UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
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Preliminary Proxy Statement | ☐ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |||
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Definitive Proxy Statement | |||||
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Definitive Additional Materials | |||||
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Soliciting Material Pursuant to §240.14a-12 |
MSA Safety Incorporated
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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2018 Proxy Statement
YOUR VOTE IS IMPORTANT
Please vote by using the internet, telephone, smartphone
or by signing, dating and returning the enclosed proxy card
MSA SAFETY INCORPORATED ∎ 1000 CRANBERRY WOODS DRIVE, CRANBERRY TOWNSHIP, PENNSYLVANIA 16066 ∎ PHONE (724) 776-8600
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO THE HOLDERS OF COMMON STOCK OF
MSA SAFETY INCORPORATED:
Notice is hereby given that the Annual Meeting of Shareholders of MSA Safety Incorporated will be held on Tuesday, May 15, 2018 at 9:00 A.M., local Pittsburgh time, at the MSA Corporate Center, 1000 Cranberry Woods Drive, Cranberry Township, Pennsylvania 16066 for the purpose of considering and acting upon the following:
(1) Election of Directors for 2021: The election of three directors for a term of three years;
(2) Election of a Director for 2020: The election of a director for a term of two years;
(3) Selection of Independent Registered Public Accounting Firm: The selection of the independent registered public accounting firm for the year ending December 31, 2018;
(4) Say on Pay: To provide an advisory vote to approve the executive compensation of the Companys named executive officers;
and such other business as may properly come before the Annual Meeting or any adjournment thereof.
Only the holders of record of Common Stock of the Company on the books of the Company at the close of business on February 14, 2018 are entitled to notice of and to vote at the meeting and any adjournment thereof.
You are cordially invited to attend the meeting. Whether or not you expect to attend the meeting, please vote by promptly submitting your proxy by mail, by the internet or by phone. If you attend the meeting, you may, if you wish, withdraw your proxy and vote your shares in person.
By Order of the Board of Directors,
DOUGLAS K. MCCLAINE
Secretary
April 6, 2018
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Review and Approval or Ratification of Related Party Transactions |
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PROPOSAL NO. 3 SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
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PROPOSAL NO. 4 ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION |
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2018 Annual Meeting of Shareholders
When: | 9:00 a.m. EDT on May 15, 2018 | |
Where: | MSA Corporate Center 1000 Cranberry Woods Drive Cranberry Township, PA 16066 | |
Record Date: | February 14, 2018 | |
Voting: | Shareholders of the Company as of the Record Date are entitled to vote on the matters presented at the meeting. Each share of common stock of the Company is entitled to one vote for each director nominee and for one vote on each of the other matters presented. |
Voting Matters
Voting Matter | Board Recommendation |
Proxy Page Reference | ||
Proposal Nos. 1 and 2 Election of Directors
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FOR each nominee
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Proposal No. 3 Selection of Ernst & Young LLP
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FOR
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Proposal No. 4 Advisory Vote to Approve Executive Compensation
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FOR
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1 2. | Director Nominees |
Mr. Thomas W. Giacomini, Ms. Sandra Phillips Rogers and Mr. John T. Ryan III were nominated by the Board for election in the Class of 2021. Mr. Nishan J. Vartanian was nominated by the Board for election in the Class of 2020. The table beginning on page 3 sets forth certain information about the nominees, all of whom are currently members of the Board, and about the other directors whose terms of office will continue after the Annual Meeting. We are asking shareholders to vote FOR the election of the nominees, each of whom has consented to be named as a nominee and to serve if elected.
3. | Auditor |
We are asking shareholders to approve the selection of Ernst & Young LLP as our independent registered public accounting firm for 2018.
4. | Advisory Vote to Approve Executive Compensation |
We are asking shareholders to vote FOR the Companys compensation of the named executive officers. The Board and the Compensation Committee will take into account the outcome when considering future executive compensation arrangements. In 2017, the shareholders voted in favor of the Companys executive compensation program, with 98.7% of the votes cast by shareholders voting FOR the proposal. The Board and Compensation Committee took this vote into consideration in designing the executive compensation program for 2018. Please see the Compensation Discussion and Analysis in the proxy statement for complete details about compensation for the named executive officers.
Your Vote is Important: Shareholders can vote using any of the following methods
BY INTERNET USING YOUR COMPUTER | BY TELEPHONE | BY INTERNET USING YOUR TABLET OR SMARTPHONE | BY MAILING YOUR PROXY CARD | |||
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Please refer to your proxy card and/or voting instruction form for internet, telephone, smartphone or mail instructions
1. | What is a proxy statement? |
Certain shareholder votes take place each year at the Annual Meeting of Shareholders. Since most shareholders do not attend the annual meeting in person, we request your authorization (or your proxy) in advance to instruct designated persons (your proxy holders) how to vote your shares at the meeting. A proxy statement is a document we are required to give you when requesting your voting authority and instructions. Regulations of the U.S. Securities and Exchange Commission (the SEC) also require that we include specific information about the Company in the proxy statement.
2. | Why did I receive this proxy statement? |
All shareholders of MSA Safety Incorporated as of February 14, 2018, the record date for this years Annual Meeting of Shareholders, are entitled to vote at the meeting. We are furnishing this proxy statement and proxy card, along with our annual report, to all shareholders of record as of the record date.
3. | What is a shareholder of record? What is a beneficial owner? |
Shareholders of Record
Shareholders can own stock directly in their own name through our transfer agent, Broadridge Corporate Issuer Solutions. Such shareholders are referred to as shareholders of record. When you are a shareholder of record, we will provide you with the proxy statement and an accompanying proxy card.
Beneficial Owners
Shareholders can also own stock indirectly, through one or more brokers or institutions. Such shareholders are referred to as beneficial owners. When you are a beneficial owner, your stock is registered in the name of your broker or other institution. We mail proxy statements for beneficial owners to the broker or other institution. It is their responsibility to forward you the proxy statement, along with instructions about how to vote your shares. Shareholders can be both shareholders of record for some shares and beneficial owners for other shares, and may own shares through multiple brokerage or institutional accounts. In such cases, those shareholders will receive proxy materials for each account.
Important Information for MSA Employees
MSA employees may own stock a number of ways, including but not limited to: (a) as a shareholder of record, (b) as a beneficial owner through UBS Financial Services Inc., for shares earned through MSA equity compensation plans, (c) as a beneficial owner through other brokers or institutions, and/or (d) by electing to purchase MSA stock in the Employee Stock Purchase Plan (ESPP) or the MSA Stock Fund of the MSA Retirement Savings Plan (401(k)). If you hold shares in more than one of these ways, you will receive multiple sets of proxy materials.
4. | What is a proxy card? |
A proxy card or other voting instructions accompany each set of proxy materials. When you are a shareholder of record, we send you a proxy card along with the proxy statement. When you are a beneficial owner, the broker or other institution that holds your shares will forward you a voting instruction form. It is important to follow the instructions on each proxy card and voting instruction form you receive, or those particular shares will not be voted.
5. | What do I do if I receive a proxy card AND voting instruction form(s)? |
Please follow the voting instructions for each set of materials you receive. If you own stock through more than one account, you should receive multiple sets of materials. It is necessary to cast a vote for all sets of materials you receive or some of your shares will not be voted.
6. | What happens if I do not complete a proxy or voting instruction form(s)? |
If you do not complete a proxy or voting instruction form(s), then those particular shares will not be voted in director elections or the advisory vote to approve the executive compensation of the named executive officers.
7. | When will the Company announce the voting results? |
The Company will announce the preliminary voting results at the Annual Meeting of Shareholders. The Company will file the final voting results with the SEC and publish them on our website within four business days following the Annual Meeting of Shareholders.
PROXY STATEMENT
Important Notice Regarding the Availability of Proxy Materials for the Shareholders Meeting
to be held on May 15, 2018
The 2018 Proxy Statement and the Annual Report to Shareholders for the year ended December 31, 2017
are also available at www.proxyvote.com
This Proxy Statement is furnished in connection with the solicitation by the Board of Directors (the Board) of MSA Safety Incorporated (the Company or MSA) of proxies in the accompanying form to be voted at the Annual Meeting of Shareholders of the Company to be held on Tuesday, May 15, 2018, and at any and all adjournments thereof, for the purposes set forth in the accompanying Notice of Annual Meeting of Shareholders. You may vote in person by attending the meeting or by completing and returning a proxy by mail, telephone or electronically, using a smartphone, tablet or the internet. To vote your proxy by mail, mark your vote on the proxy card, and follow the mailing directions on the card. To vote your proxy by telephone or electronically using a smartphone, tablet or the internet, follow the instructions on the proxy card. The proxy holders will vote your shares according to your directions. If you sign and return your proxy card but do not mark any selections, your shares represented by that proxy will be voted as recommended by the Board.
Whether or not you plan to attend the meeting, we encourage you to vote by proxy as soon as possible. A shareholder giving the accompanying proxy by mail has the power to revoke or change it at any time prior to its exercise upon written notice given to the Secretary of the Company. Please note that, in order to be effective, the revocation or change must be received by 11: 59 p.m. EDT on May 14, 2018. The mailing address of the principal executive offices of the Company is 1000 Cranberry Woods Drive, Cranberry Township, PA 16066. A shareholder voting the proxy by telephone or internet has the power to revoke or change such proxy vote by voting again and following the instructions and meeting the deadlines for such vote as set forth on the proxy card.
VOTING SECURITIES AND RECORD DATE
As of February 14, 2018, the record date for the Annual Meeting, 38,226,471 shares of Common Stock were issued and outstanding.
Only holders of Common Stock of the Company of record on the books of the Company at the close of business on February 14, 2018, are entitled to notice of and to vote at the Annual Meeting and at any adjournment thereof. Such holders are entitled to one vote for each share held and do not have cumulative voting rights with respect to the election of directors. Holders of outstanding shares of the Companys 4 1/2% Cumulative Preferred Stock are not entitled to vote at the meeting.
See Stock Ownership on page 50 below for information with respect to share ownership by the directors and executive officers of the Company and the beneficial owners of 5% or more of the Companys Common Stock.
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ELECTION OF DIRECTORS
At the Annual Meeting, three directors will be elected to serve until the Annual Meeting in 2021, and one director will be elected to serve until the Annual Meeting in 2020. Mr. Thomas W. Giacomini and Ms. Sandra Phillips Rogers, who were elected as directors by the Board in 2017, were nominated by the Board for election in the Class of 2021, along with Mr. John T. Ryan III. Mr. Nishan J. Vartanian, who was elected as a director by the Board in 2017, was nominated by the Board for election in the Class of 2020.
Mr. Giacomini was elected to be a director by the Board on June 4, 2017, Ms. Rogers was elected to be a director by the Board on October 26, 2017, and Mr. Vartanian was elected to be a director by the Board on December 13, 2017. The Company is now requesting the shareholders to re-elect Messrs. Giacomini and Vartanian and Ms. Rogers.
Mr. Giacomini was recommended to the Board by a third party search firm retained by the Board. That search firm evaluated and provided information to the Nominating and Corporate Governance Committee concerning prospective candidates, which the committee took into consideration in forming its recommendations to the Board. Following the search and selection process, Mr. Giacomini was elected by the Board. Ms. Rogers was recommended to the Board by a third party advisor to the Company and was vetted by a third party search firm retained by the Board. Following the review process, Ms. Rogers was elected by the Board.
In December 2017, the Company announced that Mr. William M. Lambert intends to retire as Chief Executive Officer in May 2018 but is expected to continue as a director at the Company. The Company also announced that Mr. Vartanian was elected to the Board as part of a planned management succession.
Director Thomas H. Witmer retired from the Board of Directors in January 2018, after 20 years of service on the Board.
The Board of Directors and its Nominating and Corporate Governance Committee recommend a vote FOR the election of the nominees, each of whom has consented to be named as a nominee and to serve if elected. Properly submitted proxies that are timely received will be voted for the election of the nominees named below, unless otherwise directed thereon, or for a substitute nominee designated by the Nominating and Corporate Governance Committee in the event a nominee named becomes unavailable for election.
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The following table sets forth certain information about the nominees, all of whom are currently members of the Board, and about the other directors whose terms of office will continue after the Annual Meeting.
Nominees for terms expiring in 2021
Thomas W. Giacomini, Chairman, President and CEO of JBT Corporation (a leading global technology solutions provider to the food and aviation industries) since May 2014; prior thereto, Mr. Giacomini was President and CEO of JBT Corporation from September 2013 to May 2014. Prior to his roles with JBT Corporation, Mr. Giacomini served as President and CEO of Dover Engineered Systems (a segment of 14 diversified industrial companies for Dover Corporation).
Qualifications: Mr. Giacomini is presently the CEO of a publicly traded international corporation, bringing to the Companys board specific expertise in managing a large, diversified global manufacturing business, along with specific expertise in management, manufacturing, and engineering.
Committees: Audit |
Age: 53 Director Since: 2017 | |
Sandra Phillips Rogers, Group Vice President, General Counsel, Chief Legal Officer and Corporate Secretary for Toyota Motor North America, Inc. (TMNA) (a leading automobile manufacturer and seller) since April 2017; prior thereto, Ms. Rogers was Group Vice President, General Counsel and Chief Legal Officer of TMNA from April 2015 to April 2017; Vice President and Deputy General Counsel for Toyota Motor Sales, U.S.A., Inc. (TMS) from July 2014 to March 2015; and Vice President and Assistant General Counsel for TMS from June 2012 to July 2014. Prior to joining Toyota, Ms. Rogers was a partner at the global law firm of Morgan, Lewis & Bockius.
Qualifications: Given her substantial legal experience, along with her executive experience, Ms. Rogers offers the board strong expertise in the legal and operational aspects of managing a large manufacturing company.
Committees: Audit; Law |
Age: 52 Director Since: 2017 | |
John T. Ryan III, Retired (2008); formerly Chief Executive Officer and Chairman of the Company.
Qualifications: Mr. Ryan joined MSA in 1969 and held numerous executive positions throughout his tenure with the Company. He retired as Chief Executive Officer in 2008 after four decades of employment with the Company. Mr. Ryan remains on the board as a director. As the former CEO and long tenured senior executive for the Company, Mr. Ryan brings to the board extensive leadership experience and specific expertise in corporate strategy oversight and execution, as well as extensive safety products industry expertise, particularly in international markets.
Committees: Finance; Law; Nominating and Corporate Governance |
Age: 74 Director Since: 1981 |
Nominee for term expiring in 2020
Nishan J. Vartanian, President and Chief Operating Officer of the Company since June 2017. Prior thereto, Mr. Vartanian was Senior Vice President and President, MSA Americas from July 2015 to June 2017; Vice President and President, MSA North America from August 2013 to July 2015; and Vice President, Fixed Gas and Flame Detection from December 2012 to August 2013.
Qualifications: Mr. Vartanian has served MSA as an employee for 32 years, joining the company as a sales representative, and has worked in a number of executive management capacities over the past six years. As the Companys President and Chief Operating Officer, and given his long tenure with the Company, Mr. Vartanian brings to the board extensive experience in the Companys business with particular expertise in the oversight and execution of the Companys business strategy, along with product development, marketing, sales, finance and the global safety products industry. |
Age: 58 Director Since: 2017 |
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Continuing Directors with terms expiring in 2019
Robert A. Bruggeworth, President and Chief Executive Officer, and a Director of Qorvo, Inc. (high-performance RF components and compound semiconductors manufacturer) since January 2015. Prior to the merger of RF Micro Devices, Inc. (RFMD) and TriQuijnt Semiconductor, Inc. to form Qorvo, Inc., he was President and CEO of RFMD.
Qualifications: As the CEO of a publicly traded international corporation, Mr. Bruggeworth brings to the Companys board specific expertise in managing a large, global business, along with specific expertise in mergers and acquisitions, manufacturing, marketing and material sourcing for high technology products.
Committees: Compensation, Nominating and Corporate Governance. |
Age: 56 Director Since: 2007 | |
Alvaro Garcia-Tunon, Retired (2014); formerly Executive Vice President and Chief Financial Officer of Wabtec Corporation (a provider of products and services for the global rail industry) since February 2012; prior thereto Mr. Garcia-Tunon was Executive Vice President, Chief Financial Officer and Secretary of Wabtec; currently a Director of Matthews International Corporation and Allison Transmission Holdings, Inc.
Qualifications: As a former Chief Financial Officer of a publicly traded international corporation, Mr. Garcia-Tunon has broad skills in overseeing a large international business, along with specific mergers and acquisitions, corporate governance and risk management expertise. He also provides the Companys board with strong financial and accounting expertise. Mr. Garcia-Tunon is also an attorney and CPA.
Committees: Audit (Chair); Finance; Law |
Age: 65 Director Since: 2012 | |
Rebecca B. Roberts, Retired (2011); formerly President of Chevron Pipe Line Company since 2006, a wholly owned subsidiary of Chevron Corp.
(a petroleum
Qualifications: As the former President of a large oil and gas company, combined with her prior international executive leadership positions, Ms. Roberts brings to the Companys board significant international business management, operations and workplace safety expertise, along with extensive oil, gas and petrochemical industry expertise.
Committees: Compensation (Chair); Nominating and Corporate Governance |
Age: 65 Director Since: 2013 |
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Continuing Directors with terms expiring in 2020
Diane M. Pearse, Chief Executive Officer and President, Hickory Farms, LLC (a specialty foods company) since March 2016. Ms. Pearse was Chief Operating Officer, Garrett Brands, LLC from May 2015 to March 2016, and prior thereto, Ms. Pearse was Senior Vice President, Operations and Merchandising for Redbox Automated Retail, LLC (a fully automated DVD rental company).
Qualifications: Ms. Pearse brings extensive financial, accounting, and operational expertise to the Companys board, given her substantial financial oversight experience and business leadership for several large consumer products and retail companies.
Committees: Audit; Compensation; Finance (Chair); Law |
Age: 60 Director Since: 2004 | |
L. Edward Shaw, Jr., Retired (2005) from full time position as Independent Counsel to the Board of Directors of the New York Stock Exchange on regulatory matters; retired (2010) from part time position as Senior Managing Director of Breeden Capital Management LLC (investment management and multi-disciplinary professional services firm); currently a Director of Encompass Health Corporation (previously HealthSouth Corporation). Formerly served in senior legal and executive roles with three international financial institutions including The Chase Manhattan Bank and as a partner in a major international law firm.
Qualifications: Given his substantial legal experience, along with his executive experience with three international financial institutions, Mr. Shaw offers the board strong expertise in the legal and financial aspects of operating an international company, including specific skills in corporate governance, risk management and mergers and acquisitions. Mr. Shaw is the brother-in-law of Mr. Ryan.
Committees: Finance; Law (Chair); Nominating and Corporate Governance (Chair) |
Age: 73 Director Since: 1998 | |
William M. Lambert, Chairman and Chief Executive Officer of the Company; Mr. Lambert was elected Chairman in May 2015. Mr. Lambert is currently a Director of Kennametal Inc.
Qualifications: Mr. Lambert has served MSA as an employee for over 35 years, joining the company as a design engineer, and has worked in a number of executive capacities for more than 20 years. As the Companys Chairman and CEO, and given his long tenure with the Company, Mr. Lambert brings to the board extensive experience in the Companys business with particular expertise in the oversight and execution of the Companys business strategy, along with product development, marketing, finance and the global safety products industry. |
Age: 59 Director Since: 2007 |
The Board has determined that each of directors Bruggeworth, Garcia-Tunon, Giacomini, Pearse, Roberts, Rogers, Ryan, and Shaw is an independent director. An independent director is a director who has no material relationship with the Company, either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company. The independent directors have specifically considered and determined that Mr. Ryan, who retired as CEO of the Company over nine years ago, is an independent director (along with his brother-in-law Mr. Shaw). One reason for this is that, given Mr. Ryans substantial ownership interest in MSA (see Stock Ownership, page 50 below), he is particularly aligned in independently representing the interests of shareholders.
In making its independence determinations, the Board reviewed the directors individual circumstances, the corporate governance standards of the New York Stock Exchange and the Boards independence standards. These standards are available in the Corporate Governance section of the Companys internet website at www.MSAsafety.com. They are summarized below.
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Disqualifying Relationships
The following relationships are considered to be material relationships that would impair a directors independence:
| If a director is an employee or has an immediate family member who is an executive officer of the Company, the director is not independent until three years after the end of the employment relationship. |
| If a director or an immediate family member receives more than $120,000 per year in direct compensation from the Company, the director is not independent until three years after the director or family member ceases to receive such compensation. Disqualifying compensation does not include director and committee fees, pension or deferred compensation for prior service or compensation received by an immediate family member for service as a non-executive officer employee. |
| If: |
| the director is a partner of or employed by, or the directors immediate family member is a partner of, the firm that is the present internal or external auditor of the Company; |
| the directors immediate family member is employed by the firm that is the present internal or external auditor of MSA and such family member personally works on the Companys audit; or |
| the director, or the directors immediate family member, was within the last three years a partner or employee of the present internal or external auditor of MSA and personally worked on the Companys audit within that time. |
| If a director or an immediate family member is an executive officer of another company, and any of the Companys present executives serves on that companys compensation committee, the director is not independent until three years after the end of such employment or service. |
| If a director is an employee or an immediate family member is an executive officer of a company that makes payments to or receives payments from the Company for property or services, and the amount of such payments in a fiscal year exceeds the greater of $1 million or 2% of the other companys consolidated gross revenue, the director is not independent until three years thereafter. |
Non-Disqualifying Relationships
The following relationships are not considered to be material relationships that would impair a directors independence:
| A director is an executive officer of another company that is indebted to the Company, or to which the Company is indebted, in an amount less than 5% of the other companys total consolidated assets; |
| A director is an executive officer of another company in which the Company owns a common stock interest less than 5% of the other companys total shareholders equity; |
| A director serves as an executive officer of a charitable organization, and the Companys discretionary contributions to the organization are less than 2% of the organizations annual revenue; or |
| A director is an executive officer of another company that owns a common stock interest in the Company. |
Other Relationships
The Board will annually review commercial and charitable relationships of directors. If a relationship is not one of the non-disqualifying relationships described above, the determination of whether the relationship is material or not, and therefore whether the director is independent or not, is made by the directors who satisfy the independence guidelines set forth under the two preceding captions.
For example, if a director is the executive officer of a charitable organization, and the Companys discretionary contributions to the organization are more than 2% of that organizations annual revenue, the independent directors will determine, after considering all of the relevant circumstances, whether the relationship is material, and therefore whether or not the director should be considered independent. The Company will explain in its proxy statement the basis for any Board determination that a relationship is not material, despite the fact that it does not meet one of the safe-harbors under Non-Disqualifying Relationships above.
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Independence Determinations for Compensation Committee Members
In affirmatively determining the independence of any director who will serve on the Compensation Committee, the Board will consider all factors specifically relevant to determining whether the director has a relationship to the Company which is material to the directors ability to be independent from management in connection with the duties of a compensation committee member, including, but not limited to (i) the source of compensation of such director, including any consulting, advisory or other compensatory fee paid by the Company to such director, and (ii) whether such director is affiliated with the Company, a subsidiary of the Company, or an affiliate of a subsidiary of the Company.
The Board places a continued focus upon the corporate governance affairs of the Company and acknowledges that good corporate governance is an ongoing process. The Board also recognizes that good corporate governance is important to the Companys success. Key Company governance practices are described below.
Corporate Governance Guidelines
The Board has adopted Corporate Governance Guidelines which cover a wide range of subjects, such as the role of the Board and its responsibilities, Board composition and election, operations and committees, lead director responsibilities, director compensation, director retirement, Board and management evaluation and succession planning, director orientation and training, and shareholder communications with the Board. The Corporate Governance Guidelines, as well as the charters of the Boards Audit, Compensation, Nominating and Corporate Governance, Finance and Law Committees and the Companys Global Code of Business Conduct for directors, officers and employees, are available in the Corporate Governance section of the Companys internet website at www.MSAsafety.com. Such material will also be furnished without charge to any shareholder upon written request to the Corporate Secretary at the Companys address appearing on page one.
Board Leadership
The Board presently combines the position of Chairman of the Board and Chief Executive Officer. The current Chairman and Chief Executive Officer is Mr. Lambert, who was elected Chairman in May 2015. Prior to his election as Chairman, Mr. Lambert served as a director and Chief Executive Officer. Mr. Ryan served as Non-Executive Chairman until May 2015. The Chairman is elected annually by the Board at its organizational meeting in May.
The Board periodically reviews its leadership structure and did so in May 2017. The Board believes that Mr. Lambert is presently best positioned to serve as Chairman given his familiarity with the Companys business, the safety products industry, and the oversight and execution of the Companys corporate strategy. The Board also presently believes that this structure allows for one person to speak for and to lead the Company and the Board. The Board has separated the roles in the past and may choose to do so again in the future. The decision by the Board on whether to combine or separate the roles is based upon the needs of the Company and Board at a given time. In connection with Mr. Lamberts planned retirement as Chief Executive Officer in May 2018, the Board intends to again review its leadership structure.
The Board also believes that it is in the best interests of the Company to maintain effective independent board oversight. Accordingly, the Board annually selects a lead independent director (the lead director) to further augment its corporate governance practices. Mr. Bruggeworth has served as lead independent director since May 2017. Prior to Mr. Bruggeworth, Mr. Thomas H. Witmer, who retired as a director in January 2018, served as lead director.
The Chairman presides at Board meetings and collaborates with the lead director to establish the annual Board calendar and set meeting objectives and agendas. The Chairman also chairs the annual meeting of shareholders, speaks for the Company to its shareholders, and carries out other responsibilities as may be set forth in the Corporate Governance Guidelines or be requested from the Board from time to time.
The lead director serves as a liaison between the independent directors and the CEO, including regular communications with directors to obtain their views and advice, to work to improve Board performance, to facilitate communications among directors, and to communicate to the CEO the concerns of the independent directors; convenes meetings of the independent
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directors as necessary, and presides at all executive sessions of the Boards independent directors; ensures that input is received from directors and management with respect to meeting agendas and schedules; retains outside advisors to be engaged by the Board on board-wide matters, as needed; together with the Chair of the Compensation Committee, contributes to the annual performance evaluation summary of the CEO and participates in its communication to the CEO; collaborates with the CEO to ensure that contributions are made by all directors during meetings, that differences of opinion are freely expressed, and that discussion is driven to a timely conclusion while building consensus as appropriate; and collaborates with the CEO to ensure that meeting goals and objectives are clearly defined and met, and to ensure prioritization and appropriate follow-through on actions from meeting to meeting. The lead director will pay particular attention to assuring that the Board adequately addresses long term strategy, long term performance, risk management, and succession planning.
The Board maintains an active structure of independent director leadership. In furtherance of this, the Corporate Governance Guidelines provide that it is the Companys practice for the independent directors to meet at each Board meeting in executive session, with no members of management present. The lead director chairs the executive sessions. The audit, compensation, nominating and corporate governance, finance and law committees are also each comprised solely of and led by an independent director, as defined by the director independence standards of the New York Stock Exchange and the Boards independence standards.
Board, Committee, Individual Director and Lead Director Assessments
The Nominating and Corporate Governance Committee oversees self-assessment processes for the Board and the audit, compensation and nominating and corporate governance committees, along with peer assessments for each director and the lead director. The purpose of the Board and committee assessments is to continually enhance the effectiveness of the Board and its committees. The Board self-assessment gathers feedback on a range of topics such as the Boards overall effectiveness, governance structure, board and management dynamics, meeting administration, and other topics. The committee self-assessments are tailored to the specific roles and responsibilities of each committee.
The purpose of the individual director and lead director peer assessments is to provide feedback to each director, enabling them to continually enhance their performance, and to inform the Nominating and Corporate Governance Committee as to each directors fitness for re-nomination.
The Board, committee and lead director assessments are conducted annually. The individual director peer assessments are conducted two out of every three years for each director, to coincide with the Boards classified structure.
Director Tenure, Succession and Recruitment
The Board periodically considers its composition and acknowledges the significance of board refreshment. The present mix of director tenures provides the Board with the contribution of new and diverse ideas while ensuring continuity and insight developed through a deep understanding of the Company and its industry. Ms. Rogers and Messrs. Giacomini and Vartanian have served for less than one year; Ms. Roberts and Mr. Garcia-Tunon have served for five and six years, respectively; Mr. Bruggeworth, Mr. Lambert and Ms. Pearse have served from 11 to 13 years; and Messrs. Ryan and Shaw have served for more than 15 years.
The Nominating and Corporate Governance Committee is responsible for identifying and reviewing potential director candidates and for recommending nominees to the Board. The Committee will consider director candidate recommendations from a variety of sources, including from a shareholder, a non-management director, the chief executive officer, any other executive officer, a third party search firm, or other appropriate sources. In evaluating all potential candidates, the Committee is guided by an executive skills matrix of the Companys current directors to identify specific needs, and a defined list of director recruitment criteria maintained by the Committee. The fundamental criterion for selecting a prospective director is the ability to contribute to the well-being of the Company and its shareholders. Good judgment, integrity and a commitment to the mission of the Company are essential. Other criteria include independence under the Boards independence standards, a commitment to the mission and values of the Company, applicable business experience, current chief executive officer or other C-Suite experience, merger and acquisition experience, additional public company board experience and other criteria. The Committee may revise and/or prioritize its director recruitment criteria depending on the current needs of the Board and the Company.
In preparing its candidate recommendations to the Board, the Committee also considers, but does not choose solely on the basis of, the distinctive experiences and perspectives of diverse candidates. In evaluating diversity, the Committee and
8
the Board consider not only race, national origin, and gender diversity, but also the need for a Board that represents diverse experience at policy making levels in business, past professional accomplishments, and other factors when recommending prospective directors for the Company. The director recruitment criteria described above, including diversity, are considered by the Committee each time a new candidate is reviewed for Board membership.
Director Resignation Policy
The Board has adopted a resignation policy with respect to uncontested director elections. In accordance with this resignation policy, a director nominee who does not receive a majority of the votes cast in an uncontested election of directors must promptly tender a resignation to the Board. The Boards procedures for identifying an uncontested election of directors, determining the majority of votes cast, and responding to a tender of resignation, are specified in the Corporate Governance Guidelines, which are available in the Corporate Governance section of the Companys website at www.MSAsafety.com.
Director Retirement
Pursuant to the Boards existing retirement policy as set forth in the Corporate Governance Guidelines, directors are expected to retire from the Board at the annual meeting of shareholders in the year of their 75th birthday, subject to the authority of the Board to ask a director to serve past the normal retirement date if the Board determines that doing so is in the best interests of the Company. The policy includes an exception, pursuant to which directors beneficially owning five percent or more of the Companys common stock are exempt from the policy. Only one director presently qualifies for this exception.
Meeting Attendance
The Board met ten times during 2017. All directors attended at least 75% of the combined total of the meetings of the Board and of all committees on which they served. Directors are expected to attend the Annual Meeting of Shareholders. All directors attended last years annual meeting.
The Board has established an Audit Committee, a Compensation Committee, a Nominating and Corporate Governance Committee, a Finance Committee, a Law Committee and certain other committees. Each committee specified below presently consists of the directors listed. Committee appointments will expire at the 2018 organizational meeting of the Board which takes place following the Annual Meeting of Shareholders. At the organizational meeting of the Board, committee appointments will be made for the following year.
The Audit Committee presently consists of directors Garcia-Tunon (Chair), Giacomini, Pearse and Rogers. The Audit Committee, which met seven times during 2017, assists the Board in fulfilling its oversight responsibility relating to the integrity of the Companys financial statements and financial reporting process. The Committee selects and recommends annually to the Board and the shareholders the independent registered public accounting firm to audit the Companys financial statements, approves in advance all audit and non-audit services performed by the independent registered public accounting firm, reviews the plans, findings and recommendations of the independent registered public accounting firm, and reviews and evaluates the performance of the independent registered public accounting firm, its independence and its fees. The Committee reviews and discusses with management and the independent registered public accounting firm the Companys financial statements and reports and its internal and disclosure controls and matters relating to the Companys internal control structure. The Committee oversees the Companys Global Code of Business Conduct and related Company programs governing legal and regulatory compliance, which includes a periodic review with management of the implementation and effectiveness of the Companys compliance programs. The Committee, along with the Board, also oversees the Companys enterprise risk management program. Pursuant to this program, the Committee reviews with management the Companys analyses of risks and contingency plans on a bi-annual basis. The Board has determined that each of directors Garcia-Tunon and Pearse is an audit committee financial expert, as defined by the rules of the Securities and Exchange Commission.
The Compensation Committee presently consists of directors Bruggeworth, Pearse, and Roberts (Chair). The Compensation Committee, which met five times in 2017, reviews and recommends (to the independent directors for approval) the annual goals, performance and compensation of the Companys chief executive officer, reviews and approves the compensation of all other executive officers and other key executives, monitors the effectiveness of all other employee
9
benefit offerings, manages the Companys overall compensation strategy and compensation plans, assesses any risk inherent in these plans and attempts to ensure that such risk is not excessive and is acceptable to the Company and employs, compensates and oversees the Companys external compensation consultant and assures its independence. The Compensation Committee also administers the Companys Amended and Restated 2016 Management Equity Incentive Plan and predecessor equity plans (collectively, the Management Equity Plans).
The Nominating and Corporate Governance Committee presently consists of directors Bruggeworth, Roberts, Ryan, and Shaw (Chair). The Committee, which met three times in 2017, reviews and makes recommendations to the Board regarding the composition and structure of the Board, criteria and qualifications for Board membership, director compensation and evaluation of current directors and potential candidates for director. The Committee maintains formal processes for evaluating the performance of the Board, the lead director, and the individual directors. It is also responsible for establishing and monitoring policies and procedures concerning corporate governance. Further information concerning the Nominating and Corporate Governance Committee and its procedures appears below. The Nominating and Corporate Governance Committee and the Board continually assess the Companys Corporate Governance Guidelines and the corporate governance practices of the Board.
The Finance Committee presently consists of directors Garcia-Tunon, Pearse (Chair), Ryan and Shaw. The Committee, which met two times in 2017, reviews and makes recommendations to the Board regarding the Companys capital structure, dividend policy, financing activities, hedging policies and practices, funding of the Companys employee benefit plans, liquidity management, corporate financial plans, and strategic financial analyses as requested by the Board.
The Law Committee presently consists of directors Garcia-Tunon, Pearse, Rogers, Ryan and Shaw (Chair). The Committee, which met five times in 2017, reviews legal matters that could present significant financial risk to the Company.
The Board as a whole exercises oversight of the Companys strategic risks and other risks identified through the Companys enterprise risk management program. Strategic risks are identified in the course of the Boards review and approval of the Companys plans and there is regular monitoring of the Companys performance against the strategic objectives including customer satisfaction metrics as well as periodic review of the activities of competitors. The Board, directly and through its Audit Committee, also has oversight of the enterprise risk management program which is managed by the Chief Financial Officer. The enterprise risk management program is designed to enable effective and efficient identification and management of critical enterprise risks and to facilitate the incorporation of risk considerations into decision making. The Director of Financial Planning and Analysis is responsible for leading the formal risk assessment and reporting process within the Company. Through consultation with the Companys executive leadership, the Director of Financial Planning and Analysis, periodically assesses the major risks facing the Company and works with the executive leadership team and others responsible for managing each risk to identify and consider appropriate mitigation elements to each risk, and develop risk contingency plans as appropriate. This analysis is reviewed two times each year with the Audit Committee and annually with the full Board, and input from the Board is considered in the analysis. Emerging risks are discussed as needed.
In addition to the Board oversight described above, each committee has various risks that it oversees. For example, the Audit Committee is responsible for reviewing the Companys risk management policies and procedures, as well as its major financial risk exposures, and the processes management has established to monitor and control such exposures. The Compensation Committee monitors risk inherent in the Companys compensation policies, compensation practices, and similar matters related to the recruitment and retention of employees, and periodically receives educational legislative and regulatory updates. The Nominating and Corporate Governance Committee monitors risks related to Board performance and the Companys governance practices.
The Compensation Committee has evaluated the risks arising from the Companys compensation policies and practices for its employees. This included a review of examinations by Pay Governance, LLC, the Compensation Committees compensation consultant, of the compensation philosophy, design, governance and administration of compensation policies and practices provided to MSAs executives. The review also considered information developed by management regarding programs provided to other non-executive employees. Based on this, the Committee concluded again in 2017 that the risks
10
arising from the Companys compensation policies and practices for its employees are not reasonably likely to have a material adverse effect on the Company.
The following table shows the compensation earned by the Companys non-employee directors for services during 2017:
Name
|
Fees Earned or
|
Restricted Stock
|
Changes in
|
Total
|
||||||||||||
Robert A. Bruggeworth
|
$
|
98,413
|
|
$
|
120,028
|
|
|
|
|
$
|
218,441
|
| ||||
Alvaro Garcia-Tunon
|
$
|
90,000
|
|
$
|
120,028
|
|
|
|
|
$
|
210,028
|
| ||||
Thomas W. Giacomini (1)
|
$
|
42,857
|
|
$
|
110,040
|
|
|
|
|
$
|
152,897
|
| ||||
Diane M. Pearse
|
$
|
80,000
|
|
$
|
120,028
|
|
|
|
|
$
|
200,028
|
| ||||
Rebecca B. Roberts
|
$
|
82,795
|
|
$
|
120,028
|
|
|
|
|
$
|
202,823
|
| ||||
Sandra Phillips Rogers (2)
|
$
|
13,655
|
|
$
|
60,047
|
|
|
|
|
$
|
73,702
|
| ||||
John T. Ryan III
|
$
|
75,000
|
|
$
|
120,028
|
|
$
|
2,592
|
|
$
|
197,620
|
| ||||
L. Edward Shaw Jr.
|
$
|
90,000
|
|
$
|
120,028
|
|
$
|
818
|
|
$
|
210,846
|
| ||||
Thomas H. Witmer (3)
|
$
|
86,291
|
|
$
|
120,028
|
|
$
|
491
|
|
$
|
206,810
|
|
(1) | Reflects prorated cash and equity compensation amounts based upon Mr. Giacominis election to the Board on June 4, 2017. |
(2) | Reflects prorated cash and equity compensation amounts based upon Ms. Rogers election to the Board on October 26, 2017. |
(3) | Mr. Witmer retired from the Board in January 2018 and will not receive compensation for 2018. |
(4) | Represents the aggregate grant date fair value of the restricted stock awards computed in accordance with FASB ASC Topic 718. |
(5) | Represents the amount of the aggregate increase for 2017 in the actuarial present value of the directors accumulated benefits, if any, under the Retirement Plan for Directors described below. Only Messrs. Ryan, Shaw and Witmer are entitled to benefits under such Plan. |
For 2017, the Company paid non-employee directors a base retainer on a quarterly basis which totaled $75,000 for the year (Annual Base Retainer). The Company paid the lead director an additional retainer of $30,000. The additional annual retainer for the Audit Committee chair was $15,000, for the Compensation Committee chair was $12,500, for the Nominating and Corporate Governance and Law Committee chair was $7,500, and for the Finance Committee chair was $5,000.
Non-employee directors are required to meet a share ownership guideline, equivalent to five times the Annual Base Retainer. Presently, all directors exceed the ownership guidelines except for Mr. Giacomini and Ms. Rogers, each of whom were elected to the Board in 2017.
Under the 2017 Non-Employee Directors Equity Incentive Plan and its predecessors (collectively, the Director Equity Plans), the Company grants stock options, restricted stock, or a mix of each, to each non-employee director on the third business day following each annual meeting. Pro rata awards are authorized under the 2017 plan for directors who join the Board during the period between annual awards. The purposes of the Director Equity Plans are to enhance the mutuality of interests between the Board and the shareholders by increasing the share ownership of the non-employee directors and to assist the Company in attracting and retaining able persons to serve as directors. The total number of shares that may be issued under the 2017 plan is limited to 150,000 shares of Common Stock.
Stock option grants, if awarded, are made using a Black-Scholes option pricing model. The exercise price of the options is equal to the market value on the grant date. The options become exercisable three years from the grant date and expire ten years from the grant date. If a director resigns or is removed from office for cause, options which have not yet become exercisable are forfeited and exercisable options remain exercisable for 90 days. However, under the 2017 plan, if a director is removed from office for cause, any outstanding option held by the director is forfeited on the date of removal. Otherwise, unexpired options may generally be exercised for five years following termination of service as a director, but not later than the option expiration date. Restricted shares vest on the date of the third annual meeting following the grant date. Unvested shares are forfeited if the director terminates service for reasons other than death, disability or retirement.
On May 22, 2017 each non-employee director was granted 1,506 shares of restricted stock. Stock options were not granted to non-employee directors in 2017.
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It is the practice of the Nominating and Corporate Governance Committee to periodically engage an independent compensation consultant to review the compensation of the non-employee directors. A consultant was last engaged in 2016. Following the Committees review of director compensation, the Board determined that director compensation would not change in 2018.
Prior to April 1, 2001, a director who retired from the Board after completing at least five years of service as a director was entitled to receive a lifetime quarterly retirement allowance under the Retirement Plan for Directors. The amount of the allowance was equal to the quarterly directors retainer payable at the time of the directors retirement. Payment began when the sum of the directors age and years of service equaled or exceeded 75. Effective April 1, 2001, plan benefits were frozen so that the quarterly retirement allowance, if any, payable to future retirees will be limited to $5,000 (the quarterly retainer amount in April 2001), multiplied by a fraction, of which the numerator is the directors years of service as of April 1, 2001 and the denominator is the years of service the director would have had at the date the sum of the directors age and years of service equaled 75.
Other than the amounts earned by Mr. Ryan while he was an employee of the Company prior to the Retirement Plan for Directors being frozen as described above, directors who are employees of the Company or a subsidiary do not receive other additional compensation for service as a director.
Compensation Committee Interlocks and Insider Participation
There are no interlocking relationships, as defined in regulations of the Securities and Exchange Commission, involving members of the Compensation Committee.
Directors Bruggeworth, Pearse, Roberts (Chair) and Witmer (retired January 2018) served as members of the Compensation Committee during 2017. The Board has determined that each of these directors is independent in accordance with the listing standards of the New York Stock Exchange.
Review and Approval or Ratification of Related Party Transactions
The Company has a policy on related party transactions which operates along with the conflicts of interest section of the Companys Global Code of Business Conduct. Copies of the policy on related party transactions and the Code are available in the Corporate Governance section of the Companys internet website at www.MSAsafety.com.
The Companys directors, officers and other employees must be free from any personal influence, interest or relationship, or appearance thereof, in situations that might conflict with the best interests of the Company. Directors, officers and employees must fully disclose in advance any circumstance that may create a conflict of interest, including a related party transaction, so that an appropriate determination can be made as to whether it would violate the policy on related party transactions or the Code.
In general, the related party transactions policy covers any transaction, arrangement or relationship in which the Company is a participant and the amount involved exceeds $120,000, and in which any related person had or would have a direct or indirect material interest. A related person is any executive officer, director or nominee, any owner of 5% or more of the Companys voting securities or an immediate family member of any of the foregoing. The policy covers indirect material interests, but excludes certain relationships and pre-approved transactions.
Any officer, director or employee of the Company who is aware of a proposed transaction that may violate the policy must bring such transaction to the notice of the Chief Legal Officer and Chief Financial Officer of the Company. If the Chief Legal Officer or Chief Financial Officer determines that the proposed transaction could be a related party transaction, the matter will be submitted to the Nominating and Corporate Governance Committee to consider all material facts of the transaction. The Committee is charged with taking a number of items into account as set forth in the policy and determining whether the transaction is indeed a related party transaction and if so, whether it should be approved in any particular case. The types of matters which the Committee will take into account are:
| the nature of the related partys interest in the transaction; |
| the material terms of the transaction, including the amount and type of the transaction; |
12
| the importance of the transaction to the related party; |
| the importance of the transaction to the Company; |
| whether the terms of the transaction are comparable to those of similar transactions not involving related parties; and |
| whether the transaction would impair the judgment of a director or executive officer to act in the best interests of the Company. |
The Committee chair will report on any decision at the next meeting of the Board.
Nominating and Corporate Governance Committee Procedures
The current members of the Nominating and Corporate Governance Committee are directors Bruggeworth, Roberts, Ryan and Shaw (Chair), whose terms as Committee members will expire at the 2018 organizational meeting of the Board to be held on the date of the Annual Meeting of Shareholders. The Board has determined that each of the current members of the Committee is independent in accordance with the listing standards of the New York Stock Exchange.
The Committee will consider director candidate recommendations from a variety of sources, including from a shareholder, a non-management director, the chief executive officer, any other executive officer, a third party search firm, or other appropriate sources. Any shareholder who desires to have an individual considered for nomination by the Committee must submit a recommendation in writing to the Secretary of the Company, at the Companys address appearing on page one, not later than 90 days in advance of the annual meeting at which the election is to be held. The recommendation should include the name and address of both the shareholder and the candidate and the qualifications of the candidate recommended.
The Committee determines a process for identifying and evaluating nominees for director on a case by case basis, considering the context in which such nomination is being made. It is not anticipated that the process for evaluating a nominee would differ based on whether the nominee is recommended by a shareholder.
BOARD RECOMMENDATION AND REQUIRED VOTE
PROPOSAL NOS. 1 AND 2: ELECTION OF DIRECTORS
In the election of directors for terms expiring in 2021, the three candidates receiving the highest numbers of votes cast by the holders of Common Stock voting in person or by proxy will be elected as directors, subject to the resignation policy described above. In the election of a director for a term expiring in 2020, the candidate receiving the highest number of votes cast by the holders of Common Stock voting in person or by proxy will be elected as a director, subject to the resignation policy described above.
A proxy vote indicated as withheld from a nominee will not be cast for such nominee but will be counted in determining whether a quorum exists for the meeting. Shares for which neither a vote for or withheld is selected (e.g., broker non-votes) will not be counted in determining the total votes cast for this matter.
The Companys Restated Articles require that any shareholder intending to nominate a candidate for election as a director must give written notice, containing specified information, to the Secretary of the Company not later than 90 days in advance of the meeting at which the election is to be held. No such notices were received with respect to the 2018 Annual Meeting. Therefore, only the nominees named above will be eligible for election at the meeting.
The Board of Directors and its Nominating and Corporate Governance Committee recommend a vote FOR the election of the nominees, each of whom has consented to be named as a nominee and to serve if elected. Properly submitted proxies which are timely received will be voted for the election of the nominees named below, unless otherwise directed thereon, or for a substitute nominee designated by the Nominating and Corporate Governance Committee in the event a nominee named becomes unavailable for election.
13
COMPENSATION DISCUSSION AND ANALYSIS
|
In this section, we will describe the material components of our executive compensation program for our Named Executive Officers, referred to herein as Named Officers, whose compensation is set forth in the 2018 Summary Compensation Table and other compensation tables contained in this proxy statement:
| William M. Lambert, Chairman and Chief Executive Officer |
| Nishan J. Vartanian, President and Chief Operating Officer |
| Kenneth D. Krause, Vice President, Chief Financial Officer and Treasurer |
| Kerry M. Bove, Senior Vice President and Chief Strategy Officer |
| Douglas K. McClaine, Senior Vice President, Secretary and Chief Legal Officer |
We will also provide an overview of our executive compensation philosophy and our executive compensation program. In addition, we explain how and why the Compensation Committee of the Board (the Committee) arrives at specific compensation policies and decisions involving the Named Officers. These programs and processes are driven by the Committees desire to continually increase shareholder value while assuring sound corporate governance, transparency and alignment with MSAs Vision and Values.
14
COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)
|
Our Business
We are a global manufacturing business with approximately $1.197 billion of revenues from continuing operations in 2017, with operations in North America, South America, Asia, Europe, Middle East, Australia and South Africa. We manufacture and market a wide array of personal protective equipment, including self-contained breathing apparatus (SCBA), fixed gas and flame detection systems, portable gas detection instruments, industrial head protection, fire and rescue helmets, fall protection devices, firefighter protective clothing and various other safety related products.
The primary goal of the Company is to increase shareholder value over the long-term. We believe that this is best accomplished by achieving our vision to be the worlds leading provider of safety solutions that protect workers when life is on the line; continually improving our financial performance; and maintaining a productive, diverse, and motivated workforce. The role of our management and Board is to develop and implement effective long-range strategic plans and annual operating plans to achieve these goals. Compensation programs and performance-based incentives are designed to target the median market compensation for executives when these plans are met, above median compensation when they are exceeded, and below median compensation when they are not met.
For 2017, reported revenues were $1.197 billion, increasing 4% from 2016 on a reported basis and increasing 3% in local currency, reflecting a 1% foreign currency translation tailwind related to the weakening of the U.S. dollar against the euro, Brazilian real and Australian dollar. Local currency revenue from the Companys core product lines increased 7%. Net income from continuing operations was $26 million in 2017 as compared to $92.7 million in 2016. The decline in GAAP earnings is attributable to certain charges which were required to be taken under GAAP and are described in detail in the Companys Form 10-K for 2017. The Company also disclosed in its 2017 earnings release, which is included in a Form 8-K dated February 20, 2018, an adjusted earnings calculation which shows an increase of 34% in adjusted earnings for the Company in 2017 to $141 million, as compared to adjusted earnings of $105 million in 2016. The details of the GAAP earnings as compared to the adjusted earnings are set forth in the Form 8-K. The acquisition of Globe Holding Company, a streamlined cost structure, and a lower effective tax rate were the key drivers of earnings growth in 2017. Cash flow from operating activities was $230 million in 2017 compared to $135 million in 2016, reflecting higher collections of insurance receivables partially offset by higher levels of working capital to support elevated demand across the Companys core product portfolio. In 2017, the Company also invested $216 million in the acquisition of Globe Holding Company and returned $70 million to shareholders through dividend payments and repurchases of common stock.
2017 Executive Compensation Overview
The Committee has developed executive compensation programs comprised of three primary components: salary, performance-related annual incentives, and equity grants which are also largely performance related. In establishing the performance metrics for the 2017 annual incentive, the Committee recognized that MSA would have to continue navigating a challenging economic environment with significant cost reductions, investments in restructuring worldwide, and investments in select strategic initiatives and new product development. The 2017 business plan was designed to position the Company to grow and enter 2018 in a stronger cost competitive position for the years ahead.
The Company had several key areas of focus in 2017 including:
| Financial performance goals |
| Regional business transformation goals |
| Value creation initiatives focused on driving profitable growth |
| Expanding and improving the MSA Customer Experience |
The above areas of focus correlate with the Named Officers performance metrics within the cash incentive plan and contribute to driving working capital, operating profits and consolidated net income. Demonstrating the strong correlation between the Companys performance incentive plans and actual results, our Named Officers earned cash incentive awards pursuant to our annual incentive program, ranging between 82% and 99% of target.
15
COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)
|
To emphasize the importance of pay-for-performance in our compensation philosophy and our Companys culture, the Companys incentive arrangements are based on the achievement of specific performance goals that support our business strategy. Our annual incentive program focuses on achieving key performance metrics such as those mentioned above. Our long-term incentive program includes time-vesting restricted stock units and performance stock units. Our performance stock unit program metrics are operating margin percentage and revenue growth, modified by total shareholder return (TSR) compared to our peer group. Time-vesting restricted stock units vest after three years of continued employment, providing the Company with a valuable retention incentive and alignment with shareholders rewards for increases in stock price. Grants made in 2016 and 2017 have increased in value and remain unvested, thereby providing the Company with important retention benefits.
During 2017, the Committee reviewed the design and administration of all executive compensation programs to ensure that those programs continue to meet our performance requirements, deliver on our Core Principles, and do not promote unnecessary risk-taking. The Committee also reviewed policies such as stock ownership requirements, and compensation recoupment. In addition, long-term incentive vesting provisions, capped incentive awards, and an emphasis on team-based metrics serve to mitigate risk. As a result, the Committee concluded that the Companys compensation programs effectively accomplish their intended goals, and do not promote unwanted risk taking that could be detrimental to the Company.
At the annual shareholders meeting in May 2017, the executive compensation of the Companys Named Officers was approved by our shareholders, with 98.7% of the votes cast voting in favor of the proposal. The Committee considered this vote in connection with its determination of compensation policies and decisions and has concluded that the Company will maintain its existing compensation philosophy for 2018.
Philosophy and Objectives of the Executive Compensation Program
The objectives of MSAs executive compensation programs, which cover not only the five Named Officers in the Summary Compensation Table, but all officers of the Company, are to improve shareholder value over the long-term by attracting, retaining and motivating superior executive talent who will drive robust financial and operational performance and enable the Company to achieve its goals. Our program is guided by a philosophy that strives to align target compensation at the middle (50th percentile) of the market for total direct compensation. Elements of total direct compensation include salary, performance-based cash, equity incentives and benefits. Our program is designed to provide an above-market compensation opportunity for performance exceeding annual budget and peer group norms. We believe that this philosophy enables the Company to attract and retain superior executive talent by providing the opportunity to work in a highly ethical, growing and team-oriented Company.
The design of our compensation programs is driven by the following Core Principles which support our objectives:
CORE PRINCIPLES | OBJECTIVE | |
Executive compensation should be aligned to the achievement of corporate goals and objectives and provide line of sight to annual and long-term corporate strategies without promoting unacceptable levels of risk to the Company. |
Improve shareholder value | |
A significant portion of an executives compensation should be performance-based and should hold executives accountable for the achievement of corporate objectives and increases in shareholder value. |
Improve shareholder value | |
The compensation program should promote an ownership culture through the use of stock-based compensation and ownership guidelines that clearly define expected levels of ownership in MSAs stock. |
Improve shareholder value | |
The compensation program should reward each executives individual performance and unique responsibilities while assuring a fair and competitive approach. |
Attract, retain and motivate superior talent | |
The compensation program should recognize and reward an executives loyalty and tenure with the Company by providing financial security following retirement. |
Attract, retain and motivate superior talent |
16
COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)
|
Components of Executive Compensation Program
Building on these core principles, our executive compensation program contains both cash and stock-based components designed to meet specific objectives of the Committee. The Committee considers both annual and long-term Company goals and strives to develop incentives that motivate executives to achieve these goals. Cash payments are provided through an executives base salary and a performance-based annual incentive. Company stock is provided through the use of time-vesting restricted stock units and performance based stock units. The Committee has chosen to align its cash incentive programs with the achievement of annual internal financial and strategic goals, and its performance based stock units with long-term internal goals based on operating margin percentage and revenue growth modified by TSR performance relative to peers.
Executives participate in a retirement plan that provides for post-employment financial security, and some executives are provided with a limited number of perquisites (company car, financial counseling, and limited club memberships for business use) that the Committee believes serve a business purpose, are common in the market and are of modest cost to the Company. Executives also participate in a severance plan that provides certain benefits to executives should their jobs be terminated following a change in control of the Company. The specific rationale for why the Committee has chosen to provide each element of compensation is as follows:
COMPENSATION COMPONENT |
KEY CHARACTERISTICS | PURPOSE | PRINCIPAL 2017 ACTIONS | |||
Base Salary |
Fixed cash compensation component. Reviewed annually and adjusted, if and when appropriate. | Intended to compensate an officer fairly for the responsibility level of the position held. | Base salary increases for Named Officers in 2017 ranged from 2.3% to 3.3% based on the 2016 performance year and individual performance review, and where the executive fell with respect to market median. | |||
Annual Incentive Awards |
Variable cash compensation component. Payable based on corporate and business unit performance. | Intended to motivate and reward officers for achieving our annual business objectives that drive overall performance. | The Named Officers received annual incentive awards in 2018 for 2017 performance ranging from $155,469 to $666,208 and 82% to 99% of target. | |||
Long-Term Incentive Awards |
Variable stock component. Actual amounts earned vary based on corporate and share price performance. | Intended to motivate officers to achieve our longer term business objectives by tying incentives to the performance of our Common Stock over the long-term; and to reinforce the link between the interests of our officers and our shareholders. | The Named Officers received long-term incentive awards in February 2017 with grant date values ranging from $340,245 to $2,551,500. | |||
Health and Welfare Plans and Retirement Plans |
Fixed compensation component. | Intended to provide benefits that promote employee health and support employees in attaining financial security. | No changes to programs in 2017 that affected Named Officers. | |||
Perquisites and Other Personal Benefits |
Fixed compensation component. | Intended to provide a business-related benefit to our Company, and to assist in attracting and retaining officers. | No changes to programs in 2017 that affected Named Officers. | |||
Post-Employment Compensation |
Fixed compensation component. | Intended to provide temporary income following an officers involuntary termination of employment and, in the case of a change of control, to also provide continuity of management. | No changes to programs in 2017 that affected Named Officers. |
17
COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)
|
The Committee believes that these components, taken as a whole, provide an attractive compensation package that aligns with the Companys annual and long-term goals and enables the Company to attract, retain and motivate superior executive talent. As a means of mitigating risk, the Committee has adopted policies such as share ownership guidelines, which require executives to maintain a certain level of ownership of MSA stock, and a compensation recoupment policy that provides the Committee with the ability to recoup certain awards previously paid or earned based on financial results that were later restated downward, and discretionary authority held by the Committee that allows modification of any payouts from any plan, in the event of any other misconduct that causes financial harm to the Company.
Performance-Based Incentives. The Committee believes that a significant portion of a Named Officers compensation should be delivered through performance-based incentive compensation components. The Committee has identified meaningful financial and shareholder performance objectives that align with the business, are measurable, and are used by management on a day-to-day basis to pursue its business strategy. The Committee has chosen the following measures for use in the Companys incentive arrangements that support and align with the Companys business strategy:
PERFORMANCE MEASURE | ANNUAL CASH INCENTIVE PLAN |
LONG-TERM INCENTIVE PLAN |
RATIONALE FOR USE | |||
Stock Price |
X | Indicator of shareholder value creation | ||||
Total Shareholder Return |
X | Indicator of shareholder value creation | ||||
Revenue Growth |
X | Encourages both organic sales growth and sales growth by acquisition | ||||
Net Income |
X | Encourages bottom-line profitability | ||||
Operating Margin Percentage |
X | X | Encourages operating profitability and expense management | |||
Gross Profit Margin Percentage |
X | Promotes process efficiency | ||||
Net Sales Fall Protection |
X | Encourages activities to promote the success of a critical acquisition | ||||
Working Capital as a Percentage of Sales |
X | Encourages activities that increase the cash available for investment in the business, dividends, and debt repayment |
In summary, the Committee believes that the best way to reward executives is to combine a program of cash incentives (based on annual financial performance goals) with stock incentives (based on increases in the Companys stock price and, in part, on performance versus long-term financial performance metrics).
The Companys incentive plans (annual and long-term) are targeted to reward executives at the middle (50th percentile) of the market for achieving expected or targeted performance levels. For example, our annual incentive plan is designed to pay above the targeted level and, therefore, above the middle of the market if the Companys performance exceeds our goals and expectations, up to a cap upon maximum performance. If the Companys performance falls below our goals and expectations, the annual incentive plan is designed to pay below the targeted level. If actual performance falls below a certain threshold level, our annual incentive plan is designed to pay nothing. This variable aspect of our annual incentive arrangement is also present in our long-term incentive plan. For instance, a significant portion of our long-term incentive plan consists of performance stock units. At the date of grant, a target number of shares is established based on the share value at the time of the award and present dollar value of the compensation intended to be delivered. Ultimately the number of shares awarded at the end of the performance period varies based on the achievement of corporate goals. Our performance-based restricted stock units also incorporate a performance threshold below which no payments are made. The 2016 and 2017 equity grants under the long-term incentive plan remain unvested, thereby providing the Company with important retention benefits.
18
COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)
|
The following table shows the allocation of performance-based versus fixed compensation components for our Named Officers at targeted levels as of the end of 2017:
PERCENT OF COMPENSATION AT RISK
Named Officer | Performance- Based (1) |
Fixed (2) |
||||||
William M. Lambert
|
|
80.1
|
%
|
|
19.9
|
%
| ||
Nishan J. Vartanian
|
|
73.1
|
%
|
|
26.9
|
%
| ||
Kenneth D. Krause
|
|
56.8
|
%
|
|
43.2
|
%
| ||
Kerry M. Bove
|
|
59.6
|
%
|
|
40.4
|
%
| ||
Douglas K. McClaine
|
|
58.5
|
%
|
|
41.5
|
%
|
(1) | Based on the target value of 2017 non-equity incentive award as of December 31, 2017, plus the target equity award allocation of equity instruments to performance units as of December 31, 2017. |
(2) | Based on annual base salary as of December 31, 2017 plus the target equity award as of December 31, 2017 and the allocation of equity instruments to time vested restricted units. Time vested restricted units are included in the fixed column because there are no performance conditions to vesting (other than continued employment), but unlike base salary, the ultimate value of stock issued upon the vesting of restricted stock units is inherently performance based. |
COMPENSATION OVERSIGHT PROCESS
Role of the Committee. The Committee has responsibility for the oversight and decision-making regarding executive compensation except for Chief Executive Officer (CEO) compensation, which is recommended by the Committee but approved by the independent directors as described below. The Committee has engaged an outside compensation consultant, Pay Governance, LLC to provide assistance and guidance on compensation issues. The consultant provides management and the Committee with relevant information pertaining to market compensation levels, alternative compensation plan designs, market trends and best practices. Pay Governance is considered to be independent by the Committee. During 2017 the consultant provided only executive compensation consulting services to the Committee. Further, the Committee has not discovered any conflicts of interest that were raised by the work of the consultant involved in determining or recommending executive compensation.
At its meetings, the Committee regularly holds executive sessions, which exclude management and, subject to the Committees desire, may include its independent consultant. Management assists in the coordination and preparation of the meeting agenda and materials for each meeting, which are reviewed and approved by the Committee Chair. Meeting materials are mailed to Committee members for review approximately one week in advance of each meeting. The Committee met five times in 2017 and held an executive session, which excluded members of management, at all of the meetings.
For the CEOs compensation, the Committee develops proposals and presents them to the full Boards independent directors for their approval. Compensation decisions regarding all other officers are approved by the Committee. The Committee considers the recommendations of the CEO when making compensation decisions regarding all other officers.
Role of the Compensation Consultant. The Committee has retained Pay Governance, LLC as its executive compensation consultant. The compensation consultant reports directly to the Committee and the Committee may replace the compensation consultant or hire additional consultants at any time. The compensation consultant attends meetings of the Committee, as requested, and communicates with the Committee Chair between meetings; however, the Committee makes all decisions regarding the compensation of our officers.
The compensation consultant provides various executive compensation services to the Committee pursuant to a written consulting agreement approved by the Committee Chair. Generally, these services include advising the Committee on the principal aspects of our executive compensation program and evolving industry practices, and providing market information and analysis regarding the competitiveness of our program design and our award values in relationship to performance.
19
COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)
|
During 2017, the compensation consultant performed the following specific services for the Committee:
| Provided presentations on executive compensation trends and external developments. |
| Provided an annual competitive evaluation of total compensation for the Named Officers, as well as our overall compensation program. |
| Provided recommendation on all officers total compensation. |
| Reviewed Committee agendas and supporting materials in advance of each meeting, and raised questions/issues with management and the Committee Chair, as appropriate. |
| Reviewed drafts and commented on the compensation discussion and analysis for the proxy statement and the related compensation tables. |
In addition, the compensation consultant attended meetings of the Committee during 2017 as requested by the Committee Chair.
The Committee retains sole authority to hire the compensation consultant, approve its annual fees, determine the nature and scope of its services, evaluate its performance, approve all invoices for payment of services and terminate its engagement.
Use of Competitive Data. The Committee reviews data related to compensation levels and programs of other companies prior to making its decisions. The Committee engages its consultant to perform a comprehensive assessment of compensation levels provided to executives among a peer group of companies. These companies are selected based on the following criteria:
| Annual revenues that range from approximately half to double our annual revenues (approximately $500 million to $2 billion in 2017) |
| Manufacturing processes similar to various MSA industry sectors and technologies |
| Global operations and customer base |
For 2017, the peer group consisted of the following 20 companies:
Actuant Corporation
Albany International Corp.
Brady Corporation
ESCO Technologies Inc.
Federal Signal Corporation
FLIR Systems, Inc.
Gentex Corporation |
Graco Inc.
IDEX Corporation
Invacare Corporation
Littelfuse, Inc.
Matthews International Corporation
MKS Instruments, Inc.
Masimo Corporation |
Nordson Corporation
PerkinElmer Inc.
Simpson Manufacturing Company Inc.
Standex International Corporation
STERIS plc
Waters Corporation |
The Committee reassesses the peer group composition annually and may periodically make changes, usually by adding companies that may better meet our selection criteria or by removing companies that may have experienced change, such as acquisition, or no longer fit our selection criteria. In 2017, the Committee, through its consultant, conducted a review of the peer companies which resulted in the conclusion that, for 2018, the peer group set forth above was well aligned and should not be changed.
The consultant conducts an annual analysis of the most recent proxy disclosures for the peer group companies in order to understand the compensation ranges for base salary, and the annual and long-term incentives provided to the peer group named executive officers. In addition, regression analysis is applied to data from compensation surveys conducted by Willis Towers Watson representing nearly 1,000 general industry companies. The Committee believes that the combination of
20
COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)
|
these comprehensive data sources allows it to understand the market compensation ranges for both the Named Officers and positions below the Named Officers based on the duties and responsibilities of each position and to determine the level of compensation needed to target the middle (50th percentile) of the market.
The market compensation data is further used to develop a market compensation structure which includes salary grades with midpoints. Each executive is assigned to a salary grade where the midpoint of the grade approximates the median (50th percentile) of the market salary level for that position. Each salary grade has a salary range around the midpoint and has corresponding annual and long-term incentive award opportunities that are percentages of the midpoint, and which also align to market based values. In assigning an executive to a salary grade, the Committee also considers internal factors that may, in a limited number of instances, impact the grade assignment of an executive.
In addition to the market data, the Committee considers the following factors when making compensation decisions:
| Individual and Company performance |
| Experience in the position |
| Current compensation relative to market median |
An assessment of these factors could result in actual compensation being positioned modestly above or below the desired middle (50th percentile) of the market positioning. The Committee does not consider amounts earned from prior performance-based compensation, such as prior bonus awards or realized or unrealized stock option gains, in its decisions to increase or decrease compensation for the following year. The Committee believes that this would not be in the best interest of retaining and motivating executives.
In order to assess the impact of its executive compensation decisions, the Committee reviews a summary report or tally sheet of total compensation prepared for the CEO. The tally sheet includes the total dollar value of annual compensation, including salary, annual and long-term incentive awards, annual increase in retirement accruals and the value of other benefits and perquisites. The tally sheet also provides the Committee information pertaining to equity ownership, future retirement benefits, and benefits the Company is required to provide to the CEO under various termination scenarios. The Committees review of the tally sheet information is an integral part of its decision making process each year.
DETERMINATION OF EXECUTIVE COMPENSATION AMOUNTS
Fixed Cash Base Salary. The Company provides executives with a base salary in order to attract and retain executive talent. Base salary is designed to be competitive with other organizations and is sensitive to the skill level, responsibility and experience of the executive. Base salary for each executive is determined through our external benchmarking process and an internal comparison to other executives at the Company to ensure internal equity. Base salary levels are targeted to the middle (50th percentile) of the market, although the Committee considers base salary levels that fall within plus or minus 10% of the market median to be competitive.
Base salary adjustments are considered and are affected by each executives individual performance assessment based on a rigorous performance review process. This individual process details an executives annual accomplishments compared to performance expectations established at the outset of each year, and also assesses the individuals behaviors used to achieve the performance level. The CEO develops and recommends to the Committee annual base salary adjustments for each executive primarily by evaluating the value and impact that each executive has had on the Companys performance during the year.
The Committee performs a similar comprehensive evaluation of the CEOs performance against predetermined annual operational and strategic goals previously approved by the independent directors of the Board, and determines his recommended annual base salary increase based on the outcome of this evaluation. This salary recommendation is then also approved by the independent directors of the Board. At its February 2017 meeting, the Committee approved salary increases
21
COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)
|
ranging from 2.3% to 3.3% for the Named Officers. Following these adjustments, salary levels were positioned as follows relative to the market median targeted level: Mr. Lambert 7.1% above median, Mr. Vartanian 2.7% below median, Mr. Krause, 7.1% below median, Mr. Bove 2.4% below median and Mr. McClaine 7.1% above median. Later in 2017 Mr. Vartanian was promoted to the role of President and Chief Operating Officer. In connection with the promotion he had an additional salary adjustment in June 2017. As a result, Mr. Vartanian is now at market median.
Performance-Based Annual Cash Incentive. The Company provides executives with an annual cash incentive based on (a) the MSA Non-CEO Executive Incentive Plan (NCEIP), which directly rewards the accomplishment of key corporate and/or geographical or business unit performance goals, and (b) the CEO Annual Incentive Award Plan (AIAP) which has been approved by shareholders and is administered within the requirements necessary to attempt to retain the tax deductibility of the CEOs annual incentive award under Section 162(m) of the Internal Revenue Code. Additionally, each executive, including the CEO, is eligible for a program known as the Enhanced Bonus that rewards participants only when the Companys actual consolidated net income exceeds pre-set board-approved targets. Under the Enhanced Bonus feature, annual incentive awards earned under the NCEIP or AIAP, which are each limited to a maximum payout of 150% of target, may be increased from 0% to 50% if the Companys consolidated net income exceeds the target. The enhancement is interpolated at performance levels between target and 125% of target. For each 1% increase in actual consolidated net income above target, earned awards under the NCEIP and AIAP are increased by 2%. For example, at performance of 105% of net income target, the incentive is increased by 10%. The incentive is increased by 50% if the Company exceeds the net income target by 25% or more, resulting in a total bonus opportunity which is capped at 200% of target should performance achieve or exceed maximum levels. The Committee believes that the increased performance leverage that the Enhanced Bonus is designed to provide is in the best interests of our shareholders by motivating our senior management to exceed bottom line profitability targets in addition to important Company and business unit performance metrics.
The following chart illustrates how the enhanced bonus feature rewards performance that exceeds targets under the NCEIP and AIAP, thereby assuring that executive reward is aligned to shareholder value. The Example of Highly Leveraged Plan in the chart is based upon Pay Governance, LLC research. The Committee limits the total possible payout to 200% of the target for 2018.
Under the NCEIP and AIAP, the target incentive opportunity (paid for achieving target performance) for each Named Officer is aligned with the executives salary grade midpoint which approximates the middle (50th percentile) of the market as determined through our external benchmarking process, although the Committee generally considers target incentive
22
COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)
|
opportunities between plus or minus 10 percentage points of the market median to be competitive. If actual performance drops below a predefined performance threshold, payout drops to zero.
The following table shows the percent of salary midpoint and dollar amount of incentive that would be earned if actual performance for 2017 was equal to targeted performance.
2017 TARGET CASH INCENTIVE AWARD
Named Officer | Percent of Salary Midpoint (1) |
NCEIP/AIAP Target Award (2) |
||||||
William M. Lambert
|
|
100
|
%
|
$
|
810,000
|
| ||
Nishan J. Vartanian
|
|
80
|
%
|
$
|
402,360
|
| ||
Kenneth D. Krause
|
|
65
|
%
|
$
|
245,733
|
| ||
Kerry M. Bove
|
|
50
|
%
|
$
|
189,025
|
| ||
Douglas K. McClaine
|
|
50
|
%
|
$
|
189,025
|
|
(1) | Percent of salary midpoint is the percent multiplied by the executives salary grade midpoint using the target award as of December 31, 2017. The target awards shown above reflect 2017 midpoints as of December 31, 2017. |
(2) | Target award is the amount that would be paid to the executive assuming all Company and individual performance goals are met per that executives performance metrics based upon targets and midpoints as of December 31, 2017. |
Actual NCEIP award payments are based primarily on the achievement of a variety of Company financial and non-financial goals, but also have a discretionary personal performance factor applied based on the value and impact that each executive has had on the Companys performance during the year. When making his recommendations for the 2017 discretionary personal performance factor, the CEO may increase or decrease the calculated NCEIP bonus amount by up to 20% in 10% increments.
Actual AIAP award payments for the CEO for 2017 were based 20% on achievement of adjusted consolidated net income, as approved by the Committee at the beginning of 2017, 20% on achievement of consolidated operating margin percentage, 20% on achievement of consolidated CSPI (Customer Satisfaction Performance Index), 20% on achievement of consolidated working capital as a percentage of sales, and 20% on achievement of consolidated net sales of Fall Protection products, all relative to the predetermined goals established and approved by the Committee. The Committee also recommends for Board approval annual operational and strategic goals for the CEO. The independent directors of the Committee may use their discretion to reduce the size of the CEOs calculated award based on his performance relative to his individual goals, but may not increase it. This is necessary to retain deductibility under Internal Revenue Code Section 162(m).
If performance is below the minimum threshold level, the payout goes to zero. In addition to these opportunities, the Enhanced Bonus feature may add up to 50% to the calculated NCEIP or AIAP award depending on the level of consolidated net income performance above target. The maximum award opportunity under all plans combined is 200% of target for each executive including the CEO. Actual awards paid for 2017 performance are included in the Summary Compensation Table on page 35 under the column Non-Equity Incentive Plan Compensation. Award opportunities for each Named Officer under the combined plans for 2017 at threshold, target and maximum are included in the Grants of Plan-Based Awards table on page 36 under the columns Estimated Possible Payouts Under Non-Equity Incentive Plan Awards.
In 2017, all officers had an additional metric based on the sales of the fall protection product line. This was done to increase emphasis on the product line in which the Company sees the most opportunity for organic growth.
23
COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)
|
In 2017, performance measures and goals were approved by the Committee at its February meeting. For the CEO and the other Named Officers, the Committee and, in the case of the CEO, independent directors of the Board, approved the following performance targets:
PERFORMANCE TARGETS FOR ANNUAL CASH INCENTIVE
Chairman and Chief Executive Officer William M. Lambert
(Dollars in millions)
2017 Actual Performance |
Pre-Established 2017 Annual Incentive Goals | |||||||||
Performance Measure | Weighting | Threshold | Target | Maximum | ||||||
Consolidated Net Income1
|
20.00%
|
$119.6
|
$89.8
|
$112.2
|
$134.6
| |||||
Consolidated Operating Margin%
|
20.00%
|
16.4%
|
13.1%
|
16.4%
|
19.7%
| |||||
Consolidated CSPI
|
20.00%
|
63.4
|
62.5
|
69.4
|
76.3
| |||||
Consolidated Working Capital as a % of Sales
|
20.00%
|
24.3%
|
28.1%
|
23.4%
|
18.7%
| |||||
Consolidated Net Sales Fall Protection2
|
20.00%
|
$97.1
|
$102.5
|
$113.9
|
$125.3
|
Note: As a result of 2017 performance, along with the achievement of the Enhanced Bonus described on page 22 above, 82% of target incentive was earned for 2017.
Senior Vice President and President, MSA Americas Nishan J. Vartanian (Effective January May 2017)
(Dollars in millions)
2017 Actual Performance |
Pre-Established 2017 Annual Incentive Goals | |||||||||
Performance Measure | Weighting | Threshold | Target | Maximum | ||||||
Consolidated Net Income1
|
20.00%
|
$119.6
|
$89.8
|
$112.2
|
$134.6
| |||||
Operating Margin % Americas Segment2
|
20.00%
|
31.9%
|
25.0%
|
31.3%
|
37.6%
| |||||
Consolidated CSPI
|
20.00%
|
63.4
|
62.5
|
69.4
|
76.3
| |||||
Consolidated Working Capital as a % of Sales
|
20.00%
|
24.3%
|
28.1%
|
23.4%
|
18.7%
| |||||
Net Sales Fall Protection Americas Segment2
|
20.00%
|
$53.6
|
$48.3
|
$53.7
|
$59.1
|
President and Chief Operating Officer Nishan J. Vartanian (Effective June December 2017)
(Dollars in millions)
2017 Actual Performance |
Pre-Established 2017 Annual Incentive Goals | |||||||||
Performance Measure | Weighting | Threshold | Target | Maximum | ||||||
Consolidated Net Income1
|
20.00%
|
$119.6
|
$89.8
|
$112.2
|
$134.6
| |||||
Consolidated Operating Margin%
|
20.00%
|
16.4%
|
13.1%
|
16.4%
|
19.7%
| |||||
Consolidated CSPI
|
20.00%
|
63.4
|
62.5
|
69.4
|
76.3
| |||||
Consolidated Working Capital as a % of Sales
|
20.00%
|
24.3%
|
28.1%
|
23.4%
|
18.7%
| |||||
Consolidated Net Sales Fall Protection2
|
20.00%
|
$97.1
|
$102.5
|
$113.9
|
$125.3
|
Note: As a result of 2017 performance, along with the achievement of the Enhanced Bonus described on page 22 above, a 10% personal performance factor, and including current and prior role, 98% of target incentive was earned for 2017.
24
COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)
|
Vice President, Chief Financial Officer and Treasurer Kenneth D. Krause
(Dollars in millions)
2017 Actual Performance |
Pre-Established 2017 Annual Incentive Goals | |||||||||
Performance Measure | Weighting | Threshold | Target | Maximum | ||||||
Consolidated Net Income1
|
20.00%
|
$119.6
|
$89.8
|
$112.2
|
$134.6
| |||||
Consolidated Operating Margin%
|
20.00%
|
16.4%
|
13.1%
|
16.4%
|
19.7%
| |||||
Consolidated CSPI
|
20.00%
|
63.4
|
62.5
|
69.4
|
76.3
| |||||
Consolidated Working Capital as a % of Sales
|
20.00%
|
24.3%
|
28.1%
|
23.4%
|
18.7%
| |||||
Consolidated Net Sales Fall Protection2
|
20.00%
|
$97.1
|
$102.5
|
$113.9
|
$125.3
|
Note: As a result of 2017 performance, along with the achievement of the Enhanced Bonus described on page 22 above, and a 20% personal performance factor, 99% of target incentive was earned for 2017.
Senior Vice President and Chief Strategy Officer Kerry M. Bove
(Dollars in millions)
2017 Actual Performance |
Pre-Established 2017 Annual Incentive Goals | |||||||||
Performance Measure | Weighting | Threshold | Target | Maximum | ||||||
Consolidated Net Income1
|
20.00%
|
$119.6
|
$89.8
|
$112.2
|
$134.6
| |||||
Consolidated Operating Margin%
|
20.00%
|
16.4%
|
13.1%
|
16.4%
|
19.7%
| |||||
Consolidated CSPI
|
20.00%
|
63.4
|
62.5
|
69.4
|
76.3
| |||||
Consolidated Working Capital as a % of Sales
|
20.00%
|
24.3%
|
28.1%
|
23.4%
|
18.7%
| |||||
Consolidated Net Sales Fall Protection2
|
20.00%
|
$97.1
|
$102.5
|
$113.9
|
$125.3
|
Note: As a result of 2017 performance, along with the achievement of the Enhanced Bonus described on page 22 above, 82% of target incentive was earned for 2017.
Senior Vice President, Secretary and Chief Legal Officer Douglas K. McClaine
(Dollars in millions)
2017Actual Performance |
Pre-Established 2017 Annual Incentive Goals | |||||||||
Performance Measure | Weighting | Threshold | Target | Maximum | ||||||
Consolidated Net Income1
|
20.00%
|
$119.6
|
$89.8
|
$112.2
|
$134.6
| |||||
Consolidated Operating Margin %
|
20.00%
|
16.4%
|
13.1%
|
16.4%
|
19.7%
| |||||
Consolidated CSPI
|
20.00%
|
63.4
|
62.5
|
69.4
|
76.3
| |||||
Consolidated Working Capital as a % of Sales
|
20.00%
|
24.3%
|
28.1%
|
23.4%
|
18.7%
| |||||
Consolidated Net Sales Fall Protection2
|
20.00%
|
$97.1
|
$102.5
|
$113.9
|
$125.3
|
Note: As a result of 2017 performance, along with the achievement of the Enhanced Bonus described on page 22 above, and a 20% personal performance factor, 99% of target incentive was earned for 2017.
1 Consolidated Net Income from continuing operations of $23.3 million plus $114.3 million in costs for unplanned acquisitions and divestitures, self-insured product liability expense, restructuring and removal of translational foreign currency adjustment added back to Consolidated Net Income, and reduced by $11.9 million for changes in accounting standards, unplanned pension income and unplanned benefits related to exit taxes, per terms approved by the Compensation Committee at the beginning of the year, and also reduced for unplanned income associated with the acquisition of Globe Holding Company, LLC.
2 For geographic business metrics and certain consolidated metrics, currency-adjusted actual results will be used to compute the annual incentive payment.
25
COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)
|
The Committee chose consolidated net income as the primary corporate performance goal for 2017 for all Named Officers. Certain of the Named Officers are also measured by other performance goals appropriate to their job duties. The Committee believes that these measures are the best indicators of performance produced as a result of our executives efforts and is reflective of their individual areas of responsibility.
Long-Term Incentive Compensation. Our long-term incentive program represents a significant portion of an executives total compensation package. Awards under this program are considered at risk, which means they can increase or decrease in value based on fluctuations in our stock price. In selecting the appropriate long-term incentive vehicles, the Committee made its decisions based on its desire to reward for long-term stock price appreciation, to promote loyalty and tenure with the Company and to increase executives alignment with shareholders. Time-vesting restricted stock units and performance stock units were chosen to meet these attributes. These awards are granted under the shareholder-approved Amended and Restated 2016 Management Equity Incentive Plan. In 2017 the mix was 100% performance stock units for officers who have reached retirement eligibility and had achieved their ownership guidelines. This particular mix of awards positions these retirement-eligible officers to have more equity at risk and provides better alignment to performance. For officers who have achieved their ownership guideline but who have not yet reached retirement eligibility, and for officers who have reached retirement eligibility but have not yet reached their ownership guideline, the mix is 80% performance stock units and 20% time-vesting restricted stock units. For other officers, the mix is two-thirds performance stock units and one-third time-vesting restricted stock units, recognizing the need to have a greater portion of equity compensation delivered in restricted stock units.
The following table illustrates the calculation and allocation of the long-term incentive compensation. This table and the table of Grants of Plan-Based Awards use the amounts computed in accordance with FASB ASC Topic 718.
LONG-TERM INCENTIVE COMPENSATION
Allocated to | ||||||||||||||||||||||||
1/1/2017 (1) |
2017 (2) |
Restricted (3) |
Performance Units (4) |
Restricted (1) x (3) |
Performance (1) x (4) |
|||||||||||||||||||
William M. Lambert |
$ | 810,000 | 315 | % | 0.00 | % | 315.00 | % | $ | 0 | $ | 2,551,500 | ||||||||||||
Nishan J. Vartanian |
$ | 378,050 | 115 | % | 0.00 | % | 115.00 | % | $ | 0 | $ | 434,758 | ||||||||||||
Nishan J. Vartanian5 |
| | | | $ | 500,000 | $ | 500,000 | ||||||||||||||||
Kenneth D. Krause |
$ | 378,050 | 135 | % | 27.00 | % | 108.00 | % | $ | 102,074 | $ | 408,294 | ||||||||||||
Kerry M. Bove |
$ | 378,050 | 95 | % | 0.00 | % | 95.00 | % | $ | 0 | $ | 359,148 | ||||||||||||
Douglas K. McClaine |
$ | 378,050 | 90 | % | 0.00 | % | 90.00 | % | $ | 0 | $ | 340,245 |
1 Reflects salary midpoint at the time of the award in February, 2017.
2 Stock multiplier is the plan percentage effective in February, 2017. Columns 3 and 4 percentages reflect the split of the stock multiplier into restricted stock units and performance stock units in accordance with the discussion above.
3 Actual Restricted Stock Units awarded = Restricted Stock Units Award Value divided by the closing stock price on the date of the award. Actual amount may vary due to rounding to nearest share value.
4 Actual Performance Stock Units awarded = Performance Stock Units Award Value divided by the closing stock price on the date of the award. Actual amount may vary due to rounding to nearest share value. Amounts shown in this column may differ from amounts shown in the compensation tables contained in this proxy statement due to differences in the method of calculating fair market value in compensation tables in accordance with FASB ASC Topic 718.
5 This line for Nishan J. Vartanian represents a Restricted Stock Unit Award and a Performance Stock Unit Award that he received during 2017 in the form of a retention grant, in addition to the Long Term Incentive Compensation indicated in the line above.
NOTE: A stock multiplier is the percentage of the Named Officers salary midpoint that is awarded in annual equity grants as long term incentives. Stock multipliers are market based and determined with the assistance of the Committees outside compensation consultant.
26
COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)
|
Long-term incentive opportunities are developed for each executive salary grade based on the middle (50th percentile) of the market. While the Committee reviews these long-term incentive opportunities annually, it typically only adjusts the individual opportunities periodically as market median long-term incentive data tends to be volatile, increasing or decreasing for certain positions more frequently than salary or annual incentive data. As a result, each Named Officers long-term incentive opportunity has been the same for the last several years even though the market has moved up and down over this time frame.
Performance Stock Units. The Company uses this type of equity grant to incentivize the achievement of one or more specific goals promoting long-term shareholder value. At the date of grant, a target number of shares is established based on the share value at the time of the award and present dollar value of the compensation intended to be delivered. Ultimately the number of shares awarded at the end of the performance period varies based on the achievement of corporate goals.
The target number of shares will vest if the target performance goals are met. If excellence goals are met, the number of shares vested will be doubled. If only the minimum threshold performance is achieved, one half of the target number of shares will vest. If performance is below threshold, the entire award will be forfeited. At performance levels between threshold, target and excellence, awards will be interpolated. There are no shares issued until the performance goals have been met. Therefore, there are no dividend rights or voting rights associated with this form of long-term incentive until the shares are actually issued upon performance goals being met.
For the grant made in 2015, the performance metric for grants of performance stock units is TSR compared to the peer group. The performance period is three years. At the end of the first year of the performance period, if the TSR is at or above the 50th percentile of the peer group TSR, one fourth of the target number of shares will be issued as time-vesting restricted stock units, subject only to forfeiture in the event of termination of employment prior to the end of the three-year performance period. At the end of the second year of the performance period, if the two year cumulative shareholder return is at or above the 50th percentile of the peer group, one half of the target shares less any shares earned at the end of the first year will be issued as time-vesting restricted stock units, subject only to forfeiture in the event of termination of employment prior to the end of the three-year performance period. At the end of the third year of the performance period, if the three year cumulative TSR is at the 50th percentile of the peer group, the target number of shares will be earned less any shares earned in the previous two years. If the TSR is at or above the 75th percentile of the peer group at the end of the third year, two times the target number of shares will be earned less any shares earned during the first two years of the performance period. If the TSR is below the 25th percentile of the peer group at the end of the third year, no shares will be earned for that period. Also, if the TSR is at or above the 25th percentile but is a negative number, then the maximum number of shares earned is limited to one half of the target shares. However, time-vesting restricted stock units that were issued during the first two years of the performance period will not be forfeited and will become vested at the end of the three years based upon the officers continued employment. For performance between the 25th percentile and the 75th percentile interpolation will be used to determine the actual numbers of shares earned. The 2015 grant had performance below the 50th percentile in year one and therefore no shares were earned, but the two-year cumulative performance was above the 50th percentile and therefore 50% of the target shares were earned. At the end of the three year period, the 2015 grant had performance at the 46.8 percentile, resulting in a total payout of 93.6% of target.
Effective with the 2016 annual equity grants, the long-term performance stock unit incentive award was redesigned. Two new internal financial metrics were used to measure performance and the final results will be modified based on TSR as compared to a peer group. The internal financial goals were based on Operating Margin percentage (weighted at 60%) and Revenue Growth (weighted at 40%). The use of the TSR modifier will align the executives rewards with changing shareholder value. Operating Margin percentage and Revenue Growth will be adjusted based on pre-determined items. There will be no interim shares earned. The performance for the entire grant will be determined at the end of the performance period on December 31, 2018. The same design was used for the 2017 long-term performance stock unit incentive award and the performance for that entire grant will be determined at the end of the performance period on December 31, 2019.
At target performance, 100% of the target number of shares will be awarded. At threshold performance, 50% of the target number of shares will be awarded. At the excellence level of performance, 200% of the target number of shares will be
27
COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)
|
awarded. Results between threshold and target, and between target and excellence, will be interpolated. Any amount of shares which are determined to be awarded will be further adjusted by the TSR modifier described below.
If MSAs percentile ranking for TSR versus our peer group is at the 40th percentile to the 60th percentile, the TSR modifier will be 1.0. The TSR modifier for a ranking greater than the 60th percentile but less than the 75th percentile will be 1.10. The TSR modifier for a ranking greater at the 75th percentile or above will be 1.20. The TSR modifier for a ranking greater than the 25th percentile but less than the 40th percentile will be 0.90. The TSR modifier for a ranking greater at the 25th percentile or below will be 0.80.
The shares related to the 2016 and 2017 annual equity grants will vest on March 8, 2019 and March 8, 2020, respectively and are subject to determination by the Compensation Committee of the actual performance achieved.
Time-Vesting Restricted Stock Units. The Committee selected time-vesting restricted stock units in order to create and encourage an ownership culture and to serve as a retention tool. Restricted stock units vest 100% on or about the third anniversary following the date of grant. The value assigned to restricted stock units is the fair market value of the shares of Common Stock to which such restricted stock units relate on the date of grant, and the recipient is charged with income for Federal income tax purposes in the year of vesting at the market value as of the date that the restrictions lapse. The restricted units do not include voting rights or the right to dividends or dividend equivalents during the vesting period.
ADDITIONAL CONSIDERATIONS RELATING TO THE CEO
In 2017, Mr. Lamberts base pay was adjusted by amounts which conform to the Companys merit increase guidelines for U.S. payroll. The increase for 2017 in Mr. Lamberts salary was 2.5%.
CEO Pay For Performance. During 2017, the Committee, with the assistance of its compensation consultant Pay Governance, conducted several analyses to assess the alignment of the CEOs pay relative to the performance of the Company. Company performance was defined as either our TSR or a composite of performance metrics. This composite consists of the average ranking relative to our peers of our TSR, Net Income Growth, RONA and Operating Income Margin. These analyses considered the CEOs total direct compensation (TDC) which includes: base salary, actual cash bonus earned and value of equity incentives. Equity incentives were considered using two separate methodologies:
1. | Expected value method: this method considered the grant date fair value of equity awards and is the same value as stated in our proxy statement summary compensation table. |
2. | Realizable compensation method: this method examines the aggregate value of previously granted equity awards at a point in time, including: |
a. | the in-the-money intrinsic value of stock option grants made during the period, |
b. | the end of period value of restricted stock grants made during the period, and |
c. | for performance awards, the actual payouts for awards beginning and ending during the three-year performance period and the end of period estimated payout for unvested awards granted during the three-year performance period ended December 31, 2016. |
During 2017, the Committee reviewed and discussed the results of the following independent analyses and was satisfied that the executive compensation program was aligned with the performance of the Company.
28
COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)
|
2016 CEO Actual Annual Cash Incentive Earned Relative to Peers versus 2016 Composite Performance Relative to Peers
This analysis compares our CEOs 2016 actual bonus earned (and paid in early 2017) to the composite performance metrics, which are a collection of metrics used in our incentive arrangements. Both the CEOs bonus information and the composite performance results were compared to the same data of our peers and considered on a percentile rank basis. The Committee concluded that the CEOs annual incentive payment, when evaluated in terms of absolute dollar value, was reasonably aligned with the relative performance of the Company.
2016 CEO ACTUAL BONUS PAYMENT | BONUS RELATIVE TO PEERS |
PERFORMANCE RELATIVE TO |
ALIGNMENT OF BONUS AND | |||
Bonus Earned (Dollar Value) |
51st Percentile | 71st Percentile | Reasonable |
29
COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)
|
2016 CEO Realizable Compensation Relative to Peers versus 2016 Composite Performance Relative to Peers
This analysis compares our CEOs realizable compensation (realizable compensation method, described above) over the three-year period 2014 through 2016 relative to the composite performance metrics, which are a collection of metrics used in our incentive arrangements. Both the CEOs realizable compensation information and the composite performance results were compared to the same data of our peers and considered on a percentile rank basis. The Committee concluded that the CEOs three-year realizable compensation, when evaluated in terms of absolute dollar value, was reasonably aligned with the relative performance of the Company.
REALIZABLE RELATIVE TO PEERS |
PERFORMANCE RELATIVE TO |
ALIGNMENT OF REALIZABLE AND PERFORMANCE | ||||
CEO Realizable Compensation (Value) |
58th Percentile | 50th Percentile | Reasonable |
30
COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)
|
CEO Realizable Compensation as a Percent of Expected Value Relative to Company TSR Performance
This analysis examines the percent difference in compensation granted to our CEO in a particular year expressed on an expected value basis (note 1 below) versus the same compensation expressed on a realizable value basis (note 2 below) at the end of 2017. This percent difference is compared to the change in actual Company TSR for the same time periods to understand if the difference in expected value pay and realizable pay is directionally similar to our TSR performance. For example, if our stock price falls over a period of time we would expect our CEOs realizable compensation to be less than the expected value at the time the compensation was granted. In evaluating this analysis, the Committee was satisfied that the CEOs realizable compensation was directionally similar to changes in our TSR.
Year | MSA CEO Target TDC at Grant (1) |
MSA CEO Realizable Value (2) |
Measurement Period |
Change in Pay Value (3) |
Change in MSA TSR (4) |
Alignment | ||||||||||||||||||
2015 |
$ 3,276,665 | $ 4,589,967 | 2015 - 2017 | 40 | % | 57 | % | Reasonable | ||||||||||||||||
2016 |
$ 3,507,177 | $ 6,163,104 | 2016 - 2017 | 76 | % | 87 | % | Reasonable | ||||||||||||||||
2017 |
$ 4,192,457 | $ 4,150,141 | 2017 | -1 | % | 14 | % | Reasonable | ||||||||||||||||
Total |
$10,976,299 | $14,903,212 | 2015 - 2017 | 36 | % | 57 | % | Reasonable |
(1) | Target TDC at Grant includes for each particular year the CEOs base salary, target bonus and the grant date fair value of equity awards granted. |
(2) | Realizable value includes for each particular year the CEOs base salary, actual bonus earned and the realizable value of equity awards granted during that particular year using our December 29, 2017 closing stock price. See page 28 for a more detailed description of realizable value for long-term incentive awards. |
(3) | Change in Pay Value is the change in the CEOs compensation from the time it was granted to December 29, 2017 considering the impact of actual performance relative to performance goals and changes in Company stock price. |
(4) | MSA TSR is calculated on a point-to-point basis using the final trading day of each year. |
OTHER COMPENSATION AND RETIREMENT POLICIES
In addition to the other components of our executive compensation program, we maintain the compensation policies described below. These policies are consistent with evolving best practices and help ensure that our executive compensation program does not encourage our officers to engage in risk taking beyond our ability to effectively identify and manage.
Post-Employment Retirement Benefits. Retirement related compensation is designed to provide financial security following retirement from the Company and to reward for loyalty and tenure. Retirement benefits fall into three major elements which include pension, 401(k) and non-qualified retirement plans. All of these programs exist to help attract, retain, and motivate key executives. The programs listed below are designed to be competitive and are compared periodically to representative peer companies. Plan design and provisions are reviewed periodically to determine if the total retirement package is competitive. Retirement-related compensation programs do not have a direct linkage to performance but rather a link to a long term commitment to MSA, as do all other welfare benefits.
| Pension offered as part of a retirement package that helps the Company recruit employees and provides security and peace of mind for future retirement, enabling executives and other employees to exit the workforce at retirement age. Pension amounts are based on final average pay, years of service, age, and a pre-determined plan formula. |
| 401(k) offered as part of our benefits package to encourage employees to save for their own retirement and future financial security. MSA matches 100% of the first 1% of employee contributions and 50% of the next 6% for a total match of 4% on 7% of compensation. |
| Non-qualified retirement plans provide additional retirement benefits for executives whose accumulations and contributions in the qualified plans are limited by the Internal Revenue Code. MSA maintains three such plans. The MSA 2005 Supplemental Retirement Savings Plan provides benefits beyond the limitations imposed on 401(k) plans. The MSA Supplemental Pension Plan provides benefits beyond the limitations imposed on defined benefit pension plans. The Company ceased providing benefits under the Supplemental Pension Plan for any employees who are newly hired or |
31
COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)
|
promoted into the eligible class of Key Executives after December 31, 2012. The MSA Supplemental Executive Retirement Plan provides additional retirement benefits only for officers who retire from the Company at age 55 or later. The Company ceased providing benefits under the MSA Supplemental Executive Retirement Plan to any new executives who joined the Company after January 1, 2008. |
Stock Ownership Guideline Policy. During 2017, the Committee modified the Stock Ownership Guideline and Retention Policy. The policy was updated to remove the requirement for retention of 20% of the dollar value of shares realized through the exercise of stock options, the vesting of restricted stock or restricted stock units, and the vesting of performance based stock units that was previously in place. In addition, the Committee also removed the requirement that officers attain the basic ownership guideline within five years from the time they become an officer. The Company believes the resulting Stock Ownership Guideline Policy and the significant designated stock ownership levels contained in the policy provide additional motivation to executives to perform in accordance with the interests of the Companys shareholders. All officers are expected to hold a number of shares equal in value to their salary grade midpoint multiplied by a stock multiplier ranging from 2.25 up to 5.5 for the CEO. Prior to achieving the stock ownership guidelines mentioned above, the executive must retain 100% of all equity awards through the Companys compensation program (net of exercise costs and taxes). The specified ownership amount is expected to be retained thereafter as long as an executive remains an active employee.
The Named Officers all exceeded their stock ownership guidelines requirements as of December 31, 2017.
The stock ownership requirements for each Named Officer are as follows:
STOCK OWNERSHIP REQUIREMENTS
Name
|
Title
|
Salary
|
2017 Stock
|
Ownership
|
||||||||||||||||||
William M. Lambert
|
Chairman and Chief Executive Officer
|
$
|
810,000
|
|
|
x
|
|
|
5.50
|
|
|
=
|
|
$
|
4,455,000
|
| ||||||
Nishan J. Vartanian
|
President and Chief Operating Officer
|
$
|
502,950
|
|
|
x
|
|
|
3.50
|
|
|
=
|
|
$
|
1,760,325
|
| ||||||
Kenneth D. Krause
|
Vice President, Chief Financial Officer and Treasurer
|
$
|
378,050
|
|
|
x
|
|
|
3.50
|
|
|
=
|
|
$
|
1,323,175
|
| ||||||
Kerry M. Bove
|
Senior Vice President, and Chief Strategy Officer
|
$
|
378,050
|
|
|
x
|
|
|
2.25
|
|
|
=
|
|
$
|
850,613
|
| ||||||
Douglas K. McClaine
|
Senior Vice President, Secretary and Chief Legal Officer
|
$
|
378,050
|
|
|
x
|
|
|
2.25
|
|
|
=
|
|
$
|
850,613
|
|
The following forms of share ownership apply toward the stock ownership requirements: shares purchased; vested and unvested restricted stock; vested and unvested restricted stock units; shares retained following the exercise of stock options; and other shares acquired through any other lawful means. Performance based restricted stock or stock units that have not yet met the performance tests are not applied toward the stock ownership requirements. All executives understand these requirements, and the Committee may use its discretion to reduce or eliminate future long-term incentive grants, or take such other actions as it deems appropriate, as motivation to meet guidelines. These ownership guidelines help drive a culture of ownership and accountability among the executive team.
Hedging and Pledging. The Company maintains an insider trading policy that restricts officers and directors in the trading of their Company stock. That policy specifically prohibits officers and directors from hedging or pledging their Company stock.
Recoupment Policy. The Company has a recoupment policy applicable to officers and other Company employees. In the event of a restatement of MSAs financial results or a determination of other misconduct that causes financial harm to the Company, the Board will review the circumstances that caused the restatement and consider issues of accountability for those who bore responsibility for the events. As part of that review, consideration would also be given to any appropriate action regarding compensation that may have been awarded to such persons. In particular, it would be appropriate to
32
COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)
|
consider whether any compensation was awarded on the basis of having achieved specified performance targets, whether a person engaged in misconduct that contributed to the restatement and whether such compensation would have been reduced had the financial results been properly reported. Depending on the outcome of that review, appropriate action could include reducing compensation in the year the restatement was made, seeking repayment of any incentives received for the period restated or any gains realized as a result of exercising an option awarded for the period restated, or canceling any unvested equity compensation awarded for the period restated.
Perquisites. The Company provides executives with a limited number of perquisites in order to strengthen business relationships and maximize the use of our executives time. Our perquisites have been benchmarked to the market and are considered ordinary, customary, and minimal for each executives position. The following are available to the Named Officers:
| Automobile each Named Officer is provided a Company leased vehicle to facilitate travel among MSAs various locations and for other business travel. Personal use of this automobile is calculated and imputed as income for each executive. |
| Club memberships a country club membership is provided to our CEO to facilitate customer contact and a business club is provided to our CEO to afford a downtown Pittsburgh location for business meetings. |
| Financial planning and tax return assistance provides advice and guidance to executives on investment and income tax issues in order to maximize the use and understanding of our executive compensation program and minimize time otherwise required for taxation issues. |
| The Company does not own or lease an aircraft, nor does the Company have fractional ownership in any aircraft, nor does it pay for executives personal travel. |
Severance Policy. The Company has a severance pay policy that applies to the Named Officers as well as all other eligible salaried employees. The policy applies to a permanent termination of the employment relationship when initiated by the Company and when other conditions are satisfied. A schedule of benefits determines the separation benefit ranging from four weeks to a maximum of fifty-two weeks of severance pay based on final salary.
Change in Control. The Company has entered into change in control employment agreements with each of the Named Officers. These agreements provide Named Officers up to three years income and benefits following a change in control of the Company. These agreements are intended to retain executives, provide continuity of management in the event of an actual or threatened change in control and enable executives to remain financially indifferent when evaluating opportunities that may be beneficial to shareholders yet could negatively impact the continued employment of the executive. Cash severance payments are payable and accelerated vesting of unvested equity awards occurs only in the event of both a change in control and termination of employment other than for cause, death or disability (commonly known as a double trigger). There are no tax gross-up provisions in the change in control agreements.
Equity Granting Process. The Company grants equity grants for executives and all other eligible associates at the first regularly scheduled Compensation Committee meeting of each calendar year. The Committee makes its grants effective on the later of the date of the Compensation Committee meeting at which the grant was made or the third business day after the Companys year-end earnings release.
33
COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)
|
Adjustments or Recovery of Prior Compensation. The Company does not have employment agreements with any Named Officer. As described above under Recoupment Policy, the Company maintains a recoupment policy to facilitate the recovery or adjustment of amounts previously awarded or paid to a Named Officer, in the event of a restatement of MSAs financial results or a determination of other misconduct that causes financial harm to the Company. Additionally, the Sarbanes-Oxley Act of 2002 provides that if the Company is required to restate its financial results due to material noncompliance with financial reporting requirements as a result of misconduct, the Chief Executive Officer and the Chief Financial Officer must reimburse the Company for any bonus, incentive or equity-based compensation received, and any profits realized from the sale of Company securities, during the twelve months following the issuance or filing of the noncompliant results.
The Compensation Committee of the Board of Directors has reviewed the Compensation Discussion and Analysis and has discussed it with management. Based upon its review and those discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Companys Annual Report on Form 10-K for the year ended December 31, 2017.
Robert A. Bruggeworth Diane M. Pearse Rebecca B. Roberts, Chair |
34
The following table shows the compensation for 2017, 2016 and 2015 of the Companys principal executive officer, the Companys principal financial officer, and the other three executive officers of the Company with the highest total compensation for 2017 (the Named Officers):
Name and Principal Position
|
Year
|
Salary
|
Stock (1)
|
Stock
|
Non-equity
|
Change in
|
All other
|
Total
|
||||||||||||||||||||||||
William M. Lambert
|
|
2017
|
|
$
|
829,899
|
|
$
|
2,552,568
|
|
$
|
|
|
$
|
666,208
|
|
$
|
1,226,489
|
|
$
|
108,970
|
|
$
|
5,384,124
|
| ||||||||
Chairman and Chief
|
|
2016
|
|
$
|
809,692
|
|
$
|
941,887
|
|
$
|
957,598
|
|
$
|
980,393
|
|
$
|
951,324
|
|
$
|
94,593
|
|
$
|
4,735,487
|
| ||||||||
Executive Officer
|
|
2015
|
|
$
|
787,269
|
|
$
|
776,691
|
|
$
|
934,205
|
|
$
|
682,978
|
|
$
|
557,403
|
|
$
|
92,604
|
|
$
|
3,831,150
|
| ||||||||
Nishan J. Vartanian
|
|
2017
|
|
$
|
452,399
|
|
$
|
1,432,329
|
|
$
|
|
|
$
|
322,809
|
|
$
|
605,281
|
|
$
|
43,965
|
|
$
|
2,856,783
|
| ||||||||
President and Chief Operating
|
|
2016
|
|
$
|
384,642
|
|
$
|
221,035
|
|
$
|
148,977
|
|
$
|
279,072
|
|
$
|
337,185
|
|
$
|
32,301
|
|
$
|
1,403,211
|
| ||||||||
Officer
|
|
2015
|
|
$
|
362,668
|
|
$
|
151,043
|
|
$
|
181,667
|
|
$
|
196,127
|
|
$
|
222,157
|
|
$
|
37,041
|
|
$
|
1,150,703
|
| ||||||||
Kenneth D. Krause
|
|
2017
|
|
$
|
391,635
|
|
$
|
510,544
|
|
$
|
|
|
$
|
242,521
|
|
$
|
141,956
|
|
$
|
48,183
|
|
$
|
1,334,838
|
| ||||||||
Vice President, Chief Financial
|
|
2016
|
|
$
|
308,395
|
|
$
|
996,295
|
|
$
|
124,148
|
|
$
|
327,166
|
|
$
|
47,331
|
|
$
|
30,821
|
|
$
|
1,834,156
|
| ||||||||
Officer and Treasurer
|
|
2015
|
|
$
|
233,726
|
|
$
|
153,067
|
|
$
|
26,337
|
|
$
|
73,581
|
|
$
|
19,880
|
|
$
|
10,600
|
|
$
|
517,191
|
| ||||||||
Kerry M. Bove
|
|
2017
|
|
$
|
368,728
|
|
$
|
359,304
|
|
$
|
|
|
$
|
155,469
|
|
$
|
406,824
|
|
$
|
43,005
|
|
$
|
1,333,330
|
| ||||||||
Senior Vice President and Chief
|
|
2016
|
|
$
|
359,758
|
|
$
|
174,030
|
|
$
|
176,916
|
|
$
|
228,789
|
|
$
|
236,556
|
|
$
|
42,251
|
|
$
|
1,218,300
|
| ||||||||
Strategy Officer
|
|
2015
|
|
$
|
362,558
|
|
$
|
143,481
|
|
$
|
172,586
|
|
$
|
165,706
|
|
$
|
179,379
|
|
$
|
49,036
|
|
$
|
1,072,746
|
| ||||||||
Douglas K. McClaine
|
|
2017
|
|
$
|
372,682
|
|
$
|
340,367
|
|
$
|
|
|
$
|
186,554
|
|
$
|
484,597
|
|
$
|
42,902
|
|
$
|
1,427,102
|
| ||||||||
Senior Vice President, Secretary
|
|
2016
|
|
$
|
363,102
|
|
$
|
164,838
|
|
$
|
167,600
|
|
$
|
240,237
|
|
$
|
256,058
|
|
$
|
36,557
|
|
$
|
1,228,391
|
| ||||||||
and Chief Legal Officer
|
|
2015
|
|
$
|
351,088
|
|
$
|
135,959
|
|
$
|
163,505
|
|
$
|
157,785
|
|
$
|
186,538
|
|
$
|
42,098
|
|
$
|
1,036,973
|
|
(1) | Represents the aggregate grant date fair value of the restricted stock awards, restricted stock unit awards, and performance stock unit awards computed in accordance with FASB ASC Topic 718. For the performance stock unit awards, the amounts disclosed in the table are based upon the target amount of shares granted. If maximum share payouts were achieved for such units, the aggregate grant date fair value for such units would be twice the amount disclosed in each year in the table related to such performance stock units. In the event of such maximum payouts the totals in the stock awards column would be: (i) for 2017, $5,103,018 for Mr. Lambert, $2,869,457 for Mr. Vartanian, $816,570 for Mr. Krause, $718,310 for Mr. Bove and $680,451 for Mr. McClaine; (ii) for 2016, $1,883,773 for Mr. Lambert, $367,577 for Mr. Vartanian, $368,392 for Mr. Krause, $384,059 for Mr. Bove, and $329,676 for Mr. McClaine; (iii) for 2015, $1,553,382 for Mr. Lambert, $302,086 for Mr. Vartanian, $174,945 for Mr. Krause, $286,962 for Mr. Bove, and $271,918 for Mr. McClaine. |
(2) | Represents the aggregate grant date fair value of the stock option awards, computed in accordance with FASB ASC Topic 718. |
(3) | Represents the aggregate amount of incentive awards earned by the Named Officer under the Non-CEO Executive Incentive Program, the CEO Annual Incentive Award Plan and the Enhanced Bonus. See Performance-Based Annual Cash Incentive in the Compensation Discussion and Analysis above. |
(4) | Represents the amount of the aggregate increase for 2017 in the actuarial present value of the Named Officers accumulated benefits under the defined benefit retirement plans described under Pension Benefits below. Pension benefits are not available to the executive in a lump-sum present value form and changes in the interest rate or the mortality rates used to calculate present values can cause wide fluctuations in the change in Pension value even though there has been no change to the way the annuity benefits are calculated. |
(5) | The following table describes the 2017 amounts included under All Other Compensation: |
Name
|
Perquisites and personal benefits (A)
|
Company
|
Insurance premiums
|
Total
|
||||||||||||
William M. Lambert
|
$
|
35,306
|
|
$
|
72,411
|
|
$
|
1,253
|
|
$
|
108,970
|
| ||||
Nishan J. Vartanian
|
$
|
14,707
|
|
$
|
29,259
|
|
$
|
|
|
$
|
43,965
|
| ||||
Kenneth D. Krause
|
$
|
19,431
|
|
$
|
28,752
|
|
$
|
|
|
$
|
48,183
|
| ||||
Kerry M. Bove
|
$
|
18,144
|
|
$
|
23,901
|
|
$
|
960
|
|
$
|
43,005
|
| ||||
Douglas K. McClaine
|
$
|
14,022
|
|
$
|
24,974
|
|
$
|
3,906
|
|
$
|
42,902
|
|
(A) | The amounts consist of the cost of personal use of a Company car, tax and investment assistance and, for Mr. Lambert, a club membership. |
35
Grants of Plan-Based Awards
The following table shows the grants of plan-based awards made to the Named Officers in 2017:
Estimated possible payouts under non-equity incentive plan awards (1) |
Estimated possible payouts under equity incentive plan awards (2) |
Stock and stock unit awards (3) |
||||||||||||||||||||||||||||||||||
Name
|
Grant
|
Threshold
|
Target
|
Maximum
|
Threshold
|
Target
|
Maximum
|
Number of shares
|
Grant date fair value
|
|||||||||||||||||||||||||||
William M. Lambert
|
|
02/28/2017
|
|
$
|
405,000
|
|
$
|
810,000
|
|
$
|
1,620,000
|
|
$
|
1,276,284
|
|
$
|
2,552,568
|
|
$
|
5,105,136
|
|
|
|
|
|
|
| |||||||||
Nishan J. Vartanian(4)
|
|
02/28/2017
|
|
$
|
201,180
|
|
$
|
402,360
|
|
$
|
804,720
|
|
$
|
217,455
|
|
$
|
434,909
|
|
$
|
869,818
|
|
|
|
|
|
|
| |||||||||
Nishan J. Vartanian(5)
|
|
06/26/2017
|
|
|
|
|
|
|
|
|
|
|
$
|
248,709
|
|
$
|
497,417
|
|
$
|
994,834
|
|
|
6,306
|
|
$
|
500,003
|
| |||||||||
Kenneth D. Krause
|
|
02/28/2017
|
|
$
|
122,867
|
|
$
|
245,733
|
|
$
|
491,466
|
|
$
|
204,227
|
|
$
|
408,454
|
|
$
|
816,908
|
|
|
1,413
|
|
$
|
102,089
|
| |||||||||
Kerry M. Bove
|
|
02/28/2017
|
|
$
|
94,513
|
|
$
|
189,025
|
|
$
|
378,050
|
|
$
|
179,652
|
|
$
|
359,304
|
|
$
|
718,608
|
|
|
|
|
|
|
| |||||||||
Douglas K. McClaine
|
|
02/28/2017
|
|
$
|
94,513
|
|
$
|
189,025
|
|
$
|
378,050
|
|
$
|
170,184
|
|
$
|
340,367
|
|
$
|
680,734
|
|
|
|
|
|
|
|
(1) | Represents the amounts which could have been earned by the Named Officer through 2017 performance at the threshold, target and maximum levels under the annual incentive plans described under Performance-Based Annual Cash Incentive in the Compensation Discussion and Analysis above. The actual amounts earned are shown in the Non-equity incentive plan compensation column in the Summary Compensation Table above. |
(2) | Represents the amount that could be earned by the Named Officer at the threshold, target and maximum levels of shares to be issued with respect to the performance stock units granted to the Named Officer under the Companys Amended and Restated 2016 Management Equity Incentive Plan. The performance period runs through December 31, 2019. The amounts shown are based upon the ASC 718 value of the applicable number of shares of the Companys Common Stock. |
(3) | Represents time-vesting restricted stock unit awards granted to each Named Officer in 2017 under the Companys Amended and Restated 2016 Management Equity Incentive Plan. To earn the award, the officer must remain employed by the Company or a subsidiary through a date which is approximately the third anniversary of the grant date. Restricted stock units will also vest earlier upon a change in control or if the grantees employment terminates due to death, disability or retirement under a Company retirement plan. Messrs. Lambert, Vartanian, Bove and McClaine are eligible to retire under the Companys pension plan. |
(4) | Mr. Vartanians non-equity incentive plan threshold, target and maximum amounts represented in this table have been adjusted to reflect changes made to such amounts in connection with his promotion to President and Chief Operating Officer. |
(5) | Mr. Vartanian received a performance stock unit award and a time-vesting restricted stock unit award under the Companys Amended and Restated 2016 Management Equity Incentive Plan, in the form of a retention grant. |
36
Outstanding Equity Awards at Fiscal Year-End
The following table shows the outstanding equity awards held by the Named Officers at December 31, 2017:
Option Awards |
Stock Awards |
Performance Stock Unit Awards |
||||||||||||||||||||||||||||||||||||||||||
Name | Number exercisable |
Number un-exercisable |
Date exercisable |
Option exercise price |
Expiration date |
Number of shares or stock units that have not vested |
Vesting date |
Market value of shares or stock units that have not vested(1) |
Number of not vested |
Vesting Date(2) |
Market value of unearned stock units that have not vested(1) |
|||||||||||||||||||||||||||||||||
William M. Lambert |
55,143 | | 2/23/2014 | $ | 33.550 | 2/23/2021 | 9,603 | (3) | 3/8/2018 | $ | 744,425 | 9,603 | 3/8/2018 | $ | 744,425 | |||||||||||||||||||||||||||||
54,099 | | 2/17/2015 | $ | 36.690 | 2/17/2022 | | | | 21,519 | 3/8/2019 | $ | 1,668,153 | ||||||||||||||||||||||||||||||||
55,964 | | 2/20/2016 | $ | 48.950 | 2/20/2023 | | | | 35,315 | 3/8/2020 | $ | 2,737,619 | ||||||||||||||||||||||||||||||||
46,533 | | 2/26/2017 | $ | 51.690 | 2/26/2024 | | | | | | | |||||||||||||||||||||||||||||||||
| 59,770 | 2/25/2018 | $ | 48.640 | 2/25/2025 | | | | | | | |||||||||||||||||||||||||||||||||
| 81,916 | 3/1/2019 | $ | 44.500 | 3/1/2026 | | | | | | | |||||||||||||||||||||||||||||||||
Nishan J. Vartanian |
958 | | 2/23/2012 | $ | 17.830 | 2/23/2019 | 1,868 | (3) | 3/8/2018 | $ | 144,807 | 1,868 | 3/8/2018 | $ | 144,807 | |||||||||||||||||||||||||||||
4,060 | | 2/23/2013 | $ | 24.630 | 2/23/2020 | 1,674 | 3/8/2019 | $ | 129,768 | 3,348 | 3/8/2019 | $ | 259,537 | |||||||||||||||||||||||||||||||
3,516 | | 2/23/2014 | $ | 33.550 | 2/23/2021 | 6,306 | 6/26/2020 | $ | 488,841 | 6,017 | 3/8/2020 | $ | 466,438 | |||||||||||||||||||||||||||||||
4,035 | | 2/17/2015 | $ | 36.690 | 2/17/2022 | | | | 6,306 | 3/8/2020 | $ | 488,841 | ||||||||||||||||||||||||||||||||
3,402 | | 2/20/2016 | $ | 48.950 | 2/20/2023 | | | | | | | |||||||||||||||||||||||||||||||||
6,160 | | 2/26/2017 | $ | 51.690 | 2/26/2024 | | | | | | | |||||||||||||||||||||||||||||||||
| 11,623 | 2/25/2018 | $ | 48.640 | 2/25/2025 | | | | | | | |||||||||||||||||||||||||||||||||
| 12,744 | 3/1/2019 | $ | 44.500 | 3/1/2026 | | | | | | | |||||||||||||||||||||||||||||||||
Kenneth D. Krause |
1,378 | | 2/17/2015 | $ | 36.690 | 2/17/2022 | 100 | 2/25/2018 | $ | 7,752 | 270 | 3/8/2018 | $ | 20,930 | ||||||||||||||||||||||||||||||
1,056 | | 2/20/2016 | $ | 48.950 | 2/20/2023 | 541 | 3/8/2018 | $ | 41,938 | 2,790 | 3/8/2019 | $ | 216,281 | |||||||||||||||||||||||||||||||
1,488 | | 2/26/2017 | $ | 51.690 | 2/26/2024 | 271 | (3) | 3/8/2018 | $ | 21,008 | 5,651 | 3/8/2020 | $ | 438,066 | ||||||||||||||||||||||||||||||
| 1,685 | 2/25/2018 | $ | 48.640 | 2/25/2025 | 2,199 | 8/31/2018 | $ | 170,466 | |||||||||||||||||||||||||||||||||||
| 10,620 | 3/1/2019 | $ | 44.500 | 3/1/2026 | 2,790 | 3/8/2019 | $ | 216,281 | | | | ||||||||||||||||||||||||||||||||
11,095 | 12/14/2019 | $ | 880,084 | | | | ||||||||||||||||||||||||||||||||||||||
| | | | | 1,413 | 3/8/2020 | $ | 109,536 | | | | |||||||||||||||||||||||||||||||||
Kerry M. Bove |
2,980 | | 2/23/2014 | $ | 33.550 | 2/23/2021 | 1,774 | (3) | 3/8/2018 | $ | 137,520 | 1,774 | 3/8/2018 | $ | 137,520 | |||||||||||||||||||||||||||||
10,205 | | 2/17/2015 | $ | 36.690 | 2/17/2022 | | | | 3,976 | 3/8/2019 | $ | 308,220 | ||||||||||||||||||||||||||||||||
10,558 | | 2/20/2016 | $ | 48.950 | 2/20/2023 | | | | 4,971 | 3/8/2020 | $ | 385,352 | ||||||||||||||||||||||||||||||||
8,779 | | 2/26/2017 | $ | 51.690 | 2/26/2024 | | | | | | | |||||||||||||||||||||||||||||||||
| 11,042 | 2/25/2018 | $ | 48.640 | 2/25/2025 | | | | | | | |||||||||||||||||||||||||||||||||
| 15,134 | 3/1/2019 | $ | 44.500 | 3/1/2026 | | | | | | | |||||||||||||||||||||||||||||||||
Douglas K. McClaine |
15,661 | | 2/23/2013 | $ | 24.630 | 2/23/2020 | 1,681 | (3) | 3/8/2018 | $ | 130,311 | 1,681 | 3/8/2018 | $ | 130,311 | |||||||||||||||||||||||||||||
8,168 | | 2/23/2014 | $ | 33.550 | 2/23/2021 | | | | 3,766 | 3/8/2019 | $ | 291,940 | ||||||||||||||||||||||||||||||||
9,668 | | 2/17/2015 | $ | 36.690 | 2/17/2022 | | | | 4,709 | 3/8/2020 | $ | 365,042 | ||||||||||||||||||||||||||||||||
10,002 | | 2/20/2016 | $ | 48.950 | 2/20/2023 | | | | | | | |||||||||||||||||||||||||||||||||
8,317 | | 2/26/2017 | $ | 51.690 | 2/26/2024 | | | | | | | |||||||||||||||||||||||||||||||||
| 10,461 | 2/25/2018 | $ | 48.640 | 2/25/2025 | | | | | | | |||||||||||||||||||||||||||||||||
| 14,337 | 3/1/2019 | $ | 44.500 | 3/1/2026 | | | | | | |
(1) | Based on the $77.52 closing price for the Companys Common Stock as of December 31, 2017. |
(2) | The final vesting date of these performance stock units will be March 8 of the third year after the units were awarded, assuming that the Compensation Committee determines whether, and to what extent, the performance requirements related to the awards have been met, subject to the earlier vesting of the performance conditions of a percentage of the awards if applicable annual performance tests are met, in which case the final (time-based) vesting date for such percentage of awards will be March 8 of the third year after the units were awarded, if the employee remains employed by the Company at that date. |
(3) | These share amounts were originally performance stock units, for which the performance conditions have been met, and which have thus been converted to time-vesting restricted stock. |
37
Option Exercises and Stock Vested
The following table shows the stock options exercised by the Named Officers and the restricted stock awards vested for the Named Officers during 2017:
Option awards | Stock awards | |||||||||||||||
Name
|
Number of
|
Value
|
Number of
|
Value
|
||||||||||||
William M. Lambert
|
|
246,662
|
|
$
|
12,544,429
|
|
|
32,850
|
|
$
|
2,302,785
|
| ||||
Nishan J. Vartanian
|
|
12,316
|
|
$
|
686,501
|
|
|
5,949
|
|
$
|
417,025
|
| ||||
Kenneth D. Krause
|
|
|
|
$
|
|
|
|
1,634
|
|
$
|
114,601
|
| ||||
Kerry M. Bove
|
|
26,601
|
|
$
|
1,424,161
|
|
|
6,196
|
|
$
|
434,340
|
| ||||
Douglas K. McClaine
|
|
31,701
|
|
$
|
1,608,037
|
|
|
5,871
|
|
$
|
411,557
|
|
(1) | Represents the difference between the market value on the date of exercise of the shares acquired and the option exercise price. |
(2) | Represents the market value of the restricted shares on the vesting date. Includes time-vesting restricted stock awards and the vesting of time-vesting restricted stock derived from performance stock units which had met performance tests. |
Pension Benefits
The following table provides information concerning the value of the Named Officers accumulated benefits under the Companys defined benefit retirement plans as of December 31, 2017:
Name
|
Plan name
|
Number of years credited service
|
Present value of accumulated benefit
|
Payments during last fiscal year
|
||||||||||
William M. Lambert |
MSA Pension Plan
|
|
36.3
|
|
$
|
1,307,035
|
|
|
|
| ||||
MSA Supplemental Pension Plan
|
|
36.3
|
|
$
|
7,747,933
|
|
|
|
| |||||
Supplemental Executive Retirement Plan
|
|
36.3
|
|
$
|
776,550
|
|
|
|
| |||||
Nishan J. Vartanian |
MSA Pension Plan
|
|
32.5
|
|
$
|
1,057,613
|
|
|
|
| ||||
MSA Supplemental Pension Plan
|
|
32.5
|
|
$
|
1,531,046
|
|
|
|
| |||||
Supplemental Executive Retirement Plan
|
|
32.5
|
|
|
|
|
||||||||
Kenneth D. Krause |
MSA Pension Plan
|
|
11.3
|
|
$
|
199,440
|
|
|
|
| ||||
MSA Supplemental Pension Plan
|
|
11.3
|
|
$
|
122,866
|
|
|
|
| |||||
Supplemental Executive Retirement Plan
|
|
11.3
|
|
|
|
|
||||||||
Kerry M. Bove |
MSA Pension Plan
|
|
37.6
|
|
$
|
1,342,641
|
|
|
|
| ||||
MSA Supplemental Pension Plan
|
|
37.6
|
|
$
|
1,682,332
|
|
|
|
| |||||
Supplemental Executive Retirement Plan
|
|
37.6
|
|
$
|
465,930
|
|
|
|
| |||||
Douglas K. McClaine |
MSA Pension Plan
|
|
33.3
|
|
$
|
1,238,436
|
|
|
|
| ||||
MSA Supplemental Pension Plan
|
|
33.3
|
|
$
|
1,602,235
|
|
|
|
| |||||
Supplemental Executive Retirement Plan
|
|
33.3
|
|
$
|
465,930
|
|
|
|
|
Pension Plan
Introduction. The MSA Pension Plan is a retirement plan that covers most U.S. salaried employees and certain U.S. hourly employees.
To have a non-forfeitable right to a benefit under the Pension Plan, a participant must complete five years of service with the Company or an affiliate, or attain age 65 while employed by the Company or an affiliate. The Pension Plans normal retirement age is identical to the participants Social Security Retirement Age. The Social Security Full Retirement Age is established by Federal law, and varies from age 65 for persons born before 1938 to age 67 for persons born in 1960 or later years.
Benefits at Normal Retirement Age. A participant who retires upon reaching normal retirement age can begin receiving pension payments as of the first day of the following calendar month, which is referred to as the participants normal retirement date.
38
The Pension Plan has a minimum benefit formula that applies to only a small number of lower-paid participants. The majority of participants who begin receiving benefits on their normal retirement date are entitled to receive a monthly benefit equal to the sum of the amounts shown in (a), (b) and (c) below:
(a) |
0.80% | x | Average Monthly Earnings up to Average Social Security Wage Base |
x | Credited Service up to 35 Years | |||||||
plus | ||||||||||||
(b) |
1.55% | x | Average Monthly Earnings greater than Average Social Security Wage Base | x | Credited Service up to 35 Years | |||||||
plus | ||||||||||||
(c) |
1.00% | x | Average Monthly Earnings | x | Credited Service over 35 Years |
For purposes of the normal retirement benefit formula, the following terms have the following meanings:
| Average Monthly Earnings is generally the average of monthly compensation received during the participants highest five consecutive calendar years of compensation over the last ten years of employment. Compensation is generally the total cash payments received by a participant for services performed, before any reductions for employee contributions to 401(k) or other employee benefit plans. Compensation does not include any expense reimbursements, income attributable to non-cash benefits, or certain other miscellaneous payments. The compensation that can be taken into account each year is limited by Federal law. The 2017 limit is $270,000, but this number may be adjusted in future years for cost-of-living increases. |
| Average Social Security Wage Base is the average of the Social Security taxable wage bases in effect under Federal law during the 35-year period ending in the calendar year in which the participant attains Social Security Retirement Age. |
| Credited Service is a participants actual period of service with the Company as an employee in a category of employment that is covered by the Pension Plan. |
Benefits at Early Retirement Age. The Pension Plan permits early retirement by participants who have (i) reached age 55 with at least 15 years of service, or (ii) reached age 60 with at least 10 years of service. Messrs. Lambert, Vartanian, Bove and McClaine are currently eligible for early retirement. Participants who elect early retirement can choose to begin receiving pension benefits immediately, in which case their monthly benefit amount will be reduced to reflect the early start of payments; or they may choose to delay the start of payments until their normal retirement date, at which time they will receive unreduced benefits determined under the normal retirement benefit formula described above.
If a participant takes early retirement and begins receiving pension payments before his or her normal retirement date, the monthly pension benefit will be determined under the normal retirement formula, but will be reduced by (i) 5/9ths of 1% for each of the first 60 months that benefits begin before the normal retirement date, plus (ii) 5/18ths of 1% for each of the next 60 months that benefits begin before the normal retirement date, plus (iii) .345% for each of the next 12 months that benefits begin before the normal retirement date, plus (iv) .3108% for each of the next 12 months that benefits begin before the normal retirement date. Different reduction factors apply to the minimum benefit formula.
Forms of Payment. In general, Pension Plan benefits are paid as a stream of monthly benefits, referred to as an annuity (the only exception is that benefits with a present value of $5,000 or less are automatically paid in a lump sum following termination of employment). The normal form of payment for a single participant is a single life annuity that pays monthly benefits to the participant for his or her life only. The normal form of payment for a married participant is a qualified joint and survivor annuity that pays monthly benefits to the participant for life, and, after the participants death, pays monthly benefits to the participants surviving spouse in an amount equal to 50% of the monthly amount payable during the participants lifetime. The Pension Plan also permits a participant to elect from among several optional forms of annuity payment that are of equivalent actuarial value to the normal form of payment.
Even though the Named Officers who participate in the Pension Plan cannot receive a lump sum distribution from the Pension Plan, the pension benefit table is required to show a present value for each individuals accumulated Pension Plan
39
benefit payable at normal retirement age. That present value was calculated by using an annual interest rate of 3.77% and the RP-2014 white collar mortality table with generational projection using the Conduent Modified 2017 projection scale.
Supplemental Pension Plan
Introduction. The MSA Supplemental Pension Plan is a nonqualified retirement plan that provides plan participants with pension benefits that they would have received under the Pension Plan except for certain limitations imposed by Federal law, including the limitation on compensation that can be taken into account. Benefits under the Supplemental Pension Plan become non-forfeitable at the same time as benefits become non-forfeitable under the Pension Plan.
Benefits at Normal Retirement Age. The monthly benefit payable under the Supplemental Pension Plan to a participant who begins receiving benefits on his or her normal retirement date will be equal to the difference between (i) the amount that would have been payable under the Pension Plan on the normal retirement date if there were no limitations placed by law upon compensation taken into account or upon the amount of annual benefit payments, and (ii) the amount that is actually payable to the participant under the Pension Plan.
Benefits at Early Retirement Age. The monthly benefit payable under the Supplemental Pension Plan to a participant who is eligible for early retirement under the Pension Plan and who begins receiving benefits under the Pension Plan before his or her normal retirement date will be equal to the difference between (i) the amount that would have been payable under the Pension Plan if there were no limitations placed by law upon compensation taken into account or upon the amount of annual benefits, and (ii) the amount that is actually payable to the participant under the Pension Plan. Messrs. Lambert, Vartanian, Bove and McClaine are currently eligible for early retirement.
Forms of Payment. Benefits payable under the Supplemental Pension Plan are generally payable in the same form that the participants benefits are payable under the Pension Plan. However, in the event of a vested participants termination within a two-year period after a corporate change in control (as defined in the Supplemental Pension Plan), the participant will receive a lump sum payment that is actuarially equivalent to the participants Supplemental Pension Plan benefit.
Even though the Named Officers who participate in the Supplemental Pension Plan are not eligible to receive a lump sum unless a change in control occurs, the pension benefit table is required to show a lump sum value at December 31, 2017 for each individuals accumulated Supplemental Pension Plan benefit. That lump sum figure is calculated based on the required mortality table and the PPA three tiered interest rates: 1.79% for years 1-5, 3.80% for years 6-20, and 4.71% after 20 years. This plan was closed to new entrants after December 31, 2012.
Supplemental Executive Retirement Plan
The MSA Supplemental Executive Retirement Plan provides a defined benefit at retirement. Only certain officers of the Company are eligible for this program. No benefit is payable unless the officer stays with the Company until he or she reaches retirement eligibility, that is, age 55 plus a combination of age and service equal to at least 70. The benefit is payable in equal installments over 15 years. The benefit amount for Mr. Lambert is $1,000,000, and the benefit amount for all other eligible officers is $600,000. In the event of death of the participant after retirement, remaining payments are paid to the spouse or other beneficiary. No new officers have been added to this plan since its inception on January 1, 2008 and the plan was formally closed to new entrants after August 31, 2013.
40
Nonqualified Deferred Compensation
The following table provides information concerning deferrals by the Named Officers of their earned compensation under the Companys nonqualified deferred compensation plans:
Name
|
Executive
|
Company
|
Aggregate
|
Aggregate
|
Aggregate
|
|||||||||||||||
William M. Lambert
|
$
|
107,820
|
|
$
|
61,611
|
|
$
|
405,467
|
|
$
|
|
|
$
|
2,828,000
|
| |||||
Nishan J. Vartanian
|
$
|
141,150
|
|
$
|
18,459
|
|
$
|
42,525
|
|
$
|
|
|
$
|
473,282
|
| |||||
Kenneth D. Krause
|
$
|
31,416
|
|
$
|
17,952
|
|
$
|
2,827
|
|
$
|
|
|
$
|
65,065
|
| |||||
Kerry M. Bove
|
$
|
22,926
|
|
$
|
13,101
|
|
$
|
54,049
|
|
$
|
|
|
$
|
509,371
|
| |||||
Douglas K. McClaine
|
$
|
87,239
|
|
$
|
14,174
|
|
$
|
68,798
|
|
$
|
|
|
$
|
537,246
|
|
(1) | These amounts are reported in the Summary Compensation Table as salary or non-equity incentive plan compensation, as applicable. |
(2) | These amounts are reported in the Summary Compensation Table under Other Compensation. |
(3) | The above table reflects the Companys Supplemental Retirement Savings Plan. Earnings on deferred compensation under the Supplemental Retirement Savings Plan are not above market or preferential and are therefore not included in the Summary Compensation Table. Participants elect to have their accounts treated as if invested in one or more of a selection of publicly available mutual funds similar to those available under the Companys Retirement Savings Plan, a qualified 401(k) plan. Accounts are credited with earnings or losses based on the investment results of the funds selected. See Supplemental Retirement Savings Plan discussion immediately below for further information. |
(4) | Of the balances shown, the following amounts represent executive and Company contributions which either were reported in the Summary Compensation Table in the year of the contribution or would have been so reported had the individual been a Named Officer for that year: Mr. Lambert, $1,490,519; Mr. Vartanian, $414,406; Mr. Krause, $62,235; Mr. Bove, $360,289; and Mr. McClaine, $358,649. The remainder represents non-preferential market earnings not reportable in the Summary Compensation Table. |
Supplemental Retirement Savings Plan
For the Named Officers, the amounts shown in the Nonqualified Deferred Compensation table relate to the MSA Supplemental Retirement Savings Plan (SSP). The SSP permits the Named Officers and other eligible employees to defer compensation in excess of the limits imposed by the Internal Revenue Code on employee contributions to the Companys Retirement Savings Plan (RSP), a qualified 401(k) Plan. The Company matches 100% of the first 1% of participant deferrals and 50% of up to the next 6% of eligible compensation, whether contributed to the RSP or deferred under the SSP. Participant contributions are vested at all times. Company matching contributions vest upon completion of two years of service, or earlier upon death, attainment of age 65 or a change in control.
Compensation eligible for deferral under the SSP includes salary, annual incentive bonus and other cash remuneration for services rendered. There are certain limits on the percentage of eligible compensation that a participant may defer. Participants may elect to have their SSP accounts treated as if invested in one or more of a selection of publicly available mutual funds similar to those available under the RSP. Accounts are credited with earnings or losses based on the investment results of the funds selected. Participants may change their investment elections, for either new contributions and/or for existing balances, at any time.
Distribution options under the SSP vary depending upon the year in which compensation was deferred. Distribution of amounts deferred prior to 2003 commences upon termination of employment or an earlier change in control and is paid either in a lump sum or in five annual installments, as elected by the participant. For amounts deferred in 2003 or thereafter, the participant could elect an alternate date for the commencement of distributions, which for subsequent distribution elections in 2005 and thereafter must be at least five years later than the original distribution date. Absent such an election, distributions commence upon the first day of the seventh month following termination of employment. Distributions are made either in a lump sum or in up to 15 annual installments, as elected by the participant. The timing of participant elections, both as to deferrals and as to distributions, is restricted in accordance with Internal Revenue Service requirements.
Potential Payments upon Termination or Change-in-Control
The tables below show the payments and benefits to which each Named Officer would have been entitled if his employment had terminated on December 31, 2017 for the reasons indicated in the tables. In addition to severance amounts
41
payable in certain circumstances under the plan and agreements described following the tables, the amounts shown in the tables include compensation and retirement and other benefits previously earned through service by the Named Officer as described above.
William M. Lambert
The following table shows the payments and benefits to which William M. Lambert would have been entitled if his employment had terminated on December 31, 2017 for the reasons indicated in the table:
Voluntary
|
Involuntary
|
Involuntary
|
Death
|
Disability
|
Change in
|
|||||||||||||||||||
Cash severance (1)
|
$
|
|
|
$
|
|
|
$
|
835,375
|
|
$
|
|
|
$
|
|
|
$
|
5,001,182
|
| ||||||
Disability income (2)
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
1,743,875
|
|
$
|
|
| ||||||
Earned award under non-equity incentive plans (3)
|
$
|
666,208
|
|
$
|
|
|
$
|
666,208
|
|
$
|
666,208
|
|
$
|
666,208
|
|
$
|
666,208
|
| ||||||
Equity (4):
|
||||||||||||||||||||||||
Restricted stock
|
$
|
744,425
|
|
$
|
|
|
$
|
744,425
|
|
$
|
744,425
|
|
$
|
744,425
|
|
$
|
744,425
|
| ||||||
Unexercisable Options
|
$
|
4,431,024
|
|
$
|
|
|
$
|
4,431,024
|
|
$
|
4,431,024
|
|
$
|
4,431,024
|
|
$
|
4,431,024
|
| ||||||
Performance Award
|
$
|
5,150,197
|
|
$
|
|
|
$
|
5,150,197
|
|
$
|
5,150,197
|
|
$
|
5,150,197
|
|
$
|
5,150,197
|
| ||||||
Retirement benefits:
|
||||||||||||||||||||||||
Defined benefit plans (5)
|
||||||||||||||||||||||||
Pension Plan
|
$
|
1,307,035
|
|
$
|
1,307,035
|
|
$
|
1,307,035
|
|
$
|
1,061,130
|
|
$
|
1,307,035
|
|
$
|
1,307,035
|
| ||||||
Supplemental Pension Plan
|
$
|
7,747,933
|
|
$
|
7,747,933
|
|
$
|
7,747,933
|
|
$
|
6,284,693
|
|
$
|
7,747,933
|
|
$
|
6,549,661
|
| ||||||
Supplemental Executive Retirement Plan
|
$
|
776,550
|
|
$
|
776,550
|
|
$
|
776,550
|
|
$
|
776,550
|
|
$
|
776,550
|
|
$
|
1,000,000
|
| ||||||
Defined contribution plans (6)
|
||||||||||||||||||||||||
401(k) Retirement Savings Plan
|
$
|
1,312,138
|
|
$
|
1,312,138
|
|
$
|
1,312,138
|
|
$
|
1,312,138
|
|
$
|
1,312,138
|
|
$
|
1,312,138
|
| ||||||
Supplemental Savings Plan
|
$
|
2,828,000
|
|
$
|
2,828,000
|
|
$
|
2,828,000
|
|
$
|
2,828,000
|
|
$
|
2,828,000
|
|
$
|
2,828,000
|
| ||||||
Retiree medical (7)
|
$
|
80,297
|
|
$
|
80,297
|
|
$
|
80,297
|
|
$
|
|
|
$
|
|
|
$
|
80,297
|
| ||||||
Other Benefits:
|
||||||||||||||||||||||||
Health & Welfare (8)
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
49,166
|
|
$
|
87,961
|
|
$
|
|
| ||||||
Insurance benefits (9)
|
$
|
10,000
|
|
$
|
10,000
|
|
$
|
10,000
|
|
$
|
1,750,000
|
|
$
|
10,000
|
|
$
|
10,000
|
| ||||||
Outplacement assistance
|
$
|
|
|
$
|
|
|
$
|
25,000
|
|
$
|
|
|
$
|
|
|
$
|
25,000
|
| ||||||
Total
|
$
|
25,053,806
|
|
$
|
14,061,952
|
|
$
|
25,914,181
|
|
$
|
25,053,530
|
|
$
|
26,805,345
|
|
$
|
29,105,166
|
|
(1) | Represents the cash severance amount payable under the MSA Salaried Severance Pay Plan or the Change in Control Severance Agreements described below. |
(2) | Represents the present value of the future payments that should be payable under the terms of the Companys long-term disability plan, which provides an annual benefit of 60% of salary up to a maximum annual benefit of $360,000. |
(3) | Represents the amount earned through completion of the plan year under the Companys non-equity incentive award plans, as shown in the Summary Compensation Table above. |
(4) | The amount shown is the market value of equity awards held by the Named Officer at December 31, 2017. Under the terms of the Amended and Restated 2016 Management Equity Incentive Plan, equity awards vest early upon a change in control or upon termination of employment due to death, disability or retirement under a Company retirement plan. At December 31, 2017, Mr. Lambert was eligible to retire under the Companys pension plan. |
(5) | Represents the present value of the Named Officers accumulated benefits under the Companys defined benefit retirement plans described above. The increase in present value for termination following a change in control results from the plans provisions for a lump sum payment upon termination of employment within two years after a change in control. The values upon death reflect survivor benefits. |
(6) | Represents the balances at December 31, 2017 in the Named Officers accounts under the Companys qualified and nonqualified defined contribution plans. |
(7) | The Company has a nondiscriminatory plan available generally to United States salaried employees which provides medical benefits to employees who retire under the Companys Pension Plan until they become eligible for Medicare benefits. The amount shown in the table represents the estimated cost of providing plan benefits to the Named Officer. This plan was closed to new participants effective January 1, 2010. |
(8) | The amount shown for death represents the present value of the cost of continued dependent medical care coverage under the Companys health and welfare plan. The amount shown for disability is the present value of the cost of continued medical care coverage for the Named Officer and dependents. |
42
(9) | The amounts payable on death are the death benefits under the Companys group term life insurance policy and an individual life insurance policy, which is payable by the insurer. The amount payable under all other columns represents the death benefit after retirement under the Companys group term life insurance policy, which is payable by the insurer. |
Nishan J. Vartanian
The following table shows the payments and benefits to which Nishan J. Vartanian would have been entitled if his employment had terminated on December 31, 2017 for the reasons indicated in the table:
Voluntary
|
Involuntary
|
Involuntary
|
Death
|
Disability
|
Change in
|
|||||||||||||||||||
Cash severance (1)
|
$
|
|
|
$
|
|
|
$
|
500,000
|
|
$
|
|
|
$
|
|
|
$
|
1,475,199
|
| ||||||
Disability income (2)
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
1,453,037
|
|
$
|
|
| ||||||
Earned award under non-equity incentive plans (3)
|
$
|
322,809
|
|
$
|
|
|
$
|
322,809
|
|
$
|
322,809
|
|
$
|
322,809
|
|
$
|
322,809
|
| ||||||
Equity (4):
|
||||||||||||||||||||||||
Restricted stock
|
$
|
763,416
|
|
$
|
|
|
$
|
763,416
|
|
$
|
763,416
|
|
$
|
763,416
|
|
$
|
763,416
|
| ||||||
Unexercisable Options
|
$
|
756,479
|
|
$
|
|
|
$
|
756,479
|
|
$
|
756,479
|
|
$ | 756,479 | $
|
756,479
|
| |||||||
Performance Award
|
$
|
1,359,623
|
|
$
|
|
|
$
|
1,359,623
|
|
$
|
1,359,623
|
|
$
|
1,359,623
|
|
$
|
1,359,623
|
| ||||||
Retirement benefits:
|
||||||||||||||||||||||||
Defined benefit plans (5)
|
||||||||||||||||||||||||
Pension Plan
|
$
|
1,057,613
|
|
$
|
1,057,613
|
|
$
|
1,057,613
|
|
$
|
951,961
|
|
$
|
1,057,613
|
|
$
|
1,057,613
|
| ||||||
Supplemental Pension Plan
|
$
|
1,531,046
|
|
$
|
1,531,046
|
|
$
|
1,531,046
|
|
$
|
1,376,362
|
|
$
|
1,531,046
|
|
$
|
1,302,635
|
| ||||||
Supplemental Executive Retirement Plan
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
| ||||||
Defined contribution plans (6)
|
||||||||||||||||||||||||
401(k) Retirement Savings Plan
|
$
|
1,371,356
|
|
$
|
1,371,356
|
|
$
|
1,371,356
|
|
$
|
1,371,356
|
|
$
|
1,371,356
|
|
$
|
1,371,356
|
| ||||||
Supplemental Savings Plan
|
$
|
473,282
|
|
$
|
473,282
|
|
$
|
473,282
|
|
$
|
473,282
|
|
$
|
473,282
|
|
$
|
473,282
|
| ||||||
Retiree medical (7)
|
$
|
118,227
|
|
$
|
118,227
|
|
$
|
118,227
|
|
$
|
|
|
$
|
|
|
$
|
118,227
|
| ||||||
Other Benefits:
|
||||||||||||||||||||||||
Health & Welfare (8)
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
90,686
|
|
$
|
160,051
|
|
$
|
|
| ||||||
Insurance benefits (9)
|
$
|
10,000
|
|
$
|
10,000
|
|
$
|
10,000
|
|
$
|
1,000,000
|
|
$
|
10,000
|
|
$
|
10,000
|
| ||||||
Outplacement assistance
|
$
|
|
|
$
|
|
|
$
|
25,000
|
|
$
|
|
|
$
|
|
|
$
|
25,000
|
| ||||||
Total
|
$
|
7,763,851
|
|
$
|
4,561,524
|
|
$
|
8,288,851
|
|
$
|
8,465,974
|
|
$
|
9,258,712
|
|
$
|
9,035,639
|
|
(1) | Represents the cash severance amount payable under the MSA Salaried Severance Pay Plan or the Change in Control Severance Agreements described below. |
(2) | Represents the present value of the future payments that should be payable under the terms of the Companys long-term disability plan, which provides an annual benefit of 60% of salary up to a maximum annual benefit of $360,000. |
(3) | Represents the amount earned through completion of the plan year under the Companys non-equity incentive award plans, as shown in the Summary Compensation Table above. |
(4) | The amount shown is the market value of equity awards held by the Named Officer at December 31, 2017. Under the terms of the Amended and Restated 2016 Management Equity Incentive Plan, equity awards vest early upon a change in control or upon termination of employment due to death, disability or retirement under a Company retirement plan. At December 31, 2017, Mr. Vartanian was eligible to retire under the Companys pension plan. |
(5) | Represents the present value of the Named Officers accumulated benefits under the Companys defined benefit retirement plans described above. The increase in present value for termination following a change in control results from the plans provisions for a lump sum payment upon termination of employment within two years after a change in control. The values upon death reflect survivor benefits. |
(6) | Represents the balances at December 31, 2017 in the Named Officers accounts under the Companys qualified and nonqualified defined contribution plans. |
(7) | The Company has a nondiscriminatory plan available generally to United States salaried employees which provides medical benefits to employees who retire under the Companys Pension Plan until they become eligible for Medicare benefits. The amount shown in the table represents the estimated cost of providing plan benefits to the Named Officer. This plan was closed to new participants effective January 1, 2010. |
(8) | The amount shown for death represents the present value of the cost of continued dependent medical care coverage under the Companys health and welfare plan. The amount shown for disability is the present value of the cost of continued medical care coverage for the Named Officer and dependents. The amount shown for change in control is the estimated cost to the Company of continuation for 24 months of medical, dental, accident and life insurance benefits, as required by the Change in Control Severance Agreements described below. |
43
(9) | The amounts payable on death are the death benefits under the Companys group term life insurance policy and an individual life insurance policy, which is payable by the insurer. |
Kenneth D. Krause
The following table shows the payments and benefits to which Kenneth D. Krause would have been entitled if his employment had terminated on December 31, 2017 for the reasons indicated in the table:
Voluntary
|
Involuntary
|
Involuntary
|
Death
|
Disability
|
Change
in
|
|||||||||||||||||||
Cash severance (1)
|
$
|
|
|
$
|
|
|
$
|
129,126
|
|
$
|
|
|
$
|
|
|
$
|
1,190,746
|
| ||||||
Disability income (2)
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
2,787,875
|
|
$
|
|
| ||||||
Earned award under non-equity incentive plans (3)
|
$
|
242,521
|
|
$
|
|
|
$
|
242,521
|
|
$
|
242,521
|
|
$
|
242,521
|
|
$
|
242,521
|
| ||||||
Equity (4):
|
||||||||||||||||||||||||
Restricted stock
|
$
|
1,427,065
|
|
$
|
|
|
$
|
1,427,065
|
|
$
|
1,427,065
|
|
$
|
1,427,065
|
|
$
|
1,427,065
|
| ||||||
Unexercisable Options
|
$
|
399,335
|
|
$
|
|
|
$
|
399,335
|
|
$
|
399,335
|
|
$
|
399,335
|
|
$
|
399,335
|
| ||||||
Performance Award
|
$
|
675,355
|
|
$
|
|
|
$
|
675,355
|
|
$
|
675,355
|
|
$
|
675,355
|
|
$
|
675,355
|
| ||||||
Retirement benefits:
|
||||||||||||||||||||||||
Defined benefit plans (5)
|
||||||||||||||||||||||||
Pension Plan
|
$
|
199,440
|
|
$
|
199,440
|
|
$
|
199,440
|
|
$
|
85,525
|
|
$
|
199,440
|
|
$
|
199,440
|
| ||||||
Supplemental Pension Plan
|
$
|
122,866
|
|
$
|
122,866
|
|
$
|
122,866
|
|
$
|
52,604
|
|
$
|
122,866
|
|
$
|
84,913
|
| ||||||
Supplemental Executive Retirement Plan
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
| ||||||
Defined contribution plans (6)
|
||||||||||||||||||||||||
401(k) Retirement Savings Plan
|
$
|
447,701
|
|
$
|
447,701
|
|
$
|
447,701
|
|
$
|
447,701
|
|
$
|
447,701
|
|
$
|
447,701
|
| ||||||
Supplemental Savings Plan
|
$
|
65,065
|
|
$
|
65,065
|
|
$
|
65,065
|
|
$
|
65,065
|
|
$
|
65,065
|
|
$
|
65,065
|
| ||||||
Retiree medical (7)
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
| ||||||
Other Benefits:
|
||||||||||||||||||||||||
Health & Welfare (8)
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
271,789
|
|
$
|
511,256
|
|
$
|
38,932
|
| ||||||
Insurance benefits (9)
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
1,000,000
|
|
$
|
|
|
$
|
|
| ||||||
Outplacement assistance
|
$
|
|
|
$
|
|
|
$
|
25,000
|
|
$
|
|
|
$
|
|
|
$
|
25,000
|
| ||||||
Total
|
$
|
3,579,348
|
|
$
|
835,072
|
|
$
|
3,733,474
|
|
$
|
4,666,960
|
|
$
|
6,878,479
|
|
$
|
4,796,073
|
|
(1) | Represents the cash severance amount payable under the MSA Salaried Severance Pay Plan or the Change in Control Severance Agreements described below. |
(2) | Represents the present value of the future payments that should be payable under the terms of the Companys long-term disability plan, which provides an annual benefit of 60% of salary up to a maximum annual benefit of $360,000. |
(3) | Represents the amount earned through completion of the plan year under the Companys non-equity incentive award plans, as shown in the Summary Compensation Table above. |
(4) | The amount shown is the market value of equity awards held by the Named Officer at December 31, 2017. Under the terms of the Amended and Restated 2016 Management Equity Incentive Plan, equity awards vest early upon a change in control or upon termination of employment due to death, disability or retirement under a Company retirement plan. |
(5) | Represents the present value of the Named Officers accumulated benefits under the Companys defined benefit retirement plans described above. The increase in present value for termination following a change in control results from the plans provisions for a lump sum payment upon termination of employment within two years after a change in control. The values upon death reflect survivor benefits. |
(6) | Represents the balances at December 31, 2017 in the Named Officers accounts under the Companys qualified and nonqualified defined contribution plans. |
(7) | The Company has a nondiscriminatory plan available generally to United States salaried employees which provides medical benefits to employees who retire under the Companys Pension Plan until they become eligible for Medicare benefits. The amount shown in the table represents the estimated cost of providing plan benefits to the Named Officer. This plan was closed to new participants effective January 1, 2010. |
(8) | The amount shown for death represents the present value of the cost of continued dependent medical care coverage under the Companys health and welfare plan. The amount shown for disability is the present value of the cost of continued medical care coverage for the Named Officer and dependents. The amount shown for change in control is the estimated cost to the Company of continuation for 24 months of medical, dental, accident and life insurance benefits, as required by the Change in Control Severance Agreements described below. |
(9) | The amounts payable on death are the death benefits under the Companys group term life insurance policy and an individual life insurance policy, which is payable by the insurer. |
44
Kerry M. Bove
The following table shows the payments and benefits to which Kerry M. Bove would have been entitled if his employment had terminated on December 31, 2017 for the reasons indicated in the table:
Voluntary
|
Involuntary
|
Involuntary
|
Death
|
Disability
|
Change in
|
|||||||||||||||||||
Cash severance (1)
|
$
|
|
|
$
|
|
|
$
|
371,000
|
|
$
|
|
|
$
|
|
|
$
|
1,704,743
|
| ||||||
Disability income (2)
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
1,053,769
|
|
$
|
|
| ||||||
Earned award under non-equity incentive plans (3)
|
$
|
155,469
|
|
$
|
|
|
$
|
155,469
|
|
$
|
155,469
|
|
$
|
155,469
|
|
$
|
155,469
|
| ||||||
Equity (4):
|
||||||||||||||||||||||||
Restricted stock
|
$
|
137,520
|
|
$
|
|
|
$
|
137,520
|
|
$
|
137,520
|
|
$
|
137,520
|
|
$
|
137,520
|
| ||||||
Unexercisable Options
|
$
|
818,618
|
|
$
|
|
|
$
|
818,618
|
|
$
|
818,618
|
|
$
|
818,618
|
|
$
|
818,618
|
| ||||||
Performance Award
|
$
|
831,092
|
|
$
|
|
|
$
|
831,092
|
|
$
|
831,092
|
|
$
|
831,092
|
|
$
|
831,092
|
| ||||||
Retirement benefits:
|
||||||||||||||||||||||||
Defined benefit plans (5)
|
||||||||||||||||||||||||
Pension Plan
|
$
|
1,342,641
|
|
$
|
1,342,641
|
|
$
|
1,342,641
|
|
$
|
1,090,037
|
|
$
|
1,342,641
|
|
$
|
1,342,641
|
| ||||||
Supplemental Pension Plan
|
$
|
1,682,332
|
|
$
|
1,682,332
|
|
$
|
1,682,332
|
|
$
|
1,364,614
|
|
$
|
1,682,332
|
|
$
|
1,417,917
|
| ||||||