PROXY STATEMENT
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INFORMATION ABOUT THE ANNUAL MEETING
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Our
2017 Annual Meeting of Stockholders will be held on Wednesday, May 17, 2017 at 9:00 a.m., local time, at our principal executive offices located at
815 Chestnut Street, North Andover, Massachusetts 01845. For directions to our principal executive offices, please visit the Annual Meeting page on our website
at
http://investors.wattswater.com/annualmeeting
. If you have any questions about the Annual Meeting, please contact Kenneth Lepage, our
corporate Secretary, by telephone at (978) 688-1811 or by sending a written request for information addressed to Kenneth Lepage, our corporate Secretary, at our principal executive offices.
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INFORMATION ABOUT THIS PROXY STATEMENT
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You
have received this proxy statement because the Board of Directors of Watts Water Technologies, Inc. (which we also refer to as Watts or the Company) is
soliciting your proxy to vote your shares at the 2017 Annual Meeting and at any continuation, adjournment or postponement of the 2017 Annual Meeting. This proxy statement includes information that we
are required to provide to you under the rules of the Securities and Exchange Commission, or SEC, and is designed to assist you in voting your shares. Only stockholders of record at the close of
business on March 23, 2017 are entitled to receive notice of and to vote at the Annual Meeting.
We are mailing this proxy statement and the accompanying proxy on or about March 31, 2017 to our stockholders of record as of March 23, 2017. We are
also mailing our Annual Report for the fiscal year ended December 31, 2016 to such stockholders concurrently with this proxy statement. Our Annual Report on Form 10-K for the fiscal year
ended December 31, 2016 is available on our website at
http://www.wattswater.com.
If you are a stockholder and would like a copy of our
Annual Report on Form 10-K or any of its exhibits sent to you, we will send it to you without charge. Please address all such requests to Kenneth Lepage at our principal executive
offices.
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be Held on May 17, 2017
The proxy statement and annual report to security holders are available at
http://investors.wattswater.com/annualmeeting
.
Each
share of our class A common stock, par value $0.10 per share, outstanding on the record date is entitled to one vote on each matter submitted, and each
share of our class B common stock, par value $0.10 per share, outstanding on the record date is entitled to ten votes on each matter submitted. As of the close of business on March 23,
2017, there were outstanding and entitled to vote 27,820,247 shares of class A common stock and 6,379,290 shares of class B common stock.
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Stockholders of Record
Stockholders of record may vote in person at the Annual Meeting or by proxy. There are three ways to vote by proxy:
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Internet
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Phone
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Mail
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By Internet—Stockholders of record can vote over the Internet by visiting the website listed on the proxy card and following the instructions on the proxy card.
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By telephone—Stockholders of record located in the United States and Canada can vote by calling the toll-free telephone number listed on the proxy card and following the instructions on the proxy card.
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By mail—Stockholders of record may vote by mail by signing, dating and mailing the enclosed proxy card and returning it in the enclosed prepaid envelope.
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If
a choice is specified in a proxy, shares represented by that proxy will be voted in accordance with such choice. If no choice is specified, the proxy will be voted "FOR" the election of each of the
nine nominees for director named in this proxy statement, "FOR" our named executive officer compensation, for "1 YEAR" with respect to the frequency of future advisory votes to approve our named
executive officer compensation, and "FOR" the ratification of the appointment of KPMG LLP.
You
may revoke or change your proxy at any time before it is exercised by (i) delivering to us a signed proxy card with a date later than that of your previously delivered proxy,
(ii) voting in person at the Annual Meeting, (iii) granting a subsequent proxy through the Internet or by telephone, or (iv) sending a written revocation to our corporate
Secretary at our principal executive offices. Attending the Annual Meeting will not revoke your proxy unless you specifically request that your proxy be revoked by sending a written revocation to our
corporate Secretary before the proxy is exercised or you vote in person at the Annual Meeting.
Beneficial Owners
If you are a beneficial owner and your shares are held in "street name" by a bank, broker or other holder of record, you will receive
instructions from the holder of record as to how to vote your shares. You will need to follow the instructions of the holder of record in order to vote your shares. Many banks and brokers offer the
option of voting over the Internet or by telephone, instructions for which would be provided by your bank or broker on a voting instruction form. If your shares are not registered in your own name and
you plan to vote your shares in person at the Annual Meeting, you must contact your broker or agent to obtain a legal proxy or broker's proxy card and bring it to the Annual Meeting in order to vote.
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QUORUM; REQUIRED VOTES; ABSTENTIONS AND BROKER NON-VOTES
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The
presence, in person or by proxy, of a majority of the voting power of the outstanding shares of class A common stock and class B common stock entitled
to be cast at the Annual Meeting is necessary to constitute a quorum for the transaction of business. Abstentions and broker non-votes will be counted for purposes of determining whether a quorum is
present for the transaction of business at the Annual Meeting. A "broker non-vote" occurs when a bank, broker or other nominee holder has not received voting instructions with respect to a particular
matter and the nominee holder does not have discretionary authority to vote on that matter. A nominee holder has discretionary authority under the rules of the New York Stock Exchange, or NYSE, to
vote street name shares on the ratification of the appointment of KPMG LLP as our independent registered public accounting
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firm,
even if the nominee holder does not receive voting instructions from the beneficial owners, but will not have discretionary authority to vote on the election of directors, the approval of our
named executive officer compensation, the frequency of future advisory votes to approve our named executive officer compensation, or any other proposals submitted for approval at the Annual Meeting.
Proposal 1: Election of Directors
Under our by-laws, directors are elected by plurality vote. This means that the nine director nominees receiving the highest number of
affirmative votes will be elected as directors. You may vote for all of the director nominees, withhold your vote from all of the director nominees or withhold your vote from any one or more of the
director nominees. Votes that are withheld and broker non-votes will not be included in the vote tally for the election of directors and will have no effect on the results of the vote.
Proposal 2: Advisory Vote on the Compensation of Our Named Executive Officers
Under our by-laws, the affirmative vote of the holders of a majority of the votes present or represented at the Annual Meeting and entitled to
be cast will be required for approval on a non-binding, advisory basis, of our executive compensation. If you submit a proxy or attend the meeting but choose to abstain from voting on this proposal,
you will be considered present at the meeting and entitled to vote on such proposal. As a result, an abstention will have the same effect as if you had voted against such proposal. Broker non-votes,
however, will have no effect on the proposal because they will not be considered to have been entitled to vote on such proposal.
Proposal 3: Advisory Vote on the Frequency of Future Advisory Votes on the Compensation of Our Named
Executive Officers
Under our by-laws, the affirmative vote of the holders of a majority of the votes present or represented at the Annual Meeting and entitled to
be cast will be required for approval on a non-binding, advisory basis, of the frequency of future advisory votes on the compensation of our named executive officers. If none of the frequency options
(one year, two years or three years) receives a majority of votes present or represented and entitled to be cast, we will consider the frequency option receiving the highest number of votes cast by
stockholders to be the option that has been recommended by stockholders. If you submit a proxy or attend the meeting but choose to abstain from voting on this proposal, you will be considered present
at the meeting and entitled to vote on such proposal for purposes of determining whether one of the options received a majority of votes present or represented and entitled to be cast. Broker
non-votes will have no effect on the proposal because they will not be considered to have been entitled to vote on such proposal. As described in more detail in Proposal 3, because this proposal is
non-binding, the Board of Directors may decide that it is in the best interest of our stockholders and the Company to hold future named executive officer compensation advisory votes more or less
frequently than what is recommended by stockholders.
Proposal 4: Ratification of Our Independent Registered Public Accounting Firm.
Under our by-laws, the affirmative vote of the holders of a majority of the votes present or represented at the Annual Meeting and entitled to
be cast will be required for approval of the ratification of the appointment of KPMG LLP as our independent registered public accounting firm. If you submit a proxy or attend the meeting but
choose to abstain from voting on this proposal, you will be considered present at the meeting and entitled to vote on such proposal. As a result, an abstention will have the same effect as if you had
voted against such proposal. Because brokers
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have
discretionary authority under NYSE rules to vote street name shares on Proposal 4, we do not expect any broker non-votes in connection with this proposal.
We
will bear the expenses of preparing, printing and assembling the materials used in the solicitation of proxies. In addition to the solicitation of proxies by use of
the mail or the Internet, we may also use the services of some of our officers and employees (who will receive no compensation for such services in addition to their regular salaries) to solicit
proxies personally and by telephone and email. Brokerage houses, nominees, fiduciaries and other custodians will be requested to forward solicitation materials to the beneficial owners of shares held
of record by them, and we will reimburse them for their reasonable expenses.
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OTHER BUSINESS TO BE CONSIDERED
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Our
management does not know of any business other than the matters set forth in the Notice of Annual Meeting of Stockholders and described above that will be presented
for consideration at the Annual Meeting. If any other business should properly come before the Annual Meeting, the proxies will be voted in accordance with the direction of the proxy holders. Each of
the persons appointed by the enclosed form of proxy present and acting at the meeting, in person or by substitute, may exercise all of the powers and authority of the proxies in accordance with their
judgment.
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Director Compensation
Our non-employee directors are compensated for their service as directors. During 2016, our Chief Executive Officer, Robert J. Pagano, Jr., was
the only member of our Board of Directors who was an employee of Watts, and he did not receive any additional compensation for his service as a director. Our current compensation arrangements for
non-employee directors were set in July 2014, informed by a comprehensive competitive analysis of non-employee director compensation performed for the Compensation Committee by its independent
compensation consultant, Pearl Meyer & Partners, LLC. Set forth below is a summary of the current annual compensation arrangements for our non-employee directors.
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Annual cash retainer:
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$
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70,000
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Additional annual retainer for the Chairman of the Board of Directors:
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$
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60,000
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Additional annual retainer for the Chairman of the Audit Committee:
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$
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20,000
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Additional annual retainer for the Chairman of the Compensation Committee:
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$
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15,000
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Additional annual retainer for the Chairman of the Nominating and Corporate Governance Committee:
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$
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12,500
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Value of annual grant of class A common stock:
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$
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100,000
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We
also reimburse non-employee directors for reasonable out-of-pocket expenses incurred in connection with attending Board and committee meetings and for fees and reasonable
out-of-pocket expenses for their attendance at director education seminars and programs they attend at the request of the Board. Non-employee directors do not receive any additional compensation for
attendance at Board or committee meetings.
Our
Board typically approves grants of stock awards to non-employee directors at its first quarterly meeting following the election of directors at our Annual Meeting of Stockholders.
Such awards are not subject to vesting or any other conditions or restrictions. We have adopted the practice that the number of shares awarded to our non-employee directors is determined using a
twelve-month trailing average stock price, which may result in a grant date fair value that is more or less than the established value of the annual stock grant to non-employee directors. On
August 4, 2016, we granted 1,837 shares of class A common stock to each of Messrs. Ayers, Baert, Cathcart, Conway, Kissel, Noonan and Reitmeier and Ms. Raines. Non-employee
directors who are first elected to our Board during the year receive a pro-rated award of shares for the remaining portion of the then-current Board term. Mr. Reitmeier was elected to the Board
on February10, 2016 and received an award of 466 shares of class A common stock, which represented one-quarter of the value of the annual grant of stock awarded to non-employee Board members
for the 2015-2016 term.
We
have instituted a program under which our non-employee directors may defer receipt of their annual grant of shares of class A common stock. If any dividends are paid on our
class A common stock during the period in which the stock is deferred, the non-employee director accrues dividends in the amount he or she would have received if the shares had been issued and
held by the director at the time the dividend was paid. The accrued dividends will be distributed, without interest, in cash at the end of the deferral period chosen by such director when the stock is
issued to the director. Mr. Ayers, Mr. Cathcart and Ms. Raines elected to defer receipt of their 2016 stock awards.
Our
non-employee directors are subject to stock ownership guidelines. These guidelines stipulate that each non-employee director should own shares of our class A common stock with
a market value of at least three times the amount of the annual cash retainer payable to non-employee directors, which was $210,000 for 2016. It is expected that this ownership level will generally be
achieved within a three-year period beginning when a director is first elected to the
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Board.
For purposes of determining a director's compliance with these ownership guidelines, any deferred shares are considered held by the director. The Compensation Committee reviews each
non-employee director's compliance with these guidelines on an annual basis. Compliance is typically measured based on stock ownership as of the last day of the second quarter. At the end of the
second quarter of 2016, all of our non-employee directors who had been members of our Board for three or more years were in compliance with our stock ownership guidelines.
The
following table contains information on compensation for the non-employee members of our Board of Directors during the fiscal year ended December 31, 2016.
2016 DIRECTOR COMPENSATION
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Name
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Fees Earned or Paid
in Cash($)
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Stock Awards($)(1)
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Total($)
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Robert L. Ayers
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82,500
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112,976
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195,476
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Bernard Baert
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70,000
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112,976
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182,976
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Richard J. Cathcart
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85,000
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112,976
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197,976
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Christopher L. Conway
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70,000
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112,976
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182,976
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W. Craig Kissel
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130,000
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112,976
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242,976
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Joseph T. Noonan
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70,000
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112,976
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182,976
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Merilee Raines
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90,000
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112,976
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202,976
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Joseph W. Reitmeier
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70,000
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135,674
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205,674
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(1)
-
The
amounts in this column reflect the grant date fair value of the stock awards granted during 2016 determined in accordance with Financial Accounting Standards
Board Accounting Standards Codification Topic 718. A discussion of the assumptions used in calculating the amounts in this column may be found in Note 12 to our audited consolidated financial
statements for the year ended December 31, 2016 included in our Annual Report on Form 10-K filed with the SEC on February 24, 2017. The amounts reflected in this column for
Mr. Ayers, Mr. Cathcart and Ms. Raines were deferred under our non-employee director stock deferral program described above. The number of shares granted to each non-employee
director in August 2016 was determined using a twelve-month trailing average stock price, which resulted in a total grant date fair value of more than $100,000. The stock award value for
Mr. Reitmeier also includes the shares granted to him in February 2016 in connection with his initial election as a member of the Board.
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Our Commitment to Good Corporate Governance
We believe that good corporate governance and an environment of the highest ethical standards are important for us to achieve business success
and to create value for our stockholders. Our Board is committed to high governance standards and continually works to improve them. We periodically review our corporate governance policies and
practices and compare them to those suggested by various authorities on corporate governance and employed by other public companies. We also review guidance and interpretations provided from time to
time by the SEC and the NYSE and consider changes to our corporate governance policies and practices in light of such guidance and interpretations.
Role of Our Board of Directors
Our Board monitors overall corporate performance and the integrity of our financial controls and legal compliance procedures. It appoints
executive officers and oversees succession planning and our executive officers' performance and compensation. Our Board oversees the development of fundamental operating, financial and other corporate
plans, strategies and objectives, and conducts a year-long process which culminates in Board review and approval each year of a business plan, a capital expenditures budget and other key financial and
business objectives.
Members
of our Board keep informed about our business through discussions with our Chief Executive Officer and other members of our senior management team, by reviewing materials
provided to them on a regular basis and in preparation for Board and committee meetings and by participating in meetings of the Board and its committees. We regularly review key portions of our
business with the Board, and we introduce our executives to the Board so that the Board can become familiar with our key employees. In addition, we hold periodic strategy sessions between members of
senior management and the Board, during which members of the senior management team provide in-depth reviews of various aspects of our business operations and discuss our strategy with respect to such
operations.
In
2016, our Board met five times and each incumbent director who was a member of our Board during 2016 attended at least 75% of the total number of meetings of the Board and all
committees of the Board on which the director served.
The Role of our Board in Risk Oversight
The Board's role in our risk oversight process includes receiving regular reports from members of senior management on areas of material risk to
Watts, including operational, financial, legal and regulatory, strategic and reputational risks. The full Board (or the appropriate committee in the case of risks that are under the purview of a
particular committee) receives these reports from senior management to enable it to understand our risk identification, risk management and risk mitigation processes and strategies. When a committee
receives a report on a particular risk, the chairman of the relevant committee reports on the committee's discussion of such risk to the full Board during the next full Board meeting. This enables the
Board and its committees to coordinate the risk oversight role. As part of its charter, the Audit Committee discusses the guidelines and policies that govern the process by which our exposure to risk
is assessed and managed by management. The Board does not believe that its role in the oversight of our risks affects the Board's leadership structure.
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Board Leadership Structure
We separate the roles of Chief Executive Officer and Chairman of the Board in recognition of the differences between the two roles. Our Chief
Executive Officer is responsible for the operational management of Watts, providing day-to-day leadership and managing our performance. The Chairman of the Board provides guidance to our Chief
Executive Officer, works with our Chief Executive Officer to set the agenda for Board meetings and presides over meetings of the full Board, including executive sessions of the non-management and
independent directors.
Performance of Our Board and Committees
Our Board considers it important to continually evaluate and improve its effectiveness and that of its committees. Our Board and each of its
standing committees conduct annual self-evaluations. The Nominating and Corporate Governance Committee oversees our Board's self-evaluation process. The results of each committee's annual
self-evaluation are reported to the full Board.
Business Ethics and Compliance
We have adopted a Code of Business Conduct applicable to all officers, employees and Board members worldwide. The Code of Business Conduct is
posted in the "Investors" section of our website at
http://www.wattswater.com
. Any amendments to, or waivers of, the Code of Business Conduct which
apply to our Chief Executive Officer, Chief Financial Officer, Corporate Controller or any person performing similar functions will be disclosed on our website within four business days of the date of
such amendment or waiver.
Director Independence
As of March 1, 2017, members of the Horne family beneficially owned 6,329,290 shares of our class B common stock that are subject
to The George B. Horne Voting Trust Agreement—1997. These shares represented 69.1% of our total outstanding voting power. As trustee of The George B. Horne Voting Trust
Agreement—1997, Timothy P. Horne has sole power to vote all of the shares subject to the trust and effectively exercises control over voting power for the election of our directors. As a
result, we are a "controlled company" under NYSE rules. As a controlled company, under NYSE rules, we are not required to have a majority of independent directors or compensation or governance
committees consisting solely of independent directors. However, we strive to achieve the highest standards of corporate governance, including with respect to director independence, despite our status
as a controlled company. Accordingly, we have chosen not to take advantage of the controlled company exemption under NYSE rules and are committed to having a Board with at least a majority of
independent directors.
Under
our Corporate Governance Guidelines, we require that at least a majority of the members of our Board meet the independence requirements of the NYSE. Under NYSE rules, a director
qualifies as "independent" if the Board affirmatively determines that the director has no material relationship with the company of which he or she serves as a director. The Board is required to
consider broadly all relevant facts and circumstances in making an independence determination. Material relationships can include commercial, industrial, banking, consulting, legal, accounting,
charitable and familial relationships. The Nominating and Corporate Governance Committee annually evaluates the independence of each non-employee director nominee and makes recommendations to the
Board. In making its recommendations, the Nominating and Corporate Governance Committee applies NYSE rules to determine a director's independence and evaluates any other business, legal, accounting or
family relationships between all non-employee director nominees and Watts.
In
February 2017, the Nominating and Corporate Governance Committee and our Board reviewed all relationships between Watts and each non-employee director nominee to determine
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compliance
with the NYSE independence rules and our Corporate Governance Guidelines, and to evaluate whether there are any other facts or circumstances that might impair the director's independence.
Based on the results of this review and the recommendations of the Nominating and Corporate Governance Committee, the Board determined that nine of our eleven current directors (Messrs. Ayers,
Baert, Cathcart, Conway, Dunbar, Hansen, Kissel and Reitmeier and Ms. Raines) are independent under NYSE rules and that the composition of our Board therefore complies with our Corporate
Governance Guidelines. With respect to Mr. Noonan, the Board determined that he is a non-management director under NYSE rules, but not independent under NYSE rules because he is the son-in-law
of Timothy P. Horne, our controlling stockholder.
Horne Family Board Participation
As described above, Timothy P. Horne controls approximately 69.1% of the voting power of our stock. Mr. Horne served as a member of our
Board of Directors until our 2010 Annual Meeting, when he retired from the Board in compliance with the age limitation for Board members contained in our Corporate Governance Guidelines. Since his
retirement from the Board, Mr. Horne has served as a director emeritus and has selectively participated in certain Board discussions at the invitation of our Board. Pursuant to the Company's
by-laws, Mr. Horne was reappointed as a director emeritus by our Board of Directors in February 2017 to serve a one-year
term beginning on the date of our 2017 Annual Meeting and ending on the date of our 2018 Annual Meeting. As a director emeritus, Mr. Horne may be invited by our Board to attend Board or
committee meetings, but he does not have the right to vote and he is not considered to be a member of the Board for any purpose (including quorum). Mr. Horne also has an agreement with the
Company, which provides Mr. Horne with the use of an office at our corporate headquarters and administrative support. The agreement provides that Mr. Horne will make himself reasonably
available to provide services to the Company at the request of management of the Company as long as he is physically able to do so. Mr. Horne's obligation to provide services to the Company
will cease upon a change in control of the Company.
In
May 2013, Mr. Horne's son-in-law, Joseph T. Noonan, was elected as a member of our Board. We believe that it is strategically important for a Horne family member to be actively
engaged in the oversight of Watts, including by serving on our Board of Directors. Through Mr. Noonan's participation on the Board, the Horne family's long-term perspective is considered in all
Board decisions. Having a Horne family member on the Board serves as an effective link between the Board and the controlling Horne family stockholders. Board service also provides the controlling
Horne family stockholders with an active means by which to oversee their investment.
Corporate Governance Guidelines
Our Board has adopted Corporate Governance Guidelines that govern the structure and functioning of the Board and set out the Board's policies on
governance issues. The Corporate Governance Guidelines are posted in the "Investors" section of our website at
http://www.wattswater.com.
Executive Sessions
In accordance with our Corporate Governance Guidelines, our non-management directors meet in executive session at least quarterly. The Chairman
of the Board or, in his absence, a director chosen by the non-management directors in attendance, presides at such meetings.
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Communications with the Board
Our Board welcomes the submission of any comments or concerns from stockholders and any interested parties. Communications should be in writing
and addressed to our corporate Secretary at our principal executive offices and marked to the attention of the Board or any of its committees, individual directors or non-management or independent
directors as a group. All correspondence will be forwarded to the intended recipient(s).
Annual Meeting Attendance
Directors are encouraged to attend our annual meetings of stockholders. Nine of our directors attended the 2016 Annual Meeting either in person
or by telephone conference call.
Committees of the Board
Our Board currently has three standing committees: the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance
Committee. Each committee is composed solely of directors determined by the Board to be independent under the applicable NYSE and SEC rules. The Board has adopted a written charter for each standing
committee. You may find copies of the charters of the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee in the "Investors" section of our website at
http://www.wattswater.com
. The Board also appoints from time to time ad hoc committees to address specific matters.
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Audit Committee
The Board has made a determination that each of the members of the Audit
Committee satisfies the independence requirements of the NYSE as well as Rule 10A-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). In addition, the Board has determined that each of Mr. Dunbar, Ms. Raines
and Mr. Reitmeier is an "audit committee financial expert," as defined by SEC rules. During 2016, the Audit Committee held eight meetings. Our Audit Committee assists the Board in, among other things:
➤
its oversight of the integrity of our financial statements;
➤
our compliance with legal and
regulatory requirements;
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the qualifications, independence and performance of our independent registered public accounting firm; and
➤
the performance of our internal audit function.
The Audit Committee's responsibilities also include:
➤
the appointment and evaluation of our independent registered public accounting firm;
➤
the oversight of our systems of internal accounting and financial controls;
➤
the review of management's assessment and management of risk;
➤
the review of the
annual independent audit of our financial statements;
➤
the review of our Code of Business Conduct;
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the establishment of "whistle-blowing" procedures; and
➤
the oversight of other
compliance matters.
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COMMITTEE MEMBERS
Merilee Raines, Chairperson
Bernard Baert
David A. Dunbar
Joseph W. Reitmeier
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Nominating and Corporate Governance Committee
The Nominating and Corporate
Governance Committee is responsible for identifying individuals qualified to become Board members, consistent with criteria approved by the Board, and recommending that the Board select the director nominees for election at each annual meeting of
stockholders. The Nominating and Corporate Governance Committee is also responsible for periodically reviewing our Corporate Governance Guidelines and recommending any changes thereto, overseeing the evaluation of the Board, and approving related
person transactions. During 2016, the Nominating and Corporate Governance Committee held four meetings.
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COMMITTEE MEMBERS
Robert L. Ayers, Chairperson
Bernard Baert
Richard J. Cathcart
Christopher L. Conway
David A. Dunbar
Jes Munk Hansen
W. Craig Kissel
Merilee Raines
Joseph W. Reitmeier
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Compensation Committee
Our Compensation Committee is responsible for shaping the principles, strategies
and compensation philosophy that guide the design and implementation of our employee compensation programs and arrangements. Its primary responsibilities are to:
➤
evaluate the performance of our Chief Executive Officer and, either as a committee or together with the independent members of our Board of Directors, determine the compensation
of our Chief Executive Officer;
➤
review and approve the compensation of our other executive officers;
➤
approve annual performance bonus targets and objectives and the annual bonus amounts paid to our executive officers under our Executive Incentive Bonus Plan;
➤
administer our stock incentive plans and approve all stock awards granted to our executive officers under our 2004 Stock Incentive Plan and the participants in our Management
Stock Purchase Plan;
➤
review and submit recommendations to our Board of Directors on compensation for non-employee directors;
➤
review and discuss with management the Compensation Discussion and Analysis to be included in the proxy statement; and
➤
monitor our policies and practices for the development and succession of senior management.
|
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COMMITTEE MEMBERS
Richard J. Cathcart, Chairperson
Robert L. Ayers
Christopher L. Conway
Jes Munk Hansen
|
The
Compensation Committee holds one regularly scheduled meeting each quarter and schedules additional meetings as often as necessary in order to perform its duties and responsibilities.
During 2016, the Compensation Committee held five meetings. The Chairman of the Compensation Committee works with management to establish the agenda for each meeting. Compensation Committee members
receive and review materials in advance of each meeting. These materials include information that management believes will be helpful to the Compensation Committee as well as materials that members of
the Compensation Committee request. The Compensation Committee may establish and delegate authority to one or more subcommittees consisting of one or more of its members when the Compensation
Committee deems it appropriate to do so in order to carry out its responsibilities.
The
Compensation Committee is authorized under its charter to retain consultants to assist it in the evaluation of executive compensation and to approve the fees and other retention
terms for its consultants. The Compensation Committee has retained Pearl Meyer & Partners, LLC as a compensation consultant to review our compensation programs and provide advice to the
Compensation Committee with respect to executive compensation. Pearl Meyer does not provide any other services to Watts. In February 2017, the Compensation Committee requested and received responses
to an independence questionnaire and an independence letter from Pearl Meyer,
16
Table of Contents
and
based on those responses the Compensation Committee does not believe that Pearl Meyer has any conflict of interest or potential conflict of interest in providing compensation advice to the
Compensation Committee. As appropriate, the Compensation Committee also looks to our human resources department to support the Compensation Committee in its work and to provide necessary information.
In
February 2017, the Compensation Committee conducted a review and assessment of risk as it relates to our compensation policies and practices and determined that our compensation
policies and practices do not encourage excessive or inappropriate risk taking and are not reasonably likely to cause a material adverse effect on Watts.
Director Candidates
The Nominating and Corporate Governance Committee will consider for nomination to the Board candidates recommended by stockholders.
Recommendations should be sent to our corporate Secretary, Kenneth Lepage, at our principal executive offices and marked to the attention of the Nominating and Corporate Governance Committee.
Recommendations must be in writing and must contain the information set forth in Section IV.C of the Nominating and Corporate Governance Committee charter, which is available in the "Investors"
section of our website at
http://www.wattswater.com
, or on written request to our corporate Secretary at our principal executive offices.
In
addition to considering candidates suggested by stockholders, the Nominating and Corporate Governance Committee may consider potential candidates suggested by current directors,
Company officers, employees, third-party search firms and others. The Nominating and Corporate Governance Committee screens all potential candidates in the same manner regardless of the source of the
recommendation. The Nominating and Corporate Governance Committee's review is typically based on any written materials provided with respect to the potential candidate. The Nominating and Corporate
Governance Committee determines whether the candidate meets our minimum qualifications and possesses specific qualities and skills for directors and whether requesting additional information or an
initial screening interview is appropriate.
Stockholders
also have the right under our by-laws to directly nominate director candidates, without any action or recommendation on the part of the Nominating and Corporate Governance
Committee or the Board, by following the procedures described later in this proxy statement under "Stockholder Proposals".
In
2016, the Board engaged a third-party search firm to conduct a search for director candidates. After an extensive screening and interviewing process, the Board appointed
Mr. Dunbar and Mr. Hansen to the Board in February 2017. Mr. Dunbar and Mr. Hansen are standing for election by our stockholders as members of our Board of Directors for
the first time at the 2017 Annual Meeting.
Criteria and Diversity
We believe that our Board should be composed of directors who, as a group, have the experience and skills that are collectively required to make
informed Board decisions and provide effective Board oversight. The composite skills of the Board members and the ability and willingness of individual Board members to complement each other and to
rely on each other's knowledge and expertise should produce informed Board members who are not afraid to disagree and who can intelligently assess management's performance and evaluate the Company's
strategic direction. In considering whether to recommend any candidate for nomination to the Board, including candidates
17
Table of Contents
recommended
by stockholders, the Nominating and Corporate Governance Committee must be satisfied that the recommended nominee has, at a minimum:
-
•
-
the highest personal and professional integrity;
-
•
-
sound business and strategic judgment;
-
•
-
the ability to devote sufficient time and energy to the Board; and
-
•
-
the ability and will to challenge management while refraining from assuming management's role.
The
Nominating and Corporate Governance Committee also considers experience in our industry or markets, international business experience, experience serving on the boards of public companies,
experience acquiring companies and diversity of background and experience to be favorable characteristics in evaluating recommended nominees. In addition, the nominee must not serve on more than two
public company boards in addition to our Board.
Our
Corporate Governance Guidelines and our Nominating and Corporate Governance Committee charter specify that the Nominating and Corporate Governance Committee and the Board understand
the importance of diversity among members of the Board to our long-term success. Diversity encompasses a wide range of individual characteristics and experiences, including such things as gender, age,
race, sexual orientation, national origin, religion, political affiliation, marital status, disability, and geographic background. The Nominating and Corporate Governance Committee does not assign
specific weights to particular criteria, and no particular criterion is necessarily applicable to all prospective nominees. The Nominating and Corporate Governance Committee believes that the
backgrounds and qualifications of the members of the Board, considered as a group, should provide an appropriate mix of experience, knowledge and abilities that will allow the Board to fulfill its
responsibilities.
The
following table sets forth information regarding the beneficial ownership of our class A and class B common stock
by:
-
•
-
each person or entity known by us to own beneficially more than 5% of either class of our common stock;
-
•
-
each of our directors and director nominees;
-
•
-
each of the executive officers named in the Summary Compensation Table; and
-
•
-
all of our current directors and executive officers as a group.
Unless
otherwise indicated in the footnotes, the information in the following table is provided as of March 1, 2017. In accordance with SEC rules, we have included in the number
of shares beneficially owned by each stockholder all shares over which such stockholder has sole or shared voting or investment power, and we have included all shares that the stockholder has the
right to acquire within 60 days after March 1, 2017 through the exercise of stock options or any other right. Unless otherwise indicated, each stockholder has sole voting and investment
power with respect to shares beneficially owned by that stockholder. For purposes of determining the equity and voting percentages for each stockholder, any shares that such stockholder has the right
to acquire within 60 days after March 1, 2017 are deemed to be outstanding, but are not deemed to be outstanding for the purpose of determining the percentages for any other stockholder.
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|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
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|
|
|
|
|
|
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Shares Beneficially Owned(2)
|
|
|
Name of Beneficial Owner(1)
|
|
Number
|
|
Percent of
Class A
Common Stock
|
|
Percent of
Class B
Common Stock
|
|
Percent of
Voting
Power
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
5% Stockholders
|
|
|
|
|
|
|
|
|
|
|
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Timothy P. Horne
|
|
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6,329,290
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(3)(4)
|
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18.5
|
|
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99.2
|
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69.1
|
|
Walter J. Flowers
|
|
|
1,894,710
|
(5)
|
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6.4
|
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29.7
|
|
0
|
|
Daniel W. Horne
|
|
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1,666,970
|
(6)
|
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5.7
|
|
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26.1
|
|
0
|
|
Deborah Horne
|
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1,666,970
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(6)
|
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5.7
|
|
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26.1
|
|
0
|
|
Peter W. Horne
|
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1,580,770
|
(7)
|
|
5.4
|
|
|
24.2
|
|
*
|
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BlackRock, Inc.
|
|
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3,501,360
|
(8)
|
|
12.6
|
|
|
0
|
|
3.8
|
|
The Vanguard Group
|
|
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2,384,977
|
(9)
|
|
8.6
|
|
|
0
|
|
2.6
|
|
Gabelli Funds, LLC, et al.
|
|
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2,140,996
|
(10)
|
|
7.7
|
|
|
0
|
|
2.3
|
|
Select Equity Group, L.P.
|
|
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1,907,966
|
(11)
|
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6.9
|
|
|
0
|
|
2.1
|
|
Wellington Management Group LLP
|
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1,457,135
|
(12)
|
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5.2
|
|
|
0
|
|
1.6
|
|
Directors and Executive Officers
|
|
|
|
|
|
|
|
|
|
|
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Robert L. Ayers
|
|
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23,530
|
(13)
|
|
*
|
|
|
0
|
|
*
|
|
Bernard Baert
|
|
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11,429
|
(14)
|
|
*
|
|
|
0
|
|
*
|
|
Richard J. Cathcart
|
|
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17,132
|
(15)
|
|
*
|
|
|
0
|
|
*
|
|
Christopher L. Conway
|
|
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3,565
|
|
|
*
|
|
|
0
|
|
*
|
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David A. Dunbar
|
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415
|
|
|
*
|
|
|
0
|
|
*
|
|
Jes Munk Hansen
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415
|
|
|
*
|
|
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0
|
|
*
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W. Craig Kissel
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10,624
|
|
|
*
|
|
|
0
|
|
*
|
|
Kenneth R. Lepage
|
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52,725
|
(16)
|
|
*
|
|
|
0
|
|
*
|
|
Elie Melhem
|
|
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34,336
|
(17)
|
|
*
|
|
|
0
|
|
*
|
|
Munish Nanda
|
|
|
25,073
|
(18)
|
|
*
|
|
|
0
|
|
*
|
|
Joseph T. Noonan
|
|
|
3,037
|
(19)
|
|
*
|
|
|
0
|
|
*
|
|
Robert J. Pagano, Jr.
|
|
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90,895
|
(20)
|
|
*
|
|
|
0
|
|
*
|
|
Merilee Raines
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11,829
|
(21)
|
|
*
|
|
|
0
|
|
*
|
|
Joseph W. Reitmeier
|
|
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2,303
|
|
|
*
|
|
|
0
|
|
*
|
|
Todd A. Trapp
|
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23,026
|
(22)
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|
*
|
|
|
0
|
|
*
|
|
All current executive officers and directors (16 persons)
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|
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313,812
|
(23)
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1.1
|
|
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0
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*
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|
-
*
-
Represents
less than 1%
20
Table of Contents
-
(1)
-
The
address of each stockholder in the table is c/o Watts Water Technologies, Inc., 815 Chestnut Street, North Andover, Massachusetts 01845, except that the
address of (i) BlackRock, Inc. is 55 East 52
nd
Street, New York, New York 10055, (ii) The Vanguard Group is 100 Vanguard Blvd., Malvern,
Pennsylvania 19355, (iii) Gabelli Funds, LLC et al. is One Corporate Center, Rye, New York 10580, (iv) Select Equity Group, L.P. is 380 Lafayette Street,
6
th
Floor, New York, New York 10003, and (v) Wellington Management Group LLP is c/o Wellington Management Company LLP, 280 Congress Street,
Boston, Massachusetts 02210.
-
(2)
-
The
number of shares and percentages were determined as of March 1, 2017 in accordance with Rule 13d-3 of the Exchange Act. At that date, a total of
34,216,508 shares were outstanding, of which 27,837,218 were shares of class A common stock and 6,379,290 were shares of class B common stock. Each share of class A common stock
is entitled to one vote and each share of class B common stock is entitled to ten votes. Each share of class B common stock is convertible into one share of class A common stock
at any time. A holder of shares of class B common stock is deemed to beneficially own the shares of class A common stock into which the class B shares are convertible. Shares of
class A common stock are not convertible. The table's voting percentage reflects the applicable beneficial owner's one vote per share of class A common stock plus ten votes per share of
class B common stock, if any, divided by the total number of possible votes.
-
(3)
-
Consists
of (i) 1,250,000 shares of class B common stock held by Timothy P. Horne (for purposes of this footnote 3, "Mr. Horne"),
(ii) 1,666,970 shares of class B common stock held by a revocable trust for the benefit of Daniel W. Horne, Mr. Horne's brother, for which Walter J. Flowers serves as sole
trustee, (iii) 1,666,970 shares of class B common stock held by a revocable trust for the benefit of Deborah Horne, Mr. Horne's sister, for which Mr. Horne serves as sole
trustee, (iv) 1,495,010 shares of class B common stock held by a revocable trust for the benefit of Peter W. Horne, Mr. Horne's brother, for which Peter W. Horne serves as sole
trustee, (v) 22,600 shares of class B common stock held for the benefit of Tiffany Horne Noonan, Mr. Horne's daughter, under an irrevocable trust for which Mr. Horne serves
as trustee, (vi) 132,740 shares of class B common stock held by a revocable trust for the benefit of Tiffany Horne Noonan, for which Walter J. Flowers serves as sole trustee,
(vii) 55,000 shares of class B common stock held for the benefit of Tara V. Horne, Mr. Horne's daughter, under an irrevocable trust for which Walter J. Flowers and
Mr. Horne serve as co-trustees, and (viii) 40,000 shares of class B common stock held by a trust for the benefit of Tiffany Horne Noonan, for which Walter J. Flowers and
Mr. Horne serve as co-trustees. All of the shares of class B common stock noted in clauses (i) through (viii) (6,329,290 shares of class B common stock in the
aggregate) are subject to The Amended and Restated George B. Horne Voting Trust Agreement—1997 ("1997 Voting Trust") for which Mr. Horne serves as trustee (see footnote 4 for a
description of the 1997 Voting Trust). Mr. Horne has sole power to vote or direct the vote of all of such shares, sole power to dispose or to direct the disposition of 1,272,600 of the shares,
and shared power to dispose or to direct the disposition of 5,056,690 of the shares.
-
(4)
-
6,329,290
shares of class B common stock in the aggregate (see footnote 3) are subject to the terms of the 1997 Voting Trust. Under the terms of the
1997 Voting Trust, the trustee (currently Timothy P. Horne) has sole power to vote all shares subject to the 1997 Voting Trust. Timothy P. Horne, for so long as he is serving as trustee of the 1997
Voting Trust, has the power to determine in his sole discretion whether or not proposed actions to be taken by the trustee of the 1997 Voting Trust shall be taken, including the trustee's right to
authorize the withdrawal of shares from the 1997 Voting Trust (for purposes of this footnote, the "Determination Power"). In the event that Timothy P. Horne ceases to serve as trustee of the 1997
Voting Trust, no trustee thereunder shall have the Determination Power except in accordance with a duly adopted amendment to the 1997 Voting Trust. Under the terms of the 1997 Voting Trust, in the
event that Timothy P. Horne ceases to serve as trustee of the 1997 Voting Trust, then Walter J. Flowers (the "Successor Trustee"), shall thereupon become trustee of the 1997 Voting Trust. If the
Successor Trustee shall cease to serve as such for any reason, then a third person shall become the Successor Trustee, in accordance with the following line of succession: first, any individual
designated as the Primary Designee, next, any individual designated as the Secondary Designee, and then, an individual appointed by the holders of a majority in interest of the voting trust
certificates then outstanding. The 1997 Voting Trust expires on August 26, 2021, subject to extension on or after August 26, 2019 by stockholders (including the trustee of any trust
stockholder, whether or not such trust is then in existence) who deposited shares of class B common stock in the 1997 Voting Trust and are then living or, in the case of shares in the 1997
Voting Trust the original depositor of which (or the trustee of the original depositor of which) is not then living, the holders of voting trust certificates representing such shares. The 1997 Voting
21
Table of Contents
Trust
may be amended by vote of the holders of a majority of the voting trust certificates then outstanding and by the number of trustees authorized to take action at the relevant time or, if the
trustees (if more than one) do not concur with respect to any proposed amendment at any time when any trustee holds the Determination Power, then by the trustee having the Determination Power.
Amendments to the extension, termination and amendment provisions of the 1997 Voting Trust require the approval of each individual depositor. Shares may not be removed from the 1997 Voting Trust
during its term without the consent of the requisite number of trustees required to take action under the 1997 Voting Trust. Voting trust certificates are subject to restrictions on transfer
applicable to the stock that they represent. Timothy P. Horne holds 19.8% of the total beneficial interest in the 1997 Voting Trust (the "Beneficial Interest") individually, 26.3% of the Beneficial
Interest as trustee of the 1997 Voting Trust to which shares held in a revocable trust for the benefit of Daniel W. Horne are subject, 26.3% of the Beneficial Interest as trustee of a revocable trust
for the benefit of Deborah Horne, 23.6% of the Beneficial Interest as trustee of the 1997 Voting Trust to which shares held in a revocable trust for the benefit of Peter W. Horne are subject, 0.4% of
the Beneficial Interest as trustee of an irrevocable trust for the benefit of Tiffany Horne Noonan, 2.1% of the Beneficial Interest as trustee of the 1997 Voting Trust to which shares held in a
revocable trust for the benefit of Tiffany Horne Noonan are subject, 0.9% of the Beneficial Interest as co-trustee of a trust for the benefit of Tara V. Horne, and 0.6% of the Beneficial Interest as
co-trustee of a trust for the benefit of Tiffany Horne Noonan (representing an aggregate of 100% of the Beneficial Interest).
-
(5)
-
Consists
of (i) 1,666,970 shares of class B common stock held in a revocable trust for the benefit of Daniel W. Horne for which Mr. Flowers
serves as the sole trustee, (ii) 132,740 shares of Class B Common Stock held in a revocable trust for the benefit of Tiffany Horne Noonan for which Mr. Flowers serves as the sole
trustee, (iii) 55,000 shares of class B common stock held in a trust for the benefit of Tara V. Horne for which Mr. Flowers and Timothy P. Horne serve as co-trustees, and
(iv) 40,000 shares of class B common stock held in a trust for the benefit of Tiffany Horne Noonan for which Mr. Flowers and Timothy P. Horne serve as co-trustees. All of the
shares of class B common stock noted in clauses (i) through (iv) (1,894,710 in the aggregate) are subject to the 1997 Voting Trust for which Timothy P. Horne serves as sole
trustee (see footnote 4 for a description of the 1997 Voting Trust). Mr. Flowers has no power to vote or direct the vote of the shares and has shared power to dispose or direct the disposition
of all of the shares. Mr. Flowers disclaims beneficial ownership of all such shares.
-
(6)
-
All
of the shares are class B common stock and are held in revocable trusts. All of the shares are subject to the 1997 Voting Trust (see footnote 4 for a
description of the 1997 Voting Trust). The holders have no power to vote or direct the vote of the shares and have shared power to dispose or direct the disposition of the shares.
-
(7)
-
Consists
of 35,760 shares of class A common stock and 1,545,010 shares of class B common stock, which are held in a revocable trust. 1,495,010 of the
shares of class B common stock are subject to the 1997 Voting Trust (see footnote 4 for a description of the 1997 Voting Trust). Peter W. Horne has sole power to vote or direct the vote of and
sole power to dispose or direct the disposition of the 85,760 shares that are not subject to the 1997 Voting Trust. Peter W. Horne has no power to vote or direct the vote, and shared power to dispose
or direct the disposition of, the 1,495,010 shares that are subject to the 1997 Voting Trust.
-
(8)
-
The
amount shown and the following information are based solely on a Schedule 13G/A filed with the SEC on January 17, 2017, reporting ownership of
shares of class A common stock. BlackRock, Inc. has sole voting power with respect to 3,416,868 of the shares and sole dispositive power with respect to all of the shares.
-
(9)
-
The
amount shown and the following information are based solely on a Schedule 13G/A filed with the SEC on February 10, 2017, reporting ownership of
shares of class A common stock. The Vanguard Group has sole voting power with respect to 53,596 of the shares, shared voting power with respect to 3,729 of the shares, sole dispositive power
with respect to 2,328,985 of the shares and shared dispositive power with respect to 55,992 of the shares.
-
(10)
-
The
amount shown and the following information are based solely on a Schedule 13D/A filed with the SEC on May 17, 2016 by Gabelli Funds, LLC
and GAMCO Asset Management Inc. (collectively, for purposes of this footnote 10, the "Funds") reporting their aggregate holdings of shares of class A common stock. Mario J. Gabelli
directly and indirectly controls the entities filing the Schedule 13D/A, which entities are primarily investment advisors to various institutional and individual clients, including
22
Table of Contents
registered
investment companies and pension plans, and as general partner of various private investment partnerships. Certain of these entities may also make investments for their own accounts.
Gabelli Funds, LLC has sole power to vote or direct the vote and sole power to dispose or to direct the disposition of 609,965 of the shares. GAMCO Asset Management Inc. has sole power
to vote or direct the vote of 1,438,131 of the shares and sole power to dispose or to direct the disposition of 1,531,031 of the shares. Mario Gabelli is deemed to have beneficial ownership of the
shares owned beneficially by each of the entities filing the Schedule 13D/A.
-
(11)
-
The
amount shown and the following information are based solely on a Schedule 13G/A filed with the SEC on February 13, 2017, reporting ownership of
shares of class A common stock. The Schedule 13G/A was filed jointly by Select Equity Group, L.P. ("Select") and George S. Loening ("Loening"), who is the majority owner of Select
and managing member of its general partner. Select and Loening have shared voting power and shared dispositive power with respect to all of the shares.
-
(12)
-
The
amount shown and the following information are based solely on a Schedule 13G/A filed with the SEC on February 9, 2017, reporting ownership of
shares of class A common stock. The shares are owned of record by clients of one or more investment advisers directly or indirectly owned by Wellington Management Group LLP. Those
clients have the right to receive, or the power to direct the receipt of, dividends from, or the proceeds from the sale of, such shares. No such client is known to Wellington Management
Group LLP to have such right or power with respect to more than five percent of the shares. Wellington Management Group LLP has shared power to vote or to direct the vote of 668,794 of
the shares and shared power to dispose or to direct the disposition of all of the shares.
-
(13)
-
Consists
of 12,101 shares of class A common stock held by Mr. Ayers and 11,429 shares of class A common stock the receipt of which
Mr. Ayers has deferred under our non-employee director stock deferral program.
-
(14)
-
Consists
of 5,653 shares of class A common stock held by Mr. Baert and 5,776 shares of class A common stock the receipt of which
Mr. Baert has deferred under our non-employee director stock deferral program.
-
(15)
-
Consists
of 5,703 shares of class A common stock held by Mr. Cathcart and 11,429 shares of class A common stock the receipt of which
Mr. Cathcart has deferred under our non-employee director stock deferral program.
-
(16)
-
Consists
of 28,957 shares of class A common stock held by Mr. Lepage, 15,741 shares of class A common stock issuable upon the exercise of stock
options within 60 days after March 1, 2017, and 8,027 shares of class A common stock issued as restricted stock awards under the Company's 2004 Stock Incentive Plan, which are
subject to certain restrictions with respect to the transfer and disposition of such shares.
-
(17)
-
Consists
of 6,354 shares of class A common stock held by Mr. Melhem, 13,531 shares of class A common stock issuable upon the exercise of stock
options within 60 days after March 1, 2017, and 14,451 shares of class A common stock issued as restricted stock awards under the Company's 2004 Stock Incentive Plan, which are
subject to certain restrictions with respect to the transfer and disposition of such shares.
-
(18)
-
Consists
of 6,953 shares of class A common stock held by Mr. Nanda and 18,120 shares of class A common stock issued as restricted stock awards
under the Company's 2004 Stock Incentive Plan, which are subject to certain restrictions with respect to the transfer and disposition of such shares.
-
(19)
-
Consists
of 1,837 shares of class A common stock held by Mr. Noonan and 1,200 shares owned by Mr. Noonan's daughters through custodial accounts
for which Mr. Noonan serves as custodian. Mr. Noonan's wife, Tiffany Horne Noonan, is the beneficiary of trusts holding an aggregate of 195,340 shares of class B common stock, but
neither she nor Mr. Noonan has sole or shared voting or investment control over any of the shares.
-
(20)
-
Consists
of 41,532 shares of class A common stock held by Mr. Pagano and 49,363 shares of class A common stock issued as restricted stock
awards under the Company's 2004 Stock Incentive Plan, which are subject to certain restrictions with respect to the transfer and disposition of such shares.
23
Table of Contents
-
(21)
-
Consists
of 9,992 shares of class A common stock held by Ms. Raines and 1,837 shares of class A common stock the receipt of which
Ms. Raines has deferred under our non-employee director stock deferral program.
-
(22)
-
Consists
of 6,313 shares of class A common stock held by Mr. Trapp and 16,713 shares of class A common stock issued as restricted stock awards
under the Company's 2004 Stock Incentive Plan, which are subject to certain restrictions with respect to the transfer and disposition of such shares.
-
(23)
-
Consists
of 143,087 shares of class A common stock held by our current executive officers and directors, 29,272 shares of class A common stock
issuable upon the exercise of stock options within 60 days after March 1, 2017, 30,471 shares of class A common stock the receipt of which have been deferred under our
non-employee director stock deferral program, and 110,982 shares of class A common stock issued as restricted stock awards under the Company's 2004 Stock Incentive Plan, which are subject to
certain restrictions with respect to the transfer and disposition of such shares.
24
Table of Contents
|
COMPENSATION DISCUSSION AND ANALYSIS
|
Overview of Compensation Programs
The following Compensation Discussion and Analysis describes the material elements of our fiscal year 2016 compensation program and compensation
paid thereunder. Most of the discussion relates to our "named executive officers" for fiscal year 2016, who were:
|
|
|
|
|
Robert J. Pagano, Jr.
|
|
Chief Executive Officer & President
|
|
Todd A. Trapp
|
|
Chief Financial Officer
|
|
Munish Nanda
|
|
President, Americas & Europe
|
|
Elie A. Melhem
|
|
President, Asia-Pacific, the Middle East & Africa
|
|
Kenneth R. Lepage
|
|
General Counsel, Executive Vice President & Secretary
|
The
Compensation Committee makes decisions for the total direct compensation of the named executive officers based on the factors described below. The Compensation Committee consists solely of
independent, non-employee directors. In addition, for named executive officers other than the Chief Executive Officer, the Compensation Committee also considers the Chief Executive Officer's
recommendations.
Executive Summary
Company Performance
During 2016, we strengthened our focus on the customer, fostered a "One Watts" global mindset, executed on our transformation initiatives,
upgraded our product portfolio and delivered strong operating performance. In order to provide better education and training to our customers and obtain better customer feedback, we opened our new
Watts Works
SM
Learning Center
at our corporate headquarters, established new satellite Learning Centers in Dubai, U.A.E. and Woodland, California, and revamped our existing Learning Center in Biassono, Italy. We established new
global product platforms for our drains, water quality and electronics product lines in order to promote cross-selling of our products around the world. We made substantial progress on our Americas
transformation initiative to reduce our net operating footprint by approximately 30%. We consolidated our European sales, marketing and product management organizations to more efficiently meet the
needs of our customers. Finally, we acquired PVI Industries, Inc. toward the end of the year and combined our PVI and AERCO product lines to create a new commercial platform, Heating and Hot
Water Solutions, to focus on the needs of our commercial heating and hot water customers.
Our
consolidated sales for 2016 were $1.4 billion, down $69 million compared to 2015, driven primarily by our strategic divestiture of approximately $98 million of
non-core products in 2015. We saw our stock price hit all-time highs in 2016, we delivered strong financial performance on a U.S. GAAP basis and we achieved record adjusted operating margin and
earnings per share. We also generated strong free cash flow while investing 30% more in capital spending to upgrade our manufacturing facilities, enhance our customer training capabilities, and
improve our information systems.
Alignment of Pay with Performance
A substantial portion of each executive's compensation opportunity is performance-based or aligned with stockholder value creation over time in
the form of equity grants. Set forth below for our Chief Executive Officer, and separately for the other named executive officers, are charts illustrating
25
Table of Contents
the
percentage of total target compensation corresponding to base salaries, annual incentives and long-term incentives.
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Direct Compensation Opportunity—Chief Executive Officer(1)
|
|
|
|
|
|
|
Fixed vs. Variable
Compensation
|
|
Fixed 21%
(Base Salary)
|
|
Variable 79%
(Target Annual Incentive + Long-Term Incentive Value)(2)
|
Short-Term vs. Long-Term
Compensation
|
|
Short-Term 41%
(Base Salary + Target Annual Incentive)
|
|
Long-Term 59%
(Long-Term Incentive Value)(2)
|
Cash vs. Equity
Compensation
|
|
Cash 41%
(Base Salary + Target Annual Incentive)
|
|
Equity-Based 59%
(Long-Term Incentive Value)(2)
|
|
|
|
|
|
|
-
(1)
-
Total
direct compensation opportunity does not include perquisites or other executive benefits, including retirement and severance benefits, or the value of the
discount attributable to the purchase price for restricted stock units under our Management Stock Purchase Plan.
-
(2)
-
Long-Term
Incentive Value consists of Mr. Pagano's annual grants of performance stock unit awards and restricted stock awards.
|
|
|
|
|
|
|
|
|
|
|
|
Total Direct Compensation Opportunity—Other Named Executive Officers(1)
(Average allocation for the Named Executive Officers other than the Chief Executive Officer)
|
|
|
|
|
|
|
Fixed vs. Variable
Compensation
|
|
Fixed 33%
(Base Salary)
|
|
Variable 67%
(Target Annual Incentive + Long-Term Incentive Value)(2)
|
Short-Term vs. Long-Term
Compensation
|
|
Short-Term 53%
(Base Salary + Target Annual Incentive)
|
|
Long-Term 47%
(Long-Term Incentive Value)(2)
|
Cash vs. Equity
Compensation
|
|
Cash 53%
(Base Salary + Target Annual Incentive)
|
|
Equity-Based 47%
(Long-Term Incentive Value)(2)
|
|
|
|
|
|
|
-
(1)
-
Other
Named Executive Officers include Messrs. Trapp, Nanda, Melhem and Lepage. Total direct compensation opportunity does not include perquisites or other
executive benefits, including retirement and severance benefits, or the value of the discount attributable to the purchase price for restricted stock units under our Management Stock Purchase Plan.
-
(2)
-
Long-Term
Incentive value consists of annual grants of performance stock unit awards and restricted stock awards.
Other
compensation decisions in 2016 reflected our compensation philosophy, as set forth in more detail below. Each of our named executive officers received base salary increases in
2016, reflecting a consideration of individual and Company performance as well as competitive position relative to market, among other factors.
Other Practices and Policies to Promote Effective Compensation Governance
Examples of practices and policies that the Committee has implemented to ensure effective governance of compensation plans
include:
-
•
-
Our executives are subject to robust stock ownership guidelines.
-
•
-
Our executives are subject to a compensation recovery policy, or "claw back" policy, under which they may be required to repay unearned
compensation in the event of a financial restatement due to fraud or misconduct.
-
•
-
The Compensation Committee has the authority to hire independent counsel and other advisors.
26
Table of Contents
-
•
-
The Compensation Committee has conducted a review and assessment of risk as it relates to our compensation policies and practices.
-
•
-
Our Insider Trading Procedures prohibit hedging and short sale transactions, and no employee or director may pledge Company securities as
collateral.
-
•
-
None of our executive officers has an employment agreement with us.
-
•
-
We do not provide excise tax gross-ups under any of our change in control severance arrangements.
Say on Pay
We last submitted our executive compensation program to an advisory vote of our stockholders at our 2014 Annual Meeting and it received the
support of 97% of the total votes cast on the proposal. Our Board of Directors viewed the results of the 2014 advisory vote as broad stockholder support for our executive compensation program and did
not make any changes to our executive compensation program or policies as a result of the advisory vote. The Compensation Committee will, in consultation with its independent compensation consultant,
consider changes to our compensation programs as appropriate in response to evolving factors such as the business environment and competition for talent. In considering changes to our compensation
programs and policies, the Compensation Committee may seek additional input from stockholders with respect to our executive compensation policies and decisions.
Compensation Philosophy
Our executive compensation philosophy, as adopted by the Compensation Committee of our Board of Directors, is to provide compensation programs
that attract, retain and motivate our key executives who are critical to our long-term success. We implement this philosophy through the following
principles:
-
•
-
Positioning
total direct compensation and each component of compensation at approximately the
median of our peer companies, which are industry and size relevant and which are identified by a rules-based selection process. Some variation in competitive positioning by executive is expected to
account for factors such as tenure, individual performance and criticality of role.
-
•
-
Rewarding
achievement relative to short-term goals that we believe will drive long-term
stockholder value creation.
-
•
-
Aligning
long-term pay outcomes with stockholder value creation over time. This necessitates
tying a significant portion of each executive's compensation to Company and individual performance, placing that compensation at risk.
The
following key elements are used to compensate our executives:
-
•
-
Base salaries,
representing the only fixed element of total direct compensation.
-
•
-
Annual incentives,
currently consisting of a performance-based bonus under the Executive
Incentive Bonus Plan, which reward achievement relative to Company goals, both financial and strategic in nature.
-
•
-
Long-term incentives,
currently consisting of performance stock units and restricted stock
awards, which link pay outcomes to long-term stockholder value creation. Executive officers may also purchase restricted stock units under our Management Stock Purchase Plan, providing additional
alignment with stockholder value creation.
27
Table of Contents
In
addition, we provide our executive officers with other employee benefits and limited perquisites, which are primarily intended to maintain our competitive position for attracting and retaining
executive talent. However, in general, the Compensation Committee strives to mitigate the use of these non-performance based forms of compensation without jeopardizing our ability to offer a
compensation program that will attract and retain executives in a competitive market.
Benchmarking
Benchmarking is one factor, among many, that we rely on in establishing our compensation levels and program design. We use information regarding
pay practices at other comparable companies in two respects. First, we use benchmarking information to evaluate whether our compensation practices are competitive in the marketplace in which we
compete for executive talent. Second, we use marketplace information as one factor in assessing the reasonableness of our executive compensation.
During
2016, the Compensation Committee used an executive compensation peer group consisting of the following companies:
|
|
|
|
|
|
Actuant Corporation
Altra Industrial Motion Corporation
A.O. Smith Corporation
Barnes Group Inc.
CIRCOR International, Inc.
|
|
CLARCOR Inc.
Crane Co.
EnPro Industries, Inc.
Franklin Electric Co., Inc.
Graco Inc.
|
|
IDEX Corporation
Itron, Inc.
ITT Corporation
Mueller Industries, Inc.
Mueller Water Products, Inc.
Woodward, Inc.
|
In
October 2016, the Compensation Committee requested Pearl Meyer to perform a comprehensive review of our executive compensation peer group. Pearl Meyer used a rules-based process to
evaluate the Company's existing executive compensation peer group and to identify proposed changes to the peer group based on the similarity to Watts of the amount of their annual revenues, market
capitalization and number of employees as well as the similarity of their industry, business models, scope of international operations, industrial classification codes, customers and analyst coverage,
while attempting to minimize year-over-year changes in order to foster consistency in the benchmarking approach. Based on its review, Pearl Meyer recommended no changes to the peer group for 2016. The
Compensation Committee accepted Pearl Meyer's recommendation and left the peer group unchanged. At the time of review, the executive compensation peer group had median trailing twelve months annual
revenue of approximately $1.4 billion, consistent with our own revenue of approximately $1.5 billion for the same period. At the time of review, this peer group also had median market
capitalization of $1.8 billion, as compared to our market capitalization of approximately $1.9 billion.
The
Compensation Committee, Pearl Meyer and management also consider compensation survey data. The survey data are based on information reported in various Towers Watson survey reports
and databases. For executive positions where data from multiple surveys are available, the data are averaged and, if appropriate, weighted to provide a market composite perspective.
Elements of Compensation
The following describes each of the elements of our compensation program for 2016.
Base Salary
We provide each of our executive officers with a fixed salary that provides a secure base of compensation in an amount that recognizes each
officer's role and responsibilities as well as experience, performance and contributions. The Compensation Committee considers base salary
28
Table of Contents
increases
for our executive officers annually. The amount of any increase is based primarily on the executive officer's performance, level of responsibilities, leadership, experience, employee
retention and internal pay equity considerations and the external competitiveness of the officer's base salary and overall total compensation. The Compensation Committee typically meets with the Chief
Executive Officer annually to review proposed adjustments in the base salary amounts for our executive officers other than our Chief Executive Officer and in such review discusses each officer's
performance evaluation. The Compensation Committee also typically reviews the proposed adjustment in base salary and the performance of our Chief Executive Officer with the other independent members
of the Board of Directors and conducts a separate discussion with our Chief Executive Officer regarding his performance. As part of its review, the Compensation Committee receives and discusses tally
sheets setting forth the total compensation of our executive officers, including base salary, bonus potential, equity awards, retirement benefits, perquisites and other compensation, and information
regarding the competitiveness of our compensation programs relative to companies in our benchmarking peer group and other industry survey data. Based on this review, in February 2016 the Compensation
Committee approved an 8.24% increase in base salary for Mr. Nanda, a 5.77% increase for Mr. Melhem, a 4.0% increase in base salary for Mr. Trapp, and a 3.5% increase for
Mr. Lepage. The Compensation Committee determined that the increase in Mr. Nanda's base salary was based on his expanded role of managing the Americas and Europe; Mr. Melhem's
base salary increase was warranted given his excellent performance in managing our Asia-Pacific business and for assuming responsibility for our business operations in the Middle East
and Africa; Mr. Trapp's increase was based on his strong leadership in the finance function and to move him closer to the market rate of pay for chief financial officers in our peer group; and
the increase in Mr. Lepage's base salary was based on his strong performance in leading the global legal function.
In
February 2016, the Compensation Committee conducted a separate review of our Chief Executive Officer's performance and base salary in conjunction with the other independent members of
the Board. The independent members of the Board reviewed Mr. Pagano's performance against his established goals for 2015 and input from Pearl Meyer with respect to the competitiveness of
Mr. Pagano's base salary relative to the Company's executive compensation peer group. Based on this review and the Board's assessment that Mr. Pagano had done an exceptional job in
addressing the Company's business needs and executing on a business transformation effort in the Americas and Asia-Pacific, in addition to achieving substantially all of his other goals, the
Compensation Committee approved a 6.16% increase in Mr. Pagano's base salary from $730,000 to $775,000.
Annual Incentives
Under the Executive Incentive Bonus Plan, each of our executive officers is eligible for an annual cash bonus. We offer our executives an
opportunity to earn a bonus in order to focus our executives on execution against specific financial and strategic goals and reward performance based on achievement of such goals. For each of our
executive officers, the Compensation Committee sets a target bonus amount expressed as a percentage of base salary. The Compensation Committee determines the target bonus amount for each executive
officer based on a variety of factors, including competitive conditions for the executive officer's position within our executive compensation peer group and in the broader employment market, length
of employment, level of responsibility and experience, input from Pearl Meyer, and, in the case of executive officers other than the Chief
29
Table of Contents
Executive
Officer, the recommendations of the Chief Executive Officer. The 2016 target bonus amounts for our named executive officers were set as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target as a
Percent of Salary
|
|
Target in Dollars
|
|
|
|
|
|
|
|
|
|
|
|
Robert J. Pagano, Jr.
|
|
|
100
|
%
|
$
|
775,000
|
|
|
Todd A. Trapp
|
|
|
60
|
%
|
$
|
249,600
|
|
|
Munish Nanda
|
|
|
60
|
%
|
$
|
276,000
|
|
|
Elie A. Melhem
|
|
|
55
|
%
|
$
|
211,750
|
|
|
Kenneth R. Lepage
|
|
|
60
|
%
|
$
|
219,300
|
|
|
|
|
|
|
|
|
|
|
The
actual bonus payout for each named executive officer depends on the level of performance achieved with respect to various performance objectives. The relationship between the level
of performance achieved and overall bonus payout for each performance objective is as follows, with bonus payout levels interpolated for performance between Threshold and Target and between Target and
Maximum:
|
|
|
|
|
|
|
|
|
|
|
|
Performance Level
|
|
Bonus Payout as a
% of Target
|
|
|
|
|
|
|
|
|
Maximum
|
|
|
200
|
%
|
|
Target
|
|
|
100
|
%
|
|
Threshold
|
|
|
50
|
%
|
|
Below Threshold
|
|
|
0
|
%
|
|
|
|
|
|
|
Corporate
performance objectives under our Executive Incentive Bonus Plan are established by the end of the first quarter of each fiscal year by our Compensation Committee after
consultation with our Chief Executive Officer. For 2016, the objectives for our named executive officers under the Executive Incentive Bonus Plan consisted of sales objectives, net income and
operating earnings objectives, free cash flow objectives and an individual performance objective. Free cash flow represents the amount of cash generated by operations during the year less net capital
expenditures. For the individual performance objectives, each executive officer established several personal or team goals related to Company initiatives or segment initiatives that were aligned with
the strategy of the business and the goals of our Chief Executive Officer. For 2016, the primary focus areas that were established at the start of the performance period were execution of the business
transformation in the Americas and Asia-Pacific, launching global product innovation initiatives, driving productivity savings and other key strategic initiatives.
In
setting our 2016 financial performance targets, the Compensation Committee determined that the targets and results should exclude the effect of unbudgeted restructuring, acquisitions,
dispositions, foreign exchange, impairments, discontinued operations, legal settlements, employee separation costs, product liability charges, retroactive tax law changes, environmental remediation,
adjustments for undifferentiated products, restructuring and one-time costs relating to the consolidation of manufacturing facilities and distribution centers. However, the Compensation Committee
reviews all excluded items each year and may exercise its discretion to reduce bonus payouts to reflect the impact of any excluded item.
Our
bonus objectives are intended to align the interests of our management team with the interests of our stockholders. We believe that the capital markets evaluate companies in our
industry based primarily on their ability to grow their businesses profitably while maintaining adequate returns on their invested capital. Our bonus objectives provide an incentive to management to
maintain a balanced approach to growth, with appropriate emphasis on revenues, profitability, cash flow and execution of strategic initiatives. If we are successful in meeting or exceeding our goals
under these objectives, we believe that this will lead to the creation of additional value for our stockholders.
30
Table of Contents
The Compensation Committee, in consultation with our Chief Executive Officer, determined the relative weight to be assigned to each objective for 2016. For 2016,
the financial objectives for Messrs. Pagano, Trapp and Lepage were based entirely on the performance of our Company as a whole. Since the responsibilities of Mr. Nanda and
Mr. Melhem were substantially tied to our Americas/Europe and Asia-Pacific business segments, respectively, most of their bonus achievement was based on their respective segment performance.
The following table shows the weighting assigned to each named executive officer for each performance objective:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive
Officer
|
|
Consolidated
Sales
|
|
Consolidated
Net Income
|
|
Consolidated
Free Cash
Flow
|
|
Segment
Trade Sales
|
|
Segment
Operating
Earnings
|
|
Segment
Free Cash
Flow
|
|
Individual
Component
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert J. Pagano, Jr.
|
|
|
25.0
|
%
|
|
40.0
|
%
|
|
25.0
|
%
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10.0
|
%
|
|
Todd A. Trapp
|
|
|
25.0
|
%
|
|
40.0
|
%
|
|
25.0
|
%
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10.0
|
%
|
|
Munish Nanda
|
|
|
6.0
|
%
|
|
12.0
|
%
|
|
9.0
|
%
|
|
19.0
|
%
|
|
28.0
|
%
|
|
16.0
|
%
|
|
10.0
|
%
|
|
Elie A. Melhem
|
|
|
6.0
|
%
|
|
12.0
|
%
|
|
9.0
|
%
|
|
20.0
|
%
|
|
25.0
|
%
|
|
18.0
|
%
|
|
10.0
|
%
|
|
Kenneth R. Lepage
|
|
|
25.0
|
%
|
|
40.0
|
%
|
|
25.0
|
%
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Compensation Committee placed more emphasis on the net income and operating earnings measures because it believed that given the uncertain global economic environment, our focus should remain on
encouraging productivity, cost containment and profitability, while maintaining a balanced approach toward top line growth and generating cash. With Mr. Nanda's new expanded role over the
Americas and Europe, the Committee decided to weight his segment goals for these two regions equally for trade sales, operating earnings, and free cash flow.
Our
results for 2016 as determined under our Executive Incentive Bonus Plan with respect to each financial performance measure for our Company as a whole and our Americas, Europe and
Asia-Pacific businesses are set forth in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Performance
Targets (in millions)
|
|
|
|
|
|
|
|
|
|
% of Bonus
Objective
Achieved
|
|
|
|
2016 Results
(in millions)
|
|
Financial Performance Measures
|
|
50%
|
|
100%
|
|
200%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Sales
|
|
$
|
1,268
|
|
$
|
1,409
|
|
$
|
1,550
|
|
$
|
1,384
|
|
|
91.1
|
%
|
|
Consolidated Net Income
|
|
$
|
80
|
|
$
|
89
|
|
$
|
98
|
|
$
|
92
|
|
|
134.3
|
%
|
|
Consolidated Free Cash Flow
|
|
$
|
72
|
|
$
|
84
|
|
$
|
101
|
|
$
|
102
|
|
|
200.0
|
%
|
|
Americas Trade Sales
|
|
$
|
713
|
|
$
|
792
|
|
$
|
872
|
|
$
|
776
|
|
|
89.5
|
%
|
|
Americas Operating Earnings
|
|
$
|
115
|
|
$
|
127
|
|
$
|
140
|
|
$
|
128
|
|
|
102.4
|
%
|
|
Americas Free Cash Flow
|
|
$
|
61
|
|
$
|
71
|
|
$
|
86
|
|
$
|
61
|
|
|
50.1
|
%
|
|
Europe Trade Sales
|
|
€
|
358
|
|
€
|
398
|
|
€
|
438
|
|
€
|
399
|
|
|
103.5
|
%
|
|
Europe Operating Earnings
|
|
€
|
36
|
|
€
|
40
|
|
€
|
44
|
|
€
|
41
|
|
|
140.3
|
%
|
|
Europe Free Cash Flow
|
|
€
|
23
|
|
€
|
27
|
|
€
|
32
|
|
€
|
38
|
|
|
200.0
|
%
|
|
Asia-Pacific Trade Sales
|
|
¥
|
340
|
|
¥
|
378
|
|
¥
|
416
|
|
¥
|
339
|
|
|
0.0
|
%
|
|
Asia-Pacific Operating Earnings
|
|
¥
|
38
|
|
¥
|
42
|
|
¥
|
46
|
|
¥
|
46
|
|
|
200.0
|
%
|
|
Asia-Pacific Free Cash Flow
|
|
¥
|
29
|
|
¥
|
34
|
|
¥
|
41
|
|
¥
|
72
|
|
|
200.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
Table of Contents
Based
on these results, the weighted achievement of the financial performance metrics for 2016 by each of our named executive officers was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
|
Financial Performance Measure
|
|
Weighting
|
|
2016
Achievement
|
|
Weighted 2016
Achievement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert J. Pagano, Jr.
|
|
Consolidated Sales
|
|
|
25.0
|
%
|
|
91.1
|
%
|
|
22.8
|
%
|
|
Todd A. Trapp
|
|
Consolidated Net Income
|
|
|
40.0
|
%
|
|
134.3
|
%
|
|
53.7
|
%
|
|
Kenneth R. Lepage
|
|
Consolidated Free Cash Flow
|
|
|
25.0
|
%
|
|
200.0
|
%
|
|
50.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90
|
%
|
|
|
|
|
126.5
|
%
|
|
Munish Nanda
|
|
Consolidated Sales
|
|
|
6.0
|
%
|
|
91.1
|
%
|
|
5.5
|
%
|
|
|
|
Consolidated Net Income
|
|
|
12.0
|
%
|
|
134.3
|
%
|
|
16.1
|
%
|
|
|
|
Consolidated Free Cash Flow
|
|
|
9.0
|
%
|
|
200.0
|
%
|
|
18.0
|
%
|
|
|
|
Americas/Europe Trade Sales
|
|
|
19.0
|
%
|
|
96.5
|
%
|
|
18.3
|
%
|
|
|
|
Americas/Europe Operating Earnings
|
|
|
28.0
|
%
|
|
121.4
|
%
|
|
34.0
|
%
|
|
|
|
Americas/Europe Free Cash Flow
|
|
|
16.0
|
%
|
|
125.1
|
%
|
|
20.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90.0
|
%
|
|
|
|
|
111.9
|
%
|
|
Elie A. Melhem
|
|
Consolidated Sales
|
|
|
6.0
|
%
|
|
91.1
|
%
|
|
5.5
|
%
|
|
|
|
Consolidated Net Income
|
|
|
12.0
|
%
|
|
134.3
|
%
|
|
16.1
|
%
|
|
|
|
Consolidated Free Cash Flow
|
|
|
9.0
|
%
|
|
200.0
|
%
|
|
18.0
|
%
|
|
|
|
Asia-Pacific Trade Sales
|
|
|
20.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
|
|
Asia-Pacific Operating Earnings
|
|
|
25.0
|
%
|
|
200.0
|
%
|
|
50.0
|
%
|
|
|
|
Asia-Pacific Free Cash Flow
|
|
|
18.0
|
%
|
|
200.0
|
%
|
|
36.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90.0
|
%
|
|
|
|
|
125.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Compensation Committee reviewed with our Chief Executive Officer the performance of each of the other named executive officers with respect to their individual performance
objectives. Based on this review and the recommendations of our Chief Executive Officer, the Compensation Committee was satisfied that each of Messrs. Trapp, Melhem, Nanda and Lepage had
achieved higher than the target level of performance with respect to his individual performance objectives. As a result of their strong performance, the Compensation Committee approved a 15%
achievement for each of our named executive officers with respect to the individual performance component of his incentive bonus award. The Compensation Committee separately reviewed the performance
of Mr. Pagano with respect to his individual performance objectives and determined that Mr. Pagano had exceeded his objectives.
In
line with our pay-for-performance philosophy, our executives received competitive bonus awards for 2016 commensurate with these results. The 2016 Executive Incentive Bonus Plan awards
for our named executive officers that were paid in March 2017 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive
Officer
|
|
2016 Target
Bonus Awards
as a Percentage
of Base Salary
|
|
2016 Target
Bonus
Awards
|
|
Financial
Performance
Measures
Achievement
|
|
Individual
Performance
Measures
Achievement
|
|
2016 Bonus
Awards as a
Percentage
of Target
|
|
2016 Actual
Bonus
Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert J. Pagano, Jr.
|
|
|
100
|
%
|
$
|
775,000
|
|
|
126.5
|
%
|
|
15.0
|
%
|
|
141.5
|
%
|
$
|
1,096,625
|
|
|
Todd A. Trapp
|
|
|
60
|
%
|
$
|
249,600
|
|
|
126.5
|
%
|
|
15.0
|
%
|
|
141.5
|
%
|
$
|
353,184
|
|
|
Munish Nanda
|
|
|
60
|
%
|
$
|
276,000
|
|
|
111.9
|
%
|
|
15.0
|
%
|
|
126.9
|
%
|
$
|
350,252
|
|
|
Elie A. Melhem
|
|
|
55
|
%
|
$
|
211,750
|
|
|
125.6
|
%
|
|
15.0
|
%
|
|
140.6
|
%
|
$
|
297,682
|
|
|
Kenneth R. Lepage
|
|
|
60
|
%
|
$
|
219,300
|
|
|
126.5
|
%
|
|
15.0
|
%
|
|
141.5
|
%
|
$
|
310,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
February 2017, the Compensation Committee awarded Mr. Nanda an additional discretionary bonus of $35,000 to recognize his strong leadership and performance during 2016 in driving
32
Table of Contents
significant
productivity efficiencies and restructuring activities during the transformation of our Europe business.
Long-Term Incentives
We provided long-term incentive compensation for our executive officers during 2016 in the form of the purchase of restricted stock units under
our Management Stock Purchase Plan and the grant of performance stock units and restricted stock awards under our 2004 Stock Incentive Plan. The Compensation Committee believes in granting
equity-based incentive compensation as an important component of our executive compensation program to encourage sustainable growth and long-term value creation, align the interests of our executives
with those of our stockholders by exposing executives to stock price changes during the vesting or deferral periods, and to attract and retain executive talent.
Our Management Stock Purchase Plan is intended to provide an incentive for our executives to purchase and hold more of our class A common
stock, thereby more closely aligning their interests with the interests of our stockholders. The Compensation Committee approves the participants in the Management Stock Purchase Plan based on
recommendations made by executive management. For 2016, participants were entitled to purchase restricted stock units under the Management Stock Purchase Plan at a discount of 20% from the closing
sale price of our class A common stock on February 14, 2017 using up to 50% of their pre-tax 2016 performance bonus. The restricted stock units vest in three equal annual installments
beginning one year after the date of grant. For 2016, Messrs. Pagano, Trapp, Melhem and Lepage each elected to contribute 50% of his annual performance bonus to the purchase of restricted stock
units under the Management Stock Purchase Plan. Mr. Nanda did not participate in the Management Stock Purchase Plan for 2016.
In 2016, we granted performance stock units and restricted stock awards to our executive officers, with each type of award accounting for 50% of
the targeted value of long-term equity incentive awards for executive officers. The Compensation Committee believes that the use of performance stock unit awards and restricted stock awards in
combination provide strong shareholder alignment, retention value, and the opportunity to leverage the value of awards up and
down consistent with the Company's stock price performance as well as Company performance over the long term.
The
targeted value of the long-term equity incentive award grants made to our named executive officers was determined taking into account base pay and annual incentive values, a
competitive analysis of executive compensation prepared by Pearl Meyer, and the Committee's assessment of the appropriate mix of fixed versus variable and short-term versus long-term incentives. The
Compensation Committee also considered each named executive officer's role, potential long-term contribution, performance, experience and skills. Based on its analysis, the Compensation Committee
determined that the performance stock units and restricted stock awarded to the Company's Chief Executive Officer should have a targeted total grant date fair value approximating three times his
annual base salary and the annual equity grant to each of our other named executive officers should have a targeted total grant date fair value approximating one-and-a-half times his annual base
salary. The following table shows the values used to determine the number of shares underlying the annual restricted stock awards and the target performance stock unit awards granted to our named
executive officers in March 2016. In determining the number of shares underlying the awards granted to each named executive officer, we used a trailing twelve-month average stock price in order to
prevent short-term fluctuations in our stock price from having a significant positive
33
Table of Contents
or
negative impact on the number of shares awarded. For this reason, the targeted values indicated below differ from the grant date fair values of the grants reflected in the Summary Compensation
Table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
|
Performance Stock
Unit Awards
(Target Award)
|
|
Restricted Stock
Awards
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert J. Pagano, Jr.
|
|
$
|
1,095,000
|
|
$
|
1,095,000
|
|
$
|
2,190,000
|
|
|
Todd A. Trapp
|
|
$
|
300,000
|
|
$
|
300,000
|
|
$
|
600,000
|
|
|
Munish Nanda
|
|
$
|
318,750
|
|
$
|
318,750
|
|
$
|
637,500
|
|
|
Elie Melhem
|
|
$
|
273,000
|
|
$
|
273,000
|
|
$
|
546,000
|
|
|
Kenneth R. Lepage
|
|
$
|
264,750
|
|
$
|
264,750
|
|
$
|
529,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Stock Unit Awards.
The performance stock units granted in 2016 will be settled in shares at the end of a performance
vesting period
ending on December 31, 2018, with the number of shares to be delivered to be determined based on a payout matrix that determines what percentage of the target shares will be delivered at each
level of achievement relative to specified performance goals. The performance goals include a combination of the Company's compound annual growth rate in revenue ("Revenue CAGR") and return on
invested capital ("ROIC"). Revenue CAGR measures the rate of our growth over time, while ROIC measures how efficiently and effectively we use capital to generate profits. For purposes of our
performance stock unit awards, ROIC means the Company's return on invested capital calculated as a percentage by dividing net operating profit after tax by invested capital. For the purposes of
calculating ROIC, "net operating profit" will be adjusted to exclude the impact of all restructuring, foreign exchange, impairments, legal settlements, employee separation costs, product liability
charges, pension plan and supplemental employee retirement plan terminations and retroactive tax law changes to the extent such items were not contemplated and included in the target upon which the
ROIC goals were based. The Compensation Committee selected these two measures primarily because they are generally accepted as two fundamental drivers of sustained shareholder value, they provide
shorter line-of-sight measurements than many alternative measures and both measures are contained in the Company's strategic plan. The Revenue CAGR and ROIC goals are subject to adjustment to reflect
the impact of any
acquisitions or dispositions that occur during the performance period. The number of shares delivered can range from zero to 200% of the target number of performance stock units initially awarded,
depending on performance, and delivery generally requires employment throughout the three-year performance period. At the threshold level of performance, 60% of the target number of shares would be
awarded. The level of performance required to attain the threshold performance metrics was set at a level of performance where the Compensation Committee believes that a significantly reduced payout
is appropriate and below which no payout is appropriate. The level of performance required to attain the target payout is designed to be reasonably challenging. The level of performance required to
attain a maximum payout was set at a level of performance that the Compensation Committee deems exceptional. Performance stock units do not grant dividend or voting rights to the holder during the
performance period, but dividend equivalents are accrued and paid on shares actually delivered after the vesting date.
Settlement of the 2014 Performance Stock Unit Awards.
The performance period for the 2014 performance stock unit awards concluded on
December 31, 2016. The performance stock units granted in 2014 were settled in shares on February 8, 2017. The 2014 awards had their performance tied to a combination of Revenue CAGR and
ROIC, as defined above. The financial results for the 2014 awards were a Revenue CAGR of 1.4%, which fell below the threshold of the range for the Revenue CAGR of 2.7%, and ROIC of 10.7% which was
above the threshold of the ROIC range of 9.0%, but below the target of 13.7%. According to the performance matrix, the
34
Table of Contents
resulting
payout percentage achieved was 67% of the target award value. The resulting number of shares earned by Mr. Pagano were 25,763 (13,446 were earned from his new hire grant, and 12,317
were earned under the 2014 annual grant), Mr. Melhem earned 3,079 shares, and Mr. Lepage earned 2,991 shares.
Restricted Stock Awards.
Restricted stock awards are shares of the Company's stock issued in the recipient's name but which are subject
to forfeiture
in the event the recipient's employment with the Company terminates prior to the time the shares vest. Upon vesting, the recipient owns the shares without restriction or risk of forfeiture. Recipients
have voting and dividend rights with respect to restricted stock awards throughout the vesting period. The 2016 restricted stock awards vest one-third each year over three years.
Benefits and Perquisites
We provide our executive officers with certain employee benefits and perquisites as a means of providing additional compensation that is
designed to be competitive with other compensation provided by companies in our peer group.
Retirement
benefits are provided through a qualified defined contribution 401(k) plan for all of our full-time eligible employees who are United States residents.
We
also provide our named executive officers with a limited number of perquisites as part of their compensation arrangements, which we consider to be reasonable and consistent with
competitive practice. These perquisites include the choice of receiving a cash automobile allowance or the use of an automobile leased by the Company, supplemental disability insurance, a financial
planning allowance and a comprehensive executive physical examination. The amount of the automobile allowance or the maximum amount of the lease payments for the automobile used by each executive
officer is determined by our Chief Executive Officer and reviewed by the Compensation Committee, and the Compensation Committee determines the maximum amount of our Chief Executive Officer's
automobile allowance or lease payments to be paid by the Company. We also pay maintenance expenses for the leased automobiles and provide automobile insurance coverage under our corporate umbrella
policy. We also reimburse our executives for certain financial planning expenses so they may focus more on their business responsibilities. We typically also reimburse recently hired executives for
certain relocation-related expenses and provide tax gross up payments related to the reimbursed relocation expenses, which provide the executive with the same after-tax income as he or she would have
received had the executive not relocated at the request of the Company.
In
addition, in connection with his assignment outside of the United States, we provided Mr. Melhem with customary expatriate benefits to address the unique circumstances arising
from living and working abroad.
Compensation Recovery Policy
We have a Compensation Recovery Policy, commonly referred to as a "claw back" policy, for our executive officers and chief accounting officer.
Under this policy, in the event of a financial restatement due to fraudulent activity or intentional misconduct as determined solely by
the Compensation Committee, our executive officers and chief accounting officer may be required to reimburse the Company for the difference between any incentive compensation (such as payments under
the Executive Incentive Bonus Plan), equity awards or other compensation that was based on having met or exceeded Company performance targets that would not have been met based upon accurate financial
data and the compensation that would have been granted, received, vested or accrued had such compensation been calculated based on the accurate data or restated results.
35
Table of Contents
Employment Agreements
None of our executive officers has an employment agreement with us.
We
have entered into indemnification agreements with each of our directors and executive officers. The indemnification agreements provide indemnity, including the advancement of
expenses, to our directors and executive officers against liabilities incurred in the performance of their duties to the fullest extent permitted by the General Corporation Law of the State of
Delaware.
Post-Termination Compensation and Change in Control Arrangements
Severance Benefits
We maintain an Executive Severance Plan, which provides severance benefits for our senior executives, including all of our named executive
officers. The Compensation Committee believes that the Executive Severance Plan is an important recruitment incentive for executives, provides a valuable retention incentive and is competitive with
the practices of most of the companies in our executive compensation peer group. Under the Executive Severance Plan, a named executive officer involuntarily terminated for reasons not meeting the
definition of cause under the Executive Severance Plan will receive (i) an amount equal to twelve months of premiums the named executive officer would have to pay for COBRA medical coverage,
and (ii) one year of base salary, except for Mr. Pagano who as Chief Executive Officer would receive two years of base salary. In connection with the receipt of any severance payments
under the Executive Severance Plan, a named executive officer would be required to sign a written agreement that would contain a release of claims against the Company and such other restrictions, such
as non-competition, non-solicitation and non-disparagement covenants, as the Compensation Committee determines are appropriate.
Change in Control Benefits
We believe that the consideration of a change in control transaction would create uncertainty regarding the continued employment of our
executive officers. This uncertainty results from the fact that many change in control transactions result in significant organizational changes, particularly at the senior executive level. In order
to encourage our executive officers to focus on seeking the best return for our stockholders and to remain employed with the Company during an important time when their prospects for continued
employment following a change in control transaction are often uncertain, we provide certain key executives (including our named executive officers) with cash severance benefits in connection with a
change of control of the Company under the Executive Severance Plan. Further, we believe that providing these executive officers with cash severance benefits upon certain terminations following a
change in control is consistent with the practices of the companies in our executive compensation peer group and provides an important recruitment incentive for future executives. Under our Executive
Severance Plan, if a named executive officer is involuntarily terminated without cause or resigns for good reason (as defined in the Executive Severance Plan) within 24 months following a
change in control of the Company, or is involuntarily terminated without cause in the six months prior to such change in control, such named executive officer will receive an amount equal to
(i) 24 months of premiums the named executive officer would have to pay for COBRA medical coverage, and (ii) two times the sum of the named executive officer's annual base salary
and target annual bonus immediately prior to the change in control. In connection with the receipt of any severance payments under the Executive Severance Plan, a named executive officer would be
required to sign a written agreement that would contain a release of claims against the Company and such other restrictions, such as non-competition, non-solicitation and non-disparagement covenants,
as the Compensation
Committee determines are appropriate. In addition, our 2004 Stock Incentive Plan and Management Stock Purchase Plan provide that in
36
Table of Contents
connection
with a change in control all unvested performance stock units, shares of restricted stock, stock options and restricted stock units will become fully vested.
Stock Ownership Guidelines
The Compensation Committee monitors compliance with the stock ownership guidelines approved by the Compensation Committee for all of our
executive officers. For 2016, our Chief Executive Officer was required to hold shares of our stock with a value of at least five times the amount of his base salary, our Chief Financial Officer was
required to hold shares of our stock with a value of at least three times the amount of his base salary and our other executive officers were required to hold shares of our stock with a value of at
least twice their base salary. In determining the number of shares owned by an executive, the Compensation Committee takes into account shares held directly, the shares underlying restricted stock
units purchased by the executive under our Management Stock Purchase Plan and shares of restricted stock, but not stock options or performance share units. Our officers are expected to comply with
these requirements within five years of their appointment as an executive officer. The Compensation Committee evaluates compliance with these guidelines in connection with making its compensation
decisions and recommendations at its regularly scheduled third quarter meeting. Compliance is typically measured based on stock ownership as of the last day of the second quarter. At the end of the
second quarter of 2016, all of our executive officers who had been executive officers of Watts for five or more years were in compliance with our stock ownership guidelines.
Impact of Regulatory Requirements
The financial reporting and income tax consequences of individual compensation elements are important considerations for the Compensation
Committee when it is analyzing the overall level of compensation and the mix of compensation paid to our executive
officers. However, other factors may be of greater importance than preserving deductibility for a particular form of compensation. Overall, the Compensation Committee seeks to balance its objective of
ensuring an effective compensation package for our executive officers with the desire to maximize the immediate deductibility of compensation, while ensuring an appropriate and transparent impact on
reported earnings and other financial measures. The Compensation Committee considers the tax and accounting consequences of utilizing various forms of compensation and retains the discretion to pay
compensation that is not tax deductible or could have adverse accounting consequences for the Company.
|
COMPENSATION COMMITTEE REPORT
|
The
Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis included in this proxy statement with management. Based on such review
and discussion with management, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and in the Company's
Annual Report on Form 10-K for the year ended December 31, 2016.
|
|
|
|
|
|
|
The Compensation Committee
|
|
|
|
Richard J. Cathcart, Chairperson
Robert L. Ayers
Christopher L. Conway
Jes Munk Hansen
|
37
Table of Contents
Compensation Summary
The following table contains information with respect to the compensation of our named executive officers for the fiscal years ended
December 31, 2016, 2015 and 2014.
SUMMARY COMPENSATION TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and Principal Position
|
|
Year
|
|
|
|
Salary
($)
|
|
|
|
Bonus
($)
|
|
|
|
Stock
Awards
($)(1)(2)
|
|
|
|
Option
Awards
($)(3)
|
|
|
|
Non-Equity
Incentive
Plan
Compensation
($)(4)
|
|
|
|
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)(5)
|
|
|
|
All Other
Compensation
($)(6)
|
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert J. Pagano, Jr.
|
|
|
2016
|
|
|
|
|
763,750
|
|
|
|
|
—
|
|
|
|
|
2,460,530
|
|
|
|
|
—
|
|
|
|
|
1,096,625
|
|
|
|
|
—
|
|
|
|
|
46,898
|
|
|
|
|
4,367,803
|
|
|
Chief Executive Officer and
|
|
|
2015
|
|
|
|
|
730,001
|
|
|
|
|
—
|
|
|
|
|
2,505,947
|
|
|
|
|
—
|
|
|
|
|
865,780
|
|
|
|
|
—
|
|
|
|
|
46,882
|
|
|
|
|
4,148,610
|
|
|
President
(7)
|
|
|
2014
|
|
|
|
|
419,103
|
|
|
|
|
—
|
|
|
|
|
5,559,307
|
|
|
|
|
—
|
|
|
|
|
380,158
|
|
|
|
|
—
|
|
|
|
|
97,823
|
|
|
|
|
6,456,391
|
|
|
Todd A. Trapp
|
|
|
2016
|
|
|
|
|
412,000
|
|
|
|
|
—
|
|
|
|
|
683,009
|
|
|
|
|
—
|
|
|
|
|
353,184
|
|
|
|
|
—
|
|
|
|
|
38,363
|
|
|
|
|
1,486,556
|
|
|
Chief Financial Officer
(8)
|
|
|
2015
|
|
|
|
|
291,282
|
|
|
|
|
—
|
|
|
|
|
1,570,600
|
|
|
|
|
—
|
|
|
|
|
284,688
|
|
|
|
|
—
|
|
|
|
|
124,292
|
|
|
|
|
2,270,862
|
|
|
Munish Nanda
|
|
|
2016
|
|
|
|
|
451,250
|
|
|
|
|
35,000
|
|
|
|
|
662,356
|
|
|
|
|
—
|
|
|
|
|
350,252
|
|
|
|
|
—
|
|
|
|
|
38,759
|
|
|
|
|
1,537,617
|
|
|
President, Americas & Europe
(9)
|
|
|
2015
|
|
|
|
|
314,391
|
|
|
|
|
100,000
|
|
|
|
|
1,586,515
|
|
|
|
|
—
|
|
|
|
|
277,199
|
|
|
|
|
—
|
|
|
|
|
29,547
|
|
|
|
|
2,307,652
|
|
|
Elie A. Melhem
|
|
|
2016
|
|
|
|
|
379,750
|
|
|
|
|
—
|
|
|
|
|
617,492
|
|
|
|
|
—
|
|
|
|
|
297,682
|
|
|
|
|
—
|
|
|
|
|
23,538
|
|
|
|
|
1,318,462
|
|
|
President, Asia-Pacific,
|
|
|
2015
|
|
|
|
|
364,000
|
|
|
|
|
—
|
|
|
|
|
931,341
|
|
|
|
|
—
|
|
|
|
|
311,072
|
|
|
|
|
7,133
|
|
|
|
|
133,290
|
|
|
|
|
1,746,836
|
|
|
the Middle East & Africa
|
|
|
2014
|
|
|
|
|
350,000
|
|
|
|
|
—
|
|
|
|
|
582,737
|
|
|
|
|
127,915
|
|
|
|
|
212,501
|
|
|
|
|
8,157
|
|
|
|
|
214,094
|
|
|
|
|
1,495,404
|
|
|
Kenneth R. Lepage
|
|
|
2016
|
|
|
|
|
362,375
|
|
|
|
|
—
|
|
|
|
|
602,497
|
|
|
|
|
—
|
|
|
|
|
310,310
|
|
|
|
|
—
|
|
|
|
|
38,782
|
|
|
|
|
1,313,964
|
|
|
General Counsel, Executive
|
|
|
2015
|
|
|
|
|
353,000
|
|
|
|
|
—
|
|
|
|
|
595,090
|
|
|
|
|
—
|
|
|
|
|
251,237
|
|
|
|
|
—
|
|
|
|
|
36,383
|
|
|
|
|
1,235,710
|
|
|
Vice President & Secretary
|
|
|
2014
|
|
|
|
|
340,000
|
|
|
|
|
30,000
|
|
|
|
|
586,245
|
|
|
|
|
124,268
|
|
|
|
|
189,924
|
|
|
|
|
74,349
|
|
|
|
|
38,899
|
|
|
|
|
1,383,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
The
amounts shown in this column reflect the grant date fair value of performance stock units and restricted stock awards under our 2004 Stock Incentive Plan and the
grant date fair value of the discount on the restricted stock units purchased under our Management Stock Purchase Plan determined in accordance with Financial Accounting Standards Board Accounting
Standards Codification Topic 718. A discussion of the assumptions used in calculating the amounts in this column may be found in Note 12 to our audited consolidated financial statements for the
year ended December 31, 2016 included in our Annual Report on Form 10-K filed with the SEC on February 24, 2017, except that the fair value of the discount attributable to each
restricted stock unit purchased under the Management Stock Purchase Plan on February 14, 2017 was estimated on the date of grant using the Black-Scholes-Merton Model based on the following
weighted average assumptions:
|
|
|
|
|
|
|
|
Expected life:
|
|
|
3.00 years
|
|
|
|
Expected stock price volatility:
|
|
|
24.98%
|
|
|
|
Expected dividend yield:
|
|
|
1.15%
|
|
|
|
Risk-free interest rate:
|
|
|
1.53%
|
|
|
The
risk-free interest rate is based on the U.S. treasury yield curve at the time of grant for the expected life of the restricted stock unit. The expected life, which is defined as the estimated
period of time outstanding, of the restricted stock unit and the volatility were calculated using historical data. The expected dividend yield is our best estimate of the expected future dividend
yield. Based on these assumptions, the weighted average grant date fair value of the discount on a restricted stock unit purchased on February 14, 2017 was $16.84. The grant date fair values of
the performance stock units and restricted stock awards granted to each of our named executive officers during 2016 and the grant date fair value of the discount on the restricted stock units
purchased by each of our named executive officers on February 14, 2017 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant Date
Fair Value of
Performance
Stock Units
|
|
|
|
Grant Date
Fair Value of
Restricted
Stock
Awards
|
|
|
|
Grant Date
Fair Value of
Discount on
Restricted
Stock Units
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert J. Pagano, Jr.
|
|
|
$
|
1,137,788
|
|
|
|
|
|
$
|
1,137,788
|
|
|
|
|
|
$
|
184,954
|
|
|
|
|
$
|
2,460,530
|
|
|
Todd A. Trapp
|
|
|
$
|
311,723
|
|
|
|
|
|
$
|
311,723
|
|
|
|
|
|
$
|
59,563
|
|
|
|
|
$
|
683,009
|
|
|
Munish Nanda
|
|
|
$
|
331,178
|
|
|
|
|
|
$
|
331,178
|
|
|
|
|
|
—
|
|
|
|
|
$
|
662,356
|
|
|
Elie A. Melhem
|
|
|
$
|
283,646
|
|
|
|
|
|
$
|
283,646
|
|
|
|
|
|
$
|
50,200
|
|
|
|
|
$
|
617,492
|
|
|
Kenneth R. Lepage
|
|
|
$
|
275,079
|
|
|
|
|
|
$
|
275,079
|
|
|
|
|
|
$
|
52,339
|
|
|
|
|
$
|
602,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(2)
-
The
grant date fair value of the performance stock units included in this column is the fair value of the target number of performance stock units granted to each
named executive officer, which we consider to be the probable outcome of the performance conditions as of the grant date. The following table shows for each named executive officer the grant date fair
value of the target number of performance
38
Table of Contents
stock
units granted to each such officer that is included in the Summary Compensation Table and the potential maximum grant date fair value of each such performance stock unit award.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target
Number of
Performance
Stock Units
|
|
|
|
Grant Date
Fair Value of
Target
Number of
Performance
Stock Units
|
|
|
|
Maximum
Number of
Performance
Stock Units
|
|
|
|
Grant Date
Fair Value of
Maximum
Number of
Performance
Stock Units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert J. Pagano, Jr.
|
|
|
20,586
|
|
|
|
|
|
$
|
1,137,788
|
|
|
|
|
|
41,172
|
|
|
|
|
|
$
|
2,275,576
|
|
|
|
Todd A. Trapp
|
|
|
5,640
|
|
|
|
|
|
$
|
311,723
|
|
|
|
|
|
11,280
|
|
|
|
|
|
$
|
623,446
|
|
|
|
Munish Nanda
|
|
|
5,992
|
|
|
|
|
|
$
|
331,178
|
|
|
|
|
|
11,984
|
|
|
|
|
|
$
|
662,356
|
|
|
|
Elie A. Melhem
|
|
|
5,132
|
|
|
|
|
|
$
|
283,646
|
|
|
|
|
|
10,264
|
|
|
|
|
|
$
|
567,291
|
|
|
|
Kenneth R. Lepage
|
|
|
4,977
|
|
|
|
|
|
$
|
275,079
|
|
|
|
|
|
9,954
|
|
|
|
|
|
$
|
550,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(3)
-
The
amounts shown in this column reflect the grant date fair value of stock options granted under our 2004 Stock Incentive Plan determined in accordance with
Financial Accounting Standards Board Accounting Standards Codification Topic 718. A discussion of the assumptions used in calculating the amounts in this column may be found in Note 12 to our
audited consolidated financial statements for the year ended December 31, 2014 included in our Annual Report on Form 10-K filed with the SEC on February 26, 2015.
-
(4)
-
The
amounts shown in this column reflect amounts earned under our Executive Incentive Bonus Plan by each named executive officer. Each of our named executive
officers may elect to use a portion of his annual performance bonus under the Executive Incentive Bonus Plan to purchase restricted stock units under our Management Stock Purchase Plan. The number of
restricted stock units purchased by each named executive officer are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
|
Percentage of
Annual Bonus
Used to
Purchase
Restricted
Stock Units
|
|
|
|
Amount of
Bonus for
Year
|
|
|
|
Amount of
Bonus Used to
Purchase
Restricted
Stock Units
|
|
|
|
Number of
Restricted
Stock Units
Purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert J. Pagano, Jr.
|
|
|
2016
|
|
|
|
|
50
|
%
|
|
|
$
|
1,096,625
|
|
|
|
$
|
548,271
|
|
|
|
|
10,983
|
|
|
|
|
|
2015
|
|
|
|
|
100
|
%
|
|
|
$
|
865,780
|
|
|
|
$
|
865,780
|
|
|
|
|
24,450
|
|
|
|
|
|
2014
|
|
|
|
|
75
|
%
|
|
|
$
|
380,158
|
|
|
|
$
|
285,084
|
|
|
|
|
7,678
|
|
|
Todd A. Trapp
|
|
|
2016
|
|
|
|
|
50
|
%
|
|
|
$
|
353,184
|
|
|
|
$
|
176,567
|
|
|
|
|
3,537
|
|
|
|
|
|
2015
|
|
|
|
|
50
|
%
|
|
|
$
|
284,688
|
|
|
|
$
|
142,344
|
|
|
|
|
4,019
|
|
|
Munish Nanda
|
|
|
2016
|
|
|
|
|
—
|
|
|
|
$
|
350,252
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
2015
|
|
|
|
|
30
|
%
|
|
|
$
|
277,199
|
|
|
|
$
|
83,160
|
|
|
|
|
2,348
|
|
|
Elie A. Melhem
|
|
|
2016
|
|
|
|
|
50
|
%
|
|
|
$
|
297,682
|
|
|
|
$
|
148,812
|
|
|
|
|
2,981
|
|
|
|
|
|
2015
|
|
|
|
|
50
|
%
|
|
|
$
|
311,072
|
|
|
|
$
|
155,536
|
|
|
|
|
4,392
|
|
|
|
|
|
2014
|
|
|
|
|
50
|
%
|
|
|
$
|
212,501
|
|
|
|
$
|
106,229
|
|
|
|
|
2,861
|
|
|
Kenneth R. Lepage
|
|
|
2016
|
|
|
|
|
50
|
%
|
|
|
$
|
310,310
|
|
|
|
$
|
155,151
|
|
|
|
|
3,108
|
|
|
|
|
|
2015
|
|
|
|
|
75
|
%
|
|
|
$
|
251,237
|
|
|
|
$
|
188,428
|
|
|
|
|
5,321
|
|
|
|
|
|
2014
|
|
|
|
|
75
|
%
|
|
|
$
|
189,924
|
|
|
|
$
|
142,431
|
|
|
|
|
3,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
performance bonuses earned in 2016, the purchase price for restricted stock units under our Management Stock Purchase Plan was 80% of the closing price of our class A common stock on the
date of grant and the grant date fair value of the 20% discount on the restricted stock units purchased by each named executive officer for 2016 has been included under the Stock Awards column as
additional compensation to the named executive officer for that year. Prior to 2016, the purchase price for restricted stock units under our Management Stock Purchase Plan was 67% of the closing price
of our class A common stock on the date of grant and the grant date fair value of the 33% discount on the restricted stock units purchased by each named executive officer using their
performance bonuses earned in 2015 and 2014 has been included under the Stock Awards column as additional compensation to the named executive officer for those years. The restricted stock units vest
in three equal annual installments beginning one year after the date of grant. At the end of the deferral period specified by the named executive officer under the Management Stock Purchase Plan, we
will issue one share of class A common stock for each vested restricted stock unit. Cash dividends equivalent to those paid on our class A common stock will be credited to the named
executive officer's account for non-vested restricted stock units and will be paid in cash to the named executive officer when such restricted stock units become vested. Dividends will also be paid in
cash to individuals for vested restricted stock units held during any deferral period. The number of restricted stock units purchased was determined by dividing the dollar amount of bonus used to
purchase the restricted stock units by $49.92 for 2016, $35.41 for 2015 and $37.13 for 2014, which were the discounted closing prices of our class A common stock on the dates of grant.
-
(5)
-
The
amounts shown in this column reflect the aggregate change in actuarial present value of the named executive officer's accumulated benefit under our former
qualified defined benefit pension plan and supplemental non-qualified defined benefit plan during 2015 and 2014. Both plans were terminated during 2014 and we distributed all of the assets of both
plans during 2015.
39
Table of Contents
-
(6)
-
The
amounts shown in the "All Other Compensation" column for 2016 include the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert J.
Pagano, Jr.
($)
|
|
|
|
Todd A.
Trapp
($)
|
|
|
|
Munish
Nanda
($)
|
|
|
|
Elie A.
Melhem
($)
|
|
|
|
Kenneth R.
Lepage
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Car lease and maintenance payments
|
|
|
12,762
|
|
|
|
|
12,786
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
13,143
|
|
|
Car insurance premium
|
|
|
1,004
|
|
|
|
|
1,004
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
1,004
|
|
|
Car allowance
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
14,000
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
Financial planning allowance (a)
|
|
|
1,541
|
|
|
|
|
1,849
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
1,781
|
|
|
Company contribution to 401(k) plan
|
|
|
16,958
|
|
|
|
|
15,272
|
|
|
|
|
15,900
|
|
|
|
|
16,237
|
|
|
|
|
16,120
|
|
|
Supplemental disability insurance premium
|
|
|
10,238
|
|
|
|
|
3,057
|
|
|
|
|
4,464
|
|
|
|
|
4,803
|
|
|
|
|
2,339
|
|
|
Executive physical
|
|
|
4,395
|
|
|
|
|
4,395
|
|
|
|
|
4,395
|
|
|
|
|
4,395
|
|
|
|
|
4,395
|
|
|
Payments related to expatriate assignment (b)
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
139,204
|
|
|
|
|
—
|
|
|
Tax equalization payment (c)
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
(141,101
|
)
|
|
|
|
—
|
|
|
Total All Other Compensation
|
|
|
46,898
|
|
|
|
|
38,363
|
|
|
|
|
38,759
|
|
|
|
|
23,538
|
|
|
|
|
38,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(a)
-
All
executive officers are eligible for an annual financial planning allowance up to $12,500.
-
(b)
-
Mr. Melhem
was a U.S. expatriate in 2016 with his international assignment based in China and we provided him with customary expatriate benefits to address
the unique circumstances arising from living and working abroad. These benefits included a housing allowance, school tuition for his child and a Medicare tax-gross up payment. The dollar amount shown
includes amounts converted from Chinese yuan into U.S. dollars using an average interbank conversion rate of 0.1453 U.S. dollars for one Chinese yuan as of February 1, 2017.
-
(c)
-
The
Company has entered into a tax equalization arrangement with Mr. Melhem, the purpose of which is to ensure that Mr. Melhem pays no more or less
income taxes as a result of his international assignment than he would if he lived and worked in the United States. Pursuant to this arrangement, if Mr. Melhem's tax burden is higher as a
result of his living and working in China than it would have been in the United States then the Company pays the excess, whereas if Mr. Melhem's tax burden is lower, then Mr. Melhem pays
the difference to the Company. In 2016, this tax equalization arrangement resulted in Mr. Melhem paying the Company $141,101, which has been reflected as a reduction in compensation for
Mr. Melhem in the "All Other Compensation" column.
-
(7)
-
Mr. Pagano
commenced employment with us on May 27, 2014. Mr. Pagano also served as interim Chief Financial Officer from October 2014 to April
2015.
-
(8)
-
Mr. Trapp
commenced employment with us on April 9, 2015.
-
(9)
-
Mr. Nanda
commenced employment with us on April 6, 2015 as President, Americas. Mr. Nanda was appointed President, Americas & Europe on
February 16, 2016.
40
Table of Contents
Grants of Plan-Based Awards
The following table shows information concerning grants of plan-based awards made to the named executive officers during 2016.
2016 GRANTS OF PLAN-BASED AWARDS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
Stock
Awards:
Number of
Shares of
Stock
(#)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Possible Payouts
Under Non-Equity
Incentive Plan Awards(2)
|
|
|
|
Estimated Possible Payouts
Under Equity
Incentive Plan Awards(3)
|
|
|
|
|
|
Grant
Date Fair
Value of
Stock
Awards
($)(4)
|
|
Name
|
|
Grant
Type(1)
|
|
|
|
Grant
Date
|
|
|
|
Threshold
($)
|
|
Target
($)
|
|
Maximum
($)
|
|
|
|
Threshold
(#)
|
|
Target
(#)
|
|
Maximum
(#)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert J. Pagano, Jr.
|
|
EIBP
|
|
|
|
|
—
|
|
|
|
|
387,500
|
|
|
775,000
|
|
|
1,550,000
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
RSA
|
|
|
|
|
3/21/16
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
20,586
|
|
|
|
|
1,137,788
|
|
|
|
|
PSU
|
|
|
|
|
3/21/16
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
12,351
|
|
|
20,586
|
|
|
41,172
|
|
|
|
|
—
|
|
|
|
|
1,137,788
|
|
|
Todd A. Trapp
|
|
EIBP
|
|
|
|
|
—
|
|
|
|
|
124,800
|
|
|
249,600
|
|
|
499,200
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
RSA
|
|
|
|
|
3/21/16
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
5,640
|
|
|
|
|
311,723
|
|
|
|
|
PSU
|
|
|
|
|
3/21/16
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
3,384
|
|
|
5,640
|
|
|
11,280
|
|
|
|
|
—
|
|
|
|
|
311,723
|
|
|
Munish Nanda
|
|
EIBP
|
|
|
|
|
—
|
|
|
|
|
138,000
|
|
|
276,000
|
|
|
552,000
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
RSA
|
|
|
|
|
3/21/16
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
5,992
|
|
|
|
|
331,178
|
|
|
|
|
PSU
|
|
|
|
|
3/21/16
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
3,595
|
|
|
5,992
|
|
|
11,984
|
|
|
|
|
—
|
|
|
|
|
331,178
|
|
|
Elie Melhem
|
|
EIBP
|
|
|
|
|
—
|
|
|
|
|
105,875
|
|
|
211,750
|
|
|
423,500
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
RSA
|
|
|
|
|
3/21/16
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
5,132
|
|
|
|
|
283,646
|
|
|
|
|
PSU
|
|
|
|
|
3/21/16
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
3,079
|
|
|
5,132
|
|
|
10,264
|
|
|
|
|
—
|
|
|
|
|
283,646
|
|
|
Kenneth R. Lepage
|
|
EIBP
|
|
|
|
|
—
|
|
|
|
|
109,650
|
|
|
219,300
|
|
|
438,600
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
RSA
|
|
|
|
|
3/21/16
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
4,977
|
|
|
|
|
275,079
|
|
|
|
|
PSU
|
|
|
|
|
3/21/16
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
2,986
|
|
|
4,977
|
|
|
9,954
|
|
|
|
|
—
|
|
|
|
|
275,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Type
of award:
EIBP: Annual
cash bonus award under our Executive Incentive Bonus Plan
RSA: Restricted
Stock Award under our 2004 Stock Incentive Plan
PSU: Performance
Stock Unit award under our 2004 Stock Incentive Plan
-
(2)
-
The
amounts in these columns indicate the threshold, target and maximum performance bonus amounts payable under our Executive Incentive Bonus Plan prior to deducting
any amounts the named executive officer elected to use to purchase restricted stock units under the Management Stock Purchase Plan. Each of our named executive officers except for Mr. Nanda
elected to use a portion of his performance bonus to purchase restricted stock units under our Management Stock Purchase Plan. See footnote (4) to the "Summary Compensation Table" for a
description of the actual amount of performance bonus earned by each of the named executive officers for 2016, the amount of each named executive officer's bonus that was used to purchase restricted
stock units under the Management Stock Purchase Plan and the number of restricted stock units purchased. The potential performance bonus amounts payable under the Executive Incentive Bonus Plan are
based on the achievement of specific financial performance metrics and the achievement of individual strategic goals. The named executive officers would receive a bonus payout equal to 50% of their
target bonus at the threshold level of performance and 200% of their target bonus at the maximum level of performance. If none of the threshold performance metrics are met, no performance bonus would
be payable to the named executive officers.
-
(3)
-
The
amounts in these columns indicate the threshold, target and maximum number of shares that the named executive officer could receive if an award payout is
achieved under the Company's performance stock unit awards. These potential share amounts are based on achievement of specific performance metrics. The named executive officer would receive 60% of the
target number of shares at the threshold level of performance and 200% of the target number of shares at the maximum level of performance. If none of the threshold performance targets are met, then
our named executive officers will not receive any shares.
-
(4)
-
The
amounts shown in these columns represent the grant date fair value of each equity award as determined in accordance with Financial Accounting Standards Board
Accounting Standards Codification Topic 718. For the performance stock unit awards, the amounts shown assume that the target level of performance would be achieved with respect to the performance
metrics. These are the amounts reflected in the "Summary Compensation Table."
41
Table of Contents
Outstanding Equity Awards at Fiscal Year-End
The following table shows information regarding unexercised stock options and unvested performance stock units, restricted stock awards and
restricted stock units held by the named executive officers as of December 31, 2016.
2016 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards(1)
|
|
|
|
Stock Awards(2)
|
|
Name
|
|
Grant
Date
|
|
|
|
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
|
|
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
|
|
Option
Exercise
Price
($)
|
|
Option
Expiration
Date
|
|
|
|
Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)
|
|
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)(3)
|
|
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights
That Have
Not Vested
(#)
|
|
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That Have
Not Vested
($)(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert J. Pagano, Jr.
|
|
|
5/27/14
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
10,034
|
(4)
|
|
654,217
|
|
|
—
|
|
|
—
|
|
|
|
|
|
8/1/14
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
6,129
|
(4)
|
|
399,611
|
|
|
—
|
|
|
—
|
|
|
|
|
|
7/27/15
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
12,614
|
(4)
|
|
822,433
|
|
|
—
|
|
|
—
|
|
|
|
|
|
3/21/16
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
20,586
|
(4)
|
|
1,342,207
|
|
|
—
|
|
|
—
|
|
|
|
|
|
2/20/15
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
5,119
|
(5)
|
|
333,759
|
|
|
—
|
|
|
—
|
|
|
|
|
|
2/19/16
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
24,450
|
(5)
|
|
1,594,140
|
|
|
—
|
|
|
—
|
|
|
|
|
|
5/27/14
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
13,446
|
(6)
|
|
876,679
|
|
|
|
|
|
8/1/14
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
12,317
|
(6)
|
|
803,068
|
|
|
|
|
|
10/26/15
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
11,677
|
(7)
|
|
761,340
|
|
|
|
|
|
3/21/16
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
12,351
|
(7)
|
|
805,285
|
|
|
Todd A. Trapp
|
|
|
4/9/15
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
7,617
|
(4)
|
|
496,628
|
|
|
—
|
|
|
—
|
|
|
|
|
|
7/27/15
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
3,456
|
(4)
|
|
225,331
|
|
|
—
|
|
|
—
|
|
|
|
|
|
3/21/16
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
5,640
|
(4)
|
|
367,728
|
|
|
—
|
|
|
—
|
|
|
|
|
|
2/19/16
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
4,019
|
(5)
|
|
262,039
|
|
|
—
|
|
|
—
|
|
|
|
|
|
10/26/15
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
4,265
|
(7)
|
|
278,078
|
|
|
|
|
|
3/21/16
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
3,384
|
(7)
|
|
220,637
|
|
|
Munish Nanda
|
|
|
4/6/15
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
8,456
|
(4)
|
|
551,331
|
|
|
—
|
|
|
—
|
|
|
|
|
|
7/27/15
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
3,672
|
(4)
|
|
239,414
|
|
|
—
|
|
|
—
|
|
|
|
|
|
3/21/16
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
5,992
|
(4)
|
|
390,678
|
|
|
—
|
|
|
—
|
|
|
|
|
|
2/19/16
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
2,348
|
(5)
|
|
153,090
|
|
|
—
|
|
|
—
|
|
|
|
|
|
10/26/15
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
3,399
|
(7)
|
|
221,615
|
|
|
|
|
|
3/21/16
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
3,595
|
(7)
|
|
234,394
|
|
|
Elie Melhem
|
|
|
8/5/11
|
|
|
|
|
1,875
|
|
|
0
|
|
|
29.05
|
|
|
8/5/21
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
8/2/13
|
|
|
|
|
7,401
|
|
|
4,133
|
|
|
54.76
|
|
|
8/2/23
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
8/1/14
|
|
|
|
|
4,255
|
|
|
2,128
|
|
|
57.47
|
|
|
8/1/24
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
4/27/15
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
6,174
|
(4)
|
|
402,545
|
|
|
—
|
|
|
—
|
|
|
|
|
|
7/27/15
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
3,145
|
(4)
|
|
205,054
|
|
|
—
|
|
|
—
|
|
|
|
|
|
3/21/16
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
5,132
|
(4)
|
|
334,606
|
|
|
—
|
|
|
—
|
|
|
|
|
|
2/21/14
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
569
|
(5)
|
|
37,098
|
|
|
—
|
|
|
—
|
|
|
|
|
|
2/20/15
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
1,908
|
(5)
|
|
124,402
|
|
|
—
|
|
|
—
|
|
|
|
|
|
2/19/16
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
4,392
|
(5)
|
|
286,358
|
|
|
—
|
|
|
—
|
|
|
|
|
|
8/1/14
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
3,079
|
(6)
|
|
200,751
|
|
|
|
|
|
10/26/15
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
2,911
|
(7)
|
|
189,797
|
|
|
|
|
|
3/21/16
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
3,079
|
(7)
|
|
200,751
|
|
|
Kenneth R. Lepage
|
|
|
8/2/13
|
|
|
|
|
11,607
|
|
|
3,869
|
|
|
54.76
|
|
|
8/2/23
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
8/1/14
|
|
|
|
|
4,134
|
|
|
2,067
|
|
|
57.47
|
|
|
8/1/24
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
7/27/15
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
3,050
|
(4)
|
|
198,860
|
|
|
—
|
|
|
—
|
|
|
|
|
|
3/21/16
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
4,977
|
(4)
|
|
324,500
|
|
|
—
|
|
|
—
|
|
|
|
|
|
2/21/14
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
198
|
(5)
|
|
12,910
|
|
|
—
|
|
|
—
|
|
|
|
|
|
2/20/15
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
2,558
|
(5)
|
|
166,782
|
|
|
—
|
|
|
—
|
|
|
|
|
|
2/19/16
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
5,321
|
(5)
|
|
346,929
|
|
|
—
|
|
|
—
|
|
|
|
|
|
8/1/14
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
2,991
|
(6)
|
|
195,013
|
|
|
|
|
|
10/26/15
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
2,823
|
(7)
|
|
184,060
|
|
|
|
|
|
3/21/16
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
2,986
|
(7)
|
|
194,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
The
stock options listed in this column were granted under our 2004 Stock Incentive Plan. The stock options granted on August 2, 2013 vest annually at a rate
of 25% per year and the stock options granted on August 1, 2014 vest annually at a rate of 33
1
/
3
% per year.
-
(2)
-
The
restricted stock units and restricted stock awards listed in this column vest annually at a rate of 33
1
/
3
% per year, except for the restricted
stock award granted to Mr. Melhem on April 27, 2015, which will vest in its entirety on April 27, 2018. Performance stock units vest upon the completion of a three-year
performance period beginning January 1
st
of the grant year.
42
Table of Contents
-
(3)
-
In
accordance with SEC rules, the market value of unvested shares of restricted stock, restricted stock units and performance stock units is determined by
multiplying the number of such shares and units by $65.20, the closing market price of our class A common stock on December 30, 2016, which was the last trading day of 2016.
-
(4)
-
Consists
of shares of restricted stock awarded under our 2004 Stock Incentive Plan.
-
(5)
-
Consists
of restricted stock units purchased under our Management Stock Purchase Plan.
-
(6)
-
These
amounts represent the actual number of shares earned by the named executive officer under the performance stock units granted on August 1, 2014, the
performance period for which ended on December 31, 2016.
-
(7)
-
These
amounts represent performance stock units awarded under our 2004 Stock Incentive Plan. In accordance with SEC guidance, since the number of shares to be earned
by the named executive officer is not yet determinable, the number of performance stock units shown for the named executive officer is the number of shares that would be earned at the threshold level
of performance, which is 60% of the target number of shares awarded.
Option Exercises and Stock Vested
The following table shows amounts received by the named executive officers upon exercise of stock options and vesting of performance stock
units, restricted stock and restricted stock units during 2016.
2016 OPTION EXERCISES AND STOCK VESTED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
|
|
Stock Awards(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
|
Number of
Shares
Acquired on
Exercise
(#)
|
|
|
|
|
Value
Realized on
Exercise
($)
|
|
|
|
|
Number of
Shares
Acquired on
Vesting
(#)
|
|
|
|
|
Value
Realized on
Vesting
($)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert J. Pagano, Jr.
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
50,792
|
|
|
|
|
3,064,343
|
(3)
|
|
Todd A. Trapp
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
9,344
|
|
|
|
|
520,660
|
|
|
Munish Nanda
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
10,291
|
|
|
|
|
576,103
|
|
|
Elie Melhem
|
|
|
8,750
|
|
|
|
|
158,914
|
|
|
|
|
11,145
|
|
|
|
|
597,325
|
(4)
|
|
Kenneth R. Lepage
|
|
|
61,000
|
|
|
|
|
1,730,319
|
|
|
|
|
10,481
|
|
|
|
|
571,137
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Reflects
(i) shares of class A common stock underlying restricted stock units purchased under the Management Stock Purchase Plan, (ii) shares of
restricted stock awarded under the 2004 Stock Incentive Plan, and (iii) the number of shares earned under the performance stock units granted on August 1, 2014, the performance period
for which ended on December 31, 2016.
-
(2)
-
The
value realized on vesting of restricted stock awards was determined by multiplying the number of shares that vested by the closing market price of our
class A common stock on the vesting date. The value realized on vesting of restricted stock units represents the difference between the purchase price paid by the named executive officer for
the vesting shares and the closing market price of our class A common stock on the vesting date. The value of performance stock units was determined by multiplying the number of shares earned
by $65.20, the closing market price of our class A common stock on December 30, 2016, which was the last trading day of the performance period.
-
(3)
-
Pursuant
to the Management Stock Purchase Plan, Mr. Pagano elected to defer receipt of shares issuable upon settlement of restricted stock units representing
$40,586 of the value recognized on vesting until February 20, 2018.
-
(4)
-
Pursuant
to the Management Stock Purchase Plan, Mr. Melhem elected to defer receipt of shares issuable upon settlement of restricted stock units representing
$15,115 of the value recognized on vesting until February 20, 2018.
-
(5)
-
Pursuant
to the Management Stock Purchase Plan, Mr. Lepage elected to defer receipt of shares issuable upon settlement of restricted stock units representing
$20,269 of the value recognized on vesting until February 20, 2018.
43
Table of Contents
Nonqualified Deferred Compensation
Under our Management Stock Purchase Plan, executives may elect to purchase restricted stock units, which vest in three annual installments
beginning one year after the date of grant. However, shares are not delivered in settlement of the restricted stock units until the end of the deferral period selected by the named executive officer.
Once vested, the restricted stock units constitute deferred compensation and are reported in the table below as contributions by the named executive officer. Restricted stock units that vested prior
to 2016 and were issued at the end of their deferral period during 2016 are listed in the table as distributions of deferred compensation.
Prior
to 2012, we provided a Nonqualified Deferred Compensation Plan to all of our employees whose annual compensation was greater than $90,000. Of the named executive officers, only
Mr. Lepage has deferred compensation under the Nonqualified Deferred Compensation Plan. Under the Nonqualified Deferred Compensation Plan, participants were allowed to defer up to 100% of base
salary and bonus. Participant deferrals earn returns based on the participant's selection from a list of investments that are generally the same as those provided in our 401(k) plan. The allocation of
investments may be changed once each year. We did not make any matching contributions under the Nonqualified Deferred Compensation Plan.
Generally,
account balances under the Nonqualified Deferred Compensation Plan may be paid at the earliest of termination of employment, normal retirement, early retirement, or becoming
disabled as a lump sum or systematic installments over ten years. Account balances may be distributed prior to termination of employment only in the event of a financial hardship due to an
unforeseeable emergency, but not in excess of the amount needed to meet the hardship. Distributions from the Nonqualified Deferred Compensation Plan to our named executive officers cannot be made
until at least six months after termination of employment. Mr. Lepage did not receive any distributions, or make any withdrawals, from the Nonqualified Deferred Compensation Plan during 2016.
2016 NONQUALIFIED DEFERRED COMPENSATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Plan
Name(1)
|
|
|
|
Executive
Contributions in
Last Fiscal
Year
($)(2)
|
|
|
|
Company
Contributions in
Last Fiscal
Year
($)
|
|
|
|
Aggregate
Earnings in
Last Fiscal
Year
($)
|
|
|
|
Aggregate
Withdrawals/
Distributions
($)(3)
|
|
|
|
Aggregate
Balance at
Last Fiscal
Year End
($)(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert J. Pagano, Jr.
|
|
MSPP
|
|
|
|
|
135,601
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
166,847
|
|
|
Todd A. Trapp
|
|
MSPP
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
Munish Nanda
|
|
MSPP
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
Elie Melhem
|
|
MSPP
|
|
|
|
|
80,651
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
73,126
|
|
|
|
|
136,333
|
|
|
Kenneth R. Lepage
|
|
NDCP
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
15,610
|
|
|
|
|
—
|
|
|
|
|
258,733
|
|
|
|
|
MSPP
|
|
|
|
|
78,160
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
42,498
|
|
|
|
|
109,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
"MSPP"
refers to our Management Stock Purchase Plan, and "NDCP" refers to our Nonqualified Deferred Compensation Plan.
-
(2)
-
Based
on the fair market value of our class A common stock on the vesting date of restricted stock units, the settlement of which have been deferred beyond
2016.
-
(3)
-
Based
on the fair market value of our class A common stock on the date of delivery of shares upon settlement of restricted stock units.
-
(4)
-
For
MSPP amounts, reflects the value of restricted stock units that were vested as of December 31, 2016 but not yet settled based on the closing price of our
class A common stock on December 30, 2016 of $65.20.
44
Table of Contents
Potential Payments Upon Termination or Change in Control
Executive Severance Plan
Our Executive Severance Plan covers all of our named executive officers. Under the Executive Severance Plan, a named executive officer
involuntarily terminated for reasons not meeting the definition of cause under the Executive Severance Plan will receive an amount equal to (i) twelve months of premiums the named executive
officer would have to pay for COBRA medical coverage, and (ii) one year of base salary, except for Mr. Pagano who as Chief Executive Officer would receive two years of base salary. In
connection with the receipt of any severance payments under the Executive Severance Plan, a named executive officer would be required to sign a written agreement that would contain a release of claims
against the Company and such other restrictions, such as non-competition, non-solicitation and non-disparagement covenants, as the Compensation Committee determines are appropriate.
If
a named executive officer is involuntarily terminated without cause or resigns for good reason (as defined in the Executive Severance Plan) within 24 months following a change
in control of the Company, or is involuntarily terminated without cause in the six months prior to such change in control, such named executive officer will receive an amount equal to
(i) 24 months of premiums the named executive officer would have to pay for COBRA medical coverage, and (ii) two times the sum of the named executive officer's annual base salary
and target annual bonus immediately prior to the change in control (less any payments previously received under the Executive Severance Plan).
The
following table sets forth the amounts of compensation that would have been due to each of our named executive officers under the Executive Severance Plan in the event the named
executive officer's employment with the Company terminated as of December 31, 2016.
|
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|
|
Name
|
|
Resignation or
Retirement
|
|
|
|
Involuntary
Termination
Without
Cause
($)
|
|
|
|
Involuntary
Termination
With
Cause
|
|
|
|
Involuntary
Termination
Without
Cause or
Resignation for
Good Reason
Within
24 Months
Following a
Change in
Control
($)
|
|
|
|
Involuntary
Termination
Without
Cause
Within
Six Months
Preceding a
Change in
Control
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert J. Pagano, Jr.
|
|
|
—
|
|
|
|
|
1,568,651
|
|
|
|
|
—
|
|
|
|
|
3,137,302
|
|
|
|
|
3,137,302
|
|
|
Todd A. Trapp
|
|
|
—
|
|
|
|
|
444,421
|
|
|
|
|
—
|
|
|
|
|
1,388,041
|
|
|
|
|
1,388,041
|
|
|
Munish Nanda
|
|
|
—
|
|
|
|
|
488,421
|
|
|
|
|
—
|
|
|
|
|
1,528,841
|
|
|
|
|
1,528,841
|
|
|
Elie Melhem
|
|
|
—
|
|
|
|
|
413,421
|
|
|
|
|
—
|
|
|
|
|
1,250,341
|
|
|
|
|
1,250,341
|
|
|
Kenneth R. Lepage
|
|
|
—
|
|
|
|
|
373,673
|
|
|
|
|
—
|
|
|
|
|
1,185,947
|
|
|
|
|
1,185,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Plans
Under our 2004 Stock Incentive Plan, upon the termination of employment of a participant for any reason other than death or disability, all
unvested stock options and performance stock units immediately terminate and unvested shares of restricted stock are automatically forfeited. If the participant's employment is terminated for cause,
all stock options immediately terminate regardless of whether they are vested or unvested. If a participant's employment is terminated by reason of death or disability, all unvested stock options and
shares of restricted stock immediately vest in full and the options may be exercised for a period of twelve months from the date of such termination of employment. For performance stock units, if a
participant's employment is terminated due to death or disability during the last twelve months of the performance period, the participant will receive the
45
Table of Contents
number
of shares actually earned and vested at the end of the performance period as if the participant had not terminated employment. If the participant's employment is terminated due to death or
disability within the first twenty-four months of the performance period, the participant will receive the target number of shares pro-rated based on the portion of the performance period during which
the participant was employed.
Under
our Management Stock Purchase Plan, upon the termination of employment of a participant for any reason including death or disability, all vested restricted stock units will be
exchanged for shares of class A common stock and the participant will receive a cash payment equal to the lesser of (i) the original purchase price paid for the unvested restricted stock
units plus interest, or (ii) an amount equal to the number of unvested restricted stock units multiplied by the fair market value of our class A common stock on the termination date.
Our
2004 Stock Incentive Plan and Management Stock Purchase Plan provide that in connection with a change in control all unvested stock options, shares of restricted stock, performance
stock units and restricted stock units will become fully vested. As of December 31, 2016, the named executive officers held the following unvested stock options, shares of restricted stock,
performance stock units and restricted stock units that would have become fully vested upon a change in control.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Number of
Shares
Underlying
Unvested
Options
(#)
|
|
|
|
Value of
Unvested
Options
($)(1)
|
|
|
|
Number of
Shares of
Unvested
Restricted
Stock
(#)
|
|
|
|
Value of
Unvested
Restricted
Stock
($)(2)
|
|
|
|
Number of
Shares
Underlying
Unvested
Performance
Stock
Units
(#)(3)
|
|
|
|
Value of
Unvested
Performance
Stock
Units
($)(2)
|
|
|
|
Number of
Shares
Underlying
Unvested
Restricted
Stock
Units
(#)
|
|
|
|
Value of
Unvested
Restricted
Stock
Units
($)(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert J. Pagano, Jr.
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
49,363
|
|
|
|
|
3,218,468
|
|
|
|
|
65,812
|
|
|
|
|
4,290,942
|
|
|
|
|
29,569
|
|
|
|
|
872,056
|
|
|
Todd A. Trapp
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
16,713
|
|
|
|
|
1,089,688
|
|
|
|
|
12,749
|
|
|
|
|
831,235
|
|
|
|
|
4,019
|
|
|
|
|
119,726
|
|
|
Munish Nanda
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
18,120
|
|
|
|
|
1,181,424
|
|
|
|
|
11,657
|
|
|
|
|
760,036
|
|
|
|
|
2,348
|
|
|
|
|
69,947
|
|
|
Elie Melhem
|
|
|
6,261
|
|
|
|
|
59,598
|
|
|
|
|
14,451
|
|
|
|
|
942,205
|
|
|
|
|
13,063
|
|
|
|
|
851,708
|
|
|
|
|
6,869
|
|
|
|
|
198,580
|
|
|
Kenneth R. Lepage
|
|
|
5,936
|
|
|
|
|
56,370
|
|
|
|
|
8,027
|
|
|
|
|
523,360
|
|
|
|
|
12,673
|
|
|
|
|
826,280
|
|
|
|
|
8,077
|
|
|
|
|
235,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
The
value of unvested options was calculated by multiplying the number of shares underlying unvested options by $65.20, the closing market price of our
class A common stock on December 30, 2016, and then deducting the aggregate exercise price for these options.
-
(2)
-
The
value of unvested shares of restricted stock and performance stock units was calculated by multiplying the number of shares of unvested restricted stock or
performance stock units by $65.20, the closing market price of our class A common stock on December 30, 2016.
-
(3)
-
In
the event of a change of control during the performance period, the participant would receive a number of shares equal to the greater of (i) the target
number of performance stock units granted to the participant, or (ii) the number of performance stock units that would be earned based on the Company's performance determined as if the
Company's last quarter end prior to the change of control was the last day of the performance period. The value of unvested performance stock units in this column was calculated using the target
numbers of performance stock units granted to the named executive officer in 2015 and 2016 and the actual number of shares earned under the performance stock units granted to the named executive
officer in 2014.
-
(4)
-
The
value of unvested restricted stock units was calculated by multiplying the number of shares underlying unvested restricted stock units by $65.20, the closing
market price of our class A common stock on December 30, 2016, and then deducting the aggregate purchase price paid for these restricted stock units.
46
Table of Contents
|
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
|
Section 16(a)
of the Exchange Act requires certain officers, directors and persons who own more than 10% of our class A common stock to file with the SEC
initial reports of ownership and changes in ownership of our stock and provide copies of such forms to us. Based on a review of the copies of such forms provided to us and written representations
furnished to us, we believe that during the year ended December 31, 2016, all reports required by Section 16(a) to be filed by these persons were filed on a timely basis, except that a
Form 4 reporting the grant of a restricted stock award on March 21, 2016 to each of Virginia Halloran, Kenneth R. Lepage, Elie A. Melhem, Munish Nanda, Debra J. Ogston, Robert J. Pagano,
Jr. and Todd A. Trapp was filed late due to administrative error.
PROPOSAL 2
ADVISORY VOTE ON NAMED EXECUTIVE OFFICER COMPENSATION
|
Section 14A
of the Exchange Act requires that we provide our stockholders with the opportunity to vote to approve, on a nonbinding, advisory basis, the
compensation of our named executive officers as disclosed in this proxy statement in accordance with the compensation disclosure rules of the SEC.
As
described in detail under the heading "Compensation Discussion and Analysis," we seek to closely align the interests of our named executive officers with the interests of our
stockholders. Our compensation programs are designed to reward our named executive officers for the achievement of short-term and long-term strategic and operational goals and the achievement of
increased total stockholder return, while at the same time avoiding the encouragement of unnecessary or excessive risk-taking. We encourage you, before voting, to read the Compensation Discussion and
Analysis section of this proxy statement and to review all compensation information in light of the information the Compensation Discussion and Analysis section provides about our alignment of pay
with performance and our compensation philosophy. We believe our compensation programs reflect a strong pay for performance philosophy and have been effective at incenting the achievement of
financial performance goals and the creation of stockholder value. Examples of practices and policies that we have implemented to ensure effective governance of our compensation plans
include:
-
•
-
Our executives are subject to robust stock ownership guidelines.
-
•
-
Our executives are subject to a compensation recovery policy, or "claw back" policy, under which they may be required to repay unearned
compensation in the event of a financial restatement due to fraud or misconduct.
-
•
-
The Compensation Committee has the authority to hire independent counsel and other advisors.
-
•
-
The Compensation Committee has conducted a review and assessment of risk as it relates to our compensation policies and practices.
-
•
-
Our Insider Trading Procedures prohibit hedging and short sale transactions, and no employee or director may pledge Company securities as
collateral.
-
•
-
None of our executive officers has an employment agreement with us.
-
•
-
We do not provide excise tax gross-ups under any of our change in control severance arrangements.
The
vote on this resolution is advisory, which means that the vote is not binding on the Company, our Board of Directors or the Compensation Committee of the Board of Directors. However,
to the extent there is any significant vote against the compensation of our named executive officers, the Compensation Committee will evaluate whether any actions are necessary or advisable to address
the concerns of our stockholders.
47
Table of Contents
We
believe our compensation program and policies described in this proxy statement are aligned with stockholder interests and are worthy of stockholder support. Accordingly, we ask our
stockholders to approve the following resolution at the Annual Meeting:
RESOLVED,
that the compensation paid to our named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis,
compensation tables and narrative discussion, is hereby APPROVED.
Our Board of Directors recommends that stockholders vote to approve the compensation of our named executive officers by voting "FOR" Proposal
2.
PROPOSAL 3
ADVISORY VOTE ON THE FREQUENCY OF AN ADVISORY VOTE ON
NAMED EXECUTIVE OFFICER COMPENSATION
|
Section 14A
of the Exchange Act also provides that stockholders must be given the opportunity to vote, on a non-binding, advisory basis, for their preference as
to how frequently we should seek future advisory votes on the compensation of our named executive officers. By voting on this Proposal 3, stockholders may indicate whether they would prefer that we
conduct future advisory votes on named executive officer compensation once every one, two, or three years. Stockholders also may abstain from casting a vote on this proposal.
We
last held an advisory vote on how often we should submit our executive compensation program to an advisory vote of our stockholders at our 2011 Annual Meeting of Stockholders and 81%
of the total votes cast on this proposal were cast in favor of holding the advisory vote every three years. In accordance with the stockholder voting results, our Board of Directors determined that
stockholder advisory votes on executive compensation would occur every three years.
Since
the 2011 Annual Meeting, our Board of Directors has come to believe that holding an annual advisory vote on named executive officer compensation, rather than a vote every three
years, would allow our stockholders to provide more timely, direct input on the Company's executive compensation philosophy, policies and practices as disclosed in the proxy statement each year. The
Board now believes that an annual vote is therefore consistent with the Company's efforts to engage in an ongoing dialogue with our stockholders on executive compensation and corporate governance
matters.
We
recognize that stockholders may have different views as to the best approach for the Company, and therefore we look forward to hearing from our stockholders as to their preferences on
the frequency of future advisory votes on named executive officer compensation. In the future, we will propose an advisory vote on the frequency of the executive compensation advisory vote at least
once every six years.
This
vote is advisory and not binding on the Company or our Board of Directors. However, our Board of Directors will take into account the outcome of the vote when considering the
frequency of future advisory votes on named executive officer compensation. The Board may decide that it is in the best interests of our stockholders and the Company to hold an advisory vote on named
executive officer compensation more or less frequently than the frequency receiving the most votes cast by our stockholders.
In
voting on this Proposal 3, stockholders may choose among four options, including holding the vote every year, every two years, every three years, or abstaining from voting.
Our Board of Directors believes that an annual named executive officer compensation advisory vote is in the best interests of the Company and its stockholders and
recommends voting for a frequency of "ONE YEAR."
48
Table of Contents
The
responsibilities of the Audit Committee are set forth in the charter of the Audit Committee. The Audit Committee, among other matters, is responsible for assisting
the Board in its oversight of the integrity of the Company's financial statements, compliance with legal and regulatory requirements, the qualifications, independence and performance of the Company's
independent registered public accounting firm, and the performance of the Company's internal audit function. The Audit Committee's oversight role includes the appointment and evaluation of the
Company's independent registered public accounting firm, oversight of the Company's systems of internal accounting and financial controls, a review of management's assessment and management of risk, a
review of the annual independent audit of the Company's consolidated financial statements and internal control over financial reporting, review of the Company's Code of Business Conduct, the
establishment of "whistle-blowing" procedures, and oversight of other compliance matters.
The
Audit Committee reviewed and discussed the Company's audited consolidated financial statements for the year ended December 31, 2016 with management. The Audit Committee also
reviewed and discussed the audited consolidated financial statements, the audit of internal control over financial reporting and the matters required to be discussed with KPMG LLP, the
Company's independent registered public accounting firm, under Public Company Accounting Oversight Board standards. The Audit Committee received from KPMG the written disclosures and letter required
by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant's communications with the Audit Committee concerning independence, and discussed with
KPMG the matters disclosed in this letter and their independence. The Audit Committee also considered whether KPMG's provision of other, non-audit related services to the Company is compatible with
maintaining their independence.
Based
on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors that the Company's audited consolidated financial statements be included
in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.
|
|
|
|
|
|
|
The Audit Committee
|
|
|
|
Merilee Raines, Chairperson
Bernard Baert
David A. Dunbar
Joseph W. Reitmeier
|
PROPOSAL 4
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
Although
Delaware law does not require that the appointment by the Audit Committee of our independent registered public accounting firm be approved each year by the
stockholders, the members of the Audit Committee and the other members of the Board believe it is appropriate to submit the appointment of the independent registered public accounting firm to the
stockholders for their ratification. The Audit Committee appointed KPMG LLP as our independent registered public accounting firm for 2017, and the Audit Committee and Board recommend that the
stockholders ratify such appointment. If the stockholders do not ratify the appointment of KPMG, the Audit Committee will reconsider its appointment.
We
expect that representatives of KPMG will be present at the Annual Meeting. They will be given the opportunity to make a statement if they desire to do so and will also be available to
respond to questions from stockholders.
49
Table of Contents
During
2016, KPMG provided various audit, audit-related and tax services to us. The Audit Committee has adopted policies and procedures that require the Audit Committee to pre-approve
all
audit and non-audit services performed by KPMG in order to ensure that the provision of such services does not impair KPMG's independence. The term of any pre-approval is twelve months from the date
of pre-approval, unless the Audit Committee specifically provides for a different period, and the Audit Committee sets specific limits on the amount of each such service we obtain from KPMG.
The
aggregate fees billed for professional services by KPMG in 2015 and 2016 for audit, audit-related, tax and non-audit services were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Fees
|
|
2015
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
Audit Fees:
|
|
$
|
3,491,295
|
|
$
|
3,485,889
|
|
|
Audit-Related Fees:
|
|
$
|
2,620
|
|
$
|
10,643
|
|
|
Tax Fees:
|
|
$
|
134,700
|
|
$
|
86,122
|
|
|
All Other Fees:
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
$
|
3,628,615
|
|
$
|
3,582,654
|
|
|
|
|
|
|
|
|
|
|
Audit
fees primarily include fees we paid KPMG for professional services for the audit of our annual financial statements included in our annual report on Form 10-K, review of
financial statements included in our quarterly reports on Form 10-Q, and for services that are normally provided in connection with statutory and regulatory filings or engagements, such as
consents. Audit fees for 2015 and 2016 also include the audit of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002. Audit-related fees
were for preparation of statutory financial statements and statutory financial statement tagging. Tax fees include fees for review or preparation of tax returns and advice on indirect taxes.
The Audit Committee and the Board of Directors recommend that stockholders vote "FOR" the ratification of the appointment of KPMG LLP as our independent
registered public accounting firm for 2017.
|
HOUSEHOLDING OF ANNUAL MEETING MATERIALS
|
Some
banks, brokers and other nominee record holders may be participating in the practice of "householding" proxy statements, annual reports and notices of Internet
availability of proxy materials (if applicable). This means that only one copy of this proxy statement may have been sent to multiple stockholders in your household. We will promptly deliver a
separate copy of any such document to you if you write or call us at the following address or telephone number: Watts Water Technologies, Inc., 815 Chestnut Street, North Andover, MA 01845,
Attention: Kenneth Lepage, Corporate Secretary, (978) 688-1811, or you can request a copy of any such document by visiting the Annual Meeting page of our Internet website at
http://investors.wattswater.com/annualmeeting. If you want to receive separate copies of the annual report, proxy statement and Notice of Internet availability of proxy materials (if applicable) in
the future, or if you are receiving multiple copies and would like to receive only one copy for your household, you should contact your bank, broker or other nominee record holder, or you may contact
us at the above address and telephone number.
50
Table of Contents
In
order for any stockholder proposal to be included in the proxy statement for our 2018 Annual Meeting pursuant to Exchange Act Rule 14a-8, such proposal must
be received at our principal executive offices, 815 Chestnut Street, North Andover, MA 01845, Attention: Kenneth Lepage, Corporate Secretary, not later than December 1, 2017 and must satisfy
certain rules of the SEC.
Nominations
and proposals of stockholders may also be submitted to us for consideration at the 2018 Annual Meeting if certain conditions set forth in our by-laws are satisfied, but will
not be included in the proxy materials unless the conditions set forth in Exchange Act Rule 14a-8 are satisfied. Such nominations (or other stockholder proposals) must be delivered to or mailed
and received by us not more than 120 days nor less than 75 days prior to the anniversary date of the 2017 Annual Meeting, which dates will be January 17, 2018 and March 3,
2018, respectively. Stockholder proposals received by us outside of these dates will be considered untimely received for consideration at such Annual Meeting. If the date of the 2018 Annual Meeting is
subsequently moved to a date more than seven days (in the case of director nominations) or ten days (in the case of other stockholder proposals) prior to the anniversary date of the 2017 Annual
Meeting, we will publicly disclose such change, and nominations or other proposals to be considered at the 2018 Annual Meeting must be received by us not later than the 20th day after such
disclosure (or, if disclosed more than 75 days prior to such anniversary date, the later of 20 days following such disclosure or 75 days before the date of the 2018 Annual
Meeting, as rescheduled). To submit a nomination or other proposal, a stockholder should send the nominee's name or proposal and
appropriate supporting information required by our by-laws to the attention of our Secretary at the address provided above. To be considered, all nominations or proposals must comply with the
requirements of our by-laws, a copy of which may be obtained without charge by sending a request to Kenneth Lepage at our principal executive offices.
51
Shareowner Services P.O. Box 64945 St. Paul, MN 55164-0945 Vote by Internet, Telephone or Mail 24 Hours a Day, 7 Days a Week Your phone or Internet vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed and returned your proxy card. Q INTERNET/MOBILE – www.proxypush.com/wts Use the Internet to vote your proxy until 11:59 p.m. (CT) on May 16, 2017. Please have your proxy card and the last four digits of your Social Security Number or Tax Identification Number available. Follow the simple instructions to obtain your records and create an electronic ballot. if PHONE – 1-866-883-3382 Use a touch-tone telephone to vote your proxy until 11:59 p.m. (CT) on May 16, 2017. Please have your proxy card and the last four digits of your Social Security Number or Tax Identification Number available. Follow the simple instructions the voice provides you. MAIL – Mark, sign and date your proxy card and [8) return it in the postage-paid envelope provided. If you vote your proxy by Internet or by Telephone, you do NOT need to mail back your Proxy Card. TO VOTE BY MAIL AS THE BOARD OF DIRECTORS RECOMMENDS ON ALL ITEMS BELOW, SIMPLY SIGN, DATE, AND RETURN THIS PROXY CARD. The Board of Directors Recommends a Vote FOR Items 1, 2 and 4 and for “1 YEAR” for Item 3. Vote WITHHELD from all nominees 1. Election of 01 Robert L. Ayers directors: 02 Christopher L. Conway 03 David A. Dunbar 04 Jes Munk Hansen 05 W. Craig Kissel 06 Joseph T. Noonan 07 Robert J. Pagano, Jr. 08 Merilee Raines 09 Joseph W. Reitmeier Vote FOR all nominees (except as marked) (Instructions: To withhold authority to vote for any indicated nominee, write the number(s) of the nominee(s) in the box provided to the right.) 2. Advisory vote to approve named executive officer compensation. 3. To recommend, by non-binding vote, the frequency of future named executive officer compensation votes. For Against Abstain 1 Year 2 Years 3 Years Abstain 4. To ratify the appointment of KPMG LLP as our independent registered public accounting firm for the year ending December 31, 2017. For Against Abstain THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED FOR PROPOSALS 1, 2 AND 4 AND FOR “1 YEAR” FOR PROPOSAL 3. THE PROXIES, IN THEIR DISCRETION, ARE AUTHORIZED TO VOTE UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING. Date Address Change? Mark box, sign, and indicate changes below: Signature(s) in Box Please sign exactly as your name(s) appears on Proxy. If held in joint tenancy, all persons should sign. Trustees, adminis-trators, etc., should include title and authority. Corporations should provide full name of corporation and title of authorized officer signing the Proxy.
WATTS WATER TECHNOLOGIES, INC. ANNUAL MEETING OF STOCKHOLDERS Wednesday, May 17, 2017 9:00 a.m. Watts Water Technologies, Inc. 815 Chestnut Street North Andover, Massachusetts 01845 Watts Water Technologies, Inc. 815 Chestnut Street North Andover, MA 01845-6098 proxy This proxy is solicited by the Board of Directors for use at the Annual Meeting on May 17, 2017. The shares of stock you hold in your account will be voted as you specify on the reverse side. If no choice is specified, the proxy will be voted “FOR” Items 1, 2 and 4 and “1 YEAR” for Item 3. By signing the proxy, you revoke all prior proxies and appoint Robert J. Pagano, Jr., Todd A. Trapp and Kenneth R. Lepage, and each of them with full power of substitution, to vote your shares on the matters shown on the reverse side and any other matters which may come before the Annual Meeting and all adjournments. See reverse for voting instructions.
WATTS WATER TECHNOLOGIES, INC. ANNUAL MEETING OF STOCKHOLDERS Wednesday, May 17, 2017 9:00 a.m. Watts Water Technologies, Inc. 815 Chestnut Street North Andover, Massachusetts 01845 CLASS B COMMON STOCK PROXY This proxy is solicited by the Board of Directors for use at the Annual Meeting on May 17, 2017. The shares of Class B Common Stock you hold in your account will be voted as you specify on the reverse side. If no choice is specified, the proxy will be voted “FOR” Items 1, 2 and 4 and “1 YEAR” for Item 3. By signing the proxy, you revoke all prior proxies and appoint Robert J. Pagano, Jr., Todd A. Trapp and Kenneth R. Lepage, and each of them with full power of substitution, to vote your shares on the matters shown on the reverse side and any other matters which may come before the Annual Meeting and all adjournments. The Board of Directors Recommends a Vote FOR Items 1, 2 and 4 and for “1 YEAR” for Item 3. Vote FOR all nominees (except as marked) Vote WITHHELD from all nominees 1. Election of 01 Robert L. Ayers 04 Jes Munk Hansen 07 08 09 Robert J. Pagano, Jr. Merilee Raines Joseph W. Reitmeier directors:02 Christopher L. Conway 05 W. Craig Kissel 03 David A. Dunbar 06 Joseph T. Noonan (Instructions: To withhold authority to vote for any indicated nominee, write the number(s) of the nominee(s) in the box provided to the right.) For 1 Year For Against 2. Advisory vote to approve named executive officer compensation. Abstain 3. To recommend, by non-binding vote, the frequency of future named executive officer compensation votes. 2 years 3 years Abstain 4. To ratify the appointment of KPMG LLP as our independent registered public accounting firm for the current fiscal year. Against Abstain THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED FOR PROPOSALS 1, 2 AND 4 AND FOR “1 YEAR” FOR PROPOSAL 3. THE PROXIES, IN THEIR DISCRETION, ARE AUTHORIZED TO VOTE UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING. Address Change? Mark box, sign, and indicate changes below: Date Signature(s) Please sign exactly as your name(s) appears on Proxy. If held in joint tenancy, all persons should sign. Trustees, administrators, etc., should include title and authority. Corporations should provide full name of corporation and title of authorized officer signing the Proxy.
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