UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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MASCO CORPORATION | |||||
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165496.6
Masco Corporation 21001 Van Born Road Taylor, Michigan 48180 313 274 7400 www.masco.com |
April 5, 2012 , 2013
Dear Stockholder:
You are cordially invited to attend Masco Corporation’s Annual Meeting of Stockholders on Tuesday, May 8, 20127, 2013 at 10:00 A.M. at our corporate office in Taylor, Michigan.
The following pages contain information regarding the meeting schedule and the matters proposed for your consideration and vote. Following our formal meeting, we expect to provide a review of our operations and respond to your questions.
PleaseOur Annual Meeting agenda again includes an advisory “say-on-pay” vote to approve the compensation paid to our named executive officers. We are pleased that our say-on-pay proposal received strong support last year. We believe our continued focus on our executive compensation programs and practices and our outreach to our largest stockholders have further strengthened these programs and practices. Our agenda also includes a proposal to amend our Certificate of Incorporation to declassify our Board of Directors. After considering the factors for and against declassification, our Board believes that permitting stockholders to vote on declassification is consistent with our stockholders’ expectations and our ongoing commitment to corporate governance best practices. We urge you to carefully consider the information in the proxy statement regarding these and the other proposals to be presented at our Annual Meeting.
Your vote on the mattersproposals presented in the accompanying Noticenotice and Proxy Statement. Your voteproxy statement is important, regardless of whether or not you are able to attend the Annual Meeting. Voting instructions can be found on the enclosed proxy card. Please review the enclosed proxy materials and submit your vote today by internet, telephone or mail.
One matter on the Annual Meeting agenda is an advisory “say-on-pay” vote to approve the compensation paid to our named executive officers. At last year’s Annual Meeting, a majority of the votes cast were against our say-on-pay proposal. Our Board of Directors and our Organization and Compensation Committee took this result very seriously. In response, we obtained feedback from several of our largest stockholders regarding our executive compensation programs and practices, reviewed these programs and practices in light of this feedback, and made several changes, as described in detail in our “Compensation Discussion and Analysis,” which we encourage you to read carefully.
On behalf of our entire Board of Directors, Iwe thank you for your continued support of Masco Corporation and look forward to seeing you on May 8.7.
Sincerely, | ||
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Verne G. Istock Chairman of the Board | ||
Timothy Wadhams | ||
President and Chief Executive Officer |
MASCO CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Date: | May | |||||
Time: | 10:00 A.M. Eastern Time | |||||
Place: | Masco Corporation | |||||
21001 Van Born Road | ||||||
Taylor, Michigan 48180 |
The purposes of the Annual Meeting are:
1. | To elect three Class |
2. | To consider and act upon a proposal to approve the compensation paid to our named executive officers; |
3. | To ratify the selection of PricewaterhouseCoopers LLP as our independent auditors for |
4. | To consider a |
5. | To consider a |
6. | To transact such other business as may properly come before the meeting. |
The Company recommends that you vote as follows:
FOR all of the Director nominees,
FOR the approval of executive compensation,
FOR the selection of PricewaterhouseCoopers LLP as the Company’s independent auditors,
AGAINSTFOR the declassification of the Board of Directors,Directors; and
AGAINST adopting a policy requiring senior executivesFOR the approval of the performance metrics for performance-based compensation intended to retain 75% or more of their equity awards until reaching normal retirement age.
Stockholders of record at the close of business on March 15, 20122013 are entitled to vote at the Annual Meeting or any adjournment or postponement of the meeting. Whether or not you plan to attend the Annual Meeting, you can ensure that your shares are represented at the meeting by promptly voting by internet or by telephone, or by completing, signing, dating and returning your proxy card in the enclosed postage prepaid envelope. Instructions for each of these methods and the control number that you will need are provided on the proxy card. You may withdraw your proxy before it is exercised by following the directions in the proxy statement. Alternatively, you may vote in person at the meeting. Directions to our corporate office where the meeting will be held are on the back cover of the proxy statement.
By Order of the Board of Directors, |
Gregory D. Wittrock Secretary |
April 5, 2012, 2013
THE STOCKHOLDER MEETING TO BE HELD ON MAY 7, 2013. THIS PROXY STATEMENT AND THE MASCO CORPORATION 2012 ANNUAL REPORT TO STOCKHOLDERS ARE AVAILABLE AT:
http://www.ezodproxy.com/masco/ |
2013 PROXY STATEMENT SUMMARY
This summary highlights information contained elsewhere in this proxy statement. This summary does not contain all of the information you should consider. You should read the entire proxy statement carefully before voting.
Meeting Information
Date: | May 7, 2013 | Record Date: | March 15, 2013 | |||
Time: | 10:00 A.M. Eastern Time | Shares Outstanding | ||||
Place: | Masco Corporation | as of the Record Date: | 356,824,468 | |||
21001 Van Born Road | ||||||
Taylor, Michigan 48180 |
Voting Matters
Proposals | Board Recommendation | Vote Required | ||||
Proposal 1: | Election of Class I Directors | FOR EACH NOMINEE | Majority of Votes Cast | |||
Proposal 2: | Advisory Vote to Approve the Compensation Paid to Named Executive Officers | FOR | Majority of Votes Cast | |||
Proposal 3: | Ratification of the Selection of Independent Auditors | FOR | Majority of Votes Cast | |||
Proposal 4: | Management Proposal to Amend our Certificate of Incorporation and Bylaws to Declassify our Board of Directors | FOR | 80% of Outstanding Shares | |||
Proposal 5: | Management Proposal to Approve the Performance Metrics for Performance-Based Compensation Intended to Qualify Under Internal Revenue Code Section 162(m) | FOR | Majority of Votes Cast |
Director Nominees
The following individuals are director nominees for Class I, with a term expiring at the Annual Meeting in 2016.
Committees | ||||||||||||
Name | Position | Director | Independent | Audit | Org. & | Corp. Gov. & Nom. | ||||||
Dennis W. Archer | Chairman & CEO, Dennis W. Archer PLLC; Chairman Emeritus, Dickinson Wright PLLC | 2004 | X | X | X | |||||||
Donald R. Parfet | Managing Director, Apjohn Group, LLC; General Partner, Apjohn Ventures Fund, Limited Partnership | 2012 | X | X | ||||||||
Lisa A. Payne | Vice Chairman & CFO, Taubman Centers, Inc. | 2006 | X | X | X | X |
2012 Executive Compensation
We are committed to maintaining executive compensation programs that promote the long-term interests of our stockholders by attracting and retaining talented executives and motivating them to achieve our business objectives and to create long-term value for our stockholders. At our 2012 Annual Meeting, approximately 95% of the votes cast on our say-on-pay proposal approved the compensation paid to our executive officers. We believe that the strong approval last year resulted from the changes adopted by the Organization and Compensation Committee after reviewing our compensation programs and considering feedback from our largest stockholders. These changes included:
Significantly reducing our executive officers’ stock option opportunity and introducing a new Long Term Cash Incentive Program based on return on invested capital performance over a three-year period;
Changing the mix of long-term incentives to give approximately equal weight to performance-based restricted stock, stock options, and our new Long Term Cash Incentive Program;
Eliminating the excise tax gross-up feature on all equity grants beginning in 2012;
Increasing our CEO’s stock ownership requirement to six times base salary; and
Adopting double-trigger vesting of equity on a change in control.
In 2012, the Organization and Compensation Committee continued to review our compensation programs and practices to ensure alignment of our Company’s best interests and the objectives for our compensation programs. We communicated last fall with our largest stockholders on a broad range of executive compensation and governance topics. Taking this feedback and current best practices into consideration, the Organization and Compensation Committee has strengthened our clawback policy.
Our performance in 2012 improved compared to 2011. Consistent with our commitment to pay-for-performance, the compensation we paid to our executive officers increased, as our executive officers earned restricted stock awards and cash bonuses based on our achievement of our 2012 earnings per share and cash flow performance metrics. Our 2012 results and the incentive compensation paid to our executive officers are described in our Compensation Discussion and Analysis under “Summary of Compensation Decisions for 2012.”
Amendments to Certificate of Incorporation
Our Board of Directors is currently divided into three classes, the members of which are elected by our stockholders for three year terms. At our 2012 Annual Meeting, the holders of a majority of our outstanding shares of common stock voted in favor of a non-binding stockholder proposal for our Board to take the necessary steps to declassify our Board. Our Board and our Corporate Governance and Nominating Committee have carefully considered the broad shareholder support for declassification, as well as arguments in favor of declassification and in favor of keeping a classified board.
After considering the factors for and against declassification, our Board believes that permitting stockholders to vote on the declassification proposal included as Proposal 4 in this proxy statement is consistent with our stockholders’ expectations and our ongoing commitment to corporate governance best practices. If the proposed amendments to our Certificate of Incorporation and Bylaws are adopted, beginning in 2014, directors whose terms expire will stand for election for one-year terms, as further described in Proposal 4.
Performance Metrics for Performance-Based Compensation
We are seeking stockholder approval of the performance metrics listed in Proposal 5 for performance-based compensation paid or granted under our 2005 Long Term Stock Incentive Plan (the “2005 Plan”) and intended to qualify under Internal Revenue Code Section 162(m). Stockholder approval of such metrics would help preserve our ability to deduct for income tax purposes compensation associated with future performance-based awards made to certain executives in accordance with Section 162(m) of the Internal Revenue Code.
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Security Ownership of Management and Certain Beneficial Owners | ||||||
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Proposal 1: | 46 | |||||
Proposal 2: | Advisory Vote to Approve the Compensation of the Company’s Named Executive Officers | |||||
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Proposal 4: | 50 | |||||
Proposal 5: | 52 | |||||
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PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS OF
MASCO CORPORATION
May 8, 20127, 2013
The Board of Directors of Masco Corporation (referred to as the “Company” or “we,” “us,” or “our” in this proxy statement) is soliciting the enclosed proxy for use at the Annual Meeting of Stockholders of Masco Corporation to be held at our corporate office at 21001 Van Born Road, Taylor, Michigan 48180, on Tuesday, May 8, 20127, 2013 at 10:00 A.M., and at any adjournment or postponement of the Annual Meeting. This proxy statement and the enclosed proxy card are being mailed or otherwise made available to stockholders on or about April 6, 2012., 2013. We are concurrently mailing to stockholders a copy of our 20112012 Annual Report to Stockholders, which includes our Form 10-K for the year ended December 31, 2011.2012.
1. Who is entitled to vote at the Annual Meeting?
Our Board established the close of business on March 15, 20122013 as the record date to determine the stockholders entitled to receive a notice of, and to vote at, our Annual Meeting or an adjournment or postponement of the meeting. On the record date, there were 357,370,058356,824,468 shares of our common stock, $1 par value, outstanding and entitled to vote. Each share of our common stock represents one vote that may be voted on each matter that may come before the Annual Meeting.
All shares of our common stock represented by properly executed and unrevoked proxies will be voted by the persons named as proxy holders in accordance with the instructions given. If no instructions are indicated on a proxy, properly executed proxies will be voted FOR all of the Director nominees,each director nominee, FOR the approval of executive compensation, FOR the selection of PricewaterhouseCoopers LLP as our independent auditors, AGAINSTFOR the declassification of our Board of Directors, and AGAINST a policyFOR the approval of the performance metrics for performance-based compensation intended to require our senior executives to retain 75% or more of their equity awards until reaching normal retirement age.qualify under Internal Revenue Code Section 162(m).
2. What is the difference between holding shares as a record holder and as a beneficial owner?
If your shares are registered in your name with our registrar and transfer agent, Computershare, (successor to BNY Mellon Shareowner Services), you are the “record holder” of those shares. If you are a record holder, we have provided these proxy materials directly to you.
If your shares are held in a stock brokerage account, or with a bank or other holder of record, you are considered the “beneficial owner” of those shares held in “street name.” If your shares are held in street name, these proxy materials have been forwarded to you by your bank or broker. As the beneficial owner, you have the right to instruct that organization on how to vote your shares.
3. How can I submit my vote?
There are four methods you can use to vote: by internet, by telephone, by mail or in person. Submitting your proxy by internet, telephone or mail will not affect your right to attend the meeting and change your vote.
Method | Record Holder | Beneficial Owner | ||
| Have your proxy card available and log on to | If your bank or broker makes this method available, the instructions will be included with the proxy materials. | ||
| Have your proxy card available and call | If your bank or broker makes this method available, the instructions will be enclosed with the proxy materials. |
PART I – GENERAL INFORMATION
Method | Record Holder | Beneficial Owner | ||
Mail Your Proxy Card | Mark, date, sign and promptly mail the enclosed proxy card in the postage-paid envelope provided for mailing in the United States. | Mark, date, sign and promptly mail the voting | ||
In | You may vote by ballot in person at the Annual Meeting. | Obtain proof of stock ownership as of the record date and a valid legal proxy from the organization that holds your shares and attend the Annual Meeting. |
*If you vote by these methods, you do not need to mail your proxy card.
4. What constitutes a quorum?
To conduct business at our Annual Meeting, we must have a quorum of stockholders present. A quorum is present when a majority of the outstanding shares of stock entitled to vote, as of the record date, are represented in person or by proxy. Broker non-votes and abstentions will be counted toward the establishment of the quorum.
5. How many votes are needed for each proposal to pass?
All of the matters to be considered at our Annual Meeting require the approval of a majority of the votes that are actually cast.cast, except Proposal 4, the proposal to amend our Certificate of Incorporation and Bylaws to declassify our Board of Directors, which requires approval of holders of 80% of the shares of our outstanding common stock.
Our Bylaws provide that, in uncontested elections, Directorsdirectors are elected if the majority of votes cast FOR each nominee exceed the votes cast AGAINST such nominee. Proxies cannot be voted for a greater number of persons than the number of nominees named. Each Directordirector nominee has provided to us an irrevocable resignation that becomes effective if the majority of the votes cast are against him or her and if, within 90 days after the election results are certified, the Board (excluding nominees who did not receive a majority of votes for their election) accepts the resignation, which it will do in the absence of a compelling reason otherwise.
If you are the stockholder of record, and you sign and return a proxy card without giving specific voting instructions, then the proxy holders will vote your shares in the manner recommended by our Board on all matters presented in this proxy statement, and as the proxy holders may determine in their discretion with respect to any other matters properly presented for a vote at the meeting.
6. What is a broker non-vote?
If your shares are held in “street name” through a bank, broker or other nominee, you must provide voting instructions to that organization. If you do not provide voting instructions, the organization may vote in its discretion on routine proposals, but not on non-routine proposals, which is called a “broker non-vote.” Except for Proposal 3, Ratification of Selection of Independent Auditors, all of the proposals on our agenda are non-routine.
7. How are abstentions and broker non-votes treated?
Abstentions and broker non-votes are not treated as votes cast, so they will not have an effect on any of the proposals at this Annual Meeting.Meeting, except for Proposal 4, the proposal to amend our Certificate of Incorporation to declassify our Board of Directors. Since Proposal 4 requires the approval of holders of 80% of our outstanding common stock, abstentions and broker non-votes will have the effect of votes cast against Proposal 4.
PART I – GENERAL INFORMATION
8. Is my proxy revocable?
You may revoke your proxy at any time before it is exercised by voting in person at the meeting, by delivering a subsequent proxy or by notifying us in writing of such revocation to the attention of Gregory D. Wittrock, Secretary, at 21001 Van Born Road, Taylor, Michigan 48180.
9. Who is paying for the expenses involved in preparing and mailing this proxy statement?
We are paying the expenses involved in preparing, assembling and mailing these proxy materials and all costs of soliciting proxies. Our executive officers and other employees may solicit proxies, without additional compensation, personally and by telephone and other means of communication. In addition, we have retained Morrow & Co., LLC, 470 West Avenue, Stamford, Connecticut 06902, to assist in the solicitation of proxies for a fee of $12,000, plus expenses. If you have questions about voting your shares, you may call Morrow & Co., LLC, at (800) 607-0088 (for stockholders) or (203) 658-9400 (for banks and brokerage firms). We will reimburse brokers and other persons holding our common stock in their names or in the names of their nominees for their reasonable expenses in forwarding proxy materials to beneficial owners.
10. What happens if additional matters are presented at the Annual Meeting?
Other than the items of business described in this proxy statement, we are not aware of any other business to be acted upon at the Annual Meeting. If you grant a proxy, the persons named as proxy holders, Messrs. Wadhams and Wittrock, will have the discretion to vote your shares on any additional matters properly presented for a vote at the Annual Meeting. If for any reason any of our Directordirector nominees is not available as a candidate, Messrs. Wadhams and Wittrock willmay vote your shares for another candidate (or candidates) who may be nominated by the Board.Board, or the Board may reduce its size.
11. What is “householding” and how does it affect me?
The proxy rules of the Securities and Exchange Commission (the “SEC”) permit companies and intermediaries, such as brokers and banks, to satisfy proxy statement delivery requirements for proxy statements with respect to two or more stockholders sharing an address by delivering a singleone proxy statement to those stockholders. This procedure, known as “householding,” reduces the amount of duplicate information that stockholders receive and lowers our printing and mailing costs for companies.costs.
We have been notified that certain intermediaries will utilize this procedureuse householding for our proxy materials and our 20112012 Annual Report. Therefore, only one proxy statement and 20112012 Annual Report may have been delivered to your address if multiple stockholders share that single address. Stockholders who
wish to opt out of this procedure and receive separate copies of the proxy statement and annual report in the future, or stockholders who are receiving multiple copies and would like to receive only one copy, should contact their bank, broker or other nominee or us at the address and telephone number below.
We will promptly send a separate copy of the proxy statement for the 2012 Annual Meeting or 20112012 Annual Report if you send your request to webmaster@mascohq.com, if you call our Investor Relations Department at (313) 274-7400, or if you write to Investor Relations, Masco Corporation, 21001 Van Born Road, Taylor, Michigan 48180.
Our Website
We maintain a website at www.masco.com. The information on our website is not a part of this proxy statement, and it is not incorporated into any other filings we make with the SEC.
PROPOSAL 1:PART II – CORPORATE GOVERNANCE
ELECTION OF CLASS III DIRECTORSCORPORATE GOVERNANCE
Our Board of Directors is divided into three classes. The term of office of the Class III Directors, who are Thomas G. Denomme, Richard A. Manoogian and Mary Ann Van Lokeren, expires at this meeting. The Board proposes the re-election of Mr. Manoogian and Ms. Van Lokeren and the election of John C. Plant, whom the Board is nominating as a Director at this meeting, as Class III Directors. The Board has made an exception to its age 72 retirement policy for Mr. Manoogian based on his leadership of our Company as Chairman and Chief Executive Officer for many years, and his current service as Chairman of our Board.
Mr. Plant was recommended for consideration as a nominee for Director by one of our independent Directors. The Board has determined that Mr. Plant is independent under the independence requirements of applicable law and the New York Stock Exchange (“NYSE”).
Effective immediately prior to our Annual Meeting, Anthony F. Earley, Jr. will resign from our Board of Directors in connection with his appointment as the Chairman, CEO and President of PG&E Corporation, headquartered in San Francisco, California, as his responsibilities at PG&E preclude him from continuing to serve on our Board. We wish to express our sincere appreciation to Mr. Earley for his years of diligent service as a Director. The Board has appointed Thomas G. Denomme as a Class I Director to fill the vacancy created by Mr. Earley’s resignation, and this appointment will be effective upon Mr. Earley’s resignation. The Board has made an exception to its age 72 retirement policy for Mr. Denomme based on his exemplary service on our Audit and Corporate Governance and Nominating Committees and his strategic planning and manufacturing experience.
Upon election of the Class III Directors nominated at the Annual Meeting, the terms of office of Class I, Class II and Class III Directors will expire at the Annual Meeting of Stockholders in 2013, 2014 and 2015, respectively, or when their respective successors are elected and qualified. The Board of Directors expects that the persons named as proxy holders on the proxy card will vote the shares represented by each proxy for the election of the above nominees as Directors unless a contrary direction is given. If, prior to the meeting, a nominee is unable or unwilling to serve as a Director, which the Board of Directors does not expect, the proxy holders will vote for such alternate nominee, if any, as may be recommended by the Board of Directors.
In addition to meeting the criteria that are described under “Corporate Governance — Corporate Governance and Nominating Committee,” each continuing Director and our Director nominees brings a strong and unique background and set of skills to the Board, giving the Board as a whole competence and experience in a wide variety of areas, including corporate governance and board oversight, executive management, finance and accounting, executive compensation, risk management, manufacturing, marketing, governmental relations, law and real estate development. Biographical information regarding each of our continuing Directors and our Director nominees is set forth below, including the specific business experience, qualifications, attributes and skills that led the Board to conclude that each should serve as a Director.
The Board of Directors recommends a vote FOR the election to the Board of Directors of each Class III Director nominee.
Director Nominees for Class III (Term Expiring at the Annual Meeting in 2015)
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Class I Directors (Term Expiring at the Annual Meeting in 2013)
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Class II Directors (Term Expiring at the Annual Meeting in 2014)
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Class II Directors (Term Expiring at the Annual Meeting in 2014)
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The Board of Directors continues to focus on our corporate governance principles and practices and is committed to maintaining our high standards of ethical business conduct and corporate governance for us.principles and practices.
Leadership Structure of the Board of Directors
Mr. Richard Manoogian retiredserved as the Chairman of our Board from employment1985 until June 30, 2012. Effective July 1, 2012, Mr. Manoogian became our Chairman Emeritus, and Mr. Verne Istock assumed the role of Chairman of the Board. Mr. Istock had served as our Executive Chairman in 2009 andLead Director (formerly Presiding Director) since then has continued to serve as our2003.
As an independent Chairman of the Board, as a non-employee Director. Until 2007, Mr. Manoogian served as both our Chairman and Chief Executive Officer. As a result of his long-term leadership of Masco, Mr. Manoogian has extensive Company-specific knowledge as well as a deep understanding of the new home construction and home improvement markets.
In 2003 the Board established the position of Presiding Director and selected Mr. Istock to serve in this role. In 2012, the Board changed the designation of Presiding Director to Lead Director and established the following duties of the Lead Director: presidingpresides at Board meetings at which the Chairman is not present, and at executive sessions of the independent Directors; serving as liaison between the Chairman and the independent Directors and being available to our significant stockholders on matters of broad corporate policy; consultingdirectors; consults with regard tomanagement regarding information sent to the Board; approvingapproves the Board’s meeting agendas and assuringassures that there is sufficient time for discussion of all agenda items; havinghas the authority to call meetings of the independent Directors;directors; and overseeing Board and Director evaluations. Mr. Istock continues to serve as our Lead Director.
The Chairman ofoversees the Board and the Lead Director haveCommittee evaluation process.
Mr. Istock has a strong working relationship with each other and with the other members of the Board. Although the Board believes that this Board leadership structure is in the best interests of the Company and our stockholders at this time, the Board has no policy with respect to the separation of the roles of CEO and Chairman and believes that these are matters thatthis matter should be discussed and determined by the Board from time to time, based on all of the then-current facts and circumstances. If the roles of Chairman and CEO are combined in the future, the role of Lead Director would likely continue to bebecome part of our Board leadership structure.structure again.
If you are interested in contacting our Lead Director,Mr. Istock, you may send your communication in care of our Secretary to the address specified in “Communications with Our Board of Directors” below.
Board Independence of our Directors
Our Corporate Governance Guidelines require that a majority of our Directorsdirectors qualify as “independent” under the independence requirements of applicable law and the NYSE.New York Stock Exchange’s listing standards. For a Directordirector to be considered independent, the Board must determine that the Directordirector does not have any direct or indirect material relationship with us. Our Board pursuant to the recommendation of the Corporate Governance and Nominating Committee,has adopted categorical independence standards to assist it in making a determination of independence for Directors. Our independencedirectors. These standards are posted on our website at www.masco.com. The information on our website is not a part of this proxy statement or incorporated into any other filings we make with the SEC.
TheOur Board has made an affirmative determinationdetermined that all of our non-employee Directors,directors, other than Mr. Manoogian, are independent. TheOur independent Directorsdirectors are Messrs. Archer, Denomme, Earley, Istock, Losh, Parfet and Losh,Plant, Ms. Payne and Ms. Van Lokeren. Our Board also determined that Anthony Earley, who served as a director until our 2012 Annual Meeting, was also independent. In making its independence determination for each non-employee Director,determinations, the Board reviewed all transactions, relationships and arrangements for the last three fiscal years involving each Directornon-employee director and the Company. With respect to Mr. Earley, the Board considered the annual amount of energy product sales to us by DTE Energy Company, where he served as Executive Chairman of the Board until September 12, 2011, and determined that the amount of sales in each fiscal year was significantly below 2% of that company’s annual revenues.
The Board also determined that we did not make any discretionary charitable contributions exceeding the greater of $1 million or 2% of the revenues of any charitable organization in which any of our Directorsdirectors was actively involved in the day-to-day operations.
Board of Directors and Independent Committees of the Board
The standing committees of our Board of Directors includeare the Audit Committee, the Organization and Compensation Committee and the Corporate Governance and Nominating Committee. Each member of each of these committees qualifies as independent under our Corporate Governance Guidelines.independent. These committees function pursuant to written charters adopted by the Board. The committee charters, as well as our Corporate Governance Guidelines and our Code of Business Ethics, are posted on our website at www.masco.com and are available to you in print from the website or upon request. Amendments to or waivers of the Code of Business Ethics, if any, will be posted on our website.
During 2011, the Board of Directors held five meetings. Each Director attended at least 75% of the Board meetings and applicable committee meetings, except Ms. Van Lokeren, who attended slightly less than 75% of Board and applicable Committee meetings due to a personal medical issue. It is our policy to encourage Directors to attend the Annual Meeting of Stockholders. All of our Directors attended the 2011 Annual Meeting of Stockholders, except Ms. Van Lokeren for the reason noted above.
The
PART II – CORPORATE GOVERNANCE
Our non-employee Directorsdirectors frequently meet in executive session without management, and the independent Directorsdirectors meet separately at least once per year. As Chairman of the Board, and in his previous role as Lead Director, Mr. Istock was selected by the non-employee Directors to serve as the Lead Director (previously Presiding Director) forpresides over these executive sessions.
Risk Oversight
Management continually monitors four general categories of risk related to our business: financial reporting risk, strategic risk, operational risk, and legal and compliance risk. The entire Board discharges its oversight of risk through an annual review and discussion of a comprehensive analysis prepared by management on material risks facing us, including strategic risk, operational risk and legal and compliance risk. The Board also annually reviews and discusses an analysis of legal and compliance risks; updates regarding these risks are presented at each subsequent Board meeting. Our President and Chief Executive Officer (our “CEO”), as the head of our management team and a member of the Board, assists the Board in its risk oversight function and leads those discussions.
The Organization and Compensation Committee considers risk issues related to compensation, and has determined that risks arising from our compensation policies and practices are not reasonably likely to have a material adverse effect on us. Our executive officers and other members of management report to the Organization and Compensation Committee on executive compensation programs at our business units to assess whether these programs or practices expose us to excessive risk taking.
At each of its meetings, the Audit Committee discharges its oversight of financial reporting risk through review and discussion of management’s reports and analyses of financial reporting risk and risk management practices. At a majority of its meetings, the Audit Committee also reviews and discusses certain additional financial and non-financial risks which are most germane to our business activities. The entire Board discharges its oversight of risk through an annual review and discussion of a comprehensive report and analysis prepared by management on material risks facing us, including strategic risk, operational risk and legal and compliance risk. The Board also annually reviews and discusses a report specifically identifying legal and compliance risks; updates of this report are presented at each subsequent Board meeting. The Organization and Compensation Committee considers risk issues related to compensation, and has determined that risks arising from our compensation policies and practices are not reasonably likely to have a material adverse effect on us. Our executive officers and other members of management report to the Organization and Compensation Committee on business unit executive compensation programs to assess whether these programs or practices expose us to excessive risk taking. Our President and Chief Executive Officer (our “CEO”), as the head of our management team and a member of the Board, assists the Board in its risk oversight function and leads those discussions.
Audit Committee
The Audit Committee of the Board of Directors, consisting of Messrs. Archer, Denomme, Earley, Istock and Losh and Ms. Payne, held five meetings during 2011. In addition to risk oversight described
above, the Audit Committee assists the Board in its oversight of the integrity of our financial statements, the effectiveness of our internal control over financial reporting, the qualifications, independence and performance of our independent auditors, the performance of our internal audit function, and our compliance with legal and regulatory requirements, including employee compliance with our Code of Business Ethics.
The Board has determined that each member of the Audit Committee is independent, financially literate and that five members of the Audit Committee, Messrs. Denomme, Earley, Istock, Losh and Ms. Payne, qualify as “audit committee financial experts” as defined in Item 407(d)(5)(ii) of Regulation S-K. Although Mr. Losh serves on the audit committee of more than three publicly traded companies, the Board has determined that such service does not impair his ability to serve on our Audit Committee.
Organization and Compensation Committee
The Organization and Compensation Committee of the Board of Directors, consisting of Ms. Van Lokeren, Ms. Payne and Messrs. Earley, Istock and Losh, held seven meetings during 2011. The Organization and Compensation Committee determines executive compensation, evaluates the performance of our senior executives, determines and administers restricted stock awards and options granted under our stock incentive plan and reviews our succession planning process. Information about the Organization and Compensation Committee’s process and procedures for consideration and determination of executive compensation, and a description of the role of the compensation consultant engaged by the Committee, is presented in the “Compensation Discussion and Analysis” below.
Corporate Governance and Nominating Committee
The Corporate Governance and Nominating Committee of the Board of Directors (the “Governance Committee”), consisting of Messrs. Archer, Denomme and Istock, Ms. Payne and Ms. Van Lokeren, held five meetings during 2011. The Governance Committee advises the Board on the governance structure and conduct of the Board and has responsibility for developing and recommending to the Board appropriate corporate governance guidelines. In addition, the Governance Committee identifies and recommends qualified individuals for nomination to the Board, recommends Directors for appointment to Board committees and evaluates and recommends current Directors for re-nomination to the Board or re-appointment to Board committees.
The Governance Committee periodically assesses Board composition, including whether any vacancies are expected on the Board due to retirement or otherwise. The Governance Committee believes that Directors should possess exemplary personal and professional reputations, reflecting high ethical standards and values. The expertise and experience of Directors should provide a source of advice and guidance to our management. A Director’s judgment should demonstrate an inquisitive and independent perspective with acute intelligence and practical wisdom. Directors should be free of any significant business relationships which would result in a potential conflict in judgment between our interests and the interests of those with whom we do business. Each Director should be committed to serving on the Board for an extended period of time and to devoting sufficient time to carry out the Director’s duties and responsibilities in an effective manner for the benefit of our stockholders. The Governance Committee also considers additional criteria adopted by the Board for Director nominees and the independence, financial literacy and financial expertise standards required by applicable law and by the NYSE.
Neither the Board nor the Governance Committee has adopted a formal Board diversity policy. However, the Governance Committee periodically considers, as part of its assessment of Board composition and evaluation of potential candidates for Board membership, whether the Board is
comprised of individuals who hold diverse viewpoints, professional experiences, education and other skills and attributes which are necessary to enhance Board effectiveness. In addition, the Governance Committee believes that it is desirable for Board members to possess diverse characteristics of race, national and regional origin, ethnicity, gender and age, and considers such factors in the Governance Committee’s evaluation of candidates for Board membership.
The Governance Committee uses a number of sources to identify and evaluate nominees for election to the Board. It is the Governance Committee’s policy to consider Director candidates recommended by stockholders. These candidates are evaluated at regular or special meetings of the Governance Committee, and all candidates, including those recommended by stockholders, are evaluated against the criteria described above. Stockholders wishing to have the Governance Committee consider a candidate should submit the candidate’s name and pertinent background information to our Secretary at the address noted immediately below. Stockholders who wish to nominate Director candidates for election to the Board should follow the procedures set forth in our Charter and Bylaws. For a summary of these procedures, see “2013 Annual Meeting of Stockholders” below.
Communications with Our Board of Directors
If you are interested in contacting our Lead Director,Chairman of the Board, an individual director, our Board of Directors as a group, theour independent Directorsdirectors as a group, or a specifiedspecific Board committee, you may send your communication in care of:
Gregory D. Wittrock, Secretary
Masco Corporation
21001 Van Born Road
Taylor, Michigan 48180
Please specify the applicable party or parties you wish to contact in your communication.
COMPENSATION OF DIRECTORSPART II – CORPORATE GOVERNANCE
As compensation for their service on our Board of Directors, our non-employee Directors receive an annual retainer of $180,000, of which one-half is paid in cash. To reinforce their focus on long-term stockholder value and to recognize their long-term commitment to serve the Company, the other half of the retainer is paid in the form of restricted stock granted under our Non-Employee Directors Equity Program (the “Directors Equity Program”).
The Board has established stock ownership guidelines for our non-employee Directors that require them to retain at least 50% of the shares of restricted stock they receive until their termination from service as a Director. The stock retention requirement is intended to assure that non-employee Directors maintain a financial interest in our Company over an extended period of time. The Directors Equity Program prohibits former Directors from engaging in activities detrimental to us while they hold restricted stock we awarded to them. The restricted stock may be forfeited if a former Director breaches this obligation. Further, the program restricts Directors from engaging in competitive activities while serving as a Director and for one year after service as a Director. If a former Director breaches this non-compete agreement, we may require him or her to pay us amounts realized within two years prior to termination from awards of restricted stock and exercises of stock options. We ceased granting stock options to Directors in 2010.
Our non-employee Directors are eligible to participate in our matching gifts program until December 31 of the year in which their service as a Director ends. Under this program, we will match up to $5,000 of a Director’s contributions to eligible 501(c)(3) tax-exempt organizations each year. Directors are also eligible to participate in our employee purchase program, which enables them to obtain rebates on our products they purchase for their personal use. Each of these programs is available to all of our employees. In addition, if space is available, a Director’s spouse is permitted to accompany a Director who travels on our aircraft to attend Board or committee meetings.
In accordance with the terms of our 2009 agreement with Mr. Manoogian, we make available to him office space, administrative support and supplies and equipment necessary for him to carry out his duties as Chairman of the Board. As long as he continues as Chairman of the Board, he is entitled to personal use of our aircraft (subject to availability and approval of our CEO) and a car and driver, each at our expense. We also pay the dues for a club used for business purposes by Mr. Manoogian, who pays any expenses for his personal use of that club.
The following table shows 2011 compensation paid to our Directors, other than Mr. Wadhams, who is also our employee and who receives no additional compensation for his service as Director. The cash portion of the annual retainer for non-employee Directors is $90,000. Chairmanship fees are as follows: Audit Committee - $20,000 (for Mr. Losh); Organization and Compensation Committee - $15,000 (for Ms. Van Lokeren); and Corporate Governance and Nominating Committee - $10,000 (for Mr. Istock). Directors receive a fee of $1,500 per Board or committee meeting attended. Mr. Manoogian receives an additional $350,000 annual cash retainer for his service as Chairman of the Board.
2011 Director Compensation
Name | Cash Fees Earned ($) | Stock Awards ($)(1) | All Other Compensation ($)(2) | Total ($)(3) | ||||||||||||
Richard A. Manoogian | $449,000 | $90,040 | $295,898 | $834,938 | ||||||||||||
Dennis W. Archer | 112,500 | 90,040 | — | 202,540 | ||||||||||||
Thomas G. Denomme | 112,500 | 90,040 | — | 202,540 | ||||||||||||
Anthony F. Earley, Jr. | 114,000 | 90,040 | — | 204,040 | ||||||||||||
Verne G. Istock | 134,500 | 90,040 | — | 224,540 | ||||||||||||
J. Michael Losh | 137,000 | 90,040 | 5,000 | 232,040 | ||||||||||||
Lisa A. Payne | 121,500 | 90,040 | 5,000 | 216,540 | ||||||||||||
Mary Ann Van Lokeren | 124,500 | 90,040 | 5,000 | 219,540 |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our Board of Directors has adopted a written policy that requires the Board or a committee comprised of independent Directors to approve or ratify any transaction involving us in which any Director, Director nominee, executive officer, 5% beneficial owner or any of their immediate family members has a direct or indirect material interest. This policy covers financial transactions, arrangements or relationships or any series of similar transactions, arrangements or relationships, including indebtedness and guarantees of indebtedness, as well as transactions involving employment and similar relationships, but excludes certain transactions deemed not to involve a material interest. The policy requires Directors, Director nominees and executive officers to provide prompt written notice to the Secretary of any related transaction so it can be reviewed by the Corporate Governance and Nominating Committee to determine whether the related person has a direct or indirect material interest. If the Committee determines this is the case, the Committee considers all relevant information to assess whether the transaction is in, or not inconsistent with, our best interests and the best interests of our stockholders. The Committee annually reviews previously-approved related transactions to determine whether the transactions should continue.
These procedures have been followed in connection with the review of the transaction described below. There have been no transactions since January 1, 2011 required to be described in this proxy statement that were not subject to review, approval or ratification in accordance with this policy.
In 2011, Mr. Manoogian and two charitable foundations established by him and by his father, Mr. Alex Manoogian, who founded Masco, reimbursed us an aggregate of $210,000 in cash for the value of administrative assistance we provided to them.
See “Compensation of Executive Officers – Payments Upon Retirement, Termination, Disability or Death – Other Arrangements” for a description of our agreement with Donald J. DeMarie, Jr., our former Executive Vice President and Chief Operating Officer.
Our Board of Directors elects our executive officers annually. Our current executive officers are listed below.
Name | Position | Age | Executive Officer Since | Position | Age | Executive Officer Since | ||||||||||||||||||||
Timothy Wadhams | President and Chief Executive Officer | 63 | 2001 | President and Chief Executive Officer | 64 | 2001 | ||||||||||||||||||||
John G. Sznewajs | Vice President, Treasurer and Chief Financial Officer | 44 | 2005 | Vice President, Treasurer and Chief Financial Officer | 45 | 2005 | ||||||||||||||||||||
Gregory D. Wittrock | Vice President, General Counsel and Secretary | 65 | 2009 | Vice President, General Counsel and Secretary | 66 | 2009 | ||||||||||||||||||||
Charles F. Greenwood | Vice President - Human Resources | 65 | 2008 | |||||||||||||||||||||||
Jai Shah | Vice President – Chief Human Resource Officer | 46 | 2012 | |||||||||||||||||||||||
John P. Lindow | Vice President - Controller | 48 | 2011 | Vice President – Controller | 49 | 2011 |
Mr. Wadhams’ experience is described abovein “Part III – Board of Directors” under “Election of Class III Directors – Class“Class II Directors (Term Expiring at the Annual Meeting in 2014).”
Mr. Sznewajs was elected as our Vice President, Treasurer and Chief Financial Officer in July 2007. He had previously served as our Vice President and Treasurer since 2005 and our Vice President -– Business Development since 2003.
Mr. Wittrock was elected as our Vice President, General Counsel and Secretary in 2009. From May 2009 to November 2009, Mr. Wittrock was Assistant General Counsel and Director -– Operations of the Legal Department. Prior to May 2009, Mr. Wittrock had served as our Assistant General Counsel for over 20 years.
Mr. Greenwood hasShah was elected as our Vice President – Chief Human Resource Officer in 2012. He previously served as our Vice President - Human ResourcesFinance – Retail/Wholesale Platform since July 2007. Prior2008, as a Group Vice President from 2007 to 2007, Mr. Greenwood served2008, and as our Director of Employee Relations since 1992.Vice President – Strategic Planning from 2005 to 2007.
Mr. Lindow was elected as the Company’sour Vice President -– Controller in 2011. He was a Group Controller from 2000 to 2007, and then served as Vice President Administration -– Plumbing Products Platform until 2009, when he became the Vice President -– Controller, Corporate Accounting.
PART II – CORPORATE GOVERNANCE
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table shows the beneficial ownership of our common stock as of December 31, 20112013 by (i) each of our Directorsdirectors and Directordirector nominees, (ii) each “namednamed executive officer”officer included in the 20112013 Summary Compensation Table, (iii) all of our directors and current Directors and executive officers as a group (13(14 individuals), and (iv) all persons whom we know to be beneficial owners of five percent or more of our common stock. Except as indicated below, each person exercises sole voting and investment power with respect to the shares listed.
Name | Shares of Common Stock Beneficially Owned(1) | Percentage of Voting Power Beneficially Owned | ||||||
Dennis W. Archer | 86,540 | * | ||||||
Thomas G. Denomme | 103,550 | * | ||||||
Anthony F. Earley, Jr.(2) | 86,030 | * | ||||||
Charles F. Greenwood | 299,603 | * | ||||||
Verne G. Istock | 103,100 | * | ||||||
John P. Lindow | 252,938 | * | ||||||
J. Michael Losh | 100,920 | * | ||||||
Richard A. Manoogian(3) | 11,732,492 | 3.3% | ||||||
Lisa A. Payne | 71,910 | * | ||||||
John G. Sznewajs | 754,188 | * | ||||||
Mary Ann Van Lokeren(4) | 113,600 | * | ||||||
Timothy Wadhams | 3,180,898 | * | ||||||
Gregory D. Wittrock | 237,041 | * | ||||||
All current Directors and executive officers of Masco as a group | 17,122,810 | 4.7% | ||||||
John C. Plant (Director nominee) | — | * | ||||||
William T. Anderson(5) | 501,423 | * | ||||||
Donald J. DeMarie, Jr.(6) | 1,222,476 | * | ||||||
BlackRock, Inc.(7) 40 East 52nd Street, New York, New York 10022 | 20,229,108 | 5.7% | ||||||
Capital Research Global Investors(8) 333 South Hope Street, Los Angeles, California 90071 | 38,706,423 | 10.8% | ||||||
Capital World Investors(9) (a division of Capital Research and Management Company) 333 S. Hope Street, Los Angeles, California 90071 | 24,539,951 | 6.9% | ||||||
The Vanguard Group(10) 100 Vanguard Blvd., Malvern, Pennsylvania 19355 | 18,853,673 | 5.3% |
Name | Shares of Common Stock Beneficially Owned (1) | Percentage of Voting Power Beneficially Owned | ||||||
Dennis W. Archer | 97,630 | * | ||||||
Thomas G. Denomme | 106,640 | * | ||||||
Verne G. Istock | 106,190 | * | ||||||
John P. Lindow | 261,117 | * | ||||||
J. Michael Losh | 112,010 | * | ||||||
Richard A. Manoogian(2) | 10,823,582 | 3.1 | % | |||||
Donald R. Parfet | — | * | ||||||
Lisa A. Payne(3) | 83,875 | * | ||||||
John C. Plant | 6,290 | * | ||||||
Jai Shah | 402,839 | * | ||||||
John G. Sznewajs | 883,994 | * | ||||||
Mary Ann Van Lokeren(4) | 116,690 | * | ||||||
Timothy Wadhams | 3,946,469 | 1.5 | % | |||||
Gregory D. Wittrock | 262,994 | * | ||||||
All directors and current executive officers of Masco as a group(2) | 17,210,320 | 5.3 | % | |||||
Charles F. Greenwood(5) | 295,272 | * | ||||||
BlackRock, Inc.(6) | 32,362,125 | 9.1 | % | |||||
40 East 52nd Street, New York, New York 10022 | ||||||||
Capital Research Global Investors(7) | 31,762,069 | 8.9 | % | |||||
333 South Hope Street, Los Angeles, California 90071 | ||||||||
Capital World Investors(8) | 21,321,751 | 6.0 | % | |||||
(a division of Capital Research and Management Company) | ||||||||
State Street Corporation(9) | 18,361,325 | 5.1 | % | |||||
One Lincoln Street, Boston, Massachusetts 02111 | ||||||||
The Vanguard Group(10) | 22,089,942 | 6.2 | % | |||||
100 Vanguard Blvd., Malvern, Pennsylvania 19355 |
* | Less than one percent |
(1) | Includes shares of unvested restricted stock |
PART II – CORPORATE GOVERNANCE
Name | Unvested Restricted Stock Awards | Shares that may be acquired on or before March 1, 2013 upon exercise of stock options | ||||||
Dennis W. Archer | 18,546 | 67,200 | ||||||
Thomas G. Denomme | 18,978 | 51,200 | ||||||
Verne G. Istock | 18,978 | 51,200 | ||||||
John P. Lindow | 53,000 | 199,040 | ||||||
J. Michael Losh | 18,978 | 75,200 | ||||||
Richard A. Manoogian | 118,698 | 3,147,200 | ||||||
Donald R. Parfet | — | — | ||||||
Lisa A. Payne | 16,950 | 51,200 | ||||||
John C. Plant | 6,290 | — | ||||||
Jai Shah | 84,858 | 287,000 | ||||||
John G. Sznewajs | 114,557 | 681,500 | ||||||
Mary Ann Van Lokeren | 18,978 | 51,200 | ||||||
Timothy Wadhams | 382,113 | 3,038,200 | ||||||
Gregory D. Wittrock | 42,948 | 189,677 | ||||||
All directors and current executive officers of Masco as a group | 913,872 | 7,889,817 | ||||||
Charles F. Greenwood | 55,072 | 240,200 |
(2) |
Shares owned by Mr. Manoogian and by all of our |
Shares owned by Ms. Payne include 3,935 shares held in a revocable living trust. |
(4) | Shares owned by Ms. Van Lokeren include 14,000 shares held in a revocable living trust. |
(5) | Mr. |
(6) | Based on |
(7) | Based on a Schedule 13G filed with the SEC on February 13, |
Based on a Schedule 13G filed with the SEC on February |
Based on a Schedule 13G filed with the SEC on February |
(10) | Based on a Schedule 13G filed with the SEC on February 12, 2013, on December 31, 2012, The Vanguard Group, Inc. beneficially |
PART II – CORPORATE GOVERNANCE
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and Directors,directors, and persons who own more than ten percent of our common stock, to file reports of their ownership of our common stock and changes in their ownership with the SEC and the NYSE,New York Stock Exchange, and to furnish us with copies of these reports. Based solely on our review of copies of the reports that we received, or written representations from our executive officers and Directorsdirectors that they were not required to file Form 5 ownership reports, we believe that each person who was a Director,director, officer or beneficial owner of more than ten percent of our common stock at any time during 20112012 met all applicable filing requirements during 2011, except2012.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our Board of Directors has adopted a Related Person Transaction Policy that requires the Board or a committee of independent directors to approve or ratify any transaction involving us in which any director, director nominee, executive officer, 5% beneficial owner or any of their immediate family members has a direct or indirect material interest. This policy covers financial transactions, or any series of similar transactions, including indebtedness and guarantees of indebtedness, as well as transactions involving employment, but excludes transactions determined by the Board not to involve a material interest of the related person, such as ordinary course of business transactions of $120,000 or less and transactions in which the related person’s interest is derived solely from service as a director of another entity or ownership of less than 10% of another entity’s stock. The policy requires directors, director nominees and executive officers to provide prompt written notice to the Secretary of any related transaction so it can be reviewed by the Corporate Governance and Nominating Committee to determine whether the related person has a direct or indirect material interest. If the Committee determines this is the case, the Committee considers all relevant information to assess whether the transaction is in, or not inconsistent with, our best interests and the best interests of our stockholders. The Committee annually reviews previously-approved ongoing related transactions to determine whether the transactions should continue.
These procedures have been followed in connection with the review of the transaction described below. There have been no transactions since January 1, 2012 required to be described in this proxy statement that were not subject to review, approval or ratification in accordance with this policy.
In order for Mr. LindowManoogian to exercise stock options or to receive restricted stock when it vests under our programs, he is required by federal law to file at least every five years a notification and Ms. Van Lokeren.report form pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1977. The Corporate Governance and Nominating Committee determined that we should pay the filing fee so that Mr. Manoogian would receive the same benefit from our equity compensation programs as other participants. The filing fee paid on his behalf during 2012 is included in “All Other Compensation” for Mr. Manoogian in the 2012 Directors Compensation Table.
As described above, Mr. Manoogian transitioned to Chairman Emeritus on July 1, 2012. In accordance with the terms of our 2009 agreement with Mr. Manoogian, we provide him with office space, an administrative assistant and reasonable equipment and supplies for his personal use, which together have an aggregate annual value of approximately $240,000. We charge Mr. Manoogian the full cost for additional office space and related equipment and supplies used by his personal and charitable foundation staff and for a driver and the incremental cost for his use of our aircraft (with prior approval from our CEO), all of which aggregated approximately $285,000 for 2012.
Our Board of Directors is divided into three classes. Upon election of the Class I directors nominated at this Annual Meeting, the terms of office of Class I, Class II and Class III directors will expire at the Annual Meeting of Stockholders in 2016, 2014 and 2015, respectively, or when their respective successors are elected and qualified.
Our Class I director nominees do not include Thomas G. Denomme, who has reached our Board’s retirement policy age of 72. Mr. Denomme will serve until his existing term expires at the Annual Meeting, at which time the number of directors on our Board will be reduced to nine. Mr. Denomme has served on our Audit Committee since joining the Board in 1998 and as the chair of that committee from 1999 to 2008. He has also been a member of our Corporate Governance and Nominating Committee since 2004 and a member of our Organization and Compensation Committee since 2012. We wish to express our sincere appreciation for Mr. Denomme’s dedication and exemplary service on our Board and committees.
In addition to meeting the criteria that are described below under “Director Attendance and Committees – Corporate Governance and Nominating Committee,” each continuing director and each director nominees brings a strong and unique background and set of skills to the Board, giving the Board as a whole competence and experience in a wide variety of areas, including executive management, finance and accounting, executive compensation, risk management, manufacturing, corporate governance and board oversight, marketing, governmental relations, law and real estate development. Biographical information regarding each of our continuing directors and our director nominees is set forth below, including the specific business experience, qualifications, attributes and skills that led the Board to conclude that each should serve as a director.
PART III – BOARD OF DIRECTORS
Director Nominees for Class I (Term Expiring at the Annual Meeting in 2016)
Dennis W. Archer
Chairman and CEO of Dennis W. Archer PLLC and Chairman Emeritus, Dickinson Wright PLLC, a Detroit, Michigan-based law firm.
Director since 2004.
Mr. Archer, 71, has served as Chairman and CEO of Dennis W. Archer PLLC since 2010. He has also served as Chairman Emeritus of Dickinson Wright PLLC since 2010, prior to which he was Chairman from 2002 to 2009. Mr. Archer was Chair of the Detroit Regional Chamber from 2006 to 2007, and President of the American Bar Association from 2003 to 2004. He served two terms as Mayor of the City of Detroit, Michigan from 1994 through 2001 and was President of the National League of Cities from 2000 to 2001. He was appointed as an Associate Justice of the Michigan Supreme Court in 1985, and in 1986 was elected to an eight-year term. Mr. Archer is also director of Compuware Corporation and Johnson Controls, Inc.
Mr. Archer’s long and distinguished career as an attorney and a judge provides the Board with specific expertise and a unique understanding of litigation and other legal matters. As a result of his position as Mayor of Detroit, he has broad leadership, administrative error, one awardand financial experience and is also knowledgeable in the area of governmental relations.
Donald R. Parfet
Managing Director, Apjohn Group, LLC, a business development company, and General Partner, Apjohn Ventures Fund, Limited Partnership, a venture capital fund.
Director since 2012.
Donald R. Parfet, 60, has been the Managing Director of Apjohn Group, LLC since 2001 and a General Partner of Apjohn Ventures Fund, Limited Partnership since 2003. He served as Senior Vice President of Pharmacia Corporation, a pharmaceuticals company, from 2000 to 2001, and prior to that held various other positions at Pharmacia & Upjohn Company, Inc. and its predecessor Upjohn Inc. Mr. Parfet is a director of Kelly Services, Inc. and Rockwell Automation, Inc. He also serves as a director or trustee of a number of charitable and civic organizations.
Mr. Parfet brings extensive financial and operating experience to the Board, including financial and corporate staff management responsibilities and senior operational responsibilities for multiple global business units. He is also experienced in leading strategic planning, risk assessment, human resource planning and financial planning and control. His global operating experience, strong financial background and proven leadership capabilities are especially important to the Board’s consideration of product and geographic expansion. Mr. Parfet holds an M.B.A. from the University of Michigan.
Lisa A. Payne
Vice Chairman and Chief Financial Officer and director of Taubman Centers, Inc., a real estate investment trust.
Director since 2006.
Ms. Payne, 54, has served as Chief Financial Officer and Vice Chairman of Taubman Centers, Inc. since 2005, prior to which she served as the Executive Vice President and the Chief Financial and Administrative Officer from 1997 to 2005. She has been a director of Taubman Centers, Inc. since 1997. Ms. Payne was an investment banker with Goldman, Sachs & Co. from 1987 to 1997. She is a trustee of Munder Series Trust and Munder Series Trust II, open-end management investment companies.
Ms. Payne’s past experience as an investment banker and her present position as CFO of Taubman Centers provide the Board with financial, accounting and corporate finance expertise. In addition, Ms. Payne’s extensive experience in real estate investment, development and acquisition gives her an informed and thorough understanding of macroeconomic factors that may impact our business.
PART III – BOARD OF DIRECTORS
Class II Directors (Term Expiring at the Annual Meeting in 2014)
Verne G. Istock
Retired Chairman/President of Bank One Corporation.
Chairman of the Board.
Director since 1997.
Mr. Istock, 72, joined NBD Bank in 1963 and served as Vice Chairman and a director of NBD Bank and its parent, NBD Bancorp, from 1985 until he was named Chairman and Chief Executive Officer in 1994. Upon the merger of NBD and First Chicago Corporation in December 1995, he was named President and Chief Executive Officer of First Chicago NBD Corporation and was elected Chairman in May 1996. Upon the merger of First Chicago NBD Corporation and Bank One Corporation in October 1998, he was named Chairman of the Board of Bank One Corporation, where he served in various executive positions, including Chief Executive Officer, until his retirement in September 2000. Mr. Istock is a director of Rockwell Automation, Inc. During the past five years, he also served as a director of Kelly Services, Inc.
Mr. Istock brings exceptional business leadership skills to the Board. His significant experience in finance and banking gives him a comprehensive understanding of credit and financial markets. His current and past service as a director of other publicly held companies provides the Board with important experience regarding corporate governance, executive compensation, risk management and other matters.
J. Michael Losh
Retired Chief Financial Officer and Executive Vice President of General Motors Corporation.
Director since 2003.
Mr. Losh, 66, retired from General Motors Corporation in 2000 after 36 years of service in various capacities, most recently as Chief Financial Officer and Executive Vice President. He served as Interim Chief Financial Officer of Cardinal Health, Inc. from July 2004 until May 2005. He is a director of Prologis, Aon plc, CareFusion Corporation, H.B. Fuller Company and TRW Automotive Holdings Corp. During the past five years, he also served as a director of Cardinal Health, Inc. prior to the spin-off of CareFusion Corporation.
Based on his substantial finance and accounting expertise, Mr. Losh is the Chairman of our Audit Committee. He has significant experience in key leadership roles in a manufacturing environment. He currently serves on the boards and audit committees of other publicly held companies, giving him valuable exposure to developments in accounting, financial reporting, board oversight responsibilities, corporate governance and risk management.
Timothy Wadhams
President and Chief Executive Officer of the Company.
Director since 2007.
Mr. Wadhams, 64, was elected as our President and Chief Executive Officer in 2007. He served as our Senior Vice President and Chief Financial Officer from 2004 to July 2007, and served as our Vice-President – Finance and Chief Financial Officer from 2001 to 2004. Mr. Wadhams joined us in 1976 and served in several financial positions before transferring to an affiliated company in 1984, ultimately serving as Executive Vice President – Finance and Administration and Chief Financial Officer of MascoTech, Inc. before returning to us in 2001.
Mr. Wadhams’ leadership positions with us and our affiliated companies have given him company-specific knowledge in all areas important to our performance including, among others, key markets, personnel, customer relationships, operations, marketing, finance and risk management.
PART III – BOARD OF DIRECTORS
Class III Directors (Term Expiring at the Annual Meeting in 2015)
Richard A. Manoogian
Chairman Emeritus.
Director since 1964.
Mr. Manoogian, 76, joined us in 1958 and was elected Vice President and a director in 1964 and President in 1968. Mr. Manoogian served as Chief Executive Officer from 1985 until July 2007, when he was elected Executive Chairman. He retired as an employee in June 2009, to serve solely as Chairman of the Board, a position he held from 1985 until 2012, when he became our Chairman Emeritus. He is a director of Ford Motor Company.
Mr. Manoogian’s long-term leadership of Masco gives him extensive Company and industry-specific knowledge, including firsthand knowledge of our operations and strategy as well as a deep understanding of the new home construction and home improvement markets.
John C. Plant
Chairman, Chief Executive Officer and President of TRW Automotive Holdings Corp., a diversified automotive supplier.
Director since 2012.
Mr. Plant, 59, has been the Chairman of the Board of TRW Automotive Holdings Corp. since 2011 and its President and Chief Executive Officer as well as a director since 2003. Prior to that, he had been a co-member of the Chief Executive Office of TRW Inc. and the President and Chief Executive Officer of the automotive business of TRW Inc. since 2001. From 1999 to 2001, Mr. Plant was the Executive Vice President and General Manager of TRW Chassis Systems. From 1991 to 1997, Mr. Plant was employed by Lucas Varity Automotive in management positions, ultimately serving as its President until it was acquired by TRW Inc. Mr. Plant serves as a director of the Automotive Safety Council and is the Vice Chairman of the Kennedy Center Corporate Fund Board.
Mr. Plant has a background in finance and extensive knowledge and experience in all aspects of business, including operations, business development matters, financial performance and structure, legal matters and human resources. Based on his current leadership positions with a diversified global operation, he brings to our Board strategic insight and understanding of complex operations as well as a valuable perspective of international business.
Mary Ann Van Lokeren
Retired Chairman and Chief Executive Officer of Krey Distributing Company, a beverage distribution firm.
Director since 1997.
Ms. Van Lokeren, 65, served as the Chairman and Chief Executive Officer of Krey Distributing Company from 1987 through 2006 and as its Secretary upon joining Krey in 1978. She is a director of The Laclede Group, Inc.
Ms. Van Lokeren’s nearly 20 years of experience as the Chairman and CEO of a large and successful distribution company gives her valuable insight into many facets of company leadership and management including personnel, marketing, customer relationships and overall business strategy. Her current and past service as a director of other public companies and non-profit organizations gives her a broad perspective on issues of corporate governance, executive compensation, board oversight and risk management.
PART III – BOARD OF DIRECTORS
DIRECTOR ATTENDANCE AND COMMITTEES
During 2012, the Board of Directors held five meetings. Each director attended at least 75% of the Board meetings and applicable committee meetings that were held while such person served as a director. It is our policy to encourage directors to attend the Annual Meeting of Stockholders. All of our directors attended the 2012 Annual Meeting, except for Mr. Parfet, who joined our Board in December 2012.
Audit Committee
The Audit Committee of the Board of Directors, consisting of Messrs. Archer, Denomme, Losh, Parfet and Plant and Ms. Payne, held five meetings during 2012. In addition to risk oversight described above, the Audit Committee assists the Board in its oversight of the integrity of our financial statements, the effectiveness of our internal control over financial reporting, the qualifications, independence and performance of our independent auditors, the performance of our internal audit function, and our compliance with legal and regulatory requirements, including employee compliance with our Code of Business Ethics.
The Board has determined that each member of the Audit Committee is independent, financially literate and that five members of the Audit Committee, Messrs. Denomme, Losh, Parfet and Plant and Ms. Payne, qualify as “audit committee financial experts” as defined in Item 407(d)(5)(ii) of Regulation S-K. Although Mr. Losh serves on the audit committee of more than three publicly traded companies, the Board has determined that such service does not impair his ability to serve on our Audit Committee.
Organization and Compensation Committee
The Organization and Compensation Committee of the Board of Directors, consisting of Messrs. Denomme, Istock and Losh, Ms. Payne and Ms. Van Lokeren, held eight meetings during 2012. The Organization and Compensation Committee determines executive compensation, evaluates the performance of our senior executives, determines and administers restricted stock awards and options granted under our stock incentive plan, administers our Long Term Cash Incentive Program, and reviews our management succession plan, including periodically reviewing our CEO’s evaluation and recommendation of potential successors. Information about the Organization and Compensation Committee’s process and procedures for consideration and determination of executive compensation, and a description of the role of the compensation consultant engaged by the Organization and Compensation Committee, are presented in the “Compensation Discussion and Analysis” below.
Corporate Governance and Nominating Committee
The Corporate Governance and Nominating Committee of the Board of Directors (the “Governance Committee”), consisting of Messrs. Archer, Denomme, Istock and Plant, Ms. Payne and Ms. Van Lokeren, held five meetings during 2012. The Governance Committee advises the Board on the governance structure and conduct of the Board and has responsibility for developing and recommending to the Board appropriate corporate governance guidelines. In addition, the Governance Committee identifies and recommends qualified individuals for nomination and re-nomination to the Board and recommends directors for appointment and re-appointment to Board committees.
The Governance Committee periodically assesses Board composition, including whether any vacancies are expected on the Board due to retirement or otherwise. The Governance Committee believes that directors should possess exemplary personal and professional reputations, reflecting high ethical standards and values. The expertise and experience of directors should provide a source of advice and guidance to our management. A director’s judgment should demonstrate an inquisitive and independent perspective with acute intelligence and practical wisdom. Directors should be free of any significant business relationships which would result in a
PART III – BOARD OF DIRECTORS
potential conflict in judgment between our interests and the interests of those with whom we do business. Each director should be committed to serving on the Board for an extended period of time and to devoting sufficient time to carry out the director’s duties and responsibilities in an effective manner for the benefit of our stockholders. The Governance Committee also considers additional criteria adopted by the Board for Director nominees and the independence, financial literacy and financial expertise standards required by applicable law and by the New York Stock Exchange.
Neither the Board nor the Governance Committee has adopted a formal Board diversity policy. However, the Governance Committee periodically considers, as part of its assessment of Board composition and evaluation of potential candidates for Board membership, whether the Board is comprised of individuals who hold diverse viewpoints, professional experiences, education and other skills and attributes which are necessary to enhance Board effectiveness. In addition, the Governance Committee believes that it is desirable for Board members to possess diverse characteristics of race, national and regional origin, ethnicity, gender and age, and considers such factors in its evaluation of candidates for Board membership.
The Governance Committee uses a number of sources to identify and evaluate nominees for election to the Board. It is the Governance Committee’s policy to consider director candidates recommended by stockholders. All Board candidates, including those recommended by stockholders, are evaluated against the criteria described above. Stockholders wishing to have the Governance Committee consider a candidate should submit the candidate’s name and pertinent background information to our Secretary at the address stated above in “Corporate Governance – Communications with our Board of Directors.” Stockholders who wish to nominate director candidates for election to the Board should follow the procedures set forth in our Certificate of Incorporation and Bylaws. For a summary of these procedures, see “2014 Annual Meeting of Stockholders” below.
As compensation for their service on our Board of Directors, our non-employee directors receive an annual retainer of $180,000, of which one-half is paid in cash. To reinforce our directors’ focus on long-term stockholder value and to recognize their long-term commitment to serve the Company, the other half of the retainer is paid in the form of restricted stock granted under our Non-Employee Directors Equity Program (the “Directors Equity Program”). The Directors Equity Program prohibits former directors from engaging in activities detrimental to us while they hold restricted stock we awarded to them. The restricted stock may be forfeited if a former director breaches this obligation. Further, the Directors Equity Program restricts directors from engaging in competitive activities while serving as a director and for one year after service as a director. If a former director breaches this non-compete agreement, we may require him or her to pay us amounts realized within two years prior to termination from awards of restricted stock and exercises of stock options.
The Board has established stock retention guidelines for our non-employee directors that require them to retain at least 50% of the shares of restricted stock they receive until their termination from service as a director. The stock retention requirement is intended to assure that non-employee directors maintain a financial interest in our Company over an extended period of time.
Our non-employee directors are eligible to participate in our matching gifts program until December 31 of the year in which their service as a director ends. Under this program, we will match up to $5,000 of a director’s contributions to eligible 501(c)(3) tax-exempt organizations each year. Directors are also eligible to participate in our employee purchase program, which enables them to obtain rebates on our products they purchase for their personal use. Each of these programs is available to all of our employees. In addition, if space is available, a director’s spouse is permitted to accompany a director who travels on our aircraft to attend Board or committee meetings.
PART III – BOARD OF DIRECTORS
The following table shows 2012 compensation paid to our directors, other than Mr. LindowWadhams, who is also our employee and who receives no additional compensation for his service as director. Directors receive a fee of $1,500 per Board or committee meeting attended. Effective July 1, 2012, the annual retainer for serving as Chairman of the Board was reported late. In connection with a seriesdecreased from $350,000 to $150,000. Mr. Istock commenced service as our Chairman of purchases executedthe Board on July 1, 2012, and so long as he serves in multiple trades over several days, two purchases made bythis capacity, he will not receive additional compensation for also serving as Chairman of the Corporate Governance and Nominating Committee. Chairmanship fees for the other committees are as follows: Audit Committee - $20,000 (for Mr. Losh); and Organization and Compensation Committee - $15,000 (for Ms. Van Lokeren executed in multiple trades were reported late.Lokeren).
2012 Director Compensation
Name | Cash Fees Earned ($) | Stock Awards ($)(1) | All Other Compensation ($)(2) | Total ($)(3) | ||||||||||||
Dennis W. Archer | 112,500 | 90,070 | — | 202,570 | ||||||||||||
Thomas G. Denomme | 120,000 | 90,070 | — | 210,070 | ||||||||||||
Anthony F. Earley, Jr.(4) | 54,000 | 44,960 | — | 98,960 | ||||||||||||
Verne G. Istock(5) | 201,500 | 90,070 | — | 291,570 | ||||||||||||
J. Michael Losh | 138,500 | 90,070 | 5,000 | 233,570 | ||||||||||||
Richard A. Manoogian(6) | 272,500 | 90,070 | 271,790 | 634,360 | ||||||||||||
Donald R. Parfet(7) | 10,500 | — | — | 10,500 | ||||||||||||
Lisa A. Payne | 124,500 | 90,070 | 5,000 | 219,570 | ||||||||||||
John C. Plant(8) | 85,500 | 90,070 | — | 175,570 | ||||||||||||
Mary Ann Van Lokeren | 133,500 | 90,070 | 5,000 | 228,570 |
(1) | In May 2012, we granted 6,290 shares of restricted stock to each non-employee director, except for Mr. Earley, whose grant was prorated to 3,090 shares for the portion of the year he served as a director, and for Mr. Parfet, who joined our Board in December. This column reflects the aggregate grant date fair value of the shares, calculated in accordance with accounting guidance. Directors only realize the value of restricted stock awards over an extended period of time because the vesting of awards occurs pro rata over five years from the date of grant, and one-half of these shares must be retained until completion of their service on the Board. |
(2) | Amounts in this column include (i) our contributions to eligible tax-exempt organizations under our matching gifts program, as described above ($5,000 for each of Mr. Losh, Ms. Payne and Ms. Van Lokeren), for which directors receive no direct financial benefit, and (ii) perquisites of $271,790 provided to Mr. Manoogian during his service as our Chairman of the Board through June 30, 2012, comprised of (a) the incremental cost of $217,690 for his personal use of Company aircraft, which includes the cost for fuel, landing and parking fees, variable maintenance, variable pilot expenses for travel and any special catering costs (as well as the same costs for associated repositioning of the aircraft), (b) personal use of a car and driver valued at $9,100, with the incremental cost for such use being the variable cost of the vehicle operation, and (c) the $45,000 Hart-Scott-Rodino Antitrust Report filing fee described above in “Certain Relationships and Related Transactions.” |
PART III – BOARD OF DIRECTORS
(3) | The following table sets forth the aggregate number of shares of unvested restricted stock as of December 31, 2012 and the aggregate number of stock options outstanding as of December 31, 2012. The Board ceased granting stock options to non-employee directors in 2010; however, a portion of the stock options granted before then remains outstanding. |
Director | Unvested Restricted Stock | Stock Options Outstanding | ||||||
Dennis W. Archer | 18,546 | 72,000 | ||||||
Thomas G. Denomme | 18,978 | 56,000 | ||||||
Anthony F. Earley, Jr. | 15,778 | 56,000 | ||||||
Verne G. Istock | 18,978 | 56,000 | ||||||
J. Michael Losh | 18,978 | 80,000 | ||||||
Richard A. Manoogian | 118,698 | 3,514,000 | ||||||
Donald R. Parfet | — | — | ||||||
Lisa A. Payne | 16,950 | 56,000 | ||||||
John C. Plant | 6,290 | — | ||||||
Mary Ann Van Lokeren | 18,978 | 56,000 |
(4) | Mr. Earley served as a director until our 2012 Annual Meeting. |
(5) | Includes fees of $75,000 paid to Mr. Istock for his service as our Chairman of the Board beginning July 1, 2012. |
(6) | Includes fees of $175,000 paid to Mr. Manoogian for his service as our Chairman of the Board through June 30, 2012. |
(7) | Mr. Parfet joined the Board in December 2012. |
(8) | Mr. Plant was elected a director at our 2012 Annual Meeting. |
PART IV – EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
We are committed to maintaining executive compensation programs that promote the long-term interests of our stockholders by attracting and retaining talented executives and motivating them to achieve our business objectives and to create long-term value for our stockholders. We believe that our performance, the creation of long-term stockholder value, and the achievement of goals that are critical to the success of our Company should impact a significant portion of our executive officers’ compensation.
At Our Organization and Compensation Committee (which we refer to in this Compensation Discussion and Analysis as the “Committee”) oversees our 2011 Annual Meeting of Stockholders, approximately 55% of the votes cast on our say-on-pay proposal were againstcompensation programs and the compensation paid to our named executive officers (included(who are listed in our 20112012 Summary Compensation Table and whom we refer to in this Compensation Discussion and Analysis as “executive officers”). In response,
Recent Compensation Changes
At our Organization2012 Annual Meeting, approximately 95% of the votes cast on our say-on-pay proposal approved the compensation paid to our executive officers. We believe that the strong approval last year showed support for the changes adopted by the Committee after reviewing our compensation programs and Compensation Committee (which we refer to in this Compensation Discussion and Analysis as the “Committee”) obtainedconsidering feedback from our largest stockholders, who held over half of our outstanding common stock about their perceptions and concerns regardingincluding:
We significantly reduced our executive compensation practices. In our callsofficers’ stock option opportunity and meetings with our stockholders, we discussedintroduced a broad range of executive compensation topics, focusingnew Long Term Cash Incentive Program based on howreturn on invested capital performance over a three-year period;
We changed the mix of our long-term incentives forto give approximately equal weight to performance-based restricted stock, stock options, and our executive officers was heavily weighted towardnew Long Term Cash Incentive Program;
We eliminated the excise tax gross-up feature on all equity grants beginning in 2012;
We increased our CEO’s stock options. This feedback helped us better understand the resultownership requirement to six times base salary; and
We adopted double-trigger vesting of the say-on-pay vote. equity on a change in control.
Although the say-on-pay vote is advisory and non-binding, the Committee thoroughly reviewedconsidered results of last year’s say-on-pay vote and concluded that the strong support received last year was confirmation that our stockholders approve of our current compensation programs and policies and the changes we have made to our executive compensation programs.
In 2012, the Committee continued to review our compensation programs and practices in light of the feedback provided by our stockholders, to ensure alignment of our Company’s best interests and the objectives for our compensation programs. TheWe communicated last fall with our largest stockholders on a broad range of executive compensation and governance topics. Taking this feedback and current best practices into consideration, the Committee also considered analysis provided by its compensation consultant. Ashas strengthened our clawback policy. This policy now provides that if we restate our financial statements, other than as a result of this review,changes to accounting rules or regulations, the Committee may recover from current or former executives incentive compensation (including annual and our Board made several changes to our executive compensation programs and practices for 2012 and beyond, as follows:long-term cash incentives, restricted stock or stock options) that was paid or granted during the three-year period preceding the date of restated financial results, regardless of whether misconduct caused the restatement.
PART IV – EXECUTIVE COMPENSATION
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Our executive officers’ 2011 compensation opportunity was established early in 2011, prior to the say-on-pay vote at our Annual Meeting in May 2011. Accordingly, our compensation programs and practices during 2011, as described in this Compensation Discussion and Analysis, do not reflect changes we have made for 2012 and beyond.Financial Performance
Our performance did not meet our expectations in 2011, and, consistent2012 improved compared to 2011. Consistent with our commitment to pay-for-performance, no performance-basedthe compensation we paid to our executive officers increased, as our executive officers earned restricted stock awards orand cash bonuses were earned bybased on our achievement of our 2012 earnings per share and cash flow performance metrics. Our 2012 results and the incentive compensation paid to our executive officers and their total direct compensation declined 27% compared to 2010.are described under “Summary of Compensation Decisions in 2012” below.
Compensation Best Practices
In addition to our emphasis on pay-for-performance andthe changes we have implemented afterin the 2011 say-on-pay vote,past two years, as described above, our executive compensation programs already incorporatedincorporate many best practices, as follows:
ourOur compensation mix is weighted toward long-term incentives;
ourOur restricted stock and stock option awards have five-year vesting schedules, significantly longer than current market practice;
weWe employ an annual market analysis of executive compensation relative to peer companies and published survey data for comparably-sized companies;
weWe provide limited perquisites to our executive officers;
weWe prohibit derivative trading in our stock;
We have no employment agreements, change in control agreements or contractual severance agreements with our executive officers;
we prohibit derivative trading in our stock;
ourOur equity plan prohibits the repricing of options; and
ourOur Committee, comprised exclusively of independent Directors,directors, uses tally sheets and analyzes risk in setting executive compensation.
Changes Made to Our Executive Compensation Programs
The Committee took the result of our 2011 say-on-pay vote very seriously and, in response, completed an in-depth review of our executive compensation programs and practices, considering the feedback provided by stockholders, analysis from its compensation consultant and our Company’s best interests. Based on this review, the Committee made several changes to our compensation practices and programs, as described below.
We Have Changed the Type and Mix of Our Long-Term Incentives
The Committee has modified our long-term incentives by establishing a Long-Term Cash Incentive Program (“LTCIP”) providing our executive officers an opportunity to earn a performance award paid in cash. The LTCIP award opportunity replaces a significant portion of the stock options historically granted to our executive officers. Performance awards will be earned only if we achieve long-term growth and profitability, measured by the achievement of return on invested capital (“ROIC”) goals over a three-year period. ROIC was selected because it measures how effectively we are using our capital, and it is a measure that our stockholders and management use to assess our performance. Under the LTCIP, we define ROIC as adjusted after-tax operating income from continuing operations adjusted to exclude the effect of special charges and certain other non-recurring income and expenses, divided by invested capital. Invested capital includes shareholders equity, adjusted for the cumulative after-tax impact of goodwill and intangible asset impairment charges and to exclude the impact of certain non-operating income and expenses and the effects of special charges, plus short-term and long-term debt minus cash.
Under the LTCIP, performance will be measured over three annual performance periods, with the average results for the three annual performance periods determining the amount of any award. Performance goals will be established at the start of each three-year period. The following average ROIC goals and corresponding payout percentages have been established by the Committee for the three-year performance period from 2012 to 2014:
Potential Payout Versus Performance | ||||||||||||
Threshold
(40% Payout) |
Target
(100% Payout) |
Maximum
(200% Payout) | ||||||||||
Three-Year Average ROIC | 6.00 | % | 7.00 | % | 8.50 | % |
These performance goals are consistent with our long-range business plan and will require a high level of performance to achieve. Under the LTCIP definitions, our ROIC for 2011 would have been 3.8%.
The Committee has established a performance award opportunity for each of our current executive officers under the LTCIP based on a percent of his annual base salary, as follows:
LTCIP Opportunity as % of Annual Base Salary | ||||||||||||
Executive Officer | Minimum | Target | Maximum | |||||||||
Timothy Wadhams | 0% | 150% | 300% | |||||||||
President and Chief Executive Officer | ||||||||||||
John G. Sznewajs | 0% | 75% | 150% | |||||||||
Vice President, Treasurer and Chief Financial Officer | ||||||||||||
Gregory D. Wittrock | 0% | 65% | 130% | |||||||||
Vice President, General Counsel and Secretary | ||||||||||||
Charles F. Greenwood | 0% | 65% | 130% | |||||||||
Vice President - Human Resources | ||||||||||||
John P. Lindow | 0% | 65% | 130% | |||||||||
Vice President - Controller |
If the threshold three-year average ROIC is attained, we will determine the actual award to be made to each executive officer by multiplying the target opportunity for each executive officer by the payout percentage corresponding to the actual three-year average ROIC achieved. If the ROIC threshold is not achieved, no payments will be available under the LTCIP.
The Committee believes implementation of the LTCIP is in our best interests because it provides a meaningful incentive for our executive officers to achieve our long-term growth and profitability goals. Further, the LTCIP also responds to feedback from our stockholders. The LTCIP includes a ROIC performance metric, which was chosen because it reinforces our executive officers’ focus on capital efficiency and consistent return on capital and is a measure of importance to our stockholders in their assessment of our long-term value creation. The LTCIP replaces a significant portion of the stock options historically granted to our executive officers with a long-term, three-year performance program. In adopting the LTCIP, the Committee has changed the mix of long-term incentive compensation opportunity for our executive officers, giving approximately equal weight to performance-based restricted stock, stock options, and LTCIP awards. With the adoption of the LTCIP, our 2012 target compensation mix for our CEO and our other executive officers is as follows:
2012 Compensation Mix at Target Performance
We believe this target compensation mix, which is comprised of a significant percentage of long-term, performance-based compensation, appropriately incentivizes our executive officers to achieve long-term value creation for our stockholders and to make strategic decisions that will strengthen our business.
We Have Changed Our Excise Tax Gross-Up Policy
Our Board has adopted a policy prohibiting excise tax gross-up payments, except for such payments committed to in equity and frozen Supplemental Executive Retirement Program (“SERP”) agreements entered into prior to 2012. Specifically, equity awards made in 2012 and thereafter will no longer be included for purposes of determining future excise tax gross-up payments. With the exception of tax equalization gross-up payments made to employees in connection with reimbursement of relocation or foreign expatriate expenses incurred at our request, we do not provide other tax gross-up payments.
We Have Increased Our CEO’s Minimum Stock Ownership Requirement
To further reinforce the alignment of our executive officers’ long-term financial interests with the interests of our stockholders, we have required minimum stock ownership for our executive officers for many years. This requirement ensures that our executive officers maintain a substantial investment in our common stock and that a meaningful amount of each executive officer’s personal net worth is invested in our Company. In connection with our review of our executive compensation programs and practices, our Board reviewed our stock ownership guidelines and determined to increase the minimum stock ownership guideline for our CEO from a multiple of five times base salary to six times base salary.
The Committee reviews our executive officers’ ownership of our common stock annually to ensure compliance with our stock ownership guidelines. Our executive officers’ direct stock holdings and unvested restricted stock awards are counted toward satisfaction of the guidelines. As of December 30, 2011, the last trading day of the year, when the closing price of our common stock was $10.48, each of our executive officers met his stock ownership requirement, as follows:
Minimum Stock Ownership | Actual Ownership | |||||||||||||||
Name | Multiple of Base Salary | Multiple Expressed in Dollars | Multiple of Base Salary | Value of Shares Held by Executive | ||||||||||||
Timothy Wadhams | 6 | $ | 6,000,000 | 9.5 | $ | 9,518,659 | ||||||||||
John G. Sznewajs | 3 | 1,590,000 | 4.2 | 2,216,405 | ||||||||||||
Gregory D. Wittrock | 2 | 800,000 | 2.1 | 836,681 | ||||||||||||
Charles F. Greenwood | 2 | 660,000 | 2.6 | 873,948 | ||||||||||||
John P. Lindow | 2 | 520,000 | 2.7 | 695,432 |
We Have Adopted Double-Trigger Change of Control Provisions for Our Equity Awards
The Committee has determined to modify the terms of future equity awards to implement a double-trigger change in control provision. The terms of our equity awards have generally provided that the awards would vest immediately upon a change in control of our Company (“single trigger” vesting). The terms of future equity awards will state that the awards will vest only if there is both a change in control of our Company and the recipient of the award is terminated from employment at the time of the change in control or within a specified period of time after the change in control, or terminates employment for “good reason” (for example, if his or her job duties have been significantly diminished) (“double-trigger” vesting), or if our equity program is not assumed by the acquiring company.
What Compensation Principles and Objectives and Annual Review Processare the Foundation for Masco’s Executive Compensation Programs?
The fundamental principles of our compensation programs are to reward our executive officers to a significant degree based on our performance, both in achieving our performance goals and by making effective strategic decisions, and to align our executive officers’ interests with the long-term interests of stockholders. Our compensation programs are designed to incentivize our executive officers to focus on critical business objectives, to appropriately balance risks and rewards and to attract and retain executive officers who can effectively lead our business.
As a result of our emphasis on rewarding our executive officers based on our performance, each executive officer’s potential performance-based compensation represents a significant percentage of his total annual target compensation. In 2011, the percentage of total
PART IV – EXECUTIVE COMPENSATION
Our 2012 target compensation (definedmix for our CEO and our other executive officers reflects our emphasis on performance-based elements, as annual base salary,follows:
2012 Compensation Mix at Target Performance
We believe this target cash bonus opportunity, target restricted stock opportunity,compensation mix, which emphasizes long-term, performance-based compensation, appropriately incentivizes our executive officers to achieve long-term value creation for our stockholders and target value of stock options)to make strategic decisions that was performance-based was approximately 87% for Mr. Wadhams, 74% for Mr. Sznewajs, and 68% for Messrs. Wittrock, Greenwood and Lindow,will strengthen our current executive officers.business.
WeIn addition, we believe that having a significant ownership interest in our stock is critical to aligning the interests of our executive officers with the long-term interests of our stockholders. Accordingly, equity grants in the form of restricted stock awards and stock options are an important component of compensation for our executive officers. Our equity awards vest in 20% installments over five years. We believe five-year vesting defers the executives’ realization of the full benefit of equity-based compensation for a substantial period of time, and is significantly longer than current market practice.
The value ultimately realized from equity awards depends on the long-term valueperformance of our common stock. Our equity awards do not vest immediately upon retirement. Instead, following retirement, equity awards generally continue to vest in accordance with the remaining vesting period. Our executive officers therefore, understand that our performance will continue to impact them financially even after they retire, thereby reinforcing their focus on the long-term enhancement of stockholder value.
Our approach to executive compensation emphasizes corporate rather than individual performance without encouraging excessive risk taking, echoing our operating strategy which encourages collaboration and cooperation among our businesses and corporate functions for our overall benefit. We believe that the effectiveness of our executive compensation programs requires not only objective, formula-based arrangements, but also the exercise of discretion and sound business judgment by the Committee. Accordingly, the Committee retains discretion to adjust base salary, grant special equity awards, adjust the mix of cash and equity compensation, adjust the mix of restricted stock and stock options awarded, and offer different forms of equity-based compensation. With this discretion, the Committee is best able to reward the individual contributions of each executive officer and to respond to our changing business needs.
PART IV – EXECUTIVE COMPENSATION
Annual Review Process
What Process is Used by Management and Our Compensation Committee
We review and make decisions regarding the amount of base salary, annual performance-based restricted stock awards and cash bonus payments and stock option grants in the first quarter of the year. We believe that determining these elements of compensation together at the beginning of the year gives us a better foundation for establishing our performance criteria and opportunity levels for the current year performance-based restricted stock awards and cash bonus payments. This also better enables the Committee to determine the executive officers’ appropriate compensation mix and to align compensation with ongoing talent review and development.Make Compensation Decisions?
Our annual management talent review and development process is used by the Committee and our CEO in making compensation decisions and for succession planning purposes. As part of this process, our CEO provides the Committee with an assessment of each executive who reports to him. The assessment evaluates theincludes an evaluation of each executive’s performance, development, progress and plans and potential for advancement, and also considers market demand for the executive’s skill set. The Committee also receives information, analyses and recommendations from our Vice President – Chief Human Resources.Resource Officer. While the Committee gives significant weight to the evaluations by our CEO, the final determination of compensation to be paid to the executive officers, including our CEO, rests solely with the Committee.
In evaluating Mr. Wadhams, our CEO, the Committee considers the factors noted above for other members of management, and also considers the qualities of leadership and responsibility necessary for the chief executive officer position. Other factors considered by the Committee include Mr. Wadhams’ contribution to our performance and governance, the impact of his leadership on the performance of our executive officers and management team and his reputation for representing us in the community.
We review and make decisions regarding the amount of annual performance-based restricted stock awards and cash bonus payments and stock option grants in the first quarter of the year. We believe that determining these elements of compensation together at the beginning of the year gives us a better foundation for establishing our performance criteria and opportunity levels for the current year. This also better enables the Committee to determine the executive officers’ appropriate compensation mix and to align compensation with ongoing talent review and development in conjunction with our annual management talent review.
What Compensation Data is Considered by the Committee in Establishing Annual Compensation?
In establishing compensation, the Committee reviews a tally sheet that comprehensively summarizes the various components of total compensation for our executive officers and other members of management. The tally sheet which is prepared by our Human Resources department, includes base salary, annual performance-based cash bonus long-termand restricted stock, incentive compensation,stock options, dividends on unvested shares of restricted stock, and our costs for the foregoing and for perquisites and other benefits, including the annual costs under retirement plans. The tally sheet allows the Committee to compare an executive officer’s compensation with the compensation of our other executive officers and executives at our peer companies as part of its consideration of internal and
external pay equity. Amounts actually realized by an executive officer from prior equity grants are not necessarily a factor in establishing current compensation, although the current value of outstanding equity awards may be considered by the Committee when assessing pay equity.
Comparative Compensation
The Committee also reviews compensation for each of our executive officers with AonHewitt’s and Towers Watson’s published compensation surveys for companies with annual revenues between $5 billion and $10 billion and with compensation information disclosed in the proxy statements of our peer group. When we achieve targeted levels of performance, our executive compensation program seeks to provide total target compensation (base salary, target annual bonus and the target value of long-term incentives) at approximately the median compensation level provided to executives in comparable positions at these companies. While the Committee generally targets total compensation for each executive officer at the median, it considers other factors, such as the length of time an executive officer has served in his current position, his roles and responsibilities and his performance. The Committee also analyzes actual compensation paid as reported in published surveys and by our peer group to help inform individual pay decisions. We believe this approachunderstanding the market data allows us to attract and retain the talent we need while enabling us to manage our compensation expense.
Finally, the Committee considers an analysis of the overall pay-for-performance alignment of our CEO’s compensation compared to our peer group over one-year, three-year and five-year periods. During the past five years, our total shareholder return has been below the 25th percentile of our peers. While target compensation for
PART IV – EXECUTIVE COMPENSATION
our CEO has approximated the median of our peer group during this period, our CEO’s actual total compensation has been below the 25th percentile of our peer group. Based on this analysis, the Committee believes that there is good alignment between compensation paid to our CEO and our performance. In 2012, our total shareholder return improved to the 75th percentile of our peer group.
The following table shows how our current executive officers’ total target compensation and total actual compensation in 2012 compared to market data published in 2012. Total actual compensation is defined as the sum of base salary, actual cash bonus paid, and the grant date fair value of restricted stock awards and stock options.
Comparison to Market Compensation | ||||
Executive Officer | 2012 Target Total Compensation | 2012 Actual Total Compensation | ||
Timothy Wadhams | Approximately 50th percentile | Approximately 50th percentile | ||
John G. Sznewajs | Between the 25th and 50th percentiles | Between the 25th and 50th percentiles | ||
Gregory D. Wittrock | Between the 25th and 50th percentiles | Between the 25th and 50th percentiles | ||
Jai Shah | Approximately 50th percentile | Between the 25th and 50th percentiles | ||
John P. Lindow | Between the 50th and 75th percentiles | Between the 50th and 75th percentiles |
Given the many and diverse businesses in which we operate, composition of an appropriate peer group is challenging, as historically there have been few companies providing a similar mix of products and services as we offer. The Committee periodically considers the composition of our peer group, and in 2011 requested that its compensation consultant provide an analysis of our peer group. After considering the compensation consultant’s analysis, the Committee revisedmodified our peer group last year, as we described in early 2012 by removing nine companies (The Home Depot, United Technologies Corp., Lowe’s, 3M, Emerson, KB Home, The Ryland Group, Inc., M.D.C. Holdings, Inc. and Toll Brothers, Inc.) and adding six companies (Whirlpool Corp., Tyco International, Ingersoll-Rand, Mohawk Industries, Cooper Industries and Owens Corning).last year’s proxy statement. The Committee believes that the newour peer group reflects the companies that we compete with for executive talent and that have a range of annual revenues and business and operational characteristics similar to ours.
Our new peer group is comprised of the following companies:
Cooper Industries | ||||||
Illinois Tool Works | Newell Rubbermaid | SPX | ||||
D.R. Horton | Ingersoll-Rand | NVR | Stanley Black & Decker | |||
Danaher | ITT | Owens Corning | Textron | |||
Dover Corporation | Lennar | PulteGroup | Tyco International | |||
Fortune Brands Home & Security | Mohawk Industries |
The following table shows how our current executive officers’ total target compensation and total actual compensation compared to market in 2011:
Sherwin-Williams Company | ||||
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The Committee has also reviewed a report prepared by its compensation consultant analyzing the overall pay-for-performance alignment of our CEO’s compensation compared to our new peer group over one-year, three-year and five-year periods. During the past five years, our actual performance has been at or below the 25th percentile of our peers. While target compensation for our CEO has approximated the median of our peer group during this period, actual total compensation to our CEO, based on the current intrinsic value of equity awards made, has been below the 25th percentile of our peer group. Based on this analysis,Has the Committee believes that there is good alignment between compensation paid to our CEO and our performance.
Engaged a Compensation Consultant to the CommitteeConsultant?
The Committee has exercised its authority to retain its own independent advisors. Following the 2011 say-on-pay vote, the Committee determined to engageadvisor and has engaged Semler Brossy as its compensation consultant. Semler Brossy was chosen by the Committee based on its deep experience in the area of executive compensation and its creative and proactive approach in analyzing executive compensation practices and programs. Further,During 2012, Semler Brossy had previously provided executive compensation advice to the Company, including advice in 2011 about the design of our pay programs. Semler Brossy did not advise us regarding our 2011 performance targets, pay levels or equity awards to our executive management team. Semler Brossy’s knowledge of our particular executive compensation practices and programs was of critical importance in enabling Semler Brossy to provide comprehensive advice to the Committee on an expedited basis. This was extremely valuable to the Committee as it worked to quickly consider our failed say-on-pay vote and evaluate proposed changes to our executive compensation programs. In addition to analyzing our executive compensation programs and practices and providing advice regarding responding to the say-on-pay vote, Semler Brossy has attended Committee meetings, met with the Committee in executive sessions without our executive officers or other members of management, met individually with Committee members and the Committee chair, assisted the Committee in its review of peer group compensation and advised the Committee on its overall implementation of our compensation objectives.
Since In 2012, Semler Brossy also advised the Committee began discussions with Semler Brossy regarding its engagement, managementon the design and implementation of our Long Term Cash Incentive Program, our new clawback policy, and our double-trigger change in control provision. After considering the factors promulgated by the SEC for assessing the independence of Committee advisers, the Committee has not utilizeddetermined that the serviceswork of Semler Brossy and Semler Brossy willhas not provide services to management so long as it is engaged by the Committee.
Prior to the engagementraised any conflict of Semler Brossy, the Committee had engaged and received advice on executive compensation matters from AonHewitt during 2011. On an annual basis, we purchase non-customized compensation surveys from AonHewitt. In 2011, the cost of these surveys was approximately $8,500. AonHewitt did not provide any consulting or other services to management during 2011.
PART IV – EXECUTIVE COMPENSATION
Summary of Compensation Decisions for 20112012
Our 2011 Performance: Context for Compensation DecisionsHow Did Masco Perform in 2012?
We areexperienced sales and margin growth in 2012 compared to 2011, and our total shareholder return improved to the 75th percentile of our peer group. Contributing to our improved performance in 2012 was our ability to successfully leverage a leading manufacturernumber of home improvement and building products and a leading provider of services that include the installation of insulation and other building products. In 2011, we incurred increased commodity costs while the economy continuedour well-known brands to experience declining home values, lack of job creation and depressed consumer confidence, hindering a housing recovery, all of which impacted our performance. Notwithstanding this challenging environment, our executives are focused on managing our Company through this difficult economic environment by taking actions designed to increaseexpand our market shareleadership positions. Through new product launches and the introduction of new finishes and complementary accessories, we extended a number of our popular brands to key retail partners. In addition to leveraging our brands through product adjacencies, we are building our brand equity through geographic expansion of several of our businesses.
During 2012, we made considerable progress in improving the profitability of our Cabinet and Installation businesses, driven by benefits realized from prior year restructuring activities as well as profit improvements made during the year. Our commitment to further strengthen our lean culture across all our businesses resulted in our major product categories, by strengtheningreaching and exceeding our brands, by investing in product innovation and by introducing new products.2012 total cost productivity targets. We are gaining market share in the United States with our DELTA®, PEERLESS®, BRIZO®, HOT SPRING® and CALDERA® brands. We believe Behr has increased its brand share across all do-it-yourself architectural coatings categories. In 2011, Delta Faucet Company launched its innovative TOUCH2O® technology for lavatory faucets, Behr introduced a new low-VOC formula in its core PREMIUM PLUS® paint line, and Masco Cabinetry introduced a countertop product for the kitchen and integrated bathroom vanity countertop solutions. We believe our commitment to developing innovative products and building our brands is demonstrated by the recognition we received in 2011. KraftMaid cabinetry ranked “Highest in Customer Satisfaction with Cabinets” in the J.D. Power and Associates 2011 U.S. Kitchen Cabinet Satisfaction StudySM. Delta Faucet was named WaterSense® Partner of the Year by the Environmental Protection Agency in recognition of its ongoing commitment to promoting advancements in water efficiency, and Behr products again achieved #1 rankings in a leading consumer study.
Since the economic downturn, our executive officers have taken significant actions designed to manage our cash position and our cost structure, rationalize our business operations and improve our business processes. Over the last several years, we have achieved a significant reduction in our fixed costs, improved our global supply chain and achievedoperating profit and process improvements as a result of integration savings, leanthe significant progress we have made in reducing our cost structure, streamlining our sourcing process and sourcing activitiesaccelerating our supply chain savings.
Enhancing our balance sheet and spending reductions.our liquidity remained a focus in 2012. During the course of the year, we were able to strengthen our balance sheet and reduce our debt by $400 million. We ended 2012 with approximately $1.4 billion of cash.
In 2013, we are focused on successfully executing our new product programs, reducing costs, improving profitability in our Cabinet business, and further expanding our brand leadership positions. We believe the actions we have taken byover the past several years, including investing in our executive officers have been effective in managingbrands, reducing our businesses successfully through the economic crisiscost structure and subsequent recession of recent years, andpaying down debt, have strengthened our business andbusiness. We believe these actions have positively positioned us well for a recoveryto take advantage of the upturn in our markets.the housing cycle.
What Components of 2011 Compensation Were Available to Masco’s Executives in 2012?
The components of the compensation available to our executive officers in 20112012 were base salary, performance-based restricted stock and cash bonus opportunities, stock option awards, minimal perquisites and retirement programs. Because our Long Term Cash Incentive Program (“LTCIP”), established in 2012, provides for a three-year performance period, no cash payout will be available under that program until our financial results for 2014 have been finalized. Each of these components is described below.
Base Salary
We pay our executive officers a base salary to provide each of them with a minimum, base level of cash compensation. As it had done in 2008, 2009, and 2009,2011, the Committee froze base salaries again in 20112012 for our CEO, CFO, and our Vice President – Human Relations.Controller and Vice President, General Counsel and Secretary. The base salary of Mr. LindowShah was increased from $235,000$317,000 to $260,000$370,000 following his promotion to Vice President – Controller- Chief Human Resource Officer in 2011. Mr. Wittrock, our Vice President, General Counsel and Secretary, received a market salary increase from $370,000 to $400,000 in 2011.June 2012. In determining the appropriate compensation adjustmentsadjustment for Messrs. Lindow and Wittrock,Mr. Shah, the Committee reviewed market survey data in published executive compensation surveys for companies with annual revenues similar to ours. The Committee also reviewed theirours, and Mr. Shah’s compensation history and the compensation of their predecessors.history.
The Committee has determined not to increase base salaries for our executive officers in 2012.
Annual Performance-Based Restricted Stock and Cash Bonus Opportunities
We provide annual performance-based restricted stock and cash bonus opportunities to our executive officers to emphasize our annual performance, provide incentive to achieve our critical business objectives, and align our executive officers’ interests with those of our stockholders. As described below, we did not attain our earnings per share or cash flow performance targets in 2011. As a result, no performance-based
PART IV – EXECUTIVE COMPENSATION
The Committee establishes the restricted stock awards oraward and cash bonuses were earned bybonus opportunities available to each executive officer as a percent of his annual base salary. Each executive officer can earn up to the maximum opportunity as a restricted stock award and as a cash bonus payment. In 2012, the opportunity levels as a percentage of base salary for our current executive officers remained the same as in 2011, and their total direct compensation (annual salary, restricted stock, cash bonus and stock option awards) declined 27% compared to 2010, as described in the Supplemental Compensation Table below.follows:
Opportunities for Cash Bonus & Stock Awards, Each as a % of Annual Base Salary | ||||||||||
Executive Officer | Minimum | Target | Maximum | |||||||
Timothy Wadhams | 0% | 150 | % | 300 | % | |||||
John G. Sznewajs | 0% | 75 | % | 150 | % | |||||
Gregory D. Wittrock | 0% | 65 | % | 130 | % | |||||
Jai Shah | 0% | 65 | % | 130 | % | |||||
John P. Lindow | 0% | 65 | % | 130 | % |
In the first quarter of each year, the Committee approves our performance metrics and performance targets for the year. As it has done since 2009,For 2012, the Committee established earnings per share and cash flow performance targets for 2011.targets. Earnings per share was selected because our stockholders view it as a keyan important measure of our financial performance. Cash flow is particularlycontinued to be important to us in 2012 as the current challenging economic environment continued to be challenged, since itrobust cash flow is necessary for us to meet our debt obligations and invest in growth initiatives.
In setting our performance targets, the Committee reviews our operating forecast for the year, taking into account general economic and industry conditions. When the Committee established the 20112012 performance targets, it was expected that housing starts and consumer spending for home improvement projects would increase in 20112012 compared to 2010, but2011, though we believed that big ticket repair and remodel activity would lag overall repair and remodel purchases, and that we would incur significant incremental expenses related to investment in growth initiatives our corporate expenses and rationalization activity. Accordingly,Notwithstanding these incremental expenses, the earnings per share target wasand cash flow targets were set at a levellevels slightly belowabove the 2010 target. The 2011 targets.
We were successful in generating both earnings per share and cash flow that exceeded the target was also reduced from the 2010 targetlevel of performance in anticipation that, after several years of significantly curtailed capital expenditures2012. Earnings per share and diligent management of working capital, we would needcash flow performance measures used to increase capital expenditures and would generate less cash from working capital management in 2011.
The Committee establishes thecalculate 2012 restricted stock awardawards and cash bonus opportunities available to each executive officer as a percent of his annual base salary. In 2011, the opportunities levels for our current executive officers remained at the same levels as in 2010,bonuses are as follows:
Opportunities for Cash Bonus & Stock Awards, Each as a % of Annual Base Salary | ||||||||||||
Executive Officer | Minimum | Target | Maximum | |||||||||
Timothy Wadhams | 0 | % | 150 | % | 300 | % | ||||||
John G. Sznewajs | 0 | % | 75 | % | 150 | % | ||||||
Gregory D. Wittrock | 0 | % | 65 | % | 130 | % | ||||||
Charles F. Greenwood | 0 | % | 65 | % | 130 | % | ||||||
John P. Lindow | 0 | % | 65 | % | 130 | % |
To determine actual cash bonuses to be paid and restricted stock awards to be granted to our executive officers, we multiply the target opportunities for each executive officer by the payout percentage corresponding to the actual earnings per share or cash flow achieved. In 2011, neither our earnings per share nor our cash flow met the threshold level of performance established by the Committee and, accordingly, we made no cash bonus payments or restricted stock awards to our executive officers, as follows:
Potential Payout Versus Performance | ||||||||||||||||||||||||||||||||||||||
Performance Metric | Potential Payout Versus Performance | Threshold (40% Payout) | Target (100% Payout) | Maximum (200% Payout) | Actual as | Actual Percentage Attained Relative to Target |
| Weighting |
| Actual | ||||||||||||||||||||||||||||
Threshold (40% Payout) | Target (100% Payout) | Maximum (200% Payout) | Actual as Adjusted | Actual Percentage Attained Relative to Target | ||||||||||||||||||||||||||||||||||
Earnings Per Common Share | $ | 0.05 | $ | 0.20 | $ | 0.70 | $ | (0.13 | ) | 0 | % | $0.10 | $0.25 | $0.50 | $0.33 | 132% | × | 50% | = | 66% | ||||||||||||||||||
Cash flow (in millions) | $ | 100 | $ | 150 | $ | 250 | $ | 88 | 0 | % | $165 | $195 | $245 | $215 | 140% | × | 50% | = | 70% | |||||||||||||||||||
136% |
For purposes of determining achievement of the performance target, our reported earnings per common share from continuing operations is adjusted to exclude the effects of rationalization and other special charges, gains and losses from corporate divestitures, charges for litigation settlements, certain other non-operating income and expenses and the benefit resulting from any stock repurchases in excess of a predetermined amount. Cash flow is defined as reported cash from operations, less any capital expenditures, prior to the payment of cash dividends, and is adjusted to exclude the effects of rationalization and other special charges, gains and losses from corporate divestitures, impact of deferred taxes, charges for litigation settlements, and certain other non-operating income and expenses. The adjustments to cash flow increased the value used to determine achievement of the performance target by $17earnings per share goal to $0.33 from our reported earnings per share from continuing operations of $(0.22) and increased the value used to determine achievement of the cash flow goal to $215 million from our actual freereported cash from operations of $139 million.
PART IV – EXECUTIVE COMPENSATION
The Committee determined that we achieved 132% of the target performance level for the earnings per share metric, and 140% of the target performance level for the cash flow metric. Applying an equal weighting to the two metrics, the Committee authorized restricted stock awards and cash bonus payments to our executive officers at 136% of $71 million.the target amounts. While the Committee may exercise negative discretion to reduce (but not increase) restricted stock awards and cash bonuses regardless of the earnings per share and cash flow results actually attained, the Committee did not elect to do so. To determine actual restricted stock awards to be granted and cash bonuses to be paid to our executive officers based on our 2012 performance, we multiplied the target opportunities for each executive officer by the payout percentage corresponding to the actual earnings per share and cash flow performance percentage achieved, which was 136%, and multiplied that result by each executive officer’s base salary.
In addition to granting performance-based restricted stock, the Committee also has the discretion to award shares of restricted stock to our executive officers, other than our CEO, if it determines that an executive officer has made outstanding individual contributions during the prior year. These discretionary awards, if made, would be awarded following certification of our prior year’s results and at the time that our executive officers’ evaluations take place. The total value of these awards cannot exceed 20% of the combined annual base salaries of the executive officers (excluding the salary of our CEO). No individual awards were recommended in 2012 for 2011.
In early 2012, the Committee again decided to tie the cash bonus and stock award opportunities to earnings per common share and cash flow for our 2012 annual incentive compensation plan. We are using these performance metrics again because the Committee believes they are particularly important as we continue to operate in a challenging economic environment.2012.
Stock Options
We have granted stock options annually to our executive officers to motivate and reward them for improving our share price, to align their long-term interests with those of stockholders and to maintain the competitiveness of our total compensation package. Prior to 2012, the value of each executive officer’s stock option grant (based on the economic value of the stock options at the grant date using the Black-Scholes model) has been approximately equal to the value the Committee estimated was needed to make each executive officer’s target total compensation approximate the median target compensation packages provided to executives in comparable positions at our peer companies. In early 2011, prior to our 2011 say-on-pay vote, the Committee again determined to grant stock options to all of our executive officers in the same amounts as in prior years, as disclosed in the Supplemental Compensation Table below.
The Committee believes that stock options continue to beare an important component of our executive compensation programsprogram because they align our executive officers’ long-term interests with
those of our stockholders by reinforcing the goal of long-term share price appreciation. Further, they provide value to our executive officers only if the price of our common stock increases following the grant of the stock options. With the exception of stock options granted to our executive officers in 2009, all of the vested stock options held by our executive officers on December 30, 2011, the last trading day of the year, were “underwater” because the closing price of our common stock on that day ($10.48) was less than the closing price of our common stock on the day the options were granted (the “strike price”).
Afterand over their long vesting schedule. In 2012, after evaluating the mix of our long-term incentive compensation and considering the feedback from our stockholders regarding our long-term incentives, the Committee determined to significantly reducereduced the importance of stock options in our long-term incentive compensation mix and granted significantly fewer options, half the number granted in the prior year, to our executive officers. In early 2013, the Committee granted the same number of stock options to executive officers as it had granted in 2012, with the exception of Mr. Shah, who had received an additional special grant of stock options in 2012 upon his promotion to Vice President – Chief Human Resource Officer.
Long Term Cash Incentive Program
As described in last year’s proxy statement, in 2012 the Committee modified our long-term incentives by establishing a Long Term Cash Incentive Program (“LTCIP”). The LTCIP provides our executive officers a meaningful incentive to achieve our long-term growth and profitability goals through an opportunity to earn a performance award paid in cash. The LTCIP award opportunity replaced a significant portion of the stock options historically granted to our executive officers. In adopting the LTCIP, the Committee changed the mix of long-term incentive compensation opportunity for our executive officers, giving approximately equal weight to performance-based restricted stock, stock options, and LTCIP awards.
Performance awards will be earned under the LTCIP only if we achieve long-term growth and profitability, measured by the achievement of return on invested capital (“ROIC”) goals over a three-year period. The Committee chose the ROIC performance metric because it reinforces our executive officers’ focus on capital efficiency and consistent return on capital and is a measure of importance to our stockholders in their assessment of our long-term value creation. Under the LTCIP, we define ROIC as adjusted after-tax operating income from continuing operations adjusted to exclude the effect of special charges and certain other non-recurring income and expenses, divided by invested capital. Invested capital includes shareholders equity, adjusted for the
PART IV – EXECUTIVE COMPENSATION
cumulative after-tax impact of goodwill and intangible asset impairment charges and to exclude the impact of certain non-operating income and expenses and the effects of special charges, plus short-term and long-term debt minus cash.
Under the LTCIP, performance is measured over three annual performance periods, with the average results for the three annual performance periods determining the amount of any award. Performance goals are established at the start of each three-year period. The following average ROIC goals and corresponding payout percentages have been established by the Committee for the three-year performance period from 2012 to 2014:
Potential Payout Versus Performance | ||||||||||||
Threshold (40% Payout) | Target (100% Payout) | Maximum (200% Payout) | ||||||||||
Three-Year Average ROIC | 6.00 | % | 7.00 | % | 8.50 | % |
These performance goals are consistent with our long-range business plan and will require a high level of performance to achieve. Under the LTCIP definitions, our ROIC for 2012 was 5.76%. For the 2013 to 2015 performance period, the Committee has established a target percentage of 8.50%, 1.50% higher than the target percentage of 7.0% set for the 2012 to 2014 performance cycle.
The performance award opportunity for each of our current executive officers under the LTCIP is based on a percent of his annual base salary, and is identical to the opportunity levels available to our executive officers in early 2012. The options grantedunder our annual performance program, described under “Annual Performance-Based Restricted Stock and Cash Bonus Opportunities” above.
If the threshold three-year average ROIC is attained, we will determine the actual award to be made to each current executive officer in early 2012 had less than halfby multiplying the value of those granted in 2011.target opportunity for each executive officer by the payout percentage corresponding to the actual three-year average ROIC achieved. If the ROIC threshold is not achieved, no payments will be made under the LTCIP.
Perquisites and Other Compensation
Our executive officers receive a limited number of perquisites. We maintain Company aircraft for business purposes, and the Committee has evaluated our policies and valuation practices for personal use of these aircraft. The Board has requested that Mr. Wadhams use our aircraft for both business and personal travel, with personal travel subject to prior approval by our Chairman of the Board. Notwithstanding this, personal use of our aircraft is considered a perquisite for SEC reporting purposes. Our CEO may occasionally permit other executive officers to use our aircraft, if available, for personal travel.
Our executive officers are eligible to participate in an estate and financial planning program to assist them in achieving the benefit of our compensation programs. This program provides up to $10,000 per year for financial planning and tax preparation.
Retirement Programs
We maintain defined contribution retirement plans for all of our employees to provide them with income to supplement social security and their personal asset accumulation. These plans include 401(k) savings plans and profit sharing plans. Our executive officers are eligible to participate in our tax-qualified 401(k) savings plan (the “401(k) Savings Plan”) and a tax-qualified Future Service Profit Sharing Plan (the “Profit Sharing Plan”), as well as a benefits restoration plan (the “BRP”). The BRP enables highly-compensated employees to obtain the full financial benefit of the 401(k) Savings Plan and the Profit Sharing Plan, notwithstanding various limitations imposed on the plans under the Internal Revenue Code (the “Code”).
PART IV – EXECUTIVE COMPENSATION
Our executive officers are also entitled to receive benefits under our defined benefit plans, which are the Masco Corporation Pension Plan and the portion of the BRP applicable to the Masco Corporation Pension Plan. Messrs. Wadhams and Sznewajs also receive benefits under a Supplemental Executive Retirement Plan (“SERP”). SERP benefits are not provided to Messrs. Wittrock, GreenwoodShah or Lindow. In 2010, we froze accruals in all of these plans, as well as in all of our other defined benefit plans offered to our U.S. employees. Consequently, the pension benefits ultimately payable to Messrs. Wadhams and Sznewajsall executive officers are essentially fixed, although Mr. Sznewajs’ vesting in the frozen accrued SERP benefit has continued. Mr. Sznewajs will not be fully vested in his frozen SERP benefit unless he continues employmentto be employed with us over the next 10 years,until he is age 55, or we have a change in control.
Our retirement plans and our frozen defined benefit plans are described in detail in “Compensation of Executive Officers – Retirement Plans” below.
Comparison of 2011 and 2010How Did the Executive Officers’ Direct Compensation in 2012 Compare to Executive Officers2011?
The Supplemental Compensation Table below shows how the Committee assessed total direct compensation for our current executive officers in 20112012 and 2010,2011, and shows compensation changes from 20102011 to 20112012 on a year-over-year basis. Presentation of the components of compensation in the Supplemental Compensation Table is consistent with the information provided to and analyzed by the Committee in our tally sheets, (see “Compensation Principles and Objectives and Annual Review Process” above).as described above. The Supplemental Compensation Table does not include possible payments that may be made under the LTCIP, as performance awards will be earned under the LTCIP only if, at the end of any three-year performance period, the ROIC goals established for that period are met, which is not guaranteed. The first LTCIP three-year performance period will conclude in 2014. The Supplemental Compensation Table is not intended to be a substitute for the 20112012 Summary Compensation Table (which is presented under the heading “Compensation of Executive Officers” below).
The Committee approves restricted stock awards when financial results for the previous year are finalized, which occurs early in the following year. As described above, becausewe granted restricted stock in early 2013 based on our performance in 2012. Because we did not meet the threshold level of earnings per share or cash flow performance in 2011, no restricted stock awards were made to our executive officers in 2012 for the 2011 performance year. We did, however, grant restricted stock in early 2011 based on our performance in 2010. The 20112012 Summary Compensation Table shows the awards of restricted stock we made in 2011 as compensation received by our executive officers in 2011. In the Supplemental Compensation Table below, we show no restricted stock awards for our 2011 performance year, and show the awards of restricted stock made in 20112013 as compensation for 2010. Additionally, the2012. The Supplemental Compensation Table does not include changes in pension value, as that amount represents the annual change in present value of future payments to be made to our executive officers, and does not reflect additional benefit accruals in our frozen defined benefit pension plans.
PART IV – EXECUTIVE COMPENSATION
Supplemental Compensation Table
Name and Principal | Year | Salary ($) | Restricted Stock Awards ($)(1) | Stock Options ($)(2) | Non-Equity Incentive Plan Compensation ($)(3) | All Other Compensation ($)(4) | Total ($)(5) | Percentage Change | ||||||||||||||||
Timothy Wadhams | 2011 | $ | 1,000,000 | — | $ | 4,161,600 | — | $126,580 | $ | 5,288,180 | (27)% | |||||||||||||
President and Chief Executive Officer | 2010 | 950,769 | $ 899,964 | 4,324,882 | $ 900,000 | 138,797 | 7,214,412 | |||||||||||||||||
John G. Sznewajs | 2011 | 530,000 | — | 739,500 | — | 42,305 | 1,311,805 | (28)% | ||||||||||||||||
Vice President, Treasurer and Chief Financial Officer | 2010 | 516,673 | 238,452 | 768,515 | 238,500 | 52,260 | 1,814,400 | |||||||||||||||||
Gregory D. Wittrock | 2011 | 392,615 | — | 306,000 | — | 34,637 | 733,252 | (29)% | ||||||||||||||||
Vice President, General Counsel and Secretary | 2010 | 381,105 | 144,353 | 318,000 | 144,300 | 49,866 | 1,037,624 | |||||||||||||||||
Charles F. Greenwood | 2011 | 330,000 | — | 311,100 | — | 33,661 | 674,761 | (30)% | ||||||||||||||||
Vice President – Human Resources | 2010 | 319,096 | 128,713 | 323,306 | 128,700 | 58,647 | 958,462 | |||||||||||||||||
John P. Lindow | 2011 | 250,865 | 109,200 | 234,600 | — | 25,580 | 620,245 | (12)% | ||||||||||||||||
Vice President – Controller | 2010 | 233,304 | 91,663 | 243,800 | 91,700 | 46,078 | 706,545 | |||||||||||||||||
William T. Anderson | 2011 | 282,750 | — | 357,000 | — | 30,406 | 670,156 | —(6) | ||||||||||||||||
Former Vice President – Controller | 2010 | 387,577 | 152,045 | 371,007 | 152,100 | 39,929 | 1,102,658 | |||||||||||||||||
Donald J. DeMarie, Jr. | 2011 | 815,000 | — | 1,994,100 | — | 120,235 | 2,929,335 | —(6) | ||||||||||||||||
Former Executive Vice President and Chief Operating Officer | 2010 | 783,000 | 488,955 | 2,072,339 | 489,000 | 127,278 | 3,960,572 |
Name and | Year | Salary ($) | Restricted Stock Awards ($)(1) | Stock Options ($)(2) | Non-Equity Incentive Plan Compensation ($)(3) | All Other Compensation ($)(4) | Total ($)(5) | Percentage Change | ||||||||||||||||||||||||
Timothy Wadhams | 2012 | 1,000,000 | 2,040,072 | 1,811,520 | 2,040,000 | 142,315 | 7,033,907 | 33 | % | |||||||||||||||||||||||
President and Chief | 2011 | 1,000,000 | — | 4,161,600 | — | 126,580 | 5,288,180 | |||||||||||||||||||||||||
John G. Sznewajs | 2012 | 530,000 | 540,558 | 321,900 | 540,600 | 58,065 | 1,991,123 | 52 | % | |||||||||||||||||||||||
Vice President, | 2011 | 530,000 | — | 739,500 | — | 42,305 | 1,311,805 | |||||||||||||||||||||||||
Gregory D. Wittrock | 2012 | 400,000 | 353,653 | 133,200 | 353,600 | 45,200 | 1,285,653 | 75 | % | |||||||||||||||||||||||
Vice President, General | 2011 | 392,615 | — | 306,000 | — | 34,637 | 733,252 | |||||||||||||||||||||||||
Jai Shah | 2012 | 347,781 | 506,285 | 266,400 | 327,100 | 41,144 | 1,488,710 | 128 | % | |||||||||||||||||||||||
Vice President – Chief Human Resource Officer | 2011 | 317,000 | — | 306,000 | — | 29,718 | 652,718 | |||||||||||||||||||||||||
John P. Lindow | 2012 | 260,000 | 229,864 | 102,120 | 229,800 | 30,130 | 851,914 | 37 | % | |||||||||||||||||||||||
Vice President – Controller | 2011 | 250,865 | 109,200 | 234,600 | — | 25,580 | 620,245 |
(1) | This column shows the aggregate grant date fair value of awards of restricted stock for the performance year indicated, calculated in accordance with accounting guidance. The amount shown for Mr. |
(2) | This column shows the aggregate grant date fair value of awards of stock options. |
(3) | This column shows the cash bonuses paid for the performance year indicated. |
(4) | This column includes our contributions and allocations for the accounts of the executive officers under our qualified and non-qualified defined contribution retirement plans, and perquisites. |
(5) | As noted above, the total excludes the change in the year-end pension values |
How Does Masco’s Executive Compensation Program Incorporate Best Practices in Our Compensation ProgramsPractices?
Our executive compensation programs incorporate many best practices. This year we have eliminated the excise tax gross-up feature on all equity awards to be grantedimplemented a clawback policy, as described in the future, increased our CEO’s minimum stock ownership requirement, and adopted double-trigger vesting for future equity awards on a change in control,Executive Summary. Additionally, as described above, under “Changes Made to Our Executive Compensation Programs.” Additionally,our compensation mix is weighted toward long-term incentives, the vesting schedule for our equity awards is longer than current market practice, the Committee utilizes a market analysis of executive compensation relative to peer companies, we provide limited perquisites, our equity plan prohibits the repricing of options, and our Committee uses tally sheets as described above under “Compensation Principles and Objectives and Annual Review Process.”in setting executive compensation. Our other best practices include:are described below.
Prohibition onWe Require Minimum Levels of Stock Ownership by Our Executives
For many years we have required minimum stock ownership for our executive officers to further reinforce the alignment of their long-term financial interests with the interests of our stockholders. This requirement ensures that our executive officers maintain a substantial investment in our common stock and that a meaningful amount of each executive officer’s personal net worth is invested in our Company. Last year, our Board increased the minimum stock ownership requirement for our CEO from a multiple of five times base salary to six times base salary.
PART IV – EXECUTIVE COMPENSATION
The Committee reviews our executive officers’ ownership of our common stock annually to ensure compliance with our stock ownership guidelines. Our executive officers’ direct stock holdings and unvested restricted stock awards are counted toward satisfaction of the guidelines. As of December 31, 2012, when the closing price of our common stock was $16.66, each of our executive officers met his stock ownership requirement, as follows:
Minimum Stock Ownership | Actual Ownership | |||||||||||||||
Name | Multiple of Base Salary | Multiple Expressed in Dollars ($) | Multiple of Base Salary | Value of Shares Held by Executive ($) | ||||||||||||
Timothy Wadhams | 6 | 6,000,000 | 15.1 | 15,131,762 | ||||||||||||
John G. Sznewajs | 3 | 1,590,000 | 6.4 | 3,373,550 | ||||||||||||
Gregory D. Wittrock | 2 | 800,000 | 3.1 | 1,221,461 | ||||||||||||
Jai Shah | 2 | 740,000 | 5.2 | 1,929,878 | ||||||||||||
John P. Lindow | 2 | 520,000 | 4.0 | 1,034,203 |
We Prohibit Excise Tax Gross-Up Payments
Our Board has adopted a policy prohibiting excise tax gross-up payments, except for such payments committed to in equity awards and frozen Supplemental Executive Retirement Program (“SERP”) agreements entered into prior to 2012. Specifically, equity awards made in 2012 and thereafter will no longer be included for purposes of determining future excise tax gross-up payments. With the exception of tax equalization gross-up payments made to employees in connection with reimbursement of relocation or foreign expatriate expenses incurred at our request, we do not provide other tax gross-up payments.
We Have Adopted Double-Trigger Change of Control Provisions for our Equity Awards
In 2012, the Committee modified the terms of future equity awards to implement a double-trigger change in control provision. The terms of our equity awards now state that the awards will vest only if there is both a change in control of our Company and the recipient of the award is terminated from employment at the time of the change in control or within two years after the change in control, or terminates employment for good reason (for example, if his or her job duties have been significantly diminished) (“double-trigger” vesting), or if the recipient’s awards are not replaced with comparable awards by the acquiring company. The terms of our equity awards granted prior to this change provide that the awards would vest immediately upon a change in control of our Company (“single trigger” vesting).
We Prohibit Derivative Trading
Our insider trading policy prohibits our executive officers from engaging in transactions involving derivative securities relating to our stock, such as put and call options, and certain other arrangements, such as forward sales and short sales, which could have the effect of reducing or neutralizing their investment in our common stock.
NoWe Do Not Have Employment, Change in Control or Severance Contracts
Our executive officers do not have employment contracts and are “at-will” employees who may be terminated at our discretion. We believe this preserves greater flexibility in our employment arrangements with our executive officers. Our executive officers also do not have change in control or contractual severance contracts, although we have, from time to time, entered into severance arrangements with departing executive officers, as we did this year with Mr. DeMarie (see “Compensation of Executive Officers – Payments Upon Retirement, Termination, Disability or Death - Other Arrangements” below).officers. However, if a change in control occurs, regardless of whether an employee’s employment continues or terminates, all outstanding shares of restricted stock and stock options granted to all employees wouldmay fully vest, (this feature of our equity awards will be changed to a double trigger; see “Changes Made to Our Executive Compensation Programs” above).as described above. Additionally, each of our participating executive officers would receive a lump-sum payment equal to the present value of his accrued benefit under our SERP and the BRP.
After a change in control, executive officers may be considered to have received “golden parachute payments” to the extent the amount received as a result of the change in control exceeds certain thresholds in the
PART IV – EXECUTIVE COMPENSATION
Code. Under the Code, “golden parachute payments” are subject to a 20% excise tax, in addition to normally applicable income and other payroll taxes. If an employee, including any executive officer, becomes entitled to receive payments as a result of equity awards or other agreements made before 2012, which trigger the application of the excise tax, we will make an additional cash payment to make the employee whole for such excise tax payments. As described above, under “Changes Made to Our Executive Compensation Programs,” theour equity awards madegranted in 2012 willand thereafter do not include the excise tax gross-up feature. The tally sheet used by the Committee toCommittee’s review of executive compensation also includes our obligations to the executive officers under these programs in the event of any change in control.
Our Policies Encourage Executive Retention and Prohibition on CompetitionProtect the Company
We believe several features of our equity plans improve our retention of our executive officers and also reduce the potential that executive officers might engage in post-termination conduct that would be harmful to us. Our executive officers generally forfeit unvested awards of restricted stock and stock options when their employment terminates prior to retirement. Executive officers may exercise vested options for a limited period of time following termination. The terms of our awards prohibit our executive officers from competing with us for one year after termination. If an executive officer violates this restriction, we can recover the gain the executive officer realized from awards that vested within two years prior to termination.
Our Compensation Committee Conducts an Annual Compensation Risk Evaluation
During 2011, theThe Committee conductedannually conducts a risk assessment of our executive compensation programs. The Committee has concluded that our programs do not encourage excessive risk taking. While the total compensation program is designed to balance short- and long-term rewards, the largest portion of the compensation opportunity for our executive officers is through equity-basedequity- and cash-based long-term incentives. Executive officers are also required to own a substantial amount of our stock to further encourage a long-term perspective. The annual cash bonus and stock award programs have established maximum payout opportunities in line with competitive practice.
Accounting and Tax Treatment
Section 162(m) of the Code limits deductibility of annual compensation in excess of $1 million paid to our executive officers, unless this compensation qualifies as “performance-based.” Our stock options and, in most situations, cash bonus and grants of restricted stock under the performance-based programs described above, are intended to qualify under Section 162(m) and are thereforeso that they may be deductible. Awards under our new LTCIP willare also intended to qualify under Section 162(m). The Committee, however, believes it is in our interest to retain flexibility in our compensation programs. Consequently, in some circumstances, we have paid and intend to continue to pay compensation that exceeds the limitation ofmay not qualify as deductible under Section 162(m).
We recognize the importance of attracting and retaining executive officers who can effectively lead our business, particularly in difficult economic times, and in motivating them to maximize our corporate performance and create long-term value for our stockholders. We believe in rewarding our executive officers to a significant degree based on our performance, and, asperformance. Because our performance in 2012 improved compared to 2011, did not meet our expectations, our executive officers’ direct compensation declined approximately 27% comparedincreased in amounts commensurate with that improved performance. We continue to 2010. We thoughtfully and thoroughly analyzedanalyze our compensation practices and programs following our say-on-pay vote, reachingand to reach out to a significant number of our stockholders and carefully considering feedback fromto understand their perspectives regarding our stockholders and the Company’scompensation programs. The Committee strengthened our clawback policy in 2012 to reflect current best interests. As a result of this review, the Committee and our Board made several changes to our executive compensation programs and practices for 2012 and beyond.practices. We believe this change, along with the many changes we have implemented toin our compensation practices and programs along with the changes we have made in recent years, further strengthen these practices and programs to even more strongly align our executive officers’ interests with the long-term interests of stockholders, reward our executive officers based on our performance and incentivize them to focus on our critical business objectives.
PART IV – EXECUTIVE COMPENSATION
The Organization and Compensation Committee, which is responsible for overseeing the Company’s executive compensation programs, has reviewed and discussed the Compensation Discussion and Analysis with management. Based on our review and discussion, the Organization and Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in Masco’s proxy statement.
Mary Ann Van Lokeren, Chairperson
|
Thomas G. Denomme
Verne G. Istock
J. Michael Losh
Lisa A. Payne
PART IV – EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following table reports compensation earned during the years indicated by Mr. Wadhams, our principal executive officer, Mr. Sznewajs, our principal financial officer, and Messrs. Wittrock, GreenwoodShah and Lindow, our three other most highly compensated executive officers. Mr. AndersonGreenwood ceased serving as our Vice President – Controller on May 13, 2011, and Mr. DeMarie ceased serving as a Vice President and Chief Operating OfficerHuman Resources in late 2011. They areJune 2012. He is included in this table because theyhe would have been included in the group of highly compensated executive officers if theyhe had remained as an executive officersofficer through December 31, 2011.2012. We refer to the individuals listed in the table collectively as our “named executive officers.”
20112012 Summary Compensation Table
Name and Principal | Year(1) | Salary ($)(2) | Stock Awards ($) (3)(4) | Option Awards ($)(3) | Non-Equity Incentive Plan Compensation ($)(2)(5) | Change in Pension Value and Non- Qualified Deferred Compensation Earnings ($)(6) | All Other Compensation ($)(7) | Total ($) | ||||||||||||||||||||||||||||||||
Timothy Wadhams | 2011 | $ | 1,000,000 | $ | 899,964 | $ | 4,161,600 | — | $ | 1,914,996 | $ | 126,580 | $ | 8,103,140 | ||||||||||||||||||||||||||
President and Chief Executive Officer | 2010 | 950,769 | 2,306,270 | 4,324,882 | $ | 900,000 | 1,437,881 | 138,797 | 10,058,599 | |||||||||||||||||||||||||||||||
2009 | 900,000 | 811,030 | 1,808,338 | 2,300,000 | 5,441,434 | 82,076 | 11,342,878 | |||||||||||||||||||||||||||||||||
John G. Sznewajs | 2011 | 530,000 | 238,452 | 739,500 | — | 532,788 | 42,305 | 2,083,045 | ||||||||||||||||||||||||||||||||
Vice President, | 2010 | 516,673 | 552,400 | 768,515 | 238,500 | 322,334 | 52,260 | 2,450,682 | ||||||||||||||||||||||||||||||||
Treasurer and Chief Financial Officer | 2009 | 475,000 | 401,500 | 321,335 | 530,000 | 539,993 | 33,880 | 2,301,708 | ||||||||||||||||||||||||||||||||
Gregory D. Wittrock | 2011 | 392,615 | 144,353 | 306,000 | — | 130,022 | 34,637 | 1,007,627 | ||||||||||||||||||||||||||||||||
Vice President, General Counsel and Secretary | ||||||||||||||||||||||||||||||||||||||||
Charles F. Greenwood | 2011 | 330,000 | 128,713 | 311,100 | — | 79,677 | 33,661 | 883,151 | ||||||||||||||||||||||||||||||||
Vice President – Human Resources | 2010 | 319,096 | 317,630 | 323,306 | 128,700 | 97,879 | 58,647 | 1,245,258 | ||||||||||||||||||||||||||||||||
2009 | 285,000 | 200,750 | 135,182 | 320,000 | 90,252 | 19,045 | 1,050,229 | |||||||||||||||||||||||||||||||||
John P. Lindow | 2011 | 250,865 | 200,863 | 234,600 | — | 41,289 | 25,580 | 753,197 | ||||||||||||||||||||||||||||||||
Vice President – Controller | ||||||||||||||||||||||||||||||||||||||||
William T. Anderson | 2011 | 282,750 | 152,045 | 357,000 | — | 519,842 | 30,406 | 1,342,043 | ||||||||||||||||||||||||||||||||
Former Vice President – Controller | 2010 | 387,577 | 414,300 | 371,007 | 152,100 | 394,676 | 39,929 | 1,759,589 | ||||||||||||||||||||||||||||||||
2009 | 380,000 | 305,140 | 155,127 | 425,000 | 962,916 | 27,730 | 2,255,913 | |||||||||||||||||||||||||||||||||
Donald J. DeMarie, Jr. | 2011 | 815,000 | 488,955 | 1,994,100 | — | — | 120,235 | 3,418,290 | ||||||||||||||||||||||||||||||||
Former Vice President | 2010 | 783,000 | 1,284,330 | 2,072,339 | 489,000 | 91,578 | 127,278 | 4,847,525 | ||||||||||||||||||||||||||||||||
and Chief Operating Officer | 2009 | 750,000 | 674,520 | 866,495 | 1,285,000 | 1,656,201 | 129,171 | 5,361,387 |
Name and Principal Position | Year(1) | Salary ($)(2) | Stock Awards ($)(3)(4) | Option Awards ($)(3) | Non-Equity Incentive Plan Compensation ($)(2)(5) | Change in Pension Value and Non- Qualified Deferred Compensation Earnings ($)(6) | All Other Compensation ($)(7) | Total ($) | ||||||||||||||||||||||||
Timothy Wadhams | 2012 | 1,000,000 | — | 1,811,520 | 2,040,000 | 1,749,638 | 142,315 | 6,743,473 | ||||||||||||||||||||||||
President and Chief | 2011 | 1,000,000 | 899,964 | 4,161,600 | — | 1,914,996 | 126,580 | 8,103,140 | ||||||||||||||||||||||||
Executive Officer | 2010 | 950,769 | 2,306,270 | 4,324,882 | 900,000 | 1,437,881 | 138,797 | 10,058,599 | ||||||||||||||||||||||||
John G. Sznewajs | 2012 | 530,000 | — | 321,900 | 540,600 | 570,136 | 58,065 | 2,020,701 | ||||||||||||||||||||||||
Vice President, | 2011 | 530,000 | 238,452 | 739,500 | — | 532,788 | 42,305 | 2,083,045 | ||||||||||||||||||||||||
Treasurer and Chief Financial Officer | 2010 | 516,673 | 552,400 | 768,515 | 238,500 | 322,334 | 52,260 | 2,450,682 | ||||||||||||||||||||||||
Gregory D. Wittrock | 2012 | 400,000 | — | 133,200 | 353,600 | 27,974 | 45,200 | 959,974 | ||||||||||||||||||||||||
Vice President, General Counsel and Secretary | 2011 | 392,615 | 144,353 | 306,000 | — | 130,022 | 34,637 | 1,007,627 | ||||||||||||||||||||||||
Jai Shah | 2012 | 347,780 | 179,100 | 266,400 | 327,100 | 22,356 | 41,144 | 1,183,880 | ||||||||||||||||||||||||
Vice President – Chief Human Resource Officer | ||||||||||||||||||||||||||||||||
John P. Lindow | 2012 | 260,000 | — | 102,120 | 229,800 | 30,993 | 30,130 | 653,043 | ||||||||||||||||||||||||
Vice President – Controller | 2011 | 250,865 | 200,863 | 234,600 | — | 41,289 | 25,580 | 753,197 | ||||||||||||||||||||||||
Charles F. Greenwood | 2012 | 330,000 | — | 135,420 | 291,700 | 26,430 | 37, 290 | 820,840 | ||||||||||||||||||||||||
Retired Vice President – | 2011 | 330,000 | 128,713 | 311,100 | — | 79,677 | 33,661 | 883,151 | ||||||||||||||||||||||||
Human Resources | 2010 | 319,096 | 317,630 | 323,306 | 128,700 | 97,879 | 58,647 | 1,245,258 |
(1) | Information is included only for those years in which individuals have served as named executive officers. |
(2) | These columns include amounts voluntarily deferred by each named executive officer as salary reductions under our 401(k) Savings Plan. |
(3) | Amounts in these columns reflect the aggregate grant date fair value of restricted stock awards and stock options, calculated in accordance with accounting guidance. In determining the fair market value of stock options, we used the same assumptions as set forth in the notes to our financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, |
(4) | In accordance with SEC requirements, the amounts reported in this column reflect restricted stock awards granted during the year indicated. |
PART IV – EXECUTIVE COMPENSATION
(5) | This column shows performance-based cash bonuses that were paid based on the attainment of performance |
(6) | This column shows |
(7) | For |
PART IV – EXECUTIVE COMPENSATION
Grants of Plan-Based Awards
The following table provides information about the potential payouts that were available in 20112012 to our named executive officers under our annual performance-based cash bonus opportunity, the potential payouts under our Long Term Cash Incentive Program (“LTCIP”), and the actual grants of restricted stock and stock options we made in 20112012 to our named executive officers under our 2005 Long Term Stock Incentive Plan.Plan (the “2005 Plan”). We did not pay any cash bonuses or make any grants of restricted stock to our named executive officers in 2012, except for an award of restricted stock made to Mr. Shah when he was promoted to Vice President – Chief Human Resource Officer. Our “Compensation Discussion and Analysis” above describes our annual performance-based cash bonusesbonus and stock awards,award opportunities, performance targets, and grants of stock options. Restricted stock awardsoptions and stockthe LTCIP. Stock options granted in 20112012 vest in equal annual installments of 20% over a period of five years. Stock options granted in 2011years and remain exercisable until ten years from the date of grant. Unvested restricted shares are held in the executive officer’s name, and the executive officer has the right to vote the shares and receive dividends on the restricted shares, but the executive officer may not sell the shares until they vest.
20112012 Grants of Plan-Based Awards
Name | Grant Date |
Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) | All Other Stock Awards: Number of Shares of Stock or Units(2) | All Other Option Awards: Number of Securities Underlying Options or Units(3) | Exercise or Base Price of Option Awards (($) Per Share) | Grant Date Fair Value of Stock and Option Awards ($)(4) | Grant Date | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | All Other Stock Shares of | All Other Option Number of Options(4) | Exercise or | Grant Date Fair | ||||||||||||||||||||||||||||||||||||||||||||||||||
Threshold($) | Target($) | Maximum($) | Threshold ($) | Target ($) | Maximum ($) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Timothy Wadhams | n/a | $ 600,000 | $1,500,000 | $ | 3,000,000 | n/a(1) | 600,000 | 1,500,000 | 3,000,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
02/16/2011 | 70,200 | $ 899,964 | n/a(2) | 600,000 | 1,500,000 | 3,000,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
02/16/2011 | 816,000 | $12.82 | 4,161,600 | 2/15/2012 | 408,000 | 11.67 | 1,811,520 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
John G. Sznewajs | n/a | 159,000 | 397,500 | 795,000 | n/a(1) | 159,000 | 397,500 | 795,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
02/16/2011 | 18,600 | 238,452 | n/a(2) | 159,000 | 397,500 | 795,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
02/16/2011 | 145,000 | 12.82 | 739,500 | 2/15/2012 | 72,500 | 11.67 | 321,900 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gregory D. Wittrock | n/a | 104,000 | 260,000 | 520,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Greg Wittrock | n/a(1) | 104,000 | 260,000 | 520,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
n/a(2) | 104,000 | 260,000 | 520,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/15/2012 | 30,000 | 11.67 | 133,200 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Jai Shah | n/a(1) | 96,200 | 240,500 | 481,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
n/a(2) | 82,440 | 206,100 | 412,200 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2/15/2012 | 30,000 | 11.67 | 133,200 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
8/1/2012 | 15,000 | 179,100 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
8/1/2012 | 30,000 | 11.94 | 133,200 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
John Lindow | n/a(1) | 67,600 | 169,000 | 338,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
02/16/2011 | 11,260 | 144,353 | n/a(2) | 67,600 | 169,000 | 338,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
02/16/2011 | 60,000 | 12.82 | 306,000 | 2/15/2012 | 23,000 | 11.67 | 102,120 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Charles F. Greenwood | n/a | 85,800 | 214,500 | 429,000 | �� | n/a(1) | 85,800 | 214,500 | 429,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
02/16/2011 | 10,040 | 128,713 | n/a(2) | 85,800 | 214,500 | 429,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
02/16/2011 | 61,000 | 12.82 | 311,100 | 2/15/2012 | 30,500 | 11.67 | 135,420 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
John P. Lindow | n/a | 67,600 | 169,000 | 338,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
02/16/2011 | 7,150 | 91,663 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
02/16/2011 | 46,000 | 12.82 | 234,600 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
07/27/2011 | 10,000 | 109,200 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
William T. Anderson | n/a | 73,500 | 184,000 | 368,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
02/16/2011 | 11,860 | 152,045 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
02/16/2011 | 70,000 | 12.82 | 357,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Donald J. DeMarie, Jr. | n/a | 326,000 | 815,000 | 1,630,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
02/16/2011 | 38,140 | 488,955 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
02/16/2011 | 391,000 | 12.82 | 1,994,100 |
(1) | The amounts shown reflect the threshold, target, and maximum payouts under the |
(2) | The amounts shown reflect the threshold, target, and maximum payouts under the LTCIP relating to the Company’s performance for the 2012-2014 performance period. Payment under these awards will depend on return on invested capital performance over the three-year period. |
(3) | Because we did not attain our earnings per share or cash flow performance goals in 2011, no |
The amounts shown reflect the number of stock options granted in |
The grant date fair value shown in |
PART IV – EXECUTIVE COMPENSATION
Outstanding Equity Awards at Fiscal Year-End
We make equity grants pursuant to our 2005 Long Term Stock Incentive Plan (the “2005 Plan”);Plan; outstanding grants made prior to 2005 were made pursuant to our 1991 Long Term Stock Incentive Plan (the “1991 Plan”). We refer to the 2005 Plan and the 1991 Plan collectively in this proxy statement as the “Long Term Incentive Plan.” The following table shows, for each named executive officer as of December 31, 2011,2012, (i) each vested and unvested stock option outstanding, (ii) the aggregate number of unvested shares of restricted stock, and (iii) the market value of unvested shares of restricted stock
based on the closing price of our common stock on December 30, 2011, the last trading day of the year,31, 2012, which was $10.48$16.66 per share. Unvested restricted shares are held in the named executive officer’s name, and the named executive officer has the right to vote the shares and receive dividends on the restricted shares, but the named executive officer may not sell the shares until they vest. The value each named executive officer will realize when his restricted shares vest will depend on the value of our common stock on the vesting date.
20112012 Outstanding Equity Awards at Fiscal Year-End
Option Awards(1) | Restricted Stock Awards(2) | Option Awards(1) | Restricted Stock Awards(2) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Name | Original Grant Date | Number of Securities Underlying Unexercised Options Exercisable | Number of Securities Underlying Unexercised Options Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested | Market Value of Shares or Units of Stock That Have Not Vested ($) | Original Grant Date | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | |||||||||||||||||||||||||||||||||||||||||||||||||
Timothy Wadhams | 474,459 | $ | 4,972,330 | 382,113 | 6,366,003 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
12/10/2002 | 57,600 | — | $ | 19.50 | 12/10/2012 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10/29/2003 | 75,000 | — | 27.50 | 10/29/2013 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
01/14/2004 | 30,000 | — | 26.50 | 01/14/2014 | 10/29/2003 | 75,000 | — | 27.50 | 10/29/2013 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
07/29/2004 | 75,000 | — | 30.00 | 07/29/2014 | 01/14/2004 | 30,000 | — | 26.50 | 01/14/2014 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
09/24/2004 | (3) | 8,229 | — | 34.12 | 12/10/2012 | 07/29/2004 | 75,000 | — | 30.00 | 07/29/2014 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
05/09/2005 | 85,000 | — | 30.75 | 05/09/2015 | 05/09/2005 | 85,000 | — | 30.75 | 05/09/2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
07/26/2006 | 85,000 | — | 26.60 | 07/26/2016 | 07/26/2006 | 85,000 | — | 26.60 | 07/26/2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
05/24/2007 | 68,000 | 17,000 | 30.40 | 05/24/2017 | 05/24/2007 | 85,000 | — | 30.40 | 05/24/2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
06/02/2007 | 320,000 | 80,000 | 30.16 | 06/02/2017 | 06/02/2007 | 400,000 | — | 30.16 | 06/02/2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
05/12/2008 | 489,600 | 326,400 | 18.58 | 05/12/2018 | 05/12/2008 | 652,800 | 163,200 | 18.58 | 05/12/2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
02/09/2009 | 326,400 | 489,600 | 8.03 | 02/09/2019 | 02/09/2009 | 489,600 | 326,400 | 8.03 | 02/09/2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
02/12/2010 | 163,200 | 652,800 | 13.81 | 02/12/2020 | 02/12/2010 | 326,400 | 489,600 | 13.81 | 02/12/2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
02/16/2011 | — | 816,000 | 12.82 | 02/16/2021 | 02/16/2011 | 163,200 | 652,800 | 12.82 | 02/16/2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
02/15/2012 | — | 408,000 | 11.67 | 02/15/2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
John G. Sznewajs | 142,731 | $ | 1,495,821 | 114,557 | 1,908,520 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
12/10/2002 | 9,540 | — | $ | 19.50 | 12/10/2012 | 10/29/2003 | 29,000 | — | 27.50 | 10/29/2013 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
10/29/2003 | 29,000 | — | 27.50 | 10/29/2013 | 10/29/2003 | 25,000 | — | 27.50 | 10/29/2013 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
10/29/2003 | 25,000 | — | 27.50 | 10/29/2013 | 07/29/2004 | 33,000 | — | 30.00 | 07/29/2014 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
12/12/2003 | (3) | 2,207 | — | 28.10 | 12/10/2012 | 05/09/2005 | 33,000 | — | 30.75 | 05/09/2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
07/29/2004 | 33,000 | — | 30.00 | 07/29/2014 | 07/28/2005 | 20,000 | — | 34.40 | 07/28/2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
05/09/2005 | 33,000 | — | 30.75 | 05/09/2015 | 07/26/2006 | 40,000 | — | 26.60 | 07/26/2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
06/30/2005 | (3) | 1,952 | — | 31.76 | 12/10/2012 | 05/24/2007 | 40,000 | — | 30.40 | 05/24/2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
07/28/2005 | 20,000 | — | 34.40 | 07/28/2015 | 06/02/2007 | 70,000 | — | 30.16 | 06/02/2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
07/26/2006 | 40,000 | — | 26.60 | 07/26/2016 | 05/12/2008 | 116,000 | 29,000 | 18.58 | 05/12/2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
05/24/2007 | 32,000 | 8,000 | 30.40 | 05/24/2017 | 02/09/2009 | 87,000 | 58,000 | 8.03 | 02/09/2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
06/02/2007 | 56,000 | 14,000 | 30.16 | 06/02/2017 | 02/12/2010 | 58,000 | 87,000 | 13.81 | 02/12/2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
05/12/2008 | 87,000 | 58,000 | 18.58 | 05/12/2018 | 02/16/2011 | 29,000 | 116,000 | 12.82 | 02/16/2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
02/09/2009 | 58,000 | 87,000 | 8.03 | 02/09/2019 | 02/15/2012 | — | 72,500 | 11.67 | 02/15/2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
02/12/2010 | 29,000 | 116,000 | 13.81 | 02/12/2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
02/16/2011 | — | 145,000 | 12.82 | 02/16/2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gregory D. Wittrock | 55,400 | $580,592 | 42,948 | 715,514 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
12/10/2002 | 3,080 | — | $ | 19.50 | 12/10/2012 | 10/29/2003 | 7,440 | — | 27.50 | 10/29/2013 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
10/29/2003 | 7,440 | — | 27.50 | 10/29/2013 | 07/29/2004 | 14,400 | — | 30.00 | 07/29/2014 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
07/29/2004 | 14,400 | — | 30.00 | 07/29/2014 | 05/09/2005 | 14,400 | — | 30.75 | 05/09/2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
08/24/2004 | (3) | 1,813 | — | 32.25 | 12/10/2012 | 03/09/2006 | (3) | 5,169 | — | 30.64 | 10/29/2013 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
12/14/2004 | (3) | 1,712 | — | 36.00 | 12/10/2012 | 07/26/2006 | 14,400 | — | 26.60 | 07/26/2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
05/09/2005 | 14,400 | — | 30.75 | 05/09/2015 | 01/16/2007 | (3) | 1,068 | — | 30.90 | 10/29/2013 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
03/09/2006 | (3) | 1,960 | — | 30.64 | 12/10/2012 | 05/24/2007 | 14,400 | — | 30.40 | 05/24/2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
03/09/2006 | (3) | 5,169 | — | 30.64 | 10/29/2013 | 05/12/2008 | 19,600 | 4,900 | 18.58 | 05/12/2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
07/26/2006 | 14,400 | — | 26.60 | 07/26/2016 | 02/09/2009 | 15,600 | 10,400 | 8.03 | 02/09/2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
12/07/2009 | 18,000 | 12,000 | 13.91 | 12/07/2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
02/12/2010 | 24,000 | 36,000 | 13.81 | 02/12/2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
02/16/2011 | 12,000 | 48,000 | 12.82 | 02/16/2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
02/15/2012 | — | 30,000 | 11.67 | 02/15/2022 |
PART IV – EXECUTIVE COMPENSATION
Option Awards(1) | Restricted Stock Awards(2) | Option Awards(1) | Restricted Stock Awards(2) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Name | Original Grant Date | Number of Securities Underlying Unexercised Options Exercisable | Number of Securities Underlying Unexercised Options Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested | Market Value of Shares or Units of Stock That Have Not Vested ($) | Original Grant Date | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | |||||||||||||||||||||||||||||||||||||||||||||||||
01/16/2007 | (3) | 1,943 | — | 30.90 | 12/10/2012 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
01/16/2007 | (3) | 1,068 | — | 30.90 | 10/29/2013 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
05/24/2007 | 11,520 | 2,880 | 30.40 | 05/24/2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
05/12/2008 | 14,700 | 9,800 | 18.58 | 05/12/2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
02/09/2009 | 10,400 | 15,600 | 8.03 | 02/09/2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
12/07/2009 | 12,000 | 18,000 | 13.91 | 12/07/2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
02/12/2010 | 12,000 | 48,000 | 13.81 | 02/12/2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
02/16/2011 | — | 60,000 | 12.82 | 02/16/2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Charles F. Greenwood | 68,242 | $715,176 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
12/10/2002 | 3,080 | — | $ 19.50 | 12/10/2012 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Jai Shah | 84,858 | 1,413,734 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10/29/2003 | 12,000 | — | 27.50 | 10/29/2013 | 10/29/2003 | 5,000 | — | 27.50 | 10/29/2013 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
02/27/2004 | (3) | 2,145 | — | 28.00 | 12/10/2012 | 07/29/2004 | 6,000 | — | 30.00 | 07/29/2014 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
07/29/2004 | 12,000 | — | 30.00 | 07/29/2014 | 05/09/2005 | 6,500 | — | 30.75 | 05/09/2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
05/09/2005 | 12,500 | — | 30.75 | 05/09/2015 | 05/09/2005 | 3,500 | — | 30.75 | 05/09/2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
01/03/2006 | (3) | 3,884 | — | 30.92 | 12/10/2012 | 12/05/2005 | 20,000 | — | 30.25 | 12/05/2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
07/26/2006 | 14,000 | — | 26.60 | 07/26/2016 | 07/26/2006 | 27,000 | — | 26.60 | 07/26/2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
05/03/2007 | (3) | 2,002 | — | 30.00 | 12/10/2012 | 05/24/2007 | 27,000 | — | 30.40 | 05/24/2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
05/07/2007 | 16,000 | 4,000 | 30.71 | 05/07/2017 | 07/25/2007 | 30,000 | — | 26.44 | 07/25/2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
05/24/2007 | 28,800 | 7,200 | 30.40 | 05/24/2017 | 05/12/2008 | 48,000 | 12,000 | 18.58 | 05/18/2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
05/12/2008 | 36,600 | 24,400 | 18.58 | 05/12/2018 | 02/09/2009 | 36,000 | 24,000 | 8.03 | 02/09/2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
02/09/2009 | 24,400 | 36,600 | 8.03 | 02/09/2019 | 02/12/2010 | 24,000 | 36,000 | 13.81 | 02/12/2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
02/12/2010 | 12,200 | 48,800 | 13.81 | 02/12/2020 | 02/16/2011 | 12,000 | 48,000 | 12.82 | 02/16/2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
02/16/2011 | — | 61,000 | 12.82 | 02/16/2021 | 02/15/2012 | — | 30,000 | 11.67 | 02/15/2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
08/01/2012 | — | 30,000 | 11.94 | 08/01/2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
John P. Lindow | 65,747 | $689,029 | 53,000 | 882,980 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
02/13/2002 | 20,000 | — | $ 26.02 | 02/13/2012 | 10/29/2003 | 14,000 | — | 27.50 | 10/29/2013 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
12/10/2002 | 12,900 | — | 19.50 | 12/10/2012 | 07/29/2004 | 14,000 | — | 30.00 | 07/29/2014 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
10/29/2003 | 14,000 | — | 27.50 | 10/29/2013 | 05/09/2005 | 12,000 | — | 30.75 | 05/09/2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
07/29/2004 | 14,000 | — | 30.00 | 07/29/2014 | 07/26/2006 | 15,000 | — | 26.60 | 07/26/2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
05/09/2005 | 12,000 | — | 30.75 | 05/09/2015 | 05/24/2007 | 20,000 | — | 30.40 | 05/24/2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
07/26/2006 | 15,000 | — | 26.60 | 07/26/2016 | 05/12/2008 | 36,720 | 9,180 | 18.58 | 05/12/2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
05/24/2007 | 16,000 | 4,000 | 30.40 | 05/24/2017 | 02/09/2009 | 25,740 | 18,360 | 8.03 | 02/09/2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
05/12/2008 | 27,540 | 18,360 | 18.58 | 05/12/2018 | 02/12/2010 | 18,400 | 27,600 | 13.81 | 02/12/2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
02/09/2009 | 18,360 | 27,540 | 8.03 | 02/09/2019 | 02/16/2011 | 9,200 | 36,800 | 12.82 | 02/16/2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
02/12/2010 | 9,200 | 36,800 | 13.81 | 02/12/2020 | 02/15/2012 | — | 23,000 | 11.67 | 02/15/2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
02/16/2011 | — | 46,000 | 12.82 | 02/16/2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
William T. Anderson | 103,848 | $1,088,327 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Charles F. Greenwood | 55,072 | 917,500 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
02/13/2002 | 30,000 | — | $ 26.02 | 02/13/2012 | 10/29/2003 | 12,000 | — | 27.50 | 10/29/2013 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
12/10/2002 | 16,560 | — | 19.50 | 12/10/2012 | 07/29/2004 | 12,000 | — | 30.00 | 07/29/2014 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
10/29/2003 | 30,000 | — | 27.50 | 10/29/2013 | 05/09/2005 | 12,500 | — | 30.75 | 05/09/2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
07/29/2004 | 33,000 | — | 30.00 | 07/29/2014 | 07/26/2006 | 14,000 | — | 26.60 | 07/26/2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
11/11/2004 | (3) | 2,815 | — | 35.60 | 12/10/2012 | 05/07/2007 | 20,000 | — | 30.71 | 05/07/2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
05/09/2005 | 33,000 | — | 30.75 | 05/09/2015 | 05/24/2007 | 36,000 | — | 30.40 | 05/24/2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
05/09/2005 | 7,000 | — | 30.75 | 05/09/2015 | 05/12/2008 | 48,800 | 12,200 | 18.58 | 05/12/2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
09/06/2005 | (3) | 2,516 | — | 31.00 | 12/10/2012 | 02/09/2009 | 5,600 | 24,400 | 8.03 | 02/09/2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
07/26/2006 | 33,000 | — | 26.60 | 07/26/2016 | 02/12/2010 | 24,400 | 36,600 | 13.81 | 02/12/2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
05/24/2007 | 26,400 | 6,600 | 30.40 | 05/24/2017 | 02/16/2011 | 12,200 | 48,800 | 12.82 | 02/16/2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
06/02/2007 | 16,000 | 4,000 | 30.16 | 06/02/2017 | 02/15/2012 | — | 30,500 | 11.67 | 02/15/2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
05/12/2008 | 33,600 | 22,400 | 18.58 | 05/12/2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
02/09/2009 | 28,000 | 42,000 | 8.03 | 02/09/2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
02/12/2010 | 14,000 | 56,000 | 13.81 | 02/12/2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
02/16/2011 | — | 70,000 | 12.82 | 02/16/2021 |
Name Donald J. DeMarie, Jr. (4) Option Awards(1) Restricted Stock Awards(2) Original
Grant
Date Number of
Securities
Underlying
Unexercised
Options
Exercisable Number of
Securities
Underlying
Unexercised
Options
Unexercisable Option
Exercise
Price ($) Option
Expiration
Date Number of
Shares or
Units of
Stock
That Have
Not
Vested Market Value
of Shares or
Units of
Stock
That Have
Not
Vested ($) 329,472 $ 3,452,867 12/10/2002 6,160 — $ 19.50 12/10/2012 05/13/2003 16,000 — 23.00 05/13/2013 10/29/2003 48,000 — 27.50 10/29/2013 07/29/2004 54,000 — 30.00 07/29/2014 05/09/2005 54,000 — 30.75 05/09/2015 07/26/2006 54,000 — 26.60 07/26/2016 05/24/2007 43,200 10,800 30.40 05/24/2017 06/02/2007 120,000 30,000 30.16 06/02/2017 12/04/2007 120,000 30,000 21.57 12/04/2017 05/12/2008 234,600 156,400 18.58 05/12/2018 02/09/2009 — 234,600 8.03 02/09/2019 02/12/2010 78,200 312,800 13.81 02/12/2020 02/16/2011 — 391,000 12.82 02/16/2021
(1) | Stock options (other than restoration options; see Note 3) vest in equal annual installments of 20% commencing in the year following the year of grant. |
(2) | Restricted stock awards granted in 2010 and after vest in equal annual installments of 20%. Restricted stock awards granted prior to 2010 vest in equal annual installments of 10%; however, the number of shares that vest annually is adjusted when the participant turns age 66 so that awards are fully vested by the end of the year in which the participant turns 70. |
(3) | These stock options are restoration options, which are exercisable in full six months and one day after the grant date. The granting of restoration options was permitted under the 1991 Plan but has been discontinued under the 2005 Plan, other than restoration options resulting from the exercise of outstanding options awarded under the 1991 Plan. Restoration options are granted when a participant exercises an eligible option and pays the exercise price fully or in part by delivering shares of our common stock or by attesting to the ownership of such shares. The restoration option is equal to the number of shares delivered by the participant and does not increase the number of shares covered by the original option. The exercise price of the restoration option is the fair market value of our common stock on the date of its grant (which is the date the underlying option is exercised). |
PART IV – EXECUTIVE COMPENSATION
Option Exercises and Stock Vested
The following table shows the number of shares acquired, and the value realized, by each of our named executive officers during 2011,2012, in connection with the vesting of stock options and restricted stock previously awarded to them.
20112012 Option Exercises and Stock Vested
Option Awards | ||||||||||||||
Number of Shares Acquired on Exercise (#) | Restricted Stock Awards | |||||||||||||
Name | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | |||||||||||
Timothy Wadhams | — | — | 86,306 | $ | 1,176,252 | |||||||||
John G. Sznewajs | — | — | 25,023 | 340,774 | ||||||||||
Gregory D. Wittrock | — | — | 8,254 | 114,170 | ||||||||||
Charles F. Greenwood | — | — | 11,266 | 155,979 | ||||||||||
John P. Lindow | — | — | 9,393 | 130,142 | ||||||||||
William T. Anderson | — | — | 18,701 | 258,118 | ||||||||||
Donald J. DeMarie, Jr. | 20,125 | $ | 342,453 | 55,730 | 748,650 |
Name Timothy Wadhams John G. Sznewajs Gregory D. Wittrock Jai Shah John P. Lindow Charles F. Greenwood Option Awards Restricted Stock Awards Number of Shares
Acquired on
Exercise (#) Value Realized on
Exercise ($) Number of Shares
Acquired on Vesting (#) Value Realized
on Vesting ($) — — 92,346 1,153,487 — — 19,179 350,770 — — 8,283 152,948 — — 10,869 201,906 — — 8,466 159,243 10,396 234,813 8,770 161,242
We maintain tax-qualified defined contribution and defined benefit retirement plans for our employees, including our named executive officers. We also maintain a non-qualified Benefits Restoration Plan (“BRP”), which enables highly compensated employees to obtain the full financial benefits of thesethe tax-qualified plans, notwithstanding various limitations imposed on the tax-qualified plansthem under the Code. Substantially all of our defined benefit pension plans were frozen for future benefit accruals effective January 1, 2010. Consequently, the defined benefit pension benefits accrued for each of our named executive officers are essentially fixed.
Defined Contribution Plans
Our defined contribution plans areinclude a tax-qualified 401(k) Savings Plan and a tax-qualified Profit Sharing Plan. We match employee contributions to the 401(k) Savings Plan of 100% of the first 4% of an employee’s compensation deferred into the plan. Our contributions to the Profit Sharing Plan are guided by the earnings per share performance target used to determine annual performance-based restricted stock awards and cash bonuses to our employees.bonuses. The Organization and Compensation Committee has established our maximum contribution percentage at 10% of each participant’s annual earnings (base salary and cash bonus) if we achieve the maximum performance level under the incentive schedule. Employees become 100% vested in their profit sharing amounts after completing three years of employment with us. All of our named executive officers are 100% vested in their profit sharing amounts.
Under the defined contribution portion of our non-qualified BRP, we make book account allocations for highly compensated employees, including our named executive officers, reflecting 401(k) Savings Plan employer match (in 2011,2012, for contributions up to $16,500)$17,000) and Profit Sharing Plan contribution amounts that otherwise exceed the Code’s limitations, together with amounts reflecting pro-forma earnings (or losses) on participants’ accounts. Because the BRP is not a tax-qualified plan, these allocations are maintained in book entry form in a Company account in each participant’s name and are not funded. The pro-forma earnings or losses are posted to the BRP book entry accounts based on the performance reported by the several mutual fund offerings as directedchosen by each participant. Following a participant’s termination of employment, the BRP benefit is paid by us in a lump sum. Distributions from the Profit Sharing Plan are made through a trust and may be paid in a lump sum or in installments. The Profit Sharing Plan also permits distributions after a participant reaches age 59 1/2 and prior to termination of employment.
PART IV – EXECUTIVE COMPENSATION
The columns in the following table show, for each named executive officer, (A) the amount of the book entry allocation to his BRP account made by us for 2011;2012; (B) the amount of pro-forma earnings posted to his account in 2011;2012; (C) the aggregate amount of all withdrawals, distributions or segregations from his account during 2011;2012; and (D) the account’s ending balance at December 31, 2011.
20112012 Non-Qualified Deferred Compensation
(Defined Contribution Portion of the Benefits Restoration Plan)
A | B | C | D | A | B | C | D | |||||||||||||||||||||
Name | Masco Allocations for 2011 ($)(1) | Aggregate Earnings in 2011 ($) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at December 31, 2011 ($)(2) | Masco Allocations for 2012 ($)(1) | Aggregate Earnings in 2012 ($) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at December 31, 2012 ($)(2) | ||||||||||||||||||||
Timothy Wadhams | $56,350 | $(3,153) | — | $393,439 | 61,750 | 44,218 | — | 494,007 | ||||||||||||||||||||
John G. Sznewajs | 22,405 | (4,264) | — | 100,592 | 27,440 | 17,026 | — | 140,023 | ||||||||||||||||||||
Gregory D. Wittrock | 15,457 | (775) | — | 49,576 | 16,950 | 9,021 | — | 74,054 | ||||||||||||||||||||
Jai Shah | 11,049 | 7,055 | — | 68,019 | ||||||||||||||||||||||||
John P. Lindow | 1,130 | 2,594 | — | 25,739 | ||||||||||||||||||||||||
Charles F. Greenwood | 13,111 | (1,170) | — | 41,187 | 9,040 | 4,742 | — | 59,040 | ||||||||||||||||||||
John P. Lindow | 6,830 | (2,186) | — | 16,315 | ||||||||||||||||||||||||
William T. Anderson | 12,396 | (4,992) | — | 95,402 | ||||||||||||||||||||||||
Donald J. DeMarie, Jr. | 40,351 | (5,654) | — | 145,632 |
(1) | Amounts in this column are included in “All Other Compensation” in the |
(2) | The following amounts included in this column were previously reported as compensation in our Summary Compensation Table for |
We offer no other plans of deferred compensation that would permit the election of deferrals of cash compensation by our named executive officers.
Defined Benefit Pension Plans
Our frozen defined benefit pension plans are the tax-qualified Masco Corporation Pension Plan (the “Pension Plan”) and a non-qualified frozen SERP for Messrs. Wadhams Sznewajs, Anderson and DeMarie.Sznewajs. We also maintain a portion of the non-qualified BRP applicable to the Pension Plan for highly compensated employees.employees, including our named executive officers.
Masco Corporation Pension Plan and BRP
The Pension Plan and BRP provide that at normal retirement age (65), participants receive an annual payment for the remainder of their life, with five years’ payments guaranteed. Employees became 100% vested in their pension benefit after completing five years of employment with us. The benefits are not subject to reduction for social security benefits or for other offsets, except to the extent that pension or equivalent benefits are also payable under a prior affiliate’s plan. All of our named executive officers are 100% vested in their Pension Plan and BRP benefits. Other than Messrs. Sznewajs, LindowShah and DeMarie,Lindow, who are younger than 55, each of the named executive officers is eligible for a reduced early retirement benefit. If a participant retires and commences payments at age 55, his or her benefit would be reduced by one-half; if he or she retires and commences payments at age 60, the benefit would be reduced by one-third. The maximum credited service under the Pension Plan and the defined benefit portion of the BRP iswas 30 years. A participant who has ten or more years of service with us is eligible to receive a disability benefit equal to the participant’s accrued benefit. Benefits accrued under the Pension Plan and the portion of the BRP applicable to the Pension Plan were frozen as of January 1, 2010.
PART IV – EXECUTIVE COMPENSATION
Supplemental Executive Retirement Plan
Messrs. Wadhams Sznewajs, Anderson and DeMarieSznewajs are participants in the frozen SERP. SERP benefits are not provided to Messrs. Wittrock, Greenwood, Shah and Lindow. SERP participants receive an annual payment for life of an amount up to 60% of the average of their highest three years’ cash compensation (base salary plus annual cash bonus, up to 60% of that year’s maximum bonus opportunity) earned on or before January 1, 2010. SERP payments are offset by amounts payable under the Pension Plan and the Profit Sharing Plan balance as of January 1, 2010 and the portions of the BRP applicable to those plans, and, in most cases, by retirement benefits payable to the SERP participant by other employers. Benefits under the SERP are not payable in a lump sum, other than in the case of a change in control or alternate change in control.
The maximum benefit under the SERP accrues after 15 years, limited to service accrued at January 1, 2010. When the SERP was frozen on January 1, 2010, each of Messrs.Mr. Wadhams and Anderson was fully accrued and fully vested in his benefit, and Mr. Sznewajs’ accrual of 52% was frozen and is now 50% vested. The SERP vesting for Mr. Sznewajs will not be fully vested in his frozen SERP benefit unless he continues to accrue during his employment and, upon attainingbe employed with us until he is age 55, he will be 100% vested. Due to his departure effective January 1, 2012, vesting for Mr. DeMarie will not increase beyond 50%, which was the vested percentage he had as of January 1, 2010.or we have a change in control.
SERP benefits are not payable to a terminated participant until age 65, provided no change in control or alternate change in control has occurred. Participants must refrain from activities negatively impacting our business following termination of employment in order to continue to receive SERP benefits.
The SERP provides a disability benefit for participants who have been employed by us at least two years and who become disabled while employed by us. The disability benefit is paid until the earlier to occur of death, recovery from disability or age 65, is offset by payments from long-term disability insurance we have paid for, and is equal to 60% of the participant’s annual salary and bonus (up to 60% of the maximum bonus opportunity) as of January 1, 2010. At age 65, payments revert to a calculation based on the highest three-year average compensation as of January 1, 2010.
Under the SERP, participants and their spouses may also receive medical benefits.
A change in control or alternate change in control accelerates full vesting, may accelerate the payment of benefits (calculated on a present value basis), and may result in payment of an amount for any related excise taxes, as discussed below under “Payments Upon Change in Control.”
The present value of SERP payments to be made to our participating named executive officers is set forth in the “2011“2012 Pension Plan Table.” A surviving spouse will receive reduced benefits.
PART IV – EXECUTIVE COMPENSATION
Pension Plan Table
The 20112012 Pension Plan Table below shows the estimated present values on December 31, 20112012 of accumulated benefits for each of our named executive officers under the Pension Plan, the defined benefit portion of the BRP (other than for Mr. Lindow), and, (other thanfor Messrs. Wittrock, GreenwoodWadhams and Lindow)Sznewajs, the SERP. These plans were frozen as of January 1, 2010. As described above, amounts payable under the SERP are offset by amounts payable under the Pension Plan and the defined benefit portion of the BRP, and the SERP amounts shown in the table below reflect these offsets. The amounts for the SERP have also been reduced by the December 31, 2009 benefits under the Profit Sharing Plan and defined contribution portion of the BRP, and by the estimated amounts payable by prior employers, as described above, but these offsets are not separately shown.
20112012 Pension Plan Table
Name | Plan Name | Number of Years Credited Service (#)(1) | Present Value of Accumulated Benefits ($)(2) | Plan Name | Number of Years Credited Service (#)(1) | Present Value of Accumulated Benefits ($)(2) | ||||||||||||
Timothy Wadhams | Pension Plan | 30 | $ 337,692 | Pension Plan | 30 | 371,366 | ||||||||||||
Defined Benefit Portion — BRP | 30 | 2,413,731 | Defined Benefit Portion — BRP | 30 | 2,677,026 | |||||||||||||
SERP | 15 | 11,733,193 | SERP | 15 | 13,185,862 | |||||||||||||
John G. Sznewajs | Pension Plan | 13 | 184,634 | Pension Plan | 13 | 223,040 | ||||||||||||
Defined Benefit Portion — BRP | 13 | 167,161 | Defined Benefit Portion — BRP | 13 | 207,608 | |||||||||||||
SERP | 13 | 1,735,115 | SERP | 13 | 2,226,398 | |||||||||||||
Gregory D. Wittrock | Pension Plan | 30 | 968,470 | Pension Plan | 30 | 991,806 | ||||||||||||
Defined Benefit Portion — BRP | 30 | 135,747 | Defined Benefit Portion — BRP | 30 | 140,385 | |||||||||||||
Charles F. Greenwood | Pension Plan | 17 | 537,140 | |||||||||||||||
Jai Shah | Pension Plan | 6 | 107,066 | |||||||||||||||
Defined Benefit Portion — BRP | 17 | 74,068 | Defined Benefit Portion — BRP | 6 | 24,434 | |||||||||||||
John P. Lindow | Pension Plan | 12 | 165,623 | Pension Plan | 12 | 196,616 | ||||||||||||
William T. Anderson | Pension Plan | 30 | 414,083 | |||||||||||||||
Charles F. Greenwood | Pension Plan | 17 | 559,729 | |||||||||||||||
Defined Benefit Portion — BRP | 30 | 552,775 | Defined Benefit Portion — BRP | 17 | 77,909 | |||||||||||||
SERP | 15 | 3,184,047 | ||||||||||||||||
Donald J. DeMarie, Jr. | Pension Plan | 10 | 165,301 | |||||||||||||||
Defined Benefit Portion — BRP | 10 | 310,101 | ||||||||||||||||
SERP | 14 | 1,914,953 |
(1) | Reflects credited service through January 1, 2010, the date on which our defined benefit pension plans were frozen, for years of employment with us, our subsidiaries or certain of our prior affiliates and their subsidiaries. Credited service under the SERP includes service through January 1, 2010 only with us and businesses in which we had a 50% or greater interest. Mr. Wadhams was employed by us for eight years and by a prior affiliate for 17 years before returning to us in 2001. When Mr. Wadhams rejoined us in 2001, we agreed to credit him with full vesting in the maximum 60% benefit in the SERP, and to guarantee his retiree medical benefits and the offset to the SERP which would otherwise arise from his prior employer. |
(2) | Amounts in this column were calculated as of December 31, |
PART IV – EXECUTIVE COMPENSATION
Payments Upon Change in Control
We do not have employment agreements or change in control agreements with any of our named executive officers. If we hadexperienced a change in control, our named executive officers could receive lump-sum payments of benefits under the BRP and, (other thanin the cases of Messrs. Wittrock, GreenwoodWadhams and Lindow)Sznewajs, under the SERP that otherwise would be paid over time. Additionally, these two plans and the Long Term Incentive Plan provide that all participants, including the named executive officers, could receive accelerated vesting and reimbursement (limited, for equity grants, to those made prior to 2012) in the
case of imposition of excise tax upon a change in control. Upon a change in control, Mr. Sznewajs’ frozen SERP accrual of 52% would not change, but his vesting in this benefit would advance from 50% to 100%. None of these plans provides for additional accrual of benefits in the case of change in control or alternate change in control.
A “change in control” under the SERP and the BRP occurs if, during any 24-month period (or, for an “alternate change in control,” any 12-month period), the individuals who were incumbent Directorsdirectors at the beginning of the period cease for any reason to be a majority of the Board of Directors. Individuals who became Directorsdirectors after the beginning of the period with the approval of at least two-thirds (or a majority for an “alternate change in control”) of the incumbent Directorsdirectors are considered as incumbents. However, regardless of any such approval, individuals will not be considered incumbent if they become Directorsdirectors within one year after unauthorized tender offers for, or acquisitions of, 25% (or 30% for an “alternate change in control”) or more of the combined voting power of all of our outstanding voting securities or, in the case of the Long Term Incentive Plan, as a result of actual or threatened election contests not by or on behalf of the Board. The definition of “change in control” under the Long Term Incentive Plan is otherwise identical to the definition of this term in the SERP and BRP.
The following table sets forth the values of all payments (other than from our tax-qualified retirement plans) assuming a change in control or alternate change in control had occurred on December 31, 2011.2012.
Payments Upon a Change in Control
Name | Cash ($) | Equity ($)(1) | SERP and BRP Payments ($)(2) | Perquisites ($) | Excise Tax Reimbursement ($) (3) | Other ($) | Total ($) | Cash ($) | Equity ($)(1) | SERP and BRP Payments ($)(2) | Perquisites ($) | Excise Tax Reimbursement ($)(3) | Other ($) | Total ($) | ||||||||||||||||||||||||||||||||||
Timothy Wadhams | — | $ | 6,171,850 | $ | 15,011,497 | — | — | — | $ | 21,183,347 | — | 15,120,866 | 17,708,036 | — | — | — | 32,828,902 | |||||||||||||||||||||||||||||||
John G. Sznewajs | — | 1,708,971 | 2,173,176 | — | — | — | 3,882,147 | — | 3,464,225 | 2,593,987 | — | — | — | 6,058,212 | ||||||||||||||||||||||||||||||||||
Gregory D. Wittrock | — | 618,812 | 201,887 | — | — | — | 820,699 | — | 1,274,886 | 239,711 | — | — | — | 1,514,597 | ||||||||||||||||||||||||||||||||||
Jai Shah. | — | 2,199,074 | 103,130 | — | — | — | 2,302,204 | |||||||||||||||||||||||||||||||||||||||||
John P. Lindow | — | 1,376,169 | 26,869 | — | — | — | 1,403,038 | |||||||||||||||||||||||||||||||||||||||||
Charles F. Greenwood | — | 804,846 | 129,003 | — | — | — | 933,849 | — | 1,571,969 | 150,850 | — | — | — | 1,722,819 | ||||||||||||||||||||||||||||||||||
John P. Lindow | — | 756,502 | 23,145 | — | — | — | 779,647 | |||||||||||||||||||||||||||||||||||||||||
William T. Anderson | — | 1,191,227 | 3,958,607 | — | — | — | 5,149,834 | |||||||||||||||||||||||||||||||||||||||||
Donald J. DeMarie, Jr. | — | 4,027,637 | 2,453,651 | — | — | — | 6,481,288 |
(1) | A change in control would trigger vesting of unvested restricted stock and stock option awards, the total value of which is shown in this column. |
(2) | Amounts calculated for both the SERP and the BRP utilize the discount rates and mortality assumptions equal to the Pension Benefit Guarantee Corporation discount rates for lump sums in plan terminations, as in effect four months prior to the change in control or alternate change in control, and the UP-1984 mortality table (both of which differ from the rates and assumptions used to calculate the lump sums set forth in the Pension Plan Table). If a change in control occurs that does not meet the narrower “alternate change in control” definition, lesser lump sum values (reflecting the portion of benefits not subject to Code Section 409A) would be payable, and the portion of benefits subject to Section 409A would not be paid in a lump sum but would be paid over time, as if such event had not occurred. Prior to 2008 the BRP had no change in control provision; it was amended to provide that any change in control would result in funding a trust, but the indicated lump sum benefits would be payable only upon the occurrence of an “alternate change in control,” whereas in |
PART IV – EXECUTIVE COMPENSATION
the case of the more broadly-defined “change in control,” benefits would not be paid in a lump sum, but would be paid over time, as if such event had not occurred. Amounts in this column also include amounts shown in columns A and D in the |
(3) | Excise tax reimbursements apply only to agreements and equity grants entered into prior to 2012. At December 31, |
Payments Upon Retirement, Termination, Disability or Death
Retirement Plans and Long-Term Disability Policy
Upon retirement at or after age 65, or if voluntary or involuntary termination of employment had occurred on December 31, 2011,2012, all of our named executive officers would be fully vested in the present value of accumulated benefits shown in the last column of the “2011“2012 Pension Plan Table” above, as well as the amounts in columns A and D in the “2011“2012 Non-Qualified Deferred Compensation” table above, and benefits would become payable under the plans, as described above. In the case of voluntary or involuntary termination of employment, however, the amount payable to Mr. Sznewajs under the SERP, as shown in the 20112012 Pension Plan Table, would have been reduced by 50% to his vested benefit. The 2011 Pension Plan Table reflects the curtailment of vesting in Mr. DeMarie’s SERP as a result of his departure effective January 1, 2012. The values shown in the 20112012 Pension Plan Table would be paid on a monthly basis and not as lump sum payments. All payments referred to above would be made by us, other than Pension Plan payments, which would be made from the trust established pursuant to the Pension Plan.
If disability had terminated employment of any of our named executive officers on December 31, 2011,2012, under our long-term disability plan he would receive a maximum benefit of $144,000 per year, payable from our long-term disability insurance policy. In addition, each named executive officer would have received a BRP disability benefit with respect to the underlying Pension Plan, plus, for Messrs. Wadhams Sznewajs and Anderson,Sznewajs the SERP disability benefit described above under “Supplemental Executive Retirement Plan” which, after reduction by the insured long-term disability benefit, would have resulted in a disability benefit with a present value of $14,442,438$14,685,930 for Mr. Wadhams; $6,140,855$6,685,076 for Mr. Sznewajs; $173,209$202,522 for Mr. Wittrock; $114,048$79,068 for Mr. Greenwood; $23,145Shah; $26,869 for Mr. Lindow; and $3,391,252$129,693 for Mr. Anderson.Greenwood. The disability benefit would terminate upon the earlierearliest of death, recovery from disability or age 65, at which time the applicable retirement, termination or death benefits would become effective.
Discretionary medical benefits under the SERP, assuming the participant retired at age 65, became disabled, or terminated employment with at least an 80% vested SERP benefit, would have a present value on December 31, 20112012 of $584,293$650,954 for Mr. Wadhams; $349,521Wadhams and $415,169 for Mr. Sznewajs; and $590,516 for Mr. Anderson.Sznewajs.
If a named executive officer died, his surviving spouse would receive an annual pension benefit. The benefit is equal to (i) amounts payable under our Pension Plan and the portion of the BRP applicable to the Pension Plan (actuarially adjusted for any optional coverage effective under these plans), plus (ii) distributions from the Profit Sharing Plan and the portion of the BRP applicable to the 401(k) Savings Plan and the Profit Sharing Plan (amounts described in (i) and (ii) are, collectively, the “offsets”), plus, (iii) for Messrs. Wadhams and Sznewajs 45% and Anderson (iii) 45% (39% for Mr. Sznewajs)39%, respectively, of the named executive officer’shis SERP benefit, reduced by the offsets. If a named executive officer has no surviving spouse, his beneficiary (if applicable) would receive the amounts described in (i) and (ii) above. The present values on December 31, 20112012 of payments that we would have made from the BRP and (for Messrs. Wadhams Sznewajs and Anderson)Sznewajs) from the SERP if one of our named executive officers had died on that date were: $11,203,236$11,655,236 for Mr. Wadhams; $5,334,829$5,878,644 for Mr. Sznewajs; $130,330$158,459 for Mr. Wittrock; $89,598$89,559 for Mr. Greenwood; $23,145Shah; $26,869 for Mr. Lindow; and $2,936,332$105,153 for Mr. Anderson.Greenwood.
Mr. DeMarie’s employment with us ceased on January 1, 2012, and our plans have no provision for medical, disability or death coverages following his departure. As a result, we have not disclosed any amounts at December 31, 2011 for these scenarios, as they no longer can occur.
Equity Plans
Absent an agreement for post-termination extended vesting, voluntary or involuntary (with or without cause) termination of employment would result in forfeiture to us of all of a named executive officer’s unvested restricted stock awards and unvested stock options. Vested stock options remain exercisable for 30 days, in the
PART IV – EXECUTIVE COMPENSATION
case of voluntary termination, or three months, in the case of involuntary termination (with or without cause), but not beyond the originally-specified exercise period. Vested options exercisable on December 31, 20112012 are shown in the second column of the “2011“2012 Outstanding Equity Awards at Fiscal Year-End” table above. If these vested options had been exercised at a termination date of December 30, 2011 (the last trading day of the year)31, 2012 based on our closing stock price of $16.66 on that date, of $10.48, the value of such options would have been $799,680$5,782,176 for Mr. Wadhams; $142,100$1,027,470 for Mr. Sznewajs; $25,480$298,608 for Mr. Wittrock; $59,780$425,160 for Mr. Greenwood; $44,982Shah; $309,904 for Mr. Lindow; $68,600and $164,716 for Mr. Anderson; and $0 for Mr. DeMarie.Greenwood. We retain the right to terminate unexercised options that vested within two years prior to termination and to recover the after-tax proceeds for exercises of options that vested within two years prior to termination.
In the case of disability or death, whether before or after normal retirement date, all restrictions on restricted shares would lapse. Disability or death would cause all unvested stock options to become exercisable; in the case of disability, for the maximum period of time allowed under the original awards, and in the case of death, for up to a year, but not beyond any originally-specified exercise period. If death or disability had occurred on December 31, 2011,2012, the value of restricted shares and options vesting (assuming exercise of the options) at such date, would be as shown in the “Equity” column and in Note 1 in the “Payments Upon Change in Control” table above.
By design, our restricted stock and stock option awards do not vest upon retirement. Instead, following retirement, equity awards generally continue to vest in accordance with the remaining vesting period. Notwithstanding the foregoing, there are no termination or change in control provisions in our equity plans applicable to our named executive officers that are unavailable generally to salaried employees participating in such plans.
Other Arrangements
As noted above in the “Compensation Discussion and Analysis,” it is our general policy not to enter into employment or severance contracts. On an individually-negotiated basis we may enter into severance arrangements or arrangements for a named executive officer’s services following termination of employment. Such arrangements may include continued vesting of restricted stock or options that would otherwise be forfeited, as well as provisions restricting competitive activities following termination.
Effective January 1, 2012, we entered into an agreement with Donald J. DeMarie, Jr. in connection with his departure from our Company. Under the agreement, Mr. DeMarie will provide consulting services to us for a period of at least two years. The agreement prohibits Mr. DeMarie from entering into business opportunities and other activities competitive with us for a period of two years and also contains a release of claims against us, as well as non-solicitation, non-disclosure and non-disparagement provisions. In consideration for Mr. DeMarie’s obligations under the agreement, he will receive $25,000 for two years and a total amount equal to twice his former base salary paid over two years. Mr. DeMarie’s outstanding shares of restricted stock will continue to vest in accordance with their original vesting schedule.
PROPOSAL 2:PART V – AUDIT COMMITTEE MATTERS
ADVISORY VOTE TO APPROVE THE COMPENSATION
OF THE COMPANY’S NAMED EXECUTIVE OFFICERS
We are seeking your advisory vote approving the compensation paid to our named executive officers (whom we refer to as “executive officers” in this Proposal 2) as disclosed in this proxy statement. We believe the structure of our executive compensation programs promotes the long-term interests of our stockholders by attracting and retaining talented executives and motivating them to achieve our business objectives and to create long-term value for our stockholders.
At our 2011 Annual Meeting of Stockholders, we submitted non-binding advisory proposals to our stockholders to approve the compensation paid to our executive officers (a “say-on-pay proposal”) and to determine the frequency of future say-on-pay proposals. Based on the Board’s recommendation and after considering the vote by our stockholders, our Board determined that it will submit a say-on-pay proposal to our stockholders each year.
Approximately 55% of the votes cast on our say-on-pay proposal at our 2011 Annual Meeting were against the compensation paid to our executive officers. In response, our Organization and Compensation Committee obtained feedback from our largest stockholders who held over half of our outstanding common stock of their perceptions and concerns regarding our executive compensation practices. The Committee thoroughly reviewed our compensation programs and practices in light of the feedback provided by our stockholders, to ensure alignment of our Company’s best interests and the objectives for our compensation programs. The Committee also considered analysis provided by its compensation consultant. As a result of this review, the Committee and our Board made several changes to our executive compensation programs and practices for 2012 and beyond, as follows:
we significantly reduced our executive officers’ stock option opportunity and introduced a new Long-Term Cash Incentive Program based on return on invested capital performance over a three-year period;
we changed the mix of long-term incentives to give approximately equal weight to performance-based restricted stock, stock options, and our new Long-Term Cash Incentive Program;
we eliminated the excise tax gross-up feature on all equity grants beginning in 2012;
we increased our CEO’s stock ownership requirement to six times base salary; and
we adopted double-trigger vesting of equity on a change in control.
Our executive officers’ 2011 compensation opportunity was established early in 2011, prior to the say-on-pay vote at our 2011 Annual Meeting. Accordingly, our compensation programs and practices during 2011, as described in the Compensation Discussion and Analysis, do not reflect changes we have made for 2012 and beyond.
Our compensation programs reward our executive officers to a significant degree based on our performance. Accordingly, each executive officer’s potential performance-based compensation represents a significant percentage of his total annual target compensation. In 2011, the percentage of total target compensation (defined as annual base salary, target cash bonus opportunity, target restricted stock opportunity, and target value of stock options) that was performance-based was approximately 87% for our CEO, 74% for our CFO, and 68% for our other current executive officers. We did not attain our earnings per share or cash flow performance goals in 2011. As a result, no performance-based restricted stock awards or cash bonuses were earned by our executive officers in 2011 and their total direct compensation (annual salary, restricted stock, cash bonus and stock option awards) declined 27% compared to 2010.
In addition to our emphasis on pay-for-performance and changes implemented after the 2011 say-on-pay vote, our executive compensation programs already incorporated many best practices, as follows:
our compensation mix is weighted toward long-term incentives;
our restricted stock and stock option awards have five-year vesting schedules, significantly longer than current market practice;
we employ an annual market analysis of executive compensation relative to peer companies and published survey data for comparably-sized companies;
we provide limited perquisites to our executive officers;
we have no employment agreements, change in control agreements or contractual severance agreements with our executive officers;
we prohibit derivative trading in our stock;
our equity plan prohibits the repricing of options; and
our Organization and Compensation Committee, comprised exclusively of independent Directors, uses tally sheets and analyzes risk in setting executive compensation.
For the reasons discussed above, the Board recommends a vote FOR the following resolution providing an advisory approval of the compensation paid to our named executive officers:
RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed pursuant to the compensation disclosure rules of the SEC, including the Compensation Discussion and Analysis, the compensation tables and the related material disclosed in this proxy statement, is hereby approved.
Although the vote on this proposal is advisory and non-binding, the Organization and Compensation Committee and the Board will review the results of the vote and consider them when making future determinations regarding our executive compensation programs. The affirmative vote of a majority of the votes cast by shares entitled to vote thereon is required for the approval of the foregoing resolution. Abstentions and broker non-votes are not counted as votes cast, and therefore do not affect the approval of the resolution.
The Audit Committee assists the Board of Directors in fulfilling itsthe Board’s responsibility for oversight of the integrity of the Company’sour financial statements, the effectiveness of the Company’sour internal controlcontrols over financial reporting, the qualifications, independence and performance of the Company’sour independent registered public accounting firm (“independent auditors”), the performance of the Company’sour internal audit function, andour compliance by the Company with legal and regulatory requirements, and compliance by our employees and officers with the Company’sour Code of Business Ethics. Management hasis responsible for the primary responsibility for theaccuracy of our financial statements and theour reporting process, including the Company’sour system of internal controlcontrols over financial reporting. In discharging its oversight responsibility as to the audit process,responsibilities, the Audit Committee reviewed and discussed with management theour audited financial statements of the Company as of and for the year ended December 31, 2011, including a discussion of the quality and the acceptability of the Company’s financial reporting and disclosure controls and procedures and internal control over financial reporting, as well as the selection, application and disclosure of critical accounting policies.
The Audit Committee obtained from the Company’s independent auditors, PricewaterhouseCoopers LLP, the written disclosures and letter required by applicable requirements of the Public Company Accounting Oversight Board regarding the auditors’ communications with the Audit Committee concerning independence and discussed with the independent auditors any relationships that may impact their objectivity and independence and satisfied itself as to PricewaterhouseCoopers LLP’s independence. The Audit Committee considered and determined that such independent auditors’ provision of non-audit services to the Company is compatible with maintaining their independence. The Audit Committee reviewed various matters with the independent auditors, who are responsible for expressing an opinion on the Company’s financial statements as of and for the year ended December 31, 2011,2012 and our processes to ensure the effectivenessaccuracy of the Company’s internal control overour financial reporting, based on their audit. statements.
The Audit Committee metobtained from our independent auditors, PricewaterhouseCoopers LLP (“PwC”), the written disclosures and letter required by the Public Company Accounting Oversight Board regarding PwC’s communications with the independent auditorsAudit Committee concerning independence. The Audit Committee discussed with PwC any relationships that may impact PwC’s objectivity and independence and satisfied itself as to PwC’s independence. The Audit Committee confirmed that PwC’s provision of non-audit services to us did not impair their independence. The Audit Committee discussed with PwC the matters required to be discussed by Statement on Auditing Standards No. 61, as amended AICPA (AICPA,Professional Standards Vol., vol. 1 (AU SectionAU section 380) as adopted by the Public Company Accounting Oversight Board in Rule 3200T.3200T, regarding communication with the Audit Committee. The Audit Committee also met with thePwC independent auditors without management present.of management.
Based on the above-mentioned reviews and discussions with management and the independent auditors described above, the Audit Committee recommended to the Board of Directors that the Company’sour financial statements as of and for the year ended December 31, 20112012 be included in itsour Annual Report on Form 10-K for the year ended December 31, 20112012 for filing with the SEC.SEC . The Audit Committee also reappointed PricewaterhouseCoopers LLPPwC as the Company’sour independent registered public accounting firm, which stockholders are being asked to ratify.
J. Michael Losh, Chairman | ||
Dennis W. Archer | ||
Thomas G. Denomme | ||
Donald R. Parfet | ||
Lisa A. Payne | ||
John C. Plant |
PART V – AUDIT COMMITTEE MATTERS
PRICEWATERHOUSECOOPERS LLP FEES
Principal Accountant Fees and Services
Aggregate fees for professional services rendered to us by our independent registered public accounting firm, PricewaterhouseCoopers LLP (“PwC”), for the years ended December 31, 20112012 and 20102011 were (in millions):
2011 | 2010 | 2012 | 2011 | |||||||||||||
Audit Fees | $ | 8.8 | $ | 9.1 | $ | 8.6 | $ | 8.8 | ||||||||
Audit-Related Fees | .3 | .3 | .3 | .3 | ||||||||||||
Tax Fees | 1.5 | 1.9 | 1.5 | 1.5 | ||||||||||||
All Other Fees | * | * | * | * | ||||||||||||
|
|
|
| |||||||||||||
Total | $ | 10.6 | $ | 11.3 | $ | 10.4 | $ | 10.6 |
* | Aggregate amount was less than $50,000 |
TheAudit Feesfor the years ended December 31, 20112012 and 20102011 were for professional services rendered for audits and quarterly reviews of our consolidated financial statements, audits of our internal controlcontrols over financial reporting, statutory audits, issuance of comfort letters, consents and assistance with review of documents filed with the SEC.
TheAudit-Related Feesfor services rendered during the years ended December 31, 20112012 and 20102011 were for professional services rendered for employee benefit plan audits, due diligence related to acquisitions and dispositions, audits not required by law, and consultations concerning the assessment of internal controlcontrols over financial reporting.
Tax Feesfor services rendered during the years ended December 31, 20112012 and 20102011 were for services related to tax return preparation, tax planning, and tax advice related to reorganizations, divestitures and transfer pricing programs.
All Other Feesfor services rendered during the years ended December 31, 20112012 and 20102011 were for miscellaneous services rendered.
Audit Committee Pre-Approval Policies and Procedures
The Audit Committee has established a policy requiring its annual review and pre-approval of all audit services and permitted non-audit services to be performed by our independent registered public accounting firm, PricewaterhouseCoopers LLP.PwC. The Audit Committee will, as necessary, consider and, if appropriate, approve the provision of additional audit and non-audit services by PricewaterhouseCoopers LLPPwC that are not encompassed by the Audit Committee’s annual pre-approval and not prohibited by law. The Audit Committee has delegated to the Chairman of the Audit Committee the approval authority, on a case-by-case basis, for services outside or in excess of the Audit Committee’s aggregate pre-approved levels and not prohibited by law, provided that the Chairman shall report any such decisions to the Audit Committee at its next regular meeting. All of the services referred to above in the table above for 20112012 were pre-approved by the Audit Committee and none of the services approved by the Audit Committee during 20112012 were under the de minimis exception to pre-approval contained in the applicable rules of the SEC.
ELECTION OF CLASS I DIRECTORS
The term of office of the Class I directors, who are Dennis W. Archer, Thomas G. Denomme, Lisa A. Payne and Donald R. Parfet, expires at this meeting. Mr. Denomme, who has reached our Board’s retirement policy age of 72, will serve until his term expires at the Annual Meeting, at which time the number of directors on our Board will be reduced to nine and the number of Class I directors to three.
The Board proposes the re-election of Mr. Archer and Ms. Payne and the election of Donald R. Parfet, who joined the Board in December 2012, to serve as Class I directors. The term of the Class I directors elected at this Annual Meeting will expire at the Annual Meeting of Stockholders in 2016, or when their respective successors are elected and qualified.
Mr. Parfet was recommended for consideration as a nominee for director by one of our independent directors. The Board has determined that Mr. Parfet is independent under the independence requirements of applicable law, Masco’s independence standards and the New York Stock Exchange.
The Board of Directors expects that the persons named as proxy holders on the proxy card will vote the shares represented by each proxy for the election of each director nominee unless a contrary direction is given. If, prior to the meeting, a nominee is unable or unwilling to serve as a director, which the Board of Directors does not expect, the proxy holders may vote for such alternate nominee, if any, as may be recommended by the Board of Directors, or the Board may reduce its size.
Information regarding each of our director nominees is set forth above in “Part III – Board of Directors.”
The Board of Directors recommends a vote FOR the election to the Board of Directors of each of the following Class I director nominees:
Name | Age | Director Since | Occupation | |||||
Dennis W. Archer | 71 | 2004 | Chairman and CEO of Dennis W. Archer PLLC and Chairman Emeritus, Dickinson Wright PLLC. | |||||
Donald R. Parfet | 60 | 2012 | Managing Director, Apjohn Group, LLC and General Partner, Apjohn Ventures Fund, Limited Partnership | |||||
Lisa Payne | 54 | 2006 | Vice Chairman and CFO of Taubman Centers, Inc. |
PART VI – PROPOSALS
ADVISORY VOTE TO APPROVE THE COMPENSATION
OF THE COMPANY’S NAMED EXECUTIVE OFFICERS
We are seeking your advisory vote approving the compensation paid to our named executive officers (whom we refer to as “executive officers” in this Proposal 2) as disclosed in this proxy statement. We believe the structure of our executive compensation programs promotes the long-term interests of our stockholders by attracting and retaining talented executives and motivating them to achieve our business objectives and to create long-term value for our stockholders.
At our 2012 Annual Meeting, we submitted a non-binding advisory proposal to our stockholders to approve the compensation paid to our executive officers (a “say-on-pay proposal”). Approximately 95% of the votes cast on our say-on-pay proposal approved the compensation paid to our executive officers. We believe that this strong approval showed support for the changes adopted in 2011 by our Organization and Compensation Committee. These changes include significantly reducing our executive officers’ stock option opportunity and introducing a new Long Term Cash Incentive Program (“LTCIP”) based on return on invested capital performance over a three-year period; eliminating the excise tax gross-up feature on all equity grants beginning in 2012; increasing our CEO’s stock ownership requirement to six times base salary; and implementing double-trigger vesting of equity on a change in control.
Our executive officers’ 2012 compensation opportunities reflect these changes. In 2012, we continued to communicate with our largest stockholders on a broad range of executive compensation and governance topics. Taking this feedback and current best practices into consideration, the Committee strengthened our clawback policy to provide that if we restate our financial statements, other than as a result of changes to accounting rules or regulations, the Committee may recover incentive compensation from current or former executives that was paid or granted during the three-year period preceding the date of restated financial results, regardless of whether misconduct caused the restatement.
Our compensation programs reward our executive officers to a significant degree based on our performance. Accordingly, each executive officer’s potential performance-based compensation represents a significant percentage of his total annual target compensation. In 2012, the percentage of total target compensation (defined as annual base salary, target cash bonus opportunity, target restricted stock opportunity, target opportunity under the LTCIP, and the value of stock options) that was performance-based was approximately 87% for our CEO and 72% for our other executive officers. Our performance in 2012 improved compared to 2011. Consistent with our commitment to pay-for-performance, the compensation we paid to our executive officers increased, as our executive officers earned restricted stock awards and cash bonuses based on our achievement of our 2012 earnings per share and cash flow performance metrics.
In addition to our emphasis on pay-for-performance, we believe that having a significant ownership interest in our stock is critical to aligning the interests of our executive officers with the long-term interests of our stockholders. Accordingly, equity grants in the form of restricted stock awards and stock options are an important component of compensation for our executive officers.
Our executive compensation programs also incorporate many best practices, as follows:
We require minimum levels of stock ownership by our executives;
We prohibit excise tax gross-up payments;
We have adopted double-trigger change of control provisions for our equity awards;
Our compensation mix is weighted toward long-term incentives;
PART VI – PROPOSALS
Our restricted stock and stock option awards have five-year vesting schedules, longer than current market practice;
We employ an annual market analysis of executive compensation relative to peer companies and published survey data for comparably-sized companies;
We provide limited perquisites to our executive officers;
We prohibit derivative trading in our stock;
We have no employment agreements, change in control agreements or contractual severance agreements with our executive officers;
Our equity plan prohibits the repricing of options; and
Our Organization and Compensation Committee, comprised exclusively of independent directors, uses tally sheets and analyzes risk in setting executive compensation.
For the reasons discussed above, the Board recommends a vote FOR the following resolution providing an advisory approval of the compensation paid to our named executive officers:
RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed pursuant to the compensation disclosure rules of the SEC, including the Compensation Discussion and Analysis, the compensation tables and the related material disclosed in this proxy statement, is hereby approved.
Although the vote on this proposal is advisory and non-binding, the Organization and Compensation Committee and the Board will review and consider the result of the vote when making future determinations regarding our executive compensation programs. The affirmative vote of a majority of the votes cast by shares entitled to vote thereon is required for the approval of the foregoing resolution. Abstentions and broker non-votes are not counted as votes cast, and therefore do not affect the approval of the resolution.
PART VI – PROPOSALS
RATIFICATION OF SELECTION OF
INDEPENDENT AUDITORS
The Audit Committee has selected the independent registered public accounting firm of PricewaterhouseCoopers LLP to audit our financial statements for the year 2012,2013, and believes it appropriate to submit its selection for ratification by stockholders.
Representatives of PricewaterhouseCoopers LLPPwC will be present at the Annual Meeting and will have the opportunity to make a statement and respond to appropriate questions. If the selection of PricewaterhouseCoopers LLPPwC is not ratified, the Audit Committee will consider selecting another independent registered public accounting firm as our independent auditors.
The affirmative vote of a majority of the votes cast by shares entitled to vote is required for the ratification of the selection of independent auditors. Abstentions and broker non-votes are not counted as votes cast, and therefore do not affect the ratification of the selection of independent auditors.
The Board recommends a vote FOR the ratification of the selection of PricewaterhouseCoopers LLP as our independent auditors for the year 2012.2013.
PART VI – PROPOSALS
STOCKHOLDER PROPOSALAPPROVAL OF AMENDMENTS TO REPEAL CLASSIFIED BOARDOUR CERTIFICATE OF INCORPORATION
The Illinois State Board of Investment, 180 North LaSalle Street, Suite 2015, Chicago, Illinois 60601, owner of 27,226 shares of our common stock, has submitted the proposal set forth below. We have not modified the language of the proposal, and we are not responsible for the accuracy of the proposal or the stockholder’s supporting statement. The Board requests that you consider its response, which follows the stockholder’s proposal, and recommends that you vote against this proposal.
Stockholder Proposal:AND BYLAWS TO DECLASSIFY OUR BOARD OF DIRECTORS
RESOLVED, that shareholders of Masco Corporation urge theOur Board of Directors is currently divided into three classes, the members of which are elected by our stockholders for three year terms. At our 2012 Annual Meeting, the holders of a majority of our outstanding shares of common stock voted in favor of a non-binding stockholder proposal for our Board to take allthe necessary steps (other than any stepsto declassify our Board. Our Board and our Corporate Governance and Nominating Committee (the “Governance Committee”) have carefully considered the broad shareholder support for declassification, as well as arguments in favor of declassification, including the increasing number of large companies that must be taken by shareholders)provide for annual election of directors, and stockholders’ perspectives that annual elections improve director accountability.
Our Board and our Governance Committee have also carefully considered arguments in favor of keeping a classified board. These arguments include:
• | Protecting Stockholder Value. In light of the extended downturn in the housing market, we do not believe that our stock price fairly reflects our long-term value. Accordingly, we are concerned about opportunistic takeover attempts while our stock is trading below historic norms. The Board believes it is important to have a governance structure that provides protection against control attempts by stockholders seeking short-term gains at the expense of long-term strategic developments. We believe a classified board reduces our vulnerability to hostile and potentially abusive takeover tactics and places the Board in a better negotiating position that would benefit all stockholders, if we were faced with a takeover offer. While a classified board does not preclude a takeover attempt, it provides the Board with time and opportunity to evaluate any takeover proposal, and the ability to negotiate on behalf of all stockholders and weigh alternatives to maximize long-term stockholder value. |
• | Stability and Continuity with Accountability. A classified Board structure allows for continuity and stability, without sacrificing director accountability, by ensuring that a majority of our directors has substantial knowledge regarding our Company, our business and our strategic goals. Directors who have experience with us and deep knowledge about our business are valuable resources and, we believe, are better positioned to make the fundamental decisions that are best for us and our stockholders. Insuring stability is particularly important given the majority vote provisions contained in our Bylaws, under which directors who do not receive a majority of the votes cast must tender their resignations. Directors serving on a classified board remain accountable to stockholders, as they owe the stockholders fiduciary duties, serve with other directors who will stand for election at the next annual meeting and will themselves stand for election every third year. This accountability is further enhanced by our majority vote provisions. |
• | Independence. Electing directors to three-year terms can be viewed as enhancing the independence of non-management directors by providing them with a longer term of office, thereby insulating them from pressures from special interest groups that might have an agenda contrary to the long-term interests of our stockholders. |
After considering the factors for and against declassification, our Board believes that permitting stockholders to eliminatevote on declassification is consistent with our stockholders’ expectations and our ongoing commitment to corporate governance best practices. Accordingly, our Board believes our stockholders should have the classificationopportunity to consider and vote on proposed amendments to our Certificate of Incorporation and Bylaws which, if approved as described below, would declassify our Board.
The Board recommends a vote FOR the proposal to amend our Certificate of Incorporation and our Bylaws to declassify our Board.
PART VI – PROPOSALS
Proposed Amendments
The Board of Directors is submitting for your consideration amendments to our Certificate of Incorporation and our Bylaws to require that allprovide for the phased elimination of our classified board.
The text of the proposed amendments, which would replace clause (a) of the SEVENTH Article of the Certificate of Incorporation and the first paragraph of Article II, Section 2.01 of the Bylaws, is attached as Appendix A to this proxy statement. If the proposed amendments are adopted, beginning in 2014, directors whose terms expire will stand for election for one-year terms, as further described under “Impact on Future Elections” below.
Required Vote
For the proposed amendments to become effective, this proposal must receive the affirmative vote of stockholders holding at least 80% of the outstanding shares entitled to vote at the Annual Meeting. If the proposal is approved by the required stockholder vote, our Board will amend our Certificate of Incorporation and Bylaws as set forth in Appendix A. If the proposal does not receive this level of stockholder approval, our Certificate of Incorporation and Bylaws will not be amended and our Board will continue to be classified.
Impact on Future Elections
The adoption of the proposed amendments would not shorten the terms to which our stockholders have previously elected directors. Accordingly, directors elected at or afterthis year’s Annual Meeting would serve for a three-year term expiring at the annual meeting held2016 Annual Meeting, and directors currently serving terms that end at the Annual Meetings in 20132014 and 2015 would continue to serve for such terms. If the proposed amendments are approved, all directors would be elected on an annual basis. Implementation of this proposal should not prevent anybasis beginning with the 2016 Annual Meeting. In all cases, each director elected prior to the annual meeting held in 2013 from completing the term for which such director was elected.
SUPPORTING STATEMENT
This resolution was submitted by the Illinois State Board of Investment. The Harvard Law School Shareholder Rights Project represented and advised the Illinois State Board of Investment in connection with this resolution.
The resolution urges the board of directors to facilitate a declassification of the board. Such a change would enable shareholders to register their views on the performance of all directors at each annual meeting. Having directors stand for elections annually makes directors more accountable to shareholders, and could thereby contribute to improving performance and increasing firm value.
Over the past decade, many S&P 500 companies have declassified their board of directors. According to data from FactSet Research Systems, the number of S&P 500 companies with classified boards declined by more than 50%; and the average percentage of votes cast in favor of shareholder proposals to declassify the boards of S&P 500 companies during the period January 1, 2010 – June 30, 2011 exceeded 75%.
The significant shareholder support for proposals to declassify boards is consistent with empirical studies reporting that classified boards could be associated with lower firm valuation and/or worse corporate decision-making. Studies report that:
Classified boards are associated with lower firm valuation (Bebchuk and Cohen, 2005; confirmed by Faleye (2007) and Frakes (2007));
Takeover targets with classified boards are associated with lower gains to shareholders (Bebchuk, Coates, and Subramanian, 2002);
Firms with classified boards are more likely to be associated with value-decreasing acquisition decisions (Masulis, Wang, and Xie, 2007); and
Classified boards are associated with lower sensitivity of compensation to performance and lower sensitivity of CEO turnover to firm performance (Faleye, 2007).
Please vote for this proposal to make directors more accountable to shareholders.
STATEMENT IN OPPOSITION TO PROPOSAL 4
Recommendation of the Board of Directors
The Board of Directors has carefully considered this proposal and has concluded that our classified board structure continues to promote our best interests and those of our stockholders. Therefore, the Board unanimously recommends a vote AGAINST this proposal. The Board believes that the classified board structure has served us and our stockholders well since its adoption in 1988, and that it continues to provide important benefits to us, including the following:
Stability and Continuity. The classified board structure helps provide stability, prevents sudden disruptive changes to the Board’s composition and enhances our long-term planning. The three-year director terms of a classified board ensure that the Board’s composition includes a majority of directors who have in-depth knowledge of our Company and its history. Three-year terms also encourage directors to make long-term commitments to us and to focus on our long-term strategies. The structure also allows the Board’s Corporate Governance and Nominating Committee to assess the qualifications of the nominees more thoroughly and to seek candidates who can complement and enhance the existing Board composition, thereby enabling a more orderly evolution of the Board. The recruiting process is enhanced in that the Board believes that longer terms help attract more qualified candidates who have demonstrated a willingness to commit the time and dedication necessary to understand our Company, our operations, our competitive environment, and the cyclical nature of the industry in which we compete.
Accountability to Stockholders. Our directors continue to be accountable to us and our stockholders under the classified board structure. Every director is required to act in accordance withhold office until his or her fiduciary duties to our Companysuccessor has been elected and our stockholders, regardless of how often hequalified or she stands for election. We believeuntil the director’s earlier resignation or removal, and vacancies that longer terms haveoccur during the effect of causing Directors to consideryear could be filled by the long-term effects of their decisions, and to become personally invested in assuring our success over time. The Board believes thatwith directors who would serve until the annual election of approximately one-thirdend of the directors provides stockholders with an orderly means to effect change and to communicate their views on our Company’s performance andpredecessor director’s original term. Until the performance of our Directors.
Protection Against Certain Takeovers. The classified board structure is designed to safeguard against a hostile purchaser quickly gaining control of our Company without paying fair value. Because only one-third of2016 Annual Meeting, when the directors are normally elected at any annual meeting, if a company has a classified board, it is impossible for a potential acquirer to replace a majority of a board at a single meeting. While a classified board does not preclude a takeover, it encourages potential acquirers to negotiate directly with a board, which provides a board with time and leverage to evaluate the adequacy and fairness of a takeover proposal and to weigh alternative methods of maximizing stockholder value. The classified board structure may serve as an obstacle to sudden and disruptive attempts by investor groups focusing on short-term financial gains by threatening to seek control of a company’s board. Even if unsuccessful, these attempts can seriously disrupt the conduct of a company’s business and cause it to incur substantial expense.
Commitment to Effective Corporate Governance Practices. We have an experienced and well-qualified Board. Our Board is committed to utilizing effective corporate governance practices and has adopted Corporate Governance Guidelines (a copy of which is available on our website atwww.masco.com) which, among other things, provideno longer classified, directors may be removed only for annual evaluations of director independence and an annual self-assessment of our Board’s performancecause. Thereafter, directors may be removed, with or without cause, by the Corporate Governance and Nominating Committee. Our Board, with the assistance of its Corporate Governance and Nominating Committee, continually seeks to improve and enhance its corporate governance practices by reviewing our existing practices in light of those of our peers and the current corporate governance environment, and retaining or implementing practices that it believes serve the best long-term interests of our Company and our stockholders.
Independence. Electing directors to three-year terms also enhances the independence of non-employee directors by providing them with a longer term of office. The longer term provides a certain amount of autonomy from special interest groups that may have an agenda contrary to our long-term goals and objectives and thoseholders of a majority of stockholders. As a result, independent directors are ablethe shares then entitled to make decisions that are in the best long-term interestsvote at an election of our Company and our stockholders. Our current classified Board structure permits our Directors to act independently and on behalf of stockholders without concern for whether they will be re-nominated by other members of the Board each year. The freedom to focus on our long-term interests rather than the re-nomination process leads to greater independence and better governance.directors.
For the above reasons, the Board recommends a vote AGAINST the proposal to declassify our Board.PART VI – PROPOSALS
Approval of this proposal would not automatically eliminate our classified board structure. It is a non-binding proposal that requests that the Board take the steps necessary to declassify the Board. Further action by our stockholders and the Board would be required to amend our Restated Certificate of Incorporation to eliminate classification of terms of directors. Under our Restated Certificate of Incorporation, the amendment would require the affirmative vote of the holders of not less than 80% of our outstanding shares.
STOCKHOLDER PROPOSAL REGARDING SHARE RETENTIONAPPROVAL OF THE PERFORMANCE METRICS
The Nathan Cummings Foundation, 475 Tenth Avenue, Fourteenth Floor, New York, New York, 10018 ownerFOR PERFORMANCE-BASED COMPENSATION
INTENDED TO QUALIFY UNDER
INTERNAL REVENUE CODE SECTION 162(m)
We are seeking stockholder approval of 600 shares of our common stock, has submitted the proposalperformance metrics set forth below. We have not modified the languagebelow for performance-based compensation paid or granted under our 2005 Long Term Stock Incentive Plan (the “2005 Plan”). Stockholder approval of the proposal, and we are not responsibleperformance metrics would help preserve our ability to deduct for the accuracyincome tax purposes compensation associated with future performance-based awards made to certain executives.
Section 162(m) of the proposalInternal Revenue Code (“Section 162(m)”) limits the amount that a publicly-held company can deduct for compensation in excess of $1 million paid in a given year to its chief executive officer and its three other most highly-compensated officers other than the chief financial officer. Qualified performance-based compensation that meets certain requirements is not counted against the $1 million deductibility cap. Performance awards granted under our 2005 Plan may constitute qualified performance-based compensation if the payment, retention or the stockholder’s supporting statement. The Board requests that you consider its response, which follows the stockholder’s proposal, and recommends that you vote against this proposal.
Stockholder Proposal:
RESOLVED, that shareholders of Masco Corporation (the “Company”) urge the Compensation Committeevesting of the Boardaward is subject to the achievement during a performance period of Directorsthe performance goals established by our Organization and Compensation Committee (the “Committee”) using one or more of the performance metrics approved by stockholders. The Committee retains the discretion to adoptset the level of performance for a policy requiring that senior executives retaingiven performance metric under a significant percentageperformance-based award. In order for awards to qualify as performance-based compensation, stockholders must approve the performance metrics, which are the material terms of shares acquired through equitythe performance goals for purposes of Section 162(m), every five years.
At our 2009 Annual Meeting, stockholders approved certain performance metrics for performance-based compensation programs until reaching normal retirement age andunder our 2005 Plan to reportenable the Committee to shareholders regarding the policy before the Company’s 2013 annual meeting of shareholders. For the purpose of this policy, normal retirement age shall be defined by the Company’s qualified retirement plan that has the largest number of plan participants. The shareholders recommendcontinue to grant awards intended to qualify as performance-based compensation under Section 162(m) for which we may receive income tax deductions. We are proposing additional metrics that the Committee adoptmay use for performance-based compensation intended to qualify under Section 162(m) in order to increase our flexibility going forward as our business priorities may change.We are now asking stockholders to approve the following performance metrics for performance-based compensation under our 2005 Plan:
Earnings per share | Total shareholder return | Return on invested capital | Cash flow | |||
Net income | Revenues | Return on assets | Working capital | |||
Operating profit | Revenue growth | Return on equity | Working capital as a | |||
EBIT | Gross margin | Return on sales | percent of sales | |||
EBITDA | SG&A as a | Return on net assets | Quality Measures | |||
percent of sales | Return on net tangible assets | Safety Measures |
Performance-based awards (other than stock options and stock appreciation rights) will, if the Committee intends any such award to qualify as performance-based compensation under Section 162(m), become earned and payable only if pre-established targets relating to any one or more of the performance metrics approved by stockholders are achieved during a share retention percentage requirement of at least 75% of net after-tax shares. The policy should prohibit hedging transactions for sharesperformance period, as determined by the Committee and subject to this policy whichthe Committee’s negative discretion. If the additional performance metrics are not sales but reduceapproved, the riskperformance metrics currently set forth in our 2005 Plan and approved by stockholders in 2009 (net income, return on assets, revenues, total shareholder return, earnings per share, revenue on invested capital and cash flow) will remain in effect, and the Committee may continue to use them for awards intended to qualify as performance-based compensation under Section 162(m) for the period of losstime permitted under Section 162(m).
New Plan Benefits:Because granting performance-based awards is subject to the executive. This policy shall supplementdiscretion of the Committee, the benefits and amounts that will be received or allocated based on the performance metrics in the
PART VI – PROPOSALS
future are not determinable. Under our 2005 Plan, the Committee is not authorized to increase the amount payable under any other share ownership requirements that have been established for senior executives, and should be implemented so as notperformance-based award. Performance-based awards made to violate the Company’s exiting contractual obligations or the terms of any compensation or benefit plan current in effect.
SUPPORTING STATEMENT
Equity-based compensation is an increasingly important component of senior executive compensation at our Company. As the Company notes in its 2011 proxy, “We believe that having an ownership interest in our stock is critical to aligning the interests of ournamed executive officers with the interestsin 2012 are described in “2012 Grants of our stockholders. Accordingly, equity grants in the form of restricted stock awards and stock options are a significant component of compensation for our executive officers.”Plan-Based Awards” above.
We believe there is a link between shareholder wealth and executive wealth that correlates to direct stock ownership by executives. According to an analysis conducted by Watson Wyatt Worldwide, companies whose CFOs held more shares generally showed higher stock returns and better operating performance. (Alix Stuart, ‘Skin in the Game,’ CFO Magazine, March 1, 2008.)
Requiring senior executives to hold a significant portion of shares obtained through compensation plans as long as they are members of senior management would focus them on the Company’s long-term success and better align their interests with thoseThe approval of the Company’s shareholders. Inperformance metrics for performance-based compensation requires the contextaffirmative vote of a majority of the ongoing financial crisis, we believe it is imperative that companies reshape their compensation policiesvotes cast by shares entitled to vote thereon. Abstentions and practices to promote long-term, sustainable value creation. A 2009 report bybroker non-votes are not counted as votes cast, and therefore do not affect the Conference Board Task Force on Executive Compensation stated that hold-to-retirement requirements give executives ‘an ever-growing incentive to focus on long-term stock price performance.’ (http://www.conference-board.org/pdf_free/ExecCompensation2009.pdf).
Our Company has a minimum stock ownership guideline requiring executives to own Company stock valued at a multiple of salary. CEO Timothy Wadhams is required to own two to five times his annual base salary. We believe this policy does not go far enough to ensure that equity compensation builds executive ownership. We view a retention requirement approach as superior to a stock ownership guideline because a guideline loses effectiveness once it has been satisfied.
Several major companies have already adopted this best practice, including Citigroup, Goldman Sachs, and Morgan Stanley.
STATEMENT IN OPPOSITION TO PROPOSAL 5
Recommendationapproval of the Board of Directorsproposal.
The Board of Directors has carefully considered this proposal and has concluded it is not in the best interests of our Company or our stockholders. Therefore, the Board unanimously recommends a vote AGAINST this proposal. The Board believes that a policy that would require senior executives to hold 75% or more of their equity awards until reaching normal retirement age would undermine the effectiveness and competitiveness of our existing executive compensation programs.
Balanced Approach.The Board believes that the combinationFOR approval of the long-term vesting feature of ourperformance metrics listed above for performance-based compensation intended to qualify under Section 162(m).
Equity Compensation Plan Information
We have two equity compensation programs,plans: the substantial holding requirement under our stock ownership guidelines,1991 Long Term Stock Incentive Plan (under which we are not making further grants), and our policies prohibiting executive officers from engaging in derivative trading in our common stock, strikes an appropriate balance to motivate our executives to deliver long-term results. By creating and maintaining this balance, our existing executive compensation programs ensure that our executives have a significant investment in the future of our Company.
Long-Term Vesting.2005 Long Term Stock Incentive Plan. The fundamental objective of our executive compensation program is to align our executive officers’ interests with the long-term interests of stockholders. Our equity compensation plans provide that both our performance-based restricted stock awards and stock options generally vest in five equal installments over a five year period from the date of grant. We believe five-year vesting defers the executives’ realization of the full benefit of equity based compensation for a substantial period of time and, we believe, is longer than current market practice. In addition, our equity awards do not vest immediately upon retirement. Instead, following retirement, equity awards generally continue to vest for the lesser of the remaining vesting period or for an additional five years. Our executive officers understand that our performance will continue to impact them financially even after their active careers with us end, thereby reinforcing their focus on the long-term enhancement of stockholder value.
Stock Ownership Requirements.For many years, we have maintained stock ownership requirements for executive officers, expressed as a multiple of each officer’s base salary. These requirements were amended this year to increase the value of the common stock our CEO is required to hold from five to six times his base salary. In addition, our CFO is required to hold three times his base salary, and each of our other executive officers must hold at least two times their base salary. Our stock ownership requirements apply throughout an executive officer’s tenure with us, and compliance is reviewed each year. As disclosed in the Compensation Discussion and Analysis,table sets forth information as of December 31, 2011,2012 concerning our CEO heldtwo equity compensation plans, each of which was approved by stockholders. This table does not reflect grants made in the Company valued at more than 9 times his base salary and all of our named executive officers exceeded their stock ownership requirements.2013. We believe our policy requiring executive officers to maintain significantdo not have any equity ownership properly motivates our executives to focus on long term results, consistent with the interests of ourcompensation plans that have not been approved by stockholders.
Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted-Average | Number of Securities First Column) | |||||||||
Equity compensation plans approved by stockholders | 22,733,993 | $ | 24.20 | 10,718,097 |
No Hedging.Our insider trading policy prohibits our executive officers from engaging in transactions involving derivative securities related to our stock, such as put and call options, and certain other arrangements, such as forward sales and short sales, which could have the effect of reducing or neutralizing their investment in our common stock. In addition to discouraging unreasonable risk-taking, this policy aligns the financial risks of our executive officers with other investors in our common stock.
Competition for Talent.We also believe that a policy requiring senior executives to hold 75% or more of equity awards until reaching normal retirement age would diminish our ability to attract and
retain the talented executives who are critical to our long-term success. Under the executive compensation programs currently offered by many of our peers, senior executives are able to realize value from their equity awards during the course of their employment after they have earned them over a substantial vesting period and/or the attainment of long-term performance goals. Adoption of this proposal would limit our Organization and Compensation Committee’s ability to use significant at-risk equity compensation because a requirement to hold such awards until reaching normal retirement age would mean that executives would not have access to a majority of their equity compensation at any time during the course of their employment by us. Impairing our ability to offer competitive compensation packages runs counter to our objective of aligning executive compensation with the long-term interests of our stockholders.
For the foregoing reasons, the Board of Directors believes that this proposal is not in our best interests or the best interests of our stockholders.
The Board recommends a vote AGAINST the proposal requiring senior executives to hold 75% or more of their equity awards until reaching normal retirement age.
20132014 ANNUAL MEETING OF STOCKHOLDERS
If you wish to submit a proposal to be considered at the 20132014 Annual Meeting, you must comply with the following procedures:
If you intend to present proposals to be included in our proxy statement for our 2013 Annual Meeting of Stockholders, you must give written notice of your intent to our Secretary on or before December 6, 2012 (120 calendar days prior to the anniversary of our mailing this proxy statement). The proposals must comply with SEC regulations under Rule 14a-8 for including stockholder proposals in a company’s materials.
• | If you intend to present proposals to be included in our proxy statement for our 2014 Annual Meeting, you must give written notice of your intent to our Secretary on or before December, 2013 (120 calendar days prior to the anniversary of our mailing this proxy statement). The proposals must comply with SEC regulations under Rule 14a-8 for including stockholder proposals in a company’s materials. |
If you intend to bring a matter before next year’s meeting, other than by submitting a proposal to be included in our proxy statement, we must receive notice in accordance with our Bylaws, which state that our Secretary must receive your notice no earlier than January 8, 20137, 2014 and no later than February 7, 2013.6, 2014. For each matter you intend to bring before the meeting, your notice must include a brief description of the business to be brought before the meeting; the text of the proposal or business (including the text of any resolutions proposed for consideration and, if such business includes a proposal to amend the Bylaws, the language of the proposed amendment); the reasons for conducting the business at the meeting and any material interest you may have in such business; your name and address as it appears in our records; the number of shares of our common stock you own; a representation that you are a holder of record of shares of our stock entitled to vote at such meeting and you intend to appear in person or by proxy at the meeting to propose such business; and a representation as to whether you are part of a group that intends to deliver a proxy statement or form of proxy to holders of at least the percentage of our outstanding common stock required to approve or adopt such proposal, or if you intend to otherwise solicit proxies from stockholders in support of your proposal.
If you wish to nominate Director candidates for election to the Board at the 2013 Annual Meeting of Stockholders, you must submit the following information required by our Charter to our Secretary no later than February 19, 2013: your name and address and the name and address of the person(s) to be nominated; a representation that you are a holder of record of shares of our common stock entitled to vote at the Annual Meeting and you intend to appear in person or by proxy at the meeting to nominate the person(s) specified in the notice; a description of all arrangements or understandings between you and each nominee and any other person(s) (naming such person(s)) pursuant to which the nomination(s) is or are to be made by you; other information regarding each nominee you are proposing, as would have been required to be included in a proxy statement filed pursuant to the SEC’s proxy rules if the nominee had been nominated by the Board of Directors; and the written consent of each nominee to serve as our Director if elected. In addition, our Bylaws require that the notice of intent to make a nomination shall be accompanied by a statement whether each nominee, if elected, intends to tender, promptly following such election, an irrevocable resignation effective upon such person’s failure to receive the required vote for re-election at the next meeting at which such person would face re-election and upon the Board of Directors’ acceptance of such resignation. Our Bylaws also state that a stockholder seeking to make a nomination before an annual meeting shall promptly provide to us any other information we reasonably request.
• | If you wish to nominate director candidates for election to the Board at the 2014 Annual Meeting, you must submit the following information required by our Certificate of Incorporation to our Secretary no later than February , 2014: your name and address and the name and address of the person(s) to be nominated; a representation that you are a holder of record of shares of our common stock entitled to vote at such meeting and you intend to appear in person or by proxy at the meeting to nominate the person(s) specified in the notice; a description of all arrangements or understandings between you and each nominee and any other person(s) (naming such person(s)) pursuant to which the nomination(s) is or are to be made by you; other information regarding each nominee you are proposing, as would have been required to be included in a proxy statement filed pursuant to the SEC’s proxy rules if the nominee had been nominated by the Board of Directors; and the written consent of each nominee to serve as our director if elected. In addition, our Bylaws require that the notice of intent to make a nomination shall be accompanied by a statement whether each nominee, if elected, intends to tender, promptly following such election, an irrevocable resignation effective upon such person’s failure to receive the required vote for re-election at the next meeting at which such person would face re-election and upon the Board of Directors’ acceptance of such resignation. Our Bylaws also state that a stockholder seeking to make a nomination before an annual meeting shall promptly provide to us any other information we reasonably request. |
Any communication to be made to our Secretary as described above should be sent to:
Gregory D. Wittrock, Secretary
Masco Corporation
21001 Van Born Road
Taylor, Michigan 48180
PART VII – OTHER MATTERS
The Board of Directors knows of no other matters to be voted upon at the Annual Meeting. If any other matters properly come before the Annual Meeting, the proxy holders named in the enclosed proxy will have discretionary authority to vote the shares represented by the proxy in their discretion with respect to such matters.
By Order of the Board of Directors, |
Gregory D. Wittrock |
Secretary |
Taylor, Michigan
April 5, 2012, 2013
APPENDIX A
PROPOSED AMENDMENTS TO CERTIFICATE OF INCORPORATION AND BYLAWS
TO DECLASSIFY THE BOARD OF DIRECTORS
Proposed revised clause (a) of the Seventh Article of our Certificate of Incorporation:
SEVENTH: (a) The business and affairs of the Corporation shall be managed by or under the direction of a Board of Directors consisting of not less than five nor more than twelve directors, the exact number of directors to be determined from time to time by resolution adopted by affirmative vote of a majority of the entire Board of Directors. Prior to the 2016 Annual Meeting of stockholders, the directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which his or her term expires and until his or her successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement or removal from office. The directors whose terms expire at the 2014 annual meeting of stockholders (or such directors’ successors) shall be elected to hold office for one-year terms expiring at the 2015 annual meeting of stockholders, and for one-year terms thereafter; the directors whose terms expire at the 2015 annual meeting of stockholders (or such directors’ successors) shall be elected to hold office for one-year terms expiring at the 2016 annual meeting of stockholders, and for one-year terms thereafter; and the directors whose terms expire at the 2016 annual meeting of stockholders shall be elected to hold office for one-year terms expiring at the 2017 annual meeting of stockholders, and for one-year terms thereafter. Beginning with the 2016 annual meeting of stockholders, the classification of the Board of Directors shall cease and all directors shall be elected to hold office for one-year terms and directors shall hold office until the next annual meeting and until their successors shall be elected and shall qualify, subject, however, to prior death, resignation, retirement or removal from office. Except as otherwise required by law, any vacancy on the Board of Directors that results from an increase in the number of directors shall be filled only by a majority of the Board of Directors then in office, provided that a quorum is present, and any other vacancy occurring in the Board of Directors shall be filled only by a majority of the directors then in office, even if less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall serve for the remaining term of his or her predecessor.
Notwithstanding the foregoing, whenever the holders of any one or more classes or series of preferred stock or any other class of stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of the Certificate of Designation with respect to such stock, such directors so elected shall not be divided into classes pursuant to this Article SEVENTH, and the number of such directors shall not be counted in determining the maximum number of directors permitted under the foregoing provisions of this Article SEVENTH, in each case unless expressly provided by such terms.
Proposed revised Section 2.01, paragraph 1 of our Bylaws:
Section 2.01.Qualifications and Number; Term; Vacancies. A director need not be a stockholder, a citizen of the United States, or a resident of the State of Delaware. The number of directors constituting the entire Board shall be not less than five nor more than twelve, the exact number of directors to be determined from time to time by resolution adopted by affirmative vote of a majority of the entire Board of Directors. The directors whose terms expire at the 2014 annual meeting of stockholders (or such directors’ successors) shall be elected to hold office for one-year terms expiring at the 2015 annual meeting of stockholders, and for one-year terms
thereafter; the directors whose terms expire at the 2015 annual meeting of stockholders (or such directors’ successors) shall be elected to hold office for one-year terms expiring at the 2016 annual meeting of stockholders, and for one-year terms thereafter; and the directors whose terms expire at the 2016 annual meeting of stockholders shall be elected to hold office for one-year terms expiring at the 2017 annual meeting of stockholders, and for one-year terms thereafter. Beginning with the 2016 annual meeting of stockholders, the classification of the Board of Directors shall cease and all directors shall be elected to hold office for one-year terms. Directors shall be nominated and serve for such terms, and vacancies shall be filled, as provided in the Certificate of Incorporation. Until the 2016 annual meeting of stockholders, directors may be removed only for cause; thereafter, directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors.
Masco Corporation
Annual Meeting of Stockholders
to be held at Masco Corporation
21001 Van Born Road
Taylor, Michigan 48180
NOTE: Road construction may require an alternate route.
From Metro Airport (West)
From Southfield/Birmingham (North)
From Downtown Detroit (East)
From Toledo (South)
| VOTE BY INTERNET -www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time on Monday, May
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ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
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VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time on Monday, May
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VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. |
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: | ||||||
KEEP THIS PORTION FOR YOUR RECORDS | ||||||
DETACH AND RETURN THIS PORTION ONLY |
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
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The Board of Directors recommends you vote FOR the | ||||||||||||||||||||||||||||||||||||
1. | Election of Directors | For | Against | Abstain | ||||||||||||||||||||||||||||||||
1a. | Dennis W. Archer | ¨ | ¨ | ¨ | ||||||||||||||||||||||||||||||||
1b. | Donald R. Parfet | ¨ | ¨ | ¨ | For | Against | Abstain | |||||||||||||||||||||||||||||
1c. | Lisa A. Payne | ¨ | ¨ | ¨ | 5. | To approve the performance metrics for performance-based compensation intended to qualify under Internal Revenue Code Section 162(m). | ¨ | ¨ | ¨ | |||||||||||||||||||||||||||
The Board of Directors recommends you vote FOR proposals 2, 3, 4 and | ||||||||||||||||||||||||||||||||||||
For | Against | Abstain
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To approve, by non-binding advisory vote, the compensation paid to the Company’s named executive officers, as disclosed pursuant to the compensation disclosure rules of the SEC, including the Compensation Discussion and Analysis, the compensation tables and the related materials disclosed in the Proxy Statement. | ¨ | ¨ | ¨ | NOTE:In their discretion, the proxy holders are authorized to vote upon such other matters that may come before the meeting or any adjournment or | ||||||||||||||||||||||||||||||||
3. | To ratify the selection of PricewaterhouseCoopers LLP, as independent auditors for the Company for
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4. | To amend the Company’s Certificate of Incorporation and Bylaws to declassify the Board of Directors. | ¨ | ¨ | ¨ | ||||||||||||||||||||||||||||||||
Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer. | ||||||||||||||||||||||||||||||||||||
Signature [PLEASE SIGN WITHIN BOX] | Date | Signature (Joint Owners) | Date | |||||||||||||||||||||||||||||||||
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:The Notice & Proxy Statement, Annual Report is/ are available atwww.proxyvote.com . |
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement and Annual Report are available atwww.proxyvote.com.
MASCO CORPORATION THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF STOCKHOLDERS MAY
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The undersigned stockholder(s) hereby appoint(s) Timothy Wadhams and Gregory D. Wittrock, or either of them, as proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and to vote, as designated on the reverse side of this ballot, all of the shares of Common Stock of MASCO CORPORATION that the stockholder(s) is/are entitled to vote at the Annual Meeting of Stockholders to be held at 10:00 A.M. Eastern Time on Tuesday, May
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED BY THE STOCKHOLDER(S). IF NO SUCH DIRECTIONS ARE MADE, THIS PROXY WILL BE VOTED “FOR” THE ELECTION OF THE NOMINEES LISTED IN PROPOSAL1, AND “FOR” PROPOSALS 2,
This proxy is revocable and the undersigned may revoke it at any time prior to the Annual Meeting by giving written notice of such revocation to the Secretary of the Company or by filing with the Secretary of the Company a later-dated proxy. Should the undersigned be present and want to vote in person at the Annual Meeting, or at any postponement or adjournment thereof, the undersigned may revoke this proxy by giving written notice of such revocation to the Secretary of the Company
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED REPLY ENVELOPE.
Continued and to be signed on reverse side |
MASCO CORPORATION
2005 LONG TERM STOCK INCENTIVE PLAN
(Amended and Restated May 11, 2010)
SECTION 1. Purposes.
The purposes of the 2005 Long Term Stock Incentive Plan (the“Plan”) are to encourage selected employees of and consultants to Masco Corporation (the“Company”) and its Affiliates to acquire a proprietary interest in the Company in order to create an increased incentive to contribute to the Company’s future success and prosperity, and enhance the ability of the Company and its Affiliates to attract and retain exceptionally qualified individuals upon whom the sustained progress, growth and profitability of the Company depend, thus enhancing the value of the Company for the benefit of its stockholders.
SECTION 2. Definitions.
As used in the Plan, the following terms shall have the meanings set forth below:
(a)“Affiliate”shall mean any entity in which the Company’s direct or indirect equity interest is at least twenty percent, and any other entity in which the Company has a significant direct or indirect equity interest, whether more or less than twenty percent, as determined by the Committee.
(b)“Award”shall mean any Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Performance Award, or Dividend Equivalent granted under the Plan.
(c)“Award Agreement”shall mean any agreement, contract or other instrument or document evidencing any Award granted under the Plan which may, but need not, be executed by the Participant.
(d)“Board”shall mean the Board of Directors of the Company.
(e)“Change in Control”shall mean at any time during a period of twenty-four consecutive calendar months, the individuals who at the beginning of such period constitute the Company’s Board, and any new directors (other than Excluded Directors, as hereinafter defined), whose election by such Board or nomination for election by stockholders was approved by a vote of at least two-thirds of the members of such Board who were either directors on such Board at the beginning of the period or whose election or nomination for election as directors was previously so approved, for any reason ceasing to constitute at least a majority of the members thereof. For purposes hereof,“Excluded Directors”are directors whose (i) election by the Board or approval by the Board for stockholder election occurred within one year after any “person” or “group of persons,” as such terms are used in Sections 13(d) and 14(d) of the Exchange Act, commencing a tender offer for, or becoming the beneficial owner of, voting securities representing 25 percent or more of the combined voting power of all outstanding voting securities of the Company, other than pursuant to a tender offer approved by the Board prior to its commencement or pursuant to stock acquisitions approved by the Board prior to their representing 25 percent or more of such combined voting power or (ii) initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 or Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of an individual, corporation, partnership, group, associate or other entity or “person” other than the Board.
(f)“Code”shall mean the Internal Revenue Code of 1986, as amended from time to time.
(g)“Committee”shall mean a committee of the Company’s directors designated by the Board to administer the Plan and composed of not less than two directors, each of whom is a “non-employee director,” an “independent director” and an “outside director,” within the meaning of and to the extent required respectively by Rule 16b-3, the applicable rules of the NYSE and Section 162(m) of the Code, and any regulations issued thereunder.
(h)“Dividend Equivalent”shall mean any right granted under Section 6(g) of the Plan.
(i)“Exchange Act”shall mean the Securities Exchange Act of 1934, as amended.
(j)“Executive Group”shall mean every person who the Committee believes may be both (i) a “covered employee” as defined in Section 162(m) of the Code as of the end of the taxable year in which the Company expects to take a deduction of the Award, and (ii) the recipient of compensation of more than $1,000,000 (as such amount appearing in Section 162(m) of the Code may be adjusted by any subsequent legislation) for that taxable year.
(k)“Incentive Stock Option”shall mean an Option granted under Section 6(a) of the Plan that is intended to meet the requirements of Section 422 of the Code, or any successor provision thereto.
(l)“Non-Qualified Stock Option”shall mean an Option granted under Section 6(a) of the Plan that is not intended to be an Incentive Stock Option.
(m)“NYSE”shall mean the New York Stock Exchange.
(n)“Option”shall mean an Incentive Stock Option or a Non-Qualified Stock Option.
(o)“Participant”shall mean an employee of or consultant to the Company or any Affiliate or a director of the Company designated to be granted an Award under the Plan or, for the purpose of granting Substitute Awards, a holder of options or other equity based awards relating to the shares of a company acquired by the Company or with which the Company combines.
(p)“Performance Award”shall mean any right granted under Section 6(e) of the Plan.
(q)“Prior Plan”shall mean the Company’s 1991 Long Term Stock Incentive Plan.
(r)“Restricted Period”shall mean the period of time during which Awards of Restricted Stock or Restricted Stock Units are subject to restrictions.
(s)“Restricted Stock”shall mean any Share granted under Section 6(d) of the Plan.
(t)“Restricted Stock Unit”shall mean any right granted under Section 6(d) of the Plan that is denominated in Shares.
(u)“Rule 16b-3”shall mean Rule 16b-3 promulgated by the Securities and Exchange Commission under the Exchange Act, or any successor rule or regulation.
(v)“Section 16”shall mean Section 16 of the Exchange Act, the rules and regulations promulgated by the Securities and Exchange Commission thereunder, or any successor provision, rule or regulation.
(w)“Shares”shall mean the Company’s common stock, par value $1.00 per share, and such other securities or property as may become the subject of Awards, or become subject to Awards, pursuant to an adjustment made under Section 4(c) of the Plan.
(x)“Stock Appreciation Right”shall mean any right granted under Section 6(c) of the Plan.
(y)“Substitute Awards”shall mean Awards granted in assumption of, or in substitution for, outstanding awards previously granted by a company acquired by a Company or with which the Company combines.
SECTION 3. Administration.
The Committee shall administer the Plan, and subject to the terms of the Plan and applicable law, the Committee’s authority shall include without limitation the power to:
(i) designate Participants;
(ii) determine the types of Awards to be granted;
(iii) determine the number of Shares to be covered by Awards and any payments, rights or other matters to be calculated in connection therewith;
(iv) determine the terms and conditions of Awards and amend the terms and conditions of outstanding Awards;
(v) determine how, whether, to what extent, and under what circumstances Awards may be settled or exercised in cash, Shares, other securities, other Awards or other property, or canceled, forfeited or suspended;
(vi) determine how, whether, to what extent, and under what circumstances cash, Shares, other securities, other Awards, other property and other amounts payable with respect to an Award shall be deferred either automatically or at the election of the holder thereof or of the Committee;
(vii) determine the methods or procedures for establishing the fair market value of any property (including, without limitation, any Shares or other securities) transferred, exchanged, given or received with respect to the Plan or any Award;
(viii) prescribe and amend the forms of Award Agreements and other instruments required under or advisable with respect to the Plan;
(ix) designate Options granted to key employees of the Company or its subsidiaries as Incentive Stock Options;
(x) interpret and administer the Plan, Award Agreements, Awards and any contract, document, instrument or agreement relating thereto;
(xi) establish, amend, suspend or waive such rules and regulations and appoint such agents as it shall deem appropriate for the administration of the Plan;
(xii) decide all questions and settle all controversies and disputes which may arise in connection with the Plan, Award Agreements and Awards;
(xiii) delegate to a committee of at least two directors of the Company the authority to designate Participants and grant Awards, and to amend Awards granted to Participants, but only with respect to Participants who are not officers or directors of the Company for purposes of Section 16 of the Exchange Act;
(xiv) delegate to one or more officers or managers of the Company, or a committee of such officers and managers, the authority, subject to such terms and limitations as the Committee shall determine, to cancel, modify, waive rights with respect to, alter, discontinue, suspend or terminate Awards held by employees who are not officers or directors of the Company for purposes of Section 16 of the Exchange Act; provided, however, that any delegation to management shall conform with the requirements of the NYSE applicable to the Company and Delaware corporate law; and
(xv) make any other determination and take any other action that the Committee deems necessary or desirable for the interpretation, application and administration of the Plan, Award Agreements and Awards.
All designations, determinations, interpretations and other decisions under or with respect to the Plan, Award Agreements or any Award shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon all persons, including the Company, Affiliates, Participants, beneficiaries of Awards and stockholders of the Company.
SECTION 4. Shares Available for Awards.
(a)Shares Available. Subject to adjustment as provided in Section 4(c):
The maximum number of Shares available for issuance in respect of Awards made under the Plan shall be 40,500,000 Shares,provided, however,that if for any reason any Award under the Plan or under the Prior Plan (other than a Substitute Award) is forfeited, the number of Shares available for issuance in respect of Awards under the Plan shall be increased by the number of Shares forfeited. Notwithstanding anything to the contrary
contained herein, the following shall not increase the number of Shares available for issuance in respect of Awards under the Plan: (i) Shares delivered in payment of an Option, (ii) Shares withheld by the Company to satisfy any tax withholding obligation, and (iii) Shares that are repurchased by the Company with Option proceeds. In addition, Shares covered by an SAR, to the extent that it is exercised and settled in Shares, and regardless of whether or not Shares are actually issued to the Participant upon exercise of the SAR, shall be considered issued or transferred pursuant to the Plan. The maximum number of Shares that may be issued and delivered upon vesting of Restricted Stock or Restricted Stock Units (including Restricted Stock or Restricted Stock Units issued as Performance Awards pursuant to Section 6(e) hereof), is 17,500,000. Subject to the foregoing, Shares may be made available from the authorized but unissued Shares of the Company or from Shares reacquired by the Company.
(b)Individual Stock-Based Awards. Subject to adjustment as provided in Section 4(c), no Participant may receive Options or Stock Appreciation Rights under the Plan in any calendar year that relate to more than 4,000,000 Shares in the aggregate;provided, however,that such number may be increased with respect to any Participant by any Shares available for grant to such Participant in accordance with this Section 4(b) in any prior years that were not granted in such prior year. No provision of this Section 4(b) shall be construed as limiting the amount of any other stock-based or cash-based award which may be granted to any Participant.
(c)Adjustments. Upon the occurrence of any dividend or other distribution (whether in the form of cash, Shares, other securities or other property), change in the capital or shares of capital stock, recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company or extraordinary transaction or event which affects the Shares, then the Committee shall make such adjustment, if any, in such manner as it deems appropriate to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, in (i) the number and type of Shares (or other securities or property) which thereafter may be made the subject of Awards both to any individual and to all Participants, (ii) outstanding Awards including without limitation the number and type of Shares (or other securities or property) subject thereto, and (iii) the grant, purchase or exercise price with respect to outstanding Awards and, if deemed appropriate, make provision for cash payments to the holders of outstanding Awards;provided, however,that the number of Shares subject to any Award denominated in Shares shall always be a whole number.
(d)Substitute Awards. Shares underlying Substitute Awards shall not reduce the number of shares remaining available for issuance under the Plan for any purpose.
SECTION 5. Eligibility.
Any employee of or consultant to the Company or any Affiliate, or any director of the Company, is eligible to be designated a Participant.
SECTION 6. Awards.
(a)Options. (i) Grant. The Committee is authorized to grant Options to Participants with such terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall determine. The Award Agreement shall specify:
(A) the purchase price per Share under each Option,provided, however,that such price shall be not less than 100% of the fair market value of the Shares underlying such Option on the date of grant (except in the case of Substitute Awards);
(B) the term of each Option (not to exceed ten years); and
(C) the time or times at which an Option may be exercised, in whole or in part, the method or methods by which and the form or forms (including, without limitation, cash, Shares, other Awards or other property, or any combination thereof, having a fair market value on the exercise date equal to the relevant exercise price) in which payment of the exercise price with respect thereto may be made or deemed to have been made.
(ii)Other Terms. Notwithstanding the following terms, the Committee may impose other terms that may be more or less favorable to the Company as it deems fit. Unless the Committee shall impose such other terms, the following conditions shall apply:
(A)Exercise. A Participant electing to exercise an Option shall give written notice to the Company, as may be specified by the Committee, of exercise of the Option and the number of Shares elected for exercise, such notice to be accompanied by such instruments or documents as may be required by the Committee, and shall tender the purchase price of the Shares elected for exercise.
(B)Payment. At the time of exercise of an Option payment in full, or adequate provision therefore, in cash or in Shares or any combination thereof, at the option of the Participant, shall be made for all Shares then being purchased.
(C)Issuance. The Company shall not be obligated to issue any Shares unless and until:
(1) if the class of Shares at the time is listed upon any stock exchange, the Shares to be issued have been listed, or authorized to be added to the list upon official notice of issuance, upon such exchange, and
(2) in the opinion of the Company’s counsel there has been compliance with applicable law in connection with the issuance and delivery of Shares and such issuance shall have been approved by the Company’s counsel.
Without limiting the generality of the foregoing, the Company may require from the Participant such investment representation or such agreement, if any, as the Company’s counsel may consider necessary in order to comply with the Securities Act of 1933 as then in effect, and may require that the Participant agree that any sale of the Shares will be made only in such manner as shall be in accordance with law and that the Participant will notify the Company of any intent to make any disposition of the Shares whether by sale, gift or otherwise. The Participant shall take any action reasonably requested by the Company in such connection. A Participant shall have the rights of a stockholder only as and when Shares have been actually issued to the Participant pursuant to the Plan.
(D)Minimum Vesting. Options may not become fully exercisable prior to the third anniversary of the date of grant, except as provided in Section 6(a)(ii)(E) and Section 7(f) below.
(E) Termination of Employment; Death. If the employment of a Participant terminates for any reason or if a Participant dies (whether before or after the normal retirement date), Options shall be or become exercisable only as provided in (1) through (5) below:
(1) If such termination is voluntary on the part of the Participant, such Option may be exercised only if and to the extent such Option was exercisable at the date of termination and only within thirty days after the date of termination. Except as so exercised such Option shall expire at the end of such period.
(2) If such termination is involuntary on the part of the Participant, such Option may be exercised only if and to the extent such Option was exercisable at the date of termination and only within three months after the date of termination. Except as so exercised such Option shall expire at the end of such period.
(3) If an employee retires on or after the normal retirement date, such Option shall continue to be and become exercisable in accordance with its terms and the provisions of this Plan.
(4) If a Participant’s employment is terminated by reason of permanent and total disability, all unexercisable installments of such Option shall thereupon become exercisable and shall remain exercisable for the remainder of the Option term.
(5) If a Participant dies, all unexercisable installments of such Option shall thereupon become exercisable and, at any time or times within one year after such death, the Option may be exercised, as to all or any unexercised portion of the Option. The Company may decline to deliver Shares to a designated beneficiary
until it receives indemnity against claims of third parties satisfactory to the Company. Except as so exercised such Option shall expire at the end of such period.
(F) The terms of any Incentive Stock Option granted under the Plan shall comply in all respects with the provisions of Section 422 of the Code, or any successor provision thereto, and any regulations promulgated thereunder. The maximum number of Shares that may be awarded as Incentive Stock Options is 7,510,315.
(b) Restoration Options. The Committee may only grant a Participant a restoration Option under this Plan with respect to an option granted by the Company under the Prior Plan, or with respect to a restoration option resulting from such an option, when the Company is contractually bound to grant such restoration Option, and the Participant pays the exercise price by delivering Shares or by attesting to the ownership of such Shares. The restoration option is equal to the number of Shares delivered or attested to by the Participant, and the exercise price shall not be less than 100 percent of the fair market value of the Shares on the date the restoration option is granted. A restoration option otherwise will have the same terms as the original option. Unless the Committee shall otherwise determine, (i) no restoration option shall be granted unless the recipient is an active employee at the time of grant and (ii) the number of Shares which are subject to a restoration Option shall not exceed the number of whole Shares exchanged in payment for the exercise of the underlying Option. No restoration Options shall otherwise be granted under this Plan.
(c) Stock Appreciation Rights. The Committee is authorized to grant Stock Appreciation Rights to Participants. Subject to the terms of the Plan, a Stock Appreciation Right granted under the Plan shall confer on the holder thereof a right to receive, upon exercise thereof, the excess of (i) the fair market value of one Share on the date of exercise or, if the Committee shall so determine in the case of any such right other than one related to any Incentive Stock Option, at any time during a specified period before or after the date of exercise over (ii) the fair market value on the date of grant. Stock Appreciation Rights may not fully vest prior to the third anniversary of the date of grant, except as provided in Sections 6(d)(iv)(B) and 7(f) below.
Subject to the terms of the Plan, the Committee shall determine the grant price, which shall not be less than 100% of the fair market value of the Shares underlying the Stock Appreciation Right on the date of grant, term (not to exceed ten years), methods of exercise and settlement and any other terms and conditions of any Stock Appreciation Right and may impose such conditions or restrictions on the exercise of any Stock Appreciation Right as it may deem appropriate.
(d) Restricted Stock and Restricted Stock Units.
(i) Issuance. The Committee is authorized to grant to Participants Awards of Restricted Stock, which shall consist of Shares, and Restricted Stock Units which shall give the Participant the right to receive cash, Shares, other securities, other Awards or other property, in each case subject to the termination of the Restricted Period determined by the Committee. Notwithstanding the following terms, the Committee may impose other terms that may be more or less favorable to the Company as it deems fit. In the absence of any such differing provisions, Awards of Restricted Stock and Restricted Stock Units shall have the provisions described below.
(ii) Restrictions. The Restricted Period may differ among Participants and may have different expiration dates with respect to portions of Shares covered by the same Award. Subject to the terms of the Plan, Awards of Restricted Stock and Restricted Stock Units shall have such restrictions as the Committee may impose (including, without limitation, limitations on the right to vote Restricted Stock or the right to receive any dividend or other right or property), which restrictions may lapse separately or in combination at such time or times, in installments or otherwise (including the achievement of performance measures as set forth in Section 6(e) hereof), as the Committee may deem appropriate. Any Shares or other securities distributed with respect to Restricted Stock or which a Participant is otherwise entitled to receive by reason of such Shares shall be subject to the restrictions contained in the applicable Award Agreement. Restricted Stock Awards and Restricted Stock Units may not fully vest prior to the third anniversary of the date of grant, except as provided in Sections 6(d)(iv)(B) and 7(f) below. Subject to the aforementioned restrictions and the provisions of the Plan, a Participant shall have all of the rights of a stockholder with respect to Restricted Stock.
(iii) Registration. Restricted Stock granted under the Plan may be evidenced in such manner as the Committee may deem appropriate, including, without limitation, book-entry registration or issuance of stock certificates.
(iv) Termination; Death. If a Participant’s employment terminates for any reason, all Shares of Restricted Stock or Restricted Stock Units theretofore awarded to the Participant which are still subject to restrictions shall upon such termination be forfeited and transferred back to the Company, except as provided in clauses (A) and (B) below.
(A) If an employee ceases to be employed by reason of retirement on or after normal retirement date, the restrictions contained in the Award of Restricted Stock or the Restricted Stock Unit shall continue to lapse in the same manner as though employment had not terminated, subject to clause (B) below and Sections 6(d)(v) and 7(f).
(B) If a Participant ceases to be employed by reason of permanent and total disability or if a Participant dies, whether before or after the normal retirement date, the restrictions contained in such Participant’s Award of Restricted Stock or Restricted Stock Unit shall lapse.
(C) At the expiration of the Restricted Period, the Company shall deliver Shares in the case of an Award of Restricted Stock or Shares, cash, securities or other property, in the case of a Restricted Stock Unit, as follows:
(1) if an assignment to a trust has been made in accordance with Section 7(d)(ii)(B), to such trust; or
(2) if the Restricted Period has expired by reason of death and a beneficiary has been designated in form approved by the Company, to the beneficiary so designated; or
(3) in all other cases, to the Participant or the legal representative of the Participant’s estate.
(v) Acceleration. New Awards granted to a Participant in or after the calendar year in which such Participant attains age 65 will vest in five equal annual installments or such earlier vesting as may be specified in the Award Agreement. With respect to an Award granted to a Participant prior to the calendar year in which the Participant attains age 65, if in the calendar year in which the Participant attains age 65 the Restricted Period then remaining thereunder is longer than five years, the Restricted Period shall be shortened so that commencing in the calendar year that a Participant attains age 66, the restrictions contained in the Award shall lapse in equal annual installments such that the Participant shall be fully vested not later than the end of the calendar year in which the Participant attains age 70.
(e) Performance Awards.
(i) The Committee is hereby authorized to grant Performance Awards to Participants.
(ii) Subject to the terms of the Plan, a Performance Award granted under the Plan (A) may be denominated or payable in cash, Shares (including, without limitation, Restricted Stock or Restricted Stock Units), other securities or other Awards, and (B) shall confer on the holder thereof rights valued as determined by the Committee and payable to, or exercisable by, the holder of the Performance Award, in whole or in part, upon the achievement of such performance goals during such performance periods as the Committee shall establish. Subject to the terms of the Plan, the performance goals to be achieved during any performance period, the length of any performance period, the amount of any Performance Award granted and the amount of any payment or transfer to be made pursuant to any Performance Award shall be determined by the Committee. Unless the Committee determines otherwise, the performance period relating to any Performance Award shall be at least one calendar year commencing January 1 and ending December 31 (except in circumstances in connection with a Change in Control, in which event the performance period may be shorter than one year).
(iii) Every Performance Award to a member of the Executive Group shall, if the Committee intends that such Award should constitute “qualified performance-based compensation” for purposes of Section 162(m) of the Code, include a pre-established formula, such that payment, retention or vesting of the Award is subject to the achievement during a performance period or periods, as determined by the Committee, of a level or levels, as determined by the Committee, of one or more performance measures with respect to the Company or any of its Affiliates, including the following: (A) net income, (B) return on assets, (C) revenues, (D) total shareholder return, (E) earnings per share; (F) return on invested capital, or (G) cash flow; each as determined in accordance with generally accepted accounting principles, where applicable, as consistently applied by the Company. The following shall be excluded in determining whether any performance criterion has been attained: losses resulting from discontinued operations,
extraordinary losses (in accordance with generally accepted accounting principles, as currently in effect), the cumulative effect of changes in accounting principles and other unusual, non-recurring items of loss that are separately identified and quantified in the Company’s audited financial statements. Performance measures may vary from Performance Award to Performance Award and from Participant to Participant and may be established on a stand-alone basis, in tandem or in the alternative. For any Performance Award, the maximum amount that may be delivered or earned in settlement of all such Awards granted in any year shall be (x) if and to the extent that such Awards are denominated in Shares, 2,000,000 Shares (subject to adjustment as provided in Section 4(c)) and (y) if and to the extent that such Awards are denominated in cash, $10,000,000. Notwithstanding any provision of the Plan to the contrary, the Committee shall not be authorized to increase the amount payable under any Award to which this Section 6(e)(iii) applies upon attainment of such pre-established formula.
(f) Dividend Equivalents. The Committee is authorized to grant to Participants Awards under which the holders thereof shall be entitled to receive payments equivalent to dividends or interest with respect to a number of Shares determined by the Committee, and the Committee may provide that such amounts (if any) shall be deemed to have been reinvested in additional Shares or otherwise reinvested. Subject to the terms of the Plan, such Awards may have such terms and conditions as the Committee shall determine.
(g) Termination of Employment. Except as otherwise provided in the Plan or determined by the Committee,
(i) Awards granted to, or otherwise held by, employees will terminate, expire and be forfeited upon termination of employment, which shall include a change in status from employee to consultant and termination by reason of the fact that an entity is no longer an Affiliate, and
(ii) a Participant’s employment shall not be considered to be terminated (A) in the case of approved sick leave or other approved leave of absence (not to exceed one year or such other period as the Committee may determine), or (B) in the case of a transfer among the Company and its Affiliates.
(h) Termination of Awards. Notwithstanding any of the provisions of this Plan or instruments evidencing Awards granted hereunder, other than the provisions of Section 7(f), the Committee may terminate any Award (including the unexercised portion of any Option and any Award of Restricted Stock or Restricted Stock Units which remains subject to restrictions) concurrently with or at any time following termination of employment regardless of the reason for such termination of employment if the Committee shall determine that the Participant has engaged in any activity detrimental to the interests of the Company or an Affiliate.
SECTION 7. General.
(a) No Cash Consideration for Awards. Awards may be granted for no cash consideration or for such minimal cash consideration as may be required by applicable law.
(b) Awards May Be Granted Separately or Together. Awards may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with or in substitution for any other Award or any award granted under any other Plan of the Company or any Affiliate. Awards granted in addition to or in tandem with other Awards or in addition to or in tandem with awards granted under another Plan of the Company or an Affiliate, may be granted either at the same time as or at a different time from the grant of such other Awards or awards.
(c) Forms of Payment Under Awards. Subject to the terms of the Plan and of any applicable Award Agreement, payments or transfers to be made by the Company or an Affiliate upon the grant, exercise, or payment of an Award may be made in such form or forms as the Committee shall determine, including, without limitation, cash, Shares, other securities, other Awards, or other property, or any combination thereof, and may be made in a single payment or transfer, in installments, or on a deferred basis, in each case in accordance with rules and procedures established by the Committee. Such rules and procedures may include, without limitation, provisions for the payment or crediting of reasonable interest on installment or deferred payments or the grant or crediting of Dividend Equivalents in respect of installment or deferred payments.
(d) Limits on Transfer of Awards. Awards cannot be transferred, except the Committee is hereby authorized to permit the transfer of Awards under the following terms and conditions and with such additional terms and conditions, in either case not inconsistent with the provisions of the Plan, as the Committee shall determine:
(i) No Award or right under any Award may be sold, encumbered, pledged, alienated, attached, assigned or transferred in any manner and any attempt to do any of the foregoing shall be void and unenforceable against the Company.
(ii) Notwithstanding the provisions of Section 7(d)(i) above:
(A) An Option may be transferred:
(1) to a beneficiary designated by the Participant in writing on a form approved by the Committee;
(2) by will or the applicable laws of descent and distribution to the personal representative, executor or administrator of the Participant’s estate; or
(3) to a revocable grantor trust established by the Participant for the sole benefit of the Participant during the Participant’s life, and under the terms of which the Participant is and remains the sole trustee until death or physical or mental incapacity. Such assignment shall be effected by a written instrument in form and content satisfactory to the Committee, and the Participant shall deliver to the Committee a true copy of the agreement or other document evidencing such trust. If in the judgment of the Committee the trust to which a Participant may attempt to assign rights under such an Award does not meet the criteria of a trust to which an assignment is permitted by the terms hereof, or if after assignment, because of amendment, by force of law or any other reason such trust no longer meets such criteria, such attempted assignment shall be void and may be disregarded by the Committee and the Company and all rights to any such Options shall revert to and remain solely with the Participant. Notwithstanding a qualified assignment, for the purpose of determining compensation arising by reason of the Option, the Participant, and not the trust to which rights under such an Option may be assigned, shall continue to be considered an employee or consultant, as the case may be, of the Company or an Affiliate, but such trust and the Participant shall be bound by all of the terms and conditions of the Award Agreement and this Plan. Shares issued in the name of and delivered to such trust shall be conclusively considered issuance and delivery to the Participant.
(B) A Participant may assign or transfer rights under an Award of Restricted Stock or Restricted Stock Units:
(1) to a beneficiary designated by the Participant in writing on a form approved by the Committee;
(2) by will or the applicable laws of descent and distribution to the personal representative, executor or administrator of the Participant’s estate; or
(3) to a revocable grantor trust established by the Participant for the sole benefit of the Participant during the Participant’s life, and under the terms of which the Participant is and remains the sole trustee until death or physical or mental incapacity. Such assignment shall be effected by a written instrument in form and content satisfactory to the Committee, and the Participant shall deliver to the Committee a true copy of the agreement or other document evidencing such trust. If in the judgment of the Committee the trust to which a Participant may attempt to assign rights under such an Award does not meet the criteria of a trust to which an assignment is permitted by the terms hereof, or if after assignment, because of amendment, by force of law or any other reason such trust no longer meets such criteria, such attempted assignment shall be void and may be disregarded by the Committee and the Company and all rights to any such Awards shall revert to and remain solely with the Participant. Notwithstanding a qualified assignment, for the purpose of determining compensation arising by reason of the Award, the Participant, and not the trust to which rights under such an Award may be assigned, shall continue to be considered an employee or consultant, as the case may be, of the Company or an Affiliate, but such trust and the Participant shall be bound by all of the terms and conditions of the Award Agreement and this Plan. Shares issued in the name of and delivered to such trust shall be conclusively considered issuance and delivery to the Participant.
(iii) The Committee, the Company and its officers, agents and employees may rely upon any beneficiary designation, assignment or other instrument of transfer, copies of trust agreements and any other documents delivered to them by or on behalf of the Participant which they believe genuine and any action taken by them in reliance thereon shall be conclusive and binding upon the Participant, the personal representatives of the Participant’s estate and all persons asserting a claim based on an Award. The delivery by a Participant of a beneficiary designation, or an assignment of rights under an Award as permitted hereunder, shall constitute the Participant’s irrevocable undertaking to hold the Committee, the Company and its officers, agents and employees
harmless against claims, including any cost or expense incurred in defending against claims, of any person (including the Participant) which may be asserted or alleged to be based on an Award subject to a beneficiary designation or an assignment. In addition, the Company may decline to deliver Shares to a beneficiary until it receives indemnity against claims of third parties satisfactory to the Company.
(e) Share Certificates. All certificates for, or other indicia of, Shares or other securities delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which such Shares or other securities are then listed and any applicable Federal or state securities laws, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.
(f) Change in Control.
(i) Notwithstanding any of the provisions of this Plan or instruments evidencing Awards granted hereunder, upon a Change in Control of the Company the vesting of all rights of Participants under outstanding Awards shall be accelerated and all restrictions thereon shall terminate in order that Participants may fully realize the benefits thereunder. Such acceleration shall include, without limitation, the immediate exercisability in full of all Options and the termination of restrictions on Restricted Stock and Restricted Stock Units. Further, in addition to the Committee’s authority set forth in Section 4(c), the Committee, as constituted before such Change in Control, is authorized, and has sole discretion, as to any Award, either at the time such Award is made hereunder or any time thereafter, to take any one or more of the following actions: (A) provide for the purchase of any such Award, upon the Participant’s request, for an amount of cash equal to the amount that could have been attained upon the exercise of such Award or realization of the Participant’s rights had such Award been currently exercisable or payable; (B) make such adjustment to any such Award then outstanding as the Committee deems appropriate to reflect such Change in Control; and (C) cause any such Award then outstanding to be assumed, or new rights substituted therefore, by the acquiring or surviving corporation after such Change in Control. Notwithstanding the foregoing and the terms of any Award Agreement, such acceleration of vesting and lapse of any Restricted Period shall not accelerate the time of payment of any Award, other than an Option, constituting deferred compensation not exempt from Section 409A of the Internal Revenue Code.
(ii) (A) In the event that subsequent to a Change in Control it is determined that any payment or distribution by the Company to or for the benefit of a Participant, whether paid or payable or distributed or distributable pursuant to the terms of this Plan or otherwise, other than any payment pursuant to this Section 7(f)(ii)(A) (a “Payment”), would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then such Participant shall be entitled to receive from the Company, within 15 days following the determination described in (2) below, an additional payment (“Excise Tax Adjustment Payment”) in an amount such that after payment by such Participant of all applicable Federal, state and local taxes (computed at the maximum marginal rates and including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Excise Tax Adjustment Payment, such Participant retains an amount of the Excise Tax Adjustment Payment equal to the Excise Tax imposed upon the Payments.
(B) All determinations required to be made under this Section 7(f)(ii), including whether an Excise Tax Adjustment Payment is required and the amount of such Excise Tax Adjustment Payment, shall be made by PricewaterhouseCoopers LLP, or such other national accounting firm as the Company, or, subsequent to a Change in Control, the Company and the Participant jointly, may designate, for purposes of the Excise Tax, which shall provide detailed supporting calculations to the Company and the affected Participant within 15 business days of the date of the applicable Payment. Except as hereinafter provided, any determination by PricewaterhouseCoopers LLP, or such other national accounting firm, shall be binding upon the Company and the Participant. As a result of the uncertainty in the application of Section 4999 of the Code that may exist at the time of the initial determination hereunder, it is possible that (x) certain Excise Tax Adjustment Payments will not have been made by the Company which should have been made (an “Underpayment”), or (y) certain Excise Tax Adjustment Payments will have been made which should not have been made (an “Overpayment”), consistent with the calculations required to be made hereunder. In the event of an Underpayment, such Underpayment shall be promptly paid by the Company to or for the benefit of the affected Participant. In the event that the Participant discovers that an Overpayment shall have occurred, the amount thereof shall be promptly restored to the Company.
(g) Cash Settlement. Notwithstanding any provision of this Plan or of any Award Agreement to the contrary, any Award outstanding hereunder may at any time be cancelled in the Committee’s sole discretion upon payment of the value of such Award to the holder thereof in cash or in another Award hereunder, such value to be determined by the Committee in its sole discretion.
(h) Option Repricing. Except as provided in Section 4(c) and in connection with the granting of a Substitute Award, no outstanding Option may be cancelled and replaced with an Option having a lower exercise price.
SECTION 8. Amendment and Termination.
Except to the extent prohibited by applicable law and unless otherwise expressly provided in an Award Agreement or in the Plan:
(a) Amendments to the Plan. The Board may amend the Plan and the Board or the Committee may amend any outstanding Award;provided, however,that: (I) no Plan amendment shall be effective until approved by stockholders of the Company (i) if any stockholder approval thereof is required in order for the Plan to continue to satisfy the conditions of the applicable rules and regulations that the Committee has determined to be necessary to comply with, and (ii) if such Plan amendment would materially (A) increase the number of Shares available under the Plan or issuable to a Participant (other than a change in the number of Shares made in connection with an event described in Section 4(c) hereof), (B) change the types of Awards that may be granted under the Plan, (C) expand the class of persons eligible to receive Awards under the Plan, or (D) reduce the price at which an Option is exercisable (other than in connection with an event described in Section 4(c) hereof or the granting of a Substitute Award), and (II) without the consent of affected Participants no amendment of the Plan or of any Award may impair the rights of Participants under outstanding Awards.
(b) Waivers. The Committee may waive any conditions to the Company’s obligations or rights of the Company under any Award theretofore granted, prospectively or retroactively, without the consent of any Participant.
(c) Adjustments of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events. The Committee shall be authorized to make adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events (including, without limitation, the events described in Section 4(c) hereof) affecting the Company, any Affiliate, or the financial statements of the Company or any Affiliate, or of changes in applicable laws, regulations, or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits to be made available under the Plan;provided, however,no such adjustment shall be made to an Award granted under Section 6(e)(iii) if the Committee intends such Award to constitute “qualified performance-based compensation” unless such adjustment is permitted under Section 162(m) of the Code.
SECTION 9. Correction of Defects, Omissions, and Inconsistencies. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem desirable to effectuate the Plan.
SECTION 10. General Provisions.
(a) No Rights to Awards. No Participant or other person shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of Participants or holders or beneficiaries of Awards under the Plan. The terms and conditions of Awards of the same type and the determination of the Committee to grant a waiver or modification of any Award and the terms and conditions thereof need not be the same with respect to each Participant.
(b) Withholding. The Company or any Affiliate shall be authorized to withhold from any Award granted or any payment due or transfer made under any Award or under the Plan the amount (in cash, Shares, other securities, other Awards or other property) of withholding taxes due in respect of an Award, its exercise or any payment or transfer under such Award or under the Plan and to take such other action as may be necessary in the opinion of the Company or Affiliate to satisfy all obligations for the payment of such taxes.
(c) No Limit on Other Compensation Arrangements. Nothing contained in the Plan shall prevent the Company or any Affiliate from adopting or continuing in effect other or additional compensation arrangements, including the grant of options and other stock-based awards, and such arrangements may be either generally applicable or applicable only in specific cases.
(d) No Right to Employment or Service. The grant of an Award shall not be construed as giving a Participant the right to be retained in the employ or service of the Company or any Affiliate. Further, the Company or an Affiliate may at any time dismiss a Participant from employment or service, free from any liability, or any claim under the Plan, unless otherwise expressly provided in the Plan or in any Award Agreement or in any other agreement binding the parties.
(e) Governing Law. The validity, construction and effect of the Plan and any rules and regulations relating to the Plan shall be determined in accordance with the laws of the State of Michigan and applicable Federal law.
(f) Severability. If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or as to any person or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, person or Award, and the remainder of the Plan and any such Award shall remain in full force and effect.
(g) No Trust or Fund Created. Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and a Participant or any other person. To the extent that any person acquires a right to receive payments from the Company or any Affiliate pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company or any Affiliate.
(h) No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to the Plan or any Award, and the Committee shall determine whether cash, other securities, or other property shall be paid or transferred in lieu of any fractional Shares, or whether such fractional Shares or any rights thereto shall be cancelled, terminated or otherwise eliminated.
(i) Headings. Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof.
SECTION 11. Term.
The Plan shall be effective as of the date of its approval by the Company’s stockholders and no Awards shall be made under the Plan after May 10, 2015.
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