UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant ☑
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)) | |||
| ☑ | Definitive Proxy Statement | |||
| ☐ | Definitive Additional Materials | |||
| ☐ | Soliciting Material Pursuant to 240.14a-12 | |||
| ||||
| (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 | ||||
| ☑ | No fee required. | |||
| ||||
| ||||
| ||||
| ||||
| ☐ | Fee paid previously with preliminary materials. | |||
| ☐ | ||||
| ||||
| ||||
| ||||
| ||||
| 0-11. | ||||
 | Notice of Annual Meeting of Shareholders |
Annual Meeting Information
Date: April 21, 202120, 2022
Time: 9:00 a.m. EDT
Location: Online only at www.virtualshareholdermeeting.com/SHW2021SHW2022
Agenda
| 1. |
|
| 2. |
|
| 3. |
|
| 4. |
|
Record Date
Close of business on February 23, 2021.22, 2022.
We are providing the enclosed proxy materials to you in connection with the solicitation by the Board of Directors (the Board) of proxies to be voted during the Annual Meeting of Shareholders to be held on April 20, 2022 (the Annual Meeting). We began making our proxy materials available on March 9, 2022.
Thank you for your continued support. We look forward to welcoming you at the Annual Meeting.
Mary L. Garceau
Senior Vice President, General Counsel and Secretary
The Sherwin-Williams Company
101 W.West Prospect Avenue
Cleveland, Ohio 44115
March 10, 20219, 2022
Your
Shareholders of record at the close of business on February
Even if you plan to attend
How to vote: | ||
| Online: Visit www.proxyvote.com. | |
| QR Code: Scan this QR code with your mobile phone. | |
| Phone: Call the number listed on your proxy card or voting instruction form. | |
| Mail: If you received printed copies of the proxy materials, complete, sign, date, and return your proxy card or voting instruction form. | |
| During the Annual Meeting: Follow the instructions at www.virtualshareholdermeeting.com/ | |
Important Notice Regarding the Availability of
Proxy Materials for the Annual Meeting of Shareholders
to Be Held on April 21, 2021.
Our Notice of Annual Meeting, Proxy Statement, and Annual Report on Form 10-K for the fiscal year ended
December 31, 2020 are available online at www.proxyvote.com.
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to Be Held on April 20, 2022. Our Notice of Annual Meeting, Proxy Statement, and 2021 Annual Report are available online at www.proxyvote.com. |
Proxy StatementTable of Contents
We are providing the enclosed proxy materials to you in connection with the solicitation by the Board of Directors (the Board) of proxies to be voted during the Annual Meeting of Shareholders to be held on April 21, 2021 (the Annual Meeting).
As used in this Proxy Statement, the terms “Sherwin-Williams,” “the company,Company,” “we,” and “our” refer to The Sherwin-Williams Company.
None of the All share, restricted stock unit, and per share or per restricted stock unit information included in this Proxy Statement has been adjusted to reflect Sherwin-Williams’our three-for-one stock split announcedeffected on February 3,March 31, 2021.
In accordanceThis Proxy Statement includes website addresses and references to additional materials found on those websites or in other reports filed with rules and regulations adopted by the Securities and Exchange Commission (SEC), Sherwin-Williams may furnish proxy(the SEC). These websites and materials are not incorporated into this Proxy Statement by making them available viareference.
Cautionary Statement Regarding Forward-Looking Information. This Proxy Statement contains certain “forward-looking statements,” as defined under U.S. federal securities laws. These statements can be identified by the Internet, insteaduse of mailing printed copiesforward-looking terminology such as “believe,” “expect,” “may,” “will,” “should,” “project,” “could,” “plan,” “goal,” “target,” “potential,” “seek,” “intend,” “aspire,” or “anticipate,” or the negative thereof, or comparable terminology. These statements are based upon current expectations, predictions, estimates, assumptions, and beliefs concerning future events and conditions. Readers are cautioned not to each shareholderplace undue reliance on any forward-looking statements as they are necessarily subject to risks, uncertainties, and other factors, many of record. Ifwhich are outside the control of the Company, that could cause actual results to differ materially from such statements and from the Company’s historical results, performance, and experience. These risks, uncertainties, and other factors are more fully described in the Company’s most recently filed Annual Report on Form 10-K and subsequent filings with the SEC. Any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.
This summary highlights certain Company information and information contained elsewhere in this Proxy Statement. It does not contain all of the information you receive a Noticeshould consider in connection with voting your shares. Please carefully read the entire Proxy Statement and our Annual Report to Shareholders for the fiscal year ended December 31, 2021 (2021 Annual Report) before voting.
2022 Annual Meeting of Internet Availability of Proxy Materials by mail, you will not receive printed copies of our proxy materials unless you specifically request printed materials. You may request printed materials by following the instructions on the Notice of Internet Availability of Proxy Materials. We began making our proxy materials available on or about March 10, 2021.Shareholders
| Date and Time | Record Date | Location | Who Can Attend and Vote | |||
Wednesday April 20, 2022 9:00 a.m. EDT | February 22, 2022 | Online only at www.virtualshareholdermeeting.com/SHW2022 | Shareholders of record at February 22, 2022 | |||
Proposals and Board Recommendations
| Item | Proposal | Board Recommendation | Page | |||
1
|
Election of 11 directors
|
|
21
| |||
2
|
Advisory approval of the compensation of the named executives
|
|
30
| |||
3
|
Ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm
|
|
62
| |||
Attending the Annual Meeting
We look forward to welcoming shareholders to the Annual Meeting. As a result of the COVID-19 pandemic, theMeeting on April 20, 2022. This year’s Annual Meeting will be held in a virtual format to protect the health and well-being of our shareholders and employees.via webcast. We have designed the virtual Annual Meeting to provide shareholders with substantially the same opportunities to participate as if the meeting were held in person.
If you were a Sherwin-Williams shareholder at the close of business on the record date, February 23, 2021,22, 2022, you may attend and participate in the Annual Meeting on April 21, 2021 by visiting www.virtualshareholdermeeting.com/SHW2021SHW2022 and entering the 16-digit control number included on your Notice of Internet Availability of Proxy Materials, proxy card, or voting instruction form. The Annual Meeting will begin promptly at 9:00 a.m. EDT. Online check-in will begin at 8:45 a.m. EDT. Please allow ample time for the online check-in process.
During the Annual Meeting, you may vote and submit questions by following the instructions provided on the virtual meeting website. Even if you plan to attend and participate in the Annual Meeting, we encourage you to vote your shares in advance using one of the methods described in this Proxy Statement to ensure your vote will be represented at the Annual Meeting.
ForWe include additional information regarding the Annual Meeting and voting procedures please refer tounder the section titledheading “Questions and Answers About the Annual Meeting” on page 70in the Other Matters section of this Proxy Statement.
This summary highlights information contained elsewhere in this Proxy Statement and does not contain all of the information you should consider. Please carefully read the entire Proxy Statement and our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 before voting.
2021 Annual Meeting of Shareholders
|
| |||||
Proposals and Board Recommendations
| Item | Proposal | Board Recommendations | Page | |||||
1
|
Election of 10 directors
|
|
FOR each nominee
|
16
| ||||
2
|
Advisory approval of the compensation of the named executives
|
|
FOR
|
63
| ||||
3
|
Ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm
|
|
FOR
|
64
| ||||
2020 Business Highlights
Throughout 2020, Sherwin-Williams devoted significant attention to responding to the COVID-19 pandemic to protect the health and well-being of our employees, customers, and communities and to mitigate the business impact, while maintaining focus on our near- and long-term strategies to drive future growth and continue delivering value to our shareholders.
Our Comprehensive COVID-19 Response
Beginning in March 2020, we began implementing changes in our business to protect and support our employees, customers, and communities during these challenging times, as well as to assist with efforts to contain and combat the spread of COVID-19. These changes have included the following.
|
| |
|
|
1
|
|
Our Company
Purpose and Values
Our Purpose. Since our Company was founded in 1866, we believe we have created benefits and delivered consistent value for multiple stakeholders. Our Board is entrusted with oversight for the long-term health and sustainability of the Company. It is within this context that the Board issued a Statement of Purpose during 2021 to provide guidance not only to management, but to relevant stakeholders, regarding the following Board-determined purpose of the Company.
We inspire and improve the world by coloring and protecting what matters.
Our Board formulated the Statement of Purpose based on information provided by management through its extensive stakeholder engagement process, the Company’s prior reporting, and our Board’s independent business judgment.
Our Stakeholders.We fulfill this purpose through the development, manufacture, distribution, and sale of innovative paint and coatings products, striving to deliver benefits for all major stakeholders. Through our integrated approach to the stakeholders we serve, including our employees, customers, shareholders, and communities, we seek to inspire and improve society as a whole.
 |  |  |  | |||
Employees Our employees participate in an inclusive and diverse environment that provides extensive opportunities for professional development and personal wealth- building. | Customers Our customers benefit from | Shareholders Our shareholders can expect an experienced | Communities Our communities where we |
Our Guiding Values.Embedded in our corporate purpose are our seven guiding values that serve as the foundation of our Culture of Excellence and influence how we act in fulfilling our purpose.
2 | 2022 PROXY STATEMENT |
Financial and Operating Performance
Achieving Record2021 Performance Results.Our full year results were impacted by unprecedented supply chain disruptions and raw material cost inflation primarily resulting from two natural disasters that occurred during 2021—Winter Storm Uri and Hurricane Ida. These extreme weather events caused raw material shortages that significantly hindered the Company’s ability to manufacture the products needed to fully meet robust customer demand.
Our dedicated employees responded with determination and demonstrated remarkable resilience in navigating the supply chain challenges experienced during 2021. Through these challenges, we worked tirelessly and creatively to identify and make adjustments throughout our business to reduce the impacts to our customers and improve raw material availability, while continuing to invest in growth initiatives. We more fully describe these efforts in responding to the adverse impacts of the natural disasters in the Compensation Discussion and Analysis (CD&A) section of this Proxy Statement.
Despite the unprecedented challenges of the COVID-19 pandemic and its impact to our business, 2020 was another outstandingpast year, for Sherwin-Williams’ financial performance. While none of us anticipated the severity of these challenges, our employees responded as they always do when facing adversity – with extraordinary effort, determination, and resiliency. Consolidatedconsolidated net sales increased 8.6% to a record $18.36$19.94 billion in 2020.2021—marking our eleventh consecutive year of growth. Net income increased to $2.03 billion, and diluted net income per share increased 33.9% to $22.08. We alsofor the year were $1.86 billion and $6.98, respectively, and we generated record net operating cash of $3.41 billion in 2020 — an increase of $1.09$2.24 billion.
The following graphs show our Company’s performance for key financial measures over the past three-year period.
| 1 | 2021 includes after-tax acquisition-related amortization expense of $223 million and an after-tax loss on the divestiture of the Wattyl business of $89 million. 2020 includes after-tax acquisition-related amortization expense of |
| 2 | 2021 includes charges of $0.83 per share for acquisition-related amortization expense and a $0.34 per share loss on the divestiture of the Wattyl business. 2020 includes a charge of |
Returning Significant Value to ShareholdersShareholders.. In 2020,2021, we continued our history of returningdriving significant shareholder value to our shareholders and continued to executeexecuting on our disciplined capital allocation strategy. We returned approximately $2.93$3.34 billion to our shareholders in the form of dividends and share repurchases, an increase of 145%approximately 14% over the prior year. We also increased our annual dividend to $5.36$2.20 per share, extending our string of dividend increases to 4243 consecutive years. In February 2021,2022, the Board increased the quarterly cash dividend to $1.65$0.60 per share, an increase of approximately 23%9% over the dividend paid in the same quarter in 2020.2021.
| Sherwin-Williams has returned approximately $ shareholders over the three-year period | Total Shareholder Return, including reinvestment of dividends | |
|
| |
| 3 |
Sustainability and Environmental, Social, and Governance
We believe that, as we seek to inspire and improve the world by coloring and protecting what matters, we have an opportunity and responsibility to contribute to a more sustainable future. We also believe that leadership in sustainability and environmental, social, and governance (ESG) matters will enable us to continue creating and driving value for our stakeholders.
Sustainability Framework.During 2021, we announced a new, integrated framework for our sustainability strategy that includes the following three pillars and focus areas.
| Environmental Footprint –Doing Our Part for the Planet. We recognize the global significance of climate change and responsible consumption and production. We are committed to reducing the environmental footprint of our global operations in the near term, while enhancing our longer-term environmental footprint reduction strategy. Throughout the Company, we continue to identify and implement initiatives to assist in reducing our carbon emissions, energy use, and waste and expanding our renewable energy use and recycling methods. | |
| Product Blueprint– Driving Sustainability Through Innovation. Through our Sustainability by Design initiative, we are formalizing our approach to incorporating sustainability attributes, such as life cycle thinking, throughout our innovation and product development processes and enhancing our long-standing commitments to product stewardship, chemicals management, and compliance excellence. Also through this initiative and our continuous improvement culture, we strive to further develop and expand our portfolio of “sustainably advantaged products,” which are products that achieve a level of third-party green chemistry, ecolabel, or similar recognition or can be shown to be more sustainable than what is currently the norm for the industry. | |
| Social Imprint – Elevating a Culture of Safety, Inclusion, and Community. Supporting our people is embedded in our values and the strength of our workforce is critical to the Company’s success. ● The safety of our employees is a top priority for the Company, and we have a continued focus on enhancing process safety, advancing occupational health, and reducing workplace injuries and safety risks. ● We are committed to fostering a culture of inclusion where differences are welcomed, appreciated, and celebrated to positively impact our people and business. Our culture and commitment to our people and inclusion, diversity, and equity (ID&E) are important factors in driving employee engagement and attracting, retaining, developing, and progressing a diverse pipeline of talent. ● We care deeply about the communities in which we live and work—supporting them as a Company, through The Sherwin-Williams Foundation, and by encouraging and providing opportunities for our employees to be engaged and give back to their communities. | |
Sustainability Governance. Our approach to sustainability and ESG performance is managed within a governance structure that enables broad engagement across the organization, while providing for appropriate oversight throughout the Company. Our Sustainability Council consists of subject matter experts responsible for leading working groups that manage various initiatives, policies, and programs addressing focus areas across our sustainability framework and our governance structure. The Sustainability Steering Committee, composed of members of senior management and other senior leaders, seeks to ensure a holistic approach to developing and overseeing our sustainability and ESG strategies and initiatives and to drive alignment across the organization to address emerging risks and opportunities. Members of the Sustainability Steering Committee provide periodic updates to the full Board and its committees. We provide more information about the Board’s and each committee’s oversight of specific sustainability- and ESG-related risks under the heading “Board and Committee Oversight” in this Proxy Summary and in the Corporate Governance section.
2021 Recognition. We are proud of our achievements and progress on our sustainability and ESG initiatives and honored to be recognized for our efforts during 2021.
● Newsweek® America’s Most Responsible Companies ● Investor’s Business Daily® Best ESG Companies ● MSCI® ESG Rating of “A,” up from “BBB” ● Yahoo! Finance® Best ESG Stocks | ● Forbes® 2021 America’s Best Employers for Diversity, Women, Veterans, and New Graduates ● Forbes® 2021 Green Growth 50 ● Human Rights Campaign Foundation, 2022 Best Places to Work for LGBTQ+ Equality |
4 |
|
Our Director Nominees
The following table provides summary information about each of our director nominees. Directors are elected annually by a majority of votes cast.
This year, we have included a new director nominee—Aaron M. Powell, President, Asia-Pacific Consumer Business, Kimberly-Clark Corporation. Susan J. Kropf, who has served as a director since 2003, is not standing for re-election, as she will retire as a director at the end of her current term at the Annual Meeting in accordance with the Board’s retirement policy.
| COMMITTEES | ||||||||||||||||||||
Name and Principal Occupation | Age | Director Since | Independent | AC | CMDC | NCGC | Other Public Company Boards | |||||||||||||
| Kerrii B. Anderson Retired, Former CEO & President, Wendy’s International, Inc. | 63 | 2019 | 🌑 |
| 🌑 |
| 3 | ||||||||||||
| Arthur F. Anton Retired, Former Chairman & CEO, Swagelok Company | 63 | 2006 | 🌑 | C,F |
|
| 3 | ||||||||||||
| Jeff M. Fettig Retired, Former Chairman & CEO, Whirlpool Corporation | 64 | 2019 | 🌑 | F |
|
| 1 | ||||||||||||
| Richard J. Kramer Chairman, CEO & President, The Goodyear Tire & Rubber Company | 57 | 2012 | 🌑 | F |
| C | 1 | ||||||||||||
| John G. Morikis Chairman & CEO, The Sherwin-Williams Company | 57 | 2015 |
|
|
|
| 1 | ||||||||||||
| Christine A. Poon Executive in Residence, The Ohio State University | 68 | 2014 | 🌑 |
| 🌑 | 🌑 | 4* | ||||||||||||
| Aaron M. Powell President, Asia-Pacific Consumer Business, Kimberly-Clark Corporation | 49 | N/A | 🌑 |
|
|
| 0 | ||||||||||||
| Michael H. Thaman Retired, Former Chair & CEO, Owens Corning | 57 | 2017 | 🌑 |
| 🌑 |
| 0 | ||||||||||||
| Matthew Thornton III Retired, Former Executive VP & COO, FedEx Freight, FedEx Corporation | 62 | 2014 | 🌑 | 🌑 |
| 🌑 | 1 | ||||||||||||
| Steven H. Wunning Retired, Former Group President, Caterpillar Inc. | 69 | 2015 | 🌑 L |
| 🌑 |
| 2 | ||||||||||||
AC = Audit Committee |
| C = Committee Chair | ||||||||||||||||||
| CMDC = Compensation and Management Development Committee |
| F = Financial Expert |
| |||||||||||||||||
| NCGC = Nominating and Corporate Governance Committee |
| L = Lead Independent Director | ||||||||||||||||||
|
| COMMITTEES | ||||||||||||||||
Name and Principal Occupation | Director Since | Independent | AC | CMDC | NCGC | Other Public Company Boards | ||||||||||
| Kerrii B. Anderson Retired, Former CEO & President, Wendy’s International, Inc. | 2019 | ● | C | ● | 3 | ||||||||||
| Arthur F. Anton Retired, Former Chairman & CEO, Swagelok Company | 2006 | ● | F | 3 | |||||||||||
| Jeff M. Fettig Retired, Former Chairman & CEO, Whirlpool Corporation | 2019 | ● | C,F | ● | 1 | ||||||||||
| Richard J. Kramer Chairman, CEO & President, The Goodyear Tire & Rubber Company | 2012 | ● | F | C | 1 | ||||||||||
| John G. Morikis Chairman & CEO, The Sherwin-Williams Company | 2015 | 1 | |||||||||||||
| Christine A. Poon Retired, Former Vice Chairman, Johnson & Johnson | 2014 | ● | ● | 2 | |||||||||||
| Aaron M. Powell CEO, Pizza Hut Division, Yum! Brands, Inc. | 2021 | ● | F | 0 | |||||||||||
| Marta R. Stewart Retired, Former Executive VP & CFO, Norfolk Southern Corporation | 2021 | ● | F | 1 | |||||||||||
| Michael H. Thaman Retired, Former Chair & CEO, Owens Corning | 2017 | ● | ● | 0 | |||||||||||
| Matthew Thornton III Retired, Former Executive VP & COO, FedEx Freight, FedEx Corporation | 2014 | ● | ● | 1 | |||||||||||
| Steven H. Wunning Retired, Former Group President, Caterpillar Inc. | 2015 | ● L | ● | ● | 2 | ||||||||||
AC = Audit Committee | C = Committee Chair | |||||||||||||||
| CMDC = Compensation and Management Development Committee | F = Financial Expert |
| ||||||||||||||
| NCGC = Nominating and Corporate Governance Committee | L = Lead Independent Director | |||||||||||||||
|
|
|
|
Board Composition
Our Board utilizes a thoughtful approach to board composition to ensure a proper balance between the addition of new directors who bring fresh and diverse perspectives and the stability of the Board as a whole. Our director nominees reflect the Board’s efforts and commitment to achieving diversity, including with respect to age, gender, race, and ethnicity, and the need for periodic refreshment to maintain this commitment. Recently,It is the Board adopted aBoard’s policy to include, and to request that any search firm it engages include, awomen and racially or ethnically diverse persons in the pool of qualified candidates including women and racially/ethnically diverse persons, from which director nominees are chosen.
|
Balanced Mix of Skills and Experience
Our director nominees also reflect the Board’s efforts to ensure our directors have the variety of experiences, qualifications, attributes, and skills necessary to make significant contributions to the Board, Sherwin-Williams, and our shareholders. Our Board believes this mix contributes to a well-balanced Board and enables the Board to provide effective oversight of our management and business. These experiences, qualifications, attributes, and skills are reviewed regularly in considering the composition of the full Board and each director nominee.
|
|
Corporate Governance
The Board and management have recognized for many years the importance of sound corporate governance practices in fulfilling their respective duties and responsibilities. We also believe effective corporate governance is essential for maximizing long-term value for our shareholders.
Our Board and Committees
Under our Corporate Governance Guidelines, each director is expected to attend, absent unusual circumstances, all meetings of the Board and each committee on which he or she serves. Each director is also expected to attend, absent unusual circumstances, all annual and special meetings of shareholders.
|
| Members1 | Independence | Meetings Held During 2020 | |||
Board of Directors | 10 | 9 of 10 | 7 | |||
Audit Committee | 4 | 100% | 8 | |||
Compensation and Management Development Committee | 5 | 100% | 4 | |||
Nominating and Corporate Governance Committee | 4 | 100% | 2 | |||
|
|
| Members | Independence | Meetings Held During 2021 | |||
Board of Directors | 11 | 10 of 11 | 6 | |||
Audit Committee | 6 | 100% | 5 | |||
Compensation and Management Development Committee | 4 | 100% | 4 | |||
Nominating and Corporate Governance Committee | 4 | 100% | 4 | |||
Each of our current directors attended at least 75% of all of the 2020 meetings of the2021 Board and the committees on whichcommittee meetings that occurred while he or she served. All of our current directors also attended the 2020 Annual Meeting.served as a member.
Sound Corporate Governance Practices
Our corporate governance practices are designed to enable the Board to set objectives and monitor performance and to strengthen the accountability of the Board and management. We actively monitor our corporate governance practices to ensure we continue to manage our business in accordance with high standards of ethics, business integrity, and corporate governance. The following table highlights some of our corporate governance practices and policies.
●Annual election of all directors | ||
● | Majority voting standard and resignation policy for directors in uncontested elections |
● | Director overboarding policy |
● | Proxy access rights available to 3 year, 3% shareholders, for up to 20% of the Board |
● |
|
● |
|
● | Board committees are entirely composed |
● | Board oversight of risk management |
● | Board and |
●Mandatory retirement age of 72 for directors |
● | Orientation program for new directors |
● | Annual board and committee self-assessments |
● | Executive sessions of independent directors are held with each regularly scheduled board meeting |
● | Directors have complete access to management |
● | Prohibition on hedging and pledging of our securities |
● | Significant director and executive stock ownership guidelines |
● Director matrix that includes consideration of self-identified diversity characteristics, such as gender, race, and ethnicity |
|
|
|
|
|
Risk Management &Board and Committee Oversight
While management is responsible for assessing and managing our exposure to various risks, the Board has responsibility for the oversight of risk management. CertainEach Board committees reviewcommittee reviews specific risk areas to assist the Board with its overall risk management oversight responsibility. The following table highlights select areas of Board and committee oversight during 2020.oversight.
|
| Audit Committee | Compensation Committee | Nominating Committee | Full Board of Directors | ||||
Enterprise Risk Management |
|
| ||||||
Cybersecurity |
|
| ||||||
Financial |
|
| ||||||
COVID-19 Response |
| |||||||
Compensation Policies |
|
| ||||||
Management Development and Succession |
|
| ||||||
Attraction, Retention, and Development of Talent | ● | ● | ||||||
Inclusion, Diversity, and Equity | ● | ● | ||||||
Board Succession |
|
| ||||||
Corporate Governance |
|
| ||||||
Environmental (including the impacts of climate change) |
|
| ||||||
Product Stewardship | ● | ● | ||||||
Health and Safety |
|
| ||||||
Sustainability |
|
| ||||||
Corporate Social Responsibility | ● | ● | ||||||
Public Policy and Political Engagement |
|
| ||||||
|
|
Executive Compensation
Our Compensation Objectives
We design and manage our company-wideCompany-wide compensation programs to align with our overall business strategy and to focus our employees on delivering sustained financial and operating results.results and creating value for our shareholders on a consistent, long-term basis. We believe it is important that our compensation programs: (a) be competitive; (b) maintain a performanceperformance- and achievement-oriented culture; and (c) align the interests of our executives with those of our shareholders.
Our Compensation Mix
A significant percentage of our executives’ compensation opportunity is variable, at-risk, and tied to companyCompany or business unit performance, including stock price appreciation. For 2020,2021, 90% of total direct compensation (base salary, annual incentive, and long-term incentive) for our CEOChief Executive Officer (CEO) and an average of 79% for our other named executives was at-risk and tied to performance.
  |  |
Our Responsible Compensation Practices
Our compensation programs, practices, and policies demonstrate our commitment to responsible pay and governance principles. We review and evaluate our compensation programs, practices, and policies on an ongoing basis, and we modify them to address evolving best practices and changing regulatory requirements, as well as significant events, such as the COVID-19 pandemic. The following table highlights some of the more significant best practices we have adopted, and the practices we have avoided, to maintain our commitment.
●Annual say-on-pay vote |
● | Independent Compensation Committee |
● | Independent compensation consultant |
● | Peer group benchmarking to median pay |
● | Emphasis on performance-based pay |
● | Responsibly administered incentive compensation programs |
● | Balanced compensation structure |
● | Diversified performance metrics tied to financial and operating performance |
● | Significant stock ownership guidelines for our directors and |
●Clawback and recapture policy |
● | No |
● | No excessive perquisites |
● | No payment of dividend equivalents on unvested |
● | Double-trigger vesting of long-term equity incentive awards upon change in control |
● | No repricing or replacing of underwater stock options without shareholder approval |
● | No above-market earnings on deferred compensation |
● | No employment agreements with named executives |
|
|
|
|
The Board and management have recognized for many years the importance of sound corporate governance practices in fulfilling their respective duties and responsibilities. We describe below our key corporate governance policies and practices.
Corporate Governance Guidelines
The Board has adopted Corporate Governance Guidelines, which provide the framework for the governance of our company. The Board reviews our Corporate Governance Guidelines at least annually. From time to time, the Board may revise our Corporate Governance Guidelines to reflect new regulatory requirements and evolving corporate governance practices.
In February 2021, the Board conducted its annual review of our Corporate Governance Guidelines. Based upon its evaluation and consideration of evolving corporate governance practices with respect to board diversity, the Board revised our Corporate Governance Guidelines to include a policy that, when identifying candidates for Board membership, the Nominating and Corporate Governance Committee (the Nominating Committee) will include, and will request that any search firm it engages include, a diverse pool of qualified candidates, including women and racially/ethnically diverse persons, from which director nominees are chosen.
Leadership Structure and Lead Director
Combined Chairman and Chief Executive Officer Role
Our Corporate Governance Guidelines provide that the same person should hold the positions of Chairman of the Board (Chairman) and CEO, except in unusual circumstances such as during a period of transition in the office of the CEO. The Board believes this structure provides the most efficient and effective leadership model. A combined Chairmanmodel for the Company and CEO role provides clear insight and direction of business strategies and plans to both the Board and management, which facilitates the efficient and effective functioning of the Board and our company.management. The Board also believes we can most effectively execute our business strategies and plans if our Chairman is a member of our management team, providing unified leadership and focus.
Lead Director
Under our Corporate Governance Guidelines, if the Chairman is not an independent director, the independent directors of the Board, considering the recommendation of the Nominating and Corporate Governance Committee, annually will annually elect an independent director who has served as a member of the Board for at least one year to serve as Lead Director. Although annually elected, the Lead Director is generally expected to serve for more than one year. Steven H. Wunning is currently serves as the Company’s Lead Director.Director and has held this position since 2019. The Board believes a Lead Director improves the Board’s overall performance by enhancing the efficiency of the Board’s oversight and governance responsibilities and by supporting the relationship between the Chairman and CEO and the independent directors.
The Lead Director has a significant role, with comprehensiverobust governance responsibilities that were recently enhanced and are clearly described in our Corporate Governance Guidelines. These responsibilities are as follows:
Chair meetings of the Board at which the Chairman is not present.
Chair executive sessions of the non-managementindependent directors. Meet separately with the Chairman after executive sessions to review the matters discussed during the executive sessions.
Authority to call meetings of the independent directors.
Review with the Chairman and approve the schedule for meetings of the non-managementindependent directors and set the agenda for such meetings.
Facilitate communications and serve as the principal liaison on Board-related issues between the Chairman and the independent directors. Each director, however, is free to communicate directly with the Chairman.
Review with the Chairman and approve the schedule for meetings of the Board to help assure that there is sufficient time allocated for discussion of all agenda items.
Suggest to the Chairman agenda items for meetings of the Board and approve the agenda, as well as the substance and timeliness of information sent to the Board.
|
|
Authorize the retention of independent legal advisors, or other independent consultants and advisors, as necessary, who report directly to the Board on board-relatedBoard-related issues.
If requested by major shareholders, ensure that he or she is available for consultation and direct communication.
Act as a resource for, and counsel to, the Chairman.
Other Leadership Components
Our strong leadership structure ensures the Board effectively carries out its responsibility to oversee management. All Board committees are entirely composed of independent directors. Non-management directors meet in executive session following every regularly scheduled Board meeting. The Lead Director may schedule additional executive sessions, as appropriate. Themanagement, and the Board has full access to our management team at all times. We also believe this leadership structure, with Mr. Morikis serving as Chairman and CEO, enhances the Board’s effectiveness in fulfilling its risk oversight responsibility due to his extensive knowledge of our operations and the paint and coatings industry.
All Board committees are entirely composed of independent directors and assist the Board with its overall oversight responsibility. In addition, the Board, the Lead Director, and any committee may retain independent legal, financial, compensation, or other consultants and advisors to advise and assist the Board or committee in discharging itstheir responsibilities.
10 | 2022 PROXY STATEMENT |
2021 Board Meetings
The Board held six meetings during 2021. Each incumbent director attended at least 75% of the Board and committee meetings that occurred while he or she served as a member. Under our Corporate Governance Guidelines, each director is expected to attend, absent unusual circumstances, all meetings of shareholders. All current directors serving at the time of the 2021 annual meeting attended the 2021 annual meeting.
Executive Sessions of Non-Management Directors
The independent, non-management members of the Board meet in executive session following every regularly scheduled Board meeting. Additional executive sessions may be scheduled by the Lead Director or the independent directors, as appropriate. The Lead Director chairs these sessions.
The Board has established three committees: the Audit Committee, the Compensation and Management Development Committee (the Compensation Committee), and the Nominating and Corporate Governance Committee (the Nominating Committee). Each committee has adopted a written charter describing the committee’s purpose and responsibilities. Each committee reviews and evaluates the adequacy of its charter at least annually.
Committee Membership
The following table sets forth the current membership and Chair of each committee of the Board.
Name | Audit Committee | Compensation Committee | Nominating Committee | |||||
Kerrii B. Anderson | Chair | ✓ | ||||||
Arthur F. Anton | ✓ | |||||||
Jeff M. Fettig | Chair | ✓ | ||||||
Richard J. Kramer | ✓ | Chair | ||||||
Christine A. Poon | ✓ | |||||||
Aaron M. Powell | ✓ | |||||||
Marta R. Stewart | ✓ | |||||||
Michael H. Thaman | ✓ | |||||||
Matthew Thornton III | ✓ | |||||||
Steven H. Wunning | ✓ | ✓ | ||||||
Audit Committee
The purpose of the Audit Committee is to assist the Board in fulfilling its oversight responsibilities on matters relating to:
the integrity of the Company’s financial statements and effectiveness of our internal control over financial reporting;
the independence, qualifications, and performance of the independent registered public accounting firm;
the performance of the Company’s internal audit function;
the Company’s compliance with legal and regulatory requirements;
the Company’s risk exposures relating to cybersecurity; and
other matters as may from time to time be specifically delegated to the Audit Committee by the Board.
The Audit Committee met five times during 2021 and made regular reports to the Board. Each member of the Audit Committee is independent under applicable SEC rules, New York Stock Exchange (NYSE) listing standards, and our Director Independence Standards. The Board has determined that each member of the Audit Committee is financially literate and Ms. Stewart and Messrs. Anton, Fettig, Kramer, and Powell are “audit committee financial experts,” as such term is defined under SEC rules.
| 11 |
Compensation and Management Development Committee
The purpose of the Compensation Committee is to assist the Board in fulfilling its oversight responsibilities on matters relating to:
compensation for our independent directors and management, which includes our executive officers and operating management;
the Company’s management development and succession planning process;
the Company’s key policies and strategies regarding the attraction, retention, and development of talent, including ID&E initiatives; and
other matters as may from time to time be specifically delegated to the Compensation Committee by the Board.
The Compensation Committee met four times during 2021 and made regular reports to the Board. Each member of the Compensation Committee meets the independence requirements under applicable SEC rules, NYSE listing standards, and our Director Independence Standards.
Process for Determining Director and Executive Compensation. The Compensation Committee annually reviews and approves the form and amount of compensation for our independent directors and management, which includes our executive officers and operating management, and reports to the Board on all such compensation matters. The Compensation Committee does not generally delegate any of its authority to other persons, although it has the power to delegate authority to subcommittees and executive officers. The Compensation Committee relies upon several members of management and their teams, as well as an independent compensation consultant, for assistance in performing its duties.
The Compensation Committee has directly engaged Compensation Advisory Partners as its outside compensation consultant reporting directly to the Compensation Committee. The Compensation Committee evaluated the independence of Compensation Advisory Partners, taking into account all factors relevant to its independence from management under applicable SEC rules and NYSE listing standards. Based upon that evaluation, the Compensation Committee determined Compensation Advisory Partners is independent. The Compensation Committee also conducted an assessment to evaluate whether the work performed by Compensation Advisory Partners raises a conflict of interest. Based upon that assessment, the Compensation Committee determined that no conflict of interest exists. Compensation Advisory Partners did not provide any services to Sherwin-Williams during 2021 other than those matters for which it was engaged by the Compensation Committee.
Role of the Compensation Consultant. The compensation consultant performs services for the Compensation Committee relating to director and executive compensation, including the following:
attends Compensation Committee meetings to present and offer independent recommendations, insights, and perspectives on compensation matters;
assesses the appropriateness of our peer group used for compensation decisions;
assesses how our executive compensation program aligns with pay for performance;
reviews compensation levels for executives and non-management directors relative to our peer group and published survey data, and recommends compensation pay levels;
reviews targeted pay levels and the mix of principal compensation components;
prepares CEO pay recommendations;
advises on annual and long-term incentive design and plan structure, performance goals, award opportunities, and vesting conditions;
conducts an annual risk assessment of our compensation programs to guard against excessive risk-taking; and
provides information on current executive compensation trends and new developments.
The Compensation Committee meets multiple times throughout the year with the compensation consultant in executive session without management present.
Role of Management. Several members of management participate in the Compensation Committee’s executive compensation process. The Compensation Committee relies upon our Senior Vice President – Human Resources (SVP – HR) and his team for input related to director and executive compensation matters. With regard to executive compensation, management plays a more active role in the compensation process and makes recommendations with respect to:
the development of compensation plans and programs, and changes to existing plans and programs;
the evaluation of executive performance;
salary increases;
the alignment of incentive compensation plans and programs with our business goals and strategies;
12 | 2022 PROXY STATEMENT |
the performance goals (and weightings) for annual cash incentive compensation;
the financial performance goals for equity grants and the results attained; and
the number of stock options and restricted stock units granted.
Prior to providing recommendations to the Compensation Committee at its meetings, our SVP – HR will meet with our CEO to review the recommendations, except those concerning our CEO’s compensation. Our CEO and SVP – HR also meet with the Compensation Committee Chair and the compensation consultant prior to meetings to review the agenda for the meetings and the compensation recommendations. Our CEO and SVP – HR generally attend all Compensation Committee meetings, with our SVP – HR serving as secretary for the meetings. Our CEO does not have the ability to call Compensation Committee meetings, and he is excused from the part of the meeting during which the Compensation Committee discusses his annual performance evaluation and compensation.
Nominating and Corporate Governance Committee
The purpose of the Nominating Committee is to assist the Board in fulfilling its oversight responsibilities on matters relating to:
the identification of individuals qualified to become members of the Board;
the composition of the Board and its committees;
our Corporate Governance Guidelines and practices;
the annual evaluation of the performance of the Board;
the Company’s key environmental (including the impacts of climate change), product stewardship, health and safety, sustainability, and corporate social responsibility policies and strategies; and
other matters as may from time to time be specifically delegated to the Nominating Committee by the Board.
The Nominating Committee met four times in 2021 and made regular reports to the Board. Each member of the Nominating Committee is independent under NYSE listing standards and our Director Independence Standards.
Director Identification and Evaluation. The Nominating Committee seeks a diverse group of candidates who possess the appropriate experiences, qualifications, attributes, and skills to make a significant contribution to the Board, our Company, and our shareholders. From time to time, the Nominating Committee receives input from senior management and other members of the Board to identify and evaluate potential director candidates. The Nominating Committee may also employ a professional search firm (for which it would be paid a fee) to assist the Nominating Committee in identifying potential members of the Board. When identifying candidates for Board membership, the Nominating Committee will include, and will request that any search firm it engages include, a diverse pool of qualified candidates, including women and racially or ethnically diverse persons, from which director nominees are chosen.
The Nominating Committee does not have specific minimum qualifications that a candidate must meet to be eligible for election to the Board. Instead, each candidate is evaluated in the context of the Board as a whole, with the objective that the Board can best perpetuate our Company’s success and represent shareholders’ interests through the exercise of sound business judgment using the directors’ diversity of experiences, qualifications, attributes, and skills, including directors’ self-identified diversity characteristics, such as gender, race, ethnicity, religion, national origin, sexual orientation, disability, military service, or other socio-economic or demographic characteristics. Each candidate shall have the highest personal and professional character and integrity and shall have demonstrated exceptional ability and judgment in their respective endeavors. Candidates must possess sufficient time to effectively carry out their duties and responsibilities.
In evaluating candidates, the Nominating Committee will make a preliminary review of a prospective candidate’s background, career experience, and qualifications based on available information. If the Nominating Committee determines that a particular candidate likely would contribute positively to the Board’s mix of skills and experiences, the Nominating Committee will conduct interviews with the candidate and may invite other directors or members of management to interview the candidate to assess the candidate’s overall qualifications. The Nominating Committee will consider the candidate in the context of the Board’s then-current composition and the needs of the Board and its committees and make a recommendation to the Board as to whether the candidate should be nominated for election. This procedure is the same for all candidates, including director candidates identified by shareholders.
Marta R. Stewart, who was appointed to the Board in August 2021 and is standing for election for the first time at this year’s Annual Meeting, was initially identified as a director candidate by an outside search firm. The Nominating Committee provided the search firm with guidance as to the skills, experiences, and qualifications sought by the Nominating Committee in potential candidates, and the search firm identified candidates for the Nominating Committee’s consideration. After evaluating Ms. Stewart in the manner described above, considering the composition of the Board (including its gender, racial, and ethnic diversity mix, as further described in this section), and considering input from our other independent directors and our CEO, the Nominating Committee identified Ms. Stewart as a director candidate and recommended that she be elected to the Board.
| 13 |
Diversity of Directors and Director Nominees. In considering the composition of the Board, the Nominating Committee seeks to strike a proper balance between the addition of new directors who bring fresh and diverse perspectives and the stability of the Board as a whole. To maintain this commitment to a well-balanced, diverse Board, the Nominating Committee utilizes a director matrix consisting of a diverse set of experiences, qualifications, attributes, and skills, including self-identified diversity characteristics, such as gender, race, and ethnicity. This matrix is set forth under the heading “Director Matrix and Composition” in the Proposal 1 — Election of 11 Directors section. The Nominating Committee utilizes the matrix when identifying, considering, and recommending director nominees, as well as potential director candidates as part of its process of identifying individuals qualified to become Board members. The Nominating Committee also regularly uses the matrix in reviewing the experiences, qualifications, attributes, and skills of current directors.
It is also the Board’s policy to include, and to request that any search firm it engages include, women and racially or ethnically diverse persons in the pool of candidates from which director nominees are chosen. In assessing its overall effectiveness in recommending a diverse group of director nominees, the Nominating Committee periodically evaluates the composition of the full Board (including its gender, racial, and ethnic diversity mix) utilizing reviews against the matrix, as well as its committee self-assessments.
Consideration of Candidates Recommended by Shareholders. The Nominating Committee’s policy with respect to the consideration of director candidates recommended by shareholders is that the Nominating Committee will consider such candidates on the same basis and in the same manner as it considers all director candidates. Recommendations must include the following information:
the name and address of the shareholder;
the class and number of shares of common stock owned by the shareholder;
a description of all arrangements or understandings between or among any of (a) the shareholder, (b) each candidate, and (c) any other person or persons pursuant to which the recommendation is being made;
the candidate’s full name, address, and telephone number;
a statement of the candidate’s qualifications and experiences, and any other relevant qualities;
the information that would be required under the rules of the SEC in a proxy statement soliciting proxies for the election of the candidate as a director;
a statement, signed by both the shareholder and the candidate, (a) affirming that the shareholder and the candidate currently do not have, and in the prior three years have not had, directly or indirectly, any business, professional, or other relationship with each other, and the shareholder and the candidate do not have any agreement, arrangement, or understanding with each other with respect to the candidate’s proposed service as a director, or (b) if either of the foregoing statements is incorrect in any manner, describing in detail the relationship, agreement, arrangement, or understanding;
the candidate’s resume, a list of other boards of directors of public companies on which the candidate currently serves or has served in the past five years, educational information, and at least three references; and
a written statement signed by the candidate agreeing that if they are nominated by the Board, they will (a) be a nominee for election to the Board, (b) provide all information necessary to be included in Sherwin-Williams’ proxy statement under applicable SEC or NYSE rules, and (c) serve as a director if they are elected by shareholders.
You may find a complete description of these requirements on our Investor Relations website, investors.sherwin-williams.com. Shareholders may submit recommendations, along with proof of shareholder status, in writing to: Chair, Nominating and Corporate Governance Committee, c/o Corporate Secretary, The Sherwin-Williams Company, 101 West Prospect Avenue, Cleveland, Ohio 44115.
Ability of Shareholders to Nominate Directors via Proxy Access. Our Regulations provide a “proxy access” right to permit any shareholder, or group of up to 20 shareholders collectively, owning 3% or more of our outstanding shares of common stock continuously for at least three years to nominate and include in our proxy materials director nominees for election to the Board. A shareholder or shareholders, as applicable, can nominate up to 20% of the total number of directors on the Board, rounding down to the nearest whole number, in accordance with the requirements set forth in our Regulations. Under our Regulations, requests to include shareholder-nominated candidates for director in our proxy materials must be received no earlier than 150 days and no later than 120 days before the anniversary of the date that we issued our proxy statement for the previous year’s annual meeting of shareholders. You may find a complete description of the requirements for nominating a director utilizing proxy access in our Regulations.
14 | 2022 PROXY STATEMENT |
The members of the Board serve as representatives for, and are accountable to, the Company’s shareholders. We believe effective Board oversight is critical to the long-term success of the Company and maximizing value for our shareholders.
While the Company’s business and day-to-day affairs are conducted by management and their teams under the direction of the CEO, the Board has oversight responsibility of management. In performing its oversight function, the Board is entitled to rely upon advice, reports, and opinions of management, counsel, independent auditors, and expert advisors.
Risk Management. Overseeing the assessment and management of the Company’s exposure to various risks is a key oversight responsibility for the Board, and each Board committee reviews specific risk areas to assist with this responsibility. We have an enterprise risk management process to identify, assess, and manage the most significant risks facing us, including financial, operational, litigation, compliance, reputational, cybersecurity, and ESG risks. Management reviews significant risks with the Board throughout the year, as necessary and appropriate, and conducts a formal review of the most significant risks with the Board at least once per year.
Management Succession PlanningPlanning.
In light of the importance of management development and succession planning to Sherwin-Williams’ success, the Board’s key oversight function includes responsibility for selectingresponsibilities include the selection and evaluatingevaluation of our CEO, electingthe election or appointingappointment of other senior management, and reviewingthe review of management succession planning, including with respect tofor our CEO. The Compensation and Management Development Committee (the Compensation Committee) supports the Board in overseeing this process. Succession planning is reviewed by the Board at least once per year and may be reviewed more frequently as the Board deems appropriate.
On an annual basis,Public Policy and Engagement. Our Government Affairs team facilitates the CEO conducts an evaluation ofCompany’s global participation in the performance ofpublic policy-making process, including with respect to issues that affect our employees, customers, and business operations and objectives and the senior management team. The CEOpaint and coatings industry in general. This team is led by our Senior Vice President, General Counsel and Secretary, who provides regular reports the results of such evaluation to the Board alongregarding the Company’s key public policy activities, advocacy, and engagement efforts.
Other Key Areas of Oversight. The Board’s oversight responsibility also includes overseeing:
long-term strategic plans and initiatives, and significant corporate actions;
performance against broad financial objectives, major strategies, and plans;
processes, procedures, and controls for maintaining the integrity and clarity of financial statements and reporting; and
processes and procedures relating to compliance with the CEO’s thoughtsapplicable laws and recommendations on management succession planning and development plans to help prepare management for future succession. The Board and our CEO also engage in discussions to plan for CEO succession, including in the event of an unexpected occurrence resulting in a temporary incapacity or a sudden departure of the CEO.ethical business conduct.
|  |  | ||
Key Areas of Oversight • Enterprise risk management process • Cybersecurity, including reviewing the state of cybersecurity, emerging developments and threats, and monitoring and mitigation efforts • Financial risks, including the integrity of financial statements and effectiveness of internal control over financial reporting • Performance of the internal audit function • Compliance with legal and regulatory requirements, and proper business conduct and practices | Key Areas of Oversight • Director and executive compensation • Management development and succession planning • Key policies and strategies regarding the attraction, retention, and development of talent, including ID&E initiatives | Key Areas of Oversight • Corporate governance • Board and committee composition • Director recruitment • Related person transactions • Key environmental (including climate change), product stewardship, health and safety, sustainability, and corporate social responsibility policies and strategies |
| 15 |
Corporate Governance Practices and Policies
Corporate Governance Guidelines
The Board has adopted Corporate Governance Guidelines, which provide the framework for the governance of our Company. The Board reviews our Corporate Governance Guidelines at least annually. From time to time, the Board may revise our Corporate Governance Guidelines to reflect new regulatory requirements and evolving corporate governance practices and policies.
Code of Conduct
Our Code of Conduct applies to all directors, officers, and employees including executive officers, of Sherwin-Williams and our subsidiaries, wherever located. It contains the general guidelines and principles for conducting Sherwin-Williams’ business, consistent with the highest standards of business ethics. Our Code of Conduct also embodies our seven guiding values, which form the foundation of our company:Company: Integrity, People, Service, Quality, Performance, Innovation, and Growth. We encourage our directors, officers, and employees to report all violations of companyCompany policies and applicable law, including incidents of harassment or discrimination. We will take appropriate steps to investigate all such reports and take appropriate action. Under no circumstances will directors, officers, or employees be subject to any disciplinary or retaliatory action for reporting, in good faith, a possible violation of our Code of Conduct or applicable law, or for cooperating in any investigation of such a possible violation.
UnderIn addition to the ethical obligations set forth in the Code of Conduct, under our Code of Ethics for Senior Financial Management, our CEO, CFO,Chief Financial Officer, and senior financial management are required to adhere to the highest standards of honesty, integrity, objectivity, and independence, and comply with all applicable laws, governmental regulations, Company policies, rules and regulations, ethical requirements, and professional standards. They also are responsible for creating and maintaining a culture of high ethical standards and commitment to compliance throughout our companyCompany to ensure the fair and timely reporting of Sherwin-Williams’ financial results and condition. Senior financial management includes our controller, treasurer, principal financial/accounting personnel in our operating groups and divisions, and all other financial/accounting personnel with staff supervision responsibilities in our corporate departments and operating groups and divisions.
Certain Relationships and Transactions with Related Persons
Risk ManagementReview, Approval, and OversightRatification of Related Person Transactions. As part of our Code of Conduct, directors, officers, and employees are expected to make business decisions and take actions based upon the best interests of Sherwin-Williams and not based upon personal relationships or benefits.
While managementThe Board recognizes that some transactions, arrangements, and relationships present a heightened risk of an actual or perceived conflict of interest and has adopted a written policy governing these transactions. This policy governs any transaction, arrangement, or relationship (or any series of similar transactions, arrangements, or relationships) in which Sherwin-Williams (including any of its subsidiaries) was during the last fiscal year, is, or will be a participant and the amount involved exceeds $120,000, and in which any of the following persons had, has, or will have a direct or indirect material interest (other than solely as a result of being a director or a less than 10% beneficial owner of another entity):
our directors, director nominees, or executive officers;
any person who is known to be the beneficial owner of more than 5% of any class of our voting securities;
any immediate family member of any of the foregoing persons; and
any entity in which any of the foregoing persons is employed or is a partner or principal or in a similar position or in which such person has a 10% or greater beneficial ownership interest.
The Nominating Committee is responsible for assessingreviewing, approving, and managing our exposureoverseeing these transactions.
In response to various risks,an annual questionnaire, directors, director nominees, and executive officers are required to submit to the Board has responsibility forCorporate Secretary a description of any ongoing or proposed transactions. Directors and executive officers are expected to provide updates to the oversightlist of risk management. We have an enterprise risk management process to identify, assess, and manage the most significant risks facing us, including financial, operational, litigation, compliance, reputational, environmental, and cybersecurity risks. Management reviews various significant risks with the Board throughouttransactions during the year as necessary and/and submit any newly proposed transactions for review by the Nominating Committee. We will provide any similar information available with respect to any known ongoing or appropriate,proposed transactions with beneficial owners of 5% or more of our voting securities. At each calendar year’s first regularly scheduled Nominating Committee meeting, management will provide information regarding ongoing transactions and conducts a formal annual review of its assessment and management of the most significant risks with the Board.
Certain Board committees review specific risk areasthose proposed to assist the Board with its overall risk management oversight responsibility.
The Audit Committee has oversight responsibilitybe entered into by Sherwin-Williams for management’s enterprise risk management process, including the policies and guidelines used by management to identify, assess, and manage our exposure to various risks. In additionthat calendar year.
|
2022 PROXY STATEMENT |
|
|
The CompensationIf management becomes aware of any transactions subsequent to that meeting, such transactions will be presented for approval at the next meeting or, in certain circumstances where it is not reasonable or practicable to wait until the next meeting, to the Chair of the Nominating Committee has oversight responsibility for(who possesses delegated authority to act between meetings) subject to ratification by the risks related to our compensation policies and practices. We include additional information aboutNominating Committee at its next meeting. In the Compensation Committee’s annual risk assessmentevent management becomes aware of such policies and practicesany transaction that was not previously approved under the heading “Compensation Risk Assessment” inpolicy, management will present the “Board Meetings and Committees” section.transaction to the Nominating Committee as promptly as practicable for its action, which may include termination, amendment, or ratification of the transaction.
The Nominating Committee has oversight responsibility for(or the risks relatedChair) will prohibit a transaction if it is determined to our environmental (including the impacts of climate change), safety, sustainability, and corporate social responsibility policies, objectives, and practices. Management periodically reviews such policies, objectives, and practicesbe inconsistent with the Nominating Committee.
Management’s roleinterests of Sherwin-Williams and its shareholders and will approve only those transactions that are in, identifying, assessing,or are not inconsistent with, the interests of Sherwin-Williams and managing risk, andits shareholders, as determined in good faith in accordance with its business judgment. In addition, the Board’s roletransaction must be on terms comparable to those that could be obtained in risk oversight, have been well defined for many years. The Board’s role in risk oversight has not significantly impacted the Board’s leadership structure. We believe our current leadership structure,arm’s length dealings with Mr. Morikis serving as Chairman and CEO, enhances the Board’s effectiveness in risk oversight due to his extensive knowledge of our operations and the paint and coatings industry.an unrelated third party.
How You May Communicate2021 Related Person Transaction. Peter J. Ippolito serves as President and General Manager, Industrial Wood Division, Performance Coatings Group. Mr. Ippolito’s brother-in-law, Brian H. Schumann, is employed by Sherwin-Williams as a District Manager in The Americas Group. Mr. Schumann’s total compensation for 2021, consisting of salary, annual incentive compensation, an equity grant, and retirement benefits, was $254,521. His compensation is consistent with Directorsour compensation practices based upon his position, responsibility, experience, tenure, and performance. This related person transaction was reviewed and approved in accordance with our policy, as described above.
Director Independence
The Board has adopted a process by which shareholderscategorical Director Independence Standards to assist the Board in determining the independence of each director. To be considered independent, the Board must affirmatively determine that the director has no material relationship with Sherwin-Williams. In each case, the Board broadly considers all relevant facts and allcircumstances, including the director’s commercial, industrial, banking, consulting, legal, accounting, charitable, and familial relationships, and such other interested partiescriteria as the Board may communicate with the Leaddetermine from time to time. Our Director the chairperson of anyIndependence Standards also include additional independence requirements for members of the committeesAudit Committee and Compensation Committee.
During the Board’s annual review of director independence, the Board considers transactions, relationships, and arrangements between each director or an immediate family member of the director and Sherwin-Williams. The Board or the non-management directors as a group. You may send communications by regular mail to the attention of the: Lead Director; Chair, Audit Committee; Chair, Compensationalso considers transactions, relationships, and Management Development Committee; Chair, Nominating and Corporate Governance Committee; or non-management directors as a group, Non-Management Directors;arrangements between each c/o Corporate Secretary, The Sherwin-Williams Company, 101 West Prospect Avenue, 12th Floor, Midland Building, Cleveland, Ohio 44115.
Sherwin-Williams’ management will review all communications received to determine whether the communication requires immediate action. Management will relay all appropriate and applicable communications received, or a summary of such communications, to the appropriate director or directors.
Complaint Procedures for Accounting, Auditing,an immediate family member of the director and Financial-Related Matters
The Audit Committee has established procedures for receiving, retaining, and treating complaints from any source regarding accounting, internal accounting controls, and auditing matters. The Audit Committee has also established procedures for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters. Interested parties may communicate such complaints by following the procedures described in the section above under the heading “How You May Communicate with Directors.” Employees may report such complaints by following the procedures outlined in our Code of Conduct. We do not permit any disciplinary or retaliatory action against any person who, in good faith, submits a complaint or concern under these procedures.
senior management. Under our Director Independence Standards, (includedthe following relationships are not considered to be material relationships that would impair a director’s independence:
if the director is a current employee, or an immediate family member of the director is a current executive officer, of another company that has made payments to, or received payments from, Sherwin-Williams for property or services in an amount which, in any of the last three fiscal years, is less than $1 million or two percent of such other company’s annual consolidated gross revenues, whichever is greater;
if the director, or an immediate family member of the director, is an executive officer of another company which is indebted to Sherwin-Williams, or to which Sherwin-Williams is indebted, in an amount which is less than five percent of such other company’s total consolidated assets;
if the director, or an immediate family member of the director, serves as an officer, director, or trustee of a foundation, university, charitable, or other not-for-profit organization, and Sherwin-Williams’ or The Sherwin-Williams Foundation’s discretionary charitable contributions (excluding matching contributions by the Foundation) to the organization, in the aggregate, are less than $500,000 or five percent, whichever is greater, of that organization’s last publicly available annual consolidated gross revenues;
if the director serves as a director or executive officer of another company that also uses Sherwin-Williams’ independent auditor;
if the director is a member of, or associated with, the same professional association, or social, educational, civic, charitable, fraternal, or religious organization or club as another Sherwin-Williams director or executive officer; or
if the director serves on the board of directors of another company at which another Sherwin-Williams director or executive officer also serves on the board of directors (except for compensation committee interlocks).
Early this Proxy Statement as Appendix A), 9year, the Board performed its annual independence review. As a result of this review, the Board determined that 10 of our 1011 current directors and 910 of our 1011 director nominees are independent. All members of the Audit Committee, Compensation Committee, and Nominating Committee are independent. MoreThe Board determined that Mses. Anderson,
| 17 |
Poon, and Stewart and Messrs. Anton, Fettig, Kramer, Powell, Thaman, Thornton, and Wunning meet these standards and are independent and, in addition, satisfy the independence requirements of the NYSE. The Board also previously determined that Susan J. Kropf, who served as a director until her retirement in April 2021, met these standards and was independent and satisfied the independence requirements of the NYSE. Mr. Morikis is not considered to be independent because of his employment with Sherwin-Williams.
Annual Board Self-Assessments
The Board and each committee complete an annual self-assessment to assist in determining whether the Board and its committees are functioning effectively. The Nominating Committee oversees this process.
Our Board and committee self-assessments address the following topics:
Board and committee efficiency and overall effectiveness;
Board and committee structure, size, and composition;
Board and committee dynamics and culture;
Board leadership structure;
meeting agendas, format, frequency, and time allocated;
the quality of Board and committee discussions;
the quality and scope of meeting materials and management presentations;
directors’ access to our CEO and other members of management; and
the sufficiency of information regarding, and time spent discussing, various topics, including long-term and strategic objectives, operating plans and budgets, competitive factors and trends, acquisition and divestiture activities, management development and succession planning, shareholder perspectives, and key ESG policies and strategies.
Director Overboarding Policy
As provided in our Corporate Governance Guidelines, the Board has established an overboarding policy to help ensure a director’s service on other public company boards does not impair the director’s ability to effectively serve on our Board. To that end, the Board believes that directors who are executive officers of public companies should not serve on more than two public company boards (inclusive of our Board) and that all other Board members should not serve on more than four public company boards (inclusive of our Board).
18 | 2022 PROXY STATEMENT |
Stock Ownership Guidelines
The Board has established minimum share ownership requirements for our directors and executives to encourage meaningful stock ownership in Sherwin-Williams and ensure their interests are aligned with the interests of our shareholders. The Compensation Committee reviews shareholdings on an annual basis to determine whether our directors and executives are meeting these requirements.
Each non-management director is set forthrequired to acquire shares of Sherwin-Williams common stock equal in value to a minimum of seven times the annual Board cash retainer. For purposes of obtaining this requirement, time-based restricted stock units (RSUs) held by directors pursuant to our 2006 Stock Plan for Nonemployee Directors and equivalent shares of common stock held by directors pursuant to our Director Deferred Fee Plan are considered shares of common stock owned by such directors. Each director also is required to hold all shares of common stock received upon the vesting of RSUs until the minimum share ownership requirement is met.
Each executive is required to acquire, within five years of serving in such capacity, shares of Sherwin-Williams common stock equal in value to a multiple of their base salary. Minimum share ownership requirements are six times for our CEO, four times for our Chief Operating Officer (COO), and three times for all other executives. For purposes of meeting this requirement, each equivalent share of stock held under our benefit plans and each RSU is considered a share of stock. Stock options and performance-based restricted stock units (PRSUs) are not considered for purposes of meeting the heading “Independence of Directors”minimum share ownership requirement.
At December 31, 2021, all executives and non-management directors had either met the guidelines or are expected to meet the guidelines within the prescribed time frame or in accordance with the “Proposal 1 — Election of Directors” section.requirements.
As provided in our Amended and Restated Articles of Incorporation, for an individual to be elected to the Board in an uncontested election of directors, the number of votes cast in favor of the individual’s election must exceed the number of votes cast against the individual’s election.
|
|
Any incumbent nominee for director in an uncontested election who receives a greater number of “against” votes than “for” votes shall continue to serve on the Board pursuant to Ohio law, but is required to promptly tender his or her resignation to the Board under our Corporate Governance Guidelines. The Nominating Committee will promptly consider the tendered resignation and will recommend to the Board whether to accept the tendered resignation or to take some other action, such as rejecting the tendered resignation and addressing the apparent underlying causes of the vote result.
In making this recommendation, the Nominating Committee will consider all factors deemed relevant by its members. These factors may include the underlying reasons why shareholders voted against the director (if ascertainable), the length of service and qualifications of the director whose resignation has been tendered, the director’s contributions to Sherwin-Williams, whether by accepting the resignation Sherwin-Williams will no longer be in compliance with any applicable law, rule, regulation, or governing document, and whether accepting the resignation is in the best interest of Sherwin-Williams and our shareholders. In considering the Nominating Committee’s recommendation, the Board will consider the factors considered by the Nominating Committee and such additional information and factors the Board believes to be relevant. We will promptly publicly disclose the Board’s decision and process in a report filed with or furnished to the SEC.
Executive Sessions of Non-Management Directors
The non-management members of the Board meet in executive session in connection with regularly scheduled Board meetings. Additional executive sessions may be scheduled by the Lead Director or the non-management directors. The Lead Director chairs these sessions.
The Board, Audit Committee, Compensation Committee, and Nominating Committee each complete an annual self-assessment to assist in determining whether the Board and its committees are functioning effectively. The Nominating Committee oversees this process.
The Board may periodically engage an independent third-party advisor experienced in corporate governance matters to facilitate, and bring an outside perspective to, the annual self-assessment process. The Board last engaged such an advisor in 2018. During 2018, the advisor conducted one-on-one, open-ended interviews with all Board members to provide each director with the opportunity to openly discuss the performance and effectiveness of the Board as a whole and its committees. The interviews also provided each director with an opportunity to identify areas for improvement. In addition to the director interviews, the advisor conducted interviews with members of senior management who regularly attend Board meetings to solicit their perspectives on the relationship between the Board and management. The advisor’s process was developed in consultation with the Lead Director and the chair of the Nominating Committee, as well as our Chairman and CEO and our Senior Vice President, General Counsel and Secretary. The advisor gathered and analyzed the data and presented its findings and recommendations to the full Board.
The Audit Committee, Compensation Committee, and Nominating Committee each have adopted written charters. Each committee reviews and evaluates the adequacy of its charter at least annually.
The Board believes our directors and executives should have meaningful share ownership in Sherwin-Williams. Accordingly, the Board has established minimum share ownership requirements. Additional information is set forth under the heading “Stock Ownership Guidelines” in the “Other Arrangements, Policies, and Practices” section of the Compensation Discussion and Analysis (CD&A).
As provided in our Corporate Governance Guidelines, the Board has established an overboarding policy to help ensure a director’s service on other public company boards does not impair the director’s ability to effectively serve on our Board. To that end, the Board believes that directors who are executive officers of public companies should not serve on more than two public company boards (inclusive of our Board) and that all other members should not serve on more than four public company boards (inclusive of our Board).
|
|
Anti-Hedging and Anti-Pledging Policy
Directors and all employees, including our executive officers, are prohibited from engaging in hedging transactions with respect to ourSherwin-Williams securities. “Hedging transactions” can be accomplished through a number of possible mechanisms, including through the use of financial instruments such as prepaid variable forwards, equity swaps, collars, and exchange funds or through other transactions that hedge or offset, or are designed to hedge or offset, any decrease in the market value of our securities. Because hedging transactions might permit a director or employee, including our executive officers, to continue to own our securities, whether obtained through our equity compensation plans or otherwise, without the full rewards and risks of ownership, such hedging transactions are prohibited.
| 19 |
We also prohibit our directors, executive officers, and certain of our other employees that are subject to the preclearance procedures of our Insider Trading Policy from holding ourSherwin-Williams securities in margin accounts or otherwise pledging our securities for a loan. Additionally, we prohibit our directors and employees, including our executive officers, from engaging in short sales of our securities and purchasing and selling put options, call options, or other such derivative securities relating to our securities.
The Board has adopted a policy regarding the adjustment and recapture of compensation paid or payable to executives and key employees. Under this clawback and recapture policy, employees who participate in our 2007 Executive Annual Performance Bonus Plan are required to reimburse Sherwin-Williams for any award paid under this plan in the event:
the award was based upon the achievement of financial results that were subsequently the subject of an accounting restatement due to material noncompliance with any financial reporting requirement under federal securities laws;
the Board determines the employee engaged in knowing or intentional fraudulent or illegal conduct that caused or partially caused the need for the restatement; and
a lower amount would have been paid to the employee based upon the restated financial results.
The reimbursement will be equal to the difference in the amount of the award prior to the restatement and the amount of the award determined using the restated financial results.
In addition, (a) all outstanding stock awards will be canceled and (b) the employee will be required to reimburse Sherwin-Williams for any economic gains received by the employee pursuant to a stock award during the one-year period preceding the Board’s determination that the employee engaged in the conduct described above.
Complaint Procedures for Accounting, Auditing, and Financial-Related Matters
The Audit Committee has established procedures for receiving, retaining, and treating complaints from any source regarding accounting, internal accounting controls, and auditing matters. The Audit Committee has also established procedures for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters. Interested parties may communicate such complaints by following the procedures described below under the heading “How You May Communicate with Directors.” Employees may report such complaints by following the procedures outlined in our Code of Conduct. We do not permit any disciplinary or retaliatory action against any person who, in good faith, submits a complaint or concern under these procedures.
How You May Communicate with Directors
The Board has adopted a process by which shareholders and all other interested parties may communicate with the Lead Director, the Chairs of any of the committees of the Board, or the non-management directors as a group. You may send communications by regular mail to the attention of the: Lead Director; Chair, Audit Committee; Chair, Compensation and Management Development Committee; Chair, Nominating and Corporate Governance Committee; or, if to the non-management directors as a group, Non-Management Directors; each, c/o Corporate Secretary, The Sherwin-Williams Company, 101 West Prospect Avenue, Cleveland, Ohio 44115.
Sherwin-Williams’ management will review all communications received to determine whether the communication requires immediate action. Management will relay all appropriate and applicable communications received, or a summary of such communications, to the appropriate director or directors.
Availability of Corporate Governance Materials
You may access all committee charters and our Corporate Governance Guidelines, Director Independence Standards, Code of Conduct, and other governance materials on our Investor Relations website, investors.sherwin-williams.com.
|
|
Our approach to corporate responsibility is grounded in our commitment to protecting and developing our greatest assets— our company, our employees, the communities where we live and operate, and the world around us. Presented below are highlights of our corporate responsibility programs and efforts, including with respect to human capital management and other environmental and social matters. You can find additional information about our programs and efforts on our Investor Relations website, investors.sherwin-williams.com.
| ||||
| ||||
|
| |||
| ||||
|
| |||
|
| |||
|
| |||
|
|
|
| |||
|
| |||
|
| |||
| ||||
|
| |||
|
| |||
|
|
| ||||
|
| |||
|
| |||
| ||||
| ||||
|
|
Proposal 1 — Election of 11 Directors
Our Board currently has 11 members. Based upon the recommendation of the Nominating Committee, our Board has nominated all of the following 10 director nominees11 current directors for election at the 2022 Annual Meeting to hold office until the next Annual Meetingannual meeting and until their successors are elected or until their earlier resignation, removal from office, or death.
Our Board currently has 10 members. All are standing for re-election asof our director nominees except Mrs. Kropf, who is retiring as a director at the Annual Meeting in accordance with the Board’s retirement policy. Each nominee waswere elected by our shareholders at the 2020 Annual Meeting,2021 annual meeting, except for our new nominee, Mr. Powell,Ms. Stewart, who was nominated to be elected as a director by unanimous action of the Board on February 17,in August 2021.
All The Board has determined that all of the director nominees are independent, except for Mr. Morikis, who is not considered to be independent because ofdue to his position as our Chairman and CEO.
There are no family relationships among any of the directors, director nominees, and executive officers.
Each nominee has agreed to serve, if elected. If any nominee declines or is unable to accept such nomination or is unable to serve, an event which we do not expect, the Board reserves the right in its discretion to substitute another person as a nominee or to reduce the number of nominees.nominees and the size of the Board. In this event, the proxy holders may vote, in their discretion, for any substitute nominee proposed by the Board.
We have presented below biographical information regarding each nominee. This biographical information is supplemented by additional information regarding the particular experiences, qualifications, attributes, and skills that led the Board to conclude each nominee should serve on the Board. This additional information is set forth under the heading “Experiences, Qualifications, Attributes,“Director Matrix and SkillsComposition.”
The Board of Directors unanimously recommends that
you vote “FOR” the election of each of the nominees.
Director Nominees.”Biographies
Retired, Former Chief Executive Officer and President, Wendy’s International, Inc.
Director since: 2019
Age:
Committees:
Compensation
|
Kerrii B. Anderson
Ms. Anderson served as Chief Executive Officer and President of Wendy’s International, Inc. (restaurant operating and franchising company n/k/a The Wendy’s Company) from November 2006 until September 2008 when Wendy’s merged with a subsidiary of Triarc Companies, Inc. to form Wendy’s/Arby’s Group, Inc. Ms. Anderson joined Wendy’s in September 2000, serving as Interim Chief Executive Officer and President from April 2006 to November 2006, and Executive Vice President and Chief Financial Officer from September 2000 to April 2006. Prior to joining Wendy’s, Ms. Anderson served as Senior Vice President and Chief Financial Officer of M/I Schottenstein Homes, Inc. (n/k/a M/I Homes, Inc.) from September 1987 to September 2000. Ms. Anderson has been a private investor and board advisor since 2008. Ms. Anderson is a director of Laboratory Corporation of America Holdings (NYSE: LH), Worthington Industries, Inc. (NYSE: WOR), and Abercrombie & Fitch Co. (NYSE: ANF).
Qualifications: Ms. Anderson has a strong record of leadership in operations, strategy, finance, and talent management as a result of her experience serving as Chief Executive Officer and President and Chief Financial Officer of Wendy’s. Ms. Anderson also has significant expertise in the areas of accounting and financial reporting, corporate finance, corporate governance, and executive compensation through her service on other large public company boards. This breadth of experience enables Ms. Anderson to advise our Board on a variety of matters relevant to Sherwin-Williams’ global operations and business strategy. |
|
| 21 |
Retired, Former Chairman and Chief Executive Officer, Swagelok Company
Director since: 2006
Age:
Committees: Audit |
Arthur F. Anton
Mr. Anton served as Chairman and Chief Executive Officer of Swagelok Company (manufacturer and provider of fluid system products and services) until his retirement in December 2019. Mr. Anton assumed the role of Chief Executive Officer in January 2004 and Chairman in October 2017. Mr. Anton joined Swagelok as Chief Financial Officer in August 1998 and held various other senior leadership positions during his tenure, including President from January 2001 to October 2017, Chief Operating Officer from January 2001 to January 2004, and Executive Vice President from July 2000 to January 2001. Mr. Anton is a director of Diebold Nixdorf, Incorporated (NYSE: DBD)
Qualifications: Mr. Anton brings significant domestic and international manufacturing and distribution experience to the Board. Mr. Anton gained significant financial expertise and |
Retired, Former Chairman of the Board and Chief Executive Officer, Whirlpool Corporation
Director since: 2019
Age:
Committees: Audit Committee (Chair) |
Jeff M. Fettig
Mr. Fettig served as Executive Chairman of the Board of Whirlpool Corporation (world’s leading major home appliance company) from October 2017 until his retirement in December 2018. Mr. Fettig served as Chairman of the Board and Chief Executive Officer of Whirlpool from July 2004 to October 2017. Mr. Fettig joined Whirlpool in June 1981 and held numerous leadership positions of increasing responsibility, including President and Chief Operating Officer from June 1999 to July 2004, and Executive Vice President, Whirlpool and President, Whirlpool Europe and Asia from 1994 to June 1999. Mr. Fettig is
Qualifications: Through his long tenure as Chairman and Chief Executive Officer and his experience in various other key leadership positions with Whirlpool over 37 years, Mr. Fettig gained significant knowledge of global business operations and end markets and the manufacturing, marketing, sales, and distribution of consumer products worldwide. This extensive experience and breadth of knowledge enable him to provide our Board with a unique, independent perspective on Sherwin-Williams’ business strategy, growth, and operations and the issues and opportunities facing complex, global companies. |
|
2022 PROXY STATEMENT |
|
Chairman of the Board, Chief Executive Officer and President, The Goodyear Tire & Rubber Company
Director since: 2012
Age:
Committees: Audit Nominating |
Richard J. Kramer
Mr. Kramer has served as Chief Executive Officer and President of The Goodyear Tire & Rubber Company (global manufacturer, marketer, and distributor of tires) since April 2010 and Chairman of the Board of Goodyear since October 2010. Mr. Kramer joined Goodyear in March 2000 and has held various positions at Goodyear, including Chief Operating Officer from June 2009 to April 2010, President, North American Tire from March 2007 to February 2010, Executive Vice President and Chief Financial Officer from June 2004 to August 2007, Senior Vice President, Strategic Planning and Restructuring from August 2003 to June 2004, Vice President, Finance – North American Tire from August 2002 to August 2003, and Vice President – Corporate Finance from March 2000 to August 2002. Prior to joining Goodyear, Mr. Kramer was with PricewaterhouseCoopers LLP for 13 years, including two years as a partner. Mr. Kramer is a director of Goodyear (Nasdaq: GT), The Cleveland Orchestra, and Cleveland Clinic and serves on the Executive Committee of the National Association of Manufacturers.
Qualifications: Mr. Kramer has significant experience leading and managing a large multinational industrial company. As the former Chief Financial Officer of Goodyear, he brings extensive financial and risk management experience to our Board. Mr. Kramer’s diverse range of positions at Goodyear for |
Chairman and Chief Executive
Director since: 2015
Age:
Committees: None |
John G. Morikis
Mr. Morikis has served as Chairman of Sherwin-Williams since January 2017 and Chief Executive Officer of Sherwin-Williams since January
Qualifications: Mr. Morikis has been with Sherwin-Williams for |
|
| 23 |
Director since: 2014
Age:
Committees: Compensation
|
Christine A. Poon
Ms. Poon
Qualifications: Ms. Poon has extensive strategic and operational leadership skills due to her over 20 years of experience at Johnson & Johnson and Bristol-Myers Squibb. Ms. Poon brings significant sales and marketing expertise in domestic and international markets to the Board, providing a valuable perspective on Sherwin-Williams’ worldwide commercial operations.
|
Division, Yum! Brands, Inc.
Director since:
Age:
Committees:
|
Aaron M. Powell
Qualifications: Mr. Powell brings relevant leadership and international operations, sales, and marketing experience from a global consumer and professional products company to the Board. Through his broad range of leadership positions at Kimberly-Clark, Mr. Powell has gained significant knowledge of global markets and operations and extensive sales, marketing, and digital expertise in domestic and international markets. This breadth of experience will enable him to provide the Board with a valuable perspective on Sherwin-Williams’ global operations, sales and marketing, and other business matters. |
|
2022 PROXY STATEMENT |
|
Retired, Former Executive Vice President and Chief Financial Officer, Norfolk Southern Corporation Director since: 2021 Age: 64 Committees: Audit Committee | Marta R. Stewart Ms. Stewart served as Executive Vice President and Chief Financial Officer of Norfolk Southern Corporation (U.S. premier transportation company and major transporter of industrial products, forest and consumer products, chemicals, and metals, and construction materials) from November 2013 until her retirement in August 2017. Ms. Stewart joined Norfolk Southern in 1983 and held various additional accounting and finance positions of increasing responsibility, including Vice President and Treasurer from April 2009 to November 2013 and Vice President, Controller and Principal Accounting Officer from December 2003 to April 2009. Prior to joining Norfolk Southern, Ms. Stewart spent over four years at Peat Marwick (a predecessor to KPMG International Limited), where she began her career. Ms. Stewart is a director of Simon Property Group, Inc. (NYSE: SPG). She is a former director of Raytheon Company (formerly NYSE: RTN). Qualifications: Ms. Stewart brings extensive financial and strategic leadership experience to the Board. Through her 33-year career at a premier transportation and distribution company, Ms. Stewart gained extensive financial expertise and significant knowledge of strategic planning, capital markets, and accounting systems and controls that enable her to provide the Board with a meaningful perspective on matters relevant to Sherwin-Williams’ business strategy and operations. |
Retired, Former Chair and Chief Executive Officer, Owens Corning
Director since: 2017
Age:
Committees: Compensation |
Michael H. Thaman
Mr. Thaman served as Executive Chair of Owens Corning (developer, manufacturer, and marketer of insulation, roofing, and fiberglass composites) from April 2019 to March 2020. Mr. Thaman joined Owens Corning in 1992 and held a variety of other senior leadership positions, including Chief Executive Officer of Owens Corning
Qualifications: Mr. Thaman brings relevant operational experience leading and managing a global manufacturing company to the Board. The Board benefits from Mr. Thaman’s deep and unique understanding of the residential, construction, and industrial markets. Through serving in a variety of leadership roles at Owens Corning during a 28-year career, Mr. Thaman gained significant knowledge of global markets, operations, finance, and business strategy, which enables him to advise our Board on a variety of matters relevant to Sherwin-Williams’ operations and business strategy. |
| 25 |
Retired, Former Executive Vice President and Chief Operating Officer, FedEx Freight, FedEx Corporation
Director since: 2014
Age:
Committees: Audit |
Matthew Thornton III
Mr. Thornton served as Executive Vice President and Chief Operating Officer of FedEx Freight, a subsidiary of FedEx Corporation (global transportation, business services, and logistics company), from May 2018 until his retirement in November 2019. Mr. Thornton joined FedEx Corporation in November 1978 and held various management positions of increasing responsibility with the company, including Senior Vice President, US Operations, FedEx Express from September 2006 to May 2018, Senior Vice President – Air, Ground & Freight Services, FedEx Express from July 2004 to September 2006, and Vice President – Regional Operations (Central Region), FedEx Express from April 1998 to July 2004. Mr. Thornton is a director of Crown Castle International Corp. (NYSE: CCI) and a member of the Boards of Directors/Trustees of registered investment companies in the Nuveen fund complex. Mr. Thornton is also a member of The Executive Leadership Council.
Qualifications: Mr. Thornton brings extensive management and leadership experience from a large multinational company to the Board. Through his broad range of positions at FedEx Corporation during a career exceeding 41 years, Mr. Thornton gained significant strategic operations expertise and logistics management experience that allow him to provide the Board with a meaningful perspective on Sherwin-Williams’ operations and business matters. |
|
|
Retired, Former Group President, Caterpillar Inc.
Lead Director since 2019
Director since: 2015
Age:
Committees: Compensation |
Steven H. Wunning
Mr. Wunning served as Group President and member of the Executive Office of Caterpillar Inc. (world’s leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives) from January 2004 until his retirement in February 2015. Mr. Wunning joined Caterpillar in 1973 and held a variety of positions with increasing responsibility, including Vice President, Logistics Division from January 2000 to January 2004, and Vice President, Logistics & Product Services Division from November 1998 to January 2000. Mr. Wunning is a director of Kennametal Inc. (NYSE: KMT)
Qualifications: Through his broad range of assignments and experience gained during 41 years of service at Caterpillar, Mr. Wunning developed an in-depth understanding of manufacturing, quality, product support, and logistics at a leading global manufacturing company. Mr. Wunning’s extensive management experience provides the Board with a valuable, independent perspective on Sherwin-Williams’ global manufacturing and supply chain operations. |
The Board of Directors unanimously recommends that
you vote “FOR” the election of each of the nominees listed.
|
2022 PROXY STATEMENT |
|
The Board has adopted categorical Director Independence Standards to assist the Board in determining the independence of each director. To be considered independent, the Board must affirmatively determine that the director has no material relationship with Sherwin-Williams. In each case, the Board broadly considers all relevant factsMatrix and circumstances, including the director’s commercial, industrial, banking, consulting, legal, accounting, charitable, and familial relationships, and such other criteria as the Board may determine from time to time. Our Director Independence Standards also include additional independence requirements for members of the Audit Committee and Compensation Committee. A complete copy of our Director Independence Standards is included in this Proxy Statement as Appendix A.
During the Board’s annual review of director independence, the Board considers transactions, relationships, and arrangements between each director or an immediate family member of the director and Sherwin-Williams. The Board also considers transactions, relationships, and arrangements between each director or an immediate family member of the director and our senior management. Under our Director Independence Standards, the following relationships are not considered to be material relationships that would impair a director’s independence:
if the director is a current employee, or an immediate family member of the director is a current executive officer, of another company that has made payments to, or received payments from, Sherwin-Williams for property or services in an amount which, in any of the last three fiscal years, is less than $1 million or two percent, whichever is greater, of such other company’s annual gross revenues;
if the director, or an immediate family member of the director, is an executive officer of another company which is indebted to Sherwin-Williams, or to which Sherwin-Williams is indebted, in an amount which is less than five percent of such other company’s total assets;
if the director, or an immediate family member of the director, serves as an officer, director, or trustee of a not-for-profit organization, and Sherwin-Williams’ discretionary charitable contributions (excluding matching contributions) to the organization are less than $500,000 or five percent, whichever is greater, of that organization’s annual gross revenues;
if the director serves as a director or executive officer of another company that also uses Sherwin-Williams’ independent auditor;
if the director is a member of, or associated with, the same professional association, or social, educational, civic, charitable, fraternal, or religious organization or club as another Sherwin-Williams director or executive officer; or
if the director serves on the board of directors of another company at which another Sherwin-Williams director or executive officer also serves on the board of directors (except for compensation committee interlocks).
Early this year, the Board performed its annual independence review. As a result of this review, the Board determined that 9 of our 10 current directors and 9 of our 10 director nominees are independent. All members of the Audit Committee, Compensation Committee, and Nominating Committee are independent. The Board determined that Ms. Anderson, Mrs. Kropf, Ms. Poon and Messrs. Anton, Fettig, Kramer, Powell, Thaman, Thornton, and Wunning meet these standards and are independent and, in addition, satisfy the independence requirements of the New York Stock Exchange (NYSE). The Board also determined that David F. Hodnik, who served as a director until his retirement in April 2020, was independent under our Director Independence Standards and the independence requirements of the NYSE. Mr. Morikis is not considered to be independent because of his employment with Sherwin-Williams.
|
|
Experiences, Qualifications, Attributes, and Skills of Director NomineesComposition
In considering each director nominee and the composition of the Board as a whole, the Nominating Committee utilizes a director matrix consisting of a diverse set of experiences, qualifications, attributes, and skills, including self-identified diversity characteristics such as with respect to gender, race, and ethnicity, that it believes enables a director nominee to make significant contributions to the Board, Sherwin-Williams, and our shareholders. TheseThe Nominating Committee may consider additional experiences, qualifications, attributes, and skills, are more fully described below. Additionally, in connection with director candidate searches,as it deems appropriate, given the Board’s policy is to include a diverse poolthen-current needs of qualified candidates, including womenthe Board and racially/ethnically diverse persons, from which new director candidates are chosen for Board membership.
Sherwin-Williams. The Nominating Committee regularly reviews the director matrix as part of its annual Board composition review, which includes a review of potential director candidates. The Nominating Committee may also consider such other experiences, qualifications, attributes,following table more fully describes the director matrix and skills, as it deems appropriate, given the then-current needs of the Board and Sherwin-Williams.provides additional demographic information regarding our director nominees.
| * |
|
|
|
|
|
20202021 Director Compensation Table
The following table sets forth information regarding the compensation of our independent, non-management directors for 2020.2021.
Name | Fees Earned or Paid in Cash ($)(2,3) | Stock Awards ($)(4,5) | All Other Compensation ($)(6) | Total ($) | Fees Earned or Paid in Cash ($)(2,3) | Stock Awards ($)(4,5) | All Other Compensation ($)(6) | Total ($) | ||||||||||||||||||||||||||||||||
Kerrii B. Anderson | 125,000 | 160,671 | 3,000 | 288,671 | 140,986 | 157,931 | -0- | 298,917 | ||||||||||||||||||||||||||||||||
Arthur F. Anton | 150,000 | 160,671 | 3,000 | 313,671 | 132,624 | 157,931 | -0- | 290,555 | ||||||||||||||||||||||||||||||||
Jeff M. Fettig | 125,000 | 160,671 | 3,000 | 288,671 | 142,376 | 157,931 | 7,000 | 307,307 | ||||||||||||||||||||||||||||||||
David F. Hodnik(1) | 38,462 | 160,671 | -0- | 199,133 | ||||||||||||||||||||||||||||||||||||
Richard J. Kramer | 138,846 | 160,671 | 3,000 | 302,517 | 145,000 | 157,931 | 3,000 | 305,931 | ||||||||||||||||||||||||||||||||
Susan J. Kropf | 148,000 | 160,671 | 3,000 | 311,671 | ||||||||||||||||||||||||||||||||||||
Susan J. Kropf (1) | 45,132 | 157,931 | 4,000 | 207,063 | ||||||||||||||||||||||||||||||||||||
Christine A. Poon | 131,154 | 160,671 | -0- | 291,825 | 125,000 | 157,931 | 4,000 | 286,931 | ||||||||||||||||||||||||||||||||
Aaron M. Powell | 93,750 | 183,033 | -0- | 276,783 | ||||||||||||||||||||||||||||||||||||
Marta R. Stewart | 42,459 | 175,766 | -0- | 218,225 | ||||||||||||||||||||||||||||||||||||
Michael H. Thaman | 125,000 | 160,671 | 3,000 | 288,671 | 125,000 | 157,931 | 3,000 | 285,931 | ||||||||||||||||||||||||||||||||
Matthew Thornton III | 125,000 | 160,671 | -0- | 285,671 | 125,000 | 157,931 | 4,000 | 286,931 | ||||||||||||||||||||||||||||||||
Steven H. Wunning | 160,000 | 160,671 | 3,000 | 323,671 | 160,000 | 157,931 | 7,000 | 324,931 | ||||||||||||||||||||||||||||||||
| 1 |
|
| 2 |
|
| 3 |
|
| 4 |
|
| 5 | The number of RSUs held by each non-management director at December 31, |
|
| 6 |
|
28 | 2022 PROXY STATEMENT |
The Compensation Committee is responsible for reviewing and approving the form and amount of compensation for our non-management directors. All of our non-management directors are paid under the same compensation program. Any executive officer of Sherwin-Williams who also serves as a director does not receive any additional compensation for serving as a director.
Our non-managementdirector compensation program is designed to attract and retain highly qualified directors by ensuringnon-management director compensation is competitive relative to market practices, addresses the time, effort, expertise, and accountability required of active Board membership, and aligns directors’ interests with those of our shareholders through the equity component of the compensation program.
|
|
Director Fees
During 2020,2021, the cash and equity compensation program for our non-management directors consisted of the following:following.
anAn annual cash retainer of $125,000;$125,000.
anAn additional annual cash retainer of $35,000 for the Lead Director, $25,000 for the chair of the Audit Committee Chair, $23,000 for the chair of the Compensation Committee Chair, and $20,000 for the chair of the Nominating Committee;Committee Chair.
aA meeting fee of $1,750 for each Board or committee meeting attended in excess of twelve meetings during the calendar year. For purposes of calculating the number of meetings, any Board and committee meetings held within 24 hours constitute one meeting; andmeeting.
anAn annual grant of RSUs of approximately $160,000, valued over a prior 30-day period, under our 2006 Stock Plan for Nonemployee Directors. One RSU is equivalent in value to one share of Sherwin-Williams common stock. RSUs generally are paid out in common stock upon vesting and vest in annual increments of one-third over a period of three years. RSUs will immediately vest in the event of the death or disability of the director or in the event of a change in control of Sherwin-Williams. In the event of the retirement of the director, RSUs will continue to vest in accordance with the original three-year vesting schedule.
We reimburse all directors for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of the Board and its committees. We do not provide retirement benefits to our non-management directors.
It is the Compensation Committee’s practice to engage its independent compensation consultant Compensation Advisory Partners, every other year to assess the competitiveness of our director compensation program relative to market practices, including the peer group we use for executive compensation purposes. During 2020,2021, the Compensation Committee performed such assessment and, based upon its evaluation and the recommendation of the compensation consultant, approved the following increases effective January 1, 2022: (a) annual cash retainer to $130,000; (b) value of the annual grant of RSUs to approximately $170,000; (c) annual cash retainer for the Audit Committee approved maintainingChair to $30,000; and (d) annual cash retainer for the current compensation program for our non-management directors.Compensation Committee Chair to $25,000. Additional information regarding the role and independence of our compensation consultant is set forth under the heading “Compensation and Management Development Committee” in the “Board Meetings and Committees”Board Committees section.
Director Stock Ownership RequirementRequirements
The Board has established a minimum share ownership requirement to ensure the interests of our directors are aligned with the interests of our shareholders. Each non-managementInformation about our director who has served on the Board for at least five yearsstock ownership requirements is required to own shares of common stock equal in value to at least seven times the annual Board cash retainer. We include additional information about this requirement and the Compensation Committee’s annual review to determine whether our non-management directors are meeting this requirementincluded under the heading “Stock Ownership Guidelines” in the “Other Arrangements,Corporate Governance Practices and Policies and Practices” section of the CD&A.section.
Other Benefits
We also provide liability insurance and business travel accident insurance for all directors, including $300,000$500,000 accidental death and dismemberment coverage and $300,000$500,000 permanent total disability coverage, while the directors are traveling on Sherwin-Williams’ business.
Directors may also receive the same discounts as our employees on the purchase of products at Sherwin-Williams’ stores and are eligible to participate in The Sherwin-Williams FoundationFoundation’s Matching Gifts Program and Grants for Volunteers Program on the same basis as employees. For the Matching Gifts Program, the Foundation will match, on a 1:1 basis, gifts of $100 or more, up to an annual maximum of $3,000, made by eligible participants to qualifying nonprofit organizations and educational institutions with tax-exempt affiliates.institutions.
Directors may defer all or a partportion of their retainer and meeting fees under our Director Deferred Fee Plan into a common stock unit account, a shadow stock unit account, or an interest bearing cash account. Amounts deferred may be distributed either in annual installments over a period of up to ten years or in a lump sum pursuant to a director’s payment election. Amounts credited to a shadow stock unit account are distributed in cash, and units are vested in shadow stock and common stock unit accounts upon allocation to such accounts.
|
|
The Board held seven meetings during 2020. Each incumbent director attended at least 75% of all of the meetings of the Board and committees on which he or she served. Under our Corporate Governance Guidelines, each director is expected to attend, absent unusual circumstances, all meetings of shareholders. All current directors attended the 2020 Annual Meeting.
The Board has established an Audit Committee, Compensation Committee, and Nominating Committee. Each committee has adopted a written charter. You may find a complete copy of each committee charter on our Investor Relations website, investors.sherwin-williams.com.
The following table sets forth the current membership and chairs of the committees of the Board.
| ||||||||||||||||||||
| ||||||||||||||||||||
| ||||||||||||||||||||
| ||||||||||||||||||||
| ||||||||||||||||||||
| ||||||||||||||||||||
| ||||||||||||||||||||
| ||||||||||||||||||||
| ||||||||||||||||||||
| ||||||||||||||||||||
The purpose of the Audit Committee is to assist the Board in fulfilling its oversight responsibilities on matters relating to:
the integrity of our financial statements and effectiveness of our internal control over financial reporting;
the independence, qualifications, and performance of the independent registered public accounting firm;
the performance of our internal audit function;
our compliance with legal and regulatory requirements; and
engaging in such other matters as may from time to time be specifically delegated to the Audit Committee by the Board.
The Audit Committee met eight times during 2020 and made regular reports to the Board. Each member of the Audit Committee is independent under applicable SEC rules, NYSE listing standards, and our Director Independence Standards. The Board has determined that Messrs. Anton, Fettig, and Kramer are “audit committee financial experts” under SEC rules.
Compensation and Management Development Committee
The purpose of the Compensation Committee is to assist the Board in fulfilling its oversight responsibilities on matters relating to:
compensation for our directors and management, which includes our executive officers and operating management;
support the Board in overseeing our management development and succession planning process; and
engaging in such other matters as may from time to time be specifically delegated to the Compensation Committee by the Board.
|
|
As part of its charter, the Compensation Committee reviews and evaluates our programs, priorities, and progress for recruiting, staffing, developing, and retaining competent managers, including supporting the Board in overseeing management succession planning for our CEO and other executives.
The Compensation Committee met four times during 2020 and made regular reports to the Board. Each member of the Compensation Committee meets the independence requirements under applicable SEC rules, NYSE listing standards, and our Director Independence Standards.
Process for Determining Director and Executive Compensation
The Compensation Committee reports to the Board on all compensation matters regarding our directors and management, which includes our executive officers and operating management. The Compensation Committee does not generally delegate any of its authority to other persons, although it has the power to delegate authority to subcommittees and executive officers. The Compensation Committee relies upon several members of our management and their staff, as well as an independent compensation consultant, for assistance in performing its duties.
The Compensation Committee has directly engaged Compensation Advisory Partners as its outside compensation consultant reporting directly to the Compensation Committee. The Compensation Committee evaluated the independence of Compensation Advisory Partners, taking into account all factors relevant to its independence from management under applicable SEC rules and NYSE listing standards. Based upon that evaluation, the Compensation Committee determined Compensation Advisory Partners is independent. The Compensation Committee also conducted an assessment to evaluate whether the work performed by Compensation Advisory Partners raises a conflict of interest. Based upon that assessment, the Compensation Committee determined that no conflict of interest exists. Compensation Advisory Partners did not provide any services to Sherwin-Williams during 2020 other than those matters for which it was engaged by the Compensation Committee.
Role of the Compensation Consultant
The compensation consultant performs services for the Compensation Committee relating to director and executive compensation, including the following:
attends Compensation Committee meetings to present and offer independent recommendations, insights, and perspectives on compensation matters;
assesses the appropriateness of our peer group used for compensation decisions;
assesses how our executive compensation program aligns with pay for performance;
reviews compensation levels for executives and non-management directors relative to our peer group and published survey data and recommends compensation pay levels;
reviews targeted pay levels and the mix of principal compensation components;
prepares CEO pay recommendations;
advises on annual and long-term incentive design and plan structure, performance goals, award opportunities, and vesting conditions;
conducts an annual risk assessment of our compensation programs to guard against excessive risk-taking; and
provides information on current executive compensation trends and new developments, including relating to the impact of the COVID-19 pandemic on executive compensation throughout 2020.
The Compensation Committee meets multiple times throughout the year with the compensation consultant in executive session without management present.
Role of Management
Several members of our management participate in the Compensation Committee’s executive compensation process. The Compensation Committee relies upon our Senior Vice President – Human Resources (SVP – HR) and his staff for input related to director and executive compensation matters. With regard to executive compensation, management plays a more active role in the compensation process and makes recommendations with respect to:
the development of compensation plans and programs, and changes to existing plans and programs;
the evaluation of executive performance;
|
|
salary increases;
the alignment of incentive compensation plans and programs with our business goals and strategies;
the performance goals (and weightings) for annual cash incentive compensation;
the financial performance goals for equity grants and the results attained; and
the number of stock options and restricted stock units granted.
Prior to providing recommendations to the Compensation Committee at its meetings, our SVP – HR will meet with our CEO to review the recommendations, except for recommendations concerning our CEO’s compensation. Our CEO and our SVP – HR also meet with the chair of the Compensation Committee and the compensation consultant prior to meetings to review the agenda for the meetings and the compensation recommendations. Our CEO and our SVP – HR generally attend all Compensation Committee meetings. Our CEO does not have the ability to call meetings. Our SVP – HR serves as secretary for the Compensation Committee at its meetings. Our CEO is excused from that part of the meeting during which the Compensation Committee discusses his annual performance evaluation and compensation.
Nominating and Corporate Governance Committee
The purpose of the Nominating Committee is to assist the Board in fulfilling its oversight responsibilities on matters relating to:
identifying individuals qualified to become members of the Board;
determining the composition of the Board and its committees;
reviewing and developing our Corporate Governance Guidelines and practices;
guiding the annual evaluation of the performance of the Board; and
engaging in such other matters as may from time to time be specifically delegated to the Nominating Committee by the Board.
The Nominating Committee met two times in 2020 and made regular reports to the Board. Each member of the Nominating Committee is independent under NYSE listing standards and our Director Independence Standards.
Director Qualifications
The Nominating Committee seeks a diverse group of candidates who possess the appropriate experiences, qualifications, attributes, and skills to make a significant contribution to the Board, Sherwin-Williams, and our shareholders. From time to time, the Nominating Committee receives input from senior management and other members of the Board to identify and evaluate potential director candidates. The Nominating Committee may also employ a professional search firm (for which it would be paid a fee) to assist it in identifying potential members of the Board. Each candidate is evaluated in the context of the Board as a whole, with the objective that the Board can best perpetuate our company’s success and represent shareholders’ interests through the exercise of sound business judgment using the directors’ diversity of experiences, qualifications, attributes, and skills, including directors’ self-identified diversity characteristics, such as gender, race, ethnicity, religion, national origin, sexual orientation, disability, military service, or other socio-economic or demographic characteristics. Each candidate shall have the highest personal and professional character and integrity and shall have demonstrated exceptional ability and judgment in their respective endeavors. Candidates must possess sufficient time to effectively carry out their duties and responsibilities.
Aaron M. Powell was identified as a director candidate by an outside search firm. The Nominating Committee provided the search firm with guidance as to the skills, experience, and qualifications that the Nominating Committee was seeking in potential candidates, and the search firm identified candidates for the Nominating Committee’s consideration. After evaluating Mr. Powell in the manner described above and considering input from our other independent directors and our Chairman and CEO, the Nominating Committee identified Mr. Powell as a director candidate and recommended him as a nominee to the Board.
Diversity of Directors and Director Nominees
In considering the composition of the Board, the Nominating Committee seeks to strike a proper balance between the addition of new directors who bring fresh and diverse perspectives and the stability of the Board as a whole. To maintain this commitment to a well-balanced, diverse Board, the Nominating Committee utilizes a director matrix consisting of a
|
|
diverse set of experiences, qualifications, attributes, and skills, including self-identified diversity characteristics, such as gender, race, and ethnicity. This matrix is included in this Proxy Statement under the heading “Experiences, Qualifications, Attributes, and Skills of Director Nominees.” The Nominating Committee utilizes the matrix when identifying, considering, and recommending director nominees, as well as potential director candidates as part of its process of identifying individuals qualified to become Board members. The Nominating Committee also regularly uses the matrix in reviewing the experiences, qualifications, attributes, and skills of current directors. In assessing its overall effectiveness in recommending a diverse group of director nominees, the Nominating Committee utilizes these reviews, as well as its committee self-assessments.
In connection with director candidate searches, the Board’s policy is to include a diverse pool of qualified candidates, including women and racially/ethnically diverse persons, from which new director candidates are chosen for Board membership.
Consideration of Candidates Recommended by Shareholders
The Nominating Committee’s policy with respect to the consideration of director candidates recommended by shareholders is that the Nominating Committee will consider such candidates on the same basis and in the same manner as it considers all director candidates. Recommendations are required to include the following information:
the name and address of the shareholder;
the class and number of shares of common stock owned by the shareholder;
a description of all arrangements or understandings between or among any of (a) the shareholder, (b) each candidate, and (c) any other person or persons pursuant to which the recommendation is being made;
the candidate’s full name, address, and telephone numbers;
a statement of the candidate’s qualifications and experiences, and any other relevant qualities;
the information that would be required under the rules of the SEC in a proxy statement soliciting proxies for the election of the candidate as a director;
a statement, signed by both the shareholder and the candidate, (a) that the shareholder and the candidate currently do not have, and in the prior three years have not had, directly or indirectly, any business, professional, or other relationship with each other, and that the shareholder and the candidate do not have any agreement, arrangement, or understanding with each other with respect to the candidate’s proposed service as a director, or (b) if either of the foregoing statements is incorrect in any manner, describing in detail the relationship, agreement, arrangement, or understanding;
the candidate’s resume, a list of other boards of directors of public companies on which the candidate currently serves or has served in the past five years, educational information, and at least three references; and
a written statement signed by the candidate agreeing that if they are nominated by the Board, they will (a) be a nominee for election to the Board, (b) provide all information necessary to be included in Sherwin-Williams’ proxy statement under applicable SEC or NYSE rules, and (c) serve as a director if he or she is elected by shareholders.
You may find a complete description of these requirements on our Investor Relations website, investors.sherwin-williams.com. Shareholders may submit recommendations, along with proof of shareholder status, in writing to: Chair, Nominating and Corporate Governance Committee, c/o Corporate Secretary, The Sherwin-Williams Company, 101 West Prospect Avenue, 12th Floor, Midland Building, Cleveland, Ohio 44115.
Ability of Shareholders to Nominate Directors via Proxy Access
Our Regulations provide a “proxy access” right to permit any shareholder, or group of up to 20 shareholders collectively, owning 3% or more of our outstanding shares of common stock continuously for at least three years to nominate and include in our proxy materials director nominees for election to the Board. A shareholder or shareholders, as applicable, can nominate up to 20% of the total number of directors on the Board, rounding down to the nearest whole number, in accordance with the requirements set forth in our Regulations. Under our Regulations, requests to include shareholder-nominated candidates for director in our proxy materials must be received no earlier than 150 days and no later than 120 days before the anniversary of the date that we issued our proxy statement for the previous year’s Annual Meeting of Shareholders. You may find a complete description of the requirements to nominate a director utilizing proxy access in our Regulations.
|
|
29
|
|
Audit Committee ReportProposal 2 — Advisory Approval of the Compensation of the Named Executives
ManagementWe are asking our shareholders to approve, on an advisory, non-binding basis, the compensation of the named executives as disclosed in this Proxy Statement pursuant to SEC rules, including Section 14(a) of the Securities Exchange Act of 1934, as amended (Exchange Act). This annual vote is commonly known as “say-on-pay.” This vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executives and our executive compensation program and practices described in this Proxy Statement.
We are focused on delivering sustained financial and operating results with the ultimate goal of creating and maximizing long-term value for our shareholders. We believe our executive compensation program has been thoughtfully and appropriately designed and managed to support our overall business goals and strategies, to drive sustained performance, and to deliver superior shareholder returns.
Our objective is to ensure that our executive compensation program (a) iscompetitive byattracting, retaining, and motivating talented and high-performing executives, (b) maintains a pay for performance philosophy with a significant percentage of executive pay tightly linked to Company and business unit performance, and (c) aligns the primary responsibility forinterests of our executives with those of our shareholders through significant stock ownership requirements and long-term stock incentive compensation that rewards our executives the integrityway our shareholders are rewarded—through growth in the value of Sherwin-Williams’ financialour stock. We believe our program achieves this objective.
The CD&A describes our executive compensation program, including detailed information about how and why we make executive compensation decisions, and the financial reporting process,decisions made relating to 2021 compensation. We include a list of our more significant executive compensation practices, which promote responsible pay and governance principles and alignment with shareholder interests, in the Executive Summary of the CD&A.
Accordingly, the Board requests that you vote “for” the following resolution:
“RESOLVED, that Sherwin-Williams’ shareholders hereby approve, on an advisory basis, the compensation of the named executives as disclosed pursuant to the compensation disclosure rules of the SEC, including the systemCompensation Discussion and Analysis, the executive compensation tables, and any related material disclosed in this Proxy Statement.”
Although this advisory vote on the compensation of internal control over financial reporting. Ernst & Young LLP, Sherwin-Williams’ independent registered public accounting firm,the named executives is responsible for conducting independent auditsnot binding, the Board and Compensation Committee highly value the opinions of Sherwin-Williams’ financial statements andour shareholders. The results of this vote will provide information to the effectivenessCompensation Committee about our shareholders’ views of internal control over financial reportingour executive compensation program, which the Compensation Committee will be able to consider in accordancethe future when making executive compensation decisions. We intend to hold this vote annually, with the standardsnext vote expected to occur at our 2023 annual meeting of shareholders. We also will hold the Public Company Accounting Oversight Board (United States) (PCAOB) and expressing an opinionnext vote on the financial statements and the effectivenessfrequency of internal control over financial reporting based upon those audits. The Audit Committee is responsible for overseeing the conductsuch say-on-pay vote at our 2023 annual meeting of these activities by management and Ernst & Young LLP.shareholders.
As part of its oversight responsibility, the Audit Committee has reviewed and discussed the audited financial statements, the adequacy of financial controls, and the effectiveness of Sherwin-Williams’ internal control over financial reporting with management and Ernst & Young LLP.
The Audit Committee also has discussed with Ernst & Young LLP the matters required to be discussed by the applicable requirements of the PCAOB and SEC rules. The Audit Committee has received the written disclosures and the letter from Ernst & Young LLP required by applicable requirements of the PCAOB regarding the independent accountant’s communications with the audit committee concerning independence. The Audit Committee also has discussed with Ernst & Young LLP the firm’s independence.
Based upon these reviews and discussions, the Audit Committee recommended to the Board of Directors unanimously recommends that you vote “FOR” Proposal 2
to approve, on an advisory basis, the audited financial statements be included in Sherwin-Williams’ Annual Report on Form 10-K forcompensation of the fiscal year ended December 31, 2020 for filing with the SEC.named executives.
AUDIT COMMITTEE
Arthur F. Anton, Chair
Jeff M. Fettig
Richard J. Kramer
Matthew Thornton III
30 |
|
Compensation Discussion and Analysis
This CD&A describes our executive compensation program and how it applies to our six “named executives” listed below. As used in this CD&A, the terms “the Compensation Committee” and “the Committee” refer to the Compensation and Management Development Committee.
John G. Morikis. Mr. Morikis has served as Chairman since January 2017 and Chief Executive Officer since January 2016. Mr. Morikis also served as President from March 2021 to March 2022. Mr. Morikis began his career with Sherwin-Williams in December 1984.
Allen J. Mistysyn. Mr. Mistysyn has served as Senior Vice President – Finance and Chief Financial Officer since January 2017. He began his career with Sherwin-Williams in June 1990.
Peter J. Ippolito. Mr. Ippolito has served as President and General Manager, Industrial Wood Division, Performance Coatings Group (PCG) since November 2021. Prior to his current role, Mr. Ippolito served as Senior Vice President, Strategic Initiatives from March to October 2021 and President, The Americas Group (TAG) from January 2018 to March 2021. He began his career with Sherwin-Williams in May 1986. Mr. Ippolito was an executive officer of the Company prior to assuming his current role in November 2021.
Mary L. Garceau. Ms. Garceau has served as Senior Vice President, General Counsel and Secretary since August 2017. She began her career with Sherwin-Williams in February 2014.
Heidi G. Petz. Ms. Petz has served as President and COO since March 1, 2022. Prior to her current role, Ms. Petz served as President, TAG from March 2021 to March 2022 and Senior Vice President, Sales and Marketing, TAG from November 2020 to March 2021. She began her career with Sherwin-Williams in June 2017 in connection with the Valspar acquisition.
Justin T. Binns. Mr. Binns has served as President, TAG since March 1, 2022. Prior to his current role, Mr. Binns served as President, PCG from November 2020 to March 2022. He began his career with Sherwin-Williams in August 1997.
| 31 |
We manage our business with the long-term fundamental objective of creating and maximizing value for our shareholders. Our pay for performance philosophy supports this objective by linking a significant percentage of our executive compensation program to Company performance, business unit performance (where applicable), and stock price appreciation.
Our compensation programs are integral to our longstanding success as they assist us in attracting, retaining, and motivating talented and high-performing people throughout our organization to drive consistent and strong financial and operating results. Our long track record of sustained success is exemplified by the following:
Our average annual shareholder return, including dividends, over the past 10 years is 29.33%, compared to the average annual return for the S&P 500 of 16.55%.
2021 was our 43rd consecutive year of increased dividends, as we continued our practice of returning significant value to our shareholders. During 2021, we returned approximately $3.34 billion to our shareholders through dividends and repurchases of our stock, an increase of approximately 14% over 2020. Over the past three years, we returned approximately $7.47 billion in cash to our shareholders through dividends and stock repurchases.
2021 Financial and Operating Performance
Our full year results were impacted by unprecedented supply chain disruptions and raw material cost inflation primarily resulting from two natural disasters that occurred during 2021. In February, Winter Storm Uri caused significant raw material availability disruptions and adversely impacted nearly 170 manufacturing facilities supplying the paint and coatings industry. In August, Hurricane Ida exacerbated the industry’s raw material shortages. These extreme weather events adversely impacted raw material availability and forced many of our suppliers in Texas and Louisiana to cease operations, with production of numerous key resins, additives, and solvents used in our products remaining offline for extended periods and into the third and fourth quarters. The raw material shortages resulting from the natural disasters significantly hindered the Company’s ability to manufacture the products needed to fully meet robust customer demand.
Our dedicated employees responded with determination and demonstrated remarkable resilience in navigating the supply chain challenges experienced during 2021. Through these challenges, we focused on identifying and making adjustments throughout our business to reduce the impacts to our customers and improve raw material availability, while continuing to invest in growth initiatives. We more fully describe our efforts to respond to the adverse impacts of these natural disasters later in this CD&A.
Despite the challenges of the past year, consolidated net sales increased 8.6% to a record $19.94 billion in 2021—marking our eleventh consecutive year of growth. Net income and diluted net income per share for the year were $1.86 billion and $6.98, respectively, and we generated net operating cash of $2.24 billion.
Recent key executive compensation highlights include the following:
| • | 2021 Annual Cash Incentive Compensation. |
| ° | In the first quarter of 2021, the Compensation Committee set threshold, target, and maximum annual cash incentive performance goals at levels representing continued strong financial performance. |
| ° | As described previously, Winter Storm Uri and Hurricane Ida caused significant supply chain disruptions and raw material shortages throughout the year. Despite management’s actions in responding to the unprecedented challenges of these unforeseen, extreme weather events, the achievement levels for most of the performance goals comprising our annual cash incentive compensation program were adversely impacted. |
| ° | The Committee recognized that without management’s efforts, the adverse impacts of Winter Storm Uri and Hurricane Ida to our business would have been far more severe. The Committee reviewed with management and its independent compensation consultant, Compensation Advisory Partners, the actual results of the performance goals and the achievement levels of the affected performance goals adjusted to reflect the full net impact of the natural disasters. While nearly all affected metrics would have realized maximum achievement (200%) but for the adverse impacts of the natural disasters, the Committee considered the full adjustment and determined that, despite management’s efforts in responding to the unprecedented challenges, full adjustment was not appropriate. |
32 | 2022 PROXY STATEMENT |
| ° | At the recommendation of Compensation Advisory Partners and in consultation with management, the Committee determined to adjust certain performance results and capped the adjustment to reflect only a portion of the net impact of the natural disasters. After applying the cap to the adjustment, our named executives earned an average of 153.35% of their 2021 target annual cash incentive compensation. |
| • | 2019 – 2021 Long-Term Incentive Compensation. Despite the unprecedented challenges caused by Winter Storm Uri and Hurricane Ida, the Compensation Committee did not adjust the performance payouts for the vesting of our 2019 – 2021 PRSUs due to the 2021 natural disasters. Our 2019 – 2021 PRSUs were earned at 182.5% and 135.0% of target based upon Company performance for cumulative earnings per share (EPS) and average annual return on net assets employed (RONAE), respectively, over the three-year performance period. |
Impact of Last Year’s Say-on-Pay Vote
At our 2021 annual meeting, a substantial majority of shareholders (93.5% of votes cast) approved the compensation of our named executives. We consider this result to be a strong endorsement of our executive compensation program, practices, and policies. Based on this strong shareholder support, the Committee does not believe our executive compensation program requires material changes. However, the Committee has made, and will continue to make, changes designed to further enhance the objectives of our program and to account for business and other developments. We will continue to hold the advisory say-on-pay vote annually until the next shareholder vote on say-on-pay frequency in 2023.
The Committee highly values the input of our shareholders. The Committee will continue to consider the views of our shareholders in connection with our executive compensation program, including the results of the 2022 say-on-pay vote. We will make modifications based upon evolving best practices, developments in and factors affecting our business, input from our shareholders, market compensation information, and changing regulatory requirements. We encourage you to support this year’s say-on-pay proposal.
Independent Compensation Consultant
The Compensation Committee assessed the independence of Compensation Advisory Partners under applicable SEC rules and NYSE listing standards. The Committee determined that Compensation Advisory Partners is independent and its work raises no conflict of interest. Compensation Advisory Partners did not provide any services to Sherwin-Williams during 2021 other than those matters for which it was engaged by the Compensation Committee.
Relationship Between Pay and Performance
Our executive compensation program combines different elements of compensation. As a result, the total amount of executive compensation paid is not directly tied to any one measure or component of compensation. We believe this approach assists us in viewing performance holistically and helps mitigate the risk of over-emphasizing any one metric. That said, a significant portion of our executive compensation program is tied to the value of our stock, which we believe is critical to ensuring we deliver value to shareholders.
Each year, the Compensation Committee assesses our CEO’s compensation based on Sherwin-Williams’ performance relative to its peers. In October 2021, the Committee analyzed the relationship between the realizable pay of our CEO and total shareholder return (TSR) over the five-year period ended December 31, 2020, comparing Sherwin-Williams to the peer group we use when making executive compensation decisions. At the time of such review, 2020 was the most recent year for which compensation information was available for our peer group. TSR includes the reinvestment of dividends and is calculated on a compounded annual growth rate basis.
The chart in this section, prepared by Compensation Advisory Partners, shows the degree of alignment between the total realizable pay of our CEO and Sherwin-Williams’ TSR relative to companies in our peer group over the five-year period. The chart reflects all companies in our current peer group following the changes adopted during 2021 (as further described under the heading “Peer Group” in this CD&A), except for Dow Inc. and DuPont de Nemours, Inc., which were excluded due to the merger completed by The Dow Chemical Company and E.I. du Pont de Nemours & Company in 2017 and subsequent spin-offs to form two new publicly traded companies in 2019.
| 33 |
Sherwin-Williams’ cumulative TSR over the five-year period was 197%, which was at the 95th percentile of our peer group. Companies in our peer group are indicated by the circles in the chart. Companies that fall within the shaded diagonal alignment zone are generally viewed as having pay and performance alignment. As illustrated in the chart, our CEO’s realizable pay was well aligned with Sherwin-Williams’ performance.
PAY FOR PERFORMANCE ALIGNMENT
CEO REALIZABLE PAY AND TSR
Realizable pay includes: (a) base salary during the five-year period; (b) actual cash incentive compensation earned during the five-year period; (c) the value of RSUs granted during the five-year period based on the 2020 year-end closing stock price per share; (d) the vesting date value of long-term performance equity awards that were earned in 2018, 2019, and 2020, which consisted of PRSUs; (e) the value of target long-term performance equity awards granted in 2019 and 2020, which consisted of PRSUs, based on the 2020 year-end closing stock price per share; and (f) the in-the-money value of stock options granted during the five-year period based on the 2020 year-end closing stock price per share. Valuing equity awards in this manner is different from valuing equity awards at their aggregate grant date fair value, which is the method used to value equity in the Summary Compensation Table and the 2021 Grants of Plan-Based Awards Table.
34 | 2022 PROXY STATEMENT |
Overview of Executive Compensation Practices
Our compensation programs, practices, and policies are reviewed and evaluated on an ongoing basis. We list below some of the more significant best practices we have adopted, and practices we have avoided, that we believe highlight our commitment to responsible pay and governance principles that best serve our shareholders’ long-term interests.
What We Do | What We Don’t Do | |||||||||
✓Performance-Based Pay. We emphasize pay for performance. For 2021, 90% of our CEO’s total direct compensation and an average of 79% of our other named executives’ total direct compensation was tied to performance. ✓Independent Compensation Committee. Each member of the Compensation Committee meets the independence requirements under SEC rules and NYSE listing standards. ✓Independent Compensation Consultant. ✓Balanced Compensation Structure. We utilize a balanced approach to compensation, which combines fixed and variable pay, short-term and long-term time horizons, and cash and equity components. ✓Target Median. We have a pay philosophy that targets market median compensation. We assess our current compensation practices, policies, and pay levels against peer companies. ✓Responsibly Administered Incentive Compensation Programs. We have diversified incentive compensation goals without steep payout cliffs. Vesting periods for annual equity awards encourage consistent behavior and reward long-term, sustained performance. ✓Clawback and Recapture Policy. Our clawback and recapture policy allows us to “clawback” incentive compensation earned by our executives and key employees. ✓Double-Trigger Change in Control. Our stock plan contains a “double-trigger” acceleration provision for the vesting of equity awards upon a change in control. ✓Significant Stock Ownership. Our directors and executives have significant stock ownership requirements. ✓Annual Say-on-Pay Vote. We hold our advisory say-on-pay vote on an annual basis. |
| No Employment Agreements. We do not have employment agreements with our named executives; our named executives are employed at will. | ||||||||
| No Dividend Equivalents for Unvested RSUs or PRSUs. Dividend equivalents on RSU or PRSU awards are deferred and paid only on earned shares upon vesting. | |||||||||
| No Repricing or Replacing of Underwater Stock Options. We do not permit the repricing or replacing of underwater stock options without shareholder approval. | |||||||||
| No Hedging. Directors and employees, including our executive officers, are prohibited from engaging in hedging transactions with respect to our securities. | |||||||||
| No Pledging. Directors, executive officers, and certain other employees may not hold our securities in margin accounts or otherwise pledge our securities as collateral for a loan. | |||||||||
| No Speculative Trading. Directors and employees, including our executive officers, may not engage in short sales of our securities or in put options, call options, or other market-offered derivative transactions in our stock. | |||||||||
| No Excessive Perquisites. Consistent with our culture, we provide only limited perquisites to our executives. | |||||||||
| No Excessive Risk-Taking. We conducted a risk assessment and concluded that our compensation policies do not encourage excessive or unnecessary risk-taking. | |||||||||
| No Above-Market Earnings on Deferred Compensation. We do not pay guaranteed, above-market, or preferential interest or earnings on deferred compensation. | |||||||||
| 35 |
Overview of Our Executive Compensation Program
Independent Compensation Committee
The Compensation Committee, which is entirely composed of independent directors, oversees our executive compensation program. The Committee reports to the Board on all compensation matters for members of our senior management team, including our named executives. The Committee has engaged Compensation Advisory Partners as its independent compensation consultant in order to fulfill its responsibilities. We include additional information about the Compensation Committee, including the role of the compensation consultant and management in the compensation setting process, under the heading “Compensation and Management Development Committee” in the Board Committees section.
We design and manage our Company-wide compensation programs to align with our overall business strategy and to focus our employees on delivering sustained financial and operating results and creating value for our shareholders on a consistent, long-term basis. We believe it is important that our compensation programs:
| • | Be competitive. Our programs are designed to attract, retain, and motivate talented and high-performing people at all levels of our Company around the world. We structure our compensation programs to be competitive with the programs of companies of comparable size and business. |
| • | Maintain a performance- and achievement-oriented culture. A significant percentage of our employees participate in incentive plans tied to performance goals that support our business strategies. We utilize both annual and long-term incentives to appropriately balance consistent annual results with improved performance over the longer term. We select performance goals that are sufficiently demanding, support our financial and operating objectives, and help drive our business. We reward employees for performance without encouraging excessive or unnecessary risk-taking. |
| • | Align the interests of our executives with those of our shareholders. It is important that a significant portion of our executives’ incentive compensation be directly tied to our stock price in order to align the financial interests of our executives with the interests of our shareholders and keep our executives focused on sustained financial performance. We have significant stock ownership requirements for our executives described under the heading “Executive Stock Ownership Requirements” in the Other Arrangements, Policies, and Practices section of this CD&A. |
We believe our compensation programs achieve these goals.
36 | 2022 PROXY STATEMENT |
Our Approach and Mix. We maintain a balanced approach to compensating our named executives by combining elements that vary by the (a) type of compensation (fixed and variable), (b) length of the performance period (short- and long-term), and (c) form of compensation (cash and equity). We believe this mix aligns with our business strategies and emphasizes pay for performance. We determine this mix by reviewing market compensation information. We do not have a specific policy for the allocation of compensation between fixed and variable, short- and long-term, and cash and equity.
The components of our executive compensation program, the primary purpose of each component, and the form of compensation for each component are described in the following table.
Component | Primary Purpose | Form of Compensation | ||
Base Salary | Provides base compensation for day-to-day performance of job responsibilities. | Cash | ||
Annual Cash Incentive Compensation | Rewards achievement of annual performance goals. | Cash | ||
Long-Term Equity Incentive Compensation | Encourages improvement in the long-term performance of our Company and aligns the financial interests of our executives with the interests of our shareholders. | Stock options, which vest in equal installments on the first, second, and third anniversary of grant and have a ten-year term. PRSUs, which vest at the end of a three-year period based upon the achievement of pre-established financial performance goals and are paid in stock. | ||
Other Employee and Executive Benefits | Provides a broad-based executive compensation program for employee retention, retirement, and health. | Retirement and savings programs, health and welfare programs, and employee benefit plans, programs, and arrangements generally available to all employees; executive life insurance and executive long-term disability plans; and limited perquisites and other benefits. | ||
At-Risk Compensation. A core principle of our executive compensation program is that a significant percentage of the compensation opportunity for each named executive, especially our CEO, is variable and at-risk. This type of compensation is primarily dependent upon the financial success of our Company and the performance of Sherwin-Williams common stock. This means that our executives are rewarded when they produce value for our shareholders. The following chart illustrates the mix of key compensation components for our named executives for 2021. The percentages reflect the amounts of each of our named executive’s base salary, target annual cash incentive compensation, and long-term equity incentive compensation (consisting of stock options and PRSUs and valued using aggregate grant date fair values) for 2021.
| |
| 37 |
The Compensation Committee utilizes a peer group of companies to assess the competitiveness of our executive compensation program relative to the market. The compensation consultant annually identifies the compensation paid to named executives with similar roles and responsibilities at a group of chemical, industrial, manufacturing, consumer product, and retail companies with comparable sales to those of Sherwin-Williams, which are considered to be our peer group companies. The compensation consultant also compiles compensation data from broad-based surveys of companies of similar size and industry to us. These surveys are sponsored by nationally recognized compensation consulting firms. We, along with many of our peer group companies, participate in these surveys.
We monitor executive compensation levels and program designs at these peer group companies because their sizes and businesses make them most comparable to us. We also believe these companies likely compete with us for executive talent. The compensation consultant annually reviews current and potential peer companies and recommends changes primarily based upon revenue size, market capitalization, industry, business description/mix, and brand recognition. The Compensation Committee periodically evaluates and, if necessary, adjusts the composition of our peer group to ensure it remains the most relevant group of companies to use for compensation purposes.
During 2021, the Committee reviewed the continued appropriateness of our peer group. Based upon its evaluation and the recommendation of Compensation Advisory Partners, the Committee made the following changes:
Eastman Chemical Company and Huntsman Corporation were removed because they were among the smallest companies (by revenue) in the prior peer group. Consistent with past practice, Kimberly-Clark Corporation was removed due to director Aaron Powell’s employment with the company at the time of the peer group evaluation.
Dow Inc., DuPont de Nemours, Inc., and International Paper Company were added because their sizes and industries are comparable to Sherwin-Williams’ size and industry.
Because these changes to our peer group were adopted in mid-2021, they did not affect the majority of 2021 executive compensation decisions, which were made earlier in the year using the prior peer group.
Following these changes, our new peer group consists of the 23 companies listed below. Revenues for the companies ranged from approximately $7.6 billion to $40.6 billion, with Sherwin-Williams ranking at the 54th percentile.
Air Products and Chemicals, Inc. | Eaton Corporation plc | Masco Corporation | ||
Akzo Nobel N.V. | Ecolab Inc. | Mohawk Industries, Inc. | ||
Ball Corporation | Honeywell International Inc. | Newell Brands Inc. | ||
Colgate-Palmolive Company | Illinois Tool Works Inc. | PPG Industries, Inc. | ||
Cummins Inc. | International Paper Company | Stanley Black & Decker, Inc. | ||
Deere & Company | Johnson Controls International plc | 3M Company | ||
Dow Inc. | Linde plc | Whirlpool Corporation | ||
DuPont de Nemours, Inc. | LyondellBasell Industries N.V. | |||
The compensation consultant calculates an average of (a) the compensation available at companies in our peer group (using the most recent proxy data) and (b) the average compensation data from broad-based surveys. We refer to this average as “market” compensation, which provides the Compensation Committee with a framework to evaluate the competitiveness of our executive compensation program, as well as assistance in determining the mix of compensation components and target compensation levels. We generally benchmark target compensation for our named executives to be within a general range (plus or minus approximately 15%) of the market median compensation of comparable positions, although we do not have a formal policy of setting target compensation levels at a specific percentile of the market median.
38 | 2022 PROXY STATEMENT |
We benchmark against market compensation because it allows us to attract and retain executives and helps us to manage the overall cost of our compensation program. We consider this information only as a reference point or as a framework, not as a determining factor or part of any arithmetic formula, in setting compensation. The policies we use to make compensation decisions, and the decisions we make, are materially similar for all named executives and generally result in higher compensation levels for our CEO due to the nature and responsibilities of the role and higher market compensation for CEOs.
The compensation consultant annually provides the Committee with a comprehensive analysis of market compensation, which includes base salary, annual cash incentive compensation, long-term equity incentive compensation, total annual cash compensation, and total direct compensation. We define total direct compensation as the sum of base salary, annual cash incentive compensation, and long-term equity incentive compensation. We review total direct compensation to help us determine whether the key compensation components we pay our executives are competitive in the aggregate.
The Committee generally compares each named executive’s total direct compensation and total annual cash compensation to the market median compensation. Individual components may be more or less than market median compensation because we focus on the overall competitiveness of our entire compensation program. Judgment may be used to adjust a component of compensation above or below the market median for reasons such as an executive’s performance, responsibilities, experience, and tenure, our Company-wide performance, and internal pay equity.
Key Components of Our Executive Compensation Program
Annual Salary Reviews. Salary is the only key component of our executive compensation program that is not at-risk. The Compensation Committee reviews and approves the base salary of each executive at least annually and at other times, as appropriate, in connection with a promotion or other change in responsibility. Annual base salary increases generally are effective in the first quarter of each year and are based, in part, on the overall annual salary budget guidelines for our Company.
Annual Performance Appraisals. All salaried employees, including our named executives, undergo an annual performance appraisal. Each non-CEO named executive’s performance for the prior year is evaluated by our CEO. The evaluation is based upon the executive’s performance results (including accomplishment of incentive performance goals, financial accomplishments, and other contributions) and leadership (including work ethic and strategic contributions). For the evaluation of our CEO, our non-management directors assess his performance across the following pre-established categories: (a) performance results; (b) business strategy; (c) developing a management team, which includes championing diversity; (d) personal and board leadership; and (e) ESG leadership, which includes the development, integration, and execution of ESG strategy, as well as progress on ESG initiatives, as part of Sherwin-Williams’ overall business strategy. These factors are not quantified or weighted. Instead, judgment is used in assessing the factors in a qualitative manner. In any one year, any one factor or group of factors may play a larger role in assessing performance. The results are reviewed by the Committee and by the non-management directors in executive session.
2021 Base Salaries. The following table sets forth the base salary as of December 31, 2021 for each of our named executives and, for those who were named executives during 2020, the percentage increase over their base salaries as of December 31, 2020. Percentage salary increases for Messrs. Mistysyn and Ippolito included market adjustments for their respective positions. During the year, the Committee adjusted Mr. Ippolito’s and Ms. Petz’s base salaries to reflect their previously mentioned 2021 job changes.
Name | Base Salary as of December 31, 2020 ($) | % Increase | Base Salary as of December 31, 2021 ($) | |||
John G. Morikis | 1,339,000 | 2.99% | 1,379,000 | |||
Allen J. Mistysyn | 750,088 | 6.65% | 800,000 | |||
Peter J. Ippolito | 630,028 | 7.93% | 680,000 | |||
Mary L. Garceau | 640,097 | 3.35% | 661,541 | |||
Heidi G. Petz | — | — | 600,000 | |||
Justin T. Binns | — | — | 575,000 | |||
| 39 |
Annual Cash Incentive Compensation
Annual cash incentive compensation may be earned by our named executives under our shareholder-approved 2007 Executive Annual Performance Bonus Plan (the Performance Plan). Annual cash incentive compensation is intended to motivate our executives to achieve annual performance goals that strengthen our Company over the long term.
Target and Maximum Annual Incentive Levels. The Committee annually reviews target and maximum annual cash incentive compensation levels for our named executives as a percentage of their base salary. Target incentive awards are determined by using the market median annual cash incentive compensation, which generally equals the amount a named executive could receive if he or she achieved a 100% average of their performance goals. The maximum incentive awards are determined by the Committee following a review of the maximum annual cash incentive compensation available to similarly-situated executives at peer group companies.
The following table sets forth the 2021 minimum, target, and maximum annual cash incentive compensation levels, as a percentage of base salary, for each named executive.
Incentive Amount as a Percentage of Salary | ||||||
Name | Minimum | Target | Maximum | |||
John G. Morikis | 0% | 160% | 320% | |||
Allen J. Mistysyn | 0% | 90% | 180% | |||
Peter J. Ippolito | 0% | 80% | 160% | |||
Mary L. Garceau | 0% | 80% | 160% | |||
Heidi G. Petz | 0% | 80% | 160% | |||
Justin T. Binns | 0% | 80% | 160% | |||
Objective Annual Payout Formula. The Committee approves annual performance goals and payout formulae for our named executives in February of each year. Our CEO also approves the goals and payout formulae for our other named executives. For the 2021 annual cash incentive program, the Committee reviewed the 2021 annual operating budget and approved target financial performance goals at levels that were the same as set forth in the budget. During 2021, Messrs. Morikis and Mistysyn and Ms. Garceau had identical corporate performance goals. Mr. Ippolito had two sets of goals as a result of his job change in March 2021. He had performance goals related to TAG for January 1, 2021 through March 27, 2021 and corporate performance goals for March 28, 2021 through December 31, 2021 due to his position as Senior Vice President, Strategic Initiatives during the majority of this period. Ms. Petz and Mr. Binns had performance goals related to the business unit for which they were each responsible during 2021.
We use multiple performance goals to encourage our named executives to have a well-rounded approach to managing the business and not to concentrate on achieving just one goal to the detriment of others. We use EPS as a performance metric for both a portion of our annual cash incentive program and a portion of our PRSU program. EPS is a widely communicated and easily understood key measure used in both evaluating the success of our Company’s performance and determining the market value of our stock. The Committee and management believe it is important to utilize EPS for portions of both programs because, over the long term, EPS growth will drive value for our shareholders. By using EPS, management is held accountable for driving top-line growth and managing our operating cost structure. Each year, the Committee and management evaluate the incentive structure, including the metrics used in each of the incentives. Based on the most recent review, we believe EPS provides effective line of sight to drive individual performance. Additionally, by delivering the entire long-term incentive in equity, executives are encouraged to drive long-term value for shareholders, and the performance metrics used in the annual incentive program provide reinforcement of the activities we believe will drive value.
The Committee reviews and approves each named executive’s achievement of performance goals for the prior year. In determining the level of achievement of performance goals, the Committee may include or exclude the impact of certain items, as permitted under the Performance Plan.
40 | 2022 PROXY STATEMENT |
Calculation of 2021 Annual Cash Incentive Amounts Earned. In February 2022, the Committee approved the annual cash incentive compensation amounts earned by our named executives for 2021. Each performance goal has corresponding pre-established achievement levels ranging from a minimum of 0 to a maximum of 125, with a target achievement of 100. The achievement level for each goal is multiplied by the goal’s weight to determine a weighted achievement for the goal. For each named executive, the weighted achievement levels for all goals are added together to determine a total weighted achievement level. Total weighted achievement levels range from 0 to 125, with a target of 100. Total weighted achievement levels correspond to a pre-established range of final payouts as a percentage of salary for each named executive. The range of final payouts as a percentage of salary between 0 – 75, 75 – 100, and 100 – 125 are determined on a straight-line basis.
In considering the level of achievement for the 2021 performance goals, the Committee reviewed the significant, adverse impacts of Winter Storm Uri and Hurricane Ida, which resulted in raw material shortages significantly hindering our ability to manufacture the products needed to fully meet robust customer demand. In the Committee’s judgment, the performance goals adversely impacted by the natural disasters were the corporate adjusted EPS and adjusted free cash flow (FCF) metrics, the TAG sales, profit before taxes (PBT), and RONAE metrics, and the PCG PBT and RONAE metrics. In evaluating the results of the performance goals, the Committee considered management’s efforts during 2021 in responding to the unprecedented impacts of the natural disasters, some of which are highlighted below.
| • | Adapting and Strengthening Our Business |
| ° | Identified and made adjustments throughout our business to improve raw material availability and reduce the impacts to our customers, such as through SKU rationalizations to focus production on higher demand products and eliminate similar regional products, utilization of alternative raw material suppliers, and reformulations of certain of our products. |
| ° | Collaborated with and provided support to impacted suppliers to alleviate raw material shortages, including by providing Company resources to help complete batch productions. |
| ° | Continued to make strategic investments in our business to drive continued growth and better serve the needs of our customers, such as the acquisition of a manufacturer and developer of water-based polymers used in architectural and industrial coatings and other applications to expand our existing internal resin manufacturing capabilities, and plans to significantly expand the capacity gained through the acquisition to serve internal demand and external customers. |
| ° | Implemented numerous pricing actions across each of our businesses to offset higher, sustained raw material and other costs. |
| ° | Strengthened relationships with our customers through deliberate, consistent, and transparent communications regarding the challenges and resulting delays, as well as continued responsiveness to customers’ current and future needs. |
| ° | Engaged with employees, rewarded resiliency and hard work, and made changes throughout our business to encourage retention, including wage increases, reduced store hours, and employee benefit enhancements. |
| • | Delivering and Enhancing Shareholder Value |
| ° | Increased consolidated net sales by 8.6% to a record $19.94 billion in 2021 despite the raw material shortages hindering our ability to fully meet demand. |
| ° | Continued to drive strong total shareholder return (including the reinvestment of dividends) for 2021 at 44.90%, compared to 28.71% for the S&P 500. |
The Committee recognized that the natural disasters were unforeseen, significant events outside of management’s control, were not accounted for when the performance goals were established, and the extent of their impacts to the Company and across the industry were unprecedented. As a general matter and consistent with past practice, the Committee believes annual cash incentive compensation should focus on performance that is generally within the control of management and not take into account unforeseen circumstances that may not be realized. In the event of unforeseen circumstances, like natural disasters, the Committee generally evaluates management’s performance in responding to the related impacts and challenges and makes adjustments if the Committee deems appropriate, as permitted under the Performance Plan.
| 41 |
The following table shows, for each named executive, the performance goals, minimums, targets, maximums, actual results, and adjusted results (after taking into effect the adjustments made to certain metrics, as calculated in Appendix A).
| 2021 Annual Cash Incentive Performance Goals | ||||||||||||||
| (millions of dollars, except percentage and per share data) | ||||||||||||||
| Name | Performance Goals | Minimum | Target | Maximum | Actual Results(2) | Full Net Impact Adjusted Results(2) | Final Capped Adjusted Results(2) | |||||||
John G. Morikis | Net Sales | $17,352 | $19,280 | $19,739 | $19,945 | $19,945 | $19,945 | |||||||
Allen J. Mistysyn | Adjusted EPS(1) | $6.47 | $8.09 | $8.46 | $7.32(3) | $8.64 | $8.31 | |||||||
Mary L. Garceau | Adjusted FCF(1) | $1,353 | $1,691 | $1,756 | $1,344 | $1,766 | $1,694 | |||||||
Peter J. Ippolito | January 1 - March 27 |
|
|
|
|
|
| |||||||
| TAG Sales(1) | $9,875 | $10,972 | $11,268 | $11,217 | $11,590 | $11,590 | |||||||
| TAG PBT(1) | $1,806 | $2,258 | $2,324 | $2,082 | $2,439 | $2,297 | |||||||
| TAG RONAE(1) | 96.10% | 120.13% | 120.97% | 114.75% | 129.95% | 120.63% | |||||||
| March 28 - December 31 |
|
|
|
|
|
| |||||||
| Net Sales | $17,352 | $19,280 | $19,739 | $19,945 | $19,945 | $19,945 | |||||||
| Adjusted EPS(1) | $6.47 | $8.09 | $8.46 | $7.32(3) | $8.64 | $8.31 | |||||||
| Adjusted FCF(1) | $1,353 | $1,691 | $1,756 | $1,344 | $1,766 | $1,694 | |||||||
Heidi G. Petz | TAG Sales(1) | $9,875 | $10,972 | $11,268 | $11,217 | $11,590 | $11,590 | |||||||
| TAG PBT(1) | $1,806 | $2,258 | $2,324 | $2,082 | $2,439 | $2,297 | |||||||
| TAG RONAE(1) | 96.10% | 120.13% | 120.97% | 114.75% | 129.95% | 120.63% | |||||||
Justin T. Binns | PCG Sales | $5,604 | $6,227 | $6,398 | $7,042 | $7,042 | $7,042 | |||||||
| PCG PBT(1) | $707 | $883 | $912 | $825 | $918 | $900 | |||||||
|
| PCG RONAE(1) | 30.73% | 38.42% | 38.81% | 34.35% | 38.20% | 38.20% | |||||||
| 1 | Performance goals and adjusted results are calculated as set forth on Appendix A. |
| 2 | In light of the considerations described above, the Committee determined that the actual results of the metrics affected by the significant, adverse impacts of Winter Storm Uri and Hurricane Ida did not fairly represent management’s efforts in responding to such impacts and challenges. The Committee reviewed the full net impact of the natural disasters to the corporate adjusted EPS and adjusted FCF metrics, the TAG sales, PBT, and RONAE metrics, and the PCG PBT and RONAE metrics and determined that each such metric (other than PCG RONAE) would have realized maximum achievement but for the adverse impacts of the natural disasters. Based upon this review, and at the recommendation of Compensation Advisory Partners, the Committee determined to adjust the actual results for the applicable metrics and capped the adjustment to reflect only a portion of the net impact of the natural disasters as described on Appendix A. |
| 3 | Includes $0.34 per share, which represents the loss from the Wattyl divestiture. |
The Committee believes these adjustments are reasonable and the resulting payouts are appropriately aligned with the Company’s and management’s overall 2021 performance and resiliency in light of the significant and unprecedented impacts and challenges of Winter Storm Uri and Hurricane Ida.
42 | 2022 PROXY STATEMENT |
The calculations used to determine the incentive amounts earned by each named executive during 2021 (after taking into account the adjustments described above for purposes of achievement) are shown in the table below and are illustrated by the following formula:
Weighting X Achievement Level = Weighted Achievement Level g Incentive Amount as a % of Salary X Salary = Incentive Amount Earned |
| Name | Weighting |
| Full Net Impact Adjusted |
| Weighted Achievement Level |
| Amount as a Salary |
| Salary | Amount Earned | ||||||||||||||||||||||||||||||||||||||
John G. Morikis | Net Sales | 25% |
|
|
| Net Sales | 125.00 | Net Sales | 31.25 |
|
|
| Minimum | 0% |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
| Adjusted EPS | 40% |
|
|
| Adjusted EPS | 125.00 |
|
|
| Adjusted EPS | 50.00 |
|
|
| Target | 160% |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
| Adjusted FCF | 35% |
|
|
| Adjusted FCF | 125.00 |
|
|
| Adjusted FCF | 43.75 |
|
|
| Maximum | 320% |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
| Full Net Impact |
|
|
| Total | 125.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
| Final Capped |
|
|
| Total | 112.50 |
|
|
| Result | 240.00% |
|
|
| $1,368,231 | $3,284,000 | ||||||||||||||||||||||||||||||||
Allen J. Mistysyn | Net Sales | 25% |
|
|
| Net Sales | 125.00 |
|
|
| Net Sales | 31.25 |
|
|
| Minimum | 0% |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
| Adjusted EPS | 40% |
|
|
| Adjusted EPS | 125.00 |
|
|
| Adjusted EPS | 50.00 |
|
|
| Target | 90% |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
| Adjusted FCF | 35% |
|
|
| Adjusted FCF | 125.00 |
|
|
| Adjusted FCF | 43.75 |
|
|
| Maximum | 180% |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
| Full Net Impact |
|
|
| Total | 125.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
| Final Capped |
|
|
| Total | 112.50 |
|
|
| Result | 135.00% |
|
|
| $ 786,562 | $1,062,000 | ||||||||||||||||||||||||||||||||
Mary L. Garceau | Net Sales | 25% |
|
|
| Net Sales | 125.00 |
|
|
| Net Sales | 31.25 |
|
|
| Minimum | 0% |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
| Adjusted EPS | 40% |
|
|
| Adjusted EPS | 125.00 |
|
|
| Adjusted EPS | 50.00 |
|
|
| Target | 80% |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
| Adjusted FCF | 35% |
|
|
| Adjusted FCF | 125.00 |
|
|
| Adjusted FCF | 43.75 |
|
|
| Maximum | 160% |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
| Full Net Impact |
|
|
| Total | 125.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
| Final Capped |
|
|
| Total | 112.50 |
|
|
| Result | 120.00% |
|
|
| $ 655,767 | $ 787,000 | ||||||||||||||||||||||||||||||||
Peter J. Ippolito | January 1 - March 27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
| TAG Sales | 25% |
|
|
| TAG Sales | 125.00 |
|
|
| TAG Sales | 31.25 |
|
|
| Minimum | 0% |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
| TAG PBT | 40% |
|
|
| TAG PBT | 125.00 |
|
|
| TAG PBT | 50.00 |
|
|
| Target | 80% |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
| TAG RONAE | 35% |
|
|
| TAG RONAE | 125.00 |
|
|
| TAG RONAE | 43.75 |
|
|
| Maximum | 160% |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
| Full Net Impact |
|
|
| Total | 125.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
| Final Capped |
|
|
| Total | 117.50 |
|
|
| Result | 136.00% |
|
|
| $ 169,623 | $ 231,000 | ||||||||||||||||||||||||||||||||
| March 28 - December 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
| Net Sales | 25% |
|
|
| Net Sales | 125.00 |
|
|
| Net Sales | 31.25 |
|
|
| Minimum | 0% |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
| Adjusted EPS | 40% |
|
|
| Adjusted EPS | 125.00 |
|
|
| Adjusted EPS | 50.00 |
|
|
| Target | 80% |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
| Adjusted FCF | 35% |
|
|
| Adjusted FCF | 125.00 |
|
|
| Adjusted FCF | 43.75 |
|
|
| Maximum | 160% |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
| Full Net Impact |
|
|
| Total | 125.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
| Final Capped |
|
|
| Total | 112.50 |
|
|
| Result | 120.00% |
|
|
| $ 537,462 | $ 645,000 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
|
|
| $ 707,085 | $ 876,000 | ||||||||||||||||||||
Heidi G. Petz | TAG Sales | 25% |
|
|
| TAG Sales | 125.00 |
|
|
| TAG Sales | 31.25 |
|
|
| Minimum | 0% |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
| TAG PBT | 40% |
|
|
| TAG PBT | 125.00 |
|
|
| TAG PBT | 50.00 |
|
|
| Target | 80% |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
| TAG RONAE | 35% |
|
|
| TAG RONAE | 125.00 |
|
|
| TAG RONAE | 43.75 |
|
|
| Maximum | 160% |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
| Full Net Impact |
|
|
| Total | 125.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
| Final Capped |
|
|
| Total | 117.50 |
|
|
| Result | 136.00% |
|
|
| $ 559,618 | $ 761,000 | ||||||||||||||||||||||||||||||||
Justin T. Binns | PCG Sales | 25% |
|
|
| PCG Sales | 125.00 |
|
|
| PCG Sales | 31.25 |
|
|
| Minimum | 0% |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
| PCG PBT | 40% |
|
|
| PCG PBT | 125.00 |
|
|
| PCG PBT | 50.00 |
|
|
| Target | 80% |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
| PCG RONAE | 35% |
|
|
| PCG RONAE | 97.24 |
|
|
| PCG RONAE | 34.04 |
|
|
| Maximum | 160% |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
| Full Net Impact |
|
|
| Total | 115.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
|
| Final Capped |
|
|
| Total | 111.29 |
|
|
| Result | 116.11% |
|
|
| $ 575,000 | $ 668,000 | ||||||||||||||||||||||||||||||||
| * | This table includes information regarding the levels at which the corporate adjusted EPS and adjusted FCF metrics, the TAG sales, PBT, and RONAE metrics, and the PCG PBT and RONAE metrics would have been achieved, and the related payouts as to each such metric, if the Committee had determined to adjust fully for the impact of Winter Storm Uri and Hurricane Ida. As described above, after considering the full adjustment amounts, and at the recommendation of Compensation Advisory Partners, the Committee determined to adjust the applicable metrics and capped the adjustment to reflect only a portion of the net impact of the natural disasters, with the payout percentage rounded down. These results are calculated as set forth on Appendix A. Amounts earned are rounded to the nearest thousandth. |
| 43 |
Long-Term Equity Incentive Compensation
The largest component of pay for our named executives is long-term equity incentive compensation. We grant long-term equity incentive compensation annually under our shareholder-approved 2006 Equity and Performance Incentive Plan (the Incentive Plan). Our long-term equity incentive compensation program is designed to focus our executives on improving Company performance over a multi-year period to encourage long-term decision-making and to reward executives the way our shareholders are rewarded—through growth in the value of our stock. We believe that long-term equity awards also serve as a retention tool for our executives. The value delivered on these long-term incentives ultimately depends upon Company performance and our stock price.
Our long-term equity compensation program for our named executives consists of stock options and PRSUs. Our stock option program is the primary means by which we grant long-term equity compensation to a broad group of employees to focus their efforts on our long-term performance and stock price improvement. Our PRSU program is designed for certain key employees, including our named executives, and rewards these employees based upon the achievement of financial performance goals and stock price appreciation.
Double-Trigger Acceleration Provision. Grants of stock options and PRSUs include a “double-trigger” acceleration provision with respect to the vesting of the awards in connection with a change in control. Upon a change in control, awards that are assumed by the surviving entity will continue to vest and become exercisable in accordance with their original terms unless, within three years after the change in control, the participant’s employment is terminated other than for cause or the participant terminates their employment for good reason.
Dividend Equivalents. We do not pay current dividend equivalents on unvested RSUs or PRSUs. The payment of dividend equivalents on unvested RSUs or PRSUs is deferred and paid only if and to the extent the units vest. There are no dividend equivalents associated with stock option awards.
Grant Practices – Emphasis on Performance-Based Awards. When making annual equity grants to our named executives and other key employees, we begin by determining the market median value of long-term equity incentive compensation. We then allocate the target mix among types of equity grants. The target mix of our annual long-term equity incentives for our named executives and other key employees is set forth in the table below. We believe this mix of equity awards provides an appropriate balance among aligning executive interests with those of our shareholders, encouraging executive retention, and rewarding executives for sustained performance results.
Type of Equity Award | Allocation | |
Stock Options | 40% | |
PRSUs – Adjusted EPS Goal | 40% | |
PRSUs – Adjusted RONAE Goal | 20% | |
Our long-term incentive opportunities are intended to be competitive with market long-term incentive opportunities. Therefore, we do not consider the amount of outstanding stock options or PRSUs currently held by an executive when making equity awards.
We grant stock options and PRSUs on an annual basis at regularly scheduled Compensation Committee meetings, the dates of which are determined approximately three years in advance. We grant PRSUs at each February Committee meeting. This meeting typically occurs in the middle of February, usually a few weeks following the release of our annual earnings results. We grant stock options at each October Committee meeting. We may also grant PRSUs and stock options at other Committee meetings in connection with an employee’s initial hire, promotion, and other events. The dates of these grants may occur shortly before we release our quarterly earnings results. We do not take into account our earnings results when determining the number of stock options or PRSUs to be granted or the date of grant.
44 | 2022 PROXY STATEMENT |
2021 Annual Equity Awards. The following table shows the number of stock options and PRSUs granted to each named executive during 2021. Ms. Petz received two grants of PRSUs during 2021—one granted in February 2021 in connection with her role as Senior Vice President, Sales and Marketing, TAG, and the second granted in March 2021 in connection with her promotion to President, TAG, as shown in the 2021 Grants of Plan-Based Awards Table.
| Number of Stock Options Granted in 2021 | Number of PRSUs Granted in 2021 at Target | |||||
Name | Adjusted EPS Goal | Adjusted RONAE Goal | ||||
John G. Morikis | 64,600 | 16,500 | 8,250 | |||
Allen J. Mistysyn | 16,000 | 4,200 | 2,100 | |||
Peter J. Ippolito | 13,200 | 3,300 | 1,650 | |||
Mary L. Garceau | 10,500 | 2,700 | 1,350 | |||
Heidi G. Petz | 11,700 | 2,730 | 1,365 | |||
Justin T. Binns | 10,800 | 2,100 | 1,050 | |||
2021 Stock Option Grants. The number of stock options granted to an executive is based upon the executive’s position and level of responsibility. We determine the specific number of stock options to be granted by calculating the Black-Scholes value of the stock options over the 30-day period ending on the last day of the September preceding the award date. Black-Scholes is a generally accepted model used in estimating the value of stock options. In accordance with the terms of our Incentive Plan, the option exercise price is equal to the average of the highest and lowest reported sale prices of our stock on the grant date. Accordingly, the exercise price may be higher or lower than the closing price per share of our stock on that day. The Committee believes that the average of the high and low prices is a better representation of the fair market value of our stock and is less volatile than the closing price per share given potential intra-day price volatility. We do not reprice stock options—our stock plans do not permit the repricing or replacing of underwater stock options with cash or equity without shareholder approval, and stock options do not contain reload features.
2021 PRSU Grants. Our annual grants of PRSUs vest at the end of a three-year period. The value of PRSUs granted to an executive is based upon the executive’s position and level of responsibility. The number of PRSUs granted is determined by using the average value of our stock over the 30-business day period ending on the last day of the January preceding the date of grant. One PRSU is equivalent in value to one share of our common stock. PRSUs are paid out in common stock upon vesting. The number of PRSUs granted is approximately equal to the target value. Executives have an opportunity to earn two times the target value for maximum performance. We correspondingly set maximum goals higher, making achievement of the goals more difficult to attain to provide a greater incentive for above-target performance.
The threshold, target, and maximum achievement levels for the 2021 grants of PRSUs are illustrated in the following table for the 2021 – 2023 performance period. Performance between the achievement levels is measured on a straight-line basis to reward improvements at various achievement levels, while not encouraging executives to take unnecessary risks to hit achievement levels with larger payouts.
|
| Adjusted EPS Goal(1) | Adjusted RONAE Goal(1) | % of Target Vesting | |||
Maximum | $27.07 | 14.4% | 200% | |||
Target | $25.42 | 13.9% | 100% | |||
Threshold | $23.94 | 13.4% | 25% | |||
| 1 | Adjusted EPS and Adjusted RONAE are calculated as set forth on Appendix A. |
Vesting of 2019 – 2021 PRSUs. In February 2022, the Committee determined the vesting of PRSUs for the 2019 – 2021 performance period. The Committee determined payouts based upon the achievement of the adjusted EPS and adjusted RONAE goals. In determining the level of achievement of the goals, the Committee may include or exclude the impact of certain items, as permitted under the Incentive Plan.
| 45 |
Despite the impacts of Winter Storm Uri and Hurricane Ida to the Company’s business, the Committee did not adjust the performance payouts for the vesting of the 2019 – 2021 PRSUs due to the natural disasters. The following table shows the goals, target and maximum levels, results, and percentage of target PRSUs vesting.
Performance Goal | Target | Maximum | Results | % of Target PRSUs Vesting | ||||
Adjusted EPS(1) | $19.71 | $21.20 | $20.94 | 182.5% | ||||
Adjusted RONAE(1) | 11.6% | 13.6% | 12.3% | 135.0% | ||||
| 1 | Adjusted EPS and Adjusted RONAE for purposes of determining achievement are calculated as set forth on Appendix A. |
Other Arrangements, Policies, and Practices
We do not have employment agreements with our named executives; our named executives are employed at will.
Consistent with our culture, we provide our named executives with only limited perquisites, which include benefits provided pursuant to our executive travel policy that is in line with market practice.Under our executive travel policy, the Board strongly recommends that our CEO use Company aircraft at all times when he is traveling, whether for business or personal reasons. In connection with this policy, the Committee approved Sherwin-Williams entering into an aircraft time sharing agreement with Mr. Morikis and an annual allowance for Mr. Morikis’ personal use of Company aircraft, pursuant to which he will reimburse Sherwin-Williams for the aggregate incremental cost of his personal use of Company aircraft in excess of $150,000 on an annual basis. Under the agreement, Mr. Morikis is permitted to lease Company aircraft from time to time on an “as needed and as available” basis. The Committee determined it was appropriate for Sherwin-Williams to enter into the agreement with Mr. Morikis for his personal safety and security as our CEO and to maximize his time given his significant duties and responsibilities to Sherwin-Williams.
Additional information regarding the aggregate incremental cost of perquisites paid for by Sherwin-Williams during 2021 to our named executives is set forth in a footnote to the “All Other Compensation” column of the Summary Compensation Table.
Our compensation program is designed so that compensation opportunities are similar for executives with comparable responsibilities, experience, and tenure. Our executive compensation program uses the same compensation components for our executives, but results in different pay levels due to an executive’s market compensation, position, and performance. To maintain internal equity in connection with grants of stock options and PRSUs, the Committee generally grants the same number of stock options and PRSUs to employees who are in similar pay grades.
When approving changes in compensation for our named executives, we prepare a tally sheet for each named executive. Tally sheets set forth the dollar amounts of all components of each named executive’s current compensation, including base salary, annual cash incentive compensation, long-term incentive compensation, retirement and savings plans, health and welfare programs, and other executive benefits. Tally sheets also quantify the potential payments to our named executives in the event of retirement and termination following a change in control.
Tally sheets allow the Committee and management to assess how a change in the amount of each compensation component affects each named executive’s total compensation and to provide overall perspective on each named executive’s total compensation. Based upon its most recent review, the Committee determined that total compensation, in the aggregate, for each of our named executives is consistent with the Committee’s expectations. The Committee did not increase or decrease the amount of compensation of our named executives solely based upon the review of tally sheets.
Executive Stock Ownership Requirements
We have established minimum share ownership requirements for our executives to encourage meaningful stock ownership in Sherwin-Williams. Information about our executive stock ownership requirements is included under the heading “Stock Ownership Guidelines” in the Corporate Governance Practices and Policies section.
46 | 2022 PROXY STATEMENT |
Retirement Plans and Other Benefits
We provide our named executives with various tax-qualified and nonqualified retirement and savings plans, health and welfare programs, and other executive benefits. We annually review these programs in connection with our review of the overall compensation packages of our named executives and tally sheets. Additional information about these programs is set forth in the executive compensation tables and the accompanying narrative discussion.
We have a policy allowing Sherwin-Williams to recapture or “clawback” incentive compensation paid or payable to our named executives and other key employees in the event of a financial restatement. Information about our policy is included under the heading “Clawback and Recapture Policy” in the Corporate Governance Practices and Policies section.
Anti-Hedging and Anti-Pledging Policy
Directors and all employees, including our executive officers, are prohibited from engaging in hedging transactions with respect to Sherwin-Williams securities. We also prohibit our directors, executive officers, and certain of our other employees that are subject to the preclearance procedures of our Insider Trading Policy from holding our securities in margin accounts or otherwise pledging our securities for a loan. Additional information about our policy is included under the heading “Anti-Hedging and Anti-Pledging Policy” in the Corporate Governance Practices and Policies section.
To ensure continuity and the continued dedication of our executives during any period of uncertainty caused by the possible threat of a takeover, we entered into change in control severance pay agreements with our executives, including each of our named executives. Given the heightened focus on change in control agreements, the Committee engaged its compensation consultant in 2019 to compare our change in control severance pay agreements to prevailing market practices. Based upon such review, the Committee believes that the material terms of the severance agreements, which include a double-trigger provision, are generally in line with market practices.
Potential cash severance payments are based upon a multiplier of base salary and annual cash incentive pay. These severance pay agreements have not been a significant factor in setting compensation levels and have not affected the Committee’s decisions with respect to compensation components. Additional information regarding the severance agreements, including the estimated amounts payable to each named executive, is set forth under the heading “Potential Payments Upon Termination or Change in Control” in the Executive Compensation Tables section.
Policy Concerning Future Severance Agreements
We have a policy that provides we will not enter into any future severance agreements (including material amendments of existing agreements) with a senior executive providing for cash severance payments exceeding 2.99 times base salary and bonus without shareholder approval or ratification. For purposes of this calculation, cash severance payments do not include the acceleration of equity-based awards, vacation pay, retirement benefits, health continuation coverage, and outplacement services. In addition, the policy provides that future executive severance agreements will not include any tax gross-up payments. The policy was adopted in February 2010 (after Sherwin-Williams entered into severance agreements with Messrs. Morikis and Ippolito).
Under the Key Employee Separation Plan (as amended, the KESP), certain key employees, including our named executives, are entitled, subject to execution and non-revocation of a release of claims, to certain severance payments and benefits in the event their employment is involuntarily terminated by Sherwin-Williams for reasons other than cause, death, or disability prior to a change in control.
Additional information regarding the KESP, including the estimated amounts payable to our named executives upon termination of employment without cause prior to a change in control, is set forth under the heading “Potential Payments Upon Termination or Change in Control” in the Executive Compensation Tables section.
| 47 |
The Compensation Committee annually assesses the risks related to our compensation policies and practices. During 2020,2021, the Compensation Committee engaged Compensation Advisory Partners to conduct a comprehensive risk assessment of our incentive compensation programs, plans, and policies. Compensation Advisory Partners presented the risk assessment to the Compensation Committee.
Based upon the assessment, the Compensation Committee and Compensation Advisory Partners concluded that our compensation policies and practices do not encourage excessive or unnecessary risk-taking and are not reasonably likely to have a material adverse effect on Sherwin-Williams. The following factors help mitigate against employees taking excessive or unnecessary risks:risks.
We utilize a balanced approach to compensation, which combines fixed and variable pay, short-term and long-term time horizons, and cash and equity.
We have diversified incentive compensation metrics with performance goals focused on growth, profitability, and managing capital at different levels within our company.Company.
We design our incentive compensation plans without steep payout cliffs that might encourage short-term business decisions that are inconsistent with our long-term business strategy.
Performance incentives are capped at maximum payout amounts.
We grant equity awards annually, with appropriate vesting periods, that encourage consistent behavior and reward long-term, sustained performance.
Our equity plans include a “double-trigger” acceleration provision with respect to vesting in connection with a change in control.
We have significant stock ownership guidelines for our directors and executives.
We regularly benchmark our current compensation practices, policies, and pay levels against peer companies and have a pay philosophy that targets market median compensation.
We prohibit the hedging and pledging of our securities by our directors and employees, including our executive officers.
The Compensation Committee reviews tally sheets for our named executives that provide a holistic view of each executive’s compensation.
We have a clawback and recapture policy allowing us to “clawback” incentive compensation earned by executives and key employees.
The Compensation Committee has reviewed and discussed with management the Compensation Discussion and AnalysisCD&A contained in this Proxy Statement. Based upon this review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and AnalysisCD&A be included in Sherwin-Williams’ Annual Report on Form 10-K for the fiscal year ended December 31, 20202021 and this Proxy Statement.
COMPENSATIONCEO REALIZABLE PAY AND MANAGEMENT DEVELOPMENT COMMITTEETSR
Susan J. Kropf, Chair
Kerrii B. Anderson
Christine A. Poon
Michael H. Thaman
Steven H. WunningRealizable pay includes: (a) base salary during the five-year period; (b) actual cash incentive compensation earned during the five-year period; (c) the value of RSUs granted during the five-year period based on the 2020 year-end closing stock price per share; (d) the vesting date value of long-term performance equity awards that were earned in 2018, 2019, and 2020, which consisted of PRSUs; (e) the value of target long-term performance equity awards granted in 2019 and 2020, which consisted of PRSUs, based on the 2020 year-end closing stock price per share; and (f) the in-the-money value of stock options granted during the five-year period based on the 2020 year-end closing stock price per share. Valuing equity awards in this manner is different from valuing equity awards at their aggregate grant date fair value, which is the method used to value equity in the Summary Compensation Table and the 2021 Grants of Plan-Based Awards Table.
34 | 2022 PROXY STATEMENT |
Overview of Executive Compensation Practices
Our compensation programs, practices, and policies are reviewed and evaluated on an ongoing basis. We list below some of the more significant best practices we have adopted, and practices we have avoided, that we believe highlight our commitment to responsible pay and governance principles that best serve our shareholders’ long-term interests.
What We Do | What We Don’t Do | |||||||||
✓Performance-Based Pay. We emphasize pay for performance. For 2021, 90% of our CEO’s total direct compensation and an average of 79% of our other named executives’ total direct compensation was tied to performance. ✓Independent Compensation Committee. Each member of the Compensation Committee meets the independence requirements under SEC rules and NYSE listing standards. ✓Independent Compensation Consultant. ✓Balanced Compensation Structure. We utilize a balanced approach to compensation, which combines fixed and variable pay, short-term and long-term time horizons, and cash and equity components. ✓Target Median. We have a pay philosophy that targets market median compensation. We assess our current compensation practices, policies, and pay levels against peer companies. ✓Responsibly Administered Incentive Compensation Programs. We have diversified incentive compensation goals without steep payout cliffs. Vesting periods for annual equity awards encourage consistent behavior and reward long-term, sustained performance. ✓Clawback and Recapture Policy. Our clawback and recapture policy allows us to “clawback” incentive compensation earned by our executives and key employees. ✓Double-Trigger Change in Control. Our stock plan contains a “double-trigger” acceleration provision for the vesting of equity awards upon a change in control. ✓Significant Stock Ownership. Our directors and executives have significant stock ownership requirements. ✓Annual Say-on-Pay Vote. We hold our advisory say-on-pay vote on an annual basis. |
| No Employment Agreements. We do not have employment agreements with our named executives; our named executives are employed at will. | ||||||||
| No Dividend Equivalents for Unvested RSUs or PRSUs. Dividend equivalents on RSU or PRSU awards are deferred and paid only on earned shares upon vesting. | |||||||||
| No Repricing or Replacing of Underwater Stock Options. We do not permit the repricing or replacing of underwater stock options without shareholder approval. | |||||||||
| No Hedging. Directors and employees, including our executive officers, are prohibited from engaging in hedging transactions with respect to our securities. | |||||||||
| No Pledging. Directors, executive officers, and certain other employees may not hold our securities in margin accounts or otherwise pledge our securities as collateral for a loan. | |||||||||
| No Speculative Trading. Directors and employees, including our executive officers, may not engage in short sales of our securities or in put options, call options, or other market-offered derivative transactions in our stock. | |||||||||
| No Excessive Perquisites. Consistent with our culture, we provide only limited perquisites to our executives. | |||||||||
| No Excessive Risk-Taking. We conducted a risk assessment and concluded that our compensation policies do not encourage excessive or unnecessary risk-taking. | |||||||||
| No Above-Market Earnings on Deferred Compensation. We do not pay guaranteed, above-market, or preferential interest or earnings on deferred compensation. | |||||||||
|
|
|
|
Overview of Our Executive Compensation Program
Independent Compensation Committee
The Compensation Committee, which is entirely composed of independent directors, oversees our executive compensation program. The Committee reports to the Board on all compensation matters for members of our senior management team, including our named executives. The Committee has engaged Compensation Advisory Partners as its independent compensation consultant in order to fulfill its responsibilities. We include additional information about the Compensation Committee, including the role of the compensation consultant and management in the compensation setting process, under the heading “Compensation and Management Development Committee” in the Board Committees section.
Compensation DiscussionObjectives
We design and Analysismanage our Company-wide compensation programs to align with our overall business strategy and to focus our employees on delivering sustained financial and operating results and creating value for our shareholders on a consistent, long-term basis. We believe it is important that our compensation programs:
| • | Be competitive. Our programs are designed to attract, retain, and motivate talented and high-performing people at all levels of our Company around the world. We structure our compensation programs to be competitive with the programs of companies of comparable size and business. |
| • | Maintain a performance- and achievement-oriented culture. A significant percentage of our employees participate in incentive plans tied to performance goals that support our business strategies. We utilize both annual and long-term incentives to appropriately balance consistent annual results with improved performance over the longer term. We select performance goals that are sufficiently demanding, support our financial and operating objectives, and help drive our business. We reward employees for performance without encouraging excessive or unnecessary risk-taking. |
| • | Align the interests of our executives with those of our shareholders. It is important that a significant portion of our executives’ incentive compensation be directly tied to our stock price in order to align the financial interests of our executives with the interests of our shareholders and keep our executives focused on sustained financial performance. We have significant stock ownership requirements for our executives described under the heading “Executive Stock Ownership Requirements” in the Other Arrangements, Policies, and Practices section of this CD&A. |
We believe our compensation programs achieve these goals.
36 | 2022 PROXY STATEMENT |
Named Executive Officers.Compensation Components This Compensation Discussion
Our Approach and Analysis (CD&A) describesMix. We maintain a balanced approach to compensating our named executives by combining elements that vary by the (a) type of compensation (fixed and variable), (b) length of the performance period (short- and long-term), and (c) form of compensation (cash and equity). We believe this mix aligns with our business strategies and emphasizes pay for performance. We determine this mix by reviewing market compensation information. We do not have a specific policy for the allocation of compensation between fixed and variable, short- and long-term, and cash and equity.
The components of our executive compensation program, the primary purpose of each component, and how it applies to our five “named executives” listed below.
John G. Morikis. Mr. Morikis has served as Chief Executive Officer since January 2016 and Chairman since January 2017. Mr. Morikis began his career with Sherwin-Williamsthe form of compensation for each component are described in December 1984.the following table.
Allen J. Mistysyn. Mr. Mistysyn has served as Senior Vice President – Finance and Chief Financial Officer since January 2017. He began his career with Sherwin-Williams in June 1990.
David B. Sewell.* Mr. Sewell has served as President and Chief Operating Officer since March 2019. Mr. Sewell began his career with Sherwin-Williams in February 2007.
Peter J. Ippolito. Mr. Ippolito has served as President, The Americas Group (TAG) since January 2018. He began his career with Sherwin-Williams in May 1986.
Mary L. Garceau. Ms. Garceau has served as Senior Vice President, General Counsel and Secretary since August 2017. She began her career with Sherwin-Williams in February 2014.
Component |
| Form of |
Table of Contents
Base Salary | Provides base compensation for | |||
Annual Cash Incentive Compensation | Rewards achievement of | Cash | ||
Long-Term Equity Incentive Compensation | Stock options, which vest in equal installments on the first, second, and third anniversary of grant and have a ten-year term. PRSUs, which vest at the end of a three-year period based upon the achievement of pre-established financial performance goals and are paid in stock. | |||
Other Employee and Executive Benefits | ||||
Retirement and | ||||
At-Risk Compensation. A core principle of our executive compensation program is that a significant percentage of the compensation opportunity for each named executive, especially our CEO, is variable and at-risk. This type of compensation is primarily dependent upon the financial success of our Company and the performance of Sherwin-Williams common stock. This means that our executives are rewarded when they produce value for our shareholders. The following chart illustrates the mix of key compensation components for our named executives for 2021. The percentages reflect the amounts of each of our named executive’s base salary, target annual cash incentive compensation, and long-term equity incentive compensation (consisting of stock options and PRSUs and valued using aggregate grant date fair values) for 2021.
|
|
We manage our business with the long-term fundamental objective of creating and maximizing value for our shareholders. Our pay for performance philosophy supports this objective by linking a significant percentage of our executive compensation program to company performance, business unit performance (where applicable), and stock price appreciation. Guided by this philosophy and our objective of creating and maximizing shareholder value, we retained our focus on business execution throughout 2020 and delivered strong performance as we adapted our operations to address the unique challenges presented by the COVID-19 pandemic. Throughout the year, the Compensation Committee monitored and assessed the impact of the pandemic on our compensation programs, with a focus on ensuring that our programs continued to fairly reflect corporate and individual performance, motivate our employees, and mitigate risks.
Our compensation programs are integral to our longstanding success as they assist us in attracting, retaining, and motivating talented and high-performing people throughout our organization to drive consistent and strong financial and operating results. Our long track record of sustained success is exemplified by the following:
Our average annual shareholder return, including dividends, over the past 10 years is 25.6%, compared to the average annual return for the S&P 500 of 13.9%.
2020 was our 42nd consecutive year of increased dividends, as we continued our practice of returning significant value to our shareholders. During 2020, we returned $2.93 billion to our shareholders through dividends and repurchases of our stock, an increase of 145% over 2019. Over the past three years, we returned approximately $5.07 billion in cash to our shareholders through dividends and stock repurchases.
Since the beginning of the COVID-19 pandemic, we have implemented changes in our business to protect and support our employees, customers, and communities and to respond to the uncertainties and challenges of the pandemic, including the wide-ranging actions and mandates instituted by public health and government authorities to contain and combat the spread of COVID-19. These changes and management’s extraordinary efforts throughout 2020 are further described in the Proxy Summary and elsewhere in this CD&A.
Despite the unprecedented challenges of the COVID-19 pandemic and its impact to our business, 2020 was another outstanding year for Sherwin-Williams’ financial performance. Consolidated net sales increased to a record $18.36 billion in 2020. Net income increased to $2.03 billion, and diluted net income per share increased 33.9% to $22.08. We also generated record net operating cash of $3.41 billion in 2020 — an increase of $1.09 billion.
The following graphs show our company’s performance for key financial measures over the past three-year period.
|
|
|
|
|
The Compensation Committee utilizes a peer group of companies to assess the competitiveness of our executive compensation program relative to the market. The compensation consultant annually identifies the compensation paid to named executives with similar roles and responsibilities at a group of chemical, industrial, manufacturing, consumer product, and retail companies with comparable sales to those of Sherwin-Williams, which are considered to be our peer group companies. The compensation consultant also compiles compensation data from broad-based surveys of companies of similar size and industry to us. These surveys are sponsored by nationally recognized compensation consulting firms. We, along with many of our peer group companies, participate in these surveys.
We monitor executive compensation levels and program designs at these peer group companies because their sizes and businesses make them most comparable to us. We also believe these companies likely compete with us for executive talent. The compensation consultant annually reviews current and potential peer companies and recommends changes primarily based upon revenue size, market capitalization, industry, business description/mix, and brand recognition. The Compensation Committee periodically evaluates and, if necessary, adjusts the composition of our peer group to ensure it remains the most relevant group of companies to use for compensation purposes.
During 2021, the Committee reviewed the continued appropriateness of our peer group. Based upon its evaluation and the recommendation of Compensation Advisory Partners, the Committee made the following changes:
Eastman Chemical Company and Huntsman Corporation were removed because they were among the smallest companies (by revenue) in the prior peer group. Consistent with past practice, Kimberly-Clark Corporation was removed due to director Aaron Powell’s employment with the company at the time of the peer group evaluation.
Dow Inc., DuPont de Nemours, Inc., and International Paper Company were added because their sizes and industries are comparable to Sherwin-Williams’ size and industry.
Because these changes to our peer group were adopted in mid-2021, they did not affect the majority of 2021 executive compensation decisions, which were made earlier in the year using the prior peer group.
Following these changes, our new peer group consists of the 23 companies listed below. Revenues for the companies ranged from approximately $7.6 billion to $40.6 billion, with Sherwin-Williams ranking at the 54th percentile.
| Eaton Corporation plc | Masco Corporation | ||
Akzo Nobel N.V. | Ecolab Inc. | Mohawk Industries, Inc. | ||
Ball Corporation | Honeywell International Inc. | Newell Brands Inc. | ||
Colgate-Palmolive Company | Illinois Tool Works Inc. | PPG Industries, Inc. | ||
Cummins Inc. | International Paper Company | Stanley Black & Decker, Inc. | ||
Deere & Company | Johnson Controls International plc | 3M Company | ||
Dow Inc. | Linde plc | Whirlpool Corporation | ||
DuPont de Nemours, Inc. | LyondellBasell Industries N.V. | |||
2020Use of Market Compensation Highlights
Recent keyThe compensation consultant calculates an average of (a) the compensation available at companies in our peer group (using the most recent proxy data) and (b) the average compensation data from broad-based surveys. We refer to this average as “market” compensation, which provides the Compensation Committee with a framework to evaluate the competitiveness of our executive compensation highlightsprogram, as well as assistance in determining the mix of compensation components and target compensation levels. We generally benchmark target compensation for our named executives to be within a general range (plus or minus approximately 15%) of the market median compensation of comparable positions, although we do not have a formal policy of setting target compensation levels at a specific percentile of the market median.
38 | 2022 PROXY STATEMENT |
We benchmark against market compensation because it allows us to attract and retain executives and helps us to manage the overall cost of our compensation program. We consider this information only as a reference point or as a framework, not as a determining factor or part of any arithmetic formula, in setting compensation. The policies we use to make compensation decisions, and the decisions we make, are materially similar for all named executives and generally result in higher compensation levels for our CEO due to the nature and responsibilities of the role and higher market compensation for CEOs.
The compensation consultant annually provides the Committee with a comprehensive analysis of market compensation, which includes base salary, annual cash incentive compensation, long-term equity incentive compensation, total annual cash compensation, and total direct compensation. We define total direct compensation as the sum of base salary, annual cash incentive compensation, and long-term equity incentive compensation. We review total direct compensation to help us determine whether the key compensation components we pay our executives are competitive in the aggregate.
The Committee generally compares each named executive’s total direct compensation and total annual cash compensation to the market median compensation. Individual components may be more or less than market median compensation because we focus on the overall competitiveness of our entire compensation program. Judgment may be used to adjust a component of compensation above or below the market median for reasons such as an executive’s performance, responsibilities, experience, and tenure, our Company-wide performance, and internal pay equity.
Key Components of Our Executive Compensation Program
Annual Salary Reviews. Salary is the only key component of our executive compensation program that is not at-risk. The Compensation Committee reviews and approves the base salary of each executive at least annually and at other times, as appropriate, in connection with a promotion or other change in responsibility. Annual base salary increases generally are effective in the first quarter of each year and are based, in part, on the overall annual salary budget guidelines for our Company.
Annual Performance Appraisals. All salaried employees, including our named executives, undergo an annual performance appraisal. Each non-CEO named executive’s performance for the prior year is evaluated by our CEO. The evaluation is based upon the executive’s performance results (including accomplishment of incentive performance goals, financial accomplishments, and other contributions) and leadership (including work ethic and strategic contributions). For the evaluation of our CEO, our non-management directors assess his performance across the following pre-established categories: (a) performance results; (b) business strategy; (c) developing a management team, which includes championing diversity; (d) personal and board leadership; and (e) ESG leadership, which includes the development, integration, and execution of ESG strategy, as well as progress on ESG initiatives, as part of Sherwin-Williams’ overall business strategy. These factors are not quantified or weighted. Instead, judgment is used in assessing the factors in a qualitative manner. In any one year, any one factor or group of factors may play a larger role in assessing performance. The results are reviewed by the Committee and by the non-management directors in executive session.
2021 Base Salaries. The following table sets forth the base salary as of December 31, 2021 for each of our named executives and, for those who were named executives during 2020, the percentage increase over their base salaries as of December 31, 2020. Percentage salary increases for Messrs. Mistysyn and Ippolito included market adjustments for their respective positions. During the year, the Committee adjusted Mr. Ippolito’s and Ms. Petz’s base salaries to reflect their previously mentioned 2021 job changes.
Name | Base Salary as of December 31, 2020 ($) | % Increase | Base Salary as of December 31, 2021 ($) | |||
John G. Morikis | 1,339,000 | 2.99% | 1,379,000 | |||
Allen J. Mistysyn | 750,088 | 6.65% | 800,000 | |||
Peter J. Ippolito | 630,028 | 7.93% | 680,000 | |||
Mary L. Garceau | 640,097 | 3.35% | 661,541 | |||
Heidi G. Petz | — | — | 600,000 | |||
Justin T. Binns | — | — | 575,000 | |||
| 39 |
Annual Cash Incentive Compensation
Annual cash incentive compensation may be earned by our named executives under our shareholder-approved 2007 Executive Annual Performance Bonus Plan (the Performance Plan). Annual cash incentive compensation is intended to motivate our executives to achieve annual performance goals that strengthen our Company over the long term.
Target and Maximum Annual Incentive Levels. The Committee annually reviews target and maximum annual cash incentive compensation levels for our named executives as a percentage of their base salary. Target incentive awards are determined by using the market median annual cash incentive compensation, which generally equals the amount a named executive could receive if he or she achieved a 100% average of their performance goals. The maximum incentive awards are determined by the Committee following a review of the maximum annual cash incentive compensation available to similarly-situated executives at peer group companies.
The following table sets forth the 2021 minimum, target, and maximum annual cash incentive compensation levels, as a percentage of base salary, for each named executive.
Incentive Amount as a Percentage of Salary | ||||||
Name | Minimum | Target | Maximum | |||
John G. Morikis | 0% | 160% | 320% | |||
Allen J. Mistysyn | 0% | 90% | 180% | |||
Peter J. Ippolito | 0% | 80% | 160% | |||
Mary L. Garceau | 0% | 80% | 160% | |||
Heidi G. Petz | 0% | 80% | 160% | |||
Justin T. Binns | 0% | 80% | 160% | |||
Objective Annual Payout Formula. The Committee approves annual performance goals and payout formulae for our named executives in February of each year. Our CEO also approves the goals and payout formulae for our other named executives. For the 2021 annual cash incentive program, the Committee reviewed the 2021 annual operating budget and approved target financial performance goals at levels that were the same as set forth in the budget. During 2021, Messrs. Morikis and Mistysyn and Ms. Garceau had identical corporate performance goals. Mr. Ippolito had two sets of goals as a result of his job change in March 2021. He had performance goals related to TAG for January 1, 2021 through March 27, 2021 and corporate performance goals for March 28, 2021 through December 31, 2021 due to his position as Senior Vice President, Strategic Initiatives during the majority of this period. Ms. Petz and Mr. Binns had performance goals related to the business unit for which they were each responsible during 2021.
We use multiple performance goals to encourage our named executives to have a well-rounded approach to managing the business and not to concentrate on achieving just one goal to the detriment of others. We use EPS as a performance metric for both a portion of our annual cash incentive program and a portion of our PRSU program. EPS is a widely communicated and easily understood key measure used in both evaluating the success of our Company’s performance and determining the market value of our stock. The Committee and management believe it is important to utilize EPS for portions of both programs because, over the long term, EPS growth will drive value for our shareholders. By using EPS, management is held accountable for driving top-line growth and managing our operating cost structure. Each year, the Committee and management evaluate the incentive structure, including the metrics used in each of the incentives. Based on the most recent review, we believe EPS provides effective line of sight to drive individual performance. Additionally, by delivering the entire long-term incentive in equity, executives are encouraged to drive long-term value for shareholders, and the performance metrics used in the annual incentive program provide reinforcement of the activities we believe will drive value.
The Committee reviews and approves each named executive’s achievement of performance goals for the prior year. In determining the level of achievement of performance goals, the Committee may include or exclude the following:impact of certain items, as permitted under the Performance Plan.
40 | 2022 PROXY STATEMENT |
Calculation of 2021 Annual Cash Incentive Amounts Earned. In February 2022, the Committee approved the annual cash incentive compensation amounts earned by our named executives for 2021. Each performance goal has corresponding pre-established achievement levels ranging from a minimum of 0 to a maximum of 125, with a target achievement of 100. The achievement level for each goal is multiplied by the goal’s weight to determine a weighted achievement for the goal. For each named executive, the weighted achievement levels for all goals are added together to determine a total weighted achievement level. Total weighted achievement levels range from 0 to 125, with a target of 100. Total weighted achievement levels correspond to a pre-established range of final payouts as a percentage of salary for each named executive. The range of final payouts as a percentage of salary between 0 – 75, 75 – 100, and 100 – 125 are determined on a straight-line basis.
In considering the level of achievement for the 2021 performance goals, the Committee reviewed the significant, adverse impacts of Winter Storm Uri and Hurricane Ida, which resulted in raw material shortages significantly hindering our ability to manufacture the products needed to fully meet robust customer demand. In the Committee’s judgment, the performance goals adversely impacted by the natural disasters were the corporate adjusted EPS and adjusted free cash flow (FCF) metrics, the TAG sales, profit before taxes (PBT), and RONAE metrics, and the PCG PBT and RONAE metrics. In evaluating the results of the performance goals, the Committee considered management’s efforts during 2021 in responding to the unprecedented impacts of the natural disasters, some of which are highlighted below.
| • |
|
| ° |
|
¡ In the first quarter of 2020, the Compensation Committee set threshold, target, and maximum annual cash incentive performance goals at levels they considered appropriately rigorous for the year and represented continued strong financial performance. The COVID-19 pandemic was not a consideration at the time these goals were approved.
¡ When the uncertainties relating to the potential impact of the COVID-19 pandemic to the company’s business began to become more apparent, the CEO volunteered to forego, and the Compensation Committee approved rescinding, the previously approved increase to the CEO’s target and maximum annual incentive opportunities from 145% and 290% to 160% and 320%, respectively, of his base salary.
¡ 2020 was a challenging year for businesses worldwide due to the COVID-19 pandemic. Management took extraordinary efforts to mitigate the impact of COVID-19 to the company’s business and effectively manage costs, operations, and working capital. With these efforts, we earned maximum achievement for our earnings per share (EPS) and adjusted Free Cash Flow (FCF) metrics for the corporate performance goals. Given the nature of the pandemic, including shutdowns and other government and public health mandates, our sales were adversely impacted and resulted in below target achievement for both the corporate and TAG sales performance metrics (each, weighted 25%). To better reflect management’s efforts and accomplishments in delivering record 2020 financial performance, the Compensation Committee adjusted the achievement levels of these performance metrics by adding to the achievement levels for the corporate and TAG sales performance goals an amount attributable to lost sales as a result of the COVID-19 pandemic, as further described below. No adjustments were made to any other 2020 annual cash incentive performance goals. With the sales adjustments, our named executives earned an average of 193.2% of their 2020 target annual cash incentive compensation.
|
| ° | Collaborated with and provided support to impacted suppliers to alleviate raw material shortages, including by providing Company resources to help complete batch productions. |
| ° | Continued to make strategic investments in our business to drive continued growth and better serve the needs of our customers, such as the acquisition of a manufacturer and developer of water-based polymers used in architectural and industrial coatings and other applications to expand our existing internal resin manufacturing capabilities, and plans to significantly expand the capacity gained through the acquisition to serve internal demand and external customers. |
| ° | Implemented numerous pricing actions across each of our businesses to offset higher, sustained raw material and other costs. |
| ° | Strengthened relationships with our customers through deliberate, consistent, and transparent communications regarding the challenges and resulting delays, as well as continued responsiveness to customers’ current and future needs. |
| ° | Engaged with employees, rewarded resiliency and hard work, and made changes throughout our business to encourage retention, including wage increases, reduced store hours, and employee benefit enhancements. |
| • |
|
| ° | Increased consolidated net sales by 8.6% to a record $19.94 billion in 2021 despite the raw material shortages hindering our ability to fully meet demand. |
| ° | Continued to drive strong total shareholder return (including the reinvestment of dividends) for 2021 at 44.90%, compared to 28.71% for the S&P 500. |
The Committee recognized that the natural disasters were unforeseen, significant events outside of management’s control, were not accounted for when the performance goals were established, and the extent of their impacts to the Company and across the industry were unprecedented. As a general matter and consistent with past practice, the Committee believes annual cash incentive compensation should focus on performance that is generally within the control of management and not take into account unforeseen circumstances that may not be realized. In the event of unforeseen circumstances, like natural disasters, the Committee generally evaluates management’s performance in responding to the related impacts and challenges and makes adjustments if the Committee deems appropriate, as permitted under the Performance Plan.
| 41 |
The following table shows, for each named executive, the performance goals, minimums, targets, maximums, actual results, and adjusted results (after taking into effect the adjustments made to certain metrics, as calculated in Appendix A).
| 2021 Annual Cash Incentive Performance Goals | ||||||||||||||
| (millions of dollars, except percentage and per share data) | ||||||||||||||
| Name | Performance Goals | Minimum | Target | Maximum | Actual Results(2) | Full Net Impact Adjusted Results(2) | Final Capped Adjusted Results(2) | |||||||
John G. Morikis | Net Sales | $17,352 | $19,280 | $19,739 | $19,945 | $19,945 | $19,945 | |||||||
Allen J. Mistysyn | Adjusted EPS(1) | $6.47 | $8.09 | $8.46 | $7.32(3) | $8.64 | $8.31 | |||||||
Mary L. Garceau | Adjusted FCF(1) | $1,353 | $1,691 | $1,756 | $1,344 | $1,766 | $1,694 | |||||||
Peter J. Ippolito | January 1 - March 27 |
|
|
|
|
|
| |||||||
| TAG Sales(1) | $9,875 | $10,972 | $11,268 | $11,217 | $11,590 | $11,590 | |||||||
| TAG PBT(1) | $1,806 | $2,258 | $2,324 | $2,082 | $2,439 | $2,297 | |||||||
| TAG RONAE(1) | 96.10% | 120.13% | 120.97% | 114.75% | 129.95% | 120.63% | |||||||
| March 28 - December 31 |
|
|
|
|
|
| |||||||
| Net Sales | $17,352 | $19,280 | $19,739 | $19,945 | $19,945 | $19,945 | |||||||
| Adjusted EPS(1) | $6.47 | $8.09 | $8.46 | $7.32(3) | $8.64 | $8.31 | |||||||
| Adjusted FCF(1) | $1,353 | $1,691 | $1,756 | $1,344 | $1,766 | $1,694 | |||||||
Heidi G. Petz | TAG Sales(1) | $9,875 | $10,972 | $11,268 | $11,217 | $11,590 | $11,590 | |||||||
| TAG PBT(1) | $1,806 | $2,258 | $2,324 | $2,082 | $2,439 | $2,297 | |||||||
| TAG RONAE(1) | 96.10% | 120.13% | 120.97% | 114.75% | 129.95% | 120.63% | |||||||
Justin T. Binns | PCG Sales | $5,604 | $6,227 | $6,398 | $7,042 | $7,042 | $7,042 | |||||||
| PCG PBT(1) | $707 | $883 | $912 | $825 | $918 | $900 | |||||||
|
| PCG RONAE(1) | 30.73% | 38.42% | 38.81% | 34.35% | 38.20% | 38.20% | |||||||
| 1 | Performance |
| 2 | In light of |
| 3 | Includes $0.34 per share, which represents the loss from the Wattyl divestiture. |
The Committee believes these adjustments are reasonable and the resulting payouts are appropriately aligned with the Company’s and management’s overall 2021 performance and resiliency in light of the significant and unprecedented impacts and challenges of Winter Storm Uri and Hurricane Ida.
42 | 2022 PROXY STATEMENT |
The calculations used to determine the incentive amounts earned by each named executive during 2021 (after taking into account the adjustments described above for purposes of achievement) are shown in the table below and are illustrated by the following formula:
Weighting X Achievement Level = Weighted Achievement Level g Incentive Amount as a % of Salary X Salary = Incentive Amount Earned |
| Name | Weighting |
| Full Net Impact Adjusted |
| Weighted Achievement Level |
| Amount as a Salary |
| Salary | Amount Earned | ||||||||||||||||||||||||||||||||||||||
John G. Morikis | Net Sales | 25% |
|
|
| Net Sales | 125.00 | Net Sales | 31.25 |
|
|
| Minimum | 0% |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
| Adjusted EPS | 40% |
|
|
| Adjusted EPS | 125.00 |
|
|
| Adjusted EPS | 50.00 |
|
|
| Target | 160% |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
| Adjusted FCF | 35% |
|
|
| Adjusted FCF | 125.00 |
|
|
| Adjusted FCF | 43.75 |
|
|
| Maximum | 320% |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
| Full Net Impact |
|
|
| Total | 125.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
| Final Capped |
|
|
| Total | 112.50 |
|
|
| Result | 240.00% |
|
|
| $1,368,231 | $3,284,000 | ||||||||||||||||||||||||||||||||
Allen J. Mistysyn | Net Sales | 25% |
|
|
| Net Sales | 125.00 |
|
|
| Net Sales | 31.25 |
|
|
| Minimum | 0% |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
| Adjusted EPS | 40% |
|
|
| Adjusted EPS | 125.00 |
|
|
| Adjusted EPS | 50.00 |
|
|
| Target | 90% |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
| Adjusted FCF | 35% |
|
|
| Adjusted FCF | 125.00 |
|
|
| Adjusted FCF | 43.75 |
|
|
| Maximum | 180% |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
| Full Net Impact |
|
|
| Total | 125.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
| Final Capped |
|
|
| Total | 112.50 |
|
|
| Result | 135.00% |
|
|
| $ 786,562 | $1,062,000 | ||||||||||||||||||||||||||||||||
Mary L. Garceau | Net Sales | 25% |
|
|
| Net Sales | 125.00 |
|
|
| Net Sales | 31.25 |
|
|
| Minimum | 0% |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
| Adjusted EPS | 40% |
|
|
| Adjusted EPS | 125.00 |
|
|
| Adjusted EPS | 50.00 |
|
|
| Target | 80% |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
| Adjusted FCF | 35% |
|
|
| Adjusted FCF | 125.00 |
|
|
| Adjusted FCF | 43.75 |
|
|
| Maximum | 160% |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
| Full Net Impact |
|
|
| Total | 125.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
| Final Capped |
|
|
| Total | 112.50 |
|
|
| Result | 120.00% |
|
|
| $ 655,767 | $ 787,000 | ||||||||||||||||||||||||||||||||
Peter J. Ippolito | January 1 - March 27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
| TAG Sales | 25% |
|
|
| TAG Sales | 125.00 |
|
|
| TAG Sales | 31.25 |
|
|
| Minimum | 0% |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
| TAG PBT | 40% |
|
|
| TAG PBT | 125.00 |
|
|
| TAG PBT | 50.00 |
|
|
| Target | 80% |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
| TAG RONAE | 35% |
|
|
| TAG RONAE | 125.00 |
|
|
| TAG RONAE | 43.75 |
|
|
| Maximum | 160% |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
| Full Net Impact |
|
|
| Total | 125.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
| Final Capped |
|
|
| Total | 117.50 |
|
|
| Result | 136.00% |
|
|
| $ 169,623 | $ 231,000 | ||||||||||||||||||||||||||||||||
| March 28 - December 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
| Net Sales | 25% |
|
|
| Net Sales | 125.00 |
|
|
| Net Sales | 31.25 |
|
|
| Minimum | 0% |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
| Adjusted EPS | 40% |
|
|
| Adjusted EPS | 125.00 |
|
|
| Adjusted EPS | 50.00 |
|
|
| Target | 80% |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
| Adjusted FCF | 35% |
|
|
| Adjusted FCF | 125.00 |
|
|
| Adjusted FCF | 43.75 |
|
|
| Maximum | 160% |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
| Full Net Impact |
|
|
| Total | 125.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
| Final Capped |
|
|
| Total | 112.50 |
|
|
| Result | 120.00% |
|
|
| $ 537,462 | $ 645,000 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
|
|
| $ 707,085 | $ 876,000 | ||||||||||||||||||||
Heidi G. Petz | TAG Sales | 25% |
|
|
| TAG Sales | 125.00 |
|
|
| TAG Sales | 31.25 |
|
|
| Minimum | 0% |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
| TAG PBT | 40% |
|
|
| TAG PBT | 125.00 |
|
|
| TAG PBT | 50.00 |
|
|
| Target | 80% |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
| TAG RONAE | 35% |
|
|
| TAG RONAE | 125.00 |
|
|
| TAG RONAE | 43.75 |
|
|
| Maximum | 160% |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
| Full Net Impact |
|
|
| Total | 125.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
| Final Capped |
|
|
| Total | 117.50 |
|
|
| Result | 136.00% |
|
|
| $ 559,618 | $ 761,000 | ||||||||||||||||||||||||||||||||
Justin T. Binns | PCG Sales | 25% |
|
|
| PCG Sales | 125.00 |
|
|
| PCG Sales | 31.25 |
|
|
| Minimum | 0% |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
| PCG PBT | 40% |
|
|
| PCG PBT | 125.00 |
|
|
| PCG PBT | 50.00 |
|
|
| Target | 80% |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
| PCG RONAE | 35% |
|
|
| PCG RONAE | 97.24 |
|
|
| PCG RONAE | 34.04 |
|
|
| Maximum | 160% |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
| Full Net Impact |
|
|
| Total | 115.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
|
| Final Capped |
|
|
| Total | 111.29 |
|
|
| Result | 116.11% |
|
|
| $ 575,000 | $ 668,000 | ||||||||||||||||||||||||||||||||
| * | This table includes information regarding the levels at which the corporate adjusted EPS and adjusted FCF metrics, the TAG sales, PBT, and RONAE metrics, and the PCG PBT and RONAE metrics would have been achieved, and the related payouts as to each such metric, if the Committee had determined to adjust fully for the impact of Winter Storm Uri and Hurricane Ida. As described above, after considering the full adjustment amounts, and at the recommendation of Compensation Advisory Partners, the Committee determined to adjust the applicable metrics and capped the adjustment to reflect only a portion of the net impact of the natural disasters, with the payout percentage rounded down. These results are calculated as set forth on Appendix A. Amounts earned are rounded to the nearest thousandth. |
| 43 |
Relationship Between PayLong-Term Equity Incentive Compensation
The largest component of pay for our named executives is long-term equity incentive compensation. We grant long-term equity incentive compensation annually under our shareholder-approved 2006 Equity and Performance
Incentive Plan (the Incentive Plan). Our executive compensation program combines different elements of compensation. As a result, the total amount of executive compensation paid is not directly tied to any one measure or component of compensation. We believe this approach assists us in viewing performance holistically and helps mitigate the risk of over-emphasizing any one metric. That said, a significant portion of our executivelong-term equity incentive compensation program is tieddesigned to focus our executives on improving Company performance over a multi-year period to encourage long-term decision-making and to reward executives the way our shareholders are rewarded—through growth in the value of our stock. We believe that long-term equity awards also serve as a retention tool for our executives. The value delivered on these long-term incentives ultimately depends upon Company performance and our stock price.
Our long-term equity compensation program for our named executives consists of stock options and PRSUs. Our stock option program is the primary means by which we believegrant long-term equity compensation to a broad group of employees to focus their efforts on our long-term performance and stock price improvement. Our PRSU program is criticaldesigned for certain key employees, including our named executives, and rewards these employees based upon the achievement of financial performance goals and stock price appreciation.
Double-Trigger Acceleration Provision. Grants of stock options and PRSUs include a “double-trigger” acceleration provision with respect to ensuringthe vesting of the awards in connection with a change in control. Upon a change in control, awards that are assumed by the surviving entity will continue to vest and become exercisable in accordance with their original terms unless, within three years after the change in control, the participant’s employment is terminated other than for cause or the participant terminates their employment for good reason.
Dividend Equivalents. We do not pay current dividend equivalents on unvested RSUs or PRSUs. The payment of dividend equivalents on unvested RSUs or PRSUs is deferred and paid only if and to the extent the units vest. There are no dividend equivalents associated with stock option awards.
Grant Practices – Emphasis on Performance-Based Awards. When making annual equity grants to our named executives and other key employees, we deliver value to shareholders. Our executives only realizebegin by determining the fullmarket median value of their compensation iflong-term equity incentive compensation. We then allocate the target mix among types of equity grants. The target mix of our annual long-term equity incentives for our named executives and other key employees is set forth in the table below. We believe this mix of equity awards provides an appropriate balance among aligning executive interests with those of our shareholders, also realize value.encouraging executive retention, and rewarding executives for sustained performance results.
| Allocation | |
Stock Options | 40% | |
PRSUs – Adjusted EPS Goal | 40% | |
PRSUs – Adjusted RONAE Goal | 20% | |
Our long-term incentive opportunities are intended to be competitive with market long-term incentive opportunities. Therefore, we do not consider the amount of outstanding stock options or PRSUs currently held by an executive when making equity awards.
We grant stock options and PRSUs on an annual basis at regularly scheduled Compensation Committee meetings, the dates of which are determined approximately three years in advance. We grant PRSUs at each February Committee meeting. This meeting typically occurs in the middle of February, usually a few weeks following the release of our annual earnings results. We grant stock options at each October Committee meeting. We may also grant PRSUs and stock options at other Committee meetings in connection with an employee’s initial hire, promotion, and other events. The dates of these grants may occur shortly before we release our quarterly earnings results. We do not take into account our earnings results when determining the number of stock options or PRSUs to be granted or the date of grant.
44 |
|
Each year,2021 Annual Equity Awards. The following table shows the number of stock options and PRSUs granted to each named executive during 2021. Ms. Petz received two grants of PRSUs during 2021—one granted in February 2021 in connection with her role as Senior Vice President, Sales and Marketing, TAG, and the second granted in March 2021 in connection with her promotion to President, TAG, as shown in the 2021 Grants of Plan-Based Awards Table.
| Number of Stock Options Granted in 2021 | Number of PRSUs Granted in 2021 at Target | |||||
Name | Adjusted EPS Goal | Adjusted RONAE Goal | ||||
John G. Morikis | 64,600 | 16,500 | 8,250 | |||
Allen J. Mistysyn | 16,000 | 4,200 | 2,100 | |||
Peter J. Ippolito | 13,200 | 3,300 | 1,650 | |||
Mary L. Garceau | 10,500 | 2,700 | 1,350 | |||
Heidi G. Petz | 11,700 | 2,730 | 1,365 | |||
Justin T. Binns | 10,800 | 2,100 | 1,050 | |||
2021 Stock Option Grants. The number of stock options granted to an executive is based upon the executive’s position and level of responsibility. We determine the specific number of stock options to be granted by calculating the Black-Scholes value of the stock options over the 30-day period ending on the last day of the September preceding the award date. Black-Scholes is a generally accepted model used in estimating the value of stock options. In accordance with the terms of our Incentive Plan, the option exercise price is equal to the average of the highest and lowest reported sale prices of our stock on the grant date. Accordingly, the exercise price may be higher or lower than the closing price per share of our stock on that day. The Committee believes that the average of the high and low prices is a better representation of the fair market value of our stock and is less volatile than the closing price per share given potential intra-day price volatility. We do not reprice stock options—our stock plans do not permit the repricing or replacing of underwater stock options with cash or equity without shareholder approval, and stock options do not contain reload features.
2021 PRSU Grants. Our annual grants of PRSUs vest at the end of a three-year period. The value of PRSUs granted to an executive is based upon the executive’s position and level of responsibility. The number of PRSUs granted is determined by using the average value of our stock over the 30-business day period ending on the last day of the January preceding the date of grant. One PRSU is equivalent in value to one share of our common stock. PRSUs are paid out in common stock upon vesting. The number of PRSUs granted is approximately equal to the target value. Executives have an opportunity to earn two times the target value for maximum performance. We correspondingly set maximum goals higher, making achievement of the goals more difficult to attain to provide a greater incentive for above-target performance.
The threshold, target, and maximum achievement levels for the 2021 grants of PRSUs are illustrated in the following table for the 2021 – 2023 performance period. Performance between the achievement levels is measured on a straight-line basis to reward improvements at various achievement levels, while not encouraging executives to take unnecessary risks to hit achievement levels with larger payouts.
|
| Adjusted EPS Goal(1) | Adjusted RONAE Goal(1) | % of Target Vesting | |||
Maximum | $27.07 | 14.4% | 200% | |||
Target | $25.42 | 13.9% | 100% | |||
Threshold | $23.94 | 13.4% | 25% | |||
| 1 | Adjusted EPS and Adjusted RONAE are calculated as set forth on Appendix A. |
Vesting of 2019 – 2021 PRSUs. In February 2022, the Committee determined the vesting of PRSUs for the 2019 – 2021 performance period. The Committee determined payouts based upon the achievement of the adjusted EPS and adjusted RONAE goals. In determining the level of achievement of the goals, the Committee may include or exclude the impact of certain items, as permitted under the Incentive Plan.
| 45 |
Despite the impacts of Winter Storm Uri and Hurricane Ida to the Company’s business, the Committee did not adjust the performance payouts for the vesting of the 2019 – 2021 PRSUs due to the natural disasters. The following table shows the goals, target and maximum levels, results, and percentage of target PRSUs vesting.
Performance Goal | Target | Maximum | Results | % of Target PRSUs Vesting | ||||
Adjusted EPS(1) | $19.71 | $21.20 | $20.94 | 182.5% | ||||
Adjusted RONAE(1) | 11.6% | 13.6% | 12.3% | 135.0% | ||||
| 1 | Adjusted EPS and Adjusted RONAE for purposes of determining achievement are calculated as set forth on Appendix A. |
Other Arrangements, Policies, and Practices
We do not have employment agreements with our named executives; our named executives are employed at will.
Consistent with our culture, we provide our named executives with only limited perquisites, which include benefits provided pursuant to our executive travel policy that is in line with market practice.Under our executive travel policy, the Board strongly recommends that our CEO use Company aircraft at all times when he is traveling, whether for business or personal reasons. In connection with this policy, the Committee approved Sherwin-Williams entering into an aircraft time sharing agreement with Mr. Morikis and an annual allowance for Mr. Morikis’ personal use of Company aircraft, pursuant to which he will reimburse Sherwin-Williams for the aggregate incremental cost of his personal use of Company aircraft in excess of $150,000 on an annual basis. Under the agreement, Mr. Morikis is permitted to lease Company aircraft from time to time on an “as needed and as available” basis. The Committee determined it was appropriate for Sherwin-Williams to enter into the agreement with Mr. Morikis for his personal safety and security as our CEO and to maximize his time given his significant duties and responsibilities to Sherwin-Williams.
Additional information regarding the aggregate incremental cost of perquisites paid for by Sherwin-Williams during 2021 to our named executives is set forth in a footnote to the “All Other Compensation” column of the Summary Compensation Table.
Our compensation program is designed so that compensation opportunities are similar for executives with comparable responsibilities, experience, and tenure. Our executive compensation program uses the same compensation components for our executives, but results in different pay levels due to an executive’s market compensation, position, and performance. To maintain internal equity in connection with grants of stock options and PRSUs, the Committee generally grants the same number of stock options and PRSUs to employees who are in similar pay grades.
When approving changes in compensation for our named executives, we prepare a tally sheet for each named executive. Tally sheets set forth the dollar amounts of all components of each named executive’s current compensation, including base salary, annual cash incentive compensation, long-term incentive compensation, retirement and savings plans, health and welfare programs, and other executive benefits. Tally sheets also quantify the potential payments to our named executives in the event of retirement and termination following a change in control.
Tally sheets allow the Committee and management to assess how a change in the amount of each compensation component affects each named executive’s total compensation and to provide overall perspective on each named executive’s total compensation. Based upon its most recent review, the Committee determined that total compensation, in the aggregate, for each of our named executives is consistent with the Committee’s expectations. The Committee did not increase or decrease the amount of compensation of our named executives solely based upon the review of tally sheets.
Executive Stock Ownership Requirements
We have established minimum share ownership requirements for our executives to encourage meaningful stock ownership in Sherwin-Williams. Information about our executive stock ownership requirements is included under the heading “Stock Ownership Guidelines” in the Corporate Governance Practices and Policies section.
46 | 2022 PROXY STATEMENT |
Retirement Plans and Other Benefits
We provide our named executives with various tax-qualified and nonqualified retirement and savings plans, health and welfare programs, and other executive benefits. We annually review these programs in connection with our review of the overall compensation packages of our named executives and tally sheets. Additional information about these programs is set forth in the executive compensation tables and the accompanying narrative discussion.
We have a policy allowing Sherwin-Williams to recapture or “clawback” incentive compensation paid or payable to our named executives and other key employees in the event of a financial restatement. Information about our policy is included under the heading “Clawback and Recapture Policy” in the Corporate Governance Practices and Policies section.
Anti-Hedging and Anti-Pledging Policy
Directors and all employees, including our executive officers, are prohibited from engaging in hedging transactions with respect to Sherwin-Williams securities. We also prohibit our directors, executive officers, and certain of our other employees that are subject to the preclearance procedures of our Insider Trading Policy from holding our securities in margin accounts or otherwise pledging our securities for a loan. Additional information about our policy is included under the heading “Anti-Hedging and Anti-Pledging Policy” in the Corporate Governance Practices and Policies section.
To ensure continuity and the continued dedication of our executives during any period of uncertainty caused by the possible threat of a takeover, we entered into change in control severance pay agreements with our executives, including each of our named executives. Given the heightened focus on change in control agreements, the Committee engaged its compensation consultant in 2019 to compare our change in control severance pay agreements to prevailing market practices. Based upon such review, the Committee believes that the material terms of the severance agreements, which include a double-trigger provision, are generally in line with market practices.
Potential cash severance payments are based upon a multiplier of base salary and annual cash incentive pay. These severance pay agreements have not been a significant factor in setting compensation levels and have not affected the Committee’s decisions with respect to compensation components. Additional information regarding the severance agreements, including the estimated amounts payable to each named executive, is set forth under the heading “Potential Payments Upon Termination or Change in Control” in the Executive Compensation Tables section.
Policy Concerning Future Severance Agreements
We have a policy that provides we will not enter into any future severance agreements (including material amendments of existing agreements) with a senior executive providing for cash severance payments exceeding 2.99 times base salary and bonus without shareholder approval or ratification. For purposes of this calculation, cash severance payments do not include the acceleration of equity-based awards, vacation pay, retirement benefits, health continuation coverage, and outplacement services. In addition, the policy provides that future executive severance agreements will not include any tax gross-up payments. The policy was adopted in February 2010 (after Sherwin-Williams entered into severance agreements with Messrs. Morikis and Ippolito).
Under the Key Employee Separation Plan (as amended, the KESP), certain key employees, including our named executives, are entitled, subject to execution and non-revocation of a release of claims, to certain severance payments and benefits in the event their employment is involuntarily terminated by Sherwin-Williams for reasons other than cause, death, or disability prior to a change in control.
Additional information regarding the KESP, including the estimated amounts payable to our named executives upon termination of employment without cause prior to a change in control, is set forth under the heading “Potential Payments Upon Termination or Change in Control” in the Executive Compensation Tables section.
| 47 |
The Compensation Committee annually assesses the risks related to our compensation policies and practices. During 2021, the Compensation Committee assessesengaged Compensation Advisory Partners to conduct a comprehensive risk assessment of our CEO’sincentive compensation in light of Sherwin-Williams’ performance relativeprograms, plans, and policies. Compensation Advisory Partners presented the risk assessment to its peers. In October 2020,the Compensation Committee.
Based upon the assessment, the Compensation Committee analyzedand Compensation Advisory Partners concluded that our compensation policies and practices do not encourage excessive or unnecessary risk-taking and are not reasonably likely to have a material adverse effect on Sherwin-Williams. The following factors help mitigate against employees taking excessive or unnecessary risks.
We utilize a balanced approach to compensation, which combines fixed and variable pay, short-term and long-term time horizons, and cash and equity.
We have diversified incentive compensation metrics with performance goals focused on growth, profitability, and managing capital at different levels within our Company.
We design our incentive compensation plans without steep payout cliffs that might encourage short-term business decisions that are inconsistent with our long-term business strategy.
Performance incentives are capped at maximum payout amounts.
We grant equity awards annually, with appropriate vesting periods, that encourage consistent behavior and reward long-term, sustained performance.
Our equity plans include a “double-trigger” acceleration provision with respect to vesting in connection with a change in control.
We have significant stock ownership guidelines for our directors and executives.
We regularly benchmark our current compensation practices, policies, and pay levels against peer companies and have a pay philosophy that targets market median compensation.
We prohibit the relationship between the realizable payhedging and pledging of our CEOsecurities by our directors and total shareholder return (TSR) overemployees, including our executive officers.
The Compensation Committee reviews tally sheets for our named executives that provide a holistic view of each executive’s compensation.
We have a clawback and recapture policy allowing us to “clawback” incentive compensation earned by executives and key employees.
The Compensation Committee has reviewed and discussed with management the five-year periodCD&A contained in this Proxy Statement. Based upon this review and discussion, the Compensation Committee recommended to the Board of Directors that the CD&A be included in Sherwin-Williams’ Annual Report on Form 10-K for the fiscal year ended December 31, 2019, comparing Sherwin-Williams to the peer group we use when making executive compensation decisions. At the time of such review, 2019 was the most recent year for which compensation information was available for our peer group. TSR includes the reinvestment of dividends2021 and is calculated on a compounded annual growth rate basis.this Proxy Statement.
The following chart, prepared by our independent compensation consultant, Compensation Advisory Partners, shows the degree of alignment between the total realizable pay of our CEO and Sherwin-Williams’ TSR relative to our peer group over the five-year period. Sherwin-Williams’ cumulative TSR over the five-year period was 133%, which was higher than all but one company in our peer group. Peer group companies are indicated by the circles in the chart. Companies that fall within the shaded diagonal alignment zone are generally viewed as having pay and performance alignment. As illustrated below, our CEO’s realizable pay was well aligned with Sherwin-Williams’ performance.
PAY FOR PERFORMANCE ALIGNMENT
CEO REALIZABLE PAY AND TSR
Realizable pay includes: (a) base salary during the five-year period; (b) actual cash incentive compensation earned during the five-year period; (c) the value of RSUs granted during the five-year period based on the 20192020 year-end closing stock price per share; (d) the vesting date value of long-term performance equity awards that were earned in 2017, 2018, 2019, and 2019,2020, which consisted of PRSUs; (e) the value of target long-term performance equity awards granted in 20182019 and 2019,2020, which consisted of PRSUs, based on the 20192020 year-end closing stock price per share; and (f) the in-the-money value of stock options granted during the five-year period based on the 20192020 year-end closing stock price per share. Valuing equity awards in this manner is different from valuing equity awards at their aggregate grant date fair value, which is the method used to value equity in the Summary Compensation Table and the 20202021 Grants of Plan-Based Awards Table.
|
2022 PROXY STATEMENT |
|
Independent Compensation Consultant
The Compensation Committee assessed the independence of Compensation Advisory Partners under applicable SEC rules and NYSE listing standards. The Compensation Committee determined that Compensation Advisory Partners is independent and its work raises no conflicts of interest. Compensation Advisory Partners did not provide any services to Sherwin-Williams during 2020 other than those matters for which it was engaged by the Compensation Committee.
Overview of Executive Compensation Practices
Our compensation programs, practices, and policies are reviewed and evaluated on an ongoing basis. We modify our compensation programs to address evolving best practices and changing regulatory requirements, as well as significant events, such as the COVID-19 pandemic. We list below some of the more significant best practices we have adopted, and the practices we have avoided, whichthat we believe highlight our commitment to responsible pay and governance principles that best serve our shareholders’ long-term interests.
What We Do |
What We Don’t Do | |||||||||||||
✓Performance-Based Pay. We emphasize pay for performance. For
✓Independent Compensation Committee. Each member of the Compensation Committee meets the independence requirements under SEC rules and NYSE listing standards.
✓Independent Compensation Consultant.
✓Balanced Compensation
✓Target Median. We have a pay philosophy that targets market median compensation. We assess our current compensation practices, policies, and pay levels against peer companies.
✓Responsibly Administered Incentive Compensation
✓Clawback and Recapture
✓Double-Trigger Change in
✓Significant Stock
✓Annual Say-on-Pay |
|
|
| No Employment Agreements.We do not have employment agreements with our named executives; our named executives are employed at will. | ||||||||||
|
|
|
No Dividend Equivalents for Unvested RSUs or PRSUs. Dividend equivalents on RSU or PRSU awards are deferred and paid only on earned shares upon vesting. | |||||||||||
|
|
|
No Repricing or Replacing of Underwater Stock Options. We do not permit the repricing or replacing of underwater stock options without shareholder approval. | |||||||||||
|
|
|
No Hedging. Directors and employees, including our executive officers, are prohibited from engaging in hedging transactions with respect to our securities. | |||||||||||
|
|
|
No Pledging. Directors, executive officers, and certain other employees may not hold our securities in margin accounts or otherwise pledge our securities as collateral for a loan. | |||||||||||
|
|
|
No Speculative Trading.Directors and employees, including our executive officers, may not engage in short sales of our securities or in put options, call options, or other market-offered derivative transactions in our stock. | |||||||||||
|
|
|
No Excessive Perquisites. Consistent with our culture, we provide only limited perquisites to our executives. | |||||||||||
|
|
|
No Excessive Risk-Taking.We conducted a risk assessment and concluded that our compensation policies do not encourage excessive or unnecessary risk-taking. | |||||||||||
|
|
|
No Above-Market Earnings on Deferred Compensation. We do not pay guaranteed, above-market, or preferential interest or earnings on deferred compensation. | |||||||||||
Impact of Last Year’s Say-on-Pay Vote
At our 2020 Annual Meeting, a substantial majority of shareholders (96.0% of votes cast) approved the compensation of our named executives. We consider this vote to be a strong endorsement of our executive compensation program, practices, and policies. Based on this strong shareholder support, the Compensation Committee does not believe our executive compensation program requires material changes. However, the Compensation Committee has made, and will continue to
|
| 35 |
make, changes designed to further enhance the objectives of our program, as well as to address significant events to the extent appropriate to do so, such as in connection with the COVID-19 pandemic. We will continue to hold the advisory say-on-pay vote annually until the next shareholder vote on say-on-pay frequency in 2023.
The Compensation Committee highly values the input of our shareholders. The Compensation Committee will continue to consider the views of our shareholders in connection with our executive compensation program, including the results of the 2021 say-on-pay vote. We will make modifications based upon evolving best practices, developments in our business, input from our shareholders, market compensation information, and changing regulatory requirements. We encourage you to support this year’s say-on-pay proposal.
Overview of Our Executive Compensation Program
Independent Compensation Committee
The Compensation Committee, which is comprised entirely composed of independent directors, oversees our executive compensation program. The Compensation Committee reports to the Board on all compensation matters for members of our senior management team, including our named executives. The Compensation Committee has engaged Compensation Advisory Partners as its independent compensation consultant in order to fulfill its responsibilities. We include additional information about the Compensation Committee, including the role of the compensation consultant and management in the compensation setting process, under the heading “Compensation and Management Development Committee” in the “Board Meetings and Committees”Board Committees section.
We design and manage our company-wideCompany-wide compensation programs to align with our overall business strategy and to focus our employees on delivering sustained financial and operating results and creating value for our shareholders on a consistent, long-term basis. We believe it is important that our compensation programs:
| • | Be competitive. Our programs are designed to attract, retain, and motivate talented and high-performing people at all levels of our |
| • | Maintain a |
| • | Align the interests of our executives with those of our shareholders. It is important that a significant portion of our executives’ incentive compensation be directly tied to our stock price in order to align the financial interests of our executives with the interests of our shareholders and keep our executives focused on sustained financial performance. We have |
We believe our compensation programs achieve these goals.
|
2022 PROXY STATEMENT |
|
Our Approach and Mix. We maintain a balanced approach to compensating our named executives by combining elements that vary by the (a) type of Compensationcompensation (fixed and variable), (b) length of the performance period (short- and long-term), and (c) form of compensation (cash and equity). We believe this mix aligns with our business strategies and emphasizes pay for performance. We determine this mix by reviewing market compensation information. We do not have a specific policy for the allocation of compensation between fixed and variable, short- and long-term, and cash and equity.
The components of our executive compensation program, the primary purpose of each component, and the form of compensation for each component are described in the following table.
Component | Primary Purpose | Form of Compensation | ||
Base Salary | Provides base compensation for day-to-day performance of job responsibilities.
| Cash | ||
Annual Cash Incentive Compensation | Rewards
| Cash | ||
Long-Term Equity Incentive Compensation | Encourages improvement in the long-term performance of our | Stock options, which vest in equal installments on the first, second, and third anniversary of grant and have a ten-year term.
PRSUs, which vest at the end of a three-year period based upon the achievement of pre-established financial performance goals and are paid in stock.
| ||
Other Employee and Executive Benefits | Provides a broad-based executive compensation program for employee retention, retirement, and health. | Retirement and savings programs, health and welfare programs, and employee benefit plans, programs, and arrangements generally available to all employees; executive life insurance and executive long-term disability plans; and limited perquisites and other benefits.
| ||
Mix of Compensation Components
Our Approach.At-Risk Compensation. We maintain a balanced approach to compensating our named executives by combining elements that vary by the (a) type of compensation (fixed and variable), (b) length of the performance period (short-term and long-term), and (c) form of compensation (cash and equity). We believe this mix aligns with our business strategies and emphasizes pay for performance. We determine this mix by reviewing market compensation information. We do not have a specific policy for the allocation of compensation between fixed and performance-based, annual and long-term, and cash and equity.
At-Risk Compensation.A core principle of our executive compensation program is that a significant percentage of the compensation opportunity offor each named executive, especially our CEO, is variable and at-risk. This type of compensation is primarily dependent upon the financial success of our companyCompany and the performance of Sherwin-Williams common stock. This means that our executives are rewarded when they produce value for our shareholders. The following chart illustrates the mix of key compensation components for our named executives for 2021. The percentages reflect the amounts of each of our named executive’s base salary, target annual cash incentive compensation, and long-term equity incentive compensation (consisting of stock options and PRSUs and valued using aggregate grant date fair values) for 2021.
|
|
The following chart illustrates the mix of the key compensation components for our named executives for 2020. The percentages reflect the amounts of 2020 base salary, targeted annual cash incentive compensation, and the aggregate grant date fair values of stock options and PRSUs granted in 2020.
|  |
| 37 |
The Compensation Committee utilizes a peer group of companies to assess the competitiveness of our executive compensation program relative to the market. The compensation consultant annually identifies the compensation paid to named executives with similar roles and responsibilities at a group of chemical, industrial, manufacturing, consumer product, and retail companies with comparable sales to those of Sherwin-Williams, which are considered to be our peer group companies. The compensation consultant also compiles compensation data from broad-based surveys of companies of similar size and industry to us. These surveys are sponsored by nationally recognized compensation consulting firms. We, along with many of our peer group companies, participate in these surveys.
We monitor executive compensation levels and program designdesigns at these peer group companies because their sizesizes and businessbusinesses make them most comparable to us. We also believe these companies likely compete with us for executive talent. The compensation consultant annually reviews current and potential peer companies and recommends changes primarily based upon revenue size, market capitalization, industry, business description/mix, and brand recognition. The Compensation Committee periodically evaluates and, if necessary, adjusts the composition of our peer group to ensure it remains the most relevant group of companies to use for compensation purposes.
During 2020,2021, the Compensation Committee reviewed the continued appropriateness of our peer group, and basedgroup. Based upon theits evaluation and the recommendation of Compensation Advisory Partners, the compensation consultant,Committee made the following changes:
Eastman Chemical Company and Huntsman Corporation were removed because they were among the smallest companies (by revenue) in the prior peer group. Consistent with past practice, Kimberly-Clark Corporation was removed due to director Aaron Powell’s employment with the company at the time of the peer group evaluation.
Dow Inc., DuPont de Nemours, Inc., and International Paper Company were added because their sizes and industries are comparable to Sherwin-Williams’ size and industry.
Because these changes to our peer group were adopted in mid-2021, they did not make any changes.affect the majority of 2021 executive compensation decisions, which were made earlier in the year using the prior peer group.
OurFollowing these changes, our new peer group consists of the 23 companies listed below. 2019 annual revenuesRevenues for the companies in our peer group ranged from approximately $6.7$7.6 billion to $39.2$40.6 billion, with Sherwin-Williams ranking at the 58th percentile in annual revenues.54th percentile.
Air Products and Chemicals, Inc. | Masco Corporation | |||
Akzo Nobel N.V. | Mohawk Industries, Inc. | |||
Ball Corporation | Newell Brands Inc. | |||
Colgate-Palmolive Company | Illinois Tool Works Inc. | PPG Industries, Inc. | ||
Cummins Inc. | Stanley Black & Decker, Inc. | |||
Deere & Company | 3M Company | |||
| Linde plc | Whirlpool Corporation | ||
| LyondellBasell Industries N.V. | |||
|
|
The compensation consultant calculates an average of (a) the compensation available at companies in our peer group (using the most recent proxy data) and (b) the average compensation data from the broad-based surveys. We refer to this average as “market” compensation, which provides the Compensation Committee with a framework to evaluate the competitiveness of our executive compensation program, as well as assistance in determining the mix of compensation components and target compensation levels. We generally benchmark target compensation for our named executives to be within a general range (plus or minus approximately 15%) of the market median compensation of comparable positions, although we do not have a formal policy of setting target compensation levels at a specific percentile of the market median.
38 | 2022 PROXY STATEMENT |
We benchmark against market compensation because it allows us to attract and retain executives and helps us to manage the overall cost of our compensation program. We consider this information only as a reference point or as a framework, not as a determining factor or part of any arithmetic formula, in setting compensation. The policies we use to make compensation decisions, and the decisions we make, are materially similar for all named executives and generally result in higher compensation levels for our CEO due to the nature and responsibilities of the role and higher market compensation for CEOs.
The compensation consultant annually provides the Compensation Committee with a comprehensive analysis of market compensation, which includes base salary, annual cash incentive compensation, long-term equity incentive compensation, total annual cash compensation, and total direct compensation. We define total direct compensation as the sum of base salary, annual cash incentive compensation, and long-term equity incentive compensation. We review total direct compensation to help us determine whether the key compensation components we pay our executives are competitive in the aggregate.
The Compensation Committee generally compares each named executive’s total direct compensation and total annual cash compensation to the market median compensation. Individual components may be more or less than market median compensation because we focus on the overall competitiveness of our entire compensation program. Judgment and discretion may be used to adjust a component of compensation above or below the market median for reasons such as an executive’s performance, responsibilities, experience, and tenure, our company-wideCompany-wide performance, and internal pay equity.
The following table sets forth the projected total direct compensation for each named executive as a percentage of the market median total direct compensation. For purposes of this table, projected total direct compensation includes 2021 base salary, 2021 targeted annual cash incentive compensation, stock options granted in 2020, and the targeted value of PRSUs granted in early 2021.
|
| |
| ||
| ||
| ||
| ||
| ||
The amounts earned by our named executives may vary from the targeted amounts set forth above based upon the achievement of company and business unit performance goals. The Compensation Committee did not increase or decrease the projected amount of any 2021 compensation component based upon the amount of any other compensation component or its review of projected targeted total direct compensation.
|
|
Key Components of Our Executive Compensation Program
Annual Salary Reviews. Salary is the only key component of our executive compensation program that is not at-risk. The Compensation Committee reviews and approves the base salary of each executive at least annually and at other times, as appropriate, in connection with a promotion or other change in responsibility. Annual base salary increases generally are effective in the first quarter of each year and are based, in part, on the overall annual salary budget guidelines for our company.Company.
Annual Performance Appraisals. All salaried employees, including our named executives, undergo an annual performance appraisal. Each non-CEO named executive’s performance for the prior year is evaluated by our CEO. The evaluation is based upon the executive’s performance results (including accomplishment of incentive performance goals, financial accomplishments, and other contributions) and leadership (including work ethic and strategic contributions). For the evaluation of our CEO, our non-management directors assess his performance across the following pre-established categories that have included the following:categories: (a) performance results,results; (b) business strategy,strategy; (c) developing a management team, (includingwhich includes championing diversity), anddiversity; (d) personal and board leadership. In October 2020, the Compensation Committee reviewedleadership; and approved adding a new category for(e) ESG leadership, which includes the development, integration, and execution of ESG strategy, as well as improvement in related results,progress on ESG initiatives, as part of Sherwin-Williams’ overall business strategy. The addition of this new ESG category was effective for the 2020 performance period evaluation conducted in February 2021. These factors are not quantified or weighted. Instead, discretion and subjective judgment areis used in assessing the factors in a qualitative manner. In any one year, any one factor or group of factors may play a larger role in assessing performance. The results are reviewed by the Compensation Committee and by the non-management directors in executive session.
No Increases to 20202021 Base Salaries. The Compensation Committee set 2020 base salaries for our named executives at the beginning of 2020. In March 2020, however, due to the uncertainties of the potential impact of the COVID-19 pandemic to our business, the annual salary increases that had been approved were rescinded prior to such increases taking effect. As a result,following table sets forth the base salary as of December 31, 2021 for each of our named executives and, for those who were named executives during 2020, remained at the levelpercentage increase over their base salaries as of each ofDecember 31, 2020. Percentage salary increases for Messrs. Mistysyn and Ippolito included market adjustments for their respective 2019positions. During the year, the Committee adjusted Mr. Ippolito’s and Ms. Petz’s base salaries.salaries to reflect their previously mentioned 2021 job changes.
Name | 2019 Base Salary ($) | % Increase for 2020 | 2020 Base Salary ($) | Base Salary as of December 31, 2020 ($) | % Increase | Base Salary as of December 31, 2021 ($) | ||||||
John G. Morikis | 1,339,000 | 0% | 1,339,000 | 1,339,000 | 2.99% | 1,379,000 | ||||||
Allen J. Mistysyn | 750,088 | 0% | 750,088 | 750,088 | 6.65% | 800,000 | ||||||
David B. Sewell | 750,050 | 0% | 750,050 | |||||||||
Peter J. Ippolito | 630,028 | 0% | 630,028 | 630,028 | 7.93% | 680,000 | ||||||
Mary L. Garceau | 640,097 | 0% | 640,097 | 640,097 | 3.35% | 661,541 | ||||||
Heidi G. Petz | — | — | 600,000 | |||||||||
Justin T. Binns | — | — | 575,000 | |||||||||
| 39 |
Annual Cash Incentive Compensation
Annual cash incentive compensation may be earned by our named executives under our shareholder-approved 2007 Executive Annual Performance Bonus Plan (the Performance Plan). Annual cash incentive compensation is intended to motivate our executives to achieve annual performance goals that strengthen our companyCompany over the long term.
Target and Maximum Annual Incentive Levels. The Compensation Committee annually reviews target and maximum annual cash incentive compensation levels for our named executives as a percentage of their base salary. Target incentive awards are determined by using the market median annual cash incentive compensation, which generally equals the amount a named executive could receive if he or she achieved a 100% average of their performance goals. The maximum incentive awards are determined by the Compensation Committee following a review of the maximum annual cash incentive compensation available to similarly-situated executives at peer group companies.
For the 2020 performance period, in February 2020, the Compensation Committee approved (i) increased target and maximum annual cash incentive compensation levels of 160% and 320% of base salary, respectively, for Mr. Morikis and (ii) target and maximum annual cash incentive compensation levels consistent with 2019 levels for our other named executives. When the uncertainties relating to the potential impact of the COVID-19 pandemic to the company’s business began to become more apparent, Mr. Morikis volunteered to forego, and the Compensation Committee approved rescinding, the increase to his target and maximum annual cash incentive compensation levels for the 2020 performance
|
|
period. The following table sets forth the 20202021 minimum, target, and maximum annual cash incentive compensation levels, as a percentage of base salary, for each named executive.
Incentive Amount as a Percentage of Salary | Incentive Amount as a Percentage of Salary | |||||||||||
Name | Minimum | Target | Maximum | Minimum | Target | Maximum | ||||||
John G. Morikis | 0% | 145% | 290% | 0% | 160% | 320% | ||||||
Allen J. Mistysyn | 0% | 80% | 160% | 0% | 90% | 180% | ||||||
David B. Sewell | 0% | 100% | 200% | |||||||||
Peter J. Ippolito | 0% | 80% | 160% | 0% | 80% | 160% | ||||||
Mary L. Garceau | 0% | 80% | 160% | 0% | 80% | 160% | ||||||
Heidi G. Petz | 0% | 80% | 160% | |||||||||
Justin T. Binns | 0% | 80% | 160% | |||||||||
Objective Annual Payout Formula. The Compensation Committee approves objective, clearly-defined annual performance goals and payout formulae for our named executives.executives in February of each year. Our CEO also approves the goals and payout formulae for our other named executives. For the 2021 annual cash incentive program, the Committee reviewed the 2021 annual operating budget and approved target financial performance goals at levels that were the same as set forth in the budget. During 2020,2021, Messrs. Morikis Mistysyn, and SewellMistysyn and Ms. Garceau had identical corporate financial performance goals. Mr. Ippolito had two sets of goals as a result of his job change in March 2021. He had performance goals related to TAG for January 1, 2021 through March 27, 2021 and corporate performance goals for March 28, 2021 through December 31, 2021 due to his position as Senior Vice President, Strategic Initiatives during the majority of this period. Ms. Petz and Mr. Binns had performance goals related to the business unit for which he is responsible.they were each responsible during 2021.
We use multiple performance goals to encourage our named executives to have a well-rounded approach to managing the business and not to concentrate on achieving just one goal to the detriment of others. We use EPS as a performance metric for both a portion of our annual cash incentive program and a portion of our PRSU program. EPS is a widely communicated and easily understood key measure used in both evaluating the success of our company’sCompany’s performance and determining the market value of our stock. The Compensation Committee and management believe it is important to utilize EPS for portions of both our annual cash incentive compensation and long-term equity compensation programs because, over the long term, EPS growth will drive value for our shareholders. By using EPS, management is held accountable for driving top-line growth and managing our operating cost structure. Each year, the Compensation Committee and management evaluate the incentive structure, including the metrics used in each of the incentives. Based on the most recent review, we believe EPS provides effective line of sight to drive individual performance. In addition,Additionally, by delivering the entire long-term incentive in equity, executives are encouraged to drive long-term value for shareholders, and the performance metrics used in the annual incentive program provide reinforcement of the activities thatwe believe will drive value.
For the 2020 annual cash incentive program, the Compensation Committee reviewed the 2020 annual operating budget and approved target financial performance goals at levels that were of the same magnitude as set forth in the budget. We set maximum levels so that performance would have to exceed target levels by a significant degree, requiring performance well above expectations.
The Compensation Committee reviews and approves each named executive’s achievement of performance goals for the prior year. In determining the level of achievement of performance goals, the Compensation Committee has discretion tomay include or exclude the impact of certain items, as permitted under the Performance Plan. The following table shows, for each named executive, the performance goals, minimums, targets, maximums, and results (after taking into effect the adjustments made to Net Sales and TAG Sales for the purpose of determining achievement).
| 2020 Annual Cash Incentive Performance Goal | ||||||||||
Name | Performance Goals | Minimum | Target | Maximum | Results | |||||
John G. Morikis | Net Sales(1) | $16.56 billion | $18.40 billion | $18.65 billion | $18.59 billion | |||||
Allen J. Mistysyn | EPS | $16.25 | $20.31 | $21.29 | $22.08 | |||||
David B. Sewell | Adjusted FCF(1) | $1.26 billion | $1.58 billion | $1.67 billion | $2.69 billion | |||||
Mary L. Garceau | ||||||||||
Peter J. Ippolito | TAG Sales(1) | $9.64 billion | $10.71 billion | $10.98 billion | $10.85 billion | |||||
| TAG Profit Before Taxes (PBT) | $1.56 billion | $1.95 billion | $1.99 billion | $2.13 billion | ||||||
| TAG RONAE(1) | 79.82% | 99.78% | 100.29% | 118.48% | ||||||
|
|
|
Calculation of 20202021 Annual Cash Incentive Amounts Earned. In February 2021,2022, the Compensation Committee approved the annual cash incentive compensation amounts earned by our named executives during 2020 based upon the level of achievement of the performance goals, including the adjustments described below.for 2021. Each performance goal has corresponding pre-established achievement levels ranging from a minimum of 0 to a maximum of 125, with 100 equal toa target achievement. Based upon 2020 business results, the Compensation Committee reviewed and approved the achievement level of each performance goal.100. The achievement level for each goal wasis multiplied by the goal’s weight to determine a weighted achievement for the goal. For each named executive, the weighted achievement levels for all goals wereare added together to determine a total weighted achievement level. Total weighted achievement levels range from a minimum of 0 to a maximum of 125, with a target of 100. Total weighted achievement levels correspond to a pre-established range of final payouts as a percentage of salary for each named executive. The range of final payouts as a percentage of salary between 0 – 75, 75 – 100, and 100 –125– 125 are determined on a straight-line basis.
In considering the level of achievement offor the 2020 annual cash incentive2021 performance goals, the Compensation Committee reviewed the COVID-19 pandemic’s impactsignificant, adverse impacts of Winter Storm Uri and Hurricane Ida, which resulted in raw material shortages significantly hindering our ability to manufacture the company’s business and each performance goal.products needed to fully meet robust customer demand. In the Compensation Committee’s judgment, the performance goals mostadversely impacted by the pandemicnatural disasters were those forthe corporate adjusted EPS and adjusted free cash flow (FCF) metrics, the TAG sales, which represented 25%profit before taxes (PBT), and RONAE metrics, and the PCG PBT and RONAE metrics. In evaluating the results of the award formula for each named executive. The Compensationperformance goals, the Committee considered management’s extraordinary efforts during 20202021 in responding to the significant uncertainties and challengesunprecedented impacts of the pandemic, including the wide-ranging actions and mandates instituted by international, federal, state, and local public health and governmental authorities to contain and combat the outbreak and spreadnatural disasters, some of COVID-19. Some of these effortswhich are highlighted below.
| • |
|
¡ Ensured the company could continue serving an essential role in supplying critical products to our customers who support healthcare facilities, manufacturing plants, food and beverage packaging, and other infrastructure and medical needs.
¡ Temporarily reduced store hours and closed sales floors in our company-operated paint stores to the general public.
¡ Transitioned customers to order product online or via phone and access products via curbside pickup or delivery.
¡ Enhanced cleaning and sanitation procedures, and implemented remote, alternative, and flexible work arrangements where possible, including split shifts at facilities.
¡ Provided premium pay for select front-line employees, and enhanced certain employee benefits, such as tele-health, paid sick leave, family leave, and voluntary leave of absence policies and programs.
¡ Beginning in May, reinstituted regular store hours and re-opened the sales floors in our stores with appropriate health and safety protocols, resulting in all of our stores in the U.S. and Canada being fully re-opened.
| ° |
|
¡ Transitioned some of our facilities to temporarily manufacture hand sanitizer for use in our facilities and communities.
¡ Donated 250,000+ items of personal protective equipment, including masks, gloves, and other equipment, to our communities.
| ° |
|
¡ Identified and made adaptations and investments within our global supply chain organization to support an unprecedented surge in do-it-yourself (DIY) demand due to some of our customers spending more time at home and focusing on home improvement projects.
| ° | Continued to make strategic investments in our business to drive continued growth and better serve the needs of our customers, such as the acquisition of a manufacturer and developer of water-based polymers used in architectural and industrial coatings and other applications to expand our existing internal resin manufacturing capabilities, and plans to significantly expand the capacity gained through the acquisition to serve internal demand and external customers. |
¡ Continued to make strategic investments in our business to drive continued growth, such as opening new company-operated paint stores, developing our e-commerce platform, and adding sales representatives, management trainees, innovative new products, and productivity-enhancing services.
| ° | Implemented numerous pricing actions across each of our businesses to offset higher, sustained raw material and other costs. |
| ° | Strengthened relationships with our customers through deliberate, consistent, and transparent communications regarding the challenges and resulting delays, as well as continued responsiveness to customers’ current and future needs. |
| ° | Engaged with employees, rewarded resiliency and hard work, and made changes throughout our business to encourage retention, including wage increases, reduced store hours, and employee benefit enhancements. |
| • | Delivering and Enhancing Shareholder Value |
¡ Total shareholder return (including the investment of dividends) for 2020 continued to be strong despite significant operational challenges, with our TSR at 27.05%, compared to 18.40% for the S&P 500 index.
| ° | Increased consolidated net sales by 8.6% to a record $19.94 billion in 2021 despite the raw material shortages hindering our ability to fully meet demand. |
Based on this review and discussion, the Compensation
| ° | Continued to drive strong total shareholder return (including the reinvestment of dividends) for 2021 at 44.90%, compared to 28.71% for the S&P 500. |
The Committee determinedrecognized that the resultsnatural disasters were unforeseen, significant events outside of management’s control, were not accounted for when the corporate and TAG sales performance goals didwere established, and the extent of their impacts to the Company and across the industry were unprecedented. As a general matter and consistent with past practice, the Committee believes annual cash incentive compensation should focus on performance that is generally within the control of management and not fairly representtake into account unforeseen circumstances that may not be realized. In the company’s strong 2020 financialevent of unforeseen circumstances, like natural disasters, the Committee generally evaluates management’s performance in responding to the related impacts and management’s extraordinary efforts described above. The Compensationchallenges and makes adjustments if the Committee recognized management’s actions taken to protectdeems appropriate, as permitted under the Performance Plan.
|
|
|
|
the health and well-being of our employees and customers while effectively mitigating the business impacts of the pandemic. The Compensation Committee further considered thatfollowing table shows, for each named executive, the pandemic and related consequences were unforeseen, significant events that were outside of management’s control and not accounted for when the 2020 performance goals, were established. In light ofminimums, targets, maximums, actual results, and adjusted results (after taking into effect the foregoing considerations, the Compensation Committee adjusted the achievement levels of the corporate sales and TAG sales performance goals (each, weighted 25%). These adjustments reflect the estimated net impact of the pandemic on 2020 corporate and TAG sales, which includes lost sales attributedmade to temporary sales floor closurescertain metrics, as calculated in our company-operated paint stores and decreases in the demand for some of our products, partially offset by the increase in DIY demand. The Compensation Committee did not adjust the achievement level of any other 2020 annual cash incentive performance goal.Appendix A).
With these adjustments, the Compensation Committee approved an achievement level for the corporate sales goal of 119.47% of target (between target and maximum levels), compared to 99.01% of target (between threshold and target levels) without adjustment, and an achievement level for the TAG sales goal of 113.12% of target (between target and maximum levels), compared to 84.66% of target (between threshold and target levels) without adjustment. The total weighted achievement levels for all corporate and TAG performance goals with these adjustments were 123.62% and 122.03% of target, respectively, compared to 118.50% and 114.91% of target, respectively, without adjustment.
| 2021 Annual Cash Incentive Performance Goals | ||||||||||||||
| (millions of dollars, except percentage and per share data) | ||||||||||||||
| Name | Performance Goals | Minimum | Target | Maximum | Actual Results(2) | Full Net Impact Adjusted Results(2) | Final Capped Adjusted Results(2) | |||||||
John G. Morikis | Net Sales | $17,352 | $19,280 | $19,739 | $19,945 | $19,945 | $19,945 | |||||||
Allen J. Mistysyn | Adjusted EPS(1) | $6.47 | $8.09 | $8.46 | $7.32(3) | $8.64 | $8.31 | |||||||
Mary L. Garceau | Adjusted FCF(1) | $1,353 | $1,691 | $1,756 | $1,344 | $1,766 | $1,694 | |||||||
Peter J. Ippolito | January 1 - March 27 |
|
|
|
|
|
| |||||||
| TAG Sales(1) | $9,875 | $10,972 | $11,268 | $11,217 | $11,590 | $11,590 | |||||||
| TAG PBT(1) | $1,806 | $2,258 | $2,324 | $2,082 | $2,439 | $2,297 | |||||||
| TAG RONAE(1) | 96.10% | 120.13% | 120.97% | 114.75% | 129.95% | 120.63% | |||||||
| March 28 - December 31 |
|
|
|
|
|
| |||||||
| Net Sales | $17,352 | $19,280 | $19,739 | $19,945 | $19,945 | $19,945 | |||||||
| Adjusted EPS(1) | $6.47 | $8.09 | $8.46 | $7.32(3) | $8.64 | $8.31 | |||||||
| Adjusted FCF(1) | $1,353 | $1,691 | $1,756 | $1,344 | $1,766 | $1,694 | |||||||
Heidi G. Petz | TAG Sales(1) | $9,875 | $10,972 | $11,268 | $11,217 | $11,590 | $11,590 | |||||||
| TAG PBT(1) | $1,806 | $2,258 | $2,324 | $2,082 | $2,439 | $2,297 | |||||||
| TAG RONAE(1) | 96.10% | 120.13% | 120.97% | 114.75% | 129.95% | 120.63% | |||||||
Justin T. Binns | PCG Sales | $5,604 | $6,227 | $6,398 | $7,042 | $7,042 | $7,042 | |||||||
| PCG PBT(1) | $707 | $883 | $912 | $825 | $918 | $900 | |||||||
|
| PCG RONAE(1) | 30.73% | 38.42% | 38.81% | 34.35% | 38.20% | 38.20% | |||||||
| 1 | Performance goals and adjusted results are calculated as set forth on Appendix A. |
| 2 | In light of the considerations described above, the Committee determined that the actual results of the metrics affected by the significant, adverse impacts of Winter Storm Uri and Hurricane Ida did not fairly represent management’s efforts in responding to such impacts and challenges. The Committee reviewed the full net impact of the natural disasters to the corporate adjusted EPS and adjusted FCF metrics, the TAG sales, PBT, and RONAE metrics, and the PCG PBT and RONAE metrics and determined that each such metric (other than PCG RONAE) would have realized maximum achievement but for the adverse impacts of the natural disasters. Based upon this review, and at the recommendation of Compensation Advisory Partners, the Committee determined to adjust the actual results for the applicable metrics and capped the adjustment to reflect only a portion of the net impact of the natural disasters as described on Appendix A. |
| 3 | Includes $0.34 per share, which represents the loss from the Wattyl divestiture. |
The Compensation Committee believes these adjustments are reasonable and the resulting payouts are appropriately aligned with the strength of the company’sCompany’s and management’s overall 20202021 performance and resiliency in light of the significant uncertaintiesand unprecedented impacts and challenges of the pandemic.Winter Storm Uri and Hurricane Ida.
42 | 2022 PROXY STATEMENT |
The calculations used to determine the incentive amounts earned by each named executive during 20202021 (after taking into effectaccount the adjustments described above for purposes of achievement) are shown in the table below and are illustrated by the following formula:
Weighting X Achievement Level = Weighted Achievement Level g
Incentive Amount as a % of Salary X Salary = Incentive Amount Earned
|
| Name | Weighting | Achievement Level | Weighted Achievement Level | Amount as a Percentage of Salary | Salary | Amount Earned(1) | Weighting |
| Full Net Impact Adjusted |
| Weighted Achievement Level |
| Amount as a Salary |
| Salary | Amount Earned | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
John G. Morikis | Net Sales | 25% | Net Sales | 119.47 | Net Sales | 29.87 | Minimum | 0% |
|
| Net Sales | 25% |
| Net Sales | 125.00 | Net Sales | 31.25 |
| Minimum | 0% |
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| EPS | 40% | EPS | 125.00 | EPS | 50.00 | Target | 145% |
|
| Adjusted EPS | 40% |
| Adjusted EPS | 125.00 |
| Adjusted EPS | 50.00 |
| Target | 160% |
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Adjusted FCF | 35% | Adjusted FCF | 125.00 | Adjusted FCF | 43.75 | Maximum | 290% |
|
| Adjusted FCF | 35% |
| Adjusted FCF | 125.00 |
| Adjusted FCF | 43.75 |
| Maximum | 320% |
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
| Total | 123.62 | Result | 281.99% | $1,339,000 | $3,776,000 | Full Net Impact |
| Total | 125.00 |
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Final Capped |
| Total | 112.50 |
| Result | 240.00% |
| $1,368,231 | $3,284,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Allen J. Mistysyn | Net Sales | 25% | Net Sales | 119.47 | Net Sales | 29.87 | Minimum | 0% |
|
| Net Sales | 25% |
| Net Sales | 125.00 |
| Net Sales | 31.25 |
| Minimum | 0% |
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| EPS | 40% | EPS | 125.00 | EPS | 50.00 | Target | 80% |
|
| Adjusted EPS | 40% |
| Adjusted EPS | 125.00 |
| Adjusted EPS | 50.00 |
| Target | 90% |
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Adjusted FCF | 35% | Adjusted FCF | 125.00 | Adjusted FCF | 43.75 | Maximum | 160% |
|
| Adjusted FCF | 35% |
| Adjusted FCF | 125.00 |
| Adjusted FCF | 43.75 |
| Maximum | 180% |
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
| Total | 123.62 | Result | 155.58% | $ 750,088 | $1,167,000 | Full Net Impact |
| Total | 125.00 |
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Final Capped |
| Total | 112.50 |
| Result | 135.00% |
| $ 786,562 | $1,062,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
David B. Sewell | Net Sales | 25% | Net Sales | 119.47 | Net Sales | 29.87 | Minimum | 0% |
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| EPS | 40% | EPS | 125.00 | EPS | 50.00 | Target | 100% |
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Adjusted FCF | 35% | Adjusted FCF | 125.00 | Adjusted FCF | 43.75 | Maximum | 200% |
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
| Total | 123.62 | Result | 194.47% | $ 750,050 | $1,459,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mary L. Garceau | Net Sales | 25% |
| Net Sales | 125.00 |
| Net Sales | 31.25 |
| Minimum | 0% |
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Sales | 25% | Net Sales | 119.47 | Net Sales | 29.87 | Minimum | 0% |
|
| Adjusted EPS | 40% |
| Adjusted EPS | 125.00 |
| Adjusted EPS | 50.00 |
| Target | 80% |
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| EPS | 40% | EPS | 125.00 | EPS | 50.00 | Target | 80% |
|
| Adjusted FCF | 35% |
| Adjusted FCF | 125.00 |
| Adjusted FCF | 43.75 |
| Maximum | 160% |
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Adjusted FCF | 35% | Adjusted FCF | 125.00 | Adjusted FCF | 43.75 | Maximum | 160% |
|
| Full Net Impact |
| Total | 125.00 |
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
| Total | 123.62 | Result | 155.58% | $ 640,097 | $ 996,000 | Final Capped |
| Total | 112.50 |
| Result | 120.00% |
| $ 655,767 | $ 787,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Peter J. Ippolito | TAG Sales | 25% | TAG Sales | 113.12 | TAG Sales | 28.28 | Minimum | 0% |
|
| January 1 - March 27 |
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| TAG PBT | 40% | TAG PBT | 125.00 | TAG PBT | 50.00 | Target | 80% |
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| TAG RONAE | 35% | TAG RONAE | 125.00 | TAG RONAE | 43.75 | Maximum | 160% |
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| Total | 122.03 | Result | 150.50% | $ 630,028 | $ 948,000 | TAG Sales | 25% |
| TAG Sales | 125.00 |
| TAG Sales | 31.25 |
| Minimum | 0% |
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| TAG PBT | 40% |
| TAG PBT | 125.00 |
| TAG PBT | 50.00 |
| Target | 80% |
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| TAG RONAE | 35% |
| TAG RONAE | 125.00 |
| TAG RONAE | 43.75 |
| Maximum | 160% |
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Full Net Impact |
| Total | 125.00 |
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Final Capped |
| Total | 117.50 |
| Result | 136.00% |
| $ 169,623 | $ 231,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| March 28 - December 31 |
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Sales | 25% |
| Net Sales | 125.00 |
| Net Sales | 31.25 |
| Minimum | 0% |
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Adjusted EPS | 40% |
| Adjusted EPS | 125.00 |
| Adjusted EPS | 50.00 |
| Target | 80% |
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Adjusted FCF | 35% |
| Adjusted FCF | 125.00 |
| Adjusted FCF | 43.75 |
| Maximum | 160% |
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Full Net Impact |
| Total | 125.00 |
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Final Capped |
| Total | 112.50 |
| Result | 120.00% |
| $ 537,462 | $ 645,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| Total |
| $ 707,085 | $ 876,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Heidi G. Petz | TAG Sales | 25% |
| TAG Sales | 125.00 |
| TAG Sales | 31.25 |
| Minimum | 0% |
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| TAG PBT | 40% |
| TAG PBT | 125.00 |
| TAG PBT | 50.00 |
| Target | 80% |
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| TAG RONAE | 35% |
| TAG RONAE | 125.00 |
| TAG RONAE | 43.75 |
| Maximum | 160% |
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Full Net Impact |
| Total | 125.00 |
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Final Capped |
| Total | 117.50 |
| Result | 136.00% |
| $ 559,618 | $ 761,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Justin T. Binns | PCG Sales | 25% |
| PCG Sales | 125.00 |
| PCG Sales | 31.25 |
| Minimum | 0% |
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PCG PBT | 40% |
| PCG PBT | 125.00 |
| PCG PBT | 50.00 |
| Target | 80% |
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PCG RONAE | 35% |
| PCG RONAE | 97.24 |
| PCG RONAE | 34.04 |
| Maximum | 160% |
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Full Net Impact |
| Total | 115.29 |
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| Final Capped |
| Total | 111.29 |
| Result | 116.11% |
| $ 575,000 | $ 668,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
This table includes information regarding the levels at which the corporate adjusted EPS and adjusted FCF metrics, the TAG sales, PBT, and RONAE metrics, and the PCG PBT and RONAE metrics would have been achieved, and the related payouts as to each such metric, if the Committee had determined to adjust fully for the impact of Winter Storm Uri and Hurricane Ida. As described above, after considering the full adjustment amounts, and at the recommendation of Compensation Advisory Partners, the Committee determined to adjust the applicable metrics and capped the adjustment to reflect only a portion of the net impact of the natural disasters, with the payout percentage rounded down. These results are calculated as set forth on Appendix A. Amounts earned are rounded to the nearest thousandth. |
| 43 |
Long-Term Equity Incentive Compensation
The largest component of pay for our named executives is long-term equity incentive compensation. We grant long-term equity incentive compensation annually under our shareholder-approved 2006 Equity and Performance Incentive Plan (the Incentive Plan). Our long-term equity incentive compensation program is designed to focus our executives on improving companyCompany performance over a multi-year period to encourage long-term decision-making and to reward executives the way our shareholders are rewarded — rewarded—through growth in the value of our stock. We believe that long-term equity awards also
|
|
serve as a retention tool for our executives. The value delivered on these long-term incentives ultimately depends upon companyCompany performance and our stock price.
Our long-term equity compensation program for our named executives consists of stock options and PRSUs. Our stock option program is the primary means by which we grant long-term equity compensation to a broad group of employees to focus their efforts on our long-term performance and stock price improvement. Our PRSU program is designed for a more select group ofcertain key employees, including our named executives, and rewards these employees based upon the achievement of financial performance goals and stock price appreciation.
Double-Trigger Acceleration Provision. Grants of stock options and PRSUs include a “double-trigger” acceleration provision with respect to the vesting of the awards in connection with a change in control. Upon a change in control, awards that are assumed by the surviving entity will continue to vest and become exercisable in accordance with their original terms unless, within three years after the change in control, the participant’s employment is terminated other than for cause or the participant terminates their employment for good reason.
Dividend Equivalents. We do not pay current dividend equivalents on unvested RSUs or PRSUs. The payment of dividend equivalents on unvested RSUs or PRSUs is deferred and paid only if and to the extent the units vest. There are no dividend equivalents associated with stock option awards.
Grant Practices – Emphasis on Performance-Based Awards. When making annual equity grants to our named executives and other key employees, we begin by determining the market median value of long-term equity incentive compensation. We then allocate the target mix among types of equity grants. The target mix of our annual long-term equity incentives for our named executives and other key employees is set forth in the table below. We believe this mix of equity awards provides an appropriate balance among aligning executive interests with those of our shareholders, encouraging executive retention, and rewarding executives for sustained performance results.
Type of Equity Award | Allocation | |
Stock Options | 40% | |
PRSUs – Adjusted EPS Goal | 40% | |
PRSUs – Adjusted RONAE Goal | 20% | |
Our long-term incentive opportunities are intended to be competitive with market long-term incentive opportunities. Therefore, we do not consider the amount of outstanding stock options or PRSUs currently held by an executive when making equity awards.
We grant stock options and PRSUs on an annual basis at regularly scheduled Compensation Committee meetings. We schedulemeetings, the dates of these meetingswhich are determined approximately three years in advance. We grant PRSUs at each February Compensation Committee meeting. This meeting typically occurs in the middle of February, usually a few weeks following the release of our annual earnings results. We grant stock options at each October Compensation Committee meeting. These grants typically are made on the same day the Audit Committee approves our earnings release for the third quarter, shortly before we release our third quarter earnings results. We may also grant PRSUs and stock options at other Compensation Committee meetings in connection with an employee’s initial hire, promotion, and other events. The dates of these grants may occur shortly before we release our quarterly earnings results. We do not take into account our earnings results when determining the number of stock options or PRSUs to be granted or the date of grant.
44 | 2022 PROXY STATEMENT |
20202021 Annual Equity Awards. The following table shows the number of stock options and PRSUs granted to each named executive during 2020:2021. Ms. Petz received two grants of PRSUs during 2021—one granted in February 2021 in connection with her role as Senior Vice President, Sales and Marketing, TAG, and the second granted in March 2021 in connection with her promotion to President, TAG, as shown in the 2021 Grants of Plan-Based Awards Table.
| Number of Stock Options Granted in 2020 | Number of PRSUs Granted in 2020 | |||||
Name |
Adjusted EPS Goal |
Adjusted RONAE Goal | ||||
John G. Morikis | 25,300 | 6,600 | 3,300 | |||
Allen J. Mistysyn | 6,300 | 1,700 | 850 | |||
David B. Sewell | 6,500 | 1,700 | 850 | |||
Peter J. Ippolito | 5,000 | 1,300 | 650 | |||
Mary L. Garceau | 3,900 | 1,000 | 500 | |||
|
|
| Number of Stock Options Granted in 2021 | Number of PRSUs Granted in 2021 at Target | |||||
Name | Adjusted EPS Goal | Adjusted RONAE Goal | ||||
John G. Morikis | 64,600 | 16,500 | 8,250 | |||
Allen J. Mistysyn | 16,000 | 4,200 | 2,100 | |||
Peter J. Ippolito | 13,200 | 3,300 | 1,650 | |||
Mary L. Garceau | 10,500 | 2,700 | 1,350 | |||
Heidi G. Petz | 11,700 | 2,730 | 1,365 | |||
Justin T. Binns | 10,800 | 2,100 | 1,050 | |||
20202021 Stock Option Grants. The number of stock options granted to an executive is based upon the executive’s position and level of responsibility. We determine the specific number of stock options to be granted by calculating the Black-Scholes value of the stock options over the 30-day period ending on the last day of the September preceding the award date. Black-Scholes is a generally accepted model used in estimating the value of stock options. In accordance with the terms of our Incentive Plan, the option exercise price is equal to the average of the highest and lowest reported sale prices of our stock on the grant date. Accordingly, the exercise price may be higher or lower than the closing price per share of our stock on that day. The Compensation Committee believes that the average of the high and low prices is a better representation of the fair market value of our stock and is less volatile than the closing price per share given potential intra-day price volatility. We do not reprice stock options — options—our stock plans do not permit the repricing or replacing of underwater stock options with cash or equity without shareholder approval, and stock options do not contain reload features.
20202021 PRSU Grants. Our annual grants of PRSUs vest at the end of a three-year period. The value of PRSUs granted to an executive is based upon the executive’s position and level of responsibility. The number of PRSUs granted is determined by using the average value of our stock over the 30-business day period ending on the last day of the January preceding the date of grant. One PRSU is equivalent in value to one share of our common stock. PRSUs are paid out in common stock upon vesting. The number of PRSUs granted is approximately equal to the target value. Executives have an opportunity to earn two times the target value for maximum performance. We correspondingly set maximum goals higher, making achievement of the goals more difficult to attain to provide a greater incentive for above-target performance.
The threshold, target, and maximum achievement levels for the 20202021 grants of PRSUs are illustrated in the following table for the 20202021 – 20222023 performance period. Performance between the achievement levels is measured on a straight-line basis to reward improvements at various achievement levels, while not encouraging executives to take unnecessary risks to hit achievement levels with larger payouts.
|
| Adjusted EPS Goal(1) | Adjusted RONAE Goal(1) | % of Target Vesting | Adjusted EPS Goal(1) | Adjusted RONAE Goal(1) | % of Target Vesting | ||||||
Maximum | $67.69 | 12.7% | 200% | $27.07 | 14.4% | 200% | ||||||
Target | $63.51 | 12.2% | 100% | $25.42 | 13.9% | 100% | ||||||
Threshold | $58.83 | 11.7% | 25% | $23.94 | 13.4% | 25% |
| 1 | Adjusted EPS and Adjusted RONAE are calculated as set forth on Appendix |
Vesting of 20182019 – 20202021 PRSUs. In February 2021,2022, the Compensation Committee determined the vesting of PRSUs for the 20182019 – 20202021 performance period. The Compensation Committee determined payouts based upon the achievement of the Adjustedadjusted EPS and Adjustedadjusted RONAE goals. In determining the level of achievement of the goals, the Compensation Committee has discretion tomay include or exclude the impact of certain items, as permitted under the Incentive Plan.
| 45 |
Despite the impactimpacts of the COVID-19 pandemicWinter Storm Uri and Hurricane Ida to the company’sCompany’s business, the Compensation Committee did not exercise its discretion to adjust the performance requirements or payouts due to the COVID-19 pandemic for the vesting of the 20182019 – 2020 PRSUs.2021 PRSUs due to the natural disasters. The following table shows the goals, target and maximum levels, results, and percentage of target PRSUs vesting.
Performance Goal | Target | Maximum | Results | % of Target PRSUs Vesting | Target | Maximum | Results | % of Target PRSUs Vesting | ||||||||
Adjusted EPS(1) | $63.20 | $69.26 | $64.41 | 120.4% | $19.71 | $21.20 | $20.94 | 182.5% | ||||||||
Adjusted RONAE(1) | 11.8% | 13.8% | 12.4% | 130.0% | 11.6% | 13.6% | 12.3% | 135.0% |
| 1 | Adjusted EPS and Adjusted RONAE for purposes of determining achievement are calculated as set forth on Appendix |
|
|
Other Arrangements, Policies, and Practices
We do not have employment agreements with our named executives; our named executives are employed at will.
Consistent with our culture, we provide our named executives with only limited perquisites, which include benefits provided pursuant to our executive travel policy that is in line with market practice. Under our executive travel policy, the Board strongly recommends that our CEO use corporateCompany aircraft at all times when he is traveling, whether for business or personal reasons. In connection with this policy, the Compensation Committee approved Sherwin-Williams entering into an aircraft time sharing agreement with Mr. Morikis and an annual allowance for Mr. Morikis’ personal use of Company aircraft, pursuant to which he will reimburse Sherwin-Williams for the aggregate incremental cost of his personal use of companyCompany aircraft in excess of $75,000$150,000 on an annual basis. Under the agreement, Mr. Morikis is permitted to lease companyCompany aircraft from time to time on an “as needed and as available” basis. The Compensation Committee determined it was appropriate for Sherwin-Williams to enter into the agreement with Mr. Morikis for his personal safety and security as our CEO and to maximize his time given his significant duties and responsibilities to Sherwin-Williams.
Additional information regarding the aggregate incremental cost of perquisites paid for by Sherwin-Williams during 20202021 to our named executives is set forth in a footnote to the “All Other Compensation” column of the Summary Compensation Table.
Our compensation program is designed so that compensation opportunities are similar for executives with comparable responsibilities, experience, and tenure. Our executive compensation program uses the same compensation components for our executives, but results in different pay levels due to an executive’s market compensation, position, and performance. To maintain internal equity in connection with grants of stock options and PRSUs, the Compensation Committee generally grants the same number of stock options and PRSUs to employees who are in similar pay grades.
When approving changes in compensation for our named executives, we prepare a tally sheet for each named executive. Tally sheets set forth the dollar amounts of all components of each named executive’s current compensation, including base salary, annual cash incentive compensation, long-term incentive compensation, retirement and savings plans, health and welfare programs, and other executive benefits. Tally sheets also quantify the potential payments to our named executives in the event of retirement and termination following a change in control.
Tally sheets allow the Compensation Committee and management to assess how a change in the amount of each compensation component affects each named executive’s total compensation and to provide overall perspective on each named executive’s total compensation. Based upon its most recent review, the Compensation Committee determined that total compensation, in the aggregate, for each of our named executives is consistent with the Compensation Committee’s expectations. The Compensation Committee did not increase or decrease the amount of compensation of our named executives solely based upon the review of tally sheets.
Executive Stock Ownership GuidelinesRequirements
We have established minimum stockshare ownership requirements for ournon-management directors and executives to encourage meaningful stock ownership in Sherwin-Williams. We require each non-management director who has served on the Board for at least five years to own shares ofInformation about our stock equal in value to a minimum of seven times the annual Board cash retainer. We also require each executive who has served in such capacity for at least five years to own shares of stock equal in value to a multiple of their base salary. Minimum ownership requirements are six times for our CEO, four times for our COO,is included under the heading “Stock Ownership Guidelines” in the Corporate Governance Practices and three times for our other named executives. For purposes of meeting this requirement, each equivalent share of stock held under our benefit plans and each RSU is considered a share of stock. Stock options and PRSUs are not considered for purposes of meeting the requirement.
The Compensation Committee reviews shareholdings on an annual basis to determine whether our non-management directors and executives are meeting these requirements. At December 31, 2020, our CEO held shares equal in value to 57 times his base salary and our other named executives held shares equal in value to an average of 9 times their respective base salaries. All non-management directors and executives have either met the guidelines or are expected to meet the guidelines within the prescribed time frames.Policies section.
|
2022 PROXY STATEMENT |
|
Retirement Plans and Other Benefits
We provide our named executives with various tax-qualified and nonqualified retirement and savings plans, health and welfare programs, and other executive benefits. We annually review these programs in connection with our review of the overall compensation packages of our named executives and tally sheets. Additional information about our retirement and savings plansthese programs is set forth in the executive compensation tables and the accompanying narrative discussion.
Other executive benefits generally include health-related benefits (including an annual physical exam and COVID-19 testing), financial planning, and executive life insurance and executive long-term disability plans. The life insurance plan was frozen to new participants beginning in January 2008. The 2020 amounts for these benefits are set forth in a footnote to the “All Other Compensation” column of the Summary Compensation Table and described under the heading “Potential Payments Upon Termination or Change in Control.
We have a policy allowing Sherwin-Williams to recapture or “clawback” incentive compensation paid or payable to our named executives and other key employees in the event of a financial restatement. Information about our policy is included under the heading “Corporate Governance — Clawback“Clawback and Recapture Policy.”Policy” in the Corporate Governance Practices and Policies section.
Anti-Hedging and Anti-Pledging Policy
Directors and all employees, including our executive officers, are prohibited from engaging in hedging transactions with respect to ourSherwin-Williams securities. We also prohibit our directors, executive officers, and certain of our other employees that are subject to the pre-clearancepreclearance procedures of our Insider Trading Policy from holding our securities in margin accounts or otherwise pledging our securities for a loan. Additional information about our policy is included under the heading “Corporate Governance — Anti-Hedging“Anti-Hedging and Anti-Pledging Policy.”Policy” in the Corporate Governance Practices and Policies section.
To ensure continuity and the continued dedication of our executives during any period of uncertainty caused by the possible threat of a takeover, we entered into change in control severance pay agreements with our executives, including each of our named executives. Given the heightened focus on change in control agreements, the Compensation Committee engaged its compensation consultant in 2019 to compare our change in control severance pay agreements to prevailing market practices. Based upon such reviews,review, the Compensation Committee believes that the material terms of the severance agreements, which include a double-trigger provision, are generally in line with market practices.
Potential cash severance payments are based upon a multiplier of base salary and annual cash incentive pay. These severance pay agreements have not been a significant factor in setting compensation levels and have not affected the Compensation Committee’s decisions with respect to compensation components. Additional information regarding the severance agreements, including the estimated amounts payable to each named executive, is set forth under the heading “Potential Payments Upon Termination or Change in Control.”Control” in the Executive Compensation Tables section.
Policy Concerning Future Severance Agreements
We have a policy that provides we will not enter into any future severance agreements (including material amendments of existing agreements) with a senior executive providing for cash severance payments exceeding 2.99 times base salary and bonus without shareholder approval or ratification. For purposes of this calculation, cash severance payments do not include the acceleration of equity-based awards, vacation pay, retirement benefits, health continuation coverage, and outplacement services. In addition, the policy provides that future executive severance agreements will not include any tax gross-up payments. The policy was adopted in February 2010 (after Sherwin-Williams entered into severance agreements with Messrs. Morikis and Ippolito).
Under the Key Employee Separation Plan (as amended, the KESP), certain key employees, including our named executives, are entitled, subject to execution and non-revocation of a release of claims, to certain severance payments and benefits in the event their employment is involuntarily terminated by Sherwin-Williams for reasons other than cause, death, or disability prior to a change in control.
Additional information regarding the KESP, including the estimated amounts payable to our named executives upon termination of employment without cause prior to a change in control, is set forth below under the heading “Potential Payments uponUpon Termination or Change in Control.”Control” in the Executive Compensation Tables section.
| 47 |
The Compensation Committee annually assesses the risks related to our compensation policies and practices. During 2021, the Compensation Committee engaged Compensation Advisory Partners to conduct a comprehensive risk assessment of our incentive compensation programs, plans, and policies. Compensation Advisory Partners presented the risk assessment to the Compensation Committee.
Based upon the assessment, the Compensation Committee and Compensation Advisory Partners concluded that our compensation policies and practices do not encourage excessive or unnecessary risk-taking and are not reasonably likely to have a material adverse effect on Sherwin-Williams. The following factors help mitigate against employees taking excessive or unnecessary risks.
We utilize a balanced approach to compensation, which combines fixed and variable pay, short-term and long-term time horizons, and cash and equity.
We have diversified incentive compensation metrics with performance goals focused on growth, profitability, and managing capital at different levels within our Company.
We design our incentive compensation plans without steep payout cliffs that might encourage short-term business decisions that are inconsistent with our long-term business strategy.
Performance incentives are capped at maximum payout amounts.
We grant equity awards annually, with appropriate vesting periods, that encourage consistent behavior and reward long-term, sustained performance.
Our equity plans include a “double-trigger” acceleration provision with respect to vesting in connection with a change in control.
We have significant stock ownership guidelines for our directors and executives.
We regularly benchmark our current compensation practices, policies, and pay levels against peer companies and have a pay philosophy that targets market median compensation.
We prohibit the hedging and pledging of our securities by our directors and employees, including our executive officers.
The Compensation Committee reviews tally sheets for our named executives that provide a holistic view of each executive’s compensation.
We have a clawback and recapture policy allowing us to “clawback” incentive compensation earned by executives and key employees.
The Compensation Committee has reviewed and discussed with management the CD&A contained in this Proxy Statement. Based upon this review and discussion, the Compensation Committee recommended to the Board of Directors that the CD&A be included in Sherwin-Williams’ Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and this Proxy Statement.
COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE
Kerrii B. Anderson, Chair
Christine A. Poon
Michael H. Thaman
Steven H. Wunning
48 |
|
The following table sets forth information regarding the compensation of our Chairmannamed executives for the 2021, 2020, and Chief Executive Officer, our Senior Vice President – Finance and Chief Financial Officer, and our other three highest paid executive officers for 2020.2019 fiscal years.
Name and Principal Position* | Year | Salary ($) | Bonus ($) | Stock Awards ($)(1) | Option Awards ($)(2) | Non-Equity Incentive Plan Compensation ($) | Change in Pension | All Other ($)(3) | Total ($) | |||||||||||||||||||||
John G. Morikis Chairman and Chief Executive Officer |
|
2020 |
|
|
1,339,000 |
|
-0- |
|
5,742,396 |
|
|
3,904,509 |
|
|
3,776,000 |
|
-0- |
561,379 |
|
15,323,284 |
| |||||||||
| 2019 | 1,333,000 | -0- | 6,275,997 | 4,140,974 | 2,590,000 | -0- | 514,760 | 14,854,731 | ||||||||||||||||||||||
| 2018 | 1,276,924 | -0- | 5,512,826 | 3,545,502 | 2,306,000 | -0- | 572,497 | 13,213,749 | ||||||||||||||||||||||
Allen J. Mistysyn Senior Vice President – Finance and Chief Financial Officer |
|
2020 |
|
|
750,088 |
|
-0- |
|
1,479,102 |
|
|
972,269 |
|
|
1,167,000 |
|
-0- |
190,739 |
|
4,559,198 |
| |||||||||
| 2019 | 739,303 | -0- | 1,423,422 | 1,047,143 | 793,000 | -0- | 172,544 | 4,175,412 | ||||||||||||||||||||||
|
| 2018
|
|
| 667,678
|
| -0-
|
| 1,029,869
|
|
| 820,296
|
|
| 665,000
|
| -0-
| 184,031
|
| 3,366,874
|
| ||||||||||
David B. Sewell President and Chief Operating Officer |
|
2020 |
|
|
750,050 |
|
-0- |
|
1,479,102 |
|
|
1,003,135 |
|
|
1,459,000 |
|
-0- |
193,379 |
|
4,884,666 |
| |||||||||
| 2019 | 726,491 | -0- | 1,488,123 | 1,094,740 | 956,000 | -0- | 175,431 | 4,440,785 | ||||||||||||||||||||||
| 2018 | 613,500 | -0- | 908,708 | 674,466 | 715,000 | -0- | 124,628 | 3,036,302 | ||||||||||||||||||||||
Peter J. Ippolito President, TAG |
|
2020 |
|
|
630,028 |
|
-0- |
|
1,131,078 |
|
|
771,642 |
|
|
948,000 |
|
-0- |
221,536 |
|
3,702,284 |
| |||||||||
| 2019 | 621,562 | -0- | 1,164,618 | 809,156 | 866,000 | -0- | 156,703 | 3,618,039 | ||||||||||||||||||||||
| 2018 | 560,847 | -0- | 908,708 | 674,466 | 407,000 | -0- | 192,484 | 2,743,505 | ||||||||||||||||||||||
Mary L. Garceau Senior Vice President – General Counsel and Secretary |
|
2020 |
|
|
640,097 |
|
-0- |
|
870,060 |
|
|
601,881 |
|
|
996,000 |
|
-0- |
133,577 |
|
3,241,615 |
| |||||||||
Name and Principal Position* | Year | Salary ($) | Bonus ($) | Stock Awards ($)(1) | Option Awards ($)(2) | Non-Equity Incentive Plan Compensation ($) | Change in Pension | All Other ($)(3) | Total ($) | |||||||||||||||||||||
John G. Morikis Chairman and CEO |
|
2021 |
|
|
1,368,231 |
|
-0- |
|
5,895,615 |
|
|
4,496,806 |
|
|
3,284,000 |
|
-0- |
799,108 |
|
15,843,760 |
| |||||||||
| 2020 | 1,339,000 | -0- | 5,742,396 | 3,904,509 | 3,776,000 | -0- | 561,379 | 15,323,284 | ||||||||||||||||||||||
| 2019 | 1,333,000 | -0- | 6,275,997 | 4,140,974 | 2,590,000 | -0- | 514,760 | 14,854,731 | ||||||||||||||||||||||
Allen J. Mistysyn Senior Vice President – Finance |
|
2021 |
|
|
786,562 |
|
-0- |
|
1,500,702 |
|
|
1,113,760 |
|
|
1,062,000 |
|
-0- |
251,198 |
|
4,714,222 |
| |||||||||
| 2020 | 750,088 | -0- | 1,479,102 | 972,269 | 1,167,000 | -0- | 190,739 | 4,559,198 | ||||||||||||||||||||||
|
| 2019
|
|
| 739,303
|
| -0-
|
| 1,423,422
|
|
| 1,047,143
|
|
| 793,000
|
| -0-
| 172,544
|
| 4,175,412
|
| ||||||||||
Peter J. Ippolito President and General Manager, |
|
2021 |
|
|
707,085 |
|
-0- |
|
1,179,123 |
|
|
918,852 |
|
|
876,000 |
|
-0- |
245,733 |
|
3,926,793 |
| |||||||||
| 2020 | 630,028 | -0- | 1,131,078 | 771,642 | 948,000 | -0- | 221,536 | 3,702,284 | ||||||||||||||||||||||
|
| 2019
|
| 621,562 | -0- | 1,164,618 | 809,156 | 866,000 | -0- | 156,703 | 3,618,039 | ||||||||||||||||||||
Mary L. Garceau Senior Vice President, General Counsel |
|
2021 |
|
|
655,767 |
|
-0- |
|
964,737 |
|
|
730,905 |
|
|
787,000 |
|
-0- |
184,386 |
|
3,322,795 |
| |||||||||
| 2020 | 640,097 | -0- | 870,060 | 601,881 | 996,000 | -0- | 135,780 | 3,243,818 | ||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||||||||
Heidi G. Petz President and COO |
|
2021 |
|
|
559,618 |
|
-0- |
|
976,542 |
|
|
814,437 |
|
|
761,000 |
|
-0- |
159,573 |
|
3,271,170 |
| |||||||||
Justin T. Binns President, TAG |
|
2021 |
|
|
575,000 |
|
-0- |
|
750,351 |
|
|
751,788 |
|
|
668,000 |
|
-0- |
114,119 |
|
2,859,258 |
| |||||||||
| * | All principal positions listed reflect positions currently held by the named executives. Compensation information is not shown for |
| 1 |
|
The following table sets forth the aggregate grant date fair value for the PRSUs reflected in this column assuming the highest level of performance conditions will be achieved. |
|
| 2020 | 2019 | 2018 |
| 2021 | 2020 | 2019 |
| ||||||||||||||||||||||||||||
John G. Morikis | $ | 11,484,792 | $ | 12,551,994 | $ | 11,025,651 |
| $ | 11,791,230 | $ | 11,484,792 | $ | 12,551,994 |
| ||||||||||||||||||||||
Allen J. Mistysyn | 2,958,204 | 2,846,844 | 2,059,737 |
| 3,001,404 | 2,958,204 | 2,846,844 |
| ||||||||||||||||||||||||||||
David B. Sewell | 2,958,204 | 2,976,246 | 1,817,415 |
| ||||||||||||||||||||||||||||||||
Peter J. Ippolito | 2,262,156 | 2,329,236 | 1,817,415 |
| 2,358,246 | 2,262,156 | 2,329,236 |
| ||||||||||||||||||||||||||||
Mary L. Garceau | 1,740,120 | — | — |
| 1,929,474 | 1,740,120 | — |
| ||||||||||||||||||||||||||||
Heidi G. Petz | 1,953,084 | — | — |
| ||||||||||||||||||||||||||||||||
Justin T. Binns | 1,500,702 | — | — |
| ||||||||||||||||||||||||||||||||
|
|
49
|
|
| 2 |
|
| 3 |
|
| Morikis | Mistysyn | Sewell | Ippolito | Garceau | Morikis | Mistysyn | Ippolito | Garceau | Petz | Binns | ||||||||||||||||||||||||||||||||||
Pension Investment Plan | $ | 16,800 | $ | 14,000 | $ | 9,800 | $ | 16,800 | $ | 8,400 | $ | 17,100 | $ | 14,250 | $ | 17,100 | $ | 9,975 | $ | 8,550 | $ | 11,400 | ||||||||||||||||||||||
Employee Stock Purchase Plan | 17,100 | 17,100 | 17,100 | 16,714 | 12,316 | |||||||||||||||||||||||||||||||||||||||
401(k) Plan | 17,400 | 17,400 | 16,714 | 11,700 | 17,400 | 17,400 | ||||||||||||||||||||||||||||||||||||||
Deferred Compensation Savings Plan | 437,280 | 138,390 | 142,105 | 145,709 | 103,118 | 631,050 | 182,992 | 164,496 | 135,068 | 75,489 | 75,400 | |||||||||||||||||||||||||||||||||
Executive Life Insurance Plan | 49,430 | 13,273 | 5,650 | 28,181 | -0- | 49,430 | 13,273 | 28,181 | -0- | -0- | -0- | |||||||||||||||||||||||||||||||||
Executive Disability Income Plan | 4,620 | 3,850 | 3,850 | 3,465 | 3,521 | 4,620 | 3,850 | 3,754 | 3,609 | 3,094 | 3,162 | |||||||||||||||||||||||||||||||||
Charitable Matching Gifts | 3,000 | -0- | -0- | -0- | 3,250 | -0- | -0- | -0- | 1,000 | 152 | -0- | |||||||||||||||||||||||||||||||||
Perquisites | 33,149 | 4,126 | 14,874 | 10,667 | 2,972 | 79,508 | 19,433 | 15,488 | 23,034 | 54,888 | 6,757 | |||||||||||||||||||||||||||||||||
Reimbursement of Taxes | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
Total | $ | 561,379 | $ | 190,739 | $ | 193,379 | $ | 221,536 | $ | 133,577 | $ | 799,108 | $ | 251,198 | $ | 245,733 | $ | 184,386 | $ | 159,573 | $ | 114,119 | ||||||||||||||||||||||
| • | Pension Investment Plan — |
| • | 401(k) Plan (formerly known as the Employee Stock Purchase and Savings |
| • | Deferred Compensation Savings Plan — |
| • | Executive Life Insurance Plan — the dollar value of non-compensatory split-dollar life insurance benefits under our Executive Life Insurance Plan. This plan was frozen to new participants beginning in January 2008. |
| • | Executive Disability Income Plan — |
| • | Charitable Matching Gifts — charitable matching contributions under The Sherwin-Williams Foundation Matching Gifts Program, pursuant to which the Foundation will match, on a 1:1 basis, gifts of $100 or more, up to an annual maximum of $3,000, made |
| • | Perquisites — the aggregate incremental cost to Sherwin-Williams of perquisites consisting of: (a) |
Personal Use of Corporate Aircraft. Under our executive travel policy, the Board strongly recommends that our CEO use corporateCompany aircraft at all times when he is traveling, whether for business or personal reasons. In connection with this policy, the Compensation Committee approved Sherwin-Williams entering into an aircraft time sharing agreement with Mr. Morikis and an annual allowance for Mr. Morikis’ personal use of Company aircraft, pursuant to which he will reimburse Sherwin-Williams for the aggregate incremental cost (as described below) of his personal use of companyCompany aircraft in excess of $75,000$150,000 on an annual basis. Our CEO also has the authority to authorize the personal use of corporateCompany aircraft by the other members of senior management. We believe this policy is similar to the policies of many other large public companies.
The aggregate incremental cost of personal use of corporate aircraft is based upon the actual variable operating costs incurred as a result of such personal use, including fuel costs, hourly maintenance and repair costs, hangar and landing fees, insurance obtained for specific flights, customs, permits and similar fees, ground transportation, catering costs, travel expenses for the flight crew, and other smaller variable costs. Incremental costs associated with the auxiliary power unit
50 |
|
(APU) are also included and calculated on an annual basis by dividing the total APU usage for the year by the total flight hours for such year and then multiplying such hourly average rate by the aggregate hours of the executive’s personal use of the aircraft. The incremental cost also includes the cost of “deadhead” flights, which are return or pick-up flights without passengers flown. Fixed operating costs, such as pilot salaries, depreciation, and insurance, that do not change based upon usage are not included. To the extent any use of corporate aircraft results in imputed income to an executive, we do not provide tax gross-ups on such income.
Automobile Program. Our automobile program terminates for our employees when they become executive officers of the Company. Ms. Petz participated in the program for a portion of the year prior to becoming an executive officer in March 2021. The amount shown for Ms. Petz includes the aggregate incremental cost of the program and related expenses.
Sporting and Other Events. From time to time, we provide tickets to sporting and other entertainment events to our employees, including our named executives, for business purposes. If the tickets are not needed for business purposes, they are made available to our employees for personal use. The incremental cost to Sherwin-Williams of such personal use includes the actual variable costs, such as catering, incurred by Sherwin-Williams as a result of the personal use, and does not include fixed costs, such as tickets, that do not change based upon usage.
Narrative Information Regarding the Summary Compensation Table
Salary. The salary amounts disclosed in the table are the amounts of base salary earned by our named executives during the indicated year. For 2020,2021, salaries earned by our named executives accounted for the following percentages of their total compensation set forth in the table: Mr. Morikis (8.7%(8.6%), Mr. Mistysyn (16.5%), Mr. Sewell (15.4%(16.7%), Mr. Ippolito (17.0%(18.0%), Ms. Garceau (19.7%), Ms. Petz (17.1%), and Ms. Garceau (19.7%Mr. Binns (20.1%).
Pension Investment PlanPlan.. Our Salaried Employees’ Revised Pension Investment Plan is a tax-qualified money purchase pension plan that provides eligible U.S. salaried employees with a companyCompany contribution based on an age and service formula. Our named executives participate in this plan on the same terms as other eligible employees.
ESPP401(k) Plan.. We provide all of our eligible U.S. salaried employees the opportunity to participate in our ESPP, a tax-qualified 401(k) plan. Under this plan, participants may contribute a percentage of their compensation on a pre-tax or after-tax basis and receive companyCompany matching contributions. Our named executives participate in this plan on the same terms as our other eligible employees.
Deferred Compensation Savings Plan. Our Deferred Compensation Savings and Pension Equalization Plan is an unfunded nonqualified plan that provides participating employees with the employer contributions the employees would have received under our qualified retirement plans, but for federal tax limitations. We do not pay guaranteed, above-market, or preferential interest or earnings on amounts deferred under this plan. Information about this plan is set forth in the 20202021 Nonqualified Deferred Compensation Table and the accompanying narrative discussion.
|
|
51
|
|
20202021 Grants of Plan-Based Awards Table
The following table sets forth information regarding the grants of annual cash incentive compensation, stock options, and PRSUs during 20202021 to our named executives.
Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(1) | Estimated Future Equity Incentive Plan | All Other of Options | Exercise Base of Awards | Grant Date Fair Value of Stock and Option | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(1) | Estimated Future Equity Incentive Plan | All Other of Options | Exercise Base of Awards | Closing | Grant Date Fair Value of Stock and Option | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Name/Award Type | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | Grant Date | Threshold | Target ($) | Maximum | Threshold | Target (#) | Maximum | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
John G. Morikis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Annual Cash Incentive |
| -0- | 1,941,550 | 3,883,100 |
|
|
|
|
|
|
| -0- | 2,189,170 | 4,378,340 |
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PRSUs – Adjusted EPS Goal | 2/18/2020 |
|
|
| 1,650 | 6,600 | 13,200 |
|
| 3,828,264 | 2/16/2021 |
|
|
| 4,125 | 16,500 | 33,000 |
|
|
| 3,930,410 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PRSUs – Adjusted RONAE Goal | 2/18/2020 |
|
|
| 825 | 3,300 | 6,600 |
|
| 1,914,132 | 2/16/2021 |
|
|
| 2,063 | 8,250 | 16,500 |
|
|
| 1,965,205 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock Options | 10/20/2020 |
|
|
|
|
|
| 25,300 | 681.13 | 3,904,509 | 10/18/2021 |
|
|
|
|
|
| 64,600 | 295.83 | 297.35 | 4,496,806 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Allen J. Mistysyn |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Annual Cash Incentive |
| -0- | 600,071 | 1,200,141 |
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PRSUs – Adjusted EPS Goal | 2/18/2020 |
|
|
| 425 | 1,700 | 3,400 |
|
| 986,068 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PRSUs – Adjusted RONAE Goal | 2/18/2020 |
|
|
| 213 | 850 | 1,700 |
|
| 493,034 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock Options | 10/20/2020 |
|
|
|
|
|
| 6,300 | 681.13 | 972,269 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
David B. Sewell |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Annual Cash Incentive |
| -0- | 750,050 | 1,500,100 |
|
|
|
|
|
|
| -0- | 707,906 | 1,415,812 |
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PRSUs – Adjusted EPS Goal | 2/18/2020 |
|
|
| 425 | 1,700 | 3,400 |
|
| 986,068 | 2/16/2021 |
|
|
| 1,050 | 4,200 | 8,400 |
|
|
| 1,000,468 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PRSUs – Adjusted RONAE Goal | 2/18/2020 |
|
|
| 213 | 850 | 1,700 |
|
| 493,034 | 2/16/2021 |
|
|
| 525 | 2,100 | 4,200 |
|
|
| 500,234 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock Options | 10/20/2020 |
|
|
|
|
|
| 6,500 | 681.13 | 1,003,135 | 10/18/2021 |
|
|
|
|
|
| 16,000 | 295.83 | 297.35 | 1,113,760 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Peter J. Ippolito |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Annual Cash Incentive |
| -0- | 504,022 | 1,008,044 |
|
|
|
|
|
|
| -0- | 565,668 | 1,131,336 |
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PRSUs – Adjusted EPS Goal | 2/18/2020 |
|
|
| 325 | 1,300 | 2,600 |
|
| 754,052 | 2/16/2021 |
|
|
| 825 | 3,300 | 6,600 |
|
|
| 786,082 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PRSUs – Adjusted RONAE Goal | 2/18/2020 |
|
|
| 163 | 650 | 1,300 |
|
| 377,026 | 2/16/2021 |
|
|
| 413 | 1,650 | 3,300 |
|
|
| 393,041 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock Options | 10/20/2020 |
|
|
|
|
|
| 5,000 | 681.13 | 771,642 | 10/18/2021 |
|
|
|
|
|
| 13,200 | 295.83 | 297.35 | 918,852 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mary L. Garceau |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Annual Cash Incentive |
| -0- | 512,078 | 1,024,156 |
|
|
|
|
|
|
| -0- | 524,614 | 1,049,228 |
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PRSUs – Adjusted EPS Goal | 2/18/2020 |
|
|
| 250 | 1,000 | 2,000 |
|
| 580,040 | 2/16/2021 |
|
|
| 675 | 2,700 | 5,400 |
|
|
| 643,158 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PRSUs – Adjusted RONAE Goal | 2/18/2020 |
|
|
| 125 | 500 | 1,000 |
|
| 290,020 | 2/16/2021 |
|
|
| 338 | 1,350 | 2,700 |
|
|
| 321,579 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock Options | 10/20/2020 |
|
|
|
|
|
| 3,900 | 681.13 | 601,881 | 10/18/2021 |
|
|
|
|
|
| 10,500 | 295.83 | 297.35 | 730,905 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Heidi G. Petz |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Annual Cash Incentive |
| -0- | 447,694 | 895,388 |
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PRSUs – Adjusted EPS Goal | 2/16/2021 |
|
|
| 290 | 1,158 | 2,316 |
|
|
| 275,843 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PRSUs – Adjusted RONAE Goal | 2/16/2021 |
|
|
| 145 | 579 | 1,158 |
|
|
| 137,922 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PRSUs – Adjusted EPS Goal | 3/16/2021 |
|
|
| 393 | 1,572 | 3,144 |
|
|
| 375,185 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PRSUs – Adjusted RONAE Goal | 3/16/2021 |
|
|
| 197 | 786 | 1,572 |
|
|
| 187,592 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock Options | 10/18/2021 |
|
|
|
|
|
| 11,700 | 295.83 | 297.35 | 814,437 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Justin T. Binns |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Annual Cash Incentive |
| -0- | 460,000 | 920,000 |
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PRSUs – Adjusted EPS Goal | 2/16/2021 |
|
|
| 525 | 2,100 | 4,200 |
|
|
| 500,234 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PRSUs – Adjusted RONAE Goal | 2/16/2021 |
|
|
| 263 | 1,050 | 2,100 |
|
|
| 250,117 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock Options | 10/18/2021 |
|
|
|
|
|
| 10,800 | 295.83 | 297.35 | 751,788 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1 |
|
| 2 |
|
| 3 |
|
| 4 | The exercise price equals the average of the highest and lowest reported sale prices per share of our common stock on the grant date, October |
52 | 2022 PROXY STATEMENT |
| 5 | The value of PRSUs is equal to the aggregate grant date fair value computed in accordance with stock-based accounting rules (Stock Compensation Topic 718 of the ASC), excluding the effect of estimated forfeitures. |
The value of stock options is equal to the aggregate grant date fair value computed in accordance with stock-based accounting rules (Stock Compensation Topic 718 of the ASC), excluding the effect of estimated forfeitures. The values were calculated using a Black-Scholes option pricing model. The assumptions used in this model are as described in Note 13 to the Consolidated Financial Statements in Item 8 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.2021.
|
|
Narrative Information Regarding the 20202021 Grants of Plan-Based Awards Table
Annual Cash Incentive. The non-equity incentive plan awards set forth in the table reflect annual cash incentive compensation that could have been earned by our named executives during 20202021 under our 2007 Executive Annual Performance Bonus Plan, based upon the achievement of financial and operating performance goals. More information is set forth under the heading “Annual Cash Incentive Compensation” in the CD&A.
PRSUs. During 2020,2021, we granted PRSUs pursuant to our 2006 Equity and Performance Incentive Plan, which consisted of two grants of PRSUs — PRSUs—one grant with Adjustedadjusted EPS as the performance goal and one grant with Adjustedadjusted RONAE as the performance goal. We include additional information about our PRSU program under the heading “Long-Term Equity Incentive Compensation” in the CD&A.
The threshold amounts for the PRSUs set forth in the table correspond to 25% of the target number of PRSUs vesting, which is the number of PRSUs that will vest for the specified minimum level of performance. The maximum amounts set forth in the table reflect a number of PRSUs equal to two times200% of the target number of PRSUs (and, correspondingly, the setting of above-target goals higher, making achievement of the goals more difficult to attain) to provide an incentive for above-target performance.
The payment of dividend equivalents on unvested PRSUs is deferred, and dividend equivalents are paid only if and to the extent the PRSUs vest based on the achievement of the financial and operating performance goals. Dividend equivalents are paid at the same rate as dividends on Sherwin-Williams common stock are paid to our shareholders. During 2020,2021, the quarterly dividend rate was $1.34$0.55 per share. In February 2021,2022, the Board announced an increase in the quarterly dividend rate to $1.65$0.60 per share, with the first dividend payable on March 12, 2021.11, 2022.
Stock Options. We grant stock options pursuant to our 2006 Equity and Performance Incentive Plan. Stock options vest at the rate of one-third per year on the first, second, and third anniversary dates of the grant and have a term of ten years. We include additional information about stock option grants under the heading “Long-Term Equity Incentive Compensation” in the CD&A.
|
|
53
|
|
Outstanding Equity Awards at December 31, 20202021 Table
The following table sets forth information regarding the number of unexercised stock options and the number and value of unvested RSUs and PRSUs outstanding at December 31, 20202021 for our named executives.
| Option Awards | Stock Awards |
Option Awards |
|
Stock Awards | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Name | Option Grant Date(1) | Number of (#) Exercisable | Number of (#) Unexercisable | Option ($) | Option Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Have Not ($) | Equity or Other (#) | Equity or Payout Rights That Have ($) | Option Grant Date(1) | Number of (#) Exercisable | Number of (#) Unexercisable | Option ($) | Option Date |
| Number of Shares or Units of Stock That Have Not Vested (#) | Market Have Not ($) | Equity or Other (#) | Equity or Payout Rights That Have ($) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
John G. Morikis | 10/18/2017 | 51,840 | -0- | 383.92 | 10/17/2027 |
| 16,876 | (2) | 12,627,117 | (2) | 29,100 | (3) | 21,385,881 | 10/17/2018 | 115,969 | -0- | 136.85 | 10/16/2028 |
| 72,757 | (2) | 25,622,105 | (2) | 59,400 | (3) | 20,918,304 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/17/2018 | 25,934 | 12,966 | 410.54 | 10/16/2028 |
|
|
| 19,800 | (4) | 14,551,218 | 10/16/2019 | 69,600 | 34,800 | 186.85 | 10/15/2029 |
|
|
| 49,500 | (4) | 17,431,920 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/16/2019 | 11,600 | 23,200 | 560.54 | 10/15/2029 |
|
|
|
|
| 10/20/2020 | 25,302 | 50,598 | 227.05 | 10/19/2030 |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/20/2020 | -0- | 25,300 | 681.13 | 10/19/2030 |
|
|
|
|
| 10/18/2021 | -0- | 64,600 | 295.83 | 10/17/2031 |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Allen J. Mistysyn | 10/16/2015 | 2,583 | -0- | 239.55 | 10/15/2025 |
| 3,153 | (2) | 2,359,162 | (2) | 6,600 | (3) | 4,850,406 | 10/24/2016 | 14,520 | -0- | 92.55 | 10/23/2026 |
| 16,502 | (2) | 5,811,344 | (2) | 15,300 | (3) | 5,388,048 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/24/2016 | 10,200 | -0- | 277.65 | 10/23/2026 |
|
|
| 5,100 | (4) | 3,748,041 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/18/2017 | 9,600 | -0- | 383.92 | 10/17/2027 |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/17/2018 | 6,000 | 3,000 | 410.54 | 10/16/2028 |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/16/2019 | 2,934 | 5,866 | 560.54 | 10/15/2029 |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/20/2020 | -0- | 6,300 | 681.13 | 10/19/2030 |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
David B. Sewell | 10/22/2014 | 4,861 | -0- | 227.73 | 10/21/2024 |
| 2,782 | (2) | 2,081,571 | (2) | 6,900 | (3) | 5,070,879 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/16/2015 | 5,800 | -0- | 239.55 | 10/15/2025 |
|
|
| 5,100 | (4) | 3,748,041 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/18/2016 | 7,200 | -0- | 270.12 | 10/17/2026 |
|
|
|
|
| 10/18/2017 | 28,020 | -0- | 127.98 | 10/17/2027 |
|
|
| 12,600 | (4) | 4,437,216 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/18/2017 | 7,100 | -0- | 383.92 | 10/17/2027 |
|
|
|
|
| 10/17/2018 | 27,000 | -0- | 136.85 | 10/16/2028 |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/17/2018 | 4,934 | 2,466 | 410.54 | 10/16/2028 |
|
|
|
|
| 10/16/2019 | 17,601 | 8,799 | 186.85 | 10/15/2029 |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/16/2019 | 3,067 | 6,133 | 560.54 | 10/15/2029 |
|
|
|
|
| 10/20/2020 | 6,300 | 12,600 | 227.05 | 10/19/2030 |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/20/2020 | -0- | 6,500 | 681.13 | 10/19/2030 |
|
|
|
|
| 10/18/2021 | -0- | 16,000 | 295.83 | 10/17/2031 |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Peter J. Ippolito | 10/17/2012 | 647 | -0- | 154.4325 | 10/16/2022 |
| 2,782 | (2) | 2,081,571 | (2) | 5,400 | (3) | 3,968,514 | 10/16/2013 | 1,662 | -0- | 60.16 | 10/15/2023 |
| 13,502 | (2) | 4,754,864 | (2) | 11,700 | (3) | 4,120,272 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/16/2013 | 554 | -0- | 180.46 | 10/15/2023 |
|
|
| 3,900 | (4) | 2,866,149 | 10/22/2014 | 1,317 | -0- | 75.91 | 10/21/2024 |
|
|
| 9,900 | (4) | 3,486,384 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/22/2014 | 439 | -0- | 227.73 | 10/21/2024 |
|
|
|
|
| 10/16/2015 | 1,251 | -0- | 79.85 | 10/15/2025 |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/16/2015 | 417 | -0- | 239.55 | 10/15/2025 |
|
|
|
|
| 10/18/2016 | 1,110 | -0- | 90.04 | 10/17/2026 |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/18/2016 | 4,500 | -0- | 270.12 | 10/17/2026 |
|
|
|
|
| 10/18/2017 | 11,100 | -0- | 127.98 | 10/17/2027 |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/18/2017 | 3,700 | -0- | 383.92 | 10/17/2027 |
|
|
|
|
| 10/17/2018 | 22,200 | -0- | 136.85 | 10/16/2028 |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/17/2018 | 4,934 | 2,466 | 410.54 | 10/16/2028 |
|
|
|
|
| 10/16/2019 | 13,602 | 6,798 | 186.85 | 10/15/2029 |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/16/2019 | 2,267 | 4,533 | 560.54 | 10/15/2029 |
|
|
|
|
| 10/20/2020 | 5,001 | 9,999 | 227.05 | 10/19/2030 |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/20/2020 | -0- | 5,000 | 681.13 | 10/19/2030 |
|
|
|
|
| 10/18/2021 | -0- | 13,200 | 295.83 | 10/17/2031 |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mary L. Garceau | 7/15/2014 | 255 | -0- | 203.21 | 7/14/2024 |
| 2,040 | (2) | 1,526,387 | (2) | 4,200 | (3) | 3,086,622 | 10/22/2014 | 3,840 | -0- | 75.91 | 10/21/2024 |
| 10,501 | (2) | 3,698,032 | (2) | 9,000 | (3) | 3,169,440 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/22/2014 | 1,280 | -0- | 227.73 | 10/21/2024 |
|
|
| 3,000 | (4) | 2,204,730 | 10/16/2015 | 1,251 | -0- | 79.85 | 10/15/2025 |
|
|
| 8,100 | (4) | 2,852,496 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/16/2015 | 1,280 | -0- | 239.55 | 10/15/2025 |
|
|
|
|
| 10/18/2016 | 4,350 | -0- | 90.04 | 10/17/2026 |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/18/2016 | 1,450 | -0- | 270.12 | 10/17/2026 |
|
|
|
|
| 2/14/2017 | 3,000 | -0- | 102.81 | 2/13/2027 |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2/14/2017 | 1,000 | -0- | 308.41 | 2/13/2027 |
|
|
|
|
| 10/18/2017 | 18,600 | -0- | 127.98 | 10/17/2027 |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/18/2017 | 6,200 | -0- | 383.92 | 10/17/2027 |
|
|
|
|
| 10/17/2018 | 16,500 | -0- | 136.85 | 10/16/2028 |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/17/2018 | 3,667 | 1,833 | 410.54 | 10/16/2028 |
|
|
|
|
| 10/16/2019 | 11,001 | 5,499 | 186.85 | 10/15/2029 |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/16/2019 | 1,834 | 3,666 | 560.54 | 10/15/2029 |
|
|
|
|
| 10/20/2020 | 3,900 | 7,800 | 227.05 | 10/19/2030 |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/20/2020 | -0- | 3,900 | 681.13 | 10/19/2030 | 10/18/2021 | -0- | 10,500 | 295.83 | 10/17/2031 |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Heidi G. Petz | 10/18/2017 | 840 | -0- | 127.98 | 10/17/2027 |
| 3,751 | (2) | 1,320,952 | (2) | 3,600 | (3) | 1,267,776 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/17/2018 | 1,158 | -0- | 136.85 | 10/16/2028 |
| 1,089 | (5) | 383,502 | (7) | 8,190 | (4) | 2,884,190 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/16/2019 | 4,002 | 1,998 | 186.85 | 10/15/2029 |
| 519 | (6) | 182,771 | (7) |
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/20/2020 | 1,800 | 3,600 | 227.05 | 10/19/2030 |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/18/2021 | -0- | 11,700 | 295.83 | 10/17/2031 |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Justin T. Binns | 7/15/2014 | 849 | -0- | 67.74 | 7/14/2024 |
| 4,877 | (2) | 1,717,484 | (2) | 4,050 | (3) | 1,426,248 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/22/2014 | 714 | -0- | 75.91 | 10/21/2024 |
|
|
| 6,300 | (4) | 2,218,608 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/16/2015 | 609 | -0- | 79.85 | 10/15/2025 |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/18/2016 | 13,500 | -0- | 90.04 | 10/17/2026 |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/18/2017 | 11,100 | -0- | 127.98 | 10/17/2027 |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/17/2018 | 8,100 | -0- | 136.85 | 10/16/2028 |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/16/2019 | 4,800 | 2,400 | 186.85 | 10/15/2029 |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/20/2020 | 1,701 | 3,399 | 277.05 | 10/19/2030 |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| 10/18/2021 | -0- | 10,800 | 295.83 | 10/17/2031 |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
54 | 2022 PROXY STATEMENT |
| 1 | Options vest at the rate of one-third per year on the first, second, and third anniversaries of the grant date. |
| 2 |
|
|
|
| 3 | PRSUs vest in February |
| 4 | PRSUs vest in February 2024 on the date the Compensation Committee determines the level of achievement of the performance goals. The number of these PRSUs reflects the maximum level of performance. |
| 5 | RSUs granted to Ms. Petz prior to her roles held during 2021. The RSUs vest in October 2022. |
| 6 | RSUs granted to Ms. Petz prior to her roles held during 2021. The RSUs vest in February 2023. |
| 7 | Calculated by multiplying the number of RSUs by the closing price per share of our common stock on December 31, 2021 ($352.16). The values of these RSUs do not include dividend equivalents as the payment of dividend equivalents on unvested RSUs is deferred and paid only if and to the extent the units vest. |
| 8 | Calculated by multiplying the number of PRSUs by the closing price per share of our common stock on December 31, 2021 ($352.16). The values of these PRSUs do not include dividend equivalents as the payment of dividend equivalents on unvested PRSUs is deferred and paid only if and to the extent the units vest. |
|
|
20202021 Option Exercises and Stock Vested Table
The following table sets forth information regarding the number and value of stock options exercised and PRSUs vested during 20202021 for our named executives.
|
| Option Awards |
| Stock Awards | Option Awards |
| Stock Awards | ||||||||||||||||||||||||||||||||||||||||||||
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise |
| Number of (#) | Value Realized on Vesting | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise |
| Number of (#) | Value Realized on Vesting | ||||||||||||||||||||||||||||||||||||||||
John G. Morikis | 81,839 | 33,085,911 |
| 23,924 | 13,876,877 | 156,251 | 25,087,713 |
| 50,628 | 12,059,843 | ||||||||||||||||||||||||||||||||||||||||
Allen J. Mistysyn | — | — |
| 4,171 | 2,419,347 | 24,609 | 4,871,053 |
| 9,459 | 2,253,181 | ||||||||||||||||||||||||||||||||||||||||
David B. Sewell | 4,446 | 1,727,805 |
| 3,073 | 1,782,463 | |||||||||||||||||||||||||||||||||||||||||||||
Peter J. Ippolito | 10,690 | 3,811,435 |
| 1,976 | 1,146,159 | 14,331 | 3,103,773 |
| 8,346 | 1,988,059 | ||||||||||||||||||||||||||||||||||||||||
Mary L. Garceau | — | — |
| 752 | 436,190 | 3,354 | 801,651 |
| 6,120 | 1,457,815 | ||||||||||||||||||||||||||||||||||||||||
Heidi G. Petz | — | — |
| 795 | 189,373 | |||||||||||||||||||||||||||||||||||||||||||||
Justin T. Binns | — | — |
| 3,339 | 795,367 | |||||||||||||||||||||||||||||||||||||||||||||
| 1 | The value realized on the exercise of stock options is equal to the number of shares acquired multiplied by the difference between the exercise price and the market price per share of our common stock. The market price per share is equal to the average of the highest and lowest reported sale prices per share of our common stock on the date of exercise. |
| 2 | The value realized on the vesting of PRSUs is equal to the number of units vested multiplied by the market price per share of our common stock. The market price per share is equal to the average of the highest and lowest reported sale prices per share of our common stock on the vesting date. |
| 55 |
20202021 Nonqualified Deferred Compensation Table
The following table sets forth information for 20202021 relating to the Sherwin-Williamsour 2005 Deferred Compensation Savings and Pension Equalization Plan (the Deferred Plan) and the Sherwin-Williamsour 2005 Key Management Deferred Compensation Plan (the Key Management Plan).
Name | Plan Name | Executive Contributions in Last FY ($) | Registrant Contributions in Last FY ($)(1) | Aggregate Earnings in Last FY ($)(2) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance | Plan Name | Executive Contributions in Last FY ($) | Registrant Contributions in Last FY ($)(1) | Aggregate Earnings in Last FY ($)(2) | Aggregate Withdrawal/ Distributions ($) | Aggregate Balance | ||||||||||||||||||||||||||||||||||||||||||
John G. Morikis | Deferred Plan | -0- | 437,280 | 483,883 | -0- | 3,892,552 | Deferred Plan | -0- | 631,050 | 559,719 | -0- | 5,083,321 | ||||||||||||||||||||||||||||||||||||||||||
Allen J. Mistysyn | Deferred Plan | -0- | 138,390 | 262,087 | -0- | 1,381,464 | Deferred Plan | -0- | 182,992 | 283,271 | -0- | 1,847,727 | ||||||||||||||||||||||||||||||||||||||||||
David B. Sewell | Deferred Plan | -0- | 142,105 | 142,206 | -0- | 1,084,293 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Key Management Plan | -0- | -0- | 19,696 | -0- | 169,456 | ||||||||||||||||||||||||||||||||||||||||||||||||
Peter J. Ippolito | Deferred Plan | -0- | 145,709 | 190,155 | -0- | 1,216,886 | Deferred Plan | -0- | 164,496 | 303,730 | -0- | 1,685,112 | ||||||||||||||||||||||||||||||||||||||||||
Mary L. Garceau | Deferred Plan | -0- | 103,118 | 77,880 | -0- | 531,869 | Deferred Plan | -0- | 135,068 | 112,876 | -0- | 779,813 | ||||||||||||||||||||||||||||||||||||||||||
|
| Key Management Plan | -0- | -0- | 11,943 | -0- | 76,633 | Key Management Plan | -0- | -0- | 14,633 | -0- | 91,266 | ||||||||||||||||||||||||||||||||||||||||||
Heidi G. Petz | Deferred Plan | -0- | 75,489 | 33,247 | -0- | 198,736 | ||||||||||||||||||||||||||||||||||||||||||||||||
Justin T. Binns | Deferred Plan | -0- | 75,400 | 55,343 | -0- | 277,188 | ||||||||||||||||||||||||||||||||||||||||||||||||
| 1 |
|
| 2 |
|
|
|
| 3 |
|
Name | Amount | ||||
John G. Morikis | |||||
Allen J. Mistysyn | |||||
| |||||
Peter J. Ippolito | |||||
Mary L. Garceau | |||||
Heidi G. Petz | 75,489 | ||||
Justin T. Binns | 75,400 | ||||
Material Features of the Deferred Plan and Key Management Plan
The Deferred Plan is an unfunded nonqualified deferred compensation plan that provides eligible participants with company-onlyCompany-only contributions that a participant would have otherwise received under our qualified retirement plans, but for certain federal tax limitations.
There are two benefit components to the deferred compensation savings portion of the plan. The benefit payable underplan: (a) the first component is the companyCompany matching contribution under our ESPP (a 401(k) plan)Plan that participants would have otherwise received, but for the limitations under Sections 401(a)(17) and 415 of the Internal Revenue Code of 1986, as amended (the Code); and (b) the Company contribution under our Salaried Employees’ Revised Pension Investment Plan that participants would have otherwise received, but for the limitations under Sections 401(a)(17) and 415 of the Code. All of our named executives participated in this componentboth of the planthese components during 2020.
The second component is the company contribution provided under our Salaried Employees’ Revised Pension Investment Plan. The benefit payable under this second component is the company contribution that participants would have otherwise received, but for the limitations under Sections 401(a)(17) and 415 of the Code. All of our named executives participated in this component of the plan during 2020.2021.
The Key Management Plan is an unfunded nonqualified deferred compensation plan pursuant to which employees who participate in our management incentive plan or other identified management employees may elect to defer up to 100% of their base salary and bonus.
56 | 2022 PROXY STATEMENT |
All companyCompany contributions provided under the Deferred Plan and all participant deferrals provided under the Key Management Plan are credited in the form of units and accrue earnings in accordance with the hypothetical investment options selected by the participant. The investment options contained in the planplans are the same investment options provided to participants in our qualified retirement plans. We do not pay guaranteed, above-market, or preferential interest or earnings on amounts deferred. Participant account balances will be distributed in a lump sum upon death, disability, separation from service or, for the Key Management Plan, a specified date, unless equal annual installments (not to exceed fifteen years) are elected for distributions upon death, disability or separation from service for retirement. In the event of a change in control, account balances are distributed in a lump sum within ninety days.
|
|
Potential Payments Upon Termination or Change in Control
The following information and table set forth the payments to each of our named executives in the event of a termination of employment as a result of retirement, involuntary termination, death, disability, voluntary termination, termination for cause, and termination following a change in control. The information and amounts shown in the table assume that each named executive was terminated on December 31, 2020.2021.
Assumptions and General Principles
The following assumptions and general principles apply with respect to the table.
The table reflects amounts earned at December 31, 20202021 and includes estimates of amounts that would be paid to the named executive upon the occurrence of certain terminations of employment, as described above. The actual amounts to be paid to a named executive can only be determined at the time of the termination.
A named executive is entitled to receive amounts earned during their term of employment regardless of the manner in which the named executive’s employment is terminated. These amounts include base salary, unused vacation pay, and annual cash incentive compensation. These amounts are not shown in the table, except for potential annual cash incentive compensation, as described below.
Because we assume a December 31, 20202021 termination date, each of our named executives would have been entitled to receive the annual cash incentive compensation earned under our 2007 Executive Annual Performance Bonus Plan for 2020.2021. Therefore, the amounts set forth in the table for annual cash incentive compensation are the annual cash incentive compensation amounts actually earned by the named executives during 2020.2021. These amounts are also set forth in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table.
Our 2006 Equity and Performance Incentive Plan includes a “double-trigger” acceleration provision with respect to the vesting of equity awards in connection with a change in control. Please refer to the information set forth below under the heading “Change in Control” for a more detailed explanation of the treatment of equity awards under our equity plan in the event of a change in control.
A named executive may exercise any stock options that are exercisable prior to the date of termination and is entitled to receive shares of common stock with respect to any PRSUsrestricted stock units for which the vesting period has expired prior to the date of termination. Any payments related to these stock options and PRSUsrestricted stock units are not included in the table because they are not severance payments.
The amounts shown in the table for stock options reflect the difference between the closing price per share of our common stock on December 31, 2021 ($352.16) and the exercise price for each option for which vesting continued or accelerated. The amounts shown in the table for restricted stock units reflect the number of units for which the vesting continued or accelerated multiplied by the closing price per share of our common stock on December 31, 2021 ($352.16). The amounts shown in the table for PRSUs assume such awards will be earned at a target level of performance.
Our 20202021 stock option and PRSUrestricted stock units award agreements include restrictive covenants regarding the protection of our intellectual property, the confidentiality of our proprietary information, and non-competition and non-solicitation restrictions that apply during the term of employment with Sherwin-Williams and for the two- and three-year periods thereafter, respectively. For purposes of the table, we have assumed the named executives have complied with these restrictive covenants.
A named executive will be entitled to receive all amounts accrued and vested under our retirement and savings programs, including our ESPP401(k) Plan and any pension plans and deferred compensation plans in which the named executive participates. These amounts will be determined and paid in accordance with the applicable plan and are not included in the table because they are not severance payments.
The amounts shown in the table for excise taxes payable as a result of a change in control are estimates for proxy disclosure purposes only. Payments upon an actual change in control may differ based on factors such as transaction price, timing of employment termination and payments, methodology for valuing stock options, changes in compensation, reasonable compensation analysis, and the value of covenants not to compete.
| 57 |
Retirement
A named executive is eligible to elect retirement upon satisfying the criteria for retirement (age 65, age 55 – 59 with at least 20 years of vesting service, or age 60 or older if the combination of age and years of vesting service equals at least 75). In the event of retirement and required notice,notice: (a) all outstanding stock options will continue to vest in accordance with their terms,terms; and (b) all outstanding PRSUsrestricted stock units will continue to vest, with PRSUs continuing to be subject to the attainment of the applicable performance goals, as if the named executive had continued employment throughout the restriction period.
At December 31, 2020,2021, Messrs. Morikis and Ippolito were the only named executives eligible for retirement.
|
|
Involuntary Termination
All of the named executives participate in the Key Employee Separation Plan (KESP). Under the KESP, the named executives are entitled, subject to execution and non-revocation of a release of claims against Sherwin-Williams, to certain severance payments and benefits in the event their employment is involuntarily terminated prior to a change in control by Sherwin-Williams for reasons other than cause, death, or disability. These payments and benefits include: (a) a cash severance amount equal to a factor (2, for Mr. Morikis, and 1.5, for Messrs. Mistysyn, Sewell, and Ippolito, and Ms. Garceau)Binns and Mses. Garceau and Petz) multiplied by the sum of such participant’s annual base salary and target annual cash incentive compensation for the year of termination (paid(with salary paid in installments over a 2-year period, for Mr. Morikis, and over a 1.5-year period, for Messrs. Mistysyn, Sewell, and Ippolito, and Ms. Garceau)Binns and Mses. Garceau and Petz, and incentive amounts paid on the applicable incentive payment dates during such period); (b) a prorated annual cash incentive compensation payment based on the portion of the year the executive was employed with Sherwin-Williams (subject to the attainment of the applicable performance goals and paid after the end of the performance period); (c) continuation of medical and dental coverage benefits until the earliest of: (i) reaching the age of 65, (ii) the date similar benefits are provided by another employer, and (iii) 18 months following the termination of employment; (d) reasonable outplacement assistance for expenses actually incurred, as approved by the Compensation Committee; and (e) continued vesting of equity awards (2 years, for Mr. Morikis, 18 months, for each of Messrs. Mistysyn, Sewell, and Ippolito, and Ms.Binns and Mses. Garceau and Petz, or such longer period as provided in the applicable equity award agreements), with performance-based equity awardsPRSUs continuing to be subject to the attainment of the applicable performance goals. As described above, the named executives must sign a release of claims against Sherwin-Williams to receive payment under the KESP, which release includes restrictive covenants regarding the protection of our intellectual property, the confidentiality of our proprietary information, and non-competition and non-solicitation restrictions that apply for the 2- and 3-year periods following termination of employment, respectively, and a requirement not to disparage Sherwin-Williams. For purposes of the table, we have assumed the named executives have complied with these restrictive covenants.
Death and Disability
In the event of the death or disability of a named executive, all outstanding stock options will immediately vest and become exercisable. In addition,With respect to restricted stock units, (a) all RSUs will immediately vest and (b) the greater of (i) 100% of the target PRSUs and (ii) the vesting percentage of the target PRSUs (based on the results of the performance metric measured as of the end of the last completed fiscal quarter preceding the date of the named executive’s death or disability and the projected forecast of the performance metric over the remaining restriction period) will immediately vest. The amounts shown in the table for stock options reflect the difference between the closing price per share of our common stock on December 31, 2020 ($734.91) and the exercise price for each option for which vesting accelerated. The amounts shown in the table for PRSUs reflect the target number of units for which the vesting accelerated multiplied by the closing price per share of our common stock on December 31, 2020 ($734.91).
In addition, each named executive (other than Ms. Garceau) participatesMessrs. Morikis, Mistysyn, and Ippolito participate in our executive life insurance plan. Under our executive life insurance plan, the beneficiary of a named executive is entitled to receive a death benefit based upon the following formulas: (a) if the event occurs prior to age 62, then the death benefit will equal 4 times (for Messrs. Morikis, Mistysyn, Sewell, and Ippolito) the named executive’s base salary; (b) if the event occurs on or after age 62 and before age 65, then the death benefit will equal 4 times (for Messrs. Morikis, Mistysyn, Sewell, and Ippolito) the named executive’s base salary at age 62; and (c) if the event occurs at age 65 or older, then the death benefit will equal 2.5 times (for Messrs. Morikis, Mistysyn, Sewell, and Ippolito) the named executive’s base salary at age 62. All such named executives were less than 62 years of age on December 31, 2020.2021. This plan was frozen to new participants beginning in January 2008.
Each named executive also participates in one of two executive long-term disability plans. The original plan was frozen to new participants effective January 1, 2008, and all of the named executives (other than Ms. Garceau)only Messrs. Morikis, Mistysyn, and Ippolito participate in this plan. Upon the occurrence of a disability under the frozen plan, a covered named executive will receive an annual benefit equal to 60% of base salary until the earliest of: (a) age 65; (b) recovery from the disability; (c) the date the named executive begins receiving retirement plan benefits; and (d) death. Ms.Mses. Garceau participatesand Petz and Mr. Binns participate in the second plan that was adopted as of January 1, 2013 to cover executives not otherwise eligible for the original frozen plan, and it provides substantially similar benefits, subject to a benefit cap of $35,000 per month, until the earliest of: (a) Social Security normal retirement age (or, if age 60 or older at the time of disability, a period of 12 – 60 months depending on the executive’s age); (b) recovery from the disability; and (c) death. The amounts set forth in the table for the named executives reflect the amount of the first annual payment (60% multiplied by the named executive’s 20202021 base salary) under the plans.
58 | 2022 PROXY STATEMENT |
Voluntary Termination and Termination for Cause
A named executive is not entitled to receive any additional forms of severance payments or benefits upon their voluntary decision to terminate employment with Sherwin-Williams prior to being eligible for retirement or upon termination for cause.
|
|
Change in Control
Our 2006 Equity and Performance Incentive Plan includes a “double-trigger” acceleration provision with respect to the vesting of equity awards in connection with a change in control. Upon a change in control, awards that are assumed by the surviving entity will continue to vest and become exercisable in accordance with their original terms unless, within three years after the change in control, the participant’s employment is terminated other than for cause or the participant terminates their employment for good reason (as such term is defined in the plan). If a participant’s employment is terminated under either of those circumstances, their outstanding awards will immediately vest and become exercisable in full. Awards that are not assumed by the surviving entity will immediately vest and become exercisable in full.
The amounts shown in the table for stock options reflect the difference between the closing price per share of our common stock on December 31, 2020 ($734.91) and the exercise price for each option for which vesting accelerated. The amounts shown in the table for PRSUs reflect the target number of units for which the vesting accelerated multiplied by the closing price per share of our common stock on December 31, 2020 ($734.91).
We also entered into change in control severance agreements with each of our named executives. In general, a change in control will be deemed to have occurred under our 2006 Equity and Performance Incentive Plan and the severance agreements if: (a) a person or group buys 30% or more of Sherwin-Williams common stock (excluding certain purchases by Sherwin-Williams or its benefit plans, purchases approved by Sherwin-Williams or in connection with certain “friendly” business transactions, and certain inadvertent purchases); (b) Sherwin-Williams experiences a turn-over (not approved by Sherwin-Williams) of more than half of its directors during a two-year period; (c) Sherwin-Williams closes a reorganization, merger, consolidation, or significant sale of assets resulting in a substantial change in its ownership or leadership; or (d) Sherwin-Williams’ shareholders approve its liquidation or dissolution.
The severance agreements provide that upon a termination of employment within the two-year period following a change in control (other than upon a termination for cause or by reason of death or disability) or if the named executive terminates their employment in certain circumstances defined in the agreement which constitutesconstitute good reason, in addition to the accelerated vesting of stock options and PRSUsrestricted stock units described above, each will receive:
a lump sum severance payment in an amount equal to 3 times (with respect to(for Mr. Morikis) or 2.5 times (with respect to(for Messrs. Mistysyn, Sewell, and Ippolito, and Ms. Garceau)Binns and Mses. Garceau and Petz) the sum of (a) the named executive’s highest rate of base salary during the three-year period prior to termination and (b) an amount equal to the greater of (i) the average of the annual cash incentive compensation received by the named executive for each of the three years prior to the date of termination and (ii) the named executive’s target annual cash incentive compensation for the year in which the termination occurs;
a lump sum amount equal to the prorated portion of any annual cash incentive compensation earned by the named executive through the date of termination, assuming achievement of the greater of target level of the performance goals and actual performance;
eighteen months of continued health care benefits;
outplacement services in an amount not to exceed 10% of the named executive’s then-current base salary; and
(for Messrs. Morikis and Ippolito) an amount equal to the excise tax and taxes thereon charged, if any, to the named executive as a result of any change in control payments; provided, however, in the event the aggregate change in control payments do not exceed 115% of the amount, which would cause the excise tax to be assessed, the severance payments shall be reduced to a level whichthat would cause no excise tax to apply.
The amounts set forth in the table assume that each named executive’s employment was terminated upon a change in control and that each named executive would receive the benefits provided for under the severance agreement.
|
|
59
|
|
Estimated Payments Upon Termination or Change in Control Table
Event | Morikis | Mistysyn | Sewell | Ippolito | Garceau | Morikis | Mistysyn | Ippolito | Garceau | Petz | Binns | |||||||||||||||||||||||||||||||||
Retirement | ||||||||||||||||||||||||||||||||||||||||||||
Annual cash incentive compensation | $ | 3,776,000 | N/A | N/A | $ | 948,000 | N/A | |||||||||||||||||||||||||||||||||||||
Annual cash incentive | $ | 3,284,000 | N/A | $ | 876,000 | N/A | N/A | N/A | ||||||||||||||||||||||||||||||||||||
Continued vesting of stock options | 9,611,799 | N/A | N/A | 1,859,216 | N/A | 15,722,022 | N/A | 3,118,308 | N/A | N/A | N/A | |||||||||||||||||||||||||||||||||
Continued vesting of PRSUs | 28,000,071 | N/A | N/A | 5,070,879 | N/A | |||||||||||||||||||||||||||||||||||||||
Continued vesting of restricted stock units | 34,546,896 | N/A | 6,655,824 | N/A | N/A | N/A | ||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
Total | $ | 41,387,870 | N/A | N/A | $ | 7,878,095 | N/A | $ | 53,552,918 | N/A | $ | 10,650,132 | N/A | N/A | N/A | |||||||||||||||||||||||||||||
Involuntary Termination | ||||||||||||||||||||||||||||||||||||||||||||
Annual cash incentive compensation | $ | 3,776,000 | $ | 1,167,000 | $ | 1,459,000 | $ | 948,000 | $ | 996,000 | ||||||||||||||||||||||||||||||||||
Annual cash incentive | $ | 3,284,000 | $ | 1,062,000 | $ | 876,000 | $ | 787,000 | $ | 761,000 | $ | 668,000 | ||||||||||||||||||||||||||||||||
Continued vesting of stock options | 9,158,273 | 1,597,475 | 1,451,230 | 1,284,844 | 984,104 | 13,296,114 | 2,543,220 | 1,997,304 | 1,594,124 | 775,174 | 812,344 | |||||||||||||||||||||||||||||||||
Continued vesting of PRSUs | 20,724,462 | 4,299,224 | 4,188,987 | 3,637,805 | 2,755,913 | |||||||||||||||||||||||||||||||||||||||
Continued vesting of restricted stock units | 25,830,936 | 6,180,408 | 4,912,632 | 3,803,328 | 1,992,521 | 1,743,192 | ||||||||||||||||||||||||||||||||||||||
Cash severance payment | 6,561,100 | 2,025,239 | 2,250,150 | 1,701,075 | 1,728,263 | 7,136,339 | 2,143,875 | 1,868,502 | 1,779,232 | 1,571,541 | 1,552,500 | |||||||||||||||||||||||||||||||||
Continued health care benefits | 23,532 | 29,768 | 33,715 | 33,715 | 29,768 | 23,122 | 29,227 | 33,066 | 29,227 | 20,766 | 29,227 | |||||||||||||||||||||||||||||||||
Outplacement services | 133,900 | 75,009 | 75,005 | 63,003 | 64,010 | 137,900 | 80,000 | 68,000 | 66,154 | 60,000 | 57,500 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
Total | $ | 40,377,267 | $ | 9,193,715 | $ | 9,458,087 | $ | 7,668,442 | $ | 6,558,058 | $ | 49,708,411 | $ | 12,038,730 | $ | 9,755,504 | $ | 8,059,065 | $ | 5,181,002 | $ | 4,862,763 | ||||||||||||||||||||||
Death | ||||||||||||||||||||||||||||||||||||||||||||
Annual cash incentive compensation | $ | 3,776,000 | $ | 1,167,000 | $ | 1,459,000 | $ | 948,000 | $ | 996,000 | ||||||||||||||||||||||||||||||||||
Annual cash incentive | $ | 3,284,000 | $ | 1,062,000 | $ | 876,000 | $ | 787,000 | $ | 761,000 | $ | 668,000 | ||||||||||||||||||||||||||||||||
Accelerated stock options | 9,611,799 | 2,334,778 | 2,218,878 | 1,859,216 | 1,443,553 | 15,722,022 | 3,932,229 | 3,118,308 | 2,476,363 | 1,439,746 | 1,430,357 | |||||||||||||||||||||||||||||||||
Accelerated PRSUs | 28,000,071 | 6,173,244 | 6,063,008 | 5,070,879 | 3,858,278 | |||||||||||||||||||||||||||||||||||||||
Accelerated restricted stock units | 34,546,896 | 8,399,016 | 6,655,824 | 5,229,576 | 3,434,616 | 2,852,496 | ||||||||||||||||||||||||||||||||||||||
Life insurance proceeds | 5,356,000 | 3,000,352 | 3,000,200 | 2,520,112 | N/A | 5,516,001 | 3,200,001 | 2,720,000 | N/A | N/A | N/A | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
Total | $ | 46,743,870 | $ | 12,675,374 | $ | 12,741,086 | $ | 10,398,207 | $ | 6,297,831 | $ | 59,068,919 | $ | 16,593,246 | $ | 13,370,132 | $ | 8,492,939 | $ | 5,635,362 | $ | 4,950,853 | ||||||||||||||||||||||
Disability | ||||||||||||||||||||||||||||||||||||||||||||
Annual cash incentive compensation | $ | 3,776,000 | $ | 1,167,000 | $ | 1,459,000 | $ | 948,000 | $ | 996,000 | ||||||||||||||||||||||||||||||||||
Annual cash incentive | $ | 3,284,000 | $ | 1,062,000 | $ | 876,000 | $ | 787,000 | $ | 761,000 | $ | 668,000 | ||||||||||||||||||||||||||||||||
Accelerated stock options | 9,611,799 | 2,334,778 | 2,218,878 | 1,859,216 | 1,443,553 | 15,722,022 | 3,932,229 | 3,118,308 | 2,476,363 | 1,439,746 | 1,430,357 | |||||||||||||||||||||||||||||||||
Accelerated PRSUs | 28,000,071 | 6,173,244 | 6,063,008 | 5,070,879 | 3,858,278 | |||||||||||||||||||||||||||||||||||||||
Accelerated restricted stock units | 34,546,896 | 8,399,016 | 6,655,824 | 5,229,576 | 3,434,616 | 2,852,496 | ||||||||||||||||||||||||||||||||||||||
Disability benefits | 803,400 | 450,053 | 450,030 | 378,017 | 384,058 | 827,400 | 480,000 | 408,000 | 396,924 | 360,000 | 345,000 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
Total | $ | 42,191,270 | $ | 10,125,075 | $ | 10,190,916 | $ | 8,256,112 | $ | 6,681,889 | $ | 54,380,318 | $ | 13,873,245 | $ | 11,058,132 | $ | 8,889,863 | $ | 5,995,362 | $ | 5,295,853 | ||||||||||||||||||||||
Change in Control with Termination | ||||||||||||||||||||||||||||||||||||||||||||
Annual cash incentive compensation | $ | 3,776,000 | $ | 1,167,000 | $ | 1,459,000 | $ | 948,000 | $ | 996,000 | ||||||||||||||||||||||||||||||||||
Annual cash incentive | $ | 3,284,000 | $ | 1,062,000 | $ | 876,000 | $ | 787,000 | $ | 761,000 | $ | 668,000 | ||||||||||||||||||||||||||||||||
Accelerated stock options | 9,611,799 | 2,334,778 | 2,218,878 | 1,859,216 | 1,443,553 | 15,722,022 | 3,932,229 | 3,118,308 | 2,476,363 | 1,439,746 | 1,430,357 | |||||||||||||||||||||||||||||||||
Accelerated PRSUs | 28,000,071 | 6,173,244 | 6,063,008 | 5,070,879 | 3,858,278 | |||||||||||||||||||||||||||||||||||||||
Accelerated restricted stock units | 34,546,896 | 8,399,016 | 6,655,824 | 5,229,576 | 3,434,616 | 2,852,496 | ||||||||||||||||||||||||||||||||||||||
Cash severance payment | 10,246,753 | 4,062,721 | 4,483,457 | 3,425,902 | 3,487,744 | 13,787,001 | 4,518,334 | 4,111,667 | 3,706,352 | 2,835,750 | 2,607,500 | |||||||||||||||||||||||||||||||||
Continued health care benefits | 23,532 | 29,768 | 33,715 | 33,715 | 29,768 | 23,122 | 29,227 | 33,066 | 29,227 | 20,766 | 29,227 | |||||||||||||||||||||||||||||||||
Outplacement services | 133,900 | 75,009 | 75,005 | 63,003 | 64,010 | 137,900 | 80,000 | 68,000 | 66,154 | 60,000 | 57,500 | |||||||||||||||||||||||||||||||||
Excise tax | -0- | N/A | N/A | -0- | N/A | -0- | N/A | 4,597,516 | N/A | N/A | N/A | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
Total | $ | 51,792,055 | $ | 13,842,520 | $ | 14,333,063 | $ | 11,400,715 | $ | 9,879,353 | $ | 67,500,941 | $ | 18,020,806 | $ | 19,460,381 | $ | 12,294,672 | $ | 8,551,878 | $ | 7,645,080 | ||||||||||||||||||||||
60 |
|
TheAs required by SEC requires us torules, we disclose below the 2021 annual total compensation of our CEO, John G. Morikis, the 2021 annual total compensation of our median employee, and the ratio of these amounts. We calculated the annual total compensation for both Mr. Morikis and our median employee as well as the ratio of their respective annual total compensation to each other (in each case, with annual total compensation calculated using the same methodology that is used for the Summary Compensation Table). The values are as follows for 2020:Table.
Mr. Morikis’ annual total compensation — $15,323,284$15,843,760
Our median employee’s annual total compensation — $46,839$43,321
Ratio of Mr. Morikis’ annual total compensation to our median employee’s annual total compensation — 327:366:1
We may identify our median employee for purposes of providing pay ratio disclosure once every three years and calculate and disclose total compensation for that employee each year; provided that, during the last completed fiscal year, there has been no change in the employee population or employee compensation arrangements that we reasonably believe would result in a significant change to the prior year’s CEO pay ratio disclosure. We reviewed the changes in our employee population and employee compensatory arrangements and determined there has been no change in our employee population or employee compensatory arrangements that would significantly impact the 2019 CEO pay ratio disclosure and ultimately require us to identify a new median employee for 2020. As a result, we used the same median employee for the 2020 CEO pay ratio as we did for the 2018 and 2019 CEO pay ratio disclosures.
For thethis pay ratio analysis of our employee population conducted in 2018,and to determine our median employee, we used November 1st1, 2021 as the determination date, to identify our median employee, which date was within the last three months of our 20182021 fiscal year. At November 1, 2018,2021, we employed 60,24261,496 persons in 58 countries, including 46,95151,116 full-time employees and 13,29110,380 part-time employees. We identified the median employee for our 2019 proxy statementas of the determination date using total cash compensation (base salary, including overtime and cash incentive compensation, where applicable), which was consistently applied across our entire global employee population for the trailing 12 months preceding November 1, 20182021 (excluding our CEO). Our 2018 assessment resulted in a Canadian employee being identified as our median employee, and the same employee was re-identified for the 2019 and 2020 CEO pay ratio disclosures. In determining our median employee, we did not use any of the permitted exemptions. We also did not rely on any material assumptions, adjustments (e.g., cost-of-living adjustments), or estimates (e.g., statistical sampling) to identify our median employee or determine annual total compensation or any elements of annual total compensation for our median employee or Mr. Morikis.
We calculated the median employee’s annual total compensation as described above for purposes of determining the ratio of Mr. Morikis’ annual total compensation to such employee’s annual total compensation. The median employee’s annual total compensation was paid in Canadian dollars and has been converted to U.S. dollars using a monthly average exchange rate.
|
|
61 |
Equity Compensation Plan Information
The following table provides information about our common stock that may be issued under our equity compensation plans at December 31, 2020.
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 | 3,872,364 | (1,2) | $ | 361.01 | (3) | 3,501,511(4) | |||||||||
Equity compensation plans | 21,167 | (5) | — | — | |||||||||||
|
|
|
|
|
| ||||||||||
Total | 3,893,531 | $ | 361.01 | (3) | 3,501,511(4) | ||||||||||
|
|
|
|
|
|
|
Proposal 2 — Advisory Approval of the Compensation of the Named Executives
We are asking our shareholders to approve, on an advisory, non-binding basis, the compensation of the named executives as disclosed in this Proxy Statement pursuant to SEC rules, including Section 14(a) of the Securities Exchange Act of 1934, as amended (Exchange Act). This annual vote is commonly known as “say-on-pay.” This vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executives and our executive compensation program and practices described in this Proxy Statement.
We are focused on delivering sustained financial and operating results with the ultimate goal of creating and maximizing long-term value for our shareholders. We believe our executive compensation program has been thoughtfully and appropriately designed and managed to support our overall business goals and strategies, to drive sustained performance, and to deliver superior shareholder returns.
Our objective is to ensure that our executive compensation program (a) iscompetitive byattracting, retaining, and motivating talented and high-performing executives, (b) maintains a pay for performance philosophy with a significant percentage of executive pay tightly linked to company and business unit performance, and (c) aligns the interests of our executives with those of our shareholders through significant stock ownership requirements and long-term stock incentive compensation that rewards our executives the way our shareholders are rewarded — through growth in the value of our stock. We believe our program achieves this objective.
The CD&A describes our executive compensation program, including detailed information about how and why we make executive compensation decisions, and the decisions made relating to 2020 compensation. We include a list of our more significant executive compensation practices, which promote responsible pay and governance principles and alignment with shareholder interests, in the Executive Summary of the CD&A.
Accordingly, the Board requests that you vote “for” the following resolution:
“RESOLVED, that Sherwin-Williams’ shareholders hereby approve, on an advisory basis, the compensation of the named executives as disclosed pursuant to the compensation disclosure rules of the SEC, including the Compensation Discussion and Analysis, the compensation tables, and any related material disclosed in this Proxy Statement.”
Although this advisory vote on the compensation of the named executives is not binding, the Board and Compensation Committee highly value the opinions of our shareholders. The results of this vote will provide information to the Compensation Committee about our shareholders’ views of our executive compensation program, which the Compensation Committee will be able to consider in the future when making executive compensation decisions. We intend to hold this vote annually, with the next vote expected to occur at our 2022 Annual Meeting of Shareholders. We will hold the next vote on the frequency of such say-on-pay vote at our 2023 Annual Meeting of Shareholders.
The Board of Directors unanimously recommends that you vote “FOR” Proposal 2
to approve, on an advisory basis, the compensation of the named executives.
|
|
|
Proposal 3 — Ratification of the Appointment of Ernst & Young LLP as Our Independent Registered Public Accounting Firm
The Audit Committee is directly responsible for the appointment, retention, compensation, evaluation, and oversight of our independent registered public accounting firm. To assure continuing audit independence and objectivity, the Audit Committee is involved in the selection of the firm’s lead engagement partner in accordance with SEC rules. Additionally, the Audit Committee has adopted a policy for pre-approving all audit and non-audit services to be performed by suchthe firm and assesses the impact the provision of any such non-audit services may have on the firm’s independence.
The Audit Committee has appointed Ernst & Young LLP (EY) as our independent registered public accounting firm to audit our consolidated financial statements for the fiscal year ending December 31, 2021. Ernst & Young2022. EY has served as our independent auditor since 1908. Information regarding the services provided to us by Ernst & YoungEY during 20192020 and 20202021 is set forth in this section under the heading “Matters Relating to the Independent Registered Public Accounting Firm.”
At the Annual Meeting, our shareholders are being asked to ratify the appointment of Ernst & YoungEY as our independent registered public accounting firm for 2021.2022. The Audit Committee believes the continued retention of Ernst & YoungEY as our independent registered public accounting firm for 20212022 is in the best interests of our companyCompany and shareholders.
Although shareholder ratification is not required under the laws of the State of Ohio, we are submitting the appointment of Ernst & YoungEY to our shareholders for ratification at the Annual Meeting as a matter of good corporate practice in orderand to provide a means by which our shareholders may communicate their opinions to the Audit Committee. If our shareholders do not ratify the appointment of Ernst & Young,EY, the Audit Committee will reconsider the appointment. Even if the appointment is ratified, the Audit Committee may appoint a different independent registered public accounting firm at any time during the year if the Audit Committee determines such a change would be in the best interests of our companyCompany and shareholders.
Representatives of Ernst & YoungEY are expected to be present at the Annual Meeting, and will have an opportunity to make a statement if they wishdesire to do so, and will be available to respond to appropriate shareholder questions.
The Board of Directors unanimously recommends that you vote “FOR”
Proposal 3 to ratify the appointment of Ernst & Young LLP
as Sherwin-Williams’ independent registered public accounting firm.
|
|
Matters Relating to the Independent Registered Public Accounting Firm
Fees Paid to Ernst & Young LLPEY
The following table sets forth the fees for services provided by Ernst & Young LLPEY during the fiscal years ended December 31, 20192020 and December 31, 2020.2021.
|
| 2020 | 2019 | 2021 |
|
| 2020 |
| |||||||||||||||||||||
Audit Fees | $ | 6,141,000 |
| $ | 7,050,000 |
| $5,957,000 |
|
| $6,141,000 |
| |||||||||||||||||
Audit-Related Fees |
| 135,000 |
|
| 230,000 |
| 214,000 |
|
| 135,000 |
| |||||||||||||||||
Tax Fees |
| 949,000 |
|
| 1,311,000 |
| 1,023,000 |
|
| 949,000 |
| |||||||||||||||||
All Other Fees |
| -0- |
|
| 975,000 |
| -0- |
|
| -0- |
| |||||||||||||||||
|
|
|
| |||||||||||||||||||||||||
Total | $ | 7,225,000 |
| $ | 9,566,000 |
| $7,194,000 |
|
| $7,225,000 |
| |||||||||||||||||
The following is a description of the nature of the services comprising the fees disclosed in the table above for each of the four categories of services.
Audit Fees. These are fees for professional services rendered by Ernst & YoungEY for the integrated audit of our annual consolidated financial statements and the effectiveness of internal control over financial reporting, the review of financial statements included in our Quarterly Reports on Form 10-Q, and certain audits of foreign subsidiary financial statements required by local statutes.
Audit-Related Fees. These are fees for assurance and related services rendered by Ernst & YoungEY that are reasonably related to the performance of the audit or the review of our financial statements and that are not included as audit fees. These include services that are rendered in connection with statutory and regulatory filings and engagements and employee benefit plan audits.
Tax Fees. These are fees for professional services rendered by Ernst & YoungEY with respect to tax compliance, tax advice, and tax planning. These services includeplanning, including the review of certain tax returns, tax audit assistance, and consulting on tax planning matters.
All Other Fees. These are fees for other services rendered by Ernst & YoungEY that do not meet the above category descriptions and are permissible under applicable laws and regulations.
Audit Committee Pre-Approval Policy
The Audit Committee is responsible for pre-approving all audit services and permitted non-audit services (including the fees and retention terms) to be performed for us by Ernst & YoungEY prior to its engagement for such services. The Audit Committee has adopted a pre-approval policy pursuant to which the Audit Committee establishes detailed pre-approved categories of non-audit services that may be performed by Ernst & YoungEY during the fiscal year, subject to dollar limitations set by the Audit Committee. The Audit Committee has also delegated to the chairChair of the Audit Committee the authority to pre-approve all audit and non-audit services when the entire Audit Committee is unable to pre-approve services. The chairChair reports to the Audit Committee at its next meeting all such services pre-approved since the last meeting.
All of the fees paid to Ernst & YoungEY for services rendered during 2020 and 2021 under the categories of Audit Fees, Audit-Related Fees, Tax Fees, and All Other Fees, as applicable, were pre-approved by the Audit Committee.
| 63 |
Management has primary responsibility for the integrity of Sherwin-Williams’ financial information and the financial reporting process, including the system of internal control over financial reporting. Ernst & Young LLP, Sherwin-Williams’ independent registered public accounting firm, is responsible for conducting independent audits of Sherwin-Williams’ financial statements and the effectiveness of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB) and expressing an opinion on the financial statements and the effectiveness of internal control over financial reporting based upon those audits. The Audit Committee is responsible for overseeing the conduct of these activities by management and Ernst & Young LLP.
As part of its oversight responsibility, the Audit Committee has reviewed and discussed the audited financial statements, the adequacy of financial controls, and the effectiveness of Sherwin-Williams’ internal control over financial reporting with management and Ernst & Young LLP. The Audit Committee also has discussed with Ernst & Young LLP the matters required to be discussed by the applicable requirements of the PCAOB and the SEC. The Audit Committee has received the written disclosures and the letter from Ernst & Young LLP required by applicable requirements of the PCAOB regarding the independent accountant’s communications with the Audit Committee concerning independence. The Audit Committee also has discussed with Ernst & Young LLP the firm’s independence.
Based upon these reviews and discussions, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in Sherwin-Williams’ Annual Report on Form 10-K for the fiscal year ended December 31, 2021 for filing with the SEC.
AUDIT COMMITTEE
Jeff M. Fettig, Chair
Arthur F. Anton
Richard J. Kramer
Aaron M. Powell
Marta R. Stewart
Matthew Thornton III
64 | 2022 PROXY STATEMENT |
Equity Compensation Plan Information
The following table provides information regarding our common stock that may be issued under our equity compensation plans at December 31, 2021.
Plan Category | Number of Be Issued upon Exercise of Outstanding (a) | Weighted-Average (b) | Number of Future Issuance under (c) | ||||||||||||
Equity compensation plans approved by security holders | 9,909,982 | (1) | $ | 147.83 | (2) | 10,152,287(3) | |||||||||
Equity compensation plans not approved by security holders | 22,722 | (4) | — | — | |||||||||||
|
|
|
|
|
| ||||||||||
Total | 9,932,704 | $ | 147.83 | (2) | 10,152,287(3) | ||||||||||
| 1 | Amount represents (a) 8,982,935 shares of common stock subject to outstanding stock options, 6,465 shares of common stock subject to outstanding RSUs, and 903,834 shares of common stock subject to outstanding PRSUs under our 2006 Equity and Performance Incentive Plan and (b) 16,748 shares of common stock subject to outstanding RSUs under our 2006 Stock Plan for Nonemployee Directors. PRSUs granted in 2019, which vested in February 2022 based upon the achievement of the performance goals for the three-year performance period that ended on December 31, 2021, reflect the actual level of performance. PRSUs granted in 2020 and 2021 assume the maximum level of performance. |
| 2 | The weighted average does not take into account shares relating to restricted stock units or shares relating to common stock units held by directors under our Director Deferred Fee Plan. |
| 3 | Amount represents 9,923,164 shares of common stock remaining available for future awards under our 2006 Equity and Performance Incentive Plan and 229,123 shares of common stock remaining available for future awards under our 2006 Stock Plan for Nonemployee Directors. |
| 4 | Amount represents 22,722 common stock units held by directors under our Director Deferred Fee Plan, which units are payable in stock generally upon the directors’ retirement. Additional information about our Director Deferred Fee Plan is set forth under the heading “Other Benefits” in the Director Compensation Program section. |
|
|
65
|
|
Security Ownership of Management, Directors, and Director Nominees
The following table sets forth as toinformation regarding shares of Sherwin-Williams common stock beneficially owned at February 22, 2022, the record date, and shares of common stock acquirable within 60 days of that date by (a) each current director and director nominee, and(b) each named executive, and (c) all current directors, director nominees, and executive officers as a group, information regarding the amount and nature of shares of our common stock beneficially owned at December 31, 2020.group. Unless otherwise noted, all of the directors, director nominees, and executive officersexecutives have sole voting and investment power over the shares of common stock listed or share voting and investment power with a spouse or child.spouse.
Name of Beneficial Owner | Shares of Common Stock(1) | Shares of Common Stock Acquirable within 60 days(2) | Total | Percent of Common Stock Beneficially Owned | Shares of Common Stock(1) |
| Shares of Common Stock Acquirable within 60 days(2) |
| Total |
| Percent of Common Stock Beneficially Owned |
| ||||||||||||||||||||||||||||||||||||||||||||||||
Kerrii B. Anderson |
| 224 |
| 181 |
| 405 |
| * |
| 1,821 |
| 802 |
| 2,623 |
| * | ||||||||||||||||||||||||||||||||||||||||||||
Arthur F. Anton |
| 12,892 |
| 349 |
| 13,241 |
| * |
| 40,629 |
| -0- |
| 40,629 |
| * | ||||||||||||||||||||||||||||||||||||||||||||
Justin T. Binns |
| 13,916 |
| 41,373 |
| 55,289 |
| * | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Jeff M. Fettig |
| 624 |
| 93 |
| 717 |
| * |
| 3,021 |
| 372 |
| 3,393 |
| * | ||||||||||||||||||||||||||||||||||||||||||||
Mary L. Garceau |
| 1,773 |
| 16,966 |
| 18,739 |
| * |
| 15,920 |
| 62,442 |
| 78,362 |
| * | ||||||||||||||||||||||||||||||||||||||||||||
Peter J. Ippolito |
| 12,001 |
| 17,458 |
| 29,459 |
| * |
| 46,479 |
| 57,243 |
| 103,722 |
| * | ||||||||||||||||||||||||||||||||||||||||||||
Richard J. Kramer |
| 4,912 |
| 3,501 |
| 8,413 |
| * |
| 16,689 |
| 10,196 |
| 26,885 |
| * | ||||||||||||||||||||||||||||||||||||||||||||
Susan J. Kropf |
| 7,007 |
| 349 |
| 7,356 |
| * | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Allen J. Mistysyn |
| 16,445 |
| 31,317 |
| 47,762 |
| * |
| 59,201 |
| 93,441 |
| 152,642 |
| * | ||||||||||||||||||||||||||||||||||||||||||||
John G. Morikis |
| 106,012 |
| 89,374 |
| 195,386 |
| * |
| 388,128 |
| 210,871 |
| 598,999 |
| * | ||||||||||||||||||||||||||||||||||||||||||||
Heidi G. Petz |
| 3,487 |
| 7,800 |
| 11,287 |
| * | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Christine A. Poon |
| 2,455 |
| 1,006 |
| 3,461 |
| * |
| 9,318 |
| 2,131 |
| 11,449 |
| * | ||||||||||||||||||||||||||||||||||||||||||||
Aaron M. Powell(3) |
| -0- |
| -0- |
| -0- |
| * | ||||||||||||||||||||||||||||||||||||||||||||||||||||
David B. Sewell |
| 6,087 |
| 32,962 |
| 39,049 |
| * | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Aaron M. Powell |
| -0- |
| 226 |
| 226 |
| * | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Marta R. Stewart |
| -0- |
| -0- |
| -0- |
| * | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Michael H. Thaman |
| 844 |
| 1,301 |
| 2,145 |
| * |
| 4,485 |
| 3,452 |
| 7,937 |
| * | ||||||||||||||||||||||||||||||||||||||||||||
Matthew Thornton III |
| 2,425 |
| 349 |
| 2,774 |
| * |
| 9,228 |
| -0- |
| 9,228 |
| * | ||||||||||||||||||||||||||||||||||||||||||||
Steven H. Wunning |
| 1,824 |
| 2,391 |
| 4,215 |
| * |
| 7,425 |
| 6,907 |
| 14,332 |
| * | ||||||||||||||||||||||||||||||||||||||||||||
All directors, director nominees, and executive officers as a group | 199,458 | 255,868 | 455,326 | * | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
All current directors, director nominees, | 657,719 |
| 594,236 |
| 1,251,955 |
| * |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
| * | Represents less than 1% of the total number of shares of common stock |
| 1 | These amounts include shares of common stock held under our |
| 2 | For named executives and executive officers, these amounts include shares of common stock for which the |
|
66 |
|
Security Ownership of Certain Beneficial Owners
The following table sets forth as to each beneficial ownerinformation regarding shares of Sherwin-Williams common stock beneficially owned by persons or groups known to us to ownbe beneficial owners of more than 5% of our common stock information regarding shares owned by each at December 31, 2020.outstanding.
Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percent of Class | Amount and Nature of Beneficial Ownership | Percent of Class(4) | ||||||||||||||||
The Sherwin-Williams Company | 7,318,468 | (1) | 8.2% | |||||||||||||||||
The Sherwin-Williams Company 401(k) Plan | 20,639,085 | (1) | 7.9% | |||||||||||||||||
The Vanguard Group | 7,030,205 | (2) | 7.8% | 20,613,398 | (2) | 7.9% | ||||||||||||||
BlackRock, Inc. | 5,921,534 | (3) | 6.6% | 17,169,250 | (3) | 6.6% | ||||||||||||||
| 1 | Shares of common stock owned pursuant to our |
| 2 | Based on a Schedule 13G/A filed on February 10, |
| 3 | Based on a Schedule 13G/A filed on February 1, |
| 4 | Based on 260,547,638 shares of common stock outstanding at February 22, 2022, the record date. |
Internet Availability of Proxy Materials
As permitted by SEC rules and regulations, we use the internet as the primary means of furnishing proxy materials to shareholders by sending a Notice of Internet Availability of Proxy Materials or email with instructions on how to access the proxy materials online at www.proxyvote.com and to request a printed copy of the proxy materials, if preferred.
If you received printed copies of the proxy materials this year and would like to access proxy materials online beginning next year, please follow the instructions located on our Investor Relations website, investors.sherwin-williams.com. We encourage shareholders to take advantage of the availability of proxy materials online to help reduce the environmental impact of our annual meetings and our related printing and mailing costs.
This Proxy Statement and our 2021 Annual Report are also available on our Investor Relations website, investor.sherwin-williams.com.
Eliminating Duplicate Mailings
Some brokers, banks, and similar organizations participate in the practice of “householding.” Under this procedure, beneficial owners of our common stock who share the same address or household may receive only one copy of our Notice of Internet Availability of Proxy Materials or, for those who received printed copies of proxy materials in the mail, only one copy of this Proxy Statement and our 2021 Annual Report, unless contrary instructions have been received from one or more of the shareholders. This procedure reduces our printing and mailing costs and supports our commitment to reduce the Company’s environmental footprint. Beneficial owners who participate in householding will continue to receive separate voting instruction forms.
We will promptly deliver to you upon written or oral request an additional copy of (i) our Notice of Internet Availability of Proxy Materials, this Proxy Statement, or our 2021 Annual Report or (ii) our proxy materials for future meetings if you write, email, or call us at: The Sherwin-Williams Company, 101 West Prospect Avenue, Cleveland, Ohio 44115-1075, Attention: Investor Relations; investor.relations@sherwin.com; or (216) 566-2000.
|
|
67
|
|
Other MattersIf you are a beneficial owner of our common stock and are receiving more than one copy of these proxy materials at a single address and would like to participate in householding in the future, please contact your broker, bank, or similar organization that holds your shares to request information about householding.
Certain Relationships and Transactions with Related Persons2021 Annual Report
As partWe will provide to each shareholder who is solicited to vote at the Annual Meeting, upon request and without charge, a copy of our Code2021 Annual Report. Please write, email, or call us at: The Sherwin-Williams Company, 101 West Prospect Avenue, Cleveland, Ohio 44115-1075, Attention: Investor Relations; investor.relations@sherwin.com; or (216) 566-2000.
Questions and Answers About the Annual Meeting
What is the purpose of Conduct, directors and employees are expected to make business decisions and take actions basedthe Annual Meeting?
During the Annual Meeting, shareholders will act upon the best interestsproposals outlined in the Notice of Sherwin-WilliamsAnnual Meeting of Shareholders. The agenda includes the following proposals:
| Item | Proposal | Board Recommendation | Page | |||
1
|
Election of 11 directors
|
|
21
| |||
2
|
Advisory approval of the compensation of the named executives
|
|
30
| |||
3
|
Ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm
|
|
62
| |||
At the Annual Meeting, our management also will report on Sherwin-Williams’ 2021 financial and operating performance and respond to questions from shareholders. We are not based upon personal relationshipsaware of any other matters that will be brought before the Annual Meeting for action.
How can I attend and participate in the Annual Meeting?
Virtual Meeting Format. We look forward to welcoming shareholders to the Annual Meeting. This year’s Annual Meeting will be held in a virtual format via webcast. We have designed the virtual Annual Meeting to provide shareholders with substantially the same opportunities to participate as if the Annual Meeting were held in person.
Attendance and Participation. If you were a shareholder at the close of business on the record date, February 22, 2022, you may attend and participate in the Annual Meeting on April 20, 2022 by visiting www.virtualshareholdermeeting.com/SHW2022 and entering the 16-digit control number included on your Notice of Internet Availability of Proxy Materials, proxy card, or benefits.voting instruction form. The Annual Meeting will begin promptly at 9:00 a.m. EDT. Online check-in will begin at 8:45 a.m. EDT. Please allow ample time for the online check-in process.
During the Annual Meeting, you may vote and submit questions by following the instructions provided on the meeting website. We will endeavor to answer as many questions submitted by shareholders as time permits. We reserve the right to exclude questions regarding topics that are not pertinent to meeting matters or Company business or that are inappropriate. If we receive substantially similar questions, we may group such questions together and provide a single response to avoid repetition. Any questions that are appropriate and pertinent to the Annual Meeting but cannot be answered during the Annual Meeting due to time constraints will be answered and posted on our Investor Relations website, investors.sherwin-williams.com, as soon as practicable after the Annual Meeting.
No recording of the Annual Meeting is permitted, including audio and video recording. Additional information regarding the rules of conduct for the Annual Meeting and other materials, including the list of our shareholders of record, will be available during the Annual Meeting on the meeting website.
Even if you plan to attend and participate in the Annual Meeting, we encourage you to vote your shares in advance using one of the methods described in this Proxy Statement to ensure that your vote will be represented at the Annual Meeting.
The Board recognizes that some transactions, arrangements,virtual Annual Meeting platform is fully supported across browsers and relationships presentdevices running the most updated version of applicable software and plugins. Attendees should ensure they have a heightened riskstrong Internet connection, allow plenty of an actual or perceived conflicttime to log in, and can hear streaming audio prior to the start of interest and has adopted a written policy governing these transactions. This policy governsthe Annual Meeting.
68 | 2022 PROXY STATEMENT |
Technical Difficulties. If you encounter any transaction, arrangement, or relationship (or any series of similar transactions, arrangements, or relationships) in which Sherwin-Williams wasdifficulties accessing the Annual Meeting during the last fiscal year, is,check-in or meeting time, please call the technical support number that will be a participant andposted on the amount involved exceeds $120,000, and in which anymeeting log-in page for assistance. Technical support will be available beginning approximately 15 minutes prior to the start of the following persons had, has,Annual Meeting through its conclusion.
Additional information regarding matters addressing technical and logistical issues, including technical support during the Annual Meeting, will be available on the meeting website.
Who is entitled to vote during the Annual Meeting?
You are entitled to vote during the Annual Meeting only if you were a record holder of our common stock at the close of business on the record date, February 22, 2022. At the close of business on the record date, 260,547,638 shares of common stock were outstanding. Each share owned on the record date is entitled to one vote. Beneficial owners of shares held in street name as of the record date may vote as provided below.
What is the difference between a shareholder of record and a beneficial owner of shares held in street name?
Shareholder of Record. If your shares are registered directly in your name with our transfer agent, EQ Shareowner Services, you are considered the shareholder of record with respect to those shares.
Beneficial Owner of Shares Held in Street Name. If your shares are held in an account at a broker, bank, or will have a direct or indirect material interest:
our directors, director nominees, or executive officers;
any person who is known to beother similar organization, you are the beneficial owner of more than 5%shares held in street name. The organization holding your account is considered the shareholder of any classrecord, and as a beneficial owner, you have the right to instruct that organization on how to vote the shares held in your account.
How do I vote?
Our shareholders have a choice of our voting securities;online, by phone, or by mail in advance of the Annual Meeting or voting online during the Annual Meeting. We encourage you to vote in advance of the Annual Meeting to ensure your vote will be represented at the Annual Meeting.
Voting in Advance of the Meeting. Except as provided below, if you wish to vote in advance of the meeting using one of the following methods, your vote must be received prior to 11:59 p.m. EDT on April 19, 2022.
| • | Online. To vote online, please visit www.proxyvote.com or, if you received printed copies of your proxy materials, scan the QR code located on your proxy card or voting instruction form—you will need the 16-digit control number included on your Notice of Internet Availability of Proxy Materials, proxy card, or voting instruction form. |
| • | Phone. To vote by phone, please call the number listed on your proxy card or voting instruction form and follow the recorded instructions—you will need the 16-digit control number included on your Notice of Internet Availability of Proxy Materials, proxy card, or voting instruction form. Your vote authorizes the proxy holders to vote your shares in the same manner as if you signed and returned your proxy card or voting instruction form by mail. |
| • | Mail. If you are a shareholder of record who received printed copies of your proxy materials, you may vote by signing, dating, and returning your proxy card in the enclosed prepaid envelope. The proxy holders will vote your shares in accordance with your directions. If you sign and return your proxy card, but do not properly direct how your shares should be voted on a proposal, the proxy holders will vote your shares “for” the election of each director nominee on Proposal 1 and “for” Proposals 2 and 3. If you sign and return your proxy card, the proxy holders will vote your shares according to their discretion on any other proposals and other matters that may be brought before the Annual Meeting. |
If you are a beneficial owner of shares held in street name who received printed copies of your proxy materials, you should complete, sign, date, and return the voting instruction form provided to you by your broker or nominee.
| • | Voting as a Participant in the Dividend Reinvestment Plan or 401(k) Plan. If you are a participant in one of these plans, your proxy card also serves as voting instructions for the number of shares for which you are entitled to direct the vote under each plan. You may vote your shares in the same manner outlined above for shareholders of record. |
If you are a participant in our 401(k) Plan, your voting instructions must be received prior to 11:59 p.m. EDT on April 17, 2022 in order to allow the trustee sufficient time for voting. If you are a 401(k) Plan participant and do not timely provide your voting instructions, the trustee will vote your shares in the same proportion as the trustee votes those shares for which it receives proper instructions.
| 69 |
any immediate familyVoting During the Annual Meeting.
| • | Shareholders of Record and Beneficial Owners. If you are a shareholder of record or a beneficial owner of shares held in street name, you may vote online during the Annual Meeting. You will need the 16-digit control number included on your Notice of Internet Availability of Proxy Materials, proxy card, or voting instruction form to log in to the virtual meeting platform at www.virtualshareholdermeeting.com/SHW2022. Voting electronically online during the Annual Meeting will replace any previous votes. |
| • | Dividend Reinvestment Plan or 401(k) Plan Participants. If you are a participant in one of these plans, you may attend and participate in the Annual Meeting, but you will not be able to vote the shares held in one of these plans electronically during the Annual Meeting. You must vote in advance of the Annual Meeting online, by phone, or by mail. |
What happens if I am a beneficial owner, and I do not give voting instructions?
If you are a beneficial owner and do not provide your broker with specific voting instructions, under NYSE rules, your broker may generally vote on routine matters but cannot vote on non-routine matters. Proposals 1 and 2 are considered non-routine matters. Therefore, if you do not instruct your broker on how to vote on Proposals 1 and 2, your broker does not have the authority to vote on those proposals. This is generally referred to as a “broker non-vote.” Proposal 3 is considered a routine matter and, therefore, your broker may vote your shares on this proposal according to your broker’s discretion.
Who tabulates the votes?
A representative of Broadridge Financial Solutions, Inc. will tabulate the votes and act as the independent inspector of election at the Annual Meeting.
What vote is required to approve each proposal?
Proposal 1 — Election of 11 Directors. As provided in our Amended and Restated Articles of Incorporation, each of the 11 director nominees who receives a majority of the votes cast will be elected as a member of anythe Board. A “majority of the foregoing persons;votes cast” means that the number of shares voted “for” a nominee’s election exceeds the number of shares voted “against” the nominee’s election. Abstentions and
any entity in which any of the foregoing persons is employed or is a partner or principal or in a similar position or in which such person has a 5% or greater beneficial ownership interest.
The Nominating Committee is responsible for reviewing and approving these transactions.
In response to an annual questionnaire, directors, director nominees, and executive officers are required to submit to the Nominating Committee a description of any current or proposed transaction and provide updates during the year. In addition, we will provide any similar information available broker non-votes with respect to any known transactions with beneficial ownersthe election of 5%one or more directors will not be counted as votes cast and, therefore, will have no effect on the vote.
Any incumbent nominee who receives a greater number of our voting securities. At each calendar year’s first regularly scheduled Nominating Committee meeting, management will provide information regarding transactions“against” votes than “for” votes shall continue to be entered into by Sherwin-Williamsserve on the Board pursuant to Ohio law, but is required to promptly tender his or her resignation for that calendar year.
If management becomes aware of any transactions subsequent to that meeting, such transactions may be presented for approval at the next meeting or, where it is not practicable or desirable to wait until the next meeting, to the chair of the Nominating Committee (who possesses delegated authority to act between meetings) subject to ratificationconsideration by the Nominating Committee at its next meeting. Inof the event management becomes aware of any transaction that was not approvedBoard. We provide more information about majority voting for directors under the policy, managementheading “Majority Voting for Directors” in the Corporate Governance Practices and Policies section.
Proposal 2 — Advisory Approval of the Compensation of the Named Executives. The approval, on an advisory basis, of the compensation of the named executives requires the affirmative vote of a majority of the votes cast. Abstentions and broker non-votes with respect to this proposal will presentnot be counted as votes cast and, therefore, will have no effect on the transaction tovote.
Proposal 3 — Ratification of the Nominating Committee for its action, which may include termination, amendment, orAppointment of Ernst & Young LLP as Our Independent Registered Public Accounting Firm. The ratification of the transaction.appointment of Ernst & Young as our independent registered public accounting firm requires the affirmative vote of a majority of the votes cast. Abstentions with respect to this proposal will not be counted as votes cast and, therefore, will have no effect on the vote. There will not be any broker non-votes with respect to this proposal, as it is considered a routine matter, as described above.
Other Items. Approval of all other proposals and other business as may properly come before the Annual Meeting requires the affirmative vote of a majority of the votes cast, except as otherwise required by statute or our Amended and Restated Articles of Incorporation or Regulations.
May I revoke or change my vote after I submit my proxy?
Yes. You can revoke or change your vote before the proxy holders vote your shares by timely:
giving a revocation to our Corporate Secretary in writing, in a verifiable communication prior to the Annual Meeting;
returning a later signed and dated proxy card or voting instruction form;
entering a new vote online or by phone prior to the Annual Meeting; or
voting online during the Annual Meeting.
70 | 2022 PROXY STATEMENT |
Where will I be able to find voting results of the Annual Meeting?
We intend to announce preliminary voting results at the Annual Meeting and publish final voting results in a Current Report on Form 8-K to be filed with the SEC within four business days after the Annual Meeting.
What constitutes a quorum for the Annual Meeting?
A “quorum” of shareholders is necessary for us to hold a valid Annual Meeting. For a quorum, there must be present, in person or by proxy, shareholders of record entitled to exercise not less than fifty percent of the voting power of Sherwin-Williams. Both abstentions and broker non-votes are counted for the purpose of determining the presence of a quorum.
Who pays the cost of this proxy solicitation?
The Nominating Committee (orenclosed proxy is solicited by the chair)Board, and Sherwin-Williams will approve only those transactions that arepay the entire cost of the solicitation. We retained Georgeson LLC to aid in or are not inconsistent with, the best interestssolicitation of Sherwin-Williams and our shareholders, as determined in good faith in accordance with its business judgment. proxies, for which it will receive a fee of approximately $16,000, plus reasonable expenses.
In addition, we may reimburse brokers, banks, and similar organizations for costs reasonably incurred by them in forwarding proxy materials to beneficial owners of our common stock. Our executive officers and other employees may also solicit the transaction mustreturn of proxies. Proxies will be on terms comparable to those that could be obtained in arm’s length dealings with an unrelated third party.
The Nominating Committee has reviewedsolicited by personal contact, mail, phone, and approved the following transaction. Peter J. Ippolito serves as President, TAG. Mr. Ippolito’s brother-in-law, Brian H. Schumann, is employed by Sherwin-Williams as a District Manager, but he does not directly report to Mr. Ippolito. Mr. Schumann’s total compensation for 2020, consisting of salary, annual incentive compensation, an equity grant, and retirement benefits, was approximately $249,415. His compensation is consistent with our compensation practices and principles based upon his position, responsibility, experience, tenure, and performance with Sherwin-Williams.electronic means.
Shareholder Proposals for the 20222023 Annual Meeting
Proposals to Be Included in the Proxy Statement
Under SEC rules, shareholder proposals submitted pursuant to Rule 14a-8 of the Exchange Act must be received at our principal executive offices, 101 West Prospect Avenue, 12th Floor, Midland Building, Cleveland, Ohio 44115-1075, Attention: Corporate Secretary, on or before November 10, 20219, 2022 in order to be considered for inclusion in the proxy materials relating to the 2022 Annual Meeting.2023 annual meeting. Upon timely receipt of any such proposal, we will determine whether to include such proposal in the proxy materials in accordance with applicable regulations governing the solicitation of proxies.
|
|
If an eligible shareholder, or a group of up to 20 eligible shareholders, desires to have a candidate for election as a director included in the proxy materials (a proxy access nominee) for the 2022 Annual Meeting,2023 annual meeting, such nomination shallmust conform to the applicable requirements set forth in our Regulations and any applicable SEC regulations concerning the submission and content of proxy access nominations, and must be submitted not earlier than October 11, 202110, 2022 and not later than the close of business on November 10, 20219, 2022 to us at our principal executive offices, 101 West Prospect Avenue, 12th Floor, Midland Building, Cleveland, Ohio 44115-1075, Attention: Corporate Secretary. Such requirements include, without limitation, providing information about the proposed director nominee and the nominating shareholder that is required to be included in a proxy statement under SEC and NYSE rules, any statement by the nominating shareholder about the proposed director nominee to be included in the proxy statement, and any other information that Sherwin-Williams or the Board requests and determines to include in the proxy statement relating to the proposed director nominee.
Proposals Not to Be Included in the Proxy Statement
Under our Regulations, shareholders must follow certain procedures to nominate a person for election as a director (not including a proxy access nominee) or to introduce an item of business at an Annual Meeting,annual meeting, which is not intended to be included in our proxy materials. These procedures provide that nominations for director nominees and/or an item of business to be introduced at an Annual Meetingannual meeting must be timely submitted in writing to us at our principal executive offices, 101 West Prospect Avenue, 12th Floor, Midland Building, Cleveland, Ohio 44115-1075, Attention: Corporate Secretary. In addition, these procedures include, without limitation: providing information about the proposed director nominee specified in the Regulations, including information that would be required to be disclosed in a proxy statement or other filing under Section 14(a) of the Exchange Act; a description of all direct and indirect compensation and other arrangements between the proposed director nominee and the nominating shareholder; a completed questionnaire with respect to the identity, background, and qualifications of the proposed director nominee; and a written agreement from the proposed director nominee that includes a representation that such person, if elected, will serve for the entire term for which he or she is standing for election.
To be timely, a shareholder’s notice must be delivered to, or mailed and received at, our principal executive offices not fewer than 60 nor more than 90 calendar days prior to the Annual Meeting.annual meeting. In the event that public announcement of the date of the Annual Meetingannual meeting is not made at least 75 calendar days prior to the date of the Annual Meetingannual meeting and it is held on a date more than 10 calendar days before or after the first anniversary of the date on which the prior year’s Annual Meetingannual meeting was held, notice by the shareholder, to be timely, must be received not later than the close of business on the 10th calendar day following the day on which public announcement is first made of the date of the Annual Meeting.annual meeting.
| 71 |
These time limits also apply in determining whether notice is timely for purposes of SEC rules relating to the exercise of discretionary voting authority. If we do not receive timely notice, or if we meet other SEC requirements, the persons named as proxies in the proxy materials for that meeting will use their discretion in voting at the meeting.
Our Regulations set forth specific, detailed requirements for the notice. You canmay access a copy of our Regulations on our Investor Relations website, investors.sherwin-williams.com. You may also receive a copy of our Regulations by writing toor emailing us at: The Sherwin-Williams Company, 101 West Prospect Avenue, 12th Floor, Midland Building, Cleveland, Ohio 44115-1075, Attention: Investor Relations.
Eliminating Duplicate Mailings
Some banks, brokers, and other nominees participate in the practice of “householding” annual reports, proxy statements, and Notices of Internet Availability of Proxy Materials. This means that beneficial holders of our common stock who share the same address or household may not receive separate copies of this Proxy Statement, the Notice of Internet Availability of Proxy Materials, and our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the 2020 Annual Report). We will promptly deliver upon written or oral request an additional copy of this Proxy Statement, the Notice of Internet Availability of Proxy Materials, or our 2020 Annual Report to you if you write or call us at: The Sherwin-Williams Company, 101 West Prospect Avenue, 12th Floor, Midland Building, Cleveland, Ohio 44115-1075, Attention: Investor Relations, (216) 566-2000.Relations; investor.relations@sherwin.com.
Compliance with Universal Proxy Rules for Director Nominations
In addition to satisfying the requirements under our Regulations, if a shareholder intends to comply with the universal proxy rules (once effective) and to solicit proxies in support of director nominees other than Sherwin-Williams’ nominees, the shareholder must provide notice that sets forth the information required by Rule 14a-19 under the Exchange Act, which notice must be postmarked or transmitted electronically to us at our principal executive offices no later than 60 calendar days prior to the one-year anniversary date of the annual meeting (for the 2023 annual meeting, no later than February 19, 2023). If you are receivingthe date of the 2023 annual meeting is changed by more than one copy30 calendar days from such anniversary date, however, then the shareholder must provide notice by the later of this Proxy Statement,60 calendar days prior to the Noticedate of Internet Availabilitythe 2023 annual meeting and the 10th calendar day following the date on which public announcement of Proxy Materials, or our 2020 Annual Report at a single address and would like to participate in householding in the future, please contact us atdate of the address or phone number above. Shareholders who hold their shares in street name may contact their brokerage firm, bank, broker-dealer, or other similar organization to request information about householding.2023 annual meeting is first made.
|
|
We will provide to each shareholder who is solicited to vote at the Annual Meeting, upon the request of such person and without charge, a copy of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. Please write or call us at: The Sherwin-Williams Company, 101 West Prospect Avenue, 12th Floor, Midland Building, Cleveland, Ohio 44115-1075, Attention: Investor Relations, (216) 566-2000.
Questions and Answers About the Annual Meeting
What is the purpose of the Annual Meeting?
During the Annual Meeting, shareholders will act upon the proposals outlined in the Notice of Annual Meeting of Shareholders. The agenda includes the following proposals:
| Item | Proposals | Board Recommendations | Page | |||
1
|
Election of 10 directors
|
|
16
| |||
2
|
Advisory approval of the compensation of the named executives
|
|
63
| |||
3
|
Ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm
|
|
64
| |||
In addition, our management will report on Sherwin-Williams’ 2020 financial and operating performance and respond to questions from shareholders. We are not aware of any other matters that will be brought before the Annual Meeting for action.
How can I attend and participate in the Annual Meeting?
Virtual Meeting Format. We look forward to welcoming shareholders to the Annual Meeting. Due to the COVID-19 pandemic, the Annual Meeting will be held in a virtual format again this year to protect the health and well-being of our shareholders and employees. We have designed the virtual Annual Meeting to provide shareholders with substantially the same opportunities to participate as if the Annual Meeting were held in person.
Attendance and Participation. If you were a shareholder at the close of business on the record date, February 23, 2021, you may attend and participate in the Annual Meeting on April 21, 2021 by visiting www.virtualshareholdermeeting.com/SHW2021 and entering the 16-digit control number included on your Notice of Internet Availability of Proxy Materials, proxy card, or voting instruction form. The Annual Meeting will begin promptly at 9:00 a.m. EDT. Online check-in will begin at 8:45 a.m. EDT. Please allow ample time for the online check-in process.
During the Annual Meeting, you may vote and submit questions by following the instructions provided on the meeting website. We will endeavor to answer as many questions submitted by shareholders as time permits. We reserve the right to exclude questions regarding topics that are not pertinent to meeting matters or company business or are inappropriate. If we receive substantially similar questions, we may group such questions together and provide a single response to avoid repetition. Any questions that are appropriate and pertinent to the Annual Meeting but cannot be answered during the Annual Meeting due to time constraints will be answered and posted on our Investor Relations website, investors.sherwin-williams.com, as soon as practicable after the Annual Meeting.
No recording of the Annual Meeting is permitted, including audio and video recording. Additional information regarding the rules of conduct for the Annual Meeting and other materials, including the list of our shareholders of record, will be available during the Annual Meeting on the meeting website.
Even if you plan to attend and participate in the Annual Meeting, we encourage you to vote your shares in advance using one of the methods described in this Proxy Statement to ensure that your vote will be represented at the Annual Meeting.
The virtual Annual Meeting platform is fully supported across browsers and devices running the most updated version of applicable software and plugins. Attendees should ensure they have a strong Internet connection, allow plenty of time to log in, and can hear streaming audio prior to the start of the Annual Meeting.
Technical Difficulties. If you encounter any difficulties accessing the Annual Meeting during the check-in or meeting time, please call the technical support number that will be posted on the meeting log-in page for assistance. Technical support will be available beginning approximately 15 minutes prior to the start of the Annual Meeting through its conclusion.
|
|
Additional information regarding matters addressing technical and logistical issues, including technical support during the Annual Meeting, will be available on the meeting website.
Who is entitled to vote during the Annual Meeting?
You are entitled to vote during the Annual Meeting only if you were a record holder of our common stock at the close of business on the record date, February 23, 2021. At the close of business on the record date, 89,209,161 shares of common stock were outstanding. Each share owned on the record date is entitled to one vote. Beneficial owners of shares held in street name as of the record date may vote as provided below.
What is the difference between a shareholder of record and a beneficial owner of shares held in street name?
Shareholder of Record. If your shares are registered directly in your name with our transfer agent, EQ Shareowner Services, you are considered the shareholder of record with respect to those shares.
Beneficial Owner of Shares Held in Street Name. If your shares are held in an account at a broker, bank, or other similar organization, you are the beneficial owner of shares held in street name. The organization holding your account is considered the shareholder of record, and as a beneficial owner, you have the right to instruct that organization on how to vote the shares held in your account.
How do I vote?
Our shareholders have a choice of voting online, by phone, or by mail in advance of the Annual Meeting or voting online during the Annual Meeting. We encourage you to vote in advance of the Annual Meeting to ensure your vote will be represented at the Annual Meeting.
Voting in Advance of the Meeting. Except as provided below, if you wish to vote in advance of the meeting using one of the following methods, your vote must be received prior to 11:59 p.m. EDT on April 20, 2021.
|
|
|
If you are a beneficial owner of shares held in street name who received printed copies of your proxy materials, you should complete, sign, date, and return the voting instruction form provided to you by your broker or nominee.
|
If you are a participant in our ESPP, your voting instructions must be received prior to 11:59 p.m. EDT on April 18, 2021 in order to allow the trustee sufficient time for voting. If you are an ESPP participant and do not timely provide your voting instructions, the trustee will vote your shares in the same proportion as the trustee votes those shares for which it receives proper instructions.
Voting During the Annual Meeting.
|
|
|
|
|
What happens if I am a beneficial owner, and I do not give voting instructions?
If you are a beneficial owner and do not provide your broker with specific voting instructions, under the rules of the NYSE, your broker may generally vote on routine matters but cannot vote on non-routine matters. Proposals 1 and 2 are considered non-routine matters. Therefore, if you do not instruct your broker how to vote on Proposals 1 and 2, your broker does not have the authority to vote on those proposals. This is generally referred to as a “broker non-vote.” Proposal 3 is considered a routine matter and, therefore, your broker may vote your shares on this proposal according to your broker’s discretion.
Who tabulates the votes?
A representative of Broadridge Financial Solutions, Inc. will tabulate the votes and act as the independent inspector of election at the Annual Meeting.
What vote is required to approve each proposal?
Election of Directors (Proposal 1). As provided in our Amended and Restated Articles of Incorporation, each of the 10 director nominees who receives a majority of the votes cast will be elected as a member of the Board. A “majority of the votes cast” means that the number of shares voted “for” a nominee’s election exceeds the number of shares voted “against” the nominee’s election. Abstentions and broker non-votes with respect to the election of one or more directors will not be counted as a vote cast and, therefore, will have no effect on the vote.
Any incumbent nominee who receives a greater number of “against” votes than “for” votes shall continue to serve on the Board pursuant to Ohio law, but is required to promptly tender his or her resignation for consideration by the Nominating Committee of the Board. We provide more information about majority voting for directors under the heading “Majority Voting for Directors” in the “Corporate Governance” section.
Advisory Approval of the Compensation of the Named Executives (Proposal 2). The approval, on an advisory basis, of the compensation of the named executives requires the affirmative vote of a majority of the votes cast. Abstentions and broker non-votes with respect to this proposal will not be counted as a vote cast and, therefore, will have no effect on the vote.
Ratification of the Appointment of Ernst & Young LLP as Our Independent Registered Public Accounting Firm (Proposal 3). The ratification of the appointment of Ernst & Young as our independent registered public accounting firm requires the affirmative vote of a majority of the votes cast. Abstentions with respect to this proposal will not be counted as votes cast and, therefore, will have no effect on the vote. There will not be any broker non-votes with respect to this proposal, as it is considered a routine matter, as described above.
Other Items. Approval of all other proposals and other business as may properly come before the Annual Meeting requires the affirmative vote of a majority of the votes cast, except as otherwise required by statute or our Amended and Restated Articles of Incorporation or Regulations.
May I revoke or change my vote after I submit my proxy?
Yes. You can revoke or change your vote before the proxy holders vote your shares by timely:
giving a revocation to our Corporate Secretary in writing, in a verifiable communication prior to the Annual Meeting;
returning a later signed and dated proxy card or voting instruction form;
entering a new vote online or by phone prior to the Annual Meeting; or
voting online during the Annual Meeting.
Where will I be able to find voting results of the Annual Meeting?
We intend to announce preliminary voting results at the Annual Meeting and publish final voting results in a Current Report on Form 8-K to be filed with the SEC within four business days after the Annual Meeting.
72 |
|
What constitutes a quorum for the Annual Meeting?
A “quorum” of shareholders is necessary for us to hold a valid Annual Meeting. For a quorum, there must be present, in person or by proxy, shareholders of record entitled to exercise not less than fifty percent of the voting power of Sherwin-Williams. Both abstentions and broker non-votes are counted for the purpose of determining the presence of a quorum.
Who pays the cost of this proxy solicitation?
The enclosed proxy is solicited by the Board, and Sherwin-Williams will pay the entire cost of solicitation. We retained Georgeson LLC to aid in the solicitation of proxies, for which it will receive a fee estimated at $16,000, plus reasonable expenses.
In addition, we may reimburse banks, brokers, and other nominees for costs reasonably incurred by them in forwarding proxy materials to beneficial owners of our common stock. Our executive officers and other employees may also solicit the return of proxies. Proxies will be solicited by personal contact, mail, phone, and electronic means.
Are the Proxy Statement and 2020 Annual Report available on the Internet?
Yes. This Proxy Statement and our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 are available at www.proxyvote.com.
You may help us save money in the future by accessing your proxy materials online instead of receiving printed copies in the mail. If you received printed copies and would like to access proxy materials online beginning next year, please follow the instructions located on our Investor Relations website, investors.sherwin-williams.com.
|
|
Director Independence Standards
The Board of Directors of The Sherwin-Williams Company has adopted the following Director Independence Standards to assist the Board in determining the independence of a director. To be considered “independent,” the Board must affirmatively determine that the director has no material relationship with Sherwin-Williams (either directly or as a partner, shareholder or officer of an organization that has a relationship with Sherwin-Williams). In each case, the Board shall broadly consider all relevant facts and circumstances, including the director’s commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships. The Board shall also consider such other criteria as the Board may determine from time to time.
|
|
|
|
|
|
|
|
|
For purposes of these Director Independence Standards, “immediate family member” includes a person’s spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone (other than domestic employees) who shares such person’s home.
|
|
Calculation of Financial Measures
We have included in this Proxy Statement measures of financial performance that are not in accordance with U.S. generally accepted accounting principles (GAAP). We believe these financial measures are the most appropriate measures to use for our incentive programs. These financial measures may not be comparable to similarly titled measures reported by other companies. We describe below how we calculate each of these financial measures.
Annual Cash Incentive Compensation Program
Net SalesAdjusted Earnings Per Share
We calculate Net Salesearnings per share (EPS) as diluted net consolidated external salesincome per common share (as determined in accordance with GAAP). For purposes of determining achievement, the Compensation Committee added $230 million to the achievement level (i) $0.99 per share, which represents less than the full net impact of Winter Storm Uri and Hurricane Ida on gross profit and supply chain inefficiencies attributed to significant raw material shortages that restricted inventory production and hindered sales during 2021, partially offset by lower selling, general, and administrative expenses, and (ii) $0.34 per share, which represents the estimated net impact ofloss from the COVID-19 pandemic attributed to lost net sales, as further described in the CD&A.Wattyl divestiture.
Adjusted Free Cash Flow
We calculate Free Cash Flowfree cash flow (FCF) as net operating cash (as determined in accordance with GAAP), less capital expenditures and cash dividends paid. At the beginning of the performance period, we excluded the budgeted impact of the construction of our new headquarters and research and development center so that the metric would more accurately represent our underlying business operations. For purposes of determining achievement, the Compensation Committee added to the achievement level $350 million, which represents less than the full net income impact of Winter Storm Uri and Hurricane Ida attributed to significant raw material shortages that restricted inventory production and hindered sales, and additional inventory, partially offset by lower accounts receivables.
TAG Sales
We calculate TAG Salessales as net external sales (as determined in accordance with GAAP). For purposes of determining achievement, the Compensation Committee added $470 million to the achievement level $373 million, which represents the estimatedfull net impact of the COVID-19 pandemicWinter Storm Uri and Hurricane Ida attributed to lost TAG sales, as further described in the CD&A.sales.
Profit Before Taxes
We calculate each of TAG RONAEPBT and PCG PBT in accordance with GAAP. For purposes of determining achievement, the Compensation Committee added to the achievement levels $215 million and $75 million for TAG PBT and PCG PBT, respectively, which represent less than the full net income impact of Winter Storm Uri and Hurricane Ida for each metric.
Return on Net Assets Employed
We calculate TAG RONAE by dividing TAG PBT (as determined in accordance with GAAP), excluding any items relating to unusual events or which result in a distortion of comparative results, by the TAG twelve-month average net assets employed, which is the sum of net accounts receivable, total inventory, net fixed assets, total intangible assets, and goodwill, less accounts payable.
We calculate PCG RONAE by dividing PCG PBT (as determined in accordance with GAAP), excluding any items relating to unusual events or which result in a distortion of comparative results, by the PCG twelve-month average net assets employed, which is the sum of net accounts receivable, total inventory, net fixed assets, total intangible assets, and goodwill, less accounts payable.
For purposes of determining achievement, the Compensation Committee added to the achievement levels 588 and 385 basis points for TAG RONAE and PCG RONAE, respectively, which represent less than the full net income impact of Winter Storm Uri and Hurricane Ida for TAG RONAE and the impact of raw material availability on PCG RONAE.
| A-1 |
Long-Term Equity Incentive Compensation Program
Performance-Based Restricted Stock Units (2018 — 2020(2019 – 2021 Performance Period)
Adjusted EPS. We calculate Adjustedadjusted EPS as diluted net income per common share (as determined in accordance with GAAP) on a cumulative basis over the three-year performance period, excluding the following:excluding: (a) thea net cumulative impact of total unbudgeted Valspar acquisition-related integration costs resulting in a charge of $10.04$0.29 per share andshare; (b) a net charge of $4.13$0.81 per share for other adjustments, including California litigation expense, environmental expense provision, pension plan settlement expense, tax credit investment loss, trademark impairment, and the Wattyl divestiture, partially offset by tax credits and trademark impairment.a benefit from the resolution of the California litigation.
Adjusted RONAE. We calculate Adjustedadjusted RONAE by dividing net income (as determined in accordance with GAAP) by the twelve-month average net assets employed, which is the sum of net accounts receivable, total inventory, customer investments, net fixed assets, total intangible assets and goodwill, less accounts payable, excluding the following impacts on net income: (a) a net cumulative impact of total unbudgeted Valspar acquisition-related integration costs resulting in a charge $940.5 millionof $81 million; and (b) a net charge of $389.6$222 million for other adjustments, including California litigation expense, environmental expense provision, pension plan settlement expense, tax credit investment loss, trademark impairment, and the Wattyl divestiture, partially offset by tax credits and trademark impairment.a benefit from the resolution of the California litigation.
Performance-Based Restricted Stock Units (2020 — 2022(2021 – 2023 Performance Period)
Adjusted EPS. We calculate Adjustedadjusted EPS as diluted net income per common share (as determined in accordance with GAAP) on a cumulative basis over the three-year performance period, excluding any items relating to unusual events or which result in a distortion of comparative results.
Adjusted RONAE. We calculate Adjustedadjusted RONAE by dividing net income (excluding any items relating to unusual events or which result in a distortion of comparative results) by the twelve-month average net assets employed, which is the sum of
|
|
net accounts receivable, total inventory, customer investments, net fixed assets, total intangible assets, and goodwill, less accounts payable.
Adjusted EPS and Adjustedadjusted RONAE, for the purpose of determining achievement, may be calculated without regard to: (a) the acquisition or disposition of a business with pro-forma annualized sales in excess of $50 million, including but not limited to, (i) costs, fees, and/or expenses related to the negotiation, completion, and/or integration of such acquisition or disposition, (ii) any related severance and restructuring costs related to such acquisition or disposition, (iii) any costs related to acquisition-related amortization expense, or the write-down or impairment of, tangible or intangible assets associated with such acquisition or disposition, (iv) any costs, fees, and/or expenses related to an unsuccessful attempt related to such acquisition or disposition, and (v) any costs, fees, and/or expenses, including attorneys’ fees, relating to litigation involving such acquisition or disposition or such unsuccessfully attempted acquisition or disposition (including, in each case, claim judgments, civil penalties, and settlements); and (b) any unusual, infrequent or non-recurring items determined in accordance with GAAP, including, but not limited to, such items described in management’s discussion and analysis of financial condition and results of operations or the financial statements and notes thereto appearing in Sherwin-Williams’ Annual Reports on Forms 10-K.
|
|
THE SHERWIN-WILLIAMS COMPANY
101 WEST PROSPECT AVENUE
CLEVELAND, OHIO 44115-1075
|
| |||||
| ||||||
| ||||||
| ||||||
|
VOTE BY INTERNET Before The Meeting - Go to www.proxyvote.com or scan the QR Barcode above Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m. Eastern Daylight Time on April 19, 2022 for shares held directly or in the Dividend Reinvestment Plan, and up until 11:59 p.m. Eastern Daylight Time on April 17, 2022 for shares held in the 401(k) Plan. Have your proxy card in hand when you access the website and follow the instructions to obtain your records and to create an electronic voting instruction form. During The Meeting - Go to www.virtualshareholdermeeting.com/SHW2022 You may attend the meeting via the Internet and vote during the meeting. Have the information that is printed in the box marked by the arrow available and follow the instructions. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m. Eastern Daylight Time on April 19, 2022 for shares held directly or in the Dividend Reinvestment Plan, and up until 11:59 p.m. Eastern Daylight Time on April 17, 2022 for shares held in the 401(k) Plan. 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. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: D70194-P65296-Z81656 KEEP THIS PORTION FOR YOUR RECORDS — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — DETACH AND RETURN THIS PORTION ONLY | ||||
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
THE SHERWIN-WILLIAMS COMPANY
The Board of Directors recommends a vote “FOR” each nominee under Proposal 1 and “FOR” Proposals 2 and 3. | ||||||||||||||
| 1. | Election of Directors: | For | Against | Abstain | ||||||||||
| 1a. | Kerrii B. Anderson | ☐ | ☐ | ☐ | ||||||||||
| 1b. | Arthur F. Anton | ☐ | ☐ | ☐ | ||||||||||
| 1c. | Jeff M. Fettig | ☐ | ☐ | ☐ | ||||||||||
| 1d. | Richard J. Kramer | ☐ | ☐ | ☐ | ||||||||||
| 1e. | John G. Morikis | ☐ | ☐ | ☐ | ||||||||||
| 1f. | Christine A. Poon | ☐ | ☐ | ☐ | ||||||||||
| 1g. | Aaron M. Powell | ☐ | ☐ | ☐ | ||||||||||
| 1h. | Marta R. Stewart | ☐ | ☐ | ☐ | ||||||||||
| Michael H. Thaman | ☐ | ☐ | ☐ | |||||||||||
| Matthew Thornton III | ☐ | ☐ | ☐ | |||||||||||
| Steven H. Wunning | ☐ | ☐ | ☐ | |||||||||||
| For | Against | Abstain | ||||||||||||||||
| 2. | Advisory approval of the compensation of the named executives. | ☐ | ☐ | ☐ | ||||||||||||||
| 3. |
| ☐ | ☐ | ☐ | ||||||||||||||
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED “FOR” EACH NOMINEE UNDER PROPOSAL 1 AND “FOR” PROPOSALS 2 AND 3. | ||||||||||||||||||
Please sign your name exactly as it appears on this Proxy. If held in joint tenancy, all persons should sign. Trustees, administrators, etc., should include title and authority. Corporations should provide full name of corporation and title of authorized officer signing this Proxy. | ||||||||||||||
Signature [PLEASE SIGN WITHIN BOX] | Date | Signature | Date | |||||||||||
2021
2022 ANNUAL MEETING OF SHAREHOLDERS
THE SHERWIN-WILLIAMS COMPANY
Wednesday, April 21, 2021,20, 2022, 9:00 A.M. (EDT)
|
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
Important notice regarding the availability of Proxy Materials for theANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 20, 2022.
Annual Meeting of Shareholders to be held on April 21, 2021.
TheOur Notice of Annual Meeting, Proxy Statement and 20202021 Annual Report to Shareholders are available at: www.proxyvote.com.
— — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — —
|
D34201-P50086D70195-P65296-Z81656
THE SHERWIN-WILLIAMS COMPANY
ANNUAL MEETING OF SHAREHOLDERS — APRIL 21, 2021
20, 2022
The undersigned hereby appoints John G. Morikis, Allen J. Mistysyn and Mary L. Garceau, 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 common stock of The Sherwin-Williams Company that 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 to be held on April 21, 202120, 2022 or at any adjournment or postponement thereof, with all powers which the undersigned would possess if present at the Annual Meeting. This card also provides voting instructions for shares of common stock, if any, held for the account of the undersigned by the administrator of our Dividend Reinvestment Plan and by the trustee of our Employee Stock Purchase and Savings401(k) Plan.
This card is solicited jointly by the Board of Directors, the administrator of our Dividend Reinvestment Plan and the trustee of our Employee Stock Purchase and Savings401(k) Plan. If you do not timely sign and return this card, the proxy holders cannot vote these shares (or, in the case of our Employee Stock Purchase and Savings401(k) Plan, if you do not sign and return this card by 11:59 p.m. Eastern Daylight Time on April 18, 2021,17, 2022, these shares will be voted in the same proportion as the trustee votes those shares for which it receives proper instructions).
TO VOTE ONLINE OR BY PHONE, SEE REVERSE SIDE OF THIS PROXY CARD.
FOR each nominee
