SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrantx
Filed by a Party other than the Registrant¨
Check the appropriate box:
| ¨ | Preliminary Proxy Statement |
| ¨ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
| x | Definitive Proxy Statement |
| ¨ | Definitive Additional Materials |
| ¨ | Soliciting Material under Rule 14a-12 |
EnPro Industries, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
| x | No fee required. |
| ¨ | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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| (3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
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EnPro Industries, Inc.
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Engineered forPerformance
Proxy Statement and
Notice of 20152016 Annual Meeting
of Shareholders
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Annual Meeting of Shareholders
The 20152016 Annual Meeting of Shareholders of
EnPro Industries, Inc. will be held at:
5605 Carnegie Boulevard, Suite 500
Charlotte, North Carolina 28209
on
Wednesday, April 29, 2015May 4, 2016 at 11:30 a.m.
Proxy voting options
Your vote is important!
Whether or not you expect to attend in person,our shareholder’s meeting, we urge you to vote your sharesshares. You may vote by phone, via the Internet, or by signing, dating, and returning the enclosed proxy card or voting instruction form at your earliest convenience. ThisYour prompt vote will ensure the presence of a quorum at the meeting. Promptly voting your sharesmeeting and will save us the expense and extra work of additional solicitation. SubmittingIf you vote now and later decide to change your proxy now will not prevent you from votingvote or to vote your stockshares at the meeting, if you desire tomay do so as yourby following instructions found elsewhere in this proxy statement. Your vote by proxy is revocable at your option.option any time prior to the meeting.
VotingThe fastest and most convenient way to vote your shares is by the Internet or telephone, is fastusing the instructions on this page. Internet and convenient, your vote istelephone votes are immediately confirmed and tabulated, and ourreduce postage and proxy tabulation costs are reduced.costs.
If you prefer you canto vote by mail, by returningplease return the enclosed proxy card or voting instruction form in the addressed, prepaid envelope we have provided.
Please do Do not return the enclosed paper ballot if you are votingvote via the Internet or by telephone.
Vote by Internet
www.proxyvote.com
Internet voting is available 24 hours a day, / 7 days a weekweek.
Instructions:
| 1. | Read |
| 2. | Go to the following website:www.proxyvote.com |
| 3. | Have your proxy card or voting instruction form in hand and follow the instructions. You can also register to receive all future shareholder communications electronically, instead of in print. |
Vote by telephone
1-800-690-6903 via touch tone phone
Telephonic voting is available toll-free 24 hours a day, / 7 days a weekweek.
Instructions:
| 1. | Read |
| 2. | Call toll-free1-800-690-6903. |
| 3. | Have your proxy card or voting instruction form in hand and follow the instructions. |
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5605 Carnegie Boulevard, Suite 500
Charlotte, North Carolina 28209
Letter from our President and Chief Executive Officer
Dear Shareholder:
On behalf of the board of directors and management of EnPro Industries, Inc., I invite you to our annual meeting of shareholders. The meetingIt will be held at the company’s headquarters located at 5605 Carnegie Boulevard, Suite 500, Charlotte, North Carolina on Wednesday, April 29, 2015May 4, 2016 at 11:30 a.m.
This year, our shareholders will be asked to:
The business of the meeting, including each of the four proposals you are being asked to vote on, is described in detail in the attached Notice of Annual Meeting of Shareholders and Proxy Statement contain details of the business to be conducted at the annual meeting.which follows.
Whether or not you attend the annual meeting, it is important that your shares be represented and voted at the meeting. Therefore, I urge you to promptlyPlease vote andpromptly. You may submit your proxy via the Internet, by phone, or by signing, dating, and returning the enclosed proxy card in the enclosed envelope. If you attend the Annual Meeting, you will be able to vote in person, even if you have previously submitted your proxy.
Sincerely,
Stephen E. Macadam
President and Chief Executive Officer
March 26, 201531, 2016
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5605 Carnegie Boulevard, Suite 500
Charlotte, North Carolina 28209
Notice of 20152016 Annual Meeting of Shareholders
Date: |
Time: | 11:30 a.m. Eastern Time |
Place: | 5605 Carnegie Boulevard, Suite 500 Charlotte, North Carolina 28209 |
Charlotte, North Carolina 28209
Record date: | March |
Proxy voting: | Important. Please vote your shares at your earliest convenience. This will ensure the presence of a quorum at the meeting. Promptly voting your shares via the Internet, by telephone, or by signing, dating, and returning the enclosed proxy card or voting instruction form will save the expenses and extra work of additional proxy solicitation. If you wish to vote by mail, we have enclosed an addressed envelope, postage prepaid if mailed in the United States. Submitting your proxy now will not prevent you from voting your shares at the |
Items of business: | • | To elect |
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD ON APRIL 29, 2015:MAY 4, 2016: The proxy statement and 20142015 annual report to shareholders are available at:http://2015annualmeeting.enproindustries.comwww.enproindustries.com/shareholder-meeting.
By Order of the Board of Directors,
Robert S. McLean
Secretary
March 26, 201531, 2016
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This summary highlights information contained elsewhere in thisour proxy statement. ThisBecause the summary does not contain all of the information you should consider, and you should read the entire proxy statement carefully before voting.
Annual meeting of shareholders
Time, Place and Voting Matters
| Date: | ||
| Time: | 11:30 a.m. Eastern Time | |
| Place: | 5605 Carnegie Boulevard, Suite 500 Charlotte, North Carolina 28209 | |
| Record date: | March | |
| Voting: | Shareholders as of the record date are entitled to vote. Each share of common stock is entitled to one vote for each director nominee and one vote for each of the proposals to be voted on. | |
Meeting agenda
Voting recommendations
| | Board vote recommendation | |
Election of directors (see page 12) | “For” each director nominee | |
Advisory vote to approve executive compensation (see page 53) | “For” | |
Approval of the amendment and restatement of our 2002 Equity Compensation Plan as described in this proxy statement (see page 55) | “For” | |
Ratification of PricewaterhouseCoopers LLP as our independent registered public accounting firm for | “For” | |
Our director nominees
See “Proposal 1 — Election of directors” (page 12) and “Corporate governance policies and practices” (page 19) for more information.
The followingboard of directors recommends that you vote “For” each nominee listed in the table below, which provides summary information about each director nominee.director. A full description of each director’s skills and qualifications begins on page 2. Each director is elected annually.
Name | Age | Director since | Occupation | Inde- | Other public | Committee memberships | Age | Director | Occupation | Inde- | Other public | Committee memberships | ||||||||||||||||||||||||||||||||
AC | CC | NC | EC | AC | CC | NC | EC | |||||||||||||||||||||||||||||||||||||
Stephen E. Macadam | 54 | 2008 | President and CEO, EnPro | — | C | 55 | 2008 | President and CEO, EnPro | No | — | — | — | — | C | ||||||||||||||||||||||||||||||
Thomas M. Botts | 60 | 2012 | Retired Executive VP, Global Manufacturing, Shell Downstream Inc. | — | 1 | M | C | M | 61 | 2012 | Retired Executive VP, Global Manufacturing, Shell Downstream Inc. | Yes | 1 | M | C | M | M | |||||||||||||||||||||||||||
Felix M. Brueck | 59 | 2014 | Director Emeritus, McKinsey & Company, Inc. | — | — | M | M | M | 60 | 2014 | Director Emeritus, McKinsey & Company, Inc. | Yes | — | M | M | M | — | |||||||||||||||||||||||||||
B. Bernard Burns, Jr. | 66 | 2011 | Managing Director, McGuire Woods Capital Group | — | — | M | M | M | 67 | 2011 | Managing Director, McGuire Woods Capital Group | Yes | — | M | M | M | — | |||||||||||||||||||||||||||
Diane C. Creel | 66 | 2009 | Retired Chairman, CEO and President, Ecovation, Inc. | — | 2 | M | M | M | 67 | 2009 | Retired Chairman, CEO and President, Ecovation, Inc. | Yes | 2 | M | M | M | — | |||||||||||||||||||||||||||
Gordon D. Harnett* | 72 | 2002 | Former Chairman and CEO, Materion Corporation | — | 2 | M | M | C | M | 73 | 2002 | Former Chairman and CEO, Materion Corporation | Yes | 1 | M | M | C | M | ||||||||||||||||||||||||||
David L. Hauser | 63 | 2007 | Former Chairman and CEO, FairPoint Communications | — | — | C,F | M | M | 64 | 2007 | Former Chairman and CEO, FairPoint Communications | Yes | 1 | C,F | M | M | M | |||||||||||||||||||||||||||
John Humphrey | 50 | 2015 | Executive Vice President and Chief Financial Officer of Roper Technologies, Inc. | Yes | — | M | M | M | — | |||||||||||||||||||||||||||||||||||
Kees van der Graaf | 65 | 2012 | Former member of the board and executive committee, Unilever NV and Unilever PLC | — | 3 | M | M | M | 66 | 2012 | Former member of the board and executive committee, Unilever NV and Unilever PLC | Yes | 2 | M | M | M | — | |||||||||||||||||||||||||||
| AC | — Audit and Risk Management Committee |
| CC | — Compensation and Human Resources Committee |
| NC | — Nominating and Corporate Governance Committee |
| EC | — Executive Committee |
| * | — Chairman of the Board of Directors |
| C | — Chair |
| M | — Member |
| F | — Financial expert |
Our nominees’ experience and qualifications
Our board of directors and its Nominating and Corporate Governance Committee believe broad and diverse experience and varying lengths of tenure are critical elements of a highly functioning board. The board’s experience enables it to make sound decisions that
support shareholder value, while the varying tenures of its members provide a balance of institutional knowledge and fresh perspectives. The following charts reflect the experience and qualifications of our directors.
Director Experience and Qualifications
Experiences/Qualifications | Botts | Brueck | Burns | Creel | Harnett | Hauser | Humphrey | Macadam | Van derGraaf | |||||||||
Finance/Accounting | ü | ü | ü | ü | ü | |||||||||||||
Government/Regulatory | ü | ü | ü | ü | ||||||||||||||
Legal/Corporate Governance | ü | ü | ü | ü | ü | |||||||||||||
| Human Resources/Compensation | ü | ü | ü | ü | ü | ü | ü | |||||||||||
International Experience | ü | ü | ü | ü | ü | ü | ü | ü | ü | |||||||||
M&A/Business Development | ü | ü | ü | ü | ü | ü | ü | ü | ||||||||||
Manufacturing/Operations | ü | ü | ü | ü | ü | ü | ü | |||||||||||
Sales/Marketing | ü | ü | ü | ü | ||||||||||||||
Strategic Planning | ü | ü | ü | ü | ü | ü | ü | ü | ü | |||||||||
| Technical Innovation/Product Development | ü | ü | ü | |||||||||||||||
Corporate governance matters
Our board of directors and management firmly embrace good and accountable corporate governance andgovernance. We believe that an attentive high performing board, is a tangible competitive advantage. To that end, the board has undertaken substantial effortsheld to ensure the highest standards of corporate governance.governance, is a tangible advantage for our shareholders and for our businesses. Our board makes substantial efforts to meet such standards.
| • | We elect all directors annually to one year terms.Annual |
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except the Chief Executive Officer has ever been a member of our board. |
| • | Our independent directors meet regularly in executive session. Our non-management directors meet |
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| • | Board |
| • | The board |
Executive compensation matters
SeeFor more information, see “Compensation discussion and analysis,”(page 26) “Executive compensation” (page 40) and “Proposal 2 — Advisory vote approving executive compensation” for more information.(page 53).
Our board of directors recommends that you vote “For” our advisory proposal on executive compensation. The non-binding, advisory vote gives our shareholders votethe opportunity to approve on a non-binding basis, the compensation paid to our company’sindividuals identified as named executive officers as reported in this proxy statement.
We provide the following summary of our executive compensation practices and our 2014 business accomplishments in support of the board’s recommendation.
Our compensation practices
Our programs are designed to reward success
We design our executive officerOur compensation programs enable us to attract, motivate, and retainalign the key executives who drive our success. Our objectives are to establish pay practices that reward them for superior performance and align their interests as managers of our company with the long-term interests of our executive officers with the interests of our shareholders and to reward our executives for superior performance. This practice allows us to attract and retain talented and highly motivated executive officers who are capable of driving our success and building value for our shareholders.
We achieve our objectives through compensation that:Our executive officers’ compensation:
| • | Is based primarily on financial performance. As an executive officer’s level of responsibility increases, a higher percentage of the officer’s total compensation opportunity is based on our financial performance; |
| • | Is significantly stock-based. Stock-based compensation ensures our executives and our shareholders have common interests; |
| • | Vests over several years. Vesting a meaningful portion of our executives’ total compensation over a period of years aligns their interests with the long-term interests of our shareholders and is a useful tool in retaining talented employees; |
| • | Is linked to execution of our corporate strategies. Linking a significant portion of our key executives’ total pay to the successful execution of our strategies provides an incentive to achieve our objectives for increasing shareholder value; |
| • | Allows our executives the opportunity to earn competitive total pay; and |
| • | Encourages sound decisions that lead to long-term success and avoid unnecessary or excessive risk. |
We routinely engage with our shareholders and have made changes to addressaddressed their concerns about our compensation programs
We routinely engage in a wide-ranging dialogueThrough the course of each year, we have dialogues with numerous shareholders, including regular conversations with many of our largest shareholders. We carefully consider the diversecover a wide-range of topics in these discussions, including executive compensation. In these conversations, our shareholders generally support our pay practices and strategic direction. We take their views expressed by shareholders who provide usinto account as we seek to align our policies and practices with feedback, and we made significant changes to our compensation program in 2013 followingtheir interests.
the input from our shareholders. These changes included redesigning our long-term incentive compensation plan which measures and rewards performance based on the equity value we create.
We employ best practices in executive compensation
Our executive compensation practices include:
Our 2014 accomplishmentsCompensation analysis
Despite uneven levels of activity in our markets during the year, our growth in 2014 illustrates the value of our participation in diverse markets and geographies. Our
performance supports our long term objectives for growth, objectives that will be further supported by significant progress in the asbestos claims resolution process of our deconsolidated subsidiary, Garlock Sealing Technologies, LLC (“GST LLC”), and a significant improvement in our capital structure.
Asbestos claims resolution process: Early in the year, Judge George Hodges of the U.S. Bankruptcy Court for the Western District of North Carolina issued an opinion estimating GST LLC’s liability for mesothelioma claims at $125 million, an amount consistent with the position GST LLC took at the 2013 estimation trial in his court and far less than the
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For two decades, FME has provided engines to U.S. Navy and nuclear power markets under licenses from MAN Diesel and Turbo (“MAN”) and its affiliates. In 2014, FME expanded the relationship with an agreement to cooperate with MAN in the U.S. power generation market for gas-fired and dual fuel engines, giving FME a competitive offering in an attractive market.
With its partner Achates Power, Inc. (“Achates”), FME made significant progress in the design feasibility stage of its work towards improving the commercial viability of FME’s proprietary opposed-piston engine.
FME and Achates are exploring ways to reduce emissions and improve fuel efficiency in an engine design that has proven reliable over many decades in critical standby and emergency power applications.
We pay for performance
Our compensation program allowsties pay to the achievement of both annual and long-term goals for the performance of our Compensationcompany. We set these goals each year and Human Resources Committeetie both annual and three-year incentive awards to achieving them. We make little or no payment for poor performance against our goals, but our executives can earn significant payment relative to their salary levels for superior performance against them.
In 2015, we were challenged by economic headwinds in many of our markets and the boardimpact of directorsthe increasingly strong U.S. dollar, which limited our ability to determine executive pay based on comprehensive criteria designeddeliver overall improved operating results. In addition, due to produce long-term business success. The correlation between our financial resultsthe persistent weakness in the market for maintenance of reciprocating compressors used in gas gathering, processing and transmission applications, particularly in Western Canada, and the expectation that market conditions in these areas would not rebound soon, in 2015 we booked a non-cash impairment charge of $47.0 million (before taxes) for goodwill and intangible assets associated with our Compressor Products International (CPI) division. As a consequence, our operating income after adjustment, including for the goodwill and intangible asset impairment charge, was 9.2% lower in 2015 compared to 2014.
Our 2015 financial performance is reflected in the reduced annual incentive compensation awarded to executive officers demonstrates the effectiveness of this approach.
reported for our Chief Executive Officer for 2015. The following chart presents the totalannual incentive compensation for our Chief Executive Officer as reportedincluded in the summary compensation table in our annualon page 40 of this proxy statements, paidstatement was 16.6% lower for 2015 compared to our2014.
Our Chief Executive Officer for eachOfficer’s total non-equity incentive compensation increased in 2015 compared to 2014 as a result of amounts earned under long-term incentive awards. His long-term incentive plan compensation increased from 2014 to 2015 as a result of the full years he has servedinclusion on a pro forma basis of our de-consolidated Garlock Sealing Technologies LLC (“GST”) subsidiary in that role. The table compares his compensationthe calculation of relevant results for 2015 due to significant positive developments in 2015 in GST’s asbestos claims resolution process. We believe these significant positive developments led to the improvement inrecently announced consensual settlement to permanently resolve asbestos claims against GST, as well as our earnings before interest, taxes, depreciation, amortization expense, asbestos expenseColtec Industries Inc subsidiary. We believe that this settlement, which is subject to approval by claimants and other selected items (or, adjusted EBITDA-A). Adjusted EBITDA-A is a primary metric we use to evaluate our performance and one we use to determine annual and long-term incentive compensation during this period.applicable court
A significant componentapproval, will, when consummated, provide certainty and finality in the resolution of these asbestos claims, along with the CEO’s total compensationformal reconsolidation of GST’s financial results with ours. GST was not included in the calculation of relevant results for 2014 was2012, the initial measurement year for these awards. The successful resolution of GST’s asbestos claims has been a special grantkey objective for increasing shareholder value. The effect of restricted stock units awarded to executive officers and other key personnelthese developments in recognition of their efforts related to theGST’s asbestos claims resolution process (the “ACRP”) involvingon outstanding long-term incentive compensation awards is limited only to the long-term incentive awards maturing in 2015, as subsequent awards reflect the pro forma inclusion of GST LLC. These efforts includedin results for both the strategy, planning and management of the ACRP, which resulted in the order issued in January 2014 by the bankruptcy court estimating the liability for present and future mesothelioma claims against GST LLC at $125 million, consistent with the positions GST LLC put forth at trial, and operating GST LLCinitial measurement year and the other EnPro businesses under the unique circumstances presented by the ACRP. The special grant was made in the form of restricted stock units to help ensure the retention of these individuals as the ACRP progresses. For 2014, approximately 25% of the CEO’s reported total compensation was due to this special award.final measurement year.
(Annex ASee “Proposal 3 — Approval of an amendment and restatement of our Amended and Restated 2002 Equity Compensation Plan” (page 55) for more information.
We ask that our shareholders approve the amendment and restatement of our Amended and Restated 2002 Equity Compensation Plan (the “Equity Plan”). Awards under the Equity Plan may be made to this proxy statement sets forth the calculationany salaried, full-time employee of adjusted EBITDA-A, which is not a measure under U.S. generally accepted accounting principles.EnPro or any of our majority-owned subsidiaries or, in certain circumstances, to our outside directors. The financial results of Garlock Sealing Technologies LLC have not been included in our consolidated financial results since June 5, 2010, when GST LLCamendment and certain affiliated companies (which, together with GST LLC, we collectively refer to as “GST”) filed a voluntary petition for reorganization under Chapter 11restatement of the United States Bankruptcy Code asEquity Plan would increase the initial stepnumber of shares of our common stock issuable in a process to resolve all current and future asbestos claims. However, because GST LLC continuesconnection with awards under
the Equity Plan by 925,000 shares. By increasing the number of shares authorized to be our subsidiary, oversightavailable for delivery under the Equity Plan by 925,000 shares, we would have an aggregate of this business and its financial results continues to be a responsibility968,720 shares available for future awards, which would represent approximately 4.3 percent of our executive officersfully diluted shares. In addition, the amendment and restatement would extend the financial measures usedterm under our incentive compensation plans include GST LLC’s results,which awards may be made under the performance of this business since June 5, 2010 has been separately included in this chart.)Equity Plan from February 10, 2019 to February 24, 2026.
Auditors
See “Proposal 34 — Ratification of PricewaterhouseCoopers LLP as our company’s independent registered public accounting firm for 2015”2016” and “Independent registered public accounting firm” (page 60) for more information.
We ask that our shareholders to ratify the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2015. Below is summary2016. The information aboutbelow summarizes PricewaterhouseCoopers’ fees for services provided in years 20142015 and 2013.2014.
| Year ended December 31 | 2014 | 2013 | ||||||||||||||
| �� Year ended December 31 | 2015 | 2014 | ||||||||||||||
Audit fees | $ | 1,876,900 | $ | 1,875,300 | $ | 1,901,600 | $ | 1,876,900 | ||||||||
Audit-related fees | 13,000 | 12,800 | 10,600 | 13,000 | ||||||||||||
Tax fees | 20,000 | — | 18,375 | 20,000 | ||||||||||||
All other fees | 2,000 | 2,000 | 2,000 | 2,000 | ||||||||||||
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Total | $ | 1,911,900 | $ | 1,890,100 | $ | 1,932,575 | $ | 1,911,900 | ||||||||
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The enclosed proxy is solicited on behalf of the board of directors of EnPro Industries, Inc., in connection with our 2016 annual meeting of shareholders toshareholders. The meeting will be held on Wednesday, April 29, 2015,May 4, 2016, at 11:30 a.m. at the company’s headquarters located at 5605 Carnegie Boulevard, Suite 500, Charlotte, North Carolina, and at any adjournment or postponement of the meeting.Carolina. You may use the enclosed proxy card to vote your shares whether or not you attend the meeting. IfPlease vote by following the instructions on the card.
Because your vote is very important, we encourage you are a registered shareholder (that is, you hold shares directly registered in your own name), you may also votecast it promptly by telephone or over the Internet, or by following the instructions on your proxy card. If your shares are held through an account maintained by a bank, securities broker or other nominee, which is referred to as holding in “street name,” you will receive separate voting instructions with your proxy materials. Although most brokersdating, signing and nominees offer telephone and Internet voting, availability and specific procedures depend on their voting arrangements.
Your vote is very important. For this reason, we encourage you to date, sign, and returnreturning your proxy card in the enclosed envelope or to castenvelope. Submitting your votes by telephone or over the Internet. Doing so will permitproxy in any of these manners means your shares of our common stock towill be represented at the meetingvoted as you specify by the individuals named on the enclosed proxy card.
This proxy statement contains important information for you to consider when deciding how to vote on the matters brought before the meeting. Please read it carefully.
We are mailing our 20142015 annual report, including financial statements, with this proxy statement to each registered shareholder.all shareholders who hold shares directly in their own names. We will begin mailing materials to these materialsregistered shareholders on or around March 26, 2015. 31, 2016. If you are a beneficial owner whose shares are held in street name in account at a bank, securities broker or other nominee, you should receive the annual report, proxy statement and a proxy card directly from the nominee.
Any shareholder may receive anrequest additional copycopies of these materials by request tofrom our shareholder relations department. You may reach the shareholder relations department, which can be reached via email toatinvestor@enproindustries.comor by calling 704-731-1522.704-731-1522
What is the purpose of the annual meeting?
At our annual meeting, shareholders will act on proposals for the following matters:proposals:
Our board of directors has submitted these proposals. OtherWe are not aware of any other business to be addressed at the meeting; however, other business may be addressed at the meeting if it properly comes before the meeting. We are not aware of any other business.
Who is entitled to vote at the meeting?
You may vote if you owned EnPro common stock as of the close of business on the record date, March 13,
2015.17, 2016. Each share of common stock is entitled to one vote on each matter considered at the meeting. At the
close of business on the record date, 23,675,10821,777,936 shares of EnPro common stock were outstanding and eligible to vote, whichvote. The amount does not include 199,376195,499 shares held by aan EnPro subsidiary.
Who can attend the meeting?
All registered shareholdersAnyone who owns shares as of the record date may attend. This includes all registered shareholders (or their duly appointed proxies),representatives) and beneficial owners presenting satisfactory evidence of ownership as of the record date, and ourdate. Our invited guests may also attend the meeting.
How do I vote?
If you are a registered shareholder, youRegistered shares:Registered shareholders have four voting options:
Even if you plan to attend the meeting, we encourage you to vote your shares by submitting your proxy. If you choose to attendvote your shares at the meeting, please bring proof of stock ownership and proof of identificationyour identity for entrance to the meeting.
Beneficial shares: If you hold your EnPro shares in street name, your ability to vote by Internet or telephone depends on the voting process of the bank, broker or other nominee through which you hold the shares. Please follow their directions carefully. If you want to vote EnPro shares that you hold in street name at the meeting, you must request a legal proxy from your bank, broker or other nominee and present that proxy, together with proof of identification,your identity, for entrance to the meeting.
Every vote is important! Please vote your shares promptly.
How do I vote my 401(k) shares?
ProxiesIf you hold EnPro shares in the company’s 401(k) plan, the plan’s trustee will also serve as voting instructionsvote your shares according to the instructions you provide when you complete and submit the proxy instructions you receive from the plan trustee with respect to shares held in accounts under the EnPro Industries, Inc. Retirement Savings Plan for Salaried Employees and the EnPro Industries, Inc.manager.
Retirement Savings Plan for Hourly Employees. If you participatehold EnPro shares in either of these plans, areboth an EnPro 401(k) plan and in a registered shareholder of record, andaccount outside the plan, accountand if your plan information is the same asmatches the information we have on record with our transfer agent, the enclosedyour registered account, you will receive one proxy card representsrepresenting all of the shares you hold, both within the plan and outside it. own.
If you hold your shares outside the plan in street name, or if your planregistered account information is different from theyour plan account information, on record with the transfer agent, then you will receive separate proxies, one for the shares heldyou hold in the plan and one for shares heldyou hold outside the plan.
What can I do if I change my mind after I vote my shares?
Even afterif you have submitted your vote, you may revoke your proxy and change your vote at any time before voting begins at the annual meeting. If you are a registered shareholder, you
Registered shareholders: Registered holders may do thischange their votes in threeone of two ways:
Your attendanceperson at the meeting will not automatically revokemeeting. In order to vote your proxy;shares at the meeting, you must specifically revoke it.
Beneficial shareholders: If you hold your shares in street name, you should contact your bank, broker or other nominee to find out how to revoke your proxy. If you have obtained a legal proxy from your nominee giving you the right to vote your shares, you may vote by attending the meeting and voting in person or by sending in an executed proxy with your legal proxy form.
Is there a minimum quorum necessary to hold the meeting?
In order to conductA quorum is established when the meeting, a majority of EnPro shares entitled to vote must beare present at the meeting in person or by proxy. This is calledAbstentions and broker “non-votes” are counted as present and entitled to vote for purposes of establishing a quorum. If you return valid proxy instructions or vote in person at the meeting, you will be considered part of the quorum. For purposes of determining whether a quorum is present, abstentions and broker “non-votes” will be counted as shares that are present and entitled to vote.
How will my vote be counted?
If you providereturn your proxy card with specific voting instructions or submit your proxy by telephone or the Internet, your EnPro shares will be voted as you have instructed.
If you hold shares in your nameare a registered shareholder and sign and returnsubmit a proxy card or vote by mail, telephone or the Internet without giving specific voting instructions, your shares will be voted asaccording to our board of directors has recommended.directors’ recommendations. If you hold your shares in your name (you are the record holder) and do not givesubmit valid proxy instructions or vote in person at the meeting, your shares will not be voted.
If you hold your shares in street nameare a beneficial shareholder and do not give your bank, broker or other nominee instructions on how you wantfor voting your shares, your shares will be considered to be voted, those shares are considered “uninstructed” and a bank, broker or other“uninstructed.” Your nominee generally has the authority to vote those“uninstructed” shares at its discretion only on matters that are determined to be “routine” under the rules of the New York Stock Exchange rules. Under(NYSE). For our 2016 meeting, only the New York Stock Exchange’s rules,ratification of our independent accounting firm (Proposal 4) is considered routine by the NYSE. The election of directors and matters related to executive compensation are not considered toroutine. Without your instruction, your shares will not be “routine” for this purpose, which means that a broker or broker nominee may not provide a proxy with voting instructions onvoted in these matters unless it receives voting instructions from the beneficial owner of the shares. Accordingly, unless instructed by the beneficial owner, a broker or broker nominee may not provide voting instructions with respect to the vote on Proposals(Proposals 1, 2 and 2 described in this proxy statement.
The vote to ratify the appointment of our independent accounting firm and any other business that may properly come before the meeting are considered routine under the New York Stock Exchange rules, which means that a bank, broker or other nominee has voting discretion as to any uninstructed shares on those matters.3).
What vote is required to approve each item?
Proposal 1: Election of directors. Directors are elected by a plurality of the votes cast in person or by proxy at the meeting. “Plurality” means that the director nominees who receive the largest number of votes cast are elected, up to the maximum number ofnine directors to be elected at the meeting. The maximum number to be elected is eight. Shares not votedUn-voted shares will have no impact on the election of
directors. Unless a proxy includes proper voting instructions are to “Withhold” authoritya vote for any or all nominees, the proxy given will be voted “For” each of the nominees for director.nominees.
Under our Corporate Governance Guidelines, any nominee for director inIn an uncontested election, any nominee who receives a greater number ofmore “Withhold” votes “withheld” from his or her election than votes “for” his or her election“For” must promptly offer his or her resignation. The board’s Nominating and Corporate Governance Committee will then considerreview the resignation and recommend a course of action to the board. The full board, whether to accept or reject it. The boardexcluding the resigning director, will act on the Nominating Committee’s recommendation within 90 days after the shareholders’shareholders meeting andto accept or reject the resignation. The board’s decision (includingand an explanation of the process by which the decision was reached)used to reach it will be disclosed publicly disclosed on Form 8-K. Any director who offers his or her resignation may not participate in the board’s discussion or vote.
Proposal 2: Advisory vote to approve executive compensation. The advisory resolution to approve on an advisory basis, the compensation paid to our named executive officers will be approved if more votes are cast “For” the resolution than are cast “Against” the resolution.it. Although this advisory vote is non-binding, as provided bynot binding under applicable law, our board will review the results and take them, and the views expressed by our shareholders, into account in determining our executive compensation practices.
Proposal 3: Approval of the amendment and restatement of the Equity Plan. The amendment and restatement of the Equity Plan will be approved if a majority of the votes and, consistent withcast on the proposal are cast “For” approval.
Proposal 4: Ratification of PricewaterhouseCoopers LLP as our record of shareholder engagement, will take them into account in making determinations concerning executive compensation.
independent registered public accounting firm for 2016. The ratification of the appointment of our independent accounting firm and anywill be approved if more votes are cast “For” the proposal than are cast “Against” it.
Other business. Any other business as maythat properly comecomes before the meeting, or any adjournment of the meeting, will be approved if more votes are cast “For” suchthe proposal than are castthat “Against” it.the proposal.
How do abstentionsbroker non-votes and broker non-votesabstentions count for voting purposes?
“Broker non-votes” arise when beneficial shareholders do not give their banks, brokers or other nominees instructions for voting their shares and the banks, brokers or other nominees do not have authority to vote the shares on a matter because the matter is not routine. Abstentions and broker non-votes will count for determining whether a quorum is present for the meeting. Because directors are elected by a plurality of the votes cast, broker non-votes and abstentions will not count in determining the outcome of the election of directors. Because the applicable rules of the NYSE require approval of the proposed amendment and restatement of the Equity Plan by a majority of the votes cast on the proposal, abstentions, which will be considered to be votes “cast,” will have the effect of a vote “Against” approval, and broker non-votes, which are not considered to be votes “cast,” will not count in determining the outcome. For the advisory vote on executive compensation, the ratification of the appointment of our independent accounting firm and with respect to any other business as may properly come before the meeting or any adjournment of the meeting, only votes “For” or “Against” the proposal count—accordingly,count —accordingly, broker non-votes, if any, and abstentions will
not be counted in determining the outcome of the votes on those proposals. Abstentions and broker non-votes will count for determining whether a quorum is present.
Is there a list of shareholders entitled to vote at the annual meeting?
You may examine a list of the shareholders entitled to vote at the meeting. WeThe list will make that listbe available at our main executive offices at 5605 Carnegie Boulevard, Suite 500, Charlotte, North Carolina, from March 26, 201531, 2016 through the end of the meeting. The list will also be available for inspection at the meeting.
What are the board’s recommendations?
Your board of directors recommends that you vote:
Proxy cardsIf you return a valid proxy card or respond to our proxy by telephone andor Internet instructions to vote the proxy that are validly submitted and timely received, but that do not containinclude instructions on how you want to vote, your shares will be voted in accordance with the board’s recommendations.
With respect to any other matter that properly comes before the meeting, the proxy holders will vote as recommended by the board of directors or, if no recommendation is given, in their own discretion.
How can I find out the results of the vote?
We will publish final voting results in a report onForm 8-K to be filed with the Securities and Exchange Commission (SEC) within four business days after the meeting. In addition, we intend toWe will also post the voting results from the meeting on our website,www.enproindustries.com.
What is “householding” and how does it affect me?
To reduceWhen two or more shareholders are in the expenses of delivering duplicate proxy materials to our shareholders, we are relying onsame household and receive mail at the same address, SEC rules that allow us to deliver only one proxy statement and annual report to multiple shareholders who share anthat address, unless we have received contrary instructions from any shareholder at that address.reducing our cost for preparing and delivering proxy materials. If you share an address with another shareholderfall in this category and have received only onewould like separate mailings of our proxy statement and annual report, you may write or call us to request a separate copy of these materials and we will promptly send them to you at no cost to you.
For future meetings, if you hold shares directly registered in your own name, you may request separate copies of our proxy statement and annual report. Alternatively, you may request that we send only one set of materials if you are receiving multiple copies. You may make any of these requests by contacting us atinvestor@enproindustries.comor by calling 704-731-1522.
If your Registered shareholders who would like separate mailings in the future (or who would like to consolidate future mailings) may request them using the contact information above. Investors whose shares are held in thestreet name of by
a bank, broker or other nominee and you wish to receiveshould request separate copiesmailings (or consolidation of our proxy statement and annual report, or request that we send only one set of these materials to you if you are receiving multiple copies, please contact yourmailings) from the nominee.
Can I access these proxy materials on the Internet?
You can access thisThis proxy statement and our 20142015 annual report to shareholders, which includes our 20142015 annual report on Form 10-K, on the Internet siteare available athttp://2015annualmeeting.enproindustries.comwww.enproindustries.com/shareholder-meeting. If you are a registered shareholder, you
Registered shareholders can choose to receive these documents over the Internet in the future by accessingwww.proxyvote.comand following the instructions provided on that website. This could helpChoosing to receive your materials over the Internet gives you full access to all materials and saves us save significant printing and mailing expenses. If you choose to receive your proxy materials and annual report electronically, then prior to next year’s shareholder meetingmake this choice, you will receive an e-mail notification when theprior to next year’s meeting notifying you that our proxy materials and annual report are available for on-line review, as well as thereview. The e-mail will also include instructions for voting electronically overelectronic voting. Should you desire to end electronic delivery and again receive paper copies of the Internet. Your choice for electronic distribution will remain in effect until you revoke itmaterials, please notify us by sending a written request to our officesletter at 5605 Carnegie Boulevard, Suite 500, Charlotte, North Carolina 28209, Attention: Shareholder Relations.
If your shares are held through a bank, broker or other nominee, check the information provided by that entityBeneficial owners should request instructions for instructions on how to elect to viewreceiving future proxy statements and annual reports over the Internet.Internet from their bank, broker or other nominee.
Who will solicit votes and pay for the costs of this proxy solicitation?
We will pay the costs of the solicitation. OurAlthough our officers, directors and employees may personally solicit proxies, personally, by telephone, mail or facsimile, or via the Internet. These individualsthey will not receive any additional compensation for their solicitation efforts. Youdoing so. We may also be solicitedsolicit proxies by means ofissuing press releases, issued by EnPro, postingsposting information on our website,www.enproindustries.com, and placing advertisements in periodicals. We have engagedperiodicals or on websites. D.F. King & Co. to assistis assisting us in the solicitation of proxies and provide relatedprovides us with advice and informational support related to solicitation. We do not expect the total costs to us for aD.F. King’s services fee and the reimbursement of customary disbursements that together are not expected to exceed $20,000 in the aggregate. $20,000.
In addition, upon request we will reimburseif banks, brokers and other nominees representing beneficial owners of shares make the request, we will reimburse them for their expenses in forwarding voting materials to their customers who areand obtaining voting instructions from beneficial owners and in obtaining voting instructions.of our shares.
Who will count the votes?
Broadridge Financial Solutions will act as the master tabulator and count the votes.
Beneficial ownership of our common stock; transactions
Beneficial owners of 5% or more of our common stock
The following table sets forth information about the individuals and entities who held more than five percent of our common stock as of February 28, 2015.March 1, 2016. This information is based solely on SEC filings made by the individuals and entities by that date.
Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percent of Class(1) | Amount and Nature of Beneficial Ownership | Percent of Class(1) | ||||||||||||
BlackRock, Inc.et al.(2) | 1,999,052 | 8.3 | % | 2,141,928 | 9.8 | % | ||||||||||
55 East 52nd Street | ||||||||||||||||
New York, New York 10022 | ||||||||||||||||
New York, New York 10055 | ||||||||||||||||
T. Rowe Price Associates, Inc.et al.(3) | 1,907,522 | 7.9 | % | |||||||||||||
100 E. Pratt Street | ||||||||||||||||
Baltimore, Maryland 21202 | ||||||||||||||||
The Vanguard Group, Inc.(4) | 1,590,149 | 6.6 | % | |||||||||||||
The Vanguard Group, Inc.(3) | 1,680,411 | 7.7 | % | |||||||||||||
100 Vanguard Blvd. | ||||||||||||||||
Malvern, Pennsylvania 19355 | ||||||||||||||||
Greywolf Capital Management LPet al.(5) | 1,473,560 | 6.1 | % | |||||||||||||
Greywolf Capital Management LPet al.(4) | 1,608,234 | 7.4 | % | |||||||||||||
4 Manhattanville Road, Suite 201 | ||||||||||||||||
Purchase, New York 10577 | ||||||||||||||||
Silver Point Capital, L.P.et al.(5) | 1,505,000 | 6.9 | % | |||||||||||||
Two Greenwich Plaza | ||||||||||||||||
Greenwich, Connecticut 06830 | ||||||||||||||||
Hotchkis and Wiley Capital Management, LLC(6) | 1,440,220 | 6.6 | % | |||||||||||||
725 S. Figueroa Street, 39th Floor | ||||||||||||||||
Los Angeles, California 90017 | ||||||||||||||||
Sterling Capital Management LLC(7) | 1,396,287 | 6.4 | % | |||||||||||||
4350 Congress Street, Suite 1000 | ||||||||||||||||
Charlotte, North Carolina 28209 | ||||||||||||||||
| (1) | Applicable percentage ownership is based on |
| (2) | This information is based on a Schedule 13G amendment dated January |
| (3) | This information is based on a Schedule 13G amendment |
| This information is based on a Schedule 13G amendment filed with the SEC on February |
| (5) | This information is based on a Schedule 13G dated February 16, 2016 filed with the SEC by Silver Point Capital, L.P., Edward A. Mulé and Robert J. O’Shea reporting beneficial ownership as of December 31, 2015 with respect to the ownership of shares by Silver Point Capital Fund, L.P. and Silver Point Capital Offshore Fund, Ltd. Silver Point Capital, L.P. reports sole voting power with respect to 1,505,000 shares and sole dispositive power with respect to 1,505,00 shares and Mr. Mulé and Mr. O’Shea each report shared voting power with respect to 1,505,000 shares and shared dispositive power with respect to 1,505,00 shares. The Schedule 13G reports that: Silver Point Capital, L.P. is the investment manager of Silver Point Capital Fund, L.P. and Silver Point Capital Offshore Fund, Ltd. and by virtue of such status may be deemed to be the beneficial owner of the securities held by such funds; Silver Point Capital Management, LLC is the general partner of Silver Point Capital, L.P. and as a result may be deemed to be the beneficial |
| owner of the securities held by Silver Point Capital Fund, L.P. and Silver Point Capital Offshore Fund, Ltd.; and each of Mr. Mulé and Mr. O’Shea is a member of Silver Point Capital Management, LLC and has voting and investment power with respect to the securities held by Silver Point Capital Fund, L.P. and Silver Point Capital Offshore Fund, Ltd. and may be deemed to be a beneficial owner of the securities held by Silver Point Capital Fund, L.P. and Silver Point Capital Offshore Fund, Ltd. |
| (6) | This information is based on a Schedule 13G dated February 11, 2016 filed with the SEC by Hotchkis and Wiley Capital Management, LLC (“HWCM”) reporting beneficial ownership as of December 31, 2015. HWCM reports sole voting power with respect to 1,205,520 shares and sole dispositive power with respect to 1,440,220 shares. HWCM also reports that: such shares are owned of record by clients of HWCM; those clients have the right to receive, or the power to direct the receipt of, dividends from, or the proceeds from the sale of, such shares; no such client is known to have such right or power with respect to more than five percent of the outstanding shares of our common stock; and it disclaims beneficial ownership of such shares pursuant to Rule 13d-4 under the Securities Exchange Act of 1934, as amended. |
| (7) | This information is based on a Schedule 13G amendment dated January 29, 2016 filed with the SEC by Sterling Capital Management LLC reporting beneficial ownership as of December 31, 2015. Sterling Capital Management LLC reports sole voting power over 1,396,287 shares and sole dispositive power over 1,396,287 shares. The Schedule 13G filed by Sterling Capital Management LLC states that it is a registered investment adviser whose clients have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, the shares and that, to its knowledge, none of these clients beneficially owned more than 5% of the outstanding shares of our common stock. |
Director and executive officer ownership of our common stock
The following table sets forth information as of February 28, 2015March 1, 2016 about the shares of our common stock beneficially owned by our directors and the executive officers listed in the summary compensation table included in this proxy statement. It also includes information aboutstatement, as well as the shares of our common stock that our current directors and executive officers own as a group. It also includes information regarding the number of phantom shares payable in cash and deferred stock units held by our directors payable in shares. These phantom shares and deferred stock units are not included in the number of shares beneficially owned, but reflect the economic interests of our directors in our common stock.
Name of Beneficial Owner | Amount and Nature of Beneficial Ownership(1) | Directors’ Phantom Shares(2) | Directors’ Stock Units(3) | Percent of Class(4) | Amount and Nature of Beneficial Ownership of Shares(1) | Directors’ Phantom Shares(2) | Directors’ Stock Units(3) | Percent of Class(4) | ||||||||||||||||||||||||
Stephen E. Macadam | 291,533 | — | — | 1.2 | % | 323,344 | — | — | 1.5 | % | ||||||||||||||||||||||
Thomas M. Botts | — | 5,236 | 1,716 | * | 7,347 | — | 2,627 | * | ||||||||||||||||||||||||
Peter C. Browning | — | 30,239 | 7,599 | * | ||||||||||||||||||||||||||||
Felix Brueck | — | 2,646 | 1,017 | * | 4,717 | — | 2,557 | * | ||||||||||||||||||||||||
B. Bernard Burns, Jr. | 5,125 | 6,322 | — | * | 14,076 | — | — | * | ||||||||||||||||||||||||
Diane C. Creel | 1,000 | 11,207 | — | * | 14,411 | — | — | * | ||||||||||||||||||||||||
Gordon D. Harnett | 2,060 | 31,179 | 6,483 | * | 20,066 | 15,687 | 6,583 | * | ||||||||||||||||||||||||
David L. Hauser | 800 | 18,172 | 6,575 | * | 17,174 | 4,119 | 7,591 | * | ||||||||||||||||||||||||
John Humphrey | 2,030 | — | — | * | ||||||||||||||||||||||||||||
Kees van der Graaf | — | 5,599 | — | * | 7,715 | — | — | * | ||||||||||||||||||||||||
Alexander W. Pease | 9,634 | — | — | * | ||||||||||||||||||||||||||||
J. Milton Childress II | 26,792 | — | — | * | ||||||||||||||||||||||||||||
Kenneth D. Walker | 22,563 | — | — | * | 26,065 | — | — | * | ||||||||||||||||||||||||
Marvin A. Riley | 6,955 | — | — | * | ||||||||||||||||||||||||||||
Jon A. Cox | 34,721 | — | — | * | 38,240 | — | — | * | ||||||||||||||||||||||||
Robert S. McLean | 11,748 | — | — | * | ||||||||||||||||||||||||||||
Dale A. Herold | 13,801 | — | — | * | ||||||||||||||||||||||||||||
Former Executive Officer | ||||||||||||||||||||||||||||||||
Alexander W. Pease(5) | 9,684 | — | — | * | ||||||||||||||||||||||||||||
23 directors and executive officers as a group | 440,583 | 110,600 | 23,390 | 1.8 | % | 580,663 | 19,796 | 19,358 | 2.6 | % | ||||||||||||||||||||||
| * | Less than 1% |
| (1) | These numbers include the following shares that the individuals may acquire within 60 days after |
| (2) | These numbers reflect the phantom shares awarded under our Outside Directors’ Phantom Share |
| (3) | These numbers reflect the number of stock units credited to those non-employee directors who have elected to defer all or a part of the cash portion of their annual retainer and meeting fees pursuant to our Deferred Compensation Plan for Non-Employee Directors. See “Corporate Governance Policies and Practices — Director Compensation.” Because the stock units are not actual shares of our common stock and the directors |
| (4) | These percentages do not include the directors’ phantom shares or stock units described in Notes |
On January 6, 2014, the wife of Dale A. Herold (a former executive officer) joined Cognova Consulting, Inc. as a consultant and managing director. We have used Cognova Consulting since 2008 to provide executive
mentoring and leadership development services. In 2014, we paid Cognova Consulting $1,287,413 for its services. At no time has Mrs. Herold had any ownership interest in Cognova Consulting.
| (5) | Information with respect to Mr. Pease is as of May 31, 2015, the date of his resignation as an employee. |
Section 16(a) beneficial ownership reporting compliance
Section 16(a) of the Exchange Act requires our directors and officers and people who own more than 10% of our common stock to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of our common stock. The SEC requires these people to give us copies of all Section 16(a) reports they file.
We have reviewed the copies of all reports furnished to us. Based solely on this review, we believe that no
director, officer, or 10% shareholder failed to timely file in 20142015 any report required by Section 16(a), other than as described below. The initial report on Form 3 for David K. Fold, upon his designation as principal accounting officer, was filedthe late due to an administrative error. In addition,filing of a Form 4 reports filed on February 7, 2014 for eachEric A. Vaillancourt, President of the following officers failedGarlock Division, to include the exempted receiptreport his acquisition of a derivative security payable in cash
that was deemed grantedsix phantom shares on December 14, 2015 pursuant to the termsdividend equivalent provision of our management stock purchase stock deferral plan, upon the first deferrals of a portion of annual incentivewhich plan is described in “Executive compensation effected under that plan: Todd L. Anderson, David S. Burnett, J. Milton Childress II, Jon A. Cox, Dale A. Herold, Gilles Hudon, Stephen E. Macadam, Robert S. McLean, Susan E. Sweeney and Eric A. Vallincort.— Non-qualified deferred compensation.” The failure of these initialto timely file this Form 4 reports to include this information, which failure was corrected by subsequent amendments to their Form 4 reports,report was the result of an administrative oversight, as all such officers had provided all information necessary for the timely filing of a complete Form 4 on February 7, 2014. For a description of this plan, see “Compensation discussion and analysis — Compensation analysis — Retirement and other post-termination compensation — Deferred compensation and management stock plans.”oversight.
Proposal 1 — Election of directors(Item 1 on the proxy card)
One of the purposes of theAt our annual meeting, is the election of eightshareholders are asked to elect nine directors towho will hold office until theour 2017 annual shareholders’ meeting in 2016 or until their respective successors are elected and qualified. OurThe board of directors presently consists ofhas nominated the nine directors, all of whom were elected atpersons named on the 2014 annual meeting of shareholders.following pages. All of the nominees are incumbent directors whose terms would otherwise expire upon the election of directors at the meeting. Consistent with
Of the maximum age provisions of our Corporate Governance Guidelines, Peter C. Browning, a current director, has not been nominated for re-electionnine nominees, eight were elected as directors at the 2015 annual meeting and will retire frommeeting. The ninth nominee, John Humphrey, joined the board of directors atin November 2015. The addition of Mr. Humphrey continues the refreshment of our board of directors. We seek to balance directors who know and understand our company with those who bring fresh perspectives to governance and management. The median tenure of our independent directors is 4.3 years.
In selecting new members to the board, we have sought individuals with skills and experiences to complement those of the other directors. Mr. Humphrey brings to the board a depth of knowledge of capital markets, an understanding of the challenges of managing a complex, diversified industrial manufacturing company, and a record of success in a culture that time. is data driven and disciplined.
The selection of Mr. Humphrey was the result of a deliberative process undertaken by the Nominating and Corporate Governance Committee of our board of
directors. This committee is composed entirely of independent directors. The Nominating and Corporate Governance Committee engaged Russell Reynolds & Associates, an independent executive and director search firm, to assist it in identifying and recruiting suitable candidates. In addition to numerous other candidates, Mr. Humphrey was suggested to the Nominating and Corporate Governance Committee by Russell Reynolds & Associates. He was selected from a final set of candidates following separate interviews with each member of the board of directors. To permit Mr. Humphrey to begin contributing to the board as soon as possible following his selection, in November 2015 the board of directors has adopted a resolution to reduceincreased the size of the board from eight to eight directors effective uponnine and elected Mr. Humphrey to fill the commencement of the annual meeting.vacancy resulting from this increase.
All nominees have indicated that they are willing to serve as directors if elected. Properly executed proxies that do not contain voting instructions will be voted for the election of each of these nominees. If any nominee should become unable or unwilling to serve, the proxies will be voted for the election of sucha person asdesignated by the board of directors may designate to replace suchthe nominee. Under our bylaws no person less than 18 years of age is eligible to be elected as a director if he or she is less than 18 years of age.director.
The board of directors unanimously recommends that you vote “FOR” the election of each of the nominees for director named below.on the following pages.
Stephen E. Macadam
Chief Executive Officer and President
Age 5455
Director since 2008
Experience:
Mr. Macadam has served as our Chief Executive Officer and President since April 2008. Prior to accepting these positions with EnPro, Mr. Macadam served asPreviously, he was Chief Executive Officer of BlueLinx Holdings Inc. since October 2005. Before joining BlueLinx Holdings Inc.,in October 2005, Mr. Macadam washad been the President and Chief Executive Officer of Consolidated Container Company LLC since August 2001.
He served previously with Georgia-Pacific Corp. where he held the position ofwas Executive Vice President, Pulp & Paperboard from July 2000 until August 2001, and the position of Senior Vice President, Containerboard & Packaging from March 1998 until July 2000. Mr. Macadam held positions of increasing responsibility with McKinsey and Company, Inc. from 1988 until 1998, culminating in the role of principal in charge of McKinsey’s Charlotte, North Carolina operation. Mr. Macadam
He received a B.S. in mechanical engineering from the University of Kentucky, an M.S. in finance from Boston College and an M.B.A. from Harvard University, where he was a Baker Scholar.
Mr. Macadam’s employment agreement provides that during the term of his employment with EnPro he will be included in the slate of nominees nominated by the board of directors for election as a member of the board.
Qualifications:
As the company’s Chief Executive Officer
Thomas M. Botts
Age 6061
Director since 2012
Experience:
Mr. Botts retired from Royal Dutch Shell on December 31, 2012. In his last role at Shell, Mr. Botts was2012 as executive vice president, global manufacturing, Shell Downstream Inc., He was responsible for Shell’s global manufacturing business, which includedincluding all of Shell’s refineries and chemical complexes around the world. Mr. Bottscomplexes.
He joined Shell in 1977 as a production engineer and served in a number of corporate and operating roles in his career including executive vice president for exploration and production (E&P) in Europe, leading Shell’s largest E&P unit. He held those responsibilities from 2003 to 2009.
He has been a member of the board of directors of the National Association of Manufacturers, and a member of the American Petroleum Institute Downstream Committee, and a member of the council of overseers for the Jones Graduate School of Business at Rice University.
He currently is a non-Executive Director for John Wood Group PLC, an international energy services company based in the United Kingdom, a member of the board of directors of the University of Wyoming Foundation, Chairman of the Governor’s Tier 1 Task Force at the University of Wyoming, a member of the Energy Resources Council, University of Wyoming, and a member of the Society of Petroleum Engineers.
Mr. Botts received a B.S. in Civil Engineering from the University of Wyoming.
Current public company directorships:
Qualifications:
Mr. Botts brings to our board thirty-five
Felix M. Brueck
Age 5960
Director since 2014
Experience:
Mr. Brueck is a Director Emeritus of McKinsey & Company, Inc., a global consulting firm, followingfirm. He was a Director at McKinsey prior to his retirement in 2012 as a Director of McKinsey.2012. During his almost 30-year career with McKinsey, Mr. Brueck specialized in counseling clients in operational and organizational transformations of entire companies, major functions or business units in technologically complex industries. He was based in offices in Munich, Tokyo and Cleveland.
While at McKinsey, Mr. Brueck led the Firm’s Manufacturing Practice in the Americas and its Organizational Effectiveness Practice in the Americas. He was a founder of McKinsey’s Performance Transformation Practice.
Prior to joining McKinsey, Mr. Brueck worked as an engineer for Robert Bosch GmbH.
Mr. Brueck received a Dipl. Ing. (the equivalent of a Master’s Degree in Mechanical Engineering) from RWTH Aachen University in Germany and a Master’s Degree in International Management from Thunderbird School of Global Management.
Qualifications:
Mr. Brueck’s experience as a consultant with McKinsey for almost
B. Bernard Burns, Jr.
Age 6667
Director since 2011
Since 2001, Experience:
Mr. Burns’ career has focused on corporate law, industrial manufacturing, mergers and acquisitions, and service on the boards of companies engaged in a variety of businesses.
Mr. Burns has servedcurrently serves as a managing directorthe Managing Director of the McGuireWoods Capital Group, a merger and acquisition advisory group.business, which he co-founded in 2001. He also is ofalso counsel to the law firm of McGuireWoods LLP, and was a partner of that firm from 2001 to 2011.2011, and of a predecessor firm from 1979 to 1989. Prior to 2001, Mr. Burns served in various executive capacities with United Dominion Industries Limited, a diversified industrial manufacturer, from 1989 until that firmmanufacturer. At United Dominion, he was acquired in 2001, including as Senior Vice President and General Counsel from 1993 to 1996, Executive Vice President and Chief Administrative Officer in 2000 and as president of variousseveral of its operating segments and divisions from 1996 to 1999 and from 2000 to 2001. He is a director of several privately held companies.
Mr. Burns earned a B.A. from Furman University and a J.D. from the Duke University School of Law and completed the Advanced Management Program at Duke University’s Fuqua School of Business.
Qualifications:
Mr. Burns’
Diane C. Creel
Age 6667
Director since 2009
Prior to her retirement in September 2008, Experience:
Ms. Creel served from May 2003 as Chairman, Chief Executive Officer and President of Ecovation, Inc., a waste-to-energy systems company. Prior tocompany, from May 2003 until her retirement in September 2008. Before joining Ecovation, Ms. Creel served aswas Chief Executive Officer and President of Earth Tech, Inc., an international consulting engineering firm, a position she held from January 1991 to May 2003. She previouslyjoined Earth Tech as Vice President in 1984 and served there as Chief Operating Officer of Earth Tech from 1987 to 1993 and Vice President from 1984 to 1987. 1991.
Ms. Creel was director of business development and communications for CH2M Hill from 1978 to 1984, manager of communications for Caudill Rowlett Scott from 1976 to 1978, and director of public relations for LBC&W, Architects-Engineers-Planners from 1971 to 1976.
Ms. Creel has a B.A. and M.A. from the University of South Carolina.
Current public company directorships:
Public company directorships in the last five years:
Qualifications:
Ms. Creel’s extensive
Gordon D. Harnett
Age 7273
Director since 2002
Experience:
Mr. Harnett has served asbeen the Non-executive Chairman of the Board of EnPro since 2010. He retired aswas Chairman and Chief Executive Officer of Materion Corporation (formerly known as Brush Engineered Materials Inc.), a provider of metal-related products and engineered material systems, prior to his retirement in May 2006. Prior to joiningHe joined Materion Corporation in 1991 Mr. Harnettfrom B.F. Goodrich Company, where he served from 1988 to 1991 as a Senior Vice President of B.F. Goodrich Company, and fromPresident. From 1977 to 1988, he held a series of senior executive positions with Tremco Inc., a wholly ownedwholly-owned subsidiary of Goodrich, including President and Chief Executive Officer from 1982 to 1988.
Mr. Harnett received a B.S. from Miami University and an M.B.A. from Harvard University.
Current public company directorships:
Public company directorships in the last five years:
Qualifications:
Mr. Harnett brings to our board of directors a deep
David L. Hauser
Age 6364
Director since 2007
From August 2010 until March 2011, Experience:
Mr. Hauser served as a consultant towas affiliated with FairPoint Communications, Inc., a communications services company. Fromcompany, from July 2009 to August 2010, Mr. Hauser serveduntil March 2011. He joined FairPoint as Chairman of the Board and Chief Executive Officer of FairPoint Communications, Inc.and served as a consultant to the company from August 2010 until March 2011. In October 2009, FairPoint Communications and all of its direct and indirect subsidiaries filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code in the United States Bankruptcy Court for the Southern District of New York. In evaluatingThe Nominating and Corporate Governance Committee has evaluated this event with respect to theMr. Hauser’s nomination of Mr. Hauser for reelection to the board of directors, the Nominating and Corporate Governance Committee considereddirectors. Considering the well-publicized challenges facing FairPoint Communications at the time Mr. Hauser accepted his position as Chairman ofjoined the Board and Chief Executive Officer,company, his awareness of those challenges and his commitment to FairPoint Communications in the face of those challenges. The Nominating and Corporate Governance Committeechallenges, the committee and the full board support thehis nomination of Mr. Hauser for re-election to the board in 2015.2016.
Prior to joining FairPoint, Communications, Mr. Hauser had a 35-year career with Duke Energy Corporation, one of the largest electric power companies in the United States. Mr. Hauser served asHe was Group Executive and Chief Financial Officer of Duke Energy Corporation from April 2006 until June 30, 2009, and aswas Chief Financial Officer and Group Vice President from February 2004 to April 2006. He was named acting Chief Financial Officer fromin November 2003 to February 2004 and2003. He was Senior Vice President and Treasurer from June 1998 to November 2003. During his first 20 years with Duke Energy, Corporation, Mr. Hauser served in various accounting positions, including controller.
Mr. Hauser is a member of the board of trustees of Furman University and a member of the board of trustees of the University of North Carolina at Charlotte. Mr. HauserCharlotte and a past member of the board of trustees of Furman University. He has retired as a member of the North Carolina Association of Certified Public Accountants.
Mr. Hauser received a B.A. from Furman University and an M.B.A. from the University of North Carolina at Charlotte.
PublicCurrent public company directorships in the last five years:directorships:
Qualifications:
Along with his
John Humphrey
Age 50
Director since 2015
Experience
Mr. Hauser,John Humphrey has served, since 2011, as the formerExecutive Vice President and Chief Financial Officer of Roper Technologies, Inc., a majorFortune 1000 company that designs and develops software and engineered products and solutions for healthcare, transportation, food, energy, water, education and other niche markets worldwide. From 2006 to 2011, he served as Vice President and Chief Financial Officer of Roper. Prior to joining Roper, Mr. Humphrey served as Vice President and Chief Financial Officer of Honeywell Aerospace, the aviation segment of Honeywell International Inc., after serving in several financial positions with Honeywell International and its predecessor AlliedSignal. Mr. Humphrey’s earlier career included 6 years with Detroit Diesel Corporation, a manufacturer of heavy-duty engines, in a variety of engineering and manufacturing management positions.
Mr. Humphrey received a B.S. in Industrial Engineering from Purdue University and an M.B.A. in Finance from the University of Michigan.
Qualifications:
Kees van der Graaf
Age 6465
Director since 2012
Since October 2014, Experience
Mr. van der Graaf has served as founder,is owner and chairman of FSHD Unlimited, a biotechnology company. Between 2008 and 2011,company he founded in October 2014. Mr. van der Graaf served aswas an Executive-in-Residence withat IMD International, an international business school based in Lausanne, Switzerland. InSwitzerland between 2008 and 2011 he also served asand was Co-director of the IMD Global Center. Center in 2011.
Prior to joining IMD, Mr. van der Graaf enjoyed a 32-year career with Unilever NV and Unilever PLC which operate the Unilever Group, a multinational supplier of fast-moving consumer goods. At Unilever, Mr. van der Graaf served as President of Ice Cream and Frozen Foods — Europe—Europe from 2001 to 2004 and as a member of the Board and Executive Committee of Unilever NV and Unilever PLC from 2004 to 2008 with responsibilities during2008. During that period, he had responsibilities for the Global Foods division and later for the European Business group.
Until February 2015, Mr. van der Graaf served as a member of the board of directors of Ben & Jerry’s, a wholly ownedwholly-owned subsidiary of Unilever, which is charged with preserving and expanding Ben & Jerry’s social mission, brand integrity and product quality.
He is also a member of the supervisory boards of several privately held European-based companies and recently concluded his serviceserved as chairman of the supervisory board of the University of Twente in The Netherlands.
Mr. van der Graaf received a degree in mechanical engineering and an M.B.A. from the University of Twente.
Current public company directorships:
Public company directorships in the last five years:
Qualifications:
Mr. van der Graaf brings to our board of directors extensive
The primary responsibility of our board of directors is to oversee and direct management in its conduct of our business. Members of the board are kept informed ofabout our business through discussions with the Chairman and theour officers, by reviewing materials provided to them, and by participating in meetings of the board and its committees.committee meetings. In addition, the non-management directors meet periodically in executive session without members of management present. These sessions are presided over by the Chairman of the Board of Directors, Mr. Harnett.
Since the inception of our company, we have maintained separateWe believe that the positions of Chairman of the Board of Directors and Chief Executive Officer should be held by separate individuals, and they have been since the inception of our company. The role of Chairman is a non-executivenon-
executive position filled by Mr. Harnett, an
independent director, anddirector. Mr. Macadam, our Chief Executive Officer and the principal executive officer of our company, is the only member of our board who is employed by the company. We believe that thisThis structure continues to be appropriate for our company given the individuals serving in those positions, particularly our current Chairman.Mr. Harnett. He is a former chief executive officer of a publicly held diversified industrial manufacturer and the lead independent director of another public company. This experience and his knowledge of and familiarity with our company and its businesses through his service on our board of directors from our inception as a public company in 2002 give him a unique ability to serve as a sounding board for our Chief Executive Officer.
Our board of directors has four committees:
To maximize the efficiency of our board, efficiency, all of our independent directors serve on each committee other than the Executive Committee. For a list of our independent directors, see “Corporate Governance Policies and Practices — Director Independence.”
Each board committee operates in accordance withunder a written charter thatapproved by the board has approved. You may obtain copiesboard. Copies of these charters are available on our website atwww.enproindustries.comwww.enproindustries.com.by clickingClick on “Investor”“For Investors” and then “Corporate Governance” and lookingthen “Committees” and look under “Committee Charters.” Copies of the charters are also available in print to any shareholder who requests them.
Executive Committee. The current members of the Executive Committee arecommittee is chaired by Mr. Macadam (Chairman), Mr. Browning and includes Mr. Harnett. The Executive CommitteeIt did not meet in 2014. The2015. Its primary function of this committee is to exercise the powers of the board as and when directed by the board or when the board is not in session, except thoseexcluding powers which under North Carolina corporate law, may not be delegated to a committee of directors.directors under North Carolina law.
Audit and Risk Management Committee. The Audit and Risk Management Committee or Audit Committee, met four times in 2014. It assists the board in monitoring the integrity of our financial statements, our compliance with legal and regulatory requirements, our management of areas of significant risk areas (including insurance, pension, asbestos, cybersecurity, environmental and litigation) and the qualifications, independence and performance of our internal auditors and independent registered public accounting firm. This
committee has the sole authority to appoint or replace our independent registered public accounting firm and to approve all related fees. It met four times in 2015. Mr. Hauser is the current committee chairman.
Compensation and Human Resources Committee. The Compensation and Human Resources Committee or Compensation Committee, met four times in 2014. Mr. Botts is the current committee chairman. The primary function of the Compensation Committee is to assistassists the board and management in exercising oversight concerningoverseeing the appropriateness and cost of our compensation and benefit programs, particularly for executives. The Compensation Committeecommittee sets the salaries and annual bonus and long-term award opportunities for our senior executives, assesses the performance of our CEO,Chief Executive Officer, and oversees succession planning programs. The committee has delegated responsibilityplanning. Responsibility for the design, administration, asset management and funding policies of our qualified and non-qualified benefit plans is delegated to a benefits committee consisting of members of management. However, the Compensation Committee has expressly retained the authority to approve amendments to benefit plan amendments (other than amendmentsplans (except those resulting from collective bargaining agreements) that would materially affect the cost, basic nature or financing of these plans. In addition, the Compensation Committeecommittee approves all formal policies established by the benefits committee and reviews the benefits committee’s activities at least once pera year. The committee met five times in 2015. Mr. Botts currently chairs this committee.is the chairman.
Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee met five times in 2014. The primary function of this committee is to assistassists the board and management in exercising sound corporate governance. This committee identifies and nominates individuals who are qualified to become members of the board, assesses the effectiveness of the board and its committees, and recommends board committee assignments. It also reviews various corporate governance issues, including those items discussed below under “Corporate Governance Policies and Practices.” The committee met four times in 2015. Mr. Harnett currently chairs this committee.is the chairman.
As discusseddescribed above, the Audit and Risk Management Committee assists the board in monitoring our compliance with legal and regulatory requirements and the managementway we manage areas of significant risk areas (including insurance, pension, asbestos, environmental, litigation and all incentive compensation plans, including for non-executive personnel).risk. The company’s internal audit group periodically performs an enterprise risk analysis of theanalyzes risks to our company and reports the results of its
analysis to the
Audit and Risk Management Committee. The head of the internal audit group reports directly to the Audit and Risk Management Committee and customarily attends meetings of that committee. In addition, the company’sOur General Counsel also customarily attends meetings of the Audit and Risk Management Committee. All of our independent directors currently serve on the Audit and Risk Management Committee.committee’s meetings.
The board met eightsix times in 2014.2015. All directors attended at least 75% of the total number of meetings of the full board and of the board committees on which they serve.
It is ourAll directors are encouraged by policy to encourage all directors to attend theour annual meeting of shareholders. Allshareholders and all of our directors who were then in office attended our 20142015 annual meeting.
Corporate governance policies and practices
Our board of directors and management firmly embrace good and accountable corporate governance andgovernance. We believe that an attentive high performing board operating under the highest standards of corporate governance is a tangible competitive advantage. To that end, theOur board has undertaken substantial efforts to ensure the highest standards of corporate governance.meet those standards.
Corporate Governance Guidelines and Code of Business Conduct
The board regularly reviews our Corporate Governance Guidelines, taking into account recent trends in corporate governance and any new rules adopted by the New York Stock Exchange (NYSE)NYSE and the SEC. Among other things, these guidelines specify that:
Our Corporate Governance Guidelines also:
Our Corporate Governance Guidelines include a provision that prohibits
We also have aOur Code of Business Conduct.Conduct (the “Code”) applies to our directors and all EnPro employees, including our
principal executive, financial and accounting officers. The Code covers among other things, conflicts of interest, corporate opportunities, confidentiality, protection and proper use of company assets, fair dealing, compliance with laws (including insider trading laws), the accuracy and reliability of our books and records, and the reporting of illegal or unethical behavior. It applies to our
The Code requires all transactions by directors and all of ouror employees including our principal executive, financial and accounting officers. Pursuant to the Code, allthat would create a conflict of interest, transactions, including related party transactions we would be required to disclosethat require disclosure in our proxy statement, mustto be presented toreviewed by a member of our internal Corporate Compliance Committee or an attorney in our legal department, who are authorized bydepartment. The Code also requires the Codetransaction to present such transactionsbe presented to our Chief Executive Officer and the Audit and Risk Management Committee. The Code does not otherwise establishinclude specific procedures and policies for the approval or ratification of conflict of interestdealing with these transactions, and we would develop such procedures on abut allows them to be dealt with case-by-case basis as the need arises. Each year, we ask allthey arise. All members of the board and all officers tomust annually certify their compliance with the Code. Each member of the board and each officer certified compliance without exception in the first quarter of 2015.
Copies of our Corporate Governance Guidelines and Code of Business Conduct are available on our website atwww.enproindustries.com. From our home page, click on the “Investor”“For Investors” tab, and then on “Corporate Governance.Governance” and then of “Code of Conduct.”
As described in our Corporate Governance Guidelines, theThe EnPro board believes that a substantial majority of the boarddirectors should consist of independent directors.be independent. At its February 20152016 meeting, the board of directors made a determination as toconsidered the independence of each nomineeperson nominated for election as a director at the 2016 annual meeting. In making these determinations,meeting and determined that Mr. Botts, Mr. Brueck, Mr. Burns, Ms. Creel, Mr. Harnett, Mr. Hauser, Mr. Humphrey and Mr. van der Graaf are independent. Mr. Macadam, the remaining member of our board, is an employee and is not considered independent.
To determine independence, the board used the definition of an “independent director” in the NYSE listing standards and the categorical standards set forth in our Corporate Governance Guidelines. Under these guidelines,Guidelines, which categorize a director will beas independent only if the board affirmatively determines thataffirms the director has no outside material relationship with our company (either directly or as a director, partner, shareholder or officer of an organization that has a relationship with us).
Under our Corporate Governance Guidelines, a director will not fail tomay be deemed independent solely aseven though we have a result of a relationship we have with an organization with which the director is affiliated as a director, partner, shareholder or officer,officer. In such situations, the director is deemed independent so long as:
In addition, underUnder the guidelines, the board cannot conclude that a director iscannot be independent if he or she falls into one of the following categories:
from us during any 12 month period within the past three years; director and committee fees and pension or other forms of deferred compensation for prior service |
To assist in the board’s independence determinations, eachEach director nominated for election at the 20152016 annual meeting completed a questionnaire that included questions to identify any relationships the director may have with us or with any of our executive officers or other directors. After discussing all relationships disclosed in the responses to these questionnaires, the board determined that no director except Mr. Botts, Mr. Brueck, Mr. Burns, Ms. Creel, Mr. Harnett, Mr. Hauser and Mr. van der Graaf are independent because noneMacadam has a material relationship with the company other than as a director. As our Chief Executive Officerdirector and President, Mr. Macadam is automatically disqualified from being an independent director.all except him are independent.
Board, committee and committee self-evaluationsdirector evaluations
The board of directors and each of the Audit and Risk Management, Committee, the Compensation and Human Resources, Committee and the Nominating and Corporate Governance Committee conduct self-evaluations annually tocommittees each assess their performance.performances with yearly self-evaluations. The board and committee evaluation process involves the distributionevaluations are completed by means of a self-assessment questionnaire submitted to all board and committee members that invitesthe directors inviting written
comments on all aspects of the boardboard’s and each committee’s process. In addition, the evaluations include
an individual director assessment component to permit each director to evaluate the contributions of each of the other directors. The evaluations are then summarized, reviewed by the Chairman of the Board and serve asbecome the basis for a discussiondiscussions of board, committee and committee performancedirector performances and any recommended improvements. Going forward,recommendations for improvements in the ways the board ofand committees function and directors has determined that the self-assessment process will include an assessment of the performance of each director.perform their duties.
“Audit committee financial expert”expert
The board of directors has determined that Mr. Hauser, the chairman of the Audit and Risk Management Committee, is an “audit committee financial expert” as that term is defined in Item 401(h) of the SEC’s Regulation S-K. At its February 20152016 meeting, the board determined that Mr. Hauser, through his education and experience as a certified public accountant and his prior experience as the Chief Financial Officer of Duke Energy Corporation, has all of the following attributes:
Director candidate qualifications
When considering candidates for director, the Nominating and Corporate Governance Committee takes into account a number of factors, including whether the candidate is independent from management and the company, whether the candidate has relevant business experience, the composition of the existing board, matters of diversity (including diversity in professional experience and industry background), and the candidate’s existing commitments to other businesses. In addition, all candidates must meet the requirements set forth inof our Corporate Governance Guidelines. Those requirements include the following:include:
|
The Nominating and Corporate Governance Committee will consider recommendingcandidates for nomination director candidateswho are recommended by shareholders. Shareholders who wish to suggest that the board nominate a particular candidate for nomination should send a written statement addressed to our Secretary at 5605 Carnegie Boulevard, Suite 500, Charlotte, North Carolina 28209 in accordance with the timeline and procedures set forth in our bylaws for shareholders to nominate directors themselves.28209. See “Shareholder Proposals” on page 61 for a description of the requirements to be followed under our bylaws in submitting a candidate and the content of the required statements.
In evaluatingThe Nominating and Corporate Governance Committee annually reviews a matrix, similar to the compositionmatrix appearing on page 3, which compares the skills of the board ofour current directors in connection with recommending candidates for electionall skills we have identified as directors,necessary to maintain an attentive, high functioning board. When the Nominating and Governance Committee annually reviews aidentifies desirable skills matrix, comparing the skills of the current directors with all desired skills identified in the matrix. To the extent that the Nominating and Governance Committee has identified any desired skills not provided byare lacking among incumbent directors, that it would
recommend for re-election, the Nominating Committee has engaged in a searchsearches to identify a candidate or candidates who would add the missing skills. When seeking candidates for director, the Nominating and Corporate Governance Committee solicitsThe search includes soliciting suggestions from incumbent directors,
management or others and evaluatesevaluating suggestions submitted by shareholders. The Nominating and Corporate Governance Committee may
also engage the services of a third party to identify and evaluate candidates.candidates and did so in 2015 in connection with the search that resulted in the addition of Mr. Humphrey to the board.
After conducting an initial evaluationThe Committee evaluates the candidates and if it agrees on the suitability of a candidate, if the committee believes the candidate might be a suitable director,is interviewed by each member of the Nominating and Corporate Governance Committee and each other director not then serving on the Nominating and Corporate Governance Committeeboard of directors, generally separately interviews the candidate.in separate meetings. The Nominating and Corporate Governance Committee may also ask the candidate to meet with management.
If the Nominating and Corporate Governance Committee concludes that a candidate has skills which would be a valuable additionadd value to the board and thatif the candidate meets all of the requirements for board membership, itthe Committee will recommend the candidate to the full board that the candidate be nominatedfor nomination for election (or appointed, ifor appointment (if the purpose of the committee’s search was to fill a vacancy).
Before recommending a sitting director for re-election, the Nominating and Corporate Governance Committee considers whether the director’s re-election would be consistent with the criteria for board membership in our Corporate Governance Guidelines (as described above), the skills identified in the skills matrix used by the committeeCommittee (as described above) and applicable rules and requirements of the SEC and NYSE. This process includes a review on behalf ofby the Nominating and Corporate Governance Committee of the responses to the annual director questionnaires.
SinceIn the case of Mr. Harnett, who is 72 years ofover age pursuant to our Corporate Governance Guidelines described above, he may not be nominated for election as a director unless72, the Nominating and Corporate Governance Committee and our board of directors byhas determined his continued service as a vote of a majority of directors (not including Mr. Harnett), specifically determine that, in light of all the circumstances, itdirector is in the best interests of our company and our shareholders, that he be nominated for re-election. The determination to
nominatein accordance with our Corporate Governance Guidelines. Mr. Harnett was nominated for re-election as a director was made by a unanimous votevotes of the Nominating and Corporate Governance Committee and our board of directors, other thandirectors. Mr. Harnett who recused himself from the vote in each instance.
In making this determination,nominating Mr. Harnett, the NominatingCommittee and Corporate Governance Committee andthe board of directors considered Mr. Harnett’sa number of factors. They included his tenure and leadership, the continuity of his positionpositions as Chairman of the board of directors and of the Nominating and Governance Committee, his background in finance, governance and management background,(including as the chief executive officer of a publicly held diversified industrial manufacturer), his understanding of the company and the history of the asbestos litigation of the company’s subsidiaries, as the company progresses in the ACRP, as well asand recent changes in the composition of the board of directors.
Since December 2011, threefour directors have retired from service and a fourth (Mr. Browning) will retire at the 2015 annual meeting. Fourfive new directors have joined the board during that period. The board believes that, givenboard. Given these circumstances, the board concluded Mr. Harnett’s continued service maintains a desirable level of continuity on the board of directors and is in the best interest of the company and its shareholders.
Our directors share certain characteristics and attributes that we believe are critical to effective board membership, includingmembership. They include sound and mature business judgment essential to intelligent decision-making, experience at thein policy-making, level at a business, integrity and honesty, and the ability to collaborate in an effective manner at a board level.effectively. These characteristics, and attributes and the specific employment and leadership experiences and other qualifications listed for each of our directorsnoted in his or her biographythe biographies found above underin the captionsection headed “Nominees for Election” led tosupport the conclusion thatboard’s nomination for election of each of these individuals should be nominated for election.individuals.
Shareholders and other interested parties can send communications tocommunicate with our board in various ways. They may write the board at 5605 Carnegie Boulevard, Suite 500, Charlotte, NC 28209; they may contact the board anonymously and confidentially through our EnTegrity Assistance Line; and they may attend our annual shareholders meeting, where they will have the opportunity to talk directly to members of our board.
Letters to the board should be addressed in care of our Secretary, who the board has authorized to receive and process written correspondence. He will direct correspondence about issues within the board’s scope of responsibility directly to the Chairman and to the chairman of any committee to which the correspondence relates. Customer complaints and other correspondence about ordinary business matters are sent directly to the applicable business. Correspondence of other types is not forwarded to the board but held by means of the Secretary and made available to any director who wishes to see it.
Shareholders and other interested parties who wish to send anonymous and confidential correspondence to the board may do so through our EnTegrity Assistance Line. You can find instructionsThe line is staffed by an independent third party who is responsible for receiving and forwarding messages on the line. Instructions for using the EnTegrity Assistance Lineline are available under the “Corporate Governance” link accessed from the “For Investors” link on our website atwww.enproindustries.com.An independent third party staffs the line. We have instructed this third party that any reportItems addressed to the board of directors beare forwarded to the Chairman of the Audit and Risk Management Committee, a non-management director. ReportsItems not addressed specifically to the board of directors are forwarded to our Director of Internal Audit, who reports directly to the Audit and Risk Management Committee and is a member of our internal Corporate Compliance Committee. The Director of Internal Audit periodically updates the Audit and Risk Management Committee regardingabout the investigation and resolution of all reports of alleged misconduct (financial or otherwise).
Shareholdersalleging financial and other interested parties also may send written correspondence to the board in caretypes of our Secretary, addressed to 5605 Carnegie Boulevard,
Suite 500, Charlotte, North Carolina 28209. The board has established procedures for the handling of communications from shareholders and other interested parties and directed our Secretary to act as the board’s agent in processing these communications. All communications regarding matters that are within the scope of the board’s responsibilities are forwarded to the board Chairman, a non-management director. Communications regarding matters that are the responsibility of one of the board’s committees are also forwarded to the chairman of that committee. Communications that relate to ordinary business matters, such as customer complaints, are sent to the appropriate business. Solicitations, junk mail and obviously frivolous or inappropriate communications are not forwarded, but the Secretary will make them available to any director who wishes to review them.
In addition, security holders and other interested parties who attend our annual shareholders’ meeting will have an opportunity to communicate directly with the board.misconduct.
Directors who are also employees receive no compensation for serving on our board. Our non-employee directors receive the following compensation:
PhantomAdditional cash compensation is paid to:
In addition, each director may be granted phantom shares upon his or her initial election to the board. The amount of such an award is determined by the Nominating and Corporate Governance Committee and has generally been based on the number of board meetings remaining to be held in the year that the director is elected.
Employee directors receive no compensation for serving on our board.
Non-employee directors are generally granted to non-employee directorsphantom shares at the first board meeting each year. Phantom shares are fully vested when awarded and are paid in shares of common stock when a director ceases his or her service on the board.
The board has adopted stock ownership requirements pursuantBoard members are required to which aown the company’s stock. Each director has until five years afterfrom the date he or she joins the individual becomes a directorboard to accumulate ownership ofEnPro shares having aequal in value equal to at least five times the annual cash retainer paid to directors. Phantom
shares count toward the threshold established under our stock ownership requirements. If a director fails to maintain the required level of ownership, the director is required to retain 50% of any shares received under any company equity award plan until he or she satisfies the requirements.this
requirement. We examine compliance with this policy at our board of directors meeting held in February of each year.February. As of February 18, 2015, the date of our February 2015 Compensation and Human Resources Committee meeting,23, 2016, all directors who have served on the board for at least five years complied with the requirements.
Non-employee directors may participate in ourA Deferred Compensation Plan for Non-Employee Directors. Under this plan,allows non-employee directors mayto defer receipt of all or part of the cash portion of their annual retainer fee. Participants choose between two investment alternatives,fees. The deferred portions of the fees can be directed to a cash account andor a stock account. Deferred fees inFees deferred into a director’s cash account are credited with an investmenta return based on an investment option chosen by the director’s selectiondirector from the same menu of investment optionsthose available under our Retirement Savings Plan for Salaried Employees (excluding our common stock). Deferred fees inFees deferred into a director’s stock account are credited with stock units, that each have aequal in value on a given date equal to the fair market value of one share of our common stock on thata given date. All amounts deferred are payable when a director ceases his or her service on the board. TheAs of December 31, 2015, the following non-employee directors have the followinghad deferred compensation balances under the plan as of December 31, 2014:plan: Mr. Botts, 1,716 stock units; Mr. Browning, 7,5992,627 stock units; Mr. Brueck, 1,0172,557 stock units; Mr. Harnett, $210,239$204,703 and 6,4836,583 stock units; and Mr. Hauser, $406,320$451,039 and 6,5757,591 stock units.
The following table presents the compensation we paid to all non-employee directors for their service in 20142015 including a non-employee director who retired from service during 2014.2015.
20142015 Non-Employee Director Compensation
Name (a) | Fees Earned or Paidin Cash ($)(1) (b) | Stock Awards ($)(2) (c) | Total ($) (h) | Fees Earned or Paid in Cash ($)(1) (b) | Stock Awards ($)(2) (c) | Total ($) (h) | ||||||||||||||||||
Thomas M. Botts | 83,044 | 90,000 | 173,044 | 87,000 | 90,033 | 177,033 | ||||||||||||||||||
Peter C. Browning | 78,956 | 90,000 | 168,956 | |||||||||||||||||||||
Felix M. Brueck | 67,500 | 90,000 | 157,500 | 75,000 | 90,033 | 165,033 | ||||||||||||||||||
B. Bernard Burns, Jr. | 75,000 | 90,000 | 165,000 | 75,000 | 90,033 | 165,033 | ||||||||||||||||||
Diane C. Creel | 75,000 | 90,000 | 165,000 | 75,000 | 90,033 | 165,033 | ||||||||||||||||||
Gordon D. Harnett | 122,500 | 90,000 | 212,500 | 122,500 | 90,033 | 212,533 | ||||||||||||||||||
David L. Hauser | 90,000 | 90,000 | 180,000 | 90,000 | 90,033 | 180,033 | ||||||||||||||||||
John Humphrey | 10,625 | — | 10,625 | |||||||||||||||||||||
Kees van der Graaf | 75,000 | 90,000 | 165,000 | 75,000 | 90,033 | 165,033 | ||||||||||||||||||
Former Director | ||||||||||||||||||||||||
Wilbur J. Prezzano, Jr.(3) | 24,931 | 30,011 | 54,942 | |||||||||||||||||||||
Peter C. Browning | 24,725 | 29,366 | 54,091 | |||||||||||||||||||||
| (1) | Messrs. Botts, Brueck and Hauser, |
| (2) | On February |
Director | Number of Phantom Shares | |||
Thomas M. Botts | ||||
| ||||
Felix M. Brueck | ||||
B. Bernard Burns, Jr. | ||||
Diane C. Creel | ||||
Gordon D. Harnett | ||||
David L. Hauser | ||||
John Humphrey | — | |||
Kees van der Graaf | ||||
The Audit Committee oversees the quality and integrity of our financial reporting processes and our systems of internal accounting controls. Management is responsible for preparingprepares our financial statements and for establishingestablishes and maintainingmaintains adequate internal control over financial reporting. The independent registered public accounting firm is responsible for performingperforms an independent integrated audit of those financial statements and the effectiveness of our internal control over financial reporting.
The Audit Committee has met and held discussionsdiscussed with management and PricewaterhouseCoopers LLP, (PricewaterhouseCoopers), our independent registered public accounting firm, for 2014, regarding our audited 20142015 consolidated financial statements and our internal control over financial reporting. Management represented toIn meeting with the Audit Committee, management informed the committee that our consolidated financial statements were prepared in accordance with generally accepted accounting principles and that our internal control over financial reporting was effective as of December 31, 2014.2015. The Audit Committee has reviewed and discussed the consolidated financial statements and our system of internal control over financial reporting with management and PricewaterhouseCoopers.
The Audit Committee also has discussed with PricewaterhouseCoopers the matters required to be discussed by Auditing Standard No.16,Communications
with Audit Committees, as adopted by the Public Company Accounting Oversight Board. In addition, the Audit Committee has Committee:
| • | discussed with PricewaterhouseCoopers Auditing Standard No.16,Communications with AuditCommittees, as adopted by the Public Company Accounting Oversight Board, |
The Audit Committee has furtheralso discussed with our internal auditors and PricewaterhouseCoopers the overall scope and plans for their respective 20142015 audits. TheWith and without the presence of management, the Audit Committee met with the internal auditors and PricewaterhouseCoopers with and without management present, to discuss the results of their examinations, the evaluations of our internal control over financial reporting, and the overall quality of our financial reporting.
In reliance upon the Audit Committee’sRelying on its discussions with management and PricewaterhouseCoopers and the Audit Committee’sits review of themanagement’s representation of management and the report of PricewaterhouseCoopers to the Audit Committee,it, the Audit Committee recommended that the board of directors include our audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 20142015 to be filed with the SEC.
Audit and Risk Management Committee
Thomas M. Botts
Peter C. Browning
Felix M. Brueck
B. Bernard Burns, Jr.
Diane C. Creel
Gordon D. Harnett
David L. Hauser
John Humphrey
Kees van der Graaf
February 18, 201523, 2016
Compensation and Human Resources Committee report on executive compensation
The Compensation and Human Resources Committee is responsible for developingdevelops and overseeingoversees the implementation of our compensation philosophy and strategy. The committee assists the board of directors by exercising oversight concerningmonitoring the appropriateness and cost of our compensation and benefit programs, particularly for the CEO and the other senior executives.
The section entitled “Compensation Discussion and Analysis” explains the material elements of our
compensation program and provides an analysis of the material factors underlying the committee’s compensation policies and decisions. The committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based on its review and discussionsection with management, the committee hasand recommended to our board of directors that the Compensation Discussion and Analysisit be included in this proxy statement and in our annual report on Form 10-K for the year ended December 31, 2014.2015.
Compensation and Human Resources Committee
Thomas M. Botts
Peter C. Browning
Felix M. Brueck
B. Bernard Burns, Jr.
Diane C. Creel
Gordon D. Harnett
David L. Hauser
John Humphrey
Kees van der Graaf
February 18, 201523, 2016
Compensation discussion and analysis
This compensation discussion and analysis provides information about our 20142015 compensation program for the followingour named executive officers (collectively, “named executive officers” or “NEOs”) listed in the summary compensation table appearing in this proxy statement:NEOs. For 2015, those officers are:
We designThe objectives of our executive officer compensation programs are to attract, motivate and retain the key executives who will drive our success. Our objectives are to establish pay practices that reward themthese executives for superior performance and align their interests as managers of our company with the long-term interests of our shareholders.
We achieve our objectives through compensation that:
Our executive compensation program is designedties pay to tie pay tothe achievement of both annual and long-term performance.goals for the performance of our company. We have generally accomplished this by makingset these goals each year and tie both annual and three-year incentive awards with the amount to be paid under these awards based on our achievement of absolute performance goals established at the time these awards are made. Under these awards, poor performance leads toachieving them. We make little or no actual payment whilefor poor performance against our goals, but our executives can earn significant payment relative to their salary levels for superior performance leads to significant payments relative to salary levels.against them.
The following charts set forthshow the relative portion of theour CEO’s total 20142015 in-service compensation of our CEO and the
average in-service compensation of the four other NEOs
serving as executive officers at year end. Their in-serviceIn-service compensation consists of base salary, annual performance based cash compensation,and long-term incentive performance-based cash compensation, long-term incentive performance-based equity compensation, other long-term equity compensation in the form of restricted stock units (including special awards in 2014 of restricted stock units to recognize the efforts relating to the ACRP) and other in-service (i.e., non-retirement) compensation.compensation related to retirement benefits.
In addition to incentivizingestablishing incentives for superior performance, another primary objective of our executive compensation program is retention of ourenables us to retain talented and motivated executive officers and our desire to replace them with other high-caliber individuals should thatthe need arise. A competitive pay package is vitally important to retaining and attracting these objectives. Accordingly, it has been our practice toindividuals, and we establish salaries and benefits, including post-employment benefits, at competitive levels.
Our compensation program allows the Compensation and Human Resources Committee (which we refer to in this “Compensation Discussion and Analysis” section of the proxy statement as the “committee”“Committee”) and theour board of directors to determine payexecutive compensation based on a comprehensive view of factors designed to produce long-term business success. The long-term correlation between our financial results and the compensation awarded to executive officers demonstrates the success of this approach.
The following chart sets forth the total compensation, as reported in the summary compensation table in our annual proxy statements, paid to our CEO for each of the full years he has served as our CEO, as well as our earnings before interest, taxes, depreciation, amortization expense, asbestos expense and other selected items (or, adjusted EBITDA-A), a primary metric we use to evaluate our performance and one used in determining annual and long-term incentive compensation during this period.
A significant component of our CEO’s total compensation for 2014 was a special grant of restricted stock units awarded to executive officers and other key personnel in
recognition of their efforts related to the strategy, planning and management of the ACRP which resulted in the favorable estimation order issued by the bankruptcy court in January 2014 and operating GST LLC and the other EnPro businesses under the unique circumstances presented by the ACRP. The special grant was made in the form of restricted stock units to help ensure the retention of these individuals as the ACRP progresses. See “—Changes to compensation program in 2014.” For 2014, approximately 25% of our CEO’s reported total compensation was due to this special award.
(Annex A to this proxy statement sets forth the calculation of adjusted EBITDA-A, which is not a measure under U.S. generally accepted accounting principles. The financial results of GST LLC have not been included in our consolidated financial results since June 5, 2010, when GST filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code as the initial step in a process to resolve all current and future asbestos claims. However, because GST LLC continues to be our subsidiary, oversight of this business and its financial results continues to be a responsibility of our executive officers and the financial measures used under our incentive compensation plans include GST LLC’s results, the performance of this business since June 5, 2010 has been separately included in this chart.)
Despite uneven levels of activity inIn 2015, we continued to pursue our markets during the year, our growth in 2014 illustrates the value of our participation in diverse markets and geographies. Our performances supports our long termlong-term objectives for growth, objectives that will be further supported byachieved significant progressmilestones in GST LLC’sthe asbestos claims resolution process and a significant improvement(the “ACRP”) of our de-consolidated GST subsidiary pending in our capital structure.
In our Engineered Products reporting segment, results suffered due to a concentrated exposure to oil and gas, agriculture equipment and capital goods markets,
and a high percentage of revenues generated outside the U.S. Segment profit was 76% lower in 2015 compared to 2014. In response to market conditions, we initiated a number of restructuring actions resulting in the elimination of two plants through consolidation at our GGB division and the exit from nine other service and light manufacturing facilities at our CPI division, as well as downsizing CPI’s employment workforce. These setsactions have resulted in restructuring charges of approximately $3.8 million in 2015, and we expect an additional $2.7 million to $4.3 million in restructuring charges in 2016. Upon completion, we estimate that these actions will beresult in annualized cost savings of approximately $4 to 5 million. In addition, earlier in 2015 we booked a non-cash impairment charge of $47.0 million (before taxes) for goodwill and intangible assets associated with our CPI division due to the persistent weakness in the market for maintenance of reciprocating compressors used for emergency back-up power at 20in gas gathering, processing and transmission applications, particularly in Western Canada, and the expectation that market conditions in these areas would not rebound soon. This impairment charge is not reflected in segment profit.
| • | Acquisitions. In February 2015, we acquired ATDynamics, a company that designs, manufactures and sells a suite of aerodynamic products engineered to improve fuel efficiency and reduce carbon emissions in heavy duty trucks, including the patented and award-winning TrailerTail® that improves a tractor-trailer’s fuel efficiency by about 5% without hindering a trailer’s cargo capacity, loading or unloading. In July 2015 we purchased the Veyance North-American air spring business from Continental AG. The business produces and sells air springs that are used in the suspension systems of commercial vehicles. ATDynamics and the air springs business are now part of our Stemco division and their products complement Stemco’s heavy duty truck parts offerings. During 2015, we made good progress on integration activities for these acquisitions, as well as with Fabrico which we acquired in December 2014. We expect results over the next two years from these acquisitions to exceed original expectations. |
For two decades, FME has provided enginesthe first quarter, we took an additional step towards returning capital to U.S. Navy and nuclear power markets under licenses from MAN Diesel and Turbo and its affiliates. In 2014, FME expanded the relationshipour shareholders with an agreementauthorization by our board of directors of an $80 million share repurchase program. This repurchase program was completed in April buying back approximately 1.2 million common shares. In the fourth quarter, our board of directors authorized the repurchase of up to cooperate with MAN in the U.S. power generation
market for gas-fired and dual fuel engines, giving FME a competitive offering in an attractive market.
With its partner Achates Power, Inc., FME made significant progress in the design feasibility stage of its work towards improving the commercial viability of FME’s proprietary opposed-piston engine. FME and Achates are exploring ways to reduce emissions and improve fuel efficiency in an engine design that has proven reliable over many decades in critical standby and emergency power applications.
We routinely engage in a wide-ranging dialogueThrough the course of each year, we have dialogues with numerous shareholders, includedincluding regular conversations with many of our largest shareholders. We carefullycover a wide-range of topics in these discussions, including executive compensation. In our conversations with them, our shareholders generally support our pay practices and strategic direction. But based in part on the feedback we received from shareholders, as well as on our continuing efforts to consider and adopt best compensation governance practices as they evolve, the diverse views expressed by shareholders who provide us with feedback and made significant changes toCommittee changed certain aspects of our compensation program in 2013 following the input from our shareholders.for 2016. These changes includedare described in the following section, “Changes to compensation program in 2016.”
At our 2015 annual meeting, we asked our shareholders to support a non-binding resolution to approve the
redesigningcompensation paid to our long-term incentive compensation plan which measures and rewards performance based onnamed executive officers as reported in our proxy statement for that meeting. Of the equity value we create.
shares voted “for” or “against” that proposal, 72% of the shares were voted “for” approval of that resolution. The committeeCommittee typically establishes incentive compensation opportunities each February. Accordingly, the 2015 compensation program and incentive compensation
awards for 2014 were set in February 2014,2015, before the favorable shareholder advisory vote on compensation at the 20142015 annual meeting in May 2014. As a result,April 2015. While the
committee did not consider April 2015 shareholder vote occurred after the vote in structuringstructure for the 2015 compensation awards had been set by the Committee, the 2015 shareholder vote and other feedback from shareholders were considered by the Committee in developing changes to the compensation program for 2014.2016.
Changes to compensation program in 20142016
The 2014Committee changed the compensation program was substantially similar to the 2013 program, with one exception. In 2014 we awarded a special grant of restricted stock units to executive officers and other key personnel in recognition of their efforts related to the strategy, planning and management of the ACRP, which resulted in the order issued in January 2014 by the bankruptcy court estimating the liability for present and future mesothelioma claims against GST LLC at $125 million, consistent with the positions GST LLC put forth at trial, and operating GST LLC and the other EnPro businesses under the unique circumstances presented by the ACRP. The special grant was made in the form of restricted stock units to help ensure the retention of these individuals2016, as the ACRP progresses.follows:
| • | Redesigned our long-term incentive compensation awards. For 2016, we changed the design of our long-term incentive awards. We granted awards using different performance measures for awards that are payable in cash and awards payable in stock. Payments under awards payable in cash will be based on our adjusted return on invested capital over the three-year (2016-2018) performance period against threshold, target and maximum levels established when the awards were granted. In contrast to our use of adjusted return on invested capital under our annual incentive plans, for these awards this return on invested capital measure includes goodwill and other intangible assets to hold management accountable for the quality of acquisitions made. |
The restricted stock units awarded under the special grant were equal to twice the number of restricted stock units awarded in 2014shares to be issued under the committee’s historical practice. The committee’s historical practice splits target long-term compensation grants equally among incentive awards payable in cash, incentivestock will be based on our total shareholder return (or TSR) over the same three-year period relative to TSR of the S&P SmallCap 600 Capital Goods (Industry Group) Index over that period. EnPro is one of the companies included in this index. Payment at the threshold level of these awards payablewill occur if our TSR relative to the TSR of the index is at the 35th percentile, with target payments at the 50th percentile and maximum payments at the 75th percentile. The awards limit the payout to the target level in the event that absolute TSR is negative and require recipients to hold the net after-tax shares and restricted stock units. The special grant restricted stock units awarded in 2014 vest three years afterissued at the dateend of grant.the three-year performance period for an additional year.
For our long-termLong-term incentive compensation awards made in 2014,2015 were based on the committee continued thecompensation plan design first
employed in 2013 which2013. That plan compares the company’s calculated growth in equity value per share over the three-year performance period of the plan to a defined target return. The committee believes that this plan design holds management accountable for not only earnings growth, but also the quality of any investments. It aligns management’s interests with those of shareholders by rewarding performance that, over time, is correlated with share price appreciation.
| • | Reduced the maximum payout on long-term incentive compensation awards. The Committee set the maximum payout for long-term incentive compensation awards made in 2016 at 200% of the target level. The maximum payout for long-term incentive compensation awards granted in the prior three years was 300% of the target level. |
| • | Reduced the portion of long term compensation awarded as restricted stock units from 40% to 33 1/3%. For 2016, the Committee returned to its practice prior to 2015 and split target long-term compensation grants equally among awards of restricted stock units, incentive cash awards and incentive share awards. For long-term compensation awards made in 2015, the Committee’s grants were weighted more heavily toward restricted stock units: 40% of the 2015 grant was payable in restricted stock units, 30% in incentive awards payable in cash and 30% in incentive awards payable in shares. |
| • | Provided for “double triggers” for change-in-control vesting for new long-term incentive and equity awards. Our equity and long-term incentive compensation plans had required vesting of certain equity and long-term incentive awards upon a change in control of our company. In contemplation of awards to be made in 2016, and at the recommendation of the Committee, the board of directors amended these plans to permit the Committee the flexibility to require additional events following a change in control to trigger the vesting of new equity and long-term incentive awards. The long-term incentive compensation awards and restricted stock units awards granted to employees in February 2016 provide that, if the resulting entity in the change in control assumes the awards, the awards will vest early in connection with a change in control only if within two years after the change in control the employee is terminated without “cause” or the employee resigns for “good reason,” as such terms are defined in the awards. |
This plan design, which focuses on growth in equity value per fully diluted share, is in some ways similar to a total shareholder return measure; however, unlike a formula based solely on total shareholder return, payouts under the equity value plan are not subject to broader movements in the stock market, which are outside of management’s control. In adopting this standard for the long-term incentive plan, the committee was also mindful that interim developments in the ACRP may result in significant volatility in the company’s stock price. The timing of events in the ACRP could substantially distort long-term incentive compensation payable under a formula based solely on total shareholder return measured as of a specific date and create incentives not in the best long-term interests of the company and its shareholders.
| • | Increased the weighting of divisional performance for annual incentive awards to divisional personnel. For 2016, the Committee increased divisional performance measures to 75% of the weighting for annual incentive awards to divisional personnel. The remaining 25% is based on corporate-wide performance measures. In recent years, awards made to divisional personnel were equally weighted between measures applicable to divisional performance and corporate-wide performance measures. |
| • | Implementation of an individual tracking tool to improve line-of-sight of performance against incentive |
objectives. In 2016, we are implementing an on-line individual compensation tracking tool to permit employees to view their individual potential and projected incentive payments under our annual and long-term incentive compensation plans. This tool is supplemented with presentations to educate participants in these plans on how their actions affect performance and the compensation to be paid under these plans. |
All of our non-management directors sit on our Compensation and Human Resources Committee. The committee’s primary function as delegated to itthe Committee by our board involvesis overseeing the appropriateness and cost of our compensation programs, particularly the program for executive officers.
The role of the executive officers
In reviewing theThe compensation of theour CEO and the other executive officers is set by the committee is advised byCommittee based on the advice of its independent executive compensation consultant and our human resources staff. The committee requestsHowever, our CEO and considers proposals byother executive officers are involved in certain aspects of our compensation practices. At the request of the Committee, our CEO as to the appropriateproposes salary levels of salary and incentive award opportunities for all executive officers other than himself.himself, and the Committee considers his proposals in setting compensation for those officers. The committee establishes theCommittee itself sets our CEO’s compensation independently of that of the other executive officers, so that an increase inwithout regard to the compensation of other executive officers. In this way, any increase in compensation that our CEO proposes for those officers as proposed by the CEO, does not form the basis for a corresponding increase in the CEO’shis compensation.
To setThe performance measures and levels for our annual and long-term incentive plans are set by the Committee based on proposals made by our executive officers reviewofficers. The executives’ proposals are based on the forecasts for the performance of each of our operating units,divisions, key economic indicators affecting our businesses, historical performance of our businesses, recent trends in our industries, and our strategic plans. OurThe executive team proposespresents the Committee with the performance measures that it
believes to be most important and meaningful to the achievement ofachieving our strategic goals. The executive team also proposes whatthe weighting it believes to be the appropriate weighting for each factor in the calculation of the overall incentive awards, and the threshold, target and maximum payout levels appropriate for each of the performance measures we choose.measures.
The committee, withEach December, the advice ofCommittee reviews the team’s proposals and seeks its independent executive compensation consultant, reviews the proposed performance measures and weightings each December.consultant’s advice on those proposals. At a subsequent meeting induring the following February, the committeeCommittee reviews and approves threshold, target and maximum payout levels and makes the final determination of what performance measures, weightings and payout levels willto be used for each incentive award. The committeeCommittee often directs members of management to work with its independent executive compensation consultant to provide information and otherwise help with the consultant’s analyses. However, the committeeconsultant complete his analyses,
but does not delegate any of its decision making authority to executive officers or other members of management.
The role of the executive compensation consultant
The committeeCommittee has engaged Pearl Meyer & Partners (Pearl Meyer) to serve as its independent executive compensation
consultant. At the committee’sCommittee’s request, Pearl Meyer & Partners does not provide anyprovides no services to our company other than theits assistance it provides to the committee.Committee.
The executive compensation consultantPearl Meyer reports directly to the committeeCommittee on all work assignments fromassigned by the committee. In carrying out its assignments and with the approval of the committee,Committee. Pearl Meyer & Partners also interactedinteracts with management when necessary and appropriate.appropriate to carry out its assignments, but only with the Committee’s approval. Specifically, our General Counsel, who serves as acting head ofis responsible for the human resources function of our company, interacted with Pearl Meyer & Partners to provideprovided compensation and performance data.data to Pearl Meyer. In addition, Pearl Meyer, & Partners, in its discretion, sought input and feedbackfrom time to time seeks confirmation from our CEO and our Chief Financial Officer regardingof the accuracy of its work product prior to presenting such work productpresentation of our strategy that it includes in materials presented to the committee to confirm the work product’s alignment with our business strategy.Committee.
Pearl Meyer & Partners’Meyer’s work for the committeeCommittee with respect to 20142015 compensation decisions included:
The independence of the executive compensation consultant
The committeeCommittee has concluded that its compensation consultant, Pearl Meyer & Partners, is independent and does not have ahas no conflict of interest in its engagement by the committee.Committee. In makingreaching this
conclusion, the committeeCommittee considered a number of factors, including that Pearl Meyer & Partners provides no services to EnPro other than advice to the Committee on executive and director compensation advisory services to the committee and that, outside of
the engagement; none of the individualsengagement, no individual on the Pearl Meyer & Partners team assigned to the engagement has any business or personal relationship with members of the committeeCommittee or with any of our executive officers.
OurTo design an executive compensation program reflects our corporatethat is in line with the policies for executive compensation and stock ownership, which are described below. In designing a compensation program to achievebelow, the objectives of those policies, Committee considered:
accounting rules, rules;
The following table highlights key features of our executive compensation program, including the compensation practices the committee has implemented to drive performance, encourage executive retention and align executive and shareholder interests.program. We also identify certain compensation practices that the committeeCommittee has not implemented because it does not believe they would serve our shareholders’ long-term interests.
What we do
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ü We make variable,
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ü We balance short-term and long-term compensation
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ü We require meaningful stock ownership and retention at levels that increase with responsibility.
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ü We have implemented a one-year holding requirement for net after-tax shares earned under performance share awards beginning with awards made in 2016. |
üThe
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ü We have a clawback policy for the recovery of performance-based compensation in the event of executive officer misconduct related to our financial results.
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What we don’t do
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X
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X
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X
|
X |
Policies regarding executive compensation
The committee’sUnder the Committee’s policy, makes variable compensation a significant component of each executive officer’s total compensation. In addition, the more responsibility an executive has, the highercompensation is his or her variable, compensationand that component increases as a percentage of his or her total compensation. The term “variable compensation” refers to amounts that vary in amount dependingcompensation as an executive’s responsibilities increase. This variable compensation depends on performance — poor—disappointing performance leads toresults in little or no awardsvariable compensation while superior performance leads to superior payouts. In designing ourThe Committee seeks to design variable compensation programs and in establishingestablish performance targets, the committee seeks tocriteria that incentivize continuous improvement in measures important to both our annual and long-term business plans.
Linking a significant portion of our key executives’ total pay to the successful execution of our strategies provides an incentive to achieve our objectives for
increasing shareholder value. In addition to achieving operating improvements throughout our businesses, our variable compensation programs are also designed to incentivize achievement of other corporate objectives to increase shareholder value. Over the past several years, the successful resolution of the ACRP has been a key objective for increasing shareholder value.
The committee’s policies aim at aligningCommittee believes management’s interests must be aligned with those of our shareholders. The committee systematically includes some formshareholders’ interests, and it sets policies accordingly. These policies include the systematic grant of equity grant, or potential equity grant, as partto our executives and a requirement for their personal ownership of our executive compensation program. If our officers ownshares. When the shares of our common stock with values that our executives are required to own and have the potential to own create significant topersonal value for them, we believe they will beare more likely to act to maximize long-term shareholder value over short-term gain.
When setting targeted in-service compensation for each of our executive officers, the committeeCommittee considers individual performance, experience and tenure. In evaluating the reasonableness and competitiveness of targeted in-service compensation, the committeeCommittee reviews compensation data for a broad survey group and for a peer group prepared by its independent executive compensation consultant. These groups are discussed below.
Stock ownership and retention requirements
Our stock ownership requirements mandate that eachEach executive officer is required by policy to hold shares of our common stock with a market value at least equal to a specifiedspecific multiple of the officer’s base salary. We increased these multiples in 2012. The applicable multiple risesincreases with the officer’s level of responsibility. The minimum ownership levels arerequired for our CEO is 5.0 times base salarysalary; for our CEO andall other NEOs, the minimum is 2.5 times base salary for all NEOs other than the CEO, and the minimumsalary. Minimum levels for the other executive officers range from 0.75 times to 1.5 times base salary. Consistent withIn light of this policy, the committee has believedCommittee believes it is appropriate to provide officers with an opportunity to earn shares as part of thetheir long-term incentive award.awards.
After becomingOnce named an executive officer, an individual has five years to reach the minimum level requiredstock ownership requirement for stock ownership.his or her position. Individuals who were officers in 2012, when we increased the multiples, have five years from the increase to reach the highernew level. If theAn executive officer who fails to maintain the required level of ownership the executive officer is required tomust retain 50% of any shares received under any company equity award plan until he or she satisfies the requirement. Restricted shares of our common stock and restricted stock units are counted
count toward the minimum ownership level only after the restrictions lapse.
We examinecheck for compliance with this policy in connection with our board of directors meeting held in February of each year.February. As of February 18, 2015,23, 2016, the date of ourthe Committee’s February 2015 committee2016 meeting, all of our current named executive officers who have been executive officers for at least five years held at least the minimum number of shares.
Anti-hedging policy
We have adopted a policy prohibitingOur policies prohibit employees, officers and directors from engagingusing the company’s securities in any hedging or monetization transactions with respect to the company’s securities, including,transactions. The prohibition includes but is not limited to, through the use of financial instruments such as exchange funds, prepaid variable forwards, equity swaps, puts, calls, collars, forwards and other derivative instruments, or through the establishment of a short position in the company’s securities.
Pledging policy
Our policies prohibit executive officers from pledging EnPro shares that they own as collateral, including holding EnPro shares in a margin account, unless the officer holds unpledged shares at least equal to the amount required under our stock ownership and retention policy and receives pre-approval of the pledge from our General Counsel. Under our policies, a pledge may not be approved unless the officer clearly demonstrates the financial capacity to repay the loan or
obligation secured by the pledge without resorting to the pledged shares. In 2015, Mr. Macadam pledged 100,000 shares to secure a managed trading program with respect to a broad securities index that does not include any EnPro securities. This pledge transaction was approved in advance in accordance with our policy.
Clawback policy
The committee has adopted aOur clawback policy that allows for the recovery ofcompany to recover performance-based compensation in the event anfrom any executive officer who engages in fraud or willful misconduct that caused, directly or indirectly, the need for a material restatement ofrequires us to restate our financial results. This would include annualUnder the policy, we are entitled to recover cash incentive awards made under our annual incentive performance plan and cash or equity-based incentive awards made under our long-term incentive performance plan. If in the committee’s view,Committee determines the performance-based compensation would have been lower if it had been based on the restated results, the committeeit will, to the extent permitted by law, seek recoveryto recover from thatthe executive officer ofall performance-based compensation as it deems appropriate after a review of all relevant facts and circumstances.
Market competitiveness analyses
In 2013, in connection withcontemplation of evaluating target compensation levels to be set for 2014,2015, the committee referenced a benchmarking study that had been prepared byCommittee requested its independent executive compensation consultant, Pearl Meyer, & Partners,to prepare a benchmarking study. This study, which was prepared in 2012. This studyOctober 2014, compared our executive officers’ salaries, target annual incentive plan awards and target long-term incentive awards to those granted to officers in the same positions at other similarly sized diversified manufacturing companies. The study used compensation data from a published survey for a broad group of companies and for a peer group consisting of 1614 manufacturing companies within the industrials sector. Annual revenues of the peer companies ranged from $471$850 million to $2.6$4.4 billion, with median revenues of $1.24$1.5 billion. The market value forcapitalization of the peer companies at the time of the 2012 study ranged from $536 million$1.2 billion to $3.3$6.0 billion, with median market valuecapitalization of $2.0$3.2 billion.
Oversight of GST LLC,To determine our subsidiary which has not been included in our consolidated results since it commencedsize relative to the ACRP proceedings in 2010, continues to be a responsibilitycompensation peer group, we include the third-party sales of our executive officers. For this reason, we include GST LLC’s netdeconsolidated subsidiary, GST. Those sales to third parties (which were $215.9$217.6 million for the year ended December 31, 2014) with2015. GST has been excluded from our consolidated revenues to determine our size relative to our peers. (As noted above, the financial results of GST LLC have not been included in our consolidated financial results since June 5, 2010, when GSTit filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code as the initial step in a process to resolve all current and future asbestos claims.) However, its oversight has remained and will continue to be a responsibility of our executive officers. For this reason, for relative compensation comparisons we include GST’s net sales to third parties in the calculation of the revenues we use to compare ourselves to the peer group.
The peer group of companies was as follows:
• Actuant Corporation | • Barnes Group, Inc. | |
• Circor International, Inc. | • Clarcor, Inc. | |
• Colfax Corporation | • Crane Co. | |
• Curtiss Wright Corp. | • Graco Inc. | |
• IDEX Corporation |
| |
• Nordson Corporation |
| |
• Trimas Corporation | • Woodward, Inc. | |
• Mueller Water Products, Inc. | • Watts Water Technologies, Inc. | |
We believe that forFor executive compensation purposes, we believe a comparison of the relative size and complexity of a company not the specific category of products manufactured, is more important for compensation comparisons. We believe this peer group andthan a comparison of specific products manufactured. These are the broader survey group are relevant for this purpose because we believe these types of companies are pertinent competitorswith whom we compete for management personnel.personnel and therefore we believe it is appropriate for us to compare our compensation practices with theirs.
Pearl Meyer & Partners prepared a new benchmarking study in October 2014. The peer group for this 2014 study was the same as the 2012 study, other than Kaydon Corporation and Robbins & Myers, each of which had been acquired since the 2012 study was performed. This 2014 study was used by the committee in connection with evaluating target compensation levels set for 2015.
The committee’s executive compensation consultant advised the committee regardingcompared the specific compensation elements we awarded to each of our executive officers as comparedin 2014 to those awarded to executive officers with similar responsibilities of each member of the peer group and
the broader survey group. Based on that analysisgroup and the comparisons to the relevant medians of the peer group and survey group,group. Based on its analysis, Pearl Meyer & Partners advised the committee with respect to the named executive officers regardingCommittee on adjustments to base salary, annual incentive award and long-term incentive award. The committee uses peerawards for each named executive officer. Peer and survey compensation data allow the Committee to evaluate the reasonableness and competitiveness of thedetermine whether our 2015 compensation programs and target compensation levels for executive officers.officers are reasonable and competitive.
Evaluation of incentives for excessive risk
In establishing the structure and levels of executive compensation, the committee keeps in mind the potential for creating incentives that encourage management to take unnecessary or excessive risks. To discourage taking such risks,excessive risk, the committeeCommittee seeks to balance balance:
The committeeCommittee has specifically evaluated the company’s compensation structure and practices and concluded that they do not establish incentives for unnecessary or excessive risk.
The following section discusses and analyzes each element of our executive compensation program, including long-term incentive plan, or LTIP, awards made in 20122013 and paid out for the 2012-20142013-2015 cycle, and LTIP awards made in 20142015 for which scheduled payouts would not occur until 2017.2018.
Base salary
Base salaries give our officers a relatively secure level of compensation. Adjustments to base salary rates typically are made in February of each year and are effective on April 1, though mid-year adjustments may be made in the event of promotion or other special circumstance. In 2015, the Committee did not adjust Mr. Macadam’s base salary rate. Mr. Macadam’s base salary rate has been increased only once (by 3% in 2014) since he was hired in March 2008. The Committee adjusted the base salary rates of the other named executive officers in 2015 from the levels paid in 2014. For 2015, base salary paid to the NEOs increased by an average of 12.4% over the prior year, with individual increases ranging from 0.8% to 23.0%. These increases reflect the impact of several position changes and promotions, including the promotion of Mr. Walker to Chief Operating Officer and of Mr. Childress to Chief Financial Officer.
Annual performance incentive plan awards
The committee makesplans used by the Committee to make annual incentive compensation awards under plansare designed to providegive executive officers a personal financial incentive to help us reach annual business goals. We refer to these plans as the annual performance plans or annual plans.
AnnualMr. Macadam’s annual performance incentive plan awards for Mr. Macadam were made under our senior executive annual performance plan, whichmost recently approved by our
shareholders approved in 2012. AnnualMr. Childress and Mr. Walker received annual performance incentive awards for Mr. Pease and Mr. McLean were made under a plan in which other corporate officers participate whichparticipate. It uses identical measures and target levels but permits
adjustments for unusual items. Such adjustmentsitems which are not permitted under our senior executive annual performance plan.
Annual performance incentive plan awards for Mr. Walker, Mr. Cox and Mr. Herold were madeRiley received annual performance incentive awards under a similar plan for division personnel. One-half of their awards iswas based on the same corporate-wide performance measures and weightings applicableapplied to the other NEOs. The remaining one-half ishalf was based on performance measures applicable to their respective divisions. The
Mr. Pease, who announced his departure in February 2015, did not receive an award under an annual performance incentive award granted to Mr. Walker in 2014 was made when he served as presidentplan for 2015.
The amount of both the Compressor Products International division and the Engineered Products segment, prior to his appointment in November 2014 as Senior Vice President and Chief Operating Officer.
Underawards paid under our annual plans we grant awards in which the amount of the payment is based on relevant performance against specifiedperformance. We establish threshold, target and maximum levels. Performanceperformance levels for our company and each of our businesses. When performance falls below the threshold, level results inexecutives receive no payout. PerformanceThe Committee administers the annual performance plans to provide for payouts at or above the threshold level
results in a payout at 200% of the target payout amount of the award. However, achieving the threshold level of performance does not assure that an executive officer will receive this maximum incentive payout, because the committee has retained “negative discretion.” This discretion allows the committee to reduce the payout based upon its assessmentat 50% of the company’s performance (and, for Messrs. Walker, Cox and Herold, also the performance of the relevant divisions) in light of the goals set for the target and maximum levels. In setting these levels, the committee anticipated exercising its negative discretion to reduce annual incentive payments if performance does not reach the maximum level. In such a circumstance, payments to executive officers would be reduced to levels consistent with past practice — that is, absent unusual circumstances,payout, payouts at a target level of performance would likely be in the range ofat 100% of the target payout, and payouts at a thresholdmaximum level of performance would likely be in the range of 50%at 200% of the target payout. Performance between any of the established levels yields a proportional payout.
For 2014,2015, the performance measures and weightings for the senior executive annual performance plan were as follows:were:
Adjusted operating income | 50 | % | ||
Adjusted return on invested capital | 50 | % |
For 2014,2015, the performance measures and weighting for the divisional component of the annual performance plan in which Messrs. Walker,Mr. Cox and HeroldMr. Riley participated were as follows, in each case with respect to the performance of the relevant divisions:were:
Adjusted operating income (division) | 50 | % | ||
Adjusted return on invested capital (division) | 50 | % |
For 2014, the committeeWhy we use adjusted operating income and adjusted return on invested capital to measure performance
The Committee selected these performance measures because they are the critical measures we use in managing our businesses and are measures of our profitability and the performance of our assets relative to our investment. The committee selectedCommittee believes that the adjustments to operating income and return on invested capital permit a more accurate measure of the operating performance of our businesses. In selecting these performance measures, setsetting the performance goals and awardedawarding the corresponding incentive opportunities, after takingthe Committee took into account management’s recommendation.recommendations.
These company-wide and divisional performance measures are discussed in greater detail in the following paragraphs. Because oversight of our GST LLC subsidiary and its financial results continues to be a responsibility of our executive officers, in establishingwe include its results with ours when we establish and measuringmeasure our financial metricsperformance under the annual plans (and all other incentive compensation plans) we include GST LLC’s results with our results as though it were consolidated.
Adjusted operating incomeplans.
Adjusted operating income is an important measure of our profitability. The committee includes adjustments in this measure to eliminateeliminates the impacteffect of asbestos expense, LIFO adjustments and certain selected expenseexpenses and income items that do not reflect normal operating conditions. These adjustments areAdjustments to operating income in 2015 included because the committee believes they result inimpact of foreign currency translation
and a more accurate measureportion of the operating performance$6.9 million foreign currency transaction loss provision due to the effect of foreign exchange rates on a multi-year, Euro-denominated contract in our businesses.
Adjusted return on invested capitalPower Systems segment. The adjustment excluded that loss other than the pro rata portion of the loss that would have been allocated to 2015 had the loss been allocated over the life of that contract instead of being fully recognized in 2015.
The committee selectedCommittee believes adjusted return on invested capital as a performance measure because we believe it is a comprehensive measure ofcomprehensively measures the performance of our assets relative to our investment and fairly measures our ability to generate earnings in relation to the investment required to generate those earnings.
Financial goals for 2015
The following table presents the 2014 financial goals underset for the 2015 senior executive annual performance plan that corresponded toplan. The table shows goals for threshold, target and maximum performance levels, and our actual 20142015 performance and payout percentages with respect tofor each goal aftergoal.
We do not include the committee exercised its negative discretion. The specific division financial goals of the annual plan in which each of Messrs. Walker,Mr. Cox and HeroldMr. Riley participated and divisionalor the specific performance results are not includedof the Stemco or the Fairbanks Morse division in this proxy statement because we believe thatthis information is confidential information and public disclosure of this confidential information would cause competitive harm to thesethose businesses. At the time these specificthe division goals were set, the committeeCommittee deemed the target performance levels set for each of the division metrics to be reasonable “stretch” goals, with a maximum payout possible only in the event of superior performance.
| Performance Levels | Actual Performance | Performance Levels | Actual Performance | |||||||||||||||||||||||||||||||||||||
| Threshold | Target | Maximum | Amount | Payout %(2) | Threshold | Target | Maximum | Amount | Payout % | |||||||||||||||||||||||||||||||
| (dollars in millions) | (dollars in millions) | |||||||||||||||||||||||||||||||||||||||
Adjusted operating income(1) | $ | 146.6 | $ | 166.8 | $ | 195.9 | $ | 156.4 | 74.3 | % | $ | 136.9 | $ | 156.5 | $ | 183.9 | $ | 142.0 | 62.9 | % | ||||||||||||||||||||
Adjusted return on invested capital(1) | 16.0 | % | 17.8 | % | 20.5 | % | 17.4 | % | 88.2 | % | 15.7 | % | 17.4 | % | 19.8 | % | 16.4 | % | 71.6 | % | ||||||||||||||||||||
| (1) | Adjusted operating income and adjusted return on invested capital are not financial measures under GAAP. Adjusted operating income is calculated by taking each operating division’s operating income and adding back asbestos expense, LIFO adjustments and certain selected expenses that do not reflect normal operating conditions and subtracting certain selected income items that do not reflect normal operating conditions. In addition, adjusted operating income reflects an adjustment for the translation impact of foreign currency exchange, as described above. Adjusted return on invested capital is calculated by taking adjusted operating income multiplied by the difference between 1 minus the tax rate (expressed as a fraction) then adding depreciation and amortization and asbestos expense, with such amount then divided by the sum of average working capital, average gross property, plant and equipment and average gross software investment. For the corporate calculations, corporate administrative expenses are subtracted from the sum of the operating segments’ adjusted operating income. |
The plan payouts at the target performance level, as a percentage of base salary, and the actual payout as a percentage of salary for the named executive officers were as follows:
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| Target Payout, as Percentage of Salary | Actual Payout, as Percentage of Salary | |||||||
Macadam | 105 | % | 70.6 | % | ||||
Childress | 70 | % | 47.1 | % | ||||
Walker | 70 | % | 47.1 | % | ||||
Riley | 55 | % | 68.9 | % | ||||
Cox | 55 | % | 48.7 | % | ||||
Mr. Macadam’s employment agreement provides thatsets the target award level for his annual incentive awards be setaward at 100% of his salary. Beginning in 2013, the committeeCommittee increased the target award level for his annual incentive award to 105% of his salary in recognition of his efforts. The committee set the targetsalary. Target award levels set by the Committee for the
other named executive officers were based on its historical award levels, of such awards, itsa review of the Pearl Meyer & Partners market studies and management recommendations.
TheTo set 2015 performance goals were developed bylevels, the committee by combiningCommittee reviewed a top-down estimate of our performance for the year based on management’s expected economic growth in relevantexpectations for each of our markets withand a bottom-up strategic review and forecast of each division’s performance as part of the budgeting process.strategy and forecast for its performance. The committee thenCommittee evaluated these internal performance estimates against marketexternal expectations for the performance of performance.our markets and then set our goals for the year. For the past several years, the target-levelactual corporate performance goals established byhas been below target-level goals.
When 2015 operating performance levels were set, we anticipated that several trends, including foreign currency exchange headwinds, economic volatility outside of North America and slowing project and maintenance
spending in the committeeoil and gas markets, would adversely affect a number of our businesses during the year. In addition, due to the change in the mix of our businesses as a result of this process have exceeded actual performance levels.
Forthe December 2014 sale of Garlock Rubber Technology and acquisition of Fabrico, achieving adjusted operating performance,income and adjusted return on invested capital in 2015 at the same levels as had been achieved in 2014 would require growth in our continuing businesses notwithstanding these adverse trends. In light of these circumstances and its view that equaling 2014 performance levels in 2015 would set a stretch goal for 2014 reflected the Company’s expectations that it would record a slight increasecompany, the Committee established target corporate performance levels for 2015 at approximately the levels achieved in profitability2014.
The extent of the adverse trends during the year. However, overall operating performance2015, in 2014particular in oil and gas markets, was restricted by weak rates of growth in certain markets and declines in demand in others, which offset bettergreater than expected performance by certain of our divisions.we had expected. As a result, the year did not progress as we had expected and we did not reach our targets. Our overall adjusted operating income was only 74.3% of$142.0 million (between the threshold and target levellevels) and our overall adjusted return on invested capital was only 88.2% of the target level. Performance of our divisions in 2015 varied, with the respective divisions for Mr. Walker achieving performance on average between16.4% (between the threshold and target levels, the respectivelevels). The division for which Mr. Cox achieving performanceis responsible performed between the target and maximum levels, and the respective divisionsdivision for which Mr. Herold achieving performance on averageRiley is responsible also performed between the thresholdtarget and targetmaximum levels.
Even though overall performanceAccordingly, based on the payout levels (and divisional performance levelsestablished by the Committee for Messrs. Walker, Cox and Herold) exceeded the threshold levels which, under the annual performance plans, would provide forMessrs. Macadam, Childress and Walker received payouts at 200%of 67.3% of the target amount, the committee exercised its negative discretion to reduce payouts. The reduction reflects performance below thelevel, Mr. Cox received a payout of 88.6% of target level and accordingly, the
committee reduced theMr. Riley received a payout for each measure to a level consistent with actual performance. Messrs. Macadam, Pease and McLean received payouts of 81.25% of the target levels, and Messrs. Walker, Cox and Herold received payouts ranging from 73.24% to 102.60%125.2% of target levels.level.
The dollar amount of these payouts under the annual performance plans to each of the named executive officers is included in column (g) (see footnote 2) of the summary compensation table.
Long-term compensation
Awards made for 2012-20142013-2015 cycle
Each year the committee has granted long-termLong-term compensation grants to our executive officers to provide them with personal financial motivation to help us reach our longer-term goals. In addition to providing the officers withand a long-term stake in our success, we believelong-term success. The Committee believes these awards serve as a significant retention tool.also help us retain executives who are committed to achieving our corporate goals.
In 2012, the committee determined that half of2013, the target level of our long-term compensation granted to each NEO then employed by us would be in the form of aawards was split equally among long-term incentive performance (or, LTIP) award payable in cash and that the remaining half of target long-term compensation would be an equity award that included both an LTIP awardawards payable in shares (or, “performance shares”), long-term incentive cash compensation awards and an award of restricted stock units as follows:
The amount of cash for a cash LTIP award payable, and the number of shares for an LTIP award of performance shares deliverable, are based on our performance against selected financial goals over a three-year period. For our LTIP award opportunities, we set threshold, target and maximum levels. Performance below the threshold level results in no payout, performance at the threshold level results in a payout at one half of the amount at the target level and performance at the maximum level or above results in a payout of twice the amount set for the target level. We extrapolate to determine the payout for performance between these levels. Pursuant to our long-term incentive cash compensation plan, performance levels are adjusted to account for dispositions, acquisitions and other corporate restructuring transactions. The committee makes the LTIP awards were granted under our long-term incentive plan which our shareholders(or LTIP) most recently approved by our shareholders in 2012.
In 2012, the committee established the following performance measures and weightings forThe Committee believes that both the cash LTIP awards and the LTIP awards in the form of performance shares:
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The 2012-2014 cycle performance goals that corresponded to the threshold, target and maximum payout levels were set assuming continuous improvement from prior levels. They are set out in the following table, along with our actual cumulative performance during the 2012-2014 cycle and the resulting plan payout level as a percentage of target with respect to each performance goal:
| Performance Levels | Actual Performance | |||||||||||||||||||
| Threshold | Target | Maximum | Amount | Payout %(2) | ||||||||||||||||
| (dollars in millions, except per share amounts) | ||||||||||||||||||||
EBITDA before asbestos(1) | $ | 648.0 | $ | 762.0 | $ | 876.0 | $ | 675.2 | 61.9 | % | ||||||||||
Adjusted earnings per share(1) | $ | 13.30 | $ | 15.64 | $ | 17.99 | $ | 13.53 | 54.9 | % | ||||||||||
When the committee set the target levels for the performance measures in 2012 for the 2012-2014 performance cycle, we had anticipated an improving global economic recovery during that period, with the target levels of the performance measures for that cycle set significantly higher than target levels set for the 2011-2013 performance cycle. Softer-than-expected performance, particularly over the final two years of the performance cycle, resulted in our EBITDA before asbestos and adjusted earnings per share each being between the threshold and target levels. This resulted in a payout for the 2012-2014 cycle of 58.5% of the target level.
The dollar amount of the cash LTIP payouts to each of the named executive officers is included in column (g) (see footnote 2) of the summary compensation table. The portion of the restricted stock units awarded in 2012 that vested in 2015 is included in the table in “Executive compensation — Option exercises and stock vested.”
Awards granted in 2014
At its February 2014 meeting, the committee authorized the grant of long-term compensation awards to executive officers for the 2014-2016 performance cycle. At this meeting, the committee initially determined that one-third of the target long-term compensation to each executive would be in the form of an LTIP award payable in cash, one-third would be an LTIP award in the form of performance shares and payable in shares and the remaining one-third would be an award of time-vested restricted stock units.
In addition, the committee authorized special grants of restricted stock units awarded to executive officers and other key personnel in recognition of their efforts related to the strategy, planning and management of the ACRP which resulted in the favorable estimation order issued by the bankruptcy court in January 2014 and operating GST LLC and the other EnPro businesses under the unique circumstances presented by the ACRP. The special grant was made in the form of restricted stock units to help ensure the retention of these individuals as the ACRP progresses. The amount of the special grant was equal to twice the number of restricted stock units awarded in 2014 as part of the committee’s initial determination to divide long-term compensation awards equally among long-term incentive awards payable in cash long-term incentive awards payable in shares and restricted stock units. The terms of the restricted stock
units comprising this special grant were the same as the other restricted stock units awarded in 2014.
The committee believes that both types of long-term incentive compensation — an LTIP award payable in cash and an LTIP award in the form of performance shares —serve to align our officers’ long-term interests with those of our shareholders, and that the specific target mix between the typeshareholders. The award of the awards is appropriate to increase management’s ownership stake in our company and to recognize the efforts relating to the ACRP. The committee elected to award a substantial portion of long-term compensation in the form of time-vested restricted stock units helps to help ensure retention.retention of these executives.
For our long-term incentive compensationThe LTIP awards made in 2014,by the committee continued the plan design first employedCommittee in 2013 whichwere the first awards using a new long-term performance
measure that we refer to as the Equity Value Plan. That plan compares the company’s calculated growth in equity value per share over the three-year performance period to a defined target return. It alignsis designed to align management’s interests with those of shareholders by rewarding performance that correlates over time is correlated with factors that should affect share price appreciation. The committee believes this plan design holdsEquity Value Plan was designed to hold management accountable for not only for earnings growth, but also for the quality of any investments.
This plan design, whichThe Equity Value Plan focuses on growth in equity value per fully diluted share and is in some ways similar to a total shareholder return measure. Unlike a formula based solely on total shareholder return, payouts under the equity value planEquity Value Plan are not subject to broader movements in the stock market, which are outside of management’s control. In adopting this standard for the long-term incentive plan, the committee was mindful that interim developments in the ACRP may result in significant volatility in the company’s stock price. The timing of such events could substantially distort long-term incentive compensation payable under a formula based solely on total shareholder return measured as of a specific date and create incentives not in the best long-term interests of the company and its shareholders.
The calculated equity value is based in part on a multiple (8x for 2014)awards made in 2013) of the company’s adjusted earnings before interest, depreciation, amortization and asbestos-related expenses less adjusted net debt, and includes GST LLC on a pro forma basis as if that subsidiary were included in our consolidated financial results. The adjustmentsdebt. Adjustments to earnings before interest, depreciation, amortization and asbestos-related expenses include restructuring charges; asset impairments; intercompany transactions with GST; any gain or loss to be recognized in connection with the reconsolidation of GST; all expenses and charges related to
discontinued operations, including environmental reserve adjustments for discontinued operations;adjustments; fair value adjustments to inventory related to acquisitions and other non-recurring items in connection with acquisitions and dispositions; and extraordinary items; and pension expense.items.
The calculated equity value is subject to adjustments for acquisitions and dispositions that occur during the performance period based on timing of the completion ofwhen the acquisition or disposition as well asis completed. It is also based on equitable adjustments where necessary (i) in response to changes in applicable laws or regulations, (ii) to account for changes in accounting principles that were not anticipated at the time the awards were made, (iii) to account for adjustments in expense due to re-measurement of pension benefits, (iv) to account for restructurings, discontinued operations, and any other items deemed by the committeeCommittee to be non-recurring in nature or otherwise not reflective of operating performance that were not anticipated at the time the awards were made, and (v) to reflect other unusual, non-recurring, or unexpected items similar in nature to the foregoing, in each case as determined in good faith by the committeeCommittee consistent with the principles set forth in section 162(m) of the Internal Revenue Code and the regulations thereunder.
Adjusted net debt is determined by subtractingsubtracts cash and marketable securities and the amount of any cash dividends paid during the three-year period from the sum of third-party debt and pension liabilities.debt.
The growth in equity value per share is measured over the period by comparing (a) comparing:
| ¡ | the difference between the multiple of the company’s adjusted earnings before interest, depreciation, amortization and asbestos-related expenses for the year ended December 31, 2012 minus adjusted net debt as of December 31, 2012 |
difference between the multiple of the company’s adjusted earnings before interest, depreciation, amortization and asbestos-related expenses for the year ended December 31, 2013 minus adjusted net debt as of December 31, 2013 (ii) divided by the fully diluted common shares at December 31, 2013
| ¡ | divided by the fully diluted common shares at December 31, 2012 |
The target return is determined by adding a risk premium (for 2014, 5.5%)(5.5% for 2013) to the average 10-year Treasury bond yield for the three-year period.
The calculation for the year ended December 31, 2012, the first measurement period under the Equity Value Plan, did not include GST on a pro forma basis. In light of the agreement announced on January 13, 2015 between GST and the Future Claimants’ Representative in the ACRP, which included the Future Claimant’s Representatives’ support of the terms of a second amended plan of reorganization, GST was included on a pro forma basis in the calculation for the year ended December 31, 2015, the final year of the measurement period. The calculation for the 2015 period was made as if the second amended plan of reorganization had been consummated, and GST had been reconsolidated with
the company for financial reporting purposes, as of January 1, 2015.
The compound annual growth rate (or “CAGR”) of the growth in the calculated equity value over the three-year period divided by the target return determines the amount of the LTIP payout, as shown in the chart below:following chart:
Calculated equity value CAGR / target return | LTIP payout (% of target award) | |||
Calculated equity value | LTIP payout (% of target award) | |||
0.50 | 50% | 50% | ||
1.00 | 100% | 100% | ||
1.35 | 200% | |||
1.70 | 300% | 300% | ||
Actual performance that falls between the established levels will yieldyields a proportional payout. No payment is made if the ratio of the CAGR of the calculated equity value to the target return is less than 0.50.
The following graphical presentation illustrates the calculation ofunder the metric usedEquity Value Plan for the 20142013 LTIP awards:
The following table sets forth for each named executive officer (except Mr. Pease who, because of his departure, was not entitled to receive a payout of the LTIP awards granted in 2013), the payout amount at target
performance level for the LTIP award payable in cash and the LTIP award made in the form of performance shares:
| Target Payout | ||||||||
| Cash LTIP | Performance Shares | |||||||
Macadam | $ | 550,000 | 12,348 | |||||
Childress | $ | 57,680 | 1,295 | |||||
Walker | $ | 80,750 | 1,812 | |||||
Riley | $ | 63,750 | 1,431 | |||||
Cox | $ | 80,750 | 1,812 | |||||
The CAGR of the calculated equity value to the target return calculated for the 2013 LTIP awards was 10.5%, resulting in a payout of 196% of the target level. Had GST not been included on a pro forma basis in the calculation for 2015 (or had GST been included on a pro forma basis in the calculation for both 2015 and 2012), the CAGR of the calculated equity value to the target return would have been less than 0.50, which would have resulted in no payout with respect to these awards. The Committee determined that, for the LTIP awards made in 2013, GST was to be included on a pro forma basis in the calculation for 2015 but not in the calculation for 2012 as a result of the agreement reached by GST with the Future Claimants’ Representative during this three-year period. The Committee concluded that inclusion of GST in the 2015 calculation was appropriate in light of the significance of this milestone in the ACRP
and for the company. As a result, the payout on the 2013 LTIP awards is attributable principally to this significant and positive development in the ACRP during the three-year measurement period.
Linking a significant portion of our key executives’ total pay to the successful execution of our strategies provides an incentive to achieve our objectives for increasing shareholder value. In addition to achieving operating improvements throughout our businesses, our variable compensation programs are also designed to incentivize achievement of other corporate objectives to increase shareholder value. Over the past several years, the successful resolution of the ACRP has been a key objective for increasing shareholder value. While the achievement of this significant milestone resulted in the above-target-level payout for the awards maturing in
2015, the Committee concluded that this milestone achievement should be reflected in only one cycle of LTIP awards. Accordingly LTIP awards under the Equity Value Plan made after 2013 have provided that the calculation for the initial period and final period both include GST on a pro forma basis as if that subsidiary were included in our consolidated financial results, but such pro forma calculation does not include effects arising from a resolution of the ACRP.
The dollar amount of the cash LTIP payout to each of the named executive officers is included in column (g) (see footnote 2) of the summary compensation table. The value at December 31, 2015 of the restricted stock units that were awarded in 2013 and vested in 2016 is included in the table in “Executive compensation —Outstanding equity awards at fiscal year end.”
Awards granted in 2015
In February 2015, the Committee authorized the grant of long-term compensation awards to executive officers for the 2015-2017 performance cycle. The Committee determined to grant 30% of the target long-term compensation to each executive in an LTIP award payable in cash, 30% in an LTIP award of performance shares and 40% in an award of time-vested restricted stock units. This allocation does not include restricted stock unit awards made in connection with our management stock purchase deferral plan described below (see “— Retirement and other post-termination compensation — Deferred compensation and management stock plans”).
The Committee believes that both LTIP awards payable in cash and LTIP awards payable in performance shares align officers’ long-term interests with those of our shareholders. The award of a substantial portion of long-term compensation in the form of time-vested restricted stock units helps to ensure retention of these executives.
The LTIP awards made by the Committee in 2015 were under the Equity Value Plan described above, which compares the company’s calculated growth in equity value per share over the three-year performance period to a defined target return. For awards made in 2015, the calculated equity value uses an 8x multiple of the company’s adjusted earnings before interest, depreciation, amortization and asbestos-related expenses less adjusted net debt. The calculation includes GST on a pro forma basis for all relevant periods as if that subsidiary were included in our consolidated financial results, but such pro forma calculation does not include effects arising from a resolution of the ACRP. The target return for these awards is determined by adding a 4.5% risk premium to the average 10-year Treasury bond yield for the three-year period. The Committee set a lower premium for the target return than used in prior years to recognize the effect of global economic uncertainties, the effect of lower expected future equity returns on risk premiums and known headwinds facing the company, including trends affecting oil and gas markets and foreign currency exchange rates.
Adjustments to earnings before interest, depreciation, amortization and asbestos-related expenses include
restructuring charges; asset impairments; all expenses and charges related to discontinued operations, including environmental reserve adjustments; fair value adjustments to inventory related to acquisitions and other non-recurring items in connection with acquisitions and dispositions; extraordinary items; and pension expense.
The calculated equity value is subject to adjustments for acquisitions and dispositions that occur during the performance period based on when the acquisition or disposition is completed. It is also based on equitable adjustments where necessary (i) in response to changes in applicable laws or regulations, (ii) to account for changes in accounting principles that were not anticipated at the time the awards were made, (iii) to account for adjustments in expense due to re-measurement of pension benefits, (iv) to account for restructurings, discontinued operations, and any other items deemed by the Committee to be non-recurring in nature or otherwise not reflective of operating performance that were not anticipated at the time the awards were made and (v) to reflect other unusual, non-recurring, or unexpected items similar in nature to the foregoing, in each case as determined in good faith by the Committee consistent with the principles set forth in section 162(m) of the Internal Revenue Code and the regulations thereunder.
Adjusted net debt subtracts cash and marketable securities and the amount of any cash dividends paid during the three-year period from the sum of third-party debt and pension liabilities. Because the calculations for the LTIP awards made in 2015 include GST on a pro forma basis for all relevant periods as if the second amended plan of reorganization had been consummated, adjusted net debt excludes any asbestos related assets and liabilities.
The growth in equity value per share is measured over the period by comparing:
| ¡ | the difference between the multiple of the company’s adjusted earnings before interest, depreciation, amortization and asbestos-related expenses for the year ended December 31, 2014 minus adjusted net debt as of December 31, 2014 |
| ¡ | divided by the fully diluted common shares at December 31, 2014 |
For the 2015 LTIP awards, the Committee established payouts levels based on the CAGR of the growth in the calculated equity value over the three-year period divided by the target return, as determined under the Equity Value Plan, as follows:
Calculated equity value | LTIP payout (% of target award) | |
0.25 | 25% | |
1.00 | 100% | |
1.70 | 300% |
Actual performance that falls between the established levels will yield a proportional payout. No payment will be made if the ratio of the CAGR of the calculated equity value to the target return is less than 0.25. The
Committee set a lower threshold of 0.25 (instead of 0.50 used in prior year awards) and a corresponding lower percentage payout at threshold (25% for 2015 awards compared to 50% in prior years) in recognition of the same factors influencing its decision to set the 4.5% risk premium for the target return described above.
Restricted stock units further our goals of aligning officers’ long-term interests with those of our shareholders and increasing management’s ownership stake in our company. They vest three years after the date of grant subject to the executive’s continued employment during the period. In in the event of death, disability or a change in control of the company, they vest earlier. In the event of an executive’s retirement, the restricted stock units vest pro rata based on the number
of months he or she was employed after the grant date through the retirement date compared to the scheduled 36-month period.
The following table sets forth for each named executive officer, other than Mr. Pease who did not receive any award of long-term compensation in 2015, the payout amount at target level of performance for the LTIP award payable in cash and the LTIP award made in the form of performance shares, along with the number of restricted stock units awarded
in 2014, other than awards of restricted2015. Restricted stock units do not include awards made in connection with our management stock purchase deferral plan described below (see “— Retirement and other post-termination compensation — Deferred compensation and management stock plans”):
| Target Payout | Restricted Stock Units | Target Payout | Restricted Stock Units | |||||||||||||||||||||
| Cash LTIP | Performance Shares | Cash LTIP | Performance Shares | |||||||||||||||||||||
Macadam | $ | 566,667 | 7,874 | 23,622 | $ | 630,000 | 9,873 | 13,164 | ||||||||||||||||
Pease | $ | 175,760 | 2,442 | 7,326 | ||||||||||||||||||||
Childress | $ | 135,000 | 2,116 | 2,821 | ||||||||||||||||||||
Walker | $ | 95,200 | 1,323 | 3,969 | $ | 182,700 | 2,863 | 3,818 | ||||||||||||||||
Riley | $ | 66,300 | 1,039 | 7,385 | ||||||||||||||||||||
Cox | $ | 92,877 | 1,290 | 3,870 | $ | 87,975 | 1,379 | 1,838 | ||||||||||||||||
McLean | $ | 90,383 | 1,256 | 3,768 | ||||||||||||||||||||
Herold | $ | 100,668 | 1,399 | 4,197 | ||||||||||||||||||||
The committee believesCommittee increased Mr. Macadam’s target long-term compensation opportunity by approximately 24% from the level set in 2014. As described below, Mr. Macadam’s base salary has been adjusted only once since he was hired in 2008 — a 3% increase in 2014. In considering adjustments to Mr. Macadam’s compensation, the Committee noted that, awardsbased on the Pearl Meyer’s October 2014 benchmarking study, Mr. Macadam’s total compensation opportunity was significantly below the median for chief executives of the peer companies included in the study principally because his long-term compensation opportunity was below the 25th percentile for that group. The Committee believed this adjustment to his target long-term compensation opportunity was appropriate in light of Mr. Macadam’s performance and would serve to both further incentivize long-term performance and encourage retention.
In recognition of the success of the Fairbanks Morse division, including progress on new engine development, and to provide additional incentive for retention, the Committee authorized the grant of an additional 6,000 restricted stock units further the goals of aligning officers’ long-term interests with those of our shareholders and increasing management’s ownership stake in our company. The restricted stock units vest three years after the date of grant subject to the executive’s continued employment
during that period. The restricted stock units vest earlier in the event of death, disability or a change in control of the company. In the event of retirement, generally one-third of the restricted stock units vest if retirement occurs on or after the first anniversary of the grant date but before the second anniversary of the grant date and two-
thirds vest if retirement occurs on or after the second anniversary of the grant date but before the third anniversary of the grant date. As described above, in addition to annual awards of restricted stock units equal to one-third of the target long-term compensation, the committee granted additional special awards to the executive officers of twice that amount in recognition of their efforts related to the ACRP.Mr. Riley.
The grant date fair value of the target level payout of performance shares for LTIP share opportunities awarded in 20142015 and the grant date fair value of the restricted stock units awarded in 2014,2015, in each case as determined under FASB ASC Topic 718, are included in column (e) (see footnote 1) of the summary compensation table and in column (l) of the table in “Executive compensation — Grants of plan-based awards.”
Base salary
We pay each of our executive officers a base salary to give them a relatively secure baseline level of compensation. In 2014, the committee increased Mr. Macadam’s base salary by approximately 3%, which was the first increase in his salary since he was hired in March 2008. With respect to the other named executive officers, the committee made adjustments to base salaries in 2014 from the levels set in 2013, with base salary increases for these named executive officers averaging 7.7% and ranging from 4% to 15%. In addition, in November 2014, the committee further increased Mr. Walker’s base salary by 25% in connection with his appointment as Chief Operating Officer.
Perquisites
Since February 2006, we have provided only minimal perks, which include an umbrella liability policy, to our executive officers.
Other in-service benefits
Our executive officers also receive the following benefits, which we provide to all salaried employees as compensation for their services to us:
We provide these insurance benefits because we believe at a company of our size they are a standard partparts of the compensation package available to salaried employees.employees at companies of our size.
Retirement and other post-termination compensation
401(k) Plan
We sponsor a 401(k) plan in which ourOur executive officers participate in our 401(k) plan on the same basis as other salaried employees. Under this plan, each participant can defer into his 401(k) plan account a portion of his plan-eligibleeach participant’s compensation eligible for the plan (generally base salarybase-salary and annual incentive compensation), can be deferred into a 401(k) account, up to the annual limit set by the
IRS. Each plan participant directs how his account will be invested.investments in the account. We match each participant’s100% of deferrals under this plan other(other than catch-up contributions, on acontributions) monthly basis at a rate of 100% up to the first 6% of the aggregate of annual salary and annual incentive compensation contributed by the participant. Our matching contributions are fully vested.
Deferred compensation and management stock plans
We provide aOur non-qualified, deferred compensation plan forpermits our executive officers to permit them to save for retirement on a tax-deferred basis beyond what is permitted under the 401(k) plan permits, because of either federal tax code limits or the design of the 401(k) plan. In addition, the deferred compensation plan allows for matching contributions at the same rate and subject to the same aggregate limit under the 401(k) plan that cannot be made in the 401(k) plan because of federal tax code limits. These contributions are made at the same rate and are subject to the same aggregate limit as the 401(k) plan. The committeeCommittee believes this type of
additional deferral and matching opportunity is partan appropriate and customary component of a competitive compensation package for public company executive officers.
In 2012, we adopted a management stock purchase deferral plan to permitwhich permits officers and other senior personnel to defer, for five years or more, up to 50% of annual incentive compensation, with deferredcompensation. Deferred amounts are credited to these individual’s accounts based on the value of our common stock. Participants in that plan are eligible to receive awards of restricted stock unit awardsunits equal to 25% of the amount deferred, withof compensation deferred. The units have a three-year vesting period and are payable in shares of common stock at the same time the related annual incentive deferrals are payable. This plan began with respect toFor deferrals of annual incentive compensation earned for performance in 2013, with2014, restricted stock unit awards with respect to these deferrals beingwere granted in 2014.2015. The amount of 2014 annual incentive compensation deferred pursuant tounder this plan is included in the amount of Non-Equity Incentive Plan Compensation reflected in column (g) (see footnote 2) of the summary compensation table and thetable. The grant date fair value of the restricted stock units awarded in 2014 with respect to 2013for incentive compensation deferrals, as determined under FASB ASC Topic 718, is included in column (e) (see footnote 1) of the summary compensation table and in column (l) of the table in “Executive compensation — Grants of plan-based awards.”
TheseThe officers who participate in these plans have voluntarily placed their deferred compensation at risk because the plans are unsecured and the participants’ plan accountsamounts in them would be available to satisfy our creditors in the event of our insolvency. This means thatIn addition, amounts deferred into the officers have voluntarily placed at risk all funds they have deferred under these plans, and with respectstock purchase plan are subject to the management stock purchase deferral plan such risk includesposed by changes in the value of our common stock.
Pension and defined benefit restoration plans
Our executive officers who were hired and were aged 40 prior toIn 2006, like many ofwe closed our salaried employees, continue to participate in a defined benefit pension plan that will giveto new participants and froze the benefits of employees who had not reached 40 years of age. Employees who were age 40 or older were eligible to continue to accrue benefits under the defined benefit plan, which provides them a retirement benefit based on their years of service with the company and their final average compensation (base salary plus annual incentive compensation). This pension plan was closed to new participants, and participation was frozen for participants who were not 40 years of age in 2006. Of the named executive officers, only Mr.Messrs. Childress and Cox continuescontinue to accrue
benefits under the defined benefit pension plan. Mr. Walker’s benefits under this plan were frozen in 2006 since he was not age 40 at that time. Accordingly, he no longer accrues benefits under the defined benefit pension plan. The other NEOs were hired after 2006. For salaried employees, including Messrs. Macadam, Pease, McLeanWalker and Herold,Riley, who are not eligible to accrue benefits under the defined benefit plan either because they were hired after 2006 or they were too young when the pension plan was closed to new participants, and Mr. Walker, who was younger than 40 in 2006 and whose benefits under the pension plan were frozen, in 2006, we instead make a contribution equal to 2% of salary and annual incentive compensation to the employee’s account in our 401(k) plan, with anyplan. Any amount in excess ofexceeding permitted 401(k) contributions beingis made to the deferred compensation plan.
In addition, weWe also provide our executive officers and others who participate in the defined benefit pension plan with a defined benefit restoration plan. The restoration plan to givegives them the benefits they would have received under our pension plan were it not for limitations under the pension plan. The federal tax code places caps onboth the amount of annual compensation that the pension plan can take into account and on the amount of annual benefits that the pension plan can provide. We were required to include these caps in our
pension plan in order to maintain its tax-qualified status. In addition, the pension plan does not take into account amounts that an individual defersdeferred under our non-qualified deferred compensation plan. The defined benefit restoration plan permits participants to receive retirement pension benefits that take into account their full salaries and annual incentive compensation. Of the named executive officers, only Mr. Childress and Mr. Cox participatesparticipate in the defined benefit restoration plan.
Double-trigger change-in-controlManagement continuity agreements
In a situation involving a change in control of our company, our executive officers would face a far greater risk of termination than the averageother salaried employee.employees. To attract qualified executives that could havewho might find other job alternatives that may appearopportunities with less risk to them to be less risky absent these arrangements, and to provide themcontinued employment, we have entered into a management continuity agreement with an incentiveeach of our executive officers. These agreements incentivize our executives to stay with us in the event of an actual or potential change in control, we have entered into a management continuity agreement with each of them. In addition, we view management continuity agreements for our executive officers asand are an important part of a competitive executive compensation package.
In establishing the terms of these agreements, we looked at similar arrangements established by peer companies with whom we believe we compete for talent and by our former corporate parent. Our inclusion of particularParticular terms in these agreements, including the applicable continuation period and provisions increasing the amount payable to account for excise taxes for agreements entered into prior to 2009, reflectedreflect our subjective judgment regarding the terms offered in comparable agreements by peer companies and theour desire to offer competitive arrangements.arrangements for executive employment.
Each of these continuity agreementsagreement provides for continued employment of the individual to continue employment for a specified period
after a change in control, with the same responsibilities and authorities and generally the same benefits and compensation as hethe individual had immediately prior to the change in control (including average annual increases). The length ofperiod covered by the period was setagreement is based on the relative responsibilities of the executive officers. Theofficer. For Mr. Macadam, the period is three yearsyears; for Mr. Macadam and two years for the other executive officers. Ifofficers, the period is two years. Under the agreements, the employee would be entitled to certain payments and other benefits if, during thisthe continued employment period, we or our successor were to terminate the individual’s employment for reasons other than “cause”, or the individual voluntarily terminated his employment for a “good reason” (in each case as. These terms are defined in the agreements), he would be entitledagreements.
For an executive to certain payments and other benefits.
Because the executive must leave the company before becoming entitled to thesereceive payments and benefits the agreement hasunder these agreements, two events, or triggers, must occur. First, there must be a “double trigger” — the first trigger is the change in control of the company, and second, the second trigger is the termination,executive’s employment must be terminated, either by the company, other than for “cause”, or by the executive for “good reason.” The requirement of the second trigger provides the incentive forincentivizes the executive to stay with usthe company and perform at a high level in the event of a change in control.
For more information about these payments and other benefits, see “Executive compensation — Potential payments upon termination or change in control.”
The committeeCommittee has reviewed the amounts that are potentially payable under these agreements and believes that they are reasonable.
Severance policy
We have writtenOur severance policies under which we provide severance benefits to all full-time employees at our corporate office, including our executive officers. Under these policies, an executive officer whom we terminate without cause is entitled to continue receiving his or her base salary for a specifiedspecific period. The terminated officer is also entitled to receive a pro rata portion of the annual incentive compensation payable for the year in which the officer is terminated, along with a pro rata payout of all LTIP awards based on the number of completed months the officer was employed in each performance cycle.
The period was set basedfor which an executive officer is entitled to continue receiving his or her base salary depends on the relative responsibilitiesofficer’s level of theresponsibility. The CEO is entitled to a period of 24 months. Other executive officers. The period is 24 months for our CEO andofficers are entitled to 12 months for our other executive officers.months. An executive officer may not receive any payments under the severance policy if the executive officerwho is entitled to receive payments under the change-in-control continuity agreements described above.above is not entitled to severance benefits.
We maintain this severance policy because we believe that such aour severance policy is consistent with market compensation packages for executive officers at other companies similar to ours and therefore is an important component of a competitive compensation package.
Section 162(m) considerations
Under Section 162(m) of the Internal Revenue Code, a public company is limited to a $1 million deduction for
Changescompensation paid to its chief executive officer or any of its three other most highly compensated executive officers (other than the chief financial officer) who are employed at year-end. This limitation does not apply to compensation program in 2015
For thethat qualifies under Section 162(m) as “performance-based compensation.” Some compensation program for 2015, the committee employed the same general compensation design used in 2014, with two exceptions. First, the committee did not make special grants of restricted stock units in 2015 as it had in 2014. The committee granted these awards of restricted stock units toreceived by our named executive officers may exceed the applicable Section 162(m) deduction limit and other key personnelnot otherwise qualify as “performance-based compensation.” While the Committee retains discretion to make compensation decisions in 2014light of a variety of considerations, compensation decisions for our named executive officers are made after consideration of Section 162(m) implications. The Committee administers the senior executive annual performance plan in a manner designed to permit compensation paid under that plan to qualify as special recognition of their efforts relatedperformance based compensation under Section 162(m), by establishing a formulaic maximum award equal to the ACRP and in operating GST LLC and the other EnPro businesses under the unique circumstances presented by the ACRP. Accordingly, these special awards were not intended to be an ordinary component of the compensation program Second, the committee
also adjusted the allocation of target long-term compensation grants among incentive awards payable in cash, incentive awards payable in shares and restricted stock units. Historically (disregarding the special restricted stock unit awards in 2014), the committee has split the target long-term compensation grants equally between these three types of awards. For awards made in 2015, the committee granted 40%200% of the target long-term compensationaward if the threshold level of performance is achieved. The actual award payout, however, is determined based on the threshold, target and maximum performance goals, and the degree of actual achievement relative to those goals, as described under “Annual performance incentive plan awards” above, which in no event may exceed the formformulaic maximum award. The Committee believes that this approach to addressing Section 162(m) serves our shareholders by preserving the tax deductibility of restricted stock units, 30% in the form ofannual incentive awards payable in cash and the remaining 30% in the form of incentive awards payable in shares.that might otherwise be limited by Section 162(m).
The following information relates to compensation paid or payable for 20142015 to:
We have also included information relating to compensation for 20132014 and 20122013 for the named executive officers who were also named executive officers in those years.
The following table sets forth for the named executive officers:
Name and Principal Position (a) | Year (b) | Salary($) (c) | Bonus($) (d) | Stock Awards ($)(1) (e) | Stock Options ($) (f) | Non-Equity Incentive Plan Comp.($)(2) (g) | Change in Pension Value and Nonqualified Deferred Comp. Earnings($)(3) (h) | All Other Comp.($) (4) (i) | Total($) (j) | |||||||||||||||||||||||||||
Stephen E. Macadam | 2014 | 843,269 | — | 2,342,951 | — | 1,202,039 | — | 173,281 | 4,561,540 | |||||||||||||||||||||||||||
President and Chief Executive Officer | 2013 | 825,000 | — | 1,220,452 | — | 2,026,973 | — | 92,233 | 4,164,658 | |||||||||||||||||||||||||||
| 2012 | 825,000 | — | 824,987 | — | 2,116,275 | — | 184,813 | 3,951,075 | ||||||||||||||||||||||||||||
Alexander W. Pease(5) | 2014 | 401,400 | — | 701,635 | — | 370,890 | — | 45,528 | 1,519,453 | |||||||||||||||||||||||||||
Senior Vice President | 2013 | 390,000 | — | 561,802 | — | 637,855 | — | 42,302 | 1,631,959 | |||||||||||||||||||||||||||
and Chief Financial Officer | 2012 | 386,538 | — | 356,696 | — | 819,446 | — | 60,721 | 1,623,401 | |||||||||||||||||||||||||||
Kenneth D. Walker(6) | 2014 | 341,384 | — | 380,124 | — | 197,348 | 28,696 | 41,777 | 989,329 | |||||||||||||||||||||||||||
Senior Vice President and Chief Operating Officer | 2013 | 294,038 | — | 461,178 | — | 287,957 | — | 63,491 | 1,106,664 | |||||||||||||||||||||||||||
Jon A. Cox | 2014 | 334,646 | — | 376,605 | — | 246,821 | 324,990 | 37,195 | 1,320,256 | |||||||||||||||||||||||||||
Division President, Stemco Group and Chief Innovation and Information Officer | ||||||||||||||||||||||||||||||||||||
Robert S. McLean | 2014 | 311,192 | — | 369,709 | — | 173,725 | — | 31,705 | 886,331 | |||||||||||||||||||||||||||
Vice President, General Counsel and Secretary | ||||||||||||||||||||||||||||||||||||
Dale A. Herold(7) | 2014 | 351,298 | — | 100,490 | — | 223,730 | — | 1,064,430 | 1,739,948 | |||||||||||||||||||||||||||
Former Chief Customer Officer and Division President, Garlock |
| 2013 2012 |
|
| 333,077 317,731 |
|
| — — |
|
| 193,069 749,533 |
|
| — — |
|
| 454,896 359,167 |
|
| — — |
|
| 31,170 55,229 |
|
| 1,012,213 1,481,660 |
| |||||||||
Name and Principal Position (a) | Year (b) | Salary($) (c) | Bonus($) (d) | Stock Awards ($)(1) (e) | Stock Options ($) (f) | Non-Equity Incentive Plan Comp.($)(2) (g) | Change in Pension Value and Nonqualified Deferred Comp. Earnings($)(3) (h) | All Other Comp.($) (4) (i) | Total($) (j) | |||||||||||||||||||||||||||
Stephen E. Macadam | 2015 | 850,000 | — | 1,559,899 | — | 1,689,206 | — | 94,095 | 4,189,200 | |||||||||||||||||||||||||||
President and Chief | 2014 | 843,269 | — | 2,342,951 | — | 1,202,039 | — | 173,281 | 4,561,540 | |||||||||||||||||||||||||||
| 2013 | 825,000 | — | 1,220,452 | — | 2,026,973 | — | 92,233 | 4,164,658 | ||||||||||||||||||||||||||||
J. Milton Childress II(5) | 2015 | 354,014 | — | 322,496 | — | 280,858 | 68,840 | 24,527 | 1,050,735 | |||||||||||||||||||||||||||
Senior Vice President | ||||||||||||||||||||||||||||||||||||
Kenneth D. Walker | 2015 | 420,000 | — | 426,315 | — | 357,600 | — | 48,182 | 1,252,097 | |||||||||||||||||||||||||||
Senior Vice President and | 2014 | 341,384 | — | 380,124 | — | 197,348 | 28,696 | 41,777 | 989,329 | |||||||||||||||||||||||||||
Chief Operating Officer | 2013 | 294,038 | — | 461,178 | — | 287,957 | — | 63,491 | 1,106,664 | |||||||||||||||||||||||||||
Marvin A. Riley | 2015 | 278,199 | — | 498,986 | — | 317,854 | — | 33,877 | 1,128,916 | |||||||||||||||||||||||||||
Division President, Fairbanks Morse | ||||||||||||||||||||||||||||||||||||
Jon A. Cox | 2015 | 340,369 | — | 205,277 | — | 325,766 | — | 31,995 | 903,407 | |||||||||||||||||||||||||||
Division President, Stemco | 2014 | 334,646 | — | 376,605 | — | 246,821 | 324,990 | 37,195 | 1,320,256 | |||||||||||||||||||||||||||
Group and Chief Innovation and Information Officer | ||||||||||||||||||||||||||||||||||||
Alexander W. Pease(6) | 2015 | 171,600 | — | 3,446 | — | — | — | 439,327 | 614,373 | |||||||||||||||||||||||||||
Former Senior Vice | 2014 | 401,400 | — | 701,635 | — | 370,890 | — | 45,528 | 1,519,453 | |||||||||||||||||||||||||||
President and Chief Financial Officer | 2013 | 390,000 | — | 561,802 | — | 637,855 | — | 42,302 | 1,631,959 | |||||||||||||||||||||||||||
| (1) | The |
| follows: Mr. Macadam, |
| (2) | For |
| Annual Plan | Cash LTIP Award | Total | Annual Plan | Cash LTIP Award | Total | |||||||||||||||||||
Macadam | $ | 719,414 | $ | 482,625 | $ | 1,202,039 | $ | 600,206 | $ | 1,089,000 | $ | 1,689,206 | ||||||||||||
Childress | 166,652 | 114,206 | 280,858 | |||||||||||||||||||||
Walker | 197,715 | 159,885 | 357,600 | |||||||||||||||||||||
Riley | 191,629 | 126,225 | 317,854 | |||||||||||||||||||||
Cox | 165,881 | 159,885 | 325,766 | |||||||||||||||||||||
Pease | 228,296 | 142,594 | 370,890 | — | — | — | ||||||||||||||||||
Walker | 137,678 | 59,670 | 197,348 | |||||||||||||||||||||
Cox | 182,178 | 64,643 | 246,821 | |||||||||||||||||||||
McLean | 139,064 | 34,661 | 173,725 | |||||||||||||||||||||
Herold | 149,142 | 74,588 | 223,730 | |||||||||||||||||||||
Pursuant to our management stock purchase deferral plan, the following named executive officers deferred receipt of the following amounts payable to them under our annual performance incentive plans: Mr. Macadam, $359,707; Mr. Pease, $13,698; Mr. McLean, $48,672; and Mr. Herold, $37,285.
| Pursuant to our management stock purchase deferral plan, the following named executive officers deferred receipt of the following amounts payable to them under our annual performance incentive plans: Mr. Macadam, $359,697; Mr. Childress, $29,927 and Mr. Pease, $13,719. |
| (3) | For |
| Increase in Actuarial Present Value Under | Increase (Decrease) in Actuarial Present Value Under | |||||||||||||||||||||||
| Pension Plan | Restoration Plan | Total | Pension Plan | Restoration Plan | Total | |||||||||||||||||||
Macadam | — | — | — | — | — | — | ||||||||||||||||||
Childress | $ | 4,223 | $ | 64,617 | $ | 68,840 | ||||||||||||||||||
Walker | (8,353 | ) | — | (8,353 | ) | |||||||||||||||||||
Riley | — | — | — | |||||||||||||||||||||
Cox | (73,800 | ) | 41,146 | (32,654 | ) | |||||||||||||||||||
Pease | — | — | — | — | — | — | ||||||||||||||||||
Walker | $ | 28,696 | — | $ | 28,696 | |||||||||||||||||||
Cox | 171,183 | 153,807 | 324,990 | |||||||||||||||||||||
McLean | — | — | — | |||||||||||||||||||||
Herold | — | — | — | |||||||||||||||||||||
| (4) | For |
| 401(k) plan* | Amounts paid for umbrella liability insurance | Non-qualified deferred compensation plan match | Other** | Total | 401(k) plan* | Amounts paid for umbrella liability insurance | Non-qualified deferred compensation plan match | Other** | Total | |||||||||||||||||||||||||||||||
Macadam | $ | 20,165 | $ | 626 | $ | 152,490 | — | $ | 173,281 | $ | 21,200 | $ | 626 | $ | 72,269 | — | $ | 94,095 | ||||||||||||||||||||||
Childress | 15,900 | 431 | 8,196 | — | 24,527 | |||||||||||||||||||||||||||||||||||
Walker | 17,922 | 431 | 29,829 | — | 48,182 | |||||||||||||||||||||||||||||||||||
Riley | 21,200 | 431 | 12,246 | — | 33,877 | |||||||||||||||||||||||||||||||||||
Cox | 13,957 | 431 | 17,607 | — | 31,995 | |||||||||||||||||||||||||||||||||||
Pease | 20,800 | 431 | 24,297 | — | 45,528 | 21,200 | 431 | 7,696 | $ | 410,000 | 439,327 | |||||||||||||||||||||||||||||
Walker | 20,800 | 431 | 20,546 | — | 41,777 | |||||||||||||||||||||||||||||||||||
Cox | 17,500 | 431 | 19,264 | — | 37,195 | |||||||||||||||||||||||||||||||||||
McLean | 14,153 | 431 | 17,121 | — | 31,705 | |||||||||||||||||||||||||||||||||||
Herold | 20,800 | 431 | 20,668 | $ | 1,022,531 | 1,064,430 | ||||||||||||||||||||||||||||||||||
| * | For Mr. Macadam, includes a matching 401(k) contribution of |
| ** | For Mr. |
| (5) | Mr. Childress was appointed Senior Vice President and Chief Financial Officer upon the effectiveness of Mr. Pease’s resignation of those positions on March 31, 2015. |
| (6) | On February 18, 2015, Mr. Pease resigned as Senior Vice President and Chief Financial Officer |
The “Stock Awards” values shown in column (e) of this table include grants of performance shares for three-year long-term incentive cycles. The officers do not actually earn any performanceThese shares unlessare earned only if we achieve performance at a specified threshold level and theof performance. The number of shares theythe officers actually earn will be based on the
level of performance. The value for these awards included inFor the purposes of this table, assumes thatthe values shown assume our performance will be achieved atreach the target level. For more information about our long-term incentive plan, or LTIP, under which we granted these performance share awards, see below under “— Grants of plan-based awards — LTIP awards.”
In February 2015,2016, we paid out long-term incentive plan awards under our LTIP (comprised of LTIP cash awards and performance shares) for our long-term performance cycles ending in 2014. For awards made to our executive officers, these LTIP2015. These awards were grantedbased on grants made in February 20122013 for the 2012-20142013-2015 performance cycle. We paid each award based on
according to the achievement of performance goals the Compensation Committee set in early 2012.2013. Participants in this LTIP cycle, including the named executive officers, earned the awards as of December 31, 2014.2015. The payment for 2014 associated withcash payments of LTIP awards payable in cashfor 2015 to the named executive officers appearsappear in
column (g) of the summary compensation table (see footnote 2 for the exact amounts). As described above,The amounts for 20142015 in column (e) reflectsreflect the grantfair value on the date they were granted for restricted stock units and performance shares. The fair value was determined in accordance with the rules and regulations of the SEC, with respect to restricted stock units and performance share opportunities awarded in 2014.SEC.
For more information about payouts under our annual performance plan, which are included in the amounts shown in column (g) above (see footnote 2), see the
section below entitled “— Grants of Plan-Based Awards — Annual Performance Plan Awards.”
In connection with ourOur recruitment of Mr. Macadam as our President and Chief Executive Officer on March 10, 2008 we entered intoincluded an employment agreement with Mr. Macadam to establishestablishing the terms of his employment. The employmentWe entered into this agreement on March 10, 2008. It provides for a minimum annual salary of $825,000. The employment agreementIt also provided for initial awards upon commencement of employment, of stock options and restricted stock butupon commencement of his employment. It does not provide for any subsequent equity awards.
The employment agreement provides thatmakes Mr. Macadam will be eligible to participate in our annual incentive plan with aand in our LTIP. His target opportunity in our annual incentive plan is equal to 100% of his annual base salary andwith a maximum opportunity of 200% of annual base salary, and insalary. His compensation under our LTIP inis set at the discretion of our board of directors at levels that:
compensation consultant, and
The period of employment under the employment agreement will terminateend upon Mr. Macadam’s death, resignation or termination of employment by EnPro. We may terminate Mr. Macadam’s employment for any reason, and Mr. Macadam may resign his employment for any reason. The employment agreement also provides for the maintenance ofrequires Mr. Macadam to maintain confidential information by Mr. Macadam and includes a covenant against certain activities in competition against EnPro for two-years following termination of employment.
Pursuant to the employment agreement, we entered into a management continuity agreement with Mr. Macadam. The management continuity agreement and the provisions for severance in the event of the termination of Mr. Macadam’s employment are described below in “— Potential payments upon termination or change in control.”
The following table provides additional information about awards we granted in 20142015 to the named executive officers under our annual performance plans, awards payable in cash under our LTIP and awards of
performance shares and awards of restricted stock units under our Amended and Restated 2002 Equity Compensation Plan.
| All Other Stock Awards: Number of Shares or Units (#) (i) | All Other Option Awards: Number of Securities Underlying Options (#) (j) | Exercise or Base Price of Option Awards ($/Sh) (k) | Grant Date Fair Value of Stock and Option Awards(2) (l) | All Other Stock Awards: Number of Shares or Units (#) (i) | All Other Option Awards: Number of Securities Underlying Options (#) (j) | Exercise or Base Price of Option Awards ($/Sh) (k) | Grant Date Fair Value of Stock and Option Awards(2) (l) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Estimated Future Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Name (a) | Plan | Grant Date (b) | Threshold ($) (c) | Target ($) (d) | Maximum ($) (e) | Threshold (#) (f) | Target (#) (g) | Maximum (#) (h) | Plan | Grant Date (b) | Threshold ($) (c) | Target ($) (d) | Maximum ($) (e) | Threshold (#) (f) | Target (#) (g) | Maximum (#) (h) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stephen E. Macadam | Annual Plan(1) | 2/5/2014 | 1,785,000 | 1,785,000 | 1,785,000 | — | — | — | — | — | — | — | Annual Plan(1) | 2/18/2015 | 446,250 | 892,500 | 1,785,000 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
LTIP | 2/5/2014 | 283,333 | 566,667 | 1,700,000 | — | — | — | — | — | — | — | LTIP | 2/18/2015 | 315,000 | 630,000 | 1,890,000 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity Plan | 2/5/2014 | — | — | — | 3,937 | 7,874 | 23,622 | — | — | — | 565,589 | Equity Plan | 2/18/2015 | — | — | — | 4,937 | 9,873 | 29,619 | — | — | — | 629,996 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity Plan | 2/5/2014 | — | — | — | — | — | — | 24,744 | — | — | 1,777,362 | Equity Plan | 2/18/2015 | — | — | — | — | — | — | 14,573 | — | — | 929,903 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Alexander W. Pease | Annual Plan(1) | 2/5/2014 | 527,280 | 527,280 | 527,280 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
J. Milton Childress II | Annual Plan(1) | 2/18/2015 | 123,905 | 247,809 | 495,618 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
LTIP | 2/5/2014 | 87,880 | 175,760 | 527,280 | — | — | — | — | — | — | — | LTIP | 2/18/2015 | 67,500 | 135,000 | 405,000 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity Plan | 2/5/2014 | — | — | — | 1,221 | 2,442 | 7,326 | — | — | — | 175,409 | Equity Plan | 2/18/2015 | — | — | — | 1,058 | 2,116 | 6,348 | — | — | — | 135,022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity Plan | 2/5/2014 | — | — | — | — | — | — | 7,326 | — | — | 526,227 | Equity Plan | 2/18/2015 | — | — | — | — | — | — | 2,938 | — | — | �� | 187,474 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Kenneth D. Walker | Annual Plan(1) | 2/5/2014 | 369,600 | 369,600 | 369,600 | — | — | — | — | — | — | — | Annual Plan(1) | 2/18/2015 | 147,000 | 294,000 | 588,000 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
LTIP | 2/5/2014 | 47,600 | 95,200 | 285,600 | — | — | — | — | — | — | — | LTIP | 2/18/2015 | 91,350 | 182,700 | 548,100 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity Plan | 2/5/2014 | — | — | — | 662 | 1,323 | 3,969 | — | — | — | 95,013 | Equity Plan | 2/18/2015 | — | — | — | 1,432 | 2,863 | 8,589 | — | — | — | 182,688 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity Plan | 2/5/2014 | — | — | — | — | — | — | 3,969 | — | — | 285,093 | Equity Plan | 2/18/2015 | — | — | — | — | — | — | 3,818 | — | — | 243,627 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Marvin A. Riley | Annual Plan(1) | 2/18/2015 | 76,505 | 153,009 | 306,018 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
LTIP | 2/18/2015 | 33,150 | 66,300 | 198,900 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity Plan | 2/18/2015 | — | — | — | 520 | 1,039 | 3,117 | — | — | — | 66,299 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity Plan | 2/18/2015 | — | — | — | — | — | — | 4,385 | — | — | 279,807 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity Plan | 7/27/2015 | — | — | — | — | — | — | 3,000 | — | — | 152,880 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Jon A. Cox | Annual Plan(1) | 2/5/2014 | 360,580 | 360,580 | 360,580 | — | — | — | — | — | — | — | Annual Plan(1) | 2/18/2015 | 93,602 | 187,203 | 374,406 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
LTIP | 2/5/2014 | 46,439 | 92,877 | 278,631 | — | — | — | — | — | — | — | LTIP | 2/18/2015 | 43,998 | 87,975 | 263,925 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity Plan | 2/5/2014 | — | — | — | 645 | 1,290 | 3,870 | — | — | — | 92,661 | Equity Plan | 2/18/2015 | — | — | — | 690 | 1,379 | 4,137 | — | — | — | 87,994 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity Plan | 2/5/2014 | — | — | — | — | — | — | 3,953 | — | — | 283,944 | Equity Plan | 2/18/2015 | — | — | — | — | — | — | 1,838 | — | — | 117,283 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Robert S. McLean | Annual Plan(1) | 2/5/2014 | 350,900 | 350,900 | 350,900 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
LTIP | 2/5/2014 | 45,192 | 90,383 | 271,149 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity Plan | 2/5/2014 | — | — | — | 628 | 1,256 | 3,768 | — | — | — | 90,218 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity Plan | 2/5/2014 | — | — | — | — | — | — | 3,891 | — | — | 279,491 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dale A. Herold | Annual Plan(1) | 2/5/2014 | 390,830 | 390,830 | 390,830 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| LTIP(3) | 2/5/2014 | 50,334 | 100,668 | 302,004 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity Plan(3) | 2/5/2014 | — | — | — | 700 | 1,399 | 4,197 | — | — | — | 100,490 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity Plan(3) | 2/5/2014 | — | — | — | — | — | — | 4,398 | — | — | 315,908 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Alexander W. Pease | Equity Plan | 2/18/2015 | — | — | — | — | — | — | 54 | — | — | 3,446 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (1) | For |
| (2) | The amounts in this column reflect the grant date fair value under FASB ASC Topic 718 of respective awards in 2015 of performance share opportunities and restricted stock |
Annual performance plan awards
In February 2014,2015, the Compensation Committee granted each named executive officer then employed by us an award opportunity for 2014an award in 2015 under our annual performance plans. Information about these award opportunities is reported in the Annual Plan line beside each officer’s name in the table above.above under the section,Grants of plan-based awards. The 20142015 payout amounts are included in column (g) of the summary compensation table and broken out in footnote 2 to the summary compensation table.
Mr. Macadam participates in our senior executive annual performance plan. Annual performance incentive awards
for Mr. PeaseChildress and Mr. McLeanWalker were made under a similar plan for other corporate officers that permits adjustments for unusual items, whichitems. Such adjustments are not permitted under our senior executive annual performance plan. Annual performance incentive awards for Mr. Walker,Riley and Mr. Cox and Mr. Herold were made under our management annual performance plan. This plan operates identically in all material respects with the plan
in which Mr. PeaseChildress and Mr. McLeanWalker participate, except that one-half of the awards under the management annual performance plan is based on the same corporate-wide performance measures and weightings applicable to the other NEOs and the remaining one-half
is based on performance measures applicable to the respective division offor which the plan participant.participant has responsibility.
These plans and the awards made under these plans to the NEOs in 20142015 are described in “Compensation discussion and analysis — Compensation analysis — Annual—Annual performance incentive plan awards.”
LTIP awards
For 2014, ourOur long-term compensation awards were a combination ofmade in 2015 combined restricted stock units and LTIP awards payable in cash and in performance shares. Under our LTIP, the committeeCommittee may provide aan opportunity for long-term incentive opportunity forcompensation to plan participants in any year. Each opportunity is in the form ofsets a target award based on corporate performance over a three-year cycle. The committeeCommittee establishes the relevant performance metricsrequired for payouts at the
time it grants the awards, which is generally in the first part of the first year in the cycle. For each award, there is also a threshold performance level of performance below which the participants will earn no award and a maximum performance level that corresponds toat which the participants will earn the maximum awardaward. If performance shares are earned, they can earn. Each performance share, if earned, will be paid in the forman equal number of a shareshares of our common stock. The awardHowever, the recipients will not actually own any of these shares however, unless our corporate performance through the end of the three-year performance cycle reaches at least meets the threshold level.
The LTIP and the awards made under the LTIP to the NEOs in 20142015 are described in “Compensation discussion and analysis — Compensation analysis —Long-term compensation — Awards granted in 2014.2015.”
Restricted stock unit awards
In 2014 we awarded a special grant of restricted stock units awarded to executive officers and other key personnelFor 2015, the Committee determined that, in recognition of their efforts related to the strategy, planning and managementgeneral, 40% of the ACRP which resulted in the favorable estimation order issued by the bankruptcy court in January 2014 and operating GST LLC and the other EnPro businesses under the unique circumstances presented by the ACRP. The special grant was madetarget long-term compensation would be payable in the form of restricted stock
units to help ensure the retention of these individuals as the ACRP progresses. The amount units. In recognition of the specialsuccess of the Fairbanks Morse division, including progress on new engine development, and to provide additional incentive for retention, the Committee authorized the grant was equal to twice the number of an additional 6,000 restricted stock units awarded as part of the committee’s historical practice of awarding target long-term compensation grants split equally among long-term incentive awards payable in cash, long-term incentive awards payable in shares and restricted stock units.to Mr. Riley.
In 2014,2015, we granted additional restricted stock units to named executive officers who elected to participate in our management stock purchase deferral plan. This plan which
permits officers and other senior personnel to defer, for five years or more, up to 50% of annual incentive compensation, withcompensation. The deferred amounts credited to their accounts are based on the value of our common stock. Participants in that plan are eligible to receive restricted stock unit awards equal to 25% of the amount deferred. The award of restricted stock units to Mr. Pease in 2015 was pursuant to this deferral plan.
All 20142015 awards of restricted stock units to the named executive officers were made under our Amended and Restated 2002 Equity Compensation Plan andPlan. The units vest three years after the date of grant subject to the executive’s continued employment during that period. The restricted stock units would vest earlier in the event of death, disability or a change in control of the company. In the event of an executive’s retirement, one-third of the restricted stock units vest if retirement occurspro rata based on the number of months he or she was employed after the first anniversary of the grant date but beforethrough the second anniversary of the grantretirement date and two-thirds vest if retirement occurs on or after the second anniversary of the grant date but before the third anniversary of the grant date.
If we pay any common stock dividends priorcompared to the vestingscheduled 36-month period.
Recipients of the restricted stock units recipients of the restricted stock units willare not be entitled to receive any such dividends when such(if dividends are paid.paid) before the units vest. However, when the units vest, the recipient is entitled to receive one share of common stock for each restricted stock unit vesting plus a cash payment equal to the aggregate amount of any cash dividends paid on the shares from the date of the award through the date the units vest. Recipients have no right to vote any restricted stock units on any matter presented to a vote of the company’s shareholders. Upon vesting, the recipient would be entitled to receive, for each restricted stock unit vesting, one share of common stock plus a cash payment equal to the aggregate amount of cash dividends paid with respect to one share of common stock from the date the award was made through the date of vesting.
Outstanding equity awards at fiscal year-end
The nextfollowing table givesis a snapshot as of the end of 20142015 of equity awards to our named executive officers, the ultimate outcomes of which theofficers. The officers have not yet realized. In fact, otherrealized the benefits of these rewards. Other than the option awards in column (b), thesethe awards either have not vested or the officers have not yet earned them.
| Option Awards | Stock Awards | Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Name (a) | Number of Securities Underlying Unexercised Options (#) Exercisable (b) | Number of Securities Underlying Unexercised Options (#) Unexercisable (c) | Option Exercise Price ($) (e) | Option Expiration Date (f) | Number of Shares or Units of Stock That Have Not Vested (#) (g) | Market Value of Shares or Units of Stock That Have Not Vested ($)(1) (h) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) (i) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(1) (j) | Number of Securities Underlying Unexercised Options (#) Exercisable (b) | Number of Securities Underlying Unexercised Options (#) Unexercisable (c) | Option Exercise Price ($) (e) | Option Expiration Date (f) | Number of Shares or Units of Stock That Have Not Vested (#) (g) | Market Value of Shares or Units of Stock That Have Not Vested ($)(1) (h) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) (i) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(1) (j) | ||||||||||||||||||||||||||||||||||||||||||||||||
Stephen E. Macadam | 100,000 | — | 34.55 | 4/13/2018 | — | — | — | — | 91,318 | — | 34.55 | 4/13/2018 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| 8,429 | 16,859 | (2) | 42.24 | 2/10/2021 | — | — | — | — | 12,125 | 8,429 | (2) | 42.24 | 2/10/2021 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | 6,574 | (3) | 412,584 | — | — | — | — | — | — | 14,998 | (3) | 657,512 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | 14,998 | (4) | 941,274 | — | — | — | — | — | — | 24,744 | (4) | 1,084,777 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | 24,744 | (5) | 1,552,933 | — | — | — | — | — | — | 14,573 | (5) | 638,880 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | — | — | 37,044 | (6) | 2,324,881 | — | — | — | — | — | — | 3,937 | (6) | 172,598 | |||||||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | — | — | 7,874 | (7) | 494,172 | — | — | — | — | — | — | 29,619 | (7) | 1,298,497 | |||||||||||||||||||||||||||||||||||||||||||||||
Alexander W. Pease | — | — | — | — | 4,942 | (3) | 310,160 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
J. Milton Childress II | — | — | — | — | 1,295 | (3) | 56,773 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | 8,794 | (4) | 551,911 | — | — | — | — | — | — | 2,568 | (4) | 112,581 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | 7,326 | (5) | 459,780 | — | — | — | — | — | — | 2,938 | (5) | 128,802 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | — | — | 11,382 | (6) | 714,334 | — | — | — | — | — | — | 412 | (6) | 18,062 | |||||||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | — | — | 2,442 | (7) | 153,260 | — | — | — | — | — | — | 6,348 | (7) | 278,296 | |||||||||||||||||||||||||||||||||||||||||||||||
Kenneth D. Walker | — | — | — | — | 813 | (3) | 51,024 | — | — | — | — | — | — | 1,813 | (3) | 79,482 | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | 1,813 | (4) | 113,784 | — | — | — | — | — | — | 3,969 | (4) | 174,001 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | 3,969 | (5) | 249,094 | — | — | — | — | — | — | 5,000 | (8) | 219,200 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | 5,000 | (8) | 313,800 | — | — | — | — | — | — | 3,818 | (5) | 167,381 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | — | — | 5,439 | (6) | 341,352 | — | — | — | — | — | — | 661 | (6) | 28,978 | |||||||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | — | — | 1,323 | (7) | 83,031 | — | — | — | — | — | — | 8,589 | (7) | 376,542 | |||||||||||||||||||||||||||||||||||||||||||||||
Marvin A. Riley | — | — | — | — | 1,431 | (3) | 62,735 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | 2,856 | (4) | 125,207 | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | 4,385 | (5) | 192,238 | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | 3,000 | (9) | 131,520 | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | — | — | 476 | (6) | 20,868 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | — | — | 3,117 | (7) | 136,649 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Jon A. Cox | — | — | — | — | 880 | (3) | 55,229 | — | — | — | — | — | — | 1,813 | (3) | 79,482 | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | 1,813 | (4) | 113,784 | — | — | — | — | — | — | 3,953 | (4) | 173,300 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | 3,953 | (5) | 248,090 | — | — | — | — | — | — | 1,838 | (5) | 80,578 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | — | — | 5,439 | (6) | 341,352 | — | — | — | — | — | — | 645 | (6) | 28,277 | |||||||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | — | — | 1,290 | (7) | 80,960 | — | — | — | — | — | — | 4,137 | (7) | 181,366 | |||||||||||||||||||||||||||||||||||||||||||||||
Robert S. McLean | — | — | — | — | 472 | (3) | 29,623 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | 1,845 | (4) | 115,792 | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | 3,891 | (5) | 244,119 | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | — | — | 5,535 | (6) | 347,377 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | — | — | 1,256 | (7) | 78,827 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dale A. Herold | — | — | — | — | — | — | 4,326 | (6) | 271,500 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | — | — | 467 | (7) | 29,309 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (1) | We calculated these values using a price of |
| (2) |
| (3) | These restricted stock units, which each represent a contingent right to receive one share of common stock and cash payment equal to dividends paid on a share of common stock since the date of grant, |
| (4) | These restricted stock units, which each represent a contingent right to receive one share of common stock and cash payment equal to dividends paid on a share of common stock since the date of grant, vest on February 5, |
| (5) | These restricted stock units, which each represent a contingent right to receive one share of common stock and cash payment equal to dividends paid on a share of common stock since the date of grant, vest on February |
| (6) | The amounts for these outstanding awards for the |
| (7) | The amounts for these outstanding awards for the 2015–2017 LTIP cycle are presented at the maximum performance levels, which is 300% of the target levels. The awards for the |
| (8) | The restricted shares of common stock awarded to Mr. Walker vest on October 2, 2016. |
| (9) | The restricted stock units awarded to Mr. Riley vest on July 27, 2018. |
Option exercises and stock vested
This table provides information about amounts the named executive officers realized in 20142015 from equity awards.
| Option Awards | Stock Awards | Option Awards | Stock Awards | |||||||||||||||||||||||||||||
Name (a) | Number of Shares Acquired on Exercise (#) (b) | Value Realized on Exercise ($) (c) | Number of Shares Acquired on Vesting (#) (d) | Value Realized on Vesting ($) (e) | Number of Shares Acquired on Exercise (#) (b) | Value Realized on Exercise ($) (c) | Number of Shares Acquired on Vesting (#) (d) | Value Realized on Vesting ($) (e) | ||||||||||||||||||||||||
Stephen E. Macadam | 11,049 | 424,642 | (1) | — | — | 2,367 | 61,305 | (1) | — | — | ||||||||||||||||||||||
| — | — | 5,319 | 386,798 | (2) | — | — | 6,574 | 409,955 | (2) | |||||||||||||||||||||||
| — | — | 22,849 | 1,644,443 | (3) | — | — | 8,973 | 572,567 | (3) | |||||||||||||||||||||||
Alexander W. Pease | — | — | 1,729 | 125,733 | (2) | |||||||||||||||||||||||||||
| — | — | 7,427 | 534,521 | (3) | ||||||||||||||||||||||||||||
J. Milton Childress II | — | — | 645 | 40,222 | (2) | |||||||||||||||||||||||||||
| — | — | 2,500 | 180,150 | (4) | — | — | 881 | 56,217 | (3) | |||||||||||||||||||||||
Kenneth D. Walker | — | — | 678 | 49,304 | (2) | — | — | 813 | 50,699 | (2) | ||||||||||||||||||||||
| — | — | 2,913 | 209,649 | (3) | — | — | 1,109 | 70,765 | (3) | |||||||||||||||||||||||
Marvin A. Riley | — | — | 398 | 24,819 | (2) | |||||||||||||||||||||||||||
| — | — | 544 | 34,713 | (3) | ||||||||||||||||||||||||||||
Jon A. Cox | — | — | 723 | 52,777 | (2) | — | — | 880 | 54,877 | (2) | ||||||||||||||||||||||
| — | — | 3,108 | 223,683 | (3) | — | — | 1,202 | 76,700 | (3) | |||||||||||||||||||||||
Robert S. McLean | — | — | 408 | 29,670 | (2) | |||||||||||||||||||||||||||
Alexander W. Pease | — | — | 4,942 | 308,183 | (2) | |||||||||||||||||||||||||||
| — | — | 1,753 | 126,163 | (3) | — | — | 2,651 | 169,160 | (3) | |||||||||||||||||||||||
Dale A. Herold | — | — | 859 | 62,466 | (2) | |||||||||||||||||||||||||||
| — | — | 3,690 | 265,569 | (3) | ||||||||||||||||||||||||||||
| (1) | Value realized based on |
| (2) | Value realized based on |
| (3) | Value realized based on |
The nextfollowing table shows information about the named executive officers’ accumulated benefits under our defined benefit pension plans. The information includes the present value of each officer’s accumulated benefit for each officer under each plan. This is theThe values are lump sum value, as of December 31, 2014,sums of the annual benefit earned as of that date thatDecember 31, 2015. The sums would be payable under each plan at the officer’s retirement, assuming he retired at the earliest age at which his benefits would not be reduced. The present
present value of accumulated benefit is an estimate only. Each officer’s actual benefit under these plans will depend on his compensation and years of service at retirement or termination, and on other data used in the benefit calculations. The assumptions used to estimate these benefits are the same as those assumptions used in Note 14 to our Consolidated Financial Statements in our 20142015 annual report.
Name (a) | Plan Name (b) | Number of Years Credited Service (#) (c) | Present Value of Accumulated Benefit ($) (d) | |||||||
Stephen E. Macadam(1) | Pension | — | — | |||||||
| Restoration | — | — | ||||||||
Alexander W. Pease(1) | Pension | — | — | |||||||
| Restoration | — | — | ||||||||
Kenneth D. Walker(1) | Pension | 5.5 | 95,946 | |||||||
| Restoration | — | — | ||||||||
Jon A. Cox | Pension | 19.0 | 557,447 | |||||||
| Restoration | 19.0 | 521,618 | ||||||||
Robert S. McLean(1) | Pension | — | — | |||||||
| Restoration | — | — | ||||||||
Dale A. Herold(1)(2) | Pension | — | — | |||||||
| Restoration | — | — | ||||||||
Name (a) Stephen E. Macadam(1) J. Milton Childress II Kenneth D. Walker(1) Marvin A. Riley(1) Jon A. Cox Alexander W. Pease(1) Plan Name
(b) Number of Years
Credited Service
(#)
(c) Present Value of
Accumulated Benefit
($)
(d) Pension — — Restoration — — Pension 10.0 349,086 Restoration 10.0 348,818 Pension 5.5 87,593 Restoration — — Pension — — Restoration — — Pension 20.0 483,647 Restoration 20.0 562,764 Pension — — Restoration — —
| (1) | Mr. Macadam |
We currently maintain two defined benefit plans. One, which we refer to as our pension plan, is a broad-based plan that provides funded, tax-qualified benefits up to the limits on compensation and benefits under the Internal Revenue Code. The other provides unfunded, non-qualified benefits in excess of the limits that apply to the pension plan. We call this one the restoration plan.
Pension plan
Benefits under our pension plan are paid monthly as a life annuity, with monthly payments.annuity. Benefit amounts for salaried employees depend on a participant’s pay and credited service with our company. ForIf a participant chooses to receive payments before age 62, benefits accrued due to service with the company through December 31, 2006 the monthly payments will be reduced by 4% per year of age below age 62. Payments of these benefits will not be reduced if the participant waits until after age 62. If a participant chooses to receive payments before age 62. There will be no reduction in the amount of the payments if the participant waits until after age 62. For65, benefits accrued due to service after December 31, 2006 the monthly payments will be reduced by 5% per year if the participant chooses to begin receiving payments beforeof age below age 65.
Pay used to determine aA salaried participant’s benefit amount is determined by the greater of the participant’s average compensation over the final 60 months of employment or the highest consecutive 60 months of the participant’s compensation during the lastfinal 120 months of employment, whichever is greater.the participant’s employment. For purposes of the plan, “compensation” means base pay plus annual incentive plan awards. However, compensation for the pension plan is limited under the federal tax code. The limit was $255,000$265,000 in 2013.2015. In addition, benefits provided under the pension plan may not exceed a benefit limit under the federal tax code. In 2013,2015, this limit was $205,000,$210,000, payable as a single life annuity beginning at normal retirement age.
We established the pension plan to provide tax-qualified retirement benefits for most of our full-time employees of the company.employees. In 2006, we began to phase out participation in this plan for salaried employees,
replacing it with an additional benefit under our 401(k) plan, and at that time theplan. The pension plan was closed to
new participants. However, salariedparticipants at that time. Salaried employees who were hired prior to January 1, 2006 and who were at least age 40 on December 31, 2006 were offered a choicecould choose either to accept the additional benefit under our 401(k) plan or continue to accrue benefits under the pension plan. Each of the named executive officers then employed by us and aged 40 or older chose to continue to accrue future benefits under the pension plan rather than to receive the additional benefit under our 401(k) plan. Of the named executive officers, only Mr. Childress and Mr. Cox continuescontinue to accrue benefits under the pension plan, whileplan. Mr. Walker’s benefits under the pension plan were frozen in 2006.
As required by federal pension laws, benefits under the pension plan are funded by assets held in a tax-exempt trust.
Restoration plan
The restoration plan providesis designed to create a benefit that is equal to the benefit thatwhat a participant would be providedreceive under the pension plan if the federal tax code compensation and benefit limits did not exist, minusexist. To achieve this total, the benefit actuallyrestoration plan pays an amount additional to the amount provided under the pension plan. In addition, theThe restoration plan also provides benefits on compensation that is deferred and not taken into account under the pension plan.
The definition of compensationCompensation is defined the same way as the definition used forin the pension plan, except that it includes compensation includes amounts deferred pursuant tounder our non-qualified deferred compensation plan.
Vested benefits are generally payable in an actuarially equivalent single cash payment following termination of employment.
Of the named executive officers, only Mr. Childress and Mr. Cox participatesparticipate in this plan.
Because this is a non-qualified plan, benefits are unsecured, and a participant’s claim for benefits under the plan is no greater than the claim of a general creditor.
Non-qualified deferred compensation
We provide aOur deferred compensation plan that allows our executive officers to defer compensation each year beyond the limits that apply to deferrals under our tax-qualified 401(k) plan for salaried employees. We also make contributions to the officers’ plan accounts to match some of their contributions.
In 2012, we adopted a management stock purchase deferral plan to permit officers and other senior personnel to defer up to 50% of annual incentive compensation for five years or more, withmore. The deferred amounts are credited to accounts based on the value of our
our common stock. Participants in thatthe stock purchase deferral plan are eligible to receive restricted stock unit awardsunits equal to 25% of the amount deferred, withdeferred. The units have a three-year vesting period and are payable in shares of common stock at the same time the related annual incentive deferrals are payable.
The following tables provide information about amounts we and the executives contributed to these plans in 2014,2015 and about earnings and withdrawals under these plans. The last column shows each officer’s total account balance as of the end of the year for these plans.
Deferred compensation plan
Name (a) | Executive Contributions in Last FY ($)(1) (b) | Registrant Contributions in Last FY ($)(2) (c) | Aggregate Earnings in Last FY ($) (d) | Aggregate Withdrawals/ Distributions ($) (e) | Aggregate Balance at Last FYE ($) (f) | Executive Contributions in Last FY ($)(1) (b) | Registrant Contributions in Last FY ($) (2) (c) | Aggregate Earnings in Last FY ($) (d) | Aggregate Withdrawals/ Distributions ($) (e) | Aggregate Balance at Last FYE ($) (f) | ||||||||||||||||||||||||||||||
Stephen E. Macadam | 134,872 | 69,645 | 263,332 | — | 2,914,034 | 101,142 | 72,269 | 22,954 | — | 2,549,814 | ||||||||||||||||||||||||||||||
J. Milton Childress II | 11,039 | 8,196 | (2,457 | ) | — | 146,547 | ||||||||||||||||||||||||||||||||||
Kenneth D. Walker | 23,876 | 29,829 | 85 | — | 103,989 | |||||||||||||||||||||||||||||||||||
Marvin A. Riley | 23,677 | 12,246 | 99 | — | 53,791 | |||||||||||||||||||||||||||||||||||
Jon A. Cox | 28,444 | 17,607 | 4,964 | — | 475,390 | |||||||||||||||||||||||||||||||||||
Alexander W. Pease | 17,931 | 24,297 | 10,842 | — | 212,404 | 13,728 | 7,696 | (1,351 | ) | 229,269 | 3,207 | |||||||||||||||||||||||||||||
Kenneth D. Walker | 17,841 | 20,546 | 38,387 | — | 50,199 | |||||||||||||||||||||||||||||||||||
Jon A. Cox | 28,402 | 19,264 | 36,309 | — | 424,375 | |||||||||||||||||||||||||||||||||||
Robert S. McLean | 14,656 | 17,121 | 235 | — | 170,599 | |||||||||||||||||||||||||||||||||||
Dale A. Herold | 10,931 | 20,668 | (6,035 | ) | — | 256,794 | ||||||||||||||||||||||||||||||||||
| (1) | Each officer’s contributions during |
| (2) | These amounts appear in the “All Other Compensation” column, column (i), of the summary compensation table (see footnote 4 to that table). |
Management stock purchase deferral plan
Name (a) | Executive Contributions in Last FY ($)(1) (b) | Registrant Contributions in Last FY ($) (c) | Aggregate Earnings in Last FY ($) (d) | Aggregate Withdrawals/ Distributions ($) (e) | Aggregate Balance at Last FYE ($) (f) | Executive Contributions in Last FY ($)(1) (b) | Registrant Contributions in Last FY ($) (c) | Aggregate Earnings in Last FY ($) (d) | Aggregate Withdrawals/ Distributions ($) (e) | Aggregate Balance at Last FYE ($) (f) | ||||||||||||||||||||||||||||||
Stephen E. Macadam | 323,111 | — | (41,319 | ) | — | 281,792 | 359,697 | — | (190,644 | ) | — | 450,846 | ||||||||||||||||||||||||||||
J. Milton Childress II | 29,927 | — | (15,815 | ) | — | 37,396 | ||||||||||||||||||||||||||||||||||
Kenneth D. Walker | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Marvin A. Riley | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Jon A. Cox | — | — | — | 6,056 | 14,780 | |||||||||||||||||||||||||||||||||||
Alexander W. Pease | — | — | — | — | — | 13,719 | — | (2,639 | ) | 11,037 | 43 | |||||||||||||||||||||||||||||
Kenneth D. Walker | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Jon A. Cox | 23,919 | — | (3,083 | ) | — | 20,836 | ||||||||||||||||||||||||||||||||||
Robert S. McLean | 35,270 | — | (4,518 | ) | — | 37,052 | ||||||||||||||||||||||||||||||||||
Dale A. Herold | 57,976 | — | (7,391 | ) | — | 50,585 | ||||||||||||||||||||||||||||||||||
| (1) | Each officer’s contributions during |
Under the deferred compensation plan, each officer can defer up to 25% of his salary each year and up to 50% of his annual incentive plan compensation and any cash LTIP payout. We match contributions each year in an amount equal to 100% ofdollar for dollar the first 6% of salary and annual incentive plan compensation deferredan officer defers under the plan, provided that the officer is receivingreceives the maximum match permitted under our 401(k) plan. This is theThe same matching contribution rate that applies under our 401(k) plan. Also, anyAny officer hired after our pension plan was closed to new participants in 2006 receives an additional employer contribution from the company equal to 2% of the amount of the officer’s salary and annual incentive compensation that is in excess ofexceeds the IRS compensation limit for the year ($260,000265,000 for 2014)2015).
EachThe executive officerofficers who participatesparticipate in the plan also directs how the money in his plan account will be invested. The investmentdirect their investments. Investment options available under the plan are the same as those available under the 401(k) plan (excluding our common stock). All participants’ accounts are credited with their actual investment earnings or losses. We do not guarantee any investment return on the accounts. The following table shows the investment options currently available under the plan as well asand the 2014 return (loss)2015 gain or loss for each option.option are listed in the following table.
Investment Option | Return (%) | |||
Schwab Retirement Advantage Money | 0.01 | |||
| ) | |||
T. Rowe Price Mid-Cap Growth | 6.56 | |||
BlackRock Global Allocation Instl | (0.83 | ) | ||
Columbia Small Cap Value Fund II Z | (2.90 | ) | ||
PIMCO Total Return Instl | 0.73 | |||
Invesco Equity and Income Y | ) | |||
| ||||
| ||||
| ) | |||
Nuveen Winslow | ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ) | |||
American Beacon Stephens Sm Cp Gr Instl | (4.74 | ) | ||
Vanguard Selected Value Inv | (3.80 | ) | ||
Vanguard Total Bond Market Index Adm | 0.40 | |||
Vanguard Extended Market Idx Adm | (3.27 | ) | ||
Vanguard Total Intl Stock Index Admiral | (4.26 | ) | ||
Vanguard Institutional Index I | 1.37 | |||
When a participant is first eligible to participate infor the deferred compensation plan, participantshe or she may elect to receive payment of their account balances under this planupon leaving the company in one of the following ways:
AccountsA participant who does not elect a method of participants in the deferred compensation plan who do not make a payment election will be paid in a single lump sum in cash payment as soon as practicable after termination (generally within 75 days but subject to a potential six-month payment delay of up to six months if required by certain federal tax rules). Once a participant makes aA payment election he or she can change itbe changed only in accordance with federal tax laws that apply to non-qualified plans. In limited circumstances, withdrawals due to an unforeseeable emergency are permitted.
Amounts deferred under the management stock purchase deferral plan are credited to an account denominated in stock units. The number of units in an amountis based on the fair market value of our common stock on the date of deferral. The deferral accountsAdditional stock units will be credited with additional whole or fractional stock unitsto deferral accounts for any cash dividends paid during the deferral period on our common stock during the deferral period. The additional units will be based on the number of stock units in the participating employee’s account.account and will be paid in whole and fractional units. Payments of amounts under the management stock purchase deferral plan are to be made in cash, based on the then fair market value of our common stock either, at the time of payment. At the election of the participating employee, payments can be made either:
The management stock purchase deferral plan permits subsequent adjustments by participating employeesparticipants to adjust the elected deferral periodperiods they elect, subject to specified restrictions, and to receive early paymentpayments of deferred amounts in the event of an unforeseen emergency, to the extent andemergencies. Early payments are subject to the conditions specified in the management stock purchase deferral plan. A six-month payment delay applies to
payments to certain participants for payments upon termination of service.
In connection with the deferral of annual incentive compensation under the management stock purchase deferral plan, participants are eligible to receive at the time of the deferral, subject to the determination of the committee, awards of restricted share units under our Amended and Restated 2002 Equity Compensation Plan. The amountThese units are awarded at the time of the deferral and subject to the determination of the Committee. To determine the number of restricted share units a participant is eligible to receive, is equal to the whole number of stock units then being credited to the participant’s account under the management stock purchase deferral plan is divided by four and rounded up to the next whole share.
The committeeCommittee may determine either to proportionately reduce the number of restricted share units being awarded to all participants receiving such awards as of a given grant date or to make no such awards at all.
The restricted share units would vest three years after the grant date, with earlier vesting upon death, disability or retirement after the first anniversary of the date of grant (ingrant. In the case of retirement, proportionate incremental amounts of the restricted share units vest based on the date of retirement).retirement. Unvested restricted share units are to be forfeited upon the participant’s termination of service. Vested restricted share units are payable to the recipient of the award upon payment of the associated deferral amount deferred under the management stock purchase deferral plan. A vested restricted share unit is payable in one share of our common stock plus cash equal to the aggregate amount of cash dividends paid with respect toon one share of our common stock afterfrom the grant date up to and including the applicable payment date. Such awards of restricted share units are to be made in accordance with the terms of the Equity Plan and are to be evidenced by separate award agreements under the Equity Plan.
Because the deferred compensation plan and the management stock purchase deferral plan are non-qualified plans, benefits are unsecured. This means that a participant’s claim for benefits is no greater than the claim of a general creditor.
Potential payments upon termination or change in control
Double-trigger management continuity agreements
We are party to management continuityhave agreements with each of our current executive officers. The purpose of these continuity agreements isofficers designed to encourage the individualsthem to carry out their duties in the event of the possibility of a change in control of our company. The management continuity agreements are not ordinary employment agreements. Unless there is a change in control, theyThey do not provide any assurance of continued employment, or any severance beyond the severance thatwhat we provide under the terms of our severance policy.policy, unless there is a change in control of our company.
Under these agreements, any of the following events would be a “change in control”:
combined voting power of our securities (subject to certain exceptions); |
Each continuity agreement generally provides for the officer’s employment to continue, in the same position and with the same responsibilities and authority, for a period of time following the change in control. It also provides for the officer to maintain the same benefits and level of compensation, including average annual increases. The continuation periods for our named executive officers who are currently employees are as follows:
Macadam | 3 years | |
| 2 years | |
Walker | 2 years | |
Riley | 2 years | |
Cox | ||
| 2 years |
If we or our successor terminatedterminate an executive officer’s employment during his continuation period, other than for “cause,” or he voluntarily terminatedterminates his employment for a “good reason” (in each case as defined in the agreement), he would be entitled to the following payments and benefits:
Macadam | 3 years | |||
| 2 years | |||
Walker | 2 years | |||
Riley | 2 years | |||
Cox | 2 years | |||
|
awarded him for the most recent cycle that began before the termination of employment and (3) 1/12 of the target number of phantom performance shares awarded him for the most recent cycle that began before the change in control. The specified numbers for the named executive officers are: |
Macadam | 24 | |||
| 16 | |||
Walker | 16 | |||
Riley | 16 | |||
Cox | ||||
| 16 |
In addition, each officer is entitled to reimbursement of attorneys’ fees and expenses incurred to successfully, in whole or in part, enforce the terms of his agreement with us.
Because the executive must leave the company before becoming entitled to these payments and benefits, the agreement has a “double trigger”— the first trigger is the change in control, and the second trigger is the termination, either by the company other than for “cause” or by the executive for “good reason.”
The following table estimates the total amounts we would owe the named executive officers under these agreements if there had been a change in control, and they had been terminated, on December 31, 2014.2015. The table does not include a pro rata annual incentive plan
compensation for the year of termination because even without these agreements, the officers would be entitled to their full 20142015 annual incentive plan compensation if they had been terminated without cause on December 31.
Name | Salary and Annual Incentive Plan Compensation Continuation ($) | Foregone LTIP Awards ($) | Pro Rata LTIP Awards ($) | Options, Restricted Shares and Restricted Stock Units ($) | Continuation of Benefits ($) | Additional Pension Payment ($) | Estimated Tax Gross-up ($) | Scale-back Adjustment ($) | Total ($) | Salary and Annual Incentive Plan Compensation Continuation ($) | Foregone LTIP Awards ($) | Pro Rata LTIP Awards ($) | Options, Restricted Shares and Restricted Stock Units ($) | Continuation of Benefits ($) | Additional Pension Payment ($) | Estimated Tax Gross-up ($) | Scale-back Adjustment ($) | Total ($) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Macadam | 5,073,750 | 3,591,331 | 1,242,620 | 3,252,718 | 58,719 | — | — | N/A | 13,219,138 | 5,227,500 | 4,300,781 | 966,200 | 2,332,886 | 58,719 | — | — | N/A | 12,886,086 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pease | 1.338,480 | 707,410 | 382,836 | 1,321,851 | 26,287 | — | — | (130,428 | ) | 3,646,436 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Childress | 1,275,000 | 305,013 | 140,230 | 288,950 | 32,948 | 134,848 | — | N/A | 2,176,989 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Walker | 1,302,000 | 295,984 | 189,966 | 727,702 | 40,101 | — | — | (331,758 | ) | 2,223,996 | 1,428,000 | 420,938 | 205,730 | 640,063 | 40,101 | — | N/A | (84,825 | ) | 2,650,007 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Riley | 1,003,258 | 332,319 | 111,257 | 380,181 | 13,562 | — | N/A | — | 1,840,577 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cox | 1,054,252 | 320,734 | 188,495 | 417,103 | 36,680 | 265,725 | — | — | 2,282,990 | 1,069,500 | 420,938 | 149,717 | 329,721 | 36,680 | 125,117 | N/A | — | 2,131,673 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
McLean | 957,000 | 265,237 | 189,242 | 389,614 | 30,203 | — | — | (201,702 | ) | 1,629,594 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Options, restricted share and restricted stock unit awards
TheUpon a change in control, restrictions under the restricted share awards made to our executive officers lapse, and unvested stock options and restricted stock unit awards made to our executive officers vest, upon a change in control.vest. The following table sets forth the value of outstanding options, restricted share awards and restricted stock unit awards at December 31, 2014 as to which2015 that either would have vested or restrictions would have lapsed or would become vested, as the case may be, as a result ofif a change in control had such an event occurred on December 31, 2014.2015. The value is based on the $62.76$43.84 per share closing price of our common stock on the New York Stock ExchangeNYSE on December 31, 2014.2015.
Name | Value of Options, Restricted Shares and Restricted Stock Units ($) | ||||
Macadam | |||||
| 298,156 | ||||
Walker | |||||
Riley | 511,700 | ||||
Cox | |||||
| |||||
Severance benefits
We haveOur written severance policies under which we provide severance benefits to all of the full-time employees at our corporate office, including the named executive officers. Under these policies, each covered employee whom we terminate without cause is entitled to continue receivingreceive his or her base salary for a specified period of time, which we refer to as the “severance period”; provided, however,. However, if thean officer’s total severance pay exceeds two times the maximum amount that may be taken into account undereligible for a qualified retirement plan under Section 401(a)(17) of the federal tax code $260,000($265,000 in
2014) 2015), the severance payit will be paid to the officer in a lump sum no later than March 15 of the year
following termination of the officer’s employment. Each employee is also entitled to continue receiving certain benefits during his or her severance period, including a pro rata payment of any annual incentive plan compensation and outstanding LTIP awards through the date of termination. The length of the severance period increases with the employee’s level of responsibility. Our executive officers generally receive the same severance benefits as all of our other full-time corporate office employees, except that our executive officers’ severance periods are longer.
The severance periods for our named executive officers are:
Macadam | 24 months | |||
| 12 months | |||
Walker | 12 months | |||
Riley | 12 months | |||
Cox | ||||
| 12 months |
However,Our severance policies are superseded by the management continuity agreements described above in the event of any termination following a change in control, the management continuity agreements described above would supersede our severance policies.control.
The following table estimates the severance benefits we would owe the named executive officers under these policies, or for Mr. HeroldPease under the terms of the agreement we entered into with him in connection with his resignation, if they had been terminated on December 31, 20142015 (assuming no prior change in control). The table does not include a pro rata annual performance plan compensation for the year of termination for officers because even without this severance policy, thosethe officers would be entitled to their full 20142015 annual performance plan compensation if they had beenwere terminated without cause on December 31.
Name | Salary | Continuation | Pro Rata | Outplacement | Total | Salary | Continuation | Pro Rata | Outplacement | Total | ||||||||||
Macadam | 1,700,000 | 39,364 | 1,182,765 | 85,000 | 3,007,129 | 1,700,000 | 39,146 | 966,200 | 85,000 | 279,0346 | ||||||||||
Pease | 405,600 | 13,100 | 533,518 | 40,560 | 992,778 | |||||||||||||||
Childress | 375,000 | 16,473 | 140,230 | 37,500 | 569,203 | |||||||||||||||
Walker | 420,000 | 19,780 | 144,490 | 42,000 | 626,270 | 420,000 | 20,050 | 205,729 | 42,000 | 687,779 | ||||||||||
Riley | 345,000 | 18,340 | 149,716 | 34,500 | 547,556 | |||||||||||||||
Cox | 327,800 | 18,223 | 150,157 | 32,780 | 528,960 | 310,000 | 6,781 | 111,256 | 31,000 | 459,037 | ||||||||||
McLean | 319,000 | 18,386 | 117,340 | 31,900 | 486,626 | |||||||||||||||
Herold(2) | 355,300 | 18,372 | 176,256 | 10,000 | 559,928 | |||||||||||||||
Pease(2) | 410,000 | — | — | — | 410,000 | |||||||||||||||
| (1) | Pro rata LTIP award calculations reflect an assumed value of |
| (2) | Mr. |
Proposal 2 — Advisory vote approving executive compensation
(Item 2 on the proxy card)
The EnPro board of directors has determined to provideprovides our shareholders with the opportunity annually to cast an annual advisory vote on the compensation paid to our named executive officers asofficers. Their compensation is reported in our proxy statement for the annual meeting of shareholders. Accordingly,To provide this opportunity to our shareholders, we will present the following resolution will be presented to the shareholders at the annual meeting:
“Resolved, that the shareholders hereby approve, on an advisory basis, the compensation paid to the Company’s named executive officers as disclosed, pursuant to Item 402 of Regulation S-K of the Securities and Exchange Commission, in the Company’s proxy statement for the 20152016 annual meeting of shareholders.”
This vote is nonbinding ondoes not bind the company. TheHowever, the board of directors and the Compensation and Human Resources Committee, which is comprised only of independent directors, expect to take into account the outcome of the vote when considering future executive compensation decisions.
As describedwe describe in detail under “Compensation discussion and analysis,” we design our executive officer compensation programs to attract, motivate, and retain the key executives who drive our success. Our objective is to establish pay practices that reward them for superior performance and align their interests as managers of our company with the long-term interests of our shareholders.
We achieve our objectives through compensation that:
Compensation analysis
Our 2014 accomplishments
Despite unevencompensation program ties pay to the achievement of both annual and long-term goals for the performance of our company. We set these goals each year and tie both annual and three-year incentive awards to achieving them. We make little or no payment for poor performance against our goals, but our executives can earn significant payment relative to their salary levels for superior performance against them.
In 2015, we were challenged by economic headwinds in many of activity in our markets duringand the year,impact of the increasingly strong U.S. dollar, which limited our growthability to deliver overall improved operating results. In addition, due to the persistent weakness in the market for maintenance of reciprocating compressors used in gas gathering, processing and transmission applications, particularly in Western Canada, and the expectation that market conditions in these areas would not rebound soon, in 2015 we booked a non-cash impairment charge of $47.0 million (before taxes) for goodwill and intangible assets associated with our CPI division. As a consequence, our operating income after adjustment, including for the goodwill and intangible asset impairment charge, was 9.2% lower in 2015 compared to 2014.
Our 2015 financial performance is reflected in the reduced annual incentive compensation reported for our Chief Executive Officer for 2015. The annual incentive compensation for our Chief Executive Officer as included in the summary compensation table on page 40 of this proxy statement was 16.6% lower for 2015 compared to 2014.
Our Chief Executive Officer’s total non-equity incentive compensation increased in 2015 compared to 2014 illustratesas a result of amounts earned under long-term incentive awards. His long-term incentive plan compensation increased from 2014 to 2015 as a result of the valueinclusion on a pro forma basis of our participationde-consolidated GST subsidiary in diverse marketsthe calculation of relevant results for 2015 due to significant positive developments in 2015 in GST’s asbestos claims resolution process. We believe these significant positive developments led to the recently announced consensual settlement to permanently resolve asbestos claims against GST, as well as our Coltec Industries Inc subsidiary. We believe that this settlement, which is subject to approval by claimants and geographies. Our performance supports our long term objectivesapplicable court approval, will, when consummated, provide certainty and finality in the resolution of these asbestos claims, along with the formal reconsolidation of GST’s financial results with ours. GST was not included in the calculation of relevant results for growth, objectives that will be further supported by significant progress2012, the initial measurement year for these awards. The successful resolution of the ACRP has been a key objective for increasing shareholder value. The effect of these developments in GST LLC’sGST’s asbestos claims resolution process on outstanding long-term incentive compensation awards is limited only to the long-term incentive awards maturing in 2015, as subsequent awards reflect the pro forma inclusion of GST in results for both the initial measurement year and the final measurement year.
For a significant improvementmore complete discussion of our accomplishments in our capital structure.
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For two decades, FME has provided engines to U.S. Navy2015, please see “Compensation discussion and nuclear power markets under licenses from MAN Diesel and Turbo and its affiliates. In 2014, FME expanded the relationship with an agreement to cooperate with MAN in the U.S. power generation market for gas-fired and dual fuel engines, giving FME a competitive offering in an attractive market.analysis — Business Highlights” on page 27.
With its partner Achates Power, Inc., FME made significant progress in the design feasibility stage of its work towards improving the commercial viability of FME’s proprietary opposed-piston engine. FME and Achates are exploring ways to reduce emissions and improve fuel efficiency in an engine design that has proven reliable over many decades in critical standby and emergency power applications.
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We routinely engage with our shareholders and have adopted changes to address their concerns
We routinely engage in a wide-ranging dialogueThrough the course of each year, we have dialogues with numerous shareholders, including periodicregular conversations with many of our largest shareholders. We carefully consider the diverse views expressed by shareholders who provided uscover a wide-range of topics in these discussions, including executive
compensation. In our conversations with feedback and made significant changes to our compensation program in 2013 following the input fromthem, our shareholders including redesigning ofgenerally support our long-term incentive compensation plan which measurespay practices and rewards performance based on the equity valuestrategic direction. We take their views into account as we create.seek to align our policies and practices with their interests.
We employ best practices in executive compensation
Shareholders are encouragedWe encourage our shareholders to read the Compensation Discussion and Analysis, the accompanying compensation tables, and the related narrative disclosure included in this proxy statement.
The board of directors unanimously recommends that you vote FOR the adoption of the resolution approving, on an advisory basis, the compensation paid to our named executive officers as disclosed in this proxy statement.
Proposal 3 — Approval of an amendment and restatement of our Amended and Restated 2002 Equity Compensation Plan
(Item 3 on the proxy card)
The board of directors is submitting a proposal for approval by the shareholders of an amendment and restatement of our Amended and Restated 2002 Equity Compensation Plan, which was last approved by the shareholders in 2014. In this section of the proxy statement, we refer to this plan, as so amended, as the “Equity Plan.” The amendment and restatement of the Equity Plan would increase the number of shares of our common stock issuable in connection with awards under the Equity Plan by 925,000 shares. In addition, the amendment and restatement would extend the term under which awards may be made under the Equity Plan from February 10, 2019 to February 24, 2026.
Our board of directors believes the Equity Plan is an important factor in attracting, keeping and motivating key employees, and further believes that the type of incentive compensation offered under the Equity Plan should continue to be offered in the future.
The following general discussion of the Equity Plan, including the increase in the number of shares and other changes reflected in the proposed amendment and restatement, is qualified by reference to the copy of the Equity Plan that is attached to this proxy statement as Annex A. The board approved the Equity Plan, subject to shareholder approval, at its February 24, 2016 meeting.
Effect of the proposed amendment and restatement
The Equity Plan currently limits the aggregate number of shares of common stock available for delivery pursuant to the Equity Plan since its inception in 2002 to 5,225,000 shares. The proposed amendment and restatement would increase the number of shares that may be delivered by 925,000 shares. Since the adoption of the Equity Plan in May 2002 through March 1, 2016, an aggregate of 4,394,811 shares of our common stock have been issued pursuant to the Equity Plan. At March 1, 2016, there were:
By increasing the number of shares authorized to be available for delivery under the Equity Plan by 925,000 shares, we would have an aggregate of 968,720 shares available for future awards, which would represent approximately 4.3 percent of our fully diluted shares. Our board of directors believes that this 925,000 share increase is required to permit us to continue to offer the type and amount of incentive compensation needed to attract, keep and motivate key employees.
In addition, the amendment and restatement would extend the date by which awards may be made under the Equity Plan from February 10, 2019 to February 24,
2026, the tenth anniversary of the date of the board of directors’ approval of the amendment and restatement.
Because the proposed amendment and restatement of the Equity Plan would increase the number of shares that may be issued under the Equity Plan and extends the date by which awards may be made under the Equity Plan, shareholder approval of the amendment and restatement is required under the rules of the NYSE.
We are also seeking shareholder approval of the amendment and restatement of the Equity Plan under Section 162(m) of the Internal Revenue Code. Section 162(m) generally limits the deduction for compensation paid by a public company to each of its chief executive officer and three additional most highly compensated officers (other than the chief financial officer) to $1.0 million per year, unless the compensation is excludable from the deduction limit as qualified “performance-based compensation.” In addition to other requirements, for awards of shares to qualify as performance-based compensation under Section 162(m), the shares must be issued pursuant to a plan approved by the shareholders. Although we are seeking the shareholders’ approval of the amendment and restatement of the Equity Plan under Section 162(m), we may issue any or all of the shares authorized under the Equity Plan pursuant to awards, such as restricted share awards or restricted stock unit awards, that are not intended to qualify as performance-based compensation under Section 162(m).
In addition, as described below (see “General provisions of the Equity Plan — Performance share awards”), the Equity Plan permits awards of performance shares based on performance measures selected, at the time of the award, from a specified list. Under Treasury regulations, because the Equity Plan permits this discretion in selecting the performance measures used in performance share awards, the shareholders must re- approve the Equity Plan at least every five years in order for performance share awards under the Equity Plan to continue to be eligible to qualify as performance-based compensation excluded from the non-deductibility limitations of Section 162(m). The shareholders’ approval
of the proposed amendment and restatement of the Equity Plan at the 2016 annual meeting will be deemed to constitute a re-approval of the Equity Plan for this purpose.
In the event that the shareholders do not approve the proposed amendment and restatement of the Equity Plan, the Equity Plan will not be amended and restated as described herein. In such event, we would be able to continue to make awards under the existing terms of the
Equity Plan, up to the amount previously approved by the shareholders, through February 10, 2019.
The following table sets forth for each of 2015, 2014 and 2013, the number of options, restricted stock units and shares of restricted stock granted in the year, the number of performance shares vested in the year, the total of these amounts and our weighted average shares outstanding (basic) for the year.
Year | Options Granted | Performance Shares Vested | Restricted Stock Units Granted | Restricted Share Awards Granted | Total | Weighted Average Shares Outstanding (Basic) | ||||||||||||||||||
2015 | — | 98,230 | 94,623 | — | 192,853 | 22,500,000 | ||||||||||||||||||
2014 | — | 31,091 | 127,054 | — | 158,145 | 23,100,000 | ||||||||||||||||||
2013 | — | 70,381 | 99,174 | 11,330 | 180,885 | 20,900,000 | ||||||||||||||||||
General provisions of the Equity Plan
Participants
Awards under the Equity Plan may be made to any salaried, full-time employee of EnPro or any of our majority-owned subsidiaries or, in certain circumstances, to our outside directors. A total of 204 full-time employees, including all of our executive officers, received awards under the Equity Plan in 2015, and eight outside directors received awards of phantom shares under the Equity Plan in 2015.
Plan administration
The Equity Plan is administered by the Compensation and Human Resources Committee, which we refer to in this section of the proxy statement as the “Committee.” The Committee is comprised entirely of “independent directors,” as that term is defined by the listing standards of the NYSE. The Committee has full power and authority to interpret and administer the Equity Plan, and its decisions and interpretations are conclusive and binding.
The Committee may delegate to senior officers the authority to make awards with respect to not more than 10% of the shares authorized under the Equity Plan, except that only the Committee or a subcommittee may make awards to participants who are subject to Section 16 of the Exchange Act.
Shares subject to plan
For purposes of calculating the number of shares of common stock available for delivery, the following rules apply:
cancellation, termination or cash settlement are again available for awards under the Equity Plan. |
No individual may receive awards for more than 500,000 shares in any calendar year.
Stock options
Under the Equity Plan, the Committee may grant options to purchase common stock at not less than fair market value on the date of grant. For purposes of the Equity Plan, the “fair market value” is the closing selling price of a share of our common stock as of 4:00 p.m. (New York, New York Time), as reported on the NYSE. These options may or may not qualify as incentive stock options under the Internal Revenue Code. The federal income tax treatment of incentive stock options is generally more favorable to optionees than the treatment accorded other options. At the same time, it is less favorable to EnPro because we generally will not receive a tax deduction with respect to these options. (See “— Federal income tax treatment” below.) Under current law, the maximum amount of incentive stock options that may be granted to an individual that are exercisable for the first time during any calendar year may not exceed $100,000 in aggregate fair market value.
The Equity Plan provides that, subject to certain limitations with respect to the price and term of stock options, the Committee will have the authority in its discretion to specify all other terms and conditions relating to options granted under the Equity Plan. The Committee may, in its discretion, grant options to the officers and other salaried, full-time employees of EnPro or our majority-owned subsidiaries (including directors who are also officers or employees, but not non-employee directors). The Committee may also determine at the time of the grant the term of each option, which may not exceed ten years from the date of grant, and may permit payment upon exercise to be made in common stock owned by the optionee, valued at the fair market value on the date of exercise, or other acceptable form of consideration equal in value to the option price.
The Equity Plan provides that no more than 1,000,000 shares of common stock may be issued pursuant to options awarded under the Equity Plan intended to qualify as incentive stock options.
Performance share awards
The Committee may award performance shares under the Equity Plan that are contingent upon the attainment of performance objectives. The permitted performance objectives listed in the Equity Plan are total sales, sales growth (with or excluding acquisitions), revenue-based measures for particular products, product lines or product groups, net income (before or after asbestos charges and/or other selected items), earnings per share of common stock (before or after asbestos and/or other selected items), pretax income (before or after asbestos charges and/or other selected items), consolidated operating income (pre or post-tax and before or after asbestos charges and/or other selected items), segment operating income (pre or post-tax and before or after asbestos charges and/or other selected items), earnings before interest and taxes (before or after asbestos charges and/or other selected items), earnings before interest, taxes, depreciation and amortization (before or after asbestos charges and/or other selected items), free cash flow (pre or post-tax and before or after asbestos charges and/or other selected items), asbestos-related cash outflows (or changes in asbestos-related cash outflow), new asbestos commitments (or changes in new asbestos commitments), return on equity, assets, investment, invested capital, capital, total or net capital employed, or sales (pre or post-tax and before or after asbestos charges and/or other selected items), cash flow return on investments, total shareholder return, common stock price increases, total business return (before or after asbestos charges and/or other selected items), economic value added or similar “after cost of capital” measures, return on sales or margin rate, in total or for a particular product, product line or product group, working capital (or any of its components or related metrics), working capital improvement, market share, measures of customer satisfaction (including survey results or other measures of satisfaction), safety (determined by reference to recordable or lost time rates, first aids, near misses or a combination of two or more such measures or other measures), measures of operating efficiency such as productivity, cost of non-conformance, cost of quality, on time delivery and efficiency ratio and strategic objectives with specifically identified areas of emphasis such as cost reduction, acquisition assimilation synergies, acquisitions or organization restructuring.
Performance share awards can be made in the form of phantom shares or common stock, as the Committee determines.
Restricted share awards
The Committee may award restricted shares under the Equity Plan, subject to conditions, if any, established by the Committee. These conditions may include continued service with EnPro or its subsidiaries. The Equity Plan provides that restricted share awards that are conditioned upon continued employment shall be conditioned upon continued employment for a minimum period of three years following the award, except in the
case of death, disability or retirement or upon a change in control.
SARs
The Committee may award SARs under the Equity Plan. SARs confer on the participant the right to receive, upon exercise, the excess of the fair market value of one share of common stock on the date of exercise over the grant price of the SAR as determined by the Committee. The terms and conditions of the SAR are as determined by the Committee at the time the award is granted, however, each SAR may be settled only in shares of common stock, the grant price may be no less than the fair market value of a share of common stock on the date of grant, and the date on which an SAR expires, if not exercised, may not be later than ten years after the date of the grant.
Other awards to employees
The Equity Plan permits the Committee to make other types of awards to employees, the value of which are based in whole or in part on the value of common stock, in lieu of making such awards in common stock. These potential awards include stock units and phantom shares. The Committee may provide for these awards to be paid in cash, in common stock, or in a combination of both cash and common stock, and may establish the other terms and conditions of these awards.
Phantom share awards to directors
The Equity Plan authorizes the Committee to make grants of phantom shares to outside directors in its discretion. The Equity Plan defines an “outside director” as any director who is not and has not been within the previous five years an employee of EnPro or any of our subsidiaries. The members of the Committee, which administers the Equity Plan and which has authority to determine the amounts of awards of phantom shares, are all outside directors and are all eligible to receive awards of phantom shares under the Equity Plan.
Phantom shares granted to outside directors are fully vested upon grant. In the event a dividend is declared and paid on our common stock, each outside director receives a number of additional phantom shares equal to the aggregate amount of dividends the director would receive if the director’s phantom shares were actual shares of common stock, divided by the then current fair market value of our common stock. These dividend equivalent phantom shares are also vested upon grant. When an outside director leaves the board, we issue to the director one share of our common stock for each whole phantom share awarded to the director under the Equity Plan, plus cash for any fractional phantom share, based on the then current fair market value of our common stock.
Miscellaneous
The Committee has discretion to make any provisions it deems appropriate regarding the effect a participant’s termination of employment will have on the participant’s outstanding awards under the Equity Plan, and to make such rules and determinations as it deems appropriate in
connection with a participant’s leave of absence or other change in employment status. In addition, the Committee has discretionary authority under the Equity Plan to permit a participant to receive or accrue dividends and other distributions made with respect to awards under the Equity Plan, other than awards of performance shares, on terms and conditions that it deems appropriate.
The Committee may require that any federal, state or local withholding tax requirements be satisfied by withholding shares of common stock.
Options and other awards granted under the Equity Plan will not be transferable other than by will or the laws of descent and distribution, or as the Committee approves.
The Equity Plan permits us to offer to exchange or buy out any previously granted award for a payment in cash, shares of common stock, other awards or property based on such terms and conditions as the Committee may determine, except that, without the approval of the shareholders, we may not amend or replace previously granted stock options or SARs in a transaction that constitutes a repricing. The Equity Plan defines repricing to be buying-out, for cash or shares, an outstanding option or SAR at a time when its exercise price exceeds the fair market value of the underlying stock, or (consistent with the meaning of repricing under Section 303A.08 of the Listed Company Manual of the NYSE) lowering the exercise price of an option or SAR after it is granted, taking any other action that is treated as a repricing under generally accepted accounting principles, or canceling an option or SAR at a time when its exercise price exceeds the fair market value of the underlying common stock in exchange for another option, SAR, restricted stock award or other equity of EnPro, unless the cancellation and exchange occurs in connection with a merger, acquisition, spin-off, or similar corporate transaction.
In the event of a change in control of EnPro, all stock options, other than stock options awarded after December 2, 2015, will become immediately exercisable, and will remain exercisable for two years (or, if sooner, until such time as the options expire by their terms). In addition, the committee may make such other provisions with respect to other outstanding awards as it deems appropriate. A “change in control” generally is deemed to have occurred if:
the combined voting power of our outstanding securities (subject to certain exceptions); |
The board of directors may amend the Equity Plan in its discretion, except that no amendment that increases the number of shares of stock subject to the Equity Plan may be made without the approval of our shareholders. In addition, no amendment may adversely affect any rights or obligations with respect to awards previously made unless the action is taken in order to comply with applicable law, stock exchange rules or accounting rules.
Term of the Equity Plan
No award under the Equity Plan may be made after February 24, 2026.
New plan benefits under the Equity Plan
It is not presently possible to determine the dollar value of award payments that may be made, or the individuals that may be selected for such awards, in the future under the Equity Plan with respect to the additional 925,000 shares. For information about awards of performance shares made in 2015 under the Equity Plan, see “Executive Compensation—Grants of plan-based awards.” The table below sets forth certain information as of December 31, 2015, with respect to the Equity Plan, which is the only compensation plan or arrangement (other than our tax-qualified plans) under which we have options, warrants or rights to receive equity securities authorized for issuance.
Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a) | Weighted- Average Exercise Price of Outstanding Options, Warrants and Rights (b) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))(c) | |||||||||
Equity compensation plans approved by security holders | 734,482 | (1) | $ | 35.96 | (2) | 222,780 | ||||||
Equity compensation plans not approved by security holders | — | — | — | |||||||||
Total | 734,482 | (1) | $ | 35.96 | (2) | 222,780 | ||||||
| (1) | Includes shares issuable under restricted share unit awards and performance shares awarded under the Equity Plan at the level paid for the 2013 — 2015 performance cycle and at the maximum levels payable for the 2014 — 2016 and 2015 — 2017 performance cycles. |
| (2) | The weighted average exercise price does not take into account awards of performance shares, phantom shares or restricted share units. Information with respect to these awards is set forth above under the captions “Corporate governance policies and practices —Director compensation” and “Executive compensation — Grants of plan based awards — LTIP awards.” |
The following is a general summary of the current federal income tax consequences of the granting and exercise of stock options and of awards of common stock (including both performance shares and restricted stock), phantom stock, stock units and SARs under the Equity Plan. It does not attempt to describe all possible federal or other tax consequences of participation in the Equity Plan. Furthermore, the tax consequences of awards made under the Equity Plan are complex and subject to change, and some variation of the described rules may be applicable to any particular participant’s tax situation. The summary assumes in each case that there will be no violation of the new deferred compensation rules mentioned above, which would subject the affected participants to immediate taxation and penalties on unvested awards.
Incentive stock options
An employee who is granted an incentive stock option under the Equity Plan will not be subject to federal income tax upon the grant or exercise of the option. However, upon the exercise of an incentive stock option, the difference between the exercise price for the option and its fair market value on the date of exercise, which is commonly referred to as the spread, is a tax preference item that must be taken into account in determining the employee’s alternative minimum tax. If the employee disposes of the shares in the same year the option was exercised, there are no alternative minimum tax implications. Generally, the employee can recover any alternative minimum tax liability paid as a credit against ordinary income taxes owed in future years.
In the event of a sale of the shares received upon exercise of an incentive stock option after two years from the date of grant and one year after the date of exercise (which we refer to as the “Holding Period”), any appreciation of the shares received above the exercise price should be a capital gain. The current federal tax rate applicable to long-term capital gains is 15 percent.
We will not be entitled to a tax deduction with respect to the grant or exercise of an incentive stock option, or with respect to any disposition of such shares after the Holding Period. However, if shares acquired pursuant to the exercise of an incentive stock option are sold by the employee before the end of the Holding Period, the lesser of the difference between the fair market value of
the acquired shares and the aggregate exercise price and any gain on the sale will be ordinary income for the taxable year in which the sale occurs. Income will be realized only to the extent the amount received upon sale exceeds the employee’s adjusted basis for the stock. We will be entitled to a tax deduction in the amount of the ordinary income realized by the employee.
Non-incentive stock options
An employee who is granted a stock option under the Equity Plan that is not an incentive stock option will not be subject to federal income tax upon the grant of the option and we will not be entitled to a tax deduction by reason of such grant. Upon exercise of a non-incentive stock option, the spread or excess of the fair market value of the shares on the exercise date over the option price, will be considered compensation taxable as ordinary income to the employee. Because it is treated as compensation, the spread is subject to withholding of applicable payroll taxes. We may claim a tax deduction in the amount of the taxable compensation realized by the employee.
Common stock awards
Common stock awards made without restrictions are subject to federal tax to the recipient and are deductible to EnPro. Stock awards with restrictions (including both performance shares and restricted stock) will not be subject to federal tax upon grant and we will not be entitled to a tax deduction upon grant. When the restrictions lapse, the fair market value of shares free of restrictions will be considered compensation taxable as ordinary income to the employee and we generally may claim a tax deduction at the same time in the same amount.
Phantom stock, stock unit awards and SARs
A director or employee who is granted a phantom share, stock unit or SAR award under the Equity Plan will not be subject to federal tax upon the grant of the award and we will not be entitled to a tax deduction by reason of such grant. However, when common stock or cash is delivered to the participant pursuant to such an award, the participant will recognize ordinary income equal to the fair market value of the shares or cash delivered under the award, and we generally may claim a tax deduction at the same time in the same amount.
Applicable rules of the NYSE require that the proposed amendment and restatement of our Amended and Restated 2002 Equity Compensation Plan be approved by a majority of the votes cast on the proposal. Abstentions, which will be considered to be votes “cast,” will have the effect of a vote “Against” approval, and
broker non-votes, which are not considered to be votes “cast,” will not count in determining the outcome.
The board of directors unanimously recommends that you vote “FOR” approval of the proposed amendment and restatement of our Amended and Restated 2002 Equity Compensation Plan.
Proposal 4 — Ratification of PricewaterhouseCoopers LLP as our company’s independent registered public accounting firm for 20152016
(Item 34 on the proxy card)
On February 18, 2015,23, 2016, the Audit Committee reappointed PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2015.2016. The board of directors agrees with this decision. If the shareholders do not ratify this appointment, the Audit Committee will consider other independent registered public accounting firms.
The board of directors unanimously recommends that you vote FOR ratification of PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2015.2016.
Independent registered public accounting firm
The Audit Committee has appointed PricewaterhouseCoopers LLP to serve as our independent registered public accounting firm for 2015.2016. We refer herein to PricewaterhouseCoopers as our “external auditors.” We understand that representatives of PricewaterhouseCoopers will be present at the annual meeting on April 29, 2015.May 4, 2016. They will have the opportunity to make a statement if they so desire, to do so, and will be available to respond to appropriate questions from shareholders.
TheAn Audit Committee has a policy that outlines procedures intended to ensure that it pre-approvesapproves all audit and non-audit services thatprior to those services being provided to us by our external auditors provide to us.auditors. The policy provides for pre-approvalrequires the Audit Committee’s prior approval of a budget that sets thesetting fees for all audit services to be performed during the upcoming fiscal year. It also mandates pre-approvalthe committee’s prior approval of amounts for separate non-audit and tax compliance, planning and advisory services for the year, as well as proposed services exceeding pre-approvedapproved cost levels. The policy allows the Audit Committee to delegate pre-approvalapproval authority to one or more of its members (except pre-approval authority for certain internal control-related services). A copy of the pre-approvalapproval policy is available on our website at
www.enproindustries.com; click on “Investor,“For Investors,” then “Corporate Governance,” then “Committee Composition,”“Committees” and then “Audit and Risk Management Committee.Committee Pre-Approval Policy.”
Before approving services proposed to be performed by the external auditors, the Audit Committee considers whether the proposed services are consistent with the SEC’s rules on auditor independence. The Audit Committee also considers whether the external auditors may be best positioned to provide the most effective and efficient service, for reasons such as itsservice. Factors considered include familiarity with our business, people, culture, accounting systems, risk profile and other factors, and whether the service might enhance our ability to manage or control risk or improve audit quality. The committee considers all of these factors as a whole. No onesingle factor is necessarily determinative. The Audit Committee pre-approvedapproved all audit, audit-related and non-audit services that PricewaterhouseCoopers performed in 20132015 and 2014 in accordance with our pre-approval policy.
Fees paid to external auditors
The following table sets forth the total fees and expenses from PricewaterhouseCoopers for each of the past two years:
| 2014 | 2013 | 2015 | 2014 | |||||||||||||
Audit Fees | $ | 1,876,900 | $ | 1,875,300 | $ | 1,901,600 | $ | 1,876,900 | ||||||||
Audit-Related Fees(1) | 13,000 | 12,800 | 10,600 | 13,000 | ||||||||||||
Tax Fees(2) | 20,000 | — | 18,375 | 20,000 | ||||||||||||
All Other Fees(3) | 2,000 | 2,000 | 2,000 | 2,000 | ||||||||||||
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Total Fees | $ | 1,911,900 | $ | 1,890,100 | $ | 1,932,575 | $ | 1,911,900 | ||||||||
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| (2) | Tax fees in 2015 and 2014 were incurred in connection with research of applicable tax regulation in |
| (3) | All Other Fees in |
The board knows of no other matters that may properly be presented at the annual shareholders’ meeting. If other matters do properly come before the meeting, we
will ask the persons named in the proxy to vote according to their best judgment.
Under our bylaws, any shareholder entitled to vote at our annual shareholders’ meeting may nominate a person for election to our board of directors or bring other business before the meeting if the shareholder provides written notice to, and such notice is received by, our corporate Secretary generally not less than 90 nor more than 120 days prior to the first anniversary of the preceding year’s annual meeting. If the date of the meeting is moved up by more than 30 days or delayed by more than 60 days from the anniversary date, however, notice is timely provided if it is delivered not earlier than the 120th day prior to the date of the meeting and not later than the close of business on the 90th day prior to the meeting, or the tenth day after the day on which the meeting is first publicly announced, whichever is later.
We have not been timely notified of any additional business to be presented at this meeting. This notice requirement applies to matters being brought before the meeting for a vote. Shareholders may ask appropriate questions at the meeting without having to comply with the notice provisions.
Any shareholder who intends to present a proposal for consideration at our 20162017 annual shareholders’ meeting must ensure that our Secretary receives the proposal between December 31, 2015January 4, 2017 and January 30, 2016February 3, 2017 (unless we move the meeting up by more than 30 days or delay it by more than 60 days from April 29, 2016)May 4, 2017). Each notice must include:
If the notice contains a nomination to the board of directors, it must also contain the following information:
In addition, we must receive any shareholder proposal intended to be included in our proxy statement for the 20162017 annual shareholders’ meeting at our offices at 5605 Carnegie Boulevard, Suite 500, Charlotte, North Carolina 28209, Attention: Secretary, on or before November 27, 2015.December 1, 2016. Applicable rules of the SEC govern the submission of shareholder proposals and our consideration of them for inclusion in the proxy statement and form of proxy for the 20162017 annual shareholders’ meeting.
We suggest that notice of all shareholder proposals be sent by certified mail, return receipt requested.
By Order of the Board of Directors
Robert S. McLean
Secretary
March 26, 201531, 2016
PLEASE VOTE YOUR SHARES BY TELEPHONE, INTERNET OR USING THE ENCLOSED PROXY CARD
CALCULATION OF ADJUSTED EBITDA-AENPRO INDUSTRIES, INC.
AMENDED AND RESTATED 2002 EQUITY COMPENSATION PLAN
(2016 AMENDMENT AND RESTATEMENT)
1. Purpose.The following table setspurpose of this Plan is to promote the interests of the shareholders by providing stock-based incentives to selected employees and members of the Board of Directors (the “Board”) of EnPro Industries, Inc. (the “Company”) and of any subsidiary corporation of which more than 50% of the voting stock is owned, directly or indirectly, by the Company (“Company Subsidiary”) to align their interests with shareholders and to motivate them to put forth maximum efforts toward the continued growth, profitability and success of the Company. In furtherance of this objective, stock options, performance shares, restricted shares, phantom shares, stock appreciation rights, common stock of the Company (“Common Stock”), and/or other incentive awards may be granted to selected employees (including members of the Board who are employees and/or officers) in accordance with the provisions of this Plan.
This Plan, as amended and restated in 2005, also provides for certain awards to members of the Board who are not employees or former employees of the Company or its subsidiaries within five years after their termination of employment (“Outside Directors”). The awards to Outside Directors are only in the form of phantom shares to be settled in shares of Common Stock. The awards of phantom shares to Outside Directors under this Plan replace awards that would have otherwise been granted under the EnPro Industries, Inc. Outside Directors’ Phantom Shares Plan (the “Phantom Shares Plan”). After the effective date of the 2005 amendment and restatement of this Plan, no further awards were made under the Phantom Shares Plan (although any outstanding awards under the Phantom Shares Plan continue to be administered and paid in accordance with, and subject to, the terms and conditions of the Phantom Shares Plan).
This amendment and restatement of the Plan is subject to the approval of the shareholders of the Company, and shall be effective as of the date on which it is approved by the shareholders of the Company.
2. Administration. This Plan is to be administered by the Compensation and Human Resources Committee or any successor committee (the “Committee”) of the Board. The Committee shall consist of at least three members who shall qualify as “independent directors,” as that term is defined under the listing standards of any national securities exchange or securities market on which the Common Stock is then listed or traded.
3. Authority of the Committee. The Committee shall have full power and authority, subject to and consistent with the provisions of this Plan, to construe, interpret and administer this Plan. All decisions, actions or interpretations of the Committee shall be final, conclusive and binding on all parties. The Committee shall have full and final authority, in each case subject to and consistent with the provisions of the Plan, to select eligible persons to participate in this Plan; to grant awards; to determine the type and number of awards, the dates on which awards may be exercised and on which the risk of
forfeiture or deferral period relating to awards shall lapse or terminate, the acceleration of any such dates, the expiration date of any award, whether, to what extent, and under what circumstances an award may be settled, or the exercise price of an award may be paid, in cash, Common Stock, other awards, or other property, and other terms and conditions of, and all other matters relating to, awards; to prescribe documents evidencing or setting terms of awards (such award documents need not be identical for each participant), amendments thereto, and rules and regulations for the administration of this Plan and amendments thereto (including outstanding awards); to construe and interpret the Plan and award documents and correct defects, supply omissions or reconcile inconsistencies therein; and to make all other decisions and determinations as the Committee may deem necessary or advisable for the administration of the Plan.
4. Delegation. The express grant of any specific power to the Committee, and the taking of any action by the Committee, shall not be construed as limiting any power or authority of the Committee. The Committee may act through subcommittees, including for purposes of perfecting exemptions under Rule 16b-3 or qualifying Awards under Code Section 162(m) as performance-based compensation, in which case the subcommittee shall be subject to and have authority under the charter applicable to the Committee, and the acts of the subcommittee shall be deemed to be acts of the Committee hereunder. The Committee may delegate to the Chief Executive Officer and to other senior officers of the Company the authority to make awards under this Plan with respect to not more than ten percent of the shares authorized under this Plan, pursuant to such conditions and limitations as the Committee may establish, except that only the Committee or a reconciliationsubcommittee comprised solely of ourtwo ore more “Non-Employee Directors” in accordance with Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) may make awards to participants who are subject to Section 16 of the Exchange Act.
5. Shares Available For This Plan. Subject to adjustments made pursuant to Section 21 hereof, the maximum number of shares of Common Stock that shall be available for delivery pursuant to the provisions of this Plan shall be equal to 6,150,000 shares of Common Stock. For purposes of calculating the number of shares of Common Stock available for delivery under this Plan, (i) the grant of a Performance Share Award (as defined in Section 10) or other unit or phantom share award shall be deemed to be equal to the maximum number of shares of Common Stock that may be issued under the award and (ii) where the value of an award is variable on the date it is granted, the value shall be deemed to be the maximum limitation of the award. Awards payable solely in cash will not reduce the number of shares of Common Stock available for awards granted under this Plan. Shares that are potentially deliverable under an award under the Plan that are canceled, expired,
forfeited, settled in cash or otherwise terminated without a delivery of such shares to the participant will not be counted as delivered under the Plan and shall be available for awards under this Plan. Shares that have been issued in connection with an award under this Plan that is canceled, forfeited, or settled in cash such that those shares are returned to the Company shall be available for awards under this Plan. Shares that are issued or issuable under this Plan that are withheld from an award or separately surrendered by the participant in payment of any exercise price or taxes relating to such an Award shall be deemed to constitute shares delivered to the Participant and will not be available for future awards under this Plan. With respect to SARs (as defined in Section 13), all of the shares of Common Stock for which the SAR is exercised (that is, shares actually issued pursuant to a SAR, as well as shares that represent payment of the exercise price) will cease to be available for future awards under this Plan.
6. Limitation On Awards. Subject to adjustments made pursuant to Section 21 hereof, (a) no individual employee may receive awards under this Plan with respect to more than 500,000 shares in any calendar year, and (b) the maximum number of shares of Common Stock that may be issued pursuant to options designated as Incentive Stock Options (as defined in Section 9) shall be 1,000,000 shares.
7. Term. No awards may be granted under this Plan after February 24, 2026.
8. Eligibility. Awards under this Plan may be made to any salaried, full-time employee of the Company or any Company Subsidiary, and to Outside Directors, as provided in Section 15. Except as provided in Section 15, directors who are not full-time employees are not eligible to participate in this Plan.
9. Stock Options. The Committee may, in its discretion, from time to time grant to eligible employees options to purchase Common Stock, at a price not less than 100% of the fair market value of the Common Stock on the date of grant (the “option price”), subject to the conditions set forth in this Plan. The Committee, at the time of granting to any employee an option to purchase shares under this Plan, shall fix the terms and conditions upon which such option may be exercised, and may designate options as incentive stock options (“Incentive Stock Options”) pursuant to Section 422 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”) or any other statutory stock option that may be permitted under the Internal Revenue Code from time to time, provided, however that (i) the date on which such options shall expire, if not exercised, may not be later than ten years after the date of grant of the option, (ii) the terms and conditions of Incentive Stock Options must be in accordance with the qualification requirements of the Internal Revenue Code and (iii) the provisions of any other statutory stock option permitted under the Internal Revenue Code must be consistent with applicable Internal Revenue Code requirements.
Within the foregoing limitations, the Committee shall have the authority in its discretion to specify all other terms and conditions relating to stock options, including but not limited to provisions for the exercise of options in installments, the time limits during which options may be
exercised, and in lieu of payment in cash, the exercise in whole or in part of options by tendering Common Stock owned by the employee, valued at the fair market value on the date of exercise or other acceptable forms of consideration equal in value to the option price. The Committee may, in its discretion, issue rules or conditions with respect to utilization of Common Stock for all or part of the option price, including limitations on the pyramiding of shares.
10. Performance Share Awards. The Committee may make awards (“Performance Share Awards”) in Common Stock or phantom shares subject to conditions established by the Committee that may include attainment of specific Performance Objectives (as defined below). Performance Share Awards may include the awarding of additional shares upon attainment of the specified Performance Objectives. Any Performance Share Award which is conditioned upon attainment of specific Performance Objectives shall have a minimum performance period of one year, except in the case of death or disability and except as otherwise provided pursuant to Section 29.
11. Performance Objectives. Performance objectives that may be used under this Plan include total sales, sales growth (with or excluding acquisitions), revenue-based measures for particular products, product lines or product groups, net income (before or after asbestos charges and/or other selected items), earnings per share of Common Stock (before or after asbestos and/or other selected items), pretax income (before or after asbestos charges and/or other selected items), consolidated operating income (pre or post-tax and before or after asbestos charges and/or other selected items), segment operating income (pre or post-tax and before or after asbestos charges and/or other selected items), earnings before interest and taxes (before or after asbestos charges and/or other selected items), earnings before interest, taxes, depreciation and amortization expense,(before or after asbestos expense andcharges and/or other selected itemsitems), free cash flow (pre or post-tax and before or after asbestos charges and/or other selected items), asbestos-related cash outflows (or adjusted EBITDA-A)changes in asbestos-related cash outflow), new asbestos commitments (or changes in new asbestos commitments), return on equity, assets, investment, invested capital, capital, total or net capital employed, or sales (pre or post-tax and before or after asbestos charges and/or other selected items), cash flow return on investment, total shareholder return, Common Stock price increases, total business return (before or after asbestos charges and/or other selected items), economic value added or similar “after cost of capital” measures, return on sales or margin rate, in total or for a particular product, product line or product group, working capital (or any of its components or related metrics), working capital improvement, market share, measures of customer satisfaction (including survey results or other measures of satisfaction), safety (determined by reference to our consolidated net income from continuing operations for 2014, 2013, 2012, 2011, 2010recordable or lost time rates, first aids, near misses or a combination of two or more such measures or other measures), measures of operating efficiency such as productivity, cost of non-conformance, cost of quality, on time delivery and 2009. Adjusted EBITDA-A is a primary metric we useefficiency ratio and strategic objectives with specifically identified areas of emphasis such as cost reduction, acquisition assimilation synergies, acquisitions or organization restructuring.
The performance objectives established by the Committee are intended to evaluate oursatisfy the “objective compensation formula” requirements of Treasury Regulations Section 1.162-27(e)(2). To the degree consistent with Section 162(m) of the Internal Revenue Code, or any successor section thereto (the “Code”), the Committee may adjust, modify or amend the above criteria, either in establishing any performance and one usedobjective or in determining the extent to which any performance objective has been achieved. In particular, the Committee shall have the authority to make equitable adjustments in the criteria where necessary (i) in response to changes in applicable laws or regulations, (ii) to account for items of gain, loss, or expense that are related to the disposal (or acquisition) of a business or change in accounting principles that was not anticipated at the time an award was made, (iii) to account for adjustments in expense due to re-measurement of pension benefits, (iv) to remove the effect of charges for asbestos, (v) to account for restructurings, discontinued operations, and any other items deemed by the Committee to be non-recurring in nature or otherwise not reflective of operating performance that were not anticipated at the time an award was made, and (vi) to reflect other unusual, non-recurring, or unexpected items similar in nature to the foregoing as determined in good faith by the Committee consistent with the principles set forth in section 162(m) of the Code and the regulations thereunder. Such adjustments may be made with respect to the performance of any subsidiary, division, or operating unit, as applicable, shall be made in a consistent manner from year to year, and shall be made in accordance with the objectives of the Plan and the requirements of Section 162(m) of the Code.
12. Restricted Shares. The Committee may make awards in Common Stock subject to conditions, if any, established by the Committee which may include continued service with the Company or its subsidiaries (“Restricted Share Awards”). Any Restricted Share Award which is conditioned upon continued employment shall be conditioned upon continued employment for a minimum period of three years following the award, except in the case of death, disability or retirement and except as otherwise provided pursuant to Section 29.
13. Stock Appreciation Rights. The Committee may, in its discretion, from time to time grant to eligible employees stock appreciation rights (“SARs”). A SAR shall confer on the participant to whom it is granted the right to receive, upon exercise thereof, the excess of (i) the fair market value of one share of Common Stock on the date of exercise over (ii) the grant price of the SAR as determined by the Committee. In no event shall the grant price be less than the fair market value of a share of Common Stock on the date of grant. The Committee, at the time of granting to any employee a SAR, shall fix the terms and conditions upon which such SAR may be exercised, provided, however that (i) the date on which such SAR shall expire, if not exercised, may not be later than ten years after the date of the grant of the SAR, (ii) each SAR may be settled only in Common Stock, and (iii) no such terms and conditions may cause this Plan or the SAR to fail to meet the requirements of Internal Revenue Code § 409A(a)(2), (3) or (4) or to violate § 409A(b).
14. Other Awards. The Committee may make awards to employees authorized under this Plan in units or phantom shares, the value of which is based, in whole or in part, on the value of Common Stock, in lieu of making such awards in Common Stock (“Other Awards”). The Committee may provide for Other Awards to be paid in cash, in Common Stock, or in a combination of both cash and Common Stock, and may establish such other terms and conditions as in its discretion it deems appropriate, provided that no such terms and conditions may cause this Plan or any Other Award to fail to meet the requirements of Internal Revenue Code § 409A(a)(2), (3) or (4) or to violate § 409A(b).
15. Awards of Phantom Shares to Outside Directors.
(a) Awards. The Committee shall make a one-time grant of phantom shares, in an amount determined by the Committee, to each Outside Director upon his or her initial election to the Board. Thereafter, the Committee will make an annual grant of phantom shares to each Outside Director, in an amount and long-term incentive compensation, during these periods. Adjusted EBITDA-Aon terms determined by the Committee. In addition, from time to time, the Committee may, in its discretion, make grants of phantom shares to Outside Directors.
(b) Dividend Equivalents on Awards. Dividend equivalents will be accrued on all phantom shares granted under this Section 15. Upon the payment date of each dividend declared on the Company’s Common Stock, that number of additional phantom shares will be credited to each Outside Director’s award which has an equivalent fair market value to the aggregate amount of dividends which would be paid if the number of the Outside Director’s phantom shares were actual shares of the Common Stock. Dividend equivalents shall be vested at the time the dividend is paid.
(c) Vesting. Phantom shares granted under this Section 15 shall be fully vested upon granting.
(d) Payment. Upon termination of service of an Outside Director as a member of the Board (the “termination date”), the Company shall pay to the Outside Director all Phantom Shares credited to the Outside Director on the termination date in the form of one share of Common Stock for each whole phantom share, with cash for any fractional phantom share based on the fair market value of the Common Stock on the applicable date. The shares of Common Stock shall be paid and delivered as soon as administratively practicable after the termination date.
16. Deferred Awards. The Committee may permit recipients of awards to elect to defer receipt of such awards, either in cash or in Common Stock, under such terms and conditions that the Committee may prescribe; provided, however, that the Committee may permit recipients to elect to defer receipt of awards hereunder only to the extent that such deferral would not cause this Plan or such awards to fail to meet the requirements of Code Section 409A(a)(2), (3) or (4), to the extent applicable. The Committee may authorize the Company to establish various trusts or make other arrangements, in each case located in the United States, with respect to any deferred awards, provided that no such trust or arrangement may provide for assets to become restricted to the provision of deferred awards in connection with a
change in the financial health of the Company or any of its subsidiaries.
17. Fair Market Value. For all purposes of this Plan the fair market value of a measureshare of Common Stock shall be the closing selling price of Common Stock on the relevant date (as of 4:00 P.M. New York, New York Time) as reported on the New York Stock Exchange — Composite Transactions listing (or similar report), or, if no sale was made on such date, then on the next preceding day on which such a sale was made. Fair market value relating to the exercise price or base price of any Non-409A Award (as hereinafter defined) shall conform to requirements under U.S.Code § 409A.
18. Exchange and Buy Out; Repricing. The Company may at any time offer to exchange or buy out any previously granted award for a payment in cash, shares of Common Stock, other awards or property based on such terms and conditions as the Company shall determine and communicate at the time that such offer is made. Notwithstanding anything in this Plan to the contrary, without the approval of the shareholders, the Committee shall not amend or replace previously granted stock options or SARs in a transaction that constitutes a repricing. For this purpose, the term “repricing” shall mean any of the following or any other action that has the same effect: (i) lowering the exercise price of an option or SAR after it is granted, (ii) buying-out an outstanding option or SAR at a time when its exercise price exceeds the fair market value of the underlying stock for cash or shares, or (iii) any other action that is treated as a repricing under generally accepted accounting principles.
EnPro Industries, Inc.
Reconciliation of Adjusted EBITDA-A to Net Income (Loss) From Continuing Operations (Unaudited)
(Stated in Millions of Dollars)
| Years Ended December 31, | ||||||||||||||||||||||||
| 2014 | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||||||
Earnings before interest, income taxes, depreciation, amortization, asbestos and other selected items (adjusted EBITDA-A) | $ | 155.4 | $ | 154.8 | $ | 172.2 | $ | 155.2 | $ | 121.8 | $ | 97.1 | ||||||||||||
Adjustments: | ||||||||||||||||||||||||
Interest expense, net | (44.1 | ) | (44.3 | ) | (42.8 | ) | (39.6 | ) | (25.9 | ) | (11.4 | ) | ||||||||||||
Income tax benefit (expense) | (10.6 | ) | (8.4 | ) | (22.5 | ) | (20.8 | ) | (21.3 | ) | 54.6 | |||||||||||||
Depreciation and amortization expense | (57.5 | ) | (56.6 | ) | (55.5 | ) | (48.4 | ) | (39.6 | ) | (40.3 | ) | ||||||||||||
Restructuring costs | (2.3 | ) | (6.7 | ) | (5.0 | ) | (1.4 | ) | (0.9 | ) | (10.2 | ) | ||||||||||||
Asbestos-related expenses | (30.0 | ) | — | — | — | (23.3 | ) | (135.5 | ) | |||||||||||||||
Gain on deconsolidation of GST | — | — | — | — | 54.1 | — | ||||||||||||||||||
Goodwill impairment charge | — | — | — | — | — | (113.1 | ) | |||||||||||||||||
Adjustment of liability for retiree medical benefits | — | — | — | — | — | 19.2 | ||||||||||||||||||
Environmental reserve adjustment | (4.5 | ) | (6.3 | ) | (1.2 | ) | — | — | (2.0 | ) | ||||||||||||||
Loss on exchange and repurchase of convertible debentures | (10.0 | ) | — | — | — | — | — | |||||||||||||||||
Gain on sale of business | 27.7 | — | — | — | — | — | ||||||||||||||||||
Other | (2.1 | ) | (5.1 | ) | (4.2 | ) | (0.8 | ) | (3.6 | ) | (2.0 | ) | ||||||||||||
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Impact | (133.4 | ) | (127.4 | ) | (131.2 | ) | (111.0 | ) | (60.5 | ) | (240.7 | ) | ||||||||||||
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Net income (loss) from continuing operations | $ | 22.0 | $ | 27.4 | $ | 41.0 | $ | 44.2 | $ | 61.3 | $ | (143.6 | ) | |||||||||||
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The following table sets forthprinciples, or (iv) canceling an option or SAR at a reconciliationtime when its exercise price exceeds the fair market value of the consolidated adjusted EBITDA-Aunderlying Common Stock in exchange for another option, SAR, Restricted Stock Award or other equity of GST LLCthe Company, unless the cancellation and exchange occurs in connection with a merger, acquisition, spin-off, or similar corporate transaction.
19. Termination Of Employment. The Committee may make such provisions as it, in its sole discretion, may deem appropriate with respect to the effect, if any, the termination of employment will have on any grants or awards under this Plan; provided, however, that no such provisions may cause this Plan or any grants or awards hereunder to fail to meet the requirements of Internal Revenue Code § 409A(a)(2), (3) or (4) or to violate § 409A(b), to the extent applicable.
20. Assignability. Options and other awards granted under this Plan shall not be transferable by the grantee other than by will or the laws of descent and distribution or by such other means as the Committee may approve from time to time.
21. Adjustments to Reflect Capital Changes.
(a) In the event of any corporate event or transaction (including, but not limited to, a change in the Common Stock or the capitalization of the Company), such as any merger, consolidation, reorganization, recapitalization, separation, partial or complete liquidation, stock dividend, stock split, reverse stock split, split up, spin off, or other distribution of stock or property of the Company, a combination or exchange of Common Stock, dividend in kind, or other like change in capital structure, number
of outstanding shares of Common Stock, distribution (other than normal cash dividends) to shareholders of the Company, or any similar corporate event or transaction, the Committee or the Board, in order to prevent dilution or enlargement of participants’ rights under the Plan, shall make equitable and appropriate adjustments and substitutions, as applicable, to or of the number and kind of shares subject to outstanding awards, the purchase price for such shares, the number and kind of shares available for future issuance under the Plan, and other determinations applicable to outstanding awards. The Committee shall have the power and sole discretion to determine the amount of the adjustment to be made in each case.
(b) In addition, in the event that the Company is a party to a merger, reorganization, consolidation, share exchange, transfer of assets or other transaction having similar effect involving the Company, outstanding awards shall be subject to the agreement governing the transaction. Such agreement may provide, without limitation, for the continuation of outstanding awards by the Company (if the Company is a surviving corporation), for their assumption by the surviving corporation or its consolidated net incomeparent or subsidiary, for 2014, 2013, 2012, 2011the substitution by the surviving corporation or its parent or subsidiary of its own awards for such outstanding awards, for accelerated vesting and accelerated expiration, or for settlement in cash or cash equivalents.
22. Committee’s Determination. The Committee’s determinations under this Plan including without limitation, determinations of the employees to receive awards or grants, the form, amount and timing of such awards or grants, the terms and provisions of such awards or grants and the period from June 5, 2010 (the date on which GST LLCagreements evidencing same, and certain affiliated companies filed a voluntary petition for reorganizationthe establishment of Performance Objectives need not be uniform and may be made by the Committee selectively among employees who receive, or are eligible to receive awards or grants under Chapter 11this Plan whether or not such employees are similarly situated. The Committee may, with the consent of the United States Bankruptcyparticipant, modify any determination it previously made.
23. Leave Of Absence Or Other Change In Employment Status. The Committee shall be entitled to determine whether any leave of absence taken by an employee or other change in employment status, such as a change from full time employment to a consulting relationship, shall constitute a termination of employment within the meaning of this Plan and shall further be entitled to make such rules, regulations and determinations as it deems appropriate under this Plan in respect of any such leave of absence or other change in employment status relative to any grant or award. Notwithstanding the foregoing, no such determination, rule or regulation by the Committee may cause this Plan or any grant or award hereunder to fail to meet the requirements of Internal Revenue Code § 409A(a)(2), (3) or (4) or to violate § 409A(b), to the extent applicable.
24. Withholding Taxes. The Committee or its designee shall have the right to determine the amount of any Federal, state or local required withholding tax, and may require that any such required withholding tax be satisfied by withholding shares of Common Stock or other amounts which would otherwise be payable under this Plan.
25. Retention of Shares. If shares of Common Stock are awarded subject to attainment of Performance Objectives, continued service with the Company or other conditions, the shares may be registered in the employees’ names when initially awarded, but possession of certificates for the shares shall be retained by the Secretary of the Company for the benefit of the employees, or shares may be registered in book entry form only, in both cases subject to the terms of this Plan and the conditions of the particular awards.
26. Dividends and Voting. Subject to Section 15(b), the Committee may permit each participant to receive or accrue dividends and other distributions made with respect to awards (other than Performance Share Awards) under this Plan under such terms and conditions as in its discretion it deems appropriate, provided that such receipt or accrual does not cause this Plan or any award hereunder to fail to meet the requirements of Internal Revenue Code § 409A(a)(2), (3) or (4), to the extent applicable. With respect to shares actually issued, the Committee under such terms and conditions as in its discretion it deems appropriate, may permit the participant to vote or execute proxies with respect to such registered shares.
27. Forfeiture of Awards. Any awards or parts thereof made under this Plan which are subject to Performance Objectives or other conditions which are not satisfied, shall be forfeited.
28. Continued Employment. Nothing in this Plan or in any agreement entered into pursuant to this Plan shall confer upon any employee the right to continue in the employment of the Company or affect any right which the Company may have to terminate the employment of such employee.
29. Change In Control. For purposes of this Plan, a “Change in Control” shall mean:
(i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then outstanding shares of Common Stock (the “Outstanding Company Common Stock”) or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that the following acquisitions shall not constitute a Change in Control: (A) any acquisition directly from the Company (other than by exercise of a conversion privilege), (B) any acquisition by the Company or any of its subsidiaries, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its subsidiaries, or (D) any acquisition by any company with respect to which, following such acquisition, more than 70% of, respectively, the then outstanding shares of common stock of such company and the combined voting power of the then outstanding voting securities of such company entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such acquisition in substantially the same proportions as their ownership, solely in their capacity as shareholders of the Company, immediately prior to such acquisition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be; or
(ii) individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board”), cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial stepassumption of office occurs as a result of either an actual or threatened election contest; or
(iii) consummation of a reorganization, merger or consolidation, in each case, with respect to which all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation, do not, following such reorganization, merger or consolidation, beneficially own, directly or indirectly, solely in their capacity as shareholders of the Company, more than 70% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the company resulting from such reorganization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be; or
(iv) consummation of (A) a processcomplete liquidation or dissolution of the Company or (B) a sale or other disposition of all or substantially all of the assets of the Company, other than to resolvea company, with respect to which following such sale or other disposition, more than 70% of, respectively, the then outstanding shares of common stock of such company and the combined voting power of the then outstanding voting securities of such company to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all currentor substantially all of the individuals and future asbestos claimsentities, solely in their capacity as shareholders of the Company, who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be.
30. Effect Of Change In Control. In the event of a Change in Control, (a) options (other than options awarded after December 2, 2015) that are not then exercisable shall become immediately exercisable, and, notwithstanding any other provisions of this Plan or any award agreement, shall remain exercisable for no less than the shorter of (i) two years or (ii) the remainder of the full term of the option and (b) with respect to other awards under this Plan the Committee may make such provision as it deems appropriate in its financial results ceaseddiscretion, provided that no such provision may cause this Plan or any award hereunder to fail to meet the requirements of Internal Revenue Code § 409A(a)(2), (3) or (4) or to violate § 409A(b), to the extent applicable.
31. Compliance With Laws And Regulations. Notwithstanding any other provisions of this Plan, the issuance or delivery of any shares may be postponed for such period as may be required to comply with any applicable requirements of any national securities exchange or any requirements under any other law or regulation applicable to the issuance or delivery of such shares, and the Company shall not be obligated to issue or deliver any such shares if the issuance or delivery thereof shall constitute a violation of any provision of any law or any regulation of any governmental authority, whether foreign or domestic, or any national securities exchange.
32. Certain Limitation on Awards to Ensure Compliance with Internal Revenue Code § 409A. Notwithstanding any other Plan provision, the terms of any 409A Award and any Non-409A Award, including any authority of the Committee and rights of the participant with respect to the award, shall be limited to those terms permitted under Code § 409A, and any terms not permitted under Code § 409A shall be automatically modified and limited to the extent necessary to conform with Code § 409A. For this purpose, other provisions of the Plan notwithstanding, the Committee shall have no authority to accelerate
distributions relating to 409A Awards in excess of the authority permitted under Code § 409A, and any distribution subject to Code § 409A(a)(2)(A)(i) (separation from service) to a “key employee” as defined under Code § 409A(a)(2)(B)(i), shall not occur earlier than the earliest time permitted under Code Section § 409A(a)(2)(B)(i). In the case of a 409A Award, a transaction shall constitute a “Change in Control” as defined in Section 29 only if such transaction would also constitute a ‘change of control’ under Code § 409A.
For purposes of this Plan, “409A Awards” means awards that constitute a deferral of compensation under Code § 409A and regulations thereunder. “Non-409A Awards” means awards other than 409A awards. For purposes of this Plan, options, SARs and Restricted Share Awards are intended to be consolidatedNon-409A Awards.
33. Amendment. The Board may alter or amend this Plan, in whole or in part, from time to time, or terminate this Plan at any time; provided, however, that no such action shall adversely affect any rights or obligations with thoserespect to awards previously made under this Plan unless the action is taken in order to comply with applicable law, stock exchange rules or accounting rules; and, provided, further, that no amendment which has the effect of EnPro)increasing the number of shares subject to December 31, 2010.this Plan (other than as permitted in Section 21) shall be made without the approval of the Company’s shareholders.
GST LLC34. Governing Law. The validity, construction and effect of the Plan, any rules and regulations relating to the Plan and any award document shall be determined in accordance with the laws of the State of North Carolina, without giving effect to principles of conflicts of laws, and applicable provisions of federal law.
Reconciliation35. Severability. If any provision of Adjusted EBITDA-Athis Plan or the application thereof to Net Income (Loss) (Unaudited)
(Stated in Millionsany person or circumstance shall be invalid or unenforceable to any extent, the remainder of Dollars)this Plan and the application of such provision to other persons or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law.
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Earnings before interest, income taxes, depreciation, amortization, asbestos-related expenses and other selected items (adjusted EBITDA-A) | $ | 52.2 | $ | 61.4 | $ | 53.1 | $ | 50.1 | $ | 19.4 | ||||||||||
Adjustments: | ||||||||||||||||||||
Interest income, net | 31.0 | 29.7 | 27.9 | 26.8 | 14.6 | |||||||||||||||
Income tax benefit (expense) | (72.9 | ) | (18.7 | ) | (16.3 | ) | (19.6 | ) | (10.1 | ) | ||||||||||
Depreciation and amortization expense | (6.4 | ) | (6.0 | ) | (5.6 | ) | (5.3 | ) | (2.9 | ) | ||||||||||
Asbestos-related income (expenses) | 110.7 | (46.9 | ) | (29.8 | ) | (19.7 | ) | (10.1 | ) | |||||||||||
Restructuring costs | 1.5 | (0.4 | ) | (1.1 | ) | (1.0 | ) | — | ||||||||||||
Other | 0.7 | 2.3 | 1.6 | 1.4 | (0.5 | ) | ||||||||||||||
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Impact | 61.6 | (40.0 | ) | (23.3 | ) | (17.4 | ) | (9.0 | ) | |||||||||||
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Net income | $ | 113.8 | $ | 21.4 | $ | 29.8 | $ | 32.7 | $ | 10.4 | ||||||||||
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20152016 Annual Meeting Notice
and Proxy Statement
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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 the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
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.
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 the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions.
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.
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: x |
| 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 following: | For All | Withhold All | For All Except | To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below. |   | 
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1. | Election of Directors | ¨
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| Nominees | ||||||||||||||||||||||||
01 Stephen E. Macadam 02 Thomas M. Botts 03 Felix M. Brueck 04 B. Bernard Burns, Jr. 05 Diane C. Creel | ||||||||||||||||||||||||
06 Gordon D. Harnett 07 David L. Hauser 08 John Humphrey 09 Kees van der Graaf | ||||||||||||||||||||||||
| For | Against | Abstain | |||||||||||||||||||||
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On an advisory basis, to approve the compensation to our named executive officers as disclosed in the proxy statement; |
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To approve the amendment and restatement of our Amended and Restated Equity Compensation Plan; | ¨ | ¨ | ¨ | ||||||||||||||||||||
4 | To ratify the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the year ending December 31, |
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NOTE: Such other business as may properly come before the meeting or any adjournment thereof. | ||||||||||||||||||||||||
For address change/comments, mark here. (see reverse for instructions) | ¨
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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. | ||||||||||||||||||||||||
SHARES CUSIP # SEQUENCE # | ||||||||||||||||||
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| Signature [PLEASE SIGN WITHIN BOX] | Date | JOB # | Signature (Joint Owners) | Date |
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Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The 10-K Wrap, Notice & Proxy Statement is/are available atwww.proxyvote.com.
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ENPRO INDUSTRIES, INC. Annual Meeting of Shareholders
This proxy is solicited by the Board of Directors
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The undersigned hereby appoints Stephen E. Macadam, J. Milton Childress II and Robert S. McLean, and each of them, with power to act without the other and with power of substitution, as proxies and attorneys-in-fact and hereby authorizes them to represent and vote, as provided on the other side, all the shares of EnPro Industries, Inc. Common Stock which the undersigned is entitled to vote, and, in their discretion, to vote upon such other business as may properly come before the Annual Meeting of Shareholders of the company to be held at the company’s headquarters located at 5605 Carnegie Boulevard, Suite 500, Charlotte, North Carolina on Wednesday,
This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in accordance with the Board of Directors’ recommendations.
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| Address change/comments: | ||||||||||||||||
| (If you noted any Address Changes and/or Comments above, please mark corresponding box on the reverse side.) | ||||||||||||||||
| Continued and to be signed on reverse side | ||||||||||||||||
