The Company’s business is managed under the direction of its Board of Directors, pursuant to its Amended and Restated Articles of Incorporation, its Bylaws and the laws of the State of Wisconsin.  Members of the Board of Directors are kept informed of the Company’s operations through discussions with the CEO and key members of management, by reviewing materials provided to them and by participating in meetings of the Board of Directors and its committees.

The Company reviews and evaluates its corporate governance policies and practices, particularly in light of the rules of the Securities and Exchange Commission (“SEC”) and the NYSE, and believes that its current policies and practices meet these requirements.  The Company’s corporate governance policies, including its Guidelines on Corporate Governance and charters for committees of the Board, are available on its website, www.modine.com, and are also available in print to any shareholder or other interested person upon request.

The Company’s Code of Ethics and Business Conduct (the “Code of Ethics”“Code”) summarizes the compliance and ethical standards and expectations the Company has for all of its employees (including the principal executive officer, principal financial officer and principal accounting officer) and directors with respect to their conduct in furtherance of Company business.  It contains procedures for reporting suspected violations of the Code, of Ethics, including procedures for the reporting of questionable accounting or auditing matters or other concerns regarding accounting, internal accounting controls or auditing matters.  The Company has established a Business Ethics Program that includes an Internet and phone Helpline through which employees and others may report concerns regarding such matters in confidence and, if desired, anonymously.  A copy of the Code, of Ethics, as well as further information regarding the Business Ethics Program, is available on the Company’s website, www.modine.com.  These materials are also available in print to any shareholder or other interested person upon request.  If we make any substantive amendment to the Code, of Ethics, we will disclose the nature of such amendment on our website or in a current report on Form 8-K.  In addition, if a waiver of the Code of Ethics is granted to an executive officer or director, we will disclose the nature of such waiver on our website, in a press release or in a current report on Form 8-K.

The Company’s Guidelines on Corporate Governance require that a majority of the Board’s members be independent.  The Company also believes it is in its best interest to have the President and CEO of the Company serve as a director.  At a minimum, to qualify as “independent,” a director must meet the independence standards of the NYSE.  The Nominating Committee assesses independence on a regular basis, and each director is responsible for bringing any changes toin his or her status that may affect his or her independence to the attention of the Nominating Committee.  In addition, on an annual basis the directors complete a questionnaire prepared by the Company that is designed to elicit information that the Board uses to assess director independence.  At least annually, the Board reviews the relationships that each director has with the Company.  Only those directors that the Board affirmatively determines have no material relationship with the Company, and who do not have any of the relationships that prevent independence under the standards of the NYSE, are considered to be independent directors.

The Board has determined that all of the current directors, and all other individuals who served as directors during any portion of fiscal 2015, other than Mr. Burke, are independent or were independent at the time they served as a director, within the meaning of the listing standards of the NYSE.  The Board concluded that none of these directors has or had any of the relationships with the Company set forth in the NYSE listing standards or any other business or other relationships with the Company that would preclude a determination of his or her independence.  Mr. Burke is not independent due to his position as President and CEO of the Company.

The Code of Ethics requires that all officers, employees and directors of the Company avoid any situation that conflicts with the proper discharge of his or her responsibility to the Company or that impairs his or her ability to exercise independence of judgment with respect to the transactions in which he or she is involved for the Company.  Significant transactions with the Company’s officers, employees or directors, their relatives, or enterprises in which they have material interests, are not permitted unless such transactions are fully disclosed and approved by the Board of Directors or the Audit Committee as being in the best interest of the Company.

Modine is a large global organization that engages in thousands of purchases, sales and other transactions annually.  Modine may enter into purchase and sale transactions with other companies, universities and entities in which members of the Board of Directors are employed or are members of the Board of Directors for such entities.  Modine enters into these arrangements in the ordinary course of business and at competitive prices and terms.  The Company anticipates that similar transactions may occur in the fiscal year ending March 31, 2016.2017.

 

At the end of each fiscal year, each director and officer must respond to a questionnaire that requires him or her to identify certain information about his or her immediate family and any transaction or relationship that occurred during the year or any proposed transaction that involves Modine (or any subsidiary or affiliate of Modine) and that individual, his or her immediate family, or any entity with which he, she or such immediate family member is associated.  All responses to the questionnaires are reviewed by the Company’s Legal Department and shared with the President and CEO, as appropriate.  In addition, the Company independently searches its’ records for potential transactions with known related parties.  Based upon such review, there were no related party transactions with respect to persons who were officers or directors during fiscal 20152016.

Marsha C. Williams assumed the position of Lead Director in July 2013.  As Lead Director, Ms. Williams presides over meetings of the shareholders, the Board of Directors, and executive sessions of the Board of Directors, and carries out such other duties as directed by the Board of Directors and as listed in the Company’s Guidelines on Corporate Governance.  The Company believes this leadership structure is in the best interest of the Company’s shareholders at present because it allows the Company to benefit from the unique leadership ability that Ms. Williams possesses and from her business and corporate governance experience.  The Board does not intend to nominate a Chairman at this time.

The Board of Directors has overall responsibility for risk oversight for the Company.  Management provides the Board with information on a regular basis to keep the members of the Board of Directors apprised of identified risks.  These risks, including financial, organizational, reputational and strategic risks, are reviewed and discussed with the Board as part of the business and operating review conducted at each of the Board’s regular meetings.  As described below under Committees of the Board of Directors, the Board of Directors has delegated certain responsibilities to its committees.  The committees have oversight of risks that fall within their areas of responsibility.  The Audit Committee has primary oversight of the Company’s financial reporting, internal control and compliance risks.  The Officer Nomination and Compensation Committee evaluates the risks arising from the Company’s compensation policies and programs.  Management is responsible for managing risk and the Company’s enterprise risk management program.

The Nominating Committee considers prospective candidates for Board membership who are recommended by its members, as well as those recommended by management, shareholders and independent consultants hired by the Nominating Committee.  The Nominating Committee may also decide to engage a professional search firm to assist in identifying qualified candidates.  When such a search firm is engaged, the Nominating Committee sets its fees and scope of engagement.

Once the Nominating Committee identifies a prospective nominee, it initially determines whether to conduct a full evaluation of the candidate.  The Nominating Committee makes its initial determination based on the information provided to it with the recommendation of the prospective candidate, as well as the Nominating Committee’s own knowledge of the prospective candidate, which may be supplemented by inquiries to the person making the recommendation or others.

The Nominating Committee evaluates the prospective nominee, considering factors it deems appropriate, including the current composition of the Board and the evaluations of other prospective nominees.  In assessing candidates, the Board considers the required areas of expertise set forth above in Item 1 (business operations leadership; relevant industry experience; global business experience; financial expertise; technological expertise; corporate governance expertise; financial markets experience; and strategic planning, including mergers and acquisitions),; additional attributes that are more specific to the Company’s strategic direction and business emphasis at any given point,point; and such additional factors as the individual’s education, contribution to the diversity of the Board, and others frequently encountered by a global business.

In choosing a candidate for Board membership, every effort is made to complement and supplement skills within the existing Board and to strengthen any identified areas.  Further criteria include a candidate’s personal and professional ethics, integrity and values, as well as his or her willingness and ability to devote sufficient time to attend meetings and participate effectively on the Board.

In connection with this evaluation, the Board determines whether to interview the prospective nominee.  If an interview is warranted, one or more members of the Board of Directors, and others as appropriate, will interview prospective nominees.  After completing the evaluation and interview, the Nominating Committee makes a recommendation to the Board regarding the nomination of a candidate, and the Board acts on that recommendation.

The Bylaws of the Company provide that any shareholder who is entitled to vote for the election of directors at a meeting called for such purpose may nominate persons for election to the Board of Directors.  Shareholders who desire to nominate a person or persons for election to the Board must comply with the notice requirements in the Company’s Bylaws, a copy of which is available from the Company’s Secretary.  For consideration at the 20162017 Annual Meeting of Shareholders, nominations must be received by the Secretary no earlier than April 14, 201612, 2017 and no later than May 9, 2016.7, 2017.  Shareholders who want to submit a recommendation for a director candidate for the Board may submit the recommendation to the Board using the procedure described below under Shareholder and Other Interested Persons’ Communication with the Board.  The Nominating Committee intends to evaluate candidates recommended by shareholders in the same manner that it evaluates other candidates. The Nominating Committee requests that it receive any such recommendations by October 7, 20155, 2016 for the 20162017 Annual Meeting of Shareholders.

Shareholders and other interested persons wishing to communicate with the Board of Directors or with a Board member (including the Lead Director) should address communications to the Board or to the particular Board member, c/o Secretary, Modine Manufacturing Company, 1500 DeKoven Avenue, Racine, Wisconsin 53403-2552.  In accordance with a process approved by the Board of Directors, the Secretary reviews all such correspondence.  The Secretary forwards to the Board a summary of all such correspondence and copies of all correspondence that, in the opinion of the Secretary, deal with the functions of the Board or committees thereof or that she otherwise determines requires their attention.  Concerns relating to accounting, internal controls or auditing matters are immediately brought to the attention of the Company’s Business Ethics Committee and handled in accordance with procedures established by the Audit Committee with respect to such matters.  From time to time, the Board may change the process by which shareholders and other interested persons may communicate with the Board of Directors or its members.  Please refer to the Company’s website, www.modine.com, for any changes to this process.

Audit Committee

The Audit Committee is a separately designated standing committee of the Board of Directors, established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  The charter of the Audit Committee is available on the Company’s website, www.modine.com.

The Audit Committee is responsible for, among other things, appointing and overseeing the work of the Company’s independent registered public accounting firm for the purpose of preparing and issuing an audit report and performing related work, and for discussing with the independent registered public accounting firm appropriate staffing and compensation.  The Audit Committee also oversees management’s implementation of systems of internal controls; monitors the preparation of quarterly and annual financial reports by management; determines whether the independent registered public accounting firm is independent; and reviews management’s programs to monitor and address matters associated with compliance with the Company’s Code of Ethics.  The functions of the Audit Committee are more fully described below in the Report of the Audit Committee in this proxy statement.

The Board of Directors has determined that each member of the Audit Committee is independent as defined in the corporate governance listing standards of the NYSE relating to audit committees.  The Board of Directors has also determined that each Audit Committee member satisfies the financial literacy and experience requirements of the NYSE, and that Mr. Cooley (the Chair of the Committee) and Mr. Anderson qualify as audit committee financial experts within the meaning of the SEC rules.

Officer Nomination and Compensation Committee

The Officer Nomination and Compensation Committee of the Board of Directors (the “ONC Committee”) is composed exclusively of non-employee, independent directors with no business relationship with the Company, other than in their capacity as directors, and no interlocking relationships with the Company that are subject to disclosure under the rules of the SEC related to proxy statements.  The charter of the ONC Committee is available on the Company’s website, www.modine.com.

The ONC Committee oversees and provides strategic direction to management regarding the Company’s executive compensation practices.  The ONC Committee reviews the performance of the executive officers, other than the CEO, and works in conjunction with the Nominating Committee to review the performance of the CEO; reviews candidates for positions as officers; makes recommendations to the Board on certain officer candidates; makes recommendations to the Board on compensation of the CEO; determines, with the CEO’s recommendations, the compensation of non-CEO executive officers and other officers of the Company; considers recommendations made by its independent compensation consultant relating to director compensation and presents those recommendations to the Board; administers the incentive compensation plans in which executive officers and directors participate; and reviews the Company’s benefit programs made available to some or all salaried employees of the Company.

 

In fiscal 2015,2016, the ONC Committee retained Farient Advisors LLC (“Farient”) as its independent executive compensation consultant.  Farient reports directly to the ONC Committee and provides no services to the Company.  The ONC Committee has determined that Farient is independent under the NYSE Listing Standards.  A representative of Farient attends meetings of the ONC Committee upon invitation by the Chair of the ONC Committee, either by phone or in person, and communicates with the Chair between meetings.meetings as necessary.  Farient conducted a comprehensive benchmarking analysis of the Company’s pay levels for the CEO, non-CEO executive officers and other officers of the Company, by pay component, using proxy data of the peer companies and compensation survey data. In addition, Farient benchmarked the Company’s executive pay programs and practices, including severance and change-in-control arrangements, as well as its goals and performance.  The ONC Committee considered Farient’s analyses in making its decisions; however, the ONC Committee made all decisions regarding the compensation of Modine’s officers, including its named executive officersNEOs (except for the CEO, whose compensation is set by the full Board).  Additionally, Farient regularly updated the ONC Committee on regulatory and market trends and assisted with the benchmarking of Board of Director compensation practices and levels.

The Company had no Compensation Committee Interlocks, as defined by the SEC, during fiscal 2015.2016.

Corporate Governance and Nominating Committee

The Nominating Committee develops and implements policies and practices relating to corporate governance matters, including reviewing and monitoring implementation of the Company’s Guidelines on Corporate Governance and the Code of Ethics; develops and reviews background information on prospective nominees to the Board and makes recommendations to the Board regarding such persons; supervises the Board’s annual self-evaluation; and works with the ONC Committee, as appropriate, to review and monitor succession plans relating to the CEO and to evaluate the performance of the CEO.  The Nominating Committee is composed exclusively of independent directors with no business relationship with the Company, other than in their capacity as directors, and no interlocking relationships with the Company that are subject to disclosure under the rules of the SEC related to proxy statements.  The charter of the Nominating Committee is available on the Company’s website, www.modine.com.

Technology Committee

The Technology Committee reviews and makes recommendations, as appropriate, to the entire Board of Directors on major strategies and other subjects related to the Company’s approach, emphasis, and direction with regard to technical innovation and opportunities; the technology acquisition process to assure ongoing business growth; and development and implementation of measurement and tracking systems important to successful innovation.  The charter of the Technology Committee is available on the Company’s website, www.modine.com.

The Board of Directors held five meetings during the fiscal year ended March 31, 20152016 and had the following four standing committees: Audit; Officer Nomination and Compensation; Corporate Governance and Nominating; and Technology.

In July of each year, the Board selects the members of each of the committees.  All incumbent directors attended at least 75 percent of the aggregate of the Board meetings and meetings of committees on which he or she served during fiscal 2015, with the exception of David Bills, who joined Modine’s Board in February 2015 and became a member of the Nominating Committee at that time.2016.

 

The following table lists the members of each of the standing committees as of June 5, 2015 and the number of meetings held by each committee during fiscal 2015.2016.

Attendance at the Annual Meeting.  Although the Company does not have a formal policy that its directors attend the Annual Meeting of Shareholders, it expects them to do so and the Company’s directors historically have attended these meetings.  All of the directors attended the 20142015 Annual Meeting of Shareholders.  The Board of Directors conducts a regular meeting immediately after the Annual Meeting of Shareholders.

 

 

The following table sets forth information regarding the beneficial ownership of shares of the Company’s common stock as of May 31, 2016 by persons known by the Company to beneficially own more than five percent of the outstanding shares:

 

 

 

 

 

The following table sets forth information regarding the beneficial ownership of shares of the Company’s common stock as of May 31, 20152016 by:

 

 

 

 

* Represents less than one percent of the class.

 

Employees of Modine do not receive any compensation for serving on the Board.  For the 2015 fiscal year,Beginning July 2016, non-employee directors, including the Lead Director of the Board, were entitled to receive the following: an annual retainer of $75,000,$80,000, payable quarterly; an additional annual retainer of $10,000 for acting as Chair of the ONC Committee, an additional annual retainer of $7,500 for acting as either Chair of the Technology Committee or the Nominating Committee, and an additional annual retainer of $12,500 for acting as Chair of the Audit Committee; reimbursement for travel, lodging, and related expenses incurred in attending Board and/or committee meetings; and travel-accident and director and officer liability insurance.  Ms. Williams declined to be compensated for her service as the Chair of the Nominating Committee.

The Amended and Restated 2008 Incentive Compensation Plan (the “Incentive Plan”) gives discretion to the Board, or a committee of the Board, to grant stock options and stock awards to non-employee directors.  The Board or the ONC Committee, as applicable, has broad discretionary authority to set the terms of awards under the Incentive Plan.  It is the current practice of the Board of Directors to evaluate compensation and make grants of unrestricted stock awards to each non-employee director on an annual basis.  For the 20152016 fiscal year, non-employee directors, including the Lead Director of the Board, were entitled to receive equity awards with a value of $85,000.$90,000.  The Lead Director was also entitled to additional equity compensation with a value of $85,000.$90,000.  Consistent with this, the Company granted each non-employee director of the Company (other than the Lead Director) 5,7318,612 unrestricted shares of stock in July 2014.2015.  The Company granted Ms. Williams, the Lead Director, 11,46217,224 shares of stock at the same time.  The Company granted Ms. Williams the greater number of shares to compensate her for her service as Lead Director.  As Lead Director, Ms. Williams, among other duties, generally attends all meetings of the Board’s committees but does not receive any attendance fee for those meetings.

The following table sets forth compensation paid to non-employee members of the Company’s Board of Directors in fiscal 2015:2016:

 

Effective January 16, 2008, the Board adopted share ownership guidelines for incumbent members of the Board of Directors.  The Board believes that in order to further align the interests of members of the Board and shareholders, members of the Board should have a meaningful personal investment in the Company.  Only shares of stock, either restricted or unrestricted, count toward the guideline figures.  TheAs amended in January 2016, the guidelines generally provide that within five years ofafter joining the Board, directors are expected to hold shares of Company stock with a value of at least three times the value of the director’s current annual cash retainer atretainer.  In addition, effective January 2016, the start ofONC Committee amended the five-year period.guidelines to include in the compliance determination any stock awards deferred by a director in accordance with the Company’s non-employee director compensation practices.  All directors are currently in compliance with these guidelines.  The share ownership guidelines for officers of the Company are described below in the Compensation Discussion and Analysis – Share Ownership Guidelines - Officers.

In fiscal 2015,2016, the ONC Committee assessed each element of compensation – base salary, and short-and long-term incentives – as well as other plans covering employees in international locations to determine whether any of such elements or plans promotes excessive or unreasonable risk-taking.  The ONC Committee determined that the Company’s compensation policies and practices encourage behaviors that drive the performance of the Company as a whole and balance short-term results with longer-term results in the interests of shareholders.  The ONC Committee determined that any risks arising from the Company’s compensation policies and practices are not reasonably likely to have a material adverse effect on the Company.

 

This Compensation Discussion and Analysis describes the material components of compensation paid to Modine’s namedPrincipal Executive Officer, Principal Financial Officer, and other certain highly compensated executive officers, (“NEOs”), as described in the 20152016 Summary Compensation Table on page 25.  The Company’s NEOs are:30.  In the discussion below, we refer to this group of executives as the named executive officers (“NEOs”).  This group includes the executive officers for whom specific compensation disclosure is required under the rules of the Securities and Exchange Commission.  This group includes the following executive officers:

Other than the Principal Executive Officer and Principal Financial Officer, Messrs. Marry, Schwab and Bowser were the three most highly compensated executive officers as of March 31, 2015.  The compensation for these individuals is listed in the tables on pages 2930 through 3536 of this Proxy Statement.

In this Compensation Discussion and Analysis, we will also explain the objectives of our compensation programs, why we pay the compensation we do and how that fits with the Company’s commitment to provide value to our shareholders.

The ONC Committee seeks to pay our NEOs fairly and to align executive compensation with the Company’s performance.  The ONC Committee believes this approach will enhance shareholder return over the long term.

The ONC Committee seeks to help the Company achieve its short- and long-term financial goals and encourage its executive officers to act as owners of the Company.  The ONC Committee believes these goals can be accomplished through a compensation program that provides a balanced mix of cash and equity-based compensation.  Base salary is designed to attract and retain executives by compensating them for their day-to-day activities, level of responsibility and sustained individual performance.  The annual cash incentive is intended to reward recipients for the achievement of annual operating goals that are critical to the Company’s short-term business objectives.  The equity portion of the compensation package provides incentives that are intended to focus executives on the Company’s long-term success, align the executives’ returns with those of shareholders, encourage long-term retention, and reward the executives for the Company’s superior long-term performance.

The ONC Committee believes the structure of its executive compensation program is aligned with the Company’s overall performance in fiscal 2015.2016.  In fiscal 2015,2016, the Company, among other things:

 

For a reconciliation of adjusted operating incomeearnings per share and free cash flow, which are non-GAAP financial measures, to the most directly comparable GAAP financial measures, please see the financial tables included in Exhibit 99.1 to the Current Report on Form 8-K furnished to the SEC by Modine on May 28, 2015.26, 2016.

The ONC Committee’s actions in fiscal 2015 include2016 included the following:

A nonbinding advisory vote on the compensation of the Company’s NEOs received the affirmative vote of 92.4%95% of the shares represented at the 20142015 Annual Meeting of Shareholders, demonstrating very strong support for the Company’s executive compensation program. Nonetheless, the Company and ONC Committee are mindful of the results of the shareholder advisory vote and take the vote into consideration when determining and evaluating the Company’s executive compensation philosophy, program and disclosure.  For example, the Company has continued its ongoing efforts to be fully transparent about the link between pay and performance in its Pay for Performance discussion immediately below.  In addition, during one-on-one conversations, sponsored road shows and other regular communications with shareholders, the Company routinely discusses its performance in the context of underlying incentive compensation metrics and emphasizes management’s active use of those same metrics in the Company’s daily operations.

 

The ONC Committee believes that the Company’s compensation program should encourage management to create long-term, sustained value for shareholders and to act like owners of the Company. To achieve this objective, the compensation program is designed to balance short- and long-term considerations while rewarding management in a way that reflects the Company’s performance over time. The ONC Committee further supports this objective with a strong pay for performancepay-for-performance philosophy.

The key elements of the Company’s executive compensation program that support the pay for performancepay-for-performance philosophy include:

 

InAs has been the case in previous years, in fiscal 2015,2016, the ONC Committee requested that Farient, the ONC Committee’s independent compensation consultant, assess the relationship between our executive compensation and performance over time, with particular focus on the CEO.

To conduct this analysis, Farient used its alignment methodology to test whether the Company’s Performance-Adjusted Compensation^TM (PAC^TM) is: (1) reasonable for the Company’s revenue size, peer group and total shareholder return (TSR) performance; and (2) sensitive to the Company’s TSR over time, given that TSR is an objective, transparent measure that shareholders generally rely upon when conducting a long-term pay-for-performance evaluation. PAC measures compensation outcomes after performance has occurred, rather than target compensation, which represents “expected” compensation before performance has occurred. Farient compared the CEO’s PAC (including actual salary, actual short-term incentive awards, and performance-adjusted long-term incentive values) over rolling 3-year periods to TSR for the same rolling 3-year periods, and tested the results against those same variables for companies in the industry groups that are most relevant to Modine, namely Capital Goods and Automobiles and Components. The Company’s PAC was then compared to a range of values, as indicated by the upper and lower boundaries on the chart below. This range reflects reasonable compensation outcomes, as determined by the companies in the relevant industries, for the performance achieved. All PAC values on the chart, current and historical, for both the Company as well as for the companies in the relevant industry groups, are adjusted to reflect the Company’s current size of approximately $1.5$1.4 billion in revenue.

Farient’s analysis of the Company’s pay for performance indicates that the CEO’s compensation historically has been and continues to be strongly aligned with the Company’s performance and shareholder interests in that it is both reasonable and closely correlated to Company performance over time. Farient reached this conclusion, with which the ONC Committee agreed, because the data points for the Company’s CEOs have historically been below the upper boundary, which indicates reasonable compensation, and because the PAC generally moves up as performance rises, and generally moves down as performance falls. Specifically, for the three-year period from 20132014 through 2015,2016, the CEO’s PAC was closely aligned with performance, reflecting: (1) an annual incentive payout of 82%43% of Target due to the Company’s performance versus its predetermined objectives for the 2015 annual Management Incentive Plan;fiscal 2016 MIP; and (2) noan award payoutspayout at 26% of Target for the 2013-2015fiscal 2014-2016 performance stock awards cycle, sincedue to the Company did not meetCompany’s performance versus its predetermined objectives for this plan cycle.under the fiscal 2014 LTIP.

 

The ONC Committee targets total pay, as well as each element of compensation, at the median of a peer group of companies for the CEO and CFO and at the median of a broad survey of manufacturing companies for the other NEOs.  The ONC Committee believes that targeting the median is an objective way of ensuring that the Company’s executive compensation practices are competitive and reasonable relative to the broader market.  Actual pay may vary from the median based on differences in individual performance, job responsibilities, tenure and experience for the individuals being compared, as well as based on actual performance of the Company.

During fiscal 2015,2016, the ONC Committee reviewed the composition of the Company’s peer group.  As a group, the peers have characteristics and markets similar to those of the Company.  These characteristics and markets are as follows:

Based on its review, the ONC Committee elected not to change the size or composition of the peer group.group due to a change in the revenue of AMETEK, Inc. to a level above the $4 billion upper limit established by the ONC Committee.  As a result, the ONC Committee removed AMETEK, Inc. from the Company’s peer group and added Gentherm, Incorporated, which was selected, in part, due to its significant international presence and similar industry focus on thermal management markets.

The following is the Company’s current peer group:

The ONC Committee uses the publically available peer group data to assist in the evaluation of the:

The ONC Committee used the 20142015 Mercer U.S. Executive Benchmark Database, which compiles data of manufacturing companies with revenues between approximately $800 million and $3.2 billion to evaluate competitive pay levels of certain corporate officers and other key employees in addition to those of the CEO and CFO, and with revenues between $200 million and $1.2 billion to evaluate competitive pay levels of certain officers and other key employees who are heads of business units.  Mercer did not identify, and the ONC Committee was not aware of, the identities of the companies whose information is reflected in the Database.  The ONC Committee recognizes that the Company attracts employees from a broad range of companies and its comparison data reflects that fact.  The ONC Committee does not use the survey data in a formulaic manner.  If the compensation of a particular NEO is substantially greater or less than the median in the survey for the same position, the ONC Committee takes the survey information into account when setting base salary, cash incentive targets and long-term incentive target value, but also exercises its discretion, taking into consideration the individual’s performance, tenure, experience and changes in job responsibilities.

 

The ONC Committee sets the compensation philosophy at Modine in a manner intended to promote the Company’s achievement of its short- and long-term financial goals and encourage its executive officers to act as owners of the Company.  In addition, the ONC Committee focuses on attracting and retaining employees who are qualified, motivated and committed to excellence.  The ONC Committee believes these goals can be accomplished through a compensation program that provides a balanced mix of cash and equity-based compensation.  Base salary is designed to attract and retain executives by compensating them for their day-to-day activities, level of responsibility and sustained individual performance.  The annual cash incentive is intended to reward the recipients for achievement of annual operating goals that are critical to the Company’s short-term business objectives.  The equity portion of the compensation package provides incentives that are intended to focus executives on the Company’s long-term success, align the executives’ returns with those of shareholders, encouragesencourage long-term retention, and rewardsreward the executive for the Company’s superior long-term performance.

The ONC Committee’s actions are guided by the following beliefs:

As reflected in this Compensation Discussion and Analysis, the ONC Committee believes the compensation program is aligned with these principles.

 

The CEO participates in the same programs and receives compensation generally based upon the same factors as the other NEOs.  However, the level of the CEO’s compensation is even more heavily dependent upon the Company’s performance than the compensation of other NEOs.  Mr. Burke’s overall compensation reflects a greater degree of policy- and decision-making authority and a higher level of responsibility for the strategic direction and financial and operational results of the Company.  Given his key role in policy- and decision-making, the ONC Committee believes that the CEO’s compensation should be weighted more heavily toward equity awards so his compensation more directly correlates with the Company’s performance.

The following is a summary of the elements of the Company’s executive compensation program:

Base salary is designed to attract and retain executives by compensating them for their day-to-day activities, level of responsibility and sustained individual performance.  Individual performance, based upon achievement of annual performance objectives and demonstration of leadership behaviors as reflected in each employee’s performance management plan, is a key component in determining base salary and any adjustments to base salary, and is a subjective determination made by the ONC Committee and, for the NEOs other than the CEO, the CEO.  The determination of base salary affects every other element of executive compensation because all of the other components, including short-term, performance-based awards, long-term incentive compensation payouts, retirement benefits and severance, are based on the amount of the individual’s base salary.  The ONC Committee annually reviews base salaries of the NEOs to ensure that the compensation levels are aligned with the ONC Committee’s principles, based on individual responsibility, performance and job scope.

The ONC Committee increased each NEO’s base salary in fiscal 2015.2016.  The percentage increase for each NEO was based upon both subjective and objective criteria, including the individual performance of each NEO, the length of tenure in their current positions, and their respective compensation relative to the market midpoint for their functions.

The table below illustrates the base salary for each NEO in fiscal 2015,2016, with increases effective in July 2014.2015.

The Nominating Committee, working with the ONC Committee, evaluates the individual performance of the Company’s CEO by evaluating Mr. Burke’s achievement of his performance management plan goals.  Following discussion with the CEO, the ONC Committee recommends the CEO’s base salary to the Board of Directors based upon this evaluation.  For fiscal 2015, the Board recommended a larger than usual increase in Mr. Burke’s base salary in order to bring his salary more into alignment with the market median and to recognize his past performance.

The Management Incentive Plan (the “MIP”) is Modine’s broadly applicable short-term, performance cash award plan designed to motivate and reward the Company’s leaders.  All NEOs participate in the MIP.  The ONC Committee’s objectives for the MIP are to encourage continuous (short-term) operational improvements with metrics that also drive total shareholder return.  The ONC Committee believes the MIP metrics should be challenging but achievable and well-defined so they are understood by the MIP participants and, accordingly, actively drive results.

The ONC Committee approved the use of two independent and equally-weighted performance goals for the fiscal 20152016 MIP.  As inSimilar to fiscal 2014,2015, the MIP continued to use the ROACE and free cash flow performance metrics.metric, but the ONC Committee replaced the Free Cash Flow metric with an Adjusted Operating Income Growth metric for the fiscal 2016 MIP.  For purposes of the MIP, ROACE equals Net Operating Profit After Taxes (“NOPAT”) divided by average capital employed.  A description of the NOPAT and average capital employed calculations under the MIP is provided below.  Free cash flowAdjusted Operating Income Growth is based upon a formula andthe percentage change in Adjusted Operating Income from fiscal 2015 to fiscal 2016.  A description of the Adjusted Operating Income calculation is equal to the Company’s operating cash flow, less capital expenditures, plus cash restructuring costs, plus asset sales.provided below.  The ONC Committee has negative discretion to reduce the amounts otherwise payable under the MIP.

The ONC Committee chose to use the ROACE metric, based on adjusted operating income,Adjusted Operating Income, to incentivize management by rewarding underlying financial performance and to prevent potential distorted incentives that could result from the uncertain nature of the Europeancontinuing restructuring chargesactivities and any other unusual or non-recurring events.  Use of the ROACE metric is expected to reward long-term growth and the creation of shareholder value through the profitable deployment of additional capital.  The ONC Committee chose to use the free cash flowAdjusted Operating Income Growth metric to incentivize an increased focus on cash generation, which supports the Company’s objectives to efficiently deploy assets, reduce debt,earnings and create growth for shareholders.shareholder return.  The ONC Committee considered the Company’s business plan as well as more than 20 years of historical performance results for vehicle and capital goods manufacturing peers and Modine when setting the ROACE and free cash flowAdjusted Operating Income Growth goals.  As a result, for the fiscal 20152016 MIP, the ONC Committee decreasedmaintained the ROACE Threshold, Target goal for ROACE to 9 percent (compared to 10 percent for fiscal 2014)and Maximum goals at 5%, while maintaining the Maximum goal for ROACE at 15 percent9% and the Threshold goal for ROACE at 5 percent.  The 1% decline for the Target goal is intended to better account for industry dynamics, cyclicality and the long-term impact on ROACE of the reversal of tax valuation allowances.15%, respectively.  With respect to free cash flow,Adjusted Operating Income Growth, the ONC Committee raisedset the Threshold, Target and Maximum levels by $5,000,000 each, to $10,000,000, $25,000,000,goals at 2%, 6% and $40,000,000,12%, respectively.  The ONC Committee did not adjustmaintained payout percentages at any level with respect to either the ROACE or free cash flow metrics.same levels as for fiscal 2015 MIP.

 

The specific levels for the MIP metrics for fiscal 20152016 were as follows:

 

 

Assuming achievement of the Target level for each metric, the NEOs would receive the following percentages of base salary: Mr. Burke – 100 percent; Mr. Lucareli – 70 percent (increased from 60 percent in fiscal 2014);percent; Mr. Marry – 80 percent (increased from 70 percent in fiscal 2014);percent; Mr. Bowser – 50 percent; Ms. Kelsey – 50 percent; and Mr. Schwab ���– 50 percent.    For fiscal 2015, the Board recommended increases in MIP target percentages for Mr. Lucareli and Mr. Marry in order to bring these compensation components more into alignment with the market median and to recognize their respective past performance.    Assuming Threshold achievement for each metric, each of the NEOs would receive 10 percent of the Target amount.  Assuming Maximum level achievement for each metric, each of the NEOs would receive 200 percent of the Target amount.  The Company pays amounts between the Threshold and Target and/or between Target and Maximum levels on a linear basis for achievement above Threshold and below Maximum.

For purposes of calculating ROACE under the MIP, NOPAT equals Adjusted Operating Income multiplied by .7 (assuming a 30 percent income tax rate), and further adjusted to exclude earnings (losses) attributable to minority shareholders.  Adjusted Operating Income equals operating income plus or minus certain Permitted Adjustments, which include restructuring charges, acquisition and integration charges, and other approved unusual, non-recurring or extraordinary cash and non-cash charges or income.  Average capital employed equals total debt plus shareholders’ equity measured on each of the following quarter ends: March 31, 2014;2015; June 30, 2014;2015; September 30, 2014;2015; December 31, 20142015 and March 31, 2015;2016; divided by five.  As discussed above, free cash flow is based upon a formula andAdjusted Operating Income Growth is equal to the Company’s operating cash flow, less capital expenditures, plus cash restructuring costs, plus asset sales.Adjusted Operating Income for fiscal 2016 minus the Adjusted Operating Income for fiscal 2015, divided by the Adjusted Operating Income for fiscal 2015.

For purposes of the MIP metrics, the Company’s ROACE for fiscal year 20152016 was 7.828.4 percent, and free cash flowAdjusted Operating Income Growth was $23.6 million.-3.2%.  As a result, the Committee approved a payment for the MIP participants at the following levels:  7486 percent of Target for the ROACE metric, and 91 percent of Target forwith no payout under the free cash flowAdjusted Operating Income Growth metric.  Both metrics were weighted equally, for a total combined approved MIP payment at 8243 percent of Target.

The long-term incentive element of the Company’s executive compensation program is intended to attract, retain and motivate key employees who directly impact the performance of the Company over a timeframe greater than a year.  Long-term compensation is stock-basedequity-based so that the interests of the Company’s executive officers are directly aligned with the interests of shareholders.  The equity portion of the compensation package provides an incentive that rewards superior long-term performance and provides financial consequences for underperformance.

The performance period for Performance Stock under the long-term incentive compensation plan initiated in June 20122013 terminated in calendar 2015.2016.  The amount of the potential award varied based upon the achievement of Threshold, Target or Maximum performance levels.  The Company used three measures to determine payouts— three-year average ROACE, European ROACEAnnual Revenue Growth and Cumulative Revenue.Asia Operating Income.  The Company’s three-year average ROACE which was set to be equal to NOPAT divided by Capital Employedaverage capital employed (averaged for fiscal 20132014 – fiscal 2015), needed to be 8 percent for awards to be earned at the Threshold level.  The Company’s European ROACE metric, which was equal to ROACE calculated solely based upon performance in the European segment, adjusted to exclude certain intercompany charges and averaged over only two periods (the last days of fiscal years 2014 and 2015), needed to be 15 percent for awards to be earned at the Target level (no Threshold or Maximum levels were established with respect to European ROACE)2016).  The Company’s CumulativeAnnual Revenue Growth metric which was equal tothe simple three-year average of the Company’s totalannual change in revenue over the performance period, as reported on the Company’s audited financial statements.  Asia Operating Income was defined as the Company’s Asia segment’s operating income, determined in accordance with generally accepted accounting principles, as reported on the Company’s audited financial statements needed to be $5.2 billion for the fiscal year ending March 31, 2016 (with no adjustments).  Each metric for performance stock awards to be earnedis calculated independently of the other metrics.  The ROACE and Annual Revenue Growth metrics were each weighted at 37.5 percent of the total award, and Asia Operating Income was weighted at 25 percent.  Except for the Asia Operating Income metric, the Threshold level.  The Company’s ROACEperformance goal was the minimum performance goal that must have been achieved by the Company for the three-yearNEOs to earn shares of common stock.  For the Asia Operating Income metric, the Target performance goal was the minimum performance goal that must have been achieved by the Company for the stock to have been awarded, and there was no Maximum performance goal to qualify for additional shares.

The performance goals for the LTIP metrics for performance stock awards for the period was 7.6 percent, European ROACE forending in fiscal 2016 were as follows:

For the performance period, the Company’s ROACE was 108.4 percent, which exceeded the Threshold and resulted in a payout equal to 70 percent of Target for the ROACE metric.  The Company’s Annual Revenue Growth was -0.3 percent, and the Company’s Cumulative Revenue for the performance periodAsia Operating Income was $4.35 billion.$0.8 million.  As a result, no award was earned under anyeither the Annual Revenue Growth or the Asia Operating Income metrics.  Overall, the payout under the LTIP for the Performance Stock was 26% of the three metrics.Target for the total award.

As it did in fiscal 2014,2015, in fiscal 20152016 the ONC Committee approved equity grants as a percentage of base salary and included the use of performance stock awards as part of the Company’s long-term incentive compensation plan.  For fiscal 2015,2016, the Company’s long-term incentive plan included:

 

Performance Stock Awards (40 percent of long-term incentive dollars at Target).  Shares of performance stock are earned by achieving corporate financial goals over a three-year period (ending March 31, 2017)2018) and become vested after the end of that three-year period.  Payout levels vary based upon the achievement of Threshold, Target or Maximum goals in each of the ROACE and Average Revenue Growth metrics, as described below.  Once earned, the performance stock awards are not subject to any restriction.  Determinations of the achievement of performance goals for the performance stock awards are not made until the Company’s audited financial statements covering the last year in the performance period are completed and the results for the fiscal year are announced publicly.

Stock Options (20 percent of long-term incentive dollars at Target).  The ONC Committee believes that stock options focus executives on driving long-term performance.  Stock options have an exercise price equal to the fair market value of the common stock on the effective date of the grant so recipients recognize a value only if and to the extent that the value of the common stock increases.  The stock options granted in fiscal 20152016 vest in four equal annual installments commencing on the first anniversary of the effective date of the grant.  The stock options expire ten years from the date of grant.

Retention Restricted Stock Awards (40 percent of long-term incentive dollars at Target).  Retention stock awards reward employees for their continued commitment to the Company.  The Company grants the employees shares of restricted stock andwhich vest in four equal annual installments commencing on the restrictions lapse on a schedule of one-quarterfirst anniversary of the shares each year over a periodeffective date of four years.the grant.

In fiscal 2015,2016, the ONC Committee establishedutilized two metrics for the award of performance stock awards – ROACE and Average Revenue Growth over the three-year performance period.  Each metric for performance stock awards is weighted at 50 percent and is calculated independently of the other metric.  These two metrics are intended to incentivize improvements in operating income and to emphasize the importance of revenue growth for the Company.  The Threshold performance goal is the minimum performance goal that must be achieved by the Company for the NEO to earn shares of common stock.

For purposes of the LTIP, ROACE means NOPAT divided by Capital Employed.average capital employed.  The calculation of ROACE is based on a three-year average ROACE for fiscal 20152016 through fiscal 20172018 with each annual ROACE averaged over five points (i.e., each fiscal year quarter and prior fiscal year end).  Annual Revenue Growth is the simple three-year average of the Company’s annual change in revenue over the performance period, as reported on the Company’s audited financial statements.  A description of the NOPAT and Capital Employedaverage capital employed calculations under the LTIP is provided below.

For the fiscal 20152016 through fiscal 20172018 LTIP, the ONC Committee considered the Company’s business plan as well as more than 15 years of historical performance results for peers and other manufacturing companies and the Company when setting the ROACE and Revenue Growth goals. For both the ROACE goal, the ONC Committee reduced the Target goal to 9 percent (compared to a Target goal of 10 percent for fiscal 2014 through fiscal 2016), and made no changes to the Threshold or Maximum goals, or the payout percentages associated with Threshold, Target or Maximum goals.   For the Revenue Growth goals, the ONC Committee made no adjustments to the Threshold, Target or Maximum levels, or the payout percentages, compared to fiscal 20142015 through fiscal 2016.2017.  The goals at the Threshold, Target, and Maximum levels are intended to incentivize participants to achieve the Threshold level and strive for greater performance beyond the Threshold level.

The specific three-year performance goals for the LTIP metrics for performance stock awards granted in fiscal 20152016 are as follows:

The specific levels of performance stock award metrics are set forth below:

 

If actual ROACE or Annual Revenue Growth for the performance period is between Threshold and Target and/or between Target and Maximum, the number of shares of common stock earned will be determined on a linear basis.  In the event that the Company’s actual ROACE or Annual Revenue Growth does not meet the Threshold for the performance period, no common stock will be earned under this performance stock award metric.  In the event that the Company’s actual ROACE or Annual Revenue Growth exceeds the Maximum for the performance period, only the Maximum percentage of the Target number of shares of common stock will be earned.  Notwithstanding the foregoing, the ONC Committee retains the discretion to decrease the number of shares of common stock earned under the LTIP.

 

The Company measures its profitability using ROACE (a measure indicative of the efficiency and profitability of its capital investments), so the ONC Committee used the ROACE metric to incentivize management to continue to improve the Company’s profitability.  Similarly, because Annual Revenue Growth is a key measure of growth that is easy to understand and communicate, the ONC Committee used the Annual Revenue Growth metric to incentivize management to create additional shareholder value through the continued growth of the Company.  For both metrics, the ONC Committee set the Threshold level at what it believed to be an acceptable return and set the Maximum level at what it believed to be exceptional performance with each corresponding to an appropriate competitive pay-out level.  Achievement and payout for each measure is calculated and paid out independently of the other measures.

As mentioned in the discussion above regarding the calculations of ROACE under the MIP, NOPAT equals Adjusted Operating Income multiplied by .70.7 (assuming a 30 percent income tax rate), and further adjusted to exclude earnings (losses) attributable to minority shareholders.  Adjusted Operating Income equals operating income plus or minus certain Permitted Adjustments, which include restructuring charges, acquisition and integration charges, and other approved unusual, non-recurring or extraordinary cash and non-cash charges or income.  Capital Employed means the Company’s total debt plus shareholders’ equity, as reported on the Company’s audited financial statements.  The NOPAT and Capital Employedcapital employed calculations will exclude the cumulative effect of changes in generally accepted accounting principles.

As mentioned above, the ONC Committee approves the equity grants for each NEO under the long-term incentive plan as a percentage of base salary.  Assuming achievement of the Target level for each metric under the performance stock awards, the NEOs would receive the following percentages of base salary in equity grants under the long-term incentive plan approved in fiscal 2015:2016: Mr. Burke – 250 percent; Mr. Lucareli – 150 percent; Mr. Marry – 175 percent (compared to 150 percent for fiscal 2014);percent; Mr. Bowser – 100 percent; Ms. Kelsey – 100 percent; and Mr. Schwab – 70 percent.  For fiscal 2015,2016, the Board recommended an increase in LTIP target percentage for Mr. Marry in order to bring this compensation component more into alignment with the market median and to recognize his past performance.  The percentages for Messrs. Burke, Lucareli, Bowser and Schwab were unchanged from those for fiscal 2014.2015.  The table below sets forth the number of shares subject to stock options and the number of shares of stock issued to each NEO in fiscal 20152016 as well as the number of performance stock awards that would be earned upon achievement of each of the long-term incentive plan metrics on March 31, 2017:2018:

ForAs in fiscal 2016, and consistent with the Committee’s desire to maintain “timeless” metrics, for the fiscal 20162017 MIP, the ONC Committee approved two metrics, ROACE and Adjusted Operating Income Growth, as the performance measures under the plan.  ROACEEach metric will be determined in a similar manner as for fiscal 2015.  Adjusted Operating Income will be determined by calculating the percentage increase in Adjusted Operating Income from fiscal 2015 to fiscal 2016.  Each metric is independent of the other, the metrics are equally weighted, and each metric will be adjusted to account for certain approved items.

The ONC Committee also approved the Company’s long-term incentive plan for fiscal 2016-20182017-2019 to include: retention restricted stock awards (40 percent of long-term incentive dollars at Target); stock options (20 percent of long-term incentive dollars at Target); and performance stock awards (40 percent of long-term incentive dollars at Target).  The vesting schedules for retention restricted stock awards and stock options are the same, namely one quarter each year over a period of four years.  Performance stock awards have a three-year performance period, which is the same duration as fiscal 2015,2016, and the ONC Committee approved two performance metrics – ROACE and Average Annual Revenue Growth, also unchanged versus fiscal 2014.2016, consistent with the Committee’s desire to maintain “timeless” metrics.  Each metric is independent of the other and the metrics are weighted equally at 50 percent each.

The NEOs receive the same basic employee benefits that are offered by the Company to all salaried employees within the region where the individual resides.  These benefits include medical and dental coverage, disability insurance and life insurance.  The cost of these benefits is partially borne by the employee, including each NEO.

 

Except in connection with expatriate assignments (described below) and for benefits provided to Mr. Schwab under his employment agreement, the Company does not generally provide perquisites to any of the NEOs.  Under his employment agreement, Mr. Schwab receives a company car, accident insurance, and a retirement supplement.  The Company provides these benefits as they are customary in Germany.

Mr. Bowser iswas provided certain benefits in connection with his current assignment to Asia.Asia, which ended as of the end of fiscal 2016. Specifically, he ishad been provided housing, a hardship allowance, a cost of living adjustment, tax preparation costs, moving and return visit expenses, tax equalization and tax gross-up payments, and an expatriate allowance immediately prior to the assignment and upon his return to the United States. Mr. Bowser’s expatriation assignment was effective August 1, 2012, with an initial expected 36-month duration;duration, but the Company now plans to extendextended his assignment beyond August 1, 2015.to March 31, 2016. These benefits arehave been provided to Mr. Bowser to compensate him for any disruption the relocation causes him and his family and to eliminate any tax disadvantages caused by the relocation.

The Company offers retirement benefits to its employees through tax-qualified plans, including an employee- and employer-funded Modine 401(k) Retirement Plan for U.S. Salaried Employees (the “401(k) Retirement Plan”).  Under the 401(k) Retirement Plan, the Company contributes 50 percent of the amount contributed to the plan by the employee, subject to a maximum Company contribution of 2.5 percent of the employee’s pay, up to the maximum allowed by law.  While the benefit is available to all of the Company’s full-time employees in the U.S., each individual participant’s 401(k) Retirement Plan balance may vary due to a combination of differing annual amounts contributed by the employee, the investment choices of the participant (the same investment choices are available to all participants in the plan) and the number of years the person has participated in the plan.

The Company has historically also made an annual contribution to the 401(k) Retirement Plan equal to a certain percentage of base salary and bonus for each full-time U.S. salaried employee, including the NEOs.  This contribution was initiated after the Company froze the accumulation of credited service in its defined benefit pension plan. In June 2015,2016, the Company contributed an amount equal to 3.0two percent (2%) of eligible earnings (defined as calendar 20142015 salary and MIP paid in calendar 2015) for each full-time, U.S. employee on the payroll as of December 31, 2014.2015.  The percentage contributed was determined based upon the assessment of business financial performance balanced against the need to offer competitive benefits.

The Company’s defined benefit pension plan, which is frozen, is more fully described in the Pension Benefits Table for Fiscal 20152016 below.  Messrs. Lucareli, Marry and Bowser, and Ms. Kelsey participate in the Company’s defined benefit pension plan.  Mr. Burke joined the Company after the defined benefit pension plan was closed to new participants.  Mr. Schwab does not participate in the U.S. Company-sponsored pension plan because he is a citizen of Germany, but as Mr. Schwab’s employer, Modine Holding GmbH provides a cash benefit of 10 percent of his base salary to fund a retirement benefit.

In addition to the employee benefits applicable to U.S. employees in general, certain highly compensated employees of the Company, including the NEOs, may participate in the following plans:

Deferred Compensation Plan. The Deferred Compensation Plan is a nonqualified plan that allows a highly compensated employee to defer up to 10 percent of base salary.  Salary deferred pursuant to the Deferred Compensation Plan is an asset of the Company.  The sums deferred do not earn a preferential rate of return and the investment alternatives are generally the same as the 401(k) Retirement Plan.  Payments out of the Deferred Compensation Plan are not made until termination of service or retirement.  As part of the Company’s objective of restoring in this plan amounts that exceeded the allowable Company match and Company contributions to the 401(k) Retirement Plan because of statutory limits, the Company contributes an amount equal to the amount of the employer match and employer contribution that was not allowed to be contributed to the 401(k) Retirement Plan for such individuals due to statutory limits.

Executive Supplemental Retirement Plan (“SERP”).  The SERP is a nonqualified pension plan.  The SERP, like the defined benefit pension plan, is frozen and intended to be an extension of the Company’s qualified pension plan.  Under the SERP, salary and bonus that are in excess of statutory limits are taken into account in determining nonqualified benefits payable to an employee.

 

In fiscal 2012, the ONC Committee approved a severance policy for members of the Executive Council as recommended to the Committee by the Company’s CEO, to ensure consistent treatment of individuals in such positions in the event of an involuntary termination of employment without cause.  The policy provides that such individuals would be paid their annual base salary at the time of termination in installment payments over the course of the year following termination, and would be eligible to elect Company-paid COBRA continuation coverage for one year following termination.  In order to receive these benefits, participants are required to release the Company from any and all liability.  All NEOs other than Mr. Burke and Mr. Schwab (who have separate employment agreements) are covered under the severance policy.  While the policy also provides for separate benefits upon an involuntary termination at the time of a change in control, none of the NEOs are currently covered under the change in control provisions under the severance policy.

Effective January 16, 2008, the Board adoptedThe Company has maintained share ownership guidelines for directors and officers of the Company, including the NEOs.  The ONC Committee amended the guidelines in May 2010 because the relatively low stock price at that time had made compliance with the guidelines significantly more difficult than was intended by the Board.NEOs, since 2008.  The Board continues to believe that directors and officers should have a meaningful personal investment in the Company.  Only shares of stock, either restricted or unrestricted, count toward compliance with the guidelines.

The current guidelines continue to provide that byon the fifth anniversary of appointment to the position the President and CEO is expected to hold shares of Company stock with a value of at least four times his annual base salary at the commencement of the five-year period.  As amended,salary.  In addition, the guidelines now do not distinguish between NEOs and other officers and provide that all officers, other than the President and CEO, are expected to hold shares of Company stock with a value of at least two times their current annual base salary at the commencement of the five-year period by the end of that period.  The above five-year periods then re-set upon their conclusion.salary.    The stock value is determined by using the higher of the stock price at the time of measurement or the average stock price over the previous three years.  The ONC Committee reviews the guidelines and compliance therewith on at least an annual basis.  The chair of the Nominating Committee evaluates whether an exception should be made for any officer, who, due to his or her unique financial circumstances or other extenuating circumstances, would incur a hardship by complying with the applicable guideline after the initial five-year period and, in such an event, may make an exception to the guidelines for such individual.  Additionally, the guidelines may be temporarily waived for an officer who has an unusual personal circumstance or is approaching retirement and has a need to diversify his/her stock holdings.  Each of the NEOs who has been an officer of the Company for at least five years is currently in compliance with the stock ownership guidelines.

Under the Company’s Insider Trading Policy, executive officers, including the NEOs, are prohibited from holding shares of Company stock in a margin account unless specifically authorized by the policy’s reviewing officer (the Company’s General Counsel), and all directors and employees of the Company are prohibited from engaging in hedging or monetizing transactions involving Company stock.   The ONC Committee has also implemented an incentive compensation recoupment (or “clawback”) policy.  Effective beginning with awards granted in fiscal 2013, the clawback policy requires forfeiture or repayment of any awards granted under the Incentive Plan (i.e., the MIP (cash bonus) or any long-term equity awards) if the ONC Committee determines that a participant committed an act of misconduct that is adverse, or reasonably expected to be adverse, to the best interests of the Company or its shareholders.

The Company has an employment agreement with Mr. Burke, which was not amended during fiscal 2015.2016.  Modine Holding GmbH, a German subsidiary, has an employment agreement with Mr. Schwab, as is customary in Germany.  Mr. Schwab first entered into an employment agreement with Modine Holding GmbH in August 2012, and it was scheduled to expire in August 2015.  In July 2014, Mr. Schwab executed a new employment agreement that is identical in substance to his original employment agreement.agreement and is scheduled to expire June 30, 2018.  Modine filed an 8-K containing Mr. Schwab’s new employment agreement on July 3, 2014.  The Company also has change in control agreements with all of the other NEOs and certain other key employees.  The purpose of these agreements is to ensure continuity and, in the case of a change in control, the continued dedication of key employees during any period of uncertainty due to a proposed or pending change in control of the Company.  See Potential Post-Employment Payments below for additional information about these agreements.

The ONC Committee generally seeks to structure compensation amounts and arrangements so that they do not result in penalties for the NEOs under the Internal Revenue Code of 1986, as amended (the “Code”).  For example, Section 409A of the Code imposes substantial penalties and results in the loss of any tax deferral for nonqualified deferred compensation that does not meet the requirements of that section.  The ONC Committee has generally structured the elements of the Company’s compensation program so that they are either not characterized as nonqualified deferred compensation under Section 409A or meet the distribution, timing and other requirements of Section 409A.  Without these steps, certain elements of compensation could result in substantial tax liability for the NEOs.  Section 280G and related provisions of the Code impose substantial excise taxes on so-called “excess parachute payments” payable to certain executives upon a change in control and results in the loss of the compensation deductions for such payments by the executive’s employer.  When the Company entered into the employment agreement with Mr. Burke and the change in control agreements with all of the other NEOs (other than Mr. Schwab), all of which were entered into prior to 2009, the ONC Committee structured the change in control payment under the employment and change in control agreements with the NEOs (other than Mr. Schwab) to include a gross up for excise taxes imposed under Section 280G in order to preserve the after-tax value of those payments for those executives.  The severance policy approved by the ONC Committee in fiscal 2012, which is applicable to those joining the Company’s senior management on or after adoption of the policy, does not provide excise tax gross ups in the event of a change in control.

 

Section 162(m) of the Code generally disallows a tax deduction to public companies for compensation over $1,000,000 paid to a company’s CEO and the other NEOs who are covered by Section 162(m).  Qualifying performance-based compensation will not be subject to the deduction limit if certain requirements are met.

The ONC Committee believes that it is generally in the Company’s best interest to attempt to structure compensation amounts and plans in a manner that satisfies the requirements of Section 162(m).  However, the ONC Committee also recognizes the need to retain flexibility to approve compensation amounts and plans that may not meet Section 162(m) standards in order to enable the Company to meet its overall objectives.  Accordingly, the Board and the ONC Committee have expressly reserved the authority to award non-deductible compensation in appropriate circumstances.  Further, because of uncertainties as to the application and interpretation of Section 162(m) and the regulations issued thereunder, no assurance can be given that compensation intended by the Company to satisfy the requirements for deductibility under Section 162(m) will do so.

 

 

The ONC Committee of the Board of Directors has reviewed and discussed the Compensation Discussion and Analysis with management; and, based on that review and discussion, the ONC Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s proxy statement and the Company’s annual report on Form 10-K for the fiscal year ended March 31, 2015.2016.

 

THE OFFICER NOMINATION AND COMPENSATION COMMITTEE

 

Christopher W. Patterson, Chair

Charles P. Cooley

Suresh V. Garimella

Larry O. Moore

 

The following table sets forth compensation awarded to, earned by, or paid to the Company’s named executive officers (“NEOs”), which include the Principal Executive Officer, Principal Financial Officer, and the threefour most highly compensated executive officers.  Based on potential year-to-year fluctuations in total compensation and for the purpose of providing consistent compensation disclosure, the Company chose this year to include the four most highly compensated executive officers other than the Principal Executive OfficerCEO and Principal Financial Officer, servingCFO, rather than three as executive officers as of March 31, 2015, for services rendered torequired under the Company and its subsidiaries during the fiscal years ended March 31, 2015, 2014 and 2013.applicable regulations.