The Timken Company Notice of the 2021 Annual Meeting of Shareholders and Proxy Statement
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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The Timken Company Notice of the 2021 Annual Meeting of Shareholders and Proxy Statement
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 | John M. Timken, Jr. Chairman – Board of Directors | |||||||
The Timken Company 4500 Mt. Pleasant Street NW North Canton, OH 44720
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March 17, 202118, 2022
Dear Fellow Timken Shareholder:
Your Board of Directors is pleased to invite you to the 20212022 Annual Meeting of Shareholders of The Timken Company to be held on Friday, May 7, 2021,6, 2022, at 10:00 a.m. local time. While we would have preferred to hold the meeting at the company’s world headquarters in North Canton, Ohio, weWe will conduct this year’s meeting in an online-only format, with attendance via the internet, due to the ongoing pandemic. We currently expect to resume holding in-person meetings in the future once it is safe to do so.
This year, you are being asked to act upon four matters. Three of these matters (Proposals No. 1-3) have been unanimously recommended by your Board of Directors, while one of these matters (Proposal No. 4) is a shareholder proposal that is not supported by your Board of Directors. Details of these matters, along with the recommendations of your Board of Directors, are contained in the accompanying Notice of 20212022 Annual Meeting of Shareholders and Proxy Statement.
Please read the enclosed information carefully before voting your shares. Voting your shares as soon as possible will ensure your representation at the meeting, whether or not you plan to attend.
I want to thank you for your continuous support of our business over the years and I look forward to strong participation and a similar vote of support at the 20212022 Annual Meeting of Shareholders.
Sincerely,
John M. Timken, Jr.
Chairman – Board of Directors
Engineered Bearings |I Mechanical Power Transmission Products |I Industrial Services
THE TIMKEN COMPANY
North Canton, Ohio
NOTICE OF 20212022 ANNUAL MEETING OF SHAREHOLDERS
The 20212022 Annual Meeting of Shareholders of The Timken Company will be held on Friday, May 7, 2021,6, 2022, at 10:00 a.m. local time, in an online-only format, with attendance via the internet at the following web address: www.cesonlineservices.com/tkr21_vmtkr22_vm. You will not be able to attend this meeting in person due to the ongoing pandemic. We currently expect to resume holding in-person meetings in the future once it is safe to do so.
The meeting is being held for the following purposes:
1. Election of 12 Directors to serve for a term of one year; |
2. Approval, on an advisory basis, of our named executive officer compensation; |
3. Ratification of the appointment of Ernst & Young LLP as our independent auditor for the fiscal year ending December 31, |
4. Consideration of a shareholder proposal |
5. Consideration of such other business as may properly come before the meeting. |
Shareholders of record of common shares of The Timken Company at the close of business on February 22, 20212022 are the shareholders entitled to notice of and to vote at the meeting.
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO PARTICIPATE IN THE ONLINE-ONLY 20212022 ANNUAL MEETING OF SHAREHOLDERS, PLEASE SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE POSTAGE-PAID ENVELOPE PROVIDED OR VOTE YOUR SHARES ELECTRONICALLY THROUGH THE INTERNET OR BY TELEPHONE. VOTING INSTRUCTIONS ARE PROVIDED ON THE ENCLOSED PROXY CARD.
Effect of Not Casting Your Vote. Under New York Stock Exchange rules, if you hold your shares in “street name” through a brokerage account, your broker will NOT be able to vote your shares for you on most of the matters being considered at the 20212022 Annual Meeting of Shareholders, including the election of Directors, unless you have given instructions to your broker prior to the meeting.
In order to attend the online-only meeting, you will need to pre-register by 10:00 a.m. Eastern Time on May 6, 2021.5, 2022. To pre-register for the meeting, please follow these instructions:
Registered Shareholders
If your shares are registered in your name with our transfer agent or you are a participant holding shares in a Timken-sponsored employee savings plan and you wish to attend the virtual meeting, go to www.cesonlineservices.com/tkr21_vmtkr22_vm. Please have your Proxy Card or Notice of the Meeting, containing your 11-digit control number available and follow the instructions to complete your registration request.
Beneficial Shareholders (those holding shares through a stock brokerage account or by a bank or other holder of record)
Beneficial shareholders who wish to attend the virtual meeting may pre-register by visiting the website www.cesonlineservices.com/tkr21_vmtkr22_vm. Please have available the voting instruction form, notice, or other communication from your broker, bank, or other holder of record that sets forth the control number provided to you and follow the instructions to complete your registration request.
After pre-registering for the meeting, shareholders will receive a confirmation email with a link and instructions for accessing the virtual Annual Meeting and submitting questions. Shareholders may review the rules of conduct for the virtual meeting or vote during the virtual Annual Meeting by following the instructions available on the meeting website.
Thank you for your continued support of The Timken Company.
Hansal N. Patel
Vice President, General Counsel & Secretary
| Hansal N. Patel | ||
| Vice President, General Counsel & Secretary |
March 17, 202118, 2022
Important Notice Regarding the Availability of Proxy Materials for the 20212022 Annual Meeting of Shareholders to be held on May 7, 2021:6, 2022: This Proxy Statement and our 20202021 Annual Report to Shareholders are available on the Investors section of our website https://investors.timken.com/.
| Notice of | ||
| Chairman’s Letter | ||
| Notice of Annual Meeting | ||
| Table of Contents | ||
1 | Proxy Summary | |
11 | Proxy Statement | |
11 | Proposal No. 1: Election of Directors | |
12 | Nominees | |
18 | Independence Determinations | |
18 | Related Party Transactions Approval Policy | |
19 | Board and Committee Meetings | |
19 | Board Leadership Structure | |
19 | Director Compensation | |
22 | Board Committees | |
22 | ||
22 | ||
24 | ||
25 | Corporate Governance and Social Responsibility Highlights | |
29 | Shareholder Engagement in 2021 | |
29 | Risk Oversight | |
30 | Shareholder Communications | |
30 | Beneficial Ownership of Common Shares | |
33 | Proposal No. 2: | |
This summary highlights certain information contained in the Proxy Statement. This summary does not contain all of the information that you should consider, and you should read the entire Proxy Statement before voting.
20212022 Annual Meeting of Shareholders
Date and Time: | Friday, May | |
Location: | Online-only format, with attendance via the internet at the following web address: www.cesonlineservices.com/ | |
Record Date: | February 22, | |
Mail Date: | The approximate date our Proxy Statement and proxy card will be first sent or given to our shareholders is March | |
Voting Matters and Board Voting Recommendations
Board Recommends
| Proposal | See Page | ||
| For | 1. Election of 12 Directors to serve for a term of one year. | 11 | ||
| For | 2. Approval, on an advisory basis, of our named executive officer compensation. | |||
| For | 3. Ratification of the appointment of Ernst & Young LLP as our independent auditor for the fiscal year ending December 31, | |||
| Against | 4. A shareholder proposal | |||
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Director Nominees
See Proposal No. 1 on page 11 of the Proxy Statement for more details on the 12 nominees for Director. The following information describes relevant information about each nominee as of March 1, 2021.2022.
| Committee Memberships | ||||||||||||||
| Name and Title | Age | Director since | Independent | Audit | Compensation | Nominating & Corporate Govemance | Other Public Boards | |||||||
Maria A. Crowe
Retired President of Manufacturing Operations, Eli Lilly and Company
| 61 | 2014 | ✓ | ✓ | ✓ Chair | – | ||||||||
Elizabeth A. Harrell
Retired Major General, U.S. Air Force
| 67 | 2017 | ✓ | ✓ | ✓ | – | ||||||||
Richard G. Kyle
President and Chief Executive Officer, The Timken Company
| 55 | 2013 | 1 | |||||||||||
Sarah C. Lauber
Chief Financial Officer & Secretary, Douglas Dynamics, Inc.
| 49 | 2021 | ✓ | ✓ | ✓ | – | ||||||||
John A. Luke, Jr.
Chairman, WestRock Company
| 72 | 1999 | ✓ | ✓ | ✓ | 1 | ||||||||
Christopher L. Mapes
Chairman, President and Chief Executive Officer, Lincoln Electric Holdings, Inc.
| 59 | 2014 | ✓ | ✓ | ✓ | 1 | ||||||||
James F. Palmer
Retired Corporate Vice President and Chief Financial Officer, Northrop Grumman Corporation
| 71 | 2015 | ✓ | ✓ Chair | ✓ | – | ||||||||
Ajita G. Rajendra
Retired Executive Chairman, A. O. Smith Corporation
| 69 | 2014 | ✓ | ✓ | ✓ Chair | 2 | ||||||||
Frank C. Sullivan
Chairman and Chief Executive Officer, RPM International Inc.
| 60 | 2003 | ✓ | ✓ | ✓ | 1 | ||||||||
John M. Timken, Jr.
Chairman, Board of Directors, The Timken Company
| 69 | 1986 | ✓ Independent Chairman | – | ||||||||||
Ward J. Timken, Jr.
Chief Executive Officer, McKinley Strategies, LLC
| 53 | 2002 | – | |||||||||||
Jacqueline F. Woods
Retired President, AT&T Ohio
| 73 | 2000 | ✓ | ✓ | ✓ | – | ||||||||
Average Age / Median Tenure
| 63 | 7.5 years | ||||||||||||
Committee Memberships
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| Name and Title | Age | Director since | Independent | Audit | Compensation |
Nominating & Corporate Governance
| Other Public Boards | |||||||
Maria A. Crowe
Retired President of Manufacturing Operations, Eli Lilly and Company | 62 | 2014 | ✓ | ✓ | �� | ✓ Chair | – | |||||||
Elizabeth A. Harrell
Retired Major General, U.S. Air Force | 68 | 2017 | ✓ | ✓ | ✓ | – | ||||||||
Richard G. Kyle
President and Chief Executive Officer, The Timken Company | 56 | 2013 | 1 | |||||||||||
Sarah C. Lauber
Chief Financial Officer & Secretary, Douglas Dynamics, Inc. | 50 | 2021 | ✓ | ✓ | ✓ | – | ||||||||
John A. Luke, Jr.
Retired Chairman, WestRock Company; Retired President and CEO MeadWestvaco Corporation | 73 | 1999 | ✓ | ✓ | ✓ | – | ||||||||
Christopher L. Mapes
Chairman, President and Chief Executive Officer, Lincoln Electric Holdings, Inc. | 60 | 2014 | ✓ | ✓ | ✓ | 1 | ||||||||
James F. Palmer
Retired Corporate Vice President and Chief Financial Officer, Northrop Grumman Corporation | 72 | 2015 | ✓ | ✓ Chair | ✓ | – | ||||||||
Ajita G. Rajendra
Retired Executive Chairman, President and CEO A. O. Smith Corporation | 70 | 2014 | ✓ | ✓ | ✓ Chair | 2 | ||||||||
Frank C. Sullivan
Chairman and Chief Executive Officer, RPM International Inc. | 61 | 2003 | ✓ | ✓ | ✓ | 1 | ||||||||
John M. Timken, Jr.
Chairman, Board of Directors, The Timken Company | 70 | 1986 | ✓ Independent | – | ||||||||||
Ward J. Timken, Jr.
Chief Executive Officer, McKinley Strategies, LLC | 54 | 2002 | – | |||||||||||
Jacqueline F. Woods
Retired President, AT&T Ohio | 74 | 2000 | ✓ | ✓ | ✓ | – | ||||||||
Average Age / Median Tenure | 64 | 8.5 years | ||||||||||||
Board Composition Overview
Gender and Ethnic Diversity | Oversight | Independence | Refreshment | |||||
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Three Audit Committee Financial Experts |
| Over Half
of our Board
the last decade |  | ||||
Representative Skills and Attributes of the Board
| LEADERSHIP AND GOVERNANCE Senior leadership experience at a large organization, including current or former service as a public company officer (CEO, CFO, etc.) or military general, or other public company board service leading to valuable insight on corporate governance matters |  |
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  | HUMAN CAPITAL MANAGEMENT Expertise in talent management, public company compensation structures, key employee development and retention, and executive succession planning | |||||
 | ||||||
 | FINANCIAL REPORTING AND CAPITAL ALLOCATION Experience in the finance function of an enterprise, including an in-depth understanding of financial management, financial reporting and capital allocation processes | |||||
 | MANUFACTURING AND ENVIRONMENTAL MANAGEMENT Expertise in manufacturing operations and logistics and environmental management to drive operating performance through sustainable means | |||||
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Experience with risk management and compliance oversight relevant to the exercise of fiduciary responsibilities |  | STRATEGY AND M&A Responsibility for driving growth through innovative strategic initiatives and through acquisitions and other business combinations |  | ||||
| GOVERNMENTAL AND REGULATORY AFFAIRS Insight into managing governmental and regulatory affairs relevant to the Company’s business operations |  | MARKETING AND SALES Expertise in marketing, sales, and customer service at a scale relevant to the Company’s global business | |||||
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|  | GLOBAL Service in a leadership role with multinational companies or in global markets, leading to a deep knowledge of global industry dynamics and international supply chain management | |||||
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Corporate Governance Highlights
The Timken Company is committed to strong corporate governance as evidenced by the following practices. See page 25 of the Proxy Statement for more details.
| Board Independence | ✓ 10 of 12 Director nominees are independent
✓ Independent Chair of the Board | |
| Director Elections | ✓ Commitment to Board refreshment and diversity – 7 new Directors (representing over half of our Board) added in the past decade
✓ All standing committee members are independent
✓ Declassified Board with annual Board elections
✓ Directors are elected by a majority of votes cast, and our Majority Voting Policy requires any Director who fails to receive a majority of the votes cast in favor of his or her election to submit his or her resignation to the Board | |
| Board Practices | ✓ Stock ownership requirements for nonemployee Directors (5x cash retainer)
✓ At each Board meeting, the independent Directors have the opportunity to conduct executive sessions
✓ Annual Board, committee and Director evaluations
✓ Over-boarding policy limits the number of public company boards a Director can serve on | |
Shareholder Rights | ✓ Shareholder proxy access with 3/3/20/20 parameters
✓ Special meetings may be called by shareholders holding 25% of the Company’s common shares | |
Other Best Practices | ✓ Annual advisory vote on our named executive officer compensation ✓ 5 of 12 Directors are ethnically or gender diverse
✓ Code of Conduct for Directors, officers and employees
✓ Strong focus on shareholder engagement – over
✓ 3 Audit Committee financial experts ✓ Audit Committee or Board receives reports on cyber security threats and trends at least annually and receives regular updates on our information security program ✓ Nominating and Corporate Governance Committee provides oversight for Corporate Social Responsibility (“CSR”) program | |
Corporate Social Responsibility
In 2021, CSR remained a priority for Timken as we published our most recent CSR report. In consideration of our efforts, we were named one of the World’s Most Ethical Companies® by Ethisphere® Institute for the eleventh time, among America’s Most Responsible Companies by Newsweek and Statista and one of America’s Best Employers, America’s Best Employers for New Graduates and America’s Best Employers for Women by Forbes.
For more information regarding our corporate social responsibility program, please see page 25 of the Proxy Statement or our most recent corporate social responsibility report available on our website at https://www.timken.com/corporate-social-responsibility/.
Additional awards in 2021:
| ● | ||
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| ● | One of America’s Best Employers by Forbes
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| ● | One of America’s Best Employers for New Graduates by Forbes |
| ● | One of America’s Best Employers for Women by Forbes |
20202021 Performance Highlights
Timken delivered strong financialrecord-setting performance in 2020,2021, despite the broad economic slowdown caused by COVID-19. Despiteunprecedented supply chain challenges and inflationary pressures that accelerated during the year. The Company grew revenue decliningand earnings significantly in 2021, with record revenue of $4.13 billion, an increase of approximately 7%18% from 2020, net income increasing approximately 30% to $3.51 billion in 2020, we$369 million and adjusted earnings before interest, taxes, depreciation, and amortization (“EBITDA”) increasing approximately 9% to $718 million1. We achieved record earnings per diluted share (“EPS”) of $3.72$4.79 and record adjusted EPS of $4.10$4.721, down 21%up 29% and 11%15%, respectively, from last year’s record performance.2020. We also delivered an adjusted return on invested capital (“ROIC”) of 11.0%1 in 2021, up from 9.9% last year. In addition, we generated strong net cash from operations of $578$387 million and free cash flow of $456$2391 million up 5% and 11%, respectively, from 2019. This cash generation allowed us to continue to invest in the business for future growth, reduce net debt and return cash to shareholders. The unwavering commitment of our employees allowed the Company to continue to operate safely and efficiently during this difficult and challenging period and deliver this high level of performance.
We have continued to create significant shareholder value by delivering total shareholder returns (“TSR”) of 40.3%, 19.1%, and 25.1% over the past one-,2021. three-, and five-year periods, respectively. Our TSR for each of these three periods outpaced both the median of our 2020 compensation peer group and the S&P 500 Industrials over the same respective timeframes. In addition, our ten-year TSR of 11.0% exceeded the median of our 2020 compensation peer group but slightly lagged the S&P 500 Industrials (12.0%) over that timeframe. The S&P 500 Industrials comprises those companies included in the S&P 500 index that are classified as members of the Global Industry Classification Standard (“GICS”) industrials sector.
We achieved these results through the disciplinedcontinued execution of our corporate strategy, which is delivering improved performance and higher returns through the business cycle. Our strategy focuses on (1) driving organic growth and share gains in our core business by leading in product technology, innovation and service, (2) executing operational excellence initiatives across the enterprise to enhance performance, and (3) deploying capital to drive optimal returns for our investors.
We have continued to create significant shareholder value by delivering total shareholder returns (“TSR”) of 25.5%, 14.3%, and 12.1% over the past three-, five-, and ten-year periods, respectively. Our three-year and five-year TSR outpaced the median of our 2021 compensation peer group and also exceeded the S&P 500 Industrials over these respective timeframes, while our ten-year TSR was just slightly below our peer median and the S&P 500 Industrials. The S&P 500 Industrials comprises those companies included in the S&P 500 index that are classified as members of the Global Industry Classification Standard (“GICS”) industrials sector.
In 2020,2021, we put our strong cash generation to workdeployed capital in a disciplined and balanced manner to strengthen our financialcompetitive position, and create value for our shareholders. We reduced total debt by $166 millionshareholders and net debt by $2761 million during the year.further enhance our financial position. We allocated $122$148 million, or about 3.5%3.6% of our sales, to capital expenditures focused on growth and continuous improvement initiatives. We also paid out our 394th398th consecutive quarterly dividend, continuing one of the longest continuous dividend streaks on the New York Stock Exchange (the “NYSE”) and increased our quarterly dividend to $0.29/$0.30/share in the fourthsecond quarter, making 20202021 the seventheighth consecutive year of higher annual dividend increases.dividends. In addition, we repurchased approximately 1.11.25 million shares of stock, or over 1%1.7% of our outstanding shares.
20202021 also marked the release of our second corporate social responsibilitythird annual CSR report, which detailed our vision to build a more efficient and resilient world and introduced three focus areasworld. The report highlights how we have identifiedcontinue to measure and advance our corporate social responsibility initiatives going forward – growing knowledge, advancing sustainabilityby promoting a culture of problem solvers with a strong focus on sustainable products and promoting leadership.practices across the Company, while maintaining a strong commitment to ethics.
See page 3335 of the Proxy Statement for more details on the Company’s 20202021 performance.
1 See Appendix A for reconciliations of adjusted EPS, adjusted EBITDA, free cash flow, and net debtadjusted ROIC to their most directly comparable GAAP financial measures. Free cash flow is defined as net cash from operations minus capital expenditures. TheseAdjusted ROIC is defined as adjusted net operating profit after taxes (“ANOPAT”) divided by average invested capital. The performance metrics discussed above are used for external reporting and may not correlate exactly to their corresponding compensation adjusted metrics due to slightly different adjustmentsslight differences in methodology (see pages 4648 to 4952 for more details on how the compensation adjusted metrics are calculated).
Return to Shareholders
*TSR for the Company was calculated on an annualized basis and assumes quarterly reinvestment of dividends. The 10-year period takes into account the value of TimkenSteel Corporation (“TimkenSteel”) common shares distributed in the spinoff of TimkenSteel from the Company, which was completed on June 30, 2014 (the “Spinoff”).
**See page 4143 of the Proxy Statement for the companies that are included in the compensation peer group for 2020.2021.
***The S&P 500 Industrials comprises those companies included in the S&P 500 index that are classified as members of the GICS industrials sector.
20202021 Executive Compensation Practices
We design our executive compensation plans and program to help us attract, motivate, reward and retain highly qualified executives who are capable of creating and sustaining value for our shareholders over the long term. See page 3335 of the Proxy Statement for more details.
| Objectives | Philosophy | |
Our executive compensation program is designed to:
● Align the interests of our executives and shareholders
● Reward sustained, strong business results
● Incentivize profitable growth and capital deployment discipline
● Attract, retain and motivate the best talent | Our executive compensation philosophy is built on the following principles:
● Recognizing that people are our most important resource
● Rewarding results linked to both short- and long-term performance (pay-for-performance)
● Positioning our pay to be competitive in the marketplace
● Focusing on increasing shareholder value | |
| What We Do | What We Do Not Do | |||||||
 ✓ |
We utilize stock ownership requirements for executives (5x base salary for CEO and 2x-3x for the other named executive officers) |  X | We do not re-price outstanding stock options | |||||
✓ |
| X | We do not provide excise tax gross-ups on perquisites or under named executive officer severance agreements | |||||
✓ |
| X | We do not allow hedging or pledging of our shares | |||||
✓ |
| X | We do not have single-trigger vesting | |||||
✓ | We provide very limited perquisites | X | We do not have employment agreements for our named executive officers | |||||
Pay-for-Performance
Our compensation program is designed to link pay and performance, which we believe has been demonstrated by the strong level of shareholder support we have received for our named executive officer compensation program through our annual “say-on-pay” vote over the last few years (as depicted below). A significant portion of the compensation of our named executive officers is equity based, which we believe aligns our executives’ interests with the interests of our shareholders.
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The Company’s compensation program for executives is designed to link compensation with key financial and operational goals, some of which are short-term, while others take several years or more to achieve. The Company uses a balance of short-term and long-term incentives, as well as cash and non-cash compensation, to meet these objectives:
Our incentive compensation program payouts for performance periods ending in 2020 were aligned with performance:2021 reflect good performance relative to a challenging cost and supply situation:
| ● | There was |
| ● | There was a |
| ● | Despite the significant unforeseen impact of COVID-19, no adjustments or modifications were made to the financial performance metrics or targets for our 2019-2021 performance-based RSU cycle, which in part led to the below-target payout. |
See pages 4547 to 5052 of the Proxy Statement for more details on the 20202021 annual cash incentive plan and the 2018-20202019-2021 performance-based restricted stock units.
Impact of COVID-19
Throughout the COVID-19 pandemic, the Company has adhered to mandates and other guidance from local governments and health authorities, including the World Health Organization and the Centers for Disease Control and Prevention. The Company implemented risk mitigation plans across the enterprise designed to protect employees and reduce the risk of spreading the virus. Timken continued to operate and fill customer orders, adjusting production as required by local government directives and to reflect changes in global demand. Timken’s main priority has been the health and welfare of its employees and others in the communities where it does business.
During 2020, the Company took steps to reduce costs by implementing temporary salary reductions, work furloughs and other actions with respect to our global workforce to align its costs with near-term demand expectations. The impact of such cost-reduction initiatives on the compensation of our named executive officers (or “NEOs”) is discussed throughout the Compensation Discussion & Analysis (“CD&A”), in particular on page 36 in the Section titled Key 2020 Compensation Decisions.
PROXY STATEMENT
The enclosed proxy is solicited by the Board of Directors (also referred to as the “Board”) of The Timken Company, an Ohio corporation (the “Company,” “Timken,” “we,” or “us”), in connection with the 20212022 Annual Meeting of Shareholders to be held on Friday, May 7, 2021,6, 2022, at 10:00 a.m. local time in an online-only format, with attendance via the internet, and at any adjournments and postponements thereof, for the purpose of considering and acting upon the matters specified in the foregoing Notice.
The approximate date this Proxy Statement and proxy card will be first sent or given to our shareholders is March 17, 2021.18, 2022.
Instructions for attending the online-only meeting are available in the accompanying Notice of 20212022 Annual Meeting of Shareholders and under the section titled “Participation at the Annual Meeting” on page 76.79.
The Board of Directors is not aware of matters other than those specified in the foregoing Notice that will be brought before the meeting for action. However, if any such matters should be properly brought before the meeting, the persons appointed as proxies may vote or act upon such matters according to their judgment.
PROPOSAL NO. 1: ELECTION OF DIRECTORS
We currently have 12 Directors. Pursuant to our Amended Regulations, all nominees for Director will stand for election for a one-year term to expire at the 20222023 Annual Meeting of Shareholders. Candidates for Director receiving the greatest number of votes will be elected. Abstentions and “broker non-votes” (where a broker, other record holder, or nominee indicates on a proxy card that it does not have authority to vote certain shares on a particular matter) will not be counted in the election of Directors and will not have any effect on the result of the vote.
Pursuant to the Majority Voting Policy of the Board of Directors, any Director who fails to receive a majority of the votes cast in his or her election will submit his or her resignation to the Board of Directors promptly after the certification of the election results. The Board of Directors and the Nominating and Corporate Governance Committee will then consider the resignation in light of any factors they consider appropriate, including the Director’s qualifications and service record, as well as any reasons given by shareholders as to why they withheld votes from the Director. The Board of Directors is required to determine whether to accept or reject the tendered resignation within 90 days following the election and to disclose on a Current Report on Form 8-K its decision, as well as the reasons for rejecting any tendered resignation, if applicable.
At its meeting on February 12, 2021,11, 2022, the Board approved a resolution, based on the recommendation of the Nominating and Corporate Governance Committee, nominating the 12 individuals set forth below to be elected Directors at the 20212022 Annual Meeting of Shareholders to serve for a term of one year expiring at the 20222023 Annual Meeting of Shareholders (or until their respective successors are elected and qualified). Each of the nominees previously was elected as a Director by our shareholders except for Ms. Lauber. Ms. Lauber was recommended to the Nominating and Corporate Governance Committee by an existing Director to fill a vacancy created when the Board approved an increase in its size from 11 to 12 Directors. Each of the nominees listed beloweach has consented to serve as a Director if elected.
If any nominee becomes unable, for any reason, to serve as a Director, or should a vacancy occur before the election (which events are not anticipated), the Directors then in office may substitute another person as a nominee or may reduce the number of nominees as they deem advisable. Unless otherwise indicated on any proxy card, the persons named as proxies on the enclosed proxy card intend to vote the shares covered by such proxy card in favor of the nominees below.
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THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF THE NOMINEES BELOW.
The following information, obtained in part from the respective nominee and in part from our records, describes the background and select experience of each nominee as of March 1, 2021:2022:
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Business Experience
Ms. Crowe served as President of Manufacturing Operations for Eli Lilly and Company, a global manufacturer of pharmaceutical products, a position she held from 2012 until her retirement in December 2017. Ms. Crowe joined Eli Lilly and Company in 1982, and previously served as its Senior Vice President of Global Drug Products from 2009 to 2012.
Qualifications
Ms. Crowe provides the Board with extensive experience in manufacturing, sourcing and procurement for a global manufacturing company. Ms. Crowe also brings valuable experience on production capacity expansion and innovation efforts.
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Age: 62 Director since 2014 Committees: · Compensation · Nominating and Corporate Governance
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Business Experience
Ms. Harrell retired as a Major General in October 2006, serving more than 30 years with the U.S. Air Force. During her military career, she held a wide range of positions in the United States, Germany and South Korea, specializing in aircraft fleet maintenance and sustainment. After her retirement from the U.S. Air Force, Ms. Harrell was a consultant with The Spectrum Group until 2009 and a consultant to Northrop Grumman Corporation, a global security company and a provider of products, systems and solutions in the fields of aerospace, electronics, information systems, and technical services, until 2012.
Qualifications
Ms. Harrell’s extensive knowledge of aerospace technology, global supply chain management and government relations align with the Company’s growth priorities and are valuable to her service as a member of the Board.
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Age: 68 Director since 2017 Committees: · Compensation · Nominating and Corporate Governance |
Richard G. Kyle Age: Director since 2013 |
Business Experience
Mr. Kyle was appointed President and Chief Executive Officer of The Timken Company in 2014. Mr. Kyle joined the Company in 2006
Since 2015, Mr. Kyle has served as a director of Sonoco Products Company, a global provider of consumer packaging, industrial products, protective solutions, and display and packaging services, and as a member of its Audit, Executive Compensation and Governance and Nominating Committees.
Qualifications
Mr. Kyle has significant experience with global manufacturing organizations and has demonstrated the ability to lead change and growth. In addition to his role as Chief Executive Officer of the Company, Mr. Kyle’s strong engineering and operational background, coupled with his strategic perspective, provide valued skills to the Board.
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Business Experience
Ms. Lauber is Chief Financial Officer & Secretary of Douglas Dynamics, Inc., a premier manufacturer and upfitter of work truck attachments and equipment, a position she has held since August 2017. Prior to joining Douglas Dynamics, Inc., she served as the Senior Vice President and Chief Financial Officer of Jason Industries Inc., a diversified industrial company, from 2015 to 2017.
Qualifications
Ms. Lauber’s expertise leading the finance and accounting function of multiple publicly traded manufacturing companies and her experience with financial planning and acquisition integration makes her well-suited to serve on our Board.
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Age: 50 Director since 2021
Committees: · Audit · Compensation |
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Business Experience
Mr. Luke served as the Chairman and Chief Executive Officer of MeadWestvaco Corporation (“MWV”), a leading global producer of packaging and specialty chemicals, from the merger of Mead and Westvaco in 2002 until his retirement in 2015.
Qualifications
Mr. Luke brings deep executive leadership experience to our Board, including expertise in leading large corporate transformations and evaluating and executing inorganic growth opportunities. Mr. Luke brings perspective gained from serving on several corporate | |
Age: 73 Director since 1999
· Compensation · Nominating and Corporate Governance |
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Business Experience
Mr. Mapes is Chairman, President and Chief Executive Officer of Lincoln Electric Holdings, Inc., a global manufacturer of welding, cutting and joining products. He has held the position of Chairman since December 2013 and has been President and Chief Executive Officer since December 2012, after serving as Chief Operating Officer beginning in 2011.
Qualifications
As a seasoned executive with extensive experience leading global manufacturing and distribution companies, Mr. Mapes understands the challenges of global growth and the complexity of managing international operations. In addition to his business management experience, Mr. Mapes has a law degree.
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Age: 60 Director since 2014 Committees: · Audit · Nominating and Corporate Governance |
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Business Experience
Mr. Palmer served as the Corporate Vice President and Chief Financial Officer of Northrop Grumman Corporation, a global security company and a provider of products, systems and solutions in the fields of aerospace, electronics, information systems and technical services, from March 2007 until February 2015 and as a Corporate Vice President of Northrop Grumman until his retirement in July 2015.
Qualifications
Mr. Palmer’s broad executive background in the aerospace and defense industry, his service as the chief financial officer of multiple large publicly traded companies, and his extensive experience with business acquisitions, debt financings and other complex transactions make him well qualified to serve as a member of the Board.
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Age: 72 Director since 2015
Committees: · Audit (Chair) · Compensation |
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Business Experience
Mr. Rajendra served as Executive Chairman of A. O. Smith Corporation, a global water technology company and manufacturer of residential and commercial water heating and water purification equipment, from September 2018 until his retirement on May 1, 2020. He had held the position of Chairman since 2014 and was President and Chief Executive Officer from 2013 until 2018.
Qualifications
Mr. Rajendra has been a director of A. O. Smith Corporation since 2011 and has been a director of Donaldson Company, Inc. since 2010, where he is a member of the Corporate Governance Committee and Human Resources Committee. Mr. Rajendra’s extensive manufacturing and international experience leading businesses and negotiating acquisitions and joint ventures, along with his experience as a director of other publicly traded companies, provides valuable skills to the Board.
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Age: 70 Director since 2014 Committees: · Audit · Compensation (Chair) |
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Business Experience
Mr. Sullivan has held the position of Chairman and Chief Executive Officer of RPM International Inc. (“RPM”), a world leader in specialty coatings, since 2008. Mr. Sullivan was appointed RPM’s Chief Executive Officer in 2002, prior to which he held the position of Chief Financial Officer since 1993. Mr. Sullivan has been a director of RPM since 1995 and chairs RPM’s Executive Committee.
Qualifications
Mr. Sullivan provides the Board with extensive financial expertise based on his years as a chief financial officer. In addition, as a chief executive officer and director of a multinational company, Mr. Sullivan brings invaluable executive experience on a wide array of issues, including strategic planning and the evaluation and execution of
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Frank C. Sullivan Age: 61 Director since 2003 Committees: · Audit · Nominating and Corporate Governance |
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Business Experience
Mr. Timken is a private investor and a successful entrepreneur, who has been a significant shareholder of the Company for many years. Mr. Timken is co-founder of Amgraph Packaging, a national supplier of flexible package printing used by major food and beverage brands and private labels. His entrepreneurial activities and passion for business-building have included involvement in ventures ranging from injection molding, to ophthalmic laboratories, to logistics and trucking. He also has owned a cable television business and established one of the largest commercial mushroom farms in North America.
Qualifications
Mr. Timken’s ability as an investor to identify and help increase value across a range of industries, as well as his familiarity with the Company’s businesses, provides the Board with critical input in evaluating and making capital allocation decisions. Since joining the Board, he has played an important role in the Company’s strategic drive to add product lines that complement its bearing product portfolio.
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Age: 70 Director since 1986 Independent Chairman of the Board |
Ward J. Timken, Jr. Age: Director since 2002 |
Business Experience
Mr. Timken co-founded McKinley Strategies, LLC, a political consulting firm, and has served as its Chief Executive Officer since January 2020. Prior to that, Mr. Timken served as Chairman, Chief Executive Officer and President of TimkenSteel, a leader in customized alloy steel products and services, from 2014 to 2019.
Qualifications
Mr. Timken provides the Board with relevant experience from having served in key leadership positions during his tenure with the Company. Mr. Timken’s broad-based experience and familiarity with our businesses, along with his understanding of the global industry dynamics across the Company’s markets, enable Mr. Timken to provide valuable input to the Board.
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Jacqueline F. Woods Age: Director since 2000 Committees: · Compensation · Nominating and Corporate Governance | Business Experience
Ms. Woods served as the President of Ameritech Ohio (subsequently renamed AT&T Ohio), a telecommunications company, until her retirement in 2000. At Ameritech Ohio, Ms. Woods also held various positions in finance, operations, marketing, sales and government affairs. Ms. Woods was inducted into the Ohio Women’s Hall of Fame in 1998. Ms. Woods served on the board of The Andersons, Inc. from 1999 to 2020.
Qualifications
Ms. Woods’ extensive executive management experience enables her to help guide the Board in making decisions in areas such as marketing, strategy development, corporate governance and compensation. In addition, her executive experience at a primarily consumer-oriented company provides a valuable perspective on customer service. Ms. Woods also brings perspective gained from her service as a member of other
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The Board of Directors has adopted the NYSE independence standards for determining the independence of our Directors. The Board has also adopted standards for categorically immaterial relationships to assist the Board in determining the independence of each Director. These standards include, but are not limited to:
| ● | if the Director is, or has an immediate family member who is, a partner, principal or member (or any comparable position) of, an executive officer or employee of, or a director of, any organization to which Timken made, or from which Timken received, immaterial payments for property or services in the current or any of the past three fiscal years; |
| ● | 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 Timken’s discretionary charitable contributions to the organization are immaterial, in the aggregate; or |
| ● | if the Director serves on the board of directors of another company at which another Timken Director or executive officer also serves as a director. |
A complete list and description of the categorically immaterial relationships is set forth in Appendix B to the Board of Directors General Policies and Procedures, which is available on the Corporate Governance Section of our website at https://www.timken.com/about/governance-documents/investors.timken.com/corporate-governance/documents/.
The Board has determined that the following Director nominees meet these independence standards: Maria A. Crowe, Elizabeth A. Harrell, Sarah C. Lauber, John A. Luke, Jr., Christopher L. Mapes, James F. Palmer, Ajita G. Rajendra, Frank C. Sullivan, John M. Timken, Jr., and Jacqueline F. Woods. With respect to John M. Timken, Jr., the Board determined that his family relationship to Ward J. Timken, Jr. does not impair his independence. |
10/12 members of our Board are independent
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Related Party Transactions Approval Policy
Our Directors and executive officers are subject to our Standards of Business Ethics, which require that any potential conflicts of interest involving our Directors or executive officers, such as significant transactions with related parties, be reported to our ethics and compliance office at ethics@timken.com.Vice President, General Counsel & Secretary. Our Directors and executive officers also are subject to the Timken Policy Against Conflicts of Interest, which requires that an employee or Director avoid placing himself or herself in a position in which his or her personal interests could interfere, in any wayor appear to interfere, with our interests. While not every situation can be identified in a written policy, the Timken Policy Against Conflicts of Interest does specifically prohibitidentifies the following situations:situations as examples that may constitute a prohibited conflict of interest:
| ● | competing against the Company; |
| ● | holding a significant financial interest in a company doing business with or competing with the Company; |
| ● | accepting gifts, gratuities or entertainment from any customer, competitor or supplier of goods or services to the Company, except to the extent they are customary and reasonable in amount and not in consideration for an improper action by the recipient; |
| ● | using for personal gain any business opportunities that are identified through a person’s position with the Company; |
| ● | using the Company’s property, information or position for personal gain; |
| ● | using the Company’s property other than in connection with our business; |
| ● | maintaining other employment or a business that adversely affects a person’s job performance at the Company; and |
| ● | doing business on the Company’s behalf with a relative or another company employing or owned by a relative. |
In the event of any potential conflict of interest, pursuant to the charter of the Nominating and Corporate Governance Committee, the Standards of Business Ethics and the Timken Policy Against
Conflicts of Interest, the Nominating and Corporate Governance Committee would review, determine whether or not a conflict of interest exists and, if appropriate after considering such factors as it deems appropriate under the circumstances, make a determination as to whether to grant a waiver or specify any mitigation actions to address the policies for any such situation. Any waiverpotential conflict. Waivers involving our Directors or executive officers wouldwill be promptly disclosed to shareholders.shareholders in a manner consistent with applicable laws or regulations and in accordance with our applicable policies. Additionally, the Nominating and Corporate Governance Committee would review and approve or ratify any transaction required to be publicly reported to shareholders pursuant to Item 404(a) of Regulation S-K of the Securities and Exchange Act of 1934, as amended (the “1934 Act”)., with such review to occur regardless of whether the materiality threshold of that provision is met.
The Board of Directors has an Audit Committee, a Compensation Committee, and a Nominating and Corporate Governance Committee. During 2020,2021, there were seven meetings of the Board of Directors, nine meetings of its Audit Committee, sixthree meetings of its Compensation Committee and fourthree meetings of its Nominating and Corporate Governance Committee. All Directors attended 75% or more100% of the meetings of the Board and its committees on which they served that were held following each Director’s appointment to the Board and their respective committees.served. It is our policy that all members of the Board of Directors attend the annual meeting of shareholders and, in 2020,2021, all members then serving attended the meeting. At each regularly scheduled meeting of the Board of Directors, the independent Directors have the opportunity to meet separately in executive session.
The Board is led by independent Chairman John M. Timken, Jr., who was first elected to this position on May 13, 2014.
The Chairman oversees the planning of the annual Board calendar and, with the CEO and in consultation with the other Directors, schedules and sets the agenda for meetings of the Board and leads the discussions at such meetings and at executive sessions of the independent Directors. The Chairman also leads the Company’s annual meeting of shareholders and performs such other functions and responsibilities as set forth in the Board of Directors General Policies and Procedures or as requested by the Board from time to time.
The Board’s preferred governance structure is to separate the roles of Chair and CEO. Since 2014, the Chair of the Board has been independent. While recognizing that there is no single, generally accepted approach to providing Board leadership and that the Board’s leadership structure may vary in the future as circumstances warrant, the Board considers this balance of leadership between the two positions to be beneficial.
Directors who are not Timken employees receive an annual retainer fee, annual committee fees (as applicable) and an annual equity award. The independent Chairman and each committee chairperson receive additional retainer fees. Directors who are Timken employees doRichard G. Kyle, our President and Chief Executive Officer (“CEO”), does not receive any additional compensation for theirhis service as Directors.
Due to the financial impact of COVID-19 on the Company, the Board approved temporary pay reductions for the Directors for the first three quarters of 2020. The Board took such actions to share in the cost reduction initiatives that impacted the Company’s global workforce. The temporary pay reductions included 50% reductions to both the annual retainer fees and independent Chairman fees during the first three quarters of 2020. Annual committee fees were not impacted by the temporary pay reductions.a Director.
Cash Compensation
Each nonemployee Director who served in 20202021 was paid an annual retainer fee of $50,000$80,000 as base compensation for services as a Director, which was temporarily reduced in 2020 from $80,000 as
described above.Director. In addition to base compensation, John M. Timken, Jr. received
an annual fee of $62,500$100,000 for his service as the independent Chairman, which was also temporarily reduced in 2020 from $100,000 as described above.Chairman. The following additional annual fees were paid for serving on a committee of the Board in 2020:2021:
Committee
| Chairperson Fee
| Member Fee
| Chairperson Fee | Member Fee | ||||
Audit | $30,000 | $15,000 | $30,000 | $15,000 | ||||
Compensation | $17,500 | $7,500 | $17,500 | $7,500 | ||||
Nominating & Corporate Governance | $17,500 | $7,500 | ||||||
Nominating &Corporate Governance | $17,500 | $7,500 | ||||||
To the extent a Director served on the Board or any committee of the Board for only part of the year, such Director received a pro-rated portion of the applicable fees based on the amount of time served. Neither base compensation for services as a Director nor fees for serving on a committee (chairperson or member) of the Board have been increased in the last seven years.
Equity Compensation
Each nonemployee Director serving at the time of our 20202021 Annual Meeting of Shareholders on May 8, 20207, 2021 received a grant of 3,1601,340 restricted stock units that vest after one year under The Timken Company 2019 Equity and Incentive Compensation Plan (the “Equity and Incentive Compensation Plan”). Upon a non-employee Director’s initial election to the Board, each such Director receives a grant of 2,000 restricted stock units under the Equity and Incentive Compensation Plan that vest one-fifth annually from the date of grant. Sarah C. Lauber received such a grant during 2021. Cumulative dividend equivalents are paid in cash upon vesting.
Holding Requirement
The Compensation Committee of the Board of Directors has adopted stock ownership requirements for nonemployee Directors equal to five times the annual cash retainer of $80,000, or the equivalent of $400,000 worth of common shares. Directors must meet this requirement within five years of becoming a Director of the Company. In determining whether a Director has met his or her individual ownership target, the Company considers shares owned by the Director and full-value equity awards held by the Director, including restricted shares and restricted stock units still subject to vesting conditions. As of December 31, 2020,2021, all our Directors other than Ms. HarrellLauber had met their stock ownership requirements. Ms. HarrellLauber joined the Board in August 2017January 2021 and she is on track to achieve the ownership requirement within the five-year time frame. In addition, Ms. Lauber recently joined the Board in January 2021 and has not yet met her stock ownership requirements.
Compensation Deferral
Any Director may elect to defer the receipt of all or a specified portion of histheir cash fees or her cash feestheir annual equity award until a specified point in the future in accordance with the provisions of the Director Deferred Compensation Plan, as amended and restated effective January 1, 2015 (the “Director Deferred Compensation Plan”). The amountcash amounts deferred can be invested in a cash fund or the hypothetical Timken common share fund. The cash fund provides for interest to be earned quarterly at a rate equal to the prime rate plus 1%. If cash fees are invested in the Timken common share fund, Directors may elect to receive cash in an amount equal to any dividend equivalents or reinvest such amounts in the CompanyTimken common share fund. Equity award deferrals are maintained in a separate account, which is credited with the number of shares that would otherwise have been issued or transferred and delivered to the Director. Such accounts are credited from time to time with amounts equal to dividends or other distributions paid on the number of shares reflected in such accounts.
20202021 Director Compensation Table
The following table provides the compensation and benefits applicable to our nonemployee Directors for 2020:2021:
| Name (1) | Fees Earned or
Paid in Cash (2)
| Stock
Awards (3)
| All Other
Compensation (4)
| Total | Fees Earned or Paid in Cash | Stock Awards (2) | All Other Compensation (3)
| Total | ||||||||||
Maria A. Crowe | $82,500 | $120,175 | $2,716 | $ | 205,391 | $112,500 | $120,319 | $3,602 | $236,421 | |||||||||
Elizabeth A. Harrell | $65,000 | $120,175 | $3,844 | $ | 189,019 | $95,000 | $120,319 | $4,314 | $219,633 | |||||||||
Sarah C. Lauber | $100,183 | $289,919 | - | $390,102 | ||||||||||||||
John A. Luke, Jr. | $65,000 | $120,175 | $2,716 | $ | 187,891 | $95,000 | $120,319 | $3,602 | $218,921 | |||||||||
Christopher L. Mapes | $72,500 | $120,175 | $2,716 | $ | 195,391 | $102,500 | $120,319 | $3,602 | $226,421 | |||||||||
James F. Palmer | $87,500 | $120,175 | $2,940 | $ | 210,615 | $117,500 | $120,319 | $3,602 | $241,421 | |||||||||
Ajita G. Rajendra | $82,500 | $120,175 | $2,716 | $ | 205,391 | $112,500 | $120,319 | $3,602 | $236,421 | |||||||||
Frank C. Sullivan | $72,500 | $120,175 | $2,716 | $ | 195,391 | $102,500 | $120,319 | $3,602 | $226,421 | |||||||||
John M. Timken, Jr. | $112,500 | $120,175 | $2,716 | $ | 235,391 | $180,000 | $120,319 | $3,602 | $303,921 | |||||||||
Ward J. Timken, Jr. | $50,000 | $120,175 | $2,716 | $ | 172,891 | $80,000 | $120,319 | $3,602 | $203,921 | |||||||||
Jacqueline F. Woods | $65,000 | $120,175 | $2,716 | $ | 187,891 | $95,000 | $120,319 | $3,602 | $218,921 | |||||||||
| (1) | Richard G. Kyle, our President and |
| (2) | The amount shown for each Director |
|
All other compensation reflects cash dividend equivalents paid to the Directors in |
As of December 31, 2020,2021, unvested restricted shares and unvested restricted stock units were held by the nonemployee Directors as follows:
| Name | Unvested Restricted Shares and Unvested Restricted Stock Units
| |
Maria A. Crowe | ||
Elizabeth A. Harrell | ||
Sarah C. Lauber | 3,340 | |
John A. Luke, Jr. | ||
Christopher L. Mapes | ||
James F. Palmer | ||
Ajita G. Rajendra | ||
Frank C. Sullivan | ||
John M. Timken, Jr. | ||
Ward J. Timken, Jr.(1) | ||
Jacqueline F. Woods | ||
| (1) | Additionally, Ward J. Timken, Jr. has |
We have a standing Audit Committee that has oversight responsibility with respect to our independent auditor and the integrity of our financial statements. The Audit Committee is composed of James F. Palmer (Audit Committee Chair), Maria A. Crowe, Sarah C. Lauber, Christopher L. Mapes, Ajita G. Rajendra and Frank C. Sullivan. Our Board of Directors has determined that each member of the Audit Committee is financially literate and independent as defined in the listing standards of the NYSE and the rules of the Securities and Exchange Commission (the “SEC”). Our Board of Directors has determined that Sarah C. Lauber, James F. Palmer and Frank C. Sullivan qualify as Audit Committee financial experts.
The Audit Committee’s charter is available on the Corporate Governance section of our website at https://www.timken.com/about/governance-documents/investors.timken.com/corporate-governance/documents/.
We have a standing Compensation Committee that establishes and administers our policies, programs and procedures for compensating our senior management and Board of Directors. Members of the Compensation Committee are Ajita G. Rajendra (Compensation Committee Chair), Elizabeth A. Harrell, Sarah C. Lauber, John A. Luke, Jr., James F. Palmer and Jacqueline F. Woods. Our Board of Directors has determined that all members of the Compensation Committee are independent as defined in the listing standards of the NYSE.
With the guidance and approval of the Compensation Committee, we have developed compensation programs for our executive officers, including the CEO and the other named executive officers, included in the 2020 Summary Compensation Table, that are intended to align the interests of our executives and shareholders; reward executive management for sustained, strong business and financial results; and enable us to attract, retain and motivate the best talent. The Compensation Committee determines specific compensation elements for the CEO and considers and acts upon the CEO’s recommendations regarding the other executive officers.
The agenda for meetings of the Compensation Committee is determined by its Chair with the assistance of the Executive Vice President – Human Resources and General Manager – Compensation, Human Resources.Compensation. The meetings are regularly attended by the Chairman of the Board, the CEO, the Executive Vice President – Human Resources, the Vice President, General Counsel &
Secretary, and the General Manager – Compensation, Human Resources.Compensation. At each meeting, the Compensation Committee meets in executive session. The Chair of the Compensation Committee reports the Committee’s actions regarding compensation of executive officers to the full Board.Board and the full Board acts on compensation matters for the CEO. Our Human Resources department supports the Compensation Committee in its duties and may be delegated certain administrative duties in connection with our compensation programs. The Compensation Committee has the sole authority to retain and terminate compensation consultants to assist in the evaluation of Director and executive officer compensation and the sole authority to approve the fees and other retention terms of any compensation consultants. The Compensation Committee has engaged Willis Towers Watson Public Limited Company (“WTW”), a global professional services firm, to conduct annual reviews of its compensation programs for the Company’s executive officers and Directors. WTW also provides information to the Compensation Committee on trends in executive compensation and other market data. WTW (or its predecessor) has provided executive consulting services to the Compensation Committee and other professional consulting services to the Company for over 20 years.
With respect to Director compensation, as stated above, the Compensation Committee annually engages WTW to conduct reviews of Director compensation, and the Committee may then recommend to the full Board changes in Director compensation that will enhance our ability to attract and retain qualified Directors.
During fiscal year 2020,2021, WTW was paid approximately $245,000$200,000 for the executive and Director compensation consulting services it provided to the Compensation Committee. Other professional consulting services provided by WTW to the Company, which were requested by management, not approved by the Compensation Committee or the Board and not related to executive compensation, totaled approximately $1.7$1.75 million, most of which (greater than $1.6 million) related to retirement consulting and outsourcing of pension administration services.
The Compensation Committee has concluded that the advice it receives from WTW continues to be objective, unbiased and independent. The Compensation Committee’s careful oversight of the relationship with WTW with respect to compensation advice mitigates the risk that management potentially could misuse the actuarial engagement to influence WTW’s compensation work for the Compensation Committee. The Compensation Committee annually reviews the charges to the Company from WTW for executive and Director compensation advice and other services for the preceding three years, along with an estimate of services for the coming year. Additionally, WTW has adopted internal safeguards to ensure that its executive compensation unit is maintained separately from its actuarial business.
The Compensation Committee has assessed the independence of WTW, as required under the listing standards of the NYSE. The Compensation Committee also has considered and assessed relevant factors that could give rise to a potential conflict of interest with respect to WTW, specifically including the six consultant independence factors under Rule 10C-1(b)(4)(i) through (vi) under the 1934 Act. Based on this review, we are not aware of any conflict of interest regarding the work performed by WTW.
The Compensation Committee also plays an active role in our executive officer succession planning process. The Compensation Committee meets regularly with senior management to ensure that an effective succession planning process is in place and to discuss potential successors for executive officers. As part of this process, executive officer position profiles are updated to highlight the key skills required to meet future demands, and potential successors are evaluated and development plans are reviewed. Each year, the Compensation Committee reviews and discusses potential successors for each of the executive officers with the full Board in executive session. In addition, at the end of each year, the Compensation Committee reviews the performance of each of the executive officers. The Compensation Committee is also periodically updated regarding more broad-based human capital focused initiatives such as pay equity studies and, alongside the remainder of the Board, employee engagement surveys.
The Compensation Committee’s charter is available on the Corporate Governance section of our website at https://www.timken.com/about/governance-documents/investors.timken.com/corporate-governance/documents/. For more information regarding the role of management and the compensation consultants in determining or recommending the amount or form of executive compensation,
see “CompensationDiscussion and Analysis – Determining Compensation for 20202021” on page 42.44.
Nominating and Corporate Governance Committee
We have a standing Nominating and Corporate Governance Committee that is responsible for, among other things, evaluating new Director candidates and incumbent Directors, and recommending Directors to serve as members of our Board committees.committees, and providing oversight of the Company’s CSR program. Members of the Nominating and Corporate Governance Committee are Maria A. Crowe (Nominating and Corporate Governance Committee Chair), Elizabeth A. Harrell, John A. Luke, Jr., Christopher L. Mapes, Frank C. Sullivan and Jacqueline F. Woods. Our Board of Directors has determined that all members of the Nominating and Corporate Governance Committee are independent as defined in the listing standards of the NYSE.
The Board of Directors General Policies and Procedures provide that the general criteria for Director candidates include, but are not limited to, the highest standards of integrity and ethical behavior, the ability to provide wise and informed guidance to management, a willingness to pursue thoughtful, objective inquiry on important issues before the Company and a range of experience and knowledge commensurate with our needs as well as the expectations of knowledgeable investors.
The Nominating and Corporate Governance Committee utilizes a variety of sources to identify possible Director candidates, including search firms, professional associations and Director recommendations. In evaluating candidates to recommend to the Board of Directors, the Nominating and Corporate Governance Committee considers factors consistent with those set forth in the Board of Directors General Policies and Procedures, including whether the candidate enhances the diversity of the Board. Such diversity includes professional background and capabilities, knowledge of specific industries and geographic experience, as well as the more traditional diversity concepts of race, gender and national origin. The attributes of the current Directors and the needs of the Board and the Company are evaluated whenever a Board vacancy occurs, and the effectiveness of the nomination process, including whether that process enhances the Board’s diversity, is evaluated each time a candidate is considered. The Nominating and Corporate Governance Committee also is responsible for reviewing the qualifications of, and making recommendations to the Board of Directors for, Director nominations submitted by our shareholders. All Director nominees are evaluated in the same manner by the Nominating and Corporate Governance Committee, without regard to the source of the nominee recommendation.
The Nominating and Corporate Governance Committee also plans for Director succession. The Committee regularly reviews the size of the Board and whether any vacancies are expected due to retirement, refreshment or otherwise. The Nominating and Corporate Governance Committee seeks to maintain an appropriate mix of newer Directors who bring fresh perspectives with longer-tenured Directors who have deep knowledge of our global operations and long-term strategy. In the event that vacancies are anticipated or otherwise arise, the Committee considers potential Director candidates in accordance with the factors and criteria outlined above.
The Nominating and Corporate Governance Committee’s charter is available on the Corporate Governance section of our website at https://www.timken.com/about/governance-documents/investors.timken.com/corporate-governance/documents/.
Our code of business conduct and ethics, called the “Standards of Business Ethics,” and our corporate governance guidelines, called the “Board of Directors General Policies and Procedures,” are reviewed by the Nominating and Corporate Governance Committee as appropriate and are available on the Corporate Governance section of our website at https://www.timken.com/about/governance-documents/investors.timken.com/corporate-governance/documents/.
Shareholder-Recommended Director Candidates
Director candidates recommended by our shareholders will be considered by the Nominating and Corporate Governance Committee in accordance with the criteria outlined above. In order for a
shareholder to submit a recommendation, the shareholder must deliver a communication by registered mail or in person to the Nominating and Corporate Governance Committee, c/o The Timken Company, 4500 Mt. Pleasant Street NW, North Canton, Ohio 44720. Such communication should include the proposed candidate’s qualifications, any relationship between the shareholder and the proposed candidate, and any other information that the shareholder considers useful for the Nominating and Corporate Governance Committee to consider in evaluating such candidate.
Shareholder-Nominated Director Candidates
Our Amended Regulations provide a “proxy access” right to permit any shareholder or a group of up to 20 shareholders owning 3% or more of the voting power entitled to vote in the election of Directors 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 the greater of (i) 20% of the total number of Directors on the Board, rounding down to the nearest whole number, and (ii) two Directors in accordance with the requirements set forth in our Amended Regulations. Under our Amended 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. Requests to include shareholder-nominated candidates for Director in our proxy materials related to the 20222023 Annual Meeting of Shareholders must be delivered by certified mail, return receipt requested, to our Vice President, General Counsel & Secretary, c/o The Timken Company, 4500 Mt. Pleasant Street NW, North Canton, Ohio 44720, no earlier than October 18, 202119, 2022 and no later than November 17, 202118, 2022 in order to be timely. The summary of this “proxy access” right set forth above is qualified in its entirety by our Amended Regulations.
Corporate Governance and Social Responsibility Highlights
The Nominating and Corporate Governance Committee regularly reviews trends and recommends best practices, initiates improvements, and plays a leadership role in maintaining the Company’s strong corporate governance structure and practices. AmongThe below table details the practices the Nominating and Corporate Governance Committee believes demonstrate the Company’s commitment to strong corporate governance areand additional information about the following:Company’s corporate governance structure and practices can be found in the Board of Directors General Policies and Procedures, our Amended Regulations and our Amended Articles of Incorporation.
Board Independence, Refreshment, Diversity and Experience |
✓Strongly independent Board (10 of 12 Director nominees are independent) |
✓Independent Chairman of the Board |
✓Commitment to Board refreshment and diversity – 7 new Directors (representing over half of our Board) added in the past decade |
✓ 5 of 12 Directors are ethnically or gender diverse | |
✓3 Audit Committee financial experts |
✓6 current or former public company Chief Executive Officers currently serve on the Board |
Shareholder Rights |
✓Shareholder proxy access with 3/3/20/20 parameters |
✓Special meetings may be called by shareholders holding 25% of the Company’s common shares |
Other Strong Governance Practices |
✓Declassified Board – all Directors are elected annually |
✓Annual Board, Committee and Director evaluations |
✓Majority Voting Policy that requires any Director who fails to receive a majority of the votes cast in favor of his or her election to submit his or her resignation to the Board |
✓Over-boarding policy limits the number of public company boards a Director can serve on |
✓“Clawback” |
✓Stock ownership requirements for Directors and executive officers |
✓ Audit Committee or Board receives reports on cyber security threats and trends at least annually and receives regular updates on our information security program | |
✓Strong focus on shareholder engagement – over |
Additional information about the Company’s corporate governance structure and practices can be found in the Board of Directors General Policies and Procedures, our Amended Regulations and our Amended Articles of Incorporation.
The Nominating and Corporate Governance Committee also overseesprovides oversight of our corporate social responsibilityCSR program, though the full Board of Directors as well as its other standing committees also play a role in advising on certain CSR-related topics such as human capital initiatives and sustainability program. risk oversight.
Oversight and Management of the Company’s CSR Program
| Provides oversight of our CSR program | |
Champions our CSR efforts and liaises with the Nominating and Corporate Governance Committee on CSR developments | ||
Vice President,General Counsel& Secretary, Vice President, Human Resources, and Director – Corporate Communications provide management oversight and leadership to the steering committee | ||
Cross-functionalteamcharged withmonitoring andevaluatingcurrentandfuture CSRinitiatives,recommending strategies, managing data collectionprocesses, andreportingonCompany progress | ||
Consists of leaders in operations, compensation and benefits, HR, communications, legal, environmental, supply chain and other key functional areas | ||
In 2020,2021, we expandedcontinued to expand upon our corporate social responsibility reportingCSR program and further detailed our efforts to support our stakeholders as a socially responsible corporation. Going forward, we will continueOur CSR program is guided by our core values of ethics and integrity, quality, teamwork and excellence. Our goal is to drive our sustainability initiatives by measuring them againstcreate real-world impact in three focus areas — to growclearly defined areas: the pursuit and expansion of knowledge, to advance sustainability, and to promote leadership. These areas are aligned with our core competencies and focus our efforts towards achieving greater equity and efficiency for a world in motion. Some of the Company’s current initiatives that promote our three focus areas are set forth in the chart below:
| Focus Area | Knowledge | Sustainability | Leadership | |||
Certain Key Topics | Learning and Development; Diversity and Inclusion; Compensation, Benefits and Wellbeing | Product Stewardship; Energy, Emissions and Waste; Health, Safety and Mitigation | Ethics and Corporate Governance; STEM and Mentorship; Community and Charitable Giving | |||
Initiatives | • Enhancing diversity and inclusion initiatives to encourage global, diverse viewpoints • Deploying comprehensive employee surveys to inform efforts that increase associate engagement and satisfaction • Rewarding associates with strong wages and competitive benefits to recognize professional excellence and career progression • Investing in associate education, training and development programs to support a culture of learning | • Embracing energy efficiency, pollution prevention, waste management and recycling programs at Timken global facilities to reduce our environmental footprint • Engineering innovative products that increase the energy efficiency of machinery and equipment and propel the renewable energy sector • Continuously improving our world-class safety programs to protect associate health and safety, resulting in record performance | • Upholding strong corporate governance principles and practices to promote the interests of the Company and its stakeholders • Leading with and living our values every day, while operating ethically and responsibly in accordance with our Standards of Business Ethics • Building and investing in communities where we live and work through associate and corporate-led giving, partnership and volunteerism • Promoting and protecting recognized human rights in our local communities | |||
CSR Report Highlights | ||
Knowledge | 40% of current participants in our U.S. bearing co-op program are ethnically or gender diverse. Currently, we have three associate resource groups that are open to all associates, regardless of race, ethnicity, gender identity and age: Women’s International Network, Multicultural Association of Professionals, and Young Professionals Network Examples of regular, formal training and development activities include: • Harvard ManageMentor® Diversity, Inclusion and Belonging course for managers; • Our Engaged Leader program, which provides learning opportunities to further our culture of connectedness and growth through consistent conversations and team meetings; • The Signature Program, with whom we have collaborated since 2014 to augment development and support Timken female leaders in enriching their leadership capabilities; and • The Operations Development Program, an accelerated training program designed to increase the internal pool of people prepared to take on our Company’s leadership positions. We are also committed to providing competitive and equitable compensation based on the local markets in which we operate while supporting employee health. We conduct market studies around the world to ensure full-time associates receive competitive benefits relative to the markets where they work. | |
| Sustainability | Through our industrial repair and service business, we recycle numerous tons of steel and copper each year from service parts that cannot be reused. | |
| Working with our supplier, Ranpak, one of the global leaders in environmentally friendly packaging, we are replacing plastic bubble dunnage with rigid paper dunnage that can be reused and recycled. So far, we have converted eight U.S. facilities to sustainable paper packaging and we are working on extending the program internationally. | ||
| Over the last four years, our manufacturing facilities have implemented several programs recycling more than 1,000 metric tons of plastic. | ||
| 2020 represented our lowest recordable injury rate on record. | ||
| From 2018 to 2020, our total waste generation has decreased by over 40% and our total waste to landfill has decreased by over 15%, despite adding more sites to the scope of our reporting. | ||
In 2020, renewable energy became our single largest end-market sector in terms of total sales | ||
| Leadership | Our corporate charitable giving focus areas for 2020 included associate giving, basic needs, education, and reputation and community building. | |
| In 2020, we gave in excess of | ||
 | ||
| We published our enterprise-wide human rights policy which details, amongst other items, our: | ||
• Care for the health and safety of our • Embrace of diversity and intolerance of discrimination; • Commitment to competitive and equitable pay; • Respect for the principles of freedom of association and collective bargaining; • Promotion of the • Support for | ||
In consideration of our efforts, we were named one of the World’s Most Ethical Companies® by Ethisphere® Institute for the eleventh time, among America’s Most Responsible Companies by Newsweek and Statista and one of America’s Best Employers, America’s Best Employers for New Graduates and America’s Best Employers for Women by Forbes magazine in 2021.
For more information regarding our corporate social responsibility program, please see our most recent corporate social responsibility report available on our website at https://www.timken.com/about/corporate-social-responsibility/.
Shareholder Engagement in 2021
In 2020, the Company engaged in various forms of shareholder outreach, including participating in nine investor conferences, nine non-deal roadshows, and a significant number of individual investor meetings. In total, the Company completed over 500 interactions with investors during 2020, up over 20% from 2019. Key topics discussed during these engagements are set forth in the adjacent table.
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The Board of Directors primarily relies on its Audit Committee for oversight of the Company’s risk management. The Audit Committee regularly reviews issues that present particular risks to the Company, including those involving competition; economic conditions; planning and strategy; finance; sales and marketing; product technology and innovation; information technology and cybersecurity; facilities, operations and supply chain; environmental, health and safety; product warranty; talent management; and other matters. The full Board and other Committees also reviewsreview certain of these issues as appropriate. The Board believes that this approach, supported by our leadership structure, provides appropriate checks and balances against undue risk taking.
Shareholders or interested parties may send communications to the Board of Directors, to any standing committee of the Board, or to any Director, in writing c/o The Timken Company, 4500 Mt. Pleasant Street NW, North Canton, Ohio 44720. Shareholders or interested parties also may submit questions, concerns or reports of misconduct through the Timken Helpline at 1-800-846-5363 and may remain anonymous. Such communications may be reviewed by the office of the Vice President, General Counsel & Secretary to ensure appropriate and careful review of the matter.
BENEFICIAL OWNERSHIP OF COMMON SHARES
The following table shows, as of January 1, 2021,2022, the beneficial ownership of our common shares by each Director, nominee for Director and executive officer named in the 20202021 Summary Compensation Table on page 5558 of this Proxy Statement, and by all Directors, nominees for Director and executive officers as a group. Beneficial ownership of our common shares has been determined for this purpose in accordance with Rule 13d-3 under the 1934 Act and is based on the sole or shared power to vote or direct the voting or to dispose or direct the disposition of our common shares. Beneficial ownership as determined in this manner does not necessarily bear on the economic incidents of ownership of our common shares.
Amount and Nature of Beneficial Ownership of common shares |
Amount and Nature of Beneficial Ownership of common shares | Amount and Nature of Beneficial Ownership of common shares | ||||||||||||||||||||||||||||
Name
| Sole Voting or Investment
| Shared Voting or
| Aggregate Amount (1)
| Percent of
| ||||||||||||||||||||||||||
| Name (1) | Sole Voting or Investment Power (2) | Shared Voting or Investment Power | Aggregate Amount (2) | Percent of Class | ||||||||||||||||||||||||||
Christopher A. Coughlin | 220,973 | 0 | 220,973 | * | 263,801 | 0 | 263,801 | * | ||||||||||||||||||||||
Maria A. Crowe | 17,295 | 0 | 17,295 | * | 20,511 | 0 | 20,511 | * | ||||||||||||||||||||||
Philip D. Fracassa | 157,061 | 0 | 157,061 | * | 150,482 | 0 | 150,482 | * | ||||||||||||||||||||||
Elizabeth A. Harrell | 7,275 | 0 | 7,275 | * | 10,511 | 0 | 10,511 | * | ||||||||||||||||||||||
Richard G. Kyle | 814,798 | 0 | 814,798 | 1.08% | 645,619 | 0 | 645,619 | * | ||||||||||||||||||||||
Sarah C. Lauber | 0 | 0 | 0 | * | 400 | 0 | 400 | * | ||||||||||||||||||||||
John A. Luke, Jr. | 65,233 | 0 | 65,233 | * | 68,753 | 0 | 68,753 | * | ||||||||||||||||||||||
Christopher L. Mapes | 18,000 | 0 | 18,000 | * | 21,160 | 0 | 21,160 | * | ||||||||||||||||||||||
Ronald J. Myers | 36,171 | 0 | 36,171 | * | ||||||||||||||||||||||||||
James F. Palmer | 16,205 | 0 | 16,205 | * | ||||||||||||||||||||||||||
James F. Palmer | 13,045 | 0 | 13,045 | * | ||||||||||||||||||||||||||
Hansal N. Patel | 7,497 | 0 | 7,497 | * | ||||||||||||||||||||||||||
Ajita G. Rajendra | 16,090 | 0 | 16,090 | * | 19,250 | 0 | 19,250 | * | ||||||||||||||||||||||
Andreas Roellgen | 80,067 | 0 | 80,067 | * | 83,174 | 0 | 83,174 | * | ||||||||||||||||||||||
Frank C. Sullivan | 56,882 | 0 | 56,882 | * | 60,042 | 0 | 60,042 | * | ||||||||||||||||||||||
John M. Timken, Jr. | 582,325(2) | 789,427 | 1,371,752(2) | 1.81% | 457,785 | (3) | 915,427 | 1,372,912 | (3) | 1.82 | % | |||||||||||||||||||
Ward J. Timken, Jr. | 697,302 | 4,714,291 | 5,411,593 | 7.15% | 607,562 | 4,714,291 | 5,321,853 | 7.06 | % | |||||||||||||||||||||
Jacqueline F. Woods | 17,228 | 0 | 17,228 | * | 18,088 | 0 | 18,088 | * | ||||||||||||||||||||||
| All Directors, nominees for Director and executive officers as a group(3) | 2,857,592 | 5,503,718 | 8,361,310 | 11.05% | ||||||||||||||||||||||||||
| All Directors, nominees for Director and executive officers as a group(4) | 2,506,505 | 5,629,718 | 8,136,223 | 10.79 | % | |||||||||||||||||||||||||
| * Percent of class is less than 1%. | ||||||||||||||||||||||||||||||
|
| (1) | Excludes Ronald J. Myers due to his retirement from the Company on November 30, 2021. At the time of his retirement, Mr. Myers possessed sole voting or investment power over 25,561 common shares. |
| (2) | The following table provides additional details regarding beneficial ownership of our common shares: |
Name
|
Outstanding Options and Time- based Restricted Stock Units (a)
| Deferred common shares (b)
| Outstanding Options and Time- based Restricted Stock Units (a) | Deferred common shares (b) | ||||||||||||||||
Christopher A. Coughlin | 150,061 | 0 | 170,081 | 0 | ||||||||||||||||
Maria A. Crowe | 0 | 0 | 0 | 0 | ||||||||||||||||
Philip D. Fracassa | 86,380 | 0 | 72,569 | 0 | ||||||||||||||||
Elizabeth A. Harrell | 0 | 2,425 | 0 | 5,585 | ||||||||||||||||
Richard G. Kyle | 580,718 | 0 | 349,231 | 0 | ||||||||||||||||
Sarah C. Lauber | 0 | 0 | 400 | 0 | ||||||||||||||||
John A. Luke, Jr. | 0 | 0 | 0 | 0 | ||||||||||||||||
Christopher L. Mapes | 0 | 0 | 0 | 0 | ||||||||||||||||
Ronald J. Myers | 12,169 | 0 | ||||||||||||||||||
James F. Palmer | 0 | 0 | ||||||||||||||||||
James F. Palmer | 0 | 0 | ||||||||||||||||||
Hansal N. Patel | 3,514 | 0 | ||||||||||||||||||
Ajita G. Rajendra | 0 | 0 | 0 | 0 | ||||||||||||||||
Andreas Roellgen | 37,233 | 0 | 23,175 | 0 | ||||||||||||||||
Frank C. Sullivan | 0 | 2,000 | 0 | 2,000 | ||||||||||||||||
John M. Timken, Jr. | 0 | 0 | 0 | 0 | ||||||||||||||||
Ward J. Timken, Jr. | 184,900 | 0 | 92,000 | 0 | ||||||||||||||||
Jacqueline F. Woods | 0 | 2,500 | 0 | 2,500 | ||||||||||||||||
| (a) | Includes shares that the individual named in the table has the right to acquire on or before March 1, |
| (b) | Awarded as annual grants under the Equity and Incentive Compensation Plan or The Timken Company 2011 Long-Term Incentive Plan, as amended and restated as of February 13, 2015 (the “Predecessor Long-Term Incentive Plan”), which will not be issued until a later date under the Director Deferred Compensation Plan. |
Includes 182,166 shares for which John M. Timken, Jr. has sole voting and investment power as trustee of three trusts created as the result of distributions from the estate of Susan H. Timken. Also includes 126,000 shares held in an irrevocable trust with his spouse as the sole lifetime beneficiary for which he disclaims beneficial interest. |
Includes |
executive officers as a group has been calculated to eliminate duplication of beneficial ownership. This group consists of |
The following table gives information known to us about each beneficial owner of more than 5% of our common shares as of January 1, 2021,2022, unless otherwise indicated below:
Beneficial Owner
| Number of Shares
| Percent of Class
| Number of Shares | Percent of Class | ||||||||||||||
The Vanguard Group(1) | 6,237,976 | 8.24% | 6,672,981 | 8.85 | % | |||||||||||||
BlackRock, Inc.(2) | 5,547,346 | 7.33% | 5,660,394 | 7.51 | % | |||||||||||||
The Timken Foundation of Canton(3) | 4,652,481 | 6.15% | 4,652,481 | 6.17 | % | |||||||||||||
JPMorgan Chase & Co.(4) | 4,153,514 | 5.51 | % | |||||||||||||||
| (1) | A Schedule 13G/A filed with the SEC on February 10, |
| (2) | A Schedule 13G/A filed with the SEC on February 1, |
| (3) | A Schedule 13G/A filed with the SEC on February |
| (4) | A Schedule 13G filed with the SEC on January 28, 2022, by JPMorgan Chase & Co., 383 Madison Avenue, New York, New York 10179, indicated that it has sole voting power over 4,092,584 common shares, shared voting power over 0 common shares, sole investment power over 4,153,442 common shares, shared investment power over 72 common shares and aggregate beneficial ownership of 4,153,442 common shares. |
PROPOSAL NO. 2: SHAREHOLDER ADVISORY VOTE TOAPPROVAL, ON AN
APPROVEADVISORY BASIS, OF OUR NAMED EXECUTIVE OFFICER
COMPENSATION
We believe that our compensation programs for our named executive officers:
align the interests of executive management with those of our shareholders; |
reward executive management for sustained, strong business and financial results; and |
enable us to attract, retain and motivate the best talent. |
As required under the Dodd-Frank Wall Street Reform and Consumer Protection Act and Section 14A of the 1934 Act, we are asking you to approve, on an advisory (non-binding) basis, the following resolution at our 20212022 Annual Meeting of Shareholders:
RESOLVED, that the compensation of the named executive officers as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the compensation tables and any related material disclosed in this Proxy Statement, is hereby APPROVED.
As an advisory vote, this resolution is not binding on us. However, the Compensation Committee, which is responsible for designing and administering our executive compensation program, values the opinions expressed by our shareholders in their vote on this proposal and will consider the outcome of the vote when making future compensation decisions for our named executive officers. We currently are conducting this advisory vote, commonly known as a “say-on-pay” vote, every year and expect to hold the next say-on-pay vote in connection with our 20222023 Annual Meeting of Shareholders.
The affirmative vote of a majority of the votes cast on this matter is necessary for approval of this resolution. Abstentions and broker non-votes will not be counted for determining whether this resolution is approved.
|
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL, ON AN
ADVISORY BASIS, OF OUR NAMED EXECUTIVE OFFICER COMPENSATION.
COMPENSATION DISCUSSION AND ANALYSIS
TABLE OF CONTENTS
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| 38 | 2021 Compensation Decisions and Actions | |||
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| 40 | CEO Pay At-A-Glance | |||
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| 41 | Aligning Pay with Performance | |||
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| 44 | Determining Compensation for | |||
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| 46 | Key Elements of the Executive Compensation Program | |||
| | Analysis of | |||
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| 47 | ||||
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| 47 | Annual Cash Incentive | |||
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| 49 | Long-Term Incentives | |||
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| 52 | Retirement Programs | |||
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| 54 | Deferred Compensation | |||
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| 55 | Other Benefits | |||
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| 55 | Severance Agreements | |||
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| 55 | Stock Ownership Guidelines | |||
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| 56 | Anti-Hedging/Pledging Policies | |||
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| 56 | Compensation Risk Assessment | |||
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| 56 | Clawback Provisions | |||
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| 57 | Compensation Committee Report | |||
This section provides a summary of our named executive officer compensation program, key compensation decisions, and performance targets and results for incentive plans in which our named executive officers participated for the year ended December 31, 2020.2021. For 2020,2021, our NEOsnamed executive officers (or “NEOs”) were:
Richard G. Kyle, President and CEO; |
Philip D. Fracassa, Executive Vice President, Chief Financial Officer; |
Christopher A. Coughlin, Executive Vice President, Group President; |
|
Andreas Roellgen, Vice President, Europe, Asia and |
| · | Ronald J. Myers, former Executive Vice President, Human Resources. |
Mr. Myers retired from his position as Executive Vice President, Human Resources effective as of November 30, 2021.
Executive Compensation Philosophy
We design our executive compensation plans and programs to help us attract, motivate, reward and retain highly qualified executives who are capable of creating and sustaining value for our shareholders over the long term. The structure of our programs enables us to provide a competitive compensation and benefits package while aligning senior executive interests with those of our shareholders. The following chart highlights the key considerations behind the development, review and approval of the compensation for our NEOs:
| Objectives | Philosophy | |
Our executive compensation program is designed to:
| Our executive compensation philosophy is built on the following principles: | |
| · Recognizing that people are our most important resource | |
| · Rewarding results linked to both short- and long-term performance (pay-for-performance) | |
| · Positioning our pay to be competitive in the marketplace | |
| · Focusing on increasing shareholder value | |
Timken delivered strong financialrecord-setting performance in 2020,2021, despite the broad economic slowdown caused by COVID-19.unprecedented supply chain challenges and inflationary pressures that accelerated during the year. The unwavering commitment of our employees allowed the Company to continue to operate safely and efficiently during this difficulteffectively serve customers’ increased demand for Timken’s products and challenging period and deliver a high level of performance.services – all while advancing our strategic initiatives.
In 2020,2021, our financial performance compared favorably with other industrial companies, as we benefited from strong demand across most end markets, as well as our operational execution, including cost reduction initiatives,excellence and the diversity of our business, which has been bolstered in recent years by acquisitions and our effortsoutgrowth initiatives. We also made additional investments to increase our presence in growing sectors like renewable energy. We achieved these resultsenergy and marine, while remaining focused oncontinuing to optimize our manufacturing footprint to deliver higher returns through the safetybusiness cycle. The Company grew revenue and welfareearnings significantly in 2021, with record revenue of our employees$4.13 billion, an increase of approximately 18% from 2020, net income increasing approximately 30% to $369 million and other stakeholders and serving many essential industries. Throughout this period, Timken demonstrated its ability to execute through challenging conditions, as evidenced by our strong operating margin performance. Despite revenue declining 7% to $3.51 billion in 2020, Timken achieved EPS of $3.72 and adjusted EPS of $4.101, down 21% and 11%,
2 See Appendix A for reconciliations of adjusted EPS, adjusted ROIC, free cash flow, and net debt to their most directly comparable GAAP financial measures. Adjusted ROIC is calculated as adjusted net operating profit after taxes divided by average invested capital. Free cash flow is defined as net cash from operations minus capital expenditures. These performance metrics used for external reporting may not correlate exactly to their corresponding compensation adjusted metrics due to slightly different adjustments (see pages 46 to 49 for more details on how the compensation adjusted metrics are calculated).
EBITDA increasing approximately 9% to $718 million2. We achieved record EPS of $4.79 and record adjusted EPS of $4.722, up 29% and 15%, respectively, from 2020. We also delivered an adjusted ROIC of 11.0%2 in 2021, up from 9.9% last year’s record performance. Weyear. In addition, we generated strong net cash from operations of $578$387 million and free cash flow of $456$2392 million up 5% and 11%, respectively, from 2019. In addition, we generated an adjusted ROIC of 9.9%2in 2020. The cash generation allowed us to continue to invest in the business for future growth, reduce net debt and return cash to shareholders.2021.
Our Company’s performance during 2020,2021, discussed throughout the CD&A,Compensation Discussion and Analysis (the “CD&A”), resulted in below-target annual cash incentive compensation plan payouts for 2020,2021, due to lower than targeted free cash flow (driven mainly by higher working capital) and slightly lower earnings and operating margins as a result of adjusted earnings before interest and taxes (“EBIT”) declining in 2020 versus 2019.compared to target (driven mainly by higher operating costs to serve customers). The above-target number of performance-based restricted stock units earned for the 2018-20202019-2021 cycle reflect record three-year cumulative EPS and adjusted EPSwere slightly below target, reflecting strong overall performance and strong average adjusted ROIC during this period.in a challenging environment, as the targets were set in early-2019, prior to the start of the COVID-19 pandemic. Our cumulative 2018-20202019-2021 EPS and adjusted EPS increased 236%61% and 89%50%2 respectively, as compared with the 2015-20172016-2018 cycle which was used as the basis for setting the 2018-20202019-2021 targets. Average adjusted ROIC as compared across those same periods increased 160 bps.remained relatively consistent. See page 4648 for details on annual cash incentive award decisions, and “20202021 Long-Term Incentive Decisions” on page 4850 for more details on long-term incentive award payouts. Overall, our NEO compensation for 20202021 reflects our compensation objectives and demonstrates our long-standing commitment to pay our executives based upon the performance they deliver.
20202021 also marked the release of our secondthird annual corporate social responsibility report, which detailed our vision to build a more efficient and resilient world and introduced three focus areasworld. The report highlights how we have identifiedcontinue to measure and advance our corporate social responsibility initiatives going forward – growing knowledge, advancing sustainabilityby promoting a culture of problem solvers with a strong focus on sustainable products and promoting leadership.practices across the Company, while maintaining a strong commitment to ethics. See page 25 for more details on our most recent corporate social responsibility report.
Our commitment to creating long-term shareholder value is reflected in our multi-faceteddisciplined and balanced approach to capital allocation. WeDuring 2021, we generated strong net cash from operations of approximately $578$387 million and free cash flow of $456$2392 million. This strong cash generation allowed us to invest in the business for future growth reduce net debt, and continue to return cash to shareholders. We invested approximately $122$148 million, or 3.5%3.6% of revenue, in capital expenditures to growfacilitate growth and improve the competitiveness of our business, while further strengthening our leadership position in bearings with the acquisition of Aurora Bearing Company. In addition, webusiness. We also returned $136$185 million in cash to shareholders through the payment of dividends and the repurchase of approximately 1.11.25 million shares of stock, or over 1%1.7% of our outstanding shares, during the year. In 2020,2021, we paid out our 394398th consecutive quarterly dividend and increased our quarterly dividend to $0.29/$0.30/share in the fourthsecond quarter, continuing one of the longest continuous dividend streaks on the NYSE and making 20202021 the seventheighth consecutive year of higher annual dividend increases. Timken allocateddividends. The Company also expanded its linear motion portfolio with the remainderacquisition of its cash flow to reduce leverage.Intelligent Machine Solutions (“iMS”). We reducedended the year with a strong balance sheet with total debt by $166 millionof $1.46 billion and net debt by $276of $1.212 million during the year, and we ended 2020 with a billion. Our net-debt-to-adjusted-EBITDA ratio that was well withinof 1.72 times at December 31, 2021, is near the low-end of our 1.5 to 2.5 times target for leverage. This improved financialtargeted range and puts us in an excellent position will help enable the Company to continue to drive itsour strategy and create shareholder value in 20212022 and beyond.
2 See Appendix A for reconciliations of adjusted EPS, adjusted EBITDA, free cash flow, adjusted ROIC, net debt, and the ratio of net debt to adjusted EBITDA to their most directly comparable GAAP financial measures. Free cash flow is defined as net cash from operations minus capital expenditures. Adjusted ROIC is defined as ANOPAT divided by average invested capital. The performance metrics discussed above are used for external reporting and may not correlate exactly to their corresponding compensation adjusted metrics due to slight differences in methodology (see pages 48 to 52 for more details on how the compensation adjusted metrics are calculated).
 |  | |
| Based out of North Shores, Michigan, iMS is a manufacturer of industrial robotics and automation solutions, which expands the Company’s growing linear motion portfolio. |
Based out of Montgomery, IL, Aurora Bearing Company is a leading manufacturer of spherical plain bearings and rod-ends for industrial and aerospace applications.
ExecutionStrong execution of our strategy has created shareholder value by delivering TSR of 40.3%25.5%, 19.1%14.3%, and 25.1%12.1% over the past one-three-, three- five-, and five-yearten-year periods, respectively. Our three-year and five-year TSR for each of these three periods outpaced both the median of our 20202021 compensation peer group and also exceeded the S&P 500 Industrials over the samethese respective timeframes. In addition,timeframes, while our ten-year TSR of 11.0%, which reflects the alignment ofwas just slightly below our strategy with long-term shareholder value creation, exceeded thepeer median of our 2020 compensation peer group of 7.6% but slightly laggedand the S&P 500 Industrials (12.0%) over that same timeframe.Industrials. The S&P 500 Industrials comprises those companies included in the S&P 500 index that are classified as members of the GICS industrials sector.
*TSR for the Company was calculated on an annualized basis and assumes quarterly reinvestment of dividends. The 10-year period takes into account the value of TimkenSteel common shares distributed in the Spinoff.
**See page 4143 for the companies that are included in the compensation peer group for 2020.
***The S&P 500 Industrials comprises those companies included in the S&P 500 index that are classified as members of the GICS industrials sector.
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Factors Guiding Our Decisions
(see page 44 for details) |
· Executive compensation program objectives and philosophy
· Financial performance
· CEO recommendations for other NEOs
· Assessment of risk management, including avoidance of unnecessary or excessive risk taking to support delivery of long-term shareholder value
· Shareholder input including “say-on-pay” vote
· Advice of independent, outside compensation consultant
· General market and peer company pay practices
· Current and historical compensation
· Performance across key financial metrics, including TSR, compared to U.S. industrial peers and other competitors
· General market conditions and the cyclicality of the markets in which we operate
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Program Updates Implemented at the Beginning of 2021
| Timken did not make any adjustments or modifications to the plan designs or financial performance metrics utilized in its executive compensation program in 2021.
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Key 2021 Compensation Decisions and Results
(see page 47 for details) | The compensation decisions outlined below demonstrate how the Company aims to maintain alignment with its compensation philosophy and market practice.
Base Salary
The Committee awarded base salary increases effective in March 2021 to each NEO, including the CEO.
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| Executive Officer | 2020 Target Base Salary | 2021 Target Base Salary | Percent Increase | |||||||||||||||
| Richard G. Kyle | $1,017,640 | $1,041,046 | 2.3% | |||||||||||||||
| Philip D. Fracassa | $562,380 | $575,315 | 2.3% | |||||||||||||||
| Christopher A. Coughlin | $562,194 | $575,125 | 2.3% | |||||||||||||||
| Hansal N. Patel | $390,179 | $420,223 | 7.7% | |||||||||||||||
| Andreas Roellgen* | $360,306 | $378,682 | 5.1% | |||||||||||||||
| Ronald J. Myers | $408,288 | $425,028 | 4.1% | |||||||||||||||
*The conversion rate used for purposes of converting the Euros earned by Mr. Roellgen into U.S. Dollars was €1.00 = $1.1833 (the average monthly exchange rate for the calendar year) |
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Annual Cash Incentive
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Based on the Company’s 2021 performance, annual cash incentive awards were paid at 74.4% of target for the NEOs, reflecting below-target performance for this time period, due to lower than targeted free cash flow and slightly lower earnings and operating margins.
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Annual cash incentive opportunities were delivered under the Company’s shareholder-approved Equity and Incentive Compensation Plan. For additional details, see the “Annual Cash Incentive” section on page | ||||
| Long-Term Incentives | ||||
| The NEOs received target grants of time-based restricted stock units and performance-based restricted stock units in | ||||
| Performance-based restricted stock units (which are based on adjusted ROIC and adjusted EPS performance achievements) were earned at | ||||
In February 2020, the Company made a one-time grant of 5,000 deferred shares to Mr. Myers under the Equity and Incentive Compensation Plan to promote the retention of Mr. Myers through the end of 2021.
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| 2022 Program Updates | Modifications to Annual Cash Incentive Metrics | |||
| For the 2022 plan year, the Company has decided to replace the adjusted earnings before interest and taxes (“EBIT”) and adjusted EBIT margin metrics within the corporate annual cash incentive plan with adjusted EBITDA and adjusted EBITDA margin, respectively, which aligns with how the Company reports its financial results externally. Consistent with the Company’s prior weighting of adjusted EBIT and adjusted EBIT margin, adjusted EBITDA performance will be weighted 60% and adjusted EBITDA margin performance will be weighted 20% for purposes of determining payouts under the corporate annual cash incentive plan (with free cash flow continuing to have a 20% weighting). These changes will apply to all associates who participate in the corporate annual incentive plan, including the NEOs. | ||||
| Changes to the Compensation Peer Group Referenced for 2022 Executive Compensation | ||||
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Target pay for | Elements of our named executive officer compensation consist of base salary, annual cash incentive, long-term incentives that include time-based and performance-based restricted stock units, other primarily |
The chart below provides annualized targeted | ||||
The Company’s Approach to Rewarding Performance | ||||
Annual Cash Incentive | ||||
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Time-Based Restricted Stock Units | ||||
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Performance-Based Restricted Stock Units | ||||
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*See page 4143 for more details on the companies in the peer group, which consists of U.S. industrial companies with median revenue of $3.35 billion.$3.12 billion (as of the time the benchmarking study was conducted).
**Survey data consists of pay practices of certaingeneral industry companies in the WTW Executive Compensation Database adjusted to $3.8 billion in annual revenue via the use of regression analysis.
The Company’s success depends largely on the contributions of motivated, focused and energized employees all working to achieve our strategic and financial objectives. This understanding shapes our approach to providing a competitive compensation and benefits package to our CEO and the other NEOs.
Pay-for-performance is one of the principles that make up our executive compensation philosophy. To help ensure that we are adhering to this principle, we evaluate the degree of alignment of our total incentive compensation to our business results, including the level of adjusted EBIT, adjusted EBIT margin, free cash flow, adjusted ROIC and adjusted EPS, which we believe are key performance metrics that drive long-term TSR and cash generation that supports our capital allocation objectives.
The Company uses a balance of short- and long-term incentives as well as cash and non-cash compensation to meet these objectives. The elements of executive compensation provided to our NEOs for 20202021 consisted of base salary, annual cash incentive, long-term incentives including time-based restricted stock units and performance-based restricted stock units, and other primarily broad-based employee benefits.benefits, and limited perquisites. Our compensation program is designed to link pay and performance.
Program Design:85% of the targeted total direct compensation for Mr. Kyle and between |
 |   |  |
Performance Assessment: Our Compensation Committee uses a comprehensive process to assess Company performance. We believe our plan and financial metrics focus management on the appropriate objectives for the creation of both short- and long-term shareholder value. |
The Company’s incentive compensation program for executives is designed to link compensation with key financial and operating goals, some of which are short-term, while others take several years or more to achieve.
Short-Term (Cash) Annual Incentive* | Long-Term
Performance-Based Restricted Stock Units*
60% of NEO Annual Equity
| Long-Term (Equity)
| Units
40% of NEO Annual Equity
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Objective | Short-term operational business priorities and shareholder value creation | Long-term strategic financial goals and shareholder value creation | Long-term shareholder value creation | |||||
Time Horizon and Metrics | One year
60% adjusted
20% adjusted EBIT margin**
20% free cash flow | Three years
60% adjusted EPS
40% adjusted ROIC | Four-year vesting period
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*See “Annual Cash Incentive” and “Long-Term Incentives: Performance-Based Restricted Stock Units”sections on pages 4547 and 48,50, respectively, for more details.
**Will be replaced with adjusted EBITDA and adjusted EBITDA margin for the 2022 plan year.
Other key features of our executive compensation program include:
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Stock ownership requirements: Our stock ownership guidelines require all senior executives to meet specific ownership targets based on position. This requirement aligns the interests of our executives with those of our shareholders. See page 55 for more information.
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Clawback provisions: The Company maintains specific provisions regarding the recovery (“clawback”) of awards to deter certain types of conduct, including conduct that could affect the accuracy of the Company’s financial statements. See page 56 for more information.
Consideration of 20202021 Say-on-Pay Vote
In evaluating the design of our executive compensation programs and the specific compensation decisions for each of our NEOs, the Compensation Committee considers shareholder input, including the advisory “say-on-pay” vote at our annual meeting, in addition to other factors. In 2020, approximately 96%2021, over 97% of the votes cast approved the compensation for our NEOs described in our Proxy Statement for the 20202021 Annual Meeting of Shareholders. From time to time, our shareholders have also engaged in discussions with the Company regarding elements of our compensation program and their feedback has generally been considered in making compensation decisions. Based on thisthe strong level of shareholder support, the Compensation Committee did not make any changes to our compensation programs or policies that were specifically driven by the results of the say-on-pay vote or shareholder feedback.
Use of Peer Group and Market Data for Our 2020 Executive Compensation Program
The Company establishes target compensation levels that are consistent with market practice and general internal equity considerations relative to base salaries, target annual cash incentive awards and long-term incentive grants, as well as with the Compensation Committee’s assessment of the appropriate pay element mix for the position.
In order to gauge the competitiveness of its compensation programs, the Company reviewed compensation practices and pay opportunities from general industry survey data, as well as from a selection of publicly traded peer companies. The Company attempts to position itself to attract and retain qualified senior executives in the face of competitive pressures in its relevant labor markets.
Specifically, in 2020,2021, the Company used information regarding the pay practices of general industry companies in the WTW Executive Compensation Database, regressed to $3.8 billion in annual revenue. Thisrevenue, which was closelyslightly below our expectations for 2021 revenue at the beginning of 2021, but aligned to our outlookexpectations for 2020 revenue, atprior to the startglobal outbreak of the year.COVID-19 pandemic. When running this regression analysis, the Company maintained the revenue figure at $3.8 billion due in part to continued uncertainty relating to the pandemic as well as supply chain challenges. The Company believes that revenue and operational footprint are appropriate indicators of the size and complexity of an organization, which should be reflected in determining compensation levels. The compensation data resulting from this analysis was a significant factor considered by the Compensation Committee with respect to its 20202021 executive compensation decisions for our NEOs.
The Company also used a compensation peer group as an additional reference point when determining executive compensation. The 20202021 peer group (used to set compensation levels for 2021), which is unchanged from the 2019our 2020 peer group, consisted of a select group of similarly sized U.S. industrial companies that our Compensation Committee believes arebelieved to be representative of the talent market in which we compete and consisted of the following companies:
Allison Transmission Holdings, Inc. | Dana Inc. | Nordson Corp. | ||
Altra Industrial Motion Corp. | Flowserve Corp. | Regal Beloit Corp.* | ||
American Axle & Manufacturing Holdings, Inc. | IDEX Corp. | Rexnord Corp.* | ||
Carlisle Companies Inc. | ITT Inc. | Terex Corp. | ||
Colfax Corp. | Kennametal Inc. | Trinity Industries, Inc. | ||
Crane Co. | Meritor, Inc. | Triumph Group, Inc. | ||
* As named prior to the Regal Beloit Corp. and Rexnord Process and Motion Control transaction.
While the Compensation Committee considered general industry and peer group data in determining the general competitiveness of executive compensation, itmarket data is only one factor taken into consideration when determining the total compensation for our NEOs. The Compensation Committee also considered other factors listed in “Factors Guiding Our DecisionsDecisions”” on page 36.38.
Changes to the Compensation Peer Group Referenced for 2022 Executive Compensation
In 2021, as part of its annual review of executive and director compensation, the Compensation Committee, in consultation with WTW, reviewed the peer group utilized in 2021 and assessed whether any adjustments were needed to the peer group referenced for setting compensation levels in 2022. Factors taken into consideration when setting the 2022 compensation peer group included comparisons of various financial metrics, such as revenue and market capitalization, operational footprint, relevant end-user markets, and product portfolio of added companies compared to Timken’s current product portfolio. To account for the Company’s increased revenue and market capitalization compared to the median revenue size and median market capitalization of our current peer group, we made the following changes:
| 2021 Peer Group | ||||
| Removed | Remaining for 2022 | Added | ||
Allison Transmission Holdings, Inc. American Axle & Manufacturing Holdings, Inc. Colfax Corp. IDEX Corp. Nordson Corp. Rexnord Corp.* Trinity Industries, Inc. Triumph Group, Inc. | Altra Industrial Motion Corp. Carlisle Companies Inc. Crane Co. Dana Inc. Flowserve Corp. ITT Inc. Kennametal Inc. Meritor, Inc. Regal Rexnord Corp. Terex Corp. | Agco Corp. Dover Corp. Fortive Corp. Gates Industrial Corporation plc Ingersoll Rand Inc. Oshkosh Corp. Westinghouse Air Brake Technologies Corp. Woodward, Inc. | ||
| 2022 Peer Group | ||||
* As named prior to the Regal Beloit Corp. and Rexnord Process and Motion Control transaction.
Determining Compensation for 20202021
Role of the Compensation Committee
Each year, the Compensation Committee determines the appropriate level of compensation for our NEOs. As part of this process, the Compensation Committee reviews all of the components of compensation for the NEOs and determines if each individual’s total compensation is reasonable and consistent with the Company’s compensation philosophy. The Compensation Committee reviews each component of compensation individually and in total, references competitive market data including at the 50th50th percentile, and, after consideration of additional factors (for example, the executive’s responsibilities, experience level, tenure, performance in the position and Company performance, including TSR), may make adjustments to any element of a NEO’s compensation in establishing such executive’s total direct compensation.
The Compensation Committee then approves, with any modifications it deems appropriate, base salary ranges, target annual cash incentive award opportunities and long-term incentive grants for the Company’s NEOs.
In the course of this analysis and development of proposed total compensation packages, WTW, the Compensation Committee’s external compensation consultant, reviews the relevant information and discusses its findings with the Compensation Committee.
The compensation package for the CEO is determined by the Compensation Committee and approved by the independent Directors of the Board during executive session.
Role of the CEO and Management
The CEO, in consultation with executive compensation leadership and WTW, prepares compensation recommendations for the NEOs (other than the CEO) and presents these recommendations to the Compensation Committee. These recommendations are based on the CEO’s personal review of each
NEO’s performance, general internal equity considerations, job responsibilities and importance to our overall business strategy, as well as our compensation philosophy. Although these recommendations are given significant weight, the Compensation Committee retains full discretion when determining compensation for the NEOs.
As part of this process, individual elements of compensation provided to our NEOs are generally compared to general industry market data and peer group data as described above and the total compensation package is considered in relation to the target established for the position, taking into account the scope of responsibilities for the particular position. Total direct compensation (base salary, annual cash incentive and long-term incentive grants) also is evaluated in relation to the total compensation for positions with similar levels of responsibility derived from the general industry market data and peer group data described above.
Role of the Compensation Consultant
To add rigor in the review process and to inform the Compensation Committee of market trends, the Compensation Committee engages the services of WTW as our independent executive compensation consultant to analyze our executive compensation structure and plan designs, and to assess whether the compensation program is competitive and supports the Compensation Committee’s goal to align the interests of executive officers with those of shareholders. WTW also provides the Compensation Committee with market data, which the Compensation Committee generally references as a market check when determining compensation for non-employee Directors and executive officers.
In 2020,For purposes of 2021 compensation decisions, WTW’s primary areas of assistance to the Compensation Committee were:
Gathering information related to current trends and practices in executive compensation in response to questions raised by the Compensation Committee and management; |
Developing analyses that help evaluate and inform on how the compensation programs are working, including pay-for-performance analyses, peer group reviews and risk assessments; |
| · | Reviewing information developed by management for the Compensation Committee and providing its input on such information to the Compensation Committee; |
Attending and participating in meetings with the Compensation Committee, as well as briefings with the Compensation Committee Chair and management prior to meetings; and |
Reviewing with management and the Compensation Committee materials to be used in preparing the Company’s Proxy Statement. |
The Compensation Committee has authorized WTW to interact with the Company’s management, as needed, on behalf of the Compensation Committee with respect to executive compensation matters. WTW also provides actuarial, pension administration and other services to the Company, which are unrelated to the work that WTW provides to the Compensation Committee. The WTW consultants who advise the Compensation Committee are different from the WTW employees who perform work for the Company in other areas. In order to maintain independence, WTW has adopted formal executive compensation consulting protocols that help to ensure that its advice to the Compensation Committee is fully objective and independent and that the business unit providing such advice remains separate from WTW’s other business units that provide advice to the Company’s management. For more information regarding fees paid to WTW by the Company in 20202021 and the Compensation Committee’s assessment that there is no conflict of interest in the work performed by WTW with respect to executive compensation, see page 23 of the Proxy Statement.
Key Elements of the Executive Compensation Program
Type of Compensation | Link to Program Objectives | Key Features | ||
Cash Compensation | ||||
Base Salary | A standard compensation element in executive compensation packages, offering market-competitive fixed compensation to attract and retain talent | Provides a consistent source of income | ||
Annual Cash Incentive | A cash-based award that encourages executives to focus on achievement of specific annual corporate performance goals | Target incentive opportunity is set as a percentage of base salary, and awards are paid out based on achievement relative to annual performance metrics and targets | ||
Long-Term Equity Incentives | ||||
Performance-Based Restricted Stock Units | Requires achievement of specified strategic financial and operating metrics over a three-year period that the Compensation Committee believes are highly correlated to driving long-term shareholder value; it also further aligns the long-term financial interests of our executives with those of our shareholders | Designed to reward executives for attainment of specified three-year corporate performance goals; value is delivered in equity to align with shareholder experience; cumulative dividend equivalents are paid in cash based on the actual number of shares delivered at the end of the three-year performance cycle | ||
Time Based Restricted Stock Units | Rewards long-term shareholder value creation, enhances executive stock ownership and promotes retention | Four-year (25% per year) time vesting; value is delivered in equity to align with shareholder experience; cumulative dividend equivalents are paid in cash upon vesting | ||
| Benefits | ||||
Retirement and Savings Benefits | An element of our benefits program that helps attract and retain executive talent | NEOs receive retirement and savings benefits through several plans:
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Severance and Change in Control Agreements | Helps ensure NEOs remain focused on creating sustainable performance | Agreements help protect the Company and the NEOs from risks by providing: ·
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Other Benefits | Keeps program competitive and provides health, disability and life insurance protection for executives | Perquisites are limited in amount and use | ||
*See “Retirement Programs” on page 5052 for NEO eligibility.
Analysis of 20202021 Compensation
Base salaries for the NEOs are intended to reflect the scope of their responsibilities, the length of their experience performing those responsibilities and their performance. The Compensation Committee initially determines base salary ranges for the NEOs based on external general market and peer group data for salary practices for positions with similar levels of responsibility. The Compensation Committee also reviews base salaries for the NEOs annually in light of each officer’s experience, leadership, current salary and position in the salary range. The base salary decisions described below were made based on these considerations. | ||||
Establishing Base Salaries
When establishing base salaries for NEOs, the Compensation Committee considers general industry data for comparable roles and peer group data as a general guideline. | ||||
20202021 Base Salary Decisions:Decisions
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| Executive Officer | 2020 Target Base Salary | 2021 Target Base Salary | Percent Increase | |||||||||
Richard G. Kyle | $1,017,640 | $1,041,046 | 2.3% | |||||||||
Philip D. Fracassa | $562,380 | $575,315 | 2.3% | |||||||||
Christopher A. Coughlin | $562,194 | $575,125 | 2.3% | |||||||||
Hansal N. Patel | $390,179 | $420,223 | 7.7% | |||||||||
Andreas Roellgen* | $360,306 | $378,682 | 5.1% | |||||||||
Ronald J. Myers | $408,288 | $425,028 | 4.1% | |||||||||
*The conversion rate used for purposes of converting the Euros earned by Mr. Roellgen into U.S. Dollars was €1.00 = $1.1833 (the average monthly exchange rate for the calendar year) |
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The Company’s annual cash incentive program provides the NEOs with the opportunity to earn additional compensation based on the achievement of annual corporate performance goals established by the Compensation Committee and approved by the Board. It is intended to focus the NEOs on specific performance goals in the applicable year. For all NEOs, the |
Linking Compensation to Performance
The Compensation Committee established adjusted EBIT as the primary performance measure because it believes this measure is closely correlated with the creation of shareholder value.
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In 2020,2021, Mr. Kyle, as CEO, had an annual cash target award opportunity of 120%125% of base salary and the other NEOs had target award opportunities ranging from 50%55% to 75%80% of base salary in 2020. Annual cash incentive awards were calculated using unreduced base pay for the NEOs, consistent with other employees eligible for annual cash incentive plan awards, in recognition of NEO and employee commitment, strong Company performance during a difficult operating environment in 2020 and the impact of the temporary reduction to base salaries.salary. Annual cash incentive payouts for our NEOs were determined by:
Corporate performance (measured by adjusted EBIT, adjusted EBIT margin and free cash flow3); and |
Individual performance (however, for |
Specific factors that go into setting the targets include consideration of prior-yearCompany results for the Company as compared toprior years, results for U.S. industrial peers, current market conditions, cyclicality and outlook, acquisitions, divestitures, working capital requirements, past targets and performance against those targets, and macro-economic factors.
Performance goals for the Company’s corporate annual cash incentive plan were set near the beginning of 2020.2021. The 20202021 adjusted EBIT target was set approximately 4% higher than the 2019 adjusted EBIT target and represents a 6%15% increase over actual 20192020 adjusted EBIT results (using comparable exclusions). and approximately 5% lower than the 2020 adjusted EBIT target which was not achieved due to the impact of the COVID-19 pandemic.
The 2021 adjusted EBIT margin target of 14.4% was set at a level that was 30 basis points higher than the 2020 actual adjusted EBIT margin results of 14.1% and 80 basis points lower than the 2020 adjusted EBIT margin target of 15.2% which was set at a level that was 110 basis points higher than the 2019 adjusted EBIT margin target of 14.1% and equalnot achieved due to the 2019 actual adjusted EBIT margin resultsimpact of 15.2%.the COVID-19 pandemic.
The 20202021 free cash flow target of $415 million was set at a level that was approximately 34% higher thanequal to the 20192020 free cash flow target and 2% higher10% lower than 20192020 free cash flow results.results as the Company expected higher working capital investment to support anticipated sales growth. This turned out to be the case and was compounded by higher operating costs associated with the impact from COVID-19, as free cash flow of $230 million in 2021 resulted in a 0% payout under the corporate annual cash incentive plan.
20202021 Annual Performance Award Decisions
Under the corporate annual cash incentive plan, actual performance under each of the three financial metrics needneeded to reach the respective minimum threshold for that portion of the award to be payable. Performance targets and actual performance levels for the 20202021 corporate annual cash incentive plan are shown in the table below. Straight-line interpolation is used to calculate actual payouts under the plan. Despite the significant unforeseen impact of COVID-19, no adjustments or modifications were made to the financial performance metrics or targets for our 2020 annual cash incentive plan. Awards earned for the 2020 annual cash incentive plan reflect formulaic calculations based on metrics and targets established prior to the outset of the global pandemic.
Corporate Annual Cash Incentive Plan
| Threshold | Target | Maximum | Actual | Threshold | Target | Maximum | Actual | |||||||||||
Adjusted EBIT (60% weighting) | $421M | $601M | $781M | $495M
(70.6% payout) | $399M | $570M | $741M | $552M (94.7% payout) | ||||||||||
Adjusted EBIT Margin* (20% weighting) | 10.0% | 15.2% | 16.5% | 14.1%
(89.4% payout) |
| 10.0% | 14.4% | 16.5% | 13.4% (88.1% payout) | |||||||||
Free Cash Flow**(20% weighting) | $291M | $415M | $540M | $456M
(100.0% payout) | ||||||||||||||
Free Cash Flow (20% weighting) | $249M | $415M | $581M | $239M (0.0% payout) | ||||||||||||||
| h | h | h | h | |||||||||||||||
Plan Payout | 50% | 100% | 200% | 80.2% payout | é 50% | é 100% | é 200% | é 74.4% payout | ||||||||||
*Adjusted EBIT Margin less than 8.5% would have resulted in zero payout for the plan. Between 8.5% and 10.0%, a payout under the Adjusted EBIT metric and/or Free Cash Flow metric would have been possible.
3 Based on adjusted earnings used for external reporting, further adjusted to exclude post-closing operating results of acquisitions. Free cash flow is defined as net cash provided by operating activities minus capital expenditures. See Appendix A for reconciliations of adjusted earnings and free cash flow as used for external reporting to their most directly comparable GAAP financial measures.
**For 2020, Adjusted EBIT did not exceed the prior year’s actual results, therefore the payout under the Free Cash Flow metric was capped at 100%, even though the metric achieved 133.0% of the target, in accordance with the plan design.
Actual performance for adjusted EBIT, adjusted EBIT margin, and free cash flow caused the 20202021 corporate annual cash incentive plan to be scored at 80.2%74.4% for corporate participants, resulting in a 20202021 cash award payout of 80.2%74.4% of the target opportunity for Messrs. Kyle, Fracassa, Coughlin, Myers, Patel and Roellgen. While payouts to other non-NEO participants in the corporate plan are subject to certain multipliers based upon individual performance, no such multipliers were applied to the 20202021 cash award payouts for the NEOs. Mr. Myers’ award payout was prorated based on the number of months worked during the year, prior to his retirement on November 30, 2021. The corporate annual cash incentive plan metrics were chosen to drive short-term operational business priorities that the Compensation Committee believes will help deliver shareholder value over time. The targets for the corporate plan for 20202021 were established at more challenging levels than 2019when compared with 2020 results and the payouts are a reflection of strong results for 2020, despite the negative financial impact2021, relative to the Company from COVID-19.inflationary environment and global supply chain challenges.
The Compensation Committee administers the Equity and Incentive Compensation Plan, which was approved by our shareholders at our 2019 annual meeting and succeeds the Predecessor Long-Term Incentive Plan, under which no further grants will be made.Plan. Awards under the Equity and Incentive Compensation Plan can be made, and under the Predecessor Long-Term Incentive Plan could be made in the form of common shares, nonqualified stock options, incentive stock options, stock appreciation rights, performance shares, performance units, restricted shares, restricted stock units, deferred shares and dividend equivalents. All long-term incentives settle in equity to further align our executives’ long-term financial interests with those of our shareholders. In 2020,2021, the Company granted to the NEOs under the Equity and Incentive Compensation Plan:
| · | Performance-based restricted stock units that are earned based on the achievement of objective performance metrics measured over a three-year period |
| · | Time-based restricted stock units that vest 25% per year over four years and provide strong alignment between the interests of Company executives and shareholders. |
The value of each type of long-term incentive grant is linked directly to the performance of the Company or the price of its common shares. For performance-based restricted stock units, the value of the grant is tied to both the Company’s share price and the achievement of financial and operating metrics, while the value of time-based restricted stock units is directly linked to the Company’s share price.
In each case described above, an executive must remain employed by the Company for a specified period of time to earn the full value of an award, which aids the Company in retaining executives. In total, the Company believes that these grants provide a balanced focus on shareholder value creation and retention of key managers over the course of a full business cycle. These grants also serve to balance the short-term operating focus of the Company and align the long-term financial interests of executive management with those of our shareholders.
The size of the long-term incentive grants and the allocation of grant value among the long-term incentive grant types are based on a combination of an analysis of market practice and the relative importance of the objectives behind each of the grants.
In February 2020, the Company also made a one-time grant of 5,000 deferred shares to Mr. Myers under the Equity and Incentive Compensation Plan to promote the retention of Mr. Myers through the end of 2021. These shares vest in fullIn September 2021, Mr. Myers notified the Company of his intention to retire on November 30, 2021. In connection with his retirement, on October 1, 2021, the Compensation Committee of the Board of Directors approved a modification to his award. Under the modification, instead of requiring Mr. Myers to remain employed by the Company until December 31, 2021 contingent on continued employmentin order to earn the deferred shares, the Compensation Committee provided that, as long as Mr. Myers remained employed with the Company. Company until November 30, 2021, then the deferred shares would continue to vest following Mr. Myers’ retirement from the Company as if he remained in continuous employment through December 31, 2021. Upon his retirement, Mr. Myers’ remaining unvested equity holdings were treated in accordance with the original terms of the respective grants. For additional details
regarding the treatment of unvested equity holdings upon an NEO’s retirement, see the “2020Retirement” section on page 68.
2021 Long-Term Incentive Decisions
For the annual grants made in February |
Driving Shareholder Return
Long-term incentive grants are intended to balance short-term operating objectives of the Company with long-term objectives and align the financial interests of our executives with those of our shareholders. |
In determining the number of shares granted in 2020,2021, the target value for each grant was converted to a number of shares based on the opening share price on the day of the grant.
For 2020,2021, the Compensation Committee made long-term incentive grants at the first regularly scheduled meeting when the Compensation Committee determined all elements of the NEOs’ compensation for the year.
Performance-Based Restricted Stock Units
To further align the long-term interests of executive leadership with those of our shareholders, and to provide an incentive to achieve long-term financial and operating objectives, the Compensation Committee granted performance-based restricted stock units to key employees (including the NEOs) that vest based on the achievement of specified performance objectives. Performance-based restricted stock units also serve to both reward and retain executives, as the receipt of a payout is linked to performance and the value of the payout is linked to the share price when the shares vest. Cumulative dividend equivalents are paid in cash based on the actual number of shares delivered at the end of the performance cycle.
2020-20222021-2023 Performance-Based Restricted Stock Units Cycle
The performance metrics for performance-based restricted stock units granted in 20202021 were cumulative adjusted EPS and adjusted ROIC for a three-year performance period (2020-2022)(2021-2023). The Compensation Committee selected these metrics because it believed they are highly correlated to driving long-term shareholder value and key elements to achievement of the Company’s business strategy. Actual performance for adjusted EPS and adjusted ROIC is calculated based on fully adjusted earnings as used for external reporting in 2021 (net of taxes)4, with the ability to make adjustments to exclude the effect of material changes in accounting principles, methods, and/or significant changes in tax law that are not reflected in the plan. For the 2020-20222021-2023 performance-based restricted stock unit cycle, the adjusted EPS target reflected a 6%7% compound annual growth rate (“CAGR”) over actual 20192020 adjusted EPS (using comparable exclusions)adjustments), which was a record at the time, resulting in the cumulative adjusted EPS target for the 2020-20222021-2023 performance-based restricted stock unit cycle being set approximately 36%10% higher than the actual cumulative adjusted EPS results for the 2017-20192018-2020 cycle, which was the most recently completed cycle at the time the 2020-20222021-2023 target was established and was also record three-year performance at that time. The 6%7% targeted CAGR over 20192020 actual adjusted EPS results was set at a level that required meaningful improvement over the cycle. The three-year target for adjusted ROIC reflected a 30 basis point increase overwas set equal to the target for the 2019-2021 cycle and a 10 basis point increase over the actual average adjusted ROIC for the 2017-2019 cycle.2018-2020 cycle and 160 basis points higher than 2020 actual adjusted ROIC. The factors that go into setting the target include consideration of prior-year results for the Company as compared to results for U.S. industrial peers, current market conditions, cyclicality and outlook, acquisitions, divestitures, past targets and performance against those targets and other factors. The Company’s performance targets for the performance-based restricted stock units granted in 20202021 are shown in the table below. Straight-line interpolation is used to calculate payouts for these performance-based restricted stock units. Despite the significant unforeseen impact of COVID-19, no adjustments or modifications have been made to the financial performance
4 See Appendix A for reconciliations of adjusted EPS and adjusted ROIC as used for external reporting to their most directly comparable GAAP financial measures.
metrics or targetsStraight-line interpolation is used to calculate payouts for our 2020-2022these performance-based RSU cycle, which metrics and targets were established prior to the global pandemic.restricted stock units.
2020-20222021-2023 Performance-Based Restricted Stock Units Cycle: Metrics and Weightings
| Threshold | Target | Maximum | Threshold | Target | Maximum | |||||||||
Three-Year Cumulative Adjusted EPS (60% weighting) | $10.87 | $15.52 | $20.18 | $9.92 | $14.17 | $18.42 | ||||||||
Adjusted ROIC* (40% weighting) | 8.5% | 11.8% | 14.0% | 8.5% é | 11.5% é | 14.0% é | ||||||||
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Plan Funding | 50% | 100% | 200% | 50% | 100% | 200% | ||||||||
*Adjusted ROIC less than 7.5% will result in zero payout for the cycle. Between adjusted ROIC of 7.5% to 8.5%, a payout under the Three-Year Cumulative Adjusted EPS metric is possible.
For information about the specific performance-based restricted stock units awarded to the NEOs in 2020,2021, see the “20202021 Grants of Plan-Based Awards” table on page 57.61.
Results for the 2018-20202019-2021 Performance-Based Restricted Stock Units Cycle
In 2018,2019, the NEOs received awards of performance-based restricted stock units to cover a three-year performance period (2018-2020)(2019-2021).
The performance metrics for performance-based restricted stock units granted in 20182019 were cumulative adjusted EPS and adjusted ROIC for the three-year performance period. The Compensation Committee selected these metrics because it believed they are highly correlated to driving long-term shareholder value and key elements to achievement of the Company’s business strategy. Actual performance for adjusted EPS and adjusted ROIC is calculated based on fully adjusted EPS as used for external reporting5, with the ability to make adjustments to exclude the effect of changes in accounting principles or methods that are not reflected in the plan. ForNo such exclusions were applied to the 2018-20202019-2021 performance-based restricted stock unit cycle, no adjustments were made toand fully adjusted EPS and adjusted ROIC as used for external reporting were used to determine actual performance for the applicable compensation adjusted metrics.
The Compensation Committee believed that the targets for the performance-based restricted stock units granted in 20182019 were appropriately challenging and that achievement would be supportive of shareholder value creation. The adjusted EPS target for the 2018-20202019-2021 performance-based restricted stock unit cycle reflected an 8%a 6% CAGR in each case over actual 20172018 adjusted EPS results which was 45%were 71% higher than the most recently completed cycle. The adjusted ROIC target for the 2018-20202019-2021 cycle was set equal to100 basis points higher than the 2018-2020 adjusted ROIC target and 30 basis points lower than the actual 20172018-2020 average adjusted ROIC of 10.5%11.8%.
In terms of actual results for the cycle, adjusted EPS increased approximately 59% year-over-year in 2018, increased approximately 10% year-over-year in 2019, and decreased approximately 11% year-over-year in 2020, due in part to the impactsnegative impact from the COVID-19.COVID-19 pandemic, and increased approximately 15% year-over-year in 2021. As a result, the performance-based restricted stock units were earned at 185.1%92.7% reflecting the difficulty of the targets set for the cycle as we achieved record three-year cumulative adjusted EPS performance over the cycle,period, including record adjusted EPS results in 20182019 and 2019,2021, and strong average adjusted ROIC performance. Moreover, as detailed on page 3537 in the “20202021 Performance” section, the Company’s three-year TSR exceeded bothoutpaced the median of its 2020our 2021 compensation peerspeer group and exceeded the S&P 500 Industrials over the timeframe, reflecting very strong performance over this period.
The Company’s performance goals and actual calculated results for the 2018-20202019-2021 cycle are summarized in the table below. Straight-line interpolation is used to calculate actual payouts for these performance-based restricted stock units. Despite the significant unforeseen impact of COVID-19, no adjustments or modifications were made to the financial performance metrics or targets for our 2018-2020 performance-based RSU cycle. Payouts earned for the 2018-2020 PRSU awards reflect formulaic calculations based on metrics and targets established prior to the outset of the global pandemic.
5 See Appendix A for reconciliations of adjusted EPS and adjusted ROIC as used for external reporting to their most directly comparable GAAP financial measures.
2019-2021 performance-based RSU cycle. Payouts earned for the 2019-2021 PRSU awards reflect formulaic calculations based on metrics and targets established prior to the outset of the COVID-19 pandemic.
2018-20202019-2021 Performance-Based Restricted Stock Units Cycle: Metrics, Weightings and Actual Results
| Threshold | Target | Maximum | Actual | |||||||
Three-Year Cumulative Adjusted EPS (70% weighting) | $5.53 | $9.22 | $11.99 | $12.88 | ||||||
ROIC (30% weighting) | 8.0% | 10.5% | 12.5% | 11.5% | ||||||
| | | | |||||||
Plan Funding | 50% | 100% | 200% | 185.1% | ||||||
| Threshold | Target | Maximum | Actual | |||||
Three-Year Cumulative Adjusted EPS (60% weighting) | $8.00 | $14.11 | $18.34 | $13.42 | ||||
ROIC (40% weighting) | 8.5% é | 11.5% é | 14.0% é | 10.9% é | ||||
Plan Funding | 50% | 100% | 200% | 92.7% | ||||
Under accounting rules, performance-based restricted stock units are expensed over the vesting period using the fair value on the date of grant and adjusted quarterly to account for actual and anticipated performance.
Time-Based Restricted Stock Units
Time-based restricted stock units that were awarded in 20202021 to each NEO vest 25% each year over a four-year period. Cumulative dividend equivalents are paid in cash upon vesting. For information about the specific number of time-based restricted stock units awarded to the NEOs in 2020,2021, see the “2020 2021 Grants of Plan-Based Awards” table on page 57.61.
Under accounting rules, time-based restricted stock units are expensed over the vesting period using the fair value on the date of grant.
The Company has beenis transitioning away from defined benefit plans to the use of market-competitive defined contribution and employee savings plans for all eligible salaried employees, including the NEOs. The NEOs also participate in the Company’s nonqualified retirement programs based on eligibility.
Several years ago, the Company closed its primary defined benefit plan in the United States (the “Pension Plan”) to new entrants and ceased providing Excess Benefit Agreements to newly appointed officers. In 2018, the Company announced that, effective December 31, 2022, it will be freezing benefits under the Pension Plan (Mr.Plan. Mr. Coughlin and Mr. Myers participateparticipates in the Pension Plan and will cease to accrue benefits after December 31, 2022).2022. Mr. Myers participated in the Pension Plan until his retirement on November 30, 2021. To align with this action, in 2018, the Compensation Committee approved the freezing of benefits under the Excess Benefit Agreements, also effective as of December 31, 2022 (Mr. Coughlin, Mr. Fracassa and Mr. Kyle have Excess Benefit Agreements and will cease to accrue benefits under these arrangements after December 31, 2022). During 2021, the Company made the decision to update the marriage assumptions under the Excess Benefit Agreements for the remaining non-retired participants (Mr. Kyle, Mr. Fracassa and Mr. Coughlin) to reflect their current marital statuses.
Due to the varying tenure of our NEOs and the transition of our retirement plans, our U.S.-based NEOs participate (or participated) in different programs based on their eligibility as follows:
| Defined Benefit | Defined Contribution | ||||||||||
| Qualified | Nonqualified | Qualified | Nonqualified | |||||||||
| Supplemental Pension Plan | SIP Plan Matching | Core DC Contribution | Post-Tax Savings Plan | |||||||||
| Name | Pension Plan | Restoration Portion | Excess Benefit Agreement | |||||||||
Richard G. Kyle | ✓ | ✓ | ✓ | ✓ | ||||||||
Philip D. Fracassa | ✓ | ✓ | ✓ | ✓ | ||||||||
Christopher A. Coughlin | ✓ | ✓ | ✓ | ✓ | ✓ | |||||||
Hansal N. Patel | ✓ | ✓ | ✓ | |||||||||
Ronald J. Myers | ✓ | ✓ | ✓ | ✓ | ||||||||
Because Mr. Roellgen is based in Colmar, France, he does not participate in the U.S. plans outlined above. A summary of the plans in which he participates is set forth below.
The following is a summary of the plans in which the NEOs other than Mr. Roellgen participate (or participated):
| ● | Qualified Pension Plan: The Pension Plan benefit replaces a targeted percentage of pre-retirement income, subject to limits on benefits and compensation imposed by the Internal Revenue Code (the “Code”). Eligible salaried employees whose age plus years of service equaled or exceeded 50 as of December 31, 2003 participate in the Pension Plan, which provides an annual benefit of 0.75% timesFinal Average Earnings times years of service. “Final Average Earnings” is based on the highest five non-consecutive years of eligible compensation over the 10 years preceding retirement. Eligible compensation includes base salary and annual cash incentive but excludes long-term incentives. The benefit is payable beginning at age 65 for the lifetime of the employee, with alternative forms of payment, including a lump sum option, available with actuarial adjustments. Participants may retire early if they meet certain eligibility requirements, with the benefit reduced if started before age 62. As of December 31, |
| ● | Nonqualified Supplemental Pension Plan: The Supplemental Pension Plan benefit replaces a targeted percentage of pre-retirement income. There are two components to this plan: |
| (1) | Restoration Portion: A restoration portion restores benefits to affected Company employees that would otherwise be provided under the Pension Plan were it not for Code limits; and |
| (2) | Individual Excess Benefits Agreements: These arrangements are for legacy NEOs and provide for a benefit based on Final Average Earnings as described above with offsets for other Company-provided benefits. |
Supplemental retirement benefits for NEOs who have an Excess BenefitsBenefit Agreement will be calculated using a target benefit of 60% of Final Average Earnings, offset by the sum of: (a) an annuity which could be purchased at market rates with the value of Company matching contributions, andany “Core DC” contributions madeavailable under the Company’s Savings and Investment Retirement Plan (the “SIP Plan”), and “Post-Tax Savings Plan” contributions, in each case using assumed contribution rates and assuming earnings were accumulated at an 8% interest rate until benefit commencement, and (b) any Company-provided defined benefit pensions. The net benefit after offsets is automatically paid as a lifetime annuity or an unadjusted 50% joint-and-survivor annuity depending on whether the executive is married when benefits commence. Alternatively, the executive can elect an actuarially equivalent lump sum.
Participating NEOs ratably earn the 60% benefit over 10 years (15 years for Mr. Kyle) of Company service. All participating NEOs have at least five years of officer service and are therefore fully vested in this benefit to the extent it is earned. Participating NEOs can retire after age 55, but the benefit is reduced by 4% for each year benefits commence prior to age 62.
| · | Qualified SIP Plan Matching Contributions: The SIP Plan is a savings plan which matches 100% on the first 3% of pay contributed by the employee plus 50% on the next 3%, subject to Code limits on compensation and contributions. |
| · | Qualified Core DC Contributions: Core DC |
| · | Nonqualified Post-Tax Savings Plan: The Post-Tax Savings Plan is intended to restore benefits that would be provided under the SIP Plan were it not for Code limits. Affected employees have |
the option each year of taking these contributions in taxable cash or to defer the amounts with interest credited at a market-based interest rate |
Because Mr. Roellgen is based in Colmar, France, he does not participate in the U.S. plans outlined above. Instead, Mr. Roellgen participates in a legally required French Retirement Indemnity Plan (the “FRIP”) as well as the Timken Europe Supplementary Pension Plan with Defined Benefits (the “Europe Executive Plan”). The FRIP covers all French employees and pays a lump sum benefit based on service. The maximum FRIP benefit payable is six months of pay following 40 years of service. Mr. Roellgen’s benefits under the Europe Executive Plan are equal to 10% of his highest 3 years of pension earnings multiplied by the ratio of his years of service at December 31, 2012 to his years of service at retirement. The benefit is paid in the form of a 60% joint-and-survivor annuity. The Europe Executive Plan benefit vests only upon his retirement from the Company. While his accumulation of years of service was frozen under the Europe Executive Plan in 2012, his benefit continues to reflect compensation increases since 2012. Following the freeze of accumulation of years of service under the Europe Executive Plan, Mr. Roellgen commenced earning benefits under the Company’s French qualified defined contribution plan (the “French DC”). The French DC provides contributions of 4% of eligible compensation to certain employees under French law.
The Company permits certain employees, including the U.S.-based NEOs, to participate in a 1996 Deferred Compensation Plan, as amended and restated effective January 1, 2019 (the “Deferred Compensation Plan”), that allows them to defer, on a pre-tax basis, the receipt of certain types of compensation until a specified point in the future. Eligible compensation includes salary, incentive compensation payable in cash, employee or Company 401(k) contributions and/or core defined contributions in excess of tax limits. Cash deferrals earn interest quarterly at a rate based on the prime rate plus 1%. All of the NEOs (other than Mr. Roellgen) were eligible to participate in the Deferred Compensation Plan during 2020,2021, but none earned “above-market” or preferential interest, as defined by the SEC.
The Deferred Compensation Plan is not funded by the Company, and participants have an unsecured contractual commitment by the Company to pay the amounts due under the plan. When such payments are due, they will be distributed from the Company’s general assets. In the event of a change in control of the Company, as defined in the Deferred Compensation Plan, participants are entitled to receive deferred amounts immediately. The Compensation Committee believes that providing employees with tax deferral opportunities aids in recruitment and retention.
The NEOs are eligible to participate in benefit programs offered broadly to certain other employees, including health, disability and life insurance programs.
Additionally, Mr. Roellgen participates in the Timken European Stock Ownership Plan (the “TESOP”). The TESOP is a stock ownership plan established in accordance with French law that allows participants to make contributions to a fund with a corresponding company match of up to 1.4% (subject to certain legal limits) that invests a portion of the contribution in Company stock. Mr. Roellgen also participates in a legally required French profit sharingprofit-sharing plan that provides a nominalmodest benefit.
The NEOs also may receive certain limited perquisites, including executive physicals, access to corporate country club memberships (although personal expenses are not reimbursed), and travel for spouses when accompanying NEOs on business travel. Mr. Roellgen also receives reimbursement of Company car-related expenses in accordance with local benefits practices in France.
The Company does not provide tax gross-ups for these benefits to executives. These benefits are intended to provide executives with a competitive perquisite program that is reasonable and consistent with the Company’s overall approach to executive compensation. The total cost of these benefits is a very small percentage of each NEO’s total compensation.
In addition to retirement payments, the Company provides termination-related payments through severance agreements with individual NEOs in the event of involuntary termination of employment without cause or, following a change in control, in the event of involuntary termination of employment without cause or termination of employment by the executive under certain circumstances. Severance agreements are provided based on competitive market practice and the Company’s desire to ensure some level of income continuity should an executive’s employment be terminated without cause or terminated under other qualifying circumstances.
The level of severance benefits reflects the Company’s perception of competitive market practice for the NEOs’ positions, based on an assessment by WTW. Severance pay was established as a multiple of base salary and actual annual cash incentive compensation. In the event of a qualifying termination of employment, an NEO would also be entitled to vesting of equity-based awards in accordance with the respective grant agreement, health and welfare benefits, outplacement services, and (in the event of a qualifying termination that follows a change in control) benefits under our retirement benefit programs. The types of severance benefits for which our NEOs are potentially eligible, and the potential benefit and compensation amounts, are further described and quantified below under “Potential Payments Upon Termination or Change in Control” on page 6266 and in the “Termination Scenarios” table on page 66.70.
The severance agreements do not contain excise tax gross-up provisions.
Stock ownership guidelines have been established for all senior executives (including the NEOs) and are intended to align the interests of executive management with those of our shareholders. These guidelines establish a specific ownership target for each of the NEOs.
In determining whether the executive met his or her individual ownership target for 2020,2021, the Company considered shares owned by the executive and full-value equity awards held by the executive, including deferred shares and time-based restricted stock units (stock settled) still subject to vesting conditions. Performance-based shares/units are not counted towards ownership until they are vested, and shares that are subject to unexercised options are not counted towards ownership.
The stock ownership requirement is based on a multiple of base salary. Each NEO must meet this requirement within five years of becoming an NEO. The NEO must retain any net shares after tax until the ownership requirement is met. If ownership falls below the requirement due to a decline
in share price, the expectation would be for the NEO to maintain net shares after tax with respect to vested equity awards until the ownership requirement is met. The stock ownership guidelines do not require purchasing shares on the open market, but rather maintaining net shares on future vestings. As of December 31, 2020,2021, all NEOs currently serving at the Company exceeded their individual ownership targets.
Officer Name | Stock Ownership Requirement – Multiple of Base Salary | Actual Stock Ownership – Multiple of Base Salary* | ||
Mr. Kyle | 5x | |||
Mr. Fracassa | 3x | |||
Mr. Coughlin | 3x | |||
Mr. | ||||
Mr. Roellgen | 2x |
* Calculated by multiplying the number of shares held by each NEO on December 31, 20202021 by the daily average stock price for the year ending December 31, 20202021 and dividing that product by each NEO’s 20202021 base salary.
Anti-Hedging/Pledging Policies
The Company has adopted formal policies that prohibit our Directors, NEOs, other officers, and employees (and related persons) from pledging Company common shares or hedging the economic risk
related to such stock ownership. In addition to prohibiting hedging transactions generally, the policies also expressly forbid use of the following types of hedging transactions: puts, calls, short sales, and the purchase of Company stock on margin.
The Compensation Committee regularly reviews the risk associated with the Company’s compensation programs. As part of this process, the Compensation Committee reviewed a comprehensive risk assessment conducted by WTW in 2020 and concluded that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company, and that several of our current practices effectively mitigate risk and promote performance. In 2021, the Compensation Committee discussed any year-over-year changes that could impact risk with WTW. The Compensation Committee and WTW concluded that no plan changes were implemented in 2021 that would materially affect the existing risk profile of the compensation programs, and that several of our current practices effectively mitigate risk and promote performance.
The Company maintains specific provisions regarding the recovery of awards to deter certain types of conduct, including conduct that could affect the accuracy of the Company’s financial statements. These provisions apply to both short- and long-term incentive programs where, if personal misconduct or any fraudulent activity on the part of the executive leads to the restatement of Company financial results, the Company can clawback an award. In such cases, the Compensation Committee has discretion, based on applicable facts and circumstances, to cause the Company to seek to recover all or any portion of the equity-based or cash incentive paid or payable to the executive for some or all of the years covered by the restatement.
The Compensation Committee has reviewed and discussed the CD&A for the year ended December 31, 20202021 with our management. Based on the review and discussion referred to above, the Compensation Committee recommended to our Board, and our Board approved, the inclusion of the CD&A in our Annual Report on Form 10-K for the fiscal year ended December 31, 20202021 and this Proxy Statement for filing with the SEC.
Ajita G. Rajendra (Compensation Committee Chair)
Elizabeth A. Harrell
Sarah C. Lauber
John A. Luke, Jr.
James F. Palmer
Jacqueline F. Woods
| Ajita G. Rajendra (Compensation Committee Chair) |
| Elizabeth A. Harrell |
| Sarah C. Lauber |
| John A. Luke, Jr. |
| James F. Palmer |
| Jacqueline F. Woods |
2020 2021 Summary Compensation Table
The following table sets forth information concerning compensation for our NEOs for 2021, 2020 2019 and 2018,2019, as applicable:
| Name and Principal Position | Year | Salary (2) | Stock Awards (3) | Option Awards (4) | Non-Equity Incentive Plan Compensation (5) | Change in Pension Value and Nonqualified Deferred Compensation Earnings (6) | All Other Compensation (7) | Total | Year | Salary (2) | Stock Awards (3) | Option Awards (4) | Non-Equity Incentive Plan Compensation (5) | Change in Pension Value and Nonqualified Deferred Compensation Earnings (6) | All Other Compensation (7) | Total | ||||||||||||||||||||||||||||||||||||||||||||
| Richard G. Kyle | 2020 | $843,093 | $4,421,376 | - | $974,914 | $4,448,000 | $576,880 | $11,264,263 | 2021 | $1,037,145 | $4,422,240 | - | $958,338 | $2,674,337 | $573,270 | $9,665,330 | ||||||||||||||||||||||||||||||||||||||||||||
| President & CEO | 2019 | $981,667 | $3,095,955 | $1,326,112 | $1,459,000 | $4,434,000 | $582,517 | $11,879,251 | 2020 | $843,093 | $4,421,376 | - | $974,914 | $4,448,000 | $576,880 | $11,264,263 | ||||||||||||||||||||||||||||||||||||||||||||
| 2018 | $941,667 | $2,913,413 | $1,248,177 | $1,982,811 | $1,303,000 | $331,204 | $8,720,272 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2019 | $981,667 | $3,095,955 | $1,326,112 | $1,459,000 | $4,434,000 | $582,517 | $11,879,251 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Philip D. Fracassa | 2020 | $499,112 | $1,226,319 | - | $338,373 | $1,399,000 | $174,084 | $3,636,888 | 2021 | $573,159 | $1,249,358 | - | $337,694 | $708,956 | $166,410 | $3,035,577 | ||||||||||||||||||||||||||||||||||||||||||||
| Executive Vice President and Chief | 2019 | $558,775 | $778,515 | $333,624 | $519,049 | $1,699,000 | $188,155 | $4,077,118 | 2020 | $499,112 | $1,226,319 | - | $338,373 | $1,399,000 | $174,084 | $3,636,888 | ||||||||||||||||||||||||||||||||||||||||||||
| Financial Officer | 2018 | $536,459 | $706,586 | $302,526 | $705,993 | $202,000 | $194,194 | $2,647,758 | 2019 | $558,775 | $778,515 | $333,624 | $519,049 | $1,699,000 | $188,155 | $4,077,118 | ||||||||||||||||||||||||||||||||||||||||||||
| Christopher A. Coughlin | 2020 | $497,200 | $1,332,379 | - | $337,210 | $1,150,000 | $167,245 | $3,484,034 | 2021 | $572,970 | $1,333,395 | - | $337,582 | $498,724 | $158,935 | $2,901,606 | ||||||||||||||||||||||||||||||||||||||||||||
| Executive Vice President, Group | 2019 | $548,175 | $911,640 | $390,385 | $509,203 | $1,664,000 | $167,120 | $4,190,523 | 2020 | $497,200 | $1,332,379 | - | $337,210 | $1,150,000 | $167,245 | $3,484,034 | ||||||||||||||||||||||||||||||||||||||||||||
| President | 2018 | $527,917 | $911,976 | $390,248 | $694,752 | $0 | $104,786 | $2,629,679 | 2019 | $548,175 | $911,640 | $390,385 | $509,203 | $1,664,000 | $167,120 | $4,190,523 | ||||||||||||||||||||||||||||||||||||||||||||
Hansal N. Patel | 2021 | $415,215 | $704,048 | - | $198,400 | - | $53,761 | $ | 1,371,424 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Vice President, General Counsel | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
& Secretary | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Andreas Roellgen (1) | 2021 | $375,501 | $472,478 | - | $151,609 | $0 | $72,420 | $1,072,008 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Vice President, Europe, Asia and | 2020 | $304,998 | $395,074 | - | $136,003 | $315,000 | $55,845 | $1,206,920 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Africa | 2019 | $309,520 | $191,700 | $81,670 | $172,509 | $267,000 | $58,903 | $1,081,302 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Ronald J. Myers | 2020 | $359,115 | $846,092 | - | $208,615 | $498,000 | $65,509 | $1,977,331 | 2021 | $386,819 | $582,660 | - | $198,945 | $181,931 | $109,404 | $1,459,759 | ||||||||||||||||||||||||||||||||||||||||||||
| Executive Vice President, Human | 2019 | $386,353 | $350,385 | $150,167 | $283,249 | $545,000 | $58,969 | $1,774,123 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Resources | 2018 | $372,075 | $289,109 | $123,995 | $359,084 | $132,000 | $51,647 | $1,327,910 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Andreas Roellgen (1) | 2020 | $304,998 | $395,074 | - | $136,003 | $315,000 | $55,845 | $1,206,920 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Vice President, Europe, Asia and | 2019 | $309,520 | $191,700 | $81,670 | $172,509 | $267,000 | $58,903 | $1,081,302 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Africa | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Former Executive Vice President, | 2020 | $359,115 | $846,092 | - | $208,615 | $498,000 | $65,509 | $1,977,331 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Human Resources | 2019 | $386,353 | $350,385 | $150,167 | $283,249 | $545,000 | $58,969 | $1,774,123 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| (1) | Mr. Roellgen’s compensation is generally based in Euros. The conversion rate used for purposes of converting the Euros earned by Mr. Roellgen into U.S. Dollars for purposes of the Change in Pension Value and Nonqualified Deferred Compensation Earnings column was €1.00 = |
| (2) |
|
| (3) | The amounts shown in this column for |
For Mr. Myers, the amount shown in this column also includes the grant date fair value of a one-time grant of 5,000 deferred shares made to Mr. Myers on February 6, 2020. These shares vest in full on December 31, 2021, contingent on continued employment with the Company.
The amounts shown in this column are computed in accordance with FASB ASC Topic 718.
| (4) | Nonqualified stock options were eliminated from our long-term incentive award mix in 2020. |
| (5) | The amounts shown in this column for |
| (6) | The amounts shown in this column for |
Several years ago, the Company closed the Pension Plan to new entrants and ceased providing Excess Benefit Agreements to newly appointed officers. Effective December 31, 2022, the Company is freezing benefits under both the Pension Plan and the Excess Benefit Agreements. See the “Retirement Programs” section on page 5052 for additional details.
| (7) | The amounts shown in this column for |
| Name | Annual SIP, Core DC, and/or French DC | Annual Contribution to Post-Tax Savings Plan (b) | Executive Physicals | Personal Use of Company Country Club Memberships (c) | Personal and Spousal Travel and Related Expenses (d) | Cash Dividend Equivalents (e) | Life Insurance (f) | Annual Company SIP, Core DC, and/or French DC (a) | Annual Post-Tax (b) | Executive Physicals | Personal Use of Company (c) | Personal and Expenses (d) | Cash Dividend (e) | Life Insurance (f) | Other (g) | ||||||||||||||||||||||||||||||||||||
Richard G. Kyle | $24,225 | $181,333 | $2,238 | $10,915 | $1,102 | $352,222 | $4,845 | $24,650 | $146,375 | $1,383 | $10,000 | $38,981 | $346,886 | $4,995 | - | ||||||||||||||||||||||||||||||||||||
Philip D. Fracassa | $24,225 | $67,240 | $2,854 | - | - | $78,349 | $1,416 | $24,650 | $52,830 | $2,201 | - | $1,177 | $84,136 | $1,416 | - | ||||||||||||||||||||||||||||||||||||
Christopher A. Coughlin | $12,825 | $32,463 | $1,291 | $5,830 | $764 | $110,096 | $3,976 | $13,050 | $27,908 | $1,905 | $3,745 | $62 | $108,202 | $4,063 | - | ||||||||||||||||||||||||||||||||||||
Hansal N. Patel | $21,750 | $22,619 | $2,823 | - | - | $6,160 | $409 | - | |||||||||||||||||||||||||||||||||||||||||||
Andreas Roellgen | $20,660 | - | $2,189 | - | - | $22,758 | $2,078 | $24,735 | |||||||||||||||||||||||||||||||||||||||||||
Ronald J. Myers | $12,825 | $16,081 | - | - | - | $33,918 | $2,685 | $13,050 | $13,745 | - | - | $62 | $45,614 | $2,606 | $34,327 | ||||||||||||||||||||||||||||||||||||
Andreas Roellgen | $19,236 | - | - | - | - | $20,813 | $1,985 | ||||||||||||||||||||||||||||||||||||||||||||
| (a) | “SIP” refers to the Savings and Investment Retirement Plan, which is the Company’s primary U.S. qualified defined contribution plan for eligible salaried employees, under which the Company makes matching contributions and “Core DC” contributions to the accounts of eligible U.S. salaried employees. Messrs. Kyle, Fracassa, Coughlin, Patel and Myers received SIP matching contributions during |
qualified defined contribution plan under which Mr. Roellgen received contributions. See the “Retirement |
| (b) | The “Post-Tax Savings Plan” is the Company’s non-tax qualified restoration plan for eligible U.S. salaried employees whose contributions and benefits in qualified retirement plans are limited by Section 415 of the Code. Amounts shown in this column may also include amounts deferred into the Deferred Compensation Plan, if elected by the NEO, for Company 401(k) contributions and/or core defined contributions in excess of tax limits. |
| (c) | The amounts shown for personal use of country club memberships reflect prorated amounts of Company-paid annual membership dues in |
| (d) | The amounts shown for personal |
| (e) | Reflects cumulative dividend equivalents paid in cash in |
| (f) | The amounts shown represent the actual premiums paid by the Company for term life insurance (which is provided by the Company for all eligible employees at a level equal to one times their annual salary) and long-term disability insurance. |
| (g) | This column reflects Mr. Roellgen’s Company car benefit |
2020
2021 Grants of Plan-Based Awards
The following table sets forth information concerning certain grants made to our NEOs during 2020:2021:
| Name | Grant Date | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of Stock or Units | Grant Date Fair Value of Stock and Option Awards (5) | Grant Date | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of Stock or Units | Grant Date Fair Value of Stock and Option Awards (4) | ||||||||||||||||||||||||||||
Threshold | Target | Maximum | Threshold | Target | Maximum | |||||||||||||||||||||||||||||||||
| Threshold | Target | Maximum | Threshold | Target | Maximum | |||||||||||||||||||||||||||||||||
Richard G. | 02/10/2020 RSUs (1) | 33,350 | $1,768,551 | 02/10/2021 RSUs (1) | 23,675 | $1,768,523 | ||||||||||||||||||||||||||||||||
Kyle | 02/10/2020 CSTIP (2) | $121,524 | $1,215,240 | $2,430,480 | 02/10/2021 CSTIP (2) | $128,795 | $1,287,951 | $2,575,902 | ||||||||||||||||||||||||||||||
| 02/10/2020 Perf RSUs (3) | 10,005 | 50,025 | 100,050 | $2,652,826 | ||||||||||||||||||||||||||||||||||
| 02/10/2021 Perf RSUs (3) | 7,105 | 35,525 | 71,050 | $2,653,718 | ||||||||||||||||||||||||||||||||||
Philip D. | 02/10/2020 RSUs (1) | 9,250 | $490,528 | 02/10/2021 RSUs (1) | 6,700 | $500,490 | ||||||||||||||||||||||||||||||||
Fracassa | 02/10/2020 CSTIP (2) | $42,179 | $421,785 | $843,570 | 02/10/2021 CSTIP (2) | $45,384 | $453,841 | $907,682 | ||||||||||||||||||||||||||||||
| 02/10/2020 Perf RSUs (3) | 2,775 | 13,875 | 27,750 | $735,791 | ||||||||||||||||||||||||||||||||||
| 02/10/2021 Perf RSUs (3) | 2,005 | 10,025 | 20,050 | $748,868 | ||||||||||||||||||||||||||||||||||
Christopher A. | 02/10/2020 RSUs (1) | 10,050 | $532,952 | 02/10/2021 RSUs (1) | 7,150 | $534,105 | ||||||||||||||||||||||||||||||||
Coughlin | 02/10/2020 CSTIP (2) | $42,034 | $420,335 | $840,671 | 02/10/2021 CSTIP (2) | $45,369 | $453,691 | $907,382 | ||||||||||||||||||||||||||||||
| 02/10/2020 Perf RSUs (3) | 3,015 | 15,075 | 30,150 | $799,427 | ||||||||||||||||||||||||||||||||||
| 02/10/2021 Perf RSUs (3) | 2,140 | 10,700 | 21,400 | $799,290 | ||||||||||||||||||||||||||||||||||
Hansal N. | 02/10/2021 RSUs (1) | 3,775 | $281,993 | |||||||||||||||||||||||||||||||||||
Patel | 02/10/2021 CSTIP (2) | $26,664 | $266,638 | $533,277 | ||||||||||||||||||||||||||||||||||
| 02/10/2021 Perf RSUs (3) | 1,130 | 5,650 | 11,300 | $422,055 | ||||||||||||||||||||||||||||||||||
Andreas | 02/10/2021 RSUs (1) | 2,525 | $188,618 | |||||||||||||||||||||||||||||||||||
Roellgen | 02/10/2021 CSTIP (2) | $20,375 | $203,754 | $407,508 | ||||||||||||||||||||||||||||||||||
| 02/10/2021 Perf RSUs (3) | 760 | 3,800 | 7,600 | $283,860 | ||||||||||||||||||||||||||||||||||
Ronald J. | 02/06/2020 Def Shrs (4) | 5,000 | $285,300 | 02/10/2021 RSUs (1) | 3,125 | $233,438 | ||||||||||||||||||||||||||||||||
Myers | 02/10/2020 RSUs (1) | 4,225 | $224,052 | 02/10/2021 CSTIP (2) | $29,216 | $292,164 | $584,328 | |||||||||||||||||||||||||||||||
| 02/10/2020 CSTIP (2) | $26,004 | $260,040 | $520,081 | |||||||||||||||||||||||||||||||||||
| 02/10/2020 Perf RSUs (3) | 1,270 | 6,350 | 12,700 | $336,741 | 02/10/2021 Perf RSUs (3) | 935 | 4,675 | 9,350 | $349,223 | |||||||||||||||||||||||||||||
Andreas | 02/10/2020 RSUs (1) | 2,975 | $157,764 | |||||||||||||||||||||||||||||||||||
Roellgen | 02/10/2020 CSTIP (2) | $16,953 | $169,529 | $339,058 | ||||||||||||||||||||||||||||||||||
| 02/10/2020 Perf RSUs (3) | 895 | 4,475 | 8,950 | $237,309 | ||||||||||||||||||||||||||||||||||
| (1) | The “RSUs” amounts shown reflect the time-based restricted stock units granted to each NEO in |
| (2) | The “CSTIP” amounts shown reflect payout opportunities at threshold, target and maximum performance levels under the annual cash incentive plan design for |
as the minimum payout if (a) the adjusted EBIT results would lead to a payout under that metric of zero, (b) one of either the adjusted EBIT margin or free cash flow metric results would lead to a payout of zero, (c) the results for the other metric identified in clause (b) (either adjusted EBIT margin or free cash flow) would lead to a payout at threshold under that metric, and (d) adjusted EBIT margin was greater than 8.5%. Mr. Myers’ actual award payout was prorated based on the number of months worked during the year, prior to his retirement on November 30, 2021. See the “Annual Cash Incentive” section on page |
| (3) | The “Perf RSUs” amounts shown indicate aggregate threshold, target and maximum award opportunities for the performance-based restricted stock units covering the |
| (4) |
|
The amounts shown reflect the grant date fair market value of time-based restricted stock units and performance-based restricted stock units |
performance-based restricted stock units |
For more information regarding certain compensation arrangements with our NEOs, please refer to the “Potential Payments Upon Termination or Change in Control” section on page 62.66. For information regarding the amount of various compensation elements in proportion to total compensation, see the NEO pay mix charts in the “Aligning Pay with Performance” section on page 39.41.
Outstanding Equity Awards at 20202021 Year-End
The following table sets forth information concerning unexercised Company stock options and stock awards that have not vested for each of our NEOs as of December 31, 2020:2021:
| Option Awards (2) | Option Awards (2) | Stock Awards | ||||||||||||||||||||||||||||||||||||||||||
| Name | Grant Date | Number of Securities Underlying Unexercised (#) Options | Number of Securities Underlying Unexercised (#) Options | Option Exercise Price | Option Expiration Date | Grant Date | Number of Shares or Units of Stock That Have Not | Market Value of Shares or Units of Stock | Equity Incentive Units or Other | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested | ||||||||||||||||||||||||||||||||||
| Option Awards (1) | Stock Awards | Exercisable | Unexercisable | |||||||||||||||||||||||||||||||||||||||||
| Name | Grant Date | Number of Securities Underlying Unexercised (#) Options | Number of Securities Underlying Unexercised | Option Exercise Price | Option Expiration Date | Grant Date | Number of Shares or Units of Stock That Have Not Vested | Market Value of Shares or Units of Stock That Have Not | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have | ||||||||||||||||||||||||||||||||||
| Exercisable | Unexercisable | |||||||||||||||||||||||||||||||||||||||||||
Richard G. Kyle | 02/07/2013 | 10,000 | - | $40.56 | 02/07/2023 | 02/13/2017 (2) | 4,588 | $354,928 | - | - | 02/11/2016 | 30,000 | - | $27.75 | 02/11/2026 | 02/12/2018 (3) | 4,663 | $323,099 | - | - | ||||||||||||||||||||||||
| 02/13/2014 | 30,000 | - | $41.15 | 02/13/2024 | 02/12/2018 (2) | 9,325 | $721,382 | - | - | |||||||||||||||||||||||||||||||||||
| 02/12/2015 | 70,000 | - | $41.79 | 02/12/2025 | 02/12/2019 (2) | 15,582 | $1,205,424 | - | - | |||||||||||||||||||||||||||||||||||
| 02/11/2016 | 170,000 | - | $27.75 | 02/11/2026 | 02/12/2019 (3) | - | - | 51,900 | $4,014,984 | 02/13/2017 | 70,000 | - | $45.35 | 02/13/2027 | 02/12/2019 (3) | 10,388 | $719,785 | - | - | |||||||||||||||||||||||||
| 02/12/2018 | 90,975 | 30,325 | $44.65 | 02/12/2028 | 02/10/2020 (3) | 25,013 | $1,733,151 | - | - | |||||||||||||||||||||||||||||||||||
| 02/13/2017 | 88,312 | 29,438 | $45.35 | 02/13/2027 | 02/10/2020 (2) | 33,350 | $2,579,956 | - | - | 02/12/2019 | 69,212 | 69,213 | $42.60 | 02/12/2029 | 02/10/2020 (4) | - | - | 50,025 | $3,466,232 | |||||||||||||||||||||||||
| 02/10/2021 (3) | 23,675 | $1,640,441 | - | - | ||||||||||||||||||||||||||||||||||||||||
| 02/12/2018 | 60,650 | 60,650 | $44.65 | 02/12/2028 | 02/10/2020 (3) | - | - | 50,025 | $3,869,934 | 02/10/2021 (4) | - | - | 35,525 | $2,461,527 | ||||||||||||||||||||||||||||||
| 02/12/2019 | 34,606 | 103,819 | $42.60 | 02/12/2029 | ||||||||||||||||||||||||||||||||||||||||
Philip D. Fracassa | 02/12/2015 | 4,525 | - | $41.79 | 02/12/2025 | 02/13/2017 (2) | 1,019 | $78,830 | - | - | 02/13/2017 | 10,625 | - | $45.35 | 02/13/2027 | 02/12/2018 (3) | 1,132 | $78,436 | - | - | ||||||||||||||||||||||||
| 02/12/2018 | 22,050 | 7,350 | $44.65 | 02/12/2028 | 02/12/2019 (3) | 2,613 | $181,055 | - | - | |||||||||||||||||||||||||||||||||||
| 02/11/2016 | 10,600 | - | $27.75 | 02/11/2026 | 02/12/2018 (2) | 2,263 | $175,066 | - | - | 02/12/2019 | 17,412 | 17,413 | $42.60 | 02/12/2029 | 02/10/2020 (3) | 6,938 | $480,734 | - | - | |||||||||||||||||||||||||
| 02/10/2020 (4) | - | - | 13,875 | $961,399 | ||||||||||||||||||||||||||||||||||||||||
| 02/13/2017 | 19,518 | 6,507 | $45.35 | 02/13/2027 | 02/12/2019 (2) | 3,919 | $303,174 | - | - | 02/10/2021 (3) | 6,700 | $464,243 | - | - | ||||||||||||||||||||||||||||||
| 02/10/2021 (4) | - | - | 10,025 | $694,632 | ||||||||||||||||||||||||||||||||||||||||
| 02/12/2018 | 14,700 | 14,700 | $44.65 | 02/12/2028 | 02/12/2019 (3) | - | - | 13,050 | $1,009,548 | |||||||||||||||||||||||||||||||||||
| 02/12/2019 | 8,706 | 26,119 | $42.60 | 02/12/2029 | 02/10/2020 (2) | 9,250 | $715,580 | - | - | |||||||||||||||||||||||||||||||||||
| 02/10/2020 (3) | - | - | 13,875 | $1,073,370 | ||||||||||||||||||||||||||||||||||||||||
Christopher A. Coughlin | 02/11/2016 | 57,475 | - | $27.75 | 02/11/2026 | 02/13/2017 (2) | 1,438 | $111,244 | - | - | 02/11/2016 | 57,475 | - | $27.75 | 02/11/2026 | 02/12/2018 (3) | 1,463 | $101,371 | - | - | ||||||||||||||||||||||||
| 02/13/2017 | 36,825 | - | $45.35 | 02/13/2027 | 02/12/2019 (3) | 3,063 | $212,235 | - | - | |||||||||||||||||||||||||||||||||||
| 02/13/2017 | 27,618 | 9,207 | $45.35 | 02/13/2027 | 02/12/2018 (2) | 2,925 | $226,278 | - | - | 02/12/2018 | 28,443 | 9,482 | $44.65 | 02/12/2028 | 02/10/2020 (3) | 7,538 | $522,308 | - | - | |||||||||||||||||||||||||
| 02/12/2019 | 20,375 | 20,375 | $42.60 | 02/12/2029 | 02/10/2020 (4) | - | - | 15,075 | $1,044,547 | |||||||||||||||||||||||||||||||||||
| 02/12/2018 | 18,962 | 18,963 | $44.65 | 02/12/2028 | 02/12/2019 (2) | 4,594 | $355,392 | - | - | 02/10/2021 (3) | 7,150 | $495,424 | - | - | ||||||||||||||||||||||||||||||
| 02/10/2021 (4) | - | - | 10,700 | $741,403 | ||||||||||||||||||||||||||||||||||||||||
| 02/12/2019 | 10,187 | 30,563 | $42.60 | 02/12/2029 | 02/12/2019 (3) | - | - | 15,275 | $1,181,674 | |||||||||||||||||||||||||||||||||||
| 02/10/2020 (2) | 10,050 | $777,468 | - | - | ||||||||||||||||||||||||||||||||||||||||
| 02/10/2020 (3) | - | - | 15,075 | $1,166,202 | ||||||||||||||||||||||||||||||||||||||||
Ronald J. Myers | 02/13/2017 | - | 2,919 | $45.35 | 02/13/2027 | 02/13/2017 (2) | 442 | $34,193 | - | - | ||||||||||||||||||||||||||||||||||
| 02/12/2018 | - | 6,025 | $44.65 | 02/12/2028 | 02/12/2018 (2) | 895 | $69,237 | - | - | |||||||||||||||||||||||||||||||||||
| 02/12/2019 | - | 11,757 | $42.60 | 02/12/2029 | 02/12/2019 (2) | 1,704 | $131,821 | - | - | |||||||||||||||||||||||||||||||||||
| 02/12/2019 (3) | - | - | 5,875 | $454,490 | ||||||||||||||||||||||||||||||||||||||||
Hansal N. Patel | 02/12/2018 | - | 438 | $44.65 | 02/12/2028 | 02/12/2018 (3) | 75 | $5,197 | - | - | ||||||||||||||||||||||||||||||||||
| 02/12/2019 | - | 1,935 | $42.60 | 02/12/2029 | 02/12/2019 (3) | 295 | $20,441 | - | - | |||||||||||||||||||||||||||||||||||
| 02/06/2020 (4) | 5,000 | $386,800 | - | - | 02/10/2020 (3) | 2,832 | $196,229 | - | - | |||||||||||||||||||||||||||||||||||
| 02/10/2020 (4) | - | - | 5,675 | $393,221 | ||||||||||||||||||||||||||||||||||||||||
| 02/10/2020 (2) | 4,085 | $316,016 | - | - | 02/10/2021 (3) | 3,775 | $261,570 | - | - | |||||||||||||||||||||||||||||||||||
| 02/10/2020 (3) | - | - | 6,350 | $491,236 | 02/10/2021 (4) | - | - | 5,650 | $391,489 | |||||||||||||||||||||||||||||||||||
Andreas Roellgen | 02/12/2015 | 6,975 | - | $41.79 | 02/12/2025 | 02/13/2017 (2) | 269 | $20,810 | - | - | 02/13/2017 | 6,850 | - | $45.35 | 02/13/2027 | 08/21/2017 (5) | 10,000 | $692,900 | - | - | ||||||||||||||||||||||||
| 02/12/2018 | 5,943 | 1,982 | $44.65 | 02/12/2028 | 02/12/2018 (3) | 307 | $21,272 | - | - | |||||||||||||||||||||||||||||||||||
| 02/11/2016 | 11,550 | - | $27.75 | 02/11/2026 | 08/21/2017 (4) | 10,000 | $773,600 | - | - | 02/12/2019 | 4,262 | 4,263 | $42.60 | 02/12/2029 | 02/12/2019 (3) | 650 | $45,039 | - | - | |||||||||||||||||||||||||
| 02/10/2020 (3) | 2,232 | $154,655 | - | - | ||||||||||||||||||||||||||||||||||||||||
| 02/13/2017 | 5,137 | 1,713 | $45.35 | 02/13/2027 | 02/12/2018 (2) | 613 | $47,422 | - | - | 02/10/2020 (4) | - | - | 4,475 | $310,073 | ||||||||||||||||||||||||||||||
| 02/10/2021 (3) | 2,525 | $174,957 | - | - | ||||||||||||||||||||||||||||||||||||||||
| 02/12/2018 | 3,962 | 3,963 | $44.65 | 02/12/2028 | 02/12/2019 (2) | 975 | $75,426 | - | - | 02/10/2021 (4) | - | - | 3,800 | $263,302 | ||||||||||||||||||||||||||||||
Ronald J. Myers (1) | 02/12/2018 | - | 3,013 | $44.65 | 02/12/2028 | 02/12/2018 (3) | 463 | $32,081 | - | - | ||||||||||||||||||||||||||||||||||
| 02/12/2019 | - | 7,838 | $42.60 | 02/12/2029 | 02/12/2019 (3) | 1,175 | $81,416 | - | - | |||||||||||||||||||||||||||||||||||
| 02/12/2019 | 2,131 | 6,394 | $42.60 | 02/12/2029 | 02/12/2019 (3) | - | - | 3,200 | $247,552 | 02/10/2020 (3) | 3,169 | $219,580 | - | - | ||||||||||||||||||||||||||||||
| 02/10/2020 (4) | - | - | 4,056 | $281,040 | ||||||||||||||||||||||||||||||||||||||||
| 02/10/2020 (2) | 2,975 | $230,146 | - | - | 02/10/2021 (3) | 3,021 | $209,325 | - | - | |||||||||||||||||||||||||||||||||||
| 02/10/2020 (3) | - | - | 4,475 | $346,186 | 02/10/2021 (4) | - | - | 1,428 | $98,946 | |||||||||||||||||||||||||||||||||||
| (1) | Upon his retirement, Mr. Myers’ unvested nonqualified stock options, time-based restricted stock units and performance-based restricted stock units were treated in accordance with the original terms of the respective grants. The performance-based restricted stock units in the table are prorated based on the number of months worked during the three-year period. |
| (2) | All option awards shown are nonqualified stock options that vest 25% per year over the four-year period from the date of grant and will expire ten years after the date of grant. |
Time-based restricted stock units vest 25% per year over the four-year period from the date of grant. Upon an NEO becoming retirement eligible, restricted stock units may be withheld prior to vesting for taxes owed on such restricted stock units being deemed nonforfeitable. |
Performance-based restricted stock units vest after the end of the three-year performance cycle based on the achievement of performance objectives. For the performance-based restricted stock units granted on February |
Deferred restricted shares for Mr. Roellgen vest 100% on the fifth anniversary of the date of grant. |
The market value of the stock awards shown in the table above was determined based upon the closing price of our common shares on December 31, 2020,2021, which was $77.36.$69.29.
2020 2021 Option Exercises and Stock Vested
The following table sets forth information with respect to the exercise of stock options by and vesting of other equity-based awards for our NEOs during 2020:2021:
| Option Awards | Stock Awards (2) | |||||||||||||||
| Option Awards | Stock Awards (2) | |||||||||||||||
| Name | Number of Shares Acquired on Exercise | Value Realized on Exercise (1) | Number of Shares Acquired on Vesting | Value Realized on Vesting | Number of Shares Acquired on Exercise | Value Realized on Exercise (1) | Number of Shares
| Value Realized on Vesting | ||||||||
Richard G. Kyle | 180,650 | $4,007,906 | 107,859 | $7,548,977 | 297,750 | $14,219,067 | 70,866 | $4,913,329 | ||||||||
Philip D. Fracassa | 73,900 | $1,921,790 | 25,958 | $1,819,916 | 30,525 | $1,233,402 | 17,859 | $1,238,321 | ||||||||
Christopher A. Coughlin | 100,925 | $2,560,345 | 33,650 | $2,356,408 | - | - | 21,095 | $1,463,722 | ||||||||
Hansal N. Patel | 3,196 | $162,532 | 2,582 | $181,628 | ||||||||||||
Andreas Roellgen | 18,525 | $1,031,106 | 4,608 | $320,566 | ||||||||||||
Ronald J. Myers | 31,187 | $468,965 | 10,523 | $739,531 | 9,850 | $295,792 | 12,445 | $862,175 | ||||||||
Andreas Roellgen | 5,800 | $167,341 | 7,002 | $490,945 | ||||||||||||
| (1) | The value realized on the exercise of stock options is the difference between the exercise price and the fair market value of our common shares at the time of exercise. Fair market value is determined by a real-time trading quote from the NYSE at the time of exercise. |
| (2) | Stock awards include time-based restricted stock units and performance-based restricted stock |
2020 2021 Pension Benefits Table
Year-over-year changes in pension values in the 20202021 Summary Compensation Table are influenced by plan participation, age, length of service, and changes in annual cash compensation, as well as external factors such as changes to mortality assumptions, discount rates, and interest rates.on the prior year’s values as the benefits are one year closer to being paid. The smaller year-over-year increase in actuarial pension values resulted from 2019higher interest rates from the prior year measurement period, offset partially by an update to 2020 was primarily driven by the marriage assumptions under the Excess Benefit Agreements for the remaining non-retired participants (Mr. Kyle, Mr. Fracassa and Mr. Coughlin) to reflect their current environment of low interest rates.marital statuses. Effective December 31, 2022, eligible U.S. participants will cease to accrue pension benefits under the Company’s primary U.S. defined benefit pension plans.
The following table sets forth the number of years of credited service and actuarial present value of the defined benefit pension plans for our NEOs as of December 31, 20202021 (see the “Retirement Programs” section on page 5052 for additional details of the material features of these plans):
| Name | Plan Name | Number of Years of Credited Service | Present Value of Accumulated Benefit (1) | Plan Name | Number of Years
| Present Value of Accumulated Benefit (1) | Payments During Last Fiscal Year (2) | |||||||
Richard G. Kyle (2) | Supplemental Pension Plan | 14.7 | $15,875,000 | |||||||||||
Richard G. Kyle (3) | Supplemental Pension Plan | 15.7 | $18,549,337 | - | ||||||||||
| Pension Plan | - | - | Pension Plan | - | - | - | ||||||||
Philip D. Fracassa (2) | Supplemental Pension Plan | 15.2 | $6,273,000 | |||||||||||
Philip D. Fracassa (3) | Supplemental Pension Plan | 16.2 | $6,981,956 | - | ||||||||||
| Pension Plan | - | - | Pension Plan | - | - | - | ||||||||
Christopher A. Coughlin | Supplemental Pension Plan | 36.5 | $7,395,000 | Supplemental Pension Plan | 37.5 | $7,836,685 | - | |||||||
| Pension Plan | 36.5 | $1,291,000 | Pension Plan | 37.5 | $1,348,039 | - | ||||||||
Hansal N. Patel (3) | Supplemental Pension Plan | - | - | - | ||||||||||
| Pension Plan | - | - | - | |||||||||||
Andreas Roellgen (4) | Europe Executive Plan | 15.3 | $955,100 | - | ||||||||||
| FRIP | 24.3 | $167,800 | - | |||||||||||
Ronald J. Myers | Supplemental Pension Plan | 38.6 | $1,251,000 | Supplemental Pension Plan | 39.5 | $1,377,650 | - | |||||||
| Pension Plan | 38.6 | $1,424,000 | Pension Plan | 39.5 | - | $1,479,281 | ||||||||
Andreas Roellgen (3) | Europe Executive Plan | 15.3 | $1,126,000 | |||||||||||
| FRIP | 23.3 | $183,000 | ||||||||||||
| (1) | The “Present Value of Accumulated Benefit” is the present value of pension benefits earned as of December 31, |
| (2) | In connection with Mr. Myers’ retirement from the Company, Mr. Myers received a lump sum payment from the Pension Plan in 2021. |
| (3) | Because |
Because Mr. Roellgen is based in Colmar, France, he is not eligible for either the Pension Plan or the Supplemental Pension Plan. Instead, Mr. Roellgen is a participant in the FRIP and the Europe Executive Plan. Mr. Roellgen had earned 15.3 years of service under the Europe Executive Plan when his accumulation of years of service under such plan was frozen at the end of 2012. Mr. Roellgen’s compensation is based in Euros. The conversion rate used for purposes of converting the Euros earned by Mr. Roellgen into U.S. Dollars for purposes of this table was €1.00 = |
20202021 Nonqualified Deferred Compensation
The table below sets forth information regarding Deferred Compensation Plan contributions, earnings and withdrawals during 20202021 and the account balances as of December 31, 20202021 for the NEOs:
| Name | Executive
Contributions
in 2020 (1) | Company
Contributions
in 2020 (1) | Aggregate
Earnings
in 2020 (2) | Aggregate
Withdrawals/
Distributions | Aggregate Balance
at December 31,
2020 (3) | Executive Contributions in 2021 (1) | Company Contributions in 2021 (2) | Aggregate Earnings in 2021 (3) | Aggregate Withdrawals/ Distributions | Aggregate Balance at December 31, 2021 (4) | ||||||||||
Richard G. Kyle | $174,121 | - | $26,154 | - | $673,960 | $204,318 | - | $33,164 | - | $911,441 | ||||||||||
Philip D. Fracassa | $65,635 | $67,240 | $33,512 | - | $824,274 | $56,038 | $52,830 | $37,254 | - | $970,396 | ||||||||||
Christopher A. Coughlin | - | - | - | - | - | - | - | - | - | - | ||||||||||
Hansal N. Patel | $62,207 | - | $3,989 | - | $148,021 | |||||||||||||||
Andreas Roellgen | - | - | - | - | - | |||||||||||||||
Ronald J. Myers | - | - | $10,049 | - | $223,720 | - | - | $9,654 | - | $233,374 | ||||||||||
Andreas Roellgen | - | - | - | - | - | |||||||||||||||
| (1) | Amounts shown as executive contributions |
| (2) | Amounts shown as Company contributions in 2021, if any, were reported in the 2021 Summary Compensation Table under the “All Other Compensation” column (for Company contributions into the Deferred Compensation Plan). |
| (3) | This column includes interest earned from cash deferrals. The earnings during this year and previous years were not above market or preferential; therefore, these amounts were not included in the |
Includes |
The Deferred Compensation Plan allows certain employees, including the U.S.-based NEOs, to defer, on a pre-tax basis, the receipt of certain types of compensation until a specified point in the future. Eligible compensation includes salary, incentive compensation payable in cash, employee or Company 401(k) contributions and/or core defined contributions in excess of tax limits. Cash deferrals earn interest quarterly at a rate equal to the prime rate plus 1%. For further information, see the “Deferred Compensation” section on page 52.54.
Potential Payments Upon Termination or Change in Control
We have entered into severance agreements with each of the NEOs that provide for compensation in the event of termination of employment under certain circumstances (the “Severance Agreements”). In addition, the NEOs are entitled to post-termination payments or benefits under agreements entered into under the Equity and Incentive Compensation Plan, the Predecessor Long-Term Incentive Plan, and our retirement and benefit plans in certain situations. The following circumstances would trigger post-termination payments to the NEOs: change in control followed by certain events described below; involuntary termination without cause; retirement; permanent disabilitydisability; and death. All scenarios are assumed to have occurred on December 31, 2020.2021.
Change in Control
Under the Severance Agreements with the NEOs, when certain events occur, such as a reduction in the NEO’s responsibilities or base salary, or termination of the NEO’s employment without cause, within a specified number of years following a change in control of the Company (as defined in the Severance Agreements), each NEO will be entitled to receive a lump sum payment in an amount equal to a
multiple (that is set forth in the table below for the respective NEO) of the sum of: (1) the greater of (a) the NEO’s annual base salary in effect prior to the termination and (b) the NEO’s annual base salary in effect prior to
the change in control; plus (2) the greater of (a) the NEO’s target annual cash incentive compensation for the year in which the NEO terminates employment and (b) the NEO’s target annual cash incentive compensation for the year in which the change in control occurs. For Mr. Roellgen, the amount is reduced by any severance payments he is entitled to receive under French law.
| NEO | Change In Control Multiple | |
Mr. Kyle | 3.0x | |
Mr. Fracassa | 3.0x | |
Mr. Coughlin | 3.0x | |
Mr. | ||
Mr. Roellgen | 1.5x | |
In addition, each U.S.-based NEO who is eligible for a supplemental retirement benefit would receive a lump sum amount. The lump sum amount is determined by calculating the benefit under each of the Pension Plan and the Supplemental Pension Plan. Under the Severance Agreements, pension benefits for Messrs. Kyle, Fracassa, and Coughlin would be calculated assuming they continue to earn service until the December 31, 2022 pension freeze date, with annual earnings during those years equal to the compensation described above. The lump sum amount is reduced by the lump sum equivalent of the benefit otherwise payable from the Pension Plan. This lump sum is determined based on the mortality table and interest rate promulgated by the IRS under Section 417(e)(3) of the Code.
The Severance Agreements also provide Messrs. Kyle, Fracassa, and Coughlin with contributions to the SIP Plan and the Post-Tax Savings Plan on the three years of change in control compensation they would receive. The agreements for Messrs. MyersPatel and Roellgen do not provide for any such contributions in the event of a change in control.
At the time the conditions are met after a change in control, any unvested equity-based grants would vest and become nonforfeitable and the NEO would have three years to exercise all stock options. Performance-based restricted stock units would vest based on actual performance through the most recent date prior to the change in control. In the event of a change in control, the amounts payable under the Severance Agreements would become secured by a trust arrangement. As consideration for providing severance benefits, the Company receives confidentiality and non-compete covenants from the NEOs, and (where legally permissible) a customary release of claims against the Company. The U.S.-based NEOs also would be entitled to continuation of health and welfare benefits through the applicable severance period (in other words, a number of years equal to the change in control multiple in the table above) and career outplacement services (or French unemployment benefits in the case of Mr. Roellgen).
None of the Severance Agreements with the NEOs contains an excise tax gross-up provision.
Voluntary Termination
If an NEO voluntarily terminates his or her employment with the Company, we generally provide no enhanced termination benefits such as severance, benefits, perquisites or vesting of any equity-based grants, although the Compensation Committee reserves the right to make adjustments where warranted.
Involuntary Termination With Cause
The Company provides no standard severance, benefits, perquisites or vesting of any equity-based grants in the case where an NEO is terminated by the Company with cause. As provided in the Severance Agreements, termination with cause can occur only in the event that the NEO has committed any of the following: an intentional act of fraud, embezzlement or theft in connection with his duties with the Company; intentional wrongful disclosure of secret processes or confidential information of the Company or a Company subsidiary; or
intentional wrongful engagement in any Competitive Activity (as defined in the Severance Agreements) that would constitute a material breach of the NEO’s duty of loyalty to the Company (or a Company subsidiary as applicable).
If the Company terminates an NEO’s employment for cause, no benefit is payable under the Excess Benefit Agreements.
Involuntary Termination Without Cause
In the case of an involuntary termination without cause other than in connection with a change in control, each NEO is entitled to a lump sum severance payment equal to a multiple (that is set forth in the table below for the respective NEO) of the sum of: (1) the NEO’s base salary and (2) an amount equal to the highest annual cash incentive payout percentage during the preceding five years (not to exceed 100%) multiplied by the target annual cash incentive compensation for the year in which the NEO is terminated (or, for Mr. Roellgen, the actual annual cash incentive compensation earned for the full year in which he is terminated). For Mr. Roellgen, the amount is reduced by any severance payments he is entitled to receive under French law. As consideration for providing severance benefits, the Company receives confidentiality and non-compete covenants from the NEOs, and (where legally permissible) a customary release of claims against the Company. Each NEO also is entitled to continuation of certain health and welfare benefits through the applicable severance period (in other words, a number of years equal to the applicable multiple in the table below) and career outplacement services (or French unemployment benefits in the case of Mr. Roellgen). Equity-based grants vest through the period of time equal to one year multiplied by the severance multiple in the table below in the case of an involuntary termination without cause, with up to three years to exercise stock options.
| NEO | Severance Multiple | |
Mr. Kyle | 2.0x | |
Mr. Fracassa | 1.5x | |
Mr. Coughlin | 1.5x | |
Mr. | 1.0x | |
Mr. Roellgen | 1.0x | |
The values shown in the Termination Scenarios table below for the retirement benefits (where eligible) are payable in the same form and manner as described in the “Retirement Programs” discussion on pages 5052 to 52.54. In the event of involuntary termination without cause, the benefit is determined and payable as described in the “Retirement Programs” discussion on pages 5052 to 52,54, but with up to two additional years of service credit, except with respect to pension benefits for Messrs. Kyle, Fracassa, and Coughlin, which would be calculated assuming they continue to earn service until the December 31, 2022 pension freeze date.
Retirement
“Retirement” for purposes of outstanding grants to NEOs under the Equity and Incentive Compensation Plan means either: (1) voluntary termination of the NEO at or after age 62; or (2) retirement after the NEO has reached age 55 and has accrued at least 15 years of continuous service, with the consent of the Board or the Committee. Treatment of equity awards for NEOs who retire includes normal vesting of Equity and Incentive Compensation Plan awards as if the officer had remained in the continuous employ of the Company (except performance-based restricted stock units, which are prorated through the last day of employment and paid at the end of the performance period).
Amounts shown in the retirement column in the Termination Scenarios table below for “Retirement Benefits” are for NEOs who are eligible to retire under the Pension Plan or under an individual Excess Benefit Agreement as of December 31, 20202021 assuming the NEOs immediately retire. The amounts shown are in addition to the corresponding amounts reflected in the 20202021 Pension Benefits Table on page 6165 (which assumes retirement of the NEO at age 62). See the “Retirement Programs” section on page 5052 for additional details.
Death or Permanent Disability
“Permanent Disability” occurs if an NEO qualifies for permanent disability benefits under a disability plan or program of the Company or, in the absence of a disability plan or program of the Company, under a government-sponsored disability program.
Benefits for U.S.-based NEOs who die while actively employed are payable to the surviving spouse from the defined benefit pension plans at the NEO’s normal retirement date (or on a reduced basis at an early retirement date). The benefit is equal to 50% of the benefit payable as if such NEO had terminated employment on the date of his death, survived to the payment date (as elected by spouse), elected the 50% joint and survivor form of payment, and died the next day. If the U.S.-based NEO has at least 15 years of service at time of death, the benefit is equal to 50% of the accrued benefit at time of death payable immediately, but with any applicable early commencement reduction.
All equity-based Equity and Incentive Compensation Plan and Predecessor Long-Term Incentive Plan grants immediately vest in the event of death or permanent disability, except performance-based restricted stock units, which are prorated and paid at the end of the performance period. In the case of disability, the employee has up to five years to exercise stock options. In the case of death, the survivor has up to five years to exercise stock options.
Termination Scenarios
| Mr. Kyle | Mr. Kyle | Mr. Kyle
| ||||||||||||||||||||||||||||||||||||||||||||||
Voluntary Resignation | Termination With Cause | Retirement | Death & Disability | Termination Without Cause | Change in Control and Termination | Voluntary Resignation | Termination With Cause | Retirement | Death & Disability | Termination Without Cause | Change in Control and Termination | |||||||||||||||||||||||||||||||||||||
Cash Severance (1) | - | - | - | - | $4,455,880 | $6,683,821 | - | - | - | - | $4,667,152 | $7,000,728 | ||||||||||||||||||||||||||||||||||||
Equity (2) | - | - | - | $15,363,244 | $16,386,802 | $18,636,500 | - | - | - | $10,142,263 | $11,540,743 | $12,528,610 | ||||||||||||||||||||||||||||||||||||
Retirement Benefits (3) | - | - | $965,000 | - | $421,000 | $2,492,000 | - | - | $1,124,480 | - | $0 | $1,110,664 | ||||||||||||||||||||||||||||||||||||
Other Benefits (4) | - | - | - | - | $79,500 | $79,500 | ||||||||||||||||||||||||||||||||||||||||||
Other Benefits (4) | - | - | - | - | $79,500 | $79,500 | ||||||||||||||||||||||||||||||||||||||||||
Total | - | - | $965,000 | $15,363,244 | $21,343,182 | $27,891,821 | - | - | $1,124,480 | $10,142,263 | $16,287,395 | $20,719,502 | ||||||||||||||||||||||||||||||||||||
| Mr. Fracassa | Mr. Fracassa | Mr. Fracassa
| ||||||||||||||||||||||||||||||||||||||||||||||
Voluntary Resignation | Termination With Cause | Retirement | Death & Disability | Termination Without Cause | Change in Control and Termination | Voluntary Resignation | Termination With Cause | Retirement | Death & Disability | Termination Without Cause | Change in Control and Termination | |||||||||||||||||||||||||||||||||||||
Cash Severance (1) | - | - | - | - | $1,476,248 | $2,952,496 | - | - | - | - | $1,547,530 | $3,095,060 | ||||||||||||||||||||||||||||||||||||
Equity (2) | - | - | - | $3,900,494 | $4,012,101 | $4,773,656 | - | - | - | $2,722,755 | $2,998,183 | $3,390,295 | ||||||||||||||||||||||||||||||||||||
Retirement Benefits (3) | - | - | - | - | - | $879,000 | - | - | - | - | - | $597,408 | ||||||||||||||||||||||||||||||||||||
Other Benefits (4) | - | - | - | - | $79,500 | $79,500 | ||||||||||||||||||||||||||||||||||||||||||
Other Benefits (4) | - | - | - | - | $79,500 | $79,500 | ||||||||||||||||||||||||||||||||||||||||||
Total | - | - | - | $3,900,494 | $5,567,849 | $8,684,652 | - | - | - | $2,722,755 | $4,625,213 | $7,162,263 | ||||||||||||||||||||||||||||||||||||
| Mr. Coughlin | Mr. Coughlin | Mr. Coughlin
| ||||||||||||||||||||||||||||||||||||||||||||||
Voluntary Resignation | Termination With Cause | Retirement | Death & Disability | Termination Without Cause | Change in Control and Termination | Voluntary Resignation | Termination With Cause | Retirement | Death & Disability | Termination Without Cause | Change in Control and Termination | |||||||||||||||||||||||||||||||||||||
Cash Severance (1) | - | - | - | - | $1,471,174 | $2,942,348 | - | - | - | - | $1,547,018 | $3,094,036 | ||||||||||||||||||||||||||||||||||||
Equity (2) | - | - | - | $4,624,238 | $4,739,833 | $5,601,218 | - | - | - | $3,052,236 | $3,349,282 | $3,770,843 | ||||||||||||||||||||||||||||||||||||
Retirement Benefits (3) | - | - | $323,000 | - | - | $177,000 | - | - | $194,908 | - | - | $225,607 | ||||||||||||||||||||||||||||||||||||
Other Benefits (4) | - | - | - | - | $79,500 | $79,500 | ||||||||||||||||||||||||||||||||||||||||||
Other Benefits (4) | - | - | - | - | $79,500 | $79,500 | ||||||||||||||||||||||||||||||||||||||||||
Total | - | - | $323,000 | $4,624,238 | $6,290,507 | $8,800,066 | - | - | $194,908 | $3,052,236 | $4,975,800 | $7,169,986 | ||||||||||||||||||||||||||||||||||||
| Mr. Myers | ||||||||||||||||||||||||||||||||||||||||||||||||
Mr. Patel
| Mr. Patel
| |||||||||||||||||||||||||||||||||||||||||||||||
Voluntary Resignation | Termination With Cause | Retirement | Death & Disability | Termination Without Cause | Change in Control and Termination | |||||||||||||||||||||||||||||||||||||||||||
Voluntary Resignation | Termination With Cause | Retirement | Death & Disability | Termination Without Cause | Change in Control and Termination | |||||||||||||||||||||||||||||||||||||||||||
Cash Severance (1) | - | - | - | - | $665,088 | $1,330,176 | - | - | - | - | $685,105 | $1,027,658 | ||||||||||||||||||||||||||||||||||||
Equity (2) | - | - | $1,735,967 | $2,122,767 | $1,308,413 | $2,256,684 | - | - | - | $938,471 | $836,901 | $1,069,083 | ||||||||||||||||||||||||||||||||||||
Retirement Benefits (3) | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Other Benefits (4) | - | - | - | - | $26,500 | $39,750 | ||||||||||||||||||||||||||||||||||||||||||
Other Benefits (4) | - | - | - | - | $26,500 | $53,000 | ||||||||||||||||||||||||||||||||||||||||||
Total | - | - | $1,735,967 | $2,122,767 | $2,000,001 | $3,639,860 | - | - | - | $938,471 | $1,548,506 | $2,136,491 | ||||||||||||||||||||||||||||||||||||
| Mr. Roellgen (5) | Mr. Roellgen (5) | Mr. Roellgen (5)
| ||||||||||||||||||||||||||||||||||||||||||||||
Voluntary Resignation | Termination With Cause | Retirement | Death & Disability | Termination Without Cause | Change in Control and Termination | Voluntary Resignation | Termination With Cause | Retirement | Death & Disability | Termination Without Cause | Change in Control and Termination | |||||||||||||||||||||||||||||||||||||
Cash Severance (1) | - | - | - | - | $513,626 | $770,439 | - | - | - | - | $582,027 | $873,040 | ||||||||||||||||||||||||||||||||||||
Equity (2) | - | - | - | $1,834,474 | $799,125 | $1,875,787 | - | - | - | $1,545,852 | $1,423,262 | $1,641,819 | ||||||||||||||||||||||||||||||||||||
Retirement Benefits (3) | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Other Benefits (4) | - | - | - | - | $21,477 | $21,477 | ||||||||||||||||||||||||||||||||||||||||||
Other Benefits (4) | - | - | - | - | $20,717 | $20,717 | ||||||||||||||||||||||||||||||||||||||||||
Total | - | - | - | $1,834,474 | $1,333,468 | $2,666,943 | - | - | - | $1,545,852 | $2,026,766 | $2,536,336 | ||||||||||||||||||||||||||||||||||||
| (1) | “Cash Severance” amounts are determined by multiples of annual pay provided in the Severance Agreements. |
| (2) | “Equity” includes deferred shares, time-based restricted stock units, performance-based restricted stock units and stock option grants. Treatment of equity-based grants in the event of a |
termination or change in control is described in the “Potential Payments Upon Termination or Change in Control” section on page |
| (3) | “Retirement Benefits” for eligible NEOs represent the value of additional benefits earned under the qualified and supplemental plans as a result of retirement, termination without cause, or a qualifying termination following a change in control. |
Values are shown under the retirement scenario for only those NEOs who were eligible for early retirement as defined in the applicable retirement plan as of December 31, 2020 and reflect the incremental present value above what they would receive at age 62. As of December 31, 2020, Mr. Kyle and Mr. Coughlin both were eligible for early retirement as defined in the applicable retirement plan. Mr. Myers reached the earliest unreduced retirement age of 62 for the plan year, therefore there is no longer an incremental benefit value to report in the event of an early retirement.
Values are shown under the retirement scenario for only those NEOs who were eligible for early retirement as defined in the applicable retirement plan as of December 31, 2021 and reflect the incremental present value above what they would receive at age 62. As of December 31, 2021, Mr. Kyle and Mr. Coughlin both were eligible for early retirement as defined in the applicable retirement plan. |
Although $0 is reported for Mr. Coughlin under the change in control scenario, the value of his aggregate accumulated pension benefits as of December 31, 2020 would actually decrease $87,000 due to the change in control provisions. The increase in Mr. Coughlin’s defined contribution offset would be greater than the increase in his gross Excess Benefit Agreement benefits,
The table above only reports the value of Mr. Coughlin’s change in control SIP payments because the value of his pension as of December 31, 2021 would actually decrease $297,893 due to the change in control provisions. These pension provisions fully offset the value of his change in control SIP payments, which results in a |
| (4) | “Other Benefits” consist of continuation of health and welfare benefits through the severance period, with estimated values for U.S.-based NEOs of $16,500 per year and for Mr. Roellgen of |
| (5) | Mr. Roellgen’s compensation is generally based in Euros. The conversion rate used for purposes of converting the Euros earned by Mr. Roellgen into U.S. Dollars was €1.00 = |
Mr. Myers is not included in the table above due to his retirement from the Company on November 30, 2021. In connection with his retirement, Mr. Myers received cash payments of $198,945 for his annual incentive award, of which 85% was deferred into the Deferred Compensation Plan, $1,479,281 for his lump sum payment from the Pension Plan and $34,327 for accrued, but unused vacation paid to him in 2021. The value of his unvested equity upon retirement on November 30, 2021 was $1,816,464 assuming performance-based restricted stock units at target and valued at the closing price of our common shares on November 30, 2021, which was $65.83.
Equity Compensation Plan Information
The table below sets forth information as of December 31, 20202021 regarding the Predecessor Long-Term Incentive Plan and the Equity and Incentive Compensation Plan. Under the Predecessor Long-Term Incentive Plan and Equity and Incentive Compensation Plan, we have made equity compensation available to Directors, officers and other employees of the Company. The Predecessor Long-Term Incentive Plan and Equity and Incentive Compensation Plan were approved by our shareholders.
| Plan Category | Number of securities to be and rights (a)(1) | Weighted-average exercise price of outstanding options, warrants and rights (b)(2) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)(3) | Number of securities to be issued upon exercise of outstanding options, warrants and rights
(a)(1) | Weighted-average Exercise price of outstanding options, Warrants and rights
(b)(2) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
(c)(3) | ||||||
Equity compensation plans approved by security holders (4)
| 3,025,641 | $40.53 | 8,675,725 | 2,211,516 | $41.59 | 7,738,437 | ||||||
Equity compensation plans not approved by security holders
| - | - | - | - | - | - | ||||||
Total:
| 3,025,641 | $40.53 | 8,675,725 | 2,211,516 | $41.59 | 7,738,437 |
| (1) | The amount shown in column (a) includes the following grants made under both the Predecessor Long-Term Incentive Plan and the Equity and Incentive Compensation Plan: nonqualified stock options – |
| (2) | The weighted average exercise price in column (b) includes nonqualified stock options only. |
| (3) | The amount shown in column (c) represents common shares remaining available under the Equity and Incentive Compensation Plan, under which the Compensation Committee is authorized to make awards of common shares, nonqualified stock options, incentive stock options, appreciation rights, restricted shares, deferred shares, performance shares, performance units and restricted stock units, and is inclusive of eligible recycled shares from the Predecessor Long Term Incentive Plan as described below. Awards may be credited with dividend equivalents payable in the form of cash or common shares. In addition, under the Equity and Incentive Compensation Plan, nonemployee Directors are eligible for awards of restricted shares, restricted stock units, common shares and option rights. In 2019, the Equity and Incentive Compensation Plan was approved by shareholders at the annual meeting of shareholders authorizing 10,000,000 shares of common stock that may be issued. Shares from the Predecessor Long-Term Incentive Plan are no longer available to be issued. However, if any common shares subject to an award granted under the Predecessor Long Term Incentive |
| (4) | The Company also maintains the Director Deferred Compensation Plan and the Deferred Compensation Plan pursuant to which Directors and other employees, respectively, may defer receipt of incentive compensation payable in common shares (other than restricted shares or options) authorized for issuance under the Equity and Incentive Compensation Plan. The table does not include separate information about these plans because they merely provide for the deferral, rather than the issuance, of common shares. |
For 2020,2021, the ratio of our CEO’s annual total compensation (“CEO Compensation”) to the median of the annual total compensation of all of our employees (other than our CEO and the Excluded Employees (as defined below)) as described below (“Median Annual Compensation”), commonly referred to as the “CEO Pay Ratio”, was 199162 to 1.
This CEO Pay Ratio disclosure is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K using the data and assumptions described below, but there may be a degree of imprecision due to the permitted use of reasonable estimates and assumptions in preparing this CEO Pay Ratio disclosure. In this summary, we refer to the employee who received our Median Annual Compensation as our “Median Employee.” For purposes of this disclosure, the date used to identify our Median Employee was October 1, 20192021 (the “Determination Date”). In accordance with applicable SEC rules, we utilizedWe did not use the same Median Employee to calculate the CEO Pay Ratio for 20202021 that we identified for the calculation in 2019 since there were no material changes in our employee population or employee compensation arrangements in 2020 that we reasonably believe would result in a significant change to our CEO Pay Ratio disclosure. The(the “2020 Median Employee”), as the 2020 Median Employee heldis no longer employed by the same position at the Company (a position in our operations group in the United States) in 2020 as in 2019.Company.
For purposes of this CEO Pay Ratio disclosure, CEO Compensation was $11,264,263,$9,665,330, which represents the total compensation reported for our CEO in the “20202021 Summary Compensation Table”. Also for purposes of this CEO Pay Ratio disclosure, Median Annual Compensation was $56,596,$59,720, which was calculated by totaling all applicable elements of compensation that our Median Employee earned during the 20202021 fiscal year in accordance with Item 402(c)(2)(x) of Regulation S-K.
To identify our Median Employee in 2019,2021, we utilized the consistently applied compensation measure of ”target“target total direct compensation” for the period from January 1, 20192021 to December 31, 2019,2021, which measure consisted of the sum of annual base pay plus the targeted value of annual and long-term incentives. For hourly workers, annual base pay was calculated using a reasonable estimate of hours worked during 20192021 multiplied by the applicable hourly rate. In addition, we annualized the total compensation (based on reasonable assumptions and estimates relating to our employee compensation program) for any employees (full-time and part-time) that commenced employment with the Company after January 1, 2019.2021. To establish our employee pool, as permitted by the applicable SEC rules, we excluded 84266056 non-U.S employees (the “Excluded Employees”) from our total global workforce of 16,94717,950 employees as of October 1, 20192021 who were employed in locations that individually represented less than 5% of our total global workforce from our Median Employee determination process to arrive at a pool of 16,10517,345 employees (this pool, excluding the Excluded Employees and the CEO, is hereinafter referred to as the “Employee Pool”). The Employee Pool did not include any independent contractors or “leased” workers and excluded employees of businesses acquired by us in 2019,2021, as permitted by the applicable SEC rules. We next calculated the median target total direct compensation for our Employee Pool and identified the subset of employees who were paid within a 1% range of such median (the “Comparison Group”). Finally, we selected a representative employee from the Comparison Group as our Median
6 The Excluded Employees included the following number of employees from the following countries: (a) Italy – 660 employees; (b) Brazil – 105 employees; (c) Mexico – 63 employees; (d) Israel – 7 employees; (e) Colombia – 3 employees; (f) Philippines – 2 employees; (g) Egypt – 1 employee; and (h) Tanzania – 1 employee.
Employee in 2019. Here in 2020, using the same Median Employee, we determined our Median Employee’s Median Annual Compensation as described above.2021. We did not utilize any cost-of-living adjustments for purposes of this CEO Pay Ratio disclosure.
6 The Excluded Employees included the following number of employees from the following countries: (a) United Kingdom – 188 employees; (b) Mexico – 182 employees; (c) Brazil – 87 employees; (d) South Africa – 83 employees; (e) Russian Federation – 24 employees; (f) Turkey – 8 employees; (g) Indonesia – 6 employees; (h) Israel – 6 employees; (i) Colombia – 3 employees; (j) Ghana – 3 employees; (k) Taiwan – 3 employees; (l) Thailand – 3 employees; (m) Bosnia and Herzegovina – 1 employee; (n) the Democratic Republic of the Congo – 1 employee; (o) Egypt – 1 employee; (p) Kazakhstan – 1 employee; (q) Nigeria – 1 employee; (r) Philippines – 1 employee; (s) Tanzania – 1 employee; (t) Ukraine – 1 employee; and (u) Vietnam – 1 employee.
PROPOSAL NO. 3: RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITOR
The Audit Committee of the Board of Directors has appointed Ernst & Young LLP, an independent registered public accounting firm, to perform the audit of our financial statements and our internal control over financial reporting for the 20212022 fiscal year. Ernst & Young has acted as our independent accounting firm for over 100 years. We believe the long tenure of Ernst & Young’s audit relationship with us is beneficial as Ernst & Young has developed significant expertise and experience with our business, accounting policies and practices and our internal control over financial reporting, which we believe allows for a higher quality audit and a competitive fee structure.
The appointment of Ernst & Young as our independent auditor is not required to be submitted to a vote of our shareholders for ratification. However, the Board of Directors believes that obtaining shareholder ratification is a sound governance practice. If our shareholders fail to vote in favor of the appointment of Ernst & Young, the Audit Committee will reconsider whether to retain Ernst & Young and may retain that firm or another firm without resubmitting the matter to our shareholders. Even if the shareholders ratify the appointment, the Audit Committee may, in its discretion, direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interest of the Company and its shareholders.
The affirmative vote of a majority of the votes cast on this matter is necessary to ratify the appointment of Ernst & Young. Abstentions will not be counted for determining whether this matter is approved. Because the ratification of the appointment of Ernst & Young is a routine matter, we do not expect any broker non-votes with respect to this matter.
Representatives of Ernst & Young are expected to be present at the 20212022 Annual Meeting of Shareholders. They will have an opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE INDEPENDENT AUDITOR FOR THE
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Set forth below are the aggregate fees billed by Ernst & Young LLP for professional services rendered to us in 20202021 and 2019:2020:
| 2020 | 2019 | |||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||
| Audit Fees: | ||||||||||||||||||||
Consolidated financial statements | $ | 3,033,000 | $ | 3,344,000 | $3,263,500 | $3,033,000 | ||||||||||||||
New accounting standards, method changes, and accounting consultations on matters addressed during the audit or interim reviews | $ | 367,500 | $ | 97,000 | - | $367,500 | ||||||||||||||
Statutory audits and SEC filings | $ | 416,600 | $ | 431,600 | $558,000 | $416,600 | ||||||||||||||
Total Audit Fees | $ | 3,817,100 | $ | 3,872,600 | $3,821,500 | $3,817,100 | ||||||||||||||
Audit-Related Fees: | ||||||||||||||||||||
Total Audit-Related Fees | - | - | - | - | ||||||||||||||||
Tax Fees: | ||||||||||||||||||||
Tax compliance | $ | 180,400 | $ | 113,968 | $205,000 | $180,400 | ||||||||||||||
Tax advisory and transfer pricing | $ | 825,400 | $ | 1,083,566 | $1,220,000 | $825,400 | ||||||||||||||
Total Tax Fees | $ | 1,005,800 | $ | 1,197,534 | $1,425,000 | $1,005,800 | ||||||||||||||
All Other Fees: | ||||||||||||||||||||
Publications and online subscriptions/content | $ | 7,200 | $ | 7,200 | $7,200 | $7,200 | ||||||||||||||
Enterprise risk management assessment | $ | 25,000 | - | - | $25,000 | |||||||||||||||
Forensic services | $ | 45,000 | - | - | $45,000 | |||||||||||||||
Total Other Fees | $ | 77,200 | $ | 7,200 | $7,200 | $77,200 | ||||||||||||||
Total Fees | $ | 4,900,100 | $ | 5,077,334 | $5,253,700 | $4,900,100 | ||||||||||||||
The Audit Committee has adopted policies and procedures requiring pre-approval of all services provided by the independent auditor. Other than services pre-approved in connection with the annual engagement of the independent auditor, all services to be provided by the independent auditor must be, and have been, pre-approved by the Audit Committee. Requests for pre-approval must contain sufficient detail to ensure the Audit Committee knows precisely what services it is being asked to pre-approve so that it can make a well-reasoned assessment of the impact of the service on the auditor’s independence. Additionally, the Audit Committee has pre-approved the provision of a limited number of specific services that do not require further action by the Audit Committee. The Audit Committee has delegated its pre-approval authority to one of its members who must report any pre-approval decisions to the full Audit Committee at its next scheduled meeting.
The Audit Committee has reviewed and discussed with management and our independent auditor the audited financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.2021. The Audit Committee also has discussed with our independent auditor the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board and the SEC.
The Audit Committee has received and reviewed the written disclosures and the letter from our independent auditor required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent auditor’s communications with the Audit Committee concerning independence, has discussed with our independent auditor such independent auditor’s independence, and has considered the compatibility of non-audit services with the auditor’s independence.
Based on the review and discussions referred to above, the Audit Committee recommended to our Board of Directors that the audited financial statements be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020,2021, for filing with the SEC.
James F. Palmer (Audit Committee Chair) | ||
Maria A. Crowe | ||
Sarah C. Lauber | ||
Christopher L. Mapes | ||
Ajita G. Rajendra | ||
Frank C. Sullivan |
PROPOSAL NO. 4: SHAREHOLDER PROPOSAL – SPECIAL MEETING IMPROVEMENTSIMPLE
MAJORITY VOTE
A shareholder, John Chevedden, whose address and share ownership are available upon request as described on page 78,81, has notified the Company of his intention to offer the following proposal for consideration of our shareholders at the 20212022 Annual Meeting of Shareholders. By including the proposal below in our proxy materials, the Company makes no representation as to the accuracy or completeness of the proponent’s claims or assertions.
Proposal 4 – Simple Majority Vote
RESOLVED, Shareholders askrequest that our board take each step necessary so that each voting requirement in our charter and bylaws (that is explicit or implicit due to takedefault to state law) that calls for a greater than simple majority vote be eliminated, and replaced by a requirement for a majority of the stepsvotes cast for and against applicable proposals, or a simple majority in compliance with applicable laws. If necessary this means the closest standard to amenda majority of the appropriatevotes cast for and against such proposals consistent with applicable laws. This includes any existing supermajority vote requirement that result from default to state law and can be subject to elimination.
Shareholders are willing to pay a premium for shares of companies that have excellent corporate governance. Supermajority voting requirements have been found to be one of 6 entrenching mechanisms that are negatively related to company governing documentsperformance according to give“What Matters in Corporate Governance” by Lucien Bebchuk, Alma Cohen and Allen Ferrell of the owners ofHarvard Law School. Supermajority requirements are used to block initiatives supported by most shareowners but opposed by a combined 10% of our outstanding common stock the power to call a special shareholder meeting. The Board of Directors would continue to have its existing power to call a special meeting.
This proposal topic sponsored by William Steiner, won 78%from 74% to 88% support at a Sprint annual meeting with 1.7 Billion yes-votes. This 78% support mightWeyerhaeuser, Alcoa, Waste Management, Goldman Sachs, FirstEnergy, McGraw-Hill and Macy’s. The proponents of these proposals included Ray T. Chevedden and William Steiner. The votes would have been even higher than 74% to 88% if more shareholders had access to independent proxy voting advice.
Timken shareholders gave 44%-support toCurrently a 2020 shareholder proposal on this topic. And2%-minority can frustrate the 44%-vote was achievedwill of our 79%-shareholder majority in an election that was notin which 81% of shares cast ballots. In other words a level contest. Management used 1500-words2%-minority could have the power to resist a proposal that was limited to 500-words. And management presented its resistance in a flashier format than the shareholder proposal.
The current ownership threshold of 25% can mean that more than 50%prevent 79% of shareholders must be contacted during the prescribed short window of time to simply call a special meeting. Plus many shareholders, who are convinced that a special meeting should be called, can make a small paperwork error that will disqualify them from counting toward the 25% ownership threshold.
Plus we permanently lack a right to act by written consent since Timken is incorporated in Ohio which is backwards inimproving shareholder rights and unfortunately fails to give shareholders any right to act by written consent.
It is so much easier and inexpensive for management to conduct a special shareholder meeting due to the near extinction of in-person shareholder meetings. Such a meeting can now be a bare bones online meeting. Management is well protected in the new online special meeting format.
With the near universal use of online annual shareholder meetings, which can be only 10-minutes of boilerplate, management can limit shareholders in engaging with management and in making their views
known because all challenging questions and comments can be screened out. And management is free to have insiders praise management.
It is so much easier now for management to conduct a special shareholder meeting that management resistance to a 10% stock ownership threshold should evaporate. Such a meeting can be an online meeting where everything is optional. For instance a management narrative on the state of the company is optional. Also management answers to shareholder questions are optional even if management misleadingly asks for questions.
For instance Goodyear management hit the mute button right in the middle of the mandated shareholder proposal presentationaccountability at its 2020 shareholder meeting to bar constructive criticism.
Plus AT&T management would not even allow any proponents of shareholder proposals to read their proposals by telephone at the 2020 AT&T online annual meeting during the pandemic.
Please see:
AT&T investors denied a dial-in as annual meeting goes online
https://whbl.com/2020/04/17/att-investors-denied-a-dial-in-as-annual-meeting-goes-online/1007928/Timken.
Please vote yes:
Special Shareholder Meeting Improvement –Simple Majority Vote - Proposal 4
THE BOARD OF DIRECTORS’ RESPONSE TO THE SHAREHOLDER PROPOSAL
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU AGAIN VOTEAGAINSTTHIS SAME
SHAREHOLDER PROPOSAL THAT YOU VOTED AGAINST LAST YEAR.PROPOSAL.
This proposal, submitted by John Chevedden, requests that each Company voting requirement in our Articles of Incorporation or Code of Regulations that calls for a greater than simple majority vote (either explicit or implicit due to default state law) be replaced by a majority vote requirement.
After careful consideration, the Board has concluded that this proposal submitted by John Chevedden, is not in the best interests of the Company and its shareholders. Last year, our shareholders supported that position when they voted against this same proposal submitted by this same shareholder to reduce the threshold to 10%. As such,Accordingly, the Board believesunanimously recommends a vote AGAINST this proposal for the current 25% threshold strikes an appropriate balance between granting shareholders the right to call special meetings when appropriate and protecting all our shareholders’ interest in promoting the appropriate use of Company resources.following reasons.
Existing Supermajority Voting Thresholds Apply in Limited Circumstances
A majority of votes cast, or a simple majority, is already the voting standard for most matters voted upon by the Company’s common shareholders. Our Shareholders Already HaveCode of Regulations currently provides that in all matters, except as provided by statute or by our Articles of Incorporation or Code of Regulations, a simple majority is the Rightvoting standard applicable to Call Special Shareholder Meetingsour common shareholders. The express voting standards applicable to our common shareholders in our Articles of Incorporation and Code of Regulations are also simple majority standards. Ohio corporate law, like the corporate law of most states, does however provide a default voting standard for certain extraordinary matters (requiring the affirmative vote of the holders of at least two-thirds of our outstanding voting securities). Because our organizational documents are otherwise silent on the required voting standard for such extraordinary matters, certain matters, such as a merger or sale of all or substantially all of the Company’s assets and a voluntary dissolution of the Company, would require a supermajority vote.
The Board recognizesbelieves that retaining the importance of havingdefault supermajority voting standards under Ohio law, applicable only in place strong corporate governance practices that ensure thatcertain limited circumstances, is in the Company is responsive to the concerns of our shareholders. As such, our Amended Regulations already provide that shareholders who together hold at least 25%best interests of the Company’s outstanding common shares can callshareholders and the Company. Supermajority voting requirements on fundamental corporate matters help to protect shareholders against self-interested and potentially abusive actions proposed by one or a special meeting. A thresholdfew large shareholders, who may seek to advance their interests over the interests of 25% orthe majority of the Company’s shareholders.
The Board believes that in certain limited circumstances, the higher is in line with practicesvoting requirements are appropriate because certain fundamental matters should require the support of a broad consensus of the Company’s shareholders, rather than a simple majority of the votes present at a majoritymeeting. These default supermajority thresholds assist in maximizing long-term value to all shareholders and have the effect of publicly traded companies that offer shareholders the right to call special meetings. Our Amended Regulations do not qualify this right by utilizing exclusionary or prohibitive language. We also have regular dialogue with our shareholders, large and small, regarding important issues relating to our business and items of interest to our shareholders. Other than the proponent, nonedeterring hostile takeovers of our shareholders have ever expressed to us that our current requirement for shareholders to call a special meeting is overly burdensome.
A 10% Ownership Threshold Could Give a Small Group of Shareholders with Special Interests a Disproportionate Amount of Influence Over the Company’s Affairs
Special meetings should only be utilized for out of the ordinary circumstances that are time sensitive and of interest to all or most of our shareholders and not for business that can be more appropriately addressed through other available means. Reducing the threshold to call a special meeting to 10% could lead to abuse by just a few shareholders with special interests and individual agendas who may call special meetings to pursue mattersCompany that may not be in the best interests of our shareholders and the Company. The Board believes that the limited supermajority requirements the Company has in place are appropriate to maintain the stability of our operations, while striking an appropriate balance that allows for fundamental changes where there is strong shareholder consensus.
Benefits to Shareholders from Supermajority Provisions
Under a simple majority voting standard, where only a “majority of the votes cast for and against” is required, a few large shareholders would have the power to approve actions that would significantly alter the governance of the Company, including fundamental changes to the Company’s corporate governance structure or operations that could negatively impact the interests of all shareholders. This means a very small group of shareholders could act in their own self-interests and possibly to the detriment of the Company’s other shareholders. Our Board believes that the few heightened voting standards currently existing protect our shareholders generally.against such actions and should not be eliminated.
The inability of a special meeting proponentBecause this proposal would eliminate shareholder protections that are in place to convince holders of at least 25% of our common shares to support a special meeting could provide a strong indication that our shareholders are not interested in the topic, do not believe that the proposed action requires immediate attention, or do not think a special meeting is warranted. Our shareholders supported that position when they voted against this same proposal submitted by this same shareholder to reduce the threshold to 10% last year. When important matters are brought to the attention ofmaximize long-term value, the Board it considers the issues carefully and determines a recommended course of action for shareholder consideration, including calling a special meeting, if appropriate. Unlike a shareholder with a special interest or agenda, our Directors have a fiduciary duty to representbelieves that this proposal is not in the best interests of all our shareholders and are mindful of that duty in determining whether to call a special meeting.the Company or its shareholders.
We Have EstablishedThe Board Has Demonstrated a Strong Commitment to Corporate Governance Best Practices and Mechanisms to Ensure Accountability of the Board and Management to Shareholders
Because the Company maintains open lines of communication with our shareholders and welcomes shareholder engagement and dialogue with the Board and our management team, shareholders already have various opportunities to voice their questions and concerns. In 2020 alone, we participated in nine investor conferences, nine non-deal roadshows, and a significant number of individual investor meetings. In total, the Company completed over 500 interactions with investors during 2020, up over 20% from 2019. During these contacts, shareholders were invited to share any feedback they had regarding the Company’s operations, strategy and governance practices as well as other topics they deemed material. Additionally, during our 2020 outreach to shareholders, we specifically reached out to approximately 20 of our largest shareholders to gauge their views on our 25% ownership threshold. Nine of those shareholders engaged with us on the matter and seven of those shareholders expressed support for our existing 25% ownership threshold and indicated that they did not support the proponent’s proposal to reduce the ownership threshold to call a special meeting to 10%.
7/9of our largest shareholders who engaged on this topic expressed support for our existing 25% ownership threshold and against this proposal.
The Board believes that this proposal should be evaluated in the context of the Company’s overall commitment to strong corporate governance that is responsive to the views and concerns of the Company’s shareholders, as evidenced by the following practices:
| · | We have a declassified Board – all of our Directors are elected annually. |
| · | We have an independent Board Chairman. |
| · | The Board is comprised of a substantial majority of independent Directors (10 of 12 Directors are independent). |
| · | We have shown a strong commitment to Board refreshment |
| ○ | over half of our |
| ○ | Five of 12 Directors are ethnically or gender diverse. |
| · | We align our Directors’ and executive officers’ interests with those of our shareholders through robust ownership requirements. |
| · | We have granted our shareholders proxy access with 3/3/20/20 parameters. |
| · | All Director nominees are evaluated in the same manner by the Nominating and Corporate Governance Committee, without regard to the source of the nominee recommendation. |
| · | Our Directors are elected by a majority of votes cast and our Majority Voting Policy requires |
| · | Shareholders holding 25% of the Company’s common shares |
See page 25 for more details on the Company’s commitment to strong corporate governance.
Shareholders’ Rights to be Informed and to Vote on Significant Matters are Already Protected by State Law
Shareholders can also be assured that their right to be informed of and vote on significant matters is protected not only by their existing right to call special meetings, but also by state law and other rules and regulations. Ohio law provides that shareholders must be given the opportunity to vote on significant corporate actions such as: (a) mergers; (b) the sale or disposition of all or substantially all of the assets of a company; and (c) amendments to a company’s articles of incorporation or regulations that are reserved by law to be acted upon only by vote of the shareholders. Additionally, the listing standards of the NYSE similarly require us to seek shareholder approval for other significant matters, including the issuance of common shares in many circumstances, such as when such issuance would result in a change in control of the Company. Thus, the opportunity for shareholder votes on many important matters that may arise between annual meetings of shareholders is already well-established.
Virtual Meetings Are Not Easier and Inexpensive to Conduct, Nor Have They Eroded Traditional Shareholder Engagement, as Evidenced by our Annual Meeting Held in a Virtual Format Last Year
Due to the public health impact of the COVID-19 pandemic and related government restrictions on large gatherings, and to protect the well-being of our employees and shareholders, the Company held its annual meeting virtually last year for the first and only time in our over 100-year history. Due to continued health and safety concerns and legal requirements associated with the ongoing pandemic we also expect to hold the 2021 Annual Meeting of Shareholders in a virtual format. As we have indicated in these definitive proxy materials, we expect to resume holding in-person annual meetings as soon as it is safe and legally permissible to do so. Contrary to the proponent’s assertions, shareholders who attended last year’s virtual meeting were provided similar opportunities to ask questions of management as they typically do during an in-person meeting. Moreover, this same shareholder proponent was provided with a fulsome opportunity to present his proposal through his designated representative at last year’s virtual annual meeting on a dedicated operator assisted line without interruption. Thus, the relevance of the alleged virtual meeting experiences of other companies cited in the proponent’s proposal is unclear. In addition, the number of shareholders that attended last year’s virtual annual meeting was in line with what we have seen recently at our in-person annual meetings.
Moreover, convening a meeting of shareholders, whether virtual or in person, is not an insignificant or inexpensive effort. Organizing and preparing for a special meeting imposes substantial legal and administrative costs on the Company and requires a significant commitment of time and focus from management, as well as the Board and our shareholders. These costs would be incurred by the Company regardless of whether the meeting was to be held in person or in a virtual format. In fact, hosting the meeting in a virtual format added costs beyond that of an in-person meeting such as platform fees. As such, the Board believes the current 25% threshold strikes the right balance between the ability of our shareholders to call a special meeting when appropriate and the interests of our shareholders and the Company in promoting the appropriate use of the Company’s resources.
Certain of the Proponent’s Supporting Statements are Misleading
The proponent references a similar shareholder proposal from 2009 that received 78% support at a Sprint annual meeting. Admittedly, that proposal, which was voted on at Sprint’s 2009 annual meeting of shareholders, received strong support. The proponent fails to mention, however, that Sprint shareholders had no right to call a special meeting of shareholders at all, unlike our shareholders, who have a right to call a special meeting at a reasonable 25% threshold.
Additionally, the proponent argues that many shareholders that might be convinced that a special meeting should be called could make a small paperwork error that will disqualify them from counting towards the 25% ownership threshold. Some public companies that allow shareholders to call a special meeting impose burdensome informational and other requirements on shareholders attempting to call a special meeting pursuant to their bylaws or equivalent governing documents. However, as noted above, our Amended Regulations do not qualify our shareholders’ right to call a special meeting by utilizing
exclusionary or prohibitive language, nor do they impose burdensome informational and other requirements of the sort referenced.
* * * *
In light of the Company’s strong corporate governance practices, including our shareholders’ existing right to call a special meeting, as well as the ample alternatives already available for our shareholders to express their views and vote on important matters, the Board believes that the 10% thresholdsimple majority vote standard for certain limited circumstances that would be imposed under this proposal is not in the best interests of the Company or its shareholders. Our shareholders voted against this very same proposal last year and we recommend a similar vote against this proposal again this year.
The affirmative vote of a majority of the votes cast is necessary for the approval of this proposal. Abstentions and broker non-votes will not be counted for determining whether the resolution is approved.
FOR THESE REASONS, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE AGAINST THIS SHAREHOLDER PROPOSAL.
Participation at the Annual Meeting
In order to attend the online-only meeting, you will need to pre-register no later than 10:00 a.m., Eastern Time, on May 6, 2021.5, 2022. To pre-register for the meeting, please follow these instructions:
Registered Shareholders
If your shares are registered in your name with our transfer agent or you are a participant holding shares in a Timken-sponsored employee savings plan and you wish to attend the virtual meeting, go to www.cesonlineservices.com/tkr21_vmtkr22_vm. Please have your Proxy Card or Notice of the Meeting, containing your 11-digit control number, available and follow the instructions to complete your registration request.
Beneficial Shareholders (those holding shares through a stock brokerage account or by a bank or other holder of record)
Beneficial shareholders who wish to attend the virtual meeting may pre-register by visiting the website www.cesonlineservices.com/tkr21_vmtkr22_vm. Please have available the voting instruction form, notice, or other communication from your broker, bank, or other holder of record that sets forth the control number provided to you and follow the instructions to complete your registration request.
After pre-registering for the meeting, shareholders will receive a confirmation email with a link and instructions for accessing the virtual Annual Meeting and submitting questions. Shareholders may review the rules of conduct for the virtual meeting or vote during the virtual Annual Meeting by following the instructions available on the meeting website.
The enclosed proxy is solicited by the Board of Directors, and the entire cost of solicitation will be paid by the Company. In addition to solicitation by mail, our officers and other employees, without extra remuneration, may solicit the return of proxies by any means of communication. Brokerage houses, nominees, fiduciaries and other custodians will be requested to forward soliciting material to the beneficial
owners of shares held of record by them and will be reimbursed for their expenses. We have retained Innisfree M&A Incorporated to assist in the solicitation of proxies for a fee not to exceed $17,500 plus reasonable out-of-pocket expenses.
On the record date of February 22, 2021,2022, we had 75,962,21874,787,494 outstanding common shares, each entitled to one vote upon all matters presented to the meeting. The presence in person or by proxy of not less than 50% of such shares shall constitute a quorum for purposes of the 20212022 Annual Meeting of Shareholders.
Shares represented by properly executed proxies will be voted at the meeting in accordance with the shareholders’ instructions. In the absence of specific instructions, the shares will be voted FOR all of the Director nominees as indicated under Proposal No. 1, FOR Proposal No. 2, FOR Proposal No. 3 and AGAINST Proposal No. 4. The time limits established under our Amended Regulations for Non-Rule 14a-8 Proposals (as defined below) described under “Submission of Shareholder Proposals” also apply in determining whether notice is timely for purposes of SEC rules relating to the exercise of discretionary voting authority. We do not know of any matters to be brought before the 20212022 Annual Meeting except as indicated in the accompanying Notice of 20212022 Annual Meeting of Shareholders and this Proxy Statement.
However, if any other matters properly come before the meeting for action of which we did not have notice on or prior to February 7, 20216, 2022, or that applicable law otherwise permits proxies to vote on a discretionary basis, it is intended that the proxy holders may vote or act thereon in their discretion.
You may revoke your proxy at any time before the 20212022 Annual Meeting of Shareholders by a later dated proxy received by us or by giving notice to us either in writing or at the meeting.
Corporate Election Services, Inc. (“CES”) will be responsible for tabulating the results of shareholder voting. CES will submit a total vote only, keeping all individual votes confidential. Representatives of CES will serve as inspectors of election for the 20212022 Annual Meeting of Shareholders. Under Ohio law, our Amended Articles of Incorporation and Amended Regulations, properly executed proxies marked “abstain” and broker non-votes will be counted for purposes of determining whether a quorum has been achieved at the 20212022 Annual Meeting of Shareholders.
Delinquent Section 16(a) Reports
Section 16(a) of the 1934 Act requires our executive officers and Directors, and persons who own more than ten percent of our common shares, to file reports of ownership and changes in ownership with the SEC. We are required to disclose any failure by any of the above-mentioned persons to file timely Section 16 reports.
Based solely upon our review of the reports of ownership and changes in ownership filed by our executive officers, Directors and greater-than-ten percent shareholders with the SEC, or written representations that no year-end forms were required to be filed, we are not aware of any instances of noncompliance, or late compliance, with such filings during the year ended December 31, 2020, except that one of our executive officers, Ronald J. Myers, filed one late Form 4 covering a single open-market sale of Company common shares.
Submission of Shareholder Proposals
We must receive by November 17, 202118, 2022 any proposal of our shareholders intended to be presented at the 20222023 Annual Meeting of Shareholders and to be included in our proxy materials related to the 20222023 Annual Meeting of Shareholders pursuant to Rule 14a-8 under the 1934 Act. Such proposals should be submitted by certified mail, return receipt requested. A shareholder submitting a proposal outside the
processes of Rule 14a-8 under the 1934 Act in connection with the 20222023 Annual Meeting of Shareholders (“Non-Rule 14a-8 Proposals”) must submit written notice of such proposal in accordance with Article I, Sections 12 and 14 of our Amended Regulations. In general, to be timely, a shareholder’s notice must be delivered to or received by our Vice President, General Counsel & Secretary at our principal executive offices not less than 90 nor more than 120 days prior to the first anniversary of the date on which the Company held the preceding year’s annual meeting of shareholders. If the date of the 20222023 Annual Meeting of Shareholders is scheduled for a date more than 30 days prior to or more than 30 days after the first anniversary of the 20212022 Annual Meeting of Shareholders, then a shareholder’s notice must be delivered to our Vice President, General Counsel & Secretary at our principal executive offices not later than the close of business on the later of the 90th day prior to the 20222023 Annual Meeting of Shareholders or the 10th day following the day on which public announcement of the date of the 20222023 Annual Meeting of Shareholders is first made. Our proxy related to the 20222023 Annual Meeting of Shareholders will give discretionary authority to the proxy holders to vote with respect to all Non-Rule 14a-8 Proposals received by us after January 31, 2022.February 5, 2023. The summaries set forth immediately above are qualified in their entirety by our Amended Regulations and Rule 14a-8.
The SEC permits companies to send a single set of annual disclosure documents to any household at which two or more shareholders reside, unless contrary instructions have been received, but only if we provide advance notice and follow certain procedures. In such cases, such shareholders continue to receive a separate notice of the meeting and proxy card. This “householding” process reduces the volume of duplicate information and reduces printing and mailing expenses. We have not instituted householding for shareholders of record; however, a number of brokerage firms may have instituted householding for beneficial owners of our common shares held through such brokerage firms. If your family has multiple accounts holding common shares, you already may have received a householding notification from your broker. Please contact your broker directly if you have any questions or require additional copies of the annual disclosure documents. The broker will arrange for delivery of a separate copy of this Proxy Statement or our Annual Report on Form 10-K for the year ended December 31, 20202021 promptly upon your written or oral request. You may decide at any time to revoke your decision to household and thereby receive multiple copies.
After April 1, 2021,2022, we will furnish to each shareholder, upon written request and without charge, a copy of our Annual Report to Shareholders for the year ended December 31, 2020,2021, including financial statements and schedules thereto, filed with the SEC. Requests should be addressed to Hansal N. Patel, Vice President, General Counsel & Secretary, The Timken Company, 4500 Mt. Pleasant Street NW, North Canton, Ohio 44720. The address and share ownership of the personshareholder submitting the shareholder proposal on page 72,76 may be obtained using the contact information above or by calling 234-262-3000.
RECONCILIATION RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES TO MOST DIRECTLY COMPARABLE GAAP MEASURES
(dollars in millions, excluding EPS and Adjusted EPS)
Reconciliation of Net Income to Adjusted Net Income and EBITDA1 | 2020 | 2019 | 2018 | 2017 | | 2016 As Reported10 | | 2015 As Reported10 | 2021 | 2020 | 2019 | 2018 | 2017 | 2016 10 | ||||||||||||||||||||||||||
Net Sales | $ | 3,513.2 | $ | 3,789.9 | $ | 3,580.8 | $ | 3,003.8 | $ | 2,669.8 | $ | 2,872.3 | $ 4,132.9 | $ 3,513.2 | $ 3,789.9 | $ 3,580.8 | $ 3,003.8 | $ 2,669.8 | ||||||||||||||||||||||
Net Income (Loss) Attributable to The Timken Company | 284.5 | 362.1 | 302.8 | 203.4 | 152.6 | (70.8 | ) | $ 369.1 | $ 284.5 | $ 362.1 | $ 302.8 | $ 203.4 | $ 140.8 | |||||||||||||||||||||||||||
Impairment, restructuring and reorganization charges2 | 29.0 | 9.8 | 7.1 | 13.1 | 28.0 | 15.9 | 15.1 | 29.0 | 9.8 | 7.1 | 13.1 | 28.0 | ||||||||||||||||||||||||||||
Corporate pension and other postretirement benefit related expense (income)3 | 18.5 | (4.1 | ) | 12.8 | 18.1 | 28.1 | 465.0 | 0.3 | 18.5 | (4.1) | 12.8 | 18.1 | 67.0 | |||||||||||||||||||||||||||
Acquisition related charges | 3.7 | 15.5 | 20.6 | 9.0 | 4.2 | 5.7 | 3.2 | 3.7 | 15.5 | 20.6 | 9.0 | 4.2 | ||||||||||||||||||||||||||||
Acquisition-related gain4 | (11.1 | ) | - | - | - | - | (0.9) | (11.1) | - | - | - | - | ||||||||||||||||||||||||||||
(Gain) loss on divestitures and sale of real estate | (0.4 | ) | (4.5 | ) | 0.8 | (3.6 | ) | (0.5 | ) | (28.7 | ) | - | (0.4) | (4.5) | 0.8 | (3.6) | (0.5) | |||||||||||||||||||||||
Property (recoveries) losses and related expenses5 | (5.5 | ) | 7.6 | - | - | - | - | - | (5.5) | 7.6 | - | - | - | |||||||||||||||||||||||||||
Brazil legal matter | - | 1.8 | - | - | - | - | - | - | 1.8 | - | - | - | ||||||||||||||||||||||||||||
Tax Indemnification and related items | 0.5 | 0.7 | 1.5 | (1.0 | ) | - | - | 0.2 | 0.5 | 0.7 | 1.5 | (1.0) | - | |||||||||||||||||||||||||||
Health care plan modification costs | - | - | - | (0.7 | ) | 2.9 | - | - | - | - | - | (0.7) | 2.9 | |||||||||||||||||||||||||||
CDSOA income, net of expense | - | - | - | - | (59.6 | ) | - | - | - | - | - | - | (59.6) | |||||||||||||||||||||||||||
Fixed asset write-off | - | - | - | - | - | 9.7 | ||||||||||||||||||||||||||||||||||
Noncontrolling interest | (0.1 | ) | (0.5 | ) | (1.3 | ) | - | - | - | - | (0.1) | (0.5) | (1.3) | - | - | |||||||||||||||||||||||||
Provision for income taxes | (6.0 | ) | (34.6 | ) | (16.8 | ) | (30.8 | ) | 0.5 | (207.7 | ) | (23.6) | (6.0) | (34.6) | (16.8) | (30.8) | (13.8) | |||||||||||||||||||||||
Adjusted Net Income | $ | 313.1 | $ | 353.8 | $ | 327.5 | $ | 207.5 | $ | 156.2 | $ | 189.1 | $ 363.4 | $ 313.1 | $ 353.8 | $ 327.5 | $ 207.5 | $ 169.0 | ||||||||||||||||||||||
Net income (loss) attributable to noncontrolling interest | 7.9 | 12.6 | 2.7 | (1.1 | ) | 0.3 | 2.8 | 12.4 | 7.9 | 12.6 | 2.7 | (1.1) | 0.3 | |||||||||||||||||||||||||||
Provision for income taxes (as reported) | 103.9 | 97.7 | 102.6 | 57.6 | 69.2 | (121.6 | ) | 95.1 | 103.9 | 97.7 | 102.6 | 57.6 | 60.5 | |||||||||||||||||||||||||||
Interest expense | 67.6 | 72.1 | 51.7 | 37.1 | 33.5 | 33.4 | 58.8 | 67.6 | 72.1 | 51.7 | 37.1 | 33.5 | ||||||||||||||||||||||||||||
Interest income | (3.7 | ) | (4.9 | ) | (2.1 | ) | (2.9 | ) | (1.9 | ) | (2.7 | ) | (2.3) | (3.7) | (4.9) | (2.1) | (2.9) | (1.9) | ||||||||||||||||||||||
Depreciation and amortization expense6 | 164.0 | 159.9 | 146.0 | 135.8 | 130.2 | 130.2 | 167.0 | 164.0 | 159.9 | 146.0 | 135.8 | 130.2 | ||||||||||||||||||||||||||||
Less: Noncontrolling interest | (0.1 | ) | (0.5 | ) | (1.3 | ) | - | - | - | - | (0.1) | (0.5) | (1.3) | - | - | |||||||||||||||||||||||||
Less: Provision for income taxes | (6.0 | ) | (34.6 | ) | (16.8 | ) | (30.8 | ) | 0.5 | (207.7 | ) | (23.6) | (6.0) | (34.6) | (16.8) | (30.8) | (13.8) | |||||||||||||||||||||||
Adjusted EBITDA | $ | 658.9 | $ | 726.3 | $ | 646.5 | $ | 464.8 | $ | 387.0 | $ | 438.9 | $ 718.0 | $ 658.9 | $ 726.3 | $ 646.5 | $ 464.8 | $ 405.4 | ||||||||||||||||||||||
Reconciliation of Diluted EPS to Adjusted EPS1 | 2020 | 2019 | 2018 | 2017 | | 2016 As Reported10 | | 2015 As Reported10 | 2021 | 2020 | 2019 | 2018 | 2017 | 2016 10 | ||||||||||||||||||||||||||
Diluted Earnings per Share (EPS) | $ | 3.72 | $ | 4.71 | $ | 3.86 | $ | 2.58 | $ | 1.92 | $ | (0.84 | ) | $ 4.79 | $ 3.72 | $ 4.71 | $ 3.86 | $ 2.58 | $ 1.78 | |||||||||||||||||||||
Adjusted EPS | $ | 4.10 | $ | 4.60 | $ | 4.18 | $ | 2.63 | $ | 1.97 | $ | 2.21 | $ 4.72 | $ 4.10 | $ 4.60 | $ 4.18 | $ 2.63 | $ 2.13 | ||||||||||||||||||||||
Diluted Shares | 76,401,366 | 76,896,565 | 78,337,481 | 78,911,149 | 79,234,324 | 85,346,246 | 77,006,589 | 76,401,366 | 76,896,565 | 78,337,481 | 78,911,149 | 79,234,324 | ||||||||||||||||||||||||||||
Reconciliation of Adjusted Net Operating Profit after Taxes | 2020 | 2019 | 2018 | 2017 | | 2016 As Reported10 | | 2015 As Reported10 | 2021 | 2020 | 2019 | 2018 | ||||||||||||||||||||||||||||
Adjusted EBITDA | $ | 658.9 | $ | 726.3 | $ | 646.5 | $ | 464.8 | $ | 387.0 | $ | 438.9 | $ 718.0 | $ 658.9 | $ 726.3 | $ 646.5 | ||||||||||||||||||||||||
Less: Depreciation and amortization expense6 | 164.0 | 159.9 | 146.0 | 135.8 | 130.2 | 130.2 | $167.0 | $164.0 | $159.9 | $ 146.0 | ||||||||||||||||||||||||||||||
Adjusted EBIT | $ | 494.9 | $ | 566.4 | $ | 500.5 | $ | 329.0 | $ | 256.8 | $ | 308.7 | $ 551.0 | $ 494.9 | $ 566.4 | $ 500.5 | ||||||||||||||||||||||||
Adjusted tax rate | 25.5% | 26.5% | 26.5% | 30.0% | 30.5% | 31.0% | 24.0% | 25.5% | 26.5% | 26.5% | ||||||||||||||||||||||||||||||
Calculated income taxes | 126.2 | 150.1 | 132.6 | 98.7 | 78.3 | 95.7 | $ 132.2 | $126.2 | $150.1 | $132.6 | ||||||||||||||||||||||||||||||
Adjusted net operating profit after taxes (ANOPAT) | $ | 368.7 | $ | 416.3 | $ | 367.9 | $ | 230.3 | $ | 178.5 | $ | 213.0 | $ 418.8 | $ 368.7 | $ 416.3 | $ 367.9 | ||||||||||||||||||||||||
Reconciliation of Adjusted Invested Capital | 2020 | 2019 | 2018 | 201710 | | 2016 As Reported10 | | 2015 As Reported10 | | 2014 As Reported10 | ||||||||||||||||||||||||||||||
Total debt | $ | 1,564.6 | $ | 1,730.1 | $ | 1,681.6 | $ | 962.3 | $ | 659.2 | $ | 656.5 | $ | 526.4 | ||||||||||||||||||||||||||
Total equity | 2,225.2 | 1,954.8 | 1,642.7 | 1,474.9 | 1,306.0 | 1,344.6 | 1,589.1 | |||||||||||||||||||||||||||||||||
Invested capital (Total debt + Total equity) | 3,789.8 | 3,684.9 | 3,324.3 | 2,437.2 | 1,965.2 | 2,001.1 | 2,115.5 | |||||||||||||||||||||||||||||||||
Invested capital (two-point average) | $ | 3,737.4 | $ | 3,504.6 | $ | 2,880.8 | $ | 2,201.2 | $ | 1,983.2 | $ | 2,058.3 | ||||||||||||||||||||||||||||
Calculation of Return on Adjusted Invested Capital7 | 2020 | 2019 | 2018 | 201710 | | 2016 As Reported10 | | 2015 As Reported10 | ||||||||||||||||||||||||||||||||
ANOPAT | $ | 368.7 | $ | 416.3 | $ | 367.9 | $ | 230.3 | $ | 178.5 | $ | 213.0 | ||||||||||||||||||||||||||||
Invested capital (two-point average) | 3,737.4 | 3,504.6 | 2,880.8 | 2,201.2 | 1,983.2 | 2,058.3 | ||||||||||||||||||||||||||||||||||
Return on invested capital | 9.9% | 11.9% | 12.8% | 10.5% | 9.0% | 10.3% | ||||||||||||||||||||||||||||||||||
Reconciliation of Free Cash Flow8 | 2020 | 2019 | ||||||||||||||||||||||||||||||||||||||
Net cash provided from operating activities | $ | 577.6 | $ | 550.1 | ||||||||||||||||||||||||||||||||||||
Less: capital expenditures | 121.6 | 140.6 | ||||||||||||||||||||||||||||||||||||||
Free cash flow | $ | 456.0 | $ | 409.5 | ||||||||||||||||||||||||||||||||||||
Reconciliation of Net Debt9 | 2020 | 2019 | ||||||||||||||||||||||||||||||||||||||
Short-term debt | $ | 130.7 | $ | 82.0 | ||||||||||||||||||||||||||||||||||||
Long-term debt | 1,433.9 | 1,648.1 | ||||||||||||||||||||||||||||||||||||||
Total debt | 1,564.6 | 1,730.1 | ||||||||||||||||||||||||||||||||||||||
Less: cash and cash equivalents | 320.3 | 209.5 | ||||||||||||||||||||||||||||||||||||||
Net debt | $ | 1,244.3 | $ | 1,520.6 | ||||||||||||||||||||||||||||||||||||
| Reconciliation of Adjusted Invested Capital | 2021 | 2020 | 2019 | 2018 | 2017 | |||||||
Total debt | $1,464.9 | $1,564.6 | $1,730.1 | $1,681.6 | $962.3 | |||||||
Total equity | $2,377.7 | $2,225.2 | $1,954.8 | $1,642.7 | $1,474.9 | |||||||
Invested capital (Total debt + Total equity) | $3,842.6 | $3,789.8 | $3,684.9 | $3,324.3 | $2,437.2 | |||||||
Invested capital (two-point average) | $3,816.2 | $3,737.4 | $3,504.6 | $2,880.8 | ||||||||
| Calculation of Return on Adjusted Invested Capital7 | 2021 | 2020 | 2019 | 2018 | ||||||||
ANOPAT | $418.8 | $368.7 | $416.3 | $367.9 | ||||||||
Invested capital (two-point average) | $3,816.2 | $3,737.4 | $3,504.6 | $2,880.8 | ||||||||
Return on invested capital | 11.0% | 9.9% | 11.9% | 12.8% | ||||||||
| Reconciliation of Free Cash Flow8 | 2021 | 2020 | ||||||||||
Net cash provided from operating activities | $387.3 | $577.6 | ||||||||||
Less: capital expenditures | $148.3 | $121.6 | ||||||||||
Free cash flow | $239.0 | $456.0 | ||||||||||
| Reconciliation of Net Debt9 | 2021 | 2020 | ||||||||||
Short-term debt | $53.8 | $130.7 | ||||||||||
Long-term debt | $1,411.1 | $1,433.9 | ||||||||||
Total debt | $1,464.9 | $1,564.6 | ||||||||||
Less: cash and cash equivalents | $257.1 | $320.3 | ||||||||||
Net debt | $1,207.8 | $1,244.3 | ||||||||||
1Management believes consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) is a non-GAAP measure that is useful to investors as it is representative of the Company’s performance and that it is appropriate to compare GAAP net income to consolidated EBITDA. Management also believes that non-GAAP measures of adjusted EBITDA, adjusted net income and adjusted diluted earnings per share are useful to investors as they are representative of the Company’s core operations and are used in the management of the business, including decisions concerning the allocation of resources and assessment of performance.
2Impairment, restructuring and reorganization charges (including items recorded in cost of products sold) are related to: (i) plant closures; (ii) the rationalization of certain plants; (iii) severance related to cost reduction initiativesinitiatives; and (iv) related depreciation and amortization. The Company re-assessesreassesses its operating footprint and cost structure periodically, and makes adjustments as needed that result in restructuring charges. However, management believes these actions are not representative of the Company’s core operations.
3Corporate pension and other postretirement benefit related expense (income) primarily represents actuarial losses and (gains) that resulted from the remeasurement of plan assets and obligations as a result of changes in assumptions. The Company recognizes actuarial losses and (gains) through earnings in connection with the annual remeasurement in the fourth quarter, or on an interim basis if specific events trigger a remeasurement.
Corporate pension and other postretirement benefit related expense (income) also includes curtailments.
4The acquisition-related gain represents a bargain purchase price gain on the acquisition of the assets of Aurora Bearing Company that closed on November 30, 2020.
5Property (recoveries) losses and related expenses represent property loss and related expenses during the periods presented (net of insurance recoveries received) that occurred during the first quarter of 2019 at one of the Company’s warehouses in Knoxville, Tennessee and during the third quarter of 2019 at one of the Company’s warehouses in Yantai, China.
6Depreciation and amortization shown excludes depreciation recognized in reorganization charges, if any.
7The Company uses ANOPAT/Average Invested Capital as a non-GAAP ratio that indicates return on invested capital, which is useful to investors as a measure of return on their investment.
8Management believes that free cash flow is a non-GAAP measure that is useful to investors because it is a meaningful indicator of cash generated from operating activities available for the execution of its business strategy.
9Management believes Net Debt is an important measure of the Company’s financial position, due to the amount of cash and cash equivalents on hand.
102014-2016 2016 results depicted above are as originally reported and prior torevised for the adoption of mark-to-market accounting. 2017 Adjusted Invested Capital and 2017 Adjusted ROIC are calculated based on 2016 results as originally reported and prior to the adoption of mark-to-market accounting.
TIMKEN TIMKEN ROLLON® PHILADELPHIA GEAR® GROENVELD BEKA LUBRICATION SYSTEMS Cone Drive Lovejoy DIAMOND® DRIVES® Timken® is a registered trademark of The Timken Company | © 2021 The Timken Company | Printed in the U.S.A.
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| c/o Corporate Election Services P. O. Box 3230 Pittsburgh, PA 15230 | VOTE BY TEL | ||
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Have your proxy card available when you call the Toll-Free number 1-888-693-8683 using a touch-tone phone, and follow the simple instructions to record your vote.
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| VOTEBY INTERNET | ||||
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Have your proxy card available when you access the website www.cesvote.com and follow the simple instructions to record your vote.
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| VOTEBY MAIL | ||||
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Please mark, sign and date your proxy card and return it in the postage-paid envelope provided or return it to: Corporate Election Services, P.O. Box 3230, Pittsburgh, PA 15230. |
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| cast your vote: | card/voting instruction form | |||||||||||
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Vote 24 hours a day, 7 days a week!
If you vote by telephone or Internet, please do NOT send your proxy by mail.
Proxy must be signed and dated below.
THETIMKENCOMPANY | PROXY /VOTINGINSTRUCTIONCARD |
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned appoints John M. Timken, Jr.; Richard G. Kyle; and Hansal N. Patel; and each of them, as true and lawful proxies, with full power of substitution, to vote and act for the undersigned as specified on the reverse hereof at the Annual Meeting of Shareholders of THE TIMKEN COMPANY to be held online at http://www.cesonlineservices.com/tkr21_vm,tkr22_vm, on May 7, 2021,6, 2022, at 10:00 a.m., and at any adjournment thereof, as fully as the undersigned could vote and act if personally present on the matters set forth on the reverse hereof, and, in their discretion on such other matters as may properly come before the meeting, and/or if the undersigned is a participant in one or more of the Company’s or its subsidiaries’ employee share ownership plans and has stock of the Company allocated to his or her account(s), the undersigned directs the trustee(s) of such plan(s) likewise to appoint the above-named individuals as proxies to vote and act with respect to all shares of such stock so allocated on the record date for such meeting in the manner specified on the reverse hereof at such meeting or any adjournment thereof, and in their discretion on such other matters as may properly come before the meeting.
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| Signature | ||
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| Signature (if jointly held) |
| Date: |
Please sign exactly as the name appears hereon. Joint owners should each sign. When signing as an attorney, executor, administrator, trust or guardian, please give full title as such. |
PLEASE SIGN AND RETURN AS SOON AS POSSIBLE
NOTICE OF ANNUAL MEETING OF SHAREHOLDERSNOTICE OF ANNUAL MEETING OF SHAREHOLDERS
May 7, 20216, 2022 at 10:00 a.m.
http://www.cesonlineservices.com/tkr21_vmtkr22_vm
ELECTRONIC ACCESS TO FUTURE DOCUMENTS NOW AVAILABLE
If you are a registered holder of shares, you have the option to access future shareholder communications (e.g., annual reports, proxy statements, related proxy materials) over the Internet instead of receiving those documents in print. Participation is completely voluntary. If you give your consent, in the future, when our material is available over the Internet you will receive notification that will contain the Internet location where the material is available. Our material will be presented in PDF format. There is no cost to you for this service other than any charges you may incur from your Internet provider, telephone and/or cable company. Once you give your consent, it will remain in effect until you inform us otherwise. You may revoke your consent at any time by notifying the Company in writing.
To give your consent, follow the prompts when you vote by telephone or over the Internet or check the appropriate box located at the bottom of the attached proxy card when you vote by mail.
Please fold and detach card at perforation before mailing.
THE TIMKEN COMPANY | PROXY /VOTINGINSTRUCTIONCARD |
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The shares represented by this proxy will be voted as recommended by the Board of Directors unless otherwise specified. The Board of Directors recommends a vote FOR proposals 1, 2 and 3.
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| 1. | Election of twelve Directors to serve for a term of one year: |
| Nominees: | (01) | Maria A. Crowe | (02) | Elizabeth A. Harrell | (03) | Richard G. Kyle | (04) | Sarah C. Lauber | ||||||||||||
| (05) | John A. Luke, Jr. | (06) | Christopher L. Mapes | (07) | James F. Palmer | (08) | Ajita G. Rajendra | |||||||||||||
| (09) | Frank C. Sullivan | (10) | John M. Timken, Jr. | (11) | Ward J. Timken, Jr. | (12) | Jacqueline F. Woods | |||||||||||||
| ❑ | FOR all nominees listed above ❑ WITHHOLD AUTHORITY to vote for all nominees listed above | |||||||||||||||||||
| To withhold authority to vote for individual Nominee(s), write the name(s) or number(s) on the line below: | ||||||||||||||||||||
| Nominees: | (01) | Maria A. Crowe | (02) | Elizabeth A. Harrell | (03) | Richard G. Kyle | (04) | Sarah C. Lauber | ||||||||
| (05) | John A. Luke, Jr. | (06) | Christopher L. Mapes | (07) | James F. Palmer | (08) | Ajita G. Rajendra | |||||||||
| (09) | Frank C. Sullivan | (10) | John M. Timken, Jr. | (11) | Ward J. Timken, Jr. | (12) | Jacqueline F. Woods |
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| ☐FOR all nominees listed above | ☐WITHHOLD AUTHORITY to vote for all nominees listed above | |||||||||||||||||||||
To withhold authority to vote for individual Nominee(s), write the name(s) or number(s) on the line below: | ||||||||||||||||||
| 2. | Approval, on an advisory basis, of our named executive officer compensation. |
| ☐ | FOR | ☐ | AGAINST | ☐ | ABSTAIN | |||||||||||||||
| 3. | Ratification of the appointment of Ernst & Young LLP as our independent auditor for the fiscal year ending December 31, |
| FOR | ☐ | AGAINST | ☐ | ABSTAIN | ||||||||||||||||||
The Board of Directors recommends a vote AGAINST proposal 4.
| 4. | Consideration of a shareholder proposal |
| FOR | ☐ | AGAINST | ☐ | ABSTAIN | ||||||||||||||||||
☐PLEASE CHECK THIS BOX IF YOU CONSENT TO ACCESS FUTURE ANNUAL REPORTS AND PROXY MATERIAL VIA THE INTERNET ONLY. | ||||||||||||||
CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE.
