The Committee also considers such other relevant factors as it deems appropriate, including the current composition of the Board, the balance of management and independent directors, the need for Audit Committee expertise and the evaluations of other prospective nominees. The Committee has established these criteria that any Director nominee, whether suggested by a shareholder or otherwise, should satisfy. A nominee for election to the Board who is suggested by a shareholder will be evaluated by the Committee in the same manner as any other nominee for election to the Board. Finally, if the Committee determines that a candidate should be nominated for election to the Board, the Committee will present its findings and recommendation to the full Board for approval.
contributions to the Board and to PolyOne, and the results of the most recent evaluation of the tendering Director’s performance by the other members of the Board. The Board will promptly disclose its decision whether to accept or reject the Director’s tendered resignation and, if applicable, the reasons for rejecting the tendered resignation.
Communication with Board of Directors
Shareholders and other interested parties interested in communicating directly with the Board of Directors as a group, the non-management or independent Directors as a group, or with any individual Director may do so by writing to the Secretary, PolyOne Corporation, 33587 Walker Road, Avon Lake, Ohio 44012. The mailing envelope and letter must contain a clear notation indicating that the enclosed letter is either a “Shareholder-Board of Directors Communication” or an “Interested Party-Board of Directors Communication,” as appropriate.
9
The Secretary will review all such correspondence and regularly forward to the Board of Directors a log and summary of all such correspondence and copies of all correspondence that, in the opinion of the Secretary, deals with the functions of the Board or Committeescommittees of the Board or that she otherwise determines requires their attention. Directors may at any time review a log of all correspondence we receive that is addressed to members of the Board and request copies of any such correspondence. Concerns relating to accounting, internal controls or auditing matters are immediately brought to the attention of our internal audit department and handled in accordance with procedures established by the Audit Committee for such matters.
Director Compensation
For the first quarter of 2008,In 2010, we paid our non-employee Directors an annual retainer of $100,000,$135,000, quarterly in arrears, consisting of a cash retainer of $50,000$60,000 and an award of $50,000$75,000 in value of fully vested common shares. Effective April 1, 2008, we increased the cash retainer to $60,000 and the annual stock award to equal $75,000 in value. We grant the shares payable to the Directors quarterly and determine the number of shares to be granted by dividing the dollar value by the arithmetic average of the high and low stock price on the last trading day of each quarter. We pay individual meeting fees only as follows: fees of $2,000 for each unscheduled Board and committee meeting attended and fees of $1,000 for participation in each unscheduled significant telephonic Board and committee meeting. In addition, in the first two quarters of 2010, the Chairpersons of each committee receivereceived a fixed annual cash retainer (payable on a quarterly basis) as follows: $5,000 for the Environmental, Health and Safety, Nominating and Governance and Financial Policy Committees and $10,000 for the Audit and Compensation Committees. Effective as of the third quarter of 2010, the annual cash retainer for the Chairpersons of the following committees was amended to be as follows: $7,500 for the Environmental, Health and Safety, Nominating and Governance Committees. These amounts are payable on a quarterly basis.and Financial Policy Committees and $15,000 for the Audit Committee. In addition, we instituted an annual retainer of $10,000 for our Lead Director, effective as of the third quarter of 2010. We reimburse Directors for their expenses associated with each meeting attended.
Prior to April 1, 2008, we granted each new non-employee Director, at the time of his or her initial election or appointment as a Director, an award of 8,500 common shares. Effective April 1, 2008, we eliminated this initial share award.
Directors who are not our employees may defer payment of all or a portion of their compensation as a Director under our Deferred Compensation Plan for Non-Employee Directors. A Director may defer the compensation as cash or elect to have it converted into our common shares and, prior to April 1, 2008, the Director could defer cash compensation into common shares at a rate equal to 125% of the cash compensation amount. Effective April 1, 2008, we eliminated this premium on cash deferred in the form of common shares.
In 2008,2010, we awarded shares to Directors under our Deferred Compensation Plan forNon-Employee Directors and our 20052008 and 2010 Equity and Performance Incentive Plan (for share awards made prior to May 15, 2008) or our 2008 Equity and Performance Incentive Plan (for share awards made after May 15, 2008).Plans. Deferred compensation, whether in the form of cash or common shares, is held in trust for the participating Directors. Interest is earned on the cash amounts and dividends, if any, on the common shares deferred accrue for the benefit of the participating Directors.
1012
20082010 DIRECTOR COMPENSATION
| | | | | | | | | | | | | | | | | |
| | | Fees Earned
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | or Paid
| | | | Stock
| | | | Option
| | | | | | | | Fees Earned or
| | | | Stock
| | | | Option
| | | | | |
| | | in Cash(1)
| | | | Awards(2)(3)
| | | | Awards(3)
| | | | Total
| | | | Paid in Cash(1)
| | | | Awards(2)
| | | | Awards(3)
| | | | Total
| |
Name | | | ($) | | | | ($) | | | | ($) | | | | ($) | | | | ($) | | | | ($) | | | | ($) | | | | ($) | |
J.D. Campbell | | | | 65,500 | | | | | 68,750 | | | | | — | | | | | 134,250 | | | | | 66,250 | | | | | 75,000 | | | | | — | | | | | 141,250 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
C.A. Cartwright | | | | 58,500 | | | | | 68,750 | | | | | — | | | | | 127,250 | | | | | 66,250 | | | | | 75,000 | | | | | — | | | | | 141,250 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
G. Duff-Bloom | | | | 60,500 | | | | | 68,750 | | | | | — | | | | | 129,250 | | |
G. Duff-Bloom(4) | | | | | 21,840 | | | | | 27,300 | | | | | — | | | | | 49,140 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
R.H. Fearon | | | | 70,500 | | | | | 68,750 | | | | | — | | | | | 139,250 | | | | | 72,500 | | | | | 75,000 | | | | | — | | | | | 147,500 | |
| | | | | | | | | | | | | | | | | | | | | |
R.A. Garda | | | | 60,500 | | | | | 68,750 | | | | | — | | | | | 129,250 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
G.D. Harnett | | | | 70,500 | | | | | 68,750 | | | | | — | | | | | 139,250 | | | | | 75,000 | | | | | 75,000 | | | | | — | | | | | 150,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
R.A. Lorraine | | | | 16,000 | | | | | 18,750 | | | | | — | | | | | 34,750 | | | | | 60,000 | | | | | 75,000 | | | | | — | | | | | 135,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
E.J. Mooney | | | | 64,500 | | | | | 68,750 | | | | | — | | | | | 133,250 | | | | | 66,250 | | | | | 75,000 | | | | | — | | | | | 141,250 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
W.H. Powell | | | | 16,000 | | | | | 18,750 | | | | | — | | | | | 34,750 | | | | | 60,000 | | | | | 75,000 | | | | | — | | | | | 135,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
F.M. Walters | | | | 60,500 | | | | | 68,750 | | | | | — | | | | | 129,250 | | | | | 60,000 | | | | | 75,000 | | | | | — | | | | | 135,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
(1) | | Non-employee Directors may defer payment of all or a portion of their cash compensation as a Director (effective April 1, 2008, annual(annual cash retainer of $60,000, meeting fees, and chair fees). Prior to April 1, 2008, a Director could defer his or her compensation as cash or elect to have it converted into our common shares at a rate equal to 125% of the cash compensation amount. The following elected to defer all or a portion of their cash compensation into our common shares and have received the 25% premium on the amount deferred into stock: Mr. Campbell ($3,688 in premiums); Ms. Duff-Bloom ($844 in premiums); Mr. Garda ($1,813 in premiums); Mr. Mooney ($3,438 in premiums); and Ms. Walters ($3,375 in premiums). |
|
(2) | | For the first quarter of 2008, our Director stock compensation consisted of an annual award of $50,000 in value of fully vested shares and, effective April 1, 2008, ourOur Director stock compensation consisted of an annual award of $75,000 in value of fully vested common shares, which the Directors could elect to defer. We granted the shares quarterly and determined the number of shares to be granted by dividing the dollar value by the arithmetic average of the high and low stock price on the last trading day of each quarter. We used the following quarterly fair market values in calculating the number of shares: March 31, 20082010 — $6.430;$10.425; June 30, 20082010 — $7.115;$8.625; September 30, 20082010 — $6.565;$12.095; and December 31, 20082010 — $2.980.$12.595. |
|
(3) | | In 2008,2010, we did not grant any stock options to our non-employee Directors. The number of outstanding stock options held by each non-employee Director at the end of the fiscal year is set forth in the following table. All of these options are fully exercisable. In addition, the number of fully-vested deferred shares held in an account for each Director at the end of the fiscal year is set forth in the following table. None ofStock option exercises by our non-employee Directors exercised stock optionsare set forth in 2008.the table below. |
| | | | | | | | | | | | | | | | |
| | | Option Awards | | | | Stock Awards | | | | Option Awards | | | | Stock Awards | |
| | | Number of
| | | | Number of
| | | | Number of
| | | | | |
| | | Securities Underlying
| | | | Deferred
| | | | Securities Underlying
| | | | Number of
| |
| | | Unexercised Options
| | | | Shares
| | | | Unexercised Options
| | | | Deferred Shares*
| |
Name | | | (#) | | | | (#) | | | | (#) | | | | (#) | |
| | | | | | | | | | | | | | | | | | | | |
J.D. Campbell | | | | 44,000 | | | | | 148,412 | | | | | 24,000 | | | | | 117,174 | |
| | | | | | | | | | | | | | | | | | | | |
C.A. Cartwright | | | | 39,000 | | | | | 49,011 | | | | | 24,000 | | | | | 29,552 | |
| | | | | | | | | | | | | | | | | | | | |
G. Duff-Bloom | | | | 44,000 | | | | | 110,230 | | | | | 6,000 | | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | |
R.H. Fearon | | | | 15,000 | | | | | 0 | | | | | 15,000 | | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | |
R.A. Garda | | | | 39,000 | | | | | 48,159 | | |
| | | | | | | | | | | |
G.D. Harnett | | | | 39,000 | | | | | 110,167 | | | | | 24,000 | | | | | 80,998 | |
| | | | | | | | | | | | | | | | | | | | |
R.A. Lorraine | | | | 0 | | | | | 6,291 | | | | | 0 | | | | | 33,061 | |
| | | | | | | | | | | | | | | | | | | | |
E.J. Mooney | | | | 0 | | | | | 54,754 | | | | | 0 | | | | | 81,524 | |
| | | | | | | | | | | | | | | | | | | | |
W.H. Powell | | | | 0 | | | | | 11,660 | | | | | 0 | | | | | 38,430 | |
| | | | | | | | | | | | | | | | | | | | |
F.M. Walters | | | | 44,000 | | | | | 57,408 | | | | | 24,000 | | | | | 26,770 | |
| | | | | | | | | | | | | | | | |
| | |
* | | A distribution of 81,442 shares was made to Mr. Campbell and 55,939 shares was made to Mr. Harnett from the Deferred Compensation Plan for Non-Employee Directors on August 4, 2010. A distribution of 26,251 shares was made to Ms. Walters from the Deferred Compensation Plan for Non-Employee Directors on February 10, 2010. |
1113
2010 Option Exercises
| | | | | | | | | | |
| | | Option Awards | |
| | | Number of
| | | | | |
| | | Shares
| | | | Value
| |
| | | Acquired on
| | | | Realized on
| |
| | | Exercise
| | | | Exercise
| |
Name | | | (#) | | | | ($) | |
| | | | | | | | | | |
J.D. Campbell | | | | 15,000 | | | | | 18,075 | |
| | | | | | | | | | |
C.A. Cartwright | | | | 15,000 | | | | | 9,225 | |
| | | | | | | | | | |
G. Duff-Bloom | | | | 33,000 | | | | | 82,847 | |
| | | | | | | | | | |
R.H. Fearon | | | | 0 | | | | | 0 | |
| | | | | | | | | | |
G.D. Harnett | | | | 15,000 | | | | | 32,025 | |
| | | | | | | | | | |
R.A. Lorraine | | | | 0 | | | | | 0 | |
| | | | | | | | | | |
E.J. Mooney | | | | 0 | | | | | 0 | |
| | | | | | | | | | |
W.H. Powell | | | | 0 | | | | | 0 | |
| | | | | | | | | | |
F.M. Walters | | | | 15,000 | | | | | 18,825 | |
| | | | | | | | | | |
| | |
(4) | | Ms. Duff-Bloom retired after the 2010 Annual Meeting of Shareholders on May 12, 2010. |
14
BENEFICIAL OWNERSHIP OF COMMON SHARES
The following table shows the number of our common shares beneficially owned on March 6, 200914, 2011 (including options exercisableshares the individuals have a right to acquire within 60 days of that date) by each of our Directors and nominees, each of the executive officers named in the Summary Compensation Table on page 3335 (the “Named Executive Officers”) and by all Directors and executive officers as a group.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Number of
| | | | Right to
| | | | Total
| | | | | | | Right to
| | | Total
|
| | | Shares
| | | | Acquire
| | | | Beneficial
| | | | Number of Shares
| | | Acquire
| | | Beneficial
|
Name | | | Owned(1) | | | | Shares(3) | | | | Ownership | | | | Owned(1) | | | Shares | | | Ownership |
J. Douglas Campbell | | | | 150,468 | (2) | | | | 44,000 | | | | | 194,468 | | | | | 215,672 | (2) | | | | 24,000 | (3) | | | | 239,672 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Carol A. Cartwright | | | | 108,336 | (2) | | | | 39,000 | | | | | 147,336 | | | | | 136,066 | (2) | | | | 24,000 | (3) | | | | 160,066 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Gale Duff-Bloom | | | | 110,728 | (2) | | | | 44,000 | | | | | 154,728 | | |
| | | | | | | | | | | | | | | | |
Richard H. Fearon | | | | 34,489 | | | | | 15,000 | | | | | 49,489 | | | | | 61,259 | | | | | 15,000 | (3) | | | | 76,259 | |
| | | | | | | | | | | | | | | | |
Robert A. Garda | | | | 103,105 | (2) | | | | 39,000 | | | | | 142,105 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Gordon D. Harnett | | | | 126,978 | (2) | | | | 39,000 | | | | | 165,978 | | | | | 141,125 | (2) | | | | 24,000 | (3) | | | | 165,125 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Richard A. Lorraine | | | | 6,291 | (2) | | | | 0 | | | | | 6,291 | | | | | 33,061 | (2) | | | | — | | | | | 33,061 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Edward J. Mooney | | | | 254,754 | (2) | | | | 0 | | | | | 254,754 | | | | | 141,524 | (2) | | | | — | | | | | 141,524 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
William H. Powell | | | | 21,660 | (2) | | | | 0 | | | | | 21,660 | | | | | 118,430 | (2) | | | | — | | | | | 118,430 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Farah M. Walters | | | | 119,331 | (2) | | | | 44,000 | | | | | 163,331 | | | | | 147,937 | (2) | | | | 18,000 | (3) | | | | 165,937 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stephen D. Newlin | | | | 169,600 | | | | | 0 | | | | | 169,600 | | | | | 290,125 | | | | | 494,358 | (4) | | | | 784,483 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Robert M. Patterson | | | | 100,000 | | | | | 0 | | | | | 100,000 | | | | | 100,000 | | | | | 70,511 | (4) | | | | 170,511 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
W. David Wilson | | | | 159,377 | | | | | 215,600 | | | | | 374,977 | | |
| | | | | | | | | | | | | | | | |
Kenneth M. Smith | | | | 74,613 | | | | | 131,500 | | | | | 206,113 | | | | | 114,549 | | | | | 92,537 | (3)(4) | | | | 207,086 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Michael L. Rademacher | | | | 65,909 | | | | | 151,024 | | | | | 216,933 | | |
Thomas J. Kedrowski | | | | | 108,638 | | | | | 70,988 | (4) | | | | 179,626 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Bernard Baert | | | | 35,766 | | | | | 6,969 | | | | | 42,735 | | | | | 35,644 | | | | | 19,490 | (3)(4) | | | | 55,134 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
19 Directors and executive officers as a group | | | | 1,886,344 | | | | | 788,465 | | | | | 2,674,809 | | |
18 Directors and executive officers as a group | | | | | 2,030,891 | | | | | 1,271,604 | | | | | 3,302,495 | |
| | | | | | | | | | | | | | | | | | | | | |
| | |
(1) | | Except as otherwise stated in the following notes, beneficial ownership of the shares held by each individual consists of sole voting power and sole investment power, or of voting power and investment power that is shared with the spouse or other family member of the individual. It includes an approximate number of shares credited to the named executives’Named Executive Officers’ accounts in our Retirement Savings Plan, a tax-qualified defined contribution plan. The number of common shares allocated to these individuals is provided by the savings plan administrator in a statement for the period ending December 31, 2008,2010, based on the market value of the applicable plan units held by the individual. Additional common shares may have been allocated to the accounts of participants in the savings plan since the date of the last statements received from the plan administrator. No Director, nominee or executive officer beneficially owned, on March 6, 2009,14, 2011, more than 1% of our outstanding common shares. As of that date, the Directors and executive officers as a group beneficially owned approximately 2.9%3.5% of the outstanding common shares. |
|
(2) | | With respect to the Directors, beneficial ownership includes shares held under the Deferred Compensation Plan for Non-Employee Directors as follows: J.D. Campbell, 148,412117,174 shares; C.A. Cartwright, 39,281 shares; G. Duff-Bloom, 43,88229,552 shares; R.H. Fearon, 0 shares; R.A. Garda, 48,159 shares; G.D. Harnett, 110,16780,998 shares; R.A. Lorraine, 6,29133,061 shares; E.J. Mooney, 54,75481,524 shares; W.H. Powell, 11,66038,430 shares; and F.M. Walters, 26,2517,009 shares. |
12
| | |
(3) | | Includes shares the individuals have a right to acquire upon the exercise of options on or before May 5, 2009. The executive officers named in13, 2011. |
15
| | |
(4) | | Includes the table (the “Named Executive Officers”) also havenumber of shares that would be acquired if the right to acquire common shares upon the exercise of vestedindividuals’ outstanding and exercisable stock-settled stock appreciation rights (“SARs”) as follows: Mr. Newlin, 520,600 SARs; Mr. Patterson, 0 SARs; Mr. Wilson, 167,467 SARs; Mr. Smith, 98,700 SARs; Mr. Rademacher, 94,100 SARs; and Mr. Baert, 177,200 SARs. The numberwere exercised at $12.97, the closing price of shares to be acquired cannot be determined because it depends on the market value of ourPolyOne’s common shares on the date of exercise and the applicable withholding taxes.March 14, 2011. |
The following table shows information relating to all persons who, as of March 6, 2009,14, 2011, were known by us to beneficially own more than five percent of our outstanding common shares based on information provided in Schedule 13Gs and 13Ds filed with the Securities and Exchange Commission:
| | | | | | |
| | | Number of
| | | % of
|
Name and Address | | | Shares | | | Shares |
Fine Capital Partners, L.P.BlackRock, Inc. | | | 7,795,0007,096,753(1) | | | 8.4%7.59% |
590 Madison Avenue, 5th Floor40 East 52nd Street New York, New YorkNY 10022 | | | | | | |
| | | | | | |
| | | | | | |
Dimensional Fund Advisors LP | | | 7,756,6995,693,917(2) | | | 8.4%6.09% |
1299 Ocean Avenue Santa Monica, California 90401 | | | | | | |
| | | | | | |
| | | | | | |
Barrow, Hanley, Mewhinney & Strauss, IncLLC | | | 7,104,2105,874,475(3) | | | 7.7%6.28% |
2200 Ross Avenue, 31st Floor Dallas, Texas75201-2761 | | | | | | |
| | | | | | |
| | | | | | |
Barclays Global Investors, NAThe Vanguard Group, Inc. | | | 7,051,8255,034,766(4) | | | 7.6%5.38% |
45 Fremont Street100 Vanguard Boulevard
San Francisco, California 94105 | | | | | | |
| | | | | | |
| | | | | | |
New York Life Trust Company, Trustee | | | 5,534,987(5) | | | 6.0% |
51 Madison Avenue
New York, New York 10010Malvern, Pennsylvania 19355 | | | | | | |
| | | | | | |
| | |
(1) | | As of March 6, 2009,December 31, 2010, based upon information contained in a Schedule 13D/A13G filed with the Securities and Exchange Commission. FCP Capital Partners, L.P. and its affiliates haveBlackRock, Inc. has sole voting power and sole dispositive power with respect to all of these shares. |
|
(2) | | As of February 9, 2009,December 31, 2010, based upon information contained in a Schedule 13G/A13G filed with the Securities and Exchange Commission. Dimensional Fund Advisors LP, as an investment advisor, has sole voting power with respect to 7,579,7405,625,587 of these shares and has sole dispositive power with respect to all of these shares. |
|
(3) | | As of February 12, 2009,December 31, 2010, based upon information contained in a Schedule 13G/A13G filed with the Securities and Exchange Commission. Barrow, Hanley, Mewhinney & Strauss, Inc. has sole voting power with respect to 3,137,9902,419,455 of these shares and has sole dispositive power with respect to all of these shares. |
|
(4) | | As of February 5, 2009,December 31, 2010, based upon information contained in a Schedule 13G filed with the Securities and Exchange Commission. Barclays Global Investors, NA,The Vanguard Group, Inc., as an investment advisor, and reporting on behalf of a group of affiliate entities, has sole voting power with respect to 5,568,496128,077 of these shares and has sole dispositive power with respect to all of these shares. |
|
(5) | | As of February 13, 2009, based on information contained in a Schedule 13G/A filed with the Securities and Exchange Commission. New York Life Trust Company, as Trustee for The PolyOne Retirement Savings Plan, as a bank, has sole voting power and sole dispositive power with respect to all4,906,689 of these shares. |
13
Share Ownership Guidelines
We have establishedIn December 2009, we revised our share ownership guidelines for our non-employee Directors, executive officers and other elected corporate officers to better align their financial interests with those of our shareholders by requiring them to own a minimum level of our shares. These individuals are expected to make continuing progress towards compliance with the guidelines and to comply fully within five years of becoming subject to the guidelines. These policies, as they relate to our Named Executive Officers, are discussed in the “Compensation Discussion and Analysis” section of this proxy statement. In order to reflect the Board’s commitment to share ownership and
16
better align the interests of our Board members with our shareholders, the required share ownership level for directors is a50,000 shares. For purposes of our guidelines, the following types of share ownership and equity awards are included as shares owned: shares directly held, shares and phantom shares held in our retirement plans and deferral plans, unvested restricted stock and restricted stock units, and earned performance shares. All Directors are required to retain 100% of all shares obtained through us, after the date of adoption of the guidelines (December 16, 2009), as compensation for services provided to us, such percentage to be calculated after any reduction in the number of shares withto be delivered as a value equalresult of any taxes and exercise costs relating to five times the annual cash retainer.shares. This requirement to retain 100% of all shares obtained from us ceases once the Director has met the applicable ownership guideline.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 as amended, requires that our executive officers and Directors, and persons who own more than 10% of a registered class of our equity securities, file reports of ownership and changes in ownership with the Securities and Exchange Commission. Executive officers, Directors and greater than 10% shareholders are required by Securities and Exchange Commission rules to furnish us with copies of all forms they file. Based solely on our review of the copies of such forms received by us and written representation from certain reporting persons, we believe that, during 20082010 and until the date of this proxy statement, all Section 16(a) filing requirements applicable to our executive officers, Directors and 10% shareholders were satisfied.
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Introduction
OurIn this section of the proxy statement, we discuss in detail our executive compensation programs are approved and overseen by the Compensation and Governance Committee of the Board of Directors (the “Committee”), which is composed entirely of independent directors. The Committee has selected and retained an independent compensation consultant, Towers Perrin (the “Consultant”). The Committee works in conjunction with the Consultant and with input from members of senior management, principally the Chairman, President and Chiefprogram for 2010 for our Named Executive Officer, the Chief Human Resources Officer, the Chief Financial Officer and the General Counsel.
Officers. This report contains management’s discussion and analysis includes a description of the principles underlying our executive compensation awarded to, earnedpolicies and our most important executive compensation decisions for 2010, and provides analysis of these policies and decisions. The following disclosure also gives context for the data we present in the compensation tables below and the narratives that accompany the compensation tables.
The following five individuals are our Named Executive Officers for 2010, as that term is defined by or paid to the following executive officers (the “Named Executive Officers”):Securities and Exchange Commission:
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| • | Mr. Stephen D. Newlin, —our Chairman, President and Chief Executive OfficerOfficer; |
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| • | Mr. Robert M. Patterson, — Seniorour Executive Vice President and Chief Financial OfficerOfficer; |
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| • | W. David Wilson — FormerMr. Kenneth M. Smith, our Senior Vice President, Chief Information and Chief Financial OfficerHuman Resources Officer; |
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| • | Kenneth M. Smith —Mr. Thomas J. Kedrowski, our Senior Vice President, Chief InformationSupply Chain and Human Resources OfficerOperations; and |
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| • | Michael L. Rademacher —Mr. Bernard Baert, our Senior Vice President, and General Manager, Distribution |
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| • | Bernard Baert — Senior Vice President and General Manager, Colors and Engineered Materials —of Europe and AsiaInternational. |
Executive Compensation Programs — Objectives and OverviewSummary
Fiscal 2010 Performance
In late 2009 and early 2010, we were confronted with uncertainty regarding the extent of a global economic recovery. The housing and automotive markets remained at historically low levels, raw material costs were rising, and income from our Sunbelt joint venture was substantially below its prior year results. Despite these conditions, in early 2010 our Board of Directors approved an annual operating plan designed to position us for stability and continued growth. The plan assumed that we would achieve a 40% improvement in operating results through focused execution of our well-defined strategy, which consists of: specialization, globalization, commercial excellence and operational excellence.
While depressed demand and marketplace uncertainty provided significant headwinds in 2010, we focused on generating new business, creating efficiencies and innovating new solutions. As a result of our intense focus on strategy and execution, in 2010, each of our business platforms attained record-setting levels of operating income or profitability, our revenue climbed 27%, our stock price improved 67% and our diluted earnings per share rose 252%. Overall operating income for 2010 was 121% higher than the prior year. Working capital as a percentage of sales was 9.6% — which we consider to be world-class performance. At the end of 2010, we had $378 million in cash, $506 million in available liquidity, an improved credit rating, and limited near-term debt maturities, positioning us well to fund operating expenses and pursue acquisitions designed to further accelerate our transformation. Throughout 2010, we demonstrated our ability to meet and surpass our goals and objectives, with a record-setting year on a number of different measures.
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Fiscal 2010 Pay Implications
We determined in 2010 that the best method of motivating our Named Executive Officers to create and maximize shareholder value was to focus our Senior Executive Annual Incentive Plan (the “Annual Plan”) on operating income improvement and working capital management, and to link payments under the Long-Term Incentive Plan to improvements in our working capital and creating shareholder value. The performance unit component of the Long-Term Incentive Plan is earned when the pre-established financial goal, working capital as a percentage of sales, is achieved. Performance was based on a one-year period in 2010 and awards are payable in cash after three years (i.e., in early 2013) contingent on the individual’s continued employment with the Company over the time period in order to enhance retention.
Due to our exceptional overall performance in 2010, the performance targets for the Annual Plan were substantially exceeded, and many of our business units achieved record-breaking results. As a result of surpassing the operating income and working capital as a percentage of sales goals, the Compensation Committee, which we refer to as the Committee in this Compensation Discussion and Analysis section of the proxy statement, approved a 200% of target payout under the Annual Plan. The Company also significantly exceeded the one-year performance targets set for the performance units granted in 2010, resulting in awards at the 200% of target attainment level.
In addition, after awarding reduced levels of Long-Term Incentive Plan grants in 2009 due to the decline in our stock value and limited share availability, 2010 Long-Term Incentive Plan awards were granted at levels consistent with the market median of our peer group. We also reinstated salary adjustments in mid-2010, after base salaries for employees, including the Named Executive Officers, were frozen in 2009. Economic conditions had improved and we believed that salary adjustments were necessary in order to maintain a competitive compensation position in the market. Each Named Executive Officer received a modest salary adjustment in mid-2010, with the exception of the Chief Executive Officer, who received no salary adjustment. Instead, the Committee increased Mr. Newlin’s target annual incentive opportunity from 100% to 110% in order to leverage his variable compensation opportunity by placing a greater portion of his pay at risk.
In total, the Committee believes that the compensation actions and outcomes for 2010 strongly reflect and reinforce the Company’s compensation philosophy, and in particular the emphasis on performance and alignment with shareholder interests.
The following discussion should be read together with the information presented in the compensation tables, the footnotes and the narratives to those tables and the related disclosures appearing elsewhere in this proxy statement.
Compensation Philosophy and Objectives
Our executive compensation programs are linked to our achievement of strategic operating and financial goals and designed to be competitive in the marketplace. Our executives are rewarded for performance that meets or exceeds our strategic goals, without encouraging excessive risk-taking that could have a detrimental impact on our long-term results and the interests of our shareholders. We believe the design of our compensation plans and the relative mix of compensation elements successfully motivate our executives to improve our overall corporate performance and the profitability of the specific business unit for which they are responsible, thus maximizing shareholder value. The main objectives of our executive compensation programs are to: (1) attract, retain and motivate the management team who leads in setting and achieving the overall goals and objectives of our company; (2) foster a pay-for-performance culture by rewarding the achievement of specified financial goals and growth of our share price; and (3) align our goals and objectives with the interests of our shareholders by recognizing and rewarding business results through incentive programs.
While we believe that all components of total compensation (which are identified in the Summary Compensation Table) should be valued and considered when making decisions regarding pay, the primary focus of our executive compensation program is on base salary, annual incentive and long term incentives. We believe that compensation opportunities should be competitive with the industry compensation practices of the companies we compete with for executive talent and that total compensation should be fair to both employees and shareholders.
Our incentive programs focus on the critical performance measures that determine our company’s overall success. For positions with significant business unit responsibilities, incentive programs also emphasize success at the business unit level, which often leads to Named Executive Officers at comparable levels being paid differently across the organization. Our base salary and annual and long-term incentive opportunities are designed to reward executives for the efficient execution of their day-to-day responsibilities and attainment of short term results, balanced with the need for sustainable, long-term success.
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The following table outlines the major elements of compensation in 2008 for our Named Executive Officers.
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Compensation
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Element | | | Definition | | | Rationale |
Base Salary
| | | • Fixed compensation payable bi-weekly | | | • Intended to pay for completingday-to-day job responsibilities assigned to the position |
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Annual Incentive Plan
| | | • Variable, cash compensation that is earned when pre-established annual performance goals are achieved | | | • Builds accountability for important annual financial goals
• Limits fixed expenses; payment is required only upon achievement of specified goals |
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Long-Term Incentive
Plan (3 Components)
Cash-settled
Performance Units
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• Variable, cash compensation that is earned when pre-established three-year financial goals are achieved | | |
• Emphasizes achievement of long-term strategic goals and objectives
• Limits fixed expenses; payment is required only upon achievement of specified goals
• Avoids stock dilution through cash awards
• Multi-year incentive is common market practice |
Stock-settled Stock
Appreciation
Rights
| | | • Variable compensation that increases in value as our share price rises
• Paid in PolyOne common shares | | | • Aligns with the shareholder goal of maximizing value through increased stock price
• Requires growing stock price before any value can be realized by participant |
| | | | | | • Increases share ownership |
| | | | | | • Limits fixed expenses |
| | | | | | • Vesting conditions require executive to remain with PolyOne for the vesting period |
| | | | | | • Multi-year incentive is a common market practice |
Restricted Stock Units
| | | • Equity compensation with three-year cliff vesting
• Paid in PolyOne common shares | | | • Increases share ownership
• Limits fixed expenses; payment is not required if executive terminates before vesting
• Vesting conditions require executive to remain with PolyOne for the vesting period
• Full-value grant is a common market practice
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Retirement Plans
U.S. Defined
Contribution Plans
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• Qualified 401(k) defined contribution plan
• Nonqualified excess 401(k) defined contribution plan
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• The qualified defined contribution plan is a standard tax-qualified benefit offered to all employees subject to limitations on compensation and benefits under the Internal Revenue Code |
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Compensation
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Element | | | Definition | | | Rationale |
| | | | | | • Restores benefits that are limited by the Internal Revenue Code in the qualified plan for most highly-paid executives
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Belgium Defined Contribution Plan
| | | • Tax-efficient defined contribution plan | | | • Mr. Baert is a participant in a standard tax-efficient defined contribution plan provided to most Belgium employees |
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Defined Benefit Plans
(These plans have been closed to new participants since the formation of PolyOne and will be frozen as of March 20, 2009)
| | | • Qualified defined benefit pension plan | | | • Messrs. Wilson and Smith are participants in a legacy defined benefit pension plan offered to certain heritage employees |
| | | • Nonqualified, excess defined benefit plan | | | • Restores benefits that are limited by the Internal Revenue Code in the qualified plan and applies to all eligible plan participants |
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Supplemental Retirement Benefit for Mr. Newlin
| | | • Non-qualified annual supplemental retirement payments, upon a “Qualifying Separation from Service,” payable in the form of a 15-year certain and continuous life annuity | | | • This non-qualified retirement benefit is consistent with benefits offered at peer companies
• Vesting conditions require executive to remain with PolyOne until the vesting conditions are satisfied |
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Post-Retirement
Medical Plans
| | | • Subsidized retiree medical coverage similar to coverage provided to active employees available to certain heritage employees (This plan has been closed to new participants since the formation of PolyOne) | | | • Messrs. Wilson and Smith are eligible for participation in a legacy post-retirement medical plan offered to certain heritage employees |
| | | • Retiree medical coverage at full cost to the retiree from ages 55 to 65 that is available to PolyOne employees | | | • Messrs. Newlin, Patterson and Rademacher are eligible for participation in the post-retirement medical plan offered to U.S. based PolyOne employees |
| | | | | | • Mr. Baert is not eligible to participate in a company provided retiree medical plan |
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Perquisites
| | | • Car allowance
• Relocation benefits
• Executive physicals
• Financial planning and tax preparation; excess liability insurance | | | • Standard market practice
• Relocation benefits assist in attracting new executive talent
• Executive physicals help to ensure continuity of our management team
• Other perquisites are modest and are typical for executives at comparable companies |
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Current Global Economic Conditions
The current global recession has had an impact on our business and on our executive compensation programs. As the year 2008 progressed and the global economy significantly eroded, it became clear that our executive compensation decisions for 2009 should be reviewed to take into account the current
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economic conditions. Significant compensation decisions, including deviations from historyand/or design changes for 2009, are noted below, with additional details following throughout this analysis.
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| • | Base salaries for Named Executive Officers, as well as other officersAttract, motivate and retain a highly qualified and successful management team to lead PolyOne in setting and effectively executing upon our strategic goals and objectives; |
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| • | Foster apay-for-performance culture by rewarding the achievement of the Company, will be frozen in 2009.specified strategic operating and financial objectives; and |
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| • | The valueEnsure our goals and objectives are aligned with the interests of our shareholders by recognizing and rewarding business results and the long-termgrowth of our share price through incentive grants in 2009 will be 38% below the target market opportunity for the Named Executive Officers and, therefore, will be below the value of last year’s grant. |
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| • | The change in long-term incentive opportunity results in a decrease in total direct compensation for Named Executive Officers in the range of 14% to 22% (with the CEO’s compensation being decreased by the 22%). |
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| • | The long-term incentive will include a grant of Performance Units with a one-year performance cycle payable after three years, to further emphasize our focus on cash management for 2009. |
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| • | Achievement of threshold performance under the performance units will result in a payout of 30% of the targeted award (instead of 50%), while maintaining our standard threshold level of performance. |
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| • | Performance measures will be added as a condition of vesting under the stock-settled stock appreciation rights and performance shares. |
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| • | Achievement of threshold performance under the Annual Incentive Plan will result in a payout of 30% of the targeted award (instead of 50%), while maintaining our standard threshold level of performance. |
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| • | The Annual Incentive Plan performance measures for 2009 will include a greater emphasis on working capital as a percentage of sales to promote cash management.programs. |
Setting 2010 Executive Compensation Levels
Compensation Consultant
Our executive compensation programs are approved and overseen by the LevelCommittee, which is composed entirely of Compensationindependent directors. For 2010, the Committee selected and retained an independent compensation consultant, Towers Watson, to assist the Committee in assessing the competitiveness and overall appropriateness of our executive compensation programs. The Committee worked in conjunction with Towers Watson and with input from members of senior management.
As described below, Towers Watson assisted the Committee in approximating base salaries and annual and long-term incentive targets in accordance with the market median, and assisted our human resources department in preparing tally sheets to provide the Committee with information regarding our Named Executive Officers’ total annual compensation, termination benefits and wealth accumulation.
Competitive Market Pay Information and Benchmarking
We have designed our compensation programs to be competitive with companies of comparable size and industry as well as companies with whom we compete for executive talent. The Committee obtains advice from the Consultant relating to competitive salaries and annual and long-term incentives, as well as other items of total compensation, including retirement benefits, health and welfare benefits and perquisites. Management and the Committee review the specific pay disclosures of the defined peer group of chemical companies as well as survey data of similarly-sized chemical and other companies, as provided by the Consultant. The Committee discusses and considers this information when making compensation decisions. This process is described in the “Compensation Oversight Processes” section of this report. The Committee manages compensation so as to align each of the pay elements with market practices.
The Committee targets base salaries around the median of observed market practice and sets annual and long-term incentive targets (incentive as a percent of salary) to approximate the market median. We believe the maximum potential annual incentive payouts (no award shall be greater than double the target award) are consistent with the typical market range around target awards.
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Our actual awards of cash-settled performance units, stock-settled stock appreciation rights (SARs) and restricted stock units (RSUs) are based on competitive long-term incentive market practices, market data, and an evaluation of an individual’s performance. In 2008:
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| • | We allocated 40% of the assigned long-term incentive target opportunity for a position in the form of cash-settled performance units in order to avoid the dilution associated withshare-based awards and to reward executives for achieving growth in our earnings per share, one of the measures we consider critical to our overall success. |
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| • | We allocated 30% of the assigned long-term incentive target opportunity in the form ofstock-settled SARs because they align executive and shareholder interests as they increase in value as our stock price grows and they help preserve cash. |
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| • | We allocated the remaining 30% of the assigned long-term incentive target opportunity in the form of RSUs. We decided to grant RSUs in addition to performance units and SARs to provide an award that is consistent with market practice and that conserves shares under our equity plan, promotes share ownership and enhances our retention of executives. |
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| • | We assigned a value to a single performance unit and established a value for a single SAR based on the Black-Scholes valuation method. RSUs were valued at their full value. We then determined the actual number of performance units, SARs and RSUs to be granted by dividing the targeted dollar value allocated to each element by the value of a single performance unit, SAR, and RSU, respectively. |
The following table summarizes the allocation of the compensation opportunity at target that was granted in 2008 to the Named Executive Officers, based upon the primary elements of compensation (2008 base salary, Annual Incentive Plan 2008 target opportunity, and long-term incentive grants made in 2008, including performance units that will pay out in 2011, if earned). The compensation opportunity is consistent with our overall pay-for-performance philosophy. Generally, employees at more senior levels in the organization, including the Named Executive Officers, have a greater proportion of their compensation tied to incentive compensation. Targeted pay opportunity levels align with the market in each individual pay element.
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| | | Proportionate Size of Primary Elements of Compensation | |
Element | | | Newlin | | | | Patterson | | | | Wilson | | | | Smith | | | | Rademacher | | | | Baert | |
Base Salary | | | | 20 | % | | | | 67 | % | | | | 36 | % | | | | 43 | % | | | | 43 | % | | | | 45 | % |
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Annual Incentive Opportunity | | | | 20 | % | | | | 33 | % | | | | 18 | % | | | | 22 | % | | | | 21 | % | | | | 22 | % |
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Long-Term Incentive Opportunity* | | | | 60 | % | | | | | ** | | | | 46 | % | | | | 35 | % | | | | 36 | % | | | | 33 | % |
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* | | Long-term incentive relating to the performance units for the2008-2010 performance period will be paid in 2011, if earned. |
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** | | Mr. Patterson was not a PolyOne employee at the time of the 2008 long-term incentive award. In lieu thereof, he received a grant of 60,000 SARs and 40,000 RSUs at the time of his employment. |
Risk Oversight
A primary objective of our executive compensation program is to encourage and reward performance by our Named Executive Officers that meets or exceeds our financial and operational performance goals, without encouraging the taking of excessive risks that could be detrimental to the interests of our shareholders. Further, our use of short and long-term incentives, the award of different types of equity compensation, the use of different performance measures, and our share ownership guidelines, do not encourage our management to take unreasonable risks relating to our
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business. Overall, the Committee does not believe that any aspect of our executive compensation program encourages the Named Executive Officers to take unnecessary and excessive risks.
Benchmarking Competitive Compensation
We regularlyannually analyze competitive market compensation data relating to salary, annual incentive,incentives, and long term incentive. Periodically, we alsoincentives. The Committee generally manages individual components of compensation and target total compensation relative to the median (50th Percentile) of the competitive market data. However, the Committee considers many other factors, including the responsibilities, performance, contributions and experience of the named executive officer, including compensation in relation to other employees. As a result, the Company does not set total direct compensation or the component parts at levels to achieve a mathematically precise market position. We periodically analyze competitive market compensation data relating to retirement benefits and perquisites.perquisites, most recently in 2009. The Committee obtains advice and recommendations from Towers Watson in these areas of total compensation.
In analyzing competitive market data for the purpose of determining the market median, we draw from two independent sources. First, weWe first review proxy statement disclosures of a peer group of similarly sizedsimilarly-sized U.S. chemical companies (listed below) to establish an estimate of market compensation for our most senior executives. This approach provides insight into explicitspecific company practices at business competitors or companies facing similar operating challenges. However,
In 2010, with the guidance of Towers Watson, we conducted a review of our peer group to ensure it does not provide market informationconsisted of appropriate companies to which we should be compared. Multiple factors were taken into consideration during the review including: company revenue between $1.03 billion — $4.12 billion, total asset size between $0.70 billion — $2.78 billion and number of employees between 1,950 — 7,800, as well as whether each potential peer company had a global presence and a specialty chemical focus. We also looked at the frequency with which these companies were used as peers by other companies in our industry, and which companies had identified us as a peer. In addition, we considered whether they were in the same SIC code as PolyOne and whether we
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compete with them for positions belowtalent. Each of the senior management level, nor does it address competitorscompanies recommended for talent outside the new peer group met a majority of the criteria that were established. Based on this review and management’s recommendation, for 2010, the Committee approved the addition of six companies to the peer group and the removal of one company from our previous peer group of 14 companies. This resulted in a new peer group consisting of the following 19 companies, which better reflects our transformation into a global and specialty chemical industry.company:
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Albemarle Corporation | | Eastman Chemical Company | | Hercules Incorporated* |
Arch Chemicals, Inc. | | Ferro Corporation | | The Lubrizol Corporation |
A. Schulman, Inc. | | FMC Corporation | | RPM International Inc. |
Cabot CorporationArch Chemicals, Inc. | | Georgia Gulf Corporation | | Spartech CorporationThe Scotts Miracle-Gro Company |
Chemtura CorporationA. Schulman, Inc. | | H.B. Fuller Company | | Sigma-Aldrich Corporation |
Cabot Corporation | | International Flavors & Fragrances Inc. | | Solutia Inc. |
Cytec Industries Inc. | | The Lubrizol Corporation | | The Valspar Corporation |
Cytec Industries Inc.Eastman Chemical Company | | Nalco Holding Company | | |
Ferro Corporation | | Rockwood Holdings, Inc. | | |
*Note: Hercules Incorporated was subsequently purchased by Ashland Incorporated in November 2008.
Second, we review data from Towers Perrin’s Compensation Data Bank and other published surveys relating to the chemical industry or other applicable general industries, as provided by the Consultant,In order to augment the peer proxy analysis and provide a broader sense of market practices.practices, we also review data from Towers Watson’s Executive Compensation Data Base, Towers Watson’s Top Management Compensation Survey and Mercer’s Executive Compensation Survey relating to the chemical industry and other applicable general industries, as provided by Towers Watson. To obtain comparability based on company size, the data either references a specific sample of companies or calibrates the pay of a broad sample of companies against company size. This data is used as one of several inputs into management’s and the Committee’s deliberationdetermination of market compensation levels.
Review of Named Executive Officer Compensation
Management and the Committee annually review the specific pay disclosures of our peer group and the broad-based survey data provided by Towers Watson described above. Management uses this data to develop recommendations for the Committee’s review regarding eligibility, award opportunities, performance measures and goals for the plan periods commencing in the following year. The Committee discusses and considers this information when making compensation decisions and aligning each of the pay elements with our compensation objectives and relative market practices.
The Committee and management annually review and consider tally sheets, which are developed collaboratively by Towers Watson and our Human Resources department, to determine the reasonableness of the compensation of our Named Executive Officers. The tally sheets provide information regarding each Named Executive Officer’s base salary, annual incentives, long-term incentives, perquisites, retirement benefits and wealth accumulation.
Based upon individual performance and results achieved, the Chief Executive Officer typically recommends for the Committee’s review and approval specific base salary adjustments for each of the other Named Executive Officers. The Chief Executive Officer makes his recommendations in conjunction with the marketplace data and input provided by Towers Watson. He does not participate in any discussions with the Committee involving his own compensation. With guidance from Towers Watson and based on a rigorous review of the prior year’s performance, the Committee determines the appropriate base salary for the Chief Executive Officer.
For Annual Plan purposes, during the fourth quarter, the Committee typically reviews plan performance and estimates the incentive payouts for the applicable plan period. In the first quarter of the following year, the Committee determines actual performance against pre-established goals and approves plan attainment levels. Our awards of cash-settled performance units, stock-settled
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stock appreciation rights (“SARs”), and full value awards (in the form of performance shares or restricted stock units (“RSUs”)) are determined in the first quarter based on competitive long-term incentive market practices, market data, and an evaluation of individual performance.
Pay for Performance
We believe that the majority of each Named Executive Officer’s compensation levels. Other inputs includeshould be linked directly to our performance and the creation of shareholder value. The following chart compares cumulative total shareholder return on our common shares against the cumulative total return of the S&P 500 Index and the S&P Mid Cap Chemicals Index for the five year period, December 31, 2005 to December 31, 2010, assuming in each case a fixed investment of $100 and reinvestment of all dividends. Our five-year performance has exceeded the S&P 500 Index and has kept pace with the S&P Mid Cap Chemicals Index.
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| | Base
| | INDEXED RETURNS
|
| | Period
| | Years Ending |
Company / Index | | 12/31/05 | | 12/31/06 | | 12/31/07 | | 12/31/08 | | 12/31/09 | | 12/31/10 |
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PolyOne Corporation | | $ | 100 | | | $ | 116.64 | | | $ | 102.33 | | | $ | 48.99 | | | $ | 116.17 | | | $ | 194.25 | |
S&P 500 Index | | $ | 100 | | | $ | 115.79 | | | $ | 122.16 | | | $ | 76.96 | | | $ | 97.33 | | | $ | 111.99 | |
S&P Mid Cap Chemicals | | $ | 100 | | | $ | 117.76 | | | $ | 149.65 | | | $ | 94.16 | | | $ | 150.05 | | | $ | 209.77 | |
We believe that the returns to shareholders shown in this graph indicate that ourpay-for-performance philosophy, compensation plan design and selected metrics have resulted in performance that has provided increased value to our shareholders and that the compensation of our Named Executive Officers is appropriate given both the fiscal 2010 and long-term performance of Polyone.
Our executive compensation programs are also designed to recognize an executive’s scope of responsibilities, retention, internal equity considerationsleadership ability, and other factors.effectiveness in achieving key performance goals and objectives. As an executive’s level of responsibility within PolyOne increases, so does the percentage of total compensation that is linked to performance in the form of variable compensation.
The following table summarizes the allocation of the compensation opportunity at target, or “pay mix” that was granted in 2010 to the Named Executive Officers, based upon the primary elements of compensation (base salary, annual incentive opportunity, and long-term incentive opportunity). Both the annual incentive and long-term incentive opportunity represent the variable
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compensation portion of each Named Executive Officer’s total compensation opportunity, consistent with our overallpay-for-performance philosophy.
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| | | PAY MIX ALLOCATION | |
Element | | | Newlin | | | | Patterson | | | | Smith | | | | Kedrowski | | | | Baert | |
Base Salary | | | | 19 | % | | | | 34 | % | | | | 40 | % | | | | 40 | % | | | | 42 | % |
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Annual Incentive Opportunity | | | | 20 | % | | | | 21 | % | | | | 22 | % | | | | 22 | % | | | | 21 | % |
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Long-Term Incentive Opportunity | | | | 61 | % | | | | 45 | % | | | | 38 | % | | | | 38 | % | | | | 37 | % |
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Our incentive programs focus on the critical performance measures that determine our overall success and reward executives for the attainment of sustainable, long-term success. For positions with significant business unit responsibilities, annual incentive programs also emphasize success at the business unit level, which may lead to Named Executive Officers at comparable levels being paid differently.
Our executive compensation programs play a material role in our ability to drive strong financial results that exceed expectations. We believe that providing incentive plan opportunities to our executives that are based upon achieving strategic goals and objectives are instrumental in driving desired results.
2010 Executive Compensation Elements of Compensation
The following table outlines the major elements of 2010 total compensation for our Named Executive Officers:
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Compensation
| | | | | | |
Element | | | Key Features | | | Objectives and Comments |
Base Salary | | | • Fixed compensation | | | • Intended to pay for the experience, skills and ongoing value the officer brings to the position |
| | | | | | |
| | | | | | |
Annual Incentive | | | • Variable cash compensation that is earned if pre-established annual performance goals are achieved. For 2010, the goals were operating income and working capital as a percentage of sales | | | • Builds accountability for important annual financial goals
• Payment is made only upon achievement of specified goals |
| | | | | | |
Long-Term Incentive Cash-settled Performance Units | | | • Variable cash compensation that is earned if pre-established financial goals are achieved. The 2010 goal was working capital as a percentage of sales. Awards were determined at the end of 2010 based on performance over the preceding 12-month period but payable in three years, generally subject to the officer’s continued employment | | | • Emphasizes achievement of strategic goals and objectives
• Payment is made only upon achievement of specified goals
• Avoids stock dilution
• One-year measurement period emphasizes key goals, while the three-year payout period supports our retention objective |
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| | | | | | |
Compensation
| | | | | | |
Element | | | Key Features | | | Objectives and Comments |
Stock-settled Stock Appreciation Rights | | | • Variable compensation that increases in value as our share price rises. For the 2010 grants, SARs vest one-third per year over a three-year period, generally subject to the officer’s continued employment
• Paid in PolyOne common shares | | | • Aligns goals with those of shareholders by maximizing value through increased stock price
• Requires growing stock price before any value is realized
• Increases share ownership
• Three-year vesting period supports our retention objective
• Multi-year incentive is a common market practice |
| | | | | | |
Restricted Stock Units | | | • Equity compensation that vests and is payable at the end of the three-year restriction period, subject to the officer’s continued employment
• Paid in PolyOne common shares | | | • Increases share ownership
• Three-year vesting period supports our retention objective
• Full-value grant is a common market practice |
| | | | | | |
| | | | | | |
Retirement Plans | | | | | | |
U.S. Defined Contribution Plans | | | • Tax-qualified 401(k) defined contribution plan
• Nonqualified excess 401(k) defined contribution plan | | | • Standard tax-qualified benefit offered to all employees, subject to Internal Revenue Code limits
• Restores benefits that are limited by the Internal Revenue Code in the qualified plan |
| | | | | | |
Luxembourg Defined Contribution Plan | | | • Tax-efficient defined contribution plan | | | • Mr. Baert participates in a standard tax-efficient defined contribution plan provided to Luxembourg employees |
| | | | | | |
Defined Benefit Plans (these plans have been closed to new participants since the formation of PolyOne and were frozen as of March 20, 2009) | | | • Tax-qualified defined benefit pension plan
• Nonqualified excess defined benefit plan | | | • Mr. Smith, as a 21 year employee, participates in the frozen defined benefit pension plan offered to certain employees
• Prior to March 20, 2009, restored benefits that are limited by the Internal Revenue Code in the qualified plan |
| | | | | | |
Supplemental Retirement Benefit for Mr. Newlin | | | • Non-qualified annual supplemental retirement payments, payable upon a “Qualifying Separation from Service,” payable in the form of a 15-year certain and continuous life annuity | | | • Consistent with benefits offered at peer companies
• Vesting condition supports our retention objective |
| | | | | | |
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| | | | | | |
Compensation
| | | | | | |
Element | | | Key Features | | | Objectives and Comments |
Subsidized Post-Retirement Medical Plan (this plan has been closed to new participants since the formation of PolyOne in 2000, and will be eliminated in 2013)
Post-Retirement Medical Plan (at Full Cost to Employee) | | | • Subsidized retiree medical coverage (available to certain employees)
• Retiree medical coverage provided at full cost to the retiree from ages 55 to 65. This is available to all employees who meet specified age and service requirements | | | • Mr. Smith, as a 21 year employee, is eligible to participate in this plan
• Messrs. Newlin, Patterson and Kedrowski are eligible to participate in this plan upon reaching specified age and service requirements
• Mr. Baert is a non-U.S. based employee and therefore is not eligible to participate in the Company provided retiree medical plan |
| | | | | | |
Perquisites | | | • Benefit allowance
• Financial planning and tax preparation
• Relocation benefits
• Executive physical | | | • Perquisites and relocation benefits assist in attracting and retaining executive talent
• Executive physicals help to ensure continuity of our management team |
| | | | | | |
The following discussion provides additional details aboutanalyzes the main elements of compensation for the Named Executive Officers.Officers, including specific decisions relating to 2010.
Base Salary
Merit adjustments were reinstated during 2010 after base salaries for Named Executive Officers, as well as our other officers, had been frozen in 2009. As described above,noted earlier, management recommended again for 2010 that no base salary adjustment would be provided to the Chief Executive Officer. Instead, the Committee increased Mr. Newlin’s target annual incentive opportunity in order to tie a greater portion of his pay to our policy isperformance. The Committee considered the recommendation of the Chief Executive Officer in determining the salary adjustments for each of the other Named Executive Officers. The primary factors used in determining the adjustment amounts were each executive’s individual performance and the relative position of their salary to target base pay at the market median but does allow actual pay levels to deviate from target based on performance, responsibility, experience and marketability unique to each individual. for their role. The Committee approved the following base salaries for the Named Executive Officers, with salary changes effective in May 2010:
| | | | | | | | | | | | | | | |
Named Executive Officer | | | 2009 Base Salary | | | | 2010 Base Salary | | | | Adjustment % |
Stephen D. Newlin | | | $ | 860,000 | | | | $ | 860,000 | | | | | 0% | |
|
Robert M. Patterson | | | $ | 415,000 | | | | $ | 430,000 | | | | | 3.6% | |
|
Kenneth M. Smith | | | $ | 336,000 | | | | $ | 344,000 | �� | | | | 2.4% | |
|
Thomas J. Kedrowski | | | $ | 322,000 | | | | $ | 333,000 | | | | | 3.4% | |
|
Bernard Baert | | | $ | 392,931 | | | | $ | 401,683 | | | | | 2.2% | |
|
Based on general industrythe data provided by Towers Watson, we determined that the Consultant, the2010 salaries of the Named Executive Officers range from 82%93% to 109%111% of the market median for comparable positions. For 2008, the Committee approved base salary increasespositions, with an average of 103% for theall Named Executive Officers ranging from 0% to 13.9%. For 2009, however, management recommended, and the Compensation and Governance Committee agreed, that the Named Executive Officers (and other corporate officers) would not receive any salary increases.Officers.
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Annual Incentive
The Senior Executive Annual Incentive Plan (the “Annual Plan”) was originally approved by shareholders in 2005 and includes a defined set of performance measures that can be used in determining awards under the plan. TheAnnual awards for 2010 were made under the Annual Plan. We received shareholder approval of a new Annual Plan determines how participants (including allat the 2010 Annual Meeting, and future annual awards will be made under that plan.
Consistent with our approach to use the market median as a reference point and reward our Named Executive Officers) canOfficers for achievement of specific performance objectives that would advance our profitability, the Committee approved the following target annual incentive levels for the Named Executive Officers for 2010 as follows:
| | | | | | | | | | |
Named Executive Officer | | | 2009 Annual Plan Target | | | 2010 Annual Plan Target |
Stephen D. Newlin | | | | 100 | % | | | | 110 | % |
|
Robert M. Patterson | | | | 50 | % | | | | 60 | % |
|
Kenneth M. Smith | | | | 50 | % | | | | 55 | % |
|
Thomas J. Kedrowski | | | | 50 | % | | | | 55 | % |
|
Bernard Baert | | | | 50 | % | | | | 50 | % |
|
For 2010, we continued to use the following performance measures for the Annual Plan: operating income and working capital as a percentage of sales. The Committee chose to use the same performance measures as those used in 2009 in order to continue to drive profitability, promote working capital management, improve cash flow and drive efficiency in our operations, all of which we believe lead to maximizing shareholder value. We selected these performance measures for the Annual Plan as they were the most critical elements of PolyOne’s performance for 2010. In the Annual Plan, these measures are defined as:
| | |
| • | Operating income: operating income less Sunbelt (our joint venture) operating income and less any specified special items (which consist of non-recurring items as set forth in our quarterly earnings release). |
|
| • | Working capital as a percentage of sales is calculated using the following formula: (Average 13 months of Working Capital) divided by (the sum of 12 months of sales), where Working Capital equals (1) Trade Accounts Receivable plus (2) Inventory on a First In First Out (“FIFO”) basis minus (3) Trade Accounts Payable. |
In order to place a greater emphasis on profitable growth and as a critical measure of our operating performance, for 2010 we increased the weighting on operating income from 50% to 65% and we reduced the weighting on working capital as a percentage of sales from 50% to 35%. Mr. Baert is the only Named Executive Officer with responsibility for business unit specific results within the international region, and his incentive opportunity under the Annual Plan is based on operating income for that region. The performance measures and weightings used for the Named Executive Officers in the 2010 Annual Plan were as follows:
| | | | | | | | | | | | | | | | | |
Performance Measure | | | Newlin | | | Patterson | | | Smith | | | Kedrowski | | | Baert | | |
Company Operating Income | | | 65% | | | 65% | | | 65% | | | 65% | | | — | | |
| | | | | | | | | | | | | | | | | |
Business Unit Operating Income (within International) | | | — | | | — | | | — | | | — | | | 65% | | |
| | | | | | | | | | | | | | | | | |
Consolidated Working Capital as a Percentage of Sales | | | 35% | | | 35% | | | 35% | | | 35% | | | 35% | | |
| | | | | | | | | | | | | | | | | |
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earn annualEven when faced with uncertain economic conditions at the beginning of 2010, we set aggressive goals that focused our efforts on those factors that we believe were critical to our on-going success, including profitable growth, earnings improvement, cash awards.generation from working capital, efficiencies in our operations and the continued implementation of our overall strategy. In 2008,2010, we were able to achieve maximum performance on our working capital as a percentage of sales metric by achieving 9.6%, which is considered world-class performance, and represents an improvement of 20.7% over 2009. In addition, on a consolidated basis, our performance and results under the performance measures used for the corporate staff participants in the Annual Plan (including Messrs. Newlin, Patterson, Wilson and Smith) were company operating income (80% weighting)metric exceeded the maximum performance level and company-controlled cash flow (20% weighting).
was 170.7% higher than the prior year. We viewed the targeted level of performance as very challenging to achieve, and hence the actual level of performance reflects superlative results. The attainment levels of above-target to maximum performance measures used for Messrs. Rademacherthis metric in 2010 required exceptional performance across all disciplines and Baert as participants in the Annual Plan were business unit operating income (60% weighting), company operating income (20% weighting) and company-controlled cash flow (20% weighting). The Committee chose these performance measures in order to drive profitability and promote consistency in operational performance. Goals were generally designed to reward executives for the attainment of challenging but achievable annual business goals.units.
The performance measures and targets, and the respective levels of achievement for each performance measure, under the Annual Plan for 2010 are set forth below. Payouts are capped at 200% of a participant’s award amount at target.
| | | | | | | | | | | | | |
Measure | | | Target Goal | | | | Actual Result | | | | % of Target |
Company Operating Income | | | $ | 71.9 mm | | | | $ | 68.2 mm | | | | 94.9% |
|
Company-Controlled Cash Flow | | | | 38.6 mm | | | | | 28.0 mm | | | | 72.5% |
|
BU Operating Income (Rademacher) | | | | 24.9 mm | | | | | 28.1 mm | | | | 112.9% |
|
BU Operating Income (Baert) | | | | 33.4 mm | | | | | 20.4 mm | | | | 61.1% |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | 2010 Goals | | | | | | |
| | | 2009
| | | | | | 2010
| | | 2010
|
| | | Actual
| | | Threshold
| | | Target
| | | Maximum
| | | Actual
| | | % Plan
|
Performance Measure ($ in millions) | | | Result | | | (50%) | | | (100%) | | | (200%) | | | Result | | | Attainment |
Company Operating Income | | | $ | 54.9 | | | | $ | 54.3 | | | | $ | 69.4 | | | | $ | 99.5 | | | | $ | 148.2 | | | | | 200.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated Working Capital as a Percentage of Sales | | | | 12.1 | % | | | | 12.0 | % | | | | 11.3 | % | | | | 10.6 | % | | | | 9.6 | % | | | | 200.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Business Unit Operating Income (Baert) | | | $ | 24.4 | | | | $ | 34.1 | | | | $ | 41.5 | | | | $ | 58.1 | | | | $ | 58.8 | | | | | 200.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In the Annual Plan:
| | |
| • | Operating income was defined as operating income less Sunbelt operating income and less any specified special items. |
|
| • | Company-controlled cash flow was defined as operating income less Sunbelt operating income plus depreciation and amortization plus/minus changes in average working capital less capital expenditures, interest and other expenses. |
We established target annual incentive levels for 2008 consistent with our approach described above to approximate the market median. These targeted levels are set at 100% of salary earned for Mr. Newlin and 50% of salary earned during the year for each of the other Named Executive Officers.
The target awards foractual amounts earned by the Named Executive Officers under the Annual Plan and the actual amounts earned for 2008 performance are set forth below.
| | | | | | | | | | | | | | | |
Executive | | | Target Award | | | | Earned Award | | | | % Attainment |
S.D. Newlin | | | $ | 831,731 | | | | $ | 700,650 | | | | | 84.2% | |
|
R.M. Patterson | | | | 127,692 | (1) | | | | 107,568 | | | | | 84.2% | |
|
W.D. Wilson | | | | 131,619 | (1) | | | | 110,876 | | | | | 84.2% | |
|
K.M. Smith | | | | 166,654 | | | | | 140,389 | | | | | 84.2% | |
|
M.L. Rademacher | | | | 158,654 | | | | | 204,663 | | | | | 129.0% | |
|
B. Baert(2) | | | | 207,721 | | | | | 63,064 | | | | | 30.4% | |
|
| | |
| (1) | For the portion of the year the Named Executive Officer was with PolyOne. |
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| | |
| (2) | Mr. Baert’s compensation is based in Euros and has been converted to dollars using the conversion rate of €1.00 = $1.4096, which is the conversion rate used in our Annual Report onForm 10-K for the fiscal year ended December 31, 2008. |
Achievement of a performance goal at the threshold level for 2008 would result in payment of 50% of the targeted award for that particular performance goal; achievement of a performance goal at the target level would result in payment of 100% of the targeted award for that performance goal; and, achievement at the maximum level or greater would result in payment of 200% of the targeted award for that goal. The awards are interpolated if performance falls between the levels. The actual amount awarded to the Named Executive Officers for 2008 ranged from 30.4% of the targeted amount to 129.0% of the targeted amount. The actual amounts earned under the Annual Plan for 2008 are included in the Non-Equity Incentive Plan Compensation column of the 2010 Summary Compensation Table.
The Annual Plan, as it applies to the Named Executive Officers, is structured to comply with Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). In order to qualify the amounts earned under the Annual Plan as “performance-based,” the Committee may exercise discretion only to reduce an award. The Annual Plan is structured so that achievement of the threshold level of performance in any of the measures described above will result in the funding of the plan at maximum. Actual awards are calculated using the Plan formula described above and if funded at maximum as described above, the maximum awards are reduced, as necessary, to deliver awards that are consistent with the attainment levels that were achieved for management incentive plan participants. For aCode. A more detailed discussion of Section 162(m) of the Internal Revenue Code seeappears in the “Tax Considerations” section of this report.below.
For 2009, to place a greater emphasis on managing cash, the weighting for operating income was reduced from 80% to 50% and a new measure, working capital as a percentage of sales, was introduced with a 50% weighting. Operating income continues to be an important measure of our performance. Managing cash and working capital improvement, however, are critical imperatives given the 2009 global economic environment. We also lowered the level of payment for achievement of threshold performance from 50% of the targeted award to 30% of the targeted award. The level of attainment required to reach the threshold performance, however, was not lowered.
Long-Term Incentive
The 2005 Equity and Performance Incentive Plan was approved by shareholders in 2005 and permits a variety of types of incentive awards. We used the shares authorized under this plan in making our long-term incentive awards in 2008 (except for awards made to Mr. Patterson). In May of 2008, our shareholders approved a new equity plan, the 2008 Equity and Performance Incentive Plan and this will be the plan(the “2008 Plan”), which was used to make equity incentive awards in 20092010. Our shareholders approved the 2010 Equity and in future years untilPerformance Incentive Plan (the “2010 Plan”) at the authorized shares are depleted. No further2010 Annual Meeting. Our 2011 Long-Term Incentive Plan grants canwill be made under the 2005 Equity and Performance Incentive2010 Plan.
| |
(1) | Awards Granted in 2008 |
Long-Term Incentive Plan targets are established with consideration of market median levels for each Named Executive Officer’s position and are intended to reward them for achievement of specific performance objectives.
Awards Granted in 2010
In March 2008,February 2010, we granted long-term incentive awards were granted under the 2005 Equity and Performance Incentive2008 Plan using three vehicles, with the allocation of the award values roughly as follows: 40%36% of the award’s value was allocated to performance units for the 2010 performance period,2008-2010, 30% was allocated to stock-settled SARs and 30%34% was allocated to RSUs. We chose this mix in order to provide balance between the relative values of the three components and efficiently use the shares available under the 2008 Plan.
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| | |
| • | Cash-Settled Performance Units |
Cash-Settled Performance Units
The performance units granted in March 2008February 2010 will be paid in cash, subject toconsistent with past practice, and were based on achievement of performance goals relating to company earnings per share for the three-year period from January 1, 2008 through December 31,our working capital as a percentage of sales during 2010.
The Committee selected earnings per shareworking capital as a percentage of sales as the performance measure in order to reinforce our focus on improvementimproving working capital. In 2010, we again elected to use a one-year measurement period for performance units in overall company profitability. Generally,order to sustain our working capital performance attained in 2009, continue our focus on generating cash and in acknowledgement of the Committee setsignificant continued economic uncertainty at the targettime the goals were set. The attainment level for the performance measure consistent withunits is determined at the level established underend of the projections for a three-year financial plan. The Committee believes that the budgeted level reflects a challengingmeasurement period, but obtainable target. If the targeted level of achievement for the performance measure were obtained, this would represent a significant improvement over the level attained in previous years. The targeted level is intended to be achievable, but a maximum level of performance would require an extraordinary level of performance, which we believe is possible but unlikely to be achieved. Given that weawards generally do not provide earnings guidance, we believe that disclosure of our actual earnings per share targetsbecome vested for the performance units would cause competitive harm. In setting the applicable target level, the Committee considers how achievement of the performance criteria could be impacted by events expectedthree years, in order to occur in the coming years.serve as a retention vehicle.
If we were to achieveUpon achievement of the target performance level, a participant would earn a target-level award; if we were to attainthe target amount of performance units; attainment of only the threshold performance level would earn 50% of the target award would be earned;award; and if we were to attainattainment of the maximum performance level or greater earns the participant would earn 200% of the target award. If ourfinal performance fellfalls between the threshold and target or between target and maximum, earningsearned award amounts under the plan would be interpolated. If threshold performance is not achieved, no award willwould be paid to the participants. For performance units granted in 2010, we were able to achieve working capital as a percentage of sales equal to 9.6%, which equated to a maximum level of performance. We believe this level of performance influenced the improvement in our stock price during the course of the year, benefiting both PolyOne and our shareholders, and positioned us well for future success. Performance goals at the threshold, target, and maximum levels for the 2010 performance units are shown below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | 2010 Goals | | | | | | |
| | | 2009
| | | | | | 2010
| | | 2010
|
| | | Actual
| | | Threshold
| | | Target
| | | Maximum
| | | Actual
| | | % Plan
|
Performance Measure | | | Result | | | (50%) | | | (100%) | | | (200%) | | | Result | | | Attainment |
Working Capital as a Percentage of Sales | | | | 12.1 | % | | | | 12.0 | % | | | | 11.3 | % | | | | 10.6 | % | | | | 9.6 | % | | | | 200 | % |
|
The performance unit amounts at maximum for the Named Executive Officers under the Long-Term Incentive Plan are set forth in the 2010 Grants of Plan-Based Awards table.
Stock-Settled SARs
To continually reinforce our ongoing commitment to enhancing shareholder returns, 30% of the long-term incentive opportunity awarded in March 2008 to executives, includingvalue, the Named Executive Officers consistsreceived an award of SARs that, when exercised by the holder, are settled in our common shares. The SARsEach SAR granted in March to allour Named Executive Officers excluding Mr. Patterson, havein February 2010 has a base price of $6.765.$7.99, the closing market price of our common stock on the date of grant. All SARs granted in 20082010 vest in equal installments over three years and have an exercise term of seven years, whichyears. The exercise term is shorter than typical market practice.practice in an effort to control dilution.
Restricted Stock Units
To promote share ownership and enhance the retention of our executives, we granted RSUs in February 2010 to all Named Executive Officers. The SARsRSUs vest one-thirdon the third anniversary of the grant date.
Awards Granted in Prior Years
In February 2011, the Committee approved the payout of performance units granted at the start of 2008 for performance during the period2008-2010. These performance units were based on achievement of performance goals related to our earnings per yearshare over three years. Mr. Patterson’sthe three-year period. The
28
Named Executive Officers received a cash award based on an attainment of SARs was part110.3% of histhe target level performance for this goal.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Goals | | | | | | | | | |
| | | Threshold
| | | | Target
| | | | Maximum
| | | | | | | | | |
Performance Measure | | | (50%) | | | | (100%) | | | | (200%) | | | | Actual Result | | | | %Attainment | |
Earnings Per Share | | | $ | 1.50 | | | | $ | 1.63 | | | | $ | 2.31 | | | | $ | 1.70 | | | | | 110.3 | % |
|
All equity awards outstanding as of December 31, 2010 are set forth in the Outstanding Equity Awards at 2010 Fiscal Year-End Table in this proxy statement.
Retirement Benefits
We offer the following retirement benefits to eligible employees and certain Named Executive Officers as specified. Additional details of employment and has a base price of $7.72.these plans, as they apply to the Named Executive Officers, are included in the narrative to the 2010 Pension Benefits Table.
To conserve shares under our equity plan, promote share ownership and enhance the retention of our executives, 30% of the long-term incentive opportunity awarded in March 2008 consists of three-year cliff-vested RSUs. The RSUs granted in March to all Named Executive Officers vest 100% in three years from date of grant. The RSUs granted to all the Named Executive Officers, except Mr. Patterson, were valued at $6.765 at the time of grant and this was the price used in determining the size of the grant. The RSUs granted to Mr. Patterson were valued at $7.72 for this same purpose.
| |
(2) | Awards Granted in Prior Years |
In February 2009, the Committee approved the payout of performance units relating to the long-term incentive award that was granted in 2006, for the2006-2008 performance period. The performance units were based on achievement of performance goals related to cash flow, debt to EBITDA and return on invested capital. Each of these performance measures represented 20% of the participant’s total Long-Term Incentive opportunity. The Named Executive Officers, except
23
Mr. Patterson, received a cash award based on the attainment of these established goals, as set forth in the table below.
| | | | | | | | | | | | | | | | |
| | | Goals | | | | | |
Measure | | | Threshold | | | Target | | | Maximum | | | % Attainment | | |
Cash Flow | | | $225 mm | | | $280 mm | | | $400 mm | | | | 0 | %(1) | | |
|
Debt to EBITDA
| | | 4 quarters 3.00
| | | 6 quarters 3.00
| | | 6 quarters 3.00 and 4 of 6 | | | | 100 | %
| | |
| | | | | | | | | quarters 2.50 | | | | | | | |
|
Return on Invested Capital | | | 10% | | | 14% | | | 17% | | | | 0 | % | | |
|
| | |
(1) | | Management recommended, and the Committee agreed, that the proceeds from the sale of our interest in Oxy Vinyls in 2007 would not be included in the cash flow attainment. As a result, threshold performance was not attained. |
All outstanding equity awards are set forth in the 2008 Outstanding Equity Awards at Fiscal Year-End table in this proxy statement.
| |
(3) | Awards Granted in 2009 |
The awards granted in 2009 are designed to address the current economic conditions facing the Company, the need for an increased focus on generating cash, and the goal of maintaining a consistent structure with the long-term incentives granted in prior years.
The Committee determined that cash-settled performance units would again be granted in 2009 based on the same formula for determining target opportunity used in 2008, but that the performance units would be earned only upon achievement of performance goals relating to working capital as a percent of sales, consistent with the Annual Plan. To focus on the near-term cash needs of the Company, performance will be measured over a one-year period (for 2009 only) and, to enhance retention, the performance units will only be paid if the participant continues to be employed on the third anniversary of the date of grant. In addition, to align the award payment level with the progress attained in working capital improvements, the performance units were structured such that achievement of threshold performance will result in a payout of 30% of the targeted award, instead of 50%. The actual level of performance required to achieve threshold performance, however, was not adjusted.
Further, the Committee determined that it would again grant stock-settled SARs and full value stock awards, but that for the grants made in 2009, there would be performance conditions tied to the vesting of these awards.
In determining the number of SARs and performance shares to be granted, the Committee modified its approach in 2009 to address the current economic conditions. As described above, in prior years, the Company’s practice was to grant each participant a long-term incentive award with a target value based on market median and to determine the number of SARs and restricted stock units to deliver that pre-determined value. Due to the decline in our stock price and the desire to preserve shares under our 2008 Equity and Performance Incentive Plan (the “2008 Plan”), the Committee reduced the value of the long-term incentives in 2009 such that only 50% of the available shares under the 2008 Plan would be used. As a result, the values of the Named Executive Officers’ long-term incentive grants in 2009 were 38% below the target market median opportunity.
24
This approach balances the perspectives of shareholders and participants by providing additional shares to incent the participants, but at a lower total targeted value than in 2008.
For 2009, the long-term incentive awards consist of the following:
| | |
| • | 65% — cash-settled performance unitsA defined contribution retirement benefit available to all U.S. employees through an Internal Revenue Code tax-qualified profit sharing/401(k) plan (the “Qualified Savings Plan”); |
|
| • | 14% — performance-vested, stock-settled SARsAn unfunded, nonqualified plan that provides benefits similar to the Qualified Savings Plan (the “Nonqualified Savings Plan”), but without the Internal Revenue Code contribution and earnings limitations; |
|
| • | 21% — performance shares |
The terms of each component of the 2009 long-term incentive award are as follows:
| | |
| • | The performance units are earned based on achievementA standard defined contribution retirement benefit plan provided to all Luxembourg employees, of goals relating to working capital overwhich Mr. Baert is a one-year performance period but paid three years from date of grant. Achievement of threshold performance will result in a payout of 30% of the target award, achievement of target performance will result in a payout of 100% of the target award, and achievement of maximum performance will result in a payout of 200% of the target award.participant; |
|
| • | The SARs granted haveA company-funded Internal Revenue Code qualified defined benefit pension plan (the “Qualified Pension Plan”), as well as an unfunded, nonqualified defined benefit pension plan (the “Benefit Restoration Plan”), under which Mr. Smith is eligible, along with certain other employees, to receive frozen benefits. In addition, since becoming retirement eligible (55 years of age with 10 years of service), Mr. Smith is eligible to receive certain retiree medical benefits for which he will be required to pay a term of seven years and will vest one-third on the attainment of 10%, 20% and 30% stock appreciation (which must be attained for a minimum of three consecutive trading days), with no more than one-third vesting per year for the first three years. Consistent with the termssubstantial portion of the 2008 Plan, the grant price for the SARs was set based on the closing market price of the SARs on the date of grant (March 5, 2009).cost; |
|
| • | Each performance share is equal in value to one share of PolyOne common stock and the performance shares will pay outA supplemental retirement benefit for Mr. Newlin that provides annual supplemental retirement payments, payable in the form of our common shares ona15-year certain and continuous life annuity, conditioned upon his execution of a one-for-one basis. The performance shares will vest one-third on the attainment of 10%, 20%release and 30% stock appreciationwaiver and upon a “qualifying separation from the closing price on the grant date (which must be attained for a minimum of three consecutive trading days) during a three-year performance period. Vested shares will be distributed on the third anniversary of the grant. If the price hurdles are not met, no award will be earned.service”. |
Retirement BenefitsEmployment Agreements with Named Executive Officers
Messrs. Newlin and Baert are party to employment agreements with us, as described below. We do not maintain employment agreements with any of the other Named Executive Officers, although each of our Named Executive Officers is party to a Continuity Agreement, as described in “Potential Payments Upon Termination orChange-in-Control” below.
Mr. Newlin
On February 6, 2006, we entered into an agreement with Mr. Newlin, under which he serves as our Chairman, President and Chief Executive Officer. We offer a defined contribution retiremententered into this agreement in order to attract Mr. Newlin to PolyOne and set the terms of his employment. The agreement provided for specified equity awards, intended to serve as an inducement to join PolyOne, for Mr. Newlin’s initial base salary and for his participation in our various long-term incentive and benefit to all U.S. employees through an Internal Revenue Code tax-qualified profit sharing/401(k) plan (the “Qualified Savings Plan”). The Qualified Savings Planplans in effect during the term of his employment. In addition, the agreement provides employees with individual retirement accounts funded by (1) an automatic Company-paid contribution of 2% of eligible earnings for all employees, (2) a Company-paid match on employee 401(k) contributions equal to dollar-for-dollar on the first 3% of earnings the employee contributes plus $0.50 per dollar on the next 3% of earnings the employee contributes, and (3) for certain heritage employees, an additional automatic company-paid contribution (Transition Contribution) of up to 4% of eligible earnings. Of the Named Executive Officers, only Messrs. Wilson and Smith receive this contribution in the amount of 4% and 3.25%, respectively. Effective March 20, 2009, the heritage additional automatic company-paid contribution will be eliminated for all participants. The Internal Revenue Code limits employee contributions to the Qualified Savings Plan to $15,500 and earningspayments upon which employee/company contributions are based to $230,000 in 2008.
The PolyOne Supplemental Retirement Benefit Plan (the “Nonqualified Savings Plan”) is an unfunded, nonqualified plan that provides benefits similar to the Qualified Savings Plan, but without the Internal Revenue Code contribution and earnings limitations. Together these plans are intended to provide the Named Executive Officers with retirement income equivalent to that provided to all other employees under the Qualified Savings Plan. As a result, the Named Executive Officers can
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expect a retirement income that replaces a portiontermination of their income while employed similarMr. Newlin’s employment, as described more fully in “Potential Payments Upon Termination orChange-in-Control” below. In July 2008, Mr. Newlin’s agreement was amended to that received by all other employees participating in the Qualified Savings Plan who are not impacted by the Internal Revenue Code limitations of the Qualified Savings Plan.
Mr. Baert is based outside the United States and does not participate in the Qualified Savings Plan or the Nonqualified Savings Plan. Mr. Baert participates in a standard defined contribution retirement benefit plan generally provided to all Belgium employees (except that some employees hired prior to May 2003 (other than Mr. Baert) elected to remain in the Belgium defined benefit plan previously offered as the standard retirement plan). The plan provides employees with individual retirement accounts funded by (1) an automatic Company paid contribution of 5% of base pay up to a salary limit plus 15% of base pay in excess of the salary limit, and (2) employee contributions of 5% of base pay above that salary limit. The salary limit, which is indexed annually, was €40,150provide for 2008.
During 2008, the Committee reviewed the CEO’s total compensation package among the peer companies and across the broader general industry. The Committee determined that it was in the best interests of the Company and our shareholders to provide a supplemental retirement benefit, for Mr. Newlin that would be competitive with industry practicesas described above and serve as an additional retention vehicle. Thus, Mr. Newlin’s Letter Agreement (which providesmore fully in the narrative for the terms2010 Pension Benefits Table.
Mr. Baert
In connection with the change in location for our European headquarters, PolyOne Luxembourg s.à r.l., our wholly owned subsidiary located in Luxembourg, entered into an employment agreement with Bernard Baert, effective September 1, 2009. It is customary in Luxembourg that we maintain an agreement with each of our employees, including Mr. Newlin’s employment) was amended on July 16, 2008 to include certain retirement benefits. Specifically,Baert. Among other things, the Letter Agreement was amended to provideagreement provides that upon a Qualifying Separation from Service, Mr. NewlinBaert will be entitled to annual supplemental retirement payments, payable ina monthly base salary of €24,708, daily meal vouchers and the form of a15-year certain and continuous life annuity, conditioned upon Mr. Newlin’s executionuse of a releasecompany car. Under the agreement, Mr. Baert may also be eligible to participate in our Annual Plan and waiver. If Mr. Newlin dies or incurs a Disability prior to a Qualifying Separation from Service, he or his designated beneficiary also will be entitledincluded in a defined contribution benefits cafeteria plan established by PolyOne Luxembourg. Pursuant to certain supplemental retirement payments. Generally, Mr. Newlin will be considered to have a Qualifying Separation from Service if (1) he attains the age of 55 and has at least five years of service with the Company, serving as Chairman and Chief Executive Officer at the time of his retirement (provided that if the Board, in its sole discretion, has identified a suitable successor for the position of Chief Executive Officer, he only needs to be serving as Chairman at the time of his retirement) and the PolyOne Board of Directors, in its sole discretion, has identified a suitable successor to the position of Chief Executive Officer; or (2) Mr. Newlin’s employment is involuntarily terminated other than for serious cause or Mr. Newlin terminates employment for good reason following a change of control of the Company. Under the terms of the amended Letter Agreement, he will also be treatedagreement, Mr. Baert has agreed not to compete with us for a period of twelve months after termination of the agreement. Mr. Baert’s agreement provides for certain payments upon termination of Mr. Baert’s employment, as a retiree for purposesdescribed more fully in the “Potential Payments Upon Termination orChange-in-Control” section of any SARs, RSUs, performance shares and performance units awarded to him as long-term incentive awards. In addition, he and his eligible dependents will have access to the same retiree medical benefits made available to all retirement eligible employees under our standard retiree medical benefit program, to the extent we continue to maintain such programs for the benefit of our retirees and their eligible dependents. Mr. Newlin will forfeit his rights to receive the supplemental retirement payments and retiree medical benefits if he engages in any conduct prohibited by his non-competition agreement or any acts that constitute fraud, embezzlement, and disclosure of confidential information or deliberate dishonesty.this proxy statement.
Messrs. Wilson and Smith are also eligible, along with certain other legacy employees, to receive pension payments under a company-funded Internal Revenue Code qualified defined benefit pension plan as well as an unfunded, nonqualified defined benefit pension plan (the “Qualified Pension Plan” and “Nonqualified Pension Plan,” respectively). In addition, upon becoming retirement eligible (55 years of age with 10 years of service), Messrs. Wilson and Smith will be eligible to receive certain retiree medical benefits for which they will be required to pay a portion of
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the cost. These plans existed prior to our formation in 2000 through the consolidation of Geon and M.A. Hanna and generally benefited all nonunion employees of Geon.
The amount of Messrs. Wilson’s and Smith’s pension depends on a number of factors including monthly Final Average Earnings (“FAE”) and years of benefit service to us (“Benefit Service”). The Qualified Pension Plan provides a monthly lifetime benefit equal to 1.15% times FAE times Benefit Service plus 0.45% times FAE in excess of 2002 Covered Compensation (as defined by the Internal Revenue Code) times Benefit Service limited to 35 years.
The Nonqualified Pension Plan is similar to the Nonqualified Savings Plan in that it restores benefits lost in the Qualified Pension Plan due to Internal Revenue Code limitations on earnings and benefits. The Nonqualified Pension Plan benefit formula is the same as the Qualified Pension Plan except without the Internal Revenue Code qualified plan earnings limitations. The Nonqualified Pension Plan benefit is offset by the Qualified Pension Plan benefit.
The Qualified Pension Plan and Nonqualified Pension Plan were frozen to new entrants effective December 31, 1999. Benefit Service was frozen effective December 31, 2002 in both plans and, effective March 20, 2009, earnings under both plans will be frozen for all participants. We decided to freeze these plans following a comprehensive retirement benefits review, during which the Committee examined whether our retirement programs were consistent with company goals, including fairness to all associates and competitiveness in the marketplace. With this change, we will have a single and competitive retirement plan for ourU.S.-based employees.
Messrs. Patterson, Rademacher and Baert do not participate in a defined benefit plan.
Perquisites
We provide certainminimal perquisites to the Named Executive Officers, which we believe are competitive with the companies with which wenecessary to compete for executive talent. These perquisites for thosethe Named Executive Officers based in the United States includeconsist of a monthly car allowance (except for Mr. Patterson), reimbursement of expenses for financial planning and tax preparation, an annual physical examination, and group insurance providing excess liability umbrella insurance coverage in an amount equal to $5 million. For Mr. Baert, perquisites typical and competitive with companies in Europe include a company provided automobile, meal and entertainmentbenefit allowance, reimbursement of expenses for financial planning and tax preparation, and group insurance providing excess liability umbrella insurance coveragean annual physical examination. The perquisites for Mr. Baert, which are typical and competitive with companies in an amount equal to $5 million.Europe, include a PolyOne-provided automobile, meal and entertainment allowance, and reimbursement of expenses for financial planning and tax preparation. The specific amounts attributable to perquisites for 20082010 for the Named Executive Officers are disclosed in the 2010 Summary Compensation Table.
We made several changes to the perquisites provided to the Named Executive Officers based in the United States that were effective beginning January 2010. We eliminated the car allowance, cancelled the excess liability insurance coverage, and eliminated taxgross-ups on all perquisites and replaced them with a benefit allowance. We intend that benefit allowances will not be provided to new executives. The benefit allowance and reimbursement of expenses for financial planning and tax preparation in 2010 and future years will be treated as taxable income to the Named Executive Officers. These changes were made in response to market trends that indicated companies were reducing or eliminating these types of benefits.
Mr. Patterson wasNewlin and Mr. Kedrowski were eligible for reimbursement of histheir relocation expenses under our standard relocation plan. During 2008,2010, we reimbursed Mr. PattersonNewlin and Mr. Kedrowski for moving expenses associatedand also provided them with closing costsa taxgross-up on his home that he purchased near our headquarters and other incidental relocation expenses.
We believe thatall or a portion of these perquisites that we provideamounts. Details of these amounts are consistent with market practices for senior executives and further our goals by retaining our leaders.set forth in the All Other Compensation column of the 2010 Summary Compensation Table.
We also provide other benefits such as medical, dental and life insurance and disability coverage to eachU.S.-based Named Executive Officer, which are identical to the benefits provided to all other eligibleU.S.-based employees. Medical, dental and life insurance coverage forprovided to Mr. Baert is identical to the benefits provided to all other Belgium-basedLuxembourg-based employees. We also provide vacation and paid holidays to all employees, including the Named Executive Officers. The Named Executive Officers arewere eligible for the following vacation:vacation in 2010: Mr. Newlin — five weeks, Mr. Patterson — four
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weeks, (pro-rated from his hire date), Mr. WilsonPatterson — sixfour weeks, (pro-rated through his termination date), Mr. Smith — five weeks, Mr. RademacherKedrowski — four weeks and Mr. Baert — 26 days.
We do not provide or reimburse for personal country club memberships for any Named Executive Officer. We do maintain a corporate membership to a country club that is used for customer entertainment and other business purposes. We pay the monthly dues for this membership and incur expenses only for these business purposes. Any personal use of this facility by a Named Executive Officer is at the officer’s personal expense, with no incremental cost to us.
2011 Total Compensation Oversight Processes
Salary Adjustments
During the first quarter, the Committee typically reviews executive compensation marketplace data provided by the Consultant. The resulting report benchmarks our executive compensation compared to our peer group and the market in general. In addition, the Committee reviews tally sheets that contain information regarding the executives’ total annual compensation, termination benefits and wealth accumulation. A more detailed description of the tally sheets is provided under the heading “Review of Tally Sheets.”
In the first quarter of the calendar year, based upon individual performance and results achieved, the Chief Executive Officer typically recommends forFor 2011, the Committee’s review and approval specific salary adjustmentsof final terms for eachboth the Annual Plan and the Long-Term Incentive Plan took place in the fourth quarter of 2010. The Committee also reviewed the executive officers, including thecompensation levels for our Named Executive Officers. The Chief Executive Officer makes his recommendations in conjunction withOfficers and compared them to the marketplacepeer group proxy data and inputsurvey data provided by the Consultant. The Committee sets the target compensation at or near the median, with adjustments to account for our specific facts and circumstances. Based upon the Chief Executive Officer’s recommendation, in March 2008, the Committee increased the salaries of Messrs. Smith, Rademacher and Baert effective in the first pay period in April 2008.Towers Watson.
2011 Base Salaries
In 2008,recognition of the significant role Mr. Newlin played in transforming PolyOne into a high-performing company, the Committee determined, based on marketplace data andapproved an adjustment to Mr. Newlin’s tally sheet data, that a 13.9% increase inannual base salary, was appropriate.effective January 1, 2011, from $860,000 to $950,000. Prior to this adjustment, Mr. Newlin’s base salary had not changed since March 2008. In the Committee’s judgment, the total compensation package provided to Mr. Newlin, as described under the heading “Employment Agreement of the ChiefAgreements with Named Executive Officer,”Officers” above, is appropriate in order to fairly compensate and retain our Chief Executive Officer.Mr. Newlin.
In 2009, management recommendedJanuary 2011, Mr. Patterson was promoted to Executive Vice President and Chief Financial Officer, taking on additional responsibilities of supporting the growth of our global businesses in Asia. As a result, the Committee agreed,approved an adjustment to his annual base salary, from $430,000 to $475,000 in order to recognize his increased responsibilities.
2011 Annual Incentive
In light of Mr. Patterson’s promotion, an increase in his target incentive opportunity under the Annual Plan was also approved from 60% to 65%. This change was made to keep Mr. Patterson’s annual incentive target in line with the market median in recognition of his new level of responsibilities.
The Committee determined that duewe will fundamentally maintain the same design as 2010 for the Annual Plan. Performance measures will continue to the deteriorating global economybe operating income and in an attempt to manage costs,working capital as a percentage of sales with current weightings maintained. For Named Executive Officers who have responsibility for a business unit, the working capital measure will be applied to relate only to the working capital performance for their specific business unit, as well as other officersopposed to the consolidated number for the Company. Having the executive be accountable for the specific performance of the Companyapplicable business unit will have their base salary frozen for 2009.
Plan-Based Awards
Inmore closely align the fourth quarter,executive’s responsibilities with his 2011 Annual Plan award. We believe that the Committee typically reviews period-to-date performance and estimates of incentive payouts for the in-progress performance periods. In the first quarter of the following year, the Committee evaluates actual performance against pre-set goals and determines earnings under just-completed plan periods. Generally, the Committee approves payouts based on pre-set performance criteria and will not exercise discretion to increase an award. The Committee, however, has exercised its discretion to reduce an award.
In addition, in the first quarter, the Committee and management typically review competitive total compensation data provided by the Consultant. Management uses the data to develop recommendations for eligibility, award opportunities, performance measures andestablished goals for the 2011 Annual Plan are challenging, yet achievable upon exceeding 2010 performance levels.
2011 Long-Term Incentive Plan
We are maintaining the same plan design with RSUs, SARs and performance units in 2011. In 2009 and 2010, we had one-year performance periods for performance units, and in 2011, we are returning to commence the subsequent year for the Committee’s review.a three-year performance period(2011-2013). The Committee approves final termsdetermined that cash-settled performance units would be earned upon achievement of an earnings per share performance goal. To promote retention, the planperformance units will only be earned if the performance goal is achieved and the participant continues to be employed at the time the awards are paid in 2014, except in the first quartercase of the plan year.death, disability and retirement.
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Review of Tally Sheets
The Committee and management have reviewed and considered tally sheets in connection with compensation decisions. Tally sheets, including all components of compensation, are reviewed byFurther, the Committee determined that it would grant stock-settled SARs and full value RSUs to determinepromote stock price appreciation, increase shareholder value and enhance retention. In determining the reasonablenessnumber of SARs and RSUs to be granted, the compensationCommittee used the market median as a reference point in determining the value of our executive officers. Tally sheets are created collaboratively by the Consultant and our Human Resources department.
The tally sheets provide information regarding the Named Executive Officers’ as well as other officers’ total annual compensation, termination benefits and wealth accumulation. Total annual compensation includes: salary, annual incentive, long-term incentive perquisites, and retirement benefits. This information is comparable to the amounts reported in the Summary Compensation Table. Payments under various forms of termination are reviewed and disclosed elsewhere in this proxy statement.awards.
For 2011, the long-term incentive award design and critical components are summarized as follows:
| | |
| • | The cash-settled performance units are earned based on achievement of goals relating to earnings per share over a three-year performance period and vest three years from date of grant, generally subject to continued employment. Achievement of threshold performance will result in a payout of 50% of the target award, achievement of target performance will result in a payout of the target award, and achievement of maximum performance will result in a payout of 200% of the target award (performance units represent a target of 37% of total grant value). |
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| • | The SARs granted will now have a term of ten years, as opposed to our previous seven-year term, reflecting the easing of dilution issues associated with the Company’s relatively low stock price and in order to better align with market practice, and will vest one-third each year on the anniversary date of the grant. The base price for the SARs is the closing market price of our common stock on the date of grant (February 16, 2011) (SARs represent a target of 31.5% of total grant value). |
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| • | Each RSU is equal in value to one share of our common stock and the RSUs will pay out in the form of our common shares on aone-for-one basis. The RSUs will vest in full on the third anniversary of the date of grant (RSUs represent a target of 31.5% of total grant value). |
In order to align compensation more closely with the market and to focus participants on the long-term performance goals critical to our success and that of our shareholders, the Committee approved an adjustment to the target Long-Term Incentive Plan opportunity for the Named Executive Officers during the first quarter of 2011, as follows:
| | | | | | | | | | |
Long-Term Incentive Plan |
| | | 2010 Target
| | | 2011 Target
|
| | | (as a percentage of
| | | (as a percentage of
|
Named Executive Officer | | | Base Salary) | | | Base Salary) |
Stephen D. Newlin | | | | 300 | % | | | | 350 | % |
|
Robert M. Patterson | | | | 120 | % | | | | 135 | % |
|
Kenneth M. Smith | | | | 90 | % | | | | 100 | % |
|
Thomas J. Kedrowski | | | | 90 | % | | | | 100 | % |
|
Bernard Baert | | | | 90 | % | | | | 100 | % |
|
Tax Considerations
Cash compensation, such as base salary or annual incentive compensation, is taxable to the recipient as ordinary income when earned, unless deferred under a company-sponsoredCompany-sponsored deferral plan. Deferrals under tax-qualified plans, such as a 401(k) plan, do not affect our current tax deduction. Deferrals under supplemental executive deferral plans delay our tax deduction until the deferred amount (and any accumulation thereon) is paid. Stock-settled SARs are generally taxable as ordinary income when exercised and performance shares, RSUs and performance units and performance shares are generally
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taxable when paid. We realize a tax deduction at that time. The Committee does reviewreviews potential tax implications before making decisions regarding compensation.
Management and the Committee are aware of Section 162(m) of the Internal Revenue Code, which generally limits the deductibility of executive pay in excess of one million dollars for certain Named Executive Officers, and which specifies the requirements for the “performance-based” exemption from this limit. The Committee generally manages our incentive programs to qualify for the performance-based exemption. It also reserves the right to provide compensation that does not meet the exemption criteria if, in its sole discretion, it determines that doing so advances our business objectives. We believe the compensation paid to our Named Executive Officers in 2008 is fully deductible.
Accounting Considerations
When reviewing preliminary recommendations and in connection with approving the terms of a given incentive plan period, management and the Committee review and consider the accounting implications of a given award, including the estimated expenseand/or dilutive considerations. Depending upon the type of accounting treatment associated with an incentive plan design, management and the Committee may alter or modify the incentive award due to the accounting treatment if the award (and the related accounting consequences) were to adversely affect our financial performance.
Employment Agreement of the Chief Executive OfficerCompensation Governance
On February 6, 2006, we entered into an agreement with Mr. Newlin, under which he agreed to serve as our Chairman, President and Chief Executive Officer. The agreement provided for specified awards intended to serve as an inducement to join the company, for Mr. Newlin’s initial base salary and for his participation in our various long-term incentive and benefit plans in effect during the term of his employment. Mr. Newlin also received a grant of a two-year cash incentive, consisting of phantom units subject to the achievement of specified performance goals over a two-year period(2006-2007), with each unit being equal in value to one share of our common stock. The terms of
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the units, as amended, provide that payout will not be less than the targeted number of units (87,000) at the grant date stock price of $9.185. The phantom units were paid out in cash at the targeted number of units in March 2008 and this payout is reflected in the Summary Compensation Table as “Non-Equity Incentive Plan Compensation” in 2007.
In addition, the agreement provides for certain payments upon termination of Mr. Newlin’s employment, as described more fully in the “Potential Payments Upon Termination orChange-in-Control” section of this proxy statement. In October, 2007, this agreement was amended to ensure that any payments made pursuant to the agreement were in compliance with Section 409A of the Internal Revenue Code.
Mr. Newlin’s agreement also provides for a supplemental retirement benefit, as described more fully in this Compensation Discussion and Analysis under the heading “Retirement Benefits.”
Termination Payments for Other Named Executive Officers
Effective May 25, 2006, the Committee approved the PolyOne Corporation Executive Severance Plan (the “Executive Severance Plan”) that is designed to provide severance protection to certain officers who are expected to make substantial contributions to our success and thereby provide for stability and continuity of operations. Under the terms and conditions of the Executive Severance Plan, officers are entitled to receive Severance Payments upon their termination of employment for reasons other than cause, death or disability. The plan details and estimates of these payments are provided in the “Potential Payments Upon Termination orChange-in-Control” section of this proxy statement. These severance benefits are contingent upon our receipt of a signed release of all claims against us and signed non-compete, non-solicitation and non-disparagement agreements.
In May 2008, it was decided that Mr. Wilson would cease serving as Chief Financial Officer. From May 12, 2008 until September 9, 2008, Mr. Wilson continued to serve as Senior Vice President to transition responsibilities to our new Chief Financial Officer. On September 9, 2008, Mr. Wilson terminated from service. Consistent with our Executive Severance Plan, Mr. Wilson receives two years of base salary, earned incentives under the Annual Plan through his termination date, continued medical, dental and vision for two years and outplacement benefits for one year. In addition, we entered into a consulting agreement with Mr. Wilson. Pursuant to the terms of this agreement, Mr. Wilson rendered services to us related to projects designated by the Compensation and Governance Committee of the Board of Directors and otherwise on an as-needed basis. We paid Mr. Wilson in consideration of his performance of the consulting services a total of $14,940. The term of Mr. Wilson’s consulting agreement ended on December 31, 2008.
Change of Control Payments
We have entered into management continuity agreements (“Continuity Agreements”) with all of our elected corporate officers, including each of the Named Executive Officers. These agreements are designed to provide severance protection should a change of control of PolyOne occur and the executive officer’s employment be terminated either by us without cause or by the executive for good reason (as defined in the agreements). Generally, a change of control will be deemed to have occurred if (1) any person becomes the beneficial owner of 25% or more of the combined voting power of our outstanding securities (subject to certain exceptions); (2) there is a change in the majority of our Board of Directors; (3) certain corporate reorganizations occur where the existing shareholders do not retain more than 60% of the common shares and combined voting power of the outstanding voting securities of the surviving entity; or (4) there is shareholder approval of a complete liquidation or dissolution of PolyOne.
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These agreements are intended to provide for continuity of management in the event of a change of control. The agreements are automatically renewed each year unless we give prior notice of termination of the Continuity Agreement. The agreements provide that covered executive officers could be entitled to certain severance benefits. The details of the severance payments and benefits are provided in the “Potential Payments Upon Termination orChange-in-Control” section of this proxy statement.
In order to provide additional protection in the event of a change of control, our equity awards and Annual Incentive Plan provide for accelerated benefits in the event of a change of control. In addition, the terms of the performance units provide that in the event of a change of control, the participant is entitled to 100% of the performance units. In the event of a change of control and a termination of the executive’s employment by us without cause or by the executive for good reason (as defined in the agreements), the SARs remain exercisable for their full term. These change of control provisions affect all participants in those programs, including the Named Executive Officers.
Compensation Policies
Timing with Respect to Equity Award Grants
In prior years, the base price of SARs has been set according to our practice as outlined in the 2005 Equity and Performance Incentive Plan based on the average of the high and low price of our common shares on the trading day immediately before the day the award was approved by the Committee. Effective with the approval of the 2008 Equity and Performance Incentive Plan, the practice was changed to set the base price of SARs (and the exercise price of any options granted) as the closing price of our common shares on the date of grant. Further, if we are in possession of material information that has not been publicly disclosed, the Committee will not grant equity awards until all such information is available to the public.
Stock Ownership and Retention Guidelines
In order to better align theirthe financial interests of our executives with those of our shareholders, we believe our executives should own a meaningful number of our shares.shares of PolyOne stock. We have adopted share ownership guidelines specifying a minimum level of share ownership for all executives, including all Named Executive Officers. The specific levels of share ownership for the Named Executive Officers are noted in the following table. These levels were established in 2010 when, given the sustained impact of volatile stock prices on ownership guidelines, we changed from a value that was a multiple of an executive’s salary to a fixed number of shares. The retention requirement was also added at this time. The share requirements for each level were determined with the help of Towers Watson and represent what was determined at the time to be a reasonable number of shares. Executives are expected to accumulate the specified shares within five years of their becoming subject to the policy. The applicable guidelines are reduced after age 55 by 10% of the original level of ownership each year for five years.
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In general, shares counted toward required ownership include shares directly held and shares held in our benefit or deferral plans (including RSUs, performance shares that have met the applicable performance criteria, and phantom shares under our nonqualified deferral plan). Our guidelines include a stock retention component, which requires that executives retain half of all shares granted as compensation (net of taxes) after December 16, 2009. After age 55, the 50% retention requirement is reduced 10% each year for five years, allowing individuals who are close to retirement the opportunity to diversify their portfolios. These guidelines and retention requirements apply until the executive retires.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Element | | | Newlin | | | | Wilson | | | | Patterson | | | | Smith | | | | Rademacher | | | | Baert | | | | | | | Newlin | | | Patterson | | | Smith | | | Kedrowski | | | Baert | | |
Share Ownership Target (in shares) | | | | 324,000 | | | | | * | | | | | 105,000 | | | | | 85,000 | | | | | 56,000 | | | | | 63,000 | | | | | | | | 315,000 | | | 60,000 | | | 90,000 | | | 80,000 | | | 50,000 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Share Ownership as of 3/16/09 | | | | 284,300 | | | | | * | | | | | 140,000 | | | | | 94,265 | | | | | 78,509 | | | | | 48,366 | | | | | | |
Total Share Ownership as of 3/14/11 | | | | 744,125 | | | 228,200 | | | 171,701 | | | 158,738 | | | 80,244 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Attainment Status | | | | 87.7% | | | | | * | | | | | 133.3% | | | | | 110.9% | | | | | 140.2% | | | | | 76.8% | | | | | | | | 236.2% | | | 380.3% | | | 190.8% | | | 198.4% | | | 160.5% | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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*Mr. Wilson, who left the Company in 2008, is no longer required to meet these guidelines.
Note: Ownership targets have been reduced by 30% for Mr. Newlin, 10% for Mr. Newlin, 40%Smith and 50% for Mr. Baert and 30% for Mr. Rademacher, according to the applicable guideline pertaining to age reduction as discussed above. Mr. Newlin hasPatterson and Mr. Kedrowski have been with the Company for three years; therefore, he isPolyOne less than five years and are not yet required to meetreach 100% of his respectivethe full share ownership guideline (100,000 shares). The share ownership target butfor Mr. Patterson has been reduced to reflect that he is on pacehas been with PolyOne for three years and the share ownership target for Mr. Kedrowski has been reduced to meet the guidelines within the five-year required time frame.reflect that he has been with PolyOne for four years.
RepaymentTiming with Respect to Equity Award Grants
We have adopted a policy with respect to the timing of Earned Incentives upon Restatementthe grant of Financial Resultsequity awards, which provides that equity awards are granted pursuant to approval by the Board or the Committee or, pursuant to authority delegated by the Board or the Committee to the Chief Executive Officer. Such grants generally should be made at times when the Company is not in a “blackout period,” which is the period of time that is in close proximity to the release of financial or material non-public information or at other times when the Company is not in possession of material non-public information. The policy further provides that, to the extent practicable, annual grants to existing employees should be approved at regularly scheduled meetings and that the grant price for any stock option or stock appreciation right shall not be less than the fair market value of the Company’s common shares on the date of grant (which is defined as the closing price of our common shares on the date of grant).
Clawback Policy
We have adopted a policy that is consistent with the requirements of the Sarbanes-Oxley Act of 2002, which requires the Chief Executive Officer and Chief Financial Officer to reimburse us for any awards received during the twelve-month period following the release of financial results that subsequently require an accounting restatement due to material noncompliance with any financial reporting requirement if they are subject to automatic forfeiture under Section 304 of theSarbanes-Oxley Act. If necessary, we plan to modify our policy to comply with the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2002.(the “Dodd-Frank Act”), when the SEC promulgates implementing rules and regulations.
ConclusionHedging Policy
Our executive compensation programsSecurities Trading Policy currently provides that, consistent with our philosophy to encourage long-term investments, directors, officers and certain other employees of PolyOne are competitiveprohibited from engaging in the marketplace and linked toany speculative transactions involving our performance. These programs allow us to attract and retain high-caliber executives. We believe the designsecurities, including buying or selling puts or calls, short sales, or margin purchases of our compensation plans andsecurities. If necessary, we plan to modify our policy to comply with the relative mixprovisions of compensation elements successfully motivates our executives and aligns both the short-term and long-term interests of employees and shareholders.Dodd-Frank Act when they are finalized.
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2010 SUMMARY COMPENSATION TABLE
The following table sets forth the compensation earned by, and the compensation opportunity granted to, our principal executive officer, our current principal financial officer, our former principal financial officer, and our other three most highly compensated executive officers, during the fiscal yearyears ended December 31, 20082010, December 31, 2009 and the prior two fiscal years, if applicable.December 31, 2008.
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| | | | | | | | | | | | | | | | | | Non-
| | | Value and
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| | | | | | | | | | | | | | | | | | Equity
| | | Nonqualified
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| | | | | | | | | | | | | | | Option/
| | | Incentive
| | | Deferred
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| | | SAR
| | | Plan
| | | Compensation
| | | All Other
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Name and
| | | | | | Salary
| | | Bonus
| | | Awards(4)
| | | Awards(5)
| | | Compensation(6)
| | | Earnings
| | | Compensation
| | | Total
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Principal Position | | | Year | | | ($) | | | ($) | | | ($) | | | ($) | | | ($) | | | ($) | | | ($) | | | ($) |
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Stephen D. Newlin, | | | | 2008 | | | | $ | 831,731 | | | | $ | 0 | �� | | | $ | 797,592 | | | | $ | 331,625 | | | | $ | 1,044,150 | | | | $ | 4,341,255 | (7) | | | $ | 135,106 | (9) | | | $ | 7,481,459 | |
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Chairman, President and | | | | 2007 | | | | | 741,635 | | | | | 0 | | | | | 589,333 | | | | | 778,565 | | | | | 1,482,066 | | | | | — | | | | | 208,069 | | | | | 3,799,668 | |
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Chief Executive Officer | | | | 2006 | | | | | 589,615 | | | | | 600,000 | | | | | 505,374 | | | | | 558,936 | | | | | 959,700 | | | | | — | | | | | 110,196 | | | | | 3,323,821 | |
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Robert M. Patterson, Senior Vice President and | | | | 2008 | | | | | 255,385 | | | | | 0 | | | | | 64,526 | | | | | 33,775 | | | | | 107,568 | | | | | — | | | | | 85,109 | (10) | | | | 546,363 | |
Chief Financial Officer(1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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W. David Wilson, Former Senior Vice | | | | 2008 | | | | | 325,881 | | | | | 0 | | | | | 4,125 | | | | | 68,650 | | | | | 199,420 | | | | | 179,740 | (8) | | | | 861,135 | (11) | | | | 1,638,951 | |
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President and Chief | | | | 2007 | | | | | 363,981 | | | | | 0 | | | | | 241 | | | | | 218,060 | | | | | 167,595 | | | | | 168,279 | | | | | 94,846 | | | | | 1,013,002 | |
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Financial Officer(2) | | | | 2006 | | | | | 354,058 | | | | | 50,000 | | | | | 75,561 | | | | | 158,724 | | | | | 242,707 | | | | | 0 | | | | | 81,711 | | | | | 962,761 | |
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Kenneth M. Smith, Senior Vice President, | | | | 2008 | | | | | 333,308 | | | | | 0 | | | | | 23,232 | | | | | 48,562 | | | | | 210,289 | | | | | 156,297 | (8) | | | | 69,065 | (12) | | | | 840,753 | |
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Chief Information and | | | | 2007 | | | | | 323,712 | | | | | 0 | | | | | 169 | | | | | 145,647 | | | | | 149,053 | | | | | 189,074 | | | | | 76,485 | | | | | 884,140 | |
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Human Resources Officer | | | | 2006 | | | | | 313,481 | | | | | 50,000 | | | | | 52,914 | | | | | 112,084 | | | | | 214,891 | | | | | 0 | | | | | 59,109 | | | | | 802,479 | |
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Michael L. Rademacher, Senior Vice President and | | | | 2008 | | | | | 317,308 | | | | | 0 | | | | | 23,232 | | | | | 47,063 | | | | | 270,930 | | | | | — | | | | | 64,367 | (13) | | | | 722,900 | |
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General Manager, Distribution | | | | 2007 | | | | | 307,577 | | | | | 0 | | | | | 160 | | | | | 138,141 | | | | | 210,229 | | | | | — | | | | | 64,508 | | | | | 720,615 | |
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Bernard Baert, Senior Vice President and | | | | 2008 | | | | | 415,441 | | | | | 0 | | | | | 23,232 | | | | | 30,974 | | | | | 121,564 | | | | | — | | | | | 84,388 | (14) | | | | 675,599 | |
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General Manager, Color and Engineered Material — | | | | 2007 | | | | | 421,668 | | | | | 0 | | | | | 169 | | | | | 144,609 | | | | | 166,263 | | | | | — | | | | | 86,727 | | | | | 819,436 | |
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Europe and Asia(3) | | | | 2006 | | | | | 349,999 | | | | | 0 | | | | | 53,125 | | | | | 105,333 | | | | | 219,576 | | | | | — | | | | | 70,030 | | | | | 798,063 | |
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| | | | | | | | | | | | | | | | | | | | | Change in
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| | | Value and
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| | | | | | | | | | | | | | | | | | Equity
| | | Nonqualified
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| | | | | | | | | | | | | | | | | | Incentive
| | | Deferred
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| | | | | | | | | | | | Stock
| | | Option
| | | Plan
| | | Compensation
| | | All Other
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Name and
| | | | | | Salary
| | | Bonus
| | | Awards(2)
| | | Awards(3)
| | | Compensation(4)
| | | Earnings
| | | Compensation
| | | Total
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Principal Position | | | Year | | | ($) | | | ($) | | | ($) | | | ($) | | | ($) | | | ($) | | | ($) | | | ($) |
Stephen D. Newlin, | | | | 2010 | | | | $ | 860,000 | | | | | — | | | | $ | 967,589 | | | | $ | 850,590 | | | | $ | 3,030,236 | | | | $ | 538,990 | (5) | | | $ | 1,263,730 | (7) | | | $ | 7,511,135 | |
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Chairman, President & | | | | 2009 | | | | | 860,000 | | | | | — | | | | | 312,547 | | | | | 275,559 | | | | | 1,720,000 | | | | | 516,552 | | | | | 138,847 | | | | | 3,823,505 | |
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Chief Executive Officer | | | | 2008 | | | | | 831,731 | | | | | — | | | | | 771,931 | | | | | 648,168 | | | | | 1,044,150 | | | | | 4,341,255 | | | | | 135,106 | | | | | 7,772,341 | |
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Robert M. Patterson, | | | | 2010 | | | | | 424,231 | | | | | — | | | | | 191,760 | | | | | 167,700 | | | | | 509,077 | | | | | — | | | | | 71,168 | (8) | | | | 1,363,936 | |
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Executive Vice President and | | | | 2009 | | | | | 415,000 | | | | | — | | | | | 60,325 | | | | | 53,223 | | | | | 415,000 | | | | | — | | | | | 198,924 | | | | | 1,142,472 | |
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Chief Financial Officer | | | | 2008 | | | | | 255,385 | | | | | — | | | | | 307,200 | | | | | 160,800 | | | | | 107,568 | | | | | — | | | | | 85,109 | | | | | 916,062 | |
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Kenneth M. Smith, | | | | 2010 | | | | | 340,923 | | | | | — | | | | | 107,865 | | | | | 94,380 | | | | | 504,501 | | | | | 130,531 | (6) | | | | 70,308 | (9) | | | | 1,248,508 | |
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Senior Vice President, | | | | 2009 | | | | | 336,000 | | | | | — | | | | | 35,179 | | | | | 31,042 | | | | | 336,000 | | | | | 121,177 | | | | | 61,563 | | | | | 920,961 | |
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Chief Information and Chief Human Resources Officer | | | | 2008
| | | | | 333,308 | | | | | — | | | | | 84,798 | | | | | 70,512 | | | | | 210,289 | | | | | 156,297 | | | | | 69,065 | | | | | 924,269 | |
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Thomas J. Kedrowski, | | | | 2010 | | | | | 328,769 | | | | | — | | | | | 107,865 | | | | | 94,380 | | | | | 484,735 | | | | | — | | | | | 221,966 | (10) | | | | 1,237,715 | |
Senior Vice President, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Supply Chain and Operations | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Bernard Baert, | | | | 2010 | | | | | 398,507 | | | | | — | | | | | 107,865 | | | | | 94,380 | | | | | 566,927 | | | | | — | | | | | 59,377 | (11) | | | | 1,227,056 | |
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Senior Vice President, | | | | 2009 | | | | | 424,953 | | | | | — | | | | | 28,194 | | | | | 24,898 | | | | | 283,974 | | | | | — | | | | | 78,259 | | | | | 840,278 | |
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President of Europe and International(1) | | | | 2008
| | | | | 415,441 | | | | | — | | | | | 84,798 | | | | | 70,512 | | | | | 121,564 | | | | | — | | | | | 84,388 | | | | | 776,703 | |
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(1) | | Mr. Patterson was hired as Senior Vice President and Chief Financial Officer, effective May 12, 2008 and the numbers in the table reflect the compensation earned during the part of the year he was with the Company. |
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(2) | | Mr. Wilson was replaced as Chief Financial Officer on May 12, 2008 and continued serving as Senior Vice President until his departure from the Company on September 9, 2008. The numbers in the table reflect the compensation earned during the part of the year he was with the Company. |
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(3) | | Mr. Baert’s compensation is basedpaid in Euros. The conversion rate used for purposes of converting the Euros earned by Mr. Baert into dollars for purposes of this table was €1.00 = $1.4096,$1.32525, which is the conversion rate used in our Annual Report onForm 10-K for the fiscal year ended December 31, 2008.2010. |
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(4)(2) | | This column includes the grants of time-vested, stock-settled RSUs granted in 20082010 to the Named Executive Officers under our 2005 and 2008 Equity and Performance Incentive Plans. ThesePlan. The amounts reported represent the grant date fair value of the awards computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, Compensation — Stock Compensation. For information regarding the assumptions used in determining the fair value of these awards, please refer to Note 15, Share-Based Compensation, of our Annual Report onForm 10-K for the fiscal year ended December 31, 2010. For 2010, these grants are described more fully in the narrative following the 20082010 Grants of Plan-Based Awards table and in the “Compensation Discussion and Analysis — 2010 Executive Compensation Elements of Compensation — Long-Term Incentive — Awards Granted in 20082010 — RSUs”Restricted Stock Units” section of this proxy statement. This column also includes for Mr. Newlin a restricted stock award granted in 2006 under our 2005 Equity and Performance Incentive Plan as part of his Letter Agreement with a compensation cost for 2008 of $586,104. The amounts |
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(3) | | reflectedThis column includes time-vested, stock settled SARs granted in 2010 to the table forNamed Executive Officers under our 2008 includePlan. The amounts reported represent the dollar amounts recognized for financial statement reporting purposes for 2008 with respect to thesegrant date fair value of the awards computed in accordance with Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (“SFAS 123(R)”). AdditionalFASB ASC Topic 718. For information regarding the assumptions used in determining the cost reflected in the table can be found infair value of these awards, please refer to Note 1615, Share-Based Compensation, of the Notes to the Consolidated Financial Statements contained in our Annual Report onForm 10-K for the fiscal year ended December 31, 2008. |
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(5) | | This column includes the grants of time-vested, stock-settled SARs granted in 2008 to the Named Executive Officers under our 2005 and 2008 Equity and Performance Incentive Plans. The cost of2010. For 2010, these awards as reflected in the table was based on the dollar amount recognized for financial statement reporting purposes for 2008 with respect to these awards, computed in accordance with SFAS 123(R). These grants are described more fully in the narrative following the 20082010 Grants of Plan-Based Awards table and in the “Compensation Discussion and Analysis — 2010 Executive Compensation Elements of Compensation — Long-Term Incentive — Awards Granted in 20082010 — Stock-Settled SARs” section of this proxy statement. This column also reflects the dollar amount recognized for financial statement reporting purposes in 2008 with respect to awards granted in prior years. Additional information regarding the assumptions used in determining the costs reflected in the table can be found in Note 16 of the Notes to the Consolidated Financial Statements contained in our Annual Report onForm 10-K for the fiscal year ended December 31, 2008. |
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(6)(4) | | This column reflects amounts earned by the Named Executive Officers under the Annual Plan and pursuant to the vesting of performance units under the2008 — 2010 Long Term Incentive Plan for the 2006 — 2008 performance cycle.Plan. The terms of these plansthe Annual Plan are described more fully in the narrative following the 20082010 Grants of Plan-Based Awards table and in the “Compensation Discussion |
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| | and Analysis — Elements of Compensation”Compensation — Annual Incentive” section of this proxy statement. The terms of the 2008 — 2010 Long Term Incentive Plan Cash-Settled Performance Units are described more fully in the “Compensation Discussion and Analysis — 2010 Executive Compensation Elements — Long-Term Incentive — Awards Granted in Prior Years” section of this proxy statement. The amounts earned by the Named Executive Officers under each plan are listed below. |
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| | | Annual Plan
| | | Cash-Settled Performance Units
|
Name | | | ($) | | | ($) |
S.D. Newlin | | | $ | 1,892,000 | | | | $ | 1,138,236 | |
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R.M. Patterson* | | | | 509,077 | | | | | — | |
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K.M. Smith | | | | 375,015 | | | | | 129,486 | |
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T.J. Kedrowski | | | | 361,646 | | | | | 123,089 | |
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B. Baert | | | | 398,507 | | | | | 168,420 | |
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* | | Mr. Patterson was not employed at the Company at the time the cash-settled performance unit grant was made. |
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(7)(5) | | Mr. Newlin is entitled to a supplemental retirement benefit under his Letter Agreement (as amended on July 18, 2008),employment agreement, as described more fully in the “Compensation Discussion and Analysis — Elements of Compensation — Retirement Benefits” section of this proxy statement. The amount reflectedrepresents the aggregate change in the table reflects the netactuarial present value as of(determined by subtracting the December 31, 20082009 actuarial present value from the December 31, 2010 actuarial present value) of the annual benefit payment that will be payable as a15-year certain and continuous life annuity beginning at age 58.6 and assumes that Mr. Newlin has a “Qualifying Separation from Service.” |
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(8)(6) | | Among the Named Executive Officers, Messrs. Wilson andMr. Smith participateparticipates in the Qualified Pension Plan and the Nonqualified PensionBenefit Restoration Plan that existed prior to our formation in 2000 through the consolidation of Geon and M.A. Hanna. The amount represents the aggregate change in actuarial present value (determined by subtracting the December 31, 2009 actuarial present value from the December 31, 2010 actuarial present value) of Messrs. Wilson’s andMr. Smith’s accumulated benefits under the Qualified Pension Plan and the Nonqualified Pension Plan increased byBenefit Restoration Plan. |
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(7) | | Amount consists of a taxgross-up on the reimbursement for the loss on the sale of his home in the amount shownof $426,371, company contributions under our Qualified Savings Plan in the amount of $15,925, and company contributions under our non-qualified retirement plan in the amount of $151,775. Mr. Newlin also received perquisites in 2010, reflected in the table, above. This increase was due towith the fact that earnings under the Nonqualified Pension Plan were re-calculated following the release of final guidance relating to Section 409Aincremental costs: reimbursement of the Internal Revenue Code, as described more fully underloss on the 2008 Pension Benefits tablesale of his home plus moving expenses ($632,331), benefit allowance ($23,631), financial planning and tax preparation expenses ($13,000), reimbursement of guest travel ($316) and an executive physical ($381). In 2010, we purchased Mr. Newlin’s home for $1,562,500, which was based on relocation guidelines and two independent appraisals of his home. The amount disclosed in this proxy statement. Above-market or preferential earnings arecolumn does not availableinclude the costs we incurred in 2010 in connection with our ownership of the home as the home is currently being marketed for resale at a price above our purchase price. We do not consider these additional costs to be compensation to Mr. Newlin. |
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(8) | | Amount consists of company contributions under anyour Qualified Savings Plan in the amount of $15,925 and company contributions under our non-qualified deferred compensation plans.retirement plan in the amount of $38,625. Mr. Patterson also received perquisites in 2010, reflected in the table, with the following incremental costs: benefit allowance ($6,923), financial planning and tax preparation expenses ($7,565) and an executive physical ($2,130). |
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(9) | | Amounts under “All Other Compensation” for Mr. Newlin include taxgross-ups on personal benefits in the amountAmount consists of $9,462, PolyOne’s cashcompany contributions to our Qualified Savings Plan in the amount of $14,950, PolyOne’s cash$15,925 and company contributions under our non-qualified retirement plan providing for benefits in excess of the amounts permitted to be contributed under the Qualified Savings Plan in the amount of $82,231 and excess liability umbrella insurance coverage in the amount of $685.$28,075. Mr. NewlinSmith also received perquisites in 2008,2010, reflected in the table, with the following incremental costs: car allowance ($14,400), financial planning and tax preparation expenses ($12,624), and an executive physical ($754). |
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(10) | | Amounts under “All Other Compensation” for Mr. Patterson include taxgross-ups on personal benefits (including a gross up on reimbursement for moving expenses described below) in the amount of $26,467, PolyOne’s cash contributions to our Qualified Savings Plan in the amount of $4,600, PolyOne’s cash contributions under our non-qualified retirement plan providing for benefits in excess of the amounts permitted to be contributed under the Qualified Savings Plan in the amount of $12,000 and excess liability umbrella insurance coverage in the amount of $457. Mr. Patterson also received perquisites inbenefit |
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| | 2008,allowance ($18,923), financial planning and tax preparation expenses ($5,893), reimbursement of guest travel ($386) and an executive physical ($1,106). |
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(10) | | Amount consists of a taxgross-up on the reimbursement for moving expenses in the amount of $3,629, company contributions to our Qualified Savings Plan in the amount of $15,925, and company contributions under our non-qualified retirement plan in the amount of $23,121. Mr. Kedrowski also received perquisites in 2010, reflected in the table, with the following incremental costs: reimbursement for the loss on the sale of his home plus moving expenses ($39,336)154,444), benefit allowance ($18,923), reimbursement of guest travel ($424) and financial planning and tax preparation expenses ($2,250). |
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(11) | | Amounts under “All Other Compensation” for Mr. Wilson include severance payments received under our Executive Severance Plan of base salary in the amount of $732,000, continuation of health benefits in the amount of $16,533, gross up of employer contributions toward health benefits in the amount of $12,341 and outplacement in the amount of $9,000. In addition, Mr. Wilson received consulting fees in the amount of $14,940, taxgross-ups on personal benefits in the amount of $7,453, PolyOne’s cash contributions to our Qualified Savings Plan in the amount of $18,450, PolyOne’s cash contributions under our non-qualified retirement plan providing for benefits in excess of the amounts permitted to be contributed under the Qualified Savings Plan in the amount of $26,788, and excess liability umbrella insurance coverage in the amount of $514. Mr. Wilson also received perquisites in 2008, reflected in the table, with the following incremental costs: car allowance ($10,357), financial planning and tax preparation expenses ($10,000), and an executive physical ($2,759)5,500). |
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(12)(11) | | Amounts under “All Other Compensation” for Mr. Smith include taxgross-ups on personal benefits in the amountAmount consists of $4,212, PolyOne’s cash contributions to our Qualified Savings Plan in the amount of $22,425, PolyOne’s cash contributions under our non-qualified retirement plan providing for benefits in excess of the amounts permitted to be contributed under the Qualified Savings Plan in the amount of $23,330, and excess liability umbrella insurance coverage in the amount of $685. Mr. Smith also received perquisites in 2008, reflected in the table, with the following incremental costs: car allowance ($12,000), financial planning and tax preparation expenses ($5,257), and an executive physical ($1,156). |
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(13) | | Amounts under “All Other Compensation” for Mr. Rademacher include taxgross-ups on personal benefits in the amount of $4,432, PolyOne’s cash contributions to our Qualified Savings Plan in the amount of $14,950, PolyOne’s cash contributions under our non-qualified retirement plan providing for benefits in excess of the amounts permitted to be contributed under the Qualified Savings Plan in the amount of $25,040 and excess liability umbrella insurance coverage in the amount of $685. Mr. Rademacher also received perquisites in 2008, reflected in the table, with the following incremental costs: car allowance ($12,000), financial planning and tax preparation expenses ($5,567), and an executive physical ($1,693). |
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(14) | | Amounts under “All Other Compensation” for Mr. Baert include PolyOne’s cashcompany contributions to atax-efficient savings plan, generally provided to all BelgiumLuxembourg employees, in the amount of $52,336 and excess liability umbrella insurance coverage in the amount of $685.$45,673. Mr. Baert also received perquisites in 2008,2010, reflected in the table, with the following incremental costs: company provided automobile ($25,512)9,179), financial planning and tax preparation expenses ($2,120) and meal vouchers ($1,606) and customer entertainment allowance ($4,249)2,405). These amounts have been converted from Euros to dollars as set forth in footnote 1 to the 2010 Summary Compensation Table. |
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20082010 GRANTS OF PLAN-BASED AWARDS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Estimated Future Payouts Under
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Non-Equity Incentive Plan Awards(2) | | | | | | | | | | | | | | | | | | | | | Estimated Future Payouts Under
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | All Other
| | | | | | | | | | | | | | | | | | Non-Equity Incentive Plan Awards(2) | | | | | | | | | | | | |
| | | | | | | | | | | | | | | Stock Awards:
| | | All Other Options
| | | | | | | | | Grant Date
| | | | | | | | | | | | | | | All Other Stock
| | | All Other Options
| | | | | | Grant Date
|
| | | | | | | | | | | | | | | Number of
| | | Awards: Number
| | | Exercise or
| | | Closing
| | | Fair Value
| | | | | | | | | | | | | | | Awards:
| | | Awards: Number of
| | | Exercise or
| | | Fair Value of
|
| | | | | | | | | | | | | | | Shares of
| | | of Securities
| | | Base Price
| | | Market
| | | of Stock and
| | | | | | | | | | | | | | | Number of
| | | Securities
| | | Base Price of
| | | Stock and
|
| | | | | | | | | | | | | | | Stock or
| | | Underlying
| | | of Option
| | | Price on
| | | Option/ SAR
| | | | | | | | | | | | | | | Shares of Stock
| | | Underlying
| | | Option
| | | Option
|
| | | Grant
| | | Threshold
| | | Target
| | | Maximum
| | | Units(4)
| | | Options(5)
| | | Awards
| | | Grant
| | | Awards
| | | Grant
| | | Threshold(3)
| | | Target
| | | Maximum
| | | or Units(4)
| | | Options(5)
| | | Awards(6)
| | | Awards(7)
|
Name | | | Date | | | ($)(3) | | | ($) | | | ($) | | | (#) | | | (#) | | | ($/Sh)(6) | | | Date | | | ($)(7) | | | Date | | | ($) | | | ($) | | | ($) | | | (#) | | | (#) | | | ($/Sh) | | | ($) |
S.D. Newlin | | | | (1 | ) | | | | 415,866 | | | | | 831,731 | | | | | 1,663,462 | | | | | | | | | | | | | | | | | | | | | | | | (1) | | | $ | 473,000 | | | | $ | 946,000 | | | | $ | 1,892,000 | | | | | — | | | | | — | | | | | — | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 3/6/2008 | | | | | 516,000 | | | | | 1,032,000 | | | | | 2,064,000 | | | | | | | | | | | | | | | | | | | | | | | | 2/17/2010 | | | | 516,000 | | | | | 1,032,000 | | | | | 2,064,000 | | | | | — | | | | | — | | | | | — | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 3/6/2008 | | | | | | | | | | | | | | | | | | | | | 286,800 | | | | | 6.765 | | | | | 6.67 | | | | | 648,168 | | | | 2/17/2010 | | | | — | | | | | — | | | | | — | | | | | 121,100 | | | | | — | | | | | — | | | | | 967,589 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 3/6/2008 | | | | | | | | | | | | | | | | | 114,700 | | | | | | | | | | | | | | | | | 771,931 | | | | 2/17/2010 | | | | — | | | | | — | | | | | — | | | | | — | | | | | 218,100 | | | | | 7.99 | | | | | 850,590 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
R.M. Patterson | | | | (1 | ) | | | | 63,846 | | | | | 127,692 | | | | | 255,385 | | | | | | | | | | | | | | | | | | | | | | | | (1) | | | | 127,269 | | | | | 254,539 | | | | | 509,077 | | | | | — | | | | | — | | | | | — | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | — | | | | | 0 | | | | | 0 | | | | | 0 | | | | | | | | | | | | | | | | | | | | | | | | 2/17/2010 | | | | 99,600 | | | | | 199,200 | | | | | 398,400 | | | | | — | | | | | — | | | | | — | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 5/15/2008 | | | | | | | | | | | | | | | | | | | | | 60,000 | | | | | 7.72 | | | | | 7.72 | | | | | 160,800 | | | | 2/17/2010 | | | | — | | | | | — | | | | | — | | | | | 24,000 | | | | | — | | | | | — | | | | | 191,760 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 5/15/2008 | | | | | | | | | | | | | | | | | 40,000 | | | | | | | | | | | | | | | | | 307,200 | | | | 2/17/2010 | | | | — | | | | | — | | | | | — | | | | | — | | | | | 43,000 | | | | | 7.99 | | | | | 167,700 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
W.D. Wilson | | | | (1 | ) | | | | 65,810 | | | | | 131,619 | | | | | 263,238 | | | | | | | | | | | | | | | | | | | | | | |
| | | | |
| | | | 3/6/2008 | | | | | 87,850 | | | | | 175,700 | | | | | 351,400 | | | | | | | | | | | | | | | | | | | | | | |
| | | | |
| | | | 3/6/2008 | | | | | | | | | | | | | | | | | | | | | 32,600 | | | | | 6.765 | | | | | 6.67 | | | | | 73,676 | | |
| | | | |
| | | | 3/6/2008 | | | | | | | | | | | | | | | | | 13,100 | | | | | | | | | | | | | | | | | 88,163 | | |
| | | | |
K.M. Smith | | | | (1 | ) | | | | 83,327 | | | | | 166,654 | | | | | 333,308 | | | | | | | | | | | | | | | | | | | | | | | | (1) | | | | 93,754 | | | | | 187,508 | | | | | 375,015 | | | | | — | | | | | — | | | | | — | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 3/6/2008 | | | | | 58,700 | | | | | 117,400 | | | | | 234,800 | | | | | | | | | | | | | | | | | | | | | | | | 2/17/2010 | | | | 60,500 | | | | | 121,000 | | | | | 242,000 | | | | | — | | | | | — | | | | | — | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 3/6/2008 | | | | | | | | | | | | | | | | | | | | | 31,200 | | | | | 6.765 | | | | | 6.67 | | | | | 70,512 | | | | 2/17/2010 | | | | — | | | | | — | | | | | — | | | | | 13,500 | | | | | — | | | | | — | | | | | 107,865 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 3/6/2008 | | | | | | | | | | | | | | | | | 12,600 | | | | | | | | | | | | | | | | | 84,798 | | | | 2/17/2010 | | | | — | | | | | — | | | | | — | | | | | — | | | | | 24,200 | | | | | 7.99 | | | | | 94,380 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
M.L. Rademacher | | | | (1 | ) | | | | 79,327 | | | | | 158,654 | | | | | 317,308 | | | | | | | | | | | | | | | | | | | | | | |
T.J. Kedrowski | | | | (1) | | | | 90,411 | | | | | 180,823 | | | | | 361,646 | | | | | — | | | | | — | | | | | — | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 3/6/2008 | | | | | 55,800 | | | | | 111,600 | | | | | 223,200 | | | | | | | | | | | | | | | | | | | | | | | | 2/17/2010 | | | | 58,000 | | | | | 116,000 | | | | | 232,000 | | | | | — | | | | | — | | | | | — | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 3/6/2008 | | | | | | | | | | | | | | | | | | | | | 31,200 | | | | | 6.765 | | | | | 6.67 | | | | | 70,512 | | | | 2/17/2010 | | | | — | | | | | — | | | | | — | | | | | 13,500 | | | | | — | | | | | — | | | | | 107,865 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 3/6/2008 | | | | | | | | | | | | | | | | | 12,600 | | | | | | | | | | | | | | | | | 84,798 | | | | 2/17/2010 | | | | — | | | | | — | | | | | — | | | | | — | | | | | 24,200 | | | | | 7.99 | | | | | 94,380 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
B. Baert | | | | (1 | ) | | | | 103,861 | | | | | 207,721 | | | | | 415,442 | | | | | | | | | | | | | | | | | | | | | | | | (1) | | | | 99,627 | | | | | 199,254 | | | | | 398,507 | | | | | — | | | | | — | | | | | — | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 3/6/2008 | | | | | 76,350 | | | | | 152,700 | | | | | 305,400 | | | | | | | | | | | | | | | | | | | | | | | | 2/17/2010 | | | | 74,000 | | | | | 148,000 | | | | | 296,000 | | | | | — | | | | | — | | | | | — | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 3/6/2008 | | | | | | | | | | | | | | | | | | | | | 31,200 | | | | | 6.765 | | | | | 6.67 | | | | | 70,512 | | | | 2/17/2010 | | | | — | | | | | — | | | | | — | | | | | 13,500 | | | | | — | | | | | — | | | | | 107,865 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 3/6/2008 | | | | | | | | | | | | | | | | | 12,600 | | | | | | | | | | | | | | | | | 84,798 | | | | 2/17/2010 | | | | — | | | | | — | | | | | — | | | | | — | | | | | 24,200 | | | | | 7.99 | | | | | 94,380 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | |
(1) | | There is no Grant Date for these awards. This row relates to awards made under our cash-based Annual Plan. |
|
(2) | | The first row of this columnthese columns for each Named Executive Officer represents the annual cash incentive opportunity for the Named Executive OfficersOfficer under the Annual Plan. The actual amount earned for 20082010 under the Annual Plan is included in the “Non-Equity Incentive Plan Compensation” column of the 2010 Summary Compensation Table. The second row of this column for each Named Executive Officer represents the performance units awarded to each Named Executive Officer under our 2005 Equity and |
36
| | |
| | Performance Incentive Plan except for Mr. Patterson, who did not receive an award of performance units in 2008.the 2008 Plan. Each performance unit is equal in value to $1.00. These performance units will be paid in cash, if earned, and arewere subject to achievement of specified performance goals over a three-yearthe performance period (2008 — 2010).from January 1, 2010 to December 31, 2010 and were ultimately earned at the maximum level. The performance units will be paid in cash generally contingent upon the Named Executive Officer remaining in continuous employment through the payment date, which shall be in 2013 and shall occur no later than March 15, 2013. |
38
| | |
(3) | | Threshold refers to the minimum amount payable upon reaching the threshold level of performance. If threshold performance is not attained, the participant will receive $0 for this award. |
|
(4) | | The numbers in this column represent stock-settled RSUs granted to the Named Executive Officers under our 2005 andthe 2008 Equity and Performance Incentive Plans,Plan, which vest on the third anniversary of the date of grant.grant date. |
|
(5) | | The numbers in this column represent stock-settled SARs granted to the Named Executive Officers under our 2005 andthe 2008 Equity and Performance Incentive Plans,Plan, which awards become exercisable one-third on each anniversary of the date of grant.grant date. |
|
(6) | | In setting theThe base price of SARs, we have followed the practicea SAR is equal to closing market price of using the average of the high and low sales pricea share of our common sharesstock on the trading day immediately before the day the award was approved by the Committee.grant date. This practice is in compliance with our 2005 Equity and Performance Incentive2008 Plan. The award of stock-settled SARs that was granted on March 6, 2008February 17, 2010 to the Named Executive Officers was priced using the average of the high and low sales price on the trading day immediately before thegrant date of grant ($6.765). Mr. Patterson’s award of SARs was made upon his hire and was granted under our 2008 Equity and Performance Incentive Plan, which was approved by shareholders in May, 2008. This plan provides that the exerciseclosing price of SARs is set using the closing market price on the date of grant, which was $7.72 for Mr. Patterson’s award.$7.99. |
|
(7) | | This representsThe amounts in this column represent the grant date fair value of each equity-based award, computed in accordance with SFAS 123(R).FASB ASC Topic 718. For information regarding the assumptions used in determining the fair value of an award, please refer to Note 15, Share-Based Compensation, of our Annual Report on Form10-K for the fiscal year ended December 31, 2010. |
Set forth below is narrative disclosure relating to the 2010 Summary Compensation Table and the 20082010 Grants of Plan-Based Awards table.
Senior Executive Annual Incentive Plan
Annual cash incentives were granted in 2008awarded for 2010 under our Annual Plan and are based on achievement of performance goals relating to company operating income and company-controlled cash flowconsolidated working capital as a percentage of sales (for the corporate staff participants) and business unit operating income company operating income and company-controlled cash flowconsolidated working capital as a percentage of sales (for Messrs. Baert and Rademacher)Mr. Baert). Achievement of a performance goal at the threshold level results in payment of 50% of the targeted award for that performance goal; achievement of a performance goal at the target level results in a payment of 100% of the targeted award for that performance goal; and, achievement at the maximum level or greater results in payment of 200% of the targeted award for that goal. In no event will a Named Executive Officer receive an award that exceeds the plan maximum of $2,000,000. If performance falls between the levels, the award payouts are interpolated. For a more detailed discussion of our annual incentive plan, see “Compensation Discussion and Analysis — 2010 Executive Compensation Elements of Compensation — Annual Incentive.”
Cash-Settled Performance Units
Cash-settled performance units were granted in 20082010 to all of our Named Executive Officers except for Mr. Patterson, under our 2005 Equity and Performance Incentive2008 Plan and are based on achievement of the performance goals,goal, working capital as a percentage of sales, over a three-year period, relating to earnings per share. If we achieve performance atone-year period. These awards vest and pay out on the threshold level, 50%third anniversary of the performance units will be earned; if we achieve performance at the targeted level, 100%date of the performance units will be earned; and, if we achieve performance at the maximum level or greater, 200% of the performance units will be earned. If performance falls between the levels, the number of performance units earned is
37
interpolated.grant, generally subject to continued employment. For a more detailed discussion of the performance units granted in 2008,2010, see “Compensation Discussion and Analysis — 2010 Executive Compensation Elements of Compensation — Long-Term Incentive — Awards Granted in 20082010 — Cash-Settled Performance Units.”
Stock-Settled SARs
In 2008, our Compensation and Governance2010, the Committee granted stock-settled SARs to the Named Executive Officers. These SARs have a term of seven years and vest one-third on each of the firstper year over three anniversaries of the date of grant.years. For a more detailed discussion of the stock-settled SARs granted in 2008,2010, see “Compensation Discussion and Analysis — 2010 Executive Compensation Elements of Compensation — Long-Term Incentive — Awards Granted in 20082010 — Stock-Settled SARs.”
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Restricted Stock Units (RSUs)
In 2008, our Compensation and Governance2010, the Committee granted RSUs to the Named Executive Officers. The RSUs vest on100% and are payable at the third anniversaryend of the grant date.a three-year period. For a more detailed discussion of the RSUs granted in 2008,2010, see “Compensation Discussion and Analysis — 2010 Executive Compensation Elements of Compensation — Long-Term Incentive — Awards Granted in 20082010 — RSUs.Restricted Stock Units.”
Employment Agreements
We do not have employment agreements with any of our Named Executive Officers except for Mr. Newlin.Messrs. Newlin and Baert. Mr. Newlin’s Employment Agreement isand Mr. Baert’s employment agreements are described in detail in the “Compensation Discussion and Analysis — Employment Agreement of the ChiefAgreements with Named Executive Officer”Officers” and the “Potential Payments Upon Termination orChange-in-Control” sections of this proxy statement.
3840
The Continuity Agreements do not provide any assurance of continued employment unless there is a change of control. Generally, a change of control is deemed to have occurred if:
If a change of control occurs and the Named Executive Officer’s employment is terminated by us or a successor for reasons other than “cause” or is terminated voluntarily by the individual for “good reason,” generally the Continuity Agreements provide that the individual would be entitled to receive: