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We are a global business that designs, manufacturesProxy Statement and sells critical equipment for the energy, defense and chemical/petrochemical industries. Our roots are founded in the following:Notice of Annual Meeting of Stockholders
Commitment to Environment, Health and Safety
When it comes to environment, health and safety, a clean bill of health is more than a corporate asset; it is a fundamental responsibility to employees and to the environment that we all share. Graham Corporation is committed to keeping our workers safe on the job, ensuring compliance with environmental laws and regulations and incorporating these principles into every new product, service or process. All employees receive periodic training in both fundamentals and ongoing management of environment, health and safety issues.
Innovation
From the outset, innovation has been a part of our business. For us, that means being surrounded by bright, interesting people working together on new and exciting projects. It means trying to find new and better ways of doing things. And it means enjoying a career with extraordinary opportunities and enormous potential.
Leadership Training
We hire exceptional people and invest in their growth. Graham Corporation has a culture of continuous learning, thoughtfully designed to enable employees to grow their personal capabilities and reach their full potential. We invest in our employees education, provide access to experienced colleagues and give our employees the opportunities to work with intelligent, dedicated people, to challenge themselves, and grow.
Global Business
We engage in business in countries all over the globe, giving our employees a literal world of experience. Opportunities at Graham Corporation are defined, in part, by the emerging needs of our businesses, customers and clients all around the world, because we go where the opportunities take us.
Integrity
Integrity is an essential component of life at Graham Corporation. It is how we conduct ourselves and how we do business. It is non-negotiable. While some businesses prize results over ethics, we value both. We believe that how you do something is as important as what you do.
Graham Corporation is a global leader in the design and manufacture of mission critical fluid, power, heat transfer and vacuum technologies for the defense, space, energy and process industries. The Graham Manufacturing and Barber-Nichols’ global brands are built upon world-renowned engineering expertise in vacuum and heat transfer, cryogenic pumps and turbomachinery technologies, as well as its responsive and flexible service and the unsurpassed quality customers have come to expect from our products and systems. Our core strengths include:
our value-enhancing engineering sales and product development platform
our strong capabilities to handle complex, custom orders
a responsive, flexible production environment
our capability to manage outsourced production
robust technical support
our highly trained workforce
our capability to manufacture to tight tolerances
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June 16, 2021
Dear Stockholder:
On behalf of the board of directors and management, it is my pleasure to invite you to attend the 2021 Annual Meeting of Stockholders of Graham Corporation. Due to the unprecedented health impact of the COVID-19 pandemic, even as more people are becoming vaccinated, we will hold our meeting in a virtual only format at 11:00 a.m. Eastern Time on Wednesday, July 28, 2021. The meeting can be accessed at www.proxydocs.com/GHM.
Success in a Challenging Year
Despite a year overshadowed by a global pandemic, we were able to drive revenue and net income growth. Our team was resilient, flexible and dedicated. And, even while we shut down production in early fiscal 2021 at the onset of the pandemic, we maintained compensation and benefits for all recognizing that our strong cash reserves were well intended to protect our most valuable asset—our employees.
Advancing our Diversification Strategy
After many years of persistence and dedication to our strategy to diversify beyond the refining and petrochemical industries, we successfully generated 25% of our fiscal 2021 revenue from sales to the defense industry. Notably, our backlog at fiscal 2021 year end was comprised primarily of defense industry orders at 76% of total backlog.
Furthering our strategic efforts, we announced on June 1, 2021, that we had acquired Barber-Nichols which brings additional opportunities in the defense industry, but also in the aerospace/space industries as well. We are transforming as an organization.
Our ESG Sustainability Journey
We believe in the importance of environmental stewardship, social responsibility, and leading governance practices (“ESG”). As such, we have appointed Jeff Glajch, our Chief Financial Officer and Corporate Secretary, the lead officer with the responsibility to oversee and advance our ESG efforts. We recognize that our commitment to advancing ESG matters as an organization is critical as we manage the risks inherent in running a business, but we also appreciate that our efforts are centered on sustainability.
As we transform and grow Graham, we remain guided by our values and operating principles. We believe this provides the foundation for an organization that can change and evolve while also enduring as we have for over 85 years. I am always open to your input and look forward to future conversations.
Sincerely,
James R. Lines
Chief Executive Officer
Certain statements in this proxy statement contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are subject to risks, uncertainties and assumptions and are identified by words such as “expects,” “intends,” “anticipates,” “believes,” “opportunities,” “will,” “may,” and other similar words. All statements addressing operating performance, events, or developments that we expect or anticipate will occur in the future, including but not limited to, the integration and operation of Barber-Nichols, our growth, diversification strategy, markets, returns and solutions, and our ability to achieve our operating priorities are forward-looking statements and should be evaluated in light of important risk factors and uncertainties. These risk factors and uncertainties are more fully described in our Annual Report on Form 10-K and other reports filed with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize or should any of our underlying assumptions prove incorrect, actual results may vary materially from those currently anticipated. In addition, undue reliance should not be placed on our forward-looking statements. These forward-looking statements are not guarantees of future performance and speak only as of the date made, and except as required by law, Graham Corporation disclaims any obligation to update or publicly announce any revisions to any of the forward-looking statements contained herein.
Notice of Annual Meeting
of Stockholders
Meeting Details:
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Meeting Business
The principal business of the
(1) Election of
(2) To approve, on an advisory basis, the compensation of our named executive officers;
(3) To approve, on an advisory basis, the frequency of future advisory votes on the compensation of our named executive officers; (4) To ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending March 31, (5) To approve Amendment No. 1 to the 2020 Graham Corporation Equity Incentive Plan; and
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| Place: www.proxydocs.com/GHM
In order to virtually attend the Annual Meeting, you must register in advance at www.proxydocs.com/GHM. Upon completing your registration, you will receive further instructions via email, including your unique link that will allow you access to the meeting and will also permit you to vote and submit questions at the meeting. There will not be a physical meeting location and you will not be able to attend the Annual Meeting in person. | ||||||||
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Time:
Eastern Time
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Record Date: June | |||||||||||
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDER MEETING TO BE HELD ON
The Notice of Annual Meeting, Proxy Statement and the Annual Report are available at www.proxydocs.com/GHM
BY ORDER OF THE BOARD OF DIRECTORS
Vice President – Finance, and Corporate Secretary | ||||||||||||
Dated: June 16, 2021July 10, 2023
Vote Your Shares
How to Vote
Your vote is very important, and we hope that you will participate in the Annual Meeting. You are eligible to vote if you were a stockholder of record at the close of business on June 2, 2021.23, 2023. In order to virtually attend the Annual Meeting, you must register in advance at www.proxydocs.com/GHM. Upon completing your registration, you will receive further instructions via email, including your unique link that will allow you access to the meeting. Please read the proxy statement and vote right away using any of the following methods.
Stockholders of Record:
  | Vote By Internet Before or During the Meeting Visit: www.proxypush.com/GHM and follow the instructions |   | Vote By Telephone Call 1-866-256-0715 and follow the instructions |   | Vote By Mail Sign, date, and return your proxy card, if you received one, using the enclosed envelope | |||||||||
Beneficial Stockholders:
If you are a beneficial stockholder, you will receive instructions from your brokerage firm, bank, broker-dealer, nominee, custodian, fiduciary or other nominee that you must follow in order for your shares to be voted. Your broker may not vote your shares for director nominees, or on the advisory vote on executive compensation, on the advisory vote on the frequency of future advisory votes on the compensation of our named executive officers, or on the proposal to approve Amendment No. 1 to the 2020 Graham Corporation Equity Incentive Plan, unless you provide your broker with voting instructions.
Cautionary Note Regarding Forward-Looking Statements
Certain statements in this proxy statement contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are subject to risks, uncertainties and assumptions and are identified by words such as “expects,” “intends,” “anticipates,” “believes,” “opportunities,” “will,” “may,” “seeks,” “estimates,” and other similar words. All statements addressing operating performance, events, or developments that we expect or anticipate will occur in the future, including but not limited to our growth, diversification strategy, markets, returns and solutions, financial flexibility, and our ability to achieve our operating priorities are forward-looking statements and should be evaluated in light of important risk factors and uncertainties. These risk factors and uncertainties are more fully described in our Annual Report on Form 10-K and other reports filed with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize or should any of our underlying assumptions prove incorrect, actual results may vary materially from those currently anticipated. In addition, undue reliance should not be placed on our forward-looking statements. These forward-looking statements are not guarantees of future performance and speak only as of the date made, and except as required by law, Graham Corporation disclaims any obligation to update or publicly announce any revisions to any of the forward-looking statements contained herein.
NOTE ABOUT OUR WEBSITES AND REPORTS: None of the statements on our websites or reports referenced or discussed in this proxy statement, are deemed to be part of, or incorporated by reference into, this proxy statement. The statements and reports may also change at any time and we undertake no obligation to update them, except as required by law. We have not incorporated by reference into this proxy statement the information included, or that can be accessed through, our website and you should not consider it to be part of this proxy statement. The information contained on our website is not a part of this proxy statement.
Proxy Statement Summary • The Annual Meeting |
To assist you in reviewing the proposals to be considered and voted upon at our annual meeting of stockholders (the “Annual Meeting”) to be held on July 28, 2021,August 22, 2023 (the “Annual Meeting”), we have summarized information contained elsewhere in this proxy statement or in our Annual Report on Form 10-K for the fiscal year ended March 31, 20212023 (the “Annual Report”). This summary does not contain all of the information you should consider about Graham Corporation (the “Company”) and the proposals being submitted to stockholders at the Annual Meeting. We encourage you to read the entire proxy statement and Annual Report carefully before voting.
Date and Time: | ||
Location: | Online via: www.proxydocs.com/GHM | |
Record Date: | June | |
In order to virtually attend the Annual Meeting, you must register in advance at www.proxydocs.com/GHM.GHM in advance. Upon completing your registration, you will receive further instructions via email, including your unique link that will allow you access to the meeting and will also permit you to vote and submit questions at the meeting. There will not be a physical meeting location and you will not be able to attend the Annual Meeting in person.
Meeting Agenda and Voting Matters
| Item | Proposal | Board Vote Recommendation | Page Reference (for more information) | Proposal | Board Vote Recommendation | Page Reference (for more information) | ||||||
1 | Election of three director nominees named in this proxy statement | FOR each nominee | 7 | Election of two director nominees named in this proxy statement | FOR each nominee | 9 | ||||||
2 | Advisory vote on the compensation of our named executive officers (“say on pay”) | FOR | 45 | To approve, on an advisory basis, the compensation of our named executive officers | FOR | 47 | ||||||
3 | Ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2022 | FOR | 46 | To approve, on an advisory basis, the frequency of future stockholder advisory votes on the compensation of our named executive officers | FOR | 48 | ||||||
| 4 | Ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2024 | FOR | 49 | |||||||||
| 5 | To approve Amendment No. 1 (the “Amendment”) to the 2020 Graham Corporation Equity Incentive Plan (the “2020 Plan”) | FOR | 51 | |||||||||
Directors and Nominees
Name | Age | Recent Professional Experience | Board Committees | |||||||
James J. Barber, Ph.D.*◆ | 69 | Independent Consultant and Principal of Barber Advisors, LLC | AC, CC**, NCGC | |||||||
Alan Fortier* | 66 | President of Fortier & Associates, Inc. | CC, NCGC** | |||||||
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| AC, | |||||||||
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Jonathan W. Painter* | Chair of the Company’s Board; Chair of Kadant Inc. | AC, CC | ||||||||
Lisa M. Schnorr* | Former Senior Vice President and Project Lead, Digital Enablement for Constellation Brands, Inc. | |||||||||
Troy A. Stoner*◆ | 59 | Chief Executive Officer of Argon ST | CC, NCGC | |||||||
Daniel J. Thoren | 59 | Chief Executive Officer of the Company | — | |||||||
* — Independent Director
◆ — Director Nominee
** — Chair
AC — Audit Committee
CC — Compensation Committee
NCGC — Nominating and Corporate Governance Committee
GRAHAM CORPORATION | 1 | |
Proxy Statement Summary • Our Business
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Our Business
We are a global business that designs, manufacturesleader in the design and sellsmanufacture of mission critical equipmentfluid, power, heat transfer and vacuum technologies for the defense, space, energy defense and chemical/petrochemicalprocess industries. Our energy markets include oil refining, cogeneration, and alternative power. For the defense industry, our equipment is used in nuclear and non-nuclearpropulsion, power, fluid transfer, and thermal management systems. For the space industry, our equipment is used in propulsion, power and energy management systems and for the U.S. Navy.life support systems. We supply equipment for vacuum, heat transfer and fluid transfer applications used in energy and new energy markets including oil refining, cogeneration, and multiple alternative and clean power applications including hydrogen. For the chemical and petrochemical industries, our vacuum and heat transfer equipment is used in fertilizer, ethylene, methanol and downstream chemical facilities.
Our global brand isbrands are built upon our world-renowned engineering expertise in vacuum and heat transfer technology, responsiveclose customer collaboration to design, develop, and flexibleproduce mission critical equipment and systems that enable our customers to meet their economic and operational objectives. Continual improvement of our processes and systems to ensure qualified and compliant equipment are hallmarks of our brand. Our early engagement with customers and support until the end of service life are values upon which our brands are built.
Director Skills and high quality standards. Attributes
We designbelieve that our directors possess the requisite experience and manufacture custom-engineered ejectors, vacuum pumping systems, surface condensersskills necessary to carry out their duties and vacuum systems. Our equipment can also be found in other diverse applications such as hydrogen fueling systems, compressed natural gas distribution or feeding systems, metal refining, pulpto serve our best interests and paper processing, water heating, refrigeration, desalination, food processing, pharmaceutical, and heating, ventilating and air conditioning.
Stockholder Engagement
During 2020, membersthose of management continued to engage with our stockholders on a variety of topics. Despite the pandemic, in 2020 we continued to hold virtual meetings with stockholders and analysts. The feedback gathered from these conversations helped inform the Board’s thinking and helped shape our disclosures in this proxy statement. Some examples of feedback we received and how we responded follow:stockholders.
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2 | GRAHAM CORPORATION | |
Questions and Answers About the Annual Meeting |
Questions and Answers About the Annual Meeting
Why am I receiving these proxy materials?
These proxy materials are being furnished to you in connection with the solicitation of proxies by our Boardboard of directors (the “Board”) for the Annual Meeting to be held on Wednesday, July 28, 2021,Tuesday, August 22, 2023, at 11:9:00 a.m., Eastern Time, and at any adjournment or postponement thereof. The Annual Meeting will be conducted as a virtual meeting of stockholders by means of a live audio-only webcast. We believe that hosting a virtual meeting will enable greater stockholder participation from any location, especially in light of the ongoing pandemic. location. There will not be a physical meeting location and you will not be able to attend the Annual Meeting in person.person.
We made our proxy materials available to stockholders via the internet or in printed form if requested on or about June 16, 2021.July 10, 2023. Our proxy materials include the Notice of Internet Availability of Proxy Materials (the “Notice of Internet Availability”), the Notice of the Annual Meeting, this proxy statement and the Annual Report. If you requested and received paper copies of the proxy materials by mail, our proxy materials also include the proxy card. These proxy materials, other than the proxy card, can be accessed at www.proxydocs.com/GHM.
The Securities and Exchange Commission’s (the “SEC”) e-proxy rules allow companies to post their proxy materials on the internet and provide only a Notice of Internet Availability to stockholders as an alternative to mailing full sets of proxy materials except upon request. Similar to last year, we have elected to use this notice and access model. Unless you previously indicated your preference to receive paper copies of our proxy statement and Annual Report, you should have received a Notice of Internet Availability. The Notice of Internet Availability includes information on how to access our proxy materials on the internet, how to vote and how to request a paper or email copy of the proxy materials at no extra charge this year or on an ongoing basis.
What am I voting on?
At the Annual Meeting, you will vote upon:
| (1) | the election of |
| (2) | a proposal to approve, on an advisory basis, the compensation of our named executive officers; |
| (3) | a proposal to approve, on an advisory basis, the frequency of future stockholder advisory votes on the compensation of our named executive officers; |
| (4) | a proposal to ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending March 31, |
| (5) | a proposal to approve Amendment No. 1 to the 2020 Plan. |
Will there be any other items of business addressed at the Annual Meeting?
As of the date of this proxy statement, we are not aware of any other matter to be presented at the Annual Meeting. If any other matters properly come before the Annual Meeting, it is intended that the holders of the proxies will act in accordance with their best judgment.
What must I do if I want to participate in the Annual Meeting?
You can participate in the Annual Meeting so long as you register in advance to virtually attend the Annual Meeting at www.proxydocs.com/GHM. You will be asked to provide the control number located inside the shaded gray box on your Notice of Internet Availability or proxy card. After completion of your registration, further instructions, including a unique link to access the Annual Meeting, will be emailed to you. Please be sure to follow the instructions found on your Notice of Internet Availability, proxy card and/or voting instruction card and subsequent instructions that will be delivered to you via email.
GRAHAM CORPORATION 2023 PROXY STATEMENT | 3 | |
Questions and Answers About the Annual Meeting |
By visiting www.proxydocs.com/GHM, pre-registering and then accessing the Annual Meeting as instructed, you will be able to participate in the Annual Meeting, vote your shares and ask questions during the meeting. However, if you do not comply with the procedures outlined above, you may not be admitted to the Annual Meeting.
As always, we encourage you to vote your shares prior to the Annual Meeting. This proxy statement furnishes you with the information you need in order to vote, whether or not you participate in the Annual Meeting.
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Who may vote and how many shares can be cast?
If you owned shares of our common stock at the close of business on June 2, 2021,23, 2023, which is the record date for the annual meeting,Annual Meeting, then you are entitled to vote your shares at the Annual Meeting. At the close of business on the record date, we had 10,693,48610,675,219 shares of common stock outstanding and entitled to vote. Each share is entitled to one vote on each proposal.
How do I vote?
Stockholder of Record: Shares Registered in Your Name. If on the record date, your shares of our common stock were registered directly in your name with our transfer agent, then you are a stockholder of record and your shares will be voted as you indicate. If you are a stockholder of record, there are four ways to vote:
By internet at www.proxypush.com/GHM. We encourage you to vote this way.
By touch tone telephone: call toll-free at 1-866-256-0715.
By completing and mailing your proxy card.card (if you have requested and received a printed copy of the proxy materials).
By voting during the Annual Meeting before the polls close: To be admitted to the Annual Meeting and vote your shares, you must register and provide the control number as described in the Notice of Internet Availability or proxy card. After completion of your registration, further instructions, including a unique link to access the Annual Meeting, will be emailed to you.
Your vote is important. Whether or not you plan to virtually attend the meeting, we urge you to vote to ensure your vote is counted. You may still virtually attend and vote during the meeting if you have already voted by proxy. Only the latest vote you properly submit will be counted.
Beneficial Owner: Shares Registered in the Name of Broker or Bank. If on the record date, your shares of our common stock were held in an account at a brokerage firm, bank, dealer or other similar organization, which we collectively refer to as a broker, then you are the beneficial owner of shares held in “street name” and these proxy materials are being made available to you by that organization along with a voting instruction card. As a beneficial owner, you must vote your shares in the manner prescribed by your broker. Your broker has enclosed or otherwise provided a voting instruction card for you to use in directing the broker how to vote your shares. Your shares will be voted as you indicate. Check the voting instruction card used by that organization to see if it offers internet or telephone voting.
If you hold your shares in street name, you will receive instructions from your broker, bank or nominee that you must follow in order to submit your voting instructions and have your shares voted at the Annual Meeting. If you want to vote in person virtually at the Annual Meeting, you must register in advance at www.proxydocs.com/GHM. You may be instructed to obtain a legal proxy from your broker, bank or other nominee and to submit a copy in advance of the meeting. Further instructions will be provided to you as part of your registration process.
Even if you plan to virtually attend the Annual Meeting, we recommend that you submit your proxy or voting instructions in advance of the Annual Meeting as described above so that your vote will be counted if you later decide not to attend or are unable to attend the Annual Meeting.
4 | GRAHAM CORPORATION 2023 PROXY STATEMENT | |
Questions and Answers About the Annual Meeting |
What happens if I do not give specific voting instructions?
If you are a stockholder of record and you indicate when voting over the internet or by telephone that you wish to vote as recommended by our Board or sign and return a proxy card without giving specific voting instructions, then the proxy holders will vote your shares in the manner recommended by our Board on all matters presented in this proxy statement and as the proxy holders may determine in their discretion with respect to any other matters properly presented for a vote at the Annual Meeting.
If you areFor a beneficial owner of shares held in street name, if a proposal is deemed “routine” and you do not provide the organization that holdsgive instructions to your shares with specific voting instructions, then a “broker non-vote” occurs. In that case, the broker has discretionary authorityor nominee, they may, but are not required to, vote your shares with respect to the ratification ofproposal. If the selection of Deloitte & Touche LLP as our independent registered public accounting firm (because itproposal is considered a “routine” proposal under the rules of the New York Stock Exchange (the “NYSE”), but cannotdeemed “non-routine” and you do not give instructions to your broker or nominee, they may not vote your shares with respect to the proposal and the shares will be treated as broker non-votes. The determination of whether a proposal is “routine” or “non-routine” will be made by the NYSE based on any other matters being considered at the Annual Meeting (because they are considered to be non-routine proposals under NYSE rules).rules that regulate member brokerage firms. When our inspector of election tabulates the votes for any particular matter, broker non-votes will be counted for purposes of determining whether a quorum is present, but willmay not otherwise be counted. We therefore encourage you to provide voting instructions on each proposal to the organization that holds your shares.
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What constitutes a quorum for the Annual Meeting?
A quorum is required for our stockholders to conduct business at the Annual Meeting. Pursuant to our amendedAmended and restatedRestated by-laws,By-laws (the “By-laws”), the holders of record of a majority of the shares of our common stock present in person or by proxy and entitled to vote at the Annual Meeting will constitute a quorum. Abstentions, broker non-votes, and “withhold” votes for election of directors will be counted for the purpose of determining the existence of a quorum. If a quorum is not present, the Annual Meeting may be adjourned by the vote of a majority of the shares represented at the Annual Meeting until a quorum has been obtained.
GRAHAM CORPORATION 2023 PROXY STATEMENT | 5 | |
Questions and Answers About the Annual Meeting |
What vote is required to approve each proposal and how does the Board recommend that I vote?
The vote required to approve each proposal, and the Board’s recommendation with respect to each proposal are described below:
Proposal Number | Proposal Description | Board Recommendation | Vote Required | Effect of Abstentions | Effect of Broker Non-Votes | |||||
One | Election of the | FOR each nominee | Plurality of the shares present, in person or by proxy, and entitled to vote at the Annual Meeting(1) | None | None | |||||
Two | FOR | Majority of the | None | |||||||
Three | To approve, on an advisory basis, the frequency of future stockholder advisory votes on the compensation of our named executive officers | FOR ONE YEAR | The voting frequency option that receives the highest number of votes cast by stockholders(3) | None | None | |||||
Four | Ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending March 31, | FOR | Majority of the | N/A because this proposal is a | ||||||
Five | To approve Amendment No. 1 to the 2020 Plan | FOR | Majority of the votes cast on the proposal by holders present, in person or by proxy, and entitled to vote on the proposal | None | None | |||||
| (1) | Our stockholders elect directors by a plurality vote, which means that the director nominees receiving the most votes will be elected. A vote to “withhold” will have no effect on the election of director nominees because the nominees who receive the highest number of “for” votes are elected, and since the nominees are running unopposed they only need a single “for” vote to be elected. However, our Corporate Governance Guidelines provide that any nominee for director who receives a greater number of votes “withheld” from his or her election than “for” such election must tender his or her resignation for consideration by the Nominating and Corporate Governance Committee of our Board. The Nominating and Corporate Governance Committee will recommend to the Board the action to be taken with respect to such resignation. |
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Questions and Answers About the Annual Meeting |
| (2) | The advisory vote to approve the compensation of our named executive officers is not binding upon our Board or the Compensation Committee of our Board. However, the Board and the Compensation Committee will consider the outcome of this vote when making future compensation decisions. |
| (3) | The advisory vote on the frequency of future stockholder advisory votes on the compensation of our named executive officers is not binding upon our Board or the Compensation Committee of our Board. However, the Board and the Compensation Committee will consider the outcome of this vote in determining the frequency of future votes with respect to the compensation of our named executive officers. |
| (4) | We are presenting the appointment of Deloitte & Touche LLP to our stockholders for ratification. The Audit Committee of our Board will consider the outcome of this vote in its future discussions regarding the appointment of our independent registered public accounting firm. |
How can I obtain a stockholder list?
A stockholder list will be available for examination by our stockholders during ordinary business hours throughout the ten-day period prior to the Annual Meeting and at our principal executive offices at 20 Florence Avenue, Batavia, New York 14020, and during ordinary business hours throughout the ten-day period prior tomeeting via the Annual Meetingvirtual meeting site, for any purpose germane to the meeting.
Can I change or revoke my vote?
Your attendance at the Annual Meeting will not automatically revoke your proxy. However, if you are a stockholder of record you can change or revoke your proxy at any time before it is voted at the Annual Meeting by:
timely voting again via the internet or by telephone;
delivering a timely written notice of revocation to our Corporate Secretary at Graham Corporation, 20 Florence Avenue, Batavia, New York 14020;
completing, signing, dating and mailingreturning a timely, newproperly completed, later-dated proxy card to the address above; or
attending the Annual Meeting and voting again.
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Only your last-submitted,last, properly submitted, timely vote will count at the Annual Meeting.
If you are a street name holder, you must contact your broker to receive instructions as to how you may revoke your proxy instructions.
We encourage you to vote in advance of the Annual Meeting to ensure your vote is counted should you be unable to participate in the Annual Meeting. Stockholders who have pre-registered to attend the Annual Meeting and who have not voted their shares prior to the Annual Meeting or who wish to change their vote will be able to vote their shares electronically at the Annual Meeting while the polls are open. If you properly provide your proxy in time to be voted at the Annual Meeting, it will be voted as you specify unless it is properly revoked prior thereto. If you properly provide your proxy but do not include your voting specifications, the shares represented by the proxy will be voted in accordance with the recommendations of the Board, as described in this proxy statement.
Who is paying for this proxy solicitation?
This proxy solicitation is made by our Board on our behalf, and we will bear the cost of soliciting proxies. In addition to solicitation by mail, our directors, officers and employees may solicit proxies personally or by telephone or other means of communication. We will not compensate our directors, officers or employees for making proxy solicitations on our behalf. We will provide persons holding shares in their name or in the names of nominees, which in either case are beneficially owned by others, soliciting materials for delivery to those beneficial owners and will reimburse the record owners for their expenses in doing so. In addition, we have retained Alliance Advisors, LLC to assist with soliciting proxies on our behalf for a fee of approximately $7,000, plus reasonable out of pocket expenses.
Can I ask questions at the annual meeting?Annual Meeting?
If you registered in advance and attend the Annual Meeting, you may submit questions during the Annual Meeting. We encourage you to submit questions at www.proxydocs.com/GHM after logging in with your unique control number provided in connection with your pre-registration for the Annual Meeting.
We expect to respond to questions during the Annual Meeting that are pertinent to meeting matters as time permits. We may group together questions that are substantially similar to avoid repetition.
GRAHAM CORPORATION 2023 PROXY STATEMENT | 7 | |
Questions and Answers About the Annual Meeting |
How can I find out the voting results of the Annual Meeting?
Preliminary voting results will be announced at the Annual Meeting. We will publish the voting results in a Current Report on Form 8-K, which will be filed with the SEC within four business days after the Annual Meeting.
Where can I obtain additional information?
You can obtain, free of charge, a copy of our annual reportAnnual Report on Form 10-K for the fiscal year ended March 31, 20212023 (“fiscal year 2021”2023”) by:
accessing our website at http://www.graham-mfg.com/annual-meeting-proxy-materials;www.grahamcorp.com under the heading “Investor Relations”;
writing to us at: Graham Corporation, Attention: Annual Report Request, 20 Florence Avenue, Batavia, New York 14020; or
telephoning us at (585) 343-2216.
You can also obtain a copy of our annual reportAnnual Report on Form 10-K and all other reports and information that we file with, or furnish to, the SEC from the SEC’s EDGAR database located at www.sec.gov.
8 | GRAHAM CORPORATION | |
Proposal One: Election of Directors • Nominees Proposed for Election as Directors at the Annual Meeting
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Election of Directors
The Board currently consists of seven members. Our amended and restated by-lawsBy-laws provide for a classified board of directors consisting of three classes of directors, with each class serving a staggered three-year term. As a result, stockholders elect only a portion of our Board each year. The terms of threetwo of our directors, Alan Fortier, James R. Lines,J. Barber and Lisa M. Schnorr,Troy A. Stoner, will expire at the Annual Meeting.
TheUpon the recommendation of the Nominating and Corporate Governance Committee, of ourthe Board has unanimously nominated Alan Fortier, James R. Lines,J. Barber and Lisa M. SchnorrTroy A. Stoner for re-electionelection as directors. If elected, each of Messrs. FortierBarber and Lines and Ms. SchnorrStoner will hold office for a three-year term expiring in 20242026 or until his or her successor is duly elected and qualified. Our Board does not contemplate that anyeither of the nominees will be unable to serve as a director, but if that contingency should occur before the proxies are voted, the designated proxies reserve the right to vote for such substitute nominee(s) as they, in their discretion, determine. Our amended and restated by-lawsBy-laws do not permit re-election after a director reaches the age of 75.
The Board unanimously recommends a vote FOR the election of each of Messrs. FortierMr. Barber and Lines and Ms. SchnorrMr. Stoner as a director to serve for a three-year term expiring in 2024.2026.
Nominees Proposed for Election as Directors at the Annual Meeting
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Directors Whose Terms Do Not Expire at the Annual Meeting
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James J. Barber, Ph.D.
Dr. Barber has been an independent consultant and the principal of Barber Advisors, LLC, a consulting business advising firms and non-profits in the areas of strategy, management, marketing and operations, since September 2007. From January 2000 to May 2007, Dr. Barber was the President and Chief Executive Officer of Metabolix, Inc. (NASDAQ: MBLX), a bioscience company focused on plastics, chemicals and energy. He was responsible for transforming Metabolix, Inc. from a research boutique into a leader in “clean tech” and industrial biotechnology.
Dr. Barber
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Independent Consultant and Principal of Barber Advisors, LLC
AGE DIRECTOR SINCE
COMMITTEES ▶ Audit ▶ Compensation (Chair) ▶Nominating and Corporate Governance | |||||||
Qualifications | ||||||||
Dr. Barber brings to our Board substantial executive level leadership experience and a deep understanding of product and business development in highly technical industries and alternative energy markets. Dr. Barber also has significant experience in structuring both joint venture and acquisition transactions.
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Troy A. Stoner Mr. Stoner has served as the Chief Executive Officer of Argon ST, a specialist in systems engineering and a subsidiary of The Boeing Company, since April 2020 having served Boeing in a series of advancing roles including Senior Program Manager, Missions & Payloads, Autonomous Systems from December 2019 to March 2020, Senior Manager, Autonomous Systems, Boeing Strategy from November 2017 to November 2019, Senior Maritime Representative, Boeing Global Sales and Marketing, April 2016 to October 2017, and Senior Manager, Boeing Strategy from May 2015 to March 2016. Mr. Stoner retired from the U.S. Navy after 30 years of service. |
Chief Executive Officer of Argon ST
AGE DIRECTOR SINCE
59 2022
COMMITTEES
▶ Compensation
▶ Nominating and Corporate Governance
Qualifications
Mr. Stoner brings to the Board extensive business experience with strategy, leadership and operations at companies within the defense, space and security markets. Our Board and management team value his in-depth knowledge of the U.S. Navy as well as his extensive expertise in military defense systems and U.S. Navy planning and procurement processes.
GRAHAM CORPORATION | 9 | |
Proposal One: Election of Directors • Directors Whose Terms |
Directors Whose Terms do not Expire at the Annual Meeting
Alan Fortier Mr. Fortier has served as President of Fortier & Associates, Inc., a strategy and profit improvement consulting firm focused on capital goods and chemicals companies, since 1988. Over his 30+ year consulting career he has helped hundreds of manufacturing businesses exceed aggressive profit targets, in all regions globally. He has also been a Strategic Advisory Board member for Genstar Capital, a middle market private equity group with over $30 billion in assets under management, since January 2019. In addition, between 2007 and 2016, Mr. Fortier was a guest lecturer at Columbia Business School’s MBA and Executive Education programs. Prior to entering consulting he held technical and management positions with DuPont. |
President of Fortier & Associates, Inc. AGE DIRECTOR SINCE 66 2008 TERM EXPIRES 2024 COMMITTEES ▶ Compensation ▶ Nominating and Corporate Governance (Chair) | |||||
Qualifications Mr. Fortier brings to the Board more than 35 years of global industrial experience as a strategy and execution consultant and manager. Our Board and management team benefit from his extensive background in our served markets, including energy, petrochemicals, chemicals and large engineering firms, as well as his extensive experience advising boards and senior executives of global capital goods businesses on business strategy, mergers and acquisitions, global growth, pricing, organizational development and management control. |
Lisa M. Schnorr Ms. Schnorr has served as a director since 2014. Before retiring in May 2021, she worked for Constellation Brands (NYSE: STZ), a Fortune 500 company and a leading international producer of beer, wine and spirits with operations in the U.S., Mexico, New Zealand and Italy. Ms. Schnorr joined Constellation Brands in 2004 and earned promotions through a series of positions with increasing responsibility, including Vice President of Compensation and HRIS (2011-2013), Senior Vice President of Total Rewards (2014-2015), Corporate Controller (2015-2017), Chief Financial Officer of the Wine & Spirits Division (2017-2019), and Senior Vice President and Project Lead of Digital Enablement (2019-2021). Before joining Constellation Brands, Ms. Schnorr held financial and accounting positions at various public and private companies and she began her career in 1987 at PricewaterhouseCoopers (formerly Price Waterhouse), all in Rochester, New York. Ms. Schnorr has been a member of the board of directors of Vintage Wine Estates (NASDAQ: VWE), since June 2021 where she serves as Chair of the Audit Committee and Warrior Met Coal (NYSE:HCC), since August 2022 where she serves as Chair of the Nominating and Corporate Governance Committee. She holds a B.S. degree in Accounting from the State University of New York at Oswego. |
Former Senior Vice President and AGE DIRECTOR SINCE 57 2014 TERM EXPIRES 2024 COMMITTEES ▶ Audit (Chair) ▶ Compensation | |||||
Qualifications With her background and experience in strategic planning, audit, financial planning and analysis, capital allocation, public company governance and risk management, human resources and investor relations, Ms. Schnorr offers a global business and organizational perspective to the Board. The Board believes that Ms. Schnorr’s background and expertise enables her to guide us through a continued period of organic and acquisition-related growth and allows her to provide insight and leadership to our Audit Committee and Compensation Committee. |
Daniel J. Thoren Mr. Thoren has served as our Chief Executive Officer since September 2021 and became our President and Chief Operating Officer in June 2021. Prior to joining the Company, Mr. Thoren had been employed by Barber-Nichols, LLC (“Barber-Nichols”), a premier supplier of specialty turbomachinery, pumps and electronic drives that address critical applications for the defense and aerospace/space industries, from 1991 until we acquired Barber-Nichols in June 2021, and served in progressively increasing roles, including his service as Barber-Nichol’s President and Chief Executive Officer from 1997 until May 2021 and its Chairman of the Board of Directors through June 2021. |
Chief Executive Officer of the Company AGE DIRECTOR SINCE 59 2021 TERM EXPIRES 2024 | |||||
Qualifications As our Chief Executive Officer, and as a result of his day-to-day leadership of the business, Mr. Thoren provides the Board with valuable insight regarding the operations of our Company and our management team and he performs a critical role in the Board’s discussions regarding strategic planning and development. Our Board also benefits from Mr. Thoren’s proven strong leadership skills and experience at Barber-Nichols. |
10 | GRAHAM CORPORATION 2023 PROXY STATEMENT | |
Proposal One: Election of Directors • Directors Whose Terms do not Expire at the Annual Meeting
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President of Compliance Right, LLC
AGE DIRECTOR SINCE
TERM EXPIRES
COMMITTEES ▶ Audit ▶ Nominating and Corporate Governance | |||||||
Qualifications | Ms. Jaroslawsky brings to the Board substantial operational and leadership experience and a significant background in accounting and financial matters, including through her prior service as the Chief Financial Officer and Treasurer of a publicly traded company. |
Mr. Painter has served as the Chair, since July 2019, and a director, since January 2010, of
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Chair of Kadant Inc. AGE DIRECTOR SINCE 64 2014 TERM EXPIRES 2025 CHAIR OF THE BOARD COMMITTEES ▶ Audit ▶ Compensation | |||||
Qualifications Mr. Painter brings valuable experience to the Board and management as a former executive officer of a public company that, similar to us, is in the business of designing, manufacturing and marketing specialized, engineered equipment. The Board believes that Mr. Painter’s diverse experience in operations, finance, mergers and acquisitions and corporate strategy enables him to provide critical insight to the Board and management that will help us to achieve our strategic goals. |
GRAHAM CORPORATION | 11 | |||
Corporate Governance • Director Independence
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Our Corporate Governance Guidelines provide that the independence standards of the NYSE govern the independence determinations for the members of our Board. The Board has affirmatively determined that each of Messrs. Barber, Fortier, Malvaso, Mazurkiewicz, Painter and Ms.Stoner, and Mses. Jaroslawsky and Schnorr is independent and has no material relationship with us as required by the independence standards of the NYSE. As our employee, Mr. Lines,Thoren, our Chief Executive Officer and employee, is not independent.
Mr. Malvaso,Painter, a non-executive independent director, serves as Chair of the Board. Our Board believes that its leadership structure, with a non-executive Chair position separate from our Chief Executive Officer, provides appropriate, independent oversight of management. AsThe Chair of our Board Mr. Malvaso presides at all meetings of the Board and stockholders; presides during regularly held sessions with only the independent directors; encourages and facilitates active participation of all directors; develops the calendar of and agendas for Board meetings in consultation with our Chief Executive Officer and other members of the Board; determines, in consultation with our Chief Executive Officer, the information that should be provided to the Board in advance of meetings; and performs any other duties requested by the Board from time to time.
Committees and Meetings of the Board; Meeting Attendance
Our Board has a standing Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee. The duties and responsibilities of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee are set forth in their respective charters and are described below. The current charter of each committee is available on our website at www.graham-mfg.comwww.grahamcorp.com under the heading “Investor Relations” and the subheading “Corporate Governance.“Governance.” Information contained on our website is not a part of this proxy statement.
The following table lists the current membership of the committees of the Board and the Chairs of each committee, the directors who currently serve on them and the number of committee meetings held in fiscal year 2021.committee.
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| Name | Audit Committee | Compensation Committee | Nominating and Corporate Governance Committee | |||||||
James J. Barber, Ph.D. |
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Alan Fortier |
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James J. Malvaso |
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Gerard T. Mazurkiewicz |
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Jonathan W. Painter |
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Lisa M. Schnorr |
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| Name | Audit Committee | Compensation Committee | Nominating and Corporate Governance Committee | |||||||
James J. Barber |  |  | | |||||||
Alan Fortier | | | ||||||||
Cari L. Jaroslawsky | | | ||||||||
Jonathan W. Painter | | | ||||||||
Lisa M. Schnorr | | | ||||||||
Troy A. Stoner | | | ||||||||
= ChairmanChair
= Member
During fiscal year 2021,2023, the Board held a totalmet five times, the Audit Committee met six times, the Compensation Committee met five times, and the Nominating and Corporate Governance Committee met three times. During fiscal year 2023, each of seven meetings. Each directorour then serving directors attended at least 75% of the aggregate of the total number of meetings of the Board and the total number of meetings of all committees of the Board on which he or shethey served.
12 | GRAHAM CORPORATION | |||
Corporate Governance • Committees and Meetings of the Board; Meeting Attendance
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The non-management directors meet without members of management present during regularly scheduled executive sessions and at such other times as they deem necessary or appropriate. The Chair of the Board presides over these executive sessions.
Our policy requires that each director attend our annual meeting of stockholders or provide the Chair of the Board with advance notice of the reason for not attending. All of our then serving directors attended our 20202022 annual meeting of stockholders.
Audit Committee
We have a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Board has affirmatively determined that each member of the Audit Committee satisfies the independence standards of the NYSE applicable to audit committee members and applicable SEC rules. The Board has also determined that Mr. Mazurkiewiczeach of Mses. Jaroslawsky and Schnorr qualifies as an “audit committee financial expert” in accordance with applicable SEC rules based on histheir education and experience as a certified public accountant and extensive professional work experience as described in his biographyeach of their biographies under “Proposal One: Election of Directors.”
The Audit Committee reviews with Deloitte & Touche LLP, our independent registered public accounting firm, our financial statements and internal control over financial reporting, Deloitte & Touche LLP’s auditing procedures and fees, and the possible effects of professional services upon the independence of Deloitte & Touche LLP.
The Audit Committee works closely with the Board, our executive management team and our independent registered public accounting firm to assist the Board in overseeing our accounting and financial reporting processes and financial statement audits. In furtherance of these responsibilities, the Audit Committee assists the Board in its oversight of:
the integrity of our financial statements and internal controls;
our compliance with legal and regulatory requirements;
the qualifications and independence of our independent registered public accounting firm;
the performance of our independent registered public accounting firm;
the planning for and performance of our internal audit function; and
risk management (including risk management relating to cybersecurity).
In addition, the Audit Committee’s responsibilities include reviewing and overseeing any transactions between us and any related person as defined by the SEC’s rules and discussing our guidelines and policies with respect to risk assessment and risk management. The Audit Committee is also responsible for preparing the Audit Committee’s report that the SEC’s rules require to be included in our annual proxy statement, and performing such other tasks that are consistent with the Audit Committee’s charter. The Audit Committee’s report appears under the heading “Report of the Audit Committee.”
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee evaluates, interviews and nominates candidates for election to the Board and is responsible for oversight of our corporate governance practices.
When identifying director nominees, the Nominating and Corporate Governance Committee solicits suggestions from incumbent directors, management and stockholders. In identifying and evaluating nominees, the Nominating and Corporate Governance Committee seeks candidates possessing the highest standards of personal and professional ethics and integrity; practical wisdom, independent thinking, maturity and the ability to exercise sound business judgment; skills, experience and demonstrated abilities that help meet the current needs of the Board; and a firm commitment to the interests of our stockholders. Although the Nominating and Corporate Governance Committee does not maintain a specific written diversity policy, it recognizes the value of diversity and seeks diverse candidates when possible and appropriate and considers diversity in its review of candidates. The Nominating and Corporate Governance Committee believes that diversity includes not only gender and ethnicity, but the various perspectives that come from having differing geographic and cultural backgrounds, viewpoints and life experiences.
GRAHAM CORPORATION 2023 PROXY STATEMENT | 13 | |
Corporate Governance • Committees and Meetings of the Board; Meeting Attendance |
In addition, the Nominating and Corporate Governance Committee takes into consideration such other factors as it deems appropriate. These factors may include knowledge of our industry and markets, experience with businesses and other organizations of comparable size, the interplay of the nominee’s experience with the experience of other
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members of the Board, and the extent to which the candidate would be a desirable addition to the Board and any of its committees. The Nominating and Corporate Governance Committee may consider, among other factors, experience or expertise in our industry, global business, science and technology, competitive positioning, corporate governance, risk management, finance or economics, and public affairs.
Stockholders entitled to vote in the election of directors at any annual meeting may recommend candidates for consideration by the Nominating and Corporate Governance Committee as potential nominees by submitting written recommendations to the attention of our Corporate Secretary at the following address: Graham Corporation, 20 Florence Avenue, Batavia, New York 14020. Stockholder recommendations must contain: (i) each candidate’s name, age, business and residence addresses; (ii) the candidate’s principal occupation or employment; (iii) each candidate’s written consent to serve as a director, if elected; (iv) whether each candidate would be an independent director if elected, and the basis therefore, under the NYSE listing standards; (v) a description of the candidate’s qualifications to be a director; and (vi) such other information regarding each candidate as would be required to be included in the proxy statement pursuant to the SEC’s rules. Any stockholder submitting a recommendation must provide his or her own name and address as they appear on our books and records, as well as the class and number of our shares owned of record and the dates he or she acquired such shares. In addition, any stockholder submitting a recommendation must provide (i) a description of all arrangements or understandings between the stockholder and each candidate and any other person pursuant to which the nominations were made; (ii) the identification of any person retained by the stockholder or by any candidate, or any person acting on his or her behalf to make solicitations for the purpose of electing such candidate and a brief description of the terms of such arrangement; (iii) a description of any arrangement, the effect or intent of which is to mitigate loss, manage risk or benefit from changes in the Company’s share price, or increase or decrease the voting power of the stockholder or beneficial owner with respect to the Company’s shares, and the stockholder’s agreement to notify the Company in writing within five business days after the record date for such meeting of any such arrangement in effect as of the record date for the meeting; and (iv) any such information regarding the stockholder as would be required to be included in a proxy statement or provided to the Company pursuant to the SEC’s rules. The Nominating and Corporate Governance Committee will evaluate director candidates proposed by stockholders using the same criteria, and in the same manner, as described above for other potential nominees.
Compensation Committee
The Compensation Committee annually reviews and approves the goals and objectives relevant to the compensation of the Chief Executive Officer, evaluates the Chief Executive Officer’s performance and either as a committee or with the other independent directors of the Board, determines and approves the Chief Executive Officer’s compensation levels.
The Compensation Committee also annually reviews and approves salaries, incentive cash awards and other forms of compensation paid to our other executive officers, approves recipients of equity-based awards and establishes the number of shares and other terms applicable to such awards. The Compensation Committee also construes the provisions of and generally administers the 2020 Graham Corporation Equity Incentive Plan, (the “Equity Incentive Plan”), and any successor plan thereto. The Compensation Committee operates pursuant to its charter and may delegate its authority or responsibility to one or more subcommittees.
The Compensation Committee also reviews and makes recommendations regarding the compensation paid to the Board. More information about the compensation of our directors is set forth under the heading “Director Compensation.” The Compensation Committee annually conducts a performance evaluation of its operation and function and recommends any proposed changes to the Board for approval.
In addition, the Compensation Committee is responsible for reviewing and discussing with management the Compensation Discussion and Analysis that is included in our annual proxy statement and performing such other tasks that are consistent with its charter.
The Compensation Committee recognizes the importance of using an independent consultant that provides services solely to the Compensation Committee and not to management. The Compensation Committee engaged an independent compensation consultant in fiscal year 2021.2023. For more information on the role of the Compensation Committee in determining executive compensation, including its use of an independent consultant, see Compensation“Compensation Discussion and AnalysisAnalysis” under the heading “Executive Compensation.”
14 | GRAHAM CORPORATION | |||
Corporate Governance •
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Corporate Governance Guidelines
The Board has adopted Corporate Governance Guidelines to promote the effective functioning of the Board in its governance of our business and corporate operations. The Corporate Governance Guidelines are available on our website at www.graham-mfg.comwww.grahamcorp.com under the heading “Investor Relations” and the subheading “Corporate Governance.subheadings “Governance” and “Governance Documents.”
Political Contribution Policy Statement
In March 2021, theThe Board has adopted a political contribution policy statement, which outlines the Company’s policies, procedures and philosophy regarding its political contributions and activities. It is the Company’s policy not to make independent political expenditures in support of the election or defeat of particular candidates and not to maintain a political action committee. This policy is available on our website at www.graham-mfg.comwww.grahamcorp.com under the heading “About Graham”“Investor Relations” and the subheading “Social Responsibility.subheadings “Governance” and “Governance Documents.”
Board Policy on Stockholder Rights Plans
We do not have a “poison pill” or stockholder rights plan. If we were to adopt a stockholder rights plan, the Board would seek prior stockholder approval of the plan unless, due to timing constraints or other reasons, a majority of independent directors of the Board determines that it would be in the best interests of stockholders to adopt a plan before obtaining stockholder approval. If a stockholder rights plan is adopted without prior stockholder approval, the Board will submit the plan for approval by stockholders prior to the first anniversary of the effective date of the plan or the plan will otherwise terminate.
The Board’s Role in Risk Oversight
The Board oversees our risk profile and management’s processes for managing risk, primarily through the Board’s committees. Our Audit Committee focuses on financial risks, including those that could arise from our accounting and financial reporting processes. Additionally, our Audit Committee monitors and directs the formal risk management projects implemented by management. Our Nominating and Corporate Governance Committee focuses on the management of risks associated with board organization, membership and structure, corporate governance, and the recruitment and retention of talented Board members. Our Compensation Committee focuses on the management of risks that could arise from our compensation policies and programs and, in particular, our executive compensation programs and policies.
As part of its risk oversight responsibilities, the Board and its committees review the policies and processes that senior management uses to manage our risk exposure. In doing so, the Board and its committees review our overall risk function and senior management’s establishment of appropriate systems and processes for managing areas of material risk to the Company, including, but not limited to, operational, financial, legal, regulatory, strategic and information technology risks (including with respect to cybersecurity).
Communications from Stockholders and other Interested Parties
Stockholders and other interested parties who wish to contact the Board or an individual director, including the independent Chair of the Board or independent directors as a group, should send their communications to the attention of the Corporate Secretary, Graham Corporation, 20 Florence Avenue, Batavia, New York 14020. The Corporate Secretary will forward all such communications as directed unless the communication is inappropriate.
GRAHAM CORPORATION | 15 | |||
Environmental and Social Matters •
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Environmental and Social Matters
To help ensureCommitment to Sustainability
Oversight
Graham Corporation is committed to embedding sustainability throughout our accountabilitybusiness. We believe that all our stakeholders must be considered in our everyday actions. We continue to enhance our environmental, social and governance (“ESG”) strategy to align with the broader transformation of our business. Our executive management team recognizes the importance of embedding environmental and social priorities within our business operations and an enhanced and modernized ESG strategy intended to drive additional progress we have appointedon initiatives that promote sustainability and increase transparency. Mr. Glajch,Thoren, our Chief FinancialExecutive Officer, and Corporate Secretary, asis the lead officer with responsibilityresponsible for overseeing and advancing the Company’ efforts with respect to ESG initiatives. In such capacity, Mr. GlajchThoren reviews our ESG efforts with the Board and the various Board committees as appropriate.
Our EmployeesWe have established ESG working groups at each of our companies that are responsible for leading our ESG strategy and monitoring our corporate social responsibility and environmental sustainability initiatives. These groups include cross-functional subject matter experts from across the business. Against this backdrop, we have, with the assistance of outside ESG expertise, performed an assessment of key indicators and engaged with our internal and external stakeholders on ESG topics to help further inform our future direction and tenets. This ESG working group oversees Graham’s sustainability strategy and subsequent disclosures, including the production of our 2023 Sustainability Accounting Standards Board (SASB) Factsheet available on our website.The four tenets of our ESG strategy are shown below:
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Environment
We believe that a focus on environmental stewardship is fundamental and integral to the work we do every day to serve our customers, create value for our stockholders, and benefit our global community. We have taken steps at both our business units in Batavia, New York and Arvada, Colorado to improve energy efficiencies and air quality that are intended to lessen our impact on the environment. Notably:
Increased the use of e-records and e-signing technology resulting in carbon emissions reduction;
Migrated technology infrastructure to a cloud environment, reducing energy usage, and accordingly, our carbon footprint;
Upgraded our boiler feedwater pump and VFD which will save 6,600 kilowatt-hours annually.
We have over 500 employees across our global facilities, including our 43,000 square foot, state-of-the-art manufacturing plant that is part of the 96,000 square foot facility in Arvada, Colorado, where our commitment to reducing the waste we generate and utilizing our expertise to produce high quality and sustainable products. Each of our facilities are diligent in controlling hazardous waste and ensuring wastewater and storm sewer discharges are monitored to support greater access to clean water. Additionally, a key aspect of our ESG strategy is climate change. We help minimize our environmental footprint with Adopt-A-Street activities, factory recycling programs, electric car charging stations, and energy saving initiatives like LED lighting, motion sensors for lighting, smart compressors to manage energy loads and installing programmable thermostats in our facilities.
16 | GRAHAM CORPORATION 2023 PROXY STATEMENT | |
Environmental and Social Matters • Commitment to Sustainability |
Our People
The Company’sAt Graham, we believe our most important asset is our people. We are committed to fostering and embracing a Graham community in which employees share a mutual understanding and respect for each other. Our pledge to diversity and equality encompasses our commitment to create a work environment which embraces inclusion regardless of race, color, religion, gender, sexual orientation, gender identity, national origin, age, genetic information, marital status, amnesty, pregnancy, childbirth, disability, veteran status, or medical conditions. We continually strive to use our knowledge, talents, and resources to improve the quality of life of our workforce. In 2023, Barber-Nichols was recognized in Glassdoor’s Best Places to Work, ranking 10 out of 50 in the U.S. small and medium company category. Glassdoor’s analysis is based solely on the input of employees who complete an anonymous review about their job, work environment and employer.
Diversity, Equality & Inclusion (“DEI”) is very important to us at Graham. Our commitment starts with our goal of attracting, retaining, and developing a workforce that is diverse in background, knowledge, skill, and experience. As of March 31, 2023, women represented approximately 19% and self-identified racial and ethnic minorities represented approximately 8% of our workforce, up from 5% in 2022. We strive to be the preferred place to workmirror our local communities through recruitment in our industry,high schools and to attract the best people by creatingcommunity colleges.
Our management recognizes that a diverse workforce and a culture that is exciting, creative, funof equity and embraces continuous improvement. The Company’sinclusion helps us compete more effectively, sustain success, and build long-term shareholder value. We encourage every one of our team members are viewedto form deeper relationships with those around them based on mutual respect, dignity, and understanding. Furthermore, to encourage productive conversations within our organization, we have implemented employee engagement surveys. Graham has robust non-discrimination and anti-harassment policies as an expandable resourceoutlined in our employee handbook, as well as a formal Code of Business Conduct and an asset of the Company. Ethics.
We believe that employee development is vital to our continued success, and we support the development of our employees through programs such as our internal weld school training, our partnerships for external weld training,with community colleges, our tuition assistance program, and management training classes. Our management is continuously focused on developing an inclusive and respectful work environment where our employees are highly engaged and motivated. Management regularly engages with employees on a broad range of topics, including corporate culture, diversity and inclusion, health and safety, training and development, and compensation and benefits. Safety of our employees is our top priority.
In responseWe are dedicated to the COVID-19 pandemic, we took steps to ensureensuring the health and safety of our team members by supporting the whole person. Our dedicated global health and safety function is executed through our business unit safety committees to ensure that employees including restricting business travelare trained on best practices to create a safe and site visitors, implementing remote workinghealthy workplace for certain office employees, deep cleaningall. Arvada has met the requirements to be certified as a Safety and Health Achievement Recognition Program by OSHA. To ensure the health and wellbeing of our facilities, prohibiting group gatherings,employees, we aim to provide a robust health and encouraging hygiene practices advised by health authorities. We continue to enhance our practices to remain aligned with state and federal guidelines. In addition,wellness package. Some of the various benefits we committed to and continued to fully pay our employees, even while our operations were partially or fully shutdown from late March 2020 to the end of May 2020.
Community and Global Reachoffer include:
Flexible spending and health savings accounts for both healthcare and dependent care;
Short- and long-term disability insurance;
Paid maternity and parental leave;
401(k) retirement savings program, including company matching contributions, and employee stock purchase plan;
Employee Assistance Program providing free counseling services; and
Wellness incentives, including a wellness consultant.
Our Communities
We believe that investing in local communities to create positive social and economic outcomes is at the heart of generating social impact. We believe that to be successful we need to push ourselves to do our best, for our customers, for our stockholders, for the Company, for ourselves, for those around us, and for the world that we all share. We are committed to supporting the communities in which we do business by leveraging the power of our Company through donations, scholarships, education and participation with certain charitable organizations. We strive to use our capabilities, reach and resources to make a lasting difference in the world. Notably:
We are proud to work with several local schools to help teach students about careers and opportunities in manufacturing.
GRAHAM CORPORATION 2023 PROXY STATEMENT | 17 | |
Environmental and Social Matters • Commitment to Sustainability |
We participated in the Genesee, Livingston, Orleans, and Wyoming (“GLOW”) Corporate Cup. The goal of this event is for local businesses to form racing teams, compete in a fun atmosphere, and crown a winner of the Corporate Cup. With the proceeds raised from this event, the YMCA is able to fulfill its mission of youth development, healthy living and social responsibility in the GLOW region.
We implemented a United Way Day of Giving, the largest community-wide volunteer event across our region serving Genesee, Livingston, Monroe, Ontario, Wayne, and Wyoming counties.
We donated time and resources to a number of charities including the American Cancer Society, Habitat for Humanity, Family Tree, Community Table Food Bank, Second Wind Fund, and Children’s Hospital.
We believe it is our responsibility to respect human rights in our operations, including, among other things, by opposing human trafficking and the exploitation of children. Accordingly, in March 2021, we have adopted a Human Rights Policy Statement to emphasize our strong commitment to human rights. This policy is available on our website at www. graham-mfg.com under the heading “About Graham” and the subheading “Social Responsibility.” We expect our business partners to also treat workers fairly and not engage in human rights abuses.
As another part of being a good corporate citizen, in March 2021, we adopted a Conflict Minerals Policy. This policy, available on our website at graham-mfg.com under the heading “About Graham” and the subheading “Social Responsibility”,Policy that is intended to support our commitment to sourcing components and materials from companies that share our values around human rights and ethics. Both policies are available on our website at www.grahamcorp.com under the heading “Investor Relations” and the subheadings “Governance” and “Governance Documents.”
Corporate Governance
Graham is committed to achieving excellence in our corporate governance practices. We emphasize a culture of accountability and conduct our business in a manner that is fair, ethical, and responsible to earn the trust of our stakeholders. The Company has corporate governance and sustainability policies and structures in place to foster accountability and transparency. These policies reflect our underlying commitment to maintain the highest standards of ethics and integrity and to operate our business in compliance with all applicable anti-corruption, anti-bribery, and anti-trust laws and regulations.
The Board of Directors is comprised of a majority of independent directors as defined by the NYSE listing standards and the Board’s Corporate Governance Guidelines. All of the Board committees are comprised entirely of independent directors. The Board also communicatebelieves that director refreshment is an important component of good corporate governance, and in March 2022, nominated two new directors.
Graham recognizes that effectively managing enterprise risks is critically important to the long-term success of our business. Management is responsible for our company’s day-to-day risk management activities. Our company relies on a comprehensive risk management process to aggregate, monitor, measure, and manage risks. While we exercise oversight, we do not have full control over our supply chain nor the suppliers we do business with; however, we continually seek to partner with suppliers that share common values and a shared commitment to our suppliersESG objectives.
As a global leader in the design and manufacture of critical electronics-enhanced turbomachines and turbomachine-based subsystems as well as vacuum and heat exchangers technologies, Graham is a trusted partner that meets the industry’s high bar for data resiliency and security. We leverage the latest encryption configurations and technologies on our expectation that they will cooperatesystems, devices, and third-party connections and further vet third-party vendors’ encryption, as required, through our vendor management process.
We routinely engage with our effortsstakeholders to better understand their views on ESG matters, carefully considering the feedback we receive and acting when appropriate. For more information, please visit our website at www.grahamcorp.com under the heading “Investor Relations.”
Additionally, in this area.furtherance of our ESG objectives, we implemented in fiscal year 2023 our Human Rights Policy, Code of Vendor Conduct, and Enterprise Level Environmental Policy, each described below and available on our website at www.grahamcorp.com under the heading “Investor Relations” and the subheadings “Governance” and “Governance Documents.”
Human Rights Policy
Our Human Rights Policy sets forth our views on the health and safety standards we strive to provide to our employees, our intolerance for forced or involuntary labor of any kind, and our commitment to providing equal opportunity in all aspects of employment. Human rights are generally defined as the basic freedoms believed to be inherent to all people as outlined in the United Nations Universal Declaration for Human Rights, which focuses on dignity, respect and equality, without discrimination.
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Environmental and Social Matters •
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Enterprise Level Environmental Policy
We believeOur Enterprise Level Environmental Policy focuses on our belief that a focus on environmental responsibilitystewardship is fundamental and integral to the work we do every day to serve our customers, create value for our stockholders, and benefit our global community. We have taken steps atbelieve that our mainfocus on environmental sustainability, with the objective of reducing costs and improving sustainability of our operations, will provide us with a strategic benefit. Through our Enterprise Level Environmental Policy we will continue to engage with suppliers throughout our global value chain to manage these impacts in Batavia, New Yorkorder to improve energy efficienciesconserve resources, reduce costs, and air qualitypromote ethical practices.
Code of Vendor Conduct
Our Code of Vendor Conduct specifies the behaviors, practices and regulations we expect to see practiced in all stages of our supply chain. The Code of Vendor Conduct is focused on ensuring that are intendedour vendors, suppliers, and other business partners, including their employees, agents, and suppliers, act in a way that is ethical, corporately responsible, and aims to lessen our impact on the environment. In addition, during fiscal 2020, we initiated a capital project to recycle production related wastewater at our Batavia, New York facility. Further, in addition to serving mature fossil-based end markets, we are also entrenched inpromote compliance with applicable laws and support the development of emerging and transformative end markets that rely on alternate and renewable energy sources.regulations.
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Executive Officers
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As of June 2, 2021,23, 2023, we were served by the following executive officers and Section 16 officers, each of whom was appointed by the Board:
James R. LinesDaniel J. Thoren, age 60, became59, has served as our Chief Executive Officer in January 2008since September 2021 and served asbecame our President and Chief Operating Officer from June 2006 toin June 2021. Further information about Mr. LinesThoren is set forth under “Proposal One: Election of Directors.”
DanielChristopher J. ThorenThome, age 57,52, became our Vice President – Finance and Chief OperatingFinancial Officer in June 2021.April 2022 and our Chief Accounting Officer and Corporate Secretary in July 2022. Prior to joining the Company, Mr. Thoren had been employed by Barber-NicholsThome served as Corporate Controller and Treasurer of Allied Motion Technologies Inc. (“BNI”), a premier supplierproducer of precision and specialty turbomachinery, pumpsmotion control components and electronic drives that address critical applications for the defensesystems, since February 2020 and aerospace/space industries,held progressively advancing roles at Integer Holdings Corporation, a provider of advanced medical device outsourcing, from 1991 until June 2021July 2006 to February 2020, including Senior Director–Treasurer and served in progressively increasing roles, including his service as BNI’s PresidentSenior Director–Financial Reporting, Treasury Operations and Chief Executive Officer from 1997 until May 2021 and Chairman of the Board of Directors of BNI through June 2021.Shared Services. Mr. Thome is a certified public accountant.
Jeffrey F. Glajch, age 58, became our Vice President—Finance & Administration and Chief Financial Officer in March 2009 and our Corporate Secretary in June 2011. Since March 2021, Mr. Glajch has served on the advisory board of M42, a private company utilizing artificial intelligence to assist companies in identifying healthcare fraud. From October 2006 until February 2009, he served as the Chief Financial Officer of Nukote International, a privately held global re-manufacturer of printing and imaging products. Previously, between June 2000 and May 2006, Mr. Glajch was the Chief Financial Officer of Fisher Scientific Canada, a global healthcare and laboratory equipment company.
Matthew Malone, age 34,36, became our Vice President—President and General Manager – Barber-Nichols in June 2021. Prior to joining the Company, Mr. Malone served as the President and Chief Executive Officer of BNI fromBarber-Nichols in May 2021 through June 2021, having previously served as BNI’sBarber-Nichols Vice President of Operations from May 2020 to May 2021, Project Management Office Manager from November 2017 to May 2020, and Project Engineer from July 2015 to November 2017.
Alan E. Smith, age 54,56, became our Vice President and General Manager—Manager – Batavia in July 2015. Mr. Smith served as our Vice President of Operations from July 2007 until July 2015. Previously, from 2005 until July 2007, Mr. Smith served as Director of Operations for Lydall, Inc., a designer and manufacturer of specialty engineering products. Prior to that, he had been employed by us for fourteen years, progressing from Project Engineer to Engineering Manager.
Jennifer R. Condame,age 56, became our Chief Accounting Officer inJuly 2008. She also serves as our Corporate Controller, a position she has held since 1994. From 1992 to 1994, she was our Manager of Accounting and Financial Reporting. Prior to joining us in 1992, Ms. Condame was employed as an Audit Manager by Price Waterhouse, a predecessor to PricewaterhouseCoopers LLP.
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As a smaller reporting company under the Exchange Act we are not required to provide certain disclosures pursuant to Item 402 of Regulation S-K, however, we have elected to provide such executive compensation information in accordance with certain scaled disclosure requirements allowed offor smaller reporting companies to provide transparency with respect to the compensation of our named executive officers.
Compensation Discussion and Analysis
Introduction
This Compensation Discussion and Analysis (the “CD(“CD&A”), provides information about the compensation programs for certain of our executive officers named in the fiscal year 20212023 Summary Compensation Table. These named executive officers are:
James R. Lines,Daniel J. Thoren, our Chief Executive Officer;
Jeffrey F. Glajch,Christopher J. Thome, our Vice President -– Finance, & Administration, Chief Financial Officer, Chief Accounting Officer and Corporate Secretary; and
Alan E. Smith,Matthew Malone, our Vice President and General Manager - Batavia.– Barber-Nichols.
This CD&A includes the philosophy and objectives of the Compensation Committee of our Board, descriptions of each of the elements of our executive compensation programs, and the basis for the compensation decisions we made during fiscal year 2021.2023.
Executive Summary
Fiscal Year 20212023 Results
The Compensation Committee’s philosophy focuses on aligning the interests of our named executive officers with those of our stockholders by rewarding performance that enhances the objective of increasing both current and long-term stockholder value. Our executive compensation programs are designed to provide a strong link between the amounts earned by our named executive officers and Company and individual performance.
During fiscal year 2021,2023, our named executive officers continued to implement our strategic plan to diversify, increase productivity, improve processes, and grow our market share and profits in our existing businesses.
We are experiencing weakness in our energy markets, however, our diversification in U.S. Navy work will help mitigate the commercial market challenges. The COVID-19 pandemic has resulted in a significantly volatile economic and capital markets environment, which makes the future performance of our core markets less predictable. Highlights of ourOur financial results for fiscal year 2021 are as follows:2023 included the following:
Net sales for fiscal year 20212023 were $97.5 million, up 8% compared with $90.6 million in the fiscal year ended March 31, 2020 (“fiscal year 2020”); and$157.1 million.
Net income for fiscal year 20212023 was $2.4 million, or $0.24 per diluted share, compared to net income for fiscal year 2020 of $1.9 million, or $0.19 per diluted share.$0.4 million.
During fiscal year 2021:
Corporate resources continued to support stable revenue markets, such as those for the U.S. Navy;
We returned $4.39 million to our stockholders as dividends in fiscal year 2021, compared with $4.25 million in fiscal year 2020;
We secured $69 million in new orders for the U.S. Navy and expanded backlog for that market to $104 million; and
We ended the fiscal year with a solid balance sheet that was free of bank debt, providing us substantial financial flexibility.
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In line with our pay-for-performance philosophy, in fiscal year 2021, our named executive officers realized the following compensation based on our fiscal year 2021 financial performance and their individual performance:
As described more fully under the heading “Annual Cash Incentive Compensation” in this CD&A, for fiscal year 2021 the Compensation Committee set challenging targets for two key financial metrics: net income and bookings. Our performance level of the net income metric exceeded target and met the maximum level for the bookings metric, despite the unprecedented pandemic and its negative impact on our markets. These levels of Company performance, as well as our named executive officers’ achievement against their individual goals, resulted in the payment of annual cash incentive compensation above target levels. We report the annual cash incentive compensation earned by each of the named executive officers during fiscal year 2021 in the “Non-Equity Incentive Plan Compensation” column of the Fiscal Year 2021 Summary Compensation Table.
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| Number of Shares of Performance-Vested Restricted Stock | ||||||||
| Named Executive Officer | Target Grant 2019 | Realized in 2021 | ||||||
James R. Lines | 5,813 | 1,889 | ||||||
Jeffrey F. Glajch | 2,675 | 869 | ||||||
Alan E. Smith | 2,387 | 776 | ||||||
Our “Pay for Performance” Philosophy
Our executive compensation programs contain key components and features that reinforce our “pay for performance” philosophy. For example:
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A significant portion of our named executive officers’ compensation is “at-risk,” and depends on either meeting performance-based criteria or continuing in service to the Company. Both our short-term and long-term incentive compensation programs use goals that tie to our performance in key financial metrics. During fiscal year 2023, we paid 50% of our long-term incentive compensation in performance-vesting restricted stock units (“PSUs”). The PSUs cliff vest on the third anniversary of the date of grant only upon the achievement of predetermined performance metrics. Our named executive officers received the other 50% of long-term incentive compensation in time-vesting restricted stock units (“RSUs”) that vest in equal installments on each of the first three anniversaries of the date of grant, subject to the executive officer’s continued employment at each such date.
We require all of our named executive officers currently employed by us to hold substantial amounts of our stock. We believe that our robust stock ownership guidelines drive an ownership culture and enhance the connection between our management and our stockholders.
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We do not reimburse or “gross-up”“gross-up” our named executive officers for any of the taxes associated with any of the compensation and benefits we provide to them.
We maintain “double-triggered” provisions in our agreements with our named executive officers under which payment is triggered only by certain terminations of employment subsequent to a change in control of our Company.
The Compensation Committee incorporates tally sheets as an analytical tool as part of its annual executive compensation review to help ensure that compensation is consistent with performance goals.
We provide limited perquisites and personal benefits to named executive officers beyond those provided to all other employees.
Our policies strictly prohibit our executive officers and directors from engaging in any hedging, pledging or other monetization transactions involving our securities.
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Principles and Objectives
In establishing executive compensation, the guiding principles and objectives of the Compensation Committee are as follows:
to provide market competitive compensation that includes an appropriate balance of fixed and incentive elements which allows us to both attract and retain executive personnel best suited by training, ability and other relevant criteria for our management requirements;
to align our incentive compensation programs with superior business performance in order to maximize stockholder value; and
to avoid compensation incentives that create undue financial or business risk for our Company.
The Compensation Committee reviews the market median and also considers measures of Company and industry performance when determining named executive officer compensation, including revenue,net sales, net income, earnings per share, EBITDAearnings before net interest expense, income taxes, depreciation and amortization (“EBITDA”) margin, total market value, average working capital, performance relative to the market, and total stockholder return. As described further below under the heading “Use of Peer Group Compensation Data and Tally Sheets,” from time to time, the Compensation Committee reviews data on the executive compensation programs of other comparably-sized companies both within our industry and in our geographic region as part of the process of establishing and maintaining our executive compensation programs.
We designed our executive compensation programs to reward our named executive officers for Company and individual performance that maximizes stockholder value. We describe the Company and individual performance measures that the Compensation Committee takes into account in determining cash and equity-based incentive awards for our named executive officers below under the headings “Annual Cash Incentive Compensation” and “Long-Term Equity Incentive Compensation,” respectively.
How we Make Compensation Decisions
Role of the Compensation Committee
The Compensation Committee designs and implements compensation programs that further the intent and purpose of our fundamental compensation philosophy, principles, and objectives. The Compensation Committee is responsible for setting appropriate compensation levels for our named executive officers, and determines base salary, as well as cash and equity-based incentive awards for each of our named executive officers. We provide additional information about the Compensation Committee under the heading “Corporate Governance.”
Role of Named Executive Officers in Compensation Decisions
Within the framework of the executive compensation programs approved by the Compensation Committee and based on management’s review of market competitive positions, our Chief Executive Officer annually reviews the performance of our other named executive officers and presents such performance information to the Compensation Committee. In addition, our Chief Executive Officer makes recommendations to the Compensation Committee with
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respect to the salary, cash incentive and equity-based incentive compensation paid to our other named executive officers. The Compensation Committee considers such performance information in determining each element of compensation for the other named executive officers. The Compensation Committee uses its discretion to determine whether to accept, reject or modify any adjustments to awards that may be recommended by our Chief Executive Officer. The Compensation Committee annually reviews the performance of our Chief Executive Officer. Our Chief Executive Officer does not play any role with respect to any matter affectingand meets in executive session, outside the presence of our CEO, when determining his own compensation.
On an annual basis, our Chief Executive Officer also approves and recommends to the Compensation Committee the individual objectives for our other named executive officers under the Stock Bonus Plan and Cash Bonus Program. The Chair of our Compensation Committee, in consultation with the Chair of the Board, approves individual objectives for our Chief Executive Officer.
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Use of Outside Consultants by the Compensation Committee
The Compensation Committee believes that it benefits from external advice and assistance to help meet its objectives and fulfill its responsibilities. The Compensation Committee periodically engages outside consultants to educate and inform Committee members with regard to compensation matters, including the advantages and disadvantages of existing and proposed compensation programs, and keeps the Compensation Committee abreast of current and emerging compensation trends both within our industry and for companies of similar size and stature. These consultants also may advise the Compensation Committee with respect to various compensation alternatives, provide the Compensation Committee with relevant market compensation data and assist the Compensation Committee in analyzing such data when making compensation decisions.
The Compensation Committee typically engages a compensation consultant every few years. During fiscal year 2021,2023, the Compensation Committee engaged Frederic W. Cook & Co., Inc. to assist the Compensation Committee with respect to the amendmentevaluation of Mr. Glajch’s employment agreement.compensation paid to the Company’s executive officers.
Use of Peer Group Compensation Data and Tally Sheets
Peer Group Compensation Data. When making compensation decisions, the Compensation Committee may consider executive compensation programs and individual elements of compensation paid to other named executive officers at a group of comparably-sized companies both within our industry and in our geographic region or which we otherwise consider to be our peers. When selecting our peer group shown below, the Compensation Committee considered the companies’ revenue, market capitalization, number of employees, and industry classification.
| DMC Global, Inc. | ||||
| Allied Motion Technologies Inc. | Energy Recovery, Inc. | Perma-Pipe International Holdings, Inc. | ||
| Hurco Companies, Inc. | The Eastern Company | |||
| CECO Environmental Corp. | Natural Gas Services Group, Inc. | The Gorman-Rupp Company | ||
| CPI Aerostructures, Inc. | Orbital Energy Group, Inc. | Thermon Group Holdings, Inc. |
The Compensation Committee may use peer group compensation data to provide an informational perspective on our compensation practices, levels of base salary, and the design of annual cash and long-term equity incentive compensation programs and the overall competitiveness of our compensation program.
Tally Sheets. The Compensation Committee analyzes tally sheets prepared for each named executive officer as part of its responsibilities for our executive compensation programs. Tally sheets present the dollar amount of each component of compensation for each named executive officer. The purpose of tally sheets is to bring together, in summary form, all of the elements of total direct compensation for our named executive officers so that the Compensation Committee may analyze both the individual elements of compensation (including the weighting of each element as compared to each other element) and the aggregate amount of total direct compensation. During fiscal year 2021,2023, the Compensation Committee regularly used tally sheets to assist in its review of the compensation of our named executive officers. No compensation changes were made with respect to fiscal year 20212023 compensation based on those reviews.
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Executive Compensation Components
As discussed in greater detail below, our compensation philosophy focuses on aligning the total direct compensation of our named executive officers with the interests of our stockholders by rewarding performance that enhances the objective of increasing both current and long-term stockholder value. We use the term “total direct compensation” to refer to the sum of base salary, annual incentive compensation and long-term incentive compensation.
Total Direct Compensation | = | Base Salary | + | Annual Incentive Compensation | + | Long-Term Incentive Compensation |
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The components of total direct compensation granted during fiscal year 20212023 were:
Compensation Element | Form of Compensation | Purpose | Performance Criteria | |||
Base Salary | Cash | Provide compensation that is not | Not performance based | |||
Annual Incentive Compensation | Cash | Motivate our named executive officers to attain vital short-term Company and individual objectives | Net income or operating profit, bookings and individual officer goals linked to achievement of Company strategic objectives | |||
Long-term Incentive Compensation | Incent our named executive officers to focus on Company growth, align their compensation with our business strategy, and create value for our stockholders | |||||
| Encourage retention of our named executive officers over a three-year period | Not performance based | |||||
The Compensation Committee seeks to align our annual and long-term compensation elements to our strategic plan. We strive to strike a balance between establishing incentives that motivate our named executive officers to achieve meaningful results, while ensuring that we sufficiently recognize our named executive officers for achieving results that are within their control. The Compensation Committee believes that the diversity of the selected forms of compensation and the applicable performance metrics help to manage the pay for performance challenges presented by the cyclicality of our business while creating the proper focus among our named executive officers to facilitate our growth.
We establish each element comprising target total direct compensation for the named executive officers annually. We do not have a specific policy for the allocation of compensation between short-term and long-term compensation or cash and equity compensation, as the allocation of these items is primarily driven by market compensation information and Company performance and goals.
We generally do not consider gains realized from prior compensation, such as stock option exercises, and restricted stock vesting and vesting of RSUs or PSUs, in setting other elements of compensation. We believe that reducing or limiting restricted stock awards because of prior gains realized by a named executive officer would unfairly penalize the officer for outstanding past performance and reduce the motivation for continued outstanding achievement. Similarly, our severance and change-in-control arrangements, which we discuss in detail under the heading “Potential Payments upon Termination or Change in Control,” do not affect our decisions regarding other elements of compensation. Those arrangements serve specific purposes that are unrelated to the determination of a named executive officer’s compensation for a specific year.
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In support of our “pay for performance”compensation philosophy, our executive compensation is heavily weighted toward incentive (variable) compensation, and the proportion of variable, or “at risk,” compensation increases as the level of responsibility increases. As shown below, in fiscal year 2021,2023, we provide 63%provided 67% of our Chief Executive Officer’s target compensation through annual and long-term incentive compensation, and, on average, we provide 52%provided 50% of our other named executive officers’ target compensation through annual and long-term incentive compensation.
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Beginning in fiscal year 2023, our Compensation Committee grants awards consisting of RSUs and PSUs. We believe the use of such awards supports our long-term compensation philosophy as well as emphasizes performance and alignment of executives’ interests with our stockholders. The Compensation Committee will continue to review our executive compensation programs, as well as consider the outcome of the “say-on-pay” votes when making future compensation decisions for the named executive officers.
Fiscal Year 20212023 Total Target Compensation*
| * | The fair market value of |
We also provide compensation and benefits to our named executive officers through the following programs:
Compensation Element | Form of Compensation | Purpose | ||
Health and welfare plans | Eligibility to receive health and other welfare benefits paid for by the Company, including life insurance, short-term and long-term disability insurance, and a comprehensive medical and dental plan | Provide a competitive employee benefits program | ||
Retirement benefits | Provide an incentive for long-term retention of our named executive officers | |||
Limited perquisites and other personal benefits | A $5,000 allowance for our Chief Executive Officer ($2,500 for our other named executive officers) to purchase term life insurance and an additional amount necessary to purchase a personal umbrella insurance policy | Provide a competitive compensation package, facilitate strong, focused performance and better enable us to attract and retain superior employees for key positions | ||
Stockholder Advisory Vote on Executive Compensation
At our 2022 annual meeting of stockholders, our stockholders approved, on an advisory basis, the compensation of our named executive officers as disclosed in our 2022 proxy statement, referred to as a “say-on-pay” vote. The
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Stockholder Advisory Vote on Executive Compensation
At our 2020 annual meeting of stockholders, our stockholders approved, on an advisory basis, the compensation of our named executive officers as disclosed in our 2020 proxy statement, referred to as a “say-on-pay” vote.
At our 2017 annual meeting of stockholders, our stockholders expressed a preference that the “say-on-pay” vote take place on the annual basis recommended by our Board. This preference was subsequently adopted by our Board, and so we are providing our stockholders with a “say-on-pay” vote this year.
The Compensation Committee evaluated the positive results of the 2020 “say-on-pay”2022 “say-on-pay” vote as well as the other factors discussed in this CD&A. Each of these factors informed the Compensation Committee’s decisions regarding our named executive officer compensation programs.
At our 2017 annual meeting of stockholders, our stockholders expressed a preference that the “say-on-pay” vote take place on an annual basis. This preference was subsequently adopted by our Board, and so we are providing our stockholders with a “say-on-pay” vote this year. See “Proposal Two: Advisory Vote on the Compensation of our Named Executive Officers.”
Stockholders will have an opportunity to cast an advisory vote on the frequency of future “say-on-pay” votes at least every six years. Accordingly, at the Annual Meeting, we are again providing our stockholders with the opportunity to indicate on a non-binding, advisory basis, how frequently an advisory vote on the compensation of our named executive officers should occur. See “Proposal Three: Advisory Vote on the Frequency of Future Stockholder Advisory Votes on the Compensation of our Named Executive Officers.”
Annual Base Salaries
The Compensation Committee reviews base salaries for each of our named executive officers at least annually. In general, the Compensation Committee sets base salaries based on the following factors:
factors including Company performance;
and individual performance;
performance, job responsibilities;
responsibilities, internal pay equity;equity and
base salary levels of similar positions in our peer group.
The annual base salariessalary rate for Messrs. Lines, Glajch, and Smith at March 31, 2020 were $500,000, $325,000 and $257,560, respectively. The Compensation Committee approved 3% increases toMr. Thoren is $400,000. Effective as of April 1, 2023, the annual base salaries ofsalary rate for each of our named executive officers other than Mr. Lines, effective April 1, 2021 (the first dayMessrs. Thome and Malone is $312,000, following the Compensation Committee’s approval of our fiscal year ending March 31, 2022), increasingan increase from the base salaries for Messrs. Glajchprior annual rate of $290,000 and Smith to $334,750 and $265,287,$300,000, respectively. The increases to the base salaries of each of our named executive officers other than Mr. Lines were consistent with salary increases implemented to all employees on a company-wide basis. For additional information about the annual base salariessalary rates of our named executive officers, see “Fiscal Year 20212023 Summary Compensation Table” below.
Annual Cash Incentive Compensation
Our Annual Executive Cash Bonus Program, which we refer to as the Cash Bonus Program, is designed to compensate our named executive officers for above-average performance through an annual cash incentive award related both to Company and individual performance. We instituted the Cash Bonus Program to effectively align short-term individual performance with Company performance.
The Compensation Committee designed the Cash Bonus Program to provide a clear link between the named executive officers’ goals and our performance and business objectives. In fiscal year 2021,2023, the Compensation Committee used a combination of net income or divisional operating income, bookings and personal objectives as the performance metrics to evaluate our named executive officers’ performance under the Cash Bonus Program. The net income and divisional operating income performance metric ismetrics are based on 20212023 fiscal year-end results. Bookings represent new orders received from customers requestingby us to supply products and services and entered into backlog during fiscal year 2021,2023, reduced by the impact of any backlog cancellations. Consolidated bookings include consolidated net orders for Batavia, NY, Barber-Nichols, Ahmedabad, India, and Suzhou, PRC. The Compensation Committee selected net income and bookings achieved as the quantitative measures of short-term performance because it believes that these metrics impact our annual profitability and growth.
For fiscal year 2021,2023, the Compensation Committee established personal goals for our named executive officers, which included the following:
Mr. LinesThoren - deploy capital to expand revenue, strengthen sustained earnings, reduce earnings volatility,our business units and improve returnbuild on invested capital.our succession planning and development for our business units.
Mr. GlajchThome - deploy capital to expand revenue, strengthen sustained earnings, reduce earnings volatility,enhance communication with the Board and improve return on invested capital.advance our corporate finance functionality by establishing and promoting corporate level finance policies and processes.
Mr. SmithMalone - expand defense backlog,continue to develop personal leadership skills and implement programs that strengthen relationships with defense market customers, and execute organizational development strategy.our long-term competitive position.
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The Compensation Committee assigned the weightings applicable to the three metrics to align our named executive officers’ goals with our current business objectives as follows:
| Metric | Weighting | |||
Net | ||||
Bookings(2) | ||||
Personal goals | ||||
| (1) | For Messrs. Thoren and Thome includes consolidated net income and for Mr. Malone consolidated net income (15%) and divisional operating income (35%). |
| (2) | For Messrs. Thoren and Thome includes consolidated bookings and for Mr. Malone includes consolidated bookings (6%) and divisional bookings (14%). |
The Compensation Committee typically establishes the goals for the Cash Bonus Program during our annual budgeting process following the commencement of the fiscal year. The Compensation Committee typically approves such goals during our first quarter, subject to the ratification of the Board. The Chair of our Compensation Committee, in consultation with the Chair of the Board, approves personal goals for our Chief Executive Officer. Our Chief Executive Officer develops the personal goals for our other named executive officers in alignment with our corporate strategy and recommends these goals to our Compensation Committee Chair for approval.
For fiscal year 2021,2023, the Compensation Committee set target bonus levels at 100% attainment of both Company and individual objectives as follows: Mr. Lines - 80%Thoren – 100% of base salary; Mr. Glajch -Thome – 50% of base salary; and Mr. Smith -Malone – 50% of base salary. The Compensation Committee uses a stretch maximum payout level to better incentivize and reward above target performance. Each named executive officer may receive anywhere from 0% to 200% of his target bonus level depending on the attainment of objectives, as follows:
| Target Level | Net Income Payout as Percentage of Target Bonus | Bookings Payout as Percentage of Target Bonus | Net Income/Divisional Payout as | Bookings Payout as Target Bonus | ||||||||||||
Below Threshold | 0 | % | 0 | % | ||||||||||||
Threshold | 25 | % | 25 | % | 50% | 50% | ||||||||||
Above Threshold | 50 | % | 50 | % | ||||||||||||
Target | 100 | % | 100 | % | 100% | 100% | ||||||||||
Maximum | 200 | % | 200 | % | 200% | 200% | ||||||||||
We may use linear interpolation to determine the percentage of the target bonus payable based on performance in between threshold and target or target and maximum. The Compensation Committee may consider extraordinary events that either positively or negatively affect financial performance, and may in its discretion, include or exclude the impact of these events in approving awards under the Cash Bonus Program. TheDuring fiscal year 2023, the Compensation Committee did not exerciseexercised this discretion during fiscal year 2021.and adjusted Net income for debt amendment costs and acquisition related costs.
For fiscal year 2021,2023, threshold, target, maximum, and actual quantitative performance metrics used under the Cash Bonus Program for our named executive officers were as follows (millions of dollars):
| Performance Measure | Threshold | Target | Maximum | Actual | Threshold | Target | Maximum | Actual | ||||||||||||||||||||||||
Net Income | $ 1.2 | $ 2.3 | $ 3.2 | $ 2.4 | ||||||||||||||||||||||||||||
Adjusted Net Income(1) | $ 2.6 | $ 3.4 | $ 5.1 | $ 0.6 | ||||||||||||||||||||||||||||
Bookings | $75.0 | $95.0 | $120.0 | $121.6 | $124 | $155 | $186 | $202.7 | ||||||||||||||||||||||||
Divisional Operating Income - Arvada, CO | $ 2.9 | $ 3.8 | $ 5.7 | $ 3.4 | ||||||||||||||||||||||||||||
Divisional Bookings - Arvada, CO | $ 40 | $ 50 | $ 60 | $ 63.8 | ||||||||||||||||||||||||||||
| (1) | Refer to Appendix A of this proxy statement for our definition of Adjusted Net Income and a reconciliation of such measure to the most directly comparable U.S. GAAP measure. |
At its May 26, 202117, 2023 meeting, the Compensation Committee reviewed each named executive officer’s achievement of Company and individual objectives during fiscal year 20212023 and approved the award of cash incentive compensation under the Cash Bonus Program.Program for each named executive officer. Based on our performance during fiscal year 2021,2023, the Compensation Committee determined that our named executive officers exceeded targetMessrs. Thoren and Thome did not achieve the threshold level offor the net income component and metachieved above the maximum levelfor the bookings component of the Cash Bonus Program and Mr. Malone achieved above the threshold but below target level for the divisional operating income component and
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Executive Compensation • Compensation Discussion and Analysis |
achieved above the maximum for the divisional bookings component of the Cash Bonus Program. The Compensation Committee determined that each of our named executive officers, achieved the following percentages of their respective target personal goals:
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Mr. Lines - 200%Thoren – 65%; Mr. Glajch - 200%Thome – 133%; and Mr. Smith - 147%Malone – 100%. Based on these results and achievements, the cash incentive compensation earned under the Cash Bonus Program for our named executive officers for fiscal year 20212023 was as follows:
| Named Executive Officer | Bonus Award | Percent of Target Bonus | Percent of Maximum Available Bonus | |||||||||
James R. Lines | $ | 652,800 | 163 | % | 82 | % | ||||||
Jeffrey F. Glajch | $ | 265,200 | 163 | % | 82 | % | ||||||
Alan E. Smith | $ | 196,518 | 153 | % | 76 | % | ||||||
| Named Executive Officer | Bonus Award | Percent of Target Bonus | Percent of Available | |||||||||
Daniel J. Thoren | $ | 238,000 | 60% | 30% | ||||||||
Christopher J. Thome | $ | 115,999 | 80% | 40% | ||||||||
Matthew Malone | $ | 144,900 | 97% | 48% | ||||||||
The Compensation Committee sets what it believes are challenging goals for maximum bonus awards and expects that maximum bonus awards will be made only in extraordinary circumstances.
The amount of these cash awards earned by each named executive officer in fiscal year 20212023 is shown in the “Non-Equity Incentive Plan Compensation” column of the Fiscal Year 20212023 Summary Compensation Table.
Under the Cash Bonus Program, special awards may be made to a named executive officer who has made an extraordinary contribution to us during the fiscal year. Such awards are generally recommended in writing by our Chief Executive Officer to the Chair of the Compensation Committee and approved by the Compensation Committee before grant. The Compensation Committee did not approve any such awards in fiscal year 2021.2023.
Long-Term Equity Incentive Compensation
The Compensation Committee designed our Annual Stock-Based Long-Term Incentive Award Plan for Senior Executives, which we refer to as the Stock Bonus Plan, to motivate our named executive officers to increase stockholder value by providing them with long-term stock-based awards for above-average Company performance. Our long-term incentive opportunities are intended to be competitive with the long-term incentive opportunities offered by the companies constituting our peer group. We issue shares of restricted stockawards pursuant to our Equity Incentive2020 Plan, a comprehensive executive compensation plan that provides for the grant of stock options, restricted stock, RSUs, PSUs and other stock-related awards, as well as other awards that may be settled in cash or other property. All of our named executive officers currently employed by us are eligible to participate in the Equity Incentive2020 Plan.
The Compensation Committee designed the Stock Bonus Plan to create a tight link between the named executive officers’ goals and the Company’s performance and business objectives. In fiscal year 2021,2023, the Compensation Committee granted half of the restricted stock awards in time-vested restricted stock,the form of RSUs, and the other half in performance-vested restricted stock. The Compensation Committee chose these formsthe form of awards in consideration of the Company’s current approach to risk and the traditional cyclicality of the Company’s business.PSUs.
Time-Vested Restricted Stock.RSUs. We grant time-vested restricted stockgranted RSUs because we believe that time-vested restricted stock helpsRSUs help us retain our named executive officers by offering our named executive officers the opportunity to receive shares of our common stock if they continue to be employed by us on the date the time-vested restricted stock vests. The Compensation Committee determines the number of shares of time-vested restricted stock to award to our named executive officers under the Stock Bonus Plan based on a percentage of each named executive officer’s annual base salary.RSUs vest. Unless the Compensation Committee determines otherwise, shares granted vest in equal installments of one-third on each anniversary of grant.the first three anniversaries of the date of grant, subject to the executive officer’s continued employment at each such date.
Performance-Vested Restricted Stock.PSUs. We grant performance-vested restricted stockgranted PSUs because we believe that performance-vested restricted stock helpsPSUs help us reward our named executive officers by conditioning the grant of restrictedshares of our common stock upon the satisfaction of predetermined Company objectives. Unless the Compensation Committee determines otherwise, the shares of performance-vested restricted stock cliffPSUs vest on the third anniversary of the date of grant, subject to satisfaction of the performance metrics for the applicable three-year period.period and subject to continued employment through the vesting date. The Compensation Committee typically sets the metrics applicable to the performance-vested restricted stock just prior to the start of the fiscal year and finalizes and approves such metrics and the other terms of the restricted stock grants during our first quarter.
For fiscal year 20212023 grants, the performance metric applicable to the performance-vested restricted stockPSUs is our achievement over a three year period of Total Stockholder Return comparedbased upon the Company’s three-year cumulative EBITDA metric with linear interpolation applied between points and no payout if the results are below threshold. With respect to the Russell 2000 Capital Goods and Energy Composite Rankings (using a 20 day price average at the start and end of the three year period commencing April 1, 2020 and ending March 31, 2023). Oncethese grants, the Compensation Committee determinesmay consider extraordinary events that either positively or negatively affect the achievementcumulative EBITDA metric, and may in its discretion, include or exclude the impact of thethese events.
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Executive Compensation • Compensation Discussion and Analysis
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performance criteria forThe Compensation Committee determines the number of RSUs and PSUs to award to our named executive officers based on a percentage of each named executive officer’s annual base salary. The Compensation Committee determined the number of RSUs and PSUs to award to our named executive officers by using each such officer’s Long-Term Incentive Percentage, which we refer to as the L-T Percentage. For fiscal year 2023, it will adjust the actualL-T Percentage in effect for each of our named executive officers was as follows: Mr. Thoren – 100%; Mr. Thome – 50%; and Mr. Malone – 50%.
The number of shares to whichRSUs awarded was determined by multiplying 50% of each named executive officer is entitled accordingly. Any unearned shares are forfeited back toofficer’s base salary in effect on the Company.date of grant by such officer’s L-T Percentage, and then dividing the product by the closing price of the Company’s common stock on the NYSE on the date of grant. The number of PSUs was determined by multiplying 50% of each named executive officer’s base salary in effect on the date of grant by such officer’s L-T Percentage, and then dividing the product by the closing price of the Company’s common stock on the NYSE on the date of grant. The closing price of our common stock was $8.19 on May 23, 2022, the date of grant.
The Compensation Committee seeks to establish performance goals that are challenging but attainable based on our business and financial plan for the year. When establishing performance goals, the Compensation Committee reviews and discusses our business and financial plans for that year and the opportunity to generate stockholder value. The Compensation Committee establishes a range of performance goals for the year as well as individual payment thresholds, targets and maximums for each goal.
Forfeitures. If the named executive officers terminate their employment for reasons other than death or disability prior to the vesting of restricted shares, they will forfeit those shares.
Additional information regarding the restricted stock awards granted to each named executive officer in fiscal year 20212023 is set forth in the Fiscal Year 20212023 Summary Compensation Table, the Fiscal Year 20212023 Grants of Plan-Based Awards Table,table, and in the narrative that follows the tables.in this CD&A.
Perquisites and Other Personal Benefits
We provide limited perquisites and benefits to attract, retain and reward named executive officers by providing an overall benefit package similar to those received by similarly-situated executive officers at comparably-sized companies in our industry and geographic region.
During fiscal year 2021,2023, we paid premiums for life insurance policies for the benefit of each of our named executive officers. In addition, all of our named executive officers participate in our short-term disability program that is available to our managers and executive officers. We also make available to our named executive officers health insurance and long-term disability programs that are generally available to our salaried employees.
Our named executive officers also receive an allowance up to $2,500 for the purpose of purchasing term life insurance with a named beneficiary of each officer’s choosing as well as an additional amount necessary for our named executive officers to purchase a personal umbrella insurance policy. Our Chief Executive Officer is entitled to up to $5,000 for the purpose of purchasing term life insurance.
Retirement Benefits
We provide retirement benefits to our named executive officers to attract, retain and reward named executive officers by providing an overall benefit package similar to those received by similarly-situated executive officers at comparably-sized companies in our industry and geographic region.
Mr. LinesMessrs. Thoren, Thome and Mr. Smith are each eligible to participate in our Retirement Income Plan, which is a defined benefit pension plan for the benefit of our domestic employees hired prior to January 1, 2003. Benefits are based on the employee’s years of service and average annual base salary for the five highest consecutive calendar years of compensation in the ten-year period preceding retirement, reduced to take into account a participant’s Social Security benefits paid for by the Company.
All of our named executive officers currently employed by usMalone participate in our Incentive Savings Plan (the “401(k) Plan”), which is a defined contribution plan that provides for both employer and employee contributions. The 401(k) Plan uses a “safe harbor” design that provides for a matching contribution of 100% of a participant’s deferrals up to 3% of compensation plus 50% of deferrals in excess of 3% but not in excess of 5% of compensation (for a maximum 4% matching contribution). Additionally, eligible employees hired after January 1, 2003, which includes Mr. Glajch,including Messrs. Thoren, Thome and Malone, with at least one hour of service during the relevant plan year who are employed by us at the end of such year receive a contribution in an amount equal to 3.25% of eligible compensation received during such year, which contribution is paid on the first $285,000$290,000 of compensation, as adjusted for cost-of-living increases, in accordance with Section 401(a)(17) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). The amounts allocated to participants under the 401(k) Plan fully vest after four years of employment.
We also make available to our named executive officers who participate in our Retirement Income Plan our Supplemental Executive Retirement Plan, which we refer to as the Supplemental Plan. The Supplemental Plan is intended to provide eligible participants and their surviving spouses and beneficiaries with the amount of employer-provided retirement benefits that the Retirement Income Plan would provide, but for the limitation on compensation that may be recognized under tax-qualified plans imposed by Section 401(a)(17) of the Internal Revenue Code and the limitations on benefits imposed by Section 415 of the Internal Revenue Code.
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We have provided more information about our defined benefit retirement plans and the benefits payable to our named executive officers under such plans under the heading “Pension Benefits at March 31, 2021.”
Employment Agreements and Potential Payments upon Termination or Change in Control
We have employment agreements with each of our named executive officers. The decisions to enter into employment agreements and the terms of those agreements were based on our need to motivate and retain talent for our long-term growth.
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Executive Compensation • Compensation Discussion and Analysis |
growth and are consistent with similarly-situated executive officers at comparably sized companies in our industry and geographic region. The material terms of the employment agreements with certain of our named executive officers are described under the heading “Employment Agreements” in the Narrative to the Fiscal Year 2021 Summary Compensation Table and Fiscal Year 2021 Grants of Plan-Based Awards Table.Agreements.”
Pursuant to their respective employment agreements, we have agreed to provide payments to certain of our named executive officers in the event of a termination of employment as a result of normal and early retirement, involuntary termination, death, and disability. Mr. LinesMessrs. Thoren and Mr. GlajchThome are also eligible to receive additional payments in the event of termination following a change in control. In March 2021, we agreed to amend Mr. Glajch’s employment agreement to revise the severance amounts payable in the event of a termination of Mr. Glajch’s employment with the Company within two years after a change in control. We believe these arrangements promote stability and continuity of leadership to the benefit of our named executive officers and the Company. See “Potential Payments upon Termination or Change in Control” for further information regarding these arrangements.
Stock Ownership Guidelines
In order to more closely align the interests of our named executive officers with the interests of our stockholders, the Compensation Committee has established minimum stock ownership guidelines that require our named executive officers to work towards acquiring and maintaining specific levels of equity ownership interests in our common stock within specified time frames. A summary of our current stock ownership guidelines for our named executive officers is as follows:
Position | Stock Ownership Guideline | |
Chief Executive Officer | Common stock with a value equal to at least 4.00 times his annual base salary | |
Other named executive officers | Common stock with a value equal to at least 2.00 times his annual base salary | |
Our stock ownership guidelines also require our named executive officers to retain 50% of the net shares realized (after tax) when a restricted stock award (“RSA”) vests or a stock option is exercised until they are in compliance with the guidelines, unless waived by the Chair of the Compensation Committee.
The Compensation Committee monitors the progress made by our named executive officers in achieving their stock ownership guidelines and, if circumstances warrant, may modify the guidelines and/or time frames for one or more of our named executive officers. Under the guidelines, our named executive officers are directed to be in compliance with their respective ownership objectives within five years of becoming a named executive officer.officer (with an additional two-fiscal year grace period if the guidelines are amended to increase the ownership target). If a named executive officer does not meet his ownership guidelines, the Compensation Committee may take that fact into consideration when evaluating such executive’s overall performance. As of the end of fiscal year 2021, none2023, all of our named executive officers were in compliance with our stock ownership guidelines, due to the increaseincluding two named executive officers who are in the grace period provided by the guidelines in fiscal 2020.and expected to comply with the guidelines at the end of such period.
Certain Tax and Accounting Implications
We periodically review accounting and tax laws, rules and regulations that may apply to our compensation programs. However, tax and accounting considerations have not significantly impacted the compensation programs that we offer to our named executive officers.
We account for stock-based employee compensation at fair value of the awards on the grant date and recognize the related cost in our statements of operations in accordance with Financial Accounting Standards Board Accounting Standards Codification 718, Compensation-Stock Compensation, which we refer to as FASB ASC Topic 718, formerly SFAS No. 123(R), “Share-Based Payment,” which we adopted effective April 1, 2006 utilizing the modified prospective method. These stock-based payments include awards made under our Equity Incentive Plan.
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Compensation.
Risk Considerations in our Compensation Programs
At least one time each year, we undertake a Company-wide analysis of our compensation programs to assess whether they create risks that are reasonably likely to have a material adverse effect on our business. In fiscal year 2021,2023, the Compensation Committee conducted its own risk assessment for our compensation programs and plans. As part of that assessment, the Compensation Committee reviewed the intent, purposes and practices of our compensation programs and plans. The Compensation Committee conducted this review in connection with a review of our business and growth strategies. Based on these reviews, we have concluded that our compensation programs are appropriately tailored to encourage employees to grow our business, but not incentivize them to do so in a way that is reasonably likely to have a material adverse effect on our Company.
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Executive Compensation • Risk Considerations in our Compensation Programs |
For example, our Cash Bonus Program and our Stock Bonus Plan, which are our two primary executive compensation programs, balance each other by providing compensation that rewards short-term (Cash Bonus Program) and long-term (Stock Bonus Plan) performance. The Cash Bonus Program balances risk by considering several performance metrics and capping the maximum payout a named executive officer can receive at 200% of target bonus level (target bonus level is between 80%100% and 50% of base salary for each of our named executive officers). In addition, our Stock Bonus Plan provides balanced incentives through equity-based compensation awards, which include time-vested restricted stockRSUs and performance-vested restricted stock.PSUs. The Compensation Committee believes that this mix of incentives, together with our executive stock ownership guidelines, encourages our named executive officers to achieve both short-term operating and long-term strategic objectives, including the long-term performance of our stock.
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Executive Compensation • Fiscal Year
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Fiscal Year 20212023 Summary Compensation Table
The following table shows certain information regardingabout the compensation of our named executive officers for services rendered to us in all capacitiesour two most recently completed fiscal years (one if the individual was not a named executive officer for the fiscal yearsyear ended March 31, 2021 and 2020.2022 (“fiscal year 2022”)).
| Name and Principal Position | Fiscal Year | Salary(1) ($) | Bonus ($) | Stock Awards(2)(3) ($) | Non-Equity ($) | Change in ($) | All Other Compensation(6) ($) | Total ($) | ||||||||||||||||||||||||
James R. Lines | 2021 | 500,000 | — | 468,174 | 652,800 | 255,003 | 17,332 | 1,893,309 | ||||||||||||||||||||||||
CEO | 2020 | 500,000 | — | 451,834 | — | 619,514 | 41,086 | 1,612,434 | ||||||||||||||||||||||||
Jeffrey F. Glajch | 2021 | 325,000 | — | 190,190 | 265,200 | — | 26,143 | 806,533 | ||||||||||||||||||||||||
VP - Finance & | 2020 | 309,858 | — | 163,055 | — | — | 26,280 | 499,193 | ||||||||||||||||||||||||
Administration and CFO | ||||||||||||||||||||||||||||||||
Alan E. Smith | 2021 | 257,560 | — | 150,718 | 196,518 | 133,408 | 15,893 | 754,097 | ||||||||||||||||||||||||
VP and General Manager - Batavia | 2020 | 257,560 | — | 145,449 | 32,710 | 261,196 | 15,500 | 712,415 | ||||||||||||||||||||||||
| Name and Principal Position | Fiscal Year | Salary(1) ($) | Bonus ($) | Stock Awards(2) ($) | Non-Equity Incentive Plan Compensation(3) ($) | All Other Compensation(4) ($) | Total ($) | |||||||||||||||||||||
Daniel J. Thoren | 2023 | 400,000 | — | 400,000 | 238,000 | 36,557 | 1,074,557 | |||||||||||||||||||||
CEO | 2022 | 324,583 | — | 480,420 | 127,237 | 18,664 | 950,904 | |||||||||||||||||||||
Christopher J. Thome | 2023 | 288,884 | — | 144,996 | 115,999 | 15,057 | 564,936 | |||||||||||||||||||||
VP - Finance, CFO, CAO and Corporate Secretary | ||||||||||||||||||||||||||||
Matthew Malone | 2023 | 300,000 | — | 150,008 | 144,900 | 35,432 | 630,340 | |||||||||||||||||||||
VP and GM - Barber-Nichols | 2022 | 208,333 | — | 155,247 | 135,521 | 12,848 | 511,949 | |||||||||||||||||||||
| (1) | The amounts shown in this column include cash compensation earned and paid, and cash compensation deferred at the election of each named executive officer under our 401(k) Plan. |
| (2) |
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| (3) |
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The amounts shown in this column reflect the cash payment made to our named executive officers under the Cash Bonus Program in effect for the respective fiscal year |
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All Other Compensation consists of the following: |
| Named Executive Officer | Insurance ($) | 401(k) Plan Matching Contributions ($) | 401(k) Plan Non-elective Contributions ($) | Service Award | Total ($) | |||||||||||||||
James R. Lines | 5,932 | 11,400 | — | — | 17,332 | |||||||||||||||
Jeffrey F. Glajch | 5,480 | 11,400 | 9,623 | — | 26,143 | |||||||||||||||
Alan E. Smith | 4,493 | 11,400 | — | — | 15,893 | |||||||||||||||
| Named Executive Officer | Insurance ($) | 401(k) Plan Matching Contributions ($) | 401(k) Plan Non-elective Contributions ($) | Vacation Payout ($) | Total ($) | |||||||||||||||
Daniel J. Thoren | 3,960 | 14,992 | 9,913 | 7,692 | 36,557 | |||||||||||||||
Christopher J. Thome | 1,258 | 6,767 | 7,032 | — | 15,057 | |||||||||||||||
Matthew Malone | 945 | 13,293 | 9,656 | 11,538 | 35,432 | |||||||||||||||
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Fiscal Year 20212023 Grants of Plan-Based Awards
The following table shows information regarding the grants of annual incentive cash compensation and restricted stock during fiscal year 20212023 to our named executive officers.
| Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) | Estimated Future Payouts Under Equity Incentive Plan Awards | All (#) | Grant of and ($) | |||||||||||||||||||||||||||||||||||
| Name | Type of Award | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | ||||||||||||||||||||||||||||||
James R. Lines | Performance- Vested Restricted Stock | 6/9/20 | 7,087 | 14,174 | 28,348 | 268,186 | ||||||||||||||||||||||||||||||||
| Time-Vested Restricted Stock | 6/9/20 | 14,174 | 199,995 | |||||||||||||||||||||||||||||||||||
| Annual Incentive | 120,000 | 400,000 | 800,000 | |||||||||||||||||||||||||||||||||||
Jeffrey F. Glajch | Performance- Vested Restricted Stock | 6/9/20 | 2,879 | 5,758 | 11,516 | 108,950 | ||||||||||||||||||||||||||||||||
| Time-Vested Restricted Stock | 6/9/20 | 5,758 | 81,245 | |||||||||||||||||||||||||||||||||||
| Annual Incentive | 48,750 | 162,500 | 325,000 | |||||||||||||||||||||||||||||||||||
Alan E. Smith | Performance- Vested Restricted Stock | 6/9/20 | 2,282 | 4,563 | 9,126 | 86,342 | ||||||||||||||||||||||||||||||||
| Time-Vested Restricted Stock | 6/9/20 | 4,563 | 64,384 | |||||||||||||||||||||||||||||||||||
| Annual Incentive | 38,634 | 128,780 | 257,560 | |||||||||||||||||||||||||||||||||||
Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) |
Estimated Future Payouts Under Equity Incentive Plan Awards | All (#) | Grant Date Fair Value of Stock and Option Awards(2) ($) | |||||||||||||||||||||||||||||||||||
| Name | Type of Award | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | ||||||||||||||||||||||||||||||
Daniel J. Thoren | PSUs(3)(4) | 5/23/22 | 12,210 | 24,420 | 48,840 | 200,000 | ||||||||||||||||||||||||||||||||
| RSUs(3)(4) | 5/23/22 | 24,420 | 200,000 | |||||||||||||||||||||||||||||||||||
| Annual Incentive | 200,000 | 400,000 | 800,000 | |||||||||||||||||||||||||||||||||||
Christopher J. Thome | PSUs(3)(4) | 5/23/22 | 4,426 | 8,852 | 17,704 | 72,498 | ||||||||||||||||||||||||||||||||
| RSUs(3)(4) | 5/23/22 | 8,852 | 72,498 | |||||||||||||||||||||||||||||||||||
| Annual Incentive | 72,498 | 144,996 | 289,992 | |||||||||||||||||||||||||||||||||||
Matthew Malone | PSUs(3)(4) | 5/23/22 | 4,579 | 9,158 | 18,316 | 75,004 | ||||||||||||||||||||||||||||||||
| RSUs(3)(4) | 5/23/22 | 9,158 | 75,004 | |||||||||||||||||||||||||||||||||||
| Annual Incentive | 75,000 | 150,000 | 300,000 | |||||||||||||||||||||||||||||||||||
| (1) | The amounts shown in these columns reflect the incentive cash compensation amounts that potentially could have been earned during fiscal year |
| (2) | The |
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Narrative to the Fiscal Year 2021 Summary Compensation Table and Fiscal Year 2021 Grants of Plan-Based Awards Table
Awards Granted in Fiscal Year 2021
The Compensation Committee determines the number of shares of restricted stock to award to our named executive officers based on a percentage of each named executive officer’s annual base salary. The Compensation Committee determined the number of shares of performance-vested restricted stock to award to our named executive officers by using each such officer’s Long-Term Incentive Percentage, which we refer to as the L-T Percentage. For fiscal year 2020, the L-T Percentage in effect for each of our named executive officers was as follows: Mr. Lines - 80%; Mr. Glajch - 50%; and Mr. Smith - 50%.
The number of shares of restricted stock was determined by multiplying 50% of each named executive officer’s base salary then in effect by such officer’s L-T Percentage, and then dividing the product by the closing price of our common stock on the date of grant.
The closing price of our common stock on June 9, 2020 was $14.11 without adjusting for the payment of dividends. The number of shares of time-vested restricted stock and the number of shares of performance-vested restricted stock granted to our named executive officers in fiscal year 2021 are as follows:
Number of Shares of Restricted Stock Granted | ||||||||
| Named Executive Officer | Performance-Vested(1)(2) | Time-Vested(1) | ||||||
James R. Lines | 28,348 | 14,174 | ||||||
Jeffrey F. Glajch | 11,516 | 5,758 | ||||||
Alan E. Smith | 9,126 | 4,563 | ||||||
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Vesting
Beginning with grants made during fiscal year 2015, shares of time-vested restricted stock vest in installments of one-third on each anniversary of grant over three years assuming the named executive officer is employed by us on the date the time-vested restricted stock vests. The shares of performance-vested restricted stock cliff vest on the last day of the third fiscal year following the fiscal year of grant, subject to satisfaction of the performance metrics for the applicable three-year period. We pay dividends on unvested restricted stock at the same rate as paid on our common stock.
Option Grants
Prior to fiscal year 2014, we granted stock options under the Equity Incentive Plan. Our named executive officers only realize the compensation if our stock price increases over the term of the award, which aligned this element of compensation with our performance. Outstanding stock options vest over a three-year period, with 331/3% of the shares subject to such option vesting on each of the first, second, and third anniversaries of the date of grant.
During fiscal year 2021,2023, we were a party to employment agreements with each of our named executive officers. The following is a summary of the key terms of each of these employment agreements.
James R. Lines. Daniel J. ThorenOn August 1, 2006, we. We entered into an Amended and Restated Employment Agreement (the “Restated Employment Agreement”) with Mr. Thoren effective as of the close of business on August 31, 2021, which amended and restated the employment agreement withbetween us and Mr. Lines,Thoren dated as subsequently amendedof June 1, 2021 (the “Previous Employment Agreement”). Pursuant to the terms of the Restated Employment Agreement, Mr. Thoren serves as our President and Chief Executive Officer effective as of the close of business on DecemberAugust 31, 2008, which provides that2021 (having previously served as our President and Chief Operating Officer under the Previous Employment Agreement). The Restated Employment Agreement has a term of one year, subject to automatic renewal periods until the Restated Employment Agreement is terminated or Mr. Lines will receive an annual minimumThoren attains the age of 65. Mr. Thoren’s initial base salary as well asrate pursuant to the Restated Employment Agreement is $400,000 per year. The Restated Employment Agreement also provides for us to make
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certain payments to Mr. Thoren in the event we terminate his employment without cause or upon the occurrence of certain events relating to a change in control of the Company, as described under “Involuntary Termination” and “Termination Following a Change in Control” under the heading “Potential Payments Upon Termination or Change in Control.”
In addition, if Mr. Thoren’s employment with us is terminated for any reason, he will be subject to a covenant not to disclose to anyone our confidential information as well as a 12-month covenant not to compete with us and not to interfere in certain of our business relationships.
The Restated Employment Agreement also provides that we will indemnify Mr. Thoren for all acts or omissions and for any suits brought against him which relate to duties he performed in good faith for us.
Pursuant to his employment agreement, Mr. Thoren was entitled to receive a retention bonus of $730,000 as of June 1, 2023.
Christopher J. Thome. As of March 7, 2022, we entered into an Employment Agreement, effective as of April 4, 2022 with Mr. Thome, our Vice President – Finance, Chief Financial Officer, Chief Accounting Officer and Corporate Secretary. Mr. Thome’s agreement has a term of one year, subject to automatic renewal periods until the agreement is terminated or Mr. Thome attains the age of 65. Mr. Thome’s initial base salary rate pursuant to the agreement was $290,000 per year. The agreement also provides for us to make certain payments to Mr. Thome in the event we terminate his employment without cause or upon the occurrence of certain events relating to a change in control of the Company, as described under “Involuntary Termination” and “Termination Following a Change in Control” under the heading “Potential Payments Upon Termination or Change in Control.”
In addition, if Mr. Thome’s employment with us is terminated for any reason, he will be subject to a covenant not to disclose to anyone our confidential information as well as a 12-month covenant not to compete with us and not to interfere in certain of our business relationships.
The agreement also provides that we will indemnify Mr. Thome for all acts or omissions and for any suits brought against him which relate to duties he performed in good faith for us.
Matthew Malone. As of June 1, 2021, we entered into an employment agreement with Mr. Malone. The agreement provides that Mr. Malone will receive an annual minimum base salary as well as other customary benefits. Mr. Lines is also eligible under the agreement to receive discretionary bonuses. TheMalone’s agreement automatically renews such that it always has a one-year term remaining, unless we or Mr. LinesMalone elect not to extend the term further, in which case the term will end on the first anniversary of the date on which notice of such election not to extend is given. If not terminated sooner, the agreement will end on the last day of the month in which Mr. LinesMalone turns 65. Mr. Malone’s initial base salary rate pursuant to the agreement was $250,000 per year.
Pursuant to our employment agreement with Mr. Lines, if he resigns for reasons other than a material breach of the agreement by us, departs from our employment without the approval of the Board, or is discharged for cause, he will be subject to an 18-month covenant not to compete with us, not to interfere in certain of our business relationships, and not to disclose to anyone our confidential information.
Our employment agreement with Mr. Lines also provides for us to make certain payments to him in the event we terminate his employment without cause or upon the occurrence of certain events relating to a change in control of the Company, as described under “Involuntary Termination” and “Termination Following a Change in Control” under the heading “Potential Payments Upon Termination or Change in Control.”
Our employment agreement with Mr. Lines provides that we will indemnify him for all acts or omissions and for any suits brought against him which relate to duties he performed in good faith for us.
Jeffrey F. Glajch. On July 29, 2010, we entered into an amended and restated employment agreement with Mr. Glajch, as subsequently amended on September 12, 2019 and March 16, 2021, to serve as our Vice President - Finance & Administration and Chief Financial Officer. The agreement provides that Mr. Glajch will receive an annual minimum base salary as well as other customary benefits. The agreement automatically renews such that it always has a one-year term remaining, unless we or Mr. Glajch elect not to extend the term further, in which case the term will end on the first anniversary of the date on which notice of such election not to extend is given. If not terminated sooner, the agreement will end on the last day of the month in which Mr. Glajch turns 65.
Pursuant to our employment agreement with Mr. Glajch,Malone, if his employment with us is terminated for any reason, he will be subject to ana covenant not to disclose to anyone our confidential information as well as a 18-month12-month covenant not to compete with us and not to interfere in certain of our business relationships, and not to disclose to anyone our confidential information.relationships.
Our employment agreement with Mr. Glajch also provides for us to make certain payments to him in the event we terminate his employment without cause or upon the occurrence of certain events relating to a change in control of the Company, as described under “Involuntary Termination” and “Termination Following a Change in Control” under the heading “Potential Payments Upon Termination or Change in Control.”
Our employment agreement with Mr. Glajch provides that we will indemnify him for all acts or omissions and for any suits brought against him which relate to duties he performed in good faith for us.
Alan E. Smith. On July 30, 2007, we entered into an employment agreement with Mr. Smith, as subsequently amended on December 31, 2008. The agreement provides that Mr. Smith will receive an annual minimum base salary as well as other customary benefits. Mr. Smith’s agreement automatically renews such that it always has a one-year term remaining, unless we or Mr. Smith elect not to extend the term further, in which case the term will end on the first anniversary of the date on which notice of such election not to extend is given. If not terminated sooner, the agreement will end on the last day of the month in which Mr. Smith turns 65.
Pursuant to our employment agreement with Mr. Smith, if his employment with us is terminated for any reason, he will be subject to an 18-month covenant not to compete with us, not to interfere in certain of our business relationships, and not to disclose to anyone our confidential information.
Our employment agreement with Mr. SmithMalone also provides for us to make certain payments to him in the event we terminate his employment without cause as described below under “Involuntary Termination” under the heading “Potential Payments Upon Termination or Change in Control.”
Our employment agreement with Mr. SmithMalone provides that we will indemnify him for all acts or omissions and for any suits brought against him which relate to duties he performed in good faith for us.
Additional InformationPursuant to his employment agreement, Mr. Malone was entitled to receive a retention bonus of $250,000 as of June 1, 2023.
We have provided additional information regardingIn addition, Mr. Malone may receive benefits under the compensationAmended and Restated Performance Bonus Agreement (the “Performance Bonus Agreement”). As part of our acquisition of Barber-Nichols, LLC (“Barber-Nichols”), we payentered into a contingent earn-out agreement dependent upon certain financial measures of Barber-Nichols post-acquisition. In the second quarter of fiscal 2022, the earn-out agreement was terminated and replaced with the Performance Bonus Agreement. The Performance Bonus Agreement provides certain employees of Barber-Nichols, including Mr. Malone, with performance-based cash awards based on the achievement of Barber-Nichols performance objectives for fiscal years ending March 31, 2024, 2025 and 2026 and can range between $2,000,000 to our named executive officers in$4,000,000 per year. The awards will be distributed among those certain employees eligible to participate at the CD&A and encourage you to readtime the above tables and their footnotes in conjunction with such information.bonus payment is made by the Company.
34 | GRAHAM CORPORATION | |||
Executive Compensation • Outstanding Equity Awards at March 31,
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Outstanding Equity Awards at March 31, 20212023
The following table shows information regarding the number of unexercised stock options and the number and value of unvested restricted stockequity awards held by our named executive officers at March 31, 2021.2023.
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||||
| Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Not (#) | Market Value of Shares Units of Stock That Not ($) | Equity Plan Number of Unearned Units or Rights Not Vested (#) | Equity Plan Market or Value of Shares, Other ($) | ||||||||||||||||||||||||
James R. Lines | 10,894 | — | 18.65 | 5/30/2022 | ||||||||||||||||||||||||||||
| 1,938 | (1) | 27,597 | ||||||||||||||||||||||||||||||
| 6,536 | (2) | 93,073 | ||||||||||||||||||||||||||||||
| 14,174 | (3) | 201,838 | ||||||||||||||||||||||||||||||
| 5,813 | (4) | 82,777 | ||||||||||||||||||||||||||||||
| 9,804 | (5) | 139,609 | ||||||||||||||||||||||||||||||
| 28,348 | (6) | 403,676 | ||||||||||||||||||||||||||||||
Jeffrey F. Glajch | 7,141 | — | 18.65 | 5/30/2022 | ||||||||||||||||||||||||||||
| 892 | (1) | 12,702 | ||||||||||||||||||||||||||||||
| �� | 2,359 | (2) | 33,592 | |||||||||||||||||||||||||||||
| 5,758 | (3) | 81,994 | ||||||||||||||||||||||||||||||
| 2,675 | (4) | 38,092 | ||||||||||||||||||||||||||||||
| 3,538 | (5) | 50,381 | ||||||||||||||||||||||||||||||
| 11,516 | (6) | 163,988 | ||||||||||||||||||||||||||||||
Alan E. Smith | 6,059 | — | 18.65 | 5/30/2022 | ||||||||||||||||||||||||||||
| 796 | (1) | 11,335 | ||||||||||||||||||||||||||||||
| 2,104 | (2) | 29,961 | ||||||||||||||||||||||||||||||
| 4,563 | (3) | 64,977 | ||||||||||||||||||||||||||||||
| 2,387 | (4) | 33,991 | ||||||||||||||||||||||||||||||
| 3,156 | (5) | 44,941 | ||||||||||||||||||||||||||||||
| 9,126 | (6) | 129,954 | ||||||||||||||||||||||||||||||
| Stock Awards | ||||||||||||||||
| Name | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested(1) ($) | Equity Plan Number of Unearned Units or Rights Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested(1) ($) | ||||||||||||
Daniel J. Thoren | 3,974 | (2) | 51,980 | |||||||||||||
| 5,958 | (3) | 77,931 | ||||||||||||||
| 24,420 | (4) | 319,414 | ||||||||||||||
| 11,920 | (5) | 155,914 | ||||||||||||||
| 17,872 | (5) | 233,767 | ||||||||||||||
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| 48,840 | (6) | 638,827 | |||||||
Christopher J. Thome | 8,852 | (4) | 115,784 | |||||||||||||
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| 17,704 | (6) | 231,568 | |||||||
Matthew Malone | 2,722 | (2) | 35,604 | |||||||||||||
| 9,158 | (4) | 119,787 | ||||||||||||||
| 8,164 | (5) | 106,785 | ||||||||||||||
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| 18,316 | (6) | 239,573 | |||||||
| (1) |
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| (2) | One-third of this grant of time-vested |
| (3) | One-third of this grant of time-vested |
| (4) |
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| (5) | This |
| (6) | This grant of |
GRAHAM CORPORATION | 35 | |||
Executive Compensation • Fiscal Year
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Fiscal Year 2021 Option Exercises and2023 Stock Vested
The following table shows information regarding the number and value realized of stock options exercised and stock awards that vested during fiscal year 20212023 for each of our named executive officers. None of our named executive officers exercised any options during fiscal year 2021.2023.
| Stock Awards | ||||||||
| Name | Number of Shares (#) | Value Realized on ($) | ||||||
James R. Lines | 11,050 | 124,190 | ||||||
Jeffrey F. Glajch | 4,663 | 52,359 | ||||||
Alan E. Smith | 4,161 | 46,772 | ||||||
| Stock Awards | ||||||||
| Name | Number of Shares (#) | Value Realized on Vesting(1) ($) | ||||||
Daniel J. Thoren | 1,986 | 14,657 | ||||||
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| 2,978 | 26,504 | ||||||
Christopher J. Thome | — | — | ||||||
Matthew Malone | 1,360 | 10,037 | ||||||
| (1) | The value realized on vesting is equal to the |
Pension Benefits at March 31, 20212023
The following table shows information atAt March 31, 2021 regarding2023, none of our named executive officers were eligible to participate in our Retirement Income Plan and our Supplemental Executive Retirement Plan.
| Name | Plan Name | Number of Years Credited Service (#) | Present Value of ($) | Payments During Last Fiscal Year ($) | ||||||||||
James R. Lines | Retirement Income Plan | 30 | 1,650,093 | — | ||||||||||
Supplemental Executive Retirement Plan | — | 1,364,430 | — | |||||||||||
Jeffrey F. Glajch(2) | Retirement Income Plan | — | — | — | ||||||||||
Supplemental Executive Retirement Plan | — | — | — | |||||||||||
Alan E. Smith | Retirement Income Plan | 28 | 1,160,170 | — | ||||||||||
Supplemental Executive Retirement Plan | — | — | — | |||||||||||
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Retirement Income Plan
Our Retirement Income Plan is a defined benefit pension plan for the benefit of our domestic employees hired prior to January 1, 2003. The purpose of the Retirement Income Plan is to supplement Social Security benefits and to provide a reliable source of regular income for participants or their survivors after retirement by the participant. During fiscal year 2021, Mr. Lines and Mr. Smith were eligible to participate in the Retirement Income Plan.
Normal retirement under the Retirement Income Plan is generally the later of a participant’s 65th birthday or the 5th anniversary of the date on which he or she became a participant. Early retirement under the Retirement Income Plan is
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available for a participant who is at least 55 years old and has completed fifteen years or more of creditable service. The Retirement Income Plan also provides for a disability retirement allowance in the event of disability.
The Retirement Income Plan also provides for the payment of a retirement benefit in the event that a participant’s employment was terminated when the participant was not eligible for normal, early or disability retirement. Eligibility for such “vested retirement” requires the completion of five years of service with us. A participant who is entitled to a vested retirement allowance when his employment terminates will ordinarily begin receiving payments after reaching normal retirement age. If the participant has completed at least fifteen years of creditable service, he or she may elect to begin receiving payments on the first day of the month after he or she reaches age 55 and up to the first month after he or she reaches normal retirement age. The amount of a participant’s monthly vested retirement payment will vary depending on age, service and time of commencement.
Benefits under the Retirement Income Plan are based on the employee’s years of service and average annual base salary for the five highest consecutive calendar years of compensation in the ten-year period preceding retirement. Benefits under the Retirement Income Plan are reduced to take into account a participant’s Social Security benefits paid for by the Company. To calculate the present value of the accumulated benefits, the following assumptions were used: a 3.21% discount rate, the PRI-2012 White Collar Mortality Table dataset projected generationally by scale MP 2020 and an age 63 retirement age.
The approximate years of creditable service as of March 31, 2021 of each of the named executive officers eligible to participate in the Retirement Income Plan are as follows: Mr. Lines - 30 and Mr. Smith - 28. Although our named executive officers may serve us for more than 30 years, we do not normally grant additional years of creditable service.
The form and amount of the payments made under the Retirement Income Plan depends upon marital status when payment begins and the form of payment selected. The normal form of benefit for a married participant is a 100% joint and survivor annuity, which provides a retirement allowance in the form of reduced monthly payments that will continue for the rest of the participant’s life. If the participant is survived by the person who was the participant’s spouse when payments began, such spouse will receive survivor benefits equal to 100% of the amount of the payments made to the participant during his lifetime. His spouse will be paid survivor benefits for his or her remaining lifetime. Subject (in most cases) to the spouse’s consent, a participant may elect to receive benefits in the form of a single life annuity, 50% joint and survivor annuity, a Social Security Level Income Option, a 10, 15, or 20-year certain annuity or a life annuity with a 10, 15, or 20 year guarantee.
Supplemental Executive Retirement Plan
In addition to the Retirement Income Plan, we maintain the Supplemental Plan that is a non-qualified deferred compensation plan and is intended to provide eligible participants and their surviving spouses and beneficiaries with the amount of employer-provided retirement benefits that the Retirement Income Plan would provide but for the limitation on compensation that may be recognized under tax-qualified plans imposed by Section 401(a)(17) of the Internal Revenue Code and the limitations on benefits imposed by Section 415 of the Internal Revenue Code.
A participant who has completed a period of service of at least five years under the Retirement Income Plan and whose benefits are limited by the above-referenced provisions of the Internal Revenue Code, is entitled to receive a monthly benefit from the Supplemental Plan. All of our named executive officers hired prior to January 1, 2003 are eligible to participate in the Supplemental Plan, but Mr. Lines is the only named executive officer that currently has an accrued benefit under the Supplemental Plan.
The monthly benefit under the Supplemental Plan is equal to the excess, if any, of the retirement benefits that would have been payable to or with respect to the plan participant under the Retirement Income Plan had the limitations imposed by the Internal Revenue Code not been applicable over the retirement benefits payable to or with respect to the participant under the Retirement Income Plan.
A participant’s retirement benefits under the Supplemental Plan generally will be paid to or with respect to the participant in the same form and at the same time as the participant’s retirement benefits under the Retirement Income Plan. The benefits under the Supplemental Plan will terminate upon cessation of benefits to the participant or his beneficiary under the Retirement Income Plan.
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Upon a “change in control” of the Company, each participant in the Supplemental Plan would automatically become 100% vested in his benefits. A “change in control” for the purposes of the Supplemental Plan is defined as:
the acquisition of the assets or a majority of the shares of the Company by a person or group not controlled by the Company;
a cash tender offer or exchange offer, consolidation or merger or other business combination, sale of assets or contested election as a result of which the members of the Board before the event cease to constitute a majority of the Board;
the acquisition of 25% or more of the shares of the Company by a person or a group; or
the occurrence of any event that would be required to be reported in response to Item 6(e) of Schedule 14A or to Item 5.01 of Form 8-K.
401(k) Plan
All of our named executive officers currently employed by us are also eligible to participate in our 401(k) Plan, which is available to all of our employees. Pursuant to the 401(k) Plan, we match funds deferred at the election of participants, up to a certain percentage, and we make non-elective contributions to the accounts of eligible participants. Matching contributions under the 401(k) Plan always are fully vested. Additionally, eligible employees hired after January 1, 2003 with at least one hour of service during the relevant plan year who are employed by us at the end of such year receive a nonelective contribution as described above.
Potential Payments upon Termination or Change in Control
The following information and the table entitled “Estimated Payments Upon Termination or a Change in Control” set forthdescribe the amount ofpotential payments and benefits to each of our named executives in the event ofexecutive officers upon a termination of employment as a result of normal and early retirement, voluntary termination and termination for cause, involuntary termination, death, disability, and termination following aor our change in control of the Company.control.
Assumptions and General Principles
The following assumptions and general principles apply with respect to the table entitled “Estimated Payments Upon Termination or a Change in Control” and any termination of employment of a named executive officer:
The amounts shown in the table assume that each named executive officer was terminated on March 31, 2021.2023. Accordingly, the table reflects amounts earned as of March 31, 20212023 and includes estimates of amounts that would be paid to the named executive officerMessrs. Thoren, Thome and Malone upon the occurrence of a termination. The actual amounts to be paid to a named executive officer can only be determined at the time of the termination.
Unless otherwise noted, the fair market values of stock-based compensation were calculated using the closing price of our common stock on March 31, 2021,2023, the last trading day of fiscal year 20212023 ($14.24)13.08).
A named executive officer is entitled to receive certain amounts earned during his term of employment regardless of the manner in which the named executive officer’s employment is terminated. These amounts include base salary, unused vacation pay, and earned annual cash incentive compensation. These amounts are not shown in the table.
A named executive officer may exercise any stock options that are exercisable prior to the date of termination and will be entitled to receive unrestricted shares of common stock with respect to any restricted stock awards for which the vesting period has expired prior to the date of termination. Any payments related to these stock options and restricted stock awards are not included in the table as they are not payable upon the termination of a named executive officer’s employment or upon a change in control of the Company.
A named executive officer will be entitled to receive all amounts accrued and vested under our retirement and savings programs, including our Equity Incentive Plan, any successor plan thereto, and any pension plans in which the named executive officer participates. These amounts are not included in the table as these amounts are disclosed under the heading “Pension Benefits at March 31, 2021” unless such amounts are accelerated or enhanced in the event of the termination of a named executive officer’s employment or upon a change in control of the Company.
36 | GRAHAM CORPORATION | |||
Executive Compensation • Potential Payments upon Termination or Change in Control
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Normal and Early Retirement
A named executive officer is eligiblewill be entitled to elect normalreceive all amounts accrued and vested under our retirement at age 65 and early retirement between ages 55savings programs, including our 2020 Plan, any successor plan thereto, and 64 with at least fifteen and five years, respectively, of creditable service toany pension plans in which the Company, as discussed under the heading “Pension Benefits at March 31, 2021.”
As of March 31, 2021, Mr. Lines is the only named executive officer eligible for early retirement and none of our named executive officers were eligible for normal retirement.participates.
Voluntary Termination and Termination for Cause
Pursuant to our employment agreements with certain of our named executive officers, cause exists if the Board determines that there has been willful misconduct by the named executive officers in connection with the performance of their duties or if the named executive officers have engaged in any other conduct that has been materially injurious to the Company or have breached any of the representations and warranties in their employment agreements. Under the employment agreements with Mr. Lines and Mr. Smith, upon termination for cause, we would pay all legal fees and other expenses incurred by such named executive officers if they, in good faith, contest the termination. The named executive officers would be required to reimburse us for all such costs if a court of final adjudication were to determine that they did not act in good faith in bringing such challenge.
Our named executive officers are not entitled to receive any severance payments or other benefits upon their voluntary decision to terminate employment with the Company prior to being eligible for retirement (other than compensation due through the date of termination) or upon termination for cause.
Pursuant to the Stock Bonus Plan, upon the retirement of a named executive officer at the age of 65 or later, all unvested RSUs granted under the plan will vest in accordance the vesting schedule of the award, and any outstanding PSUs will vest pro-rata based on the satisfaction of the applicable performance goals as determined at the end of the respective performance period.
Involuntary Termination
Our employment agreementagreements with Mr. Lines also providesMessrs. Thoren, Thome and Malone provide that, upon termination without cause, or if hethe individual resigns because of our material breach of his employment agreement, we will have the following obligations: (i) pay to him compensation due him through the date of termination, including any accrued bonus;within ten business days of the termination date; (ii) continue his base salary for nine12 months following such termination;termination at an annual rate equal to the greater of $400,000, $290,000 and $250,000, respectively, or his then-current annualized salary; and (iii) pay to him a lump sum payment equal to nine months’ base salary; (iv) provide him with continuing health care coverage for a period of 18 months following the effective date of termination of his employment; and (v) pay for certain outplacement services.
Our employment agreement with Mr. Glajch provides that, upon termination without cause, or if he resigns because of our material breach of his employment agreement, we will pay compensation due to Mr. Glajch through the date of termination, including any accrued bonus; and that we will pay, in regular monthly payments, Mr. Glajch’s salary for 24 months followingbonuses as soon as administratively practicable after the effective datesix-month anniversary of histhe termination of employment.
Our employment agreement with Mr. Smith provides that, upon termination without cause, or if he resigns because of our material breach of his employment agreement, we will pay compensation due to Mr. Smith through the date of termination, including any accrued bonus; and that we will pay, in regular monthly payments, Mr. Smith’s salary for 12 months following the effective date of his termination of employment.date.
Our obligation to make payments upon any termination of Messrs. Lines, Glajch or SmithThoren, Thome and Malone without cause or upon theirhis resignation because of a material breach of theirhis agreement by us is conditioned on theirhis execution of an enforceable release of all claims against us and theirhis compliance with all provisions of theirhis employment agreement.
Death or Disability
Pursuant to our Stock Bonus Plan, upon the death or disability of a currently employed named executive officer, all unvested shares of time-vested restricted stock, RSUs and stock options, if any, held by the named executive officer will become immediately vested and the stock options will become exercisable in full. All unvested shares of performance-vested restricted stock or PSUs held by the named executive officer will vest pro-rata based on the satisfaction of the applicable performance goals through the end of the quarter immediately preceding the date of the named executive officer’s death or disability.
All of our named executive officers currently employed by us participate in our life insurance plan, whereby his beneficiary would be entitled to a death benefit equal to three timesthe lessor of the named executive officer’s base salary.salary rate or $250,000. We also provide each of our named executive officers with an allowance of $2,500 annually (except for Mr. Lines,our Chief Executive Officer, who receivesis entitled to $5,000 annually) for the purpose of procuring a term life insurance policy.
Each of our named executive officers currently employed by us also participates in our short-term disability program that is available to our managers and executive officers. Pursuant to such program, eachMr. Thome, as a Batavia-based named executive officer, would be entitled to
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payments equal to his full base salary for six months following such disability. Each of our named executive officers currently employed by us also participates in our long-term disability plan that is generally available to all of our salaried employees.
Termination Following a Change in Control
Our employment agreements with Messrs. Lines, GlajchThoren and SmithThome require a termination of employment following a change in control of our Company (commonly referred to as a “double trigger”) in order to trigger certain payments. A “change in control” is defined in each of our employment agreements with Messrs. Lines and Smith to include the following events:
GRAHAM CORPORATION 2023 PROXY STATEMENT | 37 | |
any person, party or group (other than the Company, any subsidiary of the Company or any employee benefit plan sponsored by the Company or any subsidiary), directly or indirectly, acquires or has acquired during the 12-month period ending on the date of the most recent acquisition, 30% (except that the employment agreement with Mr. Smith uses a lower 25% standard and does not include the 12-month acquisition period) or more of the combined voting power of the outstanding securities of the Company ordinarily having the right to vote in the election of directors;
Executive Compensation • Potential Payments upon Termination or Change in Control |
a change in the composition of the Board such that members of the Board as of the effective date of the respective employment agreement cease to constitute at least a majority of the Board (unless the election or nomination of any new directors was approved by a vote of at least three-quarters of the directors comprising the Board as of the effective date of the respective employment agreement);
the closing of a reorganization, merger, or consolidation of the Company, other than one with respect to which all or substantially all of those persons who were the beneficial owners immediately prior to such event, of outstanding securities of the Company ordinarily having the right to vote in the election of directors own, immediately after such transaction, more than three-quarters of the outstanding securities of the resulting corporation ordinarily having the right to vote in the election of directors;
the closing of a sale or other disposition of all or substantially all of the assets of the Company, other than to a subsidiary of the Company; or
the complete liquidation and dissolution of the Company.
A “change in control” is defined in our employment agreementagreements with Mr. GlajchMessrs. Thoren and Thome to include the following events:
the reorganization, merger or consolidation of the Company with one or more individuals, corporations, partnerships, associations, joint-stock companies, trusts, estates, unincorporated organizations or any other business organizations (“Persons”), other than a transaction following which at least 51% of the ownership interests of the institution resulting from such transaction are owned by personsPersons who, immediately prior to such transaction, owned at least 51% of the outstanding voting share of the Company;
the acquisition of more than 25% of the voting shares of the Company by and personany Person or personsPersons acting in concert;
the acquisition of substantially all of the assets of the Company by any personPerson or personsPersons acting in concert; or
the occurrence of any event if, immediately following such event, at least 50% of the members of the Board do not belong to either (i) individuals who were membersany of the Board on August 11, 2020 or (ii) individuals who first became members of the Board after August 11, 2020 either (a) upon election to serve as a member of the Board by the affirmative vote of a majority of the members of the Board, or a nominating committee thereof, in office at the time of such first election or (b) upon election by the stockholders of the Company to serve as a member of the Board, but only if nominated for election by affirmative vote of a majority of the members of the Board, or a nominating committee thereof, in office at the time of such first nomination.following groups:
Mr. Lines. Our
| ○ | individuals who were members of the Board on August 11, 2020 with respect to Mr. Thoren, or April 4, 2022 with respect to Mr. Thome; or |
| ○ | individuals who first became members of the Board after August 11, 2020 with respect to Mr. Thoren, or April 4, 2022 with respect to Mr. Thome, either: |
| ◆ | upon election to serve as a member of the Board by the affirmative vote of a majority of the members of the Board, or a nominating committee thereof, in office at the time of such first election; or |
| ◆ | upon election by the stockholders of the Company to serve as a member of the Board, but only if nominated for election by affirmative vote of a majority of the members of the Board, or a nominating committee thereof, in office at the time of such first nomination. |
Under his respective employment agreement, withneither Mr. Lines provides that,Thoren nor Mr. Thome will be entitled to any payments by us upon the occurrence of a triggeringchange in control. Rather, upon the occurrence of a change in control, he must continue to provide us with the services contemplated by his employment agreement until three months after a change in control has occurred. However, upon the event that would be deemed an event of his termination within two years after a change in control, of the Company, Mr. Lines would beThoren is entitled to certain payments, including, among other things, a lump sum paymentin an amount equal to one dollar less than threetwo and a half times the sum of his annualized gross compensation (including bonus) forsalary at the five most recent taxabletime of termination and the target amount of his bonus under the Cash Bonus Plan. Upon the event of his termination within two years ending before the date of suchafter a change in control.control, Mr. Thome is entitled to a lump sum in an amount equal to two times the sum of his salary at the time of termination and the target amount of his bonus under the Cash Bonus Plan.
In addition, allAt the time of his termination following a change in control, any unvested stock options would become immediately vested and exercisable and any unvestedor shares of restricted stock wouldheld by Mr. Thoren or Mr. Thome accelerate and become immediately exercisable or fully vested. We would also be required to pay, to Mr. Lines six months after the
