SCHEDULE 14A
(Rule 14a-101)
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrantþ
Filed by a Party other than the Registranto
Check the appropriate box:
o Confidential, for Use of the Commission Only (as permitted byRule 14a-6(e)(2))
o Definitive Additional Materials
o Soliciting Material UnderRule 14a-12
POLYONE CORPORATION
(Name of Registrant as Specified In Its Certificate)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
þ No fee required.
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POLYONE CORPORATION
Notice of 20082009
Annual Meeting of Shareholders
and Proxy Statement
March , 2009
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 Thursday, May 14, 2009, at the Wyndham Cleveland at Playhouse Square, 1260 Euclid Avenue, Cleveland, 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 or cards and an envelope in which to return the card(s). Whether or not you plan to attend the Annual Meeting, please complete, sign, date and return your enclosed proxyand/or voting instruction card(s), or vote over the telephone or the Internet as soon as possible so that your shares can be voted at the meeting in accordance with your instructions.Your vote is very important.You may, of course, withdraw your proxy and change your vote prior to or at the Annual Meeting, by following the steps described in the Proxy Statement.
I appreciate the strong support of our shareholders over the years and look forward to seeing you at the meeting.
Sincerely,
/s/ Stephen D. Newlin
Stephen D. Newlin
Chairman, President and Chief Executive Officer
PolyOne Corporation
Please refer to the accompanying materials for voting instructions.
TABLE OF CONTENTS
POLYONE CORPORATION
NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS
The Annual Meeting of Shareholders of PolyOne Corporation will be held at the Wyndham Cleveland Marriott Downtown at Key Center, 127 PublicPlayhouse Square, 1260 Euclid Avenue, Cleveland, Ohio in the Grand Ballroom (Salons F through H) at 9:00 a.m. on Thursday, May 15, 2008.14, 2009. The purposes of the meeting are:
| 1. | To elect as Directors the 10 nominees named in the proxy statement and recommended by the Board of Directors; | |
| 2. | To approve an amendment to PolyOne Corporation’s Code of Regulations to allow the |
| 3. | To ratify the appointment of Ernst & Young LLP as PolyOne Corporation’s independent registered public accounting firm for the fiscal year ending December 31, |
4. To consider and transact any other business that may properly come before the meeting.
Shareholders of record at the close of business on March 17, 200816, 2009 are entitled to notice of and to vote at the meeting.
For the Board of Directors
/s/ Lisa K. Kunkle
Lisa K. Kunkle
Vice President, General Counsel
and Secretary
March 25, 2008, 2009
Important Notice Regarding the Availability of Proxy Materials
for the Annual Meeting of Shareholders to be held on May15, 2008:14, 2009:
for the Annual Meeting of Shareholders to be held on May
The proxy statement, proxy card and annual report to shareholders for the fiscal year ended December 31, 20072008 are available at our internet website, www.polyone.com, on the “Investors Relations” page.
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POLYONE CORPORATION
PolyOne Center
33587 Walker Road
Avon Lake, Ohio 44012
PolyOne Center
33587 Walker Road
Avon Lake, Ohio 44012
PROXY STATEMENT
Dated March 25, 2008, 2009
Our Board of Directors respectfully requests your proxy for use at the Annual Meeting of Shareholders to be held at the Wyndham Cleveland Marriott Downtown at Key Center, 127 PublicPlayhouse Square, 1260 Euclid Avenue, Cleveland, Ohio in the Grand Ballroom (Salons F through H) at 9:00 a.m. on Thursday, May 15, 2008,14, 2009, and at any adjournments of that meeting. This proxy statement is to inform you about the matters to be acted upon at the meeting.
If you attend the meeting, you may vote your shares by ballot. If you do not attend, your shares may still be voted at the meeting if you sign and return the enclosed proxy card. Common shares represented by a properly signed card will be voted in accordance with the choices marked on the card. If no choices are marked, the shares will be voted to elect the nominees listed on pages 3 through 45 of this proxy statement, to approve the PolyOne Corporation 2008 Equity and Performance Incentive Planamendment to our Code of Regulations and to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2008.2009. 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 DH Compounding Company Savings and Retirement Plan and Trust and PolyOne Canada Inc. Retirement Plan.Savings Program. If you receive a separate voting instruction card for one of these plans, you must sign and return the card as indicated on the card in order to instruct the trustee on how to vote the shares held under the plan. You may revoke your voting instruction card before the trustee votes the shares held by it by giving notice in writing to the trustee.
Shareholders may also submit their proxies by telephone or over the Internet. The telephone and Internet voting procedures are designed to authenticate votes cast by use of a personal identification number. These procedures allow shareholders to appoint a proxy to vote their shares and to confirm that their instructions have been properly recorded. Instructions for voting by telephone and over the Internet are printed on the proxy cards.
We are mailing this proxy statement and the enclosed proxy card and, if applicable, the voting instruction card, to shareholders on or about March 31, 2008., 2009. 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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PROPOSAL 1 — ELECTION OF DIRECTORS
Our Board of Directors currently consists of nineeleven Directors. Each Director serves for aone-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 allnon-employee Directors will retire from the Board not later than the first Annual Meeting of Shareholders following the Director’s 70th birthday. In accordance with these Guidelines, Mr. Embry retiredGarda will retire from the Board at the 20072009 Annual Meeting of Shareholders. Following Mr. Garda’s retirement, our Board will consist of ten Directors.
A shareholder who wishes to suggest a Director candidate for consideration by the Compensation and Governance Committee must provide written notice to our Secretary in accordance with the procedures specified in Regulation 12 of our Regulations. Generally, the Secretary must receive the notice not less than 60 nor more than 90 days prior to the first anniversary of the date on which we first mailed our proxy materials for the preceding year’s annual meeting. The notice must set forth, as to each nominee, the name, age, principal occupations and employment during the past five years, name and principal business of any corporation or other organization in which such occupations and employment were carried on, and a brief description of any arrangement or understanding between such person and any others pursuant to which such person was selected as a nominee. The notice must include the nominee’s signed consent to serve as a Director if elected. The notice must set forth the name and address of, and the number of our common shares owned by, the shareholder giving the notice and the beneficial owner on whose behalf the nomination is made and any other shareholders believed to be supporting such nominee.
Following are the nominees for election as Directors for terms expiring in 20092010 and a description of the business experience of each nominee. 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 17, 2008.6, 2009.
Our Board of Directors recommends a vote FOR the election to the Board of each of the following nominees:
| J. Douglas Campbell Director since 1993 Age — | Retired Chairman and Chief Executive Officer of ArrMaz Custom Chemicals, Inc., a specialty mining and asphalt additives and reagents producer. Mr. Campbell served in this capacity from December 2003 until the company was sold in July 2006. Mr. Campbell served as President and Chief Executive Officer and was a Director of Arcadian Corporation, a nitrogen chemicals and fertilizer manufacturer, from December 1992 until the company was sold in 1997. | |
| Dr. Carol A. Cartwright Director since 1994 Age — |
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| Gale Duff-Bloom Director since 1994 Age — | Retired President of Company Communications and Corporate Image of J.C. Penney Company, Inc., a major retailer. Ms. |
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| Richard H. Fearon Director since 2004 Age — 52 | ||
| 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 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 The Lubrizol Corporation, | |
| Richard A. Lorraine Director since 2008 Age — 63 | 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 from 1995 to 2003. Mr. Lorraine serves on the Board of Directors of Carus Corporation. | |
| Edward J. Mooney Director since 2006 Age — | Retired Chairman and Chief Executive Officer of Nalco Chemical Company, a specialty chemicals company. Mr. Mooney served in this capacity from 1994 to 2000. Mr. Mooney also served as Déléqué Général — North America, of Suez Lyonnaise des Eaux from 2000 to 2001, following its acquisition of Nalco. Mr. Mooney serves on the Boards of Directors of FMC Corporation, FMC Technologies, Inc., Northern Trust Corporation, Cabot Microelectronics Corporation and Commonwealth Edison Company (a wholly-owned subsidiary of Exelon Corporation). | |
| Stephen D. Newlin Director since 2006 Age — | Chairman, President and Chief Executive Officer of PolyOne since February 2006. Mr. Newlin served as President — Industrial Sector of Ecolab, Inc., a global developer and marketer of cleaning and sanitizing specialty chemicals, products and services from 2003 to 2006. Mr. Newlin served as President and a director of Nalco Chemical Company, a manufacturer of specialty chemicals, services and systems, from 1998 to 2001 and was Chief Operating Officer and Vice Chairman from 2000 to 2001. Mr. Newlin serves on the Boards of Directors of Black Hills Corporation and The Valspar Corporation. |
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| William H. Powell Director since 2008 Age — 63 | Retired Chairman and Chief Executive Officer of National Starch and Chemical Company, a specialty chemicals company. Mr. Powell served in this capacity from 1999 until his retirement in 2006. Mr. Powell serves on the Boards of Directors of Arch Chemicals, Inc. and Granite Construction Incorporated. | |
| Farah M. Walters Director since 1998 Age — | President and Chief Executive Officer of QualHealth, LLC, a healthcare consulting firm, |
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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.
A Director will not be deemed to be “independent” if, within the preceding three years:
(a) the Director was our employee, or an immediate family member of the Director was either our executive officer or the executive officer of any of our affiliates;
(b) the Director received, or an immediate family member of the Director received, more than $100,000$120,000 per year in direct compensation from us, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation was not contingent in any way on continued service);
(c) the Director is a current partner or employee of Ernst & Young LLP, our external auditor, or within the last three years was a partner or employee of Ernst & Young LLP who personally worked on our audit during that time;
(d) an immediate family member of the Director is a current partner of Ernst & Young LLP, our external auditor, or within the last three years was a partner oran employee of Ernst & Young LLP andwho personally worked on our audit during that time;
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payments from, us for property or services in an amount which, in any single fiscal year, exceeds the greater of $1,000,000, or 2% of such other company’s consolidated gross revenues.
An “immediate family member” includes a Director’s spouse, parents, children, siblings, mothers andfathers-in-law, sons anddaughters-in-law, brothers andsisters-in-law, and anyone (other than domestic employees) who shares such Director’s home.
A Director’s service as an executive officer of a not-for-profit organization will not impair his or her independence if, within the preceding three years, our charitable contributions to the organization in any single fiscal year, in the aggregate, did not exceed the greater of $1,000,000 or 2% of that organization’s consolidated gross revenues.
The Board of Directors determined that J. Douglas Campbell, Carol A. Cartwright, GaleDuff-Bloom, Richard H. Fearon, Robert A. Garda, Gordon D. Harnett, Richard A. Lorraine, Edward J. Mooney, William H. Powell and Farah M. Walters are independent under the NYSE “independent director” listing standards. In making this determination, the Board reviewed significant transactions, arrangements or relationships that a Director might have with our customers or suppliers.
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Lead Director
Our independent Directors meet regularly in executive sessions. In 2006, the Board of Directors amended ourOur Corporate Governance Guidelines to allowprovide that the independent directors are to designateselect a Lead Director to preside at executive sessions. The Lead Director acts as the key liaison between the independent directors and the Chief Executive Officer and is responsible for coordinating the activities of the other independent directors and for performing various other duties as may from time to time be determined by the independent directors. In July 2007, the Board elected Mr. Harnett to serve as the Lead Director. Ms. Walters served as our Lead Director from May 2006 until July 2007.
Board Attendance
The Board met eight times during 2007,2008, 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 Committees of the Board on which such member served in 2007.2008. Each Director is expected to attend the Annual Meeting of Shareholders. In 2007, six2008, 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 nineeleven directors and the following four committees: the Audit Committee, the Compensation and Governance Committee, the Environmental, Health & Safety Committee and the Financial Policy Committee. The following table sets forth the membership of the standing committees of our Board of Directors, as of the date of this proxy statement, and the number of times each committee met in 2007.2008. The current function of each committee is described below.
| Compensation & | Environmental, | |||||||||||||||||||
| Governance | Health & | Financial | ||||||||||||||||||
| Director | Audit Committee | Committee | Safety Committee | Policy Committee | ||||||||||||||||
| Mr. Campbell | X | X | X | * | ||||||||||||||||
| Dr. Cartwright | X | X | ||||||||||||||||||
| Ms. Duff-Bloom | �� | X | X | X | ||||||||||||||||
| Mr. Fearon | X | * | X | |||||||||||||||||
| Mr. Garda | X | X | ||||||||||||||||||
| Mr. Harnett | X | X | * | |||||||||||||||||
| Mr. Mooney | X | X | * | X | ||||||||||||||||
| Mr. Newlin | X | X | ||||||||||||||||||
| Ms. Walters | X | X | ||||||||||||||||||
Number of Meetings in 2007 | 8 | 7 | 2 | 4 | ||||||||||||||||
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| Compensation & | Environmental, | |||||||||||||||||||
| Governance | Health & | Financial | ||||||||||||||||||
| Director | Audit Committee | Committee | Safety Committee | Policy Committee | ||||||||||||||||
| Mr. Campbell | X | X | X | * | ||||||||||||||||
| Dr. Cartwright | X | X | ||||||||||||||||||
| Ms. Duff-Bloom | X | X | X | |||||||||||||||||
| Mr. Fearon | X | * | X | |||||||||||||||||
| Mr. Garda | 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 2008 | 8 | 7 | 2 | 5 | ||||||||||||||||
X — Member
* — Chairperson
The Audit Committee meets with appropriate financial and legal personnel and independent auditors to review our corporate accounting, internal controls, financial reporting and compliance
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with legal and regulatory requirements. The Committee exercises oversight of our independent auditors, internal auditors and financial management. The Audit Committee appoints the independent auditors to serve as auditors in examining our corporate accounts. Our common shares are listed on the NYSE and are governed by its listing standards. All members of the Audit Committee meet the financial literacy and independence requirements as set forth in the NYSE listing standards. The Board of Directors has determined that Mr. Fearon meets the requirements of an “audit committee financial expert” as defined by the Securities and Exchange Commission.
The Compensation and Governance Committee reviews and approves the compensation, benefits and perquisites afforded our executive officers and other highly-compensated personnel. The Committee has similar responsibilities with respect to non-employee Directors, except that the Committee’s actions and determinations are subject to the approval of the Board of Directors. The Committee also has oversight responsibilities for all of our broad-based compensation and benefit programs and provides policy guidance and oversight on selected human resource policies and practices. To help it perform its responsibilities, the Committee makes use of PolyOne resources, including members of senior management in our human resources, legal and finance departments. In addition, the Committee directly engages the resources of Towers Perrin as an independent outside compensation consultant (the “Consultant”) to assist the Committee in assessing the competitiveness and overall appropriateness of our executive compensation programs. In 2007,2008, the Committee, assisted by the Consultant, analyzed competitive market compensation data relating to salary, annual incentiveincentives and long-term incentive.incentives. In analyzing competitive market data, the Committee reviewed data from a peer group of similarly-sized U.S. chemical companies and reviewed data from the Consultant’s Compensation Data Bank and other published surveys. The Consultant then assisted the Committee in
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benchmarking base salaries and annual and long-term incentive targets to approximate the market median. The Consultant assisted by our human resources department also preparedin preparing tally sheets to provide the Committee with information regarding our executive officers’ total annual compensation, termination benefits and wealth accumulation. More detailed information about the compensation awarded to our executive officers in 20072008 is provided in the “Compensation Discussion and Analysis” section of this proxy statement. The Consultant maintains regular contact with the Committee and interacts with management to gather the data needed to prepare reports for Committee review.
The Committee recommends to the Board of Directors candidates for nomination as Directors, and the Committee advises the Board with respect to governance issues and directorship practices, reviews succession planning for the Chief Executive Officer and other executive officers and oversees the process by which the Board annually evaluates the performance of the Chief Executive Officer. All members of the Compensation and Governance Committee have been determined to be independent as defined by the NYSE listing standards.
The Compensation and Governance Committee will consider shareholder suggestions for nominees for election to our Board of Directors as described on page 3. The Committee uses a variety of methods for identifying and evaluating nominees for Directors, including third-party search firms, recommendations from current Board members and recommendations from shareholders. Nominees for election to the Board of Directors are selected on the basis of the following criteria:
| • | Business or professional experience; | |
| • | Knowledge and skill in certain specialty areas such as accounting and finance, international markets, physical sciences and technology or the polymer or chemical industry; |
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| • | Personal characteristics such as ethical standards, integrity, judgment, leadership and the ability to devote sufficient time to our affairs; | |
| • | Substantial accomplishments with demonstrated leadership capabilities; | |
| • | Freedom from outside interests that conflict with our best interests; | |
| • | The diversity of backgrounds and experience each member will bring to the Board of Directors; and | |
| • | Our needs from time to time. |
The Committee also considers such other relevant factors as it deems appropriate, including the current composition of the Board, the balance of management and independent directors, the need for Audit Committee expertise and the evaluations of other prospective nominees. The Committee has established these criteria that any Director nominee, whether suggested by a shareholder or otherwise, should satisfy. A nominee for election to the Board who is suggested by a shareholder will be evaluated by the Committee in the same manner as any other nominee for election to the Board. Finally, if the Committee determines that a candidate should be nominated for election to the Board, the Committee will present its findings and recommendation to the full Board for approval.
In the past,2008, the Committee has engagedused a third-party search firm, at our expense, to assist in identifying qualified nominees for the Board. The search firm was askedRussell Reynolds Associates, to identify possible candidates who meet the minimum and desired qualifications, to interview and screen such candidates (including conducting appropriate background and reference checks), to act as a liaison among the Board, the Committee and each candidate during the screening and evaluation process, and thereafter to be available for consultation as needed by the Committee. In the beginning of 2007, the Committee used a third-party search firm to identify possible candidates for Board membership. The Committee may engage the services of a third-party search firm in 2008, to assist it again in identifying potential nominees to the Board.
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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 Financial Policy Committee exercises oversight with respect to our capital structure, borrowing and repayment of funds, financial policies, management of foreign exchange risk and other matters of financial risk management, banking relationships and other financial matters.
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 page. Shareholders may request copies of these charters, free of charge, by writing to PolyOne Corporation, 33587 Walker Road, Avon Lake, Ohio 44012, Attention: Secretary, or by calling(440) 930-1000. The Board and each Committee conduct an annual self-evaluation.
Code of Ethics, Code of Conduct and Corporate Governance Guidelines
In accordance with applicable NYSE listing standards and Securities and Exchange Commission regulations, the Board of Directors has adopted a Code of Ethics, Code of Conduct and Corporate Governance Guidelines. These are also posted and available on our investor relations internet website at www.polyone.com under the Corporate Governance page. Shareholders may request copies of these corporate governance documents, free of charge, by writing to PolyOne Corporation, 33587 Walker Road, Avon Lake, Ohio 44012, Attention: Secretary, or by calling(440) 930-1000.
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In October 2007, the Board amended our Corporate Governance Guidelines to adopt a policy relating to majority voting. Pursuant to the policy, any nominee for election as a Director of the Board who receives a greater number of votes “withheld” from his or her election than votes “for” his or her 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. The Compensation 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 Compensation and Governance Committee’s recommendation. The Compensation and Governance Committee in making its recommendation, and the Board in making its decision, may consider any factors or other information that it considers appropriate, including the reasons (if any) given by shareholders as to why they withheld their votes, the qualifications of the tendering Director and his or her contributions to the Board and to PolyOne, and the results of the most recent evaluation of the tendering Director’s performance by the other members of the Board. The Board will promptly disclose its decision whether to accept or reject the Director’s tendered resignation and, if applicable, the reasons for rejecting the tendered resignation.
Communication with Board of Directors
Shareholders and other interested parties interested in communicating directly with the Board of Directors as a group, the non-management or independent Directors as a group, or with any individual Director may do so by writing to the Secretary, PolyOne Corporation, 33587 Walker Road, Avon Lake, Ohio 44012. The mailing envelope and letter must contain a clear notation indicating that the enclosed letter is either a “Shareholder-Board of Directors Communication” or an “Interested Party-Board of Directors Communication,” as appropriate.
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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 Committees 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 such correspondence. Concerns relating to accounting, internal controls or auditing matters are immediately brought to the attention of our internal audit department and handled in accordance with procedures established by the Audit Committee for such matters.
Director Compensation
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Governance Committees. These amounts are payable on a quarterly basis. We reimburse Directors for their expenses associated with each meeting attended.
Prior to April 1, 2008, we granted each new non-employee Director, at the time of his or her initial election or appointment as a Director, an award of 8,500 common shares. Effective April 1, 2008, we eliminated this initial share award.
Directors who are not our employees may defer payment of all or a portion of their compensation as a Director under our Deferred Compensation Plan for Non-Employee Directors. A Director may defer the compensation as cash or elect to have it converted into our common shares and, prior to April 1, 2008, the Director could defer cash compensation into common shares at a rate equal to 125% of the cash compensation amount. Effective April 1, 2008, we eliminated this premium on cash deferred in the form of common shares.
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| Fees Earned | Fees Earned | |||||||||||||||||||||||||||||||||||||||
| or Paid | Stock | Option | or Paid | Stock | Option | |||||||||||||||||||||||||||||||||||
| in Cash(2) | Awards(3)(4) | Awards(4) | Total | in Cash(1) | Awards(2)(3) | Awards(3) | Total | |||||||||||||||||||||||||||||||||
| Name | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ||||||||||||||||||||||||||||||||
| J.D. Campbell | 59,000 | 50,000 | — | 109,000 | 65,500 | 68,750 | — | 134,250 | ||||||||||||||||||||||||||||||||
| C.A. Cartwright | 54,000 | 50,000 | — | 104,000 | 58,500 | 68,750 | — | 127,250 | ||||||||||||||||||||||||||||||||
| G. Duff-Bloom | 54,000 | 50,000 | — | 104,000 | 60,500 | 68,750 | — | 129,250 | ||||||||||||||||||||||||||||||||
W.R. Embry(1) | 22,794 | 17,995 | — | 40,789 | ||||||||||||||||||||||||||||||||||||
| R.H. Fearon | 59,167 | 50,000 | — | 109,167 | 70,500 | 68,750 | — | 139,250 | ||||||||||||||||||||||||||||||||
| R.A. Garda | 54,000 | 50,000 | — | 104,000 | 60,500 | 68,750 | — | 129,250 | ||||||||||||||||||||||||||||||||
| G.D. Harnett | 64,000 | 50,000 | — | 114,000 | 70,500 | 68,750 | — | 139,250 | ||||||||||||||||||||||||||||||||
| R.A. Lorraine | 16,000 | 18,750 | — | 34,750 | ||||||||||||||||||||||||||||||||||||
| E.J. Mooney | 57,333 | 50,000 | — | 107,333 | 64,500 | 68,750 | — | 133,250 | ||||||||||||||||||||||||||||||||
| W.H. Powell | 16,000 | 18,750 | — | 34,750 | ||||||||||||||||||||||||||||||||||||
| F.M. Walters | 59,833 | 50,000 | — | 109,833 | 60,500 | 68,750 | — | 129,250 | ||||||||||||||||||||||||||||||||
| (1) | ||
| Non-employee Directors may defer payment of all or a portion of their cash compensation as a Director | ||
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| $2.980. | ||
| (3) | In |
| Option Awards | Stock Awards | Option Awards | Stock Awards | |||||||||||||||||
| Number of | Number of | Number of | Number of | |||||||||||||||||
| Securities Underlying | Deferred | Securities Underlying | Deferred | |||||||||||||||||
| Unexercised Options | Shares | Unexercised Options | Shares | |||||||||||||||||
| Name | (#) | (#) | (#) | (#) | ||||||||||||||||
| J.D. Campbell | 46,000 | 121,132 | 44,000 | 148,412 | ||||||||||||||||
| C.A. Cartwright | 39,000 | 49,011 | 39,000 | 49,011 | ||||||||||||||||
| G. Duff-Bloom | 46,000 | 93,373 | 44,000 | 110,230 | ||||||||||||||||
| W.R. Embry | 39,000 | 0 | ||||||||||||||||||
| R.H. Fearon | 15,000 | 0 | 15,000 | 0 | ||||||||||||||||
| R.A. Garda | 61,500 | 41,870 | 39,000 | 48,159 | ||||||||||||||||
| G.D. Harnett | 39,000 | 96,441 | 39,000 | 110,167 | ||||||||||||||||
| R.A. Lorraine | 0 | 6,291 | ||||||||||||||||||
| E.J. Mooney | 0 | 27,668 | 0 | 54,754 | ||||||||||||||||
| W.H. Powell | 0 | 11,660 | ||||||||||||||||||
| F.M. Walters | 54,000 | 92,024 | 44,000 | 57,408 | ||||||||||||||||
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BENEFICIAL OWNERSHIP OF COMMON SHARES
The following table shows the number of our common shares beneficially owned on March 17, 20086, 2009 (including options exercisable 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 2933 and by all Directors and executive officers as a group.
| Number of | Right to | Total | Number of | Right to | Total | ||||||||||||||||||||||
| Shares | Acquire | Beneficial | Shares | Acquire | Beneficial | ||||||||||||||||||||||
Name | Owned(1) | Shares(3) | Ownership | Owned(1) | Shares(3) | Ownership | |||||||||||||||||||||
| J. Douglas Campbell | 150,468 | (2) | 44,000 | 194,468 | |||||||||||||||||||||||
| J. Douglas Campbell | 123,188 | (2) | 46,000 | 169,188 | |||||||||||||||||||||||
| Dr. Carol A. Cartwright | 94,610 | (2) | 39,000 | 133,610 | |||||||||||||||||||||||
| Carol A. Cartwright | 108,336 | (2) | 39,000 | 147,336 | |||||||||||||||||||||||
| Gale Duff-Bloom | 93,871 | (2) | 46,000 | 139,871 | 110,728 | (2) | 44,000 | 154,728 | |||||||||||||||||||
| Richard H. Fearon | 20,763 | (2) | 15,000 | 35,763 | 34,489 | 15,000 | 49,489 | ||||||||||||||||||||
| Robert A. Garda | 83,090 | (2) | 61,500 | 144,590 | 103,105 | (2) | 39,000 | 142,105 | |||||||||||||||||||
| Gordon D. Harnett | 113,252 | (2) | 39,000 | 152,252 | 126,978 | (2) | 39,000 | 165,978 | |||||||||||||||||||
| Richard A. Lorraine | 6,291 | (2) | 0 | 6,291 | |||||||||||||||||||||||
| Edward J. Mooney | 27,668 | (2) | 0 | 27,668 | 254,754 | (2) | 0 | 254,754 | |||||||||||||||||||
| William H. Powell | 21,660 | (2) | 0 | 21,660 | |||||||||||||||||||||||
| Farah M. Walters | 93,080 | (2) | 54,000 | 147,080 | 119,331 | (2) | 44,000 | 163,331 | |||||||||||||||||||
| Stephen D. Newlin | 235,000 | 0 | 235,000 | 169,600 | 0 | 169,600 | |||||||||||||||||||||
| Robert M. Patterson | 100,000 | 0 | 100,000 | ||||||||||||||||||||||||
| W. David Wilson | 154,155 | 215,600 | 369,755 | 159,377 | 215,600 | 374,977 | |||||||||||||||||||||
| Kenneth M. Smith | 74,613 | 131,500 | 206,113 | ||||||||||||||||||||||||
| Michael L. Rademacher | 65,909 | 151,024 | 216,933 | ||||||||||||||||||||||||
| Bernard Baert | 35,766 | 14,042 | 49,808 | 35,766 | 6,969 | 42,735 | |||||||||||||||||||||
| Michael E. Kahler | 40,586 | 0 | 40,586 | ||||||||||||||||||||||||
| Michael L. Rademacher | 65,067 | 151,024 | 216,091 | ||||||||||||||||||||||||
| 16 Directors and executive officers as a group | 1,415,324 | 832,038 | 2,247,362 | ||||||||||||||||||||||||
| 19 Directors and executive officers as a group | 1,886,344 | 788,465 | 2,674,809 | ||||||||||||||||||||||||
| (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 named executives’ accounts in our Retirement Savings Plan, a tax-qualified defined contribution plan. The number of common shares allocated to these individuals is provided by the savings plan administrator in a statement for the period ending December 31, | |
| (2) | With respect to the Directors, beneficial ownership includes shares held under the Deferred Compensation Plan for Non-Employee Directors as follows: J.D. Campbell, |
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| (3) | Includes shares the individuals have a right to acquire on or before May |
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The following table shows information relating to all persons who, as of March 17, 2008,6, 2009, 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:
| Number of | % of | |||||||
Name and Address | Shares | Shares | ||||||
| Dimensional Fund Advisors LP | 7,337,768 | (1) | 7.9 | % | ||||
| 1299 Ocean Avenue | ||||||||
| Santa Monica, California 90401 | ||||||||
| Barclays Global Investors, NA | 6,635,948 | (2) | 7.1 | % | ||||
| 45 Fremont Street | ||||||||
| San Francisco, California 94105 | ||||||||
| State of Wisconsin Investment Board | 6,100,700 | (3) | 6.5 | % | ||||
| P.O. Box 7842 | ||||||||
| Madison, Wisconsin 53707 | ||||||||
| Barrow, Hanley, Mewhinney & Strauss, Inc | 5,926,420 | (4) | 6.4 | % | ||||
| 2200 Ross Avenue, 31st Floor | ||||||||
| Dallas, Texas75201-2761 | ||||||||
| Jeffrey L. Gendell | 5,453,293 | (5) | 5.8 | % | ||||
| 55 Railroad Avenue | ||||||||
| Greenwich, Connecticut 06830 | ||||||||
| New York Life Trust Company, Trustee | 4,952,764 | (6) | 5.3 | % | ||||
| 51 Madison Avenue | ||||||||
| New York, New York 10010 | ||||||||
| Number of | % of | |||||
| Name and Address | Shares | Shares | ||||
| Fine Capital Partners, L.P. | 7,795,000(1) | 8.4% | ||||
| 590 Madison Avenue, 5th Floor New York, New York 10022 | ||||||
| Dimensional Fund Advisors LP | 7,756,699(2) | 8.4% | ||||
| 1299 Ocean Avenue Santa Monica, California 90401 | ||||||
| Barrow, Hanley, Mewhinney & Strauss, Inc | 7,104,210(3) | 7.7% | ||||
2200 Ross Avenue, 31st Floor Dallas, Texas75201-2761 | ||||||
| Barclays Global Investors, NA | 7,051,825(4) | 7.6% | ||||
| 45 Fremont Street San Francisco, California 94105 | ||||||
| New York Life Trust Company, Trustee | 5,534,987(5) | 6.0% | ||||
| 51 Madison Avenue New York, New York 10010 | ||||||
| (1) | As of March 6, 2009, based upon information contained in a Schedule 13D/A filed with the Securities and Exchange Commission. FCP Capital Partners, L.P. and its affiliates have sole voting power and sole dispositive power with respect to all of these shares. | |
| (2) | As of February | |
| As of February | ||
| (4) | As of February 5, 2009, based upon information contained in a Schedule 13G filed with the Securities and Exchange Commission. Barclays Global Investors, NA, as an investment advisor and reporting on behalf of a group of affiliate entities, has sole voting power with respect to | |
| As of February 13, | ||
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Share Ownership Guidelines
We have established share ownership guidelines for our non-employee Directors, executive officers and other elected corporate officers to better align their financial interests with those of shareholders by requiring them to own a minimum level of our shares. These individuals are expected to make continuing progress towards compliance with the guidelines and to comply fully within five years of becoming subject to the guidelines. These policies, as they relate to our Named Executive Officers, are discussed in the “Compensation Discussion and Analysis” section of this proxy statement. In December, 2007, the Board decided, in order to reflect the Board’s commitment to share ownership and better align the interests of our Board members with our shareholders, to increase the required share ownership level for directors from 17,000 shares tois a number of shares with a value equal to five times the annual cash retainer (which, based on year-end stock values, more than doubles the required ownership level).retainer.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that our executive officers and Directors, and persons who own more than 10% of a registered class of our equity securities, file reports of ownership and changes in ownership with the Securities and Exchange Commission. Executive officers, Directors and greater than 10% shareholders are required by Securities and Exchange Commission rules to furnish us with copies of all forms they file. Based solely on our review of the copies of such forms received by us and written representation from certain reporting persons, we believe that, during 20072008 and until the date of this proxy statement, all Section 16(a) filing requirements applicable to our executive officers, Directors and 10% shareholders were satisfied.
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Introduction
Our executive compensation programs are approved and overseen by the Compensation and Governance Committee of the Board of Directors (the “Committee”), which is composed entirely of independent directors. The Committee has selected and retained an independent compensation consultant, Towers Perrin (the “Consultant”). The Committee works in conjunction with the Consultant and with input from members of senior management, principally the Chairman, President and Chief Executive Officer, the Chief Human Resources Officer, the Chief Financial Officer and the General Counsel.
This report contains management’s discussion and analysis of the compensation awarded to, earned by, or paid to the following executive officers (the “Named Executive Officers”):
| • | Stephen D. Newlin — Chairman, President and Chief Executive Officer | |
| • | ||
| • | ||
| • | ||
| • | Michael L. Rademacher — Senior Vice President | |
| • | Bernard Baert — Senior Vice President and General Manager, Colors and Engineered Materials — Europe and Asia |
Executive Compensation Programs — Objectives and Overview
The objectives of our executive compensation programs are to: (1) attract, retain and motivate the management team who leads in setting and achieving the overall goals and objectives of our company; (2) foster a pay-for-performance culture by rewarding the achievement of specified financial goals and growth of our share price; and (3) align our goals and objectives with the interests of our shareholders by recognizing and rewarding business results through incentive programs.
While we believe that all components of total compensation (which are identified in the Summary Compensation Table) should be valued and considered when making decisions regarding pay, the primary focus of our executive compensation program is on base salary, annual incentive and long term incentives. We believe that compensation opportunities should be competitive with the industry compensation practices of the companies we compete with for executive talent and that total compensation should be fair to both employees and shareholders.
Our incentive programs focus on the critical performance measures that determine our company’s overall success. For positions with significant business unit responsibilities, incentive programs also emphasize success at the business unit level, which often leads to Named Executive Officers at comparable levels being paid differently across the organization. The structure ofOur base salary and annual and long-term incentive opportunities isare designed to reward executives for the efficient execution of their day-to-day responsibilities and attainment of short term results, balanced with the need for sustainable, long-term success.
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The following table outlines the major elements of compensation in 20072008 for our Named Executive Officers.
| Compensation | ||||||
| Element | Definition | Rationale | ||||
Base Salary | • Fixed compensation payable bi-weekly | • Intended to pay for completingday-to-day job responsibilities assigned to the position | ||||
Annual Incentive Plan | • Variable, cash compensation that is earned when pre-established annual performance goals are achieved | • Builds accountability for important annual financial goals • Limits fixed expenses; payment is required only upon achievement of specified goals | ||||
Long-Term Incentive Plan Performance Units | • Variable, cash compensation that is earned when pre-established three-year financial goals are achieved | • Emphasizes achievement of long-term strategic goals and objectives • Limits fixed expenses; payment is required only upon achievement of specified goals • Avoids stock dilution through cash awards • Multi-year incentive is common market practice | ||||
Rights | • Variable compensation that • Paid in PolyOne common shares | • • | ||||
| • Increases share ownership | ||||||
| • Limits fixed expenses | ||||||
| • Vesting conditions require executive to remain with PolyOne for the vesting period | ||||||
| • Multi-year incentive is a common market practice | ||||||
Restricted Stock Units | • Equity compensation with three-year cliff vesting • Paid in PolyOne common shares | • Increases share ownership • Limits fixed expenses; payment is not required if executive terminates before vesting • Vesting conditions require executive to remain with PolyOne for the vesting period • Full-value grant is a common market practice | ||||
Retirement Plans U.S. Defined Contribution Plans | • Qualified 401(k) defined contribution plan • Nonqualified excess 401(k) defined contribution plan | • The qualified defined contribution plan is a standard tax-qualified benefit offered to all employees subject to limitations on compensation and benefits under the Internal Revenue Code | ||||
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| Compensation | |||||||||
| Element | Definition | Rationale | |||||||
| • Restores benefits that are limited by the Internal Revenue Code in the qualified plan for most highly-paid executives | |||||||||
Belgium Defined Contribution Plan | • Tax-efficient defined contribution plan | • Mr. Baert is a participant in a standard tax-efficient defined contribution plan provided to most Belgium employees | |||||||
Defined Benefit Plans (These plans have been closed to new participants since the formation of | • Qualified defined benefit pension plan | • | |||||||
| • Nonqualified, excess defined benefit plan | • Restores benefits that are limited by the Internal Revenue Code in the qualified plan and applies to all eligible plan participants | ||||||||
Supplemental Retirement Benefit for Mr. Newlin | • Non-qualified annual supplemental retirement payments, upon a “Qualifying Separation from Service,” payable in the form of a 15-year certain and continuous life annuity | • This non-qualified retirement benefit is consistent with benefits offered at peer companies • Vesting conditions require executive to remain with PolyOne until the vesting conditions are satisfied | |||||||
Post-Retirement Medical | • Subsidized retiree medical coverage similar to coverage provided to active employees available to certain heritage employees (This plan has been closed to new participants since the formation of PolyOne) | • | |||||||
| • Retiree medical coverage at full cost to the retiree from ages 55 to 65 that is available to PolyOne employees | • Messrs. Newlin, Patterson and Rademacher are eligible for participation in the post-retirement medical plan offered to U.S. based PolyOne employees | ||||||||
| • Mr. Baert is not eligible to participate in a company provided retiree medical plan | |||||||||
Perquisites | • Car allowance • Relocation benefits • Executive • Financial planning and tax preparation; excess liability insurance | • Standard market practice • Relocation benefits assist in attracting new executive talent • Executive physicals help to ensure continuity of our management team • Other perquisites are modest and are typical for executives at comparable companies | |||||||
Current Global Economic Conditions
The current global recession has had an impact on our business and on our executive compensation programs. As the year 2008 progressed and the global economy significantly eroded, it became clear that our executive compensation decisions for 2009 should be reviewed to take into account the current
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economic conditions. Significant compensation decisions, including deviations from historyand/or design changes for 2009, are noted below, with additional details following throughout this analysis.
| • | Base salaries for Named Executive Officers, as well as other officers of the Company, will be frozen in 2009. | |
| • | The value of the long-term incentive grants in 2009 will be 38% below the target market opportunity for the Named Executive Officers and, therefore, will be below the value of last year’s grant. | |
| • | The change in long-term incentive opportunity results in a decrease in total direct compensation for Named Executive Officers in the range of 14% to 22% (with the CEO’s compensation being decreased by the 22%). | |
| • | The long-term incentive will include a grant of Performance Units with a one-year performance cycle payable after three years, to further emphasize our focus on cash management for 2009. | |
| • | Achievement of threshold performance under the performance units will result in a payout of 30% of the targeted award (instead of 50%), while maintaining our standard threshold level of performance. | |
| • | Performance measures will be added as a condition of vesting under the stock-settled stock appreciation rights and performance shares. | |
| • | Achievement of threshold performance under the Annual Incentive Plan will result in a payout of 30% of the targeted award (instead of 50%), while maintaining our standard threshold level of performance. | |
| • | The Annual Incentive Plan performance measures for 2009 will include a greater emphasis on working capital as a percentage of sales to promote cash management. |
Setting the Level of Compensation
We have designed our compensation programs to be competitive with companies of comparable size and industry as well as companies with whom we compete for executive talent. The Committee obtains advice from the Consultant relating to competitive salaries and annual and long-term incentives, as well as other items of total compensation, including retirement benefits, health and welfare benefits and perquisites. Management and the Committee review the specific pay disclosures of the defined peer group of chemical companies as well as survey data of similarly-sized chemical and other companies, as provided by the Consultant. The Committee discusses and considers this information when making compensation decisions. This process is described in the “Compensation Oversight Processes” section of this report. The Committee manages compensation so as to align each of the pay elements with market practices.
The Committee targets base salaries around the median of observed market practice and sets annual and long-term incentive targets (incentive as a percent of salary) to approximate the market median. We believe the maximum potential annual incentive payouts (no award shall be greater than double the target award) are consistent with the typical market range around target awards.
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Our actual awards of cash-settled performance units, stock-settled stock appreciation rights (SARs) and SARsrestricted stock units (RSUs) are based on thecompetitive long-term incentive market practices, market data, and an evaluation of an individual’s performance. In 2007:2008:
| • | We |
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| performance units in order to avoid the dilution associated withshare-based awards and to reward executives for achieving growth in our |
| • | We | |
| • | We allocated the remaining 30% of the assigned long-term incentive target opportunity in the form of RSUs. We decided to grant RSUs in addition to performance units and SARs to provide an award that is consistent with market practice and that conserves shares under our equity plan, promotes share ownership and enhances our retention of executives. | |
| • | We assigned a value to a single performance unit and |
The following table summarizes the allocation of the compensation opportunity at target that was granted in 20072008 to the Named Executive Officers, based upon the primary elements of compensation (2007(2008 base salary, Annual Incentive Plan 20072008 target opportunity, and long-term incentive grants made in 2007,2008, including performance units that will pay out in 2010,2011, if earned). The compensation opportunity is consistent with our overall pay-for-performance philosophy. Generally, employees at more senior levels in the organization, including the Named Executive Officers, have a greater proportion of their compensation tied to incentive compensation. Targeted pay opportunity levels align with the market in each individual pay element.
| Proportionate Size of Primary Elements of Compensation | Proportionate Size of Primary Elements of Compensation | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Element | Newlin | Wilson | Baert | Kahler | Rademacher | Newlin | Patterson | Wilson | Smith | Rademacher | Baert | ||||||||||||||||||||||||||||||||||||||||||||
| Base Salary | 24 | % | 37 | % | 45 | % | 42 | % | 42 | % | 20 | % | 67 | % | 36 | % | 43 | % | 43 | % | 45 | % | |||||||||||||||||||||||||||||||||
| Annual Incentive Opportunity | 24 | % | 19 | % | 23 | % | 21 | % | 21 | % | 20 | % | 33 | % | 18 | % | 22 | % | 21 | % | 22 | % | |||||||||||||||||||||||||||||||||
| Long-Term Incentive Opportunity* | 52 | % | 44 | % | 32 | % | 37 | % | 37 | % | 60 | % | ** | 46 | % | 35 | % | 36 | % | 33 | % | ||||||||||||||||||||||||||||||||||
| * | Long-term incentive relating to the performance units for the | |
| ** | Mr. Patterson was not a PolyOne employee at the time of the 2008 long-term incentive award. In lieu thereof, he received a grant of 60,000 SARs and 40,000 RSUs at the time of his employment. |
Risk Oversight
A primary objective of our executive compensation program is to encourage and reward performance by our Named Executive Officers that meets or exceeds our financial and operational performance goals, without encouraging the taking of excessive risks that could be detrimental to the interests of our shareholders. Further, our use of short and long-term incentives, the award of different types of equity compensation, the use of different performance measures, and our share ownership guidelines, do not encourage our management to take unreasonable risks relating to our
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business. Overall, the Committee does not believe that any aspect of our executive compensation program encourages the Named Executive Officers to take unnecessary and excessive risks.
Benchmarking Competitive Compensation
In analyzing competitive market data, we draw from two independent sources. First, we review proxy statement disclosures of a peer group of similarly-sizedsimilarly sized U.S. chemical companies (listed below) to establish an estimate of market compensation for our most senior executives. This approach provides insight into explicit company practices at business competitors or companies facing similar operating challenges. However, it does not provide market information for positions below the senior management level, nor does it address competitors for talent outside the chemical industry.
| Albemarle Corporation | Eastman Chemical Company | Hercules | ||
| Arch Chemicals, Inc. | The Lubrizol Corporation | |||
| A. Schulman, Inc. | RPM International Inc. | |||
| Cabot Corporation | Spartech Corporation | |||
| Chemtura Corporation | The Valspar Corporation | |||
| Cytec Industries Inc. |
*Note: Lyondell Chemical CompanyHercules Incorporated was considered a peer for the purpose of the2006-2008 performance unit plan, but given its growthsubsequently purchased by Ashland Incorporated in size over the period, it has been removed from the comparison group.November 2008.
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Second, we review data from Towers Perrin’s Compensation Data Bank and other published surveys relating to the chemical industry or other applicable general industries, as provided by the Consultant, to augment the peer proxy analysis and provide a more robustbroader sense of market practices. To obtain comparability based on company size, the data either references a specific sample of companies or calibrates the pay of a broad sample of companies against company size. This data is used as one of several inputs into management’s and the Committee’s deliberation on appropriate compensation levels. Other inputs include performance, scope of responsibilities, retention, internal equity considerations and other factors.
Elements of Compensation
The following discussion provides additional details about the main elements of compensation for the Named Executive Officers.
Base Salary
As described above, our policy is to target base pay at the market median but does allow actual pay levels to deviate from target based on performance, responsibility, experience and marketability unique to each individual. Based on general industry data provided by the Consultant, the salaries of the Named Executive Officers range from 93%82% to 109% of the market median for comparable positions. For 2007,2008, the Committee approved base salary increases for the Named Executive Officers averaging 4.9%ranging from 0% to 13.9%. For 2009, however, management recommended, and the Compensation and Governance Committee agreed, that the Named Executive Officers (and other corporate officers) would not receive any salary increases.
Annual Incentive
The Senior Executive Annual Incentive Plan (the “Annual Plan”) was approved by shareholders in 2005 and includes a set of performance measures that can be used in setting bonusesdetermining awards under the plan. The Annual Plan determines how participants (including all Named Executive Officers) can
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earn annual cash awards. In 2007,2008, the performance measures used for the corporate staff participants in the Annual Plan (including Messrs. Newlin, Patterson, Wilson and Kahler)Smith) were company operating income (70% weighting with a $66 million performance target)(80% weighting) and company-controlled cash flow (30% weighting with a $25 million performance target)(20% weighting).
The performance measures used for Messrs. BaertRademacher and RademacherBaert as participants in the Annual Plan were business unit operating income (60% weighting with a $27 million performance target for Mr. Baert and a $20 million performance target for Mr. Rademacher)weighting), company operating income (20% weighting with a $66 million performance target)weighting) and company-controlled cash flow (20% weighting with a $25 million performance target)weighting).
The Committee chose these performance measures in order to drive profitability and promote consistency in operational performance. Goals were generally designed to reward executives for the attainment of challenging but achievable annual business goals.
| Measure | Target Goal | Actual Result | % of Target | ||||||||||
| Company Operating Income | $ | 71.9 mm | $ | 68.2 mm | 94.9% | ||||||||
| Company-Controlled Cash Flow | 38.6 mm | 28.0 mm | 72.5% | ||||||||||
| BU Operating Income (Rademacher) | 24.9 mm | 28.1 mm | 112.9% | ||||||||||
| BU Operating Income (Baert) | 33.4 mm | 20.4 mm | 61.1% | ||||||||||
In the Annual Plan:
| • | Operating income was defined as operating income less Sunbelt operating income and less any specified special items. | |
| • | Company-controlled cash flow was defined as operating income less Sunbelt operating income plus depreciation and amortization plus/minus changes in average working capital less capital expenditures, interest and other expenses. |
We established target annual incentive levels for 2008 consistent with our approach described above to approximate the market median in targeting annual incentives, the 2007 target bonus levels for the Named Executive Officers were: $741,635 for
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The target awards for the Named Executive Officers under the Annual Plan and the actual amounts earned for 2008 performance are set forth below.
| Executive | Target Award | Earned Award | % Attainment | ||||||||||||
| S.D. Newlin | $ | 831,731 | $ | 700,650 | 84.2% | ||||||||||
| R.M. Patterson | 127,692 | (1) | 107,568 | 84.2% | |||||||||||
| W.D. Wilson | 131,619 | (1) | 110,876 | 84.2% | |||||||||||
| K.M. Smith | 166,654 | 140,389 | 84.2% | ||||||||||||
| M.L. Rademacher | 158,654 | 204,663 | 129.0% | ||||||||||||
B. Baert(2) | 207,721 | 63,064 | 30.4% | ||||||||||||
| (1) | For the portion of the year the Named Executive Officer was with PolyOne. |
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| (2) | Mr. Baert’s compensation is based in Euros and has been converted to dollars using the conversion rate of €1.00 = $1.4096, which is the conversion rate used in our Annual Report onForm 10-K for the fiscal year ended December 31, 2008. |
Achievement of a performance goal at the threshold level for 2008 would result in payment of 50% of the targeted award for that particular performance goal; achievement of a performance goal at the target level would result in payment of 100% of the targeted award for that performance goal; and, achievement at the maximum level or greater would result in payment of 200% of the targeted award for that goal. The awards are interpolated if performance falls between the levels. The actual amount awarded to the Named Executive Officers for 2007,2008 ranged from 78.9%30.4% of the targeted amount to 136.7%129.0% of the targeted amount. The actual amounts earned under the Annual Plan for 20072008 are included in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table.
The Annual Plan, as it applies to the Named Executive Officers, is structured to comply with Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). In order to qualify the amounts earned under the Annual Plan as “performance-based”,“performance-based,” the Committee may exercise discretion only to reduce an award. The Annual Plan is structured so that achievement of the threshold level of performance in any of the measures described above will result in the funding of the plan at maximum. Actual awards are calculated using the Plan formula described above and if funded at maximum as described above, the maximum awards are reduced, as necessary, to deliver awards that are consistent with the attainment levels that were achieved for management incentive plan participants. For a more detailed discussion of Section 162(m) of the Internal Revenue Code, see the “Tax Considerations” section of this report.
Long-Term Incentive
The 2005 Equity and Performance Incentive Plan was approved by shareholders in 2005 and permits a variety of types of incentive awards. We useused the shares authorized under this plan in making our long-term incentive awards. Ifawards in 2008 (except for awards made to Mr. Patterson). In May of 2008, our shareholders approved by shareholders,a new equity plan, the 2008 Equity and Performance Incentive Plan, and this will be the plan used to make awards in 2009 and in future years until the authorized shares are depleted. No further grants of long-term incentive awards. For a description ofcan be made under the proposed 20082005 Equity and Performance Incentive Plan, see“Proposal 2-Approval of the PolyOne Corporation 2008 Equity and Performance Incentive Plan” in this proxy statement.Plan.
| (1) | Awards Granted in |
In March 2008, long-term incentive awards were granted under the 2005 Equity and Performance Incentive Plan using three vehicles, with the allocation of the award values roughly as follows: 40% of the award’s value was allocated to performance units for the performance period2008-2010, 30% was allocated to stock-settled SARs and 30% was allocated to RSUs.
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| • | Cash-Settled Performance Units |
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The Committee selected thisearnings per share as the performance measure in order to focus on improvement in overall company profitability. Generally, the Committee setsset the target levelslevel for the performance measuresmeasure consistent with the levelslevel established under the projections for our3-yeara three-year financial plan. The Committee believes that the budgeted levels reflectlevel reflects a challenging but obtainable targets.target. If the targeted level of achievement for eachthe performance measure were obtained, this would represent a significant improvement over the levelslevel attained in previous years. TheseThe targeted levels arelevel is intended to be achievable, but a maximum level of performance would require an extraordinary levelslevel of performance, which we believe areis possible but unlikely to be achieved. Given that we do not provide earnings guidance, we believe that disclosure of our actual earnings per share targets for the performance units would cause competitive harm. In setting the applicable target levels,level, the Committee may considerconsiders how achievement of the performance criteria could be impacted by events expected to occur in the coming years.
If we were to achieve the target performance level, a participant would earn a target-level award; if we were to attain only the threshold performance level, 50% of the target award would be earned; and if we were to attain the maximum performance level, the participant would earn 200% of the target award. If our performance fell between the threshold and target or between target and maximum, earnings under the plan would be interpolated. If threshold performance is not achieved, no award will be paid to the participants.
| • | Stock-Settled SARs |
To continually reinforce our ongoing commitment to enhancing shareholder returns, 50%30% of the long-term incentive opportunity awarded in March 20072008 to executives, including the Named Executive Officers, consists of SARs that, when exercised by the holder, are settled in our common shares. The SARs granted in March to all Named Executive Officers, excluding Mr. Patterson, have a base price of $6.585.$6.765. All SARs granted in 20072008 have an exercise term of seven years, and vest upon the attainment of target prices (sustained for three consecutive trading days) for our common shares as follows: 1/3 @ $7.24; 1/3 @ $7.90 and 1/3 @ $8.56 (with a minimum vesting period of one year from the date of grant). All SARs granted in 2007 have met the target prices set for vesting during 2007.
| • | RSUs |
To conserve shares under our equity plan, promote share ownership and enhance the past, we have set the exercise priceretention of an option or base price of a SAR based on the averageour executives, 30% of the high and low stock price on the day preceding thelong-term incentive opportunity awarded in March 2008 consists of three-year cliff-vested RSUs. The RSUs granted in March to all Named Executive Officers vest 100% in three years from date of grant. After considering alternatives relatingThe RSUs granted to all the Named Executive Officers, except Mr. Patterson, were valued at $6.765 at the time of grant and this practice and uponwas the adviceprice used in determining the size of our outside advisors, the proposed 2008 Equity and Performance Incentive Plan will, if approved, altergrant. The RSUs granted to Mr. Patterson were valued at $7.72 for this practice. To be consistent with evolving market practices, we would set the exercise or base price as the closing sales price on the date of grant. Additional information regarding this matter can be found in the “Timing with Respect to Equity Award Grants” section of this report.same purpose.
| (2) | Awards Granted in Prior Years |
In March 2008,February 2009, the Committee approved the payout of performance sharesunits relating to the long-term incentive award that was granted in 2005,2006, for the2005-20072006-2008 performance period. AllThe performance units were based on achievement of performance goals related to cash flow, debt to EBITDA and return on invested capital. Each of these performance measures represented 20% of the participant’s total Long-Term Incentive opportunity. The Named Executive Officers, other than Messrs. Newlin and Kahler (who were not employed by us at the time of grant) received an award of performance shares relating to this grant. These awards achieved target performance for one of the three performance measures (i.e., level of EBITDA in relation to debt achieved 6 quarters at less than or equal to 3.00), and 33% of the performance shares that were granted were paid out. Threshold performance was not attained for either of the twoexcept
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| Goals | ||||||||||||||||
Measure | Threshold | Target | Maximum | % Attainment | ||||||||||||
| Cash Flow | $225 mm | $280 mm | $400 mm | 0 | %(1) | |||||||||||
| Debt to EBITDA | 4 quarters 3.00 | 6 quarters 3.00 | 6 quarters 3.00 and 4 of 6 | 100 | % | |||||||||||
| quarters 2.50 | ||||||||||||||||
| Return on Invested Capital | 10% | 14% | 17% | 0 | % | |||||||||||
| (1) | Management recommended, and the Committee agreed, that the proceeds from the sale of our interest in Oxy Vinyls in 2007 would not be included in the cash flow attainment. As a result, threshold performance was not attained. |
All outstanding equity awards are set forth in the 20072008 Outstanding Equity Awards at Fiscal Year-End table in this proxy statement.
| (3) | Awards Granted in |
The awards granted in 2009 are designed to address the current economic conditions facing the Company, the need for an increased focus on generating cash, and the goal of maintaining a consistent structure with the long-term incentives granted in prior years.
The Committee determined that cash-settled performance units would again be granted in 2009 based on the same formula for determining target opportunity used in 2008, but that the performance units would be earned only upon achievement of performance goals relating to working capital as a percent of sales, consistent with the Annual Plan. To focus on the near-term cash needs of the Company, performance will be measured over a one-year period (for 2009 only) and, to enhance retention, the performance units will only be paid if the participant continues to be employed on the third anniversary of the date of grant. In addition, to align the award payment level with the progress attained in working capital improvements, the performance units were structured such that achievement of threshold performance will result in a payout of 30% of the targeted award, instead of 50%. The actual level of performance required to achieve threshold performance, however, was not adjusted.
Further, the Committee determined that it would again grant stock-settled SARs and full value stock awards, but that for the grants made in 2009, there would be performance conditions tied to the vesting of these awards.
In determining the number of SARs and performance shares to be granted, the Committee modified its approach in 2009 to address the current economic conditions. As described above, in prior years, the Company’s practice was to grant each participant a long-term incentive award with a target value based on market median and to determine the number of SARs and restricted stock units to deliver that pre-determined value. Due to the decline in our stock price and the desire to preserve shares under our 2008 Equity and Performance Incentive Plan (the “2008 Plan”), the Committee reduced the value of the long-term incentives in 2009 such that only 50% of the available shares under the 2008 Plan would be used. As a result, the values of the Named Executive Officers’ long-term incentive grants in 2009 were 38% below the target market median opportunity.
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This approach balances the perspectives of shareholders and participants by providing additional shares to incent the participants, but at a lower total targeted value than in 2008.
For 2008,2009, the long-term incentive awards consist of 40% cash-settled performance units, 30% stock-settled SARs and 30% restricted stock units (“RSUs”). the following:
| • | 65% — cash-settled performance units | |
| • | 14% — performance-vested, stock-settled SARs | |
| • | 21% — performance shares |
The Committee decided to grant RSUs and SARs (as opposed to only granting SARs) in order to provide a greater portionterms of each component of the 2009 long-term incentive in the form of equity and provide a more meaningful and tangible form of equity award.award are as follows:
| • | The performance units are earned based on achievement of goals relating to | |
| • | The SARs granted | |
| • | Each |
Retirement Benefits
We offer a defined contribution retirement benefit to all U.S. employees through an Internal Revenue Code tax-qualified profit sharing/401(k) plan (the “Qualified Savings Plan”). The Qualified Savings Plan provides employees with individual retirement accounts funded by (1) an automatic Company-paid contribution of 2% of eligible earnings for all employees, (2) a Company-paid match on employee 401(k) contributions equal to 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, and (3) for certain heritage employees, an additional automatic company-paid contribution (Transition Contribution) of up to 4% of eligible earnings (ofearnings. Of the Named Executive Officers, only Mr.Messrs. Wilson receivesand Smith receive this contribution in the amount of 4%). and 3.25%, respectively. Effective March 20, 2009, the heritage additional automatic company-paid contribution will be eliminated for all participants. The Internal Revenue Code limits employee contributions to the Qualified Savings Plan to $15,500 and earnings upon which employee/company contributions are based to $225,000$230,000 in 2007.2008.
The PolyOne Supplemental Retirement Benefit Plan (the “Nonqualified Savings Plan”) is an unfunded, nonqualified plan that provides benefits similar to the Qualified Savings Plan, but without the Internal Revenue Code contribution and earnings limitations. The benefits under the Nonqualified Savings Plan are offset by the Qualified Savings Plan. 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
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expect a retirement income that replaces a portion of their income while employed similar to that received by all other employees participating in the Qualified Savings Plan who are not impacted by the Internal Revenue Code limitations of the Qualified Savings Plan.
Mr. Baert is based outside the United States and does not participate in the Qualified Savings Plan or the Nonqualified Savings Plan. Mr. Baert participates in a standard defined contribution retirement benefit plan generally provided to all Belgium employees (except that some employees hired prior to May 2003 (other than Mr. Baert) elected to remain in the Belgium defined benefit
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plan previously offered as the standard retirement plan). The plan provides employees with individual retirement accounts funded by (1) an automatic Company paid contribution of 5% of base pay up to a salary limit plus 15% of base pay in excess of the salary limit, and (2) employee contributions of 5% of base pay above that salary limit. The salary limit, which is indexed annually, was €38,800€40,150 for 2007.2008.
During 2008, the Committee reviewed the CEO’s total compensation package among the peer companies and across the broader general industry. The Committee determined that it was in the best interests of the Company and our shareholders to provide a supplemental retirement benefit for Mr. Newlin that would be competitive with industry practices and serve as an additional retention vehicle. Thus, Mr. Newlin’s Letter Agreement (which provides for the terms of Mr. Newlin’s employment) was amended on July 16, 2008 to include certain retirement benefits. Specifically, the Letter Agreement was amended to provide that upon a Qualifying Separation from Service, Mr. Newlin will be entitled to annual supplemental retirement payments, payable in the form of a15-year certain and continuous life annuity, conditioned upon Mr. Newlin’s execution of a release and waiver. If Mr. Newlin dies or incurs a Disability prior to a Qualifying Separation from Service, he or his designated beneficiary also will be entitled to certain supplemental retirement payments. Generally, Mr. Newlin will be considered to have a Qualifying Separation from Service if (1) he attains the age of 55 and has at least five years of service with the Company, serving as 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 PolyOne Board of Directors, 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 or Mr. Newlin terminates employment for good reason following a change of control of the Company. Under the terms of the amended Letter Agreement, he will also be treated as a retiree for purposes of any SARs, RSUs, performance shares and 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. 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, and disclosure of confidential information or deliberate dishonesty.
Messrs. Wilson isand Smith are also eligible, along with certain other legacy employees, to receive pension payments under a company-funded Internal Revenue Code qualified defined benefit pension plan as well as an unfunded, nonqualified defined benefit pension plan (the “Qualified Pension Plan” and “Nonqualified Pension Plan”,Plan,” respectively). In addition, upon becoming retirement eligible (55 years of age with 10 years of service), Mr.Messrs. Wilson and Smith will be eligible to receive certain retiree medical benefits.benefits for which they will be required to pay a portion of
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the cost. These plans existed prior to our formation in 2000 through the consolidation of Geon and M.A. Hanna and generally benefited all nonunion employees of Geon.
The amount of Mr.Messrs. Wilson’s and Smith’s pension depends on a number of factors including monthly Final Average Earnings (“FAE”) and years of benefit service to us (“Benefit Service”). The Qualified Pension Plan provides a monthly lifetime benefit equal to 1.15% times FAE times Benefit Service plus 0.45% times FAE in excess of 2002 Covered Compensation (as defined by the Internal Revenue Code) times Benefit Service limited to 35 years.
The Nonqualified Pension Plan is similar to the Nonqualified Savings Plan in that it restores benefits lost in the Qualified Pension Plan due to Internal Revenue Code limitations on earnings and benefits. The Nonqualified Pension Plan benefit formula is the same as the Qualified Pension Plan except without the Internal Revenue Code qualified plan earnings limitations. The Nonqualified Pension Plan benefit is offset by the Qualified Pension Plan benefit.
The Qualified Pension Plan and Nonqualified Pension Plan were frozen to new entrants effective December 31, 1999. Benefit Service was frozen effective December 31, 2002 in both plans. In responseplans and, effective March 20, 2009, earnings under both plans will be frozen for all participants. We decided to Internal Revenue Code Section 409A,freeze these plans following a comprehensive retirement benefits review, during which the Nonqualified Pension Plan accrued benefit was temporarily frozen effective December 31, 2004. Following the release of final guidance relatingCommittee examined whether our retirement programs were consistent with company goals, including fairness to Section 409A of the Internal Revenue Code, in October, 2007, changes were made to the Nonqualified Pension Plan to ensure 409A complianceall associates and the Plan was unfrozen for earnings increases retroactively to December 31, 2004. Earnings were never frozencompetitiveness in the Qualified Pension Plan so participants, including Mr. Wilson, continue to accrue additional benefits under that plan.marketplace. With this change, we will have a single and competitive retirement plan for ourU.S.-based employees.
Messrs. Newlin,Patterson, Rademacher and Baert Kahler and Rademacher do not participate in a defined benefit plan.
Perquisites
We provide certain perquisites to the Named Executive Officers, which we believe are comparable to perquisites provided bycompetitive with the companies with which we compete for executive talent. These perquisites for those Named Executive Officers based in the United States, include a monthly car allowance (except for Mr. Patterson), reimbursement of expenses for financial planning and tax preparation, an annual physical examination, and group insurance providing excess liability umbrella insurance coverage in an amount equal to $5 million. For Mr. Baert, perquisites typical and comparable to perquisites provided bycompetitive with companies in Europe include a company provided automobile, meal and entertainment allowance, reimbursement of expenses for financial planning and tax preparation, and group insurance providing excess liability umbrella insurance coverage in an amount equal to $5 million. The specific amounts attributable to perquisites for 20072008 for the Named Executive Officers are disclosed in the Summary Compensation Table.
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associated with the closing costs on their homeshis home that theyhe purchased near our headquarters and other incidental relocation expenses.
We believe that thethese perquisites that we provide are typicalconsistent with market practices for senior executives and further our goals by retaining the bestour leaders.
We also provide other benefits such as medical, dental and life insurance and disability coverage to eachU.S.-based Named Executive Officer, which are identical to the benefits provided to all other eligibleU.S.-based employees. Medical, dental and life insurance coverage for Mr. Baert is identical to the benefits provided to all other Belgium-based employees. We also provide vacation and paid holidays to all employees, including the Named Executive Officers. The Named Executive Officers are eligible for the following vacation: Mr. Newlin — five weeks, Mr. Patterson — four
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weeks (pro-rated from his hire date), Mr. Wilson — six weeks (pro-rated through his termination date), Mr. Smith — five weeks, Mr. Rademacher — four weeks, and Mr. Baert — 26 days, and Messrs. Kahler and Rademacher — 4 weeks.days.
We do not provide or reimburse for personal country club memberships for any Named Executive Officer. We do maintain a corporate membership to a country club that is used for customer entertainment and other business purposes. We pay the monthly dues for this membership and incur expenses only for these business purposes. Any personal use of this facility by a Named Executive Officer is at the officer’s personal expense, with no incremental cost to us.
Compensation Oversight Processes
Salary Adjustments
During the first quarter, the Committee typically reviews executive compensation marketplace data provided by the Consultant. ThisThe resulting report benchmarks our executive compensation compared to our peer group and the market in general. In addition, the Committee reviews tally sheets that contain information regarding the executives’ total annual compensation, termination benefits and wealth accumulation. A more detailed description of the tally sheets is provided inunder the heading “Review of Tally Sheets” section of this report.Sheets.”
In the first quarter of the calendar year, based upon individual performance and results achieved, the Chief Executive Officer typically recommends for the Committee’s review and approval specific salary adjustments for each of the executive officers, including the Named Executive Officers. The Chief Executive Officer makes his recommendations in conjunction with the marketplace data and input provided by the Consultant. The Committee sets the target compensation at or near the median, with adjustments to account for our specific facts and circumstances. Based upon the Chief Executive Officer’s recommendation, in March 2007,2008, the Committee increased the salaries of the Named Executive Officers,Messrs. Smith, Rademacher and Baert effective in the first pay period in April 2007.2008.
In 2007,2008, the Committee determined, based on marketplace data and Mr. Newlin’s tally sheet data, that a 7.9%13.9% increase in salary was appropriate. In the Committee’s judgment, the total compensation package provided to Mr. Newlin, as described inunder the heading “Employment Agreement of the Chief Executive Officer” section of this report,Officer,” is appropriate in order to fairly compensate and retain our Chief Executive Officer.
In 2009, management recommended and the Committee agreed, that due to the deteriorating global economy and in an attempt to manage costs, Named Executive Officers as well as other officers of the Company will have their base salary frozen for 2009.
Plan-Based Awards
In the fourth quarter, the Committee typically reviews period-to-date performance and estimates of incentive payouts for the in-progress performance periods. In the first quarter of the following year, the Committee evaluates actual performance against pre-set goals and determines earnings under just-completed plan periods. Generally, the Committee approves payouts based on pre-set
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performance criteria and will not exercise discretion to increase an award. The Committee, however, has exercised its discretion to reduce an award.
In addition, in the first quarter, the Committee and management typically review competitive incentivetotal compensation data provided by the Consultant. Management develops preliminaryuses the data to develop recommendations for eligibility, award opportunities, performance measures and goals for the plan periods to commence the subsequent year for the Committee’s review. The Committee approves final terms of the plan in the first quarter of the subsequentplan year.
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Review of Tally Sheets
The Committee and management have reviewed and considered tally sheets in connection with pay deliberations.compensation decisions. Tally sheets, including all components of compensation, are reviewed by the Committee to determine the reasonableness of the compensation of our executive officers. Tally sheets are created collaboratively by the Consultant and our Human Resources department.
The tally sheets provide information regarding the Named Executive Officers’ as well as other officers’ total annual compensation, termination benefits and wealth accumulation. Total annual compensation includes: salary, annual incentive, long-term incentive, perquisites, and retirement benefits. This information is comparable to the amounts reported in the Summary Compensation Table. Payments under various forms of termination are reviewed and disclosed elsewhere in this proxy statement.
Tax Considerations
Cash compensation, such as base salary or annual incentive compensation, is taxable to the recipient as ordinary income when earned, unless deferred under a company-sponsored deferral plan. Deferrals under tax-qualified plans, such as a 401(k) plan, do not affect our current tax deduction. Deferrals under supplemental executive deferral plans delay our tax deduction until the deferred amount (and any accumulation thereon) is paid. Stock-settled SARs are generally taxable as ordinary income when exercised.exercised and RSUs, performance units and performance shares are generally taxable when paid. We realize a tax deduction at that time. The Committee does review potential tax implications before making decisions regarding compensation.
Management and the Committee are aware of Section 162(m) of the Internal Revenue Code, which generally limits the deductibility of executive pay in excess of one million dollars, and which specifies the requirements for the “performance-based” exemption from this limit. The Committee generally manages our incentive programs to qualify for the performance-based exemption. It also reserves the right to provide compensation that does not meet the exemption criteria if, in its sole discretion, it determines that doing so advances our business objectives. We believe the compensation paid to our Named Executive Officers in 20072008 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 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, management and the Committee may alter or modify the incentive award due to the accounting treatment if
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the award (and the related accounting consequences) were to adversely affect our financial performance.
Employment Agreement of the Chief Executive Officer
On February 13,6, 2006, we entered into an agreement with Mr. Newlin, under which he agreed to serve as our Chairman, President and Chief Executive Officer. The agreement provided for specified awards intended to serve as an inducement to join the company, for Mr. Newlin’s initial base salary and for his participation in our various long-term incentive and benefit plans in effect from time to time during the term of his employment. Mr. Newlin also received a grant of a two-year cash incentive, consisting of phantom units subject to the achievement of specified performance goals over a two-year period(2006-2007), with each unit being equal in value to one share of our common stock. The terms of
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the units, as amended, provide that payout will not be less than the targeted number of units (87,000) at the grant date stock price of $9.185. The phantom units were paid out in cash at the targeted number of units in March 2008.2008 and this payout is reflected in the Summary Compensation Table as “Non-Equity Incentive Plan Compensation” in 2007.
In addition, the agreement provides for certain payments upon termination of Mr. Newlin’s employment, as described more fully in the “Potential Payments Upon Termination orChange-in-Control” section of this proxy statement. In October, 2007, this agreement was amended to ensure that any payments made pursuant to the agreement were in compliance with Section 409A of the Internal Revenue Code.
Mr. Newlin’s agreement also provides for a supplemental retirement benefit, as described more fully in this Compensation Discussion and Analysis under the heading “Retirement Benefits.”
Termination Payments for Other Named Executive Officers
Effective May 25, 2006, the Committee approved the PolyOne Corporation Executive Severance Plan (the “Executive Severance Plan”) that is designed to provide severance protection to certain officers who are expected to make substantial contributions to our success and thereby provide for stability and continuity of operations. Under the terms and conditions of the Executive Severance Plan, officers are entitled to receive Severance Payments upon their termination of employment for reasons other than cause, death or disability. The plan details and estimates of these payments are provided in the “Potential Payments Upon Termination orChange-in-Control” section of this proxy statement.
In May 2008, it was decided that Mr. Wilson would cease serving as Chief Financial Officer. From May 12, 2008 until September 9, 2008, Mr. Wilson continued to serve as Senior Vice President to transition responsibilities to our new Chief Financial Officer. On September 9, 2008, Mr. Wilson terminated from service. Consistent with our Executive Severance Plan, Mr. Wilson receives two years of base salary, earned incentives under the Annual Plan through his termination date, continued medical, dental and vision for two years and outplacement benefits for one year. In addition, we entered into a consulting agreement with Mr. Wilson. Pursuant to the terms of this agreement, Mr. Wilson rendered services to us related to projects designated by the Compensation and Governance Committee of the Board of Directors and otherwise on an as-needed basis. We paid Mr. Wilson in consideration of his performance of the consulting services a total of $14,940. The term of Mr. Wilson’s consulting agreement ended on December 31, 2008.
Change inof Control Payments
We have entered into management continuity agreements (“Continuity Agreements”) with all of our elected corporate officers, including each of the Named Executive Officers. These agreements are designed to provide severance protection should a change inof control of PolyOne occur and the executive officer’s employment be terminated either by us without cause or by the executive for good reason (as defined in the agreements). Generally, a change inof control will be deemed to have occurred if (1) any person becomes the beneficial owner of 25% or more of the combined voting power of our outstanding securities (subject to certain exceptions); (2) there is a change in the majority of our Board of Directors; (3) certain corporate reorganizations occur where the existing shareholders do not retain more than 60% of the common shares and combined voting power of the outstanding voting securities of the surviving entity; or (4) there is shareholder approval of a complete liquidation or dissolution of PolyOne.
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These agreements are intended to provide for continuity of management in the event of a change inof control. The agreements are automatically renewed each year unless we give prior notice of termination of the Continuity Agreement. The agreements provide that covered executive officers could be entitled to certain severance benefits. The details of the severance payments and benefits are provided in the “Potential Payments Upon Termination orChange-in-Control” section of this proxy statement.
In order to provide additional protection in the event of a change inof control, our equity awards and Annual Incentive Plan provide for accelerated benefits in the event of a change of control. In addition, the terms of the performance units provide that in control.the event of a change of control, the participant is entitled to 100% of the performance units. In the event of a change inof control and a termination of the executive’s employment by us without cause or by the executive for good reason (as defined in the agreements), the SARs remain exercisable for their full term. Thesechange-in-control change of control provisions affect all participants in those programs, including the Named Executive Officers.
Compensation Policies
Timing with Respect to Equity Award Grants
In recentprior years, including 2007, the base price of SARs has been set according to our normal practice as outlined in the 2005 Equity and Performance Incentive Plan and is based on the average of the high and low price of our common shares on the trading day immediately before the day the award was approved by the Committee. This practice has allowedEffective with the Committee to know the actual base price at the time of approval. Because the base price could be different than the closing price on the dayapproval of the grant, the pricing difference is explained in the 2007 Grants of Plan-Based Awards table in this proxy statement. The 2008 Equity and Performance Incentive Plan, if approved by shareholders, will change thisthe practice was changed to set the base price of SARs (and the exercise price of any options granted) as the closing price of our common shares on the date of grant. Further, if we are in possession of material information that has not been publicly disclosed, the Committee will not grant equity awards until all such information is available to the public.
Stock Ownership Guidelines
In order to better align their financial interests with those of shareholders, we believe our executives should own a meaningful number of our shares. We have adopted share ownership guidelines specifying a minimum level of share ownership for all executives, including all Named Executive Officers. The specific levels of share ownership for the Named Executive Officers are noted in the following table. Executives are expected to accumulate the specified shares within five years of their becoming subject to the policy. The applicable guidelines are reduced after age 55 by 10% of the original level of ownership each year for five years.
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In general, shares counted toward required ownership include shares directly held and shares vestedheld in our benefit or deferral plans (including RSUs and phantom shares under our nonqualified deferral plan).
| Element | Newlin | Wilson | Baert | Kahler | Rademacher | Newlin | Wilson | Patterson | Smith | Rademacher | Baert | ||||||||||||||||||||||||||||||||||||||||||||||||
| Share Ownership Target (in shares) | 315,000 | 90,000 | 73,500 | 75,000 | 64,000 | 324,000 | * | 105,000 | 85,000 | 56,000 | 63,000 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total Share Ownership as of 3/17/08 | 349,700 | 182,826 | 48,366 | 53,186 | 77,667 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Share Ownership as of 3/16/09 | 284,300 | * | 140,000 | 94,265 | 78,509 | 48,366 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Attainment Status | 111.0 | % | 203.1 | % | 65.8 | % | 70.9 | % | 121.4 | % | 87.7% | * | 133.3% | 110.9% | 140.2% | 76.8% | |||||||||||||||||||||||||||||||||||||||||||
*Mr. Wilson, who left the Company in 2008, is no longer required to meet these guidelines.
Note: Ownership targets have been reduced by 30%10% for Mr. Newlin, 40% for Mr. Baert and 20%30% for Mr. Rademacher, according to the applicable guideline pertaining to age reduction as discussed above. Messrs.Mr. Newlin and Kahler havehas been with the Company approximately two years and arefor three years; therefore, he is not yet required to meet 100% of theirhis respective share ownership target.target, but he is on pace to meet the guidelines within the five-year required time frame.
Repayment of Earned Incentives upon Restatement of Financial Results
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 theSarbanes-Oxley Act of 2002.
Conclusion
Our executive compensation programs are competitive in the marketplace and linked to our performance. These programs allow us to attract and retain high-caliber executives. We believe the design of our compensation plans and the relative mix of compensation elements successfully motivates our executives and aligns both the short-term and long-term interests of employees and shareholders.
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SUMMARY COMPENSATION TABLE
The following table sets forth the compensation forearned by, and the fiscal year ended December 31, 2007 ofcompensation opportunity granted to, our principal executive officer, our current principal financial officer, our former principal financial officer and our other three most highly compensated executive officers.officers during the fiscal year ended December 31, 2008 and the 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(3) | Awards | Awards(6) | Compensation(7) | Earnings(8) | Compensation | Total | ||||||||||||||||||||||||||||||||||||||
| Principal Position | Year | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | |||||||||||||||||||||||||||||||||||||
| Stephen D. Newlin, Chairman, President | 2007 | $ | 741,635 | $ | 0 | $ | 589,333 | (4) | $ | 778,565 | $ | 1,482,066 | $ | 0 | $ | 208,069 | (9) | $ | 3,799,668 | |||||||||||||||||||||||||||
and Chief Executive Officer(1) | 2006 | 589,615 | 600,000 | 505,374 | 558,936 | 959,700 | 0 | 110,196 | (10) | 3,323,821 | (10) | |||||||||||||||||||||||||||||||||||
| W. David Wilson, Senior Vice President | 2007 | 363,981 | 0 | 241 | (5) | 218,060 | 167,595 | 168,279 | 94,846 | (11) | 1,013,002 | |||||||||||||||||||||||||||||||||||
| and Chief Financial Officer | 2006 | 354,058 | 50,000 | 75,561 | 158,724 | 242,707 | 0 | 81,711 | 962,761 | |||||||||||||||||||||||||||||||||||||
| Bernard Baert, Senior Vice | 2007 | 421,668 | 0 | 169 | (5) | 144,609 | 166,263 | 0 | 86,727 | (12) | 819,436 | |||||||||||||||||||||||||||||||||||
President & General Manager, Colors and Engineered Materials, Europe and Asia(2) | 2006 | 349,999 | 0 | 53,125 | 105,333 | 219,576 | 0 | 70,030 | (13) | 798,063 | (13) | |||||||||||||||||||||||||||||||||||
| Michael E. Kahler, Senior Vice President, Commercial Development | 2007 | 285,962 | 0 | 0 | 196,144 | 131,671 | 0 | 128,390 | (14) | 742,167 | ||||||||||||||||||||||||||||||||||||
| Michael L. Rademacher, Senior Vice President & General Manager, Distribution | 2007 | 307,577 | 0 | 160 | (5) | 138,141 | 210,229 | 0 | 64,508 | (15) | 720,615 | |||||||||||||||||||||||||||||||||||
| Change in | |||||||||||||||||||||||||||||||||||||||||||||
| Pension | |||||||||||||||||||||||||||||||||||||||||||||
| Non- | Value and | ||||||||||||||||||||||||||||||||||||||||||||
| Equity | Nonqualified | ||||||||||||||||||||||||||||||||||||||||||||
| Option/ | Incentive | Deferred | |||||||||||||||||||||||||||||||||||||||||||
| Stock | SAR | Plan | Compensation | All Other | |||||||||||||||||||||||||||||||||||||||||
| Name and | Salary | Bonus | Awards(4) | Awards(5) | Compensation(6) | Earnings | Compensation | Total | |||||||||||||||||||||||||||||||||||||
| Principal Position | Year | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ||||||||||||||||||||||||||||||||||||
| Stephen D. Newlin, | 2008 | $ | 831,731 | $ | 0 | �� | $ | 797,592 | $ | 331,625 | $ | 1,044,150 | $ | 4,341,255 | (7) | $ | 135,106 | (9) | $ | 7,481,459 | |||||||||||||||||||||||||
| Chairman, President and | 2007 | 741,635 | 0 | 589,333 | 778,565 | 1,482,066 | — | 208,069 | 3,799,668 | ||||||||||||||||||||||||||||||||||||
| Chief Executive Officer | 2006 | 589,615 | 600,000 | 505,374 | 558,936 | 959,700 | — | 110,196 | 3,323,821 | ||||||||||||||||||||||||||||||||||||
| Robert M. Patterson, Senior Vice President and | 2008 | 255,385 | 0 | 64,526 | 33,775 | 107,568 | — | 85,109 | (10) | 546,363 | |||||||||||||||||||||||||||||||||||
Chief Financial Officer(1) | |||||||||||||||||||||||||||||||||||||||||||||
| W. David Wilson, Former Senior Vice | 2008 | 325,881 | 0 | 4,125 | 68,650 | 199,420 | 179,740 | (8) | 861,135 | (11) | 1,638,951 | ||||||||||||||||||||||||||||||||||
| President and Chief | 2007 | 363,981 | 0 | 241 | 218,060 | 167,595 | 168,279 | 94,846 | 1,013,002 | ||||||||||||||||||||||||||||||||||||
Financial Officer(2) | 2006 | 354,058 | 50,000 | 75,561 | 158,724 | 242,707 | 0 | 81,711 | 962,761 | ||||||||||||||||||||||||||||||||||||
| Kenneth M. Smith, Senior Vice President, | 2008 | 333,308 | 0 | 23,232 | 48,562 | 210,289 | 156,297 | (8) | 69,065 | (12) | 840,753 | ||||||||||||||||||||||||||||||||||
| Chief Information and | 2007 | 323,712 | 0 | 169 | 145,647 | 149,053 | 189,074 | 76,485 | 884,140 | ||||||||||||||||||||||||||||||||||||
| Human Resources Officer | 2006 | 313,481 | 50,000 | 52,914 | 112,084 | 214,891 | 0 | 59,109 | 802,479 | ||||||||||||||||||||||||||||||||||||
| Michael L. Rademacher, Senior Vice President and | 2008 | 317,308 | 0 | 23,232 | 47,063 | 270,930 | — | 64,367 | (13) | 722,900 | |||||||||||||||||||||||||||||||||||
| General Manager, Distribution | 2007 | 307,577 | 0 | 160 | 138,141 | 210,229 | — | 64,508 | 720,615 | ||||||||||||||||||||||||||||||||||||
| Bernard Baert, Senior Vice President and | 2008 | 415,441 | 0 | 23,232 | 30,974 | 121,564 | — | 84,388 | (14) | 675,599 | |||||||||||||||||||||||||||||||||||
| General Manager, Color and Engineered Material — | 2007 | 421,668 | 0 | 169 | 144,609 | 166,263 | — | 86,727 | 819,436 | ||||||||||||||||||||||||||||||||||||
Europe and Asia(3) | 2006 | 349,999 | 0 | 53,125 | 105,333 | 219,576 | — | 70,030 | 798,063 | ||||||||||||||||||||||||||||||||||||
| (1) | Mr. | |
| (2) | Mr. Wilson was replaced as Chief Financial Officer on May 12, 2008 and continued serving as Senior Vice President until his departure from the Company on September 9, 2008. The numbers in the table reflect the compensation earned during the part of the year he was with the Company. | |
| (3) | Mr. Baert’s compensation is based in Euros. The conversion rate used for purposes of converting the Euros earned by Mr. Baert into dollars for purposes of this table was €1.00 = | |
| (4) | This |
33
| reflected in the table for |
29
| This column includes the grants of | ||
| This column reflects amounts earned by the Named Executive Officers under the Annual | ||
| (7) | Mr. Newlin | |
| (8) | Among the Named Executive Officers, | |
| (9) | Amounts under “All Other Compensation” for Mr. Newlin include taxgross-ups on personal benefits | |
| (10) | ||
| Amounts under “All Other Compensation” for Mr. |
34
| 2008, reflected in the table, with the following incremental costs: |
30
| Amounts under “All Other Compensation” for Mr. | ||
| Amounts under “All Other Compensation” for Mr. | ||
| (13) | Amounts under “All Other Compensation” for Mr. Rademacher include taxgross-ups on personal benefits in the amount of $4,432, PolyOne’s cash contributions to our Qualified Savings Plan in the amount of $14,950, PolyOne’s cash contributions under our non-qualified retirement plan providing for benefits in excess of the amounts permitted to be contributed under the Qualified Savings Plan in the amount of $25,040 and excess liability umbrella insurance coverage in the amount of $685. Mr. Rademacher also received perquisites in 2008, reflected in the table, with the following incremental costs: car allowance ($12,000), financial planning and tax preparation expenses ($5,567), and an executive physical ($1,693). | |
| (14) | Amounts under “All Other Compensation” for Mr. Baert include PolyOne’s cash contributions to atax-efficient savings plan, generally provided to all Belgium employees, in the amount of $52,336 and excess liability umbrella insurance coverage in the amount of $685. Mr. Baert also received perquisites in 2008, reflected in the table, with the following incremental costs: company provided automobile ($25,512), meal vouchers ($1,606) and customer entertainment allowance ($4,249). |
3135
| Estimated Future Payouts Under | Estimated Future Payouts Under | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-Equity Incentive Plan Awards(1) | Equity Incentive Plan Awards(3) | Estimated Future Payouts Under | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All Other | Non-Equity Incentive Plan Awards(2) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock | Grant Date | All Other | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Awards: | Fair | Stock Awards: | All Other Options | Grant Date | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Number | Exercise or Base | Value of Stock | Number of | Awards: Number | Exercise or | Closing | Fair Value | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| of Shares | Price of | and | Shares of | of Securities | Base Price | Market | of Stock and | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| of Stock or | Option /SAR | Closing Market | Option/SAR | Stock or | Underlying | of Option | Price on | Option/ SAR | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Threshold(2) | Target | Maximum | Threshold | Target | Maximum | Units | Awards(4) | Price on | Awards(5) | Grant | Threshold | Target | Maximum | Units(4) | Options(5) | Awards | Grant | Awards | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Name | Grant Date | ($) | ($) | ($) | (#) | (#) | (#) | (#) | ($/Sh) | Grant Date | ($) | Date | ($)(3) | ($) | ($) | (#) | (#) | ($/Sh)(6) | Date | ($)(7) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| S.D. Newlin | * | $ | 370,818 | $ | 741,635 | $ | 1,483,270 | (1 | ) | 415,866 | 831,731 | 1,663,462 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3/8/2007 | 522,550 | 1,045,100 | 2,090,200 | 3/6/2008 | 516,000 | 1,032,000 | 2,064,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3/8/2007 | 308,400 | $ | 6.585 | $ | 6.48 | $ | 839,876 | 3/6/2008 | 286,800 | 6.765 | 6.67 | 648,168 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3/6/2008 | 114,700 | 771,931 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| R.M. Patterson | (1 | ) | 63,846 | 127,692 | 255,385 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 5/15/2008 | 60,000 | 7.72 | 7.72 | 160,800 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 5/15/2008 | 40,000 | 307,200 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| W.D. Wilson | * | 90,995 | 181,990 | 363,981 | (1 | ) | 65,810 | 131,619 | 263,238 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3/6/2008 | 87,850 | 175,700 | 351,400 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3/6/2008 | 32,600 | 6.765 | 6.67 | 73,676 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3/6/2008 | 13,100 | 88,163 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| K.M. Smith | (1 | ) | 83,327 | 166,654 | 333,308 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3/6/2008 | 58,700 | 117,400 | 234,800 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3/6/2008 | 31,200 | 6.765 | 6.67 | 70,512 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3/6/2008 | 12,600 | 84,798 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| M.L. Rademacher | (1 | ) | 79,327 | 158,654 | 317,308 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3/6/2008 | 55,800 | 111,600 | 223,200 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3/8/2007 | 149,400 | 298,800 | 597,609 | 3/6/2008 | 31,200 | 6.765 | 6.67 | 70,512 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3/8/2007 | 88,200 | 6.585 | 6.48 | 240,198 | 3/6/2008 | 12,600 | 84,798 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| B. Baert | * | 105,417 | 210,834 | 421,668 | (1 | ) | 103,861 | 207,721 | 415,442 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3/8/2007 | 89,850 | 179,700 | 359,400 | 3/6/2008 | 76,350 | 152,700 | 305,400 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3/8/2007 | 53,100 | 6.585 | 6.48 | 144,609 | 3/6/2008 | 31,200 | 6.765 | 6.67 | 70,512 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| M.E. Kahler | * | 71,491 | 142,981 | 285,962 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3/6/2008 | 12,600 | 84,798 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3/8/2007 | 85,950 | 171,900 | 343,800 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3/8/2007 | 50,700 | 6.585 | 6.48 | 138,073 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| M.L. Rademacher | * | 76,894 | 153,788 | 307,577 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3/8/2007 | 94,050 | 188,100 | 376,200 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3/8/2007 | 55,500 | 6.585 | 6.48 | 151,145 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| There is no Grant Date for these awards. This row relates to awards made under our cash-based Annual Plan. | ||
| The first row of this column for each Named Executive Officer represents the annual cash incentive opportunity for the Named Executive Officers under the Annual Plan. The actual amount earned for |
36
| Performance Incentive | ||
| Threshold refers to the minimum amount payable upon reaching the threshold level of performance. If threshold performance is not attained, the participant will receive $0 for this award. | ||
| The numbers in this column represent stock-settled RSUs granted to the Named Executive Officers under our 2005 and 2008 Equity and Performance Incentive Plans, which vest on the third anniversary of the date of grant. | ||
| (5) | The numbers in this column represent stock-settled SARs granted to the Named Executive Officers under our 2005 and 2008 Equity and Performance Incentive | |
| In setting the base price of SARs, we have followed the practice of using the average of the high and low sales price of our common shares on the trading day immediately before the day the award was approved by the Committee. This practice is in compliance with our 2005 Equity and Performance Incentive Plan. The award of stock-settled SARs that was granted on March |
32
| priced using the average of the high and low sales price on the trading day immediately before the date of grant ($ | ||
| This represents the grant date fair value of each equity-based award, computed in accordance with SFAS 123(R). |
Set forth below is narrative disclosure relating to the Summary Compensation Table and the 20072008 Grants of Plan-Based Awards table.
Senior Executive Annual Incentive Plan
Annual cash incentives were granted in 20072008 under our Annual Plan and are based on achievement of performance goals relating to company operating income, and company-controlled cash flow (for the corporate staff participants) and business unit operating income, company operating income and company-controlled cash flow (for Messrs. Baert and Rademacher). Achievement of a performance goal at the threshold level results in payment of 50% 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, see “Compensation Discussion and Analysis — Elements of Compensation — Annual Incentive.”
Cash-Settled Performance Units
Cash-settled performance units were granted in 20072008 to all of our Named Executive Officers, except for Mr. Patterson, under our 2005 Equity and Performance Incentive Plan and are based on achievement of performance goals, over a three-year period, relating to company operating income.earnings per share. If we achieve performance at the threshold level, 50% of the performance units will 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
37
interpolated. For a more detailed discussion of the performance units granted in 2007,2008, see “Compensation Discussion and Analysis — Elements of Compensation — Long-Term Incentive — Awards Granted in 20072008 — Cash-Settled Performance Units.”
Stock-Settled SARs
In 2007,2008, our Compensation and Governance Committee granted stock-settled SARs to the Named Executive Officers. These SARs have a term of seven years and vest uponone-third on each of the attainmentfirst three anniversaries of target prices (sustained for three consecutive trading days) for our common shares asfollows: 1/3 @ $7.24; 1/3 @ $7.90 and 1/3 @ $8.56. In no event may the SARs vest sooner than one year from the date of grant. For a more detailed discussion of the stock-settled SARs granted in 2007,2008, see “Compensation Discussion and Analysis — Elements of Compensation — Long-Term Incentive — Awards Granted in 20072008 — Stock-Settled SARs.”
Restricted Stock Units (RSUs)
In 2008, our Compensation and Governance Committee granted RSUs to the Named Executive Officers. The RSUs vest on the third anniversary of the grant date. For a more detailed discussion of the RSUs granted in 2008, see “Compensation Discussion and Analysis — Elements of Compensation — Long-Term Incentive — Awards Granted in 2008 — RSUs.”
Employment Agreements
We do not have employment agreements with any of our Named Executive Officers, except for Mr. Newlin. Mr. Newlin’s Employment Agreement is described in detail in the “Compensation Discussion and Analysis — Employment Agreement of the Chief Executive Officer” and the “Potential Payments Upon Termination orChange-in-Control” sections of this proxy statement.
3338
| Option/SAR Awards | Stock Awards | ||||||||||||||||||||||||||||||||||||||||||||
| Equity | Equity | ||||||||||||||||||||||||||||||||||||||||||||
| Incentive | Incentive | ||||||||||||||||||||||||||||||||||||||||||||
| Plan | Plan | ||||||||||||||||||||||||||||||||||||||||||||
| Equity | Awards: | Awards: | |||||||||||||||||||||||||||||||||||||||||||
| Incentive Plan | Number of | Market or | |||||||||||||||||||||||||||||||||||||||||||
| Awards: | Number | Market | Unearned | Payout Value | |||||||||||||||||||||||||||||||||||||||||
| Number of | Number of | of Shares | Value of | Shares, | of Unearned | ||||||||||||||||||||||||||||||||||||||||
| Securities | Number of | Securities | or Units | Shares or | Units or | Shares, Units | |||||||||||||||||||||||||||||||||||||||
| Underlying | Securities | Underlying | Option/ | of Stock | Units of | Other | or Other | ||||||||||||||||||||||||||||||||||||||
| Unexercised | Underlying | Unexercised | SARs | Option/ | That | Stock That | Rights That | Rights That | |||||||||||||||||||||||||||||||||||||
| Options/SARs | Unexercised | Unearned | Exercise | SARs | Have Not | Have Not | Have Not | Have Not | |||||||||||||||||||||||||||||||||||||
| (#) | Options/SARs | Options/SARs | Price | Expiration | Vested | Vested | Vested | Vested | |||||||||||||||||||||||||||||||||||||
| Name | Exercisable(1) | (#) Unexercisable | (#) | ($) | Date | (#) | ($) | (#) | ($) | ||||||||||||||||||||||||||||||||||||
| S.D. Newlin | 200,000 | (2) | 1,316,000 | (6) | |||||||||||||||||||||||||||||||||||||||||
| 116,600 | (4) | 58,300 | (4) | 9.1850 | 2/20/2013 | ||||||||||||||||||||||||||||||||||||||||
| 308,400 | (3) | 6.585 | 3/7/2014 | ||||||||||||||||||||||||||||||||||||||||||
| W.D. Wilson | 26,400 | (5) | 8.9400 | 1/4/2012 | |||||||||||||||||||||||||||||||||||||||||
| 42,000 | (4) | 21,000 | (4) | 6.5100 | 1/3/2013 | ||||||||||||||||||||||||||||||||||||||||
| 88,200 | (3) | 6.585 | 3/7/2014 | ||||||||||||||||||||||||||||||||||||||||||
| 128,536 | 0 | 10.3125 | 2/3/2008 | ||||||||||||||||||||||||||||||||||||||||||
| 200 | 0 | 9.0000 | 9/4/2010 | ||||||||||||||||||||||||||||||||||||||||||
| 71,100 | 0 | 8.7000 | 2/27/2011 | ||||||||||||||||||||||||||||||||||||||||||
| 82,400 | 0 | 12.2200 | 3/25/2012 | ||||||||||||||||||||||||||||||||||||||||||
| 61,900 | 0 | 6.0000 | 3/31/2013 | ||||||||||||||||||||||||||||||||||||||||||
| B. Baert | 18,600 | (5) | 8.9400 | 1/4/2012 | |||||||||||||||||||||||||||||||||||||||||
| 25,000 | (4) | 12,500 | (4) | 6.5100 | 1/3/2013 | ||||||||||||||||||||||||||||||||||||||||
| 53,100 | (3) | 6.5850 | 3/7/2014 | ||||||||||||||||||||||||||||||||||||||||||
| 7,073 | 0 | 15.0000 | 11/3/2008 | ||||||||||||||||||||||||||||||||||||||||||
| 6,969 | 0 | 10.6250 | 11/30/2009 | ||||||||||||||||||||||||||||||||||||||||||
| 200 | 0 | 9.0000 | 9/4/2010 | ||||||||||||||||||||||||||||||||||||||||||
| 41,000 | 0 | 8.7000 | 2/27/2011 | ||||||||||||||||||||||||||||||||||||||||||
| 47,500 | 0 | 12.2200 | 3/25/2012 | ||||||||||||||||||||||||||||||||||||||||||
| M.E. Kahler | 37,800 | (4) | 18,900 | (4) | 9.0200 | 5/24/2013 | |||||||||||||||||||||||||||||||||||||||
| 50,700 | (3) | 6.5850 | 3/7/2014 | ||||||||||||||||||||||||||||||||||||||||||
| M.L. Rademacher | 17,700 | (5) | 8.9400 | 1/4/2012 | |||||||||||||||||||||||||||||||||||||||||
| 28,200 | (4) | 14,100 | (4) | 6.5100 | 1/3/2013 | ||||||||||||||||||||||||||||||||||||||||
| 55,500 | (3) | 6.5850 | 3/7/2014 | ||||||||||||||||||||||||||||||||||||||||||
| 19,524 | 0 | 11.5000 | 1/5/2010 | ||||||||||||||||||||||||||||||||||||||||||
| 200 | 0 | 9.0000 | 9/4/2010 | ||||||||||||||||||||||||||||||||||||||||||
| 42,700 | 0 | 8.7000 | 2/27/2011 | ||||||||||||||||||||||||||||||||||||||||||
| 49,500 | 0 | 12.2200 | 3/25/2012 | ||||||||||||||||||||||||||||||||||||||||||
| 39,100 | 0 | 6.0000 | 3/31/2013 | ||||||||||||||||||||||||||||||||||||||||||
| Option/SAR Awards | Stock Awards | ||||||||||||||||||||||||||||||||||
| Equity | |||||||||||||||||||||||||||||||||||
| Incentive Plan | |||||||||||||||||||||||||||||||||||
| Number of | Number of | Awards: Number of | |||||||||||||||||||||||||||||||||
| Securities | Securities | Securities | Market Value | ||||||||||||||||||||||||||||||||
| Underlying | Underlying | Underlying | Option/ | Number of Shares | of Shares or | ||||||||||||||||||||||||||||||
| Unexercised | Unexercised | Unexercised | SARs | Option/ | or Units of Stock | Units of Stock | |||||||||||||||||||||||||||||
| Options | Options/SARs | Unearned | Exercise | SARs | That Have Not | That Have Not | |||||||||||||||||||||||||||||
| (#) | (#) | Options/SARs | Price | Expiration | Vested | Vested | |||||||||||||||||||||||||||||
| Name | Exercisable(1) | Unexercisable | (#) | ($) | Date | (#) | ($)(2) | ||||||||||||||||||||||||||||
| S.D. Newlin | 200,000 | (3) | 630,000 | ||||||||||||||||||||||||||||||||
| 114,700 | (4) | 361,305 | |||||||||||||||||||||||||||||||||
| 116,600 | (5) | 58,300 | (5) | 9.1850 | 2/20/2013 | ||||||||||||||||||||||||||||||
| 308,400 | (6) | 6.5850 | 3/7/2014 | ||||||||||||||||||||||||||||||||
| 286,800 | (7) | 6.7650 | 3/5/2015 | ||||||||||||||||||||||||||||||||
| R.M. Patterson | 40,000 | (4) | 126,000 | ||||||||||||||||||||||||||||||||
| 60,000 | (7) | 7.7200 | 5/14/2015 | ||||||||||||||||||||||||||||||||
| W.D. Wilson | 2,237 | (4) | 7,047 | ||||||||||||||||||||||||||||||||
| 26,400 | (8) | 8.9400 | 1/4/2012 | ||||||||||||||||||||||||||||||||
| 42,000 | (5) | 21,000 | (5) | 6.5100 | 1/3/2013 | ||||||||||||||||||||||||||||||
| 88,200 | (6) | 6.5850 | 3/7/2014 | ||||||||||||||||||||||||||||||||
| 10,867 | (9) | 0 | 6.7650 | 3/5/2015 | |||||||||||||||||||||||||||||||
| 200 | 0 | 9.0000 | 9/4/2010 | ||||||||||||||||||||||||||||||||
| 71,100 | 0 | 8.7000 | 2/27/2011 | ||||||||||||||||||||||||||||||||
| 82,400 | 0 | 12.2200 | 9/9/2011 | ||||||||||||||||||||||||||||||||
| 61,900 | 0 | 6.0000 | 9/9/2011 | ||||||||||||||||||||||||||||||||
| K.M. Smith | 12,600 | (4) | 39,690 | ||||||||||||||||||||||||||||||||
| 18,600 | (10) | 8.9400 | 1/4/2012 | ||||||||||||||||||||||||||||||||
| 29,800 | (5) | 14,900 | (5) | 6.5100 | 1/3/2013 | ||||||||||||||||||||||||||||||
| 58,500 | (6) | 6.5850 | 3/7/2014 | ||||||||||||||||||||||||||||||||
| 31,200 | (7) | 6.7650 | 3/5/2015 | ||||||||||||||||||||||||||||||||
| 200 | 0 | 9.0000 | 9/4/2010 | ||||||||||||||||||||||||||||||||
| 42,700 | 0 | 8.7000 | 2/27/2011 | ||||||||||||||||||||||||||||||||
| 49,500 | 0 | 12.2200 | 3/25/2012 | ||||||||||||||||||||||||||||||||
| 39,100 | 0 | 6.0000 | 3/31/2013 | ||||||||||||||||||||||||||||||||
| M.L. Rademacher | 12,600 | (4) | 39,690 | ||||||||||||||||||||||||||||||||
| 17,700 | (10) | 8.9400 | 1/4/2012 | ||||||||||||||||||||||||||||||||
| 28,200 | (5) | 14,100 | (5) | 6.5100 | 1/3/2013 | ||||||||||||||||||||||||||||||
| 55,500 | (6) | 6.5850 | 3/7/2014 | ||||||||||||||||||||||||||||||||
| 31,200 | (7) | 6.7650 | 3/5/2015 | ||||||||||||||||||||||||||||||||
| 19,524 | 0 | 11.5000 | 1/5/2010 | ||||||||||||||||||||||||||||||||
| 200 | 0 | 9.0000 | 9/4/2010 | ||||||||||||||||||||||||||||||||
| 42,700 | 0 | 8.7000 | 2/27/2011 | ||||||||||||||||||||||||||||||||
| 49,500 | 0 | 12.2200 | 3/25/2012 | ||||||||||||||||||||||||||||||||
| 39,100 | 0 | 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 | Option/ | Number of Shares | of Shares or | ||||||||||||||||||||||||||||||
| Unexercised | Unexercised | Unexercised | SARs | Option/ | or Units of Stock | Units of Stock | |||||||||||||||||||||||||||||
| Options | Options/SARs | Unearned | Exercise | SARs | That Have Not | That Have Not | |||||||||||||||||||||||||||||
| (#) | (#) | Options/SARs | Price | Expiration | Vested | Vested | |||||||||||||||||||||||||||||
| Name | Exercisable(1) | Unexercisable | (#) | ($) | Date | (#) | ($)(2) | ||||||||||||||||||||||||||||
| B. Baert | 12,600 | (4) | 39,690 | ||||||||||||||||||||||||||||||||
| 18,600 | (10) | 8.9400 | 1/4/2012 | ||||||||||||||||||||||||||||||||
| 25,000 | (5) | 12,500 | (5) | 6.5100 | 1/3/2013 | ||||||||||||||||||||||||||||||
| 53,100 | (6) | 6.5850 | 3/7/2014 | ||||||||||||||||||||||||||||||||
| 31,200 | (7) | 6.7650 | 3/5/2015 | ||||||||||||||||||||||||||||||||
| 6,969 | 0 | 10.6250 | 11/30/2009 | ||||||||||||||||||||||||||||||||
| 200 | 0 | 9.0000 | 9/4/2010 | ||||||||||||||||||||||||||||||||
| 41,000 | 0 | 8.7000 | 2/27/2011 | ||||||||||||||||||||||||||||||||
| 47,500 | 0 | 12.2200 | 3/25/2012 | ||||||||||||||||||||||||||||||||
| (1) | This column shows the fully-exercisable stock options and SARs granted to the Named Executive Officers prior to the last fiscal year. | |
| (2) | Based on the closing market price of our common shares on the last trading day of the 2008 fiscal year, December 31, 2008 ($3.15). | |
| (3) | These shares of restricted stock vest on the third anniversary of the date of grant. | |
| These RSUs were granted in 2008 and vest on the third anniversary of the date of grant. | ||
| (5) | These stock-settled SARs were granted in 2006 and vest upon the attainment of target prices (sustained for three consecutive trading days) for our common shares as follows: 1/3 @ $7.50; 1/3 @ $8.50; and1/3 @ $10.00. In no event may the SARs vest sooner than one year from the date of grant. | |
| (6) | These stock-settled SARs were granted in 2007 and vest upon the attainment of target prices (sustained for three consecutive trading days) for our common shares as follows: 1/3 @ $7.24; 1/3 @ $7.90; and1/3 @ $8.56. In no event may the SARs vest sooner than one year from the date of grant. | |
| These stock-settled SARs were granted in | ||
| The stock-settled SARs granted to Mr. Wilson in 2005 became fully vested due to his separation from service and retirement eligibility under the terms of those awards. | ||
| (9) | One-third of the stock-settled SARs granted to Mr. Wilson vested due to his separation from service and retirement eligibility under the terms of those awards within six months of the vesting date. The remaining two-thirds were cancelled. | |
| (10) | These stock-settled SARs were granted in 2005 and vest upon the attainment of target prices (sustained for three consecutive trading days) for our common shares as follows: 1/3 @ $9.84; 1/3 @ $10.73; and 1/3 @ $11.63. | |
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| Option/SAR Awards | Stock Awards | |||||||||||||||||||||||||||||||||||
| Number of Shares | Number of Shares | Present Value of | ||||||||||||||||||||||||||||||||||
| Acquired on | Value Realized | Acquired on | Value Realized | Number of Years | Accumulated | Payments During Last | ||||||||||||||||||||||||||||||
| Exercise(1) | on Exercise(2) | Vesting(3) | on Vesting(4) | Credited Service | Benefit | Fiscal Year | ||||||||||||||||||||||||||||||
| Name | (#) | ($) | (#) | ($) | Plan Name | (#) | ($) | ($) | ||||||||||||||||||||||||||||
| S.D. Newlin | — | — | — | — | Supplemental Retirement benefit under Letter Agreement | — | 4,341,255(1) | 0 | ||||||||||||||||||||||||||||
| R.M. Patterson | N/A | — | — | — | ||||||||||||||||||||||||||||||||
| W.D. Wilson | 24,800 | 12,571 | 11,900 | 78,302 | PolyOne Merged Pension Plan(2) | 24.9 | 589,172(2) | 0 | ||||||||||||||||||||||||||||
The Geon Company Section 401(a)(17) Benefit Restoration Plan(2) | 24.9 | 854,017(2) | 0 | |||||||||||||||||||||||||||||||||
| K. M. Smith | PolyOne Merged Pension Plan(2)(3) | 17.4 | 371,675(2)(3) | 0 | ||||||||||||||||||||||||||||||||
The Geon Company Section 401(a)(17) Benefit Restoration Plan(2)(4) | 17.4 | 473,654(2)(4) | 0 | |||||||||||||||||||||||||||||||||
| M.L. Rademacher | N/A | — | — | — | ||||||||||||||||||||||||||||||||
| B. Baert | — | — | 8,366 | 55,048 | N/A | — | — | — | ||||||||||||||||||||||||||||
| M.E. Kahler | — | — | — | — | ||||||||||||||||||||||||||||||||
| M.L. Rademacher | — | — | 7,900 | 51,982 | ||||||||||||||||||||||||||||||||
| (1) | The Present Value of Accumulated Benefit shown above for Mr. | |
| (2) | ||
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| Present Value of | ||||||||||||||||||
| Number of Years | Accumulated | Payments During Last | ||||||||||||||||
| Credited Service | Benefit(1) | Fiscal Year | ||||||||||||||||
| Name | Plan Name | (#) | ($) | ($) | ||||||||||||||
| S.D. Newlin | N/A | — | — | — | ||||||||||||||
| W.D. Wilson | PolyOne Merged Pension Plan | 24.9 | 512,786 | 0 | ||||||||||||||
| The Geon Company Section 401(a)(17) Benefit Restoration Plan | 24.9 | 750,663 | 0 | |||||||||||||||
| B. Baert | N/A | — | — | — | ||||||||||||||
| M.E. Kahler | N/A | — | — | — | ||||||||||||||
| M.L. Rademacher | N/A | — | — | — | ||||||||||||||
| The Present Value of Accumulated Benefit shown above for each plan for | ||
| (3) | Mr. Smith’s Number of Years Credited Service includes four additional years of pension service discussed in the narrative following the 2008 Pension Benefit table. Without the four additional years of pension service, the Present Value of Accumulated Benefit would have been $286,340 instead of the $371,675 shown in the table. Subsequent earnings under the qualified and non-qualified plan will be frozen effective March 20, 2009. | |
| (4) | Mr. Smith’s Number of Years Credited Service includes four additional years of pension service discussed in the narrative following the 2008 Pension benefit table. Without the four additional years of pension service, the Present Value of Accumulated Benefit would have been $364,905 instead of the $473,654 in the table. Subsequent earnings under the qualified and non-qualified plan will be frozen effective March 20, 2009. |
As a result of the continuation of a planplans that existed prior to the consolidation of Geon and M.A. Hanna, we maintain two defined benefit plans for those employees who were with those companies at the time of the consolidation. As of December 31, 1999, both plans were closed to new participants. Only Messrs. Wilson and Smith participate in these Pension Plans.
One plan is The PolyOne Merged Pension Plan, which provides funded, tax-qualified benefits subject to the limits on compensation and benefits under the Internal Revenue Code (referred to as the(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
41
those offered under the Qualified Plan. The Benefit Restoration Plan benefits are calculated under a formula similar to that of the Qualified Plan, but without the compensation and benefit limits imposed by the Internal Revenue Code on qualified plans. The benefits under the Benefit Restoration Plan are offset by benefits provided under the Qualified Plan. The Qualified 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’s pension depends on a number of factors including FAEFinal Average Earnings (FAE) and years of credited Benefit Service. FAE is determined based on the highest four consecutive calendar years of an employee’s earnings. Earnings include salary, overtime pay, holiday pay, vacation pay, and certain incentive payments including annual cash bonuses, but exclude awards under long-term incentive programs and the match by us in the qualified savings plans. The annual salary and bonus for the current year for the Named Executive Officers is indicated in the Summary Compensation Table.
36
The combined Plans generally provide a benefit of 1.15% of FAE, times all years of pension service credit, plus 0.45% of FAE in excess of 2002 “covered compensation” (as defined by the Social Security Administration) times years of pension credit up to 35 years. In addition, those executives who were actively at work on December 31, 1989, may receive an additional pension service credit of up to 4four years if actual pension service credit is less than 24 years. Benefits become vested after 5five years of service and are generally payable on a monthly lifetime basis starting at age 65.
A former employee can elect to commence vested benefit payments as early as age 55 in lieu of waiting to age 65. However, the benefit described above is subject to reduction in recognition of the additional payments that are received because of early commencement. The reduction for early retirement is determined differently depending on whether the former employee terminated employment before or after attaining age 55. If an employee terminates employment on or after age 55 and commences his or her benefit before age 62, the benefit payments would be reduced by 0.5% per month. If an employee terminates employment before age 55 and commences his or her benefit before age 65, the reduction is more severe and is determined on an actuarially equivalent basis. No reduction will occur if an employee (1) terminates employment on or after age 55 and commences his or her benefit on or after age 62 or (2) terminates employment before age 55 and commences his or her benefit at age 65.
The normal form of payment provides that an employee will receive his or her benefit on a lifetime payment with a minimum of 60 monthly payments guaranteed. Married participants receive payments in an actuarially equivalent 50% Joint and Survivor form. Other actuarially equivalent monthly lifetime forms of payments are available if elected by the participant with spousal agreement if married. Lump sum payments are not available.
In general, if a married, vested participant dies prior to commencing his pension benefit then the spouse is eligible to receive the benefit that would have otherwise been payable had the participant terminated employment on the day he died, survived to his Normal Retirement Date and
42
elected a 50% Joint and Survivor form of payment and then immediately died. The 50% Joint and Survivor provides the surviving spouse with monthly lifetime payments at the participant’s Normal Retirement Age equal to 50% of the benefit that otherwise would have been payable. Payments can commence prior to the participant’s Normal Retirement Age but may be reduced for early commencement.
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Mr. Newlin is also eligible for supplemental retirement benefits as described more fully in the “Compensation Discussion and Analysis — Elements of Compensation — Retirement Benefits” section of this proxy statement.
| Executive | Registrant | Aggregate | Aggregate | Executive | Registrant | Aggregate | Aggregate | |||||||||||||||||||||||||||||||||||||||||||
| Contributions | Contributions in | Earnings | Withdrawals/ | Aggregate Balance | Contributions | Contributions in | Earnings | Withdrawals/ | Aggregate Balance | |||||||||||||||||||||||||||||||||||||||||
| in Last FY(1) | Last FY(2) | in Last FY(3) | Distributions | at Last FYE(4) | in Last FY(1) | Last FY(2) | in Last FY(3) | Distributions(4) | at Last FYE(5) | |||||||||||||||||||||||||||||||||||||||||
| Name | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ||||||||||||||||||||||||||||||||||||||||
| S.D. Newlin | $ | 86,580 | $ | 94,462 | $ | 10,664 | — | $ | 231,805 | $ | 75,382 | $ | 82,231 | $ | 14,770 | $ | 0 | $ | 404,188 | |||||||||||||||||||||||||||||||
| R.M. Patterson | 38,308 | 12,000 | (8,769 | ) | 0 | 41,539 | ||||||||||||||||||||||||||||||||||||||||||||
| W.D. Wilson | 75,503 | 45,552 | 43,165 | — | 666,815 | 49,125 | 26,788 | (150,522 | ) | (284,766 | ) | 307,440 | ||||||||||||||||||||||||||||||||||||||
| K.M. Smith | 13,442 | 23,330 | (35,438 | ) | 0 | 208,085 | ||||||||||||||||||||||||||||||||||||||||||||
| M.L. Rademacher | 63,630 | 25,040 | (140,380 | ) | 0 | 403,432 | ||||||||||||||||||||||||||||||||||||||||||||
| B. Baert | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| M.E. Kahler | 8,836 | 10,239 | 173 | — | 19,248 | |||||||||||||||||||||||||||||||||||||||||||||
| M.L. Rademacher | 65,252 | 25,843 | 38,485 | — | 455,142 | |||||||||||||||||||||||||||||||||||||||||||||
| (1) | These amounts reflect actual amounts earned by the Named Executive Officers in |
| 2006 ‘‘Non-Equity Incentive | 2007 “Non-Equity | |||||||||||||||||
| Name | 2007 ‘‘Salary” column | Plan Compensation” column | ||||||||||||||||
| Incentive Plan | ||||||||||||||||||
| 2008 “Salary” | Compensation” | |||||||||||||||||
| Column | Column | |||||||||||||||||
| S.D. Newlin | $ | 38,037 | $ | 48,543 | $ | 41,192 | $ | 34,190 | ||||||||||
| R.M. Patterson | 38,308 | — | ||||||||||||||||
| W.D. Wilson | 46,324 | 29,179 | 28,928 | 20,197 | ||||||||||||||
| K.M. Smith | 13,442 | — | ||||||||||||||||
| M.L. Rademacher | 38,653 | 24,977 | ||||||||||||||||
| B. Baert | — | — | — | — | ||||||||||||||
| M.E. Kahler | 8,836 | — | ||||||||||||||||
| M.L. Rademacher | 39,191 | — | ||||||||||||||||
| (2) | This column contains contributions by us in the last fiscal year under our non-qualified retirement plan, the PolyOne Supplemental Retirement Benefit Plan, which provides for benefits in excess of amounts permitted to be contributed under our qualified retirement plan, as follows: (a) our cash contributions in amounts equal to 100% on the first 3% of employee contributions plus 50% on the next 3% of employee contributions (the “Company Match”); (b) a retirement contribution by us in an amount equal to 2% of eligible earnings (the “Retirement Contribution”); and (c) for |
43
| Company Contribution | Newlin | Wilson | Baert | Kahler | Rademacher | Newlin | Patterson | Wilson | Smith | Rademacher | Baert | |||||||||||||||||||||||||||||||||||||||||||
| Company Match | 56,537 | 11,492 | 14,738 | 10,081 | 19,089 | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Company Match | $ | 64,935 | $ | 22,651 | — | $ | 6,627 | $ | 19,576 | |||||||||||||||||||||||||||||||||||||||||||||
| Retirement Contribution | 29,527 | 7,634 | — | 3,612 | 6,267 | 25,694 | 508 | 4,017 | 5,047 | 5,951 | — | |||||||||||||||||||||||||||||||||||||||||||
| Transition Contribution | — | 15,267 | — | — | — | — | — | 8,033 | 8,202 | — | — | |||||||||||||||||||||||||||||||||||||||||||
All of these amounts are included in the “All Other Compensation” column of the 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 Summary Compensation Table. | |
| (4) | Subsequent to his separation from service, Mr. Wilson’s balance of $170,760 in his Geon Company Section 401(a)(17) Benefit Retirement Plan was distributed to him under the provisions of the plan and he elected to withdraw a portion of his balance ($114,006) from the PolyOne Supplemental Retirement Benefit Plan. | |
| (5) | 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. Certain of the Named Executive Officers also have balances in frozen non-qualified deferred compensation plans sponsored by our predecessor companies, Geon and M.A. Hanna. These plans are The Geon Company Section 401(a)(17) Benefit Restoration Plan and the M.A. Hanna Company Supplemental Retirement Benefit Plan. These amounts are reflected in the table. |
We currently offer participation in a non-qualified deferred compensation retirement plan, called the PolyOne Supplemental Retirement Benefit Plan. This plan is an unfunded, nonqualified plan that provides benefits similar to our Qualified Savings Plan, but without Internal Revenue Code
38
