the completion of the 20172019 fiscal year, the actual number of units to be earned was calculated using data derived from our audited financial results in assessing actual performance against the performance measures as follows:
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Performance Goals | | Weighting | | Actual Results | | Award Payout | | Weighted Payout |
2019 Adjusted EBITDA Margin (%) | | 50.0% | | | 13.6% | | | 0.0% | | | 0.0% | |
2019 Return on Assets (%) | | 50.0% | | | 17.4% | | | 0.0% | | | 0.0% | |
| | | | | | | | 0.0% | |
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Performance Goals | | Weighting | | Actual Results | | Award Payout | | Weighted Payout |
2017 Adjusted EBITDA Margin (%) | | 50.0% | | 12.6% | | 183.8% | | 91.9% |
2017 Return on Assets (%) | | 50.0% | | 16.3% | | 173.2% | | 86.6% |
| | | | | | | | 178.5% |
The actual numberBecause the minimum level of performance was not met for either performance metric no units earned thatfrom the 2017 long-term incentive award vested in February 20182020.
2019 Special Equity Retention Awards
On February 25, 2019, the Human Resources and Compensation Committee approved the grant of a special equity retention award consisting of time-based restricted stock units, as follows:
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Name | Title | Amount | Vesting Terms |
Randal A. White | Senior Vice President, Operations and Global Supply Chain | 13,038 | 25% vesting on each of the first and second anniversaries of the date of grant, and 50% vesting on the third anniversary of the date of grant |
Robert A. Paxton | Senior Vice President, Human Resources | 8,692 | |
Russell T. Tiejema | Executive Vice President and CFO | 4,346 | |
These awards are designed to strengthen the Company’s ability to retain Messrs. White, Paxton and Tiejema. With respect to Messrs. White and Paxton, the Board of Directors and the Human Resources and Compensation Committee believe that the Company’s lean enterprise operating system and associated employee development programs led by operations and human resources will play an important role in the Company’s ability to meet its future business and strategic objectives. With respect to Mr. Tiejema, the Board of Directors and the Human Resources and Compensation Committee believe he will continue to play an instrumental role interacting with Shareholders to help ensure the alignment of the Company's operating strategies with Shareholder interests and value.
On May 23, 2019 the Human Resources and Compensation Committee approved the grant of a special equity retention award consisting of 14,092 time-based restricted stock units to Mr. Hair. The award is set forth below (calculated by multiplyingdesigned to strengthen the target numberCompany's ability to retain Mr. Hair as the Board of units awarded byDirectors and the payout percentage):
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Executive | | Target Award Units | | 2015 PRSU Award Payout Percentage | | Units Earned |
Frederick J. Lynch | | 30,347 | | 178.5% | | 54,169 |
Robert E. Lewis | | 3,811 | | 178.5% | | 6,802 |
Gail N. Auerbach | | 3,382 | | 178.5% | | 6,036 |
James A. “Tony” Hair | | 3,430 | | 178.5% | | 6,122 |
Human Resources and Compensation Committee believes he will continue to play an important role in managing the Company's global residential business, which includes the Company's largest business segment. The award vests in full on May 2, 2020.Timing of Equity Grants
The Human Resources and Compensation Committee follows an equity grant policy that sets forth the timing and approvals required for equity grants. Pursuant to this policy, the Human Resources and Compensation Committee typically makes annual awards of equity at its first scheduled meeting taking place after the release of earnings for the fourth fiscal quarter and the year (generally at the end of February), which meeting date is set in advance. The Board of Directors and the Human Resources and Compensation Committee have in the past made, and may in the future make, limited grants of equity on other dates in order to recognize or retain key employees, to compensate an employee in connection with a promotion, or to compensate newly hired executives for equity or other benefits lost upon termination of their previous employment or to otherwise induce them to join the Company. The Board of Directors and the Human Resources and Compensation Committee may make the foregoing “off-cycle” equity grants to employees who are below the executive level on (i) the last business day prior to the 15th day of each month or (ii) the last business day of each month, whichever date first follows the applicable trigger date. Grants to newly hired or promoted executive level employees are made at meetings of the Board of Directors or the Human Resources and Compensation Committee, as the case may be, at which such new hire or promotion is to be considered, and in accordance with applicable laws and regulations. Recognition or special retention grants to executive level employees are made at meetings of the Board of Directors or the Human Resources and Compensation Committee, as the case may be, at which such recognition or special retention is to be considered, and in accordance with applicable laws and regulations.
The Human Resources and Compensation Committee has delegated to Mr. Lynchour CEO the authority to make limited “off-cycle” grants to employees below the executive level of the types and on the pre-established grant dates described above.
We monitor and periodically review our equity grant policies to ensure compliance with plan rules and applicable law.
Stock Ownership Guidelines
We have stock ownership guidelines that require each of our NEOs and all of our other senior officers to own meaningful equity stakes in Masonite to further align their long-term economic interests with those of our Shareholders. Our stock ownership guidelines require that (1) our Chief Executive Officer owns Common Shares in an amount not less than five times his base salary and (2) all other executive officers (including our NEOs) own Common Shares in an amount not less than three times their respective base salaries. Compliance with these guidelines will beis measured once per fiscal year on the last day of the first fiscal quarter. Vested stock appreciation rightsSARs and vested and unvested time-based restricted stock units count as shares for purposes of the guidelines, but unvested stock appreciation rightsSARs do not count. To the extent performance-basedPerformance-based restricted stock units are granted, such restricted stock units will only count towards the guideline when and if earned. There is no particular date by which the requisite share ownership level must be achieved. However,achieved; however, until the required level of ownership is achieved, each executive must retain at least fifty percent of the number of sharesCommon Shares acquired upon the exercise of stock appreciation rightsSARs or the settlement of any restricted stock units (net of shares forfeited to pay any applicable exercise price and to satisfy any applicable tax withholding). With the exception of Mr. Hair all ofwas the NEOsonly NEO who are currently employed by the Company havehad achieved the required level of stock ownership.ownership as of the 2019 measurement date of March 31, 2019. Messrs Heckes, White and Paxton all joined the Company in 2017 or later. Mr. Tiejema met the stock ownership requirement in 2018 but did not in 2019 due to changes in the Company's stock price.
Severance and Change in Control Benefits
Each NEO is entitled to receive severance benefits under the terms of his or her employment agreement upon either termination by us without cause or a resignation by the NEO for good reason. We provide these severance benefits in order to provide an overall compensation package that is competitive with that offered by the companies with whom we compete for executive talent. Additionally, severance benefits allow our executives to focus on our objectives without concern for their employment security in the event of a termination.
The severance benefits provided upon a qualifying termination of an NEO’s employment in connection with a change in control are higher than severance benefits provided under other qualifying termination events, which is consistent with market practice. The Human Resources and Compensation Committee approved these enhanced change in control severance benefits because it considers maintaining a stable and effective management team to be important to protecting and enhancing the best interests of the Company and its Shareholders. To that end, the Human Resources and Compensation Committee recognizes that the possibility of
a change in control may exist from time to time, and that this possibility, and the uncertainty and questions it may raise among management, maycould result in the departure or distraction of management to the detriment of the Company and its Shareholders. Accordingly, the enhanced severance benefits have been put in
place to encourage the attention, dedication and continuity of members of our management team to their assigned duties without the distraction that may arise from the possibility or occurrence of a change in control.control andconcern for their employment security in the event of a termination.
Gail N. Auerbach SeparationMr. Lynch's Retirement
The last day ofMr. Lynch retired from the Company's employment of Gail N. Auerbach, our former Senior Vice President, Human Resources,on June 2, 2019. Mr. Lynch's retirement was December 31, 2017. Pursuant to the terms of her employment agreement with the Company that was entered into effective December 31, 2015, in exchange fortreated as a general release of all claims, Ms. Auerbach is entitled to receive:termination by Mr. Lynch without good reason.
a lump sum payment of an amount equal to a pro-rata portion of her annual bonus, based on actual performance, that she would have been paid if he or she had remained employed by us (in her case, the full year’s bonus);
continued payment of her base salary for 24 months; and
continued participation in our medical, dental and hospitalization coverage for 12 months on the same terms and conditions as immediately prior to her date of termination (i.e., at active employee rates).
The Company and Ms. Auerbach entered into a letter agreement effective December 31, 2017 that extended the period of her post-employment medical, dental, and hospitalization insurance coverage from 12 months to 18 months.
Payments of the severance benefits described above are subject to continued compliance by Ms. Auerbach with confidentiality, non-disclosure and non-competition covenants through December 31, 2019.
In addition, weWe entered into a Consulting Agreement with Ms. AuerbachMr. Lynch effective December 31, 2017June 2, 2019 (the "Auerbach"Lynch Consulting Agreement") pursuant to which Ms. AuerbachMr. Lynch has agreed to provide consulting services to us for a period commencing on December 31, 2017June 3, 2019 and ending on March 1, 2019 (the “Auerbach Consulting Period”),June 2, 2020, subject to earlier termination upon 15 days' advance written notice by either party.party (the "Lynch Consulting Period"). These services are to be provided as directed by the President/CEO of the Company or his designee for up to twenty (20) hours per monthMr. Heckes during the AuerbachLynch Consulting Period.As consideration for the consulting services provided by Ms. AuerbachMr. Lynch during the AuerbachLynch Consulting Period, the AuerbachLynch Consulting Agreement provides for: (i) the payment of a prorated MIP bonus for 2019 based on the actual level of achievement of the MIP bonus multiplied by a fraction, the numerator of which is the number of days Mr. Lynch was employed during 2019 and the denominator of which is 365 (paid in March 2020), and (ii) the continued regular vesting of certain of herhis restricted stock units, performance restricted stock units, and stock appreciation rights outstanding at December 31, 2017June 2, 2019 during the AuerbachLynch Consulting Period. Ms. Auerbach forfeited allPeriod, and (iii) the modification of his stock appreciation rights related to performance restrictedgrant agreements so that his vested stock units granted underappreciation rights can be exercised at any time up and until 90 days following the performance restricted stock unit agreement dated February 27, 2017 and her rights to 1,045termination of the 3,135 performance restricted stock units granted underLynch Consulting Period, subject to earlier expiration of the performance restricted stock unit agreement dated February 29, 2016. term of the applicable award.Based on the foregoing, the restricted stock unit agreements dated February 27, 2015, February 29, 2016, and February 27, 2017,
the performance restricted stock unit agreements dated February 27, 20152017 and February 29, 2016,27, 2018, the restricted stock unit agreements dated February 27, 2017 and February 27, 2018, the stock appreciation rights agreement dated December 12, 2019, the stock appreciation rights agreement dated July 5, 2011, the stock appreciation rights agreement dated August 6, 2013, the amended and restated stock appreciation rights agreement dated February 29, 2016, the stock appreciation rights agreement dated February 27, 2017, and the stock appreciation rights agreement dated February 27, 2017,2018, each between us and Ms. Auerbach,Mr. Lynch, were amended to provide for such continued vesting pursuant to an Omnibus Amendment between us and Ms. AuerbachMr. Lynch entered into effective December 31, 2017June 2, 2019 (the " Auerbach "Lynch
Equity Award Amendment"). We have also agreed to reimburse Ms. AuerbachMr. Lynch for pre-approved reasonable travel expenses incurred in connection with the performance of the consulting services.
Other Compensation
We provide the following benefits to our NEOs on the same basis provided to all of our U.S. based employees:
•medical, dental and vision insurance;
•401(k) Retirement Saving Plan;retirement savings plan;
•short- and long-term disability, life insurance, accidental death and dismemberment insurance;
•health, limited purpose health and dependent care flexible spending accounts and/or a health care saving account; and
•various voluntary supplemental insurance products.
Additionally, in 2017 we began providingprovide our executives with more comprehensive physical examinations. Also, upon the hiring of a new executive, we may provide such executive with certain relocation benefits andbenefits. Finally, each of our NEOs isand certain other executives are eligible to participate in a non-qualified deferred compensation plan which permits the NEO to defer base salary and/or bonuses.
We believe these benefits are consistent with those offered by companies with which we compete for employees.
Clawback Policies
Management Incentive Plan
We have implemented a clawback policy under the MIP, which provides that if an employee engages in (i) certain conduct during a plan year which is injurious to the Company or its reputation, (ii) illegal acts, theft, fraud, intentional misconduct or gross negligence related to the employee’s position with the Company or (iii) fraud, gross negligence, or
intentional or willful misconduct that contributes to the Company’s financial or operational results that are used to determine the extent to which any MIP award is payable being misstated (regardless
(regardless of whether we are required to prepare an accounting restatement) that is discovered during or within three years after the relevant plan year, the employee will forfeit his or her right to any MIP award for that plan year and will be required to return to us any amounts relating to previously paid MIP awards for such plan year. The plan administrator of the MIP is responsible for determining whether a recoverable event has occurred based on relevant facts and circumstances. The compensation recovery will be in addition to any other remedies available to the Company for any such behavior.
Equity Incentive Plans
The award agreements under the 2012 Plan and our 2009 Equity Incentive Plan provide that if we determine that a participant has materially violated any of the participant’s covenants regarding confidentiality, non-disclosure of confidential information and, during the applicable period of time following such participant’s termination of employment as specified in such award agreement, non-competition and non-solicitation of employees, then the following will result:
•any outstanding awards, whether vested or unvested, will immediately be terminated and forfeited for no consideration;
•if shares have already been distributed to the participant but the participant no longer holds some or all of such shares, the participant must repay us, in cash, an amount equal to the sum of (i) the total amount of any cash previously paid to the participant in respect of the award and (ii) the total amount of any value received by the participant upon any sale of the shares; and
•if shares have been distributed to the participant and the participant continues to hold some or all of the shares, the participant will transfer such shares to the company for no consideration.
Additionally, equity awards granted under the 2012 Plan after December 31, 2014 are subject to a revised clawback policy with terms that are substantially similar to the clawback policy in effect for cash-based incentive compensation under the MIP as described above.
Accounting and Tax Implications
As a general matter, the Human Resources and Compensation Committee always takes into account the various tax and accounting implications of compensation. When determining amounts of equity grants to executives and
employees, the Human Resources and Compensation Committee also takes into consideration the accounting cost associated with the grants.
We account for stock-based compensation in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 718 Compensation - Stock Compensation, which requires us to recognize compensation expense for share-basedshare based payments. The Human Resources and Compensation Committee considers FASB ASC Topic 718 in determining the amounts of long-term incentive grants to executives and employees, awarding both stock appreciation rights and restricted stock units.
Certain of our incentive compensation programs arewere intended to allow us to make awards to executive officers that are deductible under Section 162(m) of the Code, which provision otherwise sets limits on the tax deductibility of compensation paid to a company’s most highly compensated executive officers. Commencing with our fiscal 2018 year, the performance-based compensation exception to the deductibility limitations under Section 162(m) of the Code will no longer applyapplies (other than with respect to certain “grandfathered” performance-based awards granted prior to November 2, 2017) and the deduction limitation under Section 162(m) of the Code will generally apply to compensation paid to any of our then current or former named executive officers. The Human Resources and Compensation Committee may continue to seek ways to limit the impact of Section 162(m) of the Code. However, it believes that the tax deduction limitation should not compromise our ability to establish and implement compensation and incentive programs that support the compensation objectives discussed above. Accordingly, achieving these objectives and maintaining required flexibility in this regard is expected to result in compensation that is not deductible for federal income tax purposes.
MIP and LTIP Definitions and Reconciliation
The definitions for each of the financial performance goals for purposes of the 20172019 MIP and LTIP awards, as applicable, are as follows:
"Adjusted EBITDA" is defined as net income (loss) attributable to Masonite adjusted to exclude depreciation; amortization; share based compensation expense; loss (gain) on disposal of property, plant and equipment; registration and listing fees; restructuring costs; asset impairment; loss (gain) on disposal of subsidiaries; interest expense (income), net; loss on extinguishment of debt; other expense (income), net; income tax expense (benefit); loss (income) from discontinued operations, net of tax; and net income (loss) attributable to non-controlling interest. A reconciliation of Adjusted EBITDA to Net income (loss) attributable to Masonite is included on page 9583 of our Annual Report on form 10-K for the fiscal year ended December 31, 2017.
29, 2019.
"MIP Adjusted EBITDA" is defined as Adjusted EBITDA, as adjusted for any acquisitions or divestitures in the current year using the methodology established by the Human Resources and Compensation Committee, plus transaction costs (including fees and expenses) incurred related to acquisitions or divestitures, plus transaction costs (including fees and expenses) associated with debt or equity offerings, plus costs, expenses or adjustments related to non-budgeted Board initiatives undertaken in the current year, plus conversion costs for new retail business wins, plus or minus any changes to generally accepted accounting principles and other adjustments for unusual and nonrecurring events approved by the Human Resources and Compensation Committee or our Board, and plus or minus the impact of foreign exchange rate fluctuations versus plan.
“"Price/Cost Improvement" is a ratio defined as the quotient of 2019 Material Cost of Sales divided by 2019 Net Revenue less the quotient of 2018 Material Cost of Sales divided by 2018 Net Revenue, multiplied by 10,000. Material cost of Sales includes third party material purchases, internally sourced material cost, inventory adjustments, and cost of quality.
“LTIP Adjusted EBITDA” is defined as Adjusted EBITDA for a fiscal 2019,year, as adjusted for any acquisitions or divestitures using the methodology established by the Human Resources and Compensation Committee, plus transaction costs (including fees and expenses) incurred related to acquisitions or divestitures, plus transaction costs (including fees and expenses) associated with debt or equity offerings, plus or minus any changes to generally accepted accounting principles, plus or minus other adjustments for unusual or nonrecurring events approved by the Human Resources and Compensation Committee or our Board, plus costs, expenses, or other adjustments related to items that are outside of the scope of the Company’s core, on-going business activities or not within the reasonable control of the Company’s management as approved by the Human Resources and Compensation Committee or our Board and plus or minus the impact of foreign exchange rate fluctuations versus plan.
"MIP “Net Revenue" is defined as net sales (as determined in accordance with generally accepted accounting principles), excludingincluding net sales from any acquisitions or divestitures in the current year using the methodology established by the Human Resources and Compensation Committee, plus or minus any changes to generally accepted accounting principles and other adjustments for unusual and nonrecurring events approved by the Human Resources and Compensation Committee or our Board, and plus or minus the impact of foreign exchange rate fluctuations versus plan.
Summary Compensation Table
The following table summarizes the total compensation paid to or earned by each of our named executive officers for services provided to us during the fiscal years ended December 29, 2019 ("2019), December 30, 2018 ("2018"), and December 31, 2017 (“2017”), January 1,.
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Name and Principal Position | Year | Salary ($)(1) | Bonus ($)(2) | Stock Awards ($)(3) | Option Award ($)(4) | Non-Equity Incentive Plan Compensation ($)(5) | All Other Compensation ($)(6) | Total ($) |
Howard C. Heckes President and Chief Executive Officer(7) | 2019 | 474,039 | 291,938 | 499,988 | 499,994 | 842,547 | 97,561 | 2,706,067 |
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Frederick J. Lynch Former President and Chief Executive Officer | 2019 | 500,295 | 114,488 | - | - | 679,601 | 15,528 | 1,309,912 |
| 2018 | 947,116 | - | 2,393,950 | 598,486 | 151,858 | 15,682 | 4,107,092 |
| 2017 | 935,000 | - | 2,243,943 | 560,987 | 417,197 | 15,432 | 4,172,559 |
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Russell T. Tiejema Executive Vice President and Chief Financial Officer | 2019 | 467,116 | 82,250 | 757,538 | 126,894 | 488,236 | 15,796 | 1,937,830 |
| 2018 | 452,115 | - | 491,400 | 122,845 | 44,272 | 15,485 | 1,126,117 |
| 2017 | 432,308 | - | 439,901 | 109,997 | 119,504 | 14,577 | 1,116,287 |
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James A. "Tony" Hair, President, Global Residential | 2019 | 512,116 | | 96,563 | | 1,270,484 | | 139,045 | | 573,195 | | 15,932 | | 2,607,335 | |
| 2018 | 500,000 | | - | 539,955 | | 134,990 | | 52,125 | | 15,682 | | 1,242,752 | |
| 2017 | 480,769 | | - | 499,961 | | 124,996 | | 135,800�� | | 15,352 | | 1,256,878 | |
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Randal A. White, Senior Vice President, Global Operations and Supply Chain(8) | 2019 | 412,115 | 62,250 | 1,081,894 | 82,987 | 369,516 | 17,387 | 2,026,149 |
| 2018 | 400,000 | 250,000 | 319,930 | 79,984 | 33,360 | 63,178 | 1,146,452 |
| 2017 | 100,000 | | 55,000 | 249,940 | | - | - | 228 | | 405,168 | |
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Robert A. Paxton, Senior Vice President, Human Resources(9) | 2019 | 385,500 | 58,200 | | 810,284 | 77,592 | 345,476 | 15,163 | 1,692,215 |
| 2018 | 310,096 | 275,000 | | 774,895 | 74,992 | 31,275 | 81,276 | 1,547,534 |
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(1) Amounts shown in this column for 2019 salary for Messrs. Lynch and Heckes show prorated annual salaries. The amounts shown for Messrs. Tiejema, Hair, White, and Paxton reflect their salary increases which were effective as of March 4, 2019, as disclosed under the heading above entitled "Compensation Discussion and Analysis - Elements of Our Executives Compensation Program - Base Salary."
(2) For 2019, amounts in this column include a signing bonus of $150,000 Mr. Heckes received in 2019 and the MIP Adder portion of each of Messrs. Heckes, Lynch, Tiejema, Paxton, Hair and White's annual bonus with respect to 2019, which MIP Adder portion is payable in the discretion of the Human Resources and Compensation Committee of the Board. Mr. Paxton and Mr. White received signing cash bonuses of $275,000 and $250,000, respectively in 2018. The amount for 2017 (“2016”),for Mr. White represents the guaranteed portion of his annual cash bonus under the MIP for 2017.
(3) Amounts in this column reflect the aggregate grant date fair value of restricted stock units granted during the applicable fiscal year in accordance with FASB ASC Topic 718. For a discussion of the assumptions made in the valuation of restricted stock units granted in 2019, please see Note 12 "Share Based Compensation" in the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 29, 2019. The amounts shown include the grant date fair value of performance-vesting restricted stock units granted in 2019, based on the probable outcome of the related performance conditions at target levels, calculated in accordance with FASB ASC Topic 718. Each grant of performance-vesting restricted stock units is subject to achievement of the applicable performance conditions as described in the heading above entitled "Compensation Discussion and January 3, 2016 (“2015”).Analysis-Elements of Our Executive Compensation Program-Long-Term Equity Incentive Awards - February 2019 Annual Long-
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Name and Principal Position | Year | Salary ($)(1) | Bonus ($) | Stock Awards ($)(2) | Option Award ($)(3) | Non-Equity Incentive Plan Compensation ($)(4) | All Other Compensation ($)(5) | Total ($) |
Frederick J. Lynch President and Chief Executive Officer | 2017 | 935,000 | | 2,243,934 | 560,987 | 417,197 | 15,432 | 4,172,550 |
2016 | 930,192 | | 2,243,976 | 560,989 | 1,298,996 | 15,182 | 5,049,335 |
2015 | 905,192 | | 4,729,893 | -- | 2,022,020 | 13,851 | 7,670,956 |
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Russell T. Tiejema Executive Vice President and Chief Financial Officer(6) | 2017 | 432,308 | | 439,901 | 109,977 | 119,504 | 14,577 | 1,116,267 |
2016 | 400,000 | 150,000 | 399,951 | 99,992 | 303,120 | 58,852 | 1,411,915 |
2015 | 46,154 | | 699,940 | -- | -- | 152 | 746,246 |
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James A. “Tony” Hair, Senior Vice President, Business Leader – Residential(7) | 2017 | 480,769 | | 499,961 | 124,996 | 135,800 | 15,352 | 1,256,879 |
2016 | 392,308 | | 319,926 | 79,990 | 239,000 | 14,219 | 1,045,443 |
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Robert E. Lewis, Senior Vice President, General Counsel and Corporate Secretary | 2017 | 412,000 | | 329,560 | 82,387 | 87,921 | 16,431 | 928,299 |
2016 | 409,692 | | 329,557 | 82,390 | 260,178 | 16,163 | 1,097,980 |
2015 | 398,077 | | 499,970 | -- | 404,000 | 16,182 | 1,318,229 |
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Gail N. Auerbach, Senior Vice President, Human Resources | 2017 | 366,000 | | 292,677 | 73,190 | 78,1015 | 16,431 | 826,403 |
2016 | 363,885 | | 292,784 | 73,194 | 231,129 | 17,178 | 978,170 |
2015 | 353,077 | | 354,962 | -- | 358,550 | 15,488 | 1,082,077 |
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(1) | Amounts shown in this column for 2017 salary for Messrs. Tiejema and Hair reflect their salary increases which were effective as of March 6, 2017, as disclosed under the heading above entitled “Compensation Discussion and Analysis - Elements of Our Executive Compensation Program - Base Salary.” |
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(2) | Amounts in this column reflect the aggregate grant date fair value of restricted stock units granted during the applicable fiscal year in accordance with FASB ASC Topic 718. For a discussion of the assumptions made in the valuation of restricted stock units granted in 2017, please see note 10 "Share Based Compensation" in the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017. The amounts shown include the grant date fair value of performance-vesting restricted stock units granted in 2017, based on the probable outcome of the related performance conditions at target levels, calculated in accordance with FASB ASC Topic 718. Each grant of performance-vesting restricted stock units is subject to achievement of the applicable performance conditions as described in the heading above entitled "Compensation Discussion and Analysis-Elements of Our Executive Compensation Program-Long-Term Equity Incentive Awards - February 2017 Annual Long-Term Incentive Grant-Performance-Vesting Restricted Stock Units." The grant date fair value per unit of the performance-vesting restricted stock units are as follows: $77.00 for the annual long-term incentive grants made on February 27, 2017 to each of Messrs. Lynch (21,857 units), Tiejema (3,571 units), Hair (4,058 units), Lewis (2,675 units), and Ms. Auerbach (2,376 units); the grant date fair value of each of the performance-vesting restricted stock units granted on February 27, 2017 based on the maximum level of performance is as follows: Mr. Lynch, $3,365,978 (43,714 units); Mr. Tiejema, $549,934 (7,142 units); Mr. Hair, $624,932 (8,116 |
Term Incentive Grant-Performance-Vesting Restricted Stock Units." The grant date fair value per unit of the performance-vesting restricted stock units are as follows: $57.52 for the annual long-term incentive grants made on February 25, 2019 to each of Messrs. Tiejema (5,515 units), Hair (6,043 units), White (3,607 units), and Paxton (3,372 units); the grant date fair value of each of the performance-vesting restricted stock units granted on February 25, 2019 based on the maximum level of performance is as follows: Mr. Tiejema, $634,446 (11,030 units); Mr. Lewis, $411,950 (5,350Hair, $695,187 (12,086 units); Mr. White, $414,949 (7,214 units) and Ms. Auerbach, $365,904 (4,752Mr. Paxton, $387,915 (6,744 units); and the grant date fair value per unit of the time-vesting restricted stock units granted on February 27,25, 2019 is $57.52.
(4) Amounts in this column reflect the aggregate grant date fair value of SARs granted during the applicable fiscal year in accordance with FASB ASC Topic 718. For discussion of the assumptions made in the valuation of SARs granted in 2019, please see note 12 "Share Based Compensation" in the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 29, 2019. The grant date fair value per SAR of the SARs granted on February 25, 2019 is $15.8222. Mr. Heckes received a SAR grant on June 3, 2019 as part of his signing package. The grant date fair value of these SARs is $8.827.
(5) Amounts shown in this column represent an amount equal to the annual performance-based cash bonuses that were earned under the MIP during the specified year, less, in the case of the bonuses earned for 2019, the portion of the bonus represented by the MIP Adder, which portion is included in the Bonus column, and paid in the following year. See "Compensation Discussion and Analysis-Elements of Our Executive Compensation Program-Annual Cash Incentive Bonus" for a description of the bonuses for fiscal year 2019.
(6) Amounts shown in this column for 2019 include company contributions to our 401(k) plan of $14,000 for each of Messrs. Lynch, Tiejema, Hair, White and Paxton and $9,808 for Mr. Heckes; taxable fringe benefits paid by us for group term life insurance of $892 for Mr. Heckes, $1,528 for Mr. Lynch, $1,796 for Mr. Tiejema, $1,932 for Mr. Hair, $1,023 for Mr. White, and $951 for Mr. Paxton; $84,000 housing allowance for Mr. Heckes; and moving expenses of $2,862 for Mr. Heckes, $2,364 for Mr. White, and $212 for Mr. Paxton.
(7) Mr. Heckes joined us on June 3, 2019.
(8) Mr. White joined us on September 25, 2017 is $77.00.
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(3) | Amounts in this column reflect the aggregate grant date fair value of stock appreciation rights granted during the applicable fiscal year in accordance with FASB ASC Topic 718. For discussion of the assumptions made in the valuation of stock appreciation rights granted in 2017, please see note 10 "Share Based Compensation" in the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017. The grant date fair value per stock appreciation right of the stock appreciation rights granted on February 27, 2017 is $22.6524. |
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(4) | Amounts shown in this column represent annual performance-based cash bonuses that were earned under the MIP during the specified year and paid in the following year. See "Compensation Discussion and Analysis-Elements of Our Executive Compensation Program-Annual Cash Incentive Bonus" for a description of the bonuses for fiscal year 2017. |
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(5) | Amounts shown in this column for 2017 include company contributions to our 401(k) plan of $13,500 for each of Messrs. Lynch, Tiejema, Hair, Lewis, and Ms. Auerbach; taxable fringe benefits paid by us for group term life insurance of $1,932 for Mr. Lynch, $1,077 for Mr. Tiejema, $1,852 for Mr. Hair, $2,931 for Mr. Lewis, and $2,931 for Ms. Auerbach. |
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(6) | Mr. Tiejema joined us on November 2, 2015. |
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(7) | Mr. Hair was not a named executive officer in 2015. |
(9) Mr. Paxton joined us on February 26, 2018.
Employment Agreements
On December 22, 2015,31, 2018, the Company entered into new employment agreements with each of Messrs. Lynch, Hair, Tiejema, Lewis,White, and Hair and Ms. Auerbach, effective as of December 31, 2015.Paxton. These employment agreements superseded and replaced the employment agreements between the Company and each of Messrs. Lynch, Hair, Tiejema, White and Lewis and Ms. Auerbach,Paxton, the terms of which expired on December 31, 2015,that date, and the employment offer letterletters between the Company and Mr. Tiejema (other than the terms of the signing bonus for Mr. Tiejema which were set forth in his employment offer letterMessrs. White and which expired in November 2017), which had provided for at-will employment with the Company.Paxton, respectively. The employment agreements providedprovide for a term that commences on December 31, 20152018 and expires on December 31, 2018,2021, unless earlier terminated. On June 3, 2019 the Company entered into an employment agreement with Mr. Heckes for a term that commences on June 3, 2019 and expires on December 31, 2021, unless earlier terminated.
Frederick J. Lynch
Pursuant to his employment agreement, Mr. Lynch served as our President and Chief Executive Officer until his retirement on June 3, 2019 when his employment agreement expired due to his retirement from the Company. Mr. Lynch’s base salary was $950,000 in 2019 and he was eligible to earn a prorated annual bonus targeted at 115% of his base salary, subject to the achievement of applicable performance goals.
Howard C. Heckes
Pursuant to his employment agreement, Mr. Heckes continues to serve as as our President and Chief Executive Officer. Mr. Lynch’sMr Heckes' base salary was $935,000$850,000 in 20172019 and he is eligible to earn anreceive a prorated annual bonus targeted at 115% of his base salary, subject to the achievement of applicable performance goals.
Russell T. Tiejema
Pursuant to his employment agreement, Mr. Tiejema continues to serve as our Executive Vice President and Chief Financial Officer. Mr. Tiejema’s base salary was increased from $400,000$455,000 to $440,000$470,000 in 20172019 and he is eligible to earn an annual bonus targeted at 70%75% of his base salary in 2020 (increased from his 2019 target of 70%), subject to the achievement of applicable performance goals.
Robert E. Lewis
Pursuant to his employment agreement, Mr. Lewis continues to serve as our Senior Vice President, General Counsel and Corporate Secretary. Mr. Lewis’ base salary was $412,000 in 2017 and he is eligible to earn an annual bonus targeted at 55% of his base salary, subject to the achievement of applicable performance goals.
James A. “Tony” Hair
Pursuant to his employment agreement, Mr. Hair continues to serve as our President, - Global Residential. Mr. Hair’s base salary was increased from $400,000$500,000 to $500,000$515,000 in 20172019 and he is eligible to earn an annual bonus targeted at 70%75% of his base salary, subject to the achievement of applicable performance goals.
Gail N. Auerbach
Randal A. White
Pursuant to herhis employment agreement, Ms. Auerbach servedMr. White continues to serve as our Senior Vice President, Human Resources through December 31, 2017 at which time she left the Company’s employment. Ms. Auerbach’sGlobal Operations and Supply Chain. Mr. White's base salary was $366,000increased from $400,000 to $415,000 in 20172019 and she washe is eligible to earn an annual bonus targeted at 55%60% of herhis base salary, subject to the achievement of applicable performance goals.
Robert A. Paxton
Pursuant to his employment agreement, Mr. Paxton continues to serve as our Senior Vice President, Human Resources. Mr. Paxton's base salary was increased from $375,000 to $388,000 in 2019 and he is eligible to earn an annual bonus targeted at 60% of his base salary, subject to the achievement of applicable performance goals.
All of our NEOs are eligible to participate in our Deferred Compensation Plan (as discussed in greater detail below) and all of our employee benefit plans, including the 401(k) plan. Messrs. Lynch, Tiejema, Lewis,plan and Hair are entitled to four weeks of vacation per year. In addition, all of our NEOs are subject to covenants, during the term of their employment and for a period of 24 months thereafter, not to (i) engage in any business that competes with us, (ii) solicit customers, or (iii) solicit or hire our employees.
Grants of Plan Based Awards for 20172019
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| | | | Estimated Future Payouts Under Non- Equity Incentive Plan Awards(1) | | | | Estimated Future Payouts Under Equity Incentive Plan Awards(2) | | |
Named Executive Officer | | Grant Date | | Threshold ($) | Target ($) | Maximum ($) | | Threshold (#) | Target (#) | Maximum (#) |
Howard C. Heckes | | | | | | | | | | |
Annual Cash Bonus | | | | 283,877 | 567,753 | 1,135,507 | | - | - | - |
Time-Vesting RSUs | | 06/03/19 | | | - | - | - | | - | - | - |
Time-Vesting SARs | | 06/03/19 | | - | - | - | | - | - | - |
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Frederick J. Lynch | | | | | | | | | | |
Annual Cash Bonus | | | | 228,976 | 457,952 | 915,904 | | - | - | - |
Performance-Vesting RSUs | | 02/25/19 | | - | - | - | | - | - | - |
Time-Vesting RSUs | | 02/25/19 | | - | - | - | | - | - | - |
Time-Vesting SARs | | 02/25/19 | | - | - | - | | - | - | - |
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Russell T. Tiejema | | | | | | | | | | |
Annual Cash Bonus | | | | 164,500 | 329,000 | 658,000 | | - | - | - |
Performance-Vesting RSUs | | 02/25/19 | | - | - | - | | 2,758 | 5,515 | 11,030 |
Time-Vesting RSUs | | 02/25/19 | | - | - | - | | - | - | - |
Time-Vesting RSUs | | 02/25/19 | | - | - | - | | - | - | - |
Time-Vesting SARs | | 02/25/19 | | - | - | - | | - | - | - |
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James A. “Tony” Hair | | | | | | | | | | |
Annual Cash Bonus | | | | 193,125 | 386,250 | 772,500 | | - | - | - |
Performance-Vesting RSUs | | 02/25/19 | | - | - | - | | 3,022 | 6,043 | 12,086 |
Time-Vesting RSUs | | 02/25/19 | | - | - | - | | - | - | - |
Time-Vesting RSUs | | 05/24/19 | | - | - | - | | - | - | - |
Time-Vesting SARs | | 02/25/19 | | - | - | - | | - | - | - |
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Randal A. White | | | | | | | | | | |
Annual Cash Bonus | | | | 124,500 | 249,000 | 498,000 | | - | - | - |
Performance-Vesting RSUs | | 02/25/19 | | - | - | - | | 1,804 | 3,607 | 7,214 |
Time-Vesting RSUs | | 02/25/19 | | - | - | - | | - | - | - |
Time-Vesting RSUs | | 02/25/19 | | - | - | - | | - | - | - |
Time-Vesting SARs | | 02/25/19 | | - | - | - | | - | - | - |
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Robert A. Paxton | | | | | | | | | | |
Annual Cash Bonus | | | | 116,400 | 232,800 | 465,600 | | - | - | - |
Performance-Vesting RSUs | | 02/25/19 | | - | - | - | | 1,686 | 3,372 | 6,744 |
Time-Vesting RSUs | | 02/25/19 | | - | - | - | | - | - | - |
Time-Vesting RSUs | | 02/25/19 | | - | - | - | | - | - | - |
Time-Vesting SARs | | 02/25/19 | | - | - | - | | - | - | - |
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| | | | Estimated Future Payouts Under Non- Equity Incentive Plan Awards(1) | | Estimated Future Payouts Under Equity Incentive Plan Awards(2) |
Named Executive Officer | | Grant Date | | Threshold ($) | Target ($) | Maximum ($) | | Threshold (#) | Target (#) | Maximum (#) |
Frederick J. Lynch | | | | | | | | | | |
Annual Cash Bonus | | - | | 537,625 | 1,075,250 | 2,150,500 | | - | - | - |
Performance-Vesting Restricted Stock Units | | 02/27/17 | | - | - | - | | 10,929 | 21,857 | 43,714 |
Time-Vesting Restricted Stock Units | | 02/27/17 | | - | - | - | | - | - | - |
Time-Vested Stock Appreciation Rights | | 02/27/17 | | - | - | - | | | | |
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Russell T. Tiejema | | | | | | | | | | |
Annual Cash Bonus | | - | | 154,000 | 308,000 | 616,000 | | - | - | - |
Performance-Vesting Restricted Stock Units | | 02/27/17 | | - | - | - | | 1,786 | 3,571 | 7,142 |
Time-Vesting Restricted Stock Units | | 02/27/17 | | - | - | - | | - | - | - |
Time-Vested Stock Appreciation Rights | | 02/27/17 | | - | - | - | | - | - | - |
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James A. “Tony” Hair | | | | | | | | | | |
Annual Cash Bonus | | - | | 175,000 | 350,000 | 700,000 | | - | - | - |
Performance-Vesting Restricted Stock Units | | 02/27/17 | | - | - | - | | 2,029 | 4,058 | 8,116 |
Time-Vesting Restricted Stock Units | | 02/27/17 | | - | - | - | | - | - | - |
Time-Vested Stock Appreciation Rights | | 02/27/17 | | - | - | - | | - | - | - |
| | | | | | | | | | |
Robert E. Lewis | | | | | | | | | | |
Annual Cash Bonus | | - | | 113,300 | 226,600 | 453,200 | | - | - | - |
Performance-Vesting Restricted Stock Units | | 02/27/17 | | - | - | - | | 1,338 | 2,675 | 5,350 |
Time-Vesting Restricted Stock Units | | 02/27/17 | | - | - | - | | - | - | - |
Time-Vested Stock Appreciation Rights | | 02/27/17 | | - | - | - | | - | - | - |
| | | | | | | | | | |
Gail A. Auerbach | | | | | | | | | | |
Annual Cash Bonus | | - | | 100,650 | 201,300 | 402,600 | | - | - | - |
Performance-Vesting Restricted Stock Units | | 02/27/17 | | - | - | - | | 1,188 | 2,376 | 4,752 |
Time-Vesting Restricted Stock Units | | 02/27/17 | | - | - | - | | - | - | - |
Time-Vested Stock Appreciation Rights | | 02/27/17 | | - | - | - | | - | - | - |
| | | | | | | | | | |
Grants of Plan Based Awards 20172019 (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Named Executive Officer | | All Other Stock Awards Number of Shares or Units (#)(3) | | All Other Option Awards Number of Securities Underlying Options (#)(4) | | Exercise Price of Option Awards ($/Sh) | | Grant Date Fair Value of Stock and Option Awards ($)(5) |
Howard C. Heckes | | | | | | | | |
Annual Cash Bonus | | - | | - | | - | | - |
Time-Vesting RSUs | | 10,515 | | - | | - | | 499,988 |
Time-Vesting SARs | | - | | 56,645 | | 57.06 | | 499,994 |
| | | | | | | | |
Frederick J. Lynch | | | | | | | | |
Annual Cash Bonus | | - | | - | | - | | - |
Performance-Vesting RSUs | | - | | - | | - | | - |
Time-Vesting RSUs | | - | | - | | - | | - |
Time-Vesting SARs | | - | | - | | - | | - |
| | | | | | | | |
Russell T. Tiejema | | | | | | | | |
Annual Cash Bonus | | - | | - | | - | | - |
Performance-Vesting RSUs | | - | | - | | - | | 317,223 |
Time-Vesting RSUs | | 3,309 | | - | | - | | 190,334 |
Time-Vesting RSUs | | 4,346 | | - | | - | | 249,982 |
Time-Vesting SARs | | - | | 8,020 | | 57.52 | | 126,894 |
| | | | | | | | |
James A. “Tony” Hair | | | | | | | | |
Annual Cash Bonus | | - | | - | | - | | - |
Performance-Vesting RSUs | | - | | - | | - | | 347,593 |
Time-Vesting RSUs | | 3,626 | | - | | - | | 208,568 |
Time-Vesting RSUs | | 14,092 | | - | | - | | 714,323 |
Time-Vested SARs | | - | | 8,788 | | 57.52 | | 139,045 |
| | | | | | | | |
Randal A. White | | | | | | | | |
Annual Cash Bonus | | - | | - | | - | | - |
Performance-Vesting RSUs | | - | | - | | - | | 207,475 |
Time-Vesting RSUs | | 2,164 | | - | | - | | 124,473 |
Time-Vesting RSUs | | 13,038 | | - | | - | | 749,946 |
Time-Vesting SARs | | - | | 5,245 | | 57.52 | | 82,987 |
| | | | | | | | |
Robert A. Paxton | | | | | | | | |
Annual Cash Bonus | | - | | - | | - | | - |
Performance-Vesting RSUs | | - | | - | | - | | 193,957 |
Time-Vesting RSUs | | 2,023 | | - | | - | | 116,363 |
Time-Vesting RSUs | | 8,692 | | - | | - | | 499,964 |
Time-Vested SARs | | - | | 4,904 | | 57.52 | | 77,592 |
| | | | | | | | |
|
| | | | | | | | |
Named Executive Officer | | All Other Stock Awards Number of Shares or Units (#)(3) | | All Other Option Awards Number of Securities Underlying Options (#)(4) | | Exercise Price of Option Awards ($/Sh) | | Grant Date Fair Value of Stock and Option Awards ($)(5) |
Frederick J. Lynch | | | | | | | | |
Annual Cash Bonus | | - | | - | | - | | - |
Performance-Vesting Restricted Stock Units | | - | | - | | - | | 1,682,989 |
Time-Vesting Restricted Stock Units | | 7,285 | | - | | - | | 560,945 |
Time-Vested Stock Appreciation Rights | | - | | 24,765 | | 77.00 | | 560,987 |
| | | | | | | | |
Russell T. Tiejema | | | | | | | | |
Annual Cash Bonus | | - | | - | | - | | - |
Performance-Vesting Restricted Stock Units | | - | | - | | - | | 274,967 |
Time-Vesting Restricted Stock Units | | 2,142 | | - | | - | | 164,934 |
Time-Vested Stock Appreciation Rights | | - | | 4,855 | | 77.00 | | 109,977 |
| | | | | | | | |
James A. “Tony” Hair | | | | | | | | |
Annual Cash Bonus | | - | | - | | - | | - |
Performance-Vesting Restricted Stock Units | | - | | - | | - | | 312,466 |
Time-Vesting Restricted Stock Units | | 2,435 | | - | | - | | 187,495 |
Time-Vested Stock Appreciation Rights | | - | | 5,518 | | 77.00 | | 124,996 |
| | | | | | | | |
Robert E. Lewis | | | | | | | | |
Annual Cash Bonus | | - | | - | | - | | - |
Performance-Vesting Restricted Stock Units | | - | | - | | - | | 205,975 |
Time-Vesting Restricted Stock Units | | 1,605 | | - | | - | | 123,585 |
Time-Vested Stock Appreciation Rights | | - | | 3,637 | | 77.00 | | 82,387 |
| | | | | | | | |
Gail N. Auerbach | | | | | | | | |
Annual Cash Bonus | | - | | - | | - | | - |
Performance-Vesting Restricted Stock Units | | - | | - | | - | | 182,952 |
Time-Vesting Restricted Stock Units | | 1,425 | | - | | - | | 109,725 |
Time-Vested Stock Appreciation Rights | | - | | 3,231 | | 77.00 | | 73,190 |
| | | | | | | | |
| |
(1) | (1) The amounts set forth in the "Threshold," "Target" and "Maximum" columns above indicate the threshold, target and maximum amounts for each of the NEOs under our 2019 MIP (determined without regard to any possible application of the MIP Adder). The actual payouts were approved by the Human Resources and Compensation Committee on February 25, 2020 and the portions of the payout that are net of the MIP Adder are included in the "Non-Equity Incentive Plan Compensation column" on the Summary Compensation Table. The amounts shown in the “Target” column reflect a bonus target of 115% of base salary for Messrs. Lynch and Heckes, 70% of base salary for Mr. Tiejema, 75% of base salary for Mr. Hair, and 60% of base salary for each of Messrs. White and Paxton. For a more complete description of the 2019 MIP, including discussion of the application of the MIP Adder and "Maximum" columns above indicate the threshold, target and maximum amounts for each of the NEOs under our 2017 MIP. The actual payouts were approved by the Human Resources and Compensation Committee on February 27, 2018 and are included in the "Non-Equity Incentive Plan Compensation column" on the Summary Compensation Table. The amounts shown in the “Target” column reflect a bonus target of 115% of base salary for Mr. Lynch, 70% of base salary for each of Messrs. Tiejema and Hair, and 55% of base salary for each of Mr. Lewis and Ms. Auerbach. For a more complete description of the 2017 MIP, including discussion of actual payouts thereunder, see the heading above entitled “Compensation Discussion and Analysis-Elements of Our Executive Compensation Program - Annual Cash Incentive Bonus." |
| |
(2) | With respect to the performance-vesting restricted stock units granted to each of Messrs. Lynch, Tiejema, Hair, Lewis and Ms. Auerbach the amounts set forth in the "Threshold,the actual payouts thereunder, see the heading above entitled “Compensation Discussion and Analysis-Elements of Our Executive Compensation Program - Annual Cash Incentive Bonus." "Target" and "Maximum" columns above correspond to the number of shares that would be earned by each such NEO upon achievement of the applicable 2019 Adjusted EBITDA Margin and Return on Assets performance measures at the specified threshold, target and maximum levels, respectively. Subject to achievement of the applicable performance measure, the performance-vesting restricted stock units are scheduled to vest on the third anniversary of the date of grant. See "Compensation Discussion and Analysis-Elements of Our Executive Compensation Program-Long-Term Equity Incentive Awards-February 2017 Annual Long-Term Incentive Grant-Performance-Vesting Restricted Stock Units" for a description of these performance-vesting restricted stock units and the applicable performance measures. These performance-vesting restricted stock units are subject to achievement of the applicable performance conditions as described in the heading above entitled "Compensation Discussion and Analysis-Elements of Our Executive Compensation Program-Long-Term Equity Incentive Awards-February 2017 Annual Long-Term Incentive Grant-Performance-Vesting Restricted Stock Units. Ms. Auerbach forfeited all of her 2017 performance-vesting restricted stock units when she left our employment on December 31, 2017. |
| |
(3) | The time-vesting restricted stock units granted on February 27, 2017 to Messrs. Lynch, Tiejema, Hair, Lewis and Ms. Auerbach are scheduled to vest over 3 years, with 25% vesting on the first anniversary of the date of grant, 25% on the second anniversary and 50% on the third anniversary. |
| |
(4) | The time-vesting stock appreciation rights granted on February 27, 2017 to Messrs. Lynch, Tiejema, Hair, Lewis and Ms. Auerbach are scheduled to vest over 3 years, with 33% vesting on the first anniversary of the date of grant, 33% on the second anniversary and 34% on the third anniversary. The grants were issued with an exercise price of $77.00 per share. Proceeds upon the exercise of the stock appreciation rights will equal the market value of our stock at the time of exercise less the exercise price times the number of shares exercised. |
| |
(5) | Amounts in this column reflect the grant date fair value of the restricted stock units and stock appreciation rights granted to each NEO in 2017 in accordance with FASB ASC Topic 718. For a discussion of the assumptions made in the valuation of such awards, please see note 10 "Share Based Compensation Plans" in the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017. The amounts shown include the grant date fair value of performance-vesting restricted stock units granted in 2017, based on the probable outcome of the related performance conditions at target levels, calculated in accordance with FASB ASC Topic 718. |
(2) With respect to the performance-vesting restricted stock units granted to each of Messrs. Tiejema, Hair, White and Paxton the amounts set forth in the "Threshold," "Target" and "Maximum" columns above correspond to the number of shares that would be earned by each such NEO upon achievement of the applicable 2021 Adjusted EBITDA Margin and Return on Assets performance measures at the specified threshold, target and maximum levels, respectively. Subject to achievement of the applicable performance measure, the performance-vesting restricted stock units are scheduled to vest on the third anniversary of the date of grant. See "Compensation Discussion and Analysis-Elements of Our Executive Compensation Program-Long-Term Equity Incentive Awards-February 2019 Annual Long-Term Incentive Grant-Performance-Vesting Restricted Stock Units" for a description of these performance-vesting restricted stock units and the applicable performance measures. These performance-vesting restricted stock units are subject to achievement of the applicable performance conditions as described in the heading above entitled "Compensation Discussion and Analysis-Elements of Our Executive Compensation Program-Long-Term Equity Incentive Awards-February 2019 Annual Long-Term Incentive Grant-Performance-Vesting Restricted Stock Units.
(3) The time-vesting restricted stock units granted on February 25, 2019 to Messrs. Tiejema, Hair, White and Paxton are scheduled to vest over 3 years, with 25% vesting on the first anniversary of the date of grant, 25% on the second anniversary and 50% on the third anniversary. On February 25, 2019, Messrs. Tiejema, White, and Paxton received retention grants of 4,346, 13,038, and 8,692 time-vesting restricted stock units, respectively, that are scheduled to vest over 3 years with 25% vesting on the first anniversary of the date of grant, 25% vesting on the second anniversary, and 50% vesting on the third anniversary. Mr. Hair received a retention grant of 14,092 time-vesting restricted stock units on May 24, 2019 that is scheduled to vest 100% on May 2, 2020. Mr. Heckes received a new hire grant of 10,515 time-vesting restricted stock units on June 3, 2019 that is scheduled to vest over three years, with 33% vesting on the first anniversary of the date of grant, 33% vesting on the second anniversary, and 34% vesting on the third anniversary.
(4) The time-vesting SARs granted on February 25, 2019 to Messrs. Tiejema, Hair, White and Paxton are scheduled to vest over 3 years, with 33% vesting on the first anniversary of the date of grant, 33% on the second anniversary and 34% on the third anniversary. The grants were issued with an exercise price of $57.52 per share Mr. Heckes received a new hire SAR grant on June 3, 2019 that is scheduled to vest over three years, with 33% vesting on the first anniversary of the date of grant, 33% on the second anniversary and 34% on the third anniversary. The grant was issued with an exercise price of $57.06 per share. Proceeds upon the exercise of the SARs will equal the market value of our stock at the time of exercise less the exercise price times the number of shares exercised.
(5) Amounts in this column reflect the grant date fair value of the restricted stock units and SARs granted to each NEO in 2019 in accordance with FASB ASC Topic 718. For a discussion of the assumptions made in the valuation of such awards, please see Note 12 "Share Based Compensation Plans" in the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 29, 2019. The amounts shown include the grant date fair value of performance-vesting restricted stock units granted in 2019, based on the probable outcome of the related performance conditions at target levels, calculated in accordance with FASB ASC Topic 718.
Outstanding Equity Awards at Fiscal Year-End
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | SARs | | | | | | | | |
Name | | Number of Securities Underlying Unexercised SARs (# Exercisable) | | Number of Securities Underlying Unexercised SARs (# Unexercisable)(1) | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned SARs (#) | | SAR Exercise Price ($) | | SAR Expiration Date |
Howard C. Heckes | | - | | 56,645 | | - | | 57.06 | | 06/03/29 |
| | | | | | | | | | |
Frederick J. Lynch | | 72,000 | | - | | - | | 32.68 | | 08/06/23 |
| | 33,432 | | - | | - | | 58.37 | | 02/28/26 |
| | 16,344 | | 8,421 | | - | | 77.00 | | 02/27/27 |
| | 10,602 | | 21,528 | | - | | 65.00 | | 02/27/28 |
| | | | | | | | | | |
Russell T. Tiejema | | 5,959 | | - | | - | | 58.37 | | 02/28/26 |
| | 3,204 | | | 1,651 | | - | | 77.00 | | 02/27/27 |
| | 2,176 | | 4,419 | | - | | 65.00 | | | 02/27/28 |
| | | | 8,020 | | - | | 57.52 | | 02/25/29 |
| | | | | | | | | | |
James A. "Tony" Hair | | 11,621 | | - | | - | | 48.88 | | 10/28/23 |
| | 4,767 | | - | | - | | 58.37 | | 02/28/26 |
| | 3,641 | | 1,877 | | - | | 77.00 | | 02/27/27 |
| | 2,391 | | 4,856 | | - | | 65.00 | | 02/27/28 |
| | - | | 8,788 | | | | 57.52 | | 02/25/29 |
| | | | | | | | | | |
Randal A. White | | 1,417 | | 2,877 | | - | | 65.00 | | 02/27/28 |
| | - | | 5,245 | | - | | 57.52 | | 02/25/29 |
| | | | | | | | | | |
Robert A. Paxton | | 1,328 | | 2,698 | | - | | 65.00 | | 02/27/28 |
| | - | | 4,904 | | - | | 57.52 | | 02/25/29 |
| | | | | | | | | | |
|
| | | | | | | | | | |
| | Options/SARs |
Name | | Number of Securities Underlying Unexercised Options (# Exercisable) | | Number of Securities Underlying Unexercised Options (# Unexercisable)(1) | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | | Option Exercise Price ($) | | Option Expiration Date |
Frederick J. Lynch | | 42,785 | | - | | - | | 13.64 | | 07/09/19 |
| | 34,020 | | - | | - | | 19.06 | | 12/12/19 |
| | 30,406 | | - | | - | | 19.06 | | 12/21/19 |
| | 87,708 | | - | | - | | 20.19 | | 07/05/21 |
| | 72,000 | | - | | - | | 32.68 | | 08/06/23 |
| | 11,033 | | 22,399 | | | | 58.37 | | 02/28/26 |
| | | | 24,765 | | | | 77.00 | | 02/27/27 |
| | | | | | | | | | |
Russell T. Tiejema | | 1,966 | | 3,993 | | - | | 58.37 | | 02/28/26 |
| | | | 4,855 | | | | 77.00 | | 02/27/27 |
| | | | | | | | | | |
James A. “Tony” Hair | | 11,621 | | - | | - | | 48.88 | | 10/28/23 |
| | 1,573 | | 3,194 | | - | | 58.37 | | 02/28/26 |
| | - | | 5,518 | | - | | 77.00 | | 02/27/27 |
| | | | | | | | | | |
Robert E. Lewis | | 18,750 | | - | | - | | 17.37 | | 04/15/22 |
| | 8,700 | | - | | - | | 32.68 | | 08/06/23 |
| | 1,620 | | 3,290 | | - | | 58.37 | | 02/28/26 |
| | | | 3,637 | | | | 77.00 | | 02/27/27 |
| | | | | | | | | | |
Gail N. Auerbach | | 6,500 | | - | | - | | 32.68 | | 05/30/19 |
| | 1,439 | | 2,923 | | - | | 58.37 | | 02/28/26 |
| | | | 2,132 | | - | | 77.00 | | 05/30/19 |
| | | | | | | | | | |
(1) Represents the unvested portion of the number of SARs granted. SARs vest over a three-year period at 33% one year from grant date, 33% two years from grant date, and 34% three years from the grant date. For each grant of SARs, the grant date is the date that is 10 years prior to the SAR expiration date for such grant. | |
(1) | Represents the unvested portion of the number of stock appreciation rights granted. Stock appreciation rights vest over a three-year period at 33% one year from grant date, 33% two years from grant date, and 34% three years from the grant date. |
| |
(2) | Represents the unvested portion in the aggregate of: (i) 13,006 restricted stock units granted to Mr. Lynch on February 27, 2015, which vests twenty-five percent (25%) on February 27, 2016, twenty-five percent (25%) on February 27, 2017, and fifty percent (50%) on February 27, 2018; and (ii) 9,611 restricted stock units granted to Mr. Lynch on February 29, 2016, which vests twenty-five percent (25%) on February 28, 2017, twenty-five percent (25%) on February 28, 2018, and fifty percent (50%) on February 28, 2019; and (iii) 7,285 restricted stock units granted to Mr. Lynch on February 27, 2017, which vests twenty-five percent (25%) on February 27, 2018, twenty-five percent (25%) on February 27, 2019, and fifty percent (50%) on February 27, 2020. |
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(3) | Represents the unvested performance-vesting restricted stock units granted in February 2015 that were earned based on the Company’s achievement of the applicable 2017 Adjusted EBITDA Margin and 2017 Return on Assets at the end of the 2017 fiscal year and which vested on February 27, 2018. On February 27, 2018, the Human Resources and Compensation Committee approved the Company’s performance results at 178.5% achievement of target results (which is the amount shown in this table). See "Compensation Discussion and Analysis-Elements of Our Executive Compensation Program-Long-Term Equity Incentive Awards-2015 Performance-Vesting Restricted Stock Awards" for additional detail. |
Outstanding Equity Awards at Fiscal Year-End (continued)
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Stock Awards | | | | | | |
Name | | Number of Shares or Units of Stock That Have Not Vested (#) | | Market Value of Shares or Units of Stock That Have Not Vested
($) | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | | Equity Incentive Plan Awards: Market Value of Shares or Units of Stock That Have Not Vested
($) |
Howard C. Heckes | | 10,515(2) | | 755,503 | | - | | - |
| | | | | | | | |
Frederick J. Lynch | | - | | - | | - | | - |
| | - | | - | | - | | - |
| | - | | - | | - | | - |
| | 20,99710,549(2)(3)
| | 1,556,928757,946 | | - | | - |
| | - | | - | | 54,169(3)
| | 4,016,661 |
| | | | | | 32,679(6)
| | 2,423,148 |
| | | | | | 28,833(4) | | 2,137,967- |
| | - | | - | | 21,85727,623(5)
| | 1,620,6971,984,713 |
| | | | | | | | |
Russell T. Tiejema | | - | | - | | - | | - |
| | - | | - | | - | | - |
| | - | | - | | - | | - |
| | 9,91510,853(7)
| | 779,788 | | - | | - |
| | - | | - | | 3,571(4) | | 0 |
| | - | | - | | 4,725(5) | | 339,491 |
| | - | | - | | 5,515(6) | | 396,253 |
| | | | | | | | |
James A. "Tony" Hair | | - | | - | | - | | - |
| | - | | - | | - | | - |
| | - | | - | | - | | - |
| | - | | - | | - | | - |
| | 21,273(8) | | 1,528,465 | | 735,197 | - | | - |
| | - | | - | | 4,058(4) | | 0 |
| | - | | - | | 5,192(5) | | 373,045 | |
| | - | | - | | 4,2836,043(4)(6)
| | 317,584434,190 |
| | | | | | 3,571(5)
| | 264,790 |
| | | | | | | | |
James A. “Tony” Hair | | 5,121(8)
| | 379,722 | | | | |
| | | | | | 6,123(3)
| | 453,987 |
| | | | | | 3,426(4)
| | 254,038 |
| | | | | | 4,058(5)
| | 300,901 |
| | | | | | | | |
Robert E. Lewis | | 4,464(9)
| | 331,006 | | | | |
| | | | | | 6,803(3)
| | 504,415 |
| | | | | | 3,529(4)
| | 261,675 |
| | | | | | 2,675(5)
| | 198,351 |
| | | | | | | | |
Gail N. Auerbach | | 3,251(10)
| | 241,062 | | | | |
| | | | | | 6,037(3)
| | 447,634 |
| | | | | | 2,090(4)
| | 154,974 |
| | | | | | 0(5)
| | 0 |
| | | | | | | | |
| |
(4)Randal A. White | Represents the unvested performance-vesting restricted stock units granted to each of Messrs. Lynch, Tiejema, Hair, Lewis and Ms. Auerbach in February 2016 which are scheduled to vest on February 28, 2019, subject to achievement of the applicable Adjusted EBITDA Margin and Return on Assets at the end of the 2018 fiscal year. Amounts shown represent the number of shares that would be earned by each of the NEOs upon achievement of the applicable 2018 Adjusted EBITDA Margin and Return on Assets performance measures at the target levels. Ms. Auerbach forfeited 1,045 of the 3,135 target performance-vesting restricted stock units granted to her when she left our employment on December 31, 2017. The maximum number of shares that may be earned by each NEO are as follows: Mr. Lynch, 57,666; Mr. Mr. Tiejema, 8,566; Mr. Hair, 6,852; Mr. Lewis, 7,058; and Ms. Auerbach, 4,180. | 16,587(9) | | 1,191,776 | | - | | - |
| | - | | - | | 3,076(5) | | 221,011 |
| | - | | - | | 3,607(6) | | 259,163 |
| | | | | | | | |
(5)Robert A. Paxton | Represents the unvested performance-vesting restricted stock units granted to each of Messrs. Lynch, Tiejema, Hair, Lewis and Ms. Auerbach in February 2017 which are scheduled to vest on February 27, 2020, subject to achievement of the applicable Adjusted EBITDA Margin and Return on Assets at the end of the 2019 fiscal year. Amounts shown represent the number of shares that would be earned by each of the NEOs upon achievement of the applicable 2019 Adjusted EBITDA Margin and Return on Assets performance measures at the target levels. Ms. Auerbach forfeited all of her 2017 performance-vesting restricted stock units when she left our employment on December 31, 2017. The maximum number of shares that may be earned by each NEO are as follows: Mr. Lynch, 43,714; Mr. Tiejema, 7,142; Mr. Hair, 8,116; and Mr. Lewis, 5,350. See "Compensation Discussion and Analysis-Elements of Our Executive Compensation Program-Long-Term Equity Incentive | 15,601(10) | | 1,120,932 | | - | | - |
| | - | | - | | 2,884(5) | | 207,215 |
| | - | | - | | 3,372(6) | | 242,278 |
| | | | | | | | |
| | | | | | | | |
(2) Represents the unvested portion of 10,515 restricted stock units granted to Mr. Heckes on June 3, 2016, which vests 33% on June 3, 2020, 33% on June 3, 2021, and 34% on June 3, 2022.
(3) Represents the unvested portion in the aggregate of: (i) 7,285 restricted stock units granted to Mr. Lynch on February 27, 2017, which vests twenty-five percent (25%) on February 27, 2018, twenty-five percent (25%) on February 27, 2019, and fifty percent (50%) on February 27, 2020; and (ii) 9,207 restricted stock units granted to Mr. Lynch on February 27, 2018, which vests twenty-
five percent (25%) on February 27, 2019, twenty-five percent (25%) on February 27, 2020, and fifty percent (50%) on February 27, 2021.
(4) Represents the unvested performance-vesting restricted stock units granted in February 2017 none of which were earned based on the Company’s achievement of the applicable 2019 Adjusted EBITDA Margin and 2019 Return on Assets at the end of the 2019 fiscal year and which vested on February 27, 2020. On February 24, 2020, the Human Resources and Compensation Committee approved the Company’s performance results at 0% achievement of target results (which is the amount shown in this table). See "Compensation Discussion and Analysis-Elements of Our Executive Compensation Program-Long-Term Equity Incentive Awards-2017 Performance-Vesting Restricted Stock Awards" for additional detail.
(5) Represents the unvested performance-vesting restricted stock units granted to each of Messrs. Lynch, Tiejema, Hair, White and Paxton in February 2018 which are scheduled to vest on February 27, 2021, subject to achievement of the applicable Adjusted EBITDA Margin and Return on Assets at the end of the 2020 fiscal year. Amounts shown represent the number of shares that would be earned by each of the NEOs upon achievement of the applicable 2020 Adjusted EBITDA Margin and Return on Assets performance measures at the target levels. The maximum number of shares that may be earned by each NEO are as follows: Mr. Lynch, 55,246; Mr. Tiejema, 9,450; Mr. Hair, 10,384; Mr. White, 6,152; and Mr. Paxton, 5,768.
(6) Represents the unvested performance-vesting restricted stock units granted to each of Messrs. Tiejema, Hair, White and Paxton in February 2019 which are scheduled to vest on February 25, 2022, subject to achievement of the applicable Adjusted EBITDA Margin and Return on Assets at the end of the 2021 fiscal year. Amounts shown represent the number of shares that would be earned by each of the NEOs upon achievement of the applicable 2021 Adjusted EBITDA Margin and Return on Assets performance measures at the target levels. The maximum number of shares that may be earned by each NEO are as follows: Mr. Tiejema, 11,030; Mr. Hair, 12,086; Mr. White, 7,214; and Mr. Paxton, 6,744. See "Compensation Discussion and Analysis-Elements of Our Executive Compensation Program-Long-Term Equity Incentive Awards-February 20172019 Annual Long-Term Incentive Grant-Performance-Vesting Restricted Stock Units" for a description of the performance-vesting restricted stock units and the applicable performance measures.
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(6) | Represents the unvested performance-vesting restricted stock units granted on November 5, 2015, which will be earned based upon the Company’s achievement of the applicable levels of the Company’s compound annualized stock price growth on an absolute basis and relative to the median of the compound annualized stock price growth for a group of peer companies, in each case, for the three-year performance period beginning on the grant date and ending on November 5, 2018. The amount shown represents 100% of the number of target shares that would be issued upon the Company’s achievement of the target level of the Company’s annualized stock price growth on an absolute basis. The maximum number of shares that may be earned by Mr. Lynch is 163,395, which represents 500% of the target number of units granted, noting that such maximum number of units that may be earned is subject to a cap of $20.0 million. With respect to any units that are earned for the completed performance period, such units are scheduled to vest as follows: one-third will vest on November 5, 2018, one-third will vest on November 5, 2019 and one-third will vest on November 5, 2020. |
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(7) | Represents the unvested portion in the aggregate of (i) 11,691 restricted stock units granted to Mr. Tiejema on November 2, 2015, which vests twenty-five percent (25%) on November 2, 2016, twenty-five percent (25%) on November 2, 2017, and fifty percent (50%) on November 2, 2018; (ii) 2,569 restricted stock units granted to Mr. Tiejema on February 29, 2016, which vests twenty-five percent (25%) on February 28, 2017, twenty-five percent (25%) on February 28, 2018, and fifty percent (50%) on February 28, 2019; and (iii) 2,142 restricted stock units granted to Mr. Tiejema on February 27, 2017, which vests twenty-five percent (25%) on February 27, 2018, twenty-five percent (25%) on February 27, 2019, and fifty percent (50%) on February 27, 2020. |
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(8) | Represents the unvested portion in the aggregate of: (i) 2,287 restricted stock units granted to Mr. Hair on February 27, 2015, which vests twenty-five percent (25%) on February 27, 2016, twenty-five percent (25%) on February 27, 2017, and fifty percent (50%) on February 27, 2018; (ii) 2,055 restricted stock units granted to Mr. Hair on February 29, 2016, which vest as to twenty-five percent (25%) on February 28, 2017, twenty-five percent (25%) on February 28, 2018, and fifty percent (50%) on February 28, 2019; and (iii) 2,435 restricted stock units granted to Mr. Hair on February 27, 2017, which vests twenty-five percent (25%) on February 27, 2018, twenty-five percent (25%) on February 27, 2019, and fifty percent (50%) on February 27, 2020. |
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(9) | Represents the unvested portion in the aggregate of (i) 2,541 restricted stock units granted to Mr. Lewis on February 27, 2015, which vests twenty-five percent (25%) on February 27, 2016, twenty-five percent (25%) on February 27, 2017, and fifty percent (50%) on February 27, 2018; (ii) 2,117 restricted stock units granted to Mr. Lewis on February 29, 2016, which vest as to twenty-five percent (25%) on February 28, 2017, twenty-five percent (25%) on February 28, 2018, and fifty percent (50%) on February 28, 2019; and (iii) 1,605 restricted stock units granted to Mr. Lewis on February 27, 2017, which vests twenty-five percent (25%) on February 27, 2018, twenty-five percent (25%) on February 27, 2019, and fifty percent (50%) on February 27, 2020. |
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(10) | Represents the unvested portion in the aggregate of (i) 2,255 restricted stock units granted to Ms. Auerbach on February 27, 2015, which vests twenty-five percent (25%) on February 27, 2016, twenty-five percent (25%) on February 27, 2017, and fifty percent (50%) on February 27, 2018; (ii) 1,881 restricted stock units granted to Ms. Auerbach on February 29, 2016, which vests twenty-five percent (25%) on February 28, 2017, twenty-five percent (25%) on February 28, 2018, and fifty percent (50%) on February 28, 2019; and (iii) 1,425 restricted stock units granted to Ms. Auerbach on February 27, 2017, which vests twenty-five percent (25%) on February 27, 2018, twenty-five percent (25%) on February 27, 2019, and the remaining fifty percent (50%) were canceled. |
(7) Represents the unvested portion in the aggregate of (i) 2,142 restricted stock units granted to Mr. Tiejema on February 27, 2017, which vests twenty-five percent (25%) on February 27, 2018, twenty-five percent (25%) on February 27, 2019, and fifty percent (50%) on February 27, 2020; (ii) 2,835 restricted stock units granted to Mr. Tiejema on February 27, 2018, which vests twenty-five percent (25%) on February 27, 2019, twenty-five percent (25%) on February 27, 2020, and fifty percent (50%) on February 27, 2021; (iii) 3,309 restricted stock units granted to Mr. Tiejema on February 25, 2019, which vests twenty-five percent (25%) on February 25, 2020, twenty-five percent (25%) on February 25, 2021, and fifty percent (50%) on February 25, 2022; and (iv) 4,346 restricted stock units granted to Mr. Tiejema on February 25, 2019, which vests twenty-five percent (25%) on February 25, 2020, twenty-five percent (25%) on February 25, 2021, and fifty percent (50%) on February 25, 2022.
(8) Represents the unvested portion in the aggregate of: (i) 2,435 restricted stock units granted to Mr. Hair on February 27, 2017, which vests twenty-five percent (25%) on February 27, 2018, twenty-five percent (25%) on February 27, 2019, and fifty percent (50%) on February 27, 2020; (ii) 3,115 restricted stock units granted to Mr. Hair on February 27, 2018, which vests twenty-five percent (25%) on February 27, 2019, twenty-five percent (25%) on February 27, 2020, and fifty percent (50%) on February 27, 2021; (iii) 3,626 restricted stock units granted to Mr. Hair on February 25, 2019, which vests twenty-five percent (25%) on February 25, 2020, twenty-five percent (25%) on February 25, 2021, and fifty percent (50%) on February 25, 2022; and (iv) 14,092 restricted stock units granted to Mr. Hair on May 24, 2019, which vests one hundred percent (100%) on May 2, 2020.
(9) Represents the unvested portion in the aggregate of (i) 1,846 restricted stock units granted to Mr. White on February 27, 2018, which vests twenty-five percent (25%) on February 27, 2019, twenty-five percent (25%) on February 27, 2020, and fifty percent (50%) on February 27, 2021; (ii) 2,164 restricted stock units granted to Mr. White on February 25, 2019, which vests twenty-five percent (25%) on February 25, 2020, twenty-five percent (25%) on February 25, 2021, and fifty percent (50%) on February 25, 2022; and (iii) 13,038 restricted stock units granted to Mr. White on February 25, 2019, which vests twenty-five percent (25%) on February 25, 2020, twenty-five percent (25%) on February 25, 2021, and fifty percent (50%) on February 25, 2022.
(10) Represents the unvested portion in the aggregate of (i) 7,175 restricted stock units granted to Mr. Paxton on February 26, 2018, which vests fifty percent (50%) on February 26, 2019, and fifty percent (50%) on February 26, 2020; and (ii) 1,730 restricted stock units granted to Mr. Paxton on February 27, 2018, which vests twenty-five percent (25%) on February 27, 2019, twenty-five percent (25%) on February 27, 2020, and fifty percent (50%) on February 27, 2021; (iii) 2,023 restricted stock units granted to Mr. Paxton on February 25, 2019, which vests twenty-five percent (25%) on February 25, 2020, twenty-five percent (25%) on February 25, 2021, and fifty percent (50%) on February 25, 2022; and (iv) 8,692 restricted stock units granted to Mr. Paxton on February 25, 2019, which vests twenty-five percent (25%) on February 25, 2020, twenty-five percent (25%) on February 25, 2021, and fifty percent (50%) on February 25, 2022.
OptionSAR Exercises and Stock Vested for 20172019
The following table provides information regarding the amounts received by our named executive officers upon the vesting of restricted stock units and the exercise of stock appreciation rightsSARs during the year ended December 31, 2017.29, 2019.
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| | SARs AWARDS | | | | STOCK AWARDS | | |
Named Executive Officer | | Number of Shares Acquired on Exercise (#) | | Value Realized on Exercise ($)(1) | | Number of Shares Acquired on Vesting (#) | | Value Realized on Vesting ($)(2) |
Howard C. Heckes | | - | | - | | - | | - |
Frederick J. Lynch | | 106,512 | | 7,088,628 | | 28,678 | | 1,592,668 |
Russell T. Tiejema | | - | | - | | 5,462 | | 303,614 |
James A. "Tony" Hair | | - | | - | | 4,761 | | 264,830 |
Randal A. White | | - | | - | | 2,345 | | 134,527 |
Robert A. Paxton | | - | | - | | 4,019 | | 226,162 |
| | | | | | | | |
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| | OPTION AWARDS | | STOCK AWARDS |
Named Executive Officer | | Number of Shares Acquired on Exercise (#) | | Value Realized on Exercise ($)(1) | | Number of Shares Acquired on Vesting (#) | | Value Realized on Vesting ($)(2) |
Frederick J. Lynch | | 80,000 | | 4,978,800 | | 80,844 | | 6,233,972 |
Russell T. Tiejema | | | | | | 3,565 | | 243,497 |
James A. “Tony” Hair | | | | | | 10,383 | | 792,555 |
Robert E. Lewis | | | | | | 15,299 | | 1,165,116 |
Gail N. Auerbach | | | | | | 9,858 | | 760,683 |
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(1) Value realized on exercise of SARs is calculated based on the difference between the per share price of our stock at the time of exercise and the exercise price of such SARs. | |
(1) | Value realized on exercise of stock appreciation rights is calculated based on the difference between the per share price of our stock at the time of exercise and the exercise price of such stock appreciation rights. |
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(2) | Value realized on vesting of restricted stock units is calculated by multiplying the number of restricted stock units that vested by the per share price of our stock on the applicable vesting date. |
(2) Value realized on vesting of restricted stock units is calculated by multiplying the number of restricted stock units that vested by the per share price of our stock on the applicable vesting date.
Nonqualified Deferred Compensation for 20172019
The following table provides information regarding contributions, earnings and balances for our named executive officers under our nonqualified deferred compensation plan.
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Named Executive Officer | | Executive Contributions in 2019 ($) | | Aggregate Earnings in 2019 ($) | | Aggregate Withdrawals/ Distributions in 2019 ($) | | Aggregate Balance at December 30, 2019 ($) |
Frederick J. Lynch | | 0(1) | | 917,711(2) | | 374,353(3) | | 4,777,245(4) |
Russell T. Tiejema | | - | | - | | - | | - |
James A. "Tony" Hair | | - | | - | | - | | - |
Randal A. White | | - | | - | | - | | - |
Robert A. Paxton | | - | | - | | - | | - |
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(1) Represents the amounts that the NEO elected to defer in 2019 under the Deferred Compensation Plan. These represent compensation earned by the NEO in 2019 and are therefore also reported in the appropriate columns in the “Summary Compensation Table” for 2019 as described above.
(2) Represents the gross amounts withdrawn from the account of the NEO under the Deferred Compensation Plan.
(3) Represents the net amounts credited to the account of the NEO under the Deferred Compensation Plan as a result of the performance of the securities in which the account was invested, as more fully described in the narrative disclosure below. These amounts do not represent above-market earnings/losses, and thus are not reported in the “Summary Compensation Table” as described above.
(4) Represents the amount of the NEO's account balance under the Deferred Compensation Plan at the end of 2019. The amounts that were previously reported as compensation for each NEO in the Summary Compensation Table in previous years are as follows:
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| | | | | | | | |
Named Executive Officer | | Executive
Contributions
in 2017 ($)
| | Aggregate
Earnings
in 2017 ($)
| | Aggregate
Withdrawals/
Distributions
in 2017 ($)
| | Aggregate
Balance at
December 31, 2017 ($)
|
Frederick J. Lynch | | 1,116,998(1)
| | 606,855(2)
| | - | | 4,341,624(3)
|
Russell T. Tiejema | | - | | - | | - | | - |
James A. “Tony” Hair | | - | | - | | - | | - |
Robert E. Lewis | | - | | - | | - | | - |
Gail N. Auerbach | | - | | 33,088(2)
| | - | | 310,777(3)
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(1) | Represents the amounts that the NEO elected to defer in 2017 under the Deferred Compensation Plan. These represent compensation earned by the NEO in 2017, and are therefore also reported in the appropriate columns in the “Summary Compensation Table” for 2017 as described above. |
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(2) | Represents the net amounts credited to the account of the NEO under the Deferred Compensation Plan as a result of the performance of the securities in which the account was invested, as more fully described in the narrative disclosure below. These amounts do not represent above-market earnings/losses, and thus are not reported in the “Summary Compensation Table” as described above. |
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(3) | Represents the amount of the NEO’s account balance under the Deferred Compensation Plan at the end of 2017. The amounts that were previously reported as compensation for each NEO in the Summary Compensation Table in previous years are as follows: |
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Named Executive Officer | | Amounts Previously Reported ($) |
Frederick J. Lynch | | 2,617,7714,233,887 |
Russell T. Tiejema | | - |
Robert A. Paxton | | - |
James A. “Tony” Hair | | - |
Robert E. LewisRandal A. White | | - |
Gail N. Auerbach | | 277,689 |
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Deferred Compensation Plan
The Masonite International Corporation Deferred Compensation Plan (“Deferred Compensation Plan”) is an unfunded non-qualified deferred compensation plan that permits certain key employees to defer a portion of their compensation to a future time. Eligible employees may elect to defer a portion of their base salary, bonus and/or restricted stock units and eligible directors may defer a portion of their director fees or restricted stock units under the Deferred Compensation Plan. All contributions to the plan on behalf of the participant are fully vested (other than restricted stock unit deferrals which remain subject to the vesting terms of the applicable equity incentive plan) and are placed into a grantor trust, commonly referred to as a "rabbi trust." Although we are permitted to make matching contributions under the terms of the Deferred Compensation Plan, we have not elected to do so. The Deferred Compensation Plan invests the base salary and bonus contributions in diversified securities from a selection of investments chosen by the participants who may periodically reallocate the assets in their respective accounts. Participants are entitled to receive the benefits in their accounts upon separation of service or upon a specified date, with benefits payable as a single lump sum or in annual installments. In the event of a change in control, each participant’s account will be distributed in the form of a single lump-sum payment on the second anniversary of the change in control, unless such participant elects, during the 12-month period beginning on the change in control, to receive a single lump-sum payment or installments commencing on either (i) any specified date that is at least 5 years after the second anniversary of the change in control or (ii) the seventh anniversary of the change in control.
Potential Payments on Termination or Change in Control
Termination Payments to Gail N. Auerbach
During her tenure as an executive officer of the Company, Ms. Auerbach was a party to an employment agreement, which provided for payments and benefits to her as described below. In connection with her departure from the Company, Ms. Auerbach received the compensation arrangement described under “Compensation Discussion and Analysis—Severance and Change in Control Benefits—Gail N. Auerbach Separation.”
NEO Employment Agreements
The employment agreements entered into with each of our NEOs entitle them (and with respect to Ms. Auerbach, entitled her during her tenure as an executive officer of the Company) to receive the payments and benefits described below upon each termination and change in control event described below.
Termination without cause or for good reason, other than in connection with a change in control
If the employment of Messrs. Lynch,Heckes, Hair, Tiejema, LewisWhite or Ms. AuerbachPaxton is terminated by us other than for cause or disability (as defined below), or if any such NEO resigns for good reason (as defined below), and such termination is not in connection with a change in control, he or she will be entitled to receive:
•a lump sum payment of an amount equal to a pro-rata portion of the annual bonus, based on actual performance, that he or she would have been paid if he or she had remained employed by us; and
•continued payment of base salary for 24 months if the date of termination is more than two years after the NEO became employed by the Company, and for 12 months if the date of termination is less than two years after the NEO became an employee of the Company; and
•continued participation in our medical, dental and hospitalization coverage for 12 months on the same terms and conditions as immediately prior to such NEO’s date of termination (i.e., at active employee rates).
Termination without cause or for good reason in connection with a change in control
In the event the employment of Messrs. Lynch,Heckes, Hair, Tiejema, LewisWhite or Ms. AuerbachPaxton is terminated by us other than for cause or disability, or by such NEO for good reason, either during the two year period following a change in control or if such NEO’s employment is terminated at the request of a third party or otherwise arises in anticipation of a change in control, he or she will be entitled to receive:
•a lump sum payment of an amount equal to a pro-rata portion of the annual bonus, based on actual performance, that he or she would have been paid if he or she had remained employed by us; and
•a lump sum payment equal to two times the sum of base salary and the average amount of such NEO’s annual bonuses earned during the two calendar years immediately preceding the date of termination; and
•continued participation in our medical, dental and hospitalization coverage for 24 months on the same terms and conditions as immediately prior to such NEO’s date of termination (i.e., at active employee rates).
If any payments or benefits provided to Messrs. Lynch,Heckes, Hair, Tiejema, LewisWhite or Ms. AuerbachPaxton in connection with a change in control are subject to excise taxes as a result of the application of Sections 280G and 4999 of the Internal Revenue Code, such payments and benefits will be reduced so that no excise tax is payable, but only if this reduction results in a more favorable after-tax position for such executive.
Termination upon expiration of the term
If the term of Messrs. Lynch,Heckes, Hair, Tiejema, Lewis,White, or Ms. Auerbach’sPaxton's employment agreement expires without the Company offering to renew it on the same terms and conditions upon the expiration of the term, each such NEO will be entitled to receive:
•continued payment of base salary for 24 months; and
•continued participation in our medical, dental and hospitalization coverage for 12 months on the same terms and conditions as immediately prior to his or her date of termination (i.e., at active employee rates).
Release and Restrictive Covenants
All severance payments to our NEOs are subject to the execution and non-revocation of an effective release in our favor and the NEO’s continued compliance with the restrictive covenants set forth in his or her employment agreement.
Definitions
For purposes of all of the employment agreements:
"cause" is generally defined as:
•conviction of, or plea of no contest to a felony (other than in connection with a traffic violation);
•the NEO’s continued failure to substantially perform his or her material duties under the employment agreement;
•an act of fraud or gross or willful material misconduct;
•any act of workplace harassment which exposes the Company to risk of material civil or criminal legal damages and materially adversely affects the Company's business or reputation; or
•a material breach by the NEO of the restrictive covenants of the employment agreement.
"change in control" means:
•an acquisition of more than 50% of our voting securities (other than acquisitions from or by us);
•an acquisition of more than 30% of our voting securities in one or a series of related transactions during any 12-month period (other than acquisition from or by us);
•certain changes in a majority of the board of directors;
•a merger or consolidation of the Company other than a merger or consolidation in which the Company is the surviving entity (other than a recapitalization in which no person or entity acquires more than 50% of our voting securities); or
•a sale or disposition of at least 40% of the total gross fair market value of our assets, other than a sale or disposition of all or substantially all of our assets to a person or entity that owns more than 50% of our voting securities.
"disability" is generally defined as the NEO being unable to perform his material duties under the employment agreement due to illness, physical or mental disability or other similar incapacity that continues for 180 consecutive days or 240 days in any 24-month period.
"good reason" is generally defined as:
•any material diminution or material adverse change to the applicable NEO’s title, duties or authorities;
•a reduction in the NEO’s base salary or target bonus, except for a base salary reduction of up to 10% as part of across-the-board reductions in base salary for all senior executives;
•a material adverse change in the applicable NEO’s reporting responsibilities or the assignment of duties substantially inconsistent with his or her position or status with the Company;
•a relocation of the NEO’s primary place of employment to a location more than 25 miles further from his or her primary residence than the current location of the Company’s offices;
•any material breach by the Company of the material provisions of the employment agreement or any other agreement with the Company or its affiliates;
•the failure of any successor of the Company to assume in writing the obligations under the employment agreement; or
•any material diminution in the aggregate value of employee benefits provided to the NEO on the effective date of the employment agreement; however, if such reduction occurs at any time other than within the 2 year period following a change in control, such NEO will not have good reason for across-the-board reductions in benefits applicable to all senior executives.
NEO Equity Award Agreements
The equity award agreements governing the outstanding restricted stock units and stock appreciation rights held by the NEOs provide (and with respect to Ms. Auerbach, during her tenure as an executive officer of the Company provided) for certain accelerated vesting of the underlying award, as summarized below:
Change in Control
For purposes of the 2012 Plan and the 2009 Plan and the applicable equity award agreements, a "change in control" generally has the same meaning as set forth in the employment agreements with the NEOs as described above.
With respect to all unvested restricted stock units and stock appreciation rights granted on or after July 2, 2013, if within 30 days prior or 24 months following the completion of a change in control or at any time prior to a change in control at the request of a prospective purchaser whose proposed purchase would constitute a change in control upon its completion, the participant’s employment is terminated either without "cause" or by the participant for "good reason" (each as defined above for the NEOs), any such awards will become fully vested on the date of such termination of employment.
Death or Disability
If a participant’s employment is terminated due to death or disability, all awards will become fully vested. With respect to any performance-based restricted stock units, the number of units subject to such accelerated vesting will be counted at target.
For purposes of the 2012 Plan and the 2009 Plan and the applicable equity award agreements, a "disability" generally means the inability of a participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.
Summary of Potential Payments upon Termination and/or Change of Control
The following table sets forth, for each of our NEOs the amount of the severance payments and benefits and the accelerated vesting of the restricted stock units and stock appreciation rights that the NEO would have been entitled to under the various termination and change in control events described above, assuming they had terminated employment on December 29, 2017. As described above,2019.
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Summary of Potential Payments upon Termination and/or Change of Control (continued) | | | | | | | |
| | Cash Severance ($) | Pro-Rata Bonus ($)(1) | Health and Welfare Benefits ($)(2) | Accelerated Vesting of RSUs ($)(3) | Accelerated Vesting of SARs ($)(4) | Total ($) |
Howard C. Heckes | Without Cause/For Good Reason Without a CIC | 850,000(5) | 842,547 | 707 | - | - | 1,693,254 |
| Without Cause/For Good Reason in connection with a CIC | 1,271,274(6) | - | 1,413 | 755,503 | 837,780 | 2,865,969 |
| Termination upon Expiration of the Employment Agreement | 1,700,000(7) | - | 707 | - | - | 1,700,707 |
| Death or Disability | - | - | - | 755,503 | 837,780 | 1,593,282 |
| | | | | | | |
Russell T. Tiejema | Without Cause/For Good Reason Without a CIC | 940,000(5) | 488,236 | 18,713 | - | - | 1,446,949 |
| Without Cause/For Good Reason in connection with a CIC | 1,472,508(6) | - | 37,425 | 1,772,108 | 145,197 | 3,427,239 |
| Termination upon Expiration of the Employment Agreement | 940,000(7) | - | 18,713 | - | - | 958,713 |
| Death or Disability | - | - | - | 1,772,108 | 145,197 | 1,917,305 |
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James A. "Tony" Hair | Without Cause/For Good Reason Without a CIC | 1.030,000(5) | 573,195 | 22,234 | - | - | 1,625,429 |
| Without Cause/For Good Reason in connection with a CIC | 1,655,320(6) | - | 44,469 | 2,627,267 | 159,196 | 4,486,252 |
| Termination upon Expiration of the Employment Agreement | 1,030,000(7) | - | 22,234 | - | - | 1,052,234 |
| Death or Disability | - | - | - | 2,627,267 | 159,196 | 2,786,463 |
| | | | | | | |
Randal A. White | Without Cause/For Good Reason Without a CIC | 830,000(5) | 369,516 | 20,019 | - | - | 1,219,535 |
| Without Cause/For Good Reason in connection with a CIC | 1,232,876(6) | - | 40,038 | 1,671,950 | 94,868 | 3,039,732 |
| Termination upon Expiration of the Employment Agreement | 830,000(7) | - | 20,019 | - | - | 850,019 |
| Death or Disability | - | - | - | 1,671,950 | 94,868 | 1,766,818 |
| | | | | | | |
Robert A. Paxton | Without Cause/For Good Reason Without a CIC | 388,000(5) | 345,476 | 20,019 | - | - | 753,495 |
| Without Cause/For Good Reason in connection with a CIC | 576,376(6) | - | 40,038 | 1,570,425 | 88,756 | 2,275,595 |
| Termination upon Expiration of the Employment Agreement | 776,000(7) | - | 20,019 | - | - | 796,019 |
| Death or Disability | - | - | - | 1,570,425 | 88,756 | 1,659,181 |
| | | | | | | |
(1) Represents the full annual cash performance bonus amount for 2019.
(2) Represents the value of continued health and welfare benefits at active employee rates, based upon the NEO’s benefit election as of January 1, 2020, for a period of 12 months upon a termination without cause or for good reason without a change in connectioncontrol or due to expiration of the employment agreement, or 24 months upon a termination without cause or for good reason with her separation froma change in control, as applicable.
(3) Amounts shown are calculated by aggregating the sums determined by multiplying, for each award, (x) the number of restricted stock units that receive accelerated vesting as a result of the applicable termination of employment, by (y) the closing stock price on December 27, 2019 of $71.85. The value of accelerated performance-vesting restricted stock units is calculated assuming that the applicable performance measures are achieved at the target levels.
(4) Amounts shown are calculated by aggregating the sums determined by multiplying, for each award, (x) the number of shares subject to SARs that receive accelerated vesting as a result of the applicable termination of employment, by (y) the difference
between the closing price per share of our common stock on December 27, 2019 of $71.85, and the applicable exercise price of the SAR.
(5) Represents a cash severance amount equal to 24 months of base salary if the date of termination is more than two years after the NEO became employed by the Company Ms. Auerbach received(in the compensation arrangement described under “Compensation Discussioncase of Messrs. Tiejema, Hair and Analysis—Severance and Change in Control Benefits—Gail N. Auerbach Separation”. This arrangement is included inWhite), or 12 months of base salary if the table below as a termination “Without Cause/For Good Reason Without a CIC”. All other typesdate of termination are shownis less than two years after the NEO became and employee of the Company (in the case of Messrs. Heckes and Paxton).
(6) Represents a cash severance amount equal two times (2x) the sum of base salary and the average amount of the NEO’s annual cash performance bonuses, if any, earned during the two calendar years immediately preceding the calendar year in which the table below as they would have been treated under her unmodified compensation arrangements.date of termination occurred (i.e., 2019 and 2018).
(7) Represents a cash severance amount equal to 24 months of base salary.
|
| | | | | | | |
Summary of Potential Payments upon Termination and/or Change of Control (continued) |
| | Cash Severance ($) | Pro-Rata Bonus ($)(1) | Health and Welfare Benefits ($)(2) | Accelerated Vesting of RSUs ($)(3) | Accelerated Vesting of SARs ($)(4) | Total ($) |
Frederick J. Lynch | Without Cause/For Good Reason Without a CIC | 1,870,000(5) | 417,197 | 22,040 | - | - | 2,309,237 |
| Without Cause/For Good Reason in connection with a CIC | 3,586,193(6) | - | 44,081 | 11,755,400 | 353,456 | 15,739,130 |
| Termination upon Expiration of the Employment Agreement | 1,870,000(5) | - | 22,040 | - | - | 1,892,040 |
| Death or Disability | - | - | - | 11,755,400 | 353,456 | 12,108,856 |
| | | | | | | |
Russell T. Tiejema | Without Cause/For Good Reason Without a CIC | 880,000(5) | 119,504 | 18,149 | - | - | 1,017,653 |
| Without Cause/For Good Reason in connection with a CIC | 1,302,624(6) | - | 36,298 | 999,987 | 63,010 | 2,401,919 |
| Termination upon Expiration of the Employment Agreement | 880,000(5) | - | 18,149 | - | - | 898,149 |
| Death or Disability | - | - | - | 999,987 | 63,010 | 1,062,996 |
| | | | | | | |
James. A. “Tony” Hair | Without Cause/For Good Reason Without a CIC | 1,000,000(5) | 135,800 | 21,902 | - | - | 1,157,702 |
| Without Cause/For Good Reason in connection with a CIC | 1,374,800(6) | - | 43,805 | 1,388,648 | 50,401 | 2,857,654 |
| Termination upon Expiration of the Employment Agreement | 1,000,000(5) | - | 21,902 | - | - | 1,021,902 |
| Death or Disability | - | - | - | 1,388,648 | 50,401 | 1,439,049 |
| | | | | | | |
Robert E. Lewis | Without Cause/For Good Reason Without a CIC | 824,000(5) | 87,921 | 21,902 | - | - | 933,823 |
| Without Cause/For Good Reason in connection with a CIC | 1,172,099(6) | - | 43,805 | 1,295,448 | 51,916 | 2,563,268 |
| Termination upon Expiration of the Employment Agreement | 824,000(5) | - | 21,902 | - | - | 845,902 |
| Death or Disability | - | - | - | 1,295,448 | 51,916 | 1,347,364 |
| | | | | | | |
Gail N. Auerbach | Without Cause/For Good Reason Without a CIC | 732,000(5) | 78,105 | 15,460 | - | - | 825,565 |
| Without Cause/For Good Reason in connection with a CIC | 1,041,234(6) | - | 30,920 | 843,669 | 46,125 | 1,961,948 |
| Termination upon Expiration of the Employment Agreement | 732,000(5) | - | 15,460 | - | - | 747,460 |
| Death or Disability | - | - | - | 843,669 | 46,125 | 889,794 |
| | | | | | | |
| |
(1) | Represents the full annual cash performance bonus amount for 2017. |
| |
(2) | Represents the value of continued health and welfare benefits at active employee rates, based upon the NEO’s benefit election as of January 1, 2018, for a period of 12 months upon a termination without cause or for good reason without a change in control or due to expiration of the employment agreement, or 24 months upon a termination without cause or for good reason with a change in control, as applicable. |
| |
(3) | Amounts shown are calculated by aggregating the sums determined by multiplying, for each award, (x) the number of restricted stock units that receive accelerated vesting as a result of the applicable termination of employment, by (y) the closing stock price on December 29, 2017 of $74.15. The value of accelerated performance-vesting restricted stock units is calculated assuming that the applicable performance measures are achieved at the target levels. |
| |
(4) | Amounts shown are calculated by aggregating the sums determined by multiplying, for each award, (x) the number of shares subject to stock appreciation rights that receive accelerated vesting as a result of the applicable termination of employment, by (y) the difference between the closing price per share of our common stock on December 29, 2017 of $74.15, and the applicable exercise price of the stock appreciation right. |
| |
(5) | Represents a cash severance amount equal to 24 months of base salary if the date of termination is more than two years after the NEO became employed by the Company (in the case of Messrs. Lynch, Tiejema, Hair, Lewis and Ms. Auerbach), or 12 months of base salary if the date of termination is less than two years after the NEO became an employee of the Company. |
| |
(6) | Represents a cash severance amount equal two times (2x) the sum of base salary and the average amount of the NEO’s annual cash performance bonuses, if any, earned during the two calendar years immediately preceding the calendar year in which the date of termination occurred (i.e., 2017 and 2016). |
CEO PAY RATIO DISCLOSURE
In August 2015, pursuant to a mandate ofAs required by SEC rules, we are providing the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Securities and Exchange Commission (the “SEC”) adopted a rule requiring annual disclosure offollowing information about the ratio of our median employee’s annual total compensation to the total annual compensation of our principal executive officer (‟PEO”(our “CEO pay ratio”), which was Mr. Lynch for fiscal 2017.. The purpose of the new requiredthis disclosure is to provide a measure of the equitability of pay within the organization. Due to the flexibility afforded by the rules of the SEC in calculating the pay ratio amount, the ratio we calculated may not be comparable to the CEO pay ratios presented by other companies. Our CEO pay ratio information is a reasonable good faith estimate calculated in a manner consistent with SEC rules.
During fiscal 2019, we hired a new CEO, Mr. Howard Heckes. For purposes of our pay ratio calculation, we used the total compensation for Mr. Heckes as reported in the 2019 Summary Compensation Table; however, since Mr. Heckes joined the Company in June 2019, we annualized his compensation as follows:
•we annualized his base salary to $850,000 (from the $474,039 reported in the Summary Compensation Table);
•we annualized his aggregate MIP bonus (including the MIP Adder) to $1,694,985 (from the $984,485 reported in the Summary Compensation Table);
•we annualized company contributions to his 401(k) plan to $14,000 (from the $9,808 reported in the Summary Compensation Table); and
•we annualized his employee benefit for group term life insurance to $1,932 (from the $892 reported in the Summary Compensation Table).
We did not annualize Mr. Heckes’ stock awards, as the full grant date fair value of those awards is already included in his fiscal year 2019 compensation under SEC rules. Similarly, we did not annualize Mr. Heckes’ housing allowance and moving expenses, as those were one-time benefits with the full amount already included in his fiscal year 2019 compensation.
In determining the median employee for our 2019 disclosure, we used a listing of our employees as of December 31, 2017.2019. As of December 31, 2017,2019, we had approximately 9,3009,600 employees (excluding contract employees), including 5,4905,627 U.S. employees and 3,8104,038 non-U.S. employees. In identifying our median employee, as permitted under SEC rules, we excluded employees on leave of absence. Furthermore, in
accordance with SEC rules, we excluded from our determination of the median employee, all employees from three countries, totaling in the aggregate 406441 employees, representing approximately 4.4%4.6% of our total employee population globally. Employees from the following countries were excluded: Malaysia (246(278 employees), China (4 employees) and The Czech Republic (156(159 employees). After excluding employees in these countries, our employee population as of December 31, 20172019 consisted of 8,8949,224 employees (including 3,4043,597 employees outside of the United States), from which our median employee was identified.
As permitted under SEC rules, to determine our median employee we used annual taxable compensation as derived from our tax and/or payroll records. We believe that taxable compensation encompasses all of the principal methods of compensation that we use for our employees and provides a reasonable estimate of annual compensation for our employees. Furthermore, in identifying our median employee, wages and salaries were annualized for employees who were not employed for the full 20172019 fiscal year.year and who were not temporary or seasonal. We did not make a full-time equivalent adjustment for any employee.
After identifying the median employee, weWe calculated the median employee’s total annual compensation in accordance with the Summary Compensation Table.
Below is the calculation of our PEOCEO pay ratio:
Mr. Lynch’s 2017Heckes’ 2019 Total AnnualAnnualized Compensation $4,172,550$3,797,762
Masonite Median Employee 20172019 Total Annual Compensation $39,392$42,870
Ratio of Mr. Lynch’sHeckes’ Compensation to Median Employee Compensation 106:89:1
A significant majority of Mr. Heckes’ 2019 total compensation is attributable to a one-time signing bonus of $150,000, a housing allowance of $84,000, moving expenses of $2,862 and a one-time new hire equity award consisting of 10,515 time-vesting restricted stock units and 56,645 SARs to provide him with an incentive to join us and to facilitate his employment transition.
ADVISORY VOTE ON EXECUTIVE COMPENSATION (PROPOSAL 2)
In accordance with the requirements of Section 14A of the Exchange Act and the related rules of the SEC, our Shareholders are being asked to approve, in an advisory, non-binding vote, the compensation of our NEOs as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion.
In considering their vote, we urge Shareholders to review the information on our compensation policies and decisions regarding the NEOs presented in the Compensation Discussion and Analysis on pages 2931 to 65,73, as well as the discussion regarding the Human Resources and Compensation Committee on page 16.
This advisory resolution, commonly referred to as a "say-on-pay" resolution, is non-binding. Although this resolution is non-binding, the Board and the Human Resources and Compensation Committee value the opinions of our Shareholders and will review and consider the voting results when making future compensation decisions for our NEOs. We currently intend to hold this vote annually. The next such vote will be held at the Company’s 20192021 annual general meeting.
We believe that our compensation components provide a reasonable balance of base compensation, cash incentive compensation and long-term equity-based incentive compensation that is closely aligned with the Company’s overall performance. The Company aims to provide executive officers with a reasonable level of security through base salary and benefits, while rewarding them through cash and equity-based incentive compensation to achieve business objectives and create shareholder value. We believe that each of our compensation components is integral to attracting, retaining and rewarding qualified NEOs.
The text of the resolution in respect of Proposal no. 2 is as follows:
RESOLVED, that, the compensation paid to the Company’s Named Executive Officers as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL, ON AN ADVISORY BASIS, OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS.
ADVISORY VOTE ON FREQUENCY OF SHAREHOLDER VOTE ON EXECUTIVE COMPENSATION (PROPOSAL 3)
In accordance with the requirements of Section 14A of the Exchange Act and the related rules of the SEC, our Shareholders are also entitled to vote, on an advisory basis, on whether the "say on pay" vote, as required by Section 14A of the Exchange Act (and as described above in Proposal 2), should occur every one, two, or three years. The vote on the frequency of the "say on pay" vote, just as with the "say on pay" vote itself, is advisory only, and it also is not binding on the Company or on our Board of Directors. Although the vote is non-binding, the Human Resources and Compensation Committee and the Board will carefully consider the outcome of the vote when determining the frequency of future shareholder advisory votes on executive compensation.
After careful consideration, the Board has determined that a "say on pay" vote that occurs every year is the most appropriate alternative for our company at this time. Therefore, the Board recommends that you vote for a one-year frequency for the "say on pay" vote - that is, that the "say on pay vote" be held "EVERY YEAR."
In formulating its recommendation, the Board considered that an annual "say on pay" vote will allow our Shareholders to provide us with their direct input on the compensation paid to the Company’s named executive officers as disclosed in the Proxy Statement each year. Since 2014, the Board has annually submitted to a vote of the Shareholders a non-binding proposal to approve the executive compensation of our named executive officers. We understand that our Shareholders may have different views as to what is the best approach for us, just as we recognize that the Board may in the future determine to recommend a different frequency cycle, and we look forward to hearing from our Shareholders as to their preferences on the frequency of future advisory votes on executive compensation.
Although the Board recommends a "say on pay" vote be held every year, you are free to vote one of four choices for this Proposal 3 on the proxy card: one year, two years, three years, or "abstain." The text of the resolution in respect of Proposal no. 3 is as follows:
RESOLVED, that the option of once every one year, two years or three years that receives the highest number of votes cast for this resolution will be determined to be the preferred frequency with which the Company is to hold an advisory shareholder vote to approve the compensation paid to the Company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE OPTION OF "EVERY YEAR" AS THE FREQUENCY WITH WHICH SHAREHOLDERS ARE PROVIDED AN ADVISORY VOTE ON THE COMPENSATION PAID TO THE NAMED EXECUTIVE OFFICERS AS DISCLOSED IN OUR PROXY STATEMENT.
AUDIT COMMITTEE REPORT
The Audit Committee operates pursuant to a charter which is reviewed annually by the Audit Committee. Additionally, a brief description of the primary responsibilities of the Audit Committee is included in "Corporate Governance; Board and Committee Matters - Board Committees; Membership - Audit Committee" on page 15 of this Proxy Statement. Under the Audit Committee charter, management is responsible for the preparation, presentation and integrity of the Company’s financial statements, the application of accounting and financial reporting principles and internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. The independent registered public accounting firm is responsible for auditing the Company’s financial statements and expressing an opinion as to their conformity with U.S. generally accepted accounting principles. In addition, the independent registered public accounting firm is responsible for auditing and expressing an opinion on the Company’s internal controls over financial reporting.
In the performance of its oversight function, the Audit Committee reviewed and discussed the audited financial statements of the Company with management and with Ernst & Young LLP ("E&Y"EY"), the Company’s independent registered public accounting firm. The Audit Committee also discussed with E&YEY the matters required to be discussed by the applicable standards of the Public Company Accounting Oversight Board ("PCAOB") Auditing Standard No. 1301 "Communications with Audit Committees.". In addition, the Audit Committee received the written disclosures and the letter from E&YEY required by applicable requirements of the PCAOB regarding E&Y’sEY’s communications with the Audit Committee concerning independence, and discussed with the independent registered public accounting firm their independence.
Based upon the review and discussions described in the preceding paragraph, the Audit Committee recommended to the Board that the audited financial statements of the Company be included in the Annual Report on Form 10-K for the year ended December 31, 201729, 2019 filed with the SEC.
Submitted by the Audit Committee of the Company’s Board:
Jonathan F. Foster (Chair)
Rick J. MillsPeter R. Dachowski
John C. WillsDaphne E. Jones
APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PROPOSAL 3)4)
Our consolidated financial statements for the fiscal year ended December 31, 201729, 2019 have been audited by Ernst & Young LLP, our independent auditorsregistered public accounting firm (“E&Y”EY”). On the recommendation of the Audit Committee, the Board recommends the appointment of E&YEY as the independent registered public accounting firm for the fiscal year ended December 30, 2018. Deloitte & Touche LLP (“Deloitte”) served as our independent auditors for the fiscal year ended January 1, 2017 (“fiscal 2016”) and audited our consolidated financial statements for fiscal 2016 and prior years.
The reports of Deloitte on Masonite’s consolidated financial statements for fiscal 2016 and the fiscal year ended January 3, 2016 (“fiscal 2015”), did not contain an adverse opinion or a disclaimer of opinion2021 and were not qualified or modified as to uncertainty, audit scope or accounting principles. During fiscal 2016 and fiscal 2015 andauthorize the subsequent interim period through March 1, 2017, there were (i) no “disagreements” as that term is defined in Item 304 (a)(1)(iv) of Regulation S-K with Deloitte on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreement(s), if not resolvedBoard to the satisfaction of Deloitte would have caused Deloitte to make reference to the subject matter of the disagreement(s) in connection withfix its report on Masonite’s consolidated financial statementsremuneration for such years, and (ii) no “reportable events” as that term is defined in Item 304(a)(1)(v) of Regulation S-K.
The change in independent auditors was previously disclosed in the Company’s Current Report on Form 8-K filed with the SEC on October 13, 2016 and amended on March 1, 2017. A copy of Deloitte’s letters, dated October 13, 2016 and March 1, 2017, stating its agreement with the statements made in these Forms 8-K filings were included as an exhibit to each such Form 8-K filing.
During fiscal 2016 and fiscal 2015 and the subsequent interim period through March 1, 2017, neither Masonite nor anyone acting on its behalf consulted with E&Y, regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on Masonite’s consolidated financial statements, and neither a written report nor oral advice was provided to Masonite that E&Y concluded was an important factor considered by Masonite in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a “disagreement,” as that term is defined in
Item 304(a)(1)(iv) of Regulation S-K, or a “reportable event,” as that term is defined in Item 304(a)(1)(v) of Regulation S-K.term.
A representative of E&YEY is expected to be present at the Annual Meeting in order to respond to appropriate questions and to make any other statement deemed appropriate.
Service Fees Paid to the Independent Registered Public Accounting Firm
EY began acting as our independent auditors with respect to the audit of our financial statements beginning with the 2017 fiscal year. The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the independent registered public accounting firm retained to audit our financial statements. The Audit committeeCommittee is responsible for the audit fee negotiations associated with the appointment of E&YEY as our independent registered public accounting firm for the fiscal year ending December 31, 2017.29, 2019.
The fees charged by E&YEY for professional services rendered in connection with all audit and non-audit related matters for the yearyears ended December 31, 201729, 2019 and the fees charged by Deloitte for professional services rendered in connection with all audit and non-audit related matters for the year ended January 1, 2017December 30, 2018 were as follows:
| | | | | | | | | | | | | | | | | |
Type of Fees | | 2019 ($) | | 2018 ($) | |
Audit Fees | | 2,862,082 | | | 3,137,800 | | |
Audit-Related Fees | | 15,000 | | | 15,000 | | |
Tax Fees | | 510,662 | | | 264,719 | | |
All Other Fees | | 29,555 | | | 1,330 | | |
Totals | | 3,417,299 | | | 3,418,849 | | |
|
| | | | | | |
Type of Fees | | 2017 ($) | | 2016 ($) | |
Audit Fees | | 2,860,187 |
| | 2,325,320 | |
Audit-Related Fees | | — |
| | 25,796 | |
Tax Fees | | 275,070 |
| | 352,639 | |
All Other Fees | | 2,000 |
| | 2,000 | |
Totals | | 3,137,257 |
| | 2,705,755 | |
Independent Registered Public Accountants-Fee Information
Audit Fees
Fees for audit services in 20172019 and in 20162018 consisted of (a) audits of the Company’s annual consolidated financial statements, (b) reviews of the Company’s quarterly condensed consolidated financial statements included in our Quarterly Reports on Form 10-Q, and (c) annual stand-alone statutory audits. Fees for audit services in 2017 also consisted of due diligenceaudits, (d) comfort letter procedures related to the Company’s issuance of additional debt, and (e) procedures associated with new financial accounting standards.
Audit-Related Fees
Audit-related services principally include assurance and related services by the independent auditors that are reasonably related to the performance of the audit or review of our financial statements, or other filings that are not captured under "Audit Fees" above. In 2016 these services included an assessment of2018 and 2019, audit-related fees were related to audit procedures performed over the segment change, interim dividend audits and a UK and Irish GAAP assessment.Company’s Ireland pension scheme.
Tax Fees
Tax services in 2017 included US2019 and foreign2018 consisted of professional services rendered by EY for international transfer pricing complianceanalysis and documentation tax planning, as well as assistance withand various VAT, US sales and use tax and international customs matters and in 2016 included the preparation of original and amendedmatters. In 2019, tax services also were related to income tax Value Added Tax (VAT), and other tax returns in various non-U.S. jurisdictions, advice and planning related to transfer pricing and R&D credits, international income and other tax, VAT, and customs matters.compliance.
All Other Fees
Other fees in 20172019 and 2018 included the Company’s use of E&Y’sEY’s online research tool and in 2016 included various educational information on comprehensive authoritative accounting regulatory literature including webcasts, podcasts, websites, database subscriptions, checklists, research reports and similar tools.tool. In 2019, other services related to permitted risk assessment advisory services
The Audit Committee considered whether E&Y’sEY’s provision of the above non-audit services is compatible with maintaining such firm’s independence and satisfied itself as to E&Y’sEY’s independence.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors
Consistent with the SEC policies regarding auditor independence and the Audit Committee’s charter, the Audit Committee has responsibility for appointing, setting compensation for and reviewing the performance of the independent auditors. In exercising this responsibility, the Audit Committee has established pre-approval policies with respect to audit and permissible non-audit services to be provided by the independent auditors and the related fees. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific limit above which separate pre-approval is required. Management is required to
periodically report to the Audit Committee regarding the extent of services provided by the independent auditors in accordance with this pre-approval, and the fees for the services performed to date. To ensure prompt handling of unexpected matters, the Audit Committee has delegated to the Chairman of the Audit Committee the authority to pre-approve permissible non-audit services and fees. Any action taken in this regard is reported to the Audit Committee at the next scheduled Audit Committee meeting.
During fiscal 2017, 100% of services were pre-approved by the Audit Committee in accordance with this policy.
The Board requests that Shareholders approve the appointment of E&YEY and authorize the Board to fix E&Y’sEY’s remuneration for such term. This appointment will be dependent on no other independent registered public accounting firm being put forward at the meeting and receiving more "FOR" votes than E&Y.EY. If the approval of this appointment (or the appointment of an alternate registered public accounting firm) does not occur, then the BCBCA provides that the current auditors, E&Y,EY, will continue to act for the Company until such time as the Shareholders approve successor auditors.
THE BOARD RECOMMENDS A VOTE "FOR" THE APPOINTMENT OF ERNST & YOUNG LLP AS AUDITORS TO SERVE UNTIL THE NEXT ANNUAL GENERAL MEETING OF THE COMPANY AND THE AUTHORIZATION OF THE BOARD OF DIRECTORS TO FIX THE AUDITOR’S REMUNERATION.
SHAREHOLDER PROPOSALS FOR 20192021 ANNUAL MEETING
It is currently contemplated that our 20192021 annual meeting of Shareholders will take place on May 15, 2019.13, 2021. In accordance with the rules established by the SEC, any Shareholder proposal submitted pursuant to Rule 14a-8 to be included in the Proxy Statement and form of proxy for that meeting must be received by us by November 26, 2018.25, 2020. In order for your proposal to be included in the Proxy Statement and form of proxy, the proposal must comply with the requirements established by the SEC, the BCBCA and our Current Articles. If you would like to submit a Shareholder proposal to be included in our proxy materials, you should send your proposal to our Corporate Secretary at the Company’s principal executive office located at 2771 Rutherford Road, Concord, Ontario, Canada L4K 2N6.
Our Articles require the timely notice of certain information to be provided by any Shareholder who proposes director nominations for consideration at a Shareholders’ meeting. Failure to deliver a proposal in accordance with these requirements may result in it not being deemed timely received. To be timely, notice of a director nomination must be received by our Corporate Secretary at the registered office or the principal executive office of the Company no less than 30 days nor more than 65 days before the date of the 20192021 annual general meeting, subject to certain exceptions as described in the Articles. As such, assuming the 20192021 annual general meeting is held on May 15, 2019,13, 2021, any such director nominations submitted for consideration at such meeting must be received no earlier than March 11, 20199, 2021 and no later than April 15, 201913, 2021 in order for it to be deemed timely received.
Pursuant to the BCBCA, a registered or beneficial Shareholder who holds no less than 1/100 of the issued Common Shares of the Company and provided those shares have a fair market value of no less than Cdn$2,000 (approximately US$1,5621,449 as of March 12, 2018)16, 2020), may submit a proposal (other than a proposal to appoint a director as outlined above) for consideration at an annual general meeting of the Company (a "BCBCA Proposal"). In order to be valid, the proposal must meet several technical requirements, including a requirement that the proposal be for a valid purpose relating to the business and affairs of the Company, and that the form of proposal is delivered to the registered office of the Company no less than three months prior to the anniversary of the last annual general meeting of the Company. If a Shareholder submits a BCBCA Proposal for consideration at the 20192021 annual general meeting outside the processes of Rule 14a-8 of the Exchange Act, and that submission occurs after the close of business on February 10, 2019,14, 2021, assuming the meetingMeeting is held on May 15, 2019,14, 2020, then the Company would not need to include such proposal with the notice of meeting and other
meeting materials for the 20192021 annual general meeting and, in accordance with the BCBCA and the Articles of the Company, could prohibit that matter from being considered at that meeting.
OTHER BUSINESS
Management knows of no other matter that will come before the Meeting. However, if any further business properly comes before the Meeting or any adjournments or postponements of the Meeting, the persons named as proxies in the accompanying form of proxy will vote them in accordance with their discretion and judgment on such matters.
ANNUAL REPORT
We have provided each Shareholder whose proxy is being solicited hereby access to a copy of our Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2017,29, 2019, without exhibits. Written requests for additional copies should be directed to: Masonite International Corporation, 201 North Franklin Street, Suite 300, Tampa, FL 33602 Attention: Corporate Secretary. Exhibits will be provided upon written request to the Corporate Secretary and payment of an appropriate processing fee.
HOUSEHOLDING OF PROXY MATERIALS
SEC rules permit companies and intermediaries such as brokers to satisfy delivery requirements for Proxy Statements and notices with respect to two or more Shareholders sharing the same address by delivering a single Proxy Statement or a single notice addressed to those Shareholders. This process, which is commonly referred to as "householding", provides cost savings for companies. Some brokers household proxy materials, delivering a single Proxy Statement or notice to multiple Shareholders sharing an address unless contrary instructions have been received from the affected Shareholders. Once you have received notice from your broker that they will be householding materials to your address, householding will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in householding and would prefer to receive a separate Proxy Statement or notice, or if you are receiving duplicate copies of these materials and wish to have householding apply, please notify your broker. You can also request prompt delivery of a paper copy of the Proxy Statement and annual report by contacting Masonite Investor Relations, by mail at One Tampa City Center, 201 North Franklin Street, Suite 300, Tampa, Florida 33602, by telephone at (813) 877-2726, or by email at investorrelations@masonite.com.
WHERE TO FIND ADDITIONAL INFORMATION
We are subject to the informational requirements of the Exchange Act and in accordance therewith, we file annual, quarterly and current reports and other information with the SEC. This information can be inspected and copied at the Public Reference Room at the SEC’s office at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Such information may also be accessed electronically by means of the SEC’s home page on the Internet at http://www.sec.gov. We are an electronic filer, and the SEC maintains an Internet sitewebsite at http://www.sec.gov that contains the reports and other information we file electronically.
Our website address is www.masonite.com. Please note that our website address is provided as an inactive textual reference only. We make available free of charge, through our website, our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. To access these filings, go to our website, www.masonite.com, and click on "Corporate", then "Investor Relations" and then "SEC Filings." The information provided on or accessible through our website is not part of this proxy statement.
By Order of the Board,
Robert E. Lewis
Senior Vice President,
General Counsel and Corporate Secretary