UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A
(RULERule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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Notice of 20102013
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, 2010,15, 2013, at LACENTRE Conference and Banquet Facility, Champagne C Ballroom, 25777 DetroitPolyOne Corporation’s corporate headquarters located at PolyOne Center, 33587 Walker 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 DetroitPolyOne Corporation’s corporate headquarters located at PolyOne Center, 33587 Walker Road, Westlake,Avon Lake, Ohio 44012 at 9:00 a.m. on Wednesday, May 12, 2010.15, 2013. The purposes of the meeting are:
| 1. | ||
| 2. | ||
| 3. | ||
Shareholders of record at the close of business on March 15, 201018, 2013 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 |
April 2, 2013
Important Notice Regarding the Availability of Proxy Materials
for the Annual Meeting of Shareholders to be held on May 12, 2010:15, 2013:
The proxy statement, proxy card and annual report to shareholders for the fiscal year ended December 31, 20092012 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, 2010April 2, 2013
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 DetroitPolyOne Corporation’s corporate headquarters located at PolyOne Center, 33587 Walker Road, Westlake,Avon Lake, Ohio 44012 at 9:00 a.m. on Wednesday, May 12, 2010,15, 2013, 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 proxy card will be voted in accordance with the choices marked on the card. If no choices are marked, the shares will be voted (1) to elect the nominees listed on pages 34 through 78 of this proxy statement, (2) to approve, by non-binding vote, our named executive officers’ compensation for the PolyOne Corporation 2010 Equityfiscal year ended December 31, 2012 and Performance Incentive Plan, to approve the PolyOne Corporation Senior Executive Annual Incentive Plan (Effective January 1, 2011) and(3) to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2010.2013. 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 respective 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, 2010.2, 2013. 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 tennine 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 Meetingannual meeting of Shareholdersshareholders immediately following 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 PolyOne Corporation’s (“PolyOne” or 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 occupationsoccupation and employment during the past five years, name and principal business of any corporation or other organization in which such occupationsoccupation 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 2011,2014, 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 exception of Sandra Beach Lin. Ms. Beach Lin was recommended to our Nominating and Governance Committee for election to the Board by a third-party search firm, Nosal Partners LLC. Ms. Beach Lin was subsequently recommended by our Nominating and Governance Committee to the Board and nominated for election as a Director by the Board at the 2013 Annual Meeting of Shareholders. If Ms. Beach Lin is elected as a Director by our shareholders, the size of the Board will increase to ten members. The composition of the Board is intended to reflect an appropriate mix of skill sets, experience and qualifications that are relevant to PolyOne Corporation’s business and governance over time.
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 DirectorsDirector nominees 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. EachWith the exception of Ms. Beach Lin, 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:
Sandra Beach Lin New Director Age — | Retired | ||
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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 of Eaton 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 | ||
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| international operations, knowledge of diversified companies and 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 | ||
Gregory J. Goff Director since 2011 Age — 56 | 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, an 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 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 |
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| international issues, as he previously resided in Canada and Japan 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 | |||
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 | |||
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. | ||
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| 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 | ||
William A. Wulfsohn Director since 2011 Age — 51 | President and Chief Executive Officer of Carpenter Technology Corporation, an 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 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 addition to our Board. He is a proven | |
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| leader, with deep and varied experience in technology and successful business operations. His background in managing operations in Europe and 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 directorsDirectors meet regularly in executive sessions. Our Corporate Governance Guidelines provide that the independent directorsDirectors are to select a Lead Director to preside at executive sessions. The Lead Director acts as the key liaison between the independent directorsDirectors and the Chief Executive Officer and is responsible for coordinating the activities of the other independent directorsDirectors and for performing various other duties as may from time to time be determined by the independent directors.Directors. Mr. Harnett has served as our Lead Director since July 2007.
Board Leadership Structure
Mr. Newlin is the Chairman of our Board of Directors and our Chief Executive Officer.Officer (“CEO”). The Board of Directors believes that this leadership structure is appropriate for our companyCompany given the
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experience and active involvement of our independent directors,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,Directors, increases the independent directors’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 directorDirector 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 2009,2012, 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, nine2012, all 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 ten directorsnine 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 the 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 | Nominating and Governance Committee | ||||
C.A. Cartwright | X | X* | ||||||
R.H. Fearon | X* | X | ||||||
G.J. Goff | X | X | ||||||
G.D. Harnett | X | X* | ||||||
R.A. Lorraine | X | X | ||||||
S.D. Newlin | X | |||||||
W.H. Powell | X | X* | ||||||
F.M. Walters | X | X | ||||||
W.A. Wulfsohn | X | |||||||
Number of Meetings in 2012 | 8 | 6 | 2 | 2 |
X — Member
* — Chairperson
If Ms. Beach Lin is elected as a Director, she is expected to serve on the Audit Committee and on the Environmental, Health and Safety Committee.
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 Audit Committee exercises oversight of our independent
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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 perquisitesother benefits afforded our executive officers and other highly-compensated personnel. The Compensation Committee has similar responsibilities with respect to non-employee Directors, except that the Compensation Committee’s actions and determinations are subject to the approval of the Board of Directors. The Compensation 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 Compensation Committee makes use of PolyOne resources, including members of senior management in our human resources, legal and finance departments. In addition, the Compensation Committee directly engages the resources of Towers Watson (formerly Towers Perrin, the(the “Consultant”) as an independent outside compensation consultant to assist the Compensation Committee in assessing the competitiveness and overall appropriateness of our executive compensation programs. In 2009,2012, the
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The Compensation Committee periodically reviews the relationship with the Consultant 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 the Consultant 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 forconsidered all relevant factors, specifically including six consultant independence factors under Rule 10C-1(b)(4)(i) through (vi) under the Chief Executive OfficerSecurities Exchange Act of 1934, (referred to as the “Exchange Act”) in evaluating the independence of the Consultant. The Compensation Committee reviewed each factor in depth, as well as information provided by the Consultant that related to and other executive officerswas responsive to each factor, which assisted in the assessment. Upon completing this assessment, the Compensation Committee determined that the Consultant serves as an independent advisor and that no “conflicts of interest have been raised by the work performed by the Consultant.”
The Compensation Committee also oversees the process by which the Board annually evaluates the performance of the Chief Executive Officer.CEO. All members of the Compensation Committee have been determined to be independent as defined by the NYSE listing standards.
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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.
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 Nominating and Governance 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 | ||
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 does not haveof Directors; and
Our needs from time to time.
While neither the Nominating and Governance Committee nor the Board has 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 Nominating and Governance Committee
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The Nominating and Governance 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,Directors, the need for Audit Committee expertise and the evaluations of other prospective nominees. The Nominating and Governance 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 Nominating and Governance Committee in the same manner as any other nominee for election to the Board. Finally, if the Nominating and Governance Committee determines that a candidate should be nominated for election to the Board, the Nominating and Governance Committee will present its findings and recommendation to the full Board for approval.
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In past years,2012, the Nominating and Governance Committee has used a third-party search firm, Russell Reynolds Associates, Inc.,Nosal Partners LLC, 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 Nominating and Governance Committee and each candidate during the screening and evaluation process, and thereafter to be available for consultation as needed by the Nominating and Governance 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.
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 Committeecommittee 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.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 companyCompany 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 pages 8 and 9, supports the risk oversight function of the Board of Directors, but that the risk oversight function otherwise has no effect on the Board’s leadership structure.
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Code of Ethics, Code of Conduct and Corporate Governance Guidelines
In accordance with applicable NYSE listing standards and Securities and Exchange CommissionSEC 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.
Our Corporate Governance Guidelines to adoptcontain 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 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.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 communicatingwho wish to communicate 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 2009,2012, we paid our non-employee Directors an annual retainer of $135,000,$165,000, in quarterly in arrears,installments (in arrears), consisting of a cash retainer of $60,000$75,000 and an award of $75,000$90,000 in value of fully vested common shares. 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
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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 ChairpersonsLead Director and chairpersons of each committeethe following committees receive athe additional fixed annual cash retainer as follows: $5,000 for Environmental, Health and Safety, Nominating and Governance and Financial Policy Committees and $10,000 for Audit and Compensation Committees. These amounts are payableretainers (payable on a quarterly basis. basis in arrears) listed below:
| Role | Annual Cash Retainer | |
Lead Director | $25,000 | |
Chair, Audit Committee | $15,000 | |
Chair, Compensation Committee | $10,000 | |
Chair, Environmental, Health and Safety Committee | $7,500 | |
Chair, Nominating and Governance Committee | $7,500 |
We reimburse Directors for their expenses associated with each meeting attended.
Directors who are not our employees may defer payment of all or a portion of their compensation as a Directorannual cash retainer under our Deferred Compensation Plan for Non-Employee Directors. A DirectorDirectors may defer the compensation as cash oralso elect to have ittheir cash retainer converted into our common shares.
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| Fees Earned or | Stock | Option | ||||||||||||||||||
| Paid in Cash(1) | Awards(2)(3) | Awards(3) | Total | |||||||||||||||||
| Name | ($) | ($) | ($) | ($) | ||||||||||||||||
| J.D. Campbell | 66,000 | 75,000 | — | 141,000 | ||||||||||||||||
| C.A. Cartwright | 64,125 | 75,000 | — | 139,125 | ||||||||||||||||
| G. Duff-Bloom | 61,000 | 75,000 | — | 136,000 | ||||||||||||||||
| R.H. Fearon | 71,000 | 75,000 | — | 146,000 | ||||||||||||||||
R.A. Garda(4) | 22,167 | 27,708 | — | 49,875 | ||||||||||||||||
| G.D. Harnett | 71,000 | 75,000 | — | 146,000 | ||||||||||||||||
| R.A. Lorraine | 61,000 | 75,000 | — | 136,000 | ||||||||||||||||
| E.J. Mooney | 66,000 | 75,000 | — | 141,000 | ||||||||||||||||
| W.H. Powell | 61,000 | 75,000 | — | 136,000 | ||||||||||||||||
| F.M. Walters | 61,000 | 75,000 | — | 136,000 | ||||||||||||||||
Name (a) | Fees Earned or (b) ($) | Stock Awards (c) ($) | Option (d) ($) | Total (e) ($) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
J.D. Campbell | 58,492 | 70,190 | — | 128,682 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
C.A. Cartwright | 82,500 | 90,000 | — | 172,500 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
R.H. Fearon | 90,000 | 90,000 | — | 180,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
G.J. Goff | 75,000 | 90,000 | — | 165,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
G.D. Harnett | 110,000 | 90,000 | — | 200,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
R.A. Lorraine | 75,000 | 90,000 | — | 165,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
E.J. Mooney | 29,464 | 32,143 | — | 61,607 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
W.H. Powell | 78,750 | 90,000 | — | 168,750 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
F.M. Walters | 75,000 | 90,000 | — | 165,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
W.A. Wulfsohn | 75,000 | 90,000 | — | 165,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fees Earned or Paid in Cash (column (b))
Non-employee Directors may defer payment of all or a portion of their $75,000 annual cash retainer (payable on a quarterly basis in arrears) as well as meeting and committee chairperson fees.
Stock Awards (column (c))
Our non-employee Directors’ stock compensation consisted of an annual award (payable on a quarterly basis in arrears) of $90,000 in value of fully vested common shares, which the Directors may elect to defer. We determined the number of shares to be granted by dividing the dollar value by the arithmetic
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average of the high and low stock price on the last trading day of each quarter. We used the following quarterly per share fair market values in calculating the number of shares: March 30, 2012 — $14.48 (1,553 shares); June 30, 2012 — $13.515 (1,664 shares); September 28, 2012 — $16.52 (1,361 shares); and December 31, 2012 — $20.175 (1,115 shares).
Option Awards (column (d))
We did not grant stock options to our non-employee Directors in 2012.
The number of outstanding stock options held by each non-employee Director at the end of the fiscal year is set forth in the following table. All of these options are fully exercisable. In addition, the number of fully-vested deferred shares held in an account for each Director at the end of the fiscal year is set forth below. Stock option exercises conducted by our Directors in 2012 are set forth in the next following table below.
| Name | Option Awards: Number of Securities Underlying Unexercised Options (#) | Deferred Stock Awards: (#) | ||||||||||||||||||
J.D. Campbell(2) | 0 | 244 | ||||||||||||||||||
C.A. Cartwright | 6,000 | 30,263 | ||||||||||||||||||
R.H. Fearon | 0 | 0 | ||||||||||||||||||
G.J. Goff | 0 | 0 | ||||||||||||||||||
G.D. Harnett | 6,000 | 95,361 | ||||||||||||||||||
R.A. Lorraine | 0 | 46,241 | ||||||||||||||||||
E.J. Mooney(2) | 0 | 0 | ||||||||||||||||||
W.H. Powell | 0 | 46,028 | ||||||||||||||||||
F.M. Walters | 6,000 | 19,551 | ||||||||||||||||||
W.A. Wulfsohn | 0 | 7,458 | ||||||||||||||||||
| (1) | ||
| 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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| (2) | Messrs. Campbell and Mooney retired from service on the Board in 2012. A retirement distribution of 89,415 shares was made from the Deferred Compensation Plan for Non-Employee Directors to Mr. Mooney on May 15, 2012. A retirement distribution of 140,688 shares was made from the Deferred Compensation Plan for Non-Employee Directors to Mr. Campbell on October 12, 2012. Mr. Campbell’s remaining 244 shares were deferred into the Deferred Compensation Plan for Non-Employee Directors on December 31, 2012 as part of his fourth quarter 2012 compensation, and were distributed to him as part of his retirement distribution on January 11, 2013. |
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2012 Option Exercises
| Name | Number of Shares Acquired (#) | Value Realized ($) | ||||||
J.D. Campbell | 12,000 | $ | 164,370 | |||||
C.A. Cartwright | 12,000 | $ | 88,020 | |||||
R.H. Fearon | 15,000 | $ | 135,750 | |||||
G.J. Goff | 0 | $ | 0 | |||||
G.D. Harnett | 12,000 | $ | 92,220 | |||||
R.A. Lorraine | 0 | $ | 0 | |||||
E.J. Mooney | 0 | $ | 0 | |||||
W.H. Powell | 0 | $ | 0 | |||||
F.M. Walters | 6,000 | $ | 78,210 | |||||
W.A. Wulfsohn | 0 | $ | 0 | |||||
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BENEFICIAL OWNERSHIP OF COMMON SHARES
The following table shows the number of our common shares beneficially owned on March 15, 20101, 2013 (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 3740 (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 Ownership | |||||||||
Sandra Beach Lin | 0 | — | 0 | |||||||||
Carol A. Cartwright | 151,628 | (2) | 6,000 | (3) | 157,628 | |||||||
Richard H. Fearon | 73,510 | — | 73,510 | |||||||||
Gregory J. Goff | 7,420 | — | 7,420 | |||||||||
Gordon D. Harnett | 162,547 | (2) | 6,000 | (3) | 168,547 | |||||||
Richard A. Lorraine | 46,241 | (2) | — | 46,241 | ||||||||
William H. Powell | 111,945 | (2) | — | 111,945 | ||||||||
Farah M. Walters | 146,998 | (2) | 6,000 | (3) | 152,998 | |||||||
William A. Wulfsohn | 7,458 | (2) | — | 7,458 | ||||||||
Stephen D. Newlin | 324,103 | 110,300 | (4) | 434,403 | ||||||||
Robert M. Patterson | 205,483 | 53,622 | (4) | 259,105 | ||||||||
Richard J. Diemer, Jr. | 50,000 | 4,230 | (4) | 54,230 | ||||||||
Robert M. Rosenau | 147,029 | 44,520 | (4) | 191,549 | ||||||||
Kenneth M. Smith | 114,020 | 11,625 | (4) | 125,645 | ||||||||
Thomas J. Kedrowski | 199,908 | 9,783 | (4) | 209,691 | ||||||||
18 Directors and executive officers | 2,016,417 | 315,100 | 2,331,517 | |||||||||
| (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: | |
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| (3) | Includes shares the individuals have a right to acquire |
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| (4) | Includes the number of shares that would be acquired if the individuals’ outstanding and exercisable stock-settled stock appreciation rights |
The following table shows information relating to all persons who, as of March 15, 2010,1, 2013, 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 | ||||||
FMR LLC | 9,434,511 | 10.592 | ||||||
BlackRock, Inc. | 6,765,834 | 7.60 | ||||||
The Vanguard Group, Inc. | 5,197,224 | 5.83 | ||||||
| As of January |
| (2) | As of December 31, 2012, based upon information contained in a Schedule 13G/A filed with the SEC. BlackRock, Inc. has sole voting power and sole dispositive power with respect to all of these shares. |
| (3) | As of | |
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The purpose of our sharestock ownership guidelines for our non-employee Directors, executive officers and other elected corporate officers(referred to as the “Guidelines”) is to better align theirour Directors’ financial interests with those of our shareholders by requiring them to own a minimum level of our shares. These individuals are expectedIn December 2012, we amended our Guidelines to make continuing progress towards compliance withmore accurately reflect the guidelines andmarket median multiple of retainer. This change was necessary due to comply fully within five yearssignificant stock price appreciation that had occurred since the prior adoption 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.Guidelines. 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 directorsnon-employee Directors is 50,000a minimum of 22,000 shares.
The Directors are expected to make continuing progress towards compliance with the Guidelines and to comply fully within five years of becoming subject to the Guidelines. For purposes of our guidelines,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.units. 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, with 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.shares (if
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applicable). 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, requires that certain of our executive officers, andour 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. ExecutiveSEC. These officers, Directors and greater than 10% shareholders are required by Securities and Exchange CommissionSEC 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 20092012 and until the date of this proxy statement, all Section 16(a) filing requirements applicable to our executivethose officers, Directors and 10% shareholders were satisfied, except for onethat a miscommunication regarding the timing of stock sales over a several day period led to the late filing of a Form 4 to report one transaction for William H. Powell and a misunderstanding regarding how to report transactions made with respect to a Grantor Retained Annuity Trust led to a late filing of a Form 4 to report one transaction 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
This Compensation Discussion and Analysis (“CD&A”) describes the principles underlying our executive compensation policies as well as our most important executive compensation decisions and practices for 2012. 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 six individuals are our Named Executive Officers for 2012, as that term is defined by the SEC:
| Name | Title | |
| Stephen D. Newlin | Chairman, President and Chief Executive Officer | |
| Robert M. Patterson(1) | Executive Vice President and Chief Operating Officer | |
| Richard J. Diemer, Jr.(2) | Senior Vice President and Chief Financial Officer | |
| Robert M. Rosenau | Senior Vice President and President, Performance Products and Solutions | |
| Kenneth M. Smith | Senior Vice President and Chief Information and Human Resources Officer | |
| Thomas J. Kedrowski | Executive Vice President, Global Operations and Process Improvement |
| (1) | Mr. Patterson served as our Executive Vice President and Chief Financial Officer until he was promoted to serve as our Executive Vice President and Chief Operating Officer on March 7, 2012. |
| (2) | Mr. Diemer was hired to serve as our Senior Vice President and Chief Financial Officer effective March 7, 2012. |
Executive Summary
How Pay is tied to Company Performance
Our compensation programs are designed to: (1) reward employees for generating consistent improvement in Company performance; (2) attract and retain talented executives; and (3) align compensation with the long-term interests of our shareholders; with the ultimate goal of improving long-term shareholder value. We also believe that as an employee’s level of responsibility and performance increase, so should the proportion of performance-based compensation. As a result, and as described in greater detail throughout the CD&A, our executive compensation programs and practices are appropriately aligned with Company performance and link a significant portion of our Named Executive Officers’ pay to sustained business performance over a multi-year period without encouraging excessive risk-taking.
2012 Business Highlights
In 2012, PolyOne delivered strong operating results. Although 2012 was a challenging year for both the domestic and global economies, as a result of the leadership of our Board of Directors and executive officers, and the dedication and hard work of our employees, we continued our trend of improving financial performance. During 2012, our significant accomplishments included:
Stock price increased from an $11.55 closing price on December 30, 2011 to a $20.42 closing price on December 31, 2012, which represents a 77% increase;
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Record Adjusted Earnings Per Share of $1.20, which represents an 18% increase from 2011;
Adjusted Operating Margin of 7.4%, which represents a 22% increase from 2011;
Revenue increased to $3.0 billion, which represents a 4.5% increase from 2011;
Working Capital as a Percentage of Sales of 9.9%, which we consider to be world class performance; and
2012 merger and acquisition activity included integrating ColorMatrix into the PolyOne organization, acquiring Glasforms, Inc., and announcing an agreement to acquire Spartech Corporation.
All of this was made possible by our aggressive goal setting, and our relentless efforts to execute our well-defined strategy of specialization, globalization, commercial excellence and operational excellence. We are pleased with the accomplishments in 2012, which strengthen our position and continue our progress on executing this strategy. Our setting of well-defined, strategic goals and our pursuit of achievement of these goals is working, and we believe we are well-positioned to continue our transformation into a high performing global specialty company.
We believe our executive compensation programs described below and in the accompanying tables played a vital role in driving the strong financial results noted above, and appropriately align pay and performance. At the beginning of 2012, we set goals for our annual incentive plan that drove the 2012 increases in Adjusted Operating Income noted above, as well as our impressive Working Capital as a Percentage of Sales results. Due to these outstanding performance results for 2012, our Named Executive Officers (except Mr. Rosenau) earned 187.4% of their target 2012 Annual Plan opportunities based on surpassing our target performance goal. Mr. Rosenau is the only Named Executive Officer with responsibility for business unit specific results, and his Annual Plan opportunity and goal attainment of 200% is based directly on his business unit’s performance against specific performance goals set for 2012.
Our 2010 long-term performance unit award had a one-year performance period (ending on December 31, 2010) based upon Working Capital as a Percentage of Sales. By achieving a 2010 Working Capital as a Percentage of Sales result of 9.6%, in 2012, we paid out cash-settled performance units originally granted in 2010 based on attainment of 200% of target level performance.
In 2011, we changed the performance measure for our long-term performance unit awards from Working Capital as a Percentage of Sales to Adjusted Earnings Per Share in order to drive improvements in shareholder value, and moved to a three-year performance period. In 2012, we maintained Adjusted Earnings Per Share as the performance measure for our cash settled performance units, as well as a three-year performance period. Our Compensation Committee believed that these goals would position us for continued growth. Achieving these measures will allow us to fund operating expenses and pursue acquisition opportunities that we believe will further strengthen our earnings potential and growth. Even with the difficult global economy in 2012, we were able to achieve our pre-set goals and reward our employees for achieving those goals.
We believe the 2012 incentive plan design worked to fully link pay with performance and to drive a stock price increase of 77%, bringing significant value to our shareholders.
Note: Adjusted Earnings Per Share and Adjusted Operating Income for consolidated PolyOne differ from what is reported under United States generally accepted accounting principles (“GAAP”). See Appendix A for a reconciliation of non-GAAP financial measures to our results as reported under GAAP.
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Executive Compensation Practices and Programs
The executive compensation practices and programs described below and in the accompanying tables played a vital role in driving strong financial results and aligning pay with performance, and are designed to attract and retain a highly experienced, successful team to manage our Company. Our practices and programs are directly linked to our key business objectives and designed to create value for our shareholders.
Highlights of our practices and programs include:
| ü | Pay-for-Performance – The majority of executive pay is performance-driven and must be earned every year based on objective, challenging financial goals and individual performance. |
| Ø | Adjusted Operating Income improvement and Working Capital as a Percentage of Sales were the performance measures for our Senior Executive Annual Incentive Plan (referred to as the “Annual Plan”), which was our short-term cash incentive program for 2012. |
| Ø | Adjusted Earnings Per Share was the performance measure for our long-term performance unit cash awards granted in 2012 in order to drive improvements in shareholder value. |
| Ø | We incorporated stock price performance hurdle vesting requirements to the stock appreciation right (or “SAR”) awards granted in 2012 to further align executive compensation with shareholder interests. The hurdles were met in 2012. |
| ü | Shareholders Approve our Executive Compensation – In May, 2012, 96% of our shareholders approved our Named Executive Officer compensation pursuant to our second advisory “say-on-pay” vote. |
| ü | Mitigate Undue Risk – We mitigate undue risk associated with compensation, by utilizing maximums on potential payments, including retention provisions in our compensation programs, providing multiple performance targets and maintaining robust Board and management processes to identify risk. We do not believe any of our compensation programs create risks that are reasonably likely to have a material adverse impact on the Company, which we validate through a risk assessment of executive compensation that is performed each year. |
| ü | Meaningful Stock Ownership Guidelines – All Named Executive Officers are subject to stock ownership guidelines, and are either exceeding, or, for our newly-hired Named Executive Officers, are on target to achieve the Guidelines within five years of being subject to such Guidelines. |
| ü | Annual Review of Share Utilization – Prior to the annual equity award grants to Named Executive Officers, we evaluate annual and aggregate dilution from stock awards. |
| ü | No Tax Gross-Ups – We do not provide excise tax gross-up benefits for so-called “excess parachute payments” under Section 280G of the Internal Revenue Code in any new management continuity agreements. We also do not provide tax gross-up benefits for financial planning. |
| ü | No Excessive Executive Benefits – We provide limited executive benefits to our Named Executive Officers that have a sound benefit to the Company’s business. We revised our relocation policy as it relates to the loss on the sale of an executive’s residence. We limit the amount of the reimbursable loss provided to the Named Executive Officers to 80% of the loss, with a maximum total reimbursement of $85,000. In addition, no tax gross-ups on reimbursed losses are provided for this group. |
| ü | Good Corporate Governance – In addition to our existing policy prohibiting our Named Executive Officers from engaging in speculative transactions involving our securities, in 2013, we also instituted a policy that prohibits the pledging of Company stock. |
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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 (“TSR”) 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, 2007 to December 31, 2012, assuming in each case a fixed investment of $100 and reinvestment of all dividends. Starting in 2009, our performance has exceeded the S&P 500 Index as well as the S&P Mid Cap Chemicals Index.
We believe that the returns to shareholders shown in the above graph indicate that our pay-for-performance philosophy, compensation plan 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 believe the compensation of our Named Executive Officers has been commensurate with our performance results. The following graph provides a historical perspective comparing our CEO’s earned compensation and our performance to the pay-for-performance of our peer group from 2009-2011 (data and timing limitations prohibit us from providing a 2012 analysis at this time). Our CEO’s earned compensation has been aligned with our recent performance, with his earned compensation approximating the 75th percentile of our peers while our performance as defined below, was in the 100th percentile.
For purposes of this graph, pay is defined as the three-year (2009-2011) sum of base salary, earned annual incentives, the value of stock upon vesting, the value of option/SAR exercises, and earned long-term cash incentives. Three-year performance is based on three-year TSR (2009 – 2011). The peers used in this chart are the same as those listed on page 26 of this proxy statement, except for Ecolab, Inc., which was added to our peer group in December, 2012, and is not reflected in this graph.
Listening to Shareholders and Implementing Shareholder-Friendly Pay Practices
At the 2012 Annual Meeting of Shareholders, we held our second advisory vote on Named Executive Officer compensation. Over 96% of the votes cast were in favor of this advisory proposal. We considered this favorable outcome and believe it conveyed our shareholder’s strong support for the Compensation Committee’s decisions and the existing executive compensation programs and practices. As a result, the Compensation Committee made no material changes in the structure of our compensation programs or pay-for-performance philosophy based on the voting results for the proposal. At the 2013 Annual Meeting of Shareholders, we will again hold an advisory vote to approve the Named Executive Officer compensation. The Compensation Committee will continue to consider the results from this year’s and future advisory votes on Named Executive Officer compensation.
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Compensation Philosophy and Objectives
Our executive compensation programs pay for and reward our officers’ performance, are specifically linked to our achievement of strategic operating and financial goals and are designed to be competitive in the marketplace. Our executives are rewarded for performance that meets or exceeds our strategic goals, without encouraging excessive risk-taking that could have a detrimental 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(s) for which they are responsible, thus maximizing shareholder value. The main objectives of our executive compensation programs are to:
Attract, motivate and retain a highly qualified and successful management team to lead PolyOne in setting and effectively executing upon our strategic goals and objectives;
Foster a pay-for-performance culture by rewarding the achievement of specified strategic operating and financial objectives that maximize shareholder value; and
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 2012 Executive Compensation Levels
Compensation Consultant
Our executive compensation programs are approved and overseen by the Compensation Committee, of the Board of Directors (the “Committee”), which is composed entirely of independent directors. TheDirectors. For 2012, the Compensation Committee has selected and retained an independent compensation consultant, Towers Watson (formerly Towers Perrin,(also referred to as the “Consultant”)., to assist the Compensation Committee in assessing the competitiveness and overall appropriateness of our executive compensation programs. The Compensation Committee worksworked in conjunction with the Consultant and with input from members of senior management, principallymanagement.
As described below, the Chairman, PresidentConsultant (1) assisted the Compensation Committee by benchmarking compensation and Chief Executive Officer, the Chief Human Resources Officer, the Chief Financial Officer and the General Counsel.
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| We |
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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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with Company performance. We also periodically analyze competitive market compensation data relating to retirement benefits and perquisites.
In analyzing competitive market data for the purpose of determining the market median for 2012, we drawdrew from twothree independent sources. First, we reviewWe first reviewed proxy statement disclosures of a peer group of similarly sized U.S.similarly-sized United States chemical companies (listed below) to establish an estimate of market compensation for our most senior executives. This approach providesprovided insight into explicit companyspecific practices at business competitors or companies facing similar operating challenges. However, it does not provide market information for positions below
In recent years we refined our peer group to reflect our progress toward becoming a global specialty company. In 2012, we evaluated our current peers and other potential peers, giving specific consideration to the senior management level, nor does it address competitors for talent outside the chemical industry.
| Factor | Peer Group Comparator | PolyOne 2012 Results | ||||||
| Company Revenue | 1.8 billion to 10.6 billion | 3.0 billion | ||||||
| Total Asset Size | 1.3 billion to 16.7 billion | 2.1 billion | ||||||
| Employee Numbers | 3,000 to 40,000 | 5,000 |
We also looked at the frequency with which these companies were used as peers by other companies in our industry, which companies had identified PolyOne as a peer, and whether each potential peer company had a global presence and a specialty chemical focus. In addition, we considered whether each company was in the same Standard Industrial Classification code as PolyOne and whether we compete with them for talent. Each of the companies recommended for our peer group met a majority of the primary criteria that were established. Based on this review, the following companies were removed due to corporate acquisitions: Lubrizol Corporation was removed due to its acquisition by Berkshire Hathaway in 2011; Solutia, Inc. was acquired by Eastman Chemical Company in 2012; Arch Chemicals, Inc. was acquired by Lonza Group Ltd in 2011; and Nalco Holding Company acquired by Ecolab, Inc. in 2011. Effective January 2013, Georgia Gulf Corporation merged with PPG Industries to form Axiall Corporation, which we will evaluate in 2013 for continued inclusion in our peer group. In addition, we included Ecolab, Inc. in our peer group as this company is frequently cited as a premier specialty chemical company, is often used for comparison purposes by investors and others, and is a company with which we compete for resources. As a result, PolyOne’s new peer group consists of the following 16 companies:
| PolyOne Peer Group | ||||
| Albemarle Corporation | ||||
| Ferro Corporation | RPM International Inc. | |||
| A. Schulman, Inc. | FMC Corporation | |||
| Cabot Corporation | Georgia Gulf Corporation (now known as Axiall Corporation) | |||
| Cytec Industries Inc. | H.B. Fuller Company | The Valspar Corporation | ||
| Eastman Chemical Company | International Flavors & Fragrances Inc. | |||
| Ecolab, Inc. | Rockwood Holdings, Inc. | |||
The second and third independent sources of data that we review data from Towers Watson’s Compensation Data Bank and other published surveys relating to the chemical industry or other applicable general industries, as provided by the Consultant,used to augment the peer proxy analysis and provide a broaderbetter sense of market practices.practices was an analysis performed by the Consultant of competitive market data relating to (1) the chemical industry and (2) other applicable general industries using the following surveys: The Consultant’s Executive Compensation Database, the Consultant’s Top Management Compensation Survey and Mercer’s Executive Compensation Survey. To obtain
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comparability based on company size, the dataConsultant’s analysis either referencesreferenced a specific sample of companies or calibratescalibrated the pay of a broad sample of companies against company size. ThisThe specific identity of the companies in these surveys was not material to our use of the comparability data isbased on this process used as oneby the Consultant.
Review of several inputs into management’sNamed Executive Officer Compensation
Management and the Committee’s determinationCompensation Committee annually review the specific pay disclosures of market median compensation levels.
The Compensation Committee and management annually review and consider tally sheets, which are developed by our Human Resources department, to 125%determine the reasonableness of the market median for comparable positions, with an averagecompensation of 102% for allour Named Executive Officers. For 2009, management recommended, and the Committee agreed, that theThe tally sheets provide information regarding each Named Executive Officers (and other corporate officers) would not receive any salary increases. For 2010, upon the recommendation of management, the Committee determined that noOfficer’s base salary, increase would be provided toannual incentives, long-term incentives, other benefits, retirement benefits and wealth accumulation.
Annually, the CEO.
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Pay Mix
Our executive compensation programs are also designed to recognize an executive’s scope of responsibilities, leadership ability, and effectiveness in achieving key performance goals and objectives. As an executive’s level of responsibility within PolyOne increases, so does the percentage of total compensation that is linked to performance in the form of variable compensation.
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We provide three elements of direct compensation that are discussed in detail below: base salary, annual incentive and long-term incentive compensation. The following table summarizes the allocation of the compensation opportunity at target, or “pay mix,” that was granted in 2012 to the beginningNamed Executive Officers, based upon the primary elements of 2009,compensation. Both the annual incentive and long-term incentive opportunity represent the variable compensation portion of each Named Executive Officer’s total compensation opportunity, consistent with our overall pay-for-performance philosophy.
| Target Pay Mix Allocation | ||||||||||||
| Named Executive Officer | Base Salary % | Annual Incentive % | Long-Term Incentive % | |||||||||
S.D. Newlin | 18% | 20% | 62% | |||||||||
R.M. Patterson | 32% | 23% | 45% | |||||||||
R.J. Diemer, Jr. | 38% | 23% | 39% | |||||||||
R.M. Rosenau | 39% | 22% | 39% | |||||||||
K.M. Smith | 39% | 22% | 39% | |||||||||
T.J. Kedrowski | 39% | 22% | 39% | |||||||||
Analysis of 2012 Compensation Decisions and Actions
Base Salary
We pay base salaries to attract talented executives and to provide a fixed base of cash compensation. Base salaries for the Named Executive Officers were individually determined by the Compensation Committee after consideration of:
Breadth, scope and complexity of the executive’s role;
| • | Internal equity (i.e., employees with similar responsibilities, experience and historical performance are rewarded comparably); |
Current compensation;
Tenure in position;
Market pay levels and trends around merit increases;
Relative position of their salary to the market median for their role;
The CEO’s recommendations (for all Named Executive Officers other than the CEO); and
Individual performance.
There are three situations that may warrant an adjustment to base salary:
Annual Merit Increase. All employees’ base salaries are reviewed annually for possible merit increases taking into account the above listed factors, but merit increases are not automatic or guaranteed. In recognition of the significant role Mr. Newlin continues to play in transforming PolyOne into a high-performing organization, as well as his strong leadership, and a review of competitive market data, the Compensation Committee approved a three percent adjustment to his annual base salary, as outlined in the below table. In the Compensation Committee’s judgment, this
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base salary is appropriate in order to fairly compensate and retain Mr. Newlin. The Compensation Committee also increased the annual base salaries of each of the other Named Executive Officers by three percent (excluding Mr. Patterson) in accordance with market pay levels and trends around merit increases, as outlined in the below table.
Promotion or Change in Role. Base salary may be increased to recognize additional responsibilities resulting from a change in an employee’s role or a promotion to a new position however, increases are not guaranteed. In March 2012, Mr. Patterson was promoted to Executive Vice President and Chief Operating Officer, taking on responsibility for all four business segments at PolyOne, and providing strategic direction across all areas of the Company. To ensure his base salary would be aligned with competitive market data for similar positions, the Compensation Committee approved an eight percent increase to his annual base salary, to recognize his increased responsibilities.
Market Adjustment. A market adjustment may be awarded to an individual who is performing successfully when we recognize a significant gap between the market data and the individual’s base salary. No Named Executive Officer received a market adjustment in 2012.
The below table lists the 2012 base salaries that were approved by the Compensation Committee for the Named Executive Officers.
| Named Executive Officer | 2011 Base Salary | 2012 Base Salary | 2012 Base Pay Adjustment % | |||||||||||||||||||||||||||
S.D. Newlin | $ | 950,000 | $ | 980,000 | 3% | |||||||||||||||||||||||||
R.M. Patterson | $ | 475,000 | $ | 515,000 | 8% | |||||||||||||||||||||||||
R.J. Diemer, Jr.(1) | N/A | $ | 435,000 | N/A | ||||||||||||||||||||||||||
R.M. Rosenau | $ | 355,000 | $ | 365,000 | 3% | |||||||||||||||||||||||||
K.M. Smith | $ | 355,000 | $ | 365,000 | 3% | |||||||||||||||||||||||||
T.J. Kedrowski | $ | 346,000 | $ | 356,000 | 3% | |||||||||||||||||||||||||
| (1) | Mr. Diemer was hired in March, 2012 and did not have a PolyOne base salary in 2011. Mr. Diemer’s original base salary was benchmarked against competitive market data for similar roles. |
Based on the competitive market data provided by the Consultant, we determined that the 2012 salaries of the Named Executive Officers were within a range of 10% above and 10% below the 2012 market medians for comparable positions, which is consistent with our competitive market pay philosophy discussed in the “Competitive Market Pay Information and Benchmarking” section above.
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Annual Incentive
To reward our Named Executive Officers for achieving specific performance objectives that would advance our profitability, 2012 target annual incentive opportunities for the Named Executive Officers (as a percentage of base salary) were established as follows:
| Named Executive Officer | 2012 Annual Incentive Target | |||||||||
S.D. Newlin | 110 | % | ||||||||
R.M. Patterson | 70 | % | ||||||||
R.J. Diemer, Jr. | 60 | % | ||||||||
R.M. Rosenau | 55 | % | ||||||||
K.M. Smith | 55 | % | ||||||||
T.J. Kedrowski | 55 | % | ||||||||
Based on the competitive market data provided by the Consultant, we determined that these Annual Plan opportunities for the Named Executive Officers were again within a range of 10% below to 10% above the 2012 market median for comparable positions, which is consistent with our competitive market pay philosophy discussed in the “Competitive Market Pay Information and Benchmarking” section above.
The Compensation Committee determined, after a thorough evaluation of possible plan designs and performance measures, that we would fundamentally maintain the same Annual Plan design in 2012 as used in 2011, including the same performance measures listed below:
| • | Adjusted Operating Income. Adjusted Operating Income is defined as Operating Income less any special items (which consist of non-recurring items as set forth in our quarterly earnings releases) and Sunbelt equity earnings. |
| • | Operating Income. Operating Income refers to operating income in accordance with GAAP. |
| • | Working Capital as a Percentage of Sales. Working Capital as a Percentage of Sales is calculated by taking the average 13 months of working capital divided by the sum of 12 months of 2012 sales, where working capital equals (1) trade accounts receivable plus (2) inventory minus, (3) trade accounts payable. |
The Compensation Committee’s review indicated that, given the successful alignment between pay and performance in 2011, we would utilize the same performance measures in 2012 as used in 2011. We maintained these performance measures as they were the most critical elements of PolyOne’s performance for both 2011 and 2012.
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The weightings of the performance measures used for all the Named Executive Officers in the 2012 Annual Plan were as follows:
| (1) | Mr. Rosenau has responsibility for business unit specific results (namely our Performance Products and Solutions business unit), and his Annual Plan opportunity is based on 65% Operating Income for such business unit and 35% Working Capital as a Percentage of Sales for such business unit. For all other Named Executive Officers, the measure is Company Adjusted Operating Income and Company Consolidated Working Capital as a Percentage of Sales. |
We set aggressive goals in 2012 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 2012, we were able to achieve maximumsustain our strong performance on our working capitalfrom the previous year by maintaining a world-class performance Working Capital as a percentagePercentage of sales metric and,Sales with a result of 9.9%. As a result of this performance, the Company Working Capital as a result, reduced working capital by $117 million (working capitalPercentage of Sales incentive goal attainment and the Performance Products and Solutions Working Capital as defined ina Percentage of Sales incentive goal attainment was 200% of our annual incentive includes trade accounts receivable, inventory and trade accounts payable) in 2009. Further,target performance level.
In addition, on a consolidated basis, our performance and results under the operating incometotal Company Adjusted Operating Income metric were strong; Adjusted Operating Income increased 22% from 2011 to $221 million in 2012. Thus, Company Adjusted Operating Income achieved 180.7% of the target performance level and our performance and results for our Performance Products and Solutions Operating Income metric exceeded the maximumupper end of the performance range and paid at 200% of target 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 requiredas very challenging to achieve, and the actual level of performance reflects exceptional results. The Operating Income performance across all disciplines andof our business units throughoutvaried greatly due to the Company. The key elementsuncertain global economy with resulting attainment levels that drove our improved operating income performance in 2009 were company-wide effortsranged from 57% to cut costs, prune unprofitable or high credit risk business, expand gross margins, and deploy lean six sigma initiatives.
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The performance measures and targets, and the respective levels of achievement for each performance measure under the 2012 Annual Plan 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% | ||||||||||
2011 | 2012 Goals | 2012 | ||||||||||||||||||||||
| Performance Measure ($ in millions) | Threshold 50% | Target 100% | Maximum 200% | 2012 Actual Result | ||||||||||||||||||||
Company Adjusted Operating Income | $ | 180.6 | $ | 180.9 | $ | 201.2 | $ | 226.0 | $ | 221.0 | 180.7% | |||||||||||||
Company Consolidated Working Capital as a Percentage of Sales(1) | 9.6% | 11.1% | 10.5% | 10.0% | 9.9% | 200% | ||||||||||||||||||
Performance Products and Solutions Company Operating Income | $ | 62.4 | $ | 54.9 | $ | 60.5 | $ | 70.3 | $ | 74.9 | 200% | |||||||||||||
Performance Products and Solutions Consolidated Working Capital as a Percentage of Sales | 5.4% | 5.5% | 5.2% | 5% | 4.6% | 200% | ||||||||||||||||||
| (1) | ||
| Actual 2011 Company Consolidated Working |
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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% | ||||||||||||
Long-Term Incentive
We also provide performance-based long-term incentive compensation to place a greater emphasis on profitable growth and as a critical measure of our operating performance, we increased the weighting for operating income from 50% to 65% and we reduced the weighting for working capital as a percentage of sales from 50% to a 35% weighting. Working capital as a percentage of sales continues to be an important measure of our performance and we will also continue to utilize it as the performance metric in the 2010 Long Term Incentive Plan. In addition, we returned the level of payment for achievement of threshold performance in the annual incentive to 50% of the targeted award for 2010 from 30% of the targeted award in 2009. We updated target annual incentive levels for certain Named Executive Officers for 2010 consistent with our approach to approximate the market median. We set these targeted levels at 55% or 60% of salary earned during the year forsenior executives, including the Named Executive Officers, except Mr. Newlin and Mr. Baert.to directly tie the interests of these individuals to the interests of our shareholders. We increased Mr. Newlin’s target annualbelieve that long-term incentive opportunity from 100% to 110%
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Individual Long-Term Incentive Plan targets, which are reflected as a percentage of base salary, are established with consideration of our competitive market pay philosophy discussed in the “Competitive Market Pay Information and Benchmarking” section above and are intended to provide sufficient sharesreward the Named Executive Officers for three years of grants. Several factors made maintaining this plan design challengingachieving specific performance objectives. The Long-Term Incentive Plan grants for 2009, including the2012 are based upon our closing stock price on December 31, 2011. The accounting value of ourthe grant is determined using the grant date of the award. The value of the grant varies as the stock price andincreases or decreases in the challenges associated with setting interim. In order to focus participants on the
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long-term performance goals critical to our success and investment success for our shareholders, the Compensation Committee approved the following individual target Long-Term Incentive Plan opportunities for the Named Executive Officers during the first quarter of 2012:
Long-Term Incentive Opportunity | ||||||||
| Named Executive Officer | 2011 Target (as a percentage of base salary) | 2012 Target (as a percentage of | ||||||
S.D. Newlin | 350% | 350% | ||||||
R.M. Patterson | 135% | 140% | ||||||
R.J. Diemer, Jr.(1) | N/A | 100% | ||||||
R.M. Rosenau | 100% | 100% | ||||||
K.M. Smith | 100% | 100% | ||||||
T.J. Kedrowski | 100% | 100% | ||||||
| (1) | Mr. Diemer was hired in March, 2012 and did not have a PolyOne Long-Term Incentive Plan opportunity in 2011. |
Based on 2012 competitive market data provided by the Consultant, we determined that the individual Long-Term Incentive Plan opportunities granted to the Named Executive Officers in an unstable economy. If2012 ranged from 17% below to 25% above the 2012 market median for comparable positions, and individual opportunities varied based on time with the Company, individual performance and leadership efforts.
Awards Granted in 2012
In February 2012, we had continued to follow our historical LTIP grant practices in 2009, that would have resulted ingranted Long-Term Incentive Plan awards under the majority2010 Plan. After a thorough evaluation of other possible equity vehicles, the available shares in the 2008 Plan being granted during 2009. Instead, theCompensation Committee decided to reduceretain the value ofsame three equity vehicles we used in 2011, which are listed below, to continue to provide balance between the long-term incentives in 2009 so that only 50% of the available shares under the 2008 Plan would be used, thereby ensuring there were sufficient shares remaining to also fund the 2010 LTIP. As a result, therelative values of the three components and to efficiently use the shares available under the 2010 Plan. However, we shifted 5% of the value previously allocated to cash-settled performance units to SARs in order to align the Long-Term Incentive Plan opportunity more closely with shareholder interests by emphasizing stock price appreciation. Of these three equity vehicles, the cash-settled performance units and the SARs were established with requisite performance conditions. The amount of performance units earned by the Named Executive Officers’ long-term incentive grantsOfficers is determined based on our achievement of Adjusted Earnings Per Share performance goals, and the SARs were designed to vest based on our achievement of certain stock price hurdles described below, and additionally vest in 2009 were 38% belowannual time-based tranches over a three-year period from 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.
| Award | 2011 Weighting | 2012 Weighting | ||
Cash-Settled Performance Units | 34% | 29% | ||
Stock Appreciation Rights (SARs) | 33% | 38% | ||
Restricted Stock Units (RSUs) | 33% | 33% |
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•Cash-Settled Performance Units
The cash-settled performance units granted in March 2009February 2012 will be paid in cash, consistent with past practice, and wereearned based on achievement ofachieving performance goals relating to Company working capital as a percentage of sales forour Adjusted Earnings Per Share during the one-yearthree-year period from January 1, 2009 through December 31, 2009. We reduced the measurement period for performance units from three years to one year due to the challenges associated with setting long-term goals in an unstable economy and in order to focus on our near-term cash needs. Award attainment for the performance units is determined at the end of the measurement period but awards are not payable for three years, consistent with existing performance unit design in order to continue the award’s retention characteristics.
| Performance Period | Weighting | |
January 1, 2012 through December 31, 2012 | 25% | |
January 1, 2013 through December 31, 2013 | 25% | |
January 1, 2014 through December 31, 2014 | 25% | |
January 1, 2012 through December 31, 2014 | 25% | |
The attainment level for the cash-settled performance measure consistent withunits will be determined at the levelend of each applicable performance period. We established underthreshold, target and maximum Adjusted Earnings Per Share goals for each of the projections for our financial planabove listed performance periods. Participants will earn, for the same measurement period. The Committee believed that the budgeted level reflected a challenging but obtainable target. Attainmentapplicable performance period: (1) 100% of the targeted leveltarget award of achievement for thecash-settled performance measure would represent a significant improvement over the level attained in previous years. The Committee intended the targeted level to
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We do not disclose the specific Adjusted Earnings Per Share goals that we have established for the cash-settled performance units granted in 2009,2012 in this proxy statement because (1) these goals relate to executive compensation to be earned and/or paid in future years and do not effect a fair understanding of the Named Executive Officers’ compensation for 2012 and (2) we were ablebelieve that disclosure of such goals while the applicable performance period is on-going would cause us competitive harm. However, we expect to disclose such goals in future proxy statements once the applicable performance periods have ended as part of our discussion and analysis about the amounts earned by the Named Executive Officers under these awards. In setting the applicable target levels, the Compensation Committee considered how achievement of the performance goals could be impacted by events expected to occur in the coming years. When establishing the specific goals for the Adjusted Earnings Per Share performance metric, we specifically considered 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 incentivethe threshold goals have been established at levels that should be appropriately difficult to our participants was instrumental in drivingattain, and that the desired results. Management believes these improvements influencedtarget goals will require considerable and increasing collective effort on the recoverypart of our stock price during the courseemployees, including our Named Executive Officers, to achieve. Achievement of the year and positioned us well for future success.
The 2009 performance unit awardsgrants made in 2012 for the Named Executive Officers under the 2010 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 | % | |||||||||||
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•Stock-Settled SARs
To continually reinforce our ongoing commitment to enhancing shareholder returnsvalue, the Named Executive Officers received an award of performance-based 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 2012 has a base price equal to the closing market price of $1.43. Allour common shares on the date of grant. For the 2012 grants, SARs grantedinitially vest one-third upon attaining each of the following stock price hurdles for thirty consecutive trading days: 10%, 15% and 20% increase respectively over the initial grant date closing stock price of $14.61. These hurdles were achieved in 20092012. The SARs are then subject to additional time-based vesting requirements that lapse one-third on each of the first three anniversaries of the date of the grant, generally subject to the officer’s continued employment. They have an exercise term of seven years, which is shorter than market practice, and vest ratably over three years, if certain performance criteria are met. ten years.
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 theperformance-based SARs granted in 2009 have met2012 to the pre-established stock price hurdles.
•Performance SharesRestricted Stock Units (RSUs)
To promote share ownership and enhance the retention of our executives, we also granted Performance Sharestime-based RSUs in March2012 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. The time-based RSUs granted in 2012 to the three-year performance period, payable after three years. The Performance Shares granted to all Named Executive Officers were valued at $1.43 atunder the time2010 Plan are set forth in the 2012 Grants of grant. AllPlan-Based Awards table.
Awards Granted in Prior Years
In 2011, the Compensation Committee approved the attainment level of the Performance Shares granted in 2009 have met the pre-established stock price hurdles.
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| 2010 Goals | ||||||||||
| Performance Measure | Threshold (50%) | Target (100%) | Maximum (200%) | Actual Result | % Attainment | |||||
Working Capital as a Percentage of Sales | 12.0% | 11.5% | 10.6% | 9.6% | 200% | |||||
Payouts for the cash-settled performance units expired.
All outstanding equity awards outstanding as of December 31, 2012 are set forth in the 2009 Outstanding Equity Awards at 2012 Fiscal Year-End table in this proxy statement.
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Retirement Benefits
We designedoffer the awards granted in 2010following retirement benefits to maintain our focus on generating cash, promoting stock price appreciation,eligible employees and enhancing retention.
| 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 (referred to as the “Nonqualified 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 under the Qualified Savings Plan. As a result, the Named Executive Officers 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 thelimitations;
An employer-funded Internal Revenue Code limitations of the Qualified Savings Plan.
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A supplemental retirement benefit service to us (“Benefit Service”). The Qualified Pension Planfor Mr. Newlin that 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.
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The benefit allowance, and reimbursement of expenses for financial planning and tax preparation in 2010 and future years will beare treated as taxable income to the Named Executive Officers and are not grossed up by the responsibility ofCompany. The moving allowance is also treated as taxable income to the Named Executive Officers. We made no other changes to perquisites.
We also provide other benefits such as medical, dental, and life insurance and disability coverage to eachU.S.-based United States based Named Executive Officer, which are benefits identical to the benefits provided to all other eligibleU.S.-based United States based employees. Medical, dental and life insurance coverage for Mr. Baert is identical to the benefits provided to all other Luxembourg-based employees. We also provide vacation and paid holidays to all employees, including the Named Executive Officers. The Named Executive Officers arewere eligible for the following vacation:vacation periods in 2012: Mr. Newlin — five weeks,weeks; Mr. Patterson — four weeks,weeks; Mr. Diemer – 4 weeks; Mr. Rosenau — six weeks,five weeks; Mr. Smith — five weeks,weeks; and Mr. BaertKedrowski — 26 days.
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Employment Agreements with Named Executive Officers
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 do maintain a corporate membershipentered into this agreement in order to a country clubattract Mr. Newlin to PolyOne and set the terms of his employment. The agreement provided for specified equity awards that is usedwere intended to serve as an inducement to join PolyOne, set an initial base salary and provided for customer entertainmenthis participation in our various long-term incentive and other business purposes. We paybenefit plans in effect during the monthly dues for this membership and incur expenses only for these business purposes. Any personal useterm of this facility by a Named Executive Officer is at the officer’s personal expense, with no incremental cost to us.
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Tax Considerations
Cash compensation, such as base salary orand annual incentive compensation, is taxable to the recipient as ordinary income when earned, unless deferred under a company-sponsored deferral plan. Deferrals under Internal Revenue Code 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, RSUs are taxable as ordinary income when they vest, and performance shares, RSUs andcash-settled performance units are generally taxable when paid. We realize a tax deduction at that time.those specified times. The Compensation Committee does reviewreviews potential tax implications before making decisions regarding compensation.
Management and the Compensation 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 Compensation Committee generally managesintends for 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. We believe the compensation paid to our Named Executive Officers in 2009 is fully deductible.
Accounting Considerations
When reviewing preliminary recommendations and in connection with approving the terms of a given incentive plan period, management and the Compensation Committee review and consider the accounting implications of a given award, including the estimated expenseand/or dilutive considerations. Depending upon the type of accounting treatment associated with an incentive plan design,
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Executive Compensation Governance
In order to better align theirthe financial interests of our executives with those of our shareholders, we believe our executives should own a meaningful number of our shares.shares of PolyOne stock. We have adopted share ownership guidelinesGuidelines specifying a minimum level of sharestock ownership for all executives, including all Named Executive Officers. In December 2012, we amended our Guidelines to more accurately reflect the market median multiple of salary for all of our executive officers, including our Named Executive Officers. This change was necessary due to significant stock price appreciation that had occurred since the prior adoption of the Guidelines.
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 Guidelines have been met provided that an officer can only divest of a number of shares such that the Guidelines continue to be met. In general, shares counted toward required ownership include shares directly held, shares and phantom shares held in our retirement or deferral plans, and RSUs. The specific levels of sharestock ownership for the Named Executive Officers are noted in the following table. Executives are expected to accumulate the specified shares within five
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Stock Ownership Guidelines
| Newlin | Patterson | Diemer | Rosenau | Smith | Kedrowski | |||||||||||||||||||
Stock Ownership Target (in shares) | 275,000 | 120,000 | 75,000 | 45,000 | 45,000 | 45,000 | ||||||||||||||||||
Prorated Stock Ownership Target (in shares)(1) | | 96,000 | | 15,000 | ||||||||||||||||||||
Multiple of Salary (based on 3/1/13 closing stock price of $22.55) | 5.9 | 3.9 | 0.8 | 2.8 | 2.8 | 2.5 | ||||||||||||||||||
Total Share Ownership as of 3/1/13 | 581,304 | 258,859 | 97,917 | 168,674 | 139,965 | 226,453 | ||||||||||||||||||
Value of Total Share Ownership as of 3/1/13 | $ | 13,108,413 | $ | 5,837,276 | $ | 2,208,033 | $ | 3,803,599 | $ | 3,156,211 | $ | 5,106,515 | ||||||||||||
Value of Share Ownership as a Multiple of Salary | 12.48 | 10.59 | 5.08 | 10.42 | 8.65 | 12.77 | ||||||||||||||||||
| (1) | Mr. Patterson and Mr. Diemer have been with PolyOne less than five years and are not yet required to reach 100% of the full Guidelines (120,000 shares for Mr. Patterson and 75,000 shares for Mr. Diemer). The stock ownership targets for Messrs. Patterson and Diemer have been reduced to reflect that each have been with PolyOne for less than five years. |
Timing with Respect to Equity Award Grants
We have adopted a policy with respect to the timing of the original levelgrant of ownership each year for five years.
| 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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at regularly scheduled meetings and that the grant price for any stock option or stock appreciation right shall not be less than five years and are not yet required to reach 100%the fair market value of the full share ownership guideline (360,000Company’s common shares for Mr. Newlin and 100,000on the date of grant (which is defined as the closing price of our common shares for Mr. Patterson). The share ownership target for Mr. Newlin has been reduced to reflect he has been withon the Company for four years and the share ownership target for Mr. Patterson has been reduced to reflect he has been with the Company for two years.
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 implements rules and regulations.
Prohibition on Hedging and Pledging
Our Securities Trading Policy currently provides that, consistent with our philosophy to encourage long-term investments, Directors, officers and certain other employees of 2002.
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39
Executive Compensation
The following tables, narrative and footnotes discuss the compensation of our Named Executive Officers.
The following table sets forth the compensation earned by, and the compensation opportunity granted to, our principal executive officer, our principal financial officer,officers that served in such capacity in 2012, and our other three most highly compensated executive officers for 2012, during the fiscal years ended December 31, 2012, December 31, 2011 and December 31, 2010, as applicable.
Name and Principal Position (a) | Year (b) | Salary ($) (c) | Bonus (d) | Stock Awards ($) (e) | Option Awards ($) (f) | Non- Equity Incentive Plan Compensation (g) | Change in Value and Compensation Earnings ($) (h) | All Other Compensation (i) | Total ($) (j) | |||||||||
Stephen D. Newlin, | 2012 | 978,846 | — | 1,519,440 | 1,611,627 | 4,081,699 | 1,273,625 | 336,808 | 9,802,045 | |||||||||
| 2011 | 946,538 | — | 1,285,508 | 1,282,148 | 4,088,859 | 520,514 | 309,7591 | 8,433,326 | ||||||||||
| 2010 | 860,000 | — | 967,589 | 850,590 | 3,030,236 | 538,990 | 1,263,730 | 7,511,135 | ||||||||||
Robert M. Patterson, | 2012 | 513,461 | — | 318,498 | 338,997 | 1,071,941 | — | 107,419 | 2,350,317 | |||||||||
| 2011 | 473,269 | — | 247,327 | 247,660 | 996,654 | — | 97,152 | 2,062,062 | ||||||||||
| 2010 | 424,231 | — | 191,760 | 167,700 | 509,077 | — | 71,168 | 1,363,936 | ||||||||||
Richard J. Diemer, Jr., | 2012 | 339,635 | — | 537,100 | 185,500 | 381,885 | — | 109,706 | 1,553,826 | |||||||||
Robert M. Rosenau, | 2012 | 359,615 | — | 151,944 | 161,857 | 636,766 | 283,024 | 63,024 | 1,656,231 | |||||||||
Kenneth M. Smith, | 2012 | 359,615 | — | 151,944 | 161,857 | 612,645 | 249,773 | 84,186 | 1,620,021 | |||||||||
| 2011 | 350,769 | — | 131,809 | 130,732 | 617,187 | 158,619 | 83,045 | 1,472,161 | ||||||||||
| 2010 | 340,923 | — | 107,865 | 94,380 | 504,501 | 130,531 | 70,308 | 1,248,508 | ||||||||||
Thomas J. Kedrowski, | 2012 | 350,615 | — | 151,944 | 161,857 | 593,368 | — | 64,329 | 1,322,114 | |||||||||
| 2011 | 341,000 | — | 131,809 | 130,732 | 596,738 | — | 75,073 | 1,275,352 | ||||||||||
| 2010 | 328,769 | — | 107,865 | 94,380 | 484,735 | — | 221,966 | 1,237,715 |
| (1) | Compensation for Mr. Diemer is provided only for 2012 as he was hired as our Senior Vice President and Chief Financial Officer in March 2012. Compensation for Mr. Rosenau is provided only for 2012 because he was not a Named Executive Officer in 2010 and 2011. |
Bonus (column (d))
No amounts are reported in this column because the Company paid annual incentives to the Named Executive Officers based upon pre-determined performance metrics. These payments, which were made under the Company’s Annual Plan, are reported in the Non-Equity Incentive Plan Compensation column (column (g)).
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Stock Awards (column (e))
The amounts reported in the stock awards column include, for 2012, time-vested stock settled RSUs granted in 2012 to the Named Executive Officers under our 2010 Plan. The amounts reported for 2012 represent the grant date fair value of those stock awards determined pursuant to 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 14, Share-Based Compensation, in our Annual Report on Form 10-K for the fiscal year ended December 31, 20092012. These grants are described more fully in the narrative following the 2012 Grants of Plan-Based Awards table and in the “Compensation Discussion and Analysis — Analysis of 2012 Compensation Decisions and Actions — Long-Term Incentive — Awards Granted in 2012 — Restricted Stock Units” section of this proxy statement.
The Company cautions that the amounts reported for these awards may not represent the amounts that the Named Executive Officers will actually realize from these awards. To what extent a Named Executive Officer realizes value will depend on our stock price and continued employment.
Option Awards (column (f))
The amounts reported in the Option Awards column include, for 2012, stock-settled SARs with time and performance based vesting requirements that were granted in 2012 to the Named Executive Officers under our 2010 Plan. The amounts reported for 2012 represent the grant date fair value of those SARs granted to each of the Named Executive Officers, calculated 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 14, Share-Based Compensation, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012. These grants are described more fully in the narrative following the 2012 Grants of Plan-Based Awards table and in the “Compensation Discussion and Analysis — Analysis of 2012 Compensation Decisions and Actions — Long-Term Incentive — Awards Granted in 2012 — Stock-Settled SARs” section of this proxy statement.
The Company cautions that the amounts reported for these awards may not represent the amounts that the Named Executive Officers will actually realize from the awards. To what extent a Named Executive Officer realizes value will depend on our stock price and continued employment.
To see the value actually received upon exercise of SARs by the Named Executive Officers in 2012, refer to the Option Exercises and Stock Vested table section of this proxy statement.
Non-Equity Incentive Plan Compensation (column (g))
The amounts reported in the Non-Equity Incentive Plan Compensation column for 2012 reflect the amounts earned by each Named Executive Officer under the 2012 Annual Plan (and received in February, 2013), and under the 2010 — 2012 Long-Term Incentive Plan awards (and received in December, 2012). The terms of the Annual Plan are described more fully in the narrative following the 2012 Grants of Plan-Based Awards table and in the “Compensation Discussion and Analysis — Analysis of 2012 Compensation Decisions and Actions — Annual Incentive” section of this proxy statement.
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The terms of the 2010 — 2012 Long-Term Incentive Plan cash-settled performance units are described more fully in the narrative following the “Compensation Discussion and Analysis — Analysis of 2012 Compensation Decisions and Actions — Awards Granted in Prior Years” section of this proxy statement. The amounts earned by the named Executive Officers under each award are listed below.
| Name | Annual Plan ($) | Cash-Settled ($) | ||
S.D. Newlin | 2,017,794 | 2,063,905 | ||
R.M. Patterson | 673,559 | 398,382 | ||
R.J. Diemer, Jr. | 381,885 | N/A | ||
R.M. Rosenau | 395,577 | 241,189 | ||
K.M. Smith | 370,656 | 241,989 | ||
T.J. Kedrowski | 361,379 | 231,989 |
Change in Pension Value and Nonqualified Deferred Compensation Earnings (column (h))
The amounts reported in the Change in Pension Value and Nonqualified Deferred Compensation Earnings column for 2012 are comprised entirely of changes between December 31, 2011 and December 31, 2012.
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 2012 Compensation Decisions and Actions — Retirement Benefits” section of this proxy statement. The amount listed for him for 2012 represents the aggregate change in actuarial present value (determined by subtracting the December 31, 2011 actuarial present value from the December 31, 2012 actuarial present value) of the annual benefit payment that will be payable as a 15-year certain and continuous life annuity beginning at age 59.9 and assumes that Mr. Newlin has a “Qualifying Separation from Service” as that term is defined in his employment agreement.
Messrs. Rosenau and Smith participate in the Qualified Pension Plan and the Benefit Restoration Plan that existed prior two fiscal years, if applicable.
| 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 | ||||||||||||||||||||||||||||||||||||
37All Other Compensation (column (i))
The amounts reported in the All Other Compensation column for 2012 reflect, for each Named Executive Officer, the sum of (1) the incremental cost to the Company of all other executive benefits, (2) dividend equivalents on outstanding RSUs and (3) the amounts contributed by the Company to the Qualified Savings Plan and the Nonqualified Retirement Plan. Amounts contributed to either the Qualified Savings Plan and the Nonqualified Retirement Plan are calculated on the same basis for all participants, including the Named Executive Officers. The material provisions of the Qualified Savings Plan and the Nonqualified Retirement Plan are described in the narrative following the “2012 Pension Benefits” section of this proxy statement.
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The following table outlines those other executive benefits and additional all other compensation required by SEC rules to be separately quantified. The narrative following the table describes all categories of other benefits and other personal benefits provided by the Company in 2012.
Name (a) | Benefit (b) | Financial Preparation (c) | Dividend RSUs ($) (d) | Executive ($) (e) | Company to Qualified ($) (f) | Company Nonqualified ($) (g) | Moving ($) (h) | Spouse/ (i) | Tax ($) (j) | Total ($) (k) | ||||||||||||||||||
S.D. Newlin | 24,000 | 13,000 | 62,380 | 3,575 | 16,250 | 178,991 | 0 | 22,675 | 15,938 | 336,808 | ||||||||||||||||||
R.M. Patterson | 7,200 | 10,000 | 12,500 | 2,036 | 16,250 | 56,012 | 0 | 2,009 | 1,412 | 107,419 | ||||||||||||||||||
R.J. Diemer, Jr. | 0 | 3,500 | 7,000 | 3,300 | 16,250 | 5,826 | 44,356 | 0 | 29,474 | 109,706 | ||||||||||||||||||
R.M. Rosenau | 19,200 | 10,000 | 6,560 | 0 | 16,250 | 7,835 | 0 | 1,867 | 1,312 | 63,024 | ||||||||||||||||||
K.M. Smith | 19,200 | 8,464 | 6,560 | 2,200 | 16,250 | 31,512 | 0 | 0 | 0 | 84,186 | ||||||||||||||||||
T.J. Kedrowski | 19,200 | 10,000 | 6,560 | 0 | 16,250 | 12,319 | 0 | 0 | 0 | 64,329 | ||||||||||||||||||
Benefit Allowance (column (b))
38Financial Planning and Tax Preparation (column (c))
The Company provides a taxable reimbursement to the Named Executive Officers for financial planning, which may include tax preparation and estate planning services. No tax reimbursement is provided to the Named Executive Officers for this benefit.
Dividend Equivalents on Outstanding RSUs (column (d))
The 2010 Plan provides for dividend equivalents on outstanding RSUs for all eligible participants, including the Named Executive Officers, which are deferred and contingent upon meeting the vesting requirements of the underlying RSUs. The amounts in this column represent dividend equivalents attributable to outstanding RSUs in 2012, including dividends declared on October 11, 2012 to shareholders of record on December 12, 2012 and paid on January 7, 2013. As the dividends were not considered in the grant date fair value computation for those awards under FASB ASC Topic 718, they are reported as “All Other Compensation.”
Executive Physicals (column (e))
The Company makes executive physicals available to all executive officers, including the Named Executive Officers.
Company Contributions to Qualified Savings Plan (column (f))
The Company makes matching contributions on behalf of all employees, including the Named Executive Officers in accordance with the Qualified Savings Plan.
Company Contributions to Nonqualified Retirement Plan (column (g))
The Company makes matching contributions on behalf of all eligible participants, including the Named Executive Officers, under the Nonqualified Savings Plan.
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Moving Allowance (column (h))
The Company provided a moving allowance to Mr. Diemer to assist with the expense attributable to relocation, including, temporary housing and house hunting trips.
The Company imputes income to our Named Executive Officers for spouse/guest travel, which was incurred by Messrs. Newlin, Patterson and Rosenau in connection with the Company’s achievement award meeting. Attendees at this achievement award meeting are encouraged to bring a guest to celebrate the achievements of the Company’s best performers. Spouse/guest travel was also incurred by Mr. Newlin in conjunction with attending certain business and customer events, where guests were expected to attend as participants in the meetings.
Tax Gross-ups (column (j))
The Company provides a tax gross-up on moving allowances and imputed spouse/guest travel expenses incurred in conjunction with Company business travel.
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2012 GRANTS OF PLAN-BASED AWARDS
| 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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Name (a) | Grant Date | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock (#) (h) | Exercise or ($/Sh) (i) | Grant Date ($) (j) | ||||||||||||||||||||||||||||||
Threshold (c) | Target ($) (d) | Maximum (e) | Threshold (f) | Target (g) | ||||||||||||||||||||||||||||||||
S.D. Newlin | 538,365 | 1,076,731 | 2,153,462 | |||||||||||||||||||||||||||||||||
| 2/14/2012 | 514,500 | 1,029,000 | 2,058,000 | |||||||||||||||||||||||||||||||||
| 2/14/2012 | 77,333 | 232,000 | 14.61 | 1,611,627 | ||||||||||||||||||||||||||||||||
| 2/14/2012 | 104,000 | 1,519,440 | ||||||||||||||||||||||||||||||||||
R.M. Patterson | 179,712 | 359,423 | 718,846 | |||||||||||||||||||||||||||||||||
| 2/14/2012 | 108,150 | 216,300 | 432,600 | |||||||||||||||||||||||||||||||||
| 2/14/2012 | 16,267 | 48,800 | 14.61 | 338,997 | ||||||||||||||||||||||||||||||||
| 2/14/2012 | 21,800 | 318,498 | ||||||||||||||||||||||||||||||||||
R.J. Diemer, Jr. | 101,890 | 203,781 | 407,562 | |||||||||||||||||||||||||||||||||
| 3/8/2012 | 65,000 | 130,000 | 260,000 | |||||||||||||||||||||||||||||||||
| 3/8/2012 | �� | 10,000 | 30,000 | 13.01 | 185,500 | |||||||||||||||||||||||||||||||
| 3/8/2012 | 30,000 | 390,300 | ||||||||||||||||||||||||||||||||||
| 7/16/2012 | 10,000 | 146,800 | ||||||||||||||||||||||||||||||||||
R.M. Rosenau | 98,894 | 197,788 | 395,577 | |||||||||||||||||||||||||||||||||
| 2/14/2012 | 53,250 | 106,500 | 213,000 | |||||||||||||||||||||||||||||||||
| 2/14/2012 | 7,767 | 23,300 | 14.61 | 161,857 | ||||||||||||||||||||||||||||||||
| 2/14/2012 | 10,400 | 151,944 | ||||||||||||||||||||||||||||||||||
K.M. Smith | 98,894 | 197,788 | 395,577 | |||||||||||||||||||||||||||||||||
| 2/14/2012 | 53,250 | 106,500 | 213,000 | |||||||||||||||||||||||||||||||||
| 2/14/2012 | 7,767 | 23,300 | 14.61 | 161,857 | ||||||||||||||||||||||||||||||||
| 2/14/2012 | 10,400 | 151,944 | ||||||||||||||||||||||||||||||||||
T.J. Kedrowski | 96,419 | 192,838 | 385,677 | |||||||||||||||||||||||||||||||||
| 2/14/2012 | 51,900 | 103,800 | 207,600 | |||||||||||||||||||||||||||||||||
| 2/14/2012 | 7,767 | 23,300 | 14.61 | 161,857 | ||||||||||||||||||||||||||||||||
| 2/14/2012 | 10,400 | 151,944 | ||||||||||||||||||||||||||||||||||
Estimated Future Payouts Under Non-Equity Incentive Plan Awards (columns (c), (d) and (e))
The amounts located in the first row for each Named Executive Officer represent the cash-based award granted to the Named Executive Officer in 2012 under the Annual Plan. There is no grant date for the awards made under the Annual Plan. The actual amount earned for 2012 is included in the “Non-Equity Incentive Plan Compensation” column (column (g)) of the 2012 Summary Compensation Table of this proxy statement.
The amounts located in the second row for each Named Executive Officer represent the cash-settled performance units awarded in 2012 to the Named Executive Officer. Each performance unit is equal in value to $1.00. These cash-settled performance units are initially subject to achieving specified performance goals over the performance period from January 1, 2012 to December 31, 2014. The cash-settled 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 2015 and shall occur no later than March 15, 2015.
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“Threshold” refers to the minimum amount payable upon reaching the threshold level of performance under the Annual Plan and the 2010 Plan. If threshold performance is not attained, then the participant will receive $0 for the 2012 awards granted under each applicable plan.
Estimated Future Payouts Under Equity Incentive Plan Awards (columns (f) and (g))
“Threshold” refers to the minimum number of shares underlying the SAR award that will vest upon reaching the threshold level of performance, which is narrativesatisfaction of the first stock price hurdle. Threshold equates to vesting in one-third of the SAR award. If threshold performance is not attained, then the participant will not vest in any of the SARs for the 2012 award. “Target” refers to the number of shares underlying the SARs that will vest upon satisfaction of all of the stock price hurdles under the 2012 grant. The SARs do not have a “maximum” level of attainment as a participant cannot receive SARs in excess of the initial award.
All Other Stock Awards: Number of Shares of Stock or Units (RSUs) (column (h))
This column represents stock-settled RSUs granted to the Named Executive Officers in 2012 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. The dividend equivalent rights are subject to the same restrictions as the underlying RSUs.
Exercise or Base Price of Option Awards (column (i))
In setting the base price of these SARs, we 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 in 2012 to the Named Executive Officers was established with a base price equal to PolyOne’s closing stock price on the date of the grant.
Grant Date Fair Value of Stock and Option/SAR Awards (columns (j))
The amounts in this 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 14, Share-Based Compensation, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012.
Narrative disclosure relating to the 2012 Summary Compensation Table and the 20092012 Grants of Plan-Based Awards table.
Senior Executive Annual Incentive Plan
Annual cash incentives were awarded for 20092012 under our Annual Plan and are based on achievement ofachieving performance goals relating to company operating incomeCompany Adjusted Operating Income and consolidated working capital Working Capital
46
as a percentagePercentage of salesSales (for the corporate staff participants) and business unit operating incomeOperating Income and consolidated working capitalWorking Capital as a percentagePercentage of salesSales (for Messrs. Rosenau and Baert)Mr. Rosenau). Achievement of a performance goal at the threshold level results in payment of 30% of the targeted award for that performance goal; achievement of a performance goal at the target level results in a payment of 100% of the targeted award for that performance goal; and, achievement at the maximum level or greater results in payment of 200% of the targeted award for that goal. In no event will a Named Executive Officer receive an award that exceeds the plan maximum of $2,000,000. If performance falls between the levels, the award payouts are interpolated. For a more detailed discussion of our annual incentive plan,Annual Plan, see “Compensation Discussion and Analysis — ElementsAnalysis of 2012 Compensation Decisions and Actions — Annual Incentive.”
Cash-Settled Performance Units
Cash-settled performance units were granted in 20092012 to all of our Named Executive Officers under our 2008 Equity and Performance Incentive2010 Plan and are based on achievementupon achieving four distinct performance goals related to four distinct performance periods that are weighted 25% each. There are three one-year performance periods and one three-year cumulative performance period, each of thewhich requires performance at a range specified between January 1, 2012 and December 31, 2014. The performance goals are based upon Adjusted Earnings Per Share. For each performance goal working capital as a percentage of sales, over a one-year period. If we achieve performance atthat is achieved, the threshold level, 30% of the performance unitsapplicable award will vest and be earned; if we achieve performance at the targeted level, 100% of the performance units will be earned; and, if we achieve performance at the maximum level or greater, 200% of the performance units will be earned. If performance falls between the levels, the number of performance units earned is interpolated.distributed in early 2015, generally subject to continued employment. For a more detailed discussion of the cash-settled performance units granted in 2009,2012, see “Compensation Discussion and Analysis — ElementsAnalysis of 2012 Compensation Decisions and Actions — Long-Term Incentive — Awards Granted in 20092012 — Cash-Settled Performance Units.”
40
In 2009, our2012, the Compensation Committee granted stock-settled SARs to the Named Executive Officers. These SARs initially vest in one-third increments upon attaining each of the following stock price hurdles for thirty consecutive trading days: 10%, 15% and 20% respective increase over the initial grant date closing stock price of $14.61. The stock price hurdles were achieved in 2012. These SARs are also subject to time-based vesting, which lapse one-third on each of the first three anniversaries of the date of grant, generally subject to the officer’s continued employment. They have aan exercise term of seven years and vest one-third per year over three years, but only upon on achievement of performance criteria that require a 10%, 20% and 30% premium over the grant price.ten years. For a more detailed discussion of the stock-settled SARs granted in 2009,2012, see “Compensation Discussion and Analysis — ElementsAnalysis of 2012 Compensation Decisions and Actions — Long-Term Incentive — Awards Granted in 20092012 — Stock-Settled SARs.”
Performance SharesRestricted Stock Units
The Compensation Committee granted Performance SharesRSUs to the Named Executive Officers.Officers in 2012. The Performance SharesRSUs vest 100% and are payable in one-third increments when a 10%, 20%full on the third anniversary of the grant date. The RSUs are accompanied by 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 30% premium in grant price is achieved overpaid on our issued and outstanding shares of common stock. The dividend equivalent rights are subject to the three-year performance period, payable after three years.same restrictions as the underlying RSUs. For a more detailed discussion of the Performance SharesRSUs granted in 2009,2012, see “Compensation Discussion and Analysis — ElementsAnalysis of 2012 Compensation Decisions and Actions — Long-Term Incentive — Awards Granted in 20092012 — Performance Shares.Restricted Stock Units.”
Employment Agreements
We do not have employment agreements with any of our Named Executive Officers except for Messrs. Newlin and Baert.Mr. Newlin. Mr. Newlin’s and Mr. Baert’s Employment Agreements areemployment agreement is described in detail in the “Compensation Discussion and Analysis — Employment AgreementAgreements with the ChiefNamed Executive Officer,” “Compensation Discussion and Analysis — Employment Agreement with Bernard Baert,”Officers” and the “Potential Payments Uponupon Termination orChange-of-Control” Change of Control” sections of this proxy statement.
41
47
| 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 | |||||||||||||||||||||||||||||||||
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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 | (#) | ($) | ||||||||||||||||||||||||||||
| B. Baert | 12,600 | (3) | 94,122 | ||||||||||||||||||||||||||||||||
| 22,200 | (4) | 165,834 | |||||||||||||||||||||||||||||||||
| 18,600 | (9) | 8.9400 | 1/4/2012 | ||||||||||||||||||||||||||||||||
| 25,000 | (5) | 12,500 | (5) | 6.5100 | 1/3/2013 | ||||||||||||||||||||||||||||||
| 53,100 | (6) | 6.5850 | 3/7/2014 | ||||||||||||||||||||||||||||||||
| 10,400 | (7) | 20,800 | (7) | 6.7650 | 3/5/2015 | ||||||||||||||||||||||||||||||
| 38,500 | (8) | 1.4300 | 3/4/2016 | ||||||||||||||||||||||||||||||||
| 200 | 9.0000 | 9/4/2010 | |||||||||||||||||||||||||||||||||
| 41,000 | 8.7000 | 2/27/2011 | |||||||||||||||||||||||||||||||||
| 47,500 | 12.2200 | 3/25/2012 | |||||||||||||||||||||||||||||||||
Name (a) | Stock Awards | |||||||||||||||||||||||||||||
Number of (b) | Number of (c) | Equity Options (#) (d) | Option (e) | Option (f) | Number of That Have (#) (g) | Market ($) (h) | ||||||||||||||||||||||||
S.D. Newlin | — | — | — | — | — | 124,077 | (1) | 2,533,652 | ||||||||||||||||||||||
| — | — | — | — | — | 88,934 | (2) | 1,816,032 | |||||||||||||||||||||||
| — | — | — | — | 105,267 | (3) | 2,149,552 | ||||||||||||||||||||||||
| — | 72,700 | (8) | — | 7.99 | 2/16/2017 | — | — | |||||||||||||||||||||||
| 52,633 | (9) | 105,267 | (9) | — | 14.81 | 2/16/2021 | — | — | ||||||||||||||||||||||
| — | 232,000 | (10) | — | 14.61 | 2/14/2022 | — | — | |||||||||||||||||||||||
R.M. Patterson | — | — | — | — | — | 24,590 | (1) | 502,128 | ||||||||||||||||||||||
| — | — | — | — | — | 17,110 | (2) | 349,386 | |||||||||||||||||||||||
| — | — | — | — | — | 22,065 | (3) | 450,567 | |||||||||||||||||||||||
| 20,000 | (6) | — | — | 7.72 | 5/14/2015 | — | — | |||||||||||||||||||||||
| 28,667 | (8) | 14,333 | (8) | — | 7.99 | 2/16/2017 | — | — | ||||||||||||||||||||||
| 10,167 | (9) | 20,333 | (9) | — | 14.81 | 2/16/2021 | — | — | ||||||||||||||||||||||
| — | 48,800 | (10) | — | 14.61 | 2/14/2022 | — | — | |||||||||||||||||||||||
R.J. Diemer, Jr. | — | — | — | — | — | 30,365 | (4) | 620,053 | ||||||||||||||||||||||
| — | — | — | — | — | 10,051 | (5) | 205,241 | |||||||||||||||||||||||
| — | 30,000 | (11) | — | 13.01 | 3/8/2022 | — | — | |||||||||||||||||||||||
R.M. Rosenau | — | — | — | — | — | 13,831 | (1) | 282,429 | ||||||||||||||||||||||
| — | — | — | — | — | 9,118 | (2) | 186,190 | |||||||||||||||||||||||
| — | — | — | — | — | 10,526 | (3) | 214,941 | |||||||||||||||||||||||
| 24,000 | (7) | — | — | 1.43 | 3/4/2016 | — | — | |||||||||||||||||||||||
| 16,133 | (8) | 8,067 | (8) | — | 7.99 | 2/16/2017 | — | — | ||||||||||||||||||||||
| 5,367 | (9) | 10,733 | (9) | — | 14.81 | 2/16/2021 | — | — | ||||||||||||||||||||||
| — | 23,300 | (10) | — | 14.61 | 2/14/2022 | — | — | |||||||||||||||||||||||
K.M. Smith | — | — | — | — | — | 13,831 | (1) | 282,429 | ||||||||||||||||||||||
| — | — | — | — | — | 9,118 | (2) | 186,190 | |||||||||||||||||||||||
| — | — | — | — | — | 10,526 | (3) | 214,941 | |||||||||||||||||||||||
| — | 8,067 | (8) | — | 7.99 | 2/16/2017 | — | — | |||||||||||||||||||||||
| 5,367 | (9) | 10,733 | (9) | — | 14.81 | 2/16/2021 | — | — | ||||||||||||||||||||||
| — | 23,300 | (10) | — | 14.61 | 2/14/2022 | — | — | |||||||||||||||||||||||
T.J. Kedrowski | — | — | — | — | — | 13,831 | (1) | 282,429 | ||||||||||||||||||||||
| — | — | — | — | — | 9,118 | (2) | 186,190 | |||||||||||||||||||||||
| — | — | — | — | — | 10,526 | (3) | 214,941 | |||||||||||||||||||||||
| — | 8,067 | (8) | — | 7.99 | 2/16/2017 | — | — | |||||||||||||||||||||||
| — | 10,733 | (9) | — | 14.81 | 2/16/2021 | — | — | |||||||||||||||||||||||
| — | 23,300 | (10) | — | 14.61 | 2/14/2022 | — | — | |||||||||||||||||||||||
48
| (1) | Represents stock-settled RSUs that were granted |
| (2) | 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. |
| (3) | Represents stock-settled RSUs that were granted on February 14, 2012 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. |
| (4) | Represents stock-settled RSUs that were granted on March 8, 2012 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. |
| (5) | Represents stock-settled RSUs that were granted on July 16, 2012 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) | These stock-settled SARs were granted on May 15, 2008 and vested in one-third increments on each of the first three anniversaries of the date of grant. |
| (7) | These stock-settled |
| (8) | These stock-settled SARs were granted on February 17, 2010 and vested in one-third increments 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 in one-third increments on each of the first three anniversaries of the date of grant. |
| (10) | These stock-settled SARs were granted on February 14, 2012 and vest in increments upon the attainment of target prices (sustained for | |
| (11) | These stock-settled SARs were granted | |
43Number of Securities Underlying Unexercised Options Exercisable (column (b))
This column shows the fully vested and exercisable SARs held by the Named Executive Officers as of December 31, 2012.
Number of Securities Underlying Unexercised Options Unexercisable (column (c))
This column shows the unvested SARs held by the Named Executive Officers as of December 31, 2012.
49
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (column (d))
There are no shares underlying unexercised SARs awarded under any equity incentive plan that have not been earned.
This column shows the exercise (or base) price for each SAR instrument reported in column (b), (c) and (d).
Option Expiration Date (column (f))
This column shows the expiration dates for each SAR instrument reported in column (b), (c) and (d).
Number of Shares or Units of Stock That Have not Vested (column (g))
This column shows the unvested RSUs held by the Named Executive Officers as of December 31, 2012. 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. The amounts in this column include all dividend equivalents declared in 2011 and 2012 attributable to the awards (including the 4th quarter dividend declared on October 11, 2012, to shareholders of record on December 12, 2012, which was paid on January 7, 2013).
Market Value of Shares or Units of Stock That Have not Vested (column (h))
The market value is determined based on the closing market price of our common shares on December 31, 2012 ($20.42).
2012 OPTION EXERCISES AND STOCK VESTED
| Option Awards | Stock Awards | |||||||||||||||||
| Number of Shares | ||||||||||||||||||
| Acquired on | Value Realized on | Number of Shares | Value Realized | |||||||||||||||
| Exercise | Exercise | Acquired on Vesting(1) | on Vesting(2) | |||||||||||||||
| Name | (#) | ($) | (#) | ($) | ||||||||||||||
| S.D. Newlin | — | — | 134,600 | $300,158 | ||||||||||||||
| R.M. Patterson | — | — | — | — | ||||||||||||||
| R.M. Rosenau | — | — | — | — | ||||||||||||||
| K.M. Smith | — | — | — | — | ||||||||||||||
| B. Baert | — | — | — | — | ||||||||||||||
| Name (a) | Option Awards | Stock Awards | ||||||
Number of Shares (#) (b) | Value Realized on ($) (c) | Number of Shares (d) | Value Realized ($) (e) | |||||
S.D. Newlin | 749,133 | $7,486,830 | 249,152 | $3,273,857 | ||||
R.M. Patterson | 122,300 | 2,034,633 | 48,089 | 631,889 | ||||
R.J. Diemer, Jr. | — | — | — | — | ||||
R.M. Rosenau | 55,200 | 501,048 | 28,043 | 368,485 | ||||
K.M. Smith | 133,833 | 968,215 | 28,043 | 368,485 | ||||
T.J. Kedrowski | 160,700 | 1,612,918 | 28,043 | 368,485 | ||||
Option Awards (columns (b) and (c))
Column (b) reports exercises of stock options and SARs during 2012 on aggregate basis. The value realized on exercise (column (c)) was computed by determining the difference between the market price of the underlying securities at exercise and the exercise price of the options/SARs. All of Mr. Newlin’s SARs were exercised pursuant to a trading plan established under Rule 10b5-1 of the Exchange Act.
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Stock Awards (columns (d) and (e))
Column (d) reports the vesting and release of RSUs during 2012 on an aggregate basis. All of the stock awards that vested and were released in 2012 were granted on March 5, 2009 and released on March 5, 2012. The amounts in this column include shares awarded through the dividend equivalent right feature of the 2010 Plan, which have also been reported in the 2012 Summary Compensation Table under the “All Other Compensation” column of this proxy statement. The value realized on release (column (e)) was computed by multiplying the number of vested RSUs, including the corresponding dividend equivalent rights, by the market price of the underlying securities on the vesting date, in accordance with the 2010 Plan.
2012 PENSION BENEFITS
Number of (#) | Present Value of ($) | Payments During Last ($) | ||||||
S.D. Newlin | Supplemental retirement benefit under employment agreement | — | 7,190,936(1) | — | ||||
R.M. Patterson | N/A | — | — | — | ||||
R.J. Diemer, Jr. | N/A | — | — | — | ||||
R.M. Rosenau | PolyOne Merged Pension Plan The Geon Company Section 401(a)(17) Benefit Restoration Plan | 26.0 26.0 | 1,016,405(2) 764,895(2) | — — | ||||
K.M. Smith | PolyOne Merged Pension Plan The Geon Company Section 401(a)(17) Benefit Restoration Plan | 17.4 17.4 | 661,909(2)(3) 843,520(2)(4) | — — | ||||
T.J. Kedrowski | N/A | — | — | — |
| Number of Years | Present Value of | Payments During Last | ||||||||||||||
| Credited Service | Accumulated Benefit | Fiscal Year | ||||||||||||||
| Name | Plan Name | (#) | ($) | ($) | ||||||||||||
| 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 | — | — | — | ||||||||||||
| (1) | ||
| (2) |
44
| (3) | Mr. Smith’s Number of Years Credited Service includes four additional years of pension service discussed in the narrative following the | |
| (4) | Mr. Smith’s |
51
| $843,520 in the table. Subsequent earnings under the qualified and |
Messrs. Rosenau and Smith are 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), Messrs. Rosenau and Smith are eligible to receive certain retiree medical benefits for which they will be required to pay a resultsubstantial portion of the continuation ofcost. This plan will be phased out until its elimination in 2013. These plans that existed prior to our formation in 2000 through the consolidation of Geon and M.A. Hanna we maintain two defined benefit plans for thoseand generally benefited all nonunion employees who were with those companies at the time of the consolidation. As of December 31, 1999, both plans were closed to new participants. Effective March 20, 2009, both plans were frozen so that participants no longer earn additional benefits. Only Messrs. Rosenau and Smith participate in these Pension Plans.
The PolyOne Merged Pension Plan, which provides funded, tax-qualified benefits subject to the limits on compensation and benefits under the Internal Revenue Code (the “Qualified Plan”). The other plan is The Geon Company Section 401(a)(17) Benefit Restoration Plan (the “Benefit Restoration Plan”), which provides unfunded, non-qualified benefits that are in addition to those offered under the Qualified Pension Plan. The Benefit Restoration Plan benefitsBenefits 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 on qualified plans.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 the executive’sMessrs. Rosenau’s and Smith’s pension depends on a number of factors including monthly Final Average Earnings (FAE)(“FAE”) and years of credited benefit service to us (“Benefit Service.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 contributed by us in the qualified savings plans. The annual salary and bonus for the current year for the Named Executive Officers is indicated in the Summary Compensation Table.
45
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% Jointjoint and Survivorsurvivor 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.
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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 Datenormal retirement date and elected a 50% Jointjoint and Survivorsurvivor form of payment and then immediately died. The 50% Jointjoint and Survivorsurvivor form provides the surviving spouse with monthly lifetime payments at the participant’s Normal Retirement Agenormal retirement age equal to 50% of the benefit that otherwise would have been payable. Payments can commence prior to the participant’s Normal Retirement Agenormal 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 Compensation 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 United States-based employees.
Messrs. Diemer, Kedrowski, Newlin and Patterson do not participate in a defined benefit plan.
We offer a defined contribution retirement benefit to all United States employees through the Qualified Savings Plan. The Qualified Savings Plan provides employees with individual retirement accounts funded by (1) an automatic PolyOne-paid contribution of 2% of employee eligible earnings, and (2) an employer-paid match on employee 401(k) contributions dollar-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. The Internal Revenue Code limits employee contributions to the Qualified Savings Plan to $17,000 and earnings upon which employee/employer contributions are based to $250,000 in 2012.
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 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.
During 2008, the Compensation Committee reviewed Mr. Newlin’s total compensation package among the peer companies and across the broader general industry. The Compensation Committee determined that it was in the best interests of PolyOne and our shareholders to provide a supplemental retirement benefit for him that would be competitive with industry practices and serve as an additional retention vehicle. Thus, Mr. Newlin’s employment agreement (which provides for the terms of Mr. Newlin’s employment) was amended on July 16, 2008 to include certain retirement benefits. Specifically, the employment agreement was amended to provide that upon a Qualifying Separation from Service, Mr. Newlin is also eligible forwill be entitled to annual supplemental retirement benefits as described more fullypayments, payable in the “Compensation Discussionform of a 15-year certain and Analysis — Elementscontinuous life annuity, conditioned upon Mr. Newlin’s execution of Compensation — Retirement Benefits” sectiona release and waiver. If Mr. Newlin dies or incurs a disability prior to a Qualifying Separation from Service, he or his designated beneficiary will be entitled to certain supplemental retirement payments. Generally, the definition of this proxy statement.
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Chairman and Chief Executive Officer at the time of his retirement (provided that if the Board, in its sole discretion, has identified a suitable successor for the position of Chief Executive Officer, he only needs to be serving as Chairman at the time of his retirement) and the Board, in its sole discretion, has identified a suitable successor to the position of Chief Executive Officer; or (2) Mr. Newlin’s employment is involuntarily terminated other than for Serious Cause (as defined below) or Mr. Newlin terminates employment for good reason following a change of control of PolyOne. Under the terms of the amended employment agreement, he will also be treated as a retiree for purposes of any SARs, RSUs, performance shares and cash-settled performance units awarded to him 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. Notwithstanding the foregoing, 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, or disclosure of confidential information or deliberate dishonesty.
| 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 | — | — | — | — | — | ||||||||||||||||||||
| Name | Executive | Registrant | Aggregate | Aggregate Withdrawals/ Distributions ($) | Aggregate | Aggregate | ||||||||||||||||||
S.D. Newlin | 163,222 | 178,991 | 32,091 | — | 1,612,581 | 1,238,277 | ||||||||||||||||||
R.M. Patterson | 177,888 | 56,012 | 131,763 | — | 1,113,706 | 748,043 | ||||||||||||||||||
R.J. Diemer, Jr. | 152,817 | 5,826 | 7,409 | — | 166,052 | — | ||||||||||||||||||
R.M. Rosenau | — | 7,835 | 2,027 | — | 99,243 | 89,381 | ||||||||||||||||||
K.M. Smith | 27,088 | 31,512 | 73,004 | — | 584,758 | 453,154 | ||||||||||||||||||
T .J. Kedrowski | — | 12,319 | 22,977 | — | 172,485 | 137,189 | ||||||||||||||||||
| (1) | These amounts reflect actual amounts earned by the Named Executive Officers in |
| 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 | — | — | ||||||||
| Name | 2012 “Salary” ($) | 2012 “Non-Equity ($) | ||||||
S.D. Newlin | 49,754 | 113,468 | ||||||
R.M. Patterson | 65,365 | 112,523 | ||||||
R.J. Diemer, Jr. | 152,817 | — | ||||||
R.M. Rosenau | — | — | ||||||
K.M. Smith | 18,300 | 8,788 | ||||||
T.J. Kedrowski | — | — | ||||||
| (2) | This column contains contributions by us in the last fiscal year under our |
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| amount equal to 2% of eligible earnings (the “Retirement |
| 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 | — | ||||||||||||||||||||
| Company Contribution | Newlin | Patterson | Diemer | Rosenau | Smith | Kedrowski | ||||||||||||||||||
Company Match | $ | 123,917 | $ | 38,777 | $ | 4,033 | — | $ | 21,816 | $ | 3,012 | |||||||||||||
Retirement Contribution | $ | 55,074 | $ | 17,234 | $ | 1,793 | $ | 7,835 | $ | 9,696 | $ | 9,307 | ||||||||||||
All of these amounts are included in the “All Other Compensation” column of the 2012 Summary Compensation Table.
| (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 2012 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. Messrs. Rosenau and Smith also have |
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| (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 employer contributions were included in the Summary Compensation Table for fiscal years 2007 — 2011. |
| Name | Executive Contributions FY 2007 — 2011 ($) | Registrant Contributions FY 2007 — 2011 ($) | ||||||
S.D. Newlin | 531,213 | 581,215 | ||||||
R.M. Patterson | 540,424 | 124,650 | ||||||
R.J. Diemer, Jr. | — | — | ||||||
R.M. Rosenau | — | 4,905 | ||||||
K.M. Smith | 76,687 | 96,346 | ||||||
T.J. Kedrowski | 34,940 | 49,354 | ||||||
The PolyOne Supplemental Retirement Benefit Plan and the frozen plans are subject to the rules of Section 409A of the Internal Revenue Code, which restricts the timing of distributions. Thus, payment, or commencement of payment, to the Named Executive Officers of their accounts may need to be delayed by six months from suchfollowing the executive’s “separation from service” with us.
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POTENTIAL PAYMENTS UPON TERMINATION ORCHANGE-OF-CONTROL CHANGE OF 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 varying amounts to the executive. We do not have employment agreements with our Named Executive Officers other than Messrs. Newlin and Baert.Mr. Newlin. We do have Continuity Agreementsmanagement continuity agreements with each of our Named Executive Officers whichthat provide for specified benefits upon a termination of employment following a change of control, and each of our Named Executive Officers other than Messrs.Mr. Newlin and Baert, participateparticipates 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 employmentand/or upon a change of control are described below. The tablestable following the narrative discussion summarizesummarizes the amounts payable upon termination or a change of control under certain circumstances, assuming that the executive’s employment terminated on December 31, 2009.
Management Continuity Agreements
We have entered into management continuity agreements (referred to Continuity Agreementsas the “Continuity Agreements”) with us.all of our elected corporate officers, including each of the Named Executive Officers. The purpose of the Continuity Agreements is to encourage the individuals to carry out their duties and provide continuity of management in the event of the possibility of a “change of control” of PolyOne. The Continuity Agreements generally provide for the continuation of employment of the individuals for a period of three years in the same positions and with the same responsibilities, authorities, benefits and level of compensation that they possessed immediately prior to the change of control. The agreements provide severance protection should the officer’s employment be terminated either by us without cause or by the executive for good reason (as defined in the agreements) following a change of control. The Continuity Agreements are automatically renewed each year unless we give prior notice of termination.
The Continuity Agreements do not provide any assurance of continued employment unless there is a change of control. Generally,For these purposes, “change of control” has the meaning ascribed to such term in the Continuity Agreement.
In order to provide additional protection, our Long-Term Incentive Plan grant agreements and Annual Plan provide for accelerated benefits in the event of a change of control, is deemed to have occurred if:
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If a change of control occurs and the Named Executive Officer’s employment is terminated by us or a successor for reasons other than “cause” or is terminated voluntarily by the individual for “good reason,” generallyreason” the Continuity Agreements generally provide that the individual would be entitled to receive:
A lump sum payment of three years of base salary;
A payment three times the executive’s targeted annual incentive amount in effect prior to the change of control;
Employee health and welfare benefits for up to three years at active employee rates; A financial planning/tax preparation allowance equal to one year of financial planning/tax preparation allowance the executive was entitled to receive prior to the change of control; 56 A lump sum payment equal to the employer 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 (only for Named Executive Officers with and at times permitted by,“grandfathered” Continuity Agreements).
In 2011, the Compensation Committee eliminated the tax gross-up benefit for so called “excess parachute payments” under Section 409A280G of the Internal Revenue Code.
For these purposes “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.
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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.
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)below), (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 (4) Mr. Newlin 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, 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 for 24 months (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
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Executive Severance Plan
Effective May 25, 2006, ourthe Compensation and Governance 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 OfficerOfficers under the Executive Severance Plan if he isthey are 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.
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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.
Equity/Long-Term Incentive Awards
Each of the grant agreements evidencing outstanding awards of restricted stock units, stock options, stock appreciation rightsSARs and cash-settled 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 and 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 20092012 Pension Benefits tableTable contained in this proxy statement.
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Payments and Benefits Upon Termination — As of the End of Fiscal Year 20092012
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, 20092012 and that the stock price for our common shares is $7.47,$20.42, the closing sales price of our common shares on December 31, 2009.
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| Name | Benefits and Payments | Voluntary Termination ($) | Retirement(1) ($) | Disability ($) | Death ($) | Involuntary Termination with Cause ($) | Involuntary ($) | Involuntary ($) | ||||||||
S.D. Newlin | ||||||||||||||||
| Cash Severance Benefit(2) | — | — | — | — | — | 2,940,000 | 6,174,000 | |||||||||
| Annual Incentive for Year of Termination | — | 2,017,794 | 2,017,794 | 2,017,794 | — | 2,017,794 | 2,017,794 | |||||||||
| Cash-Settled Performance Units(3) | — | 1,230,228 | 1,230,228 | 1,230,228 | — | 1,230,228 | 2,359,000 | |||||||||
| Restricted Stock Units | — | 4,187,155 | 4,187,155 | 4,187,155 | — | 4,187,155 | 6,499,237 | |||||||||
| Unexercisable Stock Options/SARs | — | 1,608,528 | 1,608,528 | 1,608,528 | — | 1,608,528 | 2,842,127 | |||||||||
| Health and Welfare Benefits(4) | — | — | — | — | — | 32,274 | 48,411 | |||||||||
| Other Benefits(5) | — | — | — | — | — | 72,000 | — | |||||||||
| Financial Planning Services(6) | — | — | — | — | — | 39,000 | 13,000 | |||||||||
| Lump Sum for Defined Contribution Plans | — | — | — | — | — | — | 401,310 | |||||||||
| Excise Tax Gross-up(7)(8) | — | — | — | — | — | — | — | |||||||||
| Incremental Pension Benefit | — | — | — | — | — | — | — | |||||||||
R. M. Patterson | ||||||||||||||||
| Cash Severance Benefit(2) | — | — | — | — | — | 1,030,000 | 2,626,500 | |||||||||
| Annual Incentive for Year of Termination | — | — | 673,559 | 673,559 | — | 673,559 | 673,559 | |||||||||
| Cash-Settled Performance Units(3) | — | — | 243,211 | 243,211 | — | — | 472,800 | |||||||||
| Restricted Stock Units | — | — | 830,458 | 830,458 | — | — | 1,302,081 | |||||||||
| Unexercisable Stock Options/SARs | — | — | 320,875 | 320,875 | — | — | 575,758 | |||||||||
| Health and Welfare Benefits(4) | — | — | — | — | — | 48,886 | 73,329 | |||||||||
| Financial Planning Services(6) | — | — | — | — | — | — | 10,000 | |||||||||
| Outplacement Benefits | — | — | — | — | — | 8,300 | — | |||||||||
| Lump Sum for Defined Contribution Plans | — | — | — | — | — | — | 170,720 | |||||||||
| Excise Tax Gross-up(7) | — | — | — | — | — | — | 1,481,476 | |||||||||
| Incremental Pension Benefit | — | — | — | — | — | — | — | |||||||||
R.J. Diemer, Jr. | ||||||||||||||||
| Cash Severance Benefit(2) | — | — | — | — | — | 870,000 | 2,088,000 | |||||||||
| Annual Incentive for Year of Termination | — | — | 381,885 | 381,885 | — | 381,885 | 381,885 | |||||||||
| Cash-Settled Performance Units(3) | — | — | 43,353 | 43,353 | — | — | 130,000 | |||||||||
| Restricted Stock Units | — | — | 200,805 | 200,805 | — | — | 825,295 | |||||||||
| Unexercisable Stock Options/SARs | — | — | 60,646 | 60,646 | — | — | 222,300 | |||||||||
| Health and Welfare Benefits(4) | — | — | — | — | — | 46,155 | 69,232 | |||||||||
| Financial Planning Services(6) | — | — | — | — | — | — | 10,000 | |||||||||
| Outplacement Benefits | — | — | — | — | — | 8,300 | — | |||||||||
| Lump Sum for Defined Contribution Plans | — | — | — | — | — | — | 135,720 | |||||||||
| Excise Tax Gross-up(7) | — | — | — | — | — | — | — | |||||||||
| Incremental Pension Benefit | — | — | — | — | — | — | — |
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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) | $ | — | $ | — | $ | — | $ | 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 | |||||||||||||||||||
| Name | Benefits and Payments | Voluntary Termination ($) | Retirement(1) ($) | Disability ($) | Death ($) | Involuntary Termination with Cause ($) | Involuntary ($) | Involuntary ($) | ||||||||
R. M. Rosenau | ||||||||||||||||
| Cash Severance Benefit(2) | — | — | — | — | — | 730,000 | 1,697,250 | |||||||||
| Annual Incentive for Year of Termination | — | 395,577 | 395,577 | 395,577 | — | 395,577 | 395,577 | |||||||||
| Cash-Settled Performance Units(3) | — | 127,291 | 127,291 | 127,291 | — | 127,291 | 244,100 | |||||||||
| Restricted Stock Units | — | 449,367 | 449,367 | 449,367 | — | 449,367 | 683,560 | |||||||||
| Unexercisable Stock Options/SARs | — | 170,989 | 170,989 | 170,989 | — | 170,989 | 295,844 | |||||||||
| Health and Welfare Benefits(4) | — | — | — | — | — | 30,580 | 45,870 | |||||||||
| Financial Planning Services(6) | — | — | — | — | — | — | 10,000 | |||||||||
| Outplacement Benefits | — | — | — | — | — | 8,300 | — | |||||||||
| Lump Sum for Defined Contribution Plans | — | — | — | — | — | — | 110,320 | |||||||||
| Excise Tax Gross-up(7) | — | — | — | — | — | — | — | |||||||||
| Incremental Pension Benefit | — | — | — | — | — | — | — | |||||||||
K.M. Smith | ||||||||||||||||
Cash Severance Benefit(2) | — | — | — | — | — | 730,000 | 1,697,250 | |||||||||
Annual Incentive for Year of Termination | — | 370,656 | 370,656 | 370,656 | — | 370,656 | 370,656 | |||||||||
Cash-Settled Performance Units(3) | — | 127,291 | 127,291 | 127,291 | — | 127,291 | 244,100 | |||||||||
Restricted Stock Units | — | 449,367 | 449,367 | 449,367 | — | 449,367 | 683,560 | |||||||||
Unexercisable Stock Options/SARs | — | 170,989 | 170,989 | 170,989 | — | 170,989 | 295,844 | |||||||||
Health and Welfare Benefits(4) | — | — | — | — | — | 30,580 | 45,870 | |||||||||
Financial Planning Services(6) | — | — | — | — | — | — | 10,000 | |||||||||
Outplacement Benefits | — | — | — | — | — | 8,300 | — | |||||||||
Lump Sum for Defined Contribution Plans | — | — | — | — | — | — | 110,320 | |||||||||
Excise Tax Gross-up(7) | — | — | — | — | — | — | — | |||||||||
Incremental Pension Benefit | — | — | — | — | — | — | — | |||||||||
T. J. Kedrowski | ||||||||||||||||
Cash Severance Benefit(2) | — | — | — | — | — | 712,000 | 1,655,400 | |||||||||
Annual Incentive for Year of Termination | — | — | 361,379 | 361,379 | — | 361,379 | 361,379 | |||||||||
Cash-Settled Performance Units (3) | — | — | 123,456 | 123,456 | — | — | 237,000 | |||||||||
Restricted Stock Units | — | — | 449,367 | 449,367 | — | — | 683,560 | |||||||||
Unexercisable Stock Options/SARs | — | — | 170,989 | 170,989 | — | — | 295,844 | |||||||||
Health and Welfare Benefits(4) | — | — | — | — | — | 30,580 | 45,870 | |||||||||
Financial Planning Services(6) | — | — | — | — | — | — | 10,000 | |||||||||
Outplacement Benefits | — | — | — | — | — | 8,300 | — | |||||||||
Lump Sum for Defined Contribution Plans | — | — | — | — | — | — | 107,600 | |||||||||
Excise Tax Gross-up(7) | — | — | — | — | — | — | 822,539 | |||||||||
Incremental Pension Benefit | — | — | — | — | — | — | — |
| (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) |
| (3) |
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| (4) | 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 of control. |
| (5) | Mr. Newlin’s employment agreement provides for continuation of certain benefits following an involuntary termination without cause. |
| (6) | Continuation of financial planning benefit as provided under the terms of the Continuity Agreements, or in the case of Mr. Newlin, his employment agreement. |
| (7) | 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. In 2011, we eliminated the tax gross-ups for excise taxes imposed under Section 280G of the Internal Revenue Code from any new Continuity Agreements provided to executive officers. |
| (8) | 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. | |
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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 | ||||||||||||||||||||
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During 2009,2012, 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 2012, we conducted a formal assessment of our compensation programs to ensure they do not create risks that are reasonably likely to have a material adverse effect on PolyOne. With guidance from the Consultant,
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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 department and the Consultant, 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 2012 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, ChairpersonJ. Douglas CampbellEdward J. Mooney
William H. Powell
Farah M. Walters
58William A. Wulfsohn
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As required under the Dodd-Frank Act and Section 14A of the Exchange Act, our Board of Directors unanimously approvedis submitting a “Say on Pay” proposal for shareholder consideration. While the vote on Named Executive Officer compensation is non-binding and adopted, subjectsolely 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 approvalconcerns that influenced the vote and expect to address them in making future decisions about executive compensation programs.
Currently, advisory “Say on Pay” votes are scheduled to be held once every year. The next advisory vote on Named Executive Officer compensation is expected to occur at our 2014 Annual Meeting of our shareholders atShareholders.
As described more fully in the annual meeting, the PolyOne Corporation 2010 Equity“Compensation Discussion and Performance Incentive Plan (the “Plan”). The Plan will continue to affordAnalysis” section of this proxy statement, the Compensation Committee of our Board of Directors (the “Compensation Committee”) the ability to design compensatory awards that are responsive tohas structured 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.
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| 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 and 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 2012 performance, as summarized below, was aligned with both our pay-for-performance objectives and our Company’s performance. 2012 was another strong year for PolyOne as described above under “Compensation Discussion and Analysis.” Each of our three strategic platforms achieved record levels of Adjusted Operating Income and Operating Margins, despite recessionary conditions in Europe. Guided by our strong performance results for 2012 and in prior years, our key pay decisions and actions for 2012 included:
Our Named Executive Officers (other than Mr. Rosenau) earning Annual Plan payouts at 187.4% of their target Annual Plan opportunities based upon exceeding the target performance goals under that plan. Mr. Rosenau is the only Named Executive Officer with responsibility for business unit specific results, and his Annual Plan opportunity and payout of 200% is based on business unit specific performance goals.
Maintaining the performance measure for our long-term cash-settled performance units awards granted in 2012 as Adjusted Earnings Per Share in order to drive improvements in shareholder value, with a three-year performance period. However, there are four individual performance
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periods (three one-year periods and one three-year aggregate period), weighted 25% each to drive annual performance as well as maximize long-term performance; and |
Paying out cash-settled performance units granted in 2010, based on attainment of 200% of target level performance for our achievement of Working Capital as a Percentage of Sales goals in 2010.
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 2012, we achieved 180.7% of our Company Adjusted Operating Income goal and 200% of our consolidated Working Capital as a Percentage of Sales goal established under our short-term cash incentive program, which primarily drove the 2012 Annual Plan Limits. Totalpayouts described above. In addition, our time and performance based stock appreciation rights help drive long-term shareholder value. These awards underdeliver value to our Named Executive Officers only to the Planextent our shareholders realize increased stock price value. Our stock price has risen to $20.42 as of December 31, 2012 from $11.55 on December 30, 2011. Our Named Executive Officers have realized value for these awards as 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 2012, we also maintained or implemented pay practices favored by a number of institutional shareholders and their advisors, including:
We revised our relocation policy as it relates to the loss on the sale of an executive’s residence. We limit the amount of the reimbursable loss provided to the Named Executive Officers to 80% of the loss, with a maximum total reimbursement of $85,000. In addition, no tax gross-ups on reimbursed losses are limited to 3,000,000 shares plus any common shares relating to awards that expire or are forfeited or cancelled under the Plan. No more than 1,200,000 common shares may be issued with respect to awardsprovided for this group.
We also maintain stock ownership guidelines for our Named Executive Officers that are notdenominated in shares. All of our Named Executive Officers exceed the Guidelines applicable to them.
We eliminated the use of excise tax gross-up provisions in all management continuity agreements offered to newly hired executives.
We instituted a policy prohibiting our Named Executive Officers and Directors from both pledging company stock options or SARs. The Plan also provides that:
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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 | ||||||||
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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 ending December 31, 2013. 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 43 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 CommissionSEC and international statutory audits. Fees for audit services totaled $2,192,039$2,694,800 in 20092012 and $2,358,600$2,312,600 in 2008.2011. The full Audit Committee or the Chair of the Audit Committee pre-approved all audit services and related fee arrangements billed for 20092012 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.divestment. Fees for audit-related services totaled $162,300$149,450 in 20092012 and $185,900$379,300 in 2008.2011. The Audit Committee pre-approved all audit-related fee arrangements billed for 2009.
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Tax Fees. Tax services include tax compliance, tax advice and tax planning. Fees for tax services totaled $619,800$645,300 in 20092012 and $681,300$1,175,800 in 2008.2011. 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, 2009,2012, 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 controlscontrol 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, 2009,2012, for filing with the Securities and Exchange Commission.
The Committee has re-appointed Ernst & Young 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, 201018, 2013 are entitled to vote at the meeting. On that date, a total of 92,564,88499,768,712 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 willnotbe 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,Directors. However, we have no reason to believe that this will occur.
Because the vote to approve 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 approval of the PolyOne Corporation 2010 Equity and Performance Incentive Plan, approval of the PolyOne Corporation Senior Executive Annual Incentive Plan (Effective January 1, 2011), and 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,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.
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, 2010.3, 2013. We suggest that all proposals be sent by certified mail, return receipt requested.
Additionally, a shareholder may submit a proposal for consideration at the 20112014 Annual Meeting of Shareholders, but not for inclusion in next year’s Proxy Statement, if the shareholder gives timely
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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$7,500 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, 2009,2012, 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 ending 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 or for information on how to obtain directions to be able to attend the Annual Meeting of Shareholders and vote in person 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
86April 2, 2013
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Appendix A
Reconciliation of Non-GAAP Financial Measures (Unaudited)
A-1
| Reconciliation to Consolidated Statements of Income | Year Ended December 31, 2012 | Year Ended December 31, 2011 | ||||||||||||||
| $ | EPS | $ | EPS | |||||||||||||
Net income attributable to PolyOne common shareholders | $ | 71.9 | $ | 0.80 | $ | 172.6 | $ | 1.83 | ||||||||
SunBelt equity income, after tax | — | — | (3.7 | ) | (0.04 | ) | ||||||||||
Special items, after-tax (a) | 35.7 | 0.40 | (30.5 | ) | (0.32 | ) | ||||||||||
Tax adjustments (b) | 0.5 | — | (42.3 | ) | (0.45 | ) | ||||||||||
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Adjusted net income / EPS | $ | 108.1 | $ | 1.20 | $ | 96.1 | $ | 1.02 | ||||||||
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| (a) | Special items is a non-GAAP financial measure. Special items include charges related to specific strategic initiatives or financial restructurings such as: consolidation of operations; debt extinguishment costs; employee separation costs resulting from personnel reduction programs, plant phaseout costs, executive separation agreements; asset impairments; mark-to-market adjustments associated with actuarial gains and losses on pension and other postretirement benefit plans; environmental remediation costs, fines or penalties for facilities no longer owned or closed in prior years; gains and losses on the divestiture of operating businesses, joint ventures and equity investments; gains and losses on facility or property sales or disposals; results of litigation, fines or penalties, where such litigation (or action relating to the fines or penalties) arose prior to the commencement of the performance period; acquisition related costs incurred directly in connection with potential or completed acquisitions; unrealized gains and losses from foreign currency option contracts; other one-time, non-recurring items; and the effect of changes in tax law, accounting principles or other such laws or provisions affecting reported results. |
| (b) | Tax adjustments include the net tax loss (benefit) from one-time income tax items and deferred income tax valuation allowance adjustments. |
| Reconciliation to Consolidated Operating Income | Year Ended December 31, | |||||||
| 2012 | 2011 | |||||||
Operating income adjusted | $ | 221.0 | $ | 180.6 | ||||
SunBelt equity income | — | 5.7 | ||||||
Special items in operating income | (53.9 | ) | 46.7 | |||||
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Operating income – GAAP | $ | 167.1 | $ | 233.0 | ||||
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A-1
PolyOne Corporation an Ohio corporation.
Summary of the Company consisting of at least three Directors who qualify as Non-Employee Directors and “outside directors” within the meaning of Section 162(m) of the Code, and who satisfy any applicable standards of independence under the federal securities and tax laws and the listing standards of the New York Stock Exchange (“NYSE”) or any other national securities exchange on which the Common Shares are listed as in effect from time to time.
A-2
A-3
A-4
| Special items: | Year Ended December 31, | |||||||
| 2012 | 2011 | |||||||
Cost of sales: | ||||||||
Employee separation and plant phaseout costs | $ | (0.4 | ) | $ | (1.2 | ) | ||
Reimbursement of previously incurred environmental costs | — | 3.3 | ||||||
Environmental remediation costs | (12.8 | ) | (9.7 | ) | ||||
Acquisition related costs | (5.4 | ) | (1.4 | ) | ||||
Pension and other post-retirement mark-to-market adjustment | (1.3 | ) | (2.5 | ) | ||||
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| |||||
Impact on cost of sales | (19.9 | ) | (11.5 | ) | ||||
Selling and administrative expense: | ||||||||
Employee separation and plant phaseout costs | (11.1 | ) | (1.6 | ) | ||||
Legal related costs | (0.6 | ) | — | |||||
Unrealized loss on foreign currency option contracts | (1.1 | ) | — | |||||
Acquisition related costs | (3.9 | ) | (5.2 | ) | ||||
Pension and other post-retirement mark-to-market adjustment | (40.7 | ) | (81.3 | ) | ||||
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| |||||
Impact on selling and administrative expense | (57.4 | ) | (88.1 | ) | ||||
Gain on sale of investment in equity affiliates | 23.4 | 146.3 | ||||||
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Impact on operating income (loss) | $ | (53.9 | ) | $ | 46.7 | |||
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A-2
A-5
A-6
A-7
A-8
A-9
A-10
A-11
A-12
A-13
A-14
A-15
A-16
A-17
A-18
A-19
A-20
B-1
B-2
B-3
B-4
B-5
B-6
B-7
 | ||
 |
|  | Shareowner Services P.O. Box 64945 |
| St. Paul, MN 55164-0945 | COMPANY # | |||||||
Vote by Internet, Telephone or Mail 24 Hours a Day, 7 Days a Week Your phone or internet vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed and returned your proxy card. | ||||
|
Use the Internet to vote your proxy until 11:59 p.m. (CT) on May 14, 2013. PHONE–1-800-560-1965 Use a touch-tone telephone to vote your proxy until 11:59 p.m. (CT) on May 14, 2013.
card and return it in the postage-paid envelope provided. | |||
| If you vote your proxy by internet or by telephone, you do NOT need to mail back your proxy card. | ||||
òPlease detach hereò
The Board of Directors recommends a vote FOR all the nominees listed in Proposal 1 and FOR Proposals 2 | ||||||||||||||||||||||||
1. Election of directors: | 01 Sandra Beach Lin 05 Gordon D. Harnett 09 Farah M. Walters 02 Dr. Carol A. Cartwright 06 Richard A. Lorraine 10 William A. Wulfsohn 03 Richard H. Fearon 07 Stephen D. Newlin 04 Gregory J. Goff 08 William H. Powell | ¨ | Vote FOR all nominees (except as marked) | ¨ | Vote WITHHELD from all nominees | |||||||||||||||||||
| (Instructions: To withhold authority to vote for any indicated nominee, write the number(s) of the nominee(s) in the box provided to the right.) | ||||||||||||||||||||||||
| 2. | Proposal to approve the advisory resolution on named executive officer compensation. | ¨ | For | ¨ | Against | ¨ | Abstain | |||||||||||||||
| 3. | Proposal to ratify the appointment of | ¨ | For | ¨ | Against | ¨ | Abstain | |||||||||||||||
| 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 | |||||||||||
| ||||||||||||||||||||||
| Date | ||||||||||||||||||||
| Signature(s) in Box | ||||||||||||
Please sign exactly as your name(s) appears on proxy. If held in joint tenancy, all persons should sign. Trustees, administrators, etc., should include title and authority. Corporations should provide full name of corporation and title of authorized officer signing proxy. | ||||||||||||
PolyOne Corporation
2013 ANNUAL MEETING OF SHAREHOLDERS
Wednesday, May 15, 2013
9:00 a.m.
PolyOne Corporation Headquarters
33587 Walker Road
Avon Lake, Ohio 44012
proxy
This proxy is solicited by the Board of Directors for use at the Annual Meeting of Shareholders on May 15, 2013.
The shares of common stock you hold will be voted as you specify on the reverse side.
If no choice is specified, this proxy will be voted FOR all the nominees listed in Proposal 1 and FOR Proposals 2 and 3.
By signing this proxy, you revoke all prior proxies and appoint Richard J. Diemer, Lisa K. Kunkle and Kenneth M. Smith, and each of them, with full power of substitution, to vote your common shares of PolyOne Corporation, held of record on March 18, 2013, on the matters shown on the reverse side hereof and on any other matters that may come before the Annual Meeting of Shareholders and all adjournments.
See reverse for voting instructions.
| Shareowner Services P.O. Box 64945 | |||||||
| St. Paul, MN 55164-0945 | ||||||||
Vote by Internet, Telephone or Mail 24 Hours a Day, 7 Days a Week Your phone or internet vote authorizes the Trustee to vote your shares in the same manner as if you marked, signed and returned your voting instruction card. | ||||
| INTERNET– www.eproxy.com/pol Use the Internet to vote until 11:59 p.m. (CT) on May 13, 2013. PHONE–1-800-560-1965 Use a touch-tone telephone to until 11:59 p.m. (CT) on May 13, 2013. MAIL– Mark, sign and voting instruction card and return it in the postage-paid envelope provided. | |||
| If you vote by internet or by telephone, you do NOT need to mail back your voting instruction card. | ||||
òPlease 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.
The Board of Directors recommends a vote FOR all the nominees listed in Proposal 1 and FOR Proposals 2 and 3. | ||||||||||||||||||||||||
1. Election of directors: | 01 Sandra Beach Lin 05 Gordon D. Harnett 09 Farah M. Walters 02 Dr. Carol A. Cartwright 06 Richard A. Lorraine 10 William A. Wulfsohn 03 Richard H. Fearon 07 Stephen D. Newlin 04 Gregory J. Goff 08 William H. Powell | ¨ | Vote FOR all nominees (except as marked) | ¨ | Vote WITHHELD from all nominees | |||||||||||||||||||
| (Instructions: To withhold authority to vote for any indicated nominee, write the number(s) of the nominee(s) in the box provided to the right.) | ||||||||||||||||||||||||
| 2. | Proposal to approve the advisory resolution on named executive officer compensation. | ¨ | For | ¨ | Against | ¨ | Abstain | |||||||||||||||
| 3. | Proposal to ratify the appointment of Ernst & Young LLP as independent registered public accounting firm for the year ending December 31, 2013. | ¨ | For | ¨ | Against | ¨ | Abstain | |||||||||||||||
| Meeting Attendance? Mark box if you plan to attend 2013 Annual Meeting of Shareholders: ¨ | ||||||||||||||||||||
| Address Change? Mark box, sign, and indicate changes below: ¨ | Date | |||||||||||||||||||
| Signature(s) in Box | ||||||||||||
Please sign exactly as your name(s) appears on voting instruction card. If held in joint tenancy, all persons should sign. Trustees, administrators, etc., should include title and authority. | ||||||||||||
PolyOne Corporation
2013 ANNUAL MEETING OF SHAREHOLDERS
Wednesday, May 15, 2013
9:00 a.m.
PolyOne Corporation Headquarters
33587 Walker Road
Avon Lake, Ohio 44012
voting instructions
This voting instruction card is solicited by the Board of Directors in connection with the Annual Meeting of Shareholders to be held at 9:00 a.m. on Wednesday, May 12, 2010, at LACENTRE Conference and Banquet Facility, Champagne C Ballroom, 25777 Detroit Road, Westlake, Ohio.
As a participant under either the NoticePolyOne Retirement Savings Plan or the PolyOne Canada Inc. Retirement Savings Program (each a “Plan”), I hereby direct New York Life Trust Company as trustee of The PolyOne Retirement Savings Plan or Sun Life Financial as trustee of the Annual Meeting and the Proxy Statement for information concerning the businessPolyOne Canada Inc. Retirement Savings Program (each a “Trustee”) to be conducted at the Annual Meeting and the nominees for election as Directors.
See reverse for the fiscal year ending December 31, 2010. 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 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.
voting instructions.
