UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
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COLFAX CORPORATION
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Proxy Statement
andand
Notice of Annual Meeting
May 18, 201717, 2018 at 3 pm
Notice of | |
2018 Annual Meeting of Stockholders |
Thursday, May 18, 2017
17, 2018
3:00 p.m. Local Time
Maryland Conference Center, 2720 Technology Drive,
Annapolis Junction, Maryland 20701
To Our Stockholders:
Notice is hereby given that the 20172018 Annual Meeting of Stockholders (the “Annual Meeting”) of Colfax Corporation will be held at the Maryland Conference Center located at 2720 Technology Drive, Annapolis Junction, Maryland 20701 on Thursday, May 18, 201717, 2018 at 3:00 p.m., local time, for the following purposes:
1. | To elect the nine members of the Board of Directors named in the attached proxy statement; |
2. | To ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, |
3. | To hold an advisory vote to approve the compensation of our named executive officers (“say-on-pay”); and |
4. | |
To consider any other matters that properly come before the Annual Meeting or any adjournment or postponement thereof. |
The accompanying proxy statement describes the matters to be considered at the Annual Meeting. Only stockholders of record at the close of business on March 22, 201729, 2018 are entitled to notice of, and to vote at, the Annual Meeting and at any adjournments or postponements thereof.
We are pleased to take advantage of the Securities and Exchange Commission rules that allow us to furnish our proxy materials and our annual report to stockholders on the Internet. We believe that posting these materials on the Internet enables us to provide our stockholders with the information that they need more quickly while lowering our costs of printing and delivery and reducing the environmental impact of our Annual Meeting.
As a stockholder of Colfax, your vote is important. Whether or not you plan to attend the Annual Meeting in person, we urge you to vote your shares at your earliest convenience and thank you for your continued support of Colfax Corporation.
Dated: April 4, 20175, 2018
By Order of the Board of Directors
A. Lynne Puckett
Secretary
This summary highlights information contained elsewhere in this proxy statement. This summary does not contain all of the information that you should consider, and you should read the entire proxy statement carefully before voting. Page references are supplied to help you find further information in this proxy statement.
Annual Meeting of Stockholders
Date and Time: | Thursday, May |
Location: | 2720 Technology Drive, Annapolis Junction, Maryland 20701 |
Record Date: | March |
Availability of Proxy Materials – Use of Notice and Access
Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be Held on May 18, 2017:17, 2018: Our Annual Report to Stockholders and this Proxy Statement are available atwww.proxyvote.com.www.proxyvote.com.
Pursuant to the “notice and access” rules adopted by the Securities and Exchange Commission, we have elected to provide stockholders access to our proxy materials primarily over the Internet. Accordingly, on or about April 4, 2017,5, 2018, we sent a Notice of Internet Availability of Proxy Materials (the “Notice”) to our stockholders entitled to vote at the Annual Meeting as of the close of business on March 22, 2017,29, 2018, the record date of the meeting. The Notice includes instructions on how to access our proxy materials over the Internet and how to request a printed copy of these materials. In addition, by following the instructions in the Notice, stockholders may request to receive proxy materials in printed form by mail or electronically by e-mail on an ongoing basis.
Choosing to receive your future proxy materials by e-mail will save us the cost of printing and mailing documents to you and will reduce the impact of our annual meetings on the environment. If you choose to receive future proxy materials by e-mail, you will receive an e-mail next year with instructions containing a link to those materials and a link to the proxy voting site. Your election to receive proxy materials by e-mail will remain in effect until you terminate it.
Who May Vote
You may vote if you were a stockholder of record at the close of business on the March 22, 2017,29, 2018, the record date.
How to Cast Your Vote
You can vote by any of the following methods:
Via the internet (www.proxyvote.com) though May | |
By telephone (1-800-690-6903) though May | |
By completing, signing and returning your proxy by mail in the envelope provided or to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NJ | |
Via in person attendance and voting at the Annual Meeting. If you are a stockholder of record, your admission card will serve as proof of ownership. If you hold your shares through a bank, broker |
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Voting Matters
We are asking you to vote on the following proposals at the Annual Meeting:
Proposal | Board Vote Recommendation | Page Reference | ||
Proposal 1 – Election of Directors | FOR each director nominee | 9 | ||
Proposal 2 – Approval of | FOR | 20 | ||
Proposal 3 – Say-on-Pay | FOR | 47 | ||
Board and Governance Highlights
■ | Balanced Board tenure with new independent |
■ | |
■ | Stock ownership requirements for officers and directors |
■ | Anti-hedging, anti-pledging, and clawback policies |
Board Nominees (page 10)
The following table provides summary information about each director nominee:
Name | Age | Director Since | Occupation | Independent | Committee Memberships | Other Public Boards | Age | Director Since | Occupation | Independent | Committee Memberships | Other Public Boards | ||||||||||||
Mitchell P. Rales | 60 | 1995 | Chairman of the Board, Colfax Corporation Chairman of the Executive Committee, Danaher Corporation | N/A | Danaher Corporation Fortive Corporation | | 61 | | 1995 | | Chairman of the Board, Colfax Corporation Chairman of the Executive Committee, Danaher Corporation | | | | N/A | | Danaher Corporation; Fortive Corporation | |||||||
Matthew L. Trerotola | 49 | 2015 | President and Chief Executive Officer, Colfax Corporation | N/A | None | 50 | 2015 | President and Chief Executive Officer, Colfax Corporation | N/A | None | ||||||||||||||
Patrick W. Allender | 70 | 2008 | Former Executive Vice President and Chief Financial Officer, Danaher Corporation | Nominating (Chair) Audit | Brady Corporation Diebold, Incorporated | 71 | 2008 | Former Executive Vice President and Chief Financial Officer, Danaher Corporation | Nominating (Chair) Audit | Brady Corporation; Diebold, Inc. | ||||||||||||||
Thomas S. Gayner | 55 | 2008 | Co-Chief Executive Officer, Markel Corporation | Audit | Markel Corporation Cable One, Inc. Graham Holdings, Inc. | 56 | 2008 | Co-Chief Executive Officer, Markel Corporation | Audit | Markel Corporation; Cable One, Inc.; Graham Holdings, Inc. | ||||||||||||||
Rhonda L. Jordan | 59 | 2009 | Former President, Kraft | Compensation (Chair) Nominating | Ingredion, Inc. | 60 | 2009 | Former President, Kraft Foods Inc. | Compensation (Chair) Nominating | Ingredion, Inc. | ||||||||||||||
San W. Orr, III | 47 | 2012 | Partner & Chief Operating Officer, BDT Capital Partners | N/A | None | |||||||||||||||||||
A. Clayton Perfall | 58 | 2010 | Operating Executive, Tailwind Capital | Audit (Chair) | Comstock Holding Companies, Inc. | 59 | 2010 | Operating Executive, Tailwind Capital | Audit (Chair) | Comstock Holding Companies, Inc. | ||||||||||||||
Didier Teirlinck | 62 | 2017 | Former Executive Vice President, Climate Segment, Ingersoll Rand | None | None | |||||||||||||||||||
Rajiv Vinnakota | 45 | 2008 | Executive Vice-President, Aspen Institute | Compensation Nominating | None | 46 | 2008 | Executive Vice President, Aspen Institute | Compensation Nominating | None | ||||||||||||||
Sharon Wienbar | 55 | 2016 | Venture Partner, Scale Venture Partners | Compensation | None | 56 | 2016 | Venture Partner, Scale Venture Partners | Compensation | None |
In accordance with the Company’s Amended and Restated Bylaws (the “Bylaws”), to be elected each director nominee must receive a majority of the votes cast with respect to that director’s election. Incumbent directors nominated for election by the Board are required, as a condition to such nomination, to submit a conditional letter of resignation to the Chairman of the Board. In the event that a nominee for director does not receive a majority of the votes cast at the Annual Meeting with respect to his or her election, the Board will promptly consider whether to accept or reject the conditional resignation of that nominee, or whether other action should be taken. The Board will then take action and will publicly disclose its decision and the rationale behind it no later than 90 days following the certification of election results.
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Auditor Ratification (page 20)
We ask our stockholders to approve the selection of Ernst & Young LLP as our independent registered public accounting firm for the year ending December 31, 2017.2018. Below is summary information about fees paid to Ernst & Young LLP for services provided in 20162017 and 2015:2016:
Fee Category (fees in thousands) | 2016 | 2015 | 2017 | 2016 | ||||||||||||
Audit Fees | $ | 4,730 | $ | 4,880 | $ | 5,790 | $ | 5,012 | ||||||||
Audit-Related Fees | — | — | 1,054 | — | ||||||||||||
Tax Fees | 748 | 852 | 1,115 | 748 | ||||||||||||
All Other Fees | 2 | 2 | 2 | 2 | ||||||||||||
TOTAL | $ | 5,480 | $ | 5,733 | $ | 8,001 | $ | 5,762 |
Executive Compensation (page 23)
We strive to create a compensation program for our associates, including our executives, that provides a compelling and engaging opportunity to attract, retain and motivate the best talent. We believe this opportunity results in performance-driven leadership that is aligned to achieve our financial and strategic objectives with the intention to deliver superior long-term returns to our stockholders. Our compensation program includes the following key features:
■ | We link rewards to performance and foster a team-based approach by setting clear |
■ | We emphasize long-term stockholder value creation by using stock options and performance-based restricted stock units, in combination with a stock ownership policy, to deliver long-term compensation incentives while minimizing |
■ | We set Annual Incentive Plan operational and financial performance targets based on the results of our Board’s strategic planning process and corporate budget, and provide payouts that vary significantly from year-to-year based on the achievement of those targets; and |
■ | We believe the design of our overall compensation program, as well as our internal controls and policies, serve to limit excessive risk-taking behavior, as described further on page |
Say-on-Pay: Advisory Vote to Approve the Compensation of our Named Executive Officers (page 47)49)
We are asking our stockholders to approve on an advisory basis the compensation of our named executive officers. We believe our compensation programs and practices are appropriate and effective in implementing our compensation philosophy, and our focus remains on linking compensation to performance while aligning the interests of management with those of our stockholders.
Further,In 2017, we have evaluated ourcontinued to implement compensation program over the course ofenhancements committed to in 2016 for further alignment with Company objectives and implemented enhancements that are aligned with stockholder interests, and enhance our pay-for-performance focus. These changes are more fully described in the “Compensation Discussion & Analysis”as discussed further below under “Our Executive Compensation Program – Implementing Stockholder Feedback” beginning on page 23.
Say-on-Frequency: Advisory Vote to Approve the Frequency of Future Say-on-Pay Votes (page 48)
We are asking our stockholders to vote on an advisory basis on whether the vote on the compensation of our named executive officers should occur every one, two or three years. Our Board of Directors has recommended an advisory vote to approve executive compensation each year as the appropriate frequency for Colfax and its stockholders.24.
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Proxy Statement for Annual Meeting of Stockholders
20172018 Annual Meeting
We are furnishing this Proxy Statement (the “Proxy Statement”) in connection with the solicitation by the Board of Directors (the “Board”) of Colfax Corporation (hereinafter, “Colfax,” “we,” “us” and the “Company”) of proxies for use at the 20172018 Annual Meeting of Stockholders (the “Annual Meeting”) to be held on Thursday, May 18, 2017,17, 2018, at 3:00 p.m. local time, and at any adjournments or postponements thereof. The Board has made this Proxy Statement and the accompanying Notice of Annual Meeting available on the Internet. We first made these materials available to the Company’s stockholders entitled to vote at the Annual Meeting on or about April 4, 2017.5, 2018.
About Colfax Corporation
Colfax Corporation is a leading global manufacturing and engineeringdiversified industrial technology company that provides gasair and fluidgas handling and fabrication technology products and services to commercial and governmental customers around the world throughunder the Howden and ESAB and Colfax Fluid Handling businesses.brands. Our business has been built through a series of acquisitions, as well as organic growth, since its founding in 1995. As discussed in our annual report on Form 10-K, we seek to build an enduring premier global enterprise by applying the Colfax Business System (“CBS”) to pursue growth in revenues and improvements in profit and cash flow. To operate our businesses, we employ a comprehensive set of tools that we refer to as CBS. CBS is our business management system. It is a repeatable, teachable process that we use to create superior value for our customers, stockholders, and associates. Rooted in our core values, it is our culture. CBS provides the tools and techniques to ensure that we are continuously improving our ability to meet or exceed customer requirements on a consistent basis.
Our principal executive office is located at 420 National Business Parkway, 5thFloor, Annapolis Junction, MD, 20777. Our telephone number is (301) 323-9000 and our website is located atwww.colfaxcorp.com.www.colfaxcorp.com. Our common stock trades on the New York Stock Exchange (NYSE) under the symbol CFX.
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Proposal 1 | Election of Directors |
Nine director nominees will be elected at the Annual Meeting, each to serve until the next annual meeting of the Company and until his or her successor is duly elected and qualified. At the recommendation of the Nominating and Corporate Governance Committee, the Board has nominated the following persons to serve as directors for the term beginning at the Annual Meeting on May 18, 2017:17, 2018: Mitchell P. Rales, Matthew L. Trerotola, Patrick W. Allender, Thomas S. Gayner, Rhonda L. Jordan, San W. Orr, III, A. Clayton Perfall, Didier Teirlinck, Rajiv Vinnakota, and Sharon Wienbar. All nominees are currently serving on the Board. As announced previously upon the appointment of Mr. Teirlinck in 2017, Mr. San Orr, President of BDT Capital Partners, LLC, is retiring from the Board effective with this Annual Meeting and is not standing for re-election, and the Board wishes to thank Mr. Orr for his service.
Nominating Committee Criteria for Board Members
The Nominating and Corporate Governance Committee considers, among other things, the following criteria in selecting and reviewing director nominees:
■ | personal and professional integrity; |
■ | skills, business experience and industry knowledge useful to the oversight of the Company based on the perceived needs of the Company and the Board at any given time; |
■ | the ability and willingness to devote the required amount of time to the Company’s affairs, including attendance at Board and committee meetings; |
■ | the interest, capacity and willingness to serve the long-term interests of the Company and its stockholders; and |
■ | the lack of any personal or professional relationships that would adversely affect a candidate’s ability to serve the best interests of the Company and its stockholders. |
Pursuant to its charter, the Nominating and Corporate Governance Committee also reviews, among other qualifications, the perspective, broad business judgment and leadership, business creativity and vision, and diversity of potential directors, all in the context of the needs of the Board at that time. We believe that Board membership should reflect diversity in its broadest sense, including persons diverse in geography, gender, and ethnicity, and we seek independent directors who represent a mix of backgrounds and experiences that will enhance the quality of the Board’s deliberations and decisions. The charter of the Nominating and Corporate Governance Committee affirmatively recognizes diversity as one of the criteria for consideration in the selection of director nominees, and in its deliberations and discussions concerning potential director appointments the Nominating and Corporate Governance Committee has paid particular attention to diversity together with all other qualifying attributes. In addition, the Nominating and Corporate Governance Committee annually considers its effectiveness in achieving these objectives as a part of its assessment of the overall composition of the Board. The Nominating and Corporate Governance Committee looks for candidates with the expertise, skills, knowledge and experience that, when taken together with that of other members of the Board, will lead to a Board that is effective, collegial and responsive to the needs of the Company. As further discussed below, certain members of our Board have experience with the business systems that are an integral part of our Company culture. In addition, we feel that the familiarity of certain Board members with our business system from their work experiences at Danaher Corporation and at our Company, combined with strong input from varied and sophisticated business backgrounds, provides us with a Board that is both functional and collegial while able to draw on a broad range of expertise in the consideration of complex issues.
Board Member Service
The biographies of each of the nominees below contain information regarding the experiences, qualifications, attributes or skills that the Nominating and Corporate Governance Committee and the Board considered in determining that the person should serve as a director of the Company. The Board has been informed that all of the nominees listed below are willing to serve as directors, but if any of them should decline or be unable to act as a director, the individuals named in the proxies may vote for a substitute designated by the Board. The Company has no reason to believe that any nominee will be unable or unwilling to serve.
In determining to nominate Mr. Gayner for re-election, the Nominating and Corporate Governance Committee and the Board carefully evaluated and took into account that Mr. Gayner serves as an executive officer at Markel Corporation and serves on the boards of Markel Corporation, Graham Holdings Co. and Cable One Inc. (which was a wholly-owned subsidiary of Graham Holdings until July 2015). The Nominating and Corporate Governance Committee determined, and the Board concurred, that Mr. Gayner is a valuable, productive and fully engaged director who should be re-elected to the Board. In reaching this conclusion, the Nominating and Governance Corporate Committee took note of Mr. Gayner’s stellar attendance record and role on our Board (Mr. Gayner attended all meetings of the Board and the Committees’ on which he served during 20162017 and is an active participant in all Colfax Board matters), that Mr. Gayner is well-prepared for and participates actively in Board and Committee meetings, and that he brings unique experience and vision to our Board as a preeminent value investor and strategic leader from his position at Markel. Further, as of the end of 2016, Mr. Gayner is no longer serving on our Compensation Committee but remains an active member of our Audit Committee. Based on these factors, Mr. Gayner was unanimously recommended and re-nominated for election to our Board of Directors.
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The names of the nominees for director, their ages as of March 22, 2017,29, 2018, principal occupations, employment and other public company board service during at least the last five years, periods of service as a director of the Company, and the experiences, qualifications, attributes and skills of each nominee are set forth below:
MITCHELL P. RALES
Director Since 1995
Age 6061
Mitchell P. Rales is a co-founder of Colfax and has served as a director of the Company since its founding in 1995. He is the Chairman of our Board of Directors. Mr. Rales is a co-founder and has served as a member of the Boardboard of Directorsdirectors of Danaher Corporation, a global science and technology company, since 1983 and as Chairman of Danaher’s Executive Committee since 1984, and is also a member of the Fortive Corporation Boardboard of Directors,directors, which is a diversified industrial growth company that was spun-off from Danaher in 2016. He has been a principal in a number of private business entities with interests in manufacturing companies and publicly traded securities for over 25 years. Mr. Rales was instrumental in the founding of our Company and has played a key leadership role on our Board since that time. He helped create the Danaher Business System, on which the Colfax Business System is modeled, and has provided critical strategic guidance to the Company during its development and growth. In addition, as a result of Mr. Rales’ substantial ownership stake in our Company, he is well-positioned to understand, articulate and advocate for the rights and interests of the Company’s stockholders.
MATTHEW L. TREROTOLA
Director Since 2015
Age 4950
Matthew L. Trerotola has been our President and Chief Executive Office and has served as a director of the Company since July 2015. Prior to joining Colfax, Mr. Trerotola was an Executive Vice President and a member of DuPont’s Office of the Chief Executive, responsible for DuPont’s Electronics & Communications and Safety & Protection segments. Mr. Trerotola also had corporate responsibility for DuPont’s Asia-Pacific business. Many of Mr. Trerotola’s roles at DuPont, a global chemical company that is now part of DowDupont, involved applying innovation to improve margins and accelerate organic growth in global businesses. Prior to rejoining DuPont in 2013, Mr. Trerotola had served in leadership roles at Danaher since 2007, and was most recently Vice President and Group Executive for Life Sciences. Previously, Mr. Trerotola was Group Executive for Product Identification from 2009 to 2012, and President of the Videojet business from 2007 to 2009. While at McKinsey & Company from 1995 to 1999, Mr. Trerotola focused primarily on helping industrial companies accelerate growth. Mr. Trerotola’s day-to-day leadership of Colfax, combined with his significant international business experience and familiarity with the Danaher Business System, gives the Board an invaluable Company-focused perspective supplemented by his global operational expertise.
PATRICK W. ALLENDER
Director Since 2008
Age 7071
Patrick W. Allender has served as a director of the Company since May 13, 2008. He is the former Executive Vice President and Chief Financial Officer of Danaher Corporation, where he served from 1987 until his retirement in 2007. Prior to joining Danaher, Mr. Allender was an audit partner with a large international accounting firm. Mr. Allender is a director of Brady Corporation, where he is a member of the audit and corporate governance committees and the chairman of the finance committee, and a director of Diebold, Inc., where he is a member of the board finance committee and chairman of the audit committee. Mr. Allender’s prior experience as the Chief Financial Officer of a publicly traded company provides him with substantial expertise in financial reporting and risk management. In addition, his familiarity with the Danaher Business System provides targeted insight on the nature of the Company’s operations to the Board.
THOMAS S. GAYNER
Director Since 2008
Age 5556
Thomas S. Gayner has served as a director of the Company since May 13, 2008. He is Co-Chief Executive Officer of Markel Corporation, a financial holding company whose principal business markets and underwrites specialty insurance products. Since 1990, Mr. Gayner has served as President of Markel Gayner Asset Management, Inc. Mr. Gayner has served as a director of Markel Corporation since August 2016 and previously served on the Markel Corporation Boardboard from 1998 to 2003. Mr. Gayner also currently serves on the Boardboard of Directorsdirectors of Graham Holdings Company and Cable One, Inc, as well as a director of The Davis Series Funds. Through his experience and investment knowledge with the Markel Corporation as well as his service on the boards and committees of other publicly traded companies, Mr. Gayner brings extensive leadership, financial acumen and public company expertise to our Board.
RHONDA L. JORDAN
Director Since 2009
Age 5960
Rhonda L. Jordan has served as a director of the Company since February 17, 2009. She served as President, Global Health & Wellness, and Sustainability for Kraft Foods Inc. until 2012 and in that role led the development of Kraft’s health & wellness and sustainability strategies and plans for the company, including marketing, product development, technology, alliances and acquisitions. Prior to being named President, Health & Wellness in 2010, she was the President of the Cheese and Dairy business unit of Kraft. From 2006 to 2008 she served as the President of the
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unit of Kraft. From 2006 to 2008 she served as the President of the Grocery business unit of Kraft and from 2004 to 2005 she was the Senior Vice President, Global Marketing of Kraft Cheese and Dairy. Ms. Jordan is a director of Ingredion Incorporated, where she is a memberchair of the compensation committee, and of Bush Brothers & Company. Ms. Jordan’s management and operations experience within a large, global corporation gives her an important strategic voice in Board deliberations, and her knowledge and decision making with respect to business unit development and sustainable top-line performance makes her a valued member of our Board.
SAN W. ORR, III
Director Since 2012
Age 47
San W. Orr, III has served as a director of the Company since February 22, 2012. He is Partner & Chief Operating Officer of the investment firm BDT Capital Partners, LLC, a position he has held since 2011. Prior to joining BDT Capital in 2009, Mr. Orr spent over ten years at Goldman, Sachs & Co. in several positions, including Managing Director, GS Direct, Investment Banking Division, where he advised clients and led transaction teams on mergers and acquisitions, equity, convertible and debt financings. Mr. Orr’s background also includes public accounting experience as well as bankruptcy, corporate and securities and finance and tax law. Mr. Orr’s investment and transactional experience, as well as his vested interest as a director-nominee and Partner of a substantial Company stockholder, BDT Capital, adds both talent and further stockholder representation to our Board.
A. CLAYTON PERFALL
Director Since 2010
Age 5859
A. Clayton Perfall has served as a director of the Company since September 21, 2010. He is currently an Operating Executive of Tailwind Capital, a private equity fund manager focused on growing middle market companies in the healthcare and business & communications services sectors. He previously served as the Chairman and Chief Executive Officer of Archway Marketing Services, Inc., a provider of marketing logistics and fulfillment services, from 2008 through 2013. From 2001 until 2008 Mr. Perfall served as the Chief Executive Officer and as a member of the Boardboard of Directorsdirectors of AHL Services, Inc. Mr. Perfall also served as the Chief Executive Officer of Union Street Acquisition Corp. from 2006 until 2008. He served as the Chief Financial Officer of Snyder Communications, Inc. from 1996 until 2000 and was previously a partner with a large international accounting firm. Mr. Perfall currently serves on the Boardsboards of Directorsdirectors of Tailwind Premier Holdings, LLC, Distinct Holdings Group, LLC and Comstock Holding Companies, Inc., and previously served on the Boardsboards of Directorsdirectors of Archway Marketing Services, Inc. from 2008 until 2013, RT Acquisition Corp. from 2012 until 2015 and inVentiv Health, Inc. from 1999 to 2010. He is currently the audit committee chairman for Comstock Homebuilding Companies, Inc. and served as the chair of the audit committee during his time on the board of inVentiv Health. Mr. Perfall’s significant financial expertise and experience as an audit committee chairman and public company Chief Financial Officer, combined with his substantial executive leadership background, are assets to both our Board and our Audit Committee.
DIDIER TEIRLINCK
Director Since 2017
Age 62
Didier Teirlinck has served as a director of the Company since September 18, 2017. He announced his future retirement from Ingersoll Rand, a diversified industrial manufacturing company, on September 5, 2017, at which time he was appointed as a strategic advisor to the CEO of Ingersoll Rand until his retirement in 2018. Prior to his retirement, he served since November 2013 as executive vice president for Ingersoll Rand’s Climate segment, overseeing climate businesses around the world and enhancing competitive position and market share. After joining Ingersoll Rand in 2005, Mr. Teirlinck served as president of Climate Control in Europe before becoming President of the global Climate Solutions sector in 2009. Before joining Ingersoll Rand, he was President of Volvo Construction Equipment’s Compact Business Line worldwide and was previously general manager of DANISCO Flexible Group for southern Europe. Mr. Teirlinck’s international operating history and wealth of knowledge in the climate sector brings key geographic and market experience to our Board.
RAJIV VINNAKOTA
Director Since 2008
Age 4546
Rajiv Vinnakota has served as a director of the Company since May 13, 2008. He is Executive Vice-President at the Aspen Institute, leading a new division focused on youth & engagement. Prior to this new role, Mr. Vinnakota was the Co-Founder and Chief Executive Officer of The SEED Foundation, a non-profit educational organization, at which he served from 1997-2015. Mr. Vinnakota was the chairman of The SEED Foundation board from 1997 until 2006. Prior to co-founding SEED, Mr. Vinnakota was an associate at Mercer Management Consulting. He was also a trustee of Princeton University from 2004 until 2007 and a member of the Executive Committee of the Princeton University Boardboard of Directorsdirectors from 2006 to 2007, and he served as the national chairman of Annual Giving at Princeton from 2007 until 2009. Mr. Vinnakota’s management experience, combined with his experience in the non-profit sector, brings a valuable perspective to our Board.
SHARON WIENBAR
Director Since 2016
Age 5556
Sharon Wienbar has served as a director of the Company since June 15, 2016. She has been with Scale Venture Partners since 2001, where she led investments in technology companies and has served on the board of numerous portfolio businesses. Ms. Wienbar currently serves on the board of the privately held company True Anthem, a software provider. She is also strategy consultant to Hackbright Academy, a leading software engineering training company for women, where she was previously the CEO. She servesserved on the boards of Applause Software Quality, Inc. and Actiance, Inc., privately-held companies in which Scale Venture Partners have invested, and previously served on the board of Everyday Health, Inc., a New York Stock Exchange-listed public company, until its acquisition in December 2016. Ms. Wienbar’s leadership of technology investments, deep understanding of innovation drivers, and business acumen bring an important perspective to our Board.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the votes cast is required for election of each director.
BOARD RECOMMENDATION
The Board unanimously recommends that stockholders vote“FOR”the election of each of the nominees for director listed above.
The Board unanimously recommends that stockholders vote“FOR”the election of each of the nominees for director listed above. |
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CORPORATE GOVERNANCE |
Our Corporate Governance Guidelines require that a majority of our Board members be “independent” under the NYSE’s listing standards. In addition, the respective charters of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee require that each member of these committees be “independent” under the NYSE’s listing standards and, with respect to the Audit Committee, under the applicable SEC rules. In order for a director to qualify as “independent,” our Board must affirmatively determine that the director has no material relationship with the Company that would impair the director’s independence. Our Board undertook its annual review of director independence in February 2017.2018. The Board has determined that Mr. Allender, Mr. Gayner, Ms. Jordan, Mr. Perfall, Mr. Teirlinck, Mr. Vinnakota, and Ms. Wienbar each qualify as “independent” under the NYSE’s listing standards. In reaching a determination on these directors’ independence, the Board considered that neither the directors nor their immediate family members have within the past three years had any direct or indirect business or professional relationships with the Company other than in their capacity as directors.
The independent members of our Board must hold at least two “executive session” meetings each year without the presence of management. If the Chair of the Board is not an independent director, the independent directors select an independent director to serve as Chairperson for each executive session. In general, the meetings of independent directors are intended to be used as a forum to discuss such topics as they deem necessary or appropriate. Mr. Allender serves as the presiding director of the independent director executive sessions and as such leads the independent directors during these sessions.
Board of Directors and its Committees
The Board and its committees meet regularly throughout the year, and may also hold special meetings and act by written consent from time to time. The Board held a total of seventen meetings during the year ended December 31, 2016,2017, including five regularly scheduled meetings and twofive special meetings. In aggregate, during this time our directors attended over 95% of our Board meetings and meetings of the committees of the Board on which such directors served. During 2016,2017, no director attended fewer than 75% of the total number of meetings of the Board and committees of the Board on which such director served. Our Corporate Governance Guidelines request Board members to make every effort to attend our annual meeting of stockholders. All directors then serving attended our annual meeting of stockholders in 2016.2017.
The Board has a standing Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee. The charters for the Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee are available on the Company’s website atwww.colfaxcorp.comon the Investors page under the Corporate Governance tab. These materials also are available in print to any stockholder upon request to: Corporate Secretary, Colfax Corporation, 420 National Business Parkway, 5thFloor, Annapolis Junction, Maryland 20701. The Board committees review their respective charters on an annual basis. The Nominating and Corporate Governance Committee oversees an annual evaluation of the Board and each committee’s operations and performance.
Audit Committee
Our Audit Committee met nineeight times during the year ended December 31, 2016.2017. The Audit Committee is responsible, among its other duties and responsibilities, for overseeing our accounting and financial reporting processes, the audits of our financial statements, the qualifications of our independent registered public accounting firm, and the performance of our internal audit function and independent registered public accounting firm. The Audit Committee reviews and assesses the qualitative aspects of our financial reporting, our processes to manage business and financial risks, and our compliance with significant applicable legal, ethical and regulatory requirements. The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of our independent registered public accounting firm. The members of our Audit Committee are Mr. Perfall, Chair, Mr. Allender and Mr. Gayner. The Board has determined that each of Mr. Perfall qualifiesand Mr. Allender qualify as an “audit committee financial expert,” as that term is defined under the SEC rules. The Board has determined that each member of our Audit Committee is independent and financially literate under the NYSE’s listing standards and that each member of our Audit Committee is independent under the standards of Rule 10A-3 under the Securities Exchange Act of 1934 (the “Exchange Act”).
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Nominating and Corporate Governance Committee
Our Nominating and Corporate Governance Committee met elevennine times during the year ended December 31, 2016.2017. The Nominating and Corporate Governance Committee is responsible for recommending candidates for election to the Board. In making its recommendations, the committee will review a candidate’s qualifications and any potential conflicts of interest and assess contributions of current directors in connection with his or her renomination. The committee is also responsible, among its other duties and responsibilities, for making recommendations to the Board or otherwise acting with respect to corporate governance policies and practices, including Board size and membership qualifications, new director orientation, committee structure and membership, related person transactions, and communications with stockholders and other interested parties. The members of our Nominating and Corporate Governance Committee are Mr. Allender, Chair, Ms. Jordan and Mr. Vinnakota. The Board has determined that each member of our Nominating and Corporate Governance Committee is independent under the NYSE’s listing standards.
Compensation Committee
Our Compensation Committee met eightseven times during the year ended December 31, 2016.2017. The Compensation Committee is responsible, among its other duties and responsibilities, for determining and approving the compensation and benefits of our Chief Executive Officer and other executive officers, monitoring compensation arrangements applicable to our Chief Executive Officer and other executive officers in light of their performance, effectiveness and other relevant considerations and adopting and administering our equity and incentive plans. The members of our Compensation Committee are Ms. Jordan, Chair, Mr. Vinnakota, and Ms. Wienbar. The Board has determined that each member of our Compensation Committee is an “outside director” within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended, a “non-employee director” within the meaning of SEC Rule 16b-3, and is independent under the NYSE’s listing standards for directors and compensation committee members.
The Compensation Committee annually reviews and approves the corporate goals and objectives relevant to the compensation of our Chief Executive Officer, evaluates his performance in light of those goals and objectives, and determines his compensation level based on that analysis. The Compensation Committee also annually reviews and approves all elements of the compensation of our other executive officers. Our Chief Executive Officer plays a significant role in developing and assessing achievement against the goals and objectives for other executive officers and makes compensation recommendations to the Compensation Committee based on these evaluations. The Compensation Committee also administers all of the Company’s incentive compensation plans and equity-based compensation plans. The Compensation Committee makes recommendations to the Board regarding compensation of all executive officer hires, all elements of director compensation, and for adoption or certain amendments to incentive or equity-based compensation plans. The Compensation Committee also assists the Board in its oversight of risk related to the Company’s compensation policies and practices applicable to all Colfax associates. For further information on our compensation practices, including a description of our processes and procedures for determining compensation, the scope of the Compensation Committee’s authority and management’s role in compensation determinations, please see the Compensation Discussion and Analysis section of this Proxy Statement, which begins on page 23.
Since April 2009, our Compensation Committee has engaged Frederic W. Cook & Co. as its independent compensation consultant to, among other things, formulate an appropriate peer group to be used by the Compensation Committee and to provide competitive comparison data and for other compensation consulting services as requested by the Compensation Committee. Additional information on the nature of the information and services provided by this independent compensation consultant can be found below in the Compensation Discussion and Analysis.
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee is or has ever been an officer or an employee of the Company or any of its subsidiaries, and no Compensation Committee member has any interlocking or insider relationship with the Company which is required to be reported under the rules of the SEC.
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Identification of Director Candidates and Director Nomination Process
The Nominating and Corporate Governance Committee considers candidates for Board membership suggested by its members and other Board members, as well as by management and stockholders. The Nominating and Corporate Governance Committee may also use outside consultants to assist in identifying candidates and during 20162017 used third-party recruiters to identify and provide background information on possible candidates. Ms. WienbarMr. Teirlinck was first recommended to the Nominating and Corporate Governance Committee by a non-management director.third-party recruiter. The Nominating and Corporate Governance Committee is responsible for assessing whether a candidate may qualify as an independent director. Each possible candidate is discussed and evaluated in detail before being recommended to the Board.
The Nominating and Corporate Governance Committee recommends, and the Board nominates, candidates to stand for election as directors. Stockholders may nominate persons to be elected as directors and, as noted above, may suggest candidates for consideration by the Nominating and Corporate Governance Committee. If a stockholder wishes to suggest a person to the Nominating and Corporate Governance Committee for consideration as a director candidate, he or she must provide the same information as required of a stockholder who intends to nominate a director pursuant to the procedures contained in Section 3.3 of our Bylaws, in accordance with the same deadlines applicable to director nominations, as described below under “General Matters—Stockholder Proposals and Nominations.”
Our Corporate Governance Guidelines specify that the positions of Chairman of the Board and Chief Executive Officer shall be held by separate persons. We believe that this structure is appropriate given the differences between the two roles in our current management structure. Our Chief Executive Officer, among other duties, is responsible for setting the strategic direction for the Company and the day-to-day leadership and performance of the Company, while the Chairman of our Board, among other responsibilities, provides guidance to the Chief Executive Officer, takes an active role in setting the agenda for Board meetings and presides over meetings of the full Board. Our current Chairman, Mr. Rales, is not an independent director and, as noted above in “Director Independence,” Mr. Allender serves as the presiding director for independent director executive sessions and as such leads the independent directors during these sessions.
The Board and its Committees conduct self-assessments annually at their February meetings. The Chair of the Nominating and Governance Committee oversees the process. The annual evaluation procedure is summarized below.
Action and Timeframe | Description | |
Preparation – November/December | Each director receives draft materials for the annual evaluation of (i) the Board’s performance and (ii) the performance of his or her committee(s). The materials include the Board and committee self-assessment questionnaires. In advance of the assessment, questions are revised and supplemented based on the input received from the Board members and, prior to distribution, the Chair of the Nominating Committee leads a final review in the December Board and committee meetings. | |
Assessment – December/January | Each director is asked to consider a list of questions to assist with the evaluation of the Board and its committees, covering topics such as Board composition, the conduct and effectiveness of meetings, quality of discussions, roles and responsibilities, quality and quantity of information provided, and other opportunities for improvement. | |
Review and Discussion – February | The Board and the committees thereof receive a report summarizing the annual evaluations as well as a year-over-year comparison. The reports are distributed for consideration in advance of and discussed at the February Board meeting. The committee chairs report to the Board on their respective committee evaluations, noting any actionable items. Past evaluations have addressed a wide range of topics such as Board materials, director education and on-boarding, and allocation of meeting times. | |
Actionable Items and Follow-Up – Ongoing | The Board and committees address any actionable items throughout the year, including a mid-year check-in and end of year assessment against the actionable items identified in February. |
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Board’s Role in Risk Oversight
The Board maintains responsibility for oversight of risks that may affect the Company. The Board discharges this duty primarily through its standing committees and also considers risk in its strategic planning for the Company and in its consideration of acquisitions. The Board engages in discussions about risk at each quarterly meeting, where it receives reports from its committees, as applicable, about the risk oversight activities within their respective areas of responsibility. Specifically, the Audit Committee (i) receives reports from and discusses with management, those performing our internal audit function,team, and our independent registered public accounting firm all major risk exposures (whether financial, operating or otherwise), (ii) reviews the Company’s policies with respect to risk assessment and enterprise risk management, including with respect to cybersecurity risks, and (iii) oversees compliance with legal and regulatory requirements and our ethics program, including our Code of Business Conduct and Ethics. In addition, the Nominating and Corporate Governance Committee oversees the corporate governance principles and governance structures that contribute to successful risk oversight and management. The Compensation Committee oversees certain risks associated with compensation policies and practices, as discussed below.
The Audit, Nominating and Corporate Governance and Compensation Committees each make full reports to the Board of Directors at each quarterlyregularly scheduled meeting regarding each committee’s considerations and actions, and risk considerations are presented to and discussed with the Board by management as part of strategic planning sessions and when considering potential acquisitions.
Corporate Governance Guidelines and Pledging
The Board has adopted Corporate Governance Guidelines, which set forth a framework to assist the Board in the exercise of its responsibilities. The Corporate Governance Guidelines cover, among other things, the composition and certain functions of the Board and its committees, executive sessions, Board responsibilities, expectations for directors, director orientation and continuing education, and our policy prohibiting pledging.
In February 2014, the Board amended the Corporate Governance Guidelines to prohibit any future pledging of Colfax’s common stock as security under any obligation by our directors and executive officers. The Board excepted from the policy shares of Colfax common stock that were already pledged at the time the policy was adopted, but any additional share pledges are prohibited. Pledged shares of Colfax common stock do not count toward our stock ownership requirements.
Certain shares of common stock owned by Mitchell Rales, Chairman of our Board, that were exemptedpledged at the time that the policy was adopted were grandfathered from the policy. Notwithstanding that these shares are exempted fromthe existing pledge was grandfathered under our policy, as part of its risk oversight function the Audit Committee of the Board reviews Mr. Rales’ share pledges on a quarterly basis to assess whether such pledging poses an undue risk to the Company. In evaluating Mr. Rales’ pledge of Colfax shares, the Audit Committee considered that Mr. Rales acquired these shares with his own funds in connection with founding the Company and did not receive them as compensation from Colfax; that, as a founder of Colfax and dedicated long-term stockholder, he has (as with many institutional stockholders) pledged a portion of his shares instead of selling shares for liquidity; and that Mr. Rales, as a founder or significant investor in other public companies (including Danaher Corporation and Fortive Corporation), has significant personal assets. In addition to taking into account the number of shares and percentage of outstanding shares pledged, the Audit Committee has also considered the degree of overcollateralization (the amount by which the market value of the shares pledged as collateral exceeds the amount of secured indebtedness), as the Committee believes this is a key factor in assessing the degree of risk posed by the pledging arrangements. Based on its evaluation, the Committee has concluded that the existing pledge arrangements do not pose an undue risk to the Company. The Audit Committee will continue to periodically review the shares pledged as part of its risk oversight function.
Code of Business Conduct and Ethics
As part of our system of corporate governance, the Board has also adopted a Code of Business Conduct and Ethics (the “Code of Ethics”), which was amended and restated in 2016, that is applicable to all directors, officers and employees of the Company. The Code of Ethics sets forth Company policies, expectations and procedures on a number of topics, including but not limited to conflicts of interest, compliance with laws, rules and regulations (including insider trading laws), honesty and ethical conduct, and quality. The Code of Ethics also sets forth procedures for reporting violations of the Code and investigations thereof.
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Policies on Insider Trading, Hedging and Stock Ownership
The Company has a Policy on Insider Trading and Compliance which, in addition to mandating compliance with insider trading laws, prohibits any director, officer or employee of the Company from engaging in short sales, transactions in derivative securities (including put and call options), or other forms of hedging and monetization transactions, such as zero-cost collars, equity swaps, exchange funds and forward sale contracts, that allow the holder to limit or eliminate the risk of a decrease in the value of the Company’s securities. Further, we have stock ownership policies applicable to our directors and executives to promote alignment of interests between our stockholders, directors and management.
Where to Find Our Key Governance Policies
The Corporate Governance Guidelines and Code of Ethics are available on the Company’s website atwww.colfaxcorp.com on the Investors page under the Corporate Governance tab. These materials also are available in print to any stockholder upon request to: Corporate Secretary, Colfax Corporation, 420 National Business Parkway, 5thFloor, Annapolis Junction, Maryland 20701.
Certain Relationships and Related Person Transactions
Policies and Procedures for Related Person Transactions
We have adopted a written Policy Regarding Related Person Transactions pursuant to which our Nominating and Corporate Governance Committee or a majority of the disinterested members of our Board generally must approve related person transactions in advance. The policy applies to any transaction or series of similar transactions involving more than $120,000 in which the Company is a participant and in which a “related person” has a direct or indirect material interest. “Related persons” include the Company’s directors, nominees for director, executive officers, and greater than 5% stockholders, as well as the immediate family members of the foregoing. In approving or rejecting the proposed transaction, our Nominating and Corporate Governance Committee takes into account, among other factors it deems appropriate, whether the proposed related person transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances, the extent of the person’s interest in the transaction and, if applicable, the impact on a director’s independence. Under the policy, if we discover related person transactions that have not been approved, the Nominating and Corporate Governance Committee is to be notified and will determine the appropriate action, including ratification, rescission or amendment of the transaction.
Related Person Transactions
Set forth below is a summary of certain transactions since January 1, 20162017 in which (i) the Company was or is a participant, (ii) any of our directors, executive officers, beneficial owners of more than 5% of our common stock, or the immediate family members of any of the foregoing had or will have a direct or indirect material interest and (iii) the amount involved exceeds or will exceed $120,000:
Transactions with Danaher Corporation
Certain of our subsidiaries purchase products from and sell products to Danaher Corporation (“Danaher”) from time to time in the ordinary course of business and on an arms’-length basis. Such transactions are pre-approved under our Policy Regarding Related Person Transactions. In 2016,2017, our subsidiaries purchased approximately $480,000$560,000 of products from, and sold approximately $25,000$55,000 of products to, Danaher, which is less than 0.02% of our, and of Danaher’s, gross revenues for 2016.2017. Our subsidiaries intend to purchase products from and sell products to Danaher in the future in the ordinary course of their businesses and on an arms’-length basis. Mitchell P. Rales is the Chairman of Danaher’s executive committee and Steven M. Rales is the Chairman of Danaher’s Board of Directors, and both are the beneficial owners of at least 5% of Danaher’s outstanding common stock and our outstanding common stock.
Transactions with Fortive Corporation
Certain of our subsidiaries purchase products from and sell products to Fortive Corporation (“Fortive”) from time to time in the ordinary course of business and on an arms’-length basis. Such transactions are pre-approved under our Policy Regarding Related Person Transactions. In 2017, our subsidiaries purchased approximately $300,000 of products from, and sold approximately $40,000 of products to, Fortive, which is less than 0.02% of our, and of Fortive’s, gross revenues for 2017. Our subsidiaries intend to purchase products from and sell products to Fortive in the future in the ordinary course of their businesses and on an arms’-length basis. Mitchell P. Rales and Steven M. Rales are each members of Fortive’s Board of Directors, and both are the beneficial owners of at least 5% of Fortive’s outstanding common stock and our outstanding common stock.
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Transactions with BDT & Company, LLC
We engaged BDT & Company, LLC, an affiliate of BDT Capital Partners, LLC, for advisory and investment banking services in connection with our sale of the Colfax Fluid Handling business, which closed in December 2017. This engagement was approved by an independent special committee of our Board of Directors.
BDT & Company, LLC was paid approximately $1.3 million dollars for its services on this transaction. Mr. Orr, who has served as a director of Colfax since 2012 until his retirement from the Board at the Annual Meeting, is President of BDT Capital Partners, LLC. BDT Capital Partners, LLC is the beneficial owner of over 5% of our outstanding common stock.
Contacting the Board of Directors
The Board of Directors has established a process for stockholders and interested parties to communicate with the Board and to report complaints or concerns relating to our accounting, internal accounting controls or auditing matters. Stockholders and interested parties wishing to communicate with our Board may do so by writing to any of the members of the Board, the Chairman of the Board, or the non-management members of the Board as a group, at:
Colfax Corporation
420 National Business Parkway, 5thFloor
Annapolis Junction, Maryland 20701
Attn: Corporate Secretary
Complaints or concerns relating to our accounting, internal accounting controls or auditing matters will be referred to members of the Audit Committee. Other correspondence will be referred to the relevant director or group of directors. Our Policy on Stockholder and Interested Party Communications with the Board of Directors (the “Board Communications Policy”) requires that any stockholder communication to members of the Board prominently display the legend “Board Communication” in order to indicate to the Corporate Secretary that it is communication subject to our policy and will be received and processed by the Corporate Secretary’s office. Each communication received by the Corporate Secretary is copied for our files and promptly forwarded to the addressee. In our Board Communications Policy, the Board has requested that certain items not related to the Board’s duties and responsibilities be excluded from forwarded communications, such as mass mailings and business advertisements. In addition, the Corporate Secretary is not required to forward any communication that the Corporate Secretary, in good faith, determines to be frivolous, unduly hostile, threatening, illegal or similarly unsuitable. However, the Corporate Secretary maintains a list of each communication subject to this policy that is not forwarded, and on a quarterly basis delivers the list to the Chairman of the Board. In addition, each communication subject to this policy that is not forwarded because it was determined by the Secretary to be frivolous, commercial advertising, irrelevant or similarly unsuitable is nevertheless retained in our files and made available at the request of any member of the Board to whom such communication was addressed.
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DIRECTOR COMPENSATION |
Pursuant
During 2017 our Board, at the recommendation of our Compensation Committee, approved revisions to our compensation program for non-employee directors. The Compensation Committee recommended these changes following its evaluation of competitive levels for director compensation, utilizing data drawn from our current list of peer companies and its reasoned business judgment. See “Role of Compensation Consultants and Peer Data Review” on page 31. The value of the annual cash retainer for non-executive directors was increased from $60,000 to $80,000, the annual equity grant value was increased from $100,000 to $125,000, and the annual retainer for service as a committee chair was increased by $5,000.
As a result of this review and the approval of these revisions, effective beginning with the second quarter of 2017 our non-employee Board members (other than our chairman) receive the following:
■ | an annual cash retainer of |
$80,000; | |
■ | an annual equity award valued at |
■ | a |
■ | an initial equity grant of 5,556 restricted stock units upon joining the Board, which vest in three equal annual installments and are settled upon termination of service on the Board. |
Our non-executive chairmanChairman of the Board is entitled to receive an annual cash retainer of $1 and does not receive any other cash fees or the initial or annual equity awards described above.
The Board has also approved a stock ownership policy for our directors. Each director is required to have ownership ofown shares our common stock (including shares issuable upon exercise of stock options and shares underlying restricted stock units) with a value equal to five times the annual cash retainer within five years of joining the Board. All of our directors except for Ms. Wienbar and Mr. Teirlinck, who waswere appointed during 2016 and 2017, respectively, have achieved these ownership targets as of the date of this Proxy Statement.
Further, our Board has adopted a policy prohibiting any director (or executive officer) from pledging as security under any obligation any shares of Colfax common stock that he or she directly or indirectly owns and controls (other than shares already pledged as of February 17, 2014), and providing that pledged shares of Colfax common stock do not count toward our stock ownership requirements.
The Board has adopted a Director Deferred Compensation Plan which permits non-employee directors to receive, at their discretion, deferred stock units, or DSUs, in lieu of their annual cash retainers and committee chairperson retainers. A director who elects to receive DSUs receives a number of units determined by dividing the cash fees earned during, and deferred for, the quarter by the closing price of our common stock on the date of the grant, which is the last trading day of the quarter. A non-employee director also may convert director restricted stock unit grants to DSUs under the plan. DSUs granted to our directors convert to shares of our common stock after termination of service from the Board, based upon a schedule elected by the director in advance. In the event that a director elects to receive DSUs, the director will receive dividend equivalent rights on such DSUs to the extent dividends are issued on our common stock. Dividend equivalents are deemed reinvested in additional DSUs (or fractions thereof) at the dividend payment date.
We also reimburse all directors for travel and other necessary business expenses incurred in the performance of their services on our Board and the committees thereof and extend coverage to them under our directors’ and officers’ indemnity insurance policies.
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The following table sets forth information regarding compensation paid to our directors during 2016:2017:
DIRECTOR COMPENSATION FOR 20162017
Name | Fees Earned or Paid in Cash ($) | Stock Awards ($) | (2) | Option Awards ($) | (4) | Total ($) | Fees Earned or Paid in Cash ($) | Stock Awards ($) | (2) | Option Awards($) | (4) | Total ($) | ||||||||||||
Mitchell P. Rales | 1 | — | — | 1 | 1 | — | — | 1 | ||||||||||||||||
Patrick W. Allender | 70,000 | (1) | 50,020 | (3) | 50,007 | 170,027 | 88,750 | (1) | 62,519 | (3) | 62,511 | 213,780 | ||||||||||||
Thomas S. Gayner | 60,000 | (1) | 50,020 | (3) | 50,007 | 160,027 | 75,000 | (1) | 62,519 | (3) | 62,511 | 200,030 | ||||||||||||
Rhonda L. Jordan | 70,000 | (1) | 50,020 | (3) | 50,007 | 170,027 | 88,750 | (1) | 62,519 | (3) | 62,511 | 213,780 | ||||||||||||
San W. Orr, III | 60,000 | 50,020 | 50,007 | 160,027 | 75,000 | 62,519 | 62,511 | 200,030 | ||||||||||||||||
A. Clayton Perfall | 75,000 | (1) | 50,020 | (3) | 50,007 | 175,027 | 93,750 | (1) | 62,519 | (3) | 62,511 | 218,780 | ||||||||||||
Didier Teirlinck | 22,834 | (1) | 230,685 | — | 253,519 | |||||||||||||||||||
Rajiv Vinnakota | 60,000 | 50,020 | 50,007 | 160,027 | 75,000 | 62,519 | 62,511 | 200,030 | ||||||||||||||||
Sharon Wienbar | 32,800 | (1) | 155,735 | — | 188,535 | 75,000 | (1) | 62,519 | (3) | 62,511 | 200,030 |
(1) | Messrs. Allender, Gayner, Perfall, Teirlinck and Mses. Jordan and Wienbar elected to receive DSUs in lieu of their annual cash retainers and committee chairperson retainers. DSUs convert to shares of our common stock after termination of service from the Board, based upon a schedule elected by the director in advance. During |
(2) | Amounts shown in the “Stock Awards” column represent the grant date fair value for stock awards to each director during |
(3) | |
(4) | Amounts represent the aggregate grant date fair value for options to purchase |
As of December 31, 2016,2017, the aggregate number of unvested stock awards and unexercised options outstanding held by our non-employee directors was as follows:
Name | Restricted Stock Units | Stock Options | Restricted Stock Units | Stock Options | ||||||
Mitchell P. Rales | — | — | — | — | ||||||
Patrick W. Allender | 2,004 | 14,883 | 1,574 | 19,121 | ||||||
Thomas S. Gayner | 2,004 | 14,883 | 1,574 | 19,121 | ||||||
Rhonda L. Jordan | 2,004 | 14,883 | 1,574 | 19,121 | ||||||
San W. Orr, III | 2,004 | 14,883 | 1,574 | 19,121 | ||||||
A. Clayton Perfall | 2,004 | 14,883 | 1,574 | 19,121 | ||||||
Didier Teirlinck | 5,556 | — | ||||||||
Rajiv Vinnakota | 2,004 | 14,883 | 1,574 | 19,121 | ||||||
Sharon Wienbar | 5,556 | — | 5,278 | 4,238 |
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Proposal 2 | Ratification of Selection of Independent Registered Public Accounting Firm |
We are asking our stockholders to ratify the Audit Committee’s selection of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2017.2018. The Audit Committee is directly responsible for the appointment, compensation, retention, and oversight of our independent auditors. Ernst & Young LLP has served as our independent auditor since their appointment in 2002. Although stockholder ratification is not required, the appointment of Ernst & Young LLP is being submitted for ratification as a matter of good corporate practice with a view towards soliciting stockholders’ opinions which the Audit Committee will take into consideration in future deliberations. If the selection is not ratified, the Audit Committee will consider whether it is appropriate to select another registered public accounting firm. Even if the selection is ratified, the Audit Committee in its discretion may select a different registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and our stockholders. The Board of Directors and the Audit Committee believe that the retention of Ernst & Young LLP as the Company’s independent auditor is in the best interests of the Company and its stockholders.
Representatives for Ernst & Young LLP are expected to be present at the Annual Meeting, will have the opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions.
Independent Registered Public Accounting Firm Fees and Services
The following table sets forth the aggregate fees for services rendered by Ernst & Young LLP for the Company for the fiscal years ended December 31, 20162017 and 2015:2016:
Fee Category (fees in thousands) | 2016 | 2015 | 2017 | 2016 | ||||||||||||
Audit Fees | $ | 4,730 | $ | 4,880 | $ | 5,790 | $ | 5,012 | (1) | |||||||
Audit-Related Fees | — | — | 1,054 | — | ||||||||||||
Tax Fees | 748 | 852 | 1,115 | 748 | ||||||||||||
All Other Fees | 2 | 2 | 2 | 2 | ||||||||||||
TOTAL | $ | 5,480 | $ | 5,734 | $ | 8,001 | $ | 5,762 |
(1) | Includes $280,000 that were inadvertently excluded from this total in last year’s Proxy Statement. |
Audit Fees
This category of the table above includes fees for the fiscal years ended December 31, 20162017 and 20152016 that were for professional services rendered (including reimbursement for out-of-pocket expenses) for the integrated audits of our annual consolidated financial statements, for reviews of the financial statements included in our Quarterly Reports on Form 10-Q, and for statutory audits.
Audit-Related Fees
This category of the table above includes the fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees.” For 2017, Audit-Related Fees included the audited carve-out financial statements of our Fluid Handling business in connection with the disposition of that business in December 2017.
Tax Fees
This category of the table above includes fees billed for tax compliance, tax preparation, tax planning and other tax services. For 2017, Tax Fees included approximately $885,000 for tax compliance and tax preparation and approximately $270,000 for tax planning and other tax services. For 2016, Tax Fees included approximately $476,000 for tax compliance and tax preparation and approximately $272,000 for tax planning and other tax services. For 2015, Tax Fees included approximately $389,000 for tax compliance and tax preparation and approximately $463,000 for tax planning and other tax services.
All Other Fees
This category of the table above includes fees billed for products and services other than those described above under Audit Fees, Audit-Related Fees and Tax Fees. For 20162017 and 2015,2016, these included fees incurred for Ernst & Young LLP’s online accounting information tool.
The Audit Committee has considered whether the services rendered by the independent registered public accounting firm with respect to the fees described above are compatible with maintaining the independent registered public accounting firm’s independence and has concluded that such services do not impair its independence.
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Audit Committee’s Pre-Approval Policies and Procedures
Pursuant to its charter, the Audit Committee must pre-approve all auditing services, review and attest services, internal control related services and non-audit services provided to the Company by the independent registered public accounting firm and all fees payable by the Company to the independent registered public accounting firm for such services. The Audit Committee also is responsible for overseeing the audit fee negotiations associated with the retention of Ernst & Young LLP for the audit of our financial statements. The Audit Committee has adopted a pre-approval policy to promote compliance with the NYSE’s listing standards and the applicable SEC rules and regulations relating to auditor independence. In accordance with the Audit Committee charter and the pre-approval policy, the Audit Committee reviews with Ernst & Young LLP and management the plan and scope of Ernst & Young LLP’s proposed annual financial audit and quarterly reviews, including the procedures to be utilized and Ernst & Young LLP’s compensation, and pre-approves all auditing services, review and attest services, internal control related services and permitted non-audit services (including the fees and terms thereof) to be performed for us by Ernst & Young LLP. The Audit Committee may delegate pre-approval authority to one or more members of the Audit Committee consistent with the pre-approval policy, provided that the decisions of such Audit Committee member or members must be presented to the full Audit Committee at its next scheduled meeting. Pre-approval of permitted non-audit services can only be approved by the full Audit Committee.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the votes cast is required to ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for 2017.2018.
BOARD RECOMMENDATION
The Board unanimously recommends that stockholders vote“FOR”the ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for 2017.2018.
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AUDIT COMMITTEE REPORT |
The Audit Committee consists of A. Clayton Perfall, Patrick Allender and Thomas Gayner, who are all non-management directors. The members of the Audit Committee meet the independence and financial literacy requirements of the NYSE and the additional, heightened independence criteria applicable to members of the Audit Committee under SEC and NYSE rules. In 2016,2017, the Audit Committee held nineeight meetings. The Audit Committee operates pursuant to a written charter adopted by the Board of Directors, which it annually reviews. The charter, which complies with all current regulatory requirements, is available on the Company’s website atwww.colfaxcorp.com on the Investors page under the Corporate Governance tab. During 2016,2017, at each of its regularly scheduled meetings, the Audit Committee met with senior members of the Company’s finance team. Additionally, the Audit Committee has separate private sessions, during its regularly scheduled meetings, with the Company’s independent registered public accounting firm and head of internal audit, respectively. The Audit Committee is updated periodically on management’s process to assess the adequacy of the Company’s system of internal control over financial reporting, the framework used to make the assessment, and management’s conclusions on the effectiveness of the Company’s internal control over financial reporting. The Audit Committee has also discussed with the independent registered public accounting firm, their evaluation of the Company’s system of internal control over financial reporting.
The Audit Committee evaluates the performance of the Company’s independent registered public accounting firm each year and determines whether to reengage the current independent registered accounting firm or consider other independent registered accounting firms. In doing so, the Audit Committee considers the quality and efficiency of the services provided by the independent registered accounting firm, the firm’s global capabilities, and the firm’s technical expertise, tenure as the Company’s independent registered accounting firm and knowledge of the Company’s global operations and businesses. In connection with the applicable audit partner rotation requirements, the Audit Committee also is involved in considering the selection of the auditors’ lead engagement partner when rotation is required. Based on this evaluation, the Audit Committee decided to engage Ernst & Young LLP as our independent registered accounting firm for the year ended December 31, 2017.2018. The Audit Committee reviews with the independent registered accounting firm and management, the overall audit scope and plans, as well as the results of internal and external audit examinations and evaluations by management and the independent registered accounting firm of the Company’s internal controls over financial reporting and the quality of the Company’s financial reporting. Although the Audit Committee has the sole authority to appoint the independent registered public accounting firm, the Audit Committee recommends that the Board ask stockholders, at the Company’s annual meeting, to ratify the appointment of the independent registered accounting firm (see Proposal 2 beginning on page 20).
The Audit Committee has reviewed and discussed the Company’s audited financial statements for the fiscal year ended December 31, 20162017 with management and with the Company’s independent registered public accounting firm, including a discussion of the quality and suitability of the accounting principles, the reasonableness of significant accounting judgments and estimates, and the clarity of disclosures in the financial statements. In addressing the quality of management’s accounting judgments, members of the Audit Committee are appraised of certifications prepared by the Chairman and Chief Executive Officer and the Chief Financial Officer that the unaudited quarterly and audited annual consolidated financial statements of the Company fairly present, in all material respects, the financial condition, results of operations and cash flows of the Company.
In performing all of these functions, the Audit Committee acts in an oversight capacity. The Audit Committee reviews the Company’s quarterly and annual reports on Form 10-Q and Form 10-K prior to filing with the SEC. In its oversight role, the Audit Committee relies on the work and assurances of the Company’s management, which has the primary responsibility for establishing and maintaining adequate internal control over financial reporting and for preparing the financial statements, and other reports, and of the independent registered public accounting firm, who are engaged to review the quarterly consolidated financial statements of the Company, and audit and report on the annual consolidated financial statements of the Company and the effectiveness of the Company’s internal control over financial reporting as of the Company’s year-end.
The Audit Committee discussed with the independent registered public accounting firm the matters required to be discussed by applicable standards of the Public Company Accounting Oversight Board (“PCAOB”). The Audit Committee has received from the independent registered public accounting firm the written disclosures and the letter required by the applicable requirements of the PCAOB regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence, and has discussed with the independent registered public accounting firm its independence. On the basis of the reviews and discussions referenced above, the Audit Committee recommended to the Board of Directors that the audited financial statements for the fiscal year ended December 31, 20162017 be included in the Company’s Annual Report on Form 10-K for filing with the Securities and Exchange Commission.
Audit Committee of the Board of Directors
A. Clayton Perfall, Audit Committee Chair
Patrick Allender
Thomas Gayner
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COMPENSATION DISCUSSION AND ANALYSIS |
The following discussion and analysis of compensation arrangements of our named executive officers for 20162017 should be read together with the compensation tables and related disclosures set forth under the section heading “Executive Compensation.”
Named Executive Officers
The following discussion provides details regarding our executive compensation program and the compensation of our named executive officers in 2016.2017. Our named executive officers (“NEOs”) for 20162017 are:
Name | Title | |
Matthew Trerotola | President and Chief Executive Officer | |
Christopher Hix | SVP, Finance, Chief Financial Officer and Treasurer | |
Daniel Pryor | EVP, Strategy and Business Development | |
Shyam Kambeyanda | SVP, Colfax, ESAB President | |
SVP, | ||
Former SVP, |
Our Compensation Philosophy and Guiding Principles
Our executive compensation approach links compensation to Company and individual performance while aligning the long-term interests of management and stockholders. We strive to create a compensation program for our associates, including our executives, that provides a compelling and engaging opportunity to attract, retain and motivate the best talent. We believe this opportunity results in performance-driven leadership that is aligned to achieve our financial and strategic objectives with the intention to deliver superior long-term returns to our stockholders. Utilizing this philosophy, our executive compensation program has been designed to:
Link rewards to performance and foster a team-based approach | Each executive has clear performance expectations and must contribute to our overall success rather than solely to objectives within his or her primary area of responsibility. | |
Align the performance responsibilities | Our program emphasizes long-term stockholder value creation by using stock options and performance-based restricted stock units, in combination with a stock ownership policy, to deliver long-term compensation incentives while minimizing risk taking behaviors that could negatively affect long-term results. | |
Provide transparency through simplicity of | We provide three main elements in our compensation program– base salary, Annual Incentive Plan, and long-term incentives–with an appropriate blend of purposes and incentives linked to easily understood objectives, as described further on page |
Fiscal 20162017 Pay for Performance Alignment and Compensation Overview
FiscalIn 2017, we continued to implement compensation program enhancements committed to in 2016 to promote further alignment between our compensation program and Company objectives and stockholder interests, as discussed below under “Our Executive Compensation Program – Implementing Stockholder Feedback.” This included a redesign for the performance-based restricted stock units (“PRSUs”) granted in 2017 and annual equity grants during 2017 that did not include any special equity awards.
During the year we made progress on key Company strategic priorities and improved our overall revenue for the year, but consolidated results fell short of our expectations. We faced pressures in our business environment over the second half of 2017 within Howden and ESAB, as discussed further below, and in the face of these challenges did not meet our internal targets as market conditions were more severe than expected and our total revenue declined by 8% overall. However, restructuring initiatives were significantly expanded, improving our global cost position and contributing to our achievement of the high-end of adjusted EPS expectations. Further, we applied our business management system, CBS, to improve commercial processes, ending the year with two consecutive quarters of order growth in our Gas and Fluid Handling platform. We believe we are well-positioned for furtherhigh operating improvements in 2017; however,execution standards. As a result, we did not achieve certain company-wide operationalour financial goals, leading to an overall corporate bonus achievement that was above threshold but below target for Messrs. Trerotola, Hix, and financial targets for 2016, which resulted in below-target payouts for corporate bonusesPryor under our 2017 Annual Incentive Plan. Despite not reaching internalPlan (“AIP”). In assessing our performance against the AIP targets, our improved operating execution versus 2015 resultedwe felt it was important to recognize the Company’s results and progress in an increase inbuilding a foundation for the bonus payout percentage compared to 2015, and our ESAB business largely achieved its internal targets.future while acknowledging that full-year
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The key actionsprofitability and our operational reaction to business pressures in the second-half of the year fell short of our expectations and commitment to high performance standards. Accordingly, management recommended, and the Compensation Committee approved, the reduction of the AIP payout related to overall performance by 10% from the percentage payout based on achieved results for each NEO.
For our corporate executives, our overall Company performance resulted in an AIP achievement of 83% for Messrs. Trerotola, Hix, and highlightsPryor before the additional AIP reduction, as discussed in more detail below in the AIP business results table on page 27 under “Annual Incentive Plan.”
For ESAB, despite commodity price pressures during the later portion of 2017 that impacted overall operating margin achievement, the business grew organically year-over-year and also continued to improve its adjusted operating margin. These results were reflected in an AIP achievement of 99% before the additional AIP reduction for Mr. Kambeyanda, as discussed in more detail below in the AIP business results table on page 27 under “Annual Incentive Plan.”
For Howden, despite significant restructuring efforts that protected operating profit results and healthy progress in shifting focus to industrial applications, decreases in the Power end-market and a stall in the Oil & Gas market recovery created a challenging operating environment for the full year, as reflected in an AIP achievement of 61% before the additional AIP reduction for Mr. Brander, as discussed in more detail below in the AIP business results table on page 27 under “Annual Incentive Plan.”
Fluid Handling delivered improved performance and profitability that facilitated a successful sale, as reflected in an AIP achievement of 120% before the additional AIP reduction for Mr. Mayhorn. The sale of this business was a key strategic milestone for our executive compensation programportfolio development, which provides more flexibility to execute our growth strategy. Separate transaction-related bonuses were also paid to Mr. Mayhorn and Mr. Pryor in 2016 include:recognition of their significant contributions to the successful Colfax Fluid Handling sale.
Further, during 2017 equity grants were made to our NEOs as follows:
– | Mr. Trerotola did not receive | |
– | ||
Stockholder Engagement andOur Executive Compensation Program Enhancements– Implementing Stockholder Feedback
InAs further described in our 2017 Proxy Statement we conducted expanded stockholder outreach in connection with and following our 2016 Annual Meeting, some stockholders raised concerns with certainadvisory vote on executive compensation, actions taken during 2015 and 2016, and the voting results for our Compensation Committee members at our 2016 Annual Meeting were lower than in prior years. In response and as part of our Board and management’s continued appraisal of our compensation program, we expanded our stockholder outreach during 2016, which contributed to changes in certain aspectsseveral elements of our compensation program going forward. We reached out to a broad spectrum of stockholders aroundprogram. These changes were approved by the time of our 2016 Annual Meeting. In addition,Compensation Committee and the Board during the second half of 2016 we held meetings to discussfor implementation during 2017 and obtain additional feedback from several unaffiliated stockholders that collectively owned approximately 20% of our outstanding shares (which was in addition to the input we regularly receive from two of our largest stockholders, Mitchell Rales, Chairman of our Board, and BDT Capital Partners via San Orr, who serves on our Board of Directors). This outreach was conducted by our Chief Financial Officer and Head of Investor Relations. We received helpful questions and input regarding various aspects of our compensation program throughout this process. While stockholders were generally comfortable with the overall structure of our compensation program, we received comments and recommendations primarily addressing the frequency of our say-on-pay vote, the special equity awards granted to some of our executives in 2015 and 2016, and the design of our performance restricted stock units (“PRSUs”).
During the second half of 2016 the Compensation Committee and its independent consultant, Frederic W. Cook & Co. (“FW Cook”), with support from Colfax’s Global Human Resources team, conducted a comprehensive review of the Company’s executive compensation program in light of our Board and Compensation Committee’s evaluation and input as well as the feedback from our stockholders. As a result of this process, the Compensation Committee affirmed our commitment to align pay with performance by approving changes to increase accountability and enhance the link between individual pay and execution of our strategy to improve operating performance.
The refinements approved by the Compensation Committee and Board as a result of the continued appraisal of our compensation program and discussions with stockholders are discussed in the table below:included:
Redesign of | |||
■ | Providing an annual say-on-pay vote. |
Each of these compensation program enhancements was implemented for 2017. Further, driven by the Compensation Committee’s continuing assessment of the pay-for-performance alignment of our compensation program, the Compensation Committee established the following target compensation program for our executive officers in 2017:
2017 NEO Incentive Compensation Structure (Average)
75% of NEO compensation “at risk” and aligned with company and shareholder success |
This reflects performance goals under the plan for corporate-level executives; weightings and performance goals differ for business unit executives as discussed below. |
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Further, the Compensation Committee, as a result of its consideration of the factors detailed above, approved the following compensation program structure for our executive officers applicable for the upcoming 2017 fiscal period:
Our Executive Compensation Program
Our overall executive compensation philosophy is discussed above under “Our Compensation Philosophy and Guiding Principles” on page 23.
The Compensation Committee looks at each of the three compensation elements– base salary, Annual Incentive Plan, and long-term incentives–Long-Term Incentive Plan– individually while also considering the total compensation package provided to create an appropriate mix designed to incentivize our executives. Each primary element of our executive compensation program has a different purpose:
Element of Compensation | Purpose/Description | Form/Timing of Payout | ||
Base Salary | Established at a competitive level to attract and retain our executive talent. Provides a base level of compensation that is not at risk to avoid fluctuations in compensation that could distract executives from the performance of their responsibilities. | Paid in cash throughout the year | ||
Annual Incentive Plan (“AIP”) | Rewards our executive officers for achievement of operational and financial performance goals by the Company and, if applicable, respective business | Paid in cash after the year has ended and performance has been measured. See page | ||
Long-Term Incentive Plan | Align the rewards of executives with the long-term interests of stockholders by encouraging sustained and superior long-term operational and financial performance and increases in stockholder returns over an extended period of time. | See page |
Further, the charts below reflect that a majority of our named executive officers’ compensation is at-risk and driven by a mix of short and long-term financial and operational metrics, consistent with our pay for performance philosophy:
The framework of our executive compensation program includes the governance features and other specific elements discussed below:
What we do | What we don’t do | |||
Pay for performance focus – | No gross-up payments to cover excise taxes or perquisites – | |||
Varying performance metrics under short-term and | No pledging and hedging of Company stock – | |||
Caps on Annual Incentive Plan payouts – | No repricing of underwater stock options – | |||
Double trigger provisions for change in control – | No compensation programs or policies that reward for material or excessive risk taking – | |||
Clawback Policy – | No pension plan – We do not maintain a pension plan for any senior executives, other than a frozen foreign plan that we acquired via acquisition which is limited to a small number of historical participants. | |||
Stock Ownership Policy – | ||||
Independent Compensation Committee and Consultant – |
| |
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Determination of Executive Compensation and Performance Criteria
Our executive compensation program is based on the philosophy and design outlined above with a focus on exceptional performance and continuous improvement from our management team. Within this framework, the Compensation Committee exercises its reasoned business judgment in making executive compensation decisions and takes into account recommendations by our chief executive officerChief Executive Officer with respect to the compensation of each executive officer, other than himself (see “CEO Recommendations” on page 33)31). Some of the factors that generally are referenced when making executive compensation decisions, none of which are assigned a particular weight, are as follows:
■ | The nature of the executive’s position |
■ | The Compensation Committee’s assessment of pay levels and practices in our competitive marketplace. See“Role of Compensation Consultants and Peer Data Review” on page |
31 | |
■ | The performance record of the executive |
■ | The Company’s operational and financial performance |
■ | The executive’s leadership potential |
Further, a substantial percentage of compensation under our Annual Incentive Plan is determined solely by the achievement of annual performance criteria based on Board-approved financial and operational goals for the fiscal year. These goals are then incorporated into the metrics set for our Annual Incentive Plan and approved by the Compensation Committee, as further discussed under “Financial“Bonus Calculation - Financial and Operational Metrics”Metrics and 2017 Performance Results” on page 30.28. We believe that this link to our Board-established corporate and business goals establishesreinforces alignment and incentives for breakthrough results both at the business-unit level and Company-wide.
During 2016 we announced the appointment of Mr. Hix as the Company’s Senior Vice President, Finance and Chief Financial Officer and Mr. Kambeyanda as Senior Vice President and ESAB’s President. In connection with the appointment of each we entered into compensation arrangements with them that resulted from an arm’s length negotiation. The Compensation Committee reviewed new-hire market analyses provided by FW Cook and also utilized competitive data drawn from the same list of peer companies previously reviewed by FW Cook and used as a general reference by the Compensation Committee for our other executive officers (see page 33 below). Informed by the strategic goals of the Company, the Compensation Committee and, for Mr. Hix, the Board and Compensation Committee determined to employ the same compensation program elements and principles used for our other executives.
The new hire compensation package for each is set forth in the tables below:
Christopher Hix New Hire Compensation | Shyam Kambeyanda New Hire Compensation | ||||
Base Salary | $550,000 | $ 470,000 | |||
Annual Incentive Plan Target (Percent of Base Salary) | 80% (paid pro rata for 2016) | 70% (guaranteed at full-year target for 2016 only) | |||
Transition Bonus Amounts (Target Value) | |||||
■ | RSUs | $500,000 (vest in three equal annual tranches beginning on the 2ndanniversary of grant) | $1,150,000 (vest in two equal annual tranches beginning on the 3rdanniversary of grant) | ||
■ | Cash Bonus | $100,000 (subject to repayment in the event of a separation in 1styear) | $1,300,000 (paid over a five-year period and contingent on future employment) | ||
Long-Term Incentive Awards (Target Value) | |||||
■ | Stock Options | $1,200,000 (vest in three equal annual tranches beginning on the 1stanniversary of grant) | $225,000 (vest in three equal annual tranches beginning on the 1stanniversary of grant) | ||
■ | PRSUs | $400,000 (subject to the achievement of specified performance criteria, vest in two equal tranches on the 3rdand 4thanniversaries of grant) | $450,000 (subject to the achievement of specified performance criteria, vest in two equal tranches on the 3rd and 4thanniversaries of grant) | ||
■ | RSUs | N/A | $225,000 (vest in three equal annual tranches beginning on the 2ndanniversary of grant) |
In connection with his retirement, Mr. Brannan, the Company’s prior Chief Financial Officer, entered into a Part-Time Employment Agreement. Under this agreement, Mr. Brannan will continue as a part-time non-executive employee from October 1, 2016 until October 1, 2019 at an annual salary of $100,000. Mr. Brannan and the Company agreed that he was to be paid a pro rata bonus for 2016 at his target level for the period from January 1, 2016 until commencement of his part-time service on October 1, 2016. Prior to the commencement of his part-time service Mr. Brannan was paid at his previously agreed upon base salary level of $450,000, which was unchanged from its 2015 level.
Elements of Our 20162017 Executive Compensation Program
Base Salary
Base salaries are designed to provide compensation that is market competitive so that we can attract the best qualified individuals and retain our senior management. Base salaries are established at an executive’s hire and generally reviewed annually for potential increases. The salary levels set for our named executive officersNEOs in fiscal 2016, other than for Mr. Trerotola, who was hired in July of 2015,2017 were based on the Compensation Committee’s assessment of the relative roles and responsibilities of management and the results of their individual performance assessments, combined with perspective from the competitive compensation data prepared by FW Cook and the Compensation Committee’s reasoned business judgment. Due to our performance in 2015 and budget considerationsAfter remaining flat for the 2016, fiscal year, none of our named executive officers base salaries increased from 2015 levels. Messrs. Hix and Kambeyanda’sNEO base salaries were set as part of their respective hires, as described above under “2016 Management Succession” on page 27.increased in 2017 primarily reflecting our operational improvements and the Compensation Committee’s competitive marketplace review. A comparison of base salary levels set for 20162017 and 20152016 is set forth below:
Named Executive Officer | 2015 Annual Base Salary | 2016 Annual Base Salary | Percentage Increase | | 2016 Annual Base Salary | | 2017 Annual Base Salary | | Percentage Increase | ||
Mr. Trerotola | $ 1,000,000 | 0% | $ | 1,000,000 | $ | 1,030,000 | 3.0% | ||||
Mr. Hix | — | $ 550,000 | N/A | $ | 550,000 | $ | 560,000 | 1.8% | |||
Mr. Brannan | $ 450,000 | 0% | |||||||||
Mr. Pryor | $ 515,000 | 0% | $ | 515,000 | $ | 530,000 | 2.9% | ||||
Mr. Kambeyanda | — | $ 470,000 | N/A | $ | 470,000 | $ | 490,000 | 4.3% | |||
Ms. Puckett | $ 415,000 | 0% | |||||||||
Ms. Clark | $ 385,000 | 0% | |||||||||
Mr. Brander | £ | 296,000 | £ | 310,000 | 4.7% | ||||||
Mr. Mayhorn | $ | 465,000 | $ | 475,000 | 2.2% |
Annual Incentive Plan
The goal of our Annual Incentive Plan is to reward our executives for achievement in key areas of Company operational and financial performance.performance as well as each executive’s individual contributions to Company success. Our Annual Incentive PlanAIP provides our named executive officersNEOs the opportunity to receive an incentive payment that is expressed as a percentage of the executive’s base salary (i.e., “target bonus”). The target bonus incentivizes our named executive officersNEOs to achieve outstanding performance in key Company performance metrics set by our Compensation Committee and derived from annual goals for Colfax’s operational and financial performance established by our Board in its strategic planning and corporate budget for Colfax’s operational and financial performance.development. The performance metrics established by the Compensation Committee for business leaders reflect both Company-wide goals and business-specific performance targets. The performance measures and specific financial and operational metrics used, which are discussed below in greater detail, are set at the beginning of each year. In addition, the amount payable based on Company-wide and business-specific performance can be adjusted upward or downward based on individual performance goals. Actual bonus amounts are determined following completion of the performance year and are based on performance relative to the pre-established goals.goals using the following formulas:
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Under our Annual Incentive Plan, executives can achieve a payout percentage of their target bonus ranging from threshold of 50% to maximum of 200%, with 100% target goal achievement resulting in 100% payout of the individual’s target bonus for that performance metric. Plan:
■ | executives can achieve a payout percentage of their target bonus ranging from zero for below-target performance to a threshold of 50% to a maximum of 200%, with 100% target goal achievement resulting in 100% payout of the individual’s target bonus for that performance metric, based on the extent to which objective pre-established financial and operational performance goals are achieved; and |
■ | the amount earned based on Company-wide and business-specific performance is subject to adjustment upward (by up to 50%, subject to a 250% payout cap) or downward to zero based on individual achievement as measured by an Individual Performance Factor (IPF). |
The payout percentageIPF is based on the extent to which objective pre-established financial and operational performance goals are achieved, subject to an overall adjustment upward (by up to 50%, subject to a 250% payout cap) or downward to zero based on individual achievement as measured by an individual performance factor. The individual performance factors are linked to each executive’s specific annual objectives, which are separate from the operational performance measures under the Annual Incentive Plan but are also designed to meaningfully drive Company performance, key initiatives, and build our foundation for future growth. The formulas below demonstrate how bonus calculations under the Annual Incentive Plan are made:
Detail regarding the individual components of these formulas, including a calculation of the payout percentages and description of the individual performance factorIPF component, follows the named executive officerNEO bonus payout tables.
Key Executive Team Achievements
■ | Delivery of revenue growth consistent with our commitment to strengthening our foundation for the future and providing long-term stockholder returns |
■ | Continued increases in ESAB profitability and sales |
■ | Execution of restructuring actions that reduced our 2017 costs |
■ | Colfax Business System (“CBS”) driven improvements in safety and on-time delivery |
■ | Successful sale of the Fluid Handling business, which strengthened our balance sheet and supports our strategic growth program |
■ | Multiple complimentary acquisitions in key markets, including Siemens Turbomachinery Equipment GmbH (“STE”), which provides a stronger European footprint, HKS and Ventsim, which contribute to an expansion of our digital growth initiatives, and EWAC, a market leader in the repair and maintenance sector in India |
■ | Successful recruitment for and CBS immersion of new Colfax SVP, CBS & Supply Chain leader |
Bonuses Paid for 20162017 Performance
Bonuses were calculated using the following formula before application of the IPF as described below on page 29. Percentage payouts under our AIP were further reduced by 10% across the Company, as described above on page 23 under “Fiscal 2017 Pay for Performance Alignment and Compensation Overview.” The target and actual bonus award paid to each named executive officerNEO under the Annual Incentive PlanAIP for 2016, as well as the key collective achievements for the executive team,2017 are set forth below. These bonuses are also reflected in the “Non-Equity Incentive Plan Compensation” column (or, for Mr. Kambeyanda, in the “Bonus” column) of the Summary Compensation Table below on page 37.36.
NEO | Base Salary | Target Bonus Percentage | Target Bonus | Payout Percentage (includes discretionary 10% reduction) | Total Annual Incentive | |||||||||||||||
Mr. Trerotola | $ | 1,030,000 | X | 120% | = | $ | 1,236,000 | X | 75% | = | $ | 881,000 | ||||||||
Mr. Hix | $ | 560,000 | X | 80% | = | $ | 448,000 | X | 75% | = | $ | 319,000 | ||||||||
Mr. Pryor | $ | 530,000 | X | 80% | = | $ | 424,000 | X | 75% | = | $ | 382,000 | ||||||||
Mr. Kambeyanda | $ | 490,000 | X | 75% | = | $ | 367,500 | X | 88% | = | $ | 340,000 | ||||||||
Mr. Brander | £ | 310,000 | X | 75% | = | £ | 232,500 | X | 55% | = | £ | 102,000 | ||||||||
Mr. Mayhorn | $ | 475,000 | X | 70% | = | $ | 332,500 | X | 108% | = | $ | 338,000 | * |
* |
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Key Executive Team Achievements
Each of the bonuses other than Mr. Kambeyanda’s reflected above was calculated using the following formulas, with a pro rata adjustment for the portion of the year worked by Mr. Hix, before application of the individual performance factor (IPF) as described below on page 31.
NEO | Base Salary | Target Bonus Percentage | Corporate Payout Percentage | Total Annual Incentive Payout Before IPF | |||||||||
Matthew Trerotola | $ | 1,000,000 | X | 120% | X | 79% | = $ | 948,000 | |||||
Christopher Hix | $ | 550,000 | X | 80% | X | 79% | = $ | 173,800 | * | ||||
Daniel Pryor | $ | 515,000 | X | 80% | X | 79% | = $ | 325,480 | |||||
Lynne Puckett | $ | 415,000 | X | 65% | X | 79% | = $ | 213,000 | |||||
Lynn Clark | $ | 385,000 | X | 65% | X | 79% | = $ | 198,000 |
Mr. Kambeyanda was paid out at full year target (100%) pursuant to the terms of his hire. ESAB’s payout percentage was 106%, which would have constituted 70% of his payout percentage for a composite 98% payout percentage before application of any individual performance factor or pro-ration. Mr. Kambeyanda will be a regular participant in the Annual Incentive Plan going forward.
Bonus Calculation – Target Bonus
The Compensation Committee annually reviews and approves Annual Incentive PlanAIP target bonus percentages for each executive officer in alignment with our compensation philosophy and taking into consideration the Compensation Committee’s competitive marketplace review. For 2016, the Compensation Committee approved a target bonus percentage of base salary in the following amounts:
NEO | 2015 AIP Target (percent of base salary) | 2016 AIP Target | ||
Trerotola | 120% | 120% | ||
Hix | N/A | 80% | ||
Pryor | 75% | 80% | ||
Kambeyanda | N/A | 70% | ||
Puckett | 65% | 65% | ||
Clark | 65% | 65% |
Targets as a percentage of base salary did not change from prior year targets except for Mr. Pryor,Kambeyanda, whose AIP target increased from 70% to 75% to better align with the Compensation Committee’s evaluation of the competitive market for executives with similar roles and experience levels.
Bonus Calculation – Financial and Operational Metrics and 20162017 Performance Results
For corporate executives, financial targets based on net sales (as adjusted), operating profit (as adjusted), working capital turns (as adjusted), and adjusted EPS constituted the performance measures under our Annual Incentive PlanAIP before the individual performance factorIPF was applied (as discussed further below on page 31)29). For all NEOs, the “target goals” (the level of performance necessary to achieve the target bonus payout) were pre-established by the Compensation Committee based upon Board-approved operational and financial goals for 2017 and were set at levels that would represent significant progress in each category toward the achievement of the Company’s long-term growth objectives and align with the Board-approved corporate budget.
Given that the Fluid Handling business was sold on December 10th, the actual achievement during the period of our ownership was adjusted to account for the remaining portion of the fiscal year performance period using our final forecast for the Fluid Handling business prior to its disposition, which resulted in the full year performance levels for Fluid Handling used in the bonus calculations.
For Messrs. Kambeyanda, Brander, and Mayhorn, corporate measures constituted 30% of the potential payout factor with their business goals consisting of 70% of the total target, which is intended to drive accountability for business operational results. The Annual Incentive PlanCompensation Committee selected these weightings when it established the goals for the year based on the results of our Board’s strategic planning process and corporate budget. The AIP is formulaic in nature and neither the Board, the Compensation Committee nor any executive is able to exercise any upward discretion with respect to the payout levels of each performance metric once established by the Compensation Committee. The financial and operational performance measures and corresponding weightings of these metrics for 20162017 were as follows:
Measure* | Corporate | ESAB | Howden | Fluid Handling | ||||
Net sales (as adjusted); Orders for Howden | 25% | 30% | 30% | 30% | ||||
Operating Profit (as adjusted) | 40% | 50% | 50% | 50% | ||||
Working Capital Turns (as adjusted) | 20% | 20% | 20% | 20% | ||||
Adjusted EPS(1) | 15% | N/A | N/A | N/A |
Adjusted EPS is defined as net income adjusted for the after-tax impact of discontinued operations, the cumulative effect of accounting changes, restructuring costs, asset impairment, goodwill impairment, legacy legal and asbestos trend/coverage percentage adjustments, costs related to acquisitions in excess of budgeted amounts, pension settlement costs, and as further adjusted for the impact of foreign currency exchange gains or losses arising from the initial recognition of a highly inflationary currency and early extinguishment of debt costs. |
The Compensation Committee selected these weightings when it established the goals for the year based on the results of our Board’s strategic planning process and corporate budget. For all named executive officers, the “target goals” (the level of performance necessary to achieve the target bonus payout) were pre-established by the Compensation Committee based upon Board-approved operational and financial goals for 2016 and were set at levels that would represent significant progress in each category toward the achievement of the Company’s long-term growth objectives and align with the Board-approved corporate budget. Under the criteria established by the Compensation Committee, target goals for business and corporate metrics were adjusted to (1) account for the effect of unbudgeted currency exchange rate fluctuations on the translated financial results of businesses with operating currencies other than the U.S. dollar, and, (2) account for the inclusion in our financial results of 2016 acquisitions, but only to (i) conform with internal budgeting at the time of such adjustment and (ii) increase the financial targets required to be obtained for net sales, adjusted operating profit, or adjusted EPS goals. Adjustments are intended to measure performance based on core operational results without the impact of infrequent or unusual items, and did not lower target goals.
Payouts under our Annual Incentive PlanAIP are calculated using the following scale, before application of the IPF (which impact is capped at aby the 250% maximum payout):
2017 Annual Incentive Plan Payout to Performance
Metric Performance % of plan
* | Working capital turns (WCT) threshold and maximum set within bounds based on management assessment of WCT performance expectations. |
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The 20162017 corporate performance goals and achievement for each are set forth below. As shown in the table, the weighted average performance result for these corporate metrics was 79 percent83% of plan before application of the 10% reduction, compared to 52 percent79% of plan for 2016 and 52% of plan for 2015.
Measure (weighting) | Target Goal | Threshold Goal | Threshold Payment | Maximum Goal | Maximum Payment | Actual Result | Payout Percentage | Net Payout Percentage based on weighting | ||||||||||||||||
Net sales (as adjusted) (25%) | $ | 3.647 billion | $ | 3.307 billion | 50% | $ | 4.041 billion | 200% | $ | 3.79 billion | 131% | 33% | ||||||||||||
Operating Profit (as adjusted) (40%) | $ | 360 million | $ | 288 million | 50% | $ | 432 million | 200% | $ | 345.6 million | 90% | 36% | ||||||||||||
Working Capital Turns (as adjusted) (20%) | 5.4 | 5.1 | 50% | 5.7 | 200% | 4.9 | 0% | 0% | ||||||||||||||||
Adjusted EPS (15%) | $ | 1.70/share | $ | 1.36/share | 50% | $ | 2.04/share | 200% | $ | 1.66/share | 94% | 14% | ||||||||||||
Weighted aggregate for all corporate metrics in 2017 | 83% | |||||||||||||||||||||||
Weighted aggregate for all corporate metrics in 2016 | 79% | |||||||||||||||||||||||
Weighted aggregate for all corporate metrics in 2015 | 52% |
The table below summarizes the 2017 achievement of business goals for Messrs. Kambeyanda, Brander, and Mayhorn, which aggregated with the corporate goal results as shown above determine their AIP financial and operational performance factor:
Measure | ESAB* | Howden* | CFH* | |||
Sales (as adjusted); Orders for Howden (30%) | 123% | 79% | 141% | |||
Operating Profit (as adjusted) (50%) | 104% | 57% | 165% | |||
Working Capital Turns (as adjusted) (20%) | 87% | 0% | 56% | |||
Business Achievement | 106% | 52% | 136% |
The respective business unit metrics constituted 70% of each executive’s potential AIP performance payout, in aggregate, and the corporate metrics constituted 30% of the potential payout. Fluid Handling results were adjusted as discussed above. |
Measure (weighting) | Target Goal | Threshold Goal | Threshold Payment | Maximum Goal | Maximum Payment | Actual Result | Payout Percentage | Net Payout Percentage based on weighting | ||||||||||||||||||||||||
Net sales (as adjusted) (25%) | $ | 3.727 billion | $ | 3.354 billion | 50% | $ | 4.099 billion | 200% | $ | 3.647 billion | 89% | 22% | ||||||||||||||||||||
Operating Profit (as adjusted) (40%) | $ | 358 million | $ | 286 million | 50% | $ | 429 million | 200% | $ | 326 million | 78% | 31% | ||||||||||||||||||||
Working Capital Turns (as adjusted) (20%) | 5.8 | 5.1 | 50% | 6.5 | 200% | 5.1 | 50% | 10% | ||||||||||||||||||||||||
Adjusted EPS (15%) | $ | 1.57/share | $ | 1.26/share | 50% | $ | 1.88/share | 200% | $ | 1.58/share | 103% | 16% | ||||||||||||||||||||
Weighted aggregate for all corporate metrics in 2016 | 79% | |||||||||||||||||||||||||||||||
Weighted aggregate for all corporate metrics in 2015 | 52% |
We do not disclose the specific target goals or achievement for sales (as adjusted), orders (for Howden), operating profit (as adjusted) or working capital turns (as adjusted) applicable to our business segments as they are highly confidential to our businesses. We believe that disclosure of this information would be competitively harmful to us, as it would provide our competitors with strategic information specific to certain businesses, thus providing our competitors insight into our plans and projections for such businesses. As evidenced by our performance this year, these target levels are designed to be difficult to accomplish and are not certain to be met.
Bonus Calculation– Individual Performance Factor
In addition to the target bonus percentages and financial and operational metrics discussed above, the third and final factor under our Annual Incentive PlanAIP is the individual performance factor.Individual Performance Factor (IPF). This is a multiplier that ranges from 0 to 1.5 (subject to an overall payout cap of 250% of the target bonus) based on individual performance, embodiment of our Company’s core values, and achievement of key performance indicators (KPIs) set in advance for each executive by our Chief Executive Officer,CEO, or, for our Chief Executive Officer,CEO, by the Board. The individual performance factor and KPIs set thereunder are included as part of the Annual Incentive PlanAIP so that non-financial Company objectives over which the executive has primary control are factored in as a reasonable part of the individual’s total annual bonus for the year. The individual performance factors for each executive were determined after evaluating each named executive officer’sNEO’s performance, including the collective achievements detailed on page 2927 above. For Annual Incentive PlanAIP payouts, bonus allocations were formulated based on Board-approved budgets, with a 1.0x average payout target for participants in the Annual Incentive PlanAIP and deviations from that average permitted if supported by performance or based on external circumstances outside of management’s control. For 2017, IPFs for our NEOs ranged from 0.8 to 1.2.
Compensation Actions Related to the Sale of Colfax Fluid Handling
On December 11, 2017, we completed the sale of our Fluid Handling business to CIRCOR International, Inc. (CIRCOR) for cash and CIRCOR shares representing approximately 16.5% of CIRCOR’s issued and outstanding shares on the closing date. This business delivered significant financial performance improvements over a two-year period prior its sale, which contributed to our ability to successfully capture its value upon sale. In order to ensure the continued focus of our Fluid Handling management team as the sale process was undertaken, Mr. Mayhorn, who at the time was President of Colfax Fluid Handling, and certain key associates within Fluid Handling were provided retention bonuses contingent on the successful completion of the sale process. Accordingly, Mr. Mayhorn earned a $400,000 retention bonus at closing. Further, given the execution and effort throughout the sale process, which strengthened the Company’s balance sheet and provides more flexibility for our growth strategy, each of Mr. Mayhorn and Mr. Pryor, our EVP, Strategy & Business Development, also received bonuses of $500,000 in recognition of their performance and contributions
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toward achieving this strategic milestone. In connection with his termination as an executive officer of Colfax upon the closing of the sale and in light of our continuing interest in a successful transition through our ownership of CIRCOR shares, we also entered into a six-month transition services agreement with Mr. Mayhorn as an employee of Colfax to facilitate the successful transfer of the Fluid Handling business to CIRCOR. Under this agreement, contingent upon the successful provision of the transition services, Mr. Mayhorn is to receive a severance payment equal to one year of his base salary and target bonus, in an aggregate amount $807,500, upon completion of the transition services term. Further, following completion of the transition services term and termination thereunder, Mr. Mayhorn shall serve as a consultant to the Company until March 31, 2019 in connection with specific work related to CBS projects for $10,000 per month and for no more than 30 hours per month.
Long-Term Incentives
The goal of our long-term incentive plan is to align the rewardscompensation of executives with the interests of stockholders by encouraging sustained long-term improvement in operational and financial performance and long-term increase in stockholder value. Long-term incentives also serve as retention instruments and provide equity-building opportunities for executives. In recent years, we have granted stock options and PRSUs as our mainprimary forms of equity awards, with service-based RSUs being granted primarilyprincipally as recruitment or promotionalpromotion awards at the time of hire or promotion. Vesting of PRSUs has been tied to both achieving a specified increase in cumulative adjusted earnings per share for any four consecutive quarters within a ten- to twelve-quarter period and satisfying a specified service period.
As discussed above under “Stockholder Engagement and Compensation Program Enhancements,” following feedback from our stockholders and a review of market practices, the Compensation Committee determined that, ingranted during 2017 vesting of PRSUs will beis conditioned upon achieving a key operational improvement metric (adjusted operating margin) over a three-year period and an investor return benchmark (relative TSR vs. the S&P MidCap 400 Industrials Index), also measured over a three-year period. We also received stockholder feedback on special equity awards that were granted in 2015Once vested, at least 50% of the shares delivered pursuant to certainthe PRSUs (net of our executive officers and in January 2016 to our CEO, as discussed below. These special equity awards were a non-standard compensation element designed to address the confluence of a rapidly changing economic landscape facing our businesses and the need to attract and retain certain key executives. Although these awards have worked as designed to incentivize and retain key executives, no such special equity awards have been made following the January 2016 grant to Mr. Trerotola, and we do not anticipate the use of specialshares withheld or multi-year awards outside of new hire packagessold for our executive officers going forward.taxes) must be held for an additional one-year period.
Outstanding Equity AwardsPRSUs
NoneVesting of the outstanding PRSUs held by the named executive officers were earned in 2016. Further, all stock options granted to our named executive officers over the past four years had exercise prices higher than our closing stock price on December 31, 2016, other than awards made since November 2015.
2016 CEO Grant
As discussed in our 2016 proxy statement, Mr. Trerotola was awarded a special equity grant in January 2016, in light of the unanticipated and significantly more challenging operating conditions encountered between when we recruited Mr. Trerotola to join the Company as President and Chief Executive Officer in July 2015 and the date of the award, as well as his response of quickly accelerating Company-wide restructuring efforts. The Compensation Committee considered a number of factors at the time of the grant, including deterioration in our end-markets in the latter half of 2015 and economic variables impacting operations since his hire, as well as his significant accomplishments to that point in establishing the Company’s 2016 restructuring plans, which the Board viewed as key to achieving operational and profit targets in the coming fiscal periods. The Compensation Committee received input from FW Cook regarding the potential design of a one-time award to address these factors. In view of Mr. Trerotola’s
importance to the Company’s strategic initiatives going forward, the Compensation Committee determined that the stock options and PRSUs granted upon his hire in 2015 were no longer operating with their designed motivational and retentive intent, and approvedprior to 2017 was tied to both achieving a grant to him with an aggregate grant date fair value of $9,000,000, consisting of two-thirds stock options and one-third PRSUs. The PRSUs will be earned if the Company achieves $1.76specified increase in cumulative adjusted earnings per share for any four consecutive quarters beginning withwithin a ten- to twelve-quarter period and satisfying a specified service period. None of the first fiscal quarteroutstanding PRSUs held by the NEOs were earned in 2017 and grants made during 2014 were cancelled without any shares being issued following the end of 2016 and ending with the fourth fiscal quarter of 2018, representing at least a 10% increase over 2015 adjusted earnings per share. These awards do not begin to vest until three years from the grant date and, subject to Mr. Trerotola’s continued employment through the applicable vesting date, the awards, if earned, will vest in three equal annual installments beginning on January 4, 2019. The stock options expire seven years from the grant date.
Other 2016 Executive Equity Awards
Messrs. Hix and Kambeyanda received equity awards in connection with their hiring as described above under “2016 Management Succession” on page 27. Mr. Pryor did not receive a 2016 annual equity grant in light of equity awarded to him during 2015. Mr. Brannan received a cash award of $75,000 in lieu of a long-term incentive grant for 2016.performance period.
Annual Grants under Omnibus Incentive Plan
On February 19, 2016,13, 2017, the Compensation Committee granted stock options and PRSUs under the 20082016 Omnibus Incentive Plan as amended with a target aggregate value as set forth in the table below:below. Each NEO received 50% of the annual award in the form of PRSUs and 50% of the annual award in the form of stock options. Mr. Trerotola did not receive annual equity grants in 2017 due to his new hire grant in 2015 and his special equity grant that was made in January 2016.
Annual Grant Recipient | Total Aggregate Value of Grant ($) | |
1,700,000 | ||
Mr. Pryor | ||
Mr. Kambeyanda | 1,000,000 | |
Mr. Brander | 1,000,000 | |
Mr. Mayhorn | 800,000 |
Each received 50% of her awardStock options vest in three equal annual installments beginning on the form of stock options and 50%first anniversary of the award ingrant date and PRSUs cliff vest at the formend of PRSUs in accordance with the formula approved by our Compensation Committee. Any shares underlying PRSU awards that are earned upon conclusionthree-year measurement period to the extent of achievement of the performance period will vest in two equal installmentsmetrics based on the third and fourth anniversaries offollowing payout scale, with each factor weighted 50% in determining the grant date. The PRSUs granted in February 2016 will be earned, if at all, if the Company’s cumulative adjusted earnings per share results for any four consecutive fiscal quarters beginning in 2016 and ending in 2018 equals or exceeds $1.76. Messrs. Hix and Kambeyanda’s awards included the same performance criteria, with the performance period beginning in their first full quarter of employment in 2016 and extending for three years.award payout:
3 Year TSR Percentile Rank* | Adjusted Operating Margin* | Resulting Shares Earned (% of target) | ||||
Below Threshold | <30th | <10% | 0% | |||
Threshold | 30th | 10% | 50% | |||
Target | 55th | 10.5% | 100% | |||
Maximum | 80th | 11% | 200% |
* | Linear interpolation between achievement points |
Additional Compensation Information
Other Elements of Compensation–Non-Qualified Deferred Compensation and Perquisites
The Company does not maintain a pension plan and instead makes matching contributions to a tax-qualified 401(k) plan and the Colfax Corporation Excess Benefit Plan and, beginning during 2016, to our Non-Qualified Deferred Compensation Plan. We established the Excess Benefit Plan and Non-Qualified Deferred Compensation Plans,Plan, which provideprovides participants the opportunity to defer a percentage of their compensation without regard to the compensation limits imposed by the Internal Revenue Code under our 401(k) plan, to allow our senior-level executives to contribute toward retirement on a tax-effective basis in a manner that is consistent with other Colfax employees who are not limited by the Internal Revenue Code limits. For additional details concerning the Excess Benefit Plan and Non-Qualified Deferred Compensation Plan, please see the Non-Qualified Deferred Compensation Table and the accompanying narrative disclosure.
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With respect to Mr. Brander, who is based in the U.K., as discussed below in the footnotes to the Summary Compensation Table, Howden makes contributions to the Howden Retirement Plan, a defined contribution plan, on his behalf. In addition, as discussed following the Pension Benefits table below, Mr. Brander maintains a balance in the Howden Group Retention Plan, a frozen defined benefit pension plan. Mr. Brander’s benefits under the Howden Group Retention Plan do not grow with any additional earnings or service.
Aside from the benefits provided to Mr. Trerotola at the time of his hire, which include (i) an automobile allowance of $20,000 per year and (ii) personal use of a private aircraft chartered by the Company and/or personal financial planning services (or any combination thereof) in an aggregate amount not to exceed $100,000 in compensation income (i.e., imputed income under tax rules) in any calendar year, we provide minimal perquisites includingother than business-related items such as relocation assistance, which may be grossed-up consistent with competitive market recruitment practices, and benefits provided in non-U.S. locations in accordance with local practice.
Employment & Service Agreements
Messrs. Trerotola Pryor, and Ms. PuckettPryor are party to the same form of employment agreement. These agreements provide for a two-year initial term, or in the case of Mr. Trerotola’s CEO Employment Agreement, a three-year initial term, with automatic one-year term extensions thereafter, unless our Board or the executive provides written notice in advance to terminate the automatic extension provision. Each executive’s base salary may not be reduced below the amount previously in effect without the written agreement of the executive. In addition, as set forth in their current employment agreements, each of Messrs. Trerotola and Pryor and Ms. Puckett are entitled to participate in our Annual Incentive Plan with a target bonus amount no less than 120%, and 50%, and 50% respectively, of his or her base salary then in effect. The employment agreements with our executive officers provide severance benefits as well asand provide change in control benefits which are provided only if a termination for “good reason” or other than for “cause” occurs within two years following the change in control.control (i.e., “double trigger” provisions”).
Mr. Hix’s letter agreement entered into upon his hire provides for severance and change in control benefits primarily commensurate with those provided in our employment agreements. Mr. BrannanKambeyanda is party to a part-time employmentletter agreement described under “2016 Management Succession” on page 27. Mr. Kambeyanda and Ms. Clark have not entered into employment agreements with the Company that specifies his starting annual salary and area target bonus of at least 70% under the AIP. This agreement also provides for a transition bonus made in connection with his hire that is to be paid in installments over his first five years of employment (with $330,000 payable in 2017, and $130,000 payable in each of 2018, 2019 and 2020). This letter agreement also provides that Mr. Kambeyanda is subject to our Executive Officer Severance Plan. No changeMr. Brander is party to a service agreement with Howden Group Ltd., which he entered into prior to our acquisition of the Howden business in control benefits are provided thereunder.2012.
In connection with his termination of employment with Colfax on the closing of the sale of our Fluid Handling business, Mr. Mayhorn is also party to a six-month transition services consulting agreement with us to facilitate the successful transfer of this business to CIRCOR, as described further above on page 29 under “Compensation Actions Related to the Sale of Colfax Fluid Handling.”
Additional details regarding the material terms of these employment agreements and Mr. Hix’s letter agreement are summarized under ” Employment Agreements”“Employment Agreements and Executive Officer Severance Plan” on page 3241 and “Potential Payments Upon Termination or Change in Control” on page 43 and a summary of the materials terms and eligibility requirements for the Executive Officer Severance Plan is provided under “Potential Payments Upon Termination or Change in Control”.
Stock Ownership Policy and Stock Holding Requirements
Our stock ownership policy further aligns the long-term financial interests of Company executives with those of our stockholders while also serving as a risk mitigation tool. Beginning January 1, 2017, eachEach executive at a vice president level or higher must retain at least one-half of vested equity awards, less shares withheld or sold for tax withholding obligations, until they havethe executive has accumulated shares of our common stock or other qualifying forms of equity having the value described below. The ownership value thresholds are as follows:
Leadership Position | Value of Shares | |
President and CEO | 6x base salary | |
EVP/SVP | 3x base salary | |
VP | 1x base salary |
Further, beginning in 2017, in complement to the stock ownership policy all executives must hold at least 50% of any vested PRSUs (net of taxes) for a minimum of one year following vesting and delivery. All of the Company’s named executive officersNEOs have achieved these ownership targets as of the date of this Proxy Statement.
CEO Recommendations
During 20162017 Mr. Trerotola, provided recommendations to the Compensation Committee with respect to the compensation levels for our executive officers, other than for himself. These recommendations were based on his assessment of the executive officer’s relative experience, overall performance, and impact on the achievement of our financial and operational goals and strategic objectives, combined with perspective from the competitive review data. While the Compensation Committee took these recommendations under advisement, it independently evaluated the pay recommendations for each executive officer and made all final compensation decisions in accordance with its responsibilities as set forth in the Compensation Committee Charter.
Role of Compensation Consultants and Peer Data Review
Our Compensation Committee also obtains perspective from competitive data reviewed by FW Cook, the independent advisor to the Compensation Committee on matters of executive compensation. In July 2013, the Compensation Committee considered a list of peer companies recommended by FW Cook to align withreflect the peers used by financial analysts and governance advisors covering Colfax and to reflectrepresent our growth trajectory, revenue, market capitalization and overall scope and nature of operations, whichoperations. This list continued to be used as a reference point by the Compensation Committee during 2016,2017, with the exception of Dresser Rand, which was removed from the group following its acquisition in 2015. Our peer group is as follows:
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Colfax Peer Group
Ametek Inc. | Illinois Tool Works Inc. | |||
Crane Co. | Joy Global Inc.* | |||
Dover Corporation | Kennametal Inc. | |||
Eaton Corporation plc | Lincoln Electric Holdings, Inc. | |||
Flowserve Corporation | Pentair plc | |||
IDEX Corporation | Rockwell Automation, Inc. |
* | Acquired in April 2017 but used included in reference data during early 2017 |
While competitive review data drawn from this group is not used to “benchmark” the amount of compensation paid to the named executive officersNEOs (or to our executives in general), the information was utilized by the Compensation Committee as one of many reference points to assist in its compensation decisions.
Independence of Compensation Consultant
At a meeting in March 2017,2018, the Compensation Committee considered the independence of FW Cook in light of the SEC rules regarding conflicts of interest involving compensation consultants and NYSE listing standards regarding compensation consultant independence. The Compensation Committee requested and received a letter from FW Cook addressing conflicts of interest and independence, including specific factors enumerated in both relevant SEC rules and NYSE listing standards. The Compensation Committee discussed and considered these factors, and other factors it deemed relevant, and concluded that FW Cook is independent and that its work during 20162017 did not raise any conflict of interest.
Compensation Program and Risk
As part of our continued appraisal of our compensation program, management, with oversight from the Compensation Committee, annually reviews our compensation policies and practices and the design of our overall compensation program in relation to our risk management practices and any potential risk-taking incentives. This assessment includes a review of the primary elements of our compensation program in light of potential risks:
Compensation Program Risk Considerations
Pay Mix | ■ | Compensation program includes an appropriate mix of short and long-term incentives, which mitigates the risk of undue focus on short-term targets while rewarding performance in areas that are key to our long-term success. |
■ | Base salaries are set at competitive levels to promote stability and provide a component of compensation that is not at risk. | |
Performance Metrics and Goals | ■ | Distinct performance metrics are used in both our short-term (AIP) and long-term incentive plans. |
■ | Our Annual Incentive Plan is designed with a payout scale (including a maximum cap) that supports our pay for performance philosophy, as set forth on page | |
Long-Term Incentives | ■ | The equity grant portion of our compensation program, combined with our stock ownership guidelines and stock holding requirements, is designed to align the long-term interests of our executives with those of our stockholders. |
We have controls and other policies in place that serve to limit excessive risk-taking behavior within our compensation program, including but not limited to the following:
Compensation Risk Mitigation Components
Compliance Risk Mitigation | ■ | Oversight of our compensation process and procedures by the Compensation Committee, each member of which has been determined by the Board to be independent under applicable SEC rules and NYSE listing standards; |
■ | Internal controls over our financial reporting, which are maintained by management and reviewed as a part of our internal audit process and further reviewed and tested by our external auditors, as overseen by the Audit Committee; and | |
■ | Audit Committee oversight and review of financial results and non-GAAP metrics used in certain components of our | |
Personnel Risk Mitigation | ■ | Implementation of and training on Company-wide standards of conduct, as described on page 15 under “Standards of Conduct”. |
Risk Mitigation Policies | ■ | Provisions in the Company’s insider trading policy prohibiting hedging transactions that would allow the holder to limit or eliminate the risk of a decrease in the value of the Company’s securities; |
■ | A policy prohibiting pledging of Company shares after February 17, 2014; and | |
■ | A clawback policy applicable to all executive officers. |
The Compensation Committee reviewed with management the results of its assessment at a meeting in March 2017.2018. Based on this review, the Compensation Committee concluded that the risks arising from Company compensation policies and practices for our employees are not reasonably likely to have a material adverse effect on the Company.
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Hedging Ban
Any director, officer or employee of the Company is prohibited from engaging in short sales, transactions in derivative securities (including put and call options), or other forms of hedging and monetization transactions, such as zero-cost collars, equity swaps, exchange funds and forward sale contracts, that allow the holder to limit or eliminate the risk of a decrease in the value of the Company’s securities.
Pledging Policy
Our Board has adopted a policy that prohibits any director or executive officer from pledging as security under any obligation any shares of Colfax common stock that he or she directly or indirectly owns and controls (other than shares already pledged as of February 17, 2014). Any shares of Colfax common stock that were pledged prior to February 17, 2014 do not count toward our stock ownership requirements.
Clawback Policy
The Compensation Committee has adopted a clawback policy applicable to our executive officers. Under the policy, in the event the Company is required to restate its financial results due to material non-compliance with any financial reporting requirement under the securities laws as generally applied, the Board will review all bonus payments made, including all bonus payments under our Annual Incentive Plan, and all performance-based equity compensation that was earned or vested on the basis of having met or exceeded financial results during the three years prior to the date that the Company determines such restatement is required.
If the Board determines that such payments or the amount of awards earned/vested would have been lower had they been determined or calculated based on such restated results, the Board will, to the extent permitted by governing law, seek to recoup for the benefit of the Company the value of such payments made to and/or
equity awards earned by executive officers. The Board maintains discretion, to the extent permitted under applicable law, not to seek such recoupments if the Board determines, in the exercise of its fiduciary duties, that under the specific circumstances it would not be appropriate to seek to recover such amounts. The Company may effect such recoupment by requiring executive officers to pay such amount(s) to the Company, by set-off, by reducing future compensation, or by such other means or combination of means as the Board determines to be appropriate.
Equity Grant Practice
The Compensation Committee has the authority to grant equity awards. The Company does not time the grant of equity awards around material, non-public information. Grant dates are determined either as of the date of Compensation Committee approval or on the date of a specific event, such as the date of hire or promotion, for certain executive officers. The target grant value is translated into a number of shares underlying each grant using a valuation formula that, for RSUs and PRSUs, incorporates a 15-day average closing price preceding the grant date, of Compensation Committee approval, to avoid the potential volatility impact of using a single-day closing price. Grants of equity awards (other than to newly-appointed directors or newly-hired or promoted associates) are expected to be made annually by the Compensation Committee during “open-window” periods, which are the periods when officers and directors are not expressly prohibited from trading in shares of our common stock by our applicable policies. Equity awards to newly-appointed directors, and to newly-hired or promoted associates, are expected to be made during an “open–window” period whenever possible, and, for newly-hired or promoted associates, are reviewed and approved at a regularly scheduled meeting of the Compensation Committee and made effective as of that date or as of the first date during the next “open-window” period.
The Compensation Committee has authorized the delegation of authority to our Chief Executive OfficerCEO for grants of equity awards to associates that are non-executive officers. The aggregate grant value of such equity awards may not exceed one-third of the total grant value of equity awards made during the fiscal year period, are subject to further restrictions on individual size, and are made pursuant to the terms of award agreement forms previously approved by the Board or the Compensation Committee. The effective grant date of these awards is the first day of the month following such review and approval by the CEO (and following the start date for any newly hired associates) or at a regularly scheduled Compensation Committee following such approval, subject to the “open-window” restrictions noted above. The Compensation Committee receives a report of any grants made pursuant to this delegated authority at each regularly scheduled meeting.
Rule 10b5-1 Trading Plans by Executive Officers
Certain of our executive officers have adopted written stock trading plans in accordance with Rule 10b5-1 under the Exchange Act and our own Policy on Insider Trading and Compliance. A Rule 10b5-1 Trading Plan is a written document that pre-establishes the amount (or ratio), prices, and dates (or range of possible dates) of future purchase or sales of our common stock. These plans are entered into during an open window period under our Policy on Insider Trading and Compliance. To date, certain named executive officersNEOs have entered into such plans (i) to sell the percentage of vested shares necessary to satisfy applicable tax withholding obligations upon the vesting and delivery of performance-based restricted stock units,PRSUs, or (ii) to exercise options that are approaching the end of their term.
Most Recent Say-On-Pay Vote (2014)(2017)
At our 20142017 Annual Meeting, approximately 99%83% of the stockholder votes cast on our advisory proposal to approve the compensation of our named executive officersNEOs were voted in favor of our executive compensation proposal. Our Compensation Committee considered the outcome of this vote in the context of its on-going engagement with our stockholders and the compensation program enhancements that it initiated following our 2016 annual meeting of stockholders, and accordingly did not set or changemake any additional changes to our executive compensation policies as a result of 2014’s advisory vote results. As discussed above under “Stockholder Engagement and Compensation Program Enhancements,” ourprogram elements. The Compensation Committee has implementeddetermined to provide for an annual “say-on-pay” proposal and will continue to carefully evaluate the feedback received from our stockholders in connection with the voting on that proposal. Our Compensation Committee has continued to implement and sustained focus on a number of enhancements toelements of our executive compensation program, based on our engagement with our stockholders over the past year.as discussed further above under “Continuation of Compensation Program Enhancements”.
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Effect of Accounting and Tax Treatment on Compensation Decisions
Section 162(m) of the Internal Revenue Code imposes a limit on the amount of compensation that we may deduct in any one year with respect to certain “covered employees,” unless certain specific and detailed criteria are satisfied. Performance-basedemployees”. We had structured our compensation as defined in the Internal Revenue Code, is fully deductible if the programs are approved by stockholders and meet other requirements. Following stockholder approval at our 2012 Annual Meeting of Stockholders of the material terms for payment of performance-based compensation under our 2008 Omnibus Incentive Plan, as amended and at our 2016 Annual Meeting of Stockholders of the material terms for payment of performance-based compensation under our 2016 Omnibus Incentive Plan, subsequent grants2017 such that awards of stock options and performance-based equity awards, and bonuses under our AIP, were designed in a mannergenerally intended to qualify as performance-based“performance-based” for purposes of satisfying the conditions of an exemption to this limit on deductibility previously available under Section 162(m). Also, bonuses awarded pursuant to our Annual Incentive Plan were also designed in a manner intended to qualify as “performance-based” for the purposes of Section 162(m). However, we seekThe Compensation Committee, however, has sought to maintain flexibility in compensating our executives, and, as a result, the Board has not adopted a policy requiring that all compensation be deductible. Our Compensation Committee assessesFor taxable years beginning after December 31, 2017, the impactexemption from Section 162(m)’s deduction limit for certain “performance-based” compensation has been repealed except for certain grandfathered compensation arrangements that were in effect as of Section 162(m) on our compensation practices and determines what further action, if any, is appropriate, and may administer these plans (and any successor plans) in a manner that does not satisfy the requirements of Section 162(m) in order to achieve a result that the Compensation Committee determines to be appropriate. In addition,November 2, 2017. Furthermore, the rules and regulations promulgated under Section 162(m) are complicated and subject to change possibly with retroactive effect, and a numberthe scope of requirements must be met in orderrelief for particular awards to qualify for tax-deduction.grandfathered arrangements is currently uncertain. As such, there can be no assurance that any compensation awarded or paid in prior years will be fully tax deductible.
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COMPENSATION COMMITTEE REPORT |
The Compensation Committee participated in the preparation of the Compensation Discussion and Analysis, reviewing successive drafts and discussing the drafts with management. Based on its review and discussions with management, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s 20172018 Proxy Statement and in the Company’s Annual Report on Form 10-K for 20162017 by reference to the Proxy Statement.