POLYONE CORPORATION
Notice of 20102012
Annual Meeting of Shareholders
and Proxy Statement
SCHEDULE 14A
(RULERule 14a-101)
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POLYONE CORPORATION
Notice of 20102012
Annual Meeting of Shareholders
and Proxy Statement
Dear Fellow Shareholder:
You are cordially invited to attend the PolyOne Corporation Annual Meeting of Shareholders, which will be held at 9:00 a.m. on Wednesday, May 12, 2010,9, 2012, at the LACENTRE Conference and Banquet Facility, Champagne C Ballroom, 25777 Detroit Road, Westlake, Ohio.
A Notice of the Annual Meeting and the Proxy Statement follow. Please review this material for information concerning the business to be conducted at the Annual Meeting and the nominees for election as Directors.
You will also find enclosed a proxyand/or voting instruction card and an envelope in which to return the card. Whether or not you plan to attend the Annual Meeting, please complete, sign, date and return your enclosed proxyand/or voting instruction card, or vote over theby telephone or over the Internet as soon as possible so that your shares can be voted at the meeting in accordance with your instructions.Your vote is very important.You may, of course, withdraw your proxy and change your vote prior to or at the Annual Meeting, by following the steps described in the Proxy Statement.
I appreciate the strong support of our shareholders over the years and look forward to seeing you at the meeting.
| Sincerely, |
 |
Stephen D. Newlin Chairman, President and Chief Executive Officer PolyOne Corporation |
Please refer to the accompanying materials for voting instructions.
NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS
The Annual Meeting of Shareholders of PolyOne Corporation will be held at the LACENTRE Conference and Banquet Facility, Champagne C Ballroom, 25777 Detroit Road, Westlake, Ohio at 9:00 a.m. on Wednesday, May 12, 2010.9, 2012. The purposes of the meeting are:
| 1. | To elect as Directors the | |
| 2. | To approve, on an advisory basis, our named executive officer compensation; |
| 3. | To approve the First Amendment to the PolyOne Corporation 2010 Equity and Performance Incentive Plan; | |
| 4. | To ratify the appointment of Ernst & Young LLP as PolyOne Corporation’s independent registered public accounting firm for the fiscal year ending December 31, | |
| 5. | To consider and transact any other business that may properly come before the meeting. |
Shareholders of record at the close of business on March 15, 201014, 2012 are entitled to notice of and to vote at the meeting.
| For the Board of Directors |
 |
| LISA K. KUNKLE |
Vice President, General Counsel and Secretary |
March 29, 2010
Important Notice Regarding the Availability of Proxy Materials
for the Annual Meeting of Shareholders to be held on May 12, 2010:9, 2012:
The proxy statement, proxy card and annual report to shareholders for the fiscal year ended December 31, 20092011 are available at our internet website, www.polyone.com, on the “Investors Relations” page.
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PolyOne Center
33587 Walker Road
Avon Lake, Ohio 44012
PROXY STATEMENT
Dated March 29, 201023, 2012
Our Board of Directors respectfully requests your proxy for use at the Annual Meeting of Shareholders to be held at the LACENTRE Conference and Banquet Facility, Champagne C Ballroom, 25777 Detroit Road, Westlake, Ohio at 9:00 a.m. on Wednesday, May 12, 2010,9, 2012, and at any adjournments of that meeting. This proxy statement is to inform you about the matters to be acted upon at the meeting.
If you attend the meeting, you may vote your shares by ballot. If you do not attend, your shares may still be voted at the meeting if you sign and return the enclosed proxy card. Common shares represented by a properly signed card will be voted in accordance with the choices marked on the card. If no choices are marked, the shares will be voted to elect the nominees listed on pages 34 through 78 of this proxy statement, to approve, by non-binding vote, our named executive officer compensation, to approve the First Amendment to the PolyOne Corporation 2010 Equity and Performance Incentive Plan to approve the PolyOne Corporation Senior Executive Annual Incentive Plan (Effective January 1, 2011) and to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2010.2012. You may revoke your proxy before it is voted by giving notice to us in writing or orally at the meeting. Persons entitled to direct the vote of shares held by the following plans will receive a separate voting instruction card: The PolyOne Retirement Savings Plan and PolyOne Canada Inc. Retirement Savings Program. If you receive a separate voting instruction card for one of these plans, you must sign and return the card as indicated on the card in order to instruct the trustee on how to vote the shares held under the plan. You may revoke your voting instruction card before the trustee votes the shares held by it by giving notice in writing to the trustee.
Shareholders may also submit their proxies by telephone or over the Internet. The telephone and Internet voting procedures are designed to authenticate votes cast by use of a personal identification number. These procedures allow shareholders to appoint a proxy to vote their shares and to confirm that their instructions have been properly recorded. Instructions for voting by telephone and over the Internet are printed on the proxy cards.
We are mailing this proxy statement and the enclosed proxy card and, if applicable, the voting instruction card, to shareholders on or about April 5, 2010.March 23, 2012. Our headquarters are located at PolyOne Center, 33587 Walker Road, Avon Lake, Ohio 44012 and our telephone number is(440) 930-1000.
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Our Board of Directors currently consists of eleven Directors. Mr. Mooney has recently indicated that he will retire from our Board of Directors at the 2012 Annual Meeting of Shareholders. Following Mr. Mooney’s retirement, our Board will consist of ten Directors. Each Director serves for a one-year term and until a successor is duly elected and qualified, subject to the Director’s earlier death, retirement or resignation. Our Corporate Governance Guidelines provide that all non-employee Directors will retire from the Board not later than the first Annual Meetingday of Shareholdersthe month following the date of the Director’s 70th birthday. In accordance with these Guidelines, Ms. Duff-Bloom will retire from72nd birthday, although the Board atmay waive this limitation if it determines that such a waiver is in the 2010 Annual Meeting of Shareholders. Following Ms. Duff-Bloom’s retirement, our Board will consist of nine Directors.
A shareholder who wishes to suggestnominate a Director candidateperson for consideration by the Nominating and Governance Committeeelection as a Director must provide written notice to our Secretary in accordance with the procedures specified in Regulation 12 of our Regulations.Code of Regulations (“Regulations”). Generally, the Secretary must receive the notice not less than 60 nor more than 90 days prior to the first anniversary of the date on which we first mailed our proxy materials for the preceding year’s annual meeting. The notice must set forth, as to each nominee, the name, age, principal occupations and employment during the past five years, name and principal business of any corporation or other organization in which such occupations and employment were carried on and a brief description of any arrangement or understanding between such person and any others pursuant to which such person was selected as a nominee. The notice must include the nominee’s signed consent to serve as a Director if elected. The notice must set forth the name and address of, and the number of our common shares owned by, the shareholder giving the notice and the beneficial owner on whose behalf the nomination is made and any other shareholders believed to be supporting such nominee.
Following are the nominees for election as Directors for terms expiring in 2011,2013, a description of the business experience of each nominee and the names of other publicly-held companies for which he or she currently serves as a director or has served as a director during the past five years. Each nominee for election as Director was previously elected by our shareholders, with the exceptions of Gregory J. Goff and William A. Wulfsohn. As permitted by Regulations 10(a) and 13 of our Regulations, the Board increased its size to eleven members and elected Mr. Goff and Mr. Wulfsohn to fill the resulting vacancies in October 2011. Both Mr. Goff and Mr. Wulfsohn were recommended to our Nominating and Governance Committee for election to the Board by a third-party search firm, Russell Reynolds Associates, Inc.
In addition to the information presented below regarding each nominee’s specific experience, qualifications, attributes and skills that led our Board to the conclusionsconclusion that the nominee should serve as a Director, the Board also believes that all of our Director nominees are individuals of substantial accomplishment with demonstrated leadership capabilities. Each of our Directors also has the following personal characteristics, which are required attributes for all Board nominees: high ethical standards, integrity, judgment, and an ability to devote sufficient time to the affairs of our Company. Each of the nominees is a current member of the Board. The reference below each Director’s name to the term of service as a Director includes the period during which the Director served as a Director of The Geon Company (“Geon”) or M.A. Hanna Company (“M.A. Hanna”), each one of our predecessors. The information is current as of March 15, 2010.
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Our Board of Directors recommends a vote FOR the election to the Board of each of the following nominees:
J. Douglas Campbell Director since 1993 Age — | Retired Chairman and Chief Executive Officer of ArrMaz Custom Chemicals, Inc., a specialty mining and asphalt additives and reagents producer. Mr. Campbell served in this capacity from December 2003 until the company was sold in July 2006. Mr. Campbell served as President and Chief Executive Officer and was a Director of Arcadian Corporation, a nitrogen chemicals and fertilizer manufacturer, from December 1992 until the company was sold in 1997. We believe that Mr. Campbell is particularly qualified to serve as a member of our Board because of his | |
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| manufacturing companies. Mr. Campbell has served as chief executive officer and has held other officer positions in the oil, chemical and plastics industries. We believe that the knowledge and skills that he gained in these roles provides him with an ideal background for serving as a | |||
Dr. Carol A. Cartwright Director since 1994 Age — | Retired President of Bowling Green State University, a public higher education | ||
Richard H. Fearon Director since 2004 Age — | Vice Chairman and Chief Financial and Planning Officer of Eaton Corporation, a global manufacturing company, since February 2009. Mr. Fearon served as Executive Vice President, Chief Financial and Planning Officer from April 2002 until February 2009. Mr. Fearon served as a Partner of Willow Place Partners LLC, a corporate advisory firm, from 2001 to 2002 and was the Senior Vice President Corporate Development for Transamerica Corporation, a financial services organization, from 1995 to 2000. We believe that Mr. Fearon’s financial expertise, experience and knowledge of international operations, knowledge of diversified companies and | ||
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| corporate development expertise provide him with the qualifications and skills to serve as a valued member of our Board. Mr. Fearon’s advice with respect to financial issues affecting our company is specifically valued and utilized, especially in his role as Chair of our Audit Committee. As a sitting executive and leader at a multi-national corporation, Mr. Fearon is particularly equipped to advise our Board on current issues facing our company. | ||
Gregory J. Goff Director since 2011 Age — 55 | President and Chief Executive Officer of Tesoro Corporation, a leading company in the independent refining and marketing business since May 2010, and Chairman and Chief Executive Officer of Tesoro Logistics, a NYSE-listed master limited partnership that owns, operates and develops crude oil and refined products and logistics assets, since April 2011. Mr. Goff served as Senior Vice President, Commercial of ConocoPhillips Corporation, an integrated energy company, from 2008 to 2010. Mr. Goff also held various other positions at ConocoPhillips from 1981 to 2008. Mr. Goff serves as a director of the American Fuels and Petrochemical Manufacturers and on the National Advisory Board of the University of Utah Business School. From 2008 to 2010, Mr. Goff served on the Board of Directors of DCP Midstream GP, LLC. We believe that, as a new Board member with proven leadership capabilities, Mr. Goff will provide a fresh perspective on our strategy and operations. Mr. Goff’s deep understanding of the energy industry and specialty chemical businesses will provide valuable insight into PolyOne’s strategic planning. His experience as the Chief Executive Officer of a large, independent refining and petroleum products marketing company and his participation as a member of national trade associations provide him with invaluable experience that can enhance our Board. | |
Gordon D. Harnett Director since 1997 Age — | Lead Director of our Board of Directors since July 18, 2007. Retired Chairman, President and Chief Executive Officer of Materion Corp. (formerly known as Brush Engineered Materials Inc.), an international supplier and producer of high performance engineered materials. Mr. Harnett served in this capacity from 1991 until his retirement in May 2006. Mr. Harnett serves on the Boards of Directors of | |
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| provides him with unique skills in serving as a PolyOne Director. Mr. Harnett’s past experience includes leadership roles at a number of specialty chemical companies, including serving as a senior vice president of Goodrich Specialty Chemicals and president of Tremco, in addition to his role as chief executive officer at Brush Engineered Materials. Mr. Harnett is also uniquely qualified to assist our Board on international issues, as he previously resided in Canada and Japan |
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| while actively involved in the international operations of his former employers. Mr. Harnett, Chair of our Compensation Committee, is especially knowledgeable in the area of executive compensation, due to his experiences serving on the compensation committees of other public companies. | |||
Richard A. Lorraine Director since 2008 Age — | Retired Senior Vice President and Chief Financial Officer of Eastman Chemical Company, a specialty chemicals company. Mr. Lorraine served in this capacity from 2003 to 2008. Mr. Lorraine also served as Executive Vice President and Chief Financial Officer of Occidental Chemical Company, a chemical manufacturing company, from 1995 to 2003. Mr. Lorraine serves on the Board of Directors of Carus Corporation. | ||
Stephen D. Newlin Director since 2006 Age — | |||
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| Chairman, President and Chief Executive Officer of PolyOne since February 2006. Mr. Newlin served as President — Industrial Sector of Ecolab, Inc., a global leader in cleaning and sanitizing specialty chemicals, products and services from 2003 to 2006. Mr. Newlin served as President and a director of Nalco Chemical Company, a manufacturer of specialty chemicals, services and systems, from 1998 to 2001 and was Chief Operating Officer and Vice Chairman from 2000 to 2001. Mr. Newlin serves on the |
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William H. Powell Director since 2008 Age — | Retired Chairman and Chief Executive Officer of National Starch and Chemical Company, a specialty chemicals company. Mr. Powell served in this capacity from 1999 until his retirement in 2006. Mr. Powell serves on the Boards of Directors of Granite Construction Incorporated and FMC Corporation. From 2007 to 2011, he also served on the Board of Directors of Arch Chemicals, Inc. | ||
Farah M. Walters Director since 1998 Age — | President and Chief Executive Officer of QualHealth, LLC, a | ||
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| Board of Directors of other public companies, including those in the chemical industry. Ms. Walters’ business experience has provided her with the necessary background to allow her to provide practical and relevant advice on the issues facing our company. | ||
William A. Wulfsohn Director since 2011 Age — 50 | President and Chief Executive Officer of Carpenter Technology Corporation, a NYSE-listed leading provider of specialty metals to numerous industries, since July 2010. Mr. Wulfsohn has served as a director of Carpenter since April 2009. From 2005 to 2010, he served as Senior Vice President, Coatings of PPG Industries, a global supplier of coatings and specialty products and services, and from 2003 to 2005, as Vice President, Coatings and Managing Director, PPG Europe. Prior to joining PPG, Mr. Wulfsohn worked for Morton International, a diversified wholly-owned subsidiary of chemical company Rohm & Haas, as Vice President and General Manager, Automotive Coatings; for Rohm & Haas, a global specialty materials company, as Vice President, Automotive | |
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| Coatings Business Director; and for Honeywell, a diversified technology and manufacturing company, as Vice President and General Manager, Nylon System. He also worked as an Associate with McKinsey & Company, a global management consulting firm. We believe that Mr. Wulfsohn is a valuable new addition to our Board. He is a proven leader, with deep and varied experience in technology and successful business operations. His background in managing operations in Asia/Pacific provides him with international expertise that can be of value to PolyOne. Further, we believe his experience as a Chief Executive Officer of a publicly-traded specialty company has given him unique skills to assist in providing guidance on PolyOne’s continuing transformation. |
CORPORATE GOVERNANCE AND BOARD MATTERS
Director Independence
Our Corporate Governance Guidelines require that a substantial majority of the members of our Board of Directors be “independent” under the listing standards of the New York Stock Exchange (“NYSE”). To be considered “independent,” the Board of Directors must make an affirmative determination that the Director has no material relationship with us other than as a Director, either directly or indirectly (such as an officer, partner or shareholder of another entity that has a relationship with us or any of our subsidiaries), and that the Director is free from any business, family or other relationship that would reasonably be expected to interfere with the exercise of independent judgment as a Director. In each case, the Board of Directors considers all relevant facts and circumstances in making an independence determination.
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Lead Director
Our independent directors meet regularly in executive sessions. Our Corporate Governance Guidelines provide that the independent directors are to select a Lead Director to preside at executive sessions. The Lead Director acts as the key liaison between the independent directors and the Chief Executive Officer and is responsible for coordinating the activities of the other independent directors and for performing various other duties as may from time to time be determined by the independent directors. Mr. Harnett has served as our Lead Director since July 2007.
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Board Leadership Structure
Mr. Newlin is the Chairman of our Board of Directors and our Chief Executive Officer. The Board of Directors believes that this leadership structure is appropriate for our companyCompany given the experience and active involvement of our independent directors, our corporate governance practices, and our Lead Director’s role. Having a Lead Director role helps to ensure greater communication between management and the independent directors, increases the independent directors’ understanding of management decisions and Company operations, and provides an additional layer of independent oversight of the Company. The Board of Directors believes that this approach serves to strike an effective balance between management and independent director participation in the board process. Combining the Chairman and Chief Executive Officer position gives the Company a clear leader and improves efficiencies in the decision-making process.
Board Attendance
The Board met seven times during 2009,2011, the calendar year being our fiscal year. Each member of our Board attended at least 75% of the meetings held by our Board and the meetings held by the Committeescommittees of theour Board on which such member served in 2009.during the period for which he served as a Director. Each Director is expected to attend the Annual Meeting of Shareholders. In 2009, nine2011, eight of our Directors serving at that time attended the Annual Meeting of Shareholders.
Committees of the Board of Directors
As of the date of this proxy statement, our Board has teneleven directors and the following fivefour committees: the Audit Committee, the Compensation Committee, the Nominating and Governance Committee and the Environmental, Health and Safety Committee, and theCommittee. Our Financial Policy Committee.
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| Environmental, | Nominating and | ||||||||||||||||||||||||
| Compensation | Health and | Financial | Governance | ||||||||||||||||||||||
| Director | Audit Committee | Committee | Safety Committee | Policy Committee | Committee | ||||||||||||||||||||
| Mr. Campbell | X | X | X | * | |||||||||||||||||||||
| Dr. Cartwright | X | X | * | ||||||||||||||||||||||
| Ms. Duff-Bloom | X | X | X | ||||||||||||||||||||||
| Mr. Fearon | X | * | X | ||||||||||||||||||||||
| Mr. Harnett | X | X | * | ||||||||||||||||||||||
| Mr. Lorraine | X | X | |||||||||||||||||||||||
| Mr. Mooney | X | X | * | X | |||||||||||||||||||||
| Mr. Newlin | X | X | |||||||||||||||||||||||
| Mr. Powell | X | X | X | ||||||||||||||||||||||
| Ms. Walters | X | X | |||||||||||||||||||||||
Number of Meetings in 2009 | 8 | 4 | (1) | 2 | 3 | 1 | (1) | ||||||||||||||||||
| Director | Audit Committee | Compensation Committee | Environmental, Health and Safety Committee | Nominating and Governance Committee | ||||||||||||||||
Mr. Campbell | X | X | ||||||||||||||||||
Dr. Cartwright | X | X* | ||||||||||||||||||
Mr. Fearon | X* | X | ||||||||||||||||||
Mr. Goff | X | X | ||||||||||||||||||
Mr. Harnett | X | X* | ||||||||||||||||||
Mr. Lorraine | X | X | ||||||||||||||||||
Mr. Mooney | X | X* | ||||||||||||||||||
Mr. Newlin | X | |||||||||||||||||||
Mr. Powell | X | X | ||||||||||||||||||
Ms. Walters | X | X | ||||||||||||||||||
Mr. Wulfsohn | X | |||||||||||||||||||
Number of Meetings in 2011 | 8 | 6 | 2 | 2 | ||||||||||||||||
X — Member
* — Chairperson
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The Audit Committee meets with appropriate financial and legal personnel and independent auditors to review our corporate accounting, internal controls, financial reporting and compliance with legal and regulatory requirements. The Committee exercises oversight of our independent auditors, internal auditors and financial management. The Audit Committee appoints the independent auditors to serve as auditors in examining our corporate accounts. Our common shares are listed on the NYSE and are governed by its listing standards. All members of the Audit Committee meet the financial literacy and independence requirements as set forth in the NYSE listing standards. The Board of Directors has determined that Mr. Fearon meets the requirements of an “audit committee financial expert” as defined by the Securities and Exchange Commission.
The Compensation Committee reviews and approves the compensation, benefits and perquisites afforded our executive officers and other highly-compensated personnel. The Committee has similar responsibilities with respect to non-employee Directors, except that the Committee’s actions and determinations are subject to the approval of the Board of Directors. The Committee also has oversight responsibilities for all of our broad-based compensation and benefit programs and provides policy guidance and oversight on selected human resource policies and practices. To help it perform its responsibilities, the Committee makes use of PolyOne resources, including members of senior management in our human resources, legal and finance departments. In addition, the Committee directly engages the resources of Towers Watson (formerly Towers Perrin, the(the “Consultant”) as an independent outside compensation consultant to assist the Committee in assessing the competitiveness and overall appropriateness of our executive compensation programs. In 2009,2011, the
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The Committee periodically reviews the relationship with our compensation consultant, Towers Watson, including the level and quality of services provided, as well as fees for those services. In addition, expenses for other consulting services provided to the Company by Towers Watson that are not related to executive compensation are monitored to ensure that executive compensation consultant independence is maintained. The Consultant did not provide us with services in excess of $120,000 that were in addition to the services provided in connection with its advice and recommendations on the amount or form of executive and director compensation.
The Compensation Committee reviews succession planning for the Chief Executive Officer and other executive officers and oversees the process by which the Board annually evaluates the performance of the Chief Executive Officer. All members of the Compensation Committee have been determined to be independent as defined by the NYSE listing standards.
The Nominating and Governance Committee recommends to the Board of Directors candidates for nomination as Director and advises the Board with respect to governance issues and directorship practices. All members of the Nominating and Governance Committee have been determined to be independent as defined by the NYSE listing standards.
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The Nominating and Governance Committee will consider shareholder suggestions for nominees for election to our Board of Directors asDirectors. A shareholder that wishes to suggest a Director candidate for consideration by the Nominating and Governance Committee should follow the same procedures described for shareholder nominations for Director on page 3. The Committee uses a variety of methods for identifying and evaluating nominees for Directors, including third-party search firms, recommendations from current Board members and recommendations from shareholders. Nominees for election to the Board of Directors are selected on the basis of the following criteria:
Business or professional experience;
Knowledge and skill in certain specialty areas such as accounting and finance, international markets, physical sciences and technology or the polymer or chemical industry;
Personal characteristics such as ethical standards, integrity, judgment, leadership and the ability to devote sufficient time to our affairs;
Substantial accomplishments with demonstrated leadership capabilities;
Freedom from outside interests that conflict with our best interests;
The diversity of backgrounds and experience each member will bring to the Board of Directors; and
Our needs from time to time.
While the Committee or the Board does not have a formal policy with respect to the consideration of diversity in identifying director nominees, they do consider diversity when evaluating potential Board nominees. We consider diversity to include race, gender and national origin, as well as differences in viewpoint, background, experience and skills. The Committee
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The Committee also considers such other relevant factors as it deems appropriate, including the current composition of the Board, the balance of management and independent directors, the need for Audit Committee expertise and the evaluations of other prospective nominees. The Committee has established these criteria that any Director nominee, whether suggested by a shareholder or otherwise, should satisfy. A nominee for election to the Board who is suggested by a shareholder will be evaluated by the Committee in the same manner as any other nominee for election to the Board. Finally, if the Committee determines that a candidate should be nominated for election to the Board, the Committee will present its findings and recommendation to the full Board for approval.
In 2011 and in past years, the Committee has used a third-party search firm, Russell Reynolds Associates, Inc., to identify possible candidates who meet the minimum and desired qualifications, to interview and screen such candidates, (including conducting appropriate background and reference checks), to act as a liaison among the Board, the Committee and each candidate during the screening and evaluation process, and thereafter to be available for consultation as needed by the Committee. The Committee did not use Russell Reynolds Associates, Inc. in 2009, but may use them again in the future.
The Environmental, Health and Safety Committee exercises oversight with respect to our environmental, health, safety, security and product stewardship policies and practices and our compliance with related laws and regulations.
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The Board of Directors has adopted a written charter for each of the standing committees of the Board of Directors. These charters are posted and available on our investor relations internet website at www.polyone.com under the Corporate Governance“Corporate Governance” on our investor relations page. The Board and each Committee conduct an annual self-evaluation.
Board’s Oversight of Risk
Our Board of Directors oversees a company-wide approach to risk management that is designed to support the achievement of our strategic objectives and improve long-term organizational performance, which we believe will ultimately enhance shareholder value. The Board of Directors believes that risk management is not only understanding the risks we face and what steps management is taking to manage those risks, but also understanding what level of risk is appropriate for us as an organization.
Our Board of Directors administers its risk oversight function directly and through its Audit Committee and Financial PolicyEnvironmental, Health and Safety Committee. The Audit Committee discusses with management our major financial risk exposures and the steps management has taken to monitor and control such exposures, including our risk assessment and risk management policies. The Audit Committee also receives an annual risk assessment report from our internal auditors. The Financial PolicyEnvironmental, Health and Safety Committee assistsperiodically reviews with management the significant risks or exposures faced by the Company relating to safety, health, environmental, security and product stewardship standards and practices. Our Board of Directorsoversees and monitors these committees in fulfilling itsexercising their responsibilities relating to risk. Our Board also provides direct oversight and monitoring responsibilities to our shareholders relatingon risk management as it relates to our capital structure, our borrowing and repayment of funds, financial policies, management of foreign exchange risk and other matters of financial risk management,
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Our Board of Directors sets the appropriate “tone at the top” when it comes to risk tolerance and management by fostering a culture of risk-adjusted decision-making throughout the company. Our Board ensures that the risk management processes designed and implemented by our management team are adapted to the Board’s corporate strategy and are functioning as directed. The Board of Directors also participates in an ongoing effort to assess and analyze the most likely areas of future risk for the company by asking our management team to discuss the most likely sources of material future risks and how we are addressing any significant potential vulnerability.
The Board of Directors believes that its leadership structure, as discussed on page 9, supports the risk oversight function of the Board of Directors.
Code of Ethics, Code of Conduct and Corporate Governance Guidelines
In accordance with applicable NYSE listing standards and Securities and Exchange Commission regulations, the Board of Directors has adopted a Code of Ethics, Code of Conduct and Corporate Governance Guidelines. These are also posted and available on our investor relations internet website at www.polyone.com, under the Corporate Governance“Corporate Governance” on our investor relations page.
In October 2007, the Board amended our Corporate Governance Guidelines to adopt a policy relating to majority voting. Pursuant to the policy, any nominee for election as a Director of the Board who receives a greater number of votes “withheld” from his or her election than votes “for” his or her
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election in an election of Directors that is not a contested election is expected to tender his or her resignation as a Director to the Board promptly following the certification of the election results. Neither abstentions nor broker non-votes will be deemed to be votes for or withheld from a Director’s election for purposes of the policy, regardless of the new rules treating broker non-votes as withheld in uncontested elections of directors. The Nominating and Governance Committee (without the participation of the affected Director) will consider each resignation tendered under the policy and recommend to the Board whether to accept or reject it. The Board will then take appropriate action on each tendered resignation, taking into account the Nominating and Governance Committee’s recommendation. The Nominating and Governance Committee, in making its recommendation, and the Board, in making its decision, may consider any factors or other information that it considers appropriate, including the reasons (if any) given by shareholders as to why they withheld their votes, the qualifications of the tendering Director and his or her contributions to the Board and to PolyOne, and the results of the most recent evaluation of the tendering Director’s performance by the other members of the Board. The Board will promptly disclose its decision whether to accept or reject the Director’s tendered resignation and, if applicable, the reasons for rejecting the tendered resignation.
Communication with Board of Directors
Shareholders and other interested parties interested in communicating directly with the Board of Directors as a group, the non-management or independent Directors as a group, or with any individual Director may do so by writing to the Secretary, PolyOne Corporation, 33587 Walker Road, Avon Lake, Ohio 44012. The mailing envelope and letter must contain a clear notation indicating that the enclosed letter is either a “Shareholder-Board of Directors Communication” or an “Interested Party-Board of Directors Communication,” as appropriate.
The Secretary will review all such correspondence and regularly forward to the Board of Directors a log and summary of all such correspondence and copies of all correspondence that, in the opinion of the Secretary, deals with the functions of the Board or Committeescommittees of the Board or that she otherwise determines requires their attention. Directors may at any time review a log of all correspondence we receive that is addressed to members of the Board and request copies of any
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Director Compensation
In 2009,the first half of 2011, we paid our non-employee Directors an annual retainer of $135,000, quarterly in arrears, consisting of a cash retainer of $60,000 and an award of $75,000 in value of fully vested common shares. Following a review of our Board compensation practices by our independent compensation consultant, effective as of the third quarter of 2011, the Board increased the annual cash and equity compensation for non-employee directors (payable on a quarterly basis) to $75,000 and $90,000, respectively. We grant the shares payable to the Directors quarterly and determine the number of shares to be granted by dividing the dollar value by the arithmetic average of the high and low stock price on the last trading day of each quarter. We pay individual meeting fees only as follows: fees of $2,000 for each unscheduled Board and committee meeting attended and fees of $1,000 for participation in each unscheduled significant telephonic Board and committee meeting. In addition, the Chairpersonschairpersons of each committeethe following committees receive the fixed annual cash retainers (payable on a quarterly basis) that follow: $7,500 for the Environmental, Health and Safety and Nominating and Governance Committees and $15,000 for the Audit Committee. The Chairperson of the Compensation
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Committee received a fixed annual cash retainer of $5,000 through the first half of 2011, which was increased to $15,000, effective as follows: $5,000 for Environmental, Health and Safety, Nominating and Governance and Financial Policy Committees andof the third quarter. Furthermore, our Lead Director received a fixed annual cash retainer of $10,000 for Audit and Compensation Committees. These amounts are payable onthrough the first half of 2011, which increased to $25,000, effective as of the third quarter. The Chairperson of the Finance Committee received a quarterly basis.fixed annual cash retainer of $7,500 through the first half of 2011, which was discontinued after the dissolution of the Finance Committee. We reimburse Directors for their expenses associated with each meeting attended.
Directors who are not our employees may defer payment of all or a portion of their compensation as a Director under our Deferred Compensation Plan for Non-Employee Directors. A Director may defer the compensation as cash or elect to have it converted into our common shares.
In 2009,2011, we awarded shares to Directors under our Deferred Compensation Plan for Non-Employee Directors and our 20082010 Equity and Performance Incentive Plan. Deferred compensation, whether in the form of cash or common shares, is held in trust for the participating Directors. Interest is earned on the cash amounts and dividends, if any, on the common shares deferred accrue for the benefit of the participating Directors.
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| Fees Earned or | Stock | Option | ||||||||||||||||||
| Paid in Cash(1) | Awards(2)(3) | Awards(3) | Total | |||||||||||||||||
| Name | ($) | ($) | ($) | ($) | ||||||||||||||||
| J.D. Campbell | 66,000 | 75,000 | — | 141,000 | ||||||||||||||||
| C.A. Cartwright | 64,125 | 75,000 | — | 139,125 | ||||||||||||||||
| G. Duff-Bloom | 61,000 | 75,000 | — | 136,000 | ||||||||||||||||
| R.H. Fearon | 71,000 | 75,000 | — | 146,000 | ||||||||||||||||
R.A. Garda(4) | 22,167 | 27,708 | — | 49,875 | ||||||||||||||||
| G.D. Harnett | 71,000 | 75,000 | — | 146,000 | ||||||||||||||||
| R.A. Lorraine | 61,000 | 75,000 | — | 136,000 | ||||||||||||||||
| E.J. Mooney | 66,000 | 75,000 | — | 141,000 | ||||||||||||||||
| W.H. Powell | 61,000 | 75,000 | — | 136,000 | ||||||||||||||||
| F.M. Walters | 61,000 | 75,000 | — | 136,000 | ||||||||||||||||
| Name | Fees Earned or Paid in Cash(2) ($) | Stock Awards(3) ($) | Option Awards(4) ($) | Total ($) | |||||||||||||||||||||||||||||||||||||||||
J.D. Campbell | $72,495 | $ | 82,500 | — | $ | 154,995 | |||||||||||||||||||||||||||||||||||||||
C.A. Cartwright | 76,000 | 82,500 | — | 158,500 | |||||||||||||||||||||||||||||||||||||||||
R.H. Fearon | 83,500 | 82,500 | — | 166,000 | |||||||||||||||||||||||||||||||||||||||||
G.J. Goff(1) | 16,712 | 20,054 | — | 36,766 | |||||||||||||||||||||||||||||||||||||||||
G.D. Harnett | 96,000 | 82,500 | — | 178,500 | |||||||||||||||||||||||||||||||||||||||||
R.A. Lorraine | 68,500 | 82,500 | — | 151,000 | |||||||||||||||||||||||||||||||||||||||||
E.J. Mooney | 76,000 | 82,500 | — | 158,500 | |||||||||||||||||||||||||||||||||||||||||
W.H. Powell | 68,500 | 82,500 | — | 151,000 | |||||||||||||||||||||||||||||||||||||||||
F.M. Walters | 68,500 | 82,500 | — | 151,000 | |||||||||||||||||||||||||||||||||||||||||
W.A. Wulfsohn(1) | 16,712 | 20,054 | — | 36,766 | |||||||||||||||||||||||||||||||||||||||||
| (1) | Mr. Goff and Mr. Wulfsohn were elected to the board on October 10, 2011. |
| (2) | Non-employee Directors may defer payment of all or a portion of their cash compensation as a Director (annual cash retainer (payable on a quarterly basis) of $60,000, which was increased to $75,000 in the third quarter of 2011, as well as meeting fees and chair fees). |
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| (4) | In |
| Option Awards | Stock Awards | |||||||||
| Number of | ||||||||||
| Securities Underlying | Number of | |||||||||
| Unexercised Options | Deferred Shares | |||||||||
| Name | (#) | (#) | ||||||||
| J.D. Campbell | 42,000 | 185,431 | ||||||||
| C.A. Cartwright | 39,000 | 39,281 | ||||||||
| G. Duff-Bloom | 42,000 | 67,626 | ||||||||
| R.H. Fearon | 15,000 | 0 | ||||||||
R.A. Garda(4) | 39,000 | 0 | ||||||||
| G.D. Harnett | 39,000 | 129,928 | ||||||||
| R.A. Lorraine | 0 | 26,052 | ||||||||
| E.J. Mooney | 0 | 74,515 | ||||||||
| W.H. Powell | 0 | 31,421 | ||||||||
| F.M. Walters | 42,000 | 46,012 | ||||||||
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| Option Awards | Stock Awards | |||||||
| Name | Number of Securities Underlying | Number of Deferred Shares(A)(B) (#) | ||||||
J.D. Campbell | 18,000 | 130,960 | ||||||
C.A. Cartwright | 18,000 | 29,905 | ||||||
R.H. Fearon | 15,000 | 0 | ||||||
G.J. Goff | 0 | 0 | ||||||
G.D. Harnett | 18,000 | 88,568 | ||||||
R.A. Lorraine | 0 | 40,042 | ||||||
E.J. Mooney | 0 | 89,100 | ||||||
W.H. Powell | 0 | 45,479 | ||||||
F.M. Walters | 18,000 | 13,672 | ||||||
W.A. Wulfsohn | 0 | 1,727 |
| (A) | Dividends paid on shares held in the Deferred Compensation Plan for Non-Employee Directors are reinvested in shares of PolyOne stock through a dividend reinvestment feature of the Plan. The number of deferred shares reflects shares acquired through dividend reinvestment in 2011 (including the fourth quarter dividend declared on December 14, 2011 to shareholders of record on December 27, 2011, which was paid on January 9, 2012). |
| (B) | A distribution of 19,761 shares was made to Ms. Walters from the Deferred Compensation Plan for Non-Employee Directors on February 11, 2011. |
2011 Option Exercises
| Option Awards | ||||||||
| Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | ||||||
J.D. Campbell | 6,000 | 31,680 | ||||||
C.A. Cartwright | 6,000 | 30,810 | ||||||
R.H. Fearon | — | — | ||||||
G.J. Goff | — | — | ||||||
G.D. Harnett | 6,000 | 30,810 | ||||||
R.A. Lorraine | — | — | ||||||
E.J. Mooney | — | — | ||||||
W.H. Powell | — | — | ||||||
F.M. Walters | 6,000 | 34,800 | ||||||
W.A. Wulfsohn | — | — | ||||||
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The following table shows the number of our common shares beneficially owned on March 15, 20106, 2012 (including options exercisableshares the individuals have a right to acquire within 60 days of that date) by each of our Directors and nominees, each of the executive officers named in the Summary Compensation Table on page 3738 (the “Named Executive Officers”) and by all Directors and executive officers as a group.
| Number of | Right to | Total | |||||||||||||
| Shares | Acquire | Beneficial | |||||||||||||
| Name | Owned(1) | Shares(3) | Ownership | ||||||||||||
| J. Douglas Campbell | 187,487 | (2) | 42,000 | 229,487 | |||||||||||
| Carol A. Cartwright | 127,897 | (2) | 39,000 | 166,897 | |||||||||||
| Gale Duff-Bloom | 94,472 | (2) | 42,000 | 136,472 | |||||||||||
| Richard H. Fearon | 54,250 | (2) | 15,000 | 69,250 | |||||||||||
| Gordon D. Harnett | 146,739 | (2) | 39,000 | 185,739 | |||||||||||
| Richard A. Lorraine | 26,052 | (2) | — | 26,052 | |||||||||||
| Edward J. Mooney | 274,515 | (2) | — | 274,515 | |||||||||||
| William H. Powell | 111,421 | (2) | — | 111,421 | |||||||||||
| Farah M. Walters | 139,092 | (2) | 42,000 | 181,092 | |||||||||||
Stephen D. Newlin(4) | 162,900 | — | 162,900 | ||||||||||||
Robert M. Patterson(4) | 100,000 | — | 100,000 | ||||||||||||
Robert M. Rosenau(4) | 71,917 | 19,372 | 91,289 | ||||||||||||
Kenneth M. Smith(4) | 72,922 | 131,500 | 204,422 | ||||||||||||
Bernard Baert(4) | 35,766 | — | 35,766 | ||||||||||||
| 19 Directors and executive officers as a group | 1,926,081 | 501,372 | 2,427,453 | ||||||||||||
| Name | Number of Shares Owned(1) | Right to Acquire Shares | Total Beneficial Ownership | |||||||||
J. Douglas Campbell | 235,458 | (2) | 18,000 | (3) | 253,458 | |||||||
Carol A. Cartwright | 145,214 | (2) | 18,000 | (3) | 163,214 | |||||||
Richard H. Fearon | 67,817 | 15,000 | (3) | 82,817 | ||||||||
Gregory J. Goff | 1,727 | — | 1,727 | |||||||||
Gordon D. Harnett | 151,564 | (2) | 12,000 | (3) | 163,564 | |||||||
Richard A. Lorraine | 40,042 | (2) | — | 40,042 | ||||||||
Edward J. Mooney | 89,100 | (2) | — | 89,100 | ||||||||
William H. Powell | 135,703 | (2) | — | 135,703 | ||||||||
Farah M. Walters | 157,010 | (2) | 18,000 | (3) | 175,010 | |||||||
William A. Wulfsohn | 1,727 | (2) | — | 1,727 | ||||||||
Stephen D. Newlin | 436,004 | 361,788 | (4) | 797,792 | ||||||||
Robert M. Patterson | 187,609 | 107,091 | (4) | 294,700 | ||||||||
Kenneth M. Smith | 137,697 | 74,941 | (3)(4) | 212,638 | ||||||||
Bernard Baert | 56,204 | 14,368 | (3)(4) | 70,572 | ||||||||
Thomas J. Kedrowski | 129,166 | 86,789 | (4) | 215,955 | ||||||||
20 Directors and executive officers as a group | 2,443,234 | 1,033,601 | 3,476,835 | |||||||||
| (1) | Except as otherwise stated in the following notes, beneficial ownership of the shares held by each individual consists of sole voting power and sole investment power, or of voting power and investment power that is shared with the spouse or other family member of the individual. It includes an approximate number of shares credited to the | |
| (2) | With respect to the Directors, beneficial ownership includes shares held under the Deferred Compensation Plan for Non-Employee Directors as follows: J.D. Campbell, | |
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| (3) | Includes shares the individuals have a right to acquire upon the exercise of options on or before May |
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| (4) |
The following table shows information relating to all persons who, as of March 15, 2010,6, 2012, were known by us to beneficially own more than five percent of our outstanding common shares based on information provided in Schedule 13Gs and 13Ds filed with the Securities and Exchange Commission:
| Name and Address | Number of Shares | % of Shares | ||||||||
BlackRock, Inc. | 6,807,843(1) | 7.5% | ||||||||
Alliance Bernstein LP | ||||||||||
| 6.2% | ||||||||||
Fine Capital Partners, L.P. | ||||||||||
| 6.0% | ||||||||||
The Vanguard Group, Inc. | ||||||||||
| 5,116,881(4) | ||||||||||
| 5.63% | ||||||||||
| (1) | As of | |
| (2) | As of | |
| (3) | As of February 14, 2012, based upon information contained in a Schedule 13G filed with the Securities and Exchange Commission. Fine Capital Partners has sole voting power with respect to none of these shares and has sole dispositive power with respect to |
| (4) | As of | |
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In December 2009,July 2011, we revised our share ownership guidelines for our non-employee Directors, executive officers and other elected corporate officersofficers. The purpose of our share ownership guidelines is to better align theirour directors’ and officers’ financial interests with those of our shareholders by requiring them to own a minimum level of our shares. These individuals are expected to make
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continuing progress towards compliance with the guidelines and to comply fully within five years of becoming subject to the guidelines. These policies, as they relate to our Named Executive Officers, are discussed in the “Compensation Discussion and Analysis” section of this proxy statement. In order to reflect the Board’s commitment to share ownership and better align the interests of our Board members with our shareholders, the required share ownership level for directors is 50,000a minimum of 30,000 shares. For purposes of our guidelines, the following types of share ownership and equity awards are included as shares owned: shares directly held, shares and phantom shares held in our retirement plans and deferral plans, unvested restricted stock and restricted stock units, and earned performance shares. All Directors are required to retain 100% of all shares obtained through us, after the date of adoption of the guidelines (December 16, 2009), as compensation for services provided to us, such percentage to be calculated after any reduction in the number of shares to be delivered as a result of any taxes and exercise costs relating to the shares. This requirement to retain 100% of all shares obtained from us ceases once the Director has met the applicable ownership guideline.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 as amended,(the “Exchange Act”) requires that our executive officers and Directors, and persons who own more than 10% of a registered class of our equity securities, file reports of ownership and changes in ownership with the Securities and Exchange Commission. Executive officers, Directors and greater than 10% shareholders are required by Securities and Exchange Commission rules to furnish us with copies of all forms they file. Based solely on our review of the copies of such forms received by us and written representation from certain reporting persons, we believe that, during 20092011 and until the date of this proxy statement, all Section 16(a) filing requirements applicable to our executive officers, Directors and 10% shareholders were satisfied, except for one Form 4 filing for each of our executive officers relating to an award of stock appreciation rights and restricted stock units on February 17, 2010, which were each made one day after the due date.
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Compensation Discussion and Analysis
Introduction
In this section of the proxy statement, we discuss in detail our executive compensation programs for 2011 for our Named Executive Officers. This discussion and analysis includes a description of the principles underlying our executive compensation policies and our most important executive compensation decisions for 2011, and provides our analysis of these policies and decisions. The following disclosure also gives context for the data we present in the compensation tables below and the narratives that accompany the compensation tables.
The following five individuals are approved and overseenour Named Executive Officers for 2011, as that term is defined by the Compensation Committee of the Board of Directors (the “Committee”), which is composed entirely of independent directors. The Committee has selectedSecurities and retained an independent compensation consultant, Towers Watson (formerly Towers Perrin, the “Consultant”). The Committee works in conjunction with the Consultant and with input from members of senior management, principally theExchange Commission:
Mr. Stephen D. Newlin, our Chairman, President and Chief Executive Officer, theOfficer;
Mr. Robert M. Patterson, our Executive Vice President and Chief Financial Officer;
Mr. Kenneth M. Smith, our Senior Vice President, Chief Information and Human Resources Officer,Officer;
Mr. Bernard Baert, our Senior Vice President, President of Europe and South America; and
Mr. Thomas J. Kedrowski, our Senior Vice President, Supply Chain and Operations.
Executive Summary
Fiscal 2011 Performance
2011 was another strong year for PolyOne, and we had record-breaking performances in each of our three strategic platforms. Both the Chief Financial OfficerSpecialty and Distribution platforms delivered record earnings, and our Performance Products and Solutions platform generated record return on sales. We believe 2011 was a critical inflection point in our transformation toward becoming a specialty chemical company. We divested our equity investment in SunBelt, a commodity manufacturer of chlorine and caustic soda, we completed strategic acquisitions of Uniplen in Brazil and ColorMatrix, and we formed a joint venture in Saudi Arabia, expanding our footprint into the Middle East. All of this was made possible by our setting of aggressive goals, our commitment to them, and our relentless work to achieve success.
At the beginning of 2011, we set goals for our annual incentive plan that drove increases in operating income and continued world-class working capital investment as a percentage of sales. Goals set in prior years also focused on operating income and working capital, and our outstanding equity awards continued to promote stock price appreciation. Our Compensation Committee believed that these goals would position us for continued growth, both in earnings and cash flow. Success on these measures allowed us to fund operating expenses and pursue acquisition opportunities that we believe will even further strengthen our earnings potential and growth.
Even with a slowdown in the global economy that began mid-year in 2011, we were able to achieve our incentive goals and reward our employees for achieving those goals. In 2011, our revenue increased 9.2% and our diluted earnings per share rose 8.3%. Overall operating income for 2011 was
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33% higher than the prior year, and working capital as a percentage of sales (excluding our ColorMatrix acquisition, which was completed on December 21, 2011) was 9.6%, which we consider to be world-class performance. We ended the year with $192 million of cash on the balance sheet after the purchase of ColorMatrix and the General Counsel.
We are pleased with the accomplishments in 2011, which strengthen our position and analysiscontinue our progress on executing our well-defined strategy of specialization, globalization, commercial excellence and operational excellence. Our setting of well-defined, strategic goals and our pursuit of achievement of these goals is working, and we are well-positioned to continue our transformation to a truly global specialty chemical company.
Fiscal 2011 Pay Decisions and Actions
Guided by our strong performance in 2010 and prior years, including record-breaking performance in terms of our operating income and working capital as a percentage of sales goals, we made the following key pay decisions heading into 2011 and took the following key pay actions:
Provided an average 4.2% annualized merit increase in base salary (other than for promotions) to our Named Executive Officers based on individual performance and to continue to approximate the market median for comparable positions, as described further below;
Maintained operating income improvement and working capital management as the performance measures for our Senior Executive Annual Incentive Plan (the “Annual Plan”), which was our short-term cash incentive program for 2011;
Changed the performance measure for our long-term performance units awards granted in 2011 from working capital as a percentage of sales to earnings per share in order to drive improvements in shareholder value, and moved back to a three-year performance period (rather than a one-year performance period) for the performance units awards to help maximize long-term performance;
Paid out performance units granted in 2009, based on attainment of 200% of target level performance for our achievement of working capital as a percentage of sales goals in 2009;
Granted stock-settled stock appreciation rights at a base price of $14.81 that will vest over a period of three years, but will generally not return value to the Named Executive Officers except to the extent that they help us increase our stock price above current levels, which awards provide both a performance and retention effect;
Granted restricted stock units that will vest in three years, which will align the interests of our Named Executive Officers with our shareholders and promote our retention objectives; and
| �� | Based on outstanding performance results for 2011, we paid our Named Executive Officers at 194.5% of their target 2011 Annual Plan opportunities based on achievement of our performance goals under that plan, except for Mr. Baert, who was paid at a level of 135.3% of his target based on performance in our European and South American regions. |
In total, the Committee believes that the compensation actions and decisions for 2011 strongly reflect and reinforce the Company’s compensation philosophy, and, in particular, the emphasis on alignment between compensation and both performance and shareholder interests, as further discussed below.
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Pay for Performance Analysis
As described more fully below, we believe that the majority of each Named Executive Officer’s compensation should be linked directly to our performance and the creation of shareholder value. The following chart compares cumulative total shareholder return on our common shares against the cumulative total return of the S&P 500 Index and the S&P Mid Cap Chemicals Index for the five-year period, December 31, 2006 to December 31, 2011, assuming in each case a fixed investment of $100 and reinvestment of all dividends. Starting in 2008, our performance has more often exceeded the S&P 500 Index and has generally kept pace with the S&P Mid Cap Chemicals Index.
We believe that the returns to shareholders shown in this graph indicate that our pay-for-performance philosophy, compensation awardedplan design and selected metrics are working and have resulted in performance that has provided increased value to our shareholders over both the short and long term.
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We also believe that the compensation of our Named Executive Officers, specifically our CEO, has been commensurate with our performance results. The following chart shows our CEO’s 2010 earned total direct compensation (TDC) and our 2010 company performance versus our peers’ CEO compensation and company performance. As shown in the chart, our CEO’s pay has generally been aligned with recent performance. Specifically, our CEO earned compensation in the 63rd percentile of our peers and our Company performance, as defined below, was in the 91st percentile.
For purposes of this chart, pay is defined as the sum of the following: base salary, annual incentive earned in 2010, the value of stock upon vesting in 2010, the value of option/SAR exercises in 2010, and long-term cash incentive earned over a period that concludes in 2010. Performance is weighted equally between the following: 2010 EBIT Growth— 33% weight; 2010 Working Capital as a Percent of Sales — 33% weight; and 2010 Total Shareholder Return — 33% weight. The peers used in this chart are the same as those listed on page 25 of this proxy statement, with the exception of The Lubrizol Corporation, for which no data was available due to its acquisition in early 2011.
Our recent pay decisions have also been linked to our performance in terms of key business metrics that drive long term shareholder value. For 2011, we achieved 191.5% of our company operating income goal and 200% of our consolidated working capital goal established under our short-term cash incentive program, as further discussed below. These results helped drive the cumulative total return to shareholder results reflected in the tables above, and our Named Executive Officers were rewarded for this performance by or paidearning 194.5% of their short-term cash incentives for 2011 (except for Mr. Baert, who earned 135.3% of his short term cash incentive for 2011). We also achieved 200% of our working capital goals established under our long-term performance units awards for both the 2009 and 2010 performance periods, and our Named Executive Officers have received a cash award
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for their 2009 performance units awards and will receive a cash award for their 2010 performance units awards if they remain employed with us through the vesting date. Finally, our time-based stock appreciation rights also help drive long term shareholder value. These awards deliver value to our named executive officers only to the extent our shareholders realize increased stock price value. Since our stock price has risen to $12.68 as of March 6, 2012 from $1.43 on March 5, 2009 and $7.99 on February 17, 2010, our Named Executive Officers have realized value for these awards to the same extent our shareholders have realized increased stock price value in their investment since those dates. Based on these demonstrated links between pay and performance, we believe we have successfully implemented a pay for performance culture at PolyOne.
Listening to Shareholders and Implementing Shareholder-Friendly Pay Practices
In 2011, we submitted a say-on-pay vote to our shareholders for the first time. We had conversations with nearly all of our top-20 shareholders regarding this proposal, as well as the other proposals submitted to shareholders for a vote last year. The results of our say-on-pay vote showed a level of support of 68% for our compensation practices. We believe that the level of support for our say-on-pay proposal was impacted by home loss reimbursement expenses and related tax reimbursements made in 2011.
Based on emerging market practices, we have revised our relocation policy as it relates to the loss on the sale of an executive’s residence, which we refer to as “loss-on-sale” expense. Beginning in 2011 and for future years, we will maintain a cap on reimbursable loss-on-sale expenses for the Named Executive Officers of 80% of the loss, capped at a total reimbursement of $85,000. In addition, we will no longer provide a tax gross-up on reimbursed loss-on-sale expenses for this group.
We also maintain stock ownership guidelines for our Named Executive Officers that are denominated in shares. Based on our March 6, 2012 closing stock price of $12.68 per share, these guidelines represent the following multiples of our Named Executive Officers’ 2011 base salaries: Mr. Newlin, 4.7x (he actually owns over 10 times his base salary); Mr. Patterson, 2.1x (he actually owns over 6 times his base salary); Mr. Smith, 2.1x (he actually owns over 6 times his base salary); Mr. Baert, 1.9x (he actually owns over 2 times his base salary); and Mr. Kedrowski, 2.2x (he actually owns almost 6 times his base salary). In 2011, we eliminated the sunset provision and the guidelines were modified to better reflect the market median as further explained in “Executive Compensation Governance—Stock Ownership and Retention Guidelines” below.
In 2011, our Compensation Committee eliminated the excise tax gross-up benefit for so-called “excess parachute payments” under Section 280G of the Internal Revenue Code from all management continuity agreements that we enter into with new executives in 2011 and in future years.
The following discussion should be read together with the information presented in the compensation tables, the footnotes and the narratives to those tables and the related disclosures appearing elsewhere in this proxy statement.
Compensation Philosophy and Objectives
Our executive officers (the “Named Executive Officers”):
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impact on our long-term results and the interests of our shareholders. We believe the design of our compensation plans and the relative mix of compensation elements successfully motivate our executives to improve our overall corporate performance and the profitability of the specific business unit for which they are responsible, thus maximizing shareholder value. The main objectives of our executive compensation programs are to: (1) attract,
Attract, motivate and retain thea highly qualified and successful management team who leadsto lead PolyOne in setting and achieving the overalleffectively executing upon our strategic goals and objectives of our company; (2) fosterobjectives;
Foster apay-for-performance culture by rewarding the achievement of specified strategic operating and financial goalsobjectives that maximize shareholder value; and growth of our share price; and (3) align
Ensure our goals and objectives are aligned with the interests of our shareholders by recognizing and rewarding business results and the growth of our share price through incentive programs.
Setting 2011 Executive Compensation Levels
Compensation Consultant
Our executive compensation programs are approved and overseen by the Committee, which is composed entirely of totalindependent directors. For 2011, the Committee selected and retained an independent compensation (which are identifiedconsultant, Towers Watson, to assist the Committee in assessing the Summary Compensation Table) should be valuedcompetitiveness and considered when making decisions regarding pay, the primary focusoverall appropriateness of our executive compensation program isprograms. The Committee worked in conjunction with Towers Watson and with input from members of senior management.
As described below, Towers Watson assisted the Committee in approximating base salaries and annual and long-term incentive targets in accordance with the market median, provided guidance on baseincentive plan design, monitored trends in executive compensation, reviewed the market on stock ownership guidelines and assisted our human resources department in preparing tally sheets to provide the Committee with information regarding our Named Executive Officers’ total annual compensation, termination benefits and wealth accumulation.
Competitive Market Pay Information and Benchmarking
We have designed our compensation programs to be competitive with companies of comparable size and industry with whom we compete for executive talent. We annually analyze competitive market compensation data relating to salary, annual incentiveincentives, and long term incentives. The Committee generally manages individual components of compensation and targets total compensation relative to the median (50th percentile) of the competitive market data. However, the Committee considers other factors, consisting of the responsibilities, performance, contributions and experience of each Named Executive Officer and compensation in relation to other employees. As a result, we do not set total direct compensation or the component parts at levels to achieve a mathematically precise market position. We believe thatalso periodically analyze competitive market compensation opportunitiesdata relating to retirement benefits and perquisites, most recently in 2009. The Committee obtains advice and recommendations from Towers Watson in these and other areas of total compensation.
In analyzing competitive market data for the purpose of determining the market median for 2011, we drew from two independent sources. We first reviewed proxy statement disclosures of a peer group of similarly-sized U.S. chemical companies to establish an estimate of market compensation for our senior executives. This approach provided insight into specific company practices at business competitors or companies facing similar operating challenges.
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In 2010, with the guidance of Towers Watson, we conducted a review of our peer group to ensure it consisted of appropriate companies to which we should be competitivecompared. That review resulted in a change in our peer group from 14 companies to 19 companies, which better reflects our transformation into a global and specialty chemical company. We conducted a similar review during 2011 in order to reconfirm the validity of companies in our peer group based on current data. The primary factors taken into consideration during the review included: company revenue between $1.41 billion and $5.64 billion, total asset size between $0.84 billion and $3.34 billion and number of employees between 2,600 and 10,400, as well as whether each potential peer company had a global presence and a specialty chemical focus. These ranges generally compare to our 2011 revenue ($2.9 billion), total assets ($2.1 billion) and number of employees (approximately 4,700). We also looked at the frequency with which these companies were used as peers by other companies in our industry, and which companies had identified us as a peer. In addition, we considered whether they were in the compensation practicessame SIC code as PolyOne and whether we compete with them for talent. Each of the companies recommended for the new peer group met a majority of the primary criteria that were established. Based on this review, no changes were recommended to our peer group in 2011. PolyOne’s peer group consists of the following 19 companies:
| Albemarle Corporation | FMC Corporation | RPM International Inc. | ||
| Arch Chemicals, Inc. | Georgia Gulf Corporation | The Scotts Miracle-Gro Company | ||
| A. Schulman, Inc. | H.B. Fuller Company | Sigma-Aldrich Corporation | ||
| Cabot Corporation | International Flavors & Fragrances Inc. | Solutia Inc. | ||
| Cytec Industries Inc. | The Lubrizol Corporation | The Valspar Corporation | ||
| Eastman Chemical Company | Nalco Holding Company | |||
| Ferro Corporation | Rockwood Holdings, Inc. |
The second independent source of data that we competeused to augment the peer proxy analysis and provide a better sense of market practices was an analysis performed by Towers Watson of competitive market data relating to the chemical industry and other applicable general industries using the following surveys: Towers Watson’s Executive Compensation Database, Towers Watson’s Top Management Compensation Survey and Mercer’s Executive Compensation Survey. To obtain comparability based on company size, Towers Watson’s analysis either referenced a specific sample of companies or calibrated the pay of a broad sample of companies against company size.
Review of Named Executive Officer Compensation
Management and the Committee annually review the specific pay disclosures of our peer group and the broad-based survey data provided by Towers Watson described above. Management uses this data to develop recommendations for the Committee’s review regarding eligibility, award opportunities, performance measures and goals for the plan periods commencing in the following year. The Committee discusses and considers this information when making compensation decisions and aligning each of the pay elements with our compensation objectives and relative market practices.
The Committee and management annually review and consider tally sheets, which are developed collaboratively by Towers Watson and our Human Resources department, to determine the reasonableness of the compensation of our Named Executive Officers. The tally sheets provide information regarding each Named Executive Officer’s base salary, annual incentives, long-term incentives, perquisites, retirement benefits and wealth accumulation.
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Based upon 2010 individual performance and results achieved in 2010, the Chief Executive Officer recommended for the Committee’s review and approval specific base salary adjustments for each of the other Named Executive Officers. The Chief Executive Officer made his recommendations in conjunction with the marketplace data and input provided by Towers Watson. He did not participate in any discussions with the Committee involving his own compensation. With guidance from Towers Watson and based on a rigorous review of 2010 performance, the Committee determined the appropriate base salary for the Chief Executive Officer for 2011.
For Annual Plan purposes, during the fourth quarter of 2011, the Committee reviewed plan performance and estimated the incentive payouts for the applicable plan period. In the first quarter of 2012, the Committee determined actual performance against pre-established goals and approved plan attainment levels. Our awards of cash-settled performance units, stock-settled stock appreciation rights (“SARs”), and full value awards (in the form of performance shares or restricted stock units (“RSUs”)) were determined in the first quarter based on competitive long-term incentive market practices, market data, and an evaluation of individual performance.
Pay Mix
Our executive talentcompensation programs are also designed to recognize an executive’s scope of responsibilities, leadership ability, and thateffectiveness in achieving key performance goals and objectives. As an executive’s level of responsibility within PolyOne increases, so does the percentage of total compensation should be fairthat is linked to both employeesperformance in the form of variable compensation.
The following table summarizes the allocation of the compensation opportunity at target, or “pay mix,” that was granted in 2011 to the Named Executive Officers, based upon the primary elements of compensation (base salary, annual incentive opportunity, and shareholders.
| Pay Mix Allocation | ||||||||||||||||||
| Element | Newlin | Patterson | Smith | Baert | Kedrowski | |||||||||||||
Base Salary | 16% | 31% | 37% | 39% | 37% | |||||||||||||
Annual Incentive Opportunity | 18% | 20% | 21% | 20% | 20% | |||||||||||||
Long-Term Incentive Opportunity | 66% | 49% | 42% | 41% | 43% | |||||||||||||
Our incentive programs focus on the critical performance measures that determine our company’s overall success and reward executives for the attainment of sustainable, long-term success. For positions with significant business unit responsibilities, annual incentive programs also emphasize success at the business unit level, which often leadsmay lead to Named Executive Officers at comparable levels being paid differently across the organization. differently.
Our base salaryexecutive compensation programs play a material role in our ability to drive strong financial results that exceed expectations. We believe that providing incentive plan opportunities to our executives that are based upon achieving strategic goals and annualobjectives are instrumental in driving desired results and long-term incentive opportunities are designed to reward executivesfostering a pay for the efficient execution of theirday-to-day responsibilities and attainment of short term results, balanced with the need for sustainable, long-term success.
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2011 Executive Compensation Elements
Compensation Element | Key Features | Objectives and Comments | ||||
| Base Salary | • Fixed compensation | • Intended to pay for the experience, skills and ongoing value the officer brings to the position | ||||
Annual Incentive | ||||||
• Variable cash compensation that is earned | • Builds accountability for important annual financial goals • Payment is | |||||
Long-Term Incentive Cash-settled Performance Units | ||||||
• Variable cash compensation that | • Emphasizes achievement of strategic goals and objectives • Payment is • Avoids stock dilution • | |||||
Stock-settled Stock Appreciation Rights | ||||||
• Variable compensation that increases in value as our share price rises. For • | • Aligns executives with • Requires growing stock price before any value • Increases share ownership • • Multi-year incentive is a common market practice | |||||
| Restricted Stock Units | • Equity compensation that will vest and will be payable at the end of the three-year restriction period, subject to the officer’s continued employment • Payable in PolyOne common shares | • Increases share ownership • Three-year vesting period supports our retention objective • Full-value grant is a common market practice | ||||
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Compensation Element | Key Features | Objectives and Comments | ||||
| Retirement Plans | ||||||
Contribution Plans | • | |||||
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• Nonqualified excess 401(k) defined contribution plan | • | |||||||
| limits • Restores benefits that are limited by the Internal Revenue Code in the qualified plan | ||||||||
| Luxembourg Defined Contribution Plan | ||||||||
• Tax-efficient defined contribution plan | • Mr. Baert | |||||||
Defined Benefit Plans ( | • • Nonqualified excess defined benefit plan | • • Prior to | ||||||
Supplemental Retirement Benefit for Mr. Newlin | • | • • Vesting | ||||||
Subsidized Post-Retirement Medical Plan (this plan has been closed to new participants since the formation of PolyOne in 2000, and will be eliminated in 2013) | ||||||||
Post-Retirement Medical Plan (at Full Cost to Employee) | • Subsidized retiree medical coverage (available to certain employees) • Retiree medical coverage provided at full cost to the retiree from ages 55 to | • Mr. Smith, as a 22-year employee, is eligible to participate in this plan • Messrs. Newlin, Patterson and • Mr. Baert is a non-U.S. based employee and therefore is not eligible to participate in | ||||||
| Perquisites | ||||||||
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• Benefit allowance
• Financial planning and tax preparation • • | • • Executive physicals help to ensure continuity of our management team | |||||
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Setting the LevelAnalysis of 2011 Compensation
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Element | Newlin | Patterson | Rosenau | Smith | Baert | ||||||||||||||||||||
| Base Salary | 26 | % | 45 | % | 49 | % | 49 | % | 51 | % | |||||||||||||||
| Annual Incentive Opportunity | 26 | % | 22 | % | 24 | % | 24 | % | 25 | % | |||||||||||||||
| Long-Term Incentive Opportunity | 48 | % | 33 | % | 27 | % | 27 | % | 24 | % | |||||||||||||||
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Base Salary
PolyOne employees were eligible for merit increases in 2011, including our Named Executive Officers. In recognition of the significant role Mr. Newlin continues to play in transforming PolyOne into a high-performing company, the Committee approved an adjustment to Mr. Newlin’s annual base salary, effective January 1, 2011, from $860,000 to $950,000. Prior to this adjustment, Mr. Newlin’s base salary had not changed since March 2008. In the Committee’s judgment, the total compensation package provided to Mr. Newlin, as described under the heading “Employment Agreements with Named Executive Officers – Mr. Newlin” is appropriate in order to fairly compensate and retain Mr. Newlin.
In January 2011, Mr. Patterson was promoted to Executive Vice President and Chief Financial Officer, taking on additional responsibility of providing direction for the growth of our global businesses in Asia. As described above, our policy isa result, the Committee approved an adjustment to targethis annual base pay atsalary, from $430,000 to $475,000 in order to recognize his increased responsibilities.
The Committee considered the recommendation of the Chief Executive Officer in determining the salary adjustments for each of the other Named Executive Officers. The primary factors used in determining the adjustment amounts were each executive’s individual performance and the relative position of their salary to the market median but it allows actual pay levels to deviate from target based on performance, responsibility, experience and marketability unique to each individual. for their role. Salary changes for the other Named Executive Officers were effective in May 2011. The Committee approved the following base salaries for the Named Executive Officers:
| Named Executive Officer | 2010 Base Salary | 2011 Base Salary | Adjustment % | |||||
Stephen D. Newlin | $860,000 | $950,000 | 10.5%(1) | |||||
Robert M. Patterson | $430,000 | $475,000 | 10.5%(2) | |||||
Kenneth M. Smith | $344,000 | $355,000 | 3.2% | |||||
Bernard Baert(3) | $392,499 | $402,017 | 2.4% | |||||
Thomas J. Kedrowski | $333,000 | $346,000 | 3.9% | |||||
| (1) | Mr. Newlin’s base salary had not changed since 2008. |
| (2) | Mr. Patterson received a salary increase in connection with his promotion to Executive Vice President. |
| (3) | In order to reflect more accurately Mr. Baert’s base salary adjustment, the conversion rate used for converting into dollars the Euros that Mr. Baert earned in both 2010 and 2011 was €1.00 = $ 1.29495, the rate in effect on December 31, 2011. |
Based on the data provided by the Consultant,Towers Watson, we have determined that the 2011 salaries of the Named Executive Officers range from 91%90% to 125%110% of the market median for comparable positions, with an average of 102% for all Named Executive Officers. For 2009, management recommended, and the Committee agreed, that the Named Executive Officers (and other corporate officers) would not receive any salary increases. For 2010, upon the recommendation of management, the Committee determined that no base salary increase would be provided to the CEO.
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Annual Incentive
The Senior Executive Annual Incentive Plan (the “Annual Plan”) was approved by shareholders in 20052010 and includes a defined set of performance measures that can be used in determining awards under the plan. We are requesting shareholder approvalAnnual awards for 2011 were made under the Annual Plan.
In light of a newMr. Patterson’s promotion at the beginning of 2011, an increase in his target incentive opportunity under the Annual Plan at this year’s Annual Meeting and futurefrom 60% to 65% as a percent of base salary was approved. This change was made to keep Mr. Patterson’s annual incentive awards will be made under that plan, if approved. The Annual Plan determines how participants (including alltarget in line with the market median in recognition of his new level of responsibilities.
Consistent with our approach to use the market median as a reference point and reward our Named Executive Officers) can earnOfficers for achievement of specific performance objectives that would advance our profitability, target annual cash awards. In 2009,incentive levels for the performance measuresNamed Executive Officers for 2011 were as follows:
| Named Executive Officer | 2011 Annual Plan Target | |
Stephen D. Newlin | 110% | |
Robert M. Patterson | 65% | |
Kenneth M. Smith | 55% | |
Bernard Baert | 50% | |
Thomas J. Kedrowski | 55% | |
For 2011, the Committee determined that we would fundamentally maintain the same design as used for the corporate staff participants in2010 Annual Plan. We continued to use the following performance measures for the Annual
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Operating income: operating income less Sunbelt (our joint venture) income and less any specified special items (which consist of non-recurring items as set forth in our approach described above to approximatequarterly earnings release).
Working capital as a percentage of sales is calculated using the market median. These targeted levels were set at 100%following formula: (Average 13 months of salary earned forWorking Capital) divided by (the sum of 12 months of sales), where Working Capital equals (1) Trade Accounts Receivable plus (2) Inventory on a First In First Out basis minus (3) Trade Accounts Payable.
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For 2011, we maintained the weighting on operating income of 65% and the weighting on working capital as a percentage of sales of 35%. Mr. Newlin and 50% of salary earned duringBaert is the year for each of the otheronly Named Executive Officers.
| Performance Measure | Newlin | Patterson | Smith | Baert | Kedrowski | |||||||||||||||||||||||||||||||||||||||||||||
Company Operating Income | 65 | % | 65 | % | 65 | % | — | 65 | % | |||||||||||||||||||||||||||||||||||||||||
Operating Income for Europe and South America | — | — | — | 65 | % | — | ||||||||||||||||||||||||||||||||||||||||||||
Consolidated Working Capital as a Percentage of Sales | 35 | % | 35 | % | 35 | % | 35 | % | 35 | % | ||||||||||||||||||||||||||||||||||||||||
Even when faced with continuing uncertainty in economic conditions at the beginning of 2009,2011, we set aggressive goals that focused our efforts on those factors that we believe were critical to theour on-going concern of our enterprise,success, including profitable growth, earnings improvement, cash generation from working capital, cost containment, earnings improvementefficiencies in our operations and the continued implementation of our overall strategy. For example,In 2011, we were able to achievemaintain our strong performance from the previous year by achieving maximum performance on our working capital as a percentage of sales metric and, as a result, reduced working capital by $117 million (working capital as defined in our annual incentive includes trade accounts receivable, inventory and trade accounts payable) in 2009. Further,of 9.6%, which we consider world-class performance. In addition, on a consolidated basis, our performance and results under the total company operating income metric exceededwere strong, achieving 191.5% of the maximumtarget performance level. GivenWe viewed the depressed market in which we were operating at the beginning of 2009, we viewed thistargeted level of performance as extremely unattainable. Consumer confidence and industrial demand were at historically low levels and two of our largest end markets, housing and automotive, were particularly impacted by the depressed economic conditions, which collectively resulted in a 25% decline in sales in 2009 from 2008. The attainment levels of above-target to maximum performance for this metric in 2009 required exceptionalas very challenging to achieve, and the actual level of performance across all disciplines andreflects superlative results. The performance of our business units throughout the Company. The key elementsvaried greatly due to market conditions such as an uncertain economy and increased raw material costs with resulting attainment levels that drove our improved operating income performance in 2009 were company-wide effortsranged from 0% to cut costs, prune unprofitable or high credit risk business, expand gross margins, and deploy lean six sigma initiatives.
The performance measures and targets, and the respective levels of achievement for each performance measure under the Annual Plan for 2011 for our Named Executive Officers are set forth below.
| Annual Plan | |||||||||||||
Measure (in millions) | Target Goal | Actual Result | Attainment | ||||||||||
| Company Operating Income | $ | (6.9 | ) | $ | 54.9 | 200.0% | |||||||
| Consolidated Working Capital as a Percentage of Sales | 14.9 | % | 12.1 | % | 200.0% | ||||||||
| BU Operating Income (Baert) | 26.0 | 24.4 | 67.3% | ||||||||||
| BU Operating Income (Rosenau) | 16.1 | 43.5 | 175.4% | ||||||||||
The actual amounts earned by | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Executive | Target Award | Earned Award | % Attainment | ||||||||||||
| S.D. Newlin | �� | $ | 860,000 | $ | 1,720,000 | 200.0% | |||||||||
| R.M. Patterson | 207,500 | 415,000 | 200.0% | ||||||||||||
| R.M. Rosenau | 167,500 | 314,398 | 187.7% | ||||||||||||
| K.M. Smith | 168,000 | 336,000 | 200.0% | ||||||||||||
B. Baert(1) | 212,476 | 283,974 | 133.7% | ||||||||||||
The Annual Plan, as it applies to the Named Executive Officers, is structured to comply with Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). In order to qualify the amounts earned under the Annual Plan as “performance-based,” the Committee may exercise discretion only to reduce an award. The Annual Plan is structured so that achievement of the threshold level of performance in any of the measures described above will result in the funding of the plan at maximum. Actual awards are calculated using the Plan formula described above and if funded at maximum as described above, the maximum awards are reduced, as necessary, to deliver awards that are consistent with the attainment levels that were achieved for all other incentive plan participants. For aCode. A more detailed discussion of Section 162(m) of the Internal Revenue Code seeappears in the “Tax Considerations” section of this report.
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At the Annual Meeting in May of 2008,2010, our shareholders approved the 2008 Equity and Performance Incentive Plan (the “2008 Plan”), and this plan has been used to make awards in 2009 and 2010. We do not believe enough shares remain in this plan to fund SAR and RSU awards in 2011. For this reason, we will be asking shareholders to approve the 2010 Equity and Performance Incentive Plan (the “2010 Plan”), which was used to make equity incentive awards in 2011. Our 2012 long-term incentive grants have also been made under the 2010 Plan. On March 9, 2012, our Board of Directors unanimously approved and adopted, subject to the approval of the shareholders at the Annual Meeting. See Proposal 22012 annual meeting, the First Amendment to the PolyOne Corporation 2010 Equity and Performance Incentive Plan (the “2010 Amended Plan”). If approved by the shareholders, future Long-Term Incentive Plan grants will be made under the 2010 Amended Plan.
Long-Term Incentive Plan targets as a percent of base salary are established with consideration of market median levels for each Named Executive Officer’s position (or above-market median levels in this proxy statement.
| Long-Term Incentive Plan | ||||||||
| Named Executive Officer | 2010 Target (as a percentage of Base Salary) | 2011 Target (as a percentage of Base Salary) | ||||||
Stephen D. Newlin | 300% | 350% | ||||||
Robert M. Patterson | 120% | 135% | ||||||
Kenneth M. Smith | 90% | 100% | ||||||
Bernard Baert | 90% | 100% | ||||||
Thomas J. Kedrowski | 90% | 100% | ||||||
Awards Granted in 2009 were 38% below the target market median opportunity. This approach balanced the perspectives of shareholders and participants by providing additional shares to incent participants, but at a lower total targeted value than in 2008.
In March 2009,February 2011, we granted long-term incentive awards under the 20082010 Plan using three vehicles, with the allocation of the award values roughly as follows: 65%34% of the award’s value was allocated to performance units for the 20092011 performance period, 14%33% was allocated to stock-settled SARs and 21%33% was allocated to Performance Shares.
•Cash-Settled Performance Units
The performance units granted in March 2009February 2011 will be paid in cash, consistent with past practice, and wereare based on achievement of performance goals relating to Company working capitalour earnings per share during the three-year period 2011-2013. The Committee selected earnings per share as the performance measure in order to focus our efforts on long term earnings improvement. In 2011, we returned to a percentage of sales for the one-year period from January 1, 2009 through December 31, 2009. We reduced thethree-year measurement period for performance units from threeafter two plan years to one year due to the challenges associated with setting long-term goalsone-year measurement periods in an unstable economy2009 and 2010, in order to reinforce our focus on our near-term cash needs. Awardlong-term growth. The attainment level for the performance units is determined at the end of the measurement period but awards areperiod. The performance units generally do not payable for three years, consistent with existing performance unit designvest until the end of the three-year measurement period, in order to continue the award’s retention characteristics.
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Given that we do not provide earnings guidance, we believe that disclosure of our actual earnings per share targets for the performance units grantedwould cause competitive harm. In setting the applicable target level, the Committee considers how achievement of the performance criteria could be impacted by events expected to occur in 2009,the coming years. When establishing the specific goals for the earnings per share performance metric, we were ableconsidered how likely it will be for us to achieve a maximum level of performance as a result of the focus by our team on working capital, a measure we viewed as critical.goals. We believe that providing this incentivethese goals should be appropriately difficult to our participants was instrumental in drivingattain, and will require considerable collective effort on the desired results. Management believes these improvements influenced the recoverypart of our stock price duringemployees, including our Named Executive Officers, to achieve the coursetarget goal. Achievement of the yearmaximum goal is not considered likely, and positioned us well for future success.
The 2009 performance unit awardsamounts for the Named Executive Officers under the Long-Term Incentive Plan are payableset forth in 2012.
| Goals | ||||||||||||||||
Measure | Threshold | Target | Maximum | % Attainment | ||||||||||||
| Working Capital as a Percentage of Sales | 15.2% | 14.9% | 13.9% | 200 | % | |||||||||||
•Stock-Settled SARs
To continually reinforce our ongoing commitment to enhancing shareholder returnsvalue, the Named Executive Officers received an award of SARs that, when exercised by the holder, are settled in our common shares. The SARsEach SAR granted in March to allour Named Executive Officers havein February 2011 has a base price of $1.43.$14.81, the closing market price of our common stock on the date of grant. All SARs granted in 20092011 vest in equal installments over three years and have an exercise term of ten years. Beginning with the 2011 grant, the exercise term was changed from seven years which is shorter thanto ten years to better align with market practice, and vest ratably over three years, if certain performance criteria are met. The performance criteria added as a condition of vesting for the 2009 SARs requires achievement of a 10%, 20%, and 30% premium over the grant price. All of the SARs granted in 2009 have met the pre-established stock price hurdles.
•Performance SharesRestricted Stock Units
To promote share ownership and enhance the retention of our executives, we granted Performance SharesRSUs in MarchFebruary 2011 to all Named Executive Officers. The Performance SharesRSUs vest in one-third increments when a 10%, 20% and 30% premium overon the third anniversary of the grant price is achieved overdate.
Awards Granted in Prior Years
The Committee approved the three-yearattainment level of performance period, payable after three years. The Performance Shares granted to all Named Executive Officers were valued at $1.43 at the time of grant. All of the Performance Shares granted in 2009 have met the pre-established stock price hurdles.
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| 2009 Goals | ||||||||||||||||||||
| Performance Measure | Threshold (30%) | Target (100%) | Maximum (200%) | Actual Result | %Attainment | |||||||||||||||
Working Capital as a Percentage of Sales | 15.15% | 14.9% | 13.9% | 12.1% | 200% | |||||||||||||||
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Payouts for the performance units originally granted in 2009 grants andto the 2010 Annual Plan. The specific performance metricsNamed Executive Officers under the Long-Term Incentive Plan are reflected in the Non-Equity Incentive Plan Compensation column of the 2011 Summary Compensation Table. All equity awards outstanding as of December 31, 2011 are set forth in the table below. To focus onOutstanding Equity Awards at 2011 Fiscal Year-End Table in this proxy statement.
Retirement Benefits
We offer the near-term cash needs of the Company, performance will be measured over a one-year period (2010)following retirement benefits to eligible employees and to promote retention, the performance units will only be paid if the participant continues to be employed on the third anniversary of the date of grant. In addition, we modified the 2010 performance units such that the payout level for achievement of threshold performance was returned to 50% of the targeted award, the 2008 level, from 30% of the targeted award, the level used in 2009.
| Goals | |||||||||||||||
| Threshold | Target | Maximum | |||||||||||||
Measure | (50%) | (100%) | (200%) | ||||||||||||
| Working Capital as a Percentage of Sales | 12.0 | % | 11.3 | % | 10.6 | % | |||||||||
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An unfunded, nonqualified plan that provides benefits similar to the Qualified Savings Plan (the “Nonqualified Savings Plan”), but without the Internal Revenue Code contribution and earnings limitations;
A standard defined contribution retirement benefit plan provided to all Luxembourg employees, in which Mr. Baert is a participant;
A company-funded Internal Revenue Code-qualified defined benefit pension plan (the “Qualified Pension Plan”), as well as an unfunded, nonqualified defined benefit pension plan (the “Benefit Restoration Plan”), under which Mr. Smith is eligible, along with certain other employees, to receive frozen benefits. In addition, since becoming retirement eligible (55 years of age with 10 years of service), Mr. Smith is eligible to receive certain retiree medical benefits for which he will be required to pay a substantial portion of the cost; and
A supplemental retirement benefit for Mr. Newlin that provides annual supplemental retirement payments, payable in the form of a 15-year certain and continuous life annuity, conditioned upon his execution of a release and waiver and upon a “qualifying separation from service.”
Perquisites
We provide minimal perquisites to the Named Executive Officers, which we believe are necessary to compete for executive talent. These perquisites for the Named Executive Officers based in the United States consist of a monthly benefit allowance, limited reimbursement of expenses for financial planning and tax preparation, and an annual physical examination. The perquisites for Mr. Baert, which are typical and competitive with companies in Europe, include a PolyOne-provided automobile, meal and entertainment allowance, and reimbursement of expenses for financial planning and tax preparation. The specific amounts attributable to perquisites for 2011 for the Named Executive Officers are disclosed in the 2011 Summary Compensation Table.
We intend that benefit allowances will not be provided to new executives. The benefit allowance and reimbursement of expenses for financial planning and tax preparation are treated as taxable income to the Named Executive Officers.
We also provide other benefits such as medical, dental and life insurance and disability coverage to each U.S.-based Named Executive Officer, which are identical to the benefits provided to all other eligible U.S.-based employees. Medical, dental and life insurance coverage provided to Mr. Baert is
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identical to the benefits provided to all other Luxembourg-based employees. We provide vacation and paid holidays to all employees, including the Named Executive Officers. The Named Executive Officers were eligible for the following vacation in 2011: Mr. Newlin — five weeks, Mr. Patterson — four weeks, Mr. Smith — five weeks, Mr. Kedrowski — four weeks and Mr. Baert — 26 days.
Changes to our Relocation Policy
For information on recent changes to our Relocation Policy, see “Compensation Discussion and Analysis — Listening to Shareholders and Implementing Shareholder-Friendly Pay Practices.”
Employment Agreements with Named Executive Officers
Messrs. Newlin and Baert are parties to employment agreements with us, as described below. We do not maintain employment agreements with any of the other Named Executive Officers, although each of our Named Executive Officers is a party to a Continuity Agreement, as described in “Potential Payments Upon Termination or Change-in-Control” below.
Mr. Newlin
On February 6, 2006, we entered into an agreement with Mr. Newlin, under which he serves as our Chairman, President and Chief Executive Officer. We entered into this agreement in order to attract Mr. Newlin to PolyOne and set the terms of his employment. The agreement provided for specified equity awards, intended to serve as an inducement to join PolyOne, for Mr. Newlin’s initial base salary and for his participation in our various long-term incentive and benefit plans in effect during the term of his employment. In addition, the agreement provides for certain payments upon termination of Mr. Newlin’s employment, as described more fully in “Potential Payments Upon Termination or Change-in-Control” below. In July 2008, Mr. Newlin’s agreement was amended to provide for a supplemental retirement benefit, as described above and more fully in the narrative for the 2011 Pension Benefits Table.
Mr. Baert
In connection with the change in location for our European headquarters, PolyOne Luxembourg s.à r.l., our wholly owned subsidiary located in Luxembourg, entered into an employment agreement with Mr. Baert, effective September 1, 2009. It is customary in Luxembourg that we maintain an agreement with each of our employees, including Mr. Baert. Among other things, the agreement provides that Mr. Baert will be entitled to a monthly base salary, daily meal vouchers and the use of a company car. Under the agreement, Mr. Baert may also be eligible to participate in our Annual Plan and will be included in a defined contribution benefits cafeteria plan established by PolyOne Luxembourg. Pursuant to the terms of the agreement, Mr. Baert has agreed not to compete with us for a period of twelve months after termination of the agreement. Mr. Baert’s agreement provides for certain payments upon termination of Mr. Baert’s employment, as described more fully in the “Potential Payments Upon Termination or Change-in-Control” section of this proxy statement.
Tax Considerations
Cash compensation, such as base salary or annual incentive compensation, is taxable to the recipient as ordinary income when earned, unless deferred under a company-sponsored deferral plan.
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Deferrals under tax-qualified plans, such as a 401(k) plan, do not affect our current tax deduction. Deferrals under supplemental executive deferral plans delay our tax deduction until the deferred amount (and any accumulation thereon) is paid. Stock-settled SARs are generally taxable as ordinary income when exercised and performance shares, RSUs and performance units are generally taxable when paid. We realize a tax deduction at that time. The Committee reviews potential tax implications before making decisions regarding compensation.
Management and the Committee are aware of Section 162(m) of the Internal Revenue Code, which generally limits the deductibility of executive pay in excess of one million dollars for certain Named Executive Officers, and which specifies the requirements for the “performance-based” exemption from this limit. The Committee generally manages our incentive programs to qualify for the performance-based exemption. It also reserves the right to provide compensation that does not meet the exemption criteria if, in its sole discretion, it determines that doing so advances our business objectives.
Accounting Considerations
When reviewing preliminary recommendations and in connection with approving the terms of a given incentive plan period, management and the Committee review and consider the accounting implications of a given award, including the estimated expense and/or dilutive considerations. Depending upon the type of accounting treatment associated with an incentive plan design, management and the Committee may alter or modify the incentive award due to the accounting treatment if the award (and the related accounting consequences) were to adversely affect our financial performance.
Executive Compensation Governance
Stock Ownership and Retention Guidelines
In order to better align the financial interests of our executives with those of our shareholders, we believe our executives should own a meaningful number of shares of PolyOne stock. We have adopted share ownership and retention guidelines specifying a minimum level of share ownership for all executives, including all Named Executive Officers.
Levels were originally established in 2009 when, given the sustained impact of volatile stock prices on ownership guidelines, we changed from a value that was a multiple of an executive’s salary to a fixed number of shares. A retention requirement was also added at this time. In 2011, the Committee approved revisions to the share requirements for each level when, with the help of Towers Watson, it was determined that the existing requirements were above the market median. At the same time, our retention requirements were also revised. The current retention requirements state that all officers are required to retain 100% of all net shares obtained through the company as compensation for services provided. The requirement to retain 100% will cease when the share ownership guideline has been met provided that an officer can only divest of a number of shares such that the guideline continues to be met. In addition, the current retention requirements are no longer reduced for executives that attain age 55, as was mandated in the previous guidelines. In general, shares counted toward required ownership include shares directly held and shares held in our benefit or deferral plans
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(including RSUs, performance shares that have met the applicable performance criteria, and phantom shares under our nonqualified deferral plan). The specific levels of share ownership for the Named Executive Officers are noted in the following table. Executives are expected to accumulate the specified shares within five years of their becoming subject to the guidelines.
| Newlin | Patterson | Smith | Baert | Kedrowski | ||||||||||||||||
Share Ownership Target (in shares) | 350,000 | 80,000 | 60,000 | 60,000 | 60,000 | |||||||||||||||
Total Share Ownership as of 3/6/12 | 750,482 | 250,613 | 178,028 | 78,881 | 162,243 | |||||||||||||||
Attainment Status | 214% | 313% | 297% | 131% | 270% | |||||||||||||||
Mr. Patterson has been with PolyOne less than five years and is not yet required to reach 100% of the full share ownership guideline (100,000 shares). The share ownership target for Mr. Patterson has been reduced to reflect that he has been with PolyOne for four years.
Timing with Respect to Equity Award Grants
We have adopted a policy with respect to the timing of the grant of equity awards, which provides that equity awards are granted pursuant to approval by the Board or the Committee or, pursuant to authority delegated by the Board or the Committee to the Chief Executive Officer. Such grants generally should be made at times when the Company is not in a “blackout period,” which is the period of time that is in close proximity to the release of financial or material non-public information or at other times when the Company is not in possession of material non-public information. The policy further provides that, to the extent practicable, annual grants to existing employees should be approved at regularly scheduled meetings and that the grant price for any stock option or stock appreciation right shall not be less than the fair market value of the Company’s common shares on the date of grant (which is defined as the closing price of our common shares on the date of grant).
Clawback Policy
We have adopted a policy that is consistent with the requirements of the Sarbanes-Oxley Act of 2002, which requires the Chief Executive Officer and Chief Financial Officer to reimburse us for any awards received during the twelve-month period following the release of financial results that subsequently require an accounting restatement due to material noncompliance with any financial reporting requirement if they are subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley Act. If necessary, we plan to modify our policy to comply with the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), when the SEC or NYSE promulgates implementing rules and regulations.
Hedging Policy
Our Securities Trading Policy currently provides that, consistent with our philosophy to encourage long-term investments, directors, officers and certain other employees of PolyOne are prohibited from engaging in any speculative transactions involving our securities, including buying or selling puts or calls, short sales, or margin purchases of our securities. If necessary, we plan to modify our policy to comply with the provisions of the Dodd-Frank Act when they are finalized.
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2011 SUMMARY COMPENSATION TABLE
The following table sets forth the compensation earned by, and the compensation opportunity granted to, our principal executive officer, our principal financial officer, and our other three most highly compensated executive officers, during the fiscal years ended December 31, 2011, December 31, 2010 and December 31, 2009.
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards(2) ($) | Option Awards(3) ($) | Non- Equity Plan | Change in Value and ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||||||||
Stephen D. Newlin, | 2011 | $946,538 | — | $1,285,508 | $1,282,148 | $4,088,859 | $520,514 | (5) | $309,759 | (7) | $8,433,326 | |||||||||||||||||||||||||
| 2010 | 860,000 | — | 967,589 | 850,590 | 3,030,236 | 538,990 | 1,263,730 | 7,511,135 | ||||||||||||||||||||||||||||
| 2009 | 860,000 | — | 312,547 | 275,559 | 1,720,000 | 516,552 | 138,847 | 3,823,505 | ||||||||||||||||||||||||||||
Robert M. Patterson, | 2011 | 473,269 | — | 247,327 | 247,660 | 996,654 | — | 97,152 | (8) | 2,062,062 | ||||||||||||||||||||||||||
| 2010 | 424,231 | — | 191,760 | 167,700 | 509,077 | — | 71,168 | 1,363,936 | ||||||||||||||||||||||||||||
| 2009 | 415,000 | — | 60,325 | 53,223 | 415,000 | — | 198,924 | 1,142,472 | ||||||||||||||||||||||||||||
Kenneth M. Smith, | 2011 | 350,769 | — | 131,809 | 130,732 | 617,187 | 158,619 | (6) | 83,045 | (9) | 1,472,161 | |||||||||||||||||||||||||
| 2010 | 340,923 | — | 107,865 | 94,380 | 504,501 | 130,531 | 70,308 | 1,248,508 | ||||||||||||||||||||||||||||
| 2009 | 336,000 | — | 35,179 | 31,042 | 336,000 | 121,177 | 61,563 | 920,961 | ||||||||||||||||||||||||||||
Bernard Baert, | 2011 | 398,612 | — | 131,809 | 130,732 | 570,711 | — | 70,728 | (10) | 1,302,592 | ||||||||||||||||||||||||||
| 2010 | 398,507 | — | 107,865 | 94,380 | 566,927 | — | 59,377 | 1,227,056 | ||||||||||||||||||||||||||||
| 2009 | 424,953 | — | 28,194 | 24,898 | 283,974 | — | 78,259 | 840,278 | ||||||||||||||||||||||||||||
Thomas J. Kedrowski, | 2011 | 341,000 | — | 131,809 | 130,732 | 596,738 | — | 75,073 | (11) | 1,275,352 | ||||||||||||||||||||||||||
| 2010 | 328,769 | — | 107,865 | 94,380 | 484,735 | — | 221,966 | 1,237,715 | ||||||||||||||||||||||||||||
| (1) | Mr. Baert’s compensation is based in Euros. The conversion rate used for purposes of converting the Euros earned by Mr. Baert into dollars for purposes of this table was €1.00 = $1.29495, which is the conversion rate used in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, $1.32525 for the fiscal year ended December 31, 2010, and $1.43325 for the fiscal year ended December 31, 2009. |
| (2) | This column includes for 2011 time-vested, stock-settled RSUs granted in 2011 to the Named Executive Officers under our 2010 Plan. The amounts reported represent the grant date fair value of the awards computed in accordance with FASB Accounting Standards Codification (ASC) Topic 718. For information regarding the assumptions used in determining the fair value of these awards, please refer to Note 15, Share-Based Compensation, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011. For 2011, these grants are described more fully in the narrative following the 2011 Grants of Plan-Based Awards table and in the “Compensation Discussion and Analysis — Analysis of 2011 Compensation Decisions and Actions — Long-Term Incentive — Awards Granted in 2011 — Restricted Stock Units” section of this proxy statement. |
| (3) | This column includes for 2011 time-vested, stock-settled SARs granted in 2011 to the Named Executive Officers under our 2010 Plan. The amounts reported represent the grant date fair value of the awards computed in accordance with FASB ASC Topic 718. For information regarding the assumptions used in determining the fair value of these awards, please refer to Note 15, Share-Based Compensation, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011. For 2011, these grants are described more fully in the narrative following the 2011 Grants of Plan-Based Awards table and in the “Compensation Discussion and Analysis — Analysis of 2011 Compensation Decisions and Actions — Long-Term Incentive — Awards Granted in 2011 — Stock-Settled SARs” section of this proxy statement. |
| (4) | This column reflects for 2011 amounts earned by the Named Executive Officers under the Annual Plan and the 2009 — 2011 Long Term Incentive Plan. The terms of the Annual Plan are described more fully in the narrative |
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| following the 2011 Grants of Plan-Based Awards table and in the “Compensation Discussion and Analysis — Analysis of 2011 Compensation Decisions and Actions — Annual Incentive” section of this proxy statement. The terms of the 2009 — 2011 Long Term Incentive Plan Cash-Settled Performance Units are described more fully in the narrative following the “Compensation Discussion and Analysis — Analysis of 2011 Compensation Decisions and Actions — Awards Granted in Prior Years” section of this proxy statement. The amounts earned by the named Executive Officers under each plan are listed below. |
| Name | Annual Plan ($) | Cash-Settled ($) | ||||||
S.D. Newlin | $2,024,859 | $2,064,000 | ||||||
R.M. Patterson | 598,254 | 398,400 | ||||||
K.M. Smith | 375,187 | 242,000 | ||||||
B. Baert | 269,711 | 301,000 | ||||||
T.J. Kedrowski | 364,738 | 232,000 | ||||||
| (5) | Mr. Newlin is entitled to a supplemental retirement benefit under his employment agreement, as described more fully in the “Compensation Discussion and Analysis — Analysis of 2011 Compensation Decisions and Actions — Retirement Benefits” section of this proxy statement. The amount for 2011 represents the aggregate change in actuarial present value (determined by subtracting the December 31, 2010 actuarial present value from the December 31, 2011 actuarial present value) of the annual benefit payment that will be payable as a 15-year certain and continuous life annuity beginning at age 58.6 and assumes that Mr. Newlin has a “Qualifying Separation from Service.” |
| (6) | Mr. Smith participates in the Qualified Pension Plan and the Benefit Restoration Plan that existed prior to our formation in 2000 through the consolidation of Geon and M.A. Hanna. The amount represents the aggregate change in actuarial present value (determined by subtracting the December 31, 2010 actuarial present value from the December 31, 2011 actuarial present value) of Mr. Smith’s accumulated benefits under the Qualified Pension Plan and the Benefit Restoration Plan. |
| (7) | Amount for 2011 consists of company contributions to our Qualified Savings Plan in the amount of $15,925, company contributions under our nonqualified retirement plan in the amount of $168,580, reinvested dividend equivalents on outstanding restricted stock units valued at $72,640 and tax reimbursements for moving expenses in the amount of $3,400 carried over from the prior year before the change to our relocation policy as described on page 23. Mr. Newlin also received the following amounts in 2011, as reflected in the table: reimbursement of moving expenses ($10,715), benefit allowance ($24,000), financial planning and tax preparation expenses ($13,000), imputed income of guest travel ($1,324), and an executive physical ($175). |
| (8) | Amount for 2011 consists of company contributions to our Qualified Savings Plan in the amount of $15,925, company contributions under our nonqualified retirement plan providing for benefits in excess of the amounts permitted to be contributed under the Qualified Savings Plan in the amount of $47,928 and reinvested dividend equivalents on outstanding restricted stock units valued at $14,112. Mr. Patterson also received the following amounts in 2011, as reflected in the table: benefit allowance ($7,200), financial planning and tax preparation expenses ($10,000), and an executive physical ($1,987). |
| (9) | Amount for 2011 consists of company contributions to our Qualified Savings Plan in the amount of $15,925, company contributions under our nonqualified retirement plan providing for benefits in excess of the amounts permitted to be contributed under the Qualified Savings Plan in the amount of $31,251 and reinvested dividend equivalents on outstanding stock units valued at $8,015. Mr. Smith also received the following amounts in 2011, as reflected in the table: benefit allowance ($19,200), financial planning and tax preparation expenses ($7,394), and an executive physical ($1,260). |
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| (10) | Amount for 2011 consists of company contributions to a tax-efficient savings plan, generally provided to all Luxembourg employees, in the amount of $52,275 and reinvested dividend equivalents on outstanding stock units valued at $7,135. Mr. Baert also received the following amounts in 2011, as reflected in the table: company provided automobile ($8,969), and meal vouchers ($2,349). These amounts have been converted from Euros to dollars as set forth in footnote 1 to the 2011 Summary Compensation Table. |
| (11) | Amount for 2011 consists of company contributions to our Qualified Savings Plan in the amount of $15,925, company contributions under our nonqualified retirement plan providing in the amount of $26,233 and reinvested dividend equivalents on outstanding restricted stock units valued at $8,015. Mr. Kedrowski also received the following amounts in 2011, as reflected in the table: benefit allowance ($19,200), and financial planning and tax preparation expenses ($5,700). |
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2011 GRANTS OF PLAN-BASED AWARDS
| Name | Grant Date | Estimated Future Payouts Under Non-Equity Incentive Plan Awards(2) | All Other Stock Number of (#) | All Other Options (#) | Exercise or ($/Sh) | Grant Date ($) | ||||||||||||||||||||||||
Threshold(3) | Target ($) | Maximum ($) | ||||||||||||||||||||||||||||
S.D. Newlin | (1) | $520,596 | $1,041,192 | $2,082,384 | — | — | — | — | ||||||||||||||||||||||
| 2/16/2011 | 665,000 | 1,330,000 | 2,660,000 | — | — | — | — | |||||||||||||||||||||||
| 2/16/2011 | — | — | — | — | 157,900 | $14.81 | $1,282,148 | |||||||||||||||||||||||
| 2/16/2011 | — | — | — | 86,800 | — | — | 1,285,508 | |||||||||||||||||||||||
R.M. Patterson | (1) | 153,812 | 307,625 | 615,250 | — | — | — | — | ||||||||||||||||||||||
| 2/16/2011 | 128,250 | 256,500 | 513,000 | — | — | — | — | |||||||||||||||||||||||
| 2/16/2011 | — | — | — | — | 30,500 | 14.81 | 247,660 | |||||||||||||||||||||||
| 2/16/2011 | — | — | — | 16,700 | — | — | 247,327 | |||||||||||||||||||||||
K.M. Smith | (1) | 96,461 | 192,923 | 385,846 | — | — | — | — | ||||||||||||||||||||||
| 2/16/2011 | 68,800 | 137,600 | 275,200 | — | — | — | — | |||||||||||||||||||||||
| 2/16/2011 | — | — | — | — | 16,100 | 14.81 | 130,732 | |||||||||||||||||||||||
| 2/16/2011 | — | — | — | 8,900 | — | — | 131,809 | |||||||||||||||||||||||
B. Baert | (1) | 99,653 | 199,306 | 398,612 | — | — | — | — | ||||||||||||||||||||||
| 2/16/2011 | 80,337 | 160,673 | 321,346 | — | — | — | — | |||||||||||||||||||||||
| 2/16/2011 | — | — | — | — | 16,100 | 14.81 | 130,732 | |||||||||||||||||||||||
| 2/16/2011 | — | — | — | 8,900 | — | — | 131,809 | |||||||||||||||||||||||
T.J. Kedrowski | (1) | 93,775 | 187,550 | 375,100 | — | — | — | — | ||||||||||||||||||||||
| 2/16/2011 | 66,600 | 133,200 | 266,400 | — | — | — | — | |||||||||||||||||||||||
| 2/16/2011 | — | — | — | — | 16,100 | 14.81 | 130,732 | |||||||||||||||||||||||
| 2/16/2011 | — | — | — | 8,900 | — | — | 131,809 | |||||||||||||||||||||||
| (1) | There is no grant date for these awards. This row relates to awards made under our cash-based Annual Plan. |
| (2) | The first row of this column for each Named Executive Officer represents the annual cash incentive opportunity for the Named Executive Officer under the Annual Plan. The actual amount earned for 2011 under the Annual Plan is included in the “Non-Equity Incentive Plan Compensation” column of the 2011 Summary Compensation Table. The second row of this column for each Named Executive Officer represents the performance units awarded to the Named Executive Officer under the 2010 Plan. Each performance unit is equal in value to $1.00. These performance units are subject to achievement of specified performance goals over the performance period from January 1, 2011 to December 31, 2013. The performance units will be paid in cash, if earned, contingent upon the Named Executive Officer remaining in continuous employment through the payment date, which shall be in 2014 and shall occur no later than March 15, 2014. |
| (3) | Threshold refers to the minimum amount payable upon reaching the threshold level of performance. If threshold performance is not attained, the participant will receive $0 for this award. |
| (4) | The numbers in this column represent stock-settled Restricted Stock Units granted to the Named Executive Officers under the 2010 Plan, which vest on the third anniversary of the grant date. The RSUs have dividend equivalent rights that entitle the grantee to dividend equivalents on each share of our common stock underlying the award equal to the dividend per share declared and paid on our issued and outstanding shares of common stock. |
| (5) | The numbers in this column represent stock-settled SARs granted to the Named Executive Officers under the 2010 Plan, which become exercisable one-third on each anniversary of the date of the grant. |
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| (6) | In setting the base price of SARs, we have followed the practice of using the closing price on the grant date. This practice is in compliance with the 2010 Plan. The award of stock-settled SARs that was granted on February 16, 2011 to the Named Executive Officers was priced using the grant date closing price of $14.81. |
| (7) | The amounts in the column represent the grant date fair value of each equity-based award, computed in accordance with FASB ASC Topic 718. For information regarding the assumptions used in determining the fair value of an award, please refer to Note 15, Share-Based Compensation, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011. |
Set forth below is narrative disclosure relating to the 2011 Summary Compensation Table and the 2011 Grants of Plan-Based Awards table.
Senior Executive Annual Incentive Plan
Annual cash incentives were awarded for 2011 under our Annual Plan and are based on achievement of performance goals relating to company operating income and consolidated working capital as a percentage of sales (for the corporate staff participants) and business unit operating income and consolidated working capital as a percentage of sales (for Mr. Baert). For a more detailed discussion of our Annual Plan, see “Compensation Discussion and Analysis — Analysis of 2011 Compensation Decisions and Actions — Annual Incentive.”
Cash-Settled Performance Units
Cash-settled performance units were granted in 2011 to all of our Named Executive Officers under our 2010 Plan and are based on achievement of the performance goal, earnings per share, over a three-year period. If performance goals are achieved, these awards will vest and pay out in early 2014, generally subject to continued employment. For a more detailed discussion of the performance units granted in 2011, see “Compensation Discussion and Analysis — Analysis of 2011 Compensation Decisions and Actions — Long-Term Incentive — Awards Granted in 2011 — Cash-Settled Performance Units.”
Stock-Settled SARs
In 2011, the Committee granted stock-settled SARs to the Named Executive Officers. These SARs have a term of ten years and vest one-third per year over three years. For a more detailed discussion of the stock-settled SARs granted in 2011, see “Compensation Discussion and Analysis — Analysis of 2011 Compensation Decisions and Actions — Long-Term Incentive — Awards Granted in 2011 — Stock-Settled SARs.”
Restricted Stock Units
In 2011, the Committee granted RSUs to the Named Executive Officers. The RSUs vest 100% and are payable at the end of a three-year period. The RSUs are provided dividend equivalent rights that entitle the grantee to dividend equivalents on each share of our common stock underlying the award equal to the dividend per share declared and paid on our issued and outstanding shares of common stock. The dividend equivalent rights are subject to the same restrictions as the underlying RSUs. For a more detailed discussion of the RSUs granted in 2011, see “Compensation Discussion and Analysis — Analysis of 2011 Compensation Decisions and Actions — Long-Term Incentive — Awards Granted in 2011 — Restricted Stock Units.”
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Employment Agreements
We do not have employment agreements with any of our Named Executive Officers except for Messrs. Newlin and Baert. Mr. Newlin’s and Mr. Baert’s employment agreements are described in detail in the “Compensation Discussion and Analysis — Employment Agreements with Named Executive Officers” and the “Potential Payments Upon Termination or Change-in-Control” sections of this proxy statement.
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OUTSTANDING EQUITY AWARDS AT 2011 FISCAL YEAR-END
| Name | Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||
Number of (#) | Number of (#) | Equity Incentive Plan Options (#) | Option ($) | Option Expiration Date | Number of Shares (#) | Market ($) | |||||||||||||||||||||||||||||
S.D. Newlin | — | — | — | — | — | 249,152 | (4) | $ | 2,877,706 | ||||||||||||||||||||||||||
| — | — | — | — | — | 122,601 | (5) | 1,416,042 | ||||||||||||||||||||||||||||
| — | — | — | — | — | 87,876 | (6) | 1,014,968 | ||||||||||||||||||||||||||||
| 174,900 | — | — | $ | 9.1850 | 2/20/2013 | — | — | ||||||||||||||||||||||||||||
| 286,800 | — | — | 6.7650 | 3/5/2015 | — | — | |||||||||||||||||||||||||||||
| — | 142,033 | (7) | — | 1.4300 | 3/4/2016 | — | — | ||||||||||||||||||||||||||||
| 72,700 | 145,400 | (8) | — | 7.9900 | 2/16/2017 | — | — | ||||||||||||||||||||||||||||
| — | 157,900 | (9) | — | 14.8100 | 2/16/2021 | — | — | ||||||||||||||||||||||||||||
R.M. Patterson | — | — | — | — | — | 48,089 | (4) | 555,428 | |||||||||||||||||||||||||||
| — | — | — | — | — | 24,297 | (5) | 280,630 | ||||||||||||||||||||||||||||
| — | — | — | — | — | 16,907 | (6) | 195,276 | ||||||||||||||||||||||||||||
| 60,000 | — | — | 7.7200 | 5/14/2015 | — | — | |||||||||||||||||||||||||||||
| 54,867 | 27,433 | (7) | — | 1.4300 | 3/4/2016 | — | — | ||||||||||||||||||||||||||||
| 14,333 | 28,667 | (8) | — | 7.9900 | 2/16/2017 | — | — | ||||||||||||||||||||||||||||
| — | 30,500 | (9) | — | 14.8100 | 2/16/2021 | — | — | ||||||||||||||||||||||||||||
K.M. Smith | — | — | — | — | — | 28,043 | (4) | 323,897 | |||||||||||||||||||||||||||
| — | — | — | — | — | 13,667 | (5) | 157,854 | ||||||||||||||||||||||||||||
| — | — | — | — | — | 9,010 | (6) | 104,066 | ||||||||||||||||||||||||||||
| 31,200 | — | — | 6.7650 | 3/5/2015 | — | — | |||||||||||||||||||||||||||||
| 16,000 | 16,000 | (7) | — | 1.4300 | 3/4/2016 | — | — | ||||||||||||||||||||||||||||
| 8,067 | 16,133 | (8) | — | 7.9900 | 2/16/2017 | — | — | ||||||||||||||||||||||||||||
| 49,500 | — | — | 12.2200 | 3/25/2012 | — | — | |||||||||||||||||||||||||||||
| 5,000 | — | — | 6.0000 | 3/31/2013 | — | — | |||||||||||||||||||||||||||||
| — | 16,100 | (9) | — | 14.8100 | 2/16/2021 | — | — | ||||||||||||||||||||||||||||
B. Baert | — | — | — | — | — | 22,475 | (4) | 259,586 | |||||||||||||||||||||||||||
| — | — | — | — | — | 13,667 | (5) | 157,854 | ||||||||||||||||||||||||||||
| — | — | — | — | — | 9,010 | (6) | 104,066 | ||||||||||||||||||||||||||||
| — | 12,833 | (7) | — | 1.4300 | 3/4/2016 | — | — | ||||||||||||||||||||||||||||
| — | 16,133 | (8) | — | 7.9900 | 2/16/2017 | — | — | ||||||||||||||||||||||||||||
| 47,500 | — | — | 12.2200 | 3/25/2012 | — | — | |||||||||||||||||||||||||||||
| — | 16,100 | (9) | — | 14.8100 | 2/16/2021 | — | — | ||||||||||||||||||||||||||||
T.J. Kedrowski | — | — | — | — | — | 28,043 | (4) | 323,897 | |||||||||||||||||||||||||||
| — | — | — | — | — | 13,667 | (5) | 157,854 | ||||||||||||||||||||||||||||
| — | — | — | — | — | 9,010 | (6) | 104,066 | ||||||||||||||||||||||||||||
| 60,000 | — | — | 7.6750 | 9/9/2014 | — | — | |||||||||||||||||||||||||||||
| 31,200 | — | — | 6.7650 | 3/5/2015 | — | — | |||||||||||||||||||||||||||||
| 32,000 | 16,000 | (7) | — | 1.4300 | 3/4/2016 | — | — | ||||||||||||||||||||||||||||
| 8,067 | 16,133 | (8) | — | 7.9900 | 2/16/2017 | — | — | ||||||||||||||||||||||||||||
| — | 16,100 | (9) | — | 14.8100 | 2/16/2021 | — | — | ||||||||||||||||||||||||||||
| (1) | This column shows the fully vested and exercisable stock options and SARs held by the Named Executive Officers as of December 31, 2011. |
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| (2) | The RSUs and performance shares have dividend equivalent rights that entitle the grantee to dividend equivalents on each share of our common stock underlying the award equal to the dividend per share declared and paid on our issued and outstanding shares of common stock. This column includes all dividend equivalents declared in 2011 attributable to the awards (including the 4th quarter dividend declared on December 14, 2011, which was paid on January 9, 2012). |
| (3) | The market value is determined based on the closing market price of our common shares on the last trading day of the 2011 fiscal year, December 30, 2011 ($11.55). |
| (4) | Represents stock-settled performance shares that were granted on March 5, 2009 and vest upon the attainment of target prices (sustained for three consecutive trading dates) for our common shares as follows: 1/3 @ $1.57; 1/3 @ $1.72; and 1/3 @ $1.86. Vested Performance Shares will be released 3 years from the date of grant. The performance shares include shares deemed purchased with reinvested dividend equivalents that become subject to the same forfeiture conditions as the shares to which the dividends relate. |
| (5) | Represents stock-settled RSUs that were granted on February 17, 2010 and vest in full on the third anniversary of the grant date. The RSUs include shares deemed purchased with reinvested dividend equivalents that become subject to the same forfeiture conditions as the shares to which the dividends relate. |
| (6) | Represents stock-settled RSUs that were granted on February 16, 2011 and vest in full on the third anniversary of the grant date. The RSUs include shares deemed purchased with reinvested dividend equivalents that become subject to the same forfeiture conditions as the shares to which the dividends relate. |
| (7) | Represents stock-settled SARs granted on March 5, 2009 and vest upon the attainment of target prices (sustained for three consecutive trading dates) for our common shares as follows: 1/3 @ $1.57; 1/3 @ $1.72; and 1/3 @ $1.86. |
| (8) | These stock-settled SARs were granted on February 17, 2010 and vest one-third on each of the first three anniversaries of the date of grant. |
| (9) | These stock-settled SARs were granted on February 16, 2011 and vest one-third on each of the first three anniversaries of the date of grant. |
2011 OPTION EXERCISES AND STOCK VESTED
| Name | Option Awards | Stock Awards | ||||||||||||
Number of Shares (#) | Value Realized on ($) | Number of Shares Acquired on Vesting (#) | Value Realized ($) | |||||||||||
S.D. Newlin | 450,434 | $4,071,341 | 114,700 | $1,628,740 | ||||||||||
R.M. Patterson | — | — | 40,000 | 576,800 | ||||||||||
K.M. Smith | 18,600 | 47,151 | 12,600 | 178,920 | ||||||||||
B. Baert | 31,301 | 313,374 | 12,600 | 178,920 | ||||||||||
T.J. Kedrowski | — | — | 12,600 | 178,920 | ||||||||||
| (1) | Mr. Newlin exercised 450,434 SARs and received 170,418 shares, as the remaining shares were withheld to cover the cost of taxes and the exercise price. Mr. Baert exercised 31,301 SARs, and received 21,032 shares, as the remaining shares were withheld to cover the cost of taxes and the exercise price. Mr. Smith exercised 18,600 SARs and received 2,817 shares, as the remaining shares were withheld to cover the cost of taxes and the exercise price. |
| (2) | Represents the difference between the market price of our common shares at exercise and the base price of the SARs exercised. |
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2011 PENSION BENEFITS
| Name | Plan Name | Number of Years Credited Service (#) | Present Value of Accumulated Benefit ($) | Payments During Last ($) | |||||||||||||||||||||
S.D. Newlin | Supplemental retirement benefit under employment agreement | — | $5,917,311 | (1) | $0 | ||||||||||||||||||||
R.M. Patterson | N/A | — | — | — | |||||||||||||||||||||
K.M. Smith | PolyOne Merged Pension Plan | 17.4 | 552,088 | (2)(3) | 0 | ||||||||||||||||||||
The Geon Company Section 401(a)(17) Benefit Restoration Plan | 17.4 | 703,568 | (2)(4) | 0 | |||||||||||||||||||||
B. Baert | N/A | — | — | — | |||||||||||||||||||||
T.J. Kedrowski | N/A | — | — | — | |||||||||||||||||||||
| (1) | The Present Value of Accumulated Benefit shown above for Mr. Newlin is the lump-sum value as of December 31, 2011 of the annual benefit payment earned as of December 31, 2011 that will be payable under Mr. Newlin’s Amended and Restated Letter Agreement, dated as of July 16, 2008, providing for a 15-year certain and continuous life annuity beginning at age 58.9. Lump sum payments are not allowed under the arrangement. The assumptions used to determine the lump-sum value are a discount rate of 5.12% and a post-retirement mortality using the 2012 static annuitant table described in Internal Revenue Service Regulation §1.430(h)(3). |
| (2) | The Present Value of Accumulated Benefit shown above for each plan for Mr. Smith is the lump-sum value as of December 31, 2011 of the monthly pension benefit earned as of December 31, 2011 that would be payable under that plan for Mr. Smith’s life beginning at age 62 (the earliest age prior to the normal retirement age of 65 when benefits can commence unreduced for early retirement). Lump sum payments are not allowed under either plan. The assumptions used to determine the lump-sum value are a discount rate of 5.12% and a post-retirement mortality using the RP2012 static annuitant table described in Internal Revenue Service Regulation §1.430(h)(3). No pre-retirement decrements are assumed. |
| (3) | Mr. Smith’s Number of Years Credited Service includes four additional years of pension service discussed in the narrative following the 2011 Pension Benefits Table. Without the four additional years of pension service, the Present Value of Accumulated Benefit would have been $425,331 instead of the $552,088 shown in the table. Subsequent earnings under the qualified and nonqualified plan were frozen effective March 20, 2009. |
| (4) | Mr. Smith’s Number of Years Credited Service includes four additional years of pension service discussed in the narrative following the 2011 Pension Benefits Table. Without the four additional years of pension service, the Present Value of Accumulated Benefit would have been $542,032 instead of the $703,568 in the table. Subsequent earnings under the qualified and nonqualified plan were frozen effective March 20, 2009. |
We offer a defined contribution retirement benefit to all U.S. employees through the Qualified Savings Plan. The Qualified Savings Plan provides employees with individual retirement accounts funded by (1) an automatic Company-paidPolyOne-paid contribution of 2% of employee eligible earnings, for all employees,and (2) a Company-paidcompany-paid match on employee 401(k) contributions equal todollar-for-dollar on the first 3% of earnings the employee contributes plus $0.50 per dollar on the next 3% of earnings the employee contributes, and (3) for certain employees, an additional automatic company-paid contribution (Transition Contribution) of up to 4% of eligible earnings. Of the Named Executive Officers, only Messrs. Rosenau and Smith received this contribution in the amount of 3.25% and 4.0%, respectively. Effective March 20, 2009, the additional automatic company-paid contribution was eliminated for all participants.contributes. The Internal Revenue Code limits employee contributions to the Qualified Savings Plan to $16,500 and earnings upon which employee/company contributions are based to $245,000 in 2009.
The PolyOne Supplemental Retirement BenefitNonqualified Savings Plan (the “Nonqualified Savings Plan”) is an unfunded, nonqualified plan that provides benefits similar to the Qualified Savings Plan, but without the Internal Revenue Code contribution and earnings limitations. Together these plans are intended to provide the Named Executive Officers with retirement income equivalent to that provided to all other employees who are not impacted by the Internal Revenue Code limitations under the Qualified Savings Plan. As a result, the Named Executive Officers
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can expect a retirement income that replaces a portion of their income while employed, similar to that received by all other employees participating in the Qualified Savings Plan who are not impacted by the Internal Revenue Code limitations of the Qualified Savings Plan.
Mr. Baert is based outside the United States and does not participate in the Qualified Savings Plan or the Nonqualified Savings Plan. Mr. Baert relocated from our Belgium office to our Luxembourg office on September 1, 2009. Prior to that date, he participated in a standard defined contribution retirement benefit plan generally provided to all Belgium employees. Mr. Baert’s benefit in the Belgium pension plan is frozen and no further contributions will be made by us to this plan on his behalf. Due to the fact that he is over age 60 and has transferred to Luxembourg, the assets in this plan are now fully owned by Mr. Baert. Beginning September 1, 2009, Mr. Baert became a participant in the standard defined contribution retirement benefit plan provided to all Luxembourg employees. The plan provides employees with individual retirement accounts funded by (1) an automatic Company-paid contribution of 5% of base pay up to a salary limit ($136,558 for 2011), plus 15% of base pay in excess of the salary limit (€100,000 for 2009), and (2) employee contributions up to the limit of €12,500$1,554 annually.
Mr. Smith is eligible, along with certain other employees, to receive pension payments under the Qualified Pension Plan, as well as the Benefit Restoration Plan. In addition, since becoming retirement eligible (55 years of age with 10 years of service), Mr. Smith is eligible to receive certain retiree medical benefits for which he will be required to pay a substantial portion of the cost. This plan will be phased out until its elimination in 2013. These plans existed prior to our formation in 2000 through the consolidation of Geon and M.A. Hanna and generally benefited all nonunion employees of Geon.
The Benefit Restoration Plan provides benefits that are in addition to those offered under the Qualified Pension Plan. Benefits are calculated under a formula similar to that of the Qualified Pension Plan, but without the compensation and benefit limits imposed by the Internal Revenue Code. The benefits under the Benefit Restoration Plan are offset by benefits provided under the Qualified Pension Plan. The Qualified Pension Plan makes available a pension that is paid from funds in trust provided through contributions by us. Any pension benefit provided under the Benefit Restoration Plan is paid from our general assets.
The amount of Mr. Smith’s pension depends on a number of factors including monthly Final Average Earnings (“FAE”) and years of benefit service to us (“Benefit Service”). FAE is determined based on the highest four consecutive calendar years of an employee’s earnings. Earnings include salary, overtime pay, holiday pay, vacation pay, and certain incentive payments including annual cash bonuses, but exclude awards under long-term incentive programs and the match by us in the qualified savings plans. The Qualified Pension Plan provides a monthly lifetime benefit equal to 1.15% times FAE times Benefit Service plus 0.45% times FAE in excess of 2002 Covered Compensation (as defined by the Internal Revenue Code) times Benefit Service limited to 35 years.
A retirement-eligible employee can elect to commence vested benefit payments as early as age 55 in lieu of waiting to age 65. However, the benefit described above is subject to reduction in recognition of the additional payments that are received because of early commencement. The reduction for early retirement is determined differently depending on whether the employee terminated employment before or after attaining age 55. If an employee terminates employment on or after age 55 and commences his or her benefit before age 62, the benefit payments would be reduced by 0.5% per month. If an employee terminates employment before age 55 and commences his or her benefit before age 65, the reduction is more severe and is determined on an actuarially equivalent basis. No reduction
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will occur if an employee (1) terminates employment on or after age 55 and commences his or her benefit on or after age 62 or (2) terminates employment before age 55 and commences his or her benefit at age 65.
The normal form of payment provides that an employee will receive his or her benefit in a lifetime payment with a minimum of 60 monthly payments guaranteed. Married participants receive payments in an actuarially equivalent 50% joint and survivor form. Other actuarially equivalent monthly lifetime forms of payments are available if elected by the participant with spousal agreement if married. Lump sum payments are not available.
In general, if a married, vested participant dies prior to commencing his pension benefit then the spouse is eligible to receive the benefit that would have otherwise been payable had the participant terminated employment on the day he died, survived to his normal retirement date and elected a 50% joint and survivor form of payment and then immediately died. The 50% joint and survivor form provides the surviving spouse with monthly lifetime payments at the participant’s normal retirement age equal to 50% of the benefit that otherwise would have been payable. Payments can commence prior to the participant’s normal retirement age but may be reduced for early commencement.
The Qualified Pension Plan and Benefit Restoration Plan were frozen to new entrants effective December 31, 1999. Benefit Service was frozen effective December 31, 2002 in both plans and, effective March 20, 2009, earnings under both plans were frozen for all participants. We decided to freeze these plans following a comprehensive retirement benefits review, during which the Committee examined whether our retirement programs were consistent with PolyOne goals, including fairness to all associates and competitiveness in the marketplace. With this change, we have a single and competitive retirement plan for our U.S.-based employees.
Messrs. Patterson, Baert and Kedrowski do not participate in a defined benefit plan.
During 2008, the Committee reviewed the CEO’sMr. Newlin’s total compensation package among the peer companies and across the broader general industry. The Committee determined that it was in the
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as long-term incentive awards. In addition, he and his eligible dependents will have access to the same retiree medical benefits made available to all retirement eligible employees under our standard retiree medical benefit program, to the extent we continue to maintain such programs for the benefit of our retirees and their eligible dependents. Mr. Newlin will forfeit his rights to receive the supplemental retirement payments and retiree medical benefits if he engages in any conduct prohibited by his non-competition agreement or any acts that constitute fraud, embezzlement, andor disclosure of confidential information or deliberate dishonesty.
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| Name | Executive ($) | Registrant ($) | Aggregate ($) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last FYE(4)(5) ($) | |||||||||||||||
S.D. Newlin | $153,812 | $168,580 | $26,448 | — | $1,238,277 | |||||||||||||||
R.M. Patterson | 205,423 | 47,928 | (10,300) | — | 748,043 | |||||||||||||||
K.M. Smith | 27,047 | 31,251 | 4,173 | — | 453,154 | |||||||||||||||
B. Baert | — | — | — | — | — | |||||||||||||||
T.J. Kedrowski | 18,632 | 26,233 | (9,747) | — | 137,189 |
| (1) | ||
| Name | 2011 “Salary” ($) | 2011 “Non-Equity ($) | ||||||
S.D. Newlin | $48,230 | $105,582 | ||||||
R.M. Patterson | 80,385 | 125,038 | ||||||
K.M. Smith | 17,871 | 9,176 | ||||||
B. Baert | — | — | ||||||
T.J. Kedrowski | 14,488 | 4,144 |
| (2) | This column contains contributions by us in the last fiscal year under our nonqualified retirement plan, the PolyOne Supplemental Retirement Benefit Plan, which provides for benefits in excess of amounts permitted to be contributed under our qualified retirement plan, as follows: (a) our cash contributions in amounts equal to 100% on the first 3% of employee contributions plus 50% on the next 3% of employee contributions (the “Company Match”) limited to 4.5% of eligible earnings, and (b) a retirement contribution by us in an amount equal to 2% of eligible earnings (the “Retirement Contribution”). Mr. Baert does not currently participate in this plan or any other nonqualified deferred compensation plan. The following table breaks out the contributions made by us in 2011 under each of the types of contributions described above: |
| Company Contribution | Newlin | Patterson | Smith | Baert | Kedrowski | |||||||||||||||
Company Match | $ | 116,709 | $ | 33,181 | $ | 21,635 | — | $ | 17,081 | |||||||||||
Retirement Contribution | $ | 51,871 | $ | 14,747 | $ | 9,616 | — | $ | 9,153 | |||||||||||
All of these amounts are providedincluded in the footnotes to the “All Other Compensation” column inof the 2011 Summary Compensation Table.
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| (3) | Because amounts included in this column do not include above-market or preferential earnings, none of these amounts are included in the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column of the 2011 Summary Compensation Table. |
| (4) | A portion of the balance reflected in the table represents amounts earned by the executives, which they have elected to defer on a voluntary basis. Mr. Smith also has a balance in a frozen nonqualified deferred compensation plan sponsored by our predecessor company, Geon. The Geon Company Section 401(a)(17) Benefit Restoration Plan amounts are reflected in the table. |
| (5) | Includes amounts reported as compensation for the Named Executive Officers in the Summary Compensation Table for previous years. The following aggregate amounts of executive and company contributions were included in the Summary Compensation Table for fiscal years 2006 — 2010. |
| Name | Executive Contributions FY 2006 — 2010 ($) | Registrant Contributions FY 2006 — 2010 ($) | ||||||||||||||||||
S.D. Newlin | $397,778 | $435,310 | ||||||||||||||||||
R.M. Patterson | 335,001 | 76,722 | ||||||||||||||||||
K.M. Smith | 57,443 | 79,350 | ||||||||||||||||||
B. Baert | — | — | ||||||||||||||||||
T.J. Kedrowski | 16,308 | 23,121 | ||||||||||||||||||
We believecurrently offer participation in a nonqualified deferred compensation retirement plan, called the PolyOne Supplemental Retirement Benefit Plan. This plan is an unfunded, nonqualified plan that the perquisites we provide are consistent with market practices for senior executivesprovides benefits similar to our Qualified Savings Plan, but without Internal Revenue Code contribution and further our goals to attract and retain our leaders.
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The PolyOne Supplemental Retirement Benefit Plan and the frozen for 2009.
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POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL
Our Named Executive Officers’ employment may be terminated under several possible scenarios. In certain of these scenarios, our plans, agreements, arrangements or typical practices would provide severance benefits in excess of one million dollars, and which specifiesvarying amounts to the requirements for the “performance-based” exemption from this limit. The Committee generally manages our incentive programs to qualify for the performance-based exemption. It also reserves the right to provide compensation that doesexecutive. We do not meet the exemption criteria if, in its sole discretion, it determines that doing so advances our business objectives. We believe the compensation paid tohave employment agreements with our Named Executive Officers in 2009 is fully deductible.
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specified benefits upon their involuntarya termination of employment for reasonsfollowing a change of control, and each of our Named Executive Officers other than cause, death Messrs. Newlin and Baert participate in our Executive Severance Plan. Further, our plans, agreements and arrangements may provide for specified benefits upon a change of control (or for acceleration of such benefits). Severance and other benefits that are payable upon a termination of employment and/or disability.upon a change of control are described below. The plan details and estimatestable following the narrative discussion summarizes the amounts payable upon termination or a change of these payments are provided incontrol under certain circumstances, assuming that the “Potential Payments Upon Termination or Change-of-Control” section of this proxy statement. These severance benefits are contingent upon our receipt of a signed release of all claims against us and signed non-compete, non-solicitation and non-disparagement agreements.
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The Continuity Agreements do not provide any assurance of continued employment unless there is a change of control. Generally, a change of control will beis deemed to have occurred if (1) if:
any person becomes the beneficial owner of 25% or more of the combined voting power of our outstanding securities (subject to certain exceptions); (2)
there is a change in the majority of our Board of Directors; (3) Board;
certain corporate reorganizations occur where the existing shareholders do not retain more than 60% of the common shares and combined voting power of the outstanding voting securities of the surviving entity; or (4)
there is shareholder approval of a complete liquidation or dissolution of PolyOne.
In order to provide additional protection, in the event of a change of control, our equity awards and annual incentive provide for accelerated benefits in the event of a change of control. In addition, the terms of the performance units provide that in the event of a change of control, the participant is entitled to 100% of the performance units. In the event of a change of control and a termination of the executive’s employment by us without cause or by the executive for good reason (as defined in the agreements), the SARs remain exercisable for their full term. These change of control provisions affect all participants in those programs, including the Named Executive Officers.
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| Element | Newlin | Patterson | Rosenau | Smith | Baert | ||||||||||||
| Share Ownership Target (in shares) | 288,000 | 40,000 | 100,000 | 100,000 | 50,000 | ||||||||||||
| Total Share Ownership as of 3/15/10 | 644,800 | 211,500 | 125,717 | 133,774 | 84,066 | ||||||||||||
| Attainment Status | 223.9% | 528.8% | 125.7% | 133.8% | 168.1% | ||||||||||||
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| Change in | |||||||||||||||||||||||||||||||||||||||||||||
| Pension | |||||||||||||||||||||||||||||||||||||||||||||
| Non- | Value and | ||||||||||||||||||||||||||||||||||||||||||||
| Equity | Nonqualified | ||||||||||||||||||||||||||||||||||||||||||||
| Option/ | Incentive | Deferred | |||||||||||||||||||||||||||||||||||||||||||
| Stock | SAR | Plan | Compensation | All Other | |||||||||||||||||||||||||||||||||||||||||
| Name and | Salary | Bonus | Awards(2) | Awards(3) | Compensation(4) | Earnings | Compensation | Total | |||||||||||||||||||||||||||||||||||||
| Principal Position | Year | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ||||||||||||||||||||||||||||||||||||
| Stephen D. Newlin, | 2009 | $ | 860,000 | $ | — | $ | 312,547 | $ | 275,559 | $ | 1,720,000 | $ | 516,552 | (5) | $ | 138,847 | (7) | $ | 3,823,505 | ||||||||||||||||||||||||||
| Chairman, President & | 2008 | 831,731 | — | 771,931 | 648,168 | 1,044,150 | 4,341,255 | 135,106 | 7,772,341 | ||||||||||||||||||||||||||||||||||||
| Chief Executive Officer | 2007 | 741,635 | — | — | 839,876 | 1,482,066 | — | 208,069 | 3,271,646 | ||||||||||||||||||||||||||||||||||||
| Robert M. Patterson, Senior Vice President and | 2009 | 415,000 | — | 60,325 | 53,223 | 415,000 | — | 198,924 | (8) | 1,142,472 | |||||||||||||||||||||||||||||||||||
| Chief Financial Officer | 2008 | 255,385 | — | 307,200 | 160,800 | 107,568 | — | 85,109 | 916,062 | ||||||||||||||||||||||||||||||||||||
| Robert Rosenau, Senior Vice President, | 2009 | 335,000 | — | 35,179 | 31,042 | 314,398 | 142,521 | (6) | 64,014 | (9) | 922,154 | ||||||||||||||||||||||||||||||||||
| President of Performance Products and Solutions | |||||||||||||||||||||||||||||||||||||||||||||
| Kenneth M. Smith, | 2009 | 336,000 | — | 35,179 | 31,042 | 336,000 | 121,177 | (6) | 61,563 | (10) | 920,961 | ||||||||||||||||||||||||||||||||||
| Senior Vice President, | 2008 | 333,308 | — | 84,798 | 70,512 | 210,289 | 156,297 | 69,065 | 924,269 | ||||||||||||||||||||||||||||||||||||
| Chief Information and Chief Human Resources Officer | 2007 | 323,712 | — | — | 159,315 | 149,053 | 189,074 | 76,485 | 897,639 | ||||||||||||||||||||||||||||||||||||
| Bernard P. Baert, | 2009 | 424,953 | — | 28,194 | 24,898 | 283,974 | — | 78,259 | (11) | 840,278 | |||||||||||||||||||||||||||||||||||
| Senior Vice President, President of Europe and | 2008 | 415,441 | — | 84,798 | 70,512 | 121,564 | — | 84,388 | 776,703 | ||||||||||||||||||||||||||||||||||||
International(1) | 2007 | 421,668 | — | — | 144,609 | 166,263 | — | 86,727 | 819,267 | ||||||||||||||||||||||||||||||||||||
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| Estimated Future Payouts Under | Estimated Future Payouts Under | |||||||||||||||||||||||||||||||||||||||||||||||
| Non-Equity Incentive Plan Awards(2) | Equity Incentive Plan Awards(4) | |||||||||||||||||||||||||||||||||||||||||||||||
| Exercise or | Closing | Grant Date | ||||||||||||||||||||||||||||||||||||||||||||||
| Base Price | Market | Fair Value | ||||||||||||||||||||||||||||||||||||||||||||||
| of Option/ | Price on | of Stock and | ||||||||||||||||||||||||||||||||||||||||||||||
| Grant | Threshold(3) | Target | Maximum | Thershold | Target | Maximum | Awards(5) | Grant | Option/ SAR | |||||||||||||||||||||||||||||||||||||||
| Name | Date | ($) | ($) | ($) | (#) | (#) | (#) | ($/Sh) | Date | Awards(6) | ||||||||||||||||||||||||||||||||||||||
| S.D. Newlin | (1) | 258,000 | 860,000 | 1,720,000 | ||||||||||||||||||||||||||||||||||||||||||||
| 3/5/2009 | 309,600 | 1,032,000 | 2,064,000 | |||||||||||||||||||||||||||||||||||||||||||||
| 3/5/2009 | — | 426,100 | — | 1.43 | 1.43 | 275,559 | ||||||||||||||||||||||||||||||||||||||||||
| 3/5/2009 | — | 246,100 | — | 312,547 | ||||||||||||||||||||||||||||||||||||||||||||
| R.M. Patterson | (1) | 62,250 | 207,500 | 415,000 | ||||||||||||||||||||||||||||||||||||||||||||
| 3/5/2009 | 59,760 | 199,200 | 398,400 | |||||||||||||||||||||||||||||||||||||||||||||
| 3/5/2009 | — | 82,300 | — | 1.43 | 1.43 | 53,223 | ||||||||||||||||||||||||||||||||||||||||||
| 3/5/2009 | — | 47,500 | — | 60,325 | ||||||||||||||||||||||||||||||||||||||||||||
| R.M. Rosenau | (1) | 50,250 | 167,500 | 335,000 | ||||||||||||||||||||||||||||||||||||||||||||
| 3/5/2009 | 36,180 | 120,600 | 241,200 | |||||||||||||||||||||||||||||||||||||||||||||
| 3/5/2009 | — | 48,000 | — | 1.43 | 1.43 | 31,042 | ||||||||||||||||||||||||||||||||||||||||||
| 3/5/2009 | — | 27,700 | — | 35,179 | ||||||||||||||||||||||||||||||||||||||||||||
| K.M. Smith | (1) | 50,400 | 168,000 | 336,000 | ||||||||||||||||||||||||||||||||||||||||||||
| 3/5/2009 | 36,300 | 121,000 | 242,000 | |||||||||||||||||||||||||||||||||||||||||||||
| 3/5/2009 | — | 48,000 | — | 1.43 | 1.43 | 31,042 | ||||||||||||||||||||||||||||||||||||||||||
| 3/5/2009 | — | 27,700 | — | 35,179 | ||||||||||||||||||||||||||||||||||||||||||||
| B. Baert | (1) | 63,743 | 212,476 | 424,953 | ||||||||||||||||||||||||||||||||||||||||||||
| 3/5/2009 | 45,150 | 150,500 | 301,000 | |||||||||||||||||||||||||||||||||||||||||||||
| 3/5/2009 | — | 38,500 | — | 1.43 | 1.43 | 24,898 | ||||||||||||||||||||||||||||||||||||||||||
| 3/5/2009 | — | 22,200 | — | 28,194 | ||||||||||||||||||||||||||||||||||||||||||||
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| Option/SAR Awards | Stock Awards | ||||||||||||||||||||||||||||||||||
| Equity | |||||||||||||||||||||||||||||||||||
| Incentive Plan | |||||||||||||||||||||||||||||||||||
| Number of | Number of | Awards: Number of | |||||||||||||||||||||||||||||||||
| Securities | Securities | Securities | Market Value | ||||||||||||||||||||||||||||||||
| Underlying | Underlying | Underlying | Number of Shares | of Shares or | |||||||||||||||||||||||||||||||
| Unexercised | Unexercised | Unexercised | Option | or Units of Stock | Units of Stock | ||||||||||||||||||||||||||||||
| Options | Options | Unearned | Exercise | Option | That Have Not | That Have Not | |||||||||||||||||||||||||||||
| Exercisable(1) | Unexercisable | Options | Price | Expiration | Vested | Vested(2) | |||||||||||||||||||||||||||||
| Name | (#) | (#) | (#) | ($) | Date | (#) | ($) | ||||||||||||||||||||||||||||
| S.D. Newlin | 114,700 | (3) | 856,809 | ||||||||||||||||||||||||||||||||
| 246,100 | (4) | 1,838,367 | |||||||||||||||||||||||||||||||||
| 116,600 | (5) | 58,300 | (5) | 9.1850 | 2/20/2013 | ||||||||||||||||||||||||||||||
| 308,400 | (6) | 6.5850 | 3/7/2014 | ||||||||||||||||||||||||||||||||
| 95,600 | (7) | 191,200 | (7) | 6.7650 | 3/5/2015 | ||||||||||||||||||||||||||||||
| 426,100 | (8) | 1.4300 | 3/4/2016 | ||||||||||||||||||||||||||||||||
| R.M. Patterson | 40,000 | (3) | 298,800 | ||||||||||||||||||||||||||||||||
| 47,500 | (4) | 354,825 | |||||||||||||||||||||||||||||||||
| 20,000 | (7) | 40,000 | (7) | 7.7200 | 5/14/2015 | ||||||||||||||||||||||||||||||
| 82,300 | (8) | 1.4300 | 3/4/2016 | ||||||||||||||||||||||||||||||||
| R.M. Rosenau | 12,600 | (3) | 94,122 | ||||||||||||||||||||||||||||||||
| 27,700 | (4) | 206,919 | |||||||||||||||||||||||||||||||||
| 14,400 | (9) | 8.9400 | 1/4/2012 | ||||||||||||||||||||||||||||||||
| 23,800 | (5) | 11,900 | (5) | 6.5100 | 1/3/2013 | ||||||||||||||||||||||||||||||
| 55,200 | (6) | 6.5850 | 3/7/2014 | ||||||||||||||||||||||||||||||||
| 10,400 | (7) | 20,800 | (7) | 6.7650 | 3/5/2015 | ||||||||||||||||||||||||||||||
| 48,000 | (8) | 1.4300 | 3/4/2016 | ||||||||||||||||||||||||||||||||
| 200 | 9.0000 | 9/4/2010 | |||||||||||||||||||||||||||||||||
| 6,900 | 8.7000 | 2/27/2011 | |||||||||||||||||||||||||||||||||
| 6,900 | 12.2200 | 3/25/2012 | |||||||||||||||||||||||||||||||||
| 5,372 | 6.0000 | 3/31/2013 | |||||||||||||||||||||||||||||||||
| K.M. Smith | 12,600 | (3) | 94,122 | ||||||||||||||||||||||||||||||||
| 27,700 | (4) | 206,919 | |||||||||||||||||||||||||||||||||
| 18,600 | (9) | 8.9400 | 1/4/2012 | ||||||||||||||||||||||||||||||||
| 29,800 | (5) | 14,900 | (5) | 6.5100 | 1/3/2013 | ||||||||||||||||||||||||||||||
| 58,500 | (6) | 6.5850 | 3/7/2014 | ||||||||||||||||||||||||||||||||
| 10,400 | (7) | 20,800 | (7) | 6.7650 | 3/5/2015 | ||||||||||||||||||||||||||||||
| 48,000 | (8) | 1.4300 | 3/4/2016 | ||||||||||||||||||||||||||||||||
| 200 | 9.0000 | 9/4/2010 | |||||||||||||||||||||||||||||||||
| 42,700 | 8.7000 | 2/27/2011 | |||||||||||||||||||||||||||||||||
| 49,500 | 12.2200 | 3/25/2012 | |||||||||||||||||||||||||||||||||
| 39,100 | 6.0000 | 3/31/2013 | |||||||||||||||||||||||||||||||||
42
| Option/SAR Awards | Stock Awards | ||||||||||||||||||||||||||||||||||
| Equity | |||||||||||||||||||||||||||||||||||
| Incentive Plan | |||||||||||||||||||||||||||||||||||
| Number of | Number of | Awards: Number of | |||||||||||||||||||||||||||||||||
| Securities | Securities | Securities | Market Value | ||||||||||||||||||||||||||||||||
| Underlying | Underlying | Underlying | Number of Shares | of Shares or | |||||||||||||||||||||||||||||||
| Unexercised | Unexercised | Unexercised | Option | or Units of Stock | Units of Stock | ||||||||||||||||||||||||||||||
| Options | Options | Unearned | Exercise | Option | That Have Not | That Have Not | |||||||||||||||||||||||||||||
| Exercisable(1) | Unexercisable | Options | Price | Expiration | Vested | Vested(2) | |||||||||||||||||||||||||||||
| Name | (#) | (#) | (#) | ($) | Date | (#) | ($) | ||||||||||||||||||||||||||||
| B. Baert | 12,600 | (3) | 94,122 | ||||||||||||||||||||||||||||||||
| 22,200 | (4) | 165,834 | |||||||||||||||||||||||||||||||||
| 18,600 | (9) | 8.9400 | 1/4/2012 | ||||||||||||||||||||||||||||||||
| 25,000 | (5) | 12,500 | (5) | 6.5100 | 1/3/2013 | ||||||||||||||||||||||||||||||
| 53,100 | (6) | 6.5850 | 3/7/2014 | ||||||||||||||||||||||||||||||||
| 10,400 | (7) | 20,800 | (7) | 6.7650 | 3/5/2015 | ||||||||||||||||||||||||||||||
| 38,500 | (8) | 1.4300 | 3/4/2016 | ||||||||||||||||||||||||||||||||
| 200 | 9.0000 | 9/4/2010 | |||||||||||||||||||||||||||||||||
| 41,000 | 8.7000 | 2/27/2011 | |||||||||||||||||||||||||||||||||
| 47,500 | 12.2200 | 3/25/2012 | |||||||||||||||||||||||||||||||||
43
| Option Awards | Stock Awards | |||||||||||||||||
| Number of Shares | ||||||||||||||||||
| Acquired on | Value Realized on | Number of Shares | Value Realized | |||||||||||||||
| Exercise | Exercise | Acquired on Vesting(1) | on Vesting(2) | |||||||||||||||
| Name | (#) | ($) | (#) | ($) | ||||||||||||||
| S.D. Newlin | — | — | 134,600 | $300,158 | ||||||||||||||
| R.M. Patterson | — | — | — | — | ||||||||||||||
| R.M. Rosenau | — | — | — | — | ||||||||||||||
| K.M. Smith | — | — | — | — | ||||||||||||||
| B. Baert | — | — | — | — | ||||||||||||||
| Number of Years | Present Value of | Payments During Last | ||||||||||||||
| Credited Service | Accumulated Benefit | Fiscal Year | ||||||||||||||
| Name | Plan Name | (#) | ($) | ($) | ||||||||||||
| S.D. Newlin | Supplemental Retirement benefit under Letter Agreement | — | $ | 4,857,807 | (1) | 0 | ||||||||||
| R.M. Patterson | N/A | — | — | — | ||||||||||||
| R.M. Rosenau | PolyOne Merged Pension Plan | 26.0 | 662,707 | (2) | 0 | |||||||||||
| The Geon Company Section 401(a)(17) Benefit Restoration Plan | 26.0 | 498,720 | (2) | 0 | ||||||||||||
| K.M. Smith | PolyOne Merged Pension Plan | 17.4 | 424,954 | (2)(3) | 0 | |||||||||||
| The Geon Company Section 401(a)(17) Benefit Restoration Plan | 17.4 | 541,552 | (2)(4) | 0 | ||||||||||||
| B. Baert | N/A | — | — | — | ||||||||||||
44
45
46
| Aggregate | |||||||||||||||||||||||||
| Executive | Registrant | Earnings | Aggregate | ||||||||||||||||||||||
| Contributions | Contributions in | in Last | Withdrawals/ | Aggregate Balance | |||||||||||||||||||||
| in Last FY(1) | Last FY(2) | FY(3) | Distributions | at Last FY(4) | |||||||||||||||||||||
| ($) | ($) | ($) | ($) | ($) | |||||||||||||||||||||
| S.D. Newlin | $ | 77,139 | $ | 84,167 | $ | 15,283 | $ | — | $ | 580,777 | |||||||||||||||
| R.M. Patterson | 103,385 | 26,097 | 43,063 | — | 214,084 | ||||||||||||||||||||
| R.M. Rosenau | — | 4,905 | 2,254 | — | 67,894 | ||||||||||||||||||||
| K.M. Smith | 12,083 | 13,690 | 48,954 | — | 282,812 | ||||||||||||||||||||
| B. Baert | — | — | — | — | — | ||||||||||||||||||||
| 2008 “Non-Equity | ||||||||||
| Incentive Plan | ||||||||||
| 2009 “Salary” | Compensation” | |||||||||
| Name | Column | Column | ||||||||
| S.D. Newlin | $ | 41,677 | $ | 35,462 | ||||||
| R.M. Patterson | 83,798 | 19,587 | ||||||||
| R.M. Rosenau | — | — | ||||||||
| K.M. Smith | 12,083 | — | ||||||||
| B. Baert | — | — | ||||||||
| Company Contribution | Newlin | Patterson | Rosenau | Smith | Baert | ||||||||||||||||||||
| Company Match | 57,854 | 20,546 | — | 9,062 | — | ||||||||||||||||||||
| Retirement Contribution | 26,313 | 5,551 | 4,905 | 4,628 | — | ||||||||||||||||||||
47
48
a lump sum payment of two or three years of base salary, depending on the executive;
a payment of up to two or three times (depending on the executive) the executive’s targeted annual incentive amount in effect prior to the change of control;
51 employee health and welfare benefits for up to two or three years (depending on the executive) at active employee rates; a financial planning/tax preparation allowance equal to the annual financial planning/tax preparation allowance the executive was entitled to receive prior to the change of control; a lump sum payment equal to the company contributions required to be made to certain retirement plans on behalf | ||
a tax gross-up for any excise tax due under the Internal Revenue Code for any so-called “golden parachute” payments made under the agreements.
In 2011, the Committee eliminated the tax gross-up benefit for so called “excess parachute payments” under Section 409A280G of the Internal Revenue Code.
Under the terms of the Continuity Agreements, “cause” is defined generally to include: (1) following notice and an opportunity to cure, the willful and continued failure of the executive to substantially perform his duties, which causes material and demonstrable injury to the company; or (2) the willful engaging by the executive in other gross misconduct materially and demonstrably injurious to the company.
Further, under the terms of the Continuity Agreements, “good reason” is defined generally to include:
changes in duties, responsibilities, reporting relationships and status that constitute a material demotion; |
49
a reduction in base salary or target incentive;
the failure to continue employee benefits or perquisites on a substantially equivalent basis;
the requirement to change the principal location of the executive’s work, which results in an additional commute of more than 50 miles;
the requirement for increased travel (one-third more) away from the executive’s office;
the failure of a successor to assume the Continuity Agreement; or
a termination of employment that does not comply with the Continuity Agreement.
For the Chief Executive Officer, “good reason” also includes his election to terminate employment for any reason during the30-day period immediately following the first anniversary of the change of control.
To the extent a payment or benefit that is paid or provided under a Continuity Agreement would also be paid or provided under the terms of another plan, program, agreement, arrangement or legal requirement, the executive would be entitled to payment under the Continuity Agreement or such other applicable plan, program, agreement, arrangement or legal requirement, whichever provides for greater benefits, but would not be entitled to benefits under both the Continuity Agreement and such other plan, program, agreement, arrangement or legal requirement.
52
In addition, in order to receive payment and benefits under the Continuity Agreement, the Named Executive Officer must execute a release of claims against us and is subject tocomply with confidentiality, non-compete and non-solicitation covenants for two or three years (depending on the executive).
Employment Agreement with Mr. Newlin
We have entered into a letteran employment agreement with Stephen D.Mr. Newlin, pursuant to which Mr. Newlin agreed to servehe serves as our Chairman, President and Chief Executive Officer. The agreement provides that if (i)(1) Mr. Newlin’s employment is terminated by us without serious causeSerious Cause (as defined in our Employee Transition Plan), (ii)(2) Mr. Newlin is not otherwise entitled to receive benefits under his Continuity Agreement (discussed above) and (iii)(3) Mr. Newlin agrees to standard non-compete and non-solicitation covenants for a period of 36 months following the date of termination and executes a release of claims against us, Mr. Newlin will be entitled to 36 months of salary continuation car allowance and financial planning/tax preparation allowance,specified benefits, a pro-rated annual incentive amount as earned for the year in which the termination of employment occurs and reimbursement for the costs previously paid by us while Mr. Newlin was employed for the continued coverage for 24 months in our medical and dental plans (but not life insurance, short-term disability or long-term disability), plus any taxes imposed as a result of such reimbursement.
Mr. Newlin is also entitled to supplemental retirement benefits under his Letter Agreementemployment agreement if his employment is involuntarily terminated other than for Serious Cause or if Mr. Newlin terminates employment for “Good Reason”“good reason” (as defined above) following a change of control. For this purpose, Serious Cause has the meaning ascribed to such term in the PolyOne Employee Transition Plan as amended from time to time, and also includes any breach of the Letter Agreementemployment agreement or certain other agreements between us and Mr. Newlin. These supplemental retirement benefits are described more
50
Employment Agreement with Mr. Baert
Our wholly-owned subsidiary, PolyOne Luxembourg, has entered into an Undetermined Time Employment Contract with Mr. Baert, in connection with the change in location of our European headquarters from Belgium to Luxembourg. There is no specified employment term under this agreement. PolyOne Luxembourg may terminate the agreement withwithin the legal notice period required by the Luxembourg Labor Code or immediately for gross misconduct. If PolyOne Luxembourg terminates the agreement for any reason other than gross misconduct, Mr. Baert will be entitled to a severance package based on the Luxembourg Labor Code, provided that the amount of such severance package shallwill not be less than the amount that Mr. Baert would have received under the formula provided under his former employment with our Belgian subsidiary. Presently, taking into account Mr. Baert’s level of remuneration, seniority and age, if the agreement were terminated by PolyOne Luxembourg for any reason other than gross misconduct, Mr. Baert would be entitled to receive an amount equal to 2730 months of “remuneration” (defined as Mr. Baert’s average base salary, incentives and bonuses over the last 36 months plus the value of the use of a company car, meal vouchers, PolyOne Luxembourg’s contribution to the defined contribution pension plan and all other regular payments or benefits granted by his employer). The agreement specifically provides that Mr. Baert is not entitled to any severance benefits other than those provided by law or under the agreement and that the Executive Severance Plan does not apply to him. The specific amounts payable to Mr. Baert under his agreement are summarized in the tables following this narrative discussion.
53
Executive Severance Plan
Effective May 25, 2006, our Compensation and Governancethe Committee approved the adoption ofadopted the Executive Severance Plan. The Executive Severance Plan provides for severance payments upon certain terminations of employment to our executive officers and other elected officers upon certain terminationswho are expected to make substantial contributions to our success and thereby provide for stability and continuity of employment.
The Executive Severance Plan provides that if we terminate the employment of a Named Executive Officer for any reason other than cause, the Named Executive Officer will be entitled to receive:
salary continuation payments in an amount equal to two times the Named Executive Officer’s base salary;
a pro rata payment of his annual bonus for the year of termination;
reimbursement for the costs previously paid by us for continued coverage for two years in our medical, dental and vision plans plus any taxes imposed as a result of such reimbursement; and
fees for outplacement benefits for a period of 12 months.
We do not have to make payments to any Named Executive Officer under the Executive Severance Plan if he is entitled to receive payment under a Continuity Agreement discussed above. In addition, in order to receive payment and benefitspayments under the Executive Severance Plan, the Named Executive Officer must execute a release of claims against us and is subject to confidentiality, non-compete, non-solicitation and non-disparagement covenants during the two-year severance period.
51
The Annual Plan provides opportunities to our key executives to receive incentive compensation as a reward for high levels of performance above the ordinary performance standards compensated by base salary, without limiting our ability to deduct that expenditure for federal income tax purposes. Currently, all of our Named Executive Officers participate in the Annual Plan. The Annual Plan provides that, if a change of control occurs, we are required to pay each participant an interima pro-rated lump-sum cash payment equal to the product of the number of months that have elapsed in the calendar year prior to the change of control and one-twelfth of the participant’s target annual incentive award in effect prior to the change of control. We have the obligation to make a final payment under the terms of the Annual Plan for the plan year in which the change of control occurs, but may offset the amount of any interim payment made.
Under the Annual Plan, a change of control is deemed to have occurred if:
any person becomes the beneficial owner of 20% or more of the combined voting power of our outstanding securities (subject to certain exceptions);
there is a change in the majority of our Board of Directors;
certain corporate reorganizations occur where the existing shareholders do not retain more than 60% of the common shares and combined voting power of the outstanding voting securities of the surviving entity; or
there is shareholder approval of a complete liquidation or dissolution of PolyOne.
54
Equity/Long-Term Incentive Awards
Each of the agreements evidencing outstanding awards of restricted stock, stock options, stock appreciation rightsSARs and performance units provides that the vesting of such award will accelerate upon a change of control. For this purpose a “change of control” is defined, in some instances, the same as in the Annual Plan and, in other instances, the same as in the Continuity Agreements.
Retirement Benefits
Our defined benefit retirement benefit plans applicable to Messrs. Rosenau andMr. Smith also have provisions relating to the termination of the participants’ employment with us. Mr. Newlin’s supplemental retirement benefit under his Letter Agreementemployment agreement also has provisions relating to the termination of his employment with us. These payments are described more fully in the disclosure provided in connection with the 20092011 Pension Benefits tableTable contained in this proxy statement.
55
Payments and Benefits Upon Termination — As of the End of Fiscal Year 20092011
The following tables summarizetable summarizes the amounts payable to the Named Executive Officers upon termination under specified circumstances or upon a change of control. The data in the tables assumes that each triggering event listed in the tables occurred on December 31, 200930, 2011 and that the stock price for our common shares is $7.47,$11.55, the closing sales price of our common shares on December 31, 2009.
52
Name | Benefits and Payments | Voluntary Termination or Retirement(1) ($) | Disability ($) | Death ($) | Involuntary Termination with Cause ($) | Involuntary Termination without Cause ($) | Involuntary ($) | |||||||||||||||||||
Stephen D. Newlin | ||||||||||||||||||||||||||
| Cash Severance Benefit(2) | 0 | 0 | 0 | 0 | 2,850,000 | 5,985,000 | ||||||||||||||||||||
| Annual Incentive for Year of Termination(3) | 0 | 0 | 0 | 0 | 2,024,859 | 2,024,859 | ||||||||||||||||||||
| Cash-Settled Performance Units(4) | 2,506,929 | 2,506,929 | 2,506,929 | 0 | 2,506,929 | 3,394,000 | ||||||||||||||||||||
| Restricted Stock Units(5) | 1,176,783 | 3,886,294 | 3,886,294 | 0 | 3,886,294 | 5,308,715 | ||||||||||||||||||||
| Unexercisable Stock Options/SARs(5) | 224,469 | 1,579,148 | 1,579,148 | 0 | 1,579,148 | 1,955,001 | ||||||||||||||||||||
| Health and Welfare Benefits(6) | 0 | 0 | 0 | 0 | 31,801 | 47,700 | ||||||||||||||||||||
| Other Benefits(7) | 0 | 0 | 0 | 0 | 72,000 | 0 | ||||||||||||||||||||
| Financial Planning Services(8) | 0 | 0 | 0 | 0 | 39,000 | 13,000 | ||||||||||||||||||||
| Lump Sum for Defined Contribution Plans(9) | 0 | 0 | 0 | 0 | 0 | 389,030 | ||||||||||||||||||||
| Excise Tax Gross-up(10)(11) | 0 | 0 | 0 | 0 | 0 | 3,354,559 | ||||||||||||||||||||
| Incremental Pension Benefit(12) | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||
Robert M. Patterson | ||||||||||||||||||||||||||
| Cash Severance Benefit(2) | 0 | 0 | 0 | 0 | 950,000 | 2,351,250 | ||||||||||||||||||||
| Annual Incentive for Year of Termination(3) | 0 | 0 | 0 | 0 | 598,254 | 598,254 | ||||||||||||||||||||
| Cash-Settled Performance Units(4) | 0 | 483,822 | 483,822 | 0 | 0 | 654,900 | ||||||||||||||||||||
| Restricted Stock Units(5) | 0 | 754,472 | 754,472 | 0 | 0 | 1,031,336 | ||||||||||||||||||||
| Unexercisable Stock Options/SARs(5) | 0 | 305,908 | 305,908 | 0 | 0 | 379,679 | ||||||||||||||||||||
| Health and Welfare Benefits(6) | 0 | 0 | 0 | 0 | 48,237 | 72,360 | ||||||||||||||||||||
| Financial Planning Services(8) | 0 | 0 | 0 | 0 | 0 | 10,000 | ||||||||||||||||||||
| Outplacement Benefits(13) | 0 | 0 | 0 | 0 | 8,700 | 0 | ||||||||||||||||||||
| Lump Sum for Defined Contribution Plans(9) | 0 | 0 | 0 | 0 | 0 | 152,830 | ||||||||||||||||||||
| Excise Tax Gross-up(10) | 0 | 0 | 0 | 0 | 0 | 1,318,280 | ||||||||||||||||||||
| Incremental Pension Benefit(12) | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||
Kenneth M. Smith | ||||||||||||||||||||||||||
| Cash Severance Benefit(2) | 0 | 0 | 0 | 0 | 710,000 | 1,650,750 | ||||||||||||||||||||
| Annual Incentive for Year of Termination(3) | 0 | 0 | 0 | 0 | 375,187 | 375,187 | ||||||||||||||||||||
| Cash-Settled Performance Units(4) | 287,825 | 287,825 | 287,825 | 0 | 287,825 | 379,600 | ||||||||||||||||||||
| Restricted Stock Units(5) | 433,508 | 433,508 | 433,508 | 0 | 433,508 | 585,816 | ||||||||||||||||||||
| Unexercisable Stock Options/SARs(5) | 177,510 | 177,510 | 177,510 | 0 | 177,510 | 219,352 | ||||||||||||||||||||
| Health and Welfare Benefits(6) | 0 | 0 | 0 | 0 | 30,091 | 45,144 | ||||||||||||||||||||
| Financial Planning Services(8) | 0 | 0 | 0 | 0 | 0 | 10,000 | ||||||||||||||||||||
| Outplacement Benefits(13) | 0 | 0 | 0 | 0 | 8,700 | 0 | ||||||||||||||||||||
| Lump Sum for Defined Contribution Plans(9) | 0 | 0 | 0 | 0 | 0 | 107,300 | ||||||||||||||||||||
| Excise Tax Gross-up(10) | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||
| Incremental Pension Benefit(12) | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||
56
Name | Benefits and Payments | Voluntary Termination or Retirement(1) ($) | Disability ($) | Death ($) | Involuntary Termination with Cause ($) | Involuntary Termination without Cause ($) | Involuntary ($) | |||||||||||||||||||
Bernard Baert(14) | ||||||||||||||||||||||||||
| Cash Severance Benefit(2) | 0 | 0 | 0 | 0 | 804,034 | 1,206,052 | ||||||||||||||||||||
| Luxembourg Severance(15) | 0 | 0 | 0 | 0 | 1,405,022 | 1,405,022 | ||||||||||||||||||||
| Annual Incentive for Year of Termination(3) | 0 | 0 | 0 | 0 | 269,711 | 269,711 | ||||||||||||||||||||
| Cash-Settled Performance Units(4) | 349,509 | 349,509 | 349,509 | 0 | 349,509 | 456,673 | ||||||||||||||||||||
| Restricted Stock Units(5) | 372,957 | 372,957 | 372,957 | 0 | 372,957 | 521,506 | ||||||||||||||||||||
| Unexercisable Stock Options/SARs(5) | 147,307 | 147,307 | 147,307 | 0 | 147,307 | 187,306 | ||||||||||||||||||||
| Health and Welfare Benefits(6) | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||
| Financial Planning Services(8) | 0 | 0 | 0 | 0 | 0 | 8,000 | ||||||||||||||||||||
| Outplacement Benefits(13) | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||
| Lump Sum for Defined Contribution Plans(9) | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||
| Excise Tax Gross-up(10) | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||
| Incremental Pension Benefit(12) | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||
Thomas J. Kedrowski | ||||||||||||||||||||||||||
| Cash Severance Benefit(2) | 0 | 0 | 0 | 0 | 692,000 | 1,608,900 | ||||||||||||||||||||
| Annual Incentive for Year of Termination(3) | 0 | 0 | 0 | 0 | 364,738 | 364,738 | ||||||||||||||||||||
| Cash-Settled Performance Units(4) | 0 | 276,359 | 276,359 | 0 | 0 | 365,200 | ||||||||||||||||||||
| Restricted Stock Units(5) | 0 | 433,508 | 433,508 | 0 | 0 | 585,816 | ||||||||||||||||||||
| Unexercisable Stock Options/SARs(5) | 0 | 177,510 | 177,510 | 0 | 219,352 | |||||||||||||||||||||
| Health and Welfare Benefits(6) | 0 | 0 | 0 | 0 | 30,091 | 45,144 | ||||||||||||||||||||
| Financial Planning Services(8) | 0 | 0 | 0 | 0 | 0 | 10,000 | ||||||||||||||||||||
| Outplacement Benefits(13) | 0 | 0 | 0 | 0 | 8,700 | 0 | ||||||||||||||||||||
| Lump Sum for Defined Contribution Plans(9) | 0 | 0 | 0 | 0 | 0 | 104,580 | ||||||||||||||||||||
| Excise Tax Gross-up(10) | 0 | 0 | 0 | 0 | 0 | 816,327 | ||||||||||||||||||||
| Incremental Pension Benefit(12) | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||
| Voluntary | |||||||||||||||||||||||||
| Termination or | Involuntary | ||||||||||||||||||||||||
| Retirement(1) | Involuntary | Termination | |||||||||||||||||||||||
| (No COC; or, | Termination | Involuntary | without Cause or | ||||||||||||||||||||||
| Following a COC, | with Cause | Termination | for Good Reason | ||||||||||||||||||||||
| without Good | (Including | without Cause | (Following a | ||||||||||||||||||||||
| Reason) | Following a COC) | Death/Disability | (No COC) | COC) | |||||||||||||||||||||
| ($) | ($) | ($) | ($) | ($) | |||||||||||||||||||||
| Cash Severance Benefit (salary continuation and multiple of annual incentive payments) | $ | — | $ | — | $ | — | $ | 2,580,000 | $ | 5,160,000 | |||||||||||||||
| Annual Incentive for Year of Termination | — | — | — | 1,720,000 | 1,720,000 | ||||||||||||||||||||
| Cash LTIP-Vesting of Performance Units | — | — | 1,257,249 | (2) | 1,257,249 | 3,109,100 | |||||||||||||||||||
| Equity Awards | |||||||||||||||||||||||||
| - Restricted Stock Units/Performance Shares(3) | — | — | 1,028,148 | 1,028,148 | 2,695,176 | ||||||||||||||||||||
| - Unexercisable Stock Options/SARs(3) | — | — | 777,207 | 777,207 | 2,708,440 | ||||||||||||||||||||
| Other Benefits | |||||||||||||||||||||||||
| - Continuation of Medical, Dental and Vision Benefits including taxgross-up | — | — | — | 43,508 | 65,268 | ||||||||||||||||||||
| - Continuation of Other Benefits (car allowance; other welfare benefits) | — | — | — | 45,693 | 15,231 | ||||||||||||||||||||
| - Financial Planning Services | — | — | — | 39,000 | 13,000 | ||||||||||||||||||||
| - Outplacement Benefits | — | — | — | — | — | ||||||||||||||||||||
| - Additional Company Contribution for Defined Contribution Plans Under the Management Continuity Agreement | — | — | — | — | 335,400 | ||||||||||||||||||||
| Excise Tax Gross Up(4) | — | — | — | — | 4,894,869 | ||||||||||||||||||||
| SUB-TOTAL (Benefits Triggered Upon a Termination of Employment) | — | — | 3,062,604 | 7,490,805 | 20,716,484 | ||||||||||||||||||||
| PLAN BALANCES/VESTED BENEFITS | |||||||||||||||||||||||||
| Defined Contribution Plan(s) Balances (includes the Retirement Savings Plan and the Supplemental Retirement Benefit Plan)(5) | 714,457 | 714,457 | 714,457 | 714,457 | 714,457 | ||||||||||||||||||||
| Present Value of Accrued Pension | 3,523,463/ | ||||||||||||||||||||||||
| Benefit(6) | — | — | 4,641,633 | (7) | 4,641,633 | 4,641,633 | |||||||||||||||||||
| TOTAL | |||||||||||||||||||||||||
| (Includes Benefits that are Vested and | 7,300,524/ | ||||||||||||||||||||||||
| Currently Payable to the Executive) | 714,457 | 714,457 | 8,418,694 | (7) | 12,846,895 | 26,072,574 | |||||||||||||||||||
| (1) | Retirement is generally defined as the executive’s attainment of age 55 with ten years of service or age 58 with five years of service. |
| (2) | Severance benefits are payable under either the (a) Executive Severance Plan in the event of an involuntary termination without cause; (b) Management Continuity Agreement in the event of an involuntary termination following a change-in-control; or (c) in the case of Mr. Newlin, his employment agreement. |
| (3) | Annual incentive award as provided under the terms of the Annual Plan. |
| (4) | Assumes achievement of performance goals at the |
| (5) | Assumes a constant share price of |
| (6) | Continuation of health and welfare benefits as provided under the Executive Severance Plan in the event of an involuntary termination without cause, or the Continuity Agreement in the event of an involuntary termination following a change-in-control. |
| Mr. Newlin’s employment agreement provides for continuation of certain benefits following an involuntary termination without cause. |
| (8) | Continuation of financial planning benefit as provided under the terms of the Continuity Agreements, or in the case of Mr. Newlin, his employment agreement. |
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| (9) | Lump sum payment made in addition to benefits provided under any defined contribution plan. |
| (10) | Represents the amount of excise tax that would be imposed on the executive under Section 280G of the Code and a tax gross-up amount relating to the payment of such tax. |
| (11) | This assumes that the presumption that any arrangement entered into within 12 months of a change of control is a parachute payment under Section 280G of the Internal Revenue Code is rebutted and, thus, the retirement benefit for Mr. Newlin is not considered a parachute payment for purposes of the calculations in the table. |
| (12) | Represents the enhanced value for accrued pension benefits under the respective termination scenarios. Each Named Executive Officer will generally receive under a termination scenario his accumulated pension benefits as previously disclosed in the 2011 Pension Benefits table above. |
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| Voluntary | |||||||||||||||||||||||||
| Termination or | Involuntary | ||||||||||||||||||||||||
| Retirement(1) | Involuntary | Termination | |||||||||||||||||||||||
| (No COC; or, | Termination | Involuntary | without Cause or | ||||||||||||||||||||||
| Following a COC, | with Cause | Termination | for Good Reason | ||||||||||||||||||||||
| without Good | (Including | without Cause | (Following a | ||||||||||||||||||||||
| Reason) | Following a COC) | Death/Disability | (No COC) | COC) | |||||||||||||||||||||
| ($) | ($) | ($) | ($) | ($) | |||||||||||||||||||||
| Cash Severance Benefit (salary continuation and multiple of annual incentive payments) | $ | — | $ | — | $ | — | $ | 830,000 | $ | 1,867,500 | |||||||||||||||
| Annual Incentive for Year of Termination | — | — | — | 415,000 | 415,000 | ||||||||||||||||||||
| Cash LTIP-Vesting of Performance Units | — | — | 109,878 | (2) | 0 | 199,200 | |||||||||||||||||||
| Equity Awards | |||||||||||||||||||||||||
| - Restricted Stock Units/Performance Shares(3) | — | — | 260,495 | — | 653,625 | ||||||||||||||||||||
| - Unexercisable Stock Options/SARs(3) | — | — | 137,098 | — | 497,092 | ||||||||||||||||||||
| Other Benefits | |||||||||||||||||||||||||
| - Continuation of Medical, Dental and Vision Benefits including taxgross-up | — | — | — | 43,870 | 65,808 | ||||||||||||||||||||
| - Continuation of Other Benefits (car allowance; other welfare benefits) | — | — | — | — | 831 | ||||||||||||||||||||
| - Financial Planning Services | — | — | — | — | 10,000 | ||||||||||||||||||||
| - Outplacement Benefits | — | — | — | 9,000 | — | ||||||||||||||||||||
| - Additional Company Contribution for Defined Contribution Plans Under the Management Continuity Agreement | — | — | — | — | 121,390 | ||||||||||||||||||||
| Excise Tax Gross Up | — | — | — | — | 1,052,466 | ||||||||||||||||||||
| SUB-TOTAL (Benefits Triggered Upon a Termination of Employment) | — | — | 507,471 | 1,297,870 | 4,882,912 | ||||||||||||||||||||
| PLAN BALANCES/VESTED BENEFITS | |||||||||||||||||||||||||
| Defined Contribution Plan(s) Balances (includes the Retirement Savings Plan and the Supplemental Retirement Benefit Plan)(4) | 254,741 | 254,741 | 254,741 | 254,741 | 254,741 | ||||||||||||||||||||
| Present Value of Accrued Pension Benefit | — | — | — | — | — | ||||||||||||||||||||
| TOTAL (Includes Benefits that are Vested and Currently Payable to the Executive) | 254,741 | 254,741 | 762,212 | 1,552,611 | 5,137,653 | ||||||||||||||||||||
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| Voluntary | |||||||||||||||||||||||||
| Termination or | Involuntary | ||||||||||||||||||||||||
| Retirement(1) | Involuntary | Termination | |||||||||||||||||||||||
| (No COC; or, | Termination | Involuntary | without Cause or | ||||||||||||||||||||||
| Following a COC, | with Cause | Termination | for Good Reason | ||||||||||||||||||||||
| without Good | (Including | without Cause | (Following a | ||||||||||||||||||||||
| Reason) | Following a COC) | Death/Disability | (No COC) | COC) | |||||||||||||||||||||
| ($) | ($) | ($) | ($) | ($) | |||||||||||||||||||||
| Cash Severance Benefit (salary continuation and multiple of annual incentive payments) | $ | — | $ | — | $ | — | $ | 670,000 | $ | 1,507,500 | |||||||||||||||
| Annual Incentive for Year of Termination | — | — | — | 314,398 | 314,398 | ||||||||||||||||||||
| Cash LTIP-Vesting of Performance Units | 140,923(2 | ) | — | 140,923 | (2) | 140,923 | (2) | 419,700 | |||||||||||||||||
| Equity Awards | |||||||||||||||||||||||||
| - Restricted Stock Units/Performance Shares(3) | 114,315 | — | 114,315 | 114,315 | 301,041 | ||||||||||||||||||||
| - Unexercisable Stock Options/SARs(3) | 87,292 | — | 87,292 | 87,292 | 316,008 | ||||||||||||||||||||
| Other Benefits | |||||||||||||||||||||||||
| - Continuation of Medical, Dental and Vision Benefits including taxgross-up | — | — | — | 30,257 | 45,396 | ||||||||||||||||||||
| - Continuation of Other Benefits (car allowance; other welfare benefits) | — | — | — | — | 12,831 | ||||||||||||||||||||
| - Financial Planning Services | — | — | — | — | 10,000 | ||||||||||||||||||||
| - Outplacement Benefits | — | — | — | 9,000 | — | ||||||||||||||||||||
| - Additional Company Contribution for Defined Contribution Plans Under the Management Continuity Agreement | — | — | — | — | 97,990 | ||||||||||||||||||||
| Excise Tax Gross Up | — | — | — | — | 911,730 | ||||||||||||||||||||
| SUB-TOTAL (Benefits Triggered Upon a Termination of Employment) | 342,530 | — | 342,530 | 1,366,185 | 3,936,594 | ||||||||||||||||||||
| PLAN BALANCES/VESTED BENEFITS | |||||||||||||||||||||||||
| Defined Contribution Plan(s) Balances (includes the Retirement Savings Plan and the Supplemental Retirement Benefit Plan)(4) | 634,971 | 634,971 | 634,971 | 634,971 | 634,971 | ||||||||||||||||||||
| Present Value of Accrued Pension Benefit(5) | 1,180,284 | 1,180,284 | 563,627/ 1,180,284 | (6) | 1,180,284 | 1,180,284 | |||||||||||||||||||
| TOTAL (Includes Benefits that are Vested and Currently Payable to the Executive) | 2,157,785 | 1,815,255 | 1,541,128/ 2,157,785 | (6) | 3,181,440 | 5,751,849 | |||||||||||||||||||
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| Voluntary | |||||||||||||||||||||||||
| Termination or | Involuntary | ||||||||||||||||||||||||
| Retirement(1) | Involuntary | Termination | |||||||||||||||||||||||
| (No COC; or, | Termination | Involuntary | without Cause or | ||||||||||||||||||||||
| Following a COC, | with Cause | Termination | for Good Reason | ||||||||||||||||||||||
| without Good | (Including | without Cause | (Following a | ||||||||||||||||||||||
| Reason) | Following a COC) | Death/Disability | (No COC) | COC) | |||||||||||||||||||||
| ($) | ($) | ($) | ($) | ($) | |||||||||||||||||||||
| Cash Severance Benefit (salary continuation and multiple of annual incentive payments | $ | — | $ | — | $ | — | $ | 672,000 | $ | 1,512,000 | |||||||||||||||
| Annual Incentive for Year of Termination | — | — | — | 336,000 | 336,000 | ||||||||||||||||||||
| Cash LTIP-Vesting of Performance Units | 145,010 | (2) | — | 145,010 | (2) | 145,010 | (2) | 436,800 | |||||||||||||||||
| Equity Awards | |||||||||||||||||||||||||
| - Restricted Stock Units/Performance Shares(3) | 114,315 | — | 114,315 | 114,315 | 301,041 | ||||||||||||||||||||
| - Unexercisable Stock Options/SARs(3) | 87,292 | — | 87,292 | 87,292 | 318,888 | ||||||||||||||||||||
| Other Benefits | |||||||||||||||||||||||||
| - Continuation of Medical, Dental and Vision Benefits including taxgross-up | — | — | — | 43,870 | 65,808 | ||||||||||||||||||||
| - Continuation of Other Benefits (car allowance; other welfare benefits) | — | — | — | — | 12,831 | ||||||||||||||||||||
| - Financial Planning Services | — | — | — | — | 10,000 | ||||||||||||||||||||
| - Outplacement Benefits | — | — | — | 9,000 | — | ||||||||||||||||||||
| - Additional Company Contribution for Defined Contribution Plans Under the Management Continuity Agreement | — | — | — | — | 98,280 | ||||||||||||||||||||
| Excise Tax Gross Up | — | — | — | — | 912,573 | ||||||||||||||||||||
| SUB-TOTAL (Benefits Triggered Upon a Termination of Employment) | 346,617 | — | 346,617 | 1,407,487 | 4,004,221 | ||||||||||||||||||||
| PLAN BALANCES/VESTED BENEFITS | |||||||||||||||||||||||||
| Defined Contribution Plan(s) Balances (includes the Retirement Savings Plan and the Supplemental Retirement Benefit Plan)(4) | 684,237 | 684,237 | 684,237 | 684,237 | 684,237 | ||||||||||||||||||||
| Present Value of Accrued Pension Benefit(5) | 965,923 | 965,923 | 461,726/ 965,923 | (6) | 965,923 | 965,923 | |||||||||||||||||||
| TOTAL (Includes Benefits that are Vested and Currently Payable to the Executive) | 1,996,777 | 1,650,160 | 1,492,580/ 1,996,777 | (6) | 3,057,647 | 5,654,381 | |||||||||||||||||||
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| Voluntary | |||||||||||||||||||||||||
| Termination or | Involuntary | ||||||||||||||||||||||||
| Retirement(2) | Involuntary | Termination | |||||||||||||||||||||||
| (No COC; or, | Termination | Involuntary | without Cause or | ||||||||||||||||||||||
| Following a COC, | with Cause | Termination | for Good Reason | ||||||||||||||||||||||
| without Good | (Including | without Cause | (Following a | ||||||||||||||||||||||
| Reason) | Following a COC) | Death/Disability | (No COC) | COC) | |||||||||||||||||||||
| ($) | ($) | ($) | ($) | ($) | |||||||||||||||||||||
| Cash Severance Benefit (salary continuation and multiple of annual incentive payments | $ | — | $ | — | $ | — | $ | 849,906 | $ | 1,274,859 | |||||||||||||||
| Annual Incentive for Year of Termination | — | — | — | 283,974 | 283,974 | ||||||||||||||||||||
| Cash LTIP-Vesting of Performance Units | 184,816 | (3) | — | 184,816 | (3) | 184,816 | (3) | 482,900 | |||||||||||||||||
| Severance Pay Under Luxembourg Law(4) | — | — | — | 1,515,558 | 1,515,558 | ||||||||||||||||||||
| Equity Awards | |||||||||||||||||||||||||
| - Restricted Stock Units/Performance Shares(5) | 102,984 | — | 102,984 | 102,984 | 259,956 | ||||||||||||||||||||
| - Unexercisable Stock Options/SARs(5) | 71,466 | — | 71,466 | 71,466 | 259,204 | ||||||||||||||||||||
| Other Benefits | |||||||||||||||||||||||||
| - Continuation of Medical, Dental and Vision Benefits | — | — | — | — | — | ||||||||||||||||||||
| - Continuation of Other Benefits (car allowance; other welfare benefits) | — | — | — | — | 831 | ||||||||||||||||||||
| - Financial Planning Services | — | — | — | — | 8,000 | ||||||||||||||||||||
| - Outplacement Benefits | — | — | — | — | — | ||||||||||||||||||||
| - Additional Company Contribution for Defined Contribution Plans Under the Management Continuity Agreement | — | — | — | — | — | ||||||||||||||||||||
| Excise Tax Gross Up | — | — | — | — | — | ||||||||||||||||||||
| SUB-TOTAL (Benefits Triggered Upon a Termination of Employment) | 359,266 | — | 359,266 | 3,008,704 | 4,085,282 | ||||||||||||||||||||
| PLAN BALANCES/VESTED BENEFITS | |||||||||||||||||||||||||
| Defined Contribution Plan(s) Balances(6) | 22,896 | 22,896 | 22,896 | 22,896 | 22,896 | ||||||||||||||||||||
| Present Value of Accrued Pension Benefit | — | — | — | — | — | ||||||||||||||||||||
| TOTAL (Includes Benefits that are Vested and Currently Payable to the Executive) | 382,162 | 22,896 | 382,162 | 3,031,600 | 4,108,178 | ||||||||||||||||||||
| (14) | Based on a conversion rate of €1.00 = |
| (15) | Assumes payments would be provided as required by Luxembourg law and not under Mr. Baert’s Continuity Agreement. | |
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During 2009,2011, none of our executive officers or Directors was a member of the Board of Directors or Compensation Committee of any other company where the relationship would be construed to constitute a committee interlock within the meaning of the rules of the Securities and Exchange Commission.
Policy on Related Person Transactions
Under our Guidelines for Ethical Business Conduct, we prohibit all employees, including our officers and non-employee Directors from engaging in activities that would impact their ability to carry out their duties in an independent, objective fashion. We also have adopted a written “Policy for Review of Transactions Between the Company and Its Directors, Executive Officers and Other Related Persons.” This policy requires an initial review by our Chief Legal Officer, Chief Financial Officer and Ethics and Compliance Officer, in consultation with each other (the “Reviewing Team”), of all transactions, arrangements or relationships with us in which any Director, executive officer or other related person (including immediate family members of all related persons) has a direct or indirect material interest, which involve $50,000 or more. Further, the Audit Committee must review and approve any transaction that the Reviewing Team determines may be required to be disclosed pursuant to Item 404 ofRegulation S-K under the Securities Exchange Act of 1934 or any similar provision. In reviewing the related person transactions, the Reviewing Team and the Audit Committee consider the following factors: (1) whether the transaction is in conformity with our Guidelines for Ethical Business Conduct and is in our best interests; (2) whether the transaction would be in the ordinary course of our business; (3) whether the transaction is on terms comparable to those that could be obtained in arm’s length dealings with an unrelated third party; (4) the disclosure standards set forth in Item 404 ofRegulation S-K under the Securities Exchange Act of 1934 or any similar provision; and (5) whether the transaction could call into question the status of any Director or Director nominee as an independent director under the NYSE rules.
ReportRisk Assessment of the Compensation Programs
As part of the Compensation Committee’s annual governance process, in December 2011, we conducted a formal assessment of our compensation programs to ensure they do not create risks that
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are reasonably likely to have a material adverse effect on PolyOne. With guidance and oversight from Towers Watson, our Internal Audit and Human Resources groups completed the initial risk assessment of our compensation programs, including those that extend beyond the executive officers. The assessment was reviewed by our Legal and Finance groups and Towers Watson, with these groups providing additional analysis and validation of the results. The results of the compensation risk assessment were presented to the Compensation Committee at its December 2011 meeting. The areas we considered in determining that our compensation programs do not pose a material risk to PolyOne included our:
Compensation philosophy;
Compensation plan design:
Balanced pay mix;
Weightings of measures;
Payout curves; and
Timing of incentive payouts; and
Compensation plan governance and oversight:
Selection of performance measures;
Stock ownership requirements;
Clawback policy; and
Hedging policy.
As a result of the assessment, the Compensation Committee concluded that our compensation structures are appropriate and no material risks were identified. Several process improvements have been made as a result of the assessment that will continue to ensure the appropriate level of oversight is in place for these programs.
Compensation Committee Report
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis set forth in this proxy statement with management and, basedmanagement. Based on this review and discussion, the Compensation Committee has recommended to the Board of Directors the inclusion of the Compensation Discussion and Analysis in this proxy statement.
The Compensation Committee
of the Board of Directors
Gordon D. Harnett, Chairperson
J. Douglas Campbell
Edward J. Mooney
William H. Powell
Farah M. Walters
58William A. Wulfsohn
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COMPENSATION
As required under the Dodd-Frank Act and Section 14A of the Exchange Act, our Board of Directors is submitting a “Say on Pay” proposal for shareholder consideration. While the vote on executive compensation is non-binding and solely advisory in nature, our Board of Directors and the Compensation Committee will review the voting results. If there are a significant number of negative votes, we will seek to understand the concerns that influenced the vote and address them in making future decisions about executive compensation programs.
Currently, advisory “Say on Pay” votes are scheduled to be held once every year, with the 2013 vote expected to occur at our 2013 Annual Meeting of Shareholders.
As described more fully in the “Compensation Discussion and Analysis” section of this proxy statement, the Compensation Committee of our Board of Directors has structured our executive compensation program to achieve the following key objectives:
| Objective | How Our Executive Compensation Program Achieves This Objective | |||
| Pay For Performance | Setting a significant portion of each Named Executive Officer’s total compensation in the form of variable compensation that is earned when pre-established financial and annual performance goals are achieved. | |||
Align Goals and Objectives with Interests of Shareholders | Focusing incentive programs on the critical performance measures that determine the Company’s overall success. Rewarding executives for attainment of short-term results, balanced with the need for sustainable long-term success. | |||
Attract, Motivate and Retain Management | Competing effectively to attract, motivate and retain a management team who leads in setting and achieving the overall goals and objectives of the Company. |
We believe you should vote “FOR” our Named Executive Officer compensation program because the compensation actually earned by our Named Executive Officers for 2011 performance, as summarized below, was aligned with both our pay for performance objective and our performance. 2011 was another strong year for PolyOne, and we had record-breaking performances in each of our three strategic platforms, as further described above under “Compensation Discussion and Analysis.” Both the Specialty and Distribution platforms delivered record earnings, and our Performance Products and Solutions platform generated record return on sales. Guided by our strong performance results for 2011 and in prior years, including record-breaking performance in terms of our operating income and working capital as a percentage of sales goals, our key pay decisions and actions for 2011 included:
Paying our named executive officers at 194.5% of their target 2011 Annual Plan opportunities based on 194.5% achievement of our performance goals under that plan, except for Mr. Baert, who was paid at a level of 135.3% of his target based on performance in our Europe and South America regions;
Changing the performance measure for our long-term performance units awards granted in 2011 from working capital as a percentage of sales to earnings per share in order to drive improvements in shareholder value, and moving back to a three-year performance period (rather than a one-year performance period) for the performance units awards to help maximize long-term performance; and
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Paying out performance units granted in 2009, based on attainment of 200% of target level performance for our achievement of working capital as a percentage of sales goals in 2009.
As described above, our recent key pay decisions have been linked to our performance in terms of key business metrics that drive long term shareholder value. For example, for 2011, we achieved 191.5% of our company operating income goal and 200% of our consolidated working capital goal established under our short-term cash incentive program, which drove the 2011 Annual Plan payouts described above. In addition, our time-based stock appreciation rights help drive long term shareholder value. These awards deliver value to our named executive officers only to the extent our shareholders realize increased stock price value. Since our stock price has risen to $12.68 as of March 6, 2012 from $1.43 on March 5, 2009 and $7.99 on February 17, 2010, our Named Executive Officers have realized value for these awards to the same extent our shareholders have realized increased stock price value in their investment since those dates. Based on these demonstrated links between pay and performance, as well as our more in-depth discussion in “Compensation Discussion and Analysis” above of how our CEO’s compensation has been commensurate with performance in recent years, we believe we have successfully implemented a pay for performance culture at PolyOne.
In 2011, we also maintained or implemented pay practices favored by a number of institutional shareholders and their advisors, including:
Based on emerging market practices, we have revised our relocation policy as it relates to the loss on the sale of an executive’s residence, which we refer to as “loss-on-sale” expense. Beginning in 2011 and for future years, we will maintain a cap on reimbursable loss-on-sale expenses for the Named Executive Officers of 80% of the loss capped at $85,000. In addition, we will no longer provide a tax gross-up on reimbursed loss-on-sale expense for this group.
We also maintain stock ownership guidelines for our Named Executive Officers that are denominated in shares. Based on our March 6, 2012 closing stock price of $12.68 per share, these guidelines represent the following multiples of our Named Executive Officers’ 2011 base salaries: Mr. Newlin, 4.7x (he actually owns over 10 times his base salary); Mr. Patterson, 2.1x (he actually owns over 6 times his base salary); Mr. Smith, 2.1x (he actually owns over 6 times his base salary); Mr. Baert, 1.9x (he actually owns over 2 times his base salary); and Mr. Kedrowski, 2.2x (he actually owns almost 6 times his base salary).
We eliminated the use of excise tax gross-up provisions in all management continuity agreements offered to new hires in 2011 and beyond.
The Board of Directors believes the Company’s compensation programs demonstrate a clear link between pay and performance, especially for 2011. The Board of Directors urges you to review carefully the “Compensation Discussion and Analysis” section of this Proxy Statement that describes our compensation philosophy and programs in greater detail and to approve the following resolution:
“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.”
Our Board of Directors unanimously recommends a vote FOR Proposal 2 to approve the advisory resolution on executive compensation.
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PROPOSAL 3 — APPROVAL OF FIRST AMENDMENT TO THE POLYONE CORPORATION
2010 EQUITY AND PERFORMANCE INCENTIVE PLAN
On March 4, 2010, our Board of Directors unanimously approved and adopted, subject to the approval of our shareholders at the 2010 annual meeting, the PolyOne Corporation 2010 Equity and Performance Incentive Plan (the “Plan”). On May 12, 2010, our shareholders approved the Plan and the Plan became effective on that date. The Plan will continue to affordaffords the Compensation Committee of our Board of Directors (the “Compensation Committee”) the ability to design compensatory awards that are responsive to our needs, and includes authorization for a variety of awards designed to advance our interests and long-term success by encouraging stock ownership among our directors, officers and other employees.
On March 9, 2012, our Board of Directors unanimously approved and adopted, subject to the 2008approval of our shareholders at the 2012 annual meeting, the First Amendment to the PolyOne Corporation 2010 Equity and Performance Incentive Plan (the “Existing Plan”“Amendment”). The Existing Plan hasAmendment increases the maximum number of common shares, par value $0.01 per share, that may be issued or transferred with respect to awards authorized but not granted at the date of this proxy statement. If approved by our shareholders,under the Plan will become effectiveby 2,000,000 shares and no further awards will be made underincreases certain other numerical common share limits contained in the Existing Plan.
The affirmative vote of a majority of the common shares voting on this proposal 3 is required for approval of the Plan.Amendment, provided that the total number of common shares cast with respect to proposal 3 represents over 50% in interest of all common shares entitled to vote on the proposal. The following summary of the material provisions of the Amendment and the Plan as amended (the “Amended Plan”) is not intended to be exhaustive and is qualified in its entirety by the terms of the Plan aand the Amendment (a copy of whichthe Amendment is set forth as Appendix A to this proxy statement.statement).
Equity Compensation Plan Information as of March 6, 2012
From January 1, 2012 to March 6, 2012, no stock options or SARs expired without being exercised. Thus, as of March 6, 2012:
There are a total of 89,036,263 of our common shares outstanding;
There are 4,534,850 stock options and SARs outstanding, with an average exercise price of $6.47696 and average remaining term of 4.97 years;
There are a total of 1,340,237 full-value awards (restricted stock, RSUs and performance shares) outstanding, none of which are restricted shares that are included in the number of our common shares outstanding; and
There are 806,130 common shares remaining available under all of our equity plans, 262,551 of which are available for Proposal 2grant as full-value awards.
Amendment Highlights
The Amendment makes the following changes to attract, motivatethe Plan:
Increases by 2,000,000 shares the maximum number of shares that may be issued or transferred with respect to awards under the Plan from 3,000,000 common shares, plus any common shares relating to awards that expire or are forfeited or cancelled under the Plan, to 5,000,000 common shares, plus any common shares relating to awards that expire or are forfeited or cancelled under the Plan. No more than 800,000 shares of the 2,000,000 share increase may be granted as awards other than stock options and retain high quality employeesSARs;
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Increases the maximum number of shares that may be issued or transferred upon the exercise of incentive stock options (“ISOs”) from 3,000,000 common shares to 5,000,000 common shares; and directors and
Increases the maximum number of shares that approvalmay be issued during the life of the Plan is criticalwith respect to achieving this success. We would be at a severe competitive disadvantage if we couldawards that are not use stock-based awardsstock options or stock appreciation rights (“SARs”) (after taking into account any forfeitures and cancellations) from 1,200,000 common shares to recruit and compensate our employees.
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The Amended Plan authorizescontinues to authorize the Compensation Committee to provide equity-based compensation in the form of stock options, stock appreciation rights (“SARs”),SARs, restricted stock, restricted stock units (“RSUs”),RSUs, performance shares, performance units, and other awards for the purpose of providing our directors, officers and other employees incentives and rewards for superior performance. Some of the key features of the Amended Plan that reflect our commitment to effective management of incentive compensation are set forth below and are described more fully under the heading “Summary of the Amended Plan” and in the Plan,Amendment, which is attached to this proxy statement.
Administration. The Amended Plan will be administered by the Compensation Committee. The Compensation Committee may delegate its authority under the Amended Plan to a subcommittee. The Compensation Committee or the subcommittee may delegate to one or more of its members or to one or more of our officers, or to one or more agents or advisors, administrative duties or powers to do one or both of the following (subject to certain limitations described in the Amended Plan):
designate employees to receive awards under the Amended Plan; and
determine the size of any such awards.
Amended Plan Limits. Total awards under the Amended Plan are limited to 3,000,0005,000,000 shares plus any common shares relating to awards that expire or are forfeited or cancelled under the Amended Plan. No more than 1,200,0002,000,000 common shares may be issued with respect to awards that are not stock options or SARs. The Amended Plan also provides that:
the aggregate number of common shares actually issued or transferred upon the exercise of incentive stock options (“ISOs”) will not exceed 5,000,000 common shares;
no participant will be granted stock options or SARs, in the aggregate, for more than 500,000 common shares during any calendar year;
no participant will be granted awards of restricted stock, RSUs, performance shares or other stock-based awards that are intended to qualify as “qualified performance-based compensation” under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), in the aggregate, for more than 400,000 common shares during any calendar year;
no participant in any calendar year will receive an award of performance units or other awards payable in cash that are intended to qualify as “qualified performance-based compensation” under Section 162(m) of the Code having an aggregate maximum value in excess of $3,000,000; and
awards granted to non-employee directors plus awards that do not comply with the minimum vesting periods provided for in the Amended Plan (as further described below) will not involve the issuance of more than 10% of the maximum number of common shares available under the Amended Plan.
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No Liberal Recycling Provisions. The Amended Plan provides that only shares with respect to awards granted under the Amended Plan that expire or are forfeited or cancelled, or shares that were covered by an award the benefit of which is paid in cash instead of shares, will again be available for issuance under the Amended Plan. The following shares will not be added back to the aggregate planAmended Plan limit: (1) shares tendered in payment of the option exercise price; (2) shares withheld by us to satisfy the tax withholding obligation; and (3) shares that are repurchased by us with stock option proceeds. Further, all shares covered by a SAR that is exercised and settled in shares, and whether or not all shares are actually issued to the participant upon exercise of the right, will be considered issued or transferred pursuant to the Amended Plan.
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Stock options and SARs may not vest by the passage of time sooner than one-third per year over three years unless they vest sooner by virtue of retirement, death or disability of a participant or a change of control;
Restricted stock, RSUs and other awards may not become unrestricted by the passage of time sooner than one-third per year over three years unless restrictions lapse sooner by virtue of retirement, death or disability of a participant or a change of control;
The period of time within which management objectives relating to performance shares and performance units must be achieved will be a minimum of one year, subject to earlier lapse or modification by virtue of retirement, death or disability of a participant or a change of control; and
Stock options, SARs, restricted stock, RSUs and other awards that vest upon the achievement of management objectives cannot vest sooner than one year from the date of grant, but may be subject to earlier lapse or modification by virtue of retirement, death or disability of a participant or a change of control.
No Repricing. We have never repriced underwater stock options or SARs, and repricing of options and SARs is prohibited without shareholder approval under the Amended Plan.
Change of Control Definition. The Amended Plan includes a definition of “change of control.” In general, a change of control will be deemed to have occurred if:
a person or group buys 25% or more of our common stock (excluding certain purchases by us or our benefit Amended Plans or purchases approved by us or in connection with certain “friendly” business transactions, and excluding certain inadvertent purchases);
individuals who constituted our Board of Directors as of May 12, 2010 cease for any reason to constitute at least a majority of our Board of Directors, unless their replacements are approved as described in the Amended Plan;
we consummate a reorganization, merger, consolidation or significant sale of assets resulting in a substantial change in our ownership or directors; or
our shareholders approve our complete liquidation or dissolution (other than in connection with certain “friendly” business transactions).
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Other Features.
The Amended Plan also provides that no stock options or SARs will be granted with an exercise or base price less than the fair market value of our common shares on the date of grant.
The Amended Plan is designed to allow awards made under the Amended Plan to qualify as qualified performance-based compensation under Section 162(m) of the Code.
In addition to providing for these key features in the Amended Plan, our historical grants under our equity plansAmended Plans illustrate our commitment to appropriately managing equity compensation. From 20072009 to 2009,2011, we have awarded stock options, SARs and restricted stockRSUs averaging 1.97%1.6% of shares outstanding.
If the Amended Plan is approved, our full dilution level on March 15, 20106, 2012 will be 11.6%8.9%. The level of full dilution assumes all 3,000,0005,000,000 shares will actually be issued under the Amended Plan, whereas the Amended Plan
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Why We Believe You Should Vote for Proposal 3
We believe our future success depends on our ability to March 15, 2010, 281,357attract, motivate and retain high quality employees and directors and that the ability to continue to provide stock options and SARs,stock-based awards under the Amended Plan is critical to achieving this success. We would be at a severe competitive disadvantage if we could not use stock-based awards to recruit and compensate our employees.
The use of our stock as part of our compensation program is also important to our continued success in that it fosters a pay-for-performance culture, which we have stated is an important element of our overall compensation package. We believe that equity compensation motivates employees to create shareholder value because the value employees realize from equity compensation is based on our stock performance. Equity compensation also aligns the goals and objectives of our employees with an average exercise pricethe interests of $15.17 expired without being exercised. Thus,our shareholders and promotes a focus on long-term value creation because our equity compensation awards are subject to vesting and/or performance criteria.
If the Amendment is not approved, we may no longer have available shares to award under the Plan, and we may be compelled to increase significantly the cash component of our employee compensation, which may not necessarily align employee interests with those of shareholders as well as the alignment provided by stock-based awards. Replacing equity awards with cash will also increase cash compensation expense and use cash that would be otherwise reinvested in our businesses.
Finally, we believe that we have demonstrated our commitment to sound equity compensation practices. We recognize that equity compensation awards dilute shareholder equity and, therefore, we have carefully managed our equity incentive compensation. Our equity compensation practices are targeted to be consistent with the market median, and we believe our historical share usage has been responsible and mindful of March 15, 2010:
Summary of the Amended Plan
Shares Available Under the Amended Plan. Subject to adjustment as provided in the Amended Plan, the number of common shares that may be issued or transferred
upon the exercise of stock options or SARs,
as restricted stock and released from substantial risks of forfeiture,
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in payment of RSUs,
in payment of performance shares or performance units that have been earned,
as awards to non-employee directors,
as other awards, or
in payment of dividend equivalents paid for awards made under the Amended Plan
will not exceed in the aggregate 3,000,0005,000,000 common shares, plus any common shares relating to awards that expire or are forfeited or cancelled under the Amended Plan. These shares may be shares of original issuance or treasury shares or a combination of the foregoing.
Common shares covered by an award granted under the Amended Plan will not be counted as used unless and until they are actually issued and delivered to a participant. The total number of shares available under the Amended Plan as of a given date will not be reduced by any shares relating to prior awards that have expired or have been forfeited or cancelled. Upon payment in cash of the benefit provided by any award granted under the Amended Plan, any common shares that were covered by that award will be available for issue or transfer.
If common shares are tendered or otherwise used in payment of an option exercise price, the total number of shares covered by the stock option being exercised will count against the total number of shares available under the Amended Plan. Common shares withheld by us to satisfy tax withholding obligations will count against the total number of shares available under the Amended Plan. The number of common shares covered by a SAR that is exercised and settled in common shares, and whether or not all shares are actually issued to the participant upon exercise of the SAR, will be considered
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The Amended Plan also provides the other following limits:
the aggregate number of common shares actually issued or transferred upon the exercise of ISOs will not exceed 5,000,000 common shares;
no more than 2,000,000 common shares may be issued with respect to awards that are not stock options or SARs;
no participant will be granted stock options or SARs, in the aggregate, for more than 500,000 common shares during any calendar year;
no participant will be granted awards of restricted stock, RSUs, performance shares or other stock-based awards that are intended to qualify as “qualified performance-based compensation” under Section 162(m) of the Code, in the aggregate, for more than 400,000 common shares during any calendar year;
no participant in any calendar year will receive an award of performance units or other awards payable in cash that are intended to qualify as “qualified performance-based compensation” under Section 162(m) of the Code having an aggregate maximum value as of their respective dates of grant in excess of $3,000,000; and
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awards granted to non-employee directors plus awards that do not comply with the minimum vesting periods provided for in the Amended Plan (as further described below) will not involve the issuance of more than 10% of the maximum number of common shares available under the Amended Plan.
Eligibility. Our officers and key employees (currently estimated to be 88 persons), the officers and key employees of our subsidiaries (currently estimated to be 33 persons), our ten non-employee directors, and any person who has agreed to commence serving in any of those capacities within 90 days of the date of grant, presently estimated to be 100 persons, may be selected by the Compensation Committee to receive benefits under the Amended Plan. Any person who provides services to us or a subsidiary that are equivalent to those typically provided by an employee may also be eligible to participate in the Amended Plan. The Compensation Committee determines which persons will receive awards and the number of shares subject to such awards.
Stock Options. We may grant stock options that entitle the optionee to purchase common shares at a price not less than market value per share at the date of grant. The market price of our common shares as reported on the NYSE on March 15, 20106, 2012 was $8.77$12.68 per share. The option price is payable:
in cash, check or wire transfer | ||
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by a combination of such payment methods, or
by such other method as may be approved by the Compensation Committee.
To the extent permitted by law, any grant of a stock option may provide for deferred payment of the option price from the proceeds of a sale through a bank or broker of some or all of the common shares to which the exercise relates.
The Compensation Committee reserves the discretion at or after the date of grant to provide the participant with the right to tender nonforfeitable, unrestricted common shares in satisfaction of the option exercise price, which shares are already owned by the participant and have a value at the time of exercise that is equal to the option price. Additionally, the Compensation Committee may substitute, without receiving the participant’s permission, SARs payable only in common shares (or SARs payable in common shares or cash, or a combination of both, at the Compensation Committee’s discretion) for outstanding stock options.
Stock options will be evidenced by an award agreement containing such terms and provisions, consistent with the Amended Plan, as the Compensation Committee may approve. No stock option may be exercisable more than 10 years from the date of grant. Each grant will specify the period of continuous service with us or any subsidiary that is necessary before the stock options become exercisable. A grant of stock options may provide for the earlier vesting of such stock options in the event of the retirement, death or disability of the participant, or a change of control. Successive grants may be made to the same participant whether or not stock options previously granted remain unexercised. Any grant of stock options may specify management objectives (as described below) that must be achieved as a condition to exercising such rights.
If the stock options provide that management objectives must be achieved prior to exercise, such stock options may not become exercisable sooner than one year from the date of grant except in the
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event of the retirement, death or disability of the grantee, or a change of control. Stock options may not become exercisable by the passage of time sooner than one-third per year over three years. The Compensation Committee may grant some awards, including stock options, that are not subject to these minimum vesting requirements, so long as the aggregate number of such awards (plus non-employee director awards) does not exceed 10% of the maximum number of common shares available under the Amended Plan.
SARs. A SAR is a right, exercisable by the surrender of a related stock option (if granted in tandem with stock options) or by itself (if granted as a free-standing SAR), to receive from us an amount equal to 100%, or such lesser percentage as the Compensation Committee may determine, of the spread between the base price (or option exercise price if a tandem SAR) and the value of our common shares on the date of exercise. Any grant may specify that the amount payable on exercise of a SAR may be paid by us in cash, in common shares, or in any combination of the two, and may either grant to the participant or retain in the Compensation Committee the right to elect among those alternatives.
SARs will be evidenced by an award agreement containing such terms and provisions, consistent with the Amended Plan, as the Compensation Committee may approve. Any grant of a tandem SAR will provide that it may be exercised only at a time when the related stock option is also exercisable, at a time when the spread is positive, and by surrender of the related stock option for cancellation. Successive grants of a tandem SAR may be made to the same participant regardless of whether any tandem SARs previously granted to the participant remain unexercised. Each grant will specify in respect of each free-standing SAR a base price that will be equal to or greater than the market value per share on the date of grant. Successive grants may be made to the same participant regardless of whether any free-standing SARs previously granted to the participant remain unexercised. No free-standing SAR granted under the Amended Plan may be exercised more than 10 years from the date of grant.
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Restricted Stock. A grant of restricted stock involves the immediate transfer by us to a participant of ownership of a specific number of common shares in consideration of the performance of services. The participant is entitled immediately to voting, dividend and other ownership rights in such shares. The transfer may be made without additional consideration or in consideration of a payment by the participant that is less than current market value at the date of grant, as the Compensation Committee may determine.
Restricted stock that vests upon the passage of time must be subject to a “substantial risk of forfeiture” within the meaning of Section 83 of the Internal Revenue Code for a period no shorter than three years, except that the restrictions may be removed ratably during the three-year period, on an
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annual basis, as the Compensation Committee may determine at the date of grant. Each such grant or sale of restricted stock will provide that during or after the period for which such substantial risk of forfeiture is to continue, the transferability of the restricted stock will be prohibited or restricted in the manner and to the extent prescribed by the Compensation Committee at the date of grant (which restrictions may include, without limitation, rights of repurchase or first refusal or provisions subjecting the restricted stock to a continuing substantial risk of forfeiture in the hands of any transferee). The Compensation Committee may provide for a shorter period during which the forfeiture provisions are to apply in the event of the retirement, death or disability of the grantee, or a change of control.
Any grant of restricted stock may specify management objectives that, if achieved, will result in termination or early termination of the restrictions applicable to such shares. If the grant of restricted stock provides that management objectives must be achieved to result in a lapse of restrictions, the restrictions cannot lapse sooner than one year from the date of grant, but may be subject to earlier lapse or modification by virtue of the retirement, death or disability of the grantee or a change of control. The Compensation Committee may grant some awards, including restricted stock, that are not subject to these minimum vesting requirements, so long as the aggregate number of such awards (plus non-employee director awards) does not exceed 10% of the maximum number of common shares available under the Amended Plan.
Any grant of restricted stock may also specify, in respect of any applicable management objectives, a minimum acceptable level of achievement and may set forth a formula for determining the number of shares of restricted stock on which restrictions will terminate if performance is at or above the minimum level or threshold level or levels, or is at or above the target level or levels, but falls short of maximum achievement of the specified management objectives.
Grants of restricted stock will be evidenced by an award agreement containing such terms and provisions, consistent with the Amended Plan, as the Compensation Committee may approve. Any grant or sale of restricted stock may require that any or all dividends or other distributions paid with respect to the restricted stock during the period of restriction be automatically deferred and reinvested in
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RSUs. A grant of RSUs constitutes an agreement by us to deliver common shares or cash to the participant in the future in consideration of the performance of services, but subject to the fulfillment of such conditions during the restriction period as the Compensation Committee may specify. During the applicable restriction period, the participant will have no rights of ownership in the common shares deliverable upon payment of the RSUs and will have no right to vote the common shares. The Compensation Committee may, at the date of grant, authorize the payment of dividend equivalents on RSUs on either a current, deferred or contingent basis, either in cash or in additional common shares. However, dividends or other distributions on common shares underlying RSUs with restrictions that lapse as a result of the achievement of management objectives will be deferred until and paid contingently upon the achievement of the applicable management objectives.
RSUs with a restriction period that lapses only by the passage of time will have a restriction period of at least three years, except that the restriction period may expire ratably during the three-year period, on an annual basis, as determined by the Compensation Committee at the date of grant.
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Additionally, the Compensation Committee may provide for a shorter restriction period in the event of the retirement, death or disability of the grantee, or a change of control. Any grant of RSUs may specify management objectives that, if achieved, will result in termination or early termination of the restriction period applicable to such shares. If the RSUs have a restriction period that lapses only upon the achievement of management objectives, the restriction period cannot lapse sooner than one year from the date of grant, but may be subject to earlier lapse or modification by virtue of the retirement, death or disability of the grantee or a change of control. The Compensation Committee may grant some awards, including RSUs, that are not subject to these minimum vesting requirements, so long as the aggregate number of such awards (plus non-employee director awards) does not exceed 10% of the maximum number of common shares available under the Amended Plan.
RSUs will be evidenced by an evidence of award containing such terms and provisions, consistent with the Amended Plan, as the Compensation Committee may approve. Each grant or sale of RSUs may be made without additional consideration or in consideration of a payment by such participant that is less than the market value per share at the date of grant. Each grant or sale of RSUs will also specify the time and manner of payment of the RSUs that have been earned and will specify that the amount payable with respect to such grant will be paid by us in common shares or cash.
Any grant of RSUs may also specify, in respect of any applicable management objectives, a minimum acceptable level of achievement and may set forth a formula for determining the number RSUs for which the restriction period will terminate if performance is at or above the minimum or threshold level or levels, or is at or above the target level or levels, but falls short of maximum achievement of the specified management objectives.
Performance Shares and Performance Units. A performance share is the equivalent of one common share and a performance unit is the equivalent of $1.00 or such other value as determined by the Compensation Committee. A participant may be granted any number of performance shares or performance units, subject to the limitations set forth above. The participant will be given one or more management objectives to meet within a specified period (the “Performance Period”). The specified Performance Period will be a period of time not less than one year, except in the case of the retirement, death or disability of the grantee, or a change of control, if the Compensation Committee so determines. The Compensation Committee may, however, grant some awards,
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Each grant of performance shares or performance units may specify, in respect of the relevant management objectives, a minimum acceptable level or levels of achievement and will set forth a formula for determining the number of performance shares or performance units that will be earned if performance is at or above the minimum or threshold level or levels, or is at or above the target level or levels, but falls short of maximum achievement of the specified management objectives.
To the extent earned, the performance shares or performance units will be paid to the participant at the time and in the manner determined by the Compensation Committee. Any grant may specify that the amount payable with respect thereto may be paid by us in cash, common shares or any combination of the two and may either grant to the participant or retain in the Compensation Committee the right to elect among those alternatives. The Compensation Committee may, at the date of grant of performance shares, provide for the payment of dividend equivalents to participant either in cash or in additional
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common shares, subject in all cases to deferral and payment on a contingent basis based on the participant’s earning of the performance shares with respect to which such dividend equivalents are paid.
Performance shares and performance units will be evidenced by an award agreement containing such terms and provisions, consistent with the Amended Plan, as the Compensation Committee may approve. Each grant will specify the number of performance shares or performance units to which it pertains, which number may be subject to adjustment to reflect changes in compensation or other factors. However, no adjustment will be made in the case of an award intended to qualify as “qualified performance-based compensation” under Section 162(m) of the Code (other than in connection with the death or disability of the participant or a change of control) where such action would result in the loss of the otherwise available exemption of the award under Section 162(m) of the Code.
Awards to Non-Employee Directors. The Compensation Committee may, from time to time and upon such terms and conditions as it may determine, authorize the granting to non-employee directors of stock options, SARs or other awards and may also authorize the grant or sale of common shares, restricted stock or RSUs to non-employee directors. Each grant of an award to a non-employee director will be upon such terms and conditions as approved by the Compensation Committee. Each such grant will not be required to be subject to any minimum vesting period and will be evidenced by an award agreement in such form as will be approved by the Compensation Committee. Each grant will specify in the case of stock option, an option price per share, and in the case of a free-standing SAR, a base price per share, each of which will not be less than the market value per share on the date of grant. Each stock option and free-standing SAR granted under the Amended Plan to a non-employee director will expire not more than 10 years from the date of grant and will be subject to earlier termination as provided in the Amended Plan. If a non-employee director subsequently becomes an employee of our company or a subsidiary while remaining a member of our Board of Directors, any award held under this Amended Plan by such individual at the time of such commencement of employment will not be affected. Non-employee directors may be awarded, or may be permitted to elect to receive, pursuant to procedures established by the Compensation Committee, all or any portion of their annual retainer, meeting fees or other fees in common shares, restricted stock, RSUs or other awards under the Amended Plan in lieu of cash.
Other Awards. The Compensation Committee may, subject to limitations under applicable law, grant to any participant such other awards that may be denominated or payable in, valued in
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convertible or exchangeable debt securities;
other rights convertible or exchangeable into common shares;
purchase rights for common shares;
awards with value and payment contingent upon our performance or specified subsidiaries, affiliates or other business units of ours or any other factors designated by the Compensation Committee; and
awards valued by reference to the book value of common shares or the value of securities of, or the performance of specified subsidiaries or affiliates or other business units of ours.
The Compensation Committee will determine the terms and conditions of the other awards. Common shares delivered pursuant to an award in the nature of a purchase right will be purchased for
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such consideration, paid for at such time, by such methods, and in such forms, including, without limitation, cash, common shares, other awards, notes or other property, as the Compensation Committee will determine. Cash awards, as an element of or supplement to any other award granted under the Amended Plan, may also be granted as an other award.
If the earning or vesting of, or elimination of restrictions applicable to, other awards is based only on the passage of time rather than the achievement of management objectives, the period of time will be no shorter than three years, except that the restrictions may be removed no sooner than ratably on an annual basis during the three-year period. If the earning or vesting of, or elimination of restrictions applicable to, awards granted under this section of the Amended Plan is based on the achievement of management objectives, the earning, vesting or restriction period may not terminate sooner than one year from the date of grant. Any grant of an award under this section of the Amended Plan may provide for the earning or vesting of, or earlier elimination of restrictions applicable to, such award in the event of the retirement, death, or disability of the participant, or a change of control. The Compensation Committee may grant some awards, including other awards, that are not subject to these minimum vesting requirements, so long as the aggregate number of such awards (plus non-employee director awards) does not exceed 10% of the maximum number of common shares available under the Amended Plan.
The Compensation Committee may grant common shares as a bonus, or may grant other awards in lieu of our obligation or a subsidiary’s obligation to pay cash or deliver other property under the Amended Plan or under other plans or compensatory arrangements, subject to such terms as will be determined by the Compensation Committee in a manner that complies with Section 409A of the Code.
Management Objectives. The Amended Plan requires that the Compensation Committee establish “management objectives” for purposes of performance shares and performance units. When so determined by the Compensation Committee, stock options, SARs, restricted stock, RSUs, dividend credits or other awards under the Amended Plan may also specify management objectives. Management objectives may be described in terms of company-wide objectives or objectives that are related to the performance of the individual participant or of the subsidiary, division, department, region or function within the company or subsidiary in which the participant is employed. The management objectives may be made relative to the performance of other companies or subsidiaries, divisions, departments, regions or functions within such other companies, and may be made relative to an index or one or more of the performance criteria themselves. The Compensation Committee may grant awards subject to management objectives that may or may not be intended to qualify as
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| • | Profits(e.g., operating income, EBIT, EBT, net income, earnings per share, residual or economic earnings, economic profit — these profitability metrics could be measured before certain specified special itemsand/or subject to GAAP definition); | ||
| • | Cash Flow(e.g., EBITDA, free cash flow, free cash flow with or without specific capital expenditure target or range, including or excluding divestmentsand/or acquisitions, total cash flow, cash flow in excess of cost of capital or residual cash flow or cash flow return on investment); | ||
| • | Returns(e.g., Profits or Cash Flow returns on: assets, invested capital, net capital employed, and equity); | ||
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| • | Working Capital(e.g., working capital divided by sales, days’ sales outstanding, days’ sales inventory, and days’ sales in payables); | ||
| • | Profit Margins(e.g., Profits divided by revenues, gross margins and material margins divided by revenues, and material margin divided by sales pounds); | ||
| • | Liquidity Measures(e.g.,debt-to-capital,debt-to-EBITDA, total debt ratio); | ||
| • | Sales Growth, Gross Margin Growth, Cost Initiative and Stock Price Metrics(e.g., revenues, revenue growth, revenue growth outside the United States, gross margin and gross margin growth, material margin and material margin growth, stock price appreciation, total return to shareholders, sales and administrative costs divided by sales, and sales and administrative costs divided by profits); and | ||
Strategic Initiative Key Deliverable Metrics consisting of one or more of the following: product development, strategic partnering, research and development, vitality index, market penetration, geographic business expansion goals, cost targets, customer satisfaction, employee satisfaction, management of employment practices and employee benefits, supervision of litigation and information technology, and goals relating to acquisitions or divestitures of subsidiaries, affiliates and joint ventures.
If the Compensation Committee determines that a change in the business, operations, corporate structure or capital structure of our company, or the manner in which we conduct our business, or other events or circumstances render the management objectives unsuitable, the Compensation Committee may in its discretion modify such management objectives or the related minimum acceptable level of achievement, in whole or in part, as the Compensation Committee deems appropriate and equitable, except in the case of an award intended to qualify as “qualified performance-based compensation” under Section 162(m) of the Code (other than in connection with a change of control) where such action would result in the loss of the otherwise available exemption of the award under Section 162(m) of the Code. In such case, the Compensation Committee will not make any modification of the management objectives or minimum acceptable level of achievement with respect to such award.
Administration. The Amended Plan will be administered by the Compensation Committee, in which case, to the extent appropriate, references in the Plan to the Compensation Committee will be deemed to be references to our Board of Directors.Committee. The Compensation Committee may from time to time delegate all or any part of its authority under the Amended Plan to any subcommittee. To the extent of
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The interpretation and construction by the Compensation Committee of any provision of the Amended Plan or of any agreement, notification or document evidencing the grant of stock options, SARs, restricted stock, RSUs, performance shares, performance units or other awards and any determination by the Compensation Committee pursuant to any provision of the Amended Plan or of any such agreement, notification or document will be final and conclusive. No member of the Compensation Committee will be liable for any such action or determination made in good faith.
The Compensation Committee or, to the extent of any delegation, the subcommittee, may delegate to one or more of its members or to one or more of our officers, or to one or more agents or advisors, such administrative duties or powers as it may deem advisable. The Compensation Committee, the subcommittee, or any person to whom duties or powers have been delegated, may employ one or more persons to render advice with respect to any responsibility the Compensation Committee, the subcommittee or such person may have under the Amended Plan. The Compensation Committee or the
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subcommittee may authorize one or more of our officers to do one or both of the following on the same basis as the Compensation Committee or the subcommittee:
designate employees to receive awards under the Amended Plan; and
determine the size of any such awards.
However, the Compensation Committee or the subcommittee may not delegate such responsibilities to any such officer for awards granted to an employee who is a Section 16 officer, director, or more than 10% beneficial owner as determined by the Compensation Committee in accordance with Section 16 of the Securities and Exchange Act of 1934, as amended. The resolution providing for such authorization must set forth the total number of common shares any delegated officer may grant and the officer must report periodically to the Compensation Committee or the subcommittee, as the case may be, regarding the nature and scope of the awards granted pursuant to the delegated authority.
Amendments. Our Board of Directors may at any time and from time to time amend the Amended Plan in whole or in part. However, if an amendment to the Amended Plan
would materially increase the benefits accruing to participants under the Amended Plan,
would materially increase the number of securities which may be issued under the Amended Plan,
would materially modify the requirements for participation in the Amended Plan, or
must otherwise be approved by the our shareholders in order to comply with applicable law or the rules of the New York Stock Exchange (or our applicable securities exchange),
then such amendment will be subject to shareholder approval and will not be effective until such approval has been obtained.
If permitted by Section 409A of the Code and Section 162(m) of the Code, in case of termination of the employment of a participant by reason of death, disability or normal or early retirement, or in the case of unforeseeable emergency or other special circumstances, of a participant who holds
70a stock option or SAR not immediately exercisable in full,
any RSUs as to which the applicable restriction period has not been completed,
any performance shares or performance units which have not been fully earned,
any other awards subject to any vesting schedule or transfer restriction, or
common shares subject to any transfer restriction imposed by the Amended Plan,
the Compensation Committee may, in its sole discretion, accelerate the time at which
such stock option or SAR or other award may be exercised,
such substantial risk of forfeiture or prohibition or restriction on transfer will lapse,
such restriction period will end, or
such performance shares or performance units will be deemed to have been fully earned or the time when such transfer restriction will terminate.
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The Compensation Committee may also waive any other limitation or requirement under any such award.
The Compensation Committee may amend the terms of any awards granted under this Amended Plan prospectively or retroactively, except in the case of an award intended to qualify as “qualified performance-based compensation” under Section 162(m) of the Code (other than in connection with the participant’s death or disability, or a change of control) where such action would result in the loss of the otherwise available exemption. In such case, the Compensation Committee will not make any modification of the management objectives or the level or levels of achievement with respect to such award. Except in connection with certain corporate transactions described in the Amended Plan, no amendment will impair the rights of any participant without his or her consent.
Our Board of Directors may, in its discretion, terminate the Amended Plan at any time. Termination of the Amended Plan will not affect the rights of participants or their successors under any outstanding awards and not exercised in full on the date of termination.
In addition to the provisions in the Amended Plan regarding acceleration of awards, up to 10% of the maximum number of common shares that may be issued or transferred under the Amended Plan, as may be adjusted, may be used for stock options, SARs, restricted stock, RSUs, performance shares, performance units and other awards granted under the Amended Plan that do not comply with the applicable three-year vesting requirements with respect to time-vested awards or the applicable one-year vesting requirements with respect to awards subject to the achievement of performance goals, but in no event will more than 10% of the maximum number of common shares that may be issued or transferred under the Amended Plan be used for such awards, non-employee director awards, or a combination of such awards and non-employee director awards.
No Repricing of Stock Options or SARs. Except in connection with certain corporate transactions described in the Amended Plan, the terms of outstanding awards may not be amended to reduce the option price of outstanding stock options or the base price of outstanding SARs, or cancel outstanding stock options or SARs in exchange for cash, other awards or stock options or SARs with an option price or base price, as applicable, that is less than the option price of the original stock options or base price of the original SARs, as applicable, without shareholder approval. This restriction is intended to prohibit the repricing of “underwater” stock options and SARs and will not be construed to prohibit the adjustments in connection with certain corporate transactions provided for in the Amended Plan. This prohibition may not be amended without approval by our shareholders.
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The Compensation Committee may provide at the date of grant additional restrictions on transfer for certain common shares earned under the Amended Plan.
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Adjustments. The Compensation Committee shall make or provide for such adjustments in the numbers of common shares covered by outstanding stock options, SARs, RSUs, performance shares and performance units granted under the Amended Plan and, if applicable, in the number of common shares covered by other awards, in the option price and base price provided in outstanding stock options and SARs, and in the kind of shares covered by such awards, as the Compensation Committee, in its sole discretion, exercised in good faith, may determine is equitably required to prevent dilution or enlargement of the rights of participants or optionees that otherwise would result from:
any stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of our company;
any merger, consolidation, spin-off, split- off, spin-out, split-up, reorganization, partial or complete liquidation or other distribution of assets, issuance of rights or warrants to purchase securities; or
any other corporate transaction or event having an effect similar to these events or transactions.
In the event of any such transaction or event or in the event of a change of control, the Compensation Committee, in its discretion, may provide in substitution for any or all outstanding awards under the Amended Plan such alternative consideration (including cash), if any, as it, in good faith, may determine to be equitable in the circumstances and may require the surrender of all awards so replaced in a manner that complies with Section 409A of the Code.
In addition, for each stock option or SAR with an option price or base price greater than the consideration offered in connection with any such termination or event or change of control, the Compensation Committee may in its sole discretion elect to cancel such stock option or SAR without any payment to the person holding such stock option or SAR. The Compensation Committee shall also make or provide for such adjustments in the total number of shares available under the Amended Plan and any other share limits under the Amended Plan as the Compensation Committee, in its sole discretion, exercised in good faith, may determine is appropriate to reflect any transaction or event described above. However, any adjustment to the number of ISOs that may be granted under the Amended Plan will be made only if and to the extent that such adjustment would not cause any option intended to qualify as an ISO to fail to so qualify.
Detrimental Activity. Any evidence of award may provide that if a participant, either during employment by us or a subsidiary or within a specified period after termination of employment, engages in any “detrimental activity,” as defined in the Amended Plan attached to this proxy statement, the participant will forfeit any award granted under the Amended Plan then held by the participant or return to us, in exchange for payment by us of any amount actually paid for the common shares by the participant, all common shares that the participant has not disposed of that were offered pursuant to
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In addition, any award agreement may provide for the cancellation or forfeiture of an award or the forfeiture and repayment to us of any gain related to an award, or other provisions intended to have a similar effect, upon such terms and conditions as may be determined by the Compensation Committee from time to time.
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Withholding Taxes. To the extent that we are required to withhold federal, state, local or foreign taxes in connection with any payment made or benefit realized by a participant or other person under the Amended Plan, and the amounts available to us for such withholding are insufficient, it will be a condition to the receipt of such payment or the realization of such benefit that the participant or such other person make arrangements satisfactory to us for payment of the balance of such taxes required to be withheld, which arrangements (in the discretion of the Compensation Committee) may include relinquishment of a portion of such benefit. In no event shall the market value per share of the common shares to be withheld and delivered to satisfy applicable withholding taxes in connection with the benefit exceed the minimum amount of taxes required to be withheld.
Compliance with Section 409A of the Internal Revenue Code. To the extent applicable, it is intended that the Amended Plan and any grants made thereunder comply with the provisions of Section 409A of the Code, so that the income inclusion provisions of Section 409A(a)(1) of the Code do not apply to the participants. The Amended Plan and any grants made under the Amended Plan shall be administered in a manner consistent with this intent. Any reference in the Amended Plan to Section 409A of the Code will also include any regulations or any other formal guidance promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service.
Neither a participant nor any of a participant’s creditors or beneficiaries shall have the right to subject any deferred compensation (within the meaning of Section 409A of the Code) payable under the Amended Plan and grants under the Amended Plan to any anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment. Except as permitted under Section 409A of the Code, any deferred compensation (within the meaning of Section 409A of the Code) payable to a participant or for a participant’s benefit under the Amended Plan and grants under the Amended Plan may not be reduced by, or offset against, any amount owing by the participant to us or any of our affiliates.
If, at the time of a participant’s separation from service (within the meaning of Section 409A of the Code) (1) the participant is a specified employee (within the meaning of Section 409A of the Code and using the identification methodology selected by us from time to time) and (2) we make a good faith determination that an amount payable hereunder constitutes deferred compensation (within the meaning of Section 409A of the Code) the payment of which is required to be delayed pursuant to the six-month delay rule set forth in Section 409A of the Code in order to avoid taxes or penalties under Section 409A of the Code, then we shall not pay such amount on the otherwise scheduled payment date but shall instead pay it, without interest, on the tenth business day of the seventh month after such separation from service.
Notwithstanding any provision of the Amended Plan and grants under the Amended Plan to the contrary, in light of the uncertainty with respect to the proper application of Section 409A of the Code, we reserve the right to make amendments to the Amended Plan and grants under the Amended Plan as we deem necessary or desirable to avoid the imposition of taxes or penalties under Section 409A of the Code. In any case, a participant will be solely responsible and liable for the satisfaction of all taxes and penalties that
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Effective Date and Termination. The Plan was effective as of May 12, 2010. The Amendment, and the Amended Plan, will be effective as of the date the PlanAmendment is approved by our
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shareholders. No grants will be made on or after such date under the Existing Plan, except that outstanding awards granted under the Existing Plan will continue unaffected following such date. No grant will be made under the Amended Plan after May 12, 2020, which date is 10 years after the date on which thisthe Amended Plan iswas first approved by our shareholders, but all grants made on or prior to such date will continue in effect thereafter subject to the terms of the applicable award agreement and the terms of the Amended Plan.
Federal Income Tax Consequences
The following is a brief summary of some of the federal income tax consequences of certain transactions under the Amended Plan based on federal income tax laws in effect on January 1, 2010.2012. This summary is not intended to be complete and does not describe state or local tax consequences.
Tax Consequences to Participants
Non-qualifiedNonqualified Stock Options. In general, (1) no income will be recognized by an optionee at the time a non-qualifiednonqualified stock option is granted; (2) at the time of exercise of a non-qualified stock option, ordinary income will be recognized by the optionee in an amount equal to the difference between the option price paid for the shares and the fair market value of the shares, if unrestricted, on the date of exercise; and (3) at the time of sale of shares acquired pursuant to the exercise of a non-qualifiednonqualified stock option, appreciation (or depreciation) in value of the shares after the date of exercise will be treated as either short-term or long-term capital gain (or loss) depending on how long the shares have been held.
Incentive Stock Options. No income generally will be recognized by an optionee upon the grant or exercise of an ISO. The exercise of an ISO, however, may result in alternative minimum tax liability. If common shares are issued to the optionee pursuant to the exercise of an ISO, and if no disqualifying disposition of such shares is made by such optionee within two years after the date of grant or within one year after the transfer of such shares to the optionee, then upon sale of such shares, any amount realized in excess of the option price will be taxed to the optionee as a long-term capital gain and any loss sustained will be a long-term capital loss.
If common shares acquired upon the exercise of an ISO are disposed of prior to the expiration of either holding period described above, the optionee generally will recognize ordinary income in the year of disposition in an amount equal to the excess (if any) of the fair market value of such shares at the time of exercise (or, if less, the amount realized on the disposition of such shares if a sale or exchange) over the option price paid for such shares. Any further gain (or loss) realized by the participant generally will be taxed as short-term or long-term capital gain (or loss) depending on the holding period.
SARs. No income will be recognized by a participant in connection with the grant of a tandem SAR or a free-standing SAR. When the SAR is exercised, the participant normally will be required to include as taxable ordinary income in the year of exercise an amount equal to the amount of cash received and the fair market value of any unrestricted common shares received on the exercise.
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Restrictions) over the purchase price, if any, of such restricted stock. If a Section 83(b) election has not been made, any dividends received with respect to restricted stock that is subject to the Restrictions generally will be treated as compensation that is taxable as ordinary income to the participant.
RSUs. No income generally will be recognized upon the award of RSUs. The recipient of a RSU award generally will be subject to tax at ordinary income rates on the fair market value of unrestricted common shares on the date that such shares are transferred to the participant under the award (reduced by any amount paid by the participant for such RSUs), and the capital gains/loss holding period for such shares will also commence on such date.
Performance Shares and Performance Units. No income generally will be recognized upon the grant of performance shares or performance units. Upon payment in respect of the earn-out of performance shares or performance units, the recipient generally will be required to include as taxable ordinary income in the year of receipt an amount equal to the amount of cash received and the fair market value of any unrestricted common shares received.
Tax Consequences to PolyOne or Subsidiary
To the extent that a participant recognizes ordinary income in the circumstances described above, we or the subsidiary for which the participant performs services will be entitled to a corresponding deduction provided that, among other things, the income meets the test of reasonableness, is an ordinary and necessary business expense, is not an “excess parachute payment” within the meaning of Section 280G of the Internal Revenue Code and is not disallowed by the $1 million limitation on certain executive compensation under Section 162(m) of the Internal Revenue Code.
Registration with the SEC
We intend to file a Registration Statement onForm S-8 relating to the issuance of the additional 2,000,000 common shares under the Amended Plan with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended, as soon as practicable after approval of the PlanAmendment by our shareholders.
Our Board of Directors unanimously recommends a vote FOR Proposal 23 to approve the First Amendment to the PolyOne Corporation 2010 Equity and Performance Incentive Plan.
New Plan Benefits
It is not possible to determine specific amounts and types of awards that may be awarded in the future under the 2010 Equity and Performance IncentiveAmended Plan because the grant and actual pay-out of awards under such plansthe Amended Plan are discretionary.
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| Number of | Number of securities | |||||||||||
| securities | remaining available for | |||||||||||
| to be issued upon | future issuance under | |||||||||||
| exercise of | Weighted-average | equity compensation | ||||||||||
| outstanding | exercise price of | plans (excluding | ||||||||||
| options, | outstanding options, | securities reflected in | ||||||||||
Plan category | warrants and rights | warrants and rights | column (a)) | |||||||||
| (a) | (b) | (c) | ||||||||||
| Equity compensation plans approved by security holders | 7,037,221 | $ | 6.81 | 2,520,569 | (1) | |||||||
| Equity compensation plans not approved by security holders | — | — | — | |||||||||
| Total | 7,037,221 | $ | 6.81 | 2,520,569 | ||||||||
| Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |||||||||||||||||||||||||||
| (a) | (b) | (c) | ||||||||||||||||||||||||||||
Equity compensation plans approved by security holders | 4,146,954 | $6.88 | 2,115,727 | (1) | ||||||||||||||||||||||||||
Equity compensation plans not approved by security holders | — | — | — | |||||||||||||||||||||||||||
Total | 4,146,954 | $6.88 | 2,115,727 | |||||||||||||||||||||||||||
| (1) | In addition to options, warrants and rights, the PolyOne Corporation |
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REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has reappointedappointed Ernst & Young LLP as our independent registered public accounting firm to audit our financial statements for the current year.fiscal year ended December 31, 2012. The Board of Directors recommends ratification of the Audit Committee’s appointment of Ernst & Young LLP.
The selection of Ernst & Young LLP as our independent registered public accounting firm is not required to be submitted to a vote of our shareholders for ratification. The Sarbanes-Oxley Act of 2002 requires that the Audit Committee be directly responsible for the appointment, compensation and oversight of our independent auditors. The Board of Directors is submitting the appointment to our shareholders for ratification as a matter of good corporate practice. If our shareholders fail to vote on an advisory basis in favor of the selection, the Audit Committee will reconsider whether to retain Ernst & Young LLP and may retain that firm or another firm without re-submitting the matter to our shareholders. Even if our shareholders ratify the appointment, the Audit Committee may, in its discretion, direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such a change would be in our best interests and the best interests of our shareholders. The affirmative vote of a majority of the shares voting on this proposal is required for ratification.
A representative of Ernst & Young LLP is expected to be present at the Annual Meeting of Shareholders. The representative will be given an opportunity to make a statement if desired and to respond to questions regarding Ernst & Young LLP’s examination of our consolidated financial statements and records for the year ended December 31, 2009.
Our Board of Directors unanimously recommends a vote FOR Proposal 4 to ratify the Audit Committee’s appointment of Ernst & Young LLP as our independent registered public accounting firm for 2010.
Independent Registered Public Accountant Services and Related Fee Arrangements
Services provided by Ernst & Young LLP, our independent registered public accounting firm, and related fees in each of the last two fiscal years were as follows:
Audit Fees. Audit services include the annual audit of the financial statements, the audit of internal controls over financial reporting, the reviews of our quarterly reports onForm 10-Q, the issuance of comfort letters, review of registration statements filed with the Securities and Exchange Commission and international statutory audits. Fees for audit services totaled $2,192,039$2,312,600 in 20092011 and $2,358,600$1,983,994 in 2008.2010. The full Audit Committee or the Chair of the Audit Committee pre-approved all audit services and related fee arrangements billed for 20092011 in accordance with the Audit Committee Pre-Approval Policy for all Audit and Non-Audit Services and Related Fee Arrangements.
Audit-Related Fees. Audit-related services principally include audits of businesses identified for divestment and audits of our employee benefit plans. Fees for audit-related services totaled $162,300$379,300 in 20092011 and $185,900$478,015 in 2008.2010. The Audit Committee pre-approved all audit-related fee arrangements billed for 2009.
Tax Fees. Tax services include tax compliance, tax advice and tax planning. Fees for tax services totaled $619,800$1,175,800 in 20092011 and $681,300$1,060,246 in 2008.2010. The Audit Committee pre-approved all tax fee arrangements billed in 2009.
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Our Audit Committee Pre-Approval Policy for all Audit and Non-Audit Services and Related Fee Arrangements (the “Pre-Approval Policy”) requires our Audit Committee to pre-approve all audit and non-audit services performed by Ernst & Young LLP in order to assure that the provision of such services and related fee arrangements do not impair Ernst & Young’sYoung LLP’s independence. Under the Pre-Approval Policy, the Audit Committee may delegate pre-approval authority to one or more of its members, and the member or members to whom the Audit Committee delegates such authority must report any pre-approval decisions to the Audit Committee at its next scheduled meeting. The Audit Committee has formally delegated this pre-approval authority to its Chair. Management has no authority to approve services performed by Ernst & Young LLP that have not been pre-approved by the Audit Committee. The term of any pre-approval is 12 months from the date of pre-approval, unless the Audit Committee specifically provides for a different period.
Ernst & Young LLP will provide us a description of work scope and supportingback-up documentation regarding the specific services they will provide. At each meeting of the Audit Committee, the current year’s previously pre-approved independent auditor fees along with any proposed revisions will be presented for approval. Any interim requests between Audit Committee meetings to provide services that require separate pre-approval will be submitted to the Audit Committee or the Audit Committee Chair by Ernst & Young LLP and our Chief Financial Officer, or Controller, and must include a statement as to whether, in each of their respective views, the request is consistent with the Commission’s rules on auditor independence.
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The Audit Committee assists the Board of Directors in fulfilling its oversight responsibilities to shareholders relating to the integrity of the company’s financial statements, the company’s compliance with legal and regulatory requirements, the independent auditors’ qualifications and independence and the performance of the company’s internal and independent auditors. Management has the primary responsibility for the completeness and accuracy of the company’s financial statements and disclosures, the financial reporting process and the effectiveness of the company’s internal control over financial reporting. In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed the audited financial statements in the Annual Report with management and the independent auditors including any significant changes in the company’s selection or application of accounting principles. The Committee also reviewed and discussed with management and the independent auditors management’s report on internal controlscontrol over financial reporting, including the significance and status of control deficiencies identified by management and the results of remediation efforts undertaken, to determine the effectiveness of internal controlscontrol over financial reporting at December 31, 2009.
The Committee reviewed with the independent auditors, which have the responsibility for expressing an opinion on the conformity of the financial statements with generally accepted accounting principles and applicable rules and regulations, their judgments as to the quality, not just the acceptability, of PolyOne’s critical accounting principles and estimates and such other matters as are required to be discussed with the Audit Committee under generally accepted auditing standards. The Committee also reviewed with the independent auditors their report on the company’s internal controlscontrol over financial reporting at December 31, 2009,2011, including the basis for their conclusions. The Audit Committee hasreviewed and discussed with Ernst & Young LLPthe independent registered public accounting firm all communications required by generally accepted auditing standards, including the matters required to be discussed by the statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1. AU section 380), as adopted by the Public Company Accounting Oversight Board Ethics and Independencein Rule 3526, “Communications with Audit Committees Concerning Independence.”3200T. In addition, Ernst & Young LLP has provided the Committee with the written disclosures and the letter required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent auditors’ communications with the Committee concerning independence and the Committee has discussed with Ernst & Young LLP their firm’s independence from management and PolyOne. The Committee has pre-approved all audit and non-audit services and fees provided to the company by the independent auditors. Based upon the Committee’s considerations, the Committee has concluded that Ernst & Young LLP is independent. The Committee discussed with PolyOne’s internal and independent auditors the overall scope and audit plans and evaluated their performance. The Committee meets with the internal and independent auditors, with and without management present, to discuss the results of their examinations, their evaluations of PolyOne’s internal controls over financial reporting, and the overall quality of PolyOne’s financial reporting. The Audit Committee met eight times during 2009.
In reliance on the reviews and discussions referred to above, the Committee recommended to the Board of Directors (and the Board has approved) that the audited financial statements be included in the Annual Report onForm 10-K for the year ended December 31, 2009,2011, for filing with the Securities and Exchange Commission.
The Committee has re-appointed Ernst & Young LLP as independent auditors for the year 2010.
All members of the Audit Committee concur in this report.
The Audit Committee of
the Board of Directors
Richard H. Fearon, Chairperson
Carol A. Cartwright
Gordon D. Harnett
Richard A. Lorraine
February 17, 2010
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Voting at the Meeting
Shareholders of record at the close of business on March 15, 201014, 2012 are entitled to vote at the meeting. On that date, a total of 92,564,88489,588,332 common shares were outstanding. Each share is entitled to one vote.
The affirmative vote of a majority of the common shares represented and voting, in person or by proxy, at any meeting of shareholders at which a quorum is present is required for action by shareholders on any matter, unless the vote of a greater number of shares or voting by classes or series is required under Ohio law. Abstentions and broker non-votes are tabulated in determining the votes present at a meeting for purposes of determining a quorum. Shareholders will not be entitled to dissenter’s rights with respect to any matter to be considered at the Annual Meeting.
Directors are elected by a plurality of the votes of shares present, in person or by proxy, and entitled to vote on the election of Directors at a meeting at which a quorum is present. An abstention or a broker non-vote has the same effect as a vote against a Director nominee, as each abstention or broker non-vote would be one less vote in favor of a Director nominee. However, because of a change in NYSE rules, we note that, unlike at previous annual meetings, yourYour broker or other nominee willnot be able to vote your shares with respect to the election of Directors if you have not provided directions to your broker. We strongly encourage you to submit your proxy card and exercise your right to vote as a shareholder. Holders of common shares have no cumulative voting rights. If any of the nominees listed on pages 34 through 78 becomes unable or declines to serve as a Director, each properly signed proxy card will be voted for another person recommended by the Board of Directors, however, we have no reason to believe that this will occur.
Because the vote on named executive officer compensation is advisory, there is technically no minimum vote requirement for the proposal. An abstention or broker non-vote will have no effect on the proposal as the abstention or broker non-vote will not be counted in determining the number of votes cast.
The affirmative vote of holders of at least a majority of the shares cast, in person or by proxy, is necessary for the approval of the First Amendment to the PolyOne Corporation 2010 Equity and Performance Incentive Plan, and total votes cast on the proposal must represent over 50% of our common shares. For purposes of NYSE shareholder approval requirements, an abstention is deemed to be a vote cast and will have the same effect as a vote against the proposal. A broker non-vote will negatively impact the ability to meet the NYSE requirement that total votes cast on the proposal represent over 50% of our common shares.
The affirmative vote of holders of at least a majority of the PolyOne Corporation Senior Executive Annual Incentive Plan (Effective January 1, 2011), andshares cast, in person or by proxy, is necessary for the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm. Because the proposal to ratify the appointment of Ernst & Young LLP is considered “routine,” your broker or other nominee will be able to vote your shares with respect to this proposal without your instructions. An abstention or broker non-vote will have no effect on any of these proposalsthis proposal as the abstention or broker non-vote will not be counted in determining the number of votes cast.
We know of no other matters that will be presented at the meeting, however, if other matters do properly come before the meeting, the persons named in the proxy card will vote on these matters in accordance with their best judgment.
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Shareholder Proposals
Any shareholder who wishes to submit a proposal to be considered for inclusion in next year’s Proxy Statement should send the proposal to us, addressed to the Secretary, so that it is received on or before December 6, 2010.November 23, 2012. We suggest that all proposals be sent by certified mail, return receipt requested.
Additionally, a shareholder may submit a proposal for consideration at the 20112013 Annual Meeting of Shareholders, but not for inclusion in next year’s Proxy Statement, if the shareholder gives timely written notice of such proposal in accordance with Regulation 8(c) of our Regulations. In general, Regulation 8(c) provides that, to be timely, a shareholder’s notice must be delivered to our principal executive offices not less than 60 nor more than 90 days prior to the first anniversary of the date on which we first mailed our proxy materials for the preceding year’s annual meeting.
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Proxy Solicitation
We are making this proxy solicitation and will bear the expense of preparing, printing and mailing this notice and proxy statement. In addition to requesting proxies by mail, our officers and regular employees may request proxies by telephone or in person. We have retained Morrow & Co., LLC, 470 West Avenue, Stamford, CT 06902, to assist in the solicitation for an estimated fee of $7,000 plus reasonable expenses. We will ask custodians, nominees, and fiduciaries to send proxy material to beneficial owners in order to obtain voting instructions. We will, upon request, reimburse them for their reasonable expenses for mailing the proxy material.
We are mailing our Annual Report to Shareholders, including consolidated financial statements for the year ended December 31, 2009,2011, to shareholders of record with this proxy statement.
We will furnish without charge to each person from whom a proxy is being solicited, upon written request of any such person, a copy of the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 2012, as filed with the SEC, including the financial statements and schedules thereto. Requests for copies of such Annual Report on Form 10-K should be directed to: PolyOne Center, 33587 Walker Road, Avon Lake, Ohio 44012, Attention: Secretary.
For the Board of Directors
PolyOne Corporation
LISA K. Kunkle
Vice President, General Counsel and
Secretary
March 29, 2010
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FIRST AMENDMENT
TO THE
POLYONE CORPORATION
2010 EQUITY AND PERFORMANCE INCENTIVE PLAN
This First Amendment to the PolyOne Corporation 2010 Equity and Performance Incentive Plan (this “Amendment”) is to attract and retain directors, officers and other employeesmade as of the Company and its Subsidiaries and to provide to such persons incentives and rewards for superior performance.
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WHEREAS, on March 4, 2010, the Board approved and adopted, subject to notation on the books and recordsapproval of the Company and, unless otherwise determined by the Compensation Committee, need not be signed by a representative of the Company or a Participant.
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WHEREAS, on May 12, 2010, the Company’s shareholders approved the 2010 Plan;
WHEREAS, the 2010 Plan was effective on May 12, 2010 and no grant will be made under the 2010 Plan after May 12, 2020 (more than 10 years after the date on which the 2010 Plan was first approved by the shareholders of Performancethe Company), but all grants made on or prior to such date will continue in effect thereafter subject to the terms thereof and of the 2010 Plan;
WHEREAS, it is the desire of the Company to amend the 2010 Plan, effective as of the date on which the Company’s shareholders approve this Amendment, to (1) increase the maximum number of Common Shares Performance Units, Restricted Stock, Restricted Stock Units,that may be issued or transferred under the 2010 Plan and (2) increase certain other awards contemplatednumerical Common Share limits contained in the 2010 Plan; and
WHEREAS, the Board may amend the 2010 Plan, subject to approval by the Company’s shareholders, under Section 10 of this Plan, or portion of such award, to a Covered Employee that is intended to satisfy the requirements for “qualified performance-based compensation” under Section 162(m)17(a) of the Code.
NOW, THEREFORE, effective as of the date on which this Amendment is approved by the Company’s shareholders, the Board hereby amends the 2010 Plan as follows:
1.Amendment to Section 6 or Section 9 of this Plan as to which neither the substantial risk of forfeiture nor the prohibition on transfers has expired.
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2.Amendment to a Participant and, therefore, the total number of shares available under the Plan as of a given date shall not be reduced by any shares relating to prior awards that have expired or have been forfeited or cancelled. Upon payment in cashSection 3(b) of the benefit provided by any award granted under the2010 Plan any Common Shares that were covered by that award will be available for issue or transfer hereunder. Notwithstanding anything to the contrary contained herein: (A) if Common Shares are tendered or otherwise used in payment. Section 3(b) of the Option Price of an Option Right, the total number of shares covered by the Option Right being exercised shall count against the aggregate plan limit described above; (B) Common Shares withheld by the Company to satisfy the tax withholding obligation shall count against the aggregate plan limit described above;2010 Plan is hereby amended and (C) the number of Common Shares covered by an Appreciation Right, to the extent that it is exercised and settledrestated in Common Shares, and whether or not shares are actually issued to the Participant upon exercise of the Appreciation Right, shall be considered issued or transferred pursuant to the Plan. In the event that the Company repurchases shares with Option Right proceeds, those shares will not be added to the aggregate plan limit described above. If, under this Plan, a Participant has elected to give up the right to receive compensation in exchange for Common Shares based on fair market value, such Common Shares will not count against the aggregate plan limit described above.
“(b)Life of Plan Limits. Notwithstanding anything in this Section 3, or elsewhere in this Plan, to the contrary, and subject to adjustment as provided in Section 12 of this Plan:
(i) The aggregate number of Common Shares actually issued or transferred by the Company upon the exercise of Incentive Stock Options will not exceed 3,000,0005,000,000 Common Shares; and
(ii) The number of shares issued as Restricted Stock, Restricted Stock Units, Performance Shares and Performance Units and other awards under Section 10 of this Plan (after taking into account any forfeitures and cancellations) will not during the life of the Plan in the aggregate exceed 1,200,0002,000,000 Common Shares.
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(b) Capitalized terms used but not defined in this Plan toAmendment have the contrary, up to 10% of the maximum number of Common Shares that may be issued or transferred under this Plan as provided for in Section 3(a)(i) of this Plan, as may be adjusted under Section 12 of this Plan, may be used for Awards granted under Sections 4 through 8 and Section 10 of this Plan that do not comply with the three-year vesting requirements set forth in Sections 4(f), 5(b)(iii), 6(c), 7(c) and 10(d) of this Plan or the one-year vesting requirements set forth in Sections 4(g), 5(b)(v), 6(e), 7(a), 8(b) and 10(d) of this Plan;provided,however, that in no event will more than 10% of the maximum number of Common Shares that may be issued or transferred under this Plan as provided for in Section 3(a)(i) of this Plan, as may be adjusted under Section 12 of this Plan, be used for (A) Awards granted under Sections 4 through 8 and Section 10 of this Plan that do not comply with the three-year vesting requirements set forth in Sections 4(f), 5(b)(iii), 6(c), 7(c) and 10(d) of this Plan or the one-year vesting requirements set forth in Sections 4(g), 5(b)(v), 6(e), 7(a), 8(b) and 10(d) of this Plan, (B) Awards granted under Section 9 of the Plan or (C) a combination of the Awards described in subsections (A) and (B).
A-20
B-1
A-2
B-2
B-3
B-4
B-5
B-6
B-7
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| Electronic Voting Instructions | |||||||||||
You can vote by Internet or telephone! | |||||||||||
| Available 24 hours a day, 7 days a week! | |||||||||||
Instead of mailing your proxy card, you may choose one of the two voting methods outlined below to vote. | |||||||||||
VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR. | |||||||||||
Proxy cards submitted by the Internet or telephone must be received by 11:59 p.m., Central Time, on May 8, 2012. | |||||||||||
 | Vote by Internet | ||||||||||
• Log on to the Internet and go to | |||||||||||
• Follow the steps outlined on the secured website. | |||||||||||
 |  | Vote by telephone | |||||||||
• Call toll free 1-800-652-VOTE (8683) within the USA, US territories & Canada any time on a touch tone telephone. There isNO CHARGEto you for the call. • Follow the instructions provided by the recorded message. | |||||||||||
Using ablack inkpen, mark your votes with anXas shown in this example. Please do not write outside the designated areas. | x | |||||||||
 | ||||||||||
▼qIF YOU HAVE NOT VOTED VIA THE INTERNETOR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. ▼q
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| A | ||||||||
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| o | Mark here to vote FOR all nominees | |||||||||||||||||||||||||||||||||||||
| o | Mark here to WITHHOLD vote from all nominees | |||||||||||||||||||||||||||||||||||||
| 01 | 02 | 03 | 04 | 05 | 06 | 07 | 08 | 09 | ||||||||||||||||||||||||||||||
| o | For All EXCEPT - - To withhold a vote for one or more nominees, mark the box to the left and the corresponding numbered box(es) to the right. | o | o | o | o | o | o | o | o | o |
| For | Against | Abstain | For | Against | Abstain | ||||||||||
| 2. | Proposal to approve the PolyOne Corporation 2010 Equity and Performance Incentive Plan. | o | o | o | 3. | Proposal to approve the PolyOne Corporation Senior Executive Annual Incentive Plan (Effective January 1, 2011). | o | o | o | ||||||
| 4. | Proposal to ratify the appointment of Ernst & Young LLP as PolyOne’s independent registered public accounting firm for the year ending December 31, 2010. | o | o | o | |||||||||||
| 1. Election of Directors: | 01 - J. Douglas Campbell | 02 - Dr. Carol A. Cartwright | 03 - Richard H. Fearon | 04 - Gregory J. Goff | ||||
| 05 - Gordon D. Harnett | 06 - Richard A. Lorraine | 07- Stephen D. Newlin | 08 - William H. Powell | |||||
| 09 - Farah M. Walters | 10 - William A. Wulfsohn |
¨ | Mark here to vote FOR all nominees | |||||||||||
¨ | Mark here toWITHHOLD vote from all nominees | |||||||||||
| 01 | 02 | 03 | 04 | 05 | 06 | 07 | 08 | 09 | 10 | |||||||||||||||||||||||
¨ | ForAllEXCEPT - To withhold a vote for one or more nominees, mark the box to the left and the corresponding numbered box(es) to the right. | ¨ | ¨ | ¨ | ¨ | ¨ | ¨ | ¨ | ¨ | ¨ | ¨ |
| For | Against | Abstain | For | Against | Abstain | |||||||||||||
| 2. | Proposal to approve the advisory resolution on named executive officer compensation. |
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¨ | 3. | Proposal to approve the First Amendment to the PolyOne Corporation 2010 Equity and Performance Incentive Plan. |
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| 4. | Proposal to ratify the appointment of Ernst & Young LLP as PolyOne’s independent registered public accounting firm for the year ending December 31, 2012. |
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B | Non-Voting Items | |||||||||||
Change of Address —Please print your new address below. | Comments— Please print your comments below. | Meeting Attendance | ||||||||||
| Mark the box to the right | ¨ | |||||||||||
| if you plan to attend the | ||||||||||||
| Annual Meeting. | ||||||||||||
| C | Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below |
| Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian or custodian, please give full title. | ||||||
Date (mm/dd/yyyy) — Please print date below. | Signature 1 — Please keep signature within the box. | Signature 2 — Please keep signature within the box. | ||||||
| / / |
March 23, 2012
You are cordially invited to attend the Annual Meeting of Shareholders to be held at 9:00 a.m. on Wednesday, May 12, 2010,9, 2012, at LACENTRE Conference and Banquet Facility, Champagne C Ballroom, 25777 Detroit Road, Westlake, Ohio.
Please review the Notice of the Annual Meeting and the Proxy Statement for information concerning the business to be conducted at the Annual Meeting and the nominees for election as Directors.
Whether or not you plan to attend the Annual Meeting, please complete, sign, date and return your proxy card, or vote over the telephone or the Internet as soon as possible so that your shares can be voted at the meeting in accordance with your instructions.Your vote is very important.You may, of course, withdraw your proxy and change your vote, prior to or at the Annual Meeting, by following the steps described in the Proxy Statement.
I appreciate the strong support of our shareholders over the years and look forward to seeing you at the meeting.
Sincerely,
STEPHEN D. NEWLIN
Chairman, President and Chief Executive Officer
PolyOne Corporation
6qIF YOU HAVE NOT VOTED VIA THE INTERNETOR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.6q
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Proxy Card — PolyOne Corporation
ANNUAL MEETING OF SHAREHOLDERS, MAY 12, 2010
This proxy is Solicited on Behalf of the Corporation’s Board of Directors
The undersigned hereby appoints Kenneth M. Smith, Lisa K. Kunkle and Robert M. Patterson, and each of them jointly and severally, Proxies, with full power of substitution, to vote, as designated on the reverse side, all common shares of PolyOne Corporation held of record by the undersigned on March 15, 2010,14, 2012, at the Annual Meeting of Shareholders to be held on May 12, 2010,9, 2012, or any adjournment thereof.
The Board of Directors recommends a vote (1) “FOR” the election of the nominees to serve as Directors, (2) “FOR” the approval of the advisory resolution on named executive officer compensation, (3) “FOR” the approval of the First Amendment to the PolyOne Corporation 2010 Equity and Performance Incentive Plan (3) “FOR” the approval of the PolyOne Corporation Senior Executive Annual Incentive Plan (Effective January 1, 2011), and (4) “FOR” the ratification of the appointment of Ernst & Young LLP as PolyOne Corporation’s independent registered public accounting firm for the fiscal year ending December 31, 2010. 2012.The shares represented by this Proxy will be voted as specified on the reverse side. If no direction is given in the space provided on the reverse side, this proxy will be voted “FOR” the election of the nominees specified on the reverse side, “FOR” the approval of the advisory resolution on named executive officer compensation, “FOR” the approval of the First Amendment to the PolyOne Corporation 2010 Equity and Performance Incentive Plan “FOR” the approval of the PolyOne Corporation Senior Executive Annual Incentive Plan (Effective January 1, 2011), and “FOR” the ratification of the appointment of Ernst & Young LLP as PolyOne Corporation’s independent registered public accounting firm for the fiscal year ending December 31, 2010.
PLEASE VOTE, DATE AND SIGN THIS PROXY ON THE OTHER SIDE AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
