While the Audit Committee has primary responsibility for overseeing enterprise risk management, each of the other Board committees also considers risk within its area of responsibility. For example, the Nominating and Corporate Governance Committee reviews legal and regulatory compliance risks as they relate to corporate governance structures and processes, and the Compensation Committee reviews risks related to compensation matters. The committee chairs periodically apprise the Board of significant risks and management’s response to those risks. While the Board and its committees oversee risk management strategy, senior management is responsible for implementing and supervising day-to-day risk management processes and reporting to the Board and its committees on such matters.
With respect to risk related to compensation matters, the Compensation Committee considers, in establishing and reviewing the Company’s executive compensation program, whether the program encourages unnecessary or excessive risk taking and has concluded that it does not. Executives’The base salaries of our employees, including the Named Executive Officers, are fixed in amount and thus do not encourage risk-taking. Short-term incentive opportunities for all employees, including the Named Executive Officers, are generally capped and are tied to overall corporate performance. The compensation provided to
The Compensation Committee has also reviewed the Company’s compensation programs for employees generally and has concluded that these programs do not create risks that are reasonably likely to have a material adverse effect on the Company. The Compensation Committee believes that the design of the Company’s annual short-term and long-term equity incentives provide an effective and appropriate mix of incentives to help ensure that the Company’s performance is focused on long-term stockholder value creation and does not encourage the taking of short-term risks at the expense of long-term results. In general, bonus opportunities for Company employees are discretionary and management has the authority to reduce bonus payments (or pay no bonus) based on individual or Company performance and any other factors it may determine to be appropriate in the circumstances. As with the compensation of our executive officers, the Company intends to award a portion of the compensation of certain of its key employees in the form of equity awards that help further align the interests of employees with those of stockholders.
Section 145 of the Delaware General Corporation Law (the "DGCL") provides that a corporation may indemnify its directors and officers against liabilities actually and reasonably incurred in such capacities, including attorneys’ fees, judgments, fines and amounts paid in settlement, with respect to any matter in which the director or officer acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person’s conduct was unlawful. Our Amended and Restated Certificate of Incorporation (the "Certificate of Incorporation") provides that we shall indemnify our directors and officers to the fullest extent authorized by the DGCL. Our Certificate of Incorporation provides that this right to indemnification is a contract right, and we may, from time to time, and in the ordinary course of business, enter into contracts under which our directors and officers are provided with such rights of indemnification against liability that they may incur in their capacities as such and in connection with activities performed under the terms of such contracts. We have entered into indemnification agreements with each of our directors and certain officers which require us, among other things, to indemnify them against certain liabilities which may arise by reason of his status or service as a director or officer (other than liabilities arising from willful misconduct of a culpable nature).
Our Bylaws further provide that we shall indemnify and hold harmless, to the fullest extent permitted by law, any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was one of our directors or officers or is or was serving at our request as a director, officer, employee or agent of another corporation, partnership, joint venture or other enterprise, against any and all liability and loss (including judgments, fines, penalties and amounts paid in settlement) suffered or incurred and expenses reasonably incurred
by such person; provided, however, that we shall not be required to indemnify a person in connection with any action, suit or proceeding that is initiated by such person unless such action, suit or proceeding was authorized by our Board.
Our Certificate of Incorporation also eliminates the personal liability of our directors to the fullest extent permitted by Section 102 of the DGCL, which provides that a corporation may eliminate the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. Section 102 does not, however, permit a corporation to eliminate or limit liability for (i) any breach of the duty of loyalty to the corporation or its stockholders, (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) liability of directors for unlawful payment of dividend or unlawful stock purchase or redemption or (iv) any transaction from which the director derived an improper personal benefit.
We have purchased liability insurance covering our directors and officers and certain other management personnel.
PROPOSAL NO. 1
Upon the recommendation of the Nominating and Corporate Governance Committee, the Board has nominated each of Rodney L. Bingham, Marcus J. George, Richard E. Goodrich, Kevin J. McGinty, John T. Nesser, III, Michael W. Press, Stephen A. Snider and Charles A. Sorrentino for re-election at the 20142015 Annual Meeting to serve a one-year term expiring at the 20152016 Annual Meeting.
Each of the nominees has indicated his willingness to serve, if elected, but if any of the nominees should be unable or unwilling to serve, the Board may either reduce its size, or designate or not designate a substitute nominee. If the Board designates a substitute nominee, proxies that would have been cast for the original nominee will be cast for the substitute nominee unless instructions are given to the contrary.
The Board unanimously recommends that stockholders vote "FOR" the election of Messrs. Bingham, George, Goodrich, McGinty, Nesser, Press, Snider and Sorrentino.
The Board has adopted a Statement of Policy Regarding Transactions with Related Parties, which requires that each director and executive officer promptly advise the chairman of the Audit Committee of any Related Person Transaction, as defined therein, of which he or she becomes aware in which we are to be a participant, the amount involved exceeds $120,000 and the applicable Related Person had or will have a direct or indirect material interest, and all material facts with respect thereto. The Audit Committee (or, if determined by the Audit Committee as advisable, the disinterested members of our Board) shall then consider such Related Person Transaction for approval or ratification.
In considering whether to approve or ratify any Related Person Transaction, the Audit Committee or the disinterested members of our Board, as the case may be, shall consider all factors that are relevant to the Related Person Transaction, including, without limitation, the following:
whether the transaction involves the provision of goods or services to the Company that are available from unaffiliated third parties and, if so, whether the transaction is on terms and made under circumstances that are at least as favorable to the Company as would be available in comparable transactions with or involving unaffiliated third parties.
No Related Person Transaction will be consummated without the approval or ratification of the Audit Committee or the disinterested members of the Board as described above. It is our policy that no director shall participate in any discussion or approval of a Related Person Transaction for which he or she is a Related Person.
On April 30, 2010, an investor group led by entities affiliated with certain of our former private equity sponsors acquired a controlling interest in us (the "CHS Transactions") from our predecessor, Thermon Holdings, LLC. PursuantLLC ("THLLC"). On March 5, 2015, we entered into a settlement agreement with THLLC (the "Settlement Agreement") pursuant to which THLLC agreed to pay us $1,700,000 (the "Settlement Amount") in full settlement of certain claims for indemnification for losses suffered or incurred (or likely to be incurred) by us under the stock purchase agreement governing the CHS Transactions (the "SPA") and to release both parties from all other potential claims under the SPA.
We have entered into manager equity agreements with certain of our current and former executive officers and employees (collectively, the "management investors") which set forth additional provisions relating to the ownership of our securities. Pursuant to the manager equity agreements, each management investor will maintain the confidentiality of our confidential or proprietary information obtained as a result of such management investor’s employment and is subject to non-competition and non-solicitation covenants during employment and for a period of two years thereafter. Upon the termination of a management investor’s employment for cause, we will have the option to repurchase certain of such management
investor’s securities at the lower of cost or the fair market value (as determined in good faith by our Board) of such securities. Messrs. Bingham, Alexander and van der Salm are among the management investors who are party to manager equity agreements.
The Audit Committee has adopted a policy requiring pre-approval by the Audit Committee of all services (audit and non-audit) to be provided to us by our independent registered public accounting firm. In accordance with that policy, the Audit Committee has given its pre-approval for the provision of all audit and review services to be performed by the independent registered public accounting firm for Fiscal 2015.2016. All other services must be specifically pre-approved by the Audit Committee or by a member of the Audit Committee to whom the authority to pre-approve the provision of services has been delegated.
Furthermore, the Audit Committee will review the external auditors’ proposed audit scope and approach as well as the performance of the external auditors. It also has direct responsibility for and sole authority to resolve any disagreements between our management and our external auditors regarding financial reporting, will regularly review with the external auditors any problems or difficulties the auditors encountered in the course of their audit work and will, at least annually, use its reasonable efforts to obtain and review a report from the external auditors addressing the following (among other items): (i) the auditors’ internal quality-control procedures; (ii) any material issues raised by the most recent internal quality-control review, or peer review, of the external auditors; (iii) the independence of the external auditors; and (iv) the aggregate fees billed by our external auditors for each of the previous two fiscal years.
The following table sets forth certain information as of the Record Date, unless otherwise indicated, with respect to the beneficial ownership of the Company’s common stock by (i) each person known to us to be the beneficial owner of more than 5% of the outstanding shares of the Company’s common stock based solely on the Company’s review of SEC filings; (ii) each director; (iii) each Named Executive Officer; and (iv) all directors and Named Executive Officers as a group.
Beneficial ownership for the purposes of the following table is determined in accordance with the rules and regulations of the SEC, which generally provide that a person is the beneficial owner of securities if such person has or shares voting or investment power with respect to the securities or has the right to acquire such powers within 60 days. Shares issuable pursuant to stock options exercisable as of the Record Date or within 60 days thereafter and restricted stock units ("RSUs") that are scheduled to vest within 60 days of the Record Date are deemed outstanding for computing the percentage of the respective person or group holding such options but are not outstanding for computing the percentage of any other person or group. The percentage of beneficial ownership for the following table is based on 31,936,16232,133,629 shares of common stock outstanding as of the Record Date, plus options exercisable and RSUs vesting on or within 60 days of the Record Date held by any executive officer or director included in the group for which percentage ownership has been calculated. To our knowledge, except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock. Unless otherwise indicated, the address for each listed stockholder is: c/o Thermon Group Holdings, Inc., 100 Thermon Drive, San Marcos, Texas 78666.
shares beneficially owned. Eagle Asset Management, Inc. lists its address as 880 Carillon Parkway, Saint Petersburg, FL 33716 in such filing. The Schedule 13G amendment may not reflect current holdings of our common stock.
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(12)(14) | Includes 33,24025,358 shares of our common stock issuable upon the exercise of stock options held by executive officers or directors that are exercisable within 60 days of the Record Date and 29,23232,194 RSUs vesting within 60 days of the Record Date held by executive officers. Excludes 43,75425,460 unvested RSUs, and 43,75450614 unvested performance units (measured at the target performance level) and 6,000 unvested stock options held by executive officers. |
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company’s officers and directors, and persons who own more than ten percent of a registered class of the Company’s equity securities, to file reports of securities ownership and changes in such ownership with the SEC. Officers, directors and greater than ten percent stockholders also are required by SEC rules to furnish the Company with copies of all Section 16(a) forms they file.
Based solely upon a review of the copies of such forms furnished to the Company or written representations that no FormsForm 5 reports were required, the Company believes that all Section 16(a) filing requirements were timely met during Fiscal 2014,2015, except for the following reports, which were filed late: one Form 4 was filed for Mr. AlexanderPeterson on April 15, 2013June 23, 2014 with respect to the saleexercise of 30,0003,000 stock options and subsequent forfeiture of 1,804 shares of our common stock on April 8, 2013;June 18, 2014; one Form 4 was filed for Mr. PetersonSorrentino on April 30, 2013September 9, 2014 with respect to the exercise and subsequent sale of the underlying1,000 shares of 500common stock options on April 25, 2013;August 12, 2014; one Form 4 was filed for Mr. van der SalmSorrentino on each of July 26, 2013 and October 21, 2013, eachFebruary 11, 2015 with respect to the exercise and subsequent sale of the underlying1,000 shares of 12,500common stock options on July 17, 2013 and September 17, 2013, respectively; andJanuary 15, 2015; one Form 4 was filed for each of Messrs. George, Goodrich, Press, McGinty, Nesser, Snider and Sorrentino on November 12, 2014 with respect to the award of 571 shares on October 1, 2014. In addition, one Form 4 was filed for each of Messrs. Bingham, Alexander, Bingham, Peterson and van der Salm on August 6, 2013June 5, 2015 with respect to 3,870, 3,870, 2,257the award of 5,013, 5,013, 4,444 and 2,2574,444 restricted stock units, respectively, 9,567, 9,567, 8,480 and 8,480 performance units, respectively, on July 31, 2014, the vesting of 4,647, 4,647, 2,711, and 2,711 restricted stock units, respectively, and subsequent forfeiture of 1,270 and 741 shares of common stock for each of Messrs. Bingham and Peterson, respectively that were issued on May 29, 2013 pursuant to previously outstanding performance unit award agreements.August 2, 2014, and the vesting of 4,563, 4,563, 2,696 and 2,696 restricted stock units, respectively, and subsequent forfeiture of 1,247 and 737 shares of common stock for each of Messrs. Bingham and Peterson, respectively on August 1, 2014. The Form 4 reports filed on June 5, 2015 for Messrs. Bingham and Alexander also reported the vesting of 2,506 and 2,506 restricted stock units, respectively, and subsequent forfeiture of 675 and 725 shares of common stock, respectively, on March 31, 2015. The Form 4 filed on June 5, 2015 for Mr. van der Salm also reported the sale of 9,000 shares of common stock on March 3, 2015. The Form 4 filed on June 5, 2015 for Mr. Alexander also reported the exercise of 2,000 stock options on October 9, 2014.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed the following Compensation Discussion and Analysis ("CD&A") with management. Based on this review and discussion, the Compensation Committee recommended to the Board that the CD&A be included in this Proxy Statement prepared in connection with the 20142015 Annual Meeting and the Company’s 20142015 Annual Report.
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| Submitted by the Compensation Committee of the Board of Directors |
| Stephen A. Snider (Chair) |
| Richard E. Goodrich |
| Kevin J. McGinty |
| Michael W. Press |
FISCAL 20142015 EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis ("CD&A") provides a discussion of the background and objectives of our compensation programs for our Fiscal 2014 Named Executive Officers, listed in the table below. The CD&A should be read together with the compensation tables and related disclosures that follow this section.
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Name | | Title |
Rodney L. Bingham | | President and Chief Executive Officer |
George P. Alexander | | Special Advisor to the President and Chief Executive Officer, Former Executive Vice President, Global Sales and Marketing(1) |
Jay C. Peterson | | Chief Financial Officer; Senior Vice President, Finance; SecretarySecretary; Treasurer |
Johannes (René) van der Salm | | Senior Vice President, Global Operations |
(1) On April 1, 2015, Mr. Alexander transitioned from the role of Executive Vice President, Global Sales and Marketing into the role of Special Advisor to the President and Chief Executive Officer.
Executive Summary
We believe our business benefits from an exceptional management team that is responsible for maintaining our leadership position in the heat tracing industry and weindustry. We have sought to establish a competitive executive compensation programsprogram that enableenables us to attract, retain and reward skillful, experienced and dedicated executives who can contribute both to our short- and long-term success. Our executive compensation program is designed to reward strong financial performance and a significant portion is tied to the achievement of measurable operational, strategic and market objectives, which we believe motivates management to maximize performance and build stockholder value.
Compensation Overview
Some of the key principles of our compensation program include (i) management’s interests should be closely aligned with the interests of our stockholders; (ii) compensation must be competitive with that offered by other companies that compete with us for executive talent and enable us to attract and retain highly-qualified executive leadership; (iii) differences in compensation should reflect differing levels of responsibilities; and (iv) performance-based compensation should focus on critical business objectives and align pay through performance-leveraged incentive opportunities.
Fiscal 2015 Highlights
The Company achieved record financial performance across many key financial metrics during Fiscal 2015. A brief summary of the Company's Fiscal 2015 financial performance is as follows:
The Company generated record revenue of $308.6 million, representing an 11% increase versus $277.3 million in Fiscal 2014.
Gross profit increased 14% from $135.2 million in Fiscal 2014 to $154.7 million in Fiscal 2015. As a percentage of revenue, gross profit increased from 48.7% in Fiscal 2014 to 50.1% in Fiscal 2015.
Income from operations increased 15% from $58.6 million in Fiscal 2014 to $67.1 million in Fiscal 2015.
The Company's cash balance increased 29% from $72.6 million at the end of Fiscal 2014 to $93.8 million at the end of Fiscal 2015.
The Company continually evaluates its compensation practices from a governance perspective and accordingly, in May 2015, the Compensation Committee adopted a clawback policy. Pursuant to the Company's clawback policy and to the extent permitted by governing law, the Company may require the return, repayment or forfeiture of any annual or long-term incentive compensation payment or award made or granted to any current or former executive officer during the three-year period preceding the filing with the SEC of Company financial statements that were restated due to the material noncompliance of the Company with any financial reporting requirement under the securities laws to the extent that such incentive compensation was calculated based upon any financial result or performance metric impacted by such restatement.
The Compensation Committee continues to believe that equity should be a significant element of the Company's executive compensation program because it (i) is designed to further align the executive's interests with those of its
stockholders; (ii) is viewed as a critical retention tool; and (iii) is a necessary component to remain competitive with the companies that compete with us for executive talent. Therefore, in Fiscal 2015, equity accounted for approximately one-third of the total compensation paid or awarded to the Named Executive Officers, collectively, as reported in the "Summary Compensation Table" below. Further, two-thirds of the aggregate target grant date fair value of the Fiscal 2015 equity awards for each Named Executive Officer was in the form of performance-based restricted stock units (the "performance units"). The number of performance units that each executive may earn is tied directly to the Company's total shareholder return ("TSR")as compared to the companies included in the Standard & Poors Small Cap 600 Industrials Sector Index (the "S&P 600 Index"). See "Elements of Our Compensation Program—Long-Term Incentives" below for additional information.
The total compensation for our Named Executive Officers, collectively, as reported in the "Summary Compensation Table" below increased 47% in Fiscal 2015 as compared to Fiscal 2014. The increase was primarily attributable to the size of the short-term incentive awards paid in Fiscal 2015 versus Fiscal 2014. The Company's Fiscal 2015 financial performance met or exceeded the maximum short-term incentive payout levels for all of the pre-determined performance metrics established by the Compensation Committee and comparatively, the Company did not achieve the threshold payout level for certain of the pre-determined performance metrics established by the Compensation Committee in Fiscal 2014, resulting in zero payout for the two heaviest weighted metrics for Fiscal 2014. See "Elements of Our Compensation Program—Short-Term Incentives" below for additional information.
The increase in short-term incentive for Messrs. Bingham and Alexander was partially offset by a reduced grant date fair value of long-term incentive awards to $366,654 in Fiscal 2015 from $425,722 in Fiscal 2014 as reported in the "Summary Compensation Table." After evaluating the anticipated remaining tenures with the Company in connection with the Company's succession planning process, the Compensation Committee reduced the grant date fair value of the Fiscal 2015 equity awards to each of Messrs. Bingham and Alexander. The long-term incentive awards to Messrs. Peterson and van der Salm as reported in the "Summary Compensation Table" increased to $325,009 in Fiscal 2015 from $251,583 in Fiscal 2014. The primary reason for the increase was that the performance unit awards made in Fiscal 2014 were denominated in shares and, as a result of the manner in which the Monte Carlo simulation model valued the performance units in that year, the actual grant date fair value of the awards was lower than the Compensation Committee had originally estimated. In Fiscal 2015, the performance unit awards were denominated with a target grant date fair value approved by the Compensation Committee instead of a fixed number of shares. See "Elements of Our Compensation Program—Long-Term Incentives" below for additional information.
Elements of Our Compensation Program
The table below summarizes the primary elements of our executive compensation program:
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Element of Compensation | | Description | | Value to Stockholder |
Base Salary | | Annual salary is fixed. | | Competitive base compensation enables the Company to attract and retain key executive talent. |
Short TermShort-Term Incentive | | Annual cash incentive is variable and earned only to the extent certain pre-determined performance metrics are met or exceeded. | | Motivates executives to drive annual results that positively impact revenue,achieve certain pre-determined financial and operating income, working capital and safety.metrics. |
Long-Term Incentive - Performance-UnitsPerformance Units | | Stock awards that vest in annual installments over three years only if and to the extent the Company's total shareholder return relative to its peer groupa comparable index meets or exceeds pre-approved targets. The valuenumber of shares actually issued to the awardrecipient is variable based on the numberCompany's relative total shareholder return during the performance period and the value of the shares earned as well asissued to the recipient is variable based on the Company's stock price. | | Aligns executive compensation with stockholder value creation over annual and cumulative performance periods over three years.creation. Retention feature embedded in award design. |
Long-Term Incentive - Time-Based Restricted Stock Units | | Stock awards that vest in equal annual installments over three years. The number of shares that vest each year is fixed, but the value of the awardshares issued to the recipient is variable based on the Company's stock price. | | Aligns executive compensation with stockholder value creation over a three-year vesting period.creation. Retention feature embedded in award design. |
Fiscal 2014 Summary
A brief summary of the Company's financial performance is as follows:
Fiscal 2014 revenue was $277.3 million, representing a 2% decline versus $284.0 million in Fiscal 2013;
Gross profit increased 2%
Base Salaries
Base salaries are intended to $135.2 millionprovide a competitive foundation and a fixed rate of pay for the work being performed by each executive officer sufficient to attract and retain an effective management team, when considered in Fiscal 2014 versus $132.8 million in Fiscal 2013. As a percentage of revenue, gross profit increased to 48.7% in Fiscal 2014 versus 46.8% in Fiscal 2013.
Income from operations increased to $58.6 million in Fiscal 2014 versus $57.0 million in Fiscal 2013.
Net income was $25.8 million in Fiscal 2014 versus $27.0 million in Fiscal 2013.
Foreign currency negatively impacted revenue by approximately $4.0 million versus Fiscal 2013, primarily attributable tocombination with the depreciation of the Canadian dollar. Fiscal 2014 gross margins were favorably impacted by an increase in the Company's MRO/UE (maintenance, repair, operations / upgrades and expansions) sales as a percentage of total revenue, which grew to 67% in Fiscal 2014 versus 58% in Fiscal 2013. Net income was impacted by a loss of $15.5 million incurred as a result of the refinancingother components of our senior secured notes.executive compensation program. The refinancing reduced the Company interest expense from $15.2 million in Fiscal 2013 to $10.0 million in Fiscal 2014.
The total compensationrelative levels of base salary for our Named Executive Officers are designed to reflect each executive’s scope of responsibility and accountability with us, as well as the complexity of the applicable position. Compensation beyond those pay elements is at risk and must be earned through achievement of annual goals, which represent performance expectations of the Board and management and long-term value creation for our stockholders. The proportion of compensation designed to be delivered in base salary versus variable pay depends on the executive’s position and the ability of that position to influence overall Company performance. Furthermore, in setting target compensation, the Compensation Committee focuses on the total compensation opportunity for the executive.
Base salaries are generally reviewed annually and adjusted from time to time to reflect individual responsibilities, performance, experience, inflation, peer group data, the Company's operating budget and competitiveness within the market for the individual executive's talent and services. The Compensation Committee is responsible for setting the base salary of the Chief Executive Officer. Base salary decisions with respect to the other Named Executive Officers are approved by the Compensation Committee after considering the recommendation of the Chief Executive Officer.
In July 2014, each of Messrs. Bingham, Alexander, Peterson, and van der Salm received a 3% base salary increase from the base salary in effect during Fiscal 2014, (as set forthas shown in the Summarytable below. This base salary increase was consistent with the Company's overall compensation practices and comparable to market practices. Further, none of the Named Executive Officers had received a base salary increase since Fiscal 2013.
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Named Executive Officer | Fiscal 2014 Base Salary ($) | Fiscal 2015 Base Salary (1)($) | Percent Change (%) |
Rodney L. Bingham | 360,500 |
| 371,315 |
| 3% |
George P. Alexander | 303,850 |
| 312,966 |
| 3% |
Jay C. Peterson | 257,500 |
| 265,225 |
| 3% |
Johannes (René) van der Salm | 215,000 |
| 221,450 |
| 3% |
(1) Effective July 2014.
On April 27, 2015, the Compensation Table) decreasedCommittee approved a new employment agreement with Mr. Bingham. The contract increased his base salary to $500,000, effective April 1, 2015. The new employment agreement and base salary were negotiated between the parties. Further, Mr. Bingham's base salary level has historically been near the 25th percentile of the Compensation Peer Group and the Compensation Committee determined that the increase in his base salary was necessary and appropriate. In making this determination, the Compensation Committee gave considerable weight to Mr. Bingham's tenure with the Company and his expected contributions to the Company's succession planning and executive transition process.
Short-Term Incentives
Historically, we have provided our Named Executive Officers and other worldwide employees with the opportunity to earn annual cash incentives based on overall Company performance. We believe that short-term incentives help create a "pay for performance" culture by providing an opportunity to earn competitive compensation that is linked to our annual performance as comparedwell as hold our executives accountable and reward them based on actual business results. Consistent with this culture, short-term incentives can represent a significant portion of total compensation.
In June 2014, the Compensation Committee established the performance metrics for each Named Executive Officer for the Fiscal 2015 executive short-term incentive program ("2015 STIP") as described in the table below. The Compensation Committee believes that these performance metrics incentivize our executive officers to Fiscal 2013. This is primarily attributable to two factors: (i)focus on multiple performance drivers throughout our business. Historically, adjusted operating income has been a key metric in evaluating the short-term incentives paidincentive opportunities available to the Named Executive Officers decreasedand the Compensation Committee continues to view this as a key metric in evaluating the Company's performance. In addition to profitability, the Compensation Committee believes
that management should be focused on top-line revenue growth opportunities. Accordingly, it increased the weighting of the revenue metric from 20% in Fiscal 2014 to 45% in Fiscal 2015 and also decreased the adjusted operating income metric weighting from 60% in Fiscal 2014 to 45% in Fiscal 2015. The Compensation Committee continues to believe that safety is an important metric that is required to run the business effectively and efficiently and assigned it a weighting of 10% (no change from Fiscal 2014). In evaluating the 2015 STIP, the Compensation Committee determined that the Company's management team had achieved significant improvements in its management of working capital over the last several years and therefore removed it as a performance metric for Fiscal 2015. In Fiscal 2014, working capital carried a weighting of 10%.
The following table and footnotes provide additional detail on the 2015 STIP, including each performance metric, its respective weighting, the pre-determined threshold, target, and maximum performance levels and the Company's actual performance in Fiscal 2015.
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Performance Metric | | Weight | | Fiscal 2014 Actual Performance | | Threshold Performance Level | | Target Performance Level | | Maximum Performance Level | | Fiscal 2015 Actual Performance |
Adjusted Operating Income($)(1) (in thousands) | | 45 | % | | 73,184 |
| | 73,184 |
| | 79,355 |
| | 82,073 |
| | 89,043 |
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Revenue($)(2) (in thousands) | | 45 | % | | 277,323 |
| | 277,323 |
| | 297,311 |
| | 305,055 |
| | 308,659 |
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Safety (TRIR)(3) | | 10 | % | | 0.1 |
| | 0.5 |
| | 0.4 |
| | 0.3 |
| | 0.2 |
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(1) | For purposes of the 2015 STIP, "adjusted operating income" is defined as gross profit, less operating expenses excluding incentive expense, stock-based compensation expense, plus amortization of intangible assets. Actual performance is pro-rated in between performance levels. |
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(2) | Actual performance is pro-rated in between performance levels. |
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(3) | For purposes of the 2015 STIP, "safety" is defined as the Company's total recordable incident rate ("TRIR"). TRIR is calculated as the Company's number of recordable injuries during Fiscal 2015 times 200,000 divided by the number of man hours worked during Fiscal 2015. Actual performance is not pro-rated in between performance levels. |
Under the 2015 STIP, each of the threshold, target and maximum opportunities for each Named Executive Officer was set as a percentage of base salary, as summarized in the table below. If the Company's performance does not meet or exceed the pre-determined threshold performance level, there is zero payout with respect to such performance metric. During Fiscal 2015, the threshold, target and maximum opportunities for each Named Executive Officer were unchanged from Fiscal 2014.
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Named Executive Officer | | Base Salary (1)($) | | Threshold % of Base Salary | | Target % of Base Salary | | Maximum % of Base Salary | | Fiscal 2015 Actual Payout ($) |
Rodney L. Bingham | | 360,500 | | 40% | | 100% | | 160% | | 576,800 |
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George P. Alexander | | 303,850 | | 40% | | 100% | | 160% | | 486,160 |
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Jay C. Peterson | | 257,500 | | 30% | | 75% | | 120% | | 309,000 |
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Johannes (René) van der Salm | | 215,000 | | 30% | | 75% | | 120% | | 258,000 |
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(1) The base salaries utilized for purposes of the 2015 STIP were the base salaries in effect on April 1, 2014.
In May 2015, the Compensation Committee reviewed the Company’s Fiscal 2015 performance as well as the Company's actual result under each pre-determined performance metric. The Compensation Committee determined that the Company's performance exceeded the maximum level for each of the revenue, adjusted operating income and safety performance metrics. Accordingly, each executive received the maximum payout with respect to each of the three performance metrics. Based on the Company's actual Fiscal 2015 performance, the Compensation Committee approved payouts under the 2015 STIP to Messrs. Bingham, Alexander, Peterson and van der Salm as set forth in the column titled "Fiscal 2015 Actual Payout" in the table above.
Long-Term Incentives
The Amended and Restated Thermon Group Holdings, Inc. 2011 Long-Term Incentive Plan (the "LTIP") is designed to provide our officers, employees, non-employee directors and consultants with added incentive to remain employed by or perform services for us and aligns such individuals’ interests with those of our stockholders. Our Compensation Committee believes that equity-based awards are important in building an ownership mentality among our Named Executive Officers and key employees and aligning the long-term financial interests of our employees with those of our stockholders.
The Compensation Committee monitors and evaluates the performance of the Company's long-term incentive awards and Company performance under the terms of prior awards against the Committee's overall compensation philosophy and whether long-term incentive compensation awards are effectively serving the Company's compensation goals. After reviewing the long-term incentive awards granted to the Named Executive Officers and discussing with the Company's independent compensation consultant, Pearl Meyer and Partners ("PM&P"), the Committee made the following changes to the structure of the long-term incentive awards granted to the Named Executive Officers in Fiscal 2015 as compared to Fiscal 2013 as a result2014:
The Company increased the weighting of not achievingthe performance units awarded to the Named Executive Officers to two-thirds of the aggregate grant date fair value. The remaining one-third was awarded in the form of time-based restricted stock units. Historically, the Company has targeted one-half of the aggregate grant date fair value in the form of performance units and one-half in the form of restricted stock units.
The Company eliminated the threshold performance level for certainpayout under the performance units. The Fiscal 2015 performance units will require performance at the 50th percentile of the pre-determinedS&P 600 Index for 100% of the target number of performance metrics establishedunits to be earned. There is no pay out for TSR performance below the 50th percentile under the 2014 short-term incentive program;Fiscal 2015 performance unit award agreements. Historically, the performance units would pay out 50% of the target number of shares for relative TSR performance at the 35th percentile of the predetermined peer group.
The performance period for the Fiscal 2015 performance units was extended to nearly three years and (ii)subjected the entire performance unit award to a single "cliff vest." The performance period began on the grant date and will end on March 31, 2017 (the "Performance Period"). Historically, the Company's performance units had been comprised of three different performance periods, consisting of separate one-year, two-year and three-year performance periods.
After extensive discussions and analysis and the assistance of PM&P, the Compensation Committee determined that a larger, broader selection of comparative entities would be more representative of industry performance for purposes of the relative TSR performance metric than a peer group of approximately 15 entities. Therefore, the Compensation Committee, with the assistance of PM&P, reviewed a selection of indices for use in connection with the relative total shareholder return performance metric of the Fiscal 2015 performance units and selected the S&P 600 Index. As of the Grant Date, the S&P 600 Index contained 89 entities.
After evaluating the anticipated remaining tenures with the Company in connection with the Company's succession planning process, the Compensation Committee reduced the aggregate grant date fair value of the Fiscal 2015 equity awards to each of Messrs. Bingham and Alexander and aligned the vesting schedule such that 100% of the Fiscal 2015 equity awards would be fully vested on or before March 31, 2016. One-third of the grant date fair value of the performance units awarded in Fiscalawards made to each of Messrs. Bingham and Alexander on July 31, 2014 was significantly lower thanin the form of restricted stock units vesting in equal installments on March 31, 2015 and March 31, 2016. The remaining two-thirds of the grant date fair value was in the form of performance units. The performance units also vest in equal installments on March 31, 2015 and March 31, 2016, however, no shares will be earned or issued in settlement of the award until the conclusion of the Performance Period on March 31, 2017. The ultimate settlement of the Fiscal 2015 performance units is contingent upon the Company's relative TSR performance over the entire Performance Period.
Based on the advice of PM&P and the Company's Fiscal 2015 operating budget, effective July 31, 2014 (the "Grant Date"), the Compensation Committee approved equity awards to each of the Named Executive Officers in the form of restricted stock units and performance units as described in the table below. The Compensation Committee continues to
believe that a mixture of time-based restricted stock units and performance units best achieves its compensation objectives; however, as noted above, in Fiscal 2015 it increased the percentage of the aggregate grant date fair value of performance units from one-half in Fiscal 2014 to two-thirds in Fiscal 2015 and decreased the percentage of time-based restricted stock units from one-half in Fiscal 2014 to one-third in Fiscal 2015.
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Named Executive Officer | | Grant Date | | Aggregate Grant Date Fair Value ($)(1) | | Time-Based Restricted Stock Units (#)(2) | | Performance Units Target Shares (#)(3) |
Rodney L. Bingham | | 7/31/2014 | | 366,666 | | 5,013 | | 9,567 |
George P. Alexander | | 7/31/2014 | | 366,666 | | 5,013 | | 9,567 |
Jay C. Peterson | | 7/31/2014 | | 325,000 | | 4,444 | | 8,480 |
Johannes (René) van der Salm | | 7/31/2014 | | 325,000 | | 4,444 | | 8,480 |
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(1) | The Compensation Committee approved Fiscal 2015 equity awards with an aggregate grant date fair value as set forth in this column for purposes of determining the number of shares subject to each award, with one-third of the target grant date fair value to be awarded in the form of time-based restricted stock units and the remaining two-thirds to be awarded in the form of performance units. |
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(2) | The number of time-based restricted stock units subject to each restricted stock unit award was calculated as one-third of the aggregate grant date fair value of the equity awards divided by $24.38, which was the market closing price per share of the Company's common stock as reported on the NYSE on the Grant Date. The restricted stock units awarded to Messrs. Bingham and Alexander will vest in two equal installments on March 31, 2015 and 2016. The restricted stock units awarded to Messrs. Peterson and van der Salm will vest in three equal annual installments, beginning on the first anniversary of the Grant Date. |
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(3) | The number of target shares subject to each performance unit award (the "Target Shares") was calculated as two-thirds of the estimated value of the equity awards divided by $25.55, which was the value per share based on the probable outcome of the market-based performance conditions and the application of a Monte Carlo simulation model. For additional details, please see Note 1 to the Summary Compensation Table and Note 13 to the consolidated financial statements included in our 2015 Annual Report. The awards are subject to a single "cliff vest" performance period ending on March 31, 2017. |
For purposes of the performance units awarded in Fiscal 2013. This was2015, the Compensation Committee established the performance metric as TSR relative to the S&P 600 Index. The S&P 600 Index will include all of the companies which are listed on the S&P 600 Index on the Grant Date and which remain listed on the S&P 600 Index on the last day of the Performance Period. Companies added or removed as a result of a subsequent reconstitution of the mannerS&P 600 Index prior to the last day of the Performance Period will not be included in the final relative TSR calculation. In the event of the bankruptcy of a company included in the S&P 600 Index during the Performance Period, such company shall remain in the S&P 600 Index with a TSR of negative 100%.
The Compensation Committee selected TSR as the performance metric because it strives to reward long-term, sustainable growth and stockholder value creation. The Compensation Committee believes that TSR reflects the extent to which stockholders and the Monte Carlo model valuedmarket consider that the awards madeCompany's strategy is appropriate and is being implemented and articulated well by the Named Executive Officers. The TSR for the Company and each entity included in Fiscal 2013the S&P 600 Index will be calculated by using the 20 consecutive trading day average Closing Price (as defined below) prior to the first date of each Performance Period versus the 20 trading day average Closing Price (as defined below) ending on the last day of the Performance Period. The "Closing Price" is the dividend adjusted close price, as adjusted for stock splits, cash dividends, rights offerings and Fiscal 2014spin-offs.
The TSR of each company included in the S&P 600 Index will be calculated and was not a deliberate decision byranked from highest to lowest (the "Ranked S&P 600 Index"). The Company's TSR for the Performance Period shall then be compared to the Ranked S&P 600 Index and the number of shares actually earned in settlement of the award will be based on the following table:
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Level | | Payout(1) | | Relative TSR Rank |
Zero Payout | | 0% of Target Shares | | 49th Percentile |
Target | | 100% of Target Shares | | 50th Percentile |
Maximum | | 200% of Target Shares | | 100th Percentile |
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(1) | Actual performance is pro-rated in between the target and maximum performance levels. If the Company's TSR during the Performance Period is below the target performance level, the participant will not earn any shares with respect to the Performance Period. If the Company's TSR during the Performance Period is negative, the payout will not exceed the target level (100%). |
Long-Term Incentives From Prior Years
On May 20, 2015, the Compensation Committee to decreasecalculated and reviewed the total compensationCompany's TSR performance and the TSR performance of each of the entities in the Fiscal 2014 Compensation Peer Group for the second performance period (April 1, 2013 through March 31, 2015) for the performance units granted on August 1, 2013, as well as the third performance period (April 2, 2012 through March 31, 2015) for the performance units granted on August 2, 2012. Following such review, the Compensation Committee approved the issuance of the number of shares listed in the "Actual Shares Earned" column in the table below to each Named Executive Officer. The threshold, targetCompany's actual TSR performance, relative TSR rank and maximum opportunitiesthe earned shares associated with such performance units during each respective performance period is summarized in termsthe table below.
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Executive | Grant Date | Performance Period | Target Shares | Company's TSR | Relative TSR Rank | Payout (as a Percentage of Target Shares) | Actual Shares Earned |
Rodney L. Bingham | 8/2/2012 | April 2, 2012 - March 31, 2015 | 4,647 | 18.8% | 6 out of 16 | 100.0% | 4,647 |
Rodney L. Bingham | 8/1/2013 | April 1, 2013 - March 31, 2015 | 4,563 | 10.7% | 7 out of 16 | 116.7% | 5,325 |
George P. Alexander | 8/2/2012 | April 2, 2012 - March 31, 2015 | 4,647 | 18.8% | 6 out of 16 | 100.0% | 4,647 |
George P. Alexander | 8/1/2013 | April 1, 2013 - March 31, 2015 | 4,563 | 10.7% | 7 out of 16 | 116.7% | 5,325 |
Jay C. Peterson | 8/2/2012 | April 2, 2012 - March 31, 2015 | 2,711 | 18.8% | 6 out of 16 | 100.0% | 2,711 |
Jay C. Peterson | 8/1/2013 | April 1, 2013 - March 31, 2015 | 2,696 | 10.7% | 7 out of 16 | 116.7% | 3,146 |
Johannes (René) van der Salm | 8/2/2012 | April 2, 2012 - March 31, 2015 | 2,711 | 18.8% | 6 out of 16 | 100.0% | 2,711 |
Johannes (René) van der Salm | 8/1/2013 | April 1, 2013 - March 31, 2015 | 2,696 | 10.7% | 7 out of 16 | 116.7% | 3,146 |
Employee Benefits and Perquisites
We offer a very limited amount of number of shares remained substantially similar in Fiscal 2014 as comparedperquisites and other personal benefits to Fiscal 2013.
our Named Executive Officers. The Compensation Committee continuesbelieves that these perquisites and benefits are reasonable and consistent with prevailing market practices and the Company’s overall compensation program. Perquisites are not a material part of our compensation program. The Compensation Committee periodically reviews the levels of perquisites and other personal benefits provided to believe that equity should beour Named Executive Officers.
Each of our Named Executive Officers is entitled to participate in our employee benefit plans (including 401(k) retirement savings, and medical, dental and life insurance benefits) on the same basis as our other full-time employees located in the United States. In addition, we lease a significant elementCompany vehicle for Mr. Bingham’s use in traveling between our facilities in Houston and San Marcos, Texas. See "Summary Compensation Table—All Other Compensation."
Stock Ownership Guidelines
Our Board has adopted stock ownership guidelines for all of our Named Executive Officers and delegated oversight of the guidelines to the Compensation Committee. The ownership threshold for the Chief Executive Officer is five times annual base salary. The ownership threshold for all other Named Executive Officers is two times annual base salary. Each Named Executive Officer is required to meet such minimum guidelines within five years after November 1, 2011 or, if appointed after November 1, 2011, within five years after the date of such appointment.
Each individual subject to the stock ownership guidelines must meet or exceed his or her requisite threshold immediately prior to any disposition of shares or share equivalents obtained through an equity grant (other than shares used to pay applicable withholding taxes and the exercise price of stock options). The 100% retention requirement applies during any time period during which the individual’s stock ownership threshold has not been achieved, including during the initial five-year period. If a Named Executive Officer or director does not meet the requisite threshold or demonstrate sustained progress toward meeting the threshold, the Board has discretion to reduce future long-term incentive grants or pay future cash compensation in the form of equity.
In measuring stock ownership, the Compensation Committee will consider all shares beneficially owned and vested but unexercised stock options. For vested but unexercised stock options, the value counting toward the individual's threshold will be determined based on the excess of the market value of the stock over the exercise price of the stock option. Unvested performance units, unvested restricted stock, unvested restricted stock units and unvested stock options are not considered in calculating each individual's stock ownership.
Though not yet required, Messrs. Alexander, Bingham and van der Salm met these guidelines as of the Record Date. Following a Fiscal 2014 revision to the stock ownership guidelines no longer counting unvested restricted stock and unvested restricted stock units, Mr. Peterson no longer meets his requisite threshold, however, he is on track to meet the requisite guideline within the initial five-year period.
For information on the stock ownership guidelines for the Company's executive compensation program because it (i) alignsnon-employee directors, see the executive's compensationsection entitled "Director Compensation—Stock Ownership Guidelines (Non-Employee Directors)."
Employment Agreements
Fiscal 2015 Employment Agreements
At the beginning of Fiscal 2015, each of our Named Executive Officers was party to an employment agreement that was negotiated and entered into in connection with long-term stockholder value creation; (ii) is viewed as a critical retention tool;our IPO and (iii) is a necessary componentexpired pursuant to remain competitiveits original terms on April 30, 2014.
In connection with the companies that compete with usexpiration of those employment agreements, the Compensation Committee approved new employment agreements for executive talent. Therefore, in Fiscal 2014, equity accounted for nearly halfeach of the Named Executive Officers, effective May 1, 2014. The material terms of each Named Executive Officer's total compensation, as reportednew employment agreement, including the severance and change in the "Summary Compensation Table" below. A significant portion of the Fiscal 2014 equity opportunity forcontrol benefits provided to each Named Executive Officer wasupon a qualifying termination event, are described in the formnarrative following the "Fiscal 2015 Grants of performance-based restricted stock units (the "performance units"). The number of performance units that each executive may earn is tied directly to the Company's total shareholder return as compared to its predetermined peer group, which is discussed further inPlan-Based Awards" table and the section entitled "Long-Term Incentives" below."Potential Payments Upon Termination or Change in Control." The terms of each agreement were determined based on competitive market pay practices, negotiations between the parties and the advice of PM&P.
Fiscal 2016 Employment Agreements
In connection with the Company's succession planning process, the Company made several changes to its executive leadership for Fiscal 2016:
Mr. Alexander transitioned into the newly created role of Special Advisor to the President and Chief Executive Officer effective April 1, 2015. The Compensation Committee approved a new employment agreement with Mr. Alexander, including severance benefits provided upon a qualifying termination event. The terms of Mr. Alexander's employment agreement were determined based on Mr. Alexander's tenure with the Company, negotiations between the parties, the Company's succession planning process and the advice of external compensation advisors.
On April 27, 2015, the Company entered into a new employment agreement with Mr. Bingham to continue as the Company's President and Chief Executive Officer through March 31, 2016. The terms of Mr. Bingham's employment agreement were determined based on competitive market pay practices, negotiations between the parties, the Company's succession planning process, the advice of PM&P and Mr. Bingham's tenure with the Company.
In June 2014, the Board established a search committee to identify a qualified external candidate for the newly created position of Executive Vice President and Chief Operating Officer. Following a comprehensive external search process, the Company appointed Mr. Thames to the position on April 27, 2015 and entered into an employment agreement with him in connection with the appointment. The terms of Mr. Thames' employment agreement were determined based on competitive market pay practices, negotiations between the parties and the advice of PM&P.
The material terms of the new employment agreements for each of Messrs. Alexander, Bingham and Thames are described in the narrative following the "Fiscal 2015 Grants of Plan-Based Awards" table and the section entitled "Potential Payments Upon Termination or Change in Control."
Certain Transactions in Company Securities
Our Insider Trading Policy prohibits our directors, officers and employees from engaging in various hedging activities with Company securities, including short sales and any transaction involving a publicly traded option, such as a put, call or other derivative security. Further, the policy prohibits holding Company securities in a margin account or pledging Company securities as collateral for a loan.
Executive Compensation Process
Role of the Compensation Committee and the Chief Executive Officer
The Compensation Committee determines all compensation for the Named Executive Officers. Each year, the Compensation Committee conducts an evaluation of the Chief Executive Officer to determine if a change in his compensation is appropriate after considering factors such as the Company’s performance and relative stockholder return, the compensation received by chief executive officers at comparable companies and historical compensation levels. Mr. Bingham did not participate in the Compensation Committee’s deliberations or decisions with regard to his own compensation. At the Compensation Committee’s request, the Chief Executive Officer conducts a performance evaluation of each of the other Named Executive Officers and reviews the results with the Compensation Committee to assist it in determining whether changes in their compensation are appropriate. The Compensation Committee gives considerable weight to the Chief Executive Officer’s evaluation of the other Named Executive Officers because of his direct knowledge of each executive officer’s performance and contributions.
RoleLong-Term Incentives
The Amended and Restated Thermon Group Holdings, Inc. 2011 Long-Term Incentive Plan (the "LTIP") is designed to provide our officers, employees, non-employee directors and consultants with added incentive to remain employed by or perform services for us and aligns such individuals’ interests with those of Outside Advisorsour stockholders. Our Compensation Committee believes that equity-based awards are important in building an ownership mentality among our Named Executive Officers and key employees and aligning the long-term financial interests of our employees with those of our stockholders.
The Compensation Committee directly engagedmonitors and evaluates the performance of the Company's long-term incentive awards and Company performance under the terms of prior awards against the Committee's overall compensation philosophy and whether long-term incentive compensation awards are effectively serving the Company's compensation goals. After reviewing the long-term incentive awards granted to the Named Executive Officers and discussing with the Company's independent compensation consultant, Pearl Meyer and Partners ("PM&P") to assist in evaluating Fiscal 2014 executive compensation decisions. As an independent compensation advisor, PM&P provides an additional objective perspective as, the Committee made the following changes to the reasonablenessstructure of our executive compensation programsthe long-term incentive awards granted to the Named Executive Officers in Fiscal 2015 as compared to Fiscal 2014:
The Company increased the weighting of the performance units awarded to the Named Executive Officers to two-thirds of the aggregate grant date fair value. The remaining one-third was awarded in the form of time-based restricted stock units. Historically, the Company has targeted one-half of the aggregate grant date fair value in the form of performance units and practicesone-half in the form of restricted stock units.
The Company eliminated the threshold performance level for payout under the performance units. The Fiscal 2015 performance units will require performance at the 50th percentile of the S&P 600 Index for 100% of the target number of performance units to be earned. There is no pay out for TSR performance below the 50th percentile under the Fiscal 2015 performance unit award agreements. Historically, the performance units would pay out 50% of the target number of shares for relative TSR performance at the 35th percentile of the predetermined peer group.
The performance period for the Fiscal 2015 performance units was extended to nearly three years and subjected the entire performance unit award to a single "cliff vest." The performance period began on the grant date and will end on March 31, 2017 (the "Performance Period"). Historically, the Company's performance units had been comprised of three different performance periods, consisting of separate one-year, two-year and three-year performance periods.
After extensive discussions and analysis and the effectiveness in supporting our business and compensation objectives. During Fiscal 2014,assistance of PM&P, regularly participated inthe Compensation Committee meetings and adviseddetermined that a larger, broader selection of comparative entities would be more representative of industry performance for purposes of the relative TSR performance metric than a peer group of approximately 15 entities. Therefore, the Compensation Committee, with respect to compensation trendsthe assistance of PM&P, reviewed a selection of indices for use in connection with the relative total shareholder return performance metric of the Fiscal 2015 performance units and best practices, incentive plan design and competitive pay levels. While PMselected the S&P consulted600 Index. As of the Grant Date, the S&P 600 Index contained 89 entities.
After evaluating the anticipated remaining tenures with managementthe Company in performing work requested byconnection with the Company's succession planning process, the Compensation Committee it did not perform any separate services for management.reduced the aggregate grant date fair value of the Fiscal 2015 equity awards to each of Messrs. Bingham and Alexander and aligned the vesting schedule such that 100% of the Fiscal 2015 equity awards would be fully vested on or before March 31, 2016. One-third of the grant date fair value of the awards made to each of Messrs. Bingham and Alexander on July 31, 2014 was in the form of restricted stock units vesting in equal installments on March 31, 2015 and March 31, 2016. The remaining two-thirds of the grant date fair value was in the form of performance units. The performance units also vest in equal installments on March 31, 2015 and March 31, 2016, however, no shares will be earned or issued in settlement of the award until the conclusion of the Performance Period on March 31, 2017. The ultimate settlement of the Fiscal 2015 performance units is contingent upon the Company's relative TSR performance over the entire Performance Period.
Based on the advice of PM&P and the Company's Fiscal 2015 operating budget, effective July 31, 2014 (the "Grant Date"), the Compensation Committee approved equity awards to each of the Named Executive Officers in the form of restricted stock units and performance units as described in the table below. The Compensation Committee has considered the independence of PM&P in light of the SEC rules and NYSE listing standards. The Compensation Committee requested and received a letter from PM&P addressing PM&P's and the senior advisor involved in the engagement's independence, including the following factors: (1) other services providedcontinues to us by PM&P; (2) fees paid by us as a percentage of PM&P's total revenue; (3) policies or procedures maintained by PM&P that are designed to prevent a conflict of interest; (4) any business or personal relationships between the senior advisor and a member of the Compensation Committee; (5) any company stock owned by the senior advisor; and (6) any business or personal relationships between our executive officers and the senior advisor. The Compensation Committee discussed these considerations and concluded that the work performed by PM&P and PM&P's senior advisor involved in the engagement did not raise any conflict of interest, and that PM&P provides objective and competent advice. The following protocols are designed to help ensure objectivity:
The advisor reports directly to the Compensation Committee or, in the case of matters relating to director compensation, to the Nominating and Corporate Governance Committee;
Only the Compensation Committee or the Nominating and Corporate Governance Committee has the authority to retain or terminate the advisor with respect to services provided to the relevant committee; and
The advisor meets as needed with Committee members, without the presence of management.
Consideration of Say-on-Pay Vote Results
The Company provides its stockholders with the opportunity to cast an annual non-binding, advisory vote on the compensation paid to its Named Executive Officers (a "say-on-pay" vote). At our 2013 Annual Meeting, approximately 99.3% of the total shares represented and entitled to a say-on-pay vote were cast in favor of the proposal. Accordingly, the Compensation Committee believes these results affirmed broad stockholder support of our approach to executive compensation and did not believe it was necessary to make any changes to the executive compensation program in response to the say-on-pay vote held at the 2013 Annual Meeting. The Compensation Committee will continue to consider the results of say-on-pay votes when making future compensation decisions for the Named Executive Officers.
Peer Companies and Market Comparison
For Fiscal 2014, the Compensation Committee considered information regarding market pay practices to ensure that it made informed decisions on executive pay packages. The Compensation Committee did not target the specific compensation elements or total compensation against the market data. Instead, the Compensation Committee utilized the market data to assess the overall competitiveness and reasonableness of the Company’s executive compensation program. Market pay practices are based on peer group proxy data and published survey data. While the Compensation Committee considers relevant market pay practices when setting executive compensation, it does not rely on this information to target any specific pay percentile for our Named Executive Officers, as the Compensation Committee does not believe that it is appropriate to establish compensation levels based only on market practices. The Compensation Committee believes that compensation decisions are complex and the factors that influence the amount of compensation include the nature and responsibility of the position, market competition for the position, an individual’s experience and past performance and contributions, tenure with the Company and associated institutional knowledge, long-term potential with the Company, Company performance (including past and future performance objectives) as well as peer compensation levels.
Establishingbelieve that a peer groupmixture of time-based restricted stock units and performance units best achieves its compensation objectives; however, as noted above, in Fiscal 2015 it increased the percentage of the aggregate grant date fair value of performance units from one-half in Fiscal 2014 to usetwo-thirds in Fiscal 2015 and decreased the percentage of time-based restricted stock units from one-half in Fiscal 2014 to evaluate compensation decisions is difficult because we operateone-third in a specialized industryFiscal 2015.
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Named Executive Officer | | Grant Date | | Aggregate Grant Date Fair Value ($)(1) | | Time-Based Restricted Stock Units (#)(2) | | Performance Units Target Shares (#)(3) |
Rodney L. Bingham | | 7/31/2014 | | 366,666 | | 5,013 | | 9,567 |
George P. Alexander | | 7/31/2014 | | 366,666 | | 5,013 | | 9,567 |
Jay C. Peterson | | 7/31/2014 | | 325,000 | | 4,444 | | 8,480 |
Johannes (René) van der Salm | | 7/31/2014 | | 325,000 | | 4,444 | | 8,480 |
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(1) | The Compensation Committee approved Fiscal 2015 equity awards with an aggregate grant date fair value as set forth in this column for purposes of determining the number of shares subject to each award, with one-third of the target grant date fair value to be awarded in the form of time-based restricted stock units and the remaining two-thirds to be awarded in the form of performance units. |
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(2) | The number of time-based restricted stock units subject to each restricted stock unit award was calculated as one-third of the aggregate grant date fair value of the equity awards divided by $24.38, which was the market closing price per share of the Company's common stock as reported on the NYSE on the Grant Date. The restricted stock units awarded to Messrs. Bingham and Alexander will vest in two equal installments on March 31, 2015 and 2016. The restricted stock units awarded to Messrs. Peterson and van der Salm will vest in three equal annual installments, beginning on the first anniversary of the Grant Date. |
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(3) | The number of target shares subject to each performance unit award (the "Target Shares") was calculated as two-thirds of the estimated value of the equity awards divided by $25.55, which was the value per share based on the probable outcome of the market-based performance conditions and the application of a Monte Carlo simulation model. For additional details, please see Note 1 to the Summary Compensation Table and Note 13 to the consolidated financial statements included in our 2015 Annual Report. The awards are subject to a single "cliff vest" performance period ending on March 31, 2017. |
For purposes of the performance units awarded in which there are few direct peers. In determining the peer group,Fiscal 2015, the Compensation Committee established the performance metric as TSR relative to the S&P 600 Index. The S&P 600 Index will include all of the companies which are listed on the S&P 600 Index on the Grant Date and which remain listed on the S&P 600 Index on the last day of the Performance Period. Companies added or removed as a result of a subsequent reconstitution of the S&P 600 Index prior to the last day of the Performance Period will not be included in the final relative TSR calculation. In the event of the bankruptcy of a company included in the S&P 600 Index during the Performance Period, such company shall remain in the S&P 600 Index with a TSR of negative 100%.
The Compensation Committee selected publicly traded manufacturing companiesTSR as the performance metric because it strives to reward long-term, sustainable growth and stockholder value creation. The Compensation Committee believes that in its view, compete withTSR reflects the extent to which stockholders and the market consider that the Company's strategy is appropriate and is being implemented and articulated well by the Named Executive Officers. The TSR for the Company for talent and have revenue, assets, market capitalization and enterprise value that are generally comparableeach entity included in the S&P 600 Index will be calculated by using the 20 consecutive trading day average Closing Price (as defined below) prior to the Companyfirst date of each Performance Period versus the 20 trading day average Closing Price (as defined below) ending on the last day of the Performance Period. The "Closing Price" is the dividend adjusted close price, as adjusted for stock splits, cash dividends, rights offerings and spin-offs.
The TSR of each company included in the S&P 600 Index will be calculated and ranked from highest to lowest (the "Compensation Peer Group""Ranked S&P 600 Index"). The Compensation peer group did not change from Fiscal 2013Company's TSR for the Performance Period shall then be compared to Fiscal 2014the Ranked S&P 600 Index and was comprisedthe number of shares actually earned in settlement of the award will be based on the following companies:table:
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AAON, Inc. | Colfax Corporation | Powell Industries, Inc. |
Advanced Energy Industries, Inc.Level | Dril Quip, Inc. | Pulse Electronics Corp.Payout(1) | | Relative TSR Rank |
American Superconductor Corp.Zero Payout | Generac Holdings Inc. | STR Holdings, Inc.0% of Target Shares | | 49th Percentile |
AZZ IncorporatedTarget | II-VI, Inc. | Ultralife Corp.100% of Target Shares | | 50th Percentile |
Chart Industries, Inc.Maximum | Geospace Technologies Corp.(1) | Vicor Corporation200% of Target Shares | | 100th Percentile |
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(1) | Formerly OYO Geospace Corp.Actual performance is pro-rated in between the target and maximum performance levels. If the Company's TSR during the Performance Period is below the target performance level, the participant will not earn any shares with respect to the Performance Period. If the Company's TSR during the Performance Period is negative, the payout will not exceed the target level (100%). |
ElementsLong-Term Incentives From Prior Years
On May 20, 2015, the Compensation Committee calculated and reviewed the Company's TSR performance and the TSR performance of Oureach of the entities in the Fiscal 2014 Compensation Program
Base Salaries
Base salaries are intended to provide a competitive foundation and a fixed rate of payPeer Group for the work being performed by each executive officer sufficient to attract and retain an effective management team, when considered in combination withsecond performance period (April 1, 2013 through March 31, 2015) for the other components of our executive compensation program. The relative levels of base salary for our Named Executive Officers are designed to reflect each executive’s scope of responsibility and accountability with us,performance units granted on August 1, 2013, as well as the complexity ofthird performance period (April 2, 2012 through March 31, 2015) for the applicable position. Compensation beyond those pay elements is at risk and must be earned through achievement of annual goals, which represent performance expectations of the Board and management and long-term value creation for our stockholders. The proportion of compensation designed to be delivered in base salary versus variable pay dependsunits granted on the executive’s position and the ability of that position to influence overall Company performance. Furthermore, in setting target compensation,August 2, 2012. Following such review, the Compensation Committee focuses onapproved the total compensation opportunity for the executive.
Base salaries are generally reviewed annually and adjusted from time to time to reflect individual responsibilities, performance, experience, inflation, peer group data and competitiveness within the market for the individual executive's talent and services. The Compensation Committee is responsible for setting the base salaryissuance of the Chiefnumber of shares listed in the "Actual Shares Earned" column in the table below to each Named Executive Officer. Base salary decisionsThe Company's actual TSR performance, relative TSR rank and the earned shares associated with respect to the other Named Executive Officers are approved by the Compensation Committee upon the recommendation of the Chief Executive Officer.
During Fiscal 2014, the base salaries forsuch performance units during each of Messrs. Bingham, Alexander, Peterson, and van der Salm were $360,500, $303,850, $257,500 and $215,000, respectively. There was no material changerespective performance period is summarized in the base salary compensationtable below.
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Executive | Grant Date | Performance Period | Target Shares | Company's TSR | Relative TSR Rank | Payout (as a Percentage of Target Shares) | Actual Shares Earned |
Rodney L. Bingham | 8/2/2012 | April 2, 2012 - March 31, 2015 | 4,647 | 18.8% | 6 out of 16 | 100.0% | 4,647 |
Rodney L. Bingham | 8/1/2013 | April 1, 2013 - March 31, 2015 | 4,563 | 10.7% | 7 out of 16 | 116.7% | 5,325 |
George P. Alexander | 8/2/2012 | April 2, 2012 - March 31, 2015 | 4,647 | 18.8% | 6 out of 16 | 100.0% | 4,647 |
George P. Alexander | 8/1/2013 | April 1, 2013 - March 31, 2015 | 4,563 | 10.7% | 7 out of 16 | 116.7% | 5,325 |
Jay C. Peterson | 8/2/2012 | April 2, 2012 - March 31, 2015 | 2,711 | 18.8% | 6 out of 16 | 100.0% | 2,711 |
Jay C. Peterson | 8/1/2013 | April 1, 2013 - March 31, 2015 | 2,696 | 10.7% | 7 out of 16 | 116.7% | 3,146 |
Johannes (René) van der Salm | 8/2/2012 | April 2, 2012 - March 31, 2015 | 2,711 | 18.8% | 6 out of 16 | 100.0% | 2,711 |
Johannes (René) van der Salm | 8/1/2013 | April 1, 2013 - March 31, 2015 | 2,696 | 10.7% | 7 out of 16 | 116.7% | 3,146 |
Employee Benefits and Perquisites
We offer a very limited amount of the Named Executive Officers from Fiscal 2013.
Short-Term Incentives
Historically, we have providedperquisites and other personal benefits to our Named Executive Officers and other worldwide employees with the opportunity to earn annual cash incentives based on overall Company performance. We believe that these incentives help create a "pay for performance" culture by providing an opportunity to earn competitive compensation that is linked to our performance as well as hold our executives accountable and reward them based on actual business results. Consistent with this culture, short-term incentives can represent a significant portion of total compensation.
In June 2013, the Compensation Committee established the performance metrics for each Named Executive Officer for the Fiscal 2014 executive short-term incentive program ("2014 STIP") as described in the table below.Officers. The Compensation Committee believes that these four metrics incentivizeperquisites and benefits are reasonable and consistent with prevailing market practices and the Company’s overall compensation program. Perquisites are not a material part of our executive officerscompensation program. The Compensation Committee periodically reviews the levels of perquisites and other personal benefits provided to focusour Named Executive Officers.
Each of our Named Executive Officers is entitled to participate in our employee benefit plans (including 401(k) retirement savings, and medical, dental and life insurance benefits) on multiplethe same basis as our other full-time employees located in the United States. In addition, we lease a Company vehicle for Mr. Bingham’s use in traveling between our facilities in Houston and San Marcos, Texas. See "Summary Compensation Table—All Other Compensation."
Stock Ownership Guidelines
Our Board has adopted stock ownership guidelines for all of our Named Executive Officers and delegated oversight of the guidelines to the Compensation Committee. The ownership threshold for the Chief Executive Officer is five times annual base salary. The ownership threshold for all other Named Executive Officers is two times annual base salary. Each Named Executive Officer is required to meet such minimum guidelines within five years after November 1, 2011 or, if appointed after November 1, 2011, within five years after the date of such appointment.
Each individual subject to the stock ownership guidelines must meet or exceed his or her requisite threshold immediately prior to any disposition of shares or share equivalents obtained through an equity grant (other than shares used to pay applicable withholding taxes and the exercise price of stock options). The 100% retention requirement applies during any time period during which the individual’s stock ownership threshold has not been achieved, including during the initial five-year period. If a Named Executive Officer or director does not meet the requisite threshold or demonstrate sustained progress toward meeting the threshold, the Board has discretion to reduce future long-term incentive grants or pay future cash compensation in the form of equity.
In measuring stock ownership, the Compensation Committee will consider all shares beneficially owned and vested but unexercised stock options. For vested but unexercised stock options, the value counting toward the individual's threshold will be determined based on the excess of the market value of the stock over the exercise price of the stock option. Unvested performance drivers throughoutunits, unvested restricted stock, unvested restricted stock units and unvested stock options are not considered in calculating each individual's stock ownership.
Though not yet required, Messrs. Alexander, Bingham and van der Salm met these guidelines as of the Record Date. Following a Fiscal 2014 revision to the stock ownership guidelines no longer counting unvested restricted stock and unvested restricted stock units, Mr. Peterson no longer meets his requisite threshold, however, he is on track to meet the requisite guideline within the initial five-year period.
For information on the stock ownership guidelines for the Company's non-employee directors, see the section entitled "Director Compensation—Stock Ownership Guidelines (Non-Employee Directors)."
Employment Agreements
Fiscal 2015 Employment Agreements
At the beginning of Fiscal 2015, each of our business. Historically, operating income has been a key metricNamed Executive Officers was party to an employment agreement that was negotiated and entered into in evaluatingconnection with our IPO and expired pursuant to its original terms on April 30, 2014.
In connection with the short-term incentive opportunities available toexpiration of those employment agreements, the Compensation Committee approved new employment agreements for each of the Named Executive Officers, effective May 1, 2014. The material terms of each new employment agreement, including the severance and the Compensation Committee continueschange in control benefits provided to view this as a key metric in evaluating the Company's performance. In addition to profitability, the Compensation Committee believes that management should be focused on top-line revenue growth opportunities. The Committee also believes that safety and working capital are important metrics that are required to run the business effectively and efficiently. The following table and
footnotes provide additional detail on each performance metric, its respective weighting, the pre-determined threshold, target, and maximum performance levels and the Company's actual performance in Fiscal 2014.
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Performance Metric | | Weight | | Fiscal 2013 Actual Performance | | Threshold Performance Level | | Target Performance Level | | Maximum Performance Level | | Fiscal 2014 Actual Performance |
Adjusted Operating Income($)(1) (in thousands) | | 60 | % | | 73,853 |
| | 77,065 |
| | 80,524 |
| | 83,893 |
| | 73,184 |
|
Revenue($)(2) (in thousands) | | 20 | % | | 284,036 |
| | 289,717 |
| | 298,238 |
| | 306,399 |
| | 277,323 |
|
Safety (TRIR)(3) | | 10 | % | | 0.3 |
| | 0.5 |
| | 0.4 |
| | 0.3 |
| | 0.1 |
|
Working Capital Improvement(4) | | 10 | % | | 45.6 | % | | 43.3 | % | | 45.6 | % | | 50.1 | % | | 53.1 | % |
| |
(1) | For purposes of the 2014 STIP, "adjusted operating income" is defined as gross profit, less operating expenses excluding incentive expense, stock-based compensation expense, plus amortization of intangible assets. Actual performance is pro-rated in between levels. |
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(2) | Actual performance is pro-rated in between levels. |
| |
(3) | For purposes of the 2014 STIP, "safety" is defined as the Company's total recordable incident rate ("TRIR"). TRIR is calculated as the Company's number of recordable injuries during Fiscal 2014 times 200,000 divided by the number of man hours worked during Fiscal 2014. |
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(4) | For purposes of the 2014 STIP, "working capital" is calculated as current assets, less current liabilities, excluding capital market transactions and capital expenditures related to the construction of our new manufacturing facility in San Marcos, Texas. "Working capital improvement" is defined as working capital as a percentage of revenue. Actual performance is pro-rated in between levels. |
Under the 2014 STIP, each of the threshold, target and maximum opportunities for each Named Executive Officer was setupon a qualifying termination event, are described in the narrative following the "Fiscal 2015 Grants of Plan-Based Awards" table and the section entitled "Potential Payments Upon Termination or Change in Control." The terms of each agreement were determined based on competitive market pay practices, negotiations between the parties and the advice of PM&P.
Fiscal 2016 Employment Agreements
In connection with the Company's succession planning process, the Company made several changes to its executive leadership for Fiscal 2016:
Mr. Alexander transitioned into the newly created role of Special Advisor to the President and Chief Executive Officer effective April 1, 2015. The Compensation Committee approved a new employment agreement with Mr. Alexander, including severance benefits provided upon a qualifying termination event. The terms of Mr. Alexander's employment agreement were determined based on Mr. Alexander's tenure with the Company, negotiations between the parties, the Company's succession planning process and the advice of external compensation advisors.
On April 27, 2015, the Company entered into a new employment agreement with Mr. Bingham to continue as the Company's President and Chief Executive Officer through March 31, 2016. The terms of Mr. Bingham's employment agreement were determined based on competitive market pay practices, negotiations between the parties, the Company's succession planning process, the advice of PM&P and Mr. Bingham's tenure with the Company.
In June 2014, the Board established a search committee to identify a qualified external candidate for the newly created position of Executive Vice President and Chief Operating Officer. Following a comprehensive external search process, the Company appointed Mr. Thames to the position on April 27, 2015 and entered into an employment agreement with him in connection with the appointment. The terms of Mr. Thames' employment agreement were determined based on competitive market pay practices, negotiations between the parties and the advice of PM&P.
The material terms of the new employment agreements for each of Messrs. Alexander, Bingham and Thames are described in the narrative following the "Fiscal 2015 Grants of Plan-Based Awards" table and the section entitled "Potential Payments Upon Termination or Change in Control."
Certain Transactions in Company Securities
Our Insider Trading Policy prohibits our directors, officers and employees from engaging in various hedging activities with Company securities, including short sales and any transaction involving a publicly traded option, such as a percentageput, call or other derivative security. Further, the policy prohibits holding Company securities in a margin account or pledging Company securities as collateral for a loan.
Executive Compensation Process
Role of base salary, as summarized in the table below. If the Company's performance does not meet or exceed the pre-determined threshold performance level, there is zero payout with respect to such performance metric. During Fiscal 2014, the threshold, target and maximum opportunities for each Named Executive Officer were unchanged from Fiscal 2013.
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Named Executive Officer | | Fiscal 2013 Base Salary ($) | | Threshold % of Base Salary | | Target % of Base Salary | | Maximum % of Base Salary | | Fiscal 2014 Actual Payout ($) |
Rodney L. Bingham | | 360,500 | | 40% | | 100% | | 160% | | 115,360 |
|
George P. Alexander | | 303,850 | | 40% | | 100% | | 160% | | 97,232 |
|
Jay C. Peterson | | 257,500 | | 30% | | 75% | | 120% | | 61,800 |
|
Johannes (René) van der Salm | | 215,000 | | 30% | | 75% | | 120% | | 51,600 |
|
On May 19, 2014, the Compensation Committee reviewedand the Company’s Fiscal 2014 performance as well as the Company's actual result under each pre-determined performance metric. Chief Executive Officer
The Compensation Committee determined thatdetermines all compensation for the Company'sNamed Executive Officers. Each year, the Compensation Committee conducts an evaluation of the Chief Executive Officer to determine if a change in his compensation is appropriate after considering factors such as the Company’s performance and relative stockholder return, the compensation received by chief executive officers at comparable companies and historical compensation levels. Mr. Bingham did not meetparticipate in the threshold level forCompensation Committee’s deliberations or decisions with regard to his own compensation. At the Compensation Committee’s request, the Chief Executive Officer conducts a performance evaluation of each of the revenueother Named Executive Officers and adjusted operating income performance metrics and thatreviews the Company achieved maximum performance for each of the safety and working capital improvement performance metrics. Accordingly, each executive received zero payoutresults with respect to each of the revenue and adjusted operating income performance metrics and received the maximum payout with respect to each of the safety and working capital improvement performance metrics. As a result, the 2014 STIP payouts for our executive officers were only 32% of the target compensation levels. Based on the Company's actual Fiscal 2014 performance, the Compensation Committee approved payouts underto assist it in determining whether changes in their compensation are appropriate. The Compensation Committee gives considerable weight to the 2014 STIP to Messrs. Bingham, Alexander, Peterson and van der Salm of $115,360, $97,232, $61,800 and $51,600, respectively. These amounts represented approximately 32%Chief Executive Officer’s evaluation of the target 2014 STIP opportunity for eachother Named Executive Officer.Officers because of his direct knowledge of each executive officer’s performance and contributions.
Long-Term Incentives
The Amended and Restated Thermon Group Holdings, Inc. 2011 Long-Term Incentive Plan (the "LTIP") providesis designed to provide our officers, employees, non-employee directors and consultants with added incentive to remain employed by or perform services for us and aligns such individuals’ interests with those of our stockholders. Our Compensation Committee believes that equity-based awards are important in building an ownership mentality among our Named Executive Officers and key employees and aligning the long-term financial interests of our employees with those of our stockholders. Under the LTIP, our Compensation Committee may grant to participants options, stock appreciation rights, restricted stock, restricted stock units, and performance units.
The Compensation Committee monitors and evaluates the performance of the Company's long-term incentive awards and Company performance under the terms of prior awards against the Committee's overall compensation philosophy and whether long-term incentive compensation awards are effectively serving the Company's compensation goals. The CompensationAfter reviewing the long-term incentive awards granted to the Named Executive Officers and discussing with the Company's independent compensation consultant, Pearl Meyer and Partners ("PM&P"), the Committee did not make significantmade the following changes to the structure of equitythe long-term incentive awards madegranted to the Named Executive Officers in Fiscal 20142015 as compared to Fiscal 2014:
The Company increased the equity awards madeweighting of the performance units awarded to the Named Executive Officers to two-thirds of the aggregate grant date fair value. The remaining one-third was awarded in the form of time-based restricted stock units. Historically, the Company has targeted one-half of the aggregate grant date fair value in the form of performance units and one-half in the form of restricted stock units.
The Company eliminated the threshold performance level for payout under the performance units. The Fiscal 2013, except2015 performance units will require performance at the 50th percentile of the S&P 600 Index for 100% of the target number of performance units to be earned. There is no pay out for TSR performance below the 50th percentile under the Fiscal 2015 performance unit award agreements. Historically, the performance units would pay out 50% of the target number of shares for relative TSR performance at the 35th percentile of the predetermined peer group.
The performance period for the Fiscal 2015 performance units was extended to nearly three years and subjected the entire performance unit award to a single "cliff vest." The performance period began on the grant date and will end on March 31, 2017 (the "Performance Period"). Historically, the Company's performance units had been comprised of three different performance periods, consisting of separate one-year, two-year and three-year performance periods.
After extensive discussions and analysis and the assistance of PM&P, the Compensation Committee determined that management recommended thata larger, broader selection of comparative entities would be more representative of industry performance for purposes of the estimatedrelative TSR performance metric than a peer group of approximately 15 entities. Therefore, the Compensation Committee, with the assistance of PM&P, reviewed a selection of indices for use in connection with the relative total shareholder return performance metric of the Fiscal 2015 performance units and selected the S&P 600 Index. As of the Grant Date, the S&P 600 Index contained 89 entities.
After evaluating the anticipated remaining tenures with the Company in connection with the Company's succession planning process, the Compensation Committee reduced the aggregate grant date fair value of the Fiscal 2015 equity awards be reduced from $600,000 to $550,000 for each of Messrs. Bingham and Alexander and from $350,000aligned the vesting schedule such that 100% of the Fiscal 2015 equity awards would be fully vested on or before March 31, 2016. One-third of the grant date fair value of the awards made to $325,000 for each of Messrs. PetersonBingham and van der Salm basedAlexander on July 31, 2014 was in the form of restricted stock units vesting in equal installments on March 31, 2015 and March 31, 2016. The remaining two-thirds of the grant date fair value was in the form of performance units. The performance units also vest in equal installments on March 31, 2015 and March 31, 2016, however, no shares will be earned or issued in settlement of the award until the conclusion of the Performance Period on March 31, 2017. The ultimate settlement of the Fiscal 2015 performance units is contingent upon the Company's Fiscal 2014 operating budget.relative TSR performance over the entire Performance Period.
Based on the advice of PM&P and the Company's Fiscal 20142015 operating budget, on May 29, 2013effective July 31, 2014 (the "Grant Date"), the Compensation Committee approved equity awards to each of the Named Executive Officers in the form of restricted stock units and performance units as described in the table below. The equity awards were made subject to stockholder approval of the Amended and Restated 2011 Long-Term Incentive Plan, which the stockholders subsequently approved at the 2013 Annual Meeting. The Compensation Committee continues to
believe that a mixture of time-based restricted stock units and performance units best achieves its compensation objectives.objectives; however, as noted above, in Fiscal 2015 it increased the percentage of the aggregate grant date fair value of performance units from one-half in Fiscal 2014 to two-thirds in Fiscal 2015 and decreased the percentage of time-based restricted stock units from one-half in Fiscal 2014 to one-third in Fiscal 2015.
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Named Executive Officer | | Grant Date | | Estimated Value of Equity Awards ($)(1) | | Restricted Stock Units (#)(2) | | Performance Units Aggregate Target Shares (#)(3) |
Rodney Bingham | | 8/1/2013 | | 550,000 | | 13,688 | | 13,688 |
George Alexander | | 8/1/2013 | | 550,000 | | 13,688 | | 13,688 |
Jay Peterson | | 8/1/2013 | | 325,000 | | 8,089 | | 8,089 |
Johannes (René) van der Salm | | 8/1/2013 | | 325,000 | | 8,089 | | 8,089 |
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Named Executive Officer | | Grant Date | | Aggregate Grant Date Fair Value ($)(1) | | Time-Based Restricted Stock Units (#)(2) | | Performance Units Target Shares (#)(3) |
Rodney L. Bingham | | 7/31/2014 | | 366,666 | | 5,013 | | 9,567 |
George P. Alexander | | 7/31/2014 | | 366,666 | | 5,013 | | 9,567 |
Jay C. Peterson | | 7/31/2014 | | 325,000 | | 4,444 | | 8,480 |
Johannes (René) van der Salm | | 7/31/2014 | | 325,000 | | 4,444 | | 8,480 |
| |
(1) | The Compensation Committee estimated theapproved Fiscal 2015 equity awards with an aggregate grant date fair value of the Fiscal 2014 equity awards as set forth in this column for purposes of determining the number of shares subject to each award, with halfone-third of the estimatedtarget grant date fair value to be awarded in the form of time-based restricted stock units and the other halfremaining two-thirds to be awarded in the form of performance units. |
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(2) | The number of time-based restricted stock units subject to each restricted stock unit award was calculated as 50%one-third of the estimatedaggregate grant date fair value of the equity awards divided by $20.09,$24.38, which was the market closing price per share of the Company's common stock as reported on the NYSE on the grant date.Grant Date. The restricted stock unit awardsunits awarded to Messrs. Bingham and Alexander will vest in two equal installments on March 31, 2015 and 2016. The restricted stock units awarded to Messrs. Peterson and van der Salm will vest in three equal annual installments, beginning on eachthe first anniversary of the first, second and third anniversaries of the grant date.Grant Date. |
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(3) | The "Aggregate Target Shares"number of target shares subject to each performance unit award (the "Target Shares") was calculated as 50%two-thirds of the estimated value of the equity awards divided by $20.09,$25.55, which was the market closing pricevalue per share of the Company's common stock as reported on the NYSE on the grant date. The actual grant date fair value reported in the Summary Compensation Table is based on the probable outcome of the market-based performance conditions and the application of a Monte Carlo simulation model. For additional details, please see Note 1 to the Summary Compensation Table and Note 13 to the consolidated financial statements included in our 20142015 Annual Report. The awards are subject to a single "cliff vest" performance period ending on March 31, 2017. |
For purposes of the performance units awarded in Fiscal 2014,2015, the "Target Shares" eligible to be earned for each "Performance Period" (as defined in the table below) is equal to one-third of the Aggregate Target Shares. The Compensation Committee established the performance metric as total shareholder return ("TSR")TSR relative to the Compensation Peer Group ("RTSR"), inclusiveS&P 600 Index. The S&P 600 Index will include all of dividends paid. the companies which are listed on the S&P 600 Index on the Grant Date and which remain listed on the S&P 600 Index on the last day of the Performance Period. Companies added or removed as a result of a subsequent reconstitution of the S&P 600 Index prior to the last day of the Performance Period will not be included in the final relative TSR calculation. In the event of the bankruptcy of a company included in the S&P 600 Index during the Performance Period, such company shall remain in the S&P 600 Index with a TSR of negative 100%.
The Compensation Committee selected TSR as the performance metric because it strives to link reward to long-term, sustainable growth and stockholder value
creation. The Compensation Committee believes that TSR reflects the extent to which stockholders and the market consider that the Company's strategy is appropriate and is being implemented and articulated well by the Named Executive Officers. The TSR for the Company and each entity isincluded in the S&P 600 Index will be calculated by using the 3020 consecutive trading day average market closing price as reported on the NYSEClosing Price (as defined below) prior to the first date of each Performance Period vs.versus the 3020 trading day average market closing price as reported on the NYSEClosing Price (as defined below) ending on the last day of eachthe Performance Period, subject to certain adjustments that may be madePeriod. The "Closing Price" is the dividend adjusted close price, as a result of aadjusted for stock split (or reverse stock split), recapitalization, or other similar event.splits, cash dividends, rights offerings and spin-offs.
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Performance Period | | Begin Date | | End Date |
Performance Period 1: | | April 1, 2013 through | | March 31, 2014 |
Performance Period 2: | | April 1, 2013 through | | March 31, 2015 |
Performance Period 3: | | April 1, 2013 through | | March 31, 2016 |
Following the completion of each Performance Period, theThe TSR of each entity withincompany included in the Compensation Peer Group and the Company isS&P 600 Index will be calculated for such Performance Period and ranked from highest to lowest.lowest (the "Ranked S&P 600 Index"). The percentageCompany's TSR for the Performance Period shall then be compared to the Ranked S&P 600 Index and the number of each Target Award isshares actually earned in settlement of the award will be based on the following table.table:
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| | | | |
Level | | Payout(1) | | RTSR Rank(2)Relative TSR Rank |
Threshold:Zero Payout | | 50%0% of Target Shares | | 10th out of 16 (approximately 35th percentile)49th Percentile |
Target:Target | | 100% of Target Shares | | 7th out of 16 (approximately 60th percentile)50th Percentile |
Maximum:Maximum | | 200% of Target Shares | | 1st out of 16 (100th percentile)100th Percentile |
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(1) | Actual performance is pro-rated in between the target and maximum performance levels. If the Company's TSR during anythe Performance Period is below the thresholdtarget performance level, or is negative, the participant will not earn any shares with respect to suchthe Performance Period. |
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(2) | The Company and each of If the 15 peer group entities included inCompany's TSR during the Compensation Peer Group (for a total of 16 entities) will be ranked from highest to lowest at the end of each Performance Period. In the event (i) an entity is acquired by another company or sold all or substantially all of its assets, or (ii) an entity ceases to be a publicly traded company on a national stock exchange (unless cessation of such listing is due to a low stock price or low trading volume) the entity shall be removed from the peer group and the Compensation Committee shall reduce the size of the peer group. An entity that is removed from the peer group prior to the last day of a Performance Period is negative, the payout will not be included inexceed the RTSR computation for that Performance Period.target level (100%). |
Long-Term Incentives From Prior Years
On May 19, 2014,20, 2015, the Compensation Committee calculated and reviewed the Company's TSR performance and the TSR performance of each of the entities in the Fiscal 2014 Compensation Peer Group for Performance Period 1the second performance period (April 1, 2013 through March 31, 2014) under2015) for the performance units granted on August 1, 2013, as well as Performance Period 2the third performance period (April 2, 2012 through March 31, 2014) under2015) for the performance units granted on August 2, 2012. Following such review, the Compensation Committee approved the issuance of the number of shares listed in the "Shares"Actual Shares Earned" column in the table below to each Named Executive Officer. The Company's actual TSR performance, RTSRrelative TSR rank and the payoutearned shares associated with such performance units during each respective performance period is summarized in the table below.
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Executive | Performance Unit Grant Date | Performance Period | Target Shares | Company's TSR | RTSR Rank | Payout (as a Percentage of Target Shares) | Target Shares Earned | Target Shares Not Earned |
Rodney Bingham | 8/2/2012 | Performance Period 2 (April 2, 2012 - March 31, 2014) | 4,647 |
| 22.1% | 10 out of 16 | 50.0% | 2,323 |
| 2,324 |
|
Rodney Bingham | 8/1/2013 | Performance Period 1 (April 1, 2013 - March 31, 2014) | 4,562 |
| 13.7% | 8 out of 16 | 83.3% | 3,800 |
| 762 |
|
George Alexander | 8/2/2012 | Performance Period 2 (April 2, 2012 - March 31, 2014) | 4,647 |
| 22.1% | 10 out of 16 | 50.0% | 2,323 |
| 2,324 |
|
George Alexander | 8/1/2013 | Performance Period 1 (April 1, 2013 - March 31, 2014) | 4,562 |
| 13.7% | 8 out of 16 | 83.3% | 3,800 |
| 762 |
|
Jay Peterson | 8/2/2012 | Performance Period 2 (April 2, 2012 - March 31, 2014) | 2,711 |
| 22.1% | 10 out of 16 | 50.0% | 1,355 |
| 1,356 |
|
Jay Peterson | 8/1/2013 | Performance Period 1 (April 1, 2013 - March 31, 2014) | 2,696 |
| 13.7% | 8 out of 16 | 83.3% | 2,245 |
| 451 |
|
Johannes (René) van der Salm | 8/2/2012 | Performance Period 2 (April 2, 2012 - March 31, 2014) | 2,711 |
| 22.1% | 10 out of 16 | 50.0% | 1,355 |
| 1,356 |
|
Johannes (René) van der Salm | 8/1/2013 | Performance Period 1 (April 1, 2013 - March 31, 2014) | 2,696 |
| 13.7% | 8 out of 16 | 83.3% | 2,245 |
| 451 |
|
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Executive | Grant Date | Performance Period | Target Shares | Company's TSR | Relative TSR Rank | Payout (as a Percentage of Target Shares) | Actual Shares Earned |
Rodney L. Bingham | 8/2/2012 | April 2, 2012 - March 31, 2015 | 4,647 | 18.8% | 6 out of 16 | 100.0% | 4,647 |
Rodney L. Bingham | 8/1/2013 | April 1, 2013 - March 31, 2015 | 4,563 | 10.7% | 7 out of 16 | 116.7% | 5,325 |
George P. Alexander | 8/2/2012 | April 2, 2012 - March 31, 2015 | 4,647 | 18.8% | 6 out of 16 | 100.0% | 4,647 |
George P. Alexander | 8/1/2013 | April 1, 2013 - March 31, 2015 | 4,563 | 10.7% | 7 out of 16 | 116.7% | 5,325 |
Jay C. Peterson | 8/2/2012 | April 2, 2012 - March 31, 2015 | 2,711 | 18.8% | 6 out of 16 | 100.0% | 2,711 |
Jay C. Peterson | 8/1/2013 | April 1, 2013 - March 31, 2015 | 2,696 | 10.7% | 7 out of 16 | 116.7% | 3,146 |
Johannes (René) van der Salm | 8/2/2012 | April 2, 2012 - March 31, 2015 | 2,711 | 18.8% | 6 out of 16 | 100.0% | 2,711 |
Johannes (René) van der Salm | 8/1/2013 | April 1, 2013 - March 31, 2015 | 2,696 | 10.7% | 7 out of 16 | 116.7% | 3,146 |
Employee Benefits and Perquisites
We offer a very limited amount of perquisites and other personal benefits to our Named Executive Officers. The Compensation Committee believes that these perquisites and benefits are reasonable and consistent with prevailing market practicepractices and the Company’s overall compensation program. Perquisites are not a material part of our compensation program. The Compensation Committee periodically reviews the levels of perquisites and other personal benefits provided to our Named Executive Officers.
Each of our Named Executive Officers is entitled to participate in our employee benefit plans (including 401(k) retirement savings, and medical, dental and life insurance benefits) on the same basis as our other full-time employees located in the United States. In addition, we lease a Company vehicle for Mr. Bingham’s use in traveling between our facilities in Houston and San Marcos, Texas. See "Summary Compensation Table—All Other Compensation."
Stock Ownership Guidelines
Our Board has adopted stock ownership guidelines for all of our Named Executive Officers and delegated oversight of the guidelines to the Compensation Committee. The ownership threshold for the Chief Executive Officer is five times annual base salary. The ownership threshold for all other Named Executive Officers is two times annual base salary. Each Named Executive Officer is required to meet such minimum guidelines within five years after November 1, 2011 or, if appointed after November 1, 2011, within five years after the date of such appointment.
Each individual subject to the stock ownership guidelines must meet or exceed his or her requisite threshold immediately prior to any disposition of shares or share equivalents obtained through an equity grant (other than shares used to pay applicable withholding taxes and the exercise price of stock options). The 100% retention requirement applies during any time period during which the individual’s stock ownership threshold has not been achieved, including during the initial five-year period. If a Named Executive Officer or director does not meet the requisite threshold or demonstrate sustained progress toward meeting the threshold, the Board has discretion to reduce future long-term incentive grants or pay future cash compensation in the form of equity.
In measuring stock ownership, the Compensation Committee will consider all shares beneficially owned and vested but unexercised stock options. For vested but unexercised stock options, the value counting toward the individual's threshold will be determined based on the excess of the market value of the stock over the exercise price of the stock option. Unvested performance units, unvested restricted stock, unvested restricted stock units and unvested stock options are not considered in calculating each individual's stock ownership.
Though not yet required, Messrs. Alexander, Bingham and van der Salm met these guidelines as of the Record Date. Following a Fiscal 2014 revision to the stock ownership guidelines no longer counting unvested restricted stock and unvested restricted stock units, Mr. Peterson no longer meets his requisite threshold, however, he is on track to meet the requisite guideline within the initial five-year period.
For information on the stock ownership guidelines for the Company's non-employee directors, see the section entitled "Director Compensation—Stock Ownership Guidelines (Non-Employee Directors)."
Employment Agreements
During
Fiscal 2014,2015 Employment Agreements
At the beginning of Fiscal 2015, each of our Named Executive Officers was party to an employment agreement that was negotiated and entered into in connection with our IPO. The materialIPO and expired pursuant to its original terms of each employment agreement, including the severance benefits provided to each Named Executive Officer upon a qualifying termination event, are described in the narrative following the "Fiscal 2014 Grants of Plan-Based Awards" table and the section entitled "Potential Payments Upon Termination or Change in Control." The terms of each agreement were determined based on competitive market pay practices and negotiations between the parties. Each employment agreement expired on April 30, 2014.
In connection with the expiration of those employment agreements, the Compensation Committee approved new employment agreements for each of the Named Executive Officers, effective April 30,May 1, 2014. The material terms of each new employment agreement, including the severance and change in control benefits provided to each Named Executive Officer upon a qualifying termination event, are described in the narrative following the "Fiscal 20142015 Grants of Plan-Based Awards" table and the section entitled "Potential Payments Upon Termination or Change in Control." The terms of each agreement were determined based on competitive market pay practices, negotiations between the parties and the advice of PM&P.
Fiscal 2016 Employment Agreements
In connection with the independent compensation consultant.Company's succession planning process, the Company made several changes to its executive leadership for Fiscal 2016:
Stock Ownership Guidelines
Our Board has adopted stock ownership guidelines for allMr. Alexander transitioned into the newly created role of our Named Executive Officers and directors and delegated oversight of the guidelinesSpecial Advisor to the Compensation Committee as to the Named Executive OfficersPresident and to the Nominating and Corporate Governance Committee as to non-employee directors. The ownership threshold for the Chief Executive Officer is five times annual base salary.effective April 1, 2015. The ownership threshold for all other Named Executive Officers is twoCompensation Committee approved a new employment agreement with Mr. Alexander, including severance benefits provided upon a qualifying termination event. The terms of Mr. Alexander's employment agreement were determined based on Mr. Alexander's tenure with the Company, negotiations between the parties, the Company's succession planning process and the advice of external compensation advisors.
times annual base salary. In Fiscal 2014,On April 27, 2015, the NominatingCompany entered into a new employment agreement with Mr. Bingham to continue as the Company's President and Corporate Governance Committee increased the ownership guideline for non-employee directors from three to four times the director's annual cash retainer. Each NamedChief Executive Officer and director is required to meet such minimum guidelines within five years after November 1, 2011 or, if elected or appointed after November 1, 2011, within five years after the datethrough March 31, 2016. The terms of such election or appointment.
Each individual subject to the stock ownership guidelines must meet or exceed his or her requisite threshold immediately prior to any disposition of shares or share equivalents obtained through an equity grant (other than shares used to pay applicable withholding taxes and the exercise price of stock options). The 100% retention requirement applies during any time period during which the individual’s stock ownership threshold has not been achieved, including during the initial five-year period. If a Named Executive Officer or director does not meet the requisite threshold or demonstrate sustained progress toward meeting the threshold, the Board has discretion to reduce future long-term incentive grants or pay future cash compensation in the form of equity.
In measuring stock ownership, the Compensation Committee and the Nominating and Corporate Governance Committee will consider all shares beneficially owned, restricted stock and restricted stock units (to the extent vested) and vested but unexercised stock options. For vested but unexercised stock options, the value counting toward the individual's threshold will beMr. Bingham's employment agreement were determined based on competitive market pay practices, negotiations between the excessparties, the Company's succession planning process, the advice of PM&P and Mr. Bingham's tenure with the Company.
In June 2014, the Board established a search committee to identify a qualified external candidate for the newly created position of Executive Vice President and Chief Operating Officer. Following a comprehensive external search process, the Company appointed Mr. Thames to the position on April 27, 2015 and entered into an employment agreement with him in connection with the appointment. The terms of Mr. Thames' employment agreement were determined based on competitive market pay practices, negotiations between the parties and the advice of PM&P.
The material terms of the market valuenew employment agreements for each of the stock over the exercise price of the stock option. During Fiscal 2014, the Compensation Committee and the Nominating and Corporate Governance Committee revised the stock ownership guidelines such that unvested restricted stock and unvested restricted stock units will not be counted toward achieving the requisite threshold. Therefore, unvested performance units, unvested restricted stock or restricted stock units and unvested stock options are not considered in calculating each individual's stock ownership.
Though not yet required, Messrs. Alexander, Bingham and van der Salm met these guidelines asThames are described in the narrative following the "Fiscal 2015 Grants of Plan-Based Awards" table and the Record Date. Following the revision to the stock ownership guidelines no longer counting unvested restricted stock and unvested restricted stock units, Mr. Peterson no longer meets his requisite threshold, however, he is on track to meet the requisite guideline within the initial five-year period. Further, Messrs. George, Goodrich, Press, Snider and Sorrentino met these guidelines as of the Record Date. All other non-employee directors are on track to meet the requisite threshold within the five-year period.section entitled "Potential Payments Upon Termination or Change in Control."
Certain Transactions in Company Securities
Our Insider Trading Policy prohibits our directors, officers and employees from engaging in various hedging activities with Company securities, including short sales and any transaction involving a publicly traded option, such as a put, call or other derivative security. Further, the policy prohibits holding Company securities in a margin account or pledging Company securities as collateral for a loan.
Executive Compensation Process
Role of the Compensation Committee and the Chief Executive Officer
The Compensation Committee determines all compensation for the Named Executive Officers. Each year, the Compensation Committee conducts an evaluation of the Chief Executive Officer to determine if a change in his compensation is appropriate after considering factors such as the Company’s performance and relative stockholder return, the compensation received by chief executive officers at comparable companies and historical compensation levels. Mr. Bingham did not participate in the Compensation Committee’s deliberations or decisions with regard to his own compensation. At the Compensation Committee’s request, the Chief Executive Officer conducts a performance evaluation of each of the other Named Executive Officers and reviews the results with the Compensation Committee to assist it in determining whether changes in their compensation are appropriate. The Compensation Committee gives considerable weight to the Chief Executive Officer’s evaluation of the other Named Executive Officers because of his direct knowledge of each executive officer’s performance and contributions.
Role of Outside Advisors
The Compensation Committee engaged PM&P to assist in evaluating Fiscal 2015 executive compensation decisions. As an independent compensation advisor, PM&P provides an additional objective perspective as to the reasonableness of our executive compensation program and practices and the effectiveness in supporting our business and compensation objectives. During Fiscal 2015, PM&P participated in Compensation Committee meetings and advised the Compensation Committee with respect to compensation trends and market practices, incentive plan design and competitive pay levels. While PM&P consulted with management in performing work requested by the Compensation Committee, it did not perform any separate services for management.
The Compensation Committee has considered the independence of PM&P in light of the SEC rules and NYSE listing standards. The Compensation Committee requested and received a letter from PM&P addressing PM&P's and the senior advisor involved in the engagement's independence, including the following factors: (1) other services provided to us by PM&P; (2) fees paid by us as a percentage of PM&P's total revenue; (3) policies or procedures maintained by PM&P that are designed to prevent a conflict of interest; (4) any business or personal relationships between the senior advisor and a member of the Compensation Committee; (5) any company stock owned by the senior advisor; and (6) any business or personal relationships between our executive officers and the senior advisor. The Compensation Committee discussed these considerations and concluded that the work performed by PM&P and PM&P's senior advisor involved in the engagement did not raise any conflict of interest, and that PM&P provides objective and competent advice. The following protocols are designed to help maintain objectivity:
The advisor reports directly to the Compensation Committee or, in the case of matters relating to director compensation, to the Nominating and Corporate Governance Committee;
Only the Compensation Committee or the Nominating and Corporate Governance Committee has the authority to retain or terminate the advisor with respect to services provided to the relevant committee; and
The advisor meets as needed with the Compensation Committee, without the presence of management.
Consideration of Say-on-Pay Vote Results
The Company provides its stockholders with the opportunity to cast an annual non-binding, advisory vote on the compensation paid to its Named Executive Officers (a "say-on-pay" vote). At our 2014 Annual Meeting, approximately 94% of the total shares represented and entitled to a say-on-pay vote were cast in favor of the proposal. Accordingly, the Compensation Committee believes these results affirmed broad stockholder support of our approach to executive compensation and did not believe it was necessary to make any changes to the executive compensation program directly in response to the say-on-pay vote held at the 2014 Annual Meeting. The Compensation Committee will continue to consider the results of say-on-pay votes when making future compensation decisions for the Named Executive Officers.
Peer Companies and Market Comparison
For Fiscal 2015, the Compensation Committee considered information regarding market pay practices to assist in making informed decisions on executive pay packages. The Compensation Committee did not target the specific compensation elements or total compensation against the market data. Instead, the Compensation Committee utilized the market data to assess the overall competitiveness and reasonableness of the Company’s executive compensation program. Market pay practices are based on peer group proxy data and published survey data. While the Compensation Committee considers relevant market pay practices when setting executive compensation, it did not rely on this information to target any specific pay percentile for our Named Executive Officers in Fiscal 2015. The Compensation Committee believes that compensation decisions are complex and the factors that influence the amount of compensation include the nature and responsibility of the position, market competition for the position, an individual’s experience and past performance and contributions, tenure with the Company and associated institutional knowledge, long-term potential with the Company, Company performance (including past and future performance objectives) as well as peer compensation levels.
Establishing a peer group to use to evaluate compensation decisions is difficult because we operate in a specialized industry in which there are few direct peers. In determining the peer group, the Compensation Committee selected publicly traded companies in the same or similar industries that, in its view, compete with the Company for talent and have revenue, assets, market capitalization and enterprise value that are generally comparable to the Company (the "Compensation Peer Group"). For Fiscal 2015 compensation decisions, the Compensation Committee directed PM&P to conduct a review of the Company's Compensation Peer Group. After analyzing the results of PM&P's review of the Compensation Peer Group used in making Fiscal 2014 compensation decisions, the Compensation Committee determined that certain of the companies previously included in the Compensation Peer Group had become too large, too small or were otherwise no longer the most appropriate entities for inclusion in the Compensation Peer Group. With the assistance of PM&P, the Compensation Committee revised the Compensation Peer Group for Fiscal 2015 compensation decisions as reflected in the table below.
Fiscal 2015 Compensation Peer Group(1)
|
| | |
AAON, Inc. | Flotek Industries, Inc.(2) | Powell Industries, Inc. |
Advanced Energy Industries, Inc. | Graham Corporation(2) | Pulse Electronics Corporation(4) |
Ampco-Pittsburgh Corporation(2) | The Gorman-Rupp Co(2) | Vicor Corporation |
AZZ Incorporated | Measurement Specialties, Inc.(2)(3) | |
ESCO Technologies Inc.(2) | Methode Electronics, Inc.(2) | |
(1) As a result of PM&P's peer group review, the following companies were removed from the Company's historical peer group: American Superconductor Corporation, Chart Industries, Inc., Colfax Corporation, Dril-Quip, Inc., Generac Holdings Inc., II-VI Incorporated, Geospace Technologies Corporation, STR Holdings, Inc. and Ultralife Corporation.
(2) New addition to the Fiscal 2015 Compensation Peer Group.
(3) Measurement Specialties, Inc. was acquired by another entity and removed from the Compensation Peer Group on October 9, 2014.
(4) Pulse Electronics Corporation was acquired by another entity and removed from the Compensation Peer Group on April 13, 2015.
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation we paid to theeach Named Executive OfficersOfficer for the fiscal years ended March 31, 2015, 2014 2013 and 2012,2013, respectively. In Fiscal 2014,2015, our Named Executive Officers were our Chief Executive Officer, Chief Financial Officer and our two other most highly compensated executives serving as executive officers as of March 31, 2014.2015.
| | Name and Principal Position | | Fiscal Year | | Salary ($) | | Bonus ($) | | Stock Awards ($)(1) | | Option Awards ($) | | Non-Equity Incentive Plan Compensation ($)(2) | | All Other Compensation ($)(3) | | Total ($) | | Fiscal Year | | Salary ($) | | Bonus ($) | | Stock Awards ($)(1) | | Option Awards ($) | | Non-Equity Incentive Plan Compensation ($)(2) | | All Other Compensation ($)(3) | | Total ($) |
Rodney L. Bingham | | 2014 | | 360,500 |
| | — |
| | 425,722 |
| | — |
| | 115,360 |
| | 26,937 |
| | 928,519 |
| | 2015 | | 367,987 |
| | — |
| | 366,654 |
| | — |
| | 576,800 |
| | 21,284 |
| | 1,332,725 |
|
President, Chief Executive Officer and Director | | 2013 | | 358,529 |
| | — |
| | 603,134 |
| | — |
| | 254,304 |
| | 27,480 |
| | 1,243,447 |
| | 2014 | | 360,500 |
| | — |
| | 425,722 |
| | — |
| | 115,360 |
| | 26,937 |
| | 928,519 |
|
(principal executive officer) | | 2012 | | 350,042 |
| | 104,635 |
| | — |
| | 59,900 |
| | 350,000 |
| | 27,951 |
| | 892,528 |
| | 2013 | | 358,529 |
| | — |
| | 603,134 |
| | — |
| | 254,304 |
| | 27,480 |
| | 1,243,447 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
George P. Alexander | | 2014 | | 303,850 |
| | — |
| | 425,722 |
| | — |
| | 97,232 |
| | 8,730 |
| | 835,534 |
| | 2015 | | 310,161 |
| | — |
| | 366,654 |
| | — |
| | 486,160 |
| | 8,880 |
| | 1,171,855 |
|
Executive Vice President, | | 2013 | | 302,182 |
| | — |
| | 603,134 |
| | — |
| | 214,342 |
| | 8,910 |
| | 1,128,568 |
| | 2014 | | 303,850 |
| | — |
| | 425,722 |
| | — |
| | 97,232 |
| | 8,730 |
| | 835,534 |
|
Global Sales | | 2012 | | 295,000 |
| | 126,760 |
| | — |
| | 59,900 |
| | 221,250 |
| | 8,670 |
| | 711,580 |
| |
Global Sales and Marketing | | | 2013 | | 302,182 |
| | — |
| | 603,134 |
| | — |
| | 214,342 |
| | 8,910 |
| | 1,128,568 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Jay C. Peterson | | 2014 | | 257,500 |
| | — |
| | 251,583 |
| | — |
| | 61,800 |
| | 8,730 |
| | 579,613 |
| | 2015 | | 262,848 |
| | — |
| | 325,009 |
| | — |
| | 309,000 |
| | 8,234 |
| | 905,091 |
|
Chief Financial Officer | | 2013 | | 256,087 |
| | — |
| | 351,818 |
| | — |
| | 136,234 |
| | 8,910 |
| | 753,049 |
| | 2014 | | 257,500 |
| | — |
| | 251,583 |
| | — |
| | 61,800 |
| | 8,730 |
| | 579,613 |
|
(principal financial officer) | | 2012 | | 241,351 |
| | 88,840 |
| | — |
| | 29,950 |
| | 187,500 |
| | 8,670 |
| | 556,311 |
| | 2013 | | 256,087 |
| | — |
| | 351,818 |
| | — |
| | 136,234 |
| | 8,910 |
| | 753,049 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Johannes (René) van der Salm | | 2014 | | 215,000 |
| | — |
| | 251,583 |
| | — |
| | 51,600 |
| | 8,581 |
| | 526,764 |
| | 2015 | | 219,465 |
| | — |
| | 325,009 |
| | — |
| | 258,000 |
| | 8,757 |
| | 811,231 |
|
Senior Vice President, | | 2013 | | 215,000 |
| | — |
| | 351,818 |
| | — |
| | 113,749 |
| | 8,715 |
| | 689,282 |
| | 2014 | | 215,000 |
| | — |
| | 251,583 |
| | — |
| | 51,600 |
| | 8,581 |
| | 526,764 |
|
Global Operations | | 2012 | | 190,000 |
| | 112,840 |
| | — |
| | 29,950 |
| | 114,000 |
| | 8,356 |
| | 455,146 |
| | 2013 | | 215,000 |
| | — |
| | 351,818 |
| | — |
| | 113,749 |
| | 8,715 |
| | 689,282 |
|
| |
(1) | The amounts reported in this column for Fiscal 20142015 represent the aggregate grant date fair value of restricted stock unit and performance unit awards computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation ("FASB ASC Topic 718"). We calculated theThe estimated fair value of the restricted stock unit awards by usingwas $24.38 per share, which was the market closing price of our common stock as reported by the NYSE on the grant date. The amounts reported for Fiscal 2014 also include the estimated fair valuedate of performance units during each of the three performance periods, which was $6.79, $11.93 and $14.31 per share, respectively.award. The estimated fair value of the performance unitsunit awards was $25.55 per share, which was calculated based on the probable outcome of the market-based performance conditions and the application of a Monte Carlo simulation model. The performance units will vest if the TSR performance of the Company's common stock meets or exceeds the predetermined threshold, target andor maximum performance levels as compared to the Compensation Peer GroupS&P 600 Index over annual and cumulative performance periods from April 1, 2013 through March 31, 2016.the Performance Period. The grant date fair value of the performance units does not correspond to the actual value that may be recognized by each Named Executive Officer with respect to these awards, which may be higher or lower based on a number of factors, including the Company's performance, the performance of the Compensation Peer GroupS&P 600 Index and stock price fluctuations. Under FASB ASC Topic 718, the vesting condition related to the performance units is a market condition and not a performance condition. Accordingly, there is not a grant date fair value below or in excess of the amounts reflected in the table above that could be calculated and disclosed based on achievement of market conditions. For a discussion of the assumptions and methodologies used to value the awards, please see "Compensation Discussion and Analysis—Elements of Our Compensation Program—Long-Term Incentives" above and the discussion of equity awards contained in Note 13 to the consolidated financial statements included in our 20142015 Annual Report. |
| |
(2) | The amounts reported in this column represent annual cash compensation earned under the 20142015 STIP based on Fiscal 20142015 performance. Please see "Compensation Discussion and Analysis—Elements of Our Compensation Program—Short-Term Incentives" for further information. |
| |
(3) | Amounts reported in this column for Fiscal 2014 include:2015 are described in more detail in the following table: |
| | Name | | Company Contribution to 401(k) ($) | | Group Life Insurance ($) | | Company Provided Vehicle ($)(a) | | All Other Compensation Total ($) | | Company Contribution to 401(k) ($) | | Group Life Insurance ($) | | Company Provided Vehicle ($)(a) | | All Other Compensation Total ($) |
Rodney L. Bingham | | 7,650 | | 1,080 | | 18,207 |
| | 26,937 | | 7,800 | | 1,080 | | 12,404 |
| | 21,284 |
George P. Alexander | | 7,650 | | 1,080 | | — |
| | 8,730 | | 7,800 | | 1,080 | | — |
| | 8,880 |
Jay C. Peterson | | 7,650 | | 1,080 | | — |
| | 8,730 | | 7,154 | | 1,080 | | — |
| | 8,234 |
Johannes (René) van der Salm | | 7,650 | | 931 | | — |
| | 8,581 | | 7,800 | | 957 | | — |
| | 8,757 |
The following table summarizes awards made to our Named Executive Officers in Fiscal 2014.2015.